*On June 23, the FTC released a report titled “Peer-to-Peer File-Sharing Technology: Consumer Protection and Competition Issues,” which analyzes the consumer protection, competition, and intellectual property issues discussed at the FTC’s December 2004 workshop on P2P file sharing. P2P technology is used by a variety of personal and commercial interests for legitimate purposes, but the most common application by far is the exchange of copyrighted music and movie files between users. The report recommends that the industry develop necessary technology and take steps to regulate itself; concurrently, the government should investigate violations and work with industry to encourage self-regulation. The report failed to make specific recommendations regarding intellectual property because the FTC conference took place before the Supreme Court’s recent opinion in P2P file-sharing in Metro-Goldwyn Mayer Studios v. Grokster, Ltd.
*The operator of a Canadian business directory scam was ordered on June 22 to pay $2.9 million to the FTC in consumer redress. Terrence Croteau scammed small businesses and charities in the United States out of millions of dollars by billing them for directory services they neither ordered nor authorized. The defendants refused consumers’ requests to cancel the services and used an in-house collections department to harass consumers who were allegedly past due. Croteau violated the freeze on his assets and remained at large until he was arrested by federal marshals at the Newark, New Jersey airport. Croteau and his companies are permanently barred from the “business directory” business, barred from making deceptive or misleading claims, barred from selling or sharing customer lists, and ordered to give up $2.9 million. The U.S. attorney for the Southern District of Illinois indicted Croteau on charges of conspiracy, twenty counts of wire fraud, four counts of mail fraud, one count of use of a false and fictitious name in furtherance of mail fraud, two counts of mailing or transmitting threatening communications, and one count of making harassing telephone calls.
*On June 21, the FTC released the details of a $710,000 settlement against New York-based Scholastic Inc. (“Scholastic”) – a provider of children’s books that ran negative-option clubs. According to the FTC, consumers who did not know how the clubs operated complained that the companies sent them books they did not order, and that the companies would not cancel their club memberships. The FTC charged Scholastic with five counts: two violations of the FTC Act, one violation of the Unordered Merchandise Rule, one violation of the Prenotification Negative Option Rule, and one violation of the Telemarketing Sales Rule.
*The FTC announced on June 15, that Creaghan A. Harry will pay $485,000 in consumer redress to settle charges that he used millions of illegal spam messages to promote untrue anti-aging properties of Human Growth Hormone herbal supplements. Some 40,000 of Harry’s spam messages ended up in the FTC’s spam database claiming that his products would reverse the aging process, cause weight loss, increase muscle, or regrow hair and remove wrinkles. The FTC filed the claim in July 2004 for violations of the FTC ACT and the CAN-SPAM Act of 2003 because he made bogus claims regarding his product, did not allow for an opt-out of future messages, and did not give a valid physical postal address. Harry was fined and barred from making claims about any products sold over the internet, including health and weight-loss claims without scientific evidence.
*On June 13, the Northern District of Illinois signed a final judgment and order fining the suppliers of “Himalayan Diet Breakthrough” (“Himalayan”) and prohibiting them from marketing their product. According to the FTC, Himalayan used seven of the “Red-Flag” weight loss claims. Advertising in several widely circulated newspapers and magazines, Himalayan claimed their product caused rapid and substantial weight loss without dieting or exercise, caused users to lose substantial weight while still consuming unlimited amounts of food, caused substantial weight loss by preventing the formation of body fat, caused substantial weight loss for all users, and enabled users to lose as much as 37 pounds in eight weeks safely. Himalayan was fined $4.9 million, the total amount of sales for the product at issue.
*The FTC settled a complaint on June 2 against Tropicana Products, Inc. (“Tropicana”), who allegedly misled consumers into believing that drinking two to three cups of its “Healthy Heart” orange juice would lead to substantial improvement in health. Specifically, the Commission’s complaint charged Tropicana with making unsubstantiated claims that drinking three cups of orange juice per day would improve cholesterol levels, increase blood levels of folate and decrease homocysteine levels, and lower systolic blood pressure. The consent order prohibits Tropicana from making the challenged claims or other health related claims unless the company can substantiate the claim with competent and reliable scientific evidence.
*On June 1, the FTC announced a settlement with a Canadian manufacturer of HIV test kits sold over the internet. The kits were advertised as 99.4% accurate. However, testing conducted by the Centers for Disease Control and Prevention determined that 59.3% of tested kits provided inaccurate results, including both inaccurate HIV-positive results and inaccurate HIV-negative results. The final judgment order bars the defendants from advertising or selling HIV test kits that are not first approved by the FDA for sale in the United States. The Defendants are also barred from making false or misleading statements about any device marketed to assist in the diagnosis of any disease or health condition. The FTC is authorized to notify past purchasers of the test that the agency believes that the defendants misrepresented the efficacy of the product.
*At the request of the FTC, on June 1, a U.S. District Court judge issued a preliminary injunction that froze the assets of a bogus operation claiming to market an anti-spyware program. The FTC alleges that the program “Spykiller” attracted consumers to their website through aggressive marketing practices such as pop-up ads and e-mail messages warning consumers that their computers contained spyware. Once lured to the site, Spykiller performed a free scan that automatically told consumers that they had spyware on their computer. In fact, the program tagged virus scanning programs, word processing programs, and other legitimate files. Though the scan was free, consumers were then asked to pay $39.95 to enable Spykiller’s “removal” capabilities. The FTC complaint alleges that the software failed to remove significant amounts of spyware, including spyware that the defendants claimed their program would remove. The agency alleges that the deceptive claims and aggressive marketing techniques violated the FTC Act and the CAN-SPAM Act.

Authored by:
Camelia Mazard


Robert M. Ziff