Advertising Law -- Sep 05, 2012

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In this Issue:

DISH Network Made Millions of Illegal Calls According to FTC Allegations

Even though consumers requested that DISH Network and its telemarketers stop calling them and put their numbers on an internal do-not-call list, the company repeatedly violated the Telemarketing Sales Rule (TSR) by making millions of illegal calls, the Federal Trade Commission (FTC) has alleged.

DISH, as well as third parties authorized on the company’s behalf, placed calls in an attempt to sell the satellite television company’s programming, goods and services. According to the complaint filed in federal court in Illinois, “millions” of outbound calls were made illegally since September 1, 2007.

The agency is seeking a permanent injunction as well as monetary penalties of up to $11,000 for each violation of the Rule that occurred on or before February 9, 2009, and up to $16,000 for each violation that occurred thereafter. 

DISH is already facing similar litigation. The Department of Justice, on behalf of the FTC and the Attorneys General of California, Illinois, Ohio, and North Carolina, is currently litigating a case launched in 2009 against DISH over allegations that DISH and authorized third-party telemarketers made calls to consumers on the National Do Not Call Registry, as well as robocalls (autodialed recorded messages) to consumers in violation of the TSR.

To read the complaint in FTC v. Dish Network, click here.

Why it matters: FTC Chairman Jon Leibowitz said the suit was a reminder to all companies that the agency vigorously enforces the Do Not Call rules. “It is particularly disappointing when a well-established, nationally known company – which ought to know better – appears to have flagrantly and illegally made millions of invasive calls to Americans who specifically told DISH Network to leave them alone,” he said in a statement.

Class Action Alert: Angie’s List Engaged in Deceptive Automatic Renewals, Suit Alleges

Angie’s List, a well-known Internet site that provides its members with forums to post and access reviews about local service providers, engaged in fraudulent and deceptive conduct and breached its membership agreements by automatically renewing members’ subscriptions at higher prices than those for which they contracted, a new class action suit claims.

The suit filed in federal court in Indiana alleges that despite Angie’s List’s commitment to “placing the interests of the consumer first,” the site charged one membership fee for new members and a distinct, higher renewal fee for renewing members.

The higher “Membership Renewal Fee” is not mentioned on Angie’s List’s Web site, nor is it referenced in the FAQ regarding membership fees. Thus, Angie’s List “conceals from prospective members all information regarding the Membership Renewal Fee,” according to the complaint.

The suit estimates that Angie’s List fraudulently renewed memberships over one million times.

The complaint also alleges that Angie’s List breached its membership agreements by unilaterally changing its business model.  Specifically, in 2010, Angie’s List modified its business model in 30 of its local markets to create multiple subscription options for contractor services, automotive repair, and medical services. Under the new model members have the choice to subscribe to individual lists, a “bundled” option of all three or choose among the service options.  Angie’s list did not inform them of the three options. Instead, Angie’s List renewed existing members for the “bundled” option, charging them for all three of the service plans, contrary to the language of the membership agreement which permitted Angie’s List to automatically renew members only in the membership plan in which they had previously enrolled.

The suit seeks to certify two national classes: one for all members who were renewed at a higher rate and a subclass of those who were renewed after the 2010 change and charged for the “bundled” option. Both groups seek treble damages as well as costs and attorneys’ fees.

To read the complaint in Fritzinger v. Angie’s List, click here.

Why it matters: Companies that offer automatic renewals have faced regulatory and class action scrutiny in recent years and must be sure to clearly and conspicuously disclose all material terms of their programs.

Settlement Updates: Facebook and Google Face Speed Bumps

Internet giants Facebook and Google both recently reached record deals in privacy-related cases, both of which now face criticism.

In July, Facebook agreed to pay $20 million to settle a class action suit alleging its “Sponsored Stories” – an ad feature that combined a Facebook member’s name and profile picture with an advertiser’s logo and a message that the user “likes” the company – violated user’s privacy and publicity rights. The proposed settlement immediately made headlines as it created a $10 million fund for a cy pres award for privacy-related groups and slated an additional $10 million for class counsel, with no cash payout for the plaintiffs. Facebook also agreed to make changes to the site, including additional notice and engineering controls.

However, U.S. District Court Judge Richard Seeborg of the Northern District of California recently denied preliminary approval of the deal.   “[T]here are sufficient questions regarding the proposed settlement that it would not be appropriate simply to grant the motion and postpone resolution of those issues to final approval,” he wrote. Those questions include whether a cy pres-only settlement can be justified on the basis that the class size (estimated at 70 million users) is simply too large for direct monetary relief, as well as the propriety of the $10 million counsel fee.

Judge Seeborg also requested more information about the proposed injunctive relief and an explanation as to whether the $10 million cy pres recovery is fair, adequate, and reasonable. Cy pres payments are intended as compensation for past alleged wrongdoing and the parties failed to provide adequate support for the amount, he wrote. “Although it is not a precise science, plaintiffs must show that the cy pres payment represents a reasonable settlement of past damages claims, and that it was not merely plucked from thin air,” the court said.

Judge Seeborg denied the motion for preliminary approval without prejudice, however, leaving the parties to decide whether to negotiate for modifications to the agreement or present a renewed motion for preliminary approval with additional evidentiary and legal support to allay his concerns.

In other news, Google’s record $22.5 million settlement with the FTC over allegations that it misled consumers about the use of tracking cookies is facing its own problems.

Although the fine was the largest ever levied against a defendant for violating an existing consent order, Commissioner J. Thomas Rosch dissented from the settlement agreement because Google did not admit liability. “Condoning a denial of liability in circumstances such as these [imposing a record fine] is unprecedented,” he wrote. “It arguably cannot be concluded that the consent decree is in the public interest when it contains a denial of liability.”

In agreement with Commissioner Rosch, public interest group Consumer Watchdog filed a motion with the California federal court overseeing the case seeking leave to file an amicus brief in opposition to the order.

“The parties’ submissions here do not even acknowledge the controversy regarding the FTC’s action,” the group wrote. Noting that the standard is whether the proposed settlement is “fair, adequate, reasonable, and in the public interest,” Consumer Watchdog said it can aid the court in making the appropriate evaluation.

To read the order in Fraley v. Facebook, click here.

To read Consumer Watchdog’s motion, click here.

Why it matters: Both cases illustrate the potential pitfalls to settlement even in high-profile matters. Cy pres settlement funds have become increasingly common, particularly in suits concerning privacy violations; however, courts are taking a closer look at the terms of settlements like these where plaintiffs receive little or no financial award. And the issue of whether defendants can deny liability in settlements and consent orders continues to play out in both the courtroom and with federal agencies.

WOMMA Releases Updated Social Media Guide

The Word of Mouth Marketing Association (WOMMA) released a new version of the group’s Social Media Marketing Disclosure Guide (WOMMA Guide), updating the original version released in 2010.

The WOMMA Guide is intended to highlight best practices and responsibilities of using social media. Notably, it helps marketers and advocates comply with the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (FTC Guides), which require endorsers – including bloggers – to disclose any material connection they might have with the companies whose products they mention.

Emphasizing the need for adequate disclosures that are clear and prominent, with easily understood and unambiguous language, the WOMMA Guide advocates a three-step “best practices” model for marketers: (i) institute a company-wide social media policy in line with the FTC Guides, (ii) make sure that advocates have a similar policy in place, and (iii) monitor what both employees and advocates do on your behalf. 

The WOMMA Guide includes sample “best practices” language for various platforms, including blogs, microblogs, online comments, social networks, video sharing websites, photo sharing websites, curated content, and podcasts. For example, the WOMMA Guide suggests model disclosure for a microblog like Twitter that would include a short phrase indicating that a “material connection” exists or a hashtag like “#spon,” “#paid,” or “#samp.” WOMMA also strongly recommends including a link on a Twitter profile page, close to the endorsement or testimonial, that directs readers to a full “Disclosure and Relationships Statement” which should state how the advocate works with companies in accepting and reviewing products and include a list of any conflict of interests that might affect the blogger’s credibility.

In addition to providing examples of disclosures for various platforms, the WOMMA Guide also addresses situations that may require additional disclosure issues. Contests and promotions, “like-gating,” and the use of social incentives, among other issues, are “challenging and emerging areas” which may require additional consideration, the WOMMA Guide notes.

To read WOMMA’s updated Social Media Marketing Disclosure Guide, click here.

Why it matters: Brands are increasingly using word-of-mouth marketing programs in social media, so they must be careful to comply with all applicable laws and regulations. Advocates also must be sure to adequately disclose their relationships to marketers. The FTC has recently taken action against both advocates and marketers for failing to comply with the FTC Guides. WOMMA’s model disclosures offer important guidance for marketers and advocates seeking to comply with the requirements, in addition to material available from the FTC.

NAD: Chrysler Substantiated “Most Awarded” Claim

Claims that the Chrysler Jeep Grand Cherokee was the “most awarded” sport utility vehicle over the lifetime of the brand were adequately supported, the National Advertising Division (NAD) recently determined.  The claim, however, should not be tied to a specific model year.

The case stemmed from a challenge by Jaguar Land Rover North America LLC to Chrysler’s claim that Jeep was the “most awarded” SUV ever, which appeared online and in television commercials. Although Chrysler presented evidence that the Grand Cherokee has won 189 awards since its launch 20 years ago, Land Rover said the number was exaggerated.

Land Rover argued that Jeep claimed numerous “awards” that were “at best merely ratings, descriptions, or endorsements, and included awards that numerous competing vehicles also received.” The mere inclusion in a group of products that receive a positive endorsement from a trade publication, consumer group, or government agency does not constitute an “award,” Land Rover said.

However, the NAD agreed with Jeep’s argument that awards given to more than one vehicle per year should be counted as awards when they were some of “the most prestigious and coveted recognitions in the automotive industry,” like the Insurance Institute for Highway Safety’s “Top Safety Pick” or the National Highway Traffic Safety Administration’s star rating system.

The NAD wrote, “consumers would not reasonably construe the claim as referring exclusively to awards that were given to a single vehicle.” The NAD reasoned that some of the most meaningful awards in the industry are given to more than one vehicle. Thus, NAD “was not persuaded that these important, safety-related awards should be excluded from the Jeep Grand Cherokee’s awards tally merely because the awards were issued to more than one vehicle.”

However, NAD did recommend that the advertising make clear the “most awarded” claim relates to the lifetime of the vehicle and not a specific model year and that Chrysler should revise advertising that tied the claim to a given year.

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

Why it matters: Although this case has important implications for the automobile industry in terms of the ability to tout awards and accolades, it is important to keep in mind NAD’s qualification that “the meaning of the term ‘award’ is highly dependent upon the context . . . [i]n some contexts, it is possible that the term ‘award’ might refer only to single recipients rather than multiple ones.” But in other contexts – like in the automotive industry – some of the most meaningful awards are given to more than one vehicle, the NAD said, accepting a “more expansive” definition of “award.”

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