Advertising Law

December 08, 2016

Lawson to Moderate ABA's Privacy Teleconference, Dec. 16
$30M Judgment for Green Coffee Weight Loss Defendant
FTC Publishes Enforcement Policy Statement on OTC Homeopathic Drugs
Adobe Will Pay State AGs $1M, Improve Data Security
Class Action Settlement Notice Programs Studied by FTC
News and Views
Most Read Stories

Lawson to Moderate ABA's Privacy Teleconference, Dec. 16

The FCC's recent broadband privacy order introduced a new framework for protection of consumer information. Richard Lawson, partner in Manatt's consumer protection practice, will moderate a conversation with Madeleine Findley and Melissa Droller Kirkel of the FCC's Wireline Competition Bureau to examine the order in the context of the FCC's consumer protection mandate and net neutrality order. The teleconference, "A New Privacy Framework: The FCC Broadband Consumer Privacy Order," will be hosted by the ABA Section of Antitrust Law on Friday, December 16, 2016.

$30M Judgment for Green Coffee Weight Loss Defendant

An executive behind a green coffee weight loss product scam was hit with a $30 million judgment in a recent Federal Trade Commission action in Florida federal court.

In 2014, the agency filed suit against several defendants involved in the advertising of Pure Green Coffee, a product touted as causing substantial weight loss. The marketing overseen by Nicholas Scott Congleton included fake news websites and false testimonials, the FTC said, and lacked any scientific evidence to back up the claims.

Green coffee beans as a weight loss treatment gained popularity after a segment on "The Dr. Oz Show" and within weeks, the defendants (including Congleton) began selling their Pure Green Coffee extract at a price of about $50 for a one-month supply. The agency charged the defendants with making false and unsupported advertising claims that consumers who used the product could lose 20 pounds in 4 weeks and 16 percent body fat in 12 weeks, that studies proved Pure Green Coffee use could result in an average weight loss of 17 pounds in 12 weeks, and that websites linked to the defendants' sites were objective news sites containing comments that reflected the views of independent consumers.

Many of the defendants have already reached deals with the agency. In the most recent action, the federal court judge overseeing the case granted summary judgment in favor of the FTC and ruled that Congleton could be individually liable for the corporate defendants' false advertising. The court entered a $30 million judgment against Congleton and permanently banned him from deceptive advertising practices.

"Because Congleton conducted a deceptive advertising campaign for years, because Congleton knew of the advertisements' falsity, because Congleton failed to immediately discontinue the deceptive advertising after learning of the FTC's demand, because another violation could seriously harm a consumer, because Congleton appears proficient in Internet-advertising techniques, and because the barriers to entry in the dietary-supplement industry are low, the FTC proves a cognizable danger of a prospective violation," U.S. District Court Judge Steven D. Merryday wrote.

Dylan Loher, a separate relief defendant—who did not directly participate in the scheme but indirectly profited from it—was also ordered to turn over $549,000.

To read the complaint and the orders in FTC v. NPB Advertising, Inc., click here.

Why it matters: "As this case shows, the FTC is willing to go the distance to make sure that defendants like these are held accountable," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement. "We're pleased that the court has put an end to Congleton's deceptive scheme." The agency also noted that the action advances its goals as a member of the National Prevention Council, a group that "provides coordination and leadership at the federal level regarding prevention, wellness, and health promotion practices," as the FTC strives to protect consumers from misleading health advertising.

FTC Publishes Enforcement Policy Statement on OTC Homeopathic Drugs

Taking a stance on marketing claims for over-the-counter homeopathic drugs, the Federal Trade Commission published an Enforcement Policy Statement explaining that the agency intends to hold the products to the same standard as other OTC products making similar claims.

The "Enforcement Policy Statement on Marketing Claims for OTC Homeopathic Drugs"—based on a workshop held by the agency last fall and triggered by the burgeoning mainstream marketing of OTC homeopathic products alongside other OTC drugs—applies only to OTC products intended solely for self-limiting disease conditions amenable to self-diagnosis of symptoms and treatment, the agency said.

Generally speaking, advertisers must have "at least the advertised level of substantiation" for their products, the agency noted, and for health, safety, or efficacy claims, the Commission "has generally required that advertisers possess 'competent and reliable scientific evidence,' defined as 'tests, analyses, research, or studies that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.' In general, for health benefit claims, particularly claims that a product can treat or prevent a disease or its symptoms, the substantiation required has been well-designed human clinical testing."

But for "the vast majority" of OTC homeopathic drugs, the substantiation for efficacy is based solely on traditional homeopathic theories, without valid studies using current scientific methods, the FTC explained. "Accordingly, marketing claims that such homeopathic products have a therapeutic effect lack a reasonable basis, are likely misleading, and in violation of Sections 5 and 12 of the FTC Act."

However, the Commission has "long recognized" that marketing claims may include additional explanatory information in order to prevent the claims from being misleading.

"Accordingly, the promotion of an OTC homeopathic product for an indication that is not substantiated by competent and reliable scientific evidence may not be deceptive if that promotion effectively communicates to consumers that: (1) there is no scientific evidence that the product works and (2) the product's claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts," according to the Policy Statement.

Perfunctory disclaimers are unlikely to successfully communicate the information necessary to make OTC homeopathic product claims non-misleading, the FTC cautioned. Disclosures should "stand out," be in close proximity to the efficacy message and, in some cases, may actually need to be incorporated into the efficacy message.

Marketers should be careful not to undercut qualifications with additional positive statements or consumer endorsements, the agency said, and it is possible that the disclosures may be insufficient given the "inherent contradiction" in asserting the effectiveness of a product and also disclosing there is no scientific evidence for such an assertion.

The FTC frowned upon certain disclosures as insufficient. For example, that a product's efficacy "has not been evaluated by the Food and Drug Administration," that a product is based on traditional homeopathic theories, and that a product's efficacy is not supported by scientific evidence.

"The Commission will carefully scrutinize the net impression of OTC homeopathic advertising or other marketing employing disclosures to ensure that it adequately conveys the extremely limited nature of the health claim being asserted," the FTC wrote. "If, despite a marketer's disclosures, an ad conveys more substantiation than the marketer has, the marketer will be in violation of the FTC Act."

To read the Enforcement Policy Statement, click here.

Why it matters: Historically, the FTC has rarely challenged misleading claims for products that were homeopathic or purportedly homeopathic, the agency wrote. But that position appears to be changing. Given the growing OTC homeopathic market and the Commission's new Enforcement Policy Statement, the makers of such products should brace themselves for heightened regulatory scrutiny.

Adobe Will Pay State AGs $1M, Improve Data Security

Adobe Systems, Inc., reached a $1 million deal with 15 state attorneys general after a security breach allowed hackers to access the personal information of roughly 552,000 consumers in those states.

In September 2013, Adobe learned that an unauthorized attempt was made to decrypt encrypted customer payment card numbers that were maintained on an application server. A subsequent investigation by the company revealed that hackers had compromised a public-facing Web server to access other servers on Adobe's network in order to steal data.

As a result of the attack, the hackers obtained consumers' names, addresses and telephone numbers, usernames, e-mail addresses, encrypted passwords associated with the usernames, plain text password hints, and encrypted payment card numbers and expiration dates.

The AGs stepped in and accused Adobe of failing to employ reasonable security measures to protect its systems and customer information in contravention of the company's representations to consumers that it would take reasonable steps to protect their personal information.

Although Adobe denied the allegations, the company elected to reach a deal with the AGs from Connecticut, Arkansas, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Missouri, Minnesota, Mississippi, North Carolina, Ohio, Oregon, Pennsylvania, and Vermont. Pursuant to an Assurance of Voluntary Compliance, the company will pay $1 million to be divided among the 15 states.

Adobe also promised to comply with the various states' consumer protection statutes, maintain reasonable security policies and procedures designed to protect personal information, and not make any false representations to deceive or mislead consumers about the safeguarding of personal information. The company will review its policies and procedures at least twice annually, train relevant employees, and perform ongoing risk assessments and penetration testing.

In addition, various remedial steps were already taken in response to the breach, including adding a two-factor authentication for affected servers, implementing additional network sensors, increasing monitoring on servers containing and processing customer account information, and restricting access to certain servers.

A report prepared by an independent third-party auditor on Adobe's security practices with regard to personal information will be shared with the state AGs, along with a certification of its compliance with the Assurance.

"Consumers should have a reasonable expectation that their personal and financial information is properly safeguarded from unauthorized access," Connecticut AG George Jepson said in a statement about the action. "Companies have a responsibility to consumers to protect their personal information, and this settlement will ensure Adobe establishes stronger safeguards in the future," added Illinois AG Lisa Madigan.

To read the Assurance of Voluntary Compliance in In the Matter of Adobe Systems, Inc., click here.

Why it matters: The action is yet another example of the fallout companies can experience in the wake of a data breach or hacking attack. In addition to the agreement with the state attorneys general, the Assurance left open the door for consumer class actions by expressly stating that it shall not be construed to "waive or limit any private right of action."

Class Action Settlement Notice Programs Studied by FTC

How effective are class action settlement notice programs? The Federal Trade Commission intends to take a closer look.

The agency's Class Action Fairness Project "strives to ensure that class action settlements in consumer protection and competition matters provide appropriate benefits to consumers," the FTC explained. As part of the project, the agency monitors class actions, intervenes in appropriate cases or files amicus briefs, monitors legislation and class action rule changes, and coordinates with state, federal, and private groups on important class action issues.

Now the agency has issued orders to eight claims administrators requiring them to provide information on the procedures used to notify class members about settlements and the response rates for the various methods of notification.

Already included in the project are two studies on different aspects of consumer class actions. The Notice Study, an Internet-based consumer questionnaire, will examine consumer comprehension of the options conveyed by a class action notice and the implications of each option for the respondent. Specifically, the study will explore "whether respondents receiving class action notices understand the process and implications for opting out of a settlement, the process for participating in the settlement, and the implications of doing nothing," according to the Federal Register notice.

The second investigation, the Deciding Factors Study, will consider what factors influence a consumer's decision to participate in a class action settlement, to opt out of a class action settlement, or to object to the settlement. The Commission plans to seek up to 8,000 respondent answers to a questionnaire in order to weigh the impact of factors such as consumer comprehension of their options, the amount they expected to receive in the settlement, and the complexity of the settlement process.

To read the FTC's announcement, click here.

Why it matters: The orders seeking data on the procedures used to notify class members about settlements and the response rates for the various methods of notification were based on the FTC's studies into class action notices and the factors used by consumers to decide whether or not to participate in a settlement.

News and Views

Enacted in 2010, the Restore Online Shoppers' Confidence Act requires online retailers to clearly and conspicuously disclose the terms of an online negative option transaction before obtaining the consumer's billing information, obtain express informed consent before charging the consumer, and provide a simple mechanism to stop the charges. Richard Lawson and Marc Roth, partners in Manatt's advertising, marketing and media practice, recently authored an article for Response Magazine detailing how a seemingly simple set of requirements from Congress has raised significant issues for online sellers as to how these obligations may be satisfied. To read the full article, "A Tale of Two Statutes: ROSCA as Written, and ROSCA as Enforced," click here.

With so much "false news" on the Internet right now, how can companies avoid getting faulty results from their social media data? TechRepublic recently quoted Manatt partner Marc Roth in an article outlining how marketing managers should go about obtaining reliable customer information. "Given the inherent uncertainty and lack of verification, I would strongly advise against relying on social media information for consumer profiles," said Roth.

Most Read Stories

In case you missed any, here are our top 10 most widely read stories in November: