Mastercard recently announced new requirements for merchants using a subscription billing model or negative option model, or both.  The new standards focus on disclosures made to consumers at the point of payment; providing adequate confirmation, notices, and billing receipts; and affording customers an online or electronic cancellation method.  Requirements relating to point of payment disclosures become effective on September 22, 2022.  The other requirements will become effective much sooner, on March 22, 2022.  As always, reconciling card brand requirements with current federal and state legal requirements and law enforcement priorities will take particular care and attention, particularly as laws in California and other states continue to evolve.

The Mastercard updates, like those imposed by other card brands, are intended to reduce complaints and chargebacks from consumers who might not understand they were enrolled in an automatic renewal subscription or negative option program (or who do not understand the billing terms), forgot they enrolled, or have difficulty canceling their subscriptions.

As we summarize below, the new Mastercard requirements apply to merchants using subscription/recurring billing models, including programs that charge a consumer for goods or services on a prearranged schedule (such as streaming video services, membership clubs, and software licenses).  Mastercard included certain additional requirements for negative option programs, where the merchant offers an initial free or discounted trial period of a subscription before automatically enrolling the consumer into the subscription, and the consumer must take some action to cancel before the end of the trial to avoid continuing with the subscription. Continue Reading New Mastercard Requirements for Subscription and Negative Option Billing Models

A hallmark of Chair Lina Khan’s tenure thus far at the FTC has been her effort to stoke fear to try to deter conduct that she does not like.  The FTC’s recent Penalty Offense Notices and the Enforcement Statement on Negative Option Marketing provide examples.  Last week, during the Commission’s open meeting on November 18 the Commission engaged in more sabre rattling by issuing a “Commission Statement Regarding Criminal Referral and Partnership Process.”  This statement outlines the FTC’s renewed commitment to continue to expand its criminal referral program.  At the open meeting, however, the Commissioners stressed that this is not a new policy and that the statement merely reflects what FTC Staff have already done for approximately the past 20 years.  Since 2003, the FTC’s Criminal Liaison Unit (CLU) has worked with federal, state, and local criminal law enforcement to refer those matters that implicate criminal activity.  On occasion, the FTC has even referred cases to international criminal law enforcement partners.

Chair Khan noted that the FTC is redoubling its efforts to deter corporate crime that most harms consumers because civil fines are not doing enough, and that major corporations are likely to be repeat offenders due to their resources and scale.  Also, Commissioner Slaughter mentioned that a lower stock price or a visit from the FTC are not the only things that these offenders should fear.  In other words, the Commission hopes that with the help of criminal law enforcement, a company will see the light of day that crime does not pay.

Continue Reading Chair Kahn says Don’t Do the Crime If You Can’t Do the Time

Last week two different bills were noticed by the House of Representatives that would provide additional remedial tools to the FTC to restore or replace some of what the agency lost when the Supreme Court struck down the agency’s ability to obtain equitable monetary relief under Section 13(b) of the FTC. Whether any of these bills ultimately become law is most uncertain.

The Budget reconciliation bill noticed by the Democratic Majority in the House last week has a significant change to the FTC’s remedial authority.  Buried in the 2,135 page long bill is a provision that would allow the FTC to seek civil penalties for first time violations of the FTC Act by amending Section 5(m)(1)(A) of the Act.

The proposed legislation would add the bolded and underlined language to Section 5(m)(1)(A).

The Commission may commence a civil action to recover a civil penalty in a district court of the United States against any person, partnership, or corporation which violates this Act’s prohibition of unfair or deceptive acts or practices or any rule under this subchapter respecting unfair or deceptive acts or practices (other than an interpretive rule or a rule violation of which the Commission has provided is not an unfair or deceptive act or practice in violation of subsection (a)(1)) with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and a violation of this Act or is prohibited by such rule. In such action, such person, partnership, or corporation shall be liable for a civil penalty of not more than [$43,792] for each violation

Interestingly, this remedy would only be available for consumer protection cases brought by the agency not antitrust cases. Also, the recovery of civil penalties has not been viewed as the type of remedy that would justify an asset freeze against defendants. Finally, nothing in the bill indicates that this civil penalty authority would apply retroactively to cases already brought by the agency.

In July the House passed a bill along party lines that would restore and expand the FTC’s Section 13(b) authority and have that authority apply retroactively to cases already filed by the FTC. That legislation has not moved in the Senate. Last week as part of a privacy bill, the House Republicans released legislation that also would restore the FTC’s 13(b) authority. The bill is materially different from the legislation that passed the House earlier this year. The Republican bill contains a scienter standard similar to Section 19 requiring the FTC show the defendant engaged in conduct that a reasonable person under the circumstances knew was unfair or deceptive. The Republican bill also would not apply retroactively and contains a five year statute of limitations.

Whether any of these bills become law remains most uncertain. For now they are just bills sitting on Capitol Hill.

As the bustling holiday season quickly approaches, and in light of COVID-19’s impact on global supply chains, retailers face many challenges in their business operations, but also in maintaining regulatory compliance relating to shipping—and shipping representations. This is especially true for retailers selling goods online, by phone, or by mail, who must be mindful of both federal and state regulations.

Major state regulators are already cracking down. Four California county district attorneys recently filed suit against Kanye West’s Yeezy Apparel brand, alleging violations of California Business & Professions Code, Section 17538, which requires in pertinent part that businesses selling goods online (or by mail or telephone) to California customers must ship the goods within 30 days of a completed order or provide a full refund, send written notice of the delay and offer a refund, or provide substitute goods and offer a refund. The law allows the state to seek civil penalties of $2,500 for each violation.

Continue Reading ‘Tis the Season—to Update Your Shipping Representations

The Federal Trade Commission (FTC) recently issued Notices of Penalty Offenses regarding for-profit education, endorsements and testimonials, and money-making opportunities. Prior to this year, the FTC had used its Penalty Offense authority only once in this century. So why the sudden rebirth? In this webinar, Venable attorneys examined the FTC’s authority in this area, the substance of the notices, and their broad implications.

What Is a Penalty Offense?

Under the Penalty Offense authority, the FTC can seek civil penalties against a company or individual if it proves that they had actual knowledge that the FTC had already issued a written decision (after an administrative trial) against another entity that the same conduct was unfair or deceptive in violation of Section 5(m)(1)(b) of the FTC Act. Section 5 enables the FTC to hold the person, partnership, or corporation liable for a civil penalty of up to $43,792 per violation.

In the last few weeks, the FTC has sent out three different notices. The purpose of these notices was to allow the FTC to argue that the recipients had actual knowledge that the FTC had previously ruled certain acts or practices to be unfair or deceptive. Each of the letters specifies that the FTC is not singling out recipients or suggesting recipients are violating the law, which signifies that this is part of an effort to effect broad changes in industry behavior.

Continue Reading FTC’s Notice of Penalty Offenses: What Do They Mean for You?

Martech (marketing technology) refers to any technology or tool that helps optimize or identify marketing efforts. Marketers rely on these tools to automate or streamline processes, collect and analyze data, and help engage with customers. The full suite of these interconnected tools is known as the martech stack.

Last year, the number of martech suppliers grew to 8,000 (and counting). To help clients make smart choices, Venable attorney A.J. Zottola has examined the rise of martech and offered guidance on procuring tools and negotiating contracts with vendors.

Martech should align with goals

When considering the use of martech technology, focus on the marketing objective. Martech tools fall into several categories, depending on the particular objectives they are used for:

  • Management tools
  • Commerce and sales tools
  • Content and experience tools
  • Advertising and promotional tools
  • Data tools
  • Social and relationship tools

Continue Reading Martech Procurement Tips and Contract Guidance

With Halloween just days away, it is perhaps fitting that the FTC has issued a new enforcement policy statement warning companies not to employ dark patterns to trick customers into a subscription plan. As we covered previously, the FTC has identified dark patterns—or website design features used to deceive consumers—as a priority for both rulemaking and enforcement actions. The timing of the announcement is a bit curious as the FTC is in the middle of a rule making on negative option marketing. More below from Commissioner Wilson on that.

The enforcement policy statement in many ways reflects the requirements of the Restore Online Shoppers Confidence Act (ROSCA) and established FTC precedent regarding negative option marketing. The FTC has been active against companies who hide their subscription programs behind links, have made customers undergo several attempts to cancel their subscription, or companies who failed to disclose that the benefits of their subscription did not exist anymore.

Continue Reading FTC Issues Dark Forecast for Dark Patterns in Subscription Auto-Renewal

With the complexity of product safety requirements, the changing regulatory environment, and the ferocious plaintiffs’ bar, it is more important than ever for importers, manufacturers, and retailers to understand their obligation to comply with product safety laws and standards. In this recent webinar, Melissa L. Steinman, a partner in Venable’s Advertising and Marketing practice, explored current developments in product safety and warranty laws and examined common issues and pitfalls that organizations need to be aware of relating to product standards and safety. She also addressed some follow-up questions.

Continue Reading You Asked, We Answered – Consumer Product Safety and Warranties

The first rule of comparative advertising has always been that you can say pretty much whatever you want so long as you don’t lie.  But there is a new wrinkle—don’t threaten or stalk the competition.  A recent Ninth Circuit decision in Thunder Studios v. Kazal, has shed new light on the extent of protection afforded by the First Amendment to reprehensible and confrontational speech.  The case is quirky in that the individuals protected by the First Amendment were not US Citizens and were not themselves in the US when the “protests” occurred, but the case is a cautionary tale as to the limits of First Amendment protection of comparative claims.  Importantly, however, the case cannot—and should not—be read to provide for an open invitation for competitors to promote or otherwise engage in extraterritorial smear campaigns with impunity.  Indeed, there is nothing in the Ninth Circuit’s opinion to suggest that it should be read to preclude or immunize parties from claims of defamation, product disparagement, or even invasion of privacy torts arising out of similar behavior.  Nor would it likely protect a party from liability from organizing a secondary boycott.  The case is pending en banc review by the Ninth Circuit so stay tuned.

Following the souring of a multimillion-dollar business deal between Australian citizens Roderick David, on the one side and Charif Kazal, Adam Kazal, and Tony Kazal on the other, the Kazals undertook an international campaign to inform the citizens of Los Angeles, California about the “despicable crimes” allegedly committed by David (then a resident of Los Angeles).  The Kazals sent hundreds of emails to David and his employees, hired protesters to picket and distribute flyers near his residence and business—Thunder Studios Inc., in Los Angeles—and had vans emblazoned with their message driven around the city.  Leaflets and signs held by protesters described David as a “corporate thief” and a “fraudster” who “robbed his business partners of $180 million.”

Continue Reading Sticks and Stones May Break Your Competitor, But Protests May Be Protected

Just days after the FTC announced that it was resurrecting its Penalty Offense Authority to crack down on for-profit higher education institutions’ false promises about graduates’ career opportunities and earnings prospects, the FTC is invoking this authority to “blanket[] industry with a clear message” about fake online reviews and other deceptive endorsements.

The FTC has revived this dormant authority—the latest example of its creative use of different enforcement tools to obtain monetary relief in the wake of the Supreme Court’s AMG opinion—to hold companies accountable, via significant financial penalties, for unfair and deceptive business practices.

As we previously wrote, former FTC Commissioner Rohit Chopra had championed the use of this authority and identified for-profit colleges as one possible industry for use of this enforcement tool, while identifying other targets like multilevel marketing programs, gig economy networks, and fake review and influencer fraud.

The FTC now has quickly turned its attention to fake online reviews and other deceptive endorsements, sending a Notice of Penalty Offenses to more than 700 companies, representing an array of leading retailers, consumer product companies, and ad agencies. In doing so, the Commission advises recipients of significant potential civil penalties—up to $43,792 per violation—they could incur if they use endorsements in ways that were found to be illegal in FTC administrative decisions rendered in the 1940s through the 1980s. Under Section 5(m) of the FTC Act, the FTC can obtain penalties against other entities not party to the original proceeding if it can show the entity had actual knowledge that the act had been found to be unfair or deceptive. However, the FTC points out that a company’s inclusion on the list of recipients is not an indication the company has acted illegally.

Continue Reading FTC “Blankets Industry” with Notice of Penalty Offenses Concerning Deceptive Reviews and Endorsements