FTC Sues Terry Somenzi Over Fake Prize Schemes

Last week, the FTC filed a lawsuit against Terry Somenzi and International Advisory Services, Inc., among other defendants, for an allegedly fake prize scheme in federal court. According to the FTC’s complaint, the defendants engaged in deceptive acts and practices by targeting thousands of elderly consumers, announcing in a personalized letter that the recipient had won a substantial cash prize of nearly $1 million promising that a “confirmed” or “guaranteed” prize was “awaiting disbursement” to the winner.  The cash prize notifications then instructed the winners to pay a $25 fee to collect their prizes, but no prizes were awarded.  The FTC is seeking an injunction against Terry Somenzi and the defendants, as well as restitution and refunds for affected consumers.

TAKEAWAY: Companies that wish to advertise sweepstakes and contests should avoid messages which suggest or imply that someone has won a prize, unless they are verified as a winner.  Additionally, companies should review post-consideration sweepstakes and contest laws when determining whether they wish to impose a fee on a winner in exchange for accepting a prize.


The ANA is hosting a contract workshop for Advertiser/Agency Agreements on October 4

The ANA will be hosting a contract workshop for Advertiser/Agency Agreements on October 4, 2016. The workshop, taught by Doug Wood and Keri Bruce, will cover key issues in the advertiser/agency contract related to agent versus principal status, incorporating transparency, audit rights and contract governance.

Join us for this free training session.

Find out more here.

FDA Guides Industry For Use Of “Healthy” On Food Packaging

Yesterday, the Food and Drug Administration (“FDA”) announced guidance regarding using the term “healthy” in the labeling of human food products. As background, the FDA issued final rules updating the Nutrition Facts label and serving size information for packaged foods this past May.  Those rules require that the Nutrition Facts label include changes in the individual nutrients that must be declared and also changed the daily value of other individual nutrients.  In light of those changes, the FDA is now recommending to the industry that any food which claims “healthy” on its package meet the low fat requirement, provided that: (a) the amount of mono- and polyunsaturated fats are declared on the label; and (b) the amounts declared constitute the majority of fat content.

Additionally, the current requirement that “healthy” products must contain at least 10% of the daily value (“DV”) per serving of vitamin A, vitamin C, calcium, iron, protein or fiber, is now modified such that companies may make a “healthy” claim if the food instead contains at least 10 percent of the DV per serving of potassium or vitamin D.

TAKEAWAY: The use of the word “healthy” is frequently used in advertising, and is currently being litigated.  Although the FDA guidance is for packaging only, advertisers may wish to use this guidance when making “healthy” claims about their products in advertising.

Federal Court Holds That Casino In Video Game App Is Not A Gambling Device

A Federal court in Illinois dismissed a class action lawsuit against Machine Zone, Inc. Machine Zone is the maker of the popular “Game of War” mobile app.  Although the app can be downloaded for free, a portion of the game, known as the “Casino” permits players to receive free spins on a virtual wheel.  A player may click the “play” button to spin the wheel for a chance to win a prize as indicated on the wheel.  Following a free spin, a player may exchange chips for additional spins.  Chips can be obtained through a variety of manners, including purchasing them for money via in-app purchases.  The plaintiff spent hundreds of dollars on in-app purchases to obtain chips to play in the casino.  The plaintiff alleged that Machine Zone was operating a gambling device which resulted in a loss greater than $50 in violation of the Illinois Loss Recovery Act (“ILRA”) and the Illinois Consumer Fraud and Deceptive Business Practices Act (“IFCA”).

To prove a violation of these statutes, the plaintiff must show that the defendant was the winner of the plaintiff’s gambling losses.  The court concluded that the plaintiff’s allegations do support a finding that Machine Zone violated state law because Machine Zone was not the “winner” of the plaintiff’s gambling losses.  Rather, Machine Zone keeps the money a player pays to buy additional chips, regardless of the prize the player wins in the casino.  The plaintiff therefore does not win or lose that money.  Importantly, the court determined that Machine Zone is not putting any of its own money at risk in the game – simply a risk of potential future sales.  Since the plaintiff did not propose additional pleadings, the case was dismissed with prejudice.

TAKEAWAY:  Companies that offer in-app purchases to participate in casino-style games may not run afoul of state gambling laws because these games do not constitute gambling devices if the company does not risk their own money as part of the game.  Put differently, if a player cannot use his or her winnings for cash, a company may not be offering a gambling device.  A careful analysis of state gambling statutes, however, will be required to determine if the Illinois court’s holding would be instructive for other states’ gambling laws.

New York Marathon Settles Illegal Lottery Litigation

Last week, the New York Road Runners (“NYRR”) settled a class action lawsuit regarding their famed New York City Marathon and other New York-area races. The class action lawsuit was filed in March 2016, alleging that NYRR charged prospective runners a non-refundable processing fee of up to $11, whereby the entrants had a chance to win the right to participate in the marathon or half marathon.  In connection with the settlement, NYRR will issue race credits to certain runners for the non-refundable fees paid.  For the next three years, NYRR will not charge any fee to an individual to enter a drawing for a non-guaranteed entry into its races, nor will NYRR apply for a license to conduct a lottery in New York.  Interestingly, NYRR will disclose that for the next three years, it will select runners based on specific criteria, including promotion of geographic diversity, among other factors.  NYRR will also make a $100,000 donation to the City Parks Foundation and pay legal fees to plaintiff’s counsel not to exceed $650,000.

TAKEAWAY:  Random drawings with a purchase must have a non-purchase method of entry.  Importantly, purchases made should be for goods or services, and not solely for the chance to win a prize.


Autozone Sued Over Its Loyalty Program

Late last week, a class action lawsuit was filed in California state court against AutoZone. The case was filed pursuant to AutoZone’s rewards program.  According to the complaint, AutoZone’s loyalty program provides consumers with a “reward credit” for each purchase they make over $20.  After five credits, consumers would allegedly receive a $20 reward, which they could use for AutoZone purchases.  The plaintiffs allege that AutoZone subsequently created an expiration policy – noting that the reward credits accumulated expire after 12 months and the $20 reward expires after three months.  AutoZone, according to the complaint, did not adequately disclose the change to its program.  The plaintiffs, among other claims, are alleging breach of contract and violations of the California False Advertising Act and Unfair Competition Law.

TAKEAWAY:  Many advertisers are well-aware that state and federal laws expressly permit expiration dates on gift cards received in connection with loyalty programs.  However, companies that wish to start applying expiration dates to certain gift cards should take care to clearly and conspicuously communicate such changes to their members.

More to Say? Twitter To Allow Longer Tweets Starting September 19

Starting September 19, 2016, Twitter users will be able to say more in their Tweets.  As it stands, Twitter limits Tweets to 140 characters – and every character, including images, videos and URLs – count towards this limit.  Beginning next week, Twitter will eliminate the types of content which count against its 140 character limit.  Specifically, media related attachments, including images and videos, usernames (@replies) and quoted Tweets will no longer impact the character count.

TAKEAWAY: Advertisers engaging in social media campaigns, including sweepstakes and contests, will now have additional character space to communicate their messages to consumers.  The increased space for communication via Tweet provides more room for advertiser’s to comply with potentially applicable disclosure requirements.  Advertisers may wish to reassess their disclosure practices on Twitter to ensure compliance with FTC guidelines, sweepstakes laws and truth in advertising laws.

House of Representatives Passes Consumer Review Fairness Act and Better Online Ticket Sales Acts

The House of Representatives passed two bills last week relevant to the advertising industry: the Consumer Review Fairness Act and the Better On-line Ticket Sales Act (“BOTS Act”).

The Consumer Review Fairness Act is aimed at protecting consumers who write online reviews on certain websites, by invalidating “form contracts” which would impede those reviews from being made. The bill also prohibits contracts which transfer or require “an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.”  Examples of this conduct cited in the media include wedding planners who require their clients to sign non-disclosure/non-disparagement agreements, hotels which require guests to sign certain form non-disparagement agreements upon check-in, and apartment complexes who have included language in leases which claim to own all intellectual property in reviews made by their tenants.  The bill empowers the Federal Trade Commission to consider a violation of this bill (to the extent it becomes law) as an unfair or deceptive act pursuant to Section 5 of the FTC Act.

The BOTS Act prohibits the sale or use of certain software to circumvent control measures used by Internet ticket sellers in order to ensure equitable access to tickets for various events. Specifically, the bill prohibits both: (a) the use or sale of the software to circumvent security measures or control systems established on a ticket seller’s website that is used to ensure equitable consumer access to tickets for events; and (b) selling tickets which are knowingly obtained by someone who used or sold such software.  A violation of this bill (to the extent it becomes law) is deemed an unfair or deceptive act or practice pursuant to the FTC Act.  Additionally, an injured person may seek damages plus statutory damages of $1,000 for each distinct use or sale of the software in violation of the bill.  Finally, the BOTS Act amends the fraud section of the federal criminal code, making such conduct a criminal offense.

TAKEAWAY:  Since both bills have implications for several clients, we encourage you to keep updated on these bills, as the passage of these bills may require changes to business practices and revisions to contracts.

Dun & Bradstreet Settles TCPA Class Action Lawsuit for $10 Million

Late last week, Dun & Bradstreet Creditability Corp. and its related entities settled a class action lawsuit. In the lawsuit, the plaintiffs alleged that Dun & Bradstreet violated the Telephone Consumer Protection Act (“TCPA”) by using an automatic dialing system to call cellular phones without prior express consent of the plaintiffs. As part of the settlement, neither party admitted wrongdoing. If the court approves the settlement, a $10.5 million fund will be established to be distributed among the class. Additionally, the defendants initiated certain practice changes that are designed to prevent TCPA violations in the future.

TAKEAWAY: This case serves as a reminder to advertisers who engage in telemarketing campaigns. Advertisers should take care when engaging in these campaigns, as the costs of litigation and settlement can become expensive.

NBA Team Sued By Fans Over Mobile Application

Earlier this week, a putative class action was brought against the NBA’s Golden State Warriors concerning the team’s mobile application. According to the complaint, the free app provides an interactive experience for fans by delivering scores, news and other information relevant to the Golden State Warriors. The plaintiffs allege that the app contains certain Bluetooth beacon software that allows the Warriors to target specific consumers and send them tailored content, promotions or advertisements based on their location.

The app allegedly listens for audio beacons by secretly activating a consumer’s built in microphone in their mobile device (regardless of whether the consumer is using the app). The app then listens to and records all audio within range, including consumer conversations. The plaintiffs contend that they were not informed, nor did they consent to this technology. Accordingly, the plaintiffs are asserting a violation of the Electronic Communications Privacy Act, and seeking statutory damages and injunctive relief.

TAKEAWAY: Companies developing apps should understand the tracking technology used for geo-targeting or other behavioral advertising so as to ensure that they clearly communicate such technology to consumers, and, if applicable, offer opt-in/opt-out options.