All About Advertising Law

Regulatory & Litigation Developments for Advertisers and Marketers

“Public Access” isn’t a “Public Function”: No First Amendment Liability for Privately Managed Public Access Channels

By Leonard L. Gordon and Liz Clark Rinehart on July 1, 2019

The Supreme Court recently clarified the state-action doctrine in Manhattan Community Access Corp. v. Halleck. The result has made it all the more important for content creators to understand the types of entities hosting their content.

The plaintiffs in Halleck alleged that MNN, the private nonprofit that manages the New York City public access channels, violated their First Amendment rights by restricting them from using the channels based on the content of their programs.

Justice Kavanaugh, writing for the majority, disagreed, essentially saying “no way.” Since public access channels began in the 1970s, they have been run by a combination of private and public entities. Because running a public access channel is “not a traditional, exclusive public function,” the Court concluded, MNN is not a state actor, regardless of whether it provides a public forum for speech or whether it is subject to regulation. As a private entity, MNN is free to exert editorial control over the content it airs, without the constraints of the First Amendment.

What is “Incidental”? Ninth Circuit Provides Guidance on How to Determine if a Fax is an “Advertisement” Under the TCPA’s Junk Fax Provisions

By Daniel S. Blynn on June 25, 2019

On May 17, 2019, the U.S. Supreme Court announced it would not hear an appeal in Supply Pro Sorbents, LLC v. RingCentral, Inc., apparently satisfied with a Ninth Circuit ruling that the inclusion of a one-line company identifier on a fax cover page was not in violation of the TCPA’s bar on unsolicited advertisements. In Supply Pro, the Ninth Circuit affirmed the district court’s dismissal of a Junk Fax Prevention Act (“JFPA”) claim, holding that an unsolicited fax that merely contained an identifier of the sender and link to its website in an otherwise information facsimile did not run afoul of the JFPA. Persuaded by FCC guidance, the Ninth Circuit held that a “one-line identifier” is only an “incidental advertisement” that does not render the entire fax an advertisement within the meaning of the JFPA. Although the Ninth Circuit did not further delve into how to identify an “incidental advertisement,” the district court’s opinion provides further guidance. The district court noted in its decision that FCC Guidance looks to the relative size of the advertisement when assessing these types of unsolicited communications. Here, the identifier only took up one line, rendering it incidental. While the one-line identifier clearly promoted the defendant’s business, it did not rise to the level of a violation of the JFPA.

The denial of certiorari comes on the heels of a separate recent Third Circuit JFPA decision, which held that it would not expand the definition of “advertisement” in the context of the TCPA where the plaintiff received unsolicited faxes from a defendant merely seeking biographical information about healthcare providers to use in a database. The Third Circuit explained that, while the unsolicited faxes were sent with a profit motivation, “there must be a nexus between the fax and the purchasing decisions of the ultimate purchaser.” And, a fax specifically noting that “[t]here is no cost to you to participate in this data maintenance initiative. This is not an attempt to sell you anything” was held not be aimed at targeting potential buyers of the provider database.

At the end of the day, the test for what is and is not “advertising” under the JFPA still remains somewhat subjective by requiring a look into the “relative size” of the advertisement. However, the holdings in the Supply Pro and the Third Circuit decision may point to a narrowing of the construction of “advertisement” in the context of the TCPA’s bar on unsolicited advertising faxes, and confirm that such determinations can be made at the dismissal stage.

Federal Court to FTC: Show the Receipts When Seeking Disgorgement

By Leonard L. Gordon and Mary M. Gardner on June 18, 2019

A new decision out of the Middle District of Florida may signal further erosion of the FTC’s authority to seek monetary relief as it sets forth a heightened standard of proof the FTC must satisfy to support its disgorgement calculation. In FTC v. Vylah Tech LLC, the court found Vylah Tech, a small tech company, liable for disseminating false and misleading information regarding its computers. However, the court completely shut down the FTC’s demand for disgorgement of $3,400,000 in Vylah Tech’s purported revenues, awarding the FTC a whopping $0.

In a scathing opinion, the court admonished the FTC’s disgorgement calculation, stating that under the FTC’s current practices, “the disgorgement total is [obviously] a moving target.” First, the court found that the FTC’s calculation—based solely on bank records—was unreasonable. Specifically, the bank records were not specific enough to establish that the requested disgorgement figure “reasonably approximate[d]” the defendant’s unjust gains, as the records did not allow for identification of actual consumer transactions.

Locksmiths Locked Out of Lawsuit Against Search Engines

By Leonard L. Gordon and Matthew S. Renick on June 17, 2019

These days, Big Tech is Big News. While federal lawmakers have recently turned their attention to tech giants and their market power—and launched a broad antitrust probe to boot—a recent decision out of the D.C. Circuit may offer these companies some respite (for now). In a case that pitted fourteen locksmith companies against three tech giants, the appeals court ruled that the safe harbor protections under Section 230 of the Communications Decency Act (“CDA”) applied to shield the tech giants from suit.

In addition to state law claims, the locksmith company plaintiffs (the “Locksmiths”) brought a false advertising claim under the Lanham Act and two antitrust claims under the Sherman Act against three tech giants (the “Search Engines”). The thrust of the Locksmiths’ complaint is that the Search Engines conspired to inundate search results with listings for fake or scam locksmith companies in an effort to force legitimate locksmith companies to pay additional fees for better search result placement. Specifically, the Locksmiths took issue with the fact that the Search Engines, through the use of algorithms, took data they received from the scam businesses (such as address information) and displayed it pictorially alongside similar data points from legitimate businesses. The Locksmiths also complained that the Search Engines knew these sites were for scam businesses.

FTC Continues to Clamp Down on Gag Clauses

By Annie H. Lee on June 5, 2019

About a month ago, we blogged about how the FTC brought its first-ever cases under the Consumer Review Fairness Act (CRFA) since the statute went into effect in 2017. Well, it looks like the FTC was just getting started, as it announced this week that it has issued administrative complaints and proposed orders against two more companies for allegedly violating the CRFA.

To briefly recap, the CRFA prohibits businesses from including “gag clauses” in their form contracts that bar consumers from writing or posting negative reviews. According to the FTC’s administrative complaint against Shore to Please Vacations LLC, the respondents did just that by including a disclaimer in its form contract for online vacation house rentals that stated “you agree not to defame or leave negative reviews (…as well as any review less than a ‘5 star’ or ‘absolute best’ rating) about this property and/or business,” and specified that “breaching this clause…will immediately result in minimum liquidated damages of $25,000.” Similarly, the FTC alleged that Staffordshire Property Management, LLC used form contracts that prohibited rental applicants from disparaging Staffordshire or publicizing any opinions or communications related to Staffordshire, the rental application, or the application process. Under the FTC’s proposed consent orders, both companies are prohibited from using non-disparagement clauses in standardized customer contracts, and they must notify affected consumers of their right to post honest reviews. In addition, Shore to Please Vacations is required to dismiss with prejudice a claim that it filed against a renter for violating its non-disparagement clause.

If this past month is any indication, this will not be the last we hear of CRFA-related complaints. If you haven’t already, check all of your form contracts to make sure they don’t contain gag clauses; they’re often baked into boilerplate language, so it’s easy to overlook or forget that they exist. Receiving negative reviews may be bad for business, but getting sued by the FTC is probably worse—so we recommend that you play fair and comply with the Consumer Review Fairness Act.

FTC Reminds Crowdfunders: Deliver on Your Promises or Refund

By Kathleen K. Sheridan and Melissa Landau Steinman on June 4, 2019

Crowdfunding plays an important role in democratizing access to capital for small entrepreneurs, but as we’ve written before, entrepreneurs of every ilk need to remember that their representations to consumers need to be truthful, accurate and not misleading. Last month, the FTC filed a complaint against Douglas Monahan and his company iBackPack of Texas, LLC, alleging that Monahan and his company had violated Section 5 of the FTC Act by scamming consumers on crowdfunding sites Indiegogo and Kickstarter with four crowdfunding campaigns that together raised over $800,000, including a campaign to develop a bulletproof backpack that could recharge personal electronic devices and act as a mobile hot spot.

iBackPack ad

You Can’t Block the Ability of the CFPB to Challenge Conduct Through a Release in a Class Action

By Leonard L. Gordon on June 3, 2019

On April 22, the Maryland Court of Special Appeals told us that a class action settlement can’t buy you peace from the CFPB. That court ruled that a class settlement that purports to interfere with a state agency’s or the CFPB’s enforcement authority was unenforceable. The underlying dispute stems from two cases. The first is a class action brought by lead poisoning victims with cognitive impairments. And the second is a suit bought by government agencies for mishandling the rewards of the first case.

According to the CFPB’s Amended Complaint, class members in the first case were provided a structured settlement where they had the opportunity to transfer a portion of their future payment streams in exchange for a discounted immediate lump sum. Under Maryland’s Structured Settlement Protection Act (SSPA), structured settlement companies, such as the Access Funding Defendant, have to obtain the court’s approval before purchasing a payment stream. And most importantly, the SSPA requires that class settlement members consult with an independent professional advisor.

fore·shad·ow (verb). Be a warning or indication of (a future event): FCC Commissioner O’Rielly Speech Suggests What’s in Store for the TCPA

By Daniel S. Blynn on May 16, 2019

On May 16, 2019, FCC Commissioner Michael O’Rielly gave a speech at the ACA International Washington Insights Conference in Washington, DC, which gave a preview of how the Commission may shape the TCPA landscape in the near future. Commissioner O’Rielly’s full speech is available here. He gave his thoughts on a number of subjects and some of the highlights are below.

As to the TCPA’s definition of “automatic telephone dialing system” (ATDS or more commonly known as “autodialer”) litigation post-ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018), the Commissioner correctly noted that the “‘fog of uncertainty’ . . . remains thicker than ever,” with numerous courts struggling to interpret the TCPA and issuing conflicting decisions. He characterized some decisions as “illogically [finding] the FCC’s 2003 and 2008 orders defining an ATDS to be controlling post-ACA.” And, he went on to remark that:

[T]hat just pales in comparison to the medley of courts that have chosen to ignore the DC Circuit [in ACA Int’l] and instead follow the 9th Circuit’s extremely misguided and breathtakingly expansive definition of ATDS [in Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018)] as a device that stores numbers to be called, irrespective of whether they have been generated by a random or sequential number generator.

Gagging Gag Clauses under the Consumer Review Fairness Act

By Annie H. Lee on May 9, 2019

For the first time since the Consumer Review Fairness Act (CRFA) went into effect in March of 2017, the FTC has brought three separate actions enforcing the CRFA to halt the use of “gag clauses” – i.e., contract provisions that prohibit consumers from writing or posting negative reviews. The CRFA bans these types of non-disparagement clauses in consumer form contracts when the clauses are imposed on individuals without giving them a meaningful opportunity to negotiate. According to the FTC, an HVAC provider, a flooring company, and a horseback riding operation all violated this requirement. For example, the flooring company included language in its form contract that stated “By signing this purchase order you are agreeing under penalty of civil suit…not to publicly disparage or defame [the company] in any way or through any medium.” All three businesses have entered into settlement orders with the FTC, under which they are banned from using gag clauses in form contracts, and they must notify consumers who already signed their form contracts that the gag clauses are void and that the consumers have a right to publish their honest reviews, even if negative.

There are two other interesting facts to note regarding these cases. One is that the FTC did not allege in its complaints that the businesses knowingly violated the CRFA. In other words, the existence of the gag clause alone was enough for the FTC to take action, without having to establish a knowledge element. And second, in all three cases, the contracts specified that violation of the gag clause would have resulted in a civil lawsuit and/or damages. For instance, the horseback riding company’s form contract stated that its customers would be charged a minimum of $5,000 in damages if any disparaging statements were made. While these penalties may have increased the risk of regulatory scrutiny, it’s worth pointing out that they’re not necessary for the FTC to bring suit under the CRFA; the use of a non-disparagement clause that simply bars or restricts someone from writing or posting a review, even without the threat of a penalty, is enough to violate the Act. So if you’re entering into form contracts with consumers, don’t hamper their ability to review your products, services or conduct – and if you’re unhappy about this, well, you could always write a negative review about the CRFA.

FTC Warns Ukraine Company: You Can’t Let Kids Use Your Dating Apps

By Elliot Kelly and Leonard L. Gordon on May 8, 2019

With more and more children becoming technologically savvy, parents are having to rely more heavily on laws such as the Children’s Online Privacy Protection Act (“COPPA”) to shield their children’s information. The FTC recently issued a warning letter to a Ukraine-based company, Wildec LLC (“Wildec”), for allowing children under the age of thirteen to access its dating apps—alleging a potential violation of COPPA and the FTC Act.

A little background on COPPA: the FTC’s COPPA Rule prohibits companies from collecting, using, or sharing personal information from a child, which is defined as an individual under the age of thirteen, without the parent’s verifiable consent. In addition, companies must also provide a notice on its website stating what information is collected as well as any disclosure practices for such information.

Wildec’s dating apps collected an array of information from its users, such as email addresses, photographs, dates of birth, as well as a user’s real-time location data. Although the app’s privacy policy prohibited users under the age of thirteen, the FTC staff found that users who indicated they were under thirteen were not prevented from accessing and using the apps, and staff were able to locate individuals that indicated they were as young as twelve. In addition, the FTC noted in its warning letter that “facilitating other users’—including adults’—ability to identify and communicate with children—even those 13 or over—poses a significant risk to children’s health and safety.” Following the allegations, the apps were swiftly removed from Google Play and Apple’s App Store.