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Danielle Rowan is an associate in the firm's Washington, D.C. office and a member of both the Advertising & Product Risk Management and White Collar & Regulatory Enforcement practice groups. In her practice, Danielle provides litigation and counseling services related to regulatory compliance, advertising substantiation, consumer protection, products liability, privacy, and cybersecurity. She also represents corporations in internal investigations.

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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.

FTC Moves Ahead Enforcing Endorsement Cases

A few months ago, acting Federal Trade Commission Chairwoman Olhausen stated that the FTC should shift focus to cases of actual harm, leaving many to wonder whether FTC would still actively enforce endorsement cases. However, in April, the FTC sent out ninety letters to brand influencers and marketers reminding those influencers and marketers to clearly and conspicuously disclose their relationship to brands. On the heels of these April letters, the FTC filed a complaint and ultimately reached entered a proposed settlement order (“order”) with two brothers that relied on deceptive endorsements and misleading review websites to sell Infinity and Olympus Pro brand trampolines.

Continue Reading Trampoline Manufacturer Can’t Bounce Away From FTC Trouble

Danielle Air Jordans

Michael Jordan has settled two high-profile right of publicity lawsuits with two now-defunct grocery chains – Jewel Food Stores and Dominick’s Finer Foods.  In August, a jury awarded Jordan $8.9 million after a federal judge determined that Dominick’s violated Jordan’s rights under the Illinois Right of Publicity Act.  Jewel and Jordan were scheduled to start their trial in December.

Both grocers placed ads in a commemorative issue of Sports Illustrated honoring Jordan’s induction into the Basketball Hall of Fame.  Jewel’s full page ad “salute[d] #23 on his many accomplishments” and  “honor[ed] a fellow Chicagoan who was ‘just around the corner’ for so many years,”  playing off of the chain’s slogan that it was “just around the corner.”  Dominick’s touted Jordan as “a cut above” and featured a coupon for steak.

According to Jordan, he would “absolutely not” have allowed the grocers to use his name and identity in an ad.   Jordan, who testified that he “doesn’t do single ads” and does not do any deal for less than $10 million in the Dominick’s trial, claimed that the two grocers used his likeness for commercial gain without his permission.

The settlement serves as a cautionary tale for brands that might use a celebrity likeness without permission.

Image Courtesy of Flickr by David Woo

On Wednesday, September 16, 2015, Advertising and Product Risk Management partners Cheri Falvey and David Ervin and Intellectual Property and Legal Affairs Counsel for the Ralph Lauren Corporation, Tracie Chesterman, presented at an exclusive breakfast hosted by Crowell & Moring and Women’s Wear Daily. The speakers discussed the “New Rules of Digital Marketing” and provided a roadmap for avoiding legal and regulatory pitfalls. Among other topics, Ms. Falvey and Mr. Ervin provided an overview of  key legal considerations when releasing internet-connected wearables into the market and to manage the lifecycle of the product — from design through marketing and brand protection.

Danielle Kim K Image

On Friday the U.S. Food and Drug Administration (FDA) sent a warning letter to Duchesnay, manufacturer of DICLEGIS, a morning sickness drug, based on a social media post by ubiquitous social media user, Kim Kardashian. Kardashian posted a picture of herself with the drug while touting its safety and efficacy. However, Kardashian failed to mention risk information and other material facts about the drug. FDA found this false and misleading.

To respond to this incident, FDA has asked Duchesnay to, among other things, send out corrective messaging through the “same media” and with “the same frequency” as the violating material. Thus, perhaps an “FDA Approved” selfie will be hitting Instagram soon.

Drug companies seeking to use social media to promote their products should bear in mind that endorsers must spell out material risks and information in posts, not in separate links. Companies should use approved produced labeling in all forms of advertising, as FDA applies the same rules across all mediums. And, as the Kardashian episode illustrates, FDA is ready and willing to enforce violations.

Image courtesy of Flickr by Eva Rinaldi.

Last week, the Department of Justice filed an action against Michaels Stores on behalf of the Consumer Product Safety Commission (“CPSC”).  According to the complaint, between 2006 and 2010 Michaels sold glass vases which were prone to shattering in consumers’ hands and caused multiple injuries.

The complaint alleges that (1) despite receiving injury reports from consumers beginning in 2007, Michaels failed notify the CPSC of the hazard until 2010; and (2) Michaels sought to mislead the CPSC by implying that another company imported the vases, when in fact Michaels was the “importer of record.”  (Under the Consumer Product Safety Act an importer has the same reporting obligations as a manufacturer.)  The CPSC is seeking civil penalties and a permanent injunction to allow for compliance oversight of the retailer.

Click here to read the full article on this case and lessons it can provide for retailers.

Click here to view a three-part video series by Crowell & Moring partner Cheryl Falvey that reviews compliance programs and risk mitigation strategies for consumer products companies.