All About Advertising Law

Regulatory & Litigation Developments for Advertisers and Marketers

Mastercard Targets Negative Options In 2019 – Demands Transparency

By Ellen Berge, Andrew E. Bigart, Leonard Gordon and Christopher Boone on January 14, 2019

As 2019 goes into full swing, it’s important for providers of payment processing services (referred to here as “acquirers”) and their merchants or submerchants to prepare for the various regulatory and industry changes coming this year. One such significant change comes in the form of Mastercard’s updated rules for negative option billing programs.

Set to take effect on April 12, 2019, Mastercard’s new rules will tighten consumer protection requirements for negative option merchants and their acquirers that process Mastercard transactions. Several laws such as the Electronic Fund Transfer Act, the Restore Online Shoppers’ Confidence Act, and various state laws already apply to negative option billing programs, but Mastercard’s new rules go even further. Among other things, the rules include a requirement for merchants to notify consumers at the end of a trial period before charging the consumer.

Applicability

Notably, the new rules cover any card-not-present transaction where the consumer purchases a subscription to automatically receive a physical product (such as cosmetics, healthcare products, or vitamins) on a recurring basis. Fully digital services are not covered.

This means the rules apply to free trial offers and most forms of negative option programs involving product sales. The negative option plan may be initiated by a free trial, nominally priced trial, or no trial at all. However, if a trial is used, special rules apply to ensure the consumer is aware of and consents to subsequent payments at the trial’s conclusion.

SCOTUS Instructs Courts to Enforce Parties’ Agreements with Respect to Arbitrability

By Stephen R. Freeland and Matthew Renick on January 10, 2019

Do you know what your arbitration provisions say about arbitrability? If not, now is a good time to review them in light of the U.S. Supreme Court’s unanimous decision this week in Henry Schein, Inc. v. Archer & White Sales, Inc. holding that, where parties have entered into an arbitration agreement, and that agreement clearly delegates to an arbitrator the question of which disputes must be arbitrated (i.e., questions of “arbitrability”), courts must enforce those terms and permit the arbitrator – not the judge – to determine whether the specific dispute in question will proceed in arbitration or in court.

The case was filed in Texas federal court by Archer and White (“Archer”) after its relationship with Henry Schein, Inc. (“Schein”) soured. Archer, a dental equipment distributor, entered into a contract with Pelton and Crane (“Pelton”) to distribute dental equipment manufactured by Pelton. Archer thereafter sued Pelton’s successor-in-interest and Schein alleging violations of federal and state antitrust laws, seeking both monetary damages and injunctive relief.

CBD Update: The FDA Commissioner Cannot Ignore the Buzz – But Is Further Deregulation on the Horizon?

By Andrew E. Bigart, Todd H. Halpern and Todd Harrison on January 9, 2019

With the ink on the president’s signature barely dry, the commissioner of the U.S. Food and Drug Administration (FDA) – Dr. Scott Gottlieb – issued a statement letting everyone know that the agency is aware of the implications of the Agriculture Improvement Act of 2018 (a/k/a the Farm Bill). As we reported last month, CBD derived from hemp may not be “marijuana” any longer, but the laws that the FDA enforces continue to prohibit (at least, in the FDA’s view) the manufacture and distribution of foods and dietary supplements containing CBD. Dr. Gottlieb took this opportunity to reiterate the agency’s position, noting that “it’s unlawful under the [Federal Food, Drug and Cosmetic Act] to introduce food containing CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.”

The commissioner also indicated, however, that the agency will initiate a process for reexamining current policy, stating:

The FTC Has New Enforcement Authority in the Fight against Opioid Addiction

By Michael Blume on January 8, 2019

The government is serious about opioids. We can see that in the many big, headline-grabbing steps it is taking to confront the problem. We can also see it in a number of small, less well-known steps it has taken. These often unheralded actions are strong evidence that the government is thinking hard, thinking creatively, and thinking aggressively. We will discuss one of those actions here: the unleashing of the FTC into the opioid field.

To review, over a year ago, the Department of Health and Human Services declared the opioid crisis a public health emergency. Since then, numerous federal agencies have been enlisted to step up their efforts to address the emergency. We highlight just a few of the recent statements by the DOJ, the FDA, and the FTC that affirm their commitment to combat opioid drug abuses. This government-wide effort is necessary. As James M. Burnham, the Deputy Assistant Attorney General of the Department of Justice, recently reminded us, opioid drug overdoses claimed the lives of 49,000 Americans in 2017.

But Wait, There’s More! . . . Litigation: Federal Court Sustains Lanham Act Claims Against Allegedly False “As Seen On TV” Advertising

By Leonard Gordon, Elise Gabriel and Matthew Renick on January 7, 2019

Many retailers carry products with the phrase “As Seen on TV.” What if a product bearing that phrase, however, had not actually been seen on TV? A recent case in federal court in the Southern District of New York ponders that question.

In an advertising war between copper cookware competitors, plaintiff Emson sued its competitor Masterpan under the Lanham Act challenging claims made for the “The Original Copper Pan” (“OCP”). These claims included Masterpan’s use of the “As Seen On TV” logo; that the OCP was “original;” and that the OCP was “copper-infused,” “made of ultra-tough copper,” and made with “copper construction.” Emson alleged, among other things, that: (a) Masterpan falsely represented the OCP with its “As Seen On TV” label; (b) Masterpan’s “original” advertising deceived the public into believing that the OCP was the first copper pan of its kind; and (c) Masterpan mischaracterized the amount of copper in the OCP. Emson contended that these false claims diverted sales from Emson’s own “Gotham Steel” products, traded off its goodwill, and deceived consumers. Masterpan moved to dismiss Emson’s claims for lack of personal jurisdiction, improper venue, and failure to state a claim.

New Farm Bill Cracks Open Door to Processing for Legalized Hemp and CBD Oil

By Andrew E. Bigart, Todd H. Halpern, D.E. (Ed) Wilson, Jr., Ellen Berge and Kathleen Sheridan on December 21, 2018

Signed into law on December 20, 2018, the 2018 Farm Bill may present a tremendous opportunity for banks and payments companies to provide banking, processing, and other services to the hemp industry. We expect a variety of companies to move swiftly in developing, marketing, and selling products (including CBD oil) that, until yesterday, were controlled substances. This means that banks and payment processors should be prepared for a flood of inquiries from the industry about opening bank, merchant processing, and other financial accounts.

While the Farm Bill “legalizes” hemp, there remain a number of open questions that financial institutions should consider before they start serving the industry. This article provides a brief overview of the Farm Bill’s impact on the legal status of hemp, highlights some of the open questions, and provides suggested best practices for banks and processors seeking to work with the hemp industry.

Hanging Out to Dry: FTC’s Ongoing Pursuit of Credit Card Laundering has Reached an Apex

By Leonard Gordon on December 14, 2018

The Federal Trade Commission (“FTC”) continues to crack down on companies engaged in credit card laundering. Credit card laundering is the practice of processing credit card transactions for one company through the merchant processing account of another company. Credit card laundering can be used to bypass the monitoring practices and volume thresholds of credit card associations and payment processors. A new complaint and a settlement of a prior case highlight the effort that the FTC is devoting to this area.

On November 14, 2018, the FTC filed a complaint against Apex Capital Group, LLC and others, alleging an international network of corporations and individuals that marketed “free” trial offers to consumers for personal care products and dietary supplements, only to charge consumers the full price for the products. The Defendants also allegedly engaged in credit card laundering. The FTC alleged that the Defendants used dozens of shell companies and straw owners to obtain merchant accounts and process charges through these accounts in furtherance of their scheme.

On December 11, 2018 the FTC announced a settlement of charges against certain defendants in the Money Now Funding (“MNF”) scam regarding their role in laundering transactions for MNF. The FTC previously settled with two other defendants in March 2018. Both settlements led to a ban on acting as payment processors, independent sales organizations, or sales agents, a prohibition on credit card laundering, and a monetary judgment owed to the FTC.

DOJ Signals Changes to Its Corporate Enforcement Policy

By Michael Blume, Warren Hamel, George Kostolampros, Kan Nawaday and Stephen Salsbury on December 12, 2018

Deciding whether to voluntarily disclose information to the government is difficult. Any guidance from the government as to what it expects from organizations and how it will reward self-disclosures should thus be welcome.

In a recent appearance at a conference on the Foreign Corrupt Practices Act, Deputy Attorney General Rod Rosenstein announced several changes to DOJ’s corporate enforcement policy. Notably, his statements rolled back some of the requirements set forth in the eponymous “Yates Memo” from 2015. In this blog post, we’ll highlight two key policy differences between the Yates Memo and the updated DOJ policy.

First, DOJ is changing how companies may earn credit for cooperating with civil and criminal investigations. The Yates Memo advanced more of an “all or nothing” approach, where companies had to disclose the wrongdoing of all individuals involved in a corruption scheme. Failure to disclose information related to all individuals precluded companies from earning any cooperation credit.

All I Do is Win, Win, Win?: SEC Settles Charges with Floyd Mayweather and DJ Khaled

By Michael Blume and Kathleen Sheridan on December 11, 2018

In the iconic words of DJ Khaled: “Another one.” That’s right, folks. Another round of celebrities have fallen on the wrong side of the federal government’s enforcement of its advertising disclosure rules. Recently, the SEC announced that it settled charges against Floyd Mayweather (professional boxer) and DJ Khaled (entertainer and music producer) for failing to tell their social media followers that they received money for promoting investments in Initial Coin Offerings (“ICOs”). This case is especially noteworthy, considering that this is the first time the SEC brought an action against a paid celebrity endorser involving ICOs.

In Mayweather’s case, he received a $300,000 payment for ICO tweets like this one: “starts in a few hours. Get yours before they sell out, I got mine…”

Likewise, DJ Khaled received a $50,000 payment for this tweet: “I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now!”

There is an Assault on the FTC’s Powers – Can it Withstand the Battering?

By Michael Blume, Leonard Gordon and John Cooney on December 10, 2018

The FTC has long claimed expansive authority under the FTC Act to obtain injunctions and monetary judgments. Its claim to that expansive authority is somewhat creative, however, and has always rested on a shaky foundation.

Litigants have begun taking aim at that claimed authority. In recent blog posts, we have written about challenges to the prevailing standard that governs when the FTC can obtain an injunction. Such challenges are enjoying some measure of success; important decisions in FTC v. Hornbeam Special Situations and FTC v. Shire ViroPharma curtail the ability of the FTC to obtain injunctions.

The signs of success on the injunctive front mirror similar signs on the monetary front. In recent days, for instance, a federal judge called into question the ability of the FTC to seek expansive monetary relief under Section 13(b), the statutory provision at issue in all of these challenges.