Operation Full Disclosure, Continued: FTC Releases Disclosure Guides for Influencers

Influencers, if you ever wished you had a handy brochure on how to make proper disclosures in your sponsored posts, you are in luck. On Tuesday, the FTC issued a new guide titled “Disclosures 101 for Social Media Influencers,” along with three videos, that lays out the agency’s guidelines for when and how influencers should disclose their connection to a brand. The principles are nothing new, but they are explained in a way that is straightforward and user-friendly, complete with hearts and thumbs-up emojis. Some of the principles that are covered include:

  • If you endorse a product on social media, you need to make it obvious when you have a relationship with the brand — whether it be a personal, family, employment, or financial relationship (eg., the brand pays you, or you get free or discounted products).
  • As an influencer, it is your responsibility to make endorsement disclosures and to be familiar with the FTC’s guidelines.
  • The disclosure should be hard to miss and placed within the sponsored post itself. It shouldn’t be mixed into a string of hashtags (for example, #Venable #AllAboutAdvertising #Ad #GOAT), and if the endorsement is in a picture or video format, the disclosure should be superimposed on the image itself and/or verbally disclosed throughout the footage.
  • The disclosure should be in simple and clear language. Terms like “ad,” “sponsored,” “BRAND Partner,” and “BRAND Ambassador” are OK; shorthand references (eg., “sp,” “spon,” or “collab”) and stand-alone terms (e.g., “thanks” or “ambassador”) are not OK.
  • Your post must be truthful. Don’t lie and say that you’ve tried a product when you haven’t actually tried it, or that a product is great if you thought it was terrible.

And although this isn’t mentioned in the guide, keep in mind that the FTC is “following” influencers closely, as evidenced by its previous warning letters and complaints, and now the publication of this guide. If you are an influencer, make sure to familiarize yourself with the agency’s rules; if you represent a brand that works with influencers, send them a copy of the guide and double-check that its principles are consistent with your own internal compliance policy. Doing so will help keep you and your influencers on the right side of the law — and on the right side of the FTC.

‘Tis the Season: Make Certain That You Renew Your DMCA Designated Agent with The US Copyright Office or Say Goodbye to Your Potential Safe Harbor from Copyright Liability

Have you renewed your DMCA Designated Agent designation with the Copyright Office yet? (If you are unfamiliar with a DMCA Designated Agent, read below for an explanation.) Any company that may have previously qualified for the safe harbor from liability for copyright infringement under Section 512 of the DMCA will lose any ability to claim this safe harbor if the company does not renew its designation of agent within three years of the last online filing (or amendment), assuming you did this correctly between December 1, 2016 and December 31, 2017.

In late 2016, the Copyright Office issued a rule that everyone needed to file new online Digital Millennium Copyright Act “DMCA” agent designations between December 1, 2016 and December 31, 2017. Any DMCA agent designations that were filed at the Copyright Office prior to December 31, 2016 expired on December 31, 2017 if not renewed online. If you did not file any new DMCA agent designation online between December 1, 2016 and December 31, 2017, then your designation has expired and your company would not qualify for the safe harbor under the DMCA. If applicable to you, your company should file one immediately and hope that you had no copyright liability exposure during the intervening time.

If you did file a new online designation of your DMCA agent between December 1, 2016 and December 31, 2017, then you are required to file a renewal within three years of the date you filed your original online designation (unless you already amended in the meantime, in which case your three-year clock runs again from the date you amended it). This means that many companies have these renewals due between December 1, 2019 and December 31, 2020, depending on when they filed the original online designation. Simply put, if you filed your online designation of agent December 15, 2016, then your renewal is due no later than December 15, 2019. If filed your designation of agent December 15, 2016, but then amended your online designation in the meantime on January 1, 2018, then your renewal is not due until January 1, 2021.

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FDA Puts Homeopathic Industry on Notice – No More Lax Enforcement

Agency Denies Industry Petition and Publishes Revised Draft Guidance

The U.S. Food and Drug Administration (FDA) appears set to ramp up enforcement efforts against companies selling homeopathic products. Since 1988, FDA’s enforcement decisions have been made within the framework of Compliance Policy Guide (CPG) § 400.400. Under this policy, the agency generally limited enforcement actions to products that were either inappropriately labeled or manufactured in violation of good manufacturing practice (GMP) regulations. Publication of the new draft guidance document, which officially withdraws CPG 400.400, is the latest signal that the regulatory landscape is changing – perhaps dramatically.

The agency first revealed a new attitude toward homeopathic drugs with the issuance of a draft guidance in December 2017, which laid out a new “risk-based” model of enforcement that would guide agency decisions on homeopathic products. As we previously reported, this effectively rolled back the permissive framework of the CPG, although the agency noted that the CPG would not be withdrawn until the draft guidance is finalized. Not surprisingly, the homeopathic industry pushed back. One group (Americans for Homeopathy Choice) filed a petition urging the retention of the Compliance Policy Guide and the preservation of FDA’s pre-guidance homeopathy framework.

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Customer Review Fraud Top of FTC’s Priority List

Last week, the FTC announced yet another settlement with a company regarding its customer review practices. This case involved a popular cosmetics brand that retailed at Sephora—Sunday Riley. According to the FTC, Sunday Riley’s managers and Chief Executive Officer ordered employees and interns to create fake Sephora accounts and submit reviews for their products. The FTC had obtained multiple company emails showing the lengths Sunday Riley went to drive positive customer reviews, including evading Sephora’s detection by manipulating IP addresses.

Sunday Riley and its CEO settled with the FTC. In the settlement, the company and CEO did not admit fault, which is standard in these settlements. Similar to other recent settlements relating to “fake” customer reviews, the parties agreed on a go-forward basis to not make misrepresentations about the status of an endorser or customer review and to disclose material connections in endorsements and reviews.

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Five “Lessons” for Lead Generation Advertisers

Law enforcement, workshops, and reports from the Federal Trade Commission (FTC) have yielded five “lessons” for lead generation advertisers, according to an article that was published last month in Law360 by Andrew Smith, director of the FTC Bureau of Consumer Protection. In it, he suggests that companies that purchase lead generation advertising must manage lead generators responsibly, just like manufacturers that make supply chain management a top priority.

The article drew attention from members of the lead generation advertising sector and their lawyers and compliance departments. Some commentators called it a tutorial on how to reduce risk in using lead generation advertising. For others the article was a cautionary tale of recent enforcement actions taken against a buyer of lead generation advertising and the lead generators spotlighted in the article. In any event, the article was certainly reflective of the FTC’s work in the lead generation area and reminder of the importance of legal compliance in the lead generation ecosystem.

According to Smith: “The complexity of the lead generation ecosystem isn’t a shield against liability, nor does it exempt you from honoring fundamental consumer protection principles. Advertisers should take the lead in ensuring the leads they use weren’t the product of deception.”

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$40 Million Reasons to Have RCTs

On September 18, 2019, the FTC prevailed in its long-waged battle against Hi-Tech Pharmaceuticals. In a per curiam opinion, the Eleventh Circuit affirmed the district court’s decision, holding the defendants in contempt for violating the court’s prior order, which enjoined the defendants from making certain claims about health products without “competent and reliable scientific evidence.” Fed. Trade Comm’n v. Nat’l Urological Grp., Inc., No. 17-15695, 2019 WL 4463503, at *1 (11th Cir. Sept. 18, 2019). The Eleventh Circuit also upheld a $40 million sanction for the defendants’ violation of the order. The case provides a good example of how the FTC views substantiation for dietary supplement claims and the consequences of lacking that substantiation.

In its ruling, the Eleventh Circuit affirmed the district court’s stringent interpretation of “competent and reliable scientific evidence” to mean randomized controlled trials (“RCTs”) because the defendants had fair (and repeated) notice for nearly a decade that the FTC and the district court interpreted “competent and reliable scientific evidence” to mean RCTs.

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A New Challenge for FDA?

Two Executive Orders Continue Trump Administration Efforts to Restrain Agency Policymaking

Last week, President Trump signed two executive orders designed to limit the ability of federal agencies to make and enforce policy through the use of guidance documents. While this may seem like a mere technical issue, the ramifications could be significant.

A federal agency may issue a guidance document for a variety of reasons. Some agencies, such as the U.S. Food and Drug Administration (“FDA”), use it as the primary instrument for announcing and explaining significant policies. Many FDA guidance documents clarify agency positions regarding complex and ambiguous laws and regulations governing the broad range of companies it regulates. This includes manufacturers and marketers of food, dietary supplements, cosmetics, drugs and medical devices.

Some question whether agencies (including FDA) have gone too far. Agencies are supposed to promulgate a regulation when creating a new rule. In contrast, an agency may convey an interpretation of a currently existing rule through the issuance of a guidance document or other, less formal means. While it is often challenging to distinguish a new rule from an interpretation, the distinction has serious implications. The cost, time and effort required to publish a guidance document are far lower. Notably, a regulation may only be finalized after the agency has received and addressed all public comments. No such requirement exists for guidance documents.

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New Requirements for Subscription Merchants Accepting Visa Cards

Subscription merchants that take payment by Visa cards will have new acceptance, disclosure, and cancellation requirements imposed on their transactions beginning April 18, 2020. As Visa recently announced, the card brand is updating its rules for merchants that offer free trials or introductory offers as part of an ongoing subscription program.

The Visa rules follow on the heels of similar Mastercard rules that became effective earlier this year. However, while MasterCard’s rules focus on merchants selling subscriptions for physical goods, Visa’s rules apply to merchants selling either physical or digital products if the merchant offers a free trial or introductory offer that rolls into an ongoing subscription arrangement.

The new requirements are more specific than what the Restore Online Shoppers’ Confidence Act (ROSCA) prescribes, and while they don’t have the force of law, noncompliance could put a merchant’s credit card processing capabilities at risk. Here are some of the components of the new Visa rules:

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The FTC’s Negative View of Negative Options – Are Expanded Regulations Coming?

The Federal Trade Commission’s “Negative Option Rule” is up for review, and the FTC is steering toward stricter regulations for automatic renewal plans and subscription programs. The FTC completed its last regulatory review of the Negative Option Rule in 2014 and decided then to retain the rule in its current form. But, will this time be different?

The Rule Under Review

The rule under review is the “Rule Concerning the Use of Prenotification Negative Option Plans,” also referred to as the “Negative Option Rule.” However, the scope of the Negative Option Rule only covers prenotification plans, like book-of-the-month clubs, where the seller sends notice of a book to be shipped and charges for the book only if the consumer takes no action to decline the offer, such as sending back a postcard or rejecting the selection through an online account.

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FTC’s COPPA Rule Workshop: A Summary of Priorities from Advocates and Industry, and the FTC’s Poker Face

The Federal Trade Commission held a workshop yesterday in Washington, D.C., to discuss possible updates to the COPPA Rule, which implements the Children’s Online Privacy Protection Act (“COPPA”). COPPA was originally enacted in 1998 and regulates the way entities collect data and personal information online from children under the age of 13. The Rule hasn’t been updated since 2013, and the intervening years have produced seismic technological advances and changes in business practices, including changes to platforms and apps hosting third-party content and marketing targeting kids, the growth of smart technology and the “Internet of Things,” educational technology, and more.

For the most part, FTC staff moderators didn’t tip their hand as to what we can expect to see in a proposed Rule revision. (One staff member was the exception, whose rapid-fire questions offered numerous counterpoints to industry positions, so much so that the audience would be forgiven for thinking they were momentarily watching oral argument at the Supreme Court.) Brief remarks from Commissioners Wilson and Phillips staked out their positions more clearly, but their individual views were so different that they too offered little assistance in predicting what a revised Rule may look like. Commissioner Wilson opened the workshop by sharing her own experience as a parent trying to navigate and supervise the games, apps and toys played by her children, and emphasized the need for regulation to keep up with the pace of technology to continue protecting children online. Commissioner Phillips also referred to his children at one point, but his remarks warned against regulation for regulation’s sake, flagged the chilling effect on content creation and diversity when businesses are saddled with greater compliance costs, and advocated a risk-based approach.

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