Advertising Law - May 2014

by Manatt, Phelps & Phillips, LLP
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In this Issue:

  • Linda Goldstein Invited to Speak at Upcoming Events on Native Advertising and Social & Mobile Marketing

  • Here Today, Still Here Tomorrow: FTC Settles With Snapchat

  • White House Releases Privacy Report

  • The Intersection of Privacy and Health

  • Kashi Settles “All Natural” Suit For $5 Million

  • Noted and Quoted . . . Marc Roth Authors Article on Green Marketing for Response Magazine

Linda Goldstein Invited to Speak at Upcoming Events on Native Advertising and Social & Mobile Marketing

On June 2, 2014, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will participate in a panel discussion focused on “Native Advertising and Sponsored Content: Legal and Regulatory Guidance” at a Law Seminars International telebriefing.

The telebriefing will explore the potential legal issues associated with native advertising and offer best practices as marketers begin to embrace this increasingly murky area. Linda will be joined by Lesley Fair of the Federal Trade Commission’s Bureau of Consumer Protection and Laura Brett from the National Advertising Division of the Council of Better Business Bureaus, Inc.

This event will be held from 3:00 – 4:00 pm Eastern / 12:00 – 1:00 pm Pacific. For more information or to register, click here.

On June 4-5, 2014, the Brand Activation Association (BAA) will host the fourth edition of its Marketing to Omni-Channel Shopper conference series. This year’s event will highlight brands that leveraged impactful omni-channel solutions to solve marketing and business challenges.

Linda will lead a session titled “Five Social & Mobile Marketing Techniques That Will Get Your Company the Attention of Law Enforcement.” Her presentation will highlight some of the marketing strategies that may capture the unwanted attention of regulators and the plaintiff’s bar and provide practical guidance for structuring legally compliant omni-channel activations.

The conference will be held at The High Line Hotel in New York, NY. For more information or to register for this event, click here.

Here Today, Still Here Tomorrow: FTC Settles With Snapchat

Now you see it … and now it’s still there.

Mobile messaging app Snapchat went with a catchier slogan, promising consumers that pictures and videos sent through its service, known as “snaps,” could disappear from the Internet forever. But in a recent deal with the Federal Trade Commission, the company settled charges that its “now you see it” claims were false and deceptive.

Snapchat appealed to consumers seeking to control their social media images by promising that pictures and videos sent via snapchat would “disappear forever” when a sender-selected time period between 1 and 10 seconds expired, the agency alleged. The app’s FAQs stated: “Is there any way to view an image after the time has expired? No, snaps disappear after the timer runs out.”

But according to the FTC, the company was aware of multiple ways the images could be maintained indefinitely.

For example, the deletion feature functioned only in the official Snapchat app. So if a user logged in to Snapchat using a third-party app, a recipient could view and save pictures for as long as he or she wanted. A security researcher even warned Snapchat about this possibility, but the company continued with its misrepresentations, the FTC said.

The app also assured users that they would be notified if recipients took a screenshot of a picture. But recipients using certain Apple operating systems could easily evade the app’s screenshot detection, the agency said.

Snapchat further violated Section 5 of the Federal Trade Commission Act because it deceived consumers about its data collection practices, according to the complaint. Although the app’s privacy policy said it did not track or access a user’s geolocation information, it transmitted such data from Android users. The app also collected contact information from Apple users’ address books without notice or consent, the agency said.

The final charge: the app lacked reasonable data security, resulting in a data breach impacting 4.6 million Snapchat users. When users joined the app, they were invited to share their mobile number so that Snapchat could find their friends. But the “find friends” feature was not secure because the app failed to verify phone numbers during the registration process. Accordingly, in some cases users sent personal photos to strangers who registered with phone numbers belonging to someone else. Hackers were able to gather a list of Snapchat user names and phone numbers from the unsecured system, the FTC said.

Pursuant to the settlement, Snapchat will no longer make misrepresentations about the privacy, security, or confidentiality of users’ information, the FTC said, and will implement a comprehensive privacy program.

The proposed deal is open for public comment until June 9.

To read the FTC’s complaint and proposed consent order in In the Matter of Snapchat, click here

Why it matters: The agency called the Snapchat case “part of the FTC’s ongoing effort to ensure that companies market their apps truthfully and keep their privacy promises to consumers.” As Chairwoman Edith Ramirez said in a statement about the action, “if a company markets privacy and security as key selling points in pitching its service to consumers, it is critical that it keep those promises. Any company that makes misrepresentations to consumers about its privacy and security practices risks FTC action.”

White House Releases Privacy Report

The Big Data and Privacy Working Group appointed by President Barack Obama released a report that emphasized the need to protect consumer privacy and to be on guard for “new modes of discrimination” that could arise from the use of big data.

Although the report acknowledged the benefits of big data and the fact that personalized advertisements and content can benefit consumers, it also cautioned that “perfect personalization” can result in “real harm” because it “leaves room for subtle and not-so-subtle forms of discrimination in pricing, services, and opportunities.” Specifically, the Group cited findings that searches for black-identifying names like “Jermaine” were more likely to generate ads that contain the word “arrest” when compared to similar searches for white-identifying names like “Geoffrey.”

President Obama created the Group, led by counselor John Podesta, earlier this year and requested a 90-day examination of big data. The resulting “Big Data: Seizing Opportunities, Preserving Values” report offers six recommendations that included extending privacy protections to non-U.S. persons, ensuring that data collected on students in schools are used for educational purposes, and expanding technical expertise to stop discrimination.

Agencies such as the Federal Trade Commission, the Department of Justice, and the Consumer Financial Protection Bureau “should expand their technical expertise to be able to identify practices and outcomes facilitated by big data analytics that have a discriminatory impact on protected classes, and develop a plan for investigating and resolving violations of law,” the Group suggested.

Three additional recommendations specifically encouraged federal legislation. In addition to updating the Electronic Communications Privacy Act for the 21st century, the report advocated for the passage of a Consumer Privacy Bill of Rights and a national data breach legislation bill to create a uniform national standard instead of the existing “patchwork” of 47 state laws.

“Americans have a right to know if [their] information has been stolen or otherwise improperly exposed,” according to the report.

To read the report, click here.

Why it matters: The report offered good news and bad news. While it recognized the value of big data, it also observed the potential for misuse. Advertisers should take note of the legislative recommendations as well as the report’s discussion of potential discrimination, as it could provide the basis for future consumer suits or Federal Trade Commission actions.

The Intersection of Privacy and Health

At a seminar hosted by the Federal Trade Commission earlier this month, speakers discussed the privacy implications of consumer-controlled health records and apps.

The overarching message from the agency: companies need to increase privacy protections for consumers in the health data ecosystem and improve transparency, particularly as data is shared with entities that are not covered by the Health Insurance Portability and Accountability Act (HIPAA).

Jared Ho, an attorney in the FTC’s Mobile Technology Unit, spoke about a recent survey of 12 mobile health and fitness apps. According to the agency’s findings, the apps shared user data with 76 different third parties; one app alone passed on information to 18 other entities. “In a few instances we found names and e-mail addresses being transmitted,” Ho said.

Other research cited by the agency documented that 30 states are selling or sharing personal health data with third parties outside the boundaries of HIPAA. FTC chief technologist Latanya Sweeney said consumers need to be told their data is being shared and where it is going. “Transparency establishes trust,” Sweeney told attendees. “The goal here isn’t to shut down the apps; it’s to jointly move forward with the benefits while addressing the risks.”

Speakers, who included members of the FTC and the U.S. Department of Health and Human Services and representatives from the private sector, expressed concern that consumers are unaware of the scope of data sharing from apps and wearable devices. While some consumer information is deleted before being sold or shared, the potential remains that the information could be re-identified. If so, consumers could face adverse consequences when their identifiable health information has been shared.

To read a transcript of the seminar, click here

Why it matters: Speakers at the panel noted that no overarching regulation governs the use of consumer-controlled health data. While some groups (like the American Medical Association) have enacted self-regulatory guidelines or codes and HIPAA regulates specifically enumerated entities like doctors, insurers, and their business associates, those not covered by the statute can collect and store information without restrictions. That may change, particularly as the FTC continues to shine a light on the issue.

Kashi Settles “All Natural” Suit For $5 Million

Kashi has agreed to pay $5 million and change its marketing to settle a false advertising suit over its “All Natural” and “Nothing Artificial” product claims.

The maker of GoLean Chewy Oatmeal Raisin Cookie Protein & Fiber Bars and Heart to Heart Honey Oat Waffles was the target of seven different consumer class actions that were consolidated in California federal court. Arguing that they paid a premium based on Kashi’s representations that the products were “all natural,” the plaintiffs said they actually contained unnatural, synthetic, and artificial ingredients.

Although Kashi denied all allegations, it elected to settle the suits by paying $5 million to fund a settlement. A class of California purchasers can receive reimbursement of 50 cents per package (those without proof of purchase are capped at a $25 recovery). A total of $1.25 million for class counsel and $4,000 incentive award for each class representative is also allotted from the fund.

In addition, Kashi will modify its labeling and advertising to remove “All Natural” and “Nothing Artificial” claims from products containing challenged ingredients (including pyridoxine hydrochloride and hexane-processed soy ingredients) “unless the ingredients are approved or determined as acceptable for products identified as ‘natural’ by a federal agency or controlling regulatory body.”

In a separate but related suit against Kashi’s Bear Naked Inc., the parties reached an agreement for $325,000. Plaintiffs in that case alleged that claims of “100% Natural” and “100% Pure and Natural” were false and deceptive. Under the terms of the settlement, class members can receive 50 cents per package (capped at $10 for plaintiffs who do not submit proof of purchase). The company will similarly remove the challenged claims from Bear Naked labeling and advertising.

A federal court judge will hold a hearing to consider approval of both deals in late May.

To read the stipulation of settlement in Astiana v. Kashi Co., click here.

To read the stipulation of settlement in Thurston v. Bear Naked, Inc., click here.

Why it matters: The settlements are the latest examples of consumer class actions challenging “all natural” advertising claims, which have flooded courts and led some to speculate the class actions are behind the disappearance of such claims from supermarket shelves. Kashi is certainly not alone in paying a multimillion-dollar settlement: Naked Juice settled for $9 million, Ben and Jerry’s agreed to pay $7.5 million, and ConAgra settled for $3.2 million, among others.

Noted and Quoted . . . Marc Roth Authors Article on Green Marketing for Response Magazine

On May 13, 2014, Response Magazine published an article authored by Manatt partner Marc Roth titled “Going Green? Make Sure You Know the Rules.” The article examines the FTC’s recent order settling charges against American Plastic Manufacturing, Inc., for making misleading and unsubstantiated biodegradability claims for certain of its plastics products, a stark reminder to marketers to take extra precautions when making “green” claims.

Marc notes in the article: “Companies that intend to engage in ‘green’ marketing generally, and ‘bio-degradable’ claims in particular, are well advised to read and become intimately familiar with the FTC’s Green Guides and enforcement cases in this area. And, as the recent American Plastic matter makes clear, relying solely on laboratory controlled tests for unqualified degradable claims will likely not pass regulatory
muster . . . .”

To read the full article, click here.

 

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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