The FTC recently announced that it sent warning letters to five “major retailers” selling athletic mouth guards on their websites. According to the FTC, the retailers’ websites included concussion claims that may be deceptive. The FTC urged the recipients of the letters to ensure that all concussion claims appearing on their sites are backed by “competent and reliable scientific evidence.” The FTC also warned the recipients that “retailers, as well as product manufacturers, can be liable for violating the FTC Act if they disseminate false or unsubstantiated claims.”  

The FTC, meanwhile, has provided little guidance on what constitutes competent and reliable scientific evidence for concussion claims for mouth guards or other similar devices. It has issued no guidance documents, and the single case that it has brought in the area led to a settlement. The resulting settlement order simply requires “competent and reliable scientific evidence” for any future concussion claims, without elaborating on what the appropriate evidence might look like. What exactly constitutes appropriate science is, however, apparently the subject of debate among experts. The single existing mouth guard case prompted experts in the fields of general dentistry and sports dentistry to submit comments to the FTC both opposing and supporting the settlement.  In finalizing the order, the FTC said nothing substantive about the positive comments. Regarding the negative comments, it stated only that although the science shows that some mouth guards “can reduce the impact to the lower jaw,” there is currently no science directly linking mouth guards and reductions in concussion risk. In a vacuum of any substantial guidance, retailers and manufacturers, alike, will be hard pressed to know what evidence is good enough. 

In the recent warning letters, the FTC cited the 1970s case, Porter v. Dietsch, in support of the proposition that retailers may be held liable for violations of the FTC Act. In that case, the FTC found a retailer, Pay’n Save, liable for disseminating deceptive ads for a weight loss product. The FTC found that Pay’n was liable even though it had not participated in any way in the creation of the ads, which had been provided by the product manufacturer. The Seventh Circuit affirmed the FTC’s findings on liability, but narrowed the resulting order against Pay’n Save. Rather than applying to any future advertising by Pay’n Save for any weight loss product, the narrowed order would apply only to future advertising for weight loss products made by the same manufacturer. The court pretty clearly had misgivings with treating a retailer just like an advertiser, even if both are subject to the FTC Act.  It observed that “the extent of a party’s culpability has an important bearing . . . on the nature of the relief that should be granted.”

Last year, we posted that Department of Justice will soon address the applicability of the Americans with Disabilities Act (“ADA”) to private retailers offering goods and services to the public online. This month, we’ve learned about an ADA case that could impact retailers in their stores.

A consumer recently filed a lawsuit against Express Inc. alleging that the retailer violated the ADA by failing to provide card-swipe machines with textured keys. According to the complaint, because the company’s machines throughout the US do not feature textured keys, blind consumers are forced to give out their PIN numbers in order to make a debit card purchase, leaving them open to bank fraud. The plaintiff alleges that this violates the ADA, which prohibits discrimination in places of public accommodation and requires those places to be readily accessible to, and independently usable by, individuals with disabilities.

Among other things, the complaint asks the court for a declaration that the machines used by Express violate federal law, as well as an injunction requiring the retailer to update or replace all the machines that are in violation of the ADA. If the court sides with the plaintiff, this case could impact all retailers across the country.

In a first of its kind suit, on March 7, 2013, the sports-apparel retailer Genesco filed a lawsuit against Visa for recovery of fines that Visa issued against Genesco after it suffered a data breach. Generally, merchants are contractually required to be compliant with the payment card industry data security standard (PCI DSS) as well as the payment card brands’ specific operating rules and regulations in order to accept each brand’s payment cards.  In the event of a data breach, a payment card brand may seek to recover funds for the incremental fraud incurred by the payment card brand, operational expenses (to cover costs such as card replacement), and fines for non-compliance with the PCI DSS.

After it suffered a packet sniffer data breach in 2010, Visa assessed Genesco a total of $13.3 million in fines. In its complaint, Genesco alleges that it was never out of compliance with the PCI DSS and, thus, should not be liable for the fines.

Given the prevalence of data breaches–and especially the high costs incurred by merchants when responding to, and cleaning up the aftermath from, a breach involving payment card information–merchants should pay close attention to this case. If Genesco ultimately prevails, the case could challenge the underpinnings of the payment card brands’ contracting and enforcement mechanisms.

Posted by Sarah Roller

On August 18, 2011 the FTC issued a request for public comment and advance notice of proposed rulemaking (ANPR) as part of the Commission’s review of the costs, benefits, necessity, and regulatory and economic implications of its “Retail Food Store Advertising and Marketing Practices” rule, commonly called the “Unavailability Rule,” 16 C.F.R. Part 424.

Currently, the Unavailability Rule states that it is an unfair or deceptive act or practice for “retail food stores” to advertise “food, grocery products or other merchandise” at a stated price if those stores do not have the advertised products in stock and readily available to consumers during the effective period of the advertisement. The Rule includes a provision that permits stores that do not have the advertised products in stock and readily available to comply with the Rule if “the advertisement clearly and adequately discloses that supplies of the advertised products are limited or the advertised products are available only at some outlets.” In addition, the rule provides that it would not be a rule violation if: (1) The store ordered the advertised products in adequate time for delivery in quantities sufficient to meet reasonably anticipated demand; (2) the store offers a “rain check” for the advertised products; (3) the store offers a comparable product at the advertised price reduction; or (4) the store offers other compensation at least equal to the advertised value.

According to the ANPR, “the Commission now solicits comments on, among other things, the economic impact of, and the continuing need for, the Unavailability Rule; the benefits of the Rule to consumers purchasing products at retail food stores; and the burdens the Rule places on firms subject to this requirement.”  The Commission also is considering whether to broaden the Rule to include stores not currently covered, such as drugstores, department stores, and electronic retailers. Comments can be filed online or on paper and must be received by the FTC on or before October 19, 2011.

Pursuant to an enforcement policy the FTC announced earlier today, retailers of fur products that were previously subject to the $150 exemption under the Fur Products Labeling Act (“Fur Act”) will not have to pull those products from shelves by Friday. Under previous Fur Act authority, the FTC had exempted products containing fur or fur trim with a component value of $150 or less from fur-content labeling (de minimis exemption). The recently-passed Truth in Fur Labeling Act eliminates that authority and mandates that, starting March 18, 2011, products previously covered by the de minimis exemption will be subject to the Fur Act’s disclosure requirements.

Although coat selling season is winding down, many retail floors and websites still include fur products that, when purchased by the retailer and initially offered for sale, were subject to the exemption. The fur industry expressed concern that compliance with the March 18 deadline for these products would cause significant economic loss, including destruction of some of those products. In response to those concerns, the new enforcement policy includes a forbearance period with the Commission noting that, “While compliance with the letter of the law is important, the Commission also recognizes that new obligations may sometimes create significant burdens on parties that have relied in good faith on previous requirements.” Thus, the Commission will not enforce Fur Act labeling requirements against any retailer offering previously-exempt products as long as (1) the products were delivered to the retailer on or before March 18, 2011 and sold by March 18, 2012 and (2) the products are not mislabeled under the old requirements. The Commission encourages retailers to communicate fur content information in other ways during the forbearance period.

The Commission also requests comments on its Fur Labeling and Advertising Rules, which require fur products to bear certain labeling. The comment request is pursuant to the FTC’s periodic regulatory review and the requirement in the Truth in Fur Labeling Act to review the Fur Products Name Guide. Please contact us if you’re interested in preparing comments, which are due by May 16, 2011. 

This post was written by Sarah Roller and Kristi Wolff.

Last week, the Food and Drug Administration (FDA) took the first steps needed to implement the new restaurant food labeling requirements of the Federal Food, Drug & Cosmetic Act (FDCA), requesting public comment on a number of regulatory issues that will affect compliance burdens and liability risks for companies subject to the new requirements. Submissions responding to the FDA notice can be made until September 7, 2010.

The new labeling requirements were established under FDCA amendments adopted as part of the recently enacted health care reform legislation (i.e., section 4205 of the Patient Protection and Affordable Care Act of 2010). The amendments expanded the scope of mandatory nutrition labeling requirements under FDCA section 403(q)(5), and require restaurants and other retail food establishments with at least 20 or more locations to provide “clear and conspicuous” calorie information to consumers. The FDA is specifically seeking information relating to the following issues:

  • Chain Retail Food Establishments
  • Determination of Calorie Content of Foods Offered by Chain Retail Food Establishments
  • Vending Machine Operations
  • Implementation and Enforcement

For further information about the new nutrition labeling requirements, or assistance in responding to the FDA notice, please contact one of the Kelley Drye attorneys listed above.

In a previous post, we noted that the California Supreme Court in Pineda v. Williams-Sonoma Stores, Inc., granted a petition to review the issue of whether a retailer violates California’s Song-Beverly Credit Card Act if, in connection with a credit card transaction, it records a customer’s zip code for the purpose of later using it and the customer’s name to obtain the customer’s address through a reverse search database. The appeal is now fully briefed. The following are some of the more significant arguments proffered by each side, and the potential impact of the ruling on retailers.

The trial court sustained Williams-Sonoma’s demurrer to Pineda’s Section 1747.08 claim on the grounds that under Party City Corp. v. Superior Court, 169 Cal. App. 4th 497 (2008) (discussed previously on this blog), zip codes can never constitute “personal identification information” for purposes of that section.  In its brief, Pineda asks the Supreme Court to disregard this well-reasoned precedent on the grounds that zip codes are expressly defined as “information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder’s address and telephone number.” Pineda argues that the trial court and court of appeal erred by inserting an additional criteria into the definition and requiring that the information be “unique” to the cardholder, rather than merely “concerning” the cardholder as set forth in the statute. In addition, Pineda argues that Williams-Sonoma preys on its credit card customers who are accustomed to providing their zip codes for legitimate verification purposes at gas stations and mistakenly assume that Williams-Sonoma is requesting their zip codes to process their credit cards. Meanwhile, according to Pineda, their sole intent is to use its customers’ zip codes to “covertly” obtain their home addresses to build its customer database.

Williams-Sonoma, on the other hand, argues first that the question of whether a zip code is “personal identification information” was not certified for review by the California Supreme Court, thus, the court of appeal’s decision in Party City stands.  In addition, Williams-Sonoma argues that the Song Beverly Credit Card Act does not prohibit the use of information that is collected by a retailer at the point of sale. Instead, Song Beverly is silent as to any conduct other than the request and recording of “personal identification information” during a credit card transaction. Because a zip code has already been held to not fit within the definition of “personal identification information,” the inquiry ends there – it cannot be transformed into “personal identification information” based on how the zip code is used. Further, according to Williams-Sonoma, there is nothing improper about using zip codes to have third party vendors narrow down publicly available information about customers, such as their address.

How the California Supreme Court resolves this issue may have a substantial impact on retailers that collect customer zip codes. If the Supreme Court accepts Pineda’s interpretation of Song Beverly that zip codes are “personal identification information,” retailers could be left wondering what other conduct is prohibited, since neither “zip codes” nor “reverse data searches” are expressly mentioned in the language of the statute. In addition, after having relied on Party City, retailers could be left wondering whether they are now liable for this conduct under Song Beverly for up to $1,000 per transaction.

This appeal has not yet been set for oral argument.  We will keep you updated as to any developments.

On April 29, 2010, Colorado Governor Bill Ritter signed a consumer protection bill which requires gift card issuers to redeem the card, upon request, if the remaining value is $5 or less. In addition, it bans retailers, restaurants and others from selling gift cards that have any type of fee, including a service fee, a dormancy fee, an inactivity fee or a maintenance fee. This new law will apply to gift cards issued on or after August 11, 2010.

Under this law, “gift card” is defined as a prefunded tangible or electronic record of a specific monetary value evidencing an issuer’s agreement to provide goods, services, credit, money, or anything of value. A gift card includes a tangible card, electronic card, stored-value card, or certificate or similar instrument, card, or tangible record, all of which contain a microprocessor chip, magnetic chip, or other means for the storage of information and for which the value is decremented upon each use.

A gift card does not include a prefunded tangible or electronic record issued by, or on behalf of, any government agency, a gift certificate that is issued only on paper, a prepaid telecommunications or technology card, or a card that is donated or sold below face value at a volume discount to an employer or charitable organization for fundraising purposes. Likewise, a card or certificate issued to a consumer pursuant to an awards, loyalty, or promotional program for which no money or other item of monetary value was exchanged is expressly excluded from the definition of a gift card.

In addition, this new law does not apply to gift cards that are usable with multiple sellers of goods or services, but expressly applies to a gift card usable only with affiliated sellers of goods or services.

A violation of this new law will be deemed a violation of Colorado’s deceptive trade practice law.

Once the law is effective, Colorado will join a handful of other states with laws requiring redemption of gift cards with less than a certain cash value. Under California law, as just one example, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value.

This post was written by Kristi L. Wolff and Sarah Roller.

Despite all the publicity over the recently-passed health care legislation, one provision that was “tacked on” received little note but will clearly affect the vast majority of franchise restaurants and many other food retailers across the country.

Section 4205 of the Patient Protection and Affordable Care Act amends the Federal Food Drug and Cosmetic Act (FDCA) by adding to the existing nutritional requirements for restaurants. The new provision requires restaurants and similar retail food establishments with at least 20 or more locations to provide clear and conspicuous information to consumers, including:

  • declaring the number of calories each standard menu item provides as it is typically prepared, and
  • presenting the required calorie information in terms of suggested caloric intake in the context of an overall diet.

The caloric information must be adjacent to the name of the standard menu item as it is usually prepared and placed on the actual menu or menu board, including a drive-through menu board, as well as in written form available on premises upon consumer request. Food sold at a salad bar, buffet line, cafeteria line, or similar self-service facility, and for self-service beverages or food that is on display and that is visible to customers and some vending machines are also explicitly covered by this provision.

Affected companies can prepare to participate in the FDA rulemaking process that will define compliance standards by determining the calorie content of their affected food products and evaluating the options available for disclosing the required calorie information.

For more information, please reference the Kelley Drye client advisory.

With so much of the economy still struggling, credit harder to come by, and consumers being more conservative with their spending, various commentators have suggested that layaway programs are poised to make a comeback. However, retailers should be careful before implementing layaway programs, especially if they are doing so on a national basis.

Several states have statutes specifically regulating layaway transactions, setting forth the maximum service charges, the refund policies, and other terms required by law. In some cases, the penalties for noncompliance can be severe, including statutory penalties or multiples of actual damages. Maryland, Ohio, Rhode Island, and the District of Columbia, among others, have statutes which specify terms that must be included in all layaway transactions, and in some cases those terms may be such that it is no longer profitable for the retailer to offer layaways. In particular, retailers may be seriously restricted in their ability to charge service fees or impose penalties for noncompliance with the terms of the agreement. As a result, some retailers are specifically excluding certain jurisdictions, or providing for alternative contractual terms in those jurisdictions. For example, the layaway program for Toys ‘R Us and Babies ‘R Us stores is apparently not available in Maryland and is subject to different terms in Ohio and Rhode Island.

Layaway may very well prove to be a reliable business model for bringing consumers into stores (or onto websites) but its also an area where a patchwork of local laws can create dangerous legal minefields.