Subscription plans that automatically renew at the end of a term are becoming more popular with companies. They’re also getting more attention from regulators and class action attorneys. As we’ve discussed before, some states regulate how these plans can be structured, and there have been both lawsuits and regulatory investigations targeting companies that have failed to comply. One of the latest lawsuits alleges that Ancestry.com has violated California’s automatic renewal law.

The law generally requires that companies: (1) clearly disclose material offer terms before a consumer subscribes; (2) Renewal Buttonobtain 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 plaintiff alleges that Ancestry.com did not adequately disclose the offer terms, obtain her consent, or provide the required confirmation. As a result, she was surprised to see recurring monthly charges after her free trial. She claims not to be the only one in this position, either, and the lawsuit cites hundreds of complaints against the company on various public websites. The plaintiff is seeking injunctive relief and restitution which, according to Ancestry.com’s removal notice, could exceed $250 million.

Based on the screen shots attached to the complaint, there are references to monthly charges during the order flow and there is a link to the company’s “Renewal and Cancellation Terms” before checkout. Those Terms provide more disclosures and details on the company’s policies. It’s likely, then, that one of the key issues in the case will be whether the disclosures appear with the level of clarity required by law.

There are at least two lessons to keep in mind here. First, this is an area where we’re likely to see continued litigation. If you haven’t taken a look at how you present your automatic renewal terms recently, now might be a good time to do that. Second, although consumer complaints on public websites rarely tell the whole story, they can provide a warning of trouble to come. Make sure you monitor these complaints so you can prevent them from escalating.

It has been more than two years since the D.C. Circuit found the Federal Communications Commission’s (the “FCC”) discussion of predictive dialers and other equipment alleged to be an automatic telephone dialing system (“ATDS,” or “autodialer”) to “offer no meaningful guidance” on the question. In the absence of an FCC ruling on the remand, multiple courts of appeals have addressed the statute’s definition. In the most recent case, Allan v. Pennsylvania Higher Education Assistance Agency, the Sixth Circuit adopted (in a split decision) a broad definition of an autodialer. Construing the term ATDS to include both devices that “generate[] and dial[] random or sequential numbers,” and “that dial from a stored list of numbers,” the Sixth Circuit has aligned itself with the Second and Ninth Circuits in a growing circuit split, with the Third, Seventh and Eleventh Circuits adopting a narrower interpretation. At this point, all eyes are on the Supreme Court, which accepted a case addressing the ATDS definition for next term.¹ The FCC, meanwhile, is not likely to address the core ATDS definition until after the Supreme Court ruling.

Case Background

Allan came before the Sixth Circuit on appeal of the district court’s entry of summary judgment for plaintiffs. Plaintiffs alleged that defendant had placed 353 calls to them using an ATDS after they had each revoked consent. The district court held that defendant’s system qualified as an autodialer. It was undisputed that the system did not randomly or sequentially generate numbers. It would place calls to a daily-created list based on a stored list of a numbers in connection with collection of specific individual’s private education loan debt. By a 2-1 majority, the Sixth Circuit concluded that equipment may be an ATDS if it has the capacity to store numbers to be called, or to produce numbers using a random or sequential number generator, and to dial such numbers.

Majority Opinion

The majority opinion found that the ATDS definition is facially ambiguous. The TCPA defines an ATDS as “equipment which has the capacity to store or produce telephone numbers to be called, using a random or sequential number generator” (and the capacity to dial those numbers automatically). The opinion engaged in a grammatical analysis of the statutory text to resolve the definition’s latent ambiguity, which interpretation it then confirmed with reference to relevant statutory and administrative history.

The Sixth Circuit concluded that a predictive dialer or system that dials from a stored list could qualify as an ATDS under the TCPA. The Court relied on the existence of exceptions to help establish the rule. For example, the Court confirmed that the “prior express consent” exception permits calls made using an autodialer if the recipient has given his or her prior express consent to receiving those calls. Thus, it reasoned, “[a]n exception for consented-to calls implies that the autodialer ban otherwise could be interpreted to prohibit consented-to calls. And consented-to calls by their nature are calls made to known persons, i.e., persons whose numbers are stored on a list and were not randomly generated.” Ergo, the Court held that the definition of an ATDS must broadly sweep in stored-number systems and predictive dialers, not just calls to unknown individuals via random or sequential number generation.

Delving into the TCPA’s legislative history, the Court highlighted Congress’s intent to crack down on pervasive and intrusive telemarketing practices. Rather than regulate certain types of technology used to place calls, the TCPA was meant to curb the calls themselves – particularly the near-daily, multiple calls that formed the Allan plaintiffs’ cause of action.

Consistent with every other Circuit to have addressed the issue, the Sixth Circuit reached this decision without administrative guidance, holding that prior guidance from the FCC, including those pre-2015, was invalidated by the D.C. Circuit in its 2018 decision ACA International v. FCC. While some District Courts have relied on those prior FCC orders, the Circuit Courts, with the exception of the Second Circuit, have held that the prior orders were set aside.

Importantly, the Court affirmatively declined to comment on the potential impact of human intervention on dialing because, it found, the defendant failed to present a legal basis for that argument in this case.

Dissent

The dissent disagreed with the majority’s conclusion and methodology, putting forth a third interpretation of the statutory language. Rather than modifying the verbs “store” and/or “produce,” the dissent maintained that the language “using a random of sequential number generator” should be read to modify the entire phrase “telephone numbers to be called.” In the instant case, because the telephone numbers dialed were not generated randomly or sequentially, the dissent would have held that the equipment at issue did not qualify as an ATDS.

The dissent gave four reasons why its interpretation was the “best” reading among the three possible interpretations. First, it does not require a judicial rewrite of the statute as does the definition of an ATDS that includes stored-number systems: even if unartfully drafted, it is grammatically correct. In contrast, the majority’s definition requires a grammatically incorrect reading of the statute. Second, it avoids the problem of superfluity associated with a definition of ATDS that excludes stored-number systems (thereby rendering the term “store” in the statute’s definition surplusage). Third, the dissent concludes that the interpretation is consistent with the FCC’s early orders interpreting the TCPA. The FCC’s early definitions of an ATDS define it “as a device that uses a random or sequential number generator.” And fourth, the dissent argues that Congress’s intent was in fact to curb the use of machines that dialed randomly or sequentially generated numbers, pointing out language from an early congressional hearing to that effect. (KDW note: This argument is similar to the argument made by then-Commissioner Ajit Pai in dissent to the 2015 FCC decision that was overturned in ACA International v. FCC.)

What Comes Next

The Sixth Circuit’s position only further deepens the divide between the Circuits with six, evenly split Circuits having offered their positions. In the short term, the Allan decision expands the definition of an ATDS for callers and litigants in the Sixth Circuit; thus, increasing the potential risks and exposure.

The Allan decision is not likely to have lasting effect, however, because the United States Supreme Court has accepted a case to address the ATDS definition. The Sixth Circuit’s reasoning in Allan closely tracks the Ninth Circuit’s decision in Duguid v. Facebook, 926 F.3d 1146 (9th Cir. 2019). That decision has been accepted for review by the Supreme Court and will be argued in the fall. The resolution of the appeal should settle the question of what is an ATDS, providing (we hope) consumers and businesses alike with clear guidance on permissible autodialing systems.

Interestingly, the defendant in Allan had opposed a motion to stay the pending appeal until the Supreme Court reached a decision in Facebook. With this unhelpful ruling in hand, the defendant in Allen may file its own petition for certiorari, and/or seek further review by the Sixth Circuit en banc.


[1] These circuits stand opposite to the Seventh and Eleventh Circuits, which hold that an ATDS must use a random or sequential number generator. Although the Third Circuit has also weighed in Dominguez v. Yahoo, Inc., 894 F.3d 116 (3d Cir. 2018), the Allan court took the position that it did not expressly construe the definition. “The Third Circuit has not expressly addressed this question, but it did assume (without providing any analysis) that an ATDS must use a random or sequential number generator.” Allan at 5, n.3; but see Dominguez v. Yahoo, Inc., 629 F. App’x 369 (3d Cir. 2015) (considering “the definition of ‘random or sequential’ number generation” and confirming “the phrase refers to the numbers themselves rather than the manner in which they are dialed.”)

Advertising and Privacy Law Resource Center

Last month, a California court, for a second time, dismissed a class action complaint asserting that Ghirardelli’s advertising for its “Classic White” “Premium Baking Chips” created the false impression that the product contained real chocolate—this time with prejudice.  Plaintiffs in Cheslow v. Ghirardelli Chocolate Co., Case No. 19-cv-07467-PJH, alleged that they purchased Ghirardelli’s product because they believed it contained white chocolate, when in fact it does not contain any chocolate at all.  The complaint asserted statutory claims under California’s Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act.

Plaintiffs claimed that they purchased Ghirardelli’s “Premium Baking Chips,” which the packaging described as “Classic White Chips,” because they believing that the term “White” described the type of chocolate in the product, and the term “Premium” denoted that the product was made with real chocolate, as opposed to a “cheap knock-off.”  In April, the court dismissed the original Complaint without prejudice on the grounds that (1) reasonable consumers would not have assumed the term “white” described the type of chocolate in the product rather than the product’s color, (2) the term “premium” was mere puffery, and (3) because the packaging did not include any affirmative false statements, the plaintiffs could not simply ignore the ingredient list, which did not include the words “chocolate” or “cocoa.”

Plaintiffs attempted to address these deficiencies by commissioning, and attaching to its amended pleading, a consumer survey that purported to reflect that 92% of respondents that viewed the front panel of Ghirardelli’s product believed it contained white chocolate.

The court, however, found that the consumer survey results were insufficient to support the otherwise implausible false advertising claims.  The court reasoned that while in some cases courts may rely upon consumer survey evidence to bolster a finding that product representations could deceive reasonable consumers, such evidence is legally insufficient on its own to “transform an unreasonable understanding of a product into a reasonable one.”  The court also found that the consumer survey Plaintiffs relied upon was flawed.  Most importantly, the survey only showed respondents the front of the product’s packaging and not the back panel, which included important information about the product, including the ingredient list.

A number of recent lawsuits have been filed that accuse food product manufacturers (and specifically manufacturers of chocolate-based products) of misleading consumers about a product’s ingredients.  Advertisers should remain vigilant in ensuring not only that their product packaging contains no affirmative false statements, but also that they do not create an overall net impression about the product that is false or misleading to reasonable consumers.  The court’s decision in Cheslow, however, emphasizes that the existence of an accurate ingredients list – while it cannot be used to cure otherwise deceptive claims on the front of a product’s packaging – remains relevant to whether reasonable consumers would be misled by a product’s overall packaging.  The decision also puts a greater burden on plaintiffs seeking to avoid dismissal through survey evidence to ensure that the survey is itself not misleading and presents respondents with an accurate picture of what they would actually see if they reviewed the product’s packaging in its entirety.

The replay for our July 30, 2020 California Consumer Privacy Act (CCPA) for Procrastinators: What You Need To Do Now If You Haven’t Done Anything Yet webinar is available here.

The coronavirus pandemic has put many things on hold, but CCPA enforcement is not one of them. The California Attorney General’s enforcement authority kicked in on July 1, 2020, and companies reportedly have begun to receive notices of alleged violation. In addition, several class actions have brought CCPA claims. Although final regulations to implement the CCPA have yet to be approved, compliance cannot wait.

If you’re not yet on the road to CCPA compliance (or would like a refresher), this webinar is for you. We covered:

  • Latest CCPA developments
  • Compliance strategies
  • Potential changes to the CCPA if the California Privacy Rights Act (CPRA) ballot initiative passes

Anyone who has not begun their CCPA compliance efforts or thinks they need a refresher should watch this webinar.

To view the presentation slides, click here.

To view the webinar recording, click here.

Subscribe to our Ad Law News and Views newsletter to receive information on our next round of webinars and to stay current on advertising and privacy matters.

Visit the Advertising and Privacy Law Resource Center for additional information for additional information, past webinars, and educational materials.

Ad Law Access Podcast

Find the replay of our webinar Cleaning Up From 2020: Guidance for Disinfectant, Germ and Virus Killing Claims here.

COVID-19 has brought a proliferation of products claiming to kill or otherwise inhibit viruses, bacteria and other germs. These products, before they can be legally sold, are heavily regulated by the U.S. Environmental Protection Agency (EPA), Food and Drug Administration (FDA), and sometimes both. Major enforcement actions are pending against companies making illegal claims or selling unregistered products. Meanwhile, the FTC regulates advertising of many sanitizing products and the agency has pursued enforcement on companies that overstate their products’ germ-killing performance.

Please join us for a webinar covering the basics of germ killing and related product claims.

Discussion topics include:

  • The regulatory landscape: Who regulates what – EPA, FDA and FTC jurisdiction and requirements
  • What can you say and when can you say it
  • Potential liability and enforcement considerations
  • What to do if you receive a warning letter or other enforcement action

Anyone who is currently making or planning to make pesticide products, microbiology laboratory personnel with efficacy testing responsibilities, manufacturers of sanitizing products including lights, retailers of sanitizing products, anyone new to claims or in need of a refresher should join us for this webinar.

To view the presentation slides, click here.

To view the webinar recording, click here.

Subscribe to our Ad Law News and Views newsletter to receive information on our next round of webinars and to stay current on advertising and privacy matters.

Visit the Advertising and Privacy Law Resource Center for additional information for additional information, past webinars, and educational materials.

Advertising and Privacy Law Resource Center

As we previously reported, “Phase I” of class action filings relating to the COVID-19 pandemic has become a significant contagion of its own with more than 500 cases being filed since March challenging refund policies, school closures, event cancellations, and marketing and pricing practices.  As the economy gradually reopens, “Phase II”—how companies respond to these cases—is just beginning.  Not surprisingly, defendants are fighting hard and early to defeat these claims, with many opting to file motions to dismiss rather than answering the complaint and entering into lengthy and expensive discovery.

Early Action in Cases Against Public-Facing Businesses

Public-facing businesses—such those in the retail, travel and hospitality industries—have been the first to re-open and are currently navigating a patchwork of state guidelines on how to do so safely.  Compounding this burden, these same companies are facing a wave of lawsuits by customers and employees alleging negligence, breach of contract, and unfair business practices during the pandemic.

These industries are not new to class action litigation and many companies have included arbitration clauses and class arbitration waivers in their consumer contracts.  These defendants have, not surprisingly, moved to compel arbitration, and plaintiffs have responded with unique (but likely ineffective) allegations of unconscionability, fraud and duress to try to stay in court.  For example, in a case against Amazon, the plaintiffs alleged that the arbitration agreement was unconscionable because they were under duress during the pandemic and were forced to purchase products from Amazon.  Amazon’s response was based on the black-letter principle that unconscionability is measured at the time of contracting, and not at the time of the challenged conduct.

Other companies have focused on substance, arguing that they complied with their contractual obligations and that their customers have not suffered damages.  For example, in the case of recurring monthly payments for fitness club memberships, defendants have argued that their membership agreements do not mandate refunds for temporary closures, and therefore plaintiffs who filed suit within days or weeks of the initial closure did so too quickly. Continue Reading What will “Phase II” of COVID-19 Class Actions Look Like?

On July 22, the New York Department of Financial Services (DFS) announced the first enforcement action under its new Cybersecurity Regulation, which requires that businesses registered or licensed by DFS comply with a number of robust cybersecurity requirements. The action involves First American Title Insurance Company and, according to the Statement of Charges and Notice of Hearing, a “known vulnerability” that exposed tens of millions of documents containing non-public personal information (NPI). First American maintained a document-sharing application, and a vulnerability within the application allowed anyone with the URL to access the document and the NPI contained therein. After the First American cybersecurity team discovered the vulnerability in December 2018 (four-and-a-half years after it first occurred), it classified the risk as “medium severity” and failed to take reasonable remedial steps.

DFS alleges these actions (or lack thereof) violated the following six requirements of the Cybersecurity Regulation:

  1. Cybersecurity Program – The requirement to maintain a cybersecurity program that is designed to protect the confidentiality, integrity, and availability of information systems and to perform core cybersecurity functions, and that is based on a risk assessment.
  2. Data Governance – The requirement to maintain and implement data governance and classification policies suitable to the business model and associated risks.
  3. Access Privileges – The requirement to limit and periodically review user access privileges.
  4. Risk Assessment – The requirement to conduct a periodic risk assessment that is sufficient to inform the design of the cybersecurity program.
  5. Training – The requirement to provide regular cybersecurity awareness training for all personnel, and to update such training to reflect the risks identified in the risk assessment.
  6. Controls – The requirement to implement controls, including encryption, to protect NPI held or transmitted.

DFS can assess up to $1,000 per violation, and has stated that it considers each instance of exposed NPI a separate violation. At the hearing, scheduled for October 26, 2020, DFS will determine whether violations have occurred. This enforcement proceeding is a good reminder of the importance of conducting periodic assessments of cybersecurity practices, and not simply going through the motions of checking the boxes and filing the annual certification.

Summer associate Katrina Hatahet contributed to this post. Ms. Hatahet is not a practicing attorney and is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

Advertising Law Summer SeriesThe replay of our recent webinar Selling Online: How to Avoid Flattening the Curve of an Uptick in Website Traffic is available here.

COVID-19 has increased the already dizzying amount of online sales, making the applicable marketing requirements increasingly important. These rules affect not just how companies advertise and promote products and services online, but also how they bill and otherwise interact with consumers before, during, and after a transaction.

This webinar will include practical tips to help companies minimize risk of enforcement and litigation and provide practical guidance. Topics include:

  • Endorsers and Influencers
  • Promotions and Pricing
  • Subscription Plans and “Free” Trials
  • Shipping and Delivery
  • Consumer Reviews and the Consumer Review Fairness Act
  • Customer Service Considerations – how timely refunds and responsiveness can help reduce legal risks

To view the presentation slides, click here.

To view the webinar recording, click here.

Subscribe to our Ad Law News and Views newsletter to receive information on our next round of webinars and to stay current on advertising and privacy matters.

Visit the Advertising and Privacy Law Resource Center for additional information for additional information, past webinars, and educational materials.

 

Ad Law Access Podcast

A federal judge in Florida recently dismissed a false advertising case against Tyson Fresh Meats and The Fresh Market challenging the use of the word “prime” to describe Tyson’s “Chairman’s Reserve Prime Pork.” Specifically, the plaintiffs alleged that the defendants “misrepresented that the USDA had graded their product as prime,” but notably did not allege that the product was not of prime quality.

The USDA grades meat products differently.  For example, beef is graded as “prime,” “choice,” or “select,” which is notably displayed on the package through capital letters placed inside of a brightly colored shield. Similarly, chicken and other poultry graded by the USDA are stamped with a “USDA Grade A” shield.  The USDA does not grade pork, however, and there was no USDA grade shield on the packaging of the product at issue to suggest otherwise.

Nevertheless, the plaintiffs alleged that the use of the word “prime” in Tyson’s “Chairman’s Reserve Prime Pork” tricked consumers into believing that they were purchasing meat that had been graded as “prime” by the USDA.  The court dismissed the plaintiffs’ complaint in its entirety, finding it “implausible” that a reasonable consumer who was familiar enough with the USDA grading process for beef to “simultaneously be ignorant of the fact that the USDA does not grade pork.”  This was especially true given that the term “USDA” did not appear anywhere on the pork’s packaging.  As the court held, a “reasonable consumer sufficiently familiar with USDA grading would note the absence of the term.”  With this in mind, the court found the use of the word “prime” to be non-actionable puffery and dismissed the complaint with prejudice.

False advertising class actions like this one are extremely costly to defend, and this decision demonstrates that, despite popular belief, courts are (sometimes) willing to dismiss frivolous claims early and before defendants are forced into choosing between lengthy discovery or a quick settlement.  This decision and others like it will hopefully dissuade the plaintiffs’ bar from taking truthful and non-misleading advertising language out of context in an effort to create a false advertising claim where none exists.

Advertising Law Summer Webinar Series

 

Kelley Drye Advertising Law Summer Webinar Series This Wednesday, July 22
Selling Online: How to Avoid Flattening the Curve of an Uptick in Website Traffic
Register Here

COVID-19 has increased the already dizzying amount of online sales, making the applicable marketing requirements increasingly important. These rules affect not just how companies advertise and promote products and services online, but also how they bill and otherwise interact with consumers before, during, and after a transaction.

This webinar will include practical tips to help companies minimize risk of enforcement and litigation and provide practical guidance. Topics include:

  • Endorsers and Influencers
  • Promotions and Pricing
  • Subscription Plans and “Free” Trials
  • Shipping and Delivery
  • Consumer Reviews and the Consumer Review Fairness Act
  • Customer Service Considerations – how timely refunds and responsiveness can help reduce legal risks

Register Here

Kelley Drye Advertising Law Summer Webinar SeriesJuly 29
Cleaning Up From 2020: Guidance for Disinfectant, Germ and Virus Killing Claims
Register Here

COVID-19 has brought a proliferation of products claiming to kill or otherwise inhibit viruses, bacteria and other germs. These products, before they can be legally sold, are heavily regulated by the U.S. Environmental Protection Agency (EPA), Food and Drug Administration (FDA), and sometimes both. Major enforcement actions are pending against companies making illegal claims or selling unregistered products. Meanwhile, the FTC regulates advertising of many sanitizing products and the agency has pursued enforcement on companies that overstate their products’ germ-killing performance.

Please join us for a webinar covering the basics of germ killing and related product claims.

Discussion topics include:

  • The regulatory landscape: Who regulates what – EPA, FDA and FTC jurisdiction and requirements
  • What can you say and when can you say it
  • Potential liability and enforcement considerations
  • What to do if you receive a warning letter or other enforcement action

Anyone who is currently making or planning to make pesticide products, microbiology laboratory personnel with efficacy testing responsibilities, manufacturers of sanitizing products including lights, retailers of sanitizing products, anyone new to claims or in need of a refresher should join us for this webinar.

Register Here

July 30
California Consumer Privacy Act (CCPA) for Procrastinators: What You Need To Do Now If You Haven’t Done Anything Yet
Register Here

The coronavirus pandemic has put many things on hold, but CCPA enforcement is not one of them. The California Attorney General’s enforcement authority kicked in on July 1, 2020, and companies reportedly have begun to receive notices of alleged violation. In addition, several class actions have brought CCPA claims. Although final regulations to implement the CCPA have yet to be approved, compliance cannot wait.

If you’re not yet on the road to CCPA compliance (or would like a refresher), this webinar is for you.

We will cover:

  • Latest CCPA developments
  • Compliance strategies
  • Potential changes to the CCPA if the California Privacy Rights Act (CPRA) ballot initiative passes

Anyone who has not begun their CCPA compliance efforts or thinks they need a refresher should join us for this webinar.

Register Here

Also join our counterparts for:

COVID-19 Response Labor and Employment Labor and Employment Counseling and Compliance Labor and Employment LitigationTuesday, July 21
Not Normal: the Challenges of a Changed Workplace
Register Here

Four months ago, the Dow was close to 30,000, employment rates were at historic highs, the coronavirus was still “novel,” and millions had not yet taken to the streets in global protests against police brutality and racial inequality. The workplace we now return to exists in this supercharged social and political climate, with new rules, laws, risks and social issues creating new and uncharted waters for employers to navigate.  Join Kelley Drye’s Labor and Employment partners Barbara HoeyMark Konkel, and Kimberly Carter as they identify risks and share pragmatic solutions to these new challenges.  Topics will include:

  • Politics, speech and activism in the workplace
  • The changing role of HR
  • What “diversity” means now
  • New employment laws

Register Here

Advertising and Privacy Law Resource CenterFind replays of our webinars and other key resources relevant to advertising and marketing, privacy, data security, and consumer product safety and labeling on the Advertising and Privacy Law Resource Center.