Foley recently hosted a discussion in collaboration NACD on How to Navigate the Federal Trade Commission (FTC) in 2024.

Louis Lehot moderated the discussion between expert panelists Deborah Heisz, Ed Burbach, and Ben Dryden who shared invaluable insights.

Please see webinar here.

The first part of the webinar was led by Foley partner Ed Burbach, lead counsel to Neora, and Neora’s co-CEO Deborah Heisz as they shared learnings from Neora’s historic 7-and-a-half-year battle and eventual victory over the FTC. For context, Neora is a skin-care and wellness company that operates in a direct-sales model. Industry and legal commentators have labeled the decision a victory of “David and Goliath” proportions.

In a 56-page decision issued 11 months after the trial, Judge Barbara Lynn denied the relief requested by the FTC on all five of its claims: that Neora was 1) operating an illegal pyramid scheme, 2) making false earning claims, 3) making false or unsubstantiated claims of efficacy, 4) misrepresenting the effectiveness of the supplement it was selling, and 5) furnishing its brand partners with the means and instrumentalities to mislead others.

Applying the lessons of Neora’s epic battle with the FTC, the following are some key takeaways for board directors and NACD members:

• Education and Compliance: Board directors should make sure that the compliance program extends to the sales function and to consultants in addition to employees. They should inquire about risk-mitigation efforts from company leadership.
• Civil Investigative Demand (CID) Response: When the FTC is suspicious of law violations, they issue CIDs for evidence. Failure to comply can lead to legal action, so swift legal counsel engagement upon receiving a CID is crucial. Private companies’ investigations only become public upon the non-confidential filing of a complaint by the FTC in federal court while public companies must disclose pending investigations upon receiving a CID.
• Referrals to the FTC: The top two complaint referrals to the FTC come from the Better Business Bureau and an organization called Truth in Advertising. Directors should ask their general counsel if they are monitoring these channels and what is their strategy for responding. Any complaint should get a timely response, even if it’s to update the complainer that it was received and is being investigated. Board directors should be kept informed.
• Election-Year Impact: Economic uncertainty and policy changes in election years often lead to more FTC filings and enforcement actions due to heightened political attention. Interestingly, the US Department of Justice (DOJ) was announcing the public filing of a complaint against Apple for anti-competitive conduct in relation to its management of the iPhone just as the webinar was in high gear.
• Preparedness Plan: Tabletop exercises are a great way to prepare. Directors should ensure the company has a response plan for potential FTC investigations, including outlining who is responsible for responding and a team to mitigate the immediate dangers, which can include frozen bank accounts, documentation maintenance and requirements, and communications with key stakeholders, including customers, employees, and the sales channel. Board directors should ensure any company representatives who are speaking publicly are trained on FTC regulations to ensure the rules are not infringed accidentally—this includes consultants!
• Managing Expectations: FTC proceedings can be unpredictable. Managing expectations within the wider team is crucial.

In the second part of the webinar, Foley partner Louis Lehot discussed the current state of merger review by the FTC and DOJ in conversation with Foley antitrust partner Ben Dryden, which has had a chilling effect on transactional activity, particularly among Big Tech acquirers. Most recently, in December 2023, the DOJ Antitrust Division and the FTC released a significant revision and expansion to the federal Merger Guidelines, which lays out the framework for how the agencies will analyze mergers for potential antitrust concerns. These guidelines would expand the scope of federal government review of mergers:

• Historically, the scope of FTC review of mergers was focused on consumer protection
• New proposed FTC guidelines would expand them from competition to include impacts on jobs. Some commissioners have publicly stated their desire to expand the scope of their review to include racial or wealth inequality, climate protection, and other social goals unrelated to competition.
• There are increasing documentation burdens
• Among many other changes, the FTC’s new proposed guidelines would expand the agencies’ scrutiny of cumulative “roll-up” transactions and adopt a bright-line (but rebuttable) presumption against horizontal mergers that result in a market share above 30 percent. This means transactions can be blocked despite economic analysis that demonstrates vibrant competition will prevail in the market.

Speakers warned directors and NACD members to be particularly wary of FTC enforcement on the following fact patterns:

• Private equity firms that have significant investments in competitive businesses
• Directors who serve on multiple boards of companies that are competitive (akey takeaway for NACD members was to consider whether any of the companies on whose board they serve were, are, or could become competitive in the future.)

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