Articles
- Google Locates Unwanted Attention in the EU
- Partial Class Cert Granted Against Ocean Spray for California Consumers Left With a Bad Taste in Their Mouths
- Out for the Count: Celebrities Sanctioned for Cryptocurrency Securities Endorsements
- TummyZen Maker Burned by NAD over Heartburn Relief Claims
- In Time for the Holidays: AG Offices and Big Box Retailers Collaborate to Battle Gift Card Scams
Google Locates Unwanted Attention in the EU
Google faces new complaints regarding its location tracking services. Several European consumer advocacy groups filed complaints under the EU’s General Data Protection Regulation (GDPR) with authorities regulating data protection in seven countries, including Sweden, Norway, Greece, the Netherlands, the Czech Republic, Slovenia, and Poland.
The GDPR prescribes specific rules for companies to obtain consent for collecting user data, including that consent be given in a way that is easy to understand, using plain and clear language. According to the GDPR, companies found in breach can face fines representing up to the greater of 4% of their worldwide annual revenue or €20 million, which in Google’s case could be over $4 billion based on its 2017 filings. The new complaints, which resulted from research compiled by the Norwegian Consumer Council, allege that Google engaged in deceptive and manipulative tactics that resulted in users sharing location data without proper consent mechanisms. According to the complaints, Google uses confusing and contradictory language in describing its Location History and Web & App Activity settings as well as misleading menus that nudge users into enabling these features or keeping them active, which allows users’ locations to be tracked continuously. The complaints allege the location information gathered from such forbidden practices is then used for the purposes of marketing targeted ads to the consumers.
One complaint alleges that Google’s business model is fully dependent on targeted advertising and thus Google employs deceptive mechanisms to encourage users to use location history, such as obscuring or withholding information that would inform users of the privacy issues associated with doing so, and hides terms and conditions informing them that their collected location data will ultimately be used for advertising purposes. According to the complaint, the data collected pursuant to Google’s location tracking mechanisms also includes the user’s "location, route, mode of transportation," and "which shop you visited at what time." Google is also accused of deceptive design practices and service bundling in violation of GDPR provisions. Though Google asserts that users must opt in to their voluntary location tracking features, the Norwegian Consumer Council’s research claimed that Google’s practices deceptively "nudge" users to activate the feature, which can also be inadvertently triggered through user actions. The research suggests Google fails to provide a mechanism to fully disable some of the location tracking features, once enabled, and that Google warns users who attempt to turn off location tracking features that they will receive a decreased functionality of services.
The GDPR’s revised regulations are still nascent, yet 42,000 complaints have been filed since it became effective in the last six months. Google is the target of multiple complaints regarding data and privacy violations under the GDPR and has been accused of skirting the spirit of the GDPR. Though Google denies the claims, these new GDPR actions may serve to alter the data collection practices of huge tech giants like Google, whose services have become integral in our daily lives.
Key Takeaways
The GDPR requires that consent for personal data collection be requested from consumers in clear, obvious, and easy to understand ways, using plain language, and customers’ consent must be "freely given, specific, informed and unambiguous," manifested "by clear affirmative action." Companies must also provide adequate information regarding how that personal data is to be used and for what purpose. Companies need to be aware when working with functions that provide for location-based tracking that they are fully complying with these provisions and not purposefully, or inadvertently skirting these rules.
Partial Class Cert Granted Against Ocean Spray for California Consumers Left With a Bad Taste in Their Mouths
A federal court judge granted partial certification for a class of consumers that filed suit against Ocean Spray Cranberries, Inc. and Arnold Worldwide LLC (Ocean Spray’s labeling and advertising partner) alleging false advertising and labeling practices. The suit asserts that Ocean Spray violated California and federal product labeling laws by marking certain Ocean Spray products as containing "no artificial flavors" when the products actually contained malic acid and/or fumaric acid, chemicals that plaintiff asserts are defined as an artificial flavor under federal and California law. Plaintiff alleged six causes of action under California law, including violations of the Consumer Legal Remedies Act ("CLRA"), the unlawful and unfair prongs of the Unfair Competition Law ("UCL"), California’s False Advertising Law ("FAL"), breach of express warranty, and breach of implied warranty.
In Hilsley et al. v. Ocean Spray Cranberries Inc. et al., plaintiff Crystal Hilsley sought to certify both damage and injunction classes of all California resident Ocean Spray purchasers, excluding commercial resellers, beginning January 1, 2011. Judge Gonzalo P. Curiel in the Southern District of California granted certification of a damages class for all of plaintiff’s claims, except for the breach of implied warranty claim. The court also granted certification of an injunctive relief class. In reaching these findings, the court found numerosity undisputed, found defendants’ arguments insufficient to dispute adequacy, and found commonality for all products that contained malic or fumaric acid. Defendants did not contest superiority.
First, despite defendants’ arguments that plaintiff’s education and employment background made her atypical, the court found these factors irrelevant and that plaintiff, like all class members, was exposed to the same omission and affirmative misrepresentation on the labels of the accused products. As to plaintiff’s damages class, defendants argued that class certification hinged on whether or not plaintiff could present evidence that malic and fumaric acids functioned as "flavors" in the products at issue. The court rejected defendants’ framework. Instead, the court found that all three of the statutes under which plaintiff sued allowed the "plaintiffs to establish materiality and reliance (i.e., causation and injury) by showing that a reasonable person would have considered the defendants’ representation material" without demonstrating individual reliance.
Similarly, for a breach of express warranty claim, the court found that the plaintiff need not prove reliance on specific representations. Because each of the elements were subject to common proof, the court found common issues predominated over individual ones on the UCL, FAL, CLRA, and breach of express warranty claims. The court found, however, that because plaintiff’s breach of implied warranty claim required vertical privity, individual inquiries would predominate.
The court also required plaintiff to present a damages model for restitution that is sufficiently linked to the theory of damages and is capable of identifying damages on a class-wide basis. The court found plaintiff’s experts accounted for consumers’ willingness to pay more for the products were the representations true, "that the price premium paid for the ‘no … artificial flavors’ labels is attributed to defendants’ alleged misrepresentations." On the other hand, plaintiff’s methodology for breach of warranty claims was insufficient because it failed to connect class-wide damages to plaintiff’s legal theories and defendants’ alleged misrepresentations.
The court found plaintiff had standing to seek injunctive relief because she stated she would buy the products again if the labels were accurate.
Key Takeaway
Where representations are constant and individual reliance is not at issue, a California court may certify a damages and injunction class even where factual questions remain regarding the alleged representations.
Out for the Count: Celebrities Sanctioned for Cryptocurrency Securities Endorsements
In the first actions initiated by the SEC against individuals charged with illegally promoting initial coin offerings (ICOs), Floyd Mayweather and Khaled Khaled, professionally known as DJ Khaled, were hit with significant penalties for alleged illegal endorsements posted on their social media platforms.
Mayweather, a famous champion boxer, allegedly used his social media accounts to endorse three different cryptocurrency securities, yet failed to disclose that he had been paid to promote the offerings, in violation of federal securities laws. These omissions, governed by Section 17(b) of the Securities Act, can mislead consumers who may mistake an influencer’s paid promotion for unbiased opinion. Under the Act, any person compensated for promoting a security is required to fully disclose both that they are being paid for the marketing effort and also must provide the amount of the compensation or other consideration granted for the promo.
Mayweather, who received around $300,000 for his promotional efforts, promoted the ICOs on Instagram, Facebook, and Twitter to over 40 million followers, combined, in posts and videos purporting to show the boxer purchasing items with cryptocurrency despite SEC published warnings that ICO offerings may be securities in its DAO Report.
Mayweather submitted an Offer of Settlement, which was accepted by the commission resulting in an order instituting cease-and-desist. The order requires that Mayweather pay $300,000 in penalties, $300,000 in disgorgement fees, and over $14,000 in prejudgment interest. Further, he is banned from receiving or agreeing to receive any consideration for securities promotion for the next three years.
DJ Khaled also promoted one of the ICO companies involved in Mayweather’s action, Centra Tech Inc. Centra Tech was also the subject of a recent grand jury indictment in New York charging securities and wire fraud. According to the U.S. Attorney, the company cofounders allegedly defrauded their investors to the tune of $25 million, enticing the investors to back unregistered securities by acting as though the company had established agreements with major credit card companies, falsely rendering the offering more attractive and credible than it actually was. Ultimately, the FBI seized 91,000 units of cryptocurrency, at that point worth $60 million due to the significant appreciation.
Similarly to Mayweather, Khaled promoted Centra Tech on his Instagram and Twitter accounts to more than 15 million followers. He did so without disclosures regarding the existence and amount of compensation for his public endorsements, and in violation of Section 17(b) of the Securities Act. He received $50,000 for his promotional efforts. DJ Khaled also offered to settle the matter, which the Commission accepted as evidenced in the order instituting cease-and-desist proceedings, In the Matter of Khaled Khaled. In his settlement, Khaled is banned from receiving or agreeing to receive any compensation for endorsing any securities for two years and must pay $50,000 in disgorgement, $100,000 as a civil penalty, and over $2,700 in prejudgment interest, representing the first of potentially many future SEC actions related to digital currencies.
Key Takeaways
Cryptocurrencies and initial coin offerings of cryptocurrencies are coming under increasing federal scrutiny and regulation. To avoid customer and investor confusion, endorsements of securities, including cryptocurrency and ICO offerings, and including endorsements on social media platforms such as Instagram, Facebook and Twitter, require that the endorser disclose 1) that they are being compensated for their promotional efforts, and 2) the amount of the compensation or consideration provided for their endorsement. Failure to comply with SEC regulations regarding such disclosures can result in hefty penalties including fines, disgorgement requirements, interest, and injunction relief.
TummyZen Maker Burned by NAD over Heartburn Relief Claims
GlaxoSmithKline Consumer Healthcare L.P. challenged claims published on product packaging by Eli Nutrition regarding its "TummyZen" supplement before the National Advertising Division (NAD)—a regulatory body charged with investigating the advertising industry and administered by the Council of Better Business Bureaus. The NAD recommended that Eli discontinue publishing some of its claims.
The challenged claims, which Glaxo argued were "unsupported, unqualified, broad health claims," included promises of fast-acting relief from and inhibition of heartburn and acid, among other assertions. Specifically, TummyZen offered consumers "acid inhibiting," "total heartburn relief" that "stops acid production," "halts the secretion of Chloride ions in your parietal cells to help regulate the release of acid into your stomach," and "supports your stomach lining" using "proven ingredients like protective zinc" with a "Revolutionary Formula" that "Relieves almost instantly."
Glaxo suggested that Eli’s advertisements touted that TummyZen was as effective as clinically proven pharmaceuticals, but without the adverse side effects of such drugs. In its rebuttal, Eli suggested that some of its health claims were actually used primarily as a part of its brand name, and substantiated its health claims with studies related to one product ingredient (zinc) and a consumer survey. The scientific studies presented as evidence were comprised of two studies reviewing the effects of zinc sulfate on humans, as well as in vitro and animal studies.
The NAD disagreed with Eli, determining that "total heartburn relief" was not the brand’s name, but rather an "express performance claim." Further, the NAD found the studies presented to substantiate the health claims to be deficient as well, as they only considered one ingredient rather than the entire product containing that one ingredient. Moreover, the health claims presented were not actually or specifically tested in the studies, and the sample numbers considered in the studies were small.
The NAD ultimately recommended that Eli discontinue multiple claims it attempted to substantiate through the evidence presented, though some of Eli’s claims were allowed to stand, such as the claim that the product acts almost instantaneously. The NAD also recommended that Eli change the product’s brand name to exclude the language that the product provides, "Total Heartburn Relief." Eli Nutrition plans to appeal some of the NAD’s findings to the National Advertising Review Board. However, according to the Advertising Self-Regulatory Council website, "an advertiser’s voluntary discontinuance or modification of claims should not be construed as an admission of impropriety."
Key Takeaways
Incorporating advertising claims into company brand names may not serve to shield companies from requirements to substantiate such claims if they are deemed to be express performance claims. Any claims presented for advertising purposes related to health effects should be clearly supported by appropriate scientific or other reliable evidence. Failure to comply with these guidelines may result in a NAD investigation, with subsequent recommendations that claims be modified and/or discontinued altogether.
In Time for the Holidays: AG Offices and Big Box Retailers Collaborate to Battle Gift Card Scams
To better protect consumers this holiday season, Attorneys General from New York and Pennsylvania teamed up with major retailers to construct and enact sweeping policy changes related to gift cards. The initiative, which entails nationwide reforms to benefit shoppers, has received voluntary support and participation from Best Buy, Walmart, and Target, with all three having already changed their policies as a result.
Barbara D. Underwood, the New York Attorney General, announced the initiative, which was enacted after a huge spike in gift card scams since 2015. The Federal Trade Commission estimates that in the last three years, fraud involving payment by gift cards increased 270%, with gift card payments now representing 26% of total victim payments. According to the FTC, con artists like using gift cards because they allow quick access to cash in "largely irreversible" and anonymous transactions. Fraudulent transactions involving gift cards peaked at $40 million in losses in 2017.
The three most common types of gift card scams are the "Grandparent Scam," the "IRS Scam," and the "Tech Support Scam," according to the New York Attorney General’s office. In the Grandparent Scam, the con artist impersonates a family member of the victim in order to entice the victim to pay. Scammers in the IRS Scam impersonate the federal tax agency, pretending to collect back taxes. Often, the scammers in these two scenarios have acquired detailed personal information related to the victim, which leads the victims to fall prey to these scammers, thinking the correspondences to be legitimate. In the Tech Support Scam, the con artist pretends to be someone in tech support for the victim’s computer, gaining access to the computer and demanding payment for the victims to access their own files. The victims are instructed to purchase gift cards worth thousands of dollars and provide the scammers with the card numbers and security codes, before destroying the cards. Then, the scammers quickly use that information to purchase new cards, further masking the transactions, to the detriment of consumers.
The new policy changes designed to combat these scams include capping consumer purchases per transaction for gift cards, limiting how much money can be added to retail gift cards, restricting how gift cards can be used for future purchases, and ensuring better training for retail employees so they’ll be more likely to notice red flags related to customer transactions. The New York Attorney General also counsels consumers regarding the signs of a potential scam, which include demands to pay parties such as attorneys, the IRS, and tech support professionals with gift cards, particularly over the phone, and requests by strangers for information on gift cards.
Consumers should report any fraudulent gift card transactions immediately to the card issuers, request that any funds remaining on the gift cards be frozen, and report the details of the incident to the FTC at FTC.gov/complaint and to the New York State Attorney General’s Office, or any other local AG office.
Key Takeaways
Gift card fraud is at a rampant high. To combat current scammer trends, retailers should consider whether it makes sense to adjust their policies in accordance with this current initiative, and consumers should remain diligent and report fraudulent gift card activity to the relevant retailer, the FTC, and/or their local AG’s office.