Advertising & Marketing

Retailers often use product reviews to supplement advertising and drive sales.  Such use has become more prevalent as sales shift from brick and mortar stores to internet sales, where splattering a webpage with purported product reviews is easy, cheap, and grabs eyeballs.

Online product reviews
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Many major online retailers offer product reviews submitted by consumers. Many online retailers will provide product reviews on their website that the company has solicited or otherwise selected for favorability. Such reviews are supposed to be authentic and accurate. While the retailer can select which reviews are displayed, the reviews should be real and the consumer can decide how much weight to give a review.  However, purported third party website reviews exist for the specific reason that they are supposed to be independent and will give the good and the bad. Several companies and individuals recently discovered that faking a third party review website will result in action from the FTC.

The website of Trampoline Safety of America purported to use experts to give safety ratings to different trampoline brands, rating those made by Infinity and Olympus Pro the highest.  However, what was not disclosed to consumers according to the FTC was that Trampoline Safety of America was operated by Infinity and Olympus Pro and the company owners.  According to the FTC the comments and videos on the website were also not authentic customer reviews, but were created by the owners of Infinity and Olympus Pro.  Following FTC action, the parties are heading toward settlement.

While such conduct is obviously improper, it is important always to disclose conflicts regarding product reviews and to only use consumer reviews or testimonials that are actually given by customers.  All factual claims, especially medical related claims, must be supported by actual data or testing.  Not only has the FTC shown a willingness to crack down on companies that violate such requirements, consumer protection lawyers and competitor companies can also be expected to bring claims and seek damages.

The short answer is that ™ is supposed to mean someone just thinks something is a trademark. ® is supposed to mean that a government trademarking authority has agreed that it could be a trademark and has issued a registration certificate.

Registered trademark in a red background
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Getting your trademark registered by a government trademarking authority always takes time and money. It is fitting that at the end of the process, if you are successful, you will receive a certificate that looks almost like a graduation certificate. In the United States, the paper certificate bears a gold embossed seal. And you deserve it! You spent time, money and often had to prove to skeptical bureaucrats the worth of your brand.

If you jump through these hoops, it can be irritating to see others wrongly proclaim that their trademark is registered with the registration symbol ® when they have not. But you can only take action against this misuse if you can prove the  symbol misuser did so deliberately–that it intended to deceive or mislead the public or the USPTO. This can be tricky to show.

For example, last month the Trademark Trial and Appeal Board dismissed an opposition in which the owners of two similar trademarks (FACETS versus PHACET) fought over which one used and had the right to register its trademark for software. The company applying for  the FACETS registration had successfully registered FACETS for several types of services but had not yet been granted a registration for the trademark in connection with software (the trademark had been registered a number of years ago for software but that registration had expired). Despite that, it used the registration symbol with the trademark In SEC filings to describe not only its services (correctly, since they had registered) but also its software (allegedly fraudulently because FACETS was not currently registered for software).

SEC filings are sworn statements but that’s not enough to make them evidence of symbolic fraud in the TTAB’s eyes, at least in this case.

 

On May 15, 2017, the FTC filed a Complaint in Federal Court against Strategic Student Solutions and a number of related companies that claim to provide debt relief services. According to the Complaint, rather than providing the advertised services, the defendants pocketed thousands of dollars in fees from consumers without providing any debt relief services. In essence, despite promising to reduce or eliminate student debt, the defendants simply took consumers’ money without providing any debt reduction service, leaving consumers in a worse financial situation. The Federal Court for the Southern District of Florida recently granted the FTC’s request for a preliminary injunction preventing the defendants from engaging in these business practices.

According to the Complaint, the defendants targeted consumers struggling with student loan debt and charged consumers up to $1200 in initial fees and an additional $49.99 per month with the promise that defendants would enroll the consumer in a loan forgiveness or payment reduction program. The defendants also allegedly promised that they would apply any fees paid to them to the consumers’ debt in the loan forgiveness program and that if consumers simply made monthly payments to defendants for three years the loan would be forgiven. According to the FTC, none of this was true—other than the fees paid by consumers to defendants. In fact, rather than forgiveness or reduction, many consumers allegedly had their debt increase while using defendants’ “services.” And when a consumer attempted to cancel their participation in the defendants’ program, the defendants allegedly lied to consumers by stating if they cancel, they will not be able to enroll in a different loan forgiveness program.

After making these false promises, according to the Complaint, the defendants had consumers sign contracts with disclaimers contradicting the sales pitch. For example, the contracts stated “I understand that the fees paid to Strategic Student Solutions is [sic] for Document preparation and consultation services only and will not be applied to my student loan balance.” However, as detailed previously on this blog, the FTC does not give much weight to disclaimers buried in a contract, especially where it is directly contrary to explicit advertising claims.

The FTC alleges that defendants’ scheme violated the FTC Act, the Telemarketing Sales Rule, and the Credit Repair Organizations Act and is seeking restitution for the money taken from consumers and a permanent injunction ceasing defendants’ scheme.

The Federal Trade Commission (“FTC”) recently filed a Complaint in the Southern District of California against six entities and four individuals, accusing them of deceiving customers with their use of “free” and “risk-free” trial period advertising related to cooking products, golf-related products, and online subscription services on their websites, in TV infomercials, and via email.

risk-free trial offer
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The FTC’s Complaint alleges that the defendants violated section 5(a) of the FTC Act, which prohibits unfair or deceptive acts, by misrepresenting the trial offers applicable to their products.  Specifically, the FTC accuses the defendants of advertising their products as having a “risk-free” trial period when, in reality, the consumers are required to return the product at their expense before the trial period ends in order to avoid being charged additional amounts for the product.  The FTC also accuses the defendants of failing to adequately disclose the material terms and conditions of the trial offer, of their continuity/subscription plan offers, and of their refund and cancellation policy.  For example, the FTC takes issue with the defendants’ failure to clearly disclose that they would start charging the consumer if he/she did not cancel the trial period or return the product.

In addition to violations of the FTC Act, the FTC’s Complaint also alleges violations of the Restore Online Shoppers’ Confidence Act (“ROSCA”).  The FTC describes ROSCA as an act that “prohibits any post-transaction third party seller (a seller who markets goods or services online through an initial merchant after a consumer has initiated a transaction with that merchant) from charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer’s express informed consent to the charge.”  The FTC’s Complaint against the defendants focuses on section 4 of ROSCA, which prohibits the sale of products through an improper “negative option” feature.  A “negative option” feature is a provision in an offer to sell goods or services under which the consumer’s silence is taken as an acceptance of the offer.  It is improper to utilize a “negative option” feature unless the seller satisfies the following requirements: (1) clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information, (2) obtain the consumer’s express written consent before charging the consumer, and (3) provide a simple mechanism for the consumer to stop recurring charges.  The FTC’s Complaint alleges that, in violation of section 4 of ROSCA, the defendants did not meet any of those three requirements with respect to their cooking and golf-related goods and services.

The FTC seeks an injunction preventing future violations of the FTC Act and ROSCA as well as other relief necessary to redress injury to consumers.  It is clear that the FTC looks closely at advertisements claiming to offer “free” and “risk-free” trial periods and that companies should make sure to adhere to the FTC’s and ROSCA’s requirements.

 

The U.S. Food and Drug Administration (“FDA”) requests that consumers report any issues they experience with FDA-regulated products so that the FDA can further protect the public health. But it isn’t always clear which products the FDA regulates and which products it doesn’t. Generally, the FDA regulates the following product categories: certain foods, drugs, biologics, medical devices, electronic products that give off radiation, cosmetics, veterinary products, and tobacco products. Within each category is a number of products subject to the FDA’s regulatory authority. A more detailed, though non-exhaustive, list of the products the FDA regulates can be found on the FDA’s website. According to the FDA, these products account for about one-fifth of annual spending by U.S. consumers.

FDA
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The FDA is committed to ensuring that the products it regulates are safe, effective, and correctly labeled. But the FDA does not pre-approve for safety and effectiveness all of the products it regulates before such products can be marketed and sold. For example, the FDA does pre-approve new drugs, biologics, and certain medical devices, but does not pre-approve cosmetics (with the exception of certain color additives) or dietary supplements (though a notification is required for those containing a new dietary ingredient). However, the FDA requires that cosmetics, dietary supplements, and other products be safe for their intended use and be properly labeled/advertised. Accordingly, for such products that the FDA does not pre-approve, the FDA still has regulatory authority to take action when a safety issue arises. With respect to tobacco products, the FDA does not regulate safety in the same way as with other products, as the FDA views tobacco use as a major threat to public health. Notably, last year, the FDA finalized a new rule extending its regulatory authority to all tobacco products, including e-cigarettes, and restricting youth access to such products.

As always, companies should ensure that they products they market and sell are safe for their intended use, are properly labeled, and are fairly advertised. One form of advertising that has caught the FDA’s attention is the phrase “FDA Approved.” The FDA’s recently-updated explanation on what it does and doesn’t approve (and under what circumstances) can be found on the FDA’s website. The FDA’s website also contains detailed information for companies that market and sell FDA-regulated products, including the ability to search for guidance documents that describe the FDA’s interpretation on various regulatory issues and the ability to submit questions regarding the FDA’s policies, regulations, and regulatory process.

Last week the FTC issued three letters closing three separate investigations of advertising practices by three different businesses. The letters are notable for the two common themes present in each. First, each investigation centered on allegedly unsupported “Made in the USA” claims, demonstrating the FTC’s continued vigilance on this issue–a point that has been the topic of past posts. Second, each investigation was closed without further action due to, at least in part, the advertisers’ willingness to cooperate and take remedial action to change is advertising practices.

Made in the USA Banner
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These investigations demonstrate that the FTC will continue to enforce its rules regarding “Made in the USA” claims. According to the FTC, a blanket, unqualified claim that a product is “Made in USA” is likely to suggest to consumers that the product was “all or virtually all” made in the United States. So the FTC will hold an advertiser to that standard. In fact, the FTC stated in its Enforcement Policy Statement on the matter (as we blogged about here) that if “a product is not all or virtually all made in the United States, any claim of U.S. origin should be adequately qualified to avoid consumer deception about the presence or amount of foreign content.” And as the recently closed enforcement investigations show, if some of your products are made in the USA, but some are not, the advertising should be clear as to which ones are made here and which ones are imported.

These now-closed investigations also demonstrate an important practical point in dealing with the FTC. In each of these investigations, the advertiser cooperated and agreed to take remedial action, including altering the advertising at issue, training employees regarding the proper and substantiated advertising claims, and taking steps to clear the marketplace of the prior claims. This demonstrates that cooperating with the FTC’s investigation and coming to an agreement on revised advertising could be the most effective route in dealing with an FTC investigation in some circumstances.

 

A New York case decided this week by the U.S. Supreme Court involving a state prohibition on credit card surcharge fees would not, at first blush, seem to involve “speech,” let alone “speech” that needs to be protected by the First Amendment.  Indeed, a credit card surcharge fee – such as, for example, a nondescript warning stating “3% added for credit cards” – hardly seems to be in the same league as The Pentagon Papers, or Fanny Hill, or even the fundraising advertisement “Heed Their Rising Voices” by the Committee to Defend Martin Luther King, all of which were subjects of profound First Amendment cases.

ice cream sundae
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Nevertheless, the Supreme Court’s decision announced on Wednesday (Mar. 29, 2017) in Expressions Hair Design v. Schneiderman, 551 U.S. —, 2017 WL 1155913, involving something as innocuous as a thirty cents surcharge for using a credit card to pay for a ten dollar sundae at Brooklyn Farmacy & Soda Fountain marks a significant evolution in free speech law, one that has the prospect of affecting many areas of economic regulation.  The Court’s holding means that trade regulations that previously were perceived as solely government restrictions on economic activity having nothing to do with free speech rights are now potentially subject to First Amendment challenges if the government’s restrictions impose unwarranted burdens on a merchant’s ability to communicate information concerning the merchant’s products or services.  As a result, this “sleeper” decision from the Roberts Court marks yet another step in the continuing expansion of the Court’s use of the First Amendment to limit the ability of government to regulate economic activity.

The case itself is arcane in its details.  The matter involves a New York statute that was a duplicate of a federal measure that Congress enacted in 1981 but which Congress let expire in 1984.  The New York statute has the same effect as a contractual prohibition that previously had been incorporated into credit card companies’ contracts with merchants, but which the credit card companies dropped under pressure from antitrust lawsuits brought by merchants upset with the credit card companies’ efforts to prevent merchants from steering customers toward using cash instead of credit cards.

The New York statute establishes that “[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

On its face, this statutory language has nothing to do with speech.  The statute simply prohibits a merchant from imposing a “surcharge” on a customer who elects to use a credit card instead of cash.

However, both the five-justice majority for the Court led by Chief Justice Roberts as well as a concurring opinion by Justice Breyer held that this statutory provision regulates more than mere conduct – what price a merchant may impose – but it also regulates speech.  The Court held that the operation of the New York statute regulates “how sellers may communicate their prices”:

“A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say ‘$10, with a 3% credit card surcharge‘ or ‘$10, plus $0.30 for credit‘ because both of those displays identify a single sticker price–$10–that is less than the amount credit card users will be charged. Instead, if the merchant wishes to post a single sticker price, he must display $10.30 as his sticker price.”

The Court then concluded that “[i]n regulating the communication of prices rather than prices themselves, §518 regulates speech.”

This short assertion – that the statute regulates speech, rather than conduct – opens up the entire panoply of the First Amendment’s commercial speech doctrine.  As a result, and as the Supreme Court directed, the State of New York must now attempt to defend the statute, either on the grounds that it is a valid, non-discriminatory “disclosure” requirement, or on the grounds that it is “narrowly tailored” to serve a “substantial government interest.”  The trial court which heard the case initially concluded that the New York statute could not survive these First Amendment tests.  On remand from the Supreme Court, it will now be up to the Second Circuit to determine whether the trial court judge was correct.

In any event, the ruling now given by the Supreme Court to the first question – does the statute regulate speech – has the potential to open up constitutional challenges against various and sundry economic regulations that could be said to regulate the “communication” of a price as opposed to the “price” itself.  Hence, statutes or regulations that prohibit “Ladies Night” discounts at bars or clubs might now be said to regulate the “communication” of such discounted prices, rather than prohibiting the prices themselves, and as a result, the prohibitions against such prices might now be challenged on First Amendment grounds.  Similarly, local ordinances requiring the imposition of a 5 cents surcharge on customers who want their groceries in a plastic bag might well be challenged on First Amendment grounds, on the strength that such ordinances regulate how merchants “communicate” their prices, as opposed to the conduct of the price itself.  Additionally, regulations that prohibit merchants from imposing differential pricing based where a customer comes from – such as prohibitions against “residents” discounts – also now may be challenged on First Amendment grounds.

As Justice Breyer remarked in his concurrence in the Expressions Hair Design case, “virtually all government regulation affects speech.”  (Justice Breyer’s point was actually that it is less important whether a government provision regulates speech than it is to consider how much speech, and what kind, is affected by the regulation.)

In light of that observation – that government regulations fundamentally affect speech of all kinds – this latest case from the Supreme Court opens up a new tool for businesses to consider when challenging a regulation that affects their abilities to communicate with their customers.  This new decision means that businesses might now require the government to prove that an economic regulation that previously was subject only to highly deferential “rational basis” review is instead justifiable under more rigorous “substantial interest” scrutiny.

In this regard, the Court’s decision in Expressions Hair Design will come to be seen as a watershed moment for those wishing to challenge government regulation of economic activity.

Made in the USA Banner
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In the last two months, the Federal Trade Commission (“FTC”) has reached two settlements related to complaints it initiated against companies regarding “Made in the USA” advertising claims.

First, in February, the FTC announced that it had reached a settlement with a Georgia-based water filtration systems company named iSpring Water Systems, LLC.  According to the FTC, iSpring advertised its water filtration systems on its website and through third parties as “Built in USA” (and other similar claims).  The FTC found such advertising false or misleading because the water filtration systems were either entirely imported or contained significant parts that had been imported, thus violating the FTC’s long-standing requirement that “all or virtually all” of the product be made in the USA in order to be advertised as such.  The settlement allows iSpring to make certain qualified claims, with a clear and conspicuous disclosure, but prohibits iSpring from advertising contrary to the FTC’s “all or virtually all” requirement.  More information regarding the settlement is available on the FTC’s blog.

Second, earlier this month, the FTC announced that it had reached a settlement with a Texas-based pulley company named Block Division, Inc.  According to the FTC, Block Division advertised its pulleys in various media using “Made in USA” text and graphics.  The FTC found such advertising misleading given that the pulleys had significant and essential parts that had been imported.  Further, some of the pulleys contained steel plates stamped as “Made in USA” before they were imported.  The settlement allows Block Division to make certain qualified claims, again with a clear and conspicuous disclosure, but prohibits Block Division from advertising contrary to the FTC’s “all or virtually all” requirement.  More information regarding the settlement is available on the FTC’s blog.

Both of these FTC actions and resulting settlements demonstrate that the FTC takes “Made in the USA” claims seriously and will enforce its requirements regarding such advertising.  A prior blog post outlines those requirements in more detail.

In December 2016, the Consumer Review Fairness Act became law. On February 21, 2017, the FTC published guidance for businesses in following the new law. The law protects the consumer’s right to express and share his or her honest review of a company or its products, even if the review is negative. To accomplish this, the law targets contractual provisions used by companies to stifle negative reviews. The law specifically prohibits any such provisions, whether in online terms and conditions or in some other contract.

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The law makes it illegal for a company to use a contract provision in a “form contract” that:

  1. Prohibits or restricts the ability of an individual who is a party to the contract to review the company’s products, services, or conduct;
  2. Imposes a penalty or a fee against an individual giving a review; or
  3. Requires individuals to give up their intellectual property rights in the content of their review.

The law provides that any such provisions in a form contract are void, barring some specific exceptions. The law also exposes companies using prohibited contractual provisions to FTC enforcement actions, including potential financial penalties.

To ensure compliance and avoid enforcement actions, the FTC recommends that businesses: (1) “review their form contracts and online terms and conditions; and (2) remove any provision that restricts people from sharing their honest reviews, penalizes those who do, or claims copyright over people’s reviews (even if you’ve never third to enforce it or have no intention of enforcing it.)”

As stated by the FTC: “The wisest policy: Let people speak honestly about your products and their experience with your company.”

In April 2016, the FTC filed a Complaint against Dr. Joseph Mercola and his companies alleging that their indoor tanning system advertisements violated section 5(a) of the FTC Act, which prohibits unfair or deceptive practices in commerce, and section 12(a) of the FTC Act, which prohibits the dissemination of false advertisements in commerce for the purpose of inducing the purchase of foods, drugs, devices, services, or cosmetics.  According to the FTC, indoor tanning systems qualify as “devices” under the FTC Act.

tanning bed
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In its Complaint, the FTC alleged that the defendants disseminated a number of false, misleading, deceptive, and unsubstantiated advertisements on the Mercola.com website, in search engine advertising, in a YouTube video of Dr. Mercola himself, and via newsletters.  Such advertisements include:

  • Tanning with Mercola brand indoor tanning systems is safe;
  • Tanning with Mercola brand indoor tanning systems will not increase the risk of skin cancer as long as consumers top using the system when their skin is only the slightest shade of pink and not burned;
  • Tanning with Mercola brand indoor tanning systems does not increase the risk of skin cancer, including melanoma skin cancer;
  • Tanning with Mercola brand indoor tanning systems reduces the risk of skin cancer;
  • The FDA has endorsed the use of indoor tanning systems as safe;
  • Research proves that indoor tanning systems do not increase the risk of melanoma skin cancer;
  • Certain Mercola brand tanning systems will pull collagen back to the surface of the skin, increase elastin and other enzymes that support the skin, fill in lines and wrinkles, and reverse the appearance of aging;
  • Tanning with Mercola brand tanning systems provides various benefits to consumers, including increasing Vitamin D and providing Vitamin D-related health benefits; and
  • The Vitamin D Council recommends Mercola brand tanning systems (without disclosing that the defendants arranged for the Vitamin D Council to be compensated for its endorsement).

Today, the FTC announced that, as a result of a settlement agreement reached with Dr. Mercola and its companies, the FTC is mailing $2.59 million in refunds to more than 1,300 purchasers of Mercola indoor tanning systems. According to the FTC, the average refund check is $1,897.  Additionally, under the settlement agreement, the defendants are banned from selling indoor tanning systems in the future.

More information regarding the FTC’s views on indoor tanning advertising can be found on the FTC’s website and blog.  According to the FTC, no government agency recommends indoor tanning and the FDA requires indoor tanning equipment to contain signs warning users of the risk of cancer.  In addition, the FTC actively investigates false, misleading, and deceptive advertisements related to indoor tanning.