Ad Law Access PodcastAs retailers have shifted to online and ship to store/ship from store sales, we’ve been getting a variety of questions from our retailing clients.

On the latest episode of the Ad Law Access Podcast, Advertising and Marketing chair Christie Grymes Thompson and partner Kristi Wolff answer retailer questions regarding pricing, shipping, refunds, customer reviews, and telethermographic cameras (cameras that can detect human temperature).

Listen on AppleGoogleSoundcloud, Spotify, or wherever you get your podcasts.

For more information on these and other topics, visit the COVID-19 Response Resource Center and Advertising and Privacy Law Resource Center.

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Getting Back to Work Webinar
The coronavirus threat will still be active when many employers begin to return their employees to the job. What will you do when employees refuse to return? When some have been sick but not diagnosed? When social distancing measures remain in place? When some parts of the country (or even your city) are “more open” than others? What should employers do to prepare?

In Part I of this two-part series, L&E Group co-chairs Barbara Hoey and Mark Konkel will guide employers through the snares of legal, logistical and practical considerations as the nation returns to work.

Register Here

Advertising and Privacy Law Resource Center

If you’ve been shopping lately, it’s likely that you’ve encountered empty shelves and shortages of items, such as (for inexplicable reasons) toilet paper. This tends to happen whenever a disaster – whether that’s a hurricane or COVID-19 – strikes. In some cases, retailers respond to these shortages by increasing prices. Although there may be legitimate reasons for doing that, retailers should keep in mind that price gouging laws in many states can impact their ability to increase prices. State regulators are likely to give increased attention to price gouging issues in the coming weeks and months. For example, California Attorney General Xavier Becerra announced today that his office sent “several letters calling on large online marketplaces to intensify their efforts to combat price gouging related to novel coronavirus—or COVID-19—on their platforms.”

More than half the states have laws that prohibit charging excessive prices on certain products after a triggering event, such as a declaration of a state of emergency. What constitutes an excessive price varies by state, but many laws look at the price that had been charged for an item over a specific period prior to the emergency. Some statutes have specific thresholds. For instance, a 10% price increase is presumed to be excessive in New Jersey, while Pennsylvania assumes that a 20% increase is excessive.

Most laws have exceptions to these prohibitions. For example, in many states, a price increase is not unlawful if a company can prove that the increase was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide services. If you are a retailer and need to increase prices as a result of increases from your suppliers, make sure to check the relevant state laws and to document those increases.  While generally enforced against retailers, some laws expressly apply to suppliers, distributors, and/or wholesalers – and others are broad enough to arguably apply to these entities. At minimum, this means that retailers may have leverage to request documentation to support the increase.

Civil penalties for violations generally range from $99 to $250,000 per violation. (The high end of that range applies in Texas if a consumer who is impacted is at least 65 years old.)  Some states also have criminal penalties for violations.  If you’re going to increase prices on goods, make sure you take a look at these laws first.​

For other helpful information during this pandemic, visit our COVID-19 Resource Center.

Last week, the New York Attorney General’s Office announced that Bombas had agreed to pay $65,000 and implement a number of injunctive provisions to settle allegations that the sock startup failed to comply with the state’s data breach notification statute. According to the press release, Bombas learned in November 2014, that an unauthorized intruder had inserted malicious code designed to steal payment card information into its ecommerce platform. Bombas allegedly waited almost two months before remediating, and then mistakenly re-inserted the code into the website a few weeks later.

The company determined that the incident resulted in unauthorized access to the names, addresses, and credit card information of almost 40,000 customers nationwide, but did not notify those consumers until May 2018. New York’s data breach notification statute requires that businesses provide notice of a breach of personal information “in the most expedient time possible and without unreasonable delay” to both the affected resident(s) and the Attorney General, the Department of State, and the Division of State Police.

The AG’s Office has not made a copy of the settlement agreement public, but explains that the injunctive provisions are intended to help prevent future breaches and ensure compliance with the law, N.Y. Gen. Bus. Law § 899-aa. They include requirements for thorough and expeditious investigations into any future breaches and training for all appropriate officers, managers, and employees. This settlement highlights the importance of preparing for a breach, including developing and implementing policies and procedures that will allow the business to comply with the patchwork of state requirements in an efficient and timely manner.

The Oregon AG recently announced a $545,000 settlement with the Vitamin Shoppe over allegations that the store violated Oregon state law by selling dietary supplements containing ingredients that FDA has deemed unsafe or unlawful. The new settlement agreement places significant burdens on the Vitamin Shoppe to monitor developments on ingredient status. The burdens are the same regardless of whether the Vitamin Shoppe sells a product under one of its own brands – or if it sells a product that was manufactured, labeled, and sold to it by a third party vendor.

Under the terms of the agreement, if the Vitamin Shoppe “receives or learns of” a “written notice” from FDA that an ingredient may be unsafe or unlawful, it must “take immediate action to suspend the sale of such products or products known to contain the ingredients.” If the Vitamin Shoppe becomes aware of any other “public announcement, warning, alert, publication, notice, or report” suggesting that the U.S. government, Australia, Canada, Britain, or the EU might consider a dietary ingredient unsafe or unlawful under the FDCA, then the Vitamin Shoppe must conduct a “reasonable due diligence review,” which may result in a decision not to sell any products containing the ingredient.

This settlement is notable for at least two reasons:

  1. It identifies FDA warning letters sent to the Vitamin Shoppe or anyone else as “written notice” that FDA has deemed an ingredient unsafe or unlawful.  Warning letters, however, state only allegations and are not considered “guidance” under FDA’s rule on “good guidance practices.”  Well after a warning letter is issued, the lawfulness of a particular dietary ingredient can be the subject of much ongoing debate, and even the FDA’s official guidance document on ingredient status remains in flux after years of debate.
  2. The settlement represents an aggressive stance by Oregon on a retailer’s liability for product formulation and labeling by third parties.  As we’ve discussed before, there isn’t a whole lot of precedent for regulators going after the retailer, rather than the product seller.

The Oregon Attorney General is currently in litigation against another retailer over similar allegations related to the legal status and safety of a dietary ingredient.

Kelley Drye Ad Law publishes News & Views: Dietary Supplement Advertising, which covers developments ranging from FTC and FDA regulation, class actions, Customs developments, and Prop 65. Subscribe to future issues by filling out your information and checking the Dietary Supplements Practice Group box here.

Last week, the Federal Trade Commission announced its first settlement with a retail tracking company, resolving allegations that Nomi Technologies, Inc., a micro-location platform that provides analytics services to retailers through its product “Listen,” failed to abide by several promises it made in its privacy policy. Under the terms of the agreement, Nomi is prohibited from misrepresenting the options it provides to consumers to control whether and how their information is collected, used, disclosed, or shared.

Listen, which serves approximately 45 retailer clients, uses a retailer’s in-store Wi-Fi to collect statistical information from customers’ mobile devices and provide aggregate customer traffic pattern reports to the retailer. According to the FTC’s complaint, Nomi’s privacy policy represented that the company would provide an opt-out mechanism for customers on the Nomi website and at any retail location, implying that customers would be notified when stores were using the technology. The FTC alleges, however, that, not only did Nomi and the retailers fail to notify customers when stores were using Listen, but no in-store opt-out mechanism was ever available. As a result, Nomi allegedly tracked customers both inside and outside of stores by their MAC address, device type, date and time, and signal strength, and provided aggregate information to its clients, such as the percentage of repeat customers and the average duration of customer visits. In particular, the complaint alleges that Nomi collected information on approximately nine million mobile devices within its first year of operation.

This consent order reminds companies that they have a responsibility to abide by the promises made in their privacy policies, even when dealing with new and emerging technology such as retail tracking. One way to avoid making this mistake is to evaluate and confirm how data are collected and likewise confirm that the privacy policy representations are consistent with practices. Additionally, mindful that business practices evolve, companies should periodically review and consider revising privacy policy statements to keep those statements accurate.

Last year, Duluth Trading Company ran ads promoting its henley-style shirts that urged customers to “Don a Henley and take it easy.” (Readers of a different generation, take note: Don Henley is one of the singers in the Eagles, and Take it Easy was the band’s first single inHenley 1974.)

If you’ve read our previous posts on right of publicity issues, you may know that it’s usually not a good idea to use a celebrity’s name or image without their permission. In this case, Henley filed a lawsuit against Duluth, arguing that the retailer’s ads exploited his celebrity status, violated his publicity rights, and infringed his trademarks.

The parties agreed to settle the suit this week, and Duluth posted a public apology to Don Henley on its Facebook page. In the apology, the company noted that although it aims to keep its ads “fresh, interesting, and funny,” they had “pushed the advertising envelope too far.” “We have learned a valuable lesson and thank Mr. Henley for helping us appreciate the importance that he and other artists place in their publicity rights.”

Luckily, you don’t have to be sued by Don Henley to appreciate the importance of publicity rights. You can just read our blog. Or you can check out a recent series on right of publicity claims posted by our friends at Drye Wit.

Retailers have had a tough year when it comes to advertising prices. In January, a California court issued a multimillion dollar penalty against Overstock.com, after determining that the company advertised discounts in a misleading manner. Since then, retailers across a range of industries have been dragged into costly lawsuits and regulatory investigations involving similar issues. If you’re wondering how something as mundane as advertising the price of an item could lead to so much trouble, it’s because the issue is more complicated than most people think.

To learn more, read my article in RetailingToday.

Retailer superstore Meijer Inc. is on the hook for allegedly distributing recalled consumer products. In a press release dated September 17, 2014, the Consumer Product Safety Commission (“CPSC”) announced the hypermarket operating 24-hour stores and gas stations in various Midwestern states has agreed to settle charges that it knowingly sold and distributed recalled consumer products. Meijer has agreed to pay a $2 million civil penalty and to implement an enhanced “reverse logistics” compliance program. This settlement signals heightened scrutiny and new channels of enforcement for retailers.

Between April 2010 and April 2011, Meijer allegedly distributed at least twelve separate recalled consumer products, totaling approximately 1,692 individual units of recalled products. The recalled products consisted of various household items and children’s products, including oscillating ceramic heaters, toddler tricycles, vacuum cleaners, and baby rattles. According to the settlement agreement, Meijer claimed the sale and distribution of the recalled items was inadvertent and occurred without Meijer’s knowledge. Meijer had outsourced the disposition of recalled products to a reverse logistics system operated by a third party, and believed that adequate safeguard had been in place to prevent recalled products from being distributed into commerce.

The CPSC thought otherwise. In addition to the $2 million civil penalty, the CPSC is requiring that Meijer implement an enhanced reverse logistics compliance program with the following components:

  • Written standards, policies, and procedures for the appropriate disposition of recalled goods;
  • Mechanisms to communicate product safety policies and procedures to employees;
  • Management oversight of the program, including a mechanism for confidential reporting to a Meijer official;
  • A policy to retain reverse logistics records related to recalled product collection and disposition for at least 5 years after the recall date; and
  • Availability of such records to the CPSC upon request.

This settlement follows the CPSC’s announcement last July of recalled products that were continuing to be sold or resold by Best Buy and certain affiliated entities. The CPSC did not impose a civil penalty against Best Buy or require an enhanced compliance program. In light of these two announcements, retailers should carefully review their compliance protocols to ensure recalled products are not reentering the stream of commerce.

The FTC recently announced that it sent warning letters to five “major retailers” selling athletic mouth guards on their websites. According to the FTC, the retailers’ websites included concussion claims that may be deceptive. The FTC urged the recipients of the letters to ensure that all concussion claims appearing on their sites are backed by “competent and reliable scientific evidence.” The FTC also warned the recipients that “retailers, as well as product manufacturers, can be liable for violating the FTC Act if they disseminate false or unsubstantiated claims.”  

The FTC, meanwhile, has provided little guidance on what constitutes competent and reliable scientific evidence for concussion claims for mouth guards or other similar devices. It has issued no guidance documents, and the single case that it has brought in the area led to a settlement. The resulting settlement order simply requires “competent and reliable scientific evidence” for any future concussion claims, without elaborating on what the appropriate evidence might look like. What exactly constitutes appropriate science is, however, apparently the subject of debate among experts. The single existing mouth guard case prompted experts in the fields of general dentistry and sports dentistry to submit comments to the FTC both opposing and supporting the settlement.  In finalizing the order, the FTC said nothing substantive about the positive comments. Regarding the negative comments, it stated only that although the science shows that some mouth guards “can reduce the impact to the lower jaw,” there is currently no science directly linking mouth guards and reductions in concussion risk. In a vacuum of any substantial guidance, retailers and manufacturers, alike, will be hard pressed to know what evidence is good enough. 

In the recent warning letters, the FTC cited the 1970s case, Porter v. Dietsch, in support of the proposition that retailers may be held liable for violations of the FTC Act. In that case, the FTC found a retailer, Pay’n Save, liable for disseminating deceptive ads for a weight loss product. The FTC found that Pay’n was liable even though it had not participated in any way in the creation of the ads, which had been provided by the product manufacturer. The Seventh Circuit affirmed the FTC’s findings on liability, but narrowed the resulting order against Pay’n Save. Rather than applying to any future advertising by Pay’n Save for any weight loss product, the narrowed order would apply only to future advertising for weight loss products made by the same manufacturer. The court pretty clearly had misgivings with treating a retailer just like an advertiser, even if both are subject to the FTC Act.  It observed that “the extent of a party’s culpability has an important bearing . . . on the nature of the relief that should be granted.”

Last year, we posted that Department of Justice will soon address the applicability of the Americans with Disabilities Act (“ADA”) to private retailers offering goods and services to the public online. This month, we’ve learned about an ADA case that could impact retailers in their stores.

A consumer recently filed a lawsuit against Express Inc. alleging that the retailer violated the ADA by failing to provide card-swipe machines with textured keys. According to the complaint, because the company’s machines throughout the US do not feature textured keys, blind consumers are forced to give out their PIN numbers in order to make a debit card purchase, leaving them open to bank fraud. The plaintiff alleges that this violates the ADA, which prohibits discrimination in places of public accommodation and requires those places to be readily accessible to, and independently usable by, individuals with disabilities.

Among other things, the complaint asks the court for a declaration that the machines used by Express violate federal law, as well as an injunction requiring the retailer to update or replace all the machines that are in violation of the ADA. If the court sides with the plaintiff, this case could impact all retailers across the country.