ABA Consumer Protection conference, bureau directors and empirical evidence

The Bureau Directors’ Roundtable:

Moderator: Barry J. Cutler, Baker Hostetler, Washington, DC

J. Howard Beales III, George Washington University

How to decide whether to close cases? Well, where do you want to spend the resources? That varies with time. We wanted to focus on privacy, info security, dietary supplements, big infomercials. So you have to pull away from other cases that may or may not be violations.

Jodie Bernstein, Bryan Cave LLP, Washington, DC

Best recollection: closed a number of cases when she first arrived, such as cases dealing with laser surgery, where she thought the evidence was less than compelling and the FTC didn’t clearly have the expertise to take them on. Until we’d developed a strategic plan, we didn’t know what we needed to stress. The internet was coming in and we knew we needed to get on that. Systematic and organized plan was the most important goal.

Lydia B. Parnes, Wilson Sonsini Goodrich & Rosati, Washington, DC

Reiterated the importance of the strategic plan. Can use cases to talk to companies about new modes—issued closing letters that were a little more detailed than normal, to explain the agency’s thinking.

Beales: Strategic planning made a huge difference in closing practices. A lot of times in the 70s closing was about policy; the case had been about a particular policy that the FTC decided it didn’t want to pursue. Strategic planning got rid of those cases up front; closing meant now that the facts didn’t pan out in the expected way.

Cutler: remembers a case against a national financial institution; the law wasn’t clear, other institutions were doing the same thing, and they discontinued it. If we’d brought a complaint they would have been hit with a piggyback class action, and he thought it was unfair to single them out for a national practice. Perhaps the main factor he saw in the 70s was a change in the zeitgeist. Infomercials; 900 numbers; green advertising when he came in—these were imperatives by virtue of presence in the media, attention from Congress. What about the other folks?

Parnes: Absolutely there were outside pressures. Privacy took over/morphed the financial practices division. Data security became a very significant issue—some major breaches in the private sector, and the first major government breach to get a bunch of attention, the misplaced VA laptop. We were running on empty, especially in the financial arena—seeing cases we wanted to bring. So we split the financial practices division into one focused on privacy/ID theft and one on financial practices. It was tough because there were no additional resources, but 12-18 months later the divisions grew back to strength.

Bernstein: Establishing clear priorities, getting out in front of the internet: figure out what you want to do and stick with it.

Beales: It’s easy to get overwhelmed by the inbox; better to think about what you’d like to be in the inbox.

Cutler: Where he had the most discretion was what he calls the “dandelion theory”—boiler rooms were dandelions, and you needed to get to the root system to solve the problem—so he went after the money by going after the companies behind the boiler rooms, doing the credit card processing and putting together investment packages. We were the first to go after a creditor, not just a debt collector, under the Fair Debt Collection Practices Act. We had a debt collector sending out outrageous letters; heard from collectors saying the creditors were the problem—telling them “if you won’t engage in this behavior we’ll find someone else who will.” Going after the creditor sent a message not to do that. We did the same thing in coin/stamp investments and in other advertising. Going to the root of the problem: still useful for the FTC.

Cutler: There’s a relationship between civil and criminal cases; he’s always surprised by how few people take the Fifth in FTC investigations. The FTC has a paper culture, not a trial culture; investigations even today start with cartons of documents and very few investigational hearings, and he’d like to see that flip-flopped because hearings help you find out more, quicker. The shift to high tech right now seems like a shift from printout to disk. Asking questions allows the commission to figure out what the case is really about—there should be more subpoenas to testify. There’s a FTC bias against subpoenas, which require a commissioner’s signature; once that’s happened, the staff can’t close the investigation without going to the commission.

2/3rds of the subjects of consumer complaints made under Parnes didn’t exist when Cutler was the director. So, where is this going, and what’s the advice to David Vladeck?

Beales: We heard yesterday about rethinking privacy. He’s not sure behavioral advertising is really new—same sorts of tracking issues that disappeared when the dot-com bubble burst, back now. It’s more important today as we see more how the internet might actually sustain itself in the long run—where does behavioral advertising fit? You can’t have an ad-financed internet if consumers can opt out of the means of providing financial support. And allowing you to opt out of the most valuable advertising, leaving advertisers with useless ads, won’t work either. “On the internet, nobody knows you’re a dog”—but nobody wants to advertise to dogs; that’s a thin market.

Bernstein: Talk to a lot of people inside and out of the FTC before acting; consider workshops early on to bring the outside in more systematically.

Q: Clients have questions: they get a letter/inquiry, respond to it, and then after a long while they get a proposed complaint and consent agreement from the staff. Clients always want to know whether there’s any chance of turning around the decision to proceed. The division head has signed off, and so there’s really very little chance of changing that absent some serious factual misunderstanding. What to say to clients about the director?

Parnes: It’s surprising how nontransparent the process is to lawyers and to industry. When you get a proposed consent agreement, it’s coming from both the division and the bureau director, but meeting with the director isn’t meaningless, because until then the only dialogue the director has had was with the staff. There were times when she thought they had a terrific case and outside counsel created reservations/questions by meeting, and led to changes in the approach.

Q: Complaints about debt collector practices are common. Where are the FTC resources going?

Parnes: Debt collection has been a big issue. The agency did workshops on this and report with legislative recommendations; the industry has changed so much that the current law doesn’t directly address practices in the market. If you look at almost any area that the agency is involved in, you could argue that all 250 lawyers could be focused on that issue—we have a huge list of issues and we attempt to bring cases with strategic impact. That may mean only a few cases per area, and that may feel insufficient to practitioners in that area.

Bernstein: Given the economic circumstances, she suspects there will be some shifting of resources given the opportunity to change the strategic plan.

Cutler: The fact that private practitioners are willing to file class actions in debt collection cases, and that AGs can also enforce the law, also leads the FTC to put debt collection lower compared to types of consumer-harming behavior that are not attracting the attention of private lawyers.

Consumer Research in Policymaking: Applying Recent Findings Regarding Consumer Literacy and Behavior

Moderator: August T. Horvath, Kelley Drye & Warren, New York, NY

Understanding disclosures is of particular importance in the current economic situation—the president’s proposals on consumer financial protection specifically call for empirical evidence validating consumers’ understanding of disclosures.

Pauline M. Ippolito, Deputy Director, Bureau of Economics, Federal Trade

Commission

Research is used in individual cases, guides, rulemakings. In future: more use for assessing remedies, making broader policy.

Use of research in ad cases—substantiation, copy testing; discrimination cases, involving statistical analysis of large datasets with loan info—screening work with home mortgage data to identify potentially discriminatory practices. Rules and guides: test alternative designs for labeling rules and investigate claim meaning: revised Applicance Labeling in 2007; green guide revision; light bulb labeling. Old energy guide label used kwh as the measure, and consumers didn’t necessarily know that; the new guide uses estimated yearly operating cost. (This was a subject of debate: should the lifecycle cost or the yearly cost be displayed? Ended up sticking with yearly cost.)

Policy issues: studies of food advertising; copy test studies of claims to convey different levels of scientific support for health claims; fraud and ID theft surveys; mortgage disclosures.

They had been working on some awful mortgage cases where people had lost their homes. Why did people get in this situation—why couldn’t they protect themselves? Current federal disclosures aren’t up to the job. We were very pleased to see a call in the president’s proposal for integrated, consolidated federal disclosure designed to communicate with real consumers—we’ll help any way we can no matter who’s in charge (but we hope we are).

So we conducted in-depth interviews with recent mortgage customers, checking what they told the interviewers against what was actually in their loan documents, then quantitative testing with over 800 mortgage customers, conducted between Sept. 2004 and Feb. 2005. Used both prime and subprime buyers.

Many consumers didn’t understand the terms of their mortgages—the lack of understanding was shocking.

Quantitative testing: two hypothetical mortgage loans, asked the consumers which would be best. Two loan-cost scenarios, simple and complex. Half the respondents were given the then-current disclosure forms, and the other half were given a new form, designed from scratch without reference to RESPA or TILA. The prototype form focused on the bottom line numbers: total loan amount, settlement costs, optional credit insurance, total up front charges, cash due at closing, and a couple others. (She put up pictures of forms and said “don’t even try to read these,” and Horvath pointed out that that’s what lenders say!)

Current forms have meaningless terms: the loan discount fee. Well, is it a discount or is it a fee? The info is there if you know exactly what to look for, but it’s not accessible. The RESPA form has subsequently been dramatically revised; the Bureau helped HUD with the revision and HAD used lots of consumer testing.

There is a lot of info to know in a mortgage; every time they tried to put it all on one page, they got really complicated forms. Solution: tiered disclosure. Start with the bottom line: your loan/our charges. Then two more pages disclosing specific aspects of the transaction.

Findings: then-current forms didn’t work. Better disclosures are feasible—we can do better even with complicated material. Both prime and subprime consumers had trouble, both performed similarly (and badly); subprime did a bit worse, but not as differently as the researchers had assumed. Improved disclosures provided the greatest benefit for more complex loans; holding prime/subprime nature of the mortgage constant, prime/subprime consumers did about the same, but subprime consumers are more likely to face complicated loans. Consumers didn’t know/couldn’t find whether there was a balloon payment, prepayment penalty, etc. The revised form made dramatic improvements—often by more than half—in the number of people able to extract the relevant info from the form.

We are open to any good research evidence. We take it seriously; we’re always looking for quality help from outside parties.

Alan Levy, Senior Scientist in the Consumer Studies Team at the Center for Food

Safety and Applied Nutrition, Food & Drug Administration

Labeling effects: how disclosures are understood and used by consumers. His background is food labeling.

Many of our assumptions are wrong and lead to ineffective regulations. Chief mistake: that consumers read labels to learn more about a product in hand. Flattering to regulators and decision theorists, but happens much less than we think. Happens primarily when a consumer has a specific question that could be answered by looking at easily available info—prices, specific nutrients. That presupposes already knowing quite a bit about your shopping constraints. The cognitive work has mostly already taken place; picking up the product means at most calculating the answer. Consumers mostly want to simplify shopping. There’s a lot of info, little time/energy to analyze it.

Primary function of claims on product labeling, as well as most informative advertising, is to ease consumers’ cognitive burden. But people’s sense of what constitutes a good decision is quite different from a search for truth or cost/benefit maximization. A good decision in shoping is one that is minimally adequate and that won’t be deeply embarrassing if you have to justify it to someone else. A product decision isn’t lifechanging; you might like the product and you can always get something different next time.

Product labels are convenient shortcuts to avoid arduous cognitive work. Claims aren’t factored into cost/benefit analysis, but are signals of valuable attributes—they’re convenient for making a satisficing decision. Consumers don’t buy low-fat because the label convinces them to buy low-fat, but because they already desire low-fat foods and the label convinces them that the product minimally satisfies that constraint.

First, ads and labels are usually seen by consumers to be about specific products, not about product categories. Broadly informational ads can be on billboards, but generally consumers don’t easily assume that product ads/labels are intrinsically educational. When consumers see claims about a product that apply equally as well to products of that type, they usually don’t assume that the claims generalize—consumers are not students seeking general principles. They don’t think of food labels as good places to learn about nutrition.

Consumers are looking for new/relevant info: best way to endear yourself to consumers is to provide that. Background/context matters a lot. For less familiar health claims, nutrient content claims are not helpful substitutes. Consumers don’t assume that claims are true, but do use them to satisfice, so they require claims to be reliable enough to use even though they are exquisitely aware of the advertiser’s intent to induce purchase. Striking finding: people say they are very skeptical of claims, and yet the claims are highly effective at influencing behavior.

Claims have to pass a tacit legitimacy test: plausibility/consistency with what consumers already know. Not a careful assessment of truth/good intent—the point is to save time/effort. But consumers are sensitive to discrepancies with what they already know/believe—don’t want to be fooled. This explains why a positive brand identity is important: it enables claims to pass the legitimacy test without too much thinking about the details.

Thus, disclaimers intended to remind consumers of limits/weaknesses of claim sometimes make the claim more effective, or are useless. “B”-rated health claims were actually more effective than the same claim without any qualifications—the consumers are reassured that the claim must be legit because it’s based on at least some research.

Consumers v. nutritionist/dieticians: consumers were more skeptical about health claims. But: disclaimers worked on nutritionists and dieticians and made consumers less skeptical.

Growing evidence that health claims truncate product search. When consumers have an opportunity to inspect nutrition facts, they’re more likely to do so if they haven’t already seen a health claim on the front of the package: reduces the perceived need to inspect the more detailed information.

Consumers willingly take these risks in satisficing. Emphasize here: these risks can’t be easily fixed by fixing something about the claim—changing words, adding disclaimers, standardizing terminologies are tactics to perfect communication in the claim. But the problem is that claims communicate too well; each product has a bunch of other features besides the claim at issue, and the decision frames and heuristic strategies consumers use to pick products overvalue the specific claims made.

Michael B. Mazis, American University

The medium matters: the effect of a disclosure depends on what medium you use to convey it. If people are looking where they can search at their own pace, disclosures are more effective; broadcast is likely to be less effective. Financial forms/food labels: greater chance of effectiveness.

Consumer motivations matter: People don’t acquire info for its own sake.

Marketing claims trump disclosures. If the disclaimer doesn’t have as much power as the claim, the claim will totally overwhelm it—that’s why it’s hard for disclaimers to work.

Video disclosures (supers) are completely ineffective. Audio and video is needed; success depends on prominence and lack of distraction—Listerine case, where there was an audio/video corrective statement, but also showed someone pouring Listerine into a glass, and the distraction meant that only 15% of consumers remembered the correction even though it was clear and conspicuous.

Disclosures in magazine/newspaper ads are likely to be less effective because they’re not usually searching for specific information, just general impressions.

Website disclosures have greater potential to be effective because people are more likely to be in search mode.

Proximity: disclaimer must be near claim; no scrolling required. Prominence: size, contrast. Avoid legalese—disclosures written by attorneys mean consumers think it’s said with a wink and a nod—“the lawyers made us put this in, but the claim is really true.”

Study for the FTC on testimonial guides. Do testimonial print ads communicate that the depicted results are typical? Do disclaimers moderate any such messages?

1600 respondents for 3 fictitious products: weight loss, dietary supplement, business opportunity. Tested 3 disclosures: (1) Standard “results not typical.” (2) “These testimonials are based on the experiences of a few people. You are not likely to have similar results.” (3) The average user loses 10 pounds (etc.). Also tested a condition in which no numbers were given at all.

Asked what was communicated, e.g., about the number of pounds users could expect to use. No statistically significant difference between no disclosure, (1), and (2). Only (3) helped.

People believe the testimonial claims are about typical product performance, even if they also reported skepticism.

ABA Consumer Protection Conference, part 2: privacy

The Evolution of Privacy in a Facebook Age

Changing Consumer Expectations of Privacy: Can the Law Keep Up?

Moderator:

Lynda K. Marshall, Hogan & Hartson LLP, Washington, DC

How do we balance encouraging investment in tech with consumer protection/choice?

Eileen Harrington, Bureau of Consumer Protection, FTC

Setting the stage: In practice, consumers encounter a broad spectrum of data protection practices, and the use of various services/tools may reveal more than the consumer knows or desires. Email: consumers lose control over what happens to info once it’s sent. Similarly, posting pictures and information on Facebook leads to a surrender of control to other users, and to the site (given the ToS). These concepts are common-sense, but the ease with which we pick up and use services like Twitter or FB can combine to desensitize us to privacy ramifications.

Where data collection/use isn’t transparent, the potential for harm can increase. Audiences and services can collect published content and make inferences from it. Problems also occur when people leave the services—FB pictures can still be tagged with your name.

What happens when collected data are used to recommend other products/services. It’s intuitively transparent when it’s part of an ongoing relationship with a website: Amazon. Consumer can exercise choice options or take business elsewhere. (Assuming that data isn’t shared with third parties who aren’t necessary to make the service work.)

Gmail: Google targets ads based on content of email, similar to search results. Less transparent and voluntary than first-party behavior advertising. Google’s disclosure is in the middle of its multipage privacy policy, and consumers generally ignore such policies. Consumers may expect more privacy for surfing than email.

Third-party collection practices: based on activities on unrelated websites. Increases the possibility of data loss and unanticipated uses.

Researchware: survey info provided for marketplace purposes; consumer allows software onto computer, which monitors substantially all online activities, including searches and content viewed, as well as potentially sensitive information. Data generally anonymized and aggregated and can be destroyed within a few days. The degree of transparency and consumer control depends on the amount of disclosure at installation. The FTC has seen improper disclosures, so consumers are unlikely to understand the full scope of collection and use.

Deep packet inspection: consumers’ online activities collected from ISP. This allows much broader info collection, because it allows ISP to monitor all activity, not just activity in a particular network. Less transparent and voluntary, because no interface for ISP to explain the practice, and consumers are unlikely to look for this in ISP TOS. And there’s no way to disable it. The ISP has subscriber info, so could identify the consumer.

Marshall: what are the differences between online and offline collection? Safeway gives me a Safeway card and knows a lot about me; I get a discount in return. Is that different?

Leslie A. Harris, President & CEO, Center for Democracy & Technology

That’s transparent: you agreed to swap Safeway info for discounts. Offline, signing up is more obvious. The offline world is far from perfect—we should have a baseline consumer privacy law that covers all data not specially treated by topic-specific legislation. But online, for sheer capacity of data storage, makes the problem more salient.

Julie S. Brill, Senior Deputy Attorney General and Consumer Protection Chief, Office of the North Carolina Attorney General’s Office

It’s also aggregation that matters. She was talking to retailers who want to issue automated calls to consumers for recalls based on records of their purchases using grocery cards. Do consumers really understand that this is a possibility when they sign up for a grocery card? If they don’t understand how one entity uses the info, they understand much less about sharing.

Harrington: that gets to consumer expectation—why would they scan my card if they aren’t collecting information? And it would be good to get a phone call if my peanut butter is tainted!

Brill: Clearly there are benefits, but what else could it be used for?

Wendy Seltzer, Berkman Center for Internet & Society, Harvard University

Our sense of privacy in public is what’s at issue here. What distinguishes online information gathering from offline is how much information we’re voluntarily sharing and publishing, and the lack of transparency of how that will be gathered, how long it will persist, and how it might be used. What’s new is that everything can be saved: the ISP collects our info, the sites we visit do that, third-party networks do that, and storage and computational power have increased the power of anybody (e.g., Google crawling public information) to create profiles of individuals or “characters” using their sites. So we have tremendous new means of self-expression and community formation, but those interactions can be surveilled and recorded, potentially for use against us.

Self-regulation by giving consumers notice of privacy practices is the first move. But do we have a functioning market for privacy? Are consumers getting/processing adequate information? Do we have competition for privacy provision? Reasons to think the market isn’t working: (1) Information costs of reading/understanding privacy policies. How much time it would take an average consumer to read a privacy policy on each site visited in average internet use? Study suggests: 81-293 hours, just skimming, per user. (2) These are persistent problems—consumers undervalue future costs, engage in hyperbolic discounting; agree to ToS for short-term benefit and don’t think about, say, the long-term costs of making party photos available for anyone to see. (3) Tech is accelerating so fast that even if we considered all the potential problems today we don’t think about how aggregation might improve in the future, how anonymous datasets that might be deanonymized in the future—research suggests that “cleaned” datasets can be used to identify individuals, as with the release of AOL’s search queries.

As a matter of policy, we should give reality to some of the illusions of privacy we have now. Regulate use, not just disclosure, to allow people to take advantage of new contexts for communication.

Marshall: Consumer often makes tradeoffs in the beginning: Facebook is really neat; they won’t read ToS or privacy policy, they just want to get on the service to join their friends. Given how quickly they decide, and how diverse the participants on services like Facebook are and thus how diverse their privacy preferences are likely to be—can we really measure consumer expectations of privacy?

Seltzer: Leery of imposing tech mandates, but we can do a better job of signalling how far the info will go, how long it will stick around. Maybe disclosures should be repeated periodically. Maybe we should allow people to see how other people see their profiles—do you want to be presenting this face to the various people who can see it?

Harris: Isn’t persuaded that there’s a generation that doesn’t care about its privacy; there may be a generation that has not yet encountered situations in which the need for privacy is apparent. But look at Facebook’s Beacon kerfuffle: when people are faced with concrete questions of information use, they have a different reaction than to the inchoate “do you value privacy?” We see that also with health information moving online. People are much more able to grasp the risk there. Every significant event leads to a public outcry, so don’t assume that there’s a baseline of disregard for privacy.

Marshall: is there a difference in the way you communicate choices based on generational gaps, educational gaps, or other differences?

Harris: We have to move this out of privacy policy. Whatever the notion was when the FTC insisted on privacy policies, the data practices have become so complex and the amount of time people spend on the internet has increased so much; the FTC’s mandate that one comply with one’s own privacy policy is simply not enough. The FTC’s principles on behavioral advertising indicate that the issue is going to have to come out of privacy and become disclosure that is clear, concise, prominent and consumer friendly.

Harrington: Vladeck referenced the fact that the FTC thinks it’s time to revisit the framework. It’s been over a decade of looking at privacy. We for a time thought that the best framework was fair information practices; we shifted to a harm-focused framework. There are circumstances where notice and choice work, and lots of others where it doesn’t work at all—notice is too burdensome, or poorly timed, or doesn’t prevent harms. Sometimes the harm is so clear that the practice needs to be regulated. But in the broad middle, neither framework seems to really get to the result that works well for consumers.

Brill: AGs have been talking about this for years. GLB financial privacy notices: can consumers really understand these notices, especially when they have to opt out to avoid info sharing? The pendulum seems to be swinging back because consumers are now bombarded with these complex notices.

Harris: wouldn’t want to abandon notice and choice, but we need to rethink what that means. We’re in this tech-enabled world and have to think about how tech can be built-in to enable consumers, including whether there ought to be particular defaults. New working group report in Europe: social networks may have to set defaults to highest privacy. We’ve crossed a line: self-regulation is not going to work on its own, though it does help sort out the truly bad actors.

Brill: danah boyd analogizes social networking sites to the mall. But you don’t have the ability to personally inspect the person you’re interacting with to make sure, for example, that they’re closer to 14 than to 41. The size of the networks also makes it harder to have real interactions to assess safety. AGs have tried to place speed bumps on the fast-moving and anonymous info superhighway that social networks represent.

First, how to keep kids safe from accessing adult-only info, and second, how to keep adults from lying about their ages to engage in inappropriate interactions with kids. MySpace agreement with NY AG: focused on better dispute resolution system when kids complained about adults. Other AGs also agreed on principles with MySpace—Texas didn’t sign because the agreements aspire to achieve age verification technologies, but Texas felt the document should have required age verification. Later, similar joint statement signed with Facebook. W/r/t minors, these are the two major social networking sites, and they’re similar, though not identical because of differences in business model and also timing (a whole 5 months).

Low-hanging fruit—easy changes—and the brass ring (age verification tech). Everybody (but Seltzer) thinks it would be nice to get age verification, but we aren’t there yet. Easy changes: age locking—if someone signs up as a minor, they can’t change a birthdate without contacting customer service, and they can only do that once. Smart kids may create two profiles, one with an older birthdate, and that’s true, but at least it catches the ones who tell the truth. Tobacco and alcohol ads won’t appear to minors. Adult entertainment groups will be blocked for minors, as will (known) pornographic images. How do you tell what’s pornographic? There’s a database that cops keep, and they have hash numbers, and the sites review pictures against those databases. Mature profile categories on FB have been eliminated for minors. Improved response time to complaints about inappropriate contact/content for minors. (Hmm. I wonder what danah boyd would have to say.)

Big focus: removal of registered sex offenders from these sites. It seems to the AGs that these social networking sites aren’t in the business of allowing sexual predators to lure kids, so they’ve been cooperating in developing different business models to remove registered sex offenders from the site (if they’re using their actual identities). 90,000 removed from MySpace, using a technology that uses a scoring system to compare to state databases. It’s difficult but it is continuing. FB is going through profiles manually, and claim to have found 6000.

Age verification tech: Reminds her of the initial debate over security freezes as an aspect of fair credit reporting. The major agencies said it couldn’t be done, and now they all do it even in states that don’t have laws requiring them to do so. We can debate whether age verification is good, but feasibility ought not be the end of the discussion. Reports: online predation is a problem, but not actually as big a problem for kids as physical-world harassment. AGs felt the data was too old; social networking sites have exploded so much, and law enforcement reports are that matters are more serious than that. Finding the denominator on this issue is going to be very difficult.

If there isn’t voluntary action, the states are going to act themselves. North Carolina prohibits registered sex offenders from accessing social networking sites, and sanctions sites for failing to take reasonable measures to remove sex offenders.

Harris: The internet isn’t a credit reporting agency. It’s a First Amendment forum. Start with that difference in environment. It’s also a global medium, and what we do here has implications around the world—look at Iran. Age verification works well in an adult-only environment involving a financial transaction: buying alcohol with a credit card. Works badly when you are trying to ID a kid (kids don’t have some kinds of ID), trying to ID across countries. When you move to an identified internet, you move to a real-names internet (you can’t just classify adult/nonadult and have that information be useless to figure out other identifying information; the credit card number, for example, identifies a specific person), compromising the basic right of anonymity online. If the US goes to real names, Iran and China do so tomorrow.

You can look at these problems narrowly and the solution seems right, but its effects on the system are more complicated. You’ll just push people into sites in other countries—Friendster was big but disappeared; some new site can come up.

Seltzer: Echoes all that. YouTube pulled out of South Korea after SK tried to put a real-name mandate on all content. We can’t say even that it’s just these social networking sites, because while she supports keeping sex offenders from interacting with children, keeping them off LinkedIn might actually be a pretty bad idea, preventing them from reintegrating.

Harris: instead, work with sites on more robust privacy protections and controls, and especially reminders—periodic prompts/visualizations of their available data. Parental controls have a role to play as well.

Harrington: This shows the importance of context. The kinds of tech Brill is calling for could be incredibly valuable in preventing identity theft, but we’d want them applied in a defined context where the likely harm is of identity theft rather than bleeding over into fundamental rights. We have not yet found a framework that works for all circumstances.

Questions:

Eric Goldman: Disclosure as a theme—what needs to be disclosed? Harrington suggested that it was silly to disclose that a site was going to use your info to bill you when you buy a plane ticket. But plaintiffs’ lawyers can be pretty tendentious and argue that disclosure was insufficient. Compare the FTC’s recent action against Sears: didn’t properly disclose how much information its program collected. But not everything can be in bold print and up front; only one thing can be up front. How do we decide how to prioritize information?

Harrington: FTC determined that the information being pulled off the consumer’s computer was so far beyond what the consumer could expect that it wasn’t a close call. The whole pitch was that Sears would monitor browsing and provide coupons for the stuff you’re looking at. In fact, in some instances, they were tracking banking activity. Plaintiffs’ lawyers are aggressive, but that can’t stop us. We’re thinking hard about layered notice.

Seltzer: Tools like EFF’s ToSWatch service, keeping an eye on privacy policies, forms the germ of harnessing the internet to parse privacy policies for the masses.

Carol Miu, economist: Start with the perspective of a naïve consumer who wants to be able to protect herself, but doesn’t really know how. The naïve consumer wants to employ a heuristic, not spend hours reading incomprehensible policies. What can the government do to help me out? Color-coded privacy warnings, like terror alerts? Green means the info is just used for billing and not shared with others; etc. On FB, a popup could warn you about when you’re changing your privacy settings to “red.”

Harrington: We’ve talked about that with behavioral ad guidelines—symbols or icons.

Q: Situations where there’s no consent at all: Google Earth allows people to download photographs of people’s houses. Businesses aggregate publicly available information and track your residence, credit history, etc.

Harris: Good question, but it’s unlikely we’ll ban aggregation of information from publicly available sources. Google Earth will pull your picture out based on particular circumstances, but it’s complicated. Do you have an expectation of privacy that your house is not visible to other people? Tech has amplified the number of people who can see your backyard, but this is about magnitude rather than expectation.

ABA Consumer Protection Conference, part 1

Welcome Address

James A. Wilson, Chair, ABA Section of Antitrust Law, Vorys Sater Seymour & Pease LLP, Columbus, OH

One section goal: outreach to the consumer protection section of the bar. This conference is quite timely; rarely do we get the President to plug our issues.

Opening Remarks

Rebecca Tushnet, Georgetown Law

Before introducing my respected Georgetown colleague—and now Director of the Bureau of Consumer Protection--David Vladeck, I wanted to say a few words about my aspirations for this conference.

My remarks come from my background, which has focused on the Lanham Act and competitor actions; looking at the excellent lineup of this conference, I have really been struck by the substantial differences in regulatory regimes. Courts applying the Lanham Act follow very different principles than the FTC or state attorneys general or the NAD, and consumer class actions add even more variation to the mix.

Specifically, consumer protection law at its foundation is about consumer reactions, and yet the law has a variety of approaches to actual consumer reactions, from ignoring them to presuming them to requiring specific evidence of them. Evidence of consumer perception is expensive and every survey has flaws that can easily be seized on by parties on the other side, but the alternatives have often been equally unsatisfactory—lawmaking by anecdote or by decisionmakers generalizing their own reactions to ad claims. Perhaps unsurprisingly, people tend to think that the reasonable consumer looks just like them.

The promise of today’s consumer protection law is to take a mature and balanced approach to the use of empirical evidence and rules of thumb. We know that most consumers are well aware that advertising exaggerates; but we also know that even smart consumers are not necessarily very good at evaluating specific claims, or understanding just how powerful persuasive advertising can be even when audiences say they aren’t persuaded. Consumers are subject to systematic, predictable cognitive limitations, and advertisers have learned to systematize and predict many of them.

Given the complexity of modern product claims, and the information overload to which we’re all exposed, sometimes disclosure is simply insufficient to protect consumers in the exercise of freedom of choice. The conference will explore specific instances of this problem in our panels on privacy—where it is quite obvious that consumers simply don’t understand and won’t understand the various uses of their information, no matter how much fine print you throw at them—and consumer financial protection—where we can see the roots of the current financial crisis in the inability of consumers even to understand how much their mortgages were going to cost them over time. Our panel on green marketing covers another aspect of the information problem: consumers can’t figure out or independently assess the science behind all the definitions of environmentally friendly terms in use now; they must rely on some consistent definition, whether established by government or by industry consensus, or they will just have to guess at the meaning, which is unlikely to lead to decisions that truly reflect their preferences.

More generally, many of our panels will discuss the intersection between legal theory or doctrine and the growing body of research that enables marketers and psychologists to understand consumer reactions. The FDA and the FTC are increasingly using consumer perception evidence to formulate general rules and even decide specific cases, fitting such evidence into the overall regulatory framework. By contrast, Lanham Act jurisprudence is much more rigid, using doctrinal categories of falsity and misleadingness to reject or require consumer evidence—and the stress of that rigidity, compared to the more flexible reality judges sense is out there, has led to doctrinal innovations like the concept of “falsity by necessary implication,” as well as increased reliance on judgments about puffery and materiality.

I hope we’ll explore these interactions between regulatory regimes and between doctrine and empirical evidence as we go through the conference.

And now I will get out of the way for David. I won’t take up your time listing even a fraction of his many accomplishments, but I will offer a personal note: David is one of the most consistently intellectually curious and engaged of my colleagues, always willing to listen and to learn. I consider his appointment a great benefit for the FTC in this time of great public concern over consumer protection issues.

David Vladeck, Director, Bureau of Consumer Protection, Federal Trade Commission

ABA Antitrust Section’s renewed focus on consumer protection is timely and welcome. His speech: “The FTC, Day 4,” since that’s how long he’s been there.

Vladeck began practicing law in this building (Georgetown Law) 33 years ago. 27 years at Public Citizen, working on commercial speech cases and some consumer protection work. Returned to Georgetown in 2002 to teach and run a litigation clinic, teaching civil procedure and administrative law. His experience with the FTC came from suing it a couple of times, successfully, with Public Citizen.

Commission was looking for an experienced litigator who could bring fresh eyes and a willingness to do test litigation. Last year, 850,000 Americans lost homes to foreclosure, this year 1 million. Mortgage rescue fraud is a huge problem. 40 million Americans below the poverty line; shouldn’t be preyed upon by credit repair firms. Millions of Americans out of work shouldn’t be preyed upon by misleading job opportunities.

The FTC has experience, knowledge, and compassion in the career staff. “Open door” policy in which lawyers can come in and talk about their cases—an institutional commitment to fairness. The sheer volume of work he’s seen is astounding—the cases are substantial and relevant. This is just the past seven weeks: proposed rule requiring health care providers to notify consumers when records have been breached; two major do-not-call cases involving over $3 million to settle with DirecTV and others; settled case with Kellogg’s where they claimed that Frosted Flakes improved the attentiveness of children by 20%; workshop on changes to the business opportunity rule; report on mobile commerce marketplace; $18 million judgment against Ponzi schemes; mortgage rescue foreclosure/data security and P2P filesharing congressional testimony; case under Equal Credit Opportunity Act involving disparate impact theory in mortgages offered to Hispanic borrowers; robo-call case against that terrible auto warranty company; and on and on.

Wants to maintain and step up the aggressive law enforcement, innovative consumer education, and rulemaking efforts. We’ll need a lot of cases on economic fraud. Too many people depend on us against mortgage rescue scams and debt consolidators; will remain a focus at least until the economy recovers.

Step back and take another look at our privacy framework—past approaches have not worked in the dynamic and changing marketplace. (1) notice and consent theory; (2) harm theory have been used to organize our thinking. Neither frame really works particularly well. Notice/consent: hard to know in advance what one is consenting to. Notices are unintelligible, and the secondary uses are unclear. Harm: doesn’t take into account interests we feel but can’t quantify. How will we rationalize and make more coherent our privacy work going forward? Will be soliciting views.

Hard look at advertising. Internet behavioral advertising, but also ads directed to vulnerable subpopulations: children, alcohol ads to teens.

There’s a lot of legislative activity coming: FTC reauthorization, president’s proposal. The FTC ought to be on equal footing with other consumer protection agencies. We ought to have the same tools: APA rulemaking that doesn’t tie us into knots for years; civil penalty authority; independent civil litigation authority that other agencies have and that we don’t.

John E. Villafranco, Kelley Drye & Warren, Washington, DC

ABA has put out a treatise on consumer protection law developments, the only book of its kind. You should buy it! (I also just found out that the ABA Antitrust Section has a bunch of oral history interviews, available at the ABA site. What a fascinating resource; I look forward to watching them.)

The FTC Chairs’ Perspective

Moderator: John E. Villafranco

40 years ago, the FTC was being heavily criticized by the legislature and the judiciary: Posner proposed grounding the commission, freezing its activities. “It’s scandalous to allow so dubious an enterprise to continue to wax in power.” Nixon appointed a commission to scrutinize the FTC; Pitofsky served on the commission, which was highly critical in its conclusions. Hard to believe from our perspective—how close was the FTC to being shut down?

Speakers:

Robert Pitofsky, Georgetown University Law Center, Washington, DC

The FTC earned the disapproval of Posner and others. It was called the little old lady of Pennsylvania Ave. It was preoccupied with trivia: textile labeling and not mergers. The staff was nothing like today’s staff. Famous quote by executive: he liked to hire people who’d been out of school for a while and hadn’t made much of a mark because those people stayed loyal to the agency.

Ralph Nader tore into the agency, then the ABA commission did the same. The FTC statute gave the agency enormous authority if it wanted to use it, but the agency was much more interested in bringing a number of tiny little cases each year. Widely regarded then as weakest regulatory agency in Washington; today it might be the strongest.

Timothy J. Muris, O’Melveny & Myers LLP, Washington, DC

Moving ahead 10 years: there was a brief shutdown in 1980. In the 1970s, Pitofsky had set up a largely sensible approach for consumer protection, but that was swamped partly by pushing from Congress and partly by a catastrophe, the 1972 S&H decision, when the FTC embarked on a mission to become a powerful legislature, resulting in lots of resistance and ultimately threats from Congress. Will history repeat itself? That’s a danger.

Villafranco: Hearing in 1969 revealed deep cracks in commission solidarity. One commissioner said reauthorization would simply buy more unimportant cases, more incompetent personnel, etc. Another cited a deteriorating relationship between commissioners and staff. What went wrong?

Pitofsky: Some of it was personal, other parts ideological. No comparison to today, especially with respect to a shared sense of mission.

Villafranco: 1989, special ABA committee with a number of recommendations. Considered the FTC a less dangerous forum for testing legal theories than the federal courts because of its Part III authority—ALJs are talented, but only a handful of consumer protection cases under Part III in recent years. Should that even exist any more?

Muris: That quote was directed to “the other bureau,” but a variety of reasons have led the FTC to move to federal court, probably the single most important thing that’s happened at the FTC. National advertising has not led to many Part III cases—why not? National ads: between the Lanham Act and the self-regulatory system, the FTC doesn’t have the role that it once did. Self-regulation has been a success. There’s a big part III problem in the merger area but that’s a topic for another panel.

Pitofsky: he wouldn’t do away with Part III, though it can be cumbersome and expensive. Effort underway to make it streamlined and ensure ALJ quality. Certain kinds of cases, usually antitrust, best handled in Part III, but reform is probably the best solution.

Villafranco: in 1989, the ABA noted the lack of advisory opinions. Should we see more?

Pitofsky: Do lawyers ask for advisory opinions from the FTC? Do they want to call attention to problems that way? They have to be triggered by requests.

Muris: The advice-giving function is extremely important; one of the hallmarks of modern FTC is in giving advice. Things like the substantiation statement.

Pitofsky: Congress created the agency with the idea that it would give advice to businesses. While he can’t recall individual companies coming in looking for advice, hearings and rulemaking were designed for general problems. Increasingly the FTC has recalled its 1914 roots and doing more of that kind of work.

Villafranco: Turning to consumer perception, Kennedy in Edenfield v. Fane said: the general rule is that the speaker and the audience, not the government, assess the value of information. How does that work at the FTC?

Pitofsky: Substantiation is still important. Should the FTC pay more attention to claims made to vulnerable audiences? The FTC has a special obligation to the sick, kids, the poor. Currently, this relates to predatory lending. If the claims made are outlandish, the FTC needs to act.

Muris: There’s plenty of blame to go around for what happened to the economy. Clearly, the regulated industries and the unregulated ones performed poorly, as did government regulators/agencies, Fannie Mae/Freddie Mac; fundamental misperception of risk. He fears an overreaction. A lot of the expansion of wealth in the US and globally was due to the market, not the government; the FTC should be market-reinforcing. He wants to counsel against overreaction.

Villafranco: Ok, so how do we protect the reasonable consumer acting reasonably now that the US is more linguistically, economically, culturally diverse, even if we exclude vulnerable populations?

Pitofsky: Hard question. The business of the FTC deciding what the reasonable person is entitled to is a bit arbitrary. What a reasonable person thinks generally is not well known; it’s probably varied from decade to decade. There was a time when the FTC was very tough about claims that seemed to take advantage.

Muris: The FTC doesn’t try to define reasonability in all cases. He fought the reasonableness wars of the early 1980s, with the deception statement. Is regulating advertising practical? The FTC went overboard in protecting fools, and in areas like deceptive pricing, turning advertising cases anticompetitive. There was even sentiment against comparative advertising as inherently deceptive; and a big move was to encourage the TV networks to allow such ads. Surveys have to be context-specific. Five commissioners don’t inherently know things about the meaning of an ad.

Villafranco: here’s an example: proposed revisions to the endorsement guides. Are the guides paternalistic? Are we taking endorsement/testimonial disclosures too far? How does that fit in with the reasonable person standard?

Muris: Pitofsky wrote the original testimonial guides. There’s an inherent problem: certain products don’t work and testimonials can’t make them work. That’s separate from how consumers interpret testimonials for products that do work. Muris thinks consumers discount more than other people believe. We do have a move towards paternalism now, but he thinks “soft paternalism” of the Cass Sunstein variety is a pretty good idea. Elizabeth Warren’s “hard paternalism” suggests certain products are too dangerous for consumers to deal with; he likes that a lot less.

Pitofsky: He hasn’t looked at the revised guidelines, but he doesn’t duck from the charge of paternalism. The FTC ought to be paternalistic. People should not be left to the mercies of the free market for credit fraud or loans. Without displacing the market, the government should keep an eye on it. Where the audience is more susceptible than average, the FTC ought to step in.

Villafranco: What’s your proudest accomplishment as chair?

Pitofsky: Change in quality of staff.

Villafranco: 13b authority—expansive, and FTC seems to have a complete winning record bringing ex parte cases; have you worried about cases brought under this statutory head?

Muris: it was an experiment; worrisome at the beginning when we went to get ex parte asset freezes and other things that have become standard. But we picked cases carefully and went incrementally. He doesn’t fear overreaching in this area because these guys tend to be really bad actors. It’s a different story on the antitrust side.

He comes out of the law and economics movement. From his perspective, basic job of FTC is: enforce rules of the game in situations where small claims court and class actions don’t work.

Villafranco: any misconceptions outside lawyers have?

Pitofsky: That the staff is out of control.

Muris: that antitrust lawyers can do consumer protection.

Villafranco: what about FTC staff?

Muris: FTC staff deal with a lot of bad actors, people who’ve screwed up, and there’s a tendency to generalize and assume everyone is a bad actor. This is especially a problem for rulemaking: if you make business opportunity rules they cover fraud—the target—but also apply to Mary Kay. There is a tendency for everyone to generalize from what they see, and if you see mostly bad actors, your rulemaking can be distorted.

Pitofsky: Some of the rules/guides are a bit on the vague side. There are people who get into trouble not from intent but from honest mistakes. This interacts with the problem Muris mentioned.

Villafranco: you’ve sat through countless presentations by respondents trying to head off sanctions. Anything memorable?

Pitofsky: one thing that always impresses him is when people come in and don’t hide weaknesses in their position, but provide their best answers for what the staff is eventually going to ask about anyway.

Muris: as a decisionmaker, when a party insists on fighting an obviously specious point, it casts doubt on other points. A businessperson who knows his/her stuff can be very effective, as long as s/he also understands the context.

Pitofsky: The most impressive individual: Andy Grove of Intel, in an antitrust case. Unlike the usual 17 lawyers with one businessman, where the lawyers do most of the talking, Grove ran the meeting and the lawyers just listened. When you get a CEO who knows the business and can explain their side of the argument, that can work.

Muris: but you sued him anyway.

Pitofsky: well, he was wrong.

Muris: The worst presentation: Roger Smith, GM/Toyota joint venture; too many jokes. Muris came in mildly supportive of the deal and got quite suspicious in the middle.

Villafranco: Mad Men has brought back discussion of great past ad campaigns. Marbles in the soup/shaving sandpaper—we know those cases. Are today’s cases going to last like that?

Pitofsky: What is the ad campaign that sticks in my mind? Listerine kills colds and flu—led to a very important remedy. But he was most struck by a split-screen ad on behalf of a roach killing product: one half of the screen, the competitor’s product was sprayed on the roaches, who thrived. On the other side, the advertiser’s product was sprayed on the roaches, who keeled over and died immediately. Upon investigation, the FTC found that the advertiser had left the effective ingredient of the competitor’s product out of the first side—spraying the roaches with water, essentially. The FTC went as far as it could for remedy.

Muris: The FTC will always bring some national advertising cases, but will always be a secondary player in that field. When an ad claims a bucket of KFC is health food, that gets his attention. At some point, the First Amendment issues will be in play in a national advertising case, but he hasn’t seen that yet.

Villafranco: relationship between competition and consumer protection law?

Muris: BCP is one of the wonders of the world; it’s extremely cohesive, with longer tenure v. Competition. BCP rarely hires people out of school; spectacular at finding people out of prosecutorial backgrounds etc. Find people, often women, who want a more sensible lifestyle with their families. The two are complements, like bacon and eggs: bacon and eggs come from very different places, and the fact that you consume them together doesn’t mean that the production or anything else about them is necessarily the same.

Pitofsky: He thinks the differences are less pronounced now than 30/40 years ago. At an early stage, women were more likely to choose consumer protection over antitrust. Another striking difference: the role of economics, though even that difference isn’t what it was. The Bureau of Economics has more to say about antitrust than consumer protection. The briefs and opinions show more economic sophistication for a merger than for false advertising, but the gap is steadily narrowing.

Villafranco: how should the economy affect priorities?

Pitofsky: Mortgage fraud. Hearings wouldn’t be a bad idea; legislative action wouldn’t be a bad idea. Predatory lending cases were brought years ago and won; could put more resources into that.

Muris: There are an enormous number of scams taking advantage of tough times; the FTC needs to focus on that. The bigger danger is external forces that could push the commission away from the basic mission.

He thinks C&Ds are better for dealing with national advertisers—in the security/privacy area, C&Ds allowed them to approach advertisers and get substantial progress; civil penalties would have engendered more resistance, and economists have shown that such penalties hurt a nationally traded company’s stock prices.

He’s a fan of rulemaking. But the FTC is now being encouraged by Congress to make new rules, and Congress is suggesting how the rules should be made—that’s a dangerous trend. It might fundamentally change the agency, and damage it in the following way: you can only take on so many fights at once. If you’re trying to change the rules for a dozen major industries, congressional oversight will inevitably cause you significant problems.

Pitofsky: he’s never been a fan of rulemaking. It sweeps up people in inappropriate regulations when they haven’t been behaving badly. It’s also a question of resources. Fight one case = fight one entity. Make rules, and every member of the bar shows up. Bringing cases against the worst actors, and imposing a tough remedy, creates proper incentives. Main difference from 40 years ago: nature of remedies, not nature of rules. Telling people to stop making claims doesn’t deter; making them pay for corrective advertising does.

Villafranco: Advice for Vladeck?

Pitofsky: do nothing before talking to every senior staff member about what they’re doing, why, and what they intend to get out of it.

Muris: Agreed. Talk to predecessors as well?

Q: what’s the role of the FTC with respect to state AGs?

Pitofsky: over the past 40 years, the relationship has been improving—often bring cases with AGs.

Q: Broad definition of unfairness in S&H—was that really a disaster for the FTC? What’s the future role of unfairness?

Muris: Pitofsky in 1980 letter helped repudiate that broad definition, aided by Congress. The broad definition of unfairness led to overreaching, which led naturally to cutbacks by the legislature.

Pitofsky: he just doesn’t know what unfairness means in the abstract. There may be cases of nondeceptiveness that should be acted on, but he’s uncomfortable with breadth.

Q: Are there examples of 13b cases you think that went too far?

Pitofsky: No. We didn’t do much with it.

Muris: Exactly—they created a template, producing the cases quickly and working with the states to get rid of fraudsters—sweeps of particular industries, bringing more than one case at a time.

Q: What about decisions not to bring cases?

Muris: there were discussions early on about using 13b against businesses that were more substantial, practices that were more problematic, but not much serious attention to that. 13b has stayed limited because of the severe ex parte remedies: aimed at a particular kind of bad actor—why, institutionally, haven’t people pushed the envelope when that tends to happen with legal powers? He’s not sure.

Q: Monetary relief: is the FTC looking too much to ability to pay and not the merits of the case?

Pitofsky: he doesn’t think the FTC decided to squeeze the parties who could pay. The most important part of enforcement is the remedy, not the rule itself. The remedy has to be something that tells other people it won’t pay to engage in a particular kind of transaction.

Muris: There is an inherent tension between bringing a multitude of cases and getting maximum relief out of one individual case. 13b diminishes the role of commissioners as commissioners—these aren’t Part III cases, and sometimes you could push harder on a settlement but that would slow the process down and make it harder to go to the next case. He’s generally in favor of steps to increase the amount of civil penalties, and the ease of getting them, in particular cases, but settlement pressures will always be in play.

Q: Regulatory failures at the FTC in the financial crisis?

Muris: it would be nice if the FTC could have stopped this, but probably not. He had an antitrust investigation of Fannie that didn’t go anywhere, despite its market power; there was no role for the antitrust laws. Doing something about Fannie could have helped, but there was a lot of other stuff along the way. AIG was a market failure, not a government failure. No-doc loans: that’s a problem in the market and a problem in the regulators. The fundamental underpricing of risk in the economy was the problem; he’s dubious of regulating risk, but in theory he understands why people want a new regulator. He fears interfering with the tremendous reduction of poverty in the world by overregulating.

Individual name defense for designer gets a boost on appeal

JA Apparel Corp. v. Abboud, --- F.3d ----, 2009 WL 1615694 (2nd Cir.)

The district court enjoined Joseph Abboud from using his name to sell clothes because he’d sold his name as part of a comprehensive sale of his brand. The court of appeals vacated and remanded, concluding that the sale agreement was ambiguous and that extrinsic evidence of the parties’ intent should be considered. Thus, Abboud could argue that he didn’t sell the right to use his name in contexts other than brand name/service mark/trademark use. In addition, trademark law alone could not suffice to uphold the judgment.

Defendants weren’t seeking to use the Joseph Abboud name on clothes, labels, or hang-tags; he merely wanted to be able to identify himself as the designer of “jaz” clothes in advertising materials. Though defendants conceded that use of the name as a mark would cause confusion, they argued that they were entitled to make fair use despite the existence of some confusion—relying on descriptive/statutory fair use, though in this case descriptive and nominative fair use seem quite closely related. §1115(b)(4) specifically provides a defense for a use “otherwise than as a mark” of a party’s “individual name in his own business.” Notably, the more familiar part of this provision allows use “of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin.”

I say notably because the court here imposed not only the “otherwise than as a mark” requirement on the defense here, but also requirements of (1) descriptiveness and (2) fairness and good faith, even though the statutory language is more naturally read to limit those requirements to non-individual name descriptive uses. (Note, for example, the placement of “geographic origin,” which makes no sense as applied to individual names.) Descriptiveness is redundant for an individual name; the payoff of this rather strained statutory construction is the addition of a good faith requirement, raising the question whether an individual (or someone in privity with him/her, as also allowed by the statute) can use his/her own name, not as a mark, but still in bad faith.

So, did Abboud propose to use his name as a mark? The Second Circuit construes “use as a mark” here to mean “the use of [a] term as a symbol to attract public attention.” The district court concluded that Abboud wanted to use his name and the associated goodwill to advise consumers that he’s the source of the jaz line. Thus, there would be confusing use as a mark for products marked or advertised with “Joseph Abboud” or “by Joseph Abboud.” The court of appeals found that the district court had failed to properly consider the precise uses proposed, even though it had ad mock-ups available to it that would have allowed it to assess considerations such as the size, location, and context of the “Joseph Abboud” name. The court of appeals found that individualized consideration of proposed ads was needed; in some mock-ups, the jaz name is more prominent than others (three inches high versus one inch), and the prominence and capitalization of “Joseph Abboud” varies.

As for good faith, the issue is whether the user intended to create consumer confusion on source or sponsorship. The court of appeals concluded that the district court applied an erroneous standard, allowing a finding of likely confusion to substitute for an intent to confuse, which the district court had found was absent. Rather, the district court found that Abboud was attempting to distinguish his clothing from plaintiffs’. Moreover, the district court relied on its contract conclusion—that Abboud had unambiguously conveyed away the right to use his name—to find bad faith; that part of the decision having been vacated, this too had to go.

Consumer Protection Conference tomorrow

The ABA Consumer Protection conference starts tomorrow at Georgetown! Law students can attend free.

One last promo piece: Given President Obama's announcement of proposed legislation to regulate consumer financial products, Friday's panel on exactly that topic couldn't be more timely. Here's a bit of background on one of the panelists, my colleague Adam Levitin, to give you a preview:

Adam Levitin's work merges consumer protection and financial institution regulation into what might be called consumer finance. His work has focused on how competitive dynamics among financial institutions shape the financial products offered to consumers, often in negative ways. Levitin argues that consumer financial products have become increasingly complex in recent years. Some of this complexity has stemmed from new features that benefit consumers, but complexity has also stemmed from financial institutions' incentive to obfuscate products' cost so as to make high-margin products more competitive with low-margin products and to avoid the commoditization that should exist in an industry selling the ultimate fungible product: credit. The increasing complexity of financial products calls into question the disclosure paradigm that has been at the heart of consumer financial services regulation--can disclosure work with complex financial products? If not, as Levitin suggests, then we need to consider other regulatory approaches, such as substantive term bans or product standardization.

Levitin's work also touches on another type of competition in financial services and its impact on consumers--the competition for regulation--and the need to reorganize financial institution regulation from a consumer protection standpoint. In a forthcoming article in the Yale Journal on Regulation, Levitin argues that regulatory arbitrage is inevitable in current financial regulatory system that features multiple regulators for essentially equivalent institutions: financial institutions will seek out the most permissive regulator, and regulators have incentives to engage in laxer regulation to attract regulatees. This system has severe negative consequences for consumer protection, as financial institutions have sought out regulators that will require the least consumer protection and will intercede on their behalf against consumer protection legislation and litigation. Indeed, Levitin contends that the major deregulatory move in financial services has not been statutory, but through agency actions and inactions such as opinion letters and preemption rulings and litigation.

Levitin proposes a regulatory architecture response to the negative consequences of regulatory competition: reinvigorate the ability of states to engage in consumer protection in financial services. Levitin contends that state enforcement is not only more feasible currently than commonly recognized, but that it also has advantages over (and compatibility with) a single federal financial services protection consumer regulator.

Post-grading blues

Depressing rules of thumb:

(1) If you give first and last names to characters in your exam, some students will use only last names and some will use only first names. The students who mix will almost invariably use women's first names and men's last names. And honestly I'm not too sure about that "almost." I keep looking for a counterexample, but I don't recall one.

(2) If you give a woman a title--Dr., Professor--you substantially decrease, but don't eliminate, the use of her first name, but you also substantially increase the percentage of students who call her "he."

Initial interest confusion: much worse than defamation?

The New Yorker has a short blog piece about a trademark metatag/filename case brought by a former Chinese student leader profiled in a documentary about Tiananmen Square against the documentarians. The New Yorker's spin is that this is about an immigrant adopting American litigiousness, though alleging defamation is not, I think, as American as alleging trademark infringement.

The documentarians mention the former student leader's present company Jenzabar on some website pages, use of "Jenzabar" in the metatags for those pages, and use "jenzabar" as part of some filenames (shades of ballysucks and a couple of other cases; has anyone ever won a trademark claim against a non-top-level use of a mark in a URL?). Notably, the defamation claim was dismissed at the pleading stage, but it's so easy to plead trademark infringement in most courts that the obviously incredible trademark claims survived. A couple of recent decisions have recognized that pleading confusion shouldn't be sufficient, especially in cases with free speech implications, but unfortunately the Jenzabar court took the more common route, even though it could have relied on the dissimilarity of businesses to hold that initial interest confusion hadn't been properly alleged.

The divergent results really highlight the way in which IP has been elevated, and non-proprietary personhood interests demoted, in American law.

Naked licensing

No, really: naked licensing.

Del Monte licenses its name around the world, including to a British company that produced a bare-chested Daniel Craig frozen smoothie (i.e., a popsicle). Del Monte has been trying to disavow the use of its name, saying the Bondsicle is not really a Del Monte product. And the media coverage seems to be buying this. But if it's not really a Del Monte product, then what on earth does it mean to take a license for the name? I know the rest of the world is more favorable to naked licensing than the US, but I'm not sure that means that Del Monte gets to disavow all knowledge, to borrow from another franchise.

In an internet age, licensing elsewhere that is reported on in the US may affect brand image: another route to self-dilution.

Recent reading: The pillow article

Mary Whisner, Mattress Tags and Pillow Cases, 101 Law Library J. 235 (2009)

An engaging and pleasantly short piece about mattress and pillow regulation, its benefits and costs for manufactures and consumers, and why anyone would bother to make a rule about tearing the tag off a mattress.

Here’s something I didn’t know: 100% down isn’t 100% down, and the FTC doesn’t try to make manufacturers disclose the actual down content as long as they’re within the actual limit, much as cereals and other foods can contain undisclosed insect parts below a certain threshold:

Because of the way feathers and down were sorted, the industry did not really make pillows that were 100% down. Everyone accepted that some light feathers would be in the mix. So the FTC’s first rule said that pillows that were sampled and found to be 90% down would meet the standard. But the industry found that to be too restrictive a limit, so in 1949 and 1950, “there was a joint conference of the matter participated in by representatives of the Commission and the feather pillow industry,” and a new rule was promulgated allowing a tolerance of 15%. (footnotes omitted)

When is Froot not Fruit?

Videtto v. Kellogg USA, 2009 WL 1439086 (E.D. Cal.)
Sugawara v. Pepsico, Inc., 2009 WL 1439115 (E.D. Cal.)

Because the language in both opinions is largely the same, I will discuss them together.

Plaintiff Videtto filed a putative class action for California state false advertising violations as well as intentional misrepresentation and breach of implied warranty based on Kellogg’s use of the name “Froot Loops,” fruit-shaped cereal pieces, and pictures of fruit on a product with no actual fruit in it. The “fruit-like flavor” comes from tiny amounts of “natural flavors” with no nutritional value.

Plaintiff Sugiwara filed a putative class action alleging the same claims based on her consumption of “Cap’n Crunch with Crunchberries.” Crunchberries, as portrayed on the box, are shaped like berries, though inspection would reveal that they are not in fact berries. Additional marketing contends that “Crunch Berries is a combination of Crunch biscuits and colorful red, purple, teal and green berries.” However, the only fruit content is “a touch” of strawberry concentrate.

The court granted both motions to dismiss, despite the caution in the 9^th Circuit’s Gerber Fruit Juice Snacks case that such dismissals should be rare in deceptive advertising cases.

As for Froot Loops, unlike in that case, the package does not prominently feature pictures of fruit and phrases suggesting fruit content and nutritional value. Instead, it features the name Froot Loops, a picture of Toucan Sam, a picture of a bowl of Froot Loops, a small banner stating “natural fruit flavors” that includes “small vignettes of fruit next to it,” and the phrase “sweetened multi-grain cereal.” (Query: vignettes? Perhaps as in “I have eaten/the plums/that were on/the cereal box/and which/you were probably/saving/for recycling./Forgive me/they looked delicious/so sweet/and so flat.”) The cereal doesn’t resemble any known fruit, and “Froot” is part of a trademarked name. “[T]he fanciful use of a nonsensical word cannot reasonably be interpreted to imply that the Product contains or is made from actual fruit.” With the absence of nutrition claims, it’s “entirely unlikely” that members of the public would be deceived.

Likewise with Crunchberries. The packaging uses the word “berries” but only in conjunction with the descriptive term “crunch,” which doesn’t represent any actual fruit. The “Crunchberries” shown on the package are round, crunchy, bright cereal balls, and the packaging clearly states that it’s “sweetened corn & oat cereal” and that the image is “enlarged to show texture.” Thus, no reasonable consumer would be deceived. Nor does the packaging make nutrition claims or show images of actual fruit.

The court did not allow plaintiffs to file amended complaints. “The survival of the instant claim would require this Court to ignore all concepts of personal responsibility and common sense.”

Commentary from trademark perspective: the court takes the position that “Froot” will be understood to be something other than “Fruit.” The PTO, by contrast, takes the position that phonetic equivalents are to be treated like proper spellings in assessing whether a term is descriptive. See TMEP 1209.03(j). Thus, Froot Loops would not be classified as a “fanciful” term, nor “froot” as a “nonsensical” word. Rather, “froot” would be descriptive—or, in this case, if consumers are likely to believe that a “fruit” cereal contains fruit (and really, why wouldn’t they be, if this were a new product?), then the term is deceptively misdescriptive or even deceptive. (Note for registration geeks: If the PTO required a disclaimer of “fruit,” the disclaimer would have to use the proper spelling.) The difference between deceptively misdescriptive and deceptive turns on whether consumers are likely to base a purchasing decision on the presence of fruit—again, reasonably likely, it seems to me, and yet the court found the prospect so unreasonable that it was willing to dismiss the complaint. In part, of course, this reflects the difference between registration—in which the mark is assessed as applied to the relevant goods or services, but without reliance on other elements of the packaging, because the current packaging doesn’t constrain the rights granted by a registration—and litigation. But it also reflects the importance of secondary meaning, because FROOT LOOPS has so much cultural baggage attached to it. Use a deceptive mark long enough and maybe it’s no longer deceptive, because you’ve successfully changed the meaning of the term at issue.

So, if Froot Loops did not exist and were launched today, and registration applied for, what ought an examiner to do with the mark? (A quick TESS search revealed only one live, registered FROOT mark (FROOTS SMOOTHIES, for restaurant services etc.) other than Kellogg’s. Interestingly, Kellogg’s owns a later-issued registration for FROOT LOOPS SMOOTHIES for breakfast cereals, “fruit” disclaimed. In addition, the ITU for FROOT BEER has been published for opposition. History: FROOT LOOPS was registered in 1964 for cereal breakfast foods and in 1989 for “cereal-derived food product to be used as a breakfast food, snack food and ingredient for making food,” both with the same first use dates. I wonder what that 1989 registration was about—perhaps there’s some international issue.)