Source: http://www.techlawjournal.com/alert/2009/12/17.asp
Timestamp: 2019-01-23 15:17:42
Document Index: 36304071

Matched Legal Cases: ['§ 45', '§ 45', '§ 45', '§ 2', '§ 57', 'art 3']

TLJ Daily E-Mail Alert No. 2,024, December 17, 2009.
December 17, 2009, Alert No. 2,024.
EPIC Complains to FTC About Facebook's Privacy Related Practices
12/17. The Electronic Privacy Information Center (EPIC) submitted a document [29 pages in PDF] to the Federal Trade Commission (FTC) titled "Complaint, Request for Investigation, Injunction, and Other Relief".
This document relates to the web site management practices of Facebook, Inc. that impact users' privacy. See, Facebook's December 9, 2009, announcement.
The EPIC alleges in this document that "Facebook's changes to users' privacy settings disclose personal information to the public that was previously restricted. Facebook's changes to users' privacy settings also disclose personal information to third parties that was previously not available. These changes violate user expectations, diminish user privacy, and contradict Facebook's own representations."
The EPIC requests that the FTC "investigate Facebook, enjoin its unfair and deceptive business practices, and require Facebook to protect the privacy of Facebook users".
The EPIC asserts that this violates Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. It provides, in relevant part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."
The Congress has enacted no general privacy statute that governs the practices of web sites, including Facebook's. There are privacy statutes directed at specific institutions, and specific types of web sites, such as the Children's Online Privacy Protection Act, or COPPA. Nor has the FTC promulgated any general privacy rules under Section 5 of the FTC Act. Although, it has statutory authority to write rules implementing Section 5.
Rather, the FTC has, in a series of actions, announced and enforced its understanding that if a web site operator publishes a privacy policy, and then violates that policy, then that constitutes a violation of Section 5 of the FTC Act. See, FTC web page with hyperlinks to pleadings in its Section 5 privacy cases.
The FTC Act creates no administrative cause of action for private parties. However, the EPIC has a successful track record of prompting the FTC and the Federal Communications Commission (FCC) to act upon its privacy related complaints and petitions.
For example, the EPIC filed a complaint [PDF] on July 26, 2001, and an updated complaint [PDF] on August 15, 2001, regarding Microsoft's Passport and other software and services. The FTC acted upon the EPIC's complaints. On August 8, 2002, the FTC brought and settled an administrative complaint against Microsoft.
See, stories titled "EPIC Complains about Microsoft Passport" in TLJ Daily E-Mail Alert No. 250, August 16, 2001; "EPIC Seeks Government Investigations of Microsoft's Passport" in TLJ Daily E-Mail Alert No. 357, January 30, 2002; "EPIC Complains to FTC About Windows XP" in TLJ Daily E-Mail Alert No. 236, July 27, 2002; "FTC Files and Settles Complaint Against Microsoft" in TLJ Daily E-Mail Alert No. 488, August 9, 2002; and "EPIC Comments on FTC's Proposed Consent Order Affecting Microsoft's Privacy Practices" in TLJ Daily E-Mail Alert No. 505, September 10, 2002.
As another example, the EPIC filed the petition for a rulemaking proceeding with the FCC on August 30, 2005, that resulted in the FCC's 2007 customer proprietary network information (CPNI) order [101 pages in PDF]. It is FCC 07-22 in CC Docket No. 96-115 and WC Docket No. 04-36. See also, story titled "FCC Adopts NPRM Regarding Privacy of Consumer Phone Records" in TLJ Daily E-Mail Alert No. 1,308, February 13, 2006.
The FTC is also considering a complaint filed by the EPIC on March 17, 2009, regarding Google and cloud computing. See, story titled "EPIC Files Complaint With FTC Against Google" in TLJ Daily E-Mail Alert No. 1,916, March 20, 2009.
Microsoft Commits to EC to Offer Windows Without Browser in Europe
12/16. The European Commission (EC) announced in a release that under compulsion, Microsoft will "offer European users of Windows choice among different web browsers" and "allow computer manufacturers and users the possibility to turn Internet Explorer off".
The EC elaborated that "Microsoft will make available for five years in the European Economic Area (through the Windows Update mechanism) a "Choice Screen" enabling users of Windows XP, Windows Vista and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft's browser Internet Explorer."
Also, "The commitments also provide that computer manufacturers will be able to install competing web browsers, set those as default and turn Internet Explorer off."
For more information about the EC's action against Microsoft, see stories titled "European Commission Seeks 497 Million Euros and Code Removal from Microsoft" in TLJ Daily E-Mail Alert No. 863, March 25, 2004; "European Commission Releases Microsoft Decision" in TLJ Daily E-Mail Alert No. 883, April 23, 2004; "European Court of First Instance Rejects Key Parts of Microsoft's Appeal" in TLJ Daily E-Mail Alert No. 1,639, September 14, 2007; and "EC Demands More Money From Microsoft" in TLJ Daily E-Mail Alert No. 1,723, February 26, 2007.
FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act
12/16. The Federal Trade Commission (FTC) filed a five count administrative complaint [24 pages in PDF] against Intel alleging violation of Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. The allegations are in the nature of violations of federal antitrust law.
President Obama's appointees at the FTC and the Department of Justice's (DOJ) Antitrust Division, and their staff, have given speeches and made announcements regarding changing antitrust policy and enforcement practices. This is the first big enforcement case demonstrating that this administration's aggressive words are matched by its activist actions.
The FTC announced in a release that the vote was 3-0. Jonathan Leibowitz, Pamela Harbour, and Thomas Rosch voted. William Kovacic recused himself. One position if vacant.
FTC Chairman Leibowitz and Commissioner Rosch wrote in a joint statement [3 pages in PDF] that "Intel fell behind in the race for technological superiority in a number of markets and resorted to a wide range of anticompetitive conduct, including deception and coercion, to stall competitors until it could catch up".
This wide ranging complaint contains 106 numbered paragraphs, many of which contain subparts, in its body. The prayer contains another 26 numbered paragraphs.
The complaint alleges that from 1999 forward Intel's conduct "was and is designed to maintain Intel's monopoly in the markets for Central Processing Units" or CPUs, and "to create a monopoly for Intel in the markets for graphics processing units" or GPUs.
The complaint alleges that the relevant markets are first, "CPUs for use in desktop, notebook, netbook (or nettop) computers, servers, and narrower relevant markets contained therein", and second, "GPUs (including all graphics processors, or chipsets with graphics processors regardless of industry nomenclature) for use in desktop, notebook, netbook (or nettop) computers, servers, and narrower relevant markets contained therein". (Parentheses in original.)
The complaint alleges, among other things, that Intel acted "to block or slow the adoption of competitive products and maintain its monopoly to the detriment of consumers. Among those practices were those that punished Intel’s own customers – computer manufacturers -- for using AMD or Via products. Intel also used its market presence and reputation to limit acceptance of AMD or Via products, and used deceptive practices to leave the impression that AMD or Via products did not perform as well as they actually did."
It further alleges that Intel entered into "anticompetitive arrangements with the largest computer manufacturers that were designed to limit or foreclose the OEMs’ use of competitors' relevant products", "offered market share or volume discounts selectively to OEMs to foreclose competition in the relevant CPU markets", "used its position in complementary markets to help ward off competitive threats in the relevant CPU markets", and "paid or otherwise induced suppliers of complementary software and hardware products to eliminate or limit their support of non-Intel CPU products".
The FTC charges that Intel's acts and practices constitute "unfair methods of competition", "deceptive acts or practices", and "unfair acts or practices" in or affecting interstate commerce, in violation of Section 5 of the FTC Act.
The FTC further alleges that "Intel has willfully engaged in anticompetitive and exclusionary acts and practices to acquire, enhance or maintain its monopoly power in the relevant markets, constituting unfair methods of competition in or affecting commerce, in violation of Section 5".
And, it alleges that "Intel has willfully engaged in anticompetitive and exclusionary acts and practices, with the specific intent to monopolize or maintain a monopoly in the relevant markets, resulting, at a minimum, in a dangerous probability of monopolization in the relevant markets, constituting unfair methods of competition in or affecting commerce, in violation of Section 5".
Leibowitz and Rosch wrote in their statement that "The complaint challenges Intel's conduct as an unfair method of competition, both in violation of the Sherman Act and also as a ``stand-alone´´ violation of Section 5".
The FTC's request for relief is five pages long, in single spacing. The FTC seeks a cease and desist order that prohibits a wide range of enumerated business practices, including those involving marketing, pricing, and discounts.
The FTC seeks an order "Requiring Intel to make available technology (including whatever is necessary to interoperate with Intel's CPUs or chipsets) to others, via licensing or other means, upon such terms and conditions as the Commission may order, including but not limited to extensions of terms of current licenses" and "Prohibiting Intel from including or enforcing terms in its x86 licensing agreements that restrict the ability of licensees to change ownership, to obtain investments or financing, to outsource production of x86 microprocessors, or to otherwise partner with third parties to expand output". (Parentheses in original.)
The FTC also wants to require Intel to provide the FTC with prior notice of "acquisitions, mergers, consolidations, or any other combinations of assets, including but not limited to intellectual property, in the relevant microprocessor markets and complementary software and hardware products".
AMD, Nvidia and the antitrust bar are among the beneficiaries of this action.
In November, Intel and AMD settled claims brought by AMD in the U.S. District Court. See, story titled "Intel and AMD Announce Settlement Agreement" in TLJ Daily E-Mail Alert No. 2,014, November 12, 2009.
Intel also faces government actions in Europe and New York. On May 13, 2009, the EC announced that it would fine Intel one billion Euros for offering rebates to its customers.
See, story titled "European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007, story titled "EC Fines Intel One Billion Euros" in TLJ Daily E-Mail Alert No. 1,937, May 12, 2009, and story titled "EC Releases Intel Decision" in TLJ Daily E-Mail Alert No. 1,986, September 22, 2009.
See also, story titled "New York State Files Civil Antitrust Complaint Against Intel" in TLJ Daily E-Mail Alert No. 2,011, November 9, 2009.
Reaction. Intel stated in a release that it "has competed fairly and lawfully. Its actions have benefited consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices."
Douglas Melamed is now Intel's SVP and General Counsel. He was previously a Deputy Assistant Attorney General (DAAG), and the acting AAG, in the DOJ's Antitrust Division, with responsibility for the Microsoft case. He then worked in the Washington DC office of the law firm of Wilmer Hale.
He stated in Intel's release that "This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business."
Melamed added that "The FTC's rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated. It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case".
Ed Black, head of the Computer & Communications Industry Association (CCIA), stated in a release that this "shows this administration and this FTC takes antitrust enforcement seriously". He added that "Although we commend Intel for settling its private litigation, it is the FTC who is charged with protecting consumers beyond the scope of the private litigation filed by AMD. We hope that Intel continues on its recent conciliatory path and enters into a larger settlement with the FTC".
Ken Ferree of the Progress & Freedom Foundation (PFF) stated in a release that "I really expected much better of this administration. No serious antitrust theory supports the FTC's action, which appears to take Intel to task for competing ferociously in a market that is ferociously competitive. If this ever ends up before a federal court, I'm sure the FTC's efforts will be exposed for what they are -- an attempt to make headlines rather than good law."
• EPIC Complains to FTC About Facebook's Privacy Related Practices
• Microsoft Commits to EC to Offer Windows Without Browser in Europe
• FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act
• Commentary: FTC Antitrust Procedure
The House will not meet. It is in adjournment until January 12, 2010, subject to Section 11 of HRes 976 and HConRes 223.
9:30 AM. The Senate Banking Committee will hold an executive business meeting. The agenda includes consideration of the nominations of Ben Bernanke to be Chairman of the Board of Governors of the Federal Reserve System, Eric Hirschhorn to be Under Secretary of Commerce for Export Administration, and Marisa Lago to be an Assistant Secretary of the Treasury. See, notice. Location: Room 538, Dirksen Building.
10:00 AM. The Senate Judiciary Committee (SJC) will hold an executive business meeting. The agenda includes consideration of the nomination of Rogeriee Thompson to be a Judge of the U.S. Court of Appeals (1stCir). See, notice. Location: Room 226, Dirksen Building.
10:00 AM. The Senate Commerce Committee (SCC) will hold an executive business meeting. It will consider HR 3819 [LOC | WW], the "Commercial Space Launch Indemnification Extension", and the nominations of Julie Brill and Edith Ramirez to be Commissioners of the Federal Trade Commission (FTC). See, notice. Location: Room 253, Russell Building.
Commentary: FTC Antitrust Procedure
12/16. The Federal Trade Commission (FTC) filed an administrative complaint [24 pages in PDF] against Intel alleging violation of Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45.
Section 5. Each of the five counts in the complaint alleges violation of Section 5 of the FTC Act. This complaint does not expressly allege violation of any sections of the Sherman Act or Clayton Act. However, FTC Chairman Jonathan Leibowitz and Commissioner Thomas Rosch wrote in a joint statement [3 pages in PDF] that "The complaint challenges Intel's conduct as an unfair method of competition, both in violation of the Sherman Act and also as a ``stand-alone´´ violation of Section 5".
The Sherman Act specifically authorizes the FTC and Department of Justice (DOJ) to regulate anti-competitive conduct. For example, Section 2, which is codified at 15 U.S.C. § 2, provides that "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine ..."
There are well developed bodies of judicial case law that construe and give meaning to the various sections of the Sherman Act and Clayton Act.
There is no comparable body of case law that gives meaning to Section 5 as an antitrust statute. It has hardly been invoked as an antitrust statute for decades. The FTC is thereby pursuing Intel under a blank slate statute. There is almost nothing to put companies on notice as to what constitutes a violation of Section 5 in the antitrust context.
Leibowitz and Rosch wrote in their joint statement [3 pages in PDF] that by bringing a Section 5 claim they are "limiting Intel's susceptibility to private treble damages cases".
They continued that "concern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust. The result has been that some conduct harmful to consumers may be given a ``free pass´´ under antitrust jurisprudence, not because the conduct is benign but out of a fear that the harm might be outweighed by the collateral consequences created by private enforcement. For this reason, we have seen an increasing amount of potentially anticompetitive conduct that is not easily reached under the antitrust laws".
The two also asserted that "Section 5 is clearly broader than the antitrust laws, but it is not without boundaries, and the Commission will clearly describe and stay within those boundaries if this case comes before it to review."
This statement is packed with contestable assertions. For example, can the Commission make law by mere description? The Congress established a process for the FTC to follow in implementing Section 5 of the FTC Act as part of the landmark 1975 Magnuson Moss Warranty Act, Public Law No. 93-637. The Section 5 rule making process is found in Section 18 of the FTC Act, and is now codified at 15 U.S.C. § 57a. (The FTC is also working with the Congress to change Section 18 to allow the FTC to adopt Section 5 rules in a less open and transparent manner, and without having to set out justifications.)
Also, if the FTC does have authority to make law by description, can it then apply it to acts already committed by Intel, without violating Article 1, Section 9, of the Constitution? "No ... ex post facto Law shall be passed."
The complaint cites as authority for the proposition that the FTC has broader antitrust authority under Section 5 a series of ancient Supreme Court decisions, the most recent of which was decided in 1972, and all of which predate modern antitrust jurisprudence.
Administrative Action. The FTC did not file this complaint in the U.S. District Court. The FTC, through the Commission, staff and Administrative Law Judge (ALJ), is functioning simultaneously in both an executive law enforcement and judicial capacity.
Also, by proceeding administratively, the FTC disadvantages Intel by depriving it of the process afforded by the Federal Rules of Civil Procedure and judicial due process.
Moreover, the FTC recently amended it administrative procedure rules to make it harder for companies like Intel to contest administrative charges. See, notice in the Federal Register, January 13, 2009, Vol. 74, No. 8, at Pages 1803-1836, and story titled "FTC Writes Rules to Bolster Power of Antitrust Regulators" in TLJ Daily E-Mail Alert No. 1,882, January 13, 2009.
Leibowitz and Rosch wrote in their statement that "We are bringing this case under the Commission's recently adopted Part 3 rules of practice".
Perhaps it should be recalled that the last huge technology related case that the FTC pursued administratively, and under Section 5, was against Rambus. (The FTC also proceeded under Section 2 of the Sherman Act.)
It involved the JEDEC standards setting process and assertion of patent rights. The FTC spent over six years and considerable resources pursuing Rambus. The ALJ dismissed the action. See, story titled "ALJ Dismisses FTC Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 839, February 18, 2004. But, the Commissioners reversed their ALJ. See, story titled "FTC Holds That Rambus Unlawfully Monopolized Markets" in TLJ Daily E-Mail Alert No. 1,427, August 8, 2006.
But then, Rambus appealed to the U.S. Court of Appeals (DCCir), which set aside the FTC's order, leaving the FTC's case, its standards setting policy, and its reputation, in tatters. See, story titled "Court of Appeals Rules in Rambus v. FTC" in TLJ Daily E-Mail Alert No. 1,752, April 23, 2008, story titled "Supreme Court Denies Cert in Rambus Case" in TLJ Daily E-Mail Alert No. 1,903, February 24, 2009, and story titled "FTC Dismisses Rambus Complaint" in TLJ Daily E-Mail Alert No. 1,939, May 18, 2009.
And then, the ALJ quit the FTC. See, story titled "FTC's Chief Administrative Law Judge Will Leave FTC" in TLJ Daily E-Mail Alert No. 1,807, August 6, 2008.
Conclusion. The FTC and DOJ during the Bush administration faced difficulties sustaining their antitrust policies in the face of judicial review. They experienced notable defeats in court in the Rambus, Oracle, and Whole Foods cases.
Senior officials of the FTC and DOJ during the Bush administration held more restrained and cautious views on antitrust policy than the new officials of the Obama administration. These new officials are setting out in new and more activist directions. Yet, the underlying statutes, case law, and sitting judges remain in place.
The just filed Intel case may provide some insights into how the Obama FTC and DOJ plan to successfully implement their new policies. First, proceed under Section 5, and assert its antitrust broadness, to circumvent the existing body of case law construing the Sherman Act and Clayton Act.
Second, proceed administratively, rather than in District Court, to diminish companies' ability to mount an effective defense to enforcement actions.
Third, rewrite the procedural rules to further prejudice the defense, and induce companies to voluntarily concede to agency demands.