Alerts

AD-ttorneys@law - August 15, 2017

Alerts / August 15, 2017

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VIZIO Can’t Switch Channel on Consumer Privacy Complaint

Company’s FTC settlement has no effect on standing of consolidated class action

Everything Old …

Back in February, VIZIO, one of the world’s largest manufacturers of “smart” televisions, reached a $2.2 million settlement with the Federal Trade Commission (FTC) and the New Jersey attorney general’s office. The company had been accused of installing spy software in its televisions that allegedly captured the viewing data of 11 million customers without their knowledge.

The complaint centered on VIZIO’s “smart interactivity feature,” which promised to customize viewer content but informed viewers that the feature would collect data as well – “second-by-second information about video displayed on the smart TV” as well as sex, age, income and other private household information.

In addition to the $2.2 million fine, the settlement mandated that the company prominently disclose the program and obtain consent for its data-collection and data-sharing practices, and required the company to delete data collected before March 2016.

… Is New Again

Consumers launched similar complaints in 2015, which were consolidated into a class action before the Central District of California. The consolidated complaint alleged that with the undisclosed data collection program, VIZIO had violated the Video Privacy Protection Act and the Electronic Communications Privacy Act.

In March, VIZIO moved to dismiss the complaint. The court dismissed certain of the putative class’s claims, but preserved fraud and federal privacy law violation claims. Those claims, in turn, were challenged by VIZIO in April by a motion to dismiss that, in part, claimed the settlement with the FTC rendered the consumer complaints moot. VIZIO claimed that the settlement represented “relief that directly benefits the putative class in this action and replicates the very relief Plaintiffs seek.”

The Takeaway

The Central District didn’t buy VIZIO’s argument, issuing its order at the end of July denying the motion to dismiss. The court maintained that the settlement wasn’t sufficient to end the consolidated complaint, holding that while the agreement with the FTC may have made it simpler to stop VIZIO from spying in the future, it did not mean that the company wouldn’t return to that activity.

As this case demonstrates, companies that reach settlement with state or federal regulators in the area of consumer protection should not assume that such a settlement will end the inquiry. A regulatory settlement will not block a consumer class action.

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FTC Presents Grab Bag of Reform Measures

Rules from Picture Tube to CAN-SPAM get makeover

New Rules

In late June, the Federal Trade Commission (FTC) announced changes and has requested comment on four of its rulesets, focusing on its Picture Tube Rule, Textile Rule, Energy Labeling Rule and CAN-SPAM Rule.

Size Matters

The FTC seeks public comment on its Picture Tube Rule, first implemented in the 1960s and last updated in the 1990s. The rule mandates that advertisers measure screen size based on the horizontal axis of the screen, unless they notify the consumer otherwise in a conspicuous manner. Changes in screen technology since the last update are prompting the request and review.

House Rules

An aspect of the Textile Rule was also opened to requests for comment. The rule allows companies to establish a “housemark” to be used on textile tags in lieu of the company’s name as long as the mark is registered with the FTC. The online availability of trademark information may render this requirement unnecessary.

It Was All Yellow

The Energy Labeling Rule mandates the familiar yellow EnergyGuide labels consumers see on appliances. The FTC is proposing changes to eliminate obsolete labeling requirements for plumbing products, exempt a subset of ceiling fans and provide labeling for electric instantaneous water heaters.

Can It!

Finally, the Controlling the Assault of Non-Solicited Pornography and Marketing Act mandates the so-called CAN-SPAM Rule, which requires that marketing and other commercial emails contain accurate header and subject lines, among other features, to reduce or eliminate unwanted email. The rule is up for general review to assess whether it has had a beneficial effect. Possible changes to the rule in light of technological advances and the cost of compliance will be considered.

The Takeaway

The FTC executes ongoing, systematic review of its rules and guides to ensure they are both relevant and up-to-date. Marketers should check on the FTC’s review schedule at the federal register to see whether rules that affect their industries are up for comment or review.

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Third Circuit Puts Parks’ Link With Tyson in the Grinder

District court judgment affirmed in full

Storied Past

Anyone who watched television in the 1980s might remember the Parks Sausage Company’s commercial tagline: “More Parks Sausages, Mom, Please?”

It was a well-known slogan for a brand with an illustrious history. Parks, founded in 1951 by African-American businessman Henry G. Parks Jr., was the first African-American-owned company to be traded on the New York Stock Exchange. The company began to fade in the decades after Parks’ death in 1989 and was sold to new owners. Instead of continuing to make and sell sausages, the company entered into license agreements with other enterprises to sell its products under the Parks moniker.

In the course of this new arrangement, Parks let its trademark slip – in the early 2000s, the company’s mark was not renewed with the Patent and Trademark Office. But the brand, no longer actively advertised on television, began a modest sales comeback.

You’re Out!

Tyson Foods, the well-known food industry giant, launched a new brand in 2014: “Park’s Finest,” a premium version of its Ball Park Franks brand. The following year, Parks filed suit in the Eastern District of Pennsylvania against Tyson, claiming that the company was engaging in false advertising, false association and trademark dilution against the original Parks trademark. Parks sought a nationwide injunction under the Lanham Act.

The court swept the suit aside with a summary judgment against Parks’ remaining claims of false association and false advertising. “No reasonable factfinder could find in Parks’s favor,” the court maintained.

The Takeaway

Parks appealed, but the Third Circuit affirmed the district court ruling on the final remaining claims. The false advertising arguments were dismissed for several reasons. First, the Third Circuit did not accept Parks’ argument that Tyson’s use of its mark was a misrepresentation of “geographic origin” pursuant to the Lanham Act’s false advertising definition. Rather than referring to a product’s creator, manufacturer or other broader definition of the term origin, the Third Circuit concluded, the term “geographic origin” refers solely to the product’s place of origin. The appellate court also noted that Parks’ false advertising claims relied on consumers associating Tyson’s product with Parks’ brand, which was really, at bottom, a false association claim.

On the false association claim, the appellate court noted that the Parks mark was not inherently distinctive, but rather merely a use of the founder’s name. It also noted that there was no reason to believe that consumers would link Tyson’s use of “Park’s” with the original brand presence.

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AbbVie Hit With $150 Million Loss in Low-T Cardiac Trial

Jury finds drugmaker responsible for fraudulent misrepresentation

Payday

An Illinois jury handed plaintiffs $150 million in a case against AbbVie Inc. and Abbott Labs. Jesse Mitchell and his wife, Kimberly, an Oregon couple, sued the defendants after the companies’ testosterone replacement drug AndroGel allegedly caused Jesse’s severe heart problems. Mitchell claims that he decided to try AndroGel after seeing advertisements for the drug. Upon receiving a prescription from his doctor, he used it from 2008 until 2012, when his heart problems began.

Bellwether

The Mitchells’ complaint, filed in November 2014, is one of more than 7,000 brought by consumers alleging that widely marketed low-testosterone therapies led to harmful cardiac-related side effects. In 2014 the lawsuits, which include cases against Besins and Eli Lilly, were consolidated into a multi-district litigation (MDL) in the Northern District of Illinois. The Mitchells’ case against AbbVie is one of a handful of bellwether cases involving the drugmaker that have been identified by the court.

Common to the AbbVie cases is the accusation that the company engaged in misleading ads that preyed on the hopes and fears of middle-aged men. The advertisements included suspect tests for “Low T,” which lumped in the normal effects of aging with symptoms of actual low-testosterone disorders.

One Out of Three

The Mitchells specifically alleged that AbbVie failed to warn consumers of the dangers of using AndroGel and that the design of the drug was defective and unreasonably dangerous. They also accused AbbVie of negligence, fraud and negligent misrepresentation, seeking a variety of damages, injunctive relief and attorneys’ fees. At trial, their attorneys urged legal theories of strict liability, negligence and fraudulent misrepresentation.

The jury let AbbVie off the hook for the first two claims, failing to find that AbbVie’s conduct caused Mitchell’s medical woes. On the third count, the jury held the drugmaker liable for fraudulent misrepresentation related to the advertising campaigns launched by the company.

The Takeaway

Courts find bellwether cases to be a helpful tool for spotting and resolving certain issues common to a large number of lawsuits. The Mitchells’ case, along with the other low-testosterone bellwethers, will have an impact on the fate of the remaining litigation in the MDL.

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Gaming and Software Companies Fragged by Child Privacy Class Action

One of the world’s most popular games gathers data illegally, parents allege

Manufacturing Consent

A centerpiece of 1999’s Children’s Online Privacy Protection Act (COPPA) is a ban on tracking children’s personal information without obtaining parental consent.

A new class action brought by parents in the Northern District of California alleges that a number of application designers and software developers did just that, by leveraging a popular mobile game to secretly collect personal information from underage users. It further alleges that the developers used that information to target advertisements at those users.

Gift Horse

The designer co-defendants, Kiloo and Sybo, are Danish companies that produce a wide variety of mobile games. The companies’ products are remarkably successful.

Consider the game central to the parents’ complaint, “Subway Surfers.” It is staggeringly popular, with more than a billion downloads occurring in the first three years following its 2012 launch. By 2016, the game was listed as the top Google Play game in history, both by generated revenue and by sheer number of downloads.

All this while, the parents contend, the designers were working with software developers to “surreptitiously and unlawfully collect the child-users’ personal information.”

Dark Model

The parents maintain that the business model that ties the designers to the developers is explicitly constructed to generate revenue from the ill-gotten information. Designers contract with developers to include software code in their applications. The software then gathers the personal information of the user, attaches the appropriate advertisements and compensates the designer for the total volume of ads delivered to the user.

The Takeaway

The parents seek an injunction against all the defendants to cease gathering illegal data, sequester that information and pay damages. This class action demonstrates that plaintiffs are willing to construct arguments that draw in multiple contributors to the offending application, not just the designers whose brand is on the game itself.

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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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