Federal Trade Commission Settles Illegal Information Exchange Allegations With Bosley, Inc.

Skadden, Arps, Slate, Meagher & Flom LLP

Karen Hoffman Lent

On April 8, 2013, the Federal Trade Commission (FTC) announced a proposed settlement with hair restoration company Bosley, Inc. to resolve allegations that Bosley illegally exchanged competitively sensitive, nonpublic business information with competitor HC (USA), Inc., commonly known as Hair Club. According to the FTC, these exchanges facilitated coordination and endangered competition in violation of Section 5 of the Federal Trade Commission Act, which broadly prohibits unfair competition.

In its complaint, the FTC alleged that “[f]or at least four years, Bosley’s and Hair Club’s chief executive officers (“CEOs”) repeatedly exchanged … information regarding aspects of their firms’ surgical hair transplantation business.” The specific types of information allegedly exchanged included “detailed information about future product offerings, surgical hair transplantation price floors, discounting, forward-looking expansion and contraction plans, and operations and performance.” The alleged effect of such exchanges was reduced uncertainty regarding competitor product offerings, price discounting, marketing plans and operating strategies, all of which the FTC alleged facilitated coordination and created the potential for reduced expansion and price fixing. The FTC concluded that Bosley’s and Hair Club’s information exchanges lacked any legitimate business justification.

The FTC announced that its decision to take enforcement action was driven by “the types of information involved, the level of detail, the direct nature of the communication, and the absence of any related pro-competitive impact.” In addition, the FTC noted that Bosley “viewed these exchanges as business as usual” and had engaged in similar exchanges with other competitors, increasing the potential for harm.

Under the proposed settlement agreement, Bosley will be prohibited from “communicating any competitively sensitive, non-public information to any competitor,” and from “requesting, encouraging, or facilitating the communication of competitively sensitive non-public information from any competitor.” In addition, Bosley will be required to implement an antitrust compliance program to ensure ongoing compliance with U.S. antitrust laws, and to adhere to other customary notice provisions with respect to the terms of the settlement.

The proposed Bosley settlement highlights the continuing resurgence of enforcement actions under Section 5 of the FTC Act, which generally allows the FTC fairly broad discretion to challenge conduct the agency believes to be competitively unfair. It also is a sharp reminder that the U.S. antitrust agencies are watchful for the exchange of sensitive business information between rivals that may facilitate anticompetitive conduct. While an information exchange is not necessarily unlawful under the antitrust laws, Bosley affirms that “[c]ompetition may be unreasonably restrained whenever a competitor directly communicates, solicits, or facilitates exchange of competitively sensitive information with its rivals, particularly where such information is highly detailed, disaggregated and forward-looking.” The case reinforces the need for corporations to maintain an effective antitrust compliance program as a preemptive means of minimizing conduct that could result in government enforcement or private litigation, which often follows government enforcement. Moreover, corporations should consult with antitrust counsel before exchanging competitively sensitive information with rivals.

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