On June 22, 2020, the Federal Trade Commission (FTC or “Commission”) issued its staff report on the Made in USA workshop, held in 2019, and its long-awaited proposed Made in USA (MUSA) rule (“Rule”). Under the Rule, advertisers would be prohibited from making unqualified Made in USA claims unless:
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Two years into the Trump Administration and:
The FTC’s Consumer Protection Division has long targeted advertisements for “work-at-home,” business and investment opportunities that exaggerate the earning potential and downplay risks. Recently, the FTC announced that it filed a complaint against four individuals doing business as “Bitcoin Funding Team” in the U.S. District Court for the Southern District of Florida for deceptively advertising a cryptocurrency scheme that promised consumers that they could turn a cryptocurrency payment of approximately $100 into $80,000 in monthly income. Specifically, the complaint alleges two counts: 1) that Defendants’ representations that the programs are structured to operate as bona fide money-making opportunities are false or misleading and violate Section 5(a) of the FTC Act, and 2) that Defendants’ representations that consumers who participate in the programs are likely to earn substantial income are also false or misleading, violating Section 5(a). On March 16th, the Commission secured a temporary restraining order against, and froze the assets of pending trial, the defendants it alleges who were operating and promoting cryptocurrency pyramid schemes.
The National Advertising Division, referred Pharmavite, LLC to the Federal Trade Commission after the company refused to comply with NAD’s recommendations that it discontinue its claim that its NatureMade Omega 3 Xtra Blend dietary supplement has “Nearly 4X Better Absorption* *than standard fish oil concentrate.”
To substantiate its “Nearly 4X Better Absorption” claim, Pharmavite relied on a study that compared the absorption of 630 mg and 1680 mg doses of EPA/DHA omega 3 fatty acids manufactured with and without a self-microemulsifying drug delivery system (SMEDS). The study determined that the absorption of EPA/DHA manufactured with SMEDS was better than the absorption rate of standard fish oil (manufactured without SMEDS) for the two doses of EPA/DHA. The study concluded that there was a 6.2 differential for a 630 mg dose and a 9.6 differential for a 1680 mg dose.
On January 8, 2018, the FTC announced settlement of its first connected toy case with VTech Electronics Ltd (“VTech”) for violating the Children’s Online Privacy Protection Act (COPPA) Rules by failing to properly collect and protect personal information about and from children and violating the FTC Act by misrepresenting its security practices. In addition to paying a $650,000 civil penalty, VTech agreed to comply with COPPA, implement and maintain a comprehensive information security program with regular third-party security audits for the next twenty years, and not misrepresent its privacy and data security practices.
The settlement comes more than two years after VTech learned that a hacker had gained remote access to databases for its interactive electronic learning products (ELPs), including for its Kid Connect chat application, in what was described at the time as the largest known hack targeting children. According to the FTC’s Complaint, the hacker accessed VTech’s databases “by exploiting commonly known and reasonably foreseeable vulnerabilities,” and VTech was unaware of the intrusion until it was informed by a reporter.
Online dating company eHarmony will pay more than $2 million to settle a consumer protection lawsuit brought by four California counties and the city of Santa Monica. In total, the company will pay up to $1 million to California customers who enrolled in eHarmony’s automatic subscription program between March 10, 2012 and December 13, 2016
Subscription services for everything from food delivery to beauty products to exercise gear have grown exponentially in the past five years. Such services require consumers to enroll in a program to purchase goods on a consistent basis. They typically automatically renew, often on a monthly basis, and require customers wishing to cancel to take affirmative steps to avoid being charged. Marketers know that consumers often fail to take steps to cancel timely, which only benefits the marketers’ bottom lines.
With the explosion of subscription business models, consumer complaints have skyrocketed as well, with consumers complaining that the terms of the negative option offer – an offer that interprets a consumer’s failure to take an affirmative action as an agreement to be charged – were not clearly explained. For example, consumers have complained that were not told they would be charged each month, were not adequately reminded of how to “skip” being charged each month, that prepaid credits expire without notice, and that it can be difficult to cancel. Thus, subscription businesses have faced increasing regulatory scrutiny and all advertisers that offer products or services that automatically renew should pay close attention.
AdoreMe, a subscription lingerie service launched as a rival to Victoria’s Secret, recently agreed to pay $1.38 million to settle the Federal Trade Commission’s charges that the company did not clearly communicate to consumers the terms of its “VIP Membership” program which automatically billed consumers if they failed to “skip” a month within a 5-day window, falsely claimed that store credits could be used “any time,” and made it difficult for subscribers to cancel their memberships in violation of Section 5(a) of the FTC Act as well as the Restore Online Shoppers’ Confidence Act.
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
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.
Fuzzy talking toys are no longer the annoying, yet benign Christmas gifts they used to be. Many of today’s toys, like refrigerators, cars, and televisions, are “smart,” and may come gift-wrapped with all of the emerging cybersecurity risks the internet has to offer. And as various government agencies grapple with the regulation and enforcement of smart products, the Federal Trade Commission (“FTC”) may be narrowing in on smart toy manufacturers as a potential target. The FBI and FTC issued separate alerts last week highlighting potential threats posed by cuddly friends that collect children’s voices and other identifying information and putting manufacturers on notice of potential enforcement actions for failure to comply with the Children’s Online Privacy Protection Act (“COPPA”), respectively.