Advertising Law - February 2017

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:
  • SPECIAL FOCUS: Current State of the FTC: Three Top Priorities
  • FTC Hangs Up on "Massive" Robocall Scams
  • AG Sues Google Over Student Privacy Violations
  • Justices Weigh Offensive Trademarks

SPECIAL FOCUS: Current State of the FTC: Three Top Priorities

By Richard P. Lawson | La Toya Sutton

On February 2, Acting Chairman of the Federal Trade Commission, Maureen Ohlhausen, addressed the ABA 2017 Consumer Protection Conference in Atlanta and highlighted her consumer protection goals. If there is a theme to her vision, it is that regulatory humility is integral to creating a better environment for consumers. She began her speech by discussing the FTC's role in consumer protection, and stated, "At a fundamental level, we are seeking to ensure that consumers are better off." She then highlighted three areas where she plans to address unfair and deceptive practices " a way that avoids hindering market-generated consumer benefits."

Priority 1: Bread and Butter Fraud. First, Acting Chairman Ohlhausen said, "I will re-focus the agency on our bread-and-butter fraud enforcement mission," which has been the Commission's core objective since its inception. To accomplish this goal, the agency must prioritize the harms to make the most effective use of its limited assets. She singled out fraud against active and retired service members and small businesses as areas of particular concern.

Priority 2: Concrete Consumer Injury and the Economics of Privacy. Her next priority is to ensure that enforcement actions address concrete consumer injury. While emphasizing that monetary, health and safety issues are the kinds of harm the Commission should prioritize, she noted, ". . . we have seen substantial injury arise from the exposure of more than just financial information," citing a case where several people committed suicide after their names and other data were exposed. This comment suggests that a breach of any sensitive data—beyond mere health and financial information—will be sufficient to support a Section 5 action. She expressed concerns "that a notice-and-choice approach to privacy may not adequately protect consumers from misuse by companies that assemble bits of non-sensitive consumer information into a potentially sensitive mosaic of a consumer."

She critiqued recent privacy matters which emphasize how, under her leadership, the Commission will use consumer harm as the pole star for enforcement initiatives. For example, she noted her dissent in the Nomi case, which involved the privacy policy of a company that tracks consumers' locations within retail stores. Echoing the theme of regulatory humility, she stated that, "I dissented because we lacked any evidence of consumer harm, and the decision discourages companies from doing any more than the bare minimum on privacy. Such disincentives will ultimately leave consumers worse off." Addressing similar concerns regarding the Commission's efforts in privacy enforcement, she stated that the "FTC has ventured onto less sure ground, and into areas where consumer injury is not as well understood. Consequently, one of my major priorities over the next few months will be to deepen the FTC's understanding of the economics of privacy. This includes studying consumer preferences and the relationship between access to consumer information and innovation."

In some of her strongest comments about prior FTC practices, Acting Chairman Ohlhausen asserted that the Commission would focus more on financial remedies in enforcement actions that are tied to consumer harm, rather than "untethered" disgorgement theories. Noting her dissent in the recent Uber decision, she stated:

Focusing on consumer injury is important when deciding what cases to bring. It is also important when determining what remedy to seek. In every consumer protection case we bring, we must ensure that we seek and obtain for consumers relief that is tied to consumer injury. Unfortunately, the FTC has deviated from this principle. In several recent cases, rather than seek to remedy consumer injury, the FTC has pursued disgorgement. That is, staff has sought a company's total revenues as monetary relief, even though the behavior at issue was not fraudulent. This departs from prior Commission practice. It has subjected parties to threats of huge payments that are disproportionate to any consumer harm. The latest example is the Uber settlement, from which I dissented. As my dissent explains, the $20 million dollar monetary settlement was untethered from consumer harm. In fact, it was an order of magnitude higher than our best evidence of consumer harm. Such disproportionate settlements harm businesses without making consumers better off. Instead, remedies ought to be carefully calibrated to the harm consumers suffered.

Channeling her initial statements about avoiding actions that curtail market-generated consumer benefits, she noted that "fencing in" injunctive relief in some claims substantiation settlements went too far in limiting companies from providing worthwhile information to consumers.

Priority 3: Balancing Burdens and Improving Transparency. With respect to regulatory burdens, Acting Chairman Ohlhausen noted that the Commission would focus on requests for information. Referencing complaints in a recent ABA-commissioned study of the FTC regarding the breadth and generic nature of certain information requests, she stated that such requests cause tremendous burdens and can chill innovative business practices. She said that under her leadership, the need for data to conduct investigations will be balanced against the inherent and costly burdens placed on businesses that are required to comply with these requests.

Regarding transparency, she focused on the FTC's privacy efforts. In particular, she observed that two thirds of the Commission's investigations are closed, and stated that "cases provide instructive examples of what not to do. But we can do better. I will direct FTC staff to distill key lessons from closed data security investigations so that businesses have more information about what they should do."

Why it matters: Acting Chairman Ohlhausen made it clear that enforcement actions should be harm based, and that redress for consumer harm, rather than disgorgement, should be emphasized. The Commission will also remain cost conscious when it makes information requests to minimize the burden of legitimate companies.

FTC Hangs Up on "Massive" Robocall Scams

The Federal Trade Commission took action against a pair of "massive" robocall telemarketing scams that prompted several defendants to agree to (1) a permanent ban from making robocalls and (2) a payment of more than $500,000 to the Commission.

A number of defendants were named in the two FTC complaints, led by ringleaders Justin Ramsey and Aaron Michael Jones. Together with their former business partners and various corporate entities, the defendants made billions of robocalls between 2009 and 2016 in a campaign to sell home security systems, extended auto warranties and search engine optimization services, and to generate leads for companies selling those goods and services. Calls were often made to numbers listed on the Do Not Call (DNC) Registry, the agency added.

For example, in just one week in July 2012, the Ramsey defendants made more than 1.3 million illegal calls to consumers across the country, according to the complaint, 80% of which were to numbers listed on the DNC Registry. Similarly, the Jones defendants made more than 329 million robocalls to consumers in all 50 states during the first three months of 2014, including 32 million calls to numbers listed on the DNC Registry.

The FTC filed suit against the Ramsey defendants in Florida federal court and the Jones group in California, citing violations of the Federal Trade Commission Act and the Telemarketing Sales Rule.

Although litigation continues against Ramsey and Jones themselves—who are already the target of several actions filed by state Attorneys General—several of the other defendants reached agreements with the FTC. In the Ramsey action, two former business partners and three companies are now banned from making robocalls and are subject to a $1.4 million suspended judgment, based on their inability to pay. Seven of the nine individuals and one company who are defendants in the Jones case agreed to a ban on robocalling and a $9.9 million judgment, with all but $510,000 suspended.

To read the complaint and orders in FTC v. Ramsey, click here.

To read the complaint and orders in FTC v. Jones, click here.

Why it matters: "The law is clear about robocalls—if a telemarketer doesn't have consumers' written permission, it's illegal to make these calls," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement. "The FTC will continue working hard to put a stop to telemarketers who ignore the law."

AG Sues Google Over Student Privacy Violations

Does Google violate the privacy rights of students by collecting personal data when they use its educational apps?

Mississippi Attorney General Jim Hood says yes in a new lawsuit accusing the tech company of illegally gathering and using the information for advertising purposes.

Formerly known as Google Apps for Education, the G Suite for Education is a Web-based service marketed by Google as a free service for use by educational institutions. Through a child's G Suite account, "Google tracks, records, uses, and saves the online activity of Mississippi's children, all for the purpose of processing student data to build a profile, which in turn aids its advertising business," according to the complaint.

The AG alleged that this use of children's information violates the K-12 School Service Provider Pledge to Safeguard Student Privacy that Google made in January of 2015. As part of the pledge, Google promised not to "collect, maintain, use or share student personal information beyond that needed for authorized educational/school purposes, or as authorized by the parent/student," and not to "build a personal profile of a student other than for supporting authorized educational/school purposes or as authorized by the parent/student."

Despite these assurances, Google follows and tracks students' activity, collects information from their actions, stores that information, and uses the data for advertising purposes, the AG alleged, none of which it disclosed as required by its pledge.

Hood argued that since Google unfairly secured contracts with the state public schools and gained an unfair advantage over competitors who offered similar services without data mining, it violated the Mississippi Consumer Protection Act.

The suit seeks an order that requires Google to cease its unfair and deceptive conduct, to fully disclose the extent of its collection, processing and use of data, and to pay civil penalties of up to $10,000 for "each and every" student account created by Google that violated state law.

To read the complaint in Mississippi v. Google, Inc., click here.

Why it matters: The lawsuit tracks allegations previously made by the Electronic Frontier Foundation in a complaint to the Federal Trade Commission, although Hood acknowledged that the degree of Google's alleged data collection is unknown. "Through this lawsuit, we want to know the extent of Google's data mining and marketing of student information to third parties," he said at a press conference announcing the action. "I don't think there could be any motivation other than greed for a company to deliberately keep secret how it collects and uses student information."

Justices Weigh Offensive Trademarks

The U.S. Supreme Court recently considered the rule regarding the registration of offensive trademarks in a case brought by an Asian-American band dubbed "The Slants" that sought to register the name for trademark protection.

The band sued when registration of their name was denied based on Section 2(a) of the Lanham Act, which provides that no trademark shall be refused registration on account of its nature unless it "[c]onsists of … matter which may disparage … persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute."

The en banc Federal Circuit Court of Appeals struck down the rule on constitutional grounds. "It is a bedrock principle underlying the First Amendment that the government may not penalize private speech merely because it disapproves of the message it conveys," the court wrote. "That principle governs even when the government's message-discriminatory penalty is less than a prohibition."

The USPTO appealed and the nation's highest court granted the agency's writ of certiorari. At oral argument, the justices appeared to agree with the band by expressing skepticism that the government has the authority to penalize speech with which it disagrees.

"I always thought that government programs were subject to one extremely important constraint, which is that they can't make distinctions based on viewpoint," Justice Elena Kagan said.

Deputy solicitor general Malcolm Stewart noted that other laws are in place to prohibit libel or disparagement and argued that trademarks are traditionally source identifiers that "have not historically served as vehicles for expression."

But Justice Ruth Bader Ginsburg countered that the USPTO rejected the band's registration because the agency determined it was offensive. "Does it not count at all that everyone knows that The Slants is using this term not at all to disparage, but simply to describe?" she asked. "It takes the sting out of the word."

Disparaging is a matter of perspective, Chief Justice John Roberts pointed out after Stewart acknowledged that Justice Ginsberg's hypothetical term "Slants Are Superior" would likely be approved by the USPTO. "Why isn't that disparaging of everyone else? Slants Are Superior, well, superior to whom?"

The justices also recognized that nothing prevented the band from calling itself "The Slants," but that didn't mean the government had to protect it. "No one is stopping your client from calling itself The Slants," Justice Sonia Sotomayor told the band's attorney, John Connell. "You are asking the government to endorse your name to the extent of protecting it in a way that it chooses not to."

Connell responded that the lack of registration places a burden upon the band, because it "is denied the benefits of legal protections that are necessary for [them] to compete in the marketplace with another band. And the only reason for the denial of those benefits is the burden on noncommercial speech contained in the mark."

To read the transcript of the oral argument in Lee v. Tam, click here.

Why it matters: A ruling from the Court is expected later this term and could have significant implications for trademark law. If the justices reverse the Federal Circuit's opinion, the status quo would be restored, with the practical effect that The Slants could not register its mark and the Washington Redskins could lose its registration (that litigation is currently pending in the Fourth Circuit). However, if the Court affirms on free speech grounds, it could open the door to a variety of new trademark applications.

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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