This morning, the Supreme Court heard its long-anticipated arguments in AMG Capital Management, LLC v. Federal Trade Commission. As we have previously explained, in AMG, the FTC’s use of Section 13(b) of the FTC Act to obtain monetary remedies is under the High Court’s microscope. While the outcome won’t be known for months, the Justices questioning at oral argument seem to suggest that the case might not break the FTC’s way.

The facts of AMG are straightforward. Scott Tucker was the owner of a single-proprietor business, AMG Capital Management. The business’s sole function was to provide payday loans. The FTC sued Scott Tucker, the owner of AMG, under Section 13(b) of the Act, asserting that the terms disclosed in the loan notes AMG provided to consumers did not reflect the harsher terms that Tucker actually enforced. The district court found Tucker liable, and pursuant to Section 13(b), levied a staggering $1.27 billion in equitable monetary relief to be paid by Tucker to the Commission. Tucker appealed this ruling to the Ninth Circuit. Tucker’s primary argument on appeal was that Section 13(b) forecloses monetary relief. The Ninth Circuit affirmed, and AMG’s petition to the Supreme Court on this issue was granted.

While some of the Justices at oral argument—particularly Justice Barrett and Alito—seemed concerned that reversing the Ninth Circuit’s judgment would provide an undeserved windfall to Tucker, a clear majority of the Court was more focused on the FTC’s broad interpretation of the statutory text. Justice Kavanaugh expressed the problem clearly and succinctly, when he stated to FTC counsel that, although he felt sympathy for the FTC’s concern with stemming bad actors, a regulatory agency is bound by its statutory mission. In Justice Kavanaugh’s words, “It seems the problem you have is the text.”

Although FTC counsel argued that prior case law from the nineteenth century allowed monetary equitable relief along with injunctive relief, Justice Roberts pointed out that those cases largely involved courts using their inherent equitable powers. An executive agency, by contrast, only retains equitable powers to the extent it is given them by statute. And while FTC counsel argued that the legislative intent when Section 13(b) was codified was to imbue it with broad equitable powers, AMG’s counsel effectively rebutted that argument, explaining that the best “way we determine Congress’s intent is by looking at the words on the page.”

While nothing is certain until a final decision is rendered, following oral arguments it seems even more likely that Section 13(b) of the FTC Act will be limited to its plain terms, allowing the FTC to use the statutory provision to obtain injunctive relief in court, and only that. As multiple Justices noted, Section 19 and Section 5(l) of the Act provide alternative avenues for relief. While Section 13(b) may be a more efficient method for the FTC to obtain monetary remedies, the majority of the Justices at oral argument signaled that efficiency alone is not a sufficient basis for imbuing an agency with such a powerful remedy.

All is not lost for the FTC. Again, here, Justice Kavanaugh led the way with a proposed solution for the Agency, when he asked, “Why isn’t the answer here for the Agency to seek this new authority from Congress for us to maintain a principle of separation of powers?”  With a new Congress about to be seated and proposed language that would amend Section 13(b) floating around the Hill, congressional clarification very well might be the FTC’s best path forward.

Advertising and Privacy Law Resource Center

With one eye on the U.S. Supreme Court, which is being asked to confirm that the FTC has authority to seek monetary relief under Section 13(b) in AMG Capital Management, LLC v. Federal Trade Commission, and the other eye on Congress which may or may not pass legislation authorizing monetary relief under Section 13(b), there has been very little said about what we might expect if neither were to occur.  What if the Court finds that 13(b) does not provide this authorization and Congress does not act?  How might the FTC seek consumer redress against entities alleged to have engaged in unfair or deceptive advertising practices in district court?  One answer is Section 19 of the FTC Act.  So then, what can we expect if Section 19 becomes the FTC’s best path forward?

Under Section 19 of the FTC Act, the FTC can pursue consumer redress for alleged unfair or deceptive practices, but first must file administratively for an order directing the target of the investigation to cease and desist from the allegedly unfair or deceptive practices and, if the order is challenged, go through several rounds of review—first by the Commission and then by the United States Court of Appeals.  Only after the Commission’s order becomes final can the FTC commence the Section 19 action in district court for consumer redress.  That action, of course, is still subject to the typical federal appellate process—which can make a Section 19 action an extremely time-consuming process.

F.T.C. v. Figgie International, Inc. provides an example of how Section 19 would work, as well as its limitations.  In Figgie, the FTC obtained a cease and desist order under Section 5 ordering Figgie to cease and desist from engaging in the unfair or deceptive practices it used to market its Vanguard heat detector products.  According to the FTC, “[t]he crux of Figgie’s message was that heat detectors could be relied on as life-saving fire warning devices, and that the best protection for one’s home is a combination of four or five heat detectors to one smoke detector.”

Following the administrative proceeding, the Administrative Law Judge concluded that every one of Figgie’s promotional materials “‘clearly conveys’ the claim that Vanguard heat detectors provide the necessary warning to allow safe escape from a residential fire.”  The promotional materials also discussed the National Fire Prevention Association (“NFPA”) standards “‘in such a way as to leave the reader with a distinct impression that [the NFPA] regards both smoke detectors and heat detectors as equally effective.’”  However, while the NFPA previously recommended using both smoke and heat detectors as part of a household fire warning system, after fire prevention experts conducted a series of tests that illustrated the limitations of heat detectors, the NFPA revised its standards to require only that smoke detectors (not heat detectors) be installed on each level of the home and outside each bedroom.

After an administrative trial, the ALJ found that Figgie knew of the changes in the NFPA standards and the limitations of heat detectors prior to making the challenged representations.  The ALJ found that Figgie’s representations were “misleading and deceptive in the absence of an explanation of the limits of heat detectors and the comparative superiority of smoke detectors.”  On appeal, the Commission upheld most of the ALJ’s findings and conclusions, but changed the disclaimer required on Figgie’s heat detectors.  The rest of the Commission’s cease and desist order “closely tracked the ALJ’s order” and prohibited Figgie from representing that heat detectors provide the necessary warning to permit safe escape from most residential fires, that combining heat detectors and smoke detectors provide greater warning than smoke detectors alone, and that Figgie may not misrepresent the capabilities of heat detectors to provide warning that would permit people to escape from residential fires.

After the cease and desist order became final (following an appeal to the Fourth Circuit Court of Appeals), the FTC filed an action pursuant to Section 19 in U.S. District Court for the Central District of California seeking consumer redress.  The FTC was awarded summary judgment by the district court, which found Figgie engaged in dishonest or fraudulent practices and awarded millions of dollars in consumer redress.

Of note, prior to summary judgment the district court granted the FTC’s “motion to deem ‘conclusive’” the list of 42 findings from the administrative proceeding.  That is because in a Section 19 proceeding, the Commission’s findings of material fact in support of a cease and desist order “shall be conclusive.”  On appeal, the Ninth Circuit noted that [t]he Commission’s findings, and those of the administrative law judge which the Commission adopted, are accordingly treated as established facts for purposes of this decision.”  Thus, to the extent that a district court’s findings deviate from the findings of the Commission, “the Commission’s findings control.”

The Ninth Circuit decision noted that “liability for past conduct would be imposed on Figgie if a reasonable person would have known in the circumstances that it was dishonest or fraudulent for Figgie to use the practices it did to sell heat detectors.”  In rejecting Figgie’s argument that actual knowledge was required, the Court noted that “Congress unambiguously referred the district court to the statement of mind of a hypothetical reasonable person, not the knowledge of the defendant.  The standard is objective, not subjective.”

Moreover, while the Ninth Circuit stated that “Section 19 liability must not be a rubber stamp of Section 5 liability,” it held that “[w]hen the findings of the Commission in respect to defendant’s practices are such that a reasonable person would know that the defendant’s practices were dishonest or fraudulent, the district [court] need not engage in further fact finding other than to make the ultimate determination that a reasonable person would know.”  The Figgie action, it held, was such a case, because it found there is “ample evidence in the Commission’s findings to satisfy a court that a reasonable person with Figgie’s access to the scientific data establishing the relative inferiority of heat detectors would have known that Figgie’s vigorous misrepresentations on their behalf were dishonest and fraudulent.”

And while the ALJ acknowledged “a debate among fire professionals” concerning the tenability limits of heat detectors, the Ninth Circuit relied on findings that “[a] consensus among experts, well supported by careful testing, established that smoke detectors almost always provide earlier warning than heat detectors, and Figgie had no basis for doubting the truth of the consensus, yet Figgie marketed its heat detectors in a manner designed to mislead consumers about this critical information.”  Hence, the conduct was deemed dishonest or fraudulent.

As Figgie demonstrates, the ALJ’s findings of fact almost certainly will be conclusive and, if appealed to the Commission, they are likely to be adopted.  The Commission, after all, is the entity that authorized the issuance of the administrative complaint that precipitated the Section 19 action in the first place.  All of this underscores how important it is to contest any underlying facts that may ultimately be considered to bear on whether the challenged conduct was dishonest or fraudulent.

Figgie seems to suggest a plausible alternative, if things don’t break the Commission’s way in AMG Capital Management.  If that is the case, then why haven’t we seen more Section 19(b) cases over the years?  One answer is undoubtedly the success of the Section 13(b) program.  Why engage in administrative litigation, without the possibility of consumer redress absent a showing of dishonest and fraudulent conduct?  This has undoubtedly led to the ALJ becoming a version of the Maytag repairman, with relatively few cases to manage.  The numbers bear it out:  from 1977 to 1986, the Commission brought 94 administrative cases; from 2007 to 2017, the Commission brought only 12.

But it is not just the money, it is the requirement that the Commission establish that the conduct was dishonest and fraudulent – no small task – and timing too.  Section 19 cases, as they have historically been conducted, take a very long time.  Consider that the FTC issued its administrative complaint against Figgie in May 1983, the ALJ issued his findings of facts in October 1984, and the decision was appealed to the full Commission and substantially adopted in April 1986.  Figgie then appealed the Commission’s Order to the U.S. Court of Appeals for the Fourth Circuit, where it was ultimately upheld in 1987.  By the time that the Ninth Circuit issued its decision on appeal from the Section 19 district court action and the petition for certiorari to the Supreme Court was denied in early 1994, more than a decade had passed since the issuance of the FTC’s administrative complaint.

The FTC recently announced that glue maker, Chemence, paid a landmark $1.2 million settlement to resolve allegations that the company failed to comply with a 2016 Order regarding “Made in USA” claims. The 2016 Order required Chemence to pay $220,000 and to stop making misleading claims that its products were made in the United States.

According to the newest complaint, in spite of the 2016 Order, Chemence continued to falsely label its products with an unqualified “Proudly Made in USA” claim, despite foreign materials accounting for more than 80 percent of the materials costs and more than 50 percent of the overall manufacturing costs. The complaint also alleges that Chemence’s president, James Cooke, falsely declared under penalty of perjury that Chemence had modified its labeling to read “Made in USA with US and globally sourced materials.”

The resulting Order again requires Chemence to refrain from making misleading “Made in USA claims,” including unqualified claims unless they can show that the product’s final assembly or processing and all significant processing takes place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States. To the extent that Chemence makes qualified “Made in USA” claims, the company must provide a clear and conspicuous disclosure regarding which product contains foreign parts. If Chemence claims that a product is assembled in the United States, the company must ensure that it is last substantially transformed in the United States, its principal assembly takes place in the United States, and the United States assembly operations are substantial. The Order also prohibits Chemence from making any misleading county-of-origin claim about a product unless they have a reasonable basis that substantiates their claim.   Moreover, Chemence must notify all customers with a letter detailing the FTC allegations and the proper labeling for purchased products.

Chemence’s historic settlement with the FTC suggests that the Commission is heeding Commissioner Chopra’s calls to “mov[e] away from lax enforcement” concerning “Made in USA” claims.

This most recent enforcement action also comes as the FTC has proposed its Made in USA Labeling Rule.  Last summer’s NPRM includes the possibility for civil penalties for violations of the rule, and would give the FTC authority over all “Made in USA” claims, including those made online.

In spite of dissent from Commissioners Phillips and Wilson, comments in response to the proposed rule have been largely positive.  Supporters cited the current pandemic, noting that consumers are now more likely to buy goods online, resulting in the need for increased oversight of online advertising.

Even still, the NPRM met some pushback from several industry organizations and consumers who question the consistency of the proposed rule with respect to FTC precedent, trade agreements, and, echoing Commissioner Phillips’ dissent, FTC jurisdiction. In particular, comments flag that the proposed rule conflicts with USDA precedent, which currently holds that cattle raised in a foreign country and imported for slaughter and processing can qualify for a Made in USA or Product of USA label. It is not clear how this conflict between the two regulatory agencies would play out in practice.

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The FTC has not released a revised rule in response to the comments, though  we anticipate that some version of the rule will likely come into effect. “Made in the USA” enforcement has been a high-priority for the FTC in recent years, and with the potential for a new Democrat chair leading the Commission, we expect this trend to continue. Please contact any of the attorneys in Kelley Drye’s Advertising Group if you would like assistance with Made in USA compliance.

 

 

Ad Law Access Podcast

Our increased relience on the Internet to conduct our daily affairs has thrust an additional spotlight on data security that much important. On another 101 edition of the Ad Law Access podcast, Lauren Myers covers data security and covers five key points businesses should keep in mind as they continue to refine their data security practices based on FTC settlements and guidance.

Listen on AppleSpotifyGoogle Podcasts,  Soundcloud, via your smart speaker, or wherever you get your podcasts.

For more information on data security, privacy, and other topics, visit:

New York may become the latest state to allow consumers to sue companies for improperly collecting, retaining or using certain biometric data.  Earlier this week, a bipartisan slate of state legislators (17 Democrats, 7 Republicans) introduced Assembly Bill 27, which seeks to amend New York’s General Business Law to add a new article known as the “Biometric Privacy Act.”  Of primary interest here is the bill’s grant to individual consumers of a right to sue companies that violate the terms of this potential new law.

What the Law Would Cover.  Currently, Illinois is the only state with a biometric privacy statute that provides for a similar private right of action.  Illinois’s Biometric Information Privacy Act, commonly known as BIPA, has been the subject of previous discussion here.  The requirements of the proposed New York law largely mirror BIPA.  For example, both have a private right of action and substantially similar definitions of “biometric identifiers” and “biometric information,” prohibitions regarding the collection, storage, and transfer of such information, and penalty provisions.  Should the law pass, the trends and jurisprudence that have emerged from the litigation in Illinois will be particularly instructive to New York companies.

New York’s proposed bill applies to “biometric identifiers” such as retina or iris scans, fingerprints, voiceprints, hand or face geometry scans used to identify an individual, and “biometric information” that is used to identify an individual based on his biometric identifier(s).  The bill specifically excludes certain data from its scope, including writing samples, written signatures, photographs, human biological samples used for valid scientific purposes, demographic data, tattoo descriptions, and physical descriptions such as height, weight, hair color, and eye color.  (We note that the proposed law would be consistent with New York SHIELD Act’s expanded definition of “private information.”)

What the Law Would Require.  The proposed law requires private entities in possession of biometric identifiers orbiometric information (collectively referred to herein as “biometric data”) to develop public, written policies establishing a data retention schedule and destruction guidelines.  It also prohibits private entities from collecting, capturing, purchasing, receiving through trade, or otherwise obtaining a person’s biometric data unless it first:

(1) informs the subject in writing that biometric data is being collected or stored,
(2) the specific purpose of the collection and the length of time for which it is being collected, stored and used, and
(3) obtains a written release from the subject.

The bill also prohibits private entities from selling, leasing, trading, or otherwise profiting from a person’s biometric data.  Further, a private entity that discloses or otherwise disseminatesa person’s biometric data may do so only:

(1) upon obtaining the subject’s consent;
(2) to complete a financial transaction at the subject’s request,
(3) if such disclosure is required by federal, state or local law or ordinance, or
(4) if a valid warrant or subpoena requires such disclosure.

Private Right of Action.  Significantly, the proposed bill includes a private right of action in New York supreme court for any violation of the statute’s requirements.  Where a violation is found, the prevailing consumer may recover the greater of actual damages or liquidated damages per violation of up to $1,000 for a negligent violation and up to $5,000 for an intentional or reckless violation.  The statute also includes provisions that allow for recovery of attorneys’ fees and costs.  There is no bar on aggregated or class claims.

​In Illinois, BIPA has been the catalyst for an active stream of consumer lawsuits in both state and federal court.  Such claims were bolstered by an Illinois Supreme Court holding that even mere technical violations of the statute were sufficient to warrant consumer recovery.  Rosenbach v. Six Flags Ent’r Corp., 129 N.E. 3d 1197 (Il. 2019). Illinois experience with private consumer litigation is instructive for the scope that it has reached.  Thus far, litigants have used it to raise various hot-button issues, including questions around companies’ employment practices such as the use of fingerprints for timekeeping records and retailers’ use of facial recognition technology in their store security measures.

Assembly Bill 27 has been referred to the Consumer Affairs and Protection Committee.  We will continue to monitor its status and other laws/litigation related to biometric privacy.

If you have questions about your pending or potential litigation risks arising from use, storage, or sale of personal information, please reach out to a member of our team.

Advertising and Privacy Law Resource Center

FTC’s CBD Crackdown:  Something Old and Something New

This week the FTC announced settlements with six companies accused of making a broad range of unsubstantiated health claims, including that CBD can treat cancer, heart disease, hypertension, Alzheimer’s disease, bipolar disorder, and chronic pain, among others.   Nicknamed, “Operation CBDeceit,” the enforcement sweep is part of the Commission’s ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and through social media companies such as Twitter.

For those who have been monitoring regulatory enforcement relating to CBD claims, the types of claims listed in the FTC’s Complaints are familiar reading.  As we’ve chronicled here, here, and here), prior FTC and FDA enforcement have focused on aggressive express health claims that were very similar to the claims at issue in today’s settlements.  In that respect, these settlements do not differ from prior enforcement.

This announcement is noteworthy for other reasons, though, including the following:

  • Bigger Than Before.  This is the first big FTC enforcement announcement regarding CBD health claims involving settlements with multiple companies.  Prior to this, the FTC coordinated with FDA on dozens of warning letters relating to CBD and false COVID treatment and prevention claims in addition to other CBD warning letters.  The FTC also announced a settlement with Marc Ching regarding the “Thrive” CBD supplement in  July 2020 relating to claims that the product could “treat, prevent, or reduce risks from COVID-19”.  Yesterday’s announcement seemed intended to convey a more coordinated and authoritative message than prior settlements and warning letters.
  • Individual Liability.  These settlements also name not just the company as a respondent, but also individuals in their official capacity as corporate officers.  Given the significant degree of entrepreneurial activity in the CBD and hemp industries, this should be understood as an indication that the FTC will look to hold individuals liable particularly where the respondent company is comprised of only a few people.
  • Monetary Relief.  In addition, five of the six settlements included monetary components ranging from $20,000 to $85,000.  The Marc Ching settlement did not involve a financial component, although it is not unusual for there to be a financial component where the FTC believes that the conduct warrants it.
  • Prescribed Consumer Notification.  The respondent companies are also required to notify consumers about the settlements per prescribed terms.  For example, the Easybutter, LLC, settlement requires the company to provide a notice on all of their social media accounts (including any Facebook, Twitter, Instagram, or YouTube accounts) and on the first page of their websites. Such notice must link to a copy of the Order, along with a toll-free telephone number and an email address for the redress administrator. The notice must be posted not later than three days after the effective date of the Order and for at least one year after the redress period ends.  In addition, the companies must use a form letter (see page 18) attached to the Orders to directly notify consumers who purchased their products about the FTC’s charges.

So, what does this mean?  Although these settlements didn’t break new ground on the kinds of claims the regulators are targeting with regard to CBD products, they signal heightened attention on an industry that has proliferated exponentially over the last couple years.  It’s also notable that Commissioner Chopra called for the FTC to pursue larger companies with regard to spurious claims and to focus on unlawful opioid treatment claims, which can be couched as treatment for chronic pain and related conditions.  Health claims have long been of interest for the FTC.  Given this and the upcoming change in the federal administration, the CBD industry should expect more settlements like these in 2021.

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Earlier this month, New York’s governor, Andrew Cuomo, signed a bill[1] that makes significant amendments to New York’s Civil Rights Law, which codifies rights of publicity and privacy in the State. In addition to adding a long anticipated post-mortem right of publicity, the bill also prohibits unauthorized use of digital replicas of deceased celebrities and creates a new private cause of action prohibiting the publication of digitally fabricated sexually explicit depictions of an individual (such as those that are utilized in “deep fakes”). The new law will be effective on May 30, 2021 and will not apply retroactively. This Client Advisory summarizes key points and takeaways of the new law.

Post-Mortem Right of Publicity

The New York Civil Rights Law prohibits the unauthorized use of a person’s name, voice, or likeness for commercial purposes. For the first time in New York State, the new amendment recognizes a right of publicity for the deceased. In particular, the law creates a new right of publicity for any “deceased performer” (defined as one who was domiciled in New York at the time of death and whose livelihood was to regularly engage in acting, singing, dancing, or playing a musical instrument), or “deceased personality” (defined as one who lived in New York at the time of death and whose name, voice, signature, photograph or likeness has commercial value at the time of his or her death).

This post-mortem right is transferable and descendible and will allow the estates of deceased individuals who died on or after March 30, 2021 to protect the exploitation of their likenesses for forty years after the person’s death. Notably, in order to bring a cause of action under the statute, the deceased’s estate must register their rights with the New York Secretary of State.

The amended statute also expressly prohibits the unauthorized use of a deceased performer’s “digital replica,” defined as “a newly created, original, computer-generated electronic performance by an individual in a separate and newly created original expressive sound recording or audiovisual work in which the individual did not actually perform,” if such use is likely to deceive the public into thinking the use was authorized by the deceased person or its successor. The law explicitly exempts a number of activities from liability under this new cause of action, such as digital remastering of an individual’s previously recorded performance. The statute also provides that the use of a “conspicuous disclaimer” explaining that the use of the performer’s persona in the digital replica has not been authorized precludes a finding that the public is likely to be deceived by such unauthorized use, thus precluding liability.

The new amendment also codifies a number of exceptions to post-mortem rights that have long been recognized by the courts as exceptions to rights of publicity, such as use in works that are in the public interest, or are educational, newsworthy, political, commentary, criticism, parody, or satire, and use in literary and other artistic works.

In addition to an award of injunctive relief, potential liability for violation of the post-mortem rights of publicity may include statutory damages in the amount of $2,000, or compensatory damages plus any profits attributable to the unauthorized use, and punitive damages.

Unlawful Publication of Sexually Explicit Depictions of Individuals

The bill also amends the New York Civil Rights Law to create a private right of action for the unlawful dissemination or publication of a sexually explicit depiction of any individual who, as a result of digitization, appears to be engaging in sexual conduct in which the person did not in fact participate. This measure applies to any natural person, not only celebrities. However, it is significant in light of the increasingly problematic use of “deep fakes” that superimpose a celebrity’s face on a sex worker’s body.

An individual has a cause of action against any person who: (a) disseminates or publishes such sexually explicit material; and (b) knows or reasonably should have known that the individual depicted in the material did not consent to its creation, disclosure, dissemination or publication. The bill provides that an individual depicted in such materials may only be found to have consented if the consent is provided in writing under particular conditions set forth in the statute.

A person may be liable for dissemination and publication of such unauthorized materials even if he did not participate in the creation or development of such materials. A disclaimer that the use is without consent will also not preclude liability.

There are certain exceptions to liability, including publication or dissemination for purposes of reporting, law enforcement, legal proceedings, or in connection with a matter of public concern. However, the law expressly states that such sexually explicit material shall not be considered of newsworthy value simply because the depicted individual is a public figure.

Liability for a violation of this new cause of action includes injunctive relief, punitive damages, compensatory damages, and reasonable court costs and attorney’s fees. The statute of limitations is three years after dissemination or publication of the sexually explicit material, or one year from the date a person discovers or reasonably should have discovered such dissemination or publication.

In Sum

While the new post-mortem right of publicity in New York is a long-awaited and significant development, the 40 year protection remains more narrow than those in some other states, where rights may be protected for up to 100 years after death. It also limits application to celebrities who were domiciled in New York at the time of their death, unlike other state laws which do not limit protection to celebrities who died within those states. The New York law also does not apply retroactively to allow for protection for celebrities who passed away prior to March 30 2021. Given that rights of publicity still vary from state to state, companies who use a deceased (or living) celebrity’s name or likeness must remain mindful of the nature and geographic scope of their use. Any rights granted prior to a celebrity’s death would not be affected by this new law.

Perhaps the most significant impact of New York’s new law are the protections against the publication and dissemination of digitally fabricated sexually explicit materials. This new cause of action will provide much welcomed protection to celebrities and other individuals who are the victims of deep fakes and other nefarious digital content, and will also require publishers of adult materials to increase their safeguards with respect to consent of an individual’s likeness in sexually explicit digital content.

[1]Senate Bill S5959D.

Ad Law Access Podcast

When the FTC decides not to pursue an investigation, it often issues a short closing letter to the company explaining why FTC staff decided not to recommend enforcement. The letters are just a few paragraphs long and don’t contain a lot of details, but if you read between the lines, you can often get some ideas about what types of conduct the FTC considers to be problematic.

Almost all of the closing letters in 2020 involve Made in the USA claims, showing that is still a hot topic for the FTC, but a recent closing letter on a different topic caught our eye. That letter was issued to Yotpo and concerns the company’s platform that gives clients control over how they collect, display, and market consumer reviews and other UGC.

The investigation focused on whether Yotpo’s star-rating filters provided clients with the ability to suppress negative Reviewsreviews and thereby mislead consumers into believing that the displayed reviews reflect the sentiments of all reviewers. Staff ultimately decided not to recommend enforcement for a number of reasons, including Yotpo’s commitment to implement measures to protect against the misuse of its services to suppress or delay the posting of negative reviews.

Clients sometimes ask us whether they can “curate” reviews. Although there may be circumstances in which that’s possible, this closing letter suggests that the FTC will frown upon an attempt to suppress negative reviews, especially if that’s done in a manner that could mislead consumers about the larger universe of reviews. The FTC acknowledges that companies can filter out some reviews – such as reviews that are inappropriate or irrelevant – but the criteria for suppressing reviews must be applied uniformly to all reviews. You can’t just hide a review because it’s negative.

Moderated by Kelley Drye partner Matt Luzadder, join Kelley Drye partner Jaimie Nawaday, a former Assistant U.S. Attorney in the Southern District of New York and chair of the firm’s White Collar, Investigations and Compliance practice group, and Mark Pohl, a former Special Agent with the U.S. Department of Defense and founder and CEO of The Pohl Group, for a two-part podcast covering search warrants, subpoenas and government interviews, as well as best practices for dealing with federal agents and prosecutors during an investigation. Please click below to tune in.

You can also listen on Apple, Spotify, Google Podcasts, via your smart speaker, or wherever you get your podcasts. For additional resources, or further information of Kelley Drye’s White Collar, Investigations and Compliance practice group, please see below.

Kelley Drye – Corporate Compliance Checklist
Kelley Drye – White Collar, Investigations and Compliance Practice

The FTC today announced four new enforcement actions and one new settlement alleging deceptive income claims in violation of the FTC Act.  The FTC noted that these actions are part of a broader initiative branded as “Operation Income Illusion,” which it described as a crackdown “against the operators of work-from-home and employment scams, pyramid schemes, investment scams, bogus coaching courses, and other schemes” that purport to offer significant income opportunities but that “end up costing consumers thousands of dollars.”

The four new actions are against the following companies.

  • Moda Latina, which allegedly targeted Latina consumers by deceptively claiming that consumers could “have your own business and earn up to a thousand dollars per week” and “earn a lot of money” and “large profits.”  According to the complaint, the company typically charged between $199 and $299 for enrollment and a start-up kit with allegedly authentic products such as gold jewelry, brand-name perfumes, makeup and other beauty and luxury fashion products.  The complaint alleges that the start-up kit often failed to include re-saleable goods and that the company had “no adequate basis for making earnings claims in connection with the marketing, selling, and advertising of Moda Latina.”  The FTC asserted that 89% of consumers who place an initial order never place a second order as evidence of deception.
  • Digital Income System, which allegedly sold a business opportunity scheme of selling memberships at various price points from $1,000 (Entrepreneur) to $25,000 (Executive).  By purchasing a membership, consumers had the capacity to sell memberships to others and “earn a commission of up to 50% of his or her own membership level.”  The complaint alleges multiple violations of the FTC Act and the Business Opportunity Rule, which applies to certain contracts where a seller solicits a prospective purchaser with opportunities to sell goods or services through specified arrangements.
  • RagingBull.com, LLC f/k/a Lighthouse Media LLC, a company selling online services related to stock and options trading.  According to the complaint, the company promoted courses from “self-made millionaires” with “simple-to-follow strategies for beating the market” and emphasized the alleged success of its founders and individually named defendants.  The complaint identifies both general income claims (“Don’t Just Beat the Market…Crush It”) and more specific claims and testimonials touting earnings of “$6,500 in 20 minutes,” or “$500 in 15 minutes.”
  • Randon Morris and his network of companies that sold storefront websites promoted to yield thousands of dollars in monthly income.  According to the FTC, the companies played on consumer fears about the COVID-19 pandemic with robocalls in violation of the Telemarketing Sales Rule.  The complaint further alleges that the companies deceptively advertised a relationship with Amazon and falsely suggested that consumers would receive commissions from Amazon purchases.

In its announcement, the FTC said that Operation Income Illusion includes more than 50 enforcement actions from the FTC and other regulators including the Securities and Exchange Commission, the Commodity Futures Trading Commission, the U.S. Attorney’s Office for the Eastern District of Arkansas, and state and local agencies in Arizona, Arkansas, California, Florida, Indiana, Maryland, New Hampshire, Oregon, and Pennsylvania.  The announcement is a reminder that income and business opportunity claims are a priority for the FTC, particularly in COVID times where regulators are concerned that companies are taking advantage of consumers’ financial instability and/or unemployment.

As a way to further promote compliance of the direct sales industry, the Direct Selling Association (DSA) is offering a three-part certification program beginning next month called the Direct Selling Compliance Professional Certification Program (DSCP-CP).  The program is a great way for companies and individuals to learn more about compliance and risk mitigation strategies in the direct selling space, including related to income and business opportunity claims.  More information about the DSCP certification program is available on DSA’s website here.