Ad Law Access

Ad Law Access

Updates on consumer protection trends, issues, & developments

FTC Continues Green Guides Enforcement with Warning Letters

Posted in Federal Trade Commission

The Federal Trade Commission announced this week that it recently sent warning letters to 15 marketers of plastic waste bags advertised as being “oxodegradable,” “oxo biodegradable,” or “biodegradable.”  “Oxodegradable” and similar terms refer to an additive applied to the bag to enhance biodegradability in the presence of oxygen.  The letters, which are not available publicly, express concern that such claims convey to consumers that the bags will break down quicker than standard plastic bags.  In fact, the FTC alleges that many such products will not biodegrade any faster than standard plastic bags given the lack of oxygen in many disposal environments.  As such, staff is concerned that the products would not meet the standard required for “biodegradable” claims per the FTC’s Green Guides, which is total decomposition under normal disposal conditions, i.e., landfill, within in one year.  The recipients of the letters have not been disclosed, however the FTC has stated that they had until October 21 to respond.

For those companies that received the letters, close examination of the claims and supporting evidence is paramount.  Companies that fail to sufficiently respond to the warning letters create risk of follow up enforcement.  Companies making environmental benefit claims that did not receive a warning letter should also take notice, however.  The FTC has been actively enforcing its Green Guides this past year – which we have covered here, here, and here – and there is no guarantee that a warning letter will precede initiation of a more formal investigation.

Retailers Face Legal Challenges Over Advertising Prices

Posted in Retail

Retailers have had a tough year when it comes to advertising prices. In January, a California court issued a multimillion dollar penalty against Overstock.com, after determining that the company advertised discounts in a misleading manner. Since then, retailers across a range of industries have been dragged into costly lawsuits and regulatory investigations involving similar issues. If you’re wondering how something as mundane as advertising the price of an item could lead to so much trouble, it’s because the issue is more complicated than most people think.

To learn more, read my article in RetailingToday.

Call Me, Maybe? – A Webinar on Key TCPA Developments

Posted in Telemarketing and Call Center Operations

As companies draw on mobile delivery platforms, cloud-based technologies, and third-party vendors to become more sophisticated in their use of telemarketing, autodialer, and text message campaigns, the business risks and potential for class action lawsuits have greatly increased. The Telephone Consumer Protection Act of 1991 (TCPA) has emerged as a cottage industry with plaintiffs’ attorneys routinely filing class action lawsuits seeking multi-million dollar claims and settlements. The FTC also has not shied away from rigorous telemarketing enforcement under its rules against major big brands and calling platforms, including with theories that are based upon an expansive third party liability interpretation of the agency’s enforcement powers.

Yesterday my litigation partner Lauri Mazzuchetti and I teamed up with Ken Sponsler of CompliancePoint to cover the latest developments and hot topics related to TCPA compliance and litigation, and strategies to consider when defending such matters.  If you missed this 2-hour deep dive into the issues, you can listen to the recording here. And if you would like to stay up to date on this topic, you may also wish to sign up for our TCPA Tracker newsletter so you can receive monthly updates on the latest happenings related to TCPA litigation and compliance.

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.