(NEW YORK) — Hundreds of business leaders and public figures sounded a sobering alarm on Tuesday over what they described as the threat of mass extinction posed by artificial intelligence.
Among the 350 signatories of the public statement are Sam Altman, the chief executive of OpenAI, the company behind the popular conversation bot ChatGPT; and Demis Hassabis, the CEO of Google DeepMind, the tech giant’s AI division.
“Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war,” said the one-sentence statement released by the San Francisco-based nonprofit Center for AI Safety.
Supporters of the statement also feature a range of figures like musician Grimes, environmental activist Bill McKibben and neuroscience author Sam Harris.
Concern about the risks posed by AI and calls for forceful regulation of the technology have drawn greater attention in recent months in response to major breakthroughs like ChatGPT.
In testimony before the Senate two weeks ago, Altman warned lawmakers: “If this technology goes wrong, it can go quite wrong.”
“We think that regulatory intervention by governments will be critical to mitigate the risks of increasingly powerful models,” he added, suggesting the adoption of licenses or safety requirements necessary for the operation of AI models.
Like other AI-enabled chat bots, ChatGPT can immediately respond to prompts from users on a wide range of subjects, generating an essay on Shakespeare or a set of travel tips for a given destination.
Microsoft launched a version of its Bing search engine in March that offers responses delivered by GPT-4, the latest model of ChatGPT. Rival search company Google in February announced an AI model called Bard.
The rise of vast quantities of AI-generated content has raised fears over the potential spread of misinformation, hate speech and manipulative responses.
Hundreds of tech leaders, including billionaire entrepreneur Elon Musk and Apple co-founder Steve Wozniak, signed an open letter in March calling for a six-month pause in the development of AI systems and a major expansion of government oversight.
“AI systems with human-competitive intelligence can pose profound risks to society and humanity,” the letter said.
In comments last month to Fox News host Tucker Carlson, Musk raised further alarm: “There’s certainly a path to AI dystopia, which is to train AI to be deceptive.”
The statement released on Tuesday included other major backers from the AI industry, including Microsoft Chief Technology Officer Kevin Scott and OpenAI Head of Policy Research Miles Brundage.
Addressing the brevity of the 22-word statement released on Tuesday, the Center for AI Safety said on its website: “It can be difficult to voice concerns about some of advanced AI’s most severe risks.”
“The succinct statement below aims to overcome this obstacle and open up discussion,” the Center for AI Safety added.
(NEW YORK) — Target reported that its employees faced threats over its new Pride collections celebrating the LGBTQ+ community and responded by pulling some of the merchandise that had caused the most “significant confrontational behavior” to protect the safety and well-being of its employees, according to a statement from the company.
Extremism experts and LGBTQ advocates warned that removing merchandise could be seen as a success by anti-LGBTQ extremists and violent protesters which could lead to copycat behavior threatening the already marginalized community.
Several Targets also received bomb threats over Memorial Day weekend related to the controversy, according to Cleveland 19 News. The threats reportedly called for the return of LGBTQ+ items to the shelves, according to the local news outlet, which said it received the bomb threats.
“I think this will embolden alt-right actors, who now are going to believe that with social media campaigns and targeted actions against retailers that they can proceed in limiting visibility of LGBTQ people,” said Sophie Bjork-James, a professor at Vanderbilt University, who researches the white nationalist movement, in an interview.
The rise coincides with political rhetoric targeting and demonizing the LGBTQ+ community, as well as legislative efforts targeting LGBTQ+ rights to gender-affirming care and inclusion in education.
Drag shows and drag story hours, even children’s hospitals, as well as other LGBTQ+ pride events have faced death and bomb threats as well as protesters in recent years. In November, a Colorado LGBTQ+ bar was the site of a mass shooting, stoking heightened fear within the community.
“Target’s giving into this,” said Victor Asal, a professor at Albany and extremism researcher. “Other extremists will say ‘hey, that’s a great idea. We should do that.'”
Michael Edison Hayden, a senior investigative reporter at the Southern Poverty Law Center, believes extremists are making calculated efforts to redefine LGBTQ+ Pride as a “toxic” or dangerous thing.
Bomb threats, he said, are intended to scare the community and supporters into silence.
“It’s a real concern,” said Hayden. “Bigots feel emboldened largely because of mainstream politicians giving them a pat on the back,” referring to some conservative political and media figures who have recently resurfaced harmful stereotypes against LGBTQ+ people.
The Department of Homeland Security said that intensifying waves of threats and calls of violence against the LGBTQIA+ community could lead to a rise of potential attacks against larger targets, such as public spaces and healthcare sites that may be linked to the community.
According to a report by The Institute for Strategic Dialogue, anonymous forum websites detailing hate crime fantasies or plans against the LGBTQ+ highlight the growing threat of violence against this community.
National LGBTQ+ organizations, including Family Equality, GLAAD, GLSEN, The Human Rights Campaign, and more are calling on Target and all businesses to stand up against anti-LGBTQ+ extremism.
“When values of diversity, equity and inclusion are tested, business must defend them unequivocally,” the organizations said in a joint statement.
Target has been a long-time supporter of the LGBTQ+ community in its merchandising, hosting Pride campaigns annually.
“Since introducing this year’s collection, we’ve experienced threats impacting our team members’ sense of safety and wellbeing while at work,” Target said in a statement. “Given these volatile circumstances, we are making adjustments to our plans, including removing items that have been at the center of the most significant confrontational behavior.”
Target re-affirmed its commitment to the queer community in a statement following the controversy.
“Our focus now is on moving forward with our continuing commitment to the LGBTQIA+ community and standing with them as we celebrate Pride Month and throughout the year,” Target said.
Organizations are pointing to the actions of North Face, an outdoor sporting gear company, as an example of how to respond to boycott calls against Pride campaigns. The company defended its ads featuring a drag queen in the face of criticism in a statement and has continued to roll out its Summer of Pride campaign.
“The North Face has always believed the outdoors should be a welcoming, equitable and safe place for all. We are honored and grateful to support partners like Pattie Gonia who help make this vision a reality,” the brand said in a statement to ABC News. “The Summer of Pride series, now in its second year, has helped foster a more accessible and welcoming environment for individuals from all backgrounds to gather and experience the joy of the outdoors.”
Representatives for Target and the National Retail Federation did not immediately respond to ABC News’ requests for comment.
“If you are going to take these steps to embrace the LGBTQ+ population in a public way, you have to have the courage of your convictions to see it through,” said Hayden in an interview with ABC News. “Once you make that decision to do that, and you back away in fear, it is those people you are putting at risk, who are frequently a target of harassment, intimidation – as we’ve seen also, catastrophic violence.”
(BRYAN, Texas) — Disgraced Theranos founder Elizabeth Holmes reported to a Texas prison on Tuesday to begin a more than 11-year sentence for defrauding investors with false claims about her company’s blood-testing technology.
Holmes arrived at the prison in Bryan, Texas, at about 12:30 p.m. central time wearing a tan cardigan and jeans. She was accompanied by her parents and husband, Billy Evans.
Since she was sentenced last fall, Holmes has failed in multiple requests to delay her incarceration as she awaits a ruling on an appeal.
The watershed moment on Tuesday follows a legal saga that turned the former billionaire entrepreneur, who swore her startup could run hundreds of tests on a single drop of blood, into a symbol of excess and deception in Silicon Valley.
A federal judge earlier this month ordered Holmes to report to prison after the U.S. Court of Appeals for the Ninth Circuit denied her request to remain free pending an appeal.
Judge Edward Davila, who oversaw the trial of Holmes, allowed her a short postponement of the start of her sentence to May 30 as she made final arrangements, including child care for her two young children.
Holmes will report to Federal Prison Camp in Bryan, Texas. The minimum security facility houses other white collar criminals, including reality TV star Jen Shah, from the cast of “The Real Housewives of Salt Lake City.”
Ramesh “Sunny” Balwani, the former romantic partner of Holmes and president of the now defunct blood testing company, began his nearly 13-year sentence at a prison in San Pedro, California, last month. Balwani, who was second in command to Holmes at Theranos, was convicted of fraud and conspiracy in December.
In denying a previous attempt to delay Holmes’ prison sentence, Davila said she had failed to raise a “‘substantial question of law or fact’ that is ‘likely to result in a reversal or an order for a new trial on all counts.'”
Earlier this month, Holmes and Balwani were ordered to pay $452 million in restitution to those who suffered damage from the company’s fraud.
Davila called on them to pay $125 million of that sum to media titan Rupert Murdoch, an investor in Theranos. Other victims in the case included the family of former Secretary of Education Betsy DeVos, and the Walton family, the founders of Walmart. Walgreens and Safeway, which had also struck multimillion dollar deals with Holmes to employ Theranos’ technology, were also included in a set of entities designated as victims deserving of restitution.
In November, Holmes was sentenced to 135 months, or 11 1/4 years, in prison.
Holmes was convicted in January on four counts of investor fraud and conspiracy while at the helm of Theranos.
The verdict followed a four-month trial that detailed Holmes’ trajectory from a Stanford University dropout in 2003 to a star business leader on the cover of Fortune magazine little more than a decade later.
But in October 2015, a bombshell Wall Street Journal report came out, detailing the turmoil within Theranos. As Holmes and her company were hit with official scrutiny, her fortune quickly dwindled. Less than a year later, Forbes downgraded its assessment of Holmes’ net worth from $4.5 billion to $0.
Facing charges of massive fraud from the Securities and Exchange Commission, Holmes agreed to forfeit control of Theranos in 2018.
ABC News’ Luke Barr, Gina Sunseri and Miles Cohen contributed to this report.
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(NEW YORK) — Disgraced Theranos founder Elizabeth Holmes will report to prison on Tuesday to begin a more than 11-year sentence for defrauding investors with false claims about her company’s blood-testing technology.
Holmes, who was sentenced last fall, has failed in multiple requests to delay her incarceration as she awaits a ruling on an appeal.
The watershed moment on Tuesday follows a legal saga that turned the former billionaire entrepreneur, who swore her startup could run hundreds of tests on a single drop of blood, into a symbol of excess and deception in Silicon Valley.
A federal judge earlier this month ordered Holmes to report to prison after the U.S. Court of Appeals for the Ninth Circuit denied her request to remain free pending an appeal.
Judge Edward Davila, who oversaw the trial of Holmes, allowed her a short postponement of the start of her sentence to May 30 as she made final arrangements, including child care for her two young children.
Holmes will report to Federal Prison Camp in Bryan, Texas. The minimum security facility houses other white collar criminals, including reality TV star Jen Shah, from the cast of The Real Housewives of Salt Lake City.
Ramesh “Sunny” Balwani, the former romantic partner of Holmes and president of the now defunct blood testing company, began his nearly 13-year sentence at a prison in San Pedro, California, last month. Balwani, who was second in command to Holmes at Theranos, was convicted of fraud and conspiracy in December.
In denying a previous attempt to delay Holmes’ prison sentence, Davila said she had failed to raise a “‘substantial question of law or fact’ that is ‘likely to result in a reversal or an order for a new trial on all counts.'”
Earlier this month, Holmes and Balwani were ordered to pay $452 million in restitution to those who suffered damage from the company’s fraud.
Davila called on them to pay $125 million of that sum to media titan Rupert Murdoch, an investor in Theranos. Other victims in the case included the family of former Secretary of Education Betsy DeVos, and the Walton family, the founders of Walmart. Walgreens and Safeway, which had also struck multi-million dollar deals with Holmes to employ Theranos’ technology, were also included in a set of entities designated as victims deserving of restitution.
In November, Holmes was sentenced to 135 months, or 11 1/4 years, in prison.
Holmes was convicted in January on four counts of investor fraud and conspiracy while at the helm of Theranos.
The verdict followed a four-month trial that detailed Holmes’ trajectory from a Stanford University dropout in 2003 to a star business leader on the cover of Fortune magazine a little more than a decade later.
But in October 2015, a bombshell Wall Street Journal report came out, detailing the turmoil within Theranos. As Holmes and her company were hit with official scrutiny, her fortune quickly dwindled. Less than a year later, Forbes downgraded its assessment of Holmes’ net worth from $4.5 billion to $0.
Facing charges of massive fraud from the Securities and Exchange Commission, Holmes agreed to forfeit control of Theranos in 2018.
(NEW YORK) — German automaker Mercedes-Benz has seen its share of the U.S. luxury market slip as customers traded in their V8 sedans and sport utility vehicles for Teslas. Now, the company is following in Tesla’s footsteps by building out its own charging network, accelerating its electrified fleet and adding Level 3 autonomous driving technology to its vehicles.
Mercedes’ goal is simple: Become the “most desirable electric vehicle luxury brand,” according to Dimitris Psillakis, president and CEO of Mercedes-Benz North America.
Psillakis is helping oversee the company’s aggressive push toward EVs. The first Mercedes EV, the futuristic EQS sedan, debuted in October of 2021. Four more models, including three electric SUVs, promptly followed. The EQS SUV and EQE SUV are built at the company’s Tuscaloosa, Alabama, plant. Mercedes’ brand-new factory in Bibb County supplies the lithium-ion batteries. Mercedes aims to go fully electric by 2030.
“To be the most desirable electric vehicle luxury brand, we have to strike a balance between good products and good design but also supportive service,” Psillakis told ABC News. “We don’t see Tesla as a luxury competitor … we see Tesla as a disruptor in the automotive sector, especially when it comes to electric vehicles.”
Mercedes’ strategy seems to be working. It sold 7,341 EVs in the first quarter of 2023, an increase of 251% versus the prior year. Electric vehicles now account for 12% of the company’s sales in the U.S., the company said.
“Luxury buyers are more interested in EVs. They have higher disposable income and are tech orientated,” Jessica Caldwell, executive director of insights at Edmunds, told ABC News. “Tesla redefined what it means to be luxury … but its market share is now decreasing. Tesla peaked in 2019 when it controlled 80% of the market.”
EVs now make up 6% of the U.S. automotive market. Range anxiety and public charging availability are still top reasons drivers are not switching to electrics, Caldwell said.
“Charging is still a big roadblock for customers,” she said. “Mercedes’ charging stations are a reassurance to customers and a good, though expensive, marketing strategy.”
The company’s charging network, which launches first in the U.S. and Canada and will be open to non-Mercedes models, could solve the country’s EV charging dilemma.
“The logic behind it is better service, convenience and taking away some worries customers have today on electric vehicles,” Psillakis said. “We care about the product … it’s our responsibility to offer the best convenience to our customers.”
Tony Quiroga, editor-in-chief of Car and Driver, said Tesla’s highly dependable supercharger network and extended-range models earned it a dedicated fan base. Premium brands like Mercedes are still struggling to overtake the ubiquitous Tesla Model 3 and Model Y, he argued, though Mercedes may be closing the gap. Tesla’s aging fleet could also convince consumers to look elsewhere, he argued.
“Mercedes doesn’t want to take a backseat to Tesla,” he told ABC News. “A charging network can be a big win for Mercedes.”
Quiroga pointed out that two Mercedes EVs — the EQ S450+ and EQ S580 — beat their EPA range estimates when Car and Driver staff conducted their extensive 75 mph tests on the vehicles.
“It’s very rare when a car beats its EPA numbers,” he said.
And Mercedes’ EV momentum will give it an edge over the competition, according to Robby Degraff, an analyst at AutoPacific.
“They’ve really hit all the right segments so far, from the larger EQS SUV to the EQE sedan,” he told ABC News. “If a loyal S-Class owner wants to go all-in on electrification, there should absolutely be a comparable EV, like the EQS sedan. That’s an approach and strategy I think Mercedes-Benz has really nailed down.”
Mercedes recently revealed the Mercedes-Maybach EQS 680 SUV, the first EV from the uber exclusive marque. The full-size SUV utilizes technology from the EQS SUV and is fitted with sustainably processed leather. Many of the vehicle’s parts and components are made from resource-saving materials, including secondary steel and recycled aluminum.
EVs, however, are expensive and Psillakis said Mercedes is not immune to rising interest rates and economic uncertainty.
“Obviously it’s affecting us, but we have a wide range of products in terms of style prices,” he said. “There is high demand for the new GLC. This vehicle is not affected at the moment by any high interest rates or inflation.”
EVs are one part of Mercedes’ long game; the company scored a “monumental achievement” when Nevada regulators certified its autonomous driving for public roads earlier this year. “Drive Pilot” will be included for model year 2024 S-Class and EQS models and is the only SEA Level 3 automated driving system approved by lawmakers, according to Mercedes. Psillakis said California may be the next state to approve the system, which operates at speeds up to 40 mph and is more technologically advanced than Tesla’s Autopilot feature.
“We have to make sure the expectation to customers is the right one and make sure the system is delivering,” Psillakis said.
The attention on EVs has not stopped Mercedes from perfecting its gas-powered SUVs and high-performance AMG models. Last month Mercedes revealed an updated E-Class midsize sedan and introduced the plug-in hybrid GLE 450e 4MATIC SUV. A new 2024 GLS model range will arrive in U.S. dealerships later this year.
“Mercedes is operating two companies at the same time,” said Caldwell. “Mercedes has an expansive EV lineup but the internal combustion vehicles are paying the bills. It’s expensive to run these two companies in parallel.”
Degraff said Mercedes’ internal combustion vehicles are still highly desirable and sought after by enthusiasts.
“Mercedes-Benz has been able to crank out seriously eye-watering performance just by tapping into mild hybridization and plug-in hybrids,” he said.
Psillakis dismissed concerns that the company’s fabled AMG division would lose its cachet in an EV world.
“EQS is electric and it is an AMG,” he said. “Yes, I do miss the sounds of a V8 engine. Do I miss the fun? The torque? The performance? No. AMG is not only sounds and horsepower. It’s also exclusivity, design and performance, which you can get in electric vehicles too.”
(NEW YORK) — With Memorial Day weekend travel underway, U.S. airports recorded the highest number of passengers on Thursday since before the COVID-19 pandemic began.
The Transportation Security Administration said it screened 2,658,057 people at checkpoints across the country on Thursday, the highest daily number since 2019.
Even more passengers could be screened on Friday.
According to AAA, airports could see the busiest Memorial Day weekend since 2005.
Nearly 3.4 million people are expected to take to the skies over the holiday, up 11% from 2022 and 5.4% from 2019, according to AAA.
(NEW YORK) — Ahead of the slate of blockbuster films hitting theaters this summer, MoviePass is back with a new plan that could help moviegoers save money at the box office.
“We’re really excited to be able to let everybody in,” MoviePass CEO Stacy Spikes told Good Morning America.
The company that lets you see any movie at any theater is back with three new subscription options.
Subscribers can choose from three different tiers: basic, standard or premium, depending on their viewing habits, which range in price from $10 a month to $30 a month.
“Each month, you’re going to get a certain amount of credits,” Spikes explained. “You [can] go to matinees or things where you can use fewer credits and then if you say ‘I really want go Friday or Saturday night,’ you’re going to use more credits there. And each month, they replenish and if there’s a month you don’t go to the movies, your credits just roll over.”
Spikes and his co-founder sold a majority stake in the company, which was first started in 2011, in 2017, and the subscription price was later changed to a $10-per-month model for unlimited movies. The service was later shut down in 2019, following several unsustainable subscription changes and price decreases.
“It went bankrupt as we properly figured it would, and then last year I bought it back,” Spikes said. “We’ve gotten the experience really down tight. And we’re already seeing lots of people that are already on the platform. The beautiful thing is you can cancel anytime. There is no contract. You are not locked into a single theater.”
This summer, 42 theatrical releases are expected and Spikes said he’s seen a renewed energy from Hollywood.
“We’ve seen more studios commit to the overall production of theatrical releases and I think we are seeing a new golden age of cinema,” he said.
(NEW YORK) — Truck drivers delivering Bud Light have received the middle finger from passersby, distributors have faced intentional collisions from shopping carts as they drop off beer and vendors have endured homophobic jokes calling them “gay beer salesmen,” according to top officials at several beer distribution companies.
While Anheuser-Busch InBev weathers a consumer boycott of Bud Light over a promotion from a trans influencer, the fallout is hitting hundreds of independent, often family-owned distributors that sell and deliver Bud Light to stores, bars and restaurants.
Bud Light has recorded declining sales for six consecutive weeks after a product endorsement from Dylan Mulvaney, a transgender influencer, set off ire among many conservatives.
The losses have strained Anheuser-Busch distributors that draw a significant portion of their revenue from Bud Light, the company’s top-selling beer, Anson Frericks, an executive who left Anheuser-Busch InBev last year, told ABC News.
“The biggest losers here are the 500 independent businesses in the U.S. that distribute Anheuser-Busch products,” Frericks said. “Those are the people really hurting.”
Anheuser-Busch InBev did not immediately respond to ABC News’ request for comment.
Company leaders at four different distributors told ABC News they have faced revenue losses and have weighed responses such as supplementing the income of salespeople paid on commission or burnishing the local brand with additional sponsorships of community events.
Distributors voiced frustration with Anheuser-Busch over its inability to anticipate the backlash and some faulted irate consumers for failing to understand the consequences of their boycott for independent sellers. Some of the distributors declined to share their names because they didn’t want to be publicly identified speaking about the business environment amid the boycott.
“I feel like my main supplier has put the wholesalers and their employees in a really bad spot,” the president of an Anheuser-Busch beer distributor told ABC News. “It’s frustrating.”
Speaking about consumers engaged in the boycott, one Anheuser-Busch beer distributor in the Pacific Northwest told ABC News: “It’s sad that they can’t make that disconnect between the independent wholesaler and a big corporation — it’s disheartening.”
Overall sales of Bud Light fell nearly 25% over the week ending on May 13 compared to the same period a year ago, according to data from Bump Williams Consulting and Nielsen NIQ reviewed by ABC News.
Pestinger Distribution Company, a distributor that serves 23 counties in rural Kansas, has suffered a nearly 30% drop in Bud Light sales since the boycott began in early April, Matt Pestinger, the owner, told ABC News.
Since Bud Light sales make up about a quarter of the company’s business, Pestinger said, the dropoff has delivered a blow to its bottom line: Revenue grew 5% compared to last year over the months before the boycott but has fallen 2% since, he said.
“We’re stressed some because you never want to see red numbers,” Pestinger added, noting that losses had moderated in recent weeks.
Instead of cutting costs, Pestinger has sought to contain the damage by spending more on sponsorships of local festivals and charities, he said.
“Our business philosophy is you take care of the community and the community takes care of you — we’re doubling down on that,” he added.
The president of a different Anheuser-Busch distributor, who declined to detail the extent of its revenue losses amid the boycott, said between 60% and 70% of the company’s employees are paid through sales commissions. At the end of this month, the company plans to pay such employees a lump sum to make up for the losses, the company official added.
“I’m trying to keep my employees happy,” the company official said. “They’re feeling it.”
After the initial boycott, Anheuser-Busch InBev posted a statement from CEO Brendan Whitworth on its website.
“We never intended to be part of a discussion that divides people,” Whitworth said. “We are in the business of bringing people together over a beer.”
The company also placed two executives who oversaw the endorsement of Mulvaney’s Instagram post on leave, the Wall Street Journal reported last month.
Anheuser-Busch InBev also provided distributors with free beer for employees and additional ad spending, the Wall Street Journal reported earlier this month.
At a meeting in St. Louis two weeks ago, the corporation’s upper management met with hundreds of distributors and responded to questions about the path forward, multiple distributors told ABC News.
Some distributors praised the company’s response to the boycott while others said the efforts have proven insufficient.
“I trust our leadership,” Pestinger said. “I respect the way that they’ve been handling it.”
Distributors voiced optimism that sales of Bud Light will rebound soon. However, if the slump continues for months on end, some distributors said they will need to make cost cuts such as limiting employee hours and slashing sponsorships.
“I think the bad times are behind us,” the Pacific Northwest-based beer distributor said. “We do have a game plan if it does come to that level of severity.”
Cyndy, an official at Nebraska-based distributor High Plains Budweiser, who declined to provide her last name, said the focus amid the boycott should be on the acute pain for independent sellers.
“In the end, the people hurt the most are the local small business retailers and wholesalers in your community,” she said.
(WASHINGTON) — The Federal Trade Commission is investigating infant formula makers, including Abbott Laboratories, to determine whether the companies colluded as they bid to secure profitable state contracts, according to a filing by the agency.
The agency is looking into whether companies “engaged in collusion or coordination with any other market participant regarding the bidding for WIC contracts,” FTC Commissioner Alvaro Bedoya wrote in an April filing that was posted on the agency’s website.
The FTC investigation is the latest inquiry into Abbott and its business practices. In February, the FTC and the Securities and Exchange Commission revealed they were looking into Abbott’s infant formula business and bids for WIC contracts.
Abbott was also at the center of the baby formula shortage that hit families across the country last year.
A spokesperson for Abbott told ABC News on Wednesday it is “cooperating with the FTC’s requests.”
The Wall Street Journal first reported on the investigation.
The state contracts, part of the federal Special Supplemental Nutrition Program for Women, Infants, and Children or WIC program, requires states to choose exclusive formula manufacturers in exchange for discounts. The formula products produced then get sold to low-income families who participate in WIC.
The FTC served Abbott with a civil investigative demand in January.
The potential of “collusion or coordination” raises questions of whether competing companies coordinated to split up market shares for optimal profits.
State WIC contracts can be lucrative for companies, with the winning bidder becoming the sole supplier for a contract for multiple years.
For decades, the formula market in the U.S. has been concentrated to only a few major companies who aggressively compete for state contracts and families’ brand loyalty and money.
But WIC contracts also “create a lucrative ‘spillover effect’ on the manufacturer’s non-WIC sales of infant formula,” Bedoya wrote in the FTC filing. The opportunity to further profit “may also create incentives to engage in collusive or coordinated market allocation,” where formula companies act as sovereigns in their respective contract domains and agree to a bidding armistice with their would-be competition in neighboring states.
Companies could “agree not to bid against each other so that they can continue enjoying dominant positions in non-WIC markets in their respective states,” Bedoya added.
Abbott, one of the largest formula makers in the U.S. and the company behind brands Similac and EleCare, is one of only three manufacturers that have bid on WIC contracts since 1996, according to Bedoya.
The scope of the FTC’s probe also reaches beyond Abbott.
Nestlé, the maker behind Gerber baby food products, confirmed to ABC News it received a request for information from the FTC about its WIC contract bidding process.
“We can confirm that we, like other companies, received a civil investigative demand related to the WIC contract bidding process and have responded to the FTC,” a Nestlé spokesperson said.
Meanwhile, Reckitt Benckiser, the conglomerate behind Enfamil, told ABC News they “don’t comment on any specific government investigations” but that the company “fully cooperates and complies with any regulatory and enforcement agency requests that we receive.”
Abbott had attempted to get the FTC to limit the scope of their probe and said in an agency filing that the informational demand was a “significant burden and cost to the Company.” The FTC declined to do so.
In their filing, Abbott notes they are “unaware of any factual basis to support the WIC-related investigation, and staff have not identified any reason to believe that Abbott or any of its competitors have coordinated or colluded regarding any WIC contract.”
