We have written previously about the FTC’s vigorous enforcement efforts relating to negative option marketing and its crackdown on alleged wrongdoing seeking to exploit the difficulties presented by COVID-19 (see blog posts here and here). Recently, the FTC continued its efforts with a complaint and settlement concerning negative option marketing to parents seeking online educational resources for their children.

On September 1, 2020, the FTC brought a complaint against online children’s education company Age of Learning, Inc., d/b/a as ABCmouse, alleging that it operated a deceptive negative option program between 2015 and 2018. The FTC alleged that ABCmouse’s actions violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by (1) failing to adequately disclose that its 12-month memberships would automatically renew indefinitely; (2) failing to disclose that extensions on 30-day free trial memberships at reduced rates would automatically renew indefinitely; (3) advertising “easy cancellation,” but creating a myriad of procedural hurdles to prevent cancellation; and (4) embedding pitfalls in the cancellation process to mislead customers into extending their memberships, as opposed to cancelling them. Furthermore, in some instances, even if a customer successfully navigated the cancellation process, ABCmouse would still charge for the cancelled services.


Continue Reading FTC Schools Marketers on the ABCs of Negative Option Marketing

In the wake of the Supreme Court’s opinion in Liu v. SEC, lower courts are starting to address the breadth of its applicability. On August 31, 2020, the District of Arizona welcomed the Supreme Court’s directives in Liu when denying Electronic Payment Solutions of America Inc.’s (EPS) bid for summary judgment against the FTC. To the extent other courts read Liu as similarly applicable, this could have broad implications for the FTC’s authority to obtain monetary relief.

In FTC v. Electronic Payment Solutions, No. 17-cv-2535-PHX-SMM (D. Ariz. Aug. 31, 2020), the FTC filed suit against EPS for playing a role in facilitating Money Now Funding’s alleged telemarketing scheme, and sought to recover approximately $4.67 million from EPS—the total amount EPS collected from credit card transactions for Money Now Funding minus refunds and chargebacks. EPS moved for summary judgment on the grounds that, in light of Liu, the FTC’s monetary claim should be limited to net profits. EPS argued that the FTC, despite alleging entitlement to several forms of monetary relief, was actually seeking disgorgement under several different names. Accordingly, EPS argued that Liu requires courts to limit disgorgement only to the amount of net profits that will be returned to consumers.


Continue Reading Following the Mone(tary Relief): District Court Limits the FTC’s Authority Post-Liu

The FTC recently released its staff perspective paper on video game loot boxes. The report details discussions from the FTC’s loot box workshop that took place in August last year, summarizing key points and takeaways. You can read our write up of the workshop here.

The workshop, “Inside the Game,” brought video game industry representatives, researchers, and consumer advocates together to examine consumer protection issues related to loot boxes and related microtransactions in video games.

A loot box is a digital container of virtual goods that a user can purchase in-game using real‑world currency. A user does not know what is in the loot box before purchasing. The loot box may contain digital goods (such as character skins, tools, weapons, etc.) that the user can use in the game. Importantly, the user cannot choose the contents of the loot box. The box could contain an extremely rare/sought-after item or the contents could be a collection of items already owned by the user (or somewhere in between).


Continue Reading FTC Scrutinizes Loot Boxes – What are the Odds?

Following a warning from earlier this year, the FTC recently filed a complaint against a group of corporate and individual defendants for allegedly misleading and deceiving small business “merchant cash advance” (MCA) customers. Structured properly, an MCA product offers an alternative to standard commercial credit under which the MCA provider purchases the right to receive a fixed amount of the customer’s receivables to be paid based on a percentage of the customer’s daily receipts.

Specifically, the FTC alleged that the defendants misrepresented the amount of financing small business customers would receive relative to their requests, misrepresented the necessity of collateral and personal guarantees, and engaged in unauthorized withdrawals from customers’ bank accounts even after receiving the agreed upon amount of the customers’ receivables. The complaint calls for permanent injunctive relief, rescission or reformation of the MCA contracts, restitution, refund and disgorgement.

The FTC’s enforcement action is just one of its recent efforts to police alleged unfair and deceptive practices targeting small businesses. Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses.


Continue Reading FTC Follows up on Enforcement Priorities with Complaint Against Merchant Cash Advance Provider

Proud that your products are “Made in the USA”? Before you wave the flag, know that an unqualified Made in USA claim means that your product must be “all or virtually all” made in the United States, and the Federal Trade Commission has bolstered its enforcement authority over deceptive Made in USA claims with a new proposal to allow civil penalties for violations of its Made in the USA standards.

We previously blogged about recent Made in USA actions and the FTC’s September 2019 Made in USA workshop to evaluate updates to the FTC’s long-standing Made in USA Enforcement Policy. The Enforcement Policy provides that to substantiate an unqualified Made in USA claim, a product must be wholly domestic or all or virtually all made in the United States — meaning that “all significant parts and processing that go into the product are of U.S. origin.” Qualified claims — for example, “Made in USA from imported leather” — may be acceptable if they include clear and conspicuous disclosure of the extent to which the product contains foreign parts, ingredients, components, and/or processing.


Continue Reading Proposed FTC Rule to Allow Civil Penalties for Deceptive “Made in USA” Claims

Two weeks ago, the Supreme Court handed down its opinion in Liu v. SEC where it limited the SEC’s disgorgement authority to net profits returned to investors. Today, the Supreme Court granted certiorari in two FTC cases to decide whether Section 13(b) of the FTC Act providing for “injunctive relief” includes the authority to obtain

Earlier this month, the FTC approved a settlement with a developer of popular apps for purported violations of the Children’s Online Privacy Protection Act (COPPA).  The Commissioners voted 4-1 to authorize the Department of Justice to file the complaint and the stipulated final order resolving the matter.  Under the stipulated final order, the company was ordered to pay a $4 million civil penalty (although all but $150,000 of it was suspended for inability to pay).  The lone dissent came from Commissioner Noah Phillips who issued a dissenting statement criticizing the “recent push to heighten financial penalties . . . without clear direction other than to maximize the amount in every case.”

Commissioner Phillips made the case, as he has before, that harm should be the starting point when fashioning a penalty.  Steeped in economic theory, he argued that “basing penalties on harm forces defendants to internalize the costs their behavior imposes on others, orienting conduct in a socially beneficial fashion.”  Chairman Simons also issued a statement, contending that starting with harm is “inapposite” when Congress explicitly prohibits practices and directs the agency to impose penalties.


Continue Reading Two Conservative, But Very Different, Approaches to Calculating Civil Penalties: Harm vs. Deterrence

In a case that may have significant implications for the remedies available to the FTC, the Supreme Court issued its opinion yesterday in Liu v. SEC. We’ve written previously about Liu and several cert petitions now pending at the Court. The Court held that the SEC may only obtain disgorgement from defendants as equitable relief under 15 U.S.C. § 78u(d)(5) to the extent the disgorgement is limited to the defendant’s net profits gained from the defendant’s unlawful conduct. This decision is poised to impact the FTC’s authority to obtain disgorgement under Section 13(b) of the FTC ACT, which like Section 78u(d)(5) only provides for “equitable” forms of relief. Indeed, the Court’s decision may have a particularly dramatic impact on parties other than the actual advertiser litigating against the FTC, such as payment processors, whose net profits from alleged unlawful conduct are typically dwarfed by the alleged gross losses to consumer for which the FTC seeks to hold the defendant responsible.

Out of the gate, the Court declined to extend its prior opinion in Kokesh v. SEC to hold that disgorgement is always a penalty, and thus beyond the statute’s authorization for equitable relief. Ultimately, the Court stood by long-standing precedent that a federal agency’s ability to strip wrongdoers of ill-gotten gains constitutes an equitable remedy—provided certain boxes are checked.


Continue Reading Supreme Court Allows for Limited Disgorgement Remedy in SEC Context: What Does that Mean for the FTC?

An increasing number of celebrities and social media personalities are endorsing the use of cannabidiol (CBD) products through social media. Many of these “influencers,” however, fail to take into account and comply with the complex regulatory environment surrounding CBD advertisements, which can have consequences for CBD companies themselves. In the United States, the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA) both limit the use of certain language in CBD endorsements. As these advertisements attempt to reach the broadest possible audience, possible violations are especially noticeable to regulators, who have stepped up their enforcement efforts in this area.

What is CBD?

With the passage of the 2018 U.S. Farm Bill, hemp-based CBD products were removed from the Drug Enforcement Administration’s list of scheduled substances, thereby decriminalizing the possession of such CBD products. The Farm Bill defines hemp as a strain of the Cannabis sativa plant species that does not contain more than 0.3% of the psychoactive component tetrahydrocannabinol (THC). Instead, hemp has significantly higher concentrations of CBD. The legalization of recreational and medicinal marijuana in certain states refers to the cannabis plant containing high levels of THC, which may also contain some CBD. Certain states, such as California, have stringent requirements regarding advertising cannabis products, but these rules do not apply to hemp-based CBD products.


Continue Reading CBD Advertisements: What CBD Companies and Celebrity Influencers Need to Know