16th Public Commission Meeting – All About the Biz Opp Rule

Areal view of dazzling Toronto cityscape during a blue hour using long exposure, zooming in bokeh mode.

So today’s Federal Trade Commission (FTC or Commission) meeting was a bit of a narrowly focused affair – all about the Business Opportunity Rule (Rule), which is a long-standing FTC rule that generally requires “business opportunities” to provide buyers with a one-page Disclosure Document as well as an Earnings Claims Statement if the opportunity makes earnings claims.

An FTC staffer provided a helpful overview of the Rule, described it as a “pre-sale disclosure rule” and noted that there are many concerns raised by consumers in this area. The staffer then described the proposed Advance Notice of Proposed Rulemaking (ANPR), which was pretty standard fare. There were the usual questions, such as whether the Rule should be retained or modified, and also questions about whether the Rule should be expanded to cover other earnings opportunities, such as coaching services, e-commerce opportunities or investment opportunities. The staffer also noted that because there is some overlap here with the FTC ANPR on earnings claims, those comments will automatically be considered here and do not need to be resubmitted.

As for the commissioners, well, we would diplomatically say that the discussion was muted and non-confrontational or perhaps even low-energy. Chair Khan seemed to support eventually broadening the Rule. Commissioner Slaughter was on board too. Commissioner Wilson noted that the Rule adds value by addressing information asymmetries in this area. And Commissioner Bedoya flagged a few of the questions he is particularly focused on.

As for the consumer portion, for us, the high point was when a consumer started speaking and all of a sudden, the transcriber (we believe) broke in and asked a speaker to slow down; that caught us off guard, and we are clearly easily entertained. As for the substance, lots of talk about pharma, labor and competition, and multi-level marketing, and lots of discussion about the recent competition policy statement discussed below.

But we must ask one question about these meetings and their goal. One week before this meeting, the Commission issued (with one dissenting vote) a Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act. Now, this is primarily an advertising blog, so we didn’t cover this policy statement, but in the competition world, this statement is a very big deal.  (Although there is overlap we will discuss in the future, including the prohibition on using false or deceptive advertising or marketing that tends to create or maintain market power). Our question is this: Why wasn’t this policy statement on the agenda for discussion at one of these meetings? We have seen countless other policy statements discussed at these meetings, and indeed, we have previously wondered about the large volume of such policy statements. But this very significant policy statement somehow didn’t make the cut. Perhaps there is a reason for this, but if the goal of these meetings is transparency, visibility and dialogue, we remain puzzled about such an approach for such an important document and issue.

And finally, we return to the beginning. At the outset of the meeting, Chair Khan noted the recent passing of Michael Pertschuk, the former FTC chairman, who had been named to the position in 1977 by President Carter. His obituary can be found here.

The 15th Commission Meeting Brings Us Back to the 1970s with More Rulemaking

a mirror ball in a discotheque with some young people in background

If there were any question whether the current Federal Trade Commission (FTC) was reenacting the 1970s, that question has been put to rest. And unfortunately, it’s not about seeing Grace Jones, Liza Minnelli and Andy Warhol at Studio 54 or wearing our finest velour shirts; the 1970s also saw quite a lot of rulemaking at the FTC.

But before we turn to the meeting, we do have to observe that this was the first public meeting after Commissioner Noah Phillips left the agency for other pursuits. We will miss his monthly insights and thoughtful analysis of the issues facing American consumers. And, of course, we will also miss his expert turn of phrases and seeing his kids’ most recent masterpieces proudly displayed behind him. We wish him the best, and the commissioners all had similar sentiments.

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Brought to You by the FTC: Event on Digital Marketing and Blurred Advertising to Kids

Amy Mudge and Daniel Kaufman

Yesterday, the Federal Trade Commission (FTC) hosted an event to look at kids’ digital marketing. Here is a rough transcript; and if you have a spare five hours, you can watch the videos, which will soon be posted on the event page.  The big question is whether the FTC will update its updated Testimonial & Endorsement Guides (or issue other mandates) with kid-specific requirements based on this event. (As an aside, these things used to be called “workshops.” For reasons that escape us, that term appears to be passe at the current FTC. Wouldn’t it be more festive to call them soirees, galas, thought  raves or to dos if you wanted to rebrand?)

The event came out of the proposed changes to the Testimonial & Endorsement Guides. When issuing the updates for comment, the FTC basically punted on additional guidelines just for testimonials focused on kids. For many years, the FTC explained that all of its guidance applies to all consumers regardless of their age, but the sophistication of the target audience should be taken into account when determining what disclosures will be effective. In the proposed revision, the FTC put in a place marker for Kid Endorsements, saying, “Endorsements in advertisements addressed to children may be of special concern because of the character of the audience. Practices which would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.” Simultaneously, the FTC scheduled this event to gather more information.

The day was divided into three panels – looking at kids’ cognitive abilities to understand advertising and advertising disclosures, potential harms from kids seeing blurred ads, and potential fixes for the same. Mamie Kresses, the director of the Children’s Advertising Review Unit (CARU), set the table by reviewing the self-regulatory landscape and summarizing their recent cases in the digital space.

There was a fair amount of discussion about the bar on the FTC to adopt rules directed to kids’ advertising under the FTC’s unfairness jurisdiction. Congress put this ban in place after the KidVid days when the FTC was mocked for its overreach and called the National Nanny for trying to bar certain ads directed to kids. This may not, however, prohibit the FTC from engaging in rulemaking over conduct it considered misleading or deceptive as directed at kids online. There was less discussion about West Virginia v. EPA, in which the Supreme Court ruled that regulatory agencies must have “clear congressional authorization” to make rules pertaining to “major questions” that are of great political or economic significance. But this FTC shows no lack of temerity in its enthusiasm for kicking off rulemakings (as we will discuss in tomorrow’s blog reviewing today’s Open Commission meeting).

As far as the event itself, setting aside the outlier views (advocates who said parents can police effectively on the one hand and many of the children’s advocates who said all digital ads to kids should be banned), our sense is that the FTC will likely add some more specific guidelines for online disclosures for ads directed to children, including perhaps adopting the CARU requirements of repeated audio and video disclosures. We would not be surprised if the FTC recommended using very simple words for disclosures like “ad” and “paid.”

YouTube discussed its current program with icons and other specific disclosures for kids and an accompanying education program, including research it has done showing that kids do understand these disclosures. Doing quantitative research on kids’ understanding of any ad disclosures is clearly a best practice.

It is not clear if the FTC will use the Children’s Online Privacy Protection Act definition of “kids” and focus on recommendations for under 13 and 13+, because there was a lot of discussion about the cognitive abilities and harms to people online from under 5 up to 17, as well as harms to older kids who are not neurotypical and disproportionate harms to children from socially disadvantaged backgrounds.

The day was very muddled as far as what is an ad versus what is content created by brands. Some presenters focused on an ad, appropriately in our view, as something that promoted the sale of a product or service. Some presenters did not seem to recognize such a distinction and seemed to imply that content created by brands was inherently commercial. We don’t think the FTC will wade into a detailed determination of where the ad/content line is drawn, but it is most definitely an area brands that create content (and who doesn’t these days?) should be mindful of and continue to consider carefully, as far as where to draw those lines.

There was a fair amount of discussion of advergaming. In the first panel focused on kids’ cognitive abilities, the panel talked about virtual influencers, noting that many avatars appear to be very friendly. They surmised that young kids may be more likely to see these influencers as friends and trustworthy.

The FTC is open to additional views and is particularly welcoming of quantitative research in this area. It will hold the comment period open another month.

Color Us Majorly Surprised – Company Gets the FTC to Change Its Press Release

A few weeks ago, we wrote about an interesting development in what had been a fairly standard Federal Trade Commission (FTC) Made in the USA (MUSA) settlement. In short, the company had some major beef with the FTC’s press release about its case. The company and its owner filed a motion to get out of its settlement and to make the FTC change its press release, which, among other things, accused the company of “lying.”

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Instead of Shining a Light on Dark Patterns, New FTC Report Leaves Many Questions Unanswered

For some time now, dark patterns have been quite the trending topic for both marketers and privacy professionals. Regulators have frequently railed against dark patterns that purport to manipulate user choices, usually through manipulative user interfaces. A bipartisan group of lawmakers introduced legislation called the DETOUR Act that would ban dark patterns. And outside this country, the European Data Protection Board issued some interesting guidelines on the topic.

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Coinbase Decision Highlights Importance of Official Rules’ Dispute Provisions

In a rare example of a sweepstakes leading to litigation, Coinbase and its promotion agency, Marden-Kane, were sued over a sweepstakes run by Coinbase and administered by Marden-Kane titled “Trade Doge. Win Doge.” As part of that sweepstakes, Coinbase offered prizes totaling $1.2 million of Dogecoin to individuals who purchased or sold $100 worth of the DOGE cryptocurrency on the Coinbase exchange. Of course, in order to comply with federal and state lottery laws, the sweepstakes rules also included an alternate method of entry (AMOE), which allowed consumers to enter for free without making a purchase. Specifically, under federal and state laws, a promotion that contains all three elements of prize, chance and consideration is considered a lottery and is generally unlawful outside specific contexts, such as licensed casinos and state lotteries. Since sweepstakes by definition include the elements of chance and prize, the element of consideration must be eliminated in order for the promotion to be lawfully conducted. While many sweepstakes, including the Coinbase promotion, award sweepstakes entries in exchange for a purchase or payment, they rely on an AMOE to eliminate the element of consideration. In short, as long as there is also a free way to enter the sweepstakes, entries can be given to those who make a purchase. In this case, although Coinbase and Marden-Kane did include an AMOE, the plaintiffs challenged the promotion on multiple grounds. First, the plaintiffs claimed that the sweepstakes was a lottery notwithstanding the existence of an AMOE. Second, they alleged that even if there was an AMOE, it was not adequately disclosed and the promotion therefore violated various sweepstakes disclosure requirements, was misleading and deceptive, and violated the California Consumer Legal Remedies Act (CLRA).

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The 14th Public Commission Meeting – Dark Patterns, Imposter Rulemaking and Yet Another Policy Statement

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After a surprise three-month hiatus, we are back in business with our Federal Trade Commission (FTC or Commission) public and totally unscripted meetings. Candidly, we were a bit surprised to see the return of these meetings, but not quite as surprised as the realization that Kate Bush had the Song of the Summer in 2022. This also was the first Commission meeting since Commissioner Noah Phillips announced that he would be leaving the agency at an unspecified time in the fall. There’s no intel on where he is going, but campaigning for his slot has apparently already commenced.

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So Many Words – The FTC’s Recent Strategic Planning Reports Do Actually Matter

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Because I’m someone who is inherently suspicious, my antennae perked up the other Friday when the Federal Trade Commission (FTC) released its annual strategic planning documents. Friday releases in the summer always make me suspicious (what are you trying to bury on this Friday afternoon when I am pondering the weekend?); further, these documents included one Republican commissioner’s (Christine Wilson) dissent and one Republican commissioner not participating (Noah Phillips). These reports are usually pretty noncontroversial, but not this time around.

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Roomster Gets a One-Star Review from the FTC and Six States

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2022 continues to be the Year of the Review for consumer protection law enforcers. We have seen several cases already this year, and the latest suit has the added bonus of the Federal Trade Commission (FTC) teaming up with a bipartisan group of six states to sue one company and three individuals. The company of the day is Roomster, a platform that connects people with roommates or rental properties. The individual named defendants are Roomster’s co-owners, who are also the CEO and chief technology officer, as well as an individual who allegedly provided Roomster with the fake reviews.

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There Is Bad Press: FTC Defendant Sues the Agency Over an Over-the-Top Release

usinessman holding global customer network connection in hands.Technology  and structure networking and data exchanges communication on dark blue background. Elements of this image furnished by NASA.

P.T. Barnum famously said, “There’s no such thing as bad publicity.” Oscar Wilde, however, gave that quote his own spin and said, “There’s only one thing in the world worse than being talked about, and that is not being talked about.” Well, some folks most definitely disagree when a whole settlement potentially is tanked over a press release.

The other week, the Federal Trade Commission (FTC) announced a new law enforcement action against a marketer of personal protective equipment that allegedly violated multiple laws in connection with Made in the USA (MUSA) claims that it made for its products. The agency alleged that the company (and its owner) violated the FTC Act and the COVID-19 Consumer Protection Act through certain efficacy claims, and it violated the MUSA Labeling Rule by using MUSA labels when the products used a significant number of imported components. The company and owner settled for a suspended redress judgment and a $157,000 civil penalty.

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