Permanent Ban From Prize Promotion Business After Sweepstakes Scam
A sweepstakes operator agreed to a permanent ban from the prize promotion business pursuant to a settlement with the Federal Trade Commission after being accused of operating an international scam.
Defendant Liam O. Moran and his companies took millions of dollars from consumers in the United States, Canada, France, Japan, and the United Kingdom by sending personalized mail that falsely stated the recipient had won a cash prize, typically more than $2 million, the agency said. Over a two-year period, the defendants sent more than 3.7 million letters to 156 countries.
To collect the money, the recipient had to pay a fee ranging from $20 to $30. By promising that the prize money was “guaranteed” if the fee was sent, the defendants created a sense of urgency by characterizing the prize as a limited-time offer.
The letters contained “dense, confusing language” that directly conflicted with the letters’ bold claims of major winnings, according to the FTC. In fact, the defendants merely provided consumers with a list of available sweepstakes and contests. Because of its placement and content, such language did not adequately communicate to consumers that they had not won a substantial prize, the agency alleged. Instead, the FTC said that those who sent the fee, primarily persons over the age of 65, got nothing of value in exchange for their payment.
Under the settlement, the defendants must properly dispense of all customer information and are banned from conducting prize promotions. They are also permanently prohibited from misrepresenting any goods or services and from selling or otherwise benefiting from consumers’ personal information. The settlement levies a judgment of more than $11 million (the amount of money that consumers lost through the scams, according to the FTC), which will be suspended once Moran turns over the proceeds from the sale of his home. However, the full judgment will become due immediately if the FTC finds that the defendants misrepresented their financial condition.
To read the complaint and the stipulated order in FTC v. Applied Marketing Sciences, LLC, click here.
Why it matters: The agency’s enforcement action reminds marketers that sweepstakes and prize promotions remain areas of focus for the FTC, and that egregious promotions could result in financial penalties and a permanent industry ban.
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U.S. Supreme Court: No Publicity Rights Appeal, but Possible Definition of “Actual Harm”
The United States Supreme Court is back in session and considering issues relevant to advertisers.
During the first week of the 2014-2015 term, the Court issued an order inviting the United States Solicitor General to weigh in on the pending cert. petition in Spokeo, Inc. v. Robins, which is on appeal from the Ninth Circuit. The issue is whether a plaintiff asserting a private right of action under the Fair Credit Reporting Act (FCRA) has requisite Article III standing when his complaint alleges no concrete harm other than the violation of the statutory right itself and he could not otherwise invoke the jurisdiction of a federal court.
The lawsuit was filed by plaintiff Thomas Robins in 2010, alleging that data aggregator Spokeo violated the FCRA by displaying incorrect information about his age, marital status and employment. The plaintiff claimed that he was looking for a job and was concerned that the errors damaged his employment prospects. He sought to represent a class of individuals in a similar situation.
The district court dismissed the suit, holding that the plaintiff failed to allege that he suffered any actual harm.
But the Ninth U.S. Circuit Court of Appeals reversed and let the putative class action move forward. The three-judge appellate panel held that the plaintiff did not have to establish economic harm because the FCRA provides for a private right of action with no damages requirement.
“When, as here, the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages,” the panel wrote.
Spokeo filed a writ of certiorari with the nation’s highest court in May, in which he argued that the plaintiff must show actual harm rather than a mere fear that potential employers may rely on the allegedly inaccurate data. Since there is a split in the Circuits, the Supreme Court invited the U.S. Solicitor General to file a brief to set forth the views of the federal government – an indication that the Supreme Court will grant certiorari.
In another case, the Supreme Court rejected a petition from Electronic Arts to consider whether its use of college athletes’ names and likenesses is entitled to First Amendment protection. Sam Keller, a starting quarterback for Nebraska and Arizona State, argued that Electronic Arts violated his right of publicity under California law by featuring an avatar at his position wearing his jersey and number with the same height, weight, skin tone, hair color, hair style, handedness, home state, play style (pocket passer), visor preference, facial features, and school year.
EA responded with an anti-SLAPP counterclaim, arguing that Keller’s suit was a strategic lawsuit against public participation and that the company had a First Amendment right to make use of publicly available information for its NCAA College Football video game.
Although a dissenting member of the three-judge panel chided the majority for engaging in “excessive deconstruction” in lieu of a “more holistic examination,” the Ninth Circuit affirmed the denial of EA’s motion to strike Keller’s complaint.
EA “elected to use avatars that mimic real college football players for a reason,” the majority wrote. “If EA did not think there was value in having an avatar designed to mimic each individual player, it would not go to the lengths it does to achieve realism in this regard. Having chosen to use the players’ likenesses, EA cannot now hide behind the numerosity of its potential offenses or the alleged unimportance of any one individual player.”
By denying EA’s motion to intervene in the litigation, the Supreme Court let the opinion stand.
To read the Ninth Circuit decision in Robins v. Spokeo, click here.
To read Spokeo’s petition for writ of certiorari, click here.
To read the Ninth Circuit decision in Keller v. Electronic Arts, click here.
Why it matters: While the Supreme Court denied the cert. petition in the publicity rights lawsuit, the Court’s request for the Solicitor General to file a brief in the Spokeo case indicates a serious interest to grant certiorari. The issue of whether a plaintiff must allege “actual harm” has become increasingly important in the age of data breaches and privacy violations, and companies such as eBay, Google, Yahoo, and the U.S. Chamber of Commerce, have filed amicus briefs in support of Spokeo’s appeal, arguing that such suits have a negative impact on business.
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California Court Interprets POM Decision, Allows Lanham Act Suit to Continue
Relying on the United States Supreme Court’s recent decision in POM Wonderful v. Coca-Cola, a federal court judge in California found that FDA regulations do not preclude Lanham Act claims, and allowed a false advertising suit brought by Par Sterile Products, LLC, against competitors to move forward.
Par Sterile Products, the manufacturer of injectable epinephrine under the brand name Adrenalin, brought the Lanham Act suit against Hospira Inc. and other defendants in connection with the advertising and marketing of defendants’ epinephrine products.
According to the complaint, the defendants engaged in false and misleading advertising because they represented that their products were FDA approved and that the products were therefore “safe” and “effective.” The complaint further alleges that the defendants purposely omitted the adverse reaction label warning required by the Food, Drug and Cosmetic Act and, by so doing, misled consumers into thinking plaintiff’s product was more dangerous because its label contained the requisite warnings.
The defendants moved to dismiss the suit, arguing that it was preempted by the FDCA and the FDA’s primary jurisdiction.
Taking a close look at the U.S. Supreme Court’s June decision in POM Wonderful v. Coca-Cola, U.S. District Court Judge Dean D. Pregerson declined to dismiss the suit.
His broad reading of the POM decision emphasized that the Lanham Act and the FDCA are two discrete statutory schemes that can regulate the advertising, marketing, and labeling of food and drugs in harmony without precluding the other.
“It is true that the Court makes frequent mention of ‘food and drink’ or ‘food and beverage’ in the course of its opinion,” Judge Pregerson wrote. “But the arguments, logic and holding of POM Wonderful are couched in much broader language and strongly suggest a more wide-ranging application.”
He noted that: “The logical building blocks of the Court’s specific holding with regard to food and beverage labeling would seem to be equally applicable to food and beverage advertising, drug marketing, medical device labeling, cosmetics branding, or any other kind of marking or representation which would fall under both the Lanham Act and the FDCA, unless preclusion is required for some specific reason. The general presumption following POM Wonderful, then, is that Lanham Act claims with regard to FDCA-regulated products are permissible and, indeed, desirable.”
The ruling applied the broad language of Pom and concluded that the FDCA does not preclude claims alleging false or misleading drug labels under the Lanham Act, and that the Supreme Court viewed the two acts as “complementary.” The judge, however, dismissed the remaining claims. The claims that the defendants marketed their products as “safe” and “effective” and the misleading-label claims were dismissed for a lack of factual specificity. With respect to the false advertising claim, the judge found that Par must first obtain a clear FDA statement that defendants are selling their epinephrine illegally in order to pursue a Lanham Act claim.
To read the order in JHP Pharmaceuticals, LLC v. Hospira, Inc., click here.
Why it matters: One of the first decisions interpreting the Supreme Court’s holding in POM, Judge Pregerson’s expansive reading of the high court opinion found it applicable to a host of claims under the Lanham Act, from food and beverage labeling to cosmetics branding to drug and medical device marketing. The court also held that POM established a general presumption that Lanham Act claims with regard to FDCA-regulated products are permissible and will move forward absent a specific reason for preclusion.
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Guidelines Released for Alcohol Companies Engaged in Social Media
A coalition of 13 alcohol producers and the World Federation of Advertisers recently released the Digital Guiding Principles (DGPs), the first-ever set of global guidelines for online marketing and social media use by alcohol beverage producers.
The DGPs were developed as part of the recent Beer, Wine and Spirit Producers’ Commitments to Reduce Harmful Drinking, an industrywide initiative to address harmful drinking, promote responsible consumption of alcohol beverages, and minimize the marketing of such products to underage audiences.
The DGPs apply to all branded alcohol beverage digital marketing communications, paid and unpaid, including social networking sites and blogs, as well as mobile communications and applications.
Seven principles are featured in the guidelines: (i) age affirmation mechanisms should always be used when engaging directly with consumers; (ii) where alcohol beverage companies are not directly communicating with consumers, they should ensure that the alcohol marketing communications are only placed in media that can reasonably be expected to meet stated audience targets, where at least 70 percent of the audience is of legal purchase age; (iii) where alcohol beverage companies engage on a digital platform that allows content sharing, they should include a “Forward Advance Notice” on the platform, which clearly states that the content should not be forwarded to anyone under legal purchase age in the country of viewing; (iv) a “clearly visible” responsible drinking message should be included in all communications; (v) user-generated content posted on the alcohol beverage companies’ digital platforms should be monitored on a regular and frequent basis for compliance with the DGPs; (vi) communications should be transparent and should not misrepresent their commercial purpose; and (vii) alcohol beverage companies should respect user privacy.
To read the DGPs, click here.
Why it matters: The Digital Guiding Principles “require the content of any online marketing to meet the same high standards that apply to traditional marketing activities,” the International Center for Alcohol Policies said in a press release. “They build on an extensive analysis of existing alcohol marketing self-regulation codes and aim to standardize them across companies, across markets, and across digital platforms to provide guidance for all digital marketing content produced by signatory companies moving forward.” Alcohol beverage companies should familiarize themselves with the DGPs, the latest effort by the signatories to the Producers’ Commitments to self-regulate the industry.
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Noted and Quoted . . . Wasserman Pens Article for IdeaXchange, A New Natural Products Industry Online Platform
Manatt partner Ivan Wasserman was invited to serve as a regular community contributor to New Hope 360’s IdeaXchange, an online thought leadership forum for natural products industry insiders to share ideas shaping natural health, wellness and business. Ivan’s first post, titled “Not All Science is Good Science,” focuses on the FTC’s scrutiny of studies used to support advertising and marketing claims, noting that even a small misstep during an ingredient supplier’s study can put it – and its customers – at regulatory risk.
Ivan writes, “More and more, we are finding that in an investigation the FTC is now routinely requesting raw data and other information from studies to look for issues, and is scrutinizing everything about a study, including statistical analyses.”
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