The FTC and Technology

federal-trade-commission-ftc-logo_jpgLast week I wrote about how the Federal Trade Commission was going to start watching the Internet of Things. I will admit that this is maybe only the second or third time in my career that I can recall the FTC being involved in anything related to telecom. So I did some digging and I think we are going to be hearing about them a lot more. The FTC is turning into one of the primary watchdogs of technology.

The FTC was created by President Woodrow Wilson in 1914 to fight against big trusts. In those days large corporations like Standard Oil and America Tobacco held monopoly power in their industries. The Sherman Act was passed as a way to battle the largest monopolies, but Congress wanted a second mechanism to control the worst practices of all corporations. The FTC was created 100 years ago to protect consumers against the practices of large corporations.

The FTC got their powers expanded in 1938 when Congress gave them explicit authority to combat “unfair methods of competition”. Since then the agency became increasingly active in protecting the public against unfair trade practices.

It is not surprising to see the FTC getting involved with technology since it is becoming the primary way that companies interface with people. The FTC has been engaged for years in a few areas that involve the telecom industry. For instance, they have been the watchdog for years for issues like deceptive advertising, poor billing practices, and violations of customer privacy.

As an example, there have been a number of FTC actions over the years with AT&T. Not that I particularly want to single out AT&T, because the FTC has been engaged with all of the large carriers over the years. However, just last year the FTC got AT&T to refund $80 million to wireless customers who had been crammed with fraudulent third party charges. In 2009, the FTC faulted the company for denying phones to people based upon having poor credit since they had not explained the policy to the public. And now the FTC is going after AT&T for fraudulent advertising since their unlimited mobile data plans are not actually unlimited.

One area of FTC focus for the last few years has been the security of customer data. For example, they have fined a number of companies that had security breaches that released customer credit card and other personal information if those companies had not taken reasonable precautions to protect the data.

While companies sometimes fight the FTC, the more normal response is for the agency and a company to come to a mutually acceptable change in behavior through a consent decree. Following are a few cases related to our industry that were not amicably resolved and that instead resulted in suits by the FTC to stop bad corporate behavior:

  • Amazon. Last year the FTC sued Amazon to get them to stop the practice where children could rack up huge bills on cell phones by purchasing add-ons for computer games without parental approval. There were even game apps for pre-school age kids who clearly cannot yet read that allowed a player to buy extra features of the game by hitting a button.
  • Snapchat. Last year the FTC sued Snapchat because they told customers that their data on the network was private and protected, while it wasn’t.
  • Dish Network. In 2012 the FTC sued Dish Network for making telemarketing calls in violation of the Do Not Call rules.
  • Robocalling. In 2009 the FTC sued to stop numerous companies who were using robocalls to sell fraudulent products.
  • Data Brokers. The FTC sued LeapLab of Arizona for selling consumer data that included details like bank account numbers.
  • Spam. The FTC took legal steps to shut down Triple Fiber Networks (3FN.net) which hosted huge quantities of spam emails.
  • Intel. In 2009 the FTC sued Intel for using its monopoly power to artificially inflate the cost of computer chips.

As privacy and data security become even more important, we will probably see the FTC become very active in our industry. Interestingly, most of the FTC’s work is done quietly and without press. It contacts companies against which there are multiple public complaints. They generally investigate the complaints and try to get companies to change their bad behavior. And most companies agree to make changes. But the FTC has the ability to levy large fines and will do so for companies who repeat bad behavior or who violate a prior consent decree.

One thought on “The FTC and Technology

  1. Dear Doug:
    I think the FTC is going to have their work cut out for them… It won’t be hard for them to find work to do… and what they may find may be very low-tech and old fashioned “market power” troubles.
    I was recently shopping for a Bass Trombone mute. About a year and a half ago, I bought a very nice used Bass Trombone, an older model with a bright beautiful sound. One issue recently arose — I found that none of my Tenor Trombone mutes would fit into the bigger bell of the Bass Trombone.
    I know, ‘first world problems’.

    So I started looking on the Internet and found a model that I wanted to buy. Lo and behold, all the Internet websites were selling the “TRB 4A” for the same price… $75.99. The MSRP and discount structures all varied, but the websites all arrived at the same price. Hmmm, coincidence asked I?

    As I got to talking with a local music store owner, he noted to me that three or four of the websites that I surfed were all either owned or operated by Guitar Center, which also owns the Music & Arts stores, formerly based in Frederick, Md.
    Which got me to thinking… Isn’t that what we discussed in the Industrial Organization class back at GWU in the mid-1990s? Wasn’t the Age of the Internet supposed to shepherd in a new era of aggressive and competitive pricing? Wasn’t the customer supposed to see the benefits of these advances in new technology?
    Isn’t the FTC supposed to be monitoring that? If this behavior is showing up in the measly little market for Bass Trombone mutes, where else is it occurring that matters much more? And where else is the FTC ‘asleep at the switch’?

    In the end, the local music store owner beat their price… and I bought the mute there.

    The more things change, the more things stay the same…

    Like

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