Stay ADvised: What's New This Week
- UK Ad Regulator Rules Teeth Whitening Ads Deceptive
- FTC Begins Enforcing Consumer Review Fairness Act, Files Three Complaints
- Google and Apple Remove Dating Apps After FTC Alleges Developer May Violate COPPA, FTC Act
- New York Federal Court Dismisses Class Action Against Publishers Clearing House
- FTC Sues Operator of Crowdfunding Scheme Who Kept Funds for Himself
UK Ad Regulator Rules Teeth Whitening Ads Deceptive
Think you can post video advertisements on social media that falsely promise instantaneous results? Think again, says the UK’s Advertising Standards Authority (ASA). The ASA recently ruled that eight advertising videos posted on social media by UK company HiSmile were deceptive because they promised consumers instantaneously whiter teeth in violation of UK advertising law.
The ASA is a self-regulated body and is the UK’s independent advertising regulator that monitors consumer-facing advertisements, enforces UK advertising codes, and investigates consumer complaints.
The offending videos, which appeared on Snapchat, Instagram, and Facebook in late 2018 and early 2019, touted the efficacy and speed of teeth-whitening product HiSmile. Specifically, the ads showed users applying the product and revealing visibly whiter teeth immediately.
With slogans such as “Whiter Teeth in 10 Minutes,” “Transform Your Teeth in 10 Minutes” and “HiSmile … Known for Teeth Transformation,” the short videos appeared as stories that showed instant results on the social media platforms. In one Snapchat story, a man applied a clear gel on his yellow teeth, then rubbed it off to reveal newly whitened teeth. Another showed an unboxing of the HiSmile product alongside text that read “Swipe up for White Teeth in 10 Minutes.” Yet another showed a woman applying the HiSmile gel to her teeth, then wiping down one newly-whitened tooth.
Several complaints alerted the ASA to the ads, expressing concerns that the claims of instantaneously transformed teeth, or even in ten minutes, were misleading and exaggerated the capability of the product. Following the agency’s standard protocol, the ASA reached out to HiSmile for clarification.
After receiving no response from HiSmile, the ASA published its ruling that the ads violated the UK’s Committee of Advertising Practice (CAP) Advertising Codes related to misleading advertisement, substantiation, and exaggeration with respect to “health-related products and beauty products.” In fact, HiSmile’s failure to respond was itself a violation of the CAP Code, said the ASA, and a factor in its decision, which cited HiSmile’s lack of response and reminded the company of its responsibility to answer ASA enquiries.
“HiSmile did not provide any evidence to demonstrate that their product could whiten teeth instantaneously, as shown in the videos, or after a short period of time. We therefore concluded that the claim depicted had not been substantiated and was misleading.”
Although the ASA acknowledged that the ads could be construed to give the impression that the teeth whitening would take a period of time to work, the agency ultimately concluded that the ads were misleading since the “overall impression” was that the product worked instantaneously, and HiSmile provided no evidence to the contrary.
The ASA ruled that the ads cannot appear again as originally posted, and future ads must not claim that HiSmile provides immediate teeth whitening results. The ASA also referred the investigation to the CAP Compliance team. If HiSmile does not abide by the ASA’s ruling, ASA may impose a range of sanctions on the company.
Across the Atlantic as in the US, consumer protection agencies and advertising regulators are increasingly scrutinizing misleading advertising appearing in social media video ads that have become prevalent on Facebook, Snapchat, Instagram, and other social media platforms. This action is yet another reminder that while newer technologies and media platforms allow for greater exposure opportunities, traditional advertising rules still apply.
FTC Begins Enforcing Consumer Review Fairness Act, Files Three Complaints
The Federal Trade Commission’s newly begun enforcement of the Consumer Review Fairness Act (CRFA) is off to a productive start. The agency last week issued administrative complaints and orders involving three separate companies, alleging violation of the CRFA, the first time the agency has brought actions exclusively alleging violations of the Act without the addition of other allegations such as deceptive advertising.
Enacted in December 2016, the CRFA makes it illegal for companies to include contractual provisions in consumer form contracts and terms limiting the right of consumers to write or post negative reviews online. Form contracts, as defined by the statute, are those that do not provide consumers a meaningful opportunity to negotiate the standardized terms they contain. The Federal Trade Commission (FTC) enforces the CRFA at the direction of Congress.
Separate complaints brought against A Waldron HVAC, LLC, National Floors Direct, Inc. and LVTR LLC and related parties each alleged that respondents illegally included non-disparagement clauses in consumer form contracts in violation of Section 2(c) of the CRFA.
The complaint against A Waldron HVAC and its owner Thomas J. Waldron alleged that the Pittsburgh-based company, also doing business as Waldron Electrical Heating and Cooling, included illegal non-disparagement provisions in its form contracts. One contract allegedly included language compelling customers to agree that “the terms and conditions of the contract…shall not be made public, or given to anyone else to make public, INCLUDING THE BETTER BUSINESS BUREAU” and imposing liquidated damages for breach of the provision.
In the case of National Floors Direct, the FTC complaint alleged that the company offered form agreements to thousands of customers containing language that forbade public disparagement or defamation of the company “in any way or through any medium.”
As for LVTR, LLC, the FTC accused the recreational horseback riding company of including in its service contracts broad non-disparagement provisions, including one that defined “disparage” as “any negative statement, whether written or oral including social media about” the company. All three companies have agreed to separate orders barring them from using these clauses and requiring them to notify affected consumers that the clauses are null and void.
Pursuant to the separate proposed settlement orders, which were unanimously approved by the FTC and are subject to public comment, the accused companies have agreed to remove the offending language from their form agreements and cease extending contracts that include these clauses. They have also agreed to notify consumers who signed the agreements on or before March 14, 2017, that the provisions are unenforceable, and consumers may post negative reviews as they wish. Further, the companies must present to the FTC a signed acknowledgment that relevant personnel have been notified of the terms of the settlement. Finally, the orders mandate that the companies file compliance reports with the FTC.
“Many online shoppers use customer reviews and ratings to get information, but these companies used gag clauses in their form contracts to stop customers from posting honest but negative feedback,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “These gag clauses are illegal, and companies that know it but use them anyway will be subject to civil penalties.”
With the filing of three separate complaints exclusively for violations of the CRFA, the FTC is signaling that it will aggressively enforce the Act, even in the absence of an attempt by a company to enforce the violative provisions or other misleading or deceptive advertising elements, which has been the case in prior enforcement actions. The announcement should serve as a reminder to companies to review their form contracts to ensure they do not contain clauses that restrict or otherwise deter consumers’ from posting negative reviews online.
Google and Apple Remove Dating Apps After FTC Alleges Developer May Violate COPPA, FTC Act
The Federal Trade Commission (FTC) recently swiped left on a Ukrainian application developer, Wildec LLC, which the agency allegedly allowed minors under thirteen to use its dating apps. The company’s three dating apps were removed from the Google Play and Apple App Store following a letter sent by the FTC alleging violations of the Children’s Online Privacy Protection Act and its implementing rule (collectively, COPPA) and the Federal Trade Commission Act.
COPPA applies to operators of websites and online services whose services are directed to or are known to be used by children under the age of thirteen. COPPA requires covered operators to abide by certain requirements when collecting personal information online from children under thirteen, with the goal of giving parents control over the information collected from their young children and how such information is used. Notably, COPPA requires that companies post clear privacy policies and obtain parental consent before collecting, using, or sharing a child’s personal information.
According to the FTC, Wildec operated three dating apps (Meet4, FastMeet and Meet4U) and knowingly collected information from minors under the age of thirteen without complying with COPPA’s requirements. In its warning letter to Wildec, sent simultaneously to Google and Apple, the FTC informed the company that it may be violating FTC prohibitions against unfair practices by failing to comply with COPPA.
The letter urged Wildec to comply with the law and set forth a number of alleged issues with the apps. First, although the apps’ privacy policies claim that users under thirteen are prohibited from using the app, the Agency found that children as young as 12 were on the dating services. Further, according to the FTC, its investigation uncovered that adults on the app were communicating with children, which posed “a serious health and safety risk.” In fact, several individuals in the United States have faced criminal charges for initiating contact with minors via Wildec’s apps.
The FTC letter advised Wildec to ensure that all its apps are compliant with COPPA and the FTC Act by removing minor information from the app, requiring minors to seek parental consent, and eliminating a feature that allows users to search for minors.
The FTC also issued a consumer alert warning parents about the dangers of the apps to children and letting them know that Google and Apple stores have removed the apps from their respective stores pending the app developer’s compliance with the law. The consumer alert informs parents that updated versions of the apps may come back to the app stores, but for use by adults.
App developers who do not abide by FTC regulations may be subject not just to FTC enforcement but may also risk being shut down by the hand that feeds them. Apple and Google are quick to respond to FTC allegations of illegal activity conducted through apps available in their stores, in some cases even before the FTC files formal legal action and especially when allegations are made that applications pose a danger to children.
New York Federal Court Dismisses Class Action Against Publishers Clearing House
In a development that may raise red flags among consumer rights advocates and plaintiff class action litigators alike, a federal court for the Eastern District of New York recently dismissed a class action lawsuit brought on behalf of thirteen named plaintiffs against sweepstakes company Publishers Clearing House for failure to state a claim.
The complaint, filed in April 2018, alleged that Publishers Clearing House (PCH), known for advertising its multi-million dollar offers through various media and via direct mail, engaged in deceptive, unlawful, and unfair marketing practices in violation of the CAN-SPAM Act, the Deceptive Mail Prevention and Enforcement Act (DMPEA) and various sections of the New York General Business Law (GBL).
PCH has faced allegations of wrongdoing in the past, according to the complaint, including alleged numerous citations and sanctions by various state attorneys’ offices over the course of its thirty years of operation.
According to the complaint, PCH’s marketing campaigns enticed consumers—particularly the elderly—into believing they had enhanced opportunities to win large amounts of money. The complaint further alleged that the company solicited the plaintiffs to purchase goods and provide personal information through direct mail, private membership solicitations, internet advertising, and email marketing campaigns. PCH then allegedly resold plaintiffs’ personal information to third parties for a profit.
Last year, the company filed a motion to dismiss the complaint for failure to state a claim, which the court granted earlier this year, finding that CAN-SPAM and the GBL do not provide a private cause of action. As to plaintiffs’ DMPEA claim, the court found that a private cause of action exists only when an individual receives an unwanted mailing and requests no further contact, which the complaint failed to allege.
The court dismissed plaintiffs’ GBL 369 claim as well, noting that the complaint alleged only that the company published the misleading ads but failed to show how its promotions injured plaintiffs.
The court granted, however, plaintiffs leave to amend their complaint to bring a cause of action under GBL 349, stating: “[i]t is also not the case that Plaintiffs’ allegations are so inadequate that any attempt to obtain standing under Section 349 would be futile.”
In April, Plaintiffs filed an amended complaint to further pursue a GBL 349 claim. The case is Wright v. Publishers Clearing House, Inc., case number 18-cvs-2373, and is currently pending in the U.S. District Court for the Eastern District of New York.
Although it remains to be seen whether PCH can repeat its successful motion to dismiss plaintiff’s amended GBL 349 claim, this case makes clear that no private cause of action exists under CAN-SPAM or GBL 369. However, there are potential private causes of action under DMPEA and GBL 349. Nevertheless, the court’s dismissal of the complaint on the basis that plaintiffs have no private cause of action or failed to show injury shows there may be limits to the ability of consumers and litigators to bring class action litigation against sweepstakes marketers under these laws.
FTC Sues Operator of Crowdfunding Scheme Who Kept Funds for Himself
“Kickstarting” an action against a man who ran multiple crowdfunding schemes, the Federal Trade Commission this month filed a complaint against Douglas Monahan, operator of the company iBackPack of Texas. Monahan, the complaint alleges, deceived consumers and misrepresented the facts about how raised funds would be used to aid product development, in violation of the Federal Trade Commission Act.
According to the FTC’s complaint, through four crowdfunding campaigns, Monahan allegedly raised over $800,000, which he claimed would be used to produce his products; but, in fact, he failed to deliver anything to his customers as promised and kept the funds for himself.
Popular crowdfunding websites like Kickstarter and Indiegogo provide fledgling companies the opportunity to fund the development of their products with individual customer contributions in exchange for future delivery of the product when completed and access to special prices and perks.
Beginning in 2015, Monahan ran a number of crowdfunding campaigns to market several tech-friendly bags and cables. First, he sought funding on Indiegogo for the “iBackpack,” a backpack that was supposed to contain a charging mechanism and other tech bells and whistles, promising that he would distribute the product by March 2016. He supposedly raised more than $720,000 by November 2016.
Even as he failed to deliver the iBackpack by the promised date, Monahan started a second crowdfunding campaign on Kickstarter for the same product in March 2016. The campaign raised $76,000. At the same time, Monahan ran two additional crowdfunding campaigns on Indiegogo for a “smart cable,” according to the complaint.
According to the FTC, Monahan and his company never delivered any products for any of these crowdfunding campaigns. Instead of using the funds raised to develop the products, as promised, they spent the money on personal expenses and promotional efforts for more crowdfunding campaigns.
When Monahan was asked by customers and crowdfunding sites about product delivery, he made false claims about the status of the products to keep from being kicked off the sites. Further, when hundreds of consumers complained on the crowdfunding sites about Monahan and the company’s failure to deliver, Monahan threatened many customers who complained, said the FTC. Ultimately, the complaint alleges, Monahan transferred all remaining moneys to his unrelated businesses.
“If you raise money by crowdfunding, you don’t have to guarantee that your idea will work,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “But you do have to use the money to work on your idea—or expect to hear from the FTC.”
The case is Federal Trade Commission v. iBackpack of Texas LLC, case number 3:19-cv-00160, filed in the U.S. District Court for the Southern District of Texas. In its complaint, the FTC seeks injunctive relief and restitution of ill-gotten moneys to customers.
Whether Monahan ultimately succeeds in this case or settles the case with the FTC, the agency is sending a clear message to companies that fund their products on crowdfunding sites that they will be held accountable for making misrepresentations to consumers and that they must use moneys raised in crowdfunding campaigns for the development and delivery of the product. As the use of crowdfunding sites proliferate further, it is likely the FTC will continue to monitor this space for similar abuses.