Venable Sponsored Workshop 2


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Venable Sponsored Workshop 2

  1. 1. FTC And State Attorneys General: How To Avoid Being Investigated And What To Do If Your Company Is ad:tech April 21, 2009 San Francisco Milo Cividanes Lisa Jose Fales 202.344.4414 202.344.4349 Tom Cohn Todd Harrison 212.370.6256 202.344.4724 © 2008 Venable LLP 1
  2. 2. FTC Overview 1 © 2008 Venable LLP 2
  3. 3. FTC Overview FTC pursues deceptive practices under Federal Trade n Commission Act (“FTC Act”), 15 U.S.C. §45 et seq: – Section 5 prohibits “unfair or deceptive acts or practices.” – Section 13(b) authorizes FTC to file suit in United States District Court. – Truth in Lending Act requires disclosure of terms of loans. A representation, omission, or practice is deceptive if it is likely n to: – Mislead consumers; and – Affect consumers’ behavior or decisions about product/service. • Not required to prove actual deception • Marketing materials must be truthful, not misleading, and substantiated. The same rules apply to the Internet. An act or practice is unfair if the injury it causes, or is likely to n cause, is: – Substantial; not outweighed by other benefits; and not reasonably avoidable. 2 © 2008 Venable LLP 3
  4. 4. How the FTC Interprets Marketing Claims From perspective of quot;reasonable consumerquot; n Net impression of the creative n Analysis of “expressquot; and quot;impliedquot; claims n What the creative does not say - that is, if the failure to n include information leaves consumers with a misimpression about the product Is claim material? - important to a consumer's decision n to buy or use the product Does the advertiser have proof before the creative n runs? (substantiation) 3 © 2008 Venable LLP 4
  5. 5. Disclosures Disclosures must be: n – sufficiently clear; – prominent; and – understandable to prevent deception. Other factors: n – clarity of language; – relative type size; – proximity to the claim being qualified; and – an absence of contrary claims that could undercut effectiveness. 4 © 2008 Venable LLP 5
  6. 6. FTC Investigative and Enforcement Process May issue Civil Investigative Demand (“CID”) requiring n production of documents and information; May file suit in U.S. District Court to enjoin any act or n practice that is in violation of any law enforced by FTC; Frequently pursues temporary restraining order (“TRO”) n to freeze both business and personal assets; Propose settlement through “consent decree,” often n requiring the cessation of the challenged business activities, consumer restitution and more. 5 © 2008 Venable LLP 6
  7. 7. FTC Investigative and Enforcement Process FTC can and will, under appropriate circumstances, hold n company individuals liable. – FTC may pursue civil prosecution of individuals that participated in the advertising or had knowledge that the claims or representations were false. – An individual has knowledge if he or she had actual knowledge of material misrepresentations, a reckless indifference to the truth, or an awareness of a high probability of fraud together with intentional avoidance of the truth. – FTC often holds individuals liable where the advertiser/marketer is a small company and the charged individuals were involved in the creation of the ads or creatives. 6 © 2008 Venable LLP 7
  8. 8. State Enforcement Process Similar to FTC process: n – Power to issues CIDs; – May pursue temporary or permanent injunctions; – May pursue TROs; – Often seek payment of significant attorneys fees and costs. For businesses that operate in more than one state n there is risk of multiple or consolidated State actions. In some cases, FTC and State may join forces to n investigate or file suit against a company. 7 © 2008 Venable LLP 8
  9. 9. Best Practices Design advertising and marketing materials to comply with n FTC and State laws governing deceptive practices and consumer credit; Educate your employees (and former employees) to n immediately contact your company’s attorney if they are contacted by the FTC or a State Attorney General’s Office; Educate employees not to talk with the FTC or a State n Attorney General’s Office without counsel present; If the FTC or a State Attorney General has initiated an n investigation against your company, do not destroy or alter any document. 8 © 2008 Venable LLP 9
  10. 10. FTC Actions Against Online Marketers/Affiliates FTC has successfully sought injunctions against Internet n marketers and their affiliates. – Federal Trade Commission v. Innovative Marketing Inc. (D. Md. 2008) • Court ordered asset freeze; prohibited defendants from making certain representations in the marketing of software security products; ordered shut down of websites; and imposed financial reporting obligations. • Court ordered defendants to provide the FTC with the identification of its affiliate marketers and sub-affiliate marketers. – FTC v. ERG Ventures, LLC (D. Nev. 2006). • Defendant deceived consumers into downloading exploitive software by hiding exploitive code within the free software offered to the public. • Court ordered an asset freeze and required defendants to halt unlawful conduct, preserve business records, provide the FTC with detailed financial information. • Court required defendant to provide a copy of the order to each affiliate marketer, sub-affiliate, etc., and to provide the name and address of each such entity to the FTC. 9 © 2008 Venable LLP 10
  11. 11. FTC Actions Against Online Marketers/Affiliates FTC has successfully sought settlements against marketers advertising n “foreclosure rescue,” “debt relief,” or “credit repair” programs. Newly-appointed FTC Chairman Jon Leibowitz recently testified before a n U.S. House Committee that the FTC intends to be more aggressive in pursuing unfair and deceptive practices in the areas of mortgage loans and foreclosure consultants, debt negotiation, payday loan lenders, credit repair, and debt collection. – Mortgage Foreclosure Solutions, Inc. (1/8/2009) • Company claimed that for $1,200 fee it could stop foreclosure. • Defendants agreed not to make false representations in future advertisements. • Imposed a judgment of $1,178,920 (all but $8,320.84 suspended because of defendants’ inability to pay). – Debt-Set and Resolve Credit Counseling, Inc. (2008) • Agreed to settle FTC charges alleging that they violated federal law by falsely claiming that they could reduce consumers’ credit card interest rates or the amount of their credit card debt. Settlement orders contain suspended monetary relief of $1 million. 10 © 2008 Venable LLP 11
  12. 12. FTC Actions Against Online Marketers/Affiliates FTC has successfully sought civil penalties against Internet n marketers and their affiliates for sending deceptive emails in violation of CAN-SPAM. – ValueClick Settlement (2008) • Agreed to pay $2.9 million to settle charges that its advertising and e- mails violated CAN-SPAM. • Settlement required ValueClick to include clear and conspicuous disclosures in future advertisements. – FTC v. Global Net Solutions, Inc. et al (2005) • Defendants agreed to pay $621,000 to settle FTC charges that they sent millions of illegal e-mail messages – including sexually explicit messages – in violation of federal law. • Although an affiliate sent many of the e-mails at issue, the FTC argued that under CAN-SPAM, all of the defendants who paid others to send the email were responsible for the e-mails. • The settlement required defendants to collect certain information about an e-mail campaign, as well as information about affiliates, before they begin a campaign. Defendants were required to sample new subscribers to their Web site to make sure the affiliates are complying with the settlement order when sending out marketing e-mails. 11 © 2008 Venable LLP 12
  13. 13. FTC Actions Against Online Marketers/Affiliates FTC has successfully sought civil penalties against Internet n marketers and their affiliates for sending deceptive emails in violation of CAN-SPAM (con’t). – FTC v. Cleverlink Trading Limited et al (2006) • Defendants and its partners agreed to give up $400,000 in ill-gotten gains to settle FTC charges that their spam, or that of their affiliates, violated federal law. One of the operators charged was a professional “button pusher,” who used spam to drive traffic to Web sites run by third parties. • Settlement required extensive monitoring of their affiliates for future violations. – FTC v. Olson et al (2006) • Two spam merchants who hijacked consumers’ computers and turned them into spamming machines agreed to a $45,000 judgment (suspended) to settle FTC charges that they sent illegal e-mails hawking mortgage opportunities, a device for improving gas mileage, and other products and services. • Part of FTC’s crackdown on “button pushers,” i.e., persons who send spam while concealing the identity of the real sender. 12 © 2008 Venable LLP 13
  14. 14. State Enforcement Actions Florida n – Azoogle (2007) • Florida has launched a CyberFraud Task Force. • Reached settlement with Azoogle for $1,000,000 concerning internet marketing of cell phone products. California n – FTC and California v. Optinglobal et al (2006) • In 2006, the California Attorney General and the FTC brought suit against defendants that allegedly used third- party affiliates to send emails advertising mortgage loans and other products and services. • The order imposed a $2.4 million judgment - representing the total of the defendants’ ill-gotten gains. Based on financial records provided by the defendants, the judgment was suspended upon payment of $385,000 in cash and approximately $90,000 from the sale of real property. 13 © 2008 Venable LLP 14
  15. 15. State Enforcement Actions Washington n – Initiated multiple lawsuits against affiliate marketers under the state Computer Spyware Act passed in 2005. – Washington v. Securelink Networks, LLC and NJC Softwares, LCC • Each defendant agreed to pay $400,000 in civil penalties and $141,000 in attorneys’ fees and costs. • One affiliate marketer that settled AG complaint agreed to pay $25,000 in attorneys’ costs and fees. 14 © 2008 Venable LLP 15