Advertising Law - September 2015 #2

Manatt, Phelps & Phillips, LLP

In This Issue:

  • FTC Reviews Kids’ Apps for Privacy Progress
  • Privacy Regulation Could Become Contentious
  • NAD Unzips Eddie Bauer’s Jacket Claims
  • Don’t Call It a Comeback: False Advertising Suits Against Cigarette Companies Have Been Here for Years

FTC Reviews Kids’ Apps for Privacy Progress

Three years after conducting a survey on apps directed to children, the Federal Trade Commission’s Office of Technology Research and Investigation decided to check back with app developers for progress on the privacy front.

A review of 364 child-directed apps by the Global Privacy Enforcement Network (a coalition of international privacy enforcement authorities, including the FTC) in the Apple and Google stores revealed that 45 percent had a link to a privacy policy that was available to parents prior to downloading the app—more than double the 20 percent found in 2012.

The agency took a look at what information is collected by the apps, with whom it is being shared, and what the developers are telling parents who download the apps to learn more about the data collection and sharing practices.

A total of 48 apps included short-form privacy information in their app description, the FTC said, while 116 provided a link to a privacy policy so that parents could review it prior to purchase and/or download.

These numbers were an improvement over the 2012 findings in a pair of surveys conducted by the agency with GPEN: Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing and Mobile Apps for Kids: Disclosures Still Not Making the Grade. At that time, many child-directed apps shared data with third parties without telling parents and parents had “little or no access” to information about the privacy practices of the apps.

Although pleased with the progress by apps in disclosing privacy information, the FTC noted that 38 of the apps reviewed still had their privacy policies in a “harder-to-find” place, such as on the app developer’s page or within the app, which demonstrated the continued need for improvement.

To read the FTC’s blog post about the survey’s findings, click here.

Why it matters: Possible reasons for the increase in sharing information about privacy policies? The FTC suggested updates to the Children’s Online Privacy Protection Act that took effect in 2013, or the agreement reached between California’s Attorney General Kamala Harris and the major mobile platform providers in which they acknowledged that they are subject to the state’s Online Privacy Protection Act and are required to conspicuously post their privacy policies. “Whatever the reasons for the increase in direct links to kids’ app privacy policies, it’s a step in the right direction,” the FTC wrote in a blog post about the findings. “That said, a significant portion of kids’ apps still leave parents in the dark about the data collected about their children—so there’s more work to be done. Furthermore, for improved disclosures to have any value, they must accurately reflect what the app is up to. We’ll dive deeper into that issue in upcoming blog posts.”

Privacy Regulation Could Become Contentious

Could a battle of the privacy regulators be in the future?

As the Federal Communications Commission has waded deeper and deeper into the waters of privacy regulation, some are predicting that conflicts will arise with the Federal Trade Commission due to overlapping jurisdiction.

In February, the FCC approved a new net neutrality measure in a divided vote that relabeled broadband Internet as a utility similar to water, gas, and electricity and thereby as a telecommunications service rather than an information service under Title II of the Communications Act.

That move brought all broadband companies under the purview of the FCC and also paved the way for the first potential battlefield for the two agencies: privacy rules for Internet companies. FCC Commissioner Tom Wheeler indicated in July that his agency plans to issue a Notice of Proposed Rulemaking to begin the process of developing privacy rules applicable to broadband providers that would include limits on the collection, sharing, and use of consumer data that would require the addition of data breach notification terms, and mandate opt-in consent for certain actions.

Even Commission members recognize the possibility of conflict between the FTC and the FCC. At a recent luncheon held in Washington, D.C., FCC Commissioner Ajit Pai and FTC Commissioner Maureen Ohlhausen both expressed concern about the potential overlap and doctrinal confusion with both agencies engaging in privacy oversight.

Pai noted that the FCC’s push into privacy presents “tremendous potential for duplicative enforcement,” while Ohlhausen called the overlap a “big problem,” adding that the potential is in place for the FCC to expand its regulations to companies such as social networking sites and search engines as “edge providers” that would make the possibility of conflict even greater.

To watch a video of the discussion between Commissioners Pai and Ohlhausen, click here.

Why it matters: The turf war between the FTC and FCC remains hypothetical, for now, particularly as multiple parties have challenged the legality of the FCC’s net neutrality order. Should a court strike the order down, concerns about potential overlap in the area of privacy concerns would also be eliminated.

NAD Unzips Eddie Bauer’s Jacket Claims

As part of its routine monitoring, NAD requested substantiation from Eddie Bauer, LLC for the company’s claim that its MicroTherm StormDown Jacket is “Lightest” and “Warmest.” Ads for the jacket read: “The New MicroTherm StormDown Jacket. Lightest. Warmest. Guaranteed.” and “Hydrophobic, DWR-treated down retains loft and insulating power even when wet.”

Eddie Bauer argued that the jacket was designed to be a thermally efficient, water-repellant, lightweight, down-insulated jacket and that the use of the words “lightest” and “warmest” constituted puffery and did not refer to a comparative claim that would be reasonably construed to mean that the jacket is the lightest, or the lightest in a particular category. However, NAD disagreed. Stepping into the shoes of the reasonable consumer, NAD said “lightest” and “warmest” were not puffery because they were not vague and fanciful superlatives with no objective measure of superiority. Instead, both claims “are objectively measurable and refer to specific attributes that suggest that this jacket is comparatively, measurably superior to other products,” according to the decision.

Eddie Bauer also argued that “Lightest. Warmest. Guaranteed.” were not superiority claims. The company stated that the jackets are sold exclusively through the retailer’s stores, catalogs, and website—all of which provide additional information to put the claims in context. The “Lightest” claim clearly refers to the type of insulator used in the jacket and the “Warmest” claim is supported by testing and analysis performed by the independent International Down and Feather Laboratory and Institute showing that down is superior to other insulators. Reasonable consumers would read the words “Lightest. Warmest. Guaranteed.” in combination with the understanding that the terms were used together to describe the combination of thermal efficiency and qualities of the down used in the jacket and not as a superiority claim.

NAD disagreed with the advertiser’s position that the claims “Lightest” and “Warmest” were adequately supported, noting that the claims were unqualified superiority claims that must “generally be substantiated by comparative testing against a substantial portion of the comparative products, usually 80%. Eddie Bauer did not substantiate its claim that the MTSD jacket is the lightest jacket, nor did it substantiate its claim that it is the warmest jacket.” Further, NAD determined that context did not save the claim because at least one advertisement conveyed no additional information about the jacket, while comments in the catalog were not featured as prominently as the “Lightest. Warmest.” claim.

Eddie Bauer did provide support that all of its products—including the MTSD jacket—are backed by the company’s guarantee that every item sold will “give you complete satisfaction or you may return it for a full refund,” so that portion of the claim passed NAD’s review. In addition, testing in industry-recognized methods conducted by an international independent testing laboratory backed the water-repellant claims. The test results were sufficient to support the advertiser’s claims that the jacket is “hydrophobic” and “retains loft and insulating power” under wet conditions, NAD said.

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

Why it matters: For advertisers, NAD’s decision offers a helpful reminder that they should carefully avoid making unqualified superiority claims. An unqualified superiority claim requires substantiation by comparative testing against “a substantial portion” of comparative products, usually 80 percent.

Don’t Call It a Comeback: False Advertising Suits Against Cigarette Companies Have Been Here for Years

Thought false advertising suits against cigarette companies were a thing of the past? Think again.

Multiple class actions alleging that tobacco companies deceive consumers by failing to warn about the dangers of electronic cigarettes have already been filed, with more suits likely to follow. Most recently, Jerod Harris filed a complaint in California federal court against R.J. Reynolds Vapor Company, claiming that the defendant marketed its Vuse electronic cigarettes in a deceptive manner by failing to inform consumers about the potential health problems associated with the product, which contains carcinogens.

“Consumers of [Vuse electronic cigarettes] are exposed to significant amounts of harmful carcinogens when using the Products as directed,” Harris claimed. “Yet, Defendant not only fails to warn consumers of such cancer-causing chemicals, but it utterly fails to disclose the presence of such chemicals.”

Such material omissions in the face of a duty to disclose ran afoul of California’s Unfair Competition Law and Consumers Legal Remedies Act, the complaint alleged.

Harris’s suit tracked the rise of e-cigarettes, which are battery-operated devices typically designed to resemble a tobacco cigarette. “As a result of aggressive and unrestricted marketing, increased restrictions on the use of traditional cigarettes, and a perception that the e-cigarettes are ‘healthy’ alternatives to traditional smoking, e-cigarette use has exploded since their introduction in the U.S. in 2007,” he claimed.

Studies have revealed the dangers of electronic cigarettes, the complaint alleged: the aerosol inhaled by users of e-cigarettes contains toxic chemicals, including formaldehyde and acetaldehyde, as well as high concentrations of ultrafine particles that are trapped in the lungs and travel through the circulatory system, thereby affecting the brain and all organs. “Recent independent testing of Defendant’s e-cigarettes revealed the presence of significant amounts of formaldehyde and acetaldehyde in the aerosol produced by the Products,” Harris said in his suit.

The California federal court complaint seeks to certify a class of Vuse purchasers dating back to July 1, 2013, and requests restitution, statutory and punitive damages, and an order enjoining the allegedly unlawful and deceptive acts and practices of the defendant.

Harris’s suit was filed just one week after a nearly identical complaint was filed by Michael J. Whitney against ITG Brands, the maker of Blu electronic cigarettes. “Plaintiff and the other members of the Class were unquestionably deceived regarding the safety and health benefits of the Products, as Defendants’ marketing, advertising, packaging, and labeling of the Products misrepresent and omit the true facts about the Products,” Whitney alleged in his California federal court complaint.

To read the complaint in Harris v. R.J. Reynolds Vapor Company, click here.

To read the complaint in Whitney v. ITG Brands, click here.

Why it matters: The complaints could signal a revival of false advertising litigation against cigarette companies. Both plaintiffs argue that the defendants play up their products as a healthy substitute to traditional cigarettes and are able to deceive consumers in part because the advertising of the new products is not regulated like for tobacco cigarettes. The cigarette companies have not responded to the new suits, but will likely employ their usual aggressive litigation defense.

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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