1. American Bar Association
Consumer Protection Update
Matthew C. Staples
2. Presentation Outline
Federal Trade Commission
FTC Reports & Workshops
State Law Update
Private Actions Update 2
3. FTC: Notable Cases
FTC v. Information Search, Inc. & David J.
Defendant settled charges that it obtained confidential
phone records and sold them to third parties without
Settlement bars defendant from obtaining, causing
others to obtain, marketing, or selling customer phone
records except where allowed by law, regulation, or
Imposes judgment of $40,075, all but $3,000 of which
4. FTC: Notable Cases
In the Matter of Kmart Corporation, et al.
Defendant agreed to settle FTC charges that it had engaged in
deceptive practices in advertising and selling gift cards.
FTC alleged that Kmart had failed to adequately disclose
applicable terms and conditions related to "dormancy fees."
Kmart cards stated: "After 24 months of non-use, a $2.10 per
month service fee will be deducted from your balance in arrears
until the card is used or depleted."
What that meant: in addition to deductions for future months of
inactivity, the $2.10/month fee was applied retroactively to
previous 24-month period, resulting in immediate $50.40
reduction from card's value.
5. FTC: Notable Cases
The FTC claimed Kmart's disclosure of the fee was inadequate
the fee was disclosed on the back of the card in small print
(approximately five point font), embedded in a paragraph of "Terms and
the card was affixed to cardstock that completely obscured the
disclosure on the back of the card;
Kmart failed to use "understandable language and syntax to describe
the dormancy fee";
Kmart sold gift cards on the Kmart.com website without disclosing the
fee to consumers at the time of purchase;
the Kmart.com website stated that Kmart Gift Cards "never expire,"
despite the large dormancy fee that, after two years of inactivity, would
reduce many card balances to zero and thereby effectively cause such
cards to expire.
6. FTC: Notable Cases
In requiring Kmart to disclose expiration dates and fees "clearly and
prominently," the FTC's consent order requires that Kmart:
Provide disclosures "at the point of sale, prior to purchase"
in audiovisual advertisements, provide disclosures in both audio and
video formats "simultaneously," with audio "delivered in a volume and
cadence sufficient for an ordinary consumer to hear and comprehend it"
and video being "of a size and shade, and … appear[ing] on the screen
for a duration, sufficient for an ordinary consumer to read and
in interactive media, provide disclosures that are "unavoidable" and
"presented prior to the consumer incurring any financial obligation"
in print advertisements or other materials, and on a product label or the
gift card itself, provide disclosures in "a type size and location
sufficiently noticeable for an ordinary consumer to read and
comprehend it, in print that contrasts with the background against which
in multi-page documents, include the disclosure "on each page where a
gift card is advertised, promoted, mentioned, or depicted"
make the disclosure in an "understandable language and syntax" 6
7. FTC: Notable Cases
FTC v. Capital Acquisitions & Management Corp., et al.
Defendant, a company that buys delinquent debt,
settled FTC charges that it threatened and harassed
consumers to get them to pay old, unenforceable
debts or debts they did not owe.
FTC had alleged violations of FTC Act and FDCPA
Other defendants had already settled for $1,000,000
Settlement bars defendant from collecting upon debts
and, furthermore, from making false or misleading
statements or representations in connection with debt
collection; imposes $15,000,000 fine if defendant
misrepresented financial condition
8. FTC: Notable Cases
FTC v. Myfreemedicine.com
Complaint alleged that defendants targeted low
income consumers who spent more than $100 a
month for medications and might qualify to receive
free prescription medicine through one or more
patient assistance programs (PAPs) operated by
PAPs impose varying eligibility requirements and not
all drugs are available. Those that are may only be
available for limited times, or in certain doses.
The company charged consumers $199.95 for a six-
month enrollment. In exchange, it provided
consumers with the PAP forms.
9. FTC: Notable Cases
FTC v. Myfreemedicine.com (cont.)
Settlement imposes $500,000 suspended judgment; prohibits
deceptive claims about any medical services program, including
claims about PAP eligibility, availability of specific medications,
assistance the defendants provide, and their refund policy.
It also bars defendants from accepting payment without first
providing a clear and conspicuous written notice that discloses
the terms and conditions of their services and informs
consumers that they can access PAPs directly, defendants only
provide assistance in applying for PAP benefits, PAPs set their
own eligibility requirements, and payment to the defendants
does not guarantee receipt of medication from a PAP.
The settlement also requires that defendants disclose their
refund policy in writing.
10. FTC: Notable Cases
FTC v. International Product Design, Inc., et al.
FTC initiated contempt proceedings against defendants who operated
fraudulent invention promotion business in violation of court order
Court order issued in 1998 prohibited two of the defendants from falsely
promising to evaluate invention ideas and falsely claiming that
consumers would profit financially if they bought the defendant's
invention promotion services
FTC also alleged that defendants never sent consumers the “Affirmative
Disclosure” form required by the order; the form should have disclosed
the defendants' non-existent track record in bringing inventions to
FTC alleged that defendants, in roles as managers and salesmen for
the business, knew about and were subject to court order
Bankruptcy receiver's report indicates that the business has received
over $60,000,000 from more than 17,000 customers since 2000 but
couldn't identify a single consumer who had utilized its services
11. FTC: Notable Cases
FTC v. 120194 Canada, Ltd. d/b/a Veritech
Communications, et al.
FTC alleged that individuals and their companies falsely claimed that
high-credit risk consumers would receive low-interest, high-credit limit,
no-annual fee credit cards if they paid fees ranging from $159 to $236
Defendants instead shipped package of coupons and discounts
Settlement and default order:
Bars defendants permanently from telemarketing in the U.S., selling credit-
related products or services in the U.S., and making or assisting anyone else
in making misrepresentations material to a customer’s decision to buy any
good or service, concerning the performance, efficacy, or nature of a product
or service, or the material terms, conditions, or limitations of any transaction
regarding a product or service
Continues the freeze in place on the defendants’ assets, except for funds
required to pay $8.1 million default judgment to the FTC, prohibits them from
disclosing information about their customers, and contains monitoring and
record keeping terms to ensure their compliance.
12. FTC: Notable Cases
FTC v. 1522838 Ontario, Inc. d/b/a International
Industrial Trade Directory
"Bogus billers" settled FTC charges that defendants billed and
accepted payment for unauthorized listings and advertisements
in nonexistent business and travel directories and
undelivered, unauthorized consulting services and office
FTC alleged that defendants targeted businesses and cities in
the U.S., and resorts and hotels in more than 25 countries with
fake cut out legitimate advertisements and directory listings and
pasted them to their invoices to lend credibility
Settlement imposes $4,000,000 suspended judgment and
prohibits defendants from making, or assisting in making, any
express or implied representation or omission of material fact
that is false or misleading
13. FTC: Notable Cases
FTC v. Mystery Shop Link
Complaint filed against mystery shopping operation, its telemarketing
firm, and the individuals responsible
Mystery shopping operation allegedly misrepresented that:
the operation itself was hiring mystery shoppers, or hiring mystery shoppers
on behalf of others;
there were a specific number of mystery shopping jobs available in the
a large percentage of mystery shopping jobs go unfilled due to a lack of
mystery shoppers; and
consumers who paid the defendants’ fee were likely to earn a substantial
Complaint also charges mystery shopping defendants with contempt –
one of the individuals previously pitched false availability of government
jobs and ability to obtain refund, and others were aware of order entered
against that individual
14. FTC: Notable Cases
FTC v. Debt Set, Inc., et al.
Debt Set advertises and provides "debt reduction services,"
including "debt consolidation" and "debt settlement" programs
Complaint alleges that defendants promise to stop collections
calls, and to consolidate debts, negotiate better interest rates
such as "between 0 and 9 percent," or lump settlements such as
"50 cents on the dollar" or "50 to 60 percent" of the debt
In actuality, the complaint alleges, defendants require
consumers to pay 8% of the debt in monthly payments before
they contact creditors, and sometimes do not contact them at all
Many consumers accrue additional debt from interest, late fees
and finance charges
Judge issued TRO that freezes assets and appoints temporary
15. FTC: Reports & Workshops
Debt Collection Workshop – October 10-
30th anniversary of FDCPA
The workshop is intended to allow the FTC to
learn about changes in the debt collection
industry and to examine how those changes
have affected consumers and businesses.
16. State Law Update -- Enforcement Actions
Sunrise Herbal Remedies (Connecticut)
Law suit alleges that telemarketing and internet
vendor of herbal products defrauded customers who
made one-time purchases by sending them (and
billing them for) repeated shipments.
Disclosure that vendor was an “auto ship company”
and that customers were required to buy at least two
bottles was tucked away at the bottom of the
State seeks restitution for consumers –average loss
$200 per consumer.
17. State Law Update -- Enforcement Actions
Mortgage “Foreclosure Rescue” Service (Washington)
State AG settles with investor group that defrauded
homeowners and other property owners facing tax
Defendants got names of property holders whose
taxes were in arrears from public records. Contacted
them with offer to provide them money with which to
pay off delinquent taxes (sometimes in amounts as
little as $200) in exchange for transfer of title or an
interest in the property.
Redress funds will be divided among 100 or more
defrauded consumers. 17
18. State Law Update -- Enforcement Actions
Advance America Case Advance Centers, Inc.
State AG settles with largest “payday lender” in the Untied
States. “Payday loan” is a short-term loans or cash advances
that is secured with a post-dated check for the full loan amount
plus interest and fees. Interest is often in the triple digits.
Collection practices are often coercive; threats to initiate criminal
prosecution, unauthorized calls to third parties and personal
visits to consumer’s homes.
“Pay day” loans are illegal in West Virginia and other states.
Relief includes injunctive relief and consumer redress.
19. State Law Update -- Enforcement Actions
Oklahoma Republican Political Consultant fined
for “Robo-Calling” violations of federal
Telephone Consumer Protection Act (Oklahoma)
In lawsuit by State AG, federal judge orders $4,500
fine from consultant Tim Pope for making pre-
recorded calls on behalf of local candidates without
disclosing the name and telephone number of person
responsible for the call.
Defendant intends to appeal on grounds that political
calls do not violate TCPA.
20. State Law Update -- Legislation
South Dakota Spam Statute (H.B. 1285)
Prohibits sending unsolicited commercial e-mail advertisements to a
"South Dakota electronic e-mail address," defined as any e-mail
address "ordinarily accessed" from a computer in South Dakota, owned
by or "furnished to" a South Dakota resident, or "furnished by an
electronic mail service provider that sends bills for furnishing and
maintaining that e-mail address to a mailing address" in South Dakota.
Defines "unsolicited commercial e-mail advertisements" as commercial
e-mails sent without a pre-existing business relationship, and without
the recipient's prior, direct consent.
Authorizes civil suits by individuals and the state attorney general.
Actual damages or liquidated damages of up to $1,000 per unlawful e-
mail, or $1 million per incident, are available.
Likely to be challenged on preemption grounds -- CAN-SPAM
"supersedes any statute, regulation, or rule of a State or political
subdivision of a State that expressly regulates the use of electronic
email to send commercial messages, except to the extent that any such
statute, regulation, or rule prohibits falsity or deception in any portion of 20
a commercial electronic mail message or information attached thereto"
21. National Advertising Division --
Bayer Healthcare LLC (Diabetic
Abbott Labs challenged competitor Bayer’s
claims about Abbot’s diabetic blood glucose
monitoring systems, specifically, claims about
the relative inaccuracy of Abbott’s
FREESTYLE system. For example:
For FREESTYLE, “90% of the errors fell in the
range of +30% to 59% (Code 7), and -10% to -
30% (Code 41)”.
22. National Advertising Division --
“The median difference in results from a miscoded FREESTYLE
meter when compared to a correctly coded meter was +43.3%
When improperly coded, the ONE TOUCH ULTRA and
FREESTYLE meters yielded blood glucose results that differed
from the correct results by a rage of “-31.3% to +45.9%”.
For FREESTYLE, “90% of the errors fell in the range of +30% to
+59% (Code 8), and -5% to -30% (Code 41)”.
“The median difference in results from a miscoded FREESTYLE
meter when compared to a correctly coded meter was +45.9%
NAD concluded Bayer had overstated these claims.
Bayer is requesting referral to a panel of the National
Advertising Review Board.
23. National Advertising Division --
IOGEAR, Inc. (“Germ Free Laser Mouse”)
Advertiser claims titanium dioxide and silver nano-partical
compound coating mouse is 99% germ free and “Safety
NAD finds reasonable scientific basis about germ resistant
features of coating, but no basis for broad claim that technology
is “Safety Approved” where there is no evidence any safety
authority approved its use for this specific purpose.
Nutrisystem Inc. (Nutrisystem “Nourish”)
“Results not typical” disclaimer in ad showing consumer who lost
30 pounds not sufficiently “clear and conspicuous” when
presented in faint green type vertically (rather than horizontally)
on the page.
24. National Advertising Division --
Schering-Plough Healthcare Products Inc. (“Dr.
Scholl’s Dual Action Freeze Away Wart
NAD staff examined whether broadcast ad stating that “Dual
Action Freeze Away is twice as effective as freezing alone on
large warts” implied that the product was superior to visiting a
doctor for treatment of larger warts.
Noting that this ad was part of a trend in which health care
product advertisers are claiming that using their products is as
good as or better than visiting a doctor, NAD found both the
explicit and implied claims substantiated.
25. National Advertising Division --
X-Calibur Plant Health Company (“Plantacote
Controlled Release Fertilizer”)
Challenge by competing fertilizer maker about
efficacy claims in brochure X-Calibur distributed at
only trade shows.
NAD found that the advertising constituted “national
advertising” within NAD’s jurisdiction because
exhibitors and attendees from throughout the United
States were invite to and did attend the trade shows.
26. Children’s Advertising Review Unit --
Conair Corporation (“Quick Gems”)
Television ads asking children to “call right
away” for a “special offer” for hair care
products was substantiated where the ad
ran for less than six months during a
twelve month period, and thus was
27. Children’s Advertising Review Unit --
Sony Picture Entertainment Inc. (“Stomp the
Sony found to have violated CARU Self-Regulatory
Guidelines by included banner ads for adult shows on
the kids section of www.bamzu.com, a portal
designed to promote Turner Broadcasting products
The Upper Deck Company, LLC (“Upper Deck
Website operator found to have collected PII from
children without verifiable parental consent in violation
of the Children’s Online Privacy Protection Act.
28. Private Litigation Update -- Decisions
Proctor & Gamble Co. v. Hagen, et al.
2007 WL 805603 (D. Utah, February 6,
Amway independent distributors sent false voicemails through
Amway voicemail system claiming profits from Proctor & Gamble
support a satanic church. The District Court:
granted P & G's partial motion for summary judgment under
Lanham Act sec. 43(a) false advertising claim, holding:
The voicemails were commercial speech, as 10th Circuit had held
on appeal prior to remand
The messages were sent by defendant and were false
A question of fact remained whether messages were sufficiently
disseminated to general public to constitute commercial advertising
under section 43(a)
The court also held that Utah's common interest publication 28
privilege to slander and libel could not defeat the Lanham Act
29. Private Litigation Update -- Decisions
Muzikowski v. Paramount Pictures Corp., 477 F.3d 899
(7th Cir. 2007)
Seventh Circuit upheld summary judgment in favor of studio
sued by baseball coach who claimed "Hardball" was based on
his story, portrayed him in a false light, and constituted false
Court held that coach waived false advertising claim because he
did not contest that there was no false statement movie was
inspired by "a true story"
Even if he had not waived claim, summary judgment was proper
because 18 affidavits of individuals who stated they believed the
character in the movie was the coach, were "far short" of a
substantial segment of film viewers, where film had grossed over
30. Private Litigation Update -- Decisions
Love v. The Mail on Sunday, 2007 WL 458050 (C.D. Cal.
Feb. 8, 2007)
Mike Love, former Beach Boy sued The Mail on Sunday and other
British entities, under 15 U.S.C. section 1125(a) –false designation and
false advertising for distributing a "Good Vibrations" covermount CD
with old Beach Boy songs and Brian Wilson solo material, for using
Beach Boys photos and the use of the term "The Beach Boys" on the
CD and in advertisements
The District Court applied the 3 Timberline factors used in the 9th Circuit
for extraterritorial application of antitrust laws: (1) there must be some
effect of violations on American foreign commerce; (2) the effect must
be sufficiently great to present a cognizable injury to plaintiffs; (3)
interests and links to American foreign commerce must be sufficiently
strong in relation to those of other nations to justify assertion of
The court held the U.S. did not have a strong enough interest to justify
extraterritorial application of the Lanham Act because the CDs were
only distributed in the UK, and the alleged violations did not create an
effect on American commerce
31. Private Litigation Update -- Decisions
San Francisco Oven LLC v. Fransmart, Inc., 2007 WL
737399 (4th Cir. March 9, 2007)
Fourth Circuit upheld District Court's award of attorney's fees to
defendant whose motion to dismiss 15 U.S.C. section
1125(a)(1)(B) was granted.
Court held that Lanham Act permits award of reasonable
attorney's fees to prevailing party in exceptional cases, which
may be based on "a showing of less than bad faith"
Relevant considerations: economic coercion, groundless
arguments and failure to cite controlling law
Court concluded record supported district court's findings that
plaintiff brought Lanham Act claim solely to avoid dismissal for
lack of subject matter jurisdiction, without any factual or legal
32. Private Litigation Update -- Class Action Certified
Wong v. PartyGaming, Ltd., (N.D. Ohio March 19, 2007)
District Court granted an unopposed motion for class
certification in part
Plaintiffs alleged PartyGaming's "PartyPoker" falsely
represented that it had an effective "collusion
Court held that representatives could not represent
nationwide class action for violation of state consumer
protection laws because they did not provide a fifty-
state review establishing differences among state law
were minor enough to be ignored
Court certified a class limited to Ohio customers
Questions are welcome (and encouraged) during the presentation. If you have
questions after the presentation, please feel free to contact:
Barry Reingold (Washington, D.C.)
Judith Gitterman (Los Angeles)
Matthew C. Staples (Seattle)