Advertising & Marketing
Advertisers, beware.
On January 13, 2023, the Federal Trade Commission announced that as a result of a Federal Trade Commission lawsuit, investment advice company WealthPress has agreed to a proposed court order that would require it to refund more than $1.2 million to consumers and pay a $500,000 civil penalty for allegedly deceiving consumers with purportedly “outlandish and false claims about their services.”
The case marks the first time that the FTC has collected civil penalties against a company that received the Notice of Penalty Offenses regarding money-making opportunities sent last October, and the first civil penalties for violations of the Restore Online Shoppers’ Confidence Act. (ROSCA)
“We’ve brought several cases this year against companies making false earnings claims, and we won’t hesitate to bring more,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “WealthPress is now paying the price for deceiving its customers and ignoring our Notice of Penalty Offenses on money-making claims.”
The FTC’s complaint against WealthPress and its owners, Roger Scott and Conor Lynch, alleges that the company used deceptive claims to sell consumers investment advising services—often claiming that the services’ recommendations were based on a specific “system” or “strategy” created by a purported expert. The company charged consumers hundreds or even thousands of dollars for access to these services.
WealthPress sold consumers on their services with purported false claims about the likelihood consumers would make money by following the recommended trades,
The Business Opportunity Rule (“Bizz Opp Rule”) was first adopted in 2012. It applies to commercial arrangements where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller – expressly or by implication – makes certain kinds of claims. Without limitation, opportunities where a seller says it will help the buyer set up or run a business are covered. The Bizz Opp Rule generally exempts business opportunities that meet the definition of a “franchise.” Consult with an FTC defense attorney to see if that that applies to you.
A covered seller has three key legal responsibilities that involve providing the prospective purchaser with specific information to help them evaluate a business opportunity and associated risks, including a disclosure document and an earnings claims statement. The seller must also comply with general truth-in-advertising principles, including avoiding deceptive practices.
The Disclosure Document
First, the seller has to provide a buyer a one-page Disclosure Document. To keep things simple the seller should use the standard form.
The seller has to provide the Disclosure Document seven (7) days before the prospective buyer signs a contract or pays any money for the business opportunity. The Disclosure Document must list key pieces of information: (i) Identifying information (e.g., company name, business address, telephone number, the sales person’s name, and the date the document was provided to the prospective buyer;
Looking for advice on substantiating your company’s advertising claims? FTC staff just issued a new Health Products Compliance Guidance publication that merits careful attention. You may be wondering if the publication reflects major changes to the FTC’s 1998 guidance.
Yes.
And, no.
Say you have routinely consulted the FTC’s 1998 brochure. Dietary Supplements: An Advertising Guide for Industry, the new publication, is designed to take its place. For the most part, the legal fundamentals remain unchanged, but there are key revisions.
The new publication’s substantiation compliance guidance is not just for companies that sell dietary supplements.
One major change is the title, which is meant to make it clear that the guidance applies across the board to all health-related claims.
The new publication draws upon key compliance points conveyed by FTC actions brought since 1998.
When it comes to advertising claim substantiation, a lot has happened since 1998 – including more than 200 FTC law enforcement actions challenging false or deceptive health claims.
The new guides incorporate the lessons of those cases in numerous new examples – revisions designed to add a practical gloss on long-standing compliance fundamentals. In addition, the new publication reflects updates from other FTC guidance documents – for example, guidelines on endorsements and testimonials and the enforcement policy statement on homeopathic drugs.
The new publication aims to correct misunderstandings and “urban myths” that have circulated about FTC substantiation standards.
The Federal Trade Commission has recently announced that it is seeking public comment on potential updates and changes to the Green Guides for the Use of Environmental Claims. The Commission’s Green Guides help marketers avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act. The Commission seeks to update the guides based on increasing consumer interest in buying environmentally friendly products.
“Consumers are increasingly conscious of how the products they buy affect the environment, and depend on marketers’ environmental claims to be truthful,” said FTC attorney and Bureau of Consumer Protection Director Samuel Levine. “We look forward to this review process, and will make any updates necessary to ensure the Green Guides provide current, accurate information about consumer perception of environmental benefit claims. This will both help marketers make truthful claims and consumers find the products they seek.”
The Green Guides were first issued in 1992 and were revised in 1996, 1998, and 2012. They provide guidance on environmental marketing claims, including how consumers are likely to interpret particular claims and how marketers can substantiate these claims to avoid deceiving consumers.
The FTC is requesting general comments on the continuing need for the guides, their economic impact, their effect on the accuracy of various environmental claims, and their interaction with other environmental marketing regulations. The Commission also seeks information on consumer perception evidence of environmental claims, including those not in the guides currently.
On December 6, 2022, New York Governor Kathy Hochul signed legislation intended to crack down on unwanted telemarketing calls.
Legislation (S.8450-B/A.8319-C) requires telemarketers to give customers the option to automatically be added to the company’s do-not-call list at the beginning of certain telemarketing calls, right after the telemarketer’s name and solicitor’s name are provided, and before addressing the purpose of the call, etc.
Caveat, telemarketers that utilize pre-recorded messages must ensure that an automated means exists for consumers to have their telephone numbers suppressed. Consult with a state attorney general (AG) defense lawyer about the applicability of the new legislation, adjustment of scripts, and the implementation of appropriate disclosures and suppression protocols.
We are dialing up our efforts to give New Yorkers a break from unsolicited telemarketing calls,” Governor Hochul said. “For too long, New Yorkers have dealt with these nuisance calls, not knowing they can avoid these interactions by being added to a telemarketer’s do-not-call list. This new legislation will protect New Yorkers from receiving frustrating, unwanted calls by better providing information on do-not-call lists.”
Under existing law (Section 399-Z), telemarketers are required to inform individuals that they may request to be added to their company’s do-not-call list. However, not at the beginning. According to the NY Attornehy General’s office, consumers usually hang up before a telemarketer or recording has mentioned the do-not-call list, allowing telemarketers to continue calling them again and again.
The FTC continues to issue Notices of Penalty Offenses concerning FTC Endorsement Guide violations to digital advertisers and marketers, both alone and in conjunction with the issuance of FTC Civil Investigative Demands.
A Notice of Penalty Offenses is a document listing certain types of conduct that the FTC has determined, in one or more litigated administrative cases (not consent orders), to be unfair or deceptive in violation of the FTC Act. Civil penalties can help the Commission deter conduct that harms consumers. Because they can exceed what a wrongdoer earned through their misconduct, penalties are intended to send a message that preying on consumers will not be profitable.
Penalty Offense Authority is found in Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. §45(m)(1)(B). Under this authority, the FTC can seek civil penalties if it proves that (i) the company knew the conduct was unfair or deceptive in violation of the FTC Act, and (ii) the FTC had already issued a written decision that such conduct is unfair or deceptive.
Companies that receive such Notice and nevertheless engage in prohibited practices can face civil penalties of more than $46,000 per violation.
Recent Notices concern, without limitation, endorsements. The FTC has issued and continues to issue Notices where it has determined that certain acts or practices in the use of endorsements and testimonials are deceptive or unfair and violate the FTC Act.
Per the FTC’s Notice of Penalty Offenses, “[i]t is an unfair or deceptive trade practice to fail to disclose a connection between an endorser and the seller of an advertised product or service,
According to the Telephone Consumer Protection Act, only “residential telephone subscribers” possess a right of action for violations of the Do-Not-Call registry.
Specifically, 47 U.S.C. § 227(c)(1) directs the FCC to promulgate DNC regulations to “protect residential telephone subscribers’ privacy rights to avoid receiving telephone solicitations to which they object.” 47 C.F.R. § 64.1200(c)(2) prohibits telephone solicitation calls to “[a] residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry.”
But what about numbers that are used for both residential and business purposes?
In Chennette v. Porch.com, Inc. (50 F.4th 1217 (9th Cir. 2022)), the Ninth Circuit recently held that a fact-specific inquiry into each separate telephone number is required in order to determine whether a mixed-use telephone line is “residential.”
Here, the plaintiffs were home improvement contractors that allegedly received unsolicited text messages from Porch.com and its subsidiary, GoSmith that offered leads. Numerous plaintiffs purportedly registered their telephone numbers on the national DNC registry but allegedly received over 2,000 text messages. As a result, the plaintiffs filed suit in federal court alleging violations of the TCPA based upon use of an automated telephone dialing system to send automated text messages and violations of the DNC registry prohibitions.
The defendants filed a motion dismiss. They argued that the plaintiffs lacked standing to sue under the TCPA because their telephone numbers are used for personal and business purposes.
The Ninth Circuit reversed the lower federal court ruling.
In doing so,
On November 2, 2022, the Pennsylvania Office of Attorney General filed a lawsuit in federal court alleging that a group of companies offering lead generation services violated the Telemarketing Sales Rule and Pennsylvania consumer protection law. Specifically, the OAG alleges two unlawful advertising practices.
The first unlawful ad practice allegation is that the defendants utilized deceptive online advertisements to direct consumers to websites where they would purportedly be tricked into providing contact information and survey responses. The second unlawful ad practice allegation claims that consumers’ contact information and responses were sold to telemarketers despite numbers being on state of national Do No Call registries.
As stated in the complaint, defendants operate “dozens of websites designed for lead generating” that advertise “gift cards to popular retailers and digital payments to mobile apps” for answering various survey questions. According to the OAG, the websites require visitors to provide personal contact information and click a box indicating consent to mouseprint disclosures stating that consumer will receive prerecorded calls and text messages from marketing partners (the names thereof are disclosed to by a hyperlinked list). According to the OAG, these sellers’ products and services are oftentimes not related to the promotional offerings whatsoever.
Here, according to the OAG’s complaint, the websites violate state consumer protection law because they “create[] a likelihood of confusion or of misunderstanding” by “failing to include clear and conspicuous disclosures advising consumers that by registering their contact information with defendants they are purportedly consenting to be contacted by multiple third party sellers,
“Ringless voicemails” are messages left in a consumer’s mailbox without ringing their cell phone.
The Telephone Consumer Protection Act protects consumers from unwanted robocalls. The TCPA, in pertinent part, prohibits making any non-emergency call using an automatic telephone dialing system or an artificial or prerecorded voice to a wireless telephone number without the prior express consent of the called party.
On November 21, 2002 the Federal Communications Commission issued a unanimous Declaratory Ruling and Order finding that “ringless voicemails” to wireless telephones require consumer prior express consent because they are “calls” made using an artificial or prerecorded voice and therefore covered by the Telephone Consumer Protection Act. The FCC found that RVM are subject to robocalling restrictions. Regulated under the artificial or prerecorded voice prong of the TCPA, the issue of whether the technology used to send RVM is an automatic telephone dialing system may now be moot.
The FCC has clarified that RVM is a form of robocall and is illegal if the caller did not have the consumer’s prior express consent. Violations can be enforced by the FCC or the consumer can sue in court.
“Imagine finding robocallers leaving junk voicemails on your phone without it ever having rung. It’s annoying and it’s happening to too many of us. Today we’re taking action to ensure these deceptive practices don’t find a way around our robocall rules and into consumers’ inboxes,” said FCC Chairwoman Jessica Rosenworcel.
On October 20, 2022, the Federal Trade Commisison announced that the agency is exploring a potential rule to combat deceptive or unfair review and endorsement practices, such as using fake reviews, suppressing negative reviews, and paying for positive reviews.
The FTC’s Advance Notice of Proposed Rulemaking public comment on potential consumer harms arising from deceptive or unfair review and endorsement practices.
“Companies should know by now that fake reviews are illegal, but this scourge persists,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We’re exploring whether a rule that would trigger stiff civil penalties for violators would make the market fairer for consumers and honest businesses.”
According to the FTC, research shows that consumers rely on reviews when shopping for a product or service, and that bogus reviews drive sales and tend to be associated with low-quality products. The rapid growth of online marketplaces and platforms has made it easier than ever for some companies to create and use fake reviews or endorsements to make themselves look better or their competitors look worse, the FTC states in its recent announcement.
The Advance Notice of Proposed Rulemaking seeks comment on the costs and benefits of a potential rule, as well as the potential harms to consumers and competition from deceptive or unfair reviews and endorsement advertising practices, including:
- Fake reviews: Reviews and endorsements by people that do not exist, have not used the product or service,
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About This Blog and Hinch Newman’s Advertising + Marketing Practice
Hinch Newman LLP’s advertising and marketing practice includes successfully resolving some of the highest-profile Federal Trade Commission (FTC) and state attorneys general digital advertising and telemarketing investigations and enforcement actions. The firm possesses superior knowledge and deep legal experience in the areas of advertising, marketing, lead generation, promotions, e-commerce, privacy and intellectual property law. Through these advertising and marketing law updates, Hinch Newman provides commentary, news and analysis on issues and trends concerning developments of interest to digital marketers, including FTC and state attorneys general advertising compliance, civil investigative demands (CIDs), and administrative/judicial process. This blog is sponsored by Hinch Newman LLP.