FTC Announces First Actions Enforcing The Consumer Review Fairness Act

Last month, the Federal Trade Commission (“FTC”) issued three separate proposed administrative complaints and orders enforcing the Consumer Review Fairness Act (“CRFA”) – the first enforcement actions since the CRFA went into effect in March 2017. The CRFA prohibits businesses from using “form contract” provisions that bar consumers from writing or posting negative reviews online, or threatening them with legal action if they do.

According to the FTC’s complaints, the three companies had contracts with consumers which barred the consumers from posting negative reviews about their products or services. The agreements also contained confidentiality provisions, which stated that information gained by the consumer over their use of the products or services was confidential, and a breach of that provision resulted in liquidated damages.

Under the FTC’s proposed settlement orders, the companies are each prohibited from offering a form contract to any consumer that contains a review-limiting contract term or requires that a customer accept such terms as a condition of the company complying with the contract. Furthermore, the orders require the companies to notify all consumers with contracts containing allegedly illegal non-disparagement clauses that such provisions are void and of no effect. Lastly, the companies agreed to create and maintain certain records, submit compliance reports, and subject themselves to compliance monitoring by the FTC.

Takeaway: The FTC’s enforcement of the CRFA means advertisers must be sure to carefully review their consumer contracts and online terms and conditions to verify that they do not contain any provisions limiting consumers’ rights to post fair and honest reviews.

FTC and state law enforcement officials announce initiative targeting illegal telemarketing

By Gerard Stegmaier and Mark Quist on 28 June 2019 Posted in Regulatory - United States

The Federal Trade Commission (FTC) announced a joint state-and-federal initiative, “Operation Call It Quits,” which targets illegal telemarketing practices that violate the FTC’s Telemarketing Sales Rule (TSR).

The TSR, which applies to interstate telephonic marketing communications intended to “induce the purchase of goods or services or a charitable contribution,” makes it illegal to engage in “abusive” acts and practices like failing to transmit caller identification information, calling telephone numbers listed on the National Do Not Call Registry, and using certain types of prerecorded messages or “robocalls.” The TSR also makes it illegal to engage in “deceptive” acts and practices while on a telemarketing call, like processing billing information without authorization, failing to fully disclose certain information before a customer consents to pay for goods or services, and misrepresenting material details of a sale. As part of this latest sweep of TSR enforcement, the FTC announced four newly filed actions:

In the first action, the FTC filed suit in the U.S. District Court for the Middle District of Florida against corporate and individual defendants alleged to have made illegal robocalls to “financially distressed consumers” with offers of “bogus credit card interest rate reduction services.”
In the second action, the FTC filed suit in the U.S. District Court for the Central District of California against individual and corporate defendants accused of using illegal robocalls to sell “fraudulent money-making opportunities.”
The third action, filed on the FTC’s behalf by the U.S. Department of Justice (DOJ) in the Middle District of Florida, targeted the “informational technology (IT) guy” alleged to have developed and operated computer-based “autodialer” technology used to make millions of illegal robocalls.
The fourth action, filed by the DOJ on the FTC’s behalf in the U.S. District Court for the Central District of California, alleges that a business and its individual owners sought to develop marketing leads for home solar energy companies by making millions of illegal robocalls and engaging in other abusive practices, including making more than 1,000 calls to a single telephone number in one year.

In addition to these newly filed actions, the FTC announced related efforts by state Attorneys General, state consumer protection and tax agencies, local municipalities, and other law enforcement partners.

Comment:

This latest round of state-and-federal enforcement highlights the FTC’s ongoing efforts to stamp out violations of the TSR. It also demonstrates the substantial risk faced by organizations that perform everyday marketing and customer service functions over the phone. Judgments and consent orders for alleged TSR violations routinely result in penalties of multiple millions of dollars – and sometimes reach tens of millions of dollars. In addition to compliance with the TSR, businesses engaged in telemarketing must be mindful of related Federal Communications Commission (FCC) regulations that, among other things, make most telemarketing robocalls to cellphones illegal. In this enforcement climate, it is helpful for organizations that communicate with consumers by phone to: (i) consider which of their marketing and customer service practices implicate the TSR and related FCC’s telemarketing regulations; (ii) review and update their compliance procedures consistent with current FTC and FCC requirements; and (iii) perform related risk assessments.

FTC Settles Case For $25 Million With Dietary Supplement Sellers Over Cognitive Claims

By Jason Gordon and Erika Auger on 11 June 2019 Posted in In the Courts, Industry, Regulatory - United States

Last month, the Federal Trade Commission (“FTC”) settled charges against 12 companies who deceptively marketed “cognitive improvement” supplements by using sham news websites containing false and unsubstantiated efficacy claims, referencing non-existent clinical studies, and advertising fraudulent consumer and celebrity endorsements.

According to the FTC’s complaint, the defendants falsely claimed that their dietary supplements could enhance users’ focus by as much as 300%, boost brain power by as much as 89.2%, increase users’ IQ by as much as 100%, and prevent memory loss and increase short and long-term memory in persons experiencing cognitive decline due to age. The defendants’ ads also falsely claimed that the supplements had been tested in over 2,000 clinical trials. The FTC alleged that these claims were made on the defendants’ own websites, as well as through the websites of at least 36 third-party affiliate networks – many of which were deceptively formatted to look like real news sites. These advertorials included sham testimonials from consumers and falsely attributed the achievements of such celebrities as Bill Gates, Elon Musk, and Stephen Hawking to the defendants’ products.

Even though the defendants’ advertisements claimed that consumers could try the products “risk free” and that it came with a “100% Money Back Guarantee,” consumers only received a partial refund because they paid out-of-pocket for return shipping, paid an inadequately disclosed restock fee per bottle, and were not reimbursed for the original shipping and handling fees. In some instances, the defendants failed to issue consumers refunds altogether despite assurances from customer service that the refunds were being processed.

Under the FTC’s orders, the defendants are prohibited from making certain disease claims and several cognitive performance claims related to the products, unless they have competent and reliable scientific evidence to support the claims when they are made. Furthermore, the defendants are prohibited from making specific misrepresentations related to endorsements including that: (1) any person is an objective news reporter with respect to the endorsement message provided; (2) purported customers or celebrities who appear in the advertising achieved a reported result by using any of the covered products; and (3) persons depicted in advertisements, including experts, consumers, and celebrities, are providing objective, independent opinions about the efficacy of the products. Additionally, the defendants are barred from misrepresenting clinical evidence and sham websites as objective news reports.

TAKEAWAY: The FTC will continue to be vigilant in policing the dietary supplement industry, and will also seek significant monetary relief against companies it believes deceives consumers.

iSpring Water Settles Case With FTC For “Made In The USA” Claims

By Jason Gordon and Erika Auger on 7 June 2019 Posted in In the Courts, Industry, Regulatory - United States

The Federal Trade Commission (“FTC”) announced that it reached a settlement with iSpring Water Systems, LLC for allegedly making false claims that its wholly imported Chinese water filtration systems were made in the U.S.A – in violation of a 2017 FTC consent order.

In 2017, the company made certain claims that its water filtration systems and parts were “Built in USA,” “Built in USA Legendary brand of water filter,” and “Proudly Built in the USA.” According to the FTC, these products were imported or were made with a significant amount of imported parts. In the FTC’s 2017 consent order, which we previously wrote about here, iSpring agreed not to make unqualified claims that its water filtration systems were made in the U.S.A. unless it could substantiate those claims.

Now, the FTC alleged that iSpring violated the consent order by advertising that the imported products were “made in USA” or “designed and crafted in USA.” The FTC’s settlement includes a $110,000 penalty, an admission of liability, and a requirement to notify consumers.

TAKEAWAY: This case signals the FTC’s continuing interest in policing “made in the USA” claims and serves as an important reminder to marketers to comply with any consent order that it enters into with the FTC to avoid severe civil penalties.

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

By Brian Sutherland on 6 May 2019 Posted in In the Courts

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

By Jason Gordon and Erika Auger on 29 April 2019 Posted in In the Courts, Industry, Regulatory - United States

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

By Jason Gordon and Erika Auger on 29 April 2019 Posted in In the Courts, Industry, Regulatory - United States

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

By Stacy K. Marcus and Michael Isselin on 22 April 2019 Posted in Industry, Unions, What We're Reading

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

By Jillian Petrera and Jason Gordon on 16 April 2019 Posted in Events, Industry, Trade Associations

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.