Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

This post was written by Sarah Roller and Raqiyyah R. Pippins.

On March 26, 2010, the Food & Drug Administration (FDA), issued a final rule titled, "Listing of Color Additives Exempt From Certification; Bismuth Citrate,”  amending the color additive regulations to increase the permitted use level of bismuth citrate as a color additive in cosmetics intended for coloring hair on the scalp.

This regulation follows the initial notice published by FDA on February 25, 2008, which announced that a color additive petition (CAP 8c0286) had been filed by Combe, Inc. to amend the color additive regulations at 21 CFR 73.2110 for bismuth citrate to increase the maximum permitted use level of bismuth citrate as a color additive in cosmetics intended for coloring hair on the scalp from 0.5 percent (weight per volume (w/v)) to 2.0 percent (w/v).  Bismuth citrate is commonly used as an active ingredient in hair dyes used to darken hair on the scalp.

After reviewing the data in the petition and other materials related to the safety of the use of bismuth citrate as a color additive in cosmetics intended for coloring hair on the scalp, FDA concluded that use of bismuth citrate at levels up to 2.0 percent (w/v) “is safe and…will achieve its intended technical effect.” The rule will go into effect on April 27, 2010, "except as to any provisions that may be stayed by the filing of proper objections."

More information about the regulation, including information on submitting objections or requests for hearings, is available here.

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On March 17, 2010, the Federal Trade Commission (FTC) held its third and final discussion from its roundtable series-Exploring Privacy. Panel topics focused on Internet Architecture and Privacy, Health Information, Addressing Sensitive Information, and Lessons Learned and Looking Forward.

The FTC intends to use the information gathered from these roundtables to restructure and guide its privacy agenda. Next steps for the FTC may include extending the application of fair information practices, increasing enforcement of unfair and deceptive privacy practices, and developing privacy models and frameworks to address new technologies and business models. FTC officials have stressed, however, that the Commission will review and analyze the information received through the roundtables and other channels before adopting any specific policies or initiatives.

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This post was written by Gonzalo E. Mon and David J. Ervin.

Last week, the Federal Reserve Board announced final rules that restrict the application of fees and expiration dates to store gift cards, gift certificates, and general-use prepaid cards. The rules are issued under Regulation E and become effective August 22, 2010.

The rules apply to gift certificates, store gift cards, and general-use prepaid cards, as those terms are defined in the Credit CARD Act. Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand. The rule does not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, award, or promotional program.

The rules prohibit imposition of dormancy, inactivity, or service fees unless (1) there has been at least one year of inactivity on the certificate or card, (2) no more than one such fee is charged per month, and (3) the consumer is given clear and conspicuous disclosures about the fees. The rules also prohibit the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date a certificate or card is issued or the date funds are last loaded.

Keep in mind that in addition to the new federal rules, gift cards are subject to a patchwork of state laws. Indeed, the new rules provide that a state law is not preempted due to inconsistency with federal law if the state law is more protective of consumers. Unfortunately, then, issuers still need to make sure that any cards that are marketed across the country comply with all of the relevant state laws.

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This month, a Maine legislative committee voted to repeal a controversial online marketing law that was enacted just last year. Among other things, the law, entitled “An Act To Prevent Predatory Marketing Practices Against Minors,” prohibits companies from knowingly collecting personal information or health-related information from minors under 18 without parental consent.

Shortly after the law was enacted, a group of plaintiffs filed suit arguing that the law was unconstitutional. Maine Attorney General Janet Mills acknowledged that the law was “not presently enforceable” and the case was later dismissed. In the court order, the judge wrote the Attorney General had "acknowledged her concerns over the substantial overbreadth of the statute and the implications of [the law] on the exercise of First Amendment rights, and accordingly has committed not to enforce it."

The Maine legislature must still vote on the repeal in order to make it effective. But given the constitutional problems with the law and the inevitable challenges that would be filed against the law should it be enforced, we expect the law to be repealed within the coming weeks.

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This post was written by Raqiyyah R. Pippins and Sarah Roller.

On March 25, 2010, FDA announced its new guidance for industry entitled, “Guidance for Industry on Submitting a Report for Multiple Facilities to the Reportable Food Electronic Portal as Established by the Food and Drug Administration Amendments Act of 2007.” 75 Fed. Reg. 14445 (March 25, 2010).

The new FDA guidance provides for the submission of a single report to FDA’s Reportable Food Registry by a company when a reportable food is located in more than one of that company’s food facilities. The new FDA guidance addresses Reportable Food Registry requirements for companies with multiple food facilities, clarifying procedures that were addressed in previous FDA guidance issued in June 2009 and amended September 2009. 

Submitting One Comprehensive Report for All Company Facilities Holding a Reportable Food

Under section 417 the Federal Food, Drug, and Cosmetic Act1 (FDCA), within 24 hours after a “responsible party” for a company determines that an article of food is a “reportable food,” the responsible party is required to submit a report to FDA through the electronic portal the agency has established for this purpose. Since the statute defines the “responsible party” to be the person a company has charged with the responsibility of registering a food facility, companies with more than one facility may have more than one “responsible party.”

The new FDA guidance makes clear that, in the case that a reportable food report is required for a food that is located in more than one facility of a single company, separate reports need not be submitted by each facility and that, in alternative, it is permissible for a single “combined” report to be submitted which covers all of the company’s facilities in which the reportable food is being held. In addition, the guidance specifies that the combined report:

• must include all of the required data elements concerning the reportable food located in each company facility2;
• may be prepared by one authorized individual (e.g., the responsible party for one company facility) who completes the data entry screens presented in FDA’s electronic portal by providing the required information for only one of the facilities and attaching the required information concerning the reportable food located in all other company facilities in a table or spreadsheet3 format that clearly identifies each facility and the associated reportable food held in the respective facility.

1  The Reportable Food Registry was established under the Food and Drug Administration Amendments Act of 2007, which added new section 417 to the FDCA. FDA began to enforce the new requirement on December 8, 2009. See 21 USC 350f.

2  See “Increasing Transparency and the Reportable Food Registry,” Kelley Drye and Warren LLP Client Advisory dated June 23, 2009, for a listing of these required data elements.

3  If using a tabular or spreadsheet format, FDA recommends that responsible parties use the following column headings, in the order listed, for the required (*) and optional information for each facility: Name of facility*, Food facility registration number* , Contact name, Contact phone number, Street address*, City*, State* and Zip code*.

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Washington has enacted a statute, which we first discussed in a prior blog post, to provide financial institutions with a cause of action against certain entities involved in payment card transactions that fail to take reasonable care to guard against unauthorized access to account information where that failure is found to be the proximate cause of the breach. The law goes into effect on July 1, 2010.

For more information about how the new law applies to businesses, processors and vendors, please reference the Kelley Drye Client Advisory.

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A federal district court in Chicago recently held that SMS messages that are sent to a consumer without the consumer’s consent could violate the Telephone Consumer Protection Act (the “TCPA”). The decision echoes many of the conclusions in a previous Ninth Circuit opinion and underscores the importance of getting express consent from consumers before sending SMS messages.

The TCPA applies to certain types of “calls.” Although the term “call” is not defined, the FCC has opined that the statue covers both voice calls and “text calls” using SMS. The court found this interpretation to be reasonable and, therefore, held that the text message campaign was subject to the TCPA. The court also rejected the notion that the TCPA only prohibits calls that result in a charge to the recipient.

The TCPA generally prohibits the use of an automatic telephone dialing system (“ATDS”) to place calls to a mobile number without the “prior express consent” of the recipient. An ATDS is equipment that has “the capacity to store or produce telephone numbers to be called, using a random or sequential number generator and to dial such numbers.” The court held that the plaintiff was not required to prove that the sender actually used the equipment’s automatic capacity, only that the equipment had that capacity.

Mobile marketers would be well-advised to get express consent before sending text messages to consumers. Unless they get consent, marketers are likely to face complaints, lawsuits, and significant settlement costs. To avoid becoming a target of these types of lawsuits, marketers should consult with their legal counsel and review the Mobile Marketing Association Consumer Best Practices Guidelines for tips on getting consent.
 

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Earlier this month, the Senate and House of Representatives in Washington passed a new PCI bill, HB 1149. The bill now awaits the Governor’s signature but, if signed into law, will provide financial institutions with a cause of action against businesses or payment processors that fail to take reasonable care to guard against unauthorized access to account information where that failure is found to be the proximate cause of the breach. This new cause of action in Washington is similar to the existing statute in Minnesota and shows that payment card industry data security standards (“PCI DSS”) compliance continues to be codified on a state by state basis. If the bill is signed, the law will go into effect July 1, 2010.

Under the bill, account information is defined as: (i) the full, unencrypted magnetic stripe of a credit card or debit card; (ii) the full, unencrypted account information contained on an identification device (an “identification device" is defined as an item that uses radio frequency identification technology or facial recognition technology”); or (iii) the unencrypted primary account number on a credit card or debit card or identification device in combination with an unencrypted cardholder name, expiration date, or service code. The bill also provides that a processor or business suffering a data breach of its account information may now be liable to a financial institution for “reimbursement of reasonable actual costs related to the reissuance of credit and debit cards” incurred by the financial institution as part of efforts to mitigate current or future damages to its cardholders.

Notably, the bill exempts processors, businesses, and vendors from liability if the account information was encrypted at the time of the breach or if the business was “certified compliant with the payment card industry data security standards” in effect at the time of the breach. A business is considered compliant if its PCI DSS compliance was validated by an annual security assessment conducted no more than one year prior to the breach. If signed into law, the bill will represent another incentive for companies to become PCI DSS compliant and another area of potential liability in the absence of such certification.
 

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Representatives from the FTC and FDA offered valuable insight into the agencies’ current thinking on immune system claims for food and dietary supplement products last week. Richard Cleland, Assistant Director of the FTC Division of Advertising Practices, and Robert Moore of the FDA’s Center for Food Safety and Applied Nutrition confirmed that immune system claims are on the radar screens of both agencies.

Speaking at an FDLI webinar, Mr. Cleland stated that, under a new standard the FTC is looking to set for claim substantiation, products that claim to do anything more than simply support a healthy immune system will be subject to a standard of evidence only previously seen in the drug testing world. He further confirmed that probiotics, the healthy bacteria found in many yogurt products as well as in dietary supplements, are high on the agency’s radar screen and that enforcement is coming.

On behalf of the FDA, Mr. Moore also indicated that claims such as “Boost immune defenses” may be implied disease claims. He further noted that the agency is looking beyond the much-publicized Front of Packaging Labeling Initiative to the metatags on websites and reliance on disease treatment studies to determine whether a product is being properly marketed as a food/dietary supplement or as a drug.

Neither representative discussed whether consumers actually rely on these messages in deciding whether to purchase products. Regardless, it is clear that both agencies are looking closer than ever at what is behind the claims on food labels.

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This post was written by Megan L. Olsen and Christie L. Grymes.

On March 2, 2010, the Consumer Product Safety Commission (“CPSC” or “Commission”) announced a settlement agreement with Daiso Holding USA Inc., Daiso Seattle LLC, Daiso California LLC, and one of the companies’ officers (collectively, “Daiso”). The consent decree, filed by the Department of Justice on behalf of the CPSC, requires Daiso to pay a $2.05 million civil penalty and prohibits the company from importing, selling, or distributing children’s products and toys in the United States unless Daiso satisfies numerous requirements regarding product evaluation and incident review. The CPSC alleges that Daiso violated the Consumer Product Safety Act (“CPSA”), the Federal Hazardous Substances Act (“FHSA”), and the Consumer Product Safety Improvement Act (“CPSIA”) by importing, distributing, and selling toys with illegal levels of lead, lead paint, and phthalates, toys that had small parts intended for children younger than three years old, and products that lacked required warning labels.

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This post was written by Raqiyyah R. Pippins and Sarah Roller.

On March 5, 2010, the General Accountability Office (GAO) issued a report evaluating the Food and Drug Administration’s (FDA’s) policies concerning food ingredients that have been determined to be “Generally Recognized As Safe” (GRAS). GRAS ingredients are excluded from premarket clearance requirements for food additives under the Federal Food, Drug, and Cosmetic Act (FDCA). The GAO report was prepared at the joint request of Sen. Tom Harkin (D., Iowa), Chairman of the Senate Committee on Health, Education, Labor and Pensions, and Rep. Rosa DeLauro (D., Conn.), Chair of the House Committee on Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies, and was prompted by apparent congressional interest in FDA oversight of food ingredients, including those developed through nanotechnology and other emerging technologies.

The GAO evaluation considered data on FDA’s voluntary notification program from the first year a GRAS notice was submitted, 1998, through 2008; laws and regulations regarding GRAS substances; the 11 citizen petitions related to GRAS substances that were submitted to FDA between 2004 and 2008; information from FDA officials regarding the agency’s response to the 11 citizen petitions; FDA’s policies and guidance to companies regarding engineered nanomaterials; the activities of foreign governments—namely, Canada and the European Union—that have been particularly active in considering regulation of engineered nanomaterials in food; and interviews with a wide range of stakeholders, including officials from FDA, industry and trade organizations, consumer advocacy groups, academia, and foreign governments.

Based on the evaluation, the new GAO report concludes that greater FDA oversight is needed with respect to GRAS determinations concerning both (a) food ingredients and components that previously were determined to be GRAS ingredients and for which GRAS status has been challenged in pending citizen petitions (e.g., high fructose corn syrup, salt, hydrogenated oils), and (b) ingredients and components that are the subject of new GRAS determinations, including those developed through nanotechnology and other emerging technologies.

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Effective March 15, 2010, the Council of Better Business Bureaus will increase the fee it charges for CBBB Corporate Partners to file an NAD challenge from $2,500 to $3,500.  This is the first increase in the Corporate Partner filing fee since 2005.  Non-partners must pay between $6,000 and $20,000, depending on the gross annual revenue of the company.  A copy of the CBBB's announcement is available on the NAD website.

Despite this increase, the cost of bringing a challenge before the NAD is still significantly less than the cost of bringing a lawsuit under § 43(a) of the Lanham Act. Click here for an article that provides a detailed analysis of the options available to a company that wants to challenge a competitor’s claims.

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In 2007, Quiznos launched the “Quiznos v. Subway TV Ad Challenge” and invited consumers to create videos demonstrating why Quiznos is better than Subway. To encourage submissions, Quiznos posted four sample videos on the contest site. After the contest, Subway sued Quiznos arguing, in part, that some of the videos submitted by consumers included false claims. Quiznos countered by arguing that it was immune from challenge under § 230 of the Communications Decency Act, a law that essentially provides that certain websites may not be held liable for content provided by third parties. A site may lose immunity, however, if it is responsible for creating or developing that content.

A federal court recently denied Quiznos’ motion for summary judgment. The court stated that the critical inquiry with respect to immunity is “whether the Defendants merely published information provided by third parties or instead were actively responsible for the creation and development of disparaging representations about Subway contained in the contestant videos.” The court noted a few factors that could destroy immunity: (a) Quiznos invited contestants to submit videos demonstrating why Quiznos is better than Subway; (b) the domain name for the Contest (meatnomeat.com) implies that Subway sandwiches have no meat; and (c) the sample videos may contain false claims. The court determined a jury should decide whether Quiznos is entitled to immunity.

This decision interprets CDA immunity more narrowly than other recent decisions in this area and serves as a reminder that there are circumstances in which companies may be held liable for content created by consumers. In a presentation this week, David J. Ervin and Gonzalo E. Mon will discuss strategies that companies can employ to help guard against liability.

Update:  Quiznos and Subway agreed to settle the case.

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Late last night, the Senate unanimously confirmed Edith Ramirez and Julie Brill to fill the two vacant seats on the Federal Trade Commission (FTC).1 Ms. Ramirez will replace Republican Deborah Majoras, who stepped down from the Commission in March 2008, and Ms. Brill will replace Independent Pamela Jones Harbour, whose term ended in September 2009. Their positions start immediately upon confirmation. A brief background on each new Commissioner is provided below.

Julie Brill

Since February 2009, Ms. Brill has been a Senior Deputy Attorney General and Chief of the Consumer Protection and Antitrust Division for the North Carolina Department of Justice. Prior to joining North Carolina’s Department of Justice, Ms. Brill served as an Assistant Attorney General for the Vermont Attorney General’s Consumer Protection and Antitrust Divisions for over 20 years. Ms. Brill’s experience at the Vermont Attorney General’s office included a wide-variety of consumer protection litigation, legislative, and regulatory matters in the fields of privacy, credit reporting, financial services, tobacco, food, drugs and other health-related industries. As an Assistant Attorney General for the state of Vermont, Ms. Brill also testified before Congress regarding data security breach legislation and consumer privacy issues.

Ms. Brill has served as a Vice-Chair of the Consumer Protection Committee of the American Bar Association Antitrust Section since 2004 – the ABA committee chaired by John Villafranco (2002 to 2005) and August Horvath (2005-2009) of Kelley Drye. She has received several honors for her consumer protection and privacy work, including the National Association of Attorneys General Privacy Subcommittee Award in 2001 for drafting proposed privacy principles, Privacy International’s 2001 Brandies award for work on state and federal privacy issues, and the National Association of Attorneys General Marvin Award in 1995 for her “outstanding leadership, expertise, and achievement in advancing the goals of the association.” Additionally, she is also a Lecturer-in-Law at Columbia Law School.

Before beginning her career in law enforcement, Ms. Brill was an associate at Paul, Weiss, Rifkind, Wharton & Garrison in New York and she clerked for Vermont Federal District Court Judge Franklin S. Billings Jr. Ms. Brill is a graduate of New York University School of Law, where she received a Root-Tilden Scholarship for her commitment to public service. She received her bachelor’s degree from Princeton University.

Edith Ramirez

Ms. Ramirez is currently a partner in the Los Angeles office of Quinn Emanuel Urquhart Oliver & Hedges, LLP where she specializes in intellectual property and complex business litigation matters. She has represented a diverse range of clients in actions involving copyright and trademark infringement, antitrust and unfair competition claims, business tort, and other general business litigation cases. Notable litigation includes Hathaway Dinwiddie Construction Co. v. United Air Lines, Inc., where Ms. Ramirez successfully represented Hathaway Dinwiddie Construction on breach of contract claims, and Christian v. Mattel, Inc., where Ms. Ramirez helped obtain a $500,000 sanction against Mattel’s opposing counsel pursuant to Federal Rule of Civil Procedure 11 for filing a frivolous copyright infringement action against Mattel. Ms. Ramirez has also represented American Broadcasting Companies, The Walt Disney Company, The Scotts Company, and Northrop Grumman in a variety of intellectual property, antitrust, and contract litigation matters.

Ms. Ramirez is also involved with a number of community outreach activities. She has served as the Vice President on the Board of Commissioners for the Los Angeles Department of Water and Power, a member of the Board of Directors for Volunteers of America, and the California Deputy Political Director and Director of Latino Outreach for Obama for America.

Previously, Ms. Ramirez served as a law clerk to the Honorable Alfred T. Goodwin, United States Court of Appeals for the Ninth Circuit. She also worked as an associate at Gibson, Dunn & Crutcher, LLP. Ms. Ramirez attended Harvard Law School, where she was an editor for the Harvard Law Review, and she received her bachelor’s degree from Harvard-Radcliffe College.

1  http://senatus.wordpress.com/2010/03/03/nominations-confirmed-march-3/

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On March 10, Kelley Drye will host an encore presentation of the seminar, "A New Legal Frontier for Social Media," at our New York office.

The legal landscape for social media and user-generated content is changing. Make sure you understand the risks and rewards. Companies engaged in blogs, social networking, and other types of interactive marketing campaigns face increased scrutiny in light of recent cases and sweeping changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. These developments have increased the scope of activities and content for which advertisers may be liable.

Join the Association of Corporate Counsel and Kelley Drye for a discussion about the important legal issues and best practices for leveraging social media. Topics will include:

• Ways that companies are using social media in the form of sweepstakes, contests, blogs, wikis, and other promotions involving user-generated content;
• Legal risks and the impact of recent cases and the FTC Guides on your advertising and marketing campaigns; and
• Practical advice on how to minimize legal liability associated with social media websites and campaigns with user-generated content.

SPEAKERS:

David J. Ervin
Partner, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Gonzalo E. Mon
Associate, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Josephine Belli-Marinos
Associate General Counsel & Litigation Counsel
Combe Inc.

Reginald M. Rasch
General Counsel
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WHEN:  March 10, 2010, from 3:00 - 5:00 PM

WHERE:  Kelley Drye, 101 Park Avenue, 27th floor, New York, NY, 10178

REGISTER:  email admin@accgny.com
 

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RegHardware reports that Apple recently changed the terms of its iPhone Software Development Kit ("SDK") to allow companies to offer certain promotional games on apps. Although some reports circulating online suggest that Apple is allowing companies to run "lotteries" on the iPhone, that is not exactly right.

Section 3.3.17 of the SDK states: "Your Application may include promotional sweepstakes or contest functionality provided that You are the sole sponsor of the promotion and that You and Your Application comply with any applicable laws." In addition, developers must "clearly state in binding official rules for each promotion that Apple is not a sponsor of, or responsible for conducting, the promotion."  (As we discussed in a previous post, Facebook included a similar requirement in its Promotions Guidelines.)

Keep in mind that laws in the United States -- and laws in most foreign jurisdictions -- prohibit private parties from running lotteries. In general, a lottery includes the following three elements: (1) a prize; (2) awarded on the basis of chance; (3) to people who were required to pay consideration. Therefore, you can't require people to pay money to enter a chance-based promotion.

Although Apple's SDK does give developers more flexibility, it doesn't permit them to violate laws.

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