Advertising Law

June 27, 2013

Linda Goldstein Invited to Present on Mobile Marketing Issues Specific to the Food & Beverage Industry at ACI Conference
Domino’s Delivers $9.75M TCPA Settlement
A&P Pays Fine Over Sweepstakes
Fore! NAD Issues a Pair of Golf Club Decisions
Largest Class Ever in a Privacy Suit Moves Forward
FTC Waves the Red Flags Rule Again
Noted, Quoted and Socially Promoted . . . Manatt Partners Provide Insight on New Legal Developments
Most Read Stories

Linda Goldstein Invited to Present on Mobile Marketing Issues Specific to the Food & Beverage Industry at ACI Conference

On July 16-18, the American Conference Institute will host its Regulatory and Compliance Summit on Food & Beverage Marketing & Advertising.

At the conference, Linda Goldstein will team up with Patricia Poss (BCP Mobile Technology Unit, Division of Financial Practices, FTC Bureau of Consumer Protection) to provide insight into “The Rise of Apps and Mobile Marketing in the Food & Beverage Industry: Practical Guidance for Structuring Campaigns that Will Withstand Government Scrutiny and Private Litigation.” The presenters will focus on privacy policy requirements for apps and mobile campaigns, provide perspective from the FTC on mobile advertising disclosures and mobile payment programs, and discuss how to comply with the CAN-SPAM rules on messages sent to cell phones, among other topics.

The event will be held at the Hamilton Crowne Plaza in Washington, D.C. For more information or to register for this event, click here.

Domino’s Delivers $9.75M TCPA Settlement

It took more than 30 minutes, but Domino’s Pizza delivered a settlement deal to a class of plaintiffs in a Telephone Consumer Protection Act suit totaling $9.75 million.

Residents of Alabama, Louisiana, and Mississippi who received prerecorded robocalls on their cell phones advertising pizza will receive either $15 or a voucher for a free large, one-topping pizza. In addition, Domino’s agreed to comply with the requirements of the TCPA and Federal Communications Commission regulations implementing the Act as applicable to prerecorded messages.

The $9.75 million fund will pay class claims as well as the costs of notice, administrative expenses, a $5,000 incentive award for named plaintiff Toni Spillman, and attorneys’ fees of up to $3 million. The total class of 1,152,617 is divided into subclasses by the dates they received their robocalls. Those who received calls between May 20, 2009, and May 20, 2010, can recover the monetary benefits of the deal, while recipients of calls between May 20, 2006, and May 19, 2009, the voucher subclass, will receive the free pizza coupon.

The settlement was reached after two full days of mediation sessions and other negotiations in what the parties characterized as a “complex and document-intensive litigation.” The plaintiff’s unopposed motion for settlement noted that “[o]ne of the last pieces to the agreement” was the inclusion of the defendant’s insurer, which agreed to chip in to the deal.

U.S. District Court Magistrate Judge Stephen Riedlinger, sitting in the Middle District of Louisiana, granted preliminary approval in November and final approval of the settlement on May 24.

To read the motion for settlement in Spillman v. Domino’s Pizza, click here.

Why it matters: Although Spillman’s complaint alleged that Domino’s violated the TCPA not just with robocalls, but with unwanted text messages, the settlement omits any reference to text message recipients and does not provide any form of remuneration for such individuals. The case – and sizable settlement deal – documents for businesses the continuing trend of consumer class actions pursuant to the TCPA nationwide. The plaintiff’s motion noted that the Middle District of Louisiana had approved over 30 TCPA-related class action settlements over the last 10 years.

A&P Pays Fine Over Sweepstakes

To settle charges that it conducted a misleading sweepstakes, supermarket chain A&P agreed to change its policies and pay $102,000 in fines to the state of New York.

The “A&P Frozen Food Month 2013 Sweepstakes” caught the eye of the state’s Attorney General when it failed to properly notify customers that they could enter without making a purchase. Customers who purchased more than $50 in frozen food products using a store loyalty card were entered in the sweepstakes, with winners receiving a $350 gift card.

But store circulars advertising the sweepstakes – which read “Every time your spending reaches $50 on frozen food, you’re automatically entered for a chance to WIN!” – notified customers they could enter through the mail without a purchase only in the fine print and the official rules were not posted in stores.

New York Attorney General Eric Schneiderman said the company had been cited for similar violations in 2004 and 2005. “Under New York state law, companies that conduct sweepstakes must play by the rules by providing a level playing field for consumers, including those who do not make a purchase,” he said in a press release about the case. “Today’s settlement ensures that A&P, which has previously ignored the law in this area, will provide an alternate method of entry which does not require a purchase and to fully inform consumers that no purchase is necessary to enter and win a sweepstakes.”

Schneiderman said $43,400 was available in prizes in New York stores, but that because of A&P’s failure to adequately disclose the alternate method of entry, “the vast majority” of entrants and winners were consumers who made an in-store purchase.

A&P promised to hire a compliance officer and increase the disclosure of rules when it runs sweepstakes, with new, larger language. The company will also include with “equal prominence” language about the alternative method of entry and will post the official rules in its stores.

Why it matters: Businesses that conduct sweepstakes should remember that providing an alternate form of entry and including it in the official rules is not enough. Customers must be made aware of the alternate entry, which should be advertised with “equal prominence” to the other methods of entry – like posting information in stores and educating store employees to explain options to customers – as A&P has now promised to do.

Fore! NAD Issues a Pair of Golf Club Decisions

Golf season is in full swing and the National Advertising Division got in on the action with a pair of decisions evaluating ad claims for golf clubs.

In the first case, Taylor Made Golf Company challenged Callaway Golf Company’s claim that its Razr Fit Xtreme driver is “the longest driver in golf.” Taylor Made maintains that Callaway failed to substantiate its claim that golfers of every skill level will drive a longer distance with Callaway’s driver.

Taylor Made objected to virtually every aspect of Callaway’s testing, including the number of other drivers compared to the Razr Fit Xtreme (only five and only models from 2012), the selection of the comparative drivers (the top five selling drivers based on dollar market share), how many times testers hit the ball, the overrepresentation of better players as testers, and the failure to fit each tested driver to the golfer.

Callaway stood behind its testing. It argued that the five other brands composed more than half of the dollar market share for drivers, that fitting each club would have introduced unwanted variability to the testing, and that the use of different player combinations (different players hitting different clubs a varying number of times) did not affect the statistical validity.

The NAD agreed with Taylor Made. “NAD was concerned that the absolute nature of the claim ‘longest driver in golf’ ‘across the broadest range of player abilities possible, would be reasonably understood as referring to competing drivers in general – not merely to the 5 drivers referenced in the disclosure,” according to the decision. The claim “reasonably conveys the message that any golfer using the Razr Fit Xtreme will hit a golf ball a longer distance than with any, or virtually any, or at least a solid majority of, competing drivers.”

The self-regulatory body also expressed concern about the pool of competing drivers that were tested, which it said did not represent a “wide range” or “representative sampling” of competing products, as required to support a superiority claim. The NAD expressed similar dissatisfaction with other testing methodology, such as relying on dollar market share to select the top five drivers, and the objectivity of the test participants, who were Callaway employees.

“Given the difficulty, if not impossibility, of blinding the study subjects to the drivers that they were using, NAD was concerned that the employees could have – albeit unintentionally – swung harder, or performed better, when using the Razr Fit Xtreme because the driver was made by the company that employs them,” the NAD said. “Similarly, NAD was concerned that Callaway employees would be more accustomed to using Callaway clubs, and could thereby achieve better results with these clubs due to familiarity rather than the clubs’ objective superiority.”

The NAD recommended that Callaway discontinue the claim, which it agreed to do.

The second case involved a challenge from Callaway regarding a Taylor Made claim that its Rocketballz Fairway Woods caused “the average golfer [to pick] up about 17 yards” with the 3-wood. The claim implied that Taylor Made’s club will increase the distance of the average golfer’s shots by 17 yards, regardless of the golfer’s skill or experience, Callaway argued.

Taylor Made sought to sidestep the proceeding, responding that the claim had been permanently discontinued because it was misworded – the ad should read “better” in lieu of “average.”

Leaving the parties’ contentious, non-legal swings at each other to the footnotes (Callaway sniped that Taylor Made removed the claim only after receiving a courtesy copy of the NAD complaint; Taylor Made responded that Callaway filed its challenge only in retaliation of Taylor Made’s challenge), the NAD first settled the jurisdictional argument.

Although Taylor Made had withdrawn the claim, it was being actively used when the challenge was initiated, the NAD said. Therefore, it had jurisdiction to review the claim.

Turning to the claim itself, the NAD determined that no further action was necessary at the time based on Taylor Made’s written assurance that the challenged claim has been permanently discontinued – a move that was necessary and appropriate, it added.

To read the NAD’s press release about the decisions, click here.

Why it matters: The decisions present several lessons for advertisers. First, when making a superiority claim, be sure that the supporting evidence is sufficient and that competitors’ products constitute a “wide range” or “representative sampling” of competing products. Second, remember that advertisers are responsible for all reasonable interpretations of claims, not simply the message it intends to convey. And finally, in a challenge before the NAD, be aware that the self-regulatory body has jurisdiction over national advertising claims that have not been permanently withdrawn from use prior to the date of the complaint.

Largest Class Ever in a Privacy Suit Moves Forward

The certification of what is believed to be the largest class ever in a privacy lawsuit was upheld when the 7th U.S. Circuit Court of Appeals declined to accept an appeal of the lower court’s certification order.

Two consumers brought suit against comScore, alleging that after they downloaded a free product, the company improperly obtained and used personal information from their computers in violation of the Stored Communications Act, the Electronic Communications Privacy Act, and the Computer Fraud and Abuse Act. Despite a license agreement that notifies consumers that information will be collected for market research, the plaintiffs claimed comScore exceeded the scope of consumers’ consent by collecting information like phone numbers, user names, passwords, credit card numbers, and other demographic information.

In April a federal court judge in Illinois certified a class of all consumers who had downloaded comScore’s software since 2005, estimated at up to 10 million individuals. At the time, class counsel called it “the largest privacy case ever certified on an adversarial basis.”

The court declined to accept comScore’s argument that certification was inappropriate because the scope of consent will vary for each plaintiff that various statute of limitations are applicable for different plaintiffs, and that individual assessments will be necessary for each class member’s damages.

comScore appealed the certification order to the 7th Circuit with the support of amici like the Direct Marketing Association, the American Association of Advertising Agencies, the Association of National Advertisers, the Entertainment Software Association, the Interactive Advertising Bureau, and the Chamber of Commerce.

The groups told the court they were “gravely concern[ed]” about the “remarkable certification order,” which implicates “foundational Internet communication and industry best-practices disclosures” as challenged in the case.

The groups explained that the suit against comScore is representative of a “groundswell of privacy class actions” against members of the groups, they explained, which are brought “under ill-fitting statutes by uninjured named plaintiffs presenting uncorroborated (and often testable) allegations.” Analogizing comScore to the Nielsen Company’s ratings system for television – and emphasizing the fact that consumers assented to the collection of their information by consenting to the license agreement – the groups “are justifiably alarmed by the ease with which these plaintiffs were allowed to suspend disbelief and obtain certification of a class challenging disclosures that plainly advise [consumers] that comScore’s system will comprehensively monitor all activity and configurations on the computer to which it is downloaded.”

Based on the importance and the novelty of the issues involved in the case, the amici requested the 7th Circuit review the certification order. With such a large class, comScore could be pushed into a “blackmail settlement,” the motion cautioned, suffer reputational harm, chill voluntary participation in market research, and adversely impact members of the amici groups that rely on Web rating services.

However, the federal appellate court declined to grant comScore’s appeal, effectively upholding the class certification and moving the case one step closer to trial.

To read the district court’s ruling certifying the class in Harris v. comScore, click here.

To read the amicus brief filed by the industry groups on behalf of comScore, click here.

Why it matters: The 7th Circuit’s decision not to review the class certification order pushes the case against comScore forward even closer to trial. However, as the industry amici noted in their briefs, the defendant may seek to settle the case rather than face a multi-million member class. “Most class actions settle after certification because the risks of trying thousands of claims in a single lawsuit often are too great for rational corporate decision-makers to bear,” the groups wrote.

FTC Waves the Red Flags Rule Again

The Federal Trade Commission has issued revised guidance that narrows the scope of covered entities for businesses that struggle with the question of whether they are considered to be “creditors” or “financial institutions” subject to the “Red Flags” Rule.

The Rule, which took effect in 2011, was developed pursuant to the Fair and Accurate Credit Transactions Act and mandates that “creditors” and “financial institutions” that have “covered accounts” develop and implement written identity theft prevention programs to help detect and respond to patterns, practices, or specific activities – the “red flags” – that could indicate identity theft.

To reflect changes made by the Red Flags Program Clarification Act, the FTC narrowed the kinds of creditors covered by the Rule. The revised guide, “Fighting Identity Theft with the Red Flags Rule: A How-To Guide for Business,” suggests companies ask themselves two questions.

First, does the company regularly defer payment for goods or services or bill customers, grant or arrange credit, or participate in the decision to extend, renew or set the terms of credit? If “yes,” an entity should move on to the second question.

Does the company or organization regularly and in the ordinary course of business get or use consumer reports in connection with a credit transaction; give information to credit reporting companies in connection with a credit transaction; or advance to (or for) someone who must repay them, either with funds or pledged property (excluding incidental expenses in connection with the services you provide them)?

If the business answers “yes” to any part of the second question, it is considered a creditor under the Red Flags Rule.

For those entities covered by the Rule, the guidance also offers a four-step manual on compliance and an FAQ section with examples.

To read the Red Flags Rule, click here.

To read the FTC’s “How-To Guide”, click here.

Why it matters: The latest guidance should provide greater clarity for businesses concerned about the application of the Red Flags Rule, especially as it narrows the focus of the Rule’s scope to a more limited group of “creditors.” The update is only the latest in the Rule’s brief but somewhat tortured history. Originally scheduled to take effect on January 1, 2008, controversy surrounding the scope of covered entities delayed the Rule five times. Lawsuits were also brought by the American Bar Association and the American Medical Association in which they maintained that members of their respective organizations should not be included among the covered entities.

Noted, Quoted and Socially Promoted . . . Manatt Partners Provide Insight on New Legal Developments

On June 20, Ivan Wasserman, a partner in Manatt’s Advertising, Marketing & Media practice, spoke with NutraIngredients-usa about the U.S. House of Representatives Appropriations Committee’s message to the Food and Drug Administration on the subject of the draft New Dietary Ingredients (NDI) guidance.

The article, “House Committee Admonishes FDA to Pick Up Pace on NDI Issue,” noted the committee’s concern that the guidance is being used for enforcement activities despite it only being in draft form. The committee requested that the FDA report back to the committee with a timeline detailing how it will move forward with developing final NDI guidance.

According to Ivan, “It’s definitely a strong message from Congress, or at least from the group in the House that has the purse strings, that it is concerned about the time it is taking FDA to revisit the NDI guidance.”

To read the full story, click here.

“FTC Tells Search Engines to Get Shady”: Earlier this week, the FTC released updates to its guidance to the search engine industry on the need to distinguish between advertisements and search results. How can search engines accomplish getting “shady” with their ads?