FTC Beat
Mar 16
2016

Good Lord, & Taylor! Of Course You Need to Disclose Native Ads

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On March 15, 2016, national retailer Lord & Taylor agreed to settle FTC charges that it “deceived consumers by paying for native advertisements.” The settlement is the first of its kind following the December 2015 guidance memorandum, Native Advertising: A Guide for Businesses, issued by the FTC. Under the terms of the settlement, Lord & Taylor is prohibited from “misrepresenting that paid ads are from an independent source, and is required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements”.

On the day the settlement was announced, the FTC also published a copy of the underlying complaint. The complaint alleges that Lord & Taylor developed plans to promote a clothing line for women which included a comprehensive social media campaign of blog posts, photos, native-advertising editorials in online fashion magazines, and a team of “influencers” recruited for their fashion sense and audience on social media. The FTC alleged that Lord & Taylor edited, pre-approved, and paid for a favorable Instagram post that was uploaded to the account of a fashion magazine called Nylon. The regulatory agency further alleged that Lord & Taylor reviewed, pre-approved, and paid for a favorable article in Nylon. In both cases, however, Lord & Taylor failed to disclose its commercial arrangement with Nylon. Similarly, the FTC alleged that Lord & Taylor gifted a dress from the clothing line to fifty “influencers” who were paid between $1,000 and $4,000 to post favorable photos and comments about the dress on social media. Again, Lord & Taylor did not disclose or require influencers to disclose that they had been paid for their posts. Based on Lord & Taylor’s alleged misrepresentations and failure to disclose, the FTC accused Lord & Taylor of engaging in unfair or deceptive acts or practices in violation of the Federal Trade Commission Act.

What is Native Advertising?

Native advertising, also known as sponsored content, is designed to fit in with original online content in a seamless, non-intrusive manner.  It allows advertisers to directly reach online consumers, without severely interrupting the original content on the publishing website, video game, or mobile app.  In the past few years, this advertising has reached all corners of the internet.

FTC Concerns With Native Advertising

As native advertising has grown, so have the FTC’s concerns about the possibility of deceiving consumers.  Therefore, at the close of 2015, the FTC released the guidance memorandum, Native Advertising: A Guide for Businesses, which provides details and illustrative examples for businesses that use native advertising as part of their online marketing campaigns.

Native advertising creates a particular challenge for advertisers.  Advertisers want to design an advertisement that appears native to the original content, but must do so without potentially confusing the consumer, who may mistake the advertisement for non-advertising content.

To assist advertisers in complying with these rules, the FTC issued its December 2015 guidance memorandum with examples and tips to ensure advertisers remain compliant.  Most of the memorandum focuses on seventeen examples of advertising, including on news sites, in videos, through content recommendation widgets, and in video games.  These examples illustrate how and why consumers might be confused by certain native advertising tactics.  Most of the examples show how a native advertisement might bear too much similarity to the original content, which means the consumer might not understand that what they are viewing is, in fact paid-for, sponsored content.

Complying With FTC Native Advertising Requirements

The take-away from the Lord & Taylor settlement is that advertisers should avoid placing paid ads that appear to be independent editorial content. Put simply, advertisers must choose between control and disclosure. In other words, advertisers who want to make use of native advertising and “influencers” on social media must either relinquish influence or control over the advertising content or disclose the nature of the marketing arrangement. Bottom Line: Paid advertising must be identifiable as advertising.

The FTC’s December 2015 memorandum provides a variety of tips on how to appropriately disclose native advertising.  The disclosures should be three things: (1) placed near the advertising; (2) prominent; and (3) clear.  By ensuring that native advertising follows these disclosure guidelines, companies will avoid misleading consumers into thinking their native advertisement is non-sponsored, publisher content.

Finally, the memorandum specifically notes who is affected by these disclosure rules.  The enforcement is not limited to just the sponsoring advertiser.  Advertising agencies and operators of affiliate advertising networks are also obligated to adhere to the FTC’s disclosure requirements.

Put simply, if a reasonable consumer might see your native advertising and believe it to be non-advertising content, the FTC will likely take issue with your native advertising tactics. This is exactly what we saw in the Lord & Taylor settlement.

Ifrah Law is a leading white-collar criminal defense firm that focuses on internet advertising.

Mar 10
2016

Latest German Sausage? Privacy-Wurst by Facebook

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Despite not being explicitly mentioned in the Constitution, the Supreme Court has firmly held that a right to privacy for all Americans is found in several amendments to the Constitution, with almost 100 years of case law providing precedent for many personal privacy rights that have become a cornerstone of American culture. However, in this new digital age of rapid technology change, with real-time access to information and the global exchange of information at the push of a button, new privacy protection questions arise almost daily. The extent to which an individual’s private information shared online is subject to privacy protection varies depending on which side of the pond you stand.

European nations generally take a more restrictive approach than the U.S. as to how companies can use personal data.  EU nations often go head-to-head with U.S. digital companies over differing interpretations of privacy rights.  Both Google and Microsoft have faced multiple investigations outside the United States.

Facebook seems to be a particularly popular target. As the world’s largest social network with 1.6 billion monthly users, Facebook earns its revenues from advertising aimed at users, after gathering information from the users’ social connections and activities in their posts.  Late last month, a German court fined Facebook 100,000 Euros for failing to follow an order issued by a German court four years ago that required the social media site to revise a clause in its terms regarding any intellectual property content posted by users on or in connection with Facebook.  The German court had found that the clause in the terms violated consumer rights. While Facebook modified the wording slightly for German users, the German court found that the revised wording still maintains the same underlying message as the original wording.  Europe’s highest court also recently successfully challenged Facebook as to the way that data was transferred between the European Union and the United States.  And just yesterday, a German court ruled that domestic websites could not transfer user data to Facebook via its “like” button without the specific consent of the user.

In a novel link between privacy protection and antitrust, the German competition authority known as the Federal Cartel Office (BKA) opened an investigation on March 2 into whether Facebook abused its dominant position in social networking in order to collect its users’ digital information, including placing unfair constraints on the users, who were forced to sign complicated terms and conditions in order to use the network.  The investigation seeks to discover whether Facebook users were properly informed about how their personal data would be obtained through the site, including the type of data collected, as well as the extent of the data collected.

One might ask why the BKA would get involved with this novel approach to linking privacy protection to antitrust law. First, under antitrust law, the maximum fines are much greater than those under privacy law.  For a company tech giant like Facebook, the fines imposed by data protection authorities can seem negligible, even for the most egregious cases, while antitrust fines pose a much more significant deterrent.  Second, Facebook has claimed that it falls only within the jurisdiction of the data protection authority in Ireland, where its international headquarters are situated. By bringing the investigation under the auspice of the antitrust authority, this argument is avoided. The President of the BKA, Andreas Mundt, remarked that, “[d]ominant companies are subject to special obligations,” and he went on to say that such obligations include adequate terms of service, as far as they are relevant to the market.  He also noted the importance of user data where Internet services are financed by advertising.  The BKA noted, “. . . if there is a connection between infringement and market dominance, it could constitute an abusive practice under competition law.”

While some question the BKA’s position as ambitious and vague, others fear that this case could open the door to other investigations and cases using data protection violations to claim antitrust violations.  Whether the BKA is successful or not, this should be a forewarning to other big U.S. technology companies: it is probably not enough to rely on U.S. privacy rules when playing in a global arena.

Mar 01
2016

CFPB No-Action Letters Are No Help

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In the age of handheld banking apps, private funds transfer systems, and digital currencies, ensuring that new products are fair to consumers and compliant with existing – and sometime archaic – regulations are difficult tasks. The Bureau of Consumer Financial Protection (“CFPB”) recently finalized a new policy for providing “no-action letters” (“NALs”) to companies seeking to introduce new consumer finance products and technologies. Although the CFPB’s stated goal was to ensure transparent and efficient markets that “facilitate access and innovation,” it has failed to hit that target. The CFPB’s new policy is a step in the right direction, but the benefits of the new policy are limited and applicants will run commercial and legal risks in seeking the limited shelter offered by the agency.

Not only will NALs offer limited protection, they will be available only in exceptional circumstances where there is both regulatory confusion and a new product. The CFPB said that it is devoting only limited resources to this program and expects to issue only two or three NALs per year. The restrictive nature of this policy will minimize the value of the agency’s much-needed guidance. The limited scope of the new policy stands in contrast to the SEC’s no-action policy, where NALs are important tools for market participants and their counsel in conducting business. Although NALs are rare in the bank regulatory context, the SEC has recognized that many issuers and securities law practitioners closely monitor such letters, and often view them as “the most comprehensive secondary source on the application of [the federal securities] laws.” (1)

There is considerably less guidance as to CFPB regulations and a more robust no-action policy would provide much needed clarity for market participants and innovators. Under the new policy, market participants considering bringing a new product to market may request a “no action letter” (“NAL”) from the agency. The request for a NAL must contain 15 categories of information, including: a description of the new product (including how it functions); the product’s timetable, an explanation of its substantial benefit to consumers; a “candid explanation” of the potential consumer risks posed by the product; an explanation of the source(s) of the regulatory uncertainty to be addressed by the NAL; and a promise to share data about the product’s impact on consumers. Examples of products that might qualify for a NAL include the early intervention credit counseling program proposed by Barclays PLC and Clarifi (a consumer credit counseling service), which was an early CFPB Project Catalyst research pilot.

The benefit from any NAL issued by the CFPB will be limited. The proposed relief offered is a statement that the CFPB “staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester in respect to the particular aspects of its product…” This amounts to “we won’t take action – unless we do.” While the CFPB is unlikely to take enforcement action with respect to a new product shortly after issuing a no-action letter, the proposed letters are in no way binding and offer little more protection than the existing process of informal consultation. This weakness may be ameliorated over time as courts have an opportunity to weigh in on the impact of CFPB no-action letters and the agency develops a track record for its handling of these issues.

Submitting a request for a NAL could create commercial or regulatory risk for an applicant. From a cost standpoint, preparation of such an application will be a significant undertaking, especially for smaller companies. Because the process is only available for products that are close to market ready, potential applicants will have invested significant sums to prepare their new product. A company in this position may not want to run the risk that the CFPB denies the NAL request, which might delay or prevent it from bringing the new product to market altogether. The publication of the NAL might also give competitors a chance to duplicate or improve on the innovation before or shortly after it reaches the market.

The process also entails legal risks. The NAL application process requires the company’s lawyers to explain why they think the legality of the proposal is “substantially uncertain” but nonetheless should be resolved in the company’s favor. If the CFPB determined that the product is not in compliance with any pertinent law or regulation, the application effectively will be converted to an admission of wrongdoing that would bar the product from the market. (2)

Because the CFPB will publish each NAL that it issues, the non-binding letters also may highlight potential compliance issues to other regulators (and potential consumer litigants), none of which will be bound by the NAL.

By creating such a restrictive process, the CFPB has offered innovators little opportunity to save costs if their product is deemed non-compliant, and no real protection if it is. In many instances, it is questionable that the new no-action policy offers substantially more comfort to a market participant than they could already obtain through informal discussions with the agency. But because there is little existing guidance on CFPB regulations, the new process is welcome, even if limited. The new policy will be particularly useful for companies introducing products at the edge of current law. Deciding whether to seek a NAL will require careful consultation with a company’s lawyers to navigate the potential legal and business risks.

(1) Expedited Publication of Interpretative, No-Action and Certain Exemption Letters, Securities Act Release No. 6764, [1987-1988 Transfer Binder] Fed. Sec. L. Rep. (CCH) 84,228, at 89,053, 89,054 (Apr. 7, 1988). 10 Thomas P. Lemke, The SEC No-Action

(2) The CFPB limited its new policy to new services and technologies. It would make little sense to seek guidance for existing products where the application itself could be seen to be an admission of wrongdoing.

Ifrah Law is a leading white-collar criminal defense firm that focuses on a variety of practice areas. View all.

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Jan 15
2016

Halting Business And Seizing A Domain Without A Moment’s Notice

LGCES2010                  Photo credit: Wikipedia Commons- Uploaded by NativeForeigner

Every year, the Consumer Electronics Show in Las Vegas proves to be one of the more interesting conventions to attend. 2016 did not disappoint: companies showed off cool innovations in displays, robotics, and integrated smart technology across the consumer products platform.

Adding to the excitement at this year’s CES was the dramatic appearance of uniformed officers. We don’t mean the sultry high-heeled look-alikes you’d more likely expect at a Vegas show. These were U.S. Marshals and they were the real McCoys (although we are unsure of their actual names or heritage). The marshals were there to execute a court order and seize product from one of the convention’s participants, Changzhou First International Trade Company.

The China-based company had a booth at CES to promote its Surfing Electric Scooter, a one-wheeled hoverboard. The scooter might be considered a dream machine for many an adolescent skater. The only problem is that it is remarkably similar to Future Motion Inc.’s patented Onewheel (at only about a third the price).

Future Motion was granted a patent on Onewheel’s self-stabilizing technology only recently (within the last month), but it did not waste any time to defend its rights in U.S. District Court. Future Motion requested the federal court grant it a temporary restraining order to, among other things, seize Changzhou First International’s scooter from CES.

Two of the more interesting aspects of the district court’s actions in this matter are (1) the speed at which the judge granted the requested relief and (2) the extent of the relief that the judge granted. The court issued a TRO on the same day that Future Motion filed the request. The following day, the marshals were in the Vegas convention hall seizing scooters and generating a lot of attention.

But the court didn’t limit its TRO to seizing product locally. It granted Future Motion’s request to halt manufacture and sales. The court also ordered web hosts and domain name registrars to “take any and all action necessary to remove the infringing products from websites having content controlled by Defendant, or alternatively to disable access to the website.” Halting sales and manufacture and seizing the company domain name is a pretty impressive order to execute on an expedited basis, and based exclusively on arguments presented by plaintiffs. It’s further impressive considering that the scooter is Changzhou First International’s only advertised product on its website. Closing down this channel is effectively closing down the company’s operations. Is Future Motion’s patented technology really the heart of Changzhou First International’s scooter? A cursory review might suggest yes, but it’s a complex question that should be decided after a proper hearing. Granting a TRO to make a point at the CES convention is one thing, shuttering a business is another.

It doesn’t appear that the part of the order requiring domain name seizure has been executed yet. As of January 14, 2016, Changzhou First International’s website is still active, full of images of its Surfing Electric Scooter. Moreover, the product appears to continue to be sold on Alibaba. This may be because parties have ten days from notice to comply, which isn’t yet up. It may also be based upon some subsequent stipulation by the parties: it is possible that Future Motion does not want to be on the hook financially should the court ultimately find against it (as the order in the case acknowledges, Future Motion would be responsible for damages, i.e. economic loss, for any wrongful seizure).

We shall see in the coming weeks what’s to become of the Surfing Electric Scooter. The next hearing (for preliminary injunction) is scheduled for mid-February. At that hearing, Changzhou First International will have the opportunity to present its arguments demonstrating why its scooter does not infringe on Future Motion’s patents. Although, who would be surprised if a U.S. district court found that a Chinese product infringed on someone else’s intellectual property?

Ifrah Law is a leading white-collar criminal defense firm that focuses on e-commerce.

Dec 28
2015

Amazon Pursued Fake Reviews In 2015, What Will It Pursue In 2016?

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In 2015, Amazon filed suit against over 1,000 unnamed individuals for allegedly offering to sell fake online reviews (positive or negative) on Fiverr.com (“Fiverr”). The unnamed defendants offer to provide 5-star reviews and some defendants even encourage sellers to provide their own text to use in the review. In order to avoid detection, defendants offer to submit reviews from multiple IP addresses, utilize multiple Amazon accounts, and to complete a Verified Review (which means the reviewed has purchased the product, even though they don’t always require the actual product to be shipped for review). In short, the allegations are that these reviews for sale violate Amazon’s Customer Review Guidelines (which prohibit paid reviews), Fiverr’s own Terms of Service (which requires compliance with third party guidelines), and deceptively provides false reviews to consumers (which violates consumer protection laws).

Interestingly, Amazon did not name Fiverr as a party to the complaint. Instead, Amazon went after the individual sellers and indeed explicitly stated in the complaint that “Amazon will amend this complaint to allege their true names and capacities when ascertained.”

In contrast to Amazon’s approach, the Metallica Plaintiffs in a previously filed case against Napster, sued Napster directly and not the individual users (and eventually obtained their desired result).  Indeed, Amazon has not always omitted operators from its case captions. Last April, Amazon filed a similar lawsuit against a number of companies that operated websites to promote the sale of Amazon reviews. That lawsuit contained very similar allegations to this recent suit against individuals and alleged selling positive reviews, offering a Verified Review, a slow posting of reviews to avoid detection by Amazon, etc. Similar as well to the Napster case, the first Amazon lawsuit also yielded a successful result because the websites targeted in that case were all closed down.

So why is Amazon now going after the individual sellers? And why did Amazon omit Fiverr in this lawsuit?

One possible explanation is that Amazon, like Napster, first attempted to take down the providers (i.e. the website owners) that enabled the fraudulent review process. While that was successful, Amazon likely realized that it was insufficient because the individual reviewers would easily migrate to sites like Fiverr to continue their activities. So, Amazon was forced to file suit against the individual users.

At the same time, Amazon did not include Fiverr as a named defendant because it is more likely to get Fiverr’s cooperation in providing the identities of the unnamed defendants, and, because Fiverr is a legitimate global online marketplace offering tasks and services- in sharp contrast to the defendants in the prior Amazon lawsuit that operated sites and companies for the sole purpose of providing fraudulent Amazon reviews (and further antagonized Amazon by utilizing the Amazon logo on their sites). Additionally, as noted in the current Amazon complaint, Fiverr itself prohibits paid reviews and has tried to prevent them- again in sharp contrast to the companies in the first Amazon lawsuit, whose entire business was selling Amazon reviews.

Or it may be that Amazon has embarked on a process to stop paid reviews and these are the first steps in that ongoing process. As noted in this complaint against the Fiverr sellers, the lawsuit is “the next step in a long-term effort to ensure these providers of fraudulent reviews do not offer their illicit services through other channels.” Thus, Amazon may have simply first pursued the enablers (i.e. the company websites dedicated to fraudulent reviews) and then it pursued the individual reviewers on Fiverr.

The extent to which Amazon will continue to pursue questionable reviews remains to be seen. In 2015, Amazon limited its lawsuits regarding fraudulent reviewers to paid reviewers. In 2016, we may see an assault on the groups of independent people who exchange positive reviews on Amazon (i.e. each party agrees to submit a positive review of the other’s product). This type of arrangement also violates Amazon terms and poses similar concerns to the reliance of consumers on Amazon reviews. Amazon may also question whether this prohibited practice merits attention.

Ifrah Law is a leading white-collar criminal defense firm that focuses on e-commerce, and internet advertising.

Dec 23
2015

Will The Floodgates Open As Consumer Backlash To Spam Unleashes?

Anti spam filter vector concept in flat style

Every e-mail user receives them, some days in numbers hitting the triple digit mark – those targeted, often annoying and unsolicited e-mails that clog our inboxes, originating from any of a multitude of establishments, including retailers, service establishments, and even our own social media.  Regulation over unwanted e-mails has been limited mostly to the federal Can Spam Act of 2003, which doesn’t prohibit the deluge of e-mails, but rather protects against misleading and deceptive ones and requires the sender to comply with certain requirements, including offering a clear opt-out. A private consumer has limited retribution to enforce the Act, however, and must rely on the FTC, as well as other government entities and Internet service providers, to bring suit to stop the unwanted e-mails. It seems that consumers in recent years are ever more fed up and frustrated with “spam” messages and desire change.  However, as evidenced by a recent class action lawsuit by certain LinkedIn members against the social media giant, consumers may utilize other legal maneuvers to get relief from new marketing tactics employing spam.

LinkedIn is often referred to as the “Facebook of the Professional World.”  With over 300 million+ users, LinkedIn has become the world’s largest professional network since it launched in 2003.  One feature of the network allows a member to import his or her e-mail contacts list and send invitations to connect with others on LinkedIn.  A user is prompted by LinkedIn to click an “Add Connections” link, which then allows LinkedIn to import the list from external e-mail accounts.  LinkedIn uses this feature to grow its number of members.

According to the class action lawsuit filed against LinkedIn, if a connection invitation was not accepted within a certain period of time, up to two “reminder’ spam e-mail messages would be sent to the prospects, without the LinkedIn member’s consent to do so. In Perkins v. LinkedIn Corp., the federal district court in the Northern District of California determined that the motion to dismiss filed by LinkedIn would be granted in part and denied in part, thereby allowing the suit to move forward.  In its partial denial of the motion to dismiss, the court reasoned that although the members consented to importing their contacts and sending the invitation to connect, they did not consent to sending the reminder messages on their behalf.  In her Order, Judge Lucy Koh explains,

“Nothing in LinkedIn’s disclosures alerts users to the possibility that their contacts will receive not just one invitation, but three. In fact, by stating a mere three screens before the disclosure regarding the first invitation that ‘We will not . . . email anyone without your permission,’ LinkedIn may have actively led users astray.”

(Order Granting in Part and Denying in Part Defendant’s Motion to Dismiss with Leave to Amend *30).  The plaintiffs also contended that LinkedIn members did not consent to the use of their names and likenesses in the reminder e-mails and were embarrassed and felt that the unwanted e-mails sent to personal contacts affected their professional reputations.

Following the court’s Order, the parties agreed to settle the suit.  The settlement requires the social media giant to pay at least $13 million, as well as  $2.25 million in legal fees, to LinkedIn members who had accounts between Sept. 17, 2011 and Oct. 31, 2014 and sent e-mails through the Add Connections feature. Although LinkedIn did not admit any wrongdoing in the settlement, it agreed to revise its disclosures and clarify that the reminder e-mails would be sent as part of the “Add Connections” service. LinkedIn also indicated its intent to provide an option to cancel the connection invitation, and thereby the reminders, by the end of the calendar year.

Interestingly, with perhaps the fear of a lawsuit on the horizon, Mark Zuckerberg preemptively announced at a recent town hall meeting held in Delhi, India, that Facebook will be reducing the number of invitations it sends to outside contacts of players of the game Candy Crush Saga. Facebook often sends the invitations to contacts who have never used a game and never played games on Facebook, suggesting that they join their friends in a Candy Crush Saga game.  Zuckerberg noted that reducing the number of invitations received was the most upvoted question in an online thread, and he has promised to reduce the number of these unwanted requests.  After the recent LinkedIn settlement, we advise Mr. Zuckerberg to take action swiftly or we may see other unhappy consumers following suit. . . .  with their own suit!

These developments should offer welcomed relief for consumers and our busy delete buttons. However, this may be the tip of the iceberg with regard to the use of the courts and unwanted e-mails. Is the broad Can-Spam Act sufficient to deter spammers? Does the Can-Spam Act do enough to filter out unwanted e-mails? New scenarios have arisen since the enactment of the Act in 2003 and consumers seem to desire more regulation to deter the deluge of e-mails. If swift action isn’t taken by Congress and other regulators, it seems that consumers may take to the courts to set precedent in this ever-changing arena.

Ifrah Law is a leading white-collar criminal defense firm that focuses on internet advertising.

Nov 03
2015

Highlights And Takeaways from the October 30th FTC Lead Generation Workshop

Leads button pointing  high position with two fingers, blue and grey tones, Conceptual image for increasing sales lead.

Exploiting consumers and exploiting consumer data were popular themes in the FTC’s October 30th workshop on lead generation, “Follow the Lead.” The day-long workshop explored the mechanics of lead generation and its role in the online marketplace. With a focus on the lending and education spaces, panelists discussed the many layers of marketing involved in lead generation—and importantly—how those many layers can add confusion to how consumer data gets collected, sold, used … and misused.

Panelists of the five workshop sessions hailed from industry, government, advocacy groups, and research institutions. They offered insights into both the vulnerabilities and opportunities flowing from the extensive “behind the scenes” market of lead generation. But unsurprisingly, the benefits of lead generation were overshadowed largely by attendant concerns: why is so much consumer data collected, what is done with it, and are consumers aware of how their personal information is being traded and used?

The workshop included two “case study” panels on lending and education. For the panel on lead generation in lending, Tim Madsen of PartnerWeekly provided an overview of how the “ping tree” model works. Connecting prospective borrowers with lenders through a reverse auction of borrower leads, the “ping tree” model may be an efficient way of matching borrowers and lenders. However, Pam Dixon, Executive Director of World Privacy Forum, highlighted her concerns that lenders are receiving consumer data that would otherwise be protected under the Equal Credit Opportunity Act and therefore that the online process is circumventing important consumer protection laws. For instance, the online lending process may require certain personal information from borrowers in order filter fraudulent requests. But that personal information (e.g., gender or marital status) otherwise could not be part of the loan application process. Dixon felt the disclosure of protected information was one that needed to be addressed from both a technical and a policy standpoint. And it is an issue she raised on subsequent panels during the conference, indicating a possible pressure point for future regulatory action.

The panel on lead generation in education was highly charged, due to the controversial nature of marketing higher education and due to the negative attention on for-profit education. Despite many people’s assumption that online marketing in education is largely a tool of the for-profit education industry, Amy Sheridan, CEO of Blue Phoenix Media, provided some surprising statistics: state and private institutions represent roughly forty percent of her business in the education vertical. Even renowned schools like Harvard and Yale are employing lead generation to gain students in their programs.

But given the extensive access to federal funds through higher education, consumer advocates highlighted concerns over students being preyed upon by unscrupulous educators. Jeff Appel, Deputy Undersecretary of Education at the Department of Education, attributed the problem in part to the lack of underwriting in federal student loans. [Query: Wouldn’t it make sense to add underwriting to the federal student loan process? Statistically, private student loan repayment fares much better thanks to this preliminary screening.]

In support of responsible advertising for educational programs, Jonathan Gillman, CEO of Omniangle Technologies, identified the need for clear guidance on appropriate marketing tactics, which may better address problems than resorting to law enforcement. He pointed out the adverse consequences of clamping down on educators’ online advertising: educators are now afraid to advertise online and that space is being filled by affiliates who are more apt to cross the line into deceptive advertising.

Appel provided some general guidance for schools working with lead generators. Schools should (1) monitor how lead generators are representing programs and ensure their ads are not deceptive, (2) make sure payment for advertising does not implicate regulations against incentive-based compensation, and (3) be aware that the actions of lead generators may come under the Education Department’s purview if they are providing additional assistance (e.g., processing student applications).

Both Appel and consumer advocates seemed to agree, though, that laws and regulations already in place were sufficient to address consumer protection concerns in the education marketing space. It is only a matter of having the resources to enforce those laws and regulations. Appel also suggested that state regulators could curb issues by better screening schools.

Throughout the day and across the panels, FTC representatives turned to the concept of “remnant information,” i.e. consumer information that is longer being used. FTC attorney Katherine Worthman asked panelists various questions about what ultimately happens to this information. R. Michael Waller, another FTC attorney and panelist, noted his concern that companies have an economic interest in maintaining and possibly selling remnant information, and that such information is increasingly vulnerable to fraudsters. These FTC attorneys thus pressed about policies on consumer data retention. Aaron Rieke of Upturn supported the FTC concerns and noted that nothing in the company privacy policies (that he’s reviewed) prevents the sale of consumer data:  “privacy policies are shockingly permissive when you look at how much information is being provided.”

Another popular issue was whether and to what extent disclosures to consumers are sufficient: are consumers aware of how their information is being traded? The general consensus among panelists was that consumers remained ignorant to the sale and use of the personal information they provide online.

Upshot from the workshop: Lead generators, and the companies using them, should be aware of the growing interest by federal regulators in (1) how consumer data is being collected, retained, and sold and (2) the extent to which people up and down the online marketing supply chain are vetting the buyers and sellers of consumer data. Other takeaways from the conference: Companies should ensure their data collection and retention policies comply with applicable state and federal law. Finally, it is important for companies to ensure their practices comply with both their policies and their disclosures.

 

Ifrah Law is a leading white-collar criminal defense firm that focuses on e-commerce, and data privacy, and internet advertising.

Oct 15
2015

Jumping To Judgment on For-Profit Education

Flat design vector illustration concept for payed education proces.

If you didn’t know any better, you might have gotten pretty fiery over for-profit education after reading one of the front page stories of Tuesday’s New York Times. The lengthy article titled “For-Profit Colleges Fail Standards, but Get Billions” is all about accusations of greedy institutions bilking taxpayers and taking advantage of students through fraud and other deceptive practices. Why the story ran on page one of the paper is anybody’s guess: the only timely element in the piece appeared toward the end of the article, where the author mentioned the Defense Department’s recent decision to bar the University of Phoenix from its tuition assistance program. By the time you got to that part of the article, you might have cheered the DOD’s decision to cut the educator off, despite the fact that the decision appears premature, based on allegations as opposed to findings (meaning they are meting out punishment before a full investigation or review).

The New York Times piece seems narrowly focused on denigrating an industry that has become the bastard-stepchild of higher education. Ever since U.S. Sen. Tom Harkin decided to take on for-profit education, the industry has been under intense scrutiny from state and federal regulators as well as partisan research and advocacy groups. The article would have readers believe that all the negative attention is the equivalent of substantiated claims that for-profit education is a fraud on federal student loan programs. Thirty-seven state attorneys general, the Securities and Exchange Commission, the Consumer Financial Protection Bureau, the Department of Justice, and the Federal Trade Commission are all investigating for-profit schools.  These schools must be horrible, right? But what the article lacks are legal holdings or findings of fact.

That several agencies are investigating industry participants is not tantamount to guilt: it is more reflective of the fact that regulators take their cues from other regulators. Once an industry becomes unpopular, everyone wants to jump in and get their piece of the pie … or the felled lion. For-profit education is now an obvious target. But, again, that does not make the industry per se bad.

Nor does the fact that many for-profit educators have settled with regulators mean they are guilty: people and companies alike perform a cost-benefit analysis when it comes to whether to fight or stand down. It often makes economic sense to settle out with regulators rather than stay the course through potentially lengthy costly litigation.

What is troubling is the undercurrent – and application – of guilt before innocence, both by the New York Times article and by regulators. What is missing is a comparison of how much for-profit education costs per student versus how much other schools cost, or what dropout rates and post-graduation employment rates look like across schools for single parents and the poor (the types of individuals typically enrolled in for-profit colleges). For instance, studies have shown that community colleges are costing taxpayers billions of dollars for uncomfortably high drop out rates. Other studies identify taxpayer subsidies covering significant amounts of college operating costs.

One of the major reasons why for-profit education has high drop-out rates and poor post-grad employment rates is that they are reaching individuals who otherwise may not have access to degree programs, such as single parents or people in economically depressed areas. These individuals have other complications in their lives that can make completing a degree or finding gainful employment more challenging (e.g., scheduling, transportation). These challenges are not the schools’ fault, but a reflection of external factors. Punishing the schools and taking away educational opportunities does not seem like the most thoughtful decision, but it’s the one that partisan groups, partisan journalists, and regulators seem to be angling for.

Instead of celebrating the Defense Department’s decision to cut off the University of Phoenix from its tuition assistance program, we should be troubled that it is doing so before completing an investigation. In a statement, the University noted that: “It is troubling that DoD has used requests for information from other governmental agencies as grounds for placing the university’s DoD MOU in a probationary status.”

For-profit education does have, and has had, its bad actors… as does every industry. But the all-out slam against the sector, the fight for its demise, is unfair and shortsighted. In the end, the greatest losers will be historically underserved populations who will be denied education opportunities.

 

Sep 16
2015

TCPA Trouble Continues: FCC Slams Lyft and First National Bank for Terms of Service Requiring Consent

Profile shot of male exhausted trader with head in hands leaning at computer desk in office

Most of the attention involving the Telephone Consumer Protection Act (“TCPA”) has centered on the stream of class actions around the country. It is important to remember that the Federal Communications Commission (“FCC”) and state attorney generals can, and do, enforce the TCPA. In fact, the FCC recently issued citations to Lyft, the ride-sharing service, and First National Bank (“FNB”). Under the Communications Act, before the FCC may issue monetary penalties against a company or person that does not hold an FCC license or authorization, it must first issue a citation warning the company or person.

The TCPA requires prior express written consent for telemarketing calls/texts to mobile phones utilizing an autodialer or prerecorded call and for prerecorded telemarketing calls to residential lines. FCC rules mandate that the “prior written consent” contain certain key features. Among these requirements is the disclosure informing the consenting person that “the person is not required to sign the agreement – directly or indirectly – or agree to enter into an agreement as a condition of purchasing any property, goods, or services.”

For years, the FCC focused on actual consumer complaints of having received telemarketing calls/texts without the required prior express written consent. Interestingly, here, the FCC did not allege that either Lyft or FNB sent texts/robocalls without the required consent. The FCC’s accompanying press release indicates that its Enforcement Bureau initiated the two investigations after becoming aware of “violative provisions in those companies’ service agreements.” The citations issued to Lyft and FNB, along with recent correspondence by the FCC to Paypal concerning similar issues, represent new FCC attention on terms/conditions of service in the TCPA context, particularly on “blanket take it or leave it” agreements. The FCC Enforcement Bureau Chief, Travis LeBlanc, put all companies on notice, urging “any company that unlawfully conditions its service on consent to unwanted marketing calls and texts to act swiftly to change its policies.” The FCC directed Lyft and FNB to take “immediate steps” to comply with FCC rules and the TCPA – presumably meaning that the companies should immediately revise their terms and practices.

Lyft Citation

According to the FCC, Lyft’s terms require customers to expressly consent to receive communications from Lyft to customer’s mobile numbers, including text messages, calls, and push notifications. The messages could include Lyft-provided promotions and those of third party partners. The terms advise customers that they can opt-out by following the “unsubscribe” option, and that customers are not required to consent to receive promotional messages as a condition of using the Lyft platform or the services.

However, the FCC found that contrary to Lyft’s terms of service, Lyft does not actually provide “unsubscribe options” for consumers. If a consumer independently searches and gets to Lyft’s “help center,” the only option to opt-out subsequently prevents consumers from using Lyft’s service. Thus, per the FCC, “Lyft effectively requires all consumers to agree to receive marketing text messages and calls on their mobile phones in order to use services.”

The FCC concluded that while Lyft’s terms of service stated that consumers were not required to consent as a condition to using Lyft, in actuality, consumers could not refuse consent and remain Lyft users. Thus, the FCC cited Lyft, warning that it would be liable for any advertising text messages for which it did not collect proper, prior express written consent. The agency further stated that it would continue to monitor Lyft’s practices.

FNB Citation

In FNB’s investigation, the FCC noted that consumers wishing to use FNB’s online banking services are required to agree to receive text messages and emails for marketing purposes at consumer-provided phone numbers. FNB customers wishing to enroll in the Apply Pay service are similarly required to consent to receive marketing-related text messages and emails. The FCC objected to FNB requiring consumers to agree to receive marketing text messages in order to use the online banking and Apple Pay services, and failing to inform consumers that they have the option to refuse consent. The agency reiterated that under FCC rules, prior express written consent to receive telemarketing messages requires that, among other things, consumers receive a clear and conspicuous disclosure informing the consumer of his or her right to refuse to provide consent.

Our Recommendations

When it comes to autodialed/prerecorded telemarketing calls and texts to mobile phones and prerecorded telemarketing calls to residential lines, companies need to be diligent in ensuring they have proper, defensible prior express written consent. The FCC’s citations to Lyft and FNB make clear that organizations may not rely on blanket mandatory opt-in agreements. While it may be acceptable to seek consent in terms of service, consumers must be informed of their opt-out abilities, and must be able to access the opt-out and still use the service or make the purchase.

Companies should review their service agreements and the operational mechanisms to make sure consumers have information on opting-out. Further, any opt-out mechanisms must work as promised. A user’s opt-out should not block services/purchases. Of course, the best way to obtain consent is to seek a separate, prior express written consent in an agreement that contains all the required elements, as follows:

  • Is in writing (can be electronic);
  • Has the signature (can be electronic) of the person who will receive the advertisement/telemarketing calls or texts;
  • Authorizes the caller to deliver advertisements or telemarketing messages via autodialed calls, texts, or robocalls;
  • Includes the telephone number to which the person signing authorizes advertisements or telemarketing messages to be delivered;
  • Contains a clear and conspicuous disclosure informing the person signing that:
    • By executing the agreement, the person signing authorizes the caller to deliver ads or telemarketing messages via autodialed calls, texts or robocalls; and
    • The person signing the agreement is not required to sign the agreement (directly or indirectly) or agree to enter into such an agreement as a condition of purchasing any property, goods, or services.

As a reminder, the FCC repeatedly takes the position that the company claiming prior express written consent will bear the burden of providing that consent.

Ifrah Law is a leading white-collar criminal defense firm that focuses on e-commerce, and internet advertising.

Aug 13
2015

The Key to Steering Clear of the FTC’s Crack Down on Car Dealership Advertisements

man holding a car key with remote in the concessionaire

Car dealerships are notorious for running loud, flashy ads with too-good-to-be-true offers for outrageous deals to buy or lease cars.  Some dealerships downplay or even hide the seemingly endless list of qualifications on those offers which render many potential buyers ineligible for the deals, much to the irritation of misled consumers.  The FTC has taken action to stop these misleading practices by continuing its effort to crack down on deceptive advertising among automobile dealerships, which began in 2014 with the FTC’s “Operation Steer Clear,” a nationwide sweep of deceptive car dealership advertising.  The FTC’s efforts in this area have continued, most recently resulting in settlement with two Las Vegas auto dealerships.

Planet Hyundai and Planet Nissan of Las Vegas were the subject of FTC enforcement actions alleging that the dealers’ ads misrepresented the cost to buy or lease a car by omitting critical information or deceptively hiding it in fine print.  For instance, Planet Hyundai advertised a car for sale with “$0 Down Available,” but fine print revealed that a buyer would have to trade in a car worth a minimum of $2,500 or meet other qualifications in order to take advantage of the offer. Planet Nissan’s advertisements ran purportedly reduced prices side by side with former prices which had been struck through (“Was $12,888, Now $9,997”). However, the ads did not adequately disclose the qualifications which buyers had to meet to get those prices. Similarly, the ads touted that the cars were for “Purchase! Not a lease!,” when in fact many of the cars were leases. In both cases the FTC alleged that the prominently advertised prices are not generally available to consumers. The dealerships both entered into consent agreements in which they did not have to admit guilt or pay any fines or penalties, but were obligated to abide by relevant laws and regulations pertaining to deceptive advertising.

Further automobile enforcement efforts may be on the horizon.  In a late July regulatory filing, GM disclosed that it is currently the subject of an ongoing FTC investigation regarding “certified pre-owned vehicle advertising where dealers had certified vehicles allegedly needing recall repairs.”  GM and the FTC declined to comment further, so it is not immediately clear whether the individual dealers were following GM corporate policy when certifying the pre-owned cars in need of recall repairs, or specifically how the ads were allegedly deceptive.

While many of the FTC’s enforcement actions focus on lower-cost products with a large national customer base, such as dietary supplements sold over the internet, these cases serve as a reminder that the FTC’s advertising requirements apply equally to big-ticket items sold locally.  Merchants and service providers of every type, whether operating online or in brick and mortar shops, must ensure that their advertisements adequately disclose all material terms and conditions in a way that is not misleading or deceptive.

Ifrah Law is a leading white-collar criminal defense firm that focuses on internet advertising, and online fraud and abuse.

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About Ifrah Law

FTC Beat is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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