Advertising Law

Will Green Guides Address Organic? FTC/USDA Roundtable Report

On October 20, 2016, the Federal Trade Commission and the U.S. Department of Agriculture co-hosted a roundtable discussion in Washington, D.C., entitled “Consumer Perceptions of ‘Organic’ Claims: An FTC and USDA Roundtable.” The purpose of the roundtable was to help the agencies better understand how consumers interpret “organic” claims when used in connection with nonagricultural products, which fall outside the scope of the USDA Agricultural Marketing Service’s National Organic Program (NOP).

By way of background, the FTC originally issued the Guides for the Use of Environmental Marketing Claims, commonly referred to as the “Green Guides” in 1992, and revised them in 1996 and 1998. In 2010, the FTC proposed further revisions to the Green Guides, and solicited feedback from industry and the public in an effort to make a final decision on what revisions might be appropriate. While the agency had solicited public comment and consumer perception survey evidence regarding “organic” claims, no such feedback was received. Because the FTC did not believe it had enough evidence regarding how consumers perceive organic claims, the 2012 revision of the Green Guides did not address them. The only other available guidance regarding organic claims comes from the USDA National Organic Program; however, the NOP’s jurisdiction is limited to agricultural products, and therefore the guidance’s applicability is limited to those products. Thus, advertisers of nonagricultural products must frame organic claims without the benefit of any directly applicable regulatory guidance.

Earlier this year, the FTC decided to revisit the issue of organic claims for nonagricultural products. Toward that end, the FTC and USDA conducted a consumer perception survey to identify any consumer misconceptions of “recycled” and “organic” claims. The survey did not identify any significant misunderstanding of recycled claims, but did suggest that a substantial number of consumers are confused as to the meaning of the term “organic” when used with nonfood products such as personal care products, mattresses and dry cleaning service. Thus, the purpose of the roundtable was to spark additional discussion on the topic and elicit additional public comment and other consumer perception evidence.

Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, delivered the opening remarks at October’s roundtable. Rich noted that the FTC is charged with protecting consumers from deceptive claims, including organic claims. She explained that Section 5 of the FTC Act governs these claims, and that the FTC examines reasonable consumers’ interpretations when determining whether enforcement action is warranted.

The panelists participating in the roundtable included a representative from the USDA National Organic Program, representatives from the FTC, participants from consumer advocacy groups, a participant from the Organic Trade Association (OTA), and researchers who have studied consumer perceptions of organic claims. There were three separate panel discussions, described below.

Consumer Misperceptions: The first discussion focused on consumer misperceptions of organic claims in the marketplace. Panelists recognized that organic claims seem to appeal to consumers interested in living a more natural lifestyle, and noted the obvious void of applicable guidance regarding use of the term “organic” to describe nonagricultural products.

It was suggested that, in connection with personal care products, consumers might believe that organic means 100% organic or free from harmful chemicals, when that is not necessarily what the claim was intended to convey.

Panelists also discussed the FTC/USDA survey’s finding that many consumers believe the term “organic” to mean the same thing when used to describe food and nonfood products. Many panelists believed that this demonstrates significant consumer confusion. Panelists also suggested that the term “organic” may suggest that the manufacturing or production processes were conducted in a certain way, which may or may not be the case.

Survey Findings: In the second panel, participants discussed the FTC/USDA survey’s finding that a significant number of respondents believed that a product should not be described as organic if it contains between 1% and 10% of materials derived from chemical, man-made processes. This finding was coined the “percentage problem” and was particularly interesting because USDA permits use the USDA organic seal if 95% of the product’s ingredients fit the definition of organic. Products containing 70% organic ingredients are similarly permitted to make the “made with organic” claim.

Laura Koss from the FTC Bureau of Consumer Protection noted that the agency’s focus is on deceptive claims, which are evaluated from the perspective of the reasonable consumer. She underscored the fact that marketers are responsible for both express and implied claims, so advertisers should be mindful of what an organic claim might imply.

One of the researchers noted that, according to a study, consumers were willing to pay the highest premium for a 100% organic product, and were still willing to pay a high premium for 99% organic products. Where products were only 95% organic, the willingness to pay a premium began to decline, and respondents were not willing to pay more money for products that were only 70% organic. FTC noted that these findings were interesting because they seem to quantify materiality.

Panelists also discussed some of the limitations on the FTC/USDA survey, which underscored the need for further research. Additionally, the question of requiring a “not USDA certified” disclaimer was raised. FTC noted that if such a disclaimer was going to be required, there would need to be solid evidence that consumers take away the false impression that organic implies USDA certification.

More Evidence Needed: The final discussion focused on the additional evidence that would be helpful to the FTC in crafting guidance, and how the guidance might look. In terms of the need for more research, panelists indicated that the following topics warrant further attention: (1) measuring deception in economic terms; (2) consumer understanding of USDA organic vs. organic; (3) perception of product labels before terms are defined vs. after terms are defined; (4) effect of USDA labels on nonfood products; and (5) eye-tracking studies measuring whether consumers would focus on “non-USDA certified” on product labels. Panelists agreed that further research on these topics would be helpful. FTC underscored the need for additional consumer perception evidence and public comments.

USDA expressed a desire to be actively involved in the process of drafting revised guidance to avoid inconsistencies. Most panelists agreed that two different sets of standards could cause further consumer confusion. In fact, most panelists (other than those from the FTC) seemed to be calling for specific guidance that not only defines organic, but also monitors the manufacturing process for compliance. FTC, on the other hand, seemed reluctant to issue overly specific guidance, particularly without solid consumer perception evidence. FTC also noted that, if and until revised guidance on organic claims in the nonagricultural context is issued, enforcement might be the appropriate way to deal with the void.

Why it matters: The overall purpose of the roundtable was to assist the FTC with determining whether the Green Guides should be further revised to incorporate guidance on organic claims in the context of nonagricultural products. The discussion, however, seems to have highlighted more questions than answers. There appeared to be a disconnect between the regulation and oversight recommended by USDA, OTA and consumer advocacy groups, and FTC’s ultimate jurisdiction. Various FTC staff explained that the purpose of any revised FTC guidance would be to assist businesses with complying with Section 5 of the FTC Act, and not to educate consumers or otherwise regulate the manufacturing process of nonagricultural products.

The public is urged to provide comments and other evidence that would shed light on consumer understanding of the term “organic” when used in connection with nonagricultural process. The deadline for providing commentary is December 1, 2016.

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FTC Shuts Down Telemarketing Schemes

A telemarketing scheme promising money-making opportunities and grants was shut down by the Federal Trade Commission after the agency filed suit in Arizona federal court.

Three individuals and five related companies operated two different scams using telemarketers, the agency said, often targeting veterans, older Americans, or people in debt. In the first scam, the telemarketer—claiming to be a representative from Amazon—offered (for the price of hundreds or thousands of dollars) to create a website for the consumer linked to that would earn thousands of dollars in commissions each month.

The second scheme involved calls claiming to be on behalf of the government, offering grants to help pay for medical costs, debt reduction, or home repairs, the FTC alleged. Under the guise of determining the size of the grant, the telemarketers would ask consumers about their income, home value, credit card debt, access to savings and retirement funds, and other sensitive information. The defendants instructed the consumer to pay thousands of dollars up front, with a guarantee that tens of thousands of dollars in grant money would be coming within 90 days.

Consumers received no money from either scam, the FTC said, and in many instances, the defendants used a tactic known as “reloading,” in which they offered to sell consumers additional phony grants in an attempt to extract even larger payments.

After the agency filed a complaint charging the defendants with violations of the Federal Trade Commission Act and the Telemarketing Sales Rule, a federal court judge in Arizona granted the FTC’s motion for a temporary restraining order halting the defendants’ operations.

To read the complaint and the orders in FTC v. Blue Saguaro Marketing, LLC, click here.

Why it matters: The defendants engaged in multiple violations of both the FTC Act and the TSR by operating two telemarketing scams over the last few years, with the Amazon website scheme running since 2014 and the phony grant scheme since 2015.

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Ad Industry Will Fight FCC Privacy Rules

Angering the advertising industry and likely triggering litigation, the Federal Communications Commission voted to move forward with privacy regulations for broadband providers.

“The FCC’s new sweeping privacy rules decision is unprecedented, misguided, counterproductive, and potentially extremely harmful,” the Association of National Advertisers said in a statement about the vote. “ANA is committed to seeing these rules undone, either by court challenges or action on Capitol Hill to reverse this extreme overreach by the agency.”

Other industry groups agreed. “The FCC’s decision is bad for consumers and bad for the U.S. economy,” the Direct Marketing Association said in a statement. “FCC’s action ignores what’s working and working well, and supplants it with a burdensome system that will stifle innovation and make it harder to deliver advertising messages that are relevant and useful to consumers.” ISPs have also vowed to take action against the new rules.

The rules—passed in a 3-2 vote by the Commission—require ISPs to obtain opt-in consent before sensitive data (defined to include browsing and app usage history) can be collected and used for ad targeting purposes.

Industry members argued that the new regulations will also cause confusion because the FCC’s broad interpretation of sensitive data is at odds with existing standards. “By rejecting the industry’s accepted definition of sensitive information, the FCC chose patchwork and inconsistent standards over common sense,” Digital Advertising Alliance executive director Lou Mastria said. “General web browsing or application use information is clearly not as sensitive as financial or health information, yet this rule treats them the same.”

Privacy advocates praised the vote, as did Federal Trade Commission Chair Edith Ramirez. “I am pleased that the Federal Communications Commission has adopted rules that will protect the privacy of millions of broadband users,” she said in a statement. “The rules will provide robust privacy protections, including protecting sensitive information such as consumers’ social security numbers, precise geolocation data, and content of communications, and requiring reasonable data security practices. We look forward to continuing to work with the FCC to protect the privacy of American consumers.”

Why it matters: The regulations look to be headed to court, with ISPs and the ad industry ready to challenge the rules and the FCC standing firm. “There is a basic truth: It is the consumer’s information,” Commission Chairman Tom Wheeler said. “It is not the information of the network the consumer hires to deliver that information. The consumer has the right to make a decision about how her or his information is used.”

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Sales Lead Generators Face Fine, Prohibitions in FTC Action

The Federal Trade Commission fined and barred a group of sales lead generators from future violations of the Telemarketing Sales Rule in an action filed by the Department of Justice on behalf of the agency.

Collectively known as the Consumer Education Group, defendants operated out of California and Colorado, from where they made millions of illegal telemarketing calls to consumers on the National Do Not Call Registry over a two-year period from 2013 to 2015, the FTC alleged, including prerecorded robocalls.

The calls were part of a campaign to generate sales leads for third parties. The defendants created websites and landing pages where consumers would complete online forms to learn more about solar panels, reverse mortgages, walk-in bathtubs, or other products. But the defendants—four individuals and four related companies—used the information to repeatedly call consumers to check their interest in the products, the agency charged.

More than two million of the calls were placed to consumers registered on the DNC Registry, the FTC said, and none of the calls that were placed to consumers identified the operation by a name that consumers would recognize. In reality, the defendants’ telemarketing campaign was not intended to solicit actual sales to consumers but was created as a means to collect consumers’ names and phone numbers and then sell the information as leads to third parties.

The complaint filed by the DOJ on behalf of the FTC asserted violations of the TSR for making illegal telemarketing calls to consumers with phone numbers on the DNC Registry and using robocalls.

To settle the suit, the defendants will pay a $100,000 fine (from a suspended $2.3 million judgment based on the amount the defendants obtained through their operation) and face a ban on violating the TSR by making outbound telemarketing calls to consumers on the National DNC Registry, absent certain requirements. Also prohibited: making telemarketing calls to consumers who have asked them not to call again, as well as making prerecorded telemarketing robocalls to consumers unless they have express permission to do so.

To read the complaint and order in United States v. Consumer, click here.

Why it matters: “These telemarketers and lead generators ignored the Do Not Call Registry and made illegal robocalls,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement. “It should be clear by now that companies are headed for law enforcement trouble when they use this kind of unlawful campaign to attract customers.”

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New FTC Guide Offers Tips for Protecting Personal Information

On the heels of the Federal Trade Commission’s new guidance for companies hit with a data breach, the agency released updated advice for businesses that maintain personal information.

“Protecting Personal Information: A Guide for Business” relies on five principles: take stock, scale down, lock it, pitch it, and plan ahead.

“Take stock” refers to the agency’s advice that companies should know what personal information it has in its files and on its computers. Begin with an inventory, the FTC suggested, including computers, laptops, mobile devices, flash drives, disks, digital copiers, and home computers. The agency warned that “[n]o inventory is complete until you check everywhere sensitive data might be stored.” Companies should also consider who sends sensitive personal information to the business (such as credit bureaus or job applicants) and who has—or could have—access to the information.

Scale down, the FTC advised, keeping only what is needed for the business. “If you don’t have a legitimate business need for sensitive personally identifying information, don’t keep it,” the agency wrote. “In fact, don’t even collect it. If you have a legitimate business need for the information, keep it only as long as it’s necessary.” If the company uses a mobile app, ensure that it accesses only the data and functionality that it needs, the FTC said.

If information is necessary for business reasons or legal compliance, a company should develop a written records retention policy to “identify what information must be kept, how to secure it, how long to keep it, and how to dispose of it securely when you no longer need it.”

The third principle, lock it, requires that companies protect the information that is kept using four elements: maintaining physical security, maintaining electronic security, training employees, and investigating the security practices of contractors and service providers. Data compromises can happen the old-fashioned way—through lost or stolen paper documents—the agency noted, as well as from hackers, so taking basic precautions such as locking offices or file drawers remains important. On the technology end, businesses should encrypt sensitive information sent to third parties over public networks and consider multifactor authentication, such as the use of a password and a code sent by different methods.

Don’t forget about third parties, the guidance stated. Before outsourcing any business functions (payroll or customer call center operations, for example), a company should investigate the service provider’s data security practices and compare them with industry standards. Security expectations should be included in written contracts.

Businesses must properly dispose of what is no longer needed under the principle of “pitch it.” Reasonable measures should be adopted for information disposal based on the sensitivity of the information, the costs and benefits of different disposal methods, and changes in technology. Paper records can be shredded or pulverized, the agency suggested, and wipe utility programs should be used before disposing of old computers and portable storage devices.

Finally, the FTC explained that businesses should create a plan for responding to security incidents under the principle of “plan ahead.” The plan should designate a senior staff member to coordinate and implement the response plan, include steps to investigate immediately, and address the issue of whom to notify about the incident.

To read the FTC’s new guidance, “Protecting Personal Information: A Guide For Business,” click here.

Why it matters: Most companies keep sensitive information in their files—names, Social Security numbers, credit cards, or other account data—that identifies customers or employees, the FTC said. While such data is often necessary for business purposes, companies can face significant costs as a result of a breach, from the loss of customer trust to a lawsuit. Businesses can take steps towards securing their data by establishing a sound data security plan built on the five principles found in the FTC’s guidance.

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News and Views

Pressure is mounting against the Cleveland Indians for the team to change its name and mascot, especially after their national spotlight in the World Series this year. Law360 turned to Linda Goldstein, chair of the firm’s advertising, marketing and media practice, to discuss the alleged Lanham Act Section 2(a) violations claims being brought against Cleveland by a group of Native Americans. This group of Native Americans say the team's logo is offensive, meaning it violates the Lanham Act's Section 2(a) and its ban on "disparaging" trademarks. While losing trademark registration for the logo wouldn't prevent Cleveland from using it, it could turn attitudes against the team, according Goldstein. “The court of public opinion could be very, very powerful here,” Goldstein said. “Just the fact of losing, that determination would have a huge public relations and political effect that I think, from a practical standpoint, could make difficult to continue to use [the mark].” To read “World Series Run Brings Heat to Indians' Name, Logo,” click here.



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