August 2014

Online advertisers and marketers, including lead generators, and their service providers, have long had to contend with scrutiny from the FTC, state Attorneys General, competitors, and customers.  And, since 2012, advertisers of consumer financial products and services have had to contend with the CFPB.  Regardless of what you are promoting, bedrock advertising law says an advertiser can’t over promise, be misleading, or deceptive.  Moreover, depending on how you advertise, you may have to comply with numerous medium specific requirements, such as the Telemarketing Sales Rule.  Finally, some advertisers have to meet product specific regulations (e.g., consumer financial services laws).  And, the list goes on.  There are many ways for advertising to cause legal risk.  But, what are some of the root causes?  Survey says:
Continue Reading Striking Stats About Internet Marketing and Online Lead Generation

It is almost football season and the FTC tries to stay seasonal; around this time in 2012, it announced a settlement with football mouthguard manufacturer Brain-Pad regarding unsubstantiated concussion prevention claims.  Subsequently, the FTC has sent warning letters to other manufacturers of sporting equipment regarding concussion prevention claims.  This year, however, the FTC has called a different play.  On August 21, the FTC announced that it had sent warning letters to five major retailers regarding the FTC’s concerns regarding concussion protection claims for athletic mouthguards made on the retailers’ websites.  These retailers appear to have been repeating claims that the manufacturers of the products made on their packaging. 
Continue Reading FTC’s Letters to Retailers Regarding Concussion-Related Products Has Us Scratching Our Heads

A recent ruling by the Ninth Circuit affirmed a district court’s order permanently enjoining an individual defendant (Kyle Kimoto) in an FTC action from engaging in a variety of marketing tactics and requiring the individual to pay restitution.  In doing so, the Ninth Circuit rejected the defendant’s argument that his being incarcerated for mail and wire fraud  related to prior FTC violations precluded the requisite level of involvement necessary to impose liability.  The court also rejected his effort to invoke an “advice of counsel” defense.

Kimoto has been the subject of three different FTC enforcement efforts all involving negative option or free to pay conversion marketing.  While facing criminal charges for his involvement in a prior “scheme,” Kimoto relocated to Las Vegas, opened a new corporate entity (Vertek) in his wife’s name, and hired many of the individuals who had worked with him in his previous ventures.  Kimoto then directed and participated in the development of marketing campaigns involving a $7,500 line of credit product, a government grant product, and a work from home product.  Each of these campaigns were found to be deceptive.

Kimoto’s criminal trial related to prior FTC issues began in March 2008 and he was convicted on counts of conspiracy, wire fraud and mail fraud.  During his trial and subsequent incarceration, Kimoto ceased participating in Vertek’s daily activities.Continue Reading Even Being in Jail or Consulting With a Lawyer May Not Help Avoid Personal Liability for FTC Claims

I was attending the recent annual meeting of the Copyright Society of the USA and listening to a presentation by the always eloquent Maria Pallante, the Register of Copyrights, when she made a comment that startled me regarding a controversial issue.  The issue being whether one must have a registration or simply a pending application for registration in order to meet the prerequisite to file a federal copyright infringement lawsuit.  This has been an ongoing issue, with a split amongst courts, and the difference has had significant implications.

Obtaining a Certificate of Registration can take anywhere from six weeks to over a year, depending on the nature of the material for which the registration is sought, the method of filing, and/or U.S. Copyright Office backlog. In most instances, upon discovery of an infringement, a person wishes to get into court fairly quickly and having to wait six weeks to a year is unacceptable.  Unfortunately, most people do not register their copyrights on an ongoing basis (which they should) so they are confronted with the dilemma of hustling to get a registration in place so they can file a lawsuit.Continue Reading Registration v. Application: Is the Battle Over?

On August 12, the Consumer Financial Protection Bureau (CFPB or Bureau) entered into a consent order with an online mortgage company, its affiliated appraisal company, and its chief executive officer; they agreed to pay $20.8 million to settle allegations of deceptive advertising and illegal lending practices. This particular action, In the Matter of Amerisave Mortgage Corporation et al., reflects the CFPB’s continued focus on mortgage lending and online advertising practices. As such, this enforcement action provides a window into potential pitfalls that third-party marketers, including online lead generators, mortgage lenders, and brokers can encounter when advertising mortgages online.
Continue Reading Mortgage Lending: Important Lessons about Advertising, Affiliates, and Authorizations

Does your business treat its FTC consent order like a big hippo in the room?  A recent ruling by the Second Circuit suggests it’s time to stop.  In Federal Trade Commission v. BlueHippo Funding, LLC, the Second Circuit joined others in holding that civil contempt sanctions for businesses caught violating the advertising prohibitions of FTC consent orders are measured based on the advertisers’ gross revenues for the advertised products or services.  While this decision obviously emphasizes the importance of careful compliance monitoring in the first place, it also escalates the already substantial litigation risks businesses face once they are subject to an FTC contempt motion.  Not only must accused businesses weigh the risk of losing their profits, they must also consider the potential of losing the out-of-pocket costs incurred manufacturing the product or providing the service at issue.

BlueHippo sold computers to consumers with bad credit by offering them a seemingly straightforward payment plan: after making thirteen consecutive installment payments, BlueHippo would send the computer and let the consumers finance the remainder owed.  If consumers missed an installment, they would need to either pay off the entire balance before receiving the computer or they could convert their previous installment payments to store credits for other BlueHippo products.  However, at the point of purchase, BlueHippo failed to disclose that consumers could not apply those store credits to shipping and tax costs, or that they could only place one online store order at a time.  As a result, in 2008, the FTC sued BlueHippo for Section 5 violations, and the parties negotiated a consent order that was entered by the Southern District of New York.Continue Reading Second Circuit’s BlueHippo Decision Signals Increased Civil Contempt Risks for Advertisers, More Civil Contempt Incentives for FTC