Consumer Advertising Law Blog

Farewell Federal Preemption: Effect on FTC Likely Minimal

In late 2008, an alliance of consumer advocates appealed to then president-elect Obama to direct agencies to “refrain from making statements in their rulemaking claiming that rules, regulations, or standards preempt state-law liability of regulated entities.”  Last week, the President heeded the call and issued a policy memo directing federal agencies and departments to not only refrain from such statements in future regulations, but to also seek and destroy any preemption language in regulations issued over the past decade.  Regulations with preambles or codified provisions intended to preempt State law that are not justified by a “sufficient legal basis” are up for the chopping block and may be amended.   Over the past 10 years, more than 50 federal regulations  that included language to limit state lawsuits were either proposed or adopted. 

While most agency heads are busy parsing through regs, the folks over at the Consumer Protection Bureau at the FTC should have little to do.  For the most part the FTC has opted not to preempt state and local regulation of advertising and marketing claims.  Indeed, even when the agency adopted its current environmental claims guides in the 1990s in response to concerns that in the absence of federal regulation states were adopting conflicting standards, the agency opted to provide guidelines but not preempt state regulation.  For the most part the system of dual regulation has worked reasonably well, aided in part by the fact that in many states the courts are instructed either expressly or implicitly to look to the FTC for guidance in interpreting their own state consumer protection laws, although there are a few instances, such as California's Made in USA statute where it may be difficult to reconcile state law with Section 5. 

Gift Cards Given Gobs of Granular Guidance

The new Credit Card law that was signed into law by President Obama on Friday, May 22, 2009 (called the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 or the “CARD Act”), contains several new restrictions on merchant gift cards, gift certificates and general use prepaid cards, issued by banks, that are marketed like gift cards (“gift card”.).

First, dormancy fees, inactivity charges or service fees may not be charged on these gift cards, unless

• There has been no activity on the card in the 12-month period ending on the date on which the charge or fee is imposed;
• No more than one fee may be charged in any given month; and
• The card clearly and conspicuously discloses the following items:(i) that a dormancy fee, inactivity charge or fee, or service fee may be charged; (ii) the amount of the fee or charge; (iii) how often that fee or charge will be assessed; and (iv) that this fee or charge may be assessed for inactivity. The issuer or vendor of the certificate or card also must inform the purchaser of the card of the charge or fee before the certificate or card is purchased, regardless of whether the certificate or card is purchased in person, over the Internet, or by telephone.

Second, the new law prohibits gift cards from having an expiration date earlier than 5 years after the date on which card funds were last loaded to the general-use prepaid card. State laws that have more restrictive rules are not preempted.

These restrictions, which go into effect in August 2010, will not apply to general prepaid cards, issued by banks, that are reloadable and are not marketed or labeled as a gift card or gift certificate. They also will not apply to cards used solely for telephone services, loyalty, award or promotional gift cards, gift certificates issued in paper form only, gift cards or certificates only redeemable for concerts or events, and cards not marketed to the general public.

There will be some interesting interpretive questions arising from these provisions, including the type of prepaid cards that are covered, and how a retailer will be able to advise the purchaser of the fees that will be imposed without being subject to some kind of liability. It will be up to the Federal Reserve, which is required to issue regulations under these provisions, to provide this and other guidance.

- Beth DeSimone

Behold, the Power of the Footnote

Mead Johnson has won the latest battle in the baby formula false advertising war that has been waging for years. After thrice being reprimanded by the NAD, Mead Johnson’s latest advertisement for its infant formula, Enfamil Lipil, seems to pass muster, at least according to one district judge. PBM, maker of a rival infant formula similar to Enfamil Lipel, brought suit against Mead Johnson for false advertising. The district court, though, denied PBM’s motion for a temporary restraining order and preliminary injunction. The ad in question stated “[i]t may be tempting to try a less expensive store brand, but only Enfamil Lipil is clinically proven to improve brain and eye development.” However, in a footnote, the ad qualified that statement saying “vs prior formulation for the same product…” (emphasis in original).

These decisions raise questions as to how much work the footnote can do. The FTC's Dietary Supplement Guide provides some guidance on what disclaimers can and can't do. For example, the body of the advertisement should “avoid making inconsistent statements or distracting elements that could undercut or contradict the disclosure."

In the Mead Johnson case, the district judge resolved this issue by ruling that the footnote clarified any possible ambiguity in the advertisement. Given the history of the baby formula false advertising complaints, the one thing we can be sure of is that this ongoing spat, while not in its infancy, still has many years ahead of it.

California: The Shakedown State Once Again?

In its original version, California’s Unfair Competition Law gave any individual the right to sue on behalf of the general public over any business practice deemed to be "unlawful, unfair or fraudulent" even if the individual had never been injured by the practice. This delegation of the government’s enforcement authority to private individuals was unique to California, and predictably led to “shakedown” lawsuits filed by plaintiffs’ lawyers.

Proposition 64 – the voter initiative passed by the California electorate in 2004 – was supposed to change all that. It amended the standing provision of the UCL to require UCL plaintiffs to have suffered an injury in fact and a loss of money or property as a precondition to bringing a UCL claim. This was intended to eliminate the “private attorney general” lawsuits that had bedeviled many companies doing business in California. 

On May 18, in In re Tobacco II Cases, the California Supreme Court decided that Prop 64 didn’t really change much. In a 4-3 decision written by Justice Carlos Moreno, the Court ruled that in a UCL class action, only the named plaintiff must comply with Prop 64’s standing requirement. As Justice Marvin Baxter wrote in dissent, this creates a type of lawsuit that may be unique to California: the “no-injury class action,” in which an individual can be a member of a class in a UCL action even if he or she couldn’t bring a UCL claim in his or her own right. As Justice Baxter noted, this “turns class action law upside down and contravenes the initiative measure’s plain intent.”

The Court did not stop there. It not only stated that absent class members need not satisfy the injury requirement in order to be part of a UCL action, but also suggested that they could be entitled to restitution (the only form of monetary relief allowable under the UCL) “without individualized proof of deception, reliance and injury if necessary to prevent the use or employment of an unfair practice.” This is inconsistent with a wealth of recent California appellate law, including several Supreme Court decisions – for example, Korea Supply Co v. Lockheed Martin Corp., 29 Cal. 4th 1134 (2003) – but it raises the specter of plaintiffs’ lawyers seeking money on behalf of people who have suffered no injury.

The Court did not stop there either. It went on to hold that in lawsuits under the “fraudulent” prong of the UCL, the Prop 64 requirement that a UCL plaintiff have suffered “injury in fact and…lost money or property as a result of” the claimed violation does not require the plaintiff to prove that he or she actually relied on any specific misrepresentation. This will undoubtedly lead the plaintiffs’ bar to argue that not only do class members not need to satisfy Prop 64, but the named plaintiff (who does at least need to satisfy Prop 64) can do so without ever having seen or heard the misrepresentation in issue.

The Court’s decision leaves much to be sorted out by the lower courts. And defense lawyers still retain plenty of arrows in their quivers for defeating UCL claims. But make no mistake – May 18, 2009 was not a good day for California businesses.

- James Speyer

A Dose of "CPR" For the FTC? Vladeck Soon to Take Charge of Consumer Protection at the FTC

Consumer advocates are putting down their Ralph Nader Readers to celebrate the recent appointment of David Vladeck as Director of the FTC’s Bureau of Consumer Protection (BCP).  As a Scholar for the Center for Progressive Reform (CPR) and Director of Public Citizen Litigation Group, Vladeck has been lauded as one of best public interest litigators in the country, winning 4 out of 5 cases argued before the US Supreme Court.  Among other victories, he represented former FDA Commissioners, Dr. Donald Kennedy and Dr. David A. Kessler in Wyeth v. Levine, in which the Supreme Court held that victims may bring state lawsuits against drug manufacturers for inadequate warnings, even when a drug’s labeling has been FDA approved.  

Vladeck has been known to attack federal agency directors as “largely unaccountable senior political appointees, many of whom will simply return via the revolving door to the industry that they have overseen during their brief tenure in government.”  About to become an agency insider himself, it will be interesting to see what if any changes he brings to BCP.  Vladeck may use his authority to focus enforcement efforts on advertising practices of drugs, dietary supplements and other health-related products. Vladeck has consistently dedicated his practice to health issues, spending 15 years working to force OSHA to regulate toxic substances in the workplace and serving as Director of Georgetown’s Center on Health Regulation and Governance at the O'Neill Institute for National and Global Health Law. 

Vladeck’s recent public comments since his appointment are also telling.  In his May 17th Commencement address to Georgetown Law graduates, he disclosed that he accepted the new position with the FTC because he believes consumer fraud is “out of control” and that he intends to fight against those who prey upon the public with “snake oil supplements that promise a cure and deliver nothing.”

In addition, although the FTC and FDA have sometimes been at odds over issues such as the use of disclaimers or the use of qualified claims, Vladeck's appointment, along with that of acting Commissioner and soon to be Principal Deputy Commissioner Joshua Sharfstein, who has also worked at Public Citizen, may lead to greater consensus between the two agencies (a longstanding MOU between the FDA and FTC grants the FTC primary jurisdiction for the oversight of the advertising of over-the-counter drugs, food, cosmetics, and devices, while FDA has primary jurisidction over the labeling of these products).  A focus on health-related products would also represent a shift away from, or an addition to, priorities announced in March by Acting BCP Director Eileen Harrington, that included an increased focus on regulating financial institutions, fair credit reporting and on-line data collection.

We hope to find out more about Vladeck’s priorities and potential collaboration between the FDA and FTC when he presents the opening remarks at the 2009 ABA Antitrust Section’s Consumer Protection Conference on June 18. To read more, Vladeck’s blogs and White Papers are available online from the Center for Progressive Reform (CPR). 

UK: Who Are the People in My Neighborhood?

Google has for some time provided a popular map feature which is accessible from its home page.  Recently in the UK, Google has augmented this service by using customized vehicles to photograph most public streets in the UK’s major towns and cities, to produce what they call “Google Street View”.  Street View allows one to see literally what any given place looks like as though one were standing on the street. 

Google’s camera cars have recorded streets adding up to a distance of more than 22,000 miles in this country alone.  With the release of Street View in this country, a few people have announced that they feel that the creation of such a permanent record is a infringement of people’s privacy.  Some have gone further and suggested that it constitutes a breach of the country’s data protection laws.  Indeed, the Information Commissioners’ office has now been called upon by one group, Privacy International, to take action against Google under the Data Protection Act.

In reality, Privacy International are almost a year late.  Google’s street view received the blessing of the Information Commission in July last year on the basis that it had in place adequate safeguards to protect people’s privacy.  The Information Commission referred to those safeguards as including “the blurring of vehicle registration marks and the faces of anyone included in the street view images”.  The idea being that those safeguards would make it very difficult to identify anyone that happens to have been captured by Google’s street view cars.  Google has also agreed that in circumstances where someone has been captured, a strict and expeditious take down procedure should be put in place so that such people are able to call for the removal of those particular images. 

The sets of rights in question would be those rights enshrined within either, the UK Data Protection Act, or the European Convention of Human Rights, which under Article 8 provides everybody with a right to enjoy a private life.  

The Data Protection Act concerns the collection and protection of personal data. The question is whether or not taking a photograph of a street, where the subject matter of the photo is the street itself, is something that should be protected by the Data Protection Act?   Google proceeded only after receiving the blessing of the Information Commission, who had confirmed that the safeguards that they had put in place were adequate.

With regards to Article 8 of the Human Rights Act, the right that is enshrined therein is that people should be provided with a right to lead a private life.  Recently there has been a move by the courts to interpret this Article of the Humans Right Act in a way that has expanded the popular expectation of privacy.  However, to infer from this Act that merely taking a photo of a public street, (where the subject matter is not the incidental persons upon that street but the street itself) constitutes an invasion of their privacy, would be to take that interpretation of the Act much further, and arguably an untenable step too far.

There is also another article enshrined within the Human Rights Act which is Article 10, which enshrines each person’s right to freedom of expression.  When balancing the interplay between these two articles, the courts will have in mind the relative harm and utility that any given act will have.   In this particular case, since Google’s street view is of such particular utility, not just to the people within the city that is photographed but to everyone, around the world, now able to see what any given city looks like in detail, it would not be surprising if they were to conclude that such utility is greater than any invasion of privacy.

- Richard Dickinson and Alex Watt

Consumer Protection Enforcement Takes Off in Europe

On 14 May, the European Commission published the results of an 18 month investigation into the sale of airline tickets online (found here and here).The Commission coordinated the pan-European exercise with 16 European national authorities, who together checked over 400 websites selling airline tickets for compliance with European consumer protection laws.

This is the first such “sweep” investigation to be carried out by the Commission which does not have direct enforcement powers in relation to consumer protection legislation. However, by coordinating the investigation with national enforcement authorities, and by threatening to “name and shame” defaulting airlines, the Commission has, for the first time, used its powers of persuasion to take indirect enforcement action on consumer protection issues. Judging by its success it likely will not be the last.

In September 2007, the Commission launched a “Sweep” or systemic checks of websites selling airline tickets by EU Member States.The Sweep focused on three key practices: clear pricing of tickets (i.e. any additional charges such as taxes should be displayed with the headline ticket price); availability of fare (i.e. any limitations to the availability of an offer should be clearly indicated); and fair contract terms. Of the 447 websites checked during the Sweep, over 50% were found to have “irregularities”. Following the Sweep, those websites that were found not to “fully respect” consumer protection laws were contacted by the relevant national authority and asked to provide clarification on their actions, or change their practices. The Commission issued a ‘mid-term’ report in April 2008 indicating that 50% of the websites that had been identified as having irregularities in September 2007 had corrected their practices. The final report explains that enforcement action - leading to the websites correcting their practices - has now been completed in 85% of cases, but there remains a hardcore group of about a dozen companies who are still giving the Commission “real cause for concern”.

This is undoubtedly an important step in European consumer protection. This investigation is the first time that the Commission has used the Sweep enforcement action to coordinate a consumer protection investigation. There are a number of European Regulations governing consumer protection for example, the Regulation on misleading advertising and the Regulation on unfair terms in consumer contracts. These pieces of European legislation are transposed into national laws and enforced at national level. It is therefore national authorities that impose sanctions against companies found to be in breach of consumer protection law, not the European Commission.

In June of this year, the Commission plans to publish an ‘Enforcement Communication’ aimed at strengthening pan-European enforcement of consumer protection laws. In addition, the Commission also hopes to put in place an industry wide agreement to uphold standards and conduct another Sweep later this year. It appears that the Commission is determined in its fight for consumer protection - and websites selling airline tickets are only the start of the Commission’s crusade.

- Sue Hinchliffe and Mark Gardner

CPSC Denies Exemption Request for Lead in Children’s Bicycles but May Stay Enforcement

On Tuesday, May 12, the Consumer Products Safety Commission (CPSC) voted to deny the request for an exemption for bicycles from the CPSIA lead substrate requirement, and directed the staff to prepare a briefing package for a stay of enforcement.  (See here) In announcing the decision, Acting Chairman Nancy Nord said that the Commission is mindful that, as with ATVs (for which a stay of enforcement was recently granted until May 2011), some amount of lead is necessary in bikes for structural integrity.   A denial of the petition for an exemption was all but a certainty based upon CPSC’s finding earlier this year that, under the CPSIA, exemptions from the lead substrate requirement cannot be granted if a product or substance exposes children to any lead at all, no matter how little.

- Eric Rubel

No Stay of Enforcement for CPSIA Tracking Labels

Consumer Products Safety Commission (CPSC) announced the results of the commissioners’ vote on a request by the National Association of Manufacturers for an emergency stay of enforcement of the tracking label requirement in Section 103 of the CPSIA. (The full signing statements are available at here.)  The stay was not granted, due to a split vote -- Acting Chairman Nord voted to grant the request for a stay and Commissioner Moore voted to deny the request.  Accordingly, tracking labels will be required on children’s products manufactured on or after August 14, 2009.  

However, both commissioners issued signing statements indicating that CPSC does not plan to take a hard-line approach in enforcing the requirement.  Rather, the commissioners anticipate that companies that sincerely attempt to comply with the requirement will not be punished if they miss the mark.  Acting Chairman Nord anticipates that the Commission will issue guidance “that will assure companies that they should reasonably exercise the judgment anticipated by the loose language of the statute.”  Commissioner Moore also tried to reassure companies that CPSC will be reasonable in enforcing the requirement:  “ ‘Guesses’ . . . are not going to be ‘wrong’ as long as they have the information required by the statute and do not take a cavalier approach to the ‘to the extent practicable’ language in the statute.  If we find manufacturers who have diligently tried to comply with the statute, but miss the mark on devising a complying tracking label, we will work with them (and learn from them) to make their marks comply with the law.  This will be a learning process for all of us and not an excuse to punish an unwitting mistake.”

In addition, both commissioners recognize that a “one size fits all” approach with respect to tracking labels may not be possible, and indicate that CPSC will allow companies to develop their own compliant labels.  Acting Chairman Nord states that “companies need to be able to develop labels that work for their individual products and situations, yet meet the needs of the agency to increase recall effectiveness.”  Commissioner Moore notes that “[a]s long as the tracking information required by the law is ascertainable from that tracking information, there is no need for the Commission to dictate a particular format.”  Commissioner Moore further recognizes that, while some companies may be able to use or easily adapt their existing labels, others such as small businesses will need help in devising a way to meet the requirement.  Both commissioners anticipate that CPSC will issue guidance to help companies meet the requirement, and that such guidance will not be the final word on the subject.

The take-away message from these statements seems to be that while CPSC will enforce the tracking label requirement for children’s products, CPSC will likely give companies some latitude if they demonstrate a good faith effort to comply. 

 - Eric Rubel

Popular Card Legislation Charging Toward Passage

The US Senate is poised this week to debate legislation restricting certain credit card practices. The bill, which is very similar to regulations issued by the Federal Reserve Board last year that are scheduled to go into effect in June 2010, would, among other things, restrict when card issuers could raise interest rates on cards, mandate the order in which issuers may apply payments to different interest rates, and ban double-cycle billing and universal default. A companion bill has already passed the US House of Representatives on April 30, 2009.

The legislative push for this bill is being driven in part by the Obama administration, which has been focusing on credit card reform in the past two weeks. And the bill does differ from the Federal Reserve regulations in certain respects by imposing additional restrictions on issuers increasing interest rates in the event of late payments, requiring customer consent before an issuer could charge an over-limit fee, and restricting access to credit cards by college students. The bill also contains restrictions on gift cards, gift certificates and more general purpose gift cards. Furthermore, the Senate bill, unlike the House bill, requires issuers to comply with these restrictions sooner than the Federal Reserve’s June 30, 2010 effective date.

Given the crowded legislative calendar this year, however, it is curious that Congress and the Administration is spending meaningful and precious time on issues that to a large extent have already been handled by regulation. We believe it is an effort to support the consumer in the face of the large and continuing financial support to the banking industry. Regardless, given the momentum the bills appear to be having, financial institutions, retailers, and other who issue gift cards or certificates should be paying attention to these developments and potential earlier implementation dates, and not assume that either the House bill (which more closely mirrors the Federal Reserve rules) will prevail or these provisions will otherwise be diluted. Non-card issuers also may be advised to pay attention to this legislation, as it may auger how other initiatives (such as mortgage loan reform) may be implemented that will affect a broader range of institutions than this bill.

- Beth DeSimone

"Phorm" over Substance in the UK

The European Commission has recently threatened to sanction Britain for the manner in which it has implemented the European Community Data Protection legislation. The European Telecommunications Commissioner said last week, “European privacy rules are crystal clear; a person’s information can only be used with their prior consent”. However, the on-line world to which those rules are applied has changed, and though the rules themselves may be simple, how they are applied is therefore not so straightforward.

The latest technological advance and cause of EC upset, is a targeted advertising system called “Phorm”. Phorm is a piece of software that may be implemented by ISPs in order to track what people are interested in. In the UK, Phorm’s partners include BT, TalkTalk and Virgin Media, which together represent approximately 70% of UK broadband ISP markets. Once people have had their interests tracked, the adverts that may be displayed on the pages that they view can be adapted so that there are adverts that people are more likely to find interesting.

Targeted advertising in this manner, is something that has already gone on for some time. Google, when it launched its email service, Google Mail, made it clear that when the emails on its systems were scanned (as all emails are, for spam and viruses) it would also scan those emails for users’ personal interests. The adverts that were then shown within Google Mail, could then be targeted to the users preferences.

BT admit that, for at least the years 2006 and 2007, no consent was ever requested of their users within their terms and conditions. However, Phorm argue that consent is not required. They contend that their system is such that no human ever reviews the information and nothing personally identifiable is ever permanently recorded, it assigns a randomly generated number to a user and then, after having reviewed the sites that that randomly generated number has visited, assigns codes that equate to areas of interest. The site’s history is then deleted so that what is left is a randomly generated number with particular interests, when that randomly generated number reaches a particular site, adverts will be shown that reflect those interests.

Whether it is ultimately deemed either an invasion of privacy, or a breach of the Data Protection act or not, if the technique is unpopular with consumers, then they will vote with their feet and ISPs that continue to implement unpopular policies will lose customers. This may not be enough to prevent the European Commission looking at the UK’s implementation of the Data Protection Act, which means we may yet see some significant changes to the way people’s data is dealt with in this country.

- Richard Dickinson and Alex Watt

FTC COPPA Rule to be Revisited

The FTC recently released their report, “Beyond Voice: Mapping the Mobile Marketplace,” as a follow-up to the FTC’s May 2008 public town hall meeting which explored new developments associated with mobile devices and their impact on mobile commerce.  One of the main concerns of the new report is how the ability of “smartphones” and other mobile devices to access the web presents a unique challenge to protecting children’s privacy. 

The report noted that the U.S. currently has no laws specifically governing mobile marketing campaigns aimed at children.  The panelists requested that the FTC revisit and clarify its COPPA rule  to require affirmative express consent from parents when advertisers collect information used to send individualized ads to children as part of behavioral advertising in mobile marketing.  For example, through the use of cookies, though identifying when information is being collected from minors could often pose a challenge.  The FTC staff agreed to expedite the review of the COPPA rule to determine whether it should be modified to address changes in the mobile marketplace.  The review will now occur in 2010 instead of the original 2015 date.  The panelists also called upon lawmakers to consider adapting and updating COPPA so that the law clearly applies to the mobile web.  In addition, the panelists urged further discussion on the possibility of a Do Not Call registry governing minor’s mobile numbers. 

The panelists also highlighted industry guidelines and industry best practices they believed helped protect children’s privacy, such as requiring a “double opt-in” when registering for certain texting services and avoiding use of the word “free” in children’s campaigns when standard rates and other charges apply.  Several panelists, however, questioned whether industry guidelines and best practices went far enough to protect children.  They stated that current disclosures may not indicate how a child’s mobile phone number will be used or whether it will be provided to third parties, and that more controls should be placed on general audience advertising that is likely to appeal to significant numbers of children.  The panel did, however, conclude that a complete ban on child-directed mobile advertising was not warranted.  We expect there will be additional informational gathering by the FTC, as well as opportunities for comment regarding any proposed changes to COPPA’s rules.