The vast majority of Terms of Service (TOS) on websites are unenforceable. Companies spend a great deal of time and money in crafting what they believe to be appropriate website specific TOS which they hope will provide them with the various protections, safe harbors and advantages needed in dealing with the public or in transacting business. Countless hours are spent honing, devising, revising and fine-tuning clauses on limitations on damages, choice of forum and law, mandatory arbitration, automatic renewals, jury waivers, IP ownership clauses, assignments and licenses. Eventually, they are crafted just the way the entity wants them and they are posted. After the countless hours of design, reflection, revisions and thousands of dollars in legal fees, the appropriate well-crafted TOS appear. Unfortunately, in most cases, those bits will not have any legal byte!

When the entity goes to enforce the TOS, believing they have entered into a contract with their users, they are unpleasantly surprised time and again by judges who refuse to enforce them.  Continue Reading Your Websites Terms of Service are Unenforceable

On November 13, 2014, the Consumer Financial Protection Bureau (CFPB) released a proposed rule regulating prepaid products. The proposed rule would amend parts of Regulation E, implementing the Electronic Fund Transfer Act (EFTA) and Regulation Z, implementing the Truth in Lending Act (TILA). The CFPB’s proposed rule is accompanied by a study on prepaid account agreements.

Continue Reading CFPB Proposes Rule for Prepaid Products and Releases Study on Prepaid Account Agreements

It used to be that when you went to the movies you would try to get there a little early to catch all the trailers. But if you got there too early there would be that awkward time in a half-lit movie theatre with the folks you were with (and maybe your cellphone) waiting for everything to start. In recent years the movie theatres have helped us out by having content on the screen all the time. Of course that content was mostly advertising, and it turns out that someone was making that content. Actually, according to a recent complaint filed by the Antitrust Division of the Department of Justice, just two firms accounted for this content on nearly 88% of all movie screens in the country: National CineMedia, which is majority owned by the three largest exhibitors in the US, and Screenvision, which is partially owned by the fourth largest exhibitor. This past spring, NCM, which is on 51% of all movie screens in the US agreed to buy Screenvision. The Department of Justice was not amused, and filed a complaint this past week to block the deal.

Continue Reading In a World Where Advertising is Shown in Movie Theatres…

TrollsYes, we’re a tease.  The Bureau Director and Commissioners do not have cameos in next month’s final installment of the Hobbit (and no, this is not strategically placed native advertising #notanad).  The Commission has taken a starring role in battling trolls of a much more human sort.

The agency last week announced a settlement with several “patent assertion entities” (which some lovingly call trolls), including a Texas-based law firm.  The particular patent at issue here is related to network computer scanning technology and the trolls sent letters to thousands of small businesses asserting that they “likely” were using infringing technology and offering to negotiate an appropriate license if needed.  Now some have suggested that asserting a likely patent violation with little or no evidence in support of the assertion itself violates Section 5 (much as it might violate Rule 11 if done in court.)  However, the FTC chose not to go down that path. (Although an earlier settlement with the NY AG’s office included a provision addressing this issue.) Instead the agency focused on two other statements in the letters.

The initial letter, which kindly offered to negotiate a license (for up to $1,200/employee) helpfully noted that “many companies have responded [positively].”  According to the FTC, however, “many” was actually zero as no one had responded positively to the offer at the time the first 7,300 letters were sent.  Small businesses who didn’t immediately embrace the licensing offer received subsequent letters which asked less nicely.  These included a letter from a law firm that attached a draft complaint which they said their client would be “forced to file” if a positive response was not forthcoming within two weeks.  According to the FTC, more than 4,800 small businesses received such a letter and no lawsuit was filed against any of the recipients who failed to respond.  Therefore, according to the FTC, this statement also violated Section 5.

Assuming you’ve checked in the mirror and aren’t developing troll-like characteristics, should you care about any of this?  Perhaps.  Outside of the “patent assertion” arena, how many companies have sent “cease and desist” letters concerning a rival’s allegedly false or misleading advertising?  While counsel no doubt often cautions not to make idle threats of litigation, surely some of these letters threaten litigation if a favorable response is not received.  How strong [and idle] must that threat be before a Section 5 line is crossed?  In this case the letter stated that the client would “be forced” to file.  Is that the same as saying that they “will file?”  The proposed consent order also makes it unlawful to falsely state that a lawsuit will be filed “imminently” or within a “specified period of time.”  Even if a client does intend to file a lawsuit they might not want to threaten to file it within “30 days” unless they are actually prepared to do so within that time frame.

Of course, all of this may have been exacerbated by the fact that the threat was made not just once, or dozens or even hundreds of times but rather thousands of times without ever being carried out.  Perhaps like the little boy of Mother Goose fame, you can cry wolf once or twice without any real consequence.  Even so, the next time that draft cease and desist letter crosses your desk you might want to give it a closer look and consider the story of the troll and the five FTC Commissioners gruff.

Even in 2014, fax marketing by associations, businesses, and other individuals shows no sign of slowing down.  We have previously noted the significant number of class action lawsuits involving fax advertisements under the Junk Fax Prevention Act (“JFPA”). Now the Federal Communications Commission (“FCC”) is drawing more attention to this less common form of advertising.  On October 30, 2014, the FCC issued an order rejecting the arguments of advertisers and fax broadcasters, and a majority of Commissioners held that opt-outs under the JFPA extend to all fax advertisements, even those sent with recipients’ prior permission. The FCC’s long-awaited decision explicitly confirms that all fax advertisements must contain the opt-out instructions set forth by FCC rules. 

About ten years ago, Congress enacted the JFPA and amended the fax advertising provisions of the Telephone Consumer Protection Act. The amendments, among other things, created an exemption allowing businesses or individuals to send unsolicited fax ads to those persons with whom they had an established business relationship. To fall within the exemption, however, the sender was required to offer a cost-free, 24-hour means for the recipients to “opt-out” of receiving future fax ads. Shortly after the revised statute went into effect, the FCC adopted the Junk Fax Order, which required in part, the inclusion of the “opt-out” notices on “solicited” and “unsolicited” fax ads alike.  The implementation of the provision relating to “solicited” ads (i.e., those sent to persons that have given prior express permission) sparked significant controversy and confusion amongst affected parties, and led to numerous petitions from associations and businesses seeking a declaratory ruling about the FCC’s authority to issue the proposed rule.

In its order, a majority of Commissioners rejected the contentions that it lacked authority to adopt the rules, both as procedurally barred and substantively flawed. Two commissioners dissented, however.   

Despite some internal disagreement, the Commission recognized many affected parties reasonably misconstrued the original ruling. First, the FCC blamed a pesky footnote in its 2006 implementation order that stated “the opt-out notice requirement only applies to communications that constitute unsolicited advertisements.” The placement of the word “unsolicited” created an internal inconsistency within the order and, in the FCC’s view, led to understandable confusion regarding the application of the opt-out notice. Second, the FCC acknowledged that it did not make expressly clear it was contemplating an opt-out requirement for fax ads sent with the prior express permission of the recipient. Although the FCC defended that the notice of proposed rulemaking for its 2006 order was legally adequate to adopt a rule applying to both solicited and unsolicited fax ads, the Commission appreciated that the lack of explicit notice may also have contributed to the confusion or misplaced confidence in the application of the rule to solicited fax ads.

As a result, the FCC granted a “limited retroactive waiver” of the opt-out requirement to certain fax ad senders.  Parties that obtained waivers are relieved from any past obligation to provide the opt-out notice to recipients from the date the opt-out notice took effect in 2006 to April 30, 2015. The waiver might therefore be a powerful shield, insulating the holder from substantial monetary damages that a class action plaintiff could collect from a violation of the opt-out requirements over a sustained period of years. But it not clear whether courts will defer to these “limited retroactive waivers” in pending or future junk fax litigation. 

So how does the new fax order impact you? 

  1. The Commission’s order leaves unchanged the rules for sending faxes to anyone who did not request them, did not want them, or who had no established business relationship with the sender. Thus, the waiver does not grant reprieves for failing to include opt-out notices on fax ads sent pursuant to established business relationship, nor does it affect the general prohibition against sending unsolicited fax ads.
  2. An opt-out notice is now required on all advertising faxes, even those sent with the recipient’s consent. Your opt-out notice must 1) be clear and conspicuous and appear on the first page of the ad; 2) state that the recipients can request not to receive future fax transmission from the sender, and that the senders must honor that request within the shortest reasonable period of time, not to exceed 30 days; and, 3) contain a domestic phone and fax number that the recipient can contact to opt-out. Opt-out notices without all of these elements will be subjected to the same penalties as those fax ads that contain no notice at all.
  3. The waiver also only applies to the specific organizations and individuals who have specifically requested relief. Therefore, organizations and individuals that have not obtained a waiver are still subject to potentially substantial damages and/or forfeitures under the Communications Act. The FCC will allow—and expects—similarly situated parties to apply for retroactive waivers by April 30, 2015, and encourages any businesses that have not been strictly compliant to submit requests as soon as possible. Moreover, beginning May 2015, any sender that fails to include the opt-out notice at all or uses a deficient notice opens itself to significant monetary liability from the FCC or private class action litigants.
  4. Existing rules and regulations governing certain technical aspects of sending faxes remain unchanged.  For instance, it unlawful for anyone to send any message – whether commercial or not – via a fax machine unless that person clearly marks, in a margin at the top or bottom of each transmitted page:  (1) the date and time that the fax is sent, (2) an identification of the business, other entity, or individual sending the message, and (3) the telephone number of the sending machine or of the sender. The FCC can enforce these technical requirements with fines of up to $11,000 per violation.

In short, the FCC’s latest order requires that fax ads sent with the recipient’s prior express permission include an opt-out notice. The FCC expects associations, businesses, and individuals to strictly adhere to this requirement immediately. Non-compliance can potentially result in unwanted FCC enforcement proceedings or class action lawsuits.

*Andrew L. Steinberg is a Venable associate, and not yet admitted to practice law.

3-DPrinting3-D printing is one of the most disruptive technologies to penetrate the market place.  While it is currently and extensively used for prototype design, medical devices and creating novelty items, it has the potential for dramatically changing our way of life.

As new technologies emerge and business models come online, we often see a lag in the law and the activities of business and the consumer.  Let’s fast forward a few years while you can still go to your favorite online store, order and pay for your product; but, instead of it being shipped to you, you will be able to download a file(s) and print out your “purchase(s).”

The whole way we “buy” products could change once we are able to download or stream digital files and print them ourselves.  In fact, we would no longer buy anything – we would, in all likelihood, licensing software files and products from the vendor.

When we buy something, we generally have the right to resell it and use it as we see fit.  This is true even with products that are protected by copyright based on the limits of the copyright owner controlling secondary sales under the First Sale Doctrine.  The copyright owner gets to decide who makes the first sale then the person who acquired the lawful copy can resell it (e.g. used CDs, VCR tapes, DVDs, books, etc.).  However, the First Sale Doctrine does not apply to licensed goods.  So, when we license a 3-D file and print out the product, one should not be confused to think they actually own the file or resulting product, it is being licensed.  How do we know if we are buying something and own it or are merely licensing it?  The answer it seems depends on what the vendor calls the transaction.

Continue Reading 3-D Printing – The End of Shopping As We Know It

Most of us are familiar with the pleasant experience of an arranged date or a blind date: dining under the romantic glow of the Golden Arches, learning about a day in the life of Muffin, her pure-bred Persian, or perhaps “going Dutch” on the check when all the fun finally ends.  Add to the mix online dating sites—virtual exchanges of love interests, complete with lists of mostly aspirational hobbies, and yes, user photos from ten years and twenty pounds ago.  When you sign up for an online dating service, you expect these subtle (or not so subtle) misrepresentations from other users.  What you don’t expect is the dating service doing the same—for example, by sending flirtatious notes from made up profiles.  That’s exactly what the FTC alleged last week in its second Restore Online Shopper’s Confidence Act (“ROSCA”) case ever, in which the FTC settled with a dating site for posting fake user profiles in an effort to persuade customers to sign up for premium services.

Continue Reading In Second ROSCA Case, FTC Finds Dating Site Too Clingy

infinityDefining unlimited is a metaphysical exercise worthy of a Cosmos or at least a Big Bang episode.  We have blogged before about the meaning of “lifetime supply” and “free.”  But the FTC is very literal when it comes to defining the bounds of limitless and concludes that, well, unlimited means unlimited. The FTC has just filed a federal court complaint against AT&T seeking redress for customers who signed up for unlimited data plans.  In its complaint, FTC charged AT&T with engaging in an unfair and deceptive data throttling practice that targeted customers on its unlimited data plans without providing customers adequate disclosure as to the nature of the practice.

According to the FTC, despite its “unequivocal promises of unlimited data,” AT&T allegedly began throttling data speeds for its unlimited data plan customers in 2011, in which “numerous customers” experienced slow-downs of up to 85-95 percent. The FTC’s complaint claims that AT&T violated the FTC Act by changing the terms of customers’ unlimited data plans while those customers were still under contract with AT&T, and by failing to disclose the extent of the throttling program to consumers who renewed their unlimited data plans with AT&T.

Continue Reading FTC: Unlimited Means Unlimited

A free trial of a weight loss pill is the best of both worlds, right?  Not according to the FTC, which recently brought its first Restore Online Shoppers’ Confidence Act (ROSCA) case against a group of marketers who advertised exactly that.

Weight loss substantiation is old territory for the Commission.  ROSCA, however, is not.  The FTC’s first ROSCA case, filed in Nevada district court, alleges that health companies made unsubstantiated claims that their dietary supplements would lead to weight loss, muscle building, virility, and improved skin.  More significantly, however, are the allegations surrounding the marketers’ “free trial” and “buy-one-get-one free” offers.  According to the FTC, the companies collected customers’ debit and credit card information in order to enroll customers in a negative option (subscription) program.  While there is certainly nothing wrong with subscription programs on their face, the FTC alleges that the companies here inadequately disclosed the nature of the program – they never clearly told customers their accounts would be charged each month.  ROSCA prohibits marketers from charging customers in an Internet transaction unless the marketer has clearly disclosed all of the material terms of the transaction and obtained customers’ express informed consent. In this case, according to the FTC, the marketers did not provide the required disclosures for a negative-option program before accepting payment; failed to disclose material facts about their refund and cancellation policy, among other facts; and didn’t give customers a simple, effective way to stop the automatic charges.

Continue Reading FTC Says Companies Have a Fat Chance of Getting Away With Deceptive Online Marketing in First ROSCA Case

“Paper or plastic?”  The age-old question, complicated by the creation of biodegradable plastic, has been broken down more.  Many people’s misgivings about using plastic bags were alleviated with the advent of plastic bags that can carry more weight with less guilt.  However, after this week, there is no question that the FTC is serious about deceptive claims surrounding biodegradable products.

On Tuesday, the FTC issued warning letters to fifteen marketers of “oxodegradable” plastic bags.  Oxodegradable plastic is made with an additive intended to cause it to degrade in the presence of oxygen.  The problem, according to the FTC, is that oxodegradable products will biodegrade, but not in landfills, where there may not be enough oxygen for the oxodegradable bags to degrade in the time expected.  Under the FTC’s Green Guides, products that are labeled “biodegradable” must degrade under conditions of customary disposal within a “reasonably short period of time.” The 2012 revisions to the Green Guides specifically cautioned that unqualified “degradable” or “biodegradable” claims for items customarily disposed of in landfills, incinerators, and recycling facilities are deceptive, because the locations do not present conditions in which complete decomposition would occur within one year.

This isn’t the first time the FTC has addressed the issue, and if the past is any indicator, it probably won’t be the last.  The warning letters follow five enforcement actions involving plastic biodegradability claims that the Commission brought last year.  The enforcement actions were brought as part of a program to ensure compliance with the agency’s Green Guides, and, given this week’s warning letters, it appears the FTC may have more targets in sight.

The companies who received warning letters must either stop making the oxodegradable claims, or produce reliable scientific evidence that their claims – unlike their bags – will not erode.  The Commission also warned that companies who did not receive warning letters should not assume that the FTC has given them the green light, and their claims might be subject to scrutiny in the future.

As we have said before, “Green Claims” – and particularly claims about biodegradable products – are a priority for the FTC.  The FTC has shown that it will continue to aggressively enforce its Green Guides and pursue claims with the violating companies.  As more “green” products enter the market, companies advertising and marketing products with recycled content should carefully review the FTC’s “Green Guides.”  Otherwise, your claims might disintegrate.