Consumer Group Questions Kardashian Posts

On Monday, a consumer advocacy group announced that it had sent a letter to the Kardashian-Jenner family challenging how the sisters promote products on Instagram. The group contends that the sisters have engaged in deceptive advertising by failing to disclose that their posts are sponsored. The group states, “The law is clear – unless it’s self-evident that an Instagram post is an advertisement, a clear and prominent disclosure is required so that consumers understand that what they are viewing is an ad.” That statement of the law is correct, but it raises a broader question about what is self-evident.

The Kardashian-Jenner family is famous for promoting products on social media. I think we all remember that even Kim’s use of a morning sickness drug was sponsored, and the consumer group in fact acknowledges in its letter that “it has been widely reported that paid-for social media posts earn celebrities, including those in the Kardashian-Jenner clan, tens to hundreds of thousands of dollars per post.” Many of the sisters’ posts that the group identified also arguably bear more of a resemblance to traditional ads than they do to typical social media posts.  Here’s an example. 

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Is it possible for the sisters (and their corporate sponsors) to argue that it’s self-evident that these posts are ads? The FTC has acknowledged that there are circumstances in which consumers will understand that something is a celebrity endorsement, even without any label. But, the FTC also cautions companies not to assume that consumers will always figure this out. For instance, FTC guidance cautions that consumers might not understand whether a celebrity who discusses a product on a talk show is acting as a paid endorser. Companies should consider the context in which any sponsored post appears and what the typical viewer will think. Celebrity endorsements have some leeway that other types of endorsements don’t, but context must still be carefully considered.

The consumer group stated that if the sisters continue to post about products in the same manner, it would file a complaint with the FTC. It will be interesting to see if the FTC takes the opportunity to delve into the mindset of the typical Kardashian-Jenner fan.

Adding Insult to Injury: Is There Coverage for a Data Breach or Hacking Event that Causes Physical Damage?

In an article published in the Bloomberg BNA Privacy and Security Law Report, Kelley Drye senior associate Ken Kronstadt analyzes the insurance coverage landscape for physical damage that results from a data breach or hacking event.

Internet-connected devices have become increasingly prevalent, and there is no sign that this trend is slowing.  However, this soaring level of internet connectivity poses a risk of physical damage to property or bodily injury as a result of a breach—a risk far less likely to be covered under a cybersecurity insurance policy than traditional breach-response and litigation costs.  The idea of hacking into web connected devices, cars, or even medical devices is already a reality.  Furthermore, hackers have exploited security vulnerabilities within the manufacturing, energy, and utilities industries in recent years, causing massive physical damage and significant losses, and placing human lives at risk.

Cyber insurance policies are increasing in popularity, and policyholders often assume that these types of policies provide comprehensive coverage for all damages and liabilities related to a data breach or hacking event.  However, even though coverage under cyber insurance policies is still evolving and varies greatly between carriers, such policies nearly universally exclude coverage for physical damage resulting from a breach event.

Policyholders often assume that the types of policies typically called upon to provide coverage for property damage – commercial general liability (CGL) or property policies – will cover physical damage resulting from a breach event, but such policies often do not.  CGL policies almost universally exclude coverage for virtually all data breaches and hacking events.  Property insurance policies come in two basic forms: named peril policies and “all risk” policies.  Named peril policies rarely, if ever, include a cybersecurity event as a covered cause of loss.  And while an “all risk” property insurance policy is far more likely to cover physical damage stemming from a cyberattack or hacking event, some carriers are still reluctant to take on such risks.

To read the full article, click here.

CFPB Highlights Possible Approaches to Ramping up Regulation of Debt Collectors

The CFPB recently released an outline of proposals that it is currently considering to overhaul the debt collection market.  The proposals under consideration would significantly expand current regulations governing debt collection, including by requiring collectors to maintain specified information to substantiate a debt before contacting consumers, limiting the number of times that a collector can contact a consumer in a certain period, and requiring collectors to facilitate disputes by providing a “tear-off” sheet in initial collection notices.  The proposal does not address first-party collection practices where creditors attempt to collect debts owed directly to them.  The Bureau did signal, however, that it plans to initiate a separate proceeding “in the next several months” and was not abandoning the notion of regulating first-party collections.

The 117 page outline highlights a multitude of other proposals to address identified issues such as those relating to information integrity, consumer understanding of debt collection litigation and time-barred debt, and collector communication practices.  For more information on the CFPB’s outline of debt collection proposals, please refer to our client advisory available here.

 

Lifestyle Blogging, Supplement Dust, and Third Party Liability

PICThe NAD recently took a swipe at Goop, the lifestyle blog founded by Gwyneth Paltrow. To make “GP’s Morning Smoothie,” Goop had recommended using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  With its usual mix of practical – if also luxurious – wisdom, Goop advised, “Choose your Moon Juice dust depending on what the day holds ahead . . . brain dust before a long day at the office, sex dust before a date, etc.” The blog hyperlinked to a purchase page that made additional claims about the dust.

Because Goop agreed to permanently discontinue the dust claims, the NAD closed the case. In announcing the closing, the NAD took its turn at wisdom, noting, “The advertising marketplace is changing and advertisers are increasingly using third parties, including endorsers, influencers, and affiliate marketers, to reach consumers. . . .The obligation to ensure advertising claims are truthful extends beyond the manufacturer of the product to affiliates who market it.”

The FTC and the NAD both occasionally go after third parties arguing that they are equally liable for false advertising as the manufacturer who creates the product and claims. Courts, however, have found that there is a difference in the level of culpability.

As we’ve discussed before, the FTC often cites the 1970s case, Porter v. Dietsch, to support the proposition that retailers may be held liable for false advertising. In that case, the FTC found a retailer liable for disseminating deceptive ads for a weight loss product even though the retailer had not participated in creating the product or ads. The Seventh Circuit affirmed the FTC’s findings on liability, but significantly narrowed the FTC’s order. The narrowed order applied only to future advertising for weight loss products made by the same manufacturer, rather than any future advertising for any weight loss product. The court pretty clearly had misgivings with treating the retailer just like the manufacturer, even though it found that both are subject to the FTC Act. The court observed that “the extent of a party’s culpability has an important bearing . . . on the nature of the relief that should be granted.”

Courts – particularly, the Ninth Circuit – have been even more reluctant to find liability on the part of celebrities who repeat a manufacturer’s claims. In FTC v. Garvey, the Ninth Circuit found that Steve Garvey lacked the requisite knowledge of the falsity of claims he made for a weight loss supplement. More recently, the Ninth Circuit dismissed a case against Joe Theismann for his endorsement of a prostate supplement. The court reasoned that Theismann couldn’t be a “seller” for the purposes of California false advertising laws because he never held title to the products he promoted.

Whether you’re a third party swept up in a case or a manufacturer sweeping in third parties, it’s helpful to know what the real story is on third party liability.

Court Suggests Companies Can Be Liable as Soon as Claims Become Stale

It’s a common question. A company creates a product with a competitive advantage; it takes steps to substantiate a superiority claim; and, satisfied that it has met the legal standard, it bases an advertising campaign on that claim. Then, a competitor comes along with a new product, and the superiority claim is no longer accurate. How soon must the company change its claims? According to a Massachusetts federal court, the answer may be “immediately.”

In July 2013, Dyson launched a campaign advertising that its DC41 vacuum had “twice the suction of any other Suctionvacuum.” One year later, SharkNinja released its Shark Powered Lift-Away vacuum and contacted Dyson to let them know the claim was no longer accurate. Dyson conceded that, and took steps to remove the claim from the marketplace. SharkNinja, though, claims that Dyson dragged its feet. For example, Dyson didn’t begin stickering over the claim on packages until November 2014, and some claims remained on the market until early 2015.

SharkNinja sued Dyson for false advertising under the Lanham Act. Dyson moved for summary judgment, arguing that an advertiser can’t be held liable if it uses “commercially reasonable efforts” to remove claims from the market once they become stale. The court disagreed, holding that the law doesn’t exempt a company from liability just because it takes steps to remove a claim after learning that it’s no longer true.  Instead, the court held that “an advertiser that puts a claim into the marketplace bears all of the risk of the claim being false or becoming stale.” As a result, the court denied Dyson’s motion.

The decision suggests that an advertiser can be liable the moment a claim can’t be substantiated, even though the claim was previously true. It doesn’t seem to matter to the court how fast an advertiser moves to change a claim, once it becomes stale. The creates a strong disincentive for any company to make a comparative claim, especially on packages or in stores, where the claim cannot be changed quickly.

We’ll be watching this case closely to see if Dyson appeals and the appellate court takes a more measured approach.

FTC Ponders Disclosures in Celebrity Posts

Last week, Bloomberg ran an article suggesting that the FTC is about to “crack down on paid celebrity posts” that aren’t labeled as ads. If you read this blog, you already know this is a big priority for the FTC. In fact, the agency has launched investigations against a number companies who used influencers to promote their brands without requiring the influencers to disclose their relationship to the companies. That’s not new. But what may be new are the suggestions from the FTC that some of the methods influencers commonly use to disclose those relationships may not be adequate.

There is no one-size-fits-all strategy for making the necessary disclosures. In a medium where space isn’t an issue, making Hashtagthe disclosure in a full sentence is usually ideal. And the sentence doesn’t have to include “legal” language – something as simple as “I’m working with” the company will usually do. But where space is limited, such on as Twitter, influencers will often turn to hashtags. The FTC has previously suggested that hashtags such as #ad or #sponsored can be used to disclose that something is an ad or sponsored content. But they’ve frowned on other abbreviations, such as #spon, worrying that many consumers won’t understand them.

According to the article, simply using the right hashtag in a tweet may not be enough, though. Michael Ostheimer from the FTC’s Ad Practices Division said: “If you have seven other hashtags at the end of a tweet and it’s mixed up with all these other things, it’s easy for consumers to skip over that. The real test is, did consumers read it and comprehend it?” Accordingly, he suggests that the disclosures at the beginning of a tweet would better satisfy the FTC’s “clear and conspicuous” standard. Apparently, the FTC is worried that a typical consumer’s attention span will run out before the end of 140 characters.

Although the suggestion that legal disclosures should appear at the beginning of a tweet is troubling, it’s too early to read too much into this. Ostheimer may be expressing a preference for a best practice, but that doesn’t necessarily mean that a company will get in trouble for having a disclosure at the end of a sponsored tweet. Again, the goal is to ensure that consumers are likely to understand that something is sponsored, and there’s certainly more than one way to for an advertiser to achieve that goal.

What is clear is that this continues to be a priority for the FTC. Ostheimer states that the FTC will continue to go after advertisers whose influencers fail to made adequate disclosures. Although the FTC has yet to charge an influencer with deceptive advertising, it hasn’t ruled that out. If your company uses influencers, now may be a good time to take a look at your practices. There’s still a lot of gray in this area, but there are easy things you can do to avoid becoming an easy target.

#notanad

This Week in Privacy Shield Developments

privacy_shieldIt’s been another exciting week of developments for U.S. companies on the EU data transfer front. From the first company to indicate that it will certify under Privacy Shield, to the first European Data Protection Authority (DPA) to suggest that it would like to challenge the validity of the new framework, here are this week’s Privacy Shield developments:

The Department of Commerce begins accepting Privacy Shield Applications. As of August 1, 2016, the Department of Commerce began accepting Privacy Shield self-certification applications. While it is unclear when the Department of Commerce will update its Privacy Shield list, at least one notable U.S. company, Microsoft, has already updated its privacy policy, indicating that it participates in the framework.

The European Commission Issues Guide to Privacy Shield. The European Commission issued a Guide to the EU-U.S. Privacy Shield for EU data subjects explaining rights and remedies under the new framework. Although the guide is directed at EU citizens, it can also help companies understand how Privacy Shield  works, the obligations a company has under the framework, and consumer rights with respect to company use of personal data.

Hamburg DPA Expresses Interest in Challenging Privacy Shield. The Hamburg DPA suggested it may challenge the validity of the framework stating, “If there is a legal way to seek reference to the CJEU – and we hope that the national lawmaker will enact a law for national DPAs soon – we will take all appropriate steps for getting a ruling on the validity of the Commission’s decision.” This comes after the July 26 statement by the Article 29 Working Party committing itself to assisting EU data subjects exercising their rights under the Privacy Shield framework. The Working Party stated that it would undertake a more comprehensive review of Privacy Shield a year from August 1, 2016. Many privacy advocates read the July 26 statement as a moratorium on Privacy Shield legal challenges and a promising step toward legal certainty regarding the new framework. This latest development by the Hamburg DPA, however, seems to suggest otherwise.

Associate Ilunga Kalala contributed to this post. Mr. Kalala is admitted only in Maryland. He is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

Health Claim Substantiation Has Not Gone to the Dogs

The FTC announced a settlement with Mars Petcare U.S. concerning allegations that the company did not have proper substantiation to support quantified health benefit claims for its Eukanuba brand dog food.

The FTC’s complaint alleges that a 2015 ad campaign for Eukanuba expressly or impliedly claimed that the dog food could increase the lifespan of dogs by 30 percent or more or could help to provide an “exceptionally long life.” Claims included examples of dogs living 17 years with disclosures of the typical breed lifespan.

Eukanuba

The complaint contends that these claims were based on a single, 10-year study of dogs that were fed Eukanuba, the results of which showed no significant difference in the median age at death of the dogs in the study relative to the typical age at death of dogs of the same breed.

The proposed stipulated order applies broadly to all health benefit claims for Mars Petcare’s Pet Food (defined in the order as “any food that is used for food or drink for domestic pets”), and prohibits the company from making any of the following representations absent competent and reliable scientific evidence:

  1. That with any Pet Food, dogs live 30 percent or more longer than their typical lifespan;
  2. That any Pet Food can enable dogs to live exceptionally long lives; or
  3. About the health benefits of such products.

The order also prohibits any misrepresentation: (A) about the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research, including that studies, research, or trials prove that, with its Pet Foods, dogs live 30 percent or more longer or substantially longer than their typical lifespan or that the Pet Foods enable dogs to live exceptionally long lives; or (B) that any health benefits of such product are scientifically proven or otherwise established.

The settlement differs from others involving health benefit claims (see here, here, and here) insofar as it does not prescribe a definition of “competent and reliable scientific evidence” beyond the language that has traditionally been used, nor does it include a provision requiring the company to maintain clinical study data beyond the typical record retention requirements.  Notwithstanding, it is still worth noting for companies selling foods or dietary supplements, because it demonstrates the risks in making quantified claims and the importance of ensuring a close nexus between the study endpoint and the advertising claim.  It is also one of only a handful of FTC settlements involving pet care products in recent years and clearly evidences that the standards required for substantiation are applied to products intended both for two-legged and four-legged consumers.*

TYDTW

*Crystal Skelton and Griffin at Kelley Drye’s “Take Your Dog to Work” Day

Kelley Drye’s Full Spectrum Podcast

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Five months ago, Kelley Drye’s Communications practice group launched the Full Spectrum podcast. Since then, they have recorded and posted ten episodes, featuring several different attorneys speaking on the most timely trends and issues in the Communications industry. While the podcast is still new, it has gained a substantial following through iTunes, SoundCloud, their podcast website, and blog posts.

Episodes are posted twice monthly and include topics such as the monthly FCC Enforcement update. Take a moment to check out the podcast for legal discussions related to the technology, media and telecommunications industries. Kelley Drye’s Full Spectrum is also available on iTunes.

 

NY Attorney General Announces Infomercial Settlements

This week, the New York Attorney General announced that it had settled investigations with two companies for deceptive sales practices related to infomercials. ​One company agreed to pay $700,000 to settle the investigation and the other agreed to pay $175,000.

According to the ​AG, both ​companies advertised attractive offers, but they failed to clearly disclose the fees associated with those offers. Moreover, when consumers placed orders, they were often subjected to confusing up-sells for additional products. tvadConsumers weren’t given an opportunity to review their orders before they were processed, and many ended up paying for products they didn’t intend to order. ​

​Among other things, the settlements require the companies to: (a) clearly and conspicuously disclose all material terms and fees associated with an offer; (b) provide consumers with an opportunity to confirm order details before the order is processed; (c) clearly label all links on their sites so that consumers know what’s on the landing page; (d) e-mail order details to consumers who order by phone; and (e) ensure that their customer service lines are adequately staffed so that consumers are not subjected to long hold times.

According to the press release, this appears to be part of a wider investigation into the direct marketing industry, so there may be more settlements to come. If you work in this industry and haven’t reviewed your offers lately, now may be a good time.

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