FTC Settles With Hotel Room Resellers Over Alleged Misrepresentations

Reservation Counter, LLC and its parents companies have settled Federal Trade Commission charges that they misrepresented hotel bookings and credit card charges to consumers.

The proposed order bars the defendants from future conduct including leading consumers to believe incorrectly that they are communicating directly with hotels to book rooms. As a result, the defendants may not use hotel logos in advertising in a misleading way or put their own phone number near a hotel’s name, logo, or address so as to imply that the consumer is calling the hotel. The defendants must also be clear and not misleading about when consumers’ credit cards will be charged, and disclose if they will be charged immediately rather than upon arrival at the hotel.

While the proposed order does not include a monetary penalty, the defendants must comply with the injunctive provisions as well as recordkeeping and reporting requirements.

The FTC lodged the complaint as part of its efforts to ensure that consumers receive clear, accurate information about hotel bookings in order to make informed choices.

Takeaway: Advertisers and marketers should be aware that the FTC is keeping a close watch on deceptive implied claims, which include misleading juxtaposition of logos, false implied associations, and not being sufficiently clear about who the advertiser truly is. We recommend being aware of and ensuring the accuracy of possible implied claims as part of any advertising claim review.

 

Maine Supplements FTC Weight-Loss Enforcement Action

Marketing Architects, Inc. (“MAI”), an advertising agency specializing in direct response radio and television ads, will pay $2 million in equitable relief to the Federal Trade Commission (“FTC”) and the Office of the Attorney General of Maine for allegedly creating and disseminating deceptive radio ads for weight-loss products AF Plus and Final Trim. The joint complaint alleges violations of the FTC Act and Maine’s Unfair Trade Practices Act, including false advertising, deceptive format, and failure to adequately disclose automatic enrollments in continuity plans.

MAI creates weight-loss ads for its client, Direct Alternatives (“DA”), such as Puranol, Pur-Hoodia Plus, PH Plus, Acai Fresh, AF Plus, and Final Trim. MAI previously created similar weight-loss radio ads for Sensa Products, LLC (“Sensa”), which was the subject of a similar FTC action in 2014.  DA settled with the FTC and Maine for making false and unsubstantiated weight-loss claims and deceptively marketing risk-free offers two years later.  The joint complaint against MAI alleges MAI had acknowledged receipt of the Sensa order and was also warned by DA and radio stations of the importance of substantiating health claims.   

The order prohibits MAI from misrepresenting the existence or outcome of tests and studies, customer testimonials, the true nature of paid commercial advertising, and facts material to the sale of products related to return or cancellation policies, “free trials,” and auto-billing subscriptions. It also requires MAI to substantiate its weight-loss claims and to obtain express informed consent from consumers.  MAI will deliver a copy of the order to all parties related to MAI and its advertising, marketing, distribution, and sale of dietary supplements, food, and drugs for the next twenty years.

Takeaway: The FTC occasionally brings joint enforcement actions with state attorneys general, so advertisers should be wary of violating “little FTC Acts” of states in addition to the FTC Act. In particular, advertisers should be especially cautious when making identical or similar claims for future clients that were previously found to be unsubstantiated in connection with former clients.

 

 

Kentucky Fried Justice: Court Dismisses KFC Bucket Dispute

A New York District Court dismissed the complaint of Anna Wurtzburger against fast food staple KFC over the size of KFC’s $20 “fill up” bucket. Wurtzburger alleged she purchased KFC’s “fill up” bucket meal advertised as consisting of “an eight piece bucket of chicken,” relying on the advertisement’s depiction of a bucket that may have appeared to be overflowing with chicken.  However, when she received the meal and discovered that the bucket’s eight pieces of chicken did not fill the bucket to the rim, she sued KFC under New York’s General Business Law §§ 349, 350 and the federal Food, Drug, and Cosmetic Act for purportedly misleading consumers.  She claimed that KFC either should have used a smaller bucket such that the eight pieces of chicken would have filled it to the rim, or given her more chicken than the bargained-for eight pieces to fill the larger bucket.

The Court balked at Wurtzburger’s allegations and granted KFC’s motion to dismiss for failure to state a claim. It held that the Complaint’s assertion that the bucket of chicken Wurtzburger purchased could hold more chicken than the eight pieces she paid for was simply insufficient under the statutes.  Using an objective reasonable consumer standard, the Court found KFC’s alleged practice of using a larger than necessary bucket is not materially deceptive or misleading “especially when the consumer ordered, purchased, and received the precise number of items requested.”  As consumer protection actions go, this one flew the coop.

Takeaway: Allegations that product packaging could hold more product than they actually contain, without more, are insufficient to state a claim under New York’s consumer protection statutes.

Illinois Biometric Lawsuit Against Facebook Moves Through Court System

A 2015 lawsuit brought by Facebook users over the company’s alleged unauthorized collection of their facial features and other facial biometric data pursuant to the Illinois Biometric Information Privacy Act (“BIPA”) is slowly moving through the courts. The BIPA requires written notice and consent for the collection of biometric identifiers or biometric information of Illinois citizens. According to the complaint, filed August 17, 2015 in the United States District Court for the Northern District of California, Facebook through its Tag Suggestions technology automatically extracted biometric identifiers from their uploaded photographs and previously tagged pictures and stored these biometric identifiers in a database without the consent of the users.

In a December 8, 2017 motion for summary judgement, Facebook argued neither Illinois law nor the federal Constitution permits the application of BIPA to conduct that took place outside Illinois. Facebook asserted it performs its facial-recognition analysis on its servers located outside of Illinois. Additionally, the company argued that the application of BIPA in this case would violate the U.S. Constitution’s dormant commerce clause, which bars state regulation where the “practical effect” is to control conduct in other states.

Also on December 8, 2017, the plaintiffs filed a motion for class certification addressing the above issue, arguing the legislative intent behind BIPA reveals the Illinois legislature intended BIPA to protect the right to privacy of Illinois citizens in their personal biometric data, in particular with regard to interactions with “major national corporations” and “private entities doing business in Illinois.” The plaintiffs also cited case law demonstrating states can regulate commerce when at least one party is located in that state. Additionally, they argued “activity that occurs on the Internet is not immune from state-level regulation if the defendant can identify where an individual is located.” They contend that Facebook has the ability to identify where individuals are located.

Facebook sought to dismiss the suit in June of 2016, filing a motion to dismiss arguing the users have no standing because the above mentioned data collection caused no harm to the plaintiffs. The plaintiffs argued in their November 2017 response that they indeed had standing because their rights protected by BIPA were concrete rights and not procedural. They further asserted that Facebook may be able to debate the harmed caused, but the facts alleged were sufficient enough to sue.

Takeaway: Using the Illinois law, the plaintiffs’ bar is targeting scores of companies regarding the collection and use of certain biometric identifiers, including fingerprints.  Companies doing business in Illinois or with Illinois residents should evaluate whether they need to modify their procedures in order to comply with the law.

Keeping Your Biometrics Private

Suparossa Restaurant Group LLP, a Chicago-based restaurant company, has been served with a class action complaint alleging that the company has violated the Illinois Biometric Information Privacy Act (“BIPA”). The BIPA is an informed consent statute that establishes standards for employers that collect and store the biometric information of Illinois citizens. The act makes it unlawful for a company to “collect, capture, purchase, receive through trade, or otherwise obtain a person’s or customer’s biometric identifiers or biometric information” without certain precautionary measures.

According to the plaintiffs, who filed the complaint on October 25, 2017 in the Circuit Court of Cook County, employees of Suparossa are required to scan their fingerprints and partial handprints as part of the restaurants’ time tracking and point of sale systems. The plaintiffs assert that Suparossa failed to inform them of the full extent of the purpose for which it collected their biometric data and to whom the data is disclosed, ultimately disregarding their privacy rights and exposing them to serious and irreversible privacy risks.

BIPA has been a source of scores of class action complaints during the past year alone, with each lawsuit serving as a cautionary tale for any companies doing business in Illinois or with Illinois residents.

Takeaway: While the use of biometric systems may enable employers to improve both the accuracy and efficiency of their ability to track employees, employers who implement these systems should take all precautions necessary to first seek informed consent from their employees to obtain their biometric information and to comply with any relevant laws regulating the practice.

Reed Smith partner Douglas Wood is honored to be co-chairing the 2018 Association of National Advertisers (ANA) Advertising Law & Public Policy Conference.

The ad industry – and the brands that are its anchors to success – are under attack. Two articles appearing in major publications take publishers, brands and agencies to task on legal issues.

Please see the BuzzFeed article and the New York Times article.

On the other hand, occasionally there is some good news. Brian Jacobs’ article in Media Village on the progress brands are making in the transparency controversy with media buying agencies is heartening.

All this is why professionals responsible for advertising and marketing law and policy practices should attend the ANA Annual Advertising Law & Public Policy Conference in Washington, DC on March 14–16, 2018.

Some key highlights of the conference are:

On Wednesday, March 14 at 2 p.m. there will be a special ANA Legal Affairs Committee Meeting. The agenda will feature, among others, Jason Gordon of Reed Smith, covering “Enforcement Policies of the FTC for 2018” and Kate O’Brien, discussing “FTC Endorsement Guidelines and Best Practices When Partnering With Influencers and Endorsers in Social Media.”

On Thursday, March 15 at 10:40 a.m. Keri Bruce and Theresa Craparo will be on a panel titled “Transparency 2.0 – Looking Beyond Rebates and Production Transparency To Data.

On Friday, March 16 at 8 a.m. Doug Wood will be participating on a panel “Monetizing Content: Brands as Producer” and at 3:05 p.m. he’ll be moderating an ethics panel.

To register for the conference please click here.

NAD Refers Fungus Products to FTC and FDA

Moberg Pharma filed a NAD challenge against Kramer Laboratories, Inc. regarding the name of Kramer’s nail product. Kramer’s “Fungi-Nail Toe & Foot” product competes in the market with Moberg’s “Kerasal Fungal Nail Renewal” product.  At issue was whether the name of Kramer’s product—Fungi-Nail Toe & Foot—implies that the product effectively treats toenail fungus.  The NAD can recommend a product name change if the name itself creates false or misleading messages to consumers.

According to Kramer, the product was developed to treat fungus on the skin around the nails, and the product’s name does not expressly claim to cure nail fungus.  The NAD disagreed, determining that the product name does, in fact, convey a clear message to consumers about the product’s performance and recommended, in part, that Kramer change the name of the product.

Despite the NAD’s recommendation, Kramer issued a statement that it would continue selling the product under the same name, as it had for 40 years prior to the decision (it did, however, agree to modify the brand and packaging for the product). In turn, the NAD referred Kramer’s claims to the Federal Trade Commission and the Food and Drug Administration.

TAKEAWAY: Advertisers should be aware that their failure to comply with a self-regulatory decision by the NAD may lead the case to be referred to the FTC or the FDA.

Kirkland FACTA Case May Create Circuit Split

Kirkland, Inc. will face a putative class action for allegedly violating the Fair and Accurate Credit Transactions Act (“FACTA”). The plaintiffs filed their complaint against Kirkland in April 2017 for displaying the first six and the last four digits of their credit card or debit card numbers on their purchase receipts.  According to the plaintiffs, this increased their risk of facing credit card fraud and identity theft.  Kirkland countered, arguing that the case should be dismissed, in part, because they suffered no concrete injury.  The judge sided with the plaintiffs, finding that the consumers did not need to allege actual or imminent identity theft to show standing.

TAKEAWAY:  The decision was a departure from three other district court cases since the Supreme Court’s decision in Spokeo, and indicates that courts are willing to find standing for a class under FACTA claims.

Court Says Don’t Cry Over Steamed Milk

A federal court granted Starbucks’ motion for summary judgment in a putative class action in which plaintiffs alleged Starbucks underfills lattes and mochas. The plaintiffs alleged that the underfilling of Starbucks drinks was a breach of warranty and constituted unfair competition and false advertising based on three arguments: (1) consumers should receive beverage volume equal to the maximum cup capacity; (2) milk foam should not be counted toward beverage volume; and (3) barista pitchers and beverage card measurements do not add up to the promised beverage volume.

The court rejected all of these arguments due to contradictory evidence and unreliable studies. With regard to the argument about milk foam, the court determined that no reasonable consumer would be deceived into believing lattes contain promised beverage volume, excluding milk foam.  The court also noted that Starbucks’ signage does not explicitly identify liquid measurements and that reasonable consumers understand lattes include milk foam.  According to the court, just as consumers can increase the amount of their cold drink by ordering light or no ice, consumers are free to order light or no foam.

Takeaway: This is one of a handful of cases filed last year regarding beverage volumes in which courts have been less sympathetic to plaintiffs that distill false advertising disputes down to frivolous technicalities. Advertisers should instead focus on ensuring their practices satisfy a reasonable consumer standard.

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