Mobile App Settles Charges with FTC that it Broke Pact with Consumers

healthcare and fitness appsLast week, in an ironic twist of fate, the Federal Trade Commission (FTC) charged the operators of the Pact Mobile App, which paid consumers for keeping their fitness promises and charged consumers who missed their goals, for failing to honor its promises to consumers.

According to the FTC’s complaint, when consumers signed up for the Pact App (formerly GymPact), consumers provided the app with their payment card information and set a workout or fitness goal. When signing up, users specified an amount of money the app could deduct if the user missed a workout or fitness goal for the week. The charges ranged from $5 to $50 per missed activity. If, on the other hand, the user achieved the goal, Pact would pay them. To track consumers’ compliance with their goals, Pact required users to check in at gyms using their phones’ GPS. Pact also allowed consumers to set other goals, using the app’s VeggiePact and FoodLoggingPacts options.

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Follow NAD’s Recipe to Support a Taste Preference Claim

spaghetti with tomato sauceWe love to eat! Maybe this is why we blog about taste claims and substantiation a lot! See here and here. And since at least one of us is always on a diet, when we indulge we like to pick the best tasting options. A competitive taste superiority message is incredibly powerful, and as such developing the necessary substantiation is exacting and expensive. Dollars to (better) tasting doughnuts, your less delicious competitor will be watching your back and seeking to test the quality of that evidence. Every year multiple challenges involving taste preference claims and the testing that supports them land on NAD’s plate to assess. One just this week actually involved dueling taste tests and considered the important question of who are the right people to test? We blogged about this before here in a case involving cereal looking at the right age range of people to test – buyers or eaters of the product. NAD’s general mantra is “taste tests should sample consumers who customarily use the products being compared.” The most recent case involving pasta sauce delved more specifically into this question of the appropriate testing universe.

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NAD Lashes Out Over Use of Stale Market Share Data for a Best-Selling Claim

mascaraI love a good mascara case. And it’s been too long. The last time NAD looked at mascara, it was monitoring challenges over whether celebrities in mascara ads were merely spokesmodels or product demonstrations and concluded the latter. (See here and here and an earlier blog I wrote on this topic.) NAD recommended clear disclosure if the model used lash inserts or other enhancements beyond the mascara to plump and lengthen her lashes. This week came a case involving mascara that NAD found could not be cured with a disclaimer. Rather, a #1 selling claim must be supported with reliable and most recent data.

In this case, Benefit enjoyed the top spot in the prestige mascara category three years running with its They’re Real Mascara, until the latter part of 2016 and this year, when it was bested by Too Faced’s Better Than Sex Mascara. (Whether the latter name is a performance claim and whether it is supported are questions for another challenge!) Benefit promoted at point-of-sale and on the web that it was the best-selling prestige mascara in the US and the best-selling for three years, using a disclaimer identifying the source as the NPD Group dollar sales from July 2013-2016. Too Faced asserted that notwithstanding the source disclosure, readers would understand the claim to be based on current data, and its brand was the best-selling in dollars and units for 2016 full year and 2017. Benefit said the ads taken as a whole made clear the claims were based on past glories.

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For Every Action There Is an Equal and Opposite Reaction: Study Finds That TCPA Litigation Boomed Following the FCC’s July 2015 Order

telemarketing lawsIn July 2015, a divided Federal Communications Commission (FCC) issued its omnibus Telephone Consumer Protection Act (TCPA) Order, which modified and ostensibly “clarified” numerous aspects of the TCPA, such as expanding the definition of “automatic telephonic dialing system” (more commonly referred to as autodialer) and concluding that consumer consent to receive calls may be revoked when given voluntarily. We previously wrote about that Order here and here. Many in the legal industry predicted that, in the wake of the Order, TCPA litigation would increase at an even higher rate than it already was. Boy were we right.

Indeed, this prediction was recently confirmed by a study conducted by the U.S. Chamber Institute for Legal Reform, which concluded without qualification that the Order has “invited additional TCPA litigation and triggered a significant uptick in TCPA cases.” The study began as a database of TCPA cases filed between August 1, 2015 and December 31, 2016 in which a TCPA claim was identified during the electronic docketing process. Specifically, the study found that, during the 17-month period before the Order, there were 2,127 TCPA lawsuits filed, while, during the 17-month period after the Order, there were 3,121 lawsuits filed—an increase of a whopping 46%. Notably, one-third of the 3,121 lawsuits filed are federal class actions. There is a clear cause-and-effect between the Order and the uptick in new TCPA litigations.

In his dissenting statement to the 2015 Order, now-FCC Chairman Ajit Pai stated, “in practice the TCPA has strayed far from its original purpose . . . [a]nd the FCC has the power to fix that.” Maybe the FCC will. In the meantime however, we continue to monitor developments in TCPA litigation. Please see this list of recent TCPA actions.

Proposed Regulations Update Advertising for Cannabis Organizations

For Medical Use OnlyThe New York State Department of Health recently proposed a new set of regulations that would loosen marketing and advertising laws affecting New York’s medical cannabis program. The proposed regulations were published in the New York Register on August 23, 2017, and are open for a 30-day public comment period before the new regulations are to take effect.

The proposed regulations ease restrictions for registered organizations and dispensing facilities’ exterior signage by eliminating the previous requirement that all registered cannabis dispensaries display no more than one exterior black-and-white sign. The new regulations also removes the previous restriction that banned dispensaries from illuminating, “at any time, a sign advertising a marihuana product located on any physical structure.”

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Hey Kids, CARU Has a New Director. She’s Awesome!

kids and laptopsFor some time now the Children’s Advertising Review Unit (CARU) has been guided by the able hands of Acting Director Phyllis Spaeth. The Council of Better Business Bureaus (BBB) which oversees both CARU and NAD just announced the conclusion of their search for a new permanent director — Dona Fraser. Phyllis returns to her previous role as Associate Director. Dona brings a wealth of experience to the job. She was most recently the Vice President, Privacy Certified at the Entertainment Software Rating Board (ESRB) which, as the name suggests, operated as a self-regulatory board for the video game industry. Dona has an extensive background in privacy and has worked on data collection and privacy practice issues in numerous areas, including mobile apps, downloadable games, and social networking. Prior to joining ESRB Dona worked for BMG/Sony Music. Video games, music and kids—the perfect combination. We hope to interview Dona soon to help you to get to know her better and share her thoughts about leading CARU. For those of you attending the NAD conference in October look for Dona there as well.

Don’t Hide the Ball from Consumers: FTC’s Lenovo Settlement Sheds Light on FTC’s Disagreement Over Its Deceptive Omission Authority

computer moneySavvy consumers are generally aware that new computers often include pre-installed software. However, most consumers do not realize that lurking behind their screens is software that computer manufacturers include to pad profit margins. And, because such pre-installed software is often harmless (if obnoxious), it is often called bundled software, bloatware or – the most vulgar reference – crapware. However, in 2014, as part of its standard pre-installed software packages on its laptops, Lenovo included VisualDiscovery, an advertising software developed by Superfish, Inc. Among many things, the software delivered pop-up ads from Superfish’s retail partners’ products whenever a consumer’s cursor hovered over a similar-looking product. To make those pop-up ads possible, the software meddled in the interaction between browsers and websites in, as the Federal Trade Commission (FTC) called it in its complaint against Lenovo, a “man-in-the-middle” role.

Earlier this week, the FTC and 32 state attorneys general announced that they settled complaints against Lenovo. The FTC’s complaint included three FTC Act violations. Under count one, the FTC alleged that Lenovo’s failure to disclose that the software would act as a man-in-the-middle between consumers and all websites, including encrypted websites, was a deceptive act or practice. In count two, the FTC alleged that Lenovo committed an unfair act by not adequately disclosing, or obtaining informed consent from the consumer, that the pre-installed software could cause substantial injury to consumers by leaving a user’s sensitive personal information vulnerable to hackers in certain situations. Finally, under count three, the FTC alleged that Lenovo’s failure to take reasonable measures to address the security risks created by the software constituted unfair security practices.

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The FTC’s Influence Reaches Influencers: FTC Settles First Ever Complaint Against Social Media Influencers

Social Media AppsBig day at the FTC for influencer announcements! The FTC announced its first ever settlement with social media influencers. At the same time they followed up with a second round of warning letters to a large group of influencers. Finally the FTC updated its FAQs on endorsements with some guidance, including its current views about what phrases are and are not clear in disclosing a material connection. Let’s debrief:

Unlike the unfortunate settling social media influencers, the FTC in its consent order against the online gaming community influencers, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, is loud and clear about its stance regarding marketing and promoting on social media – clearly disclose any business ties or financial incentives. In other words, a social media influencer must disclose all material connections, if any, to the product or service he or she endorses.

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FTC Renews Focus on “Made in USA” Claims

Made in USABy now, anyone who is even a casual reader of our blog should know about the Federal Trade Commission’s (FTC) “Made in USA” requirements. As we have explained elsewhere, the FTC requires that a company’s products be “all or virtually all” manufactured in the United States (as well as “finally processed” domestically) for the company to make a “Made in USA” claim. The four closing letters from this month put at 15 the number of “Made in USA” letters the FTC has issued this year. The Commission issued 29 of these letters last year and 28 letters in 2015.

The letters themselves are not surprising and likely involve inadvertent or unknowing violations of Guidelines that we have frequently labeled “counterintuitive.” But the letters also continue a trend of the Commission essentially sending out what amounts to warning letters rather than taking enforcement actions. Coupled with the FTC’s recent spate of educational letters on the undisclosed use of social influencers, and the Commission’s not-quite-so-recent letters to companies that it felt could do a better job with disclosures, the “Made in USA” letters make one wonder whether the Commission is embracing more of the “one free bite” philosophy, at least when it comes to situations that fall well short of out-and-out consumer fraud. For advertisers who try in good faith to comply with the requirements of Section 5, this would be welcome news indeed.

So what did these companies have to promise in order to avoid an actual law enforcement action? In this age of multifaceted marketing, the list is rather long and varied. It includes relabeling products still in inventory, phasing out “Made in USA” decals, stickering printed materials, updating all marketing materials, sending notices to dealers about the discontinued claim, and deleting or editing social media posts as well as making efforts to identify and remedy any improper claims that third-party marketers make. At least one company also committed to “implementing a procedure to review regular reports for items whose production has shifted from U.S. to non-U.S. manufacturers” and to “increasing legal review of the Company’s U.S.-origin claims.” This last item is probably a good idea for all.

Price Gouging in the News

a gas station damaged during Hurricane HarveyThose of us living outside the Texas and Louisiana Gulf Coast region have looked on in disbelief and sadness as unrelenting rain has inundated those areas. The tragedy, though, has also reminded us of the better parts of our nature as we have seen countless examples of stranger helping stranger. However, from time to time Texas law enforcement officials have also reminded us of the worst parts of our nature as they have warned businesses against price gouging and the severe penalties associated with such activity.

Which led us to wonder, what is price gouging in the state of Texas? How is it different from the general rules of supply and demand? Doesn’t everything always cost more around the holidays? Has socialism infiltrated Texas? So we decided to take a look.

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