Advertising Law -- Nov 16, 2012

by Manatt, Phelps & Phillips, LLP

In This Issue:

California AG Takes Action Against Mobile Apps

Making good on her promise to enforce the state’s privacy law against mobile apps, California Attorney General Kamala Harris announced that she sent warning letters to “scores” of noncompliant developers.

Harris gave recipients 30 days to comply with the California Online Privacy Protection Act, which requires that companies conspicuously post a privacy policy within or accessible from their app. The policy must include information about what personally identifiable information the app collects and how companies use the data.

“Having a Web site with the applicable privacy policy conspicuously posted may be adequate, but only if a link to that Web site is ‘reasonably accessible’ to the user within the app,” a sample letter reads.

In February Harris reached an agreement with six major online companies through which apps are generally available – Amazon, Apple, Google, Hewlett-Packard, Microsoft, and Research in Motion – which made clear that the 2003 California Online Privacy Protection Act applies to mobile apps. Facebook signed on to the agreement over the summer.

The companies also agreed to make space available for developers to comply with the law by providing a data field for apps to include a hyperlink to the app’s privacy policy or the text of the privacy policy itself. They also promised to establish a format for consumers to report noncompliant apps and implement a process for responding to complaints.

While the collection of consumer information by mobile apps is perfectly legal under the law, developers and platforms must inform consumers prior to collection, typically when the app is downloaded. Violation of the law can result in fines of up to $2,500 per download of the noncompliant app. 

Harris declined to name recipients of the letters, but news reports indicated that Delta, OpenTable, and United, which had received a tweet from Harris about their lack of a privacy policy in September, were also included.

To read a sample warning letter, click here.

Why it matters: Harris said “up to 100” letters were sent “starting with those who have the most popular apps available on mobile platforms,” but indicated that this was just the beginning of her enforcement activity. Developers should review their privacy policies and ensure that their apps are in compliance with California law.

FTC Takes Action Against Robocalls

In a joint enforcement effort with state officials in Arizona, Arkansas, and Florida, the Federal Trade Commission announced actions against five robocall companies based in those states.

The defendants – Treasure Your Success, Ambrosia Web Design, A+ Financial Center, The Green Savers, Key One Solutions, and their principals – made millions of illegal prerecorded calls, the agency said, claiming to be “Rachel” and “Cardholder Services.”

The automated calls typically began with a prerecorded message that urged recipients to press 1 to speak with a representative about an opportunity to reduce credit card interest rates. Consumers were then connected to a telemarketer who pitched deceptive offers to reduce credit card debt and save them thousands of dollars in finance charges, according to the complaints. Others made specific promises that they could lower the rate to zero percent interest or save consumers at least $2,500 in finance charges. The telemarketers employed by some of the defendants claimed to be from the consumer’s credit card company.

Consumers were tricked into paying hundreds or thousands of dollars in an upfront fee – up to nearly $3,000 – but the defendants did “little, if anything” to fulfill their promises to reduce consumers’ credit card interest rates, the FTC said. Because the defendants often used a false number or a generic description like “Card Services,” consumers were unable to screen their calls using Caller ID.

The FTC alleged that the defendants violated the FTC Act by falsely marketing their services to reduce interest rates and save “thousands of dollars” on lowered rates, and violated the Telemarketing Sales Rule by making illegal robocalls and calling numbers on the Do Not Call registry.

Upon the filing of the complaints, a federal court judge halted the operations of all five defendants pending further legal action.

To read the complaints against the defendants, click here.  

Why it matters: “At the FTC, Rachel from Cardholder Services is public enemy number one,” FTC Chairman Jon Leibowitz said in a statement about the cases. “We’re cracking down on illegal robocalls by bringing law enforcement actions and pursuing technical solutions to the problem.” The “technical solutions” referenced by Leibowitz will come from the public, as the agency recently launched a contest with a $50,000 cash prize for the best technical solution to block illegal commercial robocalls on landlines and mobile phones.

Class Action Lawsuits Follow Regulatory Action for Avon, Furniture Retailer

First comes regulatory action, then comes the class action.  Just weeks after Avon and ColorTyme received letters from the Food and Drug Administration and the FTC, both companies face lawsuits with allegations similar to those made by the federal authorities.

Avon recently received a letter from the FDA warning the company about the marketing of its anti-aging products, which the agency said were being marketed as drugs, not cosmetics.

Echoing the agency, a California plaintiff says that Avon’s claims for its Anew skin care line – including products like the Clinical Advanced Wrinkle Corrector and the Reversalist Renewal Serum – were false and deceptive. “Avon used aggressive marketing to mislead consumers into believing that the Avon Anti-Aging products were bottled at the fountain of youth,” according to the complaint. “Indeed, Avon preys upon consumers who fear the effects of aging and believe there are products that can make their skin and features youthful again, and halt or turn back the inevitable hands of time.”

According to plaintiff Lorena Trujillo, claims that the product line can “boost[] collagen production,” “recreate fresh skin,” and “fortify damaged tissue” violate California consumer protection and false advertising laws and New York’s deceptive trade practices statute.

Trujillo, a California resident, says she purchased Avon’s Anew Reversalist Night Renewal Cream at least six times in the last two years because she believed that if she used the product, it would “reactivate [her] skin’s repair process to recreate fresh skin & help dramatically reverse visible wrinkles.”

“Avon promises specific superior results over lesser priced products that offer similar ingredients and efficacy by cloaking the Avon Anti-Aging Products with the indicia of scientific reliability and making claims of ‘exhaustive research, testing & review,’ which has led to ‘unprecedented discover[ies] by Avon scientists.’ Such deceptive conduct and practices mean that Avon’s marketing is not just puffery, but is instead deceptive and fraudulent,” Trujillo contends.

The suit seeks compensatory damages, injunctive relief halting Avon from making the allegedly false marketing statements, and an order that the company engage in corrective advertising.

In a second suit, a plaintiff filed a complaint against ColorTyme Inc., a furniture retailer that recently settled with the FTC over allegations that the company sold computers with software that allowed the company to spy on consumers.

Leslie Arrington leased a laptop computer from a ColorTyme store in Clarkston, Washington, in March. Nothing in the lease agreement mentioned the software that allowed the rental company “to remotely and surreptitiously access, monitor, intercept, and/or transmit electronic communications and images, including, but not limited to, images of monitors or screens, keystrokes, as well as images captured by the computers’ respective cameras of whatever person(s) was sitting in front of the computer, and whatever activity was occurring at the time the webcam was capturing the photographs,” according to the complaint.

Accordingly, the defendant violated the Electronic Communications Privacy Act, which entitles a nationwide class of plaintiffs to compensatory damages, the plaintiff contends, as well as statutory damages under the Act (the greater of $10,000 or $100 a day for each day of violation).

Further, because the “private information of plaintiff surreptitiously obtained as referenced herein, was viewed, posted, ogled, shared, available and displayed unnecessarily and illegally by defendants,” the class is also entitled to punitive damages, according to the complaint. 

To read the complaint in Trujillo v. Avon Products, click here.

To read the complaint in Arrington v. ColorTyme, click here.

Why it matters: Both suits come quickly on the heels of administrative action. The FDA sent its letter to Avon on Oct. 5, while the FTC announced its settlement with ColorTyme and six other companies in late September. Companies dealing with regulatory authorities should be prepared to face a class action lawsuit when news of the action becomes public.

Paint Companies Settle with FTC over Chemicals Claims

The Sherwin-Williams Company and PPG Architectural Finishes Inc. reached a settlement with the FTC over charges that the companies misled consumers about the presence of harmful chemicals in their paint.

Volatile organic compounds, or VOCs, can be harmful to human health and the environment, the agency explained, and interior paint historically contained significant levels of the chemicals. 

Sherwin-Williams’ Dutch Boy Refresh line and PPG’s Pure Performance line both marketed themselves as having “zero” VOCs in point-of-purchase marketing, product labels, on the Internet, and in brochures. Uncolored “base” paints may not have any VOCs, the FTC said, but tinted paint does contain the chemicals. Both companies violated the FTC Act by making false and unsubstantiated claims that their paints contain “zero VOCs” after tinting. Consumers would reasonably understand the “zero VOC” claims as applying to the final product, i.e., tinted paint, which in fact contained more than trace levels of VOCs after the base paint was tinted with color.

The proposed settlement would prohibit the companies from claiming that their paints contain “zero VOCs” unless, after tinting, they have a VOC level of zero grams per liter or competent and reliable scientific evidence demonstrates the paint contains no more than trace levels of VOCs. The agency turned to the newly updated Green Guides for the definition of “trace.”

The recently revised Green Guides allow “free of” claims for chemicals, the FTC acknowledged, but to make such a claim the product may not contain the ingredient at issue or would have only a trace amount. The agency’s test for “trace amount” is threefold: (1) the level of the ingredient is less than that which would be found as an acknowledged trace contaminator or background level; (2) the ingredient’s presence does not cause material harm that consumers typically associate with it; (3) and the ingredient has not been added intentionally.

The companies could make “zero VOC” claims if they clearly and prominently disclose that the claim is limited only to base paint and that depending on the color choice, the VOC level will rise with tinted paint. If the VOC level rose to 50 grams per liter or more after tinting, the proposed settlement would require the companies to disclose that the VOC level may increase “significantly” or “up to [the highest possible VOC level after tinting].”

General environmental marketing restrictions would also be placed on the companies, including a ban on making any environmental claims unless they are true and not misleading and have competent scientific evidence backing them up. Both companies must also contact retailers and require them to remove all “zero VOC” ads for the relevant paint lines. Paint cans still on the shelves would get corrective stickers over the claims.

To read the complaints and the proposed consent orders, click here

Why it matters: The FTC used the settlement to remind marketers about the agency’s recently released update to its Green Guides. “Environmental claims, like the VOC-free claims in this case, are very difficult, if not impossible, for consumers to confirm,” David Vladeck, Director of the FTC’s Bureau of Consumer Protection, said in a statement about the deal. “That’s why it’s so important for the FTC to give clear guidance to marketers, like the Commission’s recently revised Green Guides, and to police the market to ensure that consumers actually get what they pay for.”


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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