AD-ttorneys@law – December 12, 2018

Alerts / December 12, 2018

In This Issue:

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PR Firm and Publisher Bend Over Backward to Settle FTC Complaint

Creaxion Corp. and gymnastics mag posted undisclosed athlete endorsements

Zika Seekers

It would seem natural, if a little grim, that HealthPro Brands, creator of FIT Organic Mosquito Repellent, would take advantage of the furor surrounding the 2016 Zika virus outbreak. And they did figure out a decent hook: The Summer Olympics, hosted by Brazil, were rapidly approaching, and since Brazil was ground zero for Zika infections, the games would serve as the perfect platform to get FIT Organic some attention.

HealthPro contracted PR firm Creaxion Corp., which sprang into action.

Flipping Out

Creaxion tapped Inside Publications, publishers of Inside Gymnastics magazine, to execute a campaign that summer. But according to the Federal Trade Commission, the companies took an unethical turn.

Among their other marketing efforts – such as designating FIT Organic Mosquito Repellent as the “Official Mosquito Repellent” of Inside Publications and providing gift baskets for the top contenders on the U.S. gymnastics team – the FTC claims that the companies (and their principals, also named as co-defendants) tapped two Olympic gold medalists, Carly Patterson Caldwell and Jake Dalton, to serve as endorsers, and paid them to post social media endorsements that were drafted, reviewed and monitored by the company principals. “I’m a buffet for mosquitos, so this is a game changer!” Patterson posted on Instagram.

The Takeaway

Unfortunately, the FTC claims, neither endorser disclosed his or her financial relationship with Creaxion; Inside Publications reposted the endorsements and, to make matters worse, also ran FIT Organic ads that were disguised as legitimate magazine articles. The FTC also accused Creaxion of reimbursing employees and friends for their reviews of FIT Organic on Walmart’s website, where the material connection between those reviews and the product was also undisclosed.

The FTC’s suit, filed in November, accused the defendants of false representations, failure to disclose material connections between them and the endorsers, and deceptive formatting of their advertising. In addition to the allegations relating to the athlete endorsements, Creaxion was also accused of creating a consumer review program that reimbursed Creaxion employees for purchasing the product and posting a review online. These reviews allegedly failed to disclose that the individuals were reimbursed for purchasing the product and that they worked for Creaxion. The parties settled in short order, with both defendants barred from engaging in similar practices in the future. Public comment on the settlement agreement will close on Dec. 13.

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Kiddie App Study Yields Federal Attention

Two senators ask the FTC to review the children’s app landscape

Studies Past

Back in May, we covered an International Computer Science Institute (ICSI) study, humorously titled “Won’t Somebody Think of the Children? Examining COPPA Compliance at Scale.” The study should have alarmed parents and app developers alike.

The authors claimed that most of the apps logged in Google’s “Designed for Families (DFF)” initiative potentially violated the Children’s Online Privacy Protection Act (COPPA). The study attributed this failure to third-party software development kits used to design the apps. COPPA-compliant options are available in these kits but, it turns out, are often simply not used or not applied during development. In the final analysis, the authors claim that nearly 20 percent of the apps gathered inappropriate personal information. What’s more, the study maintains that other industry “safe harbor” programs – similar in structure to Google’s DFF – don’t fare much better.

The Takeaway

The federal government is not an institution that is renowned for efficiency or responsiveness, but in this case, the study received some serious attention: It provided the central impetus for a recent letter from U.S. senators Edward Markey, D-Mass., and Richard Blumenthal, D-Conn., to the FTC.

In their letter, the senators express their concerns about applications targeting children and how such apps can access geolocation data and transmit identifiers without first obtaining parental consent as required under COPPA. Additionally, the senators urged the FTC to investigate various app stores’ practices of promoting certain apps as children’s apps by placing them in the “kids” or “family” sections of their online stores. More generally, the senators’ letter reviews the ICSI study’s conclusions and demands that the FTC review the extent to which app developers, advertisers and app stores are complying with COPPA, including how each is ensuring the other is complying as well.

Developers, advertisers and even the stores that sell apps online should be prepared for the FTC’s response – and if Markey and Blumenthal have a say, these companies should be prepared to ask each other some probing questions.

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Sports Network Huddles With Upset Subscribers

Owner Yahoo settles auto-renew class action

Those Were the Days A classic internet story.

Rivals, which currently features college basketball and football recruitment news and discussion, was founded in 1998 by Jim Heckman, the son-in-law of the University of Washington’s then-head football coach.

Like nearly anything founded in 1998, Rivals experienced a huge growth spurt, attempted a relatively ambitious initial public offering ($100 million) and went belly-up in 2001.

The site’s operations never fully shuttered; Rivals was passed to a new owner, who sold the network to Yahoo for $60 million in 2007. Today, the company calls itself “the most respected name in team-specific college sports coverage and the country’s No. 1 authority on college football and basketball recruiting.”

Sacked Twice on the Same Play?

Twenty years after its birth, Rivals is getting attention for its automatic renewal and refund policies. A class action lawsuit, filed in March 2017 in California Superior Court, Santa Clara County and later moved to the state’s Northern District, claimed that the network failed to clearly and conspicuously disclose its intention to automatically renew its subscription charges without first obtaining consumer consent and in violation of California’s Automatic Renewal Law. The plaintiffs also alleged that Rivals failed to “clearly indicate its cancellation policy and fail[ed] to provide information regarding how to cancel a subscription.”

In an amended complaint, newly added plaintiff Yuan Guo claims he paid $99.95 for a year’s subscription, only to discover that the charge recurred a year later. Guo maintains that Rivals failed to disclose on either the sign-up or payment page that the automatic charge would occur, and Rivals never received his affirmative consent for the ongoing charge. Guo says that when he tried to cancel the subscription, he learned the payments were nonrefundable, a policy of which he had not been made aware.

The action sought redress under California’s Unfair Competition Law – specifically, the state’s Automatic Renewal Law and Liquidated Damages Law.

The Takeaway

Yahoo ultimately agreed to a preliminary settlement by July 2018, just three months after Guo filed his amended complaint. The final agreement grants $20 in cash or five free months of service to class members, along with $300,000 for attorney’s fees. Guo received a $5,000 payday as an incentive award.

Yahoo is bound by the agreement to revamp the Rivals subscription page to bring the site into compliance with relevant California law. These modifications include a disclosure, which must be located immediately above where a consumer must click to submit their subscription, that sets forth the automatic renewal provision.

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FTC Issues Online Ad-Tracking Recommendations

Staff report rejects opt-in systems to keep ad revenues flowing

It’s a Weigh-In

In a recently released staff report, the FTC offered its latest thoughts on online advertising – the first such insight following the arrival of new leaders this year. The report also serves to support the FTC’s exploration of such issues in addition to events such as the FTC’s Hearings on Competition and Consumer Protection in the 21st Century.

The report was written in response to the National Telecommunications and Information Administration’s (NTIA) request for comment on online privacy issues. Back in September, the NTIA, on behalf of the Department of Commerce, sought comments on a proposed approach to consumer privacy that establishes “user-centric privacy outcomes” to underpin federal consumer privacy policies.

Why the call to action now? It may be that the federal government has often been caught flat-footed by the rising tide of privacy regulation from the states and foreign governments, which we’ve covered before (see here and here). The FTC acknowledges this in its report, asserting that perhaps the time has come to consider a new national approach that would benefit both consumers and competition.

The Takeaway

The FTC doesn’t make any real waves with its recommendations, calling for “a balanced approach that protects both consumer privacy and innovation” as viewed through the areas of security, transparency, control and FTC enforcement. Notably, the FTC argues “privacy standards that give short shrift to the benefits of data-driven practices may negatively affect innovation and competition.” The FTC also discusses its “unique” abilities to balance consumer interests in privacy, innovation and competition because of its history promulgating risk-based approaches, jurisdiction over both competition and consumer protection issues, rule-making authority, and institutional expertise on a number of topics related to data privacy and security.

These cautious pronouncements provide the tenor for the whole document; however, among its many calls for context-appropriate disclosures and balanced approaches, one of the few concrete recommendations is the argument that “if consumers were opted out of online advertisements by default ... the likely result would include the loss of advertising-funded online content.” The better approach, according to the FTC, “takes consumer preference, context … and form into account,” with context requiring the most consideration.

Online advertisers can breathe easy; opt-in policies are not on the table, and the current online privacy regime won’t be changing drastically anytime soon.

Nonetheless, the NTIA’s request, and the FTC’s response, may serve as an early warning: Federal authorities have taken notice of legislative unrest regarding online privacy, and they’re likely to be preparing a response.

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