Ad Law Access

Ad Law Access

Updates on consumer protection trends, issues, & developments

FTC Wins Lawsuit Over Its Robocall Contest

Posted in Federal Trade Commission, Promotions Marketing

In 2012, the FTC sponsored a contest in which it invited contestants to submit their best solutions to block robocalls. After reviewing almost 800 entries, the FTC announced two winners. As we posted previously, though, one of the losing entrants sued the FTC, alleging that the agency hadn’t followed its rules. This week, the Court of Federal Claims dismissed the case, holding that the contest’s judges had not made a gross mistake or acted in bad faith.

The plaintiff’s complaint focused on the contest’s scoring procedures. His entry was among 268 forwarded to judges after the rest were deemed facially deficient. However, his entry did not proceed to the final round after the judges further narrowed the entries down to those that that employed “filtering-type solutions.” (The plaintiff’s entry had used a different technology.) He argued that the rules did not permit the FTC to narrow down the entries based on technology before scoring them.

The main issue before the court was whether the plaintiff could avoid the exculpatory clauses found in the contest rules which stated, among other things, that entrants released the FTC from liability in disputes arising from the contest and that the FTC’s decisions were final and binding. For the plaintiff to prevail, there had to be a material breach in the form of fraud, bad faith, gross mistake, or irregularity. The court held that no such breach had occurred.

This decision is good news for companies that run sweepstakes and contests. Courts have generally held that the rules for these types of promotions form binding contracts with entrants and that the exculpatory clauses in the rules are enforceable. Before you run a promotion, make sure that you take some time to think about how things can go wrong, and make sure you have clauses in the rules to protect your company.

FTC Closes Investigation Involving Proposed Changes to PayPal’s Terms

Posted in Federal Trade Commission, Mobile Marketing, Telemarketing and Call Center Operations

Earlier this year, PayPal announced planned changes to its User Agreement that would have, among other things, given the company broad rights to contact people by phone or text messages. The provision stated, in part:

You consent to receive autodialed or prerecorded calls and text messages from PayPal at any telephone number that you have provided us or that we have otherwise obtained. We may place such calls or texts to (i) notify you regarding your account; (ii) troubleshoot problems with your account; (iii) resolve a dispute; (iv) collect a debt; (v) poll your opinions through surveys or questionnaires, (vi) contact you with offers and promotions . . . .

The provision was set to go into effect on July 1, 2015, and the only option to avoid being contacted in this manner was to stop using the service. Predictably, consumers did not react well to the provision, particularly as it related to the offers and promotions. Neither did FTC staff, who contacted PayPal to remind them of their obligations under the Telemarketing Sales Rule and the Do Not Call Registry.

Although the TSR permits telemarketing calls to numbers on the Registry if a consumer has provided express written consent to receive such calls, the proposed language did not meet the requirements for the exception. The staff noted, for example, that the request seeking consent must be “clear and conspicuous” and cannot be “buried” in a lengthy user agreement. Moreover, calls may only be placed to a number specified by a consumer – not to any number “otherwise obtained.”

On June 29, 2015, PayPal revised the proposed language such that the company only reserved rights to place calls or texts to “(i) provide notices regarding your Account or Account Activity, (ii) investigate or prevent fraud, or (iii) collect a debt owed to us.” Based on these changes – and because the company hadn’t yet made any telemarketing calls under the proposed language – the FTC’s Division of Marketing Practices decided not to recommend enforcement action.

As we’ve posted before, few things will get companies in trouble faster than sending unwanted calls or texts. You can ask for permission to send those, but the request has to be done in a way that is clear and conspicuous.

New NAD Decision Addresses Crowdsourced Reviews

Posted in Advertising, Social Media

The NAD recently determined that Euro-Pro could not support a claim that its Shark vacuum receives “more 5-star online reviews than any other vacuum brand.” To support the claim, Euro-Pro had looked at over 4,000 verified reviews on the websites of several major national retailers. Despite the number of reviews included in the analysis, the NAD determined that the data was still insufficient to support the broad claim.

Although Euro-Pro gathered review data from the top 85% of online retailers, the company actually based its claim on a much smaller subset of those reviews. For example, Euro-Pro did not include in its calculations reviews posted on Target, Best-Buy, or Costco websites because those sites did not indicate whether reviews could be verified as coming from actual purchasers. The company also excluded reviews from manufacturer websites because it was concerned about the reliability of those reviews. For example, Euro-Pro found that some reviews were incentivized by free products and was concerned that others could be manipulated or duplicated.

The NAD recognized that it may be difficult to parse through reviews and that advertisers may be left in a “Catch-22” situation. Including non-verified reviews could affect the reliability of the data, while excluding them could affect representativeness of the data. Nevertheless, this difficulty “does not relieve an advertiser from its obligation to provide appropriate and reliable substantiation for its advertising claims.” In this case, the NAD determined that by taking an all-or-nothing approach when deciding whether to include reviews from a certain website, Euro-Pro “materially undermined the reliability” of its calculations. Importantly, the NAD cautioned that “advertisers cannot base claims on tenuous evidence, simply because sufficiently reliable evidence is too difficult to collect.”

This isn’t the first case in which the NAD has considered the issue of crowdsourced reviews. As we wrote last year, the NAD had previously determined that reviews collected from retailer websites were insufficiently representative or reliable to support Euro-Pro’s “America’s Most Recommended” claim. In both decisions, the NAD stressed that it is not suggesting that no claim could be supported by crowdsourced data. Nevertheless, the decisions suggest that advertisers may face an uphill battle when trying to do so.

Health Canada Releases Guidance for Industry on Its Reporting Obligations

Posted in Consumer Product Safety

Recently, Health Canada released guidance to help companies understand their reporting obligations under section 14 of the Canada Consumer Product Safety Act, which requires that sellers, distributors, importers, and manufacturers report after becoming aware of any health or safety incident involving a consumer product. Notably, the guidance clarifies (1) what constitutes a reportable “incident,” (2) at what point a company is “aware” of an incident, (3) when a company must report, (4) what information each report must include, and (5) how Health Canada will treat confidential business information and private information.

What Constitutes an “Incident”?

Section 14 of the Act defines an “incident” as an occurrence; defect; characteristic; or incorrect, inadequate, or an absence of information on a label or instructions that resulted or may reasonably have been expected to result in death or serious negative impacts on health. In addition, an “incident” occurs when the company undertakes a recall or other action, whether or not in Canada, based on concerns about human health or safety.

The guidance explains that a serious health impact includes harmful effects that bring about a temporary or permanent change to health, including, for example, external physical harm, poisoning, and loss of sight or hearing. Whether an injury is serious, however, will depend on other factors such as the age of the consumer and the part of the body that is harmed, and should be considered from the viewpoint of the consumer. Regardless, if a company decides not to report, it must be prepared to justify its decision if questioned by a Health Canada Product Safety Officer.

When Is a Company “Aware” of an Incident, and When and What Must It Report?

Under the Act, a company has an obligation to report as soon as it becomes “aware” of an incident, even if it does not have details on all aspects of the incident, as the obligation to report occurs as soon as the company has awareness that an incident could lead to a recall. As a result, Health Canada states that a company should not wait for further details or absolute certainty – i.e., a formal risk assessment – to report and, if it is not certain that an incident has occurred, should report on a precautionary basis.

Within two days of awareness, the company must provide all information about the incident to Health Canada and to the person from whom the company received the product – i.e., up the supply chain. The initial report must include:

  • All information about the product (name, model number, UPC, serial number),
  • A description of how the incident happened,
  • Details of injuries, such as the body part, age of the victim, and kind of treatment needed,
  • Details on where the product is sold,
  • The complete name and contact information of the manufacturer or importer, as it appears on the product label,
  • Information on any other known events related to the product,
  • Information on any other known incidents reported to Health Canada in the past, and
  • Information on products that share the same parts as those involved in the incident.

Furthermore, within 10 days of awareness, manufacturers must submit a written report with additional information about the product, including new details about the incident, the number of products distributed, the standards to which the product is certified, any test reports, the steps taken (or that will be taken) to ensure safety, and the proposed corrective action.

How Will Health Canada Handle Confidential Business Information and Personal Information?

Sections 16 and 17 of the Act allow Health Canada to disclose confidential business information to protect human health or safety or the environment, and with or without consent or notice to (1) a person or government that carries out functions relating to the protection of human health or safety or the environment, or (2) the public if the product poses a serious and imminent danger to human health or safety or the environment. Health Canada notes, however, that it is often possible to deal with health or safety concerns without disclosing confidential business information, and the agency will consider relevant factors when determining whether to make a disclosure in a particular case.

Regarding personal information, Health Canada explains that it does not routinely require personal information when it assesses incident reports and recommends that companies omit consumer personal information from them. The Canadian Privacy Act will govern Health Canada’s management – and disclosure – of personal information.

California Bill Would Complicate Labeling Requirements for Children’s Products

Posted in Consumer Product Safety

California state law bill SB 763 has stayed relatively under the radar since its introduction in February 2015.  However, with recent traction in the state legislature – including passage in the Senate in June and passage in three Assembly Committees in July – this bill is definitely worth a second look.

SB 763 would require manufacturers of “juvenile products” sold in California to include a statement on the product’s label whether or not the product contains added flame retardant chemicals.  A “juvenile product” would be defined as a product subject to California’s Home Furnishings and Thermal Insulation Act,[1] and intended for use by infants and children under 12.  Covered products would include not only bassinets, floor play mats, crib mattresses, infant bouncers, and infant and booster seats which are used by infants and children, but also products intended for use by adults which the child or infant may come in contact with.  This includes, for example, nursing pads, nursing pillows, infant carriers, and changing table pads.

The bill would require manufacturers to affix the following lengthy labeling statement on covered juvenile products sold in California, and indicate the absence or presence of added flame retardant chemicals by marking a “X” in the applicable space below:

The State of California has determined that this product does not pose a serious fire hazard. The state has identified many flame retardant chemicals as being known to, or strongly suspected of, adversely impacting human health or development.
The fabric, filling, and plastic parts of this product:
_____contains added flame retardant chemicals
_____contains NO added flame retardant chemicals

Additionally, the bill imposes recordkeeping requirements, allows the CA Department of Toxic Substances Control to test products labeled as containing no added flame retardant chemicals for compliance, and permits fines ranging from $2,500 to $15,000 for mislabeling and other violations.

In the past few years, flame retardant chemicals have been highly scrutinized by consumer advocates.  According to the bill’s author, “[g]rowing evidence show(s) that many fire retardant chemicals have serious human and environmental health impacts, including cancer, decreased fertility, hormone disruption, lower IQ, and hyperactivity.”

Although the bill’s intentions are honorable – i.e., to provide parents with information needed to choose safe and healthy products for their children – the reality is that the bill would impose additional requirements on products already regulated by the CPSC, impose costly and burdensome labeling requirements on businesses, and may actually undermine consumer confidence in covered products.

As noted by Anne Northup, Former Congresswoman and Former U.S. CPSC Commissioner, “[i]magine the confusion from expectant parents shopping for needed items when they see that the high chair is labeled as being free of flame-retardants and the crib mattress being labeled as containing them. What are they to conclude about which product is safe?”

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A First Look at the FCC’s 2015 TCPA Declaratory Ruling and Order

Posted in Privacy, Privacy and Information Security

On July 10, 2015, the Federal Communications Commission (“FCC” or the “Commission”) released the text of its omnibus Declaratory Ruling and Order (“TCPA Declaratory Ruling and Order” or “Ruling”), which the Commission adopted by a 3-2 vote almost a month earlier, on June 18, 2015.

In Friday’s Ruling, the FCC responded to 21 petitions by a number of companies and trade associations who sought relief or clarification regarding the requirements of the Telephone Consumer Protection Act of 1991 (“TCPA”).  The Ruling redefines what equipment falls within the definition of “autodialer,” specifies liability for calls to reassigned telephone numbers, provides consumers with a right to revoke consent by any reasonable means, and establishes new exceptions for financial and healthcare related calls, among other changes.

Chairman Wheeler and Commissioner Clyburn both voted in favor, while Commissioners Rosenworcel and O’Rielly approved in part but dissented in part, and Commissioner Pai dissented.

Overview

In this Client Advisory, we address the Ruling’s discussion of the definition of “autodialer,” reassigned phone numbers, consent revocation, and certain financial and healthcare exemptions.  The Advisory also highlights other aspects of the Ruling, such as clarity that telecommunications carriers and VoIP providers can enable call blocking technologies in response to consumer requests, the liability for calling and texting platforms, a limited exemption for a one-time text immediately sent in response to a consumer’s request for information, the effect of consents obtained prior to the FCC’s 2012 rule change and the conclusion that Internet to text services fall within the scope of the TCPA.

The Advisory concludes with a review of the effective dates of the Ruling and next steps regarding possible appeals, filing deadlines, and potential legislative solutions. Continue Reading

Who’s Watching Dietary Supplement Advertising?  Everybody!

Posted in Advertising, Class Action, Federal Trade Commission, NAD

For several years now, dietary supplement advertising has been squarely on the radar of the FTC, state regulators, self-regulators, and last but never least, plaintiff’s lawyers. A recent FTC settlement with the makers of the dietary supplement, Procera, highlights that point.

The FTC’s investigation appears to have begun with a nudge from the self-regulatory body, the National Advertising Division (NAD). In 2009, the NAD reviewed the Procera marketing and recommended that the product makers discontinue performance and testimonial claims for boosting memory. In 2014, the NAD concluded that the Procera makers had not followed its recommendations, and it forwarded its case file to the FTC. The FTC, earlier this week, announced its settlement. That settlement, however, ties in state regulators from California who have also apparently been investigating the Procera marketing. Under the settlement, the Procera makers agreed to pay $1 million to the FTC and $400,000 to California. Injunctive relief that is part of the settlement requires, among other things, that the named parties possess well-designed clinical testing for any future claims that a “dietary supplement, food, or drug” will “improve or restore memory, mental clarity, focus, concentration, mood, or other cognitive or mental function” or “stop or reverse memory loss, or cognitive or mental decline.”

By 2012, before the NAD referral to the FTC, the makers of Procera had settled at least one class action case. As part of that settlement, they established a fund to provide consumer refunds up to $500,000.

Advertising Around the Women’s World Cup

Posted in Advertising, Right of Publicity, Social Media

US 2; Germany 0

It’s only been a few hours since the US Women’s National Team beat Germany to secure a spot in the FIFA Women’s World Cup Finals, and we’ve already gotten questions from advertisers who want to capitalize on the victory. Is it OK to use soccer-related themes in our ads? Can we mention the World Cup? Is it OK to discuss or interact with players on our social media posts? The answers always depend on the context, but unless a company is an official sponsor, these strategies can often pose some risks.

Some companies pay a lot of money for the right to be associated with a team, sport, or event. If you advertise in a way that suggests a similar association — without having paid for that right — you could be accused of “ambush marketing.” The risks are particularly high if another company has paid for a sponsorship in a similar category. For example, during the 2010 Olympics, Subway ran a TV commercial in which Michael Phelps swam through the wall of a pool, across the country, and towards Vancouver, the site of that year’s games. Neither the US Olympic Committee nor McDonald’s (a top sponsor in the Quick Service Restaurant category) took kindly to the ad, and the Committee lashed out at Subway ambush marketing.

The analysis is similar when it comes to mentioning athletes. Again, some companies pay a lot of money for the right to use an athlete’s name or image in ads. If you do that without permission, the athlete can argue that you’ve violated her right of publicity and sue for damages. (Click here for other posts on this topic.) Even a passing reference or image on a social media post can be enough to trigger a complaint.

As an individual, you should feel free to post and tweet about the team and your favorite players as much as you want. No one is going to complain. (In fact, we might think less of you if you weren’t cheering the team on.) But remember that different rules apply to companies. Don’t get so swept away in the excitement that you forget where the lines are drawn.

The Pleading Bar In False Advertising Cases Has Been Raised

Posted in Advertising, Food and Drug

The Fourth Circuit recently issued a decision affirming a district court’s order dismissing a false advertising claim against GNC and Rite Aid relating to several supplement products containing glucosamine and chondroitin, as well as other ingredients.  This case raises the bar for plaintiffs at the pleading stage because they now must allege that “all reasonable experts in the field agree that the representations are false.”  Without such an allegation, they face dismissal of their false advertising claims.

In 2014, a federal district court in Maryland dismissed a consolidated complaint containing claims for false advertising brought under the consumer protection laws of six different states.  The district court found that the plausibility standard established by Iqbal and Twombly required more than the conclusory allegations of falsity contained in the consolidated complaint.  Rejecting plaintiffs’ argument that the existence of a “battle of the experts” should permit their claims to survive, the district determined that, if one expert in the field would reasonably conclude glucosamine and chondroitin are effective for the treatment of non-arthritic consumers, plaintiffs’ complaint should be dismissed at the pleading stage.

Following the district court’s lead, the Fourth Circuit found that a plaintiff alleging false advertising must set forth a plausible claim for relief under the relevant state consumer protection statute and cannot simply recite the elements of the claim and then conclude that the representations are false.  The Fourth Circuit’s holding is worth noting: “[In order to state a false advertising claim on a theory that representations have been proven to be false, plaintiffs must allege that all reasonable experts in the field agree that the representations are false.  If plaintiffs cannot do so because the scientific evidence is equivocal, they have failed to plead that the representations based on this disputed scientific evidence are false.”

FTC Shuts Down a Risky Risk-Free Offer

Posted in Federal Trade Commission

This morning, the FTC announced that it had stopped a group of 15 companies and 7 individuals from using deceptive “risk-free trial” offers to sell skincare products online. At the Commission’s request, a federal court issued a temporary restraining order against the defendants, halting their marketing practices, freezing their assets, and appointing a receiver over their business. That’s pretty serious. So what went wrong?

According to the FTC’s complaint, the defendants used various online ads to tout “risk-free trial” offers. On their websites, the defendants advertised that consumers simply had to pay a nominal shipping and handling charge – typically under $5 – to receive a free trial of the skincare products. Most of the sites also advertised that satisfaction was guaranteed and that the companies enjoyed an A- rating from the BBB.

Risk-Free

The truth, according to the FTC, was much different. Consumers who didn’t return the products within 10 days were charged $98 and enrolled in a monthly subscription plan. Although this was disclosed on the order pages, the FTC alleges that the disclosures were not sufficiently prominent and that they omitted various important terms, including key deadlines and the existence of a restocking charge. To make things worse, the companies made returns difficult and they actually have F ratings from the BBB.

This isn’t the first time we’ve posted about companies getting in trouble over free trials or automatic renewals. State attorneys general and class action attorneys have also been active in this area, and companies have had to pay a lot of money to settle the cases. (Click here and here, for example.) If your company makes these types of offers, this case should serve as a reminder to check your marketing practices to ensure you are complying with applicable laws.