Advertising Law -- Nov 29, 2012

by Manatt, Phelps & Phillips, LLP

In This Issue:

Could Papa John’s be Liable for $250 Million in a Spam Text Suit?

According to class action counsel, Papa John’s could be civilly liable for more than $250 million in damages, as a result of a recent decision by a Washington federal court judge to certify a class of consumers in a Telephone Consumer Protection Act suit. 

Maria Agne alleged that she received unsolicited advertising texts from Papa John’s in early 2010 that were sent by OnTime4U, also a defendant in the suit, as part of a marketing campaign. Agne claimed that Papa John’s provided the marketing company with a list of telephone numbers of consumers who had purchased pizzas from the stores and that, after removing landline numbers, OnTime4U sent text messages to the numbers associated with cell phones.

Agne argued that the texts were unsolicited and sent without prior express consent in violation of the TCPA. She asked the court to certify a nationwide class of text recipients and a state class alleging violations of Washington’s Consumer Protection Act.

Over the objections of the defendants, U.S. District Court Judge John C. Coughenour agreed. The court rejected the defendants’ argument that the plaintiff lacked standing because she was not the primary account holder on her shared cellular plan and did not pay the bill. The court, however, concluded that she was the intended recipient of the text messages (having previously used her cell phone to order pizza from Papa John’s) and therefore, her privacy interests “are the very ones that Congress intended to protect when it enacted the TCPA.”

Although OnTime4U informed the court it destroyed the call list, the court said it could be reconstructed to define the class. And the defendants’ challenge that the class lacked commonality among potential members was also dismissed.

“Because plaintiff’s allegation is not merely that all class members suffered a violation of the TCPA, but rather that all class members were sent substantially similar unsolicited text messages by the same defendants, using the same automatic dialing technology, commonality is satisfied,” he ruled.

Finally, the court shot down the defendants’ due process concerns over the potential for large statutory damages. “The size of a potential award of statutory damages is not a valid basis for refusing to certify a class action,” Judge Coughenour wrote.

To read the court’s order in Agne v. Papa John’s, click here.

Why it matters: The defendants contested every possible element of class certification and the court rejected each argument. The potential damages now at issue – up to $1,500 per text message for a class of tens of thousands who received multiple text messages – were estimated by class counsel in a press release at more than $250 million, which, if granted, would be one of the largest awards ever under the TCPA. With possible liability that high, the defendants will likely push for a settlement, although Caroline Oyler, Papa John’s head of legal affairs, told CNNMoney that the company plans to appeal the class certification order. “We’ll continue to litigate the case and defend the lawsuit and move to have it dismissed.”

FTC Chair: COPPA Update by End of 2012, Do Not Track Will Take Longer

Advertisers can expect the release of the updated Children’s Online Privacy Protection Act Rule by the end of 2012, agency Chairman Jon Leibowitz recently promised.

Speaking at The Wall Street Journal’s CEO Conference in Washington, D.C., Leibowitz declined to provide a specific date for the updated Rule. “We are looking at all the comments that came in and weighing how to tweak the regulation,” he told attendees.

Proposed changes include broader definitions of terms like “personal information” and “collection”; revisions to the parental notice requirements and consent mechanisms; changes to the existing safe harbor programs; and requirements for the confidentiality and security of children’s information.

Leibowitz was less clear about a timeline for the creation of a Do Not Track mechanism for online behavioral advertising, noting that completion by the end of the year is “not a certainty.” “We’re still making forward progress,” he said. “We continue to be optimistic.”

In an interview with the WSJ after the conference, Leibowitz described the Do Not Track process as “two steps forward and one step back.” “The question is whether Do Not Track is going to allow consumers not to have information collected about them. We’re still working through that process,” he said. “I think companies want to be on the right side of consumers. And if being on the right side of consumers means allowing some modest opt-out for Americans who don’t want their information collected, then I think at the end of the day we’ll see more support in the business community.”

He also speculated that industry members who oppose Do Not Track could face consumer backlash and possible federal legislation.

“If industry doesn’t give consumers some modest control over where their data go, they risk a legislative backlash that will be much more prescriptive next year,” Leibowitz cautioned. “One of the few issues that isn’t partisan in Congress is privacy. So I think it’s very possible you’ll see privacy legislation going forward if members of Congress aren’t satisfied that companies are giving consumers some choice about where their information goes.”

Why it matters: Both topics – revisions to the COPPA Rule and Do Not Track – have made headlines the last few years as the FTC has worked toward implementation. The COPPA changes, initially proposed in September 2011, have undergone additional tweaks followed by a second comment period. And while Do Not Track has been the subject of much speculation, the movement has recently stalled due to a lack of consensus about implementation. As rumors persist that Chairman Leibowitz will leave his post in the coming months, he may have motivation to push both issues forward.

Calm Down! CSPI Targets Caffeinated Products

Frito-Lay is already facing opposition from a consumer group after announcing that it plans to add a caffeinated version of Cracker Jacks.

The new “Cracker Jack’d” line features variations on the traditional snack, and includes “Power Bites,” a caffeinated version of Cracker Jacks which will contain approximately 70 mg of caffeine from coffee in each two-ounce package.

But the Center for Science in the Public Interest wrote to PepsiCo, Frito-Lay’s parent company, expressing concern about the new product line. Caffeine is a mildly addictive stimulant drug “that is totally inappropriate to be included in foods consumed by children,” the CSPI wrote, with effects like “anxiety, restlessness, irritability, excitability and insomnia.”

The group followed up by complaining to the Food and Drug Administration and also alleged that Jelly Belly Candy Company’s “Extreme Sport Beans,” which include 50 mg of caffeine per one-ounce packet, and Kraft Foods’ MiO “water enhancer” were also marketed in violation of the agency’s rule on caffeine. The enhancer, with 60 mg of caffeine in each bottle, is an artificially sweetened and colored product packaged in a squirt bottle “that is likely attractive to young children,” the CSPI said.

The three products “may be just the beginning of a craze in which companies, large and small, disregard the FDA’s regulation and begin adding caffeine to all kinds of food and beverages,” the group wrote. “That could lead to serious health problems for children who consume those products, as well as lead to cynicism among the public and industry about the FDA’s effectiveness in enforcing its regulations and protecting the public health.”

A spokesperson for Frito-Lay told Advertising Age the product was specifically developed for adults and will not be marketed to children; the package design and appearance from regular Cracker Jacks will be “wholly different” to ensure no consumer confusion. Further, the Power Bites contain coffee as an ingredient, which is “clearly” indicated on both the front and back of the package, the spokesperson said. “It is worth pointing out that the regulation referenced in CSPI’s letter to FDA speaks to caffeine – not coffee,” the spokesperson added. “We stand by the safety of all products in the Cracker Jack’d line.”

To read the CSPI’s letter to the FDA, click here.

To read the letter to Kraft, click here.

To read the letter to PepsiCo and Frito-Lay, click here.

Why it matters: Caffeine as an added ingredient has made headlines previously, when combined with alcoholic beverages and in energy drinks. The CSPI expressed concern about the potential for the new products to encourage other companies to add caffeine to their food, launching a trend. “When major food manufacturers market such products, many smaller companies likely believe that gives them a green light to do so as well,” the CSPI wrote to Kraft, adding that it hopes the company “will set a good example of corporate responsibility.”

Confirmatory Opt-Out Text Doesn’t Violate TCPA

A text message confirming that a consumer has opted out of receiving future messages does not violate the Telephone Consumer Protection Act, a second federal court judge has ruled.

According to the suit, Boqdan Ryabyshchuck provided Citibank with his cell phone number as part of an application for a credit card. After he received a text message from the bank, he replied “STOP” to opt out of receiving future messages. Citibank then sent a text confirming his decision to no longer receive messages. Ryabyshchuck filed his TCPA complaint less than one month later.

But U.S. District Court Judge Irma Gonzalez dismissed the suit, finding that the confirmatory text is not actionable under the TCPA. “Imposition of liability under the TCPA for a single, confirmatory text message would constitute an impermissibly ‘absurd and unforeseen result,’” she wrote. 

Judge Gonzalez looked to the purpose and history of the statute, which was intended to prohibit the invasion of consumers’ privacy and the “proliferation of intrusive, nuisance calls.” She balanced the statute’s purpose with “a measure of common sense” and noted that the plaintiff voluntarily provided his phone number to Citibank without caveat.

“In the span of a day, plaintiff received a separate, indisputably inactionable text message (the first text), responded with a one-word, opt-out request, and received a concise response simply confirming receipt of the opt-out request (the second text). These circumstances ‘unmistakably’ display some measure of prior consent, and dispel any allusion to ‘the proliferation of intrusive, nuisance calls’ targeted by the TCPA. Such simple, confirmatory response to plaintiff-initiated contact can hardly be termed an invasion of plaintiff’s privacy under the TCPA. A finding to the contrary would ‘stretch an inflexible interpretation beyond the realm of reason,’” Judge Gonzalez ruled.

She also noted a similar decision in nearly identical circumstances. In that suit, brought against Taco Bell, another California federal court judge reached the “same common sense interpretation” of the TCPA, Judge Gonzalez said. In the June decision, U.S. District Court Judge Marilyn L. Huff ruled that “To impose liability under the TCPA for a single, confirmatory text message would contravene public policy and the spirit of the statute – prevention of unsolicited telemarketing in a bulk format.”

To read the court’s decision in Ryabyshchuck v. Citibank, click here.

Why it matters: With two courts reaching similar decisions about the issue, it seems as though marketers can breathe a little easier about sending confirmatory opt-out messages. However, plaintiffs continue to file complaints alleging that the messages violate the TCPA, spurred in part by the potential for $1,500 in damages per message. And the issue isn’t over yet: the plaintiff in the Taco Bell case has already filed an appeal of Judge Huff’s decision to the Ninth Circuit.

FTC Cracks Down on “Business Opportunity” Scams

The Federal Trade Commission filed seven enforcement actions as part of a combined federal-state initiative focusing on “business opportunity” scams.

The cases are part of “Operation Lost Opportunity,” the agency’s attempt to halt businesses that falsely promise jobs to unemployed consumers. The defendants – Shopper Systems, Inc., American Business Builders, The Online Entrepreneur, Career Advancement Group, Smart Tools, Rebate Data Processor, and The Zaken Corp. – allegedly lured consumers with deceptive offers to help them start businesses as mystery shoppers, credit card processors, Web site operators, and government insurance refund processors.

In addition to the FTC’s seven suits, the Department of Justice brought 22 actions, the U.S. Postal Inspection Service filed 15 administrative actions, and 20 more suits were launched by state attorneys general in Arizona, California, Colorado, Indiana, and Ohio.

According to the FTC, the defendants committed multiple violations of the Federal Trade Commission Act by misrepresenting how much consumers could earn from the business opportunity. Six of the cases also allege violations of the Business Opportunity Rule. That Rule mandates that specific information be provided by business opportunity sellers in a one-page document that includes the seller’s identifying information, whether the seller makes a claim about the purchaser’s likely earnings, and whether the seller has a cancellation or refund policy.

In one of the FTC’s complaints, it alleged that The Zaken Corp. and its principal used a Web site and direct mail to induce consumers to pay a $164 fee for which they would be furnished with the names of companies with excess inventory. The defendants said they would find a buyer for the inventory and pay the consumer a “finder’s fee” of half the sales price. Zaken claimed that consumers could earn at least $1,500 or more in the first 30 days and an average of $4,280 per deal, and asked consumers “What Would You Do With an Extra $5,000 (or more) a Month?”  But the promises were false, the FTC said, and consumers did not earn substantial income from the business opportunity.

To read the complaints against the FTC defendants, click here.

Why it matters: “The scam artists the FTC shut down lied to people trying to make an honest buck, and robbed them of their money as well as their hopes,” David C. Vladeck, director of the FTC’s Bureau of Consumer Protection, said in a statement. “We brought these cases on behalf of millions of people who wanted to jumpstart their incomes and rebalance their budgets – people who placed their hopes in a business opportunity so they could better provide for their families.”

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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