FTC on Steroids?

No one in law school ever mentioned that social media was required professional reading. (Well, let’s be honest. There wasn’t social media when we were in law school). However, perhaps inspired by our President, Twitter has become quite interesting lately when it comes to the FTC. One of the more interesting tweet storms started as a result of the FTC’s recent action modifying a consent agreement reached with Speedway. The Speedway modification is itself a fascinating tale. In brief, fifteen years ago, Speedway agreed to refund $1 million to consumers as a result of allegedly deceptive statements about a fuel additive. Speedway was supposed to redistribute funds from checks that ultimately went uncashed but failed to distribute about $80,000 of the million that went uncashed. Fifteen years later, Speedway self-reported the violation and proposed sending the money to the U.S. Treasury in lieu of sending an additional $1 or so to each of the initial recipients. This practice, as the majority notes, also conforms to more recent Commission practice which allows for the remittance of uncashed funds to the Treasury. Four Commissioners approved this modification, noting, among other things, the cost of forcing Speedway to comply with the order as written and that had Speedway not self-reported the violation, it would have never been detected. Commissioner Chopra dissented, noting that allowing Speedway to now simply send a check to the U.S. Treasury saved it the expense of finding and sending checks to individual consumers and that Speedway should not profit from its order non‑compliance. As a side note, Commissioner Chopra also called for clearer guidance when it comes to any benefits associated with self-reporting a suggestion which the majority called “worth consideration.” (Currently, as a matter of enforcement discretion, the Commission will sometimes close investigations when a company corrects a violation prior to the initiation of a Commission investigation, which is, in a manner of speaking, a variation of self-reporting).

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Are You Ready? California’s New Proposition 65 Warning Requirements Take Effect August 30

“On August 30, 2018, businesses will be required to provide revised “clear and reasonable” warnings under California’s Safe Drinking Water and Toxic Enforcement Act of 1986 (known as Proposition 65 or Prop 65) if they would like to avail themselves of the safe harbor provided by the implementing regulations of the Office of Environmental Health Hazard Assessment (OEHHA or the Agency). Retailers and manufacturers/distributors alike should ensure that they are in compliance with the new rules, keeping in mind that there are specific requirements related to products sold via the Internet and product catalogs.

Under Prop 65 and the implementing regulations, businesses with 10 or more employees must provide “clear and reasonable” warnings to Californians before exposing them to a chemical listed by OEHHA as a carcinogen or reproductive toxicant (more than 900 chemicals are now on the list). The current regulations, adopted in 1988, established criteria for what OEHHA considered to be a “clear and reasonable” warning, including specific language that, if used, would be deemed compliant with the regulations (known as “safe harbor” warning language).

In 2016, OEHAA adopted new safe harbor warning regulations that become effective later this month. The new regulations place a significantly heavier burden on manufacturers/distributors to provide consumer product warnings. Specifically, manufacturers/distributors must provide revised warnings on the labels of their consumer products or provide notice and materials to retailers so that retailers can post the revised warning on signs or shelf tags at the point of purchase. Manufacturers/ distributors must update the notice to retailers periodically and obtain electronic or written confirmation from the retail seller that it received the notice.

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Visa Updates Rules for Marketplaces

In recognition of a rapidly changing ecommerce environment, Visa has created a new category of payment aggregator – a “marketplace” – for entities that bring “together Cardholders and retailers on an electronic commerce website or mobile application.” The new marketplace designation will have an immediate impact in the ecommerce market by clarifying the status and requirements applicable to ecommerce sites looking to add payment processing services to their platforms. While this model is likely to grow in popularity, it raises a number of regulatory and compliance issues that must be taken into account.

What Is a Marketplace?

A marketplace is a type of ecommerce site that facilitates the sale of products or services by multiple third-party retailers through an online platform. While the main function of a marketplace is facilitating sales by bringing buyers and retailers together, this activity necessarily requires that a payments system be included in the platform. Traditionally, many of the largest marketplaces have incorporated payments by partnering with more traditional payment processors to handle the nuts and bolts of acquiring, clearing, and settlement. The new marketplace category will provide these websites with additional flexibility to offer their own processing solutions.

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A Victory for Introductory Offer and Subscription Advertisers: FTC Fails to Prove Deception Against DIRECTV

The FTC has been waging a steady war against advertisers that use introductory offers that turn into subscription agreements. With the FTC threatening to seek full consumer redress and to impose joint and several liability, most companies and their principals cannot afford to litigate such cases and are forced to settle. In March 2015, the FTC sued DIRECTV, alleging that DIRECTV failed to properly disclose material terms of its introductory offer and its subscription agreements. DIRECTV chose to fight. Last August the case went to a bench trial. After the close of the FTC’s case, the judge suspended the trial so that DIRECTV could move for a judgment in its favor. Last week, the judge granted DIRECTV’s motion in part, tossing out large parts of the FTC’s case. The opinion provides insightful guidance on how to structure continuity offers and illustrates the difference between alleging something is deceptive and proving it.

In its complaint, the FTC alleged that DIRECTV failed adequately to disclose that: (1) introductory prices were limited to the first 12 months of 24-month subscriptions; (2) the subscriber is subject to a 24-month commitment; (3) early termination fees would apply if subscriptions were cancelled early; and (4) premium channels were free for three months and then would be automatically charged at the regular rate unless the subscriber called to cancel. The FTC alleged these deceptive statements were made in print, TV, and banner advertisements as well as the directv.com website. Based on these allegations, the FTC sought restitution of $3.95 billion based on DIRECTV’S alleged unjust gains from the deception.

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FCC Tackles “Slamming and Cramming”

“Slamming and cramming” might sound more appropriate in professional wrestling than telecommunications, but it’s the Federal Communications Commission and not the WWE that’s making moves in this area. On June 7, the Commission approved new rules aimed at stopping both slamming and cramming by telecommunications carriers, which we’ve summarized below. On August 16, these new rules will go into effect.

“Slamming” refers to a change being made in a consumer’s telephone service provider without the consumer’s permission. According to the new standard, slamming can happen whenever there is a “material misrepresentation,” which could be the result of false information in a sales call or the falsification of a consumer’s verification. The FCC is concerned that telephone companies use falsified confirmations to satisfy the third-party verification system, which is one of the approved mechanisms by which a company can establish the consumer’s switch. Some companies have done this by recording affirmative language from a consumer in one phone call and playing that same sound bite in the call establishing third-party verification, all without the consumer’s consent or knowledge. To further discourage that specific practice, companies that misuse the third-party verification system are now subject to a five-year suspension from its use. The new rule also codifies procedural hurdles leveled against companies accused of slamming. Once a consumer claims a misrepresentation occurred, then the burden is on the telephone company to prove its absence. And if a material misrepresentation on a call has been established, then even evidence of consumer authorization will not change this determination. “Cramming” is more straightforward – it’s when phone companies add charges to a bill for services that were never authorized by the consumer.

Slamming and cramming were not permitted practices before this action, but through this order the FCC is expressly prohibiting them. This rule bans material misrepresentations that cause a consumer to switch providers, i.e. slamming, and adding unauthorized charges to a consumer’s telephone bill, i.e. cramming. By explicitly banning these practices, the FCC hopes to provide greater clarity to these issues and deter non-compliant industry action. The FCC also continues to further that same goal through enforcement action. For example, in April the Commission proposed a $5,323,322 penalty on a phone company for slamming and cramming, as well as providing false evidence. Considering the upcoming implementation of the final rule as well as recent enforcement in this area, we recommend that you ensure your current practices are compliant.

Transparency Coming to a Campaign Ad Near You!

The Federal Election Commission recently held a public hearing to discuss its March 2018 proposed rule aimed at providing voters with more information about who pays for or sponsors online political advertisements. The private sector has adopted a solution to the issue.

On May 22, 2018, the Digital Advertising Alliance (DAA) took the first step to alter the status quo by unveiling a new, industry-wide PoliticalAds transparency initiative designed to bring greater transparency and accountability to the realm of political advertising.

Similar to the DAA’s YourAdChoice program, which provides consumers with easily accessible information via the familiar blue triangle that accompanies interest-based ads, the PoliticalAds initiative will require certain political advertisements to supply information and a comparable purple icon.

Political Ad Icon

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The Department of Justice Has a New Consumer Task Force – What Does It Mean for You?

Deputy Attorney General Rod Rosenstein – the second-highest-ranking official at the Department of Justice – recently announced the formation of the Task Force on Market Integrity and Consumer Fraud. The announcement came at a widely publicized press conference, a signal that the Task Force ranks high on the list of the Department’s law enforcement priorities. Given the prominence of the Task Force, all businesses would be well served by understanding what it is and what it seeks to accomplish.

The Task Force has a strikingly broad mandate. According to the Presidential Executive Order that created it, the Task Force is to aid in the “investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers, including cyber-fraud and other fraud targeting the elderly, service members and veterans, and other members of the public; procurement and grant fraud; securities and commodities fraud, as well as other corporate fraud, with particular attention to fraud affecting the general public; digital currency fraud; money laundering, including the recovery of proceeds; health care fraud; tax fraud; and other financial crimes.”

The membership of the Task Force further highlights the breadth of its mandate – and the importance that the Department places on it. The Task Force comprises a wide array of government officials from numerous government bodies. Its Chair is the Deputy Attorney General; its Vice Chair is the Associate Attorney General, the third-highest-ranking official at the Department. Other Department officials on the Task Force are the Assistant Attorneys General for the Criminal, Civil, Tax, and Antitrust Divisions; the Director of the FBI; and designated U.S. Attorneys. What’s more, the Task Force is to invite the participation of no fewer than eight Cabinet Secretaries, the Director of the Bureau of Consumer Financial Protection, the Chairman of the Federal Trade Commission, the Chairman of the Securities and Exchange Commission, and more than 10 other agencies, commissions, and boards.

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Second Circuit Says Multi-State Consumer Class Actions Might Not Be All-Natural

Consumer class actions predicated on state laws alleging deceptive claims are one of the scourges of modern marketing. In a recent decision, the Second Circuit laid out some important guidance on whether and how putative class actions based on laws of different states can move forward.

In Langan v. Johnson & Johnson Consumer Companies, Inc., Langan, a Connecticut resident, sued J&J for violating the Connecticut Unfair Trade Practices Act (CUTPA), alleging that two Aveeno Baby washes were deceptively marketed as containing “natural oat formula” when they allegedly only contained 1% natural ingredients. Langan sought class certification on behalf of Connecticut consumers and consumers in 17 other states who purchased the two baby washes under those states’ “mini-FTC Acts”.

A Connecticut federal district judge certified a class of consumers who had purchased the products in 18 states—rejecting J&J’s arguments that the Plaintiff lacked Article III standing to bring a class action under multiple state laws and that the state consumer protection laws were too varied to satisfy the predominance requirement of Rule 23.

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Predictive Dialer Prediction Comes True: Court Rules that ACA International Vacated Previous FCC Predictive Dialer Decisions and Holds that Predictive Dialers are Not Autodialers Under the TCPA

Technology is present in nearly everything we do and not only in the form of a smartphone. Now, when people brush their teeth, turn on the car, or tune an instrument, there’s likely some form of digital technology at work. With all of these activities, it can be unclear when the user is manually performing the action versus when it’s become automated. Courts have struggled with this same issue while applying the Telephone Consumer Protection Act (TCPA) after the D.C. Circuit set aside the FCC’s interpretation of an automatic telephone dialing system (ATDS) in ACA International v. FCC, 885 F.3d 687 (D.C. Cir. 2018). As we’ve outlined in previous blogs, ACA International clearly invalidated the ATDS standard from the FCC’s 2015 TCPA Order, but, since that decision, district courts have grappled with the validity of the FCC’s 2003 and 2008 predictive dialer rulings, which concluded that predictive dialers that dial from set lists of specific telephone numbers are autodialers.

While several courts have ruled on this issue, there still isn’t a consensus on the proper approach. Last week, however, the Northern District of Illinois issued a well-reasoned and detailed decision that may help guide that debate – Pinkus v. Sirius XM Radio, Inc., No. 1:16-cv-10858 (N.D. Ill. July 26, 2018). The court in Pinkus had to wrestle with the exact set of circumstances that ACA International has thrown into confusion: namely, whether predictive dialing technology qualifies as an ATDS if it does not randomly or sequentially generate the phone numbers to be called. The 2015 FCC Order that was struck down in ACA International, as well as previous FCC orders, included this type of technology under the definition of ATDS.

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Recent NAD Decision Largely Rejects Puffery Defenses and Consumer Testimonials that Disparage Competition

It seems like we (and the NAD) can’t get enough of “best.” In a recent case, the National Advertising Division (NAD) ruled that the advertiser, Mahindra USA, Inc., could not claim its products were superior without reasonable evidence.

Deere & Company, Inc. challenged Mahindra’s tractor advertisements as unsubstantiated superiority claims. Mahindra’s ads included “Best” claims such as: best-selling, best value, best warranty, best performance, “toughest tractors,” and superior engine oil. Additionally, Mahindra advertised consumer testimonials that expressed disappointment in the quality of John Deere tractors compared to Mahindra tractors.

Of course, context is king and “Best” advertisements can either be substantive claims, or considered mere “puffery.” (See here for a discussion on NAD and “best” claims). For some of the challenges in this case, Mahindra conceded its ads were substantive claims and argued that they were factually supported. For instance, Mahindra argued its best-selling claims were based on unbiased data. NAD agreed that a reasonable basis existed for the claims (although additional disclosures were necessary). For the majority of the challenged advertisements, however, Mahindra argued its statements were puffery. NAD rejected this defense in all but one instance and recommended discontinuation of the ads.

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