Court Invalidates New York’s Legalization of Fantasy Sports

The New York Appellate Division dealt a shocking blow to the fantasy sports industry by ruling earlier this month that daily fantasy sports contests are a form of gambling and that the law passed by New York in 2016 legalizing and regulating fantasy sports was unconstitutional.

Fantasy sports have historically had a rocky history with the state of New York. Back in 2016, DraftKings and FanDuel exited the state following a lawsuit filed by the New York attorney general alleging that these companies’ daily fantasy games violated New York’s prohibition on gambling. Later that year, the Legislature passed an amendment to the Racing, Pari-Mutuel Wagering and Breeding Law, declaring that what it referred to as “interactive fantasy sports” are not games of chance and do not constitute gambling under the state’s penal law. The amendment also created a regulatory scheme similar to those that were being adopted in other states to govern the operation of the contests. Following the passage of that amendment, a group of private citizens sued Andrew Cuomo and the state of New York. The lower court sided with the plaintiffs and ruled that the amendment was invalid. Continue Reading

Butt isn’t it just puffery if it is funny?

We’ve said it before, and we’ll say it again: NAD does not have a great sense of humor when it comes to false disparagement dressed up in a joke. And it hurts our hearts, as at least one of us really is a tween boy trapped in a middle-aged lady’s body. Yes, farts make Amy laugh. Hard.

In what may be one of the greatest lines in an NAD case report, from the challenger’s portion: “Char-Broil asserted Traeger’s sophomoric humor does not relieve it of its obligation to support its objective and extraordinarily pejorative claims.” Wow. So what happened here?

This was a cheeky little ad by a wood pellet grill maker targeting gas grills. Two neighbors (men, natch) are grilling side by side. The one grilling with wood pellets asks the other, “What flavor propane are you grilling with?” The propane griller responds, “Gas,” as he holds up a burnt piece of meat and says, “Smells like gas; let’s eat!” Partygoers eating food cooked on the propane grill try it and say it “tastes like gas.” As they keep repeating the phrase, it sounds like “tastes like ass.” (This brings to mind Kmart classics — the “ship my pants” ad and the “big gas savings” ad) Char-Broil said this was falsely disparaging because propane grills do not leave any gas taste on grilled foods. Continue Reading

The FTC, AI and Algorithms

If you got past the title to this point, congratulations – not sure that we would have. In exchange for your trust, we promise to try to address a complicated and fascinating subject in a relatively clear manner.

That’s pretty much what Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC) did in a recent speech on this topic, and the many companies increasingly utilizing artificial intelligence (AI) should pay heed (and if you think your company is not using AI or algorithms, recheck – it probably is). Commissioner Slaughter emphatically rejects the idea that an outcome or practice cannot be unlawful or cannot be remedied because it is the result of AI. And what kind of harms could there be from rogue AI?

  1. Denial of a benefit – you don’t get the job or the loan.
  2. Higher cost of a benefit – you get the loan or other product but at a higher cost.
  3. Denial of opportunity – you aren’t even presented with the opportunity to apply for the job or loan or to purchase the home or other good.

And what can cause AI to go awry even when designed with the best of intentions? We still don’t know what happened to HAL in 2001: A Space Odyssey, but Commissioner Slaughter provides four examples of how algorithms can go bad. Continue Reading

Who Can I Trust on the Way to the Dog Show? The FTC on Review Websites and Fake Reviews

I am making my annual pilgrimage next week to bring my mother to the Westminster Dog Show.  We need to stay and eat near Madison Square Garden, as she likes to be very close to all the action; plus, there is a chance we might be in the same hotel as Wilma the champion Boxer, and nothing could be better than that. But I am not a regular in the NoMad area, so I turned to reviews, rankings, ratings and recommendations. Sometimes we may doubt reviews written on a restaurant or hotel web page – they probably picked the best of the best to highlight. So we turn to articles or websites that research and rate various options. But can they be trusted?

The FTC’s recent proposed settlement with LendEDU gives us reason to pause. The complaint alleges the website promoted itself as a resource for consumer products to research options for financial products such as loans and insurance. The website provided star rankings and rate tables that it said were objective and unbiased.

The FTC alleged that LendEDU offered to improve the status of companies in exchange for higher payments per click. It is pretty clear that a company cannot say it is providing unbiased reviews but then offer to improve reviews in exchange for moneys. What is less clear is what happens if a review site is silent about its practices and provides a ranking without any indication that compensation is involved. Is there always an implied claim that review sites are free from the taint of filthy lucre? And what if the reviews themselves are neutral and objective as promised, but companies that are reviewed can pay for better visual highlighting or a more favorable placement than competing companies, even ones receiving a more favorable ranking? Is this a legitimate way for companies to monetize their web content or deceptive conduct?

In LendEDU, the company did have an “Advertiser’s Disclosure” link that at least in part disclosed that it was compensated by some of the companies featured on the website. We know that disclosures must appear in proximity to the claims they modify. The FTC has explained in its .com Disclosures Guide how to use and not to use hyperlinked disclosures. In the proposed order, the FTC takes hyperlinking off the table by defining “close proximity” to mean “that the disclosure is very near the triggering representation. For example, a disclosure made through a hyperlink, pop-up, interstitial, or other similar technique is not in close proximity to the triggering representation.” One might say this is the standard applied to LendEDU as a company now under FTC order, but it should give other companies pause as to whether the hyperlinked disclosure might be falling into even deeper disfavor.

In addition, the FTC alleged that positive reviews written about the LendEDU website were actually written by company employees and friends. We saw similar allegations recently in the Sunday Riley case, alleging the company encouraged employees to create fake profiles on Sephora to favorably review the company’s products. Shortly thereafter, Commissioner Wilson tweeted:

Perhaps she was foreshadowing this case, but there may well be others in the pipeline as well. It seems most of the FTC’s advertising cases now involve a count of fake reviews, both on an advertiser’s own websites and on third-party sites. I hear, often, things like, “we would never do that,” but claims of fake reviews seem to be so commonplace it would be a good time to really dig into the practices of your marketing department to make sure they are not engaged in any after-hours review activity. In addition, be careful about endorsing your client’s products. The LendEDU complaint included at ¶37 an allegation that a review of LendEDU’s comparison tool by LendEDU’s outside counsel should have disclosed the connection between the lawyer and the company.

Commissioner Slaughter issued a concurring statement in the LendEDU case that is a loud warning bark: “I write separately to highlight the importance of this case in addressing a cutting-edge market practice that I fear is becoming increasingly common online: purportedly neutral rankings and recommendations that actually reflect paid product placement. . . . Companies that engage in pay-to-play rankings and ratings should take heed: This conduct robs consumers of vital information, pollutes our online marketplaces, and violates the law, which will result in serious consequences.”

Anyone with organic, unbiased recommendations for where to go around Penn Station, please let me know!

The Ad Industry Wants a Delay to CCPA Enforcement As It Considers CCPA Cookie Compliance Frameworks and Ongoing Rulemaking

A letter penned by the top ad industry trade associations (the American Association of Advertising Agencies, the Interactive Advertising Bureau (IAB), the Association of National Advertisers, the American Advertising Federation and the Network Advertising Initiative) was sent on Jan. 29 to California Attorney General (AG) Xavier Becerra requesting a delay in enforcement of the California Consumer Privacy Act (CCPA) until at least six months from the final promulgation of the regulations called for by that new law, which became effective on Jan. 1. A first draft of the regulations was published on Oct. 10, 2019, the period for public comments on that first set of proposed regulations closed on Dec. 6 and the AG has yet to respond with revised rules. The legislature amended the CCPA back in 2018 to delay the AG’s enforcement until the earlier of six months from the finalization of the regulations or July 1, 2020. Given the state of the rulemaking, it is clear that July 1 will be the commencement of enforcement under the terms of the current statute, unless that date is pushed back. However, the problem, the letter points out, is that with no second set of regulations available, and accounting for the further comment, review and revision process that will follow them, it now appears likely “that the draft rules will not be finalized before, or only a short period prior, to the law’s July 1, 2020, enforcement date.”

The associations requested the further delay to allow companies more time to figure out how to implement the CCPA requirements given the “extraordinary complexity” of the law and the “wide range of open issues” in need of clarification. The letter goes on to explain that at least six months from the date final rules are available would be practically necessary to implement those rules. While the request is reasonable and would be sound policy for these reasons, it is unclear whether the enforcement date can be changed without legislative action, which is highly unlikely to occur. The CCPA gives the AG authority to “adopt regulations as necessary to further the purposes of this title,” and allowing sufficient time for businesses to design and implement compliance solutions that reflect the final regulations would seem to be in the spirt of that. In addition, the AG could exercise prosecutorial discretion to simply fail to take action on certain aspects of the law and regulations for a given period after the enforcement commencement date, to enable businesses reasonable time to implement the final regulations and any guidance that may accompany them. The AG’s office has stated that it received the trade associations’ letter, but that it will not be responding to anything outside the formal rulemaking process, so we will have to wait for the next version of the regulations to see if the AG adopts the associations’ reasoning. In any event, the AG has already stated that he does not believe the delay in enforcement is a safe harbor for noncompliance. Accordingly, businesses should be working expeditiously to implement their CCPA obligations based on the statute and the proposed regulations to the greatest extent practical. Continue Reading

Facebook vs. the FTC: It’s Not Over Till It’s Over

Federal Trade Commission Doorway SignYogi Berra did indeed once famously say, “It’s not over till it’s over.” (Actually, he said, “It ain’t,” but that would not have survived the proofreader’s scrutiny). Facebook must be thinking that too when it comes to its settlement with the FTC. Just to recap briefly:

On July 24, 2019, the Department of Justice (DOJ), on behalf of the FTC, filed a proposed settlement of the Commission’s long-running investigation into whether Facebook violated the terms of a previous consent order. The proposed settlement imposed several new restrictions on Facebook’s operations with respect to consumer privacy, including creating an independent board-level privacy committee and independent privacy compliance officers. In addition, the settlement proposed an eye-popping $5 billion civil penalty. However, the Commission vote to approve the filing of the proposed settlement was 3-2, with Commissioners Chopra and Slaughter both dissenting because they felt the proposed settlement was not tough enough.

The two democratic commissioners argued that while $5 billion is certainly a lot of money to me and you, it is a mere pittance to the likes of Facebook. In addition, they believed that the new compliance requirements were not sweeping enough and that the Commission should have given serious consideration to holding Facebook’s officers personally liable for the company’s alleged violation of its prior consent order. Continue Reading

FTC Takes a Peek at Loot Box Regulation

How many times have you felt the thrill of buying a lottery ticket? What about the excitement before opening a sealed pack of baseball cards or the curiosity before diving for a mystery prize in a cereal box? Now imagine digitalized versions of all these items – in your favorite video game – and they’re up for grabs, at least, for a price. Whether it is real money, game time, or in-game currency, you’re asked to pay for these digital mystery boxes, otherwise known as “loot boxes.” For most of these loot boxes, what you get is a surprise. For others, you can guess what you might get. But is this gambling?

Recently, the Federal Trade Commission (FTC), a regulator with the power to investigate and enforce against unfair and deceptive business practices, held a live workshop on loot boxes, their implications, and possible legal issues and regulatory solutions. The workshop featured panels of industry leaders, academics, researchers, and members of consumer groups.

Among the concerns about loot boxes are that they constitute or incite gambling or video game addiction; deceive consumers, as the odds or rarity of obtaining specific items may not be properly disclosed; warp children’s perceptions of the value of digital items; and serve as a vehicle to exploit the personal information of gamers. Continue Reading

CCPA Regs: “This is the meat on the bones….”

For our readers who are following and interested in CCPA developments (and what advertiser is not!?), please see today’s post in the Data Privacy Monitor summarizing the hot off the presses proposed implementation regulations.  The draft regs, announced via press conference today,  provide more detail on key topics of concern including what notices are required to be given to consumers and how notice is delivered; how to handle consumer rights requests; and requirements for verification of consumers making requests.  If you are one of the blissful minority not mired in CCPA compliance, the blog is still worth a look for its Star Trek trivia alone.

Read the full blog post >>

FTC on Influencers and Consumer Reviews from the NAD Conference

Earlier this week at the National Advertising Division (NAD) annual advertising law conference, Mamie Kresses, a senior attorney in the Bureau of Consumer Protection, Advertising Practices division at the Federal Trade Commission (FTC), offered her views on influencers and consumer reviews, two topics near and dear to our hearts. We wanted to share some key takeaways:

Use of Virtual and Nonhuman Influencers

Have you heard of Lil Miquela? She’s an Instagram model who has amassed a following to the tune of 1.6 million people and has collaborated with brands such as Burberry and Gucci. She’s even released her own music and music videos. But here’s the catch – Lil Miquela is a digital avatar, a CGI influencer that started out as a digital art project. Because she looks incredibly realistic, she presents unique issues with respect to advertising law.

What standards should apply to posts by virtual influencers like Lil Miquela (as well as nonhuman, but living, influencers, such as some of Instagram’s most popular cats and dogs)? Ms. Kresses suggested the standards really don’t change in this context, emphasizing that it is paramount to make it clear that what followers are seeing is an advertisement by using adequate disclosures. The group also recognized the inherent tension between virtual influencers making an endorsement and the standard underpinning endorsements – that they reflect the endorser’s truthful experience with the product. In other words, how can a virtual influencer actually endorse anything without being able to use the product? Ms. Kresses stressed that in this scenario, it is important to make clear not only that the post is an ad, but also that the influencer is virtual. This, she said, helps followers understand that the “authentic” post is not quite so. When asked if virtual influencer posts are inherently deceptive, Ms. Kresses stated that the FTC hasn’t taken a position yet, but the underlying principles of advertising law certainly still apply. Continue Reading

Are Made in USA Chickens Worthless? These and Other Deep Questions from the FTC’s Made in USA Workshop

Today the Federal Trade Commission (FTC) hosted a half-day workshop looking at Made in USA claims and the FTC’s guidance and enforcement. For those who want to watch “all or substantially all” of the event, the videos and materials can be accessed here. Some highlights and suggested next steps are below. By way of general background, the FTC has a Made in USA Enforcement Policy and related Business Guidance regarding its belief as to what claims run afoul of Section 5. The standard in a nutshell is that products advertised as Made in USA (or what the FTC has said are the equivalent claims Manufactured in USA, Produced in the USA, Built in the USA, and/or waving flags and eagles) is that the product must be “all or virtually all” of domestic origin, meaning that looking at the cost of goods sold, all but de minimis costs can be from foreign sources, including manufacturing costs and component parts. Many companies with U.S. manufacturing facilities make Made in USA claims, not appreciating that the FTC expects them to analyze their input costs as well and not focus only on where the product is “made” or “substantially transformed.” Because of this, the FTC has undertaken a fairly novel approach to enforcement. It engages in business and consumer education and brings several enforcement actions a year in egregious cases; but it also engages in significant less formal enforcement efforts, sending companies warning letters and giving them an opportunity to come into compliance short of a formal investigation and consent order process. The FTC documents these efforts on its Closing Letters page.

Andrew Smith kicked off the event. Jim Kohm, director of the Enforcement Division, introduced Hampton Newsome, Julia Ensor and Laura Koss (his staff moderating the panel) with self-deprecating humor, noting that when you hire people smarter than you are, your job gets to be highlighting where the bathrooms are – and proceeding to give such directions. Newsome, Ensor and Koss are longtime enforcement staff attorneys, with Ensor currently having day-to-day responsibility for managing the Made in USA enforcement program. The panelists consisted of manufacturing companies, retailers, trade associations and consumer advocates. Continue Reading