Adlaw By Request : Advertising & Marketing Lawyer & Attorney : Reed Smith Law Firm : AdLaw By Request & KidAdLaw

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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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 8^th 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

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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

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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.

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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.

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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.

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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.

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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).

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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.

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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.

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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. 

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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.

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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.

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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.

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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.

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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.

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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?

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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.

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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.

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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).

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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.

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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.

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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.

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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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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.

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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. 

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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".

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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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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.  

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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.

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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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