ABA Section of Antitrust Law Consumer Protection Committee:

Consumer Protection Update October 2014

Presented by: Tom Jirgal Liv Kiser

David Mallen

LOEB & LOEB LLP November 19, 2014

© 2014 LOEB & LOEB LLP

Federal Update

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FTC Consumer Protection Activity

FTC v. JDI Dating, Ltd., U.S.D.C., N.D. Ill. Oct. 30, 2014 (Case 1:14-cv-0840) • First law enforcement against online dating service.

• Dating site lured users by inviting them to establish free profiles. Users then received messages from computer-generated profiles, and they could not respond to these sham messages without upgrading to paying memberships.

• Settlement order prohibits the defendants from misrepresenting material facts and failing to disclose clearly to potential members that they will receive communications from virtual profiles who are not real people.

• Fine: $616,165

FTC Consumer Protection Activity

In the Matter of HealthyLife Sciences, LLC (October 22, 2014)

• FTC entered into a consent decree with a company that had marketed a Healthe Trim line of products, which used the tagline “Get High School Skinny.” The products promised rapid weight loss, without exercise or dieting, and relied heavily on consumer testimonials that portrayed losing weight as easy.

• The owner of the company, John Matthew Dwyer III, has reportedly agreed to being banned from the weight loss industry.

• The FTC has publicly advised the following claims are scientifically infeasible, with respect to any supplement, over-the-counter drug, or any product rubbed into or worn on the skin:

• The product causes permanent weight loss, • Weight of two pounds or more a week for a month or more without dieting or exercise; • Causes substantial weight loss no matter what or how much the user eats; and • Causes substantial weight loss by wearing a product on the body or rubbing it into the skin

FTC Consumer Protection Activity

FTC v. AT&T Mobility, Inc.

• Although AT&T promised “unlimited data” to these customers, the speed is diminished substantially once a subscriber reaches AT&T’s set amount of data. “Unlimited” becomes, in effect, “unlimited… but at drastically reduced speeds.”

• Complaint alleges violations of FTC Act. AT&T failed to disclose data speed restrictions, which was an unfair and deceptive practice given the company’s representations and advertising.

FTC Consumer Protection Activity

U.S. v. The Zaken Corp., (C.D. Cal. Oct. 21, 2014) (Case No. CV 12-09631)

• Final order with injunctive relief issued in ongoing case brought by Justice Department against individuals and entitles involved in marketing and selling “QuikSell,” a work-at-home scam.

• Court had previously ordered that defendants pay over $25 million in refunds to consumers who were conned with bogus claims that they could earn substantial income working at home. Court found that more than 99.8 percent of the 110,000 consumers affected by the scheme earned no money.

• Defendants permanently banned from advertising or selling work-at-home or other business opportunities. Court entered a $25.4 million judgment for consumer redress against them, as well as a permanent injunction.

FTC Consumer Protection Activity

FTC v. Acquinity Interactive, LLC, (S.D. Fla. Oct. 16, 2014) • Three separate FTC settlements involving charges that the defendants sent “unwanted text

messages to millions of consumers, many of whom later received illegal robocalls, phony “free” merchandise offers, and unauthorized charges crammed on their mobile phone bills.”

• Approximately $10 million in total settlement amount to be paid to FTC

• Charged companies violated FTC Act and Telemarketing Sales Rule by offering consumers purportedly free merchandise, such as $1,000 gift cards to large retailers, and products such as an Apple iPad. Companies also crammed phones with messages and engaged in illegal mobile phone billing

• In addition to cash settlements, the various defendants are banned from various telemarketing practices, such as misrepresenting whether a product is free through a text message or webpage; they are required to obtain consumers’ express informed consent.

FTC Consumer Protection Activity

FTC v. IAB Marketing Associates, LP (N.D. Tex. October 14, 2014) • Defendants operated as the bogus trade association Independent Association of Businesses

(IAB),and “preyed on consumers who sought health insurance.” Consumers submitted their contact information to websites purportedly offering quotes from health insurance companies. They paid an initial fee ranging from $50 to several hundred dollars, and a monthly fee ranging from $40 to $1,000 purportedly for comprehensive health insurance coverage, but instead they were enrolled in an IAB membership.

• Enormous settlement, following previous action against related entities, who were banned by a federal court from selling healthcare-related services.

• Fine: $125 million judgment that will be partially suspended once the defendants surrender assets valued at almost $2 million, including $502,000 in IRA funds and personal property that includes five luxury cars (a Lamborghini, two Mercedes, a Porsche, and an MG Roadster).

FTC Consumer Protection Activity

FTC Sends Warning Letters to Marketers of Oxo-Biodegradable Plastic Bags • The FTC sent warning letters to 15 plastic bag advertisers cautioning them that their

"oxodegradable," "oxo biodegradable," and "biodegradable" claims may be deceptive.

• According to the FTC, oxodegradable plastic is made with an additive intended to cause it to degrade in the presence of oxygen. Most waste bags are intended to be deposited in landfills, however, where not enough oxygen likely exists for oxodegradable bags to completely degrade in the time consumers expect. Contrary to the marketing, therefore, these bags may be no more biodegradable than ordinary plastic waste bags when used as intended.

• FTC Green Guides advise that unqualified “degradable” or “biodegradable” claims for items that are customarily disposed in landfills, incinerators, and recycling facilities are deceptive because these locations do not present conditions in which complete decomposition will occur within one year.

FTC Consumer Protection Authority

In the Matter of MPHJ Technology Investments, LLC,

• Proposed settlement in FTC’s first action based on ts consumer protection authority, against a patent assertion entity (PAE). PAEs are companies that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology.

• According to complaint, MPHJ bought patents relating to network computer scanning technology and, with aid of law firm, sent letters to thousands of small businesses threatening patent infringement suit, falsely representing that others had bought licenses.

• In proposed consent order, MPHJ and affiliates would agree to refrain from making false or unsubstantiated representations that a patent has been licensed in substantial numbers or has been licensed at particular prices. The proposed order also would prohibit misrepresentations that a lawsuit will be initiated and about the imminence of such a lawsuit.

FTC Consumer Protection Activity

In the Matter of True Ultimate Standards Everywhere, Inc. d/b/a TRUSTe, Inc. • The FTC complaint alleged that in over 1000 instances between 2006-2013, TRUSTe -- the

privacy seal certification company – failed to conduct annual recertifications of companies carrying the TRUSTe privacy seal despite its website claim that it provided yearly recertifications.

• Although TRUSTe became a for-profit corporation in 2008, it failed to require companies using TRUSTe seals to update references to the organization’s nonprofit status.

• As part of the settlement, TRUSTe’s will be required to disgorge $200,000, will have increased reporting requirements under COPPA, and cannot make further misrepresentations about its certifications or corporate status.

FTC and Florida AG Obtain Settlements Against Robocallers Selling Medical Alert Devices to Seniors

FTC and State of Florida v. Worldwide Info Services Inc., et al., Case No: 6:14-cv-8-Orl-41DAB (M.D. Fla. Nov. 13, 2014) • The claim: Robocalls informed seniors that the medical alert devices were “free” by falsely

representing that the devices had been purchased for them by a relative or friend and that they had been endorsed by various health organizations.

• The settlement bans defendants from future robocalls, prohibits other telemarketing activities, and bars them from making misrepresentations related to the sale of any product or service.

• Also includes a judgment of nearly $23 million (the government will suspend most of the judgment once defendants surrender assets including cash, cars, and a boat).

FCC Privacy Developments

FCC Junk Fax Order (Oct. 30, 2014)

• The Federal Communications Commission ruled that companies must include opt-out instructions on all fax advertisements they send, even those that consumers have agreed to receive, in order to avoid running afoul of an amendment to the Telephone Consumer Protection Act's junk fax prohibitions.

• Advertisers must include information on all fax ads they send that clearly and conspicuously informs recipients about how to opt-out of future communications.

State Regulatory Update

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State Regulatory Enforcement

California Attorney General Issues 2013 Data Breach Report

• Details 167 data breaches disclosed in 2013 that exposed 18.5 million California residents' personal information.

• Data breaches in 2013 were classified into four categories: (1) malware and hacking, (2) physical theft and loss, (3) errors, and (4) misuse. More than half of all computer penetrations in 2013 were caused by hacks classified as malware and hacking.

12 Recommendations for Industry Include:

• Conduct risk assessments at least annually and update privacy and security practices based on the findings;

• Use strong encryption to protect personal information

• Improve the readability of breach notices.

Also recommendations for legislation to strengthen notification requirements

Massachusetts AG Obtains Consent Judgment Against Marketers of Vacation Club Memberships

Commonwealth of Mass. v. Caliri et al., Case No. 10-2647F, (Sup. Ct., Suffolk Co., Mass., Nov. 13, 2014) • Travel club owners and employees agreed to a consent judgment and a permanent bar against

marketing vacation club memberships

• Defendants must pay over $200,000 in restitution due to alleged misleading sales and marketing tactics.

Nevada AG Settles with Hormone Therapy Providers

State of Nevada v. Wyeth, et. al., Case No. A-08-575980 (Dist. Ct., Clark Co. Nov. 3, 2014) • Nevada AG claimed Wyeth Pharmaceuticals Inc. and Wyeth LLC, as well as Pharmacia & Upjohn

Company LLC (both acquired by Pfizer) allegedly mislead consumers about the safety and usefulness of certain hormone treatments for postmenopausal women in violation of the Nevada Deceptive Trade Practices Act.

• As part of the settlement, Pfizer agreed to make an $8 million donation to women’s health care programs at the University of Nevada School of Medicine and University Medical Center. In addition, Pfizer agreed to pay $1.5 million to offset investigation costs.

Vermont AG releases proposed GMO-labeling Rules

• Vermont Attorney General’s office Oct. 24, 2014, released a first set of draft rules for the labeling of foods containing genetically engineered ingredients under Vermont’s new GMO statute, which goes into effect July 1, 2016.

• Under the proposed rules, food is defined as “1) articles used for food or drink for humans, (2) chewing gum and (3) articles used for components of any such article. Food does not include dietary supplements.”

• If the food includes GMO substances, its label must state: “produced with genetic engineering.”

• The rules go into effect July 1, 2016 unless blocked by the lawsuit filed by the Grocery Manufacturers Association and others in federal court in Burlington: Grocery Manufacturers Assoc. et al. v. William H. Sorrell, Case No. 5:14-cv-117

• Amicus briefs were due to be filed Nov. 14, 2014.

Litigation Update

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Private Litigation

Bowling v. Johnson & Johnson (S.D.N.Y., Nov. 4, 2014)

• District court dismissed, on federal pre-emption grounds, class action alleging that J&J’s Listerine labeling was deceptive.

• Listerine Total Care mouthwashes include a label representing various health benefits that LTC products "Restore[] Enamel.”

• Plaintiffs claimed that the enamel claim was false because the loss of tooth enamel is permanent. FDA had issued monograph concerning labeling on over-the-counter dental hygiene products and had never prohibited “restoring enamel” claims.

• Court accordingly rejected plaintiffs’ attempt to bring state-law false labeling claims, given FDA’s exclusive authority over misbranding of over-the-counter drugs, after concluding that the mouthwashes were “drugs” under the Food Drug and Cosmetics Act (FDCA).

• “If successful, this litigation would do exactly what Congress, in passing section 379r of the FDCA, sought to forbid: using state law causes of action to bootstrap labeling requirements that are "not identical with" federal regulation.”

Private Litigation

Langendorf v. Skinnygirl Cocktails, LLC (N.D. Ill. October 30, 2014)

• The District Court refused to certify proposed class in lawsuit alleging violations of Illinois law, based on theory that SkinnyGirl’s pre-mixed alcoholic drink contains the non-natural preservative sodium benzoate, and thus the text “all natural” on the label is false and misleading.

• Court found inadequacy of representation, given relationship between counsel and lead plaintiff.

• The court found a lack of evidence concerning the predominance of issues – evidence that purchasers of the drinks were deceived by the label and detrimentally relied on the “all natural” representations in making their purchases.

Private Litigation

Paz v. AG Adriano Goldschmeid, Inc. (S.D. Cal., Oct. 27, 2014) • District court denies dismissal, on pre-emption grounds, of California state law claims against

designer of jeans, and Nordstrom, for allegedly deceptive “Made in USA” label.

• Looking at both Federal Trade Commission Act (“FTCA”) and Textile Fiber Products Identification Act (“TFPIA”), next to California’s labeling statute, court concludes that neither federal statute clearly conflicts with, or supersedes, California Business and Professions Code § 17533.7.

• Jeans were manufactured in USA, and labeled as having imported fabric, but plaintiff objected to the use of imported component parts (zippers, etc.). Claims brought under violation of California’s Consumer Legal Remedies Act, Unfair Business Practices Act, and § 17533.7, which states:

• “It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words ‘Made in U.S.A.,’ ‘Made in America,’ ‘U.S.A.,’ or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.”

Private Litigation

Rosolowski v. Guthy-Renker LLC (Cal. App. Ct., Oct. 29, 2014)

• Second Appellate District affirms dismissal of claims that unsolicited emails purporting to be from “Proactiv Special Offer,” “Wen Hair Care,” “Proactiv Special Bonus Deal,” “Wen Healthy Hair,” “Wen by Chaz Dean,” “Proactiv Bonus Deal,” “Proactiv Bonus Gift,” and “Proactiv: Special Offer,” were not actionable misrepresentations under California state law (for misleading spam emails).

• Plaintiffs alleged the subject lines in the various emails falsely represented that the recipients were entitled to a free or complimentary gift without mentioning that receipt of such a gift was contingent upon a purchase.

• However, the court affirmed the trial court’s demurrer, since the sender’s identity was discernible from the body of the email and recipients would not reasonably be misled.

• “We hold a header line in a commercial email advertisement does not misrepresent the identity of the sender merely because it does not identify the official name of the entity which sent the email, or merely because it does not identify an entity whose domain name is traceable from an online database, provided the sender’s identity is readily ascertainable from the body of the email, as was the case here.”

Private Litigation

Hall v. Diamond Foods, Inc., No. 14-cv-2148, 2014 WL 5364122, (N.D. Cal., Oct. 21, 2014

• District Court denies defendant Diamond Food, Inc.’s motion to dismiss a false advertising class

action, alleging violations of various California consumer protection laws.

• The plaintiff alleged that the packaging for the defendant’s snack product, “Reduced Fat Sea Salt Chips,” falsely claimed that the product was “40% reduced fat potato chips.”

• The defendant argued that the plaintiff failed to allege sufficient facts to support a finding that members of the public were likely to be deceived by the labeling at issue. The Court found questions of fact and denied the motion.

Privacy Developments

Byrne v. Avery Center for Obstetrics and Gynecology, P.C., 2014 WL 5507439 (2014)

• “….[a]ssuming, without deciding, that Connecticut's common law recognizes a negligence cause of action arising from health care providers' breaches of patient privacy in the context of complying with subpoenas, we agree with the plaintiff and conclude that such an action is not preempted by HIPAA and, further, that the HIPAA regulations may well inform the applicable standard of care in certain circumstances.”

• The first decision by the highest court of a state that says that state statutory and judicial causes of action for negligence, including invasion of privacy and infliction of emotional distress, are not necessarily preempted by HIPAA.

• HIPAA may be the appropriate standard of care to determine whether negligence is present.

Privacy Developments

Couser v. Comenity Bank et al, (S.D.Cal. Oct. 2, 2014)

• Plaintiff Carrie Couser filed suit in October 2012, alleging Comenity Bank called her using an autodialer four to five times per day on her cellphone attempting to collect an alleged outstanding debt owed by her deceased mother.

• Class action settlement with a class of more than 4 million people who received automated calls to their cellphones from the bank over a four-year period, in violation of the Telephone Consumer Protection Act.

• Settlement: $8.5 million.

Privacy Developments

Enslin v. The Coca-Cola Company et al, 14-cv-06476 (ED Pa. Nov. 12, 2014)

• The Coca-Cola Co. was sued in a class action, in connection with privacy breaches that occurred when 55 laptops containing employees’ personal data were stolen from its largest bottling operation.

• Named plaintiff Shane Enslin, a former service technician for the Keystone Coca-Cola Bottling Co. in the Poconos region who filed the complaint on behalf of at least 74,000 people, says Coca-Cola failed to secure its sensitive data and failed to promptly notify the employees of the breach.

Privacy Developments

FTC v. Cornerstone & Co., 14-cv-01479 (D.C. Nov. 12, 2014)

• Two debt sellers who allegedly posted sensitive personal information of 70,000 payday loan recipients and other consumer debt holders online were ordered to notify the individuals affected

• In two separate cases, the FTC alleges the debt sellers posted consumers’ bank account and credit card numbers, birth dates, contact information, employers’ names, and information about debts the consumers allegedly owed on a public website.

• The complaints allege that the debt sellers exposed this sensitive information in the course of trying to sell portfolios of past-due payday loan, credit card, and other purported debt.

AT&T Shuts Down Supercookie Program

• AT&T Inc. has voluntarily shut down its “supercookies” program as of Nov. 17, 2014.

• The advertising program allowed it to track users’ viewing and buying behavior by placing relatively permanent supercookies on their mobile devices.

• Supercookies permit undetectable recording of activity and are difficult to remove. • AT&T Inc. did not rule out future use of supercookies that used a different tracking method than

the one it discontinued.

• The company stated that any future program would “maintain our fundamental commitment to consumer privacy” by allowing customers to “opt out of the ad program, and not have the numeric code inserted on their device.”

NAD/CARU/ESRP Update

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NAD/CARU/ERSP “Enhanced Notice” Violations—NAD

• The Online Interest-Based Advertising Accountability Program (Accountability Program) released

five decisions in which Answers Corporation, Best Buy, BuzzFeed, Go.com, and Yelp agreed to provide real-time, “enhanced” notice and choice to website visitors whenever non-affiliates collect their information for personalizing ads.

General theme of compliance decisions:

• Websites must contain enhanced notice on every page of a website that employs third-party online behavioral advertising, with appropriate links that will permit the user to opt out.

• Whether a company’s site is established, revamped, or new, the recent decisions serve a reminder to check the website in its entirety to ensure that privacy features, and, specifically, the “enhanced notice” requirements, are compliant.

NAD/CARU/ERSP

Fuhu, Inc., maker of children’s Nabi Jr. tablet voluntarily agrees to discontinue product superiority claims (Case #5774) • LeapFrog Enterprises, Inc., maker of the “LeapPad Ultra” child-directed tablets, challenged a

comparative chart on the Fuhu website, making claims as to the superiority of the Nabi Jr product.

• According to LeapFrog, Fuhu misleads consumers by presenting purportedly objective, scientifically-generated data that compares the relative benefits of the Nabi Jr. and the LeapPad Ultra. LeapFrog also claimed that Fuhu exploits its TRUSTe certification in a manner that deceptively disparages LeapFrog and distorts the meaning and purpose of the FTC’ s Safe-Harbor provisions of the federal Children’ s Online Privacy Protection Act (“COPPA”).

• Following the investigation and NAD findings, Fuhu voluntarily discontinued the challenged product comparison chart. Also, Fuhu modified its claim that Nabi Jr. is “the first COPPA Compliant tablet” to instead state “We are the first tablets certified COPPA compliant” and “We are the first tablet to receive TRUSTe certification for COPPA compliance.”

• Discontinued claim that TRUSTe certification signifies “A level of trust that has NEVER been given to a tablet!” and eliminated “KidSafe” claim.

NAD/CARU/ERSP

Procter & Gamble modifies antiperspirant/deodorant claims (#5773)

• Following NAD review (challenge by competitor Unilever), P&G discontinued certain claims, including “100% odor protection.”

• NAD examined express claims for “Secret Clinical Strength Clear Gel” and “Secret Clinical Strength Invisible Solid” that included: “100% odor protection”

• NAD also recommended that “Clear Gel – For a Clean No White Marks Look” and “Doctor Recommended” claim be discontinued.

NAD/CARU/ERSP Church & Dwight supported certain performance claims but NAD recommended modifications and better disclosures (case #5771)

• Claims for OxiClean White Revive Laundry Stain Remover were challenged by Clorox

• NAD determined that Church & Dwight could support certain claims for OxiClean WR, including: “It works on whites and colors and gets out messy stains,” “get whiter whites” and “Gets the tough stains out! Maintains and revives whites to help keep them looking like new longer”

• NAD also determined that the advertiser’s testing provides a reasonable basis for the implied claim that OxiClean WR provides superior whitening and stain removal benefits than all leading chlorine bleaches.

NAD/CARU/ERSP NAD Finds Church & Dwight Supported Performance Claims But Recommends Modifications and Better Disclosures (Case #5771)

• In challenge by competitor Chlorox of express and implied performance claims made by advertiser about OxiClean White ReviveLaundry Stain Remover, NAD finds that advertiser can support performance claims.

• To ensure that consumers understand the basis of the performance comparison, NAD recommends that the supers “after a 6 hour soak and wash” and “Wash as Directed” in the challenged commercial be modified in size and placement to make them easy for consumers to notice, read and understand.

• NAD further recommends that advertiser modify the super “Washed as directed” that appears in connection with a split-screen comparison to state that the “wash” includes a five-minute pre-soak.

• NAD determines that both the depiction of a chlorine bleach spill in the commercial and the references to OxiClean WR being a “worry-free chlorine bleach alternative” or substantially similar claims in connection with colored garments were supported and not falsely disparaging.

• NAD recommends that the advertiser discontinue the certain claims that appear in connection with the use of the product on white clothing because they convey the unsupported message that chlorine bleach will damage white fabrics.

• NAD recommends that the advertiser revise the disclaimer qualifying the claim “One three pound tub of OxiClean White Revive equals 2.8 bottles of chlorine bleach” to indicate that it is for regular (and not large or heavily soiled) loads only.

NAD/CARU/ERSP

NAD Recommends Neogenesis Discontinue Claims for Neo40 Dietary Supplement (case #5770)

• The claim that “Nitric Oxide is involved in virtually every organ system within our body but is known primarily for maintaining normal blood pressure and blood flow to tissues” was supported

• Other claims of cardio vascular benefits were found by NAD to be unsupported.

• The advertiser submitted several studies conducted with the Neo40 Daily supplements on healthy and-at-risk-participants and also participants already diagnosed with cardiovascular disease, a case study of improved circulation in one person and a description of a study that purported to look at blood pressure and arterial stiffness in thirty-one people up to one hour after ingesting Neo40 Daily supplements.

• However, NAD found that evidence did not rise to the level of competent and reliable scientific evidence because of methodological flaws in the studies and/or the results from the trials did not support the advertiser’s claims. The Advertiser appealed to NARB.

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