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FTC seeks feedback on digital ad effects on children
On August 23, the FTC announced that it is soliciting additional public feedback on the effects digital advertising and marketing messages have on children. As previously covered by InfoBytes, in May the FTC announced that it is seeking comment on its notice of proposed changes to its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (Endorsement Guides), which includes the addition of a new section highlighting special concerns related to child-directed advertising. Under the Endorsement Guides, which were enacted in 1980 and amended in 2009, advertisers are required “to be upfront with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product.” The Commission also noted that, in conjunction with the notice, it is hosting a public event on October 19 to address topics including “children’s capacity at different ages and developmental stages to recognize and understand advertising content and distinguish it from other content,” and the “need for and efficacy of disclosures as a solution for children of different ages, including the format, timing, placement, wording, and frequency of disclosures.” Comments are due by November 18 “to accommodate those who wish to provide input on the topics discussed at the October digital advertising event.”
District Court awards injunctive relief to FTC in deceptive advertising case
On August 9, the U.S. District Court for the Northern District of Georgia ruled that the FTC provided “broad and detailed” evidence of alleged deceptive advertising and unfair fee practices in its $550 million case against a technology company and its CEO (collectively, “defendants”). As previously covered by InfoBytes, the FTC filed a suit in 2019, alleging the defendants made deceptive representations to customers and charged hidden, unauthorized fees in connection with the company’s “fuel card” products in violation of Section 5 of the FTC Act. In 2019, when the agency filed its lawsuit, legal precedent held that the FTC could obtain restitution for consumers directly through such civil proceedings in federal court. However, in April of 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.) Following that decision, the FTC filed a motion to stay or voluntarily dismiss in an attempt to preserve the possibility of obtaining monetary relief for injured consumers in federal court while pursuing claims against the defendants through the agency’s administrative process, but the district court denied the motion, concluding that the “balance of equities does not weigh in favor of a stay or dismissal without prejudice.”
In its most recent order, the district court ruled that the FTC provided compelling and overwhelming evidence, including advertisements, internal marketing studies, and a “plethora of customer complaints” that showed the defendants are liable for multiple violations of the FTC Act. Among other things, the court noted that the evidence showed that the defendants knew that many customers were unaware of certain fees when they signed up for the fuel cards and that the defendants’ terms and conditions governing the fees were “inscrutable” and confusing. However, the district court partially granted defendants’ request for summary judgment on monetary relief, ruling that in light of the Supreme Court’s decision in AMG Capital Management, the FTC cannot obtain a monetary award for the violations until the agency exhausts its administrative litigation process. A hearing will be held to determine the nature of the required injunctive relief.
Special Alert: DOJ settles claims of algorithmic bias
On June 21, the United States Department of Justice announced that it had secured a “groundbreaking” settlement resolving claims brought against a large social media platform for allegedly engaging in discriminatory advertising in violation of the Fair Housing Act. The settlement is one of the first significant federal actions involving claims of algorithmic bias and may indicate the complexity of applying “disparate impact” analysis under the anti-discrimination laws to complex algorithms in this area of increasingly intense regulatory focus.
FTC to strengthen advertising and endorsement guidelines against fraudulent reviews
On May 19, the FTC announced it is considering changes to strengthen its advertising guidelines to address fake and manipulative reviews, as well as concerns over inadequate disclosure tools. The Commission unanimously voted to submit a notice of proposed changes to its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (Endorsement Guides), which were enacted in 1980 and amended in 2009. Under the Endorsement Guides, advertisers are required “to be upfront with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product.” In February 2020, the FTC issued a request for comments on, among other things, whether the Endorsement Guides are effective at addressing concerns in the marketplace, as well as issues related to social media disclosures, incentive reviews, and affiliate links. According to the Commission’s announcement, the proposed changes (i) warn “social media platforms that some of their tools for endorsers are inadequate and may open them up to liability”; (ii) clarify that the Endorsement Guides cover fake reviews; (iii) add a new principle, which provides that “in procuring, suppressing, boosting, organizing, or editing consumer reviews, advertisers should not distort or misrepresent what consumers think of their products”; (iv) clarify that social media tags are covered by the Endorsement Guides; (v) modify “the definition of ‘endorsers’ to bring virtual influencers—that is, computer-generated fictional characters—under the guides”; (v) provide an example addressing the microtargeting of a discrete group of consumers; and (vi) introduce a new section addressing concerns related to child-directed advertising.
A public event will be hosted by the FTC on October 19 to address topics including “children’s capacity at different ages and developmental stages to recognize and understand advertising content and distinguish it from other content,” and the “need for and efficacy of disclosures as a solution for children of different ages, including the format, timing, placement, wording, and frequency of disclosures.”
FTC issues final order with skincare company for false reviews
On November 6, the FTC announced a final order with a skincare company, resolving allegations that the company misled consumers by posting fake reviews on a retailer’s website and failed to disclose company employees wrote the reviews. As previously covered by InfoBytes, in October 2019, the FTC filed the complaint against the company asserting that (i) the product reviews posted on the company’s website were not “independent experiences or opinions of impartial ordinary users of the products” and therefore, were false or misleading under Section 5 of the FTC Act; and (ii) the failure to disclose the reviews were written by the owner or employees constitutes a deceptive act or practice under Section 5 of the FTC Act, because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.”
The Commission, in a 3-2 vote, approved the final order, which prohibits the company from misrepresenting the status of an endorser, including misrepresentations that the endorser or reviewer is an “independent or ordinary user of the product.” The order requires the company and owner to “clearly and conspicuously, and in close proximity to that representation, any unexpected material connection between such endorser and (1) any Respondent; or (2) any other individual or entity affiliated with the product.” The final order does not include any monetary relief for consumers.
In dissent, two Commissioners objected to the final order, stating that the agency is “doubling down on its no-money, no-fault settlement with [the company], who was charged with egregious fake review fraud.” The dissent urged the Commission to publish a statement on monetary remedies in order to restate “legal precedent into formal rules” and designate specific misconduct as penalty offenses through Section 5(m)(1)(B) of the FTC Act, which allows the agency “to seek penalties against parties who engage in conduct known to have been previously condemned by the Commission.”
Court orders investment training operation to pay $362 million in FTC action
On September 11, the U.S. District Court for the Central District of California ordered a California-based investment training operation to pay $362 million to resolve FTC allegations that the operation used deceptive claims to sell costly “training programs” targeting older consumers. As previously covered by InfoBytes, the FTC argued that the operation violated the FTC Act and the Consumer Review Fairness Act by using false or unfounded claims to market programs that purportedly teach consumers investment strategies designed to generate substantial income from trading in the financial markets “without the need to possess or deploy significant amounts of investable capital.” Additionally, the FTC alleged the operation required that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and prohibited customers from reporting potential violations to law enforcement agencies.
The district court agreed with the FTC, approving an order that requires the operation to pay a partially suspended judgment of $362 million, with three individual defendants required to pay $8.3 million, $158,000, and $736,300, respectively, and to surrender various assets. The remainder of the total judgment is suspended upon the completion of the individuals’ respective payments and surrender of assets, conditioned on the “truthfulness, accuracy, and completeness” of the sworn financial representations. Moreover, among other things, the order prohibits the operation from (i) making misleading claims of potential earnings or misrepresenting the time or effort required by consumers to “attain proficiency” in the operation’s trading strategy; and (ii) restricting customers from communicating with law enforcement or posting negative reviews. Additionally, the operation must notify all clients of their rights to post honest reviews and to file complaints.
9th Circuit upholds $50 million order in FTC action against publisher
On September 11, the U.S. Court of Appeals for the Ninth Circuit, in a split decision, upheld the district court order requiring a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals and failed to adequately disclose publication fees in violation of the FTC Act. As previously covered by InfoBytes, in an action filed in the U.S. District Court for the District of Nevada, the FTC alleged the defendants misrepresented that their online academic journals underwent rigorous peer reviews; instead, according to the FTC, the defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. Additionally, the FTC alleged that the defendants failed to disclose material fees for publishing authors’ work when soliciting authors and that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation. The district court agreed with the FTC and, among other things, ordered the defendants to pay more than $50.1 million in consumer redress.
On appeal, the split 9th Circuit agreed with the district court, concluding that the defendants violated the FTC Act, noting that the despite the “overwhelming evidence against them,” the defendants “made only general denials” and did not “create any genuine disputes of material fact as to their liability.” The appellate court emphasized that the misrepresentations made by the defendants were “material” and “did in fact, deceive ordinary customers.” Moreover, among other things, the appellate court held that the defendants failed to meet their burden to show that the FTC “overstated the amount of their unjust gains by including all conference-related revenue.” Specifically, the appellate court determined that conferences were “part of a single scheme of deceptive business practices,” even though the conferences were individual, discrete events. Because the marketing was “widely disseminated,” the court determined that the FTC was entitled to a rebuttable presumption that “all conference consumers were deceived.”
In partial dissent, a judge asserted the FTC “did not reasonably approximate unjust gains” by including all conference-related revenue, because “the FTC’s own evidence indicates that only approximately 60% of the conferences were deceptively marketed.” Thus, according to the dissent, the case should have been remanded to the district court to determine whether the FTC can meet its initial burden.
HUD works with online search platform to improve FHA compliance
On June 11, HUD announced that it worked with an online search platform to better align the platform’s advertising policies with the requirements of the Fair Housing Act (Act)—specifically, the Act’s prohibition on discriminatory advertising in connection with the sale, rental, or financing of housing, with HUD noting that the prohibition “includes restricting who sees housing-related ads on these bases.” HUD states that the online search platform adopted a policy that prohibits “advertisers from engaging in certain discriminatory practices when placing housing-related ads using [the platform]’s advertising services” and has indicated that it will continue to work with HUD to uphold the principles of the Act in the online and targeted advertising space. The announcement notes that HUD will continue to review online advertising platforms to ensure compliance with the Act.
FDIC seeks input on modernization
On February 19, the FDIC issued a notice and request for comment regarding modernizing “its signage and advertising requirements to better reflect how banks and savings associations currently operate and how consumers use banking services.” The Request for Information (RFI) solicits input on how the agency “can revise and clarify its sign and advertising rules related to FDIC deposit insurance.” Major changes to these rules have not been made since 2006, and the agency states that “the rules do not reflect evolving banking channels and operation.” Accordingly, the RFI also requests suggestions about how the FDIC can use technology or other solutions to help consumers distinguish FDIC-insured entities from nonbanks, and to prevent consumers from being harmed by non-insured entities’ potentially misleading or fraudulent representations. The RFI lists 21 questions to focus the public input. Comments must be received by March 19.
SEC suit alleges fraudulent ICO
On January 21, the SEC announced that it filed suit in the U.S. District Court for the Eastern District of New York against a blockchain company and the company’s founder (defendants) for allegedly “conducting a fraudulent and unregistered initial coin offering (ICO).” The SEC alleges, among other things, that from 2017 until 2018, the defendants raised $600,000 from nearly 200 investors through promoting an ICO of digital asset securities called “OPP Tokens,” using material misrepresentations to create the false impression that the defendants’ platform was creating notable growth in the company. The defendants marketed the tokens by making misstatements to potential investors, greatly exaggerating the numbers of providers that were “willing to do business on, and contribute content to, [defendants’] blockchain-based platform.” The complaint also alleges that in marketing the ICO, the defendants provided a catalog of small businesses eligible to use the defendants’ platform that numbered in the millions, in order to create the false impression that the platform had a huge base of users. In reality, the catalog was not compiled by the defendants, but was simply acquired from a vendor. Additionally, the SEC alleges that the defendants provided numerous customer reviews in its promotions to create the impression that the platform had many users creating content, which were actually reviews stolen from a third-party website. The SEC charges that in addition to the above allegations, the defendants misrepresented that they had filed an SEC registration statement for the ICO. The SEC seeks injunctive relief, disgorgement of profits, civil money penalties, and a permanent bar preventing the founder from serving as officer or director of any public company.