Retail & Consumer Products Law Observer

Retail & Consumer Products Law Observer

Legal Insight for the Retail and Consumer Products Industry

Class Dismissed? New House Bill Could Transform Federal Class Action Law

Posted in Consumer Class Action
Photo credit: Getty Images

Photo credit: Getty Images

Just a week before Congress began its first extended recess of 2017, the Chairman of the House Judiciary Committee took a step towards dramatically changing the landscape of class action litigation. On Thursday, February 9, Representative Bob Goodlatte (R-Va.) introduced a bill (H.R. 985) that would “amend the procedures used in Federal court class actions” by adding a number of new hurdles to class certification in federal court.

Chairman Goodlatte was a principal author of the Class Action Fairness Act of 2005, which considerably expanded federal diversity jurisdiction over interstate class actions. He was also behind another class action reform bill introduced in 2015 that failed to clear the Senate. His new bill, dubbed the Fairness in Class Action Litigation Act of 2017, is in much the same vein—and, if passed, would represent the most sweeping revision of federal class action law to date.

Highlights from the bill:

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Commissioner Ann Marie Buerkle Becomes Acting Chair at CPSC

Posted in Advertising & Product Risk Management

The U.S. Consumer Product Safety Commission (CPSC) has a new Acting Chairwoman: Commissioner (and former Congresswoman) Ann Marie Buerkle.  Although no formal announcement has been made, those within the agency have acknowledged that current Chairman Elliot Kaye relinquished the chairmanship yesterday.  Commissioner Buerkle, one of the two Republican members of the Commission and Vice-Chair of the Commission since January 19, assumed her new duties once Kaye announced his decision to the agency.

Former Chairman Kaye has not resigned his seat on the Commission—his announcement relates to the chairmanship only.  This development presents an unusual dynamic moving forward: although the Commission will now be chaired by a member of the President’s political party, the Republicans will remain the minority party on the Commission until at least October 2017 when Democratic Commissioner Marietta Robinson’s term on the Commission expires.

Commissioners’ terms are fixed and are independent of the Administration (whichever political party is in power).  Thus, absent the early resignation of a Democratic Commissioner, the Commission will be led by a Chair who does not command a 3-2 voting majority based on political party.  Democratic Commissioners Kaye, Adler, and Robinson remain in the majority and incoming Acting Chair Buerkle and Commissioner Mohorovic remain in the minority.

Given this highly unusual circumstance, policy changes at the Commission are not likely to come fast; the transition will occur over the coming year.  Nevertheless, Acting Chairwoman Buerkle will have additional resources at her disposal and be able to set new priorities for the Commission.  We expect that Acting Chairwoman Buerkle will continue to reach out to all members of the product safety community as she has done over her tenure as a Commissioner and listen to the concerns of all stakeholders.

Failure to Obtain Viewer Consent Leads to $2.2 Million Settlement for Vizio

Posted in Advertising & Product Risk Management, Privacy & Data Protection

Photo Credit: Jason Trim (Flickr)

Vizio Reaches $2.2 Million Settlement With FTC, New Jersey, For Failing to Obtain Viewer Consent to Track and Sell Viewing Habits to Third Parties

Traditionally, advertisers purchase ad inventory during television programs based on basic demographic information regarding viewer attributes. Thus, while ads may reach viewers of a particular gender and age range, those ads may not necessarily reach the consumers that are most interested in their products or services.  Thus, advertisers are increasingly interested in more finely targeting their advertising and sending a specific television commercial to a specific household based on the viewing activities in that household.  In order to pinpoint their targets, marketers rely on data extending beyond demographic information that includes information on consumer viewing and internet habits.  While targeting commercials to specific households can be highly beneficial to marketers (allowing them to send their ads to the consumers most interested in seeing them) and consumers (showing them the ads they most want to see), marketers must remember that the basic requirements of advertising law still apply.  Thus, in collecting data, marketers must ensure that they clearly disclose their data collection practices up front, obtain consent from consumers before collecting and sharing highly specific information regarding their viewing practices, and make it easy for consumers to opt out.

On February 6, 2017, the Federal Trade Commission (“FTC”) and the State of New Jersey reached a $2.2 million settlement with VIZIO, Inc. and its wholly owned subsidiary VIZIO Inscape Services (collectively, “Vizio”) for failing to meet these standards. Vizio is a manufacturer of “smart” TV’s, which are internet connected.  According to the Complaint Vizio’s proprietary automated content recognition (“ACR”) software was installed on Vizio televisions beginning in February 2014. In addition, the defendants remotely downloaded the software onto previously sold sets that did not initially have the technology installed at the time of purchase.  Using the ACR software, which was turned on by default, Vizio tracked consumers’ viewing habits on a second-by-second basis and collected more than one hundred billion data points per day.   The software captured information about pixels on screen that was matched against a database of publicly available television, movie and commercial content.  That information was combined with viewing data from cable or broadband service providers, set top boxes, and external streaming devices.   In addition, the ACR software also collected information about the television, including the IP address, WiFi signal strength and access points, MAC addresses, and other similar information.  That data was transmitted to the defendants and stored indefinitely.

According to the Complaint, Vizio earned revenue from this data in three ways. First, the Defendants sold the viewing data to third parties for purposes of audience measurement.  In sharing this data, the Defendants provided a persistent identifier for each television along with the content and programs viewed, when the content was viewed, for how long, and the channels that were on.  Second, the Defendants provided third parties with IP addresses so that they could measure a household’s behavior across devices.  Using this data, third parties could analyze whether a consumer visited a website after viewing a particular advertisement or whether a consumer viewed a television program after viewing an online ad for that program, enabling third parties to evaluate the effectiveness of their ad campaigns.  Third, the Defendants provided aggregated device and viewing data to third parties for purposes of targeting advertisements to individual consumers.

For consumers who purchased Vizio televisions with ACR tracking preinstalled, no onscreen notice of this data collection was provided.  For televisions updated with the ACR software, consumers were provided with a pop up notification stating “The VIZIO Privacy Policy has changed. Smart Interactivity has been enabled on your TV, but you may disable it in the settings menu. See www.vizio.com/privacy for more details. This message will time out in 1 minute.”   However, the FTC alleged that this notice was inadequate because it failed to inform the consumer that viewing data would be collected, the ACR software had been installed, and also did not directly link to the settings menu or privacy policy.

The complaint alleged that Vizio violated Section 5 of the FTC Act and engaged in unconscionable activities under NJ consumer protection law: (1) Vizio engaged in “unfair tracking” that consumers did not reasonably anticipate and could not therefore avoid; (2) Vizio deceptively omitted disclosure to consumers of its viewing tracking practices , and (3) Vizio falsely and deceptively represented to consumers, expressly or by implication, that the Defendants would provide offers and suggestions with “Smart Interactivity” enabled on their televisions, which they never did.

To settle the charges, Vizio agreed to pay civil penalties totaling $2.2 million and to stop unauthorized tracking. In addition, Vizio agreed to prominently disclose its data collection practices and obtain consumers’ express consent before collecting and sharing information about consumers’ viewing habits.  Finally, Vizio agreed to delete most of the data that it has collected and implement a privacy program to evaluate its practices.

Acting Chairman Maureen Ohlhausen issued a concurring statement, stating that while she agrees with the FTC staff that consumers do not expect televisions to collect and share information regarding their viewing activities, she urged further consideration of the FTC’s allegation that sensitive information includes individualized television viewing activities. Noting that “[t]here may be good policy reasons to find such information sensitive . . . under our statute, we cannot find a practice unfair based primarily on public policy. Instead we must determine whether the practice causes substantial injury that is not reasonably avoidable by the consumer and is not outweighed by benefits to competition or consumers.” Thus, the Acting Chairman intends to “examine more rigorously what constitutes ‘substantial injury’ in the context of information about consumer” in the coming weeks.

Lessons Learned

This case is an important reminder for advertisers interested in addressable advertising. Advertisers should adhere to the following best practices.

  • Prominently disclose your data collection practices up front – separate and apart from your privacy policy or terms of use. Make sure consumers understand what data you are collecting and what you will be doing with that data (what will be shared, with whom, and the purpose of sharing).
  • Obtain affirmative express consent from consumers before collecting and granular data regarding household or individual television viewing activity with third parties.
  • If you make any material changes to your collection practices, you must obtain affirmative express consent to those changes.
  • Offer consumer choices regarding data collection and make it easy for them to exercise those choices.
Photo credit: Jason Trim (Flickr)

ICPHSO 2017 Annual Meeting & Training Symposium

Posted in Advertising & Product Risk Management, Events
Photo Credit: ICPHSO

Photo Credit: ICPHSO

The International Consumer Product Health and Safety Organization’s 2017 Annual Meeting & Training Symposium is being held February 20-23, 2017 in Orlando, Florida. The theme for this year’s meeting is “Evaluating & Managing Risk.”

Cheryl Falvey, former general counsel of the Consumer Product Safety Commission (CPSC) and partner in the Advertising & Product Risk Management Group, is speaking on February 22nd. Her session is entitled “Practical Lessons In Identifying Risk, Using Effective Tools to Manage It, and Using Data to Meet Regulatory Obligations – In Other Words, How to Stay Out of Trouble!” Cheryl will sit on a panel of industry representatives, all of whom have previously work at CPSC. This panel will provide both the industry perspective as well as insights from the panelists based upon their experiences at CPSC on what one might expect from the regulatory agency responsible for product safety.

Key topics will include:

  1. Guidance and tools that exist to assist industry officials in identifying reportable safety issues at the earliest possible moment to avoid late reporting and exposing consumers to an avoidable risk.
  2. Development of a comprehensive internal compliance program to identify risks and/or defects before they can do harm to your customer.
  3. Use of available systems to assist you in identifying risks/defects.
  4. Understanding what data to collect and review to assist in making appropriate determinations and when to actually report information to CPSC.

To register for the ICPHSO 2017 Annual Meeting & Training Symposium, please visit the main event page.

Join us! 2017 FBA Fashion Law Conference

Posted in Advertising & Product Risk Management, Events
Photo credit: Bernard Spragg (Flickr)

Photo credit: Bernard Spragg (Flickr)

On February 10, 2017, the Federal Bar Association will host a day-long Fashion Law Conference at Parsons School of Design (Starr Foundation Hall in the New School’s University Center) during New York Fashion Week!

Please join Crowell & Moring’s Frances Hadfield and Preetha Chakrabarti, as well as a host of other speakers and experts, for our cutting-edge fashion law panels. Speakers include in-house counsel from The Estee Lauder Companies, Inc., Google, Macy’s, and Westfield Corp.

Topics cover corporate responsibility and sustainability, wearable technology, influence marketing, false advertising and the FTC, and employment law issues affecting the fashion industry. Preetha Chakrabarti is on a panel entitled: “Corporate Responsibility: Child Labor and Sustainability: Overview of international treaties and U.S. laws affecting child labor and sustainability issues.”

We are fortunate to have written opening remarks provided by Senator Kirsten Gillibrand (D-N.Y.) and Professor Barbara Kolsun, Professor of Practice and Co-Director of Fashion, Arts, Media & Entertainment (FAME) Law Center at Benjamin N. Cardozo School of Law—and one of the foremost thought leaders in the field of fashion law—as our luncheon keynote speaker.

If you are interested in joining legal professionals and industry representatives in New York City for this exciting conference (and of course plenty of networking opportunities!), please visit the event page to register. We look forward to seeing you there!

Webinar: This Year in Trade — C&M’s First 100 Days Series

Posted in Import/Export, International Trade

From economic sanctions to import tariffs, the incoming Trump administration has suggested it will seek to implement almost immediately significant changes in international trade policy and enforcement. In addition to these potentially seismic shifts, technological and social developments reshaping international trade rules and global supply chains are gathering speed, from the expanding adoption of blockchain technology to increasing corporate social responsibility requirements. On Wednesday, January 18, 2017, our Crowell & Moring team discussed predictions for the coming year. We stepped into the eye of this perfect storm to identify the international trade risks and opportunities likely to arise for your businesses in the course of 2017.

Please click here to access an on-demand recording of the webinar (note: you must complete the registration form for access).

Key Topics:

  • Sanctions in a Trump Administration: Iran, Cuba, Russia, and beyond
  • AML – “de-risking” and the new normal
  • ECR here to stay? Rollbacks? What’s next?
  • Supply chain risk management: CSR, blockchain, conflict minerals: new actors, and public disclosure – 2017 Issue
  • New tax on imports? Impact of possible border adjustment tax on your business; increased enforcement; ACE update
  • A new sheriff in town? Expedited case decisions, retaliatory tariffs, and China, China, China.

Presenters included members of our international trade team and Crowell & Moring International based in Washington, D.C. and Brussels.

 

Webinar: Consumer Protection 2.0 — C&M’s First 100 Days Series

Posted in Advertising & Product Risk Management, Events

The incoming administration promises big changes to federal consumer protection administration and enforcement. On January 5, 2017, Crowell & Moring’s Advertising & Product Risk Management Group hosted a webinar in which they discussed likely changes on the horizon to the Federal Trade Commission, Federal Communications Commission, and Consumer Financial Protection Bureau.

Please click here to access an on-demand recording of the webinar (note: you must complete the registration form for access).

Webinar details:

What can we expect to see with new commissioners? How will the newly reconstituted agencies manage ongoing legal battles affecting their jurisdiction that carry over from the Obama Administration? Our team engaged in a discussion highlighting our predictions and possible outcomes that will drive consumer protection enforcement and litigation for the next four years. We have highlighted where the government is likely to pull back, and where it may stay the course.

Key topics:

  • The FTC’s and FCC’s new majorities and what that portends for privacy and data security enforcement.
  • The uncertain future of Net Neutrality.
  • Will there be a CFPB by 2018 and if so, what will it look like?
  • What will the FTC focus on in 2017 and beyond?
  • The (likely) rise of the state AGs.
  • Into the breach: will private litigation fill the gap?

Christopher Cole, Peter Miller, and Kristin Madigan conducted this webinar.

Consumer Review Fairness Act of 2016 — Beware of the Negative Online Review

Posted in Advertising & Product Risk Management

Photo credit: Flickr

Retailers and consumer products companies need to be aware of a new law affecting negative online reviews. On December 14, 2016, President Obama signed the Consumer Review Fairness Act of 2016 (H.R. 5111) into law. The Act voids “non-disparagement clauses” in form contracts designed to prevent consumers from posting negative comments and online reviews of products and services. The Act also makes it unlawful for companies to include these clauses in their form contracts. The Federal Trade Commission will enforce the Act in the same way it enforces against unfair or deceptive trade practices under its jurisdiction; state attorneys general may also enforce the Act under certain conditions. For existing contracts, the Act will take effect in 90 days and FTC/state enforcement may commence one year from now.

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The FTC (Finally) Goes Organic

Posted in Advertising & Product Risk Management

In its 2012 revisions to the Green Guides (16 C.F.R. Part 260) on environmental marketing claims, the FTC declined to provide guidance regarding “organic” claims, “either because the FTC lacks a sufficient basis to provide meaningful guidance or wants to avoid proposing guidance that duplicates or contradicts rules or guidance of other agencies.” That self-imposed silence ended with the FTC’s release of a staff report and study results, “Consumer Perception of ‘Recycled Content’ and ‘Organic’ Claims,” and its announcement of an October 20, 2016 joint FTC/USDA Roundtable, “Consumer Perceptions of ‘Organic’ Claims for Non-Agricultural Products.”

The FTC’s “organic” activities fall squarely within the larger regulatory movement toward providing guidance to businesses and consumers regarding the use of powerfully effective marketing terms such as “natural,” “organic,” “GMO-free,” and “locally grown.” For example, the FDA continues to work on developing a policy for using “natural” in food claims, and states and now the federal government are struggling with labeling requirements for genetically modified organisms (GMO).

The FTC staff report concluded, based on a study of consumer perceptions regarding unqualified and qualified organic claims, that sufficient concern existed about deceptive “organic” marketing claims for the FTC and USDA to convene the October 20 Roundtable “to explore organic claims for non-food products, and how we can work together to reduce deceptive organic claims.” The staff report also concluded that the study results regarding “recycled content” claims did not merit further FTC follow-up or require revision to current Green Guides guidance.

The portion of the study regarding organic claims asked consumers about scenarios involving shampoos, mattresses, and dry cleaning services, all described with unqualified “organic” claims, that included a percentage range of content that was “made by a man-made, chemical process” (0%, less than 1%; 1% to 5%; and 5% to 10%). There was widespread agreement among respondents that the “organic” claim was appropriate for products with no non-organic materials, but a “significant minority of respondents” – the FTC trigger for deceptive claims – believed that an unqualified “organic” claim was not proper if non-organic materials were present in any percentage. That “not organic” result did not change significantly if respondents were advised that the non-organic materials “pose[d] no health or safety hazard to consumers.” FTC staff also concluded from the study – consistent with current Green Guide guidance for general environmental marketing claims – that “qualified claims stating which parts of the product are organic are significantly less likely to mislead consumers than unqualified organic claims,” and, alternatively, that “a percentage qualification may also make the claim less misleading.”

Notwithstanding FTC staff’s concessions of limitations in the study design and the results, the report concludes that the consistency of the results demonstrates the need for follow-up regarding “organic” claims used to market non-agricultural products, including personal care products. Accordingly, the October 20 Roundtable will, among other things, address

  • Consumers’ interpretations of “organic” claims for products and services that are not covered by USDA’s Agricultural Marketing Service’s National Organic Program;
  • The staff report; and
  • Approaches to address potential deception, including consumer education.

The FTC has a dedicated email address for questions and proposals regarding the October 20 Roundtable, green@ftc.gov, and, separately, will be accepting public comments regarding “organic” claims until December 1, 2016.

Would “Juice” by Any Other Name Taste as Sweet? Court Cites FDA Guidance in Resuscitating “ECJ” Class Action

Posted in Advertising & Product Risk Management, Consumer Class Action

Sugar Cane

In a long-awaited pronouncement, on May 25, 2016 the Food and Drug Administration issued its final guidance recommending that food and beverage manufacturers discontinue their use of the term “evaporated cane juice” (ECJ) to refer to sweeteners extracted from sugar cane. As the agency explained, “the use of ‘juice’ in the name of a product that is essentially sugar is confusingly similar to the more common use of the term ‘juice’”—which FDA regulations define as a liquid, puree, or concentrate derived from “one or more fruits or vegetables.”

When the FDA first issued this Guidance, many questioned whether it would reinvigorate a genre of litigation that had recently grown quiet: class actions alleging that the use of “ECJ” on product labels and packages misled consumers. Now, thanks to the Northern District of California’s July 27 decision in Reese v. Odwalla, Inc., the answer is becoming clearer: the ECJ class action is due for a comeback. Continue Reading