Advertising Law - April 2017

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:
  • Upromise's Broken Promise to FTC Costs $500,000
  • Affiliate Marketers Settle Over False Weight Loss Claims, Fake Endorsements
  • FTC Commissioners Testify on Combatting Fraud
  • NARB: Consumer Class Action Didn't Eliminate Self-Regulatory Jurisdiction

Upromise's Broken Promise to FTC Costs $500,000

For going back on its promise to abide by the terms of a Federal Trade Commission order, Upromise will pay a $500,000 civil penalty to the agency.

The membership reward service lets consumers earn cash-back rewards on certain purchases to help save for college or pay down student loans. In 2012, the company reached a deal with the FTC after the agency alleged that Upromise's "TurboSaver" toolbar collected information about users (such as search terms, usernames, passwords, and credit card information) without disclosing what data was being collected.

To settle the charges, Upromise agreed to an order with two key terms: Upromise was required to make clear and prominent disclosures about its toolbar data collection and use. In addition, the company promised to obtain third-party assessments of its data collection toolbar.

Instead Upromise encouraged consumers to download a toolbar dubbed "RewardU," the agency alleged, and failed to make the required clear and prominent disclosures about the toolbar's data collection and use. Only if a consumer clicked a link or scrolled down two full screens of text "to the second paragraph of a footnote-style statement," could a user find the relevant disclosures. Nor did the company obtain the necessary third-party assessments agreed upon in the order. Instead it provided assessments that evaluated operations not implicated under the 2012 order.

In response, the Department of Justice filed a civil penalty complaint in Massachusetts federal court on the FTC's behalf alleging that Upromise failed to comply with two of the provisions found in the order for the period of 2013 through 2016.

Pursuant to a stipulated order, Upromise must pay a $500,000 civil penalty for violating the 2012 order. The company must also abide by the terms of the order going forward. Specifically, before launching a toolbar in the future, it must have a third party professional specializing in Web site design and user experience certify that Upromise has followed the order's disclosure and that "express, affirmative" consumer consent will be obtained.

Taking no chances, the FTC also mandated that Upromise obtain advance, written approval from the agency of any required assessment's scope and design. As for RewardU, the new order instructs the company to permanently expire RewardU-related cookies from consumers' computers and notify consumers how to uninstall the toolbar and any related cookies.

To read the complaint and stipulated order in U.S. v. Upromise, click here.

Why it matters: "Upromise once again didn't disclose to consumers the extent of its data collection, and failed to comply with the FTC's order to get required privacy assessments," Tom Pahl, Acting Director of the Federal Trade Commission's Bureau of Consumer Protection, said in a statement. "Companies must keep their privacy promises."

Affiliate Marketers Settle Over False Weight Loss Claims, Fake Endorsements

Three affiliate marketers agreed to stop using spam e-mail, refrain from making false weight loss claims, and halt the use of fake celebrity endorsements as part of a settlement agreement with the Federal Trade Commission.

According to the agency, the affiliate marketers were paid to send "millions" of illegal spam e-mails from hacked accounts to make it appear the messages came from friends or family members. Links in the messages took recipients to websites that made deceptive claims for weight loss products—including Original Pure Forskolin and Original White Kidney Bean—that they could yield weight loss of 17 pounds in 4 weeks, for example, or "41.7 lbs in 2.5 months."

The websites also featured endorsements from celebrities such as Oprah and the cast of the television show The Doctors, even though the purported endorsers had no affiliation with the products, the agency alleged. From these websites, consumers could use another link to purchase the defendants' weight loss products. Affiliate marketers were paid a commission when a consumer clicked through the website to purchase a supplement, the FTC said.

To settle the charges, the defendants agreed to prohibitions on their prior activity and will pay $500,000, suspended from a judgment of $1.3 million for their alleged violations of both the Federal Trade Commission Act and the CAN-SPAM Act.

Specifically, the stipulated order prohibits the defendants from making the false weight loss claims alleged in the complaint and requires that they obtain competent and reliable scientific evidence to support any health or efficacy claims made in the future. False representations that any health claims have been approved by the Food and Drug Administration are likewise banned and all scientific evidence used to support health claims must be preserved.

The order also prohibits false endorsements, mandates that testimonials reflect typical consumer experience with the product, and prohibits a range of misrepresentations (such as cost and claims related to refunds or cancellation terms) as well as future violations of CAN-SPAM.

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

Why it matters: The action demonstrates the FTC's continued enforcement focus on health-related claims as well as false endorsements, deceptive weight loss advertising, and spam e-mail.

FTC Commissioners Testify on Combatting Fraud

Acting Federal Trade Commission Chair Maureen K. Ohlhausen and Commissioner Terrell McSweeny testified recently about the agency's efforts to combat fraud.

Speaking before the Senate Committee on Commerce, Science, and Transportation's Subcommittee on Consumer Protection, Product Safety, and Data Security at a hearing focused on "Staying A Step Ahead: Fighting Back Against Scams Used To Defraud Americans," the Commissioners noted the agency obtained judgments totaling over $11.9 billion for consumers affected by deceptive and unfair practices just in the last year.

That number includes the record-setting $10.03 billion settlement order with Volkswagen Group of America related to its alleged misrepresentations of fuel efficiency ratings, as well as actions based on a host of deceptive behavior. Imposter scams—which topped the FTC's consumer complaint list for 2016—were the subject of multiple agency enforcement actions, particularly scams involving government imposters and technical support.

Other actions cited in the testimony included a deceptive patent promotion program, a crackdown on robocalls in conjunction with the Florida Attorney General, fake prize promotions, and business opportunity schemes. The deceptive marketing of health-related products remains a top priority for the agency, particularly claims that products will improve cognitive abilities, increase the likelihood of overcoming opiate addiction, or result in weight loss.

The FTC also took action against fraud targeting certain populations, such as small businesses, the elderly, and minority groups, as well as consumers struggling to pay mortgages and other debts.

Discussing the Commission's strategy for combatting fraud, the Commissioners explained that cooperation with other law enforcement agencies helps broaden the FTC's reach. The agency also engages in consumer and business outreach and education to complement its law enforcement work.

To read the text of the Commission testimony as well as the statements by Ohlhausen and McSweeny, click here.

Why it matters: In her statement, Ohlhausen set forth her plans for the agency. "As Acting Chairman, I have instructed Commission staff to focus our law enforcement efforts on stopping fraudulent practices, particularly those that are causing the largest consumer harm," she told the lawmakers. "Doing so will ensure that the Commission is using its resources for the maximum benefit of consumers." McSweeny told the legislators that she is "particularly concerned" about the growth in ransomware attacks, predicting that in "the not-too-distant future a consumer might turn on her smart TV only to see a message that asks for $50 in Bitcoin if she wants to watch television again."

NARB: Consumer Class Action Didn't Eliminate Self-Regulatory Jurisdiction

Considering the intersection of industry self-regulation and false advertising consumer class actions, the National Advertising Review Board agreed with the National Advertising Division that a court challenge to an advertiser's claims seeking financial recovery does not foreclose administrative review of the veracity of the same claims.

Unilever United States challenged claims made by The Colgate Palmolive Company for its Tom's of Maine "Naturally Dry" antiperspirant, such as "It really works. Naturally" and the name of a product itself.

Colgate responded with a procedural objection. It argued that the NAD should administratively close the case because the claims were the subject of litigation in Florida federal court, where a consumer had filed a false advertising lawsuit. In that case, the company agreed to pay $4.5 million to plaintiffs who alleged Tom's ran afoul of multiple state consumer protection laws and warranty statutes by using the term "natural" for various personal care products, including deodorant.

The NAD disagreed and Colgate appealed.

Section 2.2(B)(1)(b) of the Advertising Self-Regulatory Council (ASRC) Procedures provides that the NAD shall administratively close a challenge if the NAD "concludes that the advertising claims complained of are … the subject of … an order by a court." Colgate attempted to hang its hat on the Florida court's order signing off on the settlement agreement between the parties.

But a majority of the NARB panel reached the opposite conclusion, finding the language in Section 2.2(B)(1)(b) "to be ambiguous as to the degree to which the court order must relate to the challenged claims," the decision said. "For example, it is not clear whether this requires that the court evaluate the merits of the claims and/or direct action with respect to the claims."

The panel noted NAD precedent that the same provision requires the self-regulatory body "to carefully balance the need to avoid multiple and potentially conflicting findings from tribunals with the NAD's mandate to ensure that advertising is truthful and accurate in order to foster consumer confidence in advertising and create a level playing field for advertising."

With this in mind, the NARB said that the court order did not make any findings with respect to the claims challenged by Unilever and required no action other than what the parties agreed to in their settlement agreement, leaving the NAD free to consider the merits of the dispute.

"The NAD's exercise of jurisdiction poses no danger of multiple and potentially conflicting findings from tribunals because the class action was resolved without any findings as to the truthfulness or accuracy of the challenged claims," the panel wrote. "In essence, the settlement is an agreement between Tom's of Maine and the approved class of consumers, and the court's overall determination that the settlement was 'fair, reasonable and adequate' does not resolve questions about the truth or falsity of the claims challenged by Unilever and does not help to foster consumer confidence in advertising or create a level playing field for other advertisers."

Based on this analysis, a majority of the panel concluded that the NAD acted appropriately in deciding not to administratively close the case. One panel member believed that the language of Section 2.2(B)(1)(b) was sufficiently clear and supported a finding that the claims challenged by Unilever should have been administratively closed as the "subject of" the court order approving the class action settlement.

To read the NARB's press release about the decision, click here.

Why it matters: The NARB noted that the ASRC Procedures were drafted "long before the explosion of consumer class actions" and Section 2.2(B)(1)(b) was likely written without consideration of the issue presented in the case. Therefore, the panel recommended that the ASRC Board consider clarifying the provision "to more clearly state whether, or under what terms, a settled consumer class action should result in the NAD administratively closing a challenge that involves similar claims."

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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