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Gonzalo E. Mon

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Subscription plans that automatically renew at the end of a term are becoming more popular with companies. They’re also getting more scrutiny from regulators. As we’ve posted 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. This week, Washington, DC joined the crowd by enacting a new law governing automatic renewals.

The law requires businesses that sell goods and services on a recurring basis to clearly and conspicuously disclose their automatic renewal provisions and cancelation procedures in their contracts. In addition, if a contract has an initial term of at least 12 months and will automatically renew for a term of at least one month, a business must take steps to notify consumers before renewal. This must be done by mail, e-mail, text message, or in-app notification. (For text messages, don’t forget the TCPA.) The reminder must be sent at least 30 – but no more than 60 – days before the deadline to cancel.

Businesses that offer free trials of at least one month that automatically renew must receive a consumer’s affirmative consent to sign up for the automatic renewal program one to seven days before the expiration of the free trial term.

Subject to narrow exceptions, violations of the law will constitute violations of the DC Consumer Protection Procedures Act and render the automatic renewal provision void.

Earlier this week, Truth in Advertising (or “TINA.org”) sent a letter to the FTC urging the Commission to investigate Diageo’s use of influencers to market Ciroc vodka on Instagram. According to the letter, TINA.org collected more than 1,700 Instagram posts across 50 different influencers — including Ciroc brand manager and CMO Sean “Diddy” Combs — in which the influencers allegedly failed to disclose their connection to the company in a clear and conspicuous manner.

This is not the first time that consumer groups have pushed the FTC to investigate influencer campaigns. And if this is like any of the previous pushes, it’s likely that some of the posts don’t actually violate the law. For example, some groups have misstated the legal requirements in this area and have identified posts that didn’t violate the law. That led the FTC to send warning letters to individuals who actually had no connections to the brands mentioned in their posts. Nevertheless, there are various examples in this letter that may be Ciroc Postproblematic and potential targets for enforcement.

Apart from the endorsement issues, the letter goes on to describe other problems with the content of the posts, including “kids in Ciroc ads, Ciroc-fueled misogynistic ads, a recipe for cannabis-infused strawberry lemonade with Ciroc, and even a booze-drinking Santa who needs to spread the ‘liquid love.’” (There is also an image of a toddler holding a baby bottle of Ciroc.) To make matters worse, the influencers did not use age-gating features, so that minors were able to view the ads. As TINA.org points out, these practices are likely to violate the Distilled Spirits Council’s Code of Responsible Practices for alcohol ads.

TINA.org has asked the FTC to investigate Diageo and to take appropriate enforcement action.

It’s too early to tell what will happen here, but it will be interesting to see how the FTC reacts. Although companies that market age-restricted items should pay particular attention, this action holds lessons for any company that works with influencers. If you haven’t evaluated how your company manages influencer campaigns recently, now may be a good time to do that.

One of the issues that frequently comes up in NAD cases is “line claims.” Does an ad convey a claim about a specific product? Or does it convey a claim about an entire line of products? This week, NAD released a decision that explores that issue in the context of a funny commercial by Charter in which a DIRECTV salesman shows up at a homeowner’s door and tries to pitch an offer.

The salesman starts his pitch by offering the “DIRECTV Select Double Play package with no ESPN.” When the homeowner declines, the salesman “sweetens the deal” by offering “no CBS Sports Network, no NBC Sports Network.” From there, the deals get progressively worse until the salesman’s final offer: “What I see is someone who wants to play hardball. OK, batter up! I’ll give you no popular sports channels, the early termination fees, AND I’ll add deeply disappointing AT&T Internet . . . .” The homeowner shuts the door on the salesman mid-pitch.

Although it’s true that DIRECTV’s Select Double Play package does not include any of the popular sports channels mentioned in the spot, DIRECTV argued that the commercial conveys a misleading line claim – in other words, the commercial suggests that no DIRECTV package offers those channels, something which isn’t true. Charter disagreed, and offered a survey in support of its argument that consumers weren’t confused. NAD found that the survey was flawed for a number of reasons, including problems with the survey universe, the control, and some of the questions. Therefore, NAD ignored the survey and stepped into the shoes of a reasonable consumer to determine how they would view the commercial.

One of the factors in determining whether an ad conveys a line claim is whether the ad mentions specific products or whether it refers to the brands as a whole. Here, the commercial started with a specific reference to the DIRECTV Select Double Play package. Although that’s usually helpful, NAD determined that the initial reference was not enough to avoid a line claim. Among other things, NAD focused on the manner in which subsequent “deals” were pitched, and determined that a consumer could “reasonably take away the message that the starting offer is as good as it gets, as DIRECTV has nothing better to offer – indeed, that it has nothing in the way of sports channels to offer the homeowner.” Because Charter couldn’t support that message, NAD recommended that they either modify or stop running the commercial.

If you make a claim that applies only to some products – whether they are a competitor’s products or yours – you need to be careful not to suggest that the claim applies to an entire line of products. There are certain things you can do to help avoid conveying a line claim. For example, it usually helps to focus on specific products, rather than making general brand references. But as this case demonstrates, it’s not always easy to distinguish between line claims and narrower claims. NAD frequently errs on the side of finding a line claim, so it pays to be careful.

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

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

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

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

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

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

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

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

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

BuzzFeed Links Disclosure

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

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

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

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

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

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

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

Advertisers who lose a challenge at the NAD automatically have the right to appeal the decision to the National Advertising Review Board (or “NARB”). Challengers who lose may also request an appeal, but the appeal is not automatic – it must be approved by the NARB Chair. Although appeals from NAD decisions are relatively rare – there have only been six NARB decisions this year compared to almost 60 NAD decisions – they are still an important part of the self-regulatory process.

This week, the Advertising Self-Regulatory Council announced that it would raise NARB filing fees from $15,000 to $20,000 to better defray the costs of each appeal. This increase is effective for any advertiser appeal filed after September 5, 2018, and any challenger appeal approved after the same date.

Advertisers who want to tout the comparative advantages of their products have a number of options for framing those comparisons. For example, they can compare their products to specific products, they can compare their products to defined categories of products, or they can more vaguely compare their products to “regular,” “ordinary,” or “other” products. Although many companies think that making a vague comparison is a safer option, a new NAD decision demonstrates that it’s usually not the case.

Telebrands advertised its Atomic Beam flashlight by making various comparisons to “regular” and “ordinary” flashlights. For example, a TV commercial Atomic Beamcompares the brightness of the Atomic Beam to a “regular” flashlight with a “feeble” light output. And a chart on the company’s website compares the Atomic Beam to “ordinary” flashlights across five attributes, with the Atomic Beam coming out on top. Although some of ads don’t specify what a “regular” or “ordinary” flashlight is, others explain that “the comparison is based on a base model LED flashlight of a major manufacturer.”

Energizer argued that the ads were misleading, for a number of reasons. For example, the company argued that because the basis of comparison is not clear, reasonable consumers will interpret “ordinary” flashlights broadly to mean all flashlights priced similarly to the Atomic Beam. In reality, Telebrands had only tested against one flashlight and, although some of the comparisons may have been true against that specific flashlight, the comparisons were not true against many popular flashlights in the same price range.

The NAD agreed that the ads were misleading, noting that one message reasonably conveyed by the ads is that the Atomic Beam “is brighter and more durable than most flashlights, with features not found in most flashlights. Another reasonable takeaway is that ‘ordinary’ and ‘regular’ are a reference to the best-selling flashlights, or to flashlights sold at similar or lesser price points than the Atomic Beam.” Tests that compared the Atomic Beam to a single flashlight that was neither very popular nor very typical in terms of performance were not sufficient to support the broad claims.

As this decision demonstrates, vague comparisons often create more problems than they solve because they could be read to apply to many products. Not only does that increase your substantiation obligations, it increases the number of competitors who might want to challenge you.