Consumer Advertising Law Blog

A Change In The Wind For Google?

Google might not fare so well in the recent appeal before the US Court of Appeals for the Fourth Circuit brought by Rosetta Stone, the internationally-known language learning company. In Rosetta Stone Ltd. v. Google Inc., the Fourth Circuit considered a host of IP issues raised by the language learning company involving Google’s sale of Rosetta Stone’s trademarks as keywords. This case is made all the more interesting by the district court’s unusual and (in the authors’ view) misguided interpretation of the trademark and dilution laws. (In full disclosure, the authors represented more than a dozen major brand owners, among them Coach, The Professional Golfers’ Association of America, and Rolls Royce, as amici curiae who urged reversal of the lower court’s opinion on the issues of trademark functionality and dilution.)

Rosetta Stone initially brought suit against Google for selling its trademarks as keywords, including keywords to trigger paid advertisements (then known as “Sponsored Listings”). A panel comprised of Chief Judge William Traxler, Jr., Judge Clyde Hamilton, and Judge Barbara Keenan heard oral argument on September 22, 2011.

On summary judgment, the district court had ruled in favor of Google on all counts. But this ruling might well be overturned on appeal. The difficulty, from Google’s perspective, is that the district judge misapplied the law in some instances and went out on a limb in others, deciding issues in a novel and unsupported way. And this was not lost on the panel.

UK ASA: Are You Really “Free Range”?

The UK’s advertising watchdog, the Advertising Standards Authority (ASA), banned a TV advert by Tesco Stores Ltd promoting its own-brand “Butcher’s Choice” sausages.  The ad featured pigs roaming in a field, in a hay barn and walking with a farmer down a lane.  Members of the public complained that the pastoral-like depiction of the pigs was misleading because the sausages were sourced from pigs that were bred and reared indoors.  Tesco, the UK’s largest retailer, defended the ad saying that, although the meat used for the sausages came from pigs that were “finished” indoors, some of them were born outdoors; the farm shown in the ad was a supplier for the sausages, and both indoor and outdoor bred pigs were reared to proper standards of husbandry and animal welfare. The ASA was not persuaded. It noted that in all scenes in the ad the pigs were shown to be in a spacious and free environment, wandering around freely. This, it found, would mislead consumers into thinking Butcher’s Choice sausages were made from pigs allowed unrestricted movement and access to outdoor pastures, which was not the case.  

The ASA is clearly attuned to the fact that the rearing conditions of the animals from which meat, dairy and egg products come from is a factor in the purchasing decisions of many UK consumers. Though the sausages were not marketed as ‘free range’ products, the ad portrayed pigs in a traditional farming setting that belied the more confined conditions the pigs were actually reared in. Advertisers should take care not to suggest (even if only through background imagery) that animals are reared in better conditions than is the case, as this may be deemed to mislead consumers. 

- Richard Dickinson

Will Consumers Pay Higher Prices Due to NY AG Settlement?

Above all "do not harm" should be the mantra of all lawyers, particularly enforcers charged with protecting the public interest. Enforcement over practices of companies offering a sale is an area where there is real potential to raise consumer prices. 

A new settlement entered by the NY Attorney General with a craft retailer alleges the company offered custom framing services on a permanent sale, using ads or coupons or other means to offer 50% off of framing when this offer ran consistently in one form or another dating back to 2008.  Some of the ads specifically called out the price was for a limited time and encouraging consumers to act fast instigating a false sense of urgency in customers when the price was not going to change.  NY alleges this violates NY General Business Law 22-A Sections 349 (prohibiting deceptive acts and practices) and 350 (prohibiting false advertising).  These provisions are general, and the NY AG borrows from the FTC's Guides Against Deceptive Pricing and the Guide Concerning the Use of the Word Free, business guides that have been on the FTC's books for a number of years but not actively enforced.  Why?  Because low prices are good for consumers.  (And I have not been shy about admitting my love of a bargain before in this blog, see here and here)  Some states and local law enforcement continue to bring these cases regarding sales claims, and we do not believe in many cases that they are in the public interest. 

The current NY settlement includes an $800,000 cash payment to NY for the investigation costs and donation of $1 million in art supplies to schools.  We can certainly get behind the latter as a win/win way to settle this matter, but we question the propriety of the injunctive relief provided in the Assurance of Discontinuence. The Company is prohibited from using a fictitious or inflated regular price for the purposes of offering a subsequent price reduction.  But the regular price is

"deemed presumptively bona fide when the item was offered for sale at the regular price more than 55% of the time during the prior business year, and 30% of sales were made at the regular price during that time period." 

So 30% of customers need to pay full price before a company can offer a sale for others?  That does not sound like consumer protection to us.

- Amy Mudge

Not Everyone’s COPPA Tea?

Last week, the FTC announced release of a significant proposal for changes to rules implementing the Children’s Online Privacy Protection Act (COPPA). COPPA, passed in 2000, provides parents control over what personal information websites may collect from children under 13 years old, largely through rules issued by the FTC. These rules spell out what web site operators must include in privacy policies, when and how to seek verifiable consent from parents, and what operators have to do to protect children’s privacy and safety online.

The Proposal follows the FTC’s review of the existing rules over the past decade, including formal consideration of changes in 2005 that resulted in a decision to retain the rules intact. Since then, FTC staff have received a number of requests in related proceedings urging it to revisit the rules. After opening up the issue again last year, the Commission received 70 comments, and heard more during a public roundtable. In issuing the Proposal last week, staff now intend to act “on an accelerated schedule,” pointing to, among other things, the “explosion in children’s use of mobile devices, [and] proliferation of online social networking and interactive gaming” which suggest new vulnerability of children to the collection of their personal information without parental consent. Reflecting concerns about this increased vulnerability, new rules would impose restrictions on the use of geo-location information or behaviorally targeting children with advertising, as well as many changes briefly summarized below.

Advertising Offer to Beat “Anyone’s Price by 15% or It’s Free” Survives False Advertising Attack

A federal court in Massachusetts recently affirmed a jury verdict in favor of an advertiser who proclaimed it could beat the competition’s price by 15% (“or it’s free”) because of inadequate proof at trial. 

The case involved competing carpet and flooring companies:  National Floors Direct and Empire Today.  NFD advertised, including in television commercials, that it would beat any competitor’s price by 15% or would give its products away for free. Empire alleged that NFD was not providing the discount that it advertised and brought claims for false advertising under Massachusetts state law (Chapter 93(a)), which is governed under the identical standard as Lanham Act false advertising cases.  Empire sought approximately $5 million in damages.

At trial, Empire introduced evidence that NFD’s sales representatives complied with the advertising offer by “dividing the competitor’s price by 1.15.”  This method proved that the advertised offer was not being honored – dividing the competitor’s price by 1.15 “results in only 13% off the competitor’s price, whereas multiplying by 0.85 would result in a 15% price reduction.”  Notwithstanding this smoking gun, the district court concluded that this was simply an innocent “miscalculation” or was evidence of “an internal disagreement at NFD over a mathematical calculation.”  The court concluded that this type of “negligence” does not support a claim of false advertising.  (This part of the ruling is interesting given that “intent” to deceive is not a required element of a Lanham Act false advertising claim).

The court also was skeptical of Empire’s damages claim. Although Empire was able to show a diminishment in sales, the district court concluded that there were “a bounty of reasons” for plaintiff’s suffering sales, including “management issues.” Even though Empire was able to show that an increase in NFD’s sales corresponded to a decrease in Empire sales, the district court concluded that this evidence “only proves a correlation, not a causation.” 

This case underscores the difficulty of prevailing in a false advertising case in the setting of a trial to obtain money damages. Although the facts of this case could have supported injunctive relief, it fell short of the kind of proof necessary to collect damages. Practitioners should manage their clients’ expectations to let them know that even a technical showing of false advertising will not guarantee a money damages award. In cases like this, where the evidence appears to be anecdotal, a strategy intended for injunctive relief may be more appropriate. 

- Deborah Birnbaum and Randy Miller

The Rats Be Dead, "The Cats Be Unemployed", But Illegal Pesticide May Send Smugglers to Jail

Twelve people were arrested on federal and state charges September 19, 2011, after an investigation into the sale of illegal, smuggled pesticides in New York’s Chinatown according to press reports, press releases from the US Attorney’s Office and New York District Attorney’s Office, and complaints filed in state and federal court (here and here).  According to reports, some of the pesticides contained brodifacoum, a chemical so dangerous, that it is illegal to use it at all in urban areas unless applied by licensed professionals wearing protective gear and using special equipment. Brodifacoum was present in an amount approximately 60 times greater than what federal regulations allow in the seized pesticides. At least it comes in a pretty package: a bright yellow and blue box with Chinese characters and a smiling cartoon cat proclaiming, “The cat be unemployed.” But don’t let the package fool you. The ingestion of a small vial could kill an adult male. Brodifacoum works as an anticoagulant which causes rodents, or anyone else who may ingest it, to bleed to death internally. In fact, the investigation was kicked off when a woman accidentally ingested a vial, mistaking it for medicine, and lost two-thirds of her blood volume.

Judith Enck, the EPA’s regional administrator, expressed her concern for how easily the brightly colored, mislabeled packages of deadly poison could be confused for toys or candy by children. District Attorney Cyrus R. Vance Jr. indicated that some of the products look and smell like cookie crumbs, making them especially tempting to children. US Attorney Preet Bharara stated, “[a]s alleged, these defendants were literally peddling poison to an unwitting public, putting the health and safety of their customers and their families in jeopardy…the people allegedly responsible for creating this public health risk will be punished.”

But does the punishment fit the crime? District Attorney Vance doesn’t think so, suggesting that legislation may be necessary to allow prosecutors to seek harsher penalties for such crimes, based on the concentrations and quantities sold. For instance, this investigation involved six federal and state agencies, fourteen search warrants, and a five-month long investigation which culminated in the seizure of over 6,000 packages of pesticides from fourteen shops around Chinatown. For all of the resources seemingly poured into this sting operation, and for the significant danger posed to the community from the illegal importation, false labeling, and sale of these pesticides, every single count charged is a misdemeanor (though some defendants were charged with hundreds of counts). The most serious charges, those for the wholesaler and a grocery store owner, were conspiracy to violate the federal laws regulating the distribution and sale of pesticides, and several counts each of selling unregistered pesticides and misbranding pesticides. If convicted they would face a year in prison and a $25,000 fine for each count. The other sales people were charged with selling unregistered pesticides.

There is obviously merit in sweeping these dangerous pesticides off the streets, and the punishments may be hefty enough - given the number of counts - to dissuade illegal importers in the future. However, considering the potential harm to consumers, is it possible that misdemeanor charges don’t cut it for such pesticide peddlers? If more severe penalties are enacted for such offenses, it is surely a positive for the producers of approved pesticides. In either case, importers and retailers need to exercise extreme caution in monitoring what goes on sale to the public in the face of increased scrutiny.

- Marcus Asner and Jacklyn DeMar

Made in USA: President Obama and the FTC Chairman Need to Have a Beer Summit

With all of the economic turmoil, there’s been a lot of talk lately about creating more American jobs.  Ford has attracted a lot of buzz with an ad featuring an impromptu “press conference” where a real Ford Truck owner was asked whether buying American was important to him which he  turns into a statement that he purchased a Ford because they didn’t accept bailout funds.

Last Friday, President Obama signed the America Invents Act which reforms and speeds up the patent process. During the President’s signing speech, he also pushed his jobs creation proposals, which he said would help guarantee that there were American jobs to build newly patented products. Specifically, the President said:

We need to continue to provide incentives and support to make sure the next generation of manufacturing takes root not in China or in Europe, but right here in the United States -- because it’s not enough to invent things here; our workers should also be building the products that are stamped with three proud words: Made in America.

It seems the President needs to invite his FTC Chairman over to the White House for a beer summit.  Although, in our experience, the President is not alone in making this mistake (the Ford commercial above may have made it as well), “Made in America” (or “Made in USA”) does not mean, as the President suggests, that a product was manufactured in the United States, but rather that “all or virtually all” of the product is made in the United States.  “All or virtually all” is in turn defined as "all significant parts and processing that go into the product must be of US origin. That is, the product should contain no — or negligible — foreign content.”  So it’s not enough that the product simply be manufactured in the United States, all or most of its parts and processing must have been made in the United States (and California has its own standard that is arguably even stricter). This is not always an easy standard to meet in today’s global economy, particularly given the fact that foreign parts are sometimes cheaper (or the only source available).  We’ve always wondered whether the FTC’s definition reflects more policy than consumer interpretation.  We’re not economists, but one has to wonder whether such a strict standard does more harm than good in terms of US jobs, especially when companies can’t apply the same exemption for natural resources not available domestically to parts that are no longer available from US suppliers.  And, from a consumer interpretation standpoint, if the POTUS doesn’t understand what the term should mean, it’s no wonder domestic manufacturers get confused as well. 

Of course, the FTC’s Made in USA guides allow companies to make qualified claims.  Let’s try that out in the President’s speech: "[B]ecause it’s not enough to invent things here; our workers should also be building the products that are stamped with eight proud words: Made in USA of US and imported parts."

Need we say more?  Maybe it’s time for some change we can believe in. 

- Randy Shaheen

Missoni, Me, and the Mail Order Rule

Yes, I was online at 5:57 am on Tuesday morning to place my order for the much anticipated Missoni for Target collection. While I have long enjoyed the luxury line for less concept (all time favorite being SimplyVera for Kohl’s), there has not been such a frenzied launch in recent memory. (The Stella McCartney for H&M was similar, selling out within hours, but the line was only available in stores not online.) The media uproar, over the Missoni launch was immediate -- the website was shut down due to volume; lines began forming outside retail stores before dawn, and celebrities tweeted of their intentions to score specific items. I read the press with a smirk on my face, secure in the knowledge that I beat the masses and will be one of the lucky few wearing my $79 raincoat currently selling on ebay for $160.00.

Or will I?

After receiving my order confirmation email at 6:17 am, I later received an email notification advising me that there were some delays with my order and kindly giving me the opportunity to cancel if I saw fit. Not likely. I will wait for my raincoat forever -- Missoni never goes out of style. But it got me thinking about an old friend, the Mail Order Rule, which has has been around since 1975. It is one of the FTC rules that has been enforced fairly consistently, but sporadically, over time (including a recent settlement involving an alleged violation and others in recent years here and here). This rule has even been enforced when the product at issue is free -- at least, if it is a rebate in the form of merchandise.

It is worth reminding ourselves about the Mail Order Rule on occasion, particularly for retailers who are so fortunate as to find themselves in a situation where a new line sells out within hours and they cannot fulfill the demand as quickly as reasonably anticipated. Target’s notice to me comported nicely with the requirements. The basic idea is when you sell a product and make a representation about the shipment, you must have a reasonable basis. If you are silent, you must have a reasonable basis to believe you can ship within 30 days.  There is a reasonableness standard at play, and so some assessment needs to be made of likely supply and demand (or face a civil penalty assessment like the sellers of Big Mouth Bass Billy, perhaps not as iconic as Missoni but also a runaway pop culture success.) The clock on the shipping obligation begins to run as soon as you have a properly completed order, regardless of when you post payment. If you cannot ship on time and realize you will never be able to ship, you need to cancel the order and make a full refund. If you reasonably believe you can ship later, you must seek the customer’s consent to the delay offering them an opportunity to cancel. The FTC’s Business Guides  are also helpful with lots of detail and examples including suggestions for a first and later delay option notices, circumstances when you must cancel an order and requirements for processing refunds (in a nutshell - it must be a full cash refund).

- Amy Mudge

Foreign Holding Company Makes the Cut in California Class Action, Surviving Defendant’s Personal Jurisdiction Challenge

The federal judge presiding over multidistrict litigation of unfair competition and personal injury claims against the makers and distributors of a popular dietary supplement products has denied the defense motion to dismiss for lack of personal jurisdiction. In the order, Judge Moskowitz of the Southern District of California ruled that the parent company could be sued in all of the states in which its US subsidiary was selling products.

In In re Hydroxycut Marketing and Sales Practices Litigation, 20 named plaintiffs filed a class action complaint, and numerous individual plaintiffs filed personal injury claims, alleging that a holding company, its subsidiaries, and several retailers marketed and sold the Hydroxycut products as being safe and effective for weight loss, when the claims were not clinically proven and were associated with serious health risks.

Although the Court dismissed several claims earlier in the year, the plaintiffs scored a victory by making a prima facie showing that the parent exercised sufficient control over its subsidiary to impose personal jurisdiction on the parent company, based on theories of agency and alter ego. Taking the plaintiffs’ version of the facts as true and quoting from an extensive factual record, the Court found the parent, rather than acting as a mere holding company in the business of managing its investments, was instead “in the business of developing and selling diet and nutritional supplements” through its subsidiaries. Based on the sole owner’s extensive day-to-day involvement with the manufacturers, distributors, and retailers for Hydroxycut on pricing, sales, promotions, credit, formulations, labelling and other activities, the Court found the parent “exercised pervasive domination and control over the subsidiaries,” sufficient to impute their activities to the parent. The Court’s findings were bolstered by allegations that a parent-owned website promoted the Hydroxycut products, and the holding company structure had recently been changed following an FDA statement that the products presented health hazards.

The Court’s ruling allows plaintiffs to proceed with the multidistrict litigation against the parent company for the acts of its subsidiaries. Plaintiffs’ detailed allegations served them well at this stage of this litigation, and led the Court to find personal jurisdiction based on operational control, despite concluding that the companies had complied with corporate formalities, did not commingle funds, and were not undercapitalized -- the other traditional earmarks of alter ego liability.

- Brian Condon and Anita Kalra

“2011 Consumer Protection Law Developments ", A Resource For Every Bookshelf

My 2011 update of the ABA’s Consumer Protection Law Developments treatise just arrived, and I found myself putting aside George R.R. Martin’s “A Dance with Dragons.” (Okay well maybe I’m puffing just a bit.) However, even if I hadn’t received a free copy as one of the two editorial chairs, it’s still well worth the money as those of you who already have the initial treatise likely know. Many of your colleagues put in heroic efforts in researching and compiling nearly 500 pages of material. Along with the usual updates, there are extensive discussions on some more recent developments including data security cases, privacy policies, and financial practices. The summer beach reading season is officially over but hopefully there’s still plenty of nice weather left so grab your copy now.  

- Randy Shaheen

UK ASA: Do Drinking and Humor Mix? Yes, but…

Last week the UK’s advertising watchdog, the Advertising Standards Authority (ASA), cleared a TV ad by supermarket chain Aldi Stores Ltd despite numerous complaints about its light-hearted portrayal of alcohol consumption. The ad featured an elderly woman sitting at a table and speaking of how her husband likes both a popular brand of tea bags and Aldi’s own brand tea bags. At the end of the ad, the woman states “I don’t like tea; I like gin”, and picks up a glass and drinks from it.

Complainants writing in to the ASA felt that the ad encouraged irresponsible drinking and implied that gin was a suitable substitute for non-alcoholic drinks; some, including doctors, complained that the ad offensively made light of alcoholism, and was inappropriate for day-time broadcasts.  Aldi defended its advert saying that the ad was intended to be humorous and not to suggest gin as a substitute for tea. It also pointed out that underage viewers could be put off by the ad’s unglamorous portrayal of alcohol consumption by an older person. Clearcast, the UK’s industry body that pre-clears most TV ads, had approved the ad without any scheduling restrictions and said it considered that it was acceptable to show adults drinking responsibly;  it said there was no indication that the woman in the ad was intoxicated or a heavy drinker.

The ASA agreed with Aldi and Clearcast; it found that there was no suggestion the woman was an alcoholic, and that the ad simply stated, humorously, one adult’s preference for gin over tea. The ad was not in breach of rules concerning harm and offence, alcohol advertising or scheduling.

This Aldi adjudication follows a recent ban on adverts for Cell Drinks featuring under-25s holding, but not consuming, alcoholic beverages; that Cell Drinks ban was based partly on the humorous, but mischievous nature of the Cell Drinks ad, which was deemed to appeal to underage viewers.  It is clear that the focus of the ASA’s concern is not whether ads for or featuring alcoholic beverages are funny or light-hearted, but rather on whether the humour might encourage unhealthy, unsafe or illegal behaviours, such as excessive or underage drinking.

- Richard Dickinson

FTC Apps-olutely Reviewing Claims Made by Apps Marketers for Potential Enforcement

The FTC has been making novel headlines in going after affiliate marketers and use of endorsements on blogs and yesterday adds a new first -- announcing consents involving allegedly deceptive health claims by mobile app marketers.  The AcneApp available at iTunes for $1.99 and Acne Pwner available at the Android Marketplace for $.99 claimed to treat acne. The buyer was to hold her smartphone screen to the affected area and blue or red light would eliminate certain acne causing bacteria and reduce blemishes. Ads for the Apps relied on satisfied customer testimonials.  Some AcneApp ads cited a study in the British Journal of Dermatology supporting it claims. The study did not test the efficacy of the mobil app. Readers of this blog know, the FTC has increasingly been requiring product testing to support health claims and not reliance on general studies for substantiation. Further, use of customer testimonials, even if truthful, do not provide the needed support that the product works. Such anecdotes must be supported by science showing typical results.  

In one of his customary cheeky comments, Chairman Leibowitz said in announcing the settlements, "unfortunately when it comes to curing acne, there's no app for that."

The consents [available here and here] include injunctive relief as well as consumer redress.  Before making any claims that apps or other devices cure acne, the respondents must have competent and reliable scientific evidence, defined to mean at least two adequate and controlled independent studies.  While the redress amounts are modest, as a percentage of total sales they are significant (e.g., $1,700 in the case of Acne Pwner, but total downloads at $0.99 only totaled 3,300). 

Why go after such small potatoes?  These cases are a reminder that health claims are a continued priority for the BCP. They should also stand as a warning to Apps makers to make sure the claims made for apps, even if not as life changing as a cure for acne, are substantiated. The disclaimer from AcneApp that "this app is for entertainment purposes only" did not deter the FTC from enforcement, presumably because a marketer can generally only use a disclaimer to add important clarifying information and not take away from the promises it makes it its ads. The FTC is clearly monitoring claims in the app space and we expect this will not be the last of such enforcement efforts.

- Amy Mudge

Gibson’s Indian Guitar Wood Blues

In late August 2011, federal agents reportedly raided Gibson guitar factories in Tennessee for the second time in two years as part of an investigation into potential violations of the Lacey Act.  According to news reports, the US government seized ebony and rosewood because it was exported from India in an unfinished state, which the US government believes violates an Indian law prohibition on the export of unfinished ebony and rosewood, and because the import paperwork accompanying the wood was false. Gibson, the maker of the iconic Les Paul guitar, has subsequently questioned the US Department of Justice’s “interpretation of a law in India,” and stated that the actions were “taken without the support and consent of the government in India.” Additionally, there has been media speculation regarding the Lacey Act’s effect on manufacturing jobs within the United States, with questions regarding the cost to US businesses.  In contrast, supporters of the Lacey Act’s increased reach over wood products have previously pointed out the consequences of a depressed US wood and logging market due to imports of illegally harvested wood, and the negative social, economic and environmental effects in countries from where the wood comes. 

Whether illegal wood enters into the United States in the form of finished guitars or the wood or in the form of raw timber, the legal effect is the same: a potential violation of the Lacey Act.  The Lacey Act makes it illegal for any individual in the United States to import, export, buy, sell, or transport wildlife or, since 2008, plants or plant products that were taken, harvested, or exported unlawfully – in any way. If wood coming into the United States was unlawfully exported from another country in violation of a local law or regulation, then that wood’s import into the US likely would violate the Lacey Act. 

As of this date, the only proceeding brought against Gibson concerns the wood seized in 2009 that the US government was exported unlawfully from Madagascar and that Gibson purchased from a German supplier, Nagel.  The US government has filed a civil forfeiture claim against Gibson, United States v. Ebony Wood in Various Forms. As of the time of this writing, the US government has filed not charges against Gibson regarding this latest seizure. 

The Lacey Act provides for both criminal and civil penalties.  More generally, recent precedent indicates that if criminal charges are brought and convictions handed down, the financial consequences could be considerably worse for defendants in Lacey Act prosecutions.  The US Supreme Court recently declined to hear an appeal from a Second Circuit case, United States v. Bengis, in which the US government,  represented at that time by Marcus Asner (now an Arnold & Porter partner), successfully argued that South Africa had a property interest in lobsters seized from its shores.  As a consequence, South Africa was entitled to what will likely total millions of dollars in restitution.  Because the defendants in Bengis were convicted of a conspiracy, the crime fell under Title 18 of the US code and, thus, the victims were entitled to restitution under either the Mandatory Victim Restitution Act or the Victim and Witness Protection Act. 

- Grace Pickering and Marcus Asner

Guidance for Consumer Products & Services Companies: A Review of the Supreme Court's 2011 First Amendment and Class Action Decisions (Webinar)

The editors of the Consumer Advertising Law Blog wanted to let our readers know about an upcoming webinar that may be of interest to you, entitled, "Guidance for Consumer Products & Services Companies: A Review of the Supreme Court's 2011 First Amendment and Class Action Decisions".

In a panel presentation by members of Arnold & Porter's Appellate and Supreme Court practice and the firm's consumer industry group, this webinar will provide in-house counsel with practical analyses of the Supreme Court's 2011 decisions that focused on First Amendment and class action issues relevant to business. The panel will discuss how these decisions affect companies' ability to advertise and market, as well as the potential to limit litigation and class action risks.

This seminar will review the following cases and issues:

• Sorrell v. IMS: Commercial speech doctrine and free speech rights of regulated industries
• Brown v. Entertainment Merchants Association: Laws designed to protect children through regulation of how products are sold
• AT&T Mobility v. Concepcion: Limiting class action exposure
• Wal-Mart v. Dukes: Class certification in antitrust and consumer fraud class actions
• Goodyear v. Brown; J. McIntyre v. Nicastro; and Smith v. Bayer Corp.: Re-litigation of class certification in other courts after an initial denial and jurisdiction over foreign corporations

Panelists at the event will include: The panel, moderated by Amy Ralph Mudge will include the following Arnold & Porter attorneys:

• Lisa S. Blatt (Washington, DC), Head of the Appellate and Supreme Court Practice
• Angel A. Garganta (San Francisco)
• Robert J. Katerberg (Washington, DC)
• Christopher S. Rhee (Washington, DC)
• James F. Speyer (Los Angeles)

The event will take place from 12:00 PM to 1:30 PM ET/9:00 AM to 10:30 AM PT on September 20, 2011. 

UPDATE (9/28): Access to an audio recording of the event with slides can be found here.

 

FTC To Review Rules on Warranties, Retail Food Advertising

As part of its periodic review of agency rules, the FTC recently announced plans to review its rules governing consumer product warranties and retail food advertising.

With respect to warranties, up for review are the three warranty rules, the FTC’s interpretations of those rules, and its guidance on the advertising of warranties and guarantees. The warranty rules govern warranty disclosures, require that warranties be made available to consumers prior to sale, and lay out the standards for any informal dispute process that consumers must utilize prior to filing a suit for breach of warranty. The rule review has potential implications for a wide variety of retailers and manufacturers as the warranty rules have broad application – covering warranties on automobiles, personal computers, mobile devices, appliances, and a host of other consumer products. One topic that may get some attention in the rule review is whether a manufacturer’s warranty must cover damage caused by the use of non-original manufacturer parts. Manufacturers’ warranties often refuse to cover damage resulting from the use of these “aftermarket” parts and questions arise as to whether this practice is permissible under the warranty rules, or, conversely, whether it operates as an illegal “tying arrangement.” Although the FTC has addressed such questions through advisory opinions, the current interpretations might benefit from some updating to provide additional guidance on this and other “tying” scenarios. The FTC’s request for comment has questions specifically tailored to this issue.

In addition, as with other FTC regulations, the increased use of e-commerce and electronic devices is likely to play a role in this review as well. One of the warranty rules up for review requires that retailers make warranties available to consumers before they purchase a product. The current rule does not contemplate whether making warranty documents available electronically is permitted. The rule was promulgated in 1975 and contemplates only brick and mortar, catalog, and door-to-door sales. It does not have rules specifically geared to online sales nor does it otherwise contemplate electronic compliance. Again, although the FTC staff has issued opinions on similar topics and has issued guidance about online disclosures in general, retailers and manufacturers would surely benefit from more direction within the confines of the rule itself. The agency’s request for comment specifically solicits input on this issue as well. Finally, it will be interesting to see whether the FTC will use the review as an opportunity to expand the rule to cover so-called “extended warranties,” or whether it will continue to use Section 5 as its primary enforcement tool. Comments on the warranty rules are due October 24, 2011.

Another rule up for review is the “Unavailability Rule,” which prohibits grocery stores and other food retailers from advertising products at a given price unless the products are in stock and available during the stated period of the advertisement. Otherwise, the ad must disclose that “supplies are limited” or similar language to that effect. Among other things, the FTC seeks comment on whether the rule, which was last updated in 1989, continues to be effective, whether it should be expanded to cover other types of retail stores, or whether it should be amended to account for changes in technology. Comments on this rule are due October 19, 2011.

After the close of the comment period, the agency will review the comments, and, based on the feedback, determine whether to modify or repeal the rule to address the concerns raised, to reflect changes in the marketplace, or to reduce undue regulatory burden. It may also hold public workshops or roundtables if it determines that further input is needed.

- Amy Mudge and Allyson Himelfarb

Warning Scam For Businesses: Do Not Be Duped by Fake FTC Complaints

We understand that a scam is making the rounds that may make it into email boxes of corporate lawyers and their business clients. It involves a cover email styled to appear like it is coming from the FTC forwarding customer complaints and asking the business to respond. It includes a link that purports to be to the complaint, but,when clicked on, it will download malware to the user's computer. The FTC's blog for business includes more details here. This is not a new and novel scam, but one that is recurring and can dupe even sophisticated business people.

For those of you who have been on the receiving end of an FTC complaint, CID or request for information, you know this is not how the agency operates. Such requests will come by mail or formal service. Business folks may not be so informed, particularly as this means of communication is not unlike what a company might get from a local BBB or other business organization. As this is not something your IT departments want to labor with over the holiday weekend, we wanted to spread the word to our readers.

- Amy Mudge

How Does the (Browser) Cookie Crumble?

A blog in The Economist (“Beware the cookie monster”) last week picks up on the latest publication by a group of researchers associated with U.C. Berkeley. The point of the pundit piece? The peskiness of tracking cookies that persist despite a consumer’s decision to “opt-out.”

The researchers’ study took a wide view, looking at how, and how many, cookies would be placed on a single computer visiting the top 100 sites on the Internet. Along the way to finding that some 600 separate third parties placed nearly 5,000 cookies on a single computer visiting those 100 sites, the researchers found a few companies placed cookies that seemed to come back from the dead. Although The Economist only highlighted a few of the technical means companies employ to bring cookies back even after consumers try to get rid of them, at last count one of the researchers who contributed to the study has found 13 such means, a list which grows almost each time new technologies are implemented.

Barely had the virtual ink dried on this study, when the first of what could be several consumer class-action lawsuits was filed in US District Court in California. In it, the plaintiffs allege that certain of the companies mentioned in the study employ practices of continuing to track their online habits after they have tried to opt out, violating their expectations to privacy, as well as several federal and state laws.

If any of this sounds familiar, it should. This most recent study follows on from an earlier one some of the same researchers published in 2009, which highlighted similar practices embedding cookies using Adobe’s Flash program that couldn’t be removed. Then, their findings quickly engendered controversy, followed by lawsuits, more lawsuits, and finally settlements.

Controversies over what actually happens after a consumer “opts-out” might sound familiar for another reason. A few weeks ago, we posted comments on the results of yet another study, this one conducted by Stanford University’s Center for Internet and Society. According to Stanford’s study, half of the online advertising companies participating in the NAI’s self-regulatory framework still tracked consumers even after they had “opted out” from receiving behavioral advertising.

Both studies’ findings come in an atmosphere slightly changed since 2009. As the FTC continues to explore how a “Do Not Track” registry might work to bolster behavioral advertising companies’ self-regulatory efforts, one of the Commissioners last week intimated the FTC may soon request far more information from those companies regarding their practices, including details of their opt-out processes. Also, although the FTC continues its longstanding focus in this area on ensuring companies protect consumers’ personal information, it also recently brought its first case ever in the behavioral advertising area, in June approving an order against an online advertiser. At issue in that case? Ironically − a “do not track” cookie that died after a brief life of 10 days and stayed that way, setting the stage for resumed tracking without informing the consumer.

Companies would be well-served to settle on a policy for tracking consumers and follow it. As technologies evolve offering new ways to record consumers’ activities, and companies seek to use those technologies to retain an edge through more targeted marketing or advertising, they may wish to remember the basics to stay above the emerging regulatory and class-action fray over consumer tracking. Explain to consumers when their behavior is tracked when visiting their website; offer a clear and conspicuous means to opt out of such tracking; and respect consumers’ privacy preferences, even if that means saying “no” to more cookies.

- Ronald Lee and Scott Swafford