Advertising Law - February 2017 #2

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

In This Issue:

  • Uber’s Earnings, Financing Claims Crash Into FTC
  • FTC Publishes Cross-Device Tracking Report
  • Apple Ad out of Tune With Publicity Rights, Says New Suit
  • New Suit: JCPenney Scammed Consumers With Deceptive Pricing

Uber’s Earnings, Financing Claims Crash Into FTC

For exaggerating claims about earnings potential and automobile financing, Uber has agreed to pay $20 million in a deal with the Federal Trade Commission.

According to the agency, the ride-hailing company overstated the yearly and hourly income drivers could make in various job listings and on Craigslist. For example, Uber’s website claimed that New York UberX drivers had an annual median income of more than $90,000, while drivers in San Francisco were bringing home $74,000. In reality, their incomes were closer to $61,000 and $53,000, respectively, the FTC said, with fewer than ten percent of drivers reaching the totals touted by Uber.

The San Francisco-based company also misled recruits about the terms of its Vehicle Solutions Program, the agency alleged. Although Uber promised to provide drivers with the “best financing options available” regardless of credit history “for as little as $20/day” or $140 per week, or lease payments “as low as $17/day” or $119 per week, these misleading claims understated the cost by $20 to $80 per week, the FTC said.

As a result, Uber drivers received less favorable rates on average than regular consumers with similar credit scores. The company’s claim that drivers could obtain leases with unlimited mileage—a key term for Uber drivers—was false, as the leases came with mileage limits.

“Many consumers sign up to drive for Uber, but they shouldn’t be taken for a ride about their earnings potential or the cost of financing a car through Uber,” Jessica Rich, then Director of the FTC’s Bureau of Consumer Protection, said in a statement. “This settlement will put millions of dollars back in Uber drivers’ pockets.”

In addition to the $20 million judgment, the California federal court order prohibits Uber from misrepresenting driver earnings and automobile finance and lease terms.

Acting Chair of the FTC Maureen Ohlhausen filed a dissenting statement “because the monetary settlement of $20 million is not tied to an estimate of consumer harm.” Using consumer harm as a measure, she stated that her “best estimate is that the complaint’s alleged violations regarding median annual earnings claims, hourly earnings claims and certain financing claims may have at most caused consumer injury that is a small fraction of today’s settlement,” she wrote, adding that Uber’s “best financing available” claims about its Vehicle Solutions Program “likely benefited consumers and should not be part of the complaint.”

To read the complaint, order and dissenting statement in FTC v. Uber Technologies, Inc., click here.

Why it matters: Ohlhausen’s dissenting statement provides insight into her leadership of the agency. “Consumer protection enforcers ought to ask and answer two basic questions: How, and by how much, were consumers harmed by the alleged violations?” she wrote. “Answering these questions helps ensure consumer protection enforcement is calibrated to the consumer injury and therefore protects consumers without deterring beneficial commercial consumer injury that may deter beneficial commercial activity.” With regard to the Uber case, “While I understand that companies have many considerations when they reach a settlement, I feel it is my duty to oppose settlements detached from the consumer harm alleged. The $20 million settlement entered today far exceeds the best estimate of actual consumer harm and I cannot support it.”

FTC Publishes Cross-Device Tracking Report

The Federal Trade Commission released a staff report on cross-device tracking, which associates multiple devices with the same consumer and links activity across devices such as smartphones, tablets, and personal computers.

Drawing upon comments and discussions from an agency-sponsored workshop held in 2015, the “Cross-Device Tracking: An FTC Staff Report” describes the technology used to track consumers across multiple Internet-connected devices, the benefits and challenges associated with it, the industry efforts to address those challenges, and the agency recommendations for best practices.

Cross-device tracking has many positive attributes, the report recognized. It provides a seamless consumer experience across multiple devices and facilitates fraud prevention efforts. However, as cross-device tracking also presents privacy challenges, the FTC said, it expressed concerns about transparency.

“Because the practice of cross-device tracking is often not obvious, consumers may be surprised to find that their browsing behavior on one device will inform the ads they see on another device,” according to the report, which also highlighted that consumers may not be familiar with the scope of tracking that occurs or the “myriad entities that have access to, compile, and share data in the tracking ecosystem.”

Also problematic for the agency: the lack of consumer choice. “Even as consumers have become savvier about making choices to opt out of traditional online tracking, some of these choices may not apply to cross-device tracking,” the FTC wrote.

The report acknowledged industry self-regulatory attempts to address cross-device tracking, most notably the guidance from the Network Advertising Initiative and the manner in which the Digital Advertising Alliance applied its principles to cross-device tracking. In addition to these efforts, the FTC provided several recommendations.

Companies engaged in cross-device tracking should: “(1) be transparent about their data collection and use practices; (2) provide choice mechanisms that give consumers control over their data; (3) provide heightened protections for sensitive information, including health, financial, and children’s information; and (4) maintain reasonable security of collected data,” the agency advised. It also recommended that companies periodically reassess their technologies and practices.

Failure to disclose cross-device tracking (not just the fact of its existence but the truthfulness of claims about the categories of data collected and the scope of any opt-out mechanisms) could violate the Federal Trade Commission Act, the report cautioned. With regard to sensitive data, companies should obtain consumer opt-in consent prior to engaging in cross-device tracking.

“While cross-device tracking provides benefits to consumers and industry, it is important that consumers are informed and able to control tracking that occurs across their devices,” the report concluded.

To read the FTC’s report, click here.

Why it matters: The release of the report could signal the agency’s intent to focus on cross-device tracking in future enforcement actions. In a concurring statement, FTC Acting Chair Maureen Ohlhausen noted that the report “does not alter the FTC’s longstanding privacy principles but simply discusses their application in the context of a new technology.”

Apple Ad out of Tune With Publicity Rights, Says New Suit

A new lawsuit accuses Apple of violating the publicity rights of a singer who says an iPhone ad illegally samples his voice.

Jerome Lawson, the lead singer of the 1970s group The Persuasions, does not allege that Apple violated the copyright in the song “Good Times,” perhaps because he doesn’t have rights to the song. Instead, he argues that Apple violated his publicity rights by sampling his voice in Jamie xx’s “I Know There’s Gonna Be (Good Times)” without his permission in an iPhone advertisement.

“Lawson’s voice is prominent and recognizable in the Apple commercial,” according to the California state court complaint. “Lawson is informed and believes and on that basis alleged that Plaintiff’s voice was recognized by fans of his who saw the commercial and those fans were deceived into falsely believing that Lawson endorsed Apple and the iPhone and/or that Lawson consented to the use of his voice to advertise Apple products.”

He seeks an injunction against further display or broadcast of the recording without his permission and no less than $10 million in damages for Apple’s alleged violation of California state law. The suit follows two recently filed complaints by 1960s artist Darlene Love in which she made similar allegations.

Love filed an action against Google last year, arguing that when the company used her 1963 song “It’s a Marshmallow World” in a Nexus phone commercial, it “falsely implied to the public that Love had endorsed Google’s products.” She also hit Scripps Networks Inc. with a lawsuit after it used her “Christmas (Baby Please Come Home)” in an ad for HGTV programming. Love later dropped both suits.

To read the complaint in Lawson v. Media Arts Lab, click here.

Why it matters: The Lawson complaint—and prior actions filed by Love—raise the issue of whether advertisers must also obtain permission from artists even after paying for a license to use the song itself. While the need for additional permission is not currently the industry standard, advertisers should keep an eye on the Lawson case.

New Suit: JCPenney Scammed Consumers With Deceptive Pricing

The latest company to be hit with a deceptive pricing class action: JCPenney, charged with falsely inflating “original” prices to create a misleading impression of big discounts that don’t actually exist.

Kansas resident Ann Cavlovic claimed that she fell for the tactic when she saw a pair of gold earrings while shopping at a JCPenney store in September 2014. Marked with an “original price” of $524.98, Cavlovic paid $171.66 based on a purported 60 percent sale discount and additional 25 percent promotional discount.

But when she got home and opened the packaging, Cavlovic found a pricing insert listing the original price for the earrings at just $225. Had the store’s original price matched the list price, she would only have paid $73.58 after the applicable discounts, she alleged in her suit. Instead, she paid more than twice that amount because JCPenney falsely inflated the “original” price as part of a company-wide strategy.

She alleged that the company instituted the plan in 2011 to mark up its products “by a significant margin and then immediately offer those products at what it represented to be steep discounts.” It temporarily halted the practice in February 2012, when it switched to a new price advertising strategy known as “fair and square,” where JCPenney offered its products at “everyday low prices,” but when that strategy failed, the company revived the deceptive price advertising scheme in early 2013, Cavlovic said.

“In essence, JCP marked up its products so that its subsequent ‘discounts’ would appear to be a good deal and would induce Kansas’ consumers to purchase the products it was selling,” according to Cavlovic’s complaint.

Cavlovic alleged that in addition to being expressly forbidden by Kansas law, JCPenney’s pricing strategy runs afoul of Federal Trade Commission pricing regulations, which state that if “the former price being advertised is not bona fide but fictitious—for example, where an artificial price, inflated price was established for the purpose of enabling the subsequent offer of a large reduction—the ‘bargain’ being advertised is a false one; the purchaser is not receiving the unusual value he expects.”

To read the complaint in Cavlovic v. J.C. Penney Corp., click here.

Why it matters: Deceptive pricing lawsuits are a hot trend in consumer class actions. Initially filed against outlet stores, the cases now target all types of retailers from online giant Amazon to Kohl’s, which paid $6.15 million to settle a suit over a purportedly false pricing scheme last April.

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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