Consumer Protection
On April 14, 2023, the U.S. Supreme Court provided FTC action defendants with the ability to directly challenge the structural constitutionality of the Federal Trade Commission (and the Securities and Exchange Commission) in federal court without having to wind their way through pre-enforcement administrative proceedings that many believe deprive defendants of due process.
Axon Enterprise, Inc. v. FTC (consolidated with SEC v. Cochran, a similar case involving the Securities and Exchange Commission).
Like the Supreme Court’s recent blow to the FTC’s authority in AMG Cap. Mgmt., LLC v. Fed. Trade Comm’n, 141 S. Ct. 1341 (2021), the Axon decision was unanimous.
At issue in Axon was whether defendants in an agency’s administrative enforcement action are permitted to challenge its structure or processes in a federal district court or must first endure the agency’s administrative proceeding, which may be costly and time consuming.
By ruling in the affirmative, the Supreme Court has once again brought into question the scope and legitimacy of the agencies’ respective enforcement authority.
The FTC administrative adjudication process, in part, consists of the FTC’s commissioners voting to initiate complaints. Then, FTC staff investigates and prosecutes those complaints before the agency’s Administrative Law Judge. The commissioners themselves then assess (and virtually always affirm) the complaints that they voted to initiate. That is an enormous amount of discretion bestowed upon the prosecutor, judge and jury. Defendants are only permitted to appeal in federal court once all three steps are completed.
As a result of the firm’s demonstrated subject matter expertise and track record of success in the fields of FTC advertising compliance, investigations and defense, Richard B. Newman has been selected to assume authorship of the Consumer Protection Section of the American Lawyer Media International Federal Trade Commission: Law, Practice and Procedure Treatise, a comprehensive resource of developments of concern to advertisers, marketers and legal professionals that practice before the Commission.
Mr. Newman’s contributions shall feature detailed analyses of emerging legal regulatory issues pertaining to advertising and marketing compliance, civil investigative demands (CIDs), judicial litigation and administrative enforcement actions, rulemaking, civil penalties and consumer redress, legislative updates, evolving guidelines of unfairness and deception, data privacy in designated market sectors, telemarketing regulations and case law developments.
With publications including Law.com and The American Lawyer, ALM is the most trusted media, information and intelligence company supporting both the practice of and business of professionals in the legal, insurance, commercial real estate and financial services industries. ALM delivers leading data, intelligence, insights, events and audiences essential for growing businesses globally to over 7 million professionals.
The Federal Trade Commission recently announced a proposed a “click to cancel” provision requiring sellers to make it as simple for consumers to cancel their enrollment as it was to enroll.
According to the FTC, if consumers are unable to easily leave any program when they want to, the negative option feature becomes nothing more than a way to continue charging them for products they no longer want. To address this issue, the proposed rule would require businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if a consumer can sign-up online, cancellation much be able to be effectuated on the same website, in the same number of steps.
But that’s not all the FTC is proposing regarding subscriptions and recurring payments.
The FTC is also proposing:
- Expanded Scope: The proposed “Rule Concerning Recurring Subscriptions and Other Negative Option Plans” would cover all forms of negative option marketing, whether via internet, phone, through print materials, and in-person transactions. Any persons “selling, offering, promoting, charging for, or otherwise marketing a negative option feature” would be subject to the new Rule.
- Additional Consent Requirements: The proposed rule requires marketers to obtain independent consent for the negative option feature and precludes the inclusion of additional information that could interfere a consumer’s ability to provide consent. It sets forth requirements about how consent must be obtained. Marketers would be required to obtain consent for the whole transaction and maintain proof for three years.
As part of the independent, non-profit BBB National Programs, the National Advertising Division independently evaluates and regulates the truth and accuracy of national advertising. It also works to increase the public’s confidence in advertising. The NAD also offers dispute resolution process for advertisers.
Recently, the NAD reviewed Pier 1’s automatic renewal subscription rewards loyalty program that charges consumers a recurring monthly or annual fee for products discounts, and free shipping and returns on select items. In doing so, the NAD recommended that the company provide enhanced “clear and conspicuous” disclosures.
As described by the NAD, items added to a consumer’s cart on the company website automatically include the rewards subscription via a pre-checked box. Additionally, the terms of the renewal subscription program appeared under the pre-checked box. According to the NAD, consumers are required to take affirmative action to uncheck the box to opt-out of the automatically renewing subscription and cost related thereto.
According to the NAD, one issue was whether promoting a lower price for a product or service is deceptive if that price is only made available to those that agree to the automatically renewing subscription. The other issue was whether the material terms of the automatic renewal subscription program were “clearly and conspicuously” disclosed prior to a consumer’s decision to make a purchase.
The NAD ultimately concluded that, unless the terms of the automatically renewing subscription are appropriately disclosed, it is misleading to promote a discounted price if the discount is only available when a consumer consents to a subscription.
FTC advertising compliance and defense lawyer Richard B. Newman was recently quoted in an article for Law.com titled “FTC Bags First Settlement in Probe of ‘Review Hijacking’ in E-Commerce.”
The article discusses the FTC’s first case alleging “review hijacking,” in which a marketer steals or repurposes reviews of another product. The case involves a marketer of vitamins and other supplements that allegedly carried out this tactic by merging its new products on Amazon with different well-established products that had more ratings, reviews and badges.
Mr. Newman stated, “[n]ot only is the FTC currently seeking to promulgate us that come with big civil penalties for such conduct, it has recently blanketed the digital advertising industry with warning letters.”
According to the FTC, the marketer “took advantage of an Amazon feature that allows vendors to create or request the creation of ‘variation’” relationships between some products that are similar but differ only in narrow, specific ways – such as color, size, quantity, or flavor. Products with a variation relationship share the same product detail page on Amazon.com and appear as alternative choices, so shoppers can compare and choose among similar products.”
“The product detail page of products that are in a variation relationship displays the total number of ratings, the average star rating, and the reviews for all of the products in the variation relationship,” the FTC said in its complaint. “They also share any ‘#1 Best Seller’
The Federal Trade Commission recently announced that it has taken action to stop an alleged interconnected web of operations purportedly responsible for delivering tens of millions of unwanted Voice Over Internet Protocol and ringless voicemail bogus debt service robocalls to consumers nationwide.
The Department of Justice (DOJ) filed the complaint in federal court on the FTC’s behalf.
The DOJ also filed a proposed consent order against one of the companies and individuals involved in the operation, which would, if approved by the court, bar them from making further misrepresentations about debt relief services and ordering them to comply with the Telemarketing Sales Rule.
“This case targets the ecosystem of companies who perpetrate illegal telemarketing to cheat American consumers who are struggling financially,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC will continue to take aggressive action to protect consumers from the scourge of illegal robocalls.”
“The Department of Justice is committed to stopping individuals and companies from making illegal robocalls and peddling predatory debt relief services,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “We will continue to work with the FTC to enforce the FTC Act and the Telemarketing Sales Rule against those who use misleading sales tactics to prey on consumers.”
According to the complaint, Stratics Networks, Inc.’s outbound calling service enabled its clients to route and transmit millions of robocalls using VoIP technology.
Lead generators beware. The FTC has issued a Notice of Proposed Rulemaking that would turn the lead generation industry on its head.
Amongst numerous items currently on the FCC’s agenda, there is discussion on closing the “lead generator” loophole.
The FCC Chairwoman has proposed a new rule that would block unlawful robotexts. Read more, here.
The FCC first issued a Report and Order requiring mobile wireless providers to block text messages from numbers on a reasonable Do Not Originate list, which includes numbers that purport to be from invalid, unallocated or unused North American Numbering Plan numbers, and numbers for which the subscriber to the number has requested that texts purporting to originate from that number be blocked. The FCC already requires similar blocking of voice calls by gateway providers.
The Report and Order would also ensure that any erroneous text blocking can be reported to the provider doing the blocking by requiring mobile wireless providers to maintain a single point of contact for texters to report erroneously blocked texts. This single point of contact is already required for voice call blocking.
Even more significant for lead generators is that the FCC has issued a NPRM that would require carriers to “investigate and potentially block texts from a sender after they are on notice from the Commission that the sender is transmitting suspected illegal texts…”
Additionally, the FCC has proposed an extension of DNC protections to text messages.
California’s stringent Automatic Renewal Law is heavily focused upon free trial requirements, promotional periods and annual programs. Various obligations and restrictions are discussed, here.
In 2021, Jack Gershfeld initiated legal action against TeamViewer US, Inc. Mr. Gershfeld alleged that TeamViewer violated California’s Consumer Privacy Act and Unfair Competition Law when it automatically renewed his software subscription without his consent.
TeamViewer is a remote access and control computer software, allowing maintenance and management of computers and other devices. In short, Mr. Gershfeld alleged that he purchased a one-year subscription, that automatically renewed thereafter at a higher price.
The California district court reviewed TeamViewer’s website enrollment funnel and post-purchase acknowledgments. In doing so, the lower court held that TeamViewer did not violate California’s ARL because there was an adequate disclosure on the “checkout summary.” The lower court noted that the disclosure partially stated, in bold and directly above the “Continue to Payment” button, that the “subscription will automatically renew every 12 months, unless you terminate your contract at least 28 days before the end of the initial term or any renewal term.”
Additionally, TeamViewer was found to have secured appropriate consent because Mr. Gershfeld was required to check a box affirmatively acknowledging that his subscription was subject to a hyperlinked end user license agreement.
TeamViewer’s post-purchase acknowledgment was also deemed adequate. Here, it sent an invoice to Mr. Gershfeld reminding him, in bold, that “The license term of the subscription is automatically extended for another 12 months if not cancelled in written form 28 days prior to expiry.” TeamViewer forwarded another reminder two months prior to the renewal,
February 2023 has been a busy couple of months at the Federal Trade Commission. High-profile consumer protection actions and announcements span a broad spectrum of digital advertising and marketing. From “review hijacking, health product-related claim substantiation issues and lead generation, to the first Health Breach Notification Rule case and a reminder that willful blindness is not a defense for service providers that turn a blind-eye to third-party conduct. The FTC also announced a new office to keep pace with digital marketplace developments, and issues a Criminal Liaison Unit Report.
First Law Enforcement Action “Review Hijacking”
According to the Commission, a marketer of vitamins and other supplements, called The Bountiful Company, abused a feature of Amazon.com to mislead consumers into thinking that its newly introduced supplements had more product ratings and reviews, higher average ratings, and “#1 Best Seller” and “Amazon’s Choice” badges. The agency alleges that Bountiful carried out this tactic by merging its new products on Amazon with different well-established products that had more ratings, reviews, and badges.
“Boosting your products by hijacking another product’s ratings or reviews is a relatively new tactic, but is still plain old false advertising,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The Bountiful Company is paying back $600,000 for manipulating product pages and deceiving consumers.”
Bountiful, based in Bohemia, New York, manufactures vitamin, mineral, and other nutritional supplements. Its brands include Nature’s Bounty and Sundown. As alleged by the FTC, Bountiful sells its supplements to Amazon,
On January 30, 2023, the Criminal Liaison Unit of the Federal Trade Commission’s Bureau of Consumer Protection (BCP CLU) issued its 2022 Criminal Liaison Unit Report, describing the history of the BCP CLU, its program operations, and major accomplishments over the past five years. In an effort to ensure criminal prosecution of appropriate consumer fraud cases, the BCP CLU refers cases to partner agencies with criminal jurisdiction, including U.S. Attorney’s Offices across the county, Divisions of the Department of Justice (DOJ) and others.
“For the worst individual and corporate wrongdoers, civil remedies may not be sufficient to protect the public from further harm,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Government works best when agencies work together toward a common goal, and we are proud that our partnership with criminal enforcers leads to justice for bad actors and a safer marketplace for us all.”
The FTC, which is not authorized to bring criminal law enforcement actions, established the BCP CLU in 2002 to bring the “worst of the worst” offenders to the attention of prosecutors. As it grew, the BCP CLU worked to establish relationships with prosecutors and educate them about the Commission’s consumer fraud and deception cases. Success in initial cases proved that criminal consumer protection cases were not only viable, but could result in substantial prison sentences.
Over the past five years, the report notes, BCP CLU referrals have led to criminal charges against 107 new defendants,
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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.