Advertising Law - October 2014 #2

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Hashtags and Ads: Top 10 Legal Considerations for Brands Involved in Digital and Social Media Advertising
  • FTC: Personal Liability a Possibility, Large Advertisers a Target, Focus on COPPA
  • Out of Shape: For $1.5M, FTC Settles Over Shapewear Claims
  • California Amends Data Breach Law
  • Something Smells: Suits Challenge Deodorant Slack Fill

Hashtags and Ads: Top 10 Legal Considerations for Brands Involved in Digital and Social Media Advertising

Advertising, marketing and promotions, both via digital and traditional channels, are governed in the United States by a patchwork of federal, state and local laws and regulations. Failure to understand and follow these requirements can potentially lead to expensive litigation or government enforcement actions and negative publicity that can harm a brand. Understanding the evolving legal and consumer protection landscape will help brands to identify and manage their legal risks and to more effectively work with employees and vendors in developing and implementing campaigns.

In this week’s Manatt Digital Media newsletter, Jesse Brody and Suemyra Shah share the top legal issues to consider before launching a social media and digital advertising campaign. To read their article, click here.

FTC: Personal Liability a Possibility, Large Advertisers a Target, Focus on COPPA

At the annual conference of the National Advertising Division, Federal Trade Commission attorneys and Commissioners spoke about pressing issues in the industry.

Among the highlights: executives may be held personally liable when companies engage in false advertising, enforcement of the Children’s Online Privacy Protection Act will remain a priority, and large advertisers are on the FTC’s radar.

COPPA enforcement has been a consistent focus for the agency, a fact Commissioner Terrell McSweeny confirmed in her remarks. She also noted that while most companies are concerned that they obtain prior parental consent before they collect and use information about children under age 13, the Rule’s data security requirements are of equal importance.

“Data security is an element of privacy that I have been thinking a lot about that the FTC has recently been actively engaged in trying to improve and promote,” she told attendees. “The reason we think data security is so important is because it’s absolutely essential to protecting consumer welfare, especially when hacks and attacks are frequent and unpredictable.” McSweeny cited the recent high-profile data breach by Snapchat, Inc., whose service, she noted, was “disproportionately popular” with younger users.

Kandi Parsons, a senior attorney in the FTC’s division of privacy and identity protection, also addressed COPPA. She cautioned that the agency intends to bring more COPPA enforcement actions similar to those brought in September against Yelp and TinyCo and noted that the FTC does not discriminate on format when enforcing the statute.

“These cases, in conjunction with the Commission’s past COPPA cases, demonstrate that the agency is going to pursue enforcement in a variety of areas, be it mobile or web, games, social media, general audience applications, or child-directed apps,” Parsons said. “We’re going to enforce where we find COPPA violations in order to protect children’s privacy.”

Lesley A. Fair, a senior attorney in the Division of Consumer Protection and Business Education, warned advertisers about the potential for personal liability and cited several agency actions that included charges against officers and executives. She also referenced a recent order from the Fourth U.S. Circuit Court of Appeals affirming a $163 million personal judgment against an executive who elected not to settle when the agency accused her company and other officers of deceiving consumers with a scareware scam.

“A lot of you have interesting entrepreneurial clients that have a great idea about a new app or something new online,” Fair said. “All I’m suggesting is … just to remind them that the ‘Inc.’ that they dutifully get after their corporate name will not necessarily shield them from liability under the FTC Act.”

She also said the Commission is turning its attention to mobile advertisers. “The moral of the story is that your clients are moving to mobile, and when they go there, they need to know that the well-established truth in advertising standards go with them.”

FTC Chairwoman Edith Ramirez issued her own warning to attendees of the conference, particularly to large advertisers. She cited the agency’s recently announced initiative, Operation Full Disclosure, that targets advertisers that fail to make adequate disclosures.

“Clearly, a good portion of our enforcement work is geared toward outright fraud, but we are looking very closely at national advertising campaigns,” Ramirez told attendees. “So it won’t be uncommon for us to have cases that target reputable companies, large companies, and I expect that we will continue to see that.”

The Operation will carry on “until we are confident the industry understands the need for ‘clear and conspicuous’ disclosures, and what ‘clear and conspicuous’ means,” she added.

Ramirez also discussed health claims, which she emphasized must be backed by actual and clearly demonstrated evidence, particularly for claims about the treatment and prevention of serious medical conditions. The number of studies necessary to substantiate a claim – some settlements specify that two studies are required, for example – will be based upon recommendations from experts, she explained.

Why it matters: The remarks delivered by the FTC attorneys and Commissioners provide several key takeaways for advertisers: the agency will continue to concentrate on COPPA enforcement, it will consider holding company executives personally liable for false and deceptive ad claims, and it will increasingly focus its attention on mobile marketing.

Out of Shape: For $1.5M, FTC Settles Over Shapewear Claims

Norm Thompson Outfitters and Wacoal America agreed to pay a combined total of $1.5 million for making allegedly unsupported claims about the benefits of their respective shapewear products.

Norm Thompson touted its undergarments as extra-slimming because they were infused with microencapsulated caffeine, retinol, and other ingredients that would eliminate or substantially reduce cellulite and reduce the wearer’s hip measurements by up to two inches and thigh measurements by one inch.

Sold by mail order or on the company’s Web site, the retailer claimed that “Dr. Oz loves these,” an endorsement the agency said was false, and that its bike shorts, tights, and leggings promised that wearers would “Lose 2 inches off hips and 1 inch off thighs in less than a month … without effort.”

Similarly, Wacoal deceptively advertised its iPants by promising they would result in substantial slimming by destroying fat cells and reducing both cellulite and thigh measurements, according to the FTC complaint. A hangtag for the product claimed that “test results show most women reported … a reduction in thigh measurement” after wearing the shorts 8 hours a day for 28 days.

Both companies’ shapewear claims lacked scientific evidence and substantiation, the agency said, and Wacoal’s claims were based on two unblinded, uncontrolled trials with serious methodological flaws.

The proposed consent orders would ban the companies from making unsubstantiated claims that their garments contained drugs or cosmetics, reduced body fat, or caused weight loss. In addition, both companies are required to pay the FTC a total of $1.5 million to cover customer refunds: $230,000 from Norm Thompson and $1.3 million from Wacoal.

To read the complaint and proposed consent order in In the Matter of Norm Thompson Outfitters, click here.

To read the complaint and proposed consent order in In the Matter of Wacoal America, click here.

Why it matters: “Caffeine-infused shapewear is the latest ‘weight-loss’ brew concocted by marketers,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement about the actions. “If someone says you can lose weight by wearing the clothes they are selling, steer clear. The best approach is tried and true: diet and exercise.” The proposed consent orders are open for public comment.

California Amends Data Breach Law

As the first state in the country to enact data breach legislation, California recently amended its law with regard to companies that offer credit monitoring or identity theft prevention and mitigation services in the wake of a breach.

As originally drafted, the bill mandated that all companies offer such services, but as signed by Governor Jerry Brown, the law only placed certain requirements on companies that voluntarily elect to make such an offer to customers.

Pursuant to AB 1710, if a company offers to provide credit monitoring or identity theft prevention and mitigation services in the wake of a data breach, the services must be provided for free, offered for at least 12 months, and the offer must contain all material information about how to take advantage of the deal.

Specifically, Civil Code Section 1798.82(d)(2)(G) states that “If the person or business providing the notification was the source of the breach, an offer to provide appropriate identity theft prevention and mitigation services, if any, shall be provided at no cost to the affected person for not less than 12 months, along with all information necessary to take advantage of the offer to any person whose information was or may have been breached if the breach exposed or may have exposed personal information.”

The term “source of the breach” is not defined in the law.

In addition, the updated statute now prohibits the sale, or the offer to sell, an individual’s Social Security number.

The statute does contain exceptions to the restriction on the sale of Social Security numbers, including “if the release [not necessarily a sale] of the Social Security number is incidental to a larger transaction and is necessary to identify the individual in order to accomplish a legitimate business purpose” or “for a purpose specifically authorized or specifically allowed by federal or state law.” However, the law explicitly prohibits the release of an individual’s Social Security number for marketing purposes.

To read the new law, click here.

Why it matters: The original AB 1710 faced opposition from businesses and retailers, not only because of the mandatory services provision that was later removed, but also because it would have transferred the financial responsibility of a data breach onto the shoulders of the company suffering the breach. That language was dropped before the bill was passed by the legislature and signed by Governor Brown. Although companies dodged a bullet in the final version of the law, they should be aware of the new requirements if they do decide to offer credit monitoring or identity theft prevention and mitigation services.

Something Smells: Suits Challenge Deodorant Slack Fill

A pair of class action suits allege that Procter & Gamble and Unilever sold deodorant products in oversized packaging that deceived customers into believing they were getting more than what they actually paid for.

The identical complaints, filed in New York federal court by different plaintiffs represented by the same law firm, target Unilever’s Degree and Axe products and P&G’s Old Spice and Gillette lines.

Accordingly to the complaints, each of the deodorant sticks has nonfunctional slack fill in violation of New York’s consumer protection laws and the federal Food, Drug & Cosmetic Act and accompanying regulations.

For example, the elliptically shaped containers for the 2.7-ounce Degree products are approximately 5 ¾ inches long and 2 ½ inches wide. But the actual stick inside the container is only three inches tall – leaving more than two inches of space in the container, or roughly 48 percent slack fill.

“Plaintiffs were (and a consumer would reasonably be) misled about the volume of the product contained within the container in comparison to the size of the products’ packaging,” the plaintiffs alleged. “Plaintiffs paid the full price of the products and only received 52 percent of what defendant represented they would be getting due to the 48 percent nonfunctional slack fill in the 2.7-ounce products.”

The propel/repel mechanism in the containers that pushes the deodorant stick up does not require that much space to function, the complaints added, and the products themselves are “uniquely deceptive” because consumers never actually see the amount of deodorant product they are using until it is used up.

Seeking to certify a nationwide class of consumers, the complaints request compensatory and punitive damages, attorneys’ fees and costs, and an order requiring the defendants to repackage the products without nonfunctional slack fill.

To read the complaint in Bimont v. Unilever, click here.

To read the complaint in Tjokronolo v. The Procter & Gamble Co., click here.

Why it matters: Slack fill requirements for product packaging have been an issue in California, where suits have been filed against companies ranging from ConAgra Foods’ Slim Jims to Harry & David’s to Fleming Pharmaceuticals’ nasal spray. Companies should review applicable state or federal slack fill requirements to avoid liability.

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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