Advertising Law - July 2017

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Court Rules That ADA Applies to Website
  • FTC Updates COPPA Compliance Guidance
  • SoulCycle Spins Suit Into $9.2M Settlement

Court Rules That ADA Applies to Website

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

In what is believed to be the first court to hold a trial on the applicability of the Americans with Disabilities Act (ADA) to a retailer’s website, a federal court judge in Florida ruled that Winn-Dixie supermarkets can be liable under the federal statute for operating an inaccessible site.

Juan Carlos Gil, who is legally blind and has cerebral palsy, sued the grocery chain based on its failure to offer screen-reader software, leaving him unable to navigate its website. Winn-Dixie moved to dismiss the suit, arguing that the ADA applies only to physical locations.

After a nonjury trial, U.S. District Court Judge Robert N. Scola Jr. entered a verdict in favor of Gil. He found that the site was a “public accommodation” covered by the statute since it was integrated and connected with the physical store locations.

Courts are split on whether the public accommodation requirement applies solely to physical spaces, the court noted. However, even those that have concluded that places of public accommodation must be physical spaces have allowed claims under the statute where the goods and services provided by a public accommodation have “a sufficient nexus” to a physical place, the judge added. He therefore found the statute applicable where, as here, the website is “heavily integrated” with physical store locations and operates as a gateway to the physical store locations.

“The Court need not decide whether Winn-Dixie’s website is a public accommodation in and of itself, because the factual findings demonstrate that the website is heavily integrated with Winn-Dixie’s physical store locations and operates as a gateway to the physical store locations,” Judge Scola wrote.

“Although Winn-Dixie argues that Gil has not been denied access to Winn-Dixie’s physical store locations as a result of the inaccessibility of the website, the ADA does not merely require physical access to a place of public accommodation. Rather, the ADA requires that disabled individuals be provided ‘full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation.’”

Facts at trial demonstrated that the supermarket chain’s site failed to provide this “full and equal enjoyment,” the court said.

“The services offered on Winn-Dixie’s website, such as the online pharmacy management system, the ability to access digital coupons that link automatically to a customer’s rewards card, and the ability to find store locations, are undoubtedly services, privileges, advantages and accommodations offered by Winn-Dixie’s physical store locations,” the court wrote.

The court was not persuaded by the defendant’s argument that its website compliance was delayed in part due to the complications of interfacing with various third parties.

“[T]he fact that third party vendors operate certain parts of the Winn-Dixie website is not a legal impediment to Winn-Dixie’s obligation to make its website accessible to the disabled,” the court said. “First, many, if not most, of the third party vendors may already be accessible to the disabled and, if not, Winn-Dixie has a legal obligation to require them to be accessible if they choose to operate within the Winn-Dixie website.”

Concluding that Winn-Dixie violated the ADA, the court ordered the defendant to make its website accessible to individuals with disabilities who use computers, laptops, tablets and smartphones. In addition, the company must adopt and implement a Web Accessibility Policy, provide mandatory training to all employees who write or develop programs or code for the site, and conduct tests of the website every three months to ensure compliance. The parties were instructed to agree on a compliance deadline.

In light of the court’s finding that Winn-Dixie had a “sincere and serious intent” to make its website accessible to all, the injunction will expire in three years.

To read the verdict and order in Gil v. Winn-Dixie Stores, Inc., click here.

Why it matters: Courts across the country have struggled with whether the ADA applies to websites, although a growing number have found the statute applies where the site is sufficiently connected to brick-and-mortar locations, a position backed by the Department of Justice. One California judge dismissed a suit over concerns about due process, given the lack of guidance for online retailers on what is required by the ADA to achieve compliance. Winn-Dixie said it plans to appeal the verdict in the Gil case, which the parties indicated was the first to go to trial on the issue of whether a website violated the ADA.

FTC Updates COPPA Compliance Guidance

By Richard P. Lawson, Partner, Advertising, Marketing and Media

In an effort to reflect developments in the marketplace, the Federal Trade Commission (FTC) announced revised compliance guidelines for the Children’s Online Privacy Protection Act (COPPA) and the agency’s COPPA Rule.

The updated “Six-Step Compliance Plan for Your Business” includes new business models, new products and new methods for obtaining parental consent. The agency’s guidance begins with step one: determining whether the company is a website that collects personal information from children under the age of 13.

To do this, businesses should consider the definition of a “website or online service,” what it means to be “directed” to children under 13 (a calculus involving a variety of factors, from the subject matter of the site or service to the use of animated characters), what types of data are considered “personal information” under COPPA, and what it means to “collect” data.

The “collection” definition reflects the evolution of technology and incorporates the new ways information is gathered, such as voice-activated devices. Businesses now “collect” data by requesting, prompting or encouraging the submission of information, even if it’s optional, the FTC noted.

In addition, the agency listed two other forms of collection: the passive tracking of a child online and information that is made publicly available (in an open chat, for example), unless the business takes reasonable measures to delete all or virtually all personal information before postings are made public and deletes all information from the records.

As for new products covered by the statute, the FTC reminded marketers that it defines the term “website or online service” broadly, to include mobile apps that send or receive information online (including social networking apps or apps that deliver behaviorally targeted ads), Internet-enabled gaming platforms, plug-ins, advertising networks, Internet-enabled location-based services, voice over Internet protocol services, and connected toys or other Internet of Things devices.

Businesses are also instructed to post a COPPA-compliant privacy policy that “clearly and comprehensively describes how personal information collected online from kids under 13 is handled,” and describes “not only your practices, but also the practices of any others collecting personal information on your site or service—for example, plug-ins or ad networks.”

Step three requires businesses to notify parents directly about information practices before collecting personal information from their children (and to send an updated direct notice if a material change is made). For the next step, businesses must obtain verifiable consent from parents before collecting personal information from their children.

This step addresses two facial recognition and knowledge-based authentication questions for the first time. To use facial recognition technology, a business must verify the authenticity of a driver’s license photo or other photo ID submitted by the parent by comparing that photo to a second photo submitted by the parent. As for the questions, parents must answer a series of knowledge-based inquiries “that would be difficult for someone other than the parent to answer,” the FTC said.

In step five, businesses are required to honor parents’ ongoing rights with respect to personal information collected from their kids, and step six mandates the implementation of reasonable procedures to protect the security of children’s personal information.

The guidance also features a chart that sets forth the limited exceptions to the verifiable parental consent requirement.

To read the FTC’s guidance, click here.

Why it matters: Even though the agency did not establish new substantive requirements, advertisers should review the updated guidance to ensure they comply with the statute and the FTC’s COPPA Rule.

SoulCycle Spins Suit Into $9.2M Settlement

By Jesse M. Brody, Partner, Advertising, Marketing and Media

Allegations that it illegally expired gift cards will cost SoulCycle Inc. up to $9.2 million in a settlement agreement recently submitted to a California federal court for preliminary approval.

A pair of plaintiffs filed suit in 2015, accusing the indoor cycling chain of defrauding consumers and engaging in a “relentless effort to maximize its profits” by selling gift cards with short windows (sometimes as low as 30 days) and then keeping the unused balances, in violation of the Electronic Funds Transfer Act (EFTA) and California’s Unfair Competition Law.

To take a class at SoulCycle, riders must create an account and then purchase classes at varying amounts, depending on their geographic location and the number of classes they purchased—for example, $30 for a single class or $780 for 30 classes. The defendant countered that its actions didn’t run afoul of the law because the plaintiffs confused the sale of packages of classes at a set value for gift cards.

The parties engaged in discovery and some pre-trial wrangling before reaching a deal. “The proposed Settlement provides significant economic consideration to Settlement Class Members and meaningful changes to SoulCycle’s business practices,” according to the plaintiffs’ unopposed motion in support of preliminary approval of the agreement.

Pursuant to the settlement, customers who purchased one class that expired unused during the settlement period—for nationwide users, between Aug. 25, 2014, and Feb. 10, 2017, and for California users beginning Feb. 1, 2012, and ending on the same date—will automatically receive one new class. Those who purchased more than one class that expired unused will receive a second reinstated class.

Class members also have the option to elect a payment of up to $50 in cash, depending on the number of expired, unused classes purchased during the relevant period. The estimated monetary value of the deal is between $6.9 and $9.2 million, which covers up to 229,646 unused classes, depending on the number of class members who elect the cash option.

As for noneconomic consideration, the parties agreed upon relief “designed to ensure that consumers fully understand that purchasing a class or series of SoulCycle classes does not constitute the purchase of a gift certificate or gift card.”

To that end, SoulCycle will clarify that its classes are not sold in specified values and will be denoted by geographical region. In addition, the company will revise its terms and conditions and its frequently asked questions on its website and smartphone app to reinforce that SoulCycle classes and gift cards are not the same product, that gift cards never expire, and that while classes have an expiration date, a rider may contact SoulCycle to request an extension if he or she can’t make a scheduled class.

To read the motion in support of preliminary approval of the settlement in Cody v. SoulCycle, Inc., click here.

Why it matters: The plaintiffs noted that the case presented novel questions under the EFTA—such as whether the classes sold with expiration dates subjected them to the requirements of the statute. The lack of significant precedent encouraged the parties to reach a deal.

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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Updated: May 25, 2018:

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