# Advisory Committee for Aviation Consumer



# Protection: Customized Offers Airlines for America December 16, 2013 Presenter: Dana Rosenfeld, Partner Kelley Drye & Warren LLP.

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# Overview

 Federal Consumer Protection Framework

 FTC Deception and Unfairness Standards

 FTC Approach to Pricing and Consumer Protection

 Examples

 Customized Offers Can Provide a Pro - Consumer Approach

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# Federal Consumer Protection Framework

 Dept. of Transportation Regulations on Advertising and Pricing

 Express prohibition of unfair and deceptive practices of ticket agents and restrictions on price advertising

 Federal Trade Commission Act

 Section 5 prohibits “unfair or deceptive acts or practices”

 Express exemption for commercial air carriers

 FTC approach to consumer protection issues is instructive

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# Federal Consumer Protection Framework 2

 FTC Deception Standard

 Representation or omission

 About a material fact (“likely to affect a consumer’s conduct regarding a product or service”)

 Likely to mislead a consumer acting reasonably under the circumstances

 FTC Unfairness Standard

 Act or practice that causes substantial injury to consumers

 Which consumers cannot reasonably avoid

 Not offset by benefits to consumers or competition

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# FTC Approach to Pricing and Consumer Protection

 Nothing inherently unfair or deceptive about offering, marketing, and packaging customized products and services

 FTC generally favors procompetitive efforts in a free and competitive open market

 “Competition has been an effective organizing principle for the United States economy since the founding of the Republic. For more than a century, the promotion of competition has underpinned the federal and state statutes that apply to most sectors of the economy.”
– FTC Staff, Comment to the Delaware Public Service Commission (2013)
 “The Federal Trade Commission is committed to the principle that people are best served by the effective operation of a free and competitive open market.”
– Chairman Engman , FTC, Oversight of Civil Aeronautics Board Practices and Procedures: Hearing Before the Subcomm . On Admin. Practices and Procedure of the S. Comm. On the Judiciary , 94 th Cong. (1975)
 If conducted in a fair, transparent, and truthful manner, customized offers can be provided in a manner consistent with tenets of consumer protection and increase benefits to consumers 5

# FTC Policy Applied to Example Markets

 Exchange of consumer information to provide more relevant and targeted content or discounts is a common practice deemed consistent with consumer protection values and consumer choice

 Energy Industry

 Taxicab Deregulation

 Loyalty/Membership Programs

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# Energy Industry

 FTC staff comments on creation of competitive market for electric supply service (e.g., smart meters) to Delaware Public Service Commission

 Focus on dynamic pricing to benefit customers through lower costs, increased innovation, and expanded variety of services

 “Dynamic pricing for any end use is more efficient and pro - consumer than uniform flat - rate pricing, and regulators should take steps needed to ensure that dynamic pricing prevails in electricity markets”

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# Taxicab Deregulation

 FTC staff has provided comments on deregulation of taxicabs to numerous cities including New York, Seattle, San Francisco, Cambridge, MA, DC, and Alaska and Colorado state legislatures

 FTC staff comments to Montgomery County Council (MD) regarding deregulation of taxicabs

 “With open entry and unregulated fares, radio - dispatched taxicab services would have an incentive to offer various fare and quality combinations responsive to different groups of customers”

 “A major benefit of deregulation is the ease with which a competitive market can make the continual adjustments needed to accommodate market changes over time”

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# Loyalty/Membership Programs

 Allows consumers to provide certain information from and about themselves, including product purchase information, in exchange for reduced prices on certain products and services

 Have been subject to challenges based on specific application of the programs (e.g., alleged discrimination of protected classes of individuals (e.g., race, gender) or deception for false or misleading advertising), but no wholesale determination that loyalty programs reduce protections for consumers

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# In re Upromise , Inc. (Settlement with FTC 2012)

 Membership program that allowed members to purchase products and services from partner merchants and receive cash rebates
 Included a software toolbar that would highlight partner merchants in members’ search results and present “personalized offers” based on members’ online activity (including data submitted to third party sites)
 FTC alleged that Upromise’s
 Failure to adequately disclose how the toolbar would collect and use information, and failure to provide data safeguards consistent with representations, was deceptive
 Failure to employ reasonable and appropriate measures to protect consumer information was unfair
 While specific practices were challenged, the membership program as a whole was not alleged to be inherently unfair or deceptive 10

# Pro - Consumer Approach

 Customized offers are pro - consumer when managed consistent with the legal principles noted above
 A program that can provide consumers with more relevant airfare pricing and services options — based on their information and interests — in a manner that is truthful, fair, and transparent would be consistent with consumer protection concepts and goals “Firms engage in a variety of business practices that create efficiencies and thereby enhance their abilities and incentives to compete. These efficiencies can result in lower prices, improved quality, better services, new products, and other benefits that enhance consumer welfare.”
– Commissioner Wright (FTC), Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the FTC Act (2013)

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# Questions?

Dana B. Rosenfeld PARTNER Advertising & Marketing Privacy & Information Security (202) 342 - 8588 drosenfeld@kelleydrye.com Connect with Kelley Drye Website: www.KelleyDrye.com Blog: www.AdLawAccess.com

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