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

Google has agreed to settle Federal Trade Commission (“FTC”) claims alleging that the 2010 launch of Google Buzz, a social networking feature linking Gmail users with other people on Google’s network, involved deceptive tactics and violated Google’s privacy policy. The proposed settlement includes two firsts for the FTC:

• First FTC settlement that requires a company to implement a comprehensive privacy program
• First FTC settlement involving alleged violations of the U.S.-EU Safe Harbor Framework privacy requirements

The FTC Complaint

In its administrative complaint, the FTC alleged that: (1) some Gmail users who declined to enroll in Google Buzz were enrolled anyway; (2) Gmail users that enrolled in Google Buzz were not adequately informed that the people they email most frequently would be publicly disclosed through the “following/followers” function; and (3) the identities of Gmail users that later “turned off” Google Buzz were not removed from the social network. Google’s privacy policy stated that information would never be used “in a manner different than the purpose for which it was collected” without the user’s prior consent; however, the FTC alleged that use of information provided to Gmail was used for another purpose, the Google Buzz social networking feature, without the users’ consent.

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The Food and Drug Administration (FDA) is expected to issue guidance and possibly regulations regarding use of social media. These policies will only be enforceable on marketers of prescription drugs and restricted medical devices; however, industry can expect that the rationale and policy behind the guidance and regulations will apply across the board to consumer health products generally, including over-the-counter (OTC) drugs, food, dietary supplements and cosmetics.

FDA and the Federal Trade Commission (FTC) have demonstrated interest in marketers' online content, including social media, as a means of investigating product claims. As social media proliferates, marketers of consumer health products should take specific steps to be sure that their companies' use of it does not raise red flags for regulators.

For more on this issue, see the Food and Drug Law Institute Update article, “FDA’s Policy on Social Media: Why It Matters for Marketers of OTC Drugs, Food, Dietary Supplements and Cosmetics.”

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Our May 31, 2010 BNA Privacy & Security Law Report article, "Scrutiny on Payment Card Data Pass: Raising the Profile of Personal Information Sharing Among Marketers," summarized then-recent legislation introduced in Congress regarding an online marketing practice commonly known as “payment card data pass.” As described more fully in the Scrutiny article, payment card data pass occurs when a consumer’s credit or debit card information is passed on to a third-party merchant following a sale. Frequently, the third-party merchant uses the billing information to enroll the consumer in various negative option subscription programs, wherein the consumer’s silence, or failure to take action to cancel the agreement, is interpreted by the seller as the consumer’s ongoing acceptance to continue to receive and pay for the goods or services offered by the third party merchant. In many instances, consumers, regulators, and plaintiffs in class action suits have alleged that consumers are unaware that their billing information has been passed to the third party and that they have been enrolled in a negative option program.

Over the past year, Congress, state and federal regulators, and the private bar, have taken steps to ensure that rigorous consumer protections are in place when data pass offers are made. These protections affect not only the companies who receive the financial information from other companies, but also the merchants who are sharing the information with third parties. This article in the current issue of BNA Privacy & Security Law Report provides an update on several of the developments that have occurred since the publication of the Scrutiny article and discusses practical considerations for businesses engaged in online marketing in light of these recent developments.

Click here to download the article by Kelley Drye attorneys Alysa Z. Hutnik, Joseph D. Wilson, and Jeffrey A. Kauffman: “‘Payment Card Data Pass’ Rules Gain Some Teeth: An Update on the Legal Landscape.”

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On March 16, 2011, the U.S. Senate Committee on Commerce, Science, and Transportation held a hearing to examine online consumer privacy, with an emphasis on the use of behavioral targeting by online advertisers. The hearing, which included two panels of witnesses from the government and industry sectors, touched upon a growing number of legislative and regulatory proposals that attempt to strike a balance between protecting consumer privacy, ensuring continued business innovation, and preserving the free and diverse online content to which consumers have grown accustomed.

Committee members attending the hearing included Sen. John Kerry (D-MA), Sen. Mark Pryor (D-AR), Sen. Amy Klobuchar (D-MN), Sen. Johnny Isakson (R-GA), and Sen. Claire McCaskill (D-MO). Sen. Kerry, current Chairman of the Subcommittee on Communications, Technology, and the Internet, opened the hearing with statistics that reflect Americans’ concern about online tracking. He described online applications as “observational opportunities” for data collection companies, and noted the increasing ability to merge offline and online information to create highly-detailed consumer profiles. Stating that “we cannot let the status quo stand,” Sen. Kerry briefly described the legislation he is drafting with Sen. John McCain (R-AZ). The bill will propose a “commercial privacy bill of rights” that would establish a common code of conduct, which Sen. Kerry believes would encourage information sharing by establishing general protections for consumers while creating fair terms and conditions for online businesses.

Committee Chairman Jay Rockefeller (D-WV), who did not attend the hearing, issued a statement voicing his support for legislation that would impose basic privacy rules, and described self-regulatory efforts in the privacy area as “a failed experiment.”

A summary of the two panel sessions is set forth in the Kelley Drye client advisory.

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Pursuant to an enforcement policy the FTC announced earlier today, retailers of fur products that were previously subject to the $150 exemption under the Fur Products Labeling Act (“Fur Act”) will not have to pull those products from shelves by Friday. Under previous Fur Act authority, the FTC had exempted products containing fur or fur trim with a component value of $150 or less from fur-content labeling (de minimis exemption). The recently-passed Truth in Fur Labeling Act eliminates that authority and mandates that, starting March 18, 2011, products previously covered by the de minimis exemption will be subject to the Fur Act’s disclosure requirements.

Although coat selling season is winding down, many retail floors and websites still include fur products that, when purchased by the retailer and initially offered for sale, were subject to the exemption. The fur industry expressed concern that compliance with the March 18 deadline for these products would cause significant economic loss, including destruction of some of those products. In response to those concerns, the new enforcement policy includes a forbearance period with the Commission noting that, “While compliance with the letter of the law is important, the Commission also recognizes that new obligations may sometimes create significant burdens on parties that have relied in good faith on previous requirements.” Thus, the Commission will not enforce Fur Act labeling requirements against any retailer offering previously-exempt products as long as (1) the products were delivered to the retailer on or before March 18, 2011 and sold by March 18, 2012 and (2) the products are not mislabeled under the old requirements. The Commission encourages retailers to communicate fur content information in other ways during the forbearance period.

The Commission also requests comments on its Fur Labeling and Advertising Rules, which require fur products to bear certain labeling. The comment request is pursuant to the FTC's periodic regulatory review and the requirement in the Truth in Fur Labeling Act to review the Fur Products Name Guide. Please contact us if you're interested in preparing comments, which are due by May 16, 2011. 

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Last week, we posted about a settlement in a lawsuit over comments made in Twitter posts. This week, we’ve learned about three other instances in which tweets have gotten people into trouble.

NBA referee William Spooner filed a lawsuit against the Associated Press and one of its writers, alleging that a comment posted by the writer on Twitter "mischaracterized a conversation" between Spooner and the Timberwolves coach during a recent game. Spooner argues that the tweet was defamatory, and is seeking more than $75,000 in damages.

Chrysler recently decided not to renew its contract with an agency two days after an agency employee tweeted from the @ChryslerAutos account: “I find it ironic that Detroit is known as the #motorcity and yet no one here knows how to [expletive deleted] drive.” And, this week, Insurance company Aflac announced that it had fired Gilbert Gottfried, the voice of the company’s mascot, after Gottfried posted some tweets with insensitive jokes about the tsunami in Japan.

These cases contain at least three lessons for marketers. First, remember that statements in social media are subject to the same laws and consequences as statements in traditional media. Second, companies should take steps to guard against posts from rogue agents and employees. And, third, companies should consider including morals clauses in endorsement contracts to address the risk of inappropriate comments by celebrity endorsers.
 

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This morning, the FTC announced a settlement with a company that sells guitar lesson DVDs using social media. According to the complaint, the company recruited affiliates to promote its courses through endorsements. In exchange, affiliates received commissions on sales resulting from referrals. The FTC charged that the company disseminated deceptive ads by representing that the endorsements reflected the views of ordinary “independent” consumers, without clearly disclosing that the affiliates were compensated. To settle the case, the company must pay $250,000 and monitor affiliates to ensure they are disclosing the commissions.

This isn’t the first case a regulator has brought against this type of campaign. For example, last year, the FTC entered into a similar settlement with a company that failed to disclose that endorsers were connected to the company. And the New York Attorney General recently also challenged a company whose employees wrote reviews while posing as independent consumers.

As we have noted in previous posts, endorsers are required to disclose any material connections to the companies whose products they endorse. Companies would be well-advised to establish written policies designed to ensure that their employees, bloggers, and other agents make the required disclosures. In addition, companies should closely monitor bloggers and take actions against those that do not comply with their policies.
 

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This week, Verizon Wireless announced that it had filed a lawsuit against defendants who are running deceptive SMS campaigns. Like other carriers, Verizon allows subscribers to purchase content -- such as ring tones, wall paper, and news alerts -- from third parties. Verizon requires that content providers follow the MMA’s Best Practice Guidelines and clearly disclose the costs of their offers. Before approving a premium campaign, Verizon reviews the campaign to ensure it complies with the Guidelines.

Verizon alleges that the defendants conspired to defraud Verizon and deceptively marketed their content to subscribers. Among other things, Verizon argues that the defendants: (a) activated dozens of short code campaigns using false names and addresses; (b) used deceptive web pages that differed from the ones they submitted to Verizon; (c) failed to clearly disclose the costs of their offers; and (d) failed to get adequate consent from consumers.

Verizon alleges that the defendants’ conduct violates various civil and criminal laws. The carrier is seeking unspecified damages and has asked the court for an injunction to put an end to the scheme. As with other lawsuits in this area, the key lesson for marketers is that they need to clearly disclose the material terms of their offers, including the prices associated with those offers. Marketers should consult the MMA’s Best Practice Guidelines for tips on how to do this.

Click here for an article in Mobile Marketer in which I discuss the case in more detail.

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On Tuesday, a state judge in Iowa ordered Vertrue, Inc. (formerly known as MemberWorks, Inc.) to pay $32.6 million in consumer restitution, civil penalties, and costs in connection with a ruling that the company violated the state's buying club law and used deceptive and unfair practices to market buying club memberships. The memberships typically cost $9.95-$19.95 per month, charged to the consumer's credit card or bank account and were advertised to provide discounts on goods and services such as books, clothing, and entertainment.

The court concluded that it was deceptive and unfair to offer gift cards and other premiums as incentives to register, then to set up obstacles designed to delay efforts to redeem the premiums. In addition, the court noted that 90% of the consumers who purchased Vertrue memberships would have cancelled within the statutory three-day period if the cancellation rights had been properly disclosed. Responding to the verdict, the Attorney General stated that the decision is the largest consumer protection verdict ever awarded in Iowa in a case brought by the Attorney General, and one of the largest in the nation.

This case is another example of recent scrutiny over registration incentives or "risk free" memberships and recurring billing offers. Companies engaged in these activities should carefully review current offers to ensure that terms and conditions are conspicuously disclosed and that consumers are able to take advantage of cancellation policies without hassles.

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This week, a California Superior Court approved a settlement agreement in a class-action lawsuit alleging that Amway Corporation and its related companies violated gift card laws. Amway’s gift cards included a notation instructing consumers to "redeem before" a certain date. The plaintiffs argued that this notation violated a California law that prohibits expiration dates on gift cards. As part of the settlement, Amway agreed to stop using the “redeem before” language and to allow consumers to redeem or replace more than $20 million worth of expired gift cards.

Approximately half the states have laws that either restrict or prohibit expiration dates, and a federal law mandates that gift cards must be valid for at least five years. As we’ve noted before (click here, for example), consumers and plaintiffs' lawyers are taking a close look at how gift cards are marketed and sold and have been quick to file lawsuits against perceived violations. Companies should examine their gift card offers in order to evaluate their risk of being a target of these types of suits. 

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Late last month, the U.S. Supreme Court ruled on a significant federal preemption case concerning an individual’s right to sue a vaccine manufacturer for injury that is alleged to have resulted from a defect in a vaccine’s design. The 6-2 decision (Justice Kagan recused herself) in Bruesewitz v. Wyeth held that a provision within the National Childhood Vaccine Injury Act of 1986 (NCVIA) preempts all design-defect tort claims against vaccine manufacturers brought by plaintiffs seeking compensation for injury or death caused by vaccine side effects. The NCVIA was originally enacted to establish a no-fault compensation program that serves as an alternative to the traditional tort system for resolving vaccine injury claims.

In 1995, the parents of Hannah Bruesewitz claimed that their daughter became disabled after receiving a vaccine manufactured by Lederle Laboratories (now owned by Wyeth). In response, they filed a vaccine-injury petition in the U.S. Court of Federal Claims, which the NCVIA designated to decide which vaccine injury claims should be compensated. After the Bruesewitz’s claim was denied, the parents sued Lederle in Pennsylvania state court alleging that Lederle was subject to strict liability and liability for negligent product design under Pennsylvania common law. The case was removed to the U.S. Third Circuit Court of Appeals, which sided with Wyeth on its summary judgment motion and held that the state law claim was preempted by the NCVIA.

The Supreme Court affirmed the Third Circuit decision based on a textual analysis of the NCVIA preemption provision, which reads:

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Last month, the U.S. Department of Agriculture ("USDA") Food Safety and Inspection Service ("FSIS") issued a proposed rule that is intended to ensure that commercial catfish products are properly marked, labeled, and packaged, and are not adulterated. The rule implements recently enacted legislation which was advocated by U.S. catfish producers, and singles out domestic and imported catfish for regulation by FSIS under a “continuous inspection” program that is comparable to the FSIS programs governing meat and poultry products. Specifically, the proposed rule issued by FSIS would implement provisions of the Food, Conservation, and Energy Act of 2008 (the Farm Bill), which amended the Federal Meat Inspection Act (FMIA) to specify that catfish “is an amenable species,” thereby subjecting catfish to FMIA continuous inspection requirements.

The proposed rule represents a shift in the regulatory regime applied to commercial catfish production that will have a substantial impact on both domestic and foreign catfish and catfish product producers. As such, affected companies must prepare for a greater regulatory burden in the form of continuous inspection, new recordkeeping requirements, the pre-approval of labeling, and additional requirements for importers of foreign catfish. Affected companies are advised to evaluate the legal and business implications of the USDA proposal now, and bring issues and concerns to the attention of appropriate policymakers, including by submitting written comments to USDA on or before the June 24, 2011 deadline.

See the Kelley Drye client advisory for more information, and please contact us if you have questions concerning the USDA FSIS proposal or other matters.

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While the entertainment world is talking about Charlie Sheen’s posts on Twitter, another celebrity’s Twitter posts are getting attention in the legal world. This week, Courtney Love agreed to pay more than $430,000 to settle a lawsuit filed by fashion designer Dawn Simorangkir. In a series of tweets, Love had accused Simorangkir of theft and of having a criminal background. The case had been scheduled to go to trial in February, and was expected to be the first trial to explore whether a celebrity's Twitter posts could be considered libel.

Putting aside the drama of the lawsuit, this case holds at least one important lesson for marketers. Although there is a tendency to think that traditional laws don’t apply in more casual and fast-paced world of social media, that’s clearly not true. Statements made in social media are subject to the same laws as statements that are published in traditional media. Among other things, that means that what marketers say must be true. Indeed, both the FTC and the NAD have held that content in social media is subject to traditional truth in advertising requirements.

Accordingly, advertisers should take the same care when they post on their Facebook pages or tweet, as when they place an ad in traditional media.
 

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This Monograph, published by the Food and Drug Law Institute, is designed to assist lawyers, regulatory advisors and marketing professionals answer the question "Can we say that?" as they design and execute programs to promote consumer health products such as foods, dietary supplements, non-prescription drugs and medical devices, cosmetics and pet care products. It serves as a practical guide to substantiating the advertising and labeling claims so fundamental to product development, including:

• An overview of the legal and regulatory structures governing foods and other consumer health products
• Key considerations for evaluating marketing concepts and claims
• An outline for establishing effective pre-launch review procedures
• A guide to determining the kinds of substantiation required to support different types of claims
• Discussion of claims and consumer deception issues pertaining to the different categories of foods and other consumer health products
• Discussion of how to challenge questionable claims being made by others

Co-Editors:
Sarah Roller, Kelley Drye & Warren LLP
Melanie Fairchild-Dzanis, Regulatory Discretion, Inc.

Click here to download a preview. And visit the FDLI website for more on this publication or to subscribe to the FDLI Monograph Series.

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