stay ADvised: What's New This Week, August 26

Articles

• FTC Obtains Partial Victory in Pursuit of Repeat Telemarketing Offenders
• FTC Approves Settlement of Five CRFA Complaints
• NAD Recommends Company Disclose Incentivized Online Reviews
• UK’s ASA Bans First Ads under New Gender Stereotype Rules
• Mind Your Hashtag: ASA Finds #brandambassador Not Valid Disclosure

FTC Obtains Partial Victory in Pursuit of Repeat Telemarketing Offenders

In what appears to be becoming routine at the Federal Trade Commission (FTC), the agency recently brought an(other) enforcement action against a recidivist company and its owner, this time with the support of a federal district court.

In response to a 2018 FTC complaint filed against Alliance Home Security Systems and its CEO Jasit "Jay" Gotra, the U.S District Court for the District of Massachusetts issued a stipulated final order banning the company from engaging in telemarketing. The court also handed the FTC a second preliminary injunction temporarily banning Gotra from telemarketing while the case proceeds against him individually.

The complaint alleged that Alliance, Gotra, and multiple other defendants made unauthorized calls to millions of consumers whose numbers were in the federal Do Not Call Registry (DNC) in violation of the Telemarketing Sales Rule (TSR). Gotra previously ran afoul of FTC telemarketing rules based on similar wrongdoings while doing business through another company, Versatile Marketing Solutions. That matter concluded with a 2014 settlement, also filed in the District of Massachusetts.

The FTC’s 2018 complaint alleged that not only did Gotra fail to comply with the 2014 court order and make over two million subsequent calls to numbers on the DNC registry, but that Alliance contracted third-party telemarketers (and other defendants in the case) who made similar unauthorized calls promoting Alliance’s business.

The complaint further alleged violations of the Fair Credit Reporting Act stemming from charges that the company ran consumers’ credit scores without authorization and for no legally permissible purpose. Alliance allegedly racked up other TSR violations by misrepresenting itself as calling consumers on behalf of the security company ADT, according to the FTC.

The stipulated final order against Alliance resolves the charges by not only permanently banning the company from telemarketing and obtaining consumer credit reports without written consent, but it also imposes a judgment just shy of $10 million. However, the judgment is suspended based on the company’s inability to pay, unless it becomes clear that Alliance misrepresented its financial condition.

The company is also barred from making misrepresentations about its affiliation with other alarm companies, as it did with ADT. The preliminary injunction parsed out to Gotra contains no monetary penalties, but it does ban him from telemarketing and obtaining consumer reports without authorization.

The allegations against the additional third-party marketing defendants in the case, the companies Defend America, Power Marketing, and their principals, were resolved in previous settlements with the FTC soon after the complaint against Alliance and Gotra were filed. That means that the orders issued this month settle all but Gotra’s case.

Key Takeaways

When it filed its 2018 complaint, the FTC said “Defendants Alliance and Gotra have shown a blatant disregard for the law and consumers’ privacy rights,” and that the case “reflects the FTC’s sustained law enforcement work to protect consumers’ privacy from abusive calls and illegal credit inquiries.” Having settled all but Gotra’s case, it seems the FTC can claim a measure of success in the matter.

And yet, Alliance’s suspended monetary judgment and Gotra’s history of ignoring court orders against him muddles prospects for how well the preliminary injunction will work. Still, telemarketers should take note the FTC is very much on the beat – especially the agency’s enforcement division, which appears to take its job very seriously when it comes to recidivists.

FTC Approves Settlement of Five CRFA Complaints

The Federal Trade Commission (FTC) recently announced not one, not two, but five final orders resolving complaints it filed earlier this year against companies for alleged violations of the Consumer Review Fairness Act (CRFA). These settlements follow the public comment period the FTC held before approving the final settlements.

The CRFA protects consumers from overzealous companies seeking to silence reviewers who want to post negative reviews online. Specifically, section 2(c) of the CRFA prohibits companies from including provisions in form contracts barring customers from posting negative reviews or disparaging content online.

As covered in the our May and June issues of StayADvised, these final orders resolve matters pending against A Waldron HVAC, National Floors Direct, LVTR, Shore to Please Vacations, and Stafforshire Property Management. As noted then, the actions against Waldron, National Floors and LVTR marked the first time the FTC filed complaints exclusively pursing wrongdoers for alleged violations of the CRFA.

The May 2019 complaints accused the companies of running afoul of the CRFA by providing form contracts to customers with language forbidding public disparagement or defamation of the company, as in the case of National Floors, to language barring “any negative statement, whether written or oral including social media” about the company, as LVTR did.

In the cases of Shore to Please and Staffordshire, filed in June 2019, the FTC alleged the companies’ contracts contained a release form requiring applicants for apartments to “specifically [agree] not to disparage [Staffordshire], and any of its employees, managers, or agents in any way.”

Shore to Please was arguably the most egregious of all the violators, because it included a non-disparagement clause that read that “By signing below, you agree not to defame or leave negative reviews (includes any review or comment deemed to be negative by a Shore to Please Vacations LLC officer or member, as well as any review less than a “5 star” or “absolute best” rating) about this property and/or business in any print form or on any website,” but also tried to enforce the provision by suing a customer for violating this provision.

All the approved final orders announced by the FTC this month bar the companies from using any non-disparagement provisions in form contracts for goods and services. The orders further require the companies to notify affected consumers about the null effect of the non-disparagement provisions.

As is customary in FTC settlements, the orders also commit the companies to compliance and reporting requirements. In the case of Shore to Please, there is an additional requirement that it dismiss without prejudice the lawsuit it filed alleging violation of the illegal non-disparagement clause.

Key Takeaways

Our prior coverage of these actions centered on the filing of the complaint and the proposed final order. Today the FTC comes full circle with the announcement the orders have final approval. As we noted then and reiterate now, these actions signal the FTC’s commitment to pursuing violators of the CRFA. Companies offering goods or services should take note that these non-disparagement provisions in form contracts are unenforceable and that the FTC has taken a stand against CRFA violators with these cases.

NAD Recommends Company Disclose Incentivized Online Reviews

While some companies attempt to muzzle negative reviews online, others aim to pass off positive paid reviews as independent consumer opinions by not disclosing incentives given in exchange for positive reviews. According to the National Advertising Division (NAD), that is a no-no, as it reminded one advertiser recently when it recommended the company disclose that its reviews were incentivized.

That advertiser is Pyle Audio, maker of the NutriChef Vacuum Sealer. In an August 15 press release, NAD announcing that it had recommended the company make disclosures clarifying that it incentivized certain positive reviews of its products posted online. NAD made its recommendation following a challenge by Newell Brands, a competing maker of vacuum sealers.

Newell Brand’s challenge centered on allegations that Pyle improperly solicited thousands of online reviews from customers in exchange for free products and nowhere clarified that the reviews were solicited. According to the challenger, Pyle included cards promoting the review campaign on its order packaging for shipped products.

Pyle did not instruct reviewers to let readers know the reviews were solicited. The company denied these claims, saying third-party sellers were responsible for the distribution of solicitation cards asking for positive reviews.

At issue in NAD’s analysis was whether methods Pyle used to garner positive reviews rendered them incentivized and therefore requiring a disclosure. It held the reviews were indeed improperly incentivized, which is problematic because “incentivized reviews may be considered endorsements that require the disclosure of any material connection not reasonably anticipated by the consumer.”

NAD went on to note “that consumers may be misled by incentivized reviews when such reviews appear to be entirely spontaneous posts from consumers who post them solely out of a desire to share their experiences with a product may have in fact been motivated, in whole or in part, by a desire to receive a tangible benefit.” Furthermore, these reviews are inappropriate not only because they are misleading, but because “systematic incentivization” increases a product’s visibility and consumer perception about those products, thereby driving purchasing decisions based on a “distorted image of a brand’s reputation” and of the popularity of the product.

In this case, NAD concluded the reviews left consumers with the (wrong) impression they were independent and spontaneous customer opinions. Therefore, NAD recommended the company take reasonable measures to disclose any material connection between a review and the company and to “clearly and conspicuously” disclose when product reviews are incentivized, including by taking measures to remedy the problem on previously posted reviews.

Additionally, NAD determined the message which asked consumers for reviews be modified to remove any suggestion that the review had to be positive in order to entitle the reviewer to receive the promised reward. Pyle said it would comply with the NAD’s recommendations.

Key Takeaways

There is nothing preventing companies from paying for reviews and posting them online. The problem arises when these reviews are passed off as independent consumer opinions, because that is where the misrepresentation lies.

Companies should take note that incentivized reviews, including those obtained from consumers in exchange for free products, fall under the purview of inappropriate paid reviews. Another important takeaway: even when companies incentivize customers to write reviews, they should not condition any reward on receipt of a positive review.

UK’s ASA Bans First Ads under New Gender Stereotype Rules

The U.K.’s Advertising Standards Authority (ASA) handed down its first two decisions under the new rules banning ads with harmful gender stereotypes, barring two ads for Volkswagen and Philadelphia Cream Cheese. The independent regulator is tasked with ensuring compliance with the country’s advertising codes and its new rules promulgated in June of this year, as covered here in a prior issue of StayADvised.

The new rules ban stereotypically gendered depictions of men and women. They state that “advertisements must not include gender stereotypes that are likely to cause harm, or serious or widespread offense.” The ads from Volkswagen and Mondelez, the parent company of the cream cheese brand, perpetuate these harmful stereotypes and as such violate the Code, ruled the ASA.

The VW ad for its eGolf car shows a number of individuals engaged in pursuits the company said are meant to convey adaptation to change, starting with a male climber and a woman sleeping beside him, and moving on to a Paralympic male athlete, two male astronauts, and a woman sitting on a park bench with a baby carriage beside her.

After the ad first aired on June 14, three complainants brought it to the ASA’s attention, claiming the ad perpetuated harmful gender stereotypes by depicting men having adventures while the woman was shown in a traditional caregiving role. Despite Volkswagen’s insistence the ad was not sexist given the depiction of a female climber in a hostile environment and the woman with the baby carriage depicting the life-changing nature of new motherhood, the ASA agreed with the complainants.

The ASA noted that the juxtaposition of “images of men in extraordinary environments and carrying out dangerous activities with women who appeared passive or engaged in stereotypical male and female roles…presented gender stereotypes in a way that was likely to cause harm and therefore breached the Code.”

In the Philly Cream Cheese ad, two dads are shown forgetting their baby in a restaurant conveyor belt as they appear distracted by the deliciousness of the bagels with Philly cream cheese also coming down the conveyor belt. This ad received 128 complaints, according to reports, all contending that the depiction of the fathers as incapable of caring for their children and would place them at risk, violated the Code because it perpetuated harmful stereotypes that men are not good caregivers.

Although the ASA acknowledged the ad could be seen as a lighthearted representation that “new parents are inexperienced and learning how to adapt to parents,” it concluded the stereotypical depiction was at the center of the ad’s conceit, ruling the ad “perpetuated a harmful stereotype, namely that men are ineffective at childcare,” in breach of the Code.

Criticism has been leveled at the ASA for its decisions in these cases, decrying them as too harsh. Clearcase, which greenlighted the ad before its broadcast, said the “ASA’s interpretation of the ads against the new rule and guidance goes further than we anticipated and has implications for a wide range of ads.”

The ASA’s rulings ban the ads from appearing in their current form, and warn the companies against future ads that perpetuate such harmful gender stereotypes.

Key Takeaways

Although the reasoning in these rulings acknowledged the companies’ counterarguments, these decisions make clear that the ASA will enforce a very strict interpretation of the new rules and advertisers doing business in the UK should take note accordingly. Still, there’s been pushback from legal experts, who say the ASA’s interpretation is too strict. As one British ad law expert said, “the ASA’s definition of ‘harm’ is unworkable and urgently needs to be clarified. I hope that these advertisers seek an independent review of the latest decisions.”

Mind Your Hashtag: ASA Finds #brandambassador Not Valid Disclosure

The ASA also weighed in this month on what constitutes a valid disclosure in social media marketing, ruling that the hashtag #brandambassador is insufficient for disclosing a connection between a brand and consumer incentivized by the brand.

Following a formal complaint filed earlier in the year with the ASA, the UK regulator looked into British reality TV star Olivia Buckland’s Instagram posts touting Cocoa Brown brand self-tanning products. The image that sparked the controversy features Buckland showing off a tan with product in hand, along with the caption “V-Day prep is well underway and I’m topping up my tan with my fave @cocoabrowntan by @marissacarter 1 HOUR TAN MOUSSE… more.” After the “more” button is clicked, the caption continues: “Original –it gives me such a natural glow with no streaks and is the perfect accessory for date night with bae [heart eye emoji] Get yours now @superdrug #TeamCB #CocoaBrownTan #ValentinesDay #BrandAmbassador.”

The ASA found that Buckland’s use of the hashtag #brandambassador in the caption of the photo promoting the product was not a valid disclosure and violated the Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (Cap Code).

The question addressed by the ASA was whether the post was “obviously identifiable as a marketing communication.” Buckland argued that use of #brandambassador on the post and on the bio section of her account was sufficient, supporting this claim by providing a dictionary definition of brand ambassador as someone who is “paid or given free products by a company in exchange for wearing or using its products and trying to encourage others to do so.”

For its part, Cocoa Butter said it advised Buckland to use #ad on all future Instagram posts.

In its analysis, the ASA first considered whether the post was a marketing communication subject to the Cap Code, which it did based on the fact that Buckland was paid to advertise the Cocoa Brown products and that she had control over the content she produced for the products, as required in Britain.

The ASA then considered if the placement of “brand ambassador” on Buckland’s Instagram bio was sufficient. It concluded that it was not since it was not likely to convey that the post was paid content. Finally, it found that irrespective of whether “brand ambassador” was noted in Buckland’s bio, the post itself did not sufficiently make clear via just the use of the hashtag #brandambassador that the content was advertisement.

It is unclear whether Buckland’s more recent ads for Cocoa Butter comply with the Cap Code. A recent post marketing Cocoa Butter posted a few days after the ruling continues to use the hashtag #brandambassador. Although on this and other sponsored posts Buckland does add the hashtag #sponsoredbutiloveit, the hashtag #ad, recommended as a “clear and prominent identifier” by the ASA, does not appear on this latest Cocoa Butter post as of this writing.

Key Takeaways

Advertisers working with British influencers and Instagram stars should take note the ASA has explicitly ruled that #brandambassador alone is not a sufficient disclosure. On this side of the pond, the Federal Trade Commission has also opined that the mere use of “#brandambassador” may not be sufficient for conveying a material connection between a brand and an influencer where that relationship is not clear from the context of the influencer’s post. In these situations, it is safer to include the name of the brand in the “#ambassador” hashtag.