In today’s open meeting, the FTC voted unanimously to issue an Advance Notice of Proposed Rulemaking (ANPR) considering expansions to and revisions of the FTC’s existing Business Opportunity Rule (“BOR”). This will be the first review of the BOR since it was promulgated back in December 2011.  In her statement announcing the ANPR, Chair Khan indicated that “[t]he rule had served the public well over the years,” but “several varieties of scams . . .  fall outside the scope of the existing rule, [including] certain kinds of business coaching and work-from-home programs, investment programs, and e-commerce opportunities.” In a familiar refrain in the FTC’s push for rulemaking, Chair Khan argued that “case-by-case enforcement has key limitations—especially after the Supreme Court’s AMG decision” finding that the FTC lacked authority to obtain equitable monetary redress under Section 13(b).

Notably, the ANPR did not identify specific proposals under consideration for expanding the scope of the Rule other than to highlight work-from-home programs, investment coaching programs, and e-commerce opportunities as generally outside the scope of the current BOR.  The ANPR also notes that the Commission may consider comments previously submitted in response to the ANPR on Earnings Claims as an admittedly related endeavor (which we discussed here) and noted that it  “solicited and received comments about the following industries: multilevel marketers, for-profit schools, and gig platforms” for that ANPR.  Today’s ANPR does not otherwise specifically address direct selling companies, for-profit schools, and/or the gig economy, although it remains possible that revisions to the BOR could potentially sweep in practices of those groups.

What is the “Business Opportunity Rule”?

The BOR as currently written applies a “commercial arrangement” in which a “seller solicits a prospective purchaser to enter into a new business”; the “prospective purchaser makes a required payment”; and the “seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will” either (1) provide locations for the purchaser’s equipment, such as a vending machine; (2) provide outlets, accounts, or customers for the purchaser’s goods or services; or (3) buy back any or all of the goods or services that the purchaser makes or provides.  The BOR was an outgrowth of the initial Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures Rule, which was later divided into the Franchise Rule and the BOR.

The BOR requires sellers of business opportunities to provide a highly prescriptive disclosure document that includes information about possible earnings and related substantiation, involvement in certain legal actions, cancellation or refund policies and related terms, and a list of references who have purchased the business opportunity in the last three years.  The current BOR also includes a list of prohibited claims and misrepresentations and prescribes requirements for sales in languages other than English.

What is the FTC Seeking Comment on?

The ANPR seeks comments on a series of specific and general issues related to the BOR, including:

  • Whether the BOR or any specific provisions of the BOR should be retained, eliminated, or modified;
  • Whether the BOR should be expanded to more broadly cover other types of moneymaking or business opportunities, including coaching or mentoring programs, e-commerce opportunities, and investment opportunities;
  • Whether the BOR overlaps or conflicts with other federal, state, or local laws or regulations;
  • Whether there amendments are necessary to address practices that disproportionately affect low-income communities, communities of color, and other historically underserved communities.

Interested parties will have 60 days after the ANPR is published in the Federal Register to provide comments and feedback. While Commissioner Wilson has not consistently voted for new ANPRs, she voted affirmatively for this ANPR and highlighted in the open meeting the need to correct information symmetries of the market and allow potential investors to make better decisions.

Last year, we posted about Earth Island Institute’s lawsuit against Coca-Cola, alleging that the company falsely represents itself as “a sustainable and environmentally friendly company, despite being one of the largest contributors of plastic pollution in the world.” While many lawsuits involving green claims focus on claims about past or present results (which can usually be proven or disproven), this lawsuit focused on aspirational and forward-looking statements (which are inherently harder to prove or disprove).

The DC Superior Court determined that many of the challenged statements are aspirational and do not including anything that can be measured to determine whether they are true or false. For example, phrases such as “a more sustainable future for our communities and our planet” and “help develop more effective recycling systems” are extremely vague. “[W]hile they point to a general theme of sustainability and corporate improvement, there is not a measurable standard to apply as to whether or not Defendant has met these general goals.”

Other statements – including statements about the company’s plan “to help collect and recycle a bottle or can for every one we sell globally by 2030” – were more specific. However the court determined that “a consumer would not be able to determine if the goal has yet been met in 2022 as it is set significantly in the future.” Moreover, “the inclusion of the word ‘help’ muddles the promise, such that the enforceability, even in 2030, appears to be somewhat uncertain.” Bottom line:

As future, aspirational goals, these statements cannot successfully create a valid claim under the [Consumer Protection Procedures Act (or “CPPA”)] until they have been found to be inaccurate or misleading.

Although this decision suggests that advertisers may have some breathing room to make aspirational statements, it’s worth noting that the case could have ended up differently had it been brought in a different venue. For example, in cases such as this one, NAD has held that “an advertiser must be able to demonstrate that its goals and aspirations are not merely illusory and to provide evidence of the steps it is taking to reach its stated goal.”

Last week, Attorney General Karl Racine announced a new lawsuit against the Washington Commanders, team owner Dan Snyder, the NFL, and NFL Commissioner Roger Goodell for “colluding to deceive DC residents about an investigation into toxic workplace culture and allegations of sexual assault to maintain a strong fanbase and increase profits.”

The lawsuit claims that “for decades, Snyder has cultivated an environment within the Team that glorifies sexual harassment and punishes victims for speaking out.” Throughout the 45-page complaint, the AG details examples of a hostile work environment which, if true, are reprehensible. But why are you reading about a lawsuit that focuses on a hostile work environment on a blog that focuses on advertising law?

The AG argues that DC’s Consumer Protection Procedures Act (or “CPPA”) “establishes an enforceable right to truthful information from merchants about consumer goods and services that are or would be purchased, leased, or received in the District of Columbia,” that the defendants are “merchants” under the law, and that they provide “consumer goods and services” to DC residents. Nothing too surprising there.

The AG then argues that the defendants engaged in “practices that have a tendency to mislead consumers,” such as by making explicit and implied misrepresentations about an investigation into the Commander’s workplace culture, failing to disclose material facts related to that investigation, and “using ambiguity with respect to material facts” related to that investigation.

It’s common to see AG investigations which relate to statements “from merchants about consumer goods and services” offered to consumers. The statements in this case, though, are arguably not about the goods and services themselves. For example, they are not about games, tickets, or other products that consumers buy. Instead, they are about the company’s workplace.

The AG seems to connect the two by stating that in order to sell consumer goods and services, the defendants need “to inspire public confidence and fan loyalty.” This can be slippery slope. Arguably, all companies need to inspire confidence and loyalty in order to sell things. Does that mean that any statement designed to yield such a result is now fair game under consumer protection laws?

It’s worth noting that the success of these types of arguments by other states is likely to vary, as different state unfair and deceptive trade practice laws require varying degrees of a nexus between underlying trade or commerce and the deceptive act or practice. It remains to be seen if the DC AG will be successful in making this link, but this is certainly a sign of the continued effort by State Attorneys General to push the boundaries of their consumer protection laws.

If the court agrees with this broad construction, this case could have implications for companies in more mundane circumstances. We’ll continue to watch this case as it develops.

Last week, multiple state Attorneys General (AGs) and staff from offices nationwide gathered in Washington, DC for the National Association of Attorneys General (NAAG) 2022 Consumer Protection Fall Conference. The conference addressed pressing and relevant consumer protection issues facing attorney general offices. The public portion of the conference included a panel of current and former AGs, who focused their remarks on multistate investigations.

All of participating current and former AGs agreed that multistates would continue to be an important part of their work. AG Brian Frosh (MD) described them as a “force multiplier” for AG offices with limited resources, and AG Doug Peterson (NE) reiterated that they are going to continue to be an important focus nationwide. AG Kwame Raoul (IL) pointed out that multistates have the benefit of multiple perspectives, and may be able to address priorities that may not be on a particular AG’s radar. AG Jonathan Skrmetti (TN) also described multistates as a way to overcome resource asymmetry between states and sees them as capable of making a massive impact on society.

However, Former AG Jim Tierney (ME) warned that this broader perspective can also cut off AG offices from grassroots consumer protection problems and cause them to focus too heavily on priorities set by others. During his tenure he pulled Maine out of multistates that he didn’t agree with or that he believed didn’t protect the most vulnerable populations. He is not alone, as other AGs have pulled out of multistate investigations to pursue their own settlement or litigate separately. Sometimes, States may even decide to litigate while maintaining their status as part of the multistate group.

As sovereigns, each state participating in a multistate ultimately can decide whether to enter or leave a multistate investigation at any time. AG Peterson described the process by which staff gain approval to begin an investigation and how he focuses on how the alleged conduct impacts Nebraskans, for instance. This fact is important to recognize as it often impacts strategy for negotiations during such investigations.

Former AG Luther Strange (AL) described the current environment among AGs as less collegial, and warned that a drift towards multidistrict litigation is not a long run recipe for success. Former AG Tierney also questioned the partisan nature of recent AG actions. As several of these panelists are former or, soon-to-be former, AGs, they provided more candid views that were particularly helpful to getting a window into that “current environment.” We have described in past posts that the NAAG organization itself has been recently called into question by some State AGs, with several ultimately deciding to exit.

Just this week, some of those criticisms of NAAG, and the multistate process generally, were highlighted in a panel at the Federalist Society’s National Lawyers Convention in DC.  AG Skrmetti participated in this panel as well, and highlighted the importance of bipartisan multistates in handling some of the largest consumer protection issues in the country.  AG Skrmetti personally worked on the $26 billion opioid distributor settlement. He emphasized on the panel that without the coalition of states leading the way, the result would have been a series of trials that bankrupted the companies responsible for the majority of pharmaceutical distribution in the country. He noted that ultimately such bankruptcies would have led to real human costs, including deaths.

What are the takeaways?  Consumer Protection multistates seem to be getting a closer look these days – whether it’s because States want to prioritize differing or more localized issues or because they are dissatisfied with NAAG and the multistate process generally.  But despite the scrutiny, we continue to see strong evidence that multistates are here to stay, including a recent 40-state data breach settlement and a series of other enforcement priorities in areas such as big tech and public health.  So, companies should be prepared to navigate these sometimes complex initiatives led by a large group of sovereign enforcers.

Early this week, a coalition of 40 attorneys general obtained two multistate settlements with Experian concerning data breaches it experienced in 2012 and 2015 that compromised the personal information of millions of consumers nationwide. The 2012 breach investigation was co-led by the Massachusetts and Illinois AG offices, and the 2015 investigation was co-led by the AGs of Connecticut, DC, Illinois, and Maryland. An additional settlement was reached with T-Mobile in connection with the 2015 Experian breach, which impacted more than 15 million individuals who submitted credit applications with T-Mobile.

In an effort to change corporate behavior, both settlements require Experian and T-Mobile to enhance their data security practices and to pay a combined amount of more than $16 million. Experian has agreed to bolster its due diligence and data security practices by adhering to the following: Continue Reading AG Settlements Call for Stronger Data Security

The FTC’s Advanced Notice of Proposed Rulemaking (ANPR) seeking comment on a potential rule prohibiting “junk fees” and related practices hit the Federal Register yesterday.  The rule has the potential to fundamentally alter how fees are disclosed in advertising and across the customer experience in nearly every industry that charges some type of fee.  Interested parties now have until January 9 to provide comments and feedback on the proposal.  The ANPR’s publication follows a series of meetings and announcements by the FTC, CFPB, and President Biden that the administration was taking actions to prohibit so-called “junk fees” that “can weaken market competition, raise costs for consumers and businesses, and hit the most vulnerable Americans the hardest.”

Prohibiting junk fees may sound uncontroversial in the abstract, but what does it mean in practice?  We concentrate here on the FTC’s ANPR given its potential breadth and impact on a host of industries including travel, delivery services and others in the gig economy, restaurants, and e-commerce sites.

What is a “Junk Fee”?

The ANPR uses the term “junk fees” to refer to “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price.”  According to the FTC, the term includes, but is not limited to “hidden fees,” which are fees disclosed only at a later stage of the customer experience or potentially not at all.

Continue Reading The FTC and CFPB are Coming for “Junk Fees,” but What Does that Really Mean?

In a case that will likely resonate with many readers, the FTC’s recent settlement with Vonage describes in excruciating detail the obstacles and costs that Vonage allegedly imposed on consumers when they tried to cancel their phone service.  In many ways, it’s a typical FTC case involving deception, unauthorized charges, and misuse of a “negative option” that makes it simple to sign up and almost impossible to cancel.  However, the FTC’s characterization of the practices as “dark patterns,” coupled with some other features, make this case stand out.  Indeed, any company with a “customer retention strategy” (which is apparently what this was) would be wise to pay attention.

The FTC’s Complaint  

According to the FTC’s complaint, Vonage provides internet based phone service (known as Voice Over Internet Protocol or VOIP) to consumers and small businesses. Monthly charges range from $5-50 for individual customers and can be as high as thousands of dollars for small businesses.  In many cases, Vonage signs up consumers using a negative option plan that requires them to cancel by certain date before being charged.

The complaint alleges that, between 2017 and 2022, Vonage provided several ways to sign up for its plans (including online and via toll free number) but made cancellation much more difficult through numerous hurdles.  It also alleges that, in some cases, monthly fees continued after cancellation; consumers were charged (or threatened with) undisclosed early termination fees (ETFs); and Vonage provided only partial refunds or no refunds at all.  The complaint says that this was all part of a “customer retention strategy” that Vonage pursued despite hundreds of consumer complaints, knowledge among employees, and an earlier settlement with 32 states over similar allegations.

According to the complaint, these practices violated the Restore Online Shoppers’ Confidence Act (ROSCA) (failure to disclose material terms, obtain informed consent before imposing charges, and provide a simple mechanism to stop recurring charges) and Section 5 (charging consumers without their express informed consent). Continue Reading The FTC’s case against Vonage – Customer Service Nightmare as “Dark Patterns”

Just two months before the effective date (January 1, 2023) of the California Privacy Rights Act (“CPRA”), the California Privacy Protection Agency (“CPPA”) Board met on October 28 and 29 to discuss revisions to the agency’s initial draft CPRA regulations.  Board members discussed a range of proposed changes that could significantly impact businesses but also reserved discussion on important topics, such as employee and business-to-business data, for future proceedings.

This post provides further details about the rulemaking process, as well as takeaways from the Board’s discussion of key substantive topics, such as restrictions on the collection of personal information and opt-out preference signals.  The Board directed CPPA staff to consider and include specific modifications, as discussed below; and on November 3, the CPPA released a further revision of its proposed rules for a 15-day public comment period (the “November 3 Draft Regulations”).  The deadline to submit comments is 8:00 am on Monday, November 21. Continue Reading CPRA Rule Revisions Unlikely to be Finalized in 2022

This week, NAD announced a decision involving various claims made by Accredited Debt Relief and its marketing agency. Although parts of the decision will likely only be of interest to companies who operate in the debt settlement space, the decision also holds some important lessons for companies that operate outside of that space. We’ll focus on those in this post.

Claims About Expected Results

Accredited Debt Relief advertised that its customers could “cut monthly payments in half.” Although the company had evidence that some customers – less than one-third – had achieved those results, NAD took the position that consumers seeing the claim would assume it was “representative of the typical consumer experience.” Accordingly, NAD thought consumers might be misled by the claim, and recommended that the company focus on more typical results.

NAD also noted that there was a “detailed and lengthy” disclosure about the program and its material limitations at the bottom of webpages that included the challenged claims. Quoting FTC guidance, NAD wrote that material terms must be “clearly and conspicuously communicated within the four corners of the advertising in which that claim appears.” Simply putting the information “somewhere” people may find it is not sufficient.

One of the “detailed and lengthy” disclosures NAD mentioned runs about 300 words. Does NAD really expect all of that information to be included in the ad copy? Probably not. In its decision, NAD highlighted certain terms – including the typical length of the program, the fees, and some exclusions – that seemed to be most relevant. Advertisers will have to undertake the difficult task of figuring out what terms are most material, including those in the body of the ad, and providing the rest in a disclosure.

“Up To” Claims

In a similar vein, NAD challenged claims that consumers could reduce “total debt by up to 50%.” What evidence you need to support an “up to” claim can depend a lot on the context of the claim. While in some cases – such as perhaps a “save up to 50% on sweaters during our Black Friday sale” – it may be enough to show that at least 10% of sweaters are discounted at the 50% level, in other cases, the substantiation burden can be heavier.

In the example I made up, consumers can presumably know how much they’ll save before making a purchase. In this case, though, NAD noted that consumers won’t know whether they’ll be able to achieve 50% total debt reduction before signing up and agreeing to pay substantial fees. In the context of “a highly consequential claim of potential long-term savings,” NAD seems to expect that advertisers will use a number that reflects what “all or almost all individual consumers will save.”

Native Advertising

NAD’s decision also focused on a website purporting to offer “Reviews of the Top Debt Consolidation Companies” based on various objective factors. Accredited Debt Relief comes in at first place with a “#1 Top Rated – We Recommend” badge. Consumers who are impressed by that achievement may be a little less impressed if they read the footnote at the bottom of the site which states, among other things, that the site “is owned by the same company that owns Accredited.”

NAD determined that consumers could reasonably expect the website to be independent. “Any disclosure that the website is paid advertising content contradicts the message of independence and impartiality otherwise conveyed by a rating or ranking website. Disclosures cannot contradict the claims they are qualifying. A disclosure that the review site is owned by the advertiser, even if clear and conspicuous, cannot cure the misleading takeaway that the site is independent.”

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This is the second case NAD has initiated in the debt settlement space this year. (You can read our post on the first one here.) If you work in this space, you should certainly take a closer look at both decisions because NAD seems to be focused on this area. But don’t ignore these cases just because you work in another industry. As our posts have demonstrated, the decisions include valuable lessons that apply across many industries.

We all know a person that can be unpredictable and erratic. It can be fun to hang out with that person occasionally, because you’ll likely have funny stories to share with your friends the next morning, but you probably wouldn’t want to be married to them, because those same stories are less funny when you share them with your divorce lawyer. The same is probably true with relationships between brands and some celebrities.

In 2013, Adidas entered into a relationship with Kanye West to create Yeezy-branded shoe and clothing collections. Although it was a lucrative relationship, Kanye has said and done some things in the years since then that must have had the brand cringing. After Kanye made a series of anti-Semitic tweets and comments, Adidas decided it had had enough and called its divorce lawyers. The relationship officially ended this week.

Although we don’t know the details about how the relationship ended, it’s possible that Adidas had to rely on a morals clause in its agreement with Kanye. Morals clauses generally give companies the right to terminate an agreement, if a celebrity commits an act that falls within the scope of the clause. Given what’s at stake, the scope of that clause can be one of the most-negotiated provisions in these agreements.

Celebrities naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if a celebrity is convicted of, or pleads guilty to, a felony.) This type of clause, though, won’t necessarily help if a celebrity just makes offensive statements. Thus, companies want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would reflect negatively on the company.)

Although these type of clauses can be helpful in cases when you want to break up with a celebrity, it’s better to avoid that situation. Think carefully before you get into bed with a celebrity, so to speak. Check them out on social media; get the scoop from their previous partners; know what you’re getting into. Hopefully, when the relationship ends, you’ll look back fondly at the good times and you won’t feel the need to go back and cut that celebrity out of all the pictures you took together.

 

Morals clauses generally give companies the right to terminate an agreement if a celebrity commits an act that falls within the scope of the clause