DC District Court Holds that eBay Can’t Compel Arbitration Based on Later-Amended Terms

In July, a DC District Court ruled that eBay could not compel a user of its services to arbitrate a dispute, even though the user had agreed to by bound by eBay’s User Agreement. That Agreement stated that the company had a right to modify the terms, and eBay had later modified those terms to include an arbitration clause for purposes of dispute resolution. Specifically, the Court held that eBay’s act of posting the updated terms did not constitute sufficient notice, and that the company had not presented proof sufficient to show that it had notified the user via email. Although the result is troubling for many companies who approach changes to website terms in the same manner that eBay did, the decision does provide some hints for what companies can do to provide support for arguments that their changes are enforceable.

Read our article in Digital Business Lawyer to learn more about the case and what you can do to help ensure that your website terms will be deemed enforceable.

FTC Settlement Addresses Influencers and Native Ads

Two companies and their principals have agreed to settle FTC allegations that they misled consumers by presenting paid endorsements as independent consumer reviews and ads as independent news stories.

Creaxion, a PR agency, was tasked with creating a campaign to promote a client’s new mosquito repellent product around the time the press was reporting about the mosquito-borne Zika virus during the 2016 Summer Olympics. As part of the campaign, the agency partnered with the publisher of Inside Gymnastics magazine to secure athlete endorsers and run stories about the product.

Together, the companies paid two gold medalists to promote the product, and the athletes posted endorsements on social media, without disclosing that they had been paid. The publisher re-posted those endorsements in its magazine, again without a disclosure. Inside Gymnastics also ran paid ads for the product that, in the eyes of the FTC, were made to look like independent news stories.

As part of the settlements, the companies are prohibited from misrepresenting that influencers are independent consumers. Any connections between an influencer and the companies whose products they endorse must be clearly disclosed. To that end, the companies agreed to institute procedures designed to ensure that influencers make these disclosures, including notifying influencers of their responsibilities, monitoring compliance, and terminating influencers who fail to comply.

The companies are also prohibited from expressly or implicitly misrepresenting that paid ads reflect the opinions of an independent or objective publisher or source. Although the settlement doesn’t go into details on this point, this requirement likely means that ads that appear near new stories need to be clearly labeled as ads, as the FTC has advised in its native advertising guidance.

Dalton Blog Post

Company Sues Influencer for Failing to Influence

Snapchat’s public relations firm recently filed a lawsuit against an influencer who allegedly failed to comply with the terms of his agreement.

After Luka Sabbat was photographed with Kourtney Kardashian in September, PR Consulting engaged Sabbat to help promote Snap Spectacles on his LukaInstagram account. According to the agreement, Sabbat was required to make four unique posts (each subject to its own requirements), get those posts approved beforehand, send analytics to PR Consulting, and be photographed wearing the Spectacles in public at Paris and Milan Fashion Weeks. In exchange for all of this, PR Consulting agreed to pay $45,000 up front, plus another $15,000 at a later date.

According to the complaint filed in New York earlier this week, Sabbat did not comply with all of these requirements. He didn’t make all of the required posts, didn’t submit them for pre-approval, didn’t send all of the analytics, and wasn’t photographed in either city. Although Sabbat allegedly admitted default, he did not return the up-front payment. The lawsuit seeks the $45,000, plus interest, attorney’s fees, and other damages.

Payment terms are often negotiated in influencer agreements. Influencers obviously want more up-front, while companies prefer the opposite. While the parties usually end up somewhere in the middle, this case illustrates the risks companies face by paying too much before key milestones have been reached. If the influencer breaches the agreement, it can become difficult to get the money back.

Not So Full Of Hot Air: California Amends Slack Fill Law

California Governor Jerry Brown recently signed into law Assembly Bill 2632, which amended California’s slack fill law to create several new exemptions, hopefully providing some relief from the plague of slack fill lawsuits that has hit the food and beverage industry, among others, particularly hard in recent years.  For those who are unfamiliar, slack fill is non-functional empty space in product packaging.  The argument that plaintiffs have been using is that this non-functional space renders the products misleading to consumers, causing them to think that they are getting more of the product than they actually are.  Although there have been many lawsuits filed, they have met with little success.  Nevertheless, they persist, as we’ve written about here.

Here’s a summary of the changes to California’s law:

    • Online Sales Exempted.       Perhaps the most significant change of the new law is that it exempts packaging sold in a mode of commerce that does not allow the consumer to view or handle the physical container or product. This would appear to exempt online sales, which is consistent with the rationale that a consumer could not be misled by packaging that he or she didn’t handle prior to purchase.
    • Only If It’s Substantial. The law was amended to add the clarification that “nonfunctional slack fill is the empty space in a package that is filled to substantially less than its capacity for reasons other than any one or more of the following:…” “Substantially” is not defined but seems likely to create an argument that some degree of non-functional space is acceptable provided that it is not substantial. Consistent with this, the new law also states that “slack fill shall not be used as grounds to allege a violation of this section based solely on its presence unless it is nonfunctional slack fill.”
  • Actual Size. The prior CA law required that the actual size of the product be depicted on the exterior packaging. The new law specifies that this depiction can be on any side of the packaging, excluding the bottom. “Actual size” must be noted in a clear and conspicuous disclosure.
  • Fill Line. The new law also allows for a line or graphic representing the “fill line” on either the actual product or the product container. The “fill line” must be clearly and conspicuously depicted. If the product is subject to settling, the fill line must represent the minimum amount of expected settling.

 

The changes also apply to California’s Sherman Food and Drug Act. Slack fill lawsuits against food and beverage companies declined between 2016 and 2017 as courts resisted indulging arguments such as an inability to understand basic item counts clearly labeled on a container’s front label.  We’ll see whether these changes collectively help drive numbers even lower.

Christine Wilson Sworn In as FTC Commissioner Following Maureen Ohlhausen’s Departure

Yesterday, Christine Wilson was sworn in as FTC Commissioner. Commissioner Wilson – the fifth and final Trump appointee – joins the FTC from Delta Airlines and assumes former Commissioner Maureen Ohlhausen’s seat. Commissioner Ohlhausen announced her departure on Tuesday – the day her term ended, concluding over six years of service as Commissioner, including a year-and-a-half as the agency’s Acting Chair before current Chair Joseph Simons assumed the role.

As we previously reported here, Commissioner Wilson overlapped with Chair Simons during his time as Director of the Bureau of Competition, while she served as Chief of Staff to then-Chair Timothy Muris. The FTC currently is in the middle of public hearings on consumer protection, privacy, and competition policy and enforcement, and we expect these hearings and the public comments received to help shape the Commission’s priorities going forward.

Party of Five: CPSC Has Full Commission and a Republican Majority with Confirmation of Peter Feldman

On Tuesday, in an 80 to 19 vote, the Senate confirmed Peter Feldman as CPSC Commissioner – to finish Commissioner Mohorovic’s term ending October 26, 2019. Today, in a narrow 51 to 49 vote, the Senate confirmed him to a full, seven-year term. As we discussed here, Mr. Feldman previously served as Senior Counsel to the Senate Commerce Committee, which has oversight of the CPSC. During his June confirmation hearing, he indicated that his focus as Commissioner would be on modernizing the agency and its increasing its transparency.

Once Mr. Feldman is sworn in, the five-member Commission will have a Republican majority for the first time since 2006, although Acting Chairman Ann Marie Buerkle’s (R) nomination to become Chairman is still pending. Despite this delay, with the Commission back to full strength, we will watch for policy and enforcement developments, particularly as the Commission votes on the FY 2019 Operating Plan next month.

California Amends California Consumer Privacy Act

In June of this year, California passed the California Consumer Privacy Act (CCPA) giving California residents specific rights related to their online privacy, similar to those proscribed by GDPR. The law was passed hastily to avoid a stricter ballot measure on the subject, but Governor Brown recently signed a bill amending the law.

Many of the amendments clarify some of the CCPA’s “technical” errors, such as solidifying that the Act should not be enforced to contradict the California Constitution. The most significant change, however, deals with the enforcement of the Act. Although Section 1798.198 makes the Act operative on January 1, 2020, the newly-added Section 1798.185(7)(c) prevents the Attorney General from bringing an enforcement action under the Act until July 1, 2020, or six months after the final regulations made pursuant to the Act are published, whichever is sooner. Thus, although the effective date is January of 2020, the California Attorney General may not be able to bring enforcement actions until up to six months after the enactment date, depending on when the office promulgates regulations. The amendments also extend the date by which the Attorney General must promulgate regulations from January 1, 2020 to July 1, 2020.

Another point worth noting is that the amendments remove the requirement for a private plaintiff to inform the Attorney General of a claim he or she has brought to enforce his or her private cause of action under the Act. This eliminates the ability of the Attorney General to bring its own action in lieu of a private one.

Additional changes include specifying additional laws to which the Act does not apply, including: (1) the Confidentiality of Medication Information Act or regulations promulgated in response to HIPAA, or the Health Information Technology for Economic and Clinical Health Act; (2) the Federal Policy for Protection of Human Subjects; and (3) the California Financial Information Privacy Act. The amendments also limit the civil penalty to $2,500 per violation, or $7,500 for each intentional violation.

Although this bill has clarified some issues with the original law, this will likely not be the last set of amendments to the CCPA before it goes into effect. We will keep you posted.

 

New NAD Decision Addresses Affiliate Links

As part of its routine monitoring, the NAD requested substantiation for various statements that a BuzzFeed staff member had made about a moisturizer in one of the site’s shopping guides. The NAD’s decision in the case sheds some much-needed light on various issues related to affiliate marketing.

BuzzFeed explained that the shopping guides include product recommendations by its writers, and that the companies mentioned in the guides don’t have any ability to influence the content. In some cases, BuzzFeed may receive compensation if a reader makes a purchase through an “affiliate link.” The writers, however, don’t know whether affiliate links may be available for the products they recommend. Those links are added by a separate group at BuzzFeed after the article is completed. Thus, the decision to recommend a product is not linked to the potential for compensation. Moreover, the potential for compensation is disclosed at the top of each shopping guide: “We hope you love the products we recommend! Just so you know, BuzzFeed may collect a share of sales or other compensation from the links on this page.”

BuzzFeed Links Disclosure

The FTC has noted that publishers who use affiliate links in conjunction with product reviews should clearly disclose their relationship with the companies or retailers whose products are reviewed. Although many companies get tripped up over this issue, BuzzFeed got the disclosure right, and the NAD did not focus on it. Instead, the case focused largely on the issue of whether the shopping guides constitute “national advertising,” as defined by NAD Policy and Procedures. More specifically, “the issue here is whether online publishers using affiliate links can use the aegis of editorial independence to avoid the requirement that it have substantiation for any product claims in the content.” As the line between editorial and commercial content gets increasingly blurred, it isn’t always easy to answer this question.

Ultimately, the NAD determined that the shopping guide did not constitute “national advertising” for a few key reasons. Firsts, the content was created by writers who did not know whether or not the company would receive any affiliate revenue based on purchases of the recommended products. Second, neither the retailers nor the brands mentioned in the guides had any input in what was said about the products. And, third, the links were added to the shopping guide after the content was written. “In sum,” the NAD wrote, “the content was created independently of and prior to the addition of affiliate links to the article.” Thus, the statements in the shopping guide weren’t ads and BuzzFeed wasn’t responsible for substantiating claims about the products that were reviewed.

This decision provides a roadmap for other companies that use affiliate links. Simply calling something “editorial” is not going to be enough to escape scrutiny under advertising laws. Instead, companies must have procedures in place to ensure that there is a clear separation between editorial decisions and revenue and that the companies whose products are being reviewed cannot influence the content. It’s also important to clearly disclose the affiliate relationship, as BuzzFeed did here. The NAD’s decision suggests that if companies get this wrong, they may be required to substantiate any claims they make about the products they review.

CA Court Considers When Disclosures Can Modify Claims

Pop quiz: If you purchased a bottle of “One A Day” gummy vitamins, would you: (a) assume that you should take one a day; or (b) check the back of the label to figure out how many you should take? If you answered (a), and didn’t check the back of the label, you might have been surprised. That’s one of the issues in a putative class action pending against Bayer in California.

Despite the name of the product, the back panel of a bottle of “One A Day” gummy vitamins directs consumers to “chew two vitamins daily.” In 2016, a One-A-Day Bottleconsumer filed a putative class action against Bayer, arguing that the name of the product is misleading because it suggests that people only need to take one vitamin per day, when the company recommends otherwise. Bayer disagreed, arguing that consumers carefully read labels to look for nutritional values and, thus, that the disclosure on the back panel prevents the name of the product from being misleading. Although the lower court agreed with Bayer and dismissed the case, last week, a California appellate court reversed the dismissal.

“The front of the product makes no attempt to warn the consumer that a one-a-day jar of gummies is in fact full of two-a-day products.” Instead, consumers have to turn the bottle over to find a direction that they should chew two vitamins daily. (The court worried that this direction appeared “in the smallest lettering on the bottle, an ocular challenge even when the bottle is full-sized and held in good light.”) The product name made things worse. Although consumers may be more likely to look for the directions “if this product were called Gazorninplat Gummies or Every Day Gummies,” that isn’t the case here. “The front label fairly shouts that one per day will be sufficient.”

Although this case is still pending, it illustrates a critical point about disclosures. As the court put it: “You cannot take away in the back fine print what you gave on the front in large conspicuous print.” Lesley Fair at the FTC has made that same point slightly differently: “What the headline giveth, the footnote cannot taketh away.” Either way, keep in mind that there are limits to what you can do with disclosures. Although they can help to prevent a claim from being misleading, they only work if (a) they are presented in a “clear and conspicuous” manner and (b) they clarify, rather than contradict, the claim.

CTIA Launches Internet of Things Cybersecurity Certification

Last month, CTIA, the wireless industry association, launched an initiative through which wireless-connected Internet of Things (“IoT”) devices can be certified for cybersecurity readiness.  According to the CTIA announcement, the CTIA Cybersecurity Certification Program (the “Program”) is intended to protect both consumers and wireless infrastructure by creating a more secure foundation for IoT applications that support “smart” cities, connected cars, mobile health apps, home appliances, and other IoT-enabled environments.

The Program was developed in collaboration with the nationwide wireless carriers, along with technology companies, security experts and test laboratories, and builds upon IoT security recommendations from the National Telecommunications and Information Administration (NTIA) and the National Institute of Standards and Technology (NIST).  According to the Program Test Plan, devices eligible for certification include those that contain an IoT application layer that provides identity and authentication functionality and at least one communications module supporting either LTE or Wi-Fi networks.

A device submitted for certification will undergo a series of tests at a CTIA-authorized lab.  The testing will assess the device for one of three certification levels or “categories.” To obtain a Category 1 certification, the device will be reviewed for the presence of “core” IoT device security elements, including a Terms of Service and a customer-facing privacy policy, along with technical elements including password management, authentication and access controls.  A Category 2 certification includes the Category 1 elements, in addition to enhanced security features, such as an audit log, multi-factor authentication, remote deactivation, and threat monitoring. A Category 3 certification features the most comprehensive level of cybersecurity threat testing, and covers elements such as encryption of data at rest, digital signature validation, and tamper reporting, in addition to the elements under Categories 1 and 2.

The Program comes at a time of rapid growth for IoT devices.  According to the latest Ericsson Mobility Report, the global IoT market will expand to 3.5 billion cellular-connected devices in the next five years.  Much of this growth is expected to be driven by the anticipated deployment of 5G technology and enhanced mobile broadband.

The Program will begin accepting devices for certification testing beginning in October 2018.  Details on how to participate in the Program are available on the CTIA website.

LexBlog