Advertising Law - September 2016 #2

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

  • FTC Gives Academic Journals a Failing Grade
  • Mortgage Scam Defendants Banned From Business by FTC
  • FTC Compares Its Guidance With NIST Cybersecurity Framework
  • Tenth Circuit: Color + Pattern = Trademark Protection

FTC Gives Academic Journals a Failing Grade

The Federal Trade Commission recently filed suit against the publisher of online academic journals that the agency accused of deceiving academics and researchers.

OMICS Group, president and director Srinubabu Gedela, and related corporate defendants claimed that their online journals followed "rigorous" peer-review practices and used editorial boards with prominent academics when selecting items to publish. But the FTC said many of the articles were actually published with "little to no" peer review and that some of the individuals represented by the defendants as affiliated with the editorial board were not really involved with the publications.

The defendants also made deceptive statements by describing their journals as having a high "impact factor," the agency alleged. This term—used to describe the frequency that articles are cited in other research—is the widely accepted industry standard and proprietary to Thomson Reuters, the FTC said. OMICS, however, did not use this metric and instead calculated its own impact scores, but failed to disclose this fact to academics.

Persons who indicated their interest in being published were made to pay "significant" fees, the agency added—ranging from hundreds to thousands of dollars. The defendants did not inform them about the cost until an article was accepted for publication. This failure caused considerable problems for academics, the agency noted, as they are bound by ethical standards that generally forbid them from submitting the same research to more than one publication.

The researchers were effectively held hostage, the FTC alleged, by making their research ineligible for publication in other journals and then hitting them with a sizable fee.

The Nevada federal court complaint charges the defendants with multiple violations of Section 5 of the Federal Trade Commission Act.

To read the complaint in FTC v. OMICS Group, Inc., click here.

Why it matters: "The defendants in this case used false promises to convince researchers to submit articles presenting work that may have taken months or years to complete, and then held that work hostage over undisclosed publication fees ranging into the thousands of dollars," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement. "It is vital that we stop scammers who seek to take advantage of the changing landscape of academic publishing."

Mortgage Scam Defendants Banned From Business by FTC

At the request of the Federal Trade Commission, the defendants in a mortgage relief scam have been banned from the mortgage loan modification and debt relief business.

As part of a federal-state enforcement sweep dubbed Operation Mis-Modification, the agency filed suit against the Jacksonville, Florida-based operation in 2014, charging two principals and their companies with falsely promising financially distressed homeowners that they would provide legal representation to prevent foreclosure proceedings or lower their mortgage payments and interest rates.

The defendants—who typically told consumers their odds of getting a modification were 85 to 100 percent—illegally charged advance fees for their promises, the FTC said, in some cases an ongoing monthly fee of $300 or more and in other instances, a flat fee of up to $4,000. Some consumers were instructed not to pay their mortgage while the supposed modification was pending.

Some of the defendants reached a deal with the FTC that banned them from selling secured and unsecured debt relief products or services, from violating the Do Not Call Registry rules, and from misrepresenting any financial products or services. An $8 million judgment against these defendants was suspended upon the surrender of certain assets.

The Florida federal court overseeing the case also granted the FTC's motion for summary judgment against the remaining defendants. It found violations of both the FTC Act and the Mortgage Assistance Relief Services Rule. The defendants made "numerous" misrepresentations to consumers, with many customers stating that although they believed a lawyer was working on their case, they never spoke with one or received anything to suggest a lawyer had done any work for them, the court said. Some consumers who contacted their lenders directly were told that the defendants never submitted any paperwork while others stopped hearing from the defendants after they paid them.

The summary judgment ruling imposed a permanent order under the same terms as the consent agreement and a $13.5 million judgment. The final order also prohibited the defendants from profiting from customers' personal information and failing to properly dispose of the data.

To read the complaint and the orders in FTC v. Lanier Law, click here.

Why it matters: In the wake of the financial crisis, the FTC focused its attention on mortgage scams including Operation Mis-Modification, where the agency worked together with the Consumer Financial Protection Bureau and Attorneys General from 15 states. That joint enforcement sweep included the action against the Lanier Law defendants and 32 similar actions for violations of the FTC Act and the Mortgage Assistance Relief Services Rule, which bans mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that is deemed acceptable.

FTC Compares Its Guidance With NIST Cybersecurity Framework

How does the Cybersecurity Framework created by the Department of Commerce's National Institute of Standards and Technology (NIST) align with the Federal Trade Commission's data security program?

"From the perspective of the staff of the Federal Trade Commission, NIST's Cybersecurity Framework is consistent with the process-based approach that the FTC has followed since the late 1990s, the 60+ law enforcement actions the FTC has brought to date, and the agency's educational messages to companies, including its recent Start with Security Guidance," the agency explained in a new blog post.

The Framework—issued in February 2014 at the direction of President Barack Obama—uses five concurrent and continuous functions to provide a strategic view of the life cycle of an organization's management of cybersecurity risk: Identify, Protect, Detect, Respond, and Recover.

Each of these five functions signifies a key element of cybersecurity, Andrea Arias wrote for the FTC, and each of them relates to an area of the FTC's enforcement in the realm of data security. Take the Protect function, for example. The NIST uses this function to provide guidance to organizations "to develop and implement appropriate safeguards to ensure the delivery of critical services and to limit or contain the impact of a cybersecurity event."

Many FTC cases highlight the alleged failure of companies to implement reasonable data security practices that the Framework emphasizes, Arias said. For example, in an action against Twitter, the agency asserted that Twitter gave almost all of its employees administrative control over the social networking site's system, which increased the risk that a compromise of any of its employees' credentials would result in a serious breach.

"This principle comports with the Framework's guidance about managing access permissions, incorporating the principles of least privilege and separation of duties," the FTC added.

Similarly, the Framework's Respond function—which "provides guidance on how to develop and implement appropriate actions in response to a detected cybersecurity event to effectively contain its impact"—overlaps with the FTC's enforcement efforts. In its case against Wyndham Worldwide Corporation, the agency alleged that the company failed to follow proper incident response procedures, including the failure to monitor its network for malware after a prior intrusion.

Businesses should use the Framework's five functions as a model to conduct their risk assessments and mitigation, the agency suggested, as FTC enforcement actions have demonstrated that "companies could have better protected consumers' information if they had followed fundamental security practices like those highlighted in the Framework."

"In addition, given that the FTC's enforcement actions align well with the Framework's core functions, companies should review the FTC's publication, Start with Security, which summarizes lessons learned from the FTC's data security cases and provides practical guidance to reduce cybersecurity risks," Arias concluded. "Applying the risk management approach presented in the Framework with a reasonable level of rigor—as companies should do—and applying the FTC's Start with Security guidance will raise the cybersecurity bar of the nation as a whole and lead to more robust protection of consumers' data."

To read the FTC's blog post, click here.

Why it matters: The touchstone of the FTC's approach to data security has been reasonableness: "that is, a company's data security measures must be reasonable in light of the volume and sensitivity of information the company holds, the size and complexity of the company's operations, the cost of the tools that are available to address vulnerabilities, and other factors." The Framework is not a checklist or a standard; instead it focuses on risk assessment and mitigation to ensure that the NIST's and the FTC's approaches are "fully consistent: The types of things the Framework calls for organizations to evaluate are the types of things the FTC has been evaluating for years in its Section 5 enforcement to determine whether a company's data security and its processes are reasonable. By identifying different risk management practices and defining different levels of implementation, the NIST Framework takes a similar approach to the FTC's long-standing Section 5 enforcement."

Tenth Circuit: Color + Pattern = Trademark Protection

In the context of product packaging, color can only be distinctive for trademark purposes when combined with a shape, pattern, or design, the Tenth Circuit U.S. Court of Appeals has ruled when holding that on its own, a color scheme is not "inherently distinctive" enough for legal protection.

The dispute involved the packaging for Forney Industries' metalworking parts and accessories, which has used some combination of red, yellow, black, and white coloration since at least 1989. Forney described the mark it sought to protect as follows:

"The Forney Color Mark is a combination and arrangement of colors defined by a red into yellow background with a black banner/header that includes white letters. More specifically, the Forney Color Mark includes red and yellow as the dominate [sic] background colors. Red typically starts at the bottom of the packaging, continues up the packaging and may form borders. Red may also be used in accents including but not limited to lettering. Yellow typically begins higher than the red and continues up the packaging. Yellow may also provide borders and be used in accents including but not limited to lettering. A black banner is positioned toward the top of the package label or backer card. Black may also be used in accents including but not limited to lettering. White is used in lettering and accents."

Forney filed suit against competitor Daco of Missouri, alleging the defendant infringed on its protected mark by packaging its line of metalworking parts with similar colors and a flame motif. A district court granted summary judgment to Daco and the Tenth Circuit affirmed.

"Forney's use of color, which was not associated with any particular shape, pattern, or design, was not adequately defined to be inherently distinctive, and Forney failed to produce sufficient evidence that its use of color in its line of products had acquired secondary meaning (that is, that the relevant public understood those colors to identify Forney as the source)," the three-judge panel wrote.

Reviewing the Lanham Act's protection for trade dress, the court noted that the law relating to whether a trademark is inherently distinctive is more developed for word marks than trade dress, although the courts were once split on whether trade dress could ever be inherently distinctive.

That split was resolved by the U.S. Supreme Court in 1992 in Two Pesos, Inc. v. Taco Cabana, Inc., when the Justices held that a product's trade dress, like other forms of trademark, could be protected under the Lanham Act by showing that it was inherently distinctive.

However, courts have struggled in the ensuing decades to come up with an appropriate test, particularly since the Court ruled that a product's color cannot be inherently distinctive. Given these parameters, the Tenth Circuit determined that "the use of color in product packaging can be inherently distinctive (so that it is unnecessary to show secondary meaning) only if specific colors are used in combination with a well-defined shape, pattern, or other distinctive design."

Applying this standard to Forney's product packaging, the court questioned whether the description provided by the company would satisfy the requirement for a protectable mark. "Forney's description is too vague," the panel wrote. "For example, Forney says that the yellow 'typically' begins higher than red. Lettering and accents 'may' be red, yellow, white, or black. This failure in the description cannot be blamed on any shortcoming in counsel's power of expression. It is probably the best that one could do, given the variety of packaging that Forney has used on its products over the years."

Forney used the color combination "in such diverse ways that there is no consistent shape, pattern, or design we can discern from its description of its mark or from the examples it provides," the court concluded.

The plaintiff, relying on an affidavit from the Forney CEO who listed the company's promotional and advertising efforts over the last 25 years and its half a billion dollars in sales, similarly failed to convince the panel that its trade dress had developed secondary meaning.

While agreeing that advertising "can be strongly probative" of secondary meaning, the court said Forney's was not directed at highlighting the trade dress. As for the sales figures, the company failed to indicate how the sales related to the color mark.

To read the decision in Forney Industries, Inc. v. Daco of Missouri, Inc., click here.

Why it matters: The Tenth Circuit emphasized that trademark protection is available for color when used in association with a particular shape, pattern, or design. But Forney failed to demonstrate that it used the specified colors in such a manner, facing particular trouble as its packaging changed significantly over the more than 20 years at issue. Given the changes, how "is a consumer supposed to have come to associate the packaging with Forney?" the panel asked, affirming summary judgment for the defendant.

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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