Social media influencers help drive consumer engagement with the brands they love. Better reviews, more “likes,” and thousands of re-tweets can all add up to a bigger bottom line and greater insight into what sells and what doesn’t. When the line between advertising and objective content isn’t made clear, though, it can also prompt legal scrutiny and enforcement from the FTC. Partner Kristi Wolff and Richard Cleland, Assistant Director in the FTC’s Advertising Practices Division held a webinar discussion of recent enforcement and key “rules of the road” for your company’s next influencer campaign on Thursday, November 9. Please click here for a copy of the slides and here for a copy of the recording. As a courtesy, we are also including a list of links to the FTC’s native advertising guidance, a checklist for review of native advertising, and a summary of the SEC’s enforcement on native ads for financial products. We hope that you find these materials useful.
On November 1, 2017 the House Antitrust Law Subcommittee held a hearing to discuss the role of federal agencies in preserving an open Internet.
The core question discussed at the hearing was whether current antitrust law is sufficient to ensure net neutrality absent FCC rules. The panelists—including FTC Acting Chairman Maureen Ohlhausen and Commissioner Terrell McSweeney; former FCC Commissioner Robert McDowell; and Michael Romano, NTCA Senior Vice President of Industry Affairs and Business Development—and committee members were generally divided down party lines, with Republicans arguing that FCC rules were both unnecessary and counterproductive and Democrats arguing that rules were necessary to ensure an open Internet, free expression, and innovation.
New York Attorney General Eric T. Schneiderman and Vermont Attorney General TJ Donovan (“Attorneys General”) announced a settlement with Hilton Domestic Operating Company, Inc. (“Hilton”) resolving allegations that the company did not have reasonable data security practices in place and failed to provide timely notice after two security breaches involving payment card information. The settlement provides some valuable lessons to companies about the “most expedient time possible and without unreasonable delay” standard in state data breach laws, and how a data breach can uncover potentially deficient security standards that can raise exposure for companies. Continue Reading
Last week, the Senate voted 51 to 50 (with Vice President Pence casting the tiebreaking vote) to override the Consumer Financial Protection Bureau’s Arbitration Rule, which was finalized earlier this year in July. As previously discussed here and here, the Arbitration Rule would have prohibited providers of covered consumer financial products and services from using pre-dispute arbitration agreements to compel consumers to participate in arbitration to resolve disputes about those products and services. Shortly after the vote, the White House released a statement applauding the override vote and indicating that President Trump intended to enact it, effectively confirming that the Arbitration Rule will not come into effect.
The override occurred pursuant to the Congressional Review Act (CRA), which was enacted in 1996 to provide an easier mechanism for Congress to undo agency regulations without enacting wholly new legislation. Under the CRA, both the House and Senate can use streamlined procedures that limit debate and the amendment process and allow Congress to overturn agency regulations with a simple majority in each chamber. The CRA also prohibits agencies from issuing regulations that are “substantially the same” as the overturned regulation unless authorized by a subsequent law, meaning that the CFPB will be unable to simply pass a substantially similar rule in the next session of Congress. The meaning of “substantially the same” under the CRA has yet to be litigated, so it’s at least possible that the CFPB could try to reissue another arbitration rule down the road even without subsequent legislation.
While the battle over the Arbitration Rule appears to be over for now, proponents of the rule vowed to continue to push related reforms and encouraged the CFPB to use existing authority to review and take action against unfair, deceptive, or abusive arbitration provisions. The CFPB remains authorized to use its supervisory and enforcement authorities under the Dodd-Frank Act to regulate arbitration provisions. While the repeal of the Rule means the CFPB can’t prohibit arbitration clauses in the aggregate via rule, it could still allege that particular arbitration provisions are unfair, deceptive or abusive on a case-by-case basis. Providers of financial products and services, therefore, should remain cognizant of the CFPB’s regulatory and enforcement authority and evaluate consumer arbitration provisions in light of relevant court precedent and guidance to minimize the likelihood that such provisions are invalidated and/or garner CFPB interest.
The “local” food movement is growing, as many consumers attempt to find fresher options, support local businesses, and reduce the environmental impact of shipping foods over longer distances. One problem, though, is that no one is quite sure what “local” means. As with the word “natural” – another word without a clear meaning – this ambiguity creates some risk for companies that want to advertise that something is “local.”
Bimbo Bakeries filed a lawsuit against a competitor with various claims, including trade secrets misappropriation, false designation of origin, and false advertising. Among all of those things was a “local” claim. Bimbo argued that U.S. Bakery’s “Fresh. Local. Quality.” tagline was false in Utah because U.S. Bakery neither maintained a baking facility in Utah nor contracted with a Utah facility to manufacture its products. U.S. Bakery filed for summary judgement, arguing (among other things) that the word “local” falls “within the category of non-actionable words because the term is vague and not measurable and is therefore merely an opinion.”
The court disagreed. In many cases, the analysis of whether a company has made a false designation of origin under the Lanham Act is easy. (For example, using “Idaho Potatoes” to describe potatoes grown outside of that state would be a problem.) In this case, the analysis was harder because the term “local” is less precise. Indeed, in a 2010 report, the USDA noted that although “local” has “a geographic connotation, there is no consensus on a definition in terms of the distance between production and consumption.” In this case, Bimbo provided surveys showing that the tagline was misleading and material to potential purchasers. “Because the term local does not carry a set definition,” the court determined that “whether the term is false or misleading is a question appropriate for the fact finder” and denied summary judgement.
Earlier this month, a jury determined that US Bakery had “engaged in false advertising by using the words ‘Fresh. Local. Quality.’ in connection with the advertising and promotion of its products.” The jury attributed over $8 million in profits to the false advertising and awarded over $2 million in total damages (including the trade secret claims). Because the Special Verdict form simply asked for “Yes” or “No” responses, we don’t have any insights into the analysis or a clear answer as to what “local” means.
This case may raise more questions than answers, but it suggests that companies need to think carefully before claiming that a food – or any other product – is “local,” especially if that word will be used in a state in which the product isn’t made or grown.
There are some additional limitations on this policy. It does not apply when the operator requests personal information, such as a child’s name. Moreover, the operator may not use the recording for any use other than translation into text, such as behavioral targeting or identification purposes, before deleting it. If the operator does plan to collect other types of personal information, then it would be required to obtain parental consent.
Although the policy provides some clarification about the application of COPPA to voice-capture technologies, operators of child-directed services that collect children’s voices should ensure that their privacy policies and consent and notification procedures comply with COPPA requirements. Violators are liable for up to $40,654 in civil penalties per violation.
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.
Last week, CPSC Commissioner Joseph Mohorovic, one of the two Republicans on the five-person Commission, announced that he would be ending his term as Commissioner two years early to join the Federal Regulatory and Compliance practice at the law firm Dentons. His last day at the Commission was October 20. Mr. Mohorovic became a Commissioner in July 2014 and had commuted from Chicago during his tenure. He cited a desire to spend more time with his family as the basis for his resignation.
In the short term, the Commission will have a 3-1 Democrat majority, but Dana Baiocco (R) has been nominated to fill the seat of Commissioner Marietta Robinson (D) as her term ends this month. Once that nomination is confirmed, the Commissions would have two Republicans (Ms. Baoicco and Acting Chair Ann Marie Buerkle), two Democrats (Commissioners Robert Adler and Elliot Kaye), and one open slot.
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. Philips 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.
We will continue to monitor the appointment and confirmation process and post updates here.
Last Friday, ten consumer and privacy advocacy groups, including the Electronic Privacy Information Center, Center for Digital Democracy, and Consumer Watchdog, sent a letter to Acting Chairman Ann Marie Buerkle, requesting that the CPSC recall the Google Home Mini smart speaker. The speaker was designed to respond to the voice commands, “OK, Google” and “Hey, Google,” as well as to a consumer pressing a small button on the top of the unit. Last week, the blog Android Police reported a glitch that caused the device to detect a touch even when a consumer was not pressing the button and remain “always on.” In response, Google issued a software update and completely disabled the button functionality.
The groups claim that this glitch resulted in Google intercepting and recording private conversations without consumers’ knowledge or consent, and that the device therefore poses a risk to consumer safety. Although they acknowledge that “the privacy concerns associated with Internet-connected devices appear different from traditional public safety concerns,” the groups call on the CPSC and its “broad mandate” to respond to such concerns, particularly in light of the “failure” of the FTC to investigate complaints involving Internet-connected devices.
Under the Consumer Product Safety Act, manufacturers, importers, distributors, and retailers have an obligation to immediately report to the CPSC when they obtain information that reasonably supports the conclusion that a consumer product contains a defect that could create a substantial product hazard, or creates an unreasonable risk of serious injury or death. While the groups note that the CPSC recently announced a recall of Internet-connected devices, the cited recall involved a product that posed an actual injury to consumers. CPSC action based on a non-physical injury, such as invasion of privacy, would be breaking new ground, but manufacturers, distributors, and retailers of IoT and other connected products should continue to watch for new developments and consider the potential safety issues associated with the products.
In a keynote address at the National Advertising Division conference earlier this month, Mary Engle, Associate Director in the Advertising Practices Division of the FTC, included “Made in USA” as among the agency’s current enforcement priorities. The FTC’s interest in U.S. origin claims is nothing new, but these claims have garnered considerable regulatory attention in recent years, as we have written about here. With manufacturers and retailers increasingly eager to highlight their domestic operations, we took a look at how the FTC’s “Made in USA” enforcement this year stacks up to prior years.
For 2017 year to date, the FTC has issued 15 closing letters and has settled one case (Block Division). By comparison, for calendar years 2014-2016, the FTC issued 56 closing letters and settled one case (Chemence, Inc.) This suggests that “Made in USA” enforcement is roughly on pace with the prior three years.
Enforcement year to date also spans a considerable number of industries and products, involving advertising on household items like pillows, coffeemakers, and lawn mowers, to office and industrial equipment such as ice machines, standing desks, data security products, scales, cell phone signal boosters, air purifiers, and LED tubes. Common remedial measures noted in closing letters include discontinuation of the claims at issue and replacement with qualified claims, packaging modifications, coordinating corrective measures with vendors, and monitoring and correcting third-party marketers.
Given that “Made in USA” claims will remain a priority from the foreseeable future, claim substantiation is a key consideration for advertisers. If you are new to making country of origin claims or just need a refresher, check out our webinar, originally offered in May 2017, called “Buy American, Hire American: Is Your (Or Your Competitor’s) Product Really ‘Made in the USA’?,” for an overview on the substantiation requirements for advertising and the “Buy American” standard that applies to government procurement.