We are only four months into the new year, and the regulatory environment continues to heat up with new headlines popping up weekly. Agencies across the globe including the Federal Trade Commission and the United Kingdom’s Competition and Markets Authority are calling out subscription companies on a range of issues including mergers and acquisitions, data privacy, misleading market tactics and AI. To keep you up to date, we’ve got a regulatory roundup of some of the top stories making headlines in 2023.

FTC and UK reject Microsoft’s proposed acquisition of Activision Blizzard

In December 2022, the Federal Trade Commission attempted to block Microsoft’s acquisition of Activision Blizzard for $69 billion in an all-cash deal. The FTC alleged that Microsoft could potentially suppress Xbox competitors as Microsoft invested in subscription content and cloud-gaming, which the FTC said is a violation of Section 5 of the FTC Act.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, Director of the FTC’s Bureau of Competition, in a December 8, 2022 news release. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”

“The Proposed Acquisition is reasonably likely to substantially lessen competition or tend to create a monopoly in multiple markets because it will create a combined firm with the ability and increased incentive to use its control of Activision titles to disadvantage Microsoft’s competitors. The Proposed Acquisition also may accelerate an ongoing trend towards vertical integration and consolidation in, and raise barriers to entering, the relevant markets,” wrote the FTC.

Last week, the UK’s CMA issued their final ruling on the case, effectively slamming the door shut on Microsoft’s proposal to acquire the game developer by rejecting the deal as anticompetitive. The CMA began an in-depth review of the deal last September. In February, the CMA made an initial ruling opposing the deal, but said they would listen to possible remedies to address antitrust concerns. In yesterday’s announcement, the CMA said Microsoft’s proposed solution did not sufficiently address their concerns that the merger would stifle competition in the cloud gaming market.

“The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft. The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future,” the CMA wrote.

The European Union has still not made a ruling on the deal in their jurisdiction. However, in March, Reuters reported that the European Commission would rule on the matter by April 25, and industry insiders said they anticipated the EU would rule in Microsoft’s favor. To date, a ruling has not been released. The CMA issued their ruling on April 26. Will (or did) that decision have an impact on the European Commission’s decision?

FTC wants to prohibit Meta and Facebook from monetizing data from kids and teens

On Wednesday, the FTC proposed changes to a 2020 privacy order with Facebook because the company allegedly failed to comply with the order. According to a news release, Facebook misled parents about their ability to control who their children communicated with using the Messenger Kids app. In addition, Facebook misrepresented what access app developers had to private user data. Facebook also violated the Children’s Online Privacy Protection Act Rule (COPPA Rule).

“Facebook has repeatedly violated its privacy promises,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a May 3, 2023 news release. “The company’s recklessness has put young users at risk, and Facebook needs to answer for its failures.”

Under the proposed changes, Meta would be prohibited from monetizing data it collects from users under the age of 18 through its products, including virtual reality products. Additional protections would also be put in place. The proposed changes would apply to Facebook and other Meta services including Instagram, WhatsApp and Oculus. They include:

• Meta would be subject to a blanket prohibition from monetizing the data of users under 18.
• The FTC would put a pause on the launch of new products and services without written confirmation from an independent assessor that related privacy programs and practices were in full compliance with the order’s requirements.
• The proposed changes would extend to any companies Meta acquires or merges with.
• The FTC would impose limits on Meta’s use of facial recognition technology without proper disclosures and the affirmative consent by users for any future uses of facial recognition technology.
• The proposed changes would strengthen some privacy provisions from the 2020 order, including the expansion of Meta’s reporting requirements.

The FTC has taken three separate actions against Facebook for failure to protect the data privacy of its users. The first was filed in 2011, resulting in a 2012 ruling that Facebook (now Meta) was prohibited from misrepresenting its privacy practices. Facebook almost immediately violated that order, the FTC says. In 2019, Facebook agreed to a second order to resolve claims from the first order.

Meta has 30 days to respond to the regulatory agency’s investigation and findings.

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FTC returns $1.1 million to consumers in free trial scheme

In April, the FTC’s refund administrator issued 41,934 checks to consumers totaling $1.1 million to compensate them for a “free trial” scam perpetrated by RevMountain, LLC; Anasazi Management Partners; and 59 related corporate defendants. The FTC first brought action against these defendants in August 2017, alleging their claims were deceptive, fine-print disclosures were hidden, and they used deceptive marketing tactics to charge consumers a nominal fee for their products while simultaneously charging them for two recurring subscription services at a cost of $100 per month per subscription. The FTC alleged they violated the FTC Act and the Restore Online Shoppers’ Confidence Act.

Under the settlement order, the defendants are prohibited from future negative-option sales, including helping others with deceptive negative-option sales, directly or indirectly. Two of the defendants – Jennifer Johnson and Danielle Foss – are subject to other restrictions on negative-option marketing. The court imposed a judgment of $92,011,601.42, the amount lost by consumers from the “free trial” scam. The balance of the judgment will be suspended once the defendants’ assets have been surrendered, including money, vehicles, and proceeds from the sale of two homes.

“All of the defendants are prohibited from making misrepresentations about any good or service. They are also barred from profiting from consumers’ personal information collected as part of the challenged practices and failing to dispose of it properly. In each case, the full judgment will become due immediately if the defendants are found to have misrepresented their financial condition,” the FTC said in an April 16, 2023 news release.

In the judgment, the defendants did not admit or deny any of the allegations. The order specified that the facts alleged in the complaint “will be taken as true, without further proof” in any future litigation by or on behalf of the FTC. The judgment also said the defendants must fully cooperate with the regulatory agency in any investigation related to the alleged transactions and deceptive behavior. Among other requirements, the defendants must submit a compliance report one year after the order, and they must notify the FTC about bankruptcy or insolvency filings.

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HomeAdvisor to pay $7.2 million redress for deceptive marketing

The Federal Trade Commission finalized a consent order against HomeAdvisor, Inc. following a public comment period. In March 2022, the FTC filed an administrative complaint against Denver-based HomeAdvisor, which is affiliated with Angi (formerly Angie’s List), for misleading and deceptive marketing tactics to provide leads to service providers and contractors who offer home services like kitchen remodeling, doors and windows, or lawn care. Many of these providers are considered gig workers.

The FTC alleged that, since at least mid-2014, HomeAdvisor made false, misleading or unsubstantiated claims about the source and quality of the leads for which service providers pay. It also misled those contractors regarding the cost of an optional one-month subscription to a software platform that HomeAdvisor sold to their clients. These actions and misrepresentations caused service providers to waste time following up on sub-par leads that didn’t yield business and additional time trying to get refunds from HomeAdvisor.

The final FTC order prohibits HomeAdvisor and its staff, agents and others affiliated with the company from misrepresenting or making false or misleading statements to service providers regarding potential leads. In addition, HomeAdvisor must not say a product or service is free if it is not free or when it increases the price of another product or service. Misleading and deceptive marketing practices are prohibited.

To resolve the issue, the FTC’s final decision and order includes the following monetary relief:

1. HomeAdvisor must pay the FTC $4,448,000.
2. HomeAdvisor must pay $2,752,000 to the mHelpDesk redress fund.

State of Florida and FTC sue Chargebacks911 for “unfairly thwarting customers”

The FTC and the State of Florida filed a complaint in the U.S. District Court – Middle District of Florida, Tampa Division – against Global e-Trading, LLC doing business as Chargebacks911 for “unfairly thwarting consumers.” The complaint alleges that, at least since 2016, the company and owners Gary Cardone and Monica Eaton Cardone used multiple unfair tactics to prevent consumers from successfully winning chargeback disputes.

The FTC and the State of Florida allege that Chargebacks911 and its owners violated the FTC Act and the Florida Unfair and Deceptive Trade Practices Act. The FTC and the State of Florida are asking the court to stop the defendants’ illegal business practices and order monetary relief, including compensation to consumers and civil penalties to prevent future violations.

“Chargebacks911 helped scammers stay in business and defeat chargeback attempts by consumers hit with fraudulent charges,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in an April 12, 2023 news release. “The FTC will continue to take aggressive action against those who undermine consumers’ ability to exercise their rights.”

In a separate April 12 news release, Florida Attorney General Ashley Moody said, “This company helped businesses fight consumer challenges to credit card charges—using false evidence. My Consumer Protection team, with the Federal Trade Commission, filed an action to shut down these illegal practices, and will continue fighting on behalf of Floridians.”

Chargebacks911 issued a statement in response to the allegations: “Chargebacks911 is aware of the complaint filed by Attorney General Ashley Moody and the Federal Trade Commission against the company and its owners. The complaint misunderstands Chargeback911’s role in the industry and makes a series of inaccurate accusations that are factually and legally wrong, setting a dangerous precedent for all SaaS companies that could interrupt the roles, rights, and obligations of stakeholders industrywide.”

Chargebacks911’s full statement can be accessed here.

FTC proposes rule provision to make it easier for consumers to cancel subscriptions and memberships

In March, the FTC said “no more” with a proposal that will make subscription cancellation easier through a Notice of Proposed Rulemaking, Negative Option Rule. The FTC hopes to curb the “dark patterns” some marketers use to keep consumers subscribed. The proposed rule changes include providing an easy subscription cancellation mechanism, new requirements for making additional offers, and additional requirements for reminders and confirmations.

The “click-to-cancel” proposal is part of a larger update to the Negative Option Rule to stop companies from using sneaky tactics. The rule was adopted in 1973 and how we shop and do business has changed dramatically since then. The FTC is reviewing it to see how it should be modernized to provide clear guidance to businesses and to protect consumers.

“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina M. Khan in a March 23, 2023 news release. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

The FTC said that negative option marketing programs cross the line when:

• Marketers fail to make adequate disclosures.
• Companies bill consumers without their consent.
• Companies make it difficult or impossible to cancel.

Marc Roth of Cobalt Law shared his extensive observations and insights into the proposal with Subscription Insider.

• What you need to know about the FTC’s proposed changes to negative option rule, part 1
• What you need to know about the FTC’s proposed changes to negative option rule, part 2

CMA proposes bill to promote fair competition and protect consumers

Last month, the UK’s CMA proposed the Digital Markets, Competition and Consumers (DMCC) bill to promote growth in the UK economy by ensuring free and vigorous competition among businesses whether they are physical businesses or digital marketplaces. The proposed bill focuses on three key areas: consumer protection, digital markets and competition.

“We welcome this flagship bill which provides the CMA with new powers to do even more to protect people, businesses and support the economy. This has the potential to be a watershed moment in the way we protect consumers in the UK and the way we ensure digital markets work for the UK economy, supporting economic growth, investment and innovation,” said Sarah Cardell, chief executive of the CMA.

“People rely on free and fair markets to get the best deal possible, but also expect that rules are in place to protect them when things go wrong. Proposals to give the CMA stronger enforcement powers when firms break consumer law – including the ability to directly impose fines for the first time – are crucial to ensure we can continue cracking down on rip-offs and underhand deals, helping to deter firms from taking advantage of people,” Cardell added.

“Digital markets offer huge benefits, but only if competition enables businesses of all shapes and sizes the opportunity to succeed. This bill is a legal framework fit for the digital age. It will establish a tailored, evidenced-based and proportionate approach to regulating the largest and most powerful digital firms to ensure effective competition that benefits everyone,” said Cardell. “We look forward to supporting this bill as it passes through the legislative process and stand ready to use these new powers once approved by Parliament.”

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CMA, the FTC and other U.S. agencies consider the implications of AI

At the request of the British government, the CMA started an initial review of artificial intelligence and how it can be used to benefit businesses, consumers and the UK economy. The initial review will look at how competitive markets for AI models could evolve, examine what opportunities and risks exist in terms of competition and consumer protection, and create guiding principles to support competition while protecting consumers as AI models develop.

“AI has burst into the public consciousness over the past few months but has been on our radar for some time. It’s a technology developing at speed and has the potential to transform the way businesses compete as well as drive substantial economic growth,” Cardell said in a May 4 news release.

“It’s crucial that the potential benefits of this transformative technology are readily accessible to UK businesses and consumers while people remain protected from issues like false or misleading information. Our goal is to help this new, rapidly scaling technology develop in ways that ensure open, competitive markets and effective consumer protection,” added Cardell.

The CMA is asking for input from stakeholders by June 2. The CMA will publish its initial findings in September.

In April, FTC Chair Lina Khan and representatives from the Department of Justice, Consumer Financial Protection Bureau and the U.S. Equal Employment Opportunity Commission released a joint statement to express concern about the potential for “harmful uses of automated systems.”

“We already see how AI tools can turbocharge fraud and automate discrimination, and we won’t hesitate to use the full scope of our legal authorities to protect Americans from these threats,” said  Khan. “Technological advances can deliver critical innovation—but claims of innovation must not be cover for lawbreaking. There is no AI exemption to the laws on the books, and the FTC will vigorously enforce the law to combat unfair or deceptive practices or unfair methods of competition.”

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