CARU’s Revised Guidelines Are Not Kid-ding Around

By: Amy Mudge, Mike Ingram and Carolina Alonso

The Children’s Advertising Review Unit (CARU) recently held their “Kidvertising” workshop to discuss the revised CARU Advertising Guidelines, which are set to take effect on January 1, 2022. The workshop tackled several issues important to child advertising including diversity and inclusion, influencers, and in-app and in-game advertising. Throughout the workshop, CARU continued to emphasize that children can often struggle to determine what is and what is not an advertisement. It was for many the first opportunity to hear the perspectives of the relatively new CARU director, Mamie Kresses, as well as the CARU staff, Jim Davis and Debra Policarpo.

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FTC Puts 700+ Companies on Notice to Expect to Pay Penalties for Any Endorsement Violations

By: Linda Goldstein, Amy Mudge, Randy Shaheen, Jack Ferry and Matt Renick

The Federal Trade Commission (FTC or Commission) announced on Oct. 13 a widespread enforcement action against deceptive endorsement practices. The Commission sent a Notice of Penalty Offenses to more than 700 companies, notifying them that conduct related to fake or misleading endorsements and reviews could subject them to significant civil penalties. Deceptive reviews and endorsements have been a focus of recent FTC cases and guidance, but these letters reflect its largest action to date and serve as a warning to industry that the Commission intends to actively enforce this area of the law.

The FTC notes in the press release and template letter that its Endorsement Guides and recent enforcement actions in this space best illustrate violations of the law. It cites the following examples of misleading conduct:

Falsely claiming an endorsement by a third party; misrepresenting whether an endorser is an actual, current, or recent user; using an endorsement to make deceptive performance claims; failing to disclose an unexpected material connection with an endorser; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.

When the FTC refers to an “endorser,” it defines that term as anyone with a material connection to the company. Typically, this means a person who is paid, but it could also mean a person who is sent a free product or receives some other form of compensation. Companies should review their marketing materials to make sure that their endorsers are not making any deceptive claims. If you cannot make a claim in your own advertising, then you cannot pay or otherwise compensate someone to make it for you. This includes third-party endorsers who are incorporated into traditional advertising such as a commercial, as well as influencers who are compensated to post about a product or service on social media.

It’s also important to note that the FTC specifically mentions reviews, which can be a kind of endorsement if there is a material connection between the reviewer and the company. The FTC has previously taken enforcement action against fake reviews. This affects more than companies fraudulently posting fake reviews, however, because if a company compensates a reviewer, for example, by offering a small gift to everyone who posts a review, technically, it must disclose that material connection.

As a reminder, the FTC usually enforces this type of conduct through Section 5 of the FTC Act, which broadly prohibits deceptive practices in advertising. The FTC’s ability to obtain equitable relief under Section 5 was stymied by a recent Supreme Court ruling, as explained in our previous blog post on the subject. Here, the Commission is working around that limitation by sending notice letters of conduct that has been found unlawful in previous FTC administrative orders. This gives companies the actual knowledge required to create liability under 15 U.S.C. § 45(m)(1)(B) that an act or practice is unlawful. The civil penalty is up to $43,973 per violation.

Notably, the FTC expressly states both in the list of companies receiving a letter and in the sample letter template that “FTC staff is not singling out your company or suggesting that you have engaged in deceptive or unfair conduct.” Instead, the Commission sent these letters to the largest companies in different areas. This gives it the ability to take action against these companies under 15 U.S.C. § 45(m)(1)(B) and also notifies the marketplace at large that these practices will not be tolerated.

Whether or not they received a letter, companies should be reviewing how they treat endorsements and reviews. We advise clients on these issues every day. If you have any questions about best practices in these areas, please reach out.

Slaughterhouse-Five: Myth-Busting with the Commissioner at NAD 2021

By Randal Shaheen and Matthew Renick

To kick off the final day of the National Advertising Division’s (NAD) 2021 virtual conference last week, FTC Commissioner Rebecca Slaughter gave a keynote address laying out her views on consumer privacy and the digital data economy writ large. Specifically, Commissioner Slaughter sought to bust five myths about privacy and data collection, and offered her perspective on where we ought to go in light of renewed congressional and regulatory scrutiny of data collection practices. More generally, Commissioner Slaughter hopes we stop thinking about these issues as “privacy” issues and instead start thinking about them in the context of “data abuses.” Here’s a summary of what the Commissioner had to say.

Myth #1: “Privacy” is the only concern for consumers in digital markets.

This first myth goes to the core of Commissioner Slaughter’s remarks: by thinking about these issues as ones of consumer privacy alone, rather than as data abuses, regulators and legislators may be excluding from their gaze other critical issues that exist in digital markets. Some examples the Commissioner offered include harms to civil rights and equal opportunity, the vast spread of misinformation, and increasing labor exploitation. Commissioner Slaughter acknowledged that although these issues “all stem from the same indiscriminate data collection,” these are broader than simply “privacy” issues and are worth investigating as prohibited unfair practices. Broadly speaking, the Commissioner would prefer to target problematic business practices rather than focus more narrowly on consumer knowledge and consent to companies’ data practices.

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NDI Letter Shows CBD’s Position Unchanged at FDA

The 2018 Farm Bill legalized hemp-derived cannabidiol (CBD) at the federal level, but in the nearly three years since then, little has changed from the perspective of the U.S. Food & Drug Administration (FDA). From the start, FDA’s regulatory position has been complicated by CBD’s previous approval as the active ingredient in the prescription drug Epidiolex. Subject to limited exceptions, the active ingredient in a drug cannot be added to food or dietary supplements. This restriction makes sense in the abstract – if a doctor has to prescribe something, it shouldn’t be available over the counter as a dietary supplement – but it has created a hurdle for CBD that many in the industry view as unfair. Ingredients that are commonly added to food or dietary supplements prior to becoming a drug are exempt from this prohibition, but because cannabis has been prohibited as a controlled substance, CBD never had an opportunity to be lawfully marketed in food and dietary supplements. Now that CBD is already approved as the active ingredient in a drug, it’s proving much more difficult for FDA to work around this restriction. Consequently, FDA prohibits adding CBD to a food or dietary supplement, but for practical purposes, it has only taken enforcement action against companies making drug claims in connection to the substance.

The latest development reveals that FDA’s position is unchanged. In August 2021, the agency released a letter to CBD company Charlotte’s Web stating that it will not approve the company’s application to market its Full Spectrum Hemp Extract product as a dietary supplement. This letter was in response to Charlotte’s Web’s submission under the New Dietary Ingredients (NDI) Notification process, by which a company notifies FDA that it wishes to market a dietary supplement with “new dietary ingredients.” Significantly, the process includes the agency’s review of information submitted by the manufacturer showing that the ingredient is reasonably expected to be safe. While FDA rejected the application on the grounds of CBD’s inclusion as the active ingredient in a drug, it also examined the evidence provided. FDA ultimately concluded that it still has concerns about the safety of the product, including that the studies did not address liver and reproductive toxicity. Charlotte’s Web issued a letter disputing FDA’s rationale and pointing to evidence on this issue, but it’s notable that the process even reached this point. Prior to this letter from FDA, and a similar one to Irwin Naturals released recently, the FDA considered NDI notifications solely on the basis of CBD’s presence in Epidiolex and did not evaluate safety information. Since CBD has been legalized, much of the conversation has centered around whether there is any testing showing its safety or benefits. The fact that manufacturers are starting to have that discussion with FDA shows how the industry is growing and developing the substantiation it will need for advertising claims. This may not alone overcome the prohibition on a drug ingredient in dietary supplements, but it is a strong sign for the industry and will be important going forward.

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Life in Plastic – It’s Fantastic

As the world contends with the ongoing COVID-19 pandemic, activists are sounding the alarm over another pandemic: the plastic pandemic. Environmentalist groups have been warning Americans about our overconsumption of plastic for years, but now states are taking notice and acting. California and Washington state recently enacted legislation establishing a tiered system designed to increase the amount of postconsumer recycled plastic (PCR) content required for sale. PCR is plastic that has completed its life cycle and has been reprocessed into a new product.

California’s AB 793 sets out a schedule for beverage manufacturers to meet. From Jan. 1, 2022, to Dec. 31, 2024, plastic bottles sold in California must contain no less than 15% PCR. From Jan. 1, 2025, to Dec. 31, 2029, plastic bottles sold in California must contain no less than 25% PCR. And by Jan. 1, 2030, plastic beverage containers sold in the state of California must contain no less than 50% PCR. Producers of plastic bottles that do not meet the standard are subject to a penalty. The penalty is decided through an equation: the total pounds of plastic used multiplied by the relevant minimum PCR percentage, less the pounds of PCR used multiplied by 20 cents. Continue Reading

COVID-19 Consumer Protection Act Shows Alternative Path to Monetary Remedies

A recent Federal Trade Commission (FTC) action demonstrates how the FTC has pivoted toward enforcement actions based on specific acts of Congress and rules in light of the Supreme Court’s ruling in AMG Capital. Congress passed the COVID-19 Consumer Protection Act in December 2020, which made deceptive acts or practices involving the treatment, cure, prevention, mitigation, or diagnosis of COVID-19 unlawful. Since the pandemic began, the FTC has sent hundreds of warning letters to companies allegedly making deceptive or scientifically unsupported claims regarding their products’ ability to treat or prevent COVID-19.

Despite the hundreds of warning letters, the FTC did not file its first complaint under the COVID-19 Consumer Protection Act until April 15, 2021. In United States v. Nepute et al., the FTC and Department of Justice alleged that Quickwork and its chiropractor CEO, Eric Nepute, deceptively advertised that its vitamin D and zinc products are scientifically proven to treat or prevent COVID-19. Notably, the FTC had previously sent Nepute a warning letter in May 2020 regarding the same practices. After receiving the warning letter, however, the advertiser continued to make claims such as “COVID-19 Patients who get enough Vitamin D are 52% less likely to die.” Continue Reading

Everywhere Commerce: Top Strategies for Mitigating Risk

Recent changes to our way of living have made it clear just how important it is for marketers and retailers to be thinking about the convergence of brand experience and commerce and redefining how consumers shop and interact with brands online. Join us virtually from 11-3:30 ET on June 15-16 for an opportunity to connect with peers and learn from business leaders and regulators as our advertising, digital risk advisory and cybersecurity, and class action defense teams host a mix of engaging panels and breakout sessions that will cover the latest developments, enforcement trends, and risk mitigation strategies. Approved for 8.0 hours CLE credit.

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Podcast: AD-ttorneys@law: The Future of Consumer Redress after Supremes Rule in AMG Capital Management v. FTC

In a highly anticipated recent Supreme Court decision in the case of AMG Capital Management v. FTC, the court ruled in favor of putting the brakes on consumer redress and the commission’s ability to protect consumers from unfair or deceptive practices in the marketplace. BakerHostetler partner Randy Shaheen discusses the ramifications.

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COPPA Compliance Back in Congressional Crosshairs

With more children getting online, the Federal Trade Commission (FTC) is not the only stakeholder concerned about reevaluating regulations related to children’s online privacy. Certain members of Congress are also seeking to review the current landscape of compliance with the Children’s Online Privacy Protection Act (COPPA). Note that the FTC received public comments regarding possible changes in implementation of the enforcement of COPPA in December 2019, and will be responding soon.

Sen. Edward Markey (D-Mass.) and Rep. Kathy Castor (D-Fla.) sent a letter to the FTC on April 21 asking the government agency to investigate around 150 mobile applications accessible through mobile app stores. Their concerns are related to how app store platforms address apps directed to children, including providing apps with a way to market the application through platform-approved family-friendly designation. The letter alleges that the apps are marketed as COPPA-compliant even though an investigation found the apps to be tracking user behavior and disclosing children’s personal information (including for advertising purposes), both without verifiable parental consent. Sen. Markey and Rep. Castor are also concerned that the app stores may have violated Section 5 of the FTC Act, which prohibits unfair and deceptive business practices. Continue Reading

SCOTUS: No Equitable Monetary Relief for FTC Under § 13(b)

Well, the buck stops here (for now). Last week, in AMG Capital Management, LLC v. Federal Trade Commission, the Supreme Court unanimously ruled that Section 13(b) of the Federal Trade Commission (FTC) Act does not authorize the FTC to obtain equitable monetary relief such as restitution or disgorgement. This highly anticipated landmark decision reverses decades of precedent and strips the FTC of one of its key enforcement tools for obtaining consumer redress. The decision will likely represent a sea change in FTC enforcement practices.

How did we get here? In 2012, the FTC sued race car driver Scott Tucker and a payday lending company he ran, AMG Capital Management (collectively, Tucker). The FTC alleged that Tucker engaged in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act by failing to clearly and conspicuously disclose that the loans issued would automatically renew, even after the customer paid off the loan, unless the customer affirmatively opted out. The FTC sued in federal district court under Section 13(b) and asked the court for restitution and disgorgement of Tucker’s ill-gotten gains in addition to injunctive relief. The court granted the FTC’s motion for summary judgment and its request for a permanent injunction and ordered the equitable monetary relief sought. Tucker appealed, arguing that Section 13(b) does not authorize the FTC to obtain the monetary relief granted because Section 13(b) only expressly authorizes the FTC to obtain injunctive relief against those who are violating or are about to violate the law. The Ninth Circuit upheld the district court’s decision, pointing to long-standing precedent giving district courts broad power “to grant any ancillary relief necessary to accomplish complete justice, including restitution.” Continue Reading