Ad Law Access

Ad Law Access

Updates on consumer protection trends, issues, & developments

FTC Sends Warning Letters on Disclosures

Posted in Advertising, Federal Trade Commission

This week, the FTC announced that the agency had sent warning letters to more than 60 companies — including 20 of the 100 largest advertisers in the country — addressing how the companies make disclosures in ads. According to the letters, FTC staff “recently reviewed more than a thousand national magazine and television advertisements to identify advertisements that raise disclosure issues and to share [its] concerns with the companies responsible for the ads.”

The letters outline the FTC’s position on what it believes is required for a disclosure to be clear and conspicuous. Among other things, the letters state that “advertisers should use clear and unambiguous language and make the disclosures stand out. Consumers should be able to notice the disclosure easily; they should not have to look for it.” The FTC also discussed factors that advertisers should consider when evaluating disclosures, including where the disclosures are placed, the font size, and how well they contrast against the background.

In the warning letters, the staff identified problematic ads, recommended that advertisers review their ads to ensure that any necessary disclosures are truly “clear and conspicuous,” and asked them to notify the staff “of what actions you have taken or intend to take in response to this letter to ensure your company’s compliance with the FTC Act.” According to the FTC’s press release, the “response to staff’s letters has been extremely positive.”

If you received a letter from the FTC, you’ve likely already told the agency of what you plan to do ensure your disclosures comply with the law. If you didn’t receive a letter, you should nevertheless use this as an opportunity to review your own disclosure practices. The FTC is clearly focused on this issue, and these types of warning letters can often be a signal that enforcement lies ahead.

Marketing Consultant May Be Held Liable Under TCPA for Its Third-Party Marketer’s Unsolicited Text Messages

Posted in Advertising Litigation, Telemarketing and Call Center Operations

Last Friday, the U.S. Court of Appeals for the Ninth Circuit held that a marketing consultant for the United States Navy – the Campbell-Ewald Company – could be held liable for a third-party marketer’s violations of the Telephone Consumer Protection Act (“TCPA”) arising out of the transmittal of unsolicited text messages.

The Navy hired Campbell-Ewald to develop and execute a multimedia recruiting campaign and the parties agreed that, as part of the marketing campaign, Campbell-Ewald would send text messages to cellular users that had consented to receive the recruitment solicitation.  Campbell-Ewald outsourced the text message dialing to a company called Mindmatics which was responsible both for generating the list of phone numbers to be dialed and for physically transmitting the text messages.  In the suit, the plaintiff claimed that he did not consent to receipt of the message and alleged that Campbell-Ewald violated the TCPA.  The plaintiff did not name the Navy or Mindmatics as a defendant.

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CPSC Tags Retailer With $2M Civil Penalty and Enhanced Compliance Program for Allegedly Distributing Recalled Products

Posted in Consumer Product Safety

Retailer superstore Meijer Inc. is on the hook for allegedly distributing recalled consumer products. In a press release dated September 17, 2014, the Consumer Product Safety Commission (“CPSC”) announced the hypermarket operating 24-hour stores and gas stations in various Midwestern states has agreed to settle charges that it knowingly sold and distributed recalled consumer products. Meijer has agreed to pay a $2 million civil penalty and to implement an enhanced “reverse logistics” compliance program. This settlement signals heightened scrutiny and new channels of enforcement for retailers.

Between April 2010 and April 2011, Meijer allegedly distributed at least twelve separate recalled consumer products, totaling approximately 1,692 individual units of recalled products. The recalled products consisted of various household items and children’s products, including oscillating ceramic heaters, toddler tricycles, vacuum cleaners, and baby rattles. According to the settlement agreement, Meijer claimed the sale and distribution of the recalled items was inadvertent and occurred without Meijer’s knowledge. Meijer had outsourced the disposition of recalled products to a reverse logistics system operated by a third party, and believed that adequate safeguard had been in place to prevent recalled products from being distributed into commerce.

The CPSC thought otherwise. In addition to the $2 million civil penalty, the CPSC is requiring that Meijer implement an enhanced reverse logistics compliance program with the following components:

  • Written standards, policies, and procedures for the appropriate disposition of recalled goods;
  • Mechanisms to communicate product safety policies and procedures to employees;
  • Management oversight of the program, including a mechanism for confidential reporting to a Meijer official;
  • A policy to retain reverse logistics records related to recalled product collection and disposition for at least 5 years after the recall date; and
  • Availability of such records to the CPSC upon request.

This settlement follows the CPSC’s announcement last July of recalled products that were continuing to be sold or resold by Best Buy and certain affiliated entities. The CPSC did not impose a civil penalty against Best Buy or require an enhanced compliance program. In light of these two announcements, retailers should carefully review their compliance protocols to ensure recalled products are not reentering the stream of commerce.

FTC v. Bayer: The Good News

Posted in Advertising, Federal Trade Commission, Food and Drug

The Department of Justice recently filed a motion in federal court against Bayer Corporation over advertising for its probiotic supplement, Phillips’ Colon Health.  The DOJ alleges that Bayer lacks the “competent and reliable scientific evidence” that a prior 2007 order requires the company to possess for any efficacy or benefit claim for a dietary supplement. According to the government’s medical expert – a gastroenterologist and professor at Yale medical school – appropriate science for constipation, diarrhea, gas, and bloating claims for Phillips’ Colon Health should consist of randomized, double-blind, placebo-controlled studies on the product or “a product comprised of the same combination of the same strains of bacteria.”  Without such evidence, the government alleges that Bayer’s claims are not properly supported.  The FTC is assisting DOJ with the case. Continue Reading

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.