Sears Seeks to Modify FTC Order on Online Tracking

In 2009, Sears Holding Management settled with the Federal Trade Commission (FTC) over allegations that the company’s online tracking activity exceeded what they told consumers. Now, Sears has submitted a petition requesting that the FTC reopen and modify its settlement order, arguing that changing technology since 2009 has made the order’s definition of “tracking applications” too broad and has put them at a competitive disadvantage.

The 2009 FTC complaint charged that Sears “failed to disclose adequately the scope of consumers’ personal information it collected via a downloadable software application, telling consumers that the software would track their “online browsing,” without telling them that it also collected information from third-party websites consumers visited such as their shopping cart information, online bank statements, and drug prescription records. Sears was required to stop collecting data from participating consumers and to destroy what they’d collected.

Sears now argues that the definition of “tracking application” in the FTC’s order now applies to most software on nearly all platforms, making them “out of step with current market practices without a corresponding benefit in combatting threats to consumer privacy.” The definition of tracking applications is so broad, Sears claims, that it “encompasses all of Sears’ current mobile apps, forcing Sears to handle disclosures differently than other companies with mobile apps and disadvantaging Sears in the marketplace.” Sears claims that modification of the order would allow the retailer to align with current tracking practices used by their competitors.

 This post was written by Sheila A. Millar ,Tracy P. Marshall Nathan A. Cardon of Keller and Heckman LLP.,© 2017
For more legal analysis, go to The National Law Review 

FTC Provides Guidance to Social Media Influencers in Live Twitter Chat

Influencer marketing is the popular practice of using individuals with large social media audiences—known as “influencers”—to advertise products and services through their social media accounts. The Federal Trade Commission (FTC) has made it clear that influencers must clearly and conspicuously disclose their relationships to brands when promoting or endorsing products through social media. To emphasize this point, the FTC sent letters to 90 influencers and marketers earlier this year reminding them of their obligation to make appropriate disclosures on ads. The FTC has also provided Endorsement Guides with answers to frequently asked questions from advertisers, ad agencies, bloggers, and others.

Most recently the FTC hosted a live Twitter chat to answer questions and provide guidance on influencer marketing. The FTC covered a number of topics during the chat, from the use of the hashtag “#ad” as a disclosure to built-in disclosure tools on popular social media platforms. Key takeaways from the Twitter chat are:

  • Using “#ad” is a sufficient disclosure, as long as it is hard to miss in the post.

  • Even if an influencer posts from abroad, U.S. law still applies if it is reasonably foreseeable that the posts will affect U.S. consumers.

  • Built-in tools such as the “Paid” tag on Facebook and “includes paid promotion” mark on YouTube are not sufficient to disclose that a post is an ad.

  • For Snapchat and Instagram posts, the FTC suggests superimposing a disclosure over the images. For a series of images, a disclosure on the first image may be sufficient, as long as it stands out, and viewers have time to see it.

The Twitter chat followed shortly after the FTC announced its first settlement with two social media influencers, Trevor Martin and Thomas Cassell, for endorsing the online gambling service CSGO Lotto without disclosing that they were the owners of the company, as well as paying other well-known social media influencers to promote the company without requiring them to disclose the payments in their posts.

Click here to read a transcript of the questions and the FTC’s responses during the official Twitter chat.

This post was written by Edward J. McAndrewPhilip N. YannellaKim Phan & Roshni Patel of Ballard Spahr LLP Copyright ©
For more legal analysis go to The National Law Review

Federal Trade Commission Continues to Scrutinize Social Media Influencer Programs

Social Media Influencer ProgramsThis week, as part of its ongoing focus on influencer programs, the Federal Trade Commission (FTC) settled charges against Warner Brothers Home Entertainment, Inc. regarding its use of such a campaign to market the video game Middle Earth: Shadow of Mordor. This investigation of Warner Bros. was brought under the FTC Act, which prohibits deceptive marketing, and requires that endorsers “clearly and conspicuously” disclose any “material connection” to the brand they are endorsing.

In late 2014, Warner Bros. and its advertising agency, Plaid Social Labs, LLC, hired “influencers” (i.e., individuals with large social media followings) to create videos and post them on YouTube, and promote the videos on Twitter and Facebook.  One of the influencers hired for the program, PewDiePie, is the most-subscribed individual creator on YouTube, with more than 46 million followers. Warner Bros. paid each of the influencers from a few hundred to tens of thousands of dollars for the videos, in addition to providing free copies of the game. Under these contracts, Warner Bros. had the ability to review and approve the videos.

The FTC alleges that Warner Bros. failed to require sponsorship disclosures clearly and conspicuously in the video itself, where viewers were likely to notice them. Instead, Warner Bros. instructed influencers to place the disclosures in the description box below the video. Warner Bros. also required the influencers to include other information about the game in the description box, so most of the disclosures appeared “below the fold,” visible only if consumers clicked on the “Show More” button. Additionally, when influencers embedded the YouTube videos on Facebook or Twitter, the description field (and thus, the disclosure) was completely invisible.  Some of the disclosures also only mentioned that the game was provided free, and did not disclose the payment.

This continues the FTC’s focus on influencer programs with insufficient disclosures. In March, the FTC settled charges against national retailer Lord & Taylor related to its use of an Instagram influencer program with insufficient disclosures, where the influencers were paid and provided with a free dress. The influencers were required to make a post with the hashtag #DesignLab, and tagging @LordandTaylor, but were not instructed to disclose the payment or the free goods. At the same time, Lord & Taylor placed a paid article in Nylon, an online magazine, and purchased a paid placement on the Nylon Instagram account. Neither the post nor the article indicated they were paid advertising.

Likewise, in September 2015, the FTC settled charges against Machinima, an online entertainment network. Microsoft, through its advertising agency, hired Machinima to promote its Xbox One gaming console and video games. The  FTC alleged Machinima gave pre-release versions of the console and games to influencers, as well as payments of tens of thousands of dollars in some cases, in exchange for their uploading and posting endorsement videos.  Machinima did not require that the influencers disclose the sponsorship.

In each of these cases, the FTC entered consent agreements that require the brands to closely monitor and review its influencer content for appropriate disclosures, and terminate influencers who fail to accurately and conspicuously disclose their paid endorsements. The brands must keep records of their compliance and the FTC may review them at any time—with penalties of $16,000 per violation.

As marketing teams continue to try to reach consumers in new and creative ways, the FTC continues to signal its intention to closely scrutinize each development. As these methods evolve, brands should be conscious of their obligations to ensure appropriate disclosures in every format and to monitor for compliance.

© 2016 Neal, Gerber & Eisenberg LLP.

FTC Denies AgeCheq Parental Consent Application But Trumpets General Support for COPPA Common Consent Mechanisms

Covington BUrling Law Firm

The Federal Trade Commission (“FTC”) recently reiterated its support for the use of “common consent” mechanisms that permit multiple operators to use a single system for providing notices and obtaining verifiable consent under the Children’s Online Privacy Protection Act (“COPPA”). COPPA generally requires operators of websites or online services that are directed to children under 13 or that have actual knowledge that they are collecting personal information from children under 13 to provide notice and obtain verifiable parental consent before collecting, using, or disclosing personal information from children under 13.   The FTC’s regulations implementing COPPA (the “COPPA Rule”) do not explicitly address common consent mechanisms, but in the Statement of Basis and Purpose accompanying 2013 revisions to the COPPA Rule, the FTC stated that “nothing forecloses operators from using a common consent mechanism as long as it meets the Rule’s basic notice and consent requirements.”

The FTC’s latest endorsement of common consent mechanisms appeared in a letter explaining why the FTC was denying AgeCheq, Inc.’s application for approval of a common consent method.  The COPPA Rule establishes a voluntary process whereby companies may submit a formal application to have new methods of parental consent considered by the FTC.  The FTC denied AgeCheq’s application because it “incorporates methods already enumerated” in the COPPA Rule: (1) a financial transaction, and (2) a print-and-send form.   The implementation of these approved methods of consent in a common consent mechanism was not enough to merit a separate approval from the FTC .  According to the FTC, the COPPA Rule’s new consent approval process was intended to vet new methods of obtaining verifiable parental consent rather than specificimplementations of approved methods.  While AgeCheq’s application was technically “denied,” the FTC emphasized that AgeCheq and other “[c]ompanies are free to develop common consent mechanisms without applying to the Commission for approval.”  In support of common consent mechanisms, the FTC quoted language from the 2013 Statement of Basis and Purpose and pointed out that at least one COPPA Safe Harbor program already relies on a common consent mechanism.

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Too Good To Be True: FTC’s Crackdown On L’Occitane’s Body Slimming Almond Extracts

Sheppard Mullin Law Firm

L’Occitane Inc’s advertisements for its topically-applied body sculpting almond extracts seemed straightforward: “Almond Shaping Delight 3 out of 4 women saw firmer, lifted skin. This luxuriously lightweight massage gel instantly melts into the skin to help visibly refine and sculpt the silhouette” and “Almond Beautiful Shape Trim 1.3 inches in just 4 weeks. This ultra-fresh gel cream helps to visibly reduce the appearance of cellulite, while smoothing and firming the skin.”

Unfortunately for L’Occitane, an international skin care company with over 150 shops across the U.S., the Federal Trade Commission (FTC) found those claims dubious at best, and earlier this year charged the company with violating the Federal Trade Commission Act (“FTC Act”).

According to the FTC’s complaint, which was filed on January 7, 2014, L’Occitane had been manufacturing, advertising, and selling the two products at issue, “Almond Beautiful Shape” and “Almond Shaping Delight,” in interstate commerce and violated the FTC Act by promoting them as being able to slim and reshape the body. The FTC alleged that L’Occitane did not have sufficient scientific data to support L’Occitane’s advertising claims that the creams could trim the user’s thighs, reduce cellulite, and slim the body in just weeks. The FTC asserted that  L’Occitane based its advertising claims in large part on two unblinded and non-controlled clinical trials and greatly exaggerated the results from one of the studies. The FTC charged L’Occitane with violating Sections 5(a) and 12 of the FTC Act, which declare unfair or deceptive acts or practices unlawful and bar false advertisements likely to induce the purchase of food, drugs, devices, or cosmetics. As part of the final consent order, the FTC fined L’Occitane $450,000 and prohibited it from making future false and deceptive weight-loss claims.

L’Occitane, however, is not the only entity which the FTC has recently fined because of questionable advertising claims. The FTC has also charged Sensa Products, LeanSpa, and HCG Diet Direct with violations of the FTC Act for allegedly misleading the public with unfounded weight loss claims and misleading endorsements relating to their products. These complaints, along with L’Occitane’s, were part of the FTC’s recent “Operation Failed Resolution” initiative, aimed at combating deceptive weight-loss claims.

One of the companies charged, Sensa Products, which claimed weight loss results from one of its dietary supplements, had to pay a $26 million fine for FTC Act violations. As a part of “Operation Failed Resolution,” the FTC also released an updated media guide for spotting deceptive weight-loss claims in advertising, entitled “Gut Check: A Reference Guide for Media on Spotting False Weight-Loss Claims.”

Manufactures and marketers of health products, cosmetics, drugs, and dietary supplements should be mindful of the FTC’s continuing and increasing vigilance in taking action with respect to enforcement of the FTC Act to stop unfounded weight loss claims. Companies making weight-loss claims in advertising and marketing materials must make sure that their claims are defensible and supported by sufficient credible scientific data.

Jordan Grushkin contributed to this article.

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New Updated FTC Care Labeling Rules: “Do’s and Don’ts”

Sheppard Mullin 2012

The Federal Trade Commission (“FTC”) enforces federal labeling requirements that require manufacturers, importers, sellers and distributors of certain textile and wool clothing  to accurately label their products. For example, FTC rules require that manufacturers indicate the country of origin and fiber content in their clothing. In addition, the Care Labeling Rule requires that manufacturers and importers attach “care labels” to garments and certain piece goods.

Navigating these various labeling requirements can be tricky. On May 5, 2014, the FTC amendment of the labeling rules, known as the Textile Rules, became effective.

Care labels, which can influence consumers’ purchasing decisions more than labels indicating fiber content or country of origin or manufacture, are important to carefully consider.

“Do’s” for Clothing Manufacturers and Importers:

Place all care labels permanently, securely and visibly, so that consumers can easily see or locate them prior to purchase. Ensure that labels will remain legible not just at the point of sale, but throughout the lifecycle of the product.

Include a washing or drycleaning instruction (or both) if either method is safe for the product. If a product can be neither washed nor drycleaned, the label must state “Do not wash – Do not dry clean.” A simple “dryclean” instruction is acceptable in most cases, unless “any part of the drycleaning process would harm the product.” In that case, more specificity is required (e.g., “Professionally Dryclean” or “Dryclean. No Steam.”).

Indicate whether the product is to be washed by machine or by hand. The FTC has stated that water temperature settings must be indicated if “regular use of hot water will harm the product.” Similarly, if using chlorine bleach will harm the product, whereas other bleaches will not, the label must state “Only non-chlorine bleach, when needed.” The appropriate label in the event that no bleach is safe to use is “Do not bleach.”

State how to dry the product and how to iron it, if the product requires regular ironing. Temperature settings for drying and ironing are not needed unless the “regular use of high temperature will harm the product.”

If selling a garment with multiple pieces, only one label is required if the same instructions apply to all parts of the garment, and if the garment is sold as a single unit. The label should be attached to the “major piece” of the garment. In the event that the garment is not sold as a single unit, or if the instructions differ from one part of the garment to the next, then each separate piece of the garment needs its own care label.

If the garment cannot be cleaned without damaging the garment, potential customers must be warned on the label. It is imperative that following the care labeling instructions does not ordinarily lead to product damage. Along these lines, labels must inform consumers not to engage in certain procedures that they may erroneously but reasonably assume are acceptable, given the instructions of the label. For example, if a label indicates that clothes can be washed, a reasonable consumer might infer that the product can also be safely ironed. If these understandable assumption is incorrect, the FTC has stated that the label must indicate the risks involved.

One should always have a “reasonable basis” for everything written on a care labeling instruction. If a piece of clothing indicates that it cannot safely be ironed, there must be some proof (based upon experience, industry expertise or testing) known to the manufacturer or importer that ironing the clothing would cause damage. The FTC has alternatively stated that the manufacturer or importer must have “reliable evidence” to support all warnings or instructions on product labels. Guesswork is insufficient. However, what constitutes “reliable evidence” or a “reasonable basis” does depend on the circumstances. It is incumbent on manufacturers conducting tests to ensure that the results of any tests conducted on only one portion of multi-part garments do, in fact, have applicability to the entire garment.

Importers must ensure that these labels are placed on products before they sell them in the United States. It is not necessary for the labels to be attached as the products enter the country, however. Domestic manufacturers similarly must ensure that care labels are placed on finished products prior to sale.

“Don’ts” for Clothing Manufacturers and Importers:

Certain kinds of exempt apparel, including gloves, hats, and shoes, do not require care labels. Many items are also excluded from the care labeling requirements, including handkerchiefs, belts, suspenders, neckties, or non-woven garments made for one-time use. For piece goods sold for making apparel at home, it is not necessary to include care labeling instructions for any “marked manufacturers’ remnants of up to 10 yards when the fiber content is not known and cannot be determined easily.” These items are exempted from the Care Labeling Rule.

Garments custom-made from fabrics provided by consumers, or products sold directly to institutional buyers for commercial use (e.g., uniforms sold to Office Depot for use by clerks during business hours, and not purchased directly by the clerks), do not require care labels. This also includes items that the consumer may ask to be added to the garment (e.g. lining or buttons).

Use non-standard terms on labels. The FTC recommends, but does not expressly require, that manufacturers ensure that any terms they use on labels are in accord with the definitions in the Rule’s Appendix A glossary, where applicable. For example, the term “Warm” applies to initial water temperature ranging from 87 to 111 degrees F [31 to 44 degrees C]; “Hot” is from 112 to 145 degrees F [45 to 63 degrees C]; and “Cold” is up to 86 degrees F [30 degrees C].

*Gregg Re Summer Associate contributed to this article.

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Federal Trade Commission (FTC) Wins Appeal: ProMedica Merger with St. Luke’s Not Allowed

vonBriesen

On April 22, 2014, the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit) upheld the Federal Trade Commission’s (FTC) finding that the merger between Ohio-basedProMedica Health System, Inc. (ProMedica) and St. Luke’s Hospital (St. Luke’s), an independent community hospital that operates in the one of the same counties as ProMedica, would adversely affect competition in violation of federal antitrust law. Prior to the merger, ProMedica and St. Luke’s comprised two of the four hospital systems in Lucas County, Ohio. After the two systems merged, ProMedica held more than 50% of the applicable market share.

Accordingly, in 2011 the FTC ordered ProMedica to divest itself of St. Luke’s. ProMedica appealed the FTC’s order to the Sixth Circuit. In a unanimous opinion, the Sixth Circuit denied ProMedica’s petition to overturn the FTC order, citing concerns about anti-competitive behavior and the ability of ProMedica to unduly influence reimbursement rates with healthcare insurance companies.

The full 22-page court opinion may be accessed here.

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