Advertising Law - July 2015

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

  • Try, Try Again: Lawmakers Reintroduce Do Not Track Kids Act
  • LinkedIn RSVPs to E-Mail Invite Litigation with $13M Deal
  • Not a Bargain: Outlet Mall Pricing Suit Costs Michael Kors Nearly $5M
  • Even Without Evidence of Consumer Confusion, NAD Recommends Product Name Change

Try, Try Again: Lawmakers Reintroduce Do Not Track Kids Act

A group of federal lawmakers reintroduced the Do Not Track Kids Act, a bill to amend the Children’s Online Privacy Protection Act (COPPA), with some changes since its last iteration in 2011.

COPPA prohibits the collection of “personal information”—including geolocation information—from children under the age of 13 without parental consent.

In 2011, Reps. Ed Markey (D-Mass.) and Joe Barton (R-Tex.) proposed to extend such protections to children under the age of 18 in the first Do Not Track Kids Act. The bill never made it out of committee.

Now, with Markey having moved to the Senate, he revived the legislation together with Reps. Barton (R-Tex.), Bobby Rush (D-Ill.), and Sens. Mark Kirk (R-Ill.) and Richard Blumenthal (D-Conn.). “The Do Not Track Kids Act puts parents in control of their children’s information and contains common sense protections for teenagers,” Sen. Markey said in a statement.

In a change from the earlier version of the Act, the age is lowered from 18 to 15. The new proposal will increase privacy protection by extending protection to kids between ages 13 to 15 by prohibiting companies from collecting personal information from teens without their consent.

Included in the bill is a “Digital Marketing Bill of Rights for Teens” that would set boundaries on the personal information that Internet companies can collect about teenagers, including geolocation information, and would require them to abide by fair information practice principles.

The Act also requires that companies obtain parental or teen consent prior to sending targeted advertising.

The updated version would also amend COPPA and require Internet companies “to provide clear and conspicuous notice in clear and plain language of the types of personal information the operator collects, how the operator uses such information, whether the operator discloses such information, and the procedures or mechanisms the operator uses to ensure that personal information is not collected from children except in accordance with the regulations promulgated.”

And “to the extent technologically feasible,” the bill would require companies to implement an “Eraser Button” mechanism that would permit users “to erase or otherwise eliminate content or information” that displays the personal information of children or minors. Notice that the mechanism is in place—along with a statement that the mechanisms do not guarantee the comprehensive removal of the content—must also be provided.

The Eraser Button concept was the basis for a 2013 California law that allows those under the age of 18 to delete material posted online to social media sites such as Facebook and Twitter. The law also prohibits sites from compiling the personal information of minors to market products or services they cannot otherwise legally purchase or use, such as alcohol or tobacco.

To read the Do Not Track Kids Act, click here.

Why it matters: Privacy-related legislation has abounded this term in Congress, so the chances of passage for the reintroduced bipartisan Do Not Track Kids Act remain unclear.

LinkedIn RSVPs to E-Mail Invite Litigation with $13M Deal

LinkedIn has agreed to pay $13 million and make changes to its website to settle a class action suit alleging the networking site harvested the e-mail addresses of user contacts and then sent e-mails inviting them to join the site.

According to the plaintiffs, LinkedIn used its “Add Connections” feature to collect e-mail addresses by accessing users’ external contact database. The site then sent invitations to the user’s friends to join the site that included the user’s name and, where applicable, picture. If a recipient did not respond, LinkedIn sent additional reminder messages.

Filed in 2013, the claims in the suit have been narrowed to violations of California common law and statutory rights of publicity and the state’s Unfair Competition Law.

After extensive discovery, mediation, and arm’s-length negotiations, the parties agreed to settlement terms in March 2015, and the plaintiff has now filed a motion requesting that the court grant preliminary approval.

Pursuant to the proposed agreement, LinkedIn will establish a settlement fund of $13 million, which will be used to pay for settlement administration and notice expenses, fee awards of $1,500 to the named plaintiffs, class counsel fees of up to 25 percent of the fund, and compensation to class members.

The class, which includes an estimated 20.8 million LinkedIn users, consists of all current and former LinkedIn members who used Add Connections to import information from external e-mail accounts and sent e-mails to nonmembers in which the member’s name, photograph, likeness, and/or identity was displayed between September 17, 2011, and October 31, 2014. They will be entitled to a pro rata payment from the $13 million fund upon submission of a valid claim form.

If the fund has insufficient funds to cover pro rata payments of at least $10 to each authorized claimant, LinkedIn agreed to chip in an additional $750,000. If the contingent payment remains insufficient to make an economically feasible distribution of funds to claimants, the money will be distributed to three cy pres recipients: Access Now, the Electronic Privacy Information Center, and the Network for Teaching Entrepreneurship.

In addition to the proposed monetary relief, LinkedIn agreed to make “significant changes” to its operations in the United States. Specifically, the company will improve the disclosures on its website by informing users on the Add Connections import screen that the site will “import your address book to suggest connections,” and by stating on the permission screen that if an e-mail recipient doesn’t respond, he or she will receive up to two reminder messages. Members will have the ability to view and delete contacts and even withdraw invitations that were inadvertently sent so they may better manage their contact information.

These functionality changes “will enable consumers to make an informed decision about use of the Add Connections service in the future,” the plaintiffs argued in their motion in support of preliminary approval of the deal, and provide “well-tailored” improvements to the site that “will benefit and protect millions” of class members going forward.

As for the monetary consideration, plaintiff argued the cash fund is “substantial” in light of the risks of litigation, particularly, that a jury would find no liability or award no damages.

To read the plaintiff’s motion for preliminary approval of the settlement in Perkins v. LinkedIn, click here.

Why it matters: If the court grants approval of the proposed settlement, LinkedIn will join the list of other social networking sites that have reached multimillion dollar settlements over alleged violations of user privacy, including Facebook’s $20 million payout over its “Sponsored Stories” ad feature, Google’s $8.5 million deal in a suit involving its Buzz social networking feature, and a $9 million Netflix settlement arising from alleged violations of the Video Privacy Protection Act.

Not a Bargain: Outlet Mall Pricing Suit Costs Michael Kors Nearly $5M

It will cost Michael Kors almost $5 million to settle a class action suit challenging the prices offered at its outlet stores.

Plaintiff Tressa Gattinella sued Michael Kors after paying $79.99 for a pair of pants at a Kors outlet. The price tag for the pants stated: “MSRP [Manufacturer’s Suggested Retail Price]: $120” and “Our price: $79.99.” Gattinella claimed she purchased the pants believing she got a bargain at 33 percent off the original price.

According to her lawsuit, the retailer never intended to sell the pants for $120—the price was “artificial, arbitrary, and did not represent a bona fide price at which Michael Kors formerly sold the products.” Instead, the product was manufactured specifically for sale at the outlet location and the tag was created to present the illusion of a discount. Plaintiff claimed the deceptive price tag violated California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act.

Michael Kors agreed to settle the suit for a total of $4.875 million and change its pricing practices. Specifically, the company promised to cease using the MSRP acronym and replace it with the word “Value” on outlet store price tags. Signage in the store will explain the meaning of the term “Value” for customers. Plaintiffs have filed a motion asking the court to approve that settlement deal.

The settlement fund will cover notice and administration costs, award $5,000 to Gattinella and a second named plaintiff, pay counsel fees of up to 30 percent of the settlement fund, and compensate the estimated “tens of thousands” of class members (all consumers who purchased products from a Michael Kors outlet store over a four-year period).

Each class member who submits a valid claim verification form will receive a percentage of the net settlement fund. Notably, claimants need only verify that they purchased Kors outlet products, but need not submit proof of purchase. Those who do provide receipts, however, will be entitled to a higher distribution. Class members who submit a valid claim form will receive points on a scale from one to five—ranging from one point for submission of a claim verification form alone, up to five points for providing a valid receipt evidencing the purchase of products totaling $1,000 or more. Each class member’s percentage share will be determined by dividing the number of points he or she receives by the number of total points of all class members.

The plaintiffs noted that the deal was “well within the range of reasonableness,” particularly given the lack of precedent. “Cases against outlet stores alleging false product pricing are a relatively new phenomenon, meaning there is no extensive body of case law governing applicable damages models,” according to the plaintiff’s unopposed motion. Moreover, in other similar cases, courts have granted the retailer’s motions to dismiss such claims.

To read the plaintiffs’ unopposed motion for preliminary approval of the settlement in Gattinella v. Michael Kors, click here.

Why it matters: Outlet pricing has attracted attention from federal legislators as well. In January 2014, Sens. Sheldon Whitehouse (D-R.I.), Richard Blumenthal (D-Conn.), and Ed Markey (D-Mass.), along with Rep. Anna G. Eshoo (D-Calif.), wrote a letter to the Federal Trade Commission requesting that the agency investigate whether outlet stores are engaging in deceptive advertising and pricing.

A number of similar cases have been filed recently in both California and New York courts challenging the pricing at outlet malls. Similarly, a California federal court recently certified a class of J.C. Penney customers who alleged that they were tricked by false “original” prices on “sale” merchandise into believing they were getting deeper discounts on private-branded apparel and accessories than they actually were.

Even Without Evidence of Consumer Confusion, NAD Recommends Product Name Change

The National Advertising Division (NAD), the investigative unit of the advertising industry’s system of self-regulation, recommended that Vogue International, Inc., modify the product names for its OGX line of shampoos, conditioners, and other hair care products as a result of a challenge brought by competitor Unilever.

Unilever argued that Vogue slipped the name of an exotic ingredient into product names next to a descriptive term to give the impression that the ingredient was present at a level that provided a real consumer benefit. They included “Renewing Argan Oil of Morocco Shampoo” and “Nourishing Coconut Milk Shampoo.”

Although the advertiser countered that the names were accurate descriptions of the products’ ingredients and functionality, it also advised that it was in the process of revising its packaging.

The NAD considered whether the link between the ingredient name and descriptor in the product names conveyed an express message about the benefit of the product. After rejecting a consumer perception survey submitted by Unilever, the NAD relied upon its own expertise and found that an express claim was conveyed by placing the exotic ingredient adjacent to the descriptor.

“The direct linking of an ingredient to a purported benefit, NAD determined, conveys an express message that the Argan Oil in the product provides a renewing benefit,” according to the decision. “The same is true for other OGX products like Anti-Breakage Keratin Oil Shampoo and Nourishing Coconut Milk Shampoo, which directly describe the performance benefits provided by the exotic ingredients. While Vogue should be free to tout the performance benefits of the exotic ingredients in its shampoos, it should avoid tying those ingredients to specific performance benefits unless it can demonstrate that the ingredient provides that benefit.”

Vogue declined to provide testing to establish the precise amount of each ingredient in its products, so the express claim was unsupported, the NAD said.

Although the NAD acknowledged the burden of changing product names, the decision recommended that Vogue change the names of OGX hair care products to make it clear that the product ingredients, taken together, provide the claimed benefits. The NAD suggested, as examples, “Renewing Shampoo with Argan Oil” or “Nourishing Shampoo with Coconut Milk.” However, the NAD noted that it was not mandating particular names but recommending that the advertiser change the product names to avoid claiming expressly or impliedly that the exotic ingredient provides the product’s performance benefits.

Additionally, “[w]hen a product name makes an express claim which conveys a message that is not supported, extrinsic evidence of consumer confusion is not required to recommend a product name change,” the self-regulatory body wrote.

Unilever had also challenged Vogue’s claims that its Weightless Hydration Coconut Water shampoo contained no “Zero SLS/SLES,” or Sodium Lauryl Sulfate and Sodium Lauryl Ether Sulfate, two common sulfates found in shampoos. Despite this claim, the shampoo contained Ammonium Lauryl Sulfate, the challenger told the NAD.

Looking to the FTC’s Green Guides, the NAD found consumers could be misled by the “Zero SLS/SLES” claim to believe the product contained no sulfates at all. “In general, an advertiser should not advertise a product as ‘free-of’ an ingredient if it includes another ingredient which has the same effect,” the NAD wrote.

The “zero” claim for the Weightless Hydration Coconut Water implied that the product did not pose the risks or challenges associated with sulfates, even though it still contained a sulfate. Because Vogue failed to demonstrate that Ammonium Lauryl Sulfate was different from or lacked the undesirable attributes associated with other sulfates that consumers seek to avoid when choosing products with sulfate-free surfactants, the NAD recommended that the advertiser discontinue the “Zero SLS/SLES” claims.

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

Why it matters: Although product name changes are rarely recommended by the NAD, advertisers should take note that the NAD will not hesitate to resort to such measures when a product name makes an express claim that conveys a message that is not supported, even in the absence of consumer confusion. The case also serves as a reminder of the strict guidelines for making a “free-of” or “zero” claim.

 

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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