Author Archives | Richard Newman

FTC DNA Testing Privacy Investigation

In 2017, Senator Chuck Schumer urged the Federal Trade Commission to investigate DNA testing companies in an effort to ensure that data collection and use practices comply with applicable privacy laws, including those that prohibit the sale of information contained in DNA databases to third-parties without consent.

Recent reports indicate that companies like 23andMe and Ancestry.com are currently being investigated by the FTC with regard to their privacy and data protection practices, including the manner in which personal genetic data is being utilized and disseminated.

Apparently, the investigation was indirectly revealed in conjunction with a Freedom of Information Act request.  More specifically, the FTC denied the request by citing an exemption based upon the potential interference with law enforcement activities.  The FTC typically refuses to comment on an active investigation.

Consumers must be clearly, conspicuously and accurately advised what information is collected, how it used, who it is shared with and how it is monetized.  Additionally, privacy law requires companies that license or own consumer data to implement and maintain reasonable security measures, contractually require the same of third-party service providers and implement written disposal policies.

Last week, genealogy and DNA testing service MyHeritage announced that a security researcher found a file containing information on approximately 92 million users, including email addresses and hashed passwords.  The company has stated that it has no reason to believe user data was compromised.

In his November 2017 letter, Sen. Schumer expressed that “…putting your most personal genetic information in the hands of third parties for their exclusive use raises a lot of concerns, from the potential for discrimination by employers all the way to health insurance.  That’s why I am asking the Federal Trade Commission to take a serious look at this relatively new kind of service and ensure that these companies have clear, fair privacy policies and standards for all kinds of at-home DNA test kits.  We don’t want to impede research but we also don’t want to empower those looking to make a fast buck or an unfair judgement off your genetic information.  We can find the right balance here, and we must.”

Privacy and data security will continue to be a regulatory priority for the FTC for the foreseeable future, including the transparent disclosure of privacy practices, informed consent and the adequacy of disclosures.  Recent investigations and enforcement actions unambiguously demonstrate the seriousness of a company’s failure to obtain informed consent or failure to disclose data collection and sharing practices.

Contact the author at rnewman@hinchnewman.com.

Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP focusing on interactive advertising matters. His practice includes conducting legal compliance reviews of advertising campaigns, and representing clients in investigations and government litigation matters. Follow him in LinkedIn.

Informational purposes only. These materials are not legal advice, nor do they create a lawyer-client relationship. Do not act or rely on any information contained herein without seeking the advice of an attorney. Previous results do not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.

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California Bill Introduced That Would Further Restrict Commercial Email Advertising

An Assembly member recently introduced AB 2546, an author-sponsored bill that would amend California’s anti-SPAM legislation (CBPC § 17529.5).  The potential impact on the email marketing industry is profound.

The bill expands California’s anti-SPAM law to provide that it is not only unlawful for any person or entity to “advertise in” a commercial email, but also unlawful for a person or entity “to initiate, advertise in, or enable or assist a person or entity to initiate or advertise in,” a commercial email advertisement either sent from California or to a California email address, under certain circumstances.  It expands the existing circumstances under which the anti-SPAM law is triggered and adds six new circumstances.

The bill also expands the list of individuals allowed to bring an action under the anti-SPAM law, amends the available remedies to limit the circumstances under which liquidated damages could be reduced by the court, and allows the court to issue injunctions.

Specifically, the bill:

  • Expands the three existing circumstances listed under current law in which it is unlawful to send SPAM to also include circumstances where: (i) the email advertisement contains or is accompanied by a third-party’s email address without the permission of the third party, except as specified; (ii) the email advertisement contains or is accompanied by falsified, misrepresented, or forged information in the subject line or body; and (iii) the email advertisement has a subject line that is likely to mislead, and not just where it has a subject line that a person knows would be likely mislead;
  • Adds new circumstances where advertising in a commercial email sent from California or to a California email is unlawful, including where: (i) the party who initiates the email uses “multiple domain names for no legitimate reason other than to bypass SPAM filters;”  (ii) the body of the email or the underlying source code contains nonsensical text unrelated to the advertiser’s business that is intended to bypass SPAM filters; (iii) the “From” name of the email advertisement meets certain requirements, such as using generic text that misrepresents who the email advertisement is from or generic text that a reasonable consumer would not associate with the advertiser, or a fictitious business name that the advertiser uses exclusively or primarily as the “From” name in email advertisements; (iv) the subject line begins with “re:” or anything substantially similar, or the subject line otherwise states that the email advertisement is being sent in response to a request or previous correspondence from the recipient, when the recipient made no such request; and (v) the subject line contains the word “free” or any language substantially similar to “free” if there are conditions attached, as specified, unless the subject line clearly indicates that there are conditions attached (a mere asterisk or other symbol, referring to conditions in the body of the email, does not satisfy this requirement);
  • Allows the following individuals to bring an action under California’s anti-SPAM law and allow them, if prevailing, to recover reasonable attorney’s fees and costs: (i) a district attorney or a city attorney; or (ii) a person whose name, username, email address, or domain name appear in the “From” name or sender’s email address without permission from that person or entity;
  • Provides that truthful content in or accompanying an email advertisement, including, but not limited to, identifying the sender in the body of an email advertisement, shall not cure false, misrepresented, or forged information in another part of an email advertisement;
  • Provides that a recipient is not required to opt-out of receiving the commercial email messages in order to bring a cause of action for a violation of the anti-spam law and that a defendant shall not assert any defense relying on the assertion that the recipient did not opt-out, subject to a specified remedy;
  • Adds to the list of available remedies, authorization for courts to enter an order enjoining a violation of this law;
  • Revises the circumstances under which the court must reduce liquidated damages to instead provide that the court may only do so only upon a finding that the defendant has complied with, and has satisfied the burden of proof by demonstrating specified requirements.  These requirements, would include, among other things, that the defendant has established and implemented with due care practices and procedures reasonably designed to effectively prevent unsolicited commercial email advertisements;
  • Codifies the intent of the legislature that the section containing the above provisions, which prohibits falsity and deceptions in commercial email messages, shall operate within the exception to federal preemption to the full extent permitted by the CAN-SPAM Act of 2003 (Title 15 United States Code Section 7707(b)) and any other provision of federal law.  This bill would further include a severability clause in the section containing these provisions;
  • Expands the definition of “commercial email advertisement,” as specified, for these purposes;
  • Updates codified legislative findings and declarations and add that there is a need to regulate the advertisers who use SPAM because they may obtain an unfair advantage over their competitors who engage in legitimate and lawful advertising practices.

According to the author of the bill: “It is common for advertisers to send unsolicited commercial emails to consumers.  Often they will contract with ‘spam networks’ to distribute emails to consumers.  Those ‘spam networks’ in turn contract with third-parties who actually send out those emails.  Often times, the senders will use methods designed to circumvent spam filters or mislead consumers.  Among others, these methods include: sending emails from multiple domain names, altering the “From” lines to mislead the recipient about the identity of the sender, copying headers from legitimate businesses and placing them into the email, or simply providing untruthful content to mislead a consumer.”

“Under existing law, advertisers are strictly liable for false and deceptive spam.  However, the actual senders of the emails are not liable for sending the unlawful spams.  AB 2546 would strengthen California’s prohibitions on false and deceptive spam emails in a number of ways by:  (i) holding spam networks and the actual senders liable for false and deceptive spamming; (ii) applying the law to falsehoods/misrepresentations in the body of emails, not just the headers; (iii) establishing that truthful content in one part of a spam email does not cure falsity in another part; (iv) prohibiting spamming from multiple domain names for the sole purpose of bypassing spam filters; (v) prohibiting “From” names that misrepresent who the spams are from; (vi) authorizing the Courts to impose injunctions to stop unlawful spamming; and (vii) allowing District Attorneys and City Attorneys to bring actions against unlawful spammers.”

In addition to expanding the list of individuals allowed to bring an action under the anti-SPAM law, the bill would expand the list of circumstances that trigger a violation of the state’s anti-SPAM law, and make clear that it is a violation not only to advertise, but to initiate or otherwise enable or assist another person to initiate or advertise commercial email advertisements in violation of California’s anti-SPAM law.

The bill also seeks to clarify what is meant by “commercial email advertisement.”  Specifically, “commercial email advertisements,” would include those email messages initiated for the purpose of advertising or promoting the lease, sale, rental, gift offer, “promotion,” or other disposition of “credit, stocks, bonds, sweepstakes, insurance, employment opportunities, or any other solicitation” as well as email messages initiated for the purpose of advertising or promoting the lease, sale, rental, gift offer, or other disposition any property goods, services, or extension of credit as currently identified under existing law.

This bill does little more than ignore federal law that largely preempts it and already regulates commercial email messages.  It invites excessive litigation for actions that do not result in any damages, and in a state that already has among the nation’s toughest anti-SPAM laws.

The proposed expansion of the law would make it nearly impossible to send commercial emails from or to California and would prohibit many legitimate practices, such as using the d/b/a name of a business as a “From” line, or using more than one sending domain.

Additionally, the notion that actual senders of emails that may be initiating SPAM are not liable for doing so ignores the contractual liability that senders face from marketing partners and an aggressive plaintiff’s bar that does little to distinguish between advertisers and senders.  Current law already provides for enforcement by the Federal Trade Commission and state Attorneys General, including the imposition of civil penalties.

CAN-SPAM was enacted to create a single, national standard for the regulation of commercial email messages.  AB 2546 purports to create new protections for consumers, but instead pushes the agenda of the plaintiffs’ bar and attempts to circumvent CAN-SPAM by adding additional state law provisions that directly contradict those of the federal anti-SPAM legislation.

AB 2546 should be of particular interest to email marketers, as well as brands that advertise via email.  Contact the author at rnewman@hinchnewman.com or (212) 756-8777 to discuss the potential implication of the bill, email marketing compliance and/or how you can oppose AB 2546.  You can also contact Sarah de Diego at sarah@dediegolaw.net or (310) 980-8116 to discuss opposing this bill.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on Twitter at FTC Defense Lawyer.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

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FTC Announces Campaign to Help Businesses Strengthen Cyber Defenses

The Federal Trade Commission has recently announced plans to launch a national education campaign to assist small businesses strengthen their cyber defenses and protect sensitive data that they store.

As outlined in a new Staff Perspective report, the FTC will develop and distribute reader-friendly educational materials with information about cybersecurity that small businesses need.  The effort grew out of the Small Business & Cybersecurity Roundtables that the FTC hosted last year with small business owners and non-profit organizations, employees, and managers to learn about the challenges they face when dealing with cyber threats and security and ideas for how the government can help them.

The report describes the FTC’s plain-language materials for small businesses and non-profit organizations that generally do not have in-house information technology staff.  It explains the FTC’s partnerships with federal agencies and industry associations to promote cybersecurity in small organizations.  It also details the FTC’s plans to commence in 2018, in partnership with other key federal agencies, a campaign to educate small businesses on cybersecurity.

“Small businesses understand the importance of cybersecurity and the need to protect their networks and data, but many feel overwhelmed about how to address the myriad of cyber threats they face,” said Tom Pahl, Acting Director of the FTC’s Bureau of Consumer Protection. “Our new campaign aims to help these small businesses with targeted, plain-language advice on everything from protecting against phishing scams to tips on what to look for when choosing a cybersecurity vendor.”

The campaign will build on the work the FTC has already done under Acting FTC Chairman Maureen K. Ohlhausen.  This includes the small business cybersecurity roundtable discussions and the launch of a website in 2017 aimed at helping small businesses avoid scams and protect their networks and data.  The FTC also has developed several cybersecurity publications aimed at businesses of all sizes including business guides Start with Security, Data Breach Response and Protecting Personal Information and the Stick with Security blog series.

Among the issues that small business owners identified during the roundtable discussions are how to avoid phishing schemes, ransomware attacks and tech support scams, as well as cybersecurity basics.  Small business owners also wanted information about how to protect company mobile devices, and a list of questions they should ask vendors to ensure their systems are secure.

To address these concerns, the FTC is creating up to a dozen sets of information on issues of importance to small business owners that will include training modules and videos.  Potential topics include phishing, ransomware, email authentication, cloud security, tech support scams, vendor security, how to compare offers of web hosting services, understanding the National Institute of Standards and Technology cybersecurity framework, and others.

In addition, the FTC will work with other government agencies to help develop more consistent messaging about cybersecurity and expand its work with the private and non-profit sectors to help get the materials developed by the FTC to more small businesses.

Contact the author if you are interested in learning more about the design and implementation of compliant privacy and data security protocols, or if you are the subject of a state or federal regulatory investigation.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on LinkedIn at FTC Defense Lawyers.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

 

 

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No TCPA Vicarious Liability Without Ratification

The Ninth Circuit has ruled that payday lenders and two marketing companies were not liable under the Telephone Consumer Protection Act by virtue of working with a lead generator that utilized automated dialing equipment to disseminate text messages.

Here, the lender had separate agreements with a marketing company (LeadPile) that purchased/sold leads from a third-party marketing company (Click Media).  Click Media, in turn, acquired leads from a publisher, AC Referral.

The plaintiff filed a class action against the lenders, LeadPile and Click Media, alleging that they were vicariously liable for AC Referral’s alleged TCPA violations because they ratified such conduct.

Importantly, while Click Media and AC Referral had a contract, the lenders and LeadPile did not and represented that they did not even know who AC Referral was.  Click Media asserted that it was unaware of AC Referral’s alleged TCPA violations.

While recognizing that vicarious liability exists in TCPA matters, it determined that the plaintiff did not allege all of the necessary elements and that there was no issue of fact with respect to ratification of AC Referral’s telemarketing activities, notwithstanding defendants’ acceptance of benefits and failure to vet compliance.

“It is undisputed that AC Referral did not enter into a contract with any of the lenders or with LeadPile,” the court held.  “It is also undisputed that AC Referral did not communicate with or even know of the lenders or LeadPile before the lawsuit was filed.  Because AC Referral was neither an agent nor a purported agent of the lenders or LeadPile, AC Referral’s actions do not qualify as ratifiable acts.  Accordingly, the lenders and LeadPile cannot be held vicariously liable for AC Referral’s unlawful text messages under a ratification theory.”

With respect to Click Media, the court ruled that despite their contractual relationship, “[a]lthough AC Referral was an agent of Click Media, [plaintiff] presented no evidence that Click Media had actual knowledge that AC Referral was sending text messages in violation of TCPA.”  “Nor is there any basis to infer that Click Media assumed the risk of lack of knowledge, because [plaintiff] did not present evidence that Click Media ‘had knowledge of facts that would have led a reasonable person to investigate further,’ but ratified AC Referral’s acts anyway without investigation.”

“The knowledge that an agent is engaged in an otherwise commonplace marketing activity is not the sort of red flag that would lead a reasonable person to investigate whether the agent was engaging in unlawful activities,” the court said.  “Because Click Media had no ‘knowledge of facts that would have led a reasonable person to investigate further,’ Click Media cannot be deemed to have ratified AC Referral’s actions and therefore is not vicariously liable.”

Click here, to read the full opinion.

Contact the author if you are interested in learning more about the design and implementation of compliant lead generation protocols, or if you are the subject of a state or federal regulatory investigation.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on Twitter at FTC Defense Attorney.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

 

 

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FTC Approves Settlement with Lenovo over Advertising Software Privacy Allegations

The Federal Trade Commission recently announced that it has approved a settlement with Lenovo regarding the company’s alleged, widely-publicized practice of pre-installing an advertising software program on some laptops that caused security vulnerabilities.

The settlement terms include prohibitions regarding the misrepresentation of any features of pre-installed software that would “inject advertising into consumers’ Internet browsing sessions or transmit sensitive consumer information to third parties.”  In the event that Lenovo does pre-install such software, the company is required to contain express consent prior to such software is activated.

The company is also required – for 20 years – to implement a software security program for most consumer software pre-loaded on its laptops.  The program is subject to third-party audits.

Between August 2014 and February 2015, Lenovo laptops allegedly came pre-loaded with software called VisualDiscovery, a program developed by a now-defunct advertising company.    The FTC purportedly found that VisualDiscovery delivered pop-up ads from the ad company’s retail partners whenever a user’s cursor hovered over a similar looking product on a website.

To deliver its ads, according to the Commission, VisualDiscovery acted as a “man-in-the-middle” between consumers’ browsers and the websites they visited, even those websites that were encrypted.  Without the consumer’s knowledge or consent, according to the FTC, this “man-in-the-middle” technique allowed VisualDiscovery to access all of a consumer’s sensitive personal information transmitted over the Internet, including login credentials, Social Security numbers, medical information, and financial and payment information.

The FTC alleges that while VisualDiscovery collected and transmitted to the ad company’s  servers more limited information, such as the websites the user browsed and the consumer’s IP address, the ad company had the ability to collect more information.

As alleged by the agency, to facilitate its display of pop-up ads on encrypted websites (those that include https:// in the web address), VisualDiscovery used an insecure method to replace digital certificates for those websites with its own VisualDiscovery-signed certificates.  Digital certificates are used to signal to a user’s browser that the encrypted websites visited by a consumer are authentic and not imposters.  As alleged in the complaint, VisualDiscovery did not adequately verify that the websites’ digital certificates were valid before replacing them, and used the same, easy-to-crack password on all affected laptops rather than using unique passwords for each laptop.

Because of these security vulnerabilities, consumers’ browsers could not warn users when they visited potentially spoofed or malicious websites with invalid digital certificates, the FTC stated.   The FTC also alleged that the vulnerabilities enabled potential attackers to intercept consumers’ electronic communications with any website, including financial institutions and medical providers, by simply cracking the pre-installed password.  The complaint alleges that Lenovo did not discover these security vulnerabilities because it failed to assess and address security risks created by third-party software it pre-loaded on its laptops.

“Lenovo compromised consumers’ privacy when it preloaded software that could access consumers’ sensitive information without adequate notice or consent to its use,” acting FTC Chairwoman Maureen Ohlhausen said in a statement.  “This conduct is even more serious because the software compromised online security protections that consumers rely on.”

Lenovo said in a statement that it stopped pre-installing the program on devices after questions were raised about privacy violations.  “While Lenovo disagrees with allegations contained in these complaints, we are pleased to bring this matter to a close after 2-1/2 years,” the company said.  “To date, we are not aware of any actual instances of a third party exploiting the vulnerabilities to gain access to a user’s communications.”

Notably, the settlement does not include a fine.

Contact the author if you are interested in learning more about the design and implementation of compliant privacy and data security protocols, or if you are the subject of a regulatory investigation or enforcement action.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on LinkedIn at FTC Defense Lawyer.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

 

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FTC’s Data-Breach “Unfairness” Standard

 

The FTC has showed no signs of slowing down when it comes to data breach investigations and enforcement actions. In doing so, the Commission utilizes concepts of “unfairness” and “deception.”

Companies that tell consumers they will safeguard their personal information are forced to live up to those representations.

To establish that a company’s practices are unfair, the FTC is required to establish that the practices cause or are likely to cause substantial injury to consumers that is not reasonably avoidable by them, and that is not outweighed by countervailing benefits.

The FTC routinely alleges that – and investigates whether – a company’s data security measures create a vulnerability.   The absence of an actual exploitation of such a vulnerability has not stopped the FTC from taking action. In other words, the FTC has alleged that the mere risk of cyber attack “causes or is likely to cause substantial consumer injury,” in violation of the FTC Act.

For example, in a 2013 enforcement action the FTC alleged that malware could exploit vulnerabilities. In early 2017, the FTC took this same position with respect to a manufacturer’s alleged unreasonable security measures that could purportedly be exploited.

The latter defendant chose not to settle, arguing that the existence of a vulnerability alone is not a “substantial consumer injury.” The court agreed and dismissed the FTC’s unfairness claim with leave to amend because the FTC did not identify an incident involving the exploitation of the alleged vulnerabilities and that the “mere possibility of injury” was insufficient under that prong of the statute.

Time will tell whether this ruling will discourage the Commission from taking action upon the existence of vulnerabilities alone.  The ruling certainly suggests that, absent evidence of data misuse, the FTC will face challenges demonstrating that a heightened risk of exposure of personal data constitutes the requisite “substantial injury.”

Despite the foregoing ruling, it is wise to anticipate that the FTC will continue to aggressively investigate and enforce privacy and data security matters, and push the boundaries of “unfairness” claims. Periodic vulnerability assessments should be conducted and remediation patches implemented. Representations and disclosures should also be evaluated for accuracy by an FTC defense lawyer.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on Twitter @FTCLawDefense.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

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Supplement Marketers Settle FTC Deceptive Advertising Charges

A health products company and its owner have agreed to settle charges by the Federal Trade Commission and the State of Maine that they deceived consumers with promises that their products could treat everything from arthritis to memory loss.  The proposed federal court order bars the defendants from engaging in a wide range of business practices that the agencies allege have caused financial injury to consumers.

According to the agencies’ complaint, Health Research Laboratories, LLC and its sole owner marketed BioTherapex, a dietary supplement that purportedly targets the liver to address a host of ailments, and NeuroPlus, a brain supplement, using a variety of false and unsupported claims.

Primarily through direct mail marketing campaigns targeting consumers across the United States and Canada, the defendants allegedly advertised that BioTherapex, which they sold for $39.95 per bottle, could treat arthritis, relieve joint and back pain and cause significant weight loss.

The defendants allegedly advertised that NeuroPlus, which they sold for $39.99 per bottle, could protect the brain against Alzheimer’s disease and dementia, reverse memory loss, and improve memory and cognitive performance.

The complaint alleges that these health and efficacy claims are false or unsubstantiated.

According to the agencies, the defendants also styled their direct mail brochures as scientific journals featuring fictitious medical doctors and consumer testimonials.

Brochures for BioTherapex allegedly highlighted the results of a purported 1,200-person clinical study on the product that was never actually conducted.

The complaint also alleges the defendants engaged in an array of deceptive marketing practices, including:  misrepresenting the terms of the purported “risk free” trial period during which consumers could try the products; enrolling consumers in auto-renewal plans without adequately disclosing that they were doing so; obtaining and charging consumers’ debit card numbers without proper authorization, in violation of the Electronic Fund Transfer Act; failing to disclose all material terms and conditions for additional third-party upsells in violation of the FTC’s Telemarketing Sales Rule; failing to disclose material terms of their refund and cancellation policy in violation of the TSR; and misrepresenting the cost of their products to Canadian consumers.

The proposed court order bans the defendants from making any of the seven “gut check” weight-loss claims that the FTC has publicly advised are always false with respect to any dietary supplement, over-the-counter drug or any product rubbed into or worn on the skin.

The order also prohibits the defendants from making the claims challenged in the complaint unless they have competent and reliable scientific evidence in the form of human clinical testing.

The order requires the defendants to have competent and reliable scientific evidence to support any other claims about the health benefits or efficacy of any dietary supplement, food or drug, and prohibits them from misrepresenting the existence or outcome of tests or studies.  In addition, it prohibits them from misrepresenting the existence of consumer testimonialists and expert endorsers.

The order prohibits the defendants from misrepresenting the terms of free or risk-free trial offers, refunds, cancellations, negative option plans or automatic shipments, and they must get consumers’ consent for negative option offers prior to using consumers’ billing information to obtain payment.

Finally, the order imposes a judgment of $3.7 million, which will be suspended upon payment of $800,000.

Contact an FTC advertising compliance and defense attorney if you are interested in the implementation of preventative compliance measures or are the subject of a regulatory investigation.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements. You can find him on Twitter @FTCLawDefense.

 

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005 | (212) 756-8777.

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