Federal Trade Commission

On November 27, the FTC Commissioners testified on a range of issues before the Senate Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security. One excerpt that caught our attention was their comments on “Made in USA” advertising and the potential for increased scrutiny.

Here’s an excerpt of the Q&A between Sen. Shelly Moore Capito (R-WV) and the FTC Commissioners (emphasis added):

CAPITO: Okay, last question I have on fraudulent marketing would be the… fraudulent Made in America label. How prevalent is this? And what are some of the means you’re going to try to curb this practice?

SIMONS: This is fairly prevalent. We get hundreds of these, hundreds of complaints a year, that people are improperly using the Made in the USA label. We are committed to investigating those, and usually a lot of times what happens is the firm, the company doesn’t even realize that it’s a violation. So we explain to them it’s a violation and they stop it.

Sometimes companies do it intentionally, sometimes we tell them and they don’t stop and those people we sue. And one of the things that we’re exploring now, as a general rule, we have only gotten injunctive relief in cases like this previously. Now we’re exploring whether we can find a good case that would be appropriate for monetary relief to serve as an additional deterrent.

CHOPRA: I just want to add here that I think there are manufacturers out there who hire American workers and who purposely do that because they want to put the flag on their product. And for those who lie, this cheapens the Made in the USA label so it’s not just hurting American consumers, it’s hurting every American manufacturer who is trying to do right. So I want us to be much more aggressive with this, actually. And if you and Senator Cortez-Masto want to team up, finding civil penalties for some of these bad actors, we can make sure we increase compliance levels. And I got to tell you — right now there’s a country of origin labeling issues in agriculture, country of origin issues in product marketing. We have to do more to put a stop to this because this is extremely unfair to honest companies.

Continue Reading FTC Testimony Signals Possible Increase in “Made in USA” Advertising Scrutiny

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

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.

The Northern District of California recently ruled on DIRECTV’s motion for judgment on partial findings in a case where the FTC is seeking $3.95 billion in damages. The FTC’s case alleges that DIRECTV engaged in misleading advertising over a span of more than a decade and across a variety of media channels ranging from television to the company’s website, violating Section 5 of the FTC Act and the Restore Online Shopper’s Confidence Act (ROSCA).

Specifically, the FTC alleges that the company failed to prominently display certain key provisions, such as the 24-month contract requirement and that advertised prices would increase after 12 months, on over 40,000 advertisements. The agency did not allege that the advertising in question was false, but that the details were not displayed sufficiently.

In partially granting DIRECTV’s motion, the court found that the FTC failed to prove a Section 5 violation as to the company’s banner, print, or TV ads because the agency did not establish that there was a misleading net impression among consumers, and because the Commission did not sufficiently identify the alleged net impression. The proffered evidence did not establish that the advertisements were likely to mislead a reasonable consumer.

The FTC provided evidence for less than 1,000 of the challenged 40,000 advertisements at issue in the case. The court determined that this, along with the additional evidence that the FTC did provide, such as expert testimony regarding three specific ads, were not enough for the agency to meet its burden. The court noted that the agency was not required to introduce all 40,000 ads into evidence, but it did need to explain why the conclusions made about a few ads could be generalized among a large number of others that varied in format, content, and emphasis. The court also highlighted that DIRECTV’s print ads displayed the necessary disclosures in text that was in all caps, bolded, and in a dark font against a light background, which the court determined was likely sufficiently prominent and in compliance with the FTC’s .com Disclosure guidance.

Notably, the court declined to make a similar conclusion about DIRECTV’s website advertisements. The court found that the FTC’s evidence, although “far from overwhelming” was enough to defer a determination about the Section 5 and ROSCA claims associated with the website advertising at issue. Specifically, the court focused on the fact that the challenged advertising required consumers to hover over or click on a link or icon to learn about the pertinent terms of the offer. In theory, therefore, a consumer could have flowed through the entirety of the online order process without confronting important details about the offer.

The court also discussed the FTC’s nearly $4 billion potential remedy, suggesting that the agency would be unlikely to meet its burden to prove an adequate basis for relief due to the court’s partially granting DIRECTV’s motion. The court had issues with the FTC expert’s calculation of unjust gains because he presumed that all of the defendant’s subscribers for the time period at issue were misled in the same way, without a sufficient basis for that presumption other than the FTC’s instruction. This presumption was especially problematic because there were so many iterations of the advertisements. However, the court deferred the issue to see if the FTC would be able to prove liability with the remaining claims.

In a case that is historic for the breadth of advertising at issue and the amount of damages the FTC seeks, the court’s order creates significant challenges for the agency as to the remaining claims in the case. We will continue to monitor this case for any updates as it proceeds.

In the meantime, the case continues to be notable in highlighting the scrutiny that a company may face when failing to sufficiently disclose post-introductory prices and term commitments for subscription type plans. Following best practices and regulatory guidance on disclosing material terms are helpful steps to avoid such scrutiny in the first instance.

The FTC recently finalized updates to its Guides for the Jewelry, Precious Metals, and Pewter Industries, which provide the FTC’s interpretation of the jewelry marketing rules found in 16 C.F.R. §23.  The FTC hosted a roundtable in 2013, which we wrote about here, and considered stakeholder comments prior to finalizing the new Guides.  The updated Guides address a number of topics, including the surface application of precious metals, below-threshold previous metal alloys, gemstone products, and “cultured” diamonds.

What’s Changed

Some highlights of the changes include advising that jewelry marketers may:

  • Qualify if a coated product only has a service layer of a precious metal;
  • Advertise a product’s precious metal coating to assure reasonable durability;
  • Disclose the purity of coatings made with precious metal alloys;
  • Qualify a product’s gold karat fineness or a parts per thousand (PPT) designation for silver products that have less than 925 PPT;
  • Use alternative words and phrases for man-made stones (where it shares the same properties as the named stone) if they clearly and conspicuously convey that the product is not a mined stone.

Continue Reading All That Glitters Is Not Gold: FTC Updates Jewelry Guides

Last week, the House Committee on Energy and Commerce held a Committee Hearing on the Oversight of the Federal Trade Commission. All five Commissioners attended and their message was largely the same: the FTC needs additional rulemaking and civil penalty authority to better protect consumers, especially as it applies to privacy and data security enforcement.

Privacy and data security were a focus of the Chairman’s opening statements, during which he noted that both were a top priority for the agency. Chairman Simons also discussed the need for the FTC to have jurisdiction over nonprofits and common carriers, imploring Congress to pass legislation giving the agency such authority, along with comprehensive data security legislation. Simons noted that the FTC was watching and assessing the EU’s implementation of its comprehensive privacy law, the General Privacy Data Protection Regulation (GDPR), to see how it may apply to the U.S. and he reaffirmed enforcement of the EU-U.S. Privacy Shield, which the FTC has enforced in the past.

Chairman Simons also referenced the hearings that the Commission will be holding in the fall, emphasizing that he anticipated the agency would benefit from participant input on a number of topics—from merger guidelines to privacy and data security. Simons, a former student of Chairman Pitofsky, noted that the agency held similar hearings during the Pitofsky era that resulted in agency action, such as amendments to the merger guidelines. The Chairman noted that he wanted this year’s hearings to be similarly effective in setting the agency’s future agenda. Continue Reading Big Government? FTC Advocates for More Authority in Congressional Hearing

Last week, a California court granted a temporary restraining order against Triangle Media, a company that sells various types of products using “risk free” trials. According to the FTC, though, the trials were very risky, involved hidden charges, and violated various laws.

When consumers clicked on ads for Triangle’s products, they landed on websites promoting “risk free” trials. The order flow and payment screens suggested that consumers just had to pay the cost of shipping, which was typically $4.95 or less. Although the shipping costs were presented in bold, black text that was highlighted in yellow, a small gray-on-white disclosure at the bottom of the page mentioned other costs: “By placing an order you will be enrolled in our membership program. This program will charge $4.95 today and $84.71 for your trial full-size product on the 15th day if you do not call to cancel the membership. You will receive a full-size bottle of the product for $84.71 (S&H included) every 30 days thereafter until you cancel.” Consumers who ordered on their phones had to click on another link to see that disclosure.

The FTC alleges that defendants who clicked to start their trials would be directed to a second page which claimed that the order was not complete and suggested that consumers take advantage of another “free trial” of a product that could be paired with the first one. Like the original order page, the only mention of the additional costs appeared in a small gray-on-white disclosure at the bottom of the page. To make matters worse, the FTC alleges that the company made it difficult for consumers who were surprised by the charges to cancel their memberships and obtain refunds.

The FTC filed a complaint against Triangle in California federal court, alleging that the company violated the FTC Act, the Restore Online Shopper’s Confidence Act, the Electronic Fund Transfer Act, and Regulation E. The court temporarily halted the operation, froze the company’s assets, and appointed a temporary receiver over the business.

We’ve covered this type of issue before, so if you read this blog, odds are that you don’t engage in these types of practices. But don’t ignore this case just because your order flows don’t look like Triangle’s. Laws governing free trials can be complicated, and many reputable companies have been hit with lawsuits or regulatory investigations over how they disclose offer terms. If you haven’t looked at your practices recently, now may be a good time to do that, especially given that California’s new rules on automatic renewals have come into effect.

The FTC announced yesterday that it will accept comments and hold a series of public hearings on consumer protection, privacy, and competition policy and enforcement.  The hearings will take place during fall and winter of this year and will evaluate whether recent changes in the economy, technology, or international landscape require adjustments to how the Commission approaches consumer protection, privacy, and competition issues.

The hearings are modeled off of hearings held in 1995 under then-Chair Robert Pitofsky.  Those hearings took place amidst the early growth of the internet and e-commerce, featuring panels such as, “The Newest Medium for Marketing: Cyberspace,” “Privacy in Cyberspace,” and “The Changing Role of the Telephone in Marketing.”  The 1995 hearings featured panelists from large companies including Walt Disney, General Electric, and Coca-Cola, along with consumer group representatives, regulators, academics, and attorneys from private law firms.  The hearings culminated in a two volume report on the state of consumer protection and competition policy.

In announcing the 2018 hearings, FTC Chair Joe Simons noted that “the FTC has always been committed to self-examination and critical thinking, to ensure that our enforcement and policy efforts keep pace with changes in the economy.”  Simons served as Director of the Bureau of Competition immediately after Pitofsky’s tenure as Chair under then-Chair Tim Muris – and alluded to Pitofsky, Muris and former Chair Kovacic in his statement announcing the hearings.  Simons’ statement also expressed his view that “[t]his project reflects the spirit, style, and, most importantly, broad scope of that effort,” and characterized the efforts as an “all-agency” project that will entail significant efforts from the Bureaus of Consumer Protection, Competition, and Economics, the Office of the General Counsel, the Office of International Affairs, as well as the Office of Policy Planning. Continue Reading FTC Examining How Consumer Protection and Privacy May Be Affecting Innovation and Competition; Seeking Input and Will Hold Policy Hearings to Address

If you follow our blog, you know that we often write about issues involving the FTC and the CPSC, but we usually do not write about both in the same post. Now those worlds have collided. The staff of the FTC’s Bureau of Consumer Protection (“BCP”), a prominent voice in the Internet of Things dialogue, recently filed comments in response to a CPSC request for information about the potential safety hazards linked to internet-connected products. The request follows a May 16 hearing that included speakers representing a variety of industries and organizations, such as Retail Industry Leaders Association, Underwriters Laboratories Inc., Consumer Reports, and the Electronic Privacy Information Center. The BCP staff’s comments specifically address the following topics:

  • Best practices for mitigating against safety hazards. The BCP staff’s comments placed security and safety hand in hand with the following recommendations for companies offering connected devices: (1) risk assessments to evaluate their security programs and pinpoint possible threats before launching a product; and (2) oversight of service providers, including the incorporation of security standards into contracts and ensuring that the providers are complying with applicable security standards.
  • Registration for safety alerts and information related to recalls. The BCP staff recommended implementing a process similar to the CPSC’s current protocol for alerts related to infant and toddler products, wherein manufacturers and retailers are required to provide a safety registration card with the product. Instead of requiring the consumer to mail-in a registration, however, a URL could be included for online registration.
  • The role of government in regulating IoT security. The BCP staff did not take a position on whether the CPSC should implement regulations specific to IoT device hazards, but suggested that, if the CPSC considers such regulation, it should take a technology-neutral approach so that any such regulation does not quickly become obsolete.

The CPSC continues to evaluate these issues while coordinating with other federal entities like the FTC and NIST, tracking state legislative developments, and exploring the role of voluntary standards. Any company that makes, imports, distributes, or sells a connected product should continue to watch for developments.

Andrew Smith was recently named Director of the FTC’s Bureau of Consumer Protection. With a strong background in financial matters, businesses can expect Smith to focus on issues affecting consumer financial services.

Smith is not a stranger to federal positions. Although most recently a Partner in the Regulatory and Public Policy Group at Covington & Burling LLP and Co-Chair of the firm’s Financial Services Group, Smith previously held roles as Senior Counsel and Acting Assistant General Counsel at the SEC from 1997 to 2000 and as the Assistant to the Director of the Bureau of Consumer Protection from 2001 to 2005. During Smith’s time at the FTC, he focused largely on consumer financial protection policy—mainly through enforcement and rulemaking. For example, while serving as the program manager for the Fair and Accurate Credit Transactions Act of 2003, Smith helped to draft ten rules and six studies.

Smith’s interest in financial services has followed him throughout his career. His practice at Covington focused specifically on financial privacy—including regulatory compliance, consumer financial services laws, and enforcement actions and investigations. He also serves as the Chair of the ABA’s Consumer Financial Services Committee.

Notably, in January of this year, Smith testified before the House of Representatives Subcommittee on Financial Institutions and Consumer Credit about fintech policy. His statements suggest that he is in favor of an increased role of fintech in the banking industry, although he proposes passing legislation that clarifies the role of banks as lenders, regardless of the vendor or service provider. Further indications of Smith’s interest in the fintech space come from an editorial he authored in The Hill in February of this year. He advocates collaboration between fintech and banks to offer the middle class more financial options, e.g., point-of-sale lending. In Smith’s words, “the future of banking is the internet, and brick-and-mortar is the past.” His piece supports the Modernizing Borrower Credit Opportunities Act of 2017, a bipartisan bill to regulate the fintech industry introduced in November of 2017.

Another indication of Smith’s likely priorities as Bureau Director may be the people he worked with during his prior stint at the FTC. For example, he worked closely with Howard Beales who served as the Director of the Bureau of Consumer Protection from 2001 to 2004. Regarding advertising specifically, Beales advocates for a flexible “reasonable basis” standard for substantiation requirements, as opposed to more stringent evidentiary standards. This position favors the view that consumers benefit from having access to information. Having served with Beales, Smith may take a similar approach to substantiation requirements as Director.

Despite Smith’s previous experience, however, his appointment has not been without controversy. While at Covington, Smith represented Facebook, Uber, and Equifax in both investigations and FTC settlements regarding data breaches. Although Smith plans to recuse himself from these high profile cases in his new role, opponents have noted that Smith’s representation of these companies may put him at odds with the FTC’s consumer protection mission. Senator Richard Blumenthal stated that he could “imagine worse choices [for Bureau Director], but not many,” noting that Smith was “on the wrong side of [the] issues” in his testimony on behalf of Equifax last fall. During that testimony, Smith indicated that credit bureaus should not have a fiduciary duty to consumers from whom they collect data, and that current industry regulations were satisfactory to protect consumers. Senator Elizabeth Warren called Smith’s appointment “corruption, plain and simple,” referring to him as “Equifax’s hired gun.” Further, David Vladeck, who was Bureau Director from 2009 to 2012, noted that Smith’s recusing himself from some of the agency’s most important cases is an unusual position for someone in his role and wondered “how far-reaching the recusals will be.”

The FTC’s newly-appointed Democratic Commissioners had similar concerns, turning a usually perfunctory vote into a point of contention. Rebecca Slaughter noted that appointing a Director “who is barred from leading on data privacy and security matters that affect so many consumers, command so much public attention, and implicate such key areas of the law potentially undermines the public’s confidence in the commission’s ability to fulfill its mission.” Rohit Chopra, a fellow Democrat, agreed, noting that Smith’s conflicts “[raise] many questions,” and would put Smith “on the sidelines” in some of the agency’s most important cases. He also noted that FTC Chairman Joe Simons made the pick without a Commission meeting. Simons, however, called the appointment a “source of unnecessary controversy,” indicating that “it is impossible to attract high caliber professionals to the FTC without encountering some conflicts,” and noting that the agency can readily handle recusals.

Although we may have some insight into Smith’s new role as Director, his position on consumer protection issues outside of the financial industry, and the effects of his recusals, are left to be seen. We can expect, however, that helping to regulate fintech, and other financial security issues, will likely be high on his list of things to do.