Tennessee Court Awards $1.9 Million in Mapco Express Data Breach Class Action Suit

Last month, a Tennessee Federal court ordered Mapco Express, Inc. (“Mapco”) to pay approximately $1.9 million to settle class action claims arising from a 2013 data breach of its retail computer systems. The lawsuit was brought in 2014 by Winsouth Credit Union and First National Community bank and alleged that Mapco failed to adequately protect consumer financial information at its retail locations.

The settlement requires Mapco to pay $700,000 into a consumer settlement fund in addition to the $1.2 million that the company has paid to Visa and MasterCard, in furtherance of payouts associated with their data breach recovery procedures, while also certifying a class of the two companies’ card holders.

Takeaway: Federal courts are not shying away from awarding large settlements against companies who expose consumer data to potential breaches. Entities who handle large quantities of consumer financial information should ensure that adequate security measures are in place to prevent breaches as well as clear data breach response plans.

Reed Smith and Ghostery to Host Digital Advertising Webinar on February 8th

Gerry Stegmaier, a partner in Reed Smith’s Washington D.C. office, will be co-presenting a webinar titled “Digital Killed the Media Star: 2017’s Brave New World Perils and Opportunities” with Todd Ruback, Chief Privacy Officer and Vice President of Legal Affairs at Ghostery, Inc.  The webinar will counsel brands on the practical considerations for the development of digital advertising strategies.

To register for the event, click here.

Three States Introduce Bills to Legalize Sports Betting While SCOTUS Decides Whether to Hear Suit Challenging Existing Federal Ban

As the Supreme Court weighs whether to hear a New Jersey challenge to the Professional and Amateur Sports Protection Act (“PAPSA”) – a 1992 federal law that banned sports wagering in all states where it was not already in existence – legislators in New York, Michigan, and South Carolina have introduced legislation seeking to legalize sports betting in their states.

 The New York bill seeks to amend the state constitution to exempt sports wagering from the New York’s existing gambling ban. The bill is sponsored by Senator Tony Avella (D-Queens), who recently announced that he will run for mayor of New York City this year, challenging sitting Mayor Bill de Blasio. South Carolina’s legislation would similarly amend the state constitution. Both states require that the public approve any amendments to the state constitution.

In Michigan, the proposed legislation would submit a referendum to the voters on whether to adopt sports gambling. The Michigan legislation also would require the population of any township or city where sports gambling would take place to approve it by a majority vote.

Even if these proposals become law, PAPSA remains firmly in the way of state efforts to legalize sports gambling. The Supreme Court is currently deciding whether to grant certiorari and hear a lawsuit brought by the State of New Jersey arguing that PAPSA’s preemption of state attempts to legalize sports gambling is unconstitutional. The Court recently invited the Acting U.S. Solicitor General to weigh in on the case on behalf of the federal government.

Until the Supreme Court acts, any state action to legalize sports gambling would likely be struck down if challenged based upon the Third Circuit Court of Appeals en banc 10-to-2 decision in the New Jersey case, which held that PAPSA preempts states from legalizing sports gambling.

Takeaway: Although we should not read too deeply into the early days of state legislative sessions, it appears there is momentum among the states to upend the status quo on sports gaming. The introduction of sports gaming beyond Nevada would present new opportunities in the advertising space as states attempt to boost their economic fortunes by cutting into the Nevada monopoly on American sports gaming revenue.



Cause of Action Joins Defense of Electronics Maker in FTC Privacy Suit

The advocacy group Cause of Action has stepped in to help defend electronics maker D-Link in a suit brought by the Federal Trade Commission over the company’s purportedly insufficient protection of customers’ privacy.

The FTC is targeting D-Link for making representations that its products, including wireless routers and Internet protocol cameras, feature strong security, even claiming “Advanced Network Security.” In reality, the agency alleges, the company did not adequately secure these devices and did not use testing measures, confidentiality steps, and free security software. Cause of Action, which opposes government over-regulation, is getting involved because there have been no reported incidents of hackers taking advantage of any of the alleged security vulnerabilities. Cause of Action representatives have stated that allowing the FTC to target companies based on the potential for a data breach without actual or likely consumer harm would result in limitless liability for companies and would chill innovation in the Internet of Things.

Takeaway: Just because an entity has not yet experienced data compromise does not mean that it is immune from FTC actions alleging deceptive representations about privacy and data security. Companies should follow the D-Link case closely to see whether the agency is at all rebuffed for lack of any concrete harm to consumers.




ANA Transparency Day – January 26, 2017

The Association of National Advertisers will be hosting the ANA Transparency Day, on January 26 from 12 noon-5pm ET in New York at the ANA’s offices. Transparency has probably been the biggest story in the advertising industry over the past year. ANA Transparency Day will bring together a spectrum of perspectives with a focus on practical action steps and solutions. There will be sessions that focus on the client/agency contract, programmatic buying, and issues in production.

More info and registration: http://www.ana.net/membersconference/show/id/MOC-JAN17 

An ANA Unplugged Networking Reception, will follow from 5-7pm: Enjoy beer, wine, and good conversation with fellow ANA members and invited guests. Plus, a Q&A with Jon Mandel, former media agency chairman/CEO and the man who brought public attention to the industry debate around media agency transparency.

Register here: http://www.ana.net/membersconference/show/id/MOC-JAN172.


These events  are complimentary for client-side marketers and their in-house counsel only and you do not need to be an ANA member.  If you are not an ANA member, and would like to join, please contact bromero@ana.net directly.  


Herbalife Settles Multi-level Marketing Scheme for $200 Million

Almost 350,000 people who helped run Herbalife businesses are receiving checks from the Federal Trade Commission to compensate them for money lost due to the company’s deceptive earnings claims. Specifically, Herbalife was claiming that participants could expect to quit their jobs, earn thousands of dollars a month, and make a career-level income or get rich. Its compensation structure also rewarded distributors for recruiting others to join and purchase products, which was not tied to actual retail demand for the product.  Herbalife agreed to pay $200 million and will restructure its multi-level marketing (“MLM”) business model as part of the FTC settlement. Simultaneously, the FTC released guidance for multi-level marketers with lessons drawn from the Herbalife and Vemma cases and subsequent enforcement actions.  The FTC noted that:

  • False or unsubstantiated earnings claims may violate the FTC Act;
  • MLM companies should monitor the claims its distributors are making;
  • At the heart of a legitimate MLM are real sales to real customers; and
  • Compensation and other incentives should be tied to real sales to real customers.

The FTC also offered tips on what to look for when joining a multi-level marketing company.

Takeaway: The FTC made particular note of MLM companies’ enticement of consumers with promises of lavish lifestyles should they join the company. The agency also emphasized companies’ liability if their agents and distributors are making exaggerated claims. Multi-level marketing companies should be aware of the perils of such lack of substantiation and would be wise to establish protocols so that messaging is monitored at all levels of the organization.

The Quarter Ham: California Court of Appeal Affirms Judgment in Unfair Competition and False Advertising Case

You can still get your quarter ham “STARTING AT $23.99” from Honey Baked Ham, Inc. according to the California Court of Appeal in its unpublished decision on November 8, 2016.  The Court of Appeal affirmed a trial court’s judgment that Honey Baked Ham, Inc. did not engage in unfair competition or in false or deceptive advertising by publishing a newspaper advertisement that touted its tasty product as “STARTING AT $23.99.”  The challenged statement was surrounded by a notched border, the phrase “STARTING AT” was in a smaller font size than “$23.99,” and it was followed, in even smaller font, by the words, “A limited number of Quarter Hams are available at each location. Offer available while supplies last.”  Wood v. Honey Baked Ham, No. B261248, 2016 Cal. App. Unpub. LEXIS 8150, at *3 (Ct. App. Nov. 8, 2016).

The plaintiff purchaser claimed to have mistaken the advertisement for a coupon good for the purchase of a quarter ham at the price of $23.99. She alleged that the advertisement was misleading because it was calculated to create the false impression that any purchaser who presented it could buy a quarter ham for $23.99 and that it was a deceptive “bait and switch” or “upsell” scheme calculated to lure customers into Honey Baked Ham’s stores “with a lowball price” and then “pressure them into paying a higher price.” Business and Professions Code section 17200, California’s unfair competition law, “prohibits any unfair, unlawful, or fraudulent business act or practice.”  Cal. Bus. & Prof. Code § 17200.  California’s corresponding false advertising laws, Business and Professions Code section 17500 and Civil Code section 1770(a)(9), prohibit false or misleading advertising statements and advertising goods and services without the intent to sell them as advertised.  Cal. Bus. & Prof. Code § 17500; Cal. Civ. Code § 1770(a)(9).  The challenged statements are evaluated under a “reasonable” consumer standard.  Honey Baked Ham, 2016 Cal. App. Unpub. LEXIS 8150, at *12-13. To state a claim, a plaintiff must show that “a significant number” of members of the public are “likely to be deceived.” Id. at *16.

Here, the relevant inquiry was whether a consumer could reasonably interpret Honey Baked Ham’s advertisement as a coupon to purchase a quarter ham at the exact price of $23.99. In concluding that Honey Baked Ham’s advertisement was not misleading, the Court of Appeal agreed with the trial court that “STARTING AT” meant exactly what is said: that the price of a quarter ham started at $23.99 but could be higher and that it could not be reasonably interpreted as offering all quarter hams at a single price of $23.99.  Id. The Court of Appeal noted that the plaintiff did not provide any evidence that the term “starting at” would likely deceive the public at large into believing that all quarter hams were priced at $23.99.  Id. at *18.  Indeed, “[c]ommon knowledge and experience” confirmed that the price of a quarter ham would depend on the size and weight of the particular ham.  Id. at *17.  In addition, the Court of Appeal found that the evidence did not compel a finding contrary to the trial court’s finding that Honey Baked Ham did not engage in a deceptive “bait and switch” or “upsell” scheme, noting that the evidence showed that the store at which the plaintiff made her purchase sold quarter hams at prices at or below $23.99 throughout the day at issue and that all the plaintiff had to do was to ask for a smaller ham to purchase one at that price.

“Starting at” pricing can be a mechanism by which a seller advertises a product at a low price to draw consumers into a store or to a website.  The risk from a consumer protection perspective is that upon arriving at the store or the website, the consumer will either find that the advertised product is not available or a salesperson will divert them away from the lowest priced item to a more expensive item in what is traditionally known as a “bait and switch.”  If a seller advertises a product which it has no intention of selling, but instead plans to sell a consumer a different product, usually at a higher price, the seller has engaged in unlawful “bait and switch” advertising.  The FTC has a guide that addresses “bait advertising,” 16 C.F.R. § 238 (2017).  The focus of “bait and switch advertising” from the FTC’s perspective is on the unavailability of the advertised product.  For example, it would be deceptive to not have a sufficient quantity of the advertised product to meet reasonably anticipated demand, unless the advertisement clearly and adequately disclosed that the supply is limited and/or that the advertised products are only available at designated outlets.  16 C.F.R. § 238.3(c).  In the Honey Baked Ham case, there was no allegation that Honey Baked Ham would not sell a quarter ham of the requisite weight at the advertised price or that it had run out of the hams at that price.  In addition, the advertisement disclosed that there were a “limited number” of hams at each location, which placed consumers on notice that supplies were limited.  Finally, there was no allegation that Honey Baked Ham failed to have in stock sufficient quantity of hams at the advertised price.  In fact, both the trial court and the Court of Appeal noted that the store at which plaintiff purchased her ham sold a substantial number of smaller quarter hams for $23.99 or less throughout the day. Honey Baked Ham, 2016 Cal. App. Unpub. LEXIS 8150, at *9.  Consequently, the plaintiff did not have a strong argument that the offer itself was deceptive in structure.  Rather, it was more a question of whether the “starting at” language clearly communicated that larger quarter hams could cost more.  The court held that “starting at” – even in smaller lettering – adequately communicated that $23.99 was a starting price and the product could be more expensive depending on size and weight.  Id. at *17.

On a cautionary note, it is wise for advertisers to remember that the Honey Baked Ham case considered only California unfair and deceptive acts and practices (UDAP) statutes and that some other states have more specific statutes that deal with advertisements where there is a range of possible prices and only the lowest price is advertised.  Consider the law in Massachusetts (which is not the only state with price range regulations): In that state, it is considered an unfair or deceptive act to state or imply that any products are being offered for sale at a range of prices or at a range of percentage discounts unless, among other things, the highest price or lowest discount in the range is clearly and conspicuously disclosed in at least the same size as the type size of the lowest price or highest discount in the range. See 940 Mass. Code Regs. 6.03(11).

There are arguable distinctions between retail store price range advertising and sales involving a single product, such as ham, that is priced according to weight.  But, it is important to remember that “starting at” pricing can under some circumstances connote a range of prices, and specific state laws on price advertising can come into play beyond the general UDAP laws.

It is also important for advertisers to remember that some municipalities have local laws that can apply in cases where there is an implied range of prices for items offered in an advertisement.  In New York City, for example, the municipal consumer protection (New York City Administrative Code, tit. 20: CONSUMER AFFAIRS, sec. 5-12) law states that when a range of prices is stated, or the existence of a range is implied, the highest price must be stated in figures at least as tall and broad as the figures in the lowest price stated. Furthermore, the New York City regulation specifically includes “starting at” as an example of a phased that connotes a range of prices.

And, why was it important to consider whether the challenged advertisement in the Honey Baked Ham case was surrounded by a notched border?  At issue here not only was whether consumers would understand the meaning of “starting at” but also whether the challenged advertisement was an “advertisement” or a “coupon.”  Why would that matter?  Generally, an advertisement for an item at retail is an invitation to the consumer to come into the store and offer money in exchange for the advertised product.  Acceptance occurs at the moment the seller accepts that payment. In contrast, a coupon, like the kind you might find in your Sunday circulars, is more than an invitation to make an offer.  It is an offer to sell the consumer the specific products identified for the specific price or discount at a specific store location during the time period identified.  A coupon is usually time-limited and often is subject an array of promotional terms.  The plaintiff in the Honey Baked Ham case alleged that the public statement from the ham seller was a unilateral contract in the form of a coupon.  She demanded fulfillment of the terms of that contract notwithstanding the use of the phrase “starting at.”  The court found that the advertising was “advertising,” not a coupon, notwithstanding the notched border, and then the court proceeded to interpret the advertising language.

TAKEAWAY:  Price is almost always a material term in advertising.  When an advertised price is presented in a format that might lead consumers to believe that the advertising is a precise and definite promotional offer, there is a risk that a court could conclude that the seller is contractually bound by its terms.  In such a case, the phrase “starting at” might not give the advertiser the flexibility to charge a higher price.  In a lawful advertisement, a seller must present the price of an item in a truthful and non-misleading fashion.  Use of “starting at” as a qualifier can work in some instances to communicate that the prices will vary by weight/size/condition, etc., but consider using more descriptive words such as “Starting at $XX.XX for a 5 lb. quarter ham.”  Moreover, think about whether the use of “starting at” implies a range of prices for items sold at retail.  There may be specific regulations that apply depending on where you are advertising that could mandate font size or even the volume of items that are available at the advertised low price (or highest discount).



Subway Turns Back Class Action Over Free Sandwich Text Message Promotion

Subway scored a recent victory when a federal court dismissed a putative class action brought by two customers over a free sandwich promotion alleging violations of the Telephone Consumer Protection Act (“TCPA”) after allegedly receiving a text message offering a free 6” Oven Roasted Chicken sub.

Subway moved to compel arbitration, seeking to enforce the arbitration provision in the plaintiffs’ contracts with their mobile phone carrier. The clause mandated arbitration for “any and all claims or disputes in any way related to or concerning this [agreement].”  The plaintiffs could have opted out from the clause within 30 days of activating their phones.  They did not.

In granting Subway’s motion, the court found that the text message was within the scope of the arbitration agreement, the agreement was not procedurally or substantively unconscionable, and that – under California law – equitable estoppel applied to allow Subway, a non-signatory of the arbitration agreement, to enforce the agreement. Because the court decided that all of the plaintiffs’ claims must be sent to arbitration, the court exercised its discretion and dismissed the case.

Takeaway: Companies who engage in direct marketing through consumer technology products should be mindful that a consumer’s user agreement may offer them protection from suits arising out of such marketing.


States Act to Regulate Fantasy Sports

In attempts to lessen the uncertainty that still surrounds the legality of fantasy sports, Maryland and Florida introduced measures to clarify the rules of the road for the likes of DraftKings Inc. and FanDuel Inc. Maryland’s regulations, adopted by the state Office of the Comptroller, went into effect January 2, while Florida’s House of Representatives has yet to consider the new bill introduced January 4.

The Maryland regulations set the minimum age for players at 18, rather than 21 as in other states, and prohibit the depiction of minors or students—a prohibition which, in effect, restricts daily fantasy sports operators from offering college-based fantasy leagues. Professional athletes may not participate in contests in their sport. From a financial perspective, the regulations limit participant monthly deposits to $1,000 and do not include a high registration fee for operators. In the other states that have passed legislation or issued regulations in this area, the restrictions on fantasy sports operators are generally stricter.

The Florida bill, H.B. 14, would make clear that fantasy sports contests are not illegal in the state, which prohibits gambling. The bill’s sponsor compared fantasy sports contests to fishing or bowling contests based in part on skill. The bill would require that the value of all prizes be made known to participants at the start of play, and that the outcome of the contests be based on the skill or knowledge of the players.

Takeaway: Now that increasing numbers of states are articulating the legal parameters of fantasy sports, advertisers have more to guide them in determining the risks of running promotions that some regulators may consider to be illegal lotteries. Stay tuned as more states step in to corral or legitimize the wild west of online fantasy sports games.

See some of our previous reporting on this subject here and here.



Seventh Circuit Upholds Indiana Ban on Robocalls

Last week, the U.S. Court of Appeals for the Seventh Circuit upheld an Indiana statute banning robocalls, concluding that the statute was evenly applied in an effort to prohibit unsolicited calls made without a recipient’s consent regardless of the content of the message or the identity of the caller. Patriotic Veterans, Inc. brought suit arguing that the Indiana statute violated the First Amendment and excluded all political messaging which resulted in content-specific discrimination as applied to the organization and others like it.  The non-profit organization uses political robocalls as part of its various campaigns to inform voters about candidates and their positions on veterans’ issues.

Takeaway: States and the Federal Government are continuing to increase the measures taken to protect consumers from receiving unwanted cold calls and robocalls.  Advertisers and marketers who use such calls are advised to note the intricacies and differences between state and federal statutes and the regulations concerning such activity.