• The Federal Trade Commission (“FTC”) released a staff report on March 7 summarizing the issues and drawing some conclusions from its April 2004 workshop, “Monitoring Software on Your PC: Spyware, Adware, and Other Software.” The report, a transcript of the day-long session, a list of participants and their presentations, and comments filed with the Commission can be found at http://www.ftc.gov/bcp/workshops/spyware/index.htm. Based on discussions at the workshop and more than 750 comments submitted to supplement the workshop record, the FTC staff has concluded that spyware is a real and growing problem and that spyware can impair the operation of computers and create substantial privacy and security risks for consumers’ information. According to the report, the FTC staff also concluded that the problems caused by spyware can be reduced if the private sector and the government take action. The report suggests that technological solutions – firewalls, anti-spyware software, and improved browsers and operating systems – can provide significant protection to consumers from the risks related to spyware. The report recommends that industry identify what constitutes spyware and how information about spyware should be disclosed to consumers; expand efforts to educate consumers about spyware risks; and assist law enforcement. The report further recommends that the government increase criminal and civil prosecution under existing laws of those who distribute spyware and increase efforts to educate consumers about the risks of spyware.
  • A mortgage company identified during a nationwide sweep monitoring compliance with federal privacy laws settled FTC charges on March 4 that it failed to adequately protect customers’ personal and financial information. In late 2004, the FTC charged the company with violating the Gramm-Leach-Bliley (“GLB”) Safeguards Rule. This rule requires financial institutions to implement policies and procedures to ensure the security of customer information. This is the second FTC settlement resolving alleged violations of the GLB Safeguards Rule. According to the FTC’s complaint, Nationwide Mortgage Group, Inc. failed to assess risks to sensitive customer information; implement safeguards to control these risks; train employees on information security issues; oversee loan holders’ handling of customer information; or monitor its computer network for vulnerabilities. The FTC also alleged that the company violated the GLB Privacy Rule by failing to provide required privacy notices to consumers explaining how their personal information may be used or disclosed. The Safeguards Rule requires financial institutions to implement a written program to secure customers’ information. In addition to mortgage companies and other traditional financial institutions, the Rule covers entities such as payday lenders, tax preparers, auto dealers, credit counselors, and retailers that issue credit cards. To accommodate the wide range of institutions covered, the Rule allows each institution to develop a program that is appropriate to its size and complexity, the sensitivity of the information it handles, and the nature and scope of its business.
  • California infomercial producer Modern Interactive Technology, Inc. (“MIT”), and its two principals, Mark Levine and David Richmond, agreed to settle FTC charges on March 1 that they had an active role in developing the deceptive claims made to sell “The Enforma System” weight-loss products. The settlement requires, among other things, that the defendants have competent and reliable scientific evidence to substantiate future claims for any dietary supplement, food, drug, or device. This is the last case growing out of the sales of the Enforma System, a weight-loss product consisting of two dietary supplements – “Fat Trapper” and “Exercise In A Bottle.” In April 2000, the FTC announced that it had settled charges against Enforma Natural Products, Inc., the vendor of the Enforma System. The order in that case required Enforma Natural Products and its principal Andrew Grey to pay $10 million in consumer redress. Thereafter, in August 2000, the FTC filed a complaint in federal district court against MIT and its officers, alleging that they played an active role in writing, editing, and producing the infomercials for the Enforma System. In September 2001, however, the district court issued an order ruling that the Commission’s settlement order with Enforma Natural Products was “res judicata” as to MIT, Levine, and Richmond, meaning that the FTC had no right to bring a separate action against them. The FTC appealed this ruling to the Ninth Circuit Court, and in September 2004, the Ninth Circuit reversed the district court’s res judicata decision. It held that Enforma Natural Products was not sufficiently connected to MIT, Levine, and Richmond to justify barring the FTC’s claims against them, and remanded the matter to the district court for litigation.
  • The FTC and Spain’s Agencia Espala de Protecci de Datos (“AEPD”) signed a bilateral Memorandum of Understanding (“MOU”) on February 24 to promote enhanced cooperation and information-sharing on spam enforcement activities. Officials from both agencies will cooperate to address the problem of illegal spam. FTC Chairman Deborah Platt Majoras and AEPD Director Jose Luis Pir Mas signed the MOU at a ceremony in Washington, DC. The MOU is a “best efforts” agreement intended to enhance cooperation between the two agencies – it is not legally binding and does not alter either country’s existing protection laws. The AEPD is Spain’s data protection authority. Since Spain’s anti-spam law took effect last year, the AEPD also has authority to conduct spam investigations. The FTC continues to promote international cooperation on spam and other consumer protection issues. In July 2004, the Commission signed a similar MOU with the United Kingdom and Australia. In October 2004, the FTC, the AEPD, and other enforcement agencies from countries around the world met in London to develop greater international enforcement cooperation against illegal spam. Under the “London Action Plan,” 26 agencies from 19 different countries, along with numerous private sector representatives, agreed to use best efforts to share information about spam enforcement, participate in investigative training sessions, and undertake joint education and enforcement projects. With their MOU, the FTC and the AEPD will strengthen the links they have developed both bilaterally and through the London Action Plan. The FTC vote to approve the MOU and publish the accompanying Federal Register notice was 5-0.
  • In a massive criminal and civil crackdown on promoters of illegal business opportunity and work-at-home schemes, the FTC, the Department of Justice (“DOJ”), the U.S. Postal Inspection Service, and law enforcement agencies from 14 states took action against more than 200 operations for engaging in fraud and/or violating consumer protection laws on February 22. Business opportunity and work-at-home fraud causes substantial consumer injury. In the FTC’s cases alone, the defendants caused tens of thousands of consumers to lose a total of more than $100 million. The enforcement sweep, known as “Project Biz Opp Flop,” contains four key components: 1) criminal prosecutions against business opportunity fraud artists; 2) civil enforcement actions filed by the FTC; 3) civil penalty actions filed by the DOJ on behalf of the FTC; and 4) enforcement actions filed by state enforcement agencies.

Authored by:
Camelia Mazard