Advertising Law - July 2015 #2

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • EPIC Drives Uber Complaint to FTC
  • FTC Files Lawsuit Over “Risk-Free Trial” Offers
  • Anheuser-Busch Settles False Ad Suit Over Location of Beer Brewing
  • RadioShack v. Texas, Round 2: Gift Cards

EPIC Drives Uber Complaint to FTC

Uber’s recent legal woes continue. The Electronic Privacy Information Center (EPIC) challenged the ride-sharing company’s new privacy policy and requested that the Federal Trade Commission conduct an investigation.

Set to take effect July 15, the new policy states that Uber “care[s] deeply about the privacy of our riders and drivers,” and represents that “users will be in control” of their privacy settings, with the ability to “choose whether to share the data with Uber.” The revised policy permits the company to collect geolocation information when the Uber app is in use or via an IP address when the app is running in the background. Access to users’ address books and other data would also be allowed under the revised policy.

EPIC objected. “These changes ignore the FTC’s prior decisions, threaten the privacy rights and personal safety of American consumers, ignore past bad practices of the company involving the misuse of location data, pose a direct risk of consumer harm, and constitute an unfair and deceptive trade practice subject to investigation by the Federal Trade Commission,” the group wrote to the agency.

Emphasizing Uber’s burgeoning business, EPIC said the collection of so much consumer data presents serious privacy concerns, particularly as users have less control than the company suggests. “[U]sers are not truly in control of the data they disclose to Uber,” EPIC wrote. “Uber retains the ability to track users even if users choose not to share location data with Uber.”

The collection of data “far exceeds” what customers would expect from the transportation service, the company argued. Users would not expect the company to collect location information when they are not actively using the app, the group said, and even allowing users to opt out of certain collections “places an unreasonable burden on consumers.”

The complaint charged Uber with a “history of abusing the location data of its customers,” and referenced news stories about employees misusing the so-called “God View” to obtain users’ real-time and historic locations without their knowledge.

EPIC also noted that the company suffered a data breach in spring 2014 that potentially exposed over 50,000 former and current drivers’ names and license plates, which suggests, in EPIC’s view, that the company also fails to take adequate security measures to protect its database of user information. The company even violates the Telephone Consumer Protection Act, according to the complaint, by “regularly” sending out unsolicited text messages to customers and their contact lists.

“There is a clear divide between Uber’s representations as to their consumers’ control over their personal information, and Uber’s actual business practices,” EPIC told the FTC. “Consumers are led to believe that they retain control over their personal data, when in fact they do not.” Consumers have no ability to opt-out of data collection and targeted advertising.

EPIC urged the FTC to halt Uber’s collection of geolocation information that is not required to deliver a service, that it require the company to delete location information once a ride has been completed, and that it put an end to the collection of user contact list information.

The group also urged the agency to initiate an investigation of Uber’s business practices and those of other companies engaged in similar practices.

To read the complaint and request for investigation filed by EPIC, click here.

Why it matters: Although the ride-sharing company has experienced tremendous growth over the last few years, Uber has faced a host of litigation, ranging from employment issues (drivers claiming to be employees and not independent contractors) to false advertising claims. Earlier this year, a coalition of 19 taxicab companies filed a lawsuit against the company asserting that consumers have been deceived by Uber’s claims that its rides are “safer than a taxi” and “the safest rides on the road.” Uber has also been on the receiving end of inquiries from legislators about its data practices.

FTC Files Lawsuit Over “Risk-Free Trial” Offers

The Federal Trade Commission filed suit in California federal court against 7 individuals and 15 companies that allegedly scammed consumers with deceptive “risk-free trial” offers to sell skincare products. It alleged violations of the Federal Trade Commission Act, the Restore Online Shoppers’ Confidence Act, and the Electronic Funds Transfer Act.

Since at least 2010, the defendants marketed and sold skincare products like Auravie, Dellure, and Miracle Face Kit on sites such as and The products were also promoted in pop-up ads, banner ads, and ad space on third-party websites with “risk-free trial” offers.

Consumers were instructed to provide their credit or debit card information to cover $4.95 shipping fees for the trial offer. According to the FTC, the defendants used the payment information to charge consumers full price (typically $97.88) if the product wasn’t returned within 10 days—and then enrolled them in a subscription program where they received additional products and incurred more fees. The full terms of the offer were “hidden in fine print” on the defendants’ websites, according to the agency’s complaint, and they often made it difficult to cancel membership in the program, stop the charges, or obtain a refund.

Reinforcing the false impression that consumers will receive a free shipment, the defendants sent confirmation e-mails that displayed no charges for the “risk-free” offer other than the shipping and handling fees. In addition, the defendants touted themselves as accredited by the Better Business Bureau with an “A-” rating, when they were actually unaccredited and had received an “F” rating, the agency added.

A judge issued a temporary restraining order against the defendants, halting their marketing practices, freezing their assets, and appointing a receiver over the business. The FTC said it will continue to pursue the case and seek a permanent order prohibiting the defendants from engaging in the allegedly illegal conduct at issue and requiring them to refund consumers.

To read the complaint and the court’s TRO in FTC v. BunZai, click here.

Why it matters: The action provides an important reminder to advertisers to “give clear, honest information about charges,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement about the case. “If a company advertises a ‘risk-free trial,’ then that’s what it must provide.” Compliance with the EFTA and ROSCA remains important to the agency, which also noted that misrepresentations about third-party ratings—such as BBB rankings—may be actionable under the FTC Act.

Anheuser-Busch Settles False Ad Suit Over Location of Beer Brewing

Anheuser-Busch (A-B) agreed to provide an uncapped monetary fund to settle claims that the company falsely advertised the brewing location for Beck’s brand beer.

Consumers claimed that the labeling on Beck’s Pilsner, Dark, Light, and Oktoberfest beers misled consumers into believing that the drinks were imported from Germany when the beer was in fact brewed in Missouri. The suit sought to certify nationwide and state-specific classes in California, Florida, and New York based on violations of various consumer protection laws.

A-B countered that it added a disclaimer to the packaging, but a Florida federal court judge denied a motion to dismiss, holding that the “Product of USA” label was small, hard to read, printed in metallic white on a metallic silver background, and worst of all, the words were blocked by the carton.

That ruling spurred the parties into mediation and a settlement agreement for the estimated “thousands” of class members dating back to May 2011.

The deal provides for both monetary refunds and injunctive relief. Partial refunds will be provided on a sliding scale, ranging from $0.10 for an individual bottle or can up to $1.75 for each bottle in a 20-pack. Reimbursements with proof of purchase will be capped at $50 per household, while claims that are not supported by proof of purchase are capped at $12 per household (although the amount per bottle or can remains the same).

For the injunctive relief, A-B said it would include either the phrase “Brewed in USA” or “Product of USA” on Beck’s beer bottles and cans for at least a five-year period, subject to regulatory approval by the Alcohol and Tobacco Tax and Trade Bureau. The phrase will appear on the front and back of all consumer-facing packages and the “About Beck’s” page of the company’s website.

“The type face, type size, position, color, and setoff of the disclosures will be agreed by the parties to be sufficient to inform a reasonable consumer of the place where Beck’s Beer is brewed while not unduly impairing A-B’s marketing,” according to the plaintiff’s motion for preliminary approval of the settlement agreement.

Anheuser-Busch also agreed to pay $5,000 awards to the three named plaintiffs and not to oppose $3.5 million in counsel fees and expenses.

Urging the court to grant preliminary approval of the deal, the plaintiffs noted that the parties engaged in extensive discovery (more than 28,000 documents, a dozen depositions, and multiple experts retained) and substantial settlement negotiations to reach the agreement. The class members were all exposed to A-B’s allegedly “standard and uniform practice of false, misleading, and deceptive packaging and advertising,” the plaintiffs argued.

The benefits provided by the settlement “fall squarely” within the range of reasonableness, the plaintiffs added, referencing a similar settlement in a case brought against Kirin beer by the same class counsel, where class members were entitled to up to $50 per household.

To read the plaintiffs’ motion for preliminary approval of the settlement in Marty v. Anheuser-Busch Co., click here.

Why it matters: The deal provides for an uncapped settlement fund for a nationwide class of consumers dating back to 2011, although individual households are limited to a maximum of either $12 or $50, depending on whether a proof of purchase is provided by the class member.

RadioShack v. Texas, Round 2: Gift Cards

The RadioShack bankruptcy case has already drawn the attention of both state and federal regulators for potential privacy violations, and now the company faces a new issue: $43 million worth of unused gift cards.

Texas Attorney General Ken Paxton launched an adversary proceeding in the bankruptcy case seeking a declaratory judgment that any unused gift cards should receive priority up to $2,775 per card under Bankruptcy Code Section 507(a)(7). RadioShack gift cards did not expire and the face of the cards did not disclose an expiration date, the AG told the court.

“Consumers who purchased gift cards from [RadioShack] prepetition presumably did so with the expectation that [RadioShack] would apply some or all of the face value of the gift card toward a later, ultimate purchase,” Paxton argued in his complaint.

Although consumers have the option of filing a proof of claim in the RadioShack bankruptcy case to recover the amount of any gift cards, the AG said the debtor has not made any efforts to provide consumers with notice of its filing or any other deadlines.

Based on preliminary discovery, Paxton estimated that $43 million worth of gift cards remain unredeemed. Should gift card funds remain after all of the consumer claims are paid, “such funds should be turned over to the appropriate state for unclaimed property,” the AG suggested.

Paxton also disputed RadioShack’s contention that it did not know the identity of the holders of unredeemed gift cards. “Texas respectfully contends that such an assertion must be viewed with some skepticism in light of the fact that the Defendants maintain extensive data regarding their customers’ purchases,” according to the complaint. “The Defendants likely know the names, mailing addresses, and e-mail addresses of at least some of the purchasers if not the holders.”

The reference to “extensive data” likely alludes to Paxton’s previous skirmish with RadioShack over the company’s efforts to sell its customer information as an asset in the bankruptcy proceeding. In March, joined by dozens of other state attorneys general and backed by the Federal Trade Commission, he filed a motion to halt the sale, citing violations of state consumer protection laws with regard to the transfer of the names, addresses, and phone numbers of 117 million customers.

Facing the objections, RadioShack agreed to destroy the personally identifiable information at issue.

To read the complaint in Texas v. RadioShack Corp., click here.

Why it matters: The RadioShack bankruptcy case continues to provide important lessons for companies. After presenting an example of the intersection of privacy policies and bankruptcy, the case now presents a second hot topic: unredeemed gift cards.

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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