FTC Continues Enforcement Actions To Stop Deceptive Free-Trial And Negative Option Schemes

The Federal Trade Commission (“FTC”) recently filed another case in a series of recent enforcement actions targeting allegedly deceptive online “free-trial” offers that tricked consumers into enrolling in negative option plans.

The FTC charged Gopalkrishna Pai and eight (8) companies he owns and operates as a common enterprise with violating the FTC Act and the Restore Online Shoppers’ Confidence Act (“ROSCA”) and defrauding consumers tens of millions of dollars. According to the FTC’s complaint, the defendants advertised free trial skin care products for a nominal shipping and handling charge, typically $4.99 or less. The online ads prominently touted “Risk Free” trial offers, with common pitches in the ads stating “RUSH MY FREE TRIAL,” “WAIT, You Qualify for a Risk Free Trial,” and “CLAIM YOUR FREE TRIAL.”

The FTC alleges that the defendants failed to disclose that consumers would be automatically charged full price for the products, as well as for monthly auto-shipments, unless they cancelled their orders within 14-15 days. Only by clicking the disguised small “Terms and Conditions” hyperlink in the ad and then scrolling through a pop-up window could consumers find this information. The defendants then charged consumers who ordered the “Risk Free” trial more than $90 and enrolled them in auto-shipment programs that cost over $90 per month. Further, without consumers’ consent, the defendants frequently charged consumers for additional products, enrolled them in additional auto-shipment programs and used an intentionally confusing check-out process that led consumers to unintentionally sign up for products they did not want. Finally, the defendants made it unduly difficult for consumers to cancel their enrollment in the auto-shipment programs, making it difficult for consumers to reach a customer service representative and, when successful in doing so, not allowing consumers to cancel their enrollment or get a refund.

Takeaway: As we have previously blogged, negative option plans continue to be an enforcement priority for the FTC, with strict guidelines for how they may be operated fairly and transparently for consumers. With both federal and state regulators continuing to pay attention to these hot areas, marketers considering negative option sales strategies should continue to be careful to follow all applicable rules.

 

FTC Stops Fake Job Opportunity And Resume Repair Operation

The Federal Trade Commission (“FTC”) recently charged two companies, Worldwide Executive Job Search Solutions, LLC and PrivateEquityHeadhunters.com and their owner Craig Chrest with violating the FTC Act and the FTC’s Telemarketing Sales Rule and swindling hundreds of thousands of dollars annually from consumers for fake job placement and resume repair services. At the FTC’s request in its complaint, the U.S. District Court for the Southern District of Texas stopped the defendants’ scheme by issuing a temporary restraining order and freezing the defendants’ assets during the pendency of the case.

The FTC alleges that the defendants sent consumers unsolicited messages through well-known business networking websites, such as LinkedIn, falsely claiming to have exclusive relationships with hundreds of private equity and venture capital firms and promising consumers that they were in fact excellent candidates for unadvertised, highly paid executive positions with these firms. The defendants deceived consumers with false claims that job seekers who used the defendants’ services had a 100% interview rate and over an 80% job placement rate. Enticed by the defendants’ false claims, many consumers paid upfront fees of $1,200 – $2,500 to secure interviews which, in the majority of instances, the defendants knew were for fake job opportunities.

In addition to this job opportunity scam, the defendants also deceptively sold purported resume repair services, falsely telling consumers that their resumes were deficient and that they would not be considered for lucrative jobs unless the defendants repaired their resume. As with the job opportunity scam, enticed by the defendants’ false claims, consumers paid fees of up to $1,200 for resume repair either for positions the defendants knew the consumers were not qualified for, regardless of any repair done to their resume, or job opportunities the defendants knew were fake.

Takeaway: As we previously blogged, the FTC appears to be continuing its 2018 agenda of bringing cases which show actual harm to consumers and imploring courts to issue injunctions and freeze assets to prevent further harm. This case is evidence of the FTC’s continued enforcement of deceptive practices that in fact harm consumers.

NAD Refers Advertising Claims Made By Mattress Maker To FTC

The National Advertising Division of the Better Business Bureau (“NAD”), the investigative unit of the advertising industry’s system of self-regulation, recently referred advertising claims made by Nectar Sleep, LLC for its Nectar Mattress to the Federal Trade Commission (“FTC”) after Nectar Sleep failed to respond to the NAD’s request to provide substantiation for its claims.

Competing mattress manufacturer Tuft & Needle, LLC brought an NAD action and challenged Nectar Sleep’s advertising claims, arguing that Nectar Sleep’s express claims (“LIMITED OFFER: $125 Off + 2 Free Pillows”) and implied claims (Nectar Mattress was previously sold at a higher price; Nectar Sleep’s pillows are available for purchase) were false and misleading to consumers. Tuft & Needle contended that Nectar Sleep’s advertising is intended to create an urgent incentive for consumers to purchase a Nectar Mattress, when in fact, there is no sale, as the advertised price point is always available to consumers.

Despite repeated efforts by the NAD, Nectar Sleep failed to provide a substantive response to NAD’s request for support for the challenged claims or to participate in any way in the self-regulatory process. As a result, NAD referred the matter to the FTC for possible enforcement action.

Takeaway: As we previously blogged, advertisers should be aware that their failure to meaningfully participate in an NAD action or comply with a self-regulatory decision by the NAD may lead the case to be referred to the FTC for enforcement action.

Join Reed Smith at the 2019 ANA Advertising Law & Public Policy Conference

On March 19-20, 2019, the Association of National Advertisers will be holding its annual Advertising Law & Public Policy Conference. This year’s conference will feature the best legal minds in the business and top regulators at the federal and state level who will be providing best practices, strategies, and tactics to counteract the current state of distrust that is permeating throughout the advertising ecosystem.

Reed Smith’s own Doug Wood (Partner, New York) will be co-chairing this year’s conference. In addition, Stacy Marcus, Chief Negotiator for the Joint Policy Committee (“JPC”) (Partner, New York) will provide a real-time update on the status of negotiations between the Screen Actors Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) and the JPC, and Keri Bruce (Partner, New York) will be moderating the Measuring Progress on Media Measurement panel.

The conference will take place at the Ritz Carlton in Washington, D.C.

To view the agenda and to register, please visit https://www.ana.net/conference/show/id/LAW-MAR19

We look forward to seeing you there.

Denver Club “Stripped” Carmen Electra and Others of Compensation, Suit Says

Carmen Electra, joined by models Dessie Mitcheson and Lucy Pinder, sued a Colorado strip club over the club’s allegedly unauthorized use of its photographs on its website and social media in late January of this year. The aggrieved trio claims that the Denver club “Shotgun Willie’s” posted photos of the models in online advertisements for the club in violation of the false advertising and false endorsement provisions of the Lanham Act and—in the case of Pinder—state common law rights of privacy and publicity. Their complaint accuses Shotgun Willie’s of “capitalizing on Plaintiffs’ goodwill by promoting Shotgun Willie’s and its activities and attracting clientele to Shotgun Willie’s, thereby generating revenue for the Defendant to the detriment of the Plaintiffs” and notes that “Defendant’s customers are the same demographic that view [the models’] images in print and online.” They seek actual and compensatory damages, disgorgement of any profits Shotgun Willie’s garnered as a result of its use of the disputed photos, attorneys’ fees, and treble damages under the Lanham Act. Shotgun Willie’s has yet to respond to the suit.

Takeaway: The Lanham Act authorizes an award of treble damages for intentional violations of the statute. Seeking enhanced damages may be more feasible where there is a known overlap of the plaintiffs’ and defendants’ consumers.

“Fiji Water Girl” Made Waves But Got Soaked, Alleges New Lawsuit

Model and meme icon Kelleth Cuthbert (real name Kelly Steinbach) became an overnight sensation as “Fiji Water Girl” after photobombing celebrities on the Golden Globes red carpet in January. Now, she is seeking to recover against Fiji Water Company and its parent company, The Wonderful Company, for allegedly misappropriating her likeness and violating her right of publicity following her viral success. According to the suit, filed recently in the Los Angeles Superior Court, Fiji Water initiated a marketing campaign using her image and “Fiji Water Girl” moniker on cardboard cutouts. Cuthbert alleges in the complaint that Fiji first attempted to offer “gifts to entice” the model to sign away her rights, and also that Fiji “pressured Steinbach into video recording a fake signing of a fake document to simulate Steinbach signing on as a Fiji Water Ambassador.” Fiji, in a later statement claimed “[t]his lawsuit is frivolous and entirely without merit. After the Golden Globes social media moment, we negotiated a generous agreement with Ms. Cuthbert that she blatantly violated. We are confident that we will prevail in Court. Throughout our history, we have had a sterling reputation working with talent.” Cuthbert seeks monetary damages and injunctive relief.

Takeaway: The right of publicity is an intellectual property right that protects against the misappropriation of a person’s name, likeness and other indicia of personal identity for commercial benefit. Advertisers are advised to obtain signed agreements with any persons whose likenesses are to be featured in marketing campaigns to avoid potentially costly lawsuits.

Model Misbehavior? Gigi Hadid Faces Copyright Suit Over Instagram Post

Gigi Hadid found herself sued for copyright infringement by New York photo agency Xclusive-Lee, Inc. over a photo the fashion model posted to her Instagram account. The disputed photo was of Hadid herself, smiling at the camera while wearing a blue denim jacket and matching shorts with silver heels, and was snapped by paparazzi. Xclusive-Lee claims to own the copyright to the image, and alleges that Hadid posted the photo to her 44 million Instagram followers in October 2018 “without the permission or consent of Xclusive,” and in doing so “violated Xclusive’s exclusive rights of reproduction and distribution.” Furthermore, the complaint accuses Hadid of having “first-hand knowledge” that copying and posting photographs to her social media accounts for which she does not have licenses constitutes copyright infringement. In support of this contention, Xclusive detailed another “nearly identical” case in which Hadid was sued in 2017 for copyright infringement rising from her social media posts. That case, Peter Cepeda v. Jelena Noura “Gigi” Hadid and IMG Worldwide, Inc., 1:17-cv-00989-LMB-MSN (E.D. Va. 2017) settled out of court before reaching discovery. Xclusive also noted at least fifty other examples of uncredited or unlicensed photographs that Hadid had posted to her Instagram at the time of filing. Hadid waived service earlier this month, but has not yet responded to the suit.

Takeaway: The subject matter of a photograph may not own the rights to that photograph. Especially in cases of high-profile individuals, posting and distribution of unlicensed photographs on social media can open the doors to copyright liability.

Webinar: What You Need to Know About Auto-Renewal Provisions in 2019

Jillian Petrera and Bretta Oluyede will be speaking on Tuesday, March 12th to the Association of National Advertisers. The free one-hour webinar, titled “What You Need to Know About Auto-Renewal Provisions in 2019” will explore the legal requirements for utilizing automatic renewals under the patchwork of federal and state laws and provide you with tools to mitigate the risk of substantial monetary settlements and penalties.

To register for this webinar, please click here.

Federal Court Tosses False Advertising Suit Against Trader Joe’s Alkaline Water

A California federal court granted Trader Joe’s motion to dismiss a false advertising lawsuit with regards to Trader Joe’s alkaline water, finding that all but one of plaintiff’s claims were non-actionable puffery, and granting plaintiff leave to amend the single remaining claim. Plaintiff alleged that Trader Joe’s alkaline water product labelling, which included numerous plus symbols and statements such as “ionized to achieve the perfect balance,” “refresh & hydrate,” “our Alkaline Water + Electrolytes is a drink that can satisfy,” and “Trader Joe’s Alkaline Water + Electrolytes is water and then some,” violated, in part, California’s Consumer Legal Remedy Act (“CLRA”), California’s Unfair Competition Law (“UCL”) and California’s False Advertising Law (“FAL”). In dismissing plaintiff’s claims, the court found that almost all of Trader Joe’s product representations were non-actionable, in that they either amounted to puffery – generalized assertion incapable of being proved false or of being reasonably interpreted as a statement of objective fact – or otherwise would not deceive a reasonable consumer. The court held that only Trader Joe’s representation that its alkaline water was 9.5 pH was potentially actionable, however in granting leave to amend this claim, the court held that plaintiff failed to plead its claim with sufficient particularity, finding that plaintiff’s claim is devoid of any basis for the assertion that such representation is false. In a footnote in the court’s order, the court sent a warning to plaintiff’s counsel reminding counsel that Rule 11 sanctions may be appropriate for bringing claims based on unsupported factual contentions.

Takeaway: Companies in the emerging alkaline water market – a market with a lack of data to support the notion that drinking alkaline water confers any benefits – may wish to limit their messaging to puffery.

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