Advertising Law - November 2015 #3

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

In Case You Missed It: Roth Recaps Lead Generation Regulation

Marc Roth, partner in the firm's Advertising, Marketing and Media practice, was invited by the Electronic Retailing Association to post key takeaways from the Federal Trade Commission's recent workshop examining the online lead generation industry. Roth's recap covered discussions around the lack of transparency in the lead generation process, concerns with the number of parties that can access a lead, and proposals for industry self-regulation. To read "FTC Lead Generation Workshop: More Questions than Answers," click here.

FTC Flushes Claims for "Flushable" Wipes

Reminding advertisers about the importance of environmental marketing claims, the Federal Trade Commission approved a final consent order in an enforcement action against Nice-Pak Products, Inc. for touting its moist toilet tissue as "flushable" and safe for sewer and septic systems.

Specifically, Nice-Pak claimed that the formulation of its wipes caused them to break apart shortly after being flushed, making them safe for septic systems, safe for sewer systems, and generally safe to flush. However, the FTC alleged that these claims were deceptive, in violation of Section 5 of the Federal Trade Commission Act, because the advertiser's testing did not reflect real-world household plumbing or septic conditions.

Furthermore, according to the complaint, Nice-Pak provided the "means and instrumentalities" for retailers—including BJ's Wholesale Club and Costco—to make similar misrepresentations by permitting them to sell the same formulation of its wipes under their own private labels.

The consent order prohibits Nice-Pak from misrepresenting that its wipes are safe to flush unless it can substantiate that they will disperse in a "sufficiently short amount of time" after flushing to prevent clogging and/or damage to household plumbing, sewage lines, septic systems, and other standard wastewater treatment equipment.

Any testing relied upon by the company must replicate the physical conditions of the environment where the wipes will be disposed, the FTC said, and the substantiation must be based on the expertise of professionals in the relevant area who have conducted and evaluated the testing in an objective manner using procedures generally accepted in the profession.

Any claims about the benefits, performance, or efficacy of moist toilet tissue are prohibited unless the statements are not misleading and the company relies on competent and reliable evidence—which may in some cases be competent and reliable scientific evidence. With respect to third parties, Nice-Pak is also banned from providing the means and instrumentalities to any other entities to make the prohibited misrepresentations.

To read the complaint and consent order in In the Matter of Nice-Pak Products, Inc., click here.

Why it matters: This case highlights the FTC's continuing scrutiny of environmental claims. In addition, this case is an interesting example of the FTC's use of the "means and instrumentalities" provision of the FTC Act. According to the complaint, Nice-Pak disseminated materials to trade consumers that induced false claims on packaging for private label versions of Nice-Pak wipes.

NFL Player Tackles Fantasy Site With Publicity Rights Suit

As if the daily fantasy sports industry didn't have enough to worry about—facing federal and state investigations into insider trading, multiple class action complaints, and a new system of self-regulation—now a National Football League player has charged that one of the biggest sites misappropriated his likeness in its game as well as its ads.

"In the operation and sale of online daily fantasy football gaming products, Defendant FanDuel knowingly and improperly exploits the popularity and accomplishments of current Washington Redskins wide receiver Pierre Garcon, along with all the other National Football League players at offensive skilled positions," according to the complaint filed by Garcon in Maryland federal court. "In addition, through a comprehensive advertising campaign and in its daily fantasy football contests, Defendant FanDuel routinely uses the name and likeness of these NFL players to promote FanDuel's commercial enterprise, collecting huge revenues from entry fees, without the authority of Mr. Garcon or the other NFL players."

According to the complaint, the company "repeatedly" used Garcon's name and other well-known NFL stars to promote the FanDuel game and receive multimillion-dollar revenues. In one infomercial, the company used Garcon's name 53 times over the course of 28 minutes.

Seeking to certify a class of all NFL players whose names and/or likenesses were used by the defendant dating back to January 1, 2013, Garcon listed counts for deprivation of publicity rights, violation of the Lanham Act, and unjust enrichment. The complaint requested an injunction on the use of the putative class members' names and likenesses, as well as damages and disgorgement.

The lawsuit is just the latest problem for the daily fantasy sports industry. In October, news reports revealed that employees at two of the largest fantasy sites—FanDuel and DraftKings—regularly played on the other site, in some cases winning significant amounts of money. Allegations of the improper use of insider information prompted letters from lawmakers, class action lawsuits, multiple government investigations (including by the Federal Bureau of Investigation and the New York Attorney General's office), and new oversight from the Nevada Gaming Commission.

To read the complaint in Garcon v. FanDuel, click here.

Why it matters: Garcon faces the challenge of overcoming an Eighth Circuit decision from 2007 that found players do not have publicity rights in their name and statistical information in the context of fantasy sports. In an effort to distinguish the CBC Distribution and Marketing v. MLB Advanced Media case, Garcon emphasized that FanDuel used his image in its advertisements, including a paid infomercial where his name was used more than 53 times in the course of 28 minutes. He also stated a claim under the Lanham Act, arguing that the use of his name and image with such frequency leads consumers to mistakenly believe that he endorses the site. In response to the lawsuit, the company released a statement referencing the MLB decision. "We believe this suit is without merit. There is established law that fantasy operators may use player names and statistics for fantasy contests," the company said.

Justices Consider Spokeo Case With Implications for Class Actions, Privacy Suits

The U.S. Supreme Court heard oral argument in Spokeo v. Robins, a case based on alleged violations of the Fair Credit Reporting Act that has major implications for consumer class actions and privacy lawsuits.

Thomas Robins sued Spokeo for allegedly publishing incorrect information that he was married with children and in his 50s, when he was actually unmarried, childless, and in his 20s. Robins claimed this information had a negative impact on his job prospects. He alleged violations of the FCRA, which provides for statutory damages ranging from $100 to $1,000.

A district court judge dismissed the suit for lack of standing, finding that Robins failed to state an actual injury. The Ninth Circuit Court of Appeals reversed. The U.S. Supreme Court granted certiorari on the question of "[w]hether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute."

Not surprisingly, the Court appeared divided during oral argument. While the more liberal end of the bench advocated for a broad interpretation of standing under the federal statute, the more conservative justices appeared to favor limiting the availability of such lawsuits based on a showing of actual injury.

When discussing the question of injury, Justice Elena Kagan said the fact pattern "seems like a concrete injury to me," as Spokeo got "everything" wrong about him and "basically portrayed a different person." "If somebody did that to me, I'd feel harmed," she added. "And I think that if you went out on the street and you did a survey, most people would feel harmed."

Justice Sonia Sotomayor agreed. "I will tell you that I know plenty of single people who look at whether someone who's proposed to date is married or not," she said. "So if you're not married and there's a report out there saying you are, that's a potential injury."

On the other end of the spectrum, Justice Samuel Alito described any harm to Robins as "speculative," particularly as the record does not include evidence that anyone ever actually conducted a search for him on Spokeo. "Is there anything here to indicate that anybody other than Mr. Robins ever did a search for him?" he asked. Robins' lawyer replied in the negative, leading Justice Alito to wonder, "Then isn't that quintessential speculative harm?"

Taking a similar line, Chief Justice John Roberts noted that precedent doesn't support Robins' position. "We have a legion of cases that say you have to have actual injury," he said.

To read the transcript of the oral argument in Spokeo v. Robins, click here.

Why it matters: The outcome of the Spokeo case could have a potentially wide-ranging impact on consumer class actions, particularly privacy litigation. Multiple federal statutes—including the Telephone Consumer Protection Act, the Fair Debt Collection Practices Act, and the Video Privacy Protection Act, among many others—currently allow plaintiffs to file suit based on a statutory violation without the showing of an actual injury. According to amicus briefs filed by major tech companies, affirming the Ninth Circuit decision would push the courthouse doors open wide to plaintiffs seeking to hold companies liable for technical violations of federal law even where injury did not occur. Alternatively, a reversal to hold that plaintiffs must establish an actual injury would provide a modicum of protection for companies facing multimillion-dollar class actions. A decision from the Court is expected later this term.

With Operation Collection Protection, FTC Focuses on Debt Collection Industry

Announcing its first coordinated enforcement initiative with federal, state, and local authorities targeting deceptive and abusive debt collection practices, the Federal Trade Commission filed five new enforcement actions.

To date in 2015, Operation Collection Protection includes 115 total actions by more than 70 law enforcement partners in the initiative, challenging defendants who allegedly used illegal tactics that include harassing phone calls, false threats of litigation and arrest, and wage garnishment. Actions were also brought against companies that attempted to collect "phantom debts," that failed to provide legally required disclosures and notices, and collectors that neglected to comply with state and local licensing requirements.

"Being in debt is stressful enough for many Americans without also being subjected to intimidation and false threats," FTC Chairwoman Edith Ramirez said in a statement about the initiative. "Debtors have certain rights, and rogue collectors that step outside the law will face the consequences of illegal behavior."

To illustrate the continuing efforts of the Operation, the FTC announced five new enforcement actions.

In one case, the agency alleged that BAM Financial relied upon "intimidation, lies, and other unlawful tactics" to get consumers to pay their debts. They threatened consumers with lawsuits, wage garnishment, and arrest by impersonating process servers and attorneys in the process, the FTC said. Employees at the company lied to a consumer's 84-year-old mother, telling her that they had a warrant for her daughter's arrest. Another consumer was told her wages would be garnished and she would be unable to see her children if she did not pay her debt.

BAM Financial workers also unlawfully disclosed debts to third parties, failed to identify themselves as debt collectors, and did not inform consumers of their right to obtain verification of the purported debts, the FTC said. A California federal court judge granted the FTC's motion to halt the company's operations.

In a second case jointly filed with the New York Attorney General, the authorities claimed that Delaware Solutions tried to collect debts the company knew were fictitious. The defendant purchased payday loans from a third party that allegedly told Delaware Solutions that the debts were invalid. Even when presented with evidence from consumers that they never authorized the loans, the company continued its efforts to collect.

Similar to BAM Financial, Delaware Solutions falsely threatened arrest or litigation of consumers, posed as process servers or attorneys to trick consumers and failed to identify themselves as debt collectors. They also unlawfully disclosed debts to third parties, the FTC said. A federal court judge in New York granted the AG and FTC's motion to halt the company's operations.

Of the other three actions announced by the FTC, one was filed under seal and two defendants reached deals with the agency to settle the cases. K.I.P. LLC agreed to a ban on working in the debt collection business pursuant to a settlement with the agency and the Illinois Attorney General, and promised to pay $6.4 million. National Check Registry also accepted a ban from participating in the debt collection industry to settle the suit brought by the FTC and New York AG and agreed to pay $112,000 and surrender cars and boats.

To read the FTC's press release about Operation Collection Protection and the latest enforcement actions, click here.

Why it matters: The initiative comprises the largest-ever number of enforcement actions against abusive debt collectors and includes a total of 34 federal actions and 86 actions on the state and local levels. The FTC revealed that it has sued more than 250 debt collectors since 2010, securing $350 million in judgments and banning 86 collectors from the industry. So far in 2015, the agency said it has secured final judgments in seven cases against debt collectors, which include over $88 million in judgments, 24 defendants banned from working in debt collection, and 33 defendants placed under orders of the federal court.

Noted and Quoted . . . Wasserman Interviewed on NPR's All Things Considered on What "All Natural" Means for Food Labels

The conversation surrounding which ingredients can be claimed as "All Natural" or "100% Natural" has been swirling around the food industry for quite some time, and the Food and Drug Administration now wants the public's input on solidifying a legal definition for the buzzword. In a recent interview for NPR's All Things Considered, Ivan Wasserman, partner in the firm's Advertising, Marketing and Media practice, weighed in on why it will be hard to satisfy everyone by creating one "natural" definition. Listen to "What's 'Natural' Food? The Government Isn't Sure And Wants Your Input" or read the full interview transcript 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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