February 28, 2019
The Federal Trade Commission (FTC) will create a task force to take a broad look at potential antitrust violations in the tech industry, including re-examining already-approved mergers — possibly undoing deals deemed to have an anti-competitive impact today. At the same time, the FTC brought its first case against using fake ads to sell online products, settling with the New York City-based Cure Encapsulations and its owner for paying for fake ads about a weight loss product to be posted as Amazon reviews.
The Wall Street Journal reports that, “the FTC action reflects growing concern in Washington and around the country that some U.S. tech companies have grown so large and powerful that they have begun to squelch competition in various ways and harm consumers.” Giant tech firms including Facebook and Alphabet “have grown in part through large mergers over the past decade or so that the government initially chose not to block.”
The Retail Industry Leaders Association, a trade group including many big box stores, applauded the FTC’s decision to examine the tech behemoths.
With regard to unwinding previous deals, FTC competition bureau director Bruce Hoffman noted that, “with consummated mergers we have the full panoply of remedies,” including “breaking up the merged firms or requiring a spinoff of specific unit … assuming the FTC can meet its legal burden of showing harm.”
But the burden of proof of such harm has been a high bar. “The FTC, if it is to remain relevant, needs some way of assessing the evident competition problems in the tech sector and taking action when necessary,” said Columbia University law professor Tim Wu. “The FTC needs to get past its laser-focus on consumer prices, and figure out what competitive harm means in today’s tech markets.”
The European Union, meanwhile, has assessed Alphabet with “billions in fines for alleged antitrust violations.”
TechCrunch reports that the FTC’s case against Cure Encapsulations includes company owner Naftula Jacobwitz, who paid a website (amazonverifiedreviews.com) to “post favorable reviews in order to boost its rating.” Jacobowitz emailed that site’s operator to say “he’d pay a total of $1,000 for 30 reviews, three per day, with the goal of increasing its 4.2 rating to 4.3, which he claimed was necessary in order to have sales.” His second goal was to keep the product at five stars.
The site then posted such reviews, making “false claims, including that the pills were a powerful appetite suppressant, caused weight loss of up to 20 pounds, and blocked the formation of new fat cells.” Under the terms of the proposed settlement, the judgment of $12.1 million will be suspended “upon payment of $50,000 to the FTC and certain unpaid income tax obligations.”
Cure Encapsulations and Jacobwitz are also banned from making such “dietary supplements, food, or drugs, unless they have reliable scientific evidence from clinical trials in humans” or “making misrepresentations about endorsements, including fake reviews, and must tell Amazon which reviews were faked and email customers who have bought the pills to give them information about FTC’s allegations.”