FTC Announces Two More Actions Enforcing The Consumer Review Fairness Act

Last month, the Federal Trade Commission (“FTC”) announced two new actions under the Consumer Review Fairness Act (“CRFA”) against companies that allegedly used non-disparagement provisions in consumer “form contracts” in connection with their respective services to rent properties. These two actions follow the FTC’s inaugural CRFA actions against three companies last month, which we previously wrote about here.

According to the FTC’s complaints, the two companies had contracts with consumers that barred the consumers from posting negative reviews about the property or companies. The agreements also stated that a breach of the provision would result in liquidated damages.

The FTC’s proposed consent orders prohibit the companies from offering a form contract to any consumer that contains a review-limiting contract term or requires that a customer accept such terms as a condition of the company complying with the contract. Furthermore, the orders require the companies to notify affected consumers that the challenged contract provisions are void, and that they have the right to post honest reviews online. Lastly, the proposed orders impose compliance and reporting requirements on the companies.

Takeaway: The FTC is making CRFA enforcement a priority. Advertisers should take note and ensure that their consumer form contracts do not violate the terms of the CRFA by prohibiting or restricting consumers’ rights to post honest reviews, and that they do not impose penalties on consumers for exercising that right.

FTC Continues Enforcement Against Deceptive “Free” Trials and Negative Option Plans

Last month, the Federal Trade Commission (“FTC”) announced settlements with operators of a worldwide negative option scam, in which online marketers deceptively advertised “risk free” trial offers of its products, but charged consumers full price for the trial products and automatically enrolled them in negative-option continuity plans without their knowledge or consent.

As we previously wrote about here, the defendants engaged in allegedly deceptive practices in the marketing and sale of skincare products, electronic cigarettes, and dietary supplements. While the defendants claimed to offer free trials of their products for $4.95 or less, in actuality, consumers who accepted the trial offers were charged as much as $98.71 for a single shipment and enrolled in continuity plans. The FTC alleged that these deceptive sales practices violated Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (“ROSCA”) and the Electronic Fund Transfer Act (“EFTA”).

The FTC’s orders (1) prohibit the defendants from advertising “risk free” trial offers when in actuality consumers will be charged full purchase prices and enrolled in continuity plans; (2) require that the defendants provide clear and conspicuous disclosures to consumers and obtain their express informed consent before charging them for a transaction that includes a negative option feature; (3) require the companies to provide consumers with a simple mechanism for cancelling the product or service; and (4) require that the defendants receive written authorization from consumers before making any electronic fund transfers. Lastly, the orders impose $48.1 million and $123.1 million judgments respectively against the defendants, which will be partially suspended upon reduced payments to the Commission.

Takeaway: Negative option plans continue to be an enforcement priority for the Commission and this case serves as an important reminder that this FTC will be looking to obtain real money damages against advertisers.

 

FTC and Law Enforcement Partners Join Forces To Wring Out Illegal Robocalls

Last month, the Federal Trade Commission (“FTC”) and its law enforcement partners announced their joint crackdown on illegal robocalls entitled, “Operation Call it Quits.” The operation is part of the FTC’s ongoing effort to stop the “universally loathed pre-recorded telemarking calls.”

“Operation Call it Quits” includes 94 enforcement actions targeting operations around the country that are responsible for more than one billion calls pitching a variety of products and services. The latest operation includes four new cases and three new settlements from the FTC, which include: (1) a $25.3 million financial judgment against Lifewatch, and an $8.9 million financial judgment against two of its business partners, who were accused of bombarding primarily elderly consumers with at least one billion unsolicited robocalls to pitch “free” medical alert systems; (2) a case involving robocalls to financially distressed consumers, especially elderly consumers, who were offered bogus credit card interest rate reduction services; (3) a case where consumers were charged up to $22,500 for fraudulent money-making opportunities; (4) a case where the defendants dialed millions of phone numbers on the Do Not Call registry in an attempt to develop leads for home solar energy companies; and (5) a case involving the use of an autodialer to send out millions of illegal robocalls and calls to numbers listed on the Do Not Call registry.

In addition to the FTC’s actions, 25 federal, state and local agencies lodged 87 enforcement actions as part of the initiative.

Takeaway: This joint effort by the FTC and local and state officials illustrates that combatting robocalls remains a top priority, especially where consumers experience harm from falling victim to such scams.

 

Vaping Companies Take a Hit From The FTC and FDA Over Social Media Endorsements

Earlier this month, the Federal Trade Commission (“FTC”) and the U.S. Food and Drug Administration (“FDA”) issued joint warning letters to four companies that market flavored e-liquid (vaping) products. The letters cite postings by influencers on social media sites endorsing the companies’ products and state that the influencers’ posts failed to include a required nicotine warning and a disclosure as to the influencers’ “material connection” to the companies.

According to the FDA, the featured e-liquids were “misbranded” because the social media posts failed to include a mandatory nicotine warning statement, in violation of the Federal Food, Drug, and Cosmetic Act (FD&C Act). Specifically, under the FD&C Act, all advertisements for e-liquids must bear the following warning: “WARNING: This product contains nicotine. Nicotine is an addictive chemical.” The letters also warned the marketers of their responsibility to ensure that their products and all related labeling and/or advertising on their websites or on any other websites or media in which the companies advertise comply with each applicable provision of the FD&C Act.

The FTC determined that the companies’ failures to disclose the presence of and risks associated with nicotine in their social media posts raised concerns that the posts could violate the FTC Act. Also, the FTC reminded the companies that all endorsements by social media influencers must adhere to the FTC’s Endorsement & Testimonial Guidelines by clearly and conspicuously disclosing any material connection between the endorser and the companies. As such, the FTC urged the companies to review their social media marketing to ensure compliance with the Guides. The FTC also suggested that if the companies have a social media policy, they should evaluate how it applies to the posts identified in the warning letters and posts by other endorsers. If the companies do not have such a policy, the FTC urged them to consider implementing one that provides appropriate guidance to endorsers.

Takeaway: These FTC/FDA warning letters underscore the fact that the FTC and FDA share joint jurisdiction over food, drug, cosmetic and tobacco claims made in social media posts. Their joint enforcement effort in this area coincides with the general Congressional view that vaping amongst teens is a major issue in need of regulation.

 

FTC Seeks Public Comments to Children’s Online Privacy Protection Rule

Last week, the Federal Trade Commission (“FTC”) announced it is seeking public comment on the effectiveness of amendments made by the agency in 2013 to the Children’s Online Privacy Protection (“COPPA”) Rule, and whether additional changes are needed. In connection with this initiative, the FTC will hold a public workshop on October 7, 2019.

COPPA requires certain websites and other online services that collect personal information from children under the age of thirteen to provide notice to parents and obtain verifiable parental consent before collecting, using, or disclosing personal information from these children.

While the FTC generally reviews its rules every ten years, FTC Chairman Joe Simons explained the reasoning behind the agency’s escalation of its review of the COPPA Rule: “In light of rapid technological changes that impact the online children’s marketplace, we must ensure COPPA remains effective. We’re committed to strong COPPA enforcement, as well as industry outreach and a COPPA business hotline to foster a high level of COPPA compliance. But we also need to regularly revisit and, if warranted, update the Rule.”

The FTC has identified certain categories of questions in which it will be seeking public comment:

  • Has the Rule affected the availability of websites or online services directed to children?
  • Does the Rule correctly articulate the factors to consider in determining whether a website or online service is directed to children, or should additional factors be considered? For example, should the Rule be amended to better address websites and online services that may not include traditionally child-oriented activities, but have large numbers of child users?
  • What are the implications for COPPA enforcement raised by technologies such as interactive television, interactive gaming, or other similar interactive media?
  • Should the Commission consider a specific exception to parental consent for the use of education technology in schools?
  • Should the Commission modify the Rule to encourage general audience platforms to identify and police child-directed content uploaded by third parties?

The FTC’s review of the COPPA Rule could have tremendous implications for social media and those operating general interest websites. You can be sure we will be following this area closely in the months to come. Be sure to subscribe to our future client alerts for further updates.

ICO Regulation Update on Real Time Bidding and Adtech: What Your Next Steps Should Be

On 20 June the ICO (the Information Commissioner’s Office), the UK privacy regulator, released an ‘Update Report’ on real-time bidding (RTB).

These summaries throughout the last week may have you questioning how serious this is and what, if anything, your next steps should be.

Visit reedsmith.com to learn more about the actions you should take and what’s next.

FTC Announces First Actions Enforcing The Consumer Review Fairness Act

Last month, the Federal Trade Commission (“FTC”) issued three separate proposed administrative complaints and orders enforcing the Consumer Review Fairness Act (“CRFA”) – the first enforcement actions since the CRFA went into effect in March 2017. The CRFA prohibits businesses from using “form contract” provisions that bar consumers from writing or posting negative reviews online, or threatening them with legal action if they do.

According to the FTC’s complaints, the three companies had contracts with consumers which barred the consumers from posting negative reviews about their products or services. The agreements also contained confidentiality provisions, which stated that information gained by the consumer over their use of the products or services was confidential, and a breach of that provision resulted in liquidated damages.

Under the FTC’s proposed settlement orders, the companies are each prohibited from offering a form contract to any consumer that contains a review-limiting contract term or requires that a customer accept such terms as a condition of the company complying with the contract. Furthermore, the orders require the companies to notify all consumers with contracts containing allegedly illegal non-disparagement clauses that such provisions are void and of no effect. Lastly, the companies agreed to create and maintain certain records, submit compliance reports, and subject themselves to compliance monitoring by the FTC.

Takeaway: The FTC’s enforcement of the CRFA means advertisers must be sure to carefully review their consumer contracts and online terms and conditions to verify that they do not contain any provisions limiting consumers’ rights to post fair and honest reviews.

 

FTC and state law enforcement officials announce initiative targeting illegal telemarketing

The Federal Trade Commission (FTC) announced a joint state-and-federal initiative, “Operation Call It Quits,” which targets illegal telemarketing practices that violate the FTC’s Telemarketing Sales Rule (TSR).

The TSR, which applies to interstate telephonic marketing communications intended to “induce the purchase of goods or services or a charitable contribution,” makes it illegal to engage in “abusive” acts and practices like failing to transmit caller identification information, calling telephone numbers listed on the National Do Not Call Registry, and using certain types of prerecorded messages or “robocalls.” The TSR also makes it illegal to engage in “deceptive” acts and practices while on a telemarketing call, like processing billing information without authorization, failing to fully disclose certain information before a customer consents to pay for goods or services, and misrepresenting material details of a sale. As part of this latest sweep of TSR enforcement, the FTC announced four newly filed actions:

  • In the first action, the FTC filed suit in the U.S. District Court for the Middle District of Florida against corporate and individual defendants alleged to have made illegal robocalls to “financially distressed consumers” with offers of “bogus credit card interest rate reduction services.”
  • In the second action, the FTC filed suit in the U.S. District Court for the Central District of California against individual and corporate defendants accused of using illegal robocalls to sell “fraudulent money-making opportunities.”
  • The third action, filed on the FTC’s behalf by the U.S. Department of Justice (DOJ) in the Middle District of Florida, targeted the “informational technology (IT) guy” alleged to have developed and operated computer-based “autodialer” technology used to make millions of illegal robocalls.
  • The fourth action, filed by the DOJ on the FTC’s behalf in the U.S. District Court for the Central District of California, alleges that a business and its individual owners sought to develop marketing leads for home solar energy companies by making millions of illegal robocalls and engaging in other abusive practices, including making more than 1,000 calls to a single telephone number in one year.

In addition to these newly filed actions, the FTC announced related efforts by state Attorneys General, state consumer protection and tax agencies, local municipalities, and other law enforcement partners.

Comment:

This latest round of state-and-federal enforcement highlights the FTC’s ongoing efforts to stamp out violations of the TSR. It also demonstrates the substantial risk faced by organizations that perform everyday marketing and customer service functions over the phone. Judgments and consent orders for alleged TSR violations routinely result in penalties of multiple millions of dollars – and sometimes reach tens of millions of dollars. In addition to compliance with the TSR, businesses engaged in telemarketing must be mindful of related Federal Communications Commission (FCC) regulations that, among other things, make most telemarketing robocalls to cellphones illegal. In this enforcement climate, it is helpful for organizations that communicate with consumers by phone to: (i) consider which of their marketing and customer service practices implicate the TSR and related FCC’s telemarketing regulations; (ii) review and update their compliance procedures consistent with current FTC and FCC requirements; and (iii) perform related risk assessments.

FTC Settles Case For $25 Million With Dietary Supplement Sellers Over Cognitive Claims

Last month, the Federal Trade Commission (“FTC”) settled charges against 12 companies who deceptively marketed “cognitive improvement” supplements by using sham news websites containing false and unsubstantiated efficacy claims, referencing non-existent clinical studies, and advertising fraudulent consumer and celebrity endorsements.

According to the FTC’s complaint, the defendants falsely claimed that their dietary supplements could enhance users’ focus by as much as 300%, boost brain power by as much as 89.2%, increase users’ IQ by as much as 100%, and prevent memory loss and increase short and long-term memory in persons experiencing cognitive decline due to age. The defendants’ ads also falsely claimed that the supplements had been tested in over 2,000 clinical trials. The FTC alleged that these claims were made on the defendants’ own websites, as well as through the websites of at least 36 third-party affiliate networks – many of which were deceptively formatted to look like real news sites. These advertorials included sham testimonials from consumers and falsely attributed the achievements of such celebrities as Bill Gates, Elon Musk, and Stephen Hawking to the defendants’ products.

Even though the defendants’ advertisements claimed that consumers could try the products “risk free” and that it came with a “100% Money Back Guarantee,” consumers only received a partial refund because they paid out-of-pocket for return shipping, paid an inadequately disclosed restock fee per bottle, and were not reimbursed for the original shipping and handling fees. In some instances, the defendants failed to issue consumers refunds altogether despite assurances from customer service that the refunds were being processed.

Under the FTC’s orders, the defendants are prohibited from making certain disease claims and several cognitive performance claims related to the products, unless they have competent and reliable scientific evidence to support the claims when they are made. Furthermore, the defendants are prohibited from making specific misrepresentations related to endorsements including that: (1) any person is an objective news reporter with respect to the endorsement message provided; (2) purported customers or celebrities who appear in the advertising achieved a reported result by using any of the covered products; and (3) persons depicted in advertisements, including experts, consumers, and celebrities, are providing objective, independent opinions about the efficacy of the products. Additionally, the defendants are barred from misrepresenting clinical evidence and sham websites as objective news reports.

TAKEAWAY:  The FTC will continue to be vigilant in policing the dietary supplement industry, and will also seek significant monetary relief against companies it believes deceives consumers.

iSpring Water Settles Case With FTC For “Made In The USA” Claims

The Federal Trade Commission (“FTC”) announced that it reached a settlement with iSpring Water Systems, LLC for allegedly making false claims that its wholly imported Chinese water filtration systems were made in the U.S.A – in violation of a 2017 FTC consent order.

In 2017, the company made certain claims that its water filtration systems and parts were “Built in USA,” “Built in USA Legendary brand of water filter,” and “Proudly Built in the USA.” According to the FTC, these products were imported or were made with a significant amount of imported parts. In the FTC’s 2017 consent order, which we previously wrote about here, iSpring agreed not to make unqualified claims that its water filtration systems were made in the U.S.A. unless it could substantiate those claims.

Now, the FTC alleged that iSpring violated the consent order by advertising that the imported products were “made in USA” or “designed and crafted in USA.” The FTC’s settlement includes a $110,000 penalty, an admission of liability, and a requirement to notify consumers.

TAKEAWAY:  This case signals the FTC’s continuing interest in policing “made in the USA” claims and serves as an important reminder to marketers to comply with any consent order that it enters into with the FTC to avoid severe civil penalties.

 

LexBlog