Advertising Law - November 2014

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Lawmakers: Time to Discuss the Internet of Things
  • Not Enough Air For Degradability Claims, FTC Warns
  • $10M Settlement Over Spam Texts, Robocalls
  • Study Insufficient to Support Performance Claims or Testimonial, NAD Determines
  • Noted and Quoted . . . Brody Pens Article for Marketing News on Key Privacy Questions for Digital Marketers to Consider

Lawmakers: Time to Discuss the Internet of Things

What are the privacy, security, and consumer protection implications of the burgeoning Internet of Things?

A group of senators has called for a hearing to discuss the potential pitfalls for Internet connected devices like refrigerators and cars.

Sens. Deb Fischer (R-Neb.), Cory Booker (D-N.J.), Kelly Ayotte (R-N.H.) and Brian Schatz (D-Hawaii) wrote to Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.) asking for a hearing to discuss “smart” appliances and machinery, as the use of such products rapidly increases and as the holiday shopping season fast approaches.

“The introduction of these innovative consumer products presents a wide range of cutting-edge policy issues impacting a broad set of businesses and industry sectors,” the lawmakers wrote. “The proliferation of connected products is sparking a number of important policy questions related to consumer protection, security, privacy, technical standards, spectrum capacity, manufacturing, regulatory certainty, and public-sector applications, among many others.”

Citing statistics that the Internet of Things is expected to generate global revenues of $8.9 trillion with over 200 billion connected objects by 2020, the senators called for a general oversight and information-gathering hearing by the end of the year.

“The number and scope of these issues demands our prompt attention so we can better understand the technologies and explore how best to preserve America’s global leadership position in innovation and economic growth,” the legislators wrote. “These issues are especially ripe for congressional attention as millions of Americans will be shopping for new tech products during the upcoming holiday season.”

Lawmakers offered to help Senator Rockefeller prepare an agenda for public hearings so that a “smart policy” for products like health wearables and home-connected devices can be developed.

To read the letter, click here.

Why it matters: Governmental interest in the Internet of Things first arose last November when the Federal Trade Commission held a workshop on the topic. Panels discussed issues like Privacy and Security in a Connected World and Connected Health and Fitness and FTC Chairwoman Edith Ramirez, in her opening remarks, cautioned: “[w]ith really big data comes really big responsibility.” “Legislators need to catch up,” the senators wrote, and “Congress should engage on the issue cautiously and constructively, in a bipartisan fashion.”

Not Enough Air For Degradability Claims, FTC Warns

Providing a reminder about the importance of complying with the Federal Trade Commission’s Green Guides, the agency recently sent 15 warning letters to marketers of plastic bags touted as “oxodegradable,” cautioning that the claims may be deceptive.

Oxodegradable plastic is made with an additive that causes the bag to degrade in the presence of oxygen, the FTC explained. But most waste bags are intended for landfills where not enough oxygen is present to completely degrade the bag in the time expected by consumers.

“If marketers don’t have reliable scientific evidence for their claims, they shouldn’t make them,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a press release about the letters. “Claims that products are environmentally friendly influence buyers, so it’s important they be accurate.”

The agency’s updated Guides For the Use of Environmental Marketing Claims frown upon unqualified “degradable” or “biodegradable” claims for items that are typically disposed of in landfills, incinerators, and recycling facilities. The conditions in such locations do not allow for complete decomposition within one year.

As consumers understand the terms “oxodegradable” or “oxo biodegradable” are interchangeable with “biodegradable,” consumers expect they will completely degrade in one year. “Contrary to the marketing, therefore, these bags may be no more biodegradable than ordinary plastic waste bags when used as intended,” the agency said.

The FTC did not disclose the text of the letters or the names of recipients, but provided a deadline for recipients to respond with competent and reliable scientific evidence or remove the oxodegradable claims.

To read the FTC’s press release about the letters, click here.

Why it matters: Marketers that did not receive a letter should not assume their claims pass muster, the FTC noted in its press release, and staff members regularly conduct reviews of green claims in the marketplace. Since the 2012 updates to the Green Guides, the agency has kept a close eye on environmental marketing claims and has brought actions against mattress manufacturers and the makers of plastic lumber products, and has sent other advertisers a not so subtle message to ensure compliance.

$10M Settlement Over Spam Texts, Robocalls

A group of defendants accused by the Federal Trade Commission of sending millions of spam text messages to consumers with “free” merchandise offers, followed up by illegal robocalls, will pay almost $10 million to settle the charges.

The “major effort” by the agency targeted the senders of unwanted texts offering links to “free” merchandise or gift cards at major national retailers. Recipients who clicked on the links were taken to websites where they were required to submit personal information, including cellphone numbers. The FTC said the numbers were then sold to marketers who made illegal robocalls or engaged in mobile cramming.

Three groups of defendants reached deals with the agency. According to the FTC, the first group of defendants was responsible for a host of Federal Trade Commission Act violations, that included making deceptive claims about “free” merchandise, sending illegal text messages, and assisting and facilitating robocalls. In addition to payment of $7.8 million, the individuals and corporate entities agreed not to send unwanted text messages or include cramming charges on either landline or mobile phones.

The agreement also prohibits defendants and then affiliates from making future misrepresentations about “free” merchandise and from engaging in illegal telemarketing.

Mobile cramming was the focus for the second group of defendants that allegedly caused unauthorized charges to be placed on consumers’ phone bills. Pursuant to the stipulated final order between the parties, the defendants are prohibited from placing charges of any kind on consumers’ telephone bills and from making any misrepresentations about products or services (including the cost of a product or service or an obligation to pay).

The second group will pay a total of $1.4 million and will obtain the express, informed consent of consumers before billing them for any good or service, the FTC said.

Finally, the third group of defendants, which faced liability for making millions of illegal robocalls, reached an agreement prohibiting future illegal telemarketing. Due to an inability to pay the $8 million judgment, the defendants will pay $100,000 and the individuals will surrender various vehicles and real estate holdings.

To read the complaints and the stipulated final judgments in the cases, click here.

Why it matters: The cases reinforced the agency’s focus on mobile marketing matters and were filed as part of a nationwide FTC 2013 sweep that targeted the senders of text messages offering free gift cards.

Study Insufficient to Support Performance Claims or Testimonial, NAD Determines

Questioning the reliability of a study supporting claims for Philosophy, Inc.’s “Time in a Bottle Age-Defying Serum,” the National Advertising Division recommended that the statements be discontinued.

Philosophy conducted an independent, blinded clinical study of its product. Based on the results, the advertiser claimed that “Women told us their skin looked 730 days younger, that’s 2 years on your side with our age-defying serum,” “82% showed improvement in signs of aging not yet visible on the surface after 4 weeks,” and “95% showed significant reduction in visible signs of aging after 8 weeks.”

The study was conducted over a six-month period in January through July of 2013 with subjects divided into three age groups (25 to 35, 36 to 45, and 46 to 55 years of age). Philosophy had subjects complete a self-assessment questionnaire at the two-month mark and conducted skin imaging analysis on a subset of the study’s participants.

Despite the advertiser’s position that the challenged claims were fully supported by the “robust and independent” clinical study, NAD identified several problems that led it to conclude that the claims were unsubstantiated.

The “Women told us” claim was based on the responses of the 46-55 age group to a fill-in-the-blank question asking “Skin appears ___ years younger.” While recognizing that self-assessment questionnaires are valid study tools to assess consumers’ subjective evaluation of a product, Philosophy’s version was flawed, the self-regulatory body said.

In addition to being an “inherently arbitrary” question and one of “multiple and similarly worded questions about each product attribute,” the advertiser featured it as question number 21 out of 53 in the questionnaire. The ASTM Standard Guide for Sensory Claim Substantiation advises that for single product tests, the key question should be positioned first, NAD explained, and “this question is not logically situated given the numerous anti-aging related questions that precede and follow it.”

As for the other claims, the decision found multiple problems inherent in the study. It failed to account for the two weather extremes from winter to spring to summer, and the excessive dryness and excessive moisture that results, and its skin imaging analysis relied on too small a subset of participants. Just 26 out of 117 subjects were analyzed and the subset – less than one quarter of the total subjects – was “insufficiently robust to constitute a representative sampling to support the challenged claims and visuals,” NAD said.

Philosophy also failed to use trained graders to conduct the visual assessments, NAD found, noting that prior cases reviewing anti-aging claims involved visual grading of anti-aging parameters by clinicians. The actual improvements in the identified anti-aging parameters were far more modest than the claims suggest, the self-regulatory body added.

Considering all the shortcomings of the study, NAD recommended that all of the claims be discontinued.

The self-regulatory body also considered a testimonial from a study subject who said, “Lines have disappeared and … I go makeup free.” Referencing the Federal Trade Commission’s Guides for Endorsements and Testimonials, NAD again recommended discontinuation of the claim.

“Regardless of how heartfelt the testimonial of the user of the product, it is not a substitute for reliable product testing demonstrating that consumers who use the product as instructed will no longer have facial lines,” according to the decision. “NAD has already determined that the results of the [imaging analysis], which show a near elimination of lines, were unreliable because it was based on a very small subset of subjects. In addition, the advertiser failed to control for environmental factors, which could undermine the reliability of the study’s objective and subjective measurements.”

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

Why it matters: After reviewing Philosophy’s study, NAD concluded that there was not a “good fit” between the advertiser’s substantiation and the scope and nature of the claims at issue. Philosophy disagreed and indicated in the advertiser’s statement that it will appeal NAD’s findings with regard to the performance claims (not the testimonial). The advertiser said the study was “one of the most significant and extensive studies conducted in the cosmetics industry,” and that “[l]eft uncorrected, the NAD’s decision would result in confusing guidance for the cosmetic industry and disincentivize manufacturers from conducting similar comprehensive studies.”

Noted and Quoted . . . Brody Pens Article for Marketing News on Key Privacy Questions for Digital Marketers to Consider

In the November 2014 issue of Marketing News, Manatt partner Jesse Brody writes that “[e]ven the tech-savviest marketing professionals sometimes underestimate the time, effort and resources that it takes to ensure that a digital marketing campaign is compliant with privacy laws and industry best practices, but that investment of bandwidth and budget is pivotal.”

In recognition of these issues, Jesse prepared an checklist of privacy questions for marketers to reference when developing a new digital campaign to help avoid common legal mistakes and minimize reputational risks for brands.

To read the full article, click here.

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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