In November 2011, the FTC sought public comment on the Rules as part of its regular review of all current FTC rules and guides.  In response to the comments received, the FTC has released its proposed changes designed to clarify and update the Rules. Overall, the amendments are supposed to make the Rules more flexible, giving businesses more compliance options without imposing significant new obligations.  Below are the highlights woven into the proposed changes:

1. Fiber Names

The Rules require that product labels identify manufactured fibers using the fiber’s generic names.  The proposed changes would ease barriers to international trade by permitting fiber names used in the revised International Organization for Standardization’s standard for man-made fiber names.

2. Hang-Tag Disclosures

Currently, the Rules require a full and complete fiber content disclosure on product hang-tags.  The FTC proposes revising this rule to allow truthful non-deceptive information about fibers on hang-tags, as long as the product has a label with full fiber content information as required by the Act and Rules.  To prevent any consumer confusion, unless the hang-tag discloses the product’s full fiber content or the product is entirely made of that fiber, the FTC would require a disclosure such as:  “This tag does not disclose the product’s full fiber content” or “See label for the product’s full fiber content.”

3. Country of Origin Disclosures

The Rules require labels to disclose the country where the product was processed or manufactured.  Recognizing differing views on how to determine the country of origin, FTC’s amendments would clarify that U.S. Customs law is the decisive factor.

4. Guaranties

The Act provides that a business can avoid liability for selling a misbranded textile product if it received a good faith guaranty from the supplier that the product is not misbranded.  The proposed amendment would require an annual certification in place of the current requirement that suppliers provide a guaranty signed under penalty of perjury.  The annual renewal process would ideally encourage guarantors to take steps to ensure they’re still in compliance over time and thereby increase the guaranties’ reliability.  Retailers could only get such guarantees from domestic manufacturers or domestic companies that import goods and could not take advantage of the safe harbour if the retailer imported goods itself.  As we noted before, earlier this year the FTC announced an enforcement policy under which the agency will not bring an enforcement action against a textile importing retailer as long as the retailer does not add to or embellish the claims of the manufacturer and the retailer does not sell the goods as private label unless the retailer knew or should have known the products do not comply with the Textile Act.  This policy is reiterated in the federal register notice. 

The FTC is currently seeking comments on the costs and benefits of the proposed changes.  Comments must be received by July 8, 2013.

Amy Mudge and Matt Rabinowitz

Perhaps that’s the dilemma the FTC faces as the keeper of the self-proclaimed most popular federal program -- The Telemarketing Sales Rule (“TSR”).  The TSR has already been amended 3 times in the last 10 years.  Now in an effort to keep pace with a rapidly evolving marketplace and the boundless imagination of those who would seek to defraud consumers the FTC has proposed yet another series of changes to the TSR.

The Telemarketing Sales Rules is probably best known for its Do Not Call provisions.  However, it regulates a great deal more.  For example, it regulates when calls can be made, prohibits certain misleading representations and limits the use of certain types of fees.

The FTC’s proposed amendments cut a broad swath across the TSR.  Perhaps the most significant proposed change involves a ban on four increasingly common forms of payment.

They are:

• “Remotely created” unsigned checks and payment orders that the FTC believes make it easier to debit bank accounts without permission;
• Cash to cash money transfers which involve a sender providing money to a money transfer company, such as Western Union and a recipient who claims the funds at the other end;
• Cash reload mechanisms which allow consumers to load cash onto either their own or someone else’s prepaid debit card by supplying an authorization code.

The FTC justified its proposed ban on several grounds.  First, unlike credit card transactions, there are few federal protections available to consumers who feel they have been defrauded and little or no ability by third parties to monitor complaints or refund requests associated with these types of transactions.  Second, it is almost impossible for consumers to get refunds from fraudulent telemarketers since these forms of payments are essentially equivalent to cash, and, in some cases, it may not be possible for the consumer or even regulators to identify who the actual recipient of the funds was.

The FTC is also proposing one other more minor expansion of the TSR.  The current ban on upfront fees for promising to assist consumers in recovering losses from earlier telemarketing transactions would be expanded to cover losses from any prior transactions.

Finally, the FTC is proposing several changes to the TSR to better reflect its current interpretation of the Rule. These are:

• Any recording of a consumer’s express verifiable authorization must also include a description of the product they are purchasing;
• The telemarketer has the burden of proof with regard to whether there is an existing business relationship with the consumer or they have express written consent to contact a consumer on the Do Not Call Registry;
• The Business to Business exemption applies only to calls intended to bring about a sale or a contribution from a business and not calls targeted to persons employed by that business;
• The prohibition against companies sharing the cost of Do Not Call Registry fees is absolute; and
• Prohibiting companies that receive requests from consumers to be placed on their do not call lists from harassing such persons, imposing any conditions on such a request, such as listening to a sales pitch or avoiding having to honor such a request by terminating the call.  In addition, if such a consumer is subsequently called the company cannot claim inadvertent error if they failed to obtain the information necessary to honor the consumer’s request. 

The deadline for comments on these proposed amendments is July 29, 2013.

Randy Shaheen and Amy Mudge

On July 1, 2013, sweeping new regulations for marketing to children take effect. In updating the Children's Online Privacy Protection Act (COPPA) Rule, the Federal Trade Commission (FTC) has extended its reach to new businesses and new information.

In this upcoming session presented by the Direct Marketing Association, panelists including Venable's Stu Ingis and Julia Kernochan Tama will walk through the COPPA Rule changes, take a deep dive into the FTC's "Complying with COPPA" FAQs, and answer your questions about how to stay on the right side of the regulators. DMA's Jerry Cerasale, Senior Vice President for Government Affairs will also present.

May 30, 2013
2:00 PM – 3:00 PM ET
Click here to register.

To make sense of the new Vermont law, we need to begin, as usual, at the beginning.  The basic truth of promotions law is that an illegal lottery has three elements: (1) prize (something of value, even if it’s nominal); (2) chance (the winners are selected on some random basis); and (3) consideration (something of value that’s given to enter).  In order for a company to steer clear of illegal lotteries and run a legal promotion, it must ensure that at least one of these elements is not present.  In a sweepstakes, for example, the third element (consideration) is eliminated when sponsors provide a free alternative method of entry.

Contests (games of skill) are usually treated differently.  Because the chance element is absent in a skill contest, the sponsor can generally ask for consideration without violating state lottery laws—at least, in most states in the U.S.  Before Vermont passed the new law, the state was one of the few jurisdictions that still prohibited sponsors from charging consideration to enter in skill games.  But with the new law that just became effective, Vermont now allows contest sponsors to charge entry fees or require a purchase to enter a contest.   

As for the other states, a dwindling number of places continue to prohibit consideration in skill contests, though the prohibited category is usually limited to skill contests that require purchase or payment to participate.  For example, Maryland prohibits a purchase or payment requirement for skill contests in which the prize values are greater than $200; Colorado and Arizona also prohibit monetary consideration in such contests, though Arizona may permit some registered intellectual contests.  In California, consideration is generally permitted in real games of skill, but if the contest involves a tiebreaker round that qualifies participants for additional prizes, then the sponsor generally cannot require the payment of money to enter the tiebreaker round.

With its new law, Vermont has broken with its nonconformist reputation and joined the majority by allowing consideration in skill contests.  Perhaps this move will encourage the other hold-out jurisdictions to follow its lead.

Melissa Landau Steinman and Maura Marcheski

And the NAD made good on this in a recent case brought by the Gillette Company challenging Energizer Personal Care Schick Hydro Silk Razors.  We will not delve into the detailed discussion of substantiation for moisturization provided by shaving (but needless to say NAD has developed quite a body of precedent on the topic for those who are interested).  The issue in this case was whether Energizer was able to substantiate its promise that its razor "moisturizes for up to two hours after shaving".  In examining the evidence, the NAD said they would expect "that advertisers making "up to" claims should be able to demonstrate that a substantial percentage of consumers are likely to acheive maximim results promised under normal circumstances".   The NAD found this claim supported by lab testing.  Unfortunately NAD also found that the television ads depicting women engaged in activities like jump roping and playing volleyball where the rope or ball transforms into water splashing on their legs conveys a reasonable message that the moisturizing benefit lasts longer than two hours, a claim for which there was not support. 

But this is good news for advertisers who have been concerned about a sea change in how "up to" claims are reviewed.  The FTC has not brought additional cases and NAD is holding to prior precedent, at least when it needs to interpret claims without the benefit of sound surveys.

Amy Mudge and Randy Shaheen

Most recently, on May 8, the FTC hosted a roundtable on the topic, gathering consumer advocates, government regulators, and industry representatives to explore how mobile cramming occurs and current and possible strategies to reduce the problem.  Among the points of disagreement that emerged between the panelists were the scope of mobile cramming and how to measure the problem, as well as the need for government-imposed regulation.  The lack of consensus on the former issue is particularly significant because how one thinks the problem is “solved” is determined largely by how one measures and views the scope of the problem. 

Various panelists representing consumers and government entities expressed concern about the scope of mobile cramming, including that individuals do not understand that they can be charged for third-party goods and services on their mobile telephone bills and that charges appear on bills without consumer authorization.  The Senior Vice President and General Counsel of CTIA, an organization that represents the wireless communications industry, countered the evidence that was cited, stating that he had not seen “a spike or a trend in complaints” to certain agencies which reflects that mobile cramming is a “growing problem,” even with the increased adoption of smartphones. 

An Assistant Attorney General at the Office of the Vermont Attorney General expressed concern about using complaints and refund rates to measure the scope of the problem.  The General Counsel of CTIA also expressed concern with the use of refund rates to reduce the problem, but for another reason: carriers may be very generous with providing refunds and extending refunds over a period of months, thereby increasing their refund rate.  Another panelist criticized the use of refund rates to reduce mobile cramming as premature.

Another interesting, yet expected, topic of disagreement was the need for government-mandated regulation.  The mobile business is fast-changing and continually evolving, counseling caution in imposing rigid rules that solve today’s problem but not future unforeseen problems.  The General Counsel of the Mobile Marketing Association and the General Counsel of CTIA generally expressed these concerns.  Other panelists, though, indicated that government-imposed rules are necessary and that self-regulation has proven insufficient.

While the panelists did not agree on every topic of discussion, one thing was clear.  As stated by the General Counsel of CTIA, “Nobody wants unhappy consumers, consumers who have been misled, [or consumers] who haven’t consented to the services that they receive and are charged for.”  Agreeing on that proposition is easy; figuring out the means and methods to achieve those things is hard.

The FTC concluded the workshop by announcing that they will write a report on the workshop (as they did for a recent workshop on mobile payments) and continue to monitor developments in the area and to bring enforcement along the lines of the case it recently filed against Wise Media, LLC.

Maggie Grace and Amy Mudge

Consumer products companies are constantly working to improve their products and often they want to communicate those improvements to consumers.  That’s a good thing and helps spur companies to innovate and improve their products.  But the FTC has brought actions against companies that have touted their products as “new” for too long with some “grace” allowed for time products may have spent in test markets.  The networks have similar standards; ABC, for example, permits such claims for up to a year after a product has achieved substantial distribution. NAD has also cautioned companies against making “improvement” claims that do not provide meaningful benefits and or against products that are no longer available.
 
Of course, older doesn’t always mean worse, as Coke was reminded when it introduced “New Coke;” as we constantly remind our kids and as a luxury brand auto maker reminds us in this commercial pitting Old Spock against New Spock.

Randy Shaheen and Amy Mudge

It’s not always easy to tell who is the “target audience” for an advertisement.  Many years ago RJ Reynolds was embroiled in a dispute with the FTC over whether its use of a Joe Camel cartoon character to promote its Camel brand of cigarettes was targeted to minors.  When it comes to television or print advertising companies often avoid “targeting” children by placing ads only on shows or periodicals that have adult demographics above a certain threshold. 

A billboard in Spain regarding child abuse provides a new option.  The ad uses lenticular image (if you’re like us and had no idea what this means, click here) to display a slightly different message for adults and children (or at least adults and children of average height.)  Anyone taller than 4’5” sees the message “sometimes child abuse is only visible to the child suffering it.”  Anyone shorter than that sees a picture of a child with bruises and a different message – “if somebody hurts you, phone us and we’ll help you" alongside the foundation's phone number.  The idea is to allow abused children to see the message and not their abuser who may be there with them.  So technology may make it easier, in some instances, to determine who an ad is targeted to.  However, the use of such technology can raise problems as well.  For example, what’s the value of a disclosure like “batteries not included” in a toy advertisement that only children can see if the child doesn’t read very well.  And suppose the technology allows you to target certain groups but not with 100% certainty; for example, some adults are shorter than 4’6”.  In such instances at what point does the technology work so imprecisely that a company can no longer claim it “targets” certain groups.  No doubt these questions will be sorted out as targeting technologies are targeted and utilized.  And the fact that, like most technology, it may be used both well and poorly means that lawyers and regulators will undoubtedly be busy keeping up with a rapidly evolving marketplace.

Randy Shaheen and Amy Mudge

On May 1, 2013, Judge William F. Kuntz, II of the Eastern District of New York denied a motion to reconsider his earlier decision dismissing claims arising under the Telephone Consumer Protection Act and its accompanying rules and regulations for lack of subject matter jurisdiction. See Bank v. Independence Energy Grp. LLC. The Bank Court had dismissed the TCPA claims in reliance on a Second Circuit precedent, which interpreted the TCPA to bar claims in New York federal court because New York State’s civil procedure rules do not permit statutory class actions. See Holster III v. Gatco, Inc.

In denying the motion to reconsider, Bank addressed an issue not covered in its prior decision, and held that the Second Circuit’s Holster III decision was still good law after the Supreme Court’s subsequent decision in Mims v. Arrow Financial Services, LLC. Mims had held that federal and state courts have concurrent jurisdiction over private actions brought under the TCPA. The Mims decision contains language that would appear to undermine Holster III, for example: “Congress did not deprive federal courts of federal-question jurisdiction over private TCPA suits.” Bank found that such language was dicta, noting that the issue in Mims was whether TCPA claims could be brought in state court, not whether they could be brought in federal court. The Bank Court also found that the statutory interpretations in Mims and Holster III did not conflict. For these and other reasons, Bank concluded that Holster III remains the law in the Second Circuit until further notice.

The Bank plaintiff has stated publicly that his next call is to the Second Circuit. Stay on the line for further developments.

If you would like to read our client alert on the initial decision dismissing the TCPA claims, click here.

Edward Boyle and Michael Hartmere

MTOR, which was issued in 1975, requires marketers who solicit customers via mail or telephone to have a reasonable basis for expecting that the sellers can ship within the advertised time frame, such as “allow 2-4 weeks for delivery.”  If no time frame is specified, marketers must be able to ship the merchandise within 30 days.  If sellers cannot ship within the promised time, they must obtain the buyer’s consent to delay.  The FTC last sought comments on MTOR in 2007.  Based on those comments, the Commission proposed amendments in 2011 to clarify:

• That MTOR covers orders placed over the Internet;
• That sellers may provide refunds and refund notices to buyers by any means at least as fast and reliable as first-class mail;
• Sellers’ obligations when buyers use payment methods, such as debit or pre-paid gift cards, that are not spelled out in MTOR; and
• How refunds are made to consumers who pay with third-party credit products, such as Visa or MasterCard cards, and credit products where the seller is the creditor.

The report details these recommendations that the Commission revise MTOR to respond to new methods of accessing the Internet and making payments and refunds.  The FTC will accept comments on the report until July 15, 2013.

Click here to read the FTC’s press release, access a copy of the FTC’s staff report, and learn how to submit comments on the report.

Amy Mudge and Randy Shaheen