In This Isssue:

Manatt Partner Linda Goldstein Invited to Speak at ERA’s Great Ideas Summit

The Great Ideas Summit will bring together leaders in the direct-to-consumer industry to share best practices and strategies to engage consumers and maximize revenues through electronic retailing on television, online and on radio.  The conference is produced by the Electronic Retailing Association (ERA), the leading trade association in this area that represents a market of more than $300 billion. 

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, has been invited to speak on a panel titled “How to Have It ALL: Integrating Traditional and New Media.”  The session will focus on how to generate powerful new models of marketing and enhance traditional accountability results, including a discussion of how to integrate multi-channels and apply proven direct response techniques to social, digital and mobile media.  Linda will be joined by Denira Borrero (Omni Direct, Inc.), Stacy Durand (Revenue Frontier/Media Design Group), Susan McKenna (McKenna’s Marketing) and Fern Lee (THOR Associates) as moderator.

The conference will be held on February 25-27, 2013, at Fontainebleau Miami Beach.  For more information or to register, click here.

Lance Armstrong’s Confession Leads to Legal Action . . . Will Endorsers Follow Suit?

Lance Armstrong’s confessional interview with Oprah has been the subject of much discussion and dissection, but the question remains: Just how many lawsuits will he face as a result of his comments?

During the two-part conversation with Oprah, Armstrong admitted that he took performance-enhancing drugs during each of the seven years he won the Tour de France, despite his years of denials and attacks against those who challenged him.

A “ruthless desire to win” motivated him to use testosterone, human growth hormone, blood transfusions and erythropoietin (EPO), Armstrong said.

Last October the United States Anti-Doping Agency released an extensive 1,000-page report in which it concluded that Armstrong had doped. In response, his many endorsers – including Nike, Oakley, and Trek – dropped their sponsorships, even though Armstrong has expressed a desire to return to competitive sports, which may include triathlons. He was stripped of his Tour de France titles and received a lifetime ban from the sport of cycling. Armstrong also resigned from his Livestrong cancer charity. In order to have his competitive ban reduced to eight years, Armstrong is currently in talks with the Anti-Doping Agency to possibly disclose the names of those who helped him dope and how he covered up his doping for almost a decade.

But coming clean about his past may haunt Armstrong’s future. His former sponsors may seek to recover the monies they paid him during the years he doped. A case would depend upon the language of the contract between Armstrong and each sponsor, but a suit would likely be premised upon a fraud claim. Nike, for example, could maintain that it hired Armstrong to enhance the company’s image but was defrauded by his illegal activities.

A suit would also depend upon an open question – How much did his sponsors know? In its report, the Anti-Doping Agency said Armstrong had an “army of enablers” both inside and outside the world of cycling.

While his former sponsors haven’t yet stepped forward, Armstrong’s confession has already led to one lawsuit and the threat of another.

A purchaser of Armstrong’s memoirs It’s Not About the Bike and Every Second Counts filed a class action suit alleging that he defrauded consumers by selling the books as nonfiction. In the books Armstrong denies ever using performance-enhancing drugs.

According to his complaint, political consultant Rob Stutzman alleges that had he “known the true facts concerning Armstrong’s misconduct and his admitted involvement in a sports doping scandal,” he would not have purchased the best-selling books. “Although Stutzman does not buy or read many books, he found Armstrong’s book incredibly compelling and recommended the book to several friends.”

The suit – which also names Armstrong’s publishers Penguin Group, G.P. Putnam’s Sons, Random House, Broadway Books, Crown Publishing Group, and Berkley Publishing Group as defendants – was filed in California federal court and seeks a refund for the price of the book as well as litigation costs.

And British newspaper the Sunday Times said it intends to recover the roughly $1.6  million it paid Armstrong in 2006. The paper ran a story in 2004 questioning the validity of the biker’s claims that he had not taken performance-enhancing drugs. Armstrong responded with a defamation lawsuit. To settle the suit, the paper paid $1.6 million.

Now, the Sunday Times said it plans to recover its money. “We watched Lance Armstrong’s interview with interest and noted his numerous admissions regarding taking performance-enhancing drugs,” a spokesperson for the paper said, adding that it will pursue its legal action “vigorously.”

To read the complaint in Stutzman v. Armstrong, click here.

Why it matters: Litigation against Armstrong to recover endorsement fees may be a legal possibility, but companies must also weigh the accompanying publicity. Public opinion after the two-part interview aired was decidedly mixed, but suing Armstrong might leave him looking like a victim and a company being viewed as a bully.

“Business Coaching” Defendants Settle with FTC

Several marketers of “business coaching” companies agreed to a settlement with the Federal Trade Commission over charges that they misrepresented the earning potential of their programs.

Consumers paid between $2,000 and $20,000 for programs that were touted to help them develop their own Internet businesses for which they received little guidance, the agency said. The defendants – 22 interrelated companies and various individuals connected to Ivy Capital Inc. – allegedly took in more than $100 million as a result of the “massive” scheme.

The FTC filed its complaint in February 2011 against 40 defendants. The Ivy Capital Inc. defendants allegedly created fake companies that placed ads about online business opportunities. When consumers responded to the ads with their names and phone numbers, telemarketers employed by the defendants would call and question them about the credit available on their credit cards. On calls that sometimes lasted more than one hour and employed “high pressure,” the agency said the defendants then encouraged consumers to use their available credit to purchase a “business coaching” program.

The program itself was worthless, the FTC said. The promised “expert” coaches lacked knowledge and experience, the software programs did not work, and lawyers and accountants who were supposed to assist in the process never materialized, according to the complaint. Consumers never realized the “thousands of dollars a week” by working just five to ten hours as guaranteed by the defendants. Instead, they received additional telemarketing calls offering other services like tax advice or access to credit, for an additional fee.

According to the agency, the defendants violated the Telemarketing Sales Rule, as well as the FTC Act by misrepresenting the goods and services they would provide and by lying about the program’s earning potential. 

Pursuant to the settlement orders, corporate defendants face a $130 million judgment, while judgments against individual defendants run well over $200 million, all of which will be suspended with the surrender of specific assets (including homes and cars).

In addition, the defendants are banned from selling business coaching programs in the future, are permanently prohibited from making misrepresentations about other products and services, and are prohibited from violating the Telemarketing Sales Rule in the future.

To read the complaints and the stipulated orders in the cases, click here.

Why it matters: As part of “Operation Empty Promises,” a joint law-enforcement initiative between the FTC, the Department of Justice, the Postal Inspection Service, and 28 state law-enforcement agencies, the suits were intended “to stop scams that target financially strapped consumers.” Due to the economic downturn and higher unemployment, the agency said the multiagency enforcement campaign will continue with its efforts to protect financially distressed consumers.

News from the Capital: VPAA Amendment Becomes Law, New Mobile Privacy Bill Introduced

January was a busy month in the nation’s capital. In addition to the second-term inauguration of President Barack Obama, an amendment to the Video Privacy Protection Act became law and a new bill regulating mobile privacy was introduced to the House of Representatives.

Enacted in 1988 after the failed nomination of Judge Robert Bork to the U.S. Supreme Court, the Video Privacy Protection Act was intended to make video rental records confidential. (Bork’s nomination stalled in part when his video rental records were released, including some compromising titles.)

According to Netflix, in the age of “likes” and “shares” and other social media norms, consumers should have the ability to let their friends know what movies they are watching. Netflix had hoped for an integration with Facebook where users could share information about their video selections but faced running afoul of VPPA.  The video services provider successfully lobbied for an amendment that would allow video rental companies to share information about consumers who opted in.  Users would have the ability to opt out at any time.

The VPPA amendment, H.R. 6671, was signed into law by President Obama on January 10th after it cleared the House on December 18th and the Senate on December 21st.

Rep. Bob Goodlatte (R-Va.), who sponsored the bill, said the amendment enables federal law to “catch up” with current technology. “This new law is truly pro-consumer and places the decision of whether or not to share video rentals with one’s friends squarely in the hands of the consumer.”

In other legislative news, Rep. Hank Johnson (D-Ga.) introduced a new bill to regulate mobile privacy, called the Application Privacy, Protection, and Security Act of 2013, or the APPS Act.

The bill would require that app providers supply users with information about the “collection, use, storage, and sharing of. . . personal data” prior to the collection of personal information.  The information would include the types of personal data that will be collected, the purposes for which it will be used, the identity of any third parties with which the personal data will be shared, and the app’s data retention policy. Users must affirmatively consent to the policy before their information can be collected.

App developers must also provide users with a means to withdraw consent and request that their data be deleted. Enforcement would be handled by the FTC and state attorneys general.

The bill includes a safe harbor provision for mobile app makers that adopt and follow a code of conduct developed in the multistakeholder process currently being conducted by the National Telecommunications and Information Administration.

To read the VPPA amendment, click here.

To read the APPS Act, click here.

Why it matters: Privacy protections are a challenging topic generally, but protecting the privacy rights of consumers on a mobile device – with a small screen and potentially complex legal notice – presents hurdles to passage of the APPS Act. Other legislation has been introduced – most recently, Rep. Ed Markey’s (D-Mass.) Mobile Device Privacy Act, which languished in the last congressional session.

New False Ad Suits Against Anti-Aging Products

While noting that “[t]he search for eternal youth and beauty is hardly new,” two plaintiffs have filed class actions alleging they were duped by cosmetic companies about their anti-aging claims.

New Jersey’s Margaret Ohayon calls Estee Lauder, Inc. a “modern-day snake oil salesman” based on the company’s claims for its Clinique Repairwear, Youth Surge, and Turnaround lines of products.

Although the company promises that various products can “Repair Lines & Wrinkles: De-aging powerhouses work to repair and help slow visible aging 24/7,” the company cannot truly reverse the aging process and/or the signs of aging, Ohayon alleges.

The false claims are further compounded by two factors, Ohayon’s suit alleges. Clinique products are sold over the counter at “high-end department stores” and consumers are unable to make a side-by-side comparison to other cosmetic products.

Even more problematic, the company makes “scientific-sounding claims” and “relies on promises of specific results backed up by the indicia of scientific reliability,” using terminology and phrases like “patents, tests, ‘dermatological solutions,’ and comparison to cosmetic procedures, like laser treatment.” According to the complaint, such science-oriented claims provide an increased level of credibility among unsuspecting customers.

Consumers are also tricked by Estee Lauder’s “Virtual Skin Care Tool,” an online marketing tool that allows consumers to upload their photos and run them through the system to “see for themselves” before and after results. The tool includes an asterisk with a disclaimer that the “Visualize Your Results” section is a “dramatization,” but the warning doesn’t go far enough, Ohayon says.

“The combination of these two contradictory concepts – a dramatization that supposedly represents actual average results – is deceptive and misleading to reasonable consumers, because a dramatization cannot depict actual or real results – it can only depict someone’s fictional interpretation of results. Thus, even if consumers read the small print in asterisk, they are left with the impression that they will obtain, on average, the results ‘dramatized’ in the picture, which is impossible.”

In a suit filed just three days prior by the same team of plaintiffs’ attorneys, New York resident Jade Barrett makes nearly identical allegations against Avon Products.

The company’s ANEW line of products makes misleading science-based and clinical claims, she contends, citing a recent warning letter from the Food and Drug Administration. 

 “Avon’s claims of scientifically backed research and discoveries go beyond any mere sales puffery by claiming first that certain specific discoveries enable the ANEW products to provide the unique benefits and then by providing specific results affirmations and promises of those benefits,” Barrett argues. “By promising specific results, Avon’s advertising transcends the realm of mere puffery and becomes actionable as deceptive, misleading or fraudulent.”

The suits seek compensatory, treble, and punitive damages, as well as restitution, equitable monetary relief and injunctive relief.

To read the complaint in Ohayon v. Estee Lauder, click here.

To read the complaint in Barrett v. Avon Products, click here.

Why it matters: Marketers of anti-aging products have been in the headlights of both regulators and plaintiffs’ attorneys in recent months. The FDA sent a similar warning letter to Lancôme, expressing concern about claims for its anti-aging skincare products, and the National Advertising Division recommended that Origins Natural Resources modify and/or discontinue certain anti-aging claims for its product lines.

Report: FTC’s Report on Alcohol Industry’s Online Marketing to be Released This Summer

According to a report by Reuters, the Federal Trade Commission plans to release the findings from its year-long study of online advertisements for the alcoholic beverage industry this summer.

Previous studies were conducted by the agency and reports were released in 1999, 2003, and 2008. But for the first time, the latest “deep dive” focuses on underage exposure in the age of social media and the Internet.

Last April, the FTC sent compulsory process orders to 14 manufacturers of beer, wine, and distilled spirits – including Anheuser-Busch Companies, Inc., Bacardi USA, Inc., and Heineken USA, Inc. – that required them to provide data about the effectiveness of the industry’s voluntary guidelines in reducing advertising and marketing to underage audiences.

The industry’s guidelines limit underage exposure by requiring that a certain percentage of the marketer’s audience be over the age of 21. For example, at least 71.6 percent of an audience must consist of adults age 21 and older for advertisements on television and company Web sites.

“No one in their right mind would want to advertise to people who can’t legally buy their product,” Frank Coleman, senior vice president for the Distilled Spirits Council of the United States, the trade group that sets the industry’s advertising codes, told Reuters. The demographic audience for Facebook is 83.5 percent 21 years and older and for Twitter it is 85 percent, he added. To combat underage access, the group imposed a requirement that members use an age-screening mechanism that asks a consumer for his or her birthdate prior to admitting him or her to a Twitter feed.

But critics contend that attempts to age-screen online are futile and that the industry needs to do more.

David Jernigen, director of the Center on Alcohol Marketing and Youth at Johns Hopkins University, said the demographic audience percentage should be raised to 85 percent. “Facebook and other interactive platforms are poorly monitored and not well age-protected,” he contended to Reuters. “Anyone can say they’re 21 and click yes.”

Why it matters: Janet Evans, a FTC lawyer, told Reuters the agency’s study would be released by early summer. The results are intended to “promote better self-regulation,” she explained, not to lay the groundwork for a civil action. While the agency will not create its own regulations, it will likely make recommendations to the industry. Prior studies have resulted in suggestions from the agency to increase the percentage for audience age, for example.