In This Issue:

• Linda Goldstein to Speak on Digital Advertising Compliance
• DNT Standard Remains Elusive
• FTC Bites Bed Bugs Back
• Robocall Defendants Settle with FTC
• Matchmaking Company Targeted, Pressured Elderly Consumers, Says Texas AG
• Will the FDA Take a Stance on “Natural” Claims for GMO Products?
• Noted, Quoted and Socially Promoted . . . Marc Roth Sheds Light on the Challenges Associated with Facebook’s Mobile Ad Strategy for the Manatt Digital Media Blog
• Most Read Stories

Linda Goldstein to Speak on Digital Advertising Compliance

The American Conference Institute’s 2nd Annual Summit on Digital Advertising Compliance: Sweepstakes, Social Media and Promotions will take place September 9-11, 2013. Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, has been asked to participate as a panelist in a session titled, “Making Effective Disclosures in Digital Advertising: Integrating the FTC’s Updated .Com Disclosures and Endorsement Guidelines.”

The session will walk attendees through the necessary steps to take in order to abide by consumer protection laws, explain how to ensure that disclosures are clear and conspicuous on all devices and platforms that consumers may use to view ads, and analyze the triggers behind recent FTC investigations involving disclosure requirement violations. She will be joined by Ann Hirsch (Senior Marketing & Regulatory Counsel, Unilever) and Yvonne M. Imbert-Garraton (Director, Business & Legal Affairs, CBS Interactive) as copanelists and Jim Dudukovich (Marketing Counsel, Coca-Cola North America) as moderator.

The conference will be held at the DoubleTree Suites by Hilton Times Square in New York.

NOTE: Be sure to take advantage of Manatt’s friend-of-the-firm discount by using the code provided in the registration materials available here. 

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DNT Standard Remains Elusive

The struggle to set a standard for a Do Not Track program continues.

Two years into the process, the Tracking Protection Working Group of the World Wide Web Consortium has failed to reach an agreement about how DNT should be defined and exactly what features should be included. The group called a time-out on negotiations last fall after it failed to reach a consensus.

After beginning work again this spring, the working group voted earlier this month on various approaches to a DNT program. The ad industry submitted a proposal – put forth by the Digital Advertising Alliance, the American Association of Advertising Agencies, the Association of National Advertisers, the Network Advertising Initiative, and the Interactive Advertising Bureau, among others – that was voted down.

Under the proposal, companies could continue to send behavioral advertising to consumers, even after they chose DNT, by profiling users and serving targeted ads. The industry argued that some browsers default to DNT, so unless consumers click on an opt-out link in a privacy notice or via the industry’s self-regulatory program, it is unclear whether they have truly chosen not to be reached by advertisers. The groups agreed that certain information – such as the specific URLs of Web sites visited – would be stripped from a user’s profile.

Privacy advocates spoke out against the idea, and the W3C working group rejected the proposal, “finding it at odds with our chartered aims and the weight of group consensus,” cochairs Peter Swire and Mathias Schunter said. The ad group’s suggestion was “less protective of privacy and user choice than earlier initiatives.” Instead, the 110-member group decided to work on a different proposal.

In response, industry members indicated that they are unlikely to support the alternative. Stu Ingis of the DAA told MediaPost he is “not optimistic” that members will follow the W3C’s standard, while Rachel Thomas, vice president of governmental affairs at the DMA, said it’s “unlikely” that the industry would do so. “It looks to me like the W3C has devolved into an academic exercise on this issue,” she said.

Why it matters: While the W3C rejection of the ad industry’s proposal sent a message, it didn’t get the working group closer to a solution. The working group acknowledged that its self-imposed deadline of July 31 to agree on a standard for DNT will not be met. The deadline has been bumped multiple times after an initial due date of January 2012 and is currently 18 months behind schedule – with an uncertain future.

FTC Bites Bed Bugs Back

Try not to scratch while reading this story: the Federal Trade Commission reached a settlement with a company accused of making deceptive claims about head lice and bed bug remedies.

Chemical Free Solutions, its related subsidiaries, and owner Dave Glassel falsely promised consumers that the Best Yet line of cedar oil-based products was “natural,” “organic,” and could treat and prevent bed bug and head lice infestations, the agency alleged. It challenged claims that the products were invented for the U.S. Army; that the U.S. Department of Agriculture declared the bed bug product as the “#1 choice” of bio-based pesticides; that the Environmental Protection Agency warned consumers to avoid chemical solutions for treating bed bug infestations; that the product was effective in killing head lice eggs in a single treatment; and that scientific studies proved Best Yet was more effective than synthetic pesticides and was effective in stopping and preventing head lice.

A radio ad for the line stated: “In light of the recent bed bug media frenzy that has all of us nervous, you need to know that bed bug prevention and eradication relief are available. So let’s not all freak out. All you need is Best Yet from CedarCide.com. . . . Best Yet was developed at the request of the USDA for our military, as a solution for killing sand fleas. But guess what, it’s equally deadly to bed bugs, larvae and eggs.”

The product was sold to consumers by phone and online at $29.95 for a quart-sized spray bottle and to hotels, other commercial establishments, and school districts, as well.

Pursuant to the settlement, the defendants are prohibited from making a number of ad claims absent competent and scientific evidence. The defendants agreed to refrain from false claims that a product or service is endorsed by a government agency and promised not to misrepresent the results of scientific tests or studies.

Approval from the Food and Drug Administration is required for future head lice claims, which must also be non-misleading. Glassel agreed to pay a $4.6 million fine; the company’s $185,000 payment was suspended. Three corporate defendants are still engaged in litigation with the agency.

To read the complaint and the consent orders in the cases, click here.

Why it matters: While all of the Commissioners supported the settlement of the false and deceptive advertising claims, a disagreement arose over the requirement for FDA preapproval for head lice claims, resulting in a 3-to-1 vote. Commissioner Maureen K. Ohlhausen voted against the settlements because she believed the FDA requirement “is inconsistent with Commission precedent and that imposing such a high bar for these types of claims in general may ultimately prevent useful information from reaching consumers in the marketplace.” She noted that the Commission did not include such a requirement in the recent POM case. In a joint statement, Chairperson Edith Ramirez and Commissioner Julie Brill noted that the FDA considers a head lice infestation, or “pediculosis,” as a medical condition, with significant medical consequences if a head lice treatment is misused. The “natural” product claim by the defendants makes it an unapproved drug under the Food, Drug, and Cosmetic Act because it was marketed as a treatment for a medical condition. “Under these circumstances, requiring the defendants to have FDA preapproval as substantiation for future claims is particularly appropriate as it harmonizes their obligations under the FDCA and the FTC Act.”

Robocall Defendants Settle with FTC

Continuing a recent focus by the Federal Trade Commission on illegal robocalls, a group of defendants agreed to settle charges that they made illegal robocalls in violation of the Telemarketing Sales Rule and the Federal Trade Commission Act.

The agency filed a complaint in Florida federal court last November alleging that A+ Financial Center, Accelerated Accounting Services, and two individuals, Christopher L. Miano and Dana M. Miano, tried to sell credit card interest rate reduction services by calling numbers listed on the Do Not Call Registry. They collected illegal up-front fees by claiming to be “Rachel” from “Cardholder Services,” and by making illegal robocalls. The sales pitch involved an up-front payment of $495 to $1,595 for promises to lower credit card interest rates to as low as zero percent. Even after payment, little was done for consumers, the FTC said.

The action was one of several suits filed as part of a joint law enforcement effort with state officials in Arizona, Arkansas, and Florida. According to the complaints, the automated calls typically began with a prerecorded message urging recipients to press 1 to speak with a representative about reducing their credit card rates. Consumers who chose to continue were connected to a telemarketer who pitched deceptive offers to reduce credit card debt, sometimes claiming to be from the consumer’s credit card company.

The settlement precludes the defendants from making robocalls, from marketing debt relief services, from engaging in abusive telemarketing practices (such as calling numbers registered on the Do Not Call list), from making misrepresentations about financial services or products, and from misrepresenting the attributes of their goods and services and their relationships with banks, credit card issuers, lenders, or government entities. Any claims made by the defendants must be backed by reliable evidence.

A $9.2 million judgment will be suspended after a transfer of existing assets, including cars and boats.

To read the complaint and the stipulated final order in FTC v. A+ Financial Center, click here.

Why it matters: The agency continues to keep a close eye on robocalls and recently testified before Senate lawmakers about its efforts to combat the illegal practice. The FTC also brought enforcement actions against a company that allegedly provided substantial assistance or support to a telemarketer violating the Telemarketing Sales Rule.

Matchmaking Company Targeted, Pressured Elderly Consumers, Says Texas AG

Elderly Texans were subjected to “high pressure sales tactics” until they agreed to sign a membership agreement with a matchmaking company, according to a new lawsuit filed by the state Attorney General Greg Abbott.

Matchmaker Matchmaker, a dating service costing $3,000 to $10,000, and its CEO Harvey Luna targeted the elderly as well as the disabled and veterans in search of prospective love interests. “Matchmaker defendants utilize a company which ‘mines’ online dating service databases and sells ‘leads’ and customer contact information,” according to the complaint.

Employees of the defendant cold-called consumers to join the fee-based dating service, and those that showed interest were then encouraged to visit the office for an in-person consultation. Company employees were trained in “dubious and aggressive” recruitment practices, including the use of false information to entice consumers into signing up for a membership, Abbott said. They included a claim that Matchmaker had a database of “thousands” of potential dates and that it had conducted psychological exams on all potential members. No such evaluations were conducted.

Salespeople also requested financial and credit information from consumers, ostensibly to make a better match. But the information was really used to tweak the amount charged to the consumer, according to the complaint. A total of 92 complaints about the company were received by the state AG’s office; the Better Business Bureau received 68.

In one affidavit accompanying the suit, a 72-year-old woman said she arrived at the Matchmaker office at 2:30 in the afternoon and didn’t leave until it was dark. She was charged $6,495 after Luna got down on one knee and begged for her membership. A promise to send her a match within the week never materialized. Another affidavit from a 65-year-old woman stated that Luna placed his hands on her shoulders and told her he wouldn’t let her leave until she signed up. Consumers who refused to sign a contract were verbally abused, the AG said.

The complaint alleged violations of Texas’ deceptive trade practices law. The state indicated that it was seeking in excess of $100,000 in penalties, consumer redress, and attorneys’ fees and costs, although the amount could rise above $1 million.

To read the complaint in State v. Luna, click here.

To read the TRO against the defendants, click here.

Why it matters: A state court judge granted the AG’s motion for a temporary restraining order against the defendants, halting the operation and freezing its assets.

Will the FDA Take a Stance on “Natural” Claims for GMO Products?

A California federal court judge hopes that the Food and Drug Administration is ready to take a stance on “natural” advertising claims for genetically modified organisms. He issued an order in July to refer the issue to the agency.

The order arose from a consumer class action filed by Elizabeth Cox against Gruma Corporation. Cox alleged that the company falsely advertised its tortilla chips, among other products, as “All Natural,” even though they contained corn grown from bioengineered, genetically modified seeds.

Gruma responded with a motion to dismiss based upon primary jurisdiction, a doctrine that allows a court to stay proceedings “pending the resolution of an issue within the special competence of an administrative agency.” The doctrine normally applies to matters of first impression or in a case with a particularly complicated issue.

U.S. District Court Judge Yvonne Gonzalez Rogers agreed with the defendant that the expertise of the FDA – to which Congress granted regulatory authority over food labeling – was required under the facts of the case.

The agency has separately issued nonbinding industry guidance on bioengineered foods and the use of “natural” labels. In January 2001, the FDA wrote that it was “not aware of any data or other information that would form a basis for concluding that the fact that a food or its ingredients was produced using bioengineering is a material fact that must be disclosed. . . . FDA is therefore reaffirming its decision to not require special labeling of all bioengineered foods.” Previously, in 1993, the agency interpreted the term “natural” on labels to mean “nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food.”

However, Rogers wrote, the FDA “has not addressed, even informally, the question of whether foods containing GMO or bioengineered ingredients may be labeled ‘natural’ or ‘all natural,’ or whether GMO or bioengineered ingredients would be considered ‘artificial or synthetic.’ ”

“Under these circumstances, deference to the FDA’s regulatory authority is the appropriate course,” the court concluded. “Therefore. . . this Court refers to the FDA, for an administrative determination, the question of whether and under what circumstances food products containing ingredients produced using bioengineered seed may or may not be labeled ‘Natural’ or ‘All Natural’ or ‘100% Natural.’ ”

Judge Rogers stayed the action for six months from the date of the order, a time that could be extended.

To read the court’s order in Cox v. Gruma Corp., click here.

Why it matters: The ad industry shouldn’t hold its breath waiting for a response from the FDA. Prior attempts to get the agency to take a position on the issue of “natural” labeling have not resulted in guidance. In a case challenging “natural” claims and the use of high fructose corn syrup, a federal court judge similarly stayed proceedings and requested a response from the FDA. The agency declined. Then again, the Cox case presents a new context for the agency to take a position on the intersection of “natural” claims and GMO ingredients. Perhaps the recent passage of GMO labeling laws in states such as Connecticut and Maine may spur a response from the FDA.

Noted, Quoted and Socially Promoted . . . Marc Roth Sheds Light on the Challenges Associated with Facebook’s Mobile Ad Strategy for the Manatt Digital Media Blog

Manatt partner Marc Roth discusses the FTC’s current concerns with respect to transparency in online and mobile advertising and considers Facebook’s decision to move paid ads to users’ news feeds. Are these paid ads – and the location of their display – a potential focus for the FTC? Click here to read the full post on the Manatt Digital Media blog.

Most Read Stories

In case you missed any, here are our top 10 most widely read stories in June:

1. “A&P Pays Fine Over Sweepstakes”

2. “Supreme Court to Consider Lanham Act Standing”

3. “Get It While It’s Hot? Papa John’s Settles TCPA Suit for $16.5M”

4. “Fore! NAD Issues a Pair of Golf Club Decisions”

5. “Drink Up: False Advertising Class Action Against 5-Hour Energy to Continue”

6. “Noted and Quoted . . . Linda Goldstein Talks to AdAge on Potential Impact of PRISM Program”

7. “Court TCPA Opt-Out Language Required Even with Consent”

8. “Domino’s Delivers $9.75M TCPA Settlement”

9. “SPECIAL FEATURE: Manatt and Mergermarket Release New Study on U.S.-China Deal Activity in Entertainment, Advertising and Digital Media Sectors”

10. “Former QB Scores a Publicity Rights Win in the Third Circuit”

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