Fred Meyer Guide Revisions Are Friendly Reminder to Suppliers to Check Their Current Practices

This post was written by Keri Bruce and Hilary St. Jean.

Last week, the Federal Trade Commission (“FTC”) approved final changes to its Guides for Advertising Allowances and Other Merchandising Payments (the “Guides”), also known as the Fred Meyer Guides.  The Guides were originally issued in 1969, and subsequently revised in 1990, to help businesses comply with sections 2(d) and (e) of the Robinson Patman Act (the “Act”).  The Act generally prohibits certain forms of price discrimination between suppliers and the merchants who resell their products.  Sections 2(d) and (e), which are the focus of the Guides, are designed to prohibit disguised price discrimination in the form of promotional payments or services.  In other words, a supplier is prohibited from paying allowances or furnishing services to merchants to promote the resale of the supplier’s products, unless the allowances or services are offered to all competing merchants on proportionally equal terms.  The Act aims to help small businesses compete against chain stores by prohibiting anticompetitive price discrimination by suppliers, and certain other kinds of business discrimination.  In December 2012, the FTC sought public comment on the Guides, and input on the overall costs and benefits and continuing need for the Guides.

In response to the comments solicited, the FTC approved moderate changes to the Guides in order to update them with respect to current technological developments, changes in marketing methods (such as widespread online marketing), and FTC enforcement priorities. The changes also reflect jurisprudential developments since the last revision of the Guides.

All of the comments provided to the FTC indicated a continuing need for the Guides.  The following list is a general summary of the changes to the Guides. For additional information, read the Federal Register, which details the comments received and the FTC’s final changes.

Changes to the Guides (effective November 10, 2014):

  • General:  The FTC added references to the Internet to the lists of promotional media dispersed throughout the Guides to address and account for new methods of commerce associated with the growth of the Internet since the Guides were revised in 1990.
     
  • Section 240.7 (Services and Facilities).  This section of the Guides identifies the types of services and facilities offered to merchants covered by sections 2(d) and 2(e) of the Act.  This section has been modified to provide an example of how to distinguish between services and facilities that are offered for a product’s initial sale to the merchant seller versus its resale to the end consumer. The following new example was added:

    Example 1: A seller offers a supermarket chain an allowance of $500 per store to stock a new packaged food product and find space for it on the supermarket’s shelves, and a further allowance of $300 per store for placement of the new product on prime display space, an aisle endcap. The $500 allowance relates primarily to the initial sale of the product to the supermarket chain, and therefore should be assessed under section 2(a) of the Act. In contrast, the $300 allowance for endcap display relates primarily to the resale of the product by the supermarket chain, and therefore should be assessed under section 2(d).

Two additional examples were added to this section to address whether special packaging or package sizes are for promoting a product’s resale versus its initial sale.

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FTC Warns More Than 60 National Advertisers in 'Operation Full Disclosure'

This post was written by Sulina D. Gabale and Stacy K. Marcus.

In letters sent to more than 60 companies, including 20 of the top 100 TV and print advertisers in the country, the FTC warned companies to review specific ads to ensure their disclosures are “clear and conspicuous,” and that they comply with federal advertising regulations.

In a press release on Tuesday, the FTC explained the initiative – Operation Full Disclosure – as the agency’s latest effort to guide companies to follow proper disclosure standards and avoid misleading consumers. Specifically, the agency targeted disclosures made in fine print or that were easy to miss by the average consumer. The FTC explained that disclosures should be in proximity to the claims to which they relate and in easy-to-read font color, size, and style, so consumers have access to all relevant information. For TV ads, disclosures “should be on the screen long enough to be noticed, read, and understood, and other elements in the ads should not obscure or distract from the disclosures.”

The FTC is keeping the names of those companies targeted secret in an effort to allow them a chance to adhere to disclosure laws. However, without getting too specific, the agency hinted toward recurring problems. For example, the FTC explained in some ads, “the advertiser claimed that a product was unique or superior in a product category, but did not adequately disclose how narrowly the advertiser defined the category, while other comparative ads did not adequately disclose the basis of their comparisons.”

What does this mean for other advertisers?  Though the letters only addressed certain companies, the initiative is essentially a warning shot signaling others to follow suit. The FTC cautioned, “advertisers who did not receive a letter should not assume that their advertisements are fine.”

While Operation Full Disclosure may act as just a warning, here are a few things that advertisers should keep in mind:

  • Don’t bury the details – disclosures must be in unambiguous language, clear and conspicuous, and placed in proximity to relevant claims
  • Focus on the font – disclosures should appear in a font that is easy to read and in a size and shade that stands out against the background
  • Disclose all conditions, terms, and limitations

Operation Full Disclosure has so far been limited to TV and print ads; however, crackdown over online advertisements may be just around the corner, following the FTC’s recent “.com Disclosures” guidelines published in March 2013.
 

FTC Focuses on Data Brokers at Big Data Workshop

The Federal Trade Commission held a workshop on September 15, entitled “Big Data: A Tool for Inclusion or Exclusion?” where FTC Commissioner Julie Brill emphasized the push to place more scrutiny on data brokers, reaffirming ideas and objectives expressed in the FTC’s May 2014 report on transparency and accountability.  For additional details on the workshop and what was covered, please read the recent post on our Global Regulatory Enforcement Law Blog.

Wearable is the New Black (and Latest Privacy Risk)

There has been a proliferation of wearable devices hitting the market, such as Google Glass, Fitbit and others, all with the ability to collect data and track behavior.  These "wearables" have begun to receive some scrutiny by senators and regulators, including New York's senior senator Chuck Schumer, who recently urged the FTC to push fitness device and app companies to provide users with a clear opportunity to "opt-out", since personal information may be potentially sold to third parties without the users' knowledge or consent.  For additional information on this story, please read the latest post on our firm's Global Regulatory Enforcement Law Blog.

Snapchat Settlement with MD AG Marks Latest State-Level Privacy Enforcement Action

This post was written by Michael Schaeppi and Frederick Lah.

Last month, Snapchat reached a settlement with the Maryland Attorney General over alleged deceptive trade practices regarding Snapchat’s marketing claims that user “snaps” disappear forever.  In addition, the Attorney General alleged that Snapchat had violated the Children’s Online Privacy Protection Act (COPPA).  This settlement follows a similar settlement between Snapchat and the Federal Trade Commission, which we reported on previously.

After announcing the settlement, Attorney General Douglas F. Gansler said that “despite Snapchat’s marketing claims to the contrary, no company can fully prevent content you send to someone else from being copied, shared or posted online[.]” Attorney General Gansler went on to state that companies operating online or through mobile devices have a responsibility to safeguard user privacy and to be transparent about the information they collect. According to Attorney General Gansler, Snapchat misrepresented to consumers that pictures and video messages sent using the Snapchat mobile application are only viewable temporarily, when in fact they can be captured by the recipient for future viewing or circulation. As a result of these representations, some Snapchat mobile application users may have sent pictures or video messages they would not have sent were these risks adequately disclosed.  The Attorney General further alleged that Snapchat secretly collected information from users’ contact lists without their consent, and that Snapchat failed to comply with COPPA by knowingly collecting the personal information of children under the age of 13 without verifiable parental consent.

While Snapchat did not accept liability in the settlement (and made that very clear on its own website), it did agree to implement measures to address the Attorney General’s allegations, including, by agreeing to disclose to users that the recipients of “snaps” have the ability to copy photos and video messages they receive. Snapchat further agreed to comply with COPPA for a period of 10 years, and said that it would take specific steps to ensure children under 13 were not creating accounts.  Snapchat also agreed to pay $100,000 to the State of Maryland as part of the settlement.

This action by the Maryland Attorney General is the latest in a growing number of state-level privacy enforcement actions.  When we reported on the privacy enforcement actions brought in New Jersey and California, we questioned whether other states would follow suit in their focus on consumer privacy.  It looks like we have our answer.    

NAD Jumps the Shark on Use of Consumer Reviews as Substantiation

Sniffing something fishy in the sea of consumer reviews, the National Advertising Division (NAD) snapped its jaws at advertising claims made in television commercials, infomercials, and on the Web by Euro-Pro Operating for its Shark brand vacuum cleaners.  The advertising was brought to the NAD’s attention by competing vacuum cleaner manufacturer, Dyson, Inc.  The claim at issue was:

“America’s Most Recommended Vacuum Brand.*

*Based on percentage of consumer recommendations for upright vacuums on major national retailer websites through August 2013, U.S. Only.”


What was special about this case was that Euro-Pro sought to substantiate its “most recommended” claim on aggregated consumer reviews.

The first issue was, what did the claim really mean?  Dyson said it meant that the Shark is the most recommended vacuum among vacuum cleaner owners, nationwide, and that the claim communicated a comparative message, namely that the Shark was recommended over other brands.  Euro-Pro, on the other hand, thought the claim was as clear as Caribbean water: the Shark is “America’s Most Recommended Vacuum Brand” “based on percentages of consumer reviews for upright vacuums on major national retailer websites through August 2013.”  There was nothing comparative about the statement, according to the advertiser.  Interestingly, the NAD tended to side with the advertiser’s interpretation, namely that the claim “America’s Most Recommended Vacuum Brand*” reasonably conveyed a message that Shark is the most recommended vacuum brand among American vacuum cleaner consumers.  However, it interpreted the asterisked second part of the claim to be an explanation of how Euro-Pro sourced the data on which it based its claim.  So, the Shark wins, right?  Not so fast.

The second (and ultimately determinative) issue was whether the basis of the claim was sufficiently reliable in order to form a reasonable basis for the claim.  Here is where the NAD really sunk its teeth into aggregated reviews as a source for advertising claims.  The NAD started from “first principles.”  Were consumer reviews “representative”?  That is, was the data representative of “America”?  The reviews that were used were sourced based on the question as to whether the consumer recommended the product or not.  There were thousands of these reviews, tabulated on a quarterly basis across many online retailers and some brick-and-mortar stores.  What these data offered in terms of volume, they lacked in scientific integrity, according to the NAD.  It was apparently placed into the record that an overwhelming majority of vacuum cleaner sales occurred in brick-and-mortar stores, and yet the aggregated universe of reviews was largely skewed toward online retailers.  Should it matter where a person purchased the product?  The NAD thought so.

What did the advertiser know about the demographics?  A lot, but apparently the fact that it was “self-reported,” as consumer reviews naturally are, was a virtually fatal flaw.  The NAD found that this demographic information was “unverified.”  The NAD also faulted the consumer reviews for not having verifiable insight into household income.  The NAD, seemingly unclear as to whether or not consumer reviews could ever be representative in a verified and meaningful way, concluded that the advertiser had not been able to show in this case that the aggregated data were reliably representative. 

In addition to problems with representativeness, the consumer reviews were just generally unreliable.  In a fascinating statement, the NAD suggests that consumer reviews can be relied upon by consumers in making purchasing decisions, but that does not make them “reliable” for purposes of advertising substantiation.  And, this is the key take-away from this case:  The NAD wisely does not take issue with consumer reviews generally.  (And the aggregator of the consumer reviews was never even mentioned in the case.)  The problem is that when consumer reviews are aggregated across many Web sites and under various conditions and in various contexts, there is no way (currently) to ensure that these reviews are reliably tabulated and integrated for purposes of forming a reasonable basis for an advertising claim.  The NAD did not say that it would be problematic to call out that on Amazon.com, the Shark has a 5-star average from consumer reviews.  What the NAD decision stands for is the proposition that aggregation of data across platforms and sites must be shown to be reliably and scientifically performed in order to meet a basic threshold for adequate substantiation.  It was the aggregation and the subsequent interpretation of the aggregation (“America’s Most Recommended…”) that really bothered the NAD.

(Query: what would the NAD think about awards and seals that are based on aggregated data?)

The story doesn’t end here, though.  Euro-Pro has decided to take its case to the NARB.  However the panel decides, this case is an important one because it is the first time anyone has really examined the increasing use of aggregated data for purposes of marketing claims.

Euro-Pro Operating, LLC, Shark-brand Vacuum Cleaners, NAD Case Reports #5717 (May 29, 2014).

FTC Calling for Legislation in Recent Report on Data Brokers

The FTC released its report “Data Brokers: A Call for Transparency and Accountability”, which calls for more transparency and accountability from the companies that collect, resell or share consumers’ personal information, generally known as data brokers.  While the report mentions some of the benefits of these companies, it strongly emphasizes their associated risks, noting that data brokers often store delicate consumer information, potentially exposing consumers to fraud, theft, and other types of consumer harm.  One of the FTC’s key findings was that consumers have little access or control over their information once it is provided to data brokers, sparking a call for legislative action for increased transparency and accountability.  For more information on this issue, please read the latest post on our Global Regulatory Enforcement blog.

Online Advertising Targeted by Federal Trade Commission

On May 15, 2014, Maneesha Mithal, Associate Director of the Division of Privacy and Identity Protection at the Federal Trade Commission (“FTC” or “Commission”) testified, on behalf of the FTC, before the U.S. Senate Committee on Homeland Security and Governmental Affairs addressing the Commission’s work regarding three consumer protection issues affecting online advertising: (1) privacy, (2) malware and (3) data security. Below is a summary of the Commission’s testimony regarding these three key areas and the Commission’s advice for additional steps to protect consumers.

Privacy

Privacy has been a top priority for the Commission since the early 1990s. In March 2012, the Commission released its Privacy Report, and it continues to engage in privacy enforcement actions involving the online advertising industry. In its testimony, the Commission highlighted several key enforcement actions in this area that demonstrate significant principles regarding privacy:

  • Chitika, Inc., No. C-4324 (F.T.C. June 7, 2011) – The FTC alleged that Chitika, an online advertising network, violated section 5 of the FTC Act when it offered consumers the ability to opt out of the collection of information to be used for targeted advertising – without telling them that the opt-out lasted only 10 days.
  • ScanScout, Inc., No. C-4344 (F.T.C. Dec. 14, 2011) – The FTC charged that ScanScout deceptively claimed that customers could opt out of receiving targeted ads by changing the computer’s web browser settings to block cookies, when, in fact, ScanScout used Flash cookies, which browser settings could not block.
  • Epic Marketplace, Inc., No. C-4389 (F.T.C. Mar. 13, 2013) – The company settled charges that it used “history sniffing” to secretly and illegally gather data from millions of consumers about their interest in sensitive medical and financial issues, ranging from fertility and incontinence to debt relief and personal bankruptcy. 
  • Google, Inc., No. C-4336 (F.T.C. Oct. 13, 2011) – Google agreed to pay a $22.5 million civil penalty to settle charges that it misrepresented to Safari browser users that it would not place tracking cookies or serve targeted ads to them, violating an earlier privacy order with the Commission.
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FTC Settlement with Snapchat - What Happens on Snapchat Stays on Snapchat?

Last Thursday, the Federal Trade Commission (FTC) announced that messaging app Snapchat agreed to settle charges that it deceived consumers with promises about the disappearing nature of messages sent through the app.  The FTC case also alleged that the company deceived consumers over the amount of personal data the app collected, and the security measures taken to protect that data from misuse and unauthorized disclosure.  The case alleged that Snapchat’s failure to secure its Find Friends feature resulted in a security breach that enabled attackers to compile a database of 4.6 million Snapchat usernames and phone numbers.

Snapchat became popular among teenagers and college students by promising users that the photos and videos they send via the app will “disappear forever” seconds after they're opened.  Security and privacy advocates have repeatedly warned, however, that that's not always true.  According to the FTC complaint, Snapchat made several other misrepresentations to users, including: (i) that the app’s structure – which was supposed to delete any video sent – actually allowed such videos to be accessible when a recipient’s phone was connected to a computer; (ii) that the company misrepresented its data collection practices by transmitting geolocation information of users, despite its privacy policy saying that the app does not collect such information; and (iii) that the app deceptively represented to users that the sender would be notified if a recipient took a screenshot of a message sent via the app.  In fact, the FTC said that there was a very easy work-around method to allow recipients to screen shot messages without notifying the sender.  To settle these charges, Snapchat agreed to implement a privacy program that will be monitored by an outside privacy expert for the next 20 years.

Interestingly, in the case of Snapchat, the alleged misrepresentations were not made in the company’s privacy policy, but in its product description pages on iTunes and Google Play, and on a series of FAQs on its website.  Privacy has now become a key selling point for many businesses – Snapchat actively advertised that its messages would “disappear forever” after they were read.  Just as is the case with any advertising or marketing claim, if companies are going to use privacy as a selling point, they will need to ensure that those claims can be substantiated.  In the context of privacy, this means that claims about how consumer data is collected, used, shared, and protected must match up with actual practices. 

FTC Has User Generated Content on the Run

In a recent letter to shoe retailer Cole Haan regarding its Wandering Sole Pinterest contest, the Federal Trade Commission (FTC) signaled a major change for promotional contests conducted through social media platforms.  In the letter, the FTC determined that the Pinterest contest sponsored by the company was a form of product endorsement, subject to Section 5 of the FTC Act, which requires the disclosure of a material connection between a marketer and an endorser when their relationship is not otherwise apparent from the context of the communication that contains the endorsement.

In the Wandering Sole Pinterest contest at issue, participants were asked to post five pictures of their favorite Cole Haan shoes and five pictures of their favorite places to wander, tagging each picture with #WanderingSole. Cole Haan promised to award $1,000 to the participant with the most creative pictures.

Cole Haan’s contest was a pretty straightforward Pinterest promotion, similar to others commonly run by advertisers. However, in this case the FTC determined that participants’ posts featuring Cole Haan products were endorsements of the company and that viewers of the posts would not reasonably expect that the posts were incentivized by the chance to win $1,000. The FTC expressed additional concern that Cole Haan did not instruct contestants to label their posts and Pinterest boards to make it clear that they had pinned Cole Haan products as part of a contest.

The FTC acknowledged that prior to the letter to Cole Haan, it had not publicly addressed whether entry into a contest is a form of material connection, nor whether a pin on Pinterest constitutes an endorsement, so the FTC opted to send the letter and not commence any further proceedings.

What does this mean for advertisers wishing to conduct Pinterest contests and social media promotional contests in general?

Importantly, the letter does not challenge the legality of such promotions and contests, but rather imposes additional disclosure requirements. Unfortunately, the FTC letter did not include guidance on disclosures that would have been sufficient. Until further guidance is issued, marketers and advertisers should take extra care in promotional contests across all social media platforms that rely on user generated content.

FDA to Drug Companies: We Are Watching - Even on Social Media

The FDA recently issued a warning to a Swiss drug company for failing to include on its Facebook page a product's risk information and limitations. Although this type of enforcement activity involving drugmaker conduct on social media has been rather uncommon, it is a stern reminder for companies that the FDA is monitoring activity, and that its marketing and advertising rules apply to product promotion over social media networks as well. For additional information on this story, read the latest post on our firm’s Life Sciences Legal Update blog.

FDA Makes Changes to Nutrition Facts Label

In order to provide consumers with increased information to make well-informed food choices, the FDA announced today a noteworthy overhaul in the presentation of the Nutrition Facts panel on packaged foods. Among the revisions are updates to the display, including font size changes and bolded text, new serving size and nutrient content calculations, and added sugar information. The changes will have implications for the advertising industry, presenting advertisers with the opportunity to capitalize on various nutrition claims. The FDA has invited feedback on the proposed changes and will be accepting comments for 90 days. For more information, please read the recent post on our Life Sciences Legal Update blog.

Should Prescription Drug Risks Be Limited in TV Commercials? The FDA Wants Your Opinion

Our firm's LSHI Group reported on an announcement by the Food and Drug Administration (FDA) last week, asking for public input on a proposed research study concerning whether the risks presented in direct-to-consumer (DTC) prescription drug ads should be limited solely to risks that are considered "serious and actionable." While some say the current risk statements found in TV ads are too long and result in, among other things, reduced consumer comprehension, others believe the DTC ads do not provide enough risk information. The deadline for feedback is April 21, 2014. For more information, read the recent post on the Health Industry Washington Watch blog.

FTC to Media: Time to Lose Some Pounds

Just in time for the New Year, as thousands of people are making weight loss resolutions and searching for ways to stick to them, the Federal Trade Commission (FTC) released updated guidance for publishers and broadcasters on how to evaluate weight-loss claims when screening ads for publication. The imposition of liability on the media for deceptive claims that are published is not new, and major television networks already pre-clear advertisements to ensure that they not misleading violations of section 5 of the FTC Act. Thus, the guidance does not create new liability for publishers, but rather provides a reminder for publishers to be vigilant when it comes to weight-loss claims.

The FTC’s Gut Check: A Reference Guide for Media on Spotting False Weight-Loss Claims, provides an update to its original "Red Flag Bogus Weight Loss Claims" reference guide from 2003. "Gut Check" identifies seven automatically suspect weight loss claims that should trigger investigation by publishers to ensure truthfulness. Such claims include:

  • Causes weight loss of two pounds or more a week for a month or more without dieting or exercise
  • Causes substantial weight loss no matter what or how much the consumer eats
  • Causes permanent weight loss even after the consumer stops using product
  • Blocks the absorption of fat or calories to enable consumers to lose substantial weight
  • Safely enables consumers to lose more than three pounds per week for more than four weeks
  • Causes substantial weight loss for all users
  • Causes substantial weight loss by wearing a product on the body or rubbing it into the skin

Additionally, "Gut Check" provides guidance on the use of consumer endorsements and disclaimers. The guides remind publishers that consumer endorsements must either be typical of the weight loss results experienced by users, or must clearly and conspicuously disclose what the typical results are. The FTC concludes that as a rule, endorsements from people who claim to have lost an average of two pounds or more per week for a month or more (or endorsements from people who say they lost more than 15 pounds overall) should be accompanied by a disclosure of how much weight consumers typically can expect to lose. Regarding clear and conspicuous placement, the FTC says that disclosures should be:

  • Close to the claims they relate to – for example, consumer testimonials – and not buried in footnotes or blocks of text people aren’t likely to read
  • In a font that’s easy to read and at least as large as other fonts the advertiser uses to convey the claim
  • In a shade that stands out against the background
  • For video ads, on the screen long enough to be noticed, read, and understood
  • For video or radio ads, read at a cadence that’s easy for consumers to follow, and
  • In words consumers will understand

"Gut Check" was released in conjunction with settlements in four weight-loss cases, indicating this is an area of great concern to the FTC that will likely see continued stringent enforcement.

Sponsored by, the FTC - Sponsored Content Workshop

The Federal Trade Commission (“FTC”) will host a one-day workshop on Wednesday, December 4, 2013 to look at the issue of “sponsored content” or “native advertising,” terms which refer to advertising that is blended into news, entertainment, and other content. According to the FTC, the workshop will “bring together publishing and advertising industry representatives, consumer advocates, academics, and self-regulatory organizations to explore: the ways in which sponsored content is presented to consumers online and in mobile apps; consumers’ recognition and understanding of it; the contexts in which it should be identifiable as advertising; and effective ways of differentiating it from editorial content.”

According to eMarketer, spending on sponsored content is expected to grow 24% to $1.9 billion this year, a faster growth rate than for most other forms of digital marketing. New publishers, such as Buzzfeed, generate their ad revenue around sponsored content, and more traditional publishers, like Forbes and the Washington Post, are following suit.

The blending of advertising and content, though, has been met with regulatory scrutiny. For example, search engines have drawn the attention of the FTC for the practice. The National Advertising Division also examined Qualcomm’s sponsored content campaign. As companies look for new and better ways to reach consumers through their ads, they should proceed with caution and ensure that they’re providing the necessary disclosures. Clearly, the FTC is paying attention.

FCC Invites Comments on Petitions Related to Revised TCPA Rules

This post was written by Christine E. Nielsen.

The FCC is seeking comments on industry group petitions for clarification and forbearance on the recently amended Telephone Consumer Protection Act (TCPA) Rules. A petition filed with the FCC by a Coalition of Mobile Engagement Providers specifically seeks clarification that the revised forms of consent are only required for new customers such that customers who previously provided valid consent will continue to receive requested communications without having to re-opt-in. The Direct Marketing Association (DMA) also petitioned the FCC to forbear enforcement of the disclosure requirements because, while those requirements were meant to be consistent with the disclosures required by the Federal Trade Commission (FTC), the DMA argues that they actually go beyond the FTC’s disclosure requirements. Comments are due to the FCC on December 2. You can read more about the new rules, the recent petitions, and the request for comments on the Global Regulatory Enforcement Law Blog’s related post.

BLURRED LINES: The Evolution of Native Advertising

Driven by the evolution of technology and social media, brand advertisers are increasingly turning to “native advertising” -- a form of paid media in which promoted content is woven into the actual visual design, or fabric, of a website, magazine, or newspaper. The theory is that by providing ads in the context of a user’s experience, and designing content that blends in with the media in which it is placed, the promoted content is less intrusive, and more likely to capture the attention of consumers.

Of course, because native advertising necessarily blurs traditional lines of editorial and advertising content, regulators have begun to more closely scrutinize the practice, and have expressed concerns about the potential for consumer deception. Earlier this year, for example, the National Advertising Division (“NAD”) examined a campaign from Qualcomm, in which it ran banner ads for its Snapdragon processor adjacent to a series of articles that it had sponsored on the Mashable website. For the duration of the campaign, the banner ads included a tag indicating that Qualcomm had sponsored the articles. Once the campaign concluded, however, the tags were removed (even though the articles remained live on Mashable). 

The removal of this information raised concerns at the NAD, and prompted an inquiry as to whether Qualcomm had a continuing obligation to inform readers of the sponsorship. Ultimately, the NAD concluded that because (1) Qualcomm did not influence the content of the articles; (2) the articles were created before the sponsorship started; (3) none of the articles addressed devices that contained Snapdragon components; and (4) Mashable regularly produces similar content regardless of the sponsorship, Qualcomm did not need to take any further steps to “identify itself as the sponsor after the sponsorship period ended.”

The NAD’s decision is an important step in preserving the future of native advertising. Some questions remain, however, about the limits and effectiveness of commingling marketing messages with editorial content.  Importantly, the Federal Trade Commission is set to hold a native advertising workshop December 4, 2013, so additional restrictions or rules might be just around the corner.

Advocacy Groups Say FTC is at Odds with the First Amendment

Two nonprofits, the Alliance for Natural Health - USA, and TechFreedom, released a report last week alleging that the Federal Trade Commission broke free speech laws when in January 2013, it barred POM Wonderful from asserting that its pomegranate juice is "effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease," including heart disease, prostate cancer, and erectile dysfunction, unless the claim is supported by two randomized, well-controlled, human clinical trials. In their report, the nonprofits estimate that the two clinical trials required by the FTC could cost up to $600 million each.

The POM order highlights the balancing act between requiring substantiation to ensure a claim is truthful and not misleading to consumers, and overly burdensome substantiation requirements that suppress otherwise truthful speech.  The nonprofits’ report criticizes the FTC’s ruling as falling into the latter category by requiring an enormously increased level of substantiation.

In the POM case, the FTC unleashed a very aggressive and somewhat unprecedented attack on POM Wonderful to stop claims it believed misled consumers about the health benefits of pomegranate juice.  Rarely before had two clinical studies been required for such claims. From POM Wonderful’s perspective, information about the health benefits of pomegranate juice was widely accepted in medical and nutritional literature that, under the FTC substantiation standard, may never reach the marketplace.  The substantiation burden was simply too high and unnecessary. The Alliance for Natural Health – USA and TechFreedom argue in their report that the FTC’s order has the effect of barring consumers from information that could be helpful to them, and that suppressing this information is a violation of free speech and the First Amendment.

In reality, there never is a one-size-fits-all answer to what level of substantiation is needed to support a claim, and finding the right balance requires expertise and careful evaluation of each situation.  Here, at least two consumer advocates think the FTC went too far.

DMA Not a Supporter of "Reclaim Your Name" Campaign

Back in June, FTC Commissioner Julie Brill unveiled an initiative called, “Reclaim Your Name” at the Computer Freedom and Privacy Conference.  Her proposed initiative is directed to the big data industry and calls on data brokers to give consumers more control over their personal data.   According to Commissioner Brill, Reclaim Your Name would “empower the consumer to find out how brokers are collecting and using data; give her access to information that data brokers have amassed about her; allow her to opt-out if she learns a data broker is selling her information for marketing purposes; and provide her the opportunity to correct errors in information used for substantive decisions – like credit, insurance, employment, and other benefits.”

Commissioner Brill followed up her remarks at the Conference with an op-ed piece in the Washington Post earlier this month, again demanding transparency from data brokers.  In her op-ed, Commissioner Brill likened the efforts of data brokers who collect data on surfing habits and app usage to the type of information the NSA was collecting.  She also opined that “personal data could be — and probably are — used by firms making decisions that aren’t regulated by the FCRA but still affect users' lives profoundly” and that these decisions include whether consumers are too risky to do business with or aren’t right for certain clubs, dating services, schools or other programs.

One industry participant, the Direct Marketing Association (DMA), disagreed strongly with Commissioner Brill’s op-ed and took her to task in a letter.  That letter, signed by DMA CEO Linda Woolley said that the op-ed ignores the “social benefits” resulting from big data and that it “demonizes” data-driven marketers by wrongly comparing it with the NSA.  Woolley pointed out that the use of consumer information for commercial purpose is governed by laws distinct from surveillance issues.  She said that, “[c]onfusing issues of national security and responsible marketing paints an alarmist picture of supposed threats that the collection of marketing data poses to consumers.”  Woolley also said that Reclaim Your Name focuses on speculative harms and ignores the benefits of “customization and personalization of Internet experiences through the commercial use of data.”

While Commissioner Brill’s statements are informative, the FTC has not formally adopted her Reclaim Your Name initiative.   Any industry-based solution will need to consider the benefits of increased consumer notice and choice, as well as the benefits that responsible data-driven marketing can provide to consumers.

FTC to Search Engines: You're Slacking Off!

By Keri S. Bruce and Sulina D. Gabale.

After recent concerns over misleading native advertising efforts in online editorial content, the FTC puts a spotlight on search engines.

On Tuesday, June 25, the FTC sent out more than two dozen letters to various search engine companies, pushing them to clearly distinguish between paid advertising content and natural Internet search results. After noticing a decline in compliance with its search engine advertising disclosure letter issued back in 2002, the FTC sent out these letters as part of its overall effort to improve digital advertising disclosures.

In the letters, the agency advised search engine companies to improve the clarity and prominence of advertising disclosures by increasing visual cues (such as more prominent shading and borders) and text labels (such as using more prominent fonts and placements of advertising disclosures) for paid search content.  The FTC also noted that its guidance applies to other platforms as well, such as social media platforms that include paid advertising in user feeds.  The FTC based its growing concern off various studies – most notably, a 2005 Pew Research Center survey that found 62 percent of searchers were not even aware of the distinction between paid and non-paid results.

With the evolution of social media and rapidly changing platforms for communication, differentiating natural content from paid-for advertising can be difficult for a consumer.  However, the letter indicated that regardless of the form a search takes (or the platform used), paid results should be clearly distinguishable.  The FTC letters were sent to both general all-purpose search engines and to smaller, more specialized search engines that are heavily trafficked.

Without clear advertising disclosures to Internet audiences, search engines could potentially be liable for unfair or deceptive practices in violation of the FTC Act. Therefore, it is integral to strike a balance between innovative advertising methods and FTC compliance.

Copies of sample letters sent to general all-purpose and specialized search engines addressing the various concerns and solutions the Commission puts forth can be found on the FTC’s website.  For additional disclosure guidelines from the FTC, see the Endorsements and Testimonials Guides and the recently updated Dot Com Disclosures.

FTC Names Jessica Rich its Bureau of Consumer Protection Director

On June 17, Federal Trade Commission (FTC) Chairwoman Edith Ramirez appointed FTC veteran Jessica Rich as the Director of the Bureau of Consumer Protection. Rich has been an attorney with the FTC for 20 years and is an expert in privacy, data and identity protection, and new technologies. Since January 2012, Rich has served as Associate Director in charge of the Division of Financial Practices. During her career at the FTC, she has also served as the Acting Associate Director and Assistant Director of the Bureau’s Division of Privacy and Identity Protection, Assistant Director in the Division of Financial Practices, and counselor to the Bureau Director. Chairwoman Ramirez, who was appointed in March by President Obama, has strongly articulated her interest in shaping privacy policy and bringing privacy enforcement actions. The appointment of Rich, who drafted the first iteration of the Children’s Online Privacy Protection Act (COPPA) and is considered one of the most influential attorneys at the FTC in the field of privacy and online behavioral advertising, signals a strengthening commitment to enforcing online consumer privacy protection. For additional information, read the FTC’s press release covering its recent senior staff appointments.

FTC Chairwoman Ramirez Says Do-Not-Track System is 'Long Overdue'

Earlier this week, FTC Chairwoman Edith Ramirez spoke to members of the ad industry, urging them to provide “effective and meaningful privacy protection” to consumers with respect to online tracking. Chairwoman Ramirez’s position reportedly surprised, and even frustrated, some attendees by implying that the Digital Advertising Alliance's self-regulatory program does not do enough in the space. She said that consumers feel “unease” with online tracking, and that they’re still awaiting “an effective and functioning do-not-track system,” which she characterized as being “long overdue.”

Last month, Chairwoman Ramirez expressed some optimism that a solution would be reached among stakeholders if they use a “consensus-based approach.” As the W3C Tracking Protection Group continues its attempts to work toward a solution, though, frustration may be setting in. Some stakeholders, such as Jay Rockefeller (D-W.Va.), may feel that the time for legislation has come; earlier this week he announced that he will hold a hearing with the Senate Commerce Committee next week to push his do-not-track legislation. For more information about that hearing, please click here.

FTC Revises Guidelines for Online Advertising

This post was written by John Feldman and Caroline Klocko.

Yesterday, the Federal Trade Commission (FTC) released updated guidelines (PDF) for regulating unfair and deceptive trade practices in online marketing. The “.Com Disclosures: How to Make Effective Disclosures in Digital Advertising,” were released in 2000, before the meteoric rise of social media marketing and the advent of smartphone advertising. As the evolution of these two areas has drastically changed the way brands communicate with consumers and blurred lines between corporate and word of mouth advertising, the FTC saw a need to extend these guidelines to cover all online, social and mobile marketing.

Like the original, this set of guidelines focuses on ensuring that ads are not unfair or deceptive by requiring disclosures to avoid consumer confusion. The main implications for marketers are not in the required content of disclosures and consumer protection laws, which remain the same in the updated guidelines, but in the physical placement of disclosures. The updated guidelines include examples and mock ads that demonstrate implementation of the guidelines in social media and mobile marketing contexts. The most important updates are in the areas of disclosures and hyperlinks.

Disclosures

Disclosures must be clear and conspicuous and placed in close proximity to relevant claims on all platforms on which consumers can view ads. Unlike the original set of rules, which provided that disclosures should be placed “near, and when possible, on the same screen,” the new guidelines direct advertisers to place disclosures “as close as possible,” to the relevant claim. The most important thing to be aware of here is making sure that disclosures are properly placed on mobile ads, which are usually viewed on small screens. On a tiny screen, space is at a premium, so marketers should be careful not to make an abundance of claims requiring disclosures. Additionally, advertisers should ensure that most of their ad is able to be viewed all at once on the small screen and that relevant disclosures are included in this view (i.e., consumers should not have to scroll a significant way down in order to find disclosures). The guidelines also discourage the use of pop-ups to provide disclosures, as many users have blocked pop-ups on their phones and Internet browsers. The bottom line is that if an ad cannot be placed clearly and conspicuously on a platform, then the ad should not be run on it.

Hyperlinks

Like the original guidelines, the revised guidelines discourage the use of hyperlinks for health, cost and safety related disclosures and call for hyperlinks to be labeled clearly. The new guidelines also encourage advertisers to label hyperlinks as clearly as possible and to consider how hyperlinks will function on a variety of platforms. Advertisers should take extra care to ensure that hyperlinks are functioning on all devices, like mobile phones. Additionally, the guidelines create a responsibility for advertisers to monitor hyperlink usage and to change disclosure methods if enough people are not clicking on the disclosure links to make the disclosures effective.

FTC Addresses Guidance on Mobile Privacy

On February 15, Chris Olsen of the FTC’s Division of Privacy and Identity Protection spoke at the National Telecommunications and Information Administration (NTIA) stakeholders’ meeting in Washington, D.C. to address its recently released Mobile Privacy Disclosures Guidance.

For a full list of the meeting's highlights, please read the latest post on our sister blog, Global Regulatory Enforcement Law Blog.

Our attorneys will be monitoring the situation closely and will keep you informed of any updates as they develop.

FTC Extends Deadline To Provide Comments on Fred Meyer Guides

This week the Federal Trade Commission (FTC) reopened and extended the deadline until March 4, 2013 to provide comments to aid the FTC in its review of the Fred Meyer Guides ("Guides").   The Guides clarify the Robinson-Patman Act of 1936 ("Act") which is intended to help small retailers compete against the larger chain stores by prohibiting anti-competitive price discrimination that could harm competition between the smaller and larger retailers.  The Guides explain how manufacturers and wholesalers can provide advertising allowances and other promotional payments and services to retailers in a manner that does not discriminate and thereby run afoul of the Act which requires that such benefits must be provided on proportionately equal terms to all competing customers.  

Although the request for comments asks numerous questions, the FTC has highlighted the following as the ones it is most interested in:
(i) Whether there is a continuing need for the Guides;
(ii) Whether there have been changes in the case law that should be reflected in the Guides;
(iii) How, if at all, the Guides should be revised to account for new developments in commercial practices since 1990 (when the Guides were last reviewed and amended) such as the growth of the Internet and means of promoting products;
(iv) What costs and benefits the Guides provide; and
(v) What costs and benefits the Guides ultimately have for consumers.

Comments may be submitted online here or in paper form. 

FTC to Mobile Industry: $800K... Can You Hear Me Now?

On February 1, the FTC announced its largest settlement to date with a mobile app developer – an $800,000 penalty – in conjunction with the release of guidance on mobile app best practices for app platforms, app developers, third parties and app trade associations.  The guidance document and the enforcement action together demonstrate the need for companies with mobile apps to review disclosures, vendor agreements, and consumer consent mechanisms for data collection.

Please click here to read the complete report on our sister blog, Global Regulatory Enforcement Blog.

FFIEC Releases Guidance on Social Media Use by Financial Institutions

This week, the Federal Financial Institutions Examination Council ("FFIEC") released its proposed guidance to help financial institutions understand and address the risks associated with social media activities.

All banks, savings associations, and credit unions, as well as nonbank entities supervised by the Consumer Financial Protection Bureau and state regulators should review their current and expected future social media use as well as evaluate their internal policies to ensure consistency with the proposed guidance. Additionally, the FFIEC is inviting comments on the guidance from industry participants, which must be received 60 days from the date that the notice is published in the Federal Register.

For more information, please read the latest post on our sister blog, Global Regulatory Enforcement Law Blog.

POM Wonderful's Claims ... Not So Wonderful

On January 16, 2013, the Federal Trade Commission in a 5-0 vote upheld a May 2012 Administrative Law Judge’s (“ALJ”) decision that POM Wonderful LLC (“POM”) and its owners had falsely advertised its POM Wonderful 100% Pomegranate Juice, and POMx liquid and pill supplements, by claiming that its products treat, prevent or reduce the risk of heart disease, prostate cancer, and erectile dysfunction, and that they were proven to work.

In upholding the previous decision, the Commission’s Opinion actually went further than the ALJ decision by finding that 34 out of 43 ads contained false or deceptive claims, whereas the ALJ decision found that only 19 contained false or deceptive claims.

In addition, the Opinion found that POM needed a more robust level of substantiation for its claims than what was determined by the ALJ decision. The Commission’s Final Order requires that any disease-related establishment or efficacy claims made about the challenged POM products, or in connection with the POM’s sale of any food, drug, or dietary supplement, must be supported by at least two well-designed, well-controlled, double-blind, randomized, controlled clinical trials.

Although POM allegedly has more than $35 million-worth of scientific testing on its products, including more than 10 clinical studies, many of the studies were found by experts to have flaws.

In its appeal to the Commission, POM argued that finding liability would violate its First Amendment right to free speech and its Fifth Amendment right to due process. The Commission rejected these arguments.

Although the outcome of the Opinion is a blow to POM, the Opinion was not a complete victory for the FTC, as it denied the FTC’s request that POM be required to obtain FDA approval for future claims.

POM Wonderful may appeal the decision to a Federal Appeals Court within 60 days of receiving the Final Order.

Why this matters: This case will likely have a significant impact on advertisers making disease-related claims moving forward as it sets forth a very specific level and number of required clinical studies to meet the “competent and reliable scientific evidence” standard. If POM appeals, this will be an interesting test case as to whether the FTC is indeed overstepping its bounds.

French ISP Restores a "Free" Internet for Advertisers

On Monday, the French Internet service provider, Free, reneged on its original decision to place a default ad-blocking filter on its customers’ routers after receiving pressure from advertisers and the French government. To learn more about this story, read the latest post on our Advertising Compliance blog, ReACTS.

Privacy Stakeholders Meet Again Over Mobile Privacy Best Practices

The National Telecommunications and Information Administration (NTIA) of the U.S. Department of Commerce held its latest meeting with privacy stakeholders November 30, to discuss privacy best practices for the mobile environment. We have previously blogged about some of these earlier meetings on our sister blog from our Global Regulatory Enforcement Group.

This latest meeting once again joined members of the app developer industry with members of consumer advocate and privacy groups, along with other stakeholders from government, academia, and the private sector. Discussion focused on the latest draft of the Mobile Application Transparency Code of Conduct. Some of the issues considered in this latest draft are:

  • The scope of the definition of “Mobile Devices,” and whether, in addition to smart phones and tablets, that term should include “similar portable computing devices”
  • What type of data should be covered by the Code
  • Whether third-party service providers should be subject to the Code
  • Whether mobile app providers should be required to provide a “Short Notice” in addition to other Notice
  • What elements should be included in the Notice
  • Whether the format of the Short Notice should be standardized or within the provider’s discretion
  • How the Short Notice should be presented at download, if at all
  • Whether the Code should require that companies establish a mechanism for consumers to access data

Why This Matters. While the Code is not yet finalized, app developers and marketers who include apps in their communications strategy should pay close attention to these proceedings. There is clearly a focus among all stakeholders on the broader issues of how widely the Code should apply and what type of notice app providers should be required to give consumers, as well as how that notice should be delivered. In an age when consumer consent, opt-in vs. opt-out, and geo-location are front and center in the privacy and mobile debate, the outcome of these discussions will have a major impact on the market. While the Code will only represent a series of best practices, as opposed to binding law, it will still set standards for mobile app providers and marketers regarding how they operate in the mobile environment with respect to consumer privacy.

We will continue to report on this process as the meetings continue to move forward. The next meeting is scheduled for December 18, 2012.

Federal Trade Commission Director Claims Victory with Largest Civil Fine in FTC's History for Consent Order Violation

This post was written by Frederick H. Lah and Douglas J. Wood.

David Vladeck, FTC Director of the Bureau of Consumer Protection, made comments Tuesday, citing the U.S. District Court’s approval of a $22.5 million civil fine against Google for violating a consent order as “a clear victory for consumers and privacy,” and demonstrating that the Commission “will continue to ensure that its orders are obeyed, and that consumers’ privacy is protected.” The consent order settled charges that Google misrepresented privacy assurances to users of Apple’s Safari Internet browser in violation of a previous FTC settlement Order.

In its release, the FTC noted that the approval “resolves allegations that Google made misrepresentations to Safari users about the placement of advertising tracking cookies and serving of targeted advertisements in violation of the FTC’s October 2011 order against Google. Under the settlement, Google will pay a $22.5 million civil penalty, which is the largest in the FTC’s history for violation of an administrative order. Google must also maintain systems to expire the cookies it placed contrary to its representations to consumers.”

In the proceedings, the FTC provided little explanation as to how it came to the $22.5 million figure. In fact, the FTC specifically stated that calculating the figure in this instance was difficult to do and instead relied on the fact that this was the largest civil penalty ever levied for an order violation.

Consumer Watchdog filed an amicus brief arguing that the $22.5 million amount was too low because it is a de minimis amount of Google’s profits and revenues. The FTC responded by arguing that the determination of a civil penalty must involve a multi-faceted analysis, not just a company’s profits or revenues, taking into consideration: (1) the good or bad faith of the defendants; (2) the injury to the public; (3) the defendants’ ability to pay; (4) the desire to eliminate the benefits derived by the violations; and (5) the necessity of vindicating the authority of the FTC. The FTC went on to say that it never alleged in its complaint that the conduct at issue – misrepresenting that it would not place tracking cookies on Safari users’ computers – yielded significant revenues for Google. The FTC further argued that it is difficult to place a dollar value on the harm suffered by consumers as a result of the conduct, so placing a “per violation” calculation of an appropriate penalty is difficult to arrive at with precision.

Finally, the FTC noted that the $22.5 million figure was “many times over the FTC estimates the company earned from the alleged violation.” In a declaration, an FTC attorney stated that, “using a variety of sources, the FTC estimated that Google profited no more than $4 million from the alleged violation.” No additional explanation was provided as to where that $4 million figure came from, other than to say that negotiations with Google were extensive and lasted more than two months.

Why This Matters: Under the Federal Trade Commission Act, the potential fines for violation of an FTC Order can be astronomical if calculated literally in accordance with the formula in the statute. Such a calculation, however, has never been used, and this case helps practitioners and companies better understand how the FTC approaches such cases.

FTC and CFPB Send Wake-Up Call to Ensure Compliance with Mortgage Acts and Practices Advertising Rule

This post was written by Keri S. Bruce and Douglas J. Wood.

The Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) announced today that they have sent warning letters to more than 30 companies, including lenders, mortgage brokers, real estate agents, home builders and lead generators, notifying them that their advertisements may have violated the Mortgage Acts and Practices Rules (“MAP Rule”). The MAP Rule prohibits material misrepresentations in any commercial communication (including advertising) regarding any mortgage credit product, and contains record-keeping requirements for persons subject to the rule. Mortgage advertisers that violate the MAP Rule could be subject to civil penalties. The FTC and CFPB reviewed more than 800 mortgage ads across a variety of media and found numerous types of potentially false or misleading claims, including:

  • Promises of low rates without discussing loan terms
  • Advertisements containing official-looking seals, statements, images or logos suggesting that the advertiser is affiliated with a governmental agency
  • Promises of “pre-approval” without discussing significant conditions on the offer
  • Promises that a reverse mortgage will let consumers stay in their home for free

Mock advertisements with misleading claims can be found here. The CFPB noted that many of the potentially misleading advertisements seemed to be directed at service members/veterans or older Americans. The text of the MAP Rule can be found here.

In a separate press conference, the two agencies announced that they had sent out a total of 33 warning letters; 20 from the FTC and 13 from the CFPB. They also announced that in addition to the companies that received the warning letters, 19 other companies are under active investigation for violations of the MAP Rule and possible deceptive marketing practices. The FTC is conducting 13 of those investigation while the CFPB is conducting the remaining six. At this time, it remains unclear how the two agencies split the targets of either the letters or the investigations. According to the spokespersons for the two agencies at the press conference, those companies that received the warning letters are believed to be companies that should be doing a better job, while those that are under investigation may be guilty of far more serious violations. Concerns were also expressed about ads that targeted veterans and offered reverse mortgages.

Why this matters: This is the first joint FTC/CFPB effort and an important reminder to entities and persons that market and advertise mortgage products that there are two federal agencies on the prowl to find violations and to ensure that mortgage product communications (including traditional advertisements, websites, direct marketing, and social media pages) are in compliance with the MAP Rule, and FTC and CFPB rules and regulations. It is also important to remember that states, in addition to the FTC and CFPB, can enforce the MAP Rule, so it’s not just the FTC and CFPB that are watching! This is clearly the first shot across the bow of the financial services industry by two very powerful federal regulators and is something that must be watched very closely. In addition to specific ads being targets, of equal importance is understanding how the two agencies split the responsibilities. Without a clear understanding of how that came about, the financial industry will be answering to two masters that may well have inconsistent perspectives.

DISH gets dissed by NLRB

This post was written by Joel Barras and Stacy Marcus.

In line with the NLRB’s attack on other social media policies, the NLRB invalidated the social media and other policies of DISH, holding that employers cannot forbid employees from disparaging their employers.

FTC and CFPB to Announce Joint Efforts to Address Consumer Protection

Today, the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) announced they will hold a press conference on Monday, November 19 to reveal a coordinated effort to protect consumers. The agencies have concurrent jurisdiction over financial services companies so this announcement, the first sine the re-election of President Obama, will be very revealing of what’s to come as these two regulators begin their oversight in earnest.. We’ll report more on Monday. The full press release can be read here.

FTC Announces Robocall Summit

On the heels of our report that the Federal Communications Commission ("FCC") is putting the obligations on entities that use auto-dialers -- “Robocalls” -- to public safety phone lines on its agenda for the year (see our 10/17/12 blog: “New Do-Not-Call Public Safety Registry Creates Additional Obligations for Auto-Dial Operators” by Judith L. Harris and Amy S. Mushahwar), the Federal Trade Commission (“FTC”) issued an announcement today, it is hosting a Robocall Summit in Washington, DC.  Robocalls have been a major concern of the FTC, particularly in the past two years during which time the Commission says it has “stopped companies responsible for billions of robocalls that offered everything from fraudulent credit card services and so-called auto warranty protection, to home security systems and grant procurement programs.”  Despite the FTC’s enforcement activities, however, consumer complaints about robocalls are on the rise and the FTC wants to know why.  They hope to “explore innovations designed to trace robocalls, prevent wrongdoers from faking caller ID data, and stop unwanted calls.”

SEC Proposes Rules Under JOBS Act Permitting General Advertising and Solicitation in Certain Private Offerings

On August 29, 2012, the SEC issued proposed rules to implement Congress’ mandate, under the Jumpstart Our Business Startups Act (the “JOBS Act”), that the agency eliminate the existing ban on use of general solicitation and/or general advertising for Rule 506 and Rule 144A offerings. The proposed amendments, if adopted as proposed, would significantly impact the marketing of all private issuers.

For more information, please see the recent Reed Smith Client Alert, "SEC Proposes New Rules under the JOBS Act."

FTC Releases Revised Environmental Claims Guides: Modifications and Surprises

On October 1, 2012, the Federal Trade Commission released its long-awaited revised Environmental Claims Guides, known as the “Green Guides.” The Commission staff adopted many of the approaches it had proposed a year ago, but it also has introduced some brand new concepts, which in this final version could raise serious questions about the Commission’s procedural integrity. Furthermore, the Green Guides suffer from ambivalence toward governmental, international, and scientific standards, which surfaces as a palpable tension between that which is scientifically factual and that which is subject to the misconceptions of the public because of the technical nature of the subject matter.

General Environmental Benefit Claims

The Commission restated its position that marketers should not make broad, unqualified general environmental benefit claims like “green” or “eco-friendly.” Based on consumer research the Commission conducted several years ago, consumers do not have a clear understanding of what such phrases mean absent specific context. Because of this, broad claims are difficult, if not impossible, to substantiate. This is based on the basic principle that advertisers are responsible for all reasonable interpretations of a claim.

If marketers do qualify their general green claims, they have to do so with specific environmental benefits. That is, they must make disclosures that specify what the green claim means.

When a marketer qualifies a general claim with a specific benefit, consumers understand the benefit to be significant. As a result, marketers shouldn’t highlight small or unimportant benefits.

Continue Reading...

NLRB Decision Guides Administratve Law Judge's Invalidation of Social Media Policy

An NLRB Administrative Law Judge, following the lead of the NLRB and its recent decision in Costco Wholesale Inc., invalidated the social media and other employment policies of EchoStar Corp. The policies deemed improper prohibtted employees, in part, from disparaging a company on social media sites. The ALJ agreed with the NLRB General Counsel's argument that a generic clause in the employee handbook that employees were free to exercise their rights under the National Labor Relations Act was insufficient to bring the rules within compliance with the Act.

Given the Board's decision in Costco and the General Counsel's campaign against such policies, we expect more decisions at both the ALJ and the Board level invalidating employment policies limiting employee speech, regardless of the forum.

NLRB Rejects Social Media and Confidentiality Policies

This post was written by Stacy Marcus and Joel Barras.

The National Labor Relations Board’s recent decision in Costco Wholesale Inc., invalidated certain personnel policies, including social media policies, protecting the dissemination of employee health information and personal identifiers. This case marked the NLRB’s first decision involving its independent General Counsel’s interpretation of federal labor law as it applies to social media and other personnel policies. The decision (profiled here by Joel Barras) signals the NLRB’s agreement with its chief prosecutor’s attack on commonly adopted policies regarding, among other things, confidentiality of company information, and follows the series of reports issued by the NLRB General Counsel on social media.

Proposed Graphic Labels Go Up In Smoke

In a 2-1 decision on August 24, 2012, the U.S. Court of Appeals for the District of Columbia upheld a federal district court’s decision to strike down FDA regulations promulgated under the Family Smoking Prevention Act (the "Act"), which would have required large graphic and textual warning labels on cigarette packaging.

The majority found that the Central Hudson test typically applied to laws regulating commercial speech should be applied in this case. The majority rejected the FDA’s argument that the standard in Zaurderer should apply – a test that permits the government to require purely factual and uncontroversial disclosures, provided that such disclosures are reasonably related to the state’s interest in preventing deception of consumers and are not unjustified and/or unduly burdensome. The court found that the graphic warnings were not necessary to prevent current cigarette packaging from misleading consumers, nor that the warnings imparted "purely factual, accurate, or uncontroversial information."

The Central Hudson three-part test requires that the government prove that (1) its asserted interest is substantial; (2) the restriction directly and materially advances the interest; and (3) the restriction is narrowly tailored. The court accepted for the sake of its analysis that the government’s asserted interest in reducing smoking rates was substantial, but noted that it was "skeptical that the government can assert a substantial interest in discouraging consumers from purchasing a lawful product, even one that has been conclusively linked to adverse health consequences." The court found, however, that under the second prong, the "FDA has not provided a shred of evidence – much less the ‘substantial evidence’… showing that the graphic warnings will ‘directly advance’ its interest in reducing the number of Americans who smoke," and also rejected the FDA’s reliance on inconclusive studies from other countries.

Why This Matters:

Requiring disclosures – mandatory speech – is a controversial issue and has a major impact on advertisers. It is not limited only to tobacco advertising and this ruling is an important precedent for limitations on federal agencies relying on foreign studies and unsupported opinion. On the other hand, the decision may conflict with a decision by the 6th Circuit in March upholding the constitutionality of most of the provisions of the Family Smoking Prevention Act, including the requirement of graphic disclaimers. Only an appeal to the United States Supreme Court can resolve any such conflict. Until then, it remains unclear what is, and what is not, required. That creates a very unpredictable marketplace.

FTC's Increasingly Aggressive Role in Enforcement

At a recent speaking engagement at the University of California Berkeley School of Law, David Vladeck, Director of the Federal Trade Commission’s Bureau of Consumer Protection, said that the FTC is creating a legacy of enforcement that changes expectations and baselines. Vladeck used strong words to describe the FTC’s hardline stance on enforcement, saying that the FTC has “sent a signal to the fraudster community” that “if you engage in this kind of fraud, we’re going to take everything you have and then try to burn down your house.” He noted that the FTC has obtained in the last three years more than 300 redress orders worth hundreds of millions of dollars for consumers, and that it has obtained 150 occupational bans against bad actors. Berkeley law professor Ted Mermin also spoke at the engagement. According to Mermin, under the Obama administration, the FTC has been more aggressive than it has been over the last 35 years in bringing judicial actions, bringing an average of 57 actions annually, far more than any other President over that time (the next closest was President George W. Bush with 36 actions annually).

 

While Vladeck’s strong words seem to be focused on consumer scams and other types of fraud, reputable businesses should also take note, particularly with respect to their advertising practices. As companies continue to come up with innovative ways to reach their customers (see, for example, Twitter’s new targeted advertising tool), it is important that they understand the regulatory landscape in which they operate. As a baseline, advertisers should ensure that their ads are not misleading, and that their corresponding privacy policies are current and truthful. However, it is also important for the FTC to understand the realities of a competitive landscape and refrain from creating a chilling effect on innovation and competition by over regulation and aggression.

FTC to MySpace: Watch What You Do in Consumers' Space

On Tuesday, the FTC approved a final order and consent decree settling charges that MySpace misrepresented its protection of users’ personal information. The settlement bars MySpace from future misrepresentations about its privacy practices, and requires MySpace to implement a comprehensive privacy program with regular, independent privacy assessments for the next 20 years.

For more information, please visit the Global Regulatory Enforcement Law Blog and read their Client Alert, "FTC’s Final Order with MySpace Focuses on Privacy by Design and Protection of Unique Device Identifiers" written by Paul Bond, Amy S. Mushahwar, and Christine E. Nielsen.

Sorry, Your Baby Can't Read

Just before Labor Day, the Federal Trade Commission (FTC) filed false advertising charges against the marketers of “Your Baby Can Read!” The program, widely promoted via infomercials and the Internet, purports to use videos, flash cards and pop-up books to teach babies as young as 3 months old how to read. The complaint charges Your Baby, LLC, its former CEO, and the program’s creator, Dr. Robert Titzer, with false and deceptive advertising and deceptive expert endorsements. According to the complaint, the defendants failed to provide competent and reliable scientific evidence that babies can learn to read using the program, or that children at age 3 or 4 can learn to read books such as Charlotte’s Web or Harry Potter.

The program’s former President and CEO, Hugh Penton, Jr., has already settled with the FTC. The settlement imposes a $185 million judgment (equal to the company’s gross sales since January 2008), but suspends the judgment upon the payment of $500,000 because of the company’s financial condition.

This case is one of many recent FTC cases attacking the issue of “competent and reliable scientific evidence.” Advertisers should monitor the FTC’s enforcement actions to stay abreast of changes.

FTC Issues Guidance to Mobile App Developers

On September 5, 2012, the Federal Trade Commission published "Marketing Your Mobile App: Get It Right from the Start", a set of guides addressing compliance with truth in lending and privacy principles for mobile app developers. Disclosures and privacy protection for mobile apps is a major issue and the FTC's guidance is important. In their summary, the FTC provided an overview that advised that app developers:

  • Tell the Truth About What Your App Can Do
  • Disclose Key Information Clearly and Conspicuously
  • Build Privacy Considerations in From the Start
  • Offer Choices that are Easy to Find and Easy to Use
  • Honor Your Privacy Promises
  • Protect Kids’ Privacy
  • Collect Sensitive Information Only with Consent
  • Keep User Data Secure

Pretty basic stuff, but the reminders from the FTC are well taken and should be carefully digested by anyone in the mobile app business, whether they’re developers or marketers. For a copy of the full publication, click here.

SEC Proposes Amendments to Permit Hedge Funds to Advertise - Data Privacy Issues

This post was written by Alexandra Poe, Paul Bond, Keri Bruce, and Frederick Lah.

On August 29, the SEC proposed amendments to lift a long-standing ban on advertising for hedge funds and other issuers. Reed Smith will be releasing a series of blog posts over the next few weeks about the various implications this proposed rule may have if it goes into effect. Please vist the Global Regulatory Enforcement Law Blog, where we consider the data privacy issues with the proposed rule.

FTC to Hold Workshop Addressing Ad Disclosures for On Line Marketers

On February 29, 2012, the Federal Trade Commission, the primary government regulator of advertising in the United States, announced that it will hold a workshop on May 30, 2012 to discuss its guidelines for appropriate disclosures in on-line advertising. Click here for the FTC's announcement. Items suggested by the FTC for the workshop include:

  • How can effective disclosures be made on social media platforms and mobile devices
  • When can disclosures provided separately from an initial advertisement be considered adequate?
  • What are the options when using devices that do not allow downloading or printing the terms of an agreement?
  • How can disclosures that are made in the original advertisement be retained when the advertisement is aggregated (for example, on dashboards) or re-transmitted (through, for example, re-tweeting)?
  • What are the disclosure opportunities and limitations of hyperlinks, jump links, hashtags, click-throughs, layered disclosures, icons, and other similar options?
  • How can short, effective, and accessible privacy disclosures be made on mobile devices?
  • What does the research show about how consumers’ use of mobile and other devices can affect the effectiveness of disclosures on particular devices or platforms, the relationship between how consumers use mobile devices and their understanding of disclosures and advertising displayed on mobile devices, how consumers make decisions based on that information?

With the meteoric rise of digital advertising, actions by the FTC must be closely watched by the entire marketing community.

The Commission's plans for a Workshop follows its May 26, 2011 announcement that it was reconsidering the guidelines and whether they needed to be updated. Reed Smith partner Douglas Wood, also Corporate Counsel's Columnist on Digital Media, commented on the initial FTC announcement on June 8, 2011. To view that column, click here.

Ad industry to honor do-not-track browser header

Amy Mushahwar was featured in ADWEEK article "Regulators and Business to Work on Privacy Bill of Rights: Ad industry to honor do-not-track browser header". The full article can be found here.

Open Letter To The Board Of Directors - Internet Corporation For Assigned Names And Numbers

Dear ICANN and Members of the ICANN Board:

In just five months, since the Association of National Advertisers formed the Coalition for Responsible Internet Domain Oversight (“CRIDO”) and organized the global constituencies that have partnered and irrefutably shown that serious problems with ICANN’s proposal to open the DNS to unlimited TLDs remain unresolved despite years of deliberation by ICANN. It is clear that should ICANN proceed without heeding the calls of these constituencies for improvements and reform, the result will be irreparable damage to countless stakeholders, including the global law enforcement community, NGO’s, IGO’s, consumers and brand owners in the commercial sector. Yet, despite the unprecedented groundswell of objections from these constituencies and others, ICANN remains unwavering in its decision to implement, in just a couple days, the resolution made in June 2011, over vociferous opposition from many within the ICANN community including ICANN’s own Government Advisory Committee.

Since CRIDO was formed, the following statements have been made and events have transpired:

Continue Reading...

'Sunshine Act' à la française adopted on 29 December 2011. Healthcare and cosmetics companies will be subject to a tough transparency regulation in France

New French regulations, mirroring similar rules in the United States, place health care and cosmetics companies operating in France with heavy disclosure requirement if they have any pecuniary relationship with researchers, universities, or any other third parties in connection with the marketing of their products. For a full bulletin on this development, please visit our sister blog, the Global Regulatory Enforcement Law Blog.

Is the United States ready to put its bets online?

U.S. States may soon have the ability to run full scale on line gambling activities based on a 180 degree turn by the United States Department of Justice, the regulator that has historically held that any online gambling is illegal in the United States.

For more information, please visit our Legal Bytes blog or read the issued Client Alert here: U.S. Federal Government Reverses its Stance on Online Gaming.

FTC COPPA Rule Revision Comments-Deadline Extended to December 23

No need to fret over Thanksgiving! The Federal Trade Commission has extended until December 23, 2011, the deadline for the public to submit comments on proposed amendments to the Children’s Online Privacy Protection Rule. That's good news because the revisions are significant and include the demise of the flexible "sliding scale" approach that permitted operators to install an "email plus" method of obtaining verifiable parental consent when the collection and use was of a very limited nature. Without any data or evidence of consumer harm, the FTC has determined that the "shelf life of 'email plus' has expired," to use the phrase of Commissioner Julie Brill at a recent Promotion Marketing Association conference. Apparently, making it harder for industry to market to children will force it to "innovate" new ways to comply. Sounds expensive. But, unless industry can come up with some hard evidence of those costs, the process of engaging children in interactive media will be significantly altered. There are other major changes. (The proposed changes will mean the end of user-generated contests for kids if they involve any uploaded photographs of themselves, for example.) Several industry groups, including the PMA, are planning to file comments. This extension will give industry more time to come up with hard numbers. Our sources at the staff level indicate that although there is a definite desire to kill email plus, carving out exceptions might be possible (at least in the Frequently Asked Questions that the FTC has published to help operators comply with the COPPA Rule) if commenters can produce solid reasons why this removal of the flexible approach is going to impose unreasonable costs, compared with the potential protection from admittedly hypothetical harm.

Unlike some of the recent FTC initiatives, which are arguably overreaches, these revisions, albeit aggressive, are probably within the broad Congressional authority granted to the Commission under COPPA. That makes it even more important that commenters come up with numbers about the costs of these revisions and how they might be likely to affect jobs. Even with regard to the Commission's apparent usurpation of oversight from self-regulatory bodies in the area of children's privacy, those bodies are subject to regulation by the FTC by virtue of the safe-harbor provisions. Thus, even though it will be imposing new costs and requirements on the Children's Advertising Review Unit (CARU), which was monitoring the collection and use of information from children before there even was COPPA, CARU, because it sought safe harbor status, is subject to whatever new requirements the Commission may impose. One has to wonder, however, whether the existing safe harbor entities are sanguine about the new burdens because the FTC will be effectively making the barrier to entry for new safe harbor competitors nearly impossible. Interesting anti-competitive question.

Protecting Your Trademarks in the World of .XXX Domain Names

As described in Reed Smith's April 22, 2011 Client Alert, to go along with .com, .net, and the other current top-level domains ("TLD's"), the formation of a new .xxx TLD has been approved for websites related to the adult entertainment industry.

Since the .xxx TLD is intended only for adult entertainment industry websites, applicants who want to set up .xxx domains will need to certify that they are in the industry; however, trademark owners may worry that cybersquatters and other entities will attempt to register .xxx domains related to well-known brands to take advantage of (and thereby damage) the brand's goodwill. Reed Smith's prior Client Alert discussed some of the initial details regarding the system set up to deal with some of those concerns. This Alert serves as an update to the most important trademark protection in the .XXX system by far: the "Sunrise B" Period.

For more information, please read Reed Smith's Client Alert, written by Brad R. Newberg, Gregory S. Shatan, John L. Hines, Jr. and Angela M. Washelesky.

The FTC's Investigation of Google: What To Do When The FTC Sends Your Company An Inquiry

This post was written by Rachel A. Rubin and Joseph I. Rosenbaum.

In June, Google confirmed that the Federal Trade Commission (FTC) opened an antitrust investigation against it. While the scope and details of the investigation have not been disclosed, the FTC is likely examining whether and how Google has used its dominance in Internet search and advertising to stifle competition, and whether Google’s actions cause harm to consumers.

As part of its investigation, the FTC can and will reach out to third parties, including Google’s partners, advertisers, and competitors, to learn more about the way Google behaves in the market. As the recipient of an FTC inquiry that is not purely voluntary, you are obligated to provide certain information to the FTC. While the nature and extent of this information will vary by company, receiving an FTC inquiry raises a host of legal questions and concerns.

So what do you do when the FTC reaches out to your company? We have prepared a set of FAQs – What Should You Do When The FTC Calls About Google? – to help your company understand the range of possible inquiries, the process of responding to the FTC, and your company’s potential liability.

For more information before or after you receive a letter from the FTC, please contact Joseph I. Rosenbaum or Rachel A. Rubin.

FTC OKs Self-Regulation Program for Online Behavioral Advertising

The Federal Trade Commission issued an advisory opinion letter this week saying that it has no present intention to challenge the Council of Better Business Bureaus' accountability self regulatory program for companies engaged in online behavioral advertising. The program is designed to foster compliance with the Self-Regulatory Principles for Online Behavioral Advertising, which were released by the FTC in 2009. The issue presented to the FTC by the CBBB was whether the accountability program would be viewed as a restraint of trade under the antitrust laws.

For more information, please read Reed Smith's Client Alert, written by Christopher G. Cwalina, Amy S. Mushahwar and Frederick Lah.

Advertisers Push ICANN to Drop New gTLD Proposal

Reed Smith partner and ANA General Counsel Doug Wood said in an interview with the National Journal that if ICANN fails to respond to the ANA’s concerns, it may be forced to sue to block the proposal. “If they choose to ignore us, which I hope they don’t, then we will have no choice but to litigate,” he said, adding that this would only be a last resort. According to Wood, ICANN’s current proposal for gTLD registration could cost companies as much as $2 million a year per trademark. The full text of the National Journal’s interview with Doug Wood and ANA President, Bob Liodice can be found here.

Association of National Advertisers Challenges ICANN Authority to Establish New Top Level Domains

Today, in a letter to Mr. Rod Beckstrom, President, Internet Corporation for Assigned Names and Numbers (ICANN), the ANA (Association of National Advertisers) detailed major flaws in the proposed ICANN program that would permit applicants to claim virtually any word, generic or branded, as Internet top-level domains once the application window is opened in January 2012. The ANA argues that implementation of the ICANN program is economically unsupportable and is likely to cause irreparable harm and damage to its membership and the Internet business community in general. By means of this letter, the ANA with the assistance of Reed Smith, kick starts a serious effort to prevent billions of dollars of harm to brand owners and return ICANN back to the negotiating table by any means necessary.

To learn more about generic top-level domains, read Reed Smith's Client Alert.

The Heat Is On - Just Don't Get Burned!

Summer is definitely here and most likely you have already made at least one trip to the store to purchase sunscreen. On your trip you may have found yourself a little overwhelmed by the variety of sunscreens available – waterproof, water resistant, sweatproof, broad spectrum, sun protection factors (SPFs) from 8 to 75+, sprays, lotions, gels, sticks, towelettes. Well the Food and Drug Administration (“FDA”) is trying to help consumers make more informed choices when it comes to sunscreens.  On June 14, the FDA published new rules and corresponding guidance regarding over the counter (OTC) sunscreen labeling and testing (collectively the “New Rules”). The New Rules, which are designed to give consumers more information on which sunscreen products offer the greatest protection, go into effect June 18, 2012, and govern how sunscreen is marketed. The prior sunscreen rules focused primarily on protection against ultraviolet B (“UVB”) radiation from the sun (these are the rays that cause sunburns), but did not address ultraviolet A (“UVA”) radiation, which can cause premature aging and skin cancer.  The key provisions of the New Rules include the following:

  • “Broad Spectrum” designation: Sunscreens that pass the FDA’s “broad spectrum” test procedure, which measures UVA protection relative to its UVB protection, may be labeled as “Broad Spectrum SPF [value]” on the front label. To pass the broad spectrum test, which is outlined in 21 CFR 201.327(j), the amount of UVA protection must increase as the SPF value increases. The New Rules also modify the existing SPF test.
  • Use claims: Only Broad Spectrum sunscreens with an SPF value of 15 or higher can claim additional benefits – such as, reduces the risk of skin cancer and early aging if used as directed with other sun protection measures (such as limiting time in the sun and wearing protective clothing). Non-Broad Spectrum and Broad Spectrum sunscreens with an SPF of between 2 and 14 may only claim to help prevent sunburn and must include the warning “Skin Cancer/Skin Aging Alert: Spending time in the sun increases your risk of skin cancer and early skin aging."
  • Prohibition of “waterproof,” “sweatproof” and “sunblock” claims: These claims are prohibited because the FDA’s research showed that such claims overstate effectiveness. Sunscreens also cannot claim to provide sun protection for more than two hours without reapplication or to provide protection immediately after application, without submitting data to the FDA and obtaining approval.
  • Water Resistance claims: The New Rules establish testing for water resistance and require manufacturers to indicate on the front label whether the sunscreen remains effective for up to 40 minutes or 80 minutes while swimming or sweating, based on standard testing. Sunscreens that are not water resistant must include a direction instructing consumers to use a water resistant sunscreen if swimming or sweating. 
  • Drug Facts: All sunscreen must include standard drug facts on the back or side of the container. 

In addition to the New Rules, the FDA published a proposed rule (“Proposed Rule”), an Advanced Notice of Proposed Rulemaking (“ANPR”) and guidance for the industry (the “Guidance”). The Propose Rule, if finalized, would limit the maximum SPF value to “50+” because the FDA has not seen sufficient data to show that products with SPF over 50 provide greater protection. The Proposed Rule is available for public comment until September 15, 2011. 

The ANPR requests additional data relating to sunscreen products in specific dosage forms (such as oils, creams, sprays, sticks, gels, butters, etc.) to further the understanding of how dosage forms affect safety and effectiveness.

The Guidelines set forth the FDA’s proposed enforcement policy for the OTC drug products marketed without an approved application. These guidelines are open for comment until mid-August.

Why is this important?  The FDA announced its intent to draft sunscreen rules in 1978 and published rules in 1999.  The agency then put the implementation of the 1999 rules on indefinite hold until it could address both UVB and UVA radiation. Then in 2007, the agency published a proposed rule that addressed SPF testing and labeling, but still did not lift the stay on the 1999 rule. Although many sunscreen manufacturers may already follow the proposed guidelines set forth in 2007, it is doubtful that implementation of the New Rules will be delayed – thus compliance will be required. The good news is that sunscreen manufacturers now have clearer guidance on testing. The bad news is that costs will be associated with compliance, including new testing and relabeling products. To ease the economic burden, the compliance date for all products with annual sales of less than $25,000 is June 13, 2013. For all other OTC sunscreen drug products without an approved application, the compliance date is June 18, 2012.

New gTLD Plan Approved by ICANN; Now is the Time to be Asking -- How Valuable is my Name?

We have written quite extensively over the last several months about the developments brewing within the International Corporation for Assigned Names and Numbers to change the current domain name system. In short, companies and organizations located anywhere in the world will soon be able to register and operate a gTLD that corresponds to just about any any word or phrase (including a company's / organization's own name), and use that as the top level domain without the traditional extensions of .com, .net, .org, etc. The following Client Alert discusses this important development in greater detail.

FTC Dot Com Disclosures -- Really?

Many people are unaware the Federal Trade Commission issued a set of guidelines regarding advertising on the web several years ago, known as the "Dot-Com Disclosures". Well, the FTC has decided to revisit these guidelines to determine their applicability with the rapidly changing digital landscapes, and to seek comments from the general public as to what still works and what needs to be fixed. Please enjoy this client alert that details the FTC's efforts in this endeavor.

Active vs. Passive Websites -- New Legal Developments

Is my website an active or passive website? This is a question that many companies and their counsel have grappled over, as it has important legal and regulatory applications. Recent case law in the 9th Circuit has shed some light on this issue, and it's well worth a read. Please click here for our just released, hot off the press Client Alert.

Lots of "Buzz" Around Google Buzz

Earlier this week, Google, Inc. agreed to a proposed consent order over charges that it used deceptive tactics and violated its privacy promises to consumers when it launched its social network, Google Buzz. For more on this important development, please click here.

The First of Many?

Have many people realize the digital advertising industry stood witness to two important developments recently? One was a highly publicized incident and the second one, lesser so. First, on Monday of last week, Aflac announced that it was terminating Gilbert Gottfried as the voice for its iconic duck, as a result of a series of inappropriate tweets that he posted the previous weekend about the crisis in Japan. 

The second incident, which in this author’s humble opinion has greater industry-wide implications, was the announcement by the Federal Trade Commission that it reached a settlement with the online ad company Chitika, Inc. over the company’s “opt-out” settings. Chitika is a data analytics and online ad network that utilizes user information to sell and target ads based on likely interest.

According to the FTC, Chitika offered users an opt-out feature that allowed them to “opt-out” of being tracked and targeted online, though only for a mere 10 days. After the 10-day period expired (and each one thereafter), Chitika would resume tracking a user’s online activity unless he/she underwent the same opt-out exercise. According to Chitika, the 10-day timer was an inadvertent and unintentional glitch in the code.  

In the FTC’s settlement:

  • Chitika is restricted from making misleading statements about the way in which it collects and uses consumer data
  • Chitika is required to post a permanent opt-out link on each targeted ad that provides consumers the choice not to be tracked or targeted for at least five years
  • Chitika must destroy any and all identifiable user data that was collected from users who previously sought to opt out before March 1, 2010, and more…

Why is this FTC action so important and relevant to advertisers, ad networks, agencies, data aggregators, etc.? For many reasons, including:

  • It demonstrates through actions, and not just through rhetoric or policies, just how seriously the FTC is taking and policing online behavioral advertising
  • Although this case turns primarily on an ad network saying one thing to consumers/users and seemingly doing something else, the FTC nevertheless believes that it can assert a section 5 FTC Act claim (i.e., deceptive and misleading advertising practices) against a company engaged in online behavioral advertising
  • The FTC seems to reconfirm its belief in the benefits of an opt-out system, and apparently believes that a five-year opt-out is a reasonable period of time
  • In painstaking detail, the FTC actually lays out what it believes to be an acceptable opt-out notice and system, from the number of clicks away a consumer can be from the opt-out notice to the actual opt-out notice text
  • The FTC has ordered Chitika to deliver a copy of the FTC settlement/order to all current and future employees, agents and representatives who are responsible for upholding and enforcing the FTC’s mandate

While this case clearly raises more questions than it delivers answers, it’s essential to appreciate that Chitika’s conduct was deemed deceptive by the FTC, not because it failed to offer a more robust opt-out program to consumers, but because it led consumers to believe they had opted-out permanently, when in reality it was for just 10 days at a time. Although players within the online behavioral advertising ecosystem should begin to look carefully for trends and whispers of best practices according to the FTC, these are not simple issues, and the privacy landscape is getting considerably more complicated and complex. Between proposed federal and state legislation, governmental agency policies and positions, and the DAA’s self-regulatory program taking shape, advertisers, ad networks and agencies alike should be increasingly turning to their privacy officers and legal counsel on these kinds of matters before they run afoul and become the next FTC test case.

Reed Smith Attorney Weighs in on Recent FTC Action

Our Editor-in-chief, Adam Snukal, was recently quoted in an article that appeared in Mobile Marketer concerning an FTC action brought against a company in the financial services industry. The article and quote can be accessed here.

The Industry Speaks Out - Developments Within the Digital Advertising Alliance

This post was written by Edgar Hidalgo.

The online behavioral advertising sector received a rude awakening at the end of 2010 from unsatisfied federal regulators. Both the Federal Trade Commission and the Department of Commerce published reports espousing increased regulation of online behavioral advertising – the former report encouraging Congress to consider a “Do Not Track” regime and the latter expressing an arguably more favorable stance on industry self-regulation. Similarly, legislators on one side of the aisle have introduced online privacy legislation, and those on the other side have at least intimated interest in the issue. Thus, it comes as no surprise that just three weeks into 2011, the advertising industry has taken steps to strengthen its collective effort at keeping the government at bay and beefing up its self-regulation arsenal.

On Tuesday, January 18, the president and CEO of the Association of National Advertisers, Bob Liodice, reached out to the association’s members in direct response to the FTC’s report. Via email, Liodice encouraged the ANA members to adopt privacy best practices and the self-regulation program the association and its progeny, the Digital Advertising Alliance (DAA), published and implemented in the past two years. Additionally, the email was accompanied by a newly drafted toolkit geared to facilitating compliance with these best practices. (The email and toolkit can be seen in full here.)

Right on the heels of the ANA’s outreach, on Thursday, January 20, the DAA announced its approval of a third trustmark privacy platform provider, TRUSTe and its TRUSTed Ads platform. TRUSTe joins DoubleVerify and Evidon as the third approved provider of consumer privacy icons and platforms. These icons and platforms form a significant piece of the DAA’s self-regulation program that seeks to appease privacy concerns by giving consumers clear disclosures on how data collected through ad is used, as well as providing them with opt-out mechanisms. (More details on the DAA program can be found at http://www.aboutads.info/home/.) To encourage advertiser compliance with the DAA’s self-regulation program, TRUSTe is offering its platform for free on a trial basis. With more trustmark ad platform options, the DAA can expect to gain additional buy-in from online advertisers.

While commentary on the FTC report does not close until the end of this month, regulators have clearly presented the ad industry with strong incentives to speed up its self-regulation efforts – and thus far, the industry seems to be responding swiftly.

UK Data Privacy Development

As data privacy heats up on this side of the pond, last week the UK government announced a package of measures focused on extending the scope of the Freedom of Information Act (FOIA) and strengthening the independence of the UK’s data protection and freedom of information regulator, the Information Commissioner’s Office (ICO).

The anticipated Freedom Bill (to be published in February 2011) will include proposals to extend the scope of FOIA to a number of organisations for the first time. The Government announced the definite inclusion of the Financial Ombudsman Service and has proposed including The Advertising Standards Authority, The Panel on Takeovers and Mergers, The Law Society, Bar Council and other approved regulators under the Legal Services Act 2007, subject to consultation.

Reed Smith's entire alert on this development, written by Nick Tyler and Cynthia O'Donoghue, can be accessed here.

The Online Behavioral Advertising Debate Heats Up in D.C.

A draft Commerce Department report being reviewed by the White House that recommends the creation of a privacy policy office and passage of legislation that establishes "a baseline privacy framework" was leaked yesterday and is proliferating as we speak (or write). In all, the report makes 10 recommendations and poses dozens of questions on many of the proposals. The department plans to seek formal comment on the questions in a separate Federal Register notice.

The 54-page draft document, entitled "Privacy and Information Innovation: A Dynamic Privacy Framework for the Internet Age," is the work of Commerce’s Internet Policy Task Force. The Task Force held more than six months of consultations, issued a notice of inquiry in April 2010, and held a symposium in May. The document is expected to be released in the coming weeks. The Task Force is a joint effort of the Office of Commerce Secretary Gary Locke, the National Telecommunications and Information Administration, the International Trade Administration, and the National Institute of Standards and Technology.

Recently, the Obama administration created a federal interagency panel to work on privacy and Internet policy. It is chaired by Commerce General Counsel Cameron Kerry and Assistant Attorney General Christopher Schroeder.

The report seeks to demonstrate that a compelling need exists "to provide additional guidance to businesses, to establish a baseline privacy framework to afford protection for consumers, and to clarify the U.S. approach to privacy to our trading partners – all without compromising the current framework’s ability to accommodate new technologies."

However, several industry groups, like broadband industry providers, have staunchly opposed any legislation, recommending in its stead that online privacy protections be pursued through self-regulation, industry standards, and best practices.

The Commerce's report said that baseline legislation should be "built on an expanded set of Fair Information Practice Principles (FIPPs). Widespread adoption of comprehensive FIPPs is essential to achieving the goals we have set for the Dynamic Privacy Policy Framework. Widespread adoption of FIPPs would protect privacy interests in data that currently receive little or no statutory privacy protection. Also, given the flexibility inherent in the individual principles, a FIPPs baseline would help ensure consumer privacy protection as new technologies emerge. Finally, the FIPPs-based framework that we envision would allow companies to direct resources to the principles that matter most for protecting privacy in a particular technological, business, or social context. Legislation would authoritatively establish a FIPPs-based framework, but action by industry, civil society, the Executive Branch, and enforcement agencies can also help this framework take hold." It asks whether the Federal Trade Commission should be given authority to impose rules implementing the privacy principles adopted by Congress.

As for other congressional action, the report said that lawmakers "should pass a data breach law for electronic records that includes notification provisions, encourages companies to implement strict data security protocols, and allows states to build upon the law in limited ways. The law should track the effective protections that have emerged from state security breach notification laws and permit enforcement by state authorities." And while it called for "baseline" privacy legislation, the report said that such a measure "should not preempt the strong sectoral laws that already provide important protections to Americans, but rather should act in concert with these protections."

In addition, the document said that "[a]ny federal law or regulation should seek to balance the desire to create uniformity and predictability across state jurisdictions with the desire to permit states the freedom to protect consumers and to regulate new concerns that arise from emerging technologies when federal law lags behind privacy issues created by a rapidly changing technological environment." Among the questions posed is whether state attorneys general should be given the authority to enforce national legislation.

The report also called on the Obama administration to "review the Electronic Communications Privacy Act (ECPA), paying particular attention to assuring strong privacy protection in cloud computing and location-based services. The goal of this effort should be to ensure that, as technology and market conditions change, the ECPA continues to provide a fair balance between individuals' expectations of privacy and the legitimate needs of law enforcement to gather the information it needs to keep us safe."

Regarding the privacy policy office (PPO), the Task Force has suggested that it could either be housed within Commerce or in the Executive Office of the President. The office would not have enforcement authority. As both a convener of diverse stakeholders and a center of Executive Branch privacy policy expertise, the PPO would work with the FTC in leading efforts to develop voluntary but enforceable codes of conduct. Voluntary principles developed through this process would be enforceable by the Federal Trade Commission and would serve as a safe harbor for companies facing complaints about their privacy practices.

We will certainly report on more developments with respect to this topic, as these leaks turn into babbling brooks and streams of information.

Reed Smith Partners with ANA to Present on the FTC's Proposed Revisions to the Green Guides

In one of the first in-depth and formative talks delivered on the FTC's recently proposed revisions to its Green Guides, John Feldman of Reed Smith joined forces with Keith Scarborough, Senior Vice President of Government Relations at the Association of National Advertisers, to deliver a teleseminar yesterday (Tuesday, October 12th, 2010) that was widely attended by both attorneys and industry players alike. You can access the teleseminar materials here. The FTC has requested public feedback on its revisions through December 10th, 2010.

If you have questions regarding the Green Guides or wish to explore how the revisions may impact your business, please contact either John Feldman or Adam Snukal.

Faux Natural

Ice Cream maker BEN & JERRY'S confirmed that after receiving a request from the Center for Science in the Public Interest (CSWPI) all BEN & JERRY'S Ice Cream labels will no longer include the phrase "all natural" . The change, according to company spokerpersons, will occur gradually, over time.

The Food & Drug Administration (FDA) itself provides no definition for "natural", a complaint of the CSWPI. The FDA allows use of the term as long as a food product does not contain either artificial flavors or colors, or synthetics. The CPSWPI asked BEN & JERRY'S to remove the term because CSWPI believes the term creates consumer confursion if a product contains alkalized cocoa, corn syrup, hydrogenated oil or other non-natural ingredients.

BEN & JERRY'S spokespersons asserted there would be no change of its ice cream products' ingredients but wants to avoid disputes and possible misperceptions over the term "all natural" which is ambiguous enough to mean different things to various of its customers.

CSWPI called upon the FDA to prepare and issue a formal definition of "natural" for businesses to follow.

BEN & JERRY'S is currently a unit of the consumer product giant Unilever.

Release of Revised FTC Environmental Marketing Guidelines, October 6, 2010 at 11 AM

This post was written by Dan Jaffe.

We have been informed by several sources that the Federal Trade Commission will release its revised Environmental Marketing Guides on Wednesday, October 6, 2010 at 11 AM. These revisions are in response to the FTC’s review of its current guidelines on the use of green marketing terms, which began in 2008. It is expected that the revised guidelines will be more extensive and wide-ranging than those currently in place. The release will be in the form of a proposal, and comments will be requested. We will closely monitor new information about the release as we receive it. Our office will keep you informed about any actions we may take in response to this release.

If you have any questions about this matter, please contact Dan Jaffe in ANA’s Washington office at 202-296-2359 or at djaffe@ana.net.

Important Developments within Behavioral Advertising in Europe

Behavior advertising is not solely a contemporary and hotly debated issue on these shores. Case in point, last month the influential Article 29 Working Party ("Working Party"), consisting of all the European Union's national data privacy regulators, adopted Opinion 2/2010 on online behavioral advertising (the "Opinion").

The Working Party has made it clear they are taking on the challenge of creating better checks and balances for digital advertising through its national implementation of amended Directive 2002/58/EC (the "ePrivacy Directive"). This Directive calls for a complete overhaul of existing technology and practice, including currently available browsers and opt-out mechanisms, thereby seeking to achieve the level of informed consent from users which they claim the national law requires.

To view the entire alert please click here. This alert was written by Cynthia O'Donoghue and Nick Tyler of Reed Smith in London, England. For additional information please contact one of the authors.

ANA Wins Major Legislative Victory on New FTC Enforcement Powers

This post was written by Dan Jaffe.

ANA and the entire marketing community won a major victory on the day after we celebrated our 100th anniversary!

At 3:05 AM this morning, Senate and House conferees approved the final version of the Wall Street reform legislation. Fortunately for us, that bill does not include the sweeping new enforcement powers for the Federal Trade Commission (FTC) that were included in the House version. Those changes would have serious implications for every ANA member.

The House passed its version of the financial regulatory reform bill last December. Buried in that bill were three critical changes in FTC authority:

  • Repealing the Magnuson Moss rulemaking procedures (including the requirement that an activity be “prevalent” in an industry before Commission action) and allowing the FTC to promulgate broad industry-wide rules on any consumer protection matter in a highly expedited procedure – all done with a lower standard of judicial review;
  • Expanding the FTC’s authority to immediately impose civil monetary penalties for any violation of the FTC Act without the involvement of the Department of Justice;
  • Providing new liability for “aiders and abettors” of companies that violate the FTC Act, potentially putting thousands of companies at risk by running ads.

These changes were not limited to the authority of the FTC over financial products and services. They would have applied to the broad regulatory authority the FTC has over almost every segment of our economy, including anti-trust.

These expanded powers were not included in the Senate’s version of the financial reform bill. ANA and our member companies and other industry groups met with all of the conferees and more than a hundred other members of both the Senate and House to argue that these sweeping changes should be separately considered as part of FTC reauthorization rather than being added to the Wall Street reform bill.

House Energy and Commerce Committee Chairman Henry Waxman aggressively pushed for these changes at several points during the conference. Each time, Senate Banking Committee Chairman Chris Dodd and other Senate conferees held firm in opposition to these provisions.

While our victory in the conference committee is important, it is clear that these issues will not go quietly into the night. ANA and other industry groups met earlier this week with Senate Commerce Committee Chairman Jay Rockefeller to discuss these issues. Chairman Rockefeller stated that he will continue to aggressively push for new enforcement powers for the FTC during this Congress. We expect Chairman Waxman to join that effort and it is likely to begin very soon.

We believe this was one of the most concerted across-the-board efforts of the ad community. Throughout the past several months, we have worked closely on these issues with virtually every segment of the ad community. We continuously alerted our members to developments and got a number of member companies actively involved in the fight. We should feel very proud of this success which was not certain until the final minutes of the conference committee.

If you have any questions about this matter, please contact Dan Jaffe (djaffe@ana.net) or Keith Scarborough (kscarborough@ana.net) in ANA’s Washington, DC office at (202) 296-1883.

@SecuredTweets: Twitter settles privacy charges brought by Federal Trade Commission

Today, Twitter and the Federal Trade Commission settled charges that the micro-blogging site had engaged in unfair and deceptive trade practices because of “serious lapses in the company’s data security.” The FTC began an investigation into Twitter after hackers obtained administrative control of the service, accessed tweets that consumers had designated private, and sent out phony tweets (from then-Presidential candidate Barack Obama, Fox News, and others).

In its complaint, the FTC alleged that Twitter was vulnerable to these attacks because it failed to take certain reasonable steps to prevent unauthorized administrative control of its system. Those steps included:

  • Requiring employees to use hard-to-guess administrative passwords that are not used for other programs, websites, or networks
  • Prohibiting employees from storing administrative passwords in plain text within their personal e-mail accounts
  • Suspending or disabling administrative passwords after a reasonable number of unsuccessful login attempts
  • Providing an administrative login webpage that is made known only to authorized persons and is separate from the login page for users
  • Enforcing periodic changes of administrative passwords by, for example, setting them to expire every 90 days
  • Restricting access to administrative controls to employees whose jobs required it
  • Imposing other reasonable restrictions on administrative access, such as by restricting access to specified IP addresses

Under the settlement, the FTC will require Twitter to set up a new security program to be assessed by a third party. It will also be prohibited from what the agency described as “misleading consumers about the extent to which it maintains and protects the security, privacy, and confidentiality of nonpublic consumer information, including the measures it takes to prevent authorized access to information and honor the privacy choices made by consumers.”

According to the FTC, this marks the 30th case brought as a result of lax security procedures, and the first against a social network.

Why This Matters:  As we have known for some time now, privacy is a hot-button issue at the FTC. To avoid an FTC investigation, you must consider whether your current privacy practices live up to both: (1) what the Commission considers “standard, reasonable” security procedures; and (2) your own privacy policy, which operates as a set of promises to consumers who use your service/patronize your business. If your security procedures fall short of either mark (or worse, both), the FTC could come calling. This then begs the question, when was the last time you audited your security and privacy procedures?

FTC Issues Closing Letter in Gift to Blogger Case

Making good on its suggestion that advertisers who have blogger policies might fare better than those who don't, the FTC yesterday announced the closing of an investigation into Ann Taylor Stores Corp.'s advertising practice whereby its LOFT division would send free goods to bloggers to preview. The FTC decided to close the case because (1) the previewing event was a one-time isolated incident; (2) only a few bloggers posted reviews; and (3) LOFT had a written policy (adopted after the launch of the event) stating that LOFT will not issue any gift to any blogger without first telling the blogger that the blogger must disclose the gift on his or her blog. The Commission, in letting Ann Taylor Stores off the hook, left the advertiser with a parting warning: "The FTC staff expect that LOFT will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT."

What This Means

The fact that the FTC even initiated an investigation is troublesome and should not be lost in the salve of the closing letter. The "previewing event" that the advertiser engaged in was not an online event. It was a physical event that people (identified by the FTC staff as "bloggers") attended in order to view a preview of LOFT's Summer 2010 collection. A sign at the preview told bloggers that they should disclose the gifts if they posted comments about the preview. The FTC alleged that LOFT had an expectation that the people attending the previewing event would blog about the collection. One might question how much knowledge Ann Taylor actually had about who the people at the preview were. Were they all very well known fashion critics who just happened to use social media to publish their reviews? What if there was a fashion show to which members of the world press were invited? It's not beyond the realm of imagination to presume that everyone who attended would get some token from one or more designers in a gift bag, etc. Obviously, the designer wants the reviewer to write something positive about the products. Is this an example of how the FTC will look at bloggers differently from "traditional media"? And, what does this mean for other industries where gifts at trade shows are commonplace? Will a sign at the booth be necessary or even sufficient? Is swag at a trade show now subject to the testimonial guides? The answer should be no, but, the fact that this investigation was even pursued suggests that just letting people come to a site to look at or sample products, with some knowledge that the people might be likely to write a review about the products, creates a situation in which any gift to the attendee could taint the resulting review, turning it into "sponsored" speech and subjecting it to FTC scrutiny under section 5 for failure to disclose a material connection. Maybe more analysis was undertaken by the FTC staff to determine whether there was any sponsored speech. Or, maybe some of the blogger paranoia that has accompanied the revised Testimonial and Endorsement Guides was justified after all.

Political Advertising - Legal, decent, honest and truthful?

It's our pleasure to provide you with an article written by Marina Palomba, former Legal Director of the Institute of Practitioners in Advertising, and now a partner in our (Reed Smith's) London office, which focuses on advertising law and regulation as it pertains to policial campaigns in the United Kingdom. Marina's article was first published in Media Lawyer on April 13, 2010. Read the entire article entitled, "Political Advertising – Legal, Decent, Honest and Truthful?", and if you need legal guidance or representation, don’t hesitate to contact Marina Palomba in our London office or Adam Snukal in New York.

Challenges Mount for Google / AdMob Acquisition

Earlier this year, AdLaw By Request wrote on the merits, concerns and overall likelihood of success of the Google / AdMob transaction that closed toward the latter part of 2009, pending the Federal Trade Commission’s (FTC) sign-off. Predicting (or perhaps foreshadowing) that the FTC would raise antitrust concerns over the pending transaction, Google went as far as creating a website entirely devoted to educating and explaining (i.e., swaying) to both the FTC and the public at-large why the acquisition of AdMob by Google should not be construed as anti-competitive.

Give Google props for a nose that knows… The FTC appears to be laying the groundwork for an antitrust challenge. Between assembling its A-Team of FTC litigators and asking several of AdMob’s competitors to testify under oath about the impact this prospective consolidation would have on the mobile advertising market, the FTC seems ready for the challenge.

The concern, again, is the potential dominance Google would have over both web and mobile advertising. AdMob is a leading supplier of graphic ads (essentially, an ad network) that run across more than 150,000 different mobile sites and applications within its network. AdMob was also among the first companies to sell ads that appear in mobile applications, such as games. By folding the AdMob mobile ad market share into Google’s existing business, the FTC is clearly concerned that Google would capture another front on the digital advertising landscape.
Earlier this week, Sen. Herb Kohl (D-Wis.), Chairman of the Senate Subcommittee on antitrust, wrote to the FTC, urging the agency to closely scrutinize the deal as it “raised important competition issues.” In contrast, Google continues to assert that the mobile advertising space is still in its infancy, and no one can predict if any single company will dominate it. In addition, Google points to Apple’s somewhat recent acquisition of Quattro Wireless, as evidence that the mobile advertising market has many players of varying sizes.

In an interesting twist to this developing story, the CEO of 4Info, Zaw Thet, sent a letter to the FTC claiming Google’s acquisition of AdMob would not impact his company’s ability to compete in the mobile space. 4Info is a direct competitor of AdMob, and considered by many to be the largest, or among the largest, mobile ad networks in the United States. Mr. Thet wrote in his letter to the FTC that he has “no concerns about my [4Info’s] ability to continue to compete effectively after the transaction closes.” He further comments that it will be “easy for me [4Info] to partner with large brand advertisers who wish to advertise on mobile devices and publishers who wish to monetize their mobile content.”

Why This Is Important:  While mobile advertising is still relatively small ($416 million spent on mobile advertising in 2009, as compared with approximately $24 billion for online advertising during that same period, according to eMarketer), many believe mobile advertising will explode over the next several years. In fact, many analysts predict that more people will run searches on their mobile devices than PCs in the not-too-distant future, and that ad revenues from mobile advertising will similarly surpass those of PCs. Hence, the decisions made today by the FTC, Congress, and even the mobile advertising industry-at-large, will likely have long-standing implications in the not-to-distant future.

There is an 'I' in Behavioral Advertising

Coming soon to many websites near you (possibly…), you may find a slew of little blue “I” icons populating the Internet. This icon represents the latest collaboration between the Federal Trade Commission, Congress and the advertising industry to create a standardized icon, known as the “Power I,” intended to notify consumers of the online behavioral advertising practices and policies that are followed by specific websites and advertisers. Online behavioral advertising is essentially the practice carried out by some advertisers to collect and use consumers’ surfing history, demographic profiles and other personal data to deliver ads tailored to their unique and individual interests. More formally, online behavior advertising is “the collection of data from a particular computer or device regarding Web viewing behaviors over time and across non-Affiliate Web sites for the purpose of using such data to predict user preferences or interests to deliver advertising to that computer or device based on the preferences or interests inferred from such Web viewing behaviors.”

The “I” is intended to essentially function as both a trusted standard in the area of behavior advertising that consumers will immediately identify, and also as a link that, when clicked on, will take a user to a separate web page detailing why particular ads are being shown to him or her. Although websites or ads are not legally required to post the “I,” the leading trade associations behind this initiative are clearly hoping that the advertising industry will adopt this new measure, and thereby avoid the need for further government action and regulation. A detailed description / PR campaign of the “Power I” initiative has already been launched and can be accessed here, and a second PR campaign is underway.

While it’s far too early to gauge the effects of the Power I, its rate of adoption among industry players, and its success in staving off governmental action, this program is certainly an important step in the right direction, namely, a step toward further transparency and consumer education. This author wants to know if we’re likely to see a “Power C” for user consent and/or a “Power R” for data retention practices.

Déjà Google

Give Google credit that when it announced its acquisition of AdMob, a leading provider of mobile advertising services and technology, in November 2009, it proactively addressed the likelihood of a Federal Trade Commission (FTC) investigation into the transaction. Google even went as far as posting a web page that the media, regulators and other interested parties alike could access that explained why it believed the deal did not pose any “competitive” (note: antitrust) concerns.  Whether it was a self-fulfilling prophesy or just an inevitable step whenever Google makes an acquisition in the digital advertising space, Google last week announced it received a second request for information from the FTC on the AdMob acquisition. This, however, is familiar territory for Google, which has been the target of government scrutiny over previous deals. The FTC held an eight-month investigation into Google's plan to buy DoubleClick Inc. in 2007 before approving that transaction, and last year Google walked away from a search deal with Yahoo after the U.S. Justice Department indicated that it would consider blocking the agreement and strategic alliance.

What Google may not have expected is the data privacy and consumer protection industry group backlash that has taken up the not-yet-completed transaction as a struggle to protect consumer data and the mobile advertising market. At least two prominent consumer groups reportedly approached the FTC, asking it to block the acquisition, arguing that a Google/AdMob combination would put “significant amounts of data for tracking, profiling and targeting” of U.S. mobile consumers into the hands of a single advertising network. Google and AdMob combined will form the largest mobile-advertising company, with 30 to 40 percent of the market, according to Karsten Weide, an analyst with researcher IDC in San Mateo, California. These groups want the FTC to consider whether Google's access to AdMob's technology will give it an unfair advantage in selling mobile advertising.

Understandably, Google has asserted that the economic/market impact of such an acquisition would be almost impossible to measure against the dozens of other mobile ad networks that compete with AdMob on a daily basis. Moreover, a spokesperson for Google has suggested the deal will provide users with more free mobile applications, in some cases as an alternative to pay-to-download apps, since it will allow developers to subsidize their products through better and more targeted mobile advertising.

One interesting issue that has arisen from this and other similar transactions over the past couple of years is whether and how consumer privacy fits into an FTC antitrust analysis. It is well documented that the FTC primarily rests its antitrust analysis on two categories: (i) agreements that are per se illegal, and (ii) agreements that are analyzed under the Rule of Reason. Types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce. On the other hand, agreements not challenged as per se illegal are analyzed under the Rule of Reason to determine their overall competitive effect. A Rule of Reason analysis entails a flexible inquiry and varies in focus and detail, depending on the nature of the agreement and market circumstances. While this analysis still begins with a review of the primary agreement (e.g., merger, joint venture, license, etc.) driving the FTC’s analysis, it will then extend to other external factors.

Largely until 2007 and the Google/DoubleClick transaction, the issues and types of analysis described above were primarily centered on consolidations and combinations of goods and services, and not privacy or consumer information. During the FTC’s review of Google’s acquisition of DoubleClick, however, all five FTC commissioners who reviewed that transaction agreed that data privacy can constitute a form of non-price competition under a Rule of Reason analysis and, where/when appropriate, should be considered as one of many pieces in their study and review of a prospective transaction. In fact, the FTC, in its decision approving the Google/DoubleClick transaction, provided, “We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy.” At the core of the FTC’s review was whether, given the nature and economics of online and digital advertising, the concentration of user information that results from a Google/DoubleClick combination meant that no other company would be able to buy, target and optimize ads as profitably, thereby substantially reducing the ability of other ad networks to compete.

On what basis, then, is consumer privacy evaluated? Proponents have successfully argued that privacy harms can reduce consumer welfare, which is a principal goal of modern antitrust analysis. In addition, these same groups have argued that privacy harms can lead to a reduction in the quality of a good or service, which is a standard category of harm that results from excessive market power. On the other hand, those who oppose the incorporation of a privacy review in any antitrust analysis generally rest their argument on two points: (i) they disagree that privacy is a competition-related issue and point to precedents in which non-competition issues (like pollution) have not been traditionally factored into an antitrust analysis, and (ii) these transactions have proved themselves to create market efficiencies and improved offering/technology that ultimately benefit consumers with a more personalized online experience. This latter opinion may best be summarized in a Yahoo statement from 2008: “The advertising model has made Internet content and services available to millions of people in the United States and around the world—for free. The business model of relying on advertising revenue to fund websites has meant that vast amounts of information on the Internet has been fully accessible to people of all ages and income levels.”

Why this Matters: 

Those who ignore history are doomed to repeat it. Our economy today is flush with companies that have been created to essentially trade in almost every aspect of behavioral advertising and consumer data. In fact, one might argue that consumer data has become a currency of sorts in the digital advertising and media industries. As consumer privacy becomes, on the one hand, increasingly protected by both legislation and self-regulatory initiatives (leaving aside the even more complex discussion of the implications of cross-border transactions and acquisitions where the same piece of consumer data may be subject to varying laws), and also a valuable commodity that is highly sought after, companies should be more aware of the legal implications associated therewith in all spheres of their business – including the arena of mergers and acquisitions. Whether one agrees that consumer privacy should be factored into an FTC antitrust analysis or not, it seems unlikely that the FTC will shift from the position it seems to have taken (as evidenced by the Google/AdMob transaction) over the past couple years, and therefore, companies that are contemplating mergers or acquisitions in the digital media and advertising arenas should at least consider the implications that consumer privacy may have on their deals.

Maine Introduces COPPA Extension Bill

This post was written by John P. Feldman and Andrew R. Boortz.

Last year, the Maine Legislature adopted 10 MRSA c. 1055, which, among other things, attempted to extend COPPA-like protection to all minors (that is, children under the age of 18). The law was plagued by a number of issues, including questions regarding its constitutionality, and ultimately caused the Maine attorney general to promise not to enforce the law as written. Based on this, it was generally understood that the Maine Legislature would revisit the law in the 2010 legislature session.

The legislature did not wait long. On January 7, 2010, a new children's privacy bill was referred to the Maine Senate Committee on Business, Research, and Economic Development. The new bill, currently listed as LD 1677, would repeal the existing children's privacy law, but would enact a new prohibition on the collection and use of personal information that is: (a) collected and used on the Internet; (b) about a minor; or (c) for the purposes of pharmaceutical marketing.

Although this bill is narrower in scope than the law it seeks to replace, there are still problems with it. First, the bill applies to any personal information about a person under the age of 18, regardless of whether that information is related to health. Therefore, any information about a minor, including name, e-mail address, etc., would be covered. Second, the law seems to apply only to information collected on the Internet; it is unclear whether this information would apply to information collected through other means such as offline collection, mobile device, etc. Third, the text of the prohibition is poorly worded. The prohibition states that "any person may not collect and use information collected on the Internet ..." (emphasis added). Thus, by a literal reading of the text of the bill, a company could collect information about a minor for the purpose of pharmaceutical marketing and avoid liability if it does not use the information. Alternatively, a company could use information that is collected on the Internet by someone else since it would neither have collected nor used the information.

Of course, it is unlikely that the Maine attorney general would interpret the law in this way because this would create a substantial loophole. Instead, it is more likely that the law would be interpreted as creating two strict liability offenses—one for collection of information if the reason for the collection is to promote pharmaceutical sales, and one for the use of any information about a minor to promote pharmaceutical sales, whether or not the information was originally collected for that purpose.

Why This Matters: If enacted, this bill would place a higher burden on companies that sell either over-the-counter or prescription drugs, including pharmaceutical manufacturers and retailers. Such companies will have to be very careful with any marketing program that could conceivably collect or use information about a minor. For example, an e-mail blast with weekly offers that includes discounts on over-the-counter products could violate the bill's prohibition on marketing to children if a minor's e-mail address was included in the recipient list. Companies that sell pharmaceutical products should watch the progress of this bill closely to determine what kinds of systems should be created to avoid liability. There may be an opportunity to comment on rules that must be promulgated by the Maine attorney general within a year after enactment of the law.

Self-Regulation Once Again Called into Question by FTC as It Revisits Violence in Music, Movies, and Electronic Games Advertised to Children

On December 3, 2009, the FTC released a report to Congress that outlined various ways in which self-regulation has not done enough to limit advertising to children of music with explicit lyrics, and movies and games that depict violence.

The report spans various media platforms and contains specific recommendations to the entertainment industry. 

  • The movie industry and the music industry should develop specific and objective criteria to restrict marketing of violent movies and music to children.
  • The FTC is looking for restrictions not only for advertising R-rated movies in venues reaching a substantial under-17 audience, but also for the advertising of PG-13 movies in venues reaching a substantial under-13 audience.
    • These criteria should apply both to direct advertising of the movie and to indirect promotion of the movie through tie-in advertising of foods, toys, and other licensed products appealing to children.

    • The FTC also recommends that the music industry should implement restrictions for all Parental Advisory Label (PAL)-stickered music in venues reaching a substantial under-17 audience.

  • The criteria implemented by the movie and music industries should include not only the percentage of the underage audience, but also other factors like the absolute number of children reached, whether the content is youth-oriented, and the youth popularity and apparent ages of the characters and performers.
  • The movie, music, and electronic game industries should evaluate their restrictions and tighten them as necessary, paying particular attention to online and viral marketing, to ensure that advertising is not placed in venues reaching large underage audiences.
    • The movie industry should increase enforcement efforts against online posting of “red tag” trailers without adequate age-based restrictions on access.

    • The movie industry should carefully examine the content of “appropriate audience” trailers for consistency with the feature films they will precede.

    • The movie industry should place all rating information prominently on the front of DVD cases and other packaging for home releases of movies and should make disclosure of both rating and rating reasons prominent in all advertising venues.

    • The music industry should display the PAL more prominently in advertising, particularly in television and online venues, and should provide information about the specific type of explicit content.

    • The electronic game industry should include content descriptors with the rating on the front panel of game packaging and should continue to provide more detailed rating summaries for parents online.

    • The movie industry should take steps to better inform parents about additional adult content in unrated DVDs and should give parents a way to assess the appropriateness of unrated versions for their child.

  • Specifically, the industry should either re-rate DVD releases that contain additional content or, at a minimum, extend the new disclosure rule regarding the content of unrated DVDs to all forms of advertising and improve the level of compliance with the rule.
  • Retailers and theater owners should continue to strengthen enforcement efforts restricting the sale of tickets to R-rated movies, R-rated and unrated movie DVDs, PAL-stickered music, and M-rated games to children, paying attention to possible enforcement gaps created by the use of gift cards for online purchase.

Since the FTC issued its first report on marketing violent entertainment to children in 2000, the agency has called on the entertainment industry to be more vigilant in three areas: restricting the marketing of mature-rated products to children; clearly and prominently disclosing rating information; and restricting children’s access to mature-rated products at retail.  This latest report found areas for improvement among music, movie, and video game marketers, but credited the game industry with outpacing the other two industries in all three areas.

The report, entitled “Marketing Violent Entertainment to Children: A Sixth Follow-up Review of Industry Practices in the Motion Picture, Music Recording & Electronic Game Industries” analyzed information from sources including marketing documents submitted by industry members, an undercover “mystery” shopper survey, consumer surveys conducted in shopping malls and by telephone, “surfs” of industry Web sites, and data acquired from proprietary ad-monitoring services.  Findings included:

  • Music: While the music industry’s Parental Advisory Label alerts parents to explicit lyrics in recordings, it does not provide information about the nature of that content.  The music industry has declined to implement rules restricting the marketing of explicit-content labeled music to children.  The report does not find any indication of specific targeting of children, but does show numerous examples of ads for explicit-content music on television programs popular with teens.  Disclosure of the label in advertising is still spotty, including on official artist and company Web sites, where the label usually is not readable.  Television ads display the explicit content label only half the time and even then usually not prominently.  Music CD retailers and online download sites, by contrast, do an excellent job of displaying the parental advisory label.  Finally, retailers do not effectively prevent children from buying explicit-content music, with seven in 10 underage shoppers able to buy CDs with a Parental Advisory Label.
  • Movies: Although the movie industry determines on a case-by-case basis whether a PG-13-rated film may be advertised to children under 13, there is no explicit policy restricting such marketing.  As detailed in the marketing plans reviewed by the Commission, movie studios targeted violent PG-13 films to children under 13 both through advertising and promotional tie-ins with foods, toys, and other licensed products.  Studios continued to place a significant number of ads for violent R-rated movies on television shows and Internet sites highly popular with children under 17.  Increasingly, industry members post “red tag” trailers for R-rated movies, intended for age-restricted audiences, on the Internet without age-based access restrictions.  Although the MPAA rating and rating reasons are not always prominent, the industry generally does display the MPAA rating in advertising. Rating information on DVDs is not prominently placed; moreover, more and more DVD versions of movies are not rated, and some studios hype the lack of a rating.  The Commission’s research shows that parents are not adequately informed that unrated DVDs may contain additional violent or adult content.  On the positive side, theaters denied 72 percent of underage shoppers admission to R-rated movies, a significant improvement from 2006 and even more so from 2000. Most retailers, however, continue their poor record of enforcement against underage purchase of R-rated and unrated DVDs.
  • Electronic Games: The FTC finds a high degree of compliance with the video game industry’s marketing and advertising rules, although these standards allow game marketers to advertise on many television shows and Web sites popular with children.  Further, retailers are enforcing age restrictions on the sale of M-rated games to children, with an average denial rate of 80 percent.  The report notes, however, that children may be able to obtain M-rated games by, for example, using retailer gift cards online.  Finally, the proliferation of game applications for mobile devices provides challenges – for example, some companies do not provide any rating system for games available on their networks, and there is no consistent system of age-based parental controls for these applications.

More Perspective on the FTC's Recently Updated Endorsement and Testimonials Guides

On Tuesday, Dec. 1, 2009, the revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising" released by the Federal Trade Commission came into effect. John P. Feldman, an authority in these types of advertising regulations and compliance, put together some thoughts concerning the implications of these Guides upon coming into effect, continuing his thoughtful and practical analysis. John's analysis asks and answers the following questions about these Guides:

  • What does this mean for advertisers?
  • What is the most dramatic shift in enforcement policy?
  • What will this mean for advertisers that use celebrity endorsers?
  • How much control should sponsoring advertisers exercise over endorsers in new media channels?
  • What impact will the FTC's new approach to clinical trials have on the OTC, cosmetic, and pharmaceutical industry?
  • Is there a role for self-regulation and what do you make of the proposed "best practices" recently announced by the Word of Mouth Marketing Association (WOMMA)?

John's analysis can be downloaded here.

FDA Seeks to Understand Social Media

Earlier this month, the Food and Drug Administration (FDA) held public hearings to better understand the role of, and the risks associated with, the promotion and marketing of FDA-regulated products using the Internet and social media. The last such hearing of this kind (which focused solely on the Internet) was organized by the FDA in 1996; and with a very different landscape before them, the FDA felt it was time to invite several of the industries’ players back to D.C. for another chat.

Of key concern to the FDA during the recent hearings were: (1) how can drug companies safely and effectively advertise on the Internet and via social media, and (2) how best can drug information and health side-effects be disclosed and managed in a social media context. This is no surprise, as FDA appears ready to develop a framework through which it will apply product advertising and promotional labeling statutory provisions and regulations to these communications. 

At the outset, both the FDA and its invited speakers, which included representatives from Eli Lilly, sanofi-aventis, Pharmaceutical Research and Manufacturers of America (PhRMA), Pfizer, Google, Yahoo and others, all agreed that the Internet and social media present both new opportunities and unique challenges, as compared with traditional promotional labeling and print, or broadcast advertisements. Today, drug companies have a greater ability to optimize their message and respond more quickly/more effectively to developments in the marketplace. On the other hand, everyone questioned how much control these same companies are expected to exercise over the enormous magnitude of user-generated content that is found across the Internet. As one presenter described the current landscape, “The industry’s share of voice on the Internet – especially the social media part of the Internet – is rapidly being dwarfed.” 

The prevailing view seemed to indicate a willingness and acceptance that drug companies should be responsible and held accountable for any content located on their corporate websites and on third-party sites (Facebook, Twitter, etc.) over which they exert or influence control. These same companies should not, however, be held responsible for content on third-party sites over which they have no control or influence. Along this line of thinking, online pharmaceutical-marketing expert John Mac of Pharma Marketing News, suggested that the FDA take the unprecedented step of requiring that drug manufacturers put “tags” on their Twitter posts in order to monitor and potentially censor discussions about specific products.

Another concern that was raised in the context of user-generated content across the Internet is the reliability and trustworthiness factor of information that is widely available on sites ranging from corporate websites to blogs to Wikis. PhRMA, among others, suggested the creation of an FDA-approved logo or seal of approval that could be affixed to a particular website, link, or even an information set that is presented on a third-party site. The seal would indicate that the FDA has reviewed and approved the information in question.

A focal point for the hearings was the issue of adverse events. Simply put, drug companies have a legal obligation to disclose adverse events that are brought to their attention in certain situations, even after the drug has been approved by the FDA and released to the market. Two specific issues arose on this topic:

  • Manufacturers were genuinely reluctant and hesitant to create a presence for themselves within the social media universe in order to avoid learning about potential adverse events associated with their drugs. Although the FDA has established guidelines and steps that must be followed by both consumers and health care professionals to report adverse events, there was still concern expressed that a manufacturer could suffer consequences by ignoring or refusing to investigate adverse events that it learns about through social media.
  • Both the speakers and the FDA alike uniformly acknowledged that the medium (i.e., the Internet) and its advertising vehicles (i.e., banners, paid search links, etc.) lend themselves to lesser rather than more disclosures. Hence, these same companies were concerned about how best to present and disclose these potential adverse events and other risks, and avoid running afoul of their reporting requirements, considering so little FDA guidance exists within this area at the current time.  

Thomas Abrams, Director of the FDA’s Division of Drug Marketing, Advertising and Communication, concluded the hearing by acknowledging the FDA has much work to do to further understand and institute guidelines for the promotion of FDA-regulated products on the Internet and social media sites. 

Why This Matters

If Facebook were a country, its user base would make it the fourth-largest country in the world. The number of users participating in some form of social media interaction is increasing at explosive rates day-by-day. Social media has quickly become an environment in which all manner of communication, information sharing and commerce exists. Although drug companies, large and small, are eager to embrace and engage this environment, many have largely avoided using social media out of fear that its use may result in FDA enforcement action. However, the pressure to adopt social media despite this risk continues to increase as competition grows and more consumers adopt these communication tools.

FDA’s social media hearing was a welcome relief to many. It provided industry leaders and stakeholders an opportunity to take an early lead in contributing to the FDA’s emerging policy on Internet advertising and promotional labeling. FDA is accepting public comments until Feb. 28, 2010 on specific questions it posed to the public (FDA Docket No. FDA-2009-N-0441) (74 Fed. Reg. 48083 (September 21, 2009). With the advent of these meetings, and the likelihood that FDA will begin to apply advertising standards to Internet communications in a more consistent manner – and perhaps continue to engage the industry throughout 2010 and beyond – drug companies should begin to think about and act on: (1) any FDA requests for industry input and guidance on social media and industry regulations; and (2) the creation of social media policies and procedures covering everything from employee do’s and don’ts to the management of adverse event information that surfaces through user-generated content. Companies should also be developing strategies to deal with misinformation about their drugs that they become aware of on blogs and Wiki’s. Lastly, companies must continually keep current on positions, approaches and policies taken or instituted by the FDA.

For more information on contemporary legal issues in social media, including many of the points raised above, we encourage you to download our White Paper entitled, “Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon.

For a detailed analysis of the recommendations and themes raised at FDA’s hearings, please see the Reed Smith Life Sciences Legal Update Blog.

Status of Legislative, Regulatory and Legal Issues Affecting Advertising - A Report from the ANA

This post was written by Dan Jaffe.

Adlaw by Request is pleased to present you with the Association of National Advertisers' recently released Study, entitled "Status of Legislative, Regulatory and Legal Issues Affecting Advertising". This is an important read that covers a very broad range of contemporary issues affecting almost every sector of industry.

If you have any questions about this study, please contact Dan Jaffe / Keith Scarborough in ANA’s Washington, D.C. office at (202) 296-1883, or Doug Wood / Adam Snukal in New York.

More New Faces at the FTC; Reed Smith Client Alert

As we continue to follow the important (and seemingly daily) developments within the Federal Trade Commission, it's our pleasure to provide you with the following Client Alert that discusses President Obama's very recent nomination of Julie Brill and Edith Ramirez to open FTC Commissioner Post.

Congressman Kucinich to Introduce Ad Tax Bill

To:              ANA Washington Reps and Legal Affairs Reps

From:         Dan Jaffe

Subject:    Congressman Kucinich to Introduce Ad Tax Bill

Date:          October 29, 2009

 

We have learned that Ohio Congressman Dennis Kucinich plans soon to introduce legislation to eliminate the tax deduction for certain food advertising directed to children.

This comes on top of the legislation introduced on October 8th by Senators Al Franken (D-MN), Sherrod Brown (D-OH) and Sheldon Whitehouse (D-RI) to disallow the deduction for DTC prescription drug advertising and promotion expenses.  They intend to try to move that bill as part of the Senate’s consideration of health care reform.

The tax deduction for advertising costs is the number one bottom line issue for the entire marketing community.  In addition to product-specific attacks on food and pharmaceutical advertising, we face a serious threat of an across-the-board attack on the tax deductibility of all advertising expenditures as the Congress looks for revenue to fund various programs.

We need your help to protect the deductibility of all marketing costs.  It would be very helpful if you would contact the members of Congress where you have employees or operations to express your opposition to any restriction on the deduction for advertising costs for any product or service.  If we don’t oppose attacks on product-specific categories, we will face increasing pressures across the board.  As Benjamin Franklin said, “we must all hang together or most assuredly we will all hang separately.”

ANA is working with all other marketing and media associations to let Congress know that we stand united in opposition to any attack on ad deductibility, on an across the board or product specific basis.  It is critical that members also hear directly from the companies that provide jobs in their states and districts.

We will provide more information on the Kucinich legislation on food advertising deductibility as well as Senator Franken’s bill as it becomes available.

If you have any questions about this matter, please contact Dan Jaffe (djaffe@ana.net) or Keith Scarborough (kscarborough@ana.net) in ANA’s Washington, D.C. office at (202) 296-1883.  Please let us know of any feedback you get from these contacts.

 

Dan Jaffe
EVP, Government Relations
Association of National Advertisers
202-296-2359 office
646-369-4886 cell

The Impact of the CFPA Act on the FTC

To:  ANA Washington and Legal Representatives

From:  Dan Jaffe 

Re:  The Impact of the CFPA Act on the FTC

Date:  October 28, 2009

 

We sent out a letter to the House Energy and Commerce Committee regarding the CFPA Act last night. A markup in that Committee has been scheduled for tomorrow. We hope that the Committee will hear from numerous sources about the problems with this bill. If you have any questions, please feel free to call me or Keith Scarborough, our Senior VP, Government Relations.

 

Dan Jaffe
EVP, Government Relations
Association of National Advertisers
202-296-2359 office
646-369-4886 cell

Markup on FTC provisions in the CFPA legislation

To:  ANA Washington and Legal Representatives

From:  Dan Jaffe

RE:  Markup on FTC provisions in the CFPA legislation

Date:  October 27, 2009

 

The markup is expected on the CFPA bill imminently. Apparently, Chairman Waxman of the House Energy and Commerce Committee appears poised to give the FTC its complete wish list as described in the attached letter from FTC Chairman Leibowitz without any hearings or careful consideration. We will have another letter out opposing all this later today and hope others will be weighing in as loudly as possible. It appears that we will be facing a new powerful CFPA, a dramatically strengthened FTC and states that can have even more extensive regulation. This multiple overlapping regulation is particularly harmful for those who need to run coordinated national advertising campaigns. If the FTC gets immediate civil penalty authority, the dollar risk for every company will also go up astronomically. Not a pretty picture. Hopefully, the opposition will increase and we can chip away at some of this as we go through the process.

If you have any questions or comments about the impact of the CFPA on the marketing community, please contact Dan Jaffe (djaffe@ana.net) or Keith Scarborough (kscarborough@ana.net) in ANA’s Washington, DC office at (202) 296-1883.

Puerto Rico Sweepstakes Regulation Revised

Luis G. Rivera Marín, Secretary of the Commonwealth of Puerto Rico’s Department of Consumer Affairs (DACO), this week announced the enactment of the country’s revised Sweepstakes and Games of Chance Regulation, effective Nov. 27, 2009. The new rules remove legal barriers that previously forced advertisers and other promoters to void sales promotions in Puerto Rico and to limit participation in many product and service sweepstakes to only residents of the 50 United States and the District of Columbia. When effective Nov. 27, the regulation will provide Puerto Rico’s 3.9 million residents with broader access to the many chance-to-win participation opportunities available within the U.S. market.

“I am pleased to announce that the many practical complications U.S. advertisers previously experienced conducting sweepstakes in Puerto Rico, which routinely led to excluding our residents from participation in their promotions, are now behind us,” Mr. Rivera said. “For many years, our laws made it impossible for companies to conduct national sweepstakes here, and consequently we have been excluded from the opportunity to take part in these potentially valuable promotions. We enter a new chapter now whereby our law adequately protects consumers without locking ourselves out of perfectly legitimate sweepstakes.”

Changes in Puerto Rico’s Sweepstakes and Games of Chance Regulation align the Commonwealth’s rules and definitions with regulations in the United States promulgated by the U.S. Postal Service, the U.S. Federal Trade Commission and individual states. Highlights of the new regulation include:

  • The definition of "consideration" contains some of the best language for SMS and other technology-based sweepstakes in the United States
  • Certification by a notary requirement for rules is GONE
  • The vague reference to having to deliver prizes within three months is GONE
  • An express provision defining "abbreviated rules" has been added with "material terms" that are even more reasonable than Florida's. Furthermore, the regulation provides for the use of abbreviated rules in advertising so long as they point to where the full rules are published.
  • Although rules still need to be "published," you can now satisfy that requirement by just putting them on an Internet site
  • The requirement that the rules be published, disseminated and spread in Spanish is GONE. Now, you just need to publish the rules in the language that the advertising appears in.
  • Complicated odds statements have been simplified to conform with typical odds statements
  • Complicated publication dates for different types of promotions are GONE
  • Notarized certification of drawing procedures is GONE
  • Notarized certification of game piece security codes is GONE
  • Tax liability, which was placed on the promoter, is now on the entrant
  • Requirement that full rules appear in print ad that covers more than two-thirds of the page is GONE
  • Provision concerning unavailability of prizes based on "foreseeability" of circumstances is GONE
  • Penalty for not awarding prizes if the circumstances were foreseeable is GONE
  • Although changes to rules still need to be approved by the Secretary, there is now default approval after 10 business days with no action
  • The prohibition against not awarding prizes within three months, or awarding prizes that are not the quality advertised, is simplified to just require that prizes be awarded as advertised
  • The requirement that alternate winners be chosen is tempered by the caveat that some prizes, because of their nature--like sports events or perishable items,--cannot be awarded to an alternate winner
  • The distinction between games originating inside or outside of Puerto Rico is GONE

“DACO is grateful for the assistance of John Feldman, a partner in the Washington, D.C. office of Reed Smith LLP, an international law firm, and Gabe Karp, Executive Vice President and General Counsel of ePrize LLC, the worldwide leader in interactive promotions, who both provided the Department with a great deal of information and significant input and suggestions in redrafting the sweepstakes regulations,” Mr. Rivera said. “Without Mr. Feldman’s and Mr. Karp’s able consultation and guidance over the past several months, the opening of a vibrant Puerto Rican sweepstakes market for U.S. advertisers and our people would not have been possible.

“Both Reed Smith and ePrize are cutting edge in the area of promotions, particularly in the cross-border aspects of this advertising specialty,” Mr. Rivera continued. “They provide aggressive and creative thinking, as John and Gabe did in helping us solve our longstanding issue with sweepstakes barriers.”

Why This Matters:

These changes will be a boon to U.S. advertisers who use sweepstakes promotions in their advertising campaigns, as well as to Puerto Rican residents now able to vie for U.S. sweepstakes prizes.

Antimicrobial Claims Give Rise to EPA Enforcement

Samsung allegedly made advertising claims stating that its keyboards were antimicrobial and inhibited germs and bacteria. Because these were essentially pesticide claims, they fell under the jurisdiction of the EPA, which enforces the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Under FIFRA, before a pesticide can be sold or distributed in the United States, the manufacturer must register with the EPA. Samsung didn't do that, and EPA brought an enforcement action. Under the resulting order, Samsung will pay a $205,000 fine, and will provide a certification that it has complied with FIFRA by removing all pesticidal claims made in connection with the sales and distributions of these products. Additionally, Samsung agreed to notify its retailers and distributors to remove any pesticidal claims from labels, promotional brochures and Internet/Web-based content for the subject products.

Why This Matters

Advertising for certain products and services is regulated by agencies other than the FTC. Moreover, there are situations, as here, where a product whose advertising otherwise would be regulated by FTC suddenly becomes subject to another regulatory regime because of the type of claim being made.

FTC Releases Updated Guidance on Endorsements and Testimonials

An important and relevant topic that has been addressed through several articles on Adlaw by Request in the past is the FTC’s position and guidance on endorsements and testimonials in advertising. Moreover, in a digital, social media age where blogs, social networking sites and other real time digital tools have become commonplace for user and advertiser alike, the line between them can and often has become awfully blurred. This, and many other examples, are addressed in the FTC’s long-awaited revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising," issued yesterday. As reported previously on Adlaw by Request, the final revisions are intended to update the FTC’s guidance, last revised in 1980, and provide advice to advertisers and agencies regarding compliance with the FTC Act.

The principle espoused and defended by the FTC that a consumer should be informed of any material connection between the advertiser and the maker of the statements is expressly set forth in the FTC Guides, even though these cases were always fact-sensitive and subject to review on a case-by-case basis.  The analysis will, as always, turn on facts that may or may not support the existence of a “material connection,” but if a company, for example, sponsors research about its products or services (or potentially about the products or services of a competitor, if the results will be used in a comparative ad), that same company must disclose its sponsorship in the ad. Similarly, although consumers may expect celebrities to be paid for appearing in commercials, if an endorsement is made outside that context – for example, on a talk show, at a book signing, at a motion picture premiere, or on Facebook, Twitter or other social media – any material relationships and connection must be disclosed.

For more information on this topic, our esteemed colleague Joe Rosenbaum presented a seminar entitled, "Trust Me, I'm a Satisfied Customer: Testimonials & Endorsements in the United States" at the University of Limerick this past July. You can go to the previous Legal Bytes blog post and download a copy of Joe’s presentation at any time.

Want to know more about the FTC Guides, or the implications to social media advertising and marketing, or traditional advertising?  Feel free to contact me or the Reed Smith attorney with whom you regularly work.

Allergan Complaint to allow certain off-label drug promotion

In what could be a watershed case between a pharmaceutical company and the FDA, Allergan has filed suit against the FDA in the U.S. District Court for the District of Columbia, seeking a ruling from the court that would allow Allergan to share relevant information about the safe use of BOTOX with the medical community for non-FDA approved uses (i.e., off-label uses). Under current law, the FDA restricts its approvals on pharmaceuticals for very specific uses and treatments. Although physicians have quite a bit of maneuverability and flexibility to prescribe drugs for off-label uses, both the FDA and the Justice Department have taken the hard-line position that federal law prohibits pharmaceutical companies from proactively providing information (including advertising) to the medical community regarding off-label uses, even when such information is accurate, complete and beneficial. For the reasons mentioned in the article below, this is particularly problematic for Allergan.

This is a case we'll be following closely on Adlaw by Request, and we'll make every effort to keep you updated on all important developments.The press release is available on Allergen's website.

Read the full complaint (PDF).

Reed Smith Global Regulatory Enforcement Alert, "Significant Regulatory Changes to U.S./Cuba Sanctions to Benefit U.S. Telecommunications, Health Care, and Agriculture Companies"

The Department of the Treasury's Office of Foreign Assets Control ("OFAC") this afternoon announced various amendments to the amending the Cuban Assets Control Regulations ("CACR"), implementing a previously announced policy initiative by President Barack Obama.

To read the full Client Alert, written by Reed Smith attorneys Leigh T. Hansson and Jason I. Poblete, please click here.

FTC Regulators Take New Approach to Online Advertising and Consumer Protection

This post was written by Rachel Rubin.

Website users have grown accustomed to the quid pro quo of Internet use and advertising: we browse websites, and those same website collect customer personal data or habits that are used to generate targeted advertising. But how far is too far in terms of data collection? Is our current system of consumer privacy protection a functional one, or one that falls short of adequately protecting the individual and his/her personal information and data?

According to the Federal Trade Commission’s new chief of the Bureau of Consumer Protection, David C. Vladek, the answer is the latter, and our system gets a failing grade. The FTC has expressed both distrust and displeasure with the current standard practice of online disclosure statements, and one-click, cookie-cutter privacy statements that consumers rarely read or understand, as neither may be enough to protect consumers from increasingly invasive Internet tracking practices and technologies. Also, the FTC sees this issue as having a consumer dignity interest element at stake, not merely consumer economic interests. The New York Times and the Wall Street Journal recently reported that Mr. Vladek will be scrutinizing online advertising and consumer privacy issues closely. Within his first few days on the job, Mr. Vladek announced that one of his “major goals” was “rethinking” the FTC’s approach to consumer privacy issues. 

As yet, Mr. Vladek has not articulated what these changes will be, but said he is not committed to “imposing regulation.” [quote from NYT article]. In his first few weeks in office, Mr. Vladek has been working with companies, public interest groups, and academics to evaluate the current rules and to suggest new ways to better protect consumer privacy. According to the Wall Street Journal, “the goal [is to have] new privacy guidelines in place by next summer.” 

These changes are part of the FTC’s move toward close evaluation of online advertising practices, which included the June settlement of a case with Sears Holdings Management Corp. In that case, Sears invited customers to download onto their computers, “research” software that allowed the company to track their online browsing. In return, customers were paid $10. The FTC found that the software also tracked consumer bank statements and prescription records, which some consumers did not realize, despite a lengthy privacy policy. The company was required to stop the program and to destroy the information it had collected. Mr. Vladek emphasized that the FTC was not just interested in protecting consumers from economic harm, but also in protecting consumers’ “dignity interest[s] wrapped up in having somebody looking at your financial records when they have no business doing that.” [quote from NYT article].  

How and what consumer data is collected has been a hot issue in recent months, with the release of a report from the FTC on its online behavioral advertising principles, followed shortly thereafter with self-regulation guidelines from industry groups. 

Why This Matters

Some industry groups fear the potential stricter regulations will harm their business models. It is clear that the FTC will expect more transparency from companies, but Mr. Vladek’s approach seems to be a collaborative one so far. Advertisers and industry groups should take advantage of this opportunity. As a practical matter, advertisers should be vigilant in adhering to consumer privacy and consumer information protection guidelines already in place, and should stay abreast of any and all developments in this area. Advertisers should also evaluate the programs and policies they use to protect the consumer information they collect, and alternative means of communicating the extent and use of personal data collected to consumers.

Companies Big and Small Get Higher Education about Red Flag Rules

As an update, the FTC has just announced that the enforcement date of the Red Flags Rule is being extended again, this time until November 1, 2009. Here is the agency press release.

You can find more information about Red Flag Regulations at Reed Smith's Life Sciences Legal Update blog. 

Banking on the Banks

As the Federal Trade Commission continues to step up its efforts to police deceptive advertising across industries and product categories alike, other governmental divisions are following suit. The FDIC, for example, has turned its attention to financial institutions alleged to be engaging in deceptive practices related to credit card solicitations and credit card rate increases—the first such actions of this nature for the FDIC since its action against CompuCredit in 2008.

The FDIC recently announced the issuance of two cease-and-desist orders—one against American Express Centurion Bank and the other against Advanta Bank Corp, both for deceptive credit card practices. 

The order issued against American Express Centurion Bank (“AMEX”) alleged that the bank failed to provide timely notices to cardholders that their credit lines were being reduced, at the same time that the bank sent them convenience checks. Consequently, when cardholders tried to use the checks—believing they had credit limit room—the checks were dishonored, resulting in the consumers incurring bounced check fees, which the FDIC alleged was an unfair practice under Section 5 of the FTC Act. AMEX agreed to make restitution of $160 per dishonored check, or an aggregate of approximately $3 million, as well as to implement new procedures for reviewing credit limits and notifying consumers of changes to their limit. The institution also agreed to establish procedures that would allow customers to obtain pre-authorization to use a convenience check, before using the same to make purchases. 

The order issued against Advanta Bank Corp. (“Advanta”) (which ceased issuing cards in May 2009) alleged that Advanta marketed and advertised a cash-back reward feature on certain of its business credit card accounts that was rarely attainable, if at all. For example, the advertised percentage cash-back was only available for certain purchases, and indeed, the FDIC alleged that it was effectively impossible to earn the stated percentage of cash-back reward payments, thereby rendering Advanta’s marketing materials as deceptive. As a result, the FDIC concluded that Advanta’s solicitations were likely to mislead a reasonable customer, and therefore, Advanta engaged in a pattern of deceptive acts or practices in violation of Section 5 of the FTC Act.

The FDIC also alleged that Advanta had substantially increased annual percentage rates (APRs) on cardholders that had neither exceeded their credit limits nor were delinquent in making payments on their accounts. The FDIC alleged that these rate increases had been implemented in an unfair manner, and without adequate notice as to (i) the amount or the reason for the increase, or (ii) the procedures to opt-out of the rate increase.

These questionable practices have also led to the recent decision of both the American Arbitration Association (“AAA”) and the National Arbitration Forum (“NAF”) to cease providing a forum for disputes between customers and their credit card companies (as well as cellphone companies). The AAA has stated that it will stop participating in consumer-debt collection disputes until new guidelines are established. Among the problems cited by both groups, provisions such as mandatory arbitration hearings in credit card agreements require customers to unknowingly waive important rights. According to the Minnesota Attorney General, Lori Swanson, who recently settled with the NAF over arbitration / debt-collection practices, “This is an issue beyond any one problem company. It is a systemic industry wide problem. Consumers are giving away rights without evening knowing it.” The practice of arbitrating consumer-debt collection matters has also caught the attention of Congress, where a congressional sub-committee is scheduled to hold a meeting on this various issue this week. 

Maintaining this momentum of heightened regulations in the financial industry, on June 17, 2009, the Obama administration unveiled its plan for Congress and several regulatory agencies to adopt a comprehensive series of changes that would increase the role of the federal government in almost every aspect of the financial services industry, including the marketing and advertising of financial products. For example, if adopted as proposed by the President, the proposal would create several new federal agencies, offices, and councils, including a new Consumer Financial Protection Agency (CFPA), dedicated to policing consumer financial products and services. 

The CFPA has been designed to regulate the offering of consumer financial products and services in their entirety, save those instruments that will continue to be regulated by the SEC or the CFTC. Its proposed authority is very broad, with a mandate to promulgate, interpret and enforce rules implementing all existing federal consumer financial services and fair lending laws. More importantly, its authority would extend not only to banks, thrifts and credit unions, but also to mortgage lenders, title insurers, money service businesses, advertising and marketing agencies, issuers of prepaid or stored value cards, consumer reporting agencies, debt collectors, certain lessors, certain investment advisors, and those that engage in financial data processing. To do that, the proposed legislation transfers all of the authority over these products and services from the federal bank regulatory agencies and the FTC to the CFPA. While the FTC would retain some back-up authority (as would the bank regulators), this will be a substantial change in the regulatory landscape.

For financial institutions, this all spells trouble. There are already myriad regulations that govern their activities. Adding yet another bureaucratic agency and the resulting collision of jurisdiction and inconsistent principles will only confuse an already difficult situation. But whether the CFPA comes to be or not, the horizon for banking regulation is certainly clouded with the likelihood of more oversight than ever before.

Vladeck's First Public Address Includes Priorities and Staff Changes

On June 18, 2009, 77 hours into his tenure as Bureau Chief for Consumer Protection, David Vladeck gave his first public address at the ABA Consumer Protection Conference, held at Georgetown University Law Center. He described himself as being "not part of the fraternity" of the FTC. He said that Commission Chairman Jon Leibowitz reached out to him and expressed a desire for "fresh eyes." In his address, Vladeck suggested a set of agenda items that may be a hint of what his enforcement priorities will be.

  • Economic fraud will be a top priority – mortgage fraud, debt collection/debt consolidation, and other financial services scams.
  • Privacy – He stated that it is time to "take another look at privacy regulation." Vladeck said that the FTC has taken a "notice and consent" approach, and then moved to a "harm" approach. He said that these two approaches do not seem to address the issue comprehensively. He did not give much detail, but it is clear that there will be new ideas and approaches, reexamining assumptions about harm that is "unquantifiable."
  • Advertising, including behavioral marketing – Vladeck stressed a focus on how advertising affects those who are particularly vulnerable, including children. He also mentioned advertising of alcohol to teens. He made approving reference to the "disparate impact theory" that has been used in connection with some recent enforcement matters that have dealt with advertising targeted at Hispanic markets.
  • Legislative action – Vladeck said he expected that the Commission will be focused on its reauthorization, and with regard to President Obama's proposal concerning a new consumer protection body that will deal with financial products, Vladeck stressed that the FTC should be on "equal footing." Also, Vladeck stated that the FTC should have civil penalty authority as well as independent civil litigation authority. Thus, these may be additional agenda items.

In addition to these agenda items, on which he said he would keep "an aggressive pace," Vladeck announced some key personnel moves.

First, he announced that Chuck Harwood, Northwest Regional Director in Seattle, will be his Deputy Bureau Head. Harwood has been the regional director for 20 years. Prior to that he was a staff counsel to the U.S. Senate Committee on Commerce, Science, and Transportation. According to our partner Anthony DiResta, formerly Harwood's counterpart in the Southeast Region, Harwood is an excellent choice, tough and fair.

Second, Peggy Twohig, Assistant Director for Financial Practices, will be leaving the Commission for a post at the U.S. Treasury Department. This appears to be a loss for the Commission and a huge pick-up for Treasury. Twohig has been a leading force against predatory lending practices, and it seemed from Vladeck's announcement that he was genuinely disappointed that he was losing her and her experience, especially in light of his top agenda concern.

Third, replacing Twohig will be long-time FTC lawyer Joel Winston, who currently is Associate Director for Privacy and Identity Protection. Extremely well regarded, Winston received the 2008 Presidential Rank Award of Meritorious Executive last fall, and was widely rumored to be under consideration for the Bureau Chief position.

Fourth, Jessica Rich, Assistant Director for Privacy and Identity Protection, will assume the role as Acting Associate Director.

Why This Matters: The Bureau Chief for Consumer Protection at the FTC sets policy and tone for the consumer protection side of the Commission. The Vladeck era has begun, and we can see that he will bring a fresh perspective. He has never served at the FTC. He has sued the FTC ("successfully," he added). His agenda seems to have two central substantive interests: financial fraud and privacy. Although this was somewhat expected given his background, one gets the sense that he is going to pursue mortgage fraud and other types of financial services fraud very aggressively, and will be particularly interested in any sort of practice that targets those who have been disparately impacted by the economic downturn. The changes in the personnel in both the financial and privacy divisions are interesting in light of the importance both of these divisions are likely to have for the foreseeable future. Finally, by all accounts, the selection of Harwood is a positive move that may have the side benefit of giving Vladeck insight into the activities and utility of the regional offices.

The FTC Takes on Environmental Marketing Claims Through Green Guides and More

On June 9, 2009, the Federal Trade Commission (“FTC” or “Commission”) testified on its efforts to ensure truthfulness of environmental or “green” marketing claims before the U.S. House Subcommittee on Commerce, Trade, and Consumer Protection of the Committee on Energy and Commerce. Noting the “virtual tsunami” of environmental marketing, the FTC announced it will continue its efforts to ensure that green advertisements are “truthful, substantiated, and not confusing to consumers.” 

In order to protect consumers from unfair or deceptive practices, the FTC explained its multi-tiered approach of (1) issuing rules and guides for businesses, (2) challenging fraudulent and deceptive ads through enforcement actions, and (3) publishing materials to help consumers make informed purchasing decisions. 

The FTC’s Guides for the Use of Environmental Marketing Claims (“Green Guides” or “Guides”), 16 C.F.R. Part 260, are the centerpiece of the agency’s environmental marketing program, according to the testimony. The Green Guides, first issued in 1992 and most recently revised in 1998, help advertisers avoid making “unfair or deceptive” claims in violation of the Federal Trade Commission Act (“FTC Act”) by describing the basic elements needed to substantiate specific environmental claims. While the Guides “provide the basis for voluntary compliance” with section 5 of the FTC Act, “[c]onduct inconsistent with the positions articulated . . . may result in corrective action by the Commission under Section 5 if, after investigation, the Commission has reason to believe that the behavior falls within the scope of the conduct declared unlawful by the statute.” § 260.1.

Continue Reading...

Bloggers Beware

As we’ve discussed previously on Adlaw by Request, the Federal Trade Commission ("FTC") is in the process of revising its Endorsement and Testimonial Policies and Guidelines – the first set of revisions since 1980. In addition to compelling greater disclosure and substantiation on advertisers that wish to employ endorsements and testimonials in their advertising, the FTC has cast its net to include blogs, message boards and street teams among those parties that would be subject to these new enactments. The purpose of this article is to address the effect such guidelines will have on blogs.

By way of introduction, endorsements refers to any advertising message (including verbal statements, demonstrations or depictions of the name, signature, likeness, or any other identifying personal characteristic of an individual or the name/seal of an organization) that consumers are likely to believe reflects the opinions, findings or experience of an independent party other than the advertiser about a particular product. The FTC has expressed its intention to treat endorsements and testimonials identically in the context of its review and enforcement activities.

Generally speaking, endorsements: (i) must reflect the honest opinions, findings, beliefs or experiences of the endorser, (ii) may not convey an express or implied representation that would be deceptive if made by the actual advertiser, (iii) may not be presented out of context or worded so as to distort in any way the endorser’s opinion or experience with the advertised product, and (iv) may only be communicated by endorsers who are bona fide users of the product at the time of the endorsement, and the endorsement may continue to run so long as the advertiser has good reason to believe that the endorser remains a bona fide user of the product. From a liability perspective, both advertisers and endorsers alike can be held liable on the basis of false or unsubstantiated statements made through endorsements.

Although liability from false endorsements can arise from several different scenarios within the context of blogs, the two most common developments are likely the following: (i) blogger reviews, and (ii) undisclosed payments made by advertisers to bloggers. In the first scenario, bloggers are continually on a mission to find new content about which to write, and advertisers are constantly seeking innovative and organic means by which to disseminate their messages. For a blogger to write a review about a particular product on his/her blog, the blogger will be deemed an "endorser" by the FTC. Therefore, should the blogger fail to verify (or request verification of) an advertiser’s substantiation with respect to any product claims, the advertiser can be subject to liability for false and unsubstantiated statements made through the blogger’s endorsement, and the blogger may also be subject to liability for the same unsubstantiated representations (intentional or unintentional) made in the course of his/her review (aka endorsement).

The second potential pitfall involves a blogger’s failure to clearly and conspicuously disclose any payments (in cash or in goods) that he/she receives from an advertiser. Especially in those situations in which a blogger is neither an expert, nor is known to a significant portion of the viewing public/ readership but receives some form of payment from the advertiser, this fact must be disclosed to the public. The FTC’s reasoning behind this disclosure requirement should be fairly obvious – receipt of consideration by the blogger will likely have a material effect on the credibility that the public ascribes to the endorsement. As mentioned above, the payment/consideration can take the form of cash, free or discounted goods (even for testing purposes), gift certificates, or even advertising revenues on the blog, itself.

So, what is an advertiser to do that wants to enlist the services of bloggers? The answer involves training and monitoring. Advertisers must provide their bloggers with training on the do’s and don’ts of endorsements and claims, making sure that each claim is truthful and substantiated. For those bloggers who regularly receive consideration in some form or another, advertisers must closely monitor their blogs and have clearly defined policies in place that set forth the steps by which deceptive advertising must be halted and immediately taken down, when discovered. Lastly, and particularly for bloggers who are receiving payment in some form or another, advertisers should consider developing a reasonably simple but focused set of terms and conditions and/or an actual agreement/insertion order that lays out the obligations of the blogger, and the risk allocations should a problem arise.

… as for the bloggers, one approach to address the payment disclosure requirement is to bifurcate sections of their blog between a paid advertising area and an editorial (i.e., non-paid advertising) area. So long as a user knows at all times in which of the two "areas" he/she is situated, bloggers (and advertisers, by extension) can get some level of comfort that their disclosure requirements have been satisfied. The objective, simply put, is to convey transparency to the consumer. This point was recently encapsulated by Jory Des Jardins, Co-Founder of BlogHer: "It's time to look at the finer distinctions between compensated programs that have emerged as social media enters awkward adolescence. To us, the question is not whether anyone should ever compensate bloggers, it's under what circumstances should you compensate them? And if you do compensate them, what are your obligations, and theirs?"

While the FTC isn’t expected to roll out its new Endorsement and Testimonial Policies until later this summer, advertisers and bloggers must start to think about these issues and put policies and documents into effect that address them. Consult your local advertising and marketing attorney for further assistance.

Federal Gift Card Regulations

President Obama recently passed the Credit Card Act of 2009 that, among other things, amends the Electronic Funds Transfer Act by implementing federal regulation of general-use pre-paid cards, gift certificates and store gift cards. The law addresses three key areas: (i) dormancy fees, inactivity charges and service fees; (ii) expiration dates; and (iii) the relation to state laws. 

The law prohibits the imposition of a dormancy fee, inactivity charge or service fee, unless there has been no activity for 12 months, and provided that no more than one fee is charged per month, and that certain disclosure requirements are met and made prior to purchase. Excluded from the prohibition are gift certificates issued pursuant to an award, loyalty, or promotional program with respect to which no money or other value was exchanged. Expiration dates of less than five years are also prohibited under the new law, and any such expiration date must be clearly and conspicuously disclosed. As for the relation to state laws, the law does not pre-empt state laws that provide greater consumer protection. The law will go into effect Aug. 21, 2010.

In addition to the areas mentioned above, two other items are important to note:

First, certain types of cards and devices are excluded from the definitions of general-use pre-paid cards, gift certificates and store gift cards. These include, among others, an electronic promise, plastic card, or payment code device that is: (i) used solely for telephone services; (ii) reloadable and not marketed or labeled as a gift card or gift certificate; (iii) a loyalty award or other promotional gift card (as defined by the Board); (iv) not marketed to the general public; and (v) issued in paper form only (including for tickets and events).

Second, the law also authorizes the Board of Governors, in consultation with the Federal Trade Commission, to: (i) develop requirements relating to the amount of dormancy fees, inactivity charge fees or service fees that may be assessed and (ii) determine the extent to which the individual definitions and provisions of the Electronic Fund Transfer Act or Regulation E apply to general-use pre-paid cards, gift certificates and store gift cards.  

Why this matters: Currently, gift certificates and gift cards are regulated primarily under myriad state laws, some of which are already in line with the new federal law. While the Credit Card Act of 2009 sets a minimum threshold for fees and expiration dates, it does not seem to prevent state laws from being more restrictive. Therefore, issuers of gift certificates or gift cards will have to continue to be knowledgeable of and comply with state laws.

Cheerios - a Drug?

General Mills is the Food and Drug Administration's ("FDA") latest target. In case you think that you misread the previous statement, General Mills—manufacturer of the popular cereal "Cheerios"—received a letter addressed to its Chairman from the FDA May 5 claiming that the FDA has reviewed various Cheerios labels and found they contain "serious violations" of federal regulations. Cheerios is the best-selling cereal brand in the United States, with sales of $1.4 billion last year, according to General Mills.

In recent years, the FDA has begun cracking down on manufacturers who overstate the benefits of their products, amid increased demand for healthy foods. According to the FDA, General Mills is breaking federal regulations on two counts: they are marketing Cheerios like an "unapproved new drug" and misbranding the product by making "unauthorized health claims." What, in particular, has caught the ire of the FDA? The FDA said that the Cheerios product label promotes it like a drug intended for use in the "prevention, mitigation, and treatment of disease." The FDA's letter drew particular attention to phrases that say the product lowers cholesterol by "4 percent in 6 weeks," that it can also reduce bad cholesterol by 4 per cent, and that it is "clinical proven" to lower cholesterol. The letter does not address the veracity of General Mills' claims, but simply the point that by making such claims, the product is being touted and advertised as having the same medicinal effects as other cholesterol-lowering drugs, and therefore should go through the proper channels for obtaining drug approval.

On the positive side, the FDA's letter acknowledges that General Mills had observed regulations correctly in respect of a health claim associating "soluble fiber from whole grain oats with a reduced risk of coronary heart disease," but the two claims about lowering cholesterol go beyond that which constitutes permissible advertising. The FDA said that even if the cholesterol-lowering claim could be argued to be part of an otherwise permissible claim, the wording disqualifies it from use in the soluble fiber health claim.

An important development in this matter is the fact that the FDA cites text on one of General Mills' company websites (www.wholegrainnation.com) as constituting misbranding. According to the federal Food, Drug, and Cosmetic Act (the "Act"), an advertiser's website is considered to be part of the product labeling. The website in question says "heart-healthy diets rich in whole grain foods, can reduce the risk of heart disease." According to the FDA, the claim does not meet the requirements of the Act, which requires such assertions to state that "diets low in saturated fat and cholesterol and high in fiber-containing fruit, vegetable, and grain products may reduce the risk of heart disease." The Cheerios' labeling neither mentions fruits, vegetables and fiber, nor the need for the diet to be low in saturated fat and cholesterol.

The FDA's letter also refers to another labeling claim about reduction in cancer risk. The FDA said Cheerios' claim, which includes the statement "regular consumption of whole grains as part of a low-fat diet reduces the risk for some cancers, especially cancers of the stomach and colon," fails to meet the authorized format because, for example, like the aforementioned claim, it does not mention fruits and vegetables and fiber content, and again denies the public the chance to see the overall context of the healthy diet. The agency has also taken issue with the added phrase "especially cancers of the stomach and colon," which goes beyond what an authorized claim is allowed to say.

In a statement, General Mills spokesman Tom Forsythe defended the cereal's claims. "Cheerios' soluble fiber heart health claim has been FDA-approved for 12 years, and Cheerios' 'lower your cholesterol 4% in 6 weeks' message has been featured on the box for more than 2 years," he said. "The science is not in question. The scientific body of evidence supporting the heart health claim was the basis for FDA's approval of the heart health claim, and the clinical study supporting Cheerios' cholesterol-lowering benefit is very strong. The FDA is interested in how the Cheerios cholesterol-lowering information is presented on the Cheerios package and website. We look forward to discussing this with FDA and to reaching a resolution."

General Mills has been given 15 days to reply with an explanation of how they intend to "correct the violations" and to ensure that "similar violations do not occur." Will the day come when consumers need a prescription to purchase their next box of Cheerios?

FTC Releases Mobile Marketplace Report

On April 22, the FTC issued a Report concerning consumer protection issues arising in the mobile commerce marketplace, entitled “Beyond Voice: Mapping the Mobile Marketplace.”  The Report followed several public meetings involving the FTC since 2000, including those held on May 6-7, 2008 and in November of 2006. In concluding that “the FTC staff is committed to policing the wireless space to ensure consumer protections are in place,” several key findings included:

  • Cost disclosures about mobile services continue to generate consumer complaints. The FTC staff will monitor cost disclosures, bring law enforcement actions as appropriate, and work with industry on improving its self-regulatory enforcement.
  • The FTC and its law enforcement partners should continue to monitor the impact on consumers of unwanted mobile text messages, malware, and spyware, and take law enforcement action as needed.
  • Although spyware and malware have not yet emerged as a significant problem on mobile devices, that situation can change as consumers increasingly use mobile devices for a wide variety of applications, including Internet access. The FTC staff encourages stakeholders to continue developing strategies that prevent or minimize the spread of spam, spyware, and malware on consumers’ mobile devices.
  • The increasing use of smartphones to access the mobile Web presents unique privacy challenges, especially regarding children. The FTC will expedite the regulatory review of the Children’s Online Privacy Protection Rule to determine whether the rule should be modified to address changes in the mobile marketplace. This review, originally set for 2015, instead will begin in 2010. An opportunity for public comment will be provided.

Given the numbers of wireless and mobile devices in the hands of individuals under the age of 18 (and 13), and the increasing proliferation of mobile devices, this will become a hotter topic in the months and years ahead. As if this point needed to be emphasized, it has been reported that as of January 2007—two years ago—there were approximately 800 million cars, 850 million personal computers, 1.5 billion television sets, but already 2.7 billion (yes, billion) wireless and mobile devices in use around the globe, with more than 800 million e-mail and 1.8 billion SMS text-messaging users.

For more information on this topic, also check out the Legal Bytes blog.

Why Doesn't Anyone Call Me?

Has it ever occurred to you why you get so many calls at home from people trying to sell you stuff (or from creditors) but very few, if any, on your mobile phone? This is rooted in a Federal Communications Commission (FCC) rule that prohibits telephone calls (other than calls made for emergency purposes or made with the prior approval of the called party) using an automated dialing system or an artificial / pre-recorded voice to any telephone number assigned to a mobile phone service.

When wired-line phone numbers and wireless phone numbers were completely separate and never intended to be interchangeable, the FCC’s rule seemed both logical and enforceable. However, as soon as the FCC allowed the porting of wired-line phone numbers to wireless carriers, the ability to continue enforcing this rule understandably became more difficult, especially as to the issue of consent.

The Direct Marketing Association (“DMA”) has recently taken up this issue with the FCC by filing comments regarding the FCC’s Telephone Consumer Protection Act passed in 1991 (the “TCPA”). The DMA has requested clarification from the FCC as to whether a marketer or creditor is permitted to place an auto-dialed call or pre-recorded message to a telephone number associated with a wireless service, if that number was originally provided as a contact number associated with a land-line phone. The DMA cited an earlier FCC declaratory ruling in 2008 in which the FCC permitted a creditor to call a debtor on his/her mobile phone, if that debtor previously provided the creditor his/her mobile number. The DMA has made the argument that both situations described above are analogous as they involve the called party previously authorizing calls to a specific number, regardless if that number was previously associated with a wired or wireless service. 

According to the DMA, “The Petitioner’s reading of the Commissions’ rule disregards a consumer’s choice and the realities of the marketplace. We believe a business should be permitted to call a consumer at a number designated by the consumer regardless of the underlying telecommunications involved.” The DMA also cited a 1992 FCC TCPA Order in which the FCC stated, “Persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.”

Why this matters: From a creditor or marketer’s standpoint, a favorable ruling would open up new opportunities to reach customers/debtors who are continually moving between services. On the other hand, violations of the FCC’s Telephone Consumer Protection Act can be daunting and expensive, as both the FCC and private citizens alike have the right to bring actions against marketers and creditors engaging in prohibited telemarketing practices.

FCC Solicits Comments for a Declaratory Ruling Regarding the TCPA

Yesterday, the Federal Communications Commission solicited comments regarding a petition for declaratory ruling under the Telephone Consumer Protection Act (TCPA). Specifically, the Commission seeks clarification on whether a creditor may place autodialed or prerecorded message calls to a telephone number associated with wireless service that was provided to the creditor initially as a telephone number associated with landline service. Section 64.1200(a)(1)(iii) of the Commission’s rules prohibits the initiation of “any telephone call (other than a call made for emergency purposes or made with the prior express consent of the called party) using an automatic telephone dialing system or an artificial or prerecorded voice, to any telephone number assigned to . . . cellular telephone service. . . .” The Commission concluded that such calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the “prior express consent” of the called party.

The Petitioner asserts that the Commission’s ruling permits debt collection calls to a wireless telephone number only when the consumer, in that instance, provides the wireless telephone number to the creditor. The Petitioner contends that when the creditor is initially provided a “landline” telephone number, and subsequently that landline number is ported to a cellular telephone, an established business relationship, “prior express consent,” or other exemption from section 227(b)(1)(A)(iii) of the TCPA is not created. The Petitioner concludes that compliance with the TCPA requires that the consumer must have provided the creditor a telephone number assigned to a wireless service in order for calls to the wireless telephone number to be permissible. Accordingly, the Commission seeks comment for clarification of this position.

Comments are due 15 Days after the item has been published in the Federal Register, and Reply Comments are due 25 days after publication in the Federal Register. This item has not been published in the Federal Register, yet, but we can update you once it is.

Why This Matters?

This is a very interesting issue regarding the use of autodialing devices under the TCPA when a former landline phone number is ported to a wireless device. Typically, in this circumstance, a provider only has 15 days after the landline to wireless port where it can still place automatically dialed messages to consumers (without prior express consent).

ANA and WOMMA File Comments with FTC Regarding Proposed Revisions to FTC Endorsement & Testimonial Guidelines

Reed Smith Advertising, Technology & Media partners John P. Feldman and Anthony E. DiResta filed comments on March 2nd with the Federal Trade Commission on behalf of the firm's clients, Association of National Advertisers (.PDF) and Word of Mouth Marketing Association (.PDF), in response to the FTC's request for comments regarding proposed revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising.

FTC Releases Revised Behavioral Advertising Guidelines - Staff Report May Trigger New Marketing Practices for Your Organization

On February 12, 2009, the Federal Trade Commission (FTC) staff issued a supplemental report of its December 2007 draft “Self-Regulatory Principles for Online Behavioral Advertising.” The report further develops the FTC’s voluntary best practices for the behavioral advertising industry and supports continued self-regulatory treatment. However, the document is not an endorsement of the status quo. The revised principles are likely to spur the following changes to your company’s treatment of behavioral advertisements, including: (1) the development of more consumer education content regarding behavioral advertising, (2) the development of internal privacy protections for anonymous data profiles, (3) the creation of opt-in customer notice mechanisms for use and collection of information perceived as sensitive (such as, information related to health, finance, or children), and (4) the creation of opt-in customer notice mechanisms for retroactive changes to your company’s privacy practices.

Further, you may think that existing website billboard privacy polices are sufficient for conformance with the FTC’s revised guidelines. This is unlikely. The staff report clearly indicates that static privacy policies may not be sufficient notice for behavioral advertising purposes, and disclaimers in proximity to the targeted advertisements may be needed. Notwithstanding the additional disclaimers outside the privacy policy, traditional billboard privacy policies may need revision to conform to the new guidelines, as well. Specifically, the staff report adopted a very broad and open-ended definition of PII1 for these purposes, and indicated that the sharing of information inside a corporate family could fall outside the “first party” sharing of data exemption.

While it is tempting to ignore a cumbersome (and voluntary) examination of information policy, the staff report also comes with a fair warning to take these guidelines seriously. The concurrences of Commissioners Jones Harbour and Liebowitz indicate that if companies do not engage in these voluntary regulatory efforts, mandatory behavioral advertising regulation could lie ahead. As stated by Commissioner Leibowitz, “[p]ut simply, this could be the last clear chance to show that self-regulation can—and will—effectively protect consumers’ privacy in a dynamic online marketplace.”

Click here to read the full white paper written by Amy S. Mushahwar and John P. Feldman.

Stop Being So Negative! FTC Announces Principles for Negative Options Online

In January 2009, the FTC published the results of a workshop it held two years earlier on negative options, particularly those that sprout near and around many Internet sales. How many times have you discovered a charge on your credit card that looks suspicious, and you call the reference telephone number and learn that you actually signed up for a membership to some club when you purchased that shirt, that flash drive, or that book online? These are the sort of negative options that the FTC is most concerned about.

Negative options such as these are sometimes referred to as “free-to-pay” conversion plans. Under these plans, a consumer receives goods or services for free (or for a nominal fee) for a trial period. After the trial period, the seller automatically begins to charge a fee (or a higher fee) unless the consumer affirmatively cancels or returns the goods or services. Often, these sorts of “free-to-pay” plans are placed in conjunction with another purchase. An upsell occurs when a consumer completes a transaction and then receives a solicitation for an additional product or service.

The FTC outlined five principles that should be kept in mind when structuring a negative option plan. First, marketers should disclose the material terms of the offer in an understandable manner. Second, marketers should make the appearance of the disclosures clear and conspicuous. In the Internet context, this second point means that a marketer should place the disclosures in a location on the webpage where consumers are likely to see them, and in a form that is easy to read. Third, marketers should disclose the offer’s material terms before the consumers pay or incur a financial obligation. Making these disclosures more than once is favored by the Commission. Fourth, marketers should obtain consumers’ affirmative consent to the offer. [WHOA! Wait a minute. I thought this blog entry was about negative options! What’s up with “affirmative consent”?] Basically, to demonstrate their consent, the FTC wants marketers to make consumers click a button that says “I accept” or “I agree.” Really, it’s still a negative option because you are simply agreeing to the fact that if you do nothing, you’ll be charged. Finally, marketers should not impede the effective operation of promised cancellation procedures. This is the big one. You can disclose as much as you want, but if the phone number or URL used for cancellation is ineffective, or if the wait on the phone in interminable, the FTC will consider this a frustration of the cancellation procedure, and could determine that it is a violation of § 5 of the FTC Act.

Why this matters. There has been an explosion of free-to-buy conversion negative option offers on the Internet, and the FTC believes that there may be a significant amount of abuse out there with regard to such offers. States such as Washington have also actively sought to beef up their negative option statutes to take into account these more modern methods that tend to produce significant regulatory concern. Where there is a workshop report, FTC enforcement is never far away. So Internet marketers: proceed with caution and keep these five principles in mind.

What Do We Have to Look Forward to in 2009

It’s a new year, and change is in the air. Although the holidays are over, some groups in Washington are hanging on to their wish lists with the hopes that President Obama will grant their desires.

Over the past few months, Obama has sent agency review teams into dozens of government offices, ranging from the Pentagon to the EPA to the FTC. These teams are dissecting agency initiatives, poring over budgets and reviewing functionality. Many lobbying groups see this time of transition as a prime opportunity to achieve desired changes by gaining the ear of the new administration.

In fact, in December, leading privacy and consumer groups met with leaders of the FTC review team to spread the message that the FTC has allowed industries to self-regulate online privacy practices – to the detriment of consumers – for far too long. Privacy groups are not alone in their concern. Obama himself said during his campaign that “[d]ramatic increases in computing power, decreases in storage costs and huge flows of information that characterize the digital age bring enormous benefits, but also create risk of abuse. We need sensible safeguards that protect privacy in this dynamic new world.” He committed to “strengthen the privacy protections for the digital age and to harness the power of technology to hold government and business accountable for violations of personal privacy.”

During their meeting with the FTC agency review team, privacy groups stressed a need for better (more?) regulation of targeted online marketing, oversight in the data broker industry, and privacy policies for medical information, just to name a few. Susan Grant, director of consumer protection at the Consumer Federation, called the Network Advertising Initiative’s behavioral advertising self-regulatory code of conduct “deceptive on its face,” and called for the FTC to establish a “Do Not Track” registry, similar to the popular “Do Not Call” registry for telemarketing. In support of increased oversight of data brokers, Beth Givens of the Privacy Rights Clearinghouse cited numerous complaints from consumers about use of their personally identifiable information by companies in violation of stated privacy policies.

In addition to Obama taking office, a Democratic shift in Congress has the potential to lead to increased regulation. In fact, two senators (Markey (D-Mass.) and Dorgan (D-N.D.)) have already expressed an interest in introducing Internet privacy legislation that would likely outlaw behavioral targeting, cookies and “deep packet inspection.” In addition, a bill currently pending in Congress would expand and enhance the authority of the FTC, possibly increasing the number of FTC litigations.

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FTC Brings Action Against Online Payday Lenders

The U.S. Federal Trade Commission has brought a joint action with the state of Nevada charging 10 related Internet payday lenders and their participants with failing to disclose key loan terms, and using abusive and deceptive collection tactics.

The lenders, based primarily in the United Kingdom, used a series of websites such as www.cash2today4u.com, to promise consumers loans of as much as $500 within 24 hours, the FTC said. The loans were offered without requiring a credit check, proof of income or documentation, the agency said. However, consumers were required to provide their bank account information and social security numbers.

Applicants were told their loan had to be repaid by their next payday, along with fees that ranged from $35 to $80. If the loan was not repaid, it automatically would be extended and an extra fee would be debited from the consumer’s bank account. Consumers were required to provide access to their bank accounts for payment of the fees.

In a complaint filed in the U.S. District Court for the District of Nevada, the FTC alleged that the defendants did not disclose key terms in writing, including the annual percentage rate, the payment schedule, the amount financed, the total number of payments, and late payment fees. Consumers who asked to see the loan terms in writing either were told the transaction was oral, or were told the terms would be sent to them but they never received the requested information.

The FTC said many consumers paid hundreds of dollars above their loan amounts before cutting off access to their bank accounts. The defendants threatened consumers with arrest, lawsuits, property seizure and wage garnishment, the agency said. They called consumers, as well as their coworkers and employers at their workplace; used abusive language; and disclosed the consumers’ purported debts.

The loans extended did not comply with the payday lending laws in many consumer states, and the defendants were not licensed to make consumer loans in those states, the FTC said. The defendants are charged with violating the Truth in Lending Act, using unfair and deceptive tactics under the FTC Act, and other charges.

Why This Matters:  Amid the current economic crisis, regulators are likely to scrutinize lending practices and the marketing practices used by lenders.

FCC Head Calls for Online Targeted Ad Ban

A Federal Communications Commission official is pushing a proposal to ban interactive ads targeting children. FCC Commissioner Jonathan S. Adelstein's call for regulation came amid the latest in a series of public meetings to address childhood obesity and its alleged link to food advertising.

"With the growing convergence of TV and the Internet, we need to set the rules before interactive advertising becomes an established business model," Commissioner Adelstein stated, speaking at the Vanderbilt Forum on Pediatric Obesity in October. The FCC "tentatively" concluded in 2004 that interactive ads targeting children should be banned, he noted. "[W]e need to act quickly ... to implement sensible restrictions on interactive ads targeting children."

Commissioner Adelstein dished up some harsh criticism of the food marketing industry. "The facts show that a vast majority of the food marketed to children are high in calories, high in sugar or salt, and low in nutritional value," he stated. He pointed to the recent campaign for Frosted Flakes featuring Olympian Michael Phelps. "Trying to make Frosted Flakes this generation's ‘breakfast of champions' is symptomatic of this age of hyper-commercialism, which has contributed to childhood obesity."

Parents feel inundated by the "seemingly relentless march of material that is too commercial, unhealthful, violent, or sexual for their children," charged Commissioner Adelstein, himself a parent. In addition to banning interactive marketing efforts (such as TV ads that point kids to websites), Commissioner Adelstein suggested the FCC should clarify its guidelines concerning what constitutes "educational content" for purposes of children's television regulations, and allocate resources toward educating the public on health and media issues.

FCC Commissioner Deborah Taylor Tate, who also spoke at the Vanderbilt conference, did not call for regulation but instead urged the private sector to continue to make self-regulatory strides. A member of the public-private Joint Task Force on Childhood Obesity, Commissioner Tate noted with approval efforts such as the Children's Food and Beverage Advertising Initiative, under which advertisers voluntarily agree to limit their advertising to primarily healthier food and beverage products.

Read Commissioner Adelstein's remarks, Commissioner Tate's remarks, and FCC Commissioner McDowell's remarks at the same conference at fcc.gov. 

Read more about the issue at broadcastingcable.com

State AGs Call for Voluntary BPA Ban From Baby Products

In the face of federal disagreement as to whether the chemical bisphenol A (BPA)  threatens the health of babies and young children, several state attorneys general have taken the matter into their own hands, and have asked baby product manufacturers to stop using the controversial chemical.

Connecticut Attorney General Richard Blumenthal, joined by the AGs of New Jersey and Delaware, sent a letter in October to 11 companies that manufacture baby bottles and formula, asking them to cease using BPA in their bottles and formula container liners.

"I am alarmed by recent studies confirming that BPA leaches from these products into the foods they hold," Blumenthal stated in the letters, which were sent to baby bottle manufacturers Advent, Disney First Years, Gerber, Dr. Brown, Playtex and Evenflo, as well as formula makers Abbott, Mead Johnson, PBM Products, Nature's One and Wyeth.

"Credible, escalating laboratory evidence demonstrates that even low dose exposure to BPA causes serious damage to reproductive, neurological and immune systems during the critical stages of fetal and infant development," the letter stated. "The preventable release of a toxic chemical directly into the food we eat is unconscionable and intolerable."

The AG's action comes at a time when the federal government appears to be at odds over how serious a threat is presented by the presence of BPA, which is used to harden plastics, and is contained in liners of canned goods.

In September, the National Toxicology Program of the National Institutes of Health released a report that concluded there is "some concern" that exposure to BPA can adversely affect development in fetuses and children. But this summer, the Food and Drug Administration stated that its data did not support the need to tighten safety standards regarding BPA content in children's products.
 
Read a summary of the state AG's action at ct.gov

Read about the NTP's report and more on the issue from the NIH at niehs.nih.gov.

View the FDA's draft report at fda.gov.

Read more about the issue at apnews.excite.com, " States ask baby product companies to avoid BPA", and at nytimes.com,  "BPA and the Donor" and "That Plastic Baby Bottle".

NAD Tells Juice Seller the Glass Is Half-Empty--To Discontinue Claims

In the heated contest for market share of antioxidant-rich drinks, it’s Pom Wonderful two, competitors nil.

The National Advertising Division recently reviewed claims by juice maker Bossa Nova Beverage Group, Inc. concerning its Acai Juice at the request of Pom Wonderful, LLC, which markets pomegranate juice drinks. The NAD concluded that Bossa Nova’s studies did not adequately substantiate claims that its drink was higher in antioxidants than Pom Wonderful’s drinks, and therefore should be discontinued.

Earlier this year, Pom Wonderful won a $1.5 million award in a false advertising suit against the Purely Juice company for claims the latter made concerning its “100% Pomegranate” drink.

The Bossa Nova case involved Bossa Nova Acai Juice, made from pulp from acai berries, which are indigenous to Central and South America.

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1.5 Million Bassinets and Cribs Recalled

Two infants were strangled to death in Simplicity brand close-sleeper-style bassinets, after their bodies slipped under a metal bar that runs along the portion of the bassinet that can be opened, but their heads remained stuck under the bar, the Consumer Product Safety Commission reported. Those deaths prompted the CPSC to issue a warning urging parents and caregivers to cease using Simplicity 3-in-1 and 4-in-1 bassinets that allowed for fabric covering the bar at issue to be folded down to create a co-sleeping position.

The CPSC issued the safety alert because SFCA Inc., which purchased all of Simplicity Inc's assets at a public auction in April, refused to recall the models at issue, the CPCS said. SFCA, an affiliate of the private equity fund Blackstreet Capital Partners, LLC, "maintains that it is not responsible for products previously manufactured by Simplicity Inc," the CPSC stated.

Following the CPSC's alert, six major retailers agreed to stop sale and to recall nearly 900,000 of the Simplicity bassinets identified to be dangerous. Some of the recalled bassinets included Graco and "Winnie the Pooh" brands as well, the CPSC later announced.

The bassinet recall was followed with more bad news for the Simplicity brand. In September, the CPSC announced the recall of 600,000 Simplicity drop-side cribs because of a "serious entrapment and suffocation hazard." Sizing problems with the crib's hardware can cause the drop side to come off its tracks, detach, and create a dangerous gap, the CPSC said.

This time, SFCA cooperated in the recall, according to a notice on Simplicity's website.

The recalls this fall follow the recall of 1 million Simplicity cribs in September 2007 because of failures that resulted in infant deaths, according to the CPSC. Two deaths occurred when the drop side of the cribs were installed upside down.

Read about the CPSC bassinet safety alert and subsequent recalls here, here and here

Read about the recent CPSC crib recall and about last year's recall at cpsc.gov. 

Read corporate information regarding the crib recall at simplicityforchildren.com. 

Read about the purchase of Simplicity's assets at reuters.com.  

Battle Over Baby Bottle Plastic Rages On

When it comes to the risk posed by bisphenol-A (BPA), the chemical used to make hardened plastic containers such as baby bottles, liners for canned goods, and other plastic items, government officials can't seem to agree.

In September, the National Toxicology Program (NTP), which is part of the National Institutes of Health, released a report concluding that there is "some concern" that exposure to BPA can adversely affect development of the prostate gland and brain, and may cause behavioral effects in fetuses and children.

"There remains considerable uncertainty whether the changes seen in the animal studies are directly applicable to humans, and whether they would result in clear adverse health effects," stated NTP Associate Director John Bucher. "But we have concluded that the possibility that BPA may affect human development cannot be dismissed."

The scarce data leaves consumers in the lurch, conceded Michael Shelby, Director of the NTP's Center for the Evaluation of Risks to Human Reproduction. "Unfortunately it is very difficult to offer advice on how the public should respond to this information," Dr. Shelby stated. "More research is clearly needed ...If parents are concerned, they can make the personal choice to reduce exposures of their infants and children to BPA."

But this summer, the Food and Drug Administration issued findings of its own, and appeared to land on the other side of the fence. The FDA issued a "Draft Assessment" of the use of BPA in food-related products in which it said its data did not support a need to upgrade safety standards: "FDA has concluded that an adequate margin of safety exists for BPA at current levels of exposure from food contact uses."

Nonetheless, the FDA pledged to consider the NTP's recent conclusions, and agreed with the call for further research. The diverging opinions at the federal level may invite state action; The New York Times noted that some states are considering bills to restrict the use of BPA in children's products.

Read about the NTP's report and read more about the issue at niehs.nih.gov. 

View the FDA's draft report at fda.gov.

Cold Supplement Seller Agrees to $30 Million Settlement

The makers of the Airborne dietary supplement have agreed to pay as much as $30 million to consumers to settle Federal Trade Commission charges that its makers made false and unsubstantiated cold prevention claims.

“There is no credible evidence that Airborne products, taken as directed, will reduce the severity or duration of colds, or provide any tangible benefit for people who are exposed to germs in crowded places,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection in a release.

In its complaint, the FTC cites Airborne advertisements in which speakers claimed the supplement cured their cold in an hour, was a “miracle cold buster,” and was created by a teacher who “was sick of catching colds in class.”

The supplement, which contains 17 herbs and nutrients, was widely sold by major retailers such as Wal-Mart, CVS, Walgreens and Costco; and was marketed on daytime television programming, and through magazines and celebrity endorsements.

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