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The Wall Street Journal recently published an article discussing a growing practice among retailers who use third-party services to identify fraudulent returns. These services will inform retailers when they think a return is fraudulent, and some retailers will reject returns based on this information, notwithstanding what is in their return policies. The article presents an example of consumer who was surprised when a retailer rejected his return and then referred him to the third-party service.

Although retailers generally have broad discretion about how to structure their return policies, there are some legal boundaries. For example, some states have specific requirements about what must be in a return policy and how it must be disclosed. More broadly, federal and state consumer protection laws generally require that retailers clearly disclose material terms prior to a purchase. This arguably includes terms of a return policy, including any exceptions under that policy.

Third-party services that help detect return fraud can provide significant benefits for retailers. (According to the article, less fraud can also benefit consumers because retailers can offer more generous policies.) But retailers should use care when relying on these services. If a customer complies with a retailer’s return policy, and the retailer rejects the return based on information from a third-party, the retailer is likely to face complaints. Simply pointing a finger at the third-party is unlikely to help.

One key question in any consumer complaint – or worse, AG investigation or law suit – will be whether the retailer acted in accordance with its policies and whether those policies were adequately disclosed. Articles such as the one in the Wall Street Journal often serve as food for thought for class action attorneys, so if you are using (or thinking about using) a third-party service to identify fraudulent returns, now might be a good time to take a look at your policy.

After months of speculation among the consumer protection and antitrust bars, Trump announced today his intention to nominate former Director of the Bureau of Competition and current Paul Weiss partner Joseph Simons as Chairman of the Federal Trade Commission.  Trump also announced his plan to nominate Rohit Chopra, currently a senior fellow at the Consumer Federation of America and previously Assistant Director at the Consumer Financial Protection Bureau (CFPB), to one of two vacant commissioner seats.  News outlets also are reporting that Trump will soon nominate Noah Phillips, chief counsel for Senator John Cornyn (R.-Tex.), to an additional commissioner seat.

Assuming Simons is confirmed and appointed as Chair, Acting Chairman Maureen Ohlhausen would return to her position as Commissioner.  Her term is set to expire in September 2018.  Commissioner Terrell McSweeny also continues to serve on the Commission, although her term expired in September, and as reported by MLex.com, Simons’ confirmation would place him in the slot she currently occupies.  More information on each of the three nominations follows.

Joseph Simons.  Currently a partner and co-chair of the Antitrust Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, Simons has worked in private practice for the majority of his career and is likely to be welcomed by industry as a reasoned and qualified choice.  He also has experience in public service, having served at the FTC as Director of the Bureau of Competition from June 2001 to August 2003.  He also served as the Associate Director for Mergers and the Assistant Director for Evaluation at the FTC in the late 1980s.  Simons has worked on a number of high profile antitrust cases, including representing MasterCard Inc. in antitrust class actions over merchant fees, and representing a consortium including Microsoft, Ericsson, RIM and Sony in its $4.5 billion acquisition of the patent portfolio of Nortel Networks.

As a long-time antitrust practitioner with experience in private and public practice, Simons is likely to bring a thorough and deliberative approach to the Commission.  While Simons is unlikely to support enforcement that is not justified by a rigorous economic analysis of costs and benefits, he’s also unlikely to shy away from challenging deals and conduct that fail the economic test.  In short, economic effects and rule of reason will guide policy.  Simons notably has significant high tech and intellectual property experience, as well as merger experience, where economics predominates decision making.

On the consumer protection side, Simons’ experience will likely reinforce the policies announced by Acting Chairman Ohlhausen to put economic injury at the center of case selection.  The emphasis on fraud will likely continue, while actions and remedies that would regulate ordinary business practices will face the test of economic analysis.  If he’s confirmed as expected, Simons would serve a seven-year term that began on September 26, 2017.

Rohit Chopra.  While Simons’ experience comes primarily from the competition side, Chopra has concentrated on consumer protection issues.  Chopra is currently a senior fellow at the Consumer Federation of America where he focuses on consumer finance issues, particularly with regard to their impact on younger Americans.  Chopra was previously the Assistant Director of the CFPB where he led enforcement actions against student loan borrowers and helped establish a new student loan complaint system at the agency.  Chopra’s background and experience with consumer finance give him an expertise rare among commissioners and could translate into significant influence on hot topics such as credit reporting, debt collection, and big data.  He also may engage in advertising and privacy initiatives affecting children and younger Americans, given his prior interest in this area.

Chopra’s approach to competition could be influenced by longtime ally, Senator Elizabeth Warren (D.-Mass.), who has distinguished herself as a proponent of aggressive enforcement and new legislation.  Unlike most prior FTC commissioners, Chopra is not an attorney.  His background is in business and includes an MBA from the Wharton School at the University of Pennsylvania.  Trump indicated that Chopra would be appointed to the remainder of a seven-year term that would expire on September 25, 2019.

Noah Phillips.  While yet to be announced by the Trump Administration, media outlets are reporting that Phillips will be named to fill another vacancy at the Commission.  Phillips is presently Chief Counsel to Senator Cornyn.  Phillips previously worked as an associate at Cravath, Swaine & Moore LLP and Steptoe & Johnson LLP, before leaving the private sector to serve as counsel to Cornyn.

Phillips would come to the Commission with significant law firm experience, as well as an understanding of the Hill.   Among others, Cornyn serves on the Senate Committee on Finance, which includes subcommittees on international trade and energy.  We would expect, therefore, to see Phillips take an active interest in international issues, as well as competition in the energy sector.

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We will continue to monitor the appointment and confirmation process and post updates here.

On December 14, 2016, President Obama signed into law the Better Online Ticket Sales Act of 2016.  The BOTS Act prohibits circumventing a website’s security measures to acquire event tickets.  It also restricts the reselling of tickets when the seller knows or should have known they were acquired through circumvention.  Importantly, it empowers the Federal Trade Commission and the States to enforce the law, but does not provide a private right of action to consumers.

Prior to BOTS, ticket resellers would often swamp online ticket sales sites with programs and scripts designed to buy as many tickets as possible at the often low retail rates.  Those resellers would then resell those tickets at inflated prices.  The purpose of BOTS is to make that practice illegal.  It also makes the resale of tickets obtained in such a manner illegal so long as the person selling either knew or should have known the tickets were obtained using illegal bots, or they participated in the acquisition of the tickets.

What is prohibited technically is “circumvention” of a “security measure, access control system, or other technological control or measure” on an online site that is “used by the ticket issuer to enforce posted event ticket purchasing limits or to maintain the integrity of posed online ticket purchasing order rules.”  The language is quite broad.  Any “person” who “circumvents” a “security measure” is violating the Act.  The security measure doesn’t have to be particularly robust to trigger liability.  And violating the Act does not appear to require the use of a bot, although using bots would certainly be captured.  Conversely, there is nothing in the rule that prohibits the use of a bot so long as the bot follows the ticket purchasing order rules.

Ticket sellers should be cognizant of a few things.  The Act is violated if there is a single circumvention of a stated ticket purchasing rule.  So, if the rule is phrased in terms of maximum tickets per purchase, a bot could theoretically be programed to make multiple purchases of that maximum and not violate the Act.  The security measure does not need to be robust.  A vendor could require, for example, that a buyer certify that it will not resell the tickets at a price above the price at which it was purchased.  If the purchaser had to click an agreement to that statement to proceed, and then proceeded to resell the ticket, it would violate the Act.

Granting enforcement rights to both the FTC and the States is likely designed to ensure that not only the big violators but the medium ones as well are captured.  Violations too small to merit FTC resources could be attacked by the States.  As the law is now in effect, ticket resellers who deploy bots should consider conducting an audit of their software and reviewing the sites they target.  Ticket sellers should make sure their terms of use take into account the new statute and some of the loopholes that it creates.