Stay ADvised: What's New This Week, January 24
In This Issue:
- FTC Throws Down the Gauntlet on Deceptive Online Reviews
- Suit Alleges Kim Kardashian Keeping Up With the Cryptocurrency Scam
- FTC Rates Dun & Bradstreet Low Score For "Deceptive Practices"
- USA: 1 - Europe: 0 as Judge Melts Away European Trademark Aspirations for Gruyère
FTC Throws Down the Gauntlet on Deceptive Online Reviews
The FTC is taking on deceptive online reviews with a battery of measures meant to tackle a practice that the Commission says distorts the marketplace and chips away at consumer trust, at a time when more people than ever are turning to online shopping. Its pièce de résistance: guidance documents for websites and marketers that lay out the right way to host and post reviews online.
The guidance is part of the FTC's broader multifaceted approach to curbing deceptive reviews "across the ever-changing landscape of online advertising" that also includes a major settlement with online retailer Fashion Nova and warning letters reminding third-party review management companies to ensure they treat reviews fairly.
As always, guidance documents are not law, but they do outline "safe harbor" practices that help keep companies safe(er) from FTC enforcement action under Section 5 of the FTC Act. Given the importance of reviews to consumers (and hence to marketers), and the very common if not ubiquitous use of third-party companies to curate and manage reviews, the FTC is trying to get ahead of the online reputation game.
Its guidance to marketers and platforms does not lay new ground, and it draws on existing cases and guidance and common sense. Its provides marketers with tips on staying within the bounds of the law when soliciting reviews, including by familiarizing themselves with the rules of platforms where the reviews may appear. Other "rules of thumb" to keep marketers honest when asking others to post reviews include not soliciting reviews from those who haven't used a product or only from customers likely to leave positive feedback, and steering away from offering incentives for reviews conditioned (expressly or implicitly) on a positive review.
For platforms, the FTC document gives guidance on review collection, moderation, and publication, urging companies to be transparent about their review practices to abide by FTC rules. While acknowledging that different business models moderate reviews in various ways, websites should have reasonable processes in place to verify the authenticity of a review, refrain from editing reviews to alter the message, and treat positive and negative reviews the same.
Companies should favor transparency by publishing positive and negative reviews and not displaying those that may be misleading. In a nutshell, companies and platforms should not engage in the suppression of negative reviews and the highlighting of only or predominantly positive reviews—while at the same time giving consumers the impression they are getting an unfiltered view of all reviews.
In conjunction with the release of the guidance documents, the FTC announced it has reached a $4.2 million settlement with Fashion Nova in the "first ever case challenging a company's failure to post negative reviews as a deceptive practice." In violation of the FTC Act, the complaint alleged, the online retailer deliberately neglected to post hundreds of thousands of negative reviews. Fashion Nova allegedly asked a third-party product review management company to hold off on posting lower-starred reviews until the company gave approval—then failed to give approval.
Finally, the FTC also sent letters to 10 review management companies warning them to steer clear of "improper steps to avoid collecting or publishing negative reviews" and other deceptive review practices, and reminding them that they could be on the hook for the deceptive reviews of clients. Thus far, only a generic version of that letter is available.
The guidance documents join a growing library of FTC resources for marketers and businesses on using endorsements in marketing, part of the FTC's recent and increasingly razor-sharp focus on tackling deceptive endorsements. The FTC noted that these announcements and the Fashion Nova settlement are not the last we will hear about FTC enforcement in this area.
For advertisers and platforms, the message is clear: be fair and transparent by posting both positive and negative reviews, refrain from manipulating ratings, solicit reviews neutrally, and know that you can be held responsible for unlawful actions by third-party management companies. Otherwise, "Stay tuned. You'll hear more from the FTC on this topic."
Suit Alleges Kim Kardashian Keeping Up With the Cryptocurrency Scam
A lawsuit filed by a plaintiff on behalf of investors in EthereumMax cryptocurrency alleges Kim Kardashian and influencers Floyd Mayweather, Jr. and Paul Pierce engaged in a scheme to "misleadingly promote the currency to unsuspecting investors."
According to the complaint, between May 14 and June 27, 2021, EthereumMax (EMAX) executives, along with Kardashian and the other influencers, hyped up the currency on social media until the price skyrocketed, then sold their tokens and—as the currency plummeted—left investors with colossal losses. Kardashian and the influencers' social media posts encouraging their millions of followers to buy EMAX caused the currency to rise by more than 1,370 percent, only to subsequently lose 98 percent of its value—but not before Kardashian and the other defendants profited handsomely at the expense of investors, charges plaintiff.
After the meteoric rise and ensuing crash, EMAX has yet to recover, alleges plaintiff. The posts "generated the trading volume needed for all Defendants to offload their EMAX tokens on unsuspecting investors." In plaintiff's telling, EMAX's "entire business model relies on a regular barrage of promotional activities, often from 'trusted' celebrities, to "dupe" potential investors into trusting the financial opportunities available with EMAX tokens."
The complaint further alleges Kardashian and the other influencers did not follow the FTC's admonitions to properly disclose that their posts were paid endorsements, though they are sophisticated promoters with significant experience in endorsement contracts. Kardashian did caption her post with #ad, but the disclosure appeared at the far bottom where it was not generally visible. The other influencer defendants did not disclose that the posts were paid endorsements at all.
The complaint alleges violation of California's Unfair Competition Law, Consumer Legal Remedies Act, and other California common law causes of action.
Because cryptocurrencies are not yet subject to Securities and Exchange Commission (SEC) rules, normal insider-trading causes of action do not apply. With this lawsuit, plaintiffs are looking to California's well-established false advertising law to fill the apparent gap in cryptocurrency enforcement as a novel way to limit pump-and-dump and other investment schemes that exploit the current regulatory gap.
FTC Rates Dun & Bradstreet Low Score For "Deceptive Practices"
Leading credit rating company Dun & Bradstreet (D&B) has agreed to settle a Federal Trade Commission (FTC) complaint that accused the company of misleading business consumers about its reports, then using the deception to peddle its credit repair product with additional false promises. The 87-page complaint alleges that in the process of marketing the commercial credit reports that are vital for many businesses to operate successfully, D&B engaged in several deceptive business practices in violation of Section 5 of the FTC Act.
One of the allegations, among a long list of alleged deceptive tactics, is that D&B's credit reports often contained incomplete or incorrect information, including even basic items such as a business' name or address. These errors and the subsequent deleterious effect on the impacted business' credit report are costly for businesses and created missed opportunities.
When businesses complained about the errors, D&B failed to provide a consistent and reliable process for consumers to fix the errors, according to the complaint. The suit alleges that D&B pivoted by marketing its CreditBuilder product to these customers as the solution to their problem. In fact, telemarketers selling the product began their sales pitch by referencing a business' negative credit report, according to the complaint.
CreditBuilder was advertised as a way for businesses to receive active assistance by adding payment history to their credit report in order to improve their score—but in practice, most subscribers received no benefit from the product and D&B more often than not refused customer submissions, at least according to the complaint. Additionally, the complaint alleges that telemarketers who pitched the product falsely claimed that businesses had to purchase CreditBuilder in order to receive a complete credit report.
The complaint also alleges that D&B was less than transparent about the automatically renewing nature of its contracts, which is generally a hard sell at the FTC these days. D&B's salesforce neglected to provide this information, or simply buried the lead. D&B also allegedly failed to tell businesses that renewals would be billed at the "then current price," meaning that the price would continue to increase automatically.
Among several parts of the proposed settlement order, D&B must provide refunds to affected consumers and change its processes to ensure that it responds fully to businesses that complain about incorrect information on their credit reports. The settlement imposes restrictions on the company's ability to automatically renew CreditBuilder subscriptions.
Aside from the FTC's emphasis on pursuing companies using problematic automatic renewing contracts, the Commission noted that it pursued this matter because of its commitment against "abuses aimed at small businesses." As the FTC noted, it's the second announcement of action against companies taking advantage of small businesses since the beginning of the year, when the Commission also banned a cash advance provider accused of bilking small businesses.
USA: 1 - Europe: 0 as Judge Melts Away European Trademark Aspirations for Gruyère
To European cheesemakers the decision may stink, but a federal judge in Virginia has ruled that a cheese may be labeled "gruyère" even if it's not made in the Gruyères region of Switzerland, because the term is now generic in the United States.
This dispute between American cheese producers and their European counterparts follows an acrimonious history, with accusations that businesses selling non-Gruyère-manufactured gruyère (say that 10 times fast) are engaging in false advertising. Judge T.S. Ellis, III considered whether gruyère may only be labeled with that name if it is manufactured in the so-named region of Switzerland or France, or whether the term is generic and can be used as a cheese name regardless of where it is produced. On this motion for summary judgment, Judge Ellis agreed with the U.S. cheese producers: "the term gruyère has … become generic to cheese purchasers in the United States."
The case arose out of a trademark application filed by two European gruyère consortiums seeking to register a trademark for the term as a certification mark (available under certain conditions here for marks that are "geographic indicators"). The U.S. Dairy Export Council filed an opposition with the Trademark Trials and Appeals Board (TTAB), arguing that the term gruyère is generic. TTAB agreed with the U.S. Dairy Export Council, holding that the term is "generic for a type of cheese without regard to the cheese's geographic origins." The European consortiums subsequently filed this lawsuit contesting the TTAB decision.
Judge Ellis held that the overwhelming evidence showed that the relevant purchasing public—U.S. cheese consumers—understands the term gruyère to refer to a type of cheese without a geographic restriction. This evidence includes FDA regulations recognizing that gruyère is not subject to geographic labeling restrictions and the voluminous amounts of such cheese produced outside the Gruyères region and sold in the United States.
The court also did not find merit in plaintiffs' argument that the absence of consumer "survey data should result in an inference that such a survey would show that consumers do not understand the term gruyère to be generic," pointing out that courts have found that genericness can be established without survey data. Judge Ellis also took note of the massive evidence of common usage of the term gruyère to refer to cheese not necessarily from Gruyères, including dictionary definitions, media references, and industry materials.
Further, the design trademark "Le Gruyère Switzerland AOC" that the Swiss plaintiff obtained and which could be used to designate cheese that derives from the Swiss region of Gruyères was still valid. Plaintiffs have vowed to appeal.
As the court pointed out, certification marks for other fine food products have in the past been granted, including for Roquefort as a cheese from a specific municipality in France and Cognac for a brandy from a specific French region. Though not made explicit, what possibly altered the calculus here is the fact that plaintiffs did not attempt to obtain a certification mark for gruyère until fairly recently (the process began in 2015), despite the cheese having origins in the region going back hundreds of years (and at least as long as TTAB's been around). The EU solved "generic" U.S. Champagne via treaty, an outcome as unlikely here as a successful appeal.