FTC Requires J&J to sell /divest new system

FTC Puts Conditions on Johnson & Johnson’s Proposed Acquisition of Synthes, Inc.
J&J Required to Sell System for Treating Distal Radius Wrist Fractures to Biomet, Inc.
The Federal Trade Commission will require Johnson & Johnson (J&J) to sell its system for surgically treating serious wrist fractures, resolving charges that J&J’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems. J&J intends to sell its system, known as DVR, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.

The case is the most recent example of the FTC’s ongoing effort to promote competition in the health care sector, which benefits U.S. consumers by keeping prices low and quality and choice of products and services high. J&J and Synthes together would have more than 70 percent of the U.S. market for the wrist fracture treatment systems, according to the FTC.

“J&J and Synthes are direct competitors for these important systems used in the surgical treatment of traumatic wrist fractures,” said Richard Feinstein, Director of the FTC’s Bureau of Competition. “This order will ensure that the hospitals and surgeons that use these systems to care for consumers will not face higher prices or reduced innovation in the future.”

J&J, headquartered in New Brunswick, New Jersey, is a broad-based maker of health-care related products. In 2011, J&J had global sales of $65 billion and U.S. sales of nearly $29 billion. J&J’s Medical Devices and Diagnostics segment produces a system for treating these displaced wrist fractures, known as volar distal radius plating systems.

Synthes, a medical device company headquartered in Solothurn, Switzerland and West Chester, Pennsylvania, is the leading producer of skeletal treatment devices in North America. A unit of Synthes sells a rival volar distal radius plating system. In 2011, Synthes had global sales of $3.97 billion and U.S. sales of $2.14 billion.

According to the FTC’s complaint, J&J’s proposed acquisition of Synthes would harm competition in the U.S. market for volar distal radius plating systems, internal devices that are surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture. Distal radius fractures, in which a portion of the radius closest to the wrist is broken, typically happen when someone braces for a fall, and are among the most common types of fractures. Such fractures most often occur when an older person falls or when people are playing sports.

While many people with distal radial fractures can be treated with conventional casts, if the radius bone is displaced, surgery almost always is required. Volar distal radius plating systems are the primary option for surgeons because they are easy to implant, reduce recovery times, and enable patients to move more freely than casts. There are other treatments available, but none is considered to be as useful as the plating systems.

The complaint alleges that the U.S. market for volar distal radius plating systems is highly concentrated. Synthes is the leading maker of volar distal radius plating systems in the United States, accounted for 42 percent of all U.S. sales in 2010, and has a strong clinical reputation in the trauma field. J&J acquired its DVR system from Hand Innovations in 2006, and it was among the first anatomically contoured volar distal radius plating system. Many surgeons still consider the DVR system to be the best volar distal radius plating system available, and it accounted for 29 percent of all system sales in 2010.

The FTC contends that the deal as originally proposed would violate federal antitrust laws and allow J&J to unilaterally raise prices for the systems by eliminating its only significant U.S. competitor.

The proposed order settling the FTC’s charges preserves competition in the U.S. market for volar distal radius plating systems by requiring J&J to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.

J&J has selected Biomet as the buyer of these assets. While the Commission’s competitive concern with this transaction is limited to volar distal radius plating systems, J&J has opted to sell its entire trauma portfolio, which includes the DVR assets, to Biomet, a successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals. Biomet’s current volar distal radius plating system is not competitively significant, and the FTC believes that Biomet, once it acquires the DVR assets, will be able to replicate the competition in the U.S. market for such systems that existed before J&J’s acquisition of Synthes.

The proposed order will allow the FTC to appoint an interim monitor to oversee the sale of the DVR assets to Biomet, and to appoint a trustee to sell the assets if they are not successfully divested by J&J within the time required.

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through July 12, 2012, after which the Commission will decide whether to make the proposed consent order final.

Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments can be submitted electronically by clicking here. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

MEDIA CONTACT:
Mitchell J. Katz,
Office of Public Affairs
202-326-2161
STAFF CONTACT:
Mark D. Seidman,
Bureau of Competition
202-326-3296

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FTC – Data Security re P2P

Settlements Require Companies to Establish Comprehensive Information Security Programs

In its ongoing efforts to safeguard consumers’ private information, the FTC has charged two businesses [complaint 1 | complaint 2] with illegally exposing the sensitive personal information of thousands of consumers by allowing peer to peer file-sharing software to be installed on their corporate computer systems. Settlements with the debt collection business and auto dealer will bar misrepresentations about their privacy, security, confidentiality, and integrity of any personal information. Both companies must establish and maintain comprehensive information security programs.

P2P technology can be used in many ways, such as to play games, make online telephone calls, and, through P2P file-sharing software, share music, video, and documents. But the FTC has found that P2P software can pose significant data security risks. A 2010 FTC examination of P2P-related breaches uncovered a wide range of sensitive consumer data available on P2P networks, including health-related information, financial records, and driver’s license and social security numbers. Files shared to a P2P network are available for viewing or downloading by any computer user with access to the network. Generally, a file that has been shared cannot be permanently removed from the P2P network. In addition, files can be shared among computers long after they have been deleted from the original source computer.

The FTC alleged that EPN, Inc., a debt collector based in Provo, Utah whose clients have included healthcare providers, commercial credit organizations and retailers, failed to implement reasonable security measures for personal information on its computers and networks. As a result of these failures, EPN’s chief operating officer was able to install P2P file-sharing software on the EPN computer system, causing sensitive information including Social Security numbers, health insurance numbers and medical diagnosis codes of 3,800 hospital patients to be made available to any computer connected to the P2P network.

The agency charged that the company did not have an appropriate information security plan, failed to assess risks to the consumer information it stored, did not adequately train employees, did not use reasonable measures to enforce compliance with its security policies, such as scanning its networks to identify any P2P file-sharing applications operating on them, and did not use reasonable methods to prevent, detect and investigate unauthorized access to personal information on its networks. According to the agency, the failure to implement reasonable and appropriate data security measures was an unfair act or practice and violated federal law.

The settlement order with debt collector EPN bars misrepresentations about the privacy, security, confidentiality, and integrity of any personal information. It requires EPN to establish and maintain a comprehensive information security program. It also requires EPN to undergo data security audits by independent auditors every other year for 20 years.

In a separate case, the FTC charged that auto dealer Franklin’s Budget Car Sales, Inc., also known as Franklin Toyota/Scion, of Statesboro, Georgia, compromised consumers’ personal information by allowing P2P software to be installed on its network, which resulted in sensitive financial information being uploaded to a P2P network.

Franklin sells and leases cars and provides financing for its customers. According to the FTC, its privacy policy said, “We restrict access to nonpublic personal information about you to only those employees who need to know that information to provide products and services to you. We maintain physical, electronic, and procedural safeguards that comply with federal regulations to guard nonpublic personal information.”

The FTC alleges that Franklin failed to implement reasonable security measures to protect consumers’ personal information, and, as a result, information for 95,000 consumers was made available on the P2P network. The information included names, addresses, Social Security Numbers, dates of birth, and driver’s license numbers.

The agency charged that Franklin failed to assess risks to the consumer information it collected and stored online and failed to adopt policies to prevent or limit unauthorized
disclosure of information. It also allegedly failed to prevent, detect and investigate unauthorized access to personal information on its networks, failed to adequately train employees and failed to employ reasonable measures to respond to unauthorized access to personal information. Because Franklin is a financial institution, the alleged security failures violated the Gramm-Leach-Bliley (GLB) Safeguards Rule as well as Section 5 of the FTC Act. Franklin also allegedly failed to provide annual privacy notices and provide a mechanism by which consumers could opt out of information sharing with third parties, in violation of the GLB Privacy Rule. This is the FTC first action against an auto dealer charging GLB violations.

The settlement agreement with Franklin will bar misrepresentations about the privacy, security, confidentiality, and integrity of personal information collected from consumers. It bars Franklin from violating the GLB Safeguards Rule and Privacy Rule. Under the settlement, Franklin Auto must also establish and maintain a comprehensive information security program, and undergo data security audits by independent auditors every other year for 20 years.

The Commission vote to accept the consent agreement packages containing the proposed consent orders for public comment was 5-0. The FTC will publish a description of the consent agreement packages in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through July 9, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

Comments in electronic form should be submitted using the following links:

  • Comment on EPN, Inc.
  • Comment on Franklin’s Budget Car Sales, Inc. or Franklin Toyota/Scion

Comments in paper form should be mailed or delivered to Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call
1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

MEDIA CONTACT:
Claudia Bourne Farrell,
Office of Public Affairs
202-326-2181

STAFF CONTACT:
Jessica Lyon (EPN)
Bureau of Consumer Protection
202-236-2344

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FTC business ID Theft info:

Could business ID theft put you out of business?

By Steve Toporoff
May 25, 2012 – 10:24am
Identity theft hits millions of Americans each year. What many business executives don’t know is that ID thieves are using a variation on the crime to prey on legitimate companies.

What’s the crooks’ modus operandi? They typically alter business records filed with a state government so they can impersonate companies in good financial standing. For example, thieves might change official documentation that lists a business’ address, corporate officers, or its registered agents. Using altered documents, they’ll get lines of credit in the company’s name and siphon off money. Once they’ve drained a business dry, they move on to the next victim, leaving the company with its credit — and reputation — in shambles. Banks and retailers take a hit, too, with a stack of worthless receivables rung up by the con artists.

The National Association of Secretaries of State (NASS) is taking the lead on getting out the word about business identity theft, steps to prevent it, and what your business can do to fight back. What’s NASS’ advice for businesses?

File your reports and renewals with state filing offices on time.
Check your business records regularly to make sure information is accurate.
Even if your business isn’t a going concern at the moment, check those records, too. ID thieves often target companies that are no longer in business in the hope their crime will go undetected.
Many state offices responsible for corporate filings offer password protections for online transactions and email notifications when changes are made. Take advantage of these security features and limit employee access to your filings on a need-to-know basis.
If you spot unauthorized changes to business records, contact your Secretary of State immediately.
Monitor your bills and accounts for suspicious transactions.
For more information, visit the NASS website.

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FTC-Skechers:

What your ads say and what the science supports: If the shoe doesn’t fit

By Lesley Fair
May 17, 2012 – 11:54am
According to the FTC, Skechers ® made false and deceptive claims about the benefits of Shape-ups ® and other Skechers ® brands. If you’re in the fitness or health business, the $40 million settlement should grab your attention. But the underlying principles apply to all advertisers. If you’re looking to get a leg up on substantiation, here are some footnotes to take from the case.

Proving ground. To support their representations, advertisers must have at least the level of proof they claim expressly or by implication to have. For example, Skechers’ ads referred to a “clinical trial,” “clinical case studies,” and “four clinical studies in the US and Japan.” Furthermore, using statistics to the second decimal place, Skechers’ ads touted pounds and percentages of fat that people lost by wearing Shape-ups, compared to other shoes. But even if your ads don’t cite specific studies, under FTC law you still need a reasonable basis for all express and implied claims conveyed to consumers. Where can you go for more information? One resource is the FTC’s Dietary Supplements: An Advertising Guide for Industry. Don’t let the title fool you. Even if supplements aren’t your line, it’s a useful resource for evaluating ad claims. If it helps, just think of it as An Advertising Guide for [Insert Your Company Name Here].

By the numbers. As the Dietary Supplement Guide explains, there’s no one-size-fits-all test protocol. But the methods you use have to be sound — and some basic standards have gained universal acceptance. For example, rocket scientists and English majors alike can agree on the importance of gathering data accurately. If the underlying numbers aren’t tallied with care, chances are the results won’t be reliable. According to the FTC’s complaint against Skechers, in one study, some participants wearing Shape-ups actually gained weight or had an increase in body fat, but the study falsely reported that they’d lost weight. Other subjects who were in the control group and lost weight were falsely attributed to the Shape-ups group. The FTC also raised concerns that data was missing or not collected for other participants. The message for marketers? As the Dietary Supplement Guide puts it, “Where the claim is one that would require scientific support, the research should be conducted in a competent and reliable manner to yield meaningful results.”

Declaration of independence? According to the FTC’s complaint, Skechers’ ads conveyed that chiropractor Dr. Steven Gautreau “endorsed Defendant’s Shape-ups footwear, based upon his independent, objective study of the product.” What people weren’t told was that Skechers had paid Dr. Gautreau to conduct the study and that he was married to a Skechers marketing executive. The FTC alleged that consumers would have found that information material. Thus, Skechers’ failure to adequately disclose those facts was a deceptive practice in violation of Section 5. Is there material information you should be disclosing in your ads? It’s a fact-specific inquiry, of course. But legal standards aside, here’s one rule of thumb: Imagine yourself as the buyer, rather than seller. Would you want to know? Would the information be relevant to your purchase decision? Or for a real gut-check, how would you respond if your competitor failed to disclose similar info in an ad that knocked your product? Read The FTC’s Revised Endorsement Guides, What People are Asking for more on the topic.

Have questions about the Skechers refund program? Visit ftc.gov/skechers.

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FTC Red Flags Rule

Is your business in compliance with this newly-issued requirement?  If you’re not sure, contact us and we’ll help!

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