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Best in Show: Five February Ad Law Headlines

While February is the shortest month (and for us Richmonders, the one with the strangest weather), it was not without an abundance of advertising law updates and headlines.  Below, I’ve summarized my top Five for February, although there was so much content that it was hard to just pick five). In the interest of space and attention span, I’ve narrowed it down. Time to March on.

1. An Ineffective Asterisk

A California federal court ruled that a disclaimer cannot save an otherwise false claim made in an advertisement.  Defendant in this case sold biotin supplements with the claim “May support health hair, skin, and nails”, with an asterisk next to the claim.   Follow the asterisk to the back of the label which then stated “Biotin may help support healthy hair, skin, and nails in those that are biotin deficient”. Plaintiffs alleged that the claims were false and misleading because the product didn’t actually provide any benefit to the general population.   As the court found, the vast majority of the general population (more than 99.9%) already has enough biotin in their systems from daily diet and that this population could be “misled” by the produce representations.   Further, the judge found that an asterisk next to one claim is not enough to lead the reasonable consumer to the back of the label for the fine print, and even if it was, the disclaimer was itself lacking in substance.  Bottom Line: There are risks using an asterisk or other symbol to try and amend an otherwise faulty claim.

2. Made in Canada?      

If you bought an Asahi beverage between April 2013 and December 2018, and thought you were buying a genuine Japanese brewed beer because of the Japanese characters on the bottle, you’re not alone.  Asahi, a Canadian beer, used Japanese script and characters on the labeling and packaging, which, the plaintiffs claimed, led reasonable consumers to think the beer was Japanese.  Asahi paid attorney’s fees of $765,000 and an estimated $300,000 for administrative expenses, in addition to fees to each member of a very large class action. Beer is big industry and consumer actions alleging false advertising based on the brewing location of various beverages have been popular in recent years.  Asahi beer bottles will soon have “Product of Canada” displayed prominently.  Bottom Line:  Growth and increasing competition in this industry will cause regulators and consumers alike to pay close attention to the advertising of alcoholic beverages. Don’t brew up fabricated marketing ploys.

3. Mastercard is The Master

Merchants of Mastercard who sell physical items such as clothing, skincare and healthcare items, will now have additional obligations when offering “free trials”, also known as negative options or subscription-based marketing.

In addition to the FTC regs on negative options, the federal Restore Online Shoppers’ Confidence Act (“ROSCA”), and the state laws, Mastercard merchants now must comply with Mastercard’s new free trial rules.  Mastercard recognizes that free trials are a legitimate business tool, however, especially in the health care product space, these free offers “can unwittingly turn into a recurring product subscription that is difficult to cancel” and that its new rules will help to “increase transparency.”  Changes are set to take effect this April and will require certain data be provided to the cardholder for each transaction.  Bottom Line: The FTC has taken notice of the risks of negative option offers to consumers, and now industry is too. If you fit into one of the Mastercard categories, pay attention to these new regs.

4. Bots and Puppets

New York and Florida Attorney Generals announced a settlement against a company called Devumi who sold fake social media followers and engagements to help influencers boost their reach and appeal to advertisers.  This is a first enforcement action against the sale of fake social media. 

Devumi used both bots (accounts operated by computers) and sock-puppet accounts (accounts operated by one person pretending to be many people) in order to generate followers and engagements for influencers. It also copied social media accounts of real people (without their knowledge) to make the fake accounts appear to be legitimate.  

Devumi earned almost $15 million in revenue through its sale of phony followers and engagements. The practice became so widespread that in 2017, Facebook estimated that up to 60 million accounts on the platform were fake.  Devumi duped its users and their followers, journalists and researchers who use follower counts to attribute certain attributes to politicians and policies, and the social media platforms themselves by committing violations of their anti-fraud policies. Operations ceased in mid-2018 and the company was forced to pay fines and attorney’s fees.  Bottom Line: Don’t sell fake followers and accounts.  Fraud using fake accounts is still real fraud.

5.  Musical.ly’s Practices – Not Music to the FTC’s Ears

Musical.ly is one of the most popular apps for budding rock stars and tweens alike. You can create videos, synch with your favorite Miley Cyrus song, and interact with other users.  But recently the FTC, thanks to some quick referral work by the Children’s Advertising Review Unit (“CARU”), has alleged that the ap violated the Children’s Online Privacy Protection Act (“COPPA”) by collecting personal info from these little stars without parental consent.     

As the FTC states, COPPA applies to “operators of websites and online services that: 1) are directed to children and collect personal information from them, or 2) are directed to a general audience, but have actual knowledge they’re collecting personal information from kids”.   If a site meets just one of the two criteria (and Musical.ly met both), it must get parental consent before collecting personal information from children under 13.  The complaint lists numerous violations of COPPA by Musical.ly and in addition to the almost $6 million civil penalty, the app will be changing its tune must change its tune when it comes to data collection practices.  Bottom Line: Remember that COPPA is broad reaching and applies to both apps and websites that expressly target children, and to apps and websites that know they are colleting such data, regardless of children being their target audience.

Addie Johnson