Alerts

AD-ttorneys@law - March 20, 2019

Alerts / March 20, 2019

In This Issue

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Twilio Settles Allegations of No-Consent Recordings

Class action is another symptom of California’s privacy push

The Conversation

Quick show of hands ‒ how many of you out there have thought about surreptitiously recording a conversation with someone? (Unless someone is reading over your shoulder, go ahead and raise your hand ‒ we can’t see you.)

All right. It’s a common fantasy. But how many of you have actually gone ahead and done it? It’s incredibly easy. Nowadays, smartphone apps can record every conversation with no indication that anything is amiss. So maybe you’ve given it a try.

But depending on where you live, recording any conversation can open you up to liability. Some states allow you to record without the other person’s consent. Others require both parties to be aware of the recording. You can find a good summary of state laws on Wikipedia if you’re curious.

You’re only curious, of course.

The Wire

Flowers, et al. v. Twilio Inc., et al., a case that recently settled in California Superior Court for Alameda County, deals with a corporate actor accused of recording consumer phone calls.

Twilio, a cloud communications company, offers telephony and text messaging solutions to its clients. Plaintiff Angela Flowers claimed that Twilio surreptitiously recorded consumer phone calls for two of Twilio’s clients: Handy and Homejoy (if you’re wondering, they’re online handyman and housecleaning marketplaces). She also claimed that Twilio archived consumer text messages for home- and neighborhood-scouting service Trulia.

The Takeaway

Turns out California has some rather intense recording consent laws ‒ not a surprise from a state that’s home to some of the country’s most aggressive privacy legislation. Flowers’ specific claim is for violations of California’s Invasion of Privacy Act; California, a so-called two-party consent state, requires that all members of a recorded communication be aware that the recording is taking place.

The case settled without Twilio admitting any wrongdoing while agreeing to pay out $10 million to class members and for attorneys’ fees and costs. Text messages are worth one share while calls are worth eight shares. (These days, does anyone really value the privacy of their phone calls eight times more than their texts?). The company also committed to a policy overhaul that will ensure consumers give consent before recordings are made.

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Influencers Allegedly Run Roughshod Over FTC Warnings

Truth in Advertising, Inc., tries to light a fire under the Commission

Copywriter’s Dream

We know how devoted our readership is; surely most of you remember our post from July 18, 2017, titled “Celebrity Influencers Continue to Flout FTC Disclosure Rules,” right? Yes?

No?

Well, fine then.

Because we write not only to inform you but to amuse and delight you, we won’t simply recycle that old headline for this new article. Which, if the folks at Truth in Advertising, Inc., (TINA) are to be believed, would be entirely appropriate.

Uninfluential

Here’s a refresher: In July 2017, we posted about the failure of a number of celeb influencers to make any sort of change to their ad design or text in response to warning letters sent out in April of that year by the Federal Trade Commission.

Remember 2017? The halcyon days of the influencer, who roamed free-range to and fro across the social media landscape without a care in the world? The lexicon of troublesome advertising tactics and omissions committed by influencers was just coming to the public’s attention: undisclosed material relationships between the celebrity and the brand, ad notifications placed “below the fold” of a social media post or missing altogether.

Surely a stern reminder from the Commission snapped these influencers to attention?

Not so much.

At the time, public interest organizations were already hectoring the FTC to take action against celebrities who seemed happy to ignore the warnings altogether. But according to TINA, the FTC has taken a page out of the influencer book and ignored the requests of the organizations. And TINA ain’t havin’ it.

The Takeaway

TINA sent its own letter to the Commission in early March, taking it to task for failing to curb the alleged celebrity misbehavior. “It has now been almost two years since the FTC initially notified these influencers of their obligation to refrain from actively deceiving their social media followers,” the letter states. “Yet all but one of them have continued to mislead their fan base … by refusing to consistently and appropriately disclose their material connections to the brands they are promoting.”

(If you’re wondering about the identity of the one compliant individual, it’s Lindsay Lohan. However, Lohan seems to have deleted her social media accounts several times in recent years, so her compliance may be unrelated to the oversight of the FTC.)

All told, TINA claims it discovered “more than 1,400 examples [of violations] across … 20 influencers collectively promoting more than 500 companies.” (Check out its influencer database for more detail.)

The letter singles out Sofia Vergara, Ciara and Scott Disick for detailed treatment, and was cc’d to an additional 16 celebrities including JWOWW, Naomi Campbell and Lisa Rinna. Of course, as the FTC itself found out when it sent its letters, influencers sometimes promote products just because they happen to like them and not because they are getting paid, so there could be less to TINA’s complaint than meets the eye.

We’ll let you know if and when the FTC responds.

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Tricky Prize Promotion Schemers Settle With FTC for $21 Million

Win for Commission in DOJ’s anti-elder-fraud efforts

Mind Games

Here’s an update on a case we covered last year, part of the Trump administration’s big push to battle fraud aimed at the elderly.

The complaint targeted defendants who allegedly ran more than 30 companies that sent deceptive award mailers to elderly consumers. The allegations ranged from newsletter solicitations disguised as prize announcements to more elaborate fare: One allegation claimed that substantial cash prizes were promoted to consumers who answered a simple math question and paid a registration fee ‒ but when consumers responded to the original offer, they were treated to another, unannounced round of questions and fees. And so on.

The final math puzzle that awarded the prize, however, was an intricate task that few people could solve ‒ a strategy that the defendants hoped would prove as addictive (and as profitable) as a video game.

The Commission claims that the pair, Kevin Brandes and William Graham, doing business as Next-Gen Inc. and countless other corporate names, defrauded consumers to the tune of $100-plus million over the past five years.

The Takeaway

After the FTC (working with the Missouri attorney general’s office) dropped the hammer on the Next-Gen family, the pair settled. In addition to a whopping $21 million fine, the defendants were required to liquidate personal possessions, including two luxury vacation homes, a yacht and a Bentley automobile.

Interestingly, the defendants are banned from future prize promotions, except “a free raffle, drawing, or similar prize giveaway for which an individual enters or signs up in person.”

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Ulta Gets Yellow Light in Used Cosmetics Class Action

Court sides with beauty retailer over injury theory

Eye of the Investor

We’ve reached the latest installment in the sprawling, social-media-inspired class action brought by consumers against Ulta Beauty and its subsidiary, Ulta Salon.

If you’re not familiar with the Ulta brand name, the company is a beauty retailer with a massive presence in the United States of more than 1,000 stores nationwide in 2018, with ambitions to open 400 to 700 more. Ulta recently vaulted onto the Fortune 500 list of companies at #471 and boasts more than $5 billion in quarterly revenues.

The company’s success has been meteoric.

Social Media Meltdown

But then came the lawsuits.

We covered the earlier chapters of this novella back when one of the original class actions was launched in March of last year, and a few months later when Ulta responded with its motion to dismiss (by that time, the plaintiff list had swelled to 20 individuals).

The spark that set off the class actions was a social media meltdown that occurred in January 2018. Customers joined with former employees online to accuse Ulta of allegedly refurbishing, repackaging and reselling products that had been returned by customers. Bolstered by the testimony of former managers, the complaints claimed that these practices were directed by Ulta’s corporate office. A report cited in one complaint maintained that used makeup products from Ulta (and other retailers) contained several nasty bugs, including E. coli. Generally, the plaintiffs alleged breach of warranty, unjust enrichment and consumer fraud.

Ulta hit back, moving to dismiss the class action on a broad variety of fronts, such as failure to plead fraud with particularity and failure to state a claim under various state unfair and deceptive practice statutes. It had the most success, however, in arguing that the plaintiffs lacked standing because they were suing over the purchase of products that were new, and not used. The motion maintained lack of standing to sue for class members who did not purchase the same beauty products as the plaintiffs or on behalf of class members in other states whose claims will be governed by different jurisdictions.

The Takeaway

The court largely agreed with the plaintiffs, allowing the case to proceed.

One key instance where the court favored Ulta was in the first accusation of lack of standing; the court dismissed the plaintiffs’ attempts to sue for damages for new products, finding the allegations of injury for this category of product to be insufficient to confer standing.

“[S]ome portions of plaintiff’s complaint suggest that the commingling of new and used products on Ulta shelves reduced the value of all Ulta products,” the court wrote in its recent opinion. The plaintiffs were arguing that purchasers of new Ulta products were suffering injury, because “if they received new products, they still received less than they bargained for … had they known of the risk that they might receive a used product that might cause an infection, they would have paid less or even shopped elsewhere.”

But this argument didn’t cut it. “In this case, to the extent plaintiffs or class members purchased new products, it was not the … [product] with which they walked out of the store … that was ‘defective or dangerous,’” the court maintained. “Therefore, such purchasers have not suffered an injury-in-fact,” as is necessary for standing.

So the case will go on, and we will learn through certification how the court’s injury ruling affects the size of the class.

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CARU, IBA Dog Developers of Two Cat Apps

Unanswered inquiry sends one developer before the FTC

Scratch Fad

“The internet is about cats,” a famous wag once said. The Children’s Advertising Review Unit’s latest investigations seem to confirm this proposition.

Both inquiries involved mobile games that focus on the adventures of impertinent and cloyingly cute felines. Before going further, we should say that we’ve tried to figure out what these games are about and haven’t the faintest clue. They seem to be inventions of the sort that, intentionally or not, are designed to give splitting headaches to people above a certain age.

Proceed with caution.

Advertising Claws

(Yes, “Advertising Claws.” CARU’s own press release uses the old “not kitten around” groaner; they started it.)

First up is “My Talking Tom,” an app created by game developer Outfit7. In the game, there’s a cat who arrives by balloon on your doorstep. You have to feed him, help him urinate (!) and put him to sleep at night. And dress him in different outfits. That’s what we gathered from videos on YouTube, at least. (Can you even win this game, asks our inner grumpy old gamer?)

CARU says that Talking Tom is festooned with in-game advertising, elements that may appear as part of gameplay to confused children. “In some cases, an ad launches automatically and in others, children can choose to watch an ad to obtain an item in the game,” the unit explains. “Upon CARU’s initial review, several of the advertisements were not clearly labeled as ads.”

Others were allegedly inappropriate for children, including ads for prescription drugs.

The Takeaway

CARU asked Outfit7 to rejigger the ads so that the line between advertisement and games was no longer blurred. Outfit7 agreed.

In the second case, things got a little cattier. (Cattier, ladies and gentlemen.)

Developer Hyperbeard created “Kleptocats,” a game wherein cats steal things. That may seem bracingly straightforward, but the cats also seem capable of taking consumer data. Who knew?

Hyperbeard was double-teamed by CARU and the Interest-Based Advertising Accountability Program for apparent violations of the Digital Advertising Alliance’s Self-Regulatory Principles, CARU’s Self-Regulatory Guidelines and likely the Children’s Online Privacy Protection Act. The organizations accused the company of allowing third-party companies to gather information about players in the course of gameplay but offered no further detail. Gathering personal information is a particularly [f]risky practice for a game aimed at children, as evidenced by the $5.7 million fine that the FTC recently imposed.

Much like an IRL cat, Hyperbeard may have heard CARU’s summons, but it refused to pay it any attention.

As a result, the case has been referred to the Federal Trade Commission for further pursuit.

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Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

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