All About Advertising Law

Regulatory & Litigation Developments for Advertisers and Marketers

No Math Allowed – The Saga of New York Surcharge Law Continues

By Leonard Gordon and Evan Minsberg on November 7, 2018

Whether merchants can charge consumers who pay with a credit card more and how that increase in price is described has been the subject of extensive litigation. According to a divided New York Court of Appeals, New York’s anti-surcharge law, which banned merchants from imposing a surcharge on credit customers, does not actually prohibit a merchant from charging more or characterizing the difference in price for cash versus credit as a “surcharge” as long as the total price for credit purchases is posted. As a result, retailers are free to call the higher price for credit whatever they want as long as consumers do not have to do math to figure out what that price is. The decision sets the stage for the law to be upheld against claims that it restricts commercial speech in violation of the U.S. Constitution.

In 2013, a group of retailers sued the New York Attorney General in the case Expressions Hair Design v. Schneiderman, alleging that New York General Business Law § 518 violates the First Amendment by permitting higher prices for credit card users while restricting the manner in which retailers may describe those prices. Specifically, the plaintiffs would like to use a “single-sticker” pricing scheme under which they would post a single price for cash or credit with an additional amount or percentage for credit purchases, for example, “$10 for a haircut, plus 3% if paying by credit card.”

New Faces, Same FTC

By Leonard Gordon on October 31, 2018

Recently, we wrote about new faces at the FTC, which, for the first time in its history, has five new Commissioners in a calendar year. This unprecedented change has cast some uncertainty on how the FTC will approach consumer protection enforcement. Recent actions by the Commission, however, indicate that despite new leadership, the Commission’s focus will be largely unchanged. Unsubstantiated health claims and unauthorized billing appear to remain high on the FTC’s list of priorities.

Last week, the FTC won a preliminary injunction from the Central District of California regarding the sale of oral dissolvable film strips promising smoking-cessation, weight loss, and enhanced sexual performance—all past favorites of the FTC. The advertisements for all three products made objective claims concerning performance such as the “88% Success Rate” of the smoking-cessation product or the promise that you can “lose 10, 20, even 100 pounds without giving up your favorite foods or adding any exercise.” The FTC alleged these claims were false, misleading, or unsubstantiated. The FTC also challenged alleged phony testimonials and threw in a false “Made In The USA” claim.

In addition to the product claims, the Commission also alleged that the defendants allegedly charged consumers without their knowledge or consent through an automatic renewal plan violating the FTC Act, ROSCA, and EFTA. Automatic renewal or negative option plans have frequently been the subject of enforcement by the FTC as well as several states in recent years. It does not appear that the new Commission will be changing course.

Finally, the FTC also alleged that the defendants violated the Telemarketing Sales Rule by sending prerecorded outbound calls to induce the sale of their products. So, while there might be new faces at the top of the FTC, it appears that for many marketers, it’s business as usual.

FTC Stems Doc’s Stem Cell Claims

By Leonard Gordon and Matthew Renick on October 29, 2018

The Federal Trade Commission (“FTC”) recently settled a case against a physician and his two clinics over allegedly deceptive and unsubstantiated claims relating to their “amniotic stem cell therapy.” The physician, Dr. Bryn Jarald Henderson, frequently appeared in his companies’ advertisements and claimed that this therapy, which purported to use stem cells derived from amniotic fluid, could treat diseases such as Parkinson’s disease, autism, macular degeneration, cerebral palsy, and multiple sclerosis. The proposed settlement order imposed a $3.31 million judgment, which will be partially suspended after the defendants pay $525,000 to the FTC for refunds to harmed consumers, and a broad injunctive order. The order prohibits unsubstantiated claims relating not only to amniotic stem cell therapies, but also to several other therapies not included in the complaint, such as therapies using stem cells derived from adipose tissue, bone marrow, umbilical cord blood, and peripheral blood. In addition, unsubstantiated claims relating to food, dietary supplements, drugs, and medical devices are covered.

According to the FTC’s complaint, “[t]here are no human clinical studies in the scientific literature showing that amniotic stem cell therapy cures, treats, or mitigates diseases or health conditions in humans, and the medical community considers amniotic stem cell therapy to be an experimental and unproven treatment.” Despite this, Dr. Henderson’s clinics charged patients between $9,500 and $15,000 for initial stem cell injections and $5,000 to $8,000 for follow-up “booster” procedures. The clinics’ marketing materials included claims such as: “Lives are being saved, the blind see, the crippled walk . . . with a single therapy that lasts for years and impacts their lives NOW”; “[w]e can reverse autism symptoms”; “[t]hese macular degeneration stem cell treatments have been shown to improve sight in patients with macular degeneration”; and “[y]es, we can treat Parkinson’s.” The FTC alleged that Dr. Henderson could not substantiate these claims.

This isn’t the FTC’s first settlement in the medical space this year. Just last month, the FTC settled its complaint against iV Bars, alleging that the company lacked substantiation for its claims regarding the efficacy of its intravenously injected therapy products (“iV Cocktails”) in treating cancer, multiple sclerosis, and congestive heart failure. Earlier this year, the FTC settled its complaint against CellMark, alleging that the company deceptively advertised its products as effective treatments for cancer patients’ malnutrition and treatment-related cognitive dysfunction. The FTC appears to remain focused on health claims of all types and also to be following the marketing of new or innovative treatment modalities. Folks involved in advertising health care services would be wise to remember that an ounce of prevention is worth a pound of cure. In other words, talk to a lawyer before making aggressive health claims.

Influencer Marketing – Three Golden Rules

By Ellen Berge on October 23, 2018

My kids watch a lot of YouTube videos, ranging in topics from taking an alligator to the vet to the world’s longest walk on Legos. They have their favorites – YouTubers under the names LoserFruit and Dude Perfect come to mind. I have caught my daughter practicing for her own channel about making slime.

Those aspirations had me thinking about the career path of being an “influencer.” Indeed, trickshot stars and video game aficionados have been hired as brand ambassadors for everything from sports equipment and toys to automobiles and insurance. By some accounts, YouTubers are making five-to-seven figures as brand partners.

While brand ambassadors can influence the purchasing choices of their audience, there are rules in the U.S. about influencer marketing that influencers must follow and brand marketers must monitor. This post outlines the basics in three golden rules.

The FTC’s New Data Tool: The first edition may be setting the stage to go after gift and prepaid card retailers, program managers, and other vendors?

By Gerry Sachs and Kathleen Sheridan on October 22, 2018

This week, the FTC launched a new interactive tool to view its aggregated consumer complaint data. Previously released annually, data collected through the Consumer Sentinel Network will now be reported quarterly. The FTC’s data tool is interactive and allows users to narrow the data by state, type of fraud, contact method, age of victim, amount of loss, and more. With just a few clicks, you can see that consumers in Virginia have lost $19.6 million to fraud so far this year, surpassing last year’s total of $15.1 million by 30%—and it’s only mid-October! The data tool also helps explain why so many robocalls around the nation’s capital seem to be for vacation scams—Maryland and Virginia are ranked #1 and #2 for reports of travel, vacation, and timeshare fraud. The tool contains quarterly and annual data going back to 2014, permitting users to view trends over time on very specific issues. The FTC hopes its new quarterly data releases will provide consumers with more timely information on consumer complaints and the types of scams and other fraud they face.

In that spirit, the FTC also announced its new Consumer Protection Data Spotlight, touted as a “deep dive” into the consumer complaint data to highlight emerging or existing trends. (No word on how often the Spotlight will be published, but we are guessing that it may accompany each new quarterly data release.) This reporting is eerily similar to how the Consumer Financial Protection Bureau used to publicize its consumer complaint data.

Big Bird Goes Digital: The FCC Undertakes to Modernize Children’s Television

By Ian Volner and Jessica S. Borowick on October 18, 2018

It has taken a while, but the FCC has finally realized that the Children’s Television Act (CTA or “Kidvid” as it is called in the industry) is more than somewhat out of date: The media world is not what it was when the CTA was passed by Congress 28 years ago. According to the FCC, among the other changes brought on by the advent of the Digital Age, children are engaging in less “appointment viewing” and in more on-demand, online and other non-broadcast content consumption. The FCC has concluded that the expansion of viewing outlets and the changes in children’s educational and entertainment options warrant a reexamination of some of its rules implementing the CTA. It has issued a Notice of Proposed Rulemaking (“NPRM”), has received comments and can be expected to act on the proposed changes in the next several months.

The NPRM advances several “tentative conclusions” related to the content that broadcasters may count toward satisfying the “Core Programming” requirement. Essentially, the FCC has defined Core Programming as programming that targets children under 13 as the intended audience. The definition will not be changed but the FCC has proposed eliminating several of the Core Programming criteria, specifically, the requirements that Core Programming be (1) at least 30 minutes in length; (2) regularly scheduled; and (3) identified as Core Programming within the content using the designation “E/I,” which stands for “Educational and Informational.” The NPRM is also seeking comments on whether to maintain or eliminate several other Core Programming and reporting requirements, including that (A) Core Programming be broadcast between 7:00 a.m. and 10:00 p.m.; (B) that broadcasters notify program guide publishers about Core Programming; and (C) that broadcasters file quarterly compliance reports with the FCC. Moving forward with the proposed reduction in paperwork associated with the CTA Rules should be a no-brainer; whether the prescriptive scheduling requirement will be changed is harder to predict.

Court Sets Important Limits on Ability of FTC to Challenge Past Conduct

By Leonard Gordon and Mary Gardner on October 17, 2018

Believe it or not, the FTC’s power is not limitless. We wrote previously on an antitrust decision (FTC v. Shire ViroPharma) limiting the FTC’s ability to proceed in federal court to challenge past violations of the FTC Act. This week a judge extended that reasoning to the FTC’s consumer protection enforcement authority. In FTC v. Hornbeam Special Services, Judge Timothy C. Batten Sr. held that when the FTC proceeds in federal court pursuant to Section 13(b) of the FTC Act, the FTC must plead facts indicating that each defendant is violating or about to violate a law enforced by the FTC. Having found the FTC had thus far failed to do so, Judge Batten will allow the FTC the opportunity to amend its complaint to add such facts.

Section 13(b) provides:

Whenever the Commission has reason to believe (1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced the Federal Trade Commission . . . the Commission by any of its attorneys may bring suit to enjoin any such act or practice.

See our past post on the history surrounding this statute here.

Insights into the FTC’s Bureau of Consumer Protection

By Jonathan Pompan and Helen Chen on October 12, 2018

The Federal Trade Commission (FTC) plays a significant role in regulating consumer financial services providers and vendors, including advertisers and marketers. A recent webinar from the Consumer Financial Services Committee of the American Bar Association featured an interview with Andrew Smith, director of the FTC’s Bureau of Consumer Protection (BCP). Mr. Smith, who was confirmed in May 2018, shared his personal views of his role at the FTC, the FTC’s development, and enforcement trends and focus in the consumer financial services sector. Below we highlight the main areas of focus that Mr. Smith touched upon that in our view are relevant to the consumer financial services sector.

Because of the nature of the webinar, this summary is not intended to be a complete transcript, does not reflect the views of the FTC, and does not necessarily reflect the views of Mr. Smith or any individual at the FTC.

Insights into the FTC and the Utah Department of Commerce: Consumer Fraud and Business Symposium

By Alexandra Megaris and Elliot Kelly on October 8, 2018

On September 20, 2018, the FTC and Utah Department of Commerce held a symposium in Salt Lake City, Utah, discussing, among other things, how the two work together to combat consumer fraud in various areas. The panels provided a unique insight into how law enforcement agencies coordinate and their respective priorities. Below are two key takeaways from the various panels.

State and Federal Agencies Are Working Together

Although it may seem like no one is getting along these days, there continues to be a significant degree of coordination and cooperation between the federal government and state counterparts to achieve the common goal of battling consumer fraud. Agencies are forming partnerships to better understand vulnerable areas for consumers and better situate themselves to obtain the most consumer redress. Some groups, such as the Investment Fraud Working Group, which comprises both federal and state agencies, meet formally every quarter to discuss strategic plans. For example, as a panelist noted, depending on the size of a given case and whether it involves activities crossing state lines, the Utah Department of Commerce may refer a case to the FTC because it can cross state borders and can obtain asset freezes and temporary restraining orders.

Demystifying the NAD Referral Process

By Randy Shaheen and Matthew Renick on October 4, 2018

What does it mean when the National Advertising Division refers a case to the Federal Trade Commission? At this year’s NAD Annual Conference, Mary K. Engle, the associate director of the FTC’s Division of Advertising Practices, and NAD director Laura Brett sorted fact from fiction about NAD referrals and shared their perspectives from both sides of the process. Read on to learn more about the referral process and the key takeaways from their discussion.

To start, Ms. Brett acknowledged that in an ideal world, parties would voluntarily participate in and comply with the NAD review process, which would eliminate the need for referrals to the FTC. Although referrals constitute a small percentage of the work the NAD does, Ms. Brett views referrals as a failure of the self-regulatory process. Ms. Brett went on to explain that referrals arise from one of two main scenarios: (1) failure to file a substantive written response or (2) failure to comply with a NAD or NARB decision. That latter category can be further broken down into situations where (a) the advertiser has not agreed to comply with a decision, or (b) the advertiser has not complied by failing to make a bona fide attempt to bring its advertising into compliance with NAD/NARB recommendations after a reasonable amount of time. Once a decision has been made to refer the case to the FTC, the NAD packages up the case file and sends it to the Advertising Practices Division (the “Division”).