Ad Law Insights - Legal and Regulatory Updates
Latest FTC and state attorneys general compliance, investigation and enforcement developments of concern to advertisers and marketers
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’
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.