[Federal Register Volume 82, Number 176 (Wednesday, September 13, 2017)]
[Notices]
[Pages 43013-43017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19385]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 152 3134]


Lenovo (United States) Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices. The attached Analysis to Aid Public Comment describes both 
the allegations in the complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before October 5, 2017.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``Lenovo (United 
States) Inc., Matter No. 152 3134'' on your comment, and file your 
comment online at https://ftcpublic.commentworks.com/ftc/lenovoconsent 
by following the instructions on the Web-based form. If

[[Page 43014]]

you prefer to file your comment on paper, write ``Lenovo (United 
States) Inc., Matter No. 152 3134'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Linda Holleran Kopp, (202-326-2267) 
and Tiffany George (202-326-3040), Bureau of Consumer Protection, 600 
Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for September 5, 2017), on the World Wide Web, 
at https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before October 5, 2017. 
Write ``Lenovo (United States) Inc., Matter No. 152 3134'' on your 
comment. Your comment--including your name and your state--will be 
placed on the public record of this proceeding, including, to the 
extent practicable, on the public Commission Web site, at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/lenovoconsent by following the instructions on the web-based form. 
If this Notice appears at http://www.regulations.gov/#!home, you also 
may file a comment through that Web site.
    If you prefer to file your comment on paper, write ``Lenovo (United 
States) Inc., Matter No. 152 3134'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible FTC 
Web site at https://www.ftc.gov, you are solely responsible for making 
sure that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC Web site--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC Web site, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC Web site at http://www.ftc.gov to read this Notice 
and the news release describing it. The FTC Act and other laws that the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments that it 
receives on or before October 5, 2017. For information on the 
Commission's privacy policy, including routine uses permitted by the 
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a consent order from Lenovo (United 
States), Inc. (``Lenovo'').
    The proposed consent order has been placed on the public record for 
thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission again will review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    This matter involves Lenovo, one of the world's largest personal 
computer manufacturers, and its preinstallation on certain consumer 
laptops of VisualDiscovery, an ad-injecting software developed by 
Superfish, Inc. and customized for Lenovo. VisualDiscovery injected 
pop-up ads of similar-looking products sold by Superfish's retail 
partners whenever a consumer's cursor hovered over a product image 
while browsing on a shopping Web site. For example, when a consumer's 
cursor hovered over an image of owl-shaped pendants on a shopping Web 
site like amazon.com, VisualDiscovery would show the user pop-up ads of 
similar-looking owl pendants. To do so, VisualDiscovery acted as a 
``man-in-the-middle'' between consumers' browsers and the Web sites 
they visited, including encrypted https://websites. This man-in-the-
middle technique allowed VisualDiscovery to see all of a consumer's 
sensitive personal information that was transmitted on the Internet, 
such as login credentials, Social Security numbers, financial account 
information, medical

[[Page 43015]]

information, and email communications. VisualDiscovery then collected, 
transmitted to Superfish servers, and stored a more limited subset of 
user information, including the Web site addresses visited by 
consumers, consumers' IP addresses, and a unique identifier assigned by 
Superfish to each user's laptop. Superfish had the ability to collect 
additional information from Lenovo users through VisualDiscovery at any 
time.
    To facilitate its injection of pop-up ads into encrypted https://
websites, VisualDiscovery installed a self-signed root certificate in 
the laptop's operating system. This allowed VisualDiscovery to replace 
the digital certificates for https://websites with VisualDiscovery's 
own certificates for those Web sites and caused consumers' browsers to 
automatically trust the VisualDiscovery-signed certificates. Digital 
certificates are part of the Transport Layer Security (TLS) protocol 
that, when properly validated, serve as proof that consumers are 
communicating with the authentic https://website and not an imposter.
    As alleged in the complaint, VisualDiscovery's substitution of 
digital certificates for https://websites with its own certificates for 
those Web sites created two significant security vulnerabilities. 
First, VisualDiscovery did not adequately verify that Web sites' 
digital certificates were valid before replacing them with its own 
certificates, which were automatically trusted by consumers' browsers. 
This rendered a critical browser security function useless because 
browsers would no longer warn consumers that their connections were 
untrusted when they visited potentially spoofed or malicious Web sites 
with invalid digital certificates.
    The complaint also alleges that VisualDiscovery created a second 
security vulnerability by using a self-signed root certificate with the 
same private encryption key and the same easy-to-crack password on 
every laptop rather than employing private keys unique to each laptop. 
This violated basic encryption key management principles because 
attackers who cracked the simple password on one consumer's laptop 
could then target every affected Lenovo user with man-in-the-middle 
attacks that could intercept consumers' electronic communications with 
any Web site, including those for financial institutions and medical 
providers. Such attacks would provide attackers with unauthorized 
access to consumers' sensitive personal information, such as Social 
Security numbers, financial account numbers, login credentials, medical 
information, and email communications. This vulnerability also made it 
easier for attackers to deceive consumers into downloading malware onto 
any affected Lenovo laptop. The risk that this vulnerability would be 
exploited increased after February 19, 2015, when news of these 
vulnerabilities became public and bloggers posted instructions on how 
the vulnerabilities could be exploited.
    The complaint alleges that Lenovo failed to discover these 
significant security vulnerabilities because it failed to take 
reasonable measures to assess and address security risks created by 
third-party software it preinstalled on its laptops. Specifically, 
Lenovo allegedly:
    <bullet> Failed to adopt and implement written data security 
policies applicable to third-party preinstalled software;
    <bullet> failed to adequately assess the data security risks of 
third-party software prior to preinstallation;
    <bullet> failed to request or review any information prior to 
preinstallation about Superfish's data security policies, procedures or 
practices;
    <bullet> failed to require Superfish by contract to adopt and 
implement reasonable data security measures;
    <bullet> failed to assess VisualDiscovery's compliance with 
reasonable data security standards; and
    <bullet> failed to provide adequate data security training for 
employees responsible for testing third-party software.
    The complaint alleges that Lenovo's failure was an unfair act that 
caused or was likely to cause substantial consumer injury that 
consumers could not reasonably avoid, and that there were no 
countervailing benefits to consumers or competition.
    The Commission's complaint also alleges that Lenovo failed to make 
adequate disclosures about VisualDiscovery to consumers. Lenovo did not 
disclose to consumers that it had preinstalled VisualDiscovery prior to 
purchase, and the software had limited visibility on the consumer's 
laptop. Lenovo only disclosed VisualDiscovery through a one-time pop-up 
window the first time consumers visited a shopping Web site that 
stated,
    Explore shopping with VisualDiscovery: Your browser is enabled with 
VisualDiscovery which lets you discover visually similar products and 
best prices while you shop.
    The pop-up window contained a small opt-out link at the bottom of 
the pop-up that was easy for consumers to miss. If a consumer clicked 
on the pop-up's `x' close button, or anywhere else on the screen, the 
consumer was opted in to the software.
    The complaint alleges that this pop-up window's disclosures were 
inadequate and violated Section 5 of the FTC Act by failing to 
disclose, or failing to disclose adequately, that VisualDiscovery would 
act as a man-in-the-middle between consumers and all the Web sites they 
visited, including encrypted https://websites, and collect and transmit 
certain consumer Internet browsing data to Superfish. These facts would 
be material to consumers' decisions whether or not to use 
VisualDiscovery.
    The complaint also alleges that Lenovo's preinstallation of the ad-
injecting software that, without adequate notice or informed consent, 
acted as a man-in-the-middle between consumers and all the Web sites 
they visited, including encrypted https://websites, and collected and 
transmitted certain consumer Internet browsing data to Superfish was an 
unfair act that caused or was likely to cause substantial injury to 
consumers, and that was not offset by countervailing benefits to 
consumers or competition and was not reasonably avoidable by consumers.
    The proposed consent order contains provisions designed to prevent 
Lenovo from engaging in similar acts and practices in the future.
    Part I of the proposed order prohibits Lenovo from making any 
misrepresentations about certain preinstalled software on its personal 
computers.
    Part II of the proposed order requires Lenovo to obtain a 
consumer's affirmative express consent, with certain limited 
exceptions, prior to any preinstalled software a) injecting 
advertisements into a consumer's Internet browsing session, or b) 
transmitting, or causing to transmit, the consumer's personal 
information to any person or entity other than the consumer. Lenovo 
must also provide instructions for how consumers can revoke their 
consent to the software's operation by providing a reasonable and 
effective means for consumers to opt out, disable or remove the 
software.
    Parts III and IV of the proposed order require Lenovo to implement 
a mandated software security program that is reasonably designed to 
address security risks in software preinstalled on its personal 
computers, and undergo biennial software security assessments of its 
mandated software security program by a third party.
    Parts V through IX of the proposed order are standard reporting and

[[Page 43016]]

compliance provisions. Part V requires dissemination of the order now 
and in the future to all current and future principals, officers, 
directors, and managers, and to persons with managerial or supervisory 
responsibilities relating to Parts I-IV of the order. Part VI mandates 
that Lenovo submit a compliance report to the FTC one year after 
issuance, and then notices, as the order specifies, thereafter. Parts 
VII and VIII requires Lenovo to retain documents relating to its 
compliance with the order for a five-year period, and to provide such 
additional information or documents necessary for the Commission to 
monitor compliance. Part IX states that the Order will remain in effect 
for 20 years.
    The purpose of this analysis is to aid public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the complaint or proposed order, or to modify in any 
way the proposed order's terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Acting Chairman Maureen K. Ohlhausen in the Matter of 
Lenovo, Inc.

    I support this important case and the strong settlement. I write 
separately to caution against an over broad application of our failure 
to disclose (sometimes called ``deceptive omission'') authority. We 
should hew to longstanding case law and avoid circumventing 
congressionally-established limits on our authority. I therefore 
respectfully disagree with my colleague's position that we should 
expand Count I to allege additional failures to disclose.
    Most FTC deception cases involve an express misrepresentation 
(``This sugar pill cures cancer'') or an express statement that gives 
rise to an implied claim that is false or misleading (``Many people who 
take this sugar pill don't die of cancer'').
    Although the FTC and the courts have also recognized that a failure 
to disclose can be deceptive, this has limits.\1\ For every product 
there is a potentially enormous amount of information that at least 
some consumers might wish to know when deciding whether to purchase or 
use it.\2\ Copious disclosures would be both impractical and unhelpful, 
and the law sensibly does not require sellers to disclose all 
information that a consumer might find important.
---------------------------------------------------------------------------

    \1\ International Harvester Co., 104 FTC 949 (1984), represents 
the Commission's most comprehensive effort to define deceptive 
omissions, and that framework remains in place today. See also, 
Cliffdale Associates, Inc., 103 FTC 110, App. A at 2 (1984) 
(``Deception Statement'').
    \2\ International Harvester, 104 FTC at 1059 (explaining why the 
FTC does not treat pure omissions as deceptive).
---------------------------------------------------------------------------

    Thus, the FTC has generally found a failure to disclose to be 
deceptive in two categories of cases. First, the FTC has found ``half-
truths'' to be deceptive, where a seller makes a truthful statement 
that creates a material misleading impression that the seller does not 
correct.\3\ Most of the FTC's failure to disclose cases are half-truth 
cases, and many could be restyled as cases of implied false or 
misleading claims. For example, a complaint addressing the claim that 
``Many people who take this sugar pill don't die of cancer'' could 
allege an implied false claim that the pill cures cancer, or could 
allege a deceptive failure to disclose that the pill does not reduce 
the chances of dying from cancer.
---------------------------------------------------------------------------

    \3\ Id. at 1057-58.
---------------------------------------------------------------------------

    Second, and less frequently, the FTC has found a seller's silence 
to be deceptive ``under circumstances that constitute an implied but 
false representation.'' \4\ Such implied false representations can 
arise from ``ordinary consumer expectations as to the irreducible 
minimum performance standards of a particular class of good.'' \5\ 
Stated differently, offering a product for sale implies that the 
product is ``reasonably fit for [its] intended uses,'' and that it is 
``free of gross safety hazards.'' \6\ If the product does not meet 
ordinary consumer expectations of minimum performance, or if the 
product is not reasonably fit for its intended uses, the seller must 
disclose that. For example, it would be deceptive for an auto dealer to 
sell, without a disclosure, a normal-looking car with a maximum speed 
of 35 miles per hour.\7\ Consumers expect cars to be able to reach 
highway speeds, and thus the dealer must disclose to the buyer that the 
car does not meet that ordinary expectation.
---------------------------------------------------------------------------

    \4\ Id. at 1058.
    \5\ Id.
    \6\ Id. at 1058-59.
    \7\ Id. at n.29.
---------------------------------------------------------------------------

    In such cases, an omission is misleading under the FTC Act if the 
consumers' ordinary fundamental expectations about the product were 
violated. Mere annoyances that leave the product reasonably fit for its 
intended use do not meet this threshold.\8\ Thus, a dealer's failure to 
disclose that some might find a car's seatbelt warning to be annoyingly 
loud would not be a deceptive omission because consumers have no 
ordinary expectations about car seatbelt warnings that would mislead 
them absent a disclosure.
---------------------------------------------------------------------------

    \8\ Id. at 1058; Deception Statement at n.4 (``Not all omissions 
are deceptive, even if providing the information would benefit 
consumers . . . Failure to disclose that the product is not fit 
constitutes a deceptive omission.'')
---------------------------------------------------------------------------

    As International Harvester sets out at length, a deceptive omission 
is distinct from an unfair failure to warn or other forms of unfair 
omissions.\9\ The FTC has brought such cases under its unfairness 
authority where it has met the statutorily mandated higher burden of 
showing that the conduct causes or is likely to cause substantial 
consumer injury that is not reasonably avoidable by the consumer and is 
not outweighed by benefits to consumers or competition.\10\
---------------------------------------------------------------------------

    \9\ Id. at 1051 (``It is important to distinguish between the 
circumstances under which omissions are deceptive . . . and the 
circumstances under which they amount to an unfair practice.'').
    \10\ 15 U.S.C. 45(n).
---------------------------------------------------------------------------

    Turning to the case at hand, the complaint alleges that 
VisualDiscovery advertising software on Lenovo laptops acted as a man-
in-the-middle between consumers and the Web sites they visited. As 
such, the software had access to all secure and unsecure consumer-Web 
site communications and rendered useless a critical security feature of 
the laptops' web browsers. Such practices introduced gross hazards 
inconsistent with ordinary consumer expectations about the minimum 
performance standards of software. As a result, the man-in-the-middle 
functionality and the problems it generated made VisualDiscovery unfit 
for its intended use as software. Thus, Count I properly alleges that 
Lenovo failed to disclose, or disclose adequately, that VisualDiscovery 
acted as a man-in-the-middle.\11\
---------------------------------------------------------------------------

    \11\ Count I of the complaint is pled in the form of a half-
truth, but could also be pled as a failure to correct a false 
representation implied from circumstances, and so I address 
Commissioner McSweeny's argument as framed.
---------------------------------------------------------------------------

    Although Commissioner McSweeny and I both support Count I, she 
would add allegations that Lenovo failed to disclose that 
VisualDiscovery injected ads into shopping Web sites and slowed web 
browsing. She argues that the injected ads and slowed web browsing 
altered the internet experience of consumers, and thus VisualDiscovery 
failed to meet ``ordinary consumer expectations as to the irreducible 
minimum performance standards of [that] particular class of good.'' 
\12\
---------------------------------------------------------------------------

    \12\ Statement of Commissioner Terrell McSweeny at 1 (citing 
International Harvester, 104 FTC at 1058).

---------------------------------------------------------------------------

[[Page 43017]]

    I respectfully disagree. Lenovo failed to disclose that 
VisualDiscovery would act as a man-in-the-middle. However, Lenovo did 
disclose that the software would introduce advertising into consumers' 
web browsing, although its disclosure could have been better. 
Furthermore, to the extent ordinary consumers expect anything from 
advertising software, they likely expect it to affect their web 
browsing and to be intrusive, as the popularity of ad blocking 
technology shows. In addition, unlike the man-in-the-middle technique, 
VisualDiscovery's ad placement and web browsing effects did not 
introduce gross hazards obviously outside of consumers' ordinary 
expectations for advertising software. In short, although 
VisualDiscovery's ad placement and effect on web browsing may have been 
irritating to many, those features did not make VisualDiscovery unfit 
for its intended use. Therefore, I do not find Lenovo's silence about 
those features to be a deceptive omission.
    Fortunately, the outcome in this case does not depend on resolving 
our disagreement on the application of deceptive omission to 
advertising software. My goal in writing separately is to maintain the 
clear distinction set forth in International Harvester between 
deceptive failures to disclose and unfair omissions.\13\ When 
evaluating the legality of a party's silence, we must be careful not to 
circumvent unfairness's higher evidentiary burden by simply restyling 
an unfair omission as a deceptive omission.
---------------------------------------------------------------------------

    \13\ International Harvester, 104 FTC at 1051.
---------------------------------------------------------------------------

Statement of Commissioner Terrell McSweeny in the Matter of Lenovo, 
Inc.

    I support the Commission's complaint against Lenovo, but I am 
troubled by conduct in this case that the Commission fails to 
challenge. According to the complaint, Lenovo, Inc. preinstalled 
software on computers that was designed to serve advertisements to 
consumers while they were browsing Web sites. The software, called 
VisualDiscovery, acted as a ``man-in-the-middle'' between the consumers 
and all of the Web sites with which they communicated. It allegedly 
actively contravened the security posture of consumers' computers, 
leaving them vulnerable both to attack from cyber-criminals and to 
transmitting personal information across the web to Superfish, Inc. 
servers. These unfair practices violate the Federal Trade Commission 
Act and are appropriately challenged by the FTC in Counts II and III of 
the complaint.
    But Lenovo's unlawful conduct went beyond the data security 
failings alleged in the complaint. The complaint also describes how the 
software it preinstalled on computers would: (1) Inject pop-up ads 
every time consumers visited a shopping Web site; and (2) disrupt web 
browsing by reducing download speeds by almost 25 percent and upload 
speeds by 125 percent. These facts were not disclosed to consumers and 
these omissions were deceptive.
    Moreover, the FTC alleges that the VisualDiscovery software was 
designed to be difficult to discover. Consumers were initially made 
aware of the existence of the VisualDiscovery software via a pop-up 
window the first time they visited an ecommerce site. But clicking to 
close that window opted consumers into the program. The initial pop-up 
window failed to disclose that VisualDiscovery would follow the 
consumers from shopping site to shopping site; slow the performance and 
functionality of the Web sites they visited; and compromise their 
security and privacy throughout each online browsing session.
    Under Section 5 of the FTC Act, the failure to disclose information 
necessary to prevent the creation of a false impression is a deceptive 
practice.\1\ A seller's silence may make an implied representation 
``based on ordinary consumer expectations as to the irreducible minimum 
performance standards of a particular class of good.'' \2\ In this 
case, Lenovo deceptively omitted that VisualDiscovery would alter the 
very internet experience for which most consumers buy a computer. I 
believe that if consumers were fully aware of what VisualDiscovery was, 
how it compromised their system, and how they could have opted out, 
most would have decided to keep VisualDiscovery inactive.
---------------------------------------------------------------------------

    \1\ FTC Policy Statement on Deception, 103 F.T.C. 174, 175 
(1984) (appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)).
    \2\ Int'l. Harvester Co., 104 F.T.C. 949, 1058 (1984).
---------------------------------------------------------------------------

    This is an exceptionally strong case and clearly articulates how 
the Commission uses its unfairness tools to protect the data security 
and privacy of consumers. I support Count I, but believe the FTC should 
have included additional deceptive conduct alleged in the complaint 
within the count. The FTC should not turn a blind eye to deceptive 
disclosures and opt-ins, particularly when consumers' privacy and 
security are at stake.

[FR Doc. 2017-19385 Filed 9-12-17; 8:45 am]
 BILLING CODE 6750-01-P