FTC Issues New but Narrow COPPA Guidance on Voice Recordings

Last week, the Federal Trade Commission (“FTC”) released a policy enforcement statement to provide additional guidance under the Children’s Online Privacy Protection Act (“COPPA”) for organizations that use audio voice recordings of children. This additional guidance builds on the FTC’s 2013 updates to COPPA that brought additional data types, such as photographs, videos and audio files containing images of children or their voices, under COPPA’s regulatory authority.

This “non-enforcement policy” confirms for the industry and the public what the FTC has been telling individual companies in response to individual inquires: namely, that the FTC is not interested in enforcing COPPA where an application or internet-enabled device allows children to make voice commands in place of written inputs to perform a search or fulfill a verbal instruction or request, so long as the operator maintains the data file for a very brief time period necessary for that purpose and none other.

This policy does NOT change most of the regulatory requirements associated with such devices that collect voice commands. In particular:

  • it does not turn the application or internet-enabled device into a general audience site, app, or service. If the internet service at issue is “directed to children”, as that phrase is interpreted under COPPA, then all of the other requirements associated with COPPA compliance apply;
  • the operator must continue to provide a COPPA-compliant notice, including clear notice of its collection and use of audio files and its deletion policy, in its privacy policy;
  • the policy does not apply if the operator is asking for a name and other personal information. Thus, the policy would not apply if an operator were asking for the verbal input of contact information for a sweepstakes entry. (There is another exception for a one-time collection of online contact information that can be used in the sweepstakes entry context);
  • the policy also does not apply if the operator makes any other use of the audio file other than merely to effectuate the requested function. For example, if the operator engages in behind-the-scenes analytics of the audio file, or any sort of behavioral targeting or profiling based on the audio file, the policy would not apply;
  • if the operator uses the voice to identify a child or posts, sells, or shares the audio file, the policy will not apply;
  • if the operator goes beyond collecting the child’s voice for the narrow purpose of enabling the child to give a command or effectuate a search request, all verifiable parental consent requirements will apply.

Takeaway: In an age in which the use of digital assistants is becoming more prevalent and voice-command devices are becoming more commonplace, it makes sense for the FTC to acknowledge that children will naturally assume that they can talk to devices to make them work and obtain desired information. From a practical standpoint, it would be wise to consider this announcement to be a very narrow exception designed to enable innovation in the voice-recognizing device industry and to expand that industry, especially in the context of applications, like toys, that are targeted to children.

SAG-AFTRA and the JPC Release FAQs on the Low Budget Digital Waiver

Beginning today, October 27, 2017, Producers can take advantage of the new Commercials Low Budget Digital Waiver. SAG-AFTRA and the ANA-4A’s Joint Policy Committee on Broadcast Talent Union Relations (JPC) worked together to negotiate this waiver for low budget digital productions, recognizing the parties’ focus on the growth of digital advertising.

The waiver applies to commercials made for the Internet and New Media (including social media) with a production budget of $50,000 or less per commercial. Understanding that production budgets are constantly in flux, the waiver provides some flexibility when production budgets exceed the $50,000 threshold due to unforeseen circumstances.  Talent- and production-related costs are included in the $50,000 threshold (e.g., talent, producer, and locations fees), but post-production costs are not.

Use of the new waiver is restricted to JPC authorizers as well as advertisers and agencies that are signatories to the SAG-AFTRA Commercial Contract—third party signatories cannot produce under the waiver.

Please visit the JPC’s website to read the Low Budget Digital Waiver and accompanying FAQs.

Nominations for FTC Commissioner Vacancies Announced

The president has announced two nominations for Federal Trade Commission posts, including the chair position. Joseph Simons, who served at the agency for almost two decades and directed the Bureau of Competition from 2001 to 2003, has been nominated for the chairmanship, while Rohit Chopra of the Consumer Federation of America has also been nominated as a commissioner. Please click here for the full post on the Technology Law Dispatch blog.

Arrgh! Social Media Post Lands “Pirate Joe’s” in Hot Water

In the highly-publicized case about unauthorized reselling of Trader Joe’s merchandise by renegade Canadian merchant “Pirate Joe’s,” social media provided the powder keg for Trader Joe’s arbitration enforcement demand. The case set sail in May 2013, when Trader Joe’s sued Pirate Joe’s proprietor Michael Hallatt for federal trademark infringement and violations of Washington state consumer protection and trademark dilution laws.  A Washington federal judge dismissed that suit on jurisdictional grounds, but the Ninth Circuit brought Trader Joe’s federal trademark infringement claims back from the deep on appeal.  The parties entered arbitration, obligating Hallatt to cease reselling Trader Joe’s merchandise while they parleyed a confidential final settlement.

Last June, however, Hallatt posted to the Pirate Joe’s website “We re-opened today for good. … The law is on our side and I’ve got everyone addicted, so it’s only fair I keep up supply!” Trader Joe’s immediately moved to confirm and enforce the arbitration award, parroting this post as key evidence in its papers, which the court approved in August.  The court made shark bait of Hallatt’s motion to reconsider affirming the arbitration award last month.

Takeaway: Advertisers that use social media or website posts regarding litigation may provide the opposition with ammunition to sink their case.

Cracking Open a Cold One: Plaintiffs’ False Advertising Suit Against Brewer Survives Dismissal

Earlier this year, two plaintiffs launched a putative class action against Portland-based Craft Brew Alliance, the fifth largest brewing company in the U.S. and parent company of Kona Brewing Co. Craft Brew acquired Kona in 2010, emblazoning its bottles and cans with images and text that conjure Hawaii’s scenery and lifestyle.  There’s just one issue:  most of Kona’s draft beers are actually brewed in Oregon, Washington, Tennessee, and New Hampshire.  The plaintiffs allege Craft Brew knowingly duped consumers into paying more for “Hawaiian” beer in violation of various false advertising and consumer protection laws.

Although marketing with geographical imagery may not solely support false advertising actions, U.S. District Judge Freeman of the Northern District of California recently refused to dismiss the case. She focused on particular details of the packaging, such as the address and map of Kona with an invitation for customers to visit “the brewery,” implying there is only the one.  Although there is a real brewery at the Hawaii address on the bottles, nearly all of the beer sold in the mainland United States is in fact made on the mainland.  This implication, Judge Freeman stated, gives rise to a dispute about what a reasonable mainland consumer would view when buying the beer in stores.

Takeaway:  Geographically-inspired product packaging may give rise to false advertising claims if the imagery implies that the products are made at the stated location.

Judge Agrees – YouTube Mockery Protected by Fair Use

Readers may be aware of YouTube celebrity couple Ethan and Hila Klein, better known by their social media moniker @h3h3productions. They rose to Internet fame producing comedic “reaction” videos that ridicule and comment upon other Internet content, boasting 4.9 million subscribers on their YouTube channel.  Not everyone laughed along though, particularly fellow YouTuber Matt Hosseinzadeh, whose own comedy video the Kleins mocked on their channel.  Hosseinzadeh sued the Kleins for copyright infringement in April of last year for appropriating excerpts of his content in their reaction video.

U.S. federal Judge Katherine B. Forrest of the Southern District of New York recently granted summary judgment in favor of the Kleins, holding that fair use doctrine protects the Kleins’ mockery of Hosseinzadeh’s video. Although the Kleins used excerpts of Hosseinzadeh’s copyrighted work in their reaction video, Judge Forrest concluded:  “Any review of the Klein video leaves no doubt that it constitutes critical commentary of the [Hosseinzadeh] video; there is also no doubt that the Klein video is decidedly not a market substitute for the [Hosseinzadeh] video.”  The Kleins continue to produce comedy videos, although Hosseinzadeh’s channel appears to be on hiatus.

Takeaway: Advertisers should urge caution with the outcome of this case.  Although a court concluded that the use by an individual was a fair use, advertising commercial speech may not receive the same protections.

227k Consumers to Receive Refund Checks from Dietary Supplement Company Settlement

Roughly 227,000 consumers will receive an average of $43 each in an effort by the Federal Trade Commission (FTC) to send refunds to purchasers of dietary supplement products sold by Health Formulas LLC.

The $9.8 million total refund is the result of a 2016 settlement with the company, its owners, and related companies, such as Simple Pure Nutrition. The FTC had alleged in 2014 that Health Formulas LLC had violated the Restore Online Shoppers’ Confidence Act (ROSCA), which prohibits marketers from charging consumers in an Internet transaction, unless the marketer has clearly disclosed all material terms of the transaction and obtained the consumers’ express informed consent. The company, which also made misleading claims about its weight loss products, allegedly used fake “free trials,” misled consumers into disclosing their credit and debit card information, and enrolled them in negative-option membership programs without their permission, causing them to be charged for monthly shipments. Consumers were unable to stop the automatic charges.

The charges for weight-loss supplements, with names like Pure Green Coffee Bean Plus and RKG Extreme ranged from $60 to $210 per month. Advertisements for the products made claims including “Burn fat without diet or exercise” and “Extreme weight loss!”

The enforcement action against Health Formulas LLC was the first that the FTC brought alleging violations of ROSCA. The Commission has used the law a number of times since then to challenge negative option arrangements and other deceptive billing practices. We covered a recent settlement here.

Takeaway: Companies should be cautious when using “free trials” and negative options to market their products. While the diet supplement industry has been a particular focus of the FTC’s scrutiny, the Commission is paying attention to all marketers that use these tactics without proper disclosures.





Gatorade Agrees to Stop Hating On Water

Gatorade recently handed $300,000 to California to settle false advertising and unfair competition claims that boil down to making water look bad. The company released an app in 2012 called “Bolt!” that featured an animation of Jamaican Olympic gold medalist, Usain Bolt, racing to recapture gold coins from pirates. Gatorade icons boosted performance and water hindered performance. The tutorial explicitly advised users, “Keep Your Performance Level High By Avoiding Water.” According to the complaint, users downloaded the app over 2.3 million times and played the game over 87 million times—and over 70% of them were 13-24 years old.

The final judgment enjoins Gatorade from making apps or games available for download that create the misleading impression that water hinders or adversely affects athletic performance, water should generally be avoided in favor of Gatorade, athletes avoid consuming water, or water consumption should generally be avoided. The judgment further enjoins Gatorade from making any other statements that disparage water or its consumption. Additionally, Gatorade must make reasonable efforts to include provisions in endorsement contracts that require endorsers to clearly and conspicuously disclose their relationship with Gatorade and to abide by the PepsiCo Policy on Responsible Advertising to Children.

Takeaway: Companies should pay extra attention to health claims, including those which may simply compare their products to water.

FTC Provided Guidance Regarding Affiliate Marketing

The FTC alerted consumers to the truth behind online advertisements connected to affiliate marketers in a September 20th blog post titled, What’s affiliate marketing? Should I Care? The FTC took action against an online marketing operation this summer over a low-cost trial scam involving tooth-whitening products. According to the FTC, many consumers remain unaware that merchants use affiliate networks and marketers to promote products and services and that affiliates are paid if they make a purchase, sign up for a “free” trial, or simply click on an advertisement.

The FTC believes that affiliate marketing is an acceptable—and useful—method for merchants to promote products and services provided that it is conducted truthfully. The affiliate structure itself increases the risk of misleading consumers through deceptive advertising, particularly in the context of trial offers involving subscriptions or multiple product charges in the eyes of the FTC. Notably, the FTC considers the terms and conditions underlying these transactions when evaluating the truthfulness of such campaigns.