Last month, the U.S. District Court for the Southern District of Florida issued an opinion that serves as a powerful reminder of the risks of not taking telemarketing compliance seriously. In August 2014, the FTC sued the Partners in Health Care Association (“PIHC”), its principal Gary Kieper, and others for deceptively telemarketing medical discount cards.  According to the FTC, the defendants misled consumers into thinking the discount card was actually health insurance.  In last month’s decision, the court granted the FTC’s motion for summary judgment and entered judgment against Kieper in the amount of $8.7 million.

Relying on consumer complaints and FTC undercover calls, the Court found that PIHC and the telemarketers it hired had deceived consumers by telling them that the discount cards were, in fact, health insurance cards.  The court found Kieper was well aware of the deceptions based on several state investigations into the telemarketing, numerous BBB complaints, and internal documents.  The court rejected a variety of arguments raised by Kieper as to why the calls were not deceptive or that summary judgment should not be granted. 
Continue Reading Recent Opinion Highlights – The Risk of Unhealthy Telemarketing Practices

By Wikidata (www.wikidata.org) [CC BY-SA 3.0], via Wikimedia Commons

Website disclosures are a hot topic these days, and are not new. And yet, you should still be paying attention to the law as it evolves around this important component of your website. There are nuances to consider, and, in California, we now have some clarity on how to analyze a browsewrap agreement.

In Long v. Provide Commerce, Inc., 245 Cal. App. 4th 855 (Cal. Ct. App. Mar. 17, 2016), the California Court of Appeal considered a trial court’s denial of a motion to compel arbitration. Defendant sought to compel arbitration based on a provision in the website’s terms of use, which provision was viewable via a hyperlink at the bottom of each page of the operative website (i.e., the “browsewrap agreement”). Plaintiff opposed the motion to compel arbitration. The trial court denied the motion and the court of appeal affirmed. Ultimately, the courts concluded that the terms of use were too inconspicuous to impose constructive knowledge on Plaintiff.


Continue Reading Coast-to-Coast Harmony over Browsewrap Agreements

It doesn’t take a genius to know that health claims are on the FTC’s radar.  In fact, at last year’s NAD conference, Commissioner Brill said that the FTC will prioritize enforcement of unsubstantiated health claims, such as cognitive claims.  We have blogged about learning claims before, including the Word Smart case.  However, Lumosity, which created a program marketed to train the brain, improve memory, and delay cognitive impairment, was cast into the spotlight this week when it settled a case with the FTC.

According to the FTC’s complaint, Lumosity, which contains 40 games ostensibly designed to improve brain function, advertised that training on its program for 10 to 15 minutes three or four times a week could help users achieve their “full potential in every aspect of life.”  The FTC alleged that Lumosity claimed that scientific studies showed that users would improve performance on everyday tasks, in school, at work, and in athletics; delay age-related cognitive decline and protect against dementia and Alzheimer’s disease; and reduce cognitive impairment associated with health conditions, including stroke, traumatic brain injury, PTSD, ADHD, the side effects of chemotherapy, and Turner syndrome. 
Continue Reading FTC Settlement Sheds Light on Claims of Increased Cognition

A couple of years ago it felt like we were blogging about developments in cases involving “up to” claims up to 3x more often than just about any other topic.  To summarize the upheaval, for many years there were cases allowing an up to claim if an “appreciable number” of consumers could enjoy the claimed maximum benefits.  There are also state and local pricing laws requiring for sales claims that 10-15% of the sale goods be available at the highest advertised discount.  Then the FTC brought cases involving savings claims for installing new windows, which included some rather sobering consumer research in which consumers appeared not to understand even relatively clear disclosures regarding “up to” claims.  The cases settled with orders requiring that all or almost all of consumers be likely to achieve the maximum claimed savings.  As a result the advertising legal community was thrown into a frenzy not knowing if the upper limit in an up to claim had to be something everyone could attain or 10% could attain or something in between.  NAD largely stuck to its old standard, but in cases where the purchase required a significant investment seemed more aligned with the FTC’s view in the windows cases. But things seemed to settle down somewhat back to normal when the FTC did not follow with a flurry of new cases. 
Continue Reading NAD Ups the Ante on “Up To” Claims

Risk-Free-TrialAs we’ve mentioned before, and as this year is unfolding, it looks like the Federal Trade Commission (“FTC”) is even more desperate to enforce the Restore Online Shoppers’ Confidence Act (“ROSCA”) than we are to find good skin care products.  The FTC has begun expanding its enforcement of ROSCA into various industries, including now the skin care industry.  Perhaps more importantly, the FTC is increasing the stakes on what constitutes adequate disclosures, forcing many marketers to spend less time looking in the mirror and more time looking at their online disclosures.

Last week, the Central District of California entered a Temporary Restraining Order and the FTC issued a complaint, alleging that since at least 2010, a number of defendants had marketed and sold skin care products on a variety of websites that ran afoul the ROSCA, the FTC Act, and the Electronic Funds Transfer Act (“EFTA”). 
Continue Reading Court Attempts to Smooth out ROSCA Violations

The Magnuson-Moss Warranty Act (MMWA), is one of many vehicles that plaintiffs use to bring lawsuits over warranty claims.  It is a federal statute that governs warranties on consumer products.  The Federal Trade Commission has enacted regulations governing the disclosure of written consumer product warranty claims.

Just this month, the Federal Trade Commission completed a review of its Interpretations, Rules and Guides under the MMWA.  One of the revisions that the FTC made was to clarify that under the MMWA, warranty language that implies to a consumer that warranty coverage is conditioned on the use of select parts or service is deceptive.  The FTC wrote that “[g]enerally, the MMWA prohibits warrantors from conditioning warranties on the consumer’s use of a replacement product or repair service identified by brand or name, unless the article or service is provided without charge to the consumer or the warrantor has received a waiver.” 
Continue Reading FTC’s New Guidance on Implied Tying Claims Under the Magnuson-Moss Warranty Act

On March 31, 2015, the United States District Court for the District of Columbia issued an opinion, granting the Department of Justice’s (DOJ) motion for a final order providing injunctive relief, monetary relief, and civil penalties against Daniel Chapter One and James Feijo for making claims that Daniel Chapter One’s dietary supplements could treat, cure, or prevent cancer, inhibit tumors, and lessen adverse side effects of radiation and chemotherapy.  For those following this case, this final order is a long time coming, as the defendants repeatedly refused to comply with earlier cease-and-desist orders.  As a result, the FTC and DOJ have doggedly pursued enforcement against the defendants since the FTC first initiated an administrative proceeding for false and deceptive practices under the FTC Act in 2008.

The court granted summary judgment on liability for violations of the cease-and-desist order in September 2012, and finally, in 2014, the U.S. filed a motion for entry of final judgment. The recent opinion represents the culmination of a long battle between the supplement marketer and the government, and demonstrates the various penalties available to the court when orders are violated.  In particular, the opinion highlights the court’s authority under FTC Act Section 13(b), 15 U.S.C. § 53(b) to order equitable redress, and serves as a cautionary tale for how high civil penalties can become when a business fails to comply with an order. 
Continue Reading Tough Pill to Swallow: Court Imposes Over $3 Million in Civil Penalties on Dietary Supplement Company

Last week, the United States District Court for the District of Nevada granted partial summary judgment for the Federal Trade Commission (“FTC”) against Jeremy Johnson and a number of related corporate entities collectively referred to as “iWorks,” offering a glimpse into how the FTC and the courts analyze certain online advertising issues. The FTC first brought suit in 2010, alleging, in part, that Jeremy Johnson’s websites used misleading testimonials, failed to disclose that consumers would be entered into negative option plans, and failed to disclose that websites and positive articles about the products were created by the defendants.  While some defendants in this case settled with the FTC in 2014, the battle between Jeremy Johnson and the FTC has raged on, with the court’s most recent order constituting a significant victory for the FTC on some counts, but requiring the FTC to prove much of its case at trial.  The court’s opinion highlights the difference between alleging deception and proving it, as the court refused to imply that all of the thousands of websites that iWorks operated were deceptive based on the selected sample that the FTC provided the Court.

For our loyal readers, many of the advertising issues in the order may seem all too familiar, as negative options, testimonials, and forms of native advertising are frequent topics of the blog.  However, the order is worth a read, as it provides an analytical roadmap for advertising interpretation and disclosure issues in online advertising cases.
Continue Reading FTC Throws the Works at iWorks and Obtains Partial Summary Judgment on Online Advertising Issues

heavy fog in the foothills at night - CC-BY 2.0
Photo by Jeff Ruane

A recent Federal Trade Commission (“FTC”) settlement with BMW serves as a good reminder to take a fresh look at Mag-Moss compliance for all companies offering warranties. The FTC’s business guidance provides a helpful checklist to make sure your warranty program is all tuned up.

BMW for its MINI Coopers offered a 4-year or 50,000-mileage warranty. The car owner needed to take care of routine maintenance in order to enjoy the warranty coverage. For the first three years of car ownership, routine maintenance was free at BMW dealers.  After that, the owner needed to pay for such work on his/her own. The warranty said that routine maintenance had to be done at the dealer or the warranty would be voided. Mag-Moss has an anti-tying provision that says you cannot condition a warranty on the customer using your own parts and service unless you provide those parts and service for free. Because in year 4 a MINI owner had to pay for his/her own oil changes, BMW allegedly violated Mag-Moss to say that such paid for maintenance had to be done at the dealer. The settlement requires BMW to send notice to its customers telling them they can use other providers for routine maintenance. 
Continue Reading FTC Shines High Beams on Warranty Claims

The Federal Trade Commission (“FTC” or “the Commission”) has clearly subscribed to enforcing ROSCA recently.  On Tuesday, the FTC filed a complaint against DIRECTV’s negative option program and contract pricing structure under Section 5 of the FTC Act and ROSCA.

In the complaint, the FTC alleged that DIRECTV required customers to agree to a mandatory 24-month contract to receive television programming; customers who canceled their subscriptions before 24 months were charged an early cancellation fee.  Although the rates were set at a specific monthly charge for the first year of a 2-year customer agreement, in the second year of the agreement, the FTC alleged that DIRECTV would increase the monthly charges by 50-70% higher than customers paid in the first year.  After the first year of the agreement, customers either had to pay significant cancellation fees or pay the higher monthly price.  
Continue Reading FTC Dishes Out ROSCA Complaint with Focus on Disclosures