A change in administration inevitably raises questions regarding the priorities and direction of federal agencies. To help set the record straight, Lesley Fair, a Senior Attorney with the Federal Trade Commission’s (FTC or Commission), Bureau of Consumer Protection, reminded us during last week’s NAD Annual Conference that the FTC has kept quite busy over the last year or so, with numerous enforcement cases arising out of the FTC’s Bureau of Consumer Protection. Ms. Fair also shared her views regarding the FTC’s key enforcement priorities that affect advertisers and marketers. Perhaps unsurprisingly, these priority areas generally relate to (i) advertising substantiation; (ii) use of social media, endorsements, and consumer reviews; (iii) matters involving privacy and data security; and (iv) allegations of financial deception. While such topics warrant serious consideration and attention for advertisers, one would be remiss in failing to mention that, in typical Ms. Fair fashion, she discussed these issues in a manner that not only kept the audience engaged, but largely entertained.
With respect to advertising substantiation, Ms. Fair took the opportunity to remind the audience that despite our obsession with smartphones—and our assumption that they can do almost anything except fold our laundry—the FTC will carefully scrutinize advertisers’ claims about their products, including health apps for smartphones, to ensure they are adequately substantiated. As an example, Ms. Fair mentioned the Commission’s January 2017 Settlement with Breathometer, Inc. and Charles Michael Yim in which the FTC alleged that marketers of two app-supported smartphone accessories, marketed to accurately measure consumers’ blood alcohol content (BAC), failed to adequately test the accuracy of the app and failed to notify customers that the app regularly understated BAC levels. In another smartphone settlement from December 2016, FTC v. Aura Labs, Inc. and Ryan Archdeacon, the FTC alleged that the marketer’s blood pressure app lacked reliable testing, and that the app’s readings were significantly less accurate than those taken with a traditional blood pressure cuff. In both of these cases, Ms. Fair suggested that FTC seemed particularly concerned due to potential safety issues arising from the lack of proper testing, especially where an intoxicated driver might get behind a wheel, or where a consumer may think his/her blood pressure does not present a health risk. These cases serve as a reminder that the FTC will evaluate substantiation with an especially critical eye where advertisers make health and safety-related claims.
Further, Ms. Fair stressed the FTC’s focus on proper substantiation for “green”, “organic”, and “Made in the U.S.A.” claims, as evidenced by recent FTC settlements, including Imperial Paints, LLC d/b/a Lullaby Paints and Ecos Paints, Moonlight Slumber, LLC (proposed consent order), and Block Division, Inc. (consent order). Importantly, the September 2017 Moonlight Slumber settlement—which involved allegations that the marketer lacked adequate substantiation for claims that its baby mattresses were made from ‘organic’ materials—was the FTC’s first case challenging ‘organic’ product claims. Note that while the USDA regulates organic claims for agricultural products, the FTC has jurisdiction over ‘organic’ claims for non-agricultural products. Takeaway: if you make ‘organic’ claims, make sure the product is actually from organic materials.
Separate from advertising substantiation, it is not surprising that the FTC has been, and will likely remain, an active watchdog when it comes to advertisers’ use of social media and endorsements, as well as consumer reviews. While one would think the following goes without saying, Ms. Fair’s discussion of the FTC’s recent settlements with ICP Construction, Benjamin Moore & Company, Inc., Moonlight Slumber, LLC, and Son Le and Bao Le, serve as a reminder that when advertisers use logos or seals suggesting that an independent third party has endorsed or reviewed the advertised product, such independent third party must in fact exist. In other words, as easy and enjoyable as it may be for advertisers to bestow ‘fake’ shields and certifications at their accord, FTC will probably come a-knockin’…
Further, recent FTC actions make clear that marketers must be mindful of how they engage with consumer reviews, including negative reviews about their products. For example, in FTC v. World Patent Marketing Inc., the District Court’s August 2017 order granted the FTC’s request for preliminary injunction to prohibit the defendants from, among other things, threatening anyone who complains about the company or its products, including asking consumers to withdraw negative comments. Ms. Fair noted that the court’s decision concerning the defendant’s consumer complaint-handling practices is consistent with the spirit of the Consumer Review Fairness Act of 2016 (H.R. 5111), signed into law by President Obama in December 2016. That law makes certain contract clauses void if they prohibit, or restrict, an individual from engaging in a review of a seller’s goods, services, or conduct (e.g., “gag clauses”).
As a third focus area for the FTC, Ms. Fair also underscored that advertisers (and their lawyers) can no longer stick their heads in the sand when it comes to understanding the legal requirements pertaining to privacy and data security. As demonstrated by the FTC’s recent settlements with Uber Technologies, Inc. and FTC v. Ruby Corp., Ruby Life Inc., and ADL Media Inc. (Ashley Madison), the FTC takes seriously marketers’ duty to reasonably secure sensitive consumer data.
Finally, as has been and will likely continue to be an enforcement priority for the Commission, Ms. Fair reiterated the FTC’s focus on those cases involving consumer financial deception. For example, pursuant to the FTC’s 2017 Operation Tech Trap, the FTC along with the numerous State Attorneys General have recently pursued enforcement action against numerous companies that set up ‘scam’ ads that resemble pop-up security alerts from Microsoft, Apple, or other companies that dupe consumers into spending money on unnecessary repairs and anti-virus software. Similarly, the FTC remains mindful of potentially fraudulent practices in the area of online education. The FTC is investigating activities that deceive students into enrolling in online education platforms by using misleading ads regarding their likelihood of finding jobs in their field of study and the income level they could achieve upon graduation.
As a general takeaway, Ms. Fair’s overview of recent FTC enforcement actions suggests that the Commission’s key enforcement areas are remaining consistent with those over the last several years (i.e., a focus on advertising substantiation, prevention of financial fraud and data/privacy security breaches, and appropriate use of social media and endorsements). Given that the enforcement areas do not appear to have shifted significantly over the last year, it would behoove advertisers and marketers to ensure that their practices are consistent with existing FTC rules and guidelines.