AD-ttorneys@law – October 26, 2018

Alerts / October 26, 2018

In This Issue:

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Amy Ralph Mudge and Randal M. Shaheen Join BakerHostetler’s Washington, D.C., Office

BakerHostetler is pleased to announce the expansion of the firm’s advertising, marketing and digital media team with the arrival of partners Amy Ralph Mudge and Randal M. Shaheen in the firm’s Washington, D.C., office. Mudge will now co-lead the team with New York-based partner and current leader Linda Goldstein. Mudge and Shaheen were previously partners at Venable LLP, where Mudge co-chaired the advertising, marketing and new media practice group.

Mudge, a Chambers USA (Band 1) nationally ranked advertising and regulatory lawyer, has significant experience representing clients before the Federal Trade Commission (FTC), National Advertising Division (NAD), Children’s Advertising Review Unit (CARU) and state attorneys general. She also has successfully handled numerous antitrust and class action cases. With more than two decades of experience, Mudge represents some of the most recognized national brands across a broad spectrum of industries, including digital media, fintech, food, retail, consumer products, toys, video games, and health and wellness. She also counsels clients on all aspects of their advertising and marketing campaigns, with a particular focus on social media, including native advertising and influencer marketing.

With more than 30 years of experience, Shaheen has handled numerous high-profile FTC and Consumer Financial Protection Bureau (CFPB) investigations, NAD actions, Lanham Act false advertising cases, and multijurisdictional litigation. He also has advised clients in all areas of advertising, marketing and consumer protection. He has worked on a variety of matters concerning privacy and data security, “green” claims, health and performance claims, dietary supplements and weight loss, “Made in USA,” marketing to children, claims interpretation, comparative claims, and survey use.

BakerHostetler Attorneys Take Center Stage at ANA/BAA Marketing Law Conference, Nov. 7 - 9

Linda Goldstein, Amy Mudge, Alan Friel, Melinda McLellan and Laura Jehl will join an esteemed faculty at the ANA/BAA’s 40th annual marketing law conference next month.

Advertising, marketing and digital media team co-leaders Goldstein and Mudge will highlight the year’s most significant developments and trends; Friel will conduct a roundtable discussion on CDA 230 immunity; Jehl will co-present on blockchain alongside Peter Franklin, CEO and founder of Pryze Ltd.; and McLellan will examine the complexities of managing security breaches under the GDPR.

Use discount code SPOND18 to register here.

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ASRC Internet Ad Program Adds a Notch to Its Belt

Apparel company failed to notify consumers of internet ad data grab

In This Corner …

The Online Interest-Based Advertising Accountability Program, a division of the Advertising Self-Regulatory Council, took on two more advertisers in its quest to align app and website publishers with the self-regulatory principles embraced by the Digital Advertising Alliance (DAA), which the Accountability Program monitors and enforces. The Accountability Program has now tackled more than 90 public actions.

The latest cases dealt with “enhanced notice” of data collection in an interest-based advertising context.

Ledbury, an online men’s fashion company, found itself in the council’s sights. During routine monitoring, the council discovered that Ledbury had failed to include an enhanced interest-based advertising (IBA) notice on its website; the company added the notice shortly after receiving the council’s notice.

However, the council let Penske Media Corp. off the hook ‒ a recent IBA inquiry revealed that the company had already started fixing up its compliance measures.

The Takeaway

This is not the first time that the Accountability Program has looked beyond the compliance of third parties such as ad networks and examined what first-party publishers tell their users about tracking and targeting occurring on their sites.

The DAA’s principles aim to offer consumers “enhanced transparency and control” through guidelines that “apply to multi-site data and cross-app data gathered in either desktop or mobile environments.” Enhanced notice is one of those mandates; it allows users to click a link (e.g., “About ADs” or “AD Choices”) on the footers of site pages, which will take them “directly to a place where they can learn more about interest-based advertising and find an opt-out tool.” Similar enhanced notice must be placed on all interest-based ads, which is often done using the DAA’s now familiar blue triangle logo that produces a transparency notice when hovered over.

For more information on enhanced notice, visit the DAA website.

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Court Unties Gag on Dissatisfied Weight-Loss Consumers

Roca weight-loss companies can’t punish or sue negative online reviewers


Back in June, we reported on weight-loss supplement marketers Roca Labs Inc. and Roca Labs Nutraceutical USA Inc.’s legal troubles with the Federal Trade Commission (FTC).

The FTC first pursued charges in 2015 in the Middle District of Florida, claiming that advertising for Roca’s “Formula” weight-loss powders and gels made a number of deceptive claims, including weight-loss results of up to 100 pounds over 7 ‒ 10 months, unbelievably high success rates, and favorable comparisons between the products and bariatric surgery.

Gag Reflex

But what really caught our eye back then were the allegations regarding Roca’s alleged use of gag clauses ‒ nondisparagement provisions contained in the product purchase agreements that threatened legal action against dissatisfied customers who complained about the product in public.

One version of the gag clause allegedly gave negative reviewers “seventy-two (72) hours to retract the content in question.” Should the content remain, “RL would be obliged to seek all legal remedies to protect its name, products, current customers, and future customers.” The FTC claimed that another version of the gag order defined “any report of any kind on the web” as “defamation/slander,” which would invoke compensation of $100,000.

The commission maintained that these provisions were illegal and deprived “prospective purchasers of … truthful, negative information,” which led to more profit than Roca would have otherwise earned.

The Takeaway

In a big win for the FTC, the Middle District granted its amended motion for summary judgment in its entirety.

The commission found that Roca’s weight-loss claims were deceptive and in violation of the FTC Act, and that the companies had failed to disclose financial relationships they maintained with “testimonialists” who praised their products.

The court embraced the commission’s arguments regarding gag orders, finding that the nondisparagement provisions left consumers “without any or [with] very little access to consumers’ negative experiences,” and that “prospective buyers … are prohibited from making an informed choice.” The commission was granted about three weeks to gather more evidence about how much the defendants will finally have to pay back to consumers.

It should be noted that this case concerns activities that slightly predate the Consumer Review Fairness Act (CRFA), which became law Dec. 14, 2016, and which specifically protects consumers’ ability to provide honest consumer reviews without reprisal. For more on the CRFA, see the FTC’s guidance here. This case makes clear that even without the CRFA, contractual restrictions and penalties for honest consumer reviews are a deceptive and illegal practice.

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FCC Hits Accused Telephone Spoofers With Big Fines

One alleged spoofer commandeered active consumer phone numbers

Daily Letters

The 26th of September was a busy day for the Federal Communications Commission (FCC).

Where to begin? The FCC eliminated outdated cable data collection forms, approved a looser regulatory approach for 5G technology and proposed rules to help the public access 911 services quickly and easily.

Standing out from all this action, however, are two major telecom-related announcements, both of which include notable fines.

Spoof or Farce?

First up was the case of Philip Roesel and his companies, which, the FCC alleges, placed a staggering 21 million robocalls to market health insurance services. Aside from the content and permission issues raised by this volume of telemarketing, the FCC’s attention was drawn to what it claims was a massive spoofing scheme, in which Roesel deliberately falsified his caller ID information to avoid consumer complaints.

The complaint was originally lodged against Roesel about a year ago. He responded that he did not know that he was causing harm, and that he did not receive value “wrongfully” from his deception.

The FCC stuck to its guns: Roesel faces $82 million in fines, which the commission claims is one of the “largest forfeitures ever imposed by the agency.”

Wolf in Sheep’s Calling

Falsifying caller IDs is bad enough. But the commission claims that Affordable Enterprises of Arizona (AEA) took it one step further: It alleges that the company used real people’s phone numbers for its fake identity. This is the first time the FCC has tackled a case in which the accused stole consumers’ phone IDs.

The commission alleges that AEA made more than 2 million calls between 2016 and 2017 that appeared to originate from consumers, unassigned numbers and “burner” phones. One alleged victim received angry calls to her cellphone complaining about autodialed calls that seemed to originate from her number.

The FCC proposed a $37.5 million fine for the company, which was hawking home improvement services. The company still has time to respond before the punishment is finalized.

The Takeaway

These two cases show that the commission is ramping up its anti-spoofing efforts in response to a practice that has become a serious nuisance.

According to the FCC’s recent update on the Do Not Call registry, technological advances like voice over internet protocol have enabled scammers to make an unprecedented number of calls at little expense. Other technical advances have made spoofing calls ‒ hiding the identity of the originating caller through fake caller ID ‒ easier than ever. The combined effect has been an explosion of fake calls.

A little more than a year ago, the commission lobbed a $120 million fine at a Florida corporation that made over 100 million calls that were spoofed to appear to be phone numbers local to the intended consumer targets. Along with the Roesel fine described above, this demonstrates that the commission means business.

Furthermore, in the case of AEA, the investigation was inspired by reports from a former-employee-turned whistleblower ‒ and proceeded in coordination with the Federal Trade Commission. The lasso may be tightening around accused spoofers and robocallers; it’s a warning for companies that engage in telemarketing to carefully audit their efforts.

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California Requires Advertisers Disclose Use of Bots

Bot or real person? – a question most online users probably don’t ask themselves when interacting online or seeing how many followers a person has on a social media platform. Most likely, online users don’t know whether they are talking to a “bot,” especially if they think they are communicating on or browsing an interactive site. This lack of transparency may be due to the fact that there is currently no enacted law that relates to the disclosure of the use of automated bot accounts on social media. On Sept. 28, 2018, Governor Jerry Brown approved Senate Bill No. 1001, which will protect consumers and voters in California from being misled by these bots in certain circumstances.

For details, read our blog post here.

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