Ad Law Access

Ad Law Access

Updates on consumer protection trends, issues, & developments

FTC Closes an Investigation Involving Reviews by Employees

Posted in Federal Trade Commission, Social Media

In previous posts, we’ve noted that if a person who writes a review about a product has a connection to the company that makes the product, that connection should be clearly disclosed. The types of connections that trigger this disclosure requirement include things such as payments, free products, and, of course, employment.

According to press reports, on at least two occasions, Yahoo employees posted positive reviews of Yahoo apps in the iTunes app store without disclosing their affiliation with Yahoo. The FTC learned about this, and contacted Yahoo to inquire about what had happened.

After an investigation, the FTC decided not to pursue the case, for four key reasons: (1) only a small number of employees reviewed Yahoo apps without disclosing their affiliation; (2) it didn’t appear that Yahoo had encouraged employee to write the reviews; (3) the apps were free and didn’t include in-app purchases; and (4) Yahoo committed to improve its social media policy and to more actively inform employees of the policy.

If you haven’t thought about your company’s social media policy recently, you may want to do that. As a general matter, you shouldn’t encourage employees to review your products. (Some companies have gotten into trouble when they encouraged reviewers to pose as independent consumers.) You should also make sure your employees know that if they do decide to review your products on their own, they must disclose that they are employed by you.

Are Third Party Compliance Tests Dutiable Upon Entry into U.S.?

Posted in Uncategorized

In a recently released headquarters ruling, Customs and Border Protection (“CBP”) addressed the issue of the dutiability of payments for compliance testing.  The scenario is as follows:  The importer purchases merchandise from a foreign seller and imports them into the U.S.  The merchandise undergoes various product compliance tests outside of the U.S.  Sometimes the importer hires a third party tester directly and pays the tester directly and other times the seller hires the test vendors and either invoices the related fees to the importer or incorporates the costs into the imported merchandise.

Upon entry into the U.S. most merchandise is valued according to the transaction value of the goods which is the “price actually paid or payable for the merchandise…plus any assists.” (19 U.S.C. section 1401a(b)(1)(c))  The value includes total payment for the merchandise by the buyer to, or for the benefit of the seller.  CBP has already issued rulings holding that testing costs done by the seller are included in the dutiable value of the merchandise.  In this matter, CBP considered the question of third party testing costs.

CBP concluded that if the importer is paying a third party tester directly, then those payments are excluded from the transaction value of the goods.  In the instances where the importer relies on the seller to arrange the tests and pays the seller accordingly, the costs become part of the transaction value.  Therefore, it is important to keep in mind Customs valuation regulations when negotiating with manufacturers.

To read the full ruling, please click here.

Ingredient Supplier Settles FTC Charges Related to Sponsored Trial

Posted in Advertising, Federal Trade Commission, Food and Drug

Earlier this week, the FTC announced a settlement with a company that supplies functional ingredients to food and dietary supplement sellers. According to the FTC, the company sponsored “a seriously flawed human clinical trial” on a green coffee ingredient, advertised the results of the study, and through its advertising, provided its customers with the “the means and instrumentalities to deceive consumers.” The company’s study, which was a weight loss study, was discussed on the Dr. Oz Show, and the company issued a press release about the discussion on the Dr. Oz Show. The FTC attached a copy of the press release to its complaint.

The FTC alleges that the company commissioned the study in Bangalore, India, and that “during and after the trial, the principal investigator repeatedly: (1) altered the weights and other key measurements of the subjects; (2) changed the length of the trial; and (3) confused which subjects took either the placebo or [the green coffee ingredient] at various points during the trial.” The FTC further alleges that “[w]hen the principal investigator failed to find a publisher for his summary of the purported trial, [the company] hired ghost-writers, who – like [those at the company] . . .received numerous, conflicting data sets from the principal investigator.” The FTC contends that “despite the[] discrepancies,” neither the company nor the “ghost writers” checked the revised data sets against the original raw data. In addition to the alleged data issues, the FTC takes issue with the study report failing to provide information on blinding, diet and exercise protocols, or “how randomization occurred.” 

The company admitted no wrong-doing and agreed to injunctive relief and a $3.5 million monetary settlement. The injunctive relief requires at least two “adequate and well-controlled human clinical tests” for any future claims that a drug, dietary supplement, or device causes or helps cause weight or fat loss. The order also imposes record-keeping requirements for certain clinical trials relied upon for claim substantiation and requires the company to provide notice of the settlement to past customers.

Google to Refund at Least $19 Million Over Kids’ In-App Purchases

Posted in Federal Trade Commission, Mobile Marketing, Privacy and Information Security

On September 4, 2014, the FTC announced a settlement with Google Inc., which requires the search giant to pay at least $19 million in refunds to consumers that the Commission alleges were billed for unauthorized in-app charges incurred by kids.  The settlement follows a similar settlement in January with Apple (which required Apple to pay a minimum of $32.5 million in refunds), and a recent complaint filed by the FTC in federal court against Amazon.

The FTC’s complaint against Google alleges that the company offered free and paid apps through its Play store.  Many of these apps are rated for kids and offer “in-app purchases” ranging from $0.99 to $200, which can be incurred in unlimited amounts.  The FTC alleges that many apps invite children to obtain virtual items in a context that blurs the line between what costs virtual currency and what costs real money. 

At the time Google introduced in-app charges in March 2011, users were notified of an in-app charge with a popup containing information about the virtual item and the amount of the charge.  A child, however, could clear the popup simply by pressing a button labeled “CONTINUE.”   In many instances, once a user had cleared the popup, Google did not request any further action before billing the account holder for the corresponding in-app charge. 

It was not until mid- to late-2012 that Google begin requiring password entry in connection with in-app charges. The complaint alleges, however, that once a password was entered, it was stored for 30 minutes, allowing a user to incur unlimited in-app charges during that time period.  Regardless of the number or amount of charges incurred, Google did not prompt for additional password entry during this 30 minute period.

Google controls the billing process for these in-app charges and retains 30 percent of all revenue.  For all apps, account holders can associate their Google accounts with certain payment mechanisms, such as a credit card, gift card, or mobile phone billing.  The complaint highlights that Google received thousands of complaints related to unauthorized in-app charges by children and that unauthorized in-app purchases was the lead cause of chargebacks to consumers. Continue Reading

FTC Asks (Too?) Much of Retailers

Posted in Advertising, Federal Trade Commission, Retail

The FTC recently announced that it sent warning letters to five “major retailers” selling athletic mouth guards on their websites. According to the FTC, the retailers’ websites included concussion claims that may be deceptive. The FTC urged the recipients of the letters to ensure that all concussion claims appearing on their sites are backed by “competent and reliable scientific evidence.” The FTC also warned the recipients that “retailers, as well as product manufacturers, can be liable for violating the FTC Act if they disseminate false or unsubstantiated claims.”  

The FTC, meanwhile, has provided little guidance on what constitutes competent and reliable scientific evidence for concussion claims for mouth guards or other similar devices. It has issued no guidance documents, and the single case that it has brought in the area led to a settlement. The resulting settlement order simply requires “competent and reliable scientific evidence” for any future concussion claims, without elaborating on what the appropriate evidence might look like. What exactly constitutes appropriate science is, however, apparently the subject of debate among experts. The single existing mouth guard case prompted experts in the fields of general dentistry and sports dentistry to submit comments to the FTC both opposing and supporting the settlement.  In finalizing the order, the FTC said nothing substantive about the positive comments. Regarding the negative comments, it stated only that although the science shows that some mouth guards “can reduce the impact to the lower jaw,” there is currently no science directly linking mouth guards and reductions in concussion risk. In a vacuum of any substantial guidance, retailers and manufacturers, alike, will be hard pressed to know what evidence is good enough. 

In the recent warning letters, the FTC cited the 1970s case, Porter v. Dietsch, in support of the proposition that retailers may be held liable for violations of the FTC Act. In that case, the FTC found a retailer, Pay’n Save, liable for disseminating deceptive ads for a weight loss product. The FTC found that Pay’n was liable even though it had not participated in any way in the creation of the ads, which had been provided by the product manufacturer. The Seventh Circuit affirmed the FTC’s findings on liability, but narrowed the resulting order against Pay’n Save. Rather than applying to any future advertising by Pay’n Save for any weight loss product, the narrowed order would apply only to future advertising for weight loss products made by the same manufacturer. The court pretty clearly had misgivings with treating a retailer just like an advertiser, even if both are subject to the FTC Act.  It observed that “the extent of a party’s culpability has an important bearing . . . on the nature of the relief that should be granted.”

BBB Accountability Program Issues Warning to Online Interest-Based Advertisers

Posted in Advertising, Federal Trade Commission, Privacy and Information Security

Last Thursday, the BBB’s Online Interest-Based Advertising Accountability Program issued a compliance warning, reminding online advertisers that its privacy code applies across devices and platforms and that the Accountability Program will enforce the code’s principles irrespective of the technology the advertiser uses to collect consumer activity and serve interest-based ads.

In the warning, the Accountability Program acknowledges widespread use of new, cookie-less identification technologies that advertisers have developed in order to deliver interest-based ads across platforms and devices, due in part to the inability to use cookies on all platforms and devices. However, the Accountability Program strongly disagrees with the position that the novel privacy issues these technologies present cannot be addressed through existing regulations and self-regulatory programs. In support of its position, the Accountability Program points to its precedent – a 2012 decision against BlueCava, as well as the FTC and NAI enforcement actions against Epic Marketplace. In the BlueCava decision, the Accountability Program asked the company to clarify in its privacy policy that its opt-out was effective only on the device on which the consumer exercised the opt-out option, and to develop a cross-device opt-out for its new technology, noting “Companies’ commitment to applying the OBA Principles to their new technologies will ensure that the OBA Principles continue to evolve along with technological advances.” In 2013, the FTC entered into a settlement agreement with Epic Marketplace, resolving allegations that the company employed “history-sniffing” technology to collect consumers’ browser history, which included sensitive data, without their knowledge or consent. NAI, in 2011, had found this practice a violation of the NAI Code and NAI policies and, as a result, requires Epic to undergo annual audits.

Developed in 2009, by leading industry associations, the seven OBA Principles are intended to make online behavioral advertising more consumer-friendly, giving consumers knowledge of and control over the information collected about them. The Principles are (1) education, (2) transparency, (3) consumer control, (4) data security, (5) material changes, (6) sensitive data, and (7) accountability. It is important for advertisers engaged in online behavioral advertising to ensure compliance with these Principles, regardless of the technology and platform or device used.

Privacy and Data Security 15 Do’s and Don’ts: Tips for Avoiding FTC Enforcement

Posted in Federal Trade Commission, Privacy and Information Security

The FTC continues to remain focused on protecting consumers’ privacy and security online, offline, and in the mobile environment.  To date, the FTC has obtained more than 60 privacy settlements and brought over 50 data security cases (two of which are currently in litigation).  While nearly any company that financially benefits from the use of consumer personal data is a potential FTC target, to understand what particular practices the FTC views as unlawful can be challenging. To help navigate that task, Alysa Hutnik and Crystal Skelton authored an article for Bloomberg BNA’s Privacy and Security Law Report that summarizes 15 do’s and don’ts to consider when implementing privacy and data security practices.

To read the full article, please click here.

Suit Alleges Neiman Marcus Outlet Prices are Deceptive

Posted in Advertising Litigation, Retail

In February, we posted that four members of Congress sent a letter to the FTC expressing concerns that consumers are being deceived by pricing at outlet stores and asking the FTC to investigate. Although the FTC has been fairly quiet on this issue, so far, plaintiffs’ attorneys have started to take notice.

Last week, a plaintiff filed a class action against Neiman Marcus, alleging that the retailer’s outlet pricing violates California laws. Items in Neiman Marcus Last Call stores bear price tags with a sale price, the words “compared to,” and a higher price. According to the complaint, the “compared to” language gives the false impression that items were sold in Neiman Marcus stores at the higher price. In reality, the plaintiff alleges, the “Last Call clothing is actually not intended for the sale at the traditional Neiman Marcus stores . . . but rather strictly for the Last Call Store.”

The complaint seeks monetary damages and a permanent injunction that would prevent Neiman Marcus from continuing to engage in allegedly deceptive sales practices.

As we’ve noted before, there has been an increase in cases involving retail pricing in recent months. If you’re a retailer, you should pay close attention to recent cases and state pricing laws, particularly when you’re advertising discounts, sales, or other price reductions.

Smooth Sale-ing: Jos. A. Bank Wins Before Seventh Circuit

Posted in Advertising, Advertising Litigation, Class Action Litigation, Retail

Late last week, the Seventh Circuit affirmed the dismissal of a putative class action alleging that Jos. A. Bank advertises its normal retail prices as temporary price reductions, in violation the Illinois Consumer Fraud and Deceptive Business Practices Act. The company’s pricing practices, the plaintiff argued, constituted a “fraudulent sales technique.” Illinois law, like most state promotional pricing laws, requires that an advertised former price be equal to or below the price at which a seller made a substantial number of sales, or made a good faith attempt to sell the product, in the recent regular course of business.

According to the complaint, in July 2012, the plaintiff, Patrick Camasta purchased six shirts for $167 after seeing an ad publicizing “sales prices” in a JAB Illinois retail store. Pursuant to the terms of the promotion, he purchased one shirt for $87.50 and one shirt for $79.50, and received two free shirts with each purchase. Camasta alleged that he later learned that the sale was not a temporary price reduction, but was the normal retail price at which JAB offers the items and advertises them as “sales” to Illinois consumers.

In July 2013, the U.S. District Court for the Northern District of Illinois dismissed the lawsuit in its entirety, with prejudice, determining that Camasta failed to adequately plead the circumstances constituting the alleged fraud and to demonstrate that he had suffered actual pecuniary loss as a result of the transaction – i.e., that he paid more than the value of the shirts he purchased. The court concluded that the complaint was predicated on speculative statements about the allegedly deceptive ad and JAB’s pricing practices, and that Camasta would not have purchased the shirts had he known the “sale” price was actually the normal retail price. The Seventh Circuit agreed, noting that Camasta had neither satisfied Rule 9(b)’s heightened pleading requirements for claims of fraud nor pled facts sufficient to support his claims for actual damages. Furthermore, the court concluded, “[s]ince Camasta is now aware of JAB’s sales practices, he is not likely to be harmed by the practices in the future . . . [and] not entitled to injunctive relief.”

While Jos. A. Bank emerged from this fight victorious, other retailers have not been so lucky. Kohl’s, for example, was involved in a similar action in California, and, on appeal, the Ninth Circuit concluded that the plaintiff had adequately alleged economic injury under California law by claiming that the advertised discounts conveyed false information about the goods and that he would not have purchased them absent the misrepresentation. The Kohl’s case, and others, serve as a reminder that promotional pricing is a hot topic for class action plaintiffs, and we recommend that retailers review their sale policies to make sure they are in compliance with applicable state laws.

NAD Asks Postal Service to Disclose Restrictions on Ads

Posted in Advertising, NAD

Last week, the NAD asked the US Postal Service do a better job of disclosing the restrictions on its “$50 insurance included in Priority Mail service” offer. The case started as a complaint from a consumer, who claimed the Postal Service lost a package she had mailed using the Priority Mail service. When the consumer filed a claim, she was advised that her refund would be only $15, plus postage. The consumer complained that the Postal Service’s ads didn’t disclose any restrictions on the reimbursement.

After reviewing the Postal Service’s ads, the NAD sided with the consumer. Because the ads didn’t disclose that there were any restrictions or limitations on the coverage, the ads reasonably conveyed that a consumer would be reimbursed a full $50 for a lost shipment using the Priority Mail service — not “up to” $50. Accordingly, the NAD recommended that the Postal Service make various changes to its ads, including to more clearly and conspicuously disclose the restrictions and limitations.

Although most NAD cases are initiated by competitors, this case serves as a reminder that consumers can also file a challenge. The case also services as another reminder (in case you needed one) that advertisers must always disclose any material restrictions or limitations on their offers.