Advertising Law

NAD Inquiry Results in Modified Celebrity Endorsements

As a result of an inquiry by the National Advertising Division, celebrity endorsements of FitTea were revised to better disclose material connections.

The self-regulatory body reviewed advertising for the dietary supplement that featured endorsements on Twitter, Instagram, and other social media from Khloe Kardashian, Kourtney Kardashian, and Kylie Jenner. Each of the celebrities failed to disclose when they were paid to endorse the product and did not disclose in any way their material connection to FitTea, the NAD said.

“When a social media post expresses a personal opinion about how much a poster likes a product or how frequently the poster uses a product, consumers might not understand whether the post is a paid endorsement or the post is spontaneous, without any payment or other compensation being exchanged,” the NAD wrote. “Consumers are likely to weigh an opinion differently if it is a paid endorsement for a product. As a result, such a payment is a connection that is material to consumers and should be disclosed.”

Citing the Federal Trade Commission Guides Concerning the Use of Endorsements and Testimonials for support, the NAD used the agency’s examples for further elaboration. A celebrity discussing a medical procedure in a television interview and a tennis player touting the results of a surgery, mentioning the clinic where it was performed by name, both trigger the requirements of the Guides. In both hypotheticals, consumers might not realize that the celebrity or athlete was paid for sharing the information and because that information might affect the weight given to the endorsement, the relationships should be disclosed, the NAD said.

In response, FitTea informed the NAD that the advertiser’s social media posts were revised to disclose material connections with the endorsers and that, going forward, future advertising will adhere to the FTC’s Guides.

To read the NAD’s press release, click here.

Why it matters: Celebrity endorsements in the social media context will be a hot topic for advertisers in 2017. The FTC made its first significant efforts to enforce the Endorsements and Testimonials Guides last year, most notably in an action against Lord and Taylor. Consumer groups also jumped on the bandwagon, filing multiple complaints with the agency about social media influencers violating the Guides.

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FTC, Volkswagen Work Out Buyback Details

Completing the deal between Volkswagen and the Federal Trade Commission over the auto manufacturer’s deceptive claims for emissions standards, the agency announced the details of VW’s buyback program for its 3.0-liter TDI diesel vehicles.

The FTC filed suit against VW last year, alleging that the company’s advertising campaign in support of its “clean diesel” cars was false and deceptive in violation of Section 5 of the Federal Trade Commission Act. The automaker touted the vehicles as low-emission and environmentally friendly despite the presence of “defeat devices” to cheat emissions tests.

In July, VW reached a deal with the FTC (as well as the Department of Justice and the California Attorney General), agreeing to pay $14.7 billion in the largest false advertising settlement in the agency’s history. The partial agreement involved $10 billion in restitution for consumers, efforts VW would make to mitigate environmental harm, and a buyback and lease termination for the company’s 2.0-liter diesel vehicles.

Now the parties have announced another piece of the puzzle–the buyback program for 3.0-liter TDI diesel vehicles. Owners of model years 2009 to 2012 will be able to sell their car back to VW for between $26,000 and $58,000, depending on the model, mileage, and trim. If owners elect to keep their car, they can receive an emissions modification once it is approved by the Environmental Protection Agency and the California Air Resources Board, and will also receive monetary compensation, the Commission said.

VW is expected to obtain regulatory approval for an emissions repair that will bring vehicles into full compliance while not materially reducing the performance of the car, the agency explained. If that approval is received within a set time frame, the lessees and owners of model years 2013-2016 will receive both the emission modification and additional monetary compensation ranging from $8,500 to $17,600. “This means consumers with newer vehicles will receive the car they thought they purchased—plus a substantial additional payment,” the FTC said. If approval is not obtained for the modification, VW will be required to buy back or terminate the lease on those models.

For those owners who sold their TDI vehicles after the defeat device issue became public knowledge, compensation may be available, the agency added, and certain lessees are also eligible for compensation, depending on the make, model year, and availability of approved emissions modifications or repairs.

The buyback program will return more than a billion dollars to consumers, the FTC said, including a contribution from Bosch, the company that manufactured the defeat device. The total amount will depend on future events—for example, if no emissions repair is approved and VW must offer buybacks for the 3.0-liter TDI models, the company may end up paying up to $4 billion. If the modification does receive approval, the amount will likely end up in the $1.25 billion range, the agency predicted.

To read the stipulated orders and other court documents in In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, click here.

Why it matters: The combination of repairs, additional monetary compensation, and buybacks for certain models will “fully compensate” consumers who purchased 3.0-liter TDI diesel cars from VW, the FTC said. With the most recent order entered in California federal court, the agency completed its case against the auto manufacturer—the largest false advertising settlement in agency history.

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Advertisers Push to Repeal FCC Privacy Rule

Advertisers are pushing the Federal Communications Commission to repeal the agency’s privacy rule now that its leadership has changed.

Last November, in a 3-2 vote along party lines, the FCC passed a new privacy rule that requires Internet service providers to obtain opt-in consent before sensitive data (defined to include browsing and app usage history) can be collected and used for ad targeting purposes. Members of the industry immediately spoke out against the rule, arguing that it would have a negative impact on the economy, stifle innovation, make it harder to deliver relevant and useful advertising messages, and cause confusion because the FCC’s broad interpretation of sensitive data is at odds with existing standards.

After the election, a coalition of ad industry groups filed a petition formally requesting that the agency reconsider its order. Following the announcement that Ajit Pai—who voted against the new rule and has repeatedly spoken out against it—would take the lead position at the FCC, the industry joined with other groups to ask that the rule be tossed entirely.

“Consumers have embraced the dynamism of today’s internet, and have come to expect a seamless and consistent online experience for the apps on which they rely, the Web-based sites and services they use, and the devices that deliver those offerings which make our lives easier and more efficient,” the Association of National Advertisers, American Association of Advertising Agencies, American Advertising Federation, Data & Marketing Association, Interactive Advertising Bureau, and Network Advertising Initiative wrote. “Unfortunately, in adopting new broadband privacy rules late last year, the [FCC] took action that jeopardizes the vibrancy and success of the internet and the innovations the internet has and should continue to offer.”

The “onerous and unnecessary” rules “establish a very harmful precedent for the entire internet ecosystem,” that substantially deviates from the Federal Trade Commission’s existing privacy regime, according to the letter. Multiple organizations reflecting members of the cable industry as well as the U.S. Chamber of Commerce joined the missive.

“Amongst other flaws, the FCC [o]rder would create confusion and interfere with the ability of consumers to receive customized services and capabilities they enjoy and be informed of new products and discount offers,” the groups wrote. “Further, the [o]rder would also result in consumers being bombarded with trivial data breach notifications. The FCC [o]rder greatly expands the category of information for which a breach notification would be necessary, even if the consumer is not harmed. The FCC disregards the FTC’s warning about notice fatigue in that consumers who receive too many notices may ignore the important ones.”

While the groups supported the goal of ensuring online privacy and data security protections for consumers, any requirements should “comport with consumer expectations and long-standing privacy policies,” they told the leaders of the U.S. House of Representatives and Senate. But the “FCC’s [o]rder would significantly harm consumers as well as our nation’s digital economy.”

To read the letter requesting repeal of the FCC privacy rule, click here.

Why it matters: Given the new leadership at the FCC as well as the current administration’s willingness to overturn prior decisions, the letter may not be a shot in the dark for the ad industry. Proponents of the rule are not going down without a fight, however, with advocacy groups such as the ACLU and the Center for Digital Democracy authoring their own letter to lawmakers. “The cable, telecom, wireless, and advertising lobbies’ request … is just another industry attempt to overturn rules that empower users and give them a say in how their private information may be used,” the groups wrote. Sen. Al Franken (D-MN) also voiced his support of the rules in a letter to Pai, urging him to “protect freedom of speech by maintaining and enforcing” the order.

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NBA 2K’s Face-Scanning Feature Complies With Law

With the growth of digital avatars and face-scanning technology, many tech companies have been hit with suits challenging privacy protections. A new decision from New York federal court may ease their concerns.

Siblings Ricardo and Vanessa Vigil purchased NBA 2K15, in part due to the “My Player” feature that allowed users to undergo a facial scan and create a personalized avatar in the game. Although the Vigils signed a release permitting Take-Two Interactive Software Inc. to take the scan and use the data collected to create an avatar, they alleged the company violated the Illinois Biometric Information Privacy Act (BIPA).

The BIPA sets forth disclosure, consent, and retention requirements for private entities that collect, store, and disseminate biometric data. The Vigils claimed that Take-Two failed to provide adequate disclosures (in particular by failing to inform them that their likenesses would be visible to other players online and not providing a retention schedule or guidelines for destroying biometric identifiers) and therefore their consent was invalid.

The software company moved to dismiss, arguing that the plaintiffs failed to adequately allege concrete harm under the statute as required by Spokeo, Inc. v. Robins. U.S. District Court Judge John G. Koeltl agreed.

Under the BIPA, the collection and storage of biometrics to facilitate financial transactions is not in and of itself undesirable or impermissible, the court said. Instead, the purpose of the statute “is to ensure that, when an individual engages in a biometric-facilitated transaction, the private entity protects the individual’s biometric data, and does not use that data for an improper purpose, especially a purpose not contemplated by the underlying transaction.”

Take-Two’s personalized basketball avatar feature complied with the statutory requirements, the court said.

“The plaintiffs … allege that the MyPlayer feature functioned exactly as anticipated,” the judge wrote. “There is no allegation that Take-Two has disseminated or sold the plaintiffs’ biometric data to [third parties] or that Take-Two has used the plaintiffs’ biometric information in any way not contemplated by the only possible use of the MyPlayer feature: the creation of personalized basketball avatars for in-game play.”

The Vigils further failed to establish an imminent risk of harm that their biometrics could actually be misused and no event (such as data theft) has occurred that could demonstrate the risk was a reality, the court said. While the plaintiffs told the court that the potential risk of harm associated with their face scans could be potentially great, “the hypothetical magnitude of a highly speculative and abstract injury that is certainly not impending does not make the injury any less speculative and abstract,” the court said.

None of the purported statutory violations were sufficient to establish standing or actual harm, Judge Koeltl concluded, rejecting the plaintiffs’ other theories of additional harm including invasion of privacy and reluctance to enter into future biometric-facilitated transactions. The Vigils agreed to have their faces scanned and displayed on personalized basketball avatars and standing could not be manufactured based on fears of hypothetical future harm, the court said.

“The plaintiffs cannot aggregate multiple bare procedural violations to create standing where no injury-in-fact otherwise exists,” the judge wrote, dismissing the complaint with prejudice. “Accordingly, the plaintiffs do not have Article III standing to pursue their claims against Take-Two.”

To read the opinion and order in Vigil v. Take-Two Interactive Software, Inc., click here.

Why it matters: As the use of biometric scanning continues to increase, so will the number of consumer challenges to companies making use of the technology. In addition to Take-Two (whose legal woes are not over, as the plaintiffs have already filed an appeal), both Facebook and Google have already been hit with putative class actions asserting violations of the Illinois BIPA.

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News and Views

La Toya Sutton, an attorney in the firm’s advertising, marketing and media practice, recently authored an article for Nutritional Outlook exploring how new guidance from the FTC could impact the homeopathic industry. "Marketers of homeopathic products, or products containing homeopathic ingredients, should be on high alert, reviewing their claims and substantiation and making the necessary revisions to meet the standards set out by the FTC," Sutton wrote. To read the full article, "FTC Clamps Down on Homeopathic Products," click here.

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