Consumer Advertising Law Blog

Super-Sized Portions Live On In NYC; May Gain Protection in Mississippi

By now, you’ve probably heard that the Bloomberg administration experienced a significant setback on last week when a state judge invalidated the New York City Mayor’s attempt to limit the serving size of sugary drinks sold in the city.  The so-called “soda ban” -- or, as Bloomberg calls it, the “Portion Cap Rule” -- was heavily opposed by the soda companies and relatively unpopular among New Yorkers.

In the decision, Justice Milton Tingling of the State Supreme Court was persuaded by arguments made by the petitioners seeking to enjoin the implementation and enforcement of § 81.53 of the New York City Health Code. Justice Tingling first found that the regulation violates the constitutional separation of powers in New York State, as governed by the Boreali v. Axelrod. The court noted that “[t]he Rule would not only violate separation of powers doctrine, it would eviscerate it.”  Id. at 35.

Justice Tingling went on to hold that the administrative regulation was “arbitrary and capricious because it applies to some but not all food establishments in the City, it excludes other beverages that have significantly higher concentrations of sugar sweeteners and/or calories on suspect grounds, and the loopholes inherent in the Rule, including but not limited to no limitations on re-fills, defeat and/or serve to gut the purpose of the Rule.”

While the Bloomberg administration decides whether to appeal the decision, legislators in Mississippi are doing their best to ensure that a regulation like the Portion Cap Rule never sees the light of day in their hometowns. Last Tuesday, the Mississippi legislature passed a bill, known as the “Anti-Bloomberg Bill,” barring counties and towns from enacting rules that require the posting of calorie counts, cap portion sizes, or prohibition of “consumer incentive items” such as toys in kids’ meals.  The bill is expected to be signed by the Mississippi governor Phil Bryant.

We have previously reported on the struggles of implementing government regulation on food, including the FDA’s recent national menu labeling and calorie content rules. It remains to be seen whether the apparent failure of Mayor Bloomberg’s initiative is a mere hiccup in an increasing trend of government intervention in public health, or whether the decision (and measures such as those potentially implemented in Mississippi) signals a stronger backlash against such government regulation.

- Carolyn Pearce

I Know What You Like to Watch: Video Privacy Protection Act Amended to Simplify Sharing of Video-Viewing Information

On January 10, 2013, President Obama signed into law the Video Privacy Protection Act Amendments Act of 2012, which modernizes the Video Privacy Protection Act to facilitate 21^st-century sharing of video-viewing information.

The VPPA requires the express consent of a consumer before sharing information about his or her video-viewing habits. The VPPA was originally designed to protect customers of brick-and-mortar video rental shops, and did not contemplate today’s environment of abundant consumer-driven information sharing.  Prior to the amendment, “video tape service providers” (which includes providers of on-line video services) could not share a consumer’s viewing history without obtaining that consumers consent each time the information was shared. This made it difficult to share consumer video-viewing information with social media platforms, even if the consumer wanted such sharing to occur. 

With the enactment of the VPPA amendment, consumers more readily may provide their consent for the disclosure of their video-viewing information. The amendment does the following:

• It clarifies that consumers may give their consent on-line.

• It allows consumers to give consent in advance, for up to two years or until they revoke their consent, whichever is sooner.  It also provides, however, that consumers must have the alternative of consenting on a case-by-case basis.

• It requires that the consent be distinct and separate from any other agreements or policies.

• It requires that the consumer be given a clear and conspicuous opportunity to withdraw his or her consent, either with respect to any and all sharing of their video-viewing information, or on a case-by-case basis (for example, not sharing that they viewed a particular video).

In order to share its consumers’ video-viewing information, a video tape service provider will need to take care in complying with the new consent requirements.  Among other things, a video tape service provider will need to: (a) draft an appropriate consent, separate from the other agreements and policies governing the video service or site; (b) present consumers with all appropriate information when their consent is requested (such as with whom their information will be shared); (c) give consumers the option to withhold consent, or only provide consent in a given instance; (d) provide consumers a clear method for withdrawing consent; (e) track the expiration and withdrawal of consents; and (f) immediately cease sharing once consents have expired or been withdrawn.  Noncompliance could be costly, since the VPPA, in addition to imposing criminal liability, provides for a private cause of action and damages of at least $2,500 per person (plus attorneys fees and costs). Nonetheless, providers of video services have welcomed the VPPA amendment as providing them new opportunities for integrating video-viewing information with social media platforms where few existed previously.

- Megan Brodkey and Tom Magnani

Supersized Sodas To Be Banned In The Big Apple?

Those of you who enjoy sipping on a 20 oz. soda at Yankee Stadium may soon be forced to downsize.  Citing an increasing population that is overweight, New York City officials announced on May 31 their intention to pursue a ban on certain supersized soda and other sugary beverages sold at restaurants, delis, food carts, movie theaters and sporting venues located in the Big Apple.  The first-of-its-kind restriction, which must be approved by the City’s Board of Health, could go into effect as early as March 2013.  Violators would face $200 fines.

The ban, which does not apply to supersized sodas or sugary drinks sold in convenience or grocery stores, and does not restrict the sale of supersized diet sodas, alcohol beverages, fruit juices, lattes or dairy-based drinks, has been hailed by supporters and roundly criticized by opponents.  On the one hand, supporters claim that the ban will have an impact on the obesity problem and could pave the way for similar legislation throughout the country (much like Gotham’s 2003 ban on smoking in public restaurants).  In stark contrast, fast-food and soda companies have issued statements criticizing the ban as “narrowly focused and misguided” and taking away the consumers choices “about the beverages they purchase.”

The supersized soda ban is the latest attempt by New York City officials to implement progressive public health initiatives in the City.  Residents of the Big Apple have already faced bans of trans fats from restaurants and smoking at City parks and beaches.  The City has also implemented a calorie labeling law and recently unveiled an anti-obesity advertising campaign.

The City has leeway to implement laws that protect the public health and safety, so long as the laws could have an actual health benefit and are not arbitrary or overbroad.  Given that the ban has not been approved by the City’s Board of Health, it is too early to tell if any legal challenges will be launched against the City’s ban, whether on grounds that the ban does not further public health or is otherwise arbitrary in its scope.

- Alan Veronick

GE Foods: To Label or Not to Label - That is the Question (Again)

Right or wrong, scientifically-based or not, the labeling of genetically engineered foods (GE foods) - often, and erroneously, referred to as GMO foods - remains a topic on the mind of activists and legislatures across the country.   

In October 2011, the Center for Food Safety (not to be confused with FDA’s Center for Food Safety and Applied Nutrition), and other nonprofit organizations, filed a citizens’ petition with the US Food and Drug Administration seeking mandatory labeling for foods made from genetically engineered crops. Similar groups launched a “Just Label It” campaign to garner support for the petition, and many nonprofit organizations asked their members to submit comments to FDA in support. Comments closed last month, and FDA recently stated that it hopes to complete its review and respond to the petition in the near future.

For nearly twenty years, FDA has repeatedly asserted that there is “no basis for concluding that bioengineered foods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding.” The petition, yet again, seeks a new policy and labeling requirements. The FDA’s long-held position is that GE foods are not materially different from their conventional counterparts. 

Food Fights Back - Industry Group May Challenge Food Advertising to Children Guidelines

We previously blogged about a draft interagency group proposal to establish principles for foods that are advertised to children. The interagency group includes representatives from the FTC and FDA. The draft proposal sets forth two principles for ten categories of food most heavily marketed to children (such as cereal, candy, dairy, and carbonated and noncarbonated beverages) and suggests that these principles be met by 2016:

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

Unlike other efforts to create voluntary food advertising guidelines, the current proposals appear to have generated significantly more opposition. An industry coalition has formed to fight against the guidelines, with the hope that Congress will act to kill the interagency effort. Dan Jaffe, spokesman for the Sensible Food Policy Coalition and executive vice president for the Association of National Advertisers has been quoted as saying that legislative activity is “likely.”

The coalition is putting forth two arguments. First, the coalition argues that the guidelines are overly strict and would potentially impact not only marketing to children but to adults as well. The coalition issued a report last week arguing that 88 of 100 most popular foods with the general public would not meet the standards for salt, sugar and fat set under the voluntary guidelines for advertising foods to children ages 2 to 17. Second, given the current economic climate, the coalition is arguing that the proposed guidelines will significantly impact spending on marketing and will be a job killer. Of course, the proposed guidelines are only voluntary and given the First Amendment are unlikely to ever have the force of law, but the industry is no doubt worried that these guidelines will in practice become industry standards much as other industries have fallen in line behind other FTC voluntary guidelines.

A provision in the report that accompanied the fiscal 2012 House Financial Services spending bill (HR 2434) warned the FTC not to “issue principles or guidelines governing food marketed to children unless a peer-reviewed scientific study conclusively demonstrates that regulating food marketing directed to children is the most effective way of changing long-term eating behavior and reducing obesity.” The provision also warns the FTC not to base any enforcement actions against companies on the guidelines. The House has not yet taken up the bill.

The fiscal 2012 Agriculture spending bill (HR 2112), which did pass, has report language directing the Agriculture Department to seek appropriators’ approval for any future involvement in the interagency working group.

The coalition claims the support of 25 senators and more than 100 House members who have written letters questioning the scope of the interagency group’s work. The majority of signers have been Republicans, but some Democrats also have joined in. So it looks like we may be headed for a full blown food fight.

- Randy Shaheen

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

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

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

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

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

Were you Followed on the Way Here? Probably, but Congress and The FTC are Trying To Do Something About It.

Do you ever wonder how the ads that show up on websites you view seem strangely relevant (or humorously irrelevant? Targeted advertising has long been standard practice on the world wide web, but now the government is taking a closer look. Last week, Congresswoman Jackie Speier introduced legislation aimed at allowing consumers to prevent companies from tracking their information online. The so-called “Do Not Track Me Online” Bill authorizes the FTC to promulgate an online opt-out mechanism whereby consumers can prevent the collection or use of the consumer’s online activity, unique identifying information, or other personal information. In a statement introducing the bill, Rep. Speier said the bill “send[s] a clear message - privacy over profit.”

In addition to a catchy moniker, the bill, or at least the impetus behind it, seems to have widespread public support. USA Today and Consumer Watchdog both recently conducted polls to gauge the public’s concern over online privacy. In the USA Today poll, 65% of Facebook users and 52% of Google users said they were “somewhat” or “very concerned” about their privacy while using those sites. In the Consumer Watchdog poll, 90% of respondents supported the notion that it is “important” to have “more laws that protect the privacy of your personal information,” and when asked specifically what measures they would like, respondents indicated a strong desire to block tracking of personal information.

The FTC weighed in, issuing its own privacy report endorsing “Do Not Track” legislation and proposing a framework to protect consumers. The report notes the repeated shortcomings of the online industry’s self-regulation, as it has been “too slow, and up to now ha[s] failed to provide adequate and meaningful protection.” The FTC’s proposed framework consists of recommending businesses incorporate “’privacy by design’ approach by building privacy protections into their everyday business practices.” Further, companies should simplify consumer’s choices about data collection and storage by giving them the choice when they are making decisions, not at the end of a long privacy statement filled with legalese.

Despite this broad support, not everyone is sold on the need for “Do Not Track” legislation. Critics point out that such legislation will have an adverse effect on ad-supported resources. Companies pay more for targeted advertising because such advertising will be more effective. Reducing this effectiveness means companies will pay less for ads on websites. As web content provider’s ad space becomes cheaper, they will thus likely face reduced revenue which may ultimately impact the quality of the content or force providers to charge for content. In a recent PBS roundtable on the topic, Yahoo's chief trust officer Anne Toth stated "I think it's critical that people realize that collecting data about consumers online gives enormous benefits. Right now, advertising makes the Internet free. And people want a free Internet. And information leads to innovation and ideas. What I'm worried about most is that with 'Do Not Track' and government regulation, we throw out the baby with the bathwater and stifle innovation."

Additionally, some industry groups say the legislation is duplicative and that consumers already have the ability to opt-out of tracking through a recently-launched industry program: www.aboutads.info.  In comments filed with the FTC, the groups argued that a competitive market and self-regulation, including already existing mechanisms designed to meet standards proposed in an FTC report on online behavioral advertising two years ago, is the most effective framework in this area of rapidly developing technological change. The group acknowledged that while the FTC’s proposed framework is useful in identifying issues, it may harm consumers as a regulatory mandate by generating unnecessary consumer concerns.

The debate is ongoing and will likely play out across the public forum. Indeed, Rep. Speier stated the WSJ What They Know series partly inspired her to introduce the bill. While some legislation is likely, what remains to be seen is how far it will go, so in the meantime, make sure to check your Facebook settings and secure your wireless network.

- Nancy Perkins and McCormick Conforti

If the Supreme Court Thinks a Manufacturer Can Sometimes Dictate Resale Pricing, What’s the Big Deal?

Recent state enforcement actions and proposed federal legislation have raised concerns over what manufacturers and distributors can do in terms of requiring their downstream distributors and retailers to adhere to a suggested minimum price. This concern exists in spite of the fact that the Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS overruled the nearly century old rule that minimum RPM (“you can’t charge less than X when you resell my product”) is not a per se violation of the federal antitrust law and held that minimum RPM is subject to the rule of reason standard. Under the rule of reason, a court conducts a balancing test of both the pro-competitive and anti-competitive effects of the alleged violation to determine whether the RPM is illegal (whereas under the per se rule, it is often game over for defendants). However, not all states have decided to follow the Leegin decision in interpreting state antitrust law and this has led to some confusion over the risk of implementing minimum RPM agreements. Some states have enacted legislation making it clear they do not follow Leegin. For example, Maryland became the first state to adopt legislation that made RPM agreements per se illegal under the Maryland Antitrust Act in October 2009. While some states try to interpret their antitrust statutes in conformity with federal law, several state enforcers have brought actions under state law to challenge such agreements.

In March 2010, the New York AG’s office filed a lawsuit against Tempur-Pedic,the well-known mattress manufacturer, accusing it of violating New York state law by enforcing minimum retail prices for its products. The complaint alleged that Tempur-Pedic unlawfully prohibited dealers from discounting, by not doing “business with any retailer that charges retail prices that differ from the prices set by Tempur-Pedic.” The lawsuit sought an injunction barring Tempur-Pedic from enforcing the anti-discounting policy and restitution for those consumers who had been adversely affected by the practice. The New York Supreme Court disagreed with the AG last month, finding that New York law does not prevent a vendor from restraining a reseller’s right to discount the resale price. The Supreme Court held that resale price maintenance is not an “illegal act” and that the language of the applicable provision makes such contracts unenforceable, but not illegal.

Interestingly enough, the same day as the New York Supreme Court decided the Tempur-Pedic case, the California OAG entered into a settlement with Bioelements,a small Colorado-based manufacturer of skin care products sold to beauty salons throughout California and on the internet. In its complaint, the OAG accused Bioelements of engaging in what it described as a “blatant price fixing scheme” when it entered into dozens of contracts called “Internet Only Accounts Agreements” with third party companies that required them to sell Bioelements’ products online for at least as much as the suggested retail price set by Bioelements in violation of California’s Cartwright Act (California’s general antitrust law) and California’s Unfair Competition Law (UCL). Under the settlement, Bioelements is required to permanently refrain from fixing resale prices for its merchandise; inform distributors and retailers with whom Bioelements made price-fixing contracts that Bioelements considers the contracts void and will not enforce them; and pay a total of $51,000 in civil penalties and attorneys’ fees. This is the second such action focused on minimum RPM in the past year. In February 2010, the OAG successfully obtained an injunction under the Cartwright Act and the UCL against another cosmetics company, DermaQuest, Inc., for similarly entering into contracts that prevented third parties from selling their products below a suggested retail price set by DermaQuest. The OAG has also focused on the federal legislative front by sending two open letters to Congress in the last three years urging it to reinstate federal safeguards against minimum RPM schemes.

In tandem with state enforcement efforts, Senator Herb Kohl of Wisconsin recently introduced the Discount Pricing Consumer Protection Act to the Senate Judiciary Committee which would essentially overturn the holding in Leegin and restore the rule that makes minimum RPM agreements between manufacturers and retailers, distributors, or wholesalers a per se violation of the Sherman Act. The proposed bill has been endorsed by the NAAG, 38 state attorneys general, and several consumer advocacy groups.

In light of these recent state actions and the proposed federal legislation, manufacturers and distributors who wish to prevent their downstream suppliers from offering their products at discount prices must proceed with caution. Any outright ban on discounting and even incentive programs aimed at discouraging discounting should be carefully considered by weighing the potential business benefits of brand protection with the legal risks still posed by the current state of competition law.

Requiring downstream suppliers to price no more than a ceiling price (maximum RPM) is a much less risky proposition. These arrangements were found to be subject to the defendant-friendlier rule of reason in State Oil v. Kahn and since this time states have followed the ruling and we are not aware of any such mandatory discounting schemes that have been found to be unlawful.

 - Amy Mudge, Tiana Russell, and Chester Choi

The FTC’s Do Not Track List: Do Not Call Redux or…

The FTC last week released a long-expected preliminary staff report entitled, “Protecting Consumer Privacy in an Era of Rapid Change.”

Developments since the privacy roundtables

Although staff likely had in mind how quickly changes in technology impact consumers’ privacy, an “era of rapid change” is an apt descriptor for more than just the pace of technology. Since the last of the FTC privacy roundtables held in March, staff working on this report were influenced by regular and rapid change:

• In May, then-Congressman Boucher released a draft of widely-anticipated legislation addressing consumer privacy both on and off the Internet.
• In July, Congressman Rush introduced H.R. 5777, an even more comprehensive consumer privacy bill.
• In August, the FTC Chairman testified as the Senate began its own hearings on Consumer Online Privacy.
• In September, Senator Pryor (co-sponsor of the Senate version of the bipartisan Data Accountability and Trust Act that preempts increasingly complex state data security and breach notification laws) announced his forthcoming privacy bill which would create a national “Do Not Track List”.
• In October, online marketing industry groups released an implementation program for their “Self-Regulatory Principles for Online Behavioral Advertising” (see here for background).
• In November, four well-known privacy watchdog groups requested the FTC investigate Google, Microsoft, QualityHealth, WebMD, Yahoo, AOL, HealthCentral, Healthline, and Everyday Health for data collection and behavioral marketing practices the groups believe are unfair or deceptive.

Not that things slowed down following the release of the report, as “tweets”, media conference calls, and House hearings occurred with breakneck speed. Good thing the FTC gave the public until the end of January for comments, because if there’s one thing the FTC looks to get from this report, it is comments. 

What the FTC might have in mind for a Do Not Track list

Driving the FTC’s exploration of a Do Not Track list appears to be concern that existing “opt-out” programs developed by companies or industry groups under self-regulatory frameworks have fallen short. Specifically, staff suggested while some approaches showed promise, they haven’t been widely and uniformly adopted; consumers aren’t using them; and they don’t clearly spell out what exactly a consumer is opting-out of. But fixing and expanding existing “opt-out” programs may not necessarily be the same thing as setting up a national Do Not Call (DNC) registry for online advertising. As Commissioner Kovacic pointed out in concurring remarks to the report, the issues are completely different: the DNC is run by the FTC under laws authorizing its implementation and enforcement, and supported by extensive rules. It is fairly clear the FTC envisions an industry-run Do Not Track list, and staff have already publicly admitted they likely can’t mandate one under existing authorities.

Commenters who question whether it is even technically feasible to establish a Do Not Track list may be missing a point others seem to have gotten past. A key area where the FTC and commenters appear to agree is that any technical framework should be browser-based, rather than by using “unique identifiers” such as computers’ IP addresses (like the DNC uses telephone numbers). A Do Not Track system can’t use IP addresses, as Symantec pointed out in the December 2nd hearings in the House, as they often change when computers reboot, or are masked by organizations’ network managers. The report even highlights that creating such an identifier would itself raise privacy concerns. Realistically, a browser-based technical approach will likely influence the answers to several of the FTC’s other questions. Add to that the reasons why the FTC began looking at a Do Not Track list in the first place (previous approaches weren’t uniform or widely-adopted; weren’t clear; and weren’t used), and an incremental rather than radical approach looks far more likely. Any industry-based solution addressing these concerns would likely look, cost, and have dramatically different use rates than say, a centralized one that allows consumers to register the MAC address of any computer, mobile phone, or other device, and to halt or severely limit any data collection from (or placement of targeted ads to) that device. Still though, in the absence of a single existing system that offers all the requirements FTC staff have in mind, commenters should also focus on some specific questions that will drive how any possible future Do Not Track list might operate - questions that appear not yet quite settled, such as:

• Should it restrict companies ability to collect data from, or only to place targeted advertisements to, consumers?
• Should consumers’ choices be a simple “collect or not collect”, or a more complex choice of allowing some collection or ad placement from selected sites but not others?
• How much would implementation efforts and operations drive up costs? 
• Would implementation costs, or loss of revenue from less data collection or fewer targeted ad placements, force companies to stop subsidizing services many consumers currently enjoy?

The answers to these questions will likely shape what the FTC recommends in its final report. If you would like to read a more full discussion of the FTC report, click here.

- Ronald Lee, Nancy Perkins, and Scott Swafford

Health Marketing in Social Media & Privacy: Consumer Groups, FTC and Congress Weigh In

Manufacturers, marketers, and Internet providers are expanding their respective social media footprints and developing innovative and personalized ways to reach consumers, health care providers, and other stakeholders. Regulators and legislators have taken note, and have been struggling to find the right balance in encouraging useful consumer information with protecting privacy concerns. Last year was the year of information gatheingr with both FDA and FTC holding workshops or public hearings and requesting public comments. FDA has stated that it intends to issue social media guidance by early 2011, and yesterday the FTC issued its long awaited draft Privacy Report.

Concerns over social media marketing practices, particularly for prescription drugs, have increased in the wake of recent FDA Warning Letters citing drug companies for advertising violations on Facebook and other social media as well as the release of FTC’s Endorsement & Testimonials Guides and Behavioral Marketing Principles addressing social media marketing. The growing popularity of behavioral marketing is fueling accusations that Internet providers are tracking, and, in some cases, selling information about consumers’ web-browsing history and internet usage without appropriate disclosures and privacy protections.

The FTC’s draft Privacy Report sets forth a compliance framework for protecting consumer privacy that would “apply broadly to online and offline commercial entities that collect, maintain, share, or otherwise use consumer data that can be reasonably linked to a specific consumer, computer or device.” The proposed framework has three primary components:

• Data Protection: Companies should adopt a “privacy by design” approach by implementing privacy protections as a part of their overall business model. Such protections include such measures as collected only data needed for a specific business purpose, disposing of data when it is no longer used, and auditing systems and policies.
• Consumer Choice/Clear Opt Outs: Companies should allow consumers to choose which data the company collects and for what purpose. Under this approach, consumers would be able to opt-out of certain marketing and data collection practices by selecting certain privacy settings from a uniform system of codes that correspond to specific information and privacy settings. This would likely involve the placement of a static setting (similar to a cookie) on the consumer’s browser signaling the consumer’s privacy setting (similar to a “Do Not Call” list). The FTC noted, for example, that consumers who elect not to allow their data to be collected or used for behavioral marketing could elect to have a “Do Not Track” code associated with their browser.
• Education and Disclosure: Companies should make their privacy polices more transparent by streamlining online privacy statements and using plain language. These transparency initiatives would also require companies to provide consumers with reasonable access to data that companies maintain on them. However, the extent of access would be proportional to the degree of sensitivity and the intended use of the data.

The FTC is seeking public comments on the proposed Framework by January 31, 2011, and will follow with a final report in 2011.

Will this more clearly defined push for industry self-regulation work? At least one Senator appears skeptical, as John Kerry announced yesterday that he will introduce online privacy legislation early next year.

On November 23, the Center of Digital Democracy, U.S. PIRG, World Privacy Forum, and Consumer Watchdog jointly requested that the FTC under Section 5 investigate and disclose consumer monitoring and advertising practices of various Internet providers and marketing companies. The proposed Complaint alleges that current data mining, interactive advertising, unbranded and disease-awareness marketing, social media marketing, e-detailing, and behavioral marketing practices violate federal laws prohibiting unfair or deceptive trade practices.

The complaint names a number of companies including, Google, Microsoft, QualityHealth, WebMD, Yahoo, AOL, HealthCentral, Healthline, Everyday Health and requests that FTC take a number of specific investigative actions with respect to these companies. Among several requests, the complaint asks FTC to:

• Examine and disclose to the public the data collection and usage practices of pharmaceutical advertisers to assess the extent of consumer information collected through various media, including websites, social networks, IP addresses, cookies, Web bugs, tracking pixels, and any other “data-mining” applications.
• Require companies engaged in digital marketing of health products to provide information on the kinds of online targeting techniques and methods they utilize (e.g., racial and ethnic data, health-oriented and ad-supported sites, other media).
• Review the privacy policy pages on websites and services, including the leading social networks promoting health products and require health marketers to provide adequate information on privacy policies.
• Analyze how health-related social media marketing influences consumer behavior and attitudes on drug use and about medical conditions through various means, including “viral” marketing.
• Investigate whether there is a violation of the FTC’s Endorsement guidelines when advice is given to patients or consumers from seemingly independent health bloggers who do not disclose that they are paid or sponsored by pharmaceutical or other companies.
• Obtain from pharmaceutical companies a list of the keywords used for paid search campaigns.
• Investigate the use of so-called “unbranded” sites funded by pharmaceutical companies, in order to assess whether such sites are structured and designed to support the promotion of specific drugs. The agency should also analyze whether the interactive environment created for such sites provides a balanced and honest reflection of the health risks and condition-specific issues.
• Work with FDA to develop a set of policies for regulating the use of behavioral targeting, data collection, and other digital techniques in the marketing of drugs and health-related products.

UPDATE: The FTC extended its deadline for comments on the Privacy Report until February 18.

- Vernessa Pollard, Amy Mudge, and Mahnu Davar

Back On The (Supply) Chain Gang: New California Law Requires Disclosure of Efforts to Eradicate Slavery and Trafficking from Supply Chains

Companies doing business in California are well-acquainted with the state’s wide range of consumer protection statutes, many of which are unique to California. You can now add another one-of-a-kind statute to that list -- one that will add to the burdens of doing business in the Golden State.

California recently passed the Transparency in Supply Chains Act (Senate Bill 657), which requires retail sellers and manufacturers to disclose their efforts to eradicate slavery and human trafficking from their supply chains. This law will take effect on January 1, 2012 and applies to all companies with over $100 million in annual revenue that are doing business in California. According to one estimate, this would affect over three thousand companies. The exclusive remedy for a violation of the law is an action brought by the California Attorney General for injunctive relief.

The law will require companies to post a public disclosure of their efforts on their website, which must be identified by a conspicuous and easily understood link. If a company does not have a website, it must provide written disclosure within thirty days of receiving a consumer request. The disclosure must, at a minimum, include to what extent the company:

• Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery;
• Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains;
• Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business;
• Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking; and
• Provides company employees and management (who have direct responsibility for supply chain management) training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.

It should be emphasized that this law does not require any company to take any affirmative steps to eradicate slavery and trafficking from its supply chain. It simply requires the company to disclose what steps (if any) it is currently taking.

Any company that decides, in response to this law or otherwise, to influence the practices of their supply chain should consider that they may be inviting litigation. At least one lawsuit has been brought alleging that a company’s efforts to influence its suppliers’ treatment of workers made it a “joint employer” with legal responsibility for that treatment.

UPDATE (1/10/2011): For more in-depth information about this area, click here.

- James Speyer and Manav Kumar

Obama Pulls The Shades On Online Peeping

Hot on the heels of the FTC’s recent appointment of a new Chief Technologist and the EU’s announcement that it plans to overhaul its data protection rules in 2011, it now looks like the Obama Administration soon will be throwing its hat into the Internet privacy ring. According to press reports, the Administration is preparing a stepped-up approach to policing Internet privacy which will call for new laws and the creation of a new oversight position.

The reports suggest that the strategy likely will be unveiled in a report to be issued by the US Commerce Department in the next few weeks. The White House also recently created a special task force to transform the Commerce Department’s recommendations into policy. The White House task force, set up three weeks ago, is led by Cameron Kerry, brother of Sen. John Kerry (D. Mass.) and Commerce Department General Counsel, and Christopher Schroeder, Assistant Attorney General at the Department of Justice. Both initiatives signal a heightened interest in online privacy by the Obama administration.

Currently, there is no comprehensive US law that protects consumer privacy online. The only agency tasked with policing Internet privacy issues is the FTC, which is limited to taking action only in those instances when a privacy-violating action is deemed deceptive or unfair under Section 5 of the FTC Act. In addition, the Commission is limited both in its ability to impose penalties in individual cases and to engage in rulemaking. In a year in which the news has been filled with stories about Internet privacy violations and increased concern about the potential misuse of personal data, it appears that some in government believe that a more aggressive approach to Internet privacy regulation may be necessary.

The Administration may well face a tough road in implementing new privacy initiatives. Opponents of increased oversight argue that industry self-regulation is the best way to address privacy concerns and that governmental regulations may stifle innovation of new Web-based technologies. On the other hand, proponents of increased regulation believe that the self-policing of the Web has failed to protect the privacy of Internet users.

It remains to be seen how future online privacy initiatives will be impacted by the recent Republican takeover of the House. Any new privacy initiatives will require an expansion of the government’s role over this area in the context of the Republicans' recent campaigning for a curtailment of “big” government. That said, online privacy protection may be an issue where the left and the right do not necessarily line up in the usual ways. One example of this came from Joe Barton (R., Texas), co-chairman of the Congressional Privacy Caucus, who commented that the Administration’s initiative is “[b]etter late than never. I am glad more and more folks, in the government and otherwise, are beginning to realize that there is a war against privacy.” As Rep. Barton’s comment suggests, it just may be that the Republicans will be carrying the banner for increased government oversight and more regulation -- at least when it comes to online privacy.

- Marcus Asner and Tiana Russell

The Next Round in the Regulation of Online Behavioral Advertising

Over 5,000 US corporations across the full spectrum of businesses involved in the marketing-media ecosystem recently announced an implementation program for their earlier-released Self-Regulatory Principles for Online Behavioral Advertising. These companies are led in this area by the American Association of Advertising Agencies (4A’s), the American Advertising Federation (AAF), the Association of National Advertisers (ANA), the Direct Marketing Association (DMA), and the Interactive Advertising Bureau (IAB).

For those following the debate over Behavioral Advertising (BA), this latest action is but the most recent in a series of feints and jabs industry and the FTC have been exchanging over the last four years against a backdrop of at times very clever footwork indeed. In one corner have huddled representatives of the online advertising & marketing industry involved in collecting, using, or selling information about consumers’ activities online (and more recently where those consumers are when they conduct those activities). On the opposite side, the FTC has weighed in more aggressively since the administration changed, signaling with its readiness to abandon ‘bob, weave and watch’ for something more hands-on, but still short of a full, top-down regulatory regime. Congress, by turn referee, judge, and placard-changer in between rounds, has kept an eye on both boxers, balancing concerns that the $25 billion dollar purse up for grabs in this fight doesn’t disappear against worries that consumers’ privacy interests aren’t adequately protected.

This recent release of industry’s program is the latest jab in a combination that the industry started to land last year with its Self Regulatory Principles. Since then, in February, the groups added a new icon designed to help consumers know when they were receiving ads based upon information collected about their personal habits or interests. The icon clearly informs “consumers about data collection and use practices through enhanced notice […] of online behavioral advertising practices.” Two weeks ago, in the context of offering this program to show how the Principles can work in practice, the icon has been joined by an ‘implementation guide‘ explaining how businesses can apply the Principles and a website mostly tailored to companies that want to join the program. Parties that engage in BA are “encouraged to participate in the Consumer Opt-Out Page” once it has been completed. As an interim, consumers are directed to the existing Network Advertising Initiative (NAI) opt-out site, allowing consumers to elect to no longer receive targeted ads from NAI members, although collection of their information would still continue. Also coming up soon are educational webinars for businesses and consumers, and beginning next year, promised ‘accountability and enforcement’ mechanisms to handle complaints.

Schwarzenegger Throws Out Ban on “Biodegradable” Claims, Makes FTC’s Green Guides the Rule for Compostable Plastic Bags

As we previously reported, on August 25, the California legislature passed S.B. 1454, a bill that would have prohibited labeling any plastic product sold in California as “biodegradable,” “degradable,” or “decomposable,” based on the theory that such claims were inherently misleading to consumers in the absence of clear scientific standards supporting these claims.

On September 28, Governor Schwarzenegger vetoed the bill. In the veto statement, the Governor cited his concern “about the much more expansive universe of plastic products that this bill would regulate and the unforeseen consequences that could result from such a vast expansion.” Instead, the Governor said, he signed S.B. 228, pertaining to compostable plastic bags, which “represents a reasonable next step in providing information to the consumer and recyclers about the differences in biodegradable products.” The new law enacted by S.B. 228 aligns California law with the FTC’s Green Guides. Specifically, starting July 1, 2011, manufacturers of compostable plastic bags meeting specific ASTM standards will be required to ensure these bags are “readily and easily identifiable” from other plastic bags, “in a manner that is consistent with the [Green Guides].” Under the statute, “readily and easily identifiable” means: (1) labeled with a certification logo indicating the bag meets the ASTM standard; and (2) the bag is green and labeled with the word “compostable” in one-inch letters. A compostable bag may not display a recycling symbol, such as a chasing arrow resin identification code. The statute expressly provides that “[a] manufacturer is required to comply with this section only to the extent that the labeling requirements … do not conflict with the Federal Trade Commission Guides for the Use of Environmental Marketing Claims.” Thus, Governor Schwarzenegger stopped California from regulating biodegradable claims more strictly than the rest of the country, preserving the possibility of uniform nationwide environmental marketing standards, at least for now.

- Suzanne Wilson and Elizabeth Frank

Consumer Financial Protection Bureau - When Will Treasury Pull the Switch?

Everyone it seems is focused on whether and when Elizabeth Warren will be named as the director of the new Consumer Financial Protection Bureau. Today, the reports are that she will not be named either a permanent or interim head, but rather just to install her as a special advisor at the Treasury Department.

The identity of the CPFB director is important, as that person will set the tone and priorities of the new agency, and lend legitimacy to its efforts.

Arguably, however, a more important and looming deadline is the designation by the Treasury Secretary of the date by which the functions of the CFPB are to be transferred from the Treasury Department, the various federal banking agencies, and the FTC (the so-called Designated Transfer Date). This designation is required to be made by the Dodd Frank Act by 60 days from the date of enactment of the Act or by this Sunday, September 19, 2010. The date itself is required to be a date between 180 days and 12 months from the Act’s enactment date, but can be extended by the Treasury Secretary to 18 months from the enactment date.

Designation of this date is important because it will become the inauguration date of the new agency. Existing regulations will come under the purview of the agency as of that date and new regulations can be issued and enforced by it as of that date. Thus, priorities will be set and the effectiveness of the CFPB in meeting those priorities will be measured as of that date.

There is some speculation that, if an interim director is named, or the nomination of a director is postponed, the Treasury Secretary will designate a later Designated Transfer Date, so as to allow the interim or named director time to organize the CPFB and set priorities. However, we do not know what actually is being contemplated as the Designated Transfer Date, and little has been written about it. The Act allows the Secretary to set a date and then change it, upon consultation with heads of the federal banking agencies and the FTC, the Secretary of HUD and the Director of the OMB.

Regardless, the Obama Administration can use this deadline to create some momentum about the CFPB that appears to have been somewhat lost amid the speculation as to its Director.

- Beth DeSimone

Is It Something in the Soil? “Not Biodegradable in California” Disclaimers Likely to Increase

Summer is ending, and the highly anticipated revisions to the FTC’s Green Guides have still not arrived. As regular readers will recall, the FTC issued its Green Guides in 1992, partly in response to manufacturers’ requests for a uniform standard for making environmental claims. (For additional background, see here.) The current Green Guides allow biodegradability claims if the claim is substantiated by competent and reliable scientific evidence and qualified to the extent necessary to avoid deceiving consumers about the product’s ability to degrade in the environment where it is customarily disposed (i.e., landfills) and the rate and extent of degradation.

California has taken a different approach to these labeling claims. On August 25, the California legislature passed a law that would prohibit labeling any plastic product sold in California as “biodegradable,” “degradable,” or “decomposable.” Senate Bill 1454 now awaits action by Governor Schwarzenegger, who must approve or veto all bills by September 30. SB 1454 includes strong findings that, because there is no American Society for Testing and Materials (ASTM) standard specification for the term “biodegradable” for plastic, the term is inherently misleading to consumers. The bill states that consumers are more likely to litter a plastic item labeled “biodegradable,” which results in harm to the state and its environment.

Current California law prohibits labeling plastic bags and food packaging with the terms “biodegradable,” “degradable,” or “decomposable.” An example of the results of the current California law is evident in the label on the package of a popular brand of doggy waste pick-up bags. S.B. 1454 expands the scope of products subject to these labeling restrictions to include all products made of plastic or plastic components. Marketers would still be permitted to label a product “compostable” or “marine degradable”  if and only if the product meets the applicable ASTM standard specification at the time of sale. The bill provides for civil penalties for the violation of the law and expressly states that the remedies in the bill do not preempt consumer protection laws such as California’s Unfair Competition Law.

National marketers will hold their collective breaths to see whether other state legislatures also seek to set standards for environmental marketing claims. If they do, it will be difficult to realize the goals of uniformity and predictability envisioned by the FTC Green Guides. Absent uniform standards, consumers are likely left more confused, not less, by a patchwork of labeling requirements. We hope a consistent nationwide approach to environmental marketing regulations is adopted, but stay tuned here for future developments.

- Suzy Wilson and Elizabeth Frank

WEBINAR: Implications of the Consumer Financial Protection Bureau for Retailers and Other Nonbank Financial Services Providers

Does your company provide loans or some type of other financial service to the public? Have you been concerned that your products may be covered by the new Consumer Financial Protection Bureau (CFPB) contemplated by the financial reform legislation that is about to be passed by the Congress?

If so, you might want to tune into the event that our firm, Arnold & Porter LLP, is sponsoring on July 29, 2010, entitled, "Is This a Brave New World? Implications of the CFPB and the FTC for Nonbank Financial Services Providers".

This webinar will go over the proposed jurisdiction of the new CFPB, which is contemplated to be an independent bureau within the Federal Reserve. Importantly, the CFPB would be responsible for consumer protection over financial products and services offered by anyone (both banks and nonbanks) who offers to finance retail goods or services. While banks have been subject to comprehensive supervision for consumer compliance by their primary bank regulators for some time, nonbank entities have not. Thus, for those entities, the legislation will usher in a new supervisory regime that most likely will be different than that of the Federal Trade Commission (FTC), which now has jurisdiction over these entities

This event will highlight the FTC’s historical role over nonbank financial services providers, the expected changes for those entities that will be covered by the CFPB’s jurisdiction, and the anticipated cooperation between the FTC and the CFPB.

We are pleased to have at this event Joel Winston, the Associate Director of the Division of Financial Practices at the FTC’s Bureau of Consumer Protection. Also speaking are Beth DeSimone, Nancy Perkins, and Robert Clark, Arnold & Porter LLP attorneys who work in the consumer credit area.

The event will take place from 12:30 PM to 2:00 PM EDT on July 29, 2010. The event is being offered both in person at Arnold & Porter LLP's Washington DC office as well as via webinar. Lunch will be provided for those who come in person.

For a written analysis of this aspect of the legislation, click here.

UPDATE (8/3/2010): Click here for a link to audio and video recordings of the event.

Congress: Labeling Fur and Protecting the Family’s Precious Metal

While jewelry and fur may not be top of mind to consumers in the middle of summer, the Federal Trade Commission has long had enforcement authority over the marketing and sale of these products and recently supported legislation that further strengthens consumer protections in these areas.

On June 30, the House Energy and Commerce Committee's Commerce, Trade, and Consumer Protection Subcommittee cleared two bills focusing on consumer protection: the Guarantee of a Legitimate Deal Act of 2010 (H.R. 4501) and the Truth in Fur Labeling Act (H.R. 2480). The Guarantee of a Legitimate Deal Act sets standards for businesses that exchange cash for precious metals through the mail. The Truth in Fur Labeling Act extends the current Fur Products Labeling Act to require even fur products containing less than $150 in fur to have labels detailing the type of fur incorporated in the item.

The market for mail-in gold, in particular, has grown rapidly due to the doubling in the price of gold over the past three years to $1,200 an ounce. A major player in this industry, Cash4Gold.com, has been able to multiply traffic to its website through extensive advertising, including a commercial during the Super Bowl.  Businesses like Cash4Gold generally operate by soliciting consumers to mail in jewelry, making the consumer an offer by sending back a check, and giving the consumer a limited amount of time to reject the offer before the assuming it is accepted. There have been widespread consumer complaints of under-compensation -- some reports indicate that these companies offer customers less than a third of the true value of the jewelry.In an attempt to protect financially-stressed consumers selling their jewelry to these businesses, the proposed Guarantee of a Legitimate Deal Act would require online purchasers of precious metals to wait for affirmative acceptance before melting the jewelry and to promptly return jewelry if the offer is rejected.

Currently, the FTC enforces the Fur Products Labeling Act, which entails producing the Fur Products Name Guide that articulates rules for the labeling of fur products. This law does not, however, require labels on products containing less than $150 in fur, which often leaves consumers uninformed as to whether they are purchasing faux or animal fur. The proposed Truth in Fur Labeling Act would aid consumers who prefer not to buy real fur by eliminating this loophole, which now allows 14% of fur products to go unlabelled. This Act would not preempt states from passing more stringent regulations concerning fur product labeling. Retailers who sell fur products stay tuned for further developments.

- Amy Mudge and Andrew Macurdy

Culling the Herd of Abusive Class Action Litigation

The pressure to settle a class action that has made it past the certification stage is usually overwhelming. Regardless of the merits of the underlying claims, most companies will refuse to bet the company on a favorable jury verdict. In recent years, three independent legal developments, from three separate sources, have converged to alleviate this pressure for consumer sector companies facing unfair and deceptive practices and other class action litigation related to their marketing and advertising practices (as well as other types of consumer class actions such as antitrust and product liability cases):

• Congress diverting large class actions from state court to federal court
• The Supreme Court tightening federal pleading requirements
• Circuit Courts of Appeals tightening federal class certification standards

While far from a perfect fix, these changes in the law have made it tougher for plaintiffs’ lawyers to shake down American businesses via meritless class actions.

The Class Action Fairness Act (CAFA) funnels large class actions to federal courts. Once in federal court, the Supreme Court decisions in Twombly and Iqbal impose a finer filter at the motion-to-dismiss stage. And if a lawsuit proceeds beyond the pleading stage, the federal circuit court decisions in In re IPO and In re Hydrogen Peroxide and their brethren impose stricter standards for class certification. Taken together, these three independent developments will operate to limit the number of class actions that proceed to the expensive stage of discovery and that are ultimately certified.

Notably, these developments will cull the herd only of its weakest members. A lawsuit based on facts that plausibly suggest wrongdoing will, as always, survive a motion to dismiss. And a class action supported by a factual record showing that it is legitimately appropriate for class treatment will also survive this increased scrutiny. The cases that will not survive are those that are facially meritless or inappropriate for class treatment, and they will be weeded out at an earlier stage of the litigation, thus “secur[ing] the just, speedy, and inexpensive determination” of purported class actions. (Fed. R. Civ. P. 1).

For a more in-depth discussion on these developments, click here.

- James Speyer and Trent Norris

Provisions In Proposed Financial Reform Legislation Will Alter The Preemption Landscape

Passage by the US Senate last week of the Restoring American Financial Stability Act of 2010 containing new standards for consumer protection sets the stage for a significant change in the standards for federal preemption of state law governing the offering of financial services to consumers. With limited exceptions for “inconsistent” state laws, the new federal consumer protection requirements would not preempt state law.

But at least as importantly for national banks and federal savings bank and their respective subsidiaries, both the House and Senate versions of this legislation would alter existing preemption standards by specifically outlining new “clarifying” standards for preemption of state law by the National Bank Act, and the Home Owners’ Loan Act. As is detailed in this advisory, these new standards would narrow the circumstances under which the NBA and HOLA could be deemed to preempt state law as applied to national banks, federal savings banks, and operating subsidiaries of those federally chartered banking institutions, thereby altering the regulatory and litigation landscape under which these institutions operate. If these new standards are included in the final legislation − which they almost certainly will − the circumstances under which national banks and federal savings banks may offer consumer products and services on a uniform, nationwide platform will be more limited and the costs of providing such services likely will increase. 

For national banks, the new standards will codify existing precedent (i.e., the standards that were articulated by Barnett Bank v. Nelson, 517 U.S. 25 (1996)), but significantly limit the possible interpretation and application of that precedent. For federal savings banks, the standards will be new to them, as federal savings banks have always operated pursuant to a broad federal mandate under HOLA and its implementing regulations “occupying the field” of regulation with respect to deposit-taking and lending activities. To adapt to these changes, federal savings banks as well as national banks will likely need to undertake a probing review of their policies and procedures in relation to state laws in the consumer area. In any event, regulatory and compliance costs will increase.

On the litigation front, all financial institutions subject to the legislation’s new consumer protection provisions, including but not limited to national banks and federal savings banks, likely will see an increase in plaintiffs’ activities and the advent of broader actions by state Attorneys General. Defending against these actions on grounds of federal preemption will be a new challenge and will require both a solid understanding of preexisting precedent and the analytical skill to demonstrate that the new tests for preemption can be met under these standards.

- Beth DeSimone and Nancy Perkins