Consumer Advertising Law Blog

And Then There Were 5: Julie Brill and Edith Ramirez Unanimously Confirmed As FTC Commissioners

The Senate has confirmed President Obama’s nominees for FTC Commissioners, Julie Brill and Edith Ramirez. With this action, Commissioner Pamela Jones Harbour will be stepping down. As we previously blogged, Julie Brill was an Assistant Attorney General for Consumer Protection and Antitrust for the state of Vermont for 20 years, and she more recently was the Senior Deputy Attorney General and Chief of Consumer Protection and Antitrust for North Carolina. Edith Ramirez was a partner at Quinn Emanuel in Los Angeles, focusing the majority of her practice on copyright and trademark infringement.

After being nominated by the President on November 17, 2009, the two women had their confirmation hearings before the Senate Commerce Committee in December, 2009. The panel reported the nominations to the Senate a short time later.

FTC Chairman Jon Leibowitz now has a full complement of commissioners, as well as a working Democratic majority for the first time since he became chairman. Leibowitz said of the confirmations, "They are both exceptionally talented and committed, and will bring a wealth of experience, knowledge and new energy to the Commission." The two other current members are William Kovacic and J. Thomas Rosch, both Republicans. Kovacic’s term expires in September 2011, and Rosch’s term expires one year later. What does this mean for consumer protection enforcement? We predict more focus and movement on privacy and data security initiatives, likely heightened coordination with state AGs, and aggressive enforcement of financial fraud.

FTC Posts Top Consumer Complaints for 2009

Every year, the FTC posts its stats on consumer complaints received for the last year. The full report can be found here and breaks down consumer complaints by type and number by state. The FTC is also seeking to publicize how consumers can lodge complaints, releasing an animated video of how to file a complaint and giving examples of the types of complaints the FTC handles. Complaints received by the FTC can come through a phone hotline or online. The complaints are housed in the Consumer Sentinel Network, a secure online database available to domestic and international law enforcement with complaints that flow to the FTC, the Better Business Bureaus, the US Postal Service, and the Internet Crime Complaint Center, among others.

So what does this mean for legitimate businesses not engaged in fraud and scam tactics? Know that the FTC and other law enforcement agencies are well coordinated. Know consumer complaints get looked at and not just filed away for an annual stats report. Know the areas where there are more complaints get more enforcement attention. While having a well trained and responsive customer service plan is not a slam dunk defense to deceptive or misleading marketing allegations, having an outlet and remedies available for customers where things do not go as planned may prevent disgruntled calls or emails to the FTC or BBBs to air their grievances. This is one ranking list no industry aspires to make.

Topping this year’s charts are:

Rank - Category - # of Complaints (% of total complaints)

1.    Identity Theft: 278,078 (21%)

2.    Third Party and Creditor Debt Collection: 119,549 (9%)

3.     Internet Services: 83,067 (6%)

4.     Shop-at-Home and Catalog Sales: 74,581 (6%)

5.     Foreign Money Offers and Counterfeit Check Scams: 61,736 (5%)

6.     Internet Auction: 57,821 (4%)

7.     Credit Cards: 45,203 (3%)

8.     Prizes, Sweepstakes and Lotteries: 41,763 (3%)

9.     Advance-Fee Loans and Credit Protection/Repair: 41,448 (3%)

10.   Banks and Lenders: 32,443 (2%)

11.   Credit Bureaus, Information Furnishers and Report Users: 31,629 (2%)

12.   Television and Electronic Media: 26,568 (2%)

13.   Health Care: 25,414 (2%)

14.   Business Opportunities, Employment Agencies and Work-at-Home Plans: 22,896 (2%)

15.   Computer Equipment and Software: 22,621 (2%)

Vladeck Reviews Enforcement Priorities for E-Marketing

FTC BCP Director David Vladeck spoke earlier this month at the Electronic Retailing Association’s Great Ideas Summit in New Orleans. His remarks give insight into where the BCP may focus its enforcement efforts as to e-marketing. Vladeck explained, “Internet commerce offers tremendous potential benefits for consumers, but it has also opened the door to new types of deceptive and unfair practices.” Today, it is not unusual that a marketer’s message will go through one or more third parties, including a “scientific expert, advertising agency, celebrity endorser, call center employee, or marketing affiliate -- before it finally reaches the consumer.” Given this climate, Vladeck stated, the FTC is focused on ensuring that “transparency and disclosure rule the day.”

Under this rubric, Vladeck discussed the following:

• Endorsement Guides - An important change to the Endorsement and Testimonial Guides has to do with the use of disclosures in testimonials. Specifically, Vladeck advised that “the use of a disclaimer such as ‘results not typical’” as, for example, commonly used in advertising for weight loss products, “is no longer a safe harbor for the claims made in testimonials.” While an advertiser may use best case testimonials, he or she “should clearly and conspicuously disclose the generally expected results consumers can expect in the depicted circumstances.” Better yet, an advertiser should “use testimonials that actually reflect what your product of services is likely to deliver.” Vladeck appreciates that there is confusion in the industry on disclosing generally expected results but in his view, as a practical matter noted “if you are selling a product to consumers . . . you are already required to have substantiation for all of your performance claims [and so] you should already know what results consumers can generally expect to achieve with your product.” That said, he highlighted that the Guides refer to disclosing expected results in the depicted circumstances and did concede that the Staff understands that “consumer behavior patterns can vary wildly” and the standard is not “to be able to calculate a precise mathematical average for the expected results among all potential product users in all situations.” Vladeck recognized this as a “period of adjustment for everyone” but warned there would be near future enforcement activity in this area.
• Social Media Marketing - Here, Vladeck emphasized that an existing need for disclosure of material connections between endorsers and advertisers now also applies to blogs and “word of mouth” marketing. Where a blogger turns its website into a “commercial venture” by promoting an advertiser’s product “in exchange for free products, payments or other significant perks,” he or she must disclose that connection. Who will the FTC target? Vladeck stated that “our focus will remain on the conduct of advertisers rather than on individual endorsers” and the focus will be on “practices that are the most egregious or the conduct that is likely to cause the greatest consumer injury.”
• Affiliate Marketing - Vladeck expressed a “growing concern” that marketing affiliates (who drive traffic to a website in exchange for payment of a commission for sales) use “false or deceptive claims about the product, fake blogs, and other content that is not clearly identified as advertising or fails to disclose the material connection to the seller.” Vladeck indicated that the FTC is bringing enforcement actions to stop such deceptive and unfair practices. He was clear that “legitimate marketers can and should play an important role in bringing more order and accountability to the affiliate marketing industry.” Vladeck advised companies using affiliate networks to (1) give detailed guidelines to affiliates as to what information should be contained in advertising, (2) do “quality control on the back end once consumers are directed to your website,” and (3) if “you start to hear things from consumers that seem not quite right,” then “follow up and investigate.”

- Marianne El Sonbaty and Amy Mudge

FTC Asks Once Nicely - Warning Letter to Retailers Seeks to Cut Down Deceptive Bamboo Labeling

After bringing recent enforcement actions against several companies for falsely advertising products as “100% bamboo fiber” when they were in fact made of rayon, the FTC sent out a warning to more than seventy-eight companies urging them to review their bamboo products and correct any misleading labeling. (Although rayon is created from the cellulose found in trees and plants, including bamboo, it is a man-made fiber that is processed with harsh chemicals and not considered to be environmentally friendly.) The FTC hopes that the warning letters will “serve as a wakeup call to all companies, regardless of their size.”, and the letters went to well known names as Bed, Bath & Beyond and Amazon.com. 

The warning letters contain a synopsis of FTC decisions regarding the use of proper fiber names in textile labeling and advertising, and are intended to give companies time to take curative steps by removing or correcting any false or misleading bamboo references. If any of the letter recipients is later found to have mislabeled rayon products, the FTC can seek civil penalties of up to $16,000 per violation. The warning letters, as well as the recent enforcement actions brought against companies selling rayon, highlight the FTC’s continuing commitment to prosecute misleading “green” advertising.

While the FTC is still working on revisions to its Green Guides, the Commission is struggling with the appropriate limits to place on marketers, so as not to allow them to convey to consumers a deceptive and overly broad message while touting benefits of a product for the environment. However, in its decisions regarding bamboo, the FTC made it clear it would be appropriate for companies to advertise “Rayon Made with Bamboo,” which truthfully conveys the fact that the manufacturers used bamboo to make the rayon but does not overstate the benefits of the product. Marketers should take a close look at any environmental claims being made about their products and make sure any limitations are clearly conveyed with appropriate disclaimers. 

- Danielle Sims and Randy Shaheen

FTC Chairman Calls for Expanded Consumer Protection Powers over the Financial Services Industry

Last Thursday, February 4, 2010, at a hearing before the Senate Committee on Commerce, Science, and Transportation, Federal Trade Commission (FTC) Chairman Jon Leibowitz urged Congress to grant the FTC increased powers to safeguard consumers from unscrupulous providers of financial services and products. He also described his vision for the relationship between the FTC and the proposed Consumer Financial Protection Agency (CFPA). Given the continued controversy surrounding the establishment of the CFPA as an independent agency, granting the FTC enhanced powers in the consumer financial arena as Chairman Leibowitz suggests might satisfy some of the CFPA’s critics.  

Specifically Leibowitz identified three key measures that he contended would allow the FTC to better protect consumers facing the economic crisis: 

1. Streamlining the FTC’s rulemaking procedures, 
2. Giving the FTC the power to bring charges directly against aiders and abettors of financial fraud, and
3. Expanding the FTC’s remedial powers. 

Currently, the FTC Act requires the FTC to promulgate rules under the Magnuson-Moss Act, a process which has more burdensome procedural requirements than the Administrative Procedures Act (APA) notice and comment procedures used by most federal agencies. These heightened requirements for FTC rulemaking were originally imposed because of the FTC’s perceived broad jurisdiction over the economy and were designed to restrain the FTC’s scope of regulation. Referring to the Magnuson-Moss process as “medieval” and “draconian,” Leibowitz argued that the process prevents it from responding nimbly and effectively to new challenges and threats to consumers. He noted that other agencies with extensive authority over the economy, such as the Securities and Exchange Commission (SEC) and the Federal Reserve Board enact rules under the APA notice and comment process, and emphasized that, when it has been allowed to use the APA notice and comment process in specific circumstances, the FTC has been thorough and circumspect in its rulemaking activity. 

Leibowitz also encouraged Congress to “provide explicit authority for the FTC to take law enforcement action against those who provide substantial assistance to another while knowing, or consciously avoiding knowing, that the person is engaged in unfair or deceptive practices.” While the FTC has been able to bring charges against such aiders and abettors under alternative legal theories of culpability, Leibowitz maintained that direct and express authority would facilitate such actions.

Thirdly, Leibowitz urged Congress to expand the FTC’s law enforcement powers to include independent litigating authority as well as the ability to seek civil penalties for FTC Act violations. Under current law, the FTC must refer to the Department of Justice (DOJ) all cases in which it seeks civil penalties, and Leibowitz contended that the 45 days that the DOJ then has to decide whether to take the case or refer it back to the FTC creates undue delay in bringing actions against alleged violators of the FTC Act. In addition, while the FTC is currently empowered to seek civil penalties for violations of specific laws, Leibowitz asked Congress to grant it the authority to bring such suits for unfair and deceptive practices in general, arguing that such power would deter more effectively financial and other types of fraud. 

Finally, Leibowitz addressed the Obama Administration’s proposal to establish the CFPA. Under the provisions of the financial reform bill that passed the U.S. House of Representatives, H.R. 4173, the CFPA would have authority to regulate and in certain circumstances examine and enforce standards in the offering of financial products and services to consumers. Leibowitz stressed that while the FTC supports the increased focus on consumer protection which has, in his words been treated as the “orphaned stepchild” by the federal banking authorities, he noted that Congress will need to define carefully and explicitly the jurisdictional boundaries between the CFPA and the FTC in enforcing consumer protection in this area in order to prevent confusion and inefficiency. 

As the Senate takes up financial reform in the next few months, including increasing consumer protection, Leibowitz has made his intentions clear that he would like the FTC to be at the forefront of these efforts. The Senate may give him his wish, especially if the establishment of a separate CFPA is abandoned in favor of increased protection at the existing agencies. 

 - Beth DeSimone

FTC Proposed Consent Order With Tanning Association Pales in Comparison to Possible Revised Consent Language

Since its loss in the Lane Labs case (see here for prior blog on the case), FTC Staff has been clear it intends to modify its traditional requirement of “competent and reliable scientific evidence.” The Bureau Director has indicated that under his watch the BCP will include more precise language in orders as to the amount and type of scientific evidence necessary to support health claims, as well as an effort to harmonize with FDA requirements. He indicated that an “outlier study” even if well conducted should not be sufficient basis for a health claim. New language being proposed by Staff, but not to our knowledge accepted by the Commission and made available for public comment, includes a definition of competent and reliable scientific evidence consisting of:

1. at least two adequate and well-controlled human clinical studies,
2. of the product at issue or substantially similar product,
3. conducted by different experts independently of each other,
4. that conform to acceptable designs and protocols and whose results, when considered in light of the entire body of relevant and reliable scientific evidence, are sufficient to substantiate the health claim.

Time will tell if this proposal with considerably heightened standards for substantiating health claims will become the new norm. In the meantime the FTC continues to bind respondents to the old standard. This past week, the FTC accepted a proposed agreement containing a consent order from the Indoor Tanning Association in relation to the promotion of indoor tanning products and facilities.

In March of 2008, the Indoor Tanning Association launched the “Get the Facts About Tanning” campaign purported to dispel various myths created and disseminated by sun-hating dermatologists and the nefarious sunscreen industry. The Indoor Tanning Association allegedly claimed:

• No compelling scientific evidence exists that tanning causes melanoma
• The rewards of “soaking up the sun” outweigh the risks of overexposure
• Indoor tanning is considered by many to be a safer alternative to tanning outdoors
• A study by the National Academy of Sciences determined that the risks of not getting enough UV light far outweigh the hypothetically minute risk of skin cancer
• And last but not least, indoor tanning is a government-approved, controlled environment designed to give you a tan without ever burning.

The FTC’s complaint alleged that these claims were false and unsubstantiated because tanning does in fact increase the risk of skin cancer, including squamous cell and melanoma skin cancers and the National Academy of Sciences study never determined that the risks of not getting enough ultraviolet light far outweigh the risk of skin cancer. The Complaint alleges that while the ITA promoted the benefits of causing the skin to generate Vitamin D, it did not disclose that consumers can increase their Vitamin D levels through exposure to ultraviolet levels lower than that needed to tan.

The proposed consent order contains provisions prohibiting respondent from making any future representations about the health related risks or benefits of tanning and Vitamin D in connection with the advertising or sale of tanning, unless they possess competent and reliable scientific evidence sufficient in quality and quantity based on standards generally accepted in the relevant scientific fields to substantiate that the representations are true. Representations in non-commercial settings, including ITA lobbying efforts, are carved out of the consent. The order further requires that ads making claims about the safety or health benefits of indoor tanning are required to make this disclosure: “NOTICE: Exposure to ultraviolet radiation may increase the likelihood of developing skin cancer and can cause serious eye injury.”

- Amy Mudge and Tiana Russell

How Long Can Your Product Be New and Improved?

We thought we would take this opportunity to remind readers of the basics of “new and improved” advertising. In an oldie but goodie advisory opinion from 1967, the FTC opined that while it wanted to maintain flexibility to address particular situations (but of course!), that “it would be inclined to question use of any claim that a product is ‘new’ for a period of time longer than 6 months" (with a limited test market exception). The “6 Month Rule” was thus born and is still generally alive and well, although not the basis for recent enforcement activity. In addition to the general time frame, the FTC advised that the product in question must actually be entirely new or “has been changed in a functionally significant and substantial respect.” A package change alone, or some other insignificant or insubstantial change, does not support a “new” claim. There are more specific rules or guidance for new claims for refurbished products or for textiles.

- Amy Mudge

Claims of Alleged “Greenwashing” Squeak Past Motion to Dismiss

While marketers await the expected overhaul of and revisions to the FTC’s Environmental Marketing Guides, the existing FTC’s Green Guides should not be ignored. For example, the Guides advise that use of seals of approval should be accompanied by information that explains the basis of the award. Further, if the seal implies that a third-party has certified the product, the certifying party must be independent from the advertisers and have professional expertise in the area that is being certified. The FTC warns marketers against using environmental seals suggesting that a product is environmentally superior to other products if the manufacturer cannot substantiate this broad claim.

Recently, the Northern District of California denied S.C. Johnson & Son’s motion to dismiss state law claims for unfair competition and false advertising arising from SCJ’s labels for its Windex and Shout products (find the opinion here). The plaintiff, whose complaint we previously reported on here, alleged that SCJ’s “Greenlist” label is deceptively designed to look like a third party seal of approval, which it is not, and that the label falsely represents that the products are environmentally friendly. The label features a stylized drawing of two leaves and a stem. On the reverse side of the label, which is read through the back of the Windex packaging, the text states: “Greenlist™ is a rating system that promotes the use of environmentally responsible ingredients. For additional information, visit www.scjohnson.com.”

The putative class representative, Wayne Koh, alleged that he and others would not have purchased Greenlist-labeled Windex at its allegedly premium price had he known that Greenlist was actually created by SCJ, not a third party, and that Windex is not environmentally friendly.

SCJ argued that Koh had not alleged a cognizable injury under California’s Unfair Competition Law, Bus. & Prof. Code § 17200 et seq., and that no reasonable consumer could have found the Greenlist label misleading. The court recognized that being induced to purchase a product one would not otherwise have purchased is not loss of money or property within the meaning of Section 17200 as long as one still received the benefit of the bargain. Here, however, the plaintiff argued that he did not receive the benefit of the bargain because he paid more for a product that he believed was environmentally superior to other products. Thus, the court allowed the claim to proceed.

The court also rejected SCJ’s argument that no reasonable consumer could have found the Greenlist label misleading, stating that whether a business practice is deceptive is usually a question of fact that is not appropriate for decision on a motion to dismiss. The facts that the Greenlist label makes no mention of a third party, describes Greenlist as a “rating system” (not a seal of approval), and directs consumers to SCJ’s own website “may weaken the case for deceptiveness,” according to the court, but these facts do not allow the court to rule on the issue as a matter of law.

Finally, the court allowed Koh to include claims arising from a Greenlist label on Shout products even though plaintiff purchased only Windex. The court reasoned that Koh alleged that SCJ used the Greenlist label on multiple products, including one that he purchased, and there is no bright line rule that different product lines cannot be covered by a single class.

So when do we expect the proposed revisions to the FTC’s Green Guides to be announced? If we had a nickel for every time we were asked that question, we would be very green. Our best guess is late spring based on unofficial conversations with FTC Staff. In the meantime, marketers should continue to exercise considerable caution in making broad, general green claims and in using seals or other references to certification as the plaintiffs’ bar is not delaying action pending FTC updates.

- Vicki Shapiro and Amy Mudge

Vladeck Calls for "Baked In", Not "Half-Baked" Protections for Consumer Data

The FTC gathered in the west yesterday, holding the second in its series of Internet "Privacy Roundtables" at Berkeley Law School. Like the first round table last month in Washington (previously reported on here), the event yesterday brought together representatives from business, consumer advocacy groups, and government to wrestle with the privacy issues faced in this age when just about every visit to a website, update of a social media profile, or use of an iPhone app results in the collection of consumer data. And also like last month, the panels sometimes became "politely heated" as the participants expressed differing views regarding how to address the issues.

The day began with Commissioner Pamela Harbour stating that, what with all the privacy concerns consumers face, "good" businesses have an opportunity to compete for market share on the privacy point, a sentiment repeated in later panels. Nevertheless, she also noted her view that market forces are not sufficient to protect consumers, because (among other reasons) it is "difficult for consumers to define their expectations" for privacy. BCP Director David Vladeck followed, picking up on the theme of continued concern that many consumers do not understand the privacy issues they face, and that privacy protections for new technology should thus be "baked in at the beginning, rather than half-baked" add ons later.

The panels then addressed issues ranging from the particular issues raised by social networking sites, what happens to consumer data in the "cloud," and how mobile devices bring their own unique issues.

As readers of this blog know, it seems pretty clear that the FTC is looking to move away from a self-regulatory "notice and consent" model for dealing with privacy and toward a prescriptive world. Comments at this Berkeley roundtable were consistent with that, but obviously no solutions were reached. Now it's on to the third and last in the round table series, this time back in DC.

If you are interested in watching the webcast of the Berkeley Roundtable, it is available here.

- Sean Morris

FTC Round Table Tango: Agency and Congress Dance Steps Hint At Where Online Privacy Legislation Is Going

The FTC announced today the agenda for its second privacy roundtable discussion, scheduled for January 28, in Berkeley, California “to explore the privacy challenges posed by the vast array of 21st century technology and business practices that collect and use consumer data.” This second recent foray into online privacy follows the first roundtable, held December 7, 2009, in Washington DC. Although the focus of these roundtables is wider than using consumers' information to support Behavioral Advertising (BA), a bit of background on that practice and the history behind these discussions, provide perspective on some of the issues involved.

A Brief History

As long-time readers know, the FTC has been engaged in a dance with industry for years over using consumers' personal information to support different business activities, including BA (the “tracking of a consumer’s activities online - including the searches the consumer has conducted, the web pages visited, and the content viewed - in order to deliver advertising targeted to the individual consumer’s interest”). When the music first started the FTC and industry seemed to be doing a waltz, moving together in both apposition and concordance, and the FTC in 2007 seemed happy to let industry take a self-regulatory spin. With the changing of administrations, the waltz gave way to alternating turns of break-dancing. First industry, then the FTC, sought to anticipate the other and vied for the crowd's attention. The Network Advertising Initiative (NAI), jumped on stage early, modifying its existing online self-regulatory code of conduct in December, 2008, anticipating the FTC’s release of “final” self-regulatory principles by two months. The FTC issued those principles in February, 2009, with staff in the accompanying report. Congress, watching from the sidelines, grumbled it wasn't overly fond of the music, and began to mutter about changing the tune completely. The Interactive Advertising Bureau (IAB), until then mostly silent, broke onto the floor in July, suggesting Congress stay on the sidelines because the dance floor was full and the dancers already doing quite fine on their own. The FTC then sidled closer to where Congress was standing, and said that it too was thinking it might be time to change the music once and for all. Since then, the dance has slowed to a crawl as everyone has waited to see what music Congress decides to put on and occasionally suggesting the current tune was still snappy and shouldn't be changed just yet.

Pharma Company Beats Back Class Action, But Illinois Supreme Court Buys Indirect Deception Theory

Bayer recently persuaded the Illinois Supreme Court to grant it summary judgment in a putative class action case, but, in the process, the Court affirmed that the theory of indirect deception was recognized under the Illinois Consumer Fraud Act (see the opinion here).

In the case, a consumer who had been prescribed a cholesterol lowering drug argued that Bayer had misled her and other potential class members by omitting certain potential side effects of the drug. Plaintiff did not allege any direct communication with Bayer, but rather argued that she had been indirectly deceived as a result of Bayer’s failure to communicate certain risk information to doctors. The Illinois Supreme Court affirmed the validity of a claim based upon indirect deception, noting that it is “enough that the statements by the defendant be made with the intention that it reach the plaintiff and influence his action and that it does reach him and that he does rely upon it, to his damage.” Bayer, however, still had the last laugh as the court found that the plaintiff failed to allege that her particular doctor was deceived by Bayer and that such a showing was necessary for application of the doctrine.

On a related note, the FTC has lately also been making noises that it intends to pursue deceptive business-to-business environmental claims under the appropriate circumstances. Given Section 5’s emphasis on consumer deception it seems likely that the FTC may rely upon the notion of indirect deception as well.

- Randy Shaheen

Will FTC Endorsement Guides Hit Celebrities Where it Hurts?

We all know that celebrities rarely do anything without getting paid for it or getting something for free. But are the FTC’s revisions to the endorsement guides about to put a crimp in celebrity style? Slate reports that Kim Kardashian earns $10,000 per corporate tweet. Similarly, another site reported that Gwyneth Paltrow was recently a celebrity VIP at the grand reopening of a luxury hotel in Morocco. Shortly thereafter Paltrow praised the hotel in her online newsletter. Although it’s not certain, it seems unlikely that the actress paid the $800+ per night room rate. Of course, celebrities such as these are not likely in danger of being hauled before the FTC as David Vladeck has consistently stated that the FTC does not plan to go after individual bloggers for violating its Revised Testimonial Guides. However, there is no such promise for companies which are compensating celebrity bloggers.

What can your company do if part of its marketing strategy is to pay one of the Kardashian sisters or other celebs (or even non-celeb bloggers) in cash or with free product? Proactive steps are suggested to avoid becoming part of the FTC’s initial sweep to enforce the revised Guides.

The Word of Mouth Advertising Association or WOMMA recommends educating bloggers regarding responsibilities, require disclosures from bloggers and monitor blogs to make sure the disclosure is happening. For Tweets, WOMMA recommends creating a link to “Disclosures and Relationships” section on the user’s profile and clearly state within the tweet with a hashtag (#spon or #paid) that there is a corporate sponsor relationship. Similar disclosures are recommended by WOMMA for user generated content on social networking sites, video or photo sharing sites, review sites and blogs to detail the disclosure in the editorial copy (“I was paid by [company X] to review” or “I received [X product or service] from [Company x] to review”) and in the user’s profile.

Will requiring such disclosures make this marketing strategy less attractive? Stay tuned.

- Amy Mudge and Randy Shaheen

FTC Childhood Obesity Forum (3): Self-Regulation in Children’s Food Advertising- Too Hot, Too Cold, or Just Right?

During Tuesday’s FTC workshop on Food Marketing and Childhood Obesity (that we have previously blogged about here and here), a lively discussion took place between researchers, industry representatives, and regulators about the successes and failures of self-regulation.

First, three panelists, representing research teams from universities and consumer advocacy groups, presented findings from studies on food marketing to children conducted since the advent of self regulation. Here are a few of their findings:

• 70% of advertisements in 2009 were still for foods that are considered nutritionally poor for kids.
• Half of ads featuring licensed characters still promote nutritionally poor foods.
• Most self-regulation policies do not encompass all types of marketing, such as on-package advertising and marketing in schools.
• Companies do not maintain a set of common nutrition standards to which they all adhere.
• Many companies are still utilizing “advergames” targeted at children, and only 37% of them include healthy lifestyle messaging.

The overall message was that although self-regulation has made important strides, it is not sufficient to change overall marketing strategies, and not enough is being done to promote healthy and nutritious food choices for kids.

Next, three panelists spoke about the benefits of self-regulation, and the positive changes that are being made. A representative from Disney spoke about the company’s newly adopted nutritional guidelines, the development and increased distribution of Disney brand fresh fruits and vegetables, the availability of more healthy options in Disney parks and resorts, and increased healthy lifestyle messaging in Disney media.

A representative from the Grocery Manufacturers Association praised self-regulatory initiatives, noting a decrease in food, beverage, and restaurant ads viewed by children and shifts in the types of foods being advertised. The launch of the Healthy Weight Commitment Foundation was discussed, noting members’ goal of reducing obesity by 2015. Additionally, the representative announced the Creative Kids Campaign which encourages a balance between healthy diet and physical activity.

Finally, the Director of the Children’s Food and Beverage Advertising Initiative (CFBAI) discussed how the 16 members of the initiative have worked to change children’s food advertising. The Director noted that the CFBAI allows for flexibility in nutrition standards and praised the changes the industry has made thus far, noting in particular the reduction of sugar in ready-to-eat cereals, and the reduction of sodium in canned soups.

Clearly there are strong feelings on both sides as to whether self-regulation is up to the job. It remains to be seen whether the agencies and/or Congress will shift to a more regulated approach, although as noted in a previous blog posting, any effort at regulation may have to deal with First Amendment questions.

- Randy Shaheen and Danielle Garten

FTC Childhood Obesity Forum (2): Links Between Food Advertising and Childhood Obesity Alleged, But Food Marketers May Be Skinny Enough to Be Covered by the First Amendment

The first two panels at Tuesday’s FTC workshop Sizing Up: Food Marketing and Childhood Obesity considered first what evidence there is regarding the possible ill effects of food marketing on children and then, what, if anything, regulators might be able to do about it.

The first panel, “New Research on Food Marketing to Children” presented findings alleging that food marketing to children does indeed increase the consumption of unhealthy food and has a statistically significant link to childhood obesity. (See here for one source of more information.) Researchers said they were most surprised by how much food advertising affected all children, regardless of race, ethnicity, gender, age, or socio-economic class, although it does affect some groups to a greater extent.

One of the new concerns for the panelists is the alleged reach of what was labeled “Marketing 2.1.” According to the presenters, the aims of this emerging marketing practice is to surround children with an atmosphere of pervasive product placement in everything from social media to video games and rides in addition to classic television and print advertisements. This form of marketing, they claimed, is also tapping into neurological research to project desire for a product directly into a consumer’s subconscious that would circumvent factors such as education and general healthy eating habits that increase consumers’ resistance to food product placement.

A second panel, “Advertising to Children and the First Amendment,” then considered what, if any, restrictions might be placed on food advertising to children, if, in fact, it does contribute to childhood obesity.

One of the first hurdles that regulations must pass is the Central Hudson four-prong test that determines whether restrictions violate the First Amendment by impermissibly burdening commercial speech. Passing this test is no easy task. While the First Amendment panelists disagreed on almost everything, they did agree that the United States Supreme Court has steadily increased protection for commercial speech over the last 15 years, and that the status of commercial speech aimed at children is unclear. Panelists disagreed sharply over whether children even need protection from commercial speech. One panelist argued that children have the built-in protection factor of parents and guardians who should not be giving into the “nag” factor. Other panelists argued that the research is showing that food marketing is specifically geared to override a reasonable person’s rational decision-making process, which undermines the theory that reasonable people are able to rationally filter commercial speech without intrusive government protection.

Of course, there are no such First Amendment worries with respect to voluntary guidelines, which was another approach discussed at the conference. 

- Randy Shaheen and Candida Harty

FTC Childhood Obesity Forum (1): Working Group Announces Tentative Proposed Nutritional Guidelines for Foods Marketed to Children

In the final presentation of the FTC’s forum, “Sizing Up Food Marketing and Childhood Obesity,” the Interagency Working Group on Food Marketed to Children presented tentative proposed nutritional standards for the advertisement of food products to children (defined as ages 2-17). The Working Group was commissioned by Congress in the Spring of 2008 and is made up of representatives from the FTC, FDA, CDC and USDA.

The Working Group created three “Standards” to determine what food products should and should not be marketed to children. “Standard I” is meant to encourage the promotion of nutritious foods in children’s diets. Standard I foods, such as 100% fruit juice, 100% nonfat and low fat milk and yogurt or 100% whole grains, will have no recommended marketing restrictions.

For foods not falling into Standard I, the Working Group created “Standards II & III.” If a product meets both Standards II and III, the Working Group recommends permitting marketing of the product to children. Standard II foods must meaningfully contribute to a healthful diet and are defined as foods that either contain 50% by weight of certain nutritional items (such as extra lean meat, fruits or vegetables) or foods that contain sufficiently high levels of the daily recommended serving of certain nutritional items (such as whole grains, fruit, nuts or seeds). Even if a product satisfies Standard II, it must still satisfy Standard III to receive the recommendation of permissible marketing to children. Standard III places a limit on unfavorable nutrients such as saturated fat, trans fat, sugar and sodium.

The Working Group is seeking further input on a number of questions such as whether there should be separate standards for differing age groups and whether other ingredients such as caffeine and nonsugar sweeteners should be included as well as the treatment of food served in chain restaurants. The proposed guidelines, however, make an aggressive attempt at pushing the food industry farther than it has ever been to meet uniform heightened nutritional standards before advertising products to children.

The Working Group’s report is due to Congress in July 2010 and its recommendations will be published early next year for comment in the Federal Register. The panel stressed that the presented recommendations will not constitute a regulatory proposal or serve as a substitute for existing policy, laws or dietary guidelines. Rather, the standards will serve as a guide for the food industry for appropriate marketing of food products to children.

For a more detailed breakdown of the working group’s recommended standards, please click here.

- Randy Shaheen and Jessica Halbert

Breakfast Cereals Go On a Diet Prior To FTC Workshop On the Links Between Food Marketing and Childhood Obesity

General Mills announced on Wednesday that it would be gradually lowering the sugar content of breakfast cereals that are marketed to children, including Trix, Cocoa Puffs, and Lucky Charms. Although General Mills began to lower the sugar content of such cereals in 2007, it has pledged to reduce further the sugar content to less than 10 grams per serving. It did not set a deadline, however, in which to reach the goal. Nutrition groups lauded the announcement saying it would make a significant difference in cereals such as Trix which had 13 grams of sugar per serving. Kellogg Co., the manufacturer of Froot Loops and Apple Jacks, as well as Post Foods, which manufactures Fruity Pebbles, have also taken steps to reduce the sugar content in their cereals.

This announcement comes on the eve of an FTC public forum entitled “Sizing Up: Food Marketing and Childhood Obesity.” The December 15 forum will discuss new research on the impact that today’s pervasive food marketing has on children and the statutory and constitutional issues that surround government regulation of that marketing. The forum is free and open to the public and includes panels on the legal ramifications of regulating advertising to children as well as on the food and entertainment industries’ progress in implementing the FTC’s 2008 recommendations (previously described here) for self-regulatory changes.  Yours truly will be attending and blogging on what we learn, so stay tuned.

- Candida Harty and Danielle Garten

The FTC Tackles Online Privacy - Vladeck Speaks

In sessions filled with healthy doses of Louis Brandeis references, the FTC hosted on December 7 the first of its day-long roundtable discussions designed to explore online privacy issues. FTC Chairman Jon Leibowitz kicked off the day by referring to this as a watershed time for online privacy policy. Panelists representing industry, consumer groups, technology, and government then debated the benefits and risks of collection and use of consumer data over the Internet.

The final session addressed whether additional regulation is needed, which unsurprisingly drew a sharp split of opinion. This, of course, comes as we await anticipated draft privacy legislation being overseen by Congressman Rick Boucher, D-Va.

In summing up the day, David Vladeck, the FTC Director for the Bureau of Consumer Protection, noted that the last panel in particular “exemplified just how difficult the questions we have to confront are,” and offered these additional overarching conclusions and “questions [that] face us in the future”:

• The panelists “pointed out that the benefits [of online information tracking] include[e] free content, better search results and more relevant advertising,” but also “mentioned real risk including the disclosure of information consumers believe is private,” and the "chilling effect” for those who might “modify their online behavior for fear of being tracked.” “These are real risks as well and we need to confront them.”
• Panelists also questioned whether “the traditional distinction that has been drawn in privacy law between personal identifiable information and anonymous information may be a thing of the past.” “These observations raise questions about how to build in transparency, consumer control and accountability into the process without sacrificing the benefit.”
• Researchers seem to “confirm our intuition that consumers do not really understand the data collection process.”
• “Many consumers believe that if a company has a privacy policy it means the company does not share data with third parties,” which is not necessarily correct. “There is also general agreement that consumer disclosure as we know it simply does not work.” But, “just because it's broken, doesn't mean we should scrap it or discharge it. Transparency is challenging but we need to think more creatively and innovatively about how to deliver important information for consumers when they need it and in clear and in simple terms.”
• “The economists also pointed out the limits of disclosure. They noted that consumers engage in bounded rationality when they tend to discount long-term negative effects [] of giving up their privacy. I also have questions about timing, is the type of collection adequate or should we think about notice at the time of use?”
• The industry has implemented “a number of initiatives, including efforts to improve consumer notice about these ads and to provide more effective choice to consumers,” but there are “concerns, particularly about how some in the industry frustrate consumer choice by using technologies other than cookies to gather information online and by collecting and using sensitive data for behavioral advertising. “
• “The broker industry is largely unknown and invisible to the consumers and there's a lot of diversity in the types of information, uses of information and even the rules that apply to how such information” is managed. “This is an issue that may warrant our attention.”

There is a second roundtable discussion scheduled for January 28 in Berkeley, California.

- Sean Morris

FTC Releases Resource for Parents on Kids and the Internet

Many of us are parents and we know many of you are as well. So we decided to take just a quick departure from our normal focus on good business consumer marketing practices to let you know that the FTC has just published an excellent internet safety resource called “Net Cetera: Chatting with Kids About Being Online.” Net Cetera is a guide for parents, particularly the many of us who have kids who are more internet savvy than we are, that gives practical advice on things like social networking to file sharing, from cyberbullying to “sexting.” Net Cetera is available at OnGuardOnline.gov. If you’re interested in ordering free printed copies in bulk you can go here. 

Obama Fills Up FTC’s Dance Card: Nominates NC Consumer Protection Cop and LA Lawyer

President Obama has beefed up consumer protection enforcement at the FTC with the nomination of Julie Brill, the Senior Deputy Attorney General and Chief of Consumer Protection and Antitrust for North Carolina. Brill has an impressive consumer protection resume, with an emphasis on credit reporting and privacy issues.

For 20 years Brill was an Assistant Attorney General for Consumer Protection and Antitrust for the state of Vermont. There she brought enforcement actions against tobacco and pharmaceutical companies, and focused much of her time on the reform and enforcement of privacy laws affecting consumers. She was responsible for strengthening Vermont’s controversial law preventing companies from collecting, and selling, information on which drugs doctors most frequently prescribe. Brill has also testified before Congress regarding the Fair Credit Reporting Act and the Financial Data Protection Act. She stated that identity theft is a “serious and rapidly growing crime” and argued that Congress should create a national baseline standard for credit reporting and financial data protection and allow states to enact laws that are more protective of consumers. Brill has also taken a strong stance on affiliate sharing, noting that “greater consumer protections to guard against such practices should be incorporated into both federal law and state law.” If confirmed she would likely be a strong backer of the Commission’s existing priorities.

President Obama’s second nominee, Edith Ramirez is a partner at Quinn Emanuel in Los Angeles, Ramirez focuses the majority of her practice on copyright and trademark infringement. Ramirez has worked for President Obama one other time. While at Harvard Law School, Ramirez was a member of The Harvard Law Review under Editor in Chief Obama. Ramirez does not appear to have much in the way of a consumer protection record. However, she is a member of the Board of Commissioners for the Los Angeles Department of Water and Power. The Mayor of Los Angeles appointed Ramirez to the Commission in 2005, calling for a commitment to a “cleaner and greener” Los Angeles, while providing “reliable and cost-efficient water and power to 3.8 million customers.” The Board of Commissioners has attempted to meet these goals, and have aggressively reviewed contracts, lobbying costs, and executive perks, while arguing for more transparency within the Department.

- Danielle Sims and Randy Shaheen

FTC Seeks Enhanced Powers

The possible creation of a new consumer financial protection agency has been the subject of significant media coverage and speculation. As the spirited debate continues as to whether the best way to protect consumers from financial fraud is to create a new agency or expand the resources of the FTC, the FTC has taken this opportunity to lobby for enhanced powers overall, regardless of whether enforcement power for consumer financial protection is ultimately ceded to a new agency.

The Consumer Financial Protection Agency Act of 2009 (H.R. 3126) was originally introduced on July 8, 2009. Although the primary purpose of the bill is to establish a Consumer Financial Protection Agency, it also contains provisions amending the Federal Trade Commission Act (FTC Act) to enhance the FTC’s current enforcement authority. The House Committee on Financial Services voted to approve the bill on October 22, 2009, and the House Committee on Energy and Commerce followed one week later. No similar bill has yet been introduced in the Senate, though Senate Banking Committee Chairman Chris Dodd released a draft proposal regarding financial reform on November 10, 2009. His draft proposal does not include similar provisions expanding FTC authority.

The Administration has urged a number of enhancements to the FTC’s authority in conjunction with legislation regarding financial reform including:

1. Expanding when the FTC is authorized to seek civil penalties;
2. Permitting the FTC to exercise enforcement authority over those who aid and abet in a violation; and
3. Streamlining the process by which the FTC promulgates rules.

FTC Chairman Leibowitz, testifying before the House Energy and Commerce Committee’s Subcommittee on Commerce, Trade and Consumer Protection on July 8, 2009, urged the Subcommittee to not only enhance the FTC’s enforcement authority, but also to give the FTC independent authority to bring litigation in which it seeks civil penalties. Under current law, the FTC must first present the case to the Department of Justice (DOJ), which has 45 days to determine whether to file the action itself. 15 U.S.C. § 56(a)(1). Additional enforcement authority, Leibowitz argued, “would allow the Commission - the agency with the greatest expertise in enforcing the FTC Act - to bring cases more efficiently while retaining the option of referring appropriate matters to the DOJ.” Commissioner Kovacic dissented from the portion of the testimony supporting changes to the FTC’s rule-making authority and the broad civil penalty authority, expressing concern that the routine availability of civil penalties would “risk constraining the development of doctrine[.]”

H.R. 3126 includes many of the requested enhancements to FTC authority. Specifically, it provides that the FTC may seek a civil penalty for any violation of the Federal Trade Commission Act, whereas currently the FTC Act provides only that the FTC may seek a civil penalty for violations of a “rule under this chapter respecting unfair or deceptive acts or practices…” H.R. 3126 also makes it unlawful for any person to provide “substantial assistance” to another in violating the FTC Act or any other act enforceable by the FTC. To do so would be considered an unfair or deceptive act under Section 5 of the FTC Act, and thus subject to FTC enforcement. H.R. 3126 finally streamlines the rulemaking proceedings under the FTC Act to dispose with numerous existing notice and comment requirements. This change essentially would give the FTC the authority to use the Administrative Procedure Act notice and comment procedures to promulgate rules rather than the more cumbersome and time-consuming procedures outlined in Section 18 of the FTC Act.

The further authority requested by Chairman Leibowitz to pursue civil penalty actions was not included in the version of H.R. 3126 approved by the House Committee on Financial Services. In anticipation of the markup of H.R. 3126 by the House Committee on Energy and Commerce, Chairman Leibowitz sent a letter to the Committee members urging that the FTC be provided with authority to independently litigate civil penalty cases. Chairman Leibowitz expressed his strong support for providing the FTC with additional tools stating that “[n]ew tools for the FTC are critical for the FTC to provide the strongest possible protection for consumers and President Obama has expressed his support.”

At the October 29, 2009 markup, the House Energy and Commerce Committee adopted an amendment proposed by Representative Waxman providing that, in addition to exclusive authority to commence civil actions relating to injunctive relief and consumer redress, the FTC has exclusive authority to commence actions to obtain civil penalties. Chairman Leibowitz issued a statement expressing appreciation, particularly for Waxman’s work.

No further action is scheduled for H.R. 3126 at this time, though differences between the approaches of the two House Committees with respect to various provisions have led both Barney Frank, Chairman of the Financial Services Committee, who characterized a Waxman amendment relating to the leadership of the proposed new agency as a “big mistake,” and Waxman, who indicated that he would have further changes during the floor debate, to suggest that resolving differences may have to wait until H.R. 3126 reaches the floor of the House.

- Sonia Pfaffenroth and Asim Varma