Internet Law
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,
The Federal Trade Commission has taken action against Instant Brands, manufacturer of Pyrex-brand kitchen and home products, for allegedly falsely claiming that all its popular glass measuring cups were made in the United States during a time some measuring cups were imported from China. The FTC’s proposed order against Instant Brands would stop the company from making deceptive claims about products being “Made in USA” and require them to pay a monetary judgment.
“Consumers rely on marketers to make truthful ‘Made in USA’ claims,” said FTC lawyer Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “If marketers move their manufacturing outside the United States, even temporarily, they must update their advertising to make it accurate.”
According to the FTC’s complaint, Instant Brands faced increased demand for its glass measuring cups in the early days of the COVID-19 pandemic, when consumer interest in home baking spiked. Pyrex has purportedly long used the U.S. origin of its products as a selling point. By early 2021, the company was allegedly not able to meet the demand for certain measuring cup sets sold on Amazon with cups produced in the United States. From March 2021 to May 2022, Instant Brands produced some Pyrex cups in China, according to the FTC.
When the production shifted to China, the company allegedly continued to market the Chinese-made products on Amazon as “Made in USA,” despite the cups themselves being marked “Made in China.” While the Chinese cups were being sold the company also purportedly continued its marketing that implied all Pyrex cups were of U.S.
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;
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,
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,
The Federal Trade Commission has a long-standing practice of issuing policy statements and reports in an effort to put digital marketers on notice of CID investigation and enforcement priorities.
For example, in 2021, FTC attorneys warned marketers about the utilization of deceptive tactics in conjunction with automatically renewing subscription services. The agency policy statement, designed to place marketers on notice that sign-ups must be clear and fully consensual, material terms conspicuous presented, and cancellation mechanisms simple to effectuate, calls attention to a newly issued enforcement policy statement regarding negative option marketing that prohibits illegal “dark patterns” that trick consumers into subscription services.
“Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Firms that deploy dark patterns and other dirty tricks should take notice.”
The FTC approved the issuance of the enforcement policy statement with a 3-1 vote, with Commissioner Christine S. Wilson voting no and issuing a dissenting statement. Commissioner Noah Joshua Phillips also issued a separate concurring statement.
The FTC will continue to take aggressive investigative and civil penalty enforcement action against marketers that utilize deceptive automatic renewal subscriptions, continuity plans and free-trial conversion plans.
Without limitation, all material terms of the product or service, including how much it costs,
Topics
Archives
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.