Advertising Law

NAD Vacuums Up Preference Claims

In a challenge brought by a competing vacuum manufacturer, the National Advertising Division recommended that SharkNinja discontinue a claim that "Americans now choose Shark 2-to-1 over Dyson."

Shark told the self-regulatory body that the term "choose" conveyed to consumers that the claim was based on sales volume, especially as it was accompanied by a conspicuous disclosure of "Unit Sales of Upright Vacuums" located directly underneath the claim in bold, clear, easy-to-read font. Consumers' preference for one product over another can be based on a number of different factors, including total sales, the advertiser said.

The challenger, Dyson, countered that the preference claim lacked support. The reasonable implication of the claim is that Shark conducted some form of consumer preference study to support its comparison, Dyson argued, and the mere fact that one brand happens to outsell another does not, by itself, illustrate that consumers prefer the other brand. Sales data are particularly suspect as substantiation for preference claims, when there is a large difference in price between the products, as in the case between Shark and Dyson, the challenger said.

The self-regulatory body agreed. "NAD reviewed the challenged commercials in their entirety and determined that one of the messages reasonably conveyed is that consumers prefer Shark vacuums over Dyson vacuums—a preference message which goes beyond sales superiority," according to the decision.

Although Shark used the word "choose," when combined with the word "over" the ads indicated "that there is a preference between two options," the NAD explained. Further, "within the context of the commercials which contain numerous performance claims, it is a reasonable consumer takeaway that the choice to purchase a Shark is based on consumers' preference for a vacuum that provides such benefits."

For example, in one Shark infomercial, the announcer touted the benefits of the vacuum by stating that it "has more suction than the newest $700 Dyson Cinetic," "makes my home cleaner and my job easier," concluding with "The Powered Lift-Away is the total transformation of the upright vacuum. It's no wonder that Americans now choose Shark 2-to-1 over Dyson."

"Use of the phrase 'it's no wonder' clearly connects the purchasing decision to the aforementioned attributes, thus conveying that consumers have a preference for Shark vacuums over Dyson vacuums because of such qualities," the NAD wrote.

Was Shark's sales data sufficient to provide a reasonable basis for the claim? No, the NAD determined.

"By its nature, a consumer preference claim connotes that a particular group of consumers (representative of a defined population) have made an identifiable product choice between two or more products based upon a particular product attribute (or attributes)," the NAD wrote. "While overall sales may be one indicia of consumer preference, sales alone are not wholly dispositive of individual preference."

Other variables are at play in consumer preference, such as the cost of the product and the accessibility of obtaining the product, the self-regulatory body noted, as well as the realities of the marketplace, which may sometimes "have a serious effect on the opportunity to choose and, thus, sales may not be a truly accurate barometer of consumer preference."

Given the price difference between Shark and Dyson products, "consumers who buy Shark products are not necessarily choosing them over Dyson," the NAD said. Further, Shark's claim "obscures the fact that the comparison is based purely on sales," the decision added. "The disclosure … is not likely to be understood by consumers to mean that Shark brand outsells Dyson and even if it did, that message is contradictory to the main message that consumers 'chose' Shark 'over' Dyson in a head-to-head selection."

The NAD recommended that Shark discontinue the claim that "Americans now choose Shark 2-to-1 over Dyson," but noted that "nothing in this decision precludes Shark from making a comparative claim based on unit sales (e.g., 'Shark outsells Dyson 2-to-1'), provided that such a claim is accurate and does not imply a head-to-head preference."

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

Why it matters: The self-regulatory body cautioned advertisers that "total sales are not always synonymous with consumer preference," as there are "a number" of variables that influence consumer preference for one product over another, from the cost of the product to the realities of the marketplace. An advertiser's best bet for substantiating a preference claim: "Survey evidence which directly gauges consumer preference among competing products is the most relevant support for a claim that one product is preferred over another," the NAD wrote.

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FTC Returns $1.87 Million From Telemarketing Scam

Consumers will receive a total of $1.87 million recovered from funds by the Federal Trade Commission from an illegal telemarketing operation known as Expense Management America.

According to the agency, the Canada-based operation charged homeowners an upfront fee for debt and mortgage relief services that it never provided. The FTC filed suit against Expense Management (as well as other defendants) in September 2012, accusing the company of violating the Federal Trade Commission Act, the Telemarketing Sales Rule (TSR), and the Mortgage Assistance Relief Services (MARS) Rule.

Expense Management presented itself as the solution to all of a consumer's financial problems, the FTC alleged. It cold-called consumers—including those on the Do Not Call Registry—and sent brochures and financial documents via e-mail in order to obtain authorization to withdraw funds from checking accounts. The defendants (including six affiliated companies and five individuals) then charged an upfront fee ranging from $2,200 to $10,000 and told consumers the money was being used to pay off debt, the agency said.

The defendants also told consumers that because of their relationships with lenders and their ability to negotiate on behalf of large groups, they could possibly "substantially reduce" debts including mortgages, credit cards, student loans, and car payments. The defendants also advised consumers to abide by the "Golden Rule": stop talking with creditors and let Expense Management deal with them, with claims like: "Sometimes [creditors will] go to extremes in an attempt to force you into an agreement by saying things such as 'We've never heard of E.M.A.' Or 'We don't deal with them.' … Sometimes [creditors] even break the law. Don't be fooled by them. Let E.M.A. do the talking!"

But in reality, the defendants' claims that they could secure more affordable payments and reduce the principal on consumers' loans were false, the agency said, as were claims about the price and material aspects of their debt relief service. Moreover, the FTC claimed that the defendants violated the law by charging advance fees for debt relief, by calling consumers whose numbers were listed on the Do Not Call Registry, by telling consumers not to communicate with their lenders, and by failing to make the disclosures required by the MARS Rule.

Over the course of almost three years, the FTC obtained a series of orders limiting the defendants' conduct and collecting money for consumers. The $1.87 million will be paid to 1,630 consumers, with the amount of each check varying based upon the amount of each consumer's loss.

To read the complaint and various court orders in FTC v. E.M.A. Nationwide, click here.

Why it matters: The case against Expense Management, brought in conjunction with the DOJ and HUD, was part of the agency's Distressed Homeowner Initiative, an effort "to stop predatory foreclosure rescue, mortgage modification, short sales, and bankruptcy schemes that targeted distressed homeowners." More than 40 cases were brought by the FTC as part of the initiative, including the action against Expense Management.

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FTC Discusses Privacy Program With Lawmakers

Addressing the Senate Judiciary Committee's Subcommittee on Privacy, Technology and the Law, Federal Trade Commission Chair Edith Ramirez and Commissioner Maureen Ohlhausen discussed the agency's efforts with regard to consumer privacy.

The legislators called the hearing to examine the Federal Communications Commission's proposed privacy rules, asking the members of the FTC to share their experiences in the privacy realm.

In joint testimony, Ramirez and Ohlhausen talked about the FTC's three-pronged approach to privacy: enforcement, policy initiatives, and business guidance and consumer education. "Although the privacy landscape has evolved, the FTC's interest in privacy issues has remained constant over the last 40 years," they told lawmakers.

Emphasizing the Commission's "unparalleled experience in consumer privacy enforcement," Ramirez and Ohlhausen noted that the agency has brought more than 500 actions protecting the privacy of consumer information, with cases covering both offline and online information against companies large and small. "The FTC's current privacy enforcement priorities include mobile, health, the Internet of Things, and data security," the Commission members told lawmakers. It highlighted a recent action involving a popular app operator over deceptive claims that photos and videos sent through its app would disappear at a time set by the sender. In reality, easy work-arounds allowed the messages to be kept forever.

Data security has been the subject of 60 cases against companies that failed to implement reasonable safeguards for the data they maintained, the Commissioners added. It recalled a settlement with computer hardware company ASUS for neglecting to timely address vulnerabilities found in its routers or notify consumers about the availability of security updates.

Policy initiatives with regard to consumer privacy have included workshops—dating back to the first workshop on Internet privacy in 1996—as well as reports, including the agency's 2012 Privacy Report, "which set forth key privacy principles that should apply across diverse technologies and business models," Ramirez and Ohlhausen said. More recently, the FTC published reports on the Internet of Things and the data broker industry, while hosting workshops on issues like cross-device tracking and the upcoming fall technology series that will focus on the privacy and security of ransomware, drones, and smart TVs.

Consumers and businesses have benefited from the FTC's education and guidance in a variety of tools (publications, online resources, workshops, and social media), the Commissioners told the Subcommittee, and the agency has developed privacy guidance for specific industries, such as mobile app developers.

Finally, Ramirez and Ohlhausen discussed the FTC's "long history of successful cooperation with the FCC on consumer protection issues, including issues related to privacy and data security." Although the agencies formalized their collaboration in a Memorandum of Understanding just last year, the prior decades have included work together on the federal Do Not Call Registry, investigations into "pretexting," and joint enforcement efforts, such as cases challenging the practice of mobile cramming.

To read the Commission testimony, click here.

Why it matters: The FTC members shared with lawmakers the Commission's history of regulation and enforcement in the privacy realm and discussed its joint efforts with the FCC. Although legislators expressed concern about the FCC's entry into the privacy realm, FTC Chair Ramirez expressed confidence in the agencies' abilities to share the sandbox. "Our goal in working together is to use our complimentary expertise and authority to protect consumers as effectively and efficiently as possible, avoid duplication, and promote consistency," she said. "I commend the FCC for focusing on the important issue of consumer privacy." The FTC intends to file a formal comment on the FCC's proposal, she added.

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New York AG Reports on Data Breaches

In a new report, the New York Attorney General's Office revealed that it received 459 data breach notices between January 1, 2016, and May 2, 2016, an increase of 40 percent over the same time period in the prior year, when the office received a total of 327 notices.

New York's Information Security Breach and Notification Act requires companies to provide notice to the AG's Office and consumers in the event of a data breach. Last year, the Office received 809 data breach notices. Given the upward trend already visible in the first half of 2016, the Office expects to receive "well over 1,000 notices" this year, Attorney General Eric T. Schneiderman said—a new record high.

To improve efficiency with the increased volume, the AG's Office provided companies with the ability to file notice electronically via a submission form on the Office's website. Previously, companies were required to mail, fax, or e-mail their notices.

In addition to details about the entity breached, the form requires companies to select a description of the breach (an external systems breach, for example, or insider wrongdoing), as well as the information acquired in combination with a name or other personal identifier (such as a Social Security number or financial information). Entities must report the total number of consumers affected, and how many New Yorkers were impacted, along with the dates of the breach and when it was discovered. A copy of the notice to affected consumers must be provided to the AG's Office, along with information about whether the company has suffered any other breach notifications within the prior 12 months.

Attorney General Schneiderman has kept a close eye on data breaches in the state during his tenure, releasing a report in 2014 titled "Information Exposed: Historical Examination of Data Security in New York State." Analyzing eight years of security breach data for the state, the report found that the number of reported data security breaches in New York more than tripled between 2006 and 2014. The roughly 5,000 data breaches impacted 22.8 million personal records of New Yorkers, according to the report, with hacking intrusions by third parties the number-one cause of breaches.

Why it matters: "Data breaches are an escalating threat to our personal and national security, and companies need to do more to ensure reasonable security practices and best standards are in place to protect our most sensitive information," Attorney General Schneiderman said in a press release. "I am committed to stemming the data breach tide. Making notification to my office easier for companies who have experienced a data breach means quicker notification and quicker resolution for New York's consumers."

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Marc Roth to Speak at PLI's Hot Topics in Advertising Law, June 9

As companies strive to increase market share in a dynamic landscape increasingly dominated by social networks and other new media outlets, legal pitfalls abound. PLI's upcoming Hot Topics in Advertising Law program will address how to navigate those challenges. Panelist Marc Roth, partner in Manatt's Advertising, Marketing and Media practice, will discuss how to mitigate the risks surrounding native advertising. Hot Topics in Advertising Law will take place in New York, NY on Thursday, June 9, 2016, and will be webcast in various locations. Click here for more information.

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Noted and Quoted . . . Advertising Age Turns to Gottlieb on Impact of Spokeo

Advertising Age turned to Richard Gottlieb, partner in Manatt's Consumer Financial Services practice, for insight into the Supreme Court's ruling in Spokeo Inc. v. Thomas Robins et al., in which it was determined that a consumer could not sue Spokeo for mere technical violations of the Fair Credit Reporting Act. Gottlieb said that the ruling should not have any impact on the ability of the FTC or other federal agencies to intervene when privacy violations harm consumers. Rather, it affects the ability for plaintiffs to sue over alleged violations that are deemed exceedingly technical. To read the full article, "Supreme Court Sets High Bar for Lawsuits Over Bad Consumer Data," click here.

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