Retail & Consumer Products Law Observer

Retail & Consumer Products Law Observer

Legal Insight for the Retail and Consumer Products Industry

Court Dismisses FTC’s Unfairness Claims Against D-Link

Posted in Advertising & Product Risk Management

© iStock

Earlier this month, the Northern District of California dismissed FTC’s unfairness claims against D-Link, a manufacturer of routers and IP cameras, while allowing most of FTC’s claims rooted in deception to survive, suggesting that traditional false advertising actions may be FTC’s most effective means of addressing suspect data security practices. Further, the Northern District of California’s decision to dismiss the unfairness claims shows this court’s unwillingness to entertain data security actions rooted in the FTC’s unfairness prong, without concrete harm.

Deception

FTC filed suit against D-Link in January of this year, alleging that the company engaged in both deceptive and unfair practices based on D-Link’s claimed flimsy data security practices. Specifically, the FTC alleged that D-Link engaged in deceptive practices by marketing sophisticated and state-of-the-art security provided with its products, while simultaneously failing to protect users from “widely known and reasonably foreseeable risks of unauthorized access.” For example, D-Link touted that its products featured “the latest wireless security features to help prevent unauthorized access” and offered the “best possible encryption.” But in practice, according to FTC’s pleadings, D-Link failed to take “easily preventable measures” against “hard-coded user credentials and other backdoors.” And, the Northern District held, these accusations were sufficient to plead a deception claim under the FTC Act. However, where the company did not specifically market its data security practices, its advertising was not deceptive – such as in a brochure where D-Link described the camera as a “surveillance camera” for the “home or small office.” Indeed, where D-Link did not refer to its digital security, the court would not imply messages about the state of that security.

Unfairness

Notably though, the Northern District dismissed FTC’s claims that, because D-Link failed to provide adequate data security, it engaged in unfair practices. Specifically, the court found that, because the FTC could not plead actual harm, it had not sufficiently pled a violation of the FTC Act. FTC was unable, the court noted, to show any “monetary loss or an actual incident where sensitive personal data was accessed or exposed.” It was not enough to plead that D-Link put customers at risk.

The Northern District did not, however, completely close the door on potential unfairness claims against D-Link. Choosing to dismiss the claims without prejudice, the Northern District noted that “[i]f the FTC had tied the unfairness claim to representations underlying the deception claims, it might have had a more colorable injury element.” Accordingly, where a company does not make affirmative representations about its data security practices, a court will likely be reluctant to find a violation of the FTC Act without concrete injury.

Webinar: Cyber Reputation Defense

Posted in Events

Join Us for a Webinar – Tuesday, October 10, 2017 12:00 – 1:00 PM ET

It’s been said that “A lie gets halfway around the world before the truth can even pull its boots on.” In today’s world of online commentary and social media, this is truer than ever.

In the cyber-world, you or your company may be accused of selling defective goods, providing poor service, misleading customers, defrauding the government, or committing unethical or criminal conduct. These accusations can appear in e-mails to your clients or government enforcement agencies, as posts on blogs or company websites, or in streamed videos on social media. What’s more, they can be made or circulated by competitors or persons cloaked behind the anonymity of the internet, making it difficult (but not impossible) to hold responsible persons accountable.
As a result, internet defamation cases are on the rise. A surprise reputational attack in the cyber-world requires quick thinking and a game plan.

Please click here to register for this webinar, or click here to view the event on Crowell.com.

This 60 minute webinar will cover the:

  • types of growing internet defamation (and sometimes intellectual property infringement) cases
  • “hot” litigation issues, including First Amendment anonymity, Communications Decency Act Section 230, and personal jurisdiction issues
  • related anti-SLAPP statute issues
  • steps to defend your online reputation

Presenters:

 

 

A Science-Driven Agency Makes a Science-Based Decision: FDA Acknowledges Qualified Health Claim Aimed at Preventing Peanut Allergies

Posted in Product Liability & Torts

© USDA

Earlier this month, the U.S. Food and Drug Administration announced that it would allow infant food manufacturers to use a qualified health claim on their labeling to characterize the relationship between consumption of ground peanuts by infants beginning between 4 and 10 months of age and a reduced risk of developing peanut allergy by age five. The precise language FDA will allow reads:

For most infants with severe eczema and/or egg allergy who are already eating solid foods, introducing foods containing ground peanuts between 4 and 10 months of age and continuing consumption may reduce the risk of developing peanut allergy by 5 years of age. FDA has determined, however, that the evidence supporting this claim is limited to one study.

If your infant has severe eczema and/or egg allergy, check with your infant’s healthcare provider before feeding foods containing ground peanuts.

Qualified health claims must be supported by credible scientific evidence, a less rigorous standard than the “significant scientific agreement” requirement for authorized health claims. Here, FDA found support for the qualified claim in the same studies that moved the National Institute of Health to issue updated guidelines for the early introduction of peanut-containing foods in infants.

FDA’s decision is notable for several reasons. First, it was the first time the agency approved a health claim aimed at preventing a food allergy. FDA acknowledges that food allergies are an increasing and serious public health issue that requires the agency’s attention. This is one of many tools it has available to address the problem.

Second, it showed the FDA’s willingness to loosen restrictions on allowable disease prevention claims within its existing regulatory framework when presented with sound, scientific evidence demonstrates. In this case, the agency was responding to a manufacturer’s petition.

Third, it showed FDA Commissioner Scott Gottlieb’s willingness to step into the role of the nation’s doctor. FDA’s announcement was accompanied by a statement from Dr. Gottlieb, in which he addressed concerns about food allergies and possible prevention as both a parent and physician. He has spoken similarly on other public health issues, most recently on the opioid addiction crisis, and thus has demonstrated a willingness to encroach on questions traditionally in the realm of the practice of medicine, an area the agency typically avoids.

Achieving regulatory changes in the current political environment is challenging, but this decision demonstrates that FDA will respond to requests based on sound scientific evidence to relax rules that otherwise limit what manufacturers can say about their products. Manufacturers whose products show demonstrable health benefits may thus want to consider similar requests to secure greater marketing flexibility.

President Nominates Attorney Dana Baiocco to Consumer Product Safety Commission

Posted in Product Liability & Torts

© Thinkstock

President Trump has nominated Dana Baiocco to be Commissioner of the Consumer Product Safety Commission. The appointment is for a term of seven years beginning on October 27, 2017. Ms. Baiocco is currently a litigator at Jones Day. According to her firm’s bio, she has litigated cases involving “mass torts, consumer and industrial products and medical devices” and has counseled clients on “minimizing risks, regulatory and reporting obligations, warranties, and CPSC product recalls.”

This nomination is significant. With the expiration of Democratic Commissioner Marietta Robinson’s term in late October, Baiocco’s eventual Senate confirmation will shift the Commission’s balance of power. Specifically, it will mark an end to the unusual dynamic of the Commission being led by a “Minority Chair” (Republican Commissioner Ann Marie Buerkle), who does not command a 3-2 voting majority based on political party. Upon Baiocco’s confirmation, Republicans will regain the Commission’s majority.

Our prior blog posts have reflected on Acting Chair Buerkle’s philosophy and priorities for the Commission, which may now start to come into fruition. Assuming Acting Chair Buerkle is confirmed as Chairman later this month, with the new Republican majority, we can now expect the Commission under the Trump Administration to come into focus and likely reflect some of the Administration’s regulatory priorities.

We congratulate Dana Baiocco on her nomination, and expect her confirmation in the coming months.

FTC Announces First Enforcement Action Against Social Media Influencers and Updates FAQs Rejecting Common Disclosure Practices

Posted in Advertising & Product Risk Management

© Getty Images

The FTC is closely watching influencers to remind them to clearly disclose material connections to brands. In June 2017, the Commission settled with a trampoline manufacturer for relying on misleading endorsements and, in March, the Commission sent more than 90 letters to influencers and brands to remind them to clearly disclose relationships. The FTC has now made clear that it will target influencers who fail to comply with its Endorsement Guides. While the FTC had previously settled claims against various advertising networks, advertising agencies, and brands for failing to comply with the Endorsement Guides, the FTC has announced that it has settled its first ever enforcement action against social media influencers. In the same press release, the FTC simultaneously stated that it sent follow-up warning letters to 21 influencers that first received letters in March.

The message is clear: influencers that fail to disclose a material connection to brands do so at their own peril—and brands are responsible for implementing clear measures to make sure that the influencers they work with comply with disclosure requirements. Furthermore, the FTC has also made clear that many commonly used disclosure methods and practices are inadequate in its newly revised Endorsement Guides FAQs. Brands and the influencers they work with should take note of these recommendations and ensure that their disclosure practices comply.

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CPSC Targets Retailer Home Depot in Rare Sale of Recalled Goods Civil Penalty

Posted in Advertising & Product Risk Management

Last week, the U.S. Consumer Product Safety Commission announced that Home Depot U.S.A., Inc. has entered into a settlement agreement with the agency to resolve allegations that the retailer knowingly sold and distributed recalled consumer products over a four year period. The Company will pay a civil penalty of $5.7 million. This penalty is significant because it involves claims against a retailer who allegedly sold recalled products in violation of Section 19(a)(2)(B) of the Consumer Product Safety Act which makes it unlawful to sell a recalled product – and not the more typical “failure to timely report” claims against a manufacturer under Section 19(a)(4). This penalty is just the third such penalty in recent years (see Meijer 2014 civil penalty and Best Buy 2016 civil penalty).

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Dueling Interests at CPSC and FDA “Deem” E-cigarette Battery Safety a Priority

Posted in Advertising & Product Risk Management

The regulation of e-cigarettes and other electronic nicotine delivery systems (“ENDS”) presents complex regulatory and scientific challenges. Two key federal agencies with product safety mandates and overlapping jurisdiction – the Consumer Product Safety Commission and the Food and Drug Administration – have turned their attention onto the specific area of e-cigarette battery-related fires and explosions in the last few months.

In August 2016, the Food and Drug Administration finalized its so-called Deeming Rule to bring e-cigarettes and ENDS, as well as their components and parts such as batteries, under its authority to regulate tobacco products. Under this newly granted authority to regulate e-cigarettes and ENDS, FDA held a public workshop in April on “Battery Safety Concerns in Electronic Nicotine Delivery Systems.” Through the workshop and also through other channels, FDA is seeking data and other information on explosions, fires, and overheating of e-cigarettes. FDA also has initiated a public safety campaign of “Tips to Help Avoid Vape Battery Explosions.”

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Government Blocks Companies from Importing and Selling Children’s Products after Alleged Non-Compliance with Product Safety Laws

Posted in Import/Export, Product Liability & Torts

© Getty Images

The U.S. Department of Justice and Consumer Product Safety Commission recently announced that they had entered into consent decrees with three New York-based toy companies and five individuals for importing and selling products that violate the Federal Hazardous Substances Act and the Consumer Product Safety Act. The consent decrees enter permanent injunctions against the companies from importing and selling toys until certain remedial actions are implemented and monitored by the CPSC. The decrees can be read here and here.

The DOJ and CPSC alleged that the individuals and companies – Everbright Trading Inc., Lily Popular Varieties & Gifts Inc., and Great Great Corporation – imported and sold numerous children’s toys and products that contained high levels lead content, lead paint, and phthalates; contained small parts; and violated the mandatory toy safety standard (ASTM F-963), bicycle helmet safety standard, and labeling of art material (LHAMA) requirements.

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Laura Brett Named New NAD Director

Posted in Advertising & Product Risk Management

On August 1, 2017, the Advertising Self-Regulatory Council (ASRC) and Council of Better Business Bureaus (CBBB) announced that Laura Brett has been appointed as director of the National Advertising Division (NAD). Ms. Brett has served as Acting Director of NAD since Andrea Levine, former Director of NAD, retired after 20 years as NAD Director. She joined NAD as a Staff Attorney in 2012 and was later an Assistant Director. Prior to joining NAD, Ms. Brett was a litigator at Willkie Farr & Gallagher and a solo practitioner. She was also a member of the Rye City Council and Deputy Mayor of Rye, NY.

At NAD, Ms. Brett has authored decisions in numerous cases challenging the adequacy of disclosures in native advertising formats, sponsored content, and other online and social media advertising issue. Before the FTC adopted its long-awaited native advertising guidance, Ms. Brett used the NAD’s self-monitoring authority to fill a regulatory gap and bring several challenges of native advertising. In her decisions, she pushed for improved disclosures and provided detailed guidance for companies engaged in novel forms of online advertising. She has not shied away from using NAD’ s authority to challenge the advertising practices of well-known tastemakers with large social media followings, challenging the Kardashians and Kate Hudson this year.

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President Trump Nominates CPSC Acting Chair Buerkle to Serve as Permanent Chair

Posted in Advertising & Product Risk Management

On Monday, President Trump nominated Ann Marie Buerkle, who has served as Acting Chair of the U.S. Consumer Product Safety Commission since February 9, 2017, to serve as permanent Chair of the Commission.  The appointment is for a term of seven years beginning on October 27, 2018 when her current term expires.  Acting Chair Buerkle’s statement on her nomination can be read here.

This nomination must be confirmed by the Senate.  Even if confirmed expeditiously (and that is a big if), the current minority-majority political dynamic at the Commission will not change until President Trump is able to appoint a third Republican Commissioner once Commissioner Marietta Robinson’s term expires in October later this year.

Acting Chair Buerkle’s regulatory philosophy and priorities for the Commission have been well documented, including in our prior blog posts.  In fact, she reiterated some of those thoughts as they pertain to product recalls in opening remarks at the CPSC’s Recall Effectiveness Workshop yesterday, July 25.  Acting Chair Buerkle stated that the Commission and its staff:

  • need to continue engaging all product safety stakeholders and listen to ideas, problems, and solutions concerning product recalls;
  • should not have a “one size fits all” approach to product recalls;
  • should not expect recalling companies to bankrupt themselves in undertaking a voluntary product recall; and
  • should look at proportionality and risk when effectuating a product recall.

Acting Chair Buerkle concluded her remarks by stating that the most effective way to prevent consumer injury is not through product recalls, but through preventing unsafe products from entering the market in the first instance.

We expect Acting Chair Buerkle to be confirmed in the coming months and wish her congratulations on the nomination.