Advertising Law -- Jul 11, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

FTC to Search Engines: Make Ads Distinct

Eleven years after last issuing guidance to search engines about displaying paid search results, the Federal Trade Commission sent letters to dozens of companies, including AOL, Bing, Google, and Yahoo, reiterating the need to distinguish between natural and paid search results.

"We encourage you to review your websites or other methods of displaying search results, including your use of specialized search, and make any necessary adjustments to ensure you clearly and prominently disclose any advertising. In addition, as your business may change in response to consumers' search demands, the disclosure techniques you use for advertising should keep pace with innovations in how and where you deliver information to consumers," FTC Associate Director for Advertising Practices Mary K. Engle wrote.

The letters were motivated by a "decline in compliance" over the last decade, Engle noted, as well as changes in technology, that included the increased use of mobile devices, the growth of social media, and the use of specialized search engines. Despite these changes, Engle emphasized that the principles behind the 2002 Search Engine Letter haven't changed. "Consumers ordinarily expect that natural search results are included and ranked based on relevance to a search query, not based on payment from a third party. Including or ranking a search result in whole or in part based on payment is a form of advertising. To avoid the potential for deception, consumers should be able to easily distinguish a natural search result from advertising that a search engine delivers."

The failure to clearly and prominently distinguish advertising from natural search results could constitute a deceptive practice in violation of Section 5 of the FTC Act, the agency warned.

To that end, Engle offered tips to both general sites like the letter recipients mentioned above and to 17 of the most heavily trafficked search engines that specialize in specific topics, such as shopping, travel, and local businesses. Generally, the letters emphasized the need for visual cues, labels, and other techniques to effectively distinguish natural results from paid ads.

In addressing both formats, the letter noted that most search engines offer advertising results with a different background color or shading accompanied by a text label. However, visual cues, such as background shading, have become "significantly less visible or 'luminous'" over the last few years, the agency said. It expressed concern that consumers could not detect a difference on a mobile device or a computer monitor. Therefore, search engines that use shading must "select hues of sufficient luminosity to account for varying monitor types, technology settings, and lighting conditions," the FTC wrote. "Accordingly, we recommend that in distinguishing any top ads or other advertising results integrated into the natural search results, search engines should use: (1) more prominent shading that has a clear outline; (2) a prominent border that distinctly sets off advertising from the natural search results; or (3) both prominent shading and a border."

The agency also recommended that search engines provide text labels that (1) use language that explicitly and unambiguously conveys that a search result is advertising; (2) are large and visible enough for consumers to notice; and (3) are located near the search results (or group of search results) that they qualify. To that end, the agency specifically recommended that text labels be placed immediately in front of an advertising result or in the upper-left-hand corner of an ad block, as research indicates that Web pages are read from left to right, with substantially less focus paid to the right-hand side. Labels must also be "in adequately sized and colored font" and used consistently so as to avoid confusing consumers.

Engle also addressed emerging technology and new search platforms, such as voice assistants and mobile apps. With respect to voice assistants, the agency advised that the volume and cadence of audio disclosures should be such that ordinary listeners can hear and comprehend. Letter recipients were also reminded that new products will be held to the same standards: "if a social network were to stream recommended restaurants based on what a particular consumer's social contacts have enjoyed, it should clearly distinguish as advertising any information feeds included or prioritized based in whole or in part on payments from a third party."

To read a sample letter to a general search results engine, click here.

To read a sample letter to a specialized search results engine, click here.

Why it matters: The FTC's search engine letters are the latest example of the agency's effort to update its guidance to digital advertisers. They follow recent updates to the Dot Com Disclosures and the Guides Concerning the Use of Endorsements and Testimonials in Advertising. The letters also respond to requests from industry and consumer organizations that the agency update its prior guidance to search engines. Both search engines and advertisers should recognize that the letters present a warning that the agency is monitoring paid search results and that such advertising should be clearly distinct from natural search results.

NAD Washes Away Dove's Ad Claims

In resolving an advertising dispute in the fast-growing body wash market, the National Advertising Division recently recommended that Unilever discontinue false and disparaging advertising claims for Dove Deep Moisture Body Wash.

The Dial Corporation, maker of competing body washes, challenged Dove's ad campaign for the body wash, which included iterations of the claim "some body washes can be harsh" and images of containers of body wash wrapped in barbed wire.

Dial also challenged a video that depicted an actress performing a product demonstration that purported to compare how Dove and competing body washes affect the skin. Using skin-colored test paper, the actress put the paper in jars with water and the body washes. Minutes later, she removed them to show the paper from the Dial jar with strips removed from the surface, while the Dove paper is minimally affected. "Wow, look at the Dial body wash paper. If it can strip this paper, imagine what it can do to your skin," the actress says. "The Dove one looks a lot better, and it hasn't been stripped away. Clearly, not all body washes are the same."

In response, Dove argued that some body washes do strip proteins and lipids from the skin, and, therefore, the use of the term "harsh" was truthful and not misleading. Dove also argued that the barbed wire imagery was clearly puffery as no reasonable consumer would believe that body washes are that harsh, and that demonstrations made clear that competing products actually strip away nutrients.

Although some of the Dove ads did not specifically name a competitor, the NAD agreed with Dial that one of the messages reasonably conveyed is that competitive body washes, including Dial Spring Water body wash, are significantly harsher than Dove Deep Moisture. Because Dial's body washes are market leaders, it would not be unreasonable for consumers to interpret the unqualified harshness claims to include its products.

As support for its harshness claims, Dove relied upon existing scientific literature which states that body wash can damage skin proteins and lipids (and is therefore "harsh"), but the NAD said more support was needed for the challenged ads. "While scientific literature may establish the general principle that 'some body washes can be harsh' it is not sufficient support for the message reasonably conveyed by the advertising at issue – that competing body washes, including Dial, are significantly more damaging to the skin than Dove Deep Moisture. Such a comparative performance claim would need to be supported by testing which is applicable, properly conducted, and yields statistically significant and consumer meaningful results." The NAD recommended the discontinuation of the unqualified "harshness" claims.

Turning to the barbed wire imagery, the NAD found the message conveyed to be false and disparaging, even though consumers were unlikely to take it literally. Accordingly, the NAD also recommended that the images be discontinued. No evidence was submitted to support such a strong message that competing products caused skin damage, the NAD noted. In fact, Dove's testing revealed that one of the Dial body washes was actually milder than Dove's Deep Moisture.

Turning to the barbed wire imagery, the NAD found the message conveyed to be false and disparaging, even though consumers were unlikely to take it literally. Accordingly, the NAD also recommended that the images be discontinued. No evidence was submitted to support such a strong message that competing products caused skin damage, the NAD noted. In fact, Dove's testing revealed that one of the Dial body washes was actually milder than Dove's Deep Moisture.

Finally, the NAD recommended that Dove discontinue an establishment claim that Deep Moisture provides the "proven best care," as it lacked support to show that it conditioned the skin better than other body washes.

To read the NAD's press release about the case, click here.

Why it matters: The decision was a total wash for Dove, as the NAD recommended that it discontinue the challenged advertising claims. The decision also reflects a trend that the NAD is getting tougher on disparaging and comparative advertising claims, even where a competitor is not named. While expressing respect for the self-regulatory process, Dove said it plans to appeal the decision to the National Advertising Review Board.

Happy Anniversary, Do Not Call!

On the 10th anniversary of the federal Do Not Call Registry, the Federal Trade Commission announced the largest fine ever collected by the agency for alleged violations of the Telemarketing Sales Rule (TSR).

Mortgage Investors Corporation agreed to pay $7.5 million to settle a complaint that it made false money savings claims to more than 5.4 million current and former members of the Armed Forces who were registered on the Do Not Call list. The defendant – one of the nation's leading refinancers of veterans' home loans – also failed to remove consumers from its internal Do Not Call list upon request, according to the complaint. The case was also the first brought under the Mortgage Acts and Practices – Advertising Rule (MAP Rule), which allows the agency to collect civil penalties for deceptive mortgage ads.

During calls, telemarketers for the defendant were alleged to have misled service members by quoting no-cost, low-rate, fixed-interest mortgage rates that were purportedly fixed for the entire term of the mortgage, the FTC said. But the only home loans offered by Mortgage Investors were actually adjustable-rate mortgages, pursuant to which borrowers would see increasing payments over time and have to pay closing costs.

In addition to the record $7.5 million civil penalty, Mortgage Investors is prohibited from calling numbers registered on the National Do Not Call Registry and from denying consumer requests that they be placed on an internal Do Not Call list. The company also agreed not to misrepresent any terms related to mortgage credit products, such as rates, closing costs and fees.

Continuing the anniversary celebration, the FTC also announced the first settlements brought under last year's multiagency sweep against illegal prerecorded calls from "Cardholder Services." Three of the five cases have reached settlements, the agency said, with penalties ranging from permanent bans on robocalls and marketing to more than $4 million in suspended judgments.

To read the complaint in U.S. v. Mortgage Investors Corporation, click here.

To read the stipulated final order, click here.

Why it matters: Since the Do Not Call Registry took effect 10 years ago, the agency has taken 105 enforcement actions and has been awarded almost 300 injunctions and millions of dollars in civil penalties. The FTC's record-breaking Mortgage Investors settlement on the registry's anniversary acts as a reminder that the Do Not Call Registry and TSR remain priorities for the agency. "Since the advent of Do Not Call, the FTC has been aggressive in cracking down on violators and preventing annoying, illegal calls to consumers," FTC Chairwoman Edith Ramirez said in a statement. "Today's settlements leave no doubt that DNC enforcement remains a top priority." The settlements also reflect the agency's interest in protecting consumers, particularly those who may be in financial distress.

FTC's Brill Wants Consumers to "Reclaim Your Name"

Data brokers are reeling after FTC Commissioner Julie Brill voiced her support for a "Reclaim Your Name" program that would allow consumers access to the information stored about them, the ability to control how such data is shared, and the power to make corrections.

Speaking at a privacy conference in Washington, D.C., Brill said big data brokers are "taking advantage of us without our permission" and suggested that the program could operate together with the still-developing Do Not Track initiative. Together, these policies will "restore consumers' rights to privacy that big data has not just challenged but has abrogated in too many instances," Brill said.

Noting that "progress" toward a DNT program has been made (including the Digital Advertising Alliance's About Ads Program), Brill urged the World Wide Web Consortium working group "to forge ahead with their work and reach consensus" on a universal DNT standard.

If consensus is reached, Do Not Track would allow consumers to choose when their online data is monitored for marketing purposes. Reclaim Your Name would give consumers the power to access online and offline data already collected, exercise some choice over how their data will be used in the commercial sphere, and correct any errors in information being used by those making decisions materially impacting consumers' lives – such as credit, insurance, employment, and other benefits.

Brill also voiced support for legislation that would incorporate privacy-by-design principles that would require data brokers to "provide notice, access, and correction rights to consumers scaled to the sensitivity and use of the data at issue . . . for example, Congress should require data brokers to give consumers the ability to access their information and correct it when it is used for eligibility determinations, and the ability to opt-out of information used for marketing."

Data brokers participating in the program would "agree to tailor their data handling and notice and choice tools to the sensitivity of the information at issue," Brill suggested. "As the data they handle or create becomes more sensitive – relating to health conditions, sexual orientation, and financial condition – the data brokers would provide greater transparency and more robust notice and choice to consumers."

Brill noted that "big data is not synonymous with the evil empire," but listed four challenges posed by the vast digital dossiers kept on consumers. They include the enforcement of the Fair Credit Reporting Act (which already prescribes limits on data sharing in certain scenarios), the need for greater transparency (as most consumers have no idea who is engaged in big data predictive analysis), the need for better consumer notice procedures and a clear delineation of the consumer right of choice, and de-identification of consumers whose data has been collected.

To read the text of Commissioner Brill's speech, click here.

Why it matters: Although the topic of "big data" is timely, Brill's announcement caught the advertising industry off-guard. Rachel Thomas, vice president of government affairs at the Direct Marketing Association, told AdAge the group was taken aback by the speech. "DMA has been in discussion with Commissioner Brill regarding ways to increase transparency in the 'data broker' industry, but was surprised to see her announcement of the new initiative," Thomas said, adding that the FTC's investigation of data brokers is still ongoing "and the Commission has yet to articulate a specific problem that would justify a call for congressional action in this area."

Video Game Body Expands Privacy Certification Program

Video games developers will now be able to certify the privacy of their mobile applications under an expanded program offered by the industry's self-regulatory body, the Entertainment Software Rating Board (ESRB).

The ESRB expanded its existing privacy certification program to help companies achieve compliance with the new changes to the Children's Online Privacy Protection Rule. To that end, the group said the certification program focuses on issues like obtaining parental consent, creating short-form notices for apps, ongoing compliance monitoring and reporting, and dealing with the Rule's broadened definition of personal information, which now includes photos and videos.

"Privacy protection is an imperative for companies of all sizes, especially when kids are involved. But achieving compliance with requirements like COPPA can be complicated, particularly for rapidly evolving platforms like mobile," Dona Fraser, vice president of ESRB Privacy Certified, said in a statement. "By extending our services beyond website operators to include mobile app developers as well, we are helping ensure that their products provide a trustworthy environment for user interaction and information sharing."

The program will offer certification in three different categories of privacy: a general audience Web site that complies with global privacy laws and best practices; a child-directed Web site or app that complies with applicable laws and requirements, including COPPA; and a mobile app that the group determines is in compliance with mobile privacy standards and best practices. Members that achieve compliance will be entitled to display one of the three seals on the game's privacy policy.

ESRB noted that its existing Privacy Certified program is one of just five that have earned Safe Harbor status from the Federal Trade Commission, adding that none of its certified members have "ever faced investigations or penalties from the FTC or state attorneys general related to their COPPA disclosures or practices – a testament to the program's ability to protect members." The group is waiting on agency approval for Safe Harbor status for its updated program but has already begun the process of certifying members.

Why it matters: With the changes to the COPPA Rule in full effect as of July 1, and the use of mobile apps continuing to rise, the ESRB's Privacy Certified program can provide peace of mind for video game makers seeking to achieve compliance with stronger privacy laws and regulations.

Noted and Quoted . . . Adweek Turns to Linda Goldstein on Regulatory Risks of Native Advertising

Adweek recently talked to Linda Goldstein, Chair of Manatt's Advertising, Marketing & Media Division, regarding potential regulatory repercussions associated with the practice of native advertising, or paid placements. 

As reported above, the FTC recently sent a letter to several search engine companies advising them to clearly distinguish on their Web pages between advertising, paid content and search results. It is becoming more evident that the FTC's focus has turned to digital native advertising even if it has not yet issued any specific guidance or enforcement.

In an article published on July 10, 2013, Linda said: "Certainly, the search engine guidance should serve as an early warning to the industry that at some point in the future, unless the industry self-regulates, the FTC may be knocking on their door."

To read the full article, click here.

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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