Hot Topics in Advertising Law for 2013

With 2013 now officially underway, I am highlighting some hot topics in advertising law.  We will continue to see developments in these areas, whether judicial or legislative in nature. The most proactive step a brand can take to avoid legal risk is to allocate some of its crisis budget to audit its advertising and marketing practices early in the year.

• GREEN CLAIMS: The Better Business Bureau’s National Advertising Division recommended that GreenPan, the maker of non-stick cookware, should modify or discontinue advertising claims that its products are “eco-friendly” and “healthier and safer” than other non-stick cookware. This is just one example of the increasing regulatory attention to green claims. In addition, the FTC in late 2012 announced revisions to its Green Guides, so we will undoubtedly see regulatory activity in 2013 concerning environmental claims in advertising.

• HEALTH CLAIMS: Class action challenges to health claims were on the rise in 2012. Last year, All Market, Inc. agreed to pay $10 million to settle a class action that it misrepresented the health benefits and nutritional benefits of its coconut water. Similarly, the maker of Nutella will pay almost $7 million to settle charges that it made false advertising claims regarding Nutella’s nutritional attributes.  While many of the class actions regarding use of the word “natural” have failed, a federal district court judge in California recently allowed class action claims against Hershey for its use of “natural” to continue through the court process. This case came on the heels of increased investigation of health claims by the Federal Trade Commission (FTC), state Attorneys-General, as well as class action, watchdog group and industry lawsuits. In addition, marketers need to pay attention to the shifting requirements for substantiation. The FTC has been pushing for two double-blind, controlled clinical trials, more frequently associated with drugs than foods.  Marketers of health foods and food-derived products, supplements, neutraceutical products, and weight loss products should conduct an audit of their advertising claims and marketing practices. This audit should include a review of claims and their underlying substantiation to ensure they are not deceptive, exposing the brand to expensive legal risk. (For a more in-depth look at the legal issues in this area, click here.)

• MARKETING TO CHILDREN: With the FTC having released its revised Children’s Online Privacy Protection Act (COPPA) guidelines at end of 2012, we can expect the agency to be keeping a close eye on companies that market to children under age 13. The new guidelines add geolocation information, photographs, and videos to the list of “personal information” that require parental notice and consent for collection. They also extend COPPA’s requirements to cover “persistent identifiers,” such as IP addresses and mobile device IDs. While the guidelines now offer less cumbersome methods for obtaining parental approval, they strengthen requirements for data security. At the same time, the FTC issued its second report  surveying privacy procedures for apps aimed at kids and found little progress in protecting children’s privacy. It urged marketers to develop more clear policies on the collection, use, and sharing of children’s data, and of course, policies are only helpful if brands adhere to them. All in all, marketers need to know that if they are marketing to children, they need to proactively work towards transparency and data protection.  This is sure to be an active regulatory area in 2013.

• PRICING PRACTICES: The FTC warned 22 hotel websites that they may be engaging in deceptive marketing practices by engaging in “drip pricing”, namely advertising a small portion of a product’s total price and then adding in costs as the buying process continues. Similarly, the recent class action settlement with Toys “R” Us exposes risk with refund policies, calling pricing into question when a consumer returns one item in a “Buy one, Get one Free” offer.  Pricing practices have always been an exposure spot for brands, but as social media proliferates, the short amount of space means many advertisers are taking shortcuts to draw in buyers, potentially incurring more legal risk.  Other pricing strategies, such as negative option marketing and “free” offers, also attracted attention in 2012. For example, the FTC settled its investigation of Green Millionaire, LLC, imposing nearly $6 million for consumer redress after investigating the company’s “free” offer. Pricing practices with coupons, premiums, and rebates have always been an exposure spot for brands, but as social media proliferates, the short amount of space means many advertisers are taking shortcuts to draw in buyers, potentially incurring more legal risk.

• PRIVACY: California’s recent activity against apps that did not properly publicize their privacy practices is a lesson for all in the mobile space. In addition, the California Attorney General’s January recommendations for the mobile industry stresses “surprise minimization” and should cause all businesses working in the mobile space to retain legal counsel and examine their privacy policies and data collection practices (particularly if marketing to children as discussed above).  In addition, the FTC has announced a technology initiative to better address the problem of “robocalls” and protect consumer privacy. Privacy concerns also continue to plague non-mobile marketing sites as well. With a maze of legislation developing, businesses need to review their data encryption procedures, their crisis intervention procedures, and their consumer notification procedures. Large or small, all businesses need to assemble a data security team that includes their information technology personnel, their public relations agencies, and their legal advisors. This team should be creating preventive policies as well as emergency coping plans.  In addition, as we enter 2013, privacy in the workplace has become a regulatory concern. Six states now ban employers from asking for social media passwords: California, Delaware, Illinois, Maryland, Michigan, New Jersey.  Other states, such as Nebraska and New Hampshire, have similar legislation pending. While the United States is far away from the European model that protects privacy above all, marketers need to assume that consumers and employees have some privacy rights, unless they waive those rights by putting their information in public. (Query: What happens when recent college graduates find out that all those Snapchat photos and videos are accessible? Will our society’s notions of privacy change?)

• PRIZE PROMOTIONS:Sweepstakes and contests are highly regulated in all states. They require legal due diligence and examination of the thorny issues of consideration, alternate method of entry, skill, and prize structure. Certain industries, such as dairy and alcohol, are even more highly regulated. A positive trend as we enter 2013 is that for the first time, alcoholic beverage suppliers will be able to run sweepstakes in California. Of course, this does not mean that these sweepstakes can escape legal vetting, as other complex rules govern their organization. In addition, marketers in 2013 should not only be sure their promotions pass legal muster with the 50 states, but also do their best to interpret various social media sites’ requirements when running sweepstakes and contests. Pinterest introduced business accounts and its own promotion guidelines in December, 2012. Pinterest’s guidelines prohibit encouraging spam, using pinning functions to run a promotion, suggesting that Pinterest sponsors or endorses a business, and running contests, sweepstakes or promotions “too often.” Many of these guidelines are vague and it is hard to know how Pinterest will enforce them. Undoubtedly, we will see these guidelines tweaked over time, just as Facebook has tightened up its guidelines’ language. For more about Pinterest’s Business Account rules, click here. Well-crafted rules are requisite to avoid a promotion being classified as an illegal lottery but rules also need to be written to protect the brand against gambling charges. In 2012, Internet sweepstakes cafes became the subject of regulatory scrutiny in multiple states. The legality of penny auction sites and other types of promotions is an open question as we enter 2013.

• SOCIAL MEDIA: As sweepstakes and contests continue to proliferate on social media, so, too, do sponsored tweets and posts. The FTC has repeatedly held that consumer posts that are done in exchange for a sweepstakes entry require disclosures.  Indeed, any material connection between a brand and the consumer in exchange for a testimonial or endorsement requires conspicuous disclosure. Marketers planning promotions need to stay on top of their legal responsibilities under the FTC’s Endorsement & Testimonial Guidelines. Unfortunately, this area is not well understood in the marketplace, and we are likely to see more companies facing legal investigation in 2013, as the FTC continues to make examples of offenders. For more information about the requirements, click here. The Guides have implications even beyond prize promotions that are not well understood in the marketplace. We are likely to see more companies facing legal investigation in 2013, as the FTC continues to make examples of offenders. In addition, in choosing to market on social media, marketers need to be aware of each platform’s unique terms and conditions, privacy policies, and data collection practices.  Internally, brands need to review their internal social media policies governing employees’ activity in social media and protecting brands’ intellectual property. The NLRB reports an uptick of cases investigating employers for violating employees’ protected rights, leaving employers struggling to protect themselves. Then, too, the sticky issue of who owns social media accounts remains unanswered. For now, brands need to take proactive steps to protect their reputations and their intangible assets.

• TEXT MESSAGE MARKETING: Enforcement for violation of the Telephone Consumer Protection Act is alive and well. (To understand more about the history of enforcement in this area, click here.) Lucky Brand Dungarees will pay $10Million to settle a class action lawsuit that it sent unsolicited promotional texts advertising discounted jeans in violation of the TCPA.  In early January, a federal judge refused to dismiss a case against Caribbean Cruise Line, alleging that the cruise line make commercial calls to consumers’ mobile phones using the guise of a political survey. The judge rejected the argument that the cruise line’s vendor made the calls. Both these cases demonstrate the importance of vetting mobile marketing for legal issues, especially with auto-dialers or pre-recorded calls. (And by the way, let’s not forget that e-mail marketing is also regulated to avoid spam, and our neighbors to the north, in Canada have new anti-email spam legislation that went into effect in January. Damages could be up to $1million Canadian per day per occurrence. Any brand marketing in Canada with e-mail should review its practices with legal.)