Advertising Law - July 2015 #4

by Manatt, Phelps & Phillips, LLP
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In This Issue:

  • FTC And Florida AG Team up Against Medical Alert Systems
  • Consumer Group Seeks Right to Be Forgotten in U.S.
  • "Unlimited" Claims Cost TracFone $45M
  • In Case You Missed It: FCC Issues Long Awaited TCPA Declaratory Ruling and Order
  • Noted and Quoted . . . Jen Lavie discusses FCC's message on unwanted calls with The Cybersecurity Law Report

FTC And Florida AG Team up Against Medical Alert Systems

Together with the Florida Attorney General, the Federal Trade Commission filed suit against Lifewatch for allegedly using deceptive robocalls to urge older consumers to sign up for medical alert systems with a recurring monthly charge.

Last year the regulators settled with one of Lifewatch's telemarketing partners. The new federal complaint charged New York-based Lifewatch with direct responsibility for the illegal activities in that case and the deceptions in its current robocall campaign with other telemarketing companies.

The FTC and Florida AG alleged that since 2012, the defendant targeted seniors with "hundreds of millions" of robocalls, often claiming that a medical alert system had already been purchased for them and they could receive it "at no cost whatsoever."

Pre-recorded messages were placed to consumers on the National Do Not Call Registry that used "spoofed" caller ID information. If a consumer pressed a number to speak with a live operator, the FTC and Florida AG said they were pressured by the telemarketer to take advantage of a one-day offer to receive the system—which cost more than $400—for free.

Consumers were informed that their credit card or bank account information was necessary to pay a monthly monitoring fee for the system. Although they were also told that they would not be billed until they actually received and activated the system, they were charged a typical monthly fee between $29.95 and $39.95 "almost immediately." Lifewatch also made cancellation difficult, the FTC and Florida AG added, and some consumers were informed they had to either pay to return the system at their own expense or pay a $400 penalty.

For the alleged violations of Florida's Unfair and Deceptive Trade Practices Act, the Federal Trade Commission Act and the FTC's Telemarketing Sales Rule, the complaint requested the court to enjoin the deceptive practices and order consumer restitution.

To read the complaint and memorandum in support of an injunction in FTC v. Lifewatch, click here.

Why it matters: Lifewatch's attempts to evade liability by pointing the finger at its telemarketing partners did not convince the FTC or the Florida AG, particularly as the company persisted in its activities even after the regulators shut down one of its telemarketers last year. "The simple truth is that Lifewatch is well aware of, and responsible for, the illegal tactics employed by its telemarketers," the regulators argued in their motion in support of an injunction. "These tactics are not the unavoidable result of bad conduct by a few rogue telemarketers—these tactics are responsible for making Lifewatch the company it is today."

Consumer Group Seeks Right to Be Forgotten in U.S.

Will the right to be forgotten spread across the Atlantic to the United States?

Hoping the answer is "yes," Consumer Watchdog filed a petition with the Federal Trade Commission arguing that the agency should "investigate and act" on the issue. The group told the FTC that Google provides the right to remove search engine links in Europe and similar rights are recognized in other U.S. laws, including the Fair Credit Reporting Act which requires that certain information, such as tax liens, be removed from consumer reports after a set period of time. According to Consumer Watchdog, Google's failure to offer Americans such a basic privacy tool is an unfair and deceptive practice.

Last year the European Court of Justice, in ordering Google to remove links regarding a Spanish attorney, recognized the "right to be forgotten," and that the links regarding his debts were "inadequate, irrelevant or no longer relevant, or excessive." Since then Google has received more than 270,000 removal requests and dropped 41.3 percent of the links.

"Not offering Americans a basic privacy tool, while providing it to millions of users across Europe, is … an unfair practice," in violation of Section 5 of the Federal Trade Commission Act, Consumer Watchdog wrote. Further, Google's terms and conditions state that "[p]rotecting the privacy and security of our customers' information is a top priority," so the denial of that right in the U.S. is also deceptive, the group argued.

"In other words the Internet giant aggressively and repeatedly holds itself out to users as being deeply committed to privacy. Without a doubt requesting the removal of a search engine link from one's name to irrelevant data under the Right to Be Forgotten (or Right to Relevancy) is an important privacy option. Though Google claims it is concerned about users' privacy, it does not offer U.S. users the ability to make this basic request. Describing yourself as championing users' privacy while not offering a key privacy tool—indeed one offered all across Europe—is deceptive behavior."

The complaint cited examples of Americans who have been harmed by their inability to request a removal of embarrassing links, including a guidance counselor who was fired after photos of her as a lingerie model from 20 years prior surfaced online.

Google already removes certain types of links from U.S. search results, the group noted, such as revenge porn or when data that includes Social Security numbers appear. "As clearly demonstrated by its willingness to remove links to certain information when requested in the United States, Google could easily offer the Right To Be Forgotten or the Right To Relevancy request option to Americans," Consumer Watchdog wrote. "It unfairly and deceptively opts not to do so."

The group emphasized that the Right to Be Forgotten does not constitute censorship or the removal of content from the Internet that would raise First Amendment issues. Instead, the "right simply allows a person to request that links from their name to data that is inadequate, irrelevant, no longer relevant, or excessive be removed from search results," Consumer Watchdog argued. "Americans deserve the same ability to make such a privacy-protecting request and have it honored."

To read Consumer Watchdog's complaint filed with the FTC, click here.

Why it matters: Consumer Watchdog argued that the Right To Be Forgotten is not a new right but a restoration of the balance provided prior to the Digital Age. "Removal won't always happen, but the balance Google has found between privacy and the public's right to know demonstrates Google can make the Right To Be Forgotten or Right To Relevancy work in the United States," the group wrote. Whether or not the FTC agrees remains an open question.

"Unlimited" Claims Cost TracFone $45M

Consolidated consumer class actions and a Federal Trade Commission suit asserting that TracFone made deceptive claims that its mobile phone contracts provided "unlimited" data will cost the company $45 million in a global settlement.

The company's ads for its Straight Talk, Net10, Simple Mobile, and TelCal plans were misleading because TracFone throttled or suspended service—or terminated it altogether—when users reached a preset data limit, the plaintiffs alleged. After four class actions were filed against the company last year, the FTC launched a separate enforcement action.

To settle all of the claims, TracFone agreed to make a $40 million payment to the FTC for distribution to an estimated 1.9 million class members. Another $5 million will be paid to class counsel. Depending on the nature of the injury—whether the class member was throttled or had their service suspended or terminated—individual recovery will range between $15 and $65.

The deal also enjoined certain of the company's future advertising and disclosure practices.

The company agreed not to advertise that its mobile service plans provided "unlimited" data unless it also clearly describes any applicable throttle limits or caps and discloses the actual speeds to which customer data will be slowed. The company's terms and conditions will be updated to describe the impact throttling can have on the functionality of services and TracFone agreed that users who contacted customer service would receive accurate information about throttling, suspension, and service termination policies. Finally, it will implement a system to advise customers by SMS text message when their data speed has been throttled upon reaching specified data caps.

After reviewing whether the settlement was fair, reasonable, and adequate, U.S. District Court Judge Edward M. Chen granted final approval.

The plaintiffs faced serious challenges to success if the case moved forward, the court noted. While TracFone's first substantive defense—that it adequately disclosed the existence of the data cap in its terms and conditions—was "not particularly strong," the court found its second argument much stronger.

According to TracFone, a substantial number of customers who were throttled did not know that their data speed had been slowed and thus suffered little—if any—cognizable injury even if they relied on TracFone's ads, while those who did notice the slowdown but nevertheless chose to sign additional monthly contracts, could no longer argue they were misled by the "unlimited" ads, as they chose to purchase the product anyway.

The plaintiffs also faced an obstacle maintaining class action status throughout the trial, Judge Chen wrote. TracFone argued that since the laws of all 50 states applied to the class members' claims, the required predominance and manageability were eliminated. The quantification of damages presented another problem for the plaintiffs, as individualized variables (the period over which a customer was throttled, the customer's desired amount of data, and the ultimate impact of the throttling on the user's functionality, for example) "present real challenges that Plaintiffs would have to overcome were this Court to deny final approval," the court said.

Judge Chen rejected an objector's concerns about the relief available to the class. "The $40 million settlement represents a good monetary result for class members," the court said, and "the injunctive relief will have significant value for both class members and the general public."

The presence of the FTC, which "participated heavily" in the settlement, also weighed in favor of final approval.

To read the order granting final approval to the settlement agreement in In re TracFone Unlimited Service Plan Litigation, click here.

Why it matters: The court's finding that final approval for the $45 million deal was appropriate relief for the class members evidences the serious challenges facing the plaintiffs in maintaining class certification and overcoming TracFone's defenses. The case and resulting settlement further demonstrate the FTC's concern about the practice of data throttling in the telecommunications industry.

In Case You Missed It: FCC Issues Long Awaited TCPA Declaratory Ruling and Order

This week, in TCPA Connect, we devoted our newsletter to cases and developments surrounding the Telephone Consumer Protection Act, particularly the July 10th Declaratory Ruling and Order (Ruling) issued by the Federal Communications Commission. The Ruling, which became effective upon issuance, addresses 21 petitions filed by various companies and trade associations seeking relief or clarification regarding the TCPA. To read our summary of the Ruling and its potential implications on the industry, click here.

Noted and Quoted . . . Jen Lavie discusses FCC's message on unwanted calls with The Cybersecurity Law Report

"It is clear that the FCC will be more active in this area of enforcement," Jen Lavie, a partner in Manatt's Advertising, Marketing and Media practice, stated in regards to an FCC warning letter addressed to PayPal's planned amendments to its User Agreement. In essence, the proposed amended User Agreement would authorize PayPal to contact a consumer by an autodialed or prerecorded phone call or text message to notify about account problems, to solve disputes, to collect debts or "as otherwise necessary." The FCC's warning letter sent on June 11 expressed concern that this updated agreement may violate the Telephone Consumer Protection Act. To read "What Companies Need to Know About the FCC's Actions Against Unwanted Calls and Texts," 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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