Alerts

AD-ttorneys@law - July 18, 2017

Alerts / July 18, 2017

Welcome to AD-ttorneys@law, BakerHostetler’s new weekly publication focused on keeping you up to date on legal and regulatory developments in advertising, marketing and digital media.

With AD-ttorneys@law, you’ll get the essential news you need, without having to spend time looking for it. And every one of our stories will highlight key takeaways and practical impact.

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We hope you enjoy AD-ttorneys@law and we welcome your feedback.

Best,

Linda Goldstein
Advertising, Marketing & Digital Media Practice Team Lead

In This Issue:

Celebrity Influencers Continue to Flout FTC Disclosure Rules

A recent investigation by Public Citizen identifies more than 40 influencers who ignored recent compliance requests

The Uninfluenced

Last fall, national advocacy group Public Citizen sent a report to the Federal Trade Commission alleging that more than 100 “influencers” – actors, musicians, athletes and other high-profile individuals – and marketers had failed to disclose compensation for product endorsements on Instagram in violation of the FTC Act.

The FTC responded in April 2017 by sending compliance reminder letters to more than 90 influencers and advertisers, including luminaries such as Allen Iverson, Victoria Beckham and Jennifer Lopez.

The Brush-Off

Despite this scrutiny, according to Public Citizen, almost none of the influencers heeded the FTC’s warning with any consistency. Public Citizen again wrote to the FTC on June 26, 2017, noting that despite the FTC’s “attempt to educate paid influencers and brands about the importance of using disclosures, influencers on Instagram continue to mislead consumers by posting paid endorsements without a proper disclosure.” In the letter, Public Citizen raised its concerns regarding noncompliance, noting that “it is fair to conclude that the FTC’s reminder letters have not been effective, and influencers and advertisers are disregarding both the FTC’s letter and guidelines.”

The Policy

It’s easy to see how Instagram’s format can blur the line between endorsement and advertisement. Influencers simply post a picture of a product as part of their overall presence on the site, blending in their recommendation with other news and self-promotion. The casual nature of the dialogue that ensues between the influencer’s followers and fans further disguises the nature of the endorsement. The FTC’s letter made clear that it expects brands and influencers to make proper disclosure of material connections on Instagram.

The Takeaway

Compliance with the FTC’s Endorsement Guides remains an enforcement priority for the Commission, particularly as it pertains to social influencers. In fact, the April letters marked the first occasion on which FTC staff reached out directly to social influencers to ensure they understand their disclosure obligations. To date, the FTC has not publicly commented on Public Citizen’s June 26 letter, and it is unclear whether or how the FTC will respond to it. Regardless, advertisers should remain vigilant to ensure that social influencers disclose any material connections with the advertiser and should monitor social media posts for compliance.

COPPA Guidance Released to Help Businesses Keep Pace With Evolving Internet

FTC creates comprehensive six-step compliance plan

Changing Topography

The Children’s Online Privacy Protection Act (COPPA), enacted in 1998, created guidelines limiting the collection of personal information from children online. But 1998 was eons ago in Internet time; the online landscape has evolved and matured in ways that the authors of COPPA could never have anticipated. Because more users than ever, including children, provide information online in new and unanticipated ways, the FTC updated COPPA in July 2013.

To help businesses comply with COPPA in this ever-changing technological landscape, the Commission recently unveiled a new step-by-step plan to help businesses determine whether they are subject to COPPA and, if so, how to comply. The new guidance makes clear that the “website and online services” covered by COPPA are broadly defined to include mobile apps that send or receive information online, Internet-enabled location-based services, voice over Internet protocol devices, and connected toys or other Internet of Things devices.

KBA and FMVPI

The new guidance also introduces into the COPPA fold two relatively new methods for obtaining parental consent. Knowledge-Based Authentication (KBA) is a method that generates multiple-choice questions that significantly lower the chances that a child less than 12 years of age would be able to guess the answers and bypass parental consent. The second method, Face Match to Verified Photo Identification (FMVPI), compares a verified snapshot of the parent’s photo ID with a photo taken by the would-be user of their own face. A mismatch denies access to the user. Both KBA and FMVPI are now accepted by the FTC as COPPA-compliant consent technologies.

The Takeaway

The FTC’s new six-step compliance plan provides valuable advice to the business community regarding whether COPPA applies, and how to ensure compliance. Any business can use the plan to determine whether their company is subject to COPPA, to create a compliant privacy policy and to secure parental consent before gathering a child’s personal data. Exceptions to the guidelines are also covered. Businesses that collect personal information online should take advantage of this valuable resource.

FCC Issues Whopping $120 Million Forfeiture Against Massive Spoofed Robocall Scheme

First spoofing fine leveled by FCC signals tough stance on high-volume callers

The Threat

Robocalls are commonly understood as a low-grade nuisance – an unwanted interruption of dinner or a favorite TV show. But according to the Federal Communications Commission, robocalls can actually pose a serious threat to public safety. If a robocalling campaign is large enough, it could disrupt critical phone communications – paging systems for hospitals, emergency rooms and other medical services, for example.

In late 2015, the FCC was contacted by Skop, a Virginia-based medical paging service provider, which reported widespread disruption of its emergency medical paging service by a flood of robocalls. According to Skop, the disruption threatened the safety of countless patients.

Within a few months of Skop’s call, the FCC received another complaint from well-known travel website company TripAdvisor, which was reporting a surge of consumer complaints about robocalls made under its moniker but without TripAdvisor’s knowledge or consent. Both the FCC’s and TripAdvisor’s investigations traced the Skop and TripAdvisor calls to a Florida corporation run by Adrian Abramovich. Abramovich was doing business under the names Marketing Strategy Leaders and Marketing Leaders.

The Scheme

The campaign was quite simple: Marketing Strategy Leaders or Marketing Leaders allegedly made robocalls that were spoofed to appear to be local phone numbers, thus making it more likely that consumers would answer. Once consumers answered, they were allegedly presented with a prerecorded message instructing them to “Press 1” to hear more about an exclusive vacation deal offered by well-known travel websites like TripAdvisor. The targeted individual was then routed to a call center where live operators attempted to sell them one or more discounted vacation packages, usually involving a time-share presentation. These operators were not affiliated with the well-known travel website presented to the consumer during the prerecorded message.

While the content of the calls was rather commonplace, the sheer volume of robocalls was astounding. In late 2016, in the space of only three months, Marketing Strategy Leaders made nearly 100 million calls to unsuspecting consumers. A large sample of these calls were investigated by the FCC’s Enforcement Bureau and determined to be spoofed. When the dust from the investigations cleared, the FCC found itself dealing with one of the largest spoofed robocall operations ever recorded.

First Impression

On June 22, 2017, the FCC released a notice of apparent liability for forfeiture finding that Abramovich and his companies had violated the Truth in Caller ID Act of 2009, which outlaws “[causing] any caller identification service to knowingly transmit misleading or inaccurate caller identification information with the intent to defraud, cause harm, or wrongfully obtain anything of value.” The FCC also cited Abramovich and his companies for violating the Telephone Consumer Protection Act (TCPA) and for committing wire fraud.

The proposed forfeiture against Abramovich – $120 million – was the first the FCC had levied for spoofing under the TCPA, making the case a matter of first impression for the FCC.

By its own account, the FCC tried to strike a balance in its assessment. The maximum forfeiture under the statute – up to $11,052 for each spoofing violation, or three times that amount for each day of a continuing violation, up to a statutory maximum of $1,105,241 – would have yielded an outrageous figure, given the sheer number of calls in this case.

The Takeaway

Commissioner Mignon Clyburn said that the magnitude of the fine levied in this case “shows just how serious we are in stamping out the largest spoofed robocall campaign we have yet to investigate.” This case should serve as a cautionary tale to companies engaged in outbound telemarketing. The FCC has made it clear that it will not tolerate spoofing, nor will it look kindly on high-volume campaigns that could pose a threat to public safety.

Business Coaching Defendants Settle Deceptive Marketing Charges With the FTC

Two separate complaints diffused nearly decade-long operations

Curveball

Eight companies, including Lift International LLC and Thrive Learning LLC, their various dba companies and the seven individuals who controlled them, recently settled FTC charges that they fleeced thousands of consumers of millions of dollars through outlandish promises and false testimonials.

According to the FTC’s complaint filed in early June, from 2008 to early 2017, Lift International and Thrive Learning offered what they claimed was personalized business coaching services through a number of telemarketing companies. The coaching programs were aimed at consumers who wished to operate at-home Internet businesses.

Foul Practices

The FTC complaint charges defendants with using a variety of deceptive sales tactics to convince consumers to purchase the services. For example, the defendants allegedly promised consumers that they were likely to earn substantial income, when in fact, consumers who purchased the services were left with large debt, no viable business and no income. The FTC also alleged that the defendants falsely represented that their training programs were personalized and open only to qualified participants, which was not the case. Additionally, defendants represented that they needed consumers’ financial information to determine if consumers qualified which, according to the FTC, was not true. Consumers who took the bait were targeted with more sales calls to buy more purported business services, according to the FTC complaint.

The FTC also alleged that some of the defendants engaged in credit card factoring – an illegal practice where companies provide other entities with access to their merchant accounts, so that telemarketers that cannot obtain a merchant account can process sales.

Benched

The FTC’s complaints against the defendants charged that the companies’ practices violated the FTC Act and the Telemarketing Sales Rule. Faced with these suits, the defendants – a baffling array of interlocking business entities and individuals – chose to settle, agreeing to lifetime bans from selling similar services in the future. The final total settlement was $79.5 million for all defendants collectively. The full judgment was partially suspended due to an inability to pay. However, the defendants were ordered to immediately pay approximately $2.1 million and surrender certain assets. The judgment will become immediately enforceable in the event that defendants are found to have misrepresented their financial condition.

The Takeaway

Regulators like the FTC remain on the lookout for fraudulent telemarketing practices and will pursue violators to the fullest extent of the law. When these types of schemes are discovered, the marketers who ran them are often required to disgorge 100 percent of the profits earned, and in the most egregious cases, are banned from engaging in similar business activities in the future.

Seventh Circuit Shuts the Door on Class Action Defense Strategy

Deposits made in court accounts do not render actions moot

With treble damages and attorneys’ fees compounding already high dollar judgments, defendants in TCPA class actions understandably try their best to escape litigation before class certification is decided. But a recent decision in the Seventh Circuit Court of Appeals made clear that one such attempt to block class actions from moving forward will not work.

In 2016’s Campbell-Ewald Company v. Gomez, the Supreme Court considered whether an unaccepted offer of judgment made by the defendant under Rule 68 of the Federal Rule of Civil Procedure was enough to moot the class representative’s individual claim or the claims of the class. The Court found that an unaccepted offer did not commit either party, and allowed the putative class action to proceed. However, the Court left one question open – whether “the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”

Unresolved Question

This open issue was predictably enticing for defense counsel in Fulton Dental, LLC v. Bisco, Inc., which was resolved in the Seventh Circuit on June 20. The defendant argued that, under Rule 67, a deposit of an amount necessary to satisfy a claim – in a bank account held by the court – would moot the class representative’s claim, effectively unraveling the class.

The Seventh Circuit decided, in a unanimous panel decision, that the argument advanced in Fulton Dental did not fit the hypothetical situation left open by the Supreme Court in the earlier case. The Campbell-Ewald decision raised the hypothetical of a deposit made to an account held by the plaintiff, not an account held by the court.

The Seventh Circuit held that deposits governed by Rule 67 did not grant ownership of the funds to the plaintiff, and that these deposits were therefore no different than an unaccepted offer – which the Supreme Court had disposed of in Campbell-Ewald. The question raised by the Supreme Court in that case remains open.

The Takeaway

Recent cases in the Ninth and Second Circuit Courts of Appeal (2016 and 2017, respectively) reached contradictory conclusions about how such a situation might affect the overall litigation. Given the creativity demonstrated by defendants in their attempts to shake loose of class actions, we can expect further discussion of the open Rule 68 question in the future.

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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