Federal Court Enters FTC Settlement in Fake Prize Mail Scheme

Recently, a California federal court has entered into a stipulated order reflecting a settlement between the Federal Trade Commission (“FTC”) and a defendant charged with operating a mail fraud scheme. In September 2016, the FTC filed charges against Defendant Ian Gamberg and two other individuals, alleging that the group conspired to print and mail false prize notifications to hundreds of thousands of mostly elderly individuals, leading these individuals to believe that they had won a cash prize of $1 million or more.  These mailers included a request that the individuals return an approximately $25 “fee” to collect their cash prize.

Gamberg, who was allegedly responsible for executing the printing and mailing of the false prize notices, settled with the FTC and has been ordered to pay $1,400 of a deferred $800,000 judgment entered against him.  The FTC’s agreement to defer the majority of the judgment is contingent on the truthfulness of Gamberg’s financial disclosures.

Takeaway: Companies engaged in marketing and promotions involving contests and prizes should take care to ensure that print materials truthfully represent the nature of the promotion.  The FTC has undertaken an international effort to combat mass-mail fraud and companies should take proper steps to comply with FTC truth-in-advertising regulations.

 

Influencers and Advertisers Warned By FTC Over Instagram Posts

The Federal Trade Commission (FTC) announced this week that it sent more than 90 letters to social media influencers and advertisers, reiterating the need for influencers to “clearly and conspicuously” disclose their relationships with brands in social media posts that promote or endorse branded products. The FTC reviewed the Instagram posts of various unnamed celebrities, athletes and other influencers and sent the letters in response to petitions filed by public interest groups concerned with the lack of disclosures about such endorsement relationships.  Notably though, the staff did not predetermine in every instance whether the brand mention was in fact sponsored, as opposed to an organic mention – thus there may not have been a legal obligation by the influencer to make a disclosure at all.

The FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides), while not law, provide guidelines as to when endorsers and advertisers should disclose material connections. The FTC’s letters reminded the recipients about the concepts set forth in the Endorsement Guides and also provided the following insights into the FTC’s views about disclosures:

  • Consumers viewing posts in their Instagram streams on mobile devices typically see only the first three lines of a longer post unless they click “more,” and many consumers may not click “more.” Therefore, hashtags and links appearing at the end of a post may not be a “conspicuous” disclaimer.
  • Where there are multiple tags, hashtags, or links, readers may just skip over them, especially where they appear at the end of a long post. Therefore, influencers and advertisers should consider having disclosures at the beginning of posts or avoid burying them at the end of a post among a list of other hashtags or links.
  • Hashtags such as “#sp,” “Thanks [Brand],” or “#partner” may be confusing or unclear. Therefore, influencers and advertisers should carefully consider whether the intended audience of the post would understand the meaning of the hashtag or other disclosure used.

TAKEAWAY: The FTC and public interest groups are continuing to scrutinize influencer marketing and are paying special attention to disclosures in the mobile context. The FTC’s letters are a reminder that, regardless of the platform, both advertisers and their influencers are responsible, and may be liable, for making adequate disclosures about their material connections, unless the connection is already clear from the context of the communication. As we’ve noted before, the standard for “clear and conspicuous” disclosure is a performance standard, so if a substantial number of people are confused, the disclosure is not effective.

 

Diet-Pill Marketers Settle With FTC Over Email Marketing and Weight Loss Claims

Colby Fox and his companies Tachht, Inc. and Teqqi, LLC recently settled a case with the Federal Trade Commission over an email marketing scheme and claims regarding the companies’ diet pills.

According to the FTC, which filed the proposed order in the U.S. District Court for the Middle District of Florida, Tampa Division, the defendants paid affiliate marketers to illegally send millions of spam emails to consumers from hacked email accounts, masquerading as notes from the consumers’ family and friends.  Those emails contained links which directed consumers to websites for the defendants’ weight-loss products.  On those websites, the FTC alleged that the defendants made certain unsubstantiated claims, including that the products could cause weight loss of 17 pounds in four weeks, and that the products were featured or endorsed by Oprah Winfrey and the hosts of the television show “The Doctors.”  The defendants are required to pay a judgment of $500,000, which could be increased to as high as $1.3 million if it is determined that they understated their financial condition.  Additionally, the defendants are barred from making false and unproven weight-loss claims, must have competent and reliable scientific evidence to support any such claims in the future, and must not misrepresent celebrity endorsements.  In connection with the email marketing campaign, the FTC requires the defendants to monitor their affiliate marketers.

TAKEAWAY: Advertisers should be reminded that they can be liable for the actions of their affiliate marketers.  Additionally, this case serves as a reminder that both claims and endorsements by celebrities must be substantiated.

Upromise Penalized for Violating FTC Privacy Order Over Rewards Program

Upromise found itself in front of the Federal Trade Commission answering very tough questions earlier this month. The inquiry was related to a 2012 order requiring that Upromise include disclosures about data collection practices and conduct third-party assessments about Upromise’s data security safeguards.

The FTC alleged that Upromise failed to comply with the terms of the 2012 order while targeting consumers saving for college with a new toolbar called “RewardU.”  In 2012, the FTC alleged that Upromise’s TurboSaver toolbar collected information about users, including search terms, passwords, and credit card information, without disclosing the full extent of what was being collected.  The current order alleges that Upromise continued to engage in these practices.

Accordingly, the FTC assessed a $500,000 civil penalty, and also requires Upromise to permanently expire any RewardU-related cookies and tell users who downloaded the RewardU toolbar how they can uninstall the toolbar and delete associated cookies, along with obtaining third-party assessments of its security settings.

TAKEAWAY: Advertisers should be aware that many FTC orders include strict compliance and reporting requirements, which in this case extended for 20 years after the date of the original order.  The FTC can assess further penalties or obligations on advertisers for failure to comply with orders years after an original consent order was put in place.

 

 

For Media Transparency, The Stars Are Starting to Align in the United Kingdom

UK-based media agency, the7stars, recently announced it would adopt the Incorporated Society of British Advertisers’ (ISBA) template agency agreement—an arrangement designed to foster a transparent relationship between advertisers and media buying agencies.

Since K2 Intelligence released its report on the U.S. media buying industry in June—a report which detailed non-transparent business practices employed by media buying agencies to obtain and retain rebates and incentives—transparency has become the advertising industry’s buzzword.  What followed were revelations about media buying agencies that suggest transparency must become something more than a buzz word:  substantial overcharging for advertising inventory, secret settlements to avoid disclosure, and online ads placed with extremist propaganda videos.  the7stars commitment to transparency comes at a time when agencies in this industry desperately need to win back their clients’ trust and confidence.

ISBA, the UK trade association representing 450 UK advertisers, welcomed the move by the7stars to adopt its industry standard template, noting that such a move is vital for mending increasingly frosty  advertiser-agency relations, and serves as “a hugely important first step in providing UK advertisers with the tools to enable the clean and transparent media supply chain.”

Going forward, the question is whether other UK (and US) agencies will follow suit. Some of them will, quite understandably, resist change, but increasing pressure to focus on practices, procedures and tools to detect and eradicate advertising fraud may push all stakeholders to ISBA’s middle-ground agreement.  Change is in the air and we would expect more and more agencies to become receptive to the idea of adopting the ISBA standard or a variation thereof. Those who lead the way will undoubtedly be looked upon favorably by advertisers nervous about the current regime.

FTC Identifies Top Categories of Consumer Complaints for 2016

On Friday, March 3, 2017, the Federal Trade Commission (FTC) released its annual summary of consumer complaints—a compendium of complaints lodged over the course of 2016. These complaints are collected through the Consumer Sentinel Network (CSN), which is a database of millions of consumer complaints available to law enforcement agencies.

Of the over three million complaints received, CSN reported that Debt Collection complaints took the top spot, accounting for 28% of the complaints filed last year.  Imposter Scams surpassed Identity Theft as the second-most complained about conduct, leaving Identity Theft, Telephone and Mobile Services, and Banks and Lenders to round-out the top five.

The FTC attributed the increase in Imposter Scams complaints to the rise in complaints about government imposters—that is, scammers posing as government officials to extract money from unsuspecting consumers.  Worse, Imposter Scams were the top complaint filed by members of our armed forces.

Nearly 150,000 complaints were lodged over Prizes, Sweepstakes and Lotteries, making up 5% of the total complaints received in 2016.  Other categories receiving tens of thousands of complaints included Shop-At-Home and Catalog Sales, Auto-Related Complaints, Credit Bureaus, Information Furnishers and Report Users, and Television and Electronic Media.

CSN also categorizes the data it collects by state.  Florida, Georgia and Michigan consumers reported fraud more than any other state, and Florida, Michigan and Delaware were the states with the highest rates per capita of Identity Theft complaints.

Though consumer complaints dipped slightly in 2016—the first downturn in complaints in ten years—the number of consumer complaints filed still shows that consumers remain vigilant in policing fraud and scams in the marketplace.

Squeezing the Supply Chain: Premium Publishers Align with Advertisers in Fight to Clean Up Murky Digital Media Ecosystem

Advertisers aren’t alone in their quest to clean up the digital media ecosystem—this, according to an open letter penned by Digital Content Next (DCN) CEO Jason Kint.

Kint’s letter was in response to P&G Chief Brand Officer Marc Pritchard’s IAB speech last month, where Pritchard drew a line in the sand regarding the quality and transparency P&G will demand from its digital media buying agencies. Pritchard vowed that P&G would stop accepting excuses and asked that fellow marketers do the same: “[t]here is tremendous power in the collective force of our industry.”

Kint’s letter makes clear that some publishers are willing to do their part, too. DCN is a trade association of premium online publishers that includes the likes of Hearst, The New York Times and Turner. According to Kint, DCN publishers “heard [P&G’s] calls for human, viewable, third-party accredited inventory [and]. . .brand safety,” and are committed to taking meaningful steps toward building a trustworthy digital media ecosystem.

DCN publishers, Kint said, are only minimally impacted by bots (3%), embrace the Media Rating Council’s viewability and verification standards, and will work to foster transparency from start to finish in the digital media buying process. DCN’s commitment to transparency is palpable, having just launched the “TrustX” marketplace, which strives to meet the highest advertising industry standards for “performance, quality, security and privacy.” Kint concluded his letter by formally inviting P&G and leaders from the Association of National Advertisers to DCN’s next board meeting for the groups to discuss best practices and accelerate collaboration.

Certainly, the DCN alliance with marketers will help increase the pressure and scrutiny on digital media buying agencies. But whether the 80+ premium DCN publishers’ efforts will spur other publishers to take similar action in the marketplace remains to be seen.

Contractual Audit Rights: How to Overcome Real-Life Challenges Webinar

Douglas Wood, Partner at Reed Smith LLP, will be presenting a webinar on Contractual Audit Rights: How to Overcome Real-Life Challenges. Clear Law Institute will host the webinar, which you can attend live on February 27 at 1 p.m. ET or view a recording anytime after the event.  

 

You can receive a 35% discount off of the registration fee by using the discount code “friend35”.  Click here to learn more or register.

 

If you have any questions, please contact Clear Law Institute at 703-372-0550 or info@clearlawinstitute.com

 

“You’re Fired” – The Growing Fallout from Celebrity Rants

While the beginning of the Trump era started with debates over the size of crowds and immigration bans, last week was all about brands and their affiliation (or desire to be unaffiliated) with President Trump. Most recently, this issue came to the forefront when Under Armour’s CEO gave an interview on CNBC and called Trump “a real asset for the country.”  In response, several Under Armour celebrity spokespersons – Stephen Curry, The Rock and Misty Copeland – voiced their disapproval with the CEO’s comments.  While most people probably viewed this disapproval from a political lens, advertising/media lawyers immediately thought:  “I wonder what their contract says?”

It is highly unlikely that any of their contracts contain a provision that would allow the celebrity to terminate the contract because he/she doesn’t agree with the political statements of a company executive.  Such a provision isn’t practical or realistic from either party’s perspective.  Further, as the Rock wisely stated in an Instagram post, the statements of a corporate CEO are not necessarily the statements of the brand.  Things are more complex when dealing with a multi-national corporation.

On the other hand, almost all celebrity spokesperson agreements contain some type of “morals” or “behavior” clause.  Such clauses give the advertiser the right to terminate a contract if the celebrity does something material that could be damaging to the brand.  Nike did this with Maria Sharapova, Manny Pacquiao, Michael Vick and Lance Armstrong, to name a few.  Tiger Woods was reportedly dropped by Gillette, Accenture, AT&T, Gatorade and Tag Heuer.

While morals clauses vary and can be quite elaborate, a simple clause might read:

Advertiser shall have the right to terminate the Agreement if Spokesperson (1) commits an act which brings Advertiser into public disrepute, contempt, scandal or ridicule; or (2) makes disparaging statements about Advertiser or Advertiser’s products.”

(1) “Commits an act which brings Advertiser into disrepute, contempt, scandal or ridicule.”   From the advertiser’s perspective, if you’re paying a celebrity millions of dollars to endorse your brand, the celebrity should be on good behavior and not do anything to tarnish the brand’s reputation. That said, it wouldn’t be fair for a brand to terminate a contract for an act that has no true damaging impact on the brand.

  • What type of “act” will trigger the clause?
    • A celebrity will want the provision to be narrow and specific, such as “commits a felony or a crime of moral turpitude and is convicted by a court of law.” In response, an advertiser will argue that merely being “charged” with a crime should be sufficient for termination because it’s likely the term of the agreement will be over before the celebrity is tried or convicted for the crime. Also, from the advertiser’s perspective, the damage is done once the act is publicized.
  • What effect did the act have?
    • The celebrity will argue that the bottom line should be whether or not the brand is impacted. They would want the act to substantially diminish the value of the celebrity’s association with the advertiser. In response, the advertiser will argue that the damaging impact of the act should be decided in the advertiser’s sole discretion.
    • In all reality, however, if an advertiser has invested substantially in the ad campaign behind the celebrity, it is unlikely to terminate an endorsement deal for an act that will have little or no impact on the brand or its core values.  The more common approach is to deal with the aftermath through a concerted public relations campaign.

(2) “Disparages Advertiser or Advertiser’s products.” Why would an advertiser pay a celebrity only to have them say bad things about the brand? Here are some things to think about with this provision:

  • What does disparage mean?
    • The celebrity will want any provision to be narrow and specific, such as “Intentionally and knowingly makes disparaging public statements about Advertiser.” In response, the advertiser will assert that the intent of the celebrity is irrelevant. Further, the advertiser will argue that the disparagement doesn’t need to be of a public nature; even comments made in private can have an adverse effect on a brand if the comments are later disseminated to the public.
  • Who is being disparaged?
    • The celebrity will want to limit the disparagement to only the advertiser (i.e., the brand itself), and not to any individuals. In response, the advertiser will argue that disparagement of an “employee or officer” of the advertiser should trigger a termination right if such disparagement has a negative adverse effect on the brand.

What is notably absent from today’s morals provisions are express prohibitions on political speech. While it’s not uncommon to have an advertiser prohibit a celebrity from making statements or supporting causes that are antithetical to the advertiser’s business practices (for instance, a fashion brand that sells fur coats would not want its celebrity to publicly support PETA – People for the Ethical Treatment of Animals), if more advertisers become concerned with celebrities making public statements about their personal political views, such clauses may see changes.  There is no question that brands prefer to avoid publicity that is coupled with political rants that could alienate a brand’s purchasers (even if the brand’s leadership agrees with the celebrity’s viewpoint).  For most brands, politics is not part of their marketing strategy.

Avoid the Perfect Storm

Washington has been hit with a political Tsunami unlike anything we’ve seen in our lifetimes.  But you know that.  What you may not know is how this tidal wave is going to change your day-to-day operations in advising marketers and their supply chain.  You may not know what to expect and how to respond.  Need answers?  This year’s Annual Association of National Advertisers Advertising Law  & Public Policy conference on March 28-29 in Washington could not be more timely.  Reed Smith partner, Douglas Wood, is once again honored to co-chair it with Dan Jaffe, head of ANA’s Government Relations office.  Not only will it again be the top networking event among the highest level players in the industry, this year’s list of speakers includes critical movers and shakers you need to hear.  Meet regulators, influencers, and law enforcement folks like Rebecca Meiklejohn (U.S. Department of Justice Antitrust Division), Connecticut Attorney General George Jepsen, Acting FTC Chair Maureen Ohlhausen, Wall Street Journal reporter Suzanne Vranica, Carla Michelotti, and more.  Join top legal counsel from some of the world’s largest advertisers, including L’Oreal, American Express, Dell, Fiat Chrysler, Unilever, Subway, InterContinental Hotels, and Mondelez.  Interact with Ad/Fin Solutions, TubeMogul, and WhiteOps, key technology companies poised to offer solutions you need to know.  And, of course, hear from Dan Jaffe on what’s in store for all of us in Washington and from the world’s A-List of private practitioners.  Missing this conference may leave you and your clients in a perfect storm without a plan. 

 

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