Enterprise Resource Planning (ERP) software is the integrated management of core business processes: the artificial intelligence that organizations, including retailers, use to collect, store, manage and interpret data from a multitude of business activities. And, as we discussed in a previous alert, ERP software is increasingly prevalent, with some studies reporting that 81 percent of organizations have either installed or are in the process of installing an ERP system.

Likewise, failed (or failing) installations are increasing. Market studies show that 26 percent of installations were judged by the licensee as a “failure,” 46 percent of licensees were “very dissatisfied” with their ERP vendor, and 74 percent of installations exceeded project budget. Bearing in mind these alarming statistics, we cautioned that it is incumbent on in-house counsel to anticipate potential installation problems in order to make a record to secure their company’s right to demand remedial repair efforts and/or seek recovery of lost fees and other damages.

Now, in the wake of a recent class action filing against Revlon, Inc., companies should also be aware of potential legal action under the securities laws from troubled ERP installations.

In May 2019, a plaintiffs’ firm filed a class action lawsuit against Revlon alleging violations of federal securities law in connection with a failed ERP installation at Revlon by SAP. Within the span of a few weeks, at least four separate law firms announced the Revlon class action, soliciting additional plaintiffs for the matter. With this clear sign that the plaintiffs’ bar is looking for an entry point to seek damages caused by failed or failing ERP installations, in-house counsel should consider steps to protect their companies while installing ERP systems.

The Revlon Class Actions

According to the allegations in the complaint, Revlon made false and misleading statements in its public filing by failing to disclose that it failed to create measures to monitor its ERP system and failed to design, implement, and operate process-level controls on its ERP system. The complaint also alleges that SAP’s failed installation resulted in Revlon’s inability to fulfill approximately $64M in product shipments, an additional $53.6M of incremental remedial charges, and, ultimately, a drop of over 6% in the value of Revlon shares. Plaintiffs allege these failures violate §§ 10(b) and 20(a) of the Securities and Exchange Act and Rule 10b-5 promulgated thereunder by the U.S. Securities and Exchange Commission.

This litigation is still in its infancy. No dispositive motions have been filed, and plaintiffs’ counsel has not yet moved to certify the class.

Tips for In-House Counsel Facing a Difficult ERP Installation

This litigation could signify the emergence of yet another sizeable threat to ERP installations. Accordingly, in-house counsel monitoring tricky installations may want to keep the following in mind:

  1. Consider Disclosure Requirements. Section 302 of the Sarbanes-Oxley Act requires that companies attest to the accuracy of financial reporting, disclose any material changes to their internal controls over financial reporting, and disclose all fraud. Counsel should watch the Revlon class actions and others for guidance on the application of those requirements to ERP installations.
  2. Protect the Record. The Revlon class action suggests that the best practices for companies adversely affected by failed ERP installations may be to protect the record for potential litigation and to perfect any claims against the at-fault installation vendor. Already good advice for restitution purposes and damages, it may also serve as a viable defense against class action claims by aggrieved investors.
  3. Retain Litigation Counsel Early. Naturally, protecting your company may not necessitate actually filing an action against your ERP vendor. However, throughout the course of a troubled installation, there are multiple points during which an otherwise viable claim can be inadvertently compromised. Early retention of counsel experienced with ERP software and installations can best protect your company.

For more insights, please join us on Wednesday, December 4 for an encore presentation of our webinar, Surviving a Failed ERP Installation: Recovering Your Company’s Lost Costs After a Botched Software Launch, where we will share our experiences resolving disputes regarding troubled ERP installations. Click here to register. We will keep you updated on recent developments as this case unfolds.

In the last three weeks more than 90 retailers and restaurants have been sued in federal courts in New York because they do not offer Braille-embossed gift cards. Many of these complaints are substantively identical, alleging violations of Title III of the Americans with Disabilities Act (ADA). The complaints allege that the defendant’s failure to emboss the issuer of the gift card as well as the denomination of the card in Braille violates ADA Title III, and corresponding New York law, and seek class action status.

The ADA requires places of public accommodation (which includes brick and mortar retailers) to provide disabled individuals the “full and equal enjoyment of the goods and services” offered by the business. The complaints allege defendants violate the statute by failing to make available “appropriate auxiliary aids and services where necessary” to ensure effective communication with individuals with a disability.

These cases present novel legal issues. The threshold question is whether the ADA and state laws even apply. Existing regulatory authority suggests that the ADA does not extend to cover this particular business practice. The ADA’s auxiliary aid requirement, which requires places of public accommodation to offer “Brailled materials and displays” in certain circumstances, has been interpreted by the Department of Justice to be a flexible standard, allowing retailers discretion to “choose among various alternatives as long as the result is effective communication.” (28 C.F.R. § Pt. 36, App. C.). A common example of this requirement is Brailled signage on elevators in commercial buildings. There are no reported decisions addressing the question of whether Brailled gift cards are required.

These complaints are the latest example of how enterprising plaintiffs’ lawyers are attempting to extend the previously settled understanding of the scope of the ADA. When it was initially enacted in 1990, lawsuits alleging ADA violations focused on physical access barriers, such as the absence of a wheelchair ramp or an elevator. The concept of access barriers has been extended in recent years; many retailers are by now familiar with the flood of recent ADA lawsuits brought complaining that internet websites are not compliant for the blind and hearing impaired. The unavailability of Braille gift cards may be an easy target for the plaintiffs’ bar, as most businesses do not offer Braille gift cards.

There may be both procedural and merits-based defenses to these lawsuits, including the question of whether the claims are barred by an ADA exemption for situations in which “compliance would ‘fundamentally alter the nature of the good, service, facility, privilege, advantage, or accommodation being offered or would result in an undue burden,’” 42 U.S.C. § 12182(b)(2)(A)(iii)). One of the issues that may affect the applicability of this exemption is the existence of at least one retailer with a gift card on the market that contains Braille, a fact pointed out in many of these complaints. Because these cases have just been filed, answers to some of the novel legal questions will take some time.

This new wave of Title III ADA litigation presents risks for restaurants, hotels, merchants, traditional retailers, or any business that offers gift cards for sale in conjunction with their goods or services. As new complaints continue to be filed, businesses should take the time to understand their compliance obligations under the ADA.

An Analysis of the Requirement to Verify Consumer Requests and Parental Consents

On October 10, 2019, California Attorney General Xavier Becerra announced a long-awaited notice of proposed rulemaking and draft regulations for the California Consumer Privacy Act (CCPA), California’s new consumer privacy law, which we have analyzed here and here.

In parts one and two of our multi-part series regarding the draft CCPA regulations, we focused on businesses’ notice obligations and handling consumer requests.

In this third part of our series, we focus on proposed regulations regarding “verifiable” consumer requests, including the standards for verifying different types of requests received from consumers. As discussed below, the proposed CCPA regulations provide detailed guidance that will have important ramifications for businesses that possess or process consumer information.

Click here to continue reading the full version of this article.

On November 5, 2019, the Federal Trade Commission released a, first-of-its kind, guidance targeting online influencers. The new guide titled “Disclosures 101 for Social Media Influencers” informs influencers when and how they must disclose sponsorships with brands to their followers.  This is part of the FTC’s increasing focus on making product endorsements more transparent.

When the FTC revised the Testimonial and Endorsement Guides (“Endorsement Guides”) in late 2009, the blogosphere panicked, assuming that the government would target the so-called “mommy bloggers.”  However, these fears were assuaged when the FTC’s enforcement activities were focused on brands, advertising industries, and the networks that linked brands to influencers.  Beginning in 2017, the FTC’s focus has increasingly shifted to the influencers.

In 2017, the FTC had sent more than 90 educational letters to social media influencers and brands and later, the FTC sent 21 warning letters to social media influencers regarding their Instagram posts.  In addition, the FTC settled its first ever case against two social media influencers with an ownership stake in CSGO Lotto, an online gambling service.  According to the FTC’s Complaint, the influencers promoted CSGO Lotto without disclosing that they owned the company.

In its November 2019 guidance, however, the focus is squarely on influencers. The FTC released a guidance document, “Disclosure 101 for Social Media Influencers,” designed to give influencers pointers for complying with the Testimonial and Endorsement Guides.  In this document, the FTC states “As an influencer, it’s your responsibility to make these disclosures, to be familiar with the Endorsement Guides, and to comply with laws against deceptive ads. Don’t rely on others to do it for you.” (emphasis in original).

Not surprisingly, the guidance document reiterates prior guidance and reminds influencers to disclose material connections, ensure that their reviews reflect actual experiences with the product, and avoid making false claims that the advertiser cannot substantiate.  However, the guidance document also underscores the need for the FTC to revise the FTC Guides and update them to the social media ecosystem of 2019.  Ten years later, the FTC’s guidance can generate significant confusion about what to disclose and how.

For example, the Disclosure 101 Guidance states that an influencer is required to disclose his or her relationship with the brand “if [the] brand gives [the influencer] free or discounted products or other perks” and the influencer “mention one of its products, even if [the influencer wasn’t] asked to mention that product.” (emphasis in original).  The ambiguity of this language can create conflicting expectations between the brand and the influencer.  What if the brand has periodically given the influencer free or discounted products but there is no formal relationship? Is the influencer still obligated to disclose the relationship when showing or discussing a product that the influencer purchased but was not gifted?  What if a brand takes an influencer on an all-expense paid trip to a tropical location to celebrate a product launch?  Is the influencer obligated to disclose that he or she went on that trip when discussing the brand’s products in the future, even when the influencer purchased those products? The FTC’s guidance suggests that some type of disclosure may be needed and the brand should clearly communicate its expectations to the influencer.

Furthermore, the FTC’s guidance suggests that there should be a one-size-fits-all approach for disclosures.  We can all agree that the FTC believes that gifting a free product to an influencer in the hopes that the influencer mentions the product to his or her followers constitutes a material connection requiring disclosure.  However, how should that relationship be disclosed? In an example in the Disclosure 101 document, shown below, the FTC suggests that the influencer could state “Thanks to Acme for the free product! #AcmePartner #ad” in combination with a post featuring gifted products.

© FTC

Many brands currently suggest different types of disclosure language to reflect the range of relationships they have with their influencers.  It is not clear that #AcmePartner and #ad are interchangeable ways to describe the relationship between the brand and the influencer, as the FTC suggests.  Within the social media ecosystem, there are different levels of ties between influencers and brands.  A brand “Partnership,” for example, suggests a close relationship between an influencer and a brand that extends beyond receipt of free product.  And an influencer’s audience may understand the disclosure “ad” to describe content that the brand pays for and has pre-approval rights.  While sending “PR” to influencers without any obligation that the influencer talk about or show the product to their followers indisputably creates a material connection that requires disclosure if the influencer talks about the freebies, the brand does not ordinarily have a right of prior approval for such content. Thus, while the FTC’s guidance recommends #ad as an appropriate disclosure, the brand may prefer the influencer to disclose by stating “Thank you for the free product” to distinguish it from content that the brand directly pays for and controls.

Going forward, brands should consider referring influencers to the FTC’s Disclosure 101 Guide in its agreements as a reminder that influencers are potentially liable for failure to comply with the Endorsement Guides.  However, it is equally important for brands to provide clear guidance to influencers to ensure that the brand and the influencer are aligned on disclosure obligations and how best to disclose.

 

Chris Cole, co-chair of Crowell & Moring’s Advertising & Media Group and chair of the American Bar Association’s Section of Antitrust Committee on Advertising Disputes and Litigation, recently joined the ABA antitrust section’s podcast, “Our Curious Amalgam,” to provide insights into how advertising disputes and investigations are triggered.

In this episode, “Who is Watching the Ads? The Biggest Mistakes Advertisers Make that Trigger Investigations,hosts John Roberti and Ricardo Woolery asked Chris to cover some of the key questions regarding this area of law, including some common mistakes advertisers make – and how to avoid them. The interview covered a range of topics including:

  • How advertising disputes relate to antitrust law
  • Today’s multi-faceted advertising campaigns, which include online video, social media, and influencers
  • Types of advertising risks
  • Enforcement activity at the State AG and federal levels, including the FTC and NAD

Click here to listen to the episode.

About the Podcast

Our Curious Amalgam explores topics in antitrust, competition, consumer protection, data protection, and privacy law around the world with leading experts in those areas. It is an amalgam because it is a group of diverse topics all in one place. It is curious because it gets the experts and asks them in-depth questions.

 

On October 10, 2019, California Attorney General Xavier Becerra announced a long-awaited notice of proposed rulemaking and draft regulations for the California Consumer Privacy Act (CCPA), California’s new consumer privacy law, which we have analyzed here and here.

In part one of our multi-part series regarding the draft CCPA regulations, we focused on businesses’ notice obligations. In this second part of our series, we focus on businesses’ obligations to respond to consumer requests. As discussed below, the draft CCPA regulations provide detailed guidance that will have important ramifications for businesses that control or process information about California consumers, particularly in light of CCPA’s broad definition of personal information.

Before these proposed CCPA regulations are approved and implemented, interested parties have until December 6, 2019, to submit written comments regarding the draft regulations and to participate in town hall meetings hosted by the Attorney General’s Office in Sacramento, San Francisco, Los Angeles, and Fresno. Any businesses impacted by the CCPA should carefully consider whether submitting comments or requested amendments are appropriate.

Representatives of the Attorney General’s office have indicated that July 1, 2020 is the anticipated date for CCPA enforcement to begin, but reiterated that CCPA takes effect on January 1, 2020, which means that class action exposure and other provisions apply as of that date.

Click here to continue reading the full version of this article.

How can you tell if an online review is truly genuine? Who’s regulating? Who’s watching?

Lauren Aronson, vice chair of the Consumer Protection Committee at the ABA Antitrust section, addresses these questions in Episode #7 of the ABA antitrust section’s podcast, “Our Curious Amalgam,” speaking on the topic, “Too Much Influence? Consumer Protection for online reviews and influencers.” It is well known that consumers increasingly refer to online reviews before making purchases.  They consult retailer platforms and often search for reviews from their favorite social media influencers. In this podcast, Lauren joins hosts John Roberti and Elyse Dorsey to discuss the regulation of online reviews and influencers and issues brands should consider when working with influencers or soliciting consumer reviews.

Click here to listen to the podcast.

About the Podcast

Our Curious Amalgam explores topics in antitrust, competition, consumer protection, data protection, and privacy law around the world with leading experts in those areas. It is an amalgam because it is a group of diverse topics all in one place. It is curious because it gets the experts and asks them in-depth questions.

On October 10, 2019, California Attorney General Xavier Becerra announced a long-awaited notice of proposed rulemaking and draft regulations for the California Consumer Privacy Act (CCPA), California’s new consumer privacy law, which we have analyzed here and here.

In this first part of our multi-part series on the CCPA regulations, we will focus on how the draft regulations affect businesses’ notice obligations under the CCPA. As discussed below, the new regulations provide detailed guidance that will have important ramifications for businesses, in particular those that sell or otherwise monetize consumer information.

Click here to continue reading the full version of this article.

The ICO Bares its (Sharp) Teeth: What You Need to Know About GDPR One Year On

We have now seen the ICO bare its teeth with huge proposed fines for GDPR breaches.

In this session, we will be hosting a panel discussion on practical issues around GDPR one year (and a bit) on, what organisations need to be doing to avoid missteps, and the likely consequences if they get it wrong. Retailers & consumer products companies will benefit from learning the latest on GDPR enforcement. This session is taking place on Thursday the 17th of October at Chartered Accountants’ Hall in London. To RSVP or send any questions about this event, please contact Anna Prescott.

Takeaways:

  • Latest developments of GDPR & Brexit effect
  • ICO enforcement and fines – key emerging themes
  • Practical steps organisations can take to avoid problems
  • Operational risks and priorities
  • Lessons learned from prior mistakes
  • Follow on claims and class actions

Our Panel:

Crowell & Moring is pleased to announce that partner Kris Meade will be speaking at the Retail Industry Leaders Association (RILA) 2019 Retail Law Conference.

Kris Meade will be joined by Louise Brock, General Counsel of Bridgestone Americas for a session titled, “Pay Equity Laws and More: Bridging the Gap.” The importance of pay equity is making headlines worldwide, from corporate boardrooms and the U.S. Women’s Soccer team to state legislatures and international law-making bodies. Program attendees will learn best practices surrounding pay equity, discuss the ever-increasing demand for transparency in this arena, and recognize the importance of pay equity as a market differentiator as their companies compete for talent on a global stage.

The 2019 Retail Law Conference is being held at the JW Marriott in Nashville, Tennessee, October 16th through October 18th.