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Information section: For Release: September 19, 2005 Defendants to Pay Civil Penalty for Franchise Rule Violations Commission’s Complaint Brought Through “Project Biz Opp Flop” Enforcement Sweep The Federal Trade Commission today announced a stipulated final order settling charges against two defendants targeted in February 2005's “Project Biz Opp Flop” law enforcement initiative for allegedly violating the FTC’s Franchise Rule. According to the Commission, the defendants sold consumers cashless ATM and Internet kiosk franchises without providing them with disclosures identifying prior franchisees or justifying purported earnings. The final order announced today settles the FTC’s complaint and court action against defendants American Merchant Technologies, Inc. and the company’s principal, Lawrence B. Albano, bars them from similar violations in the future, and requires them to pay an $11,000 civil penalty. The Commission’s Complaint According to the Commission, the defendants sold cashless ATM and Internet kiosk business opportunities in violation of the FTC’s Franchise Rule. The complaint specifically alleged that they failed to provide prospective franchisees with a complete and accurate basic disclosure document about the business opportunity or an earning claim disclosure document as required by the Rule. The Department of Justice filed the complaint on behalf of the FTC in February 2005, as part of Project Biz Opp Flop, a multi-agency law enforcement sweep targeting fraudulent business opportunities. Terms of the Settlement The court order settling the charges bans the defendants from selling franchises or business opportunities and contains other relief to ensure they do not violate the Franchise Rule in the future. In addition, it requires them to pay a civil penalty of $11,000 and includes an avalanche clause that would require the payment of $1.17 million if the defendants are found to have misrepresented their financial condition to the Commission. Finally, the order contains standard monitoring and compliance provisions to ensure the defendants’ compliance with its terms. The Commission vote approving the stipulated final order was 4-0. The order was filed in the U.S. District Court for the Southern District of Florida and has been signed by the judge in this case. NOTE: The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated final orders have the force of law when signed by the judge. Copies of the complaint and stipulated order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
MEDIA CONTACT:
Mitchell Katz
Office of Public Affairs
202-326-2161
STAFF CONTACT: Michael Davis
Bureau of Consumer Protection
202-326-2458
(FTC File No. X050032)
(Civil Action No. 05-20443-CIV-HUCK)
For Your Information: Announced Actions for September 16, 2005 Commission approval of proposed divestitures: The Commission has approved a petition seeking approval of three proposed divestitures required under the FTC’s order regarding Valero L.P.’s (Valero) recent acquisition of Kaneb Services LLC (Kaneb). Under the terms of the consent order, Valero and Kaneb are required to divest: 1) the West Pipeline System; 2) the Philadelphia Area Terminals; and 3) the San Francisco Bay Terminals, as those terms are defined in the order, to Commission-approved purchasers. Through their petition, Valero and Kaneb requested FTC approval to divest all three assets to Pacific Energy Group LLC, or one of its wholly owned subsidiaries, per a July 1, 2005, purchase agreement between the relevant companies. The Commission has now approved each of the proposed divestitures. The Commission vote approving the divestitures was 3-0-1, with Chairman Deborah Platt Majoras recused. (FTC File No. 051-0022, Docket No. C-4141; the staff contact is Elizabeth A. Piotrowski, Bureau of Competition, 202-326-2623; see press releases dated June 15 and July 15, 2005.) Commission authorization of the staff to file amended complaint: The Commission has authorized the staff to file an amended complaint in the currently pending matter concerning Prime One Benefits, et al. The FTC’s original complaint in this matter, filed in November 2004 as part of the agency’s ongoing efforts to fight cross-border fraud, alleged the defendants falsely claimed that consumers who paid a fee ranging from $159 to $236 would be guaranteed a low-interest rate, high-credit limit, and no-annual-fee MasterCard or Visa credit card. Through this action, the staff has added three corporate defendants, 1284383 Ontario Inc., d/b/a First National Credit Services and Direct Service Management; 1309529 Ontario Inc., d/b/a U.S. National Credit; and Simax Corp., d/b/a America’s Gift House; and an individual defendant, Mishele Wells, to the Commission’s complaint. The Commission vote authorizing the staff to file the amended complaint was 4-0. (FTC File No. X050010; the staff contact is Karen D. Dodge, FTC Midwest Region, Chicago, 312-960-5634; see press release dated November 16, 2004.) Commission approval of final consent order: Following a public comment period, the Commission has approved the issuance of a final consent order in the matter concerning Advertising.com, Inc., dba Teknosurf.com, and John Ferber, individually and as an officer of the corporation. The Commission vote to approve the final consent order was 4-0. (FTC File No.042-3196; the staff contact is Thomas B. Pahl, 202-326-2128; see press release dated August 3, 2005.) Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/09/fyi0567.htm)
For Release: September 15, 2005 FTC Stops Weight-loss Claims about Seaweed-based Patches Defendants Banned from Marketing Weight-Loss Products and Dietary Supplements in the U.S.
The alleged masterminds behind a fraudulent scheme to market two seaweed-based patches as weight-loss products to U.S. consumers have settled Federal Trade Commission charges. The defendants, all based in the United Kingdom, will pay $150,000 – the profits they made from selling Hydro-Gel Slim Patch and Slenderstrip in the United States. Under the settlement, the defendants will be banned in the U.S. from making, advertising, or selling any dietary supplement, food, drug, or weight-loss product, and cannot make claims about other health-related products or services unless the claims are backed by scientific evidence. The FTC filed a complaint in December 2003 to stop the allegedly false and unsubstantiated weight-loss claims for the two patches. In May 2004, the FTC amended its complaint to include Kingstown Associates, Ltd.; BVW Associates, Inc.; Gary Bush; David Varley; and Laurence White, the defendants named in today’s announced settlement. The FTC added the defendants when the Commission discovered they were allegedly orchestrating the manufacturing, advertising, and selling of the patches in the United States. In September 2004, the original defendants settled FTC charges. The settlement announced today against the U.K.-based defendants bans them from manufacturing, labeling, advertising, promoting, offering for sale, selling, or distributing any dietary supplement, food, drug, or weight-loss product, or assisting others to do so. The defendants are further prohibited from making representations about the health benefits, performance, or efficacy of any health-related service or program, or device unless the representations are true, non-misleading, and substantiated by competent and reliable scientific evidence at the time they are made. The order also requires the defendants to give the FTC a list of people who bought Hydro-Slim Patch and Slenderstrip, and prohibits them from disclosing their mailing lists to others, except as required by law. They are required to pay $150,000, but if it is found that the defendants misrepresented their financial status, they will be responsible for the full judgment of $5.3 million – the total U.S. sales of the two patches. The order also contains standard record-keeping provisions. The Commission vote to authorize staff to file the stipulated final order was 4-0. The stipulated final order for permanent injunction was filed in the U.S. District Court for the Western District of New York on September 9, 2005, and requires the signature of the judge. NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge. Copies of the stipulated final order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. MEDIA CONTACT: Mitchell J. Katz or Jackie Dizdul
Office of Public Affairs
202-326-2161 or 202-326-2472
STAFF CONTACT: David Koehler or Karen Muoio
Division of Advertising Practices
202-326-3627 or 202-326-2491
(http://www.ftc.gov/opa/2005/09/hydrogel.htm)
Consumer Information: September 15, 2005 Spam Emails About Hurricane Katrina Charities and News May be Scams FTC Advises Consumers not to Reply, Click the Link, or Paste the Link Found in Unsolicited Emails In the wake of Hurricane Katrina, many consumers are looking for news about the hurricane or information about charities that are helping victims. The Federal Trade Commission cautions consumers to be careful of email messages that make these offers. A new Consumer Alert from the FTC warns that fraud artists are sending spam trying to rip-off consumers. “After a Disaster: Spam May Scam” can be found online at http://www.ftc.gov/bcp/conline/pubs/alerts/disaster_spamalrt.htm. The alert describes two common spam emails: - one requests donations, claiming to provide aid to victims, when in fact, the spammers keep most or all of the funds;
- the other offers news about the hurricane if readers click on a link. Clicking secretly installs spyware onto the user’s computer, however, giving hackers control of the computer, and could possibly lead to identity theft.
The FTC advises consumers that they should not reply to these unsolicited emails, click on links in the emails, or even cut and paste the links into their own Internet browsers, as scammers can make links look like they go one place, but actually send computer users somewhere else. For more information from the FTC about Hurricane Katrina, consumers can visit http://www.ftc.gov/bcp/conline/events/katrina/index.html. Copies of the consumer alert are available from the FTC’s Web site at http://www.ftc.gov/bcp/conline/pubs/alerts/disaster_spamalrt.htm, http://www.ftc.gov/bcp/conline/pubs/alerts/disaster_spamalrt.pdf and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Call toll-free: 1-877-FTC-HELP. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/09/katrinaspamci.htm)
For Release: September 13, 2005 Federal Trade Commission/Justice Department to Host Joint Workshop on Competition Policy and the Real Estate Industry One-day Public Event Scheduled for October 25, 2005, in Washington, D.C. The Federal Trade Commission and the Department of Justice’s (DOJ) Antitrust Division today announced that they will host a joint workshop entitled “Competition Policy and the Real Estate Industry.” Prompted by the substantial changes in the real estate brokerage marketplace and consumers’ interest in a competitive real estate brokerage industry, the workshop will cover such topics as new and innovative brokerage business models, multiple listing services, and the implications of state-imposed minimum-service requirements. The event, which is open to the public and the press, will be held on October 25, 2005, at the FTC’s Satellite Building Conference Center located at 601 New Jersey Avenue, N.W., Washington, D.C. The time of the conference is to be determined (consult the Web site below for updated information). Seating at the workshop will be on a first-come, first-served basis and there is no fee for attendance. For admittance to the conference center, all attendees will be required to show a valid form of photo identification, such as a driver’s license. Pre-registration is not necessary, but is encouraged. To pre-register, please email your name and affiliation to CompetitionandRealEstate@ftc.gov. Any person may submit written or electronic comments on the panelists’ topics, either before or after the workshop. Comments should be sent both to the FTC and the Justice Department and they should be received on or before November 28, 2005. For further information about the workshop and for specific information on sending comments, workshop agenda, and contact information, please consult the FTC and DOJ Web sites at http://www.ftc.gov/opp/workshops/comprealestate/index.htm and http://www.usdoj.gov/atr/public/workshops/reworkshop.htm. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot,
stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. FTC MEDIA CONTACT: Mitchell J. Katz
Office of Public Affairs
202-326-2161
FTC STAFF CONTACT: James Cooper
Office of Policy Planning
202-326-3367
DOJ MEDIA CONTACT: Gina Talamona
Office of Public Affairs
202-514-2007
DOJ STAFF CONTACT: Lee Quinn
Litigation III Section
202-307-1028
(http://www.ftc.gov/opa/2005/09/comppolicyworkshop.htm
For Your Information: Announced Action for September 13, 2005 Commission authorization of the staff to file joint amicus brief: The Commission has authorized the staff of the Office of General Counsel to file a joint amicus brief with the U.S. Department of Justice in Texaco v. Dagher, Nos. 04-805, 04-814 (U.S. S. Ct.). In the brief, which can be found as a link to this press release on the FTC’s Web site, the agencies urge the U.S. Supreme Court to reverse a Court of Appeals for the Ninth Circuit decision holding that it could be a per se violation of the Sherman Act for two parent entities of a joint venture to direct it to equalize prices for the two brands of gasoline sold by the joint venture, in which the joint venture effectively merged the parents’ downstream operations and terminated their prior competition with respect to the refining and sale of gasoline. The Commission authorizing the staff to file the joint brief was 3-0, with Chairman Deborah Platt Majoras recused. (FTC File No. P051203; the staff contact is John F. Daly, Office of General Counsel, 202-326-2244; see press release dated May 31, 2005.) Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/08/fyi0566.htm)
For Release: September 7, 2005 FTC Testifies on Initiatives to Protect Competitive Markets in the U.S. Petroleum Industry Commission is Committed to Shielding Consumers from Illegal Mergers or Conduct Testifying today on behalf of the Federal Trade Commission before the U.S. House of Representatives’ Committee on Energy and Commerce, Associate General Counsel for Energy John Seesel detailed the FTC’s varied initiatives to protect competitive markets in the production, distribution, and sale of gasoline, and discussed in detail an important Commission study issued earlier this year on the factors affecting gas prices nationwide. “No other industry’s performance is more deeply felt or carefully scrutinized,” Seesel said in opening the FTC’s testimony. “Gasoline prices are among the most visible prices in our complex economy. Consumers closely follow gasoline prices, and in recent months these prices have experienced dramatic increases.” The FTC, he said, “has been and remains vigilant” in its examination of anticompetitive conduct within the industry, with the most recent example being the dual consent orders reached with respect to Chevron Corp.’s acquisition of Unocal and the settlement of the Commission’s 2003 monopolization complaint against Unocal. In addition, Seesel testified that in 2004, the FTC staff published a study reviewing mergers and structural changes in the U.S. petroleum industry. The study also provided an overview of antitrust enforcement actions the Commission has taken since 1981 – including 19 complaints filed against larger petroleum mergers. Also, the FTC actively monitors wholesale and retail prices of gasoline and diesel, Seesel stated, to protect consumers by identifying unusual movements in prices both at the wholesale and retail levels and investigating their causes when appropriate. The testimony addresses the Committee’s inquiries in two areas. It first reviews the basic tools the FTC uses to promote competition in the petroleum industry, including challenging potentially anticompetitive mergers, prosecuting nonmerger antitrust violations, monitoring industry conduct to detect possible anticompetitive behavior, and researching developments in the petroleum sector. Next, it reviews what the Commission has learned from its conferences and research, as well as its review of recent gasoline price changes. The testimony also provides a detailed explanation of the Commission’s recent report on the factors affecting the price of gasoline – a topic of even more relevance to consumers in the wake of price increases following Hurricane Katrina. The report analyzes the factors, including supply, demand, and competition, as well as federal, state, and local regulations, that drive gasoline prices, so policy-makers can evaluate and choose strategies likely to succeed in addressing high gasoline prices. Finally, discussing the report in more detail, the testimony stresses: 1) the worldwide supply, demand, and competition for crude oil are the most important factors in the national average prices of gasoline in the United States, and 2) that gasoline supply, demand, and competition produced relatively low and stable prices from 1984 until 2004, despite substantial increases in U.S. gasoline consumption. It also discusses local regulations that may have an impact on retail gasoline prices, as well as how the development of hypermarkets – large retailers of general merchandise and grocery items, such as Wal-Mart and Safeway – has affected what consumers pay at the gas pump. The testimony concludes by stating that “[t]he Federal Trade Commission has an aggressive program to enforce the antitrust laws in the petroleum industry. The Commission has taken action whenever a merger or nonmerger conduct has violated the law and threatened the welfare of consumers or competition in the industry. [The FTC] continues to study this industry in detail, to monitor wholesale and retail gasoline prices, and to search for instances of illegal mergers or anticompetitive conduct.” The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 4-0. Copies of the Commission’s testimony are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm. MEDIA CONTACT: Mitchell J. Katz
Office of Public Affairs
202-326-2161
(FTC File No. P052103) (http://www.ftc.gov/opa/2005/09/gasprices.htm)
Consumer Information: FTC Offers Tips for Fewer Trips to the Pump Alert Tells Consumers How to Improve Gas Mileage Consumers everywhere are looking for ways to decrease the amount of money they spend filling up at the gas pump. The Federal Trade Commission is releasing an updated Consumer Alert with tips on using fuel efficiently to help consumers save money by getting the best mileage out of their gas purchases. “Good, Better, Best: How to Improve Gas Mileage” can be found online at http://www.ftc.gov/bcp/conline/pubs/alerts/fuelalrt.htm. Tips for using fuel more efficiently include: driving more efficiently; maintaining your car; using the octane level you need; being skeptical of claims about “gas-saving” gadgets; and considering alternative fuel or hybrid electric vehicles. Copies of the consumer alert are available from the FTC’s Web site at http://www.ftc.gov/bcp/conline/pubs/alerts/fuelalrt.htm, and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Call toll-free: 1-877-FTC-HELP. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/09/gaspricesci.htm)
For Release: September 7, 2005 Payment Processor Settles FTC Charges Agency Alleges Defendants Knew or Should Have Known Charges Were Not Authorized A payment processor and its principal who attempted to process more than $1.2 million in unauthorized charges on consumer checking accounts, even though they knew or should have known the debits were not authorized by consumers, have agreed to settle Federal Trade Commission charges that their practices violated federal law. The settlement bars the defendants from processing payments without ensuring that the charges are authorized; making false claims to other payment processors in an effort to enlist processing services for clients; and processing payments when they know that their client does not have a business relationship with the consumer. The payment processor made the unauthorized debits on behalf of a business known as Pharmacycards. In May 2004, the FTC charged “Pharmacycards.com” with electronically debiting thousands of consumers’ accounts for $139, without consumers’ knowledge or consent. According to the FTC, Pharmacycards attempted to debit more than $10 million from consumers’ checking accounts in less than three months. The FTC alleges that the Pharmacycards defendants gained access to the banking system via third-party payment processors by claiming that they were engaged in a legitimate business – selling pharmacy discount cards. According to the 2004 complaint, the Pharmacycards defendants provided consumers’ checking account numbers to third-party payment processors, including the defendants in this case, Universal Processing Inc., and its principal, Rey Pasinli. In the complaint naming Pasinli and Universal, the FTC alleges they arranged for consumers’ accounts to be debited without meeting with the Pharmacycards operators or requiring that they complete their standard payment processing application. According to the complaint, “They agreed to use their entree to the banking system to debit consumer checking accounts on behalf of two individuals they had never met, purportedly from England, purportedly with a corporation chartered in Cyprus, who were using a Montreal customer service center, free, untraceable e-mail accounts, an unsecure website hosted in India, a Vancouver, British Columbia, mailing address, and who directed that the proceeds be sent to a bank in Cyprus.” Shortly after they started processing the Pharmacycards charges, return rates for the charges “started high and almost immediately sky-rocketed” – a tip-off that the charges were not authorized by consumers. Nevertheless, the defendants continued processing approximately $1.2 million in debits to consumers’ accounts and attempted to convince their upstream payment processors to continue processing the Pharmacycards transactions. More than 70% of the debit transactions were “returned.” The agency alleges that when the defendants processed the charges they knew or avoided knowing that the charges were unauthorized. The FTC charges that in doing so, the defendants engaged in unfair practices that violate the Federal Trade Commission Act. The settlement bars the defendants from processing payments without taking steps to assure they were authorized by consumers. It bars them from misrepresenting that consumers authorized payments and bars them from processing charges while knowing or consciously avoiding knowing that the client does not have a business relationship with the consumer. The settlement requires that before the defendants take on clients, they take steps to ensure that the client is a legitimate business, complying with the Telemarketing Sales Rule and the FTC Act. It also requires the defendants to monitor the return rates for payments processed for clients and investigate the cause for any return rate that exceeds 2.5% and cease processing for any client engaged in unfair or deceptive acts or practices. The defendants also will give up all of their ill-gotten gains – $9,476. The settlement contains record-keeping and bookkeeping provisions to allow the agency to monitor compliance. The Commission vote to accept the settlement was 4-0. It was filed in United States District Court for the Central District of California, Southern Division. NOTE: A stipulated permanent injunction and final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge. Copies of the complaint and stipulated order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
MEDIA CONTACT:
Claudia Bourne Farrell
Office of Public Affairs
202-326-2181 STAFF CONTACT: Tracy Thorleifson or Laureen France
FTC Northwest Region
206-220-4481 or 206-220-4471
(FTC File No. 042-3190) (http://www.ftc.gov/opa/2005/09/universal.htm)
For Release: September 6, 2005 FTC Resolves Aloha Petroleum Litigation Aloha’s Agreement with Mid Pac Restores Competition That Would Have Been Lost in the Bulk Supply Gasoline Market in Hawaii The Federal Trade Commission today announced that, because of changed circumstances, it has asked the Federal District Court for the District of Hawaii to dismiss the FTC’s complaint seeking an injunction to block Aloha Petroleum LTD.’s (Aloha) proposed $18 million acquisition of a half interest in an import-capable terminal and retail gasoline assets of Trustreet Properties, Inc. (Trustreet) on the island of Oahu, Hawaii. Following a unanimous decision, the Commission filed its motion after Aloha announced it would enter into a 20-year throughput agreement giving Mid Pac Petroleum LLC (Mid Pac) substantial rights to use the Barbers Point terminal. The agreement will restore competition threatened by the acquisition. “This is a clear victory for consumers in Hawaii,” said Susan Creighton, Director of the FTC’s Bureau of Competition. “Through this agreement, Mid Pac will become a significant competitor in the marketing of bulk supply gasoline on Oahu.” Accordingly, she said, the Commission has decided not to pursue further litigation in this case.
The Throughput Agreement Aloha’s 20-year throughput agreement with Mid Pac will essentially substitute Mid Pac for Trustreet as a bulk supply gasoline marketer in Hawaii. Mid Pac owns and operates several retail gasoline stations in Hawaii under the Union 76 brand. Mid Pac also supplies gasoline to several other Union 76 stations owned by third parties. The Commission has carefully examined the terms of this agreement between Aloha and Mid Pac and believes it will restore competition that would have been lost if the Commission had not challenged the acquisition. The throughput agreement gives substantial rights to Mid Pac to use the Barbers Point terminal to import virtually unlimited quantities of gasoline into Hawaii. Case Background Aloha already owns a 50 percent interest in the Barbers Point petroleum importing terminal on Oahu and under the transaction as proposed would have acquired the other half interest from Trustreet. The Barbers Point terminal is the newest on the island and it can take full cargoes of gasoline, which is the most economical way to bring in low-cost bulk supply to Hawaii. The FTC’s complaint alleged that the ability to import cargoes of gasoline is necessary to obtain a competitive bulk supply price from one of the two refiners on Oahu, Chevron Corporation and Tesoro Corporation. As co-owners of the Barbers Point Terminal, both Aloha and Trustreet therefore had the ability to market gasoline competitively in Hawaii. The only other terminal available for gasoline imports is the Shell terminal. Consequently, the complaint stated that, if the acquisition were allowed to proceed, it would reduce the number of gasoline marketers with ownership of, or guaranteed access to, a refinery or an import-capable terminal from five to four. It would also reduce from three to two the number of bulk suppliers who have been willing to sell to unintegrated retailers. The acquisition would thus be likely to result in higher prices for bulk supply of gasoline. State Cooperation and Assistance The Commission appreciates the assistance of the Hawaii Attorney General’s Office in investigating and prosecuting this matter. Specifically, the Attorney General’s Office lent one of its staff to serve as a Special Deputy with the FTC, which made a substantial contribution to the quick and successful resolution of this case. The vote authorizing the staff to withdraw the complaint was 3-0-1, with Chairman Deborah Platt Majoras recused. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm. MEDIA CONTACT: Mitchell J. Katz
Office of Public Affairs
202-326-2161
STAFF CONTACTS: Erika Wodinsky
FTC Western Region, San Francisco
415-848-5190
Michael J. Bloom
Bureau of Competition
202-326-2475
(FTC File No. 151-0131) (http://www.ftc.gov/opa/2005/09/alohapetrol.htm)
For Release: September 6, 2005 FTC Issues Report on PBM Ownership of Mail-Order Pharmacies Study Shows PBM Ownership Does Not Result in Higher Costs for Consumers The Federal Trade Commission today issued a report entitled “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies.” The report, developed in response to a Congressional request in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), examines whether private-sector entities that offer prescription drug coverage pay more for such drugs when using a mail-order pharmacy owned by a Pharmacy Benefit Manager (PBM), as opposed to using a mail-order or retail pharmacy that the PBM does not own. The report concludes that, in 2002 and 2003, prescription drug plan sponsors generally paid lower prices for drugs purchased through PBM-owned mail-order pharmacies than for drugs purchased through mail-order or retail pharmacies not owned by PBMs. “Health insurers manage their drug costs by choosing among a variety of PBM services and service providers,” said FTC Chairman Deborah Platt Majoras. “Data in the report demonstrate that PBMs’ use of owned mail-order pharmacies generally is cost-effective for plan sponsors.” Main Study Findings The main findings of the FTC’s study are provided below: Assessment of Price Differences Between Owned Mail-Order Pharmacies and Not-Owned Mail-Order Pharmacies - For large PBMs, average total prices in 2002 and 2003 at PBM-owned mail-order pharmacies
typically were lower than at mail-order pharmacies not owned by the large PBMs.
For retailer-owned PBMs, average total prices in 2002 and 2003 were lower for generic and multi-source brand drugs, but not single-source brand drugs, at PBM-owned mail-order pharmacies compared to mail-order pharmacies not owned by PBMs.
- Assessment of Price Differences Between Owned Mail-Order Pharmacies and Not-Owned Retail Pharmacies
- For a common basket of drugs dispensed in December 2003 with the same-size prescriptions, retail prices typically were higher than mail prices at both large PBMs and retailer-owned PBMs.
One reason for these differences is found in the contractual agreements that govern the relationship between the plan sponsor and the PBM. In the 26 PBM-plan sponsor contracts reviewed by the FTC staff, plan sponsors often secured more favorable pharmaceutical pricing for mail dispensing than for retail dispensing.
Formulary Competition Pharmaceutical manufacturers make payments to PBMs that affect the prices that plan sponsors and members pay for drugs dispensed under the plans administered by the PBMs. Pharmaceutical manufacturers calculate these payments as a percentage of the price of the prescription dispensed. On average, PBM study participants received total payments from pharmaceutical manufacturers of $5.22 per equal-sized mail and retail brand-drug prescriptions dispensed in 2002. The average payment increased 21.5 percent to $6.34 in 2003. The extent to which contracts between PBMs and their plan sponsor clients explicitly shared these payments varied by plan sponsor.
PBMs received the majority of their total payments for a limited number of single-source brand drugs. In 2003, each study participant’s top 25 brand drugs accounted for approximately 71 percent of the participant’s total payments received, on average.
- The pharmaceutical manufacturer-PBM agreements examined by the FTC staff showed that manufacturers readily raised and lowered allowance levels for each of their drug products as competition developed in the drug’s therapeutic class. Allowance levels were higher for drugs on restrictive formularies and when there were several competing drugs in a therapeutic class.
The manufacturer-PBM contracts generally did not provide higher allowance levels for drugs dispensed through PBM-owned mail-order pharmacies as compared to retail pharmacies.
Most PBMs did not receive higher allowance levels for including a “bundle” of a manufacturer’s drugs on their formularies. In the few cases in which a PBM did receive
higher allowance levels, the bundle was a small subset of the manufacturer’s drug products.
Generic Substitution and Dispensing The data did not suggest any significant differences, by therapeutic class, in generic dispensing rates between PBM-owned mail-order pharmacies and mail-order pharmacies not owned by PBMs. However, for large PBMs and retailer-owned PBMs, the generic dispensing rate by therapeutic class was slightly higher at retail pharmacies not owned by PBMs than at mail-order pharmacies owned by PBMs. Formulary status decisions and other aspects of plan designs may explain the differences in these rates. Generic substitution rates at PBM-owned mail-order pharmacies were generally equal to those at retail or mail-order pharmacies not owned by PBMs. For large PBMs and small or insurer-owned PBMs, generic drugs were more profitable at their owned mail-order pharmacies than were brand drugs – even when payments to the PBM from pharmaceutical manufacturers for brand drugs were included. Given these profit incentives for the PBM and lower prices to the plan sponsor and member, the PBM-owned mail-order pharmacies’ incentives, on average, were consistent with those of their clients in 2002 and 2003. PBM Switching of Brand Drug Prescriptions PBMs rarely switched patients through a therapeutic interchange (TI) from one brand drug to another brand drug or to a chemically distinct generic drug. In the 10 therapeutic categories the FTC examined, study participants’ data showed that use of TI could reduce plan sponsors’ costs in the majority of cases. The data showed that the financial impact on plan and member spending was generally the same across dispensing channels. With the exception of one PBM, the range of brand drugs in the study participants’ TI programs was the same at the PBMs’ owned mail-order pharmacies as through their retail pharmacy network. If a generic version of a brand drug was available, only in rare cases did a PBM have a TI program that sought to interchange that brand drug with another brand drug. PBM Repacking of Prescription Drugs PBMs rarely dispensed repackaged drugs through their owned mail-order pharmacies. Repackaged drugs accounted for less than one percent of the prescriptions for the top 10 drug products. Only one of the large PBMs has an FDA-regulated repackaging facility. This PBM billed its plan sponsor clients for repackaged drugs based on the manufacturers’ Average Wholesale Price (AWP) for the drug dispensed, not on a new, inflated AWP. The clients of the PBM with the repackaging license paid less, on average, for the repackaged drugs through mail-order pharmacies than they paid for the same drugs at retail pharmacies. Background on PBMs Private-sector entities that offer prescription drug insurance coverage, such as employers, labor unions, and managed care companies, often hire pharmacy benefit managers (PBMs) to manage these insurance benefits. PBMs engage in many activities to manage their clients’ prescription drug insurance coverage. PBMs assemble networks of retail pharmacies so that a plan sponsor’s members can fill prescriptions easily and in multiple locations by just paying a co-payment amount. PBMs consult with plan sponsors to decide for which drugs a plan sponsor will provide insurance coverage to treat each medical condition (e.g., hypertension, high cholesterol, etc.). The PBM manages this list of preferred drug products (the “formulary”) for each of its plan sponsor clients. Consumers with insurance coverage are then provided incentives, such as low co-payments, to use formulary drugs. Because formulary listing will affect a drug’s sales, pharmaceutical manufacturers compete to ensure that their products are included on these formularies. PBMs use mail-order pharmacies to manage prescription drug costs. Many plan sponsors have encouraged patients with chronic conditions who require repeated refills to seek the discounts that 90-day prescriptions and high-volume mail-order pharmacies can offer. Many PBMs own their own mail-order pharmacies. Congressional Request Congress requested in the MMA that the FTC undertake a “Conflict of Interest Study” to examine “differences in payment amounts for pharmacy services provided to enrollees in group health plans that utilize pharmacy benefit managers.” The Commission collected aggregate and claims-level data that responded to Congress’ request. Because the data in the FTC’s report are aggregated, however, they do not answer whether each plan sponsor has negotiated the best deal possible or whether each PBM has fulfilled its contractual obligations due to each of its plan sponsor clients. The data also do not indicate whether, in individual instances, a PBM might have favored its mail-order pharmacy in ways contrary to a plan sponsor’s interests. Nonetheless, these data suggest that competition in this industry can afford plan sponsors with sufficient tools to safeguard their interests. The Commission vote to issue the report was 4-0. Copies of the Commission’s report are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm. MEDIA CONTACT: Mitchell J. Katz
Office of Public Affairs
202-326-2161
STAFF CONTACT: Michael Wroblewski
Office of General Counsel
202-326-2155
(FTC File No. P042111) (http://www.ftc.gov/opa/2005/09/pharmbenefit.htm)
For Your Information: Announced Actions for September 2, 2005 Ruling of the U.S. Court of Appeals for the Fourth Circuit: The United States Court of Appeals for the Fourth Circuit has issued a ruling in favor of the Commission in the matter of National Federation of the Blind; Special Olympics Maryland, Incorporated v. Federal Trade Commission (No. 04-1378). The case, which was on appeal from the U.S. District Court for the District of Maryland at Baltimore, challenged the FTC’s amended Telemarketing Sales Rule (TSR) restricting telemarketing practices as they apply to charitable fundraising. The plaintiffs in the case, two charities who contract with professional fundraisers who engage in telemarketing on their behalf, argued that the regulation is beyond the FTC’s authority and violates the First Amendment. The Appellate Court, affirming the District Court’s decision, ruled in favor of the FTC. In its opinion, the Appellate Court wrote that Congress “clearly authorized the FTC to promulgate this new rule. [And] because we are further convinced that it constitutes ‘a reasonable regulation,’ that is ‘narrowly drawn’ to serve a ‘sufficiently strong subordinating interest that the [government] is entitled to protect,’ we find it to be constitutional.” The Court continued by stating, “The regulation preserves the important right of charities to make telephone solicitations. To strike down the rule, however, would disable the democratic branches from taking even the most modest steps necessary to protect the home environment from intrusive phone calls.” The case was affirmed by published opinion, written by Judge Wilkinson and joined by Judge Traxler. Judge Duncan wrote a dissenting opinion. Both the published opinion and dissenting opinion can be found on the FTC’s Web site as a link to this press release. (Case Number: 04-1378; the staff contact is Michael D. Bergman, Office of the General Counsel, 202-326-3184.) Commission approval Federal Register notice: The FTC has approved the publication of a Federal Register notice announcing the amendment of Rule 4.14 (“Conduct of Business”). According to the notice, which will be published shortly and is available now on the Commission’s Web site as a link to this press release, Rule 4.14(b) previously defined a quorum as a “majority of the members of the Commission.” The amendment changes the definition to a majority of the members of the Commission in office and not recused from participating in the matter (by virtue of 18 U.S.C. Sec. 208 or otherwise). Rule 4.14(c) continues to require, for the FTC to act, “the affirmative concurrence of a majority of the participating Commissioners, except where a greater majority is required by statute or rule or where the action is taken pursuant to a valid delegation of authority.” The amendment will allow the agency to act in more matters where, due to vacancies, recusals, or a combination of the two, fewer than three commissioners can participate. It will become effective on the date the notice is published in the Federal Register. The Commission vote approving the publication of the Federal Register notice was 4-0. (FTC File No. P052103; the staff contact is Marc Winerman, Office of General Counsel, 202-326-2451.) Copies of the documents mentioned in this release are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/08/fyi0565.htm)
For Release: September 1, 2005 Thinking of Victims of Hurricane Katrina? Here’s How to Help
FTC Offers New Guide to Giving Wisely In response to the devastation of Hurricane Katrina, many Americans are searching for ways to help the victims. The federal government advises that the best way to help immediately is to donate money directly to established national relief organizations. In a new Consumer Alert, “Helping Victims of Hurricane Katrina: Your Guide to Giving Wisely,” the Federal Trade Commission offers tips to help consumers give wisely. They include: Donate to recognized charities you have given to before. Watch out for charities that have sprung up overnight. They may be well-meaning, but lack the infrastructure to provide assistance. And be wary of charities with names that sound like familiar, or nationally known organizations. Some phony charities use names that sound or look like those of respected, legitimate organizations.
- Give directly to the charity, not the solicitors for the charity. Solicitors take a portion of the proceeds to cover their costs, which leaves less for victim assistance.
- Do not provide personal or financial information – including your Social Security number or credit card and bank account numbers – to anyone who solicits from you. Scam artists use this information to commit fraud against you.
- Check out any charities before you donate. Contact the Better Business Bureaus’s Wise Giving Alliance at www.give.org.
Do not give or send cash. For security and tax record purposes, contribute by check or credit card. Write the official name of the charity on your check. You can contribute safely online through national charities like www.redcross.org/donate.
- Ask for identification if you are approached in person. Many states require paid fundraisers to identify themselves as such and to name the charity for which they are soliciting.
Copies of the consumer alert are available from the FTC’s Web site at http://www.ftc.gov/bcp/conline/pubs/alerts/katrinaalrt.htm and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. MEDIA CONTACT: Office of Public Affairs
202-326-2180
(http://www.ftc.gov/opa/2005/09/katrina.htm)
All information is taken directly from the Federal Trade Commission website at FTC Return To Previous Page Page Last Updated
Tuesday January 17, 2006
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