Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

Yesterday the Consumer Product Safety Commission ("CPSC") announced that Hewlett-Packard Company has agreed to pay a $425,000 civil penalty to settle allegations that the company failed to report safety issues with its lithium-ion battery pack to the CPSC in a timely manner.

Section 15(b) of the Consumer Product Safety Act requires companies to report immediately to the CPSC if they have information that a product could create a "substantial product hazard" or create an unreasonable risk of serious injury or death. The CPSC alleges that HP was aware of incidents of overheating, two of which allegedly involved injuries to consumers, 10 months before reporting to the CPSC. HP and CPSC recalled around 32,000 battery packs in October 2008.

According to a statement released by CPSC Chairman Inez Tenenbaum, the settlement with HP was negotiated under the pre-CPSIA enforcement scheme, which had much lower statutory limits on civil penalties. However, Tenenbaum indicated an expectation that the Commission’s future enforcement actions will “include civil penalty amounts that maximize the likelihood of deterring violations.”

Also yesterday, the Obama Administration announced the nomination of Marietta Robinson for CPSC Commissioner. Ms. Robinson is a trial attorney with 33 years experience and former trustee of the Dalkon Shield Trust.
 

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Today the United States Department of Agriculture's (USDA) Agricultural Marketing Service (AMS) published two proposed regulations that will affect companies that produce and market organic food products. One proposed rule would clarify which vitamins and minerals are permitted for use in organic food and infant formula, while the other proposed rule would renew the status of a number of substances as allowed or prohibited for use in organic food products.

Specifically, the USDA's proposed rule regarding vitamins and minerals would prohibit the use of vitamins and minerals in products labeled as "organic" unless the vitamin or mineral has been classified as essential by the Food and Drug Administration (FDA) or is otherwise listed on the USDA's National List of Allowed and Prohibited Substances (National List) for organic products. The National List dictates which non-organic ingredients and processing aids may be used in the processing and handling of organic food products. The proposed rule for vitamins and minerals covers organic food products, as well as organic infant formula, and allows synthetic forms of vitamins and minerals to be used in these products so long as the vitamin or mineral is identified as essential by FDA regulations.

The USDA's second proposed rule would renew regulations regarding whether certain substances are permitted for use in organic food production. Under the Organic Foods Production Act of 1990, the National Organic Standards Board (NOSB), an independent board of organic industry stakeholders, must review a substance's status every five years to ensure that the National List reflects current conditions and information related to organic food. Based on the NOSB's recommendations, the USDA is renewing the listing for over 200 allowed or prohibited substances. The rule also would clarify or restrict the allowances for several substances currently permitted in organic products, such as chlorine materials, lignin sulfonate, sulfur dioxide, and yeast.

Comments regarding the USDA's proposed rule for vitamins and minerals are due by March 12, 2012, while comments regarding substances subject to the USDA's second proposed rule are due by February 13, 2012.
 

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In June 2011, we wrote about a class action lawsuit filed against Michael Stores, Inc. (“Michaels”), accusing the arts and crafts retailer of violating a Massachusetts consumer protection statute when it collects and records zip codes during consumer credit card transactions. Last week, a Massachusetts District Court granted Michaels’ motion to dismiss the lawsuit after finding that the plaintiff failed to show cognizable injury. Nevertheless, the Court sent a clear message to businesses that collect customer information at the sales register by concluding that zip codes are personally identifiable information (“PII”) and Michaels may have violated the state statute when it requested plaintiff’s zip code during the sales transaction.

In Tyler v. Michael Stores, Inc., the plaintiff made a purchase at a Michael’s store with her credit card and, during the sales process, the cashier requested the plaintiff’s zip code. The plaintiff provided her zip code to the cashier allegedly based on the belief that it was necessary to complete the transaction. According to the plaintiff, Michaels then combined her zip code with other information to obtain her home mailing address, and began sending unwanted marketing materials. The plaintiff argued that the collection and recording of zip codes during a credit card transaction violates Mass. Gen. Laws ch. 93 § 105, under which a business cannot “write, cause to be written or require that a credit card holder write [PII], not required by the credit card issuer, on the credit card transaction form.”

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On January 5, 2012, the FTC announced a settlement with Upromise, Inc., a membership service intended to help consumers save money for college, over charges that the company misled users about the extent to which it collected and transmitted their personal information through a “Personalized Offers” feature on a web browser toolbar, and then failed to adequately secure the user information that it collected. The FTC claimed that Upromise’s alleged actions were unfair and deceptive and violated the FTC Act.

FTC’s Complaint Allegations: Upromise provides a membership service that allows users to contribute to a college savings account by collecting rebates that are acquired when users purchase goods and services from Upromise partner merchants. Upromise offered users a downloadable web browser toolbar that highlighted Upromise’s partner merchants appearing in a user’s search results, thereby allowing users to more easily identify merchants that provide the college-savings rebates.

According to the FTC Complaint, when users enabled the “Personalized Offers” feature, the toolbar collected and transmitted the names of the websites visited by users and the links that were clicked on by users, as well as information that users entered into websites, including search terms, user names and passwords, and financial transaction information. The Commission also alleged that users who downloaded the toolbar were led to believe that any personal information collected would be removed before it was transmitted, and that Upromise had implemented adequate security safeguards to protect the personal information transmitted.

Settlement Provisions: In resolving these allegations, the FTC settlement bars Upromise from using its web browser toolbar to collect users’ personal information without clearly disclosing the extent of its data collection practices. Per the settlement, this disclosure must be made before consumers’ installation of the web browser tool, and appear separately from any “end user license agreement,” “privacy policy,” “terms of use” page, or similar document.

Upromise also must destroy any personal information previously collected through the “Personalized Offers” feature, obtain consumers’ consent before installing or re-enabling its toolbar products, and notify users how to uninstall the toolbars currently residing on their computers. The settlement further bars Upromise from making material misrepresentations about the extent to which the company maintains the privacy and security of consumers’ personal information, and requires the company to establish a comprehensive information security program that includes biennial independent security audits for the next 20 years. Going forward, a violation of the settlement could expose the company to up to $16,000 per violation.

What This Settlement Signals: The settlement with Upromise underscores that, in 2012, the FTC will continue to hold companies accountable for providing clear and conspicuous disclosures about the extent to which online-based products and services actively and passively collect personal information, whether companies are obtaining affirmative consent from consumers for such data collection, and appropriately securing the personal data in their control. It will be a busy year.

This post was written by Alysa Z. Hutnik and Matthew Sullivan.
 

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A disturbing trend has emerged in false advertising litigation: plaintiffs are filing class action complaints that are virtually identical to or rely heavily on FTC complaints or FDA warning letters. Those complaints allege that certain advertising claims are false, deceptive, and/or misleading because the defendants do not possess “prior substantiation” for the claims, i.e., the advertisers do not have a reasonable basis for making the challenged claims in the first instance.

Recently, however, both federal and state courts have dismissed cases that do little more than echo FTC complaints or FDA warning letters, and have simply alleged that the defendants lacked substantiation for the challenged advertising claims, on grounds that those allegations fail to state a claim. More specifically, courts have explained that the allegations in those cases impermissibly attempt to shift the plaintiffs’ burden of proving falsity onto the defendants to show that the challenged claims, in fact, are substantiated.

A new article authored by Dana Rosenfeld and Dan Blynn that appears in the ABA’s Antitrust magazine, “The ‘Prior Substantiation’ Doctrine: An Important Check On the Piggyback Class Action,” discusses the “prior substantiation” defense to class-action lawsuits, which attempt to piggyback off of FTC pleadings and FDA warning letters.

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President Obama has made a recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau ("CFPB"). The President had nominated Cordray as the Director in July, but Senate Republicans blocked Cordray's confirmation last month. Yesterday's recess appointment circumventing Senate approval has already triggered criticism from Republicans, who have claimed that the President "arrogantly circumvented the American people" and called the appointment an "extraordinary and entirely unprecedented power grab."

See the post on our sister site, the Consumer Finance Law Blog, for a bit more detail.

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The Federal Food Safety Working Group (“FSWG”) yesterday released a progress report highlighting the groups accomplishments over the last two years and outlining priorities for the future. Established by President Obama in 2009, the FSWG is responsible for building a modern food safety system. Secretary for Health and Human Services Kathleen Sebelius noted in a conference call that until recently, the federal government had been “monitoring a 21st century food system with 20th century tools.” The purpose of the FSWG is to correct that deficiency.

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Last week, plaintiffs filed a class action lawsuit against McDonald's and two of its agencies, arguing that the companies violated the Illinois Prizes and Gifts Act in the context of the "2011 Monopoly Game at McDonald's."

Among other things, the Prizes and Gifts Act requires sweepstakes sponsors to make a list of up to nine disclosures in any "written promotional prize offer," a term that is not defined. The plaintiffs argue that the small Game Stamps consumers collect as part of the Game constitute written promotional prize offers, and that McDonald's failure to make all of the relevant disclosures on the Game Stamps constitutes a violation of the Act. As a result, the plaintiffs claim that they suffered a loss and are entitled to damages.

Although McDonald's did not include the disclosures on the Game Stamps, Game materials referred consumers to the Game's Official Rules for details, and the Official Rules included the required disclosures. This suit challenges a practice that is common in the industry, so companies that offer these types of instant win games should pay attention as they case develops. 

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The Missouri Attorney General recently filed a suit against Gridiron Fantasy Sports and its owner for allegedly defrauding consumers by failing to award prizes to the winners of fantasy sports leagues.

Participants in the fantasy football and baseball leagues were required to pay entry fees for a chance to win prizes. At the end of the 2010 season, the company notified winners and told them how much they had won. During the investigation, however, the AG discovered that the company failed to pay out at least $151,261 of the promised prizes. The suit alleges, in part, that the company used the fantasy baseball entry fees to pay the fantasy football winners and the football entry fees to pay the baseball winners. Because the amount of money available would depend on the number of participants, the company could not guarantee the prizes.

The AG is asking the court to issue injunctions prohibiting further violations of the law, to require the defendants to provide full restitution to victims and pay all court and investigative costs, and to require the defendant to pay the state a civil penalty and an amount equal to 10 percent of total restitution ordered. 

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