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The FTC has issued a Proposed Notice requesting public comment on whether to make changes to its Endorsement Guides (“Guides”) as part of the agency’s periodic retrospective review. This review will serve as a key opportunity for industry participants to shape what happens next by showing what they are seeing in the marketplace when it comes to endorsements and testimonials, consumers’ understanding of them, and the effects of new technology and platforms.

While the FTC’s standard practice is to review its rules and guides every 10 years, this review promises to be anything but standard. This is particularly true considering that FTC Commissioner Chopra weighed in with a separate statement, noting that he hopes that the Commission will consider taking steps beyond the issuance of voluntary guidance, including codifying elements of the existing Endorsement Guides into formal rules that could trigger civil penalties and damages. He also suggested that the FTC develop requirements for technology platforms that facilitate and profit from influencer marketing and specify the requirements that companies must adhere to in their contractual arrangements with influencers. The Guides were first issued in 1980, and the Commission last sought public comment on them in 2007. Since that time, endorsement-related practices (and the media where they appear) have changed dramatically, with new platforms and apps emerging that provide new ways for companies and their endorsers to reach consumers. In an attempt to keep up with the changing times, the FTC issued an FAQ-type of document, Endorsement Guides: What People are Asking, and has modified it multiple times over the years.

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Continue Reading FTC Aims to Shake Up Endorsements, Seeks Public Comment on Its Endorsement Guides

On January 3, 2019, Axon Enterprise, Inc. (“Axon”), a manufacturer of body-worn cameras for law enforcement, filed a complaint against the Federal Trade Commission seeking a declaratory judgment in the District of Arizona. In the complaint, Axon alleges that the FTC’s administrative procedures and structure are unconstitutional, and seeks to enjoin the FTC from pursuing an administrative enforcement action against Axon. Although an antitrust case, the matter provides interesting issues that also involve the FTC’s consumer protection mission.

A little background: On June 14, 2018, the FTC opened an investigation into Axon’s attempted acquisition of Vievu, which also sells public safety camera systems. Axon contends that it cooperated with the FTC’s investigation over an 18-month period, only to result in the FTC threatening to sue in an administrative proceeding unless Axon “surrender[ed] a ‘blank check’ divestiture.” Axon protested that it did not violate the Clayton Act or any other antitrust laws in its acquisition of Vievu and filed the pending lawsuit, arguing that the FTC’s structure and administrative adjudication procedures violate the U.S. Constitution.

As for the constitutional challenges, Axon first argues that the FTC’s administrative procedures — whereby it acts as prosecutor, judge, and jury — violate Axon’s Fifth Amendment due process rights. Essentially, Axon asserts that when the FTC brings an administrative proceeding against a party, it infringes on that party’s right to a fair trial before a neutral judge in accordance with the Fifth Amendment. Accordingly, subjecting Axon to an FTC administrative proceeding will force it to “submit to a hearing process with a preordained result.” As Judge Posner noted years ago, “It is too much to expect men of ordinary character and competence to be able to judge impartially in cases that they are responsible for having instituted in the first place.” Remember, however, that Axon is not the first company caught in the FTC’s crosshairs to raise this argument, and these prior challenges have failed.

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Continue Reading A Constitutional Challenge to Watch: Axon Sets Its Sight on the Structure of the FTC

On December 20, 2019, the Federal Trade Commission (FTC) sued FleetCor Technologies, Inc., a fuel card marketer, and Ronald Clark, its CEO, in the Northern District of Georgia. The FTC lawsuit alleges that FleetCor charged customers hundreds of millions of dollars in hidden fees, making its promises about helping customers save on fuel costs false. The Defendants market various payment cards, including fuel cards, to companies in the trucking and commercial fleet industry. While the FTC interprets its authority to cover businesses, as it chose to do here, it does not often do so. The FTC’s vote to authorize the filing of the complaint was 4-1, with Commissioner Wilson voting no, and Commissioner Philips voting yes, but dissenting on the inclusion of Clarke as an individual defendant. In its complaint, the FTC cited numerous actions of the CEO that allegedly showed his awareness of FleetCor’s deceptive practices. FleetCor issued its own press release in response to the FTC’s suit denying the allegations.

According to the FTC, FleetCor made three main claims to customers: (1) its customers will save money; (2) the fuel cards utilize fraud controls to protect against unauthorized transactions; and (3) the cards have no set-up, transaction, or membership fees. Despite these promises, FleetCor allegedly charged customers hundreds of millions of dollars for unexpected fees and recurring fees for programs its customers never ordered.

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Continue Reading Adding Fuel to the Fire: Company’s Hidden Fees Sparks FTC Suit

In recent days, the ghost of cases past returns to haunt the FTC’s ability to obtain equitable monetary relief under Section 13(b) of the FTC Act. Three cases now pending Supreme Court review have the potential to significantly threaten the FTC’s enforcement authority: Liu v. SEC; FTC v. AMG Capital Management, LLC; and FTC v. Credit Bureau Center, LLC. Given the unique posture of each case, in perspective with one another, the Court has the opportunity to, at the least, provide guidance, and at most, directly decide, whether Section 13(b) allows for such relief.

The Supreme Court is set to hear oral argument on March 3, 2020 in Liu v. SEC, which will resolve whether the Securities and Exchange Commission (“SEC”) can obtain disgorgement under federal securities statutes or whether that remedy is a penalty and not an equitable remedy. Though Liu does not directly implicate Section 13(b) of the FTC Act, the securities statutes at issue are similar to Section 13(b) of the FTC Act, according to, at least, the Solicitor General of the United States.

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Continue Reading Statutory Dreams or Equitable Nightmares: A Trifecta of Cases Before the Supreme Court Threaten the FTC’s Enforcement Authority

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…

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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Continue Reading Five “Lessons” for Lead Generation Advertisers

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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Continue Reading $40 Million Reasons to Have RCTs

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

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

Many in the industry are familiar with the following scenario. A young gamer, grinding tirelessly for untold hours perfecting her skill, honing her strategy, finally qualifies for an esports tournament. For that gamer, the true hard work begins after qualification. She now has to try to convince her parents to agree to let her participate, which may include travel (though compensated) to a far off location. In many cases, the first time the parents become aware that their child even entered a tournament (much less won an all-expense paid trip to an esports tournament) is this conversation—after the child has already been offered compensation to travel to and compete in the tournament.

If you are a game publisher, tournament organizer, or otherwise involved in the logistical chain of events described herein, there may be a big problem. The collection and use of data provided by children is regulated in the United States by the Children’s Online Privacy Protection Act (“COPPA”). COPPA is designed to protect the privacy of children by establishing certain requirements for websites that market to children. Most notably, COPPA requires website operators to obtain “verifiable parental consent” before collecting personal information from children. The FTC operates under the assumption that if children are the target demographic for a website, the website must assume that the person accessing the website is a child, and proper consent must be obtained. This assumption exists even if the website did not start with children as the target audience.

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Continue Reading Update Required for Youth Esports