Advertising Law

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Donna Wilson Invited to Speak on Data Security Issues at Consumer Finance Class Action & Litigation Conference

  • FDA “Dislikes” Drug Company’s Facebook Page

  • Generic Top-Level Domain Names Face New Controversy

  • Do Not Call Violations Target of FTC Action

  • Instagram Wins Dismissal of Suit Over Terms of Service

Donna Wilson Invited to Speak on Data Security Issues at Consumer Finance Class Action & Litigation Conference

Manatt partner Donna Wilson has been asked to speak at the American Conference Institute’s 18th National Conference on Consumer Finance Class Action & Litigation on April 8. The focus of this year’s conference is to provide defense strategies for in-house and outside counsel on class actions, litigation and government enforcement actions.

Donna’s session is titled “Implications of ‘Big Data’ for the Consumer Finance Litigation Sector: What Financial Services Companies and Their Outside Counsel Now Need to Know Given the Progress that the CFPB and OFR Have Made.”

The conference will be held at the Westin Bonaventure Hotel & Suites in Los Angeles on April 8-9, 2014. For more information or to register for this event, click here.

FDA “Dislikes” Drug Company’s Facebook Page

Switzerland-based IBSA Institut Biochimique SA recently got a thumbs-down from the Food and Drug Administration over a Facebook ad for its hypothyroidism drug, Tirosint, that the agency deemed false and misleading.

The page featured a logo and a statement that “If you have just been diagnosed with hypothyroidism or are having difficulty controlling your levothyroxine blood levels, talk to your doctor about prescription Tirosint, a unique liquid gel cap form of levothyroxine.”

Despite the fact that the drug requires a black box warning against taking Tirosint for weight loss or obesity and is contraindicated for use by children and those with adrenal gland problems, the company failed to mention any information about possible side effects.

Writing in an “untitled letter” that “Tirosint is associated with a number of serious risks,” the FDA declared the ad “misleading because it makes representations about the efficacy of Tirosint, but fails to communicate any of the risks associated with its use. . . . By omitting the most serious and frequently occurring risks associated with Tirosint, the Facebook webpage misleadingly suggests that Tirosint is safer than has been demonstrated.” IBSA also failed to mention that the drug isn’t always the right choice for transient hypothyroidism.

Accordingly, the letter ordered an immediate halt to IBSA’s Facebook marketing, that would in any way violate the Food, Drug and Cosmetic Act.

To read the FDA’s letter, click here.

Why it matters: The FDA has dipped its toe into regulating drug companies that advertise on social media, but could be wading in as the weather warms up. The letter to IBSA follows the agency’s first enforcement effort when it warned AMARC Enterprises about its Facebook activity. The dietary supplement maker ran afoul of the FDA when it “liked” a consumer testimonial about one of its products.  The user wrote that AMARC’s supplement “enabled me to keep cancer at bay without the use of chemo and radiation.” Drug companies should prepare for an increase in agency action following the release of proposed social media guidelines earlier this year.

Generic Top-Level Domain Names Face New Controversy

As the new generic top-level domain names begin to roll out, Sen. John Rockefeller (D-W.Va.) has called for a halt on one possibility: “.sucks.”

In a letter to the Internet Corporation for Assigned Names and Numbers, the lawmaker said the gTLD “has little or no socially redeeming value” and poses a costly threat to businesses.

Companies will be forced to defensively purchase the “.sucks” domain in order to protect their brand and avoid a competitor or detractor from registering “,” Sen. Rockefeller wrote. “Three companies . . . have applied for this gTLD, claiming that it will foster debate and benefit consumers,” according to his letter to Stephen Crocker, chair of ICANN’s board. “I view it as little more than a predatory shakedown scheme. The business model behind this gTLD seems to be the following: forcing large corporations, small businesses, non-profits, and even individuals, to pay ongoing fees to prevent seeking the phrase ‘sucks’ appended to their names on the Internet.”

One of the companies referenced by Sen. Rockefeller, Donuts, told Ad Week in a statement that “the notion of open use” supports the registration of “.sucks.” The domains could even be positive, the company noted, offering the example of “”

“While a critical interest of each of our gTLDs is the promotion of the First Amendment principle of free expression (including criticism and dissent), we also have taken care to provide tools for companies to effectively avoid costly defensive registrations,” the company said. “We are not soliciting, and have no plans to solicit ‘defensive registrations.’ ”

ICANN’s push for new domains has been controversial from the start, but the group has already received almost 2,000 applications for possible addresses ranging from “.home” to “.inc.” The first gTLDs, including “.bike” and “.singles,” went live in January.

To read Sen. Rockefeller’s letter to ICANN, click here.

Why it matters: Sen. Rockefeller argued that ICANN’s approval of “.sucks” will undermine the organization’s credibility and reinforce the belief that the expansion of domain names is intended to benefit the registration industry as opposed to enhancing the experience of Internet users generally. The lawmaker is not alone in his concerns – the Association of National Advertisers has also spoken out against the “.sucks” gTLD.

Do Not Call Violations Target of FTC Action

The Federal Trade Commission took action against Versatile Marketing Solutions and owner Jasjit Gotra after millions of calls were placed to consumers on the Do Not Call list. According to the FTC, the defendants purchased names and numbers from a lead generator that promised Versatile the consumers had given permission to contact them about the company’s home security systems. In reality, the lead generators obtained the sales leads by using robocalls, fake survey calls, and calls to numbers listed on the Do Not Call Registry, the agency alleged.

Versatile failed to confirm that the numbers were not listed on the Do Not Call Registry, however, and turned a blind eye to indications that the lead generators were engaging in illegal telemarketing, the FTC said. Red flags should have waved for the defendants after receiving repeated complaints from consumers that they had not provided their consent to be contacted—yet Versatile continued to use the lead generators.

Between November 2011 and July 2012, at least one million of Versatile’s more than two million sales calls were made to phone numbers listed on the Registry, the FTC alleged in its complaint. Additional violations occurred when the defendants called more than 100,000 numbers after consumers specifically instructed Versatile not to call again.

To settle charges of violating the Telemarketing Sales Rule and Section 5 of the FTC Act, the defendants reached a stipulated final order. Versatile and Gotra consented not to violate the Rule or make calls to numbers listed on the Registry unless they can prove written permission was received or an established business relationship exists with the consumer.

Restrictions on how the defendants can use lead-generated phone numbers—such as ensuring compliance with existing lead generators and conducting due diligence on new partners to maintain compliance with the order – were also agreed upon. A $3.4 million penalty judgment was suspended except for $320,700.

To read the complaint and stipulated final order in United States v. Versatile Marketing Solutions, click here.

Why it matters: The enforcement action serves as a valuable reminder to advertisers that do not pay attention to red flags when calling numbers obtained from lead generators to ensure compliance with the Telemarketing Sales Rule. “Companies that use lead generators must exercise due diligence when they buy lists of phone numbers,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release about the settlement, “or else they can be on the hook for illegal telemarketing. Relying on a say-so that the numbers were obtained legally, or that the consumers have agreed to be called, even if their numbers are on the Do Not Call Registry, isn’t enough.”

Instagram Wins Dismissal of Suit Over Terms of Service

Instagram scored a victory in California when a federal court judge dismissed a putative class action against the company over changes to its terms of service.

In December 2012, the free Web-based photograph-sharing platform announced that it was changing the terms of service for the first time since the site was launched in October 2010. Three material changes were made: (1) it disclaimed ownership “of” the content that users post on Instagram versus ownership “in” the content; (2) it asserted the right to use posted content under a transferable and sublicensable license; and (3) it added a liability waiver.

The new terms provided that anyone who uses the service after January 19, 2012, one month after notice was posted, will have indicated their consent to the changes. Users who did not agree to the terms must cease using Instagram.

User Lucy Rodriguez sued. She alleged breach of contract and violation of California’s business law.

But she also continued to use the site after the terms changed.

Therefore, California Superior Court Judge Curtis E.A. Karnow tossed the suit on Instagram’s motion.

Instagram’s original terms of service expressly reserved the right to alter the terms “at any time” as long as users were given notice of material changes. Rodriguez was given the opportunity to opt out before the new terms took effect and yet declined to do so, the court said.

“Plaintiff had a full and perfectly reasonable opportunity to read, and did read, the New Terms; she could have declined the revised agreement,” Judge Karnow wrote. “She could have, under the plain language of the New Terms, avoided the New Terms if she stopped using the service, but she continued to use it: Plaintiff alleged that she used Instagram at all relevant times, including after the New Terms went into effect. Thus Plaintiff must have consented to the New Terms.”

Rodriguez’s contention that by filing a lawsuit she rejected the New Terms was unavailing. There is “no basis to conclude that the filing of a complaint is sufficient to reject the New Terms – most especially after Plaintiff continues to use and presumably benefit from the Instagram site,” the court said.

Additionally, the plaintiff failed to establish that she suffered any harm. “The alleged harm arises from Instagram’s asserted ‘imminent plans’ to sublicense Plaintiff’s pictures or other content she posted,” Judge Karnow said. “This is not harm if Plaintiff agreed to the New Terms. And under the allegations of the Complaint, she did.”

Finally, the court discarded Rodriguez’s claims under California state law as Instagram’s actions were not unlawful. “Effective January 19, 2013, use of Instagram constituted acceptance of the New Terms by express provision of the New Terms,” Judge Karnow wrote. “Accordingly, Instagram did not unilaterally grant itself sub-licensing power; rather it required Plaintiff to consent to sub-licensing power, a liability waiver, and other terms, under a new agreement, if she wished to continue using Instagram’s service. She did not have to agree to these terms, but the Complaint makes it clear that she did.”

To read the order in Rodriguez v. Instagram, click here.

Why it matters: The Instagram decision provides a blueprint for companies seeking to change their terms of service via a unilateral amendment clause in a user agreement. In Instagram’s case, the company could even apply the new terms to prior posted content by providing clear notice to users with ample time to opt out before tacitly consenting through continued use.

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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Updated: May 25, 2018:

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