Claiming Privacy Shield Participation on Your Website? Lessons from the FTC’s First Privacy Shield Enforcement Action

The Federal Trade Commission recently announced settlements with Decusoft, LLC, Tru Communication, Inc. (doing business as TCPrinting.net), and Md7, LLC, resolving allegations that the companies misrepresented their participation in the E.U.-US and Swiss-US Privacy Shield. The announcement comes just before the first Privacy Shield annual review (scheduled for September 2017) and marks the FTC’s first enforcement action related to Privacy Shield. This post provides a brief overview of the Privacy Shield framework, notable facts from the enforcement action, and key takeaways for companies.

Privacy Shield. The E.U.-US and Swiss-US Privacy Shield frameworks are an alternative transfer mechanism for companies to transfer E.U. and Swiss individual data to the United States in compliance with E.U. and Swiss data protection requirements. To participate in either framework, a company must self-certify to the Department of Commerce (“Commerce”) that it adheres to the Privacy Shield Principles. The FTC enforces compliance with the Privacy Shield framework under its Section 5 deception authority, and companies who misrepresent their Privacy Shield participation run the risk of an FTC enforcement action.

Charges and Settlement. All three companies claimed, in their respective online privacy policies and statements, that they were Privacy Shield framework participants.  These representations were either express or by implication. Notably, in the case of TCPrinting.net, the company’s privacy policy stated that it would “remain compliant and current with Privacy Shield at all times.” Contrary to these claims, none of the three companies completed the steps necessary to participate in the Privacy Shield framework. The FTC settlement prohibits the companies from misrepresenting the extent to which they participate in any privacy or data security program and imposes FTC reporting requirements for a 20-year period.

Key Takeaways.  Since 2009, the FTC has settled 36 cases involving claims of Safe Harbor participation, three cases involving alleged violations of Safe Harbor Privacy Principles, and four cases involving claims of participation in the Asia-Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules (CBPR) system. As noted in the chart below, the FTC has been active in enforcing cross border privacy frameworks, and companies should expect this trend to continue.  As part of the Privacy Shield negotiations, the FTC committed to give priority to Privacy Shield non-compliance referrals received from EU Member States, Commerce, and privacy self-regulatory organizations and other independent dispute resolution bodies.  With the first Privacy Shield annual review forthcoming, these enforcement actions affirm that commitment.

Year FTC Enforcement Actions and Warning Letters
2009-2013 -10 Companies Settle Safe Harbor Charges
2014 -14 Companies Settle Safe Harbor Charges
2015 -15 Companies Settle Safe Harbor Charges
2016 -1 Company Settles APEC CBPR Charges
-FTC Issues Warning Letters to 28 Companies Regarding APEC CBPR Participation
2017 -3 Companies Settle APEC CBPR Charges
-3 Companies Settle Privacy Shield Charges

In light of this activity, companies should review their privacy policies and similar statements to ensure that claims about participation in or compliance with self-regulatory or governmental privacy related programs are up to date and accurate.

FTC Takes Action Against Social Media Influencers

This morning, the FTC announced that it had reached a settlement in its first-ever complaint against individual social media influencers and that it had sent warning letters to other prominent influencers. In addition, the FTC announced that it had updated previous guidance on influencer campaigns.

Settlement

The settlement involves Trevor Martin and Thomas Cassell, owners of CSGO Lotto, an online multi-player game. Martin and Cassell are also social media influencers who have gaming channels on YouTube with millions of followers. Starting in 2015, both men posted videos of themselves playing the game and discussing how they had won money. They engaged in similar activities on other platforms, including Twitter and Instagram. None of the videos or posts, however, mentioned any connection to the company. Martin and Cassell also paid other influencers to promote the game on social media. Most of individuals did not disclose their connections to the company and the few who did only did so “below the fold.”

Last year, various media outlets broke the news that Martin and Cassell ran the CSGO Lotto site. Many fans who had assumed that the men’s reviews were unbiased became upset, controversy followed, and the game shut down. Now we know that the FTC got involved, as well. As part of the proposed settlement with the Commission, Martin and Cassell are prohibited from misrepresenting that any influencer is an independent user. Instead, any connection between an influencer and the product being promoted must be disclosed in a “clear and conspicuous manner.”

Warning Letters

In April, we noted that the FTC staff had sent “educational letters” to more than 90 social media influencers, reminding them of their obligation to disclose any connection they have to the companies whose products they promote. Today, the FTC announced that they had sent new “warning letters” to 21 of those influencers.

The new letters cite specific posts that concerned the FTC staff and explained why those posts might not comply with the Endorsement Guides or the FTC Act. For example, some of the letters noted that the staff believe that tagging a brand is an endorsement of the brand. “Accordingly, if you have a material connection with the marketer of a tagged brand, then your posts should disclose that connection.” Other letters stated that simply thanking a brand is not a sufficient disclosure. And others reminded influencers that disclosures must be easy to find, and that consumers shouldn’t be required to click a link in order to find them.

Updated Guidance

The FTC also released an updated document with answers to frequently asked questions. This version includes more than 20 new answers addressing specific questions that marketers and influencers may have about whether and how to disclose material connections in their posts. For example, the document covers topics such as including tags in pictures, disclosures on Instagram, disclosures on Snapchat, how to disclose free travel, and terms that can be used in disclosures.

Stay tuned for more coverage of these developments.

“Free Speech in the Fog of Scientific Uncertainty” by Professor Jane Bambauer

In the following article authored by University of Arizona Law Professor Jane Bambauer, the professor makes a compelling argument that FTC/FDA regulation of health claims should focus on situations  where the government has compelling evidence of actual harm.   Professor Bambauer offers an opinion that high standards for health benefit claims can effectively silence commercial speech in areas where science may still be developing, to the detriment of consumers.   The current method of analysis, the Professor contends, does not give adequate weight to consideration of the consequences of prohibiting a claim that may actually be true – one of the six Pfizer factors that is regularly overlooked in substantiation analysis.

To read the article, please click here.

Will the FTC’s Deception Evidence Fall Short? Court to Rule in DirecTV Case

U.S. District Judge Haywood S. Gilliam Jr. said Friday that the court would pause the trial to consider whether the FTC presented sufficient evidence to support its allegations that DirecTV misled consumers by failing to adequately disclose the terms of its two-year subscription and introductory pricing offer.  The judge instructed attorneys for DirecTV to file their partial judgment motion and a brief on findings of fact within two weeks.  The FTC will then have two weeks to respond to the motion and submit its own findings of fact.

As we previously discussed here and here, the FTC is seeking almost $4 billion in equitable relief based on allegations that DirecTV misled consumers by failing to disclose that it would raise its monthly subscription price after a consumer subscribed for three months, and then again after a year.  The case involves alleged violations of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA).  Over the first ten days of trial, testimony has addressed an array of issues from the proportion of consumers who may have been misled, to the proper calculation of damages assuming they were misled.

Most recently, last Friday, attorneys for DirecTV questioned the FTC’s expert, University of San Francisco economics professor Daniel Rascher, on the basis for calculating that DirecTV should pay almost $4 billion in equitable relief.  DirecTV’s attorneys argued that the figure fails to account for what proportion of consumers were actually misled.  Rascher countered that his role was not to analyze and interpret the ads but to calculate unjust gains based on DirecTV’s customer billing data.  After Rascher’s testimony, the FTC rested its case and Judge Gilliam addressed DirecTV’s partial judgment bid by pausing the trial and giving DirecTV two weeks to brief the issues.

We’ll continue to monitor and post updates related to the case here.

TINA Has Eyes on Goop

The consumer advocacy non-profit Truth in Advertising, Inc. (TINA.org) has set its sights on Goop, the lifestyle brand launched by Gwyneth Paltrow.  In a complaint filed earlier this week with the Santa Clara and Santa Cruz County California district attorneys, both members of the California Food and Drug and medical Device Task Force, TINA alleges they found over 50 instances where claims were made that products Goop produces or promotes “can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing a number of ailments.”  TINA has requested that the California district attorneys investigate Goop’s marketing practices. 

This is not the first time Goop has been forced to defend claims that it promotes.  Last summer, the National Advertising Division took issue with claims related to using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  The NAD closed the case after Goop agreed to permanently discontinue the dust claims. Continue Reading

Cy Pres Class Action Settlements Just Fine, Ninth Circuit Says

What should a corporation do when a class action lawsuit claims it broke the law, the group of allegedly affected people is massive, but the real-world “harm” is effectively nil?

If the lawsuit fails to state a valid claim, obviously you move to dismiss it. But what if your best arguments require expensive discovery, you can’t be certain of a victory even then, and the downside risk—such as from statutory minimum damages—is intolerable to you?

One good strategy for corporate defendants facing these situations is to settle by making corrective changes to address the alleged problem and, in lieu of what would be tiny damages payments to affected class members, contribute a palatable amount of money to non-profit groups working to protect the interests of those consumers. Continue Reading

DirecTV and FTC Face Off in Federal Court Over Deceptive Pricing Claims; FTC Seeking $4 Billion in Equitable Relief

A bench trial began this week to resolve allegations by the FTC that DirecTV misled millions of consumers about the actual costs of its subscriptions.  According to the FTC, DirecTV should be required to pay $3.95 billion dollars to compensate consumers for failing to disclose that it would raise its monthly subscription price after a consumer subscribed for three months, and then again after a year.  The FTC also alleged that DirecTV failed to disclose to consumers that an early termination fee would apply if consumers tried to cancel before those increases, or any time before the initial two year contract period expired.

The FTC filed its complaint back in March 2015 in the U.S. District Court for the Northern District of California and pointed to allegedly deceptive hard copy advertisements and internet sales through DirecTV’s website.  The complaint alleges violations both of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA), which imposes specific requirements on negative option offers on the internet.  DirecTV filed an unsuccessful partial motion for summary judgment on the ROSCA claims, as we previously discussed here.

More than two years after the initial complaint, settlement discussions fell through when FTC Commissioner Terrell McSweeny indicated she would not support an undisclosed settlement based on skepticism about the scope of equitable monetary relief and injunctive relief of the settlement.  The $3.95 billion figure espoused by FTC attorneys in the first day of the bench trial sheds some light on why earlier negotiations may have ultimately fell through.

In the second day of trial, the FTC pressed DirecTV executives — now part of AT&T, Inc. — regarding the percentage of consumers misled by its billing practices according to internal surveys.  The executive argued that, while there was indeed some evidence of consumers being confused about pricing practices, he did not believe such confusion was related to DirecTV’s subscription price increases or early termination fees.

And in the third day of trial on Thursday, DirecTV’s former chief sales and marketing officer Paul Guyardo testified that he instructed his team to place the disclosure at the bottom of the page in small font.  When certain team members expressed concerns, Guyardo told them to proceed because he didn’t think the disclosure needed to be prominent at that point in the marketing campaign, according to his testimony.  The requisite size and location of disclosures for promotional offers is at the heart of the case.

The trial is expected to last a few weeks and is being presided over by U.S. District Judge Haywood S. Gilliam Jr.

Third Circuit Steps Back from the Brink of a Circuit Split over “Ascertainability”

Yesterday, a panel of the Third Circuit Court of Appeals took another step back from a circuit split over the extent to which aspiring class plaintiffs must show a “reliable and administratively feasible means of determining whether putative class members fall within the class definition,” and one judge called for scrapping that requirement altogether.

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Comparison Pricing Victory for Ross Stores in California

On August 2, 2017, the U.S. District Court for the Central District of California dismissed a putative class action lawsuit against Ross Stores that accused the discount retailer of misleading promotional pricing practices. The lawsuit stemmed from February and May 2015 purchases by the two lead plaintiffs of items bearing price tags with a selling price and an instruction to “Compare At” the higher, reference price. Ross has since changed the reference price signal from “Compare At” to “Comparable Value.”

The Second Amended Complaint, filed in March 2016, contained the following allegations:

  • The use of “Compare At” is deceptive, as the higher, reference price is not a price at which substantial sales of the item were made in California.
  • The higher, reference price is the price of similar, non-identical merchandise – a material fact that Ross fails to adequately disclose.
  • A reasonable consumer would expect the reference price to refer to the price of an identical item.
  •  The retailer’s explanation of its comparison pricing is “buried” on the website and out of view in stores. Specifically, the explanation states that the comparison pricing “represents a recent documented selling price of the same or similar product in full-price department stores or specialty stores[, and w]here identical products are not available [Ross] may compare to similar products and styles.”

According to the plaintiffs, these practices violate California law, which promotional pricing statutes (1) prohibit retailers from making a false or misleading statement of fact concerning the reason for a price reduction, and (2) require that an advertised reference price have been the prevailing market price for the item within the immediately preceding three months. See Cal. Civ. Code § 1770(a)(13); Cal. Bus. & Prof. Code § 17501.

In May, Ross and the plaintiffs filed a motion for summary judgment and motion for class certification, respectively. With respect to the new, “Comparable Value” signal, the Court determined that the plaintiffs lacked standing to challenge these tags because they failed to present evidence that they actually relied on the phrase when making their purchases, or that they suffered any economic injury as a result of Ross’s use of the phrase. As a result, the Court granted the motion for summary judgment with respect to Ross’s use of “Comparable Value.”

With respect to the “Compare At” signal, the Court found that the phrase is not “obviously false or misleading on its face,” and the plaintiffs had not presented evidence, other than their own declarations and price tags, in support of their argument that the reasonable consumer would expect the reference price to refer to the price of an identical item. Regardless, the Court concluded, the plaintiffs also failed to demonstrate economic harm, and therefore lacked standing to pursue their claims. Importantly, the Court rejected the plaintiffs’ reliance on the Ninth Circuit decision in Hinojos v. Kohl’s Corp., noting that, “the standard of proof on a motion for summary judgment is higher” and demands proof that the items purchased were not worth as much as Ross claims, rather than vague averments of injury.

Laura Brett Named New Director of NAD

More than a month after the retirement of former NAD Director Andrea Levine, the Advertising Self-Regulatory Council (“ASRC”) has announced NAD’s new Director: Laura Brett. Laura Brett, who has served as NAD’s Assistant Director since 2015, joined NAD in April of 2012. During her five years at NAD, Laura has authored several seminal decisions including NAD’s highly publicized 2015 DirecTV decision. She has also authored several monitoring decisions that deal with the intersection between social media and advertising law. (See, for example, NAD’s Kardashian and eSalon decisions.) Laura has spoken frequently about NAD and has earned a reputation for her strong judgment, rigorous analytical skills, and integrity.

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