Earlier this week, 50 states and D.C. obtained a $141 million settlement with Intuit related to its advertising of free and freemium TurboTax products. This settlement, which took the form of an Assurance of Voluntary Compliance (a special kind of settlement authorized by many state unfair and deceptive trade practice laws), concluded a three year investigation of the company, and is an example of a bipartisan and nearly unanimous effort among state AGs to address a consumer protection matter. However, it came as a precursor to several state AGs pulling out of the National Association of Attorneys General signaling division within the State AG community.

The Attorneys General alleged facts similar to the FTC’s suit on March 29, 2022 in their findings. In that case, the FTC had filed an administrative action alleging FTC Act violations, while simultaneously filing a federal district court action seeking a temporary restraining order (TRO). The hearing on the TRO didn’t go so well for the FTC, and the judge denied the FTC’s request a day later – noting that the “emergency” need for relief (tax day) had passed; that Intuit had already halted some of the alleged violations; and that the administrative case could address any continuing violations. It is notable that the States have chosen to settle their case while the FTC continues its fight on its own, especially since the settlement could render some or all of the FTC’s case moot.  (And indeed, in a motion to the FTC filed just after the State settlement was announced, Intuit is seeking withdrawal of the FTC’s administrative action on both procedural and mootness grounds.)

The settlement requires that when advertising a product as free, Intuit disclose the existence of material limitations and that not all taxpayers qualify, “clearly and conspicuously, and in close proximity to the representation that the product is free. . .” Demonstrating some flexibility, the States include special provisions for space-constrained ads, which must disclose that eligibility requirements apply and provide a link to the full disclosure online. Video ads require an audible disclosure in addition to written, unless shorter than 8 seconds. However, the States have enjoined altogether the use of certain ads repeating the word free.

Intuit also must intentionally design its software to determine at the earliest point possible that a person doesn’t qualify to use a free product and make disclosures accordingly. The Attorneys General further required data portability, insuring data from any paid upgrade be transferable to the free product.

The $141 million payment will be placed into a Settlement Fund, which will be run by a Fund Administrator and governed by an Oversight Committee made up of FL, IL, NJ, NY, NC, PA, TN, TX, WA.  While the Settlement Fund will pay restitution to consumers, amounts for the cost of administration and for the attorneys’ fees and costs for the States will come out of that Fund.  And while there is an initial allocation schedule attached, it is there for “informational purposes only” since the actual amount flowing to each State and its consumers is ultimately still subject to determination by the Oversight Committee.

Importantly, some key takeaways from the settlement for companies to consider include:

  • Make sure “freemium” product advertising fully discloses offer limitations and eligibility requirements from the outset;
  • Avoid “dark patterns” that may dissuade customers from taking an available free option;
  • Don’t overuse the word free especially without accompanying disclosures in close proximity.

On Wednesday, we described draft legislation circulating in the Senate Commerce Committee that would have given the Federal Trade Commission almost unfettered authority to enjoin permanently any act, practice or method of competition that did not meet its approval. https://www.adlawaccess.com/2022/05/articles/senate-commerce-committee-chair-pushes-one-sided-13b-fix/  All the Commission would need to do is show that a reasonable person had fair notice that the conduct “could” violate the FTC Act.

Senator Cantwell has now introduced the bill and it’s more one-sided today than it was in draft form.  The need to show fair notice of even a possible violation is gone.

S. 4145, the “Consumer Protection Remedies Act,” was introduced by Chair Cantwell last night, with co-sponsors Senators Klobuchar (D-MN), Warnock (D-GA), and Lujan (D-NM). If this bill becomes law, to stop a practice, the Commission would merely need to persuade a judge that “the public interest” is on its FTC’s side . That is effectively no standard at all.

At least defendants will have an opportunity to argue that the Commission cannot obtain money until it proves a violation of some law the FTC enforces. The bill says that restitution, disgorgement, and rescission or reformation of contracts are available only in suits with respect to a violation of a provision of law enforced by the Commission.”

The Cantwell bill no longer confines relief under Section 13(b) to violations that are occurring or about to occur. Any violation within the past ten years remains exposed to monetary recovery. This doubles or triples the period for which the Commission can seek money.

In short, S. 4145 gives the Commission virtually unlimited authority to enjoin methods of competition, marketing practices, privacy protections, and information-security practices. And it would expose a decade of revenues to the agency’s monetary demands. The “Consumer Protection Remedies Act” would not simply streamline the procedures in the FTC Act; it would expand the Commission’s powers, handcuff the courts, and leave American businesses wondering when their conduct might run afoul of three Commissioners’ interpretation of the public interest.

Expect some movement next week in advance of the Commerce Committee markup, with Senator Lee likely to offer an amendment in the nature of a substitute.  With 14 Democrats and 14 Republicans on the Committee, however, a party line vote would allow the Cantwell bill to advance.  But once it does, it likely loses traction.  Without 60 votes as a stand-alone on the Senate floor, Chair Cantwell would need to slip this into must-pass legislation for it to become law.

The one-year anniversary of the Supreme Court’s decision in AMG Capital Management, LLC v. FTC has renewed calls for Congressional action to expand and codify the Federal Trade Commission’s enforcement authority under Section 13(b) of the FTC Act. Last Thursday, we wrote here about the agency’s most recent open meeting, during which Commissioners heard from a key Senate staffer that Senate Commerce Committee Chair Maria Cantwell (D-WA) intended to introduce what she hoped would be a bipartisan fix. Yesterday, Chair Cantwell’s bill was made public, and its terms render any hope of bipartisan support a long-shot, at best, with little likelihood of garnering the Republican support needed to clear the chamber.

The bill’s release followed the May 2 release of a Senate Commerce Committee report entitled Restoring the Federal Trade Commission’s Authority to Protect Consumers and the Marketplace – an 80-page report, more than 50 pages of which purported to list dollar amounts received in each state due to “FTC cases resulting in significant refunds” (many of which were settlements never actually litigated under Section 13(b)). The report echoed much of what we heard from Commissioners last week – that AMG has created an enforcement void for the agency and no alternative enforcement approaches come close to 13(b)’s ability to protect consumers and provide monetary redress. The report couched the court’s decision as particularly damaging to the agency’s efforts to curtail “Big Tech and Pharma’s ability to harm consumers and fledgling businesses.” Continue Reading Senate Commerce Committee Chair Pushes One-Sided 13(b) Fix

In a major development, the States of Missouri, Montana, and Texas have announced their withdrawal from the National Association of Attorneys General (NAAG).  For several months, there have been increasing rumblings from certain states over questions and concerns about the organization, leading to this significant announcement.  The long term impact of this announcement, however, remains to be seen.

As we have previously reported, NAAG functions as an association that helps facilitate many bipartisan efforts throughout the AG community.  NAAG does not control or direct the joint priorities and enforcement efforts of those Attorneys General.  Last week, NAAG hosted the first annual Attorney General Symposium (ironically, in the Texas capital of Austin) which included an entire panel highlighting some of these past initiatives – from the tobacco master settlement agreement of the late 90s to the national opioid settlement finalized this year.  The AGs discussed some of the odd couples these efforts have created, including Texas Attorney General Ken Paxton and former California Attorney General (current Secretary of Health and Human Services) Xavier Becerra, who came together to help shepherd an allocation formula for distribution of opioid settlement funds.  As we have discussed, a departure from NAAG does not have to signal an end to these bipartisan efforts, but does raise a number of logistical questions that will have to be worked out.  For example, will these states still participate in “NAAG” sign-on letters?  Can they participate in a multistate case and be direct or indirect beneficiaries of a NAAG grant?  Will they be able to participate in NAAG or NAGTRI sponsored trainings and meetings?

This isn’t the first time that a State AG has left NAAG however – in April 2021 Alabama Attorney General Steve Marshall announced his departure from NAAG.  But since that time, Alabama has continued to participate in NAAG sign on letters and multistate settlements, including today’s announced multistate settlement with Intuit regarding its free tax preparation services.  (Missouri, Montana, and Texas all participated in that settlement as well).  Whether these three states follow a similar path remains to be seen, but businesses should not assume that any instability with membership in NAAG will change the important focus that State Attorneys General place on consumer protection issues.  If anything, the erosion of the tools used to help the AGs act in a coordinated way could lead to more individual state activity, which may subject businesses to multiple AG inquiries instead of having them coordinated through a single structure.  Our State AG team will keep you updated on these developments.

The replay for our April 28, 2022 Consumer Privacy Litigation Update webinar is available here.

The increasing number of states enacting privacy laws means more privacy litigation. On this webinar, partners Lauri Mazzuchetti and Becca Wahlquist highlighted emerging trends across the docket of privacy litigation cases, provided an update on key cases involving consumer claims, and provided practical tips, including:

  • Understanding potential litigation risk
  • Reducing your litigation exposure
  • Discussing exposure for data breaches and other alleged misuses of consumer data
  • Providing an understanding of the scope of private rights of action
  • Looking ahead to new laws

Find our webinar replays, blog posts and podcasts easily on the new Ad Law Access App.

Kelley Drye Unveils First-of-its-kind Advertising Law App

FTC Uses AMG Anniversary to Push for a Bipartisan 13(b) Legislative Fix in an Increasingly Partisan EnvironmentDuring the Federal Trade Commission’s April 28 open meeting, Commissioners utilized the one-year anniversary of the Supreme Court’s decision in AMG Capital Management, LLC v. FTC to highlight the implications of the ruling that gutted their enforcement authority under Section 13(b) of the FTC Act. Commissioners called yet again for a legislative fix and were encouraged by public remarks from a counsel to Senate Commerce Committee Chair Maria Cantwell (D-WA), who delivered an update from the chair that she “hope[d] to have a bipartisan solution soon” – whether that solution can get over the line remains far from certain.

Following a presentation from Bureau of Consumer Protection Acting Deputy Director Audrey Austin, the Commissioners opined on the loss of – in Chair Lina Kahn’s words – “the key engine of our law enforcement efforts for four decades” and the inability to adequately obtain monetary relief for consumers.

Chair Kahn and fellow Democratic Commissioner Rebecca Slaughter commended the agency’s alternative enforcement approaches over the past year in AMG’s wake. They highlighted the use of Section 19; new rulemakings to codify conduct that the courts had already determined was unfair or deceptive; additional administrative proceedings to “preserve a pathway” for monetary relief; warning letters to businesses and the threat of civil penalties; and coordination with State Attorneys General. Under those alternative enforcement pathways, however, Commissioner Slaughter said the agency’s “best outcomes are still justice diminished or delayed.”

While all four current Commissioners indicated support for legislation to clarify the agency’s enforcement authority under Section 13(b), comments from Republican Commissioner Christine Wilson reflect ongoing stakeholder concerns that appear to have stood in the way of Senate action following the House’s passage last summer of Representative Cárdenas’s (D-CA) Consumer Protection and Recovery Act on a nearly party-line vote (see more on the Cárdenas bill here).

Specifically, Commissioner Wilson stressed the need for statutory guardrails to address: (1) the absence of a statute of limitations; (2) the potential “unbounded” use of Section 13(b) to achieve disgorgement in antitrust cases; and (3) the application of Section 13(b) in consumer protection cases involving legitimate businesses selling legitimate products and services, albeit with deceptive claims. Another potential legislative flash point is the possible retroactive application of any new penalty authority. Today, Commissioner Slaughter noted that $1 billion in relief “could be preserved if action were taken now to restore 13(b) to all current and future cases.” While one can imagine a legislative framework that satisfies both sides, such a framework has not yet materialized.

Further, the agency’s internal politics could portend trouble for champions of an expeditious legislative solution. In a broad rebuke of Chair Kahn’s Federal Trade Commission, Commissioner Wilson warned that Congress may be wary to expand the FTC’s power given recent examples of the agency using its authority in a way that exceeds statutory boundaries or undermines Congressional intent. She urged her colleagues to “tread carefully” and noted the importance of demonstrating the agency will be “careful stewards” of any new enforcement authority bestowed upon it.

As we have written before, while there is bipartisan support for holding “scammers and fraudsters” accountable and providing for consumer redress, Congress’s sense of urgency to pass legislation clarifying the FTC’s authority under Section 13(b) seems to have waned as partisan tensions – both in Congress and the agency – have intensified.

Meanwhile, the Senate may vote as soon as next week on Alvaro Bedoya’s nomination to serve on the Federal Trade Commission. The confirmation vote had originally been expected this week, but was delayed due to the absence of two Democratic Senators. Perhaps reflective of those above-mentioned partisan tensions, Commissioner-designate Bedoya is expected to need the votes of all 50 Senate Democrats, in addition to the tie-breaking vote of Vice President Kamala Harris.

There’s a “request for investigation” pending at the FTC that some of our readers might have missed.  The April 12 complaint, filed by Georgetown Law professor Laura Moy on behalf of the Council on American-Islamic Relations, urges the FTC to conduct a wide-ranging investigation of the location data industry.

The complaint focuses in particular on alleged abuses harming the Muslim community, including the government’s purchase of location data from popular Muslim prayer apps to conduct “warrantless surveillance” on Muslim individuals.  According to the complaint, these practices have led to a “sense of constant surveillance” that has chilled Muslims’ practice of religion, freedom of assembly, and use of technology to communicate. The allegations have broader implications, too, as they describe the “unfettered” and “surreptitious” data collection across many contexts by multiple industry actors, including the operating systems, app and SDK developers, data brokers, and participants in digital advertising’s real time bidding (RTB) process.

As I write this blogpost, the complaint does not appear to have been posted on the FTC’s website.  Although the FTC seeks public comment on petitions for rulemaking, this complaint may not fall within that process since it chiefly seeks investigations, citing rulemaking as a “longer term” goal.  (Of course, stakeholders may want to consider providing input to the FTC anyway to assist in its consideration of the issues.)        Continue Reading Complaint Urges FTC to Investigate the Location Data Industry

Website accessibility lawsuits continue to be big business for plaintiffs’ attorneys. Every year since 2018, over 2,000 of such suits have been filed in federal courts, and many other suits have been threatened and settled outside of the public eye. Part of the problem is the lack of clear guidance in this area. Although settlements provide some insights about what standards companies should use, they don’t shed light on thornier issues, such as whether 100% compliance with those standards – something many experts think is not realistic – is required.

In 2010, the Department of Justice issued an Advance Notice of Proposed Rulemaking seeking comments on a variety of questions concerning the scope, applicability, and feasibility of website accessibility. The rulemaking efforts were delayed several times until 2017, when they were put on an “inactive list” by the Trump Administration. DOJ hasn’t publicly addressed this area in much detail since then, until last month, when they issued new guidance. Unfortunately, although the guidance states that website accessibility is an enforcement priority, it doesn’t provide much clarity for businesses.

Although there are no official regulations governing website accessibility, DOJ writes that “existing technical standards provide helpful guidance concerning how to ensure accessibility of website features.” Among other things, DOJ points to the Web Content Accessibility (or “WCAG”) Guidelines that are incorporated into most settlements in this area. No surprise there. DOJ also states while “businesses must comply with the ADA’s requirements,” they “have flexibility in how they comply,” and can “choose” how to ensure accessibility.  Unfortunately, DOJ does not elaborate on what that means.

Where does leave us? Essentially, the same place we were before. Most companies will continue to attempt to code their websites according to the WCAG Guidelines, without knowing how much compliance is enough, and plaintiffs’ attorneys will continue to threaten or file suits for even small errors. Although DOJ’s reference to “flexibility” in compliance may provide a glimmer of hope, without more elaboration from DOJ, companies will likely be left to fight that out in court. Moreover, DOJ continues to hold companies to a very high standard of compliance (WCAG 2.1 AA) in settlement agreements, such as that it entered into with CVS earlier this month.

In January, we posted that Fashion Nova had agreed to settle an FTC complaint alleging that the company’s practice of suppressing negative reviews on its site “deprives consumers of potentially useful information and artificially inflates the product’s average star rating” in violation of Section 5 of the FTC Act. According the FTC’s complaint, the company would automatically post four- and five-star reviews, but failed to post any review with a lower rating for about four years.

This week, a plaintiff filed a class action against Fashion Nova based on the same facts. The plaintiff starts with statistics about reviews, noting one study suggesting that 93% of adults in the US read reviews before making a purchase online and another study suggesting many consumers will not even consider a product unless it has a minimum average rating of 3.4 stars. She alleges that because of this, Fashion Nova artificially inflated ratings to make products appear more appealing.

By hiding negative reviews, the plaintiff argues that Fashion Nova omitted important information – such as comments about product sizing, fit, or quality – that consumers frequently rely upon when deciding whether or not to purchase a product. She also argues making the products appear more popular than they actually were allowed the retailer to charge prices that are higher than it would have otherwise been able to charge if consumers had all of the facts.

This lawsuit doesn’t raise any new facts or alter any of the guidance we mentioned in our last post. It does, however, serve as a fresh reminder that regulators, competitors, and plaintiffs’ attorneys are carefully scrutinizing how companies generate and publish reviews.

Last year, we posted about a lawsuit against Allbirds alleging (among other things) that the company’s environmental claims – including claims about its “sustainable” practices, the “low carbon footprint” of its shoes, and its other “environmentally friendly” initiatives – are false and misleading. This week, the US District Court for the Southern District of New York dismissed the lawsuit. The decision covers a lot of ground, but here are some of the key points.

Among other things, the plaintiff took issue with Allbirds’ life cycle assessment (“LSA”) tool and its use of the Higg Material Sustainability Index (“MSI”)Allbirds-Carbon-Footprint-Image to measure the environmental impact of materials. For example, the plaintiff argued that the LSA tool only measures the carbon footprint of each product, while omitting other environmental impacts, and that the Higg MSI only includes raw materials and that it doesn’t account for the entire lifecycle of wool production.

The court determined that many of the plaintiff’s complaints about the LSA tool simply amounted to criticisms of the tool’s methodology, and that the plaintiff did not actually describe any false or misleading statements. The court held that Allbirds “does not mislead the reasonable consumer because it makes clear what is included in the carbon footprint calculation, and does not suggest that any factors are included that really are not.”

The court came to similar conclusions about use of the Higg MSI. The plaintiff’s criticism that the calculation doesn’t go beyond raw materials or that results would be higher if it had considered the entire lifecycle of wool production is “simply a critique of its methodology.” Just because a standard may have room for improvement, does not render a company’s reliance on that standard deceptive. Again, Allbirds clearly discloses its use of the Higg MSI.

The plaintiff also argued that Allbirds omitted information about “the environmental impact of the wool industry’s methane emissions, land occupation, and eutrophication.” Although companies are required to disclose material information, there is no obligation under New York law “to provide whatever information a consumer might like to know.” Again, the court found it unlikely that consumers would have expected Allbirds calculations to include anything other than what the company had described.

Although there are still a lot of gray areas when it comes to green claims, this decision suggests that companies have some flexibility in how they measure the environmental impact of their products. That flexibility has its limits, though. Companies will need to use reputable methodologies and clearly disclose the basis of their claims. Unqualified environmental benefit claims and claims that may imply a larger benefit than a company can substantiate still pose a high risk.