FCC Chair Announces New Net Neutrality Regs
The battle over net neutrality took a new turn when Federal Communications Commission Chairman Tom Wheeler announced his intention to reclassify broadband service as a utility as part of a new proposal that will provide “the strongest open Internet protections” possible.
“These enforceable, bright-line rules will ban paid prioritization, and the blocking and throttling of lawful content and services,” he wrote in an editorial for Wired that served as his announcement, adding that the rules will apply to all broadband providers, including mobile.
Regulators, lawmakers, consumers, industry, and the President have all weighed in on the continuing debate over net neutrality. In January 2014, the D.C. Circuit Court of Appeals struck down the FCC’s prior net neutrality rules as exceeding the scope of its authority. The agency then indicated that it was considering new regulations that would allow for “fast lanes” where Internet service providers afford certain companies preferential treatment by paying for faster service.
A record-setting number of comments were filed on that proposal, the majority in opposition to the proposal. In November, President Barack Obama joined the chorus, calling on the FCC to reclassify broadband service as a utility, a move that would eliminate the possibility of fast lanes.
“No service should be stuck in a ‘slow lane’ because it does not pay a fee,” the President said. “That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth.”
Reversing course, Chairman Wheeler announced the new proposal at the beginning of this month, under which the FCC would reclassify broadband as a utility, specifically a telecommunications service regulated under Title II of the Telecommunications Act. According to a fact sheet from the agency, the proposal would only apply some of Title II’s provisions, such as a prohibition on “unjust and unreasonable” practices, consumer privacy protections, and fair access to utility poles.
The proposal also makes clear that the Title II provisions relating to rate regulations would not apply. Wheeler has said the changes would not add new taxes or fees.
Reaction to the proposal was divided. Broadband providers declared the reclassification unnecessary and potentially harmful, and chairman of the Senate Commerce Committee Sen. John Thune (R-S.D.) characterized the new plan as a “power grab” by the FCC. On the other hand, consumer advocates praised the move, as did Sen. Edward Markey (D-Mass.), who called the new plan “a Declaration of Independence for the Internet.”
To read Chairman Wheeler’s editorial announcement, click here.
Why it matters: The FCC will vote on the proposal – which constitutes the strongest open Internet protections ever proposed by the FCC – later this month. “My proposal will modernize Title II, tailoring it for the 21st century, in order to provide returns necessary to construct competitive networks,” Chairman Wheeler wrote in his announcement. “The internet must be fast, fair and open. That is the message I’ve heard from consumers and innovators across this nation. That is the principle that has enabled the internet to become an unprecedented platform for innovation and human expression. … The proposal I present to the commission will ensure the internet remains open, now and in the future, for all Americans.”
back to top
FTC Takes Down International Telemarketing Fraud
An alleged multimillion-dollar telemarketing fraud that targeted seniors was the basis of a recent Federal Trade Commission settlement with two individual defendants.
Defendants Mark Ferry and Robert Barczai were part of a scheme that took in almost $11 million over a four-year period, the agency said, by creating a “telemarketing boiler room” in Canada to cold-call seniors offering to sell fraud protection, legal protection, and pharmaceutical benefit services ranging from $187 to $397.
In some instances, the telemarketers got consumers to disclose their bank account information by insinuating they were affiliated with banks or government entities. The defendants then remotely created checks and removed money from their accounts without authorization, depositing the money into United States accounts.
A federal court judge in Pennsylvania halted the telemarketing scam in March 2014, and Ferry and Barczai reached stipulated final orders in January to settle charges of violating both the FTC Act and the Telemarketing Sales Rule.
The individual defendants agreed to a ban on using remotely created checks drawn on consumers’ accounts, a prohibition on future misrepresentations about goods or services, and are required to obtain consent before debiting a consumer’s account. Ferry and Barczai will also turn over proceeds from the scheme to the FTC found in their personal and corporate accounts of $68,412 and $21,367, respectively.
In other proceedings, the FTC sought default judgments against the business entities used by the defendants and filed a motion for summary judgment against the individual who allegedly controlled the operation.
To read the complaint and the stipulated final orders in FTC v. First Consumers, Inc., click here.
Why it matters: The FTC continues to demonstrate that it will not hesitate to reach across U.S. borders. “Scammers thought they could cover their tracks by operating across borders, but law enforcement caught up with them,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “We’ve shut down their scheme of lying to older people and stealing their money.”
back to top
FTC Commissioners Speak Out on Data Security Legislation
Two members of the FTC espoused the passage of federal data security and privacy legislation in separate speaking engagements recently.
Speaking at Carnegie Mellon University, Commissioner Julie Brill discussed her support of President Obama’s proposed Consumer Privacy Bill of Rights and data breach notification bills and reiterated the agency’s recommendations about consumer privacy and data security in its report on the Internet of Things.
“Part of the solution to these data security issues will be enacting new laws,” Brill told attendees. “President Obama visited the FTC just two weeks ago, and, while there, called on Congress to enact strong, flexible, and technology-neutral federal legislation to strengthen the FTC’s existing data security enforcement tools, and to provide notification to consumers when there is a security breach.”
“General data security legislation, including the authority to issue rules and seek civil penalties from companies that violate the law, should protect against unauthorized access to personal information, and should also protect device functionality itself,” she added. “The latter could become an issue if, for example, a device like a pacemaker is hacked, a case in which both health information could be compromised and the person wearing the device could be seriously harmed.”
While legislation is important, Brill said businesses are really the first line of defense and should think creatively about providing transparency and control to consumers, particularly with respect to connected devices.
During a panel discussion after her remarks, Brill acknowledged, “there’s a place for industry self-regulation,” but also noted that it has proven insufficient to date.
A few days later, Commissioner Maureen Ohlhausen voiced her support for the data breach notification bill and a measure establishing data security standards at the Online Trust Alliance’s Data Privacy and Protection Town Hall.
“What I would like to see particularly on the data security side is more of a processed-based approach,” she told attendees, given the difficulty of trying to establish a permanent standard for ever-evolving technology. “If we were to try to write some standard for data security, it would be out of date before the ink dried.”
She also added that the Commissioners “really see eye-to-eye” in the area of data security enforcement. “The staff has done a good job of identifying and investigating cases that involve failure to use reasonable precautions,” Ohlhausen said. “I haven’t felt that we’re even close to the line between what is reasonable and not reasonable precautions.”
To read Commissioner Brill’s prepared remarks, click here.
Why it matters: The prospect of federal privacy and data security legislation has been floated around for years, but seems to be gaining traction with the attention surrounding the Internet of Things economy. Commissioner Ohlhausen has a positive outlook: “I do see in Congress, there is serious engagement on data security issues,” she said. “I think over the next year we are going to see some very serious negotiations in Congress toward getting that data security legislation,” adding that “the devil is always going to be in the detail.” Commissioner Brill agreed. “I do think that they are reasonably close, that data security can be passed this year. I do think there’s a lot of interest in Congress,” she said, cautioning with regard to the data breach notification bill, “I don’t want to preempt the states unless we have a good, robust federal law.”
back to top
Class Action Challenging “Natural” Deodorant Settles for $1.9M
A federal class action lawsuit challenging “natural” claims for Church & Dwight’s (C&D) Arm & Hammer deodorant will cost the company almost $2 million if the settlement is granted final approval.
In 2012, a pair of plaintiffs filed suit against C&D alleging violations of Missouri and New Jersey consumer protection laws. According to the complaint, the company employed a marketing, advertising, and labeling campaign centered on false representations that Arm & Hammer Essentials Deodorant is a “natural” product featuring “natural” ingredients and providing “natural” protection. However, plaintiffs alleged that the deodorant actually contained artificial and synthetic ingredients, the plaintiffs said, including triclosan.
After initial motions, the parties began negotiations to settle the suit and reached a deal. The terms of the settlement agreement provide for class members to receive $4 for each purchase of the product, up to five units, without proof of purchase. Payment of more than $4 is possible with documentary evidence in the form of a receipt. Similarly, class members seeking reimbursement for more than five units will need to show proof of purchase.
C&D will provide $1.9 million for a settlement fund. Defendants also agreed not to oppose plaintiff counsel’s request for $420,000 in class counsel fees, $2,500 for each of the named plaintiffs, and administrative costs. Any residual funds will be donated on a cy pres basis to the National Environmental Education Foundation.
The settlement also provides for injunctive relief. After the lawsuit was filed, Church & Dwight changed the labeling and advertising of the deodorant line, removing the phrases “Natural Deodorant” and “Natural Protection.” The settlement acknowledged that the changes were made as a result of the action.
A hearing to determine final approval of the deal is set for June.
To read the memorandum in support of the motion for preliminary approval of the settlement in Trewin v. Church & Dwight, click here.
To read the court’s order granting preliminary approval, click here.
Why it matters: The $1.9 million settlement agreement reaffirms the dangers of labeling products “natural” or “all natural” without adequate substantiation. False or unsubstantiated “natural” claims continue to cost companies millions of dollars in class actions. Consumer class actions across the country have resulted in deals up to $9 million (Naked Juice) and $7.5 million for household brands (Ben & Jerry’s).
back to top
Noted and Quoted . . . InsideCounsel Talks to Goldstein About Impact of Long-Awaited POM Decision
InsideCounsel recently turned to Manatt’s Advertising, Marketing and Media Division Chair Linda Goldstein to discuss the ruling by the U.S. Court of Appeals for the District of Columbia Circuit in POM Wonderful, LLC v. the Federal Trade Commission. The court ruled that POM’s advertising claims on its juice products were unsubstantiated, but it also rejected the FTC’s position that such claims had to be supported by at least two randomized clinical trials.
In the InsideCounsel article, Linda noted, “In light of this decision, it is better to go back in the water with one double-blind study.” But if there is just one study to prove claims, the FTC will likely scrutinize it, so it should be “robust,” she said.
back to top