Advertising Law

Marc Roth Will Discuss Privacy Regulation at Annual Antitrust Meeting, Jan. 28

On Thursday, January 28, Marc Roth, partner in Manatt's Advertising, Marketing and Media practice and co-chair of the firm's TCPA Compliance and Class Action Defense practice, will participate on a panel at the upcoming New York State Bar Association Antitrust Law Section Annual Meeting. Roth will join fellow panelists and moderator William H. Efron—Director of the Northeast Region at the Federal Trade Commission—for a discussion titled "The Other Side of the House - FTC Policy and Enforcement in Privacy and Big Data." For more information on the Annual Meeting, click here.

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Battle Over Legality of Daily Fantasy Sports Sites Continues

It may be a new year, but the battle over the legality of the FanDuel and DraftKings daily fantasy sports sites continues.

New York Attorney General Eric T. Schneiderman initiated the war with a cease and desist letter last October, followed up by a complaint in state court seeking an injunction banning the sites from the state as illegal gambling operations.

In December, a state court judge granted Schneiderman's request and entered a preliminary injunction, but the defendants were granted a stay by the appellate panel on an interim basis.

The AG responded by upping the ante with an amended complaint filed on New Year's Eve requesting that FanDuel and DraftKings return all of the money they earned in New York, and pay a $5,000 civil penalty for each violation of law.

The Appellate Division extended the emergency stay and permitted FanDuel and DraftKings to continue operations in New York, pending a decision on appeal whether fantasy sports constitute illegal gambling under New York law. The sites argued that the injunction would deprive "375,000 New York customers of the contests they love and have been enjoying for years," not to mention that it would cost the defendants millions of dollars.

Despite Schneiderman's contention that daily fantasy sports are "merely a new manifestation of a type of activity that has long been considered gambling," the appellate court said the stay would remain in place until it issues a formal decision on the case later this year.

To read the amended complaint in New York v. FanDuel, click here.

To read the amended complaint in New York v. DraftKings, click here.

To read the appellate court's order, click here.

Why it matters: Despite the win in New York, the legal woes of FanDuel and DraftKings have only gotten more complicated. In the amended complaint, Schneiderman noted the growing number of states that have declared DFS illegal. Most recently, the attorney general of Illinois declared that such sites are gambling operations prohibited by state law, joining a list that includes Georgia, Michigan, and Nevada. He also noted the efforts by the National Collegiate Athletic Association to halt DFS games involving college sports and ban college players from participating in daily fantasy sports sites. The companies are also facing consumer class actions.

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App Developers Violated COPPA With the Use of Persistent Identifiers, FTC Says

A pair of app developers settled with the Federal Trade Commission after being accused of violating the Children's Online Privacy Protection Act. This was the agency's first case alleging that companies allowed third party advertisers to use persistent identifiers to serve ads to children in violation of COPPA.

When updates to COPPA took effect in July 2013, the agency added persistent identifiers to the list of personal information protected by the statute, joining data such as names, addresses, telephone numbers, online contact information, photographs, and videos with a child's image or voice, and geolocation information. The modified COPPA Rule defined "persistent identifiers" to include a customer number held in a cookie, an Internet Protocol address, a processor or device serial number, or a unique device identifier.

But child-directed apps developed and marketed by LAI Systems and Retro Dreamer—such as My Cake Shop, Friday Night Makeover, Ice Cream Jump, and Cat Basket—permitted third-party advertisers to collect personal information from children in the form of persistent identifiers, the FTC alleged. The agency said the apps were clearly child-directed as they contained brightly colored animated characters and provided children a platform to create images of cakes and pizzas and play dress-up.

In addition, the agency said the defendants (including two principals at Retro Dreamer) failed to inform the ad networks that the apps were directed to children and failed to obtain consent from the children's parents for collecting and using the information. The FTC alleged that one ad network even cautioned Retro Dreamer about its obligations under COPPA in 2013 and 2014, noting that the company appeared to be violating the statute because its apps were intended for use by children under the age of 13.

To settle the suits, LAI agreed to pay $60,000 in civil penalties, while Retro Dreamer will pay $300,000. Both defendants must also comply with all COPPA requirements going forward by ensuring that verifiable parental consent has been obtained before collecting, using, or disclosing children's personal information, and by posting understandable privacy policies on their sites explaining their information collection practices.

To read the complaint and stipulated order in U.S. v. LAI Systems, Inc., click here.

To read the complaint and stipulated order in U.S. v. Retro Dreamer, click here.

Why it matters: The actions—the agency's first targeting of the use of persistent identifiers to serve ads to kids—signal the FTC's intent to aggressively enforce COPPA. "It's vital that companies understand the rules of the road when it comes to handling children's personal information online," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement about the actions. "These cases make it clear that we're closely watching this space to ensure children's privacy online is being protected."

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FTC Sues Over "Brain Training" Program

A "brain training" system offered by Lumos Labs was the target of a recent Federal Trade Commission enforcement action, with the agency alleging that the creators and marketers of the Lumosity program deceived consumers in violation of Section 5 of the Federal Trade Commission Act.

The defendants claimed the program's 40 different games would improve specific areas of the brain that would lead to better performance at work and school, reduce or delay cognitive impairment associated with age and other serious health conditions (ranging from stroke to ADHD to the side effects of chemotherapy), and help users achieve their "full potential in every aspect of life." Using TV and radio ads, Lumos suggested that users train for 10 to 15 minutes three to four times each week. The online and mobile app subscriptions were priced on a monthly basis ($14.95) or lifetime ($299.95).

The agency said that the claims were unsupported by scientific evidence, and that Lumos Labs failed to disclose that some of the consumer testimonials on its site (such as, "I joined Lumosity at first for my mother. I now use this site not only for her, but for my brain as well.") were solicited using contests with prizes that included a free iPad and a round-trip visit to San Francisco.

"Lumosity preyed on consumers' fears about age-related cognitive decline," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement. "But Lumosity simply did not have the science to back up its ads."

To settle the charges, the defendants agreed to obtain competent and reliable scientific evidence before making future claims about performance benefits, age-related decline, or other health conditions. Lumos will also provide consumers with an "easy" way to cancel their auto-renewal program. A $50 million judgment will be suspended upon a $2 million payment in redress.

To read the complaint and the stipulated final judgment in FTC v. Lumos Labs, click here.

Why it matters: Health-related claims remain on the FTC's radar and advertisers should ensure they have the necessary scientific evidence to avoid an enforcement action from the agency. The Commission noted that in addition to the use of television and radio advertisements, the Lumos Labs defendants heavily marketed their products through e-mails, blog posts, social media, and their website by purchasing "hundreds" of keywords related to memory, cognition, dementia, and Alzheimer's disease.

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NAD: Advertisers Can Be Responsible for Claims on Third-Party Sites

In a decision recommending that Neuracel LLC work to remove challenged claims on a website owned and operated by a prior owner, the National Advertising Division provided a reminder to advertisers that they are potentially responsible for claims found on third-party sites.

Claims for the Neuracel dietary supplement reviewed by the self-regulatory body included "The Complete Natural Everyday Nerve Pain Miracle," "Surgery Is Not An Option," and "This means you are getting a completely natural product in a plant-based capsule that is suitable for vegans." Testimonials for the dietary supplement touted, "James is an RN who ordered Neuracel for his partner Dustin. Since taking Neuracel, Dustin has been 100% pain-free. His tingling, numbness and pain are COMPLETELY GONE!"

When contacted by the NAD about the claims, the advertiser responded that they were made by the prior owner of and not reviewed by counsel for the current owner of the company. As a fallback position, Neuracel argued that the challenged claims were supported by a 2014 study on mice of a compound found in the supplement.

The NAD was not persuaded. While it "appreciates" that the challenged claims appeared on a website owned and operated by a prior owner, "NAD has held that advertisers apprised of inaccurate or unsupported claims being made about their products that appear in third-party advertising should take steps to ensure that such claims are promptly discontinued," according to the decision.

Neuracel's website "prominently features" the challenged claims and testimonials, which "reasonably convey the message that Neuracel eliminates nerve pain (including diabetic neuropathy) and that consumers who are taking prescription medication to relieve nerve pain can instead take Neuracel to achieve better results," the NAD wrote. "These are powerful and potentially dangerous claims as they encourage consumers to forego taking prescription pain medication to treat a serious medication condition in favor of Neuracel."

The advertiser lacked competent and reliable scientific evidence to back up its claims, the NAD said, as a single animal study was insufficient to support claims relating to the performance of a product, or its ingredients, in humans.

As for the testimonials, Neuracel offered to add a disclaimer to its website that its statements have not been evaluated by the Food and Drug Administration and that "Neither the website nor our product is intended to diagnose, cure or prevent any disease. Before taking this supplement or discontinuing any medication you are currently taking, you should check with your treating physician. The testimonials on this website are individuals and do not guarantee that you will get the same results."

The proposed disclaimer "is insufficient because the challenged claims it would qualify, which promise relief from nerve pain, are unsupported," the NAD said. "Given the lack of any competent and reliable supporting evidence in the record, NAD recommended that the challenged performance claims and testimonials be discontinued."

To read the NAD's press release about the decision, click here.

Why it matters: The lesson for advertisers? Don't think that just because claims are found on third-party websites or used by prior owners of the product, liability can be avoided. As the self-regulatory body emphasized, "NAD has held that advertisers apprised of inaccurate or unsupported claims being made about their products that appear in third-party advertising should take steps to ensure that such claims are promptly discontinued."

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