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Venable Sponsored Workshop 2
- 1. FTC And State Attorneys General:
How To Avoid Being Investigated
And What To Do If Your Company Is
ad:tech
April 21, 2009
San Francisco
Milo Cividanes Lisa Jose Fales
mcividanes@venable.com ljfales@venable.com
202.344.4414 202.344.4349
Tom Cohn Todd Harrison
tacohn@venable.com taharrison@venable.com
212.370.6256 202.344.4724
© 2008 Venable LLP
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- 3. FTC Overview
FTC pursues deceptive practices under Federal Trade
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Commission Act (“FTC Act”), 15 U.S.C. §45 et seq:
– Section 5 prohibits “unfair or deceptive acts or practices.”
– Section 13(b) authorizes FTC to file suit in United States District
Court.
– Truth in Lending Act requires disclosure of terms of loans.
A representation, omission, or practice is deceptive if it is likely
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to:
– Mislead consumers; and
– Affect consumers’ behavior or decisions about product/service.
• Not required to prove actual deception
• Marketing materials must be truthful, not misleading, and
substantiated. The same rules apply to the Internet.
An act or practice is unfair if the injury it causes, or is likely to
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cause, is:
– Substantial; not outweighed by other benefits; and
not reasonably avoidable.
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- 4. How the FTC Interprets Marketing
Claims
From perspective of quot;reasonable consumerquot;
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Net impression of the creative
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Analysis of “expressquot; and quot;impliedquot; claims
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What the creative does not say - that is, if the failure to
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include information leaves consumers with a
misimpression about the product
Is claim material? - important to a consumer's decision
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to buy or use the product
Does the advertiser have proof before the creative
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runs? (substantiation)
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- 5. Disclosures
Disclosures must be:
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– sufficiently clear;
– prominent; and
– understandable to prevent deception.
Other factors:
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– clarity of language;
– relative type size;
– proximity to the claim being qualified; and
– an absence of contrary claims that could undercut
effectiveness.
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- 6. FTC Investigative and Enforcement
Process
May issue Civil Investigative Demand (“CID”) requiring
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production of documents and information;
May file suit in U.S. District Court to enjoin any act or
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practice that is in violation of any law enforced by FTC;
Frequently pursues temporary restraining order (“TRO”)
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to freeze both business and personal assets;
Propose settlement through “consent decree,” often
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requiring the cessation of the challenged business
activities, consumer restitution and more.
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- 7. FTC Investigative and Enforcement
Process
FTC can and will, under appropriate circumstances, hold
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company individuals liable.
– FTC may pursue civil prosecution of individuals that
participated in the advertising or had knowledge that the
claims or representations were false.
– An individual has knowledge if he or she had actual
knowledge of material misrepresentations, a reckless
indifference to the truth, or an awareness of a high
probability of fraud together with intentional avoidance of
the truth.
– FTC often holds individuals liable where the
advertiser/marketer is a small company and the charged
individuals were involved in the creation of the ads or
creatives.
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- 8. State Enforcement Process
Similar to FTC process:
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– Power to issues CIDs;
– May pursue temporary or permanent injunctions;
– May pursue TROs;
– Often seek payment of significant attorneys fees and
costs.
For businesses that operate in more than one state
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there is risk of multiple or consolidated State
actions.
In some cases, FTC and State may join forces to
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investigate or file suit against a company.
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- 9. Best Practices
Design advertising and marketing materials to comply with
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FTC and State laws governing deceptive practices and
consumer credit;
Educate your employees (and former employees) to
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immediately contact your company’s attorney if they are
contacted by the FTC or a State Attorney General’s Office;
Educate employees not to talk with the FTC or a State
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Attorney General’s Office without counsel present;
If the FTC or a State Attorney General has initiated an
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investigation against your company, do not destroy or alter
any document.
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- 10. FTC Actions Against Online
Marketers/Affiliates
FTC has successfully sought injunctions against Internet
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marketers and their affiliates.
– Federal Trade Commission v. Innovative Marketing Inc. (D. Md. 2008)
• Court ordered asset freeze; prohibited defendants from making certain
representations in the marketing of software security products; ordered
shut down of websites; and imposed financial reporting obligations.
• Court ordered defendants to provide the FTC with the identification of
its affiliate marketers and sub-affiliate marketers.
– FTC v. ERG Ventures, LLC (D. Nev. 2006).
• Defendant deceived consumers into downloading exploitive software
by hiding exploitive code within the free software offered to the public.
• Court ordered an asset freeze and required defendants to halt unlawful
conduct, preserve business records, provide the FTC with detailed
financial information.
• Court required defendant to provide a copy of the order to each affiliate
marketer, sub-affiliate, etc., and to provide the name and address of
each such entity to the FTC.
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- 11. FTC Actions Against Online
Marketers/Affiliates
FTC has successfully sought settlements against marketers advertising
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“foreclosure rescue,” “debt relief,” or “credit repair” programs.
Newly-appointed FTC Chairman Jon Leibowitz recently testified before a
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U.S. House Committee that the FTC intends to be more aggressive in
pursuing unfair and deceptive practices in the areas of mortgage loans and
foreclosure consultants, debt negotiation, payday loan lenders, credit
repair, and debt collection.
– Mortgage Foreclosure Solutions, Inc. (1/8/2009)
• Company claimed that for $1,200 fee it could stop foreclosure.
• Defendants agreed not to make false representations in future
advertisements.
• Imposed a judgment of $1,178,920 (all but $8,320.84 suspended
because of defendants’ inability to pay).
– Debt-Set and Resolve Credit Counseling, Inc. (2008)
• Agreed to settle FTC charges alleging that they violated federal law by
falsely claiming that they could reduce consumers’ credit card interest
rates or the amount of their credit card debt. Settlement orders contain
suspended monetary relief of $1 million.
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- 12. FTC Actions Against Online
Marketers/Affiliates
FTC has successfully sought civil penalties against Internet
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marketers and their affiliates for sending deceptive emails in
violation of CAN-SPAM.
– ValueClick Settlement (2008)
• Agreed to pay $2.9 million to settle charges that its advertising and e-
mails violated CAN-SPAM.
• Settlement required ValueClick to include clear and conspicuous
disclosures in future advertisements.
– FTC v. Global Net Solutions, Inc. et al (2005)
• Defendants agreed to pay $621,000 to settle FTC charges that they
sent millions of illegal e-mail messages – including sexually explicit
messages – in violation of federal law.
• Although an affiliate sent many of the e-mails at issue, the FTC argued
that under CAN-SPAM, all of the defendants who paid others to send
the email were responsible for the e-mails.
• The settlement required defendants to collect certain information about
an e-mail campaign, as well as information about affiliates, before they
begin a campaign. Defendants were required to sample new
subscribers to their Web site to make sure the affiliates are complying
with the settlement order when sending out marketing e-mails.
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- 13. FTC Actions Against Online
Marketers/Affiliates
FTC has successfully sought civil penalties against Internet
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marketers and their affiliates for sending deceptive emails in
violation of CAN-SPAM (con’t).
– FTC v. Cleverlink Trading Limited et al (2006)
• Defendants and its partners agreed to give up $400,000 in ill-gotten
gains to settle FTC charges that their spam, or that of their affiliates,
violated federal law. One of the operators charged was a
professional “button pusher,” who used spam to drive traffic to Web
sites run by third parties.
• Settlement required extensive monitoring of their affiliates for future
violations.
– FTC v. Olson et al (2006)
• Two spam merchants who hijacked consumers’ computers and
turned them into spamming machines agreed to a $45,000 judgment
(suspended) to settle FTC charges that they sent illegal e-mails
hawking mortgage opportunities, a device for improving gas
mileage, and other products and services.
• Part of FTC’s crackdown on “button pushers,” i.e., persons who
send spam while concealing the identity of the real sender.
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- 14. State Enforcement Actions
Florida
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– Azoogle (2007)
• Florida has launched a CyberFraud Task Force.
• Reached settlement with Azoogle for $1,000,000
concerning internet marketing of cell phone products.
California
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– FTC and California v. Optinglobal et al (2006)
• In 2006, the California Attorney General and the FTC
brought suit against defendants that allegedly used third-
party affiliates to send emails advertising mortgage loans
and other products and services.
• The order imposed a $2.4 million judgment - representing
the total of the defendants’ ill-gotten gains. Based on
financial records provided by the defendants, the judgment
was suspended upon payment of $385,000 in cash and
approximately $90,000 from the sale of real property.
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- 15. State Enforcement Actions
Washington
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– Initiated multiple lawsuits against affiliate marketers under the
state Computer Spyware Act passed in 2005.
– Washington v. Securelink Networks, LLC and NJC
Softwares, LCC
• Each defendant agreed to pay $400,000 in civil penalties
and $141,000 in attorneys’ fees and costs.
• One affiliate marketer that settled AG complaint agreed to
pay $25,000 in attorneys’ costs and fees.
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