FTC One-Ups Itself with One Proposed Rule to Rule All Subscription Services

By Daniel Kaufman, Linda A. Goldstein and John P. Ferry on March 29, 2023 Posted in FTC

Mornings for advertising lawyers usually start slow – coffee in one hand and phone in the other while we glance at emails. Imagine our surprise the other morning when we saw that the Federal Trade Commission (FTC) had issued a press release and Federal Register Notice at 6 a.m. so that Chair Lina Khan could appear on NPR’s “Morning Edition” to talk about a new proposed Negative Option Rule. This had to be a big deal, and our assessment is that, yes, it is – if it’s finalized. The term “game changer” is used far too often, but this could be just that – a proposed rule that would cover virtually all subscription services, online and off, impose exacting requirements on cancellations and save-a-sale offers, require annual reminders, and create the threat of civil penalties for any and all misrepresentations made.

FTC Defendants Stumble After a Disorderly Race to the Courthouse

By Daniel Kaufman on March 24, 2023 Posted in FTC

Labor law attorney legal business concept internet technology.

Last June, the Federal Trade Commission (FTC) brought a lawsuit against Gravity Defyer and its owner in federal court, alleging that the defendants were making deceptive pain-relief claims for Gravity Defyer footwear. The lawsuit alleged violations of the FTC Act as well as violations of a prior FTC administrative order that had been entered against the owner back in 2001. (And, as you may know, FTC administrative orders last 20 years, so this was quite a close call on the timing front.)

The FTC had attempted to negotiate a settlement before filing the case. The company and owner, however, had a different idea and instead raced to the courthouse. They filed an action seeking a declaratory judgment that the FTC’s action was “unconstitutional under the First and Fifth Amendments” as well as an injunction barring the FTC from taking actions to “ban [Plaintiff’s] speech” based on a study involving the footwear in question. Soon after this action was filed, the FTC filed its lawsuit, and both matters were consolidated before the same court.

The ABCs of the ESRB

By Michael Ingram on March 22, 2023 Posted in ESRB

With “The Last of Us” on HBO racking up viewers and “Hogwarts Legacy” smashing records, there is no denying that video game culture is having a moment. But what should we be on the lookout for when advertising our games online? The Entertainment Software Rating Board (ESRB) is the self-regulatory organization that assigns age and content ratings to video games in the United States and Canada. Other countries have adopted their own rating systems, such as Europe’s PEGI and Germany’s Unterhaltungssoftware Selbstkontrolle (USK). For games being advertised globally, special care must be used to ensure proper localization and adherence to standards. The ESRB is an industry-created entity and as such does not have traditional enforcement powers. However, it may fine businesses up to $1 million if video game publishers are found to have misled reviewers or omitted content from the formal review process.

FTC’s 19th Public Commission Meeting – Some Drama and Some 6(b) Studies

By Amy Ralph Mudge and Daniel Kaufman on March 16, 2023 Posted in FTC

For those who haven’t been following Federal Trade Commission (FTC or Commission) news too closely for the past few weeks, there has been lots of turmoil and drama. A few weeks ago – on Valentine’s Day, no less – Commissioner Christine Wilson issued a statement in the Wall Street Journal that, let’s just say, was a less-than-flattering portrayal of the leadership, ethics and policies of FTC Chair Lina Khan. To be clear, our texts exploded that day, and it wasn’t because we were receiving loads of (or any) Valentine’s Day messages.

Perhaps coincidentally, the agency did not announce any sort of public meeting that month, much to our suspicious chagrin. Commissioner Wilson then let it be known that March 31 would be her final day as a commissioner. So we are safely predicting that this Commission meeting will be the last time we see the two of them on the same screen for quite some time. And of course, Commissioner Wilson’s departure will mean that, as of April 1, all the commissioners will be Democrats. That is highly unusual given the fundamental nature of the Commission structure, and we have thoughts about that.

But turning to the meeting: Did it have the drama we were so hoping for? Would there be any discussion of the Wall Street Journal statement? And what would Commissioner Wilson say at her final (for now) public Commission meeting?

First, the dish (because we do know our audience)

Well, there was drama of a somewhat political nature. And Commissioner Wilson clearly surprised her colleagues. Commissioner Wilson has been quite vocal about her recent dissenting statement in a competition matter that was required to be partially redacted by the Commission. Commissioner Wilson was quite concerned that the unredacted version of her statement had not been provided to members of Congress who have requested it, and she made a surprise motion that the unredacted statement be produced to Congress. The motion was not seconded, but the issue prompted some very real and spontaneous back-and-forth among the commissioners, which was tense and a bit uncomfortable but, at its core, reflected quite clearly the dramatic changes we have seen of late, with the agency becoming far more partisan and far more political. We anticipate that this is not the last we will hear about the specific issue raised by Commissioner Wilson.

Second, the substance

Two items were on the agenda today, and they both involve FTC 6(b) studies. Over the years, the FTC has issued many 6(b) studies, ranging from the annual studies of cigarette and tobacco marketing to a 2021 study on internet service provider privacy issues to a 2018 study on mobile security issues. Doing studies and reporting to the public is an important FTC function, and indeed, the FTC’s latest over-the-top budget request to Congress indicates an interest in doing more of these studies.

So, what is a 6(b) study, and why does it have such an odd name? In the FTC’s statute, 6(b) is simply the provision that gives the agency the authority to get information from outside entities and compile that information into anonymized reports for the public. And these studies will almost always involve nine or fewer subjects, given the challenges of the Paperwork Reduction Act, which come into play if the agency wants to study more than nine companies. In order to conduct such a study, 6(b) orders are issued to companies requesting information. These orders are similar in form to subpoenas, but they are specifically not for law enforcement purposes.

The first study is described as examining whether and how eight social media and video streaming platforms “monitor and review deceptive advertising on their platforms. Specifically, the Orders will examine the companies’ ad review practices and what, if any, measures they have taken to detect, prevent, and reduce deceptive advertising on their platforms, including advertising related to fraudulent health-care products, financial scams, and fake goods.”

As a legal matter, this of course raises some very real questions about the actual legal obligations that require such companies to screen ads that are placed on their platforms. As far as we know, all legitimate platforms do engage in intense ad screening, but our understanding has been that it falls much more clearly into the category of platforms doing the right thing as opposed to clear legal requirements that can lead to liability (based on laws as they currently stand). But that is a broader topic for another day and was not discussed at the meeting.

An FTC staffer provided an overview of the information being requested from eight social media and video streaming platforms. She explained that such platforms can provide unique opportunities for fraudulent marketers to reach consumers and raised concerns about the potential blurring of commercial and noncommercial messages. The study will look at how platforms scrutinize and limit ads regarding fraudulent products and scams as well as at means that platforms use to distinguish ads from other content. Other areas of focus included whether the same processes are used for Spanish language ads as well as some ads of particular concern, including ads for cryptocurrency, substance use disorder and weight loss.

As for the commissioners, Chair Khan expressed her strong support for the study and is concerned about frauds proliferating on social media. She also indicated an interest in better understanding personalization and targeting tools that may allow for more precise targeting by bad actors on the platform. Commissioner Rebecca Slaughter said there are far too many “scammy” ads out there that pose real dangers to real people, including through misinformation. Commissioner Wilson emphasized the importance of these studies and said the topic of this study was beneficial for consumers. She expressed concerns about the resources needed here, particularly given the other studies and rulemakings that are already underway. Commissioner Alvaro Bedoya expressed his support of the study as well.

And of course, if you are not at one of the eight companies that will receive one of the 6(b) Orders, don’t breathe too big a sigh of relief. This issue of platforms and ad screening is an important one and we are confident the agency will continue to look closely at company practices here.

One additional thing to note: Back in 2020, the FTC commenced a 6(b) study of nine social media and streaming services to study what information they collect and how they use such data. That study – which involves many of the same companies — has been going on for more than two years now, with no word yet on a completion date. So do not expect reports on the new topics for quite a long time.

The second study is smaller in scale and is seeking information from five “small business credit reporting agencies.” This study is designed to better understand “how they collect and report data about small businesses, and how they market their business credit reporting products.”

In discussion, Commissioner Slaughter emphasized the importance of this issue and that this study is good follow-up from a recent FTC enforcement action regarding the issue of small-business credit reporting. Commissioner Wilson expressed her support for this study as well but also flagged her resource concerns. Commissioner Bedoya also expressed his support.

And finally, for the consumer portion of the meeting, we heard from some of the same participants we hear from most months as well as a few others. Issues raised included undisclosed influencer marketing, the proposed noncompete rulemaking (and in particular, the opportunity to file reply comments), pending mergers and the FTC’s recent request for information on franchise issues. Commissioner Wilson did respond to the franchise issue and expressed her concerns about the press release that the agency issued and the decidedly non-neutral approach that the agency is taking in this area. (For what it’s worth, we had raised some similar concerns in a recent blog post here.) She also indicated that reply comments would be a good idea in the noncompete rulemaking.

Meeting adjourned

Can I Run March Madness Promotions? And How Legal Is That Bracket Challenge?

By John P. Ferry on March 15, 2023 Posted in Advertising

March Madness is upon us! Whether you’re filling out multiple brackets or studiously avoiding a certain co-worker because your team missed out, odds are you’re aware the annual men’s and women’s college basketball tournaments are here. But you may also be wondering, how can my business capture the moment in its advertising?

The short answer: very carefully. March Madness is a trademarked term, and the NCAA, the organization that runs college athletics, aggressively protects against unlawful use of its trademarks. That means if you’re seeking to use March Madness in connection with advertising for your business, you need to receive a license from the NCAA first. And before you decide to instead use one of the several other terms associated with the college basketball postseason, make sure you check that the NCAA hasn’t trademarked it as well. Well-known phrases like “Final Four,” “Elite Eight” and “the Big Dance” as well as more obscure references like “Spring Madness” and “Markdown Mayhem” all are trademarked. Even the generic “NCAA Championships” is on the list. Unfortunately, we’re not aware of a common moniker that can safely invoke college basketball in the same manner that “the Big Game” is used for the Super Bowl. Best practice is to apply for a license from the NCAA if you intend to market around the event.

This leads into our next question: is a bracket challenge legal? Brackets are all the rage in March, and businesses may see them as a great way to draw eyeballs. For any public bracket challenge, your business needs to address the trademark issues highlighted above. Once that’s handled, the next issue to consider is whether your promotion could constitute an illegal lottery. Lotteries contain three elements: consideration, chance, and a prize. While there are some exceptions, such as state-run lotteries and licensed casinos, lotteries are generally unlawful. Unfortunately, this includes bracket challenges that have an entry fee. The fee is consideration; predicting who will win is chance; and, assuming the winner gets something, that’s a prize. Some of you may think completing a bracket shouldn’t constitute chance because you’ve developed a highly advanced system to predict the winners. That all goes out the window, though, when your friend who picked games based on team mascots wins it all. In fact, the odds of picking a perfect bracket are significantly lower than winning Powerball. Despite all the research you might put into it, a bracket challenge with an entry fee is a lottery.

You may be saying, “These can’t be illegal – I see them all the time!” And that’s true! Bracket challenges can legally operate the same way that sweepstakes do – by removing the consideration element from the promotion. In other words, if you don’t charge an entry fee in order to enter the bracket, then it’s no longer a lottery. Keep in mind that anything of value can be consideration. Businesses should be careful not to replace paid entry with some other form of consideration, such as completing a task that would take a substantial period of time. But generally, if users can enter for free without significant hassle, then the promotion can proceed. Instead of being a lottery, the challenge becomes a kind of sweepstakes. While sweepstakes are lawful, they trigger certain legal requirements, such as drafting official rules. If you’re offering a bracket challenge, be sure to check with legal counsel on not only trademark requirements but also lottery and sweepstakes issues. Now, back to picking that perfect bracket!

FTC Ratchets Up Focus on Franchise Issues

By Daniel Kaufman on March 14, 2023 Posted in FTC

Shop supply lines. Logistics and maintaining facilities equipment. Franchise business. Business management. Process optimization. Investment and network expansion. Trade coverage. Stores outlets

Ian Fleming famously wrote, “Once is happenstance. Twice is coincidence. Three times is enemy action.” Although we aren’t quite talking enemy action here, we are seeing heightened Federal Trade Commission (FTC) interest in issues involving franchises.

First, in 2020, the FTC hosted a workshop, “Reviewing the Franchise Rule.” Second, in 2022, we saw the FTC (along with the Department of Justice) bring an action against Burgerim alleging violations of the FTC’s Franchise Rule as well as of the FTC Act. That litigation is ongoing and is one of the first such actions filed in many years. And then, third, quietly on a Friday afternoon, the agency issued a request for information (RFI) on “franchise agreements and franchisor business practices, including how franchisors may exert control over franchisees and their workers.”

As background, the Franchise Rule is quite limited in nature – it generally requires certain disclosures of information to prospective franchise purchasers before they invest. Of course, through the FTC Act, the agency can exert far more authority over franchises that can far exceed the limited reach of the rule.

Given the FTC’s expanded interest of late in issues involving workers (such as the non-compete rulemaking), we thought this somewhat unusual RFI warranted a deeper dive. The RFI is not connected with any rulemaking; it is instead a broad request regarding industry practices that may be unfair or deceptive. The press release quotes an FTC official as stating, “This RFI will begin to unravel how the unequal bargaining power inherent in these contracts is impacting franchisees, workers and consumers.”

The RFI, which was issued without commission vote, spells out a variety of areas of interest to the agency. And it covers quite a wide range of topics and questions, including:

The ability of franchisees to negotiate terms of franchise agreements.
The ability of franchisors to make unilateral changes to the franchise system.
The prevalence of agreement provisions that restrict or relate to various wage or hiring issues.
The existence (and enforcement) of terms that relate to non-disparagement and goodwill issues.
Allegations regarding retaliation against franchises.
Information regarding a variety of financial relationships and activities.

It is worth noting that the FTC materials on this RFI request are – to put it mildly – not exactly framed in a neutral fashion. The focus on control and unequal bargaining power certainly suggests that the starting point for this review reflects deep agency concerns with the franchise model and its impact on franchisees. And notably, the press release and RFI do not make clear what the agency will be using this information for, but certainly options could include using this information to initiate a broad Magnuson-Moss Warranty Act rulemaking on franchise issues that would go far beyond the current limited rule.

And it is also worth noting that franchise issues were frequently raised by former FTC Commissioner Chopra when he was at the agency. This included TV appearances and statements made at meetings of franchisees and dealers where he claimed that the government “hasn’t cared” and raised concerns regarding the “imbalance of power inherent in this business model.” And we have also seen some broader congressional interest in these issues.

It certainly seems that we are heading in the direction of far more FTC engagement and interest in franchise issues, and this is a space we will monitor closely. Comments responsive to the RFI are due May 9.

The Federal Trade Commission’s New Health Product Compliance Guidance

By Randal M. Shaheen and Daniel Kaufman on March 13, 2023 Posted in Advertising

Join Randy Shaheen and Daniel Kaufman as they discuss the Federal Trade Commission’s new Health Products Compliance Guidance. During this webinar, they will share their insights about the new Guidance, highlight areas of particular importance for anyone involved in marketing or analyzing health claims, and explain how this new document differs from the agency’s two-decade-old Dietary Supplement Guidance. This session is the third event in our monthly 2023 Advertising CLE Webinar Showcase. The program is approved for 1.0 hour of CLE credit.

NAD Whitening Strips Case Illuminates How NAD May Incorporate New FTC Health Claims Guidance

By Amy Ralph Mudge on March 8, 2023 Posted in NAD

So our holiday gift from the FTC, which flew a bit under the radar if you ask us, was the Health Products Compliance Guide. This was quietly heralded as an update to the 1998 Dietary Supplement Advertising Guides, but oh dear readers, it is so much more. I don’t want to be overly dramatic, but I think it will be the FTC’s 2023 bestseller, cited more often than any other case, rule, or guidance. We shall see. The FTC gives a pithy overview of the new guidelines in this blog. (We also have an upcoming webinar covering the topic in March – details here.)

What seems clear is that NAD is reading this document with a fine-tooth comb, and one can expect to see this guidance followed to a tee as far as what is expected from advertisers for all manner of health claim substantiation. I also suspect that use of the guidance will not be limited to dietary supplement cases but will find its way into review of any performance claims for FDA-regulated products, including cosmetics and foods. While this guidance was not directly cited in NAD’s most recent case, the principles were closely followed. The short summary is that randomized controlled human clinical trials are expected in most cases to support health claims, and the studies themselves have to carefully link up to the claims they purport to support. If you have a bit more time to spare, apply some whitening strips of your brand of choice and settle back while we dive in.

FDA Launches New Directory of Ingredients Used in Products Marketed as Dietary Supplements

By Laura Macherelli, Daniel Kaufman and Marc Wagner on March 7, 2023 Posted in FDA

On March 6, the FDA announced the launch of its new “Dietary Supplement Ingredient Directory.” According to the FDA, the directory is “a one-stop shop of ingredient information that was previously found on different FDA webpages.” It will allow users to search for information on ingredients in dietary supplements and quickly find links to agency actions and communications. Concurrently, FDA is retiring the existing “FDA Dietary Supplement Ingredient Advisory List.”

At the time of publication, the directory is currently a list of 27 ingredients that have been marketed as dietary supplements. The majority of the information linked to these 27 ingredients is FDA safety communications and Warning Letters.

Folks Might Be Chicken to Use Green Seals After Reading This NAD Case

By Randal M. Shaheen and John P. Ferry on March 3, 2023 Posted in NAD

Last week, we blogged about an environmental ESG NAD challenge brought by an advocacy group; this week features a blog about an animal welfare ESG NAD challenge also brought by an advocacy group.

The challenge was brought by the ASPCA against One Health Certification Foundation, which runs the One Health Certification program for poultry. The Foundation’s seal is below.