The FTC has remained active this summer, concluding June with two major notices of proposed rulemaking. One related to the Premerger Notification Rule from the Bureau of Competition and the other related to the Use of Consumer Reviews and Testimonials from the Bureau of Consumer Protection. These stories and more regarding specific matter updates ranging from “Made in USA” advertising to deceptive Delta-8 THC advertising after the jump.
Bureau of Competition: Premerger Notification Rule, Hart-Scott-Rodino Act, Mergers
- issued a Notice of Proposed Rulemaking to amend the Hart-Scott-Rodino (“HSR”) Act proposing significant changes to the premerger notification rules and the premerger notification form and associated instructions. The proposed rule represents a major revision that expands the scope of information required to be submitted by the parties. Expanded HSR filings and merger-review periods will require substantially more time and resources from involved parties. FTC Chair Lina Khan issued a statement joined by Commissioners Slaughter and Bedoya stating, “[t]his marks the first time in 45 years that the agencies have undertaken a top-to-bottom review of the [HSR Form]” and emphasizing the changes and evolving needs since the HSR Act was first passed. The Notice of Proposed Rulemaking was published in the Federal Register on June 29, triggering a 60-day notice and comment period ending on August 28. Crowell & Moring published a standalone alert discussing the proposed changes.
Bureau of Consumer Protection: Advertising and Marketing, Dark Patterns, Online Marketing
- The FTC filed a lawsuit against Publishers Clearing House, LLC on June 26, 2023 seeking a permanent injunction, monetary relief, and other appropriate relief such as the rescission or reformation of contracts to redress injury to consumers. Filed alongside the complaint, Publishers Clearing House agreed to a proposed stipulated order to resolve the lawsuit. The proposed order will require Publishers Clearing House to pay $18.5 million to consumers and make substantive changes to its online business practices. The FTC alleged that the company used “dark patterns,” manipulative phrasing and website design, to mislead consumers about the company’s sweepstakes drawings, specifically by implying that a purchase was necessary to win or would increase the consumer’s chance of winning. Further, the FTC alleged that the company used surprise fees, deceptive emails, “risk free” misrepresentations, and personal data policy misrepresentations. Many of the consumers affected by Publishers Clearing House’s alleged practices are elderly and low-income. Publishers Clearing House agreed to clearly distinguish its sweepstakes from sales, not imply a purchase was required for entry into the sweepstakes, make clear and conspicuous disclosures, disclose full prices, end the use of deceptive email subject lines, preserve records of research and consumer analysis, and delete individually-collected consumer data. FTC Chair Lina Khan issued a statement joined by Commissioners Slaughter and Bedoya emphasizing the FTC’s efforts to crack down on companies’ use of dark patterns in online marketplaces.
Bureau of Consumer Protection: Advertising and Marketing, Made in USA
- The FTC filed a lawsuit against a group of Massachusetts and New Hampshire-based clothing accessories companies for falsely claiming that products were manufactured in the U.S. The FTC’s proposed order, which the respondents have agreed to, will prohibit the respondents from making deceptive claims about products being “Made in USA” and require payment of a monetary judgment. The Complaint alleges that the companies have frequently used “Made in USA,” “Hand Crafted in USA,” and “Made in USA from Global Materials” advertisements, yet certain products are allegedly either wholly imported or incorporated significant imported components. The proposed order restricts unqualified U.S.-origin claims and requires qualification of any U.S.-origin claims including qualifications related to assembly of the products. The proposed order also includes a monetary judgment for $191,481.
Bureau of Consumer Protection: Advertising and Marketing, Endorsements, Influencers, Reviews
- FTC announced a final version of the Endorsement Guides, which provide agency guidance to businesses and others to ensure that any advertising using reviews or endorsements is truthful. The Endorsement Guides were last updated in 2009 and the 2023 update reflects public comments and FTC considerations from the past year. The FTC also issued an updated version of its frequently asked questions guidance document regarding the Endorsement Guides, which includes 40 new questions. Crowell & Moring published a standalone alert discussing the proposed changes.
Friday, June 30, 2023
Bureau of Consumer Protection: Advertising and Marketing, Endorsements, Influencers, Reviews
- In conjunction with the finalization of the Endorsement Guides, the FTC issued a Notice of Proposed Rulemaking, Trade Regulation Rule on the Use of Consumer Reviews and Testimonials, banning fake reviews and testimonials. The new rule would stop marketers from using illicit review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, all of which deceive consumers looking for genuine feedback on a company’s products or services. A promulgated rule would trigger civil penalties for companies found in violation, providing teeth to enforcement actions related to the Endorsement Guides. The proposed rule would ban the following: 1) selling or obtaining fake consumer reviews and testimonials, 2) review hijacking, 3) buying positive or negative reviews, 4) insider reviews and consumer testimonials, 5) company-controlled review websites, 6) illegal review suppression, and 7) selling fake social media indicators. The Notice of Proposed Rulemaking will be published in the Federal Register, triggering a 60-day notice and comment period.
Bureau of Consumer Protection: Deceptive Conduct, Advertising and Marketing, Health Claims
- The FTC filed a lawsuit under the FTC Act and the Opioid Addiction Recovery Fraud Prevention Act (“OARFPA”), suing Michael J. Connors and various companies he controls for deceptively marketing Smoke Away products. The Smoke Away products were advertised as able to eliminate consumers’ nicotine addiction and enable them to quit smoking quickly, easily, and permanently. The case is the FTC’s first smoking cessation product challenge under OARFPA. The complaint focused on the companies’ advertisements as well as false reviews and testimonials. The proposed order settling the FTC’s complaint bans Connors and his companies from marketing or selling any substance use disorder treatment product or service, including any smoking cessation product or service and bans the defendants from making health-related advertising claims unless substantiated by proper scientific evidence. The proposed order also imposes both a $7.1 million monetary judgment and a $500,000 civil penalty.
Monday, July 3, 2023
FTC Operations
- The FTC Chair Lina Khan issued a statement regarding Andrew Ferguson and Melissa Holyoak, the Republican Commissioner nominees to the FTC to fill two vacant seats, announced by the White House. Chairperson Khan congratulated the nominees and stated “[e]ach would bring key skills, experiences, and expertise to the Commission[.]”
Bureau of Competition: Mergers
- The FTC vacated an Administrative Law Judge’s initial decision in the administrative litigation challenging an alleged unlawful agreement between Altria Group, Inc. (Altria) and Juul Labs, Inc. (Juul) and dismissed the complaint. The Commission determined dismissal was appropriate given the full, voluntary unwinding of Altria’s investment in Juul. This matter results from Altria’s December 2018 purchase of a 35% stake in Juul in exchange for a $12.8 billion all-cash investment. The FTC’s complaint alleged that, in the deal and in unwritten agreements leading to the deal, the companies unlawfully agreed that Altria would cease competing in the e-cigarette market, in violation of the Sherman Act’s Section 1 and the FTC Act’s Section 5. Vacating the ALJ’s initial decision means that it may no longer be cited as precedent.
Wednesday, July 5, 2023
Bureau of Consumer Protection: Advertising and Marketing
- The FTC sent cease and desist letters alongside the Food and Drug Administration to six companies engaged in selling edible products containing Delta-8 THC in packaging nearly identical to other food products. Many of the mimicked food products are commonly consumed by children such as Doritos chips and Nerds candy. Samuel Levine, the Director of the FTC’s Bureau of Consumer Protection stated, “[m]arketing edible THC products that can be easily mistaken by children for regular foods is reckless and illegal.” The FTC sent letters to the following companies making the copycat products: 1) Delta Munchies, LLC; 2) Exclusive Hemp Farms / Etienne-DuBois, LLC; 3) North Carolina Hemp Exchange, LLC; 4) Dr. Smoke, LLC; 5) Nikte’s Wholesale, LLC, and 6) The Haunted Vapor Room. The FTC alleges the companies’ advertising violates Section 5 of the FTC Act, which prohibits unfair or deceptive acts in or affecting commerce, including practices that present unwarranted health or safety risks. The letters demand the companies stop marketing edible Delta-8 THC products that imitate conventional foods using advertising that is likely to appeal to young children.
Thursday, July 6, 2023
Bureau of Consumer Protection: Telemarketing, Robocalls, Consumer Refunds
- The FTC and Florida Attorney General announced more than $540,000 in consumer refunds to consumers nationwide who were defrauded by Life Management Services of Orange County, LLC (“LMS”) and related companies who deceived consumers into credit card interest rate reduction and debt elimination programs. The average consumer check is $117 and the checks will go to more than 4,600 consumers. The FTC and Florida Attorney General filed a complaint in June 2016 alleging LMS overwhelmed consumers with illegal robocalls in an attempt to sell fraudulent credit card interest rate reduction services. A 2019 court order halting illegal robocalls partially settled the FTC’s complaint by permanently barring the defendants from engaging in telemarketing and debt relief services.
Bureau of Consumer Protection: Advertising and Marketing, Telemarketing, Online Advertising, Automobile Industry
- The FTC settled a case against Kole Consulting Group and its owner, Daniel Kole, as part of the defendants participating in the American Vehicle Protection operation that scammed hundreds of thousands of consumers out of millions of dollars. The company operated a telemarketing scheme that pitched “extended automobile warranties” to consumers. The proposed order, which the defendants have agreed to, includes a lifetime ban from any outbound telemarketing business and from any involvement with extended automobile warranty sales. The proposed order also includes a monetary judgment of $6.5 million.