Advertising Law -- August 29, 2012

by Manatt, Phelps & Phillips, LLP
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  • In This Issue

    FTC Settles with Facebook; Liability Denial Debate Continues

    The Federal Trade Commission finalized a settlement with Facebook over charges that the company made user information public by default even though the company promised to keep the information private.

    The settlement also provided the setting for the latest battle in the ongoing debate over whether agency settlements without an admission of liability are within the public interest.

    The Facebook case dates back to 2009 when the social networking site announced that information such as a user name, gender, pictures, geographic location, friend list, and fan pages was all made public by default despite its privacy policy. The company also told users they could restrict the sharing of their data to certain audiences – like their “friends” – but their information was shared with third-party applications used by their friends.

    Under the terms of the finalized settlement, Facebook must give users clear and prominent notice and obtain their express consent before sharing information beyond their privacy settings. The site must also establish a comprehensive privacy program and undergo biennial privacy audits.

    The settlement was approved by a 3-1-1 vote, with one abstention and Commissioner J. Thomas Rosch dissenting. Echoing his previous concerns about the agency’s settlement with Google, Commissioner Rosch wrote that because of Facebook’s express denial of liability, the FTC should not have made the deal.

    Commissioners are “authorized to accept a consent agreement only if there is reason to believe that a respondent is engaging in an unfair or deceptive act or practice and that acceptance of the consent agreement is in the interest of the public,” he wrote. “I cannot find that either the ‘reason to believe’ or the ‘in the interest of the public’ requirement is satisfied when, as here, there is an express denial of the allegations set forth in the complaint.”

    Commissioner Rosch also expressed concern that the settlement failed to cover Facebook’s interaction with third-party apps on its platform that may engage in “deceptive information sharing practices.”

    In a majority statement, the three other Commissioners who voted in favor of the settlement said that “an extensive investigation and detailed staff recommendation” led the agency to conclude that the complaint and resulting settlement are in the public interest.

    “We view the final consent order in this matter to be a major step forward for consumer privacy and hereby approve it,” the Commissioners wrote.  “While we do not believe that a respondent’s denial of liability is reason to reject a settlement that is in the public interest, we share Commissioner Rosch’s desire to avoid any possible public misimpression that the Commission obtains settlements when it lacks reason to believe that the alleged conduct occurred.”

    Going forward, “express denials will be strongly disfavored,” the Commissioners pledged.  In the future, the language “the respondent neither admits nor denies” a complaint’s allegations “may very well be a more effective way to ensure that there are no misimpressions about the Commission’s process,” and the agency will consider in the coming months whether to modify the Commission’s Rules of Practice, according to the statement.

    To read more about the settlement, including the FTC’s complaint, the proposed settlement, and statements from the Commission and dissenting Commissioner Rosch, click here.

    Why it matters:  While the Commissioners may have reached a tentative understanding in the debate over express denials of liability in agency settlements, the argument continues in the courtroom.  Federal courts considering settlements with the FTC and with the Securities and Exchange Commission have recently rejected proposed deals in which the defendants expressly denied or declined to admit liability. Advertisers and marketers should keep an eye on the issue, as the courts continue to question the practice and the FTC appears poised to reconsider its position regarding the denial of liability in agency settlements.

    NAD: Whitening Strips and Toothpaste Not the Same

    Colgate should discontinue the claim “Same Whitening Ingredient as Strips” for its Optic White Toothpaste and remedy its implied claims that the product provides a significant whitening benefit, the National Advertising Division recommended.

    Competitor and challenger Proctor & Gamble, maker of Crest 3D White Whitestrips, argued that the “Same Whitening” claim conveyed a message to consumers that the peroxide in the toothpaste provides a significant tooth-whitening benefit comparable to Whitestrips.

    In defense, Colgate argued that its claim was literally true – Optic White Toothpaste contains 1 percent hydrogen peroxide, the same ingredient used in Whitestrips.

    But the NAD said the context in which the claim was presented was causing a false or misleading message.  “[W]hile perhaps literally true, the claim ‘same whitening ingredient as strips’ reasonably conveys a message beyond the fact that both strips and Optic White contain ‘peroxide,’” the NAD wrote.

    Optic White not only contains a far smaller percentage of peroxide than strips – just 1 percent compared to upwards of 6 percent in the strips – it also has a markedly different delivery mechanism – brushing as opposed to sustained contact – noted the NAD.

    “[C]onsumers could quite reasonably interpret the advertiser’s ‘same ingredient as strips’ claim to mean that Optic White toothpaste not only contains ‘the same’ ingredient as Whitestrips, but that it offers the same whitening benefit as Whitestrips,” the NAD said.  Colgate failed to acknowledge that its claim could imply comparable efficacy, the NAD said, even though comparable efficacy was clearly intended by the Whitestrips comparator.

    The NAD also relied upon a consumer perception study conducted by Proctor & Gamble, which found that 37 percent of respondents interpreted the claim to mean that Optic White was as effective at whitening teeth as strips.

    Other factors considered by the self-regulatory body were the “pervasive” whitening claims throughout the packaging, the “repeated and prominent” comparisons to Whitestrips, and a graphic on the Optic White packaging depicting a droplet of peroxide falling from a whitestrip onto a toothbrush.

    “[T]his imagery and language reasonably conveys the message that Colgate took the peroxide (and its whitening power) normally found in strips and delivered it in a toothpaste,” the NAD determined.  Because Colgate’s evidence was insufficiently reliable to support its express and implied claims, the NAD recommended they be discontinued.

    However, the NAD did find that Colgate had adequate support for a more narrowly tailored claim that the toothpaste contains 1 percent hydrogen peroxide in a stable form, a monadic claim that the product provides whiter teeth in one week as compared to a regular, non-whitening fluoride toothpaste, and a claim that Optic White “removes stains that non-whitening fluoride toothpastes do not.”

    To read the NAD’s press release about the decision, click here.

    Why it matters:  The NAD used the decision to remind advertisers that they are “responsible for all reasonable interpretations of its claims, not simply the messages it intended to convey.”  While advertisers are free to tout the ingredients contained in their products to the extent that they are similar to ingredients found in competitive products – like the peroxide at issue in the Optic White toothpaste case – “the analysis cannot stop there,” the NAD emphasized.  “[L]iterally truthful claims may give rise to other messages including inaccurate or misleading messages.”

    Be Nice to Data Brokers, DMA Tells Congress

    In a letter to federal legislators, the Direct Marketing Association advised members of Congress to “proceed with caution” when considering the regulation of data brokers.

    “New restrictions on data or third-party data providers could have negative consequences not only for data providers, but for the countless entities that rely on such data sources to improve their marketing and grow their businesses,” wrote Linda A. Woolley, acting president and CEO of the DMA.

    Last month lawmakers sent letters to nine national data brokers expressing concern that the companies have “developed hidden dossiers on almost every U.S. consumer.”  The letters requested information that include a list of each entity from which the companies have received data about consumers, the type of data received (including queries about social media and mobile activity), as well as whether consumers can obtain information about themselves or opt out of collection.

    Emphasizing that the data collection performed by the companies is perfectly legal, the DMA explained that marketing databases are not individual “look-up” services, but merely “high-tech ways for companies to pursue the same goal that marketers have always had – namely, reaching a group of consumers likely to enjoy their products and services.”

    The DMA argued in its letter that even if information about consumers is inaccurate – something the legislators worried about in their letters – the “only ‘harm’ consumers might experience from inaccurate marketing data is an irrelevant advertisement.”  And mandating heightened accuracy standards for marketing data would actually decrease consumers’ privacy, Woolley wrote, because companies would be forced to acquire more personally identifiable information in order to increase accuracy.

    To read the DMA’s letter, click here.

    Why it matters:  “Quite simply, in the digital age, data-driven marketing has become the fuel on which America’s free market engine runs,” Woolley wrote.  “From global brands to start-ups, marketing helps companies to find customers, grow, and create jobs.  Put another way, unnecessary restrictions on marketing could undermine economic and job growth.”  If the lawmakers consider regulating the industry, the DMA said self-regulation would provide the most efficient and effective method of addressing commercial data practices.

    VPPA Covers Streaming Video Online, Court Rules

    In refusing to dismiss a lawsuit brought against online service Hulu, a federal judge has ruled that streaming online video is subject to the requirements of the Video Privacy Protection Act.

    Hulu.com offers previously released and originally developed video content for consumers to view.  The class action suit alleged that the company allowed a third-party data analytics company to place tracking identifiers on users’ computers that allowed them to be tracked over long periods of time and across multiple Web sites.

    The VPPA prohibits the disclosure of user information absent written consent.  The statute defines “video service provider” as an entity engaged in the “rental, sale, or delivery of prerecorded video cassette tapes or similar audiovisual materials.”  Hulu argued that the statute’s “similar audiovisual materials” does not encompass streaming media and it therefore could not be held liable for the alleged disclosure of user data.

    But U.S. Magistrate Court Judge Laurel Beeler said that “similar audiovisual materials…is a broad phrase designed to include new technologies for prerecorded video content.”

    The statute is “about video content, not about how that content was delivered,” she wrote, whether via a brick-and-mortar store selling video cassettes or via the Internet.  Online streaming video did not exist when Congress enacted the VPPA in 1988, but lawmakers were concerned with protecting the confidentiality of private information about viewing preferences, regardless of the business model or media format involved, the judge said.

    Congress intended that the VPPA’s “protections would retain their force even as technologies evolve,” the court determined, rejecting Hulu’s argument.

    To read the order in In re Hulu Privacy Litigation, click here.

    Why it matters:  The decision is the first to apply the protections of the VPPA to online streaming video, but Judge Beeler noted the case was still in the early stages.  In its motion to dismiss, Hulu also argued that the alleged sharing of information with online market research companies, ad networks, and Web analytics companies was all “incident to the ordinary course of [Hulu’s] business” and therefore not covered by the statute.  The court said such factual allegations would be resolved at a later stage of litigation and declined to rule on the merits of Hulu’s use of the challenged services to deliver targeted advertisements to users.

 

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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