“Big Data” Mergers Should Trigger Regulatory Investigation, Groups Say
The Federal Trade Commission should take a closer look when companies with “big data” consolidate or merge, consumer groups recently urged.
In a letter to Chairwoman Edith Ramirez, several interim groups, including the Center for Digital Democracy, the U.S. Public Interest Research Group, Public Citizen and Consumer Watchdog, stated that in the “contemporary ‘Big Data’ digital marketplace … competition and consumer-protection issues are intertwined.”
“We believe the Commission should be more proactively involved with consumer information-oriented mergers and acquisitions,” the groups wrote. “There has been increasing consolidation in the data-driven consumer-marketing sector, with companies amassing vast holdings of the key element that drives much of online commerce—information on or about individuals.”
The letter highlighted the recent acquisition of data company Datalogix by the Oracle Corporation, which the Department of Justice approved in January. Oracle reports the acquisition creates “‘the world’s most valuable data cloud’ for digital marketing, enabling it to ‘reach consumers everywhere,’ including ‘online, mobile, email, display, social, In Store, TV, Radio and Direct Mail,’” by unifying “‘a consumer’s various identities across all devices, screens and channels.’”
Consumer groups argue the acquisition creates the potential for “serious privacy and digital consumer protection issues, concerning financial, racial, location, and other sensitive data, as well as the EU/U.S. Safe Harbor agreement.” The groups recommend that the FTC should have urged the DOJ to engage in extra scrutiny.
Consumer groups are also looking beyond this specific transaction, arguing that the FTC should not only launch an investigation into data-oriented mergers and acquisitions but also conduct a public workshop “to explore the new data-driven marketing landscape and its implications for 21st century competition and consumer protection.”
“In addition to data-broker concentration, there are also numerous new alliances and special relationships among companies that enable the ‘pooling’ of data used for targeting,” according to the letter. “All of these changes, reflecting the ‘always-on’ Big Data marketplace, demand a new analysis to determine how the structure of the consumer marketing industry has been transformed. Given the profound changes underway on how Americans learn about, shop, and pay for everyday products, through mediated, intelligent, and pervasive systems involving real-time analysis and implementation, the Commission’s investigation should help the public better understand the implications for their daily lives of these major marketplace developments.”
To read the letter to the FTC, click here.
Why it matters: “The American public deserves to know how the consolidation and use of their information affects their daily lives, from the prices they pay and the services they are offered to what this transaction means for their privacy,” the groups concluded. “We urge the FTC to develop a more effective approach to identifying new problems and threats to competition and consumer protection in the Big Data era.”
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4th Circuit Tosses Spam Suit
Affirming dismissal of a lawsuit challenging hundreds of thousands of spam e-mails, the Fourth U.S. Circuit Court of Appeals said the plaintiff company could not recover because it actually invited the spam.
Beyond Systems sued Kraft after allegedly receiving 600,000 e-mails regarding Gevalia coffee, claiming violations of both California and Maryland state law. Many of the messages at issue were the same as those that provided the basis for a 2005 Hypertouch lawsuit against Kraft.
Maryland-based Beyond Systems, Inc., is an Internet service provider that houses its servers in the basement of the owner’s parents’ house. The company—and a sister operation based in California, Hypertouch—both have histories of suing alleged spammers.
The companies developed Web pages with e-mail addresses embedded in code discoverable only by “spam crawlers” that operated as spam traps. Beyond Systems also made no efforts to block or filter spam e-mail, even increasing its storage capacity to archive large volumes of messages.
At trial, a jury found that the plaintiff was not a “bona fide” ISP and the court then declined to award any damages based on a finding that Beyond Systems had invited its own injury.
The federal appellate panel agreed. The common law doctrine of volenti non fit injuria precluded recovery under either the California or Maryland anti-spam statutes, the court said. Both laws created private rights of action in the nature of a tort and neither statute suggests that common law principles do not apply. Both states abide by the doctrine, translated to mean, “to a willing person it is not a wrong,” the court added.
Given the “overwhelming” evidence that Beyond Systems consented to the harm it claims it suffered, the panel affirmed that the application of volenti non fit injuria was appropriate.
“Beyond Systems created fake e-mail addresses, solely for the purpose of gathering spam. It embedded these addresses in websites so that they were undiscoverable except to computer programs that serve no other function than to find e-mail accounts to spam,” the court wrote. “Beyond Systems increased its e-mail storage capacity to retain a huge volume of spam, by which it hoped to increase its eventual recovery under anti-spam statutes. And it intentionally participated in routing spam e-mail between California and Maryland to increase its exposure to spam and thereby allow it to sue under both states’ laws.”
“Beyond Systems’ consent to—and indeed its solicitation of—the harm at issue in this case prohibits Beyond Systems from recovering under the Maryland and California anti-spam statutes,” the panel concluded.
To read the opinion in Beyond Systems, Inc. v. Kraft Foods, click here.
Why it matters: The Fourth Circuit’s decision draws a line in the sand regarding the behavior of plaintiffs in spam lawsuits. Legitimate ISPs that have their businesses impacted by deceptive spam may gather and retain the e-mails, and can even set spam traps to identify responsible parties, without a court invoking the doctrine of volenti non fit injuria. However, plaintiffs like Beyond Systems, that “gratuitously created circumstances that would support a legal claim and acted with the chief aim of collecting a damage award”—will be denied any recovery. The panel noted that 90 percent of the company’s income was derived from spam-trap-based litigation.
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Sweepstakes Promoter Violates FTC Deal, Faces Ban and $9.5M Judgment
A sweepstakes promoter agreed to a permanent ban from direct mail marketing and faces a $9.5 million judgment pursuant to a settlement with the Federal Trade Commission after she violated the terms of an earlier agreement.
Crystal Ewing was one of several individuals charged by the agency in 2007 for operating a deceptive sweepstakes promotion. According to the FTC, the defendants tricked consumers into sending them money in order to receive a cash prize that did not exist.
At the time, Ewing reached a deal with the agency prohibiting her (as well as the other defendants) from conducting prize promotions.
But Ewing subsequently began working with Puzzles Unlimited LLC, a prize promotions company that the FTC said scammed consumers using direct mail ads with titles like “Notice of Grand Prize Payout” and “Grand Prize Guaranteed.” Believing they had already won money, recipients completed a form and paid a “processing fee” of $10 to $15.
However, the prizes never materialized. Instead, consumers received additional rounds of puzzles that they were required to solve correctly in order to claim the prize money. To heighten the drama, the defendants often told consumers they were “tied for first place” in the promotion. Even those who correctly solved the puzzles did not receive a prize.
Ewing’s endeavors violated the earlier deal, the FTC alleged. Admitting that she ran afoul of the 2007 order, Ewing agreed to pay more than $9.5 million—the amount of consumer harm attributable to Puzzles Unlimited—and the imposition of a permanent ban on any direct mail marketing. She is also prohibited from making material misrepresentations about goods and services, and from profiting from consumers’ personal information. In addition, she must properly disclose consumer information.
To read the stipulated final judgment in FTC v. Ewing, click here.
Why it matters: The FTC used the case to illustrate the penalties that will be levied against companies that fail to comply with settlement agreements. “There’s a price to pay to violating a court order in an FTC case,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “In this case, that’s $9.5 million and a permanent ban on direct mail marketing.”
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BBB Tweaks Advertising Code for Modern Media
In an effort to modernize, the Better Business Bureau has updated the BBB Code of Advertising for the first time since the 1970s “to reflect the many new ways advertisers reach consumers via websites, social media, texting and other channels.”
Applicable to all advertisers in North America, the modernized Code maintains the same central tenet that “the primary responsibility for truthful and non-deceptive advertising rests with the advertiser,” and that advertisers “should be prepared to substantiate any objective claims or offers made before publication or broadcast.”
While the truth-in-advertising principles remain the same, the Code now deals with 21st-century ad mediums like social media (i.e., Facebook and Twitter) and texting.
Importantly, the Code was updated to include language for testimonials and endorsements that aligns the organization with the Federal Trade Commission’s stance as found in the agency’s Guides on Testimonials and Endorsements.
In addition, the self-regulatory organization changed its position on “up to” savings claims. “The most noticeable change to the Code is the elimination of the requirement that advertisers include a range of savings whenever an ‘up to’ price savings claim is made (for instance, up to 40%); the Code retains the requirement that at least 10% of the class of items identified in the ad must be offered at 40% off.”
Closeout and liquidation sales, duration of sales periods, rebate promotions, and the line between puffery and objective superlative claims were also addressed. Puffery “includes general claims of superiority over comparable products that are so vague that it can be understood as nothing more than a mere expression of opinion,” the Code states.
New additions for advertisers to consider include: provisions on environmental benefit claims, continuity programs, and “Made in USA” and “Product of Canada” claims. The product or product line must be made “all or virtually all” in the United States, the BBB said, although qualified claims (such as “60% U.S. content”) are appropriate.
“The goal is to make industry self-regulation track with regulatory approaches to encourage the most honest and ethical marketing by businesses,” the BBB added.
To read the updated BBB Code of Advertising, click here.
Why it matters: “The core message of the Code is unchanged, but this comprehensive update covers the many new channels businesses have to reach potential customers,” explained BBB president and CEO Mary E. Power. Advertisers would be well served to review the code changes to ensure compliance going forward, although the self-regulatory organization noted that its positions largely track the FTC’s stance on issues ranging from environmental claims to endorsements and testimonials to “Made in USA” claims.
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Noted and Quoted . . . Wasserman Talks to FoodNavigator-USA About “Just Mayo” Litigation
On February 24, 2015, FoodNavigator-USA published commentary by Manatt partner Ivan Wasserman regarding the recent false advertising lawsuits filed against Hampton Creek Foods over its egg-free spread, “Just Mayo.”
Ivan said, “This could come down to a question about which came first, the mayo or the eggs? In other words, are consumers buying mayonnaise because it contains eggs or because it tastes, looks, and performs like the product they know as mayonnaise?”
To read the full article, click here.
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