Advertising Law -- Mar 08, 2013

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

Marc Roth to Lead Social Media and Mobile Marketing Discussion at PACE Association Convention

On March 10-13, 2013, the Professional Association for Customer Engagement (PACE) will host its 2013 Annual Convention and Expo which will focus on best business and marketing practices for companies that use contact centers and teleservices.  

Manatt partner Marc Roth’s presentation, “Attention Regulators: Investigate My Social Media and Mobile Marketing Campaign,” will provide an overview of the legal issues that companies need to be thinking about if they are using social media and mobile marketing to reach consumers.  The risks can be legal as well as reputational, and in some cases, the latter may have more damaging effects.

PACE, formerly the American Teleservices Association (ATA), is the only nonprofit trade organization dedicated exclusively to the advancement of companies that utilize contact centers as an integral channel of operations.

The convention will be held in Scottsdale, Arizona. 

For more information, click here.

UK Court Finds Google Could be Liable for Blog Comments

In a decision with broad implications for American companies, the England and Wales Court of Appeal found that Google could be liable for defamatory comments on a user-generated blog hosted by the company’s Blogger platform.

At issue were reader comments about a story posted on Blogger.com, a Google-operated platform where users can create their own blogs.  The blog ran a story that Payam Tamiz had withdrawn as a candidate for local office because his Facebook page referred to women as “sluts.”  Commenters added further allegations, ranging from Tamiz’s hypocritical attitude towards women to claims that he was a drug dealer and stole from his employers.

Tamiz repeatedly complained to Google, which finally forwarded a letter to the blogger, who removed the article and comments.  Tamiz also filed a defamation suit against Google.  A lower court judge dismissed the suit and Tamiz appealed.

After analyzing the 1996 Defamation Act, the Court analogized the blogs on Blogger.com to a notice board maintained by Google and held that the company’s role was not “purely passive.”

“Google goes further than [operating a notice board] by providing tools to help a blogger design the layout of his part of the notice board and by providing a service that enables a blogger to display advertisements alongside the notices on his part of the notice board,” wrote Lord Justice Richards.  “Most importantly, it makes the notice available to bloggers on terms of its own choice and it can readily remove or block access to any notice that does not comply with those terms.”

Once the company had been notified of Tamiz’s complaint, “it might be inferred to have associated itself with, or to have made itself responsible for, the continued presence of that material on the blog and thereby to have become a publisher of the material,” the Court of Appeal said.

The Court limited the application of its holding to the period that Google “had a reasonable time within which to act to remove the defamatory comments,” but noted that five weeks elapsed between the company’s notification and removal.  “The period during which Google might fail to be treated on that basis as a publisher of the defamatory comments would be a very short one, but it means that the claim cannot in my view be dismissed on the ground that Google was clearly not a publisher of the comments at all,” the Court said.

However, Google escaped liability in the case because the Court reasoned any potential liability was insufficient to justify continuing the case.

“By the very nature of a blog, [the defamatory comments] will have been followed by numerous other comments in the chain, and whilst still accessible, will have receded into history.  As I have indicated, the earliest point at which Google could have become liable in respect of the comments would be some time after notification of the complaint in respect of them.  But it is highly improbable that any significant number of readers will have accessed the comments after that time and prior to removal of the entire blog.  It follows…that any damage to [Tamiz’s] reputation arising out of continued publication of the comments during that period will have been trivial,” the Court concluded, affirming dismissal of the suit.

To read the decision, click here.

Why it matters:  Companies with an Internet presence should be aware that differences remain between the protections provided in the United States under the Communications Decency Act and the broader coverage of the United Kingdom’s Defamation Act.  While Section 230 of the CDA offers Web site operators immunity from user-generated content, the UK decision makes it clear that under its laws, notice can establish liability for Web site operators that host third party content.

TCPA Plaintiffs Victorious in Illinois, New Jersey

Two state courts recently addressed the issues of forum shopping and statutes of limitations with regard to claims brought under the Telephone Consumer Protection Act.

In New Jersey, an appellate court ruled that a plaintiff who voluntarily dismissed his state TCPA suit and then re-filed an identical case in federal court did not engage in improper forum shopping.

Nicholas Fitzgerald filed a putative TCPA class action in New Jersey state court.  But days later, a state appellate court held that class action suits were inappropriate for adjudicating TCPA claims in New Jersey.  He filed a notice of voluntary dismissal the next day, and five days later filed his complaint in New Jersey federal court.

Defendant Gann Law Books, Inc. argued that the plaintiff’s state court complaint should be dismissed with prejudice, a holding that would preclude Fitzgerald from pursuing his claims in federal court.  The court should take into account the plaintiff’s “improper motive” of forum shopping, the defendant said.

But the New Jersey appellate court disagreed.  Although Gann had filed a motion to dismiss in the state court action, it had failed to serve the motion upon Fitzgerald before he moved to voluntarily dismiss the suit.  Therefore, no procedural hurdles prevented granting the plaintiff’s voluntary motion to dismiss, the court said, and consideration of the plaintiff’s motives was unnecessary.

In a separate action, an appellate court in Illinois also found for the plaintiff when addressing the issue of the applicable statute of limitations in a TCPA case.

Although the Illinois’ state counterpart to the TCPA provides for a two-year time limit, plaintiff Wellington Homes contended that the four-year federal “catchall” statute of limitations applies to TCPA cases, regardless of where they are filed.

Over the defendant’s objections, the court agreed.

In the context of supremacy clause jurisprudence – giving proper respect to the TCPA as a federal statute – the court said it must look to federal law to govern the case.  Because the TCPA does not provide its own time limit, the court looked to other federal law, specifically 28 U.S.C. §1658(a).  Enacted in 1990, this “catchall” statute was intended to govern all federal statutes that did not have their own statutes of limitations, the court explained.

This allows for a uniform application of federal law across the country and limits the practice of “limitations borrowing” from various state statutes.

The court noted that states have split on the issue of how to apply a statute of limitations under the TCPA and chose to follow the majority (decisions from California, Kansas, Maryland, New Jersey, New York, and Ohio).  Three states – Connecticut, Nevada, and Texas – have reached the opposite conclusion and applied state time limits to TCPA suits.

“As with any federal law enforced in state court pursuant to the supremacy clause, a federal limitations provision provided by Congress must be applied, absent an unambiguous direction to the contrary,” the court said.  “When Congress enacted the TCPA, it was cognizant of the recently enacted [catchall provision] and easily could have provided that 28 U.S.C. §1658(a) would not apply to TCPA claims filed in state court.  However, Congress did not do so.”

To read the New Jersey opinion, Fitzgerald v. Gann Law Books, click here.

To read the Illinois opinion, Wellington Homes, Inc. v. West Dundee China Palace Restaurant, click here.

Why it matters:  The Illinois court relied upon last year’s U.S. Supreme Court decision in Mims v. Arrow Financial Services, where the justices determined that state and federal courts have concurrent jurisdiction to hear TCPA suits. However, Mims left unanswered the question of whether state or federal statutes of limitations apply to the Act.  If the state courts continue to split on the issue – a total of seven states have agreed that the federal catchall provision trumps state law, while three states have decided to apply state law statutes of limitations to the federal law – the justices may be faced with another TCPA case in the future.

FDA Warns Generic Flu Advertisers

The Food and Drug Administration sent warning letters to ten companies advertising what the agency termed fake flu cures and treatments.

Many of the recipients – Discount Online Pharmacy, Flu & Cold Defense LLC, Kosher Vitamin Express, Mednoscript, Oasis Consumer Healthcare, LLC, Secure Medical Inc., Sun Drug Store, Supplementality LLC, the University of Berkley, and Vitalmax Vitamins – advertised their products as “generic Tamiflu.”

But the agency has not approved any generic versions of Tamiflu or Relenza, which are the FDA-approved flu treatments.  There are also no over-the-counter drugs approved for flu treatment either.

“These drugs are misbranded in several different ways,” the FDA said in its letter to Discount Online Pharmacy.  “Your website offers prescription drugs for sale without requiring that the drugs be dispensed only upon a prescription from a practitioner licensed by law to administer such drugs.”  In addition, the FDA said, the Web site and promotional labeling for the product “misleads the consumer to believe that the product they are purchasing is an FDA-approved drug product.”

The agency also expressed concern that consumers will take the advertised drugs without the supervision of a healthcare professional and pharmacist. As labeling does not include adequate directions for the intended uses, unsupervised use could lead to potentially dangerous consequences.

“We request that you immediately cease marketing violative drug products to United States consumers,” the agency stated. If the companies failed to act within 15 days, they faced regulatory action.

Some of the letters were co-authored by the Federal Trade Commission.  In a letter to Vitalmax Vitamins, the agencies highlighted several claims for the product “Body Guard,” including: “Boost Your Immune System and Fight Cold and Flu – Naturally!” and “In fact, the healing nutrients in these tiny tablets can help you: Fight colds, infections and respiratory problems; Safeguard you from deadly flu viruses; Relieve you from stuffy noses, chills, hoarseness and other cold symptoms!”

“The marketing and sale of unapproved or uncleared Flu Virus-related products is a potentially significant threat to the public health,” the agencies wrote.  “Therefore, FDA is taking urgent measures to protect consumers from products that, without approval or clearance by FDA, claim to diagnose, mitigate, prevent, treat or cure Flu Virus in people.  You should take immediate action to ensure that your firm is not distributing, and does not distribute in the future, products intended to diagnose, mitigate, prevent, treat or cure the Flu Virus that have not been approved or cleared by the FDA.”

Vitalmax also touted “scientific studies” that supported its Body Guard claims.  But the FTC noted that advertisements that a product can “prevent, treat, or cure human disease” are unlawful unless the advertiser can support the claim with competent and reliable scientific evidence, including multiple human clinical studies.  “To make or exaggerate such claims, whether directly or indirectly, through the use of a product name, website name, metatags, consumer testimonials, or other means, without rigorous scientific evidence sufficient to substantiate the claims, violates the FTC Act,” the agency cautioned. The company was given 15 days to address its concerns.

To read the warning letter to Discount Online Pharmacy, click here.

To read the warning letter to Vitalmax Vitamins, click here.

Why it matters:  The letters addressed a variety of alleged flu treatments that were delivered in several forms. They included, among others, oral sprays and multiple dietary supplements.  “The FDA will consider whatever means are necessary to stop the marketing of fraudulent flu products to prevent them from proliferating in the marketplace – and will hold those who are responsible for doing so, accountable,” said FDA spokesperson Sarah Clark-Lynn.  “This may include considering civil (seizure, injunction) or criminal (prosecution) enforcement actions as appropriate.”

FTC Issues Lifetime Ban to Telemarketing Defendant

A settlement agreement with the FTC includes a lifetime ban from telemarketing for defendant Roy M. Cox, Jr., whom the agency said designed illegal robocall operations for a variety of products and services, including credit card interest rate reduction programs, extended automobile warranties, and home security systems.

Cox and several related companies were charged in December 2011 with violations of the FTC Act by failing to transmit the correct name on consumers’ caller ID displays. Instead of showing the name of Cox’s client, a caller ID would display more generic titles like “CARD SERVICES,” “CREDIT SERVICES,” or “PRIVATE OFFICE.”

In addition, the agency alleged that the defendants violated the Telemarketing Sales Rule and that they knew, or consciously avoided knowing, that they called numbers registered on the Do Not Call Registry and made robocalls without written consent from consumers.

Although based in California, Cox operated his scheme by creating foreign corporations around the globe, in countries like Argentina, Hungary, Panama, and the Republic of Seychelles.

In a stipulated judgment and order entered in California federal court, Cox agreed that “whether acting directly or through any person, trust, corporation, partnership, limited liability company, subsidiary, division, or other device; or any of them, [he] is hereby permanently restrained and enjoined from telemarketing or assisting others engaged in telemarketing.”

The settlement order also imposes a $1.1 million civil penalty that will be suspended if Cox can submit documents demonstrating his inability to pay that amount.

To read the complaint in U.S. v. Cox, click here.

To read the stipulated judgment and order in the case, click here.

Why it matters:  The FTC noted that the case stemmed from its continuing efforts to crack down on illegal robocalls.  Tens of thousands of complaints were received about Cox and his corporate co-defendants, the agency added.  Companies that use robocalls – pre-recorded messages placed by an autodialer – must have consumer consent to place such calls or risk regulatory enforcement actions, or costly class action suits.

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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