Stay ADvised: What's New This Week, December 30

Articles

• FTC Settles Deceptive Marketing Allegations Against University of Phoenix for $191 Million
• Federal Appeals Court Rejects Maryland Online Political Ad Law as Unconstitutional
• Google Unveils New Rules for Political Ads to Widespread Criticism From Democrats and (Some) Republicans
• Shutting Down Kind Bar Challenge, NAD Gives OK on RXBAR Claims
• NAD Has Zero Tolerance for Zero Gravity Ad Claims

FTC Settles Deceptive Marketing Allegations Against University of Phoenix for $191 Million

In what has been called the largest monetary settlement ever obtained by the Federal Trade Commission (FTC) against a for-profit educational institution, the University of Phoenix has agreed to a $191 million penalty to resolve allegations that it lied about the opportunities afforded by a University of Phoenix education.

The $191 million is to be paid by the University of Phoenix (UOP) and parent company Apollo Education Group (Apollo) as $50 million in cash to affected students, many of whom are veterans and active duty service members, with the remainder paid in the form of student loan forgiveness.

The FTC’s complaint alleged that since 2012 the university, one of the largest of its kind offering online degrees, engaged in a pattern of marketing misrepresentations about the benefits of an UOP education to entice more students to enroll, with the knowledge that its statements were false.

UOP developed its marketing campaign, the FTC said, in response to market research it conducted that found that the university no longer had an edge on competitive programs. It was, according to the FTC, undertaken without regard to whether any of the statements students relied on when enrolling were actually true.

At the heart of the allegations was a marketing campaign UOP ran called “Get to Work,” which the FTC alleged touted fabricated relationships between the university and a number of prominent and desirable employers including Adobe, Microsoft, and Twitter, among others. UOP also falsely advertised that these employers and others like them helped develop the university’s curriculum.

Further, UOP released talking points that encouraged its employees to misrepresent the school’s ties to these prominent companies. Enrollment advisors also told students that Fortune 500 companies hired UOP students because of the school’s special partnerships. However, students who enrolled at UOP based on these promises did not receive job opportunities with the advertised companies based on their UOP education.

In addition to the monetary penalty, the settlement order prohibits UOP from making any further misrepresentations while promoting the university.

“This is the largest settlement the Commission has obtained in a case against a for-profit school,” said Director of the FTC’s Bureau of Consumer Protection Andrew Smith. “Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist,” he added.

Key Takeaways

While the FTC lauded the settlement as a big win, some advocates criticized it as a “drop in the bucket” for students, despite the record recovery. Even from within the FTC, Commissioners Kelly Slaughter and Rohit Chopra wrote separate statements noting that the University of Phoenix is just one of many bad actors engaging in similar tactics in the for-profit online university industry.

These commissioners lauded the settlement but urged strong enforcement action going forward, making it seem likely that advertising for-profit financial institutions will be subject to heightened scrutiny in the future. 

Federal Appeals Court Rejects Maryland Online Political Ad Law as Unconstitutional

A federal appeals court has struck down a Maryland law that would require online media platforms to disclose information about political ads, finding it violated the First Amendment.

In 2018, Maryland passed the Online Electioneering Transparency and Accountability Act in response to concerns about foreign interference in U.S. elections and the spread of misinformation via deceptive advertisements. The law sought to impose certain disclosure requirements on online platforms operating in Maryland, defined as public websites with over 100,000 unique monthly visitors that receive compensation for publishing political ads.

The law would have required “campaign materials” to include the name and address of the advertisers and for them to report certain other identifying information to the online platforms. The platforms, in turn, would have been required to maintain such information and to make it available upon public request. The law would have also given the Maryland Board of Elections the authority to inspect the information on request.

Although the three-judge panel of the 4th U.S. Circuit Court of Appeals in Virginia acknowledged that the aim of the law to curb foreign interference in U.S. elections was important, it determined that the manner of so doing was “too circuitous and burdensome … to satisfy constitutional scrutiny” and was a violation of the First Amendment. The “Act is a content-based law that targets political speech and compels newspapers, among other platforms, to carry certain messages on their websites,” wrote the court in its opinion. The court went so far as to call the law a “compendium of traditional First Amendment infirmities.”

Shortly after the law passed, several news outlets including The Washington Post and The Baltimore Sun sought a preliminary injunction to block portions from taking effect, which the district court granted. Google announced it would not publish ads in Maryland newspapers, saying it did not have the capacity to respond to the 48-hour required turnaround time for disclosure of information.

The appeals panel cited Google’s decision in its opinion as an example of the law’s chilling effect on expression. Plaintiff Maryland-Delaware-D.C. Press Association expressed its approval of the ruling, while the Maryland attorney general’s office offered no comment beyond saying it was reviewing the decision.

Key Takeaways

Crucial to the court’s analysis was the finding that the law put the onus of speech on the media outlets and not on the speakers buying the advertisements themselves. By striking down the law, the court equated advertisers making political speech to a reporter’s sources, signaling that both are subject to similar protections:

“When the government enlists the press to disclose the sources of political speech, thus potentially exposing those speakers to identification and harassment, First Amendment protections and values come into play,” wrote the court.

Google Unveils New Rules for Political Ads to Widespread Criticism From Democrats and (Some) Republicans

Amidst growing calls for tech companies to take action to halt the troublesome use of political ads in the spread of false information online, Google unveiled a new policy that will put some limits on the types of political ads that may run on the search engine and on the video streaming platform YouTube.

As part of the new policy, Google will also limit how political ads may target voters on the platform. Specifically, the new policy bans political ads targeting voters based on age, gender, and location. Google also said it will continue its policy of forbidding granular targeting of political ads based on more specific user data.

While three major Democratic groups said they supported the removal of false content and greater transparency, they sharply criticized Google for this limit on targeted political ads, saying it would hurt grassroots political efforts. Scott Fairchild, executive director of the Democratic Senatorial Campaign Committee (DNCC), encouraged Google to reconsider its decision and “engage in an open and transparent conversation about how we effectively regulate political advertising online.”

The company clarified the types of false advertisements that are not allowed on the platform, such as “deep fakes,” false claims about the census process, and ads “making demonstrably false claims that could significantly undermine participation or trust in an electoral or democratic process,” while acknowledging it was only targeting “clear” violations, and that the number of political ads it would take down would be “very limited.”

“It’s against our policies for any advertiser to make a false claim—whether it’s a claim about the price of a chair or a claim that you can vote by text message, that election day is postponed, or that a candidate has died,” Scott Spencer, a Google vice president, wrote in a blog post.

Some Republicans are not happy with the move either. Brad Parscale, President Trump’s campaign manager, criticized the move as biased.

Google responded anticipatorily to criticism about the lack of a ban on false ads by noting the impossibility of vetting the veracity of every advertisement or statement made on its site: “No one can sensibly adjudicate every political claim, counterclaim, and insinuation. So we expect that the number of political ads on which we take action will be very limited—but we will continue to do so for clear violations,” Spencer wrote.

Democrats also singled out Twitter for banning political ads. Twitter announced it would ban some political ads from politicians and super PACs but allow other groups to publish political ads.

Key Takeaways

With the presidential election imminent, talk has turned to how to avoid the foreign interference and deceptive ads that reportedly plagued the 2016 election. Google’s new policy and the Maryland law that was struck down both illustrate the difficulty of efforts intended to curb such actions.

In Maryland’s case, the appeals court said the law was well-intentioned but did not pass constitutional muster. On the corporate side, while Google and Twitter take steps to deal with the problem, there, too, critics argue the fixes won’t work. 

Shutting Down Kind Bar Challenge, NAD Gives OK on RXBAR Claims

In what some might call a prescription for success, RXBAR successfully fended off a challenge by competitor nutrition and protein bar maker Kind before the National Advertising Division (NAD).

Kind challenged certain express and implied claims made by the trendy health bar company (owned by Insurgent Brands, a division of Kellogg) on product packaging about the content and weight of RXBARS. Specifically, Kind challenged the express claim that RXBARS contain eggs whites, saying they actually contain dehydrated egg white powder, thus misleading customers.

Kind also challenged implied claims RXBAR made on its product packaging about the bar’s weight, ingredients and message. RXBAR responded by saying that its product label “is straightforward, truthful, and does not convey a message about the relative weight of ingredients in its protein bars.”

In making its decision, NAD declined to rely on consumer perception surveys provided by Kind that the company argued showed that consumers took away a misleading message about the RXBARS, finding the surveys significantly flawed. But NAD also does not appear to have relied on any evidence provided by the advertiser in support of its claims.

Instead, in a break from its usual methodology of examining advertiser evidence to determine whether a claim is supported, NAD said it used “its own expertise to step into the shoes of the consumer to determine the messages reasonably conveyed by the challenged advertising.” Doing so, NAD determined that both the express and implied claims made by RXBAR were supported.

First, NAD found RXBAR’s claims about the egg whites content of the bars were adequately substantiated. Kind had challenged RXBAR’s claim (in bold print on the front of the label) that the bars have “3 egg whites,” citing the fact that the bars are made with dehydrated egg whites. NAD reasoned that because the egg whites were not processed and the FDA permits reference to dried egg whites as egg whites, consumers were unlikely to be deceived.

As to RXBAR’s argument that the front label makes it appear as if the ingredients are listed by weight, falsely suggesting that the bar contains more egg whites than dates, NAD did not agree that consumers would understand the ingredient references on the front label in that manner. NAD concluded that consumers would only take away from the label, which lists the main ingredients starting with the egg whites, a message about some of the main ingredients of the bars and no additional message about the relative amount or weight of those ingredients.

Further, NAD rejected Kind’s contention that consumers would conclude the bars contain only the ingredients listed on the front label. It noted that each bar also listed a flavor such as blueberry, which would lead any reasonable consumer to conclude that the bar contained additional ingredients imbuing the bar with that flavor.

Kind had also taken issue with RXBAR’s “No B.S.” claim on product packaging, but since NAD found the rest of the claims truthful, it also found that the phrase “No B.S.” — “which signals to consumers that the ingredient statement is truthful and that the advertiser is not “B.S.ing” them—is supported.”

Key Takeaways

The NAD’s approach to this case demonstrates its willingness to rely on its own expertise to assess the likely consumer perception of challenged claims. One more takeaway: it’s safe to say advertisers can freely refer to dried egg whites as egg whites.

NAD Has Zero Tolerance for Zero Gravity Ad Claims

The National Advertising Division (NAD) referred the manufacturer of at-home beauty treatment Perfectio+ to the Federal Trade Commission (FTC) and the U.S. Food and Drug Administration (FDA) after the company failed to substantiate a number of express and implied marketing claims about the product.

As part of its routine advertising monitoring program, NAD examined certain marketing claims the company makes about a device that uses light treatment ostensibly to improve a number of skin issues.

Perfectio+ is the “safest and most effective, advanced anti-aging product today,” boast advertisements touting the product’s anti-aging and skin health benefits. Zero Gravity also advertises that these claims are “scientifically proven” and can help users get better skin “in no time at all.”

The company further maintains that the product can heal skin health issues such as large pores, rosacea, broken capillaries or “sun damaged skin,” hence the referral to the FDA. All of these claims amount to one implied claim that Perfectio+ “provides anti-aging results that are akin to cosmetic procedures,” according to the NAD.

Zero Gravity also uses “before and after” photographs and testimonials touting Perfection+’s benefits. “I have used it twice a week and since then have noticed a dramatic improvement in the appearance of my skin. My pores seem to be smaller; there is less discoloration caused by my melasma, and there is [a] reduction in my fine lines. Overall, I am pleased with the results,” states one testimonial.

Whether Zero Gravity possesses adequate substantiation for these claims, we may never know. When the NAD reached out to the company for evidence backing up these claims, the advertiser failed to “provide a substantive response … or participate in any way in the self-regulatory process.”

“In light of the failure to provide a substantive response to the NAD’s request for substantiation for its claims or participate in any way in the self-regulatory process, the NAD has referred the matter to the FTC and FDA for possible enforcement action.”

Key Takeaways

Here, it was the NAD’s routine monitoring program and not a challenger that brought Zero Gravity to NAD’s attention. Advertisers of anti-aging products should take note that NAD is watching and looking out for companies that make suspect claims about anti-aging products.

According to the Better Business Bureau, which administers NAD, a high percentage of the cases referred to the FTC by the NAD result in FTC enforcement, many of them within just a month of referral. For Zero Gravity and others, not responding to the NAD is indeed a risky gamble.