New York AG Declares War on Fake Followers, Likes, and Online Deception

Earlier this year, the New York Attorney General reached a “precedent-setting” settlement with Devumi LLC, a third-party website, over its sale of fake followers, “likes,” and views to customers on all major social media platforms. Devumi utilized computer-operated “bot” accounts and “sock-puppet accounts” (where an online user pretends to be one or many other people) to give the appearance of genuine social media engagement.

The settlement states that Devumi’s deceptive business practices attempted to affect the decision-making of social media audiences including users’ decisions about what content merits their attention and consumer buying decisions. Devumi even deceived some of its own customers who mistakenly believed they were paying for authentic endorsements.

Devumi settled with the New York AG for $50,000 and it marks the first instance in which a law enforcement agency has successfully taken action against fraudulent social media activity.

Takeaway: In addition to the FTC, state attorneys general will assert jurisdiction over the use of fake followers to influence the promotion and sale of goods and services.

 

Design Is Not Content: Wisconsin Supreme Court Holds That Communications Decency Act Provides Immunity to Website Against Negligent Web Design Claim

Does the Communications Decency Act (CDA) provide immunity to a website against allegations that its design and operation enabled a third party to buy a gun, which the third party then used as a murder weapon? In Daniel v. Armslist, the Wisconsin Supreme Court said “yes,” reversed the intermediate court of appeals, and reinstated an order dismissing all claims against the website (Armslist) at the pleadings stage.

While the CDA grants broad immunity to websites for publishing information provided by third parties, it does not grant immunity for a website’s own statements or conduct. Thus, a frequently-litigated question in cases in which a website asserts a CDA defense is whether the plaintiff’s claims are based on content the website created or developed, or instead are based on content provided by a user. Plaintiffs in such a case may argue that the defendant company designed its website so as to elicit unlawful content, thereby taking a direct role in developing that content, so that CDA immunity does not apply. The plaintiff made that argument in Daniel v. Armslist, but the Wisconsin Supreme Court rejected it, holding that the website’s design choices did not materially contribute to third-party users’ content. (Reed Smith represented Armslist in connection with its successful petition for discretionary review in that Court.)

Armslist is a website that allows buyers and sellers of firearms to exchange information and contact one another. It allows buyers to search for private sellers, which need not conduct background checks. An estranged husband went in search of a gun, allegedly found a private seller on Armslist, contacted him, and later purchased a gun from the private seller in a local parking lot (not through the website). The purchase was illegal; Wisconsin law prohibited the husband from purchasing a gun because he was the subject of a restraining order. The husband used the gun to kill his wife and other victims. The administrator of the decedent’s estate sued Armslist, alleging that it had negligently or intentionally designed and operated its website to facilitate unlawful transactions in firearms, with the foreseeable result that an unlawful purchaser would use a gun to harm someone else.

The Wisconsin Supreme Court held that each of Armslist’s design features could be used for a lawful purpose, and so did not contribute to or develop unlawful content or conduct. The fact that a user could choose to use a website feature for unlawful ends did not cause the website to lose CDA immunity, even if the operator knew that some users might misuse it. The Court summarized its bright-line rule as follows: “if a website’s design features can be used for lawful purposes, the CDA immunizes the website operator from liability when third parties use them for unlawful purposes.”

Justice Bradley, dissenting, would have allowed the plaintiff’s claims against Armslist to proceed because “design itself is content”—namely, Armslist’s content. On this theory, Armslist could be held liable for tort claims on the ground that its website design and search features were a substantial factor in causing unlawful conduct. The problem with this theory is that it fails to account for the source of the duty that Armslist allegedly breached. The website chose to create a search function, but a search function by itself does not create any risk of harm. The alleged risk of harm arose from the third-party content that Armslist published—private offers to sell firearms—and the plaintiff sought to impose liability on the website because it published that third-party information. A search function enables a user to find content, but so does the very existence of the website, which the CDA allows and encourages.

The majority’s bright-line rule should help courts and litigants evaluate whether an aspect of the website’s design materially contributed to allegedly illegal third-party content or conduct. Under its test, a website does not lose CDA immunity for publishing third-party information unless an aspect of its design had no lawful purpose and therefore directly caused or contributed to the illegality of the third-party information. While the Wisconsin Supreme Court’s decision is binding only in Wisconsin, its synthesis of federal authorities may prove persuasive in federal courts as well.

 

 

 

 

The FTC “Intravenes:” Final Consent Order Approved Against iV Cocktails

Last month, the Federal Trade Commission (“FTC”) approved a final consent order settling deceptive advertising charges against A&O Enterprises, Inc., d/b/a iV Bars regarding deceptive and unsupported health claims that iV Bars’ intravenously injected therapy products, or “iV Cocktails,” can safely and effectively prevent and treat such serious diseases as cancer, multiple sclerosis, and cardiovascular disease.

According to the FTC’s complaint, which we previously wrote about here, iV Bars advertised, sold, and administered at least 10 different iV cocktails to consumers, including the Myers Cocktail and Immune Booster, for a cost of $100 – $250 or more per session. iV Bars’ IV drips, which contain mere mixtures of water, vitamins, minerals, and amino acids, were marketed as delivering essential nutrients and fluids directly into the bloodstream that would detoxify, nourish, and rehydrate cells from the inside out for long lasting and instant results.  iV Bars further claimed that their iV Cocktails were, in many instances, more effective and better tolerated than conventional medical therapies.

The consent order prohibits iV Bars and its owner from making any representation that its products provide an effective treatment for diseases such as cancer, cardiovascular disease, diabetes, or multiple sclerosis, and from making any representation about the health benefits, efficacy, safety or side effects of its products unless the representation is non-misleading and is based upon competent and reliable scientific evidence that substantiates that the representation is true. Furthermore, the consent order prohibits iV Bars from misrepresenting that its products were created, tested and approved by physicians at a fictitious iV Bars Research Lab.

TAKEAWAY:     This case sends a clear message to the burgeoning iV therapy industry and sellers of all healthcare products that if a company offers a product that it claims will treat a medical disorder or disease, it must rely on competent and reliable scientific evidence to substantiate its claim.

The FTC Takes a Bite out of Free Trials and Incentivized Reviews

This month, the Federal Trade Commission (“FTC”) announced a settlement with San Francisco-based food delivery service UrthBox, Inc. and its principal, Behnam Behrouzi, regarding the company’s failure to adequately disclose key terms of its “free trial” automatic renewal programs and its misrepresentation of customer reviews.

According to the FTC’s complaint, from October 2016 to November 2017, UrthBox offered consumers a “free trial” of its snack boxes for a nominal shipping and handling fee. However, upon checkout, consumers were automatically enrolled in a six-month negative option subscription plan for the same box, with associated costs ranging from $77 to $269 depending on the snack box size, unless consumers cancelled prior to the program’s subscription date. The FTC alleged that UrthBox violated Section 5 of the FTC Act for failing to disclose key terms of the “free” snack box offer, as well as the Restore Online Shoppers Confidence Act (“ROSCA”) by failing to adequately disclose the material terms of the free trial offer before obtaining consumers’ billing information and receiving their informed consent before charging the consumers’ credit or debit card.

The FTC’s complaint also alleged that UrthBox conducted an incentive program to induce customers to post positive reviews about its snack boxes on the Better Business Bureau (“BBB”) website, amongst others, by offering a free snack box and other incentives to customers in exchange. These reviews did not comply with the FTC Endorsements and Testimonials Guide because, among other things, these reviews failed to disclose a material connection between the reviewers and UrthBox.

The proposed order settling the FTC’s charges prohibits UrthBox from misrepresenting that an endorser is an independent consumer of the product and requires UrthBox to clearly and conspicuously disclose any material connection with a consumer, reviewer, or endorser in close proximity to the representation. Furthermore, the order prohibits UrthBox from misrepresenting the terms of a free trial, requires them to make certain disclosures relating to the negative option feature, and provide consumers with a simple mechanism to avoid charges for products with a negative option feature. Lastly, the order requires UrthBox to pay $100,000, which the FTC can use to provide refunds to affected customers.

TAKEAWAY:    This case serves as a reminder that this FTC will be looking to obtain real money damages against advertisers.

2019 SAG-AFTRA Commercials Contracts MOAs Breathe New Life into Decades-Old Contract

The Joint Policy Committee, LLC (“JPC”) reached an agreement with the Screen Actors Guild-American Federation of Television and Radio Artists (“SAG-AFTRA”) on the 2019 Commercials Contract and Audio Commercials Contract on April 2, 2019. The deal, led by Reed Smith partner and Chief Negotiator, Stacy Marcus, now moves into its next stages and will be voted on by members of SAG-AFTRA after being unanimously approved by SAG-AFTRA’s National Board. The memoranda including more information released by The JPC is available here.

The key goals of the 2019 negotiations, set to be accomplished during the new 3-year term of April 1, 2019 – March 31, 2022, are 1) innovation; 2) leveling the playing field between signatories and non-signatories; and 3) simplification. Click here to read more on our client alert summarizing the most significant changes made to the Commercials Contract (the “Contract”) to achieve these goals.

Innovation

  • The contract includes a new, simplified “Alternate Compensation Structure” (ACS) available to signatory advertisers and signatory advertising agencies on June 1, 2019.
    1. “Full Bundle” (Upfront Plus) option:
      • Session fee plus flat use fee for one year of use.
      • Includes up to 10 Class A uses and unlimited use in all other media.
    2. “Made For Digital and OTT Bundle” (Digital Upfront) option:
      • Session fee plus flat use fee for one year of use.
      • Unlimited use on Internet, new media, and over-the-top (OTT) platforms.
    3. “A la Carte” (Upfront Flex) option:
      • Session fee plus guarantee.
      • As with celebrity agreements, use is credited against the guarantee.
      • Flat rates for each 13-week cycle of use based on five consolidated media silos.
      • Class A uses may be credited or purchased for $100 per use.
    4. Signatory advertisers and signatory agencies who elect the ACS, will also have extended and more flexible editing rights. There are three categories of edits: 1) permitted edits (free); 2) paid edits (flat fee payment based on session fee with no additional residuals beyond the base spot); and 3) addressable edits.
    5. These new ACS benefits will be significantly more flexible and cost effective than the prior contract.
  • SAG-AFTRA recognized Association of National Advertisers’ (“ANA”) #SeeHer initiative and agreed to work together with the JPC on joint events and other opportunities.

Leveling the playing field

  • The new ACS is limited to signatory advertisers and signatory advertising agencies.
  • The contract includes a new waiver whereby SAG-AFTRA will agree to consider requests from JPC authorizers for a waiver from the contract in the event of a hardship (for example, potential loss of advertiser business by an authorizer agency).
  • The social media waiver now includes use on YouTube.
  • Maintained the low budget digital waiver.
  • There is now a four-year statute of limitations.

Simplification

  • Editing rules under the main contract were simplified in three key areas.
  • OTT platforms, such as Hulu, are considered Internet use under the contract.
  • The $1,000,000 cap is now calculated after the application of the initial allocation guideline for covered and non-covered services and prior to any 80 percent/20 percent or 90 percent/10 percent split between the SAG-Producers Pension Plan and AFTRA Retirement Fund. This will result in a real monetary savings for all producers.
  • The new contract also clarifies several other P&H issues, including contributions for b-roll and behind-the-scenes footage, charitable contributions, and rate escalation concerns.

In exchange for the transformational agreements described above, the parties agreed to a 6 percent wage increase (1 percent lower than the increase in 2016), and a total P&H rate of 19 percent (18.5 percent for JPC authorizers – the lowest increase in more than a decade). Additional low dollar value agreements are outlined in more detail in the full MOAs and the JPC’s summary document, available here.

Please contact Stacy Marcus smarcus@reedsmith.com for additional details regarding the new agreements.

About Us

Stacy is a partner in Reed Smith’s Entertainment and Media Industry Group and the Chief Negotiator for the Joint Policy Committee, the multi-employer collective bargaining unit that represents the advertising industry in the negotiation of the multibillion dollar commercials collective bargaining agreements with SAG-AFTRA and the American Federation of Musicians. In addition, Stacy advises clients on all facets of advertising and entertainment law, including celebrity endorsement, influencer and talent agreements, digital and social media marketing, agency-client agreements, branded entertainment deals, music licensing, sweepstakes and promotions, and corporate sponsorships. Her clients include both global and regional advertisers, luxury goods manufacturers and retailers, media companies, and digital platforms.

Reed Smith to Lead the ANA’s newly formed, Trust Consortium

On March 19, 2019 the Association of National Advertisers (ANA) launched the Trust Consortium. A copy of the press release can be found here.

The ANA Trust Consortium is an alliance among ANA members and their partners and a voice for brands on transparency, measurement, auditing, digital fraud, brand safety, and more through ongoing reporting and analysis.

The first event scheduled for the Consortium is the Trust Summit on May 15 in New York City. The agenda can be found at https://www.ana.net/membersconference/show/id/MOC-MAY19E3.

Co-chairs Douglas Wood, Keri Bruce, both Reed Smith partners, and Ron Pullem, former head of Global Media for Sony, have put together a great agenda of speakers and topics. The Summit is a great opportunity to learn and network on key media issues that are central to rebuilding trust.

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.

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