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

A few days ago, a Kansas state court entered a default judgment against Bullseye Target Marketing, a Missouri telemarketing company that solicited roofing business in Kansas, in an action brought by the Kansas Attorney General alleging violations of the Kansas No-Call Act (the state analogue to the federal Telemarketing Sales Rule). The court ordered the company to pay $600,000 in penalties. The action was filed after the Attorney General received complaints from Kansas consumers that they received unsolicited calls offering to schedule roof inspections in areas that had experienced storm damage, despite their numbers being registered on the state do-not-call list. The Kansas No-Call Act generally prohibits businesses from placing telemarketing calls to consumers registered on the state do-not-call list.

This Attorney General action should serve as a reminder that do-not-call compliance is not only being monitored and enforced by the Federal Trade Commission, but states, too, are active in the area.

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On May 9, 2013, the Federal Communications Commission ruled that sellers may be held vicariously liable under the Telephone Consumer Protection Act (“TCPA”) for unlawful telemarketing by third parties under certain circumstances. The FCC’s Declaratory Ruling addresses third-party liability for violations of the Do Not Call and prerecorded message restrictions of the Communications Act. The Commission ruled that, under both provisions, a seller may be held vicariously liable for violative calls placed by third-party marketing agents under principles of the federal common law of agency.

The Declaratory Ruling thus resolves a central question that is raised in a number of TCPA lawsuits: sellers may only be held liable for actions of those third party telemarketers that are determined to be agents, applying the federal common law of agency. Moreover, a manufacturer that simply puts a product in the chain of commerce that is later resold by a seller is not likely to be affected by this Ruling, provided that it does not otherwise trigger the TCPA’s seller definition.

With respect to how and under what circumstances the federal common law of agency will be applied to find a seller vicariously liable for the acts of third parties, the future is unclear – particularly with respect to claims based on alleged apparent authority and whether the FCC’s “illustrative examples” of such apparent authority set forth in the Ruling will influence courts in interpreting how the federal common law of agency should apply to the specific facts of a particular case.

For more on this decision, please reference the Kelley Drye client advisory.

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The Washington Attorney General recently announced a court-ordered agreement with T-Mobile over the company’s new advertising campaign. T-Mobile has been promoting a new service plan that offers “no restrictions,” “no annual contract,” and no requirement that customers “serve a two-year sentence.” The plan, however, does not include a phone. Instead, T-Mobile offers consumers an option to purchase a phone at a monthly rate over a two-year term. (They also offer other phone options.) Consumers who purchase a phone must pay the full cost of the phone if they cancel before the end of the two-year period.

The Attorney General alleged that T-Mobile misled consumers by advertising the absence of restrictions, an “annual contract,” and a “two-year sentence,” without adequately disclosing that customers who terminate their service before a device is paid off will have to pay the balance due on the phone upon cancellation. In some cases, the cost is higher than the early termination fee charged by other carriers. According to the press release: “Instead of a ‘two-year sentence’ for wireless service, consumers face a different two-year ‘sentence’ to avoid a lump-sum balloon payment for the phone.”

As part of the settlement, T-Mobile agreed to change the way it advertises the plan, to contact customers who purchased phones under the plan and advise them of their right to cancel and get a refund, and to pay attorney’s fees and costs.

This settlement serves another reminder that companies need to clearly and conspicuously disclose the material terms of their offers. You can’t just highlight the benefits of a product or service, and bury the costs and restrictions in the fine print.  

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The Federal Trade Commission has been an active proponent of industry self-regulation, recognizing that industry cooperation can lead to efficiency, innovation, and the dissemination of useful information, which can benefit both consumers and competitors. Self-regulation allows the FTC to conserve resources and direct them to high priority competition and consumer protection policy matters, while deferring to an industry that may be more capable of regulating its members than a government agency. Notwithstanding these benefits, a tension exists between industry self-regulation and competition law, in that certain cooperative activities can be ineffective substitutes for competition in promoting proper social policy, and industry cooperation can have exclusionary and anticompetitive effects. Because of this, the FTC has sought to limit its support for industry self-regulation to sound self-regulatory efforts likely to yield efficient and non-discriminatory results.

Various self-regulatory initiatives recently have been proposed or currently are underway in diverse areas that include behavioral tracking, food marketing, and privacy and data security, among others. The National Advertising Division is considered by many to be the standard against which these initiatives are compared.

Our article, published in the Spring 2013 issue of Antitrust Magazine, "So You Want to Self-Regulate? The National Advertising Division As Standard Bearer," discusses the strengths and weaknesses of the NAD and evaluates its performance in achieving its stated objective of promoting truthfulness and accuracy in national advertising.

Associate Katherine E. Riley contributed to this post. Ms. Riley is admitted only in Massachusetts. She is practicing under the supervision of principals of the firm who are members of the D.C. bar.

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As we've posted before, if a company provides incentives to a consumer in order to encourage the consumer to promote the company’s products, the consumer is required to disclose those incentives. It’s not just the consumer’s problem, though. The FTC has stated that a company can be held liable for a consumer’s failure to make the disclosure. Fortunately, though, there are easy steps a company can take to protect itself in case consumers don’t comply.

The FTC recently investigated a promotion conducted by Nordstrom to promote the opening of a new store. Nordstrom provided social influencers with gifts and failed to tell the influencers that when they wrote about the event, they should disclose they had received gifts. After reviewing the promotion, however, the FTC decided not to pursue the case for a few reasons. First, the FTC noted that several influencers who posted content did disclose that they had received the gifts. And, second, Nordstrom revised its social media policy to address the FTC’s concerns.

This case serves as a reminder that companies who engage in social media should have a policy that provides endorsers with guidelines about what they can, can’t, and must do. It’s not just enough to have the policy in place, however. Companies must also monitor to ensure endorsers comply with the policy, and take action against those who don’t.  

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On Tuesday, the Federal Trade Commission announced final revisions to the guidance it gives to advertisers on how to keep endorsement, testimonial, and other digital ads in compliance with the FTC Act, ".com Disclosures, How to Make Effective Disclosures in Digital Advertising." The Revised Guide expands on the initial version released in 2000 by providing important insight into how advertisers should address the likelihood that different mediums may be used to view the same ad, and the increasing prevalence of space-constrained ads such as banner ads and tweets.

For instance, the Revised Guide explains that advertisers must account for the anticipated use of smartphones and tablets by either creating a mobile-optimized version that the ad will default to or designing the ad such that disclosures are clear and conspicuous regardless of how they are viewed. Additionally, the Revised Guide sets forth new considerations for advertisers using space-constrained ads, including the capacity to use short form disclosures such as “Ad:” and the possibility of republication by consumers.

For more information, see the Kelley Drye client advisory.
 

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The NAD recommended that Toys “R” Us modify or discontinue its price-matching claim: “Price Match Guarantee — Spot a lower advertised price? We’ll match it.” The claim was accompanied by a disclosure informing consumers to “see a Team Member for details.” A consumer complained after store employees informed him of limitations to the guarantee. Toys “R” Us explained that it matches prices on its competitor’s print ads, but that (with limited exceptions) it doesn’t match online prices.

The NAD observed that although consumers may understand that certain limitations may apply to a price-matching offer, most consumers would not expect the Guarantee to exclude online pricing for competitive toys. The disclosure informing consumers to “see a Team Member for details” didn’t help because the limitations conveyed by the Team Members directly contradicted the main message conveyed by the Guarantee.

This decision serves as a reminder of two important points: (1) it’s not always possible to point consumers to a disclosure in a different medium; and (2) a disclosure isn't sufficient to cure an overly-broad claim.

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If you work with e-mail marketing—whether you’re putting together the content, reviewing the images and links for accuracy, or conducting a final copy and legal review—you already know that your commercial message must be compliant with the CAN-SPAM Act. It’s not that it’s hard to follow, but sometimes it can be so easy to forget.

Before your next e-mail marketing campaign is approved and in the Sent folder, make sure your commercial e-mails comply with best practices and CAN-SPAM Act. David Ervin and I highlight key requirements in this Best Practices for E-mail Marketing Checklist published by Practical Law Company. For a more detailed look at e-mail marketing practices, the full article is available here.

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William C. MacLeod Announces the Jodie Awards

It was the biggest year in history for one type of advertising – the pitches for political campaigns. That territory may still be the Wild, Wild West as far as consumer protection is concerned, but agencies, private litigants and companies themselves have turned in a banner year for the consumer. The year began with the appointment of potentially the most powerful cop in the field – the Director of the Consumer Financial Protection Bureau. It ended with the confirmation of the newest Commissioner of the Federal Trade Commission. In between, we witnessed some amazing developments that will change the landscape for as long as we survey it.

At the American Bar Association Consumer Protection Conference on February 7, Kelley Drye partner William C. MacLeod presented the 2012 Consumer Protection Awards. Nicknamed the “Jodies” in honor of former director of the FTC’s Bureau of Consumer protection Jodie Bernstein, the awards recognized the most important developments in ten areas of consumer protection. The finalists included:

• Market Initiatives: FTC Finds Kids Eating Better, Praises Food Companies for Initiative
• My Media: FTC Investigates Data Brokers’ Collection and Use of Consumer Data
• Privacy: FTC Issues Final Privacy Report
• Economics: Economics of Privacy
• Consumer Finance: Cordray Appointed to Head CFPB
• Private Actions: Courts Reject Theory that Unsubstantiated Advertising is Deceptive
• Constitution: Supreme Court Upholds Patient Protection and Affordable Care Act
• State Enforcement: California Puts Social Media Passwords Off Limits for Employers, Schools
• Federal Enforcement: Ohlhausen Confirmed as FTC Commissioner & Vladeck Steps Down
• Advertising: Skechers to Pay $40M Over Allegedly Unsubstantiated Claims for Toning Shoes

And the winner for the most important consumer protection development of 2012 was the Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act.

For more on the nominees in each category, please reference the article, “2012: A Consumer Protection Year in Review.”

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On February 7, 2013, the Network Advertising Initiative (“NAI”) released its 2012 Annual Compliance Report addressing member organizations’ adherence to the NAI Code. The NAI Code is one of the leading industry self-regulatory codes of conduct governing online behavioral advertising (“OBA”) for third party digital advertising companies (such as advertising networks).

The 2012 Compliance Report indicates that the NAI and its members:

• Educate consumers about OBA and their choices
  
• Provide notice about each member’s OBA practices on the member’s site and on the sites where data is collected for OBA purposes
  
• Disclose the collection of health-related information
  
• Maintain opt-out mechanisms so users can elect not to receive OBA
  
• Require opt-in consent mechanisms for the use of sensitive consumer information
  
• Deliver OBA without the use of individuals’ personally identifiable information (“PII”)
  
• Do not specifically target OBA to children under age 13
  
• Use collected data only for marketing purposes
  
• Implement standards and restrictions on data retention, security, and transfer

The NAI also indicated that it will develop guidelines on the collection and use of data on mobile devices and use of mobile tracking technologies.

Online behavioral advertising continues to receive attention from regulators such as the Federal Trade Commission. Companies that engage in OBA should continue to ensure that they work with partners that comply with appropriate self-regulatory programs.

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In a decision issued last week, the NAD held that even trademarked phrases are subject to advertising laws. A company that makes dishwasher products was asked to substantiate the phrase “Outshines the Competition.” The company argued that because the phrase was a trademark, it didn’t require support. It also argued the phrase constituted puffery. The NAD disagreed, holding that when “a trademark appears as an advertising claim, an advertiser must provide a reasonable basis for that claim.”

The NAD also determined that although the phrase might constitute puffery when it stands on its own, the claim appeared in conjunction with other performance claims, such as a statement that the product “removes the toughest spots and film while keeping your dishwasher sparkling clean.” In that context, the trademark constituted “an objectively provable superior performance claim.”

This isn’t the first case to address this issue. Indeed, the FTC recently alleged that the name of a product conveyed a claim that required substantiation. But the case serves as a reminder of two key points. First, just because a something is a trademark doesn’t mean it’s outside the scope of advertising laws. Objective claims require substantiation. Second, context is important to determining whether something is puffery. A statement that may be puffery on its own will take on a different meaning if it appears near other performance claims. 

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A federal court has ordered Edward Sumpolec, a home insulation marketer d/b/a ThermalKool, ThermalCool, and Energy Conservation Specialists, to pay a $350,000 civil penalty for making deceptive and unsubstantiated claims about his products’ insulation capabilities. The $350,000 figure is the largest civil penalty awarded in a home insulation case and, on the Federal Trade Commission’s behalf, the U.S. Department of Justice won the order on the merits of the case without a trial.  The case is especially notable because the court held Sumpolec individually liable and provided some insight for the calculation of civil penalty amounts, stating: 

The amount of $350,000 is reasonable in light of the Defendant’s misconduct. It amounts to less than a $500.00 per day penalty. Additionally, evidence before the Court indicates that Defendant has assets valued in excess of $350,000. 

In addition to imposing a $350,000 civil penalty against Sumpolec, the court order permanently prohibits him from (a) making a claim about a product’s insulation value or energy savings unless it is true, not misleading, and based on competent and reliable scientific evidence, (b) failing to rely on proper tests and substantiation to support certain specific insulation claims, and (c) failing to make other necessary disclosures in marketing for insulation products.

Similar to POM Wonderful LLC, this action indicates the FTC’s intent to pursue individual liability for company officers believed to play an integral role in the development of false or misleading marketing campaigns.

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The Alabama Supreme Court recently held in Wyeth, Inc. v. Weeks, – So.3d –, No. 1101397, 2013 WL 135753 (Ala. Jan. 11, 2013) that a drug company may be held liable for fraud or misrepresentation (by affirmative misrepresentation or omission), based on statements it made in connection with the manufacture and distribution of a brand-name drug, by a plaintiff claiming physical injuries from the ingestion of a generic drug manufactured and distributed by a different company.

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On January 16, 2013, the Federal Trade Commission (“Commission”) issued an Opinion In the matter of POM Wonderful LLC upholding in part and overruling in part Chief Administrative Law Judge D. Michael Chappell’s May 2012 initial decision regarding advertising claims for POM Wonderful (“POM”) products. In pertinent part the Commission opinion, issued by Commissioner Maureen Ohlhausen, ruled the following:

• Thirty-nine of POM’s 43 ads made efficacy claims and were false and misleading;
• Two well-designed, well-conducted, double-blind, randomized controlled clinical trials (RCTs) are required to substantiate claims that a food can treat, prevent or reduce the risk of “serious diseases;”
• The proposed order does not violate POM’s 1st or 5th amendment rights;
• The past COO and President of POM Wonderful who, at the time of his employment, was responsible for the operations of the marketing team, “both participated directly in and had the authority to control the acts or practices at issue,” and thus should be held individually liable and subjected to a Final Order along with Steward and Lynda Resnick; and
• FDA-preapproval is not warranted as part of the remedy in the POM action.

The Commission also agreed with the ALJ’s conclusion that the Respondent’s actions were serious and deliberate. Two concurring statements were included: a statement by Commissioner Ohlhausen (rejecting the two RCT standard and concluding that extrinsic evidence should have been used to determine whether some of POM’s ads made implied disease claims) and a statement by Commissioner J. Thomas Rosch (agreeing with the majority opinion but noting that “having served as a Commissioner for seven years and having been a trial lawyer for nearly 40 years before… [he is] somewhat skeptical of relying so heavily on the opinions of experts who are paid by both Complaint Counsel and Respondents”).

The Commission ruling provides helpful insight into the Commission’s position regarding health-benefit claims and the level of substantiation required to make claims that a food or beverage product treats, mitigates or prevents a “serious disease.” The decision also reflects the Commission’s intent to pursue individual liability for company officers believed to play an integral role in the development of health-benefit related marketing campaigns.
 

More information regarding the ruling and related proceedings can be found here.

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According to the New York Times, the NAD has decided to reopen its review of Living Essentials’ claim that its 5-Hour Energy “shot” produces “no crash later.” In 2007, the NAD reviewed 5-Hour Energy’s claims, found the “no crash later” claim unsubstantiated, and recommended that Living Essentials discontinue it. The NAD concluded, however, that a claim that 5-Hour Energy produces less of a crash than Red Bull or Monster Energy was substantiated.

Living Essentials modified the “no crash later” claim, adding an asterisk directing consumers to language that “no crash means no sugar crash,” as both Red Bull and Monster Energy contain sugar, but 5-Hour Energy does not. In response to a New York Times study that 24% of 5-Hour Energy users experience a “moderately severe” crash, a Living Essentials spokesperson claimed that, based on the modification, the NAD found all 5-Hour Energy claims substantiated. The NAD, however, disagrees and alleges that Living Essentials has mischaracterized the NAD decision, a practice that is expressly prohibited by NAD procedures. If Living Essentials fails to adequately respond to the reopened review, the NAD will probably refer the matter to the FTC.

This article demonstrates greater attention to the NAD by national media, and that the NAD will not hesitate to come after advertisers that it believes mischaracterize NAD decisions, reopening its review of claims and, if necessary, referring the matter to the FTC.

Associate Katherine E. Riley contributed to this post. Ms. Riley is admitted only in Massachusetts. She is practicing under the supervision of principals of the firm who are members of the D.C. bar.

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As we've noted in previous posts, if a company provides incentives to a consumer in order to encourage the consumer to promote the company's products, the consumer is required to disclose those incentives. It's not just the consumer's problem, though. The FTC has stated that a company can be held liable for a consumer's failure to make the disclosure. Fortunately, though, there are easy steps that a company can take to protect itself in case consumers don’t comply.

The FTC recently investigated a promotion conducted by Nordstrom to promote the opening of a new store. Nordstrom provided social influencers with gifts and failed to tell the influencers that when they wrote about the event, they should disclose they had received gifts. After reviewing the promotion, however, the FTC decided not to pursue the case for a few reasons. First, the FTC noted that several influencers who posted content did disclose that they had received the gifts. And, second, Nordstrom revised its social media policy to address the FTC’s concerns.

This case serves as a reminder that companies who engage in social media should have a policy that provides endorsers with guidelines about what they can, can’t, and must do. It’s not just enough to have the policy in place, however. Companies must also monitor to ensure endorsers comply with the policy, and take action against those who don’t.

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In an interview with Catherine Dunn of Corporate Counsel, I discussed some of the patterns and principles found in FTC closing letters and how in-house counsel can benefit from understanding these trends should they find their companies the subject of a regulatory investigation.

If a company receives an access letter from the FTC, the goal is to get the matter closed. This article outlines important strategies to achieve that objective in light of patterns gleaned from recent closings. The FTC staff may be persuaded that no violation of law has occurred when companies have shown substantial compliance with consumer protection laws, inadvertent error, or discontinued use of an unsubstantiated advertising claim.

For more on this, see the article, “Reading Between the Lines of an FTC Closing Letter.”

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We’ve posted several entries about lawsuits involving continuous sales and promotional pricing. (Click here and here, for examples.) This week, the NAD announced a decision involving similar issues.

Lowes frequently advertises “10% Off Major Appliances” and includes an expiration date on the offers. The Home Depot argued that, despite the expiration date, Lowes promoted this type of offer indefinitely. According to the complaint, this practice misleads consumers into thinking they need act soon in order to take advantage of a discount, and it damages the goodwill of competitors by making it appear that Lowe’s provides deeper discounts off the bona fide regular price for appliances.

In response to NAD’s inquiry, Lowe’s stated that it has ended the promotion and related ads. The NAD deemed this decision to be appropriate, and recommended that future sales promotions observe stated expiration dates.

This case serves as yet another reminder that companies should closely review their pricing policies to ensure their sales and discounts do not violate pricing laws. 

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Last month, the FTC issued a revised version of their Green Guides and a warning that they would closely scrutinize environmental claims. If you think the odds that the FTC will find your claims is low, you should remember that the FTC isn’t the only entity that can challenge you -- your competitors can, too. In fact, the NAD just reviewed green claims for cookware in a challenge brought by the advertiser’s competitor.

The NAD’s decision involved many of the claims the FTC addressed in its Guides. For example, the NAD took issue with the advertiser’s “eco-friendly” claims. Quoting the FTC, the NAD noted that unqualified environmental claims are likely to convey far-reaching environmental benefits that an advertiser cannot support. Accordingly, the NAD recommended that the advertiser stop claiming that its products are “eco-friendly.”

The FTC has also warned advertisers not to overstate environmental or savings benefits. In the NAD case, the advertiser claimed that the use of its cookware could reduce energy costs. Although the advertiser presented evidence that its products could reduce energy use, the NAD found no evidence that the reductions would result in meaningful savings on energy bills. Therefore, the NAD recommended that the advertiser stop making its savings claims.

As companies become more familiar with the Green Guides and scrutinize their competitors’ claims, it’s likely that these types of challenges will increase. Accordingly, you should make sure you review the Green Guides and scrutinize your own claims first. 

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Over the past year, several companies have entered into high-profile settlements with the FTC over allegations that their products didn’t work as advertised. For example, Skechers agreed to pay $40 million to settle charges that it made unsubstantiated claims about its toning shoes. Although the terms of those settlements provide valuable insights for all advertisers, it’s not always easy to understand how the settlements apply to other products.

Practical Law Company asked me to answer some of the key questions advertisers have about advertising law, including what types of claims need to be substantiated, how much substantiation is required, whether the laws are different for social media, and how to challenge competitors. You can read the questions and answers here. 

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The Federal Trade Commission (FTC) announced that Compete Inc., a web analytics company, agreed to settle allegations that it engaged in unfair and deceptive practices by collecting personal data without disclosing the extent of the information it was collecting and failing to honor promises it made to protect the personal data it collected.

In its complaint, the FTC alleged that Compete persuaded consumers to download its tracking software by urging them to join a Consumer Input Panel and promising them rewards in exchange for sharing their opinions about products and services. Once installed, the tracking software automatically collected not only information about consumers’ online activity such web pages visited, but also usernames, passwords, search terms, credit card and financial account information, security codes, expiration dates and Social Security numbers. Compete used the consumer data to generate reports that were sold to third parties about improving website traffic and sales.

The FTC alleged that Compete violated Section 5 of the FTC Act by failing to disclose that it would collect more information than just the web pages that consumers visit, and failing to honor its consumer assurances that “all data is stripped of personally identifiable information before it is transmitted to our servers” and “we take reasonable security measures to protect against unauthorized access to or unauthorized alteration, disclosure or destruction of personal information.” With respect to data security, the FTC specifically alleged that Compete failed to provide reasonable and appropriate data security, transmitted sensitive data in an unsecure manner, failed to design and implement reasonable safeguards for consumer data, and failed to use readily available measures to mitigate risk to the data.

Compete’s settlement provides another example of the FTC’s continued enforcement related to tracking consumers’ online activity and data security. Yet, unlike other recent FTC settlements, Compete does not directly use the consumer data it collects to sell its own products and services to consumers. Consumer data is Compete’s product. As such, this settlement should send a signal to those who use data, as well as those who collect and distribute it, that the FTC expects them to be respectful of consumer privacy, provide reasonable and appropriate safeguards for such data, and to do what they say and say what they do when it comes to consumer data.

Under the settlement, Compete is required to:

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It's Breast Cancer Awareness Month, so pink adorns store shelves, NFL players and coaches, and even the White House (for a night). To help support awareness, marketers often sell specially-marked products and donate a portion of the sales price to a charity dedicated to breast cancer. Marketers engaged in those and similar cause marketing campaigns should carefully review the New York Attorney General's newly-released list of best practices. After a year-long review of a variety of breast cancer cause marketing campaigns, the AG's office concluded that consumers are often not given enough information to understand how their purchase will benefit the charity and its cause. As a result, the AG's office issued the following guidelines for marketers:

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In increasing numbers, courts have granted summary judgment to the defendants in (or dismissed) consumer class actions in which the plaintiffs have alleged that certain advertising claims are false, deceptive, and/or misleading because the defendants do not possess “prior substantiation” for the claims (i.e., the advertisers do not have a reasonable basis for making the challenged claims in the first instance). These “piggyback” cases often were filed shortly after the defendants entered into settlement agreements with the Federal Trade Commission (“FTC”) resolving the agency’s investigations into the defendants’ respective advertising and marketing campaigns; and the complaints did little more than parrot the FTC’s allegations of falsity and deception.

The issue of piggyback class actions was discussed in a previous blog post. A new article authored by John Villafranco and Dan Blynn, which appears in Nutritional Outlook magazine – "The Case of the Piggyback Class Action"  – examines recent developments and issues relating to piggyback class actions, such as which party bears the burden of proof in such cases, what evidentiary showing is required, and how courts have responded to plaintiffs who have attempted to place the burden on the defendants to prove that their advertising claims are substantiated and/or not deceptive.

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Yesterday, the FTC issued a revised version of their Green Guides that is designed to help marketers ensure that claims about the environmental benefits of their products are truthful and not misleading. In revising the Guides, the FTC modified and clarified existing sections and provided new guidance on claims that were not common when the Guides were last reviewed.

The Green Guides address the following types of claims: (a) general environmental benefit claims; (b) carbon offset claims; (c) certifications and seals of approval; (d) “compostable” claims; (e) “degradable” claims; (f) “free-of” claims; (g) “non-toxic” claims; (h) “ozone-safe” and “ozone-friendly” claims; (i) “recyclable” and “recyclable content” claims; (j) “refillable” claims; (k) “renewable energy” claims; (l) “renewable materials” claims; and (m) source reduction claims.

The Green Guides aren’t new regulations, but they describe the types of environmental claims the FTC may or may not find deceptive under Section 5 of the FTC Act. The FTC has brought several actions in recent years related to green claims, and indicated that they would continue to bring these types of actions. Accordingly, advertisers should carefully review the new Guides and ensure that their green claims comply with the FTC’s standards.

For a more detailed analysis of the Green Guides, please reference the Kelley Drye client advisory, and see the FTC video below.

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Last year, a CBS radio station in North Carolina ran a “Carolina Cuties” contest in which listeners were invited to submit pictures of their babies on the station’s website. The grand prize winner was be determined by public votes. Although broadcast announcements for the contest stated that voting would end on September 5, 2011, the station’s website and e-mails to the finalists stated that voting would end by September 4, 2011. One of the contestants complained to the FCC about the discrepancies.

The FCC requires broadcast licensees to disclose the material terms of their promotions -- including when and how winners will be selected -- and to conduct their promotions substantially as advertised. The agency wasn’t persuaded by the station’s argument that the discrepancies were due to inadvertent errors, holding that inadequate oversight of staff does not excuse a failure to run the promotion as advertised. The agency also rejected the station’s argument that the errors did not put any consumers at a disadvantage. Instead, the FCC noted that there was a potential for harm, and that a showing of actual harm is not necessary in determining whether a violation occurred. Accordingly, the FCC proposed a fine of $10,000.

This case demonstrates that companies can be held responsible for discrepancies between how they advertise a promotion and how the promotion is actually run. If you are running a promotion, make sure that your rules and marketing materials are in sync with how you actually run the promotion.  

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On July 16, 2012, the United States District Court for the District of New Jersey granted summary judgment in favor of Nestlé Healthcare Nutrition, Inc. in Scheuerman, et al. v. Nestlé Healthcare Nutrition, Inc., No. 2:10-cv-03684 (D.N.J.), a putative nationwide class action challenging Nestlé’s advertising and marketing campaign for its BOOST® Kid Essentials Drink (“BKE”) product. BKE is a nutritionally complete drink supplement for children, which formerly was sold in a carton attaching a separately-packaged straw containing the probiotic, Lactobacillus reuteri.

In Scheuerman, the plaintiffs alleged that Nestlé committed common law negligent misrepresentation and violated the New Jersey Consumer Fraud Act (“NJCFA”), California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”), and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). They argued that Nestlé made express and implied claims that BKE provided a number of health benefits, including, among other things, immunity protection; a strengthened immune system; reduced absences from daycare or school due to illness; reduced duration of diarrhea; and protection against cold and flu viruses. They also claimed that Nestlé advertised that those challenged health benefits were “clinically shown.”

The court held that the plaintiffs could not prevail on their NJCFA, UCL, FAL, or CLRA claims on their theory of liability – that Nestlé lacked substantiation for the challenged advertising claims at the time the claims were made (sometimes referred to as the “prior substantiation doctrine”). Rather, the plaintiffs were required to come forward with evidence actually demonstrating that the challenged advertising claims were affirmatively false, not merely that the claims were not supported by competent and reliable scientific evidence.

Continue reading about the significance of this decision with respect to "clinically proven" or "clinically shown" advertising claims...

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The NAD reviewed weight-loss success stories on Nutrisystem’s Pinterest board, and determined that the weight-loss claims featured atypical results. As we’ve posted before, the FTC’s Endorsement Guidelines state that if an endorser's experience does not reflect what consumers will generally achieve, the ad “should clearly and conspicuously disclose the generally expected performance in the depicted circumstances.” Accordingly, the NAD held that the Pinterest board should have included a disclosure with the typical weight-loss results.

The NAD’s decision contains two important lessons. First, claims on social media sites are still considered advertisements and, therefore, subject to advertising laws. And, second, advertisers should exercise caution when advertising atypical results. For more information about the FTC’s guidance on that issue, click here and here.

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Facebook has agreed to pay $10 million and make various changes to its terms in order to settle a lawsuit alleging that the company's Sponsored Stories violates members' rights of publicity.

With Sponsored Stories, when a Facebook member "likes" a company, checks-in at one of its stores, or performs certain other actions, that member's profile picture and name may appear as an ad for the company in the right-hand column of Facebook, along with other paid ads. Facebook Chief Executive Mark Zuckerberg called Sponsored Stories the "Holy Grail" of advertising because the implied endorsement from consumers leads to more clicks. The plaintiffs were less enthused, however, and alleged that Facebook had unlawfully misappropriated their names and likenesses without their consent, in violation of California's right of publicity laws.

In addition to paying $10 million, Facebook agreed to make certain changes to its site for at least two years. Among other things, the company agreed to (a) revise the Facebook Statement of Rights and Responsibilities to clarify that members' names and likenesses may be used as sponsored stories, (b) provide a mechanism to allow members to see and control which actions will lead to their being featured in Sponsored Stories, and (c) take steps to ensure the company secures consent from the parents of minors before using the minors names and likenesses.

This settlement serves as a reminder that you should obtain consent from individuals before using their names or images in ads. You should also be aware that Facebook isn’t the only company that has been challenged over Sponsored Stories -- some plaintiffs have also targeted advertisers who use the service. Once Facebook implements its changes, it may be harder for plaintiffs to bring these challenges, but you should discuss the risks with your counsel before moving forward. 

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We reported on May 23 on Chief Administrative Law Judge Chappell's initial decision in the FTC's action against POM Wonderful. On June 4, all parties filed notices of appeal. The FTC staff's notice states that it is appealing "(1) The failure to find that certain of the challenged advertisements made the claims alleged in the Complaint; (2) The level of substantiation required for the challenged advertising claims; and (3) Certain provisions of the Order entered by Judge Chappell." POM's notice (and the me-too notice filed by individual respondent Tupper) state that they are appealing "(1) all portions relating to the finding of liability against Respondents in their entirety and (2) all portions relating to the imposition of a remedial order against any and all Respondents, in their entirety" as well as "certain procedural, evidentiary, and substantive rulings relating to the findings of fact and law and remedial relief."

The notices are terse, but if there is a surprise anywhere in them, it is the FTC not explicitly appealing Judge Chappell's finding that the appearances of POM principals such as Lynda Resnick to promote POM on news and talk shows are not within the FTC's reach as "advertising" by reason of not having been paid for. Conceivably, however, such a theory could be lodged within the first part of the staff's statement, together with a challenge to Judge Chappell's interpretation of some of the challenged POM advertisements as not communicating specific disease treatment, prevention, mitigation or cure claims. As expected, the FTC staff also appeals Judge Chappell's rejection of the two-clinical-study requirement that the staff sought to impose on ads making such claims. POM and Mr Tupper simply appeal everything in the decision that didn't go their way.

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Last week the Federal Trade Commission (FTC) held an information gathering workshop titled “In Short: Advertising and Privacy Disclosures in a Digital World”. The purpose of the workshop was to discuss the need for updated guidance for web and mobile advertisers regarding disclosures and privacy practices. FTC issued the current guidance, known as the “Dot Com Disclosures,” in 2000. Topics discussed included:

“Universal and Cross-Platform Advertising Disclosures”

“Social Media Advertising Disclosures”

“Mobile Advertising Disclosures”

“Usability Research” and “Mobile Privacy Disclosures”

The comment period is open through July 11, 2012. The Commission is targeting this Fall for issuance of updated guidance.

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The Washington Attorney General recently announced that a settlement with RealNetworks over the company’s free trials. According to the AG, more than 500 consumers had complained to the AG’s office and the Better Business Bureau about unauthorized charges for services they had never ordered. In many cases, consumers who signed up for free trials did not realize they would automatically be charged unless they canceled before the end of the trials. Many consumers also claimed they had a hard time canceling the services.

Under the settlement, RealNetworks is required to: (a) stop using pre-checked boxes to obtain consent for purchases; (b) clearly disclose the terms of any free-to-pay trial; (c) provide an online method of cancellation; (d) send reminders to consumers with cancelation instructions; (e) process cancellation requests within two days; and (f) inform consumers who called to cancel a subscription of additional subscriptions on their account. The settlement also provides for a $2 million claims-based pool to provide restitution for consumers and requires RealNetworks to pay $400,000 in attorney’s fees.

As we’ve noted before, regulators closely scrutinize free trials in which consumers are required to cancel in order to avoid charges. If you offer a free-to-pay trial, make sure you clearly and conspicuously disclose the material terms of the offer — including any obligation to cancel — before consumers sign up. You should also consider having consumers affirmatively check a box to indicate they agree to the terms.

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On May 17, Chief Administrative Law Judge Michael Chappell issued his Initial Decision in the FTC's case against POM Wonderful, accusing POM of making unsubstantiated claims that its pomegranate juice and pomegranate extract supplement pills can prevent, treat, cure or mitigate heart disease, prostate cancer, erectile dysfunction, and other medical conditions. The decision found POM, its parent company Roll Global, and individual principals Stewart and Lynda Resnick and Matthew Tupper to have violated the FTC Act, and imposed a 20-year injunction against making such unsubstantiated claims in connection with any food, drug or dietary supplement product.

At the outset, the court determined the evidentiary standard to be applied to claims that a food product prevents, treats, mitigates or cures diseases. Here, in the portion of the decision that dominates POM's own press release, POM succeeded in convincing Judge Chappell that the FTC does not require an advertiser to have either (1) prior FDA approval of the product for treating such diseases or (2) at least two solid, randomized clinical trials, as would normally be required for FDA approval of a new drug, before making such claims. The judge instead adopted the more flexible standard that the appropriate level of substantiation depends on the specific facts and on what experts in the field would consider adequate, relying on past Commission case law (e.g., In re Pfizer, Inc., 81 F.T.C. 23 (1972); FTC v. Direct Marketing Concepts, Inc., 624 F. 3d 1 (1st Cir. 2010); Removatron Int'l Corp. v. FTC, 884 F.2d 1489 (1st Cir. 1989)) and on the status of pomegranate juice as a non-hazardous food that is not marketed as a substitute for other medical treatment. In certain cases, he conceded, the FTC's flexible standard might parallel that of the FDA. See, e.g., FTC v. Nat'l Urological Group, 645 F. Supp. 2d 1167 (N.D. Ga. 2008).

The real crux of the opinion, however, was that even under the flexible substantiation standard, POM could not

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A panel of the Ninth Circuit Court of Appeals ruled May 17 on an appeal from summary judgment in a case filed by pomegranate juice maker POM Wonderful against the Coca-Cola Company's Minute Maid division. The dispute was over a Minute Maid pomegranate-blueberry juice blend that POM alleged misrepresented itself on its label as containing a far higher proportion of pomegranate juice than was present in the beverage. According to POM, this overselling of pomegranate falsely communicated to consumers that the juice blend conferred the unique health benefits of pomegranate juice -- benefits which, themselves, have been heavily advertised by POM but called into question by the FTC and litigants. POM's deceptive labeling claims against other marketers of juice products touched off a network of related competitor, class action, and FTC cases that have become known as the "Juice Wars".

Coca-Cola successfully moved for summary judgment on the ground that FDA regulations issued under the Food, Drug & Cosmetic Act comprehensively govern the content of juice labeling, including permitting marketers of juice blends to identify the products through the juice name and pictures by the juices that provide their characterizing flavors, regardless of whether these juices predominate by volume. Affirming, the Ninth Circuit panel concluded that "Pom’s challenge to the name 'Pomegranate Blueberry Flavored Blend of 5 Juices' would create a conflict with FDA regulations and would require us to undermine the FDA’s apparent determination that so naming the product is not misleading" and that " forc[ing] Coca-Cola to alter the size of the words on its labeling so that the words “Pomegranate Blueberry” no longer appear in larger, more conspicuous type on Coca-Cola’s label than do the words 'Flavored Blend of 5 Juices' … would again undermine the FDA’s regulations and expert judgments." Under the preclusion doctrine, the challenge was therefore barred.
 

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Last year, we posted that Reebok had agreed to pay $25 million to settle charges that it had made unsubstantiated claims about its toning shoes. This week, the FTC announced that Skechers agreed to pay a record $40 million to settle charges that the company deceived consumers by making unfounded claims that its toning shoes would help people lose weight, strengthen and tone their muscles, and improve cardiovascular health.

Under the settlement, Skechers is barred from making certain claims for its shoes, unless the claims are backed by “competent and reliable scientific evidence.” As with other recent settlements, the FTC describes what evidence is required. For example, for strengthening claims, the company needs “at least one adequate and well controlled human clinical study of the [products] that conforms to acceptable designs and protocols, is of at least six-weeks duration, and the result of which, when considered in light of the entire body of relevant and reliable scientific evidence, is sufficient to substantiate that the representation is true.” Other claims require different levels of support.

Advertisers should pay attention to the FTC’s settlement in this case and other recent cases. Not only is the FTC raising the bar on what type of substantiation is needed to support certain types of claims, they are also raising the stakes with higher settlement amounts.

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Continuing with the recent trend of dismissing false advertising complaints premised on a "prior substantiation" theory or granting summary judgment to defendants in such cases where the plaintiff fails to demonstrate affirmatively that a challenged advertising statement is false, in Stanley v. Bayer Healthcare, LLC, No. 3:11-cv-00862, 2012 WL 1132920 (S.D. Cal. Apr. 3, 2012), the Southern District of California held that an alleged lack of substantiation for an advertising representation is not sufficient to state a claim for violation of the California Unfair Competition Law ("UCL") or Consumer Legal Remedies Act ("CLRA"), or for breach of express warranty.

In Stanley, the plaintiff asserted that Bayer’s advertising claims for its “Phillips’ Colon Health Probiotic” (“PCH”) line of supplements, including that the products supported a healthy immune system, violated the UCL and CLRA because the health benefit claims “are not substantiated by the vast majority of generally accepted scientific literature currently available relating to probiotics.” The plaintiff also alleged that PCH labeling and advertising constituted express warranties and that Bayer breached those warranties. Bayer moved for summary judgment, arguing that “Plaintiff has not offered any evidence supporting her claim that [Bayer’s] advertising and packaging of [PCH] is deceptive, untrue, or misleading.” Bayer also argued that the plaintiff’s complaint was based entirely upon an alleged failure to substantiate, which is not actionable under California law. The Southern District of California agreed with Bayer and granted summary judgment on all of the plaintiff’s claims.

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This five-minute video from the Bloomberg BNA Internet Law Resource Center provides an overview of some of the legal issues companies should consider before they engage in social media. Kelley Drye partner Gonzalo E. Mon discusses the FTC’s view of consumer endorsements, how companies can avoid liability for user-generated content, and options for structuring contests.

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The Federal Trade Commission ("FTC"), in the last couple of years, has made clear that it expects advertisers making strong cause-and-effect claims (e.g., “Lose weight,” “Helps prevent irregularity”) to possess, at a minimum, at least one well-designed and reliable clinical study. Yet, at the same time, FTC staff—those who conduct FTC investigations—have made statements that suggest a growing skepticism of clinical trials conducted abroad.

A recent article by John E. Villafranco and Katie Bond, published by Nutritional Outlook, "Foreign Territory: Dietary Supplement Clinical Trials Conducted Abroad," discusses this dilemma and provides practical pointers on minimizing risk, whether a company seeks to commission a trial abroad or rely on an existing study for claims.

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A recent article, “Insurance Coverage for False Advertising Claims,” which was published in the March 2012 issue of Insurance Coverage Law Bulletin, discusses some of the caselaw holding that insurance companies are obligated to provide coverage for false advertising claims, particularly under the advertising injury section of a CGL policy.

Companies in a wide variety of industry sectors increasingly face lawsuits by competitors and customers alike under Section 43(a) of the Lanham Act, and similar statutes, based upon false advertising claims. These lawsuits typically allege that the defendant’s representations about its own product or a competitor’s products are false, misleading, or disparaging, and frequently include additional common law or statutory claims for unfair competition and disparagement.

It is vital that companies look to their standard liability insurance policies as a potential source of payment not only for judgments or settlements that might be incurred, but also for the legal fees and related costs of defense. Insurers frequently contend that no coverage exists by claiming that their policies do not cover business risks such as “false advertising,” and further contend that if there is any doubt whether the insuring clauses cover such claims, then policy exclusions eviscerate coverage in any event. All too often, policyholders accept the insurer’s position at face value and fail to pursue coverage. This is a costly mistake, as courts have often found coverage for these types of claims for companies who have chosen to fight the insurers' denials. The only way to determine whether a particular false advertising claim is covered is to examine closely the underlying lawsuit, the policy, and the caselaw in the relevant jurisdiction. The article referenced above discusses the general framework for advertising injury coverage under CGL policies, arguments in favor of coverage, and arguments against the applicability of the exclusions most frequently asserted by insurers to deny coverage.

For additional information on insurance recovery issues, don't miss the session, "Insurance Coverage for Data Privacy Liability -- Do You Already Have It, and If Not, Can You Buy It?", which will be presented at the Kelley Drye Privacy Law Symposium: Enforcement, Litigation and Risk Management event on April 23 in Los Angeles and via webinar.

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On Thursday, March 19, 2012, the United States Senate unanimously confirmed Maureen Ohlhausen as a Commissioner of the Federal Trade Commission (“FTC”). Ms. Ohlhausen is a seasoned attorney who has handled consumer privacy and data security issues in public service and private practice, and her confirmation suggests that the FTC will continue to emphasize these areas of the law.

Ms. Ohlhausen, currently a partner with Wilkinson Barker Knauer LLP, was nominated by President Obama in July 2011 to replace Republican William Kovacic, whose term expired in September 2011. As one of five Commissioners, Ms. Ohlhausen will have a seven-year term.

Ms. Ohlhausen returns to the FTC, where she served for eleven years, including a four-year tenure as Director of the Office of Policy Planning. In this role, Ms. Ohlhausen addressed a variety of high-tech legal and policy issues, including barriers to electronic commerce, and online merchants’ use of consumer data. In addition, she headed up the FTC’s Internet Access Task Force. Previously, Ms. Ohlhausen clerked for current Chief Judge David B. Sentelle of the U.S. Court of Appeals for the D.C. Circuit, and clerked at the U.S. Court of Federal Claims for Judge Robert Yock. Ms. Ohlhausen is a graduate of George Mason University Law School, and received her undergraduate degree from the University of Virginia.

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On February 29, 2012, the Food & Drug Administration (FDA) issued a notice soliciting comments on its intent to conduct research entitled “Experimental Study: Examination of Corrective Direct-to-Consumer (DTC) Television Advertising.” FDA issued the notice pursuant to the Paperwork Reduction Act of 1995, which requires federal agencies interested in collecting information to first publish notice of the proposed collection of information in the Federal Register and grant the public sixty days to comment on the proposal. FDA’s proposed research will examine how corrective advertising may impact consumer misperceptions about drug product safety and efficacy. It also follows, FDA’s December 9, 2011, notice announcing its intent to collect information for a “Experimental Study of Comparative Direct-to-Consumer Advertising.”

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The year 2012 is certain to reflect U.S. consumers’ continued love affair with sophisticated smartphones and tablets. One of the driving forces in the popularity of these devices is their ability to run mobile apps using wireless location-based services (LBS). Among other benefits, LBS allow access to real-time and historical location information online – whether to facilitate a social interaction or event, play games, house-hunt or engage in many other activities.

However, with these benefits also come privacy risks. And it is not uncommon for some popular LBS-enabled tools to lack clear disclosure about personal information collection, how that data is used, and the process for consumer consent.

Our article posted recently on Mashable, "5 Privacy Tips for Location-Based Services," discusses several privacy "do's and don'ts" for designing mobile apps.

For a more in-depth discussion of these issues, plus other privacy law trends, join us on February 16 for Kelley Drye’s seminar and teleconference, “Privacy in 2012: What to Watch Regarding COPPA, Mobile Apps, and Evolving Law Enforcement and Public Policy Trends.”

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President Obama has made a recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau ("CFPB"). The President had nominated Cordray as the Director in July, but Senate Republicans blocked Cordray's confirmation last month. Yesterday's recess appointment circumventing Senate approval has already triggered criticism from Republicans, who have claimed that the President "arrogantly circumvented the American people" and called the appointment an "extraordinary and entirely unprecedented power grab."

See the post on our sister site, the Consumer Finance Law Blog, for a bit more detail.

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On December 9, 2011, the Food & Drug Administration (FDA) issued a notice announcing that a proposal to collect information for a “Experimental Study of Comparative Direct-to-Consumer Advertising” had been submitted to the Office of Management and Budget (OMB). FDA is required to submit the proposal to OMB for review and clearance under the Paperwork Reduction Act of 1995. FDA’s submission reveals its intent to study direct-to-consumer marketing of FDA-regulated products, with a focus on prescription drug advertising.

According to FDA, research findings on the effects of comparative versus noncomparative ads on purchase intentions indicate that comparative ads result in greater purchase intentions than noncomparative ads. Given the prevalence of comparative advertising, "FDA is embarking on the proposed research to ensure that it has adequate information to assess whether prescription drug comparative DTC ads provide truthful and nonmisleading information to consumers."

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ICANN made its move to launch the new generic Top Level Domains (gTLDs), the biggest change to the structure of the Domain Name System since its inception 25 years ago. (A gTLD is the name to the right of the dot in a domain name address -- not to be confused with domain names, which are to the left of the dot). Now, whether your organization plans to adopt a gTLD or not, it needs to move to devise a winning strategy.

Join Kelley Drye on December 7th at the Tower Club in Vienna, VA, for a free seminar that will explore what opportunities may be exploited, by whom, and when, and discuss what may be done to protect your organization's interest in this vastly changing Internet environment.

We will:

• Explain the new gTLD system and application process, including highlighting important myths and misconceptions.
• Discuss the marketing and branding opportunities for owners of gTLDs, but the game is open to more than simply those players. Understand this new way of doing business and what types of consulting, technology, management, and other moneymaking opportunities new gTLDs may create.
• Outline some key rules and regulations that will govern how your organization will play.
• Assess the risks in joining or not joining the game at this time. Don't be a simple pawn, move to preserve your position for the future - especially if your competitors are in the first round of new gTLD applicants. If nothing more, act now to get the authorities in your organization to make an informed decision as to what they need to do.

SPEAKERS:
Nancy Lutz, Partner, Kelley Drye & Warren LLP
Sarah Langstone, Director of Product Management, VeriSign, Inc.
Alexa Raad, Founder, Architelos Inc.

DATE:
December 7, 2011 8:00 AM -10:00 AM ET

LOCATION:
The Tower Club
8000 Towers Crescent Drive
17th Floor
Vienna, Virginia 22182

Email dcevents@kelleydrye.com to register.

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Earlier this year, the FTC and the Colorado Attorney General filed a lawsuit against a company that sells a wealth-building program. The company’s infomercials included testimonials from consumers who purportedly made money through the program and fine print disclosures stating that results would vary. The regulators recently announced they had obtained a court order that, among other things, requires the company to highlight the low success rate of its customers.

As we’ve mentioned in previous posts, two years ago, the FTC updated their guidelines on endorsements and testimonials. Under the new guidelines, a company can no longer feature testimonials with atypically good results and simply use a “Results Not Typical” disclaimer. Instead, a company must either feature testimonials that show typical results or include a disclosure that clearly explains the results that a typical consumer can expect to achieve.

As part of the court order, the infomercial company is forced to “clearly and prominently” include the following statement in all ads and infomercials: “Most of our customers will earn little or no money.” The order includes detailed requirements about how, when, and how often the disclosure must be made in various types of ads. In addition, the company is prohibited from representing that consumers are likely to quickly and easily make a lot of money.

This case serves as a reminder that advertisers need to ensure that all claims in their ads -- including claims that are made by consumers -- are truthful and not misleading. And companies need to be particularly careful that claims made by consumers are either representative of typical results or that the ads otherwise clearly disclose the typical results. Otherwise, a much more onerous disclosure may be forced on them by a court.

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Yesterday, the Federal Trade Commission (“FTC”) approved a final settlement with marketers of the “Acne Pwner” and “AcneApp” mobile applications (“apps”). This is the first FTC settlement targeting health claims by mobile app developers/marketers, but one of several FTC mobile app enforcement actions.

In the AcneApp case, the defendants claimed that their apps could treat acne with colored lights emitted from a mobile device. To support the claim, the AcneApp marketers relied on a study published by the British Journal of Dermatology, claiming that the study showed blue and red light treatments eliminated p-bacteria (a major cause of acne) and reduced skin blemishes. The FTC determined that AcneApp falsely claimed that the British Journal of Dermatology study proves that red and blue light therapy is an effective acne treatment.

The FTC order prohibits Acne Pwner and AcneApp “from making acne-treatment claims about their mobile apps and other medical devices” without at least two adequate and well controlled human clinical studies. The requirement for two clinical studies is the same standard that the FTC applied in recent settlements with a dietary supplement manufacturer over weight loss claims for its dietary supplements, and with a food marketer over its claims that one of its products reduced the duration of acute diarrhea and reduced school absences. In another recent settlement, FTC ordered Reebok to provide one clinical study to substantiate fitness claims for its toning shoes.

The marketers of Acne Pwner and AcneApp were also ordered to pay the FTC $1,700 and $14,294, respectively.

This blog post was written by Bridget Richardson, Alysa Hutnik and Sarah Roller.
 

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The U.S. Environmental Protection Agency (EPA) continues to emphasize enforcement against companies that market or sell products with unregistered claims of protection against disease-causing bacteria and other microbes. In a settlement announced September 28, 2011, EPA levied a fine of $261,000 against computer keyboard and mouse manufacturer, Logitech Inc., for making "unsubstantiated public health claims" about its products in violation of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).

Logitech incorporated into its products a widely-used silver-based additive manufactured by AgION Technologies Inc. that is registered with EPA as a product preservative. Products that incorporate such additives are allowed to claim protection against bacteria, mold and mildew that cause odors, staining, or deterioration of the product. Such products are not allowed to claim explicitly or to imply that the product offers protection to consumers against bacteria or other microbes.

In product labeling and marketing materials, Logitech had stated that the silver-based compound provided "protection to prevent the growth of a broad range of bacteria, mold and mildew" and "guards against growth of a broad range of bacteria." EPA policy contends that unqualified claims of antibacterial efficacy are potentially misleading to consumers if

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Today the Federal Trade Commission (“FTC”) announced that Reebok International, Inc. has agreed to pay $25 million to settle charges that the company engaged in deceptive advertising for its EasyTone and RunTone toning shoes. The settlement prohibits Reebok from making certain claims about footwear and apparel that purports to improve or increase muscle tone, strength, or activation, unless the company has sufficient substantiation. The required substantiation will depend upon the type of claim. The $25 million will be used for equitable relief, including consumer redress.

Reebok marketed the toning shoes as having “micro instability” that tones and strengthens muscles as a consumer walks or runs. The FTC complaint states that beginning in 2009, Reebok made false claims that the toning shoes were proven to strengthen hamstrings and calves by up to 11 percent, and that they tone the buttocks up to 28 percent more than regular sneakers. The FTC alleged that the false claims constituted deceptive acts or practices and false advertising in violation of Sections 5(a) and 12 of the FTC Act.

The Reebok order tracks specific substantiation requirements articulated in recent FTC settlements involving health-related advertising. Under the order, Reebok must have at least one “adequate and well controlled human clinical study” to substantiate certain claims. Such a study is defined in the order as “a clinical study that is randomized, controlled, blinded to the maximum extent practicable, of at least six-weeks duration, uses an appropriate measurement tool or tools (e.g., a dynometer if measuring strength), and is conducted by persons qualified by training and experience to conduct and measure compliance with such a study.” Companies should consider the FTC’s standard for substantiating claims of improved fitness or health benefits when reviewing advertising for health-related products.

This post was written by Christie L. Grymes and Bridget M. Richardson.

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Yesterday the New York Attorney General announced that Michaels Stores, Inc., has agreed to pay $1.8 million to settle charges that the company engaged in deceptive advertising by misleading consumers about the existence of sales and discounts. Michaels is a retailer of arts, crafts, and custom framing that regularly advertises sales. The company will pay $800,000 in a civil penalty, contribute $1 million in art and craft supplies to public schools, and modify its advertising practices.

The Attorney General’s office began tracking the company’s sales practices two years ago, collecting newspaper flyers, online flyers, in-store banners, and signs advertising custom framing. The state claims that Michaels advertised in at least one of these media every day for two years, advertising its custom framing as a sale product for at least 104 consecutive weeks. The ads stated that custom framing was either at least 50% off or a certain dollar amount off. The state alleges that the pricing constituted false advertising in violation of General Business Law sections 349 to 350-f, Consumer Protection from Deceptive Acts and Practices.

The Federal Trade Commission has not enforced the concepts underlying its Guides Against Deceptive Pricing in recent years and many practitioners (including two former FTC Chairmen) have questioned whether allegedly deceptive promotional prices actually harm consumers. Nonetheless, this settlement demonstrates that the states continue to enforce their general deceptive trade practices statutes against promotional pricing, even in the absence of a statute targeted at such acts. In light of such enforcement, companies should review existing promotional pricing practices.
 

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Between January 2006 and June 2011, the National Advertising Division (NAD) of the Better Business Bureaus found that 71 percent of the consumer perception surveys introduced by parties to an NAD proceeding were unreliable and, therefore, had little or no impact on the final outcome of case. The NAD's standards for a well-executed survey are exacting, yet the NAD does not use a set formula to evaluate consumer perception evidence and may find that a survey is either reliable or fatally flawed based upon the survey design, survey questions, and the statistical significance of the survey results. Given the time and resources required to conduct a credible survey, parties to an NAD proceeding should carefully consider the factors that influence the NAD's analysis of survey evidence.

A new article in Privacy & Consumer Protection Law360, "Not All Surveys Are Created Equal," discusses the primary reasons why the NAD discounts the large majority of consumer perception surveys introduced during challenges, describes the framework by which the NAD analyzes survey evidence, and outlines the survey design characteristics that have the greatest influence on generating a reliable survey.

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On August 4, the United States Court of Appeals for the Third Circuit rendered its unanimous decision in Pernod Ricard USA, LLC v. Bacardi USA, Inc., holding that a consumer survey need not be considered when a label or other advertisement, on its face and taken as a whole, leaves no room for a reasonable consumer to be misled. The decision follows the Seventh Circuit's reasoning in Mead Johnson, stating that "never before has survey research been used to determine the meaning of words, or to set the standard to which objectively verifiable claims must be held."

This decision may indicate growing judicial skepticism of survey evidence and lead to a decline in the use of consumer surveys in false advertising cases. For more about this case, read the Kelley Drye client advisory.

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Consumers around the world are increasing their use of dietary supplements. In the United States alone, consumers spend almost $27 billion per year on dietary supplements, and the EU and China are also rapidly developing and promising markets for supplements. With growing demand, dietary supplement companies have diversified their product portfolios and expanded their manufacturing and sales distribution to existing and emerging markets. In so doing, these same companies are confronted with myriad regulations that apply to the registration, sale and advertising of their products, each of which must be evaluated on a country by country or regional basis, as in the case of the EU.

A new article from the Food and Drug Law Institute Update magazine explores the differences between the U.S. system of regulating sale and advertising of dietary supplements with those of the EU and China, which have regulations that limit products and claims to defined categories in the name of consumer protection. Click here to access the full article, “It’s All Local: What You Need to Know About the Law Relating to the Marketing of Dietary Supplements in the United States, the European Union and China,” with permission from FDLI.

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Two attorneys from the Michigan-based 1-800-LAW-FIRM recently filed a class action lawsuit against Lady Gaga and her corporate partners in connection with the promotion and sale of wristbands to benefit victims of the March 2011 earthquake and tsunami in Japan.

“We Pray for Japan” wristbands are available for purchase for $5 through Lady Gaga’s official website, which represents that “all proceeds go directly to Japan relief efforts.” The plaintiff, on behalf of herself and all others who purchased a wristband, claims that the defendants retained a portion of the $5 donation; inflated reports of the total amount donated; imposed shipping charges in excess of the amount required to ship the items (and kept that excess amount for themselves); and wrongfully taxed the donations. Companies engaged in commercial co-ventures – the offering of a product for sale in connection with a donation to a charitable organization – and cause marketing campaigns should track the case and consider whether to make adjustments to their own campaigns.

Click here to read more about the allegations filed against Lady Gaga in this class action lawsuit.


 

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Last week, the Center for Environmental Health, a non-profit organization, filed a complaint in California Superior Court alleging that 34 cosmetics companies violated the California Organic Products Act of 2003 (“COPA”) by selling, labeling, or marketing cosmetic products containing less than 70% organic ingredients as “organic.” The Center seeks an order enjoining the defendants from further false and misleading labeling.

The USDA has jurisdiction over agricultural products and regulates the term “organic” as it applies to agricultural products through the National Organic Program (“NOP”). Consequently, the USDA has no statutory authority over the production and labeling of cosmetics that are not made up of agricultural ingredients or that do not claim to meet NOP organic standards. Cosmetics that contain or are made up of agricultural ingredients that satisfy NOP organic production, handling, processing, and labeling standards are, however, eligible for organic certification under USDA’s NOP regulations. Certification is based on the product’s organic content and other factors.
In contrast to the USDA’s organic standards, COPA applies to all cosmetics that are sold in California and are represented to be “organic” or contain organic ingredients, including those that contain no ingredients that are agricultural products. Thus, even if a cosmetic product is not within the USDA’s jurisdiction, sellers may still be liable under COPA for any representations that the product is organic. More specifically, COPA requires cosmetics that are sold, labeled, or represented as “organic,” or made with organic ingredients to contain at least 70% organically-produced ingredients. Multi-ingredient products containing less than 70% organically-produced ingredients may either identify each organically-produced ingredient in the ingredient statement, or display the total percentage of organic ingredients if they are so referenced in the label. Notably, any person may file a suit under the statute, and the statute does not require a plaintiff to demonstrate damages to obtain injunctive relief.

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Last week, the FTC and the Colorado Attorney General filed a lawsuit against a company that sells a wealth-building program through infomercials. The infomercials included various claims that consumers could make large amounts of money by using the company’s program, as well as testimonials from consumers who purportedly made money through the program. Fine print disclosures stated that results would vary. According to the complaint, the claims were misleading, many of the testimonials were false, and most consumers did not earn any money.

What’s unique about this case is that the complaint also named one of the consumers who provided a testimonial. According to the complaint, the consumer earned much less money than she claimed to have earned in the infomercial. The consumer agreed to settle the case against her by agreeing not to make misrepresentations in the future and to cooperate with law enforcers in their case against the remaining defendants. The order is the FTC’s first against a consumer charged with making misrepresentations in a testimonial.

Advertisers should ensure that all claims in their ads -- including claims that are made by consumers -- are truthful and not misleading. As we’ve noted before, the FTC released new guidelines that address testimonials and “results not typical” disclosures. Be sure to consult those guidelines whenever you plan to use a testimonial.
 

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Kelley Drye partner Alysa Hutnik and associate Christopher Loeffler's article, “4 Legal Considerations for Building a Mobile App,” was recently featured on Mashable.com, a top source for news in social and digital media, technology and web culture. The Mobile Apps article explores the mobile app business and provides practical considerations for app developers (or for those partnering with app developers) to keep in mind to help reduce legal risk in this area.

For more information about this uncharted legal territory and emerging "rules for the road" for developing and marketing mobile apps, click here to view and listen to a recording of the Kelley Drye webinar, “Mobile Applications: Privacy and Data Security Considerations.”

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It is no secret that marketers are striving for ways to legally and effectively educate consumers about the health benefits provided by food and dietary supplement products. In fact, Natasha Singer of the New York Times recently reported on the growth of "functional foods" marketed with health benefit claims -- a $37.3 billion market in the United States in 2009.

However, marketers must proceed with caution when considering advertising strategies that can sustain heightened regulatory scrutiny. Increased collaboration between FDA and the FTC is creating a notable shift in regulatory enforcement that blurs the jurisdictional lines between the agencies and requires a new assessment of potential liabilities for companies making health-benefit claims for their products.

For more information regarding this trend and important considerations for food and dietary supplement companies, please see the May 2011 article in Nutritional Outlook written by Kelley Drye attorneys John E. Villafranco, Raqiyyah R. Pippins, and Kristi L. Wolff entitled "Working Together: How Growing FDA and FTC Collaboration Changes the Regulatory Landscape for Food and Dietary Supplement Marketers."

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Yesterday, the FTC announced a $750,000 settlement with the makers of an air purifier and a vacuum cleaner that were intended to create a healthier household environment. The vacuum cleaner featured a HEPA filter and ultraviolet light, while the air purifier featured an electrostatic precipitator that was intended to attract and trap particles in the air. The FTC alleged that the company deceived consumers by advertising that the respective products, "through normal use," could "kill[] virtually all bacteria, viruses, germs, mold, and allergens" either "on carpets and other floor surfaces" or "in the air of an average-sized household room." The FTC further alleged that the company's advertising promoted the products for preventing or reducing the risk of flu, colds, asthma, allergy symptoms, and other ailments. The company had disseminated claims through "infomercials, traditional television ads, print ads, in-store displays, and ads [appearing] online." Additionally, according to the FTC, the company had provided its distributors the "means and instrumentalities" for deceiving consumers. Presumably, the company provided its distributors with marketing materials or sales scripts. In addition to requiring monetary redress, the resulting consent order bars the company from making or assisting others in making germ or disease-fighting claims or any other health benefit claims for any vacuum cleaner or air filter -- unless it possesses appropriate "competent and reliable scientific evidence."

This settlement is significant for at least two reasons. First, no matter the industry, if a company is making health-related claims, it should tread lightly and be sure its substantiation meets the FTC's competent and reliable scientific evidence standard. In recent years, the FTC has targeted health-related claims being made for foods, dietary supplements, and more exotic products, like "detox foot pads." This settlement shows that health-related claims for any type of product in the FTC's purview may become a target. Second, this settlement serves as a reminder that companies are ultimately responsible for the claims and marketing materials they send downstream. The companies in the best position are those with measures in place to ensure that compliance follows as products move through the stream of commerce and into the hands of consumers.
 

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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 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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On February 1, 2011, the Food and Drug Administration (FDA) issued a warning letter to dietary supplement maker Tennessee Scientific, Inc., relating to a number of product claims on the company’s website. The letter states that the products are unapproved drugs and that the claims are unauthorized disease claims. The claims at issue involve treatment and mitigation of a host of diseases including numerous cancers, inflammatory conditions, and heart disease.

What is unusual about this particular warning letter is that the FDA cites the Federal Trade Commission’s (FTC) advertising standards as a further basis for challenging the company’s conduct. The letter states: “In addition, it is unlawful under the FTC Act, 15 U.S.C. § 41 et seq., to advertise that a product can prevent, treat, or cure human disease unless you possess competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating the claims are true at the time they are made.”

FTC enforcement actions pertaining to Nestlé, Iovate and Dannon have garnered significant attention in the food and dietary supplement communities because the consent orders in these cases require the advertiser to obtain FDA approval before making certain health benefit claims in advertising.

For marketers of foods and dietary supplements, the Tennessee Scientific warning letter is notable for the following points:

• it further confirms the high level of cooperation ongoing between the FDA and FTC given that this is the second joint warning letter issued by the agencies in recent months;
• it confirms that websites may be considered both labeling and advertising, and that features such as product name, website name, metatags and clinical study titles on websites may give rise to actionable claims by either agency; and
• by sending a joint letter, the FTC has already established a record that Tennessee Scientific does not have FDA approval for their products or their product claims. Although FTC Consumer Protection Bureau Director David Vladeck recently stated that FDA approval is not a prerequisite to health benefit advertising claims, a joint letter sets an easy stage from which the FTC can take the position that unauthorized disease claims violate the FTC Act. This action further supports the conclusion that the drug-like substantiation provisions in the Nestlé, Iovate and Dannon orders are the new de facto standards for all advertisers making similar claims.

Industry stakeholders should evaluate the substantiation behind their products’ health benefit claims in light of these recent developments and fully consider FDA and FTC standards when creating website or other claims content that could be considered advertising or labeling.

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On January 21, 2011, Kelley Drye & Warren hosted the seminar and audiocast, "Privacy By Design, Choice, and Transparency: What a New Framework Will Mean for Business and Technology." The seminar highlighted key regulatory and legislative developments in privacy and information security law during the past year.

Click here to listen to the audio recording.

Dana Rosenfeld, Kelley Drye partner and chair of the firm's Privacy and Information Security practice, opened the seminar by reflecting on the emphasis in 2010 and going forward for 2011 on bringing greater clarity to commercial privacy practices for the benefit of both consumers and commercial entities. Six experts representing the federal agencies and policymakers integral to recent privacy initiatives spoke during two separate panel sessions. The first panel reviewed and expanded upon the separate privacy frameworks released in December 2010 by the Federal Trade Commission ("FTC") and the U.S. Department of Commerce1. The second panel included a discussion on the confluence of privacy policy and broadband adoption, along with perspectives on the privacy themes of greatest interest to the new Congress. Click here to read an overview of the key takeaways from each panel.

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Kelley Drye & Warren is pleased to announce the launch of a new blog on the Kelley Drye website. The DC Metropolitan Business Law Alert (www.dcbusinesslawalert.com) analyzes the key court decisions, statutory and regulatory developments and other legal trends affecting business in Washington, D.C., Maryland and Virginia. The blog is a joint venture between the Kelley Drye DC Business Law and Litigation Groups.

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This week, two state attorneys general announced settlements that require companies to issue refunds to consumers.

On Tuesday, the Washington AG announced a settlement with a software company over deceptive marketing techniques. Among other things, the AG alleged the company misrepresented that consumers’ computers were at risk, added products to orders during the checkout process unless consumers opted-out, failed to clearly disclose that consumers would be automatically billed each year unless they cancel, and made it difficult for consumers to cancel or obtain refunds. As part of the settlement, the company agreed to pay refunds to an estimated 5,500 consumers. In addition, the company must pay a $20,000 civil penalty, plus $58,000 to reimburse the AG’s office for fees and legal costs. An additional $150,000 in civil penalties were suspended provided the company complies with the settlement.

On Thursday, the Florida AG announced a settlement with a company that sells various dietary aids, nutritional supplements, and other products online. The investigation started in December 2009 when consumers complained they were billed for products they did not order. According to the AG, the company failed to clearly disclose that consumers who signed up for a trial offer would be enrolled in a program in which the consumers would be charged monthly, unless they cancel. The company has already reimbursed approximately $3 million to consumers. As part of the settlement, additional refunds will be offered to Florida consumers. In addition, the company will pay approximately $51,000 to the AG’s office for attorneys’ fees and costs and for future investigation and enforcement.

These settlements serve as a reminder that marketers need to accurately describe their offers and clearly disclose the terms of any free trials. The settlements also demonstrate that the costs of failing to comply with advertising laws can be significant, and can include a requirement that violators pay penalties and give up their profits by issuing refunds.
 

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This week, President Obama signed the Restore Online Shoppers’ Confidence Act. The Act prohibits a post-transaction third-party seller — a company that sells goods or services online through an initial merchant after a consumer has initiated a transaction — from charging a consumer for any good or service, unless the seller does the following: (a) clearly and conspicuously discloses the material offer terms, including a description of what is being sold, the cost, and that the third-party seller is not affiliated with the initial merchant; and (b) receives express consent for the charge from the consumer. Sellers must obtain the full account number directly from the consumer — it is unlawful for an online seller to transfer a consumer’s financial account number to a third-party seller.

The Act also regulates negative option plans under which a seller interprets the consumer’s silence or failure to reject goods or services, or to cancel the sales agreement, as acceptance of the offer. Companies who use negative option plans must do the following: (a) clearly and conspicuously disclose the material terms of the transaction before obtaining the consumer’s billing information; (b) obtain a consumer’s express informed consent before charging the consumer; and (c) provide a simple mechanisms for a consumer to stop the recurring charges.

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The “Restore Online Shoppers’ Confidence Act”, which would ban online sales companies from enrolling consumers in services without their consent and bring an end to the practice of “data pass,” was passed by Congress yesterday. Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.) introduced the bill in May after a year-long investigation into the practices of certain online “negative option” plans. In these programs, retailer websites were sharing customers’ billing information, including credit and debit card numbers, with third parties who would enroll the customers in membership programs with monthly fees billed to the same credit or debit cards. Consumers were required to contact the third party companies to cancel their memberships in the programs.

In a statement released by the FTC today, Chairman Liebowitz said, “We’re pleased Congress passed this legislation…Consumers should be able to make informed decisions, so the terms and conditions of any offer must be disclosed clearly and conspicuously.” The Act requires the following:

1. Online sellers of goods and services who market on the site of a merchant after a consumer has initiated a transaction are prohibited from charging a consumer unless the material terms of the transaction are clearly and conspicuously disclosed and the seller has obtained the consumer’s consent before charging his or her credit or debit card. Consent requires that the consumer provide the seller with full and complete credit or debit card information.
2. Online sellers are prohibited from transferring consumer credit or debit card information to third parties.
3. Sellers are prohibited from charging under a negative option plan unless the material terms are disclosed, consent is obtained, and consumers are provided a simple means of cancellation.

Online retailers should take care to review their current billing policies in light of the requirements contained in this bill.

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Advertisers beware. Anti-corporate activists, no longer content to ask for petition signatures on a street corner, are using guerilla tactics to sabotage corporate communications and advertising campaigns. In recent months, such groups have launched various advertising hoaxes designed to challenge the advertiser’s message and its brand.

It is difficult for advertisers to combat such attacks given the myriad marketing outlets provided by the web. Advertisers should not just accept this new reality without action, though. From a legal perspective, advertisers can take some proactive steps prior to and following an advertising campaign launch to help minimize their risks.

• Insist on confidentiality. Confidentiality provisions are common in agreements with advertising agencies, but many advertisers rely solely on their advertising agencies to handle talent and vendor agreements during a campaign. Insist that any person involved in the creation or execution of the campaign, including a participant in a casting call, is required to maintain confidentiality. 
• Don’t forget about social media. Social media outlets are convenient, free ways for anyone to spread their message. In an agency, talent or related contractor agreement, include restrictions on sharing information via social media in confidentiality clauses. Further, include a take down provision to require anyone who breaches their confidentiality obligations to immediately remove the offending content.
• Examine agency agreements. In any major advertising campaign, things can go wrong. The advertiser and the agency are better off knowing up front who is responsible for the costs should such events occur. This is easily addressed in the agency agreement between the parties and can help minimize disruption to both businesses and the business relationship overall should such an incident occur. 
• Monitor and Address. Set up alerts to monitor fake or unauthorized advertising. Anyone can set up a Twitter or Facebook account that appears to be legitimate corporate content. Advertisers should monitor the web for this behavior either actively or passively through a tool such as Google alerts. In addition, have an action plan in place to address fake or unauthorized content, which should include filing complaints with service providers used by the wrongdoers.

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FTC Commissioner Julie Brill spoke about the new Consumer Financial Protection Bureau (“CFPB”) during a keynote address she delivered at the International Association of Privacy Professionals Second Annual Conference on December 7th. While describing how Congress enacted the Fair Credit Reporting Act (“FCRA”) to protect consumers’ personal information, Brill stated that the FTC and CFPB “need to make sure our current rules continue, in this technologically advanced age, to protect consumers’ rights under the FCRA.” Given that the FTC already has several staff members involved in setting up the CFPB, it is no surprise that the FTC plans to work in tandem with the CFPB to enforce existing consumer protection laws and to understand new uses of data in connection with such efforts.

During the address, Brill also outlined the major components of the FTC’s preliminary staff report on privacy, "Protecting Consumer Privacy in an Era of Rapid Change” which includes a proposal for a Do Not Track mechanism that would permit consumers to control their tracking preferences at every website they visit. For a more detailed discussion of the FTC’s Report, including the concepts behind Do Not Track, please click here to read the Kelley Drye client advisory.

Visit our sister blog, www.ConsumerFinanceLawBlog.com for more commentary on the development of the CFPB.

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Starting this week, companies that offer subscription services that automatically renew at the end of the initial term will have to comply with a new law in California.

The law generally requires that companies: (1) clearly and conspicuously disclose the material offer terms before a consumers subscribes; (2) obtain a consumer’s affirmative consent to the terms before the consumer is charged; (3) provide a confirmation to the consumer that includes the terms, a description of the cancellation policy, information on how to cancel, and, if the offer includes a free trial, that the consumer may cancel before being charged; and (4) provide an easy-to-use method for canceling.

The material terms include: (1) that the subscription will continue until the consumer cancels; (2) a description of the cancellation policy; (3) information about the recurring charges; (4) the length of the renewal term; and (5) the minimum purchase obligation, if any. These terms must generally be presented either in larger type than the surrounding text or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text in a manner that clearly calls attention to the terms.

As we’ve mentioned in previous posts, companies that offer automatic renewals and free trials have come under increased scrutiny by states and the FTC. Most complaints arise when consumers don’t realize that the plans are going to automatically renew or consumers are impeded from canceling. Accordingly, it is important to ensure that consumers understand the offer terms and have an opportunity to cancel.
 

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Hot off the presses -- registration for the ABA Consumer Protection Conference (Feb. 3, 2011, Washington DC) is now open! There is limited seating, so early registration is encouraged.

The all-star line-up of speakers includes:

• FTC Commissioners Julie Brill, Edith Ramirez, and J. Thomas Rosch
• Canada Privacy Commissioner Jennifer Stoddart
• Tony West, Assistant Attorney General, DOJ
• David Vladeck, Director, Bureau of Consumer Protection, FTC
• Joel Winston, Associate Director, Division of Financial Practices, FTC
• Sarah Mathias, Associate General Counsel, FTC

And representatives from the California and Texas Attorneys General Offices, the National Advertising Division, the Center for Democracy & Technology, Electronic Frontier Foundation, the American Bankers Association, among others.

Hot topics to be addressed include privacy, CP enforcement priorities, new substantiation rules, third party liability, social media, and more.

The full program brochure and registration information are available at the ABA's website. Space is limited so register soon to secure your spot, and please spread the word!

Kelley Drye partner Alysa Hutnik is a Conference Co-Chair.

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Companies marketing functional foods or dietary supplements should be aware of the Federal Trade Commission’s new regime for using health-related advertising claims and the Food and Drug Administration’s heightened scrutiny of health-related front-of-package (FOP) labeling claims.

In two game-changing settlement orders, issued in July of this year, the FTC, for the first time, required that the companies under order (1) possess two clinical trials for weight loss claims and certain disease claims, (2) have FDA approval for most other disease claims, and (3) follow a new standard for relying on ingredient testing as claim substantiation. The FTC has indicated that it intends to include similar requirements in its future food and supplement orders, suggesting that these new standards soon could set the bar for all companies, regardless of whether they are under order or not.

Similarly, FDA has issued a series of warning letters challenging the use of nutrient content claims, health claims, and other health benefit claims in food and beverage product labeling. Recent FDA warning letters challenge a number of claims appearing on the principal display panel of food and beverage product labels, underscoring the agency’s enforcement and policy development priorities concerning the standards governing FOP labeling systems.

Kelley Drye's Advertising and Marketing practice group has prepared several articles to help companies navigate the new terrain successfully:

• “The FTC’s New Take on Health-Related Advertising: What Companies Facing FTC Enforcement Need to Know” provides strategies for companies that are faced with FTC action and includes summaries and analysis that will be useful for anyone trying to wrap their head around the new standards.
• “Ingredient Testing for Food and Supplement Advertising Claims: Keeping Up with an Evolving Standard” presents a comparison of the old ingredient testing standard versus the new standard from the recent orders. This article also provides practical pointers for how to base claims on ingredient testing within FTC’s current guidance.
• “Marketing Nutrition & Health-Related Benefits of Food & Beverage Products: Enforcement, Litigation & Liability Issues” examines key developments over the past year and a half involving food and beverage product marketing claims. This examination suggests that FDA and FTC enforcement priorities have contributed to increasing liability trends associated with nutrition and health-related product benefit claims.

With increasing enforcement and litigation activity, food and supplement companies should stay informed about government scrutiny of health-related claims and the standards for competent and reliable scientific evidence.

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Earlier this year, we posted that the Florida Attorney General had sued a company over allegations the company enrolled consumers in a monthly subscription program without the consumers’ knowledge or consent. According to the AG, consumers who signed up for a “free trial” were automatically enrolled in the program. Today, the AG announced a settlement with another company over similar issues.

The AG claims the company offered free trials of books and magazines and billed consumers if they did not return the books or cancel the magazine subscriptions, and then enrolled the consumers in automatic renewals of magazines or automatically shipped books to them without specific consent. As part of the settlement, the company has agreed to (a) clearly and conspicuously disclose the terms of its offers, (b) provide refunds to certain consumers, and (c) pay up to $1.3 million to the AG’s Office for attorneys’ fees and costs and for future investigation and enforcement.

Companies that use trial offers must clearly and conspicuously disclose the terms of the offers before consumers sign up and incur costs. Among other things, a company must disclose whether there are any costs associated with the offers and whether a consumer has to cancel to avoid future charges. Failure to clearly disclose this information is certain to lead to complaints from consumers and challenges from regulators. These challenges can often result in costly settlements. For example, in addition to today’s settlement, the FTC recently imposed a $7.8 million penalty on a company that failed to adequately disclose the terms of its free trial.
 

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This week, the FTC issued its proposed revisions to the "Guides for the Use of Environmental Marketing Claims" (the "Green Guides") and announced that it will be accepting public comment on the Proposed Guides until December 10, 2010. The Green Guides, first issued in 1992 and last revised in 1998, are designed to help businesses ensure that the environmental marketing claims they make are true and substantiated. Although the Green Guides are not legislative rules (and thus not directly enforceable regulations), they are instructive on how the FTC views certain types of environmental marketing claims, and the evidence necessary to support such claims to prevent them from being considered deceptive or unsubstantiated.

The proposed revisions update the existing Guides with respect to claims such as "degradable," "compostable," and "recyclable," and they propose new guidance for claims not currently addressed by the existing Guides. Popular recent environmental claims that receive specific guidance for the first time include "renewable" and "carbon offsets."

The Commission declined to propose definitions or specific guidance for other environmentally-friendly terms such as "sustainable," "natural," "organic," "life cycle assessment," and "biobased." The FTC's rationale for not giving these terms specific treatment was based in large part on lack of consumer perception data, along with deference to sister agencies' existing standards and definitions for these terms.

Click here for a summary of the FTC's changes to the existing Green Guides and its proposed revisions.

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

The U.S. 8th Circuit Court of Appeals recently ruled that certain false advertising claims based on state consumer protection and anti-deception statutes were not preempted by the Organic Foods Production Act of 1990 (OFPA)— a federal Act that establishes national standards for the sale and labeling of organically produced agricultural products, and creates a certification program through which agricultural products may be certified to produce organic products. The court reversed and remanded the district court’s ruling that the false advertising claims were preempted by the OFPA, holding that, while claims challenging certification of a product as organic (e.g., alleging that a defendant’s products are falsely represented as organic when in fact the products were not organic), are preempted by the OFPA, false advertising claims challenging the facts underlying an organic certification (e.g., alleging that a defendant’s advertisements “misrepresent[] the manner in which its dairy cows were raised and fed,” and “suppress[ ] or omit[ ] material facts regarding the production of its ‘organic’ milk or milk products, specifically that . . . the dairy cows were not raised at pasture”) are not preempted by the OFPA.

As background, following a 2007 consent agreement between USDA and Aurora Dairy Corporation (Aurora) regarding Aurora’s violations of the OFPA and related implementing regulations, known as the National Organic Program (NOP), nineteen class action lawsuits were brought in federal district courts on behalf of organic milk consumers (class plaintiffs) against Aurora and various retailers, claiming violations of state law arising from Aurora’s alleged failure to comply with the OFFPA and the NOP. The U.S. Judicial Panel on Multi-District Litigation (JPMDL) consolidated these cases in the Eastern District of Missouri. In June 2009, the Eastern District court dismissed the case, finding the OFPA preempted all of the class plaintiffs claims.

The 8th Circuit’s decision distinguishes between “state law challenges to [organic] certification determination, itself, which conflict with the OFPA, and state law challenges to the facts underlying certification,” taking the position that state law “challenges to the underlying facts do not necessarily conflict with the OFPA’s purposes,” in a manner justifying preemption of such claims. A copy of the 8th Circuit’s decision is available here.

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This post was written by Christie L. Grymes and Kristin A. Hird.

On Friday, September 17, 2010, President Obama named Harvard Law Professor Elizabeth Warren as Assistant to the President & Special Adviser to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB). Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB will be established to regulate consumer financial products and services. Although the effect of Ms. Warren’s appointment is currently unclear, consumer advocates expect that the new position will give Ms. Warren considerable influence over the shape and direction of the new agency. Transfer of authority from the Treasury Department to the new agency is anticipated to occur in July 2011.

Click here to read more about Ms. Warren's appointment in the Kelley Drye client advisory.

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With "green" products becoming more and more prevalent, marketers must ensure that their green marketing claims do not overstate the environmental benefits of their product or service, or they could face regulatory investigations or challenges from competitors. The Federal Trade Commission ("FTC") has established national standards for green marketing claims in the Guides for the Use of Environmental Marketing Claims, commonly called the Green Guides, which help reduce confusion among consumers and prevent false or misleading advertising claims.

The article, “Using ‘Green’ Marketing Claims? Make Them Clear,” discusses the Green Guides and provides helpful guidance for marketers. When it comes to promoting green products and their environmental benefits, the key is to make claims that are crystal clear.

The FTC is expected to issue revisions to the Green Guides any day, so marketers should also be on the lookout for updates that could affect the use of "biodegradable," "carbon neutral," and "recyclable" claims, carbon offsets, and third-party certifications.

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Yesterday, we posted that a window manufacturer had entered into a settlement with the Washington Attorney General’s office over allegedly unsubstantiated energy efficiency claims. Today, the FTC announced that it has sued a light bulb manufacturer and its principals to stop them from exaggerating the efficiency, light output, and life expectancy of its Light Emitting Diode (“LED”) bulbs.

Many of the ads claimed that the LED bulbs were more efficient than, and could save consumers money over, traditional bulbs. In its complaint, the FTC alleges that, in many instances, the company’s LED bulbs: (a) produced significantly less output than a typical incandescent bulb at the wattage represented in the ads; (b) produced significantly less lumens of light than the company represented in its ads; and (c) lasted less than the number of hours the company represented in its ads. The FTC is seeking a permanent injunction to stop the company’s allegedly illegal conduct, as well as monetary redress for consumers who bought the deceptively labeled products.

Advertisers must ensure they have adequate testing to support performance claims. In addition, when making comparative claims, advertisers must ensure that they make apples-to-apples comparisons, or else disclose the material differences between the products being compared.
 

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In a settlement with the Washington Attorney General’s Office, Great Lakes Window agreed not to make unsubstantiated energy efficiency claims. For five years, Great Lakes promised that consumers who purchased new windows and doors would save at least 40 percent in energy costs the first year, or be paid the difference. The promise was subject to a number of material terms and conditions.

According to the complaint, Great Lakes did not have a reasonable basis for making the 40% savings claim. Moreover, the AG alleged the energy savings realized as a result of replacing old windows varies greatly due to many energy-consumption factors, and that the actual energy savings that homeowners typically obtained was far less than the 40% savings Great Lakes promised.

Although Great Lakes denied the allegations, the company agreed not to engage in certain marketing practices and will set aside $50,000 for refunds for qualifying homeowners. The AG agreed to suspend $25,000 in civil penalties, provided Great Lakes abides with consumer protection laws in the future. The company will also pay $10,000 in attorneys’ fees and legal costs.

Advertisers should ensure they have adequate support for claims they make before they make the claims, even if they offer dissatisfied customers a mechanism to get some money back. Be particularly careful when making performance claims in cases where results can vary significantly.

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In previous posts, we’ve noted that sending SMS messages to consumers without their consent could violate the Telephone Consumer Protection Act (the “TCPA”). Similarly, it is generally unlawful to send fax advertisements to consumers without their consent. Our colleagues at the Telecom Law Monitor recently posted that the FCC may be planning to issue a number of forfeitures and proposed forfeitures for so-called "junk faxes” that were sent in violation of the TCPA. You can read the complete post here.

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This post was written by Dana Rosenfeld and Kristi Wolff.

The National Advertising Review Board (“NARB”) recently added fuel to a growing fire in the food and beverage industry regarding the meaning of “natural” claims. The NARB decided an appeal filed by Heartland Sweeteners, LLC (“Heartland”) regarding its Ideal sweetener product, which Heartland claimed was “more than 99% natural.” The National Advertising Division (“NAD”) previously recommended that Heartland modify or discontinue the “more than 99% natural” claim because although Ideal is 99% natural by ingredient weight, the majority of its sweetness is derived from sucralose, a high-intensity artificial sweetener that makes up about 1% of Ideal’s weight but supplies 80% of its sweetness.

The NARB shared NAD’s concern about implied claims conveyed by “more than 99% natural” insofar as consumers could understand it to mean that all or virtually all of Ideal’s sweetness comes from natural ingredients. The NARB’s decision, like NAD’s, relates the “natural” claim to the main product attribute, sweetness, rather than the natural or artificial classification of the ingredients that make up the finished product.

The FDA outlined its policy on use of “natural” in 1993 but has not officially defined the term. As use of “natural” claims have proliferated, scrutiny has increased as well. The makers of Snapple and AriZona Iced Tea have been the target of consumer class actions relating to claims that their products are “natural” despite containing high fructose corn syrup.

Advertisers need to be fully aware of the messages and risks created by use of the term “natural.” The Heartland decision demonstrates that the intended message is not always the only message. Further, advertisers can expect that a “natural” claim will draw not only the eyes of potential consumers but those of critics as well.

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One of the most powerful tools in a marketer’s arsenal is the word “free.” And it’s precisely because that word is so powerful, that consumers, regulators, and competitors, closely scrutinize how the word is used in ads and are quick to complain when they think the word is used inappropriately. Recently, Office Depot challenged ads in which OfficeMax and Staples claimed that participation in their rewards programs was “like” getting goods “free.” The National Advertising Division of the Counsel of Better Business Bureaus (the “NAD”) recommended that both companies change their ads.

OfficeMax advertised its rewards program with the phrase “It's like getting one FREE” and the following disclosure: “Pay $34.99 plus earn $35 in MaxPerks Bonus Rewards.” The Rewards, however, were subject to various restrictions. For example, customers couldn’t use reward points for 30 days, the points were subject to cancellation at any time, and the points expired after 90 days. Similarly, Staples advertised its rewards program with the following phrases: “Buy ANY of these office supplies, get 100% back in Staples Rewards” and “It’s like getting supplies for FREE.” The rewards program was also subject to certain exclusions and limitations.

Office Depot argued that both ads violated the FTC’s Guide Concerning Use of the Word “Free” and Similar Representations which states, in part, that when advertising a free offer, “all of the terms, conditions and obligations should appear in close conjunction with the offer of ‘Free’ merchandise or service.” The NAD agreed, noting that “merchandise is either free or it’s not” and that the word “free” has “cachet with consumers and should be reserved for offers that are truly without cost.” Both OfficeMax and Staples argued that no consumers were misled by the ads and indicated that they would appeal the NAD’s decisions.

Regardless of what happens with these cases on appeal, marketers should be careful when advertising that something is “free,” or even “like free.” If there are costs, requirements, or limitations associated with the free goods, those should be clearly disclosed so that consumers know exactly what they are getting.
 

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This post was written by Sarah Roller and Kristi Wolff.

Last week, the Food and Drug Administration (FDA) took the first steps needed to implement the new restaurant food labeling requirements of the Federal Food, Drug & Cosmetic Act (FDCA), requesting public comment on a number of regulatory issues that will affect compliance burdens and liability risks for companies subject to the new requirements. Submissions responding to the FDA notice can be made until September 7, 2010.

The new labeling requirements were established under FDCA amendments adopted as part of the recently enacted health care reform legislation (i.e., section 4205 of the Patient Protection and Affordable Care Act of 2010). The amendments expanded the scope of mandatory nutrition labeling requirements under FDCA section 403(q)(5), and require restaurants and other retail food establishments with at least 20 or more locations to provide “clear and conspicuous” calorie information to consumers. The FDA is specifically seeking information relating to the following issues:

• Chain Retail Food Establishments
• Determination of Calorie Content of Foods Offered by Chain Retail Food Establishments
• Vending Machine Operations
• Implementation and Enforcement

For further information about the new nutrition labeling requirements, or assistance in responding to the FDA notice, please contact one of the Kelley Drye attorneys listed above.

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This post was written by Dana B. Rosenfeld and Raqiyyah R. Pippins.

On May 26, 2010, the GAO submitted testimony to the U.S. Senate Special Committee on Aging, entitled “Herbal Dietary Supplements: Examples of Deceptive or Questionable Marketing Practices and Potentially Dangerous Advice.” The testimony was requested by the Special Committee on Aging, because “recent studies have shown that use of herbal dietary supplements…by the elderly within the United States has increased substantially.”

According to the report, “the GAO was asked to determine (1) whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices and (2) whether selected herbal dietary supplements are contaminated with harmful substances.”

The GAO concluded that “certain dietary supplements commonly used by the elderly were deceptively or questionably marketed,” with claims the supplements could treat, prevent, or cure conditions such as diabetes, cancer, cardiovascular disease, high cholesterol or Alzheimer’s disease—claims that, under the Federal Food Drug and Cosmetic Act, and related FDA implementing regulations, are not permitted for use in the labeling or marketing of dietary supplements. The GAO referred the names of companies that made these claims to FDA and the FTC “for appropriate action.”

The GAO’s testimony also states that while the GAO “found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplements products tested,” no contaminants were found “in amounts considered to pose an acute toxicity hazard.” The GAO noted that “the levels of heavy metals found do not exceed any FDA or Environmental Protection Agency EPA) regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming [the tested] supplements.”

Click here for more information about the GAO’s study, including a full copy of the testimony.

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On May 19, 2010, Senator John D. Rockefeller, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, introduced legislation that may have a significant impact on Internet retailers offering negative option programs. Negative option programs generally cover offers in which goods or services are provided automatically and consumers must either pay for the service or specifically decline it in advance of billing.

The proposed legislation was released on the same day that the Committee on Commerce released the second of two reports regarding companies that allegedly used aggressive sales tactics to enroll online consumers in services without their consent. The proposed bill contains a number of provisions relevant to companies that offer negative options:

• Requirements for Certain Internet-Based Sales. The proposed bill would make it unlawful for any post-transaction third-party seller to charge a consumer’s credit card for a good or service without providing clear disclosures regarding the terms of the offer and receiving the consumer’s express informed consent to billing. Express informed consent requires that the consumer provide all billing information and take an additional affirmative step (such as clicking on a box that indicates the consumer’s consent to billing).
• Prohibition on Data Pass of Billing Information. Sen. Rockefeller’s proposed legislation would prohibit the practice of merchants disclosing and transferring a consumer’s billing information to any post-transaction third party seller for use in any Internet-based sale of goods or services from the third-party seller.
• Limitations on the Use of Negative Options in Internet-Based Sales. The proposed bill would make it unlawful to charge a consumer through an Internet-based negative option program unless: (1) the seller clearly and conspicuously discloses, prior to the sale, the material terms of the offer and the identity of the entity making the offer; (2) the seller has obtained the express informed consent to bill; (3) the seller provides a simple process to cancel billing that must be available through both the Internet and telephone; and, (4) the seller provides a notice of billing to a purchaser at least 10 days prior to each billing interval.

Companies who offer any type of Internet-based negative option program would be well-served to keep a close eye on how this proposed legislation makes its way through the Senate. As evidenced by the report released with the proposed legislation, Senator Rockefeller has taken on a strong pro-consumer agenda, and he will certainly seek to bring further attention to these types of offers.

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This post was written by Sarah Roller and Megan L. Olsen.

On May 19, 2010, the Federal Trade Commission (FTC) approved a final settlement order with the Indoor Tanning Association charging that the association exaggerated the health benefits of indoor tanning and misrepresented that indoor tanning increases the risk of skin cancer. The settlement bars the Association from making misrepresentations about the health and safety of indoor tanning and requires that future advertisements from the association that make health or safety claims be accompanied by clear and prominent disclosures about the risks of indoor tanning. The Indoor Tanning Association represents tanning facilities and suppliers of tanning equipment.

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A recent lawsuit filed by the Los Angeles City Attorney's office should serve as a good reminder to retailers and manufacturers to comply with state and local weights and measures statutes.  Last week the city filed a multi-count criminal case alleging that Ralph's Grocery Company and its parent, the Kroger Company, overcharged consumers for prepackaged and weighed products in violation of the Business and Professions Code. 

The lawsuit includes 14 counts of false and misleading advertising, 18 violations of unlawful computation of value, 9 violations of selling prepackaged commodities in less quantity than represented, and 18 violations of false labeling.  Each company could face fines and penalty assessments up to $256,000.  Ralph's had been put on notice of overcharges, including payment of $6,500 in fines in 2008 and $10,400 in fines in 2009.

Practice Pointer:  Although the fines for these alleged violations may seem relatively low, they can quickly add up if inspectors visit different stores in the same state or if inspectors in other states begin enforcing those state statutes.  Companies that receive notice of overcharges should review their practices to address any recurring issues.

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This post was written by Sarah Roller and Kristi L. Wolff.

The Food and Drug Administration (“FDA”) issued a notice last week seeking public comment and consumer research data in support of the agency’s initiative to improve the usefulness of nutrition information provided to consumers at the point-of-purchase, including through front-of-package (“FOP”) labeling and shelf tags in retail stores (“FOP initiative”). FDA’s request for information comes while a related study by the Institutes of Medicine (“IOM”) remains pending. The IOM Committee on Examination of Front-of-Package Nutrition Rating Systems and Symbols currently is evaluating scientific evidence concerning the nutrition information and ranking systems that currently are used by food manufacturers and retailers for FOP labeling, shelf tags, and other food marketing purposes.

The FDA notice specifically requests research data and other information addressing the following matters:

• Data and information on the extent to which consumers notice, use, and understand nutrition symbols on front-of-pack labeling of food packages or on shelf tags in retail stores;
• Research assessing and comparing the effectiveness of particular possible approaches to front-of-pack labeling;
• Graphic design, marketing, and advertising data and information that can inform and guide the development of better point-of-purchase nutrition information; and
• The extent to which point-of-purchase nutrition information may affect decisions by food manufacturers to reformulate products.

Click here to see the specific elements of each of these categories of interest to FDA.

FDA will consider public comment submitted in response to its notice until July 28, 2010.

For more detail, please reference the Kelley Drye client advisory. 

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The Federal Trade Commission has launched a multi-media campaign through the website www.admongo.gov to educate children and teens, ages 8 to 12, about advertising. With “tweens” becoming a larger and more important part of the marketplace, the initiative seeks to raise kids’ awareness about advertising so they can make more informed decisions when they shop or play a role in family buying decisions.

The goal of the campaign is to boost advertising literacy by:

• Raising awareness of advertising and marketing messages
• Teaching critical thinking skills that will allow tweens to better analyze and interpret advertisements
• Demonstrating the benefits of being an informed consumer

In addition to an online game featured on Admongo.gov, other elements of the campaign include in-school curricula, sample ads that can be used at home and in the classroom, and teacher training videos. The FTC partnered with Scholastic in creating resources which have been distributed to elementary and middle school teachers nationwide.

In an interview on NBC's Today Show, Bureau of Consumer Protection Director David Vladeck explained that the program is designed to teach kids how to think critically about advertising messaging. He explained that while the FTC is not taking a position of whether ads are good or bad, the campaign gives kids the tools they need to "navigate through this very intensely commercial environment they live in."

As the tweens market is estimated at $200 billion in sales, advertisers should take note of these efforts to educate young consumers about how to distinguish between advertising and content, and consider how best to both inform and engage tweens with innovative messaging and product promotions.

For additional background on Director Vladeck's enforcement agenda, reference The Antitrust Source article, "Interview with David Vladeck, Director, FTC Bureau of Consumer Protection."
 

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Last week, Best Buy filed a lawsuit against Ultimate Electronics over ads that compare Best Buy’s prices to Ultimate’s prices. According to the complaint filed in a Minnesota federal court, Ultimate’s ads make statements such as: “Every day, we shop . . . Best Buy, then adjust our prices to beat theirs, so you know we have the lowest electronics prices.” Best Buy alleges that Ultimate’s prices are frequently higher than Best Buy’s and, therefore, that consumers do need to comparison shop to obtain the lowest prices. Best Buy is seeking a permanent injunction, monetary damages, and that the court order Ultimate to run corrective advertisements.

Earlier this year, Best Buy had filed a complaint against Ultimate at the NAD, but Ultimate failed to respond to the inquiry. As a result, the NAD announced that it would refer the advertisements to the FTC for review.

Advertisers need to be careful when they make price comparisons against competitors. The NAD and NARB have both opined that generalized claims that an advertiser always offers the lowest prices are “difficult, if not impossible, to substantiate,” especially given how quickly prices can change. As this case demonstrates, if a competitor thinks that an advertiser’s price comparisons are not substantiated, the advertiser can find itself challenged in court, at the NAD, or by the FTC.

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The American Bar Association’s The Antitrust Source published an article, “Interview with David Vladeck, Director, FTC Bureau of Consumer Protection.” The in-depth interview examines Mr. Vladeck’s career as a litigator and professor and how his accomplishments and challenges are shaping his tenure at the Federal Trade Commission. The interview probes Mr. Vladeck’s views on topics including the commercial speech doctrine, social media, alternative remedies for data breaches, and a proposed Consumer Financial Protection Agency, among other subjects.

Click here to read a PDF of the article.
 

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Florida Attorney General Bill McCollum recently sued a company and its affiliates over allegations the companies enrolled consumers in a monthly subscription program without the consumers' knowledge or consent. The AG alleges that the company advertised a “free trial” of their products and claimed that only a payment for shipping and handling was required. However, an investigation by the AG’s office revealed that after consumers made this payment, they were automatically enrolled in a subscription program in which their credit cards were charged every month. Some consumers also reported that they were charged the full price of the products, even after canceling.

Companies that use trial offers to promote their products must clearly and conspicuously disclose the terms of the offers to consumers before consumers sign up and incur any costs. Among other things, a company must disclose whether there are any costs associated with the offers and whether a consumer has to cancel to avoid incurring future charges. Failure to clearly disclose this information is certain to lead to complaints from consumers and challenges from regulators. These challenges can often result in costly settlements. For example, last year the FTC imposed a $7.8 million penalty on a company that failed to adequately disclose the terms of its free trial.
 

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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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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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This post was written by Kristin A. Hird and Dana B. Rosenfeld.

A broad coalition of advertising associations has agreed on a standard icon – a white “i” surrounded by a circle on a blue background dubbed the “Power I” – which will be added to websites and will link consumers to a page explaining how the advertiser uses their demographics and behavioral data to send certain ads. Developing the new symbol is part of self-regulatory principles agreed to by major advertising groups including the American Association of Advertising Agencies, the Association of National Advertisers, the Direct Marketing Association, and the Interactive Advertising Bureau, in an effort to address the FTC’s concerns about the behavioral advertising industry’s activities.

There is no legal requirement that the groups’ members adopt the icon but the advertising coalition expects that most of its members, including many major online retailers, will begin running it by midsummer. It is anticipated that the icon will initially appear with phrases such as “Why did I get this ad?” and the Interactive Advertising Bureau has started an online advertising campaign to explain the icon to consumers. The idea is to establish an immediately recognizable and trusted symbol as well as provide a link to information.

It’s yet to be seen how widespread implementation of the self-regulatory principles will be by the coalition’s members, much less whether the coalition’s steps will be sufficient to ward off regulation by the FTC. But keep an eye out for the little blue icon appearing on websites this summer.
 

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The law of comparative advertising covers advertising that compares alternative brands on price or other measurable attributes and expressly or impliedly identifies the alternative brand by name, illustration, or other distinctive information.

A new article in IP Litigator, “The Law of Comparative Advertising in the United States,” provides an overview, including the treatment of comparative advertising claims by the Federal Trade Commission and the National Advertising Division of the Council of Better Business Bureaus, Inc., and a discussion of some of the particular proof and burden-shifting issues triggered when comparative advertising claims are challenged under the Lanham Act. The article then provides practical guidance to in-house attorneys and outside counsel on strategies for challenging comparative advertising claims made by a competitor when the client contends that the claims cannot be substantiated.

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This week, the Direct Marketing Association announced new changes to their Guidelines for Ethical Business Practice for endorsements and testimonials.

Among other things, the new Guidelines require marketers to do the following: (a) clearly and conspicuously disclose the generally expected results of an advertised product or service, if the results described in a testimonial are not typical; (b) disclose any material connections between marketers and their endorsers that a consumer would not expect; and (c) ensure that celebrity endorsers disclose their relationships with marketers when making endorsements outside the context of traditional ads. The DMA also clarified that the Guidelines apply not only to traditional of marketing, but also to marketing in social media, such as blogs and word-of-mouth marketing campaigns.

These amendments bring Guidelines into alignment with the Federal Trade Commission’s latest Guides Concerning the Use of Endorsements and Testimonials in Advertising. As we explained in a post last month, the FTC’s new Guides pose various challenges for many companies, particularly in the context of social media. Click here for an article (starting on page 19) that provides some tips for dealing with these challenges.
 

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Yesterday People for the Ethical Treatment of Animals ("PETA") announced that it will pull ads featuring the likeness of first lady Michelle Obama. The image was used without Michelle Obama's permission and created the impression that she endorses PETA. The ads also featured Oprah Winfrey, Carrie Underwood, and Tyra Banks and began appearing on New Year's Day in subway stations in Washington, DC, and on PETA's van and website.

PETA admitted that it did not have authorization, but thought that the first lady's announcement in June that she had sworn off fur justified including her in the campaign. PETA claims that it is not selling a product (or otherwise using the image for commercial purposes); rather, it is honoring beautiful women who do not wear fur.

As with Weatherproof's use of President Obama's image, PETA's predicament is a good reminder that organizations should evaluate the circumstances before using images of public figures or celebrities in ads.  An individual's statement that he or she uses a product (or, in this case, does not use a product) may not be a significant basis to use the individual's image or to imply that he or she endorses the product.
 

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Last week, the White House asked Weatherproof to remove a Times Square billboard that featured President Obama wearing a Weatherproof jacket in front of the Great Wall of China. According to the White House, the billboard was misleading because it suggested that the clothing was endorsed by the President and that the White House had approved the ad.

The photo was taken by a photographer from The Associated Press and Weatherproof subsequently purchased the right to use the photo from AP Images. According to The AP, their agreement with Weatherproof required the company to seek any necessary clearances before using the picture. The company's president, however, said he did not believe permission was necessary because the billboard did not explicitly say Obama endorses the jacket. News reports indicate that two newspapers and one magazine refused to publish the Weatherproof ad without evidence of the President's approval.

Be careful about using an image of an individual for advertising purposes unless you have permission from that individual. Simply having permission from the photographer is not enough. If you use the image of an individual in an ad without the individual's permission, you could face a lawsuit under right of publicity laws. Although the White House simply requested that Weatherproof remove the billboard for now , some companies have had to pay millions of dollars to settle these types of unauthorized or implied endorsement issues.

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