Retail and Consumer Products Law Roundup

Newsom’s Six-Month Paid Family Leave Agenda

By Cherise S. Latortue, Associate, Litigation

Shortly after being sworn in as the new governor of California, Gavin Newsom proposed extending California’s current six-week paid family leave (PFL) to six months. PFL, which became state law 17 years ago, currently provides up to six weeks of partial wage replacement to employees who take time off work to, among other things, care for a new child entering the family through birth, adoption or foster care placement. Other states – such as New York, Massachusetts and Washington – have followed, and have even surpassed, California’s PFL, providing more paid time off to parents.

The proposal may seem like good news to some, but not to all. On the one hand, the proposal will boost the amount of time employees can take off work to bond with a new child. And spending more time at home with a new child could decrease the cost of child care to parents. On the other hand, questions abound regarding how to fund the increase. PFL is funded 100% by employees through payroll taxes. One option for funding the proposal is to increase payroll taxes, i.e., to increase deductions from employees’ paychecks. The proposal does not call for six months for each employee, however – just six months for each child. Thus, the six months could be divided between two adults in the household taking care of a new child – such as one parent taking two months and the other taking four months. Other funding options include property and sales taxes, or even requiring employers to contribute toward PFL. Governor Newsom has suggested that the PFL proposal may become part of a larger tax reform initiative in the state.

Why it matters: The proposal is far from becoming new law, with Governor Newsom yet to release an estimate of the cost of the proposed increase. While many may agree with the idea of parents spending more time with their new child, resolving the issue of how to fund that increased time will be a central focus of many debates. Regardless, more and more private employers in California (and other states) are electing to provide more than the mandatory paid time off for parents to bond with their new children.

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Text Messages Part of Ongoing Business Transaction, California Court Rules

By Christine M. Reilly, Leader, TCPA Compliance and Class Action Defense | Kristin E. Haule, Associate, Litigation

Text messages confirming a plaintiff’s hotel reservations—that also encouraged the recipient to download the defendant’s app—were not advertising or marketing under the Telephone Consumer Protection Act (TCPA), a California federal court has ruled.

On four separate occasions after booking travel on Agoda Company’s website, plaintiff An Phan received a text message reading: “Good news! Your Agoda booking [number] is confirmed. Manage your booking with our free app [link].” Phan filed a putative class action alleging the texts violated the TCPA.

Agoda moved for summary judgment. The Singapore-based international travel service provider explained that Phan provided the required level of consent under the statute because the text messages he received did not contain advertising and were not telemarketing.

Each time a customer books a reservation using the Agoda site, he or she agrees to certain terms and conditions, the defendant told the court, including “to receive confirmation messages (email and/or SMS),” defined by the terms as “transactional” and “not part of the newsletters or marketing mails[] from which [users] can unsubscribe.”

The messages received by Phan were merely transactional because they served two purposes, Agoda argued: to confirm that Phan’s bookings were reserved with the third-party hotel and to direct him to the app, where he could locate and modify the booking prior to his stay. The business transaction between Agoda and Phan did not conclude until Phan completed his stay at the hotels he booked through Agoda, the defendant said.

Phan countered that the business transaction was completed at the time of booking, rendering the app download link superfluous. The text messages were actually advertising, the plaintiff argued, and sent specifically to encourage use of the app, which allows users to undertake transactions having nothing to do with the original reservation.

After reviewing relevant case law from the U.S. Court of Appeals, Ninth Circuit, U.S. District Judge Beth Labson Freeman determined that the text messages at issue were neither advertising nor telemarketing.

“Both the context and the content of the messages dictate this result,” the court said. “As to the context, these messages were sent as part of an ongoing business transaction between Agoda and Phan. Phan used Agoda’s services to book a travel itinerary online. Up until the time he finished his travel, he could cancel that booking or otherwise modify it through Agoda. As such, his transactional relationship with Agoda as to each booking continued through the time when he completed his travel.”

This scenario “is directly comparable” to that of Mackinnon v. Hof’s Hut Restaurants, Inc., the court said, where a plaintiff filed a TCPA suit against a restaurant. After Mackinnon made a dinner reservation, the restaurant sent a confirmation text message that included a link to the evening’s dinner specials.

The Mackinnon court concluded that the text was not advertising or marketing because although the reservation was booked, it was not completed until the plaintiff ate dinner at the restaurant.

“Even assuming Phan paid for his booking on Agoda’s website at the time of booking (as opposed to at the time of travel), this fact does not change the Court’s conclusion,” Judge Freeman added. “Phan contracted with Agoda for the provision of travel accommodations; Agoda’s obligations were only completed by its successfully providing those accommodations to Phan at the time of Phan’s travel.”

The content of the messages only reinforced the court’s decision.

“The plain language of the text messages is limited to (1) confirming the booking (a purpose no court cited by Phan has found constitutes advertising or telemarketing); and (2) encouraging Phan to ‘manage [his] booking’ via the app,” the court said. “These two purposes directly related to Phan’s transaction with Agoda.”

For support, the court cited Aderhold v. Car2go, Wick v. Twilio and Daniel v. Five Stars Loyalty, Inc., each of which focused on whether the text messages at issue were directly germane to the transaction.

“Here, the context and the content of the messages demonstrate that the purpose of the messages was not to advertise or telemarket, but instead was directly cabined to facilitating and completing an existing transaction,” Judge Freeman wrote.

The inclusion of the link did not alter this analysis. Although the app may fairly be considered a product or service of Agoda, the messages “simply cannot be said to advertise the commercial availability of this product or service under the law,” the court said.

Instead, the app is readily analogized to Agoda’s website, as the two platforms have substantially similar processes for booking travel and most (if not all) of the same functions, the court said. Even though the app contains certain promotions, it was included to facilitate, complete or confirm a commercial transaction, making the link to it fully germane to the transaction, the court said.

“Put simply, Agoda was not advertising the app’s commercial availability,” Judge Freeman wrote. “To hold otherwise would run headlong into the decisions in this Circuit and others holding that inclusion of the link to a defendant’s website, without more, does not render a message advertising or telemarketing.”

As the messages were not advertising or telemarketing, Agoda needed only Phan’s express consent prior to sending the texts. With no dispute that Agoda obtained such consent because Phan voluntarily provided his phone number and agreed to the defendant’s terms of use for its website, which made clear that such messages would be sent, the court granted the defendant’s motion for summary judgment.

To read the order in Phan v. Agoda Company Pte. Ltd., click here.

Why it matters: In another common sense decision, and relying heavily on precedent, the California court found that the text messages were sent as part of an ongoing business transaction between the parties and therefore, did not constitute advertising or telemarketing. The mere inclusion of a link to the defendant’s app – which itself contained some promotional materials – did not impact the outcome. Critically, the text messages and inclusion of the linked app were made contemporaneously with and directly related to the ongoing transaction. Although not every jurisdiction agrees that a link to an app is not advertising or marketing, this decision is consistent with prior Ninth Circuit precedent that mere inclusion of a link, without more, is insufficient itself to transform an otherwise transactional text message into a marketing message. This decision is a helpful benchmark for those businesses in the Ninth Circuit who want to offer their customers the option of managing their transactions online or through an app.

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Washington, DC, Adds Auto Renewal Law

By Richard P. Lawson, Partner, Consumer Protection

The nation’s capital joined the growing number of states regulating automatic renewal contracts when Mayor Muriel Bowser signed the new law into effect last month.

Pursuant to the Structured Settlements and Automatic Renewal Protections Act of 2018, businesses using auto-renewal contracts are required to “clearly and conspicuously” disclose both the auto-renewal provision and the cancellation procedure in the contract.

If the contract has an initial term of 12 months or more that will automatically renew for a term of one month or more unless the consumer cancels the contract, the business must notify the consumer of the first automatic renewal and thereafter annually by first-class mail or email. If the consumer provides specific authorization to use another form of communication—such as text message or app—then notice can be provided that way.

The notice itself must be sent to the consumer no fewer than 30 days and no more than 60 days before the cancellation deadline for the first automatic renewal. It also must clearly and conspicuously include several disclosures: the fact that unless the consumer cancels the contract, it will automatically renew; the cost of the goods or services for the term of the renewal; the deadline by which the consumer must cancel the contract to prevent automatic renewal; and the methods by which the consumer may obtain details of the automatic renewal provision and cancellation procedures. Active weblinks must be included if the notice is provided via email.

Free trials with an automatically renewing contract attached are also covered by the new law. Notice of the auto-renewal must be given to consumers between one and seven days before the expiration of the free trial period, and the business must obtain the consumer’s affirmative consent to the auto-renewal before charging the consumer, notwithstanding the consumer’s consent to the free trial.

A violation of the new law will render the automatic-renewal provision void, will terminate the contract at the end of the term in which the violation occurred, and will constitute a violation of the District of Columbia Consumer Protection Procedures Act unless the business can demonstrate that it established and implemented written procedures to comply with the law, that its failure to comply was the result of a good faith mistake, and that the consumer received a credit for all amounts billed or a refund for all amounts paid due to the mistaken renewal.

To read the new law, click here.

Why it matters: Regulation of automatic renewal contracts looks to be a hot trend in 2019, with the enactment of the Washington, D.C., law, recent updates to California’s statute and new legislation in Vermont becoming effective on July 1, 2019.

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Privacy and Data Security 2018 Year in Review

By Donna L. Wilson, Managing Partner-Elect, Leader, Privacy and Data Security | Brandon P. Reilly, Counsel, Privacy and Data Security

In many ways, it was the year of data privacy. In this article, we identify five of the biggest trends in privacy and data security, including the mammoth European Union General Data Protection Regulation (GDPR) taking effect, the hurried passage of the California Consumer Privacy Act (CCPA), the rapidly escalating political scrutiny emanating from revelations surrounding the 2016 election and social media accountability, and the new challenges raised by high-profile data breaches and emerging technology.

1. Omnibus privacy legislation becomes “a thing”

Far-reaching and industry-spanning privacy legislation finally matured in 2018. It is now a thing. After years of ramp-up and speculation as to its immediate impact, the GDPR finally became effective on May 25, 2018. Thus far, enforcement actions utilizing the GDPR’s severe civil penalty provisions—which include up to €20 million or 4 percent of a business’s global annual turnover—have been limited to data security incidents, including a €400,000 fine to a Portuguese hospital for granting broader-than-needed access to patient profiles and a €20,000 fine to a hacked German chat platform that failed to pseudonymize and encrypt sensitive information. European data protection authorities have signaled that enforcement actions for violations of the GDPR’s non-breach-related provisions will ramp up shortly. Whether an American Big Tech firm will be hit with the massive, front-page penalty that many have prognosticated since May 25 remains to be seen.

Also in May, Californians for Consumer Privacy (CCP), a relatively little-known consumer privacy rights group, submitted enough signatures to qualify the “California Consumer Personal Information Disclosure and Sale Initiative” for the November 2018 ballot in California. In a last-ditch effort to force the initiative into legislative control—and thus subjecting the law to a much easier threshold for later amendment—the California legislature hurriedly drafted a bill that convinced the CCP to agree to drop the ballot measure. The result was the CCPA, passed on June 28, 2018.

As many stakeholders in companies with consumers or employees in California are undoubtedly now aware, the CCPA adopts several GDPR concepts for the protection of data subjects, including the rights to ask a company what personal information it possesses on the consumer, to delete certain personal information and to opt out of any sales of personal information to third parties. The CCPA also implements a first-of-its-kind private right of action for data breaches that attaches civil penalties between $100 and $750 per consumer, per incident. Already the subject of an amendment, the law is expected to undergo additional amendments in the coming legislative sessions in Sacramento. It is currently set to go into effect between January 1 and July 1, 2020, varying by the provision and the date that the California Attorney General introduces implementing regulations.

Other jurisdictions will continue the march toward comprehensive privacy protections. In August, for instance, Brazil passed its General Data Privacy Law, which reflects many GDPR concepts and is set to become effective in 2020. That same month, Indian legislators unveiled the draft Personal Data Protection Bill, 2018, which attempts to combine elements of European, American and Chinese data protection regimes.

2. Privacy and security take their turn in the political spotlight

The ongoing scrutiny of the role of social media in the 2016 presidential election promises to continue into 2019. These issues bring enough gravity that it is reasonable to conclude that privacy issues will never again be able to hide from the national spotlight.

Scrutiny of Big Tech continued throughout 2018, with a number of major data breaches making headlines. In addition, the U.S. Congress convened several high-profile hearings in April and September in which Big Tech executives were grilled about privacy- and security-related issues.

Several big data breaches also became front-page news. In April, the Federal Trade Commission revealed that a 2016 breach of Uber resulted in the exposure of personal information of more than 20 million people. The company agreed to a $148 million settlement with the attorneys general of all 50 states and the District of Columbia in September. In December, hotel chain Marriott disclosed a data breach exposing the information of up to 500 million people. The incident is notable not only for its size, but because it apparently emanated from Marriott’s acquisition of the Starwood brand and its separate guest reservation system and, according to recent reports, investigators believe the incident is traceable to hackers working on behalf of the Chinese government.

If there is anyone who doubts the sobering implications of the CCPA’s new statutory penalties for data breaches, simply multiply the minimum penalty of $100 (or if you really want to scare yourself, the maximum of $750) by any of the above numbers and compare the resulting amount to the going rate for civil and regulatory settlements of alleged data breaches. The stakes for data breaches are about to be raised even higher.

3. States continue to expand existing protections

Other states expanded the reach of their privacy and security protections as well, even if they have thus far declined to follow California’s example of omnibus legislation. On September 4, 2018, the latest phase of the New York Department of Financial Services’ (DFS) Cybersecurity Requirements took effect following the regulation’s initial March 2017 implementation. The regulation represents perhaps the most sweeping cybersecurity regime in the nation, requiring covered entities to assess their specific risk profile and design programs ensuring information security, establish written cybersecurity policies, adopt encryption and monitoring mechanisms, and design audit trails allowing operational continuity in the event of a breach. By March 2019, these entities will also be expected to evaluate the risks presented by third-party data service providers. Cybersecurity legislation was passed also in Colorado and Ohio in 2018, with the latter jurisdiction providing a notable affirmative defense to breach allegations for companies that implement a recognized cybersecurity framework.

State data breach laws also undertook a steady expansion of coverage last year. On June 1, 2018, Alabama—the last state lacking such a law—implemented its notice statute, which notably defines covered PII to include data types on the outer reaches of most notice statutes, such as information relating to medical history and health insurance. Meanwhile, Colorado joined Florida in adopting the most stringent notification deadline, requiring notification no later than 30 days after determining that a security breach has occurred.

4. Emerging tech scrambles pre-existing notions of privacy protection

Artificial intelligence, machine learning, deep learning. The Internet of Things (IoT). Blockchain. If these concepts were not already in the popular lexicon, they are now. Together, these and other emerging technologies have already reshaped the debate over how best to secure personal information before the prior debate was anywhere near its conclusion. Real-world applications such as digital assistants, self-driving cars, cryptocurrency, facial recognition and data science have already demonstrated the bare minimum of what these technologies are capable of—as well as the many challenging privacy implications presented.

Understandably, lawmakers are well behind on legislating for such rapid innovation, but there was some progress in 2018. In May, Vermont passed a first-in-the-nation law to regulate data brokers, or businesses that knowingly sell or license the personal information of consumers with whom that business does not have a direct relationship. As of January 1, 2019, data brokers are required to register annually with the Vermont Secretary of State, disclose details regarding their identity and practices, and provide minimum information security requirements. In September, California passed the first state legislation addressing the security of IoT devices. Effective on January 1, 2020, the law mandates that manufacturers of connected devices follow reasonable security standards and require authentic access codes. It is enforceable by the California Attorney General.

5. A more regulated future awaits

The conventional wisdom is that the developments described above may soon converge into a federal privacy law with pre-emptive power over the CCPA and similar state laws. In August, it was reported that several Silicon Valley companies were lobbying the Trump administration to begin outlining a federal privacy law that would pre-empt the CCPA. And there appears to be bipartisan agreement on the now-divided Capitol Hill that privacy legislation is necessary. The remaining question is: What will a successful bill look like?

In little more than a month’s time, we have already seen three examples of where we may be headed. On November 1, Senator Ron Wyden (D-OR) introduced the Consumer Data Protection Act, which resembles the GDPR and turned heads by proposing up to 20 years in prison for executives responsible for misrepresentations in annual reports to the FTC. On November 6, Intel released a 6,000-word draft bill and online portal for further discussion that differs from the Wyden bill by protecting companies from civil actions and moving away from data minimization, among other things. Finally, on December 12, a group of 15 senators led by Senator Brian Schatz (D-HI) introduced the Data Care Act, which is notable for, among other things, introducing a fiduciary duty for online service providers and allowing both the FTC and states to enforce privacy violations.

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State AGs Deal with Payment Processor, Mobile Apps

By Anita L. Boomstein, Partner, Global Payments | Donna L. Wilson, Managing Partner-Elect, Leader, Privacy and Data Security | Brandon P. Reilly, Counsel, Privacy and Data Security

In state enforcement news, Massachusetts Attorney General Maura Healey announced a settlement with a California-based payment services provider, while New York Attorney General Barbara Underwood reached a deal with five companies related to security vulnerabilities in their mobile apps.

The Massachusetts action, which involved allegations that the company exposed the personal information of state residents, resulted in a $155,000 civil penalty, while the companies involved in the New York actions avoided a penalty but agreed to improve their security practices after the attorney general (AG) said they failed to keep sensitive user information secure when it was transmitted online.

What happened

The Massachusetts action began when the payment services provider notified the Attorney General’s Office in 2015 that a data breach had occurred the prior year. An investigation by the AG revealed that while engineers for the payment services provider were modifying its website, they accidentally removed password protections from public-facing websites where users sign up for the company’s service.

The company stored the personal information of consumers, the AG said, including Social Security and bank account numbers as well as addresses and driver’s license numbers. The mistake meant that any Internet user could view the data until August 2015, when the vulnerability was fixed. The investigation found that some employees of the company were aware of the vulnerability as early as August 2014 but neglected to fix it.

An estimated 6,800 Massachusetts residents were impacted by the violation of state consumer protection and data security laws, Healey said.

Pursuant to an assurance of discontinuance with the AG, the payment services provider agreed to pay $155,000, comply with state laws, and implement policies to improve the security of its systems and protect consumer data online (such as having a chief information security officer, training employees on data security, and assessing and updating information security policies related to changes to its systems and to external vulnerabilities).

“This company broke the law by failing to take immediate action when consumers’ personal information was at risk,” Healey said in a statement about the action. “Through our settlement, [the payment services provider] will pay a penalty and take significant steps to safeguard the personal information of customers.”

In the New York actions, AG Barbara Underwood settled with five companies whose mobile apps failed to secure user information transmitted over the Internet.

To protect consumers using Wi-Fi networks to connect their mobile devices to the Internet, mobile web browsers and apps use a security protocol known as Transport Layer Security (TLS) to establish a secure, encrypted connection online, the AG explained. To establish the secure connection, the mobile device must verify the computer’s identity by authenticating a security certificate.

If an app fails to properly authenticate the identity, it becomes vulnerable to a “man-in-the-middle attack,” where a third party can intercept and view any information transmitted between the mobile device and the app. App developers can use freely available software to test their apps for this well-known vulnerability.

The five companies offered free mobile apps that required users to enter information including an email address and a credit card number. According to the AG, although the companies represented to users that they used reasonable security measures to protect consumer data, they failed to test their apps for this common and known vulnerability, and certain versions of their apps neglected to properly authenticate the security certificates.

“As a result, an attacker could have impersonated the companies’ servers and intercepted information entered into the app by the user,” according to Underwood. “With this information, an attacker could commit various forms of identity theft and fraud, including credit card fraud.”

The New York Office of the Attorney General uncovered the vulnerabilities found in the five apps after testing them as part of an initiative to find security problems before a data breach occurs. The settlement agreements require each of the companies to implement comprehensive security programs to protect user information from future potential attacks.

To read the Massachusetts AG’s press release, click here.

To read the New York AG’s press release, click here.

Why it matters: “Businesses that make security promises to their users—especially as it relates to personal information—have a duty to keep those promises,” AG Underwood said in a statement. “My office is committed to holding businesses accountable and [ensuring] they protect users’ personal information from hackers.” The actions by these two state AGs demonstrate the continuing efforts that states have been pursuing to stem data security and privacy violations.

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