It’s one list that a service provider doesn’t want to be on:  the ever growing list of services subject to state sales and use taxes.  Once you join it, the cost of your services to your customers goes up by 4%, 5%, or more, but your business realizes none of the resulting revenue.  Additionally, you’ve got to deal with the costs of compliance with state and local sales tax collection and remittance obligations.  And your customers certainly don’t appreciate the added mark-up on your invoice.

Minnesota, Ohio, and Louisiana are among states actively considering the addition of advertising to the list of taxable services.  The most recent is the just released budget of Louisiana Governor Bobby Jindal.  His broad tax reform proposal includes eliminating that state’s income tax with the resulting revenue loss being balanced by adding personal, professional and other services to the state’s sales tax base.  While the expanded scope of the tax would generally sweep in advertising services, the Governor’s press release of March 14 states that the purchase of advertisement (“buys”) would be excluded from the tax base.  Until implementing legislation is drafted in Louisiana, the real breadth of the tax as applied to advertising services can’t be ascertained.  And even with legislation, numerous questions arise in implementing a tax on services that must be answered by subsequent administrative guidance and even litigation.

As state and local governments feel constant pressures for new revenue sources to keep their budgets balanced, turning to revisit periodically the taxation of additional services is an oft favored option.  The impact to voters is generally less publicized and of lower impact than trying to impose an across the board rate increase.

Service providers with well-developed trade associations, such as lawyers and accountants, typically have strong lobbying arms that are able keep their services from being added to the taxable services list.  In contrast, groups without strong industry representation, such as landscaping and real property repair and maintenance services, have frequently ended up on the taxable list.  The current budget sessions merit attention from service provider representatives, including those of advertisers in particular, if they want to stay off the list of taxable services.

The FTC issued revised guidance for .com disclosures earlier this week and while the agency didn’t particularly break any dramatic new ground they did continue a trend of offering more specific guidance and examples.

The new guides focus on several key points.  While this would no longer be a blog if we discussed them all here, there are a few we wanted to highlight (and we will likely blog on more things to ponder in the guides in future).  First, the FTC asks marketers to consider whether key information can be included in the main claim itself rather than through a disclosure.  This is easier said than done in many cases, but we agree it is better to start with trying to disclose all consumers need to know right up front.  Second, they expand upon earlier guidance regarding the placement of disclosures.  The new guides repeat the advice that a “disclosure is more effective if it is placed near the claim it qualifies or other relevant information.”  And while the guides state that it is more likely consumers will notice the disclosure if it is “placed next to the information, product or service to which it relates,” the guides also conclude more generally that a “disclosure is more likely to be effective if consumers view the disclosure and the claim that raises the need for disclosure . . . together on the same screen.” Most of the subsequent discussion, and many of the helpful illustrations, then relates to how to make a disclosure noticeable even when scrolling is required.

The new guides also discuss the use of hyperlinks (which this blog and most other blogs are prolific users of).  While the guides discourage the use of hyperlinks to disclose integral information or information relating to health and safety, they recognize that hyperlinks can be particularly useful for lengthy disclosures or disclosures that must be made repeatedly.  The guides repeat the earlier admonition that hyperlinks must be noticeable and labeled in such a way to convey the importance of the information for which the link is provided.  The guides discourage the use of underlining or symbols or icons as hyperlinks because some consumers may not recognize their significance.  Further, advertisers are urged to avoid using vague labels for hyperlinks such as “disclaimer,” “more information,” “details,” “fine print” or even “important information.”  As with disclosures generally, hyperlinks should be proximate to the triggering claim or other relevant information and format, color or graphics can be used to help increase the visibility of hyperlinks.  Thus, one of the examples criticizes the use of a hyperlink that states “more details on the jewelry you are purchasing” because it is unclear what those details relate to.

The new guides also caution that disclosures on the checkout page may not suffice.  They emphasize that disclosures should be provided before the consumer orders the product or adds it to his or her cart.  In addition, the guides caution that in some instances consumers may shop for a product online but make the actual purchase at a brick and mortar store and thus never see important information that is conveyed only at online checkout.

The new guides also address whether disclosures must be made on space-constrained ads such as banner ads.  In general the guides suggest that this depends upon a number of factors including the importance of the information, how easily the information could be disclosed and whether the product can be bought elsewhere.  If the product can be bought elsewhere then consumers may never “click through” to the website to purchase the product and see the relevant disclosures.  In addition, if the ad is a “teaser” ad that does not identify the product then having the disclosure on the “click-through” is likely permissible.

Finally, at least two other points are worth a mention here.  First, the guides emphasize that disclosures must be clear and conspicuous on all devices and platforms on which the ads appear.  If a disclosure can’t be made clear and conspicuous on a particular device or platform, then the ad shouldn’t appear there.  Second, the guides note that disclosures that are less directly relevant to the product or service being advertised are less likely to be expected by consumers and so should be given particular prominence.  The guides note in particular disclosures relating to the use of a negative option program in connection with the sale of a product or service.

If you have questions you are pondering, the ABA Antitrust Section is sponsoring a free panel discussion on Wednesday, March 20 at 1:30 pm eastern that Randy will moderate with FTC and NAD staff to review the changes and what they mean for marketers.  We hope you will register here to join us.

In a rare consumer challenge at NAD, a shopper looking for a bargain at Toys R Us wanted to take advantage of the price guarantee prominently displayed on signs in-store stating “Price Match Guarantee – Spot a lower advertised price?  We’ll match it.  See a Team Member for details.”  He brought his dice game to the counter with an Internet search showing a lower price.  He was reportedly told the only acceptable benchmarks were prices from Best Buy or www.toyrus.com.  He left, bought the dice game elsewhere, and complained to our friends at 112 Madison Ave.

The retailer explained that the clerk was simply misinformed and if the customer had talked to a manager, he would have still been denied the price break but been told the right policy – that the appropriate benchmarks were prices in any competing brick and mortar store or at toysrus.com.  The retailer further explained this price guarantee was standard among retailers and even more generous as it allowed for comparisons to the retailer’s own website (and allowed the lower price as long as the website did not say “online only prices”) and allowed benchmarks to online pricing more broadly for some baby gear items (but not for toys).

NAD conceded that space was limited on in-store banners.  It also reiterated a point it has made in prior cases that reasonable consumers would expect such a program to have additional terms and conditions or fine print.  That said, it concluded a reasonable takeaway from the claim that the retailer would match if a customer “spot[ted] a lower advertised price” is that the customer would expect this included prices on competing websites.  NAD recommended the broad claim be discontinued or that it be revised to make clear that for toys the match was limited to competitive in-store price ads.

A takeaway for retailers is that price guarantees get a fair amount of scrutiny at NAD and by the states and should be advertised carefully.  While certain exclusions like Black Friday deals and the like can reasonably be explained in the terms and conditions, major limitations on whole categories of products or competitive sets that are excluded should be made clear up front when and where the price policy is advertised.

The number of top-level domains, which are currently a handful such as .com, .net, .org, .gov, .mil, .edu, .mobi, .jobs, .xxx will be expanded to well over 1,000, such as .sport, .eco, .berlin, .web, .art, .android, .auto, .cloud, .film, .movie, .wedding and many others.

The application process has been under way since 2012 and ICANN is still processing over 2,000 applications for new top-level domains (gTLDs).

In the past, for certain new domains, such as .eu, .asia, and .xxx, there has been a sunrise period to give trademark owners first crack at registering their brands before the new domain is open to the general public. Each sunrise had its own rules, forms and paperwork.

In order to streamline the new gTLD process, ICANN is setting up a central trademark clearinghouse (TMCH) so that one set of paperwork can be centrally submitted for all sunrises. While there are still some kinks to be worked out, the TMCH is set to go live on March 26, 2013. Deloitte will be the validator of trademark and IBM will operate the TMCH.

The TMCH will also facilitate trademarks claims processes, which is a new rights protection mechanism under the new gTLD program. The trademark owner will be notified of any new domain registrations which exactly match its marks in the database. This is important because for domains that are restricted, the trademark owner may not be able to qualify to register during the sunrise, but will still want to know of potentially infringing registrations.

Note that the TMCH does not prevent others from registering your mark unless you have actually purchased the mark during a sunrise period. Nevertheless, it reflects a compromise between ICANN and trademark owners and is the best defense against the onslaught of hundreds of new domains.

Venable is prepared to assist clients to navigate through determining which brands to register, setting a budget, and handling the registration process through our domain registration partner. Please contact Janet Satterthwaite, partner in the Trademark Group and head of the Domain Names and Cyberpiracy practice, jfsatterthwaite@Venable.com, 202.344.4974, directly or through your usual Venable contact.

A ban on sugary drinks in NYC that was set to take effect today was put on hold by Justice Milton A. Tingling Jr. of State Supreme Court in Manhattan yesterday. The much discussed and debated law would have put a 16-ounce cap on sweetened bottled drinks and fountain beverages sold at city restaurants, delis, movie theaters, sports venues and street carts. The size limit applies to beverages that have more than 25 calories per 8 ounces. It doesn’t include 100% juice drinks or beverages with more than 50% milk.
In his opinion, Justice Tingling first addressed whether the rule exceeded the authority of the NYC Department of Health and Mental Hygiene and impermissibly trespassed on legislative authority. The court examined four factors – whether the regulation is based upon other factors such as economic, political or social concerns; whether the regulation was created on a clean slate without the benefit of legislative guidance; did the regulation intrude upon ongoing legislative debate and did the regulation require the exercise of expertise on behalf of the body passing the legislation. After a lengthy discussion the court found that three of the four factors weighed against the city and that the Department had exceeded its authority. To find otherwise, the court said, the judge wrote, “would leave [NYC] the authority to define, create, mandate and enforce limited only by its own imagination,” and “create an administrative Leviathan.”

In addition, the court found that the rule was arbitrary and capricious. Among other things, the court pointed to the fact that the rule applies to only certain sugared drinks — beverages with a high milk content, for instance, would be exempt — and would apply only to some food establishments, like restaurants, but not others, like convenience stores. “It applies to some but not all food establishments in the city,” Justice Tingling wrote. “It excludes other beverages that have significantly higher concentrations of sugar sweeteners and/or calories.” The judge also wrote that the fact that consumers can receive refills of sodas, as long as the cup size is not larger than 16 ounces, would “defeat and/or serve to gut the purpose of the rule.”

The Mayor has vowed to appeal and everyone involved likely needs to sugar up for what may be a long battle ahead.  However, it’s worth remembering that past battles over food and obesity have often been resolved through self-regulation.  Although some municipal requirements for calorie posting were struck down, many companies began voluntarily providing the information (and many more will likely have to do so under the terms of a now delayed FDA final rule on that subject).  Through the auspices of the CFBAI
and other like-minded organizations many food companies have restricted advertising of certain products to children.  Whether similar efforts arise here remains to be seen.

On Friday the FTC issued a staff report titled “Paper, Plastic . . . or Mobile?: An FTC Workshop on Mobile Payments” addressing mobile payments and its effects on consumers and highlighting potential areas of concern.  The staff report follows a workshop held last year on the same issues.

The report discusses the benefits that mobile payments offer consumers, including the ease and convenience of purchasing goods and services, the potential to lower transaction costs, and the ability to provide underserved communities with greater access to alternative payment systems.  Despite the benefits, the report notes three primary areas of concern for consumers: dispute resolution, data security, and privacy.

The report urges companies both to develop clear policies on resolving disputes over unauthorized and fraudulent charges and to educate consumers about the same.  Consumers fund mobile purchases through various sources—credit or debit card, bank account, or mobile phone account—that offer varying levels of protection, some statutory, some not.  Thus, the report encourages, companies should develop these policies and convey them to consumers.

The report highlights special concerns regarding mobile carrier billing; currently, there are no federal statutory protections for disputes about unauthorized or fraudulent charges placed on mobile carrier bills.  The report offers various consumer protection policies, including giving consumers the option to block all third-party charges and vetting third-party merchants upfront.  The report notes that FTC staff is currently organizing a separate roundtable on the issue in May.

The report also discusses the security of sensitive financial information and points out that technological advances offer the potential for heightened data security in this context.  The report identifies ways in which data can be kept secure, including the use of dynamic data utilization (so that, for each transaction, a unique set of payment information is generated) and encourages mobile payment providers to urge all companies in the mobile payment transaction to use strong security measures.

The report notes the privacy issues involved with mobile payments given the number of companies and the large amount of data involved.  The report reinforces earlier suggestions that companies think about and address privacy at every stage of product development, allow consumers to make choices regarding data collection and use, and be transparent about data practices.

The report also briefly discusses international mobile payment issues and highlights a few examples of the work being conducted by governments and international organizations on consumer protection issues related to mobile payments.

The vote to issue the report was 4-0-1.  Former Chairman Jon Leibowitz did not participate.

Two recent appellate decisions demonstrate opposing ends of the discretionary spectrum on which class settlements are approved or rejected.  In one case – In re Baby Products Antitrust Litigation – the Third Circuit overturned an antitrust class action settlement, ruling that the trial court abused its discretion by pre-approving a charitable donation of undistributed settlement funds before determining the total value of settlement funds claimed by class members.  Many of my fellow class action practitioners are expressing concern that the decision renders claim form settlements impossible in the Third Circuit, because it appears to require that the proposed settlement be administered before it can be approved.  In a claim form settlement, a fund is set aside to pay a defined benefit to qualified applicants who submit claims establishing that they are class members.  In the past, disputes arose over what happens to undistributed funds after all the claim forms have been paid.  A common solution has been the so-called cy pres award, which is essentially a donation of left-over settlement funds to a designated charitable organization.  In the Baby Products Antitrust Litigation, somehow the claim form process kicked off, ran and concluded before the district court finally approved the parties’ proposed settlement.  So while the settlement was still pending approval, counsel allegedly already knew – but did not tell the court – that relatively few class members submitted claim forms and therefore most of the settlement fund would end up being donated to the cy pres beneficiary.  The district court approved the settlement, and objectors appealed on grounds that the large cy pres award was not in the best interests of class members.  In an opinion giving a rather short leash to the “abuse of discretion” standard, the Third Circuit vacated the approval order, ruling that the trial court did not have the necessary facts to determine whether the settlement provided sufficient direct benefits to the class before making a cy pres award.

At the other end of the spectrum was McCall v. Facebook, Inc., wherein the Ninth Circuit let stand a privacy class settlement that awards no direct benefits to class members while directing $6.5 million to a charitable foundation created and operated by defendant Facebook and the parties’ counsel.  The outcome drew strong dissent from several Ninth Circuit judges who wanted to review an appellate panel’s decision upholding the settlement, but not enough to secure rehearing en banc sought by objectors who claimed that the cy pres deal was rife with irreconcilable conflicts for the parties and their counsel.  Anybody promoting the limits of judicial discretion for class settlement approval will want to cite the original panel’s decision, Lane v. Facebook, Inc., (citing a number of settlement approval judgment calls that the Ninth Circuit will not second-guess in most circumstances).

Much of what happens in class action world is subject to a discretionary standard of review on appeal – including class certification and settlement decisions.  But as these decisions illustrate, a discretionary standard of review still leaves plenty of room for a second opinion.  Other “close calls” of note include Dennis v. Kellogg Co., (vacating settlement approval for failure to specify a cy pres recipient with sufficiently germane focus on class members and underlying claims); Larson v. AT&T Mobility LLC, (vacating and remanding approved class settlement on grounds that parties had not sufficiently exhausted search for class member contact information).

These cases also point up the difficulty of settling small claims on an aggregate basis.  The class action mechanism encourages aggregation of small claims that no single plaintiff would be incentivized to pursue, and promotes consumer protection by changing the cost-benefit analysis of pursuing these cases, so that unlawful practices do not go unchallenged.  But when it comes time to settle these picayune claims in a class-wide settlement, the cost-benefit realities often complicate a resolution.  We’ve all seen the fifty-cent settlement check which costs more to produce and distribute than it is worth – the same can often be said for five-dollar or ten-dollar settlement checks.  One solution to the inefficient distribution of small settlement payments is making one big payment to a bona fide charitable foundation.  A meaningfully large payment to a legal aid society or advocacy group has more impact than sprinkling class members with nominal checks that often go unredeemed.  Courts are increasingly wary about the use of cy pres awards in lieu of cash benefits paid directly to class members, so more needs to be said and done in support of these settlements when submitted for court approval.  At one end of the spectrum, a large cy pres award is justified where a class settlement aggregates statutory penalties and there is no social utility in distributing small individual awards to a massive population of class members.  Somewhere down the spectrum is the case where class members claim economic injury, and a meaningful settlement benefit is extended to them in a readily-accessible claim form process.  This is the Baby Products antitrust case, which courts can and should judge prospectively based on the fairness of the settlement amounts and processes adopted.  Class members dissatisfied with benefit levels and claim form processes are free to object or vote with their feet by opting out before the settlement goes live.  But absent a challenge about the sufficiency of notice or claim form administration, objectors should not be allowed to challenge the sufficiency of benefits in hindsight.

No one likes complaints, being blamed for not meeting expectations, or worse, but the fact is the FTC collects and reports on millions of complaints by consumers.  Last week the FTC issued its 2012 annual report of consumer complaints from its Consumer Sentinel Network, an online database used for tracking complaints.  The FTC received more than 2 million complaints overall, from multiple sources including its own consumer complaint hotline, other federal agencies such as the CFPB, several state Attorneys General, state regulatory agencies, the BBB, and other nongovernmental organizations.

The statistics are not provided on a company specific basis in the report and are not verified for accuracy.  Nonetheless, federal and state law enforcement agencies can and often will use information in the database to enhance and coordinate investigations and in formulation of regulatory priorities.  To check out the FTC 2012 Consumer Sentinel Network Data Book, please click here, and the FTC press release is available here.

Also, note that for companies advertising and marketing consumer financial products and services, the CFPB accepts and processes complaints, as well as makes available its own periodic reports and in a public database.

For additional analysis about the 2012 statistics and tips to help address consumer complaints and avoid potential scrutiny, see the article on our firm’s website available here.

On Thursday, the White House announced it intends to designate Edith Ramirez as the new chair of the Federal Trade Commission (FTC).  Ramirez, a current FTC commissioner, was a fellow Harvard Law School classmate of President Obama, and served as the Obama campaign’s Latino outreach director in California.  She was an associate at Gibson Dunn & Crutcher LLP and a Los Angeles-based partner at Quinn Emanuel Urquhart & Sullivan LLP before being appointed a FTC commissioner in April 2010.  At Quinn Emanuel, Ramirez specialized in complex business litigation, including intellectual property, unfair competition and trademark disputes.

Ramirez will replace Jon Leibowitz as the head of the agency.  Leibowitz’s departure leaves two Democrats and two Republicans on the commission, which at full strength has five members.  In the case of a 2-2 vote, no action is taken.  There has been little word so far on a nominee for the remaining commissioner’s spot.  Early reports indicate Leslie Overton—a former partner at Jones Day and now at the Justice Department’s Antitrust Division—may be in the running.  Because Ramirez is already a Commissioner, she will not require Senate approval to be named chair; however, any new commissioner will require Senate approval.

Our own Len Gordon had this to say about the decision:  “She’s a great choice.  She approaches things in a very methodical, evidence-based, step-by-step approach and that will follow her to the commission.”  During his tenure, Leibowitz made clear he was willing to take aggressive positions and lose some cases to make a point or to test the law.  It remains to be seen whether Ramirez will adopt a similar approach.

In general, Ramirez believes in industry self-regulation as an effective tool for consumer protection.  In a November 2012 speech, Ramirez stated:

Domestically, the FTC views robust self-regulation as an important tool for consumer protection that potentially can respond more quickly and efficiently than government regulation. We have encouraged self-regulatory efforts in areas such as national advertising, food marketing to children, the marketing of violent entertainment to kids, alcohol marketing, and privacy. But our support for self-regulation is not at any price. Self-regulation, to be effective, must be the product of a transparent process and must impose meaningful standards subject to strict enforcement. And these programs must not be a pretext for barriers to entry.

Stay tuned for any developments as Ramirez settles into her new position, and names her senior staff, including a possible new Director of the Bureau of Consumer Protection.  Upon David Vladeck’s leaving that role at the beginning of the year, Chuck Harwood has served as Acting Director.  Whether Ramirez names Harwood to that role on permanent basis or who she names to be BCP Director may provide some insight into how she stands on key issues going forward.

This week, FDA finally published a December 2012 warning letter on its website, showcasing its first-ever enforcement action based on a company’s social media activity.  In the letter, FDA interprets a dietary supplement company “liking” a consumer testimonial posted to its Facebook website as an implied endorsement of the underlying claim content.

The offending post, FDA observed, made an impermissible drug claim by implying that the company’s product was intended for use in the diagnosis, cure, mitigation, treatment or prevention of a disease when it stated,“[Product] has done wonders for me.  I take it intravenously 2x a week and it has helped me tremendously.  It enabled me to keep cancer at bay without the use of chemo and radiation…Thank you [Company].”  While the controversial post has since been removed, FDA’s interpretation that a “Like” implies endorsement could be a precedent-setting action.  Re-tweeters beware!