Consumer Advertising Law Blog

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.

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

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

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

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

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

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

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

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

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

- Randy Shaheen and Danielle Garten

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

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

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

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

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

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

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

- Randy Shaheen and Candida Harty

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

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

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

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

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

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

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

- Randy Shaheen and Jessica Halbert

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

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

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

- Candida Harty and Danielle Garten

The FTC Tackles Online Privacy - Vladeck Speaks

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

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

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

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

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

- Sean Morris

FTC Looking to Regain Ground after Recent Substantiation Setbacks

At yesterday’s Roundtable Breakfast Series program on false advertising disputes hosted by Arnold & Porter LLP, Mary Engle, the FTC’s Associate Director for Advertising Practices, outlined the FTC’s plan to tighten up the substantiation requirement the agency includes in consent orders related to health claims. This comes after the FTC has suffered setbacks in its attempts to enforce such consent orders because courts have found that the advertisers were meeting their obligations to have competent and reliable scientific evidence substantiating their claims. Our analysis of one of these cases, Lane Labs, can be found here.

Mary Engle noted that the current substantiation requirement was meant to be tough while at the same time providing defendants flexibility in how they met it. However, some courts have not interpreted the standard in the manner intended by the FTC. She set out three primary goals for the new, tighter substantiation requirement that the FTC will roll out in future consent orders:

• It will be easier to enforce as a result of its greater specificity, which will also provide defendants greater clarity on what substantiation they need to possess.
• It will better harmonize with the laws and regulations of other agencies, such as FDA.
• It will address situations where the results of a single study relied upon by the advertiser are inconsistent with the weight of scientific evidence in the field.

We will monitor the FTC’s implementation of this new substantiation requirement for health-related claims and keep you up to date on developments.

Also presenting at the Roundtable program were David Mallen, Associate Director of NAD, who talked about current advertising issues in NAD cases, Michael Mazis, Professor Emeritus of Marketing at American University’s Kogod School of Business, who talked about methodological issues in consumer advertising surveys, and Randy Miller, a partner at Arnold & Porter LLP, who talked about Lanham Act false advertising litigation.

Materials from the Roundtable program can be found here.  Audio from the program is available here. 

- Matthew Shultz

FTC Workshop & Roundtable Announcement

On Wednesday the FTC announced plans to hold a workshop and roundtable on emerging healthcare competition and related consumer protection issues.  The events, to be held in Washington, DC, are slated for this fall.  The workshop and roundtable will focus on two key areas:  1. competition stemming from the implementation of a shorter regulatory path for follow-on drugs; and 2. competition among healthcare providers based on quality information.

Some of our readers likely remember the 2004 joint FTC/DOJ report entitled “Improving Healthcare:  A Dose of Competition.”  Since the release of the report, issues related to competition and consumer protection in the context of healthcare have increased exponentially.  The FTC has recognized the increase in both the interest and relevance of this area, and is holding these events in response.  The agency hopes to gather information on abbreviated regulatory pathways, as well as purchasers’ perception of the competitive effects of qualitative healthcare information.  The increased use of qualitative measures in marketing and advertising could open the door to increased issues related to consumer protection.  Information related to the “quality” of healthcare products and services is difficult to quantify and objectively measure, leaving the potential for consumer fraud and false advertising wide open. 

The FTC is seeking public comment on a wide range of issues related to the workshop and roundtable.  Readers can access the federal register notice here.  Please note that comments are due by September 30.  Interested parties are also free to submit comments up to 30 days after the events.  Stay tuned for the dates of these events and further details.

California: Credit Card Consumers Cough Up Phone Numbers When Returning Merchandise

Making a purchase, or returning an item to the store?  If you’re using a credit card in California, your customer status makes a difference.  According to a recent decision from California’s Court of Appeal for the Second District, cardholders who purchase goods do not receive the same protections as those who return goods.

California’s consumer protection statute forbids merchants from requiring credit card users to provide personal identification information.  (See § 1747.08(a)).  Two years ago, David Absher purchased a locking gas cap from AutoZone.  After discovering that the gas cap did not fit his car, he promptly went back to the store to return it.  As part of AutoZone’s return policy, Absher was required to provide his telephone number to complete the transaction.  In response, Absher filed a class action suit, alleging that AutoZone’s return policy violated the state’s consumer protection statute.

According to the statute, merchants cannot use forms with spaces designated for personal identification information in any credit card transaction.  Absher argued that this applies to all credit card transactions, including returns.  The court, however, held otherwise.  First, the court found that the phrase “credit card transaction” did not “clearly and unambiguously” include all kinds of transactions.  Next, the court analyzed the preceding provisions of the statute to determine the meaning of “credit card transaction.”  Because those provisions explicitly applied to purchasing transactions, the court decided it would be inconsistent for “credit card transaction” to include returns.

Although consumers who return or exchange products may have to provide personal identification information, such as an address or a telephone number, this does not mean their information will be unprotected.  There are many measures businesses can adopt to ensure protection of sensitive information.  In fact, next August, the FTC and the California Office of Privacy Protection will host a workshop instructing businesses on ways to protect the personal information of its consumers and employees.  The FTC’s website also has tips on how businesses can better protect personal information.

FTC Announces Workshop Examining Green Building and Textile Claims

On Tuesday, the FTC announced that it will hold a one-day workshop on July 15 to examine green building and textile claims.  As in other areas of the economy, claims about the environmental attributes and benefits of buildings, building materials, and textiles have increased significantly.  Building materials suppliers are making green claims on a wide range of materials; for example:  non-toxic, green, or renewable flooring; lumber from certified and managed forests or that has been recycled or reclaimed; and natural or organic paints.  Homes and other buildings are also being marketed as green or eco-friendly.  Green textile claims include organic or environmentally friendly cotton and wool and synthetic fibers such as nylon and polyester made from recycled materials.  Certification programs verifying the environmental attributes and benefits of such products have also proliferated.

The workshop will explore consumer perceptions of such building and textile claims, how such claims are, or can be, substantiated, and whether the FTC should update its Guides for the Use of Environmental Marketing Claims, or “Green Guides,” to address green building and textile claims.  The workshop will be held at the FTC’s Conference Center at 601 New Jersey Ave., N.W. in Washington starting at 9:00 a.m.  The workshop’s webpage provides instructions for pre-registration.  You can also access a live webcast of the workshop from this webpage on the day of the event.  The FTC will accept comments on the workshop through July 1, and any comments submitted should be available through the workshop’s webpage.

The workshop is the third in a series conducted as part of the FTC’s review of its Green Guides.  In November 2007, the FTC announced its review of the Green Guides and its intention to hold public workshops in connection with this review.  The first workshop, on carbon offsets and renewable energy certificates, was held in January 2008.  You can find a write-up of this workshop here.  The second workshop, on green packaging claims, was held on April 30.  You can find a write-up of this workshop here.

FTC Holding Green Packaging Workshop Tomorrow

On Wednesday, April 30, the FTC will hold a one day workshop to examine green packaging claims. Consumer products frequently contain claims about the packaging’s environmental attributes. In the past, these were usually claims about the packaging’s recyclability or biodegradability. More recently, new green claims such as “sustainable” and “renewable” have emerged, and the use of environmental seals and certifications has become more frequent. As part of the workshop, marketers and marketing and environmental experts will discuss trends in green packaging claims. The workshop will also examine how consumer’s perceive green packaging claims.

You can attend tomorrow’s workshop at the FTC’s Conference Center at 601 New Jersey Ave., N.W. in Washington starting at 9:00 a.m. You can also view a live webcast of the workshop from the workshop’s website, where you’ll also find links to public comments and other information.

The workshop is part of the FTC’s review of its Guides for the Use of Environmental Marketing Claims, or “Green Guides.” Thus, the workshop will also explore whether the FTC should revise the Green Guides’ guidance on using traditional green packaging claims and whether it should expand the Green Guides to cover more recent and emerging packaging claims. In addition, the workshop will examine substantiation issues raised by green packaging claims and environmental seals and certifications. An agenda for the workshop can be found here.

In November 2007, the FTC announced its review of the Green Guides and its intention to hold public workshops in connection with this review. The first workshop, on carbon offsets and renewable energy certificates, was held in January 2008. You can find a write-up of this workshop here. We will send out a similar summary after tomorrow’s green packaging workshop. In addition to tomorrow’s workshop, the FTC has indicated it may hold a third workshop on consumer perception of green marketing claims, but the FTC has not announced a date for such a workshop.

FTC Staff Releases Next Tech-Ade Report

The FTC released last Friday a staff report on its "Protecting Consumers in the Next Tech-ade" hearings held this past November. Given the rapid pace of technological change and convergence it was perhaps wishful thinking, though catchy, to coin the term "tech-ade."  "Tech-year" might have been more appropriate.  Staff's report does not break any dramatic new ground or propose significant new initiatives.  Instead it largely concludes that the Commission's time-honored law enforcement and bully pulpit tools are up to the job, no matter how novel the advertising medium. 

The report largely focuses on four areas -- (1) protecting consumer privacy in the face of increasing technological ability to store and retrieve information, sometimes even without consumer knowledge; (2) ensuring that advertising is clearly identified, as the traditional 30-second commercial break is replaced by techniques that blur the line between content and advertising, such as viral marketing, seeded message boards, fake blogs (flogs) and paid search engine rankings; (3) continued international law enforcement cooperation; and (4) continued emphasis on industry self-regulatory efforts. 

Perhaps the most striking statement in the report is that consumers accepting advertising on a website may not understand their "responsibility to screen such advertisements."  Although this sounds ominous, the Commission has not to date imposed a legal obligation on the media to screen advertisements, though it has certainly cajoled for such screening on many occasions.  What the report does not discuss is the contentious issue of how marketers make appropriate disclosures in an increasingly high tech world.  As wireless devices more and more become instruments of commerce via which consumers can make almost any type of purchase, advertisers are faced with multiple challenges in making necessary disclosures.  Small screen sizes raise issues relating to scrolling and the use of text messaging.  In addition, given that there may be multiple users of wireless devices a debate has arisen over who bears responsibility for ensuring that the primary account holder is aware of such purchases.  Industry has begun to address questions such as these through self-regulation. The Florida AG has also entered into several consent orders --  a consent with Azoogle in late 2007 permits the company to use "shorthand" messaging but it must be "commonly understood" and the company is required to take steps to encourage consumers to scroll down to view disclosures.  An even more recent settlement with AT&T requires, among other things, that the company clearly disclose third party charges on wireless subscriber bills so that, for example, parents can monitor their kids use of wireless devices for purchases. No doubt it is only a matter of time before the FTC adds a few notches to its belt in this area as well.