Consumer Advertising Law Blog

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

The Power of I: Advertisers Attempt to Demystify Online Advertising for Consumers

Those of you who shop online, use web-based mail, or spend any amount time perusing websites online (and that covers, well, almost everyone), may have come across an advertisement that left you wondering, “How did I get this ad?” Soon, thanks to a blue symbol with a little white “i”, your question will be answered with the click of a link.

Heeding calls for more self-regulation and concerns of privacy advocates, the Federal Trade Commission, and Congress, the advertising industry has come up with a standardized icon -- referred to as the "Power I" -- that will let consumers know how advertisers use web surfing history, demographic profiles, and other personal data to display ads tailored to the interests of the specific online user. Once a consumer clicks on the Power I, they will be taken to a page detailing why certain ads are being shown to them. Although there is no legal requirement that companies that use online advertising adopt the Power I, industry groups hope that it catches on so that it can be used in the argument against the need for further prescriptive government regulation. An online campaign initially aimed at explaining the system behind web advertisements to consumers has already been launched. The second stage of the online campaign will focus on the "Power I" specifically.

The FTC undoubtedly will keep a close eye on the effectiveness of the Power I, and it is likely companies will have to do more in the way of making online advertising practices more transparent to consumers. For the Power I to be “powerful,” though, most, if not all, advertisers will have to adopt it, and consumers will have to learn to interact with the Power I in a meaningful way. If it works, however, the Power I may be seen as a key step toward better information for consumers about their online privacy and making the process behind behavioral advertising more visible. Nevertheless, this step alone is unlikely to stave off legislation or industry wide regulation, and advertisers will probably have to focus on other key behavioral advertising issues, such as consent, re-use of data, and data retention.

- Danielle Sims, Nancy Perkins, and Sean Morris

Warning to Internet Retailers: Careful with Online Discount Club Partnerships

In January, New York’s Attorney General announced that his office was investigating 22 popular online businesses that link consumers to fee-based membership clubs, allegedly without their knowledge. The NY AG also announced a settlement agreement with the online movie ticket retailer Fandango, which linked consumers to online membership clubs and transferred consumers’ credit and debit card information to them.

According to the NY AG’s investigation, consumers shopping online often are presented with a discount or cash-back incentive offer as they complete their purchases. When consumers click on an offer banner, they are unknowingly directed to a membership program’s website where they are urged to accept the discount offer or cash-back incentive. The AG’s investigation found that consumers do not realize that by accepting such offers they are joining a fee-based membership program because information about the program and its fees are buried in the website’s fine print. Small, recurring charges then appear on the consumers’ credit or debit card statements. The three major online discount clubs reportedly take in US$1 billion annually, much of which the NY AG alleges is fraudulently acquired.

The NY AG’s investigation follows on the heels of a report issued in November 2009 by the Senate Committee on Commerce, Science, and Transportation. The Report, “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers,” summarizes the Committee’s investigation of online discount clubs operated by the direct marketing companies Webloyalty, Affinion/Trilegiant, and Vertrue. The Report concludes that “these three companies use highly aggressive sales tactics to charge millions of American consumers for services the consumers do not want and do not understand they have purchased.”

The NY AG’s settlement with Fandango requires the company to stop sharing customers’ credit and debit card information with online discount clubs; suspend contracts with existing discount clubs until Fandango can implement reforms to protect online shoppers from being deceived by discount and cash-back advertisements that appear on Fandango’s website; notify customers when they are redirected to a discount club’s website; and pay $400,000 into a consumer redress fund.

E-commerce businesses that link to online discount clubs operated by companies like Webloyalty, Affinion/Trilegiant, and Vertrue should consider taking steps to inform consumers when they are entering a website operated by one of these companies and to avoid sharing financial information about their customers with such companies. These steps could avoid an investigation and/or enforcement measures like those imposed on Fandango.

- Victoria Shapiro

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.

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

FACTA Court Opinion: E-Mail Receipt Is Not “Electronically Printed”

It is apparent, especially during the holiday season, that Internet commerce has become an evolving substitute for traditional in-store shopping. In the area of federal identity theft protections, however, purchases over the Internet are not comparable to in-store transactions.

Under the Fair and Accurate Credit Transactions Act (“FACTA”), a person that accepts credit or debit card payments is prohibited from printing more than the last five digits of the card number or the expiration date on any receipt provided at the point of sale or transaction. The U.S. District Court for the Northern District of Illinois, however, recently determined that these FACTA prohibitions do not apply to email order confirmations related to Internet purchases. (Shlahtichman v. 1-800 CONTACTS (N.D. Ill. 2009) 

In Shlahtichman v. 1-800 CONTACTS, Inc., the plaintiff purchased contact lenses from the defendant through an Internet transaction with his credit card. The defendant sent the plaintiff a receipt through e-mail which contained the plaintiff’s credit card expiration date. The district court dismissed the plaintiff’s claim that the defendant’s actions were in violation of FACTA for two reasons: 1) an e-mail receipt is not an “electronically printed” receipt under FACTA; and 2) an e-mail receipt is not provided at a transaction’s point of sale.

(1) An e-mail receipt is not an electronically printed receipt under FACTA

The relevant FACTA prohibitions are limited to “receipts that are electronically printed.” The court examined the plain meaning of FACTA, as well prior case law analyzing FACTA’s language, and concluded, consistent with the majority of court opinions to date, that e-mail receipts are not “electronically printed” receipts. The judge noted that the word “print” means to transfer information onto paper and not to display on a computer screen. To emphasize the point that print could only refer to a tangible paper receipt, the judge quoted a prior case (Grabein v. Jupiterimages (S.D. Fla. 2008), noting that the definition of “print” only refers to a tangible, paper receipt. That is why a person “has to print a copy of his receipt to get it off of his computer; it is why the machine used to transfer text from a computer to paper is called a printer.” 

The Shlahtichman court also looked at Congress’ intent underlying the FACTA, noting that the statute was only meant to prevent low levels of identity theft, such as using information on a receipt obtained from the trash. If FACTA were aimed at protecting email privacy, the court opined, Congress would have explicitly referenced e-mail, as it has done in other statutes.

(2) An e-mail receipt is not provided at a transaction’s point of sale

FACTA also requires that the receipt covered by the statute be provided “at the point of the sale or transaction.” According to the Shlahtichman court, Internet commerce has no tangible point of sale or transaction, and thus FACTA cannot apply to an e-mail receipt resulting from an Internet purchase. E-mail receipts are directed to an account that could be accessed anywhere in the world, and not specifically to the place or computer where the consumer made the purchase. The court concluded that the a point of sale or transaction could only exist in the context of printed paper receipts.

As the Internet continues to drive retail shopping to the virtual realm, with search engines, one-click transactions, and cyber promotions, FACTA’s identity theft protections may become more and more limited. Shoppers eschewing the crowds at the mall should be aware that if they leave their e-mail on view to others, they may not have recourse to relief under FACTA in the event their receipts show too much of their personal data.

- Beth DeSimone, Nancy Perkins, and Brian Larkin

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

“Free!”, “Money Back Guarantee!” Claims Cost VOIP Provider

Last week, Vonage reached a global settlement with the Attorneys General of 32 states over allegations that the Delaware-based voice over internet protocol (VOIP) service failed to clearly disclose to customers the material terms and conditions of subscriber agreements. Led by Montana, the coordinated AGs claimed, among other things, that Vonage did not give adequate notice that the company required its subscribers to purchase certain equipment in order to utilize promotional services advertised as “free” and that Vonage misled consumers by representing that it was possible to cancel the service but then failing to accept cancellations (and in some cases, allegedly continuing to charge customers for service even after they had attempted to cancel) through a tactic called “saving” the customer.

Under the broad terms of the settlement, Vonage will pay $3 million in fines to the 32 states, provide refunds to certain customers and will amend its consumer advertising and marketing materials, so as to “clearly and conspicuously” disclose certain terms and conditions regarding its equipment and services. In addition to requiring Vonage to reimburse eligible consumers who complain of certain unauthorized charges, the settlement also requires that Vonage retrain its customer service and telemarketing representatives, and that the company modify all of its training and call center “script” materials to comply with the terms of the settlement.

Of particular interest to business is the breadth of the settlement and the detailed and specific requirements contained in the consent order related, for example, to the extent and timing of disclosures and that any representation of “award winning service” must be based on a genuine award from an independent third-party received no more than a year from the date of the representation. While there can be some comfort to companies in deciding to end an investigation by signing a consent order to have a clear statement of the enforcer’s expectations on a going forward basis, such specific injunctive relief, even if by agreement, can make it difficult for settling companies to keep up with the changing competitive tide particularly in dynamic markets. By no means a new issue, how companies advertise free offers and money back guarantees has received considerable focus from both federal and state enforcers in recent years and any company offering such enticements to potential customers to sample a product or service should take great care at looking at how such a program is advertised from top to bottom, including in traditional advertising and also as communicated by third-party marketing on the Internet and by customer service representatives.

- Taja-Nia Henderson and Amy Mudge

FDA Public Hearing on Promotion of FDA-Regulated Products Using the Internet/Social Media Tools

Companies that make or market FDA-regulated products are increasingly using Internet and social media tools such as Google searches, Twitter, Facebook and Wikipedia to promote their products and to provide other important information to consumers and health care professionals. While the Internet and social media provide significant benefits to consumers, industry, healthcare professionals and the public as a whole, these forms of media present new legal and regulatory challenges with respect to promotional labeling and advertising, third-party communications about a company’s products, and potential adverse events identified in blogs, chat rooms, and other forms of social media.

On November 12-13, 2009, FDA held a public hearing on the promotion of FDA-regulated medical products using the Internet and social media tools to hear from industry leaders, consumers, public interest groups, and media professionals. The hearing followed a panel-style format in which pre-selected speakers gave prepared remarks with accompanying slide presentations. FDA panel members asked questions of the speakers, but did not otherwise provide prepared remarks or invite participation from the audience.

Internet companies and regulated industry representatives discussed the need to differentiate Internet and social media from other forms of labeling or advertising because, unlike traditional promotional labeling and print or broadcast advertisements, Internet and social media users have a greater ability to control, alter and respond to the promotional messages and other product information they receive. Speakers such as Eli Lilly, sanofi-aventis, and Pharmaceutical Research and Manufacturers of America (PhRMA) agreed that manufacturers should be accountable for online content they control, but noted that manufacturers should not have a broad obligation to police or remove all forms of third-party content about their products.

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. 

Social Networking Site Gets Tag-Teamed by NY and TX AGs

Yesterday, the Attorneys General for the states of New York and Texas announced that settlements had been reached with social networking site Tagged.com over claims that Tagged misappropriated the identities and email address books of its members and sent millions of deceptive and unsolicited emails promoting use of its site. In New York, the company has agreed to pay $500,000 in penalties and costs and to adopt “industry-leading measures” to govern the use of its members’ personal information; in Texas, the company will pay $250,000 in penalties and costs and will implement new data privacy and security features.

With more than 80 million members worldwide, Tagged bills itself as the third-largest internet-based social networking site in the U.S., after Facebook and MySpace. Previously, Tagged requested that members provide the company access to their email address books during the enrollment process (through a process termed “import your friends”). Those contacts were then sent auto-messages purporting to be from the new member. Under its agreements with New York and Texas, Tagged will need to seek specific consent before accessing its members’ address books and will need to disclose specifically how that data will be used (including by whom and for how long). The Texas judgment also requires Tagged to designate a “corporate level compliance representative” to oversee its compliance with the terms of the agreed-upon judgment and that state’s data and privacy protection laws, as well as to respond to consumer complaints or inquiries regarding Tagged’s privacy guidelines.

While social networking sites and other web-based member communities face intense competition to reach and enroll new members, these companies must be careful to ensure that their recruiting efforts do not run afoul of the data security and privacy laws of the jurisdictions in which their members live.

- Taja-Nia Henderson and Amy Mudge

FTC + Fake Blogs = Advertisers Might Get a Flogging

Directly advertising to consumers through blogs is an ever increasing trend, tapping into the fact that consumers are turning to the internet before making almost any kind of purchase. Faced with ever increasing choices of products and services in conjunction with ever tightening belts, consumers are using any available tool to make smart purchasing decisions, from mascara and protein bars to cars and houses.

Once the financial power of the blog was recognized, the rise of the “fakosphere” replete with fake blogs (“flogs”) was a foregone conclusion.

Brad Sullivan who writes on consumer fraud and internet scam issues for MSNBC, chronicles the rise of the fakeosphere and how it operates. He states that many flogs are carefully crafted to look exactly like a real blog complete with user comments and lively chat. The flogs will even include a few somewhat negative or skeptical comments regarding the product or service for sale to increase credibility.

Mr. Sullivan’s article provides another example of how the point of the much-maligned new FTC guidelines (see our previous discussion of the guidelines here) are not about destroying enthusiastic bloggers, but protecting consumers from insidious internet scamming. Mary Engle, Director of the FTC’s Division of Advertising Practices says that the agency is targeting floggers, telling MSNBC that “‘[a]dvertising always has to be clear that it’s advertising’” and “[a]n ad disguised as a blog, or a blog where companies get people to pose as satisfied customers and write reviews, both are deceptive.’”

If flogs disclose that they are flogs, they may avoid running afoul of the new guidelines. While flogs can be used as a legitimate advertising technique, the FTC appears to be looking upon them with an especially beady eye due to the inherently deceptive nature of the idea of flogs. Thus, advertisers who are using flogs to market to consumers should err on the side of making the advertising nature of the flog extremely clear as it is as not yet clear and conspicuous what type of disclosures the FTC would consider to be adequate for this form of advertising. For the FTC’s views on what is clear and conspicuous as far as disclosures on websites, click here.

- Candida Harty and Amy Mudge

Don’t Mess With COPPA

While companies may often feel like the FTC may be less inclined to go after smaller, alleged Section 5 violations, that is not always the case, particularly when it comes to COPPA. The Children’s Online Privacy Protection Act commonly referred to as COPPA applies to the online collection of personal information from children under the age of 13, requires that website operators implement procedures to ensure that it not collect personal information from children without obtaining prior parental consent, and that it delete any such information about which it becomes aware.

In a Complaint filed in Federal District Court in New York on Tuesday, the Iconix Brand Group, Inc., the owner, licensee and/or marketer of such popular children and teenage apparel brands as Mudd, Candie’s, Bongo, and OP, was targeted by the FTC for COPPA violations. The Complaint alleged that since 2006, Iconix knowingly collected and stored personal information from approximately 1,000 children without first notifying their parents or obtaining parental consent. According to the Complaint, Iconix also enabled children to publicly share personal stories and photos online.

The Complaint underscores the need for companies not only to develop privacy policies that comply with COPPA guidelines, but to implement and comply with those policies. According to the Complaint, while Iconix posted privacy policies on its websites that contained COPPA guidelines ― it failed to implement or comply with those policies. As such, the FTC charged Iconix with falsely stating in its privacy policies that it would not seek to collect personal information from children without obtaining prior parental consent, and that it would delete any children’s personal information that it became aware of.

Rather than contest the FTC’s allegations, Iconix has agreed to pay a $250,000 civil penalty and enter into a Consent Order prohibiting the company from violating COPPA in the future; and requiring the company to delete all personal information collected and maintained in violation of COPPA and to distribute the Order and the FTC’s “How to Comply with the Children’s Online Privacy Protection Rule” to company personnel.

- Randy Shaheen and Alan Veronick

Google AdWords Gets Cleared by European Advocate General from Keyword Trademark Infringement Claims

The Advocate General of the European Court of Justice today gave his opinion on three cases concerning Google’s AdWords system, which permits advertisers to purchase third-party trademarks as keywords to trigger sponsored links in search results. The opinion is not binding on the ECJ, but the court often follows the Advocate General's opinion in the majority of cases. The three cases encompassed by today’s opinion are: Google France v Louis Vuitton, Google v CNHRR and Google v Viaticum Luteceil, (Joined Cases C-236/08, C-237/08 and C-238/08).

These cases were brought to address on a large scale issues frequently confronted by brand owners in their efforts against counterfeiters. Specifically, counterfeiters frequently purchase keywords from Google that correspond to registered trademarks such as “Louis Vuitton. ” When an Internet user searches for “Louis Vuitton,” this triggers advertisements in Google’s search results that redirect consumers to websites where they can purchase counterfeit merchandise (e.g., “Louis Vuitton Replica” and “fake Louis Vuitton handbags”). The Advocate General’s resolution of the questions posed to the ECJ is bad news for trademark owners.

The Great Behavioral Advertising (BA) Debate Continues

In our last blog entry on Behavioral Advertising, we asked you to watch this space, noting new Congressional concern that the FTC’s self-regulation Principles alone will be sufficient to protect consumers. In that piece, we reviewed in passing the latest effort by one industry group to convince legislators and regulators more attention is not always better, the IAB’s “Self-Regulatory Principles for Online Behavioral Advertising”. Since then, while others have come forward attempting to interpret the IAB’s Guidelines in a more user friendly way, we have not seen a comparison of the IAB’s Guidelines and the NAI’s revisions to its Code late last year, either to each other or the FTC’s Principles.

The first question that comes to mind is “why would anyone do so?” and we have either three sound reasons, or at least three reasons that sound good. First, there’s no guarantee anything new will emerge from either Congress or the FTC without another “DPI” scare or unauthorized data breach fiasco to spur them along, leaving the two industry regimes as the only “guidance” companies have other than the Principles (and what the Commission may occasionally say the Principles relate to). Second, even if something new does emerge, good money is on the option where the FTC or Congress craft something that operates on top of self-regulatory programs rather than replacing them, making any differences between the Principles and those programs more important. Finally, some moves last week by a coalition of consumer privacy organizations may have upped the ante a bit. By offering detailed suggestions to address holes they see in the industry regimes, and urging Congress to plug these holes (and more), it becomes more important to know if holes really exist, and how big they might be.

As space is limited, we’ll tackle a review of the privacy organizations’ proposals in a companion piece, and focus here on the industry guidelines and the FTC’s Principles. This task is challenging enough given the size of the guidelines, inconsistent commentary or explanations, and the tendency of their drafters to use different terms, define the same terms differently, and consequently make life a bit more difficult for anyone attempting to do what we’re doing for you. 

FCC Wants Consumers to Get the Truth, Nothing but the Whole Truth, So Help Them

It should come as no surprise to those in the blogosphere that consumers are relying on mobile broadband and innovative telecom services at an ever-increasing pace. The Federal Communication Commission (FCC) under the leadership of Chairman Julius Genachowski – who, in a short time at the helm, has the FCC blogging, tweeting and on YouTube – is looking at the FCC’s “truth-in-billing” and other consumer protection policies in light of the dynamic changes in communications services since the FCC last examined these issues. To update its record, the FCC recently released a Notice of Inquiry seeking comment on whether there are ways to protect and empower consumers by developing policies to ensure sufficient access to and disclosure of information by communications providers through billing and other practices.

The FCC’s existing truth-in-billing rules, which currently only apply to wireline and wireless voice service providers, require that customer bills:

• Be clearly organized, clearly identify the service provider, and highlight any new providers;
• Contain full and non-misleading descriptions of charges; and
• Contain clear and conspicuous disclosure of information needed for the consumer to contest charges or make inquiries related to the bill.

The FCC’s present inquiry suggests that the FCC could attempt to expand (through a formal rulemaking) the scope of these rules in two ways.

First, the FCC’s existing information disclosure policy has focused on the formatting of consumer bills. The FCC now seeks information available to consumers at all stages of the purchasing process (including selecting a service provider, selecting a service plan, managing use of the service plan, and switching an existing provider or plan).

Second, the FCC has solicited comment on whether any existing truth-in-billing rules or other rules that may develop out of the current inquiry should – for the first time – apply to providers of broadband Internet access, interconnected Voice over Internet Protocol (VoIP) and video subscription services.

The FCC is asking for public input in several key areas including:

• to which services any new and current truth-in-billing rules should apply;
• whether the FCC has jurisdictional authority to adopt truth-in-billing and other consumer protections;
• information that consumers need in all stages of the purchasing process;
• best practices for display of consumer information;
• technological tools that currently or will in the future help consumers compare services and receive information;
• processes for resolving complaints;
• additional consumer education initiatives; and
• relevant consumer disability issues.

Comments and reply comments in response to the Notice are due October 13, 2009 and October 28, 2009, respectively.

- Stephanie Phillipps, Maureen Jeffreys, and Stefanie Alfonso-Frank

UK Advertising Rules Do Apply To Online Sponsored Links

Joint guidelines have been released by UK’s The Office of Fair Trading and the Financial Services Authority on the use of online sponsored links by UK advertisers of financial products and services. The regulators have made it clear that, in their view, the rules governing credit advertising and financial promotions apply equally to sponsored links as they do to other forms of paid for online advertising. In essence, consumers must be treated fairly and not be misled when they use keywords to search for information on financial products and services. Advertisers are also expressly advised not to sponsor the names of other firms/competitors if this could result in misleading the consumer or creating an expectation that their firm is the same as the one the consumer has searched for.

Examples of potential breaches of the rules are given in the guidelines. These include selecting search terms that don’t accurately reflect the business being advertised – for example, an advertiser sponsoring the term “independent financial advisers” when it is not independent – and consumers being misled by discrepancies between the impression given by the wording of the link and the consumer’s experience once the link has been followed. For example, a sponsored link claiming “Save up to £160 on your home insurance” could mislead the target audience if in fact only 10% of applicants are expected to qualify for the saving.

The full guidance is available here.

- Richard Dickinson and Jake Marshall

Cybercrime Mastermind: The Lord of the Rings?

On August 17, the US Attorney’s Office for the District of New Jersey charged Miami native Albert Gonzalez and two other men in what the Department of Justice is calling “the largest hacking and identity theft case ever prosecuted.” The indictment alleges that Gonzalez and some unnamed co-conspirators stole over 130 million debit and credit card numbers in a scheme to breach the data security systems of a number of companies, including Heartland Payment Systems, 7-Eleven, and Hannaford Brothers. Gonzalez also is separately facing trial in the District of Massachusetts for alleged his role in the much-publicized “TJX” data breach.

The Gonzalez case should serve as a cautionary tale about an alarming trend in the ever-increasing size of data breaches and sophisticated identity theft schemes.  As recently as September 2004, for example, the US Attorney’s Office for the Southern District of New York announced the guilty plea of Philip Cummings to charges relating to an identity theft scheme that was, at the time, hailed as the “largest identity theft case in [the] nation’s history.”  Cummings and his accomplices were charged with unlawfully stealing the credit reports of more than 30,000 people. (Full disclosure: one of the authors of this post, Marcus Asner, led the Cummings prosecution while serving as an AUSA in the SDNY.)  Subsequently, in February 2005, ChoicePoint announced the theft of data pertaining to 145,000 individual victims, and, in August 2008, DOJ announced the TJX data breach that involved the theft of 40 million debit and credit card numbers. Then-Attorney General Mukasey called the TJX case the single largest and most complex identity theft case ever charged in this country.

BCP Director on Guides Revisions, Advertising Enforcement

On Wednesday, the FTC’s BCP Director, David Vladeck, testified before a Senate subcommittee responsible for consumer protection issues about deceptive advertising and the FTC’s enforcement and education efforts. We think of particular interest to our readers, the Director’s oral testimony provided updates on the state of the FTC’s revisions of its Endorsements and Testimonials Guides and Green Guides. (Click here for video of the entire hearing.)

The Director addressed two controversial issues that have emerged from the Endorsements and Testimonials Guides revisions (which we have previously blogged about here, here, and here). First, he explained that eliminating the “results not typical” safeguard will simply place advertisers using testimonials on equal footing with other advertisers who currently cannot take advantage of the safe harbor. Thus, advertising using testimonials will have to meet the same substantiation standards as any other advertising. Second, the Director briefly addressed the proposal that consumer bloggers be required to disclose any compensation they receive from advertisers. Although he stated that he believed this was the right rule, he did not strongly commit, stating that the FTC will carefully consider comments before finalizing the new guides.

The Director also provided a brief update on the status of the Green Guides revisions. The FTC recently got clearance from OMB to conduct its proposed consumer perception study, the results of which are expected in the Fall. With this baseline data on how consumers interpret green claims, the proposed revised Guides may be out by the end of the year.

The Commission’s prepared written testimony provides a good overview of its advertising agenda, which will focus on a few areas of particular concern:

• Health and safety claims, such as weight loss, cold prevention, and cancer cure claims;

• Endorsements and testimonials;

• Green claims; and

• Scams exploiting the economic downturn.

 Of note, the testimony states that deceptive weight loss claims would continue to be a top priority and that the FTC would increase its scrutiny of health claims in food advertising.

The written testimony also laments that the FTC’s funding has not kept pace with the increasing complexity of advertising claims and media, but praised Staff for their ability “to do more with less.”

- Matt Shultz