Advertising Law -- Dec 19, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

FTC Focus in Spring 2014 – Privacy

Looking ahead to 2014, the Federal Trade Commission announced that it will host three spring seminars focused on consumer privacy and the implications of new technology.

In February the agency will kick off with a seminar on mobile-device tracking, a practice most notably employed by retailers that use the unique identifiers from consumer mobile devices to learn about their shopping habits such as the length of time they spend and the paths they take while in a store, and the frequency of their store visits.

Because this type of tracking is “invisible” to consumers, the FTC said it raises “a number of potential privacy concerns and questions.” The seminar will address issues such as the types of mobile-device tracking currently in use, the potential future uses of the technology, the possible parallels between mobile-device tracking and online tracking technologies, and the information and benefits gleaned by retailers from these practices.

In addition, the agency will examine whether consumers derive any benefits from the technology and how companies address the potential privacy and security risks associated with such tracking.

In March the FTC will turn its focus to “alternative scoring products.” With the ever-increasing amount of information available to data brokers, companies are using data to compile predictive scores to determine, among other things, whether sending a catalog to a consumer’s address will result in an in-store or online purchase, whether a woman is pregnant (and when she is due), and whether an individual’s Internet presence has influence over other consumers.

Again, the agency noted that consumers are often unaware of these scores and their implications. Participants will consider questions about the accuracy of the scores and the underlying data used to create them, whether legal protections exist for consumers with regard to predictive scoring, and whether consumers have access to their scores and the underlying data.

The third and final scheduled seminar – date to be determined – will address consumer-generated and controlled health data. Consumers are increasingly turning to technology for health-related issues, the FTC said, by researching health conditions online and uploading data to health-related apps.

Further, the agency will ask what, if any, steps companies take to protect users’ privacy and security and whether advertising networks or others impose any restrictions on the tracking of health information.

To read the FTC’s press release about the seminars, click here.

Why it matters: In its press release the FTC said the scheduled seminars “will shine a light on new trends in Big Data and their impact on consumer privacy.” For marketers the trifecta of workshops reinforces the importance of privacy as a primary agency focus. The seminar on mobile-device tracking will come as good news to Sen. Charles Schumer (D-N.Y.), who wrote to FTC Chairwoman Edith Ramirez earlier this year asking the agency to investigate the data tracking practices by major national retailers and expressing his concern that the collection of data means stores are “treating the consumers as products.”

Apple Wins Dismissal of Privacy Suit

A California federal court judge has tossed a class action accusing Apple of making deceptive promises about the privacy afforded to users of iPhones and iPads.

According to the third complaint in the consolidated multidistrict litigation, Apple violated its privacy policy by sharing the unique identifiers found on consumers’ devices with third parties such as app developers and affiliates. The defendant also collected and exchanged geolocation information even when the “Location Services” setting was turned off, the plaintiffs alleged.

The plaintiffs claimed they relied upon Apple’s representations about privacy and data collection when purchasing their phones and did not consent to having their information shared with third parties.

But none of the four putative class members established that they “read or relied on any particular Apple misrepresentation regarding privacy” prior to their purchase of the products, U.S. District Court Judge Lucy H. Koh wrote. “The Court questions how one can act in reliance on a statement one does not see, read, or hear.” Judge Koh ruled that the plaintiffs lacked Article III standing as well as standing under California’s Consumer Legal Remedies Act and Unfair Competition Law.

The plaintiffs needed to “have seen the misrepresentations and taken some action based on what they saw – that is, plaintiffs must have actually relied on the misrepresentations to have been harmed by them,” the court said. “The evidentiary record is devoid of ‘specific facts’ to support plaintiffs’ assertions. Critically, none of the plaintiffs presents evidence that he or she even saw, let alone read and relied upon, the alleged misrepresentations.”

Reviewing the plaintiffs’ depositions, the court said they could not recall having read Apple’s Privacy Policy or the App Store Terms and Conditions – or “expressly disavowed” having read such documents prior to purchase.

Subsequently created declarations from the plaintiffs “each allude to a vague ‘understanding’” regarding the promises made in Apple’s privacy policy, Judge Koh said, but fail to provide “any evidence whatsoever concerning the basis for this understanding.”

The court reached a similar conclusion about the geolocation claims, as the plaintiffs again failed to present “any evidence that he or she read or relied upon any alleged misrepresentations related to Location Services.”

Given the plaintiffs’ “repeated failure to provide any evidence to support the theory that they must have read or seen the alleged misrepresentations,” the court granted summary judgment to Apple.

To read the order in In re iPhone Application Litigation, click here.

Why it matters: In addition to scoring a victory for Apple, Judge Koh’s decision provides valuable language for other defendants facing false advertising class actions where reliance on a defendant’s statements is at issue. Consumers must establish that they actually read a privacy policy, for example, actually relied upon it such that the misrepresentations “played a substantial part” in the decision to purchase the product, and suffered economic injury as a result, the court said. Judge Koh refused to infer reliance simply from the fact that the plaintiffs had iTunes accounts with Apple and therefore had to agree to the terms and conditions and privacy policy at some point. “The mere fact that plaintiffs had to scroll through a screen and click on a box stating that they agreed with the Apple Privacy Policy . . . does not establish, standing alone, that plaintiffs actually read the alleged misrepresentations contained in that Privacy Policy, let alone that these misrepresentations subsequently formed the basis for Plaintiffs’ ‘understanding’ regarding Apple’s privacy policy.”

California Federal Court Extends Song-Beverly to E-Mail Addresses

In a new decision interpreting the application of the Song-Beverly Credit Card Act to offline retailers, a California federal court has ruled that a violation of the statute occurs when a retailer requests and retains a customer’s e-mail address during a credit card transaction.

While making a credit card purchase at a Nordstrom store, California resident Robert Capp was asked to provide his e-mail address to receive his receipt. Capp’s complaint alleged that although he received his receipt via e-mail, the retailer also began sending him promotional e-mails “on a nearly daily basis.”

Based on the unsolicited marketing materials, he sued under Song-Beverly. Nordstrom responded with a motion to dismiss, arguing that an e-mail address is not “personal identification information” as defined by the statute. Alternatively, Capp’s suit was preempted by the federal CAN-SPAM Act, the defendant told the court.

Denying Nordstrom’s motion to dismiss, the court first determined that an e-mail address constitutes “personal identification information” under the Song-Beverly Act, § 1747.08(b). Facing a matter of first impression, U.S. District Court Judge Morrison C. England relied upon the reasoning in the 2011 California Supreme Court decision in Pineda v. Williams-Sonoma. In that case, the state’s highest court ruled that Zip codes are considered “personal identification information” under the statute, and therefore retailers may not request and record the data.

Consistent with the “protective purpose of the statute,” Judge England said a finding that an e-mail address falls under the statute “follows directly from the supreme court’s reasoning and analysis in Pineda.”

Nordstrom’s contention that an e-mail address is distinguishable from a Zip code because it can easily be changed and consumers may have multiple e-mail addresses did not sway the court. An e-mail address “‘pertain[s] to or regards a cardholder’ in a more specific and personal way than does a Zip code,” Judge England wrote. “Instead of referring to the general area in which a cardholder lives or works, a cardholder’s e-mail address permits direct contact and implicates the privacy interests of a cardholder.” Interpreting the statute more narrowly to exclude e-mail addresses would allow retailers an end run around the “clear purpose” of the statute, he added.

Judge England also sided with the plaintiff on the issue of federal preemption. Although CAN-SPAM contains an express preemption provision, it also includes a savings clause exempting state law not specific to electronic mail. California’s Song-Beverly is not focused on either the content of e-mail messages or the manner in which they are sent, the court said.

Recognizing e-mail messages under the statute “will most likely have the effect of furthering the purpose of CAN-SPAM,” as the number of messages sent by companies will likely be reduced as a result, Judge England noted. California’s law “will not ‘stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’”

To read the order in Capp v. Nordstrom, click here.

Why it matters: In the wake of the California Supreme Court’s Pineda decision, retailers faced a wave of class-action suits for requesting customers’ Zip codes at checkout. The Capp decision, determining that the Song-Beverly consumer protections extend to an e-mail address, provides new fodder for plaintiffs’ counsel.

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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