On January 14, Plaintiffs in the consolidated case of Veera v. Banana Republic, LLC, et al., filed for approval of a preliminary class action settlement after Plaintiffs Veera and Etman successfully argued that “frustration” and “embarrassment” over unclear discounts is sufficient to meet the requirements for injury.

According to separate lawsuits filed against Banana Republic and The Gap, the companies displayed in-store signs promoting a class of merchandise for sale at a stated price (e.g., 40% off sweaters) or subject to a stated discount (e.g., “40% off your purchase”) without clearly and conspicuously identifying the items that were excluded from the offer. The lawsuits alleged that these signs were either not accompanied by any disclosure of limitations, or were accompanied by a disclosure so small and closely colored to the sign background as to not be noticeable.

In an action under California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA), Plaintiffs claimed that, in reliance on the signs, they selected various items for purchase at the advertised discount, and out of frustration and embarrassment, ultimately bought some of the items, even after learning that the discount did not apply.

Although a lower court granted summary judgment in favor of the retailers, the California Court of Appeals concluded that Plaintiffs met the requirements to allege injury. “Injury in fact is not a substantial or insurmountable hurdle,” the Court noted, “Rather, it suffices to allege some specific, identifiable trifle of injury.” The Court agreed with the Plaintiffs claim that, but for the allegedly misleading signs, Plaintiffs would not have made the clothing purchases (even after hearing of the non-discounted price at the register).

The parties agreed upon the proposed settlement hours before the class certification hearings. The key terms of the settlement provide that The Gap will provide a one-time coupon for the purchase of up to 4 items in a Banana Republic or The Gap store at 30% off regular price to certain customers who purchased items from The Gap or Banana Republic stores in California, for use on a future purchase. The Plaintiffs in the action will also receive $8,000 each under the proposed settlement. The Gap will also pay $1 million in fees and costs, and all costs of administering the proposed settlement.

A hearing is set for March 1st on the motion for preliminary approval of the settlement.

This proposed settlement serves as a reminder about the importance of clearly and conspicuously disclosing the limitations of any offer, including the terms of a sale. We will watch the California Court of Appeals for further willingness to allow cases to go forward even when Plaintiffs claim little to no injury beyond “embarrassment.”

Most Popular Ad Law Access Posts of 2017

As reported in our Ad Law News and Views newsletter, Kelley Drye’s Advertising Law practice posted 106 updates on consumer protection trends, issues, and developments to this blog in 2017. Here are some of the most popular:

Ad Law News and Views is produced every two weeks to help you stay current on advertising law and privacy matters. You can subscribe to it and other Kelley Drye Publications here and the Ad Law Access blog by email or RSS feed.

2018 Advertising and Privacy Law Webinar Series 

Please join Kelley Drye in 2018 as we continue our well attended Advertising and Privacy Law Webinar Series. Like our in-person events, this series gives key updates and provides practical tips to address issues faced by counsel as well as CLE credit. This webinar series will start again in February 2018. Please revisit the 2017 webinars here.

The Senate Committee on Commerce, Science and Transportation approved Acting Chairman Ann Marie Buerkle’s nomination to become CPSC Chairman last Thursday in a 14-13 vote along party lines. She is expected to be confirmed by the full Senate, and would then be able to move forward with staff appointments. Buerkle has served as Acting Chairman since February, and was nominated to become Chairman in July. For more information about Acting Chairman Buerkle’s priorities at the CPSC, please view our previous blog posts here and here.

Associate Lauren Myers contributed to this post. She is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

In 2014, Anheuser-Busch ran a contest on Facebook in which consumers were invited to submit photos of themselves “acting natural.” The contest rules stated that entrants could only submit their original works, and that the photos could not infringe anyone else’s copyrights, privacy rights, publicity rights, or other rights. Moreover, the rules stated that entrants granted Anheuser-Busch a broad license to use their photos in any media. After the contest ended, the company started using some of the photos on materials for its “Every Natty Has a Story” campaign, including coasters and posters that were distributed in bars.

So far, this story is fairly typical, and could represent any number of contests that are run in the US every year. What makes this story different, Kayla Kraft Photothough, is that the owner of one of the photos Anheuser-Busch used filed a lawsuit against the company for copyright infringement, invasion of privacy, and violation of her right of publicity. Kayla Kraft argues that she owns the copyrights to a photo of her drinking beer while wearing a fake mustache that Anheuser-Busch used in its campaign, and that the company used the photo without her consent. She is seeking unspecified damages.

It’s difficult to piece together what may have happened. According to press reports, Anheuser-Busch says that Kraft’s picture was submitted as a contest entry. The company hasn’t answered the complaint yet, though, and the complaint doesn’t specifically mention the contest, so we don’t have a lot of details. Obviously, the case is going to turn on facts that we don’t have, including who submitted the picture. But although it’s too early to draw clear lessons from the case, the suit still highlights some important issues related to the use of user-generated content (otherwise known as “UGC”).

Companies can – and should – put provisions in rules that (among other things) tell people what they can and can’t submit, specify what rights the company has to submissions, and release the company from any liability. Keep in mind, though, that not everyone will read the rules, and that submitters may not even have the authority to grant the necessary rights. There are some things companies can do to address these risk. For example, it might make sense to highlight key provisions outside of the rules. And although you may be able to rely on online releases for some things, there are instances – such as when you want to use content offline – in which an offline written release make more sense.

Almost every campaign that includes UGC involves a careful balancing of risks. Because a “perfect” solution may be cumbersome in many cases, most companies will accept some level of uncertainty. But lawsuits like this serve as good reminders of what can go wrong.

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One maker of insect-control products (United Industries Corporation) challenged claims made by another maker of similar products (The Scotts Company) at the NAD. Among the issues in the challenge was a sweepstakes that Scotts had run to help generate reviews of its products. As part of the sweepstakes, every consumer who submitted a review would get a chance to win a $25 Visa gift card. Although the sweepstakes rules required consumers to disclose that a review was submitted as part of a sweepstakes, that requirement was apparently not mentioned in the ads or call-to-action. According to the challenger, within two days of announcing the sweepstakes, hundreds of favorable reviews appeared on the Scotts website, none of which included the required disclosure.

According to the NAD decision, when Scotts became aware that consumers were not including the proper disclosure, the company took Bug Reviewseveral corrective steps. For example, Scotts included the disclosure requirement in its ads, as opposed to only in the rules. Moreover, the company directed its agency to apply a “Sweepstakes Entry” tag to each review and placed a disclosure on its website where the customer reviews were displayed while the agency completed its tagging. Scotts also reported that it was exploring solutions to have the disclosures applied automatically in the future. The NAD noted that it found the company’s efforts to address the issues to be “sufficient and proper.”

There are a few notable statements in the NAD’s decision. First, the NAD noted that the chance to win a prize in exchange for a review provided “a level of engagement and a connection between the consumers and the advertiser that is not expected and must be disclosed.” The FTC has articulated a similar position. Second, the NAD noted that “simply including the disclosure requirement in a link containing the Official Rules was not effective.” Apparently, few people read that disclosure, so a more prominent mention was necessary. And third, the NAD noted that an advertiser has an “obligation to ensure its sweepstakes rules are followed and to ensure that there is a sufficient and timely disclosure that reviews are incentivized.”

This is not the first case we’ve mentioned dealing with incentivized reviews, and it probably won’t be the last. The FTC and regulators have been focused on this issue for years. This case demonstrates that now companies also need to be worried about being called out by their competitors.

 

In 2012, the FTC sponsored a contest in which it invited contestants to submit their best solutions to block robocalls. After reviewing almost 800 entries, the FTC announced two winners. As we posted previously, though, one of the losing entrants sued the FTC, alleging that the agency hadn’t followed its rules. This week, the Court of Federal Claims dismissed the case, holding that the contest’s judges had not made a gross mistake or acted in bad faith.

The plaintiff’s complaint focused on the contest’s scoring procedures. His entry was among 268 forwarded to judges after the rest were deemed facially deficient. However, his entry did not proceed to the final round after the judges further narrowed the entries down to those that that employed “filtering-type solutions.” (The plaintiff’s entry had used a different technology.) He argued that the rules did not permit the FTC to narrow down the entries based on technology before scoring them.

The main issue before the court was whether the plaintiff could avoid the exculpatory clauses found in the contest rules which stated, among other things, that entrants released the FTC from liability in disputes arising from the contest and that the FTC’s decisions were final and binding. For the plaintiff to prevail, there had to be a material breach in the form of fraud, bad faith, gross mistake, or irregularity. The court held that no such breach had occurred.

This decision is good news for companies that run sweepstakes and contests. Courts have generally held that the rules for these types of promotions form binding contracts with entrants and that the exculpatory clauses in the rules are enforceable. Before you run a promotion, make sure that you take some time to think about how things can go wrong, and make sure you have clauses in the rules to protect your company.

The FTC recently revised its “What People are Asking” page, a source of informal guidance relating to the FTC’s Endorsement Guides.  The Endorsement Guides were last revised in 2009.  The FAQ revisions are intended to address current advertising and marketing trends, such as the use of Twitter endorsements, “like” buttons, and uploaded videos.

The revisions do not change any underlying principles or policies relating to endorsements.  Endorsements still must be truthful and not misleading.  If there’s a connection between an endorser and the marketer of the product that would affect how people evaluate the endorsement, that connection must be clearly and conspicuously disclosed.  And if the advertiser doesn’t have proof that an endorser’s experience is typical, it must clearly and conspicuously disclose the generally expected results.

To help advertisers navigate their specific obligations under the Endorsement Guides, the new FAQs offer expanded guidance on the following topics:

  1. Disclosure Language. The FTC requires that a connection between the endorser and marketer should be disclosed if that connection would be relevant for consumers evaluating the endorsement.  The FTC does not mandate specific language for disclosing a paid endorsement or an endorsement where the endorser was given the product for free.  But the revised FAQs do suggest that a simple disclosure, such as “Company X gave me this product to try . . .” will usually be effective.  The revised guidance also states that a disclosure such as “Company X gave me a sneak peek of its new product” is insufficient to disclose a paid relationship.
  2. Twitter and Social Media Disclosures. In the revised guidance, consistent with its Dot Com Disclosures guidance, the FTC indicates that starting a tweet with “Ad:” or “#ad” would likely be an effective disclosure.  The FTC also suggests the terms “Sponsored,” “Promotion,” or “Paid ad” to disclose a sponsorship on social media.  In addition, businesses holding contests or sweepstakes on social media must clearly disclose that the post is being made as part of a contest or sweepstakes.  Encouraging consumers to participate in the contest by using a general hashtag (“#XYZ_Rocks”) is insufficient, but making the word “contest” or “sweepstakes” part of the hashtag should be enough under the revised guidance.
  3. Affiliate Marketing. Affiliate marketers who are paid a commission for purchases made through their links must clearly and conspicuously disclose their relationship with retailers.  Under the updated guidance, using the term “affiliate link” or “buy now” is not sufficient to explain the relationship.
  4. Employee Endorsements. When an employee endorses his or her employer’s products on social media, the employee should also disclose the relationship with the employer.  The guidance is clear that “[l]isting your employer on your profile page isn’t enough.”  Companies should periodically remind their employees not to post positive reviews online without disclosing the relationship between the employee and employer.  If a company learns that an employee has made a post in conflict with that policy, the company should ask the employee to remove the review or disclose the relationship.
  5. “Like” Buttons. The FTC understands that sites such as Facebook and Instagram do not allow users to disclose a relationship with advertisers when they “like” a company or a social media post by the company.  And the FTC isn’t sure at this time how much weight consumers put into “likes” when deciding to patronize the business.  However, the FTC draws a distinction between an advertiser that buys fake “likes” and an advertiser offering incentives for “likes” from actual consumers.  The former, according to the FTC, is “clearly deceptive,” and both the purchaser and seller of the fake “likes” could face enforcement action.
  6. Uploaded Videos. The FTC’s guidance explains that disclosing a relationship only in the description of a YouTube video is not sufficient to meet the FTC’s standards.  Rather, the disclosure “has the most chance of being effective” if it is made clearly and prominently in the video itself.   Disclosures may be made in both the video and the description.  In the case of a short video, a brief disclosure at the outset of the video that some of the products were provided by the manufacturer may be sufficient.  For a longer video, multiple disclosures during the video may be appropriate.  The FAQs caution against promoting a link to a video that bypasses the beginning of the video and thus skips over the disclosure.  If YouTube has been enabled to run ads during the video, a disclosure that is obscured by ads is not clear and conspicuous.

Although not entirely comprehensive, the FTC has provided helpful insight on endorsements and related disclosures through its Endorsement Guides and Dot Com Disclosures guidance.  Informal guidance, such as the What People are Asking FAQs discussed here, is also an important resource for understanding the FTC’s views on new marketing tools and trends.  We will continue to monitor such guidance from the FTC and provide updates.

Last week, ten privacy groups requested that the FTC open an investigation into a Topps Co. online contest, which they allege violated the Children’s Online Privacy Protection Act (COPPA). Specifically, the groups claim that Topps’s #RockThatRock contest collected photos of children under age 13 without obtaining their parents’ consent.

Last spring, Topps invited its Facebook, Twitter, and Instagram followers to post photos of themselves “rocking” a Ring Pop (the company’s edible candy lollipop) using the hashtag #RockThatRock for a chance to have their photo featured in a music video for a popular tween band. In addition to social media, Topps promoted the contest on Candymania.com – its allegedly child-directed website that features content such as candy-related games. Entrants’ photos were posted on Candymania.com, and the music video, which has appeared on YouTube since June, has received over 900,000 views.

COPPA requires that businesses provide parental notice and obtain parental consent prior to collecting the personal information of children under age 13. The definition of “personal information” was updated in July 2013 to explicitly include photographs. COPPA violations carry a hefty fine – up to $16,000 per affected child – so it’s important to always consider a promotion’s potential audience, as well as the types of information collected.

On February 19, 2014, the FTC hosted a public seminar on mobile device tracking, the first event in the FTC’s Spring Privacy Series on emerging consumer privacy issues.  The seminar included a tutorial on how retail tracking technology works, along with a panel featuring representatives from consumer groups, and the retail, marketing, and technology industries, who discussed the risks and benefits, consumer awareness and perceptions, and the future of mobile device tracking.

The tutorial on mobile device tracking provided a technical overview of how mobile devices collect information and also send information back to the consumer.  This discussion also covered the practice of “hashing” which makes the information collected non-personally identifiable, but not completely anonymous.

Following the technical overview, the panel discussed the consumer benefits and privacy concerns of mobile device tracking, mainly in the context of brick-and-mortar retailers.  The panel agreed that while the technology has the potential to improve consumers’ shopping experience and help businesses identify how best to display popular products and improve line waits at registers, the collection of data via mobile devices is invisible and passive, and it is difficult for consumers to opt out of mobile device tracking.

For a more detailed overview of the seminar, please click here.