We’re sorry not to be meeting up with you in person, but we hope you can join us for our spring 2021 edition of “Not a Symposium, but a Virtual Ad Law CLE Bonanza.” Combining the experience and thought leadership of one of the nation’s largest advertising law practices with key figures in advertising regulation, these three CLE-packed sessions are designed to educate and innovate. Topics will cover broad trends and anticipated developments, as well as industry-specific hurdles, highlights, and more.
On February 12, 2021, the Maryland General Assembly voted to override Governor Larry Hogan’s veto of House Bill 732, which carried over from the close of last year’s legislative session and enacts the nation’s first gross receipts tax on digital advertising targeted at Maryland consumers. The tax takes effect on March 14, 2021 and applies to all taxable years beginning after December 31, 2020. Legal challenges to the tax have already begun in the Maryland courts.
Overview of Digital Advertising Tax
House Bill 732 passed both the Maryland House and Senate with more than three-fifths support in March 2020, as the legislature rushed to consider legislation before adjourning for 2020 due to COVID-19 concerns. Governor Hogan vetoed the bill, leaving it in limbo until the legislature reconvened in 2021. The legislature’s override of the governor’s veto leaves companies with little time to determine their compliance obligations.
Last week the FTC announced it had settled with Chemence, Inc. (“Chemence”) and the company’s president over deceptive “Made in USA” claims. The company was required to pay $1.2 million to the FTC, which amounts to the highest monetary judgment ever for a Made in USA case.
By way of background, unqualified Made in USA claims require that all or virtually all of the product is made in the United States. Previous FTC guidance stemmed from a 1997 Enforcement Policy Statement, but last year the FTC announced a Notice of Proposed Rulemaking for the Made in USA Labeling Rule, which would codify much of the Enforcement Policy. Notably, the proposed Rule would allow the FTC to seek civil penalties for each violation. The Rule has not yet been made final, but the opportunity to comment ended in September 2020.
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While we anxiously await the Supreme Court’s decision on whether the FTC can obtain equitable monetary relief pursuant to Section 13(b) of the FTC Act in the AMG case, a defendant’s challenge to the FTC administrative litigation process appears to be struggling. As administrative litigation may be used more frequently by the FTC if it loses the AMG case, the case is worth following.
Axon Enterprises makes body cameras for police use and in May 2018 purchased one of its competitors. The FTC investigated the consummated merger and had concerns that the merger reduced competition. In January 2020, Axon filed a lawsuit in the District of Arizona, and on the same day the FTC filed a complaint against Axon. In its complaint, Axon argued that the FTC’s in-house litigation procedure violates due process and equal protection rights because the FTC controls all aspects of the proceeding, effectively making the FTC judge, attorney, and jury in these cases. Additionally, the complaint disparaged the FTC for the clearance process by which the FTC and Department of Justice decide which agency should handle a merger, claiming that the process lacks transparency. In support of its claim that these proceedings violate constitutional rights, Axon alleged that the FTC has not lost a single case in its in-house proceedings in 25 years. The FTC did not contest this statistic.
Last week, the Supreme Court heard oral argument in AMG Capital Management v. FTC. As we’ve previously discussed, the Supreme Court is set to decide whether Section 13(b) of the FTC Act, which expressly grants the FTC the right to obtain “a permanent injunction,” also grants the FTC the authority to obtain “equitable monetary relief.” During oral argument, certain Justices expressed doubt that the plain language of Section 13(b), when viewed in the context of the entirety of the FTC Act, authorized the FTC to obtain “equitable monetary relief” when proceeding under Section 13(b). While none of us can predict the future, after last Wednesday’s oral argument, we can’t help but wonder: What will happen if the FTC loses? Below, we have outlined the potential avenues for the FTC if the decision doesn’t go its way.
First, Congress could revise the language of Section 13(b) to allow the FTC to seek equitable monetary relief, a request the FTC made in October 2020. There’s precedent for such a move. After the Supreme Court significantly curtailed the SEC’s calculation of equitable monetary relief in Liu, Congress codified the SEC’s authority to seek disgorgement in federal district court as part of the 60th annual National Defense Authorization Act in January 2021, by amending the Securities Exchange Act of 1934. Congress could pass a similar amendment to the FTC Act to unambiguously allow the FTC to obtain equitable monetary relief under Section 13(b) or otherwise. Whether that potential authority would come with a statute of limitations, allow for joint and several liability, or be subject to other restrictions will be important in assessing any potential legislation.
On January 11, 2021, the Federal Trade Commission (FTC or the “Commission”) announced it reached a proposed settlement with Everalbum, Inc. (“Everalbum”), a developer of a photo app, to resolve allegations that the company deceived consumers about its use of facial recognition technology.
The settlement highlights the FTC’s focus on biometric data and increased scrutiny regarding facial recognition technology. Specifically, in announcing the settlement, the FTC stated that facial recognition technology can turn photos into “sensitive biometric data” and emphasized that ensuring companies keep their promises regarding the use of biometric data will be a “high priority for the FTC.” Additionally, while the proposed settlement was approved by all five FTC Commissioners, Commissioner Rohit Chopra issued a separate statement criticizing facial recognition technology and expressing support for a moratorium or restrictions on the use of such technology.
Everalbum provides a photo storage and organization app called “Ever,” which allows users to upload photos and videos to be stored and organized using the company’s cloud-based storage service. Starting in 2017, Ever launched its “Friends” feature, which uses facial recognition technology to group users’ photos by the faces of people appearing in the photos. Initially, the feature was automatically enabled for all users and could not be turned off, although the company later allowed users located in Illinois, Texas, Washington, and the EU to choose whether to turn on the feature. However, according to the FTC’s complaint, Everalbum’s website represented that Everalbum was not using facial recognition technology unless a user affirmatively enabled or turned on the technology. As the technology was instead enabled by default for users located outside of Texas, Illinois, Washington, and the EU, the FTC alleged that this representation was deceptive, in violation of Section 5(a) of the FTC Act.
Last week the FTC announced it had settled with mobile advertising platform Tapjoy regarding allegations that it failed to provide in-game rewards that users were promised for completing advertising offers. Commissioners Rohit Chopra and Rebecca Kelly Slaughter also issued a Joint Statement on the settlement, criticizing mobile app “gatekeepers” for excessive “rent extraction” from mobile gaming apps, which they believe has forced developers to adopt alternative – and often harmful – means of generating revenue, such as loyalty offers and loot boxes. The settlement, and particularly the separate concurrence written by Democratic Commissioners Rohit Chopra and Rebecca Slaughter, highlights the increased scrutiny over the entire mobile gaming ecosystem and the various businesses that operate within it.
Tapjoy operates a mobile advertising platform, acting as a middleman between advertisers, gamers, and game developers. The platform integrates “offers” into mobile games, promising users in-game currency and other rewards for completing the offers and promising developers a percentage of Tapjoy’s advertising revenue. Advertisers pay Tapjoy for each consumer who is induced to complete an offer, which often requires users to submit personal information or spend money, for example, by purchasing a product, enrolling in a continuity program, or completing a survey. Other offer requirements may include downloading an additional app or watching a short video.
The FTC has deemed claims made by CBD marketers to be humbug, announcing on December 17, 2020, a law enforcement crackdown on six companies that sell CBD and make allegedly deceptive and unsubstantiated claims that their products can treat serious health conditions including cancer, heart disease, hypertension, and Alzheimer’s disease. CBD is a naturally occurring substance that comes from the marijuana plant. While the claims brought by the FTC are similar to claims brought against marketers of other products making similar claims, the dueling statements by Commissioners Chopra and Wilson are noteworthy.
The six companies entered into settlement agreements that prohibit these companies from making false claims about their products in the future. Specifically, the proposed orders prevent these companies from prevention, treatment, or safety claims unless they have the human clinical testing to substantiate the claims. Additionally, the orders require the companies to have competent and reliable scientific evidence when making claims on any health-related product, and require the companies to pay the FTC $75,000 each and notify their consumers of the FTC complaint and order.
As the payments industry continues to evolve at a lightning pace, one of the newest developments is the ability for payments companies to leverage card network services to “push” payments to cardholders. Earlier this year, the technology gained attention as a potentially safe and efficient way to transfer funds in response to the challenges presented by the COVID-19 pandemic. In particular, as businesses shift to a remote environment, push-to-card services can provide benefits for both individuals and businesses, including for person-to-person (P2P) money transfer, funds disbursement, and bill payment, among other uses. And with the increased focus on “faster payments,” push technology has been discussed as a private sector means to speed up transaction settlement. Continue Reading Pushing to the Forefront – Get Ready for Push-to-Card Payments