Consumer Advertising Law Blog

2011: Consumer Protection and Advertising Year-in-Review

From celebrity misappropriation suits to blockbuster class action rulings in the Supreme Court, 2011 was another exciting year in consumer advertising law. As we look forward to 2012, here’s a look at eleven of the top stories from the year that was. If you have your own nominees for 2011’s top eleven, send an email (randal.shaheen@aporter.com) and we’ll try to post our readers' list later this month. 

11. Maybe It’s Maybelline … or Maybe It’s Airbrushed

Beauty enhancements should come from products, not post-production! So said the UK’s Advertising Standard Authority in 2011, when it banned advertisements [Aug. 2, 2011] depicting Julia Roberts and Christy Turlington on the basis that the images had been digitally altered.

10. 2011.xxx

Many a legitimate enterprise found itself registering a .xxx domain name in 2011, as a new top level domain was launched for adult content on the Internet. These companies blushingly took advantage of the Sunrise B [Oct. 11, 2011] time period during which non-adult-industry trademark owners could defensively register their marks, thereby eliminating them from the pool of available .xxx domains.

9. There’s No Such Thing as a Free Lunch

It seems like the battle against the bulge is never-ending and so is the FTC’s battle against companies advertising misleading weight loss remedies. In 2011 the FTC reached a $25 million settlement [Oct. 4, 2011] with Reebok over ads for toning shoes that promised “a better butt and better legs with every step.”

8. She Looks Like Kim Kardashian

It’s well known that misappropriation suits are de rigueur for any self-respecting celebrity du jour.  See e.g., Paris Hilton’s 2009 suit against Hallmark (for use of the phrase “that’s hot”); Lindsay Lohan’s 2010 suit against E*Trade (for portraying a baby named Lindsay as a “milkaholic”). 2011 was no exception, as Kim Kardashian sued Old Navy [Aug. 4, 2011] for allegedly using a model resembling her in a TV advertisement.   

7. Made in Havana, Puerto Rico

The rule that literally true statements can be challenged as impliedly false took a hit this year [Oct. 10, 2011] when the Third Circuit held that survey evidence showing that the name “Havana Rum” gave the impression the rum was made in Cuba could be excluded because the statement on the bottle that the rum was “made in Puerto Rico” was objectively verifiable.

6. The Meaning of “Natural” 

The trickle of cases alleging deceptive use of the term “natural” on labeling or in advertisements became a torrent in 2011, with new suits [Oct. 3, 2011] against Conagra, Kellogg, and Skinny Girl, to name just a few.

5.Protecting Children in the US -- Standards for Food Advertising

We have been following FTC efforts to establish principles for marketing food to children for some time. In 2011, these efforts culminated in initial recommendations [May 16, 2011] published by the Interagency Working Group on Food Marketed to Children. These recommendations met with heavy resistance in the form of an industry coalition, [Aug. 9, 2011] which is seeking legislative action on the basis that the proposed standards are overbroad and anti-business.     

4. Protecting Children in the UK -- Standards for Decency 

The UK advertising regulator, the Advertising Standards Authority, was also active in protecting children in 2011, finding ad campaigns directed at children [Oct. 24, 2011] or portraying children (here and here) [Aug. 18 and Dec. 19, 2011] to violate UK standards for responsible advertising.

3.COPPA 

The FTC proposed changes [Sept. 23, 2011] to rules implementing the Children’s Online Privacy Protection Act (COPPA), which provides parents control over what personal information web sites may collect from children under 13 years old. These proposals are significant, particularly because FTC enforcement has made COPPA compliance a serious consideration [Nov. 23, 2011] for all web site operators.

2. Concepcion

In AT&T Mobility LLC v. Concepcion [May 4, 2011], the Supreme Court held that arbitration provisions prohibiting class-wide arbitrations can be enforced, and that the California Supreme Court’s decision in Discover Bank finding such provisions unenforceable is preempted by the Federal Arbitration Act. The full ramifications of Concepcion have yet to play out, but at least one court has found that such clauses can still be unconscionable. [Nov. 14, 2011]

1. Wal-Mart v. Dukes

The top spot on our list goes to the Supreme Court’s watershed decision [June 28, 2011] on class certification, the first of its kind in many years. Wal-Mart embraces a rigorous analysis of the elements of class certification, and substantially raises the bar for showing that the commonality element of Rule 23 has been met. Commentators were quick to predict that Wal-Mart would shape class action law for years to come, and early indications [Aug. 24, 2011] suggest that might be an understatement. [Nov. 15, 2011]

- George Langendorf, Randy Shaheen, and Amy Mudge

UK ASA: Protecting Children from Harm And… Potential Harm

The UK’s advertising regulator, the Advertising Standards Authority (ASA) has banned an advert from haute couture label Miu Miu which showed a child model in a “hazardous or dangerous situation”. The advert, which featured in Tatler Magazine, showed a 14-year old model wearing 1940s-inspired adult clothing and sitting on railway tracks. A complainant said that the model looked like she was or had been crying and challenged whether it was irresponsible as they believed it was suggestive of youth suicide and could be seen by impressionable young people. The ASA also challenged whether the advert was irresponsible for showing a child in an unsafe location. In response, Prada Retail UK Ltd (Prada), which is behind the Miu Miu brand, said that the advert was part of a serious, high-fashion campaign aimed at adult women and was only published in adult magazines such as Tatler. It said that the model was not crying, nor had she been asked to cry or to look upset. The advert was not created to give an impression of youth suicide, nor was it made with the intention of depicting a child in an unsafe location. The photograph had been taken on an abandoned railway, the model was not restrained in any way and it was clear from the extended viewpoint that there was no train in sight.

The ASA dismissed the complaint about youth suicide, holding that the model was not shown looking in distress or crying and that the advert would be seen by a predominantly adult readership. However it upheld the second complaint. The ASA concluded that, although the model was not restrained on the track or seen playing on it, and there was no train in sight, the advert was shot in a potentially hazardous location and was therefore “irresponsible”.

We are used to seeing the ASA taking a firm stance on adverts which sexualise children (e.g., see here how American Apparel learnt from its mistakes), or promote unhealthy behavior (e.g., see here our summary on the banned Kate Moss t-shirt slogan), however this decision takes the ASA’s protection of children significantly further. Advertisers should therefore be mindful of depicting children in situations which may suggest even the potential for danger or hazard.

- Richard Dickinson

COPPA Compliance is No Day at the Beach

Skid-e-kids, a social networking site which advertises itself as the “Facebook and Myspace for kids,” recently entered into a consent decree with the Federal Trade Commission (FTC) regarding alleged violations of the Children’s Online Privacy Protection Act (COPPA). This latest social networking should send a strong warning to all website operators regarding the potential pitfalls of collecting site visitors’ information without strict screening.  In addition, because COPPA applies not just to website operators, but also to operators of mobile applications, many applications operators should be on notice of the implications of the Skid-e-kids Consent Decree.

COPPA requires that website operators notify parents and obtain their consent before collecting personal information from children under age 13. This is required not only for ostensibly “children’s sites”, but also for any website whose operators have actual knowledge the site is collecting information from children under age 13. A website operator may have actual knowledge of a user’s age, for example, if it asks for, and receives, information from which age can be determined, such as by asking “What grade are you in?”

Skid-e-kids allegedly violated COPPA by allowing children to register on its site without first obtaining parental permission. Such collection allegedly occurred despite the statement in the site’s privacy policy that it was mandatory for “child users to provide a parent’s valid email address in order to register on the website.” In practice, there apparently was no such requirement, as Skid-e-kids allegedly obtained information from approximately 5,600 children without parental consent.

Pursuant to the Consent Decree, Skid-e-kids must (i) delete all of the personal information it obtained from children without parental consent, (ii) provide a link to online privacy educational material and (iii) retain a privacy professional to oversee compliance for a period of time. Further, the Consent Decree imposes a $100,000 civil penalty on Skid-e-kids – although payment of all but $1,000 of that penalty will be suspended provided Skid-e-kids complies with the Consent Order’s oversight provisions and its operator provided truthful financial information.

The FTC is currently accepting comments on proposed changes to the COPPA rule. Among the potential changes are expanding the definition of “personal information;” allowing children to participate in some interactive communities without parental consent so long as certain conditions apply; developing new parental consent mechanisms; and strengthening the oversight of the “safe-harbor programs.” Written comments on the proposed revisions are due to the FTC by November 28, 2011.

 - Nancy Perkins and McCormick Conforti

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.

UK ASA: Kate Moss Slogan + Advertising to Kids = Bad Combination

This week the UK’s Advertising Standards Authority (ASA) banned an online ad for irresponsibly advertising children’s T-Shirts that encouraged unhealthy body images.

The T-shirts, promoted in Zazzle Inc’s website, bore a slogan made (in)famous by supermodel Kate Moss, “Nothing tastes as good as skinny feels!”, shown in both the product image and in the labelling. Complaints were made to the ASA that advertising such t-shirts for children was irresponsible. Zazzle responded saying that its website was an open marketplace platform allowing users to sell products of their own design; while it did not pre-screen content, the website had tools allowing users to report products they found offensive. The ASA noted that Zazzle had already removed the ad, but found that, at the time it appeared, it featured children and promoted a product for children to wear that implied that being underweight was desirable. The ad could encourage children to turn to unhealthy diets or develop negative body images, and was therefore in breach of rules on social responsibility and protection of children.

It’s worth a reminder that while in the United States this type of case would not be considered “deceptive,” Section 5 also prohibits “unfair” advertising practices and the FTC has used that authority to occasionally target marketing practices that it believes are injurious and against public policy. One of the more recent examples involved a beer commercial that depicted, in the FTC’s words, “boating passengers as drinking Beck's beer while engaged in activities that require a high degree of alertness and coordination to avoid falling overboard.”

The ASA clearly takes advertising aimed at children, or of products for children, very seriously. With the ASA’s remit expanded since 1 March 2011 to include online promotions, websites offering marketplace-type services may well find that some level of screening may be necessary to ensure ads for items being marketed by users do not breach advertising rules.

- Richard Dickinson (UK) and Randy Shaheen (US)

Wanna Violate COPPA? Developer Finds Out That There's an App for That

Mobile Apps are big business. As of early July, Apple estimated that more than 15 billion apps have been downloaded for its popular iPhone and related products. Our blog even has an app and has contributed, in a modest way, to that total.

While many apps don’t require you to provide personal information, some do. And yesterday, in case there was any doubt the FTC made it clear that it views apps as sending and receiving information over the internet and thus are online services subject to its Children’s Online Privacy Protection Act (COPPA). The FTC entered into a settlement with a developer of several apps designed for children, including Emily’s Girl World and Emily’s Runway High Fashion, that were listed in the Games-Kids section of the App Store. The apps allowed children to email “Emily” comments and submit blogs and post information on message boards. As a result, the FTC alleged that the developer collected personal information, such as email addresses and other personal information posted on message boards, from children under the age of 13 without parental notice and consent. The developer agreed to pay a $50,000 penalty and to delete all personal information it collected in violation of COPPA.

COPPA enforcement continues to be a “hot” item for the FTC and clearly anyone marketing an app for children should take a look at their information collection practices and perhaps avail themselves of the safe harbor certification process offered by organizations such as the National Advertising Division’s Children’s Advertising Review Unit (CARU). In addition, even if an app is not “directed” toward children, a company marketing an app for adults can also violate COPPA if it knowingly collects personal information from a child under the age of 13 without parental notice and consent. It’s also worth noting that the definition of “personal information” is quite broad and can include the use of a “persistent identifier, such as a customer number held in a cookie that is associated with individually identifiable information. Still not sure what to do? A search of the App Store this morning yielded no hits for COPPA compliance but just wait. Maybe there’ll soon be an App for that .

- Randy Shaheen

CARU Says Never to Justin Bieber Commercial

The Better Business Bureau’s Children’s Advertising Review Unit (CARU) recently recommended that Paramount Pictures discontinue the use of a commercial for Justin Bieber’s autobiographical film Justin Bieber: Never Say Never (which reportedly only covers 20l0, not all 17 years of his life). The decision highlights that CARU will focus primarily on whether it believes an ad message is misleading to a young audience and will not necessarily take into account factors such as whether the ad has been discontinued, was in limited circulation, and was conveyed only in a single ad of a much larger ad campaign.

The commercial at issue features a movie theater full of Bieber fans who are about to see an advanced screening of the film, “or so they think,” hints the commercial’s announcer. “What they don’t know,” is that Bieber is pulling “the ultimate prank”. As the movie begins, Bieber bursts through the screen—in person—to the shrieks and squeals of fans (just shout whenever, and he’ll be there?). The ad touts that the movie is in 3D and fans "have never experienced him quite like this," with Justin gushing, "I have the greatest fans in the world. I hope you enjoy this movie about my life and my journey." The commercial ends with the announcer pondering that the audience is probably “okay” with being “pranked,” and Bieber himself chimes in: “This could happen in your theater.”

CARU did not think it could. The problem, in the view of CARU, is that the commercial, would reasonably give the (wrong) impression that Bieber “would make live appearances at movie theaters where the commercial aired.” The claim was literally true—he did in fact make a few live appearances in Los Angeles (here and here) — but CARU believed the ad implied that fans outside of LA could reasonably hope for a similar sighting of their idol. CARU found the net impression of the ad to be misleading to its intended audience, the impressionable tween and teen girls who make Justin Bieber so popular. Even though this ad only aired for 12 days and represented less than 1% of the hefty ad spend for the film ads (which otherwise did not offer the potential for a live Bieber visit), CARU recommended Paramount not promise again that "this could happen in your theater.” As always when it reviews children’s advertising, CARU considered children’s “special vulnerabilities such as inexperience, immaturity, and lack of cognitive skills needed to evaluate the credibility of advertising.”

While it is true that ravid Beliebers might not have reason or judgment when it comes to their idol’s search for somebody to love . . . one less lonely girl, his fans would probably attend his concert film without the chance to actually meet him, so this short run ad probably had no material effect on them. For its part, Paramount disagreed with CARU’s opinion that the commercial was misleading to children, but it nonetheless agreed not to reUp the ad.

- Any Mudge and Tom McSorley

Supreme Court Responds to First Amendment’s Call of Duty: Overturns California Ban of Violent Video Games to Minors

In a 7-2 vote, the Supreme Court overturned California’s law banning the sale or rental of violent video games to minors and imposing a labeling requirement. The Court’s opinion, written by Justice Scalia, found that video games deserve the same protection as books, movies, and plays because they communicate ideas and social messages. Scalia’s opinion cited the many ways in which our culture has incorporated violence into art. He noted that the classic books we read to our children contain “no shortage of gore.” Cinderella’s evil stepsisters had their eyes pecked out by birds and “in the Inferno, Dante and Virgil watch corrupt politicians struggle to stay submerged beneath a lake of boiling pitch, lest they be skewered by devils above the surface.” He continued: “[R]eading Dante is unquestionably more cultured and intellectually edifying than playing Mortal Kombat. But these cultural and intellectual differences are not constitutional ones. Crudely violent video games, tawdry TV shows, and cheap novels and magazines are no less forms of speech than The Divine Comedy, and restrictions upon them must survive strict scrutiny.” The Court stated that California’s effort to ban video games is the “latest episode in a long series of failed attempts to censor violent entertainment for minors.” (There is, of course, a long history of restricting the access of minors to R-rated films, but that is a voluntary restriction imposed by the motion picture industry and theater owners rather than a statutory requirement.)

Although the Court agreed that California’s ban sought to address a legitimate and serious social problem, the Court found evidence lacking to prove that video games cause violence in children. Justice Scalia noted, that even taking California’s evidence for granted, the negative effect of video games on children’s feeling of aggression was indistinguishable from the effect produced by other media, such as cartoons. Yet, Justice Scalia continued, California has “declined to restrict Saturday morning cartoons.”

Playdom, Inc. Pays $3 Million in FTC COPPA Settlement

Last week, Playdom, Inc., agreed to pay $3 million to settle charges that online virtual worlds it operated violated federal rules designed to protect the safety and privacy of children younger than 13 on the Internet. Playdom, Inc., a developer of online multi-player games, operates twenty virtual world websites where users could access online games such as 2 Moons, 9 Dragons, My Diva Doll and Pony Stars. Pony Stars was a website specifically directed to children, while many of the other websites were intended for a general audience but also attracted a significant number of children. Over the past five years, over 400,000 children registered on the defendants’ general audience sites, and 821,000 children registered on the Pony Stars website

The a complaint, the FTC alleged that Playdom Inc. illegally collected and disclosed personal information from hundreds of thousands of children under age 13 through these websites without their parents’ prior consent, in violation of the FTC’s Children's Online Privacy Protection Act (COPPA). In many instances, Playdom, Inc. allegedly allowed children to publicly post information, including their names, emails, and location, on personal profile pages and in online forums.

COPPA was originally enacted in 1998 to protect the online privacy of children under the age of 13. The law, which governs online sharing by, and collection of information from, children under age 13, went into effect in 2000. Among its numerous provisions, COPPA requires that operators of websites directed at children obtain parental consent before collecting, using or disclosing personal information from children. COPPA also requires that website operators post a privacy policy that is clear, understandable, and complete. The FTC alleged that Playdom, Inc. failed to meet these requirements.

This settlement is the largest civil penalty to date for a violation of the FTC’s COPPA Rule and signals that the FTC intends to take an aggressive stance towards this behavior. Jon Liebowitz, Chairman of the Federal Trade Commission, emphasized, “You owe it to parents and their children to provide proper notice and get proper consent. It’s the law, it’s the right thing to do, and, as today’s settlement demonstrates, violating COPPA will not come cheap.” The fine comes at the same time as Reps. Joe L. Barton (R-Texas) and Edward J. Markey (D-Mass.) are signaling their intent to introduce a bill to increase online privacy protections for children. Their proposed “Do Not Track Kids Act” would ban companies from using children's personal information for targeted ads and marketing.

Not all COPPA violations necessarily result in enforcement action. In a staff letter from March of this year, the FTC closed another COPPA investigation against AnimalCrossingCommunity.com after the company took prompt action to respond to concerns raised by its online policies, including deleting the personal information of children previously collected, implementing a reasonable means of obtaining verifiable parental consent and revising its privacy policy to reflect changes to its website. Which COPPA violations will result in consent orders and penalties and which will result in a closing letter? Best not to find out, and instead to comply. The FTC has issued guidance documents that are helpful (here and here) and has blogged on COPPA requirements. There are also approved self-regulatory programs that can provide a safe harbor if implemented. It is important to remember that COPPA is not limited to websites directed to children under the age of 13 but also applies if a website operator knowingly collects information from kids; defining actual knowledge can be tricky.

- Tiana Russell and Amy Mudge

Is Advertising to Children Like Taking Candy From A Baby? FTC Issues Report and Recommendations on Food Marketing to Kids

Late last month, a coalition of federal agencies published a preliminary proposal to guide the food industry’s self-regulatory efforts with respect to the marketing of food to children aged 2-17.  Congress created the Interagency Working Group on Food Marketed to Children (“Working Group”) as part of the 2009 Omnibus Appropriations Act (H.R. 1105). The Working Group is comprised of members from the Food and Drug Administration, the Centers for Disease Control and Prevention, the United States Department of Agriculture, and the Federal Trade Commission. 

The draft proposal sets forth two principles for ten categories of food most heavily marketed to children (such as cereal, candy, dairy, and carbonated and noncarbonated beverages) and suggests that these principles be met by 2016:

• Principle A: Foods marketed to children should make a meaningful contribution to a healthful diet through inclusion of food groups such as juice, whole grains, low fat or fat free dairy, lean meat or fish, beans, nuts and eggs. There are two different suggested approaches to measure whether the contribution is meaningful. The first option looks to whether 50% by weight of the food or dish is comprised of the relevant groups while the second sets specific goals for one or more of the relevant food groups.
• Principle B: Foods marketed to children should minimize consumption of foods with significant amounts of nutrients that could have a negative impact on health or weight -- specifically, sodium, saturated fat, trans fat, and added sugars. Specific targets are proposed for each of these.

Because the First Amendment constraints on the government’s ability to curb commercial speech, all of the Working Group’s proposals are voluntary and, according to the FTC, are not intended to be a precursor to a rulemaking effort. Nevertheless, in its statement on the proposal, the FTC acknowledged that the proposal sets “ambitious goals” that will be “challenging for the industry to meet.” This is particularly true because the proposed definitions for what activities by food companies constitute “marketing,” which are adopted from a 2006 FTC study of youth-directed food marketing, are “substantially broader” than the definitions that currently govern the industry’s self-regulatory programs and encompass over 20 forms of activity.

Due to these concerns about the breadth of the definition of “marketing,” the Working Group is seeking comments about whether the final recommendations of the proposal should be narrower for adolescents aged 12-17 than for children aged 2-11. The FTC, which will review comments related to definitions in the proposal, seems to be receptive to different rules for different ages. In its statement about the proposal, it notes that adolescents are more capable of understanding the intent of marketing, the evidence of the influence of food marketing on adolescent behavior is inconclusive, and restrictions on marketing to adolescents are more likely to impact marketing that reaches a substantial adult audience.

The FTC is holding an information session on the proposal on May 24, 2011 at the Department of Health and Human Services in Washington, D.C. The deadline for written comments on the proposed principles has been extended to July 14, 2011.

- Randy Shaheen and Daniel Stuart

Does the Alcohol Industry Have Self-Control?

That’s what the FTC wants to find out.  On March 8, the FTC announced that it published a notice in the Federal Register seeking public comment on a proposal to collect self-regulatory compliance and other advertising and marketing data from beverage alcohol manufacturers.  Comments are due by April 26.  The announcement of a new alcohol industry study comes after the FTC sent warning letters to four makers of caffeinated alcoholic beverages last Fall.

In its 1999, 2003, and 2008 reports, the FTC looked at industry self-regulation of advertising to underage consumers and offered recommendations to improve self-regulation. As a result, the industry has improved self-regulations practices by, among other things, increasing the placement standard for advertising from audiences that are at least 50% adults of legal drinking age to 70%, improving compliance with this placement standard, adopting third-party compliance review, and increasing attention to advertising content that may appeal to underage consumers.

The current data collection proposal is aimed at verifying and studying the industry’s compliance with its voluntary standards. Keeping pace with evolving marketing practices and the Commission’s focus on privacy issues in on-line and mobile marketing, the FTC is also proposing to collect data on the industry’s digital and social media marketing and its data collection practices with respect to underage consumers.

All in all, it appears that the beverage alcohol industry and the FTC can count the industry’s self-regulation practices as a success. The FTC has long encouraged self-regulation because it “can be more prompt, flexible, and effective than government regulation.”  But, as on-line marketers are finding out, the FTC’s patience will last only so long if industry is seen as non-responsive to its concerns.

- Matthew Shultz

Like Motherhood and Apple Pie: Consumers Union Survey and the Push to Reform the Consumer Product Safety Improvement Act

On February 16, Consumers Union released the results of a new national telephone poll on product safety issues, sending it to members of Congress as they prepared for a hearing the following day by the House Energy and Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade on the Consumer Product Safety Improvement Act (CPSIA) and Consumer Product Safety Commission’s (CPSC) resources.

According to the poll, the “vast majority of consumers (98%) agreed strongly or somewhat that the federal government should play a prominent role in improving product safety.” That conclusion was based on the results of several questions, such as:

• 95% agreed that “the federal government should require testing by manufacturers of children’s products like jewelry, pacifiers, and toys to ensure they do not contain any harmful substances.”
• 94% agreed that “the federal government should require testing by manufacturers of products like baby carriers or slings, cribs, and strollers to ensure their safety.”
• 91% agreed that the federal government should set safety standards for all children’s products.
• 82% said they were interested in the ability to access a database maintained by the government where people can report and search safety problems with consumer products.

The survey results indicating strong public support for federal government involvement in consumer product safety issues was released in the midst of an ongoing debate about the challenges the CPSIA-mandated product safety requirements and initiatives are posing to industry, including increased testing, reengineering and administrative costs that can cripple companies or drive them out of business, and the prospect of defending their products’ reputations after CPSC launches a public database of unconfirmed consumer complaints on March 11.

In-App Purchases Come Under FTC Scrutiny

Like ringtones before them, smart phone apps that offer credits or other items for purchase have come under scrutiny for how they are marketed to children.  In a story by Cecilia Kang earlier this month, The Washington Post reported that children had incurred up to $1,400 in game app charges.  In response, Rep. Edward Markey and Sens. Amy Klobuchar and Mark Pryor wrote to FTC Chairman Jon Leibowitz asking the Commission to look into these practices.  Chairman Leibowitz responded:  “Let me assure you we will look closely at the current industry practice with respect to the marketing and delivery of these types of applications.”  In addition to the FTC’s review, state AGs may also look into these practices.

From 2007-2010, the Florida AG entered into a series of settlement agreements with mobile content providers, Internet marketers, billing aggregators, and wireless service providers about how ringtones and other mobile content are marketed, including to children.  (See here, here, here, here, here, here, here, and here.)  The Florida AG collected over $8.5 million, required refunds to be given for unauthorized purchases, and imposed conditions on how mobile content is marketed.  The key conditions imposed by these settlements may provide a guide to how the FTC or a state AG may approach issues with respect to in-app purchases.

• In determining who to hold responsible for any unfair or deceptive practices, regulators will look at who has a financial interest in the proceeds from in-app purchases and who is in the best position to police these practices.  In the Florida settlements, each level in the mobile content distribution chain is responsible for ensuring that the ads and offers for mobile content are not deceptive and that the price and other material conditions are clearly and prominently disclosed, including adding appropriate contract provisions.  In addition, billing aggregators are required to establish a system for identifying and addressing problematic content providers and to cease doing business with providers who violate disclosure requirements or don’t have adequate customer service.  With scores of app makers, regulators may look to the device makers, app store operators, wireless carriers, or third-party billers to impose and enforce requirements.

• The Florida settlements require that the price and billing period for mobile content plans be clearly and conspicuously disclosed immediately adjacent to where the user signs up.  In addition, information about whether additional charges apply, whether the plan automatically renews, how to cancel the plan, how the purchase would be billed, and a link to the full terms and conditions is required to be placed clearly and conspicuously on the same page.  In the app context, regulators may look at whether ads for the app clearly and conspicuously disclose the price and material terms, whether the availability of in-app purchases is clearly and conspicuously disclosed before the app is downloaded, and whether it is clearly and conspicuously disclosed that charges are about to be incurred before the in-app purchase was made and the amount of the charges.

• How should the user indicate consent to the purchase?  The Florida settlements require affirmative consent by forbidding the use of pre-checked boxes to indicate consent.  In the app context, the user may have to affirmatively click or otherwise indicate consent for the purchase.  If the consent to be billed is indicated through a password to the payment account, there may be an issue if the password remains active for some period of time after the first purchase.

• If the user is under 18, is parental permission required before purchase, or must the parent actually make the purchase?  The Florida settlements require a clear and conspicuous disclosure that the purchaser must be 18 or older.  In some of the settlements, this requirement was specific to the State of Florida.  Thus, this age requirement may vary by state.  This issue also raises questions about how parental consent can be confirmed.  For example, is a password adequate to ensure parental consent?

• Who is responsible for handling consumer complaints and refunds?  In addition to the content provider, the Florida settlements require the wireless service provider and the billing aggregator to investigate complaints and/or provide refunds.

• Are parents aware that purchases can be made through apps and that there are mechanisms for preventing them?  The Florida settlements require wireless service providers to disclose in their service agreements and in a bill insert that such mobile content purchases could be made, that the account holder is responsible for charges, and that there are parental controls available to restrict such purchases.

• How should in-app purchases be disclosed?  As a result of the Florida settlements, wireless service providers are required to have a separate section on their bills that clearly and conspicuously disclose each mobile content purchase and provide a phone number for challenging the purchase.

- Matthew Shultz

UK: Clearcast Reaches “Horror”-able Conclusion on Movie Advertisement

The UK’s advertising regulator, the Advertising Standards Agency (ASA), has applied a post 9pm watershed restriction to a television advert for the film SAW 3D following a complaint from a child.

The advert started by showing scenes from the horror film whilst a voiceover said “Now it’s your turn to play”. It then showed metal restraints appearing around the arms and shoulders of a man wearing 3D glasses, circular saw blades flying out over the audience and a figure reaching out into the cinema and lifting a person back into the screen. A ten year-old child said the advert, which was aired at 8.29pm during a family gadget show, was “distressing” and “inappropriately scheduled”.

Clearcast (which pre-clears most UK television advertising on behalf of broadcasters) said that the advert had been given a post 7.30pm restriction in order to keep it away from young children. Whilst Clearcast noted that the advert did feature some scenes of distress, it felt that anyone watching television after 7.30pm would understand that the advert was for a film and “therefore clearly based in fantasy”. The ASA considered that, although the advert was based in fantasy, the scenes of people in the cinema linked the scenes from the film with a “recognisably real situation”. As such, the advert was likely to cause distress to young children and the post 7.30pm restriction was not sufficient.

Moral: Complaints can be made by anyone (including 10 year-old children!). Unfortunately, this is yet another example of Clearcast getting it wrong. In the UK, take care when featuring images or themes that may distress young children and ensure that the positioning of adverts is suitable for the target audience.

- Richard Dickinson and Jake Marshall

"Haulers" Who Help Companies Must Disclose

A free, trusted personal shopping assistant showing up right at my home to tell me what is in style and where to get good deals sounds too good to be true. However, the new growing trend of Vloggers (video bloggers) creating “haul videos” where shoppers show off recently purchased items called “haul” does just that. According to Good Morning America, more than 110,000 videos are on YouTube, averaging around 10 minutes each. There is even a haul video website that compiles haul videos already on YouTube. Teenage girls are leading the phenomena, making enormously popular haul videos from their bedrooms after a day at the mall, with two of the leading vloggers, Elle and Blair Fowlers, generating a following such that their YouTube videos have been viewed 75 million times.

Certain retailers have been picking up on this way to reach the tween and teen market by sending free merchandise to the popular vloggers. Although Elle and Blair claim that they “would never review something that they would not have spent their own money on,” under the FTC’s Guidance on endorsements and testimonials they may be considered endorsers of the product and may need to disclose any freebie they receive.

We have previously blogged about the FTC’s latest revisions to guidance to advertisers regarding endorsements and testimonials. Bloggers who participate in marketing programs where they receive free products to review or who receive incentives for talking to their friends about a product can be considered endorsers and therefore put a retailer under scrutiny and possible enforcement action by the FTC. In the same way, vloggers and the companies for which they advertise may be in murky water when the line isn’t clear if a vlogger is discussing products of her own volition or if she is influenced by the company itself. One vlogger, reported by the New York Times, stated that she believed “undisclosed payments between haulers and suppliers were probably routine,” judging from her own experience with companies approaching her to endorse. In the area of product endorsements and haul videos, the FTC may be particularly concerned about the potential to mislead a vulnerable audience of preteens who tune into a vlogger to hear a friend giving advice about her favorite stores and items even though the vlogger is actually paid.

The FTC staff has stated its position that bloggers must be explicitly told to disclose to their readers when they received free merchandise or other compensation, and that posting a sign at a conference telling bloggers to disclose isn’t enough. It is the companies or retailers, and not the endorsers, that the FTC will investigate and, therefore, retailers must have responsible steps in place to require that bloggers and vloggers disclose any relationship to the company and require those disclosures to be clear and conspicuous. When the intended audience is young consumers, the disclosure must be prominent and understandable to them. Blair Fowler appears to do it right in one of her haul videos where she advertises a shoe website’s giveaway competition, and begins by explaining that she received a free pair of shoes from the company in the mail.  In the world of tweens, where she who has the most trendiest stuff wins, retailers face the dual challenge of ensuring compliance with FTC guidelines on disclosure and with tween guidelines on what’s cool.

- Amy Mudge and Deborah Birnbaum

Children’s Online Privacy: FTC Obtains Settlement on Charges of Data Misuse

The Federal Trade Commission recently settled with EchoMetrix, a company that develops software and specializes in market research derived from the web. The FTC’s complaint, filed in federal court in New York, alleged that EchoMetrix failed to disclose adequately to parents that information gathered about their children while using EchoMetrix’s Sentry monitoring software would be disclosed to third parties.

The Sentry software allows parents to monitor the computer activities of their children by providing access to activity occurring on a computer with the Sentry program installed. Using the software, when a parent logs on, he or she can see information related to the target computer’s activity related to blogs, chat rooms, message boards, and other web-based interfaces.

In its Complaint, the FTC sought a permanent injunction, alleging that EchoMetrix was taking the information that it gathered from computers with the Sentry program and sharing it with third-party marketing companies through Pulse, an EchoMetrix program that purportedly allowed these marketing companies to receive the content recorded from Sentry in an “unbiased, unfiltered, [and] anonymous” manner. The FTC asserted that EchoMetrix’s disclosure of this practice was inadequate, offering only a “vague statement in the Sentry EULA.” The agency also alleged that this information was just as difficult to find on the company’s website: although a user was given a means to opt out of the “collection process,” no description of this process was provided.

The final order regarding the settlement stipulates that EchoMetrix may not use information obtained through its Sentry program for any purpose other than granting access to a registered user to see information stored in relation to that user’s account. The order also requires EchoMetrix to dispose of information that it had previously transferred from Sentry to Pulse. The FTC will be monitoring EchoMetrix’s observance of these provisions as well as the other compliance and record-keeping requirements of the order. In September, EchoMetrix paid out $100,000 to settle a similar inquiry by the New York Attorney General.

The FTC’s position in this case is a strong warning: as emphasized by David Vladeck, the Director of the agency’s Bureau of Consumer Protection, companies need to make “clear disclosures” about how they are dealing with personal information, especially when “that information relates to children.”

UPDATE (12/2/2010): Representative Edward J. Markey (D-Mass.), author of COPPA, announced that he plans to introduce a “Do Not Track” requirement to prohibit tracking kid’s online activity.

- Nancy Perkins and Michael Thorpe

CPSC Interprets Definition of “Children’s Product”

On October 14, 2010, the Consumer Product Safety Commission (CPSC) published in the Federal Register a final interpretive rule defining the term “children’s product,” a key term under the Consumer Product Safety Improvement Act of 2008 (CPSIA). “Children’s products” are subject to strict requirements under the CPSIA—lead content limits, certification by the importer or domestic manufacturer based upon safety testing by a third-party laboratory, and tracking labels. Therefore, companies have been grappling with and seeking clarification about what is and is not a “children’s product” under the law since the CPSIA became law on August 14, 2008. Whether the interpretive rule provides the necessary guidance is open to question even among the CPSC commissioners. Chairman Inez Tenenbaum and commissioners Robert Adler and Thomas Moore voted to adopt the rule, while the two Republican commissioners, Nancy Nord and Anne Northup, voted against the rule, claiming that it fails to provide necessary clarification and, in some cases, goes too far in what will be deemed to be a children’s product.

The CPSIA defines a “children’s product” as a “consumer product designed or intended primarily for children 12 years of age or younger.” In contrast, CPSC has defined “general use product” as a consumer product “designed or intended primarily for consumers older than age 12.” General use products may include those with which a “child would not likely interact” or those with which “consumers older than 12 would be as likely, or more likely to interact.” Four statutory factors must be considered “together as a whole” to determine whether a product is primarily intended for a child 12 years or younger.

The four factors are:

• A statement by a manufacturer about the intended use of such product, including a label on such product if such statement is reasonable.
• Whether the product is represented in its packaging, display, promotion, or advertising as appropriate for use by children 12 years of age or younge.
• Whether the product is commonly recognized by consumers as being intended for use by a child 12 years of age or younger.
• The Age Determination Guidelines issued by the CPSC staff in September 2002.

The statutory factors focus on whether a product is “for use” by children 12 years of younger, i.e. whether children will physically interact with the product, based on the “reasonably foreseeable use” of the product.

Those seeking certainty from CPSC on what constitutes a “children’s product” may well be dissatisfied by the case-by-case approach that remains under the final rule. However, the majority evidently felt constrained by the CPSIA’s requirement that determinations of whether a product is a “children’s product” be based upon an evaluation of the four statutory factors, and ultimately erred on the side of retaining flexibility to address products individually rather than making categorical determinations in the rule. While the final rule is an important chapter in defining the term “children’s product,” this remains an evolving standard. The published final rule is available here.

A more detailed summary of the interpretive rule and examples from the rule of items likely to be considered “children’s products” or “general use products” is available here.

- Eric Rubel and Jennifer Karmonick

Groups To FTC: Changes In Technology Warrant Changes To COPPA

The Children’s Online Privacy Protection Act (COPPA) governs online sharing by, and collection of information from, children under age 13. COPPA was initially scheduled for review in 2015, but this past spring the FTC announced that it would accelerate the review “in light of rapidly evolving technology and changes in the way children use and access the Internet.” The FTC invited comments on its review and the comment period closed today.

In response to the FTC’s request, a broad coalition of child advocacy, health, consumer, and privacy groups, the American Academy of Pediatrics, the Center for Digital Democracy, Consumer Federation of America, Consumers Union, the Privacy rights Clearinghouse, and the World Privacy Forum, is urging changes to COPPA designed to address the growth of mobile phones, interactive games, and more sophisticated tracking and targeting technologies.

In their formal comments, the groups asked the FTC to:

1. Extend COPPA’s privacy protections to mobile phones, online gaming consoles, interactive television, and other new digital platforms;
2. Update the definition of “personal information” to include information that permits targeting an individual without necessarily knowing the individual’s identity;
3. Use the criteria developed for the 2008 report to Congress on food marketing to clarify the definition of websites and online services “directed at children”;
4. Close loopholes on when and how a website can contact children multiple times without obtaining parental consent;
5. Require major websites, ad networks, social networks and other online service operators to periodically inform the FTC about their data collection practices; and
6. Investigate the efficacy of Safe Harbor programs and require operators to reapply for continued authorization.

The groups also strongly urged the FTC to develop a separate set of privacy protections for children over the age of 13. The formal comments are available here.

The ball is now in the FTC’s court. We expect to see at least some changes to COPPA as a result of the current review.

- Randy Shaheen and Tiana Russell

FTC Revisits COPPA: Time for A Change?

The FTC hosted a workshop last Wednesday aimed at determining whether the Child Online Privacy Protection Act of 1998 (COPPA) continues to remain effective in the ever-changing world of online privacy. COPPA generally prohibits the online collection of personal information from children under the age of thirteen--without notice and parental consent--where a website or online service is directed to children or the operator has actual knowledge of the collection of personal information from children. The FTC has frequently targeted companies for failing to develop or abide by privacy policies that adhere to COPPA guidelines.

Three out of the five panels in the FTC’s program poked and prodded the statutory text, testing its durability and flexibility in different contexts. The first panel examined the definitions of “internet,” “website,” and “online service,” finding that all three terms continue to adequately describe the kinds of media, changed though they may be, that COPPA intended to regulate. The panelists determined that the definition of “internet,” for example, not only continues to be technically accurate, but also encompasses such new developments as mobile browsing. “Online service” remains a capacious term, as Congress intended, that extends beyond the internet, having possible implications for text messaging and other emerging means of communication. (See a previous blog post on this topic here). Because many new services, such as interactive television, carry on the trend toward increased connectivity via the internet, COPPA continues to be widely applicable in new contexts. However, COPPA is still limited by an important caveat: where a website or online service is not operated for commercial purposes, COPPA doesn’t apply.

The second panel investigated the “actual knowledge” standard for operators of websites not otherwise directed to children. Described as an industry victory, Congress’s adoption of this standard in lieu of a more expansive “constructive knowledge” or “knowing” standard provided operators a greater degree of protection, requiring direct and clear knowledge of the collection of personal information from a child in order to trigger COPPA applicability. Panelists contested the adequacy of this standard in light of advertising developments such as behavioral targeting. Some panelists suggested that the term “actual knowledge” could stretch to cover effective knowledge of the age of targeted viewers from behavioral monitoring, potentially blurring the industry-protective line between actual and constructive knowledge embedded in the statute.

In a similar vein, the third panel addressed the question of whether “personal information” includes facts that separately fail to identify an individual (such as an IP address), but, when aggregated, may point to a specific person. The panelists arrived at no clear conclusions.

Whether any changes result from this discussion remains unclear. What does seem clear is that the FTC will continue its vigorous enforcement in this area.

- Randy Shaheen & Danielle Sims

Digital Marketing of Alcohol Products Placed Under Microscope

Gone are the days when alcohol marketing consisted only of catchy slogans, like "Guinness is Good for You" and "This Bud's for You." Today, alcohol advertising often comes in the form of online games, quizzes, videos, screensavers, discussion boards, customized music - even "interactive residences." This content advertising is found not only on a supplier's website, but also on social networking sites, such as Facebook. Concern over how much youth are exposed to these marketing items, and their subsequent effects, is what sparked a recent report by the Center for Digital Democracy ("Alcohol Marketing in the Digital Age") calling for investigative action by the FTC and state attorneys general into the adequacy of self-regulatory measures taken by alcohol companies in online advertising.

Alcohol companies are utilizing social networks to market their brands in various methods. On Facebook, for example, a company can sponsor social games, blogs, groups, fan pages, videos, widgets (applications), events, and polls (see the report for numerous specific examples). The marketing then typically goes "viral," as users pass along the video, information, or applications to others.

The report raises at least two interesting questions.  First, what constitutes a sufficient age verification mechanism. Initially recommended by the FTC in a 1999 report, age verification mechanisms are now found on most alcohol company web sites and typically require entry of a user's birthdate.  To combat fraud, the FTC has urged companies to utilize "tools to prevent minors from back-clicking to change their birth date" (2008 report) and ensure their "web site content is not likely to appeal to minors" (2003 report).

Age verification is also an issue for alcohol related pages on social networking sites, since such sites are very popular with the teenage demographic (a third of Facebook users are twenty years old or younger). In a 2008 report, the FTC did not need to address the issue (except in a footnote), since Facebook did not yet accept advertising from alcohol companies. Facebook now permits alcohol advertising if it meets its prescribed guidelines, requiring that ads be "targeted to people 21 years or older" (in the US) and that "Facebook Pages" possess "viewer restrictions" set at 21 years of age. (it appears that Facebook provides access depending upon the age profile of the user) 

However, the CDD report suggests that content from age restricted sites is "rebroadcast" by visitors to these sites in a manner that results in little if any age restrictions.  (We note that the Bud Light Facebook page asks visitors to only share the content "with friends 21 and older.)  A 2009 study by the Marin Institute tested this issue.  Its authors created two Facebook user profiles, one under-21 and one over-21. To attract alcohol advertising, they placed terms like "drinking," "partying," and "bars" in the "Interests" and Activities" sections of their profiles. They found that the number of paid alcohol ads is minor "compared to the tens of thousands of alcohol-related Pages, Applications, Events, and Groups" subject to few guidelines. Much of that content is "accessible to users of every age."  Of course, the fact that such "rebroadcasting" occurs does not necessarily mean that the advertiser is legally responsible for any dissemination of its advertising materials other than its own. 

So what actions is the CDD calling for?  It is recommending that the industry set stronger self-regulatory codes and that the FTC investigate the effectiveness of age-verification systems, among other things. The Center thinks Congress and the FTC's relatively recent foray into interactive consumer advertising has been mostly focused on "the impact on personal privacy of commercial data collection policies"; therefore, the time may be ripe for the FTC to address alcohol marketing on social networking sites (the issue has even spread beyond the U.S.). Stay tuned to see if the FTC decides to address these issues, which have potential ramifications that reach beyond simply alcohol marketing. 

Randy Shaheen and John Eason