Here’s How the FTC Is Tackling Emerging TechnologyJune 15, 2021 | Shari Claire Lewis |
A wide range of federal and state authorities are involved in the regulation of emerging technologies in one way or another. Numerous agencies as well as the U.S. Department of Justice lead the national effort, while the Department of Financial Services, the attorney general, and local prosecutors are the principal parties in New York State.
Perhaps no federal or state entity, however, is more focused on the plethora of legal issues raised by new innovations than the Federal Trade Commission (FTC).
One way to understand the depth of the FTC’s interest is by examining the budget justification for fiscal year (FY) 2022 that it just submitted to the Office of Management and Budget. The budget justification, available at https://www.ftc.gov/system/files/documents/reports/fy-2022-congressional-budget-justification/fy22cbj.pdf, is intended to support a request for $389,800,000 for 1,250 full time positions (FTEs), which is an overall increase of $38,800,000 and 110 FTEs compared to the FTC’s FY 2021 enacted appropriation.
As detailed in the budget justification, 40 percent of the new FTEs requested by the FTC are related to its work on emerging technologies. On the consumer side, the FTC is seeking to add two FTEs in its Bureau of Consumer Protection (BCP) “to address emerging technology in the area of marketing practices” and six FTEs to enhance the BCP’s “ability to understand quickly evolving technological issues implicated by its casework” and to “keep pace with litigation demands.”
The FTC also is seeking to add 36 FTE in its Bureau of Competition (BC) specifically to support identifying and challenging anticompetitive mergers and conduct in the “complex and increasingly pervasive technology markets.”
Significantly, the very first section of the FTC’s budget justification, entitled “Planned Activities in FY 2021 and Beyond,” begins with the stated goal of “Protecting Consumers as Technology Evolves.” Here, the FTC says, it will “continue to focus on identifying consumer protection issues associated with the use of new technology.” According to the FTC, this involves considering the costs and benefits of practices and the importance of fostering innovation as well as taking enforcement action against deceptive advertisements that appear in new formats and new media (e.g., apps, games, videos, and social networks). Among other things, the FTC also said that it will continue to conduct research on emerging technologies to assist with enforcement actions, educate consumers, and inform policy.
The FTC’s next stated goal – “Protecting Consumer Privacy and Data Security” – also is an acknowledgment of the growing importance of emerging technologies. This goal highlights the FTC’s desire to “protect consumers from unfair or deceptive practices related to the privacy and security of their personal information” while preserving “the many benefits that technological advances offer.”
The FTC’s focus on emerging technologies also can be seen from a review of five enforcement actions it has taken over the past few months.
The FTC recently finalized a settlement with the developer of a photo app that allegedly deceived consumers about its use of facial recognition technology and its retention of the photos and videos of users who deactivated their accounts.
In its complaint, the FTC alleged that Everalbum, Inc., misled users of its Ever mobile app by representing that it would not apply facial recognition technology to users’ content unless they affirmatively chose to activate the feature. According to the FTC’s complaint, the company nevertheless automatically activated its face recognition feature – which could not be turned off – for all mobile app users except those who lived in three U.S. states and the European Union. The FTC alleged that the company also failed to keep its promises to delete the photos and videos of Ever users who deactivated their accounts and instead retained them indefinitely.
As part of its settlement with the FTC, Everalbum must obtain consumers’ express consent before using facial recognition technology on their photos and videos. The settlement also requires the company to delete the photos and videos of Ever app users who deactivated their accounts and the models and algorithms it developed by using the photos and videos uploaded by its users.
In addition, if the company markets software to U.S. consumers for personal use, it must obtain users’ express consent before using biometric information it collected from them. See https://www.ftc.gov/news-events/press-releases/2021/05/ftc-finalizes-settlement-photo-app-developer-related-misuse.
The FTC also recently reached a settlement with a mobile banking app over allegations that it misled users about their access to funds and interest rates.
Here, the FTC alleged that Beam Financial Inc. and its founder and chief executive officer, Yinan Du, also known as Aaron Du, promised users of Beam’s free mobile banking app that they could make transfers out of their accounts and would receive their requested funds within three to five business days. In fact, some users waited weeks or months to receive their money, which was particularly difficult for users who were struggling with lost income as a result of the COVID-19 pandemic, the FTC alleged.
According to the FTC, Beam also failed to give users the high interest rates it promised. Beam repeatedly represented that users would receive at least 0.2 percent or 1.0 percent, but many new users received a much lower interest rate of 0.04 percent and stopped earning any interest after requesting that Beam return their funds.
As part of the settlement, Beam is banned from operating a mobile banking app or any other product or service that can be used to deposit, store, or withdraw funds. It also is prohibited from misrepresenting the interest rates, restrictions, and other aspects of any financial product or service.
In addition, Beam must provide full refunds, including interest, to all of Beam’s customers, and must periodically update the FTC on its refund efforts, including identifying any consumer complaints. It also is prohibited from benefitting from any personal information collected from customers. See https://www.ftc.gov/news-events/press-releases/2021/03/mobile-banking-app-settles-ftc-allegations-it-misled-users-about.
Antennas and Amplifiers
Sometimes what’s old becomes new again. In another recent action, a New York-based company and its chief executive officer agreed to settle FTC charges that they sold indoor TV antennas and signal amplifiers to consumers using deceptive claims that the products would let users cancel their cable service and still receive all of their favorite channels for free.
According to the FTC’s complaint, Wellco, Inc., and its owner and chief executive officer, George M. Moscone, violated the FTC Act by making deceptive performance claims for their over-the-air television antennas and related signal amplifiers, using deceptive consumer endorsements, and by misrepresenting that some of their web pages were objective news reports about the antennas.
The FTC alleged that, starting in 2017, the defendants marketed and sold more than 800,000 indoor TV antennas and more than 272,000 amplifiers to consumers online under the TV Scout, SkyWire, SkyLink, and Tilt TV brand names.
The FTC alleged that the defendants’ websites made multiple deceptive claims for their antennas, including that users could stop paying for cable or satellite TV subscriptions and still receive all of their favorite TV channels; that a substantial portion of users received 100+ premium channels in high definition (HD); that their antennas enabled consumers to receive more channels than most other TV antennas on the market; and that their products were the top rated indoor HDTV antennas in America. The FTC also alleged that the defendants deceptively represented that their amplifiers substantially increased the number of stations received with their antennas and that, by using both their antennas and amplifiers, consumers received HBO and AMC.
In addition, the FTC alleged that the defendants fabricated testimonials by copying them from competitors’ antenna ads. The FTC also alleged that the defendants deceptively used web pages that appeared to reproduce objective news reports and misrepresented that objective news reporters had performed independent tests demonstrating the effectiveness of their antennas.
The settlement prohibits the defendants from making claims about any product’s rating, ranking, or superiority to other products, the channels users will receive, or any material aspect of a product’s performance, efficacy, or central characteristics, unless the claims are true and substantiated. The order also prohibits the defendants from making any misrepresentation through a product endorsement, that a website is an objective news report, or that independent tests demonstrate the effectiveness of a product.
Finally, the settlement imposed a $31.82 million judgment against the defendants, suspended upon the defendants’ payment of $650,000 to the FTC based on their inability to pay. See https://www.ftc.gov/news-events/press-releases/2021/03/new-york-based-defendants-settle-ftc-charges-they-deceptively.
Earlier this year, the FTC brought its first case under the Better Online Ticket Sales (“BOTS”) Act, which was enacted in 2016 and which gives the FTC authority to take law enforcement action against individuals and companies that use bots or other means to circumvent limits on online ticket purchases.
The FTC alleged that a group of related defendants – Cartisim Corp., Simon Ebrani, Just In Time Tickets, Inc., Evan Kohanian, Concert Specials, Inc., and Steven Ebrani – purchased more than 150,000 tickets for popular events. To do so, according to the FTC, they engaged in a variety of practices that violated the BOTS Act, such as by their use of automated ticket-buying software to search for and reserve tickets automatically, software to conceal their IP addresses, and hundreds of fictitious Ticketmaster accounts and credit cards to get around posted event ticket limits. The FTC asserted that the defendants took in millions of dollars in revenues from the resale of the tickets they purchased using these unlawful means.
The settlement subjects the ticket brokers to a judgment of more than $31 million in civil penalties to be partially suspended, requiring them to pay $3.7 million. The settlement also prohibits the defendants from further violations of the BOTS Act, including using methods to evade ticket limits, using false identities to purchase tickets, or using any bots to facilitate ticket purchases. See https://www.ftc.gov/news-events/press-releases/2021/01/ftc-brings-first-ever-cases-under-bots-act.
Finally, it is worth mentioning the settlement that the FTC reached earlier this year with Zoom Video Communications, Inc., over allegations it misled consumers about the level of security it provided for its Zoom meetings and compromised the security of some Mac users.
The final settlement order required Zoom to implement a comprehensive security program, review any software updates for security flaws prior to release, and ensure that updates will not hamper third-party security features. The company also must obtain biennial assessments of its security program by an independent third party, which the FTC has authority to approve, and notify the FTC if it experiences a data breach. See https://www.ftc.gov/news-events/press-releases/2021/02/ftc-gives-final-approval-settlement-zoom-over-allegations-company.
Businesses that create and develop emerging technologies have a host of regulations, and regulators, that they must keep in mind, especially when their products are directed to consumers. As this column has explained, the FTC is one of the most significant government agencies overseeing this industry. The FTC’s recent history, goals, and budget requests all make clear that it will continue to play an important role in this area for quite some time to come.
Reprinted with permission from the June 14, 2021 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
- Shari Claire Lewis