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Tag: Federal Trade Commission
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Privacy advocates warn about smart toys, urge FTC to do more
Privacy advocates warn about smart toys, urge FTC to do more – CBS News
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Microsoft tells judges its $69 billion Activision deal would benefit gamers | CNN Business
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Microsoft Corp said on Thursday its $69 billion bid to buy “Call of Duty” maker Activision Blizzard would benefit gamers and gaming companies alike.
Microsoft
(MSFT) made the argument in a filing aimed at convincing a judge at the US Federal Trade Commission to allow the deal to proceed, after FTC commissioners said the merger would hamper competition in the gaming industry in a complaint this month aimed at blocking the deal.In a complaint on Dec. 8, the FTC said its concern was that Activision’s popular games, including “World of Warcraft” and “Diablo,” potentially would stop being offered on devices that rival Microsoft’s Xbox. It set a hearing before an administrative law judge for August 2023.
Microsoft President Brad Smith said in mid-December the company had offered to sign a legally binding consent decree with the FTC to provide “Call of Duty” games to rivals including Sony and others for a decade.
“The acquisition of a single game by the third-place console manufacturer cannot upend a highly competitive industry. That is particularly so when the manufacturer has made clear it will not withhold the game,” Microsoft said in Thursday’s filing.
Smith said in a statement this week he was still confident in the company’s legal case but remained “committed to creative solutions with regulators.”
Activision CEO Bobby Kotick said in a statement on Thursday he believes that the companies will prevail in a legal fight with the trade commission.
The Biden administration has taken a more aggressive approach to antitrust enforcement. The US Department of Justice recently stopped a $2.2 billion merger of Penguin Random House, the world’s largest book publisher, and smaller US rival Simon & Schuster.
The Microsoft deal is also facing scrutiny outside the United States, with the European Union saying it would decide by March 23, 2023, whether to clear or block the deal.
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Fortnite players are getting $245 million in refunds — here’s who qualifies
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Epic Games, creator of the massively popular video game Fortnite, was hit with the Federal Trade Commission’s biggest penalty ever for a rule break this week.
The developer was ordered to pay $520 million for violating the Children’s Online Privacy Protection Act as well as for tricking millions of players into making unintended in-game purchases using a technique called “Dark patterns.”
Fortnite is free to play and makes billions of dollars from in-game purchases such as digital skins for players’ characters and seasonal “Battle Passes” that provide useful items as a user spends more time playing.
In a release breaking down Epic’s violations, the FTC said that the game’s “counterintuitive, inconsistent and confusing button configuration led players to incur unwanted charges based on the press of a single button,” including while players thought the game was in sleep mode or in a loading screen.
“These tactics led to hundreds of millions of dollars in unauthorized charges for consumers,” the FTC said.
Fortnite allowed children to purchase its in-game currency “without requiring any parents or card holder action or consent.” Parents complained that their kids “racked up hundreds of dollars in charges before they realized Epic had charged their credit card without their consent.”
“The laws have not changed, but their application has evolved and long-standing industry practices are no longer enough,” Epic said in a statement in response to the penalty. “We accepted this agreement because we want Epic to be at the forefront of consumer protection and provide the best experience for our players.”
Of the $520 million fine, $245 million will be set aside for customer refunds.
Are you eligible for a Fortnite refund?
Three groups can expect to receive money back:
- Parents whose kids made unauthorized purchases in the Epic Games Store between January 2017 and November 2018
- Players who were charged Fortnite’s in-game currency for items they didn’t intend to buy between January 2017 and September 2022
- Players who disputed unauthorized charges with their credit card companies and, as a result, had their accounts locked
When will the FTC’s Fortnite refunds be paid out?
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‘Fortnite’ maker Epic Games to pay $520 million in record-breaking FTC settlement | CNN Business
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CNN
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Epic Games, maker of the hit video game “Fortnite,” has agreed to pay a total of $520 million to settle US government allegations that it misled millions of players, including children and teens, into making unintended purchases and that it violated a landmark federal children’s privacy law.
As part of the agreement, Epic will pay $275 million to the US government to resolve claims it violated the Children’s Online Privacy Protection Act (COPPA) by gathering the personal information of kids under the age of 13 without first receiving their parents’ verifiable consent. It is the largest fine the FTC has ever imposed for a rule that it enforces, the agency said Monday.
In a second and separate settlement, Epic will pay $245 million as refunds to consumers who were allegedly harmed by user-interface design choices the FTC claimed were deceptive. That agreement is the largest administrative order in FTC history, the FTC added.
In a blog post addressing the twin settlements, Epic said the agreement reflects an evolution in how US laws are applied to the video gaming industry.
“No developer creates a game with the intention of ending up here,” Epic said in the blog post. “We accepted this agreement because we want Epic to be at the forefront of consumer protection and provide the best experience for our players.”
FTC Chair Lina Khan said the settlement reflects the agency’s heightened focus on privacy and so-called “dark patterns,” a term used to describe design elements intended to nudge users toward a company’s preferred result.
“Protecting the public, and especially children, from online privacy invasions and dark patterns is a top priority for the Commission, and these enforcement actions make clear to businesses that the FTC is cracking down on these unlawful practices,” Khan said in a statement.
The FTC’s complaint and proposed settlement dealing with children’s privacy was filed in the US District Court for the Eastern District of North Carolina. In addition to the alleged illegal collection of children’s data, the FTC also claimed that Epic’s default settings for matchmaking and in-game communications exposed children to bullying and harassment.
The allegations of Epic’s deceptive design choices were filed as an FTC administrative complaint. The complaint claims Epic made it extremely easy for children to purchase in-game items with a single click or button press without parental approval, resulting in more than one million parental complaints to Epic about unwanted charges.
The FTC further alleged that Epic made it more difficult to cancel purchases of in-game items by burying the option at the bottom of the screen and by requiring consumers to push and hold a button on their controllers to complete the cancellation. Those design choices were allegedly implemented after surveys showed that, when the cancel button was more prominently displayed, accidental charges were the “number one ‘reason’” users clicked on the button, the FTC said.
Epic’s agreement with the FTC, which is not yet final, prohibits the company from using dark patterns or charging consumers without their consent, and also forbids Epic from locking players out of their accounts in response to users’ chargeback requests with credit card companies disputing unwanted charges. The agreement will last for 20 years from the time it is adopted.
In its blog post, Epic said it has agreed with the FTC to implement a feature that explicitly asks Fortnite users whether to save their payment information for future use. The feature is currently live, it added. The company also recently rolled out a more limited version of “Fortnite” for younger players that allows them to access some features while awaiting parental consent but that restricts chat and purchases.
The FTC said that as part of its children’s privacy settlement, Epic may no longer enable text and voice chat by default for teenage Fortnite players or those under the age of 13. The company must also establish a comprehensive privacy program and delete the data it allegedly gathered in violation of COPPA.
“We share the underlying principles of fairness, transparency and privacy that the FTC enforces, and the practices referenced in the FTC’s complaints are not how Fortnite operates,” Epic wrote. “We will continue to be upfront about what players can expect when making purchases, ensure cancellations and refunds are simple, and build safeguards that help keep our ecosystem safe and fun for audiences of all ages.”
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DC attorney general sues Amazon for allegedly misusing driver tips | CNN Business
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Washington
CNN Business
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Amazon faces a new lawsuit from the attorney general of Washington, D.C. that alleges the e-commerce giant used customer tips meant for delivery drivers to reduce what it owed in driver wages.
The lawsuit by Attorney General Karl Racine further claims that Amazon covered up the practice, which allegedly began in 2016. The allegations are virtually identical to those leveled previously by the Federal Trade Commission, which announced a settlement with Amazon on the matter in 2021.
The business practice at issue involved Amazon’s public claims that it would pay Amazon Flex delivery drivers a rate of at least $18 per hour, plus 100% of any tips that customers contributed. According to the FTC, and now Racine, Amazon in 2016 changed its payment model without notifying drivers or customers. The new model allegedly used a portion of customer tips to subsidize Amazon’s own labor costs, and tried to hide the change from drivers by reporting their tips and wages as a combined figure.
Racine’s office said Tuesday it is bringing the new complaint because the FTC settlement, although it involved Amazon agreeing to pay drivers a total of $61.7 million to make them whole, did not impose any fines on the company.
Amazon “has thus far escaped appropriate accountability, including any civil penalties, for consumer harm,” Racine’s office said in a release. It added that the DC lawsuit seeks civil penalties “for every violation” of DC’s consumer protection law stemming from the practice and a court order barring Amazon from such violations in the future.
In a statement responding to Racine’s suit, Amazon spokesperson Maria Boschetti said the company revised its payment model for delivery drivers in 2019. In its earlier allegations, the FTC said Amazon only changed its payment model after the company learned that federal regulators were investigating the practice. (The 2019 changes, the FTC said at the time, appeared to largely revert the 2016 changes and provided more transparency to drivers about their earnings.)
“This lawsuit involves a practice we changed three years ago and is without merit,” Boschetti said. “All of the customer tips at issue were already paid to drivers as part of a settlement last year with the FTC.”
As part of the 2021 FTC settlement, Amazon agreed on a nationwide basis not to mislead drivers about their earnings, including tipped earnings, and to seek drivers’ explicit consent before changing how much of the customer tips they actually receive.
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FTC sues to block Microsoft’s $69 billion acquisition of Activision Blizzard | CNN Business
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Washington
CNN
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The Federal Trade Commission on Thursday sued to block Microsoft’s $69 billion acquisition of Activision Blizzard, challenging one of the largest tech acquisitions in history.
The administrative complaint filed Thursday by the FTC alleges that the blockbuster deal, which would make Microsoft the third-largest video game publisher in the world, would give Microsoft “both the means and motive to harm competition” — claiming it could negatively affect prices of video games as well as game quality and player experiences on consoles and gaming services, according to an agency release.
“We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers,” Brad Smith, Microsoft’s president, said in a statement Thursday. “We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC. While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”
In an email sent to employees and provided to CNN, Activision CEO Bobby Kotick said the FTC suit may sound “alarming” but he remains confident the deal will close. “The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge,” he said.
The US merger challenge reflects the biggest setback yet for Microsoft as it has aggressively courted regulators around the world in hopes of persuading them to bless the deal. It also marks the FTC’s most significant challenge to the tech industry since it sued to break up Facebook-owner Meta in 2020, underscoring US officials’ vocal promises of a tough antitrust enforcement agenda.
“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,” said Holly Vedova, director of the FTC’s Bureau of Competition, in a statement.
Microsoft’s proposed deal would give it control over key video game franchises, including “Call of Duty,” “World of Warcraft” and more.
Officials in the United Kingdom and the European Union have also scrutinized the deal as potentially anticompetitive. But the FTC complaint marks the first attempt by an antitrust regulator to block the deal outright.
Microsoft could use its ownership over Activision titles to raise prices, or to try to funnel players to gaming platforms it controls, such as Xbox or Windows, the FTC said. The deal could also affect the emerging market for cloud-based gaming services, the FTC said, which Microsoft is involved with through its subscription service, Xbox Game Pass.
In recent days, Microsoft has announced a slew of partnerships apparently intended to head off claims that it would withhold gaming content from rivals. This week, Microsoft said it had reached a 10-year deal with Nintendo ensuring that it will have access to Call of Duty for the foreseeable future.
In a Wall Street Journal op-ed Monday, Microsoft’s Smith said an FTC suit to block the Activision deal would be a “huge mistake” and added that the acquisition would allow Microsoft to innovate new features such as the ability for consumer to play the same game on multiple devices, just as they can with streaming TV shows or music.
Months earlier, in February, Microsoft made an 11-point pledge related to all of its app marketplaces and its gaming business. The list included a promise, which would cover the proposed Activision deal, not to give preferential treatment to its own published games on digital marketplaces it runs.
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FTC Sues To Block Microsoft-Activision Blizzard $69 Billion Merger
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The Federal Trade Commission said Thursday it is suing to block Microsoft’s planned $69 billion takeover of video game company Activision Blizzard, saying it could suppress competitors to its Xbox game consoles and its growing games subscription business.
The FTC voted 3-1 to issue the complaint after a closed-door meeting, with the three Democratic commissioners voting in favor and the sole Republican voting against. A fifth seat on the panel is vacant after another Republican left earlier this year.
The FTC’s complaint points to Microsoft’s previous game acquisitions, especially of well-known developer Bethesda Softworks and its parent company ZeniMax, as an example of where Microsoft made some popular game titles exclusive despite assuring European regulators it had no intention to do so.
“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said a prepared statement from Holly Vedova, director of the FTC’s Bureau of Competition. “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.”
Microsoft’s president, Brad Smith, suggested in a statement Thursday that the company is likely to challenge the FTC’s decision.
“While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court,” Smith said.
The FTC’s challenge ― which is being filed in an administrative court ― could be a test case for President Joe Biden’s mandate to scrutinize big tech mergers.
Microsoft had been ramping up its public defense of the deal in recent days as it awaited a decision.
Microsoft announced the merger deal in January but has faced months of resistance from Sony, which makes the competing PlayStation console and has raised concerns with antitrust watchdogs around the world about losing access to popular Activision Blizzard game franchises such as Call of Duty.
Antitrust regulators under Biden “have staked out the view that for decades merger policy has been too weak and they’ve said, repeatedly, ‘We’re changing that,’” said William Kovacic, a former chair of the FTC.
The goal is to “not allow dodgy deals and not accept weak settlements,” said Kovacic, who was a Republican commissioner appointed in 2006 by then-President George W. Bush. But he said trying to block this acquisition could trigger a legal challenge from Microsoft that the company has a good chance of winning,
“It’s evident that the company has been making a number of concessions,” he said. “If the FTC turns down Microsoft’s commitments, Microsoft would likely raise them in court and say the FTC is being incorrigibly stubborn about this.”
Microsoft announced its latest promise Wednesday, saying it would make Call of Duty available on Nintendo devices for 10 years should its acquisition go through. It has said it tried to offer the same commitment to Sony.
The deal is also under close scrutiny in the European Union and the United Kingdom, where investigations aren’t due to be completed until next year.
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A day of chaos brings Twitter closer to the brink | CNN Business
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Washington
CNN Business
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Two weeks after Elon Musk completed his acquisition of Twitter, the future of the company has never looked less certain.
In the past week alone, one of the world’s most influential social networks has laid off half its workforce; alienated powerful advertisers; blown up key aspects of its product, then repeatedly launched and un-launched other features aimed at compensating for it; and witnessed an exodus of senior executives.
The wild swings at Twitter only seemed to accelerate on Thursday with more executive departures, growing chaos over fake, verified accounts and an unusual public rebuke from the US government. Twitter now appears to be on the brink, a point Musk himself seemed to concede on Thursday by reportedly telling employees that bankruptcy could be on the horizon (though it’s far from the first time he’s warned about bankruptcy at one of his companies).
“Quite the day!” Musk tweeted.
It’s a stunning reversal of fortunes not just for Musk, who bought the company for $44 billion, but also for a platform used by some of the most powerful people on the planet, including world leaders, CEOs, and the Pope.
An end to the disruption seemed nowhere in sight on Friday. In its latest reversal on the matter, Twitter said it would re-introduce a gray “Official” badge for select accounts to help confirm their identities. The decision came after Twitter was forced to fend off a wave of verified-account impostors this week, including some posing as former President Donald Trump, Nintendo, and the pharmaceutical company Eli Lilly, among others. These accounts were the result of Musk’s decision to rush ahead with offering a blue check mark to any account holder willing to pay $8 a month, no questions asked, as he races to find new ways to make money from the platform.
That paid subscription service, too, was also suspended on Friday with little warning, just two days after its official launch, with the menu option to sign up for Twitter Blue suddenly disappearing from Twitter’s iOS app — the only place the add-on had been offered. It was not immediately clear when the company might restore the offering.
The gray “Official” badge has become an illustration of the whiplash users, employees, and advertisers have experienced in recent days.
Hours after the gray badges launched on Wednesday as a way to help users differentiate legitimate celebrity and branded accounts from accounts that had merely paid for a blue check mark, Musk abruptly tweeted that he had “killed” the feature, forcing subordinates to explain the reversal.
“We’re not currently putting an ‘Official’ label on accounts but we are aggressively going after impersonation and deception,” Twitter’s verified support account tweeted on Wednesday evening.
The account’s very next tweet, a day and nine hours later, said exactly the opposite: “To combat impersonation, we’ve added an ‘Official’ label to some accounts.”
Twitter did not immediately respond to a request for comment on the changes to the rollout of Twitter Blue or “Official” badges.
The paid verification feature’s rocky rollout attracted widespread criticism from misinformation experts who had warned it would make identifying trustworthy information much more difficult, particularly in the critical period following the US midterm elections. Even some of Musk’s fellow high-powered users of the platform had tough feedback.
“@elonmusk, from one entrepreneur to another, for when you have your customer service hat on. I just spent too much time muting all the newly purchased checkmark accts in an attempt to make my verified mentions useful again,” tweeted billionaire Mark Cuban.
“Bottom line is that you have a decision to make,” Cuban added. “Stick with the new Twitter that democratizes every tweet by paid accounts and puts the onus on all users to curate for themselves. Or bring back Twitter curation. One makes Twitter time and information efficient. The other is awful.”
In a Twitter Spaces event held for advertisers this week, Musk pleaded with brands to keep using the platform, after a growing number of companies paused ads, causing what Musk previously described as a “massive drop in revenue.” In the event, Musk sought to appear magnanimous in accepting responsibility for the company’s performance.
“If things go wrong, it’s my fault, because the buck stops with me,” he told an audience of over 100,000 listeners.
But privately, Musk’s critics have described the billionaire as dismissive of accountability, even in the face of scrutiny by the Federal Trade Commission, which publicly warned on Thursday, in a rare forward-looking statement, that it is “tracking recent developments at Twitter with deep concern.”
According to an internal Slack message posted by a Twitter employee and viewed by CNN, Musk has shown little fear of the FTC regulators overseeing the company’s multiple, legally binding consent agreements committing it to maintaining a robust cybersecurity program and producing written privacy impact reports before launching any new products or services, a requirement that could cover Twitter Blue.
The company is already facing billions in potential fines from the FTC over alleged privacy missteps dating to before Musk’s ownership. But, the Twitter employee warned colleagues, Twitter could find itself even more legally exposed after the sudden resignation of multiple top Twitter executives charged with fulfilling the company’s FTC obligations, including its chief information security officer and chief privacy officer.
Forced to address the looming risk of FTC oversight, Musk reportedly struck a conciliatory tone.
“Twitter will do whatever it takes to adhere to both the letter and spirit of the FTC consent decree,” Musk reportedly wrote in an email to employees Thursday evening.
The one thing Musk claims is going in his favor at Twitter is user growth, as more people tune in to watch him fumble his way through owning the company.
“Twitter usage is at an all-time high,” Musk tweeted earlier this week, before adding in a follow-up tweet: “I just hope the servers don’t melt!”
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Musk’s Twitter may have already violated its latest FTC consent order, legal experts say | CNN Business
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CNN
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Just two weeks into Elon Musk’s ownership of Twitter, the company may have already violated its consent agreement with the Federal Trade Commission, legal experts said.
If proven, a violation could ultimately lead to significant personal liability for Musk, escalating the risks he faces as he stumbles through a morass of business and content moderation headaches, most of which have been self-inflicted.
The potential violation stems from a reporting obligation Twitter must fulfill whenever the company experiences a change in structure, including mergers and sales.
Under Twitter’s latest FTC consent order, which was implemented this year, Twitter must submit a sworn compliance notice to the regulator within 14 days of any such change. The compliance notice is intended both to advise the FTC of major changes at the company as well as a commitment that it will continue to comply with the order, according to David Vladeck, a former senior FTC official and a law professor at Georgetown University.
Musk’s Twitter deal closed on Thursday, Oct. 27, prompting some legal experts to question Thursday whether Twitter had made the proper filings in light of the company’s mass layoffs and an exodus of senior executives. Among those resigning were its chief privacy officer and chief information security officer, who would be expected to be involved in the company’s compliance reporting.
“Godspeed to the poor b***ards dealing with that,” tweeted Riana Pfefferkorn, a research scholar at the Stanford Internet Observatory.
The FTC declined to comment on whether Twitter has submitted any compliance notices since Musk took over the company. Twitter, which laid off a substantial amount of its public relations team, didn’t immediately respond to a request for comment.
Alex Spiro, Musk’s attorney, told CNN on Thursday that “we are in a continuing dialogue with the FTC and will work closely with the agency to ensure we are in compliance.”
There are other, more substantive regulatory obligations that have come into question, too. They include requirements that Twitter produce written privacy assessments of any new “product, service or practice” — or when Twitter updates those things — that could affect user data or put it at risk.
The dizzying pace of product changes at Twitter since Musk’s takeover, combined with the company’s greatly reduced headcount, have raised doubts about whether Twitter is following the rules it agreed to — or if it even can.
“The chaos there is something the FTC is going to be worried about,” said Vladeck, “because there were serious deficiencies which led to the consent order in the first place, and the FTC is going to want to make sure they’re doing what they’re supposed to do.”
Internal concerns about Twitter’s compliance obligations were reflected in a Slack message viewed by CNN earlier this week, in which an employee warned colleagues that Musk could try to put responsibility for certifying FTC compliance onto individual engineers at the company.
“This will put a huge amount of personal, professional and legal risk onto engineers,” the employee wrote, adding that the new risks created by Musk could be “extremely detrimental to Twitter’s longevity as a platform.”
Matt Blaze, a professor of computer science and law at Georgetown University, urged Twitter employees to seek professional legal counsel “before signing anything or making any statement to regulators.”
“This is a bus you do NOT want to be thrown under,” Blaze tweeted.
FTC consent orders carry the force of law and any violations, if proven, could involve significant penalties including fines, restrictions on how Twitter can run its business and even potential sanctions on individual executives.
The company’s latest consent agreement was announced this spring after FTC allegations that Twitter misused user account security information, such as phone numbers and email addresses, for advertising purposes. The resulting consent order expanded on a 2011 consent agreement Twitter signed with the FTC committing the company to maintaining a robust cybersecurity program.
This summer, Twitter’s former head of security, Peiter “Mudge” Zatko, claimed Twitter was not meeting those obligations in an explosive whistleblower disclosure first reported by CNN and The Washington Post. (Twitter has previously pushed back on Zatko’s allegations, saying that security and privacy have “long been top company-wide priorities.”)
Those claims, which predate Musk’s ownership, may already have put Twitter on the hook for billions of dollars in potential FTC fines, legal experts have said.
Now, the latest claims of Twitter’s violations could mean even more money is at stake, as well as possible individual liability for Musk himself. Any alleged violations would first have to be proven, and the FTC would need to decide whether to enforce, said Vladeck. But under those circumstances, he said, “I think it’s likely Musk would be named” in a future consent order. “After all, he has made clear that he and he alone is making key decisions.”
The FTC has increasingly signaled it could seek to hold individual executives personally accountable if they’re found to have been responsible for a company’s violations, naming them in future orders and imposing binding requirements on their future conduct, even if they leave the company. (Last month, the FTC showed its willingness to follow through, imposing sanctions on the CEO of alcohol delivery service Drizly.)
Foreshadowing such a move, FTC Chair Lina Khan told US lawmakers that Twitter’s former CEO Parag Agrawal could “absolutely” be held personally liable in connection with Zatko’s allegations, if they are proven accurate. The FTC has not confirmed whether it is investigating Zatko’s allegations, but on Thursday, it issued a rare statement saying the agency is watching the current situation closely. As news about the executive departures unfolded, the agency said it is “tracking recent developments at Twitter with deep concern.”
“No CEO or company is above the law, and companies must follow our consent decrees,” the FTC said. “Our revised consent order gives us new tools to ensure compliance, and we are prepared to use them.”
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Vonage to pay customers $100 million for not letting them quit
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Vonage will pay $100 million to settle claims it trapped customers in unwanted accounts by forcing people to call to cancel, keeping them on hold for hours and charging hundreds of dollars to end service, government regulators said Thursday.
The New Jersey-based company, which provides internet-based phone services, made it easy for customers to sign up for accounts online but difficult to leave, according to a Federal Trade Commission complaint.
Starting in 2017, Vonage took an online cancellation link off its website to make it harder for customers to leave, the agency said. The company forced people who wanted to cancel to call a special number, which was different from its main customer service phone number and only available during limited hours. Customers were often dropped, forced to wait on hold for long periods of time and sometimes ignored, according to the complaint. Those who reached an agent also were often pressed to keep the service, the FTC alleged.
“[F]or any customers who, at long last, manage[d] to reach the retention department, endure the hold time, speak to an agent and request cancellation, they are subjected to aggressive sales pitches intended to prevent them from closing their accounts,” the complaint said. “Vonage’s retention agents are required to ask multiple ‘probing questions,’ present at least two alternative offers, and overcome customer resistance to offers presented, and agents who fail to engage in these retention efforts are penalized and disciplined.”
“Endless loop”
Business customers were forced to go through these cancellation procedures twice, and often had to pay early termination fees to end their contracts, the FTC said. That has led to “hundreds” of customer gripes over the years, according to the agency, with customers describing the process as an “endless loop,” “ridiculous,” “fraud and robbery” and “a scam.”
Vonage, which did not admit nor deny wrongdoing as part of the settlement, agreed to refund $100 million to customers and create a simple and transparent cancellation option, according to a consent order that is awaiting approval from a judge.
In a statement, a company spokesperson said that “Vonage agreed to resolve this matter and is compliant with the requirements set forth in the settlement. The Company felt it was in the best interests of our customers, partners and employees to come to a settlement, so we can focus on creating technology solutions that help people and businesses communicate, connect and engage from anywhere.”
Swedish telecom company Ericsson bought Vonage last year for $6.2 billion.
In 2009, Vonage paid $3 million to settle a 32-state lawsuit in which it was accused of tacking on fees and continuing to charge people even after they canceled services.
Getting a hard sell when trying to cancel a service is nothing new for American consumers. Examples range from impossible-to-cancel news subscriptions to video-game streaming services that bill automatically to cable service with cancellation fees. However, these coercive sales tactics have proliferated as digital spending has become more common and automated.
The FTC is now taking aim at these so-called dark patterns — “illegal hurdles, detours, roadblocks, and ruses” that manipulate customers into buying or keeping something they don’t want. The agency issued a report last month detailing techniques it considers deceptive along with suggestions to keep marketers honest.
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FTC seeks to clamp down on alcohol delivery service Drizly and its CEO after data breach | CNN Business
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Washington
CNN Business
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The Federal Trade Commission is seeking tough new restrictions against Drizly, the alcoholic beverage delivery platform, after what US regulators allege were repeated security failures that compromised the data of 2.5 million people.
The proposed order against Drizly, if finalized, would force the company to beef up its cybersecurity and limit its data collection practices, a common requirement in FTC privacy orders. But in a significant step, the FTC also specifically named the company’s CEO, James Cory Rellas, imposing what would be binding obligations on him and all of his future business activities, at Drizly or otherwise. Drizly would also be required to delete any data it holds on consumers that isn’t strictly necessary for it to run its service, the FTC said in a release.
“We take consumer privacy and security very seriously at Drizly, and are happy to put this 2020 event behind us,” a Drizly spokesperson told CNN Business.
The Drizly order reflects recent promises by top FTC officials to use novel remedies — such as forcing businesses to destroy “ill-gotten data” — in the agency’s increasingly tech-focused work, as well as vows to hold individual executives personally accountable if they’re found to be responsible for illegal conduct that harms consumers.
According to the FTC, Drizly — which Uber acquired last year — had been aware of its cybersecurity problems since 2018, after hackers gained access to Drizly employee credentials that then allowed them to use Drizly’s cloud computing accounts to mine cryptocurrency. In another incident in 2020, a hacker compromised Drizly’s corporate network and stole customer data. At least some of that personal data was then offered for sale on underground hacker forums, the FTC said.
FTC orders have come under mounting scrutiny in recent years, particularly after Twitter’s former head of security came forward with a whistleblower report alleging that the company had never been on track to comply with its FTC obligations.
Since then, FTC Chair Lina Khan has told lawmakers the agency is increasingly interested in naming executives in consent orders as a way to ensure businesses are held accountable.
As part of the Drizly order, Rellas will have to implement cybersecurity programs at any future business he works for where he is CEO or majority owner and where the business collects personal data from more than 25,000 people.
The FTC will determine whether to finalize the order after a 30-day public comment period that’s expected to begin when a summary of its provisions is published in the Federal Register.
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Meta hits back in fight with FTC over VR company acquisition
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WASHINGTON (AP) — Federal regulators and Facebook parent Meta are battling over Meta’s proposed acquisition of virtual-reality company Within Unlimited and its fitness app Supernatural.
In a landmark legal challenge to a Big Tech merger, the Federal Trade Commission is suing to block the deal, asserting it would hurt competition and violate antitrust laws.
Meta struck back Thursday, asking a federal court in San Jose, California, to dismiss the FTC’s July request for an injunction against the acquisition.
The tech giant said in its court filing that the government failed to establish that the virtual-reality market is concentrated with high barriers to entry. The claims in the agency’s lawsuit “are nothing more than the FTC’s speculation about what Meta might have done,” the company says. It asserts that the FTC failed to meet two key legal standards set in previous cases.
In a statement Thursday, the FTC noted that it revised its complaint last week in a way that narrowed the focus of its allegations. In its new form, the statement said, “We are confident that the District Court complaint will not be dismissed and this case will be heard.”
Meta, in its own statement, said “The FTC’s attempt to fix its ill-conceived complaint still ignores the facts and the law, and relies on pure speculation of a hypothetical future state.”
It added that it believes the complaint should be dismissed because there is “vibrant competition in the fitness space and across (virtual reality), and our acquisition of Within will be good for people, developers and the VR space.”
The FTC’s vote last summer to seek to block the Within acquisition was 3-2, with Chair Lina Khan and the other two Democratic commissioners approving it and the two Republicans opposed.
The FTC’s original suit named CEO Mark Zuckerberg as a defendant as well as Meta, but he was dropped in August.
Under Zuckerberg’s leadership, Meta began a campaign to conquer virtual reality in 2014 with its acquisition of headset maker Oculus VR. Since then, Meta’s VR headsets have become the cornerstone of its growth in the virtual reality space, the FTC noted in its suit. Fueled by the popularity of its top-selling Quest headsets, Meta’s Quest Store has become a leading U.S. app platform with more than 400 apps available to download, according to the agency.
Meta bought seven of the most successful virtual-reality development studios, and now has one of the largest virtual-reality content catalogs in the world, the FTC says. Its acquisition of the Beat Games studio gave Meta control of the popular app Beat Saber.
In its suit against the Within acquisition, the FTC cited a 2015 email from Zuckerberg to key Facebook executives saying that his vision for “the next wave of computing” was control of apps as well as the platform on which those apps are distributed. The email says a key part of this strategy is for the company to be “completely ubiquitous in killer apps,” which are apps that prove the value of the technology.
Zuckerberg announced ambitious plans a year ago to build the “metaverse” — a virtual-reality construct intended to supplant the internet, merge virtual life with real life and create endless new playgrounds for everyone.
On Tuesday, the company based in Menlo Park, California, unveiled a $1,500 virtual reality headset in the hope that people will soon be using it to work and play in the metaverse.
The action marked a new FTC salvo against Meta — the owner of Instagram, Messenger and WhatsApp in addition to Facebook — in the agency’s drive against what it views as anticompetitive conduct in the tech industry.
The FTC filed an antitrust lawsuit against Facebook in late 2020. With that action, the agency is seeking remedies that could include a forced spinoff of Instagram and WhatsApp, or a restructuring of the company.
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FTC says Bezos, Jassy must testify in probe of Amazon Prime
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WASHINGTON (AP) — Federal regulators are ordering Amazon founder Jeff Bezos and CEO Andy Jassy to testify in the government’s investigation of Amazon Prime, rejecting the company’s complaint that the executives are being unfairly harassed in the probe of the popular streaming and shopping service.
The Federal Trade Commission issued an order late Wednesday denying Amazon’s request to cancel civil subpoenas sent in June to Bezos, the Seattle-based company’s former CEO, and Jassy. The order also sets a deadline of Jan. 20 for the completion of all testimony by Bezos, Jassy and 15 other senior executives, who also were subpoenaed.
Jassy took over the helm of the online retail and tech giant from Bezos, one of the world’s richest individuals, in July 2021. Bezos became executive chairman.
Amazon hasn’t made the case that the subpoenas “present undue burdens in terms of scope or timing,” FTC Commissioner Christine Wilson said in the order on behalf of the agency. However, the FTC did agreed to modify some provisions of the subpoenas that it acknowledged appeared too broad.
The FTC has been investigating since March 2021 the sign-up and cancellation practices of Amazon Prime, which has an estimated 200 million members around the globe.
The company said it was disappointed but not surprised that the FTC mostly ruled in favor of its own position, but it was pleased that the agency “walked backed its broadest requests” in the subpoenas.
“Amazon has cooperated with the FTC throughout the investigation and already produced tens of thousands of pages of documents,” the company said in a statement. “We are committed to engaging constructively with FTC staff, but we remain concerned that the latest requests are overly broad and needlessly burdensome, and we will explore all our options.”
In a petition to the FTC filed last month, the company objected to the subpoenas to Bezos and Jassy, saying the agency “has identified no legitimate reason for needing their testimony when it can obtain the same information, and more, from other witnesses and documents.” Amazon said the FTC was hounding Bezos, Jassy and the other executives, calling the information demanded in the subpoenas “overly broad and burdensome.”
The investigation has widened to include at least four other Amazon-owned subscription programs: Audible, Amazon Music, Kindle Unlimited and Subscribe & Save, as well as an unidentified third-party program not offered by Amazon. The regulators have asked the company to identify the number of consumers who were enrolled in the programs without giving their consent, among other customer information.
With an estimated 150 million U.S. subscribers, Amazon Prime is a key source of revenue, as well as a wealth of customer data, for the company, which runs an e-commerce empire and ventures in cloud computing, personal “smart” tech and beyond. Amazon Prime costs $139 a year. The service added a coveted feature this year by obtaining exclusive video rights to the NFL’s “Thursday Night Football.”
Last year, Amazon asked unsuccessfully that FTC Chair Lina Khan step aside from separate antitrust investigations into its business, contending that her public criticism of the company’s market power before she joined the government makes it impossible for her to be impartial. Khan was a fierce critic of tech giants Facebook (now Meta), Google and Apple, as well as Amazon. She arrived on the antitrust scene in 2017, writing an influential study titled “Amazon’s Antitrust Paradox” when she was a Yale law student.
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“No locks on the doors”: Twitter whistleblower tells Senate of security gaps
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Twitter’s former security chief painted the social media company as a data-grabbing behemoth that risks exploitation by “teenagers, thieves and spies” in testimony before the Senate Judiciary Committee on Tuesday.
“Twitter leadership is misleading the public, lawmakers, regulators and even its own board of directors,” Peiter Zatko said in his testimony.
“They don’t know what data they have, where it lives and where it came from, and so, unsurprisingly, they can’t protect it,” Zatko said. “It doesn’t matter who has keys if there are no locks on the doors.”
“A decade behind”
Zatko, who was Twitter’s security head from November 2020 to January 2022, when he was fired, first laid out his allegations in a whistleblower complaint last month.
On Tuesday, he said the company was “almost a decade behind cybersecurity standards.” Twitter users give up far more of their personal information than they — or sometimes even Twitter itself — realize, Zatko testified.
Engineers, who make up half of Twitter’s employees, can access personal data of any user, Zatko said, adding the company did not keep logs of activities that enable it to track who logged into its internal systems. Executives do not fully understand Twitter’s security issues and don’t have the incentives to fix them, Zatko said.
When it comes to federal regulation, the Federal Trade Commission “is in a little over their head,” Zatko said: “They’re left letting companies grade their own homework.”
Many of Zatko’s claims are uncorroborated and appear to have little documentary support. Twitter has denied his allegations.
“Today’s hearing only confirms that Mr. Zatko’s allegations are riddled with inconsistencies and inaccuracies,” a company spokesperson said in a statement.
Spies on the inside?
Among Zatko’s most attention-grabbing assertions Tuesday was that Twitter knowingly allowed the government of India to place its agents on the company payroll, where they had access to highly sensitive data on users. Twitter’s inability to monitor how employees accessed user accounts made it hard for the company to detect abuses, Zatko said.
Zatko said that Twitter had at least one foreign agent from China on its payroll, and expressed “high confidence” that the Indian government had placed an agent at Twitter to “understand the negotiations” between the country’s ruling party and Twitter regarding new social media restrictions.
Zatko also said that Twitter’s advertising sales to Chinese companies, despite the service being banned in the country, raised concerns among some employees.
“Employees were disturbed that, in a country where the service was not allowed to be used, money was provided to organizations associated with the Chinese government,” he said, adding that Amazon executives overruled those concerns.
Zatko described similar concerns about Russia. He said he was “surprised and shocked” by an exchange with Twitter CEO Parag Agrawal in which the executive, who was chief technology officer at the time, asked if it would be possible to “punt” content moderation and surveillance to the Russian government, since Twitter lacks “the ability and tools to do things correctly.”
Shareholders back $44 billion deal
Zatko’s revelations offer additional ammunition to Tesla CEO Elon Musk, who is set to face Twitter in court after trying to back out of a $44 billion deal to buy the company. Musk has subpoenaed Zatko to testify at the trial, which is set to begin on October 17.
Separately on Tuesday, Twitter shareholders voted overwhelmingly to approve Musk’s acquisition, according to multiple media reports. Shareholders have been voting on the issue for weeks, although the vote was largely a formality, given the court case.
One issue that didn’t come up in the hearing was the question of whether Twitter is accurately counting its active users. One of Musk’s key contentions is that Twitter is lying about how many bots it has on the platform — an assertion that Zatko seemed to back up in his whistleblower complaint.
Sen. Dick Durbin, an Illinois Democrat who heads the Judiciary Committee, said the flaws Zatko described “may pose a direct threat to Twitter’s hundreds of millions of users as well as to American democracy.”
“Twitter is an immensely powerful platform and can’t afford gaping vulnerabilities,” Durbin said.
Zatko, 51, first gained prominence in the 1990s as a pioneer in the ethical hacking movement and later worked in senior positions at an elite Defense Department research unit and at Google. He joined Twitter in late 2020 at the urging of then-CEO Jack Dorsey.
The Associated Press contributed to this report.
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Microsoft faces off against US government over Activision deal, with top execs set to testify | CNN Business
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CNN
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Microsoft
(MSFT) and the video game giant Activision Blizzard
(ATVI) will face off Thursday against the US government in a high-stakes battle over one of the largest technology acquisitions in history.The showdown in federal court will have the CEOs of both companies taking the stand to defend their $69 billion merger against claims that the combination could violate US antitrust law and harm millions of consumers.
The outcome of the fight will shape the future of the multibillion-dollar games industry. It will also impact enormously popular gaming franchises such as “Call of Duty” and “World of Warcraft,” which Activision owns and would be transferred to Microsoft under the deal.
Also testifying will be the top financial executives from both companies; senior leaders from Microsoft’s Xbox division; the CEO of Microsoft Gaming, Phil Spencer; and a vocal critic of the deal, Sony gaming CEO Jim Ryan.
The days-long affair begins Thursday and is scheduled to run through next week.
In bringing the case, the Federal Trade Commission is asking a US district court judge for an injunction that would temporarily halt the deal. That would keep the companies from closing their merger, at least until the FTC’s in-house court rules in a separate proceeding on whether the acquisition is anticompetitive.
But this week’s fight over a preliminary injunction may prove decisive for the deal as a whole. Microsoft has said that a victory for the FTC at this stage “will effectively block the transaction” overall.
In this hearing, the FTC does not need to prove that the deal is anticompetitive. It just needs to show that the agency would be likely to succeed in doing so if the case moves ahead, and that otherwise its ability to enforce US antitrust law would be harmed.
The clash comes as Microsoft and Activision face down a contractual July 18 deadline to consummate the deal. Failure to close, or any permanent court order to block the merger, could force Microsoft to pay a $3 billion breakup fee to Activision, according to the deal’s terms.
The FTC lawsuit has put Microsoft under the harshest antitrust scrutiny in the US in more than two decades. It also could be a crucial test for the FTC at a time when it’s trying to rein in the tech industry broadly, with mixed success.
In its initial challenge to the merger in its in-house court last year, the FTC alleged the deal would harm competition by turning Microsoft into the world’s third-largest video game publisher — allowing it to raise video game prices with impunity, restrict Activision titles from rival platforms and harm game quality and player experiences on consoles and gaming services.
Some of those concerns have also been raised internationally. The UK government has challenged the acquisition, and the New Zealand government on Tuesday warned that the deal could be anticompetitive.
Microsoft has sought to address the concerns by hammering out multi-year licensing agreements with competitors such as Nintendo and Nvidia to ensure that their platforms will continue to receive popular titles if the deal goes through.
The company has also put forth an 11-point pledge to keep its platforms open, a commitment that applies not only to the Activision Blizzard deal but to virtually all of Microsoft’s gaming business going forward.
Last month, Microsoft said the European Union would require it to license Activision games “automatically” to competing cloud gaming services as a condition of allowing the merger to proceed in the EU. That commitment, Microsoft said, “will apply globally and will empower millions of consumers worldwide to play these games on any device they choose.”
Although EU regulators have said the concession addresses their concerns, officials in the US and the UK are continuing with their legal opposition to the deal.
The standoff particularly focuses attention on FTC Chair Lina Khan, a tech industry critic who has argued for litigating difficult cases and for introducing novel legal theories to help adapt US antitrust law to the digital age.
Khan won a significant victory last year when the FTC forced Nvidia to abandon its attempted acquisition of the chipmaker Arm. The deal would have combined two companies in adjacent industries in what is known as a vertical merger, a type of deal that is rarely blocked in the United States.
But Khan also suffered a setback when the FTC unsuccessfully tried to block Facebook-parent Meta from acquiring Within Unlimited, a virtual reality startup. The FTC had argued that the acquisition was an attempt by Meta to quash competition in the nascent VR industry, but earlier this year, a federal judge declined to issue a preliminary injunction of the kind the FTC now seeks against Microsoft. The FTC dropped its case against Meta soon after.
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The FTC should investigate OpenAI and block GPT over ‘deceptive’ behavior, AI policy group claims | CNN Business
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Washington
CNN
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An AI policy think tank wants the US government to investigate OpenAI and its wildly popular GPT artificial intelligence product, claiming that algorithmic bias, privacy concerns and the technology’s tendency to produce sometimes inaccurate results may violate federal consumer protection law.
The Federal Trade Commission should prohibit OpenAI from releasing future versions of GPT, the Center for AI and Digital Policy (CAIDP) said Thursday in an agency complaint, and establish new regulations for the rapidly growing AI sector.
The complaint seeks to bring the full force of the FTC’s broad consumer protection powers to bear against what CAIDP portrayed as a Wild West of runaway experimentation in which consumers pay for the unintended consequences of AI development. And it could prove to be an early test of the US government’s appetite for directly regulating AI, as tech-skeptic officials such as FTC Chair Lina Khan have warned of the dangers of unchecked data use for commercial purposes and of novel ways that tech companies may try to entrench monopolies.
The FTC declined to comment. OpenAI didn’t immediately respond to a request for comment.
“We believe that the FTC should look closely at OpenAI and GPT-4,” said Marc Rotenberg, CAIDP’s president and a longtime consumer protection advocate on technology issues.
The complaint attacks a range of risks associated with generative artificial intelligence, which has captured the world’s attention after OpenAI’s ChatGPT — powered by an earlier version of the GPT product — was first released to the public late last year. Everyday internet users have used ChatGPT to write poetry, create software and get answers to questions, all within seconds and with surprising sophistication. Microsoft and Google have both begun to integrate that same type of AI into their search products, with Microsoft’s Bing running on the GPT technology itself.
But the race for dominance in a seemingly new field has also produced unsettling or simply flat-out incorrect results, such as confident claims that Feb. 12, 2023 came before Dec. 16, 2022. In industry parlance, these types of mistakes are known as “AI hallucinations” — and they should be considered legally enforceable violations, CAIDP argued in its complaint.
“Many of the problems associated with GPT-4 are often described as ‘misinformation,’ ‘hallucinations,’ or ‘fabrications.’ But for the purpose of the FTC, these outputs should best be understood as ‘deception,’” the complaint said, referring to the FTC’s broad authority to prosecute unfair or deceptive business acts or practices.
The complaint acknowledges that OpenAI has been upfront about many of the limitations of its algorithms. For example, the white paper linked to GPT’s latest release, GPT-4, explains that the model may “produce content that is nonsensical or untruthful in relation to certain sources.” OpenAI also makes similar disclosures about the possibility that tools like GPT can lead to broad-based discrimination against minorities or other vulnerable groups.
But in addition to arguing that those outcomes themselves may be unfair or deceptive, CAIDP also alleges that OpenAI has violated the FTC’s AI guidelines by trying to offload responsibility for those risks onto its clients who use the technology.
The complaint alleges that OpenAI’s terms require news publishers, banks, hospitals and other institutions that deploy GPT to include a disclaimer about the limitations of artificial intelligence. That does not insulate OpenAI from liability, according to the complaint.
Citing a March FTC advisory on chatbots, CAIDP wrote: “Recently [the] FTC stated that ‘Merely warning your customers about misuse or telling them to make disclosures is hardly sufficient to deter bad actors. Your deterrence measures should be durable, built-in features and not bug corrections or optional features that third parties can undermine via modification or removal.’”
Artificial intelligence also stands to have vast implications for consumer privacy and cybersecurity, said CAIDP, issues that sit squarely within the FTC’s jurisdiction but that the agency has not studied in connection with GPT’s inner workings.
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FTC chair Lina Khan warns AI could ‘turbocharge’ fraud and scams | CNN Business
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Washington
CNN
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Artificial intelligence tools such as ChatGPT could lead to a “turbocharging” of consumer harms including fraud and scams, and the US government has substantial authority to crack down on AI-driven consumer harms under existing law, members of the Federal Trade Commission said Tuesday.
Addressing House lawmakers, FTC chair Lina Khan said the “turbocharging of fraud and scams that could be enabled by these tools are a serious concern.”
In recent months, a new crop of AI tools have gained attention for their ability to generate convincing emails, stories and essays as well as images, audio and videos. While these tools have potential to change the way people work and create, some have also raised concerns about how they could be use to deceive by impersonating individuals.
Even as policymakers across the federal government debate how to promote specific AI rules, citing concerns about possible algorithmic discrimination and privacy issues, companies could still face FTC investigations today under a range of statutes that have been on the books for years, Khan and her fellow commissioners said.
“Throughout the FTC’s history we have had to adapt our enforcement to changing technology,” said FTC Commissioners Rebecca Slaughter. “Our obligation is to do what we’ve always done, which is to apply the tools we have to these changing technologies … [and] not be scared off by this idea that this is a new, revolutionary technology.”
FTC Commissioner Alvaro Bedoya said companies cannot escape liability simply by claiming that their algorithms are a black box.
“Our staff has been consistently saying our unfair and deceptive practices authority applies, our civil rights laws, fair credit, Equal Credit Opportunity Act, those apply,” said Bedoya. “There is law, and companies will need to abide by it.”
The FTC has previously issued extensive public guidance to AI companies, and the agency last month received a request to investigate OpenAI over claims that the company behind ChatGPT has misled consumers about the tool’s capabilities and limitations.
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Tax prep companies shared private taxpayer data with Google and Meta for years, congressional probe finds | CNN Business
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Some of America’s largest tax-prep companies have spent years sharing Americans’ sensitive financial data with tech titans including Meta and Google in a potential violation of federal law — data that in some cases was misused for targeted advertising, according to a seven-month congressional investigation.
The report highlights what legal experts described to CNN as a “five-alarm fire” for taxpayer privacy that could lead to government and private lawsuits, criminal penalties or perhaps even a “mortal blow” for some industry giants involved in the probe including TaxSlayer, H&R Block and TaxAct.
Using visitor tracking technology embedded on their websites, the three tax-prep companies allegedly sent tens of millions of Americans’ personal information to the tech industry without consent or appropriate disclosures, according to the congressional report reviewed by CNN.
Beyond ordinary personal data such as people’s names, phone numbers and email addresses, the list of information shared also included taxpayer data — details about people’s filing status, adjusted gross income, the size of their tax refunds and even information about the buttons and text fields they clicked on while filling out their tax forms, which could reveal what tax breaks they may have claimed or which government programs they use, according to the report.
The report, which drew on congressional interviews and written testimony from Meta, Google and the tax-prep companies, also found that every taxpayer who used TaxAct’s IRS Free File service while the tracking was enabled would have had their information shared with the tech companies. Some of the tax-prep companies still do not know whether the data they shared continues to be held by the tech platforms, the report said.
“On a scale from one to 10, this is a 15,” said David Vladeck, a law professor at Georgetown University and a former consumer protection chief at the Federal Trade Commission, the country’s top privacy watchdog. “This is as great as any privacy breach that I’ve seen other than exploiting kids. This is a five-alarm fire, if what we know about this so far is true.”
It is also an example, Vladeck said, of why the United States needs federal legislation guaranteeing every American a basic right to data privacy — an issue that has languished in Congress for years despite electronic data becoming an ever-larger part of the global economy.
The congressional findings represent the latest claims of wrongdoing to hit the embattled tax-prep industry after a report last year by the investigative journalism outlet The Markup highlighted the tracking practice.
Wednesday’s bombshell report adds to those earlier revelations by identifying a previously unreported category of data that was allegedly being collected and shared: the webpage titles in online tax software that can reveal what tax forms users have accessed, said an aide to Democratic Sen. Elizabeth Warren, who helped lead the congressional probe. For example, taxpayers who entered information about their college savings contributions or rental income may have done so on webpages bearing titles reflecting that information, which would then have been shared with the tech companies, the aide said.
During the probe, Meta told investigators it used the taxpayer data it received to target third-party ads to users of its platform and to train its artificial intelligence algorithms, the report said. The Warren aide told CNN it was unclear whether Meta knew it was inappropriately using taxpayer data at the time. A Meta spokesperson said the company instructs its partners not to use its tools to share sensitive information and that Meta’s systems are “designed to filter out potentially sensitive data it is able to detect.”
The technology behind the data collection, known as a tracking pixel, is commonly used across the entire internet. A small snippet of code that website owners can insert onto their sites, tracking pixels gather information that can help companies, including but not limited to Meta and Google, understand the behavior or interests of website visitors.
Because of the tracking technology used by TaxAct, TaxSlayer and H&R Block, “every single taxpayer who used their websites to file their taxes could have had at least some of their data shared,” the report said.
The tax-prep companies at the center of the investigation told lawmakers the collected data had been scrambled to help protect privacy, according to the report. But the report also said some of the tax-prep firms themselves were not fully aware of how much information was being exposed to the tech platforms, and the report cited past FTC research concluding that even “anonymized” data can be easily reverse-engineered to identify a person.
The pixels’ use in a taxpayer context resulted in the “reckless” sharing of legally protected data that could put taxpayers at risk, according to the report by Warren and her Democratic colleagues Sens. Ron Wyden; Richard Blumenthal; Tammy Duckworth; and Sheldon Whitehouse; Sen. Bernie Sanders, an independent who caucuses with Democrats; and Democratic Rep. Katie Porter.
The FTC, the Internal Revenue Service, the Justice Department and the Treasury Inspector General for Tax Administration “should fully investigate this matter and prosecute any company or individuals who violated the law,” the lawmakers wrote in a letter dated Tuesday to the agencies and obtained by CNN. The FTC and DOJ declined to comment; the IRS and TIGTA didn’t immediately respond to a request for comment.
In a statement, H&R Block said it takes client privacy “very seriously, and we have taken steps to prevent the sharing of information via pixels.” Wednesday’s report said H&R Block had testified to using the tracking technology for “at least a couple of years.”
TaxAct and TaxSlayer didn’t immediately respond to a request for comment. The report said TaxAct had been using Meta’s tools since 2018 and Google’s since about 2014, while TaxSlayer began using Meta’s tools in 2018 and Google’s in 2011. The investigation found that all three tax-prep companies had discontinued their use of Meta’s pixel after The Markup’s report last November.
Intuit, the maker of TurboTax, received an initial inquiry letter from the lawmakers in December but was not a focus of Wednesday’s report because the company did not use tracking pixels to the same extent, the investigation found.
Tax preparation firms have faced mounting scrutiny in recent years amid reports that many have turned to data harvesting as a business model and that the largest among them have spent millions lobbying against legislation that could make it easier for Americans to file their tax returns. An IRS report this year found that 72% of Americans would be interested in using a free, electronic tax filing service if it were provided by the agency as an alternative to private online filing services. The IRS plans to launch a pilot version of that service to a limited number of taxpayers in the 2024 tax filing season.
Google told CNN it prohibits business customers from uploading to its platform sensitive data that could be traced back to a person.
“We have strict policies and technical features that prohibit Google Analytics customers from collecting data that could be used to identify an individual,” a Google spokesperson said. “Site owners — not Google — are in control of what information they collect and must inform their users of how it will be used. Additionally, Google has strict policies against advertising to people based on sensitive information.”
Wednesday’s report focuses more heavily on Meta’s use of taxpayer data, the Warren aide told CNN, because Google did not appear to have used the information for its own commercial purposes as overtly as Meta and the investigation was unable to fully determine whether Google may have used the data for other applications.
The allegations could nevertheless create extensive legal risk for both the tech companies as well as the tax-preparation firms, according to tax and privacy legal experts.
The tax-prep companies could face billions in fines under US tax law if the federal government decides to sue, said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. In addition, the US government could seek criminal penalties.
“The scope of ‘taxpayer information’ is broad by design,” Rosenthal said, adding that tax-prep companies can be sued for “knowingly” or “recklessly” leaking that information. “The companies shouldn’t be sharing it in a way that some third party could obtain it.”
Theoretically, he said, the tax code also affords individual taxpayers the right to file private lawsuits against the tax-prep companies. But most if not all of those firms require customers to submit to mandatory arbitration that could realistically make bringing a private claim more challenging, said the Warren aide.
Apart from the tax code, both the tech giants as well as the tax-prep firms could also face civil liability from the FTC — which can police data breaches and hold companies accountable for their commitments to user privacy — and potentially from state governments that have their own privacy laws on the books, said Vladeck.
Depending on the strength of the allegations, the tax-prep companies could quickly be forced into a binding settlement, said a former FTC official who requested anonymity in order to speak more freely.
“If the facts are really strong, these companies would probably rather settle than go to court. This is very embarrassing,” the former official said. “It could be a mortal blow to the tax prep companies.”
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Federal appeals court tosses state antitrust suit seeking to break up Meta | CNN Business
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A group of states that sued to break up Facebook-parent Meta in 2020 were years too late to file their challenge and failed to make a persuasive case that the company’s data policies harmed competition, a federal appeals court ruled Thursday in a sweeping victory for the tech giant.
In siding with Meta, the decision by a three-judge panel of the US Court of Appeals for the DC Circuit upheld a lower-court decision tossing out the suit initially filed by New York and dozens of other states.
The decision is a blow to regulators who have cited Meta as a prime example of the way tech giants have allegedly abused their dominance. And it casts a shadow over a parallel antitrust case against Meta that was brought by the Federal Trade Commission at around the same time.
The states’ original complaint had sought to unwind Meta’s past acquisitions of Instagram and WhatsApp, accusing the company of a “buy-or-bury” approach that violated antitrust laws.
In 2021, a federal judge dismissed the complaint, saying that the lawsuit came long after the acquisitions had been completed in 2012 and 2014. Thursday’s appellate decision agreed.
“An injunction breaking up Facebook, ordering it to divest itself of Instagram and WhatsApp under court supervision, would have severe consequences, consequences that would not have existed if the States had timely brought their suit and prevailed,” wrote Senior Circuit Judge Raymond Randolph.
In addition, Randolph wrote, state allegations claiming that Meta’s — then Facebook’s — policies placing restrictions on app developers were anticompetitive didn’t hold up.
The policies in question, Randolph wrote, simply told app developers they could not use Facebook’s platform “to duplicate Facebook’s core products,” and did not rise to the level of an antitrust violation under federal law.
Although the states argued that Facebook’s policies at the time — which have since been removed — discouraged innovation by the company’s rivals, the complaint failed to establish how widely the policies affected Facebook’s third-party developers.
“The States thus have not adequately alleged that this policy substantially foreclosed Facebook’s competitors, giving us an additional reason to reject their exclusive dealing theory,” the court held.
A spokesperson for New York Attorney General Letitia James didn’t immediately respond to a request for comment.
In a statement, Meta said the state’s case reflected a mischaracterization of “the vibrant competitive ecosystem in which we operate.”
“In affirming the dismissal of this case, the court noted that this enforcement action was ‘odd’ because we compete in an industry that is experiencing ‘rapid growth and innovation with no end in sight,’ Meta said. “Moving forward, Meta will defend itself vigorously against the FTC’s distortion of antitrust laws and attacks on an American success story that are contrary to the interests of people and businesses who value our services.”
In spite of Thursday’s decision, Meta must still face a similar lawsuit by the FTC, which also seeks to break up the company in connection with its Instagram and WhatsApp acquisitions.
Last year, the same federal judge who dismissed the state suit, James Boasberg, allowed the federal suit to proceed. Boasberg had tossed out the FTC suit as well in 2021, saying the agency had failed to make an initial showing that Meta holds a monopoly in personal social networking. But he permitted the FTC to re-file its complaint with changes.
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FTC says Meta should be barred from monetizing data from younger users | CNN Business
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The Federal Trade Commission on Wednesday accused Facebook-parent Meta of violating its landmark $5 billion privacy settlement and called for toughening up restrictions on the company, after alleging Meta has improperly shared user data with third parties and failed to protect children as it has promised.
The proposal to update the binding 2020 settlement with Meta marks a new front in the FTC’s long-running battle with the social media company, which has included multiple lawsuits aimed at breaking up the tech giant or preventing it from growing larger.
The FTC said Meta should be banned from monetizing data it collects from younger users. It added that the company should be barred from releasing any new features or products until a third-party auditor determines the company’s privacy policies do enough to protect users. It also called for new limitations on how Meta can use facial recognition technology.
If approved, the sweeping proposal could threaten the future of Meta’s business, including its expansion into virtual reality.
In a statement on Wednesday, Meta spokesman Andy Stone called the FTC proposal “a political stunt” and vowed to contest the effort.
“Despite three years of continual engagement with the FTC around our agreement, they provided no opportunity to discuss this new, totally unprecedented theory,” Stone said. “FTC Chair Lina Khan’s insistence on using any measure – however baseless – to antagonize American business has reached a new low.”
The FTC proposal comes as policymakers at all levels of government have increasingly blamed social media for furthering a mental health crisis among young people, prompting calls for strict regulations on how tech platforms can use the personal information of users under 18, target them with automated recommendations or seek to boost their engagement in other ways. Many of those proposals have taken the form of broad-based legislation, but the FTC proposal would represent a novel approach by amending a past consent order in connection with a single company that influences more than a billion users.
As part of the FTC’s call for changes, the agency said Meta had misled the public about its compliance with the historic settlement that resolved allegations surrounding the Cambridge Analytica data fiasco, as well as prior agreements with the agency.
Meta had allowed personal information to leak to apps that users of the platform were no longer using, the FTC alleged. That data sharing, the FTC claimed, contrasted with Meta’s public statements about how it cuts off a third-party app’s access to Facebook users’ information if the users stop using the third-party app for 90 days.
The FTC also alleged that multiple coding errors in a messaging app marketed to children, Messenger Kids, allowed users to connect to “unapproved contacts” in group video calls, and that the flaws went unresolved for weeks.
Those flaws meant parents could not control who their kids were speaking to on the app, in contrast to claims by Meta that they could, according to the FTC.
In addition to being a breach of Meta’s prior settlements, the alleged violations surrounding Messenger Kids also ran afoul of a federal children’s privacy law known as COPPA, the FTC said, because parents were not provided an opportunity to give Meta their consent before the company collected information on their kids.
Meta will have 30 days to respond to the proposed findings and changes, the FTC said, before the commission votes to finalize them. The FTC can unilaterally approve updates to the settlement, but Meta would have the opportunity to appeal that move in federal court, according to an agency fact sheet.
The FTC voted 3-0 to issue the proposed findings and changes, but one commissioner, Alvaro Bedoya, questioned whether the agency has the authority to impose such sweeping restrictions on Meta in light of the alleged violations.
In a statement, Bedoya said he was skeptical whether there was enough of a connection between Meta’s alleged harms and the proposed remedies to legally sustain a complete ban on monetizing the data of young users.
“I look forward to hearing additional information and arguments and will consider these issues with an open mind,” Bedoya said.
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