Advertising Law - April 2017 #2

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In This Issue:
  • Business Supply Scam Operators Banned From Telemarketing
  • States Take on Mantle of Consumer Privacy Protection
  • Future of FCC Privacy Rules Unclear
  • Court Tosses Online ADA Suit Over Due Process Concerns

Business Supply Scam Operators Banned From Telemarketing

The Federal Trade Commission banned the operators of an office supply business from telemarketing pursuant to a settlement deal in Texas federal court.

In December 2015, the agency filed suit against three individual defendants and related corporate entities for violating Section 5 of the Federal Trade Commission Act by tricking small businesses and nonprofit organizations into purchasing office supply products at either higher prices or larger quantities than they had agreed to.

The defendants would quote a per-unit price for items such as pens and paper clips, the FTC alleged, even though they only sold multi-unit quantities. Because the defendants did not disclose the final price, quantity or shipping cost of an order, many customers believed the price they were quoted applied to a package of items and not a single item, the agency said.

According to the FTC's complaint, the defendants "aggressively" sought payment from the small businesses and nonprofits, and when customers tried to return unwanted products the defendants demanded "hefty" shipping and restocking fees (typically 15 percent of the invoice amount).

After the court halted the operation and froze the defendants' assets, they agreed to a stipulated final order banning them from telemarketing and from misrepresenting any product or service. In addition, the defendants must clearly disclose the total cost, all material restrictions or conditions, and the terms of any refund policy before asking consumers for billing information or consent to buy any product or service.

If a policy is in place not to provide refunds, cancellations, exchanges or repurchases, a statement must be made to that effect. The order also prevents the defendants from selling or otherwise benefiting from consumers' personal information. A $6.7 million judgment will be suspended upon surrender of certain assets.

To read the complaint and stipulated order in FTC v. Liberty Supply Co., click here.

Why it matters: For their alleged violations of the FTC Act, the defendants are now banned from telemarketing and future misrepresentations, as well as subject to a host of requirements, including disclosures about the total cost of a sale before finalizing a transaction.

States Take on Mantle of Consumer Privacy Protection

As Republicans seek to decrease federal oversight and unwind rules and regulations promulgated under the prior administration, states are stepping up with new consumer privacy laws of their own.

In Illinois, for example, the legislature is mulling over a measure that would let consumers access the data collected by online companies such as Google and learn how the information is shared. Nebraska and West Virginia recently enacted bills limiting how an employee's social media activity can be monitored, while California and Connecticut updated existing legislation that restricts government access to online communications.

New York's lawmakers are currently considering legislation modeled on the European Union's "Right to Be Forgotten" with a bill that would permit consumers to request that search engines, publishers, and similar entities remove information that individuals have identified as being "inaccurate, irrelevant, inadequate or excessive" within 30 days.

All of these efforts have been spurred in part by the current movement in Washington, D.C. to deregulate, whether via executive order or the Congressional Review Act, as demonstrated by the rescission of the Federal Communications Commission's privacy rule.

"What you're seeing is this growing recognition of the intrusiveness of these technologies, and some efforts—not to regulate them out of existence, but to regulate them in ways that allow people who care about this to preserve their own privacy," David Vladeck, currently a professor at Georgetown Law School and the former director of the Federal Trade Commission's Consumer Protection Bureau, told The New York Times. "So what's going to happen is California is going to supplant Congress, and it's going to be augmented by states like Illinois, Minnesota and even Texas in efforts to protect [consumers'] privacy."

Why it matters: The uptick in state legislation on consumer privacy issues will likely continue as the federal government pursues its efforts to deregulate. If state laws are enacted, it could prove complicated for businesses potentially facing a patchwork of different requirements across the country.

Future of FCC Privacy Rules Unclear

Now that President Donald Trump has signed the bill to rescind the Federal Communications Commission's privacy rules, what happens next?

The rules were rolled back thanks to the little-used Congressional Review Act, which permits the legislature to nullify a covered rule adopted by a federal agency if Congress acts within 60 "session" days.

Senate lawmakers voted 50 to 48 to rescind the rules while the House of Representatives said yes by a margin of 215 to 205. President Donald Trump signed the joint resolution on April 3.

But in addition to allowing a rule to be repealed, the CRA also prohibits agencies from reissuing a new rule that is "substantially the same" as the disapproved rule, "unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule." FCC Chair Ajit Pai has stated that he intends to revisit privacy regulations for ISPs that are in alignment with the Federal Trade Commission's privacy philosophy, but how that could play out given the CRA prohibition remains an open question.

FCC Commissioner Mignon Clyburn and FTC Commissioner Terrell McSweeny released a joint statement after the Senate vote cautioning that the legislation "will frustrate the FCC's future efforts to protect the privacy of voice and broadband customers."

Even Pai expressed uncertainty about the next steps during a recent Commission meeting. What happens after the President's signature depends "on the interpretation of the Congressional Review Act and other legal and regulatory provisions," he said, adding that the Commission has pending petitions to reconsider the rules currently before it. "But we haven't yet had a chance to study what those might be," Pai said.

Why it matters: Could a new set of privacy rules be drafted that would differ enough from the first effort to satisfy the CRA standard? Or has the use of the statute to rescind the rules foreclosed the FCC from promulgating a new version? With the lack of precedent under the CRA—the law has only been used once before the current administration, although Republican lawmakers have already invoked it seven times in the last three months to revoke regulations—the future of privacy regulations from the FCC remains unclear.

Court Tosses Online ADA Suit Over Due Process Concerns

In the latest decision applying the Americans with Disabilities Act to an online retailer, a California federal court judge granted a defendant's motion to dismiss over concerns about due process.

The lawsuit involved charges that Domino's Pizza ran afoul of the statute because neither its website nor its mobile app was in compliance with version 2.0 of the W3C's Web Content Accessibility Guidelines (WCAG). For visually impaired plaintiff Guillermo Robles, that meant he was unable to order a pizza online because the site and app lacked the necessary screen reader software.

But the pizza chain moved to dismiss the suit. In addition to contending that its website and mobile app were not "place[s] of public accommodation" subject to the requirements of the ADA, the defendant told the court that being held liable under the statute with an absence of concrete guidance on compliance violated the company's due process. The Department of Justice—despite promising to issue guidance on the issue—has not promulgated accessibility compliance standards that e-commerce sites must meet, much less that businesses comply with the specific standards cited in the plaintiff's complaint, Domino's told the court.

U.S. District Court Judge S. James Otero sidestepped the defendant's first argument but agreed with the second.

In 2010, the DOJ issued a Notice of Proposed Rulemaking (NOPR), stating that the agency was "considering revising the regulations implementing Title III of the [ADA] in order to establish requirements for making the goods, services, facilities, privileges, accommodations, or advantages offered by public accommodations via the Internet, specifically at sites on the [Web], accessible to individuals with disabilities."

As part of the NOPR, the DOJ noted that "a clear requirement that provides the disability community consistent access to websites and covered entities clear guidance on what is required under the ADA does not exist."

Seven years have passed without a final rule from the DOJ, the court said, leaving covered entities still waiting for clear guidance on what is required under the ADA—including the defendant. "Here … Plaintiff seeks to impose on all regulated persons and entities a requirement that they 'compl[y] with the WCAG 2.0 Guidelines' without specifying a particular level of success criteria and without the DOJ offering meaningful guidance on this topic," Judge Otero wrote. "This request flies in the face of due process."

The court was not persuaded by Robles' argument that the DOJ has demonstrated its position in consent decrees and settlements involving ADA compliance. The cases cited by the plaintiff were materially distinct from the case at bar, the court said, and the DOJ required the covered entities to comply with different standards.

The examples proffered by the plaintiff "highlight, rather than dispel, the vagueness concern that forms the basis of Defendant's Motion, and demonstrate why a lack of formal guidance in this complex regulatory arena places those subject to Title III in the precarious position of having to speculate which accessibility criteria their websites and mobile applications must meet," the court wrote. "Indeed, the Court, after conducting a diligent search, has been unable to locate a single case in which a court has suggested, much less held, that persons and entities subject to Title III that have chosen to offer online access to their goods and services must do so in a manner that satisfies a particular WCAG conformance level."

The court granted Domino's motion, dismissing each of Robles' causes of action without prejudice pursuant to the primary jurisdiction doctrine.

To read the order in Robles v. Domino's Pizza, click here.

Why it matters: The court noted that Congress provided the DOJ with a mandate to issue regulations and render technical assistance regarding Title III of the ADA. "Such regulations and technical assistance are necessary for the Court to determine what obligations a regulated individual or institution must abide by in order to comply with Title III," Judge Otero explained. "Moreover, the Court finds the issue of web accessibility obligations to require both expertise and uniformity in administration, as demonstrated by the DOJ's multi-year campaign to issue a final rule on this subject. The Court concludes by calling on Congress, the Attorney General, and the Department of Justice to take action to set minimum web accessibility standards for the benefit of the disabled community, those subject to Title III, and the judiciary."

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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