Let It Go – Best Song from Frozen and What Judge Orders About Some Frozen Assets

Let it Go - Best song from FrozenThere aren’t too many things worse than showing up at the office in the morning and realizing that the FTC has gotten a temporary restraining order against your company and frozen your assets.

While most FTC investigations don’t occur in such dramatic fashion, occasionally some do and the consequences are often dire. This is exactly what happened to several companies and individual defendants in a case filed by the FTC in Utah last month.  In that case, the FTC alleged a tangled web of purported misrepresentations involving a training/business education company and several of its suppliers. The federal court granted the FTC’s request for a temporary restraining order as well as imposing an asset freeze that froze not only those assets directly traceable to the businesses that were the subject of the complaint but also assets from unrelated businesses and assets of the named individuals. Under the original order, the individuals had no access to any funds, including funds that might be needed to buy food or fuel, pay legal fees, or pay utility bills nor did the businesses have access to funds needed to maintain their operations. Since the FTC routinely argues that assets other than those directly traceable to the alleged unlawful activity are fair game in satisfying any consumer redress requirement, the FTC’s request in this regard is hardly surprising.

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Posted in FTC

FTC Gives Cole Haan’s Contest the #Boot

ColeHaanOn March 20, 2014, the FTC issued a closing letter to Cole Haan that will affect all kinds of advertisers (and advertisements) on social media.  In particular, it will impact the way that brands interact with users on Pinterest and tell their users to use hashtags in contests and other types of promotions.  So advertisers, #listenup!

The FTC took issue with the shoemaker’s “Wandering Sole” contest on Pinterest, which called for people to create Pinterest boards with images of five Cole Haan shoes, along with pictures of the contestants’ “favorite places to wander.”  Whoever posted the most creative entry would win a $1,000 shopping spree.  Cole Haan told users to include the hashtag “#WanderingSole” with their photos, but—importantly—it didn’t tell participants they also needed to make it clear that they posted the pins in order to enter a contest.

The FTC was concerned because this material connection (the link between the pin and the contest entry) was not disclosed in entrants’ posts.  The letter states that “entry into a contest to receive a significant prize in exchange for endorsing a product through social media constitutes a material connection that would not reasonably be expected by viewers of the endorsement.”   The FTC observed that the participants’ pins featuring Cole Haan products were endorsements of the company’s products, and the #WanderingSole hashtag ineffectively communicated the financial incentive—a material connection—between Cole Haan and the entrant.

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What’s Good for the Goose Is Not Good for the Gander: The CFPB and the Endorsement Guides

Goose and GanderA company holds a press event to tout the success of its newly introduced product. Someone in the audience asks a question, which the Company subsequently uses in its advertising for the product. However, the Company fails to disclose that it actually paid for the audience member to fly into the press event. Is this a problem under the FTC’s Endorsement Guides? Most likely yes, since the payment of travel expenses would probably be a material connection between the consumer and the company.

A recent article in American Banker converts this hypothetical into reality, except that the company is a government agency, the Consumer Financial Protection Bureau. According to the American Banker, an outspoken critic of indirect auto lenders, Harry Douglas Lane, was in the audience at a recent CFPB forum and was called upon to speak as an audience participant. However, no one in attendance or the press covering the event was informed that the CFPB had paid for Lane’s flight to the forum as well as his hotel.  Continue Reading

POM Wonderful’s Decertification Decision Will Be Hard to Swallow for the Plaintiffs’ Class Action Bar

On March 25, 2014, Judge Dean Pregerson, of the U.S. District Court, Central District of California, decertified a nationwide class of consumers in a class action brought against POM Wonderful LLC over allegedly false and misleading health claims related to its pomegranate juice.  Judge Pregerson’s decertification order is significant because it makes class certification more difficult for plaintiffs, requiring that: 1) Plaintiffs comport with the rigorous analysis of class-wide damages set forth in the recent U.S. Supreme Court decision of Comcast Corp. v. Behrend, 133. S. Ct 1426 (2013); and 2) Plaintiffs demonstrate that the putative class is ascertainable, which has been the recent focus of many courts, many of whom have denied class certification on that basis. See, e.g., Carrera v. Bayer Corp., 727 F. 3d 300 (3d Cir. 2013). Also see Greg Sater’s recent post, Chipotle Case Gives Hope Against Class Actions. Continue Reading

Supreme Court Issues Much Awaited Decision in Lexmark Case

The Supreme Court of the United States of AmericaYesterday the Supreme Court issued its decision in Lexmark International, Inc. v. Static Control Components, Inc., a case that presented it with a three-way Circuit split on the issue of who has standing to bring a Lanham Act false advertising claim.  Before this decision, the law in the Third, Fifth, Eighth and Eleventh Circuits was that the plaintiff had to satisfy the five-factor test articulated in Associated General Contractors, an antitrust case.  The Seventh, Ninth and Tenth Circuits used a bright-line test, allowing plaintiffs to bring false advertising suits only against actual competitors.  The Second and Sixth Circuits adopted a “reasonable interest” test (an amici favorite) that looked to whether the plaintiff had a reasonable interest to protect and a reasonable basis for believing that interest was being impaired.

Justice Scalia wrote the opinion for a unanimous Court.  In typical Scalia style, he applied “traditional principles of statutory interpretation” to discern not “whether Congress should have authorized [the plaintiff’s] suit, but whether Congress in fact did so.”  And in another familiar move, Justice Scalia rejected all three tests applied by the Circuits in favor of his own.  In a Goldilocks moment, he found the antitrust standing test a “commendable effort” (high praise!) but “slightly off the mark,” the direct-competitor test a “distort[ion] of the statutory language,” and the reasonable interest test vague and “lend[ing] itself to widely divergent application.”  What was just right?  A test that looks to: (1) whether the plaintiff’s interests fall within the “zone of interests” protected by the Statute; and (2) whether the plaintiff’s injuries were proximately caused by the alleged violations of the Statute.

What is the significance of the opinion?  Continue Reading

Love Is a Battlefield, and Possibly a Lawsuit

Anyone who has ever been on a date knows that dating rituals are all about false advertising. “No, I don’t mind doing the dishes after dinner.”  “I have a great relationship with my family.” “Oh please, let me get the check.”

But earlier this week, we were treated to a new twist on a modern dating disaster when a lovelorn (and now broke) New Yorker filed a lawsuit against OKCupid after he was conned out of $70K by a man he met on the dating website.  Michael Z. Picciano’s complaint alleges that if OKCupid really was “the best free dating site on Earth” (as it advertises), then it wouldn’t allow a scammer by the likes of “genuineguy62” to use its services and swindle a trusting member of the OKCupid community out of tens of thousands of dollars.

Picciano alleges that OKCupid (and parent company IAC) failed to conduct “even minimal screening of its subscribers and therefore deceptively creating the impression that their dating service was safe…when in fact…[it] was a trap for the unwary.”  He says that OKCupid “failed to exercise reasonable care” in communicating “the dangers associated with online matchmaking.”  Continue Reading

FTC Settlement Highlights Lead Generation “Warning Signs”

A Federal Trade Commission (FTC) settlement with a lead buyer highlights the potential pitfalls with using lists from lead generators without considering how the lists were compiled or the requirements under the Telemarketing Sales Rule (TSR).  For lead generators, the settlement also provides a useful reminder of common hazards to avoid when developing leads.

The FTC, with the assistance of the U.S. Department of Justice, has settled a complaint against a home security company alleging that it illegally called millions of consumers on the FTC’s National Do Not Call (DNC) Registry to pitch home security systems.

According to the FTC, the lead generators that supplied the marketing list represented to the lead buyer that the lead generators had obtained consumers’ prior express consent to receive telemarketing calls about a home security system, but in reality, they had not.  Instead, the FTC’s complaint alleged that the leads were obtained by illegal means through rampant use by the lead generators of prerecorded message calls (also known as “robocalls”) from “Tom with Home Protection” and “safety survey” calls that were not bona fide surveys made to phone numbers on the DNC Registry.  According to the FTC’s complaint, Continue Reading

Posted in FTC

On Deck, Telemarketing Sales Rule Regulatory Review

The Federal Trade Commission (“FTC”) recently announced that it intends to begin review of, and solicit comments on the Telemarketing Sales Rule (“TSR”).  The opportunity to provide comments will be a significant opportunity for marketers to weigh-in on one of the FTC’s main regulatory and enforcement tools.

Despite its focus on telemarketing practices, the TSR’s breadth and impact goes far beyond merely the telephone and the well-known Do Not Call Registry.  The TSR is one of the few methods the FTC can efficiently (although sometimes controversially) adopt rules prohibiting deceptive or abusive practices.  And, it’s the TSR’s broad scope of coverage that has made it a popular enforcement vehicle for the FTC, Consumer Financial Protection Bureau (“CFPB”), and state Attorneys General.

Since the TSR was promulgated it has undergone several significant expansions, and at the same time the marketplace for telemarketing has changed in significant ways that impact consumers and marketers. The TSR gives effect to the Telemarketing and Consumer Fraud and Abuse Prevention Act (the “Telemarketing Act”) that was signed into law in 1994. The Telemarketing Act directed the FTC to adopt a rule prohibiting deceptive or abusive practices in telemarketing and specified, among other things, certain acts or practices that should be addressed, and additional practices if found deceptive or abusive. Pursuant to its authority under the Telemarketing Act, the FTC promulgated the TSR in August 1995, and has subsequently amended the TSR on three occasions, in 2003, 2008, and in 2010.  Continue Reading

FTC (Finally) Sounds the Alarm on Endorsements

In 2009, the FTC issued revised Guides Concerning the Use of Endorsements and Testimonials in Advertising and many expected a rash of enforcement in that area. The FTC also has promised to scrutinize statements made in the context of talk shows, which the FTC believes may constitute advertising. Although the FTC has brought a few cases challenging advertisers failure to disclose a material connection (see Spokeo, Reverb, and Legacy Learning cases) this area has not appeared to be a priority. In some instances the Commission has also opted to essentially issue a “warning,” exercising its discretion to close certain matters without bringing an enforcement action. Now, however, the FTC appears to be pursuing both endorsements and statements made on talk shows in an action announced on March 6, 2014, against ADT, a home security company. The agency alleges that ADT misrepresented the statements of paid endorsers as independent opinions of safety and technology experts.

The Complaint alleges that ADT paid three spokespersons, a child safety expert, a home security expert, and a technology expert, over $300,000 to endorse and promote the ADT Pulse home monitoring system. The endorsers also received a free Pulse system, valued at more than $4,000. The endorsers plugged the products in television interviews, radio interviews, and on blogs, with almost no mention of their connection to ADT. According to the FTC, consumers would interpret the endorsers’ recommendations of the product as the opinion of an independent expert, not an advertisement involving a paid spokesperson. Continue Reading

Siri, Should Plaintiffs’ Case Be Dismissed? Yes.

In an important development for product demonstration claims, a federal court recently dismissed with prejudice a lawsuit claiming that Apple’s advertising overstated the voice recognition capability for Siri.

When Apple first launched its iPhone 4S the company touted the inclusion of a voice-activated personal assistant, called “Siri.”  A number of commercials were aired in which consumers were shown querying Siri with requests regarding traffic, weather, sending texts, restaurants, gas stations and music.  To see Martin Scorsese using Siri click here.  The advertising claims at issue in the Siri case are “product demonstration” claims.  Product demonstration advertising claims often are powerful and persuasive because they provide the consumer with direct evidence about how great the product works.  But they are also subject to attack, often on the theory that they fail to depict the performance of the product in a way that replicates typical usage by ordinary consumers in the marketplace.

In the lawsuit, plaintiffs claimed that they purchased the iPhone 4S and then tried to replicate many of the same types of questions to Siri that were featured in the commercials.  Plaintiffs alleged that Siri either failed to respond to the questions or required multiple attempts before being able to do so and that Siri’s alleged failure to perform as advertised was a violation of California law. Continue Reading

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