Advertising Law -- November 9, 2012

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In This Issue:

Hear Ye, Hear Ye: FTC Announces Workshop, Contest

Mark your calendar: the Federal Trade Commission announced its plans to host a workshop this December 6 “to explore the practices and privacy implications of comprehensive collection of data about consumers’ online activities.”

The agency hopes to bring together a broad spectrum of players that include ISPs, mobile carriers, academics, consumer protection organizations, privacy professionals, and business and industry representatives to follow up on its March 2012 privacy report, “Protecting Consumer Privacy in an Era of Rapid Change.”

The workshop will explore issues such as the methods currently used to collect consumer Internet activity data; the benefits of data collection and the privacy challenges it presents; the legal protections that currently exist and the legal protections that should be provided; and whether consumers have meaningful options should they wish to avoid comprehensive data collection.

Other topics include a discussion of the entities that are currently capable of comprehensive data collection with procedures in place, the awareness level and attitudes of consumers about data collection, and the privacy risks inherent in hosting third-party applications.

The workshop is free and open to the public.

In other agency news, the FTC issued a public challenge to create “an innovative solution that will block illegal commercial robocalls on landlines and mobile phones,” and offered a $50,000 cash prize for the best technical solution.

The Director of the FTC’s Bureau of Consumer Protection, David Vladeck, said the “winner of our challenge will become a national hero.”
“The FTC is attacking illegal robocalls on all fronts, and one of the things that we can do as a government agency is to tap into the genius and technical expertise among the public.”

Current technology allows telemarketers to autodial thousands of phone calls every minute, while displaying false or misleading caller ID information, the FTC said. Entrants in the FTC Robocall Challenge will submit their solutions and will be judged on the following criteria: Does it work? (50 percent); is it easy to use? (25 percent); and can it be rolled out? (25 percent). The judges – Steve Bellovin, FTC chief technologist, Henning Schulzrinne, chief technologist at the Federal Communications Commission, and Kara Swisher of the Web site All Things D – will evaluate the entries and award a Best Overall Solution cash prize to an individual, team, or small corporation (defined as an organization that employs fewer than ten people). Organizations that employ more than ten people may compete for the Technology Achievement Award, which does not include a cash prize.

Solutions are not required to work for both landlines and mobile phones, the agency said, but a submission that blocks robocalls on only one type of phone will not be scored as highly as one that works for both.

Submissions will be accepted until January 17, 2013 at 5 p.m. EST, and the agency hopes to announce a winner early next April.

For details on the workshop, click here.

For more information on the Robocall Challenge, click here.

Why it matters: The workshop and the contest emphasize two areas of focus for the FTC: privacy and putting a halt to illegal robocalls.

Face It, Says FTC, You Need to Handle Facial Recognition Technology Responsibly

The Federal Trade Commission released “Facing Facts: Best Practices for Common Uses of Facial Recognition Technologies,” a staff report that the agency hopes will provide guidance to the increasing number of companies using such technology.

With the rise of facial recognition technology – which can be used to determine an individual’s age range and gender to deliver targeted advertising, for example – privacy concerns must be addressed, the agency emphasized. Individuals may be identified without their knowledge and the sensitive data collected is susceptible to hacking or a security breach, the FTC cautioned.

The report recommends, among other things, that services should be designed with consumer privacy security protections in mind and that methods for determining when to keep or destroy information should be created. 

Steps should be taken by all companies to make consumers aware that such technology is being used, the agency said. For example, if digital signs are used to analyze the demographic features of individuals walking by, notice should be provided before people come into contact with the technology.

According to the agency, social networks “should provide consumers with clear notice about how the feature works, what data it collects, and how that data will be used.” Users should also be provided with the choice not to have their data collected, the ability to turn off the facial recognition feature if they do choose to use it, and to have their previously collected information deleted.

Certain circumstances may require affirmative consent from consumers prior to using facial recognition technology, the report recommended, and listed two examples. First, consent should be obtained before using facial recognition to identify anonymous images of a consumer for a stranger. In a second scenario, consent should be obtained when images or biometric data are used differently by a company than originally represented when the data was collected.

To read the report, click here.

Why it matters: The agency hopes that by issuing its report while the technology is still in the infant stages, it may better protect the consumers. “Fortunately, the commercial use of facial recognition technologies is still young. This creates a unique opportunity to ensure that as this industry grows, it does so in a way that respects the privacy interests of consumers while preserving the beneficial uses the technology has to offer,” according to the report. However, the agency’s forward-thinking found disfavor with one member of the Commission. FTC Commissioner J. Thomas Rosch filed a dissenting statement in which he stated that “the Report goes too far, too soon.” “I do not believe that such far-reaching conclusions and recommendations can be justified at this time,” he wrote. “There is no support at all in the [Report] for them, much less the kind of rigorous cost-benefit analysis that should be conducted before the Commission embraces such recommendations.”

Data Collection Exceeded Promises, Leads to FTC Settlement

Compete, a Web analytics company that uses tracking software to collect data on consumers’ browsing behavior, reached a settlement with the Federal Trade Commission over charges that it failed to disclose the extent of the information it collected.

The agency alleged that Compete collected data from more than four million consumers by misleading them into downloading its software. The company suggested that consumers join a “Consumer Input Panel” found at a Compete Web site (www.consumerinput.com). Compete told consumers that by joining the panel, they could win rewards by sharing their opinions about products and services, according to the FTC complaint.

But after the software was downloaded onto a consumer’s computer and the “Community Share” feature was enabled, Compete captured information about consumers’ online activity, such as the search terms, username and passwords they used and Web sites they visited. Sensitive information – such as credit card and financial information and Social Security numbers – was also gathered. The company created reports from the data collected and sold it to third parties seeking to improve their Web sales and traffic, according to the FTC complaint.

Compete violated the FTC Act by failing to disclose to consumers that it would collect such detailed information, the agency alleged. It also made false and deceptive promises in statements such as “All data is stripped of personally identifiable information before it is transmitted to our servers.” In reality, Compete failed to remove personal data before transmission and transmitted sensitive information from secure Web sites in readable text.

Under the terms of the consent order, Compete agreed to obtain consumers’ express consent before collecting any data from software they downloaded and to make full disclosure of all the information it collects. Further, the company will delete or anonymize the already collected data and will provide directions to consumers on how to uninstall its software.

To read the complaint against Compete, click here.

To read the consent order, click here.

Why it matters: Compete also licensed its software to other companies that collected data about consumers once it was downloaded. Licensee Upromise settled with the FTC earlier this year after the agency said it similarly failed to disclose to consumers the extent of the information collected by its Toolbar feature.

Guidelines Needed for Geolocation Services: GAO Report

In a new report addressing geolocation and privacy, the Government Accountability Office found that most consumers are unaware that companies use their location information and recommended that the government take action to combat the problem.

The “Mobile Device Location Data” report analyzed the privacy risks posed by the collection and sharing of location data. The GAO study was conducted from December 2011 to September 2012 and examined the practices of 11 mobile companies, including carriers, manufacturers, creators of apps for Facebook, and developers of operating systems.

The GAO reviewed how mobile industry companies collect location data, why they share this data, and how those actions affect consumers. The report also looked at the actions taken by private-sector entities to protect consumers’ privacy and ensure the security of location data, as well as the actions taken by federal agencies to determine whether any additional federal efforts are needed.

While industry associations and privacy advocates have developed recommended practices – like clear disclosures to consumers about the collection and sharing of their data and the identification of third parties that receive location data – the GAO found that “companies have not consistently implemented such practices.”

According to the report, “Companies GAO examined disclosed in their privacy policies that the companies were collecting consumers’ location data, but did not clearly state how the companies were using these data or what third parties they may share them with.” Some policies stated that they shared location data with third parties, but were “vague about which types of companies these were and why they were sharing the data.”

“Lacking clear information, consumers faced with making a decision about whether to allow companies to collect, use, and share data on their location would be unable to effectively judge whether the uses of their location data might violate their privacy,” according to the report.

Therefore, the GAO recommended that government agencies take action. It advised the Department of Commerce’s National Telecommunications and Information Administration, which is currently conducting a series of meetings on the issue, to “outline specific goals, milestones, and performance measures for its process to develop industry codes of conduct.” Further, the Federal Trade Commission should “consider issuing guidance on mobile companies’ appropriate actions to protect location data privacy,” which it could then enforce. 

To read the GAO report, click here.

Why it matters: The GAO report was requested by Sen. Al Franken (D-Minn.), who has cosponsored legislation on the issue. In a statement, Sen. Franken said the report “clearly shows that mobile industry companies often fail to respect” consumers’ privacy rights, and that it makes a “strong case” for legislation. “My Location Privacy Protection Act would require companies to get your permission before they get your location information or share it with third parties – a common sense solution to make sure that consumers’ privacy is protected.”

California AG Calls Out United on Twitter

California Attorney General Kamala Harris found a modern way to take enforcement action recently: via Twitter.

Harris took to Twitter to compliment United Airlines on the company’s new mobile app, calling it “fabulous.”

She then took the opportunity to remind the airline about the requirements of the California Online Privacy Protection Act, which mandates that a privacy policy be posted on commercial Web sites where personal information is collected. “Where is your app’s #privacy policy?” she Tweeted, helpfully adding a link to the Act.

United responded that it would review the app to “ensure that our privacy policy is also easily accessible to United app users.”

Earlier this year Harris negotiated an agreement with Amazon, Apple, Google, Hewlett-Packard, Microsoft, and Research in Motion in which the mobile application platforms agreed to comply with the Act. 

The companies – which represent over 95 percent of the mobile app market for smartphones, tablets and other mobile devices – further agreed to establish a format for consumers to report apps that do not comply with the law and to implement a process for reported noncompliance. Facebook joined the agreement in June.

Why it matters: Privacy has been a key focus of Harris’s time in office, and her public note to United Airlines should send companies running to check that their privacy policies are posted. “We have to both cheer the incredible advances in technology and at the same time protect consumer privacy. Attorney General Harris believes the only way to do both is through innovation in oversight,” a spokesperson for Harris told the Los Angeles Times. “She was proud to strengthen consumer privacy by requiring a privacy policy for all mobile apps, and expects every company to live up to their legal obligations of transparency and security.”

California Joins the Rest of the Country, Allows Alcohol Promotions

California has passed a new law that will give alcohol manufacturers and suppliers the right to conduct consumer contests and sweepstakes in the state.

Prior to passage of the new law, SB 778, Californians were prohibited from entering sweepstakes or contests conducted by importers, manufacturers, and suppliers of wine, beer, or spirits. Starting January 1, 2013, residents of the state age 21 or older may now join in such promotions.

Of course, some conditions and restrictions remain. In addition to the age limit, contests may not involve the consumption of an alcoholic beverage and alcoholic beverages may not be awarded as prizes. Entry or extra chances to win cannot be premised upon the purchase of an alcoholic beverage, and an alternate method of entry must be made available that does not require a visit to licensed premises.

In addition, the law says that caps, corks, labels, cases, packaging, or other similar materials cannot be used as a means of entry or a means to determine the amount or size of the prize or the identity of the winner. Neck hangers on wine and spirits may be used as a method of entry, however, as long as proof of purchase is not required and an alternate means of entry is available. Contests where consumers scan or electronically enter codes for a chance to win are also allowed if the codes are permanently affixed to the label or packaging and are not required to be removed for entry.

Licensed beverage suppliers can now sponsor sweepstakes with third parties, such as nonprofits, businesses, and licensed retailers, as long as they are consistent with the limitations in the law.

The bill passed in the Legislature by overwhelming margins, with unanimous approval in the Senate and a 75 to 4 vote in the State Assembly.

To read the new law, click here.

Why it matters: California no longer stands alone in its contest and sweepstakes ban. Companies wishing to expand their promotions into the state should carefully review the new law.

NAD Unhappy with Promotion of Case Results

The National Advertising Division expressed displeasure about the promotional activities of both parties involved in a decision by the self-regulatory body.

In the underlying dispute, Kohler challenged environmental claims made by Generac, its rival generator manufacturer. After the NAD recommended that Generac cease making certain claims, Kohler contacted customers directly with information regarding the NAD’s findings.

That communication represented a promotional purpose, the NAD said, and therefore violated the industry self-regulatory procedures that prohibit a party from promoting the outcome of a case.

Kohler’s attorney told the NAD that the violation was unintentional.

Just a few weeks later – and after complaining about Kohler’s behavior – the NAD said Generac similarly violated the procedures by issuing a lengthy communication to customers.

The statement “omitted key information about NAD’s findings, mischaracterizing the outcome,” the NAD said in its press release about Generac’s misbehavior.

“The self-regulatory process requires fair dealing on the part of all parties,” the NAD said. “The procedures that govern the self-regulatory system and the participation agreements signed by all parties make clear that parties are prohibited from using NAD decisions for promotional purposes.”

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

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

Why it matters: The NAD expressed its displeasure with both parties in the case. “Manipulation of the self-regulatory system is unseemly and inappropriate. We offer a user-friendly forum, where parties can expeditiously resolve their advertising claims’ disputes,” Andrea Levine, the NAD’s Director, said in a statement. “It reflects poorly on those who use the system for commercial advantage.”

FDA Cautions Avon over Wrinkle Product Claims

The Food and Drug Administration recently sent a warning letter to Avon stating that wrinkle cream products advertised on its Web site are being marketed as drugs, not cosmetics.

The agency said the company advertised the Anew Clinical Advanced Wrinkle Corrector as “The at-home answer to wrinkle-filling injections. Start rebuilding collagen in just 48 hours” and claimed that it was “designed to rebuild collagen to help plump out lines and wrinkles.”

In another example, the Anew Clinical Thermafirm Face Lifting Cream was touted as “help[ing] tighten the connections between skin’s layers” and “Our effective lifting treatment is formulated to fortify damaged tissue with new collagen. In just 3 days, see tighter, firmer, more lifted skin.”

Similar claims were made for other products as well, the agency said. “The claims on your web site indicate that these products are intended to affect the structure or any function of the human body, rendering them drugs under the [Food, Drug, and Cosmetic Act]. The marketing of these products with claims evidencing these intended uses violates the Act,” the FDA said.

The FDA noted that the letter was not all-inclusive and did not preclude a finding of other potential violations by Avon and that the company should ensure that its Web site, product labels, and other labeling comply with the Act. The agency requested that Avon take corrective action or prepare a plan for corrective action within 15 days. Failure to do so, the letter cautioned, could prompt the agency to undertake an enforcement action, to seek an injunction against further distribution and to seize the products.

To read the FDA’s warning letter to Avon, click here.

Why it matters: Marketers of cosmetic products should take note – this is the second letter in as many months that the FDA has issued about Web site claims for beauty products. Last month the agency sent a similar letter to Lancôme, warning the company about advertising claims for its antiaging skincare products like Genifique and Absolue.

New York Issues Guidance on “Cause Marketing”

New York Attorney General Eric Schneiderman released the “Five Best Practices for Transparent Cause Marketing” for both charities and companies engaged in “cause marketing.” 

After reviewing questionnaires sent out to 150 different companies last October, AG Schneiderman concluded that “consumers do not have sufficient information to understand how their purchases will benefit charity.”

In response, the Best Practices “are designed to increase the quality and consistency of disclosure to consumers,” the AG said, and participating companies should:

1.   

Clearly describe the promotion. Key terms, such as the name of the charity and its mission, should be clearly presented.

2.

Allow consumers to easily determine donation amount. “Companies should use a fixed dollar amount – such as 50 cents for every purchase – rather than generic phrases like ‘a portion of proceeds’ will go to charity.”

3.

Be transparent about what is not apparent. Consumers should be made aware of information that may not be obvious. For example, if a ribbon, color, or logo associated with a charitable cause is used in a campaign, consumers should be advised whether the purchase or use of the product will result in a donation to the charity.

4.

Ensure transparency in social media. Social media marketing should be as transparent as traditional campaigns and contain clear and prominent disclosures. 

5.

Tell the public how much was raised. Companies should clearly disclose the amount of the charitable donation generated at the conclusion of each campaign.

The guidelines emphasize the need for consumer disclosures. In addition to the name of the charity and its mission, marketers should make clear disclosures about the donation amount the charity will receive per product purchase, any minimum or flat donation amount guaranteed to the charity, the existence of a cap on the total donation, whether consumer action is required for the donation to be made, and the start and end dates of the campaign.

The AG recommends the use of a “donation information” label on product packaging and Web sites – similar to a nutrition label – that identifies this key information about the campaign. The details “should be displayed together in a clear and prominent format and size, and in close proximity to, the text used in marketing the promotion,” preferably in the format of a sample label that was provided for guidance.

To read the guidelines, click here.

Why it matters: In coordination with the release of the guidelines, AG Schneiderman announced that the Susan G. Komen For the Cure and Breast Cancer Research Foundation – two of the nation’s largest breast cancer charities – have agreed to follow the “Best Practices” in their marketing practices. Their participation may encourage other charities, as well as companies taking part in various “pink ribbon” cause marketing, to also follow the new guidelines.

Something Smells: Paris Hilton Sues Competitor

Paris Hilton does not think imitation is hot.

The self-described “international celebrity, actress, fashion designer, musician and socialite” filed a trademark infringement suit against a rival perfume maker she says is copying her own product line. Hilton launched her line of fragrances, cologne, body lotion, and bath gel in 2004 in conjunction with Parlux Fragrances.

But at a trade show this summer, Perfume Palace exhibited and sold a new line of men’s and women’s fragrances and cosmetics called “Paris Paris.” She alleges that the labeling and packaging of the Paris Paris line closely resembles Hilton’s product line and that the names are confusingly similar.

Hilton’s products feature a “unique trade dress” of cylindrical-shaped bottles in clear pink for women’s fragrance and clear blue for the men’s, with a vertical black wave design overlaid on the bottles. The “Paris Hilton” brand name is featured in black, lowercase, cursive font against a silver background.

Paris Paris fragrances and beauty products “are packaged and labeled in a style and manner intentionally and confusingly similar” to Hilton’s products, according to the complaint. The bottles are cylindrical in clear pink for women and clear blue for men, with a black wave design overlaid. The name “Paris Paris” is written in black, lowercase and cursive font against a silver background.

“An ordinary observer. . . would be deceived into thinking that the Paris Paris design was the same as Parlux’s design,” the complaint contends.

The suit seeks to enjoin the manufacturing, distribution, promotion, and sale of the defendant’s product line, the destruction of all allegedly infringing materials, and compensatory and punitive damages.
To read the complaint in Paris Hilton v. International Perfume Palace, click here.

Why it matters:  The case shows that celebrities, like everyday consumer products companies, are vigilant about enforcing their trademark and trade dress rights.

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