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FTC’s $11.9 Million Win Emphasizes Need to Follow Guidelines

Brian Schaller Posted in Advertising Law, Communications Decency Act (CDA), Enforcement, False Advertising, FTC, FTC Consent Decrees

The Federal Trade Commission (“FTC”) just won another important victory as part of its crackdown on deceptive health claims. LeadClick Media (“LeadClick”) and its parent company were held responsible for claims made by affiliate marketers and ordered to pay a total of $11.9 million in ill-gotten gains from a deceptive weight-loss product-marketing scheme.

LeadClick was found responsible for the false claims made by affiliate marketers it recruited on behalf of LeanSpa, LLC (“LeanSpa”). LeanSpa sold acai berry and colon cleanse weight-loss products and settled with the FTC in January 2014, agreeing to disgorge all of its assets.

This case has been brewing for a while; the FTC filed its original complaint (jointly with the State of Connecticut) back in 2011. The FTC argued LeadClick made deceptive weight-loss claims, used deceptive news reports, and represented to consumers they could receive full refunds, but only fully refunded the money after customers complained to law enforcement or the Better Business Bureau.

As we warned in our previous post, the FTC actively enforces in this area using the FTC Act. Furthermore, Section 230 of the Communications Decency Act does not necessarily protect affiliate marketers from liability. Here, the court rejected LeadClick’s argument that it was immune under Section 230 because LeadClick recruited the affiliates, had approval power, paid the affiliates, purchased ad space for the advertisers, and gave feedback about their Websites.

Although LeadClick’s actions were clearly deceptive, this ruling still highlights several issues that companies should consider when advertising their products and services.

Marketers face significant risks by crossing the line between advertising and news. Here, the FTC claimed that LeadClick’s affiliates deceived consumers by using real news organization’s names and logos with supposed testimonials from those who use LeanSpa products. Further, LeadClick’s promotions falsely claimed that objective news reporters performed independent tests demonstrating the effectiveness of the products and planted fake consumer comments below the fake news reports.

To make certain that your company – and its affiliates – follow correct procedures regarding user comments and testimonials you must understand and address the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising and the Code of Ethics and Standards of Conduct for the Word of Mouth Marketing Association. This includes clearly disclosing the endorser’s identity and any relationship with the advertiser which may materially affect the weight or credibility of the endorsement. In addition, advertisers should be genuinely honest in their communications and have substantiation that the endorser’s experience is representative of what customers will generally achieve with the product.

Companies should also take note to ensure that they have proper mechanisms in place to allow easy cancellation of trials and refund money as promised. In this case, the FTC said that LeanSpa deceived consumers into its recurring purchase program with a “free trial” that was hard to cancel. Additionally, they promised a “30 Day Money Back Guarantee” and “Try it for 30 days, Risk Free,” however, the refund process was not simple, it was difficult for customers to reach a live person, and LeanSpa imposed what the FTC called “onerous, inadequately disclosed” conditions to receive full refunds. Although refund policies are generally not required by law, if your company posts, advertises, or offers specific refunds, you should ensure to honor the refund policy. If not, the FTC could use its authority to investigate and enforce under the FTC Act.

On April 22, 2015, this post was UPDATED based on corrected information regarding the judgment amount.

Courts Continue to Wrestle with Application of VPPA

Posted in Data Privacy Law or Regulation

Recent weeks have seen two notable federal court decisions involving the Video Privacy Protection Act (“VPPA”) since last week: In re Hulu Privacy Litigation, 3:11-CV-03764 (N.D. Cal. March 31, 2015) (“Hulu Privacy Litigation”) and Austin-Spearman v. AMC Network Entertainment LLC, 1:14-CV-06840 (S.D.N.Y. April 7, 2015) (“Austin-Spearman”). While the Hulu Privacy Litigation decision may establish an important limitation on liability under VPPA, the Austin-Spearman case may call for continuing observation because it could open new approaches for plaintiffs.

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FTC Files Complaint Against DirecTV for Inadequately Disclosing Terms of Customer Contracts

Shannon Harell Posted in Advertising Law, FTC

On March 11th, the Federal Trade Commission (FTC) filed a complaint against DirecTV for violations of Section 4 of the Restore Online Shoppers’ Confidence Act (ROSCA)(15 U.S.C. § 8401 et seq.) and Section 5(a) of the FTC Act (15 U.S.C. § 45(a)) alleging that DirecTV failed to adequately disclose the terms of various elements of its subscription program. That the FTC is bringing a complaint targeting the adequacy of an advertiser’s disclosures should come as no surprise. The complaint against DirecTV is in line with the FTC’s recent effort dubbed “Operation Full Disclosure” targeting numerous advertisers for their failure to include truthful and complete disclosures in their ads, as well as the FTC’s recent (and first) actions under ROSCA, passed in 2010 (both of which we blogged about late last year: see here and here).

The DirecTV practices at issue in the complaint are advertisements that touted: (1) the monthly fees for one year of DirecTV programming (e.g., “All New! Limited Time Offer! . . . Now only $19.99*/mo.” and “Limited Time! $24.99/mo for 12 months”), where there were not adequate disclosures to explain that the subscription program required a two year contract (which could result in cancellation fees of up to $480 if terminated early) and that prices increased significantly in the second year of the contract; and (2) free months of various premium channels (e.g., “over 30 premium channels free for 3 months”), where there were not adequate disclosures to explain that the consumer was being enrolled in a negative option plan that he/she needed to affirmatively cancel at the end of the free period or he/she would incur substantial monthly fees (charged to the credit card on file) unless and until the premium channel subscription was cancelled.

Echoing the sentiments of Operation Full Disclosure, the complaint asserts that DirecTV violated the FTC Act because the disclosures contained in the advertisements described above (if any) were inadequate in their content, presentation, proximity, prominence and placement “such that consumers are unlikely to see or understand such disclosures.”

The failure to adequately disclose the terms of the premium channel negative option plan were not only violations of the FTC Act according to the complaint, but also amounted to a ROSCA violation. Section 4 of ROSCA generally prohibits charging consumers for goods or services sold in online transactions through a negative option feature (as defined in the Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(u))[1], unless the seller (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent before making the charge, and (3) provides a simple mechanism to stop recurring charges. The complaint asserts that DirecTV failed to comply with each of the preceding requirements in connection with the advertising for the “premium channel” negative option plan.

In our earlier blog posts on Operation Full Disclosure and the FTC’s recent ROSCA actions, we anticipated that each would be an area of focus for the FTC in its enforcement efforts and this is confirmed by the enforcement action against DirecTV. As we have previously emphasized, advertisers generally must take care in crafting truthful and adequate disclosures and, specifically, in connection with negative option plans offered through online channels to avoid drawing the ire of the FTC.

[1] The TSR defines a negative option feature as: “an offer or agreement to sell or provide any goods or services, a provision under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”

BBB Code of Advertising Update: Examining the Changes

Benjamin Stein Posted in Advertising Law

As noted in our earlier post, the Better Business Bureau recently updated its Code of Advertising for the first time since 1985.  There are many changes throughout the Code, from major substantive additions to minor revisions to layout and formatting tweaks. In this post, we highlight some of the more significant changes. Continue Reading

Brian C. Schaller Joins InfoLawGroup As Counsel

Brian Schaller Posted in Uncategorized

InfoLawGroup is happy to announce that Brian C. Schaller has joined the firm as Counsel. Before joining InfoLawGroup, Mr. Schaller was at a Los Angeles based firm where he represented startups and interactive companies including the virtual reality company Oculus VR.  He also held positions at Oprah Winfrey Network (OWN), Disney Interactive, and NUVOtv.

Mr. Schaller brings additional depth to InfoLawGroup’s core practice areas and continues the firm’s strategic growth in order to serve clients across the full spectrum of Information Law issues.  Mr. Schaller is located in Los Angeles and his practice focuses on interactive entertainment, privacy, technology, intellectual property, and production issues.

Mr. Schaller is Chair of the Beverly Hills Bar Association IP, Internet and New Media Section and Vice-Chair of the Association of Media and Entertainment Counsel (AMEC) Emerging Leaders Advisory Board.  Brian is a frequent speaker and moderator for these organizations.  He is also an International Association of Privacy Professionals Certified Information Privacy Professional.

Does Clapper Silence Data Breach Litigation? A Two-Year Retrospective

Posted in Breach Notice, Breach Notification, Cybercrime, Damages, Motion to Dismiss, Pleadings, Privacy and Security Litigation

This February 26, 2015, marks the two-year anniversary of the U.S. Supreme Court’s decision in Clapper v. Amnesty International USA,[1] which required plaintiffs to allege that a threatened injury is “certainly impending” in order to constitute an injury-in-fact sufficient to convey Article III standing. In this time, federal district courts in at least twelve data breach cases have applied Clapper.[2] While the majority of these courts have concluded that Clapper mandates dismissal for a lack of standing, some courts have found that standing exists. This article provides an overview of these cases and highlights certain considerations that impacted the courts’ analysis in determining whether standing exists.

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Better Business Bureau Updates its BBB Code of Advertising

Benjamin Stein Posted in Advertising Law, Standards

On Thursday, the Better Business Bureau announced that it has made large-scale revisions to its self-described “cornerstone product,” the BBB Code of Advertising.  The Code imposes self-regulatory obligations on all entities who advertise in North America.  It is enforced at the local level by the BBB’s 112 local offices throughout US and Canada and, for national advertising, by the National Advertising Division, the Children’s Advertising Review Unit, and the other arms of the BBB’s Advertising Self-Regulatory Council.

The Code of Advertising was last amended in 1985 and the BBB describes the new revisions as intended to “reflect the many new ways advertisers reach consumers via websites, social media, texting and other channels.”  According to the BBB, the revisions include updates on the use of endorsements and testimonials to address current FTC guidelines, as well as changes to the requirements for “up to” claims, close-out sales, rebate promotions, and the duration of sale periods. The revised Code also includes new sections on green (i.e. environmental-benefit) claims, negative-option plans, and “Made in the USA” claims.

We are reviewing the revised guides and will have a more detailed post on the changes soon.  In the meantime, you can view the BBB’s announcement here and the revised Code here.

The Internet of Things: What All Companies Need To Know About the FTC Report

Posted in FTC, Privacy

The FTC released its Report on the Internet of Things (“IoT”) on January 27, 2015 (“Report”).  While the Report is specific to IoT, including devices such as wearable fitness trackers and internet connected cameras and televisions, there are key takeaways for all companies operating online[1].

The FTC defines IoT as “’things’ such as devices or sensors – other than computers, smartphones, or tablets – that connect, communicate or transmit information with or between each other through the Internet.”

As a starting point, the FTC appears most concerned with security and privacy risks to consumers.  The Report identifies several key risks, which it recognizes exist with traditional computers as well:

  • unauthorized access and misuse of personal information and sensitive personal information, including precise geolocation, financial account numbers or health information (and the concern that this information could be used for credit, insurance, and employment decisions);
  • attacks on other systems;
  • safety risks, including where someone is able to break in and control a device such as an automobile or a pacemaker.

The FTC also raises the concern that collection of certain information (e.g. personal information, habits, locations, and physical conditions) may allow an entity to infer sensitive information that the consumer has not provided directly.

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It’s Not Just For Kids – FTC Takes Issue with Search Terms and Testimonials

Posted in Advertising Law

The FTC started 2015 by showing its continued attention to advertising concerning kids and testimonial issues, as well as an advertiser’s purchase of search terms. In a recent case brought against a manufacturer of children’s supplements, the FTC had concerns about its advertising claims, use of testimonials, and lack of disclosures, as well as its marketing practices outside of the advertising itself.  The FTC challenged the lofty product claims about the supplements’ effect on child development (for example, that they are proven to support normal and healthy speech development). The FTC also took issue with the advertiser’s reliance on testimonials to substantiate efficacy claims and its failure to disclose that some parents received free supplements from the advertiser. But the FTC’s scrutiny didn’t end with the claims and disclosures in the advertising itself. The FTC alleged that the advertiser’s purchase of search terms related to childhood disorder treatments was problematic. The advertiser had purchased the terms so that its ads would appear if a parent searched for solutions to their child’s issues.

If your company is giving away product or services and then soliciting feedback, relying on testimonials as substantiation, or purchasing search terms that may imply a claim about its product or service, be sure to think carefully through the issues involved and consult with legal counsel.

Litigation, Litigation, Go Away, Come Again Another Day: TCPA Lawsuit Stayed Pending FCC’s Resolution of Issues

Posted in TCPA

Last week, a Seattle federal court granted the ridesharing company Lyft’s motion to stay a TCPA class action lawsuit brought against it pending resolution of two recent petitions for declaratory rulings currently before the FCC. The court noted that a ruling in the FCC petitions may resolve the issues in the case and ordered the parties to report back in six months or after the FCC issues a pertinent order. In the suit, the plaintiff alleged that Lyft sent messages to the contacts of its users without those contacts’ prior express consent.

The stay was based on the doctrine of primary jurisdiction – a doctrine whereby a court may exercise its discretion to pause judicial proceedings pending the resolution “of an issue within the special competence of an administrative agency” such as “technical and policy questions that should be addressed in the first instance by the agency with regulatory authority over the relevant industry.” (Slip Op. at 3) (quoting Clark v. Time Warner Cable, 523 F.3d 1110, 1114 (9th Cir. 2008)). Continue Reading