Advertising Law - July 2014 #4

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

  • COPPA Gets Parental Consent Updates
  • Cactus Drink Maker Agrees To $3.5M FTC Settlement 3. FCC’s Fast Lane Proposal Hits Traffic
  • FCC’s Fast Lane Proposal Hits Traffic
  • Noted and Quoted . . . Linda Goldstein Sheds Light on FTC’s Mobile Cramming Report for Mobile Marketer

COPPA Gets Parental Consent Updates

With changes that should make it easier to develop child-directed apps, the Federal Trade Commission recently updated its guidance for verifying parental consent under the Children’s Online Privacy Protection Act (COPPA) by issuing three updated FAQs on “verifiable parental consent” requirements.

COPPA requires that companies obtain verifiable parental consent before they collect information about children under age 13, unless the collection fits into one of the exceptions provided by the law. Companies commonly obtain verifiable parental consent by collecting a parent’s credit card number, then charging a minimal amount, and then refunding the money.

In its revised FAQs, the FTC reiterates that the financial transaction (as described above) is one of several non-exhaustive options and that any number of methods may be used as long as they are “reasonably calculated.” The revised FAQs further state that sponsors can obtain “reasonably calculated” consent under certain circumstances by requesting a credit card number and then pairing the card number with other reliable data – such as “special questions to which only parents would know the answer” – in lieu of actually charging and then crediting a card number.

In other updates, the FTC said parental consent can be obtained through app stores as long as reasonable steps are taken by the app developer to ensure that COPPA requirements are being met and that the parent truly provides the consent. Something more than “the mere entry of an app store account number or password” must be used for verification, the agency added, such as verification of government identification or knowledge-based authentication questions. “You must also provide parents with a direct notice outlining your information collection practices before the parent provides his or her consent,” the agency added.

Relying on app stores will not alleviate companies from potential COPPA liability, however. App stores will not be liable under COPPA for failing to investigate the privacy practices of the operators for whom they obtain consent, the FTC noted, but could face potential liability under Section 5 of the Federal Trade Commission Act for deceptively misrepresenting the level of oversight provided for child-directed apps.

Industry hailed the update as a step in the right direction. “The FTC’s steps to improve clarity around COPPA removed some major obstacles that discouraged app makers from entering the children’s market,” ACT – The App Association’s executive director Morgan Reed said in a statement. “We believe now that more companies will embrace the opportunity to make engaging and educational apps for children.”

To read the FTC’s updated COPPA FAQs, click here.

Why it matters: The updated FAQ’s indicate that the FTC will work to clarify the “consent” issues and may issue additional guidelines in the future.

Cactus Drink Maker Agrees To $3.5M FTC Settlement

Dietary supplement company TriVita, Inc. will pay $3.5 million and face restrictions on future health claims to settle charges with the Federal Trade Commission that the company falsely marketed its cactus-based fruit drink with unsupported claims that the drink could treat a variety of health problems.

Nopalea, a drink derived from the Nopal cactus, was advertised by the defendants as “Inflammation Relief without a Prescription” and an “anti-inflammatory wellness drink” that could relieve pain, reduce and relieve joint and muscle swelling, improve breathing, and relieve skin conditions.

Infomercials for the 32-ounce bottles of “prickly pear” fruit drink featured Cheryl Tiegs and testimonials by satisfied customers. In one ad, the company’s Chief Science Officer appeared, stating that “over 200 articles published and archived at the National Institutes of Health demonstrate one thing: the Nopal cactus will reduce inflammation.”

But the FTC said that since the “customers” were actually paid employees of the defendants and that the various health claims were false, the company violated Sections 5 and 12 of the Federal Trade Commission Act.

In a stipulated order filed in Arizona federal court, the defendants agreed to pay $3.5 million and accepted prohibitions on advertising claims. In the future, claims for Nopalea or any food, drug, or dietary supplement must be backed by randomized, double-blind, placebo-controlled human clinical tests conducted by qualified researchers, while any health claims must be supported by competent and reliable scientific evidence.

The settlement also bars the defendants from stating that the health benefits of a product are clinically proven when they are not and from failing to disclose any material connection with product endorsers.

To read the complaint and stipulated order in FTC v. TriVita, click here

Why it matters: Calling the settlement part of the agency’s “ongoing efforts to stop over-hyped health claims,” the FTC sent a message with the defendants’ sizable penalty. “These kinds of unfounded claims are unacceptable, particularly when they impact consumers’ health,” said the agency’s Director of the Bureau of Consumer Protection, Jessica Rich. “Advertisers who cannot back up their claims with competent and reliable scientific evidence are violating the law.”

FCC’s Fast Lane Proposal Hits Traffic

The controversy over the Federal Communications Commission’s proposed net neutrality regulations continues, with so many public comments filed that the agency’s Web site crashed.

More than one million comments have already been filed about the proposal, some of which advocate “fast lanes” that allow Internet service providers to afford certain companies preferential treatment by paying for faster service.

The new proposal is the FCC’s latest attempt at net neutrality regulations after the D.C. Circuit Court of Appeals struck down an earlier iteration in January. In response, the agency drafted the new “fast lanes” proposal and requested public comment.

The agency may have gotten more than it bargained for.

Millions of comments later, the FCC’s site crashed on the last day of the comment period, causing the agency to extend the deadline for another week.

To date, the comments have tipped the scales in favor of network neutrality but opposed to fast lanes. Entities ranging from companies such as Etsy, digital rights advocates such as the Electronic Frontier Foundation, and trade groups such as the Internet Association, which includes Amazon, Facebook, Google, Netflix, and Twitter as members, have all weighed in with their preferences.

“Charging for enhanced or prioritized access – essentially, charging to discriminate against or degrade competing content – undermines the Internet’s level playing field,” the Internet Association wrote. “It shifts the balance from the consumers’ freedom of choice to the broadband Internet access providers’ gatekeeping decisions.”

Other commenters have similarly argued that the FCC should abandon the current proposal but additionally advocated for the agency to reclassify broadband as a “telecommunications service,” which would then subject it to common carrier rules.

A group of senators – including high-profile lawmakers such as Sens. Ed Markey (D-Mass.), Al Franken (D-Minn.), Charles Schumer (D-N.Y.), Richard Blumenthal (D-Conn.), and Elizabeth Warren (D-Mass.) – banded together to advance this position. “Broadband is a more advanced technology than phone service, but in the 21st century it performs the same essential function,” the senators wrote. “Consumers and businesses cannot live without this vital connection to each other and to the world around them. Accordingly, it would be appropriate for the FCC to reclassify broadband to reflect the vital role the Internet plays in carrying our most important information and greatest ideas.”

Some commenters backed the FCC proposal, with AT&T noting that “[i]n no other area of the economy does the government ban voluntary market transactions (here, for example, quality-of-service enhancements) specifically in order to prevent those with superior resources from offering better services to their own customers.”

To read the comments filed on the FCC’s proposal, click here.

Why it matters: The FCC’s continuing attempts to provide an acceptable net neutrality solution indicate its desire to reach an accord that will satisfy these divergent groups. Expect more proposed “accommodations” in the future.

Noted and Quoted . . . Linda Goldstein Sheds Light on FTC’s Mobile Cramming Report for Mobile Marketer

On July 29, 2014, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, provided commentary to Mobile Marketer on the importance of the Federal Trade Commission’s mobile cramming report, an effort to prevent the inclusion of unauthorized charges on consumers’ mobile phone bills. The FTC suggests five actions for mobile carriers, billing aggregators and merchants to take to avoid this practice.

In its report, “[t]he FTC specifically called out charges that are placed either with direct carrier billing or charges that are billed through a mobile app or a mobile site,” Goldstein said. “That is where the industry is moving. I think that has enormous implications because that is an area that is just beginning to be developed.”

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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