Advertising Law

It’s a FACT(A): Record Deals Reached Under the Statute

Two record-setting deals were recently reached in Fair and Accurate Credit Transaction Act (FACTA) cases, where the Laboratory Corporation of America and Spirit Airlines agreed to pay $11 million in the largest settlement ever reported under the federal privacy statute.

Both cases were brought by Christopher Legg. In the LabCorp dispute, Legg claimed the company printed the expiration dates of credit and debit cards on receipts for lab tests in violation of FACTA. The defendant’s conduct was willful, the plaintiff asserted, because the receipts redacted digits from the credit or debit card used, demonstrating LabCorp’s awareness of the statute.

To settle the charges, LabCorp agreed to pay roughly $200 to each class member, a nationwide group dating back five years and estimated around 665,000 individuals. Legg will receive an incentive award of $10,000.

LabCorp also changed its practices to achieve compliance with the statute by reprogramming its payment system to stop printing expiration dates on receipts. “Given the hurdles facing the class in this litigation and the difficulty of proving willfulness, the results achieved are outstanding,” according to the motion for preliminary approval of the deal. “Indeed, counsel believes this settlement is the largest cash settlement recovered in a FACTA case.”

Legg’s complaint against Spirit Airlines alleged slightly different facts. It asserted that the company revealed too many credit card digits on its receipts. The plaintiff’s receipt displayed not just the last four digits of his credit card but also the first seven digits of his account number. FACTA permits only the last five digits to be printed. Because a similar lawsuit was filed against the airline in 2010, the plaintiff accused Spirit of willful and reckless violations of the statute.

Pursuant to the deal, class members—passengers who paid using their debit or credit card and had too many digits printed on their receipts since August 2012—will receive about $265 each.

Spirit similarly modified its payments system to achieve compliance with FACTA by having IBM reprogram its airport kiosks to print no more than the last five digits of credit and debit card account numbers.

To read the motion in support of preliminary approval of the settlement in Legg v. LabCorp, click here.

To read the motion in support of preliminary approval of the settlement in Legg v. Spirit Airlines, click here.

Why it matters: The multimillion-dollar deals in the LabCorp and Spirit Airlines cases provide an important reminder that companies must ensure compliance with FACTA, with respect to the number of digits printed on a receipt and the expiration date exclusion.

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Plaintiff Loses In-App Gambling Suit

An app with a casino game does not violate state gambling laws, a federal court judge has ruled.

Mia Mason sued Machine Zone Inc. alleging that a feature in the company’s Game of War: Fire Age application ran afoul of both California and Maryland laws. Although the game is free, players can purchase virtual “gold” with real money at rates from $4.99 for 1,200 pieces to $99.99 for 20,000 pieces. The game also features a “casino” where players can spin a wheel and exchange their “gold” for the chance to win items that can be used only for in-game play. This “illegal game of chance” enticed users to wager hundreds of dollars in order to win items, Mason claimed.

Having lost more than $100 wagering at the casino over the course of a year, Mason filed suit in Maryland federal court. She alleged the casino is an unlawful “slot machine or device” under California law and that the defendant further violated the Unfair Competition Law by operating the casino. She also included claims under Maryland law.

But U.S. District Court Judge James K. Bredar had limited patience for the lawsuit. “Plaintiff charges that Defendant trampled real and important rights and interests of hers, wrongfully and unlawfully, in an alternative, virtual world created by an electronic game,” he wrote. “But a careful probe beneath the surface reveals a hodgepodge of hollow claims lacking allegations of real-world harms or injuries. Perceived unfairness in the operation of outcome of a game, where there are no real-world losses, harms, or injuries does not and cannot give rise to the award of a private monetary remedy by a real-world court.”

While at first glance the casino might seem to meet the requirements of California’s Penal Code Section 330b(d) as a “machine, apparatus, or device” operation “by any other means” that grants the user a “thing of value” by “reason of any element of hazard or chance,” the court agreed with the defendant that the casino function was actually software downloaded to a user’s mobile device.

California courts have recognized systems that include elements of both software and hardware, Judge Bredar noted, but not software alone. “Indeed, the most natural reading of the phrase ‘machine, apparatus, or device’ calls to mind a piece of equipment, just as the phrase ‘slot machine’ calls to mind a physical terminal with movable parts and flashing lights,” he wrote. Based on this natural reading of the statute, he found the game’s casino function was not covered by the law.

Even if the court were to find the casino function fell under the rubric of Section 330b, an exception would allow the defendant to avoid liability, the court said. Section 330b(f) states: “Pinball and other amusement machines or devices, which are predominantly games of skill, whether affording the opportunity of additional chances or free plays or not, are not included” in the provisions creating liability.

The game at issue was not the casino function, the court said—it was Game of War. “Plaintiff proffers no authority for the proposition that the Court may excise one particular aspect of an integrated strategy game and evaluate that aspect in isolation,” Judge Bredar wrote. “Because GoW’s Casino function is not a ‘slot machine or device,’ and because the game—properly viewed as a whole—is predominantly a game of skill, GoW does not violate Section 330b.”

Not only did the plaintiff lack standing to bring suit under California’s UCL, the court said she was unable to allege an economic injury attributable to the defendant’s conduct. Plaintiff did not “lose” her $100 by wagering it in the casino, the court explained. Instead, she acquired virtual gold by exchanging “her real-world currency for a nontransferable, revocable license to use virtual currency for entertainment purposes. At the moment of that antecedent transaction, Plaintiff’s ‘loss,’ if any, was complete: then and there she had swapped something of value (real money) for something of whimsy (pretend ‘gold’).”

The remainder of Mason’s claims failed as well. Maryland’s prohibition on gaming devices similarly required a loss, which the plaintiff could not establish. The court emphasized that the gold or casino prizes have no real-dollar value and the game’s Terms of Service provide that they can never be redeemed for “real-world” money or goods, with a prohibition on a secondary market of virtual gold.

“[N]one of the prizes on offer in the GoW Casino have any freestanding value apart from their contribution to gameplay,” Judge Bredar said. “Plaintiff’s theory, if taken seriously, would place an eventual factfinder in the unenviable position of pricing the conversion from virtual gold and chips to virtual wood and rock. Such a whimsical undertaking may spark the imaginations of children and ardent game enthusiasts, but it can have no place in federal court.”

To read the order in Mason v. Machine Zone, click here.

Why it matters: While Judge Bredar acknowledged that “gambling addiction is a real phenomenon and that the allure of an elusive jackpot can be powerful,” he did not hesitate to express his disapproval of the lawsuit. “The Court does not sit in judgment of the entertainment choices that Plaintiff and others like her have made—but it will not allow Plaintiff to foist the consequences of those choices onto an entertainment purveyor that, at least on the face of this Complaint, appears to have done nothing wrong,” the court wrote. “The Court is keenly aware that evolving technologies generate novel questions and that these questions sometimes give rise to thorny cases. This case, however, is at bottom a simple one. The laws of California and Maryland do not trifle with play money, and so Plaintiff’s Complaint must be dismissed.”

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NARB: Advertiser Lacked Support for Unqualified Claims

The National Advertising Review Board recommended that Bayer HealthCare discontinue two express claims for Claritin-D, finding that the advertiser lacked a reasonable basis to support one of the claims and that the other needed qualification to avoid conveying an unsupported message.

Chattem, the maker of Nasacort and Allegra, challenged two claims made by Bayer for Claritin-D: “Claritin-D … starts to work on allergies in 30 minutes” and “Nothing works faster than Claritin-D.” The National Advertising Division determined that Bayer provided a qualified approval for the onset of action claim, but failed to provide a reasonable basis for the “nothing works faster” claim. Both parties appealed.

The NARB first considered the onset of action claim. In support, Bayer provided a study that tested 593 subjects in five different outdoor parks. The study included three randomized, double-blind groups: a group given Claritin-D, a group given another drug, and a placebo group. Individual allergy symptom scores were measured at 15-minute intervals for the first two hours after dosing and the total symptom score was evaluated for each measurement interval.

The overall findings at 30 minutes for the combined sites showed statistically significant improvement in total symptom score for the Claritin-D group as compared to the placebo group. But when results for individual sites were analyzed, the Claritin-D group demonstrated statistically significant improvement in total symptom score only at sites with a lower pollen count.

The study was reliable and well-conducted, the NARB said, but did not reasonably support the unqualified “starts to work on allergies in 30 minutes” claim. “Given the variability in [the study’s] findings with respect to the higher and lower pollen sites, and the fact that [the study] is the sole study relied on by Bayer for its 30 minute onset of action claim for Claritin-D, the panel believes that any onset of action claim should be qualified to avoid conveying the unsupported message that Claritin-D will start to work for all consumers within the first 30 minutes.”

Bayer could qualify the claim by stating that Claritin-D starts to work on allergies “in as little as 30 minutes,” the NARB suggested.

Considering the “nothing works faster” claim, the panel found that the advertiser failed to meet its burden to substantiate the claim. Bayer argued that a combination of factors provided support, including the study relied upon for the onset of action claim, the clinical studies establishing the onset of action time for competitor allergy medications at more than 30 minutes, claims by competitor manufacturers as to when their allergy medications start to work, all of which indicated a time greater than 30 minutes, and prior NAD cases evaluating onset of action claims for competitors.

“The panel agrees with the NAD that unsurpassed claims such as ‘nothing works faster’ are best supported by head-to-head testing against at least 85 percent of the relevant marketplace,” the NARB wrote. While other testing and scientific evidence may properly support an unsurpassed claim (such as multiple monadic studies), the multiple tests offered by Bayer were not sufficiently similar to permit a valid comparison with its study.

“The panel agrees with the NAD that manufacturer claims as to when their allergy medications start to work do not reasonably establish that the claimed times represent the fastest onset of action for these medications for purposes of supporting an unsurpassed claim,” the panel said. “Similarly, the panel agrees with the NAD that prior NAD cases which substantiated an onset of action greater than 30 minutes do not reasonably establish that is the fastest onset of action time for those medications.”

It is well established that the advertiser has the burden of providing a reasonable basis to support a “nothing work faster” claim through competent and reliable scientific evidence, the panel wrote. “Bayer has not met its burden in this case,” the NARB concluded.

To read the press release about the decision, click here.

Why it matters: The panel determined that Bayer failed to substantiate either of the challenged claims for Claritin-D. While the study relied upon to support the onset of action claim was reliable and well-conducted, the NARB found the results were not statistically significant enough to support an unqualified claim. As for the “nothing works faster” claim, the panel said the combination of factors put forth by the advertiser—including claims and studies from competitors and prior NAD cases—was insufficient support.

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Fantasy Sports Opt for Self-Regulation

Facing the likelihood of government oversight, fantasy sports companies have agreed to create a self-regulatory group.

The Fantasy Sports Trade Association, a group of companies in the industry, elected to establish the Fantasy Sports Control Agency, an organization that will have an independent staff tasked with creating a program of ethics and integrity led by former acting U.S. Secretary of Labor Seth Harris. “The reason that the FSTA established an independent authority and asked me to lead this organization is to ensure that it’s not a sham, that it’s not a fake, that it’s not just a publicity stunt,” Harris told Bloomberg. “The goal is prevention, rather than punishment.”

Specifically, the FSCA will launch a program with a four-point focus: standards (founded on “transparency, integrity and ethical behavior”); company controls, processes and leadership (every FSTA member will be expected to establish a compliance program to meet the FSCA’s standards and appoint a senior leader to oversee the company’s efforts, reporting to top executives); auditing policies and procedures (the implementation of a sound, regular auditing process to measure and report on company compliance); and enforcement. The last component will include penalties for failure to comply and public recognition for compliance.

The impetus for the self-regulatory body can be traced to the recent scandal with news reports that employees of DraftKings and FanDuel, two of the largest fantasy sports companies, regularly played on each other’s sites and won significant amounts of money. Although the companies have said their workers did nothing wrong, the allegations of insider trading led to the companies banning employees from participation in online daily fantasy sports (DFS).

In addition, the revelations triggered multiple probes into the industry, including investigations by the Federal Bureau of Investigation and multiple state Attorneys General, as well as consumer class actions and letters from lawmakers. The Nevada Gaming Control Board responded by declaring that DFS is a form of gambling under state law that requires a license issued by the state’s Gaming Commission to conduct business in the state.

Given the situation, the industry is facing a “pivotal moment,” the FSTA said in a letter to members. “We can establish and enforce these systems ourselves, or we can put our industry in the hands of outside entities who do not understand the industry as we do—outside entities who are not as able or as committed to establishing rules and regulations that ensure integrity and transparency while allowing the industry to continue to thrive,” the group wrote. “Simply put, the leadership of the FSTA believes that we cannot and should not allow the future of our industry to rest in the hands of others.”

To read the FSTA’s press release about the FSCA, click here.

Why it matters: Will the creation of a self-regulatory body satisfy inquiring governmental entities and stave off regulation? Only time will tell, but the group is not wasting any time. Harris told Bloomberg that he has already met with representatives from media companies and professional sports leagues to discuss the plan for the FSCA. “It’ll be very lean and mean in the beginning,” he said.

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