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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.Continue Reading FTC Takes Aim at Facial Recognition Claims in Latest Deception Settlement

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.Continue Reading FTC a Scrooge on CBD Claims

The FTC routinely pursues dietary supplement makers for making allegedly deceptive or unsubstantiated claims, and most of those investigations are resolved through settlements. The FTC’s recent unsuccessful efforts to bring a contempt action regarding one of those settlements and its decision to then challenge the alleged contemptuous conduct in an administrative proceeding provide interesting insights into FTC settlements and the FTC’s relentless pursuit of companies that fall into disfavor.

On November 20, 2020, the FTC approved an administrative complaint against dietary supplement marketer Health Research Laboratories (HRL), its owner and officer Kramer Duhon, and Whole Body Supplements (WBS), alleging the respondents engaged in deceptive marketing and advertising of their supplements. According to the complaint, respondents are allegedly making unsubstantiated claims that four of their supplements prevent or treat cardiovascular and other diseases.

This is not the first legal challenge that respondents HRL and Duhon have faced with the FTC. In January 2018, a stipulated order permanently banned the defendants from making weight loss claims, joint-related disease claims, and other unsubstantiated health claims regarding defendants’ products and imposed a collective monetary judgment of approximately $3.7 million. The order defined “Covered Products” as “any Dietary Supplement, Food, or Drug, including BioTherapex and NeuroPlus.” Some prohibited weight-loss claims include representations that any Covered Product: (1) causes substantial weight loss no matter what or how much the consumer eats; (2) causes permanent weight loss; or (3) causes substantial weight loss when a product is worn on the body or rubbed into the skin. The order also banned joint-related disease, cognitive performance, and health claims that a product treats or cures arthritis, relieves joint pain, or improves memory concentration or represents a product’s health benefits, safety, performance, or efficacy.Continue Reading Third Bite at the Apple – FTC Administrative Proceeding Signals a Relentless Pursuit Against Supplement Marketers

On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” scheme caused more than $24 million in harm to consumers. While the complaint and settlement themselves are not that remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra challenges the FTC’s approach to debt collection, suggesting the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We have written previously about Commissioner Chopra’s other ideas for reshaping FTC approaches and priorities, and if Commissioner Chopra were to become the next Chair under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing fake or questionable debts onto consumers’ credit reports to coerce them to pay. The “parked” bogus debt is often not discovered by a consumer until his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. Thus, although the debts may not be valid, consumers often feel pressured to pay them off—hence the millions of dollars allegedly hauled in by Midwest.Continue Reading FTC Commissioner Encourages Partnership with CFPB and “Systemic” Change Following FTC Action against Debt Collection Scheme

The COVID-19 crisis has spawned a new wave of predatory behavior toward consumers, with the marketing of coronavirus-related products and untested cures. Regulators have responded to these behaviors swiftly and in a variety of ways. Richard Cleland, assistant director – division of advertising practices at the Federal Trade Commission (FTC), and Venable attorneys Melissa Steinman and Kristen Klesh addressed the advertising enforcement trends stemming from the COVID-19 pandemic and offered their reflections on best practices for consumer protection.

How has the FTC addressed consumer complaints?

The FTC’s response to COVID-19-related violations has been a combination of education and enforcement. The agency recorded more than 130,000 complaints in approximately the first half of 2020; unsubstantiated health claims and health fraud are the main areas of concern. The FTC has issued more than 300 warning letters and has seen a high compliance rate (around 95%) with this course of action. These letters address claims that businesses are promoting the cure or treatment of COVID-19 through:

  • dietary supplements or treatment in medical or wellness clinics in the form of herbal teas, essential oils, vitamins, zinc, immunity boost IVs, chiropractic, homeopathic, other therapies, virus-killing “zappers,” and colloidal silver
  • anti-vaccine messaging

The FTC has also filed three federal court actions related to COVID-19 consumer fraud and the agency is conducting extensive consumer education campaigns related to health fraud and coronavirus scams. The FTC website examines various types of health and economic fraud related to the epidemic.Continue Reading Ad Law in the Age of COVID-19 and Regulatory Reactions

Venable attorneys Eric Berman and Dan Blynn hosted a virtual fireside chat with attorney advisors to four current Federal Trade Commission (FTC) commissioners. Touching on each commissioner’s background and enforcement priorities, the FTC attorney advisors offered insights into best practices and insider perspectives on interacting with the FTC through a series of questions and answers, posed by the Venable team and submitted by audience members. Each panelist spoke on their own behalf, and not on behalf of the FTC, but they provided our audience with unvarnished views on FTC practice and policy.

The panelists were:

  • Austin King, Office of Commissioner Slaughter
  • Sam Levine, Office of Commissioner Chopra
  • Eitan Levisohn, Office of Commissioner Phillips
  • Robin Spector, Office of Commissioner Wilson

This summary distills the broad takeaways and common themes of the discussion. A recording of the webinar with more detailed attorney advisor analysis is available here.Continue Reading A Fireside Chat and Crystal Ball Readings with FTC Attorney Advisors

The past five years have seen a major uptick in FTC enforcement against alleged charity fundraising scams, along with increased multi-state coordination in this space. Regular readers of this blog already know that, by having read this, this, this, and this. On September 15, 2020, the FTC filed a complaint in the U.S. District Court for the Southern District of New York against fundraiser Outreach Calling, its owner and principal Mark Gelvan, two other related organizations, and three additional individuals. The attorneys general of New York, New Jersey, Virginia, and Minnesota joined the FTC as plaintiffs in the lawsuit. Alongside their complaint, the FTC and states filed proposed stipulated orders against each of the defendants.

The FTC and states allege that the defendants engaged in deceptive telemarketing campaigns on behalf of numerous (and now defunct) “sham” charities. According to the complaint, the Outreach Calling entities induced tens of millions of dollars in charitable donations by telling donors that the recipient charities provided assistance to particularly vulnerable populations, such as disabled and homeless veterans, breast cancer patients, law enforcement officers, and children. In fact, say the plaintiffs, the recipient charities spent very little of the money raised – in some cases only 1 or 2 percent of gross donations – on charitable programs. Instead, approximately 90 percent of the funds raised were paid to the Outreach Calling fundraisers; most of the remaining money funded the personal expenses of the charities’ principals.

The FTC and states brought causes of action under Section 5 of the FTC Act, the Telemarketing Sales Rule, and state charity and anti-fraud laws. To resolve the litigation, the parties have agreed to enter into stipulated orders that permanently ban the defendants from charity fundraising and that impose a collective monetary judgment of approximately $58 million. As is typical in cases like this one, the monetary judgment will be suspended because of the defendants’ inability to pay it; however, each of them must surrender certain assets, and Mr. Gelvan will have to sell two homes and grant the FTC a lien and mortgage on three of his properties in order to secure his payment obligations under the proposed order.Continue Reading FTC Partners with State AGs in Latest Crackdown on Charity Fundraising

The issue of what exactly is an autodialer, subject to the restrictions of the Telephone Consumer Protection Act (“TCPA”), may eventually be resolved. But for now, the outlook is much like the long-ago Brooklyn Dodger’s chance of winning the World Series: “Wait ‘Til Next Year.” On July 29, 2020, a divided, 2-1 panel in the Sixth Circuit issued its opinion in Allan v. Pennsylvania Higher Education Assistance Agency, deepening the circuit split over the breadth of the TCPA. Specifically, the Sixth Circuit held that any device that dials from a stored list of numbers is sufficient to constitute an “automatic telephone dialing system” (“ATDS” or “autodialer”). This decision comes on the heels of the Supreme Court granting certiorari in Facebook, Inc. v. Duguid, setting the stage for the high court to, hopefully, not only resolve the split among the circuits, but produce a definition of an autodialer that permits the responsible and efficient generation of calls for a broad array of legitimate reasons—indeed in some cases emergency. (Interestingly, in Allan, the defendant opposed the plaintiffs’ motion to stay the appeal pending Duguid. That’s likely because the defendant had previously prevailed on the ATDS issue in the Eleventh Circuit a few months earlier in a consolidated appeal.)

In Allan, the plaintiffs received hundreds of unwanted calls and automated voice messages regarding student loan debt after they had requested to no longer be called; many of these calls delivered a prerecorded message as well. Plaintiffs sued alleging that they did not consent to the unwanted calls; the district court granted summary judgment to the plaintiffs. On appeal, the Sixth Circuit addressed whether the Defendant’s calling platform constituted an ATDS where it created a calling list based on stored numbers and placed calls, connecting recipients to operators.Continue Reading Deepening the Divide: Will the Sixth Circuit’s Expansive Reading of the ATDS Definition Survive?

With the rise of social distancing and stay-at-home orders, the demand for online content has increased exponentially. Given this new reality, online content creators must take steps to ensure that their online creations don’t land them in legal hot water. One of the most prevalent cross-industry issues is music licensing. Music is everywhere in online content and often plays an integral part in the overall experience. From video game players streaming music as they show off their skills on the largest video platforms to fitness instructors using popular music to pump up their workout classes, individuals and companies must ensure that they don’t run afoul of the copyright laws when they incorporate music into their online content.

Copyright owners are granted an exclusive bundle of rights in relation to their copyrighted works, including the exclusive rights to reproduce, perform publicly, and distribute their copyrighted works.1 The copyright in music is broken down into two separate rights—one for the music’s composition (i.e., music and lyrics) and one for the actual sound recording (i.e., a fixed performance). Because of these dual rights, using copyrighted music may require two different licenses.

Whenever you release a video with a song that someone else wrote and composed, you need a synchronization (sync) license. For example, if you release a video of your band playing an Incubus song, you need a sync license to use the music and lyrics of that song, even if it’s a small portion of the song. You do not, however, need a sync license for songs that you wrote and composed yourself or songs in the public domain, so you’re free to use the song “Danny Boy” in your next YouTube video. But if you use a copyrighted sound recording in your video, you will need a sync license for the composition and a master use license for the original recording. Again, this applies even if you’re using a small portion of the original sound recording. Master use licenses are negotiated with a song’s owner—typically, a record label or the recording artist. Sync licenses and master use licenses are separate and distinct from public performance and personal entertainment licenses, which are not covered in this article. For a broader look at music licensing, please read this companion article. The following examples and best practices illustrate and address the challenges associated with using music in online content.Continue Reading Legal Implications of Syncing Copyrighted Music with Other Content