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John E. Villafranco

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After months of speculation among the consumer protection and antitrust bars, Trump announced today his intention to nominate former Director of the Bureau of Competition and current Paul Weiss partner Joseph Simons as Chairman of the Federal Trade Commission.  Trump also announced his plan to nominate Rohit Chopra, currently a senior fellow at the Consumer Federation of America and previously Assistant Director at the Consumer Financial Protection Bureau (CFPB), to one of two vacant commissioner seats.  News outlets also are reporting that Trump will soon nominate Noah Phillips, chief counsel for Senator John Cornyn (R.-Tex.), to an additional commissioner seat.

Assuming Simons is confirmed and appointed as Chair, Acting Chairman Maureen Ohlhausen would return to her position as Commissioner.  Her term is set to expire in September 2018.  Commissioner Terrell McSweeny also continues to serve on the Commission, although her term expired in September, and as reported by MLex.com, Simons’ confirmation would place him in the slot she currently occupies.  More information on each of the three nominations follows.

Joseph Simons.  Currently a partner and co-chair of the Antitrust Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, Simons has worked in private practice for the majority of his career and is likely to be welcomed by industry as a reasoned and qualified choice.  He also has experience in public service, having served at the FTC as Director of the Bureau of Competition from June 2001 to August 2003.  He also served as the Associate Director for Mergers and the Assistant Director for Evaluation at the FTC in the late 1980s.  Simons has worked on a number of high profile antitrust cases, including representing MasterCard Inc. in antitrust class actions over merchant fees, and representing a consortium including Microsoft, Ericsson, RIM and Sony in its $4.5 billion acquisition of the patent portfolio of Nortel Networks.

As a long-time antitrust practitioner with experience in private and public practice, Simons is likely to bring a thorough and deliberative approach to the Commission.  While Simons is unlikely to support enforcement that is not justified by a rigorous economic analysis of costs and benefits, he’s also unlikely to shy away from challenging deals and conduct that fail the economic test.  In short, economic effects and rule of reason will guide policy.  Simons notably has significant high tech and intellectual property experience, as well as merger experience, where economics predominates decision making.

On the consumer protection side, Simons’ experience will likely reinforce the policies announced by Acting Chairman Ohlhausen to put economic injury at the center of case selection.  The emphasis on fraud will likely continue, while actions and remedies that would regulate ordinary business practices will face the test of economic analysis.  If he’s confirmed as expected, Simons would serve a seven-year term that began on September 26, 2017.

Rohit Chopra.  While Simons’ experience comes primarily from the competition side, Chopra has concentrated on consumer protection issues.  Chopra is currently a senior fellow at the Consumer Federation of America where he focuses on consumer finance issues, particularly with regard to their impact on younger Americans.  Chopra was previously the Assistant Director of the CFPB where he led enforcement actions against student loan borrowers and helped establish a new student loan complaint system at the agency.  Chopra’s background and experience with consumer finance give him an expertise rare among commissioners and could translate into significant influence on hot topics such as credit reporting, debt collection, and big data.  He also may engage in advertising and privacy initiatives affecting children and younger Americans, given his prior interest in this area.

Chopra’s approach to competition could be influenced by longtime ally, Senator Elizabeth Warren (D.-Mass.), who has distinguished herself as a proponent of aggressive enforcement and new legislation.  Unlike most prior FTC commissioners, Chopra is not an attorney.  His background is in business and includes an MBA from the Wharton School at the University of Pennsylvania.  Trump indicated that Chopra would be appointed to the remainder of a seven-year term that would expire on September 25, 2019.

Noah Phillips.  While yet to be announced by the Trump Administration, media outlets are reporting that Phillips will be named to fill another vacancy at the Commission.  Phillips is presently Chief Counsel to Senator Cornyn.  Phillips previously worked as an associate at Cravath, Swaine & Moore LLP and Steptoe & Johnson LLP, before leaving the private sector to serve as counsel to Cornyn.

Phillips would come to the Commission with significant law firm experience, as well as an understanding of the Hill.   Among others, Cornyn serves on the Senate Committee on Finance, which includes subcommittees on international trade and energy.  We would expect, therefore, to see Phillips take an active interest in international issues, as well as competition in the energy sector.

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We will continue to monitor the appointment and confirmation process and post updates here.

On Thursday, a federal court in New York dismissed an FTC and New York Attorney General action against Quincy Bioscience, which sells the dietary supplement, Prevagen.  Quincy bases claims for its product on research that includes a randomized, controlled clinical study.  The court observed that the parties agreed that this “gold standard” study followed “normal well-accepted procedures” and showed statistically significant results in a subgroup of healthy, aging adults, although not the experimental group overall. 

The court acknowledged the regulators’ arguments that data analyses revealing the subgroup results were subject to an increased risk of false positives.  The court, however, concluded that the regulators failed to allege that “any actual errors occurred” or that “that reliance on the subgroup data ‘is likely to mislead consumers acting reasonably under the circumstances.’”  The court observed that “the subgroup concept” is “widely used in the interpretation of data in the dietary supplement field.” 

Kelley Drye represented Quincy Bioscience in the matter. 

 

In the following article authored by University of Arizona Law Professor Jane Bambauer, the professor makes a compelling argument that FTC/FDA regulation of health claims should focus on situations  where the government has compelling evidence of actual harm.   Professor Bambauer offers an opinion that high standards for health benefit claims can effectively silence commercial speech in areas where science may still be developing, to the detriment of consumers.   The current method of analysis, the Professor contends, does not give adequate weight to consideration of the consequences of prohibiting a claim that may actually be true – one of the six Pfizer factors that is regularly overlooked in substantiation analysis.

To read the article, please click here.

The consumer advocacy non-profit Truth in Advertising, Inc. (TINA.org) has set its sights on Goop, the lifestyle brand launched by Gwyneth Paltrow.  In a complaint filed earlier this week with the Santa Clara and Santa Cruz County California district attorneys, both members of the California Food and Drug and medical Device Task Force, TINA alleges they found over 50 instances where claims were made that products Goop produces or promotes “can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing a number of ailments.”  TINA has requested that the California district attorneys investigate Goop’s marketing practices. 

This is not the first time Goop has been forced to defend claims that it promotes.  Last summer, the National Advertising Division took issue with claims related to using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  The NAD closed the case after Goop agreed to permanently discontinue the dust claims. Continue Reading TINA Has Eyes on Goop

More than a month after the retirement of former NAD Director Andrea Levine, the Advertising Self-Regulatory Council (“ASRC”) has announced NAD’s new Director: Laura Brett. Laura Brett, who has served as NAD’s Assistant Director since 2015, joined NAD in April of 2012. During her five years at NAD, Laura has authored several seminal decisions including NAD’s highly publicized 2015 DirecTV decision. She has also authored several monitoring decisions that deal with the intersection between social media and advertising law. (See, for example, NAD’s Kardashian and eSalon decisions.) Laura has spoken frequently about NAD and has earned a reputation for her strong judgment, rigorous analytical skills, and integrity.

Continue Reading Laura Brett Named New Director of NAD

Acting Chairman of the Federal Trade Commission Maureen Ohlhausen announced today that Thomas Pahl – a current partner at Arnall Golden Gregory with significant experience at both the FTC and the Consumer Financial Protection Bureau – will take over as Acting Director on February 17.  Jessica Rich will depart as Director of the Bureau of Consumer Protection, a position she has held since 2013.

While currently in private practice, Pahl previously spent more than twenty years at the FTC, including stints as Assistant Director of the Division of Financial Practices and Assistant Director in the Division of Advertising Practices.  After his time at the FTC, Pahl served as a Managing Counsel in the Office of Regulations at the CFPB, where he oversaw rulemaking, guidance, and policy development activities relating to debt collection, credit reporting, and financial privacy.  Pahl also advised Reagan appointee and FTC Commissioner Mary Azcuenaga, and served as an attorney advisor to Republican FTC Commissioner Orson Swindle.

Pahl recently praised the appointment of then-Commissioner Ohlhausen as Acting Chairwoman as a “wise choice” that will “place[] the agency in very capable hands” and suggested that President Trump “should give serious consideration to making Ohlhausen the permanent chairman of the FTC.”   In announcing his appointment, Acting Chairman Ohlhausen commented that “Tom’s career demonstrates his continuing commitment to protecting consumers through active enforcement and advocacy that promotes a free and honest marketplace.”

Outgoing Bureau Director Jessica Rich served in various capacities at the FTC for 26 years and has presided over the Bureau of Consumer Protection since 2013, when she was appointed by former Chairwoman Edith Ramirez.  During her tenure, Rich advocated for rigorous enforcement of consumer protection laws and oversaw a number of high profile enforcement actions against major corporations such as Volkswagen, Apple, Google, and Amazon.  She also championed efforts to expand the Commission’s efforts to regulate privacy and data security practices under the FTC Act, as well as to develop the technological expertise necessary to protect consumers in a constantly-evolving marketplace.

Further shake-ups at the Commission are inevitable.  With former Chairwoman and current Commissioner Ramirez’s departure effective this coming Friday, there will be three vacancies on the five-person Commission.  However, the interim appointments of Commissioner Ohlhausen as Chairwoman and Pahl as Acting Bureau Director suggest that top positions at the Commission may continue to be filled by individuals with significant consumer protection experience.  Stay tuned.

In its latest action involving allegedly deceptive earnings claims, the FTC announced yesterday that Uber had agreed to settle charges that it misled potential drivers with inflated earnings claims.  The complaint also alleges that Uber misrepresented benefits of its Vehicle Solutions Program, which connects potential drivers with auto companies to buy or lease a vehicle to be used to pursue the Uber opportunity.

To supports its allegations, the FTC cited a former post on Uber’s website that claimed that uberX Drivers’ “median income is more than $90,000/year/driver in New York and more than $74,000/year/driver in San Francisco.”  However, according to the complaint, actual median incomes were significantly less in those cities — $29,000 less in New York and $21,000 less in San Francisco. The complaint also cites allegedly inflated per hour earnings claims made for other major cities across the United States. According to the FTC’s analysis of Uber’s data, typically only between 10-30% of drivers made as much as the quoted hourly rate in a particular city.

The complaint also alleges that Uber made misrepresentations about its Vehicle Solutions Program to induce consumers to sign up as a driver.  These claims included “own a car for as little as $20/day” and enter into a lease with “unlimited miles.”  The FTC alleged that Uber lacked any basis for making these claims and that Uber actually had information at the time suggesting these claims were false.  For example, the FTC suggested that actual payments made by consumers were significantly higher than those represented and that many leases imposed significant mileage limits.

In her dissent, Commissioner Ohlhausen explained that she did not see the monetary settlement of $20 million as tied to any estimate of consumer harm and asserted that settlements for partial disgorgement of profits, as here, are “inappropriate for a non-fraudulent enterprise that significantly benefits consumers.”  Commissioner Ohlhausen also seemed to question whether certain representations were misleading in the first place, suggesting that the complaint erroneously “suggests that the sole acceptable description of earnings potential is the median earnings of participants.”   She also contended that the complaint unjustifiably excluded certain incentive and promotional payments from the FTC’s calculations of earnings.

The case is a reminder for entities making earnings claims that such claims should be substantiated prior to making the claim, and not false or misleading in the context in which they are made.  It’s worth emphasizing that the FTC never alleged that Uber drivers don’t make money, or that the Uber drivers would have been better off never pursuing the opportunity.  For the two Commissioners in the majority, the discrepancy between actual and represented earnings was enough to support a Section 5 violation and the $20 million monetary settlement.

Federal Trade Commission Chairwoman Edith Ramirez announced today that she will resign her position effective February 10, leaving the Commission with three vacancies and just two remaining commissioners.  Chairwoman Ramirez has been a commissioner since April 5, 2010 and became Chairwoman on March 4, 2013.

In announcing her resignation, she remarked: “It has been the honor of a lifetime to lead the Federal Trade Commission and to have played a role in advancing American consumers’ ability to navigate fast-paced digital markets and promoting business competition across the economy. I thank my fellow Commissioners and all of the talented FTC staff for their support and dedicated public service during my tenure.”  As noted in the FTC’s press release, Chairwoman Ramirez’s tenure was notable for aggressive enforcement of consumer protection and antitrust laws, resulting in “nearly 400 law enforcement actions covering a range of consumer protection issues and approximately 100 enforcement actions challenging anticompetitive mergers and business conduct in major sectors of the economy.”

Assuming no new appointments between President-Elect Trump’s inauguration and February 10, the Commission will be in the rare situation of having only two commissioners on the five-person body.  The Commission could continue to bring enforcement actions under FTC rules, assuming Commissioners Ohlhausen and McSweeny both agreed.  With just two confirmed commissioners, any Commission enforcement decision and most official actions would require both to agree.  Commissioner Ohlhausen, a Republican, has been a commissioner since April 2012 and could take the chair under the new administration.  Commissioner McSweeny, a Democrat, was appointed in April 2014 to a term that expires in September 2017.

The advertising industry’s self-regulatory system may be “voluntary,” but ignoring NAD’s recommendations—or declining to participate when asked—buys advertisers a prompt referral to the Federal Trade Commission. NAD often touts its close working relationship with the FTC. But what becomes of these referrals from the self-regulatory system? At NAD’s annual conference last month, Mary Engle, the FTC’s Associate Director for Advertising Practices, pulled back the curtain on the Commission’s treatment of referrals from NAD.

Engle noted that the FTC has received 50 referrals from NAD between January 1, 2011 and August 17, 2016. Not surprisingly, post-referral outcomes vary a great deal. In some cases, the FTC staff takes no action at all. Far more often, however, the FTC delves into NAD’s case file. Sometimes the Commission’s post-referral role involves urging advertiser back to NAD. Other times, FTC staff launches a formal investigation.

Looking back at referrals from NAD over the past five and a half years, Engle provided the following statistics:

  • 22%: Company returned to NAD at the FTC’s recommendation
  • 22%: Outcome unclear, or FTC staff decided to take no action
  • 20%: FTC staff resolved the matter short of an investigation
  • 14%: Matter remains under review by FTC staff
  • 8%: FTC staff initiated a formal investigation, which it subsequently closed
  • 8%: Matter related to existing FTC investigation/litigation
  • 2%: Referral resulted in FTC law enforcement action
  • 2%: FTC took no action because matter related to non-FTC litigation

The moral of Engle’s story? Don’t dismiss the self-regulatory body too quickly. Refusing to participate, or to comply with NAD’s recommendations, risks unwanted attention from the FTC.

It’s a common question. A company creates a product with a competitive advantage; it takes steps to substantiate a superiority claim; and, satisfied that it has met the legal standard, it bases an advertising campaign on that claim. Then, a competitor comes along with a new product, and the superiority claim is no longer accurate. How soon must the company change its claims? According to a Massachusetts federal court, the answer may be “immediately.”

In July 2013, Dyson launched a campaign advertising that its DC41 vacuum had “twice the suction of any other Suctionvacuum.” One year later, SharkNinja released its Shark Powered Lift-Away vacuum and contacted Dyson to let them know the claim was no longer accurate. Dyson conceded that, and took steps to remove the claim from the marketplace. SharkNinja, though, claims that Dyson dragged its feet. For example, Dyson didn’t begin stickering over the claim on packages until November 2014, and some claims remained on the market until early 2015.

SharkNinja sued Dyson for false advertising under the Lanham Act. Dyson moved for summary judgment, arguing that an advertiser can’t be held liable if it uses “commercially reasonable efforts” to remove claims from the market once they become stale. The court disagreed, holding that the law doesn’t exempt a company from liability just because it takes steps to remove a claim after learning that it’s no longer true.  Instead, the court held that “an advertiser that puts a claim into the marketplace bears all of the risk of the claim being false or becoming stale.” As a result, the court denied Dyson’s motion.

The decision suggests that an advertiser can be liable the moment a claim can’t be substantiated, even though the claim was previously true. It doesn’t seem to matter to the court how fast an advertiser moves to change a claim, once it becomes stale. The creates a strong disincentive for any company to make a comparative claim, especially on packages or in stores, where the claim cannot be changed quickly.

We’ll be watching this case closely to see if Dyson appeals and the appellate court takes a more measured approach.