Sunday, April 22, 2007

ABA Section on Antitrust Law, Developments in Deception

Lesley Fair, FTC Bureau of Consumer Protection, Dealing with Deception: An FTC Staff Perspective: A personal take. The majority of cases she’ll talk about were settlements, which did not involve admissions of liability.

Five primary priorities: health claims; marketing and kids; promotional promises; spyware, spam, and data security; and remedies and enforcement.

A recent ad challenged by the FTC: Mother’s Day ad for Q-Ray bracelet claiming pain relief. Consumer testimonials: it was a miracle, the pain went away. Result: a redress order of at minimum $15 million, with an $87 million maximum. The FTC takes redress in deceptive health claims seriously. Likewise, deceptive weight loss claims are a priority – settlements with Xenadrine, CortiSlim, and TrimSpa resulted in $20 million in redress. Another: One-a-Day WeightSmart, which claimed to speed up the metabolism. The FTC alleged lack of substantiation. Result: $3.2 million civil penalty. Of special concern was that One-a-Day had already settled a deceptive claims case not too long ago. When the FTC has an order in place, the enforcement division will look closely to make sure the company at issue has put controls in place for future advertising.

Another example: HeightMax, a “supplement” aimed at adolescents or their parents to increase height. A perfect storm of what’s likely to attract staff attention. Result: $1.9 million penalty.

Marketing to kids: There have been some good self-regulatory efforts in the area of kids, ads and obesity. The recent settlement over Grand Theft Auto: San Andreas raises an interesting issue of industry self-regulation, since GTA received an “M” rating even though it had a game-within-a-game called “Hot Coffee.” What consumers didn’t know was that there was substantial sexually explicit content. Players couldn’t view it in the normal course of the game, but average 13-year-olds could unlock it. The presence of this unrated content changed the rating, and the FTC alleged that it would have been material to consumers, including parents. This was a use of §5 to deal with a hot issue – ratings only work if people abide by them. (NB: Take Two, the makers of GTA, would plainly disagree with this account of the facts, and point out that the settlement didn’t involve any admission of liability.)

The FTC also recently settled with Xanga, where approximately 1.7 million accounts were opened in violation of COPPA. The company asked the screener questions and still allowed these accounts when people answered that they were under 13. Result: $1 million civil penalty, the largest COPPA penalty to date.

The FTC also has an education role – OnGuard Online is an educational site for kids and parents. Kids can play “Buddy Builder” to understand the benefits and risks of social networking, IM, and the like.

Promotional practices: Gift cards have been a big issue of late. The FTC proceeded against K-Mart over its gift card with lots of fine print. After 24 months of nonuse, a $2.10/month service fee would be deducted “from your account in arrears” until the card was used or depleted. That is, at 24 months, K-Mart applied the service fee retroactively for 24 months – an instant hit of over $50. The FTC alleged that was deceptive, and recently settled with K-Mart. Likewise, the FTC recently settled with the restaurant chain that includes the Olive Garden, Red Lobster, etc. There was a dormancy fee, not retroactive and disclosed on the back of the card, but it was in 5-point type. The Red Lobster card was clear plastic. The FTC alleged failure of “clear and conspicuous” disclosure. The respondents also allegedly provided consumers with table tents etc. that served as gift card order forms, so they didn’t have the opportunity to read that 5-point disclosure even if they’d wanted to. Moreover, there was a concern because people only used the gift cards after they’d already eaten dinner and incurred charges – there could be additional consumer embarrassment and injury.

Other problems: sometimes the disclosures are not on the card but on the plastic that surrounds the card, which many gift-givers remove as part of the giving process. That’s also a practice on which the FTC frowns.

Spam, Spyware, & Data Security: FTC now has a guide for businesses on protecting personal information. (1) Take stock: know what you have. (2) Scale down: do you need to keep years-old info on file? (3) Lock it. (4) Pitch it. (Securely.) (5) Plan ahead with attorneys and tech folks if you have a breach. The guide is designed to be read by nonlawyers. The FTC also has a kit to protect consumers from identity theft: Talking About Identity Theft: A How-To Guide.

Commercial email. YesMail: the company’s own spam filter filtered out many consumers’ “unsubscribe” messages. The FTC alleged a violation of CAN-SPAM and got a $50,000 civil penalty. Find out from your clients what methods they use to honor unsubscribe requests! Make sure there are timely responses!

Other pernicious cases – Cleverlink: spam offering to let recipients date lonely wives. The company didn’t include an explicit content label, and hijacked third parties’ computers to send their email. Though the FTC didn’t allege it, apparently the woman depicted was not in fact a lonely housewife, either. A $400,000 civil penalty under CAN-SPAM.

Spyware: MediaLoader case. “Download this adorable free screensaver of an animated teddy bear and his holiday dreams. Brought to you by Joystick Savers …” Once people (often kids) downloaded this, it changed their homepage, tracked their internet use, altered their browser settings, impaired their computer performance, disabled their spyware blockers, and pelted them with adult popup ads. There is a parallel criminal investigation along with the civil proceeding.

Remedies and enforcement: “Biggest FTC redress amount ever” has occurred in 8 different categories in the past year, from do-not-call to COPPA to deceptive invention promotion to order violations to ChoicePoint’s data security penalty. Million-dollar redress and civil penalties have risen substantially.

Also, in addition to suing advertisers, the FTC has sued affilates, payment processors, and others involved in a deceptive transaction – the FTC rarely sues single entities any more, but names lots of parties, including corporate officers. When it comes to doing business with someone else, trust but verify. Do not ignore red flags from partners.

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