Tag Archive | "ftc defense attorney"

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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FTC Defense Attorney Alert: “Influencer” Actions Make News

FTC Defense Attorney Alert:  “Influencer” Actions Make News

The Federal Trade Commission has alerted influencers and those in control of them to three developments, including the FTC’s first law enforcement action against individual online influencers for their role in misleading advertising practices.

According to the FTC, the respondents deceptively endorsed the online gambling site CSGO Lotto without disclosing that they owned the company.

Counter-Strike: Global Offensive (also known as CS: GO) is an online, multiplayer, first-person shooter game.  “Skins” are game collectibles that can be bought, sold, or traded for real money. Skins have another use:  They can be used as virtual currency on certain gambling sites, including CSGOLotto.com.  On that site, players could challenge others to a one-on-one coin flip, wagering their pooled skins. In 2015, one of the respondents posted a video touting CSGO Lotto:

“We found this new site called CSGO Lotto, so I’ll link it down in the description if you guys want to check it out.  But we were betting on it today and I won a pot of like $69 or something like that so it was a pretty small pot but it was like the coolest feeling ever.  And I ended up like following them on Twitter and stuff and they hit me up.  And they’re like talking to me about potentially doing like a skins sponsorship like they’ll give me skins to be able to bet on the site and stuff.  And I’ve been like considering doing it.”

The FTC asserts that the respondent followed up with additional videos on his YouTube channel showing him gambling on the CSGO Lotto site.   In addition, the FTC alleges that he tweeted things like “Made $13k in about 5 minutes on CSGO betting.  Absolutely insane” and posted on Instagram “Unreal!!   Won two back to back CSGOLotto games today on stream – $13,000 in total winnings.”

According to the FTC, one of the respondents sell promoted CSGO Lotto in a similar way, posting videos that were viewed more than five million times.  In addition, he allegedly tweeted a screen shot of himself winning a betting pool worth over $2,100 with the caption “Not a bad way to start the day!”  According to another tweet, “I lied . . . I didn’t turn $200 into $4,000 on @CSGOLotto. . . I turned it into $6,000!!!!”  The FTC also calls attention to: “Bruh. i’ve won like $8,000 worth of CS:GO Skins today on @CSGOLotto. I cannot even believe it!”

The FTC alleges that the respondents failed to clearly disclose that they owned the company – a material connection required under FTC law.

The complaint also challenges how the respondents ran their own influencer program for CSGO Lotto.  Allegedly, they paid other gamers between $2,500 and $55,000 in cash or skins “to post in their social media circles about their experiences in using” the gambling site.  However, the contract made clear that those influencers could not make “statements, claims or representations . . . that would impair the name, reputation and goodwill” of CSGO Lotto.  And, according to the Commission, post they did on YouTube, Twitch, Twitter and Facebook – in many instances, touting winnings worth thousands of dollars.

According to the FTC, the respondents falsely claimed that their videos and social media posts – and the videos and posts of the influencers they hired – reflected the independent opinions of impartial users.  The complaint also charges that the respondents failed to disclose the material connection they had to the company – and the connection their paid influencers had.

The proposed settlement requires the respondents to make those disclosures clearly and conspicuously in the future.

WARNING LETTERS

The next interesting development regarding influencers relates to more than 90 educational letters the FTC sent to influencers and brands in April 2017, reminding them that, if influencers are endorsing a brand and have a “material connection” to the marketer, that relationship must be clearly disclosed, unless the connection is already clear from the context of the endorsement.

A number of influencers who received the April 2017 letter just received a follow-up warning letter, citing specific social media posts the FTC staff is concerned might not be in compliance with the FTC’s Endorsement Guides.

However, the letters are different this time.  The latest round asks the recipients to let the FTC  know if they have material connections to the brands in the identified social media posts.  If they do, the FTC has requested that the recipients spell out the steps they will be taking to make sure they clearly disclose their material connections to brands and businesses.

UPDATED GUIDANCE FOR INFLUENCERS AND MARKETERS

The FTC has also released an updated version of The FTC’s Endorsement Guides: What People are Asking, a staff publication that answers questions about the use of endorsements and disclosures, including in social media.

The principles remain the same, but the updated Guides answer a handful of new questions relevant to influencers and marketers on topics such as tags in pictures, disclosures in Snapchat and Instagram, the use of hashtags, and disclosure tools built into some platforms.

Given the recent regulatory crackdown on influencer campaigns,

This article should be of interest to social media influencers and marketers.  Consult with an experienced FTC defense lawyer for assisting designing and implementing preventative compliance controls, or if you are being threatened with civil litigation or a regulatory investigation.

Follow the author on Twitter.

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.

 

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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