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Ad Law Access

Updates on consumer protection trends, issues, & developments

Senate Unanimously Approves “Internet of Things” Resolution

Posted in Federal Trade Commission, Privacy and Information Security

While the broader issues of consumer privacy and data security remain hot topics,  Congress and government enforcers have focused particular zeal on emerging technologies.  Just this week, the Senate unanimously passed a bipartisan resolution calling for the development of “a strategy to incentivize the development of the Internet of Things.”  The resolution recognizes that the Internet of Things “has the potential to generate trillions of dollars in economic opportunity,” and that “increased connectivity can empower consumers.”  It then suggests stimulating the development of the Internet of Things “in a way that recognizes its benefits and allows for future innovation, and responsibly protects against misuse.”  The resolution also acknowledges the importance of industry-developed best practices and calls on innovators to “commit to improving the quality of life for future generations by developing safe, new technologies aimed at tackling the most challenging societal issues facing the world.”

Sens. Deb Fischer (R-Neb.), Cory Booker (D-N.J.), Kelly Ayotte (R-N.H.), and Brian Schatz (D-Hawaii) introduced the resolution in early March following a recent hearing on Internet of Things issues before the Senate Commerce Committee, as well as the release of the FTC’s Internet of Things report in January.  The resolution is not legislation and does not carry the force of law.  However, the continued focus and activity on this issue could suggest that new legislation to promote and/or regulate the Internet of Things is forthcoming.  We will post any new updates on this blog, so be sure to check back regularly.

Jennifer Rodden, a law clerk with Kelley Drye & Warren, assisted in the drafting of this post.

FTC Enforcement Targets BMW Warranties

Posted in Federal Trade Commission

Note: Ilunga Kalala assisted in drafting this post.

The Federal Trade Commission  (“FTC”) announced last week that it reached a settlement with BMW of North America, LLC, (“BMW”) regarding the maintenance and repair warranty that BMW’s MINI Division provided consumers.

Under the Magnuson-Moss Warranty Act (“Act”), a company that provides a warranty cannot condition that warranty on the purchase of parts or services from a particular company.  According to the FTC’s complaint, the MINI Division warranty violated the Act because (1) it was conditioned on whether consumers used genuine MINI parts and dealers to perform maintenance and repair work and (2) there was a charge for the parts and services.

The proposed consent order prohibits BMW from requiring that car owners have maintenance performed by MINI Division dealers or with MINI parts as a condition of the warranty, unless BMW provides the part or service without charge. The agreement also prohibits BMW from indicating that car owners must have maintenance performed by MINI Division dealers or with MINI parts so that their vehicles operate safely or maintain their value.

This is the first auto warranty related enforcement action by the FTC in several years and a reminder to all companies offering a warranty to revisit their terms to ensure they do not impose similar conditions.

One-A-Day Keeps the Plaintiff’s Lawyers Away: FDA Determinations on Disease Claims Preempt Class Action Allegations

Posted in Advertising, Class Action Litigation, Food and Drug

A California court recently dismissed, in part, a consumer class action against labeling and advertising claims for twenty different Bayer One-A-Day multivitamins. The plaintiffs had alleged that the claims, “supports heart health” and “supports immunity” – which Bayer used for many of the products – were impermissible disease claims. The court rejected these allegations. It found, first, that FDA has determined that such claims are permissible, non-disease “structure/function” claims. It pointed to FDA guidance providing that similar claims, such as “helps maintain a healthy circulatory system” and “supports the immune system,” are permissible structure/function claims. The court, next, found that, under an express pre-emption provision in the federal Food, Drug, and Cosmetic Act, a litigant cannot upset FDA’s prior determination. The FDCA pre-emption provision provides that state law cannot impose a labeling requirement that conflicts with or adds to FDA requirements. In contrast to its holding regarding the heart health and immunity claims, the court refused to dismiss allegations against the claim, “supports physical energy.” The difference is that while the plaintiffs challenged the substantiation for the energy claim, they did not allege that the claim was an impermissible disease claim.

The lawsuit, which was filed with the support of the Center for Science in the Public Interest, is a clear winner for industry. The specter of a court finding that a clear structure/function claim, like “supports heart health,” is a disease claim loomed large and could have affected the types of claims that dietary supplement and food companies choose to make. This decision, we hope, will discourage future litigants from picking fights over what is and isn’t a disease claim. We wonder, too, if this decision or others like it could eventually affect the FTC’s position on disease claims. In 2010, the FTC began including in many of its orders specific requirements for any future claims that a food or supplement “treats, prevents, or cures any disease.” With the duty to enforce the new provisions, the FTC effectively entered the business of disease claim determination. The FTC orders neither define what constitutes a disease nor refer to FDA regulations on the matter. An open question, thus, has been how exactly is the FTC defining what is and isn’t a disease claim? And, should the FTC really be the agency making such determinations?

Jennifer Rodden, a law clerk with Kelley Drye & Warren, assisted in the drafting of this post.

Obama Administration Receives Little Support for the Consumer Privacy Bill of Rights Act

Posted in Privacy and Information Security

Following up on his historic visit to the FTC in January during which President Obama laid out his privacy and data security agenda, the administration released a discussion draft of the Consumer Privacy Bill of Rights Act (the “Act”) on February 27, 2015. The Act lays out a number of privacy and security requirements for with which entities subject to the Act would be required to comply. Chief among them are requirements to disclose privacy and data use policies to affected individuals, allow individuals to have greater control over their personal data, and identify and take steps to mitigate data security risks. The Act also provides a basic overview for enforcement mechanisms and establishes some “safe harbors” that would allow otherwise covered entities to avoid liability for violations of the Act under certain limited circumstances. Finally, the Act gives the Federal Trade Commission rulemaking and civil penalty authority to assist in the implementation and enforcement of the Act.

Although the bill was not formally introduced for consideration in Congress, its release has jumpstarted a discussion among industry stakeholders and consumer and privacy advocacy organizations on various legislative approaches to mandating privacy and data security protections for consumers. And while the future of the Act is far from certain, any private entity that engages in personal data processing should be aware of the discussion draft and its potential impact on business practices.

Reactions from the FTC

Several FTC officials have expressed significant reservations about the proposed legislation and its ability to effectively protect consumers. While acknowledging the proposal’s usefulness in moving forward the current international debate over how data protection should be regulated in the U.S., FTC Chairwoman Edith Ramirez also raised concerns about a number of potentially problematic loopholes and a lack of clarity in certain areas, such as the authority of privacy review boards to set industry specific best practices. Commissioner Julie Brill and Bureau of Consumer Protection Director Jessica Rich also have expressed concerns, with Commissioner Brill saying “we need to put the consumer back in the consumer privacy bill of rights.” Director Rich has asserted that the proposal creates exceptions that would allow companies to maintain control over data and limit consumer choice about how their information is used. Officials also are worried about the bill’s potential to restrict the FTC’s enforcement capabilities – this is a hot button for the FTC right now because of the recent decision by the Federal Communications Commission to reclassify broadband as a Title II service in its Open Internet order, which limits FTC jurisdiction over those service providers.

Other Reactions

Senators Ed Markey (D-Mass.) and Al Franken (D-Miss) both issued statements opposing the bill on the basis that it does not do enough to protect consumer privacy. Mr. Markey subsequently introduced his own privacy bill (S.668) that he claims will provide more comprehensive consumer privacy protection, particularly with respect to data brokers. On the House side, Reps. Peter Welch (D-Vt.) and Marsha Blackburn (R-Tenn.) on March 12 released draft legislation focused on data breach prevention and notification requirements. The Commerce, Manufacturing & Trade Subcommittee for the House Energy and Commerce Committee held a hearing on March 18 to discuss the draft of the legislation.

Several consumer groups likewise came out against the President’s bill due to concerns that it would not adequately protect consumers due to lack of clarity about what types of information are covered and the range of exemptions for covered entities.

Not surprisingly, many private entities and trade associations also have opposed the legislation because of the potential for enhanced oversight and regulation, which they argue could lead to a chilling effect on consumer product innovation.

What to Expect Going Forward

In light of the initial reactions to the White House proposal, and in the absence of support from the majority in Congress, it is unlikely that the draft proposal will be introduced in the House or Senate without substantial revisions. If introduced, any bill would require strong bipartisan support to move forward, and it is difficult to see how the present draft could come close to achieving this objective. In any event, the release of this draft legislation should serve as a reminder that privacy issues will remain paramount in the Administration’s agenda and the FTC is likely to continue to vigorously enforce existing privacy and data security laws until such time as a new law comes to fruition.

Reauthorization of MOU Between CFPB and FTC Promotes Regulatory “Harmony”

Posted in Consumer Financial Services, Federal Trade Commission

The Federal Trade Commission (“FTC”) and the Consumer Financial Protection Bureau (“CFPB”) announced on March 12 the reauthorization of the Memorandum of Understanding (“MOU”) entered into by the two agencies on January 20, 2012.  As in the original, the new MOU addresses coordinated efforts in the areas of law enforcement, rulemaking and guidelines, research, consumer education, operational planning, and information sharing and confidentiality.  Notably, the provisions with respect to inter-agency information sharing remain unchanged.  The FTC can request that the CFPB turn over examination reports and confidential supervisory information pertaining to any entity subject to the FTC’s jurisdiction.

The FTC affectionately has characterized the reauthorization by reference to lyrics by Elvis Costello:  “What’s so funny ‘bout peace, love, and understanding?”  The FTC then croons that “when it comes to protecting consumers, ensuring a vibrant marketplace for financial products and services, and using resources efficiently,” the two agencies are “in harmony.”  Given the breadth of information sharing between the two agencies, companies subject to joint jurisdiction should monitor closely any developments that result from the reauthorized MOU.

NY AG Settlement with Three Largest National Credit Reporting Agencies Promises Critical Reform to Credit Reporting Industry

Posted in Consumer Financial Services

On March 9, 2015, New York Attorney General Eric Schneiderman announced its settlement with the nation’s three largest national credit reporting agencies (“CRAs”): Experian, Equifax, and TransUnion.  This announcement underscores the recent heightened state and federal regulatory scrutiny in this area, and likely is the first of a wave of broad consumer-facing reforms to the credit reporting industry.

The settlement terms will overhaul existing practices in the credit reporting industry that long has been criticized for its lack of transparency.  Indeed, Consumer Financial Protection Bureau (“CFPB”) Director Richard Cordray described the credit reporting industry as a consumer “dead end” last month in a speech to the National Association of Attorneys General.  The industry has been “something of a mystery” for decades due in large part to the lack of transparency in how credit report information is used to access consumers’ credit-worthiness.  A recent CFPB study found that consumers are confused and frustrated about how to check credit reports and scores, what information these include, and how to improve them.  As a result, consumers often do not feel empowered to take action to improve their credit histories, and they rarely apply credit information in their daily lives, such as using their credit reports and scores to negotiate better credit terms.

The settlement seeks to cure the myriad deficiencies that exist in this market.  It requires the CRAs to institute the following national reforms over a three-year period:

  • Improved Dispute Resolution Process

The settlement requires the CRAs to staff specially trained employees to manually review all supporting documentation submitted by consumers for disputes involving fraud, identity theft, or mixed files (for example, when consumer information becomes inadvertently “mixed” into the file of another consumer).  Further, for all categories of disputes, the CRA is prohibited from automatically rejecting the consumer’s dispute when the creditor verifies the challenged information.  These provisions ensure that each dispute is reviewed by personnel and not rejected immediately via an automated process.

  • Improved Processes Related to Medical Debt

The AG reports that over half of all collection items on credit reports are medical debts.  These often result from insurance-coverage delays or disputes.  In light of this, the settlement requires the CRAs to institute a 180-day waiting period before a medical debt is reported on a consumer’s credit report.  This waiting period will provide extra time to permit resolution of delinquencies that result from insurance delays or disputes.  The settlement further requires that the CRAs remove all medical debts from a consumer’s credit report after the debt is paid by the insurer.

  • Provisions Related to the Free Annual Credit Report

The settlement requires the CRAs to include a prominently-labeled hyperlink to the AnnualCreditReport.com website on the CRAs’ homepage.  In addition, the settlement requires the CRAs to provide a second free credit report to consumers who experience a change in their credit report as a result of initiating a dispute.  This requirement will permit consumers to verify that the CRA made the correction to their credit report without having to pay for a second credit report.

  • Furnisher Monitoring

Finally, the settlement requires more accountability by companies furnishing consumer data to the CRAs.  Specifically, the settlement requires the CRAs to create a National Credit Reporting Working Group that will develop a set of best practices and policies to enhance the CRAs’ furnisher monitoring and data accuracy.  Further, the settlement requires that each CRA implement policies to monitor furnishers’ performance and take corrective action against furnishers that fail to comply with their obligations.  It is unclear whether there would be consequences for the furnishers’ non-compliance with their obligations or for the CRAs’ failure to supervise these entities.

The NY AG settlement’s robust measures may be the start of a wave of broad consumer-facing reforms.  The CFPB recently announced it would be exercising, for the first time ever, supervisory authority over credit reporting companies.  The CFPB further intends to establish clear and regular oversight by supervising the larger credit reporting companies as well as their largest furnishers.  Now that the three largest credit reporting agencies have agreed to substantial reform, it is only a matter of time before their furnishers of consumer data follow suit.  It is of vital importance for these companies to closely monitor the impending overhaul of current practices and seek prompt legal advice should CFPB initiate enforcement proceedings.

Please contact Dana Rosenfeld or Sherrie Schiavetti for information regarding this post.

FDA Avoids Legality in Warning Letters Regarding Cannabis-Based Dietary Supplements

Posted in Advertising, Federal Trade Commission, Food and Drug

FDA recently made public a batch of warning letters issued in February.  Among these were several letters issued to dietary supplement companies regarding their use of express disease reduction claims, such as inhibiting malignant tumor growth, reducing symptoms of rheumatoid arthritis, and treating chronic depression.

But wait, there’s more.

Four letters were issued to companies selling cannabis-based dietary supplements.  The letters acknowledge the presence of cannabidiol CBD, a non-narcotic chemical compound from cannabis, but do not address its legality or the legality of any cannabis-based chemical in a dietary supplement.  CBD has been granted orphan drug status by FDA for treatment of Dravet’s Syndrome  and Lennox-Gastaut syndrome.  Further, FDA has publicly acknowledged the mixed signal sent by the present controlled substance classification of cannabis, and CBD specifically, and the agency’s support for research into its potential medical uses in testimony before the House Subcommittee on Government Operations in July 2014.

So, is FDA taking a pass on cannabis-based dietary supplements?  It’s not clear.  CBD proponents would argue that the chemical, made from industrial hemp, has been in the U.S. food supply for decades and therefore should be considered safe.  The fact that the letters do not reference a safety concern suggests that safety is not the primary consideration presently.  Nevertheless, as cannabis and, more specifically, CBD-based products proliferate, this set of letters makes clear that FDA is paying attention and, no doubt, will continue to do so going forward.

FTC Settlement Addresses Incentivized Reviews

Posted in Federal Trade Commission, Social Media

Consumers often read reviews before buying a product or signing up for a service. Because of that, many companies closely monitor what consumers say about them online, and even take steps to generate positive buzz. One way companies do that is by incentivizing happy customers to write reviews. Although there is nothing inherently wrong with that tactic, a recent FTC settlement demonstrates that there are still boundaries to what companies can do.

AmeriFreight, an automobile shipment broker, advertised on its website that it had “more highly ranked ratings and reviews than any other company in the automotive transportation business.” It also encouraged prospective customers to trust those reviews, stating: “You don’t have to believe us, our consumers say it all.” What the company didn’t say, however, is that it had provided incentives for some of those consumers to write the reviews.

For example, according to the FTC’s complaint, AmeriFreight provided consumers with a $50 discount, if consumers agreed to review the company’s services online. In addition, the company offered a $100 monthly prize for the review with the “most captivating subject line and best content.” In its agreement with consumers, AmeriFreight also reserved its right to charge consumers who didn’t write reviews, as promised.

As we’ve noted in previous posts, if a company provides consumers with an incentive in exchange for reviewing or promoting the company’s products, the company needs to ensure that the consumers disclose that they’ve received that incentive. That is particularly true in a case like this, where the company itself promoted the reviews, and suggested that the reviews reflected the unbiased views of its customers.

FTC Settles with Health App Marketers for Unsubstantiated Melanoma Detection Claims

Posted in Federal Trade Commission, Food and Drug, Telehealth

The Federal Trade Commission announced this week that it has reached settlements with two marketers for “deceptively claiming their mobile apps could detect melanoma, even in its early stages.” MelApp and Mole Detective claim to have the ability to accurately screen for a mole’s analyzed melanoma risk despite the absence of clinical testing. The FTC alleged this was a deceptive tactic as the marketers lacked sufficient evidence to prove these claims.

The settlements prohibit each company “from claiming that a device, such as an app, can detect or diagnose melanoma, unless the representation is truthful, not misleading, and supported by competent and reliable scientific evidence in the form of human clinical testing of the device.” The agency will pursue litigation against two additional marketers who did not agree to settle.

These settlements are noteworthy because they signal that the FTC’s interest in health benefit claims is not limited to consumable products such as foods, which may be news to newcomers in the health technology area.  It is also a departure from the Food and Drug Administration’s enforcement discretion position relative to low-risk health apps geared toward consumers.  The lesson for industry is that even if FDA does not require a pre-market clearance showing of safety and efficacy in order to market apps such as these, the FTC still holds marketers to the “competent and reliable scientific evidence” claim substantiation standard.

Kelley Drye Webinar: Examining the FTC’s Report on the Internet of Things—February 23, 2015 at 1 PM

Posted in Federal Trade Commission, Kelley Drye

As discussed in this blog post, the FTC has issued its long-awaited report entitled The Internet of Things: Privacy and Security in a Connected World.  The report includes recommended privacy and security best practices for companies that create and sell connected devices.  But the line between best practices and alleged violations can quickly blur.  Please join us on February 23, 2015 from 1 – 2 PM for a webinar that will examine the FTC report and discuss compliance considerations for the design and marketing of such connected products and services. To RSVP, please click here.

Kelley Drye Speakers include John J. Heitmann, Partner, Alysa Zeltzer Hutnik, Partner, Dana B. Rosenfeld, Partner, Margaret E. Hardon, Senior Advisor, Kristi L. Wolff, Senior Associate, and Jameson J. Dempsey, Associate.