Advertising Law

Response To FCC’s New Net Neutrality Regs Anything But Neutral

In a split vote, the Federal Communications Commission approved a new net neutrality measure that would ban fast lanes and re-label broadband as a utility similar to water, gas, and electricity.

“Today history is being made by a majority of this Commission as we vote for a fast, fair and open Internet,” Chairman Thomas Wheeler said of the 3-to-2 Commission vote along party lines. “The action that we take today is an irrefutable reflection of the principle that no one—whether government or corporate—should control free open access to the Internet.”

While the full text of the regulation has not been published, Wheeler promised three “bright line” rules for the new regulations, which reclassify broadband Internet as a telecommunications service rather than an information service under Title II of the Communications Act: (1) no paid prioritization favoring some Web sites over others, (2) no throttling of Internet traffic, and (3) no blocking of access to legal content.

Since the FCC’s authority will extend to mobile networks as well under the new regulations, privacy advocates have expressed their enthusiasm that the shift will also provide the Commission with greater oversight of the privacy practices of ISPs.

The split vote over the new measure also prompted a reaction from industry and lawmakers. While praised by consumer advocates and hailed by Sen. Ed Markey (D-Mass.) as “our country’s Declaration of Innovation,” the move was decried by conservatives and industry members. In addition to what seems to be inevitable litigation, one lawmaker elected to challenge the new regulations via legislation. The Internet Freedom Act, put forth by Rep. Marsha Blackburn (R-Tenn.), specifies that the FCC’s order “shall have no force or effect” and prohibits the Commission from reissuing the order.

The battle over net neutrality has raged for years. Each of the Commission’s prior two attempts at regulation resulted in courthouse action. In a most recent effort the D.C. Circuit Court of Appeals found that the FCC exceeded its authority and struck down the regulation in January 2014.

When the agency indicated it was considering new regulations that would allow for “fast lanes” where Internet service providers afford certain companies preferential treatment when they pay for faster service, a record-setting number of comments were filed on the proposal, the majority of which were in opposition.

Even President Barack Obama chimed in, calling on the FCC to eliminate the possibility of fast lanes by reclassifying broadband service as a utility. Chairman Wheeler reversed course and announced his intention to reclassify broadband in new regulations in order to provide “the strongest open Internet protections” possible.

To read the FCC’s press release about the new regulations, as well as the individual statements by all five Commissioners, click here.

To read the Internet Freedom Act, click here.

Why it matters: Chairman Wheeler said the “Internet is simply too important to allow broadband providers to be making the rules,” adding that the Web has “replaced the functions of the telephone and the Post Office,” and has redefined both commerce and entertainment. “The Internet is the ultimate vehicle for free expression,” he added. The regulations will take effect 60 days after publication in the Federal Register. A legal challenge to the regs seems to be a foregone conclusion. The only question that remains is who will file the suit and when.

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President’s Consumer Privacy Bill Of Rights Met With Lukewarm Response

The White House released a discussion draft of President Barack Obama’s Consumer Privacy Bill of Rights to tepid reviews.

As promised by the President, the bill is intended to provide baseline privacy protections for consumers in the commercial context.

The measure would have broad application to all entities that collect, use, or otherwise process personal data, defined as any data that is linked or linkable to a specific individual or a device associated with or routinely used by an individual (“unique persistent identifiers” are specifically included). Covered entities would be required to provide consumers with concise and easy-to-understand notice about privacy and security practices, as well as “reasonable means to control the processing of personal data about them in proportion to the privacy risk to the individual and consistent with context.”

While some exemptions exist—for companies that have five or fewer employees, for example, or entities that process the personal data of fewer than 10,000 individuals and devices per year—the bill does not except companies that are already subject to privacy or data security laws, such as those in the healthcare and financial services industries.

The bill would require companies that process personal data “in a manner that is not reasonable in light of context” to conduct a privacy risk analysis and mitigate any identified privacy risks by taking responsible steps that include risks, at a minimum, providing in-context notice about the “unreasonable” personal data practices as well as “a mechanism for control that is reasonably designed to permit individuals to exercise choice to reduce such privacy risk.”

In addition, companies would be required to delete or de-identify personal data within a reasonable time after the purposes for which the personal data were first collected are fulfilled and to establish information security controls in line with accepted practices.

Enforcement powers are granted to the Federal Trade Commission (with the potential for up to $25 million in civil penalties under certain circumstances), but the agency was not granted rule making authority. Instead, industries would develop their own codes of conduct enforced by the agency. Covered entities that comply with the code would be provided with a safe harbor.

No private right of action would be created, but the bill would not preempt the power of state attorneys general to enforce their own consumer protection laws.

The proposal managed to unite those on both sides of the privacy debate in general unhappiness.

The Association of National Advertisers called it “a major step in the wrong direction,” while Interactive Advertising Bureau general counsel Mike Zaneis wrote a column for The Hill expressing concern that “[p]ursuing a privacy bill in an attempt to prevent theoretical harms is sure to put a deep chill on the creators, designers, and innovators the president called ‘the Pioneers of this Information Age.’”

Consumer groups such as the Center for Democracy and Technology, Electronic Frontier Foundation, and Consumer Watchdog said the law doesn’t go far enough. “Unfortunately, the President’s bill falls short on the privacy protection needed in today’s digital world: it just has too many loopholes and doesn’t provide for meaningful enforcement,” CDT’s director of consumer privacy Justin Brookman said in a statement.

Lawmakers similarly expressed disappointment and responded with their own version of the proposal: the Commercial Privacy Rights Act of 2015. The bill, which also features the return of the Do Not Track Kids Act and a data breach notification provision, applies to entities under the FTC’s supervision, 501(c) nonprofits, and common carriers under the Communications Act, but with a slightly narrower definition of covered information.

Importantly, the Act not only features a safe harbor for self-regulatory programs, but also exempts entities to the extent they are subject to provisions of enumerated federal laws such as the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Children’s Online Privacy Protection Act, and the Health Insurance Portability and Accountability Act, among others.

Why it matters: The release of the discussion draft furthers the President’s agenda on cybersecurity and privacy-related issues, but the unenthusiastic response from industry and consumer groups and the introduction of a congressional version do not bode well for the bill’s success. Even the FTC seemed worried: “We are pleased that the Administration has made consumer privacy a priority, and this legislative proposal provides a good starting point for further discussion,” an agency spokesperson said in a statement. “However, we have concerns that the draft bill does not provide consumers with the strong and enforceable protections needed to safeguard their privacy. We look forward to working with Congress and the Administration to strengthen the proposal.”

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NAD: Sprint Should Discontinue “All New” And “Brand New” Network Claims

In a challenge brought by T-Mobile, the National Advertising Division recommended that Sprint discontinue claims referencing a “new,” “brand new,” “all new,” “built from the ground up,” or “America’s Newest” network, as well as a claim that “Sprint is the most improved U.S. company in customer satisfaction, across all 43 industries, over the last six years.”

Although the NAD noted that no industry standard exists as to how to evaluate which network is the “newest,” it was unmoved by Sprint’s contention that its network was the newest based on its efforts to modernize by dismantling an old network and not just upgrading an existing network.

Sprint made fundamental changes to its legacy network, NAD acknowledged, but the company’s claims reasonably conveyed to consumers an overly broad message in comparison to the actual enhancements that were made. T-Mobile submitted a consumer perception survey that found claim language such as “from the ground up” led consumers to believe the changes included entirely new equipment that included cell towers.

Such phrases “clearly draw consumers’ attention to those pieces of a network that are, in fact, on the ground,” NAD noted, and while industry experts may understand that cell towers—like the Empire State Building—are not all new, Sprint’s advertising did not on its face exclude those portions of a network.

The use of the term “new” was also outdated, the decision added, as Sprint began using the claim in September 2013. An incremental national rollout was an insufficient reason to continue use of the phrase, NAD said. Since Sprint chose September 2013 as the “release” date, it “cannot then continue to use the term ‘new’ for multiple years. Sprint’s strategic decision to begin advertising its network as ‘new’ at a point when the core backbone of the new network was complete across the majority of its national footprint, rather than upon full completion of the build out, does not give Sprint license to continue advertising its network as ‘new’ during the entirety of the project’s implementation regardless of how long it takes.”

One message reasonably conveyed by the “America’s Newest Network” claim is that Sprint’s ‘new’ network makes it automatically superior to its competitors, NAD also found. “[C]onsidered within the context of the advertisements as a whole, which encourage consumers to ‘switch’ to Sprint, the clear import of the claim is that there is some consumer benefit to signing up with ‘America’s Newest Network’ beyond the mere fact that Sprint’s network is temporally the most recent,” NAD wrote, particularly as consumers have come to expect constant technological innovation.

Self-comparative performance claims of “faster data speeds,” “fewer dropped calls,” and “better call quality” also failed to pass muster. Sprint’s print advertisements “use a tiny bottom-of-the-page disclosure” that was insufficient to qualify the claims, NAD said, leaving consumers with the reasonable—yet unsupported—takeaway that Sprint has “better call quality” than competitor networks.

Other Sprint internet claims did not comport with the Federal Trade Commission’s revised “Dot Com” Disclosure Guidelines, according to the decision, which mandates that disclosures that are an integral part of a claim cannot be separately communicated via a hyperlink – as Sprint did with its flash ads.

Finally, NAD turned to Sprint’s consumer satisfaction rating claims based on ASCI scores. “Sprint’s claim is literally truthful in that Sprint obtained an 8-point increase between its current ASCI score (68) and its ASCI score in 2008 (56), which is the biggest improvement that any company evaluated by ASCI has had over its 2008 score.” “NAD was nevertheless concerned that the claim implies continued year-to-year improvement, which is not the case.”

Sprint’s ASCI score dropped by three points from 2013 to 2014 and has dropped four points since 2011, with no improvement in the last three years. “Thus, although the claim is literally truthful, by selectively referencing data from 2008 and ignoring more recent data that actually shows an annual decline in customer satisfaction since 2011, the claim does not accurately convey Sprint’s track record of customer satisfaction ratings in a way that is consumer meaningful,” the self-regulatory body wrote.

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

Why it matters: A resounding loss for Sprint, the NAD decision emphasized that it was important to keep claims consumer relevant, to avoid making unsupported, overly broad messages and to provide clear and conspicuous disclosures when qualifying claims that are easy for consumers to notice, read, and understand.

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California Court Doesn’t Like The Taste Of “100% Juice” Lawsuit

Holding that consumers would not have been misled about the claims at issue, a California federal court judge denied a motion to certify a class of plaintiffs in a suit challenging Ocean Spray’s use of the phrases “100% Juice” and “No Sugar Added” to describe its drinks.

The plaintiff alleged that the “100% Juice” label for its Diet Sparkling Pomegranate Blueberry drink violated California law and constituted false and misleading advertising.

In addition, the “No Sugar Added” claims deceived consumers into thinking the juices were low in calories and did not contain the necessary disclaimer language in violation of 21 C.F.R. Section 101.60(c)(2) that provides that unless a product also meets the requirements to be labeled as a reduced- or low-calorie food, products that are labeled as “no sugar added” must also bear “a statement that the food is not ‘low calorie’ or ‘calorie reduced’ . . . and that directs consumers’ attention to the nutrition panel for further information on sugar and calorie content.”

Ocean Spray countered that the plaintiff’s deposition testimony made clear she understood the 100% juice products were not low-calorie foods. When asked whether she purchased the drinks in question because she thought it was a reduced-calorie product, the plaintiff answered “no.” When the question was rephrased to ask whether she thought the products were “low calorie” at the time of her purchase, she again replied in the negative.

This evidence was sufficient for the court to grant the defendant’s motion to dismiss.

“Plaintiff’s theory requires her to show that she relied on allegedly deceptive or misleading statements (or omissions) on labels when she decided to purchase Defendant’s 100% Juice products,” U.S. District Court Judge Edward J. Davila wrote. “[T]he Court concludes that Plaintiff cannot meet her burden in opposition simply by raising allegations or theories which are unsupported by any actual evidence.”

The plaintiff’s attempt to re-frame her claims that she relied on Ocean Spray’s labels as touting the drinks as “better and healthier” did not persuade the court to overlook the theory put forth in her complaint and her deposition testimony. “Plaintiff’s own deposition testimony establishes that she never believed Defendant’s products were low-calorie,” the court said. “Again, in order for Plaintiff to prevail on her theory of mislabeling due to an absence of the [required] disclaimer, Plaintiff must have relied on the ‘No Sugar Added’ message, not to mean some general level of unhealthiness, but to mean that the 100% Juice products were low-calorie or low in calories.”

Judge Davila also found that the “No Sugar Added” message not only conformed to the plaintiff’s understanding but was also factually accurate. Ocean Spray’s juices are “fruit juices from concentrate,” which contain the same ratio of water to sugar solids and other compounds that exist naturally, as distinct from “fruit juice concentrate” drinks that contain a higher level of sugar than would exist naturally.

This difference is important, the court said, because the precise language of the regulations prohibits the use of the term “No Sugar Added” only when the products contain an ingredient containing added sugars “such as concentrated fruit juice.”

“Plaintiff’s legal theory is based on an overbroad application of [the regulations] because it does not account for the difference between ‘fruit juice from concentrate’ and ‘fruit juice concentrate,’” Judge Davila wrote. “As the plain language of the regulation makes clear, only ‘ingredients containing added sugars’ are prohibited from carrying the ‘No Sugar Added’ label. Since the undisputed evidence establishes that Defendant’s 100% Juice products, made with juice from concentrate, contain the same amount of sugar that would have existed naturally, the products cannot be said to contain ‘added sugars.’ Thus . . . Plaintiff’s theory of liability fails as a result.”

To read the order in Major v. Ocean Spray Cranberries, Inc., click here.

Why it matters: In addition to granting the defendant’s motion to dismiss, Judge Davila denied the plaintiff’s motion for class certification as moot.

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Noted and Quoted . . . Advertising Age Turns to Goldstein for Insight on What the POM Legal Saga Means for Advertisers

Linda Goldstein, Chair of Manatt’s Advertising, Marketing and Media Division, recently penned a guest column for Advertising Age that focused on the implications of the POM Wonderful decision for companies that advertise their products’ health benefits.

While the court ruled that POM’s advertising claims on its juice products were unsubstantiated, it also rejected the FTC’s position that such claims had to be supported by at least two randomized clinical trials.

As Linda wrote, “It is this aspect of the decision that is likely to have the most significant impact on marketers as they struggle to determine what level of testing they will need in the future to support health claims for their products.”

To read the full article, click here.

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