Legal Watch Bulletin - December 2018
FTC Settles with PR Agency over the Endorsement Rule
The Federal Trade Commission (FTC) announced a settlement with a public relations agency and its chief executive officer, as well as a magazine publisher and its sole owner, alleging claims that they misrepresented paid endorsements as independent consumer opinions and commercial advertising as independent journalistic content.
Once again, the FTC has not just gone after the lead defendant but ancillary parties like the magazine’s public relations agency.
Palm Litigation
The Palm, known mostly for its famous steaks and caricature-filled walls, is quickly becoming notable for another reason. Recently, in an opinion following a bench trial, New York State Supreme Court Judge Andrea Masley ordered the owners of The Palm steakhouse chain to pay their cousins $120 million for paying less than market rate for use of the Palm name, logo and signature style over the past 46 years. The case is Ganzi, Gary C. et al. v. Ganzi Jr., Walter et al., No. 653074-2012 (N.Y. Sup. Ct.).
FTC Says Restricting Key Words In Search Is Anticompetitive
The FTC has issued its ruling in the 1-800-Contacts case regarding agreements between the company and its competitors to restrict how they showed up in search results when consumers searched for the other party’s trademarked terms. If the FTC’s ruling on the matter were the final word in the litigation, it would be a watershed ruling on the topic of competitive keyword advertising. Instead, the case simply moves to its in appeal at the D.C. Circuit.
FTC Staff Report
Staff of the Federal Trade Commission recently called for a balanced approach that protects both consumer privacy and innovation in a comment submitted to the Department of Commerce’s National Telecommunications and Information Administration (NTIA) as part of that agency’s consumer privacy proceeding.
In its comment to NTIA, staff notes the FTC’s extensive experience in protecting consumer privacy and fostering innovation. For decades, the Commission has brought hundreds of cases protecting the privacy and security of consumer information — both online and offline — held by large and small companies. In addition, the Commission also conducts consumer and business education and policy development to promote privacy and the security of consumer data.
The FTC is uniquely situated to balance consumers’ interests in privacy, innovation, and competition, according to the comment. In particular, the FTC’s dual mission of protecting competition and consumer protection gives the Commission a deep understanding of the benefits and costs to consumers associated with the use of their data.
FTC Testifies On Data Security / FTC Annual Report for Fiscal 2018 Has Some Hints of Its Future Enforcement Priorities
The Federal Trade Commission testified before the Senate Commerce Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security regarding the agency’s work to protect U.S. consumers and promote competition, while maximizing the agency’s resources and anticipating and responding to changes in the marketplace.
Testifying on behalf of the Commission, FTC Chairman Joseph J. Simons and Commissioners Noah Phillips, Rohit Chopra, Rebecca Slaughter, and Christine S. Wilson noted that during fiscal year 2018, the FTC’s law enforcement actions led to more than $1.6 billion in refunds to consumers and collected more than $8.5 million for the Treasury. This includes $83.3 million in redress that the Commission returned to consumers.
Digital media has opened new avenues to communicate with consumers. The FTC will take enforcement action against deceptive advertisements that appear in new formats (e.g., apps, games, videos, and social networks) and also evaluate the use of online reviews of products or services, the use of fabricated reviews, undisclosed material connections with reviewers, prohibitions on negative reviews, or unsubstantiated testimonials, and take action as appropriate.
Companies are increasingly blending advertising with news, entertainment, or editorial content in digital media. If consumers do not recognize and understand the difference between advertising and other content they can be deceived. The FTC will examine consumer protection issues raised by sponsored content, “native” advertising that looks like surrounding non-commercial content, and endorsements.
Consumer privacy and data security remain important priorities for the FTC, and the Commission reiterated its commitment to use every tool at its disposal to protect consumers, according to the testimony. To date, the FTC has brought more than 60 data security cases alleging that companies failed to implement reasonable safeguards, as well as more than 60 general privacy cases.
The FTC has aggressively pursued privacy and data security cases in a variety of areas, the testimony explained. For example, the Commission recently gave final approval to an expanded settlement with the ride-sharing company Uber Technologies Inc. related to allegations that the company failed to reasonably secure sensitive consumer data stored in the cloud. Earlier this year, the Commission approved a settlement with PayPal, Inc. to resolve allegations that its Venmo peer-to-peer payment service misled consumers about their ability to control the privacy of their Venmo transactions and the extent to which their financial accounts were protected by “bank grade security systems.” In addition, the FTC has actively enforced the EU-U.S. Privacy Shield framework — a critical tool for protecting privacy and enabling cross-border data flows — and has brought four cases in the last two months, according to the testimony.
The testimony noted, however, that there are limitations to Section 5 of the FTC Act, which is the main statute enforced by the Commission. Section 5 does not provide for civil penalties, reducing the Commission’s deterrent capability. In addition, the Commission also lacks authority over nonprofits and common carrier activity, as well as broad APA rulemaking authority for privacy and data security generally.
“The Commission has challenged numerous privacy and security practices under Section 5 of the FTC Act. Our program in these areas – which includes enforcement, as well as consumer and business education – has been highly successful within the limits of our authority,” Simons said in separate oral remarks. “But Section 5 is an imperfect tool. In my view, we need more authority.”
The FTC’s annual report can be viewed here.