The Federal Trade Commission is accusing the company that makes TurboTax of deceptively advertising free tax filing. Many people end up having to pay for the service they believe will be free, the agency says.
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"Absent such provisional relief, [Intuit] would be free to continue disseminating the deceptive claim that consumers can file their taxes for free using TurboTax when in truth, in numerous instances [Intuit] does not permit consumers to file their taxes for free using TurboTax," the complaint says.
The FTC complaint notes a situation experienced by many Americans: After spending time and effort plugging all their information into TurboTax, they are told that to file their returns correctly, they need to upgrade to the paid product. "In truth, TurboTax is only free for some users, based on the tax forms they need," the complaint says.
The complaint says that for years, much of Intuit's advertising for TurboTax's online service has emphasized the message that consumers can use TurboTax to file their taxes for free. The FTC points to TV commercials for TurboTax in which the word "free" is said over and over.
At the end of many of Intuit's ads is a disclaimer in smaller print that states such offers are limited to those with "simple" tax returns. But the FTC argues that the disclaimers "are inadequate to cure the misrepresentation that consumers can file their taxes for free using TurboTax," when in many cases they cannot.
The FTC notes that on ads for TurboTax's freemium software, disclaimers that the product was only free for simple returns were small and not read aloud. Federal Trade Commission hide caption
In a statement on its blog, Intuit, which also owns Mint, QuickBooks, Credit Karma and Mailchimp, said it would "vigorously challenge" the complaint and that it "continually sought and continues to seek ways to increase the number of taxpayers that file" using its free tax prep products.
"The FTC's arguments are simply not credible. Far from steering taxpayers away from free tax preparation offerings, our free advertising campaigns have led to more Americans filing their taxes for free than ever before and have been central to raising awareness of free tax prep," said Kerry McLean, executive vice president and general counsel of Intuit, in a statement.
In its complaint, the government cites the reporting of ProPublica, which has been reporting for several years that Intuit has been waging a multi-pronged effort to prevent Americans from filing their taxes for free.
Consistent with this approach, the Supreme Court recently acknowledged that "[m]any tying arrangements . . . are fully consistent with a free, competitive market."(21) Indeed, leading treatises have commented that the test lower courts use to determine whether to apply the per se rule to a particular alleged tie "increasingly resembles a rule of reason inquiry."(22) Although the elements of a per se tying violation have been articulated differently, courts generally require that:
By contrast, the U.S. Court of Appeals for the D.C. Circuit's 2001 decision in United States v. Microsoft rejected application of the per se rule to "platform software,"(40) thereby "carving out what might be called a 'technology exception' to that rule,"(41) as one submission suggested. The court reasoned that application of traditional per se analysis in the "pervasively innovative" platform software industry risks condemning ties that may be welfare-enhancing and procompetitive.(42) According to one panelist, however, "the rationale [that the court] articulated for abandoning per se condemnation applies well beyond just the software industry," notwithstanding "the court's protestations to the contrary."(43) Although in Illinois Tool Works Inc. v. Independent Ink, Inc. the Supreme Court recognized that many tying arrangements, "even those involving patents and requirements ties," can be procompetitive,(44) that case did not present a vehicle for the Court to revisit its conclusion that some tying arrangements constitute per se violations.(45)
Another panelist observed that firms that have been advised by counsel will often offer alternatives to a package license. He suggested that "one way to [offer] package licenses and not get immediately hauled into [f]ederal [d]istrict [c]ourt is to make sure there's an alternative available."(60) When another panelist questioned the wisdom of advising clients "that they are essentially home free on bundling pricing where intellectual property is involved,"(61) the other replied that, although this practice does not provide a complete safety zone, "the difficulty of proving that the pricing bundle is sufficiently coercive . . . given the expense of bringing an antitrust case . . . gives you a measure of comfort . . . ."(62)
The panel explored ways to improve the law on tying in general and with regard to intellectual property bundling in particular. One panelist highlighted three approaches.(66) First, he suggested that the courts, instead of carving out exceptions to the per se rule against tying (as the D.C. Circuit did for "platform software" products in Microsoft(67)), should follow the approach taken by the U.S. Court of Appeals for the Seventh Circuit in Khan v. State Oil Co.,(68)which applied the per se rule against vertical maximum price-fixing while carefully explaining the shortcomings of the approach and inviting the Supreme Court to overturn it, as the Court ultimately did.(69) Second, testifying prior to Illinois Tool, he suggested that Congress should consider legislation mandating that there shall be no presumption of market power from the mere possession of a patent or copyright in antitrust cases.(70) Third, he suggested that the Agencies should advocate improvements in the law through amicus participation in cases involving intellectual property bundling, both in the district courts and courts of appeals, with the hope that the decisions of these courts may eventually be reviewed by the Supreme Court.(71)
11. See infra notes 40-43 and accompanying text (discussing United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (applying the rule of reason to the bundling of operating systems and applications software)).
41. Jonathan M. Jacobson & Abid Qureshi, Did the Per Se Rule on Tying Survive 'Microsoft'? (May 14, 2002 Hr'g R.) at 1, [hereinafter Jacobson Submission]; cf. Warren S. Grimes, The Antitrust Tying Law Schism: A Critique of Microsoft III and a Response to Hylton and Salinger, 70 Antitrust L.J. 199, 202 (2002) ("[C]iting the novelty of the issues and the possibility of procompetitive effects, [the D.C. Circuit] imposed a rule of reason to measure Microsoft's software bundling practices."); William J. Kolasky, GE/Honeywell: Continuing the Transatlantic Dialogue, 23 U. Pa. J. Int'l Econ. L. 513, 532 & n.66 (2002) (citing Microsoft, 253 F.3d at 84-97, to support a statement that technological ties "are generally evaluated under the rule of reason"); Edward G. Biester III, An Overview of the IP-Antitrust Intersection: Reevaluating the 1995 Antitrust Guidelines for the Licensing of Intellectual Property, Antitrust, Summer 2002, at 8, 10 [hereinafter Biester, An Overview of the IP-Antitrust Intersection].
60. Id. at 110-11 (Jacobson); cf. Jefferson Parish, 466 U.S. at 12 n.17 (quoting N. Pac. Ry. Co., 356 U.S. at 6 n.4 ("Of course where the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price.")). Where, however, a firm offers products A (the tying product) and B at a bundled price but also offers product A separately, a court may determine whether an unbundled price for product A may be so high as to demonstrate that no real alternative to the bundle of products A and B is being offered. May 14 Tr. at 46-52 (Sidak) (noting that courts may face such questions in fashioning relief in instances in which liability for tying has been found).
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