Game On?: Department of Justice Issues Opinion Letter Detailing That Wire Act is Applicable Only to Sports Betting

U.S. Department of Justice
Office of Legislative Affairs
December 23, 2011

1961 Wire Act:

The Justice Department has historically interpreted §1084(a) of the Wire Act to “ban the interstate transmission of bets or information assisting in the placing of bets or wagers, even where the wire communication, such as a telephone call or Internet transmission, occurs between a sender and receiver in the same state but is routed out-of-state before the recipient receives the transmission.”

Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”):

UIGEA provides that “unlawful Internet gambling” does not include intrastate transactions, which are authorized under state law and meet certain other requirements, even if communications are routed across state lines.
UIGEA does not prohibit online gaming; it merely prohibits the financial transactions for players to fund their accounts.
Exceptions to UIGEA’s reach are gambling events such as fantasy sports, inter-tribal and intrastate gaming.

Inquiries from New York and Illinois:

Because there has been some confusion surrounding the interplay of the Wire Act and the UIGEA, and because the States of New York and Illinois both questioned the potential conflict between these two (2) statutes, the United States Department of Justice, Office of Legal Counsel (“OLC”) was asked to analyze whether the federal anti-gambling laws prohibit a state-run lottery from using the Internet to sell tickets to in-state adults, where the Internet transmission crosses state lines or where the lottery transmits data to an out-of-state transaction processor.
The OLC concluded that it was unnecessary to answer this question because the Wire Act applies to the transmission of bets or information assisting in the placing of bets or wagers relating “only” to sporting events or contests.
Previously, the Department of Justice had interpreted the Act as outlawing all forms of gambling.
By virtue of this now-limited interpretation of the Act, the state lotteries conducted by New York and Illinois would not violate the Wire Act because they do not relate to sporting events.
With this opinion, it is now up to the states to decide their public policy as it relates to online gaming.

Take Away:

This is a big development, one that brings online gambling one step closer to becoming legal and regulated in the United States.
The opinion letter opens the door to intrastate non-sports-related gambling. States are now hastily passing legislation to legalize online gambling, such as poker, within their borders. The states of Nevada, California, New Jersey, Connecticut, Iowa and Illinois are some of the first movers, hoping to generate revenue streams to help solve their financial problems.
Before any state legalizes online gambling, however, their legislatures will have to address several issues, including: which games to allow, how many licenses to award, how much the licenses will cost, how to regulate the gaming sites, the tax rate and whether to allow people to bet from other states and countries.
Lobbyists are pressing for the implementation of a federal law legalizing online poker. Industry insiders hope that such a law will be written into law later this year.

Canada Implements First Anti-Spam Legislation

Government of Canada
www.fightspam.gc.ca/

Canada’s Anti-Spam Law (“CASL”):

Applicability:

The law will apply to commercial electronic messages (“CEM”), including email and text messages, that endeavor to communicate, market or sell services and products to Canadians.
Similar to recent case law developments in the United States, the law will also apply to messages communicated to all phones and social media accounts.
Under the legislation, CEMs include any electronic message delivered in connection with a commercial activity, which includes any transaction, act or conduct, and any regular course of conduct that is commercial in nature, whether or not the person who transmits the message does so with the expectation of earning a profit.
CASL allows for private rights of action by individuals and organizations that are affected by violations of the law.

Consent Requirements:

The consent requirements under CASL differ significantly from those contained in the CAN-SPAM Act.
CASL mandates that consumers “opt-in” to the receipt of commercial communications.
CASL requires businesses to have the implied or express consent of recipients before sending commercial communications.

Ways to Obtain Consent:

Implied Consent:
1. Where there is an existing business relationship between the sender and recipient.
2. The recipient has conspicuously published his or her electronic contact information, without including a statement that he or she does not want to receive communications.
3. The recipient has disclosed to the sender his or her email address without indicating that he or she does not wish to receive communications.
Express Consent:
1. Must be meaningful and effective, clearly and simply indicated.
2. Those seeking consent must make clear to the recipient the names of those seeking consent and the person, if different, on whose behalf consent is sought, including their physical and mailing addresses, telephone numbers, email addresses and web addresses.
3. Importantly, businesses using a third party to handle consent issues must make it clear that they are seeking the consent.
4. There should also be a statement informing the recipient that they can withdraw consent by using the contact information provided.

Take Away:

The new law is expected to come into force early this year.
CASL has been touted as a strict anti-spam law, requiring clear opt-in procedures in order to send commercial email and other electronic communications to any recipient.
Businesses that conduct email and text message marketing throughout North America should pay close attention to the promulgation of this Act and its requirements.

Court Order Temporarily Halts Use of Alleged Fake News Websites

Federal Trade Comm’n v. Leanspa, LLC
(D. Conn., No. 3:11-cv-01715)

Press Release - December 1, 2011

Joint Complaint – FTC and State of Connecticut:

According to the complaint, defendant Leanspa, LLC, related companies and an individual, allegedly hired affiliate marketers that used fake news websites to promote their products.
These fake news websites appeared to be independent news or health sites, with names such as “channel8health.com” and “online6health.com.”
The stories advertised on the subject sites had titles such as “Acai Berry Diet Exposed: Miracle Diet or Scam?” and also included the logos of major news sources.
The sites featured allegedly fake reporters’ claims that they had tried the various weight-loss products and lost a great deal of weight quickly (without any special diet or exercise regime).
The fake sites provided links to the defendants’ own websites, where consumers were offered trial samples of two (2) weight-loss dietary supplements.
Affiliate marketers earned a commission for each consumer who landed on their sites and signed up for a trial.
The Federal Trade Commission (“FTC”) and the State of Connecticut allege that once consumers landed on defendants’ sites, they were presented with a message disclosing that, for a limited time, they could receive trial samples of the acai berry or colon cleanse product (or both), for a “nominal shipping and handling fee, typically $4.95 or less . . . .”
Consumers were encouraged to provide their credit or debit card information to pay the nominal fee.
The complaint details certain navigational problems with the subject websites, including: as consumers click away from the site, pop-ups appear containing statements such as “Don’t miss out on this GREAT OFFER!!! Just press Cancel to remain on this page and receive an instant discounted S & H price of $1.95.”
It is alleged that defendants typically charged consumers either $79.99 for one of the products or $158.98 for two (2) - sometimes even before the 14-day trial samples had arrived.
Other allegations include falsely promising a “100% Satisfaction Guarantee” and full refunds to customers who were dissatisfied with the product.
The complaint alleges that defendants’ business practices violated Sections 5 and 12 of the FTC Act, the Electronic Funds Transfer Act, Regulation E, and the Connecticut Unfair Trade Practices Act.

Stipulated Court Order:

The parties have agreed to a court order temporarily halting all business, continuing an asset freeze, appointing a temporary receiver and giving the receiver, the FTC and the State of Connecticut immediate access to their business premises.
Defendants are prohibited from: 1) marketing or selling “negative-option” continuity plans; 2) engaging in unauthorized billing while selling any good or service; and 3) making certain deceptive claims.
Defendants must also cease collecting on customer accounts.
The asset freeze will continue until a final resolution of the court action.

Take Away:

The FTC points out that this is its eleventh case involving fake news websites used to promote dietary supplements.
The FTC continues to actively police misleading and deceptive advertising of health care products and related claims.

Telemarketers Charged with Facilitating Illegal “Robocalling”

U.S. v. Sonkei Commc’ns., Inc. (C.D. Cal., No. SACV11-17777-AG (JPRx))

Federal Trade Commission
Press Release – November 22, 2011

FTC Complaint:

The Department of Justice brought this action on behalf of the Federal Trade Commission (“FTC”).
According to the complaint, defendants Sonkei Communications and Peter and Joseph Turpel allegedly sold “robocall” services to telemarketers that offer credit card services, home security systems and grant procurement programs to prospective customers.
“Robocall” is a term used to describe an automated telephone call that uses both a computerized autodialer and a computer-delivered pre-recorded message.
The FTC alleged that defendants were able to disguise their identity when placing their automated telephone calls by exhibiting inaccurate caller names on caller ID displays such as: “SERVICE MESSAGE” or “SERVICE ANNOUNCEMENT.”
The FTC further alleged that defendants “knew, or consciously avoided knowing, that their clients called phone numbers on the National Do Not Call Registry.”
According to the FTC, the above conduct generated tens of thousands of consumer complaints and violated its Telemarketing Sales Rule.
In addition, defendants allegedly violated the Telephone Consumer Protection Act, which prohibits robocalling without the express prior consent of the called party.
The complaint seeks to put a stop to the illegal calls and asks the court for civil penalties.

Take Away:

This action is evidence of the FTC’s continuing efforts to eliminate illegal robocalling.
We will monitor this action and report back with future developments.

Internet Marketers of Weight-Loss Pills and “Colon Cleansers” To Pay $1.5 Million to Settle FTC Charges

Federal Trade Comm’n. v. Central Coast Neutraceuticals, Inc. (No. 10C 4931, N.D. Ill. Jan. 3, 2012)

Federal Trade Commission
Press Release – January 9, 2012

FTC Allegations – As Reported in our August 2010 Newsletter:

The Federal Trade Commission (“FTC”) allegations charged Central Coast Neutraceuticals, Inc. ("CCN") and related companies and individuals with certain marketing violations, including deceptive advertising of AcaiPure (an acai berry supplement) and Colopure (a colon-cleansing supplement).
The complaint alleges that on their respective websites, defendants made dramatic claims about the products’ effectiveness.
The FTC further alleged that defendants deceived consumers with "free" or "risk free" trial offers, certain charges and refund terms, as well as with respect to potential, unexpected enrollment in recurring monthly membership programs.
Additionally, the FTC alleged that defendants falsely claimed that celebrities, including Oprah Winfrey and Rachel Ray, had endorsed products marketed by CCN.

Specific Conduct Challenged:

The defendants were charged with violations of the FTC Act, the Electronic Funds Transfer Act ("EFTA") and Regulation E.
The alleged deceptive practices include:
1. making false, misleading and unsubstantiated product efficacy claims;
2. misrepresenting product endorsements;
3. misrepresenting money-back guarantees;
4. misrepresenting claims of "30-day trial offers;"
5. failing to disclose recurring monthly membership programs, upsells and return costs;
6. submitting unauthorized charges on customer credit and debit cards; and
7. initiating unauthorized electronic funds transfers from consumer bank accounts.

Settlement:

The settlement order includes an $80 million judgment, representing the total amount of consumer injury caused by the alleged scheme. According to the FTC, the monetary judgment will be suspended when the FTC receives assets worth approximately $1.5 million from defendants.
In addition to banning the defendants from selling any products or services with a negative option feature in the future, the settlement also prohibits them from:
1. making deceptive statements: a) that there is no cost for a trial purchase; b) that all consumers who request full refunds will get them; c) that celebrities such as Oprah Winfrey and Rachael Ray endorse their products; d) that consumer testimonials reflect typical consumer experiences; e) about the total amount consumers will pay; and f) about any other material fact regarding any goods or services sold by the defendants;
2. failing to make adequate disclosures about the material terms and conditions of any offer;
3. charging consumers' credit cards, or debiting their bank accounts without their consent;
4. making any claim that a product can diagnose, cure, mitigate, treat or prevent any disease, including cancer, unless the claim is approved by the Food and Drug Administration;
5. making any claim that a product can cause weight loss, unless the claim is supported by two (2) well-controlled human clinical studies;
6. making claims about the health benefits of any supplement, food or drug without competent and reliable scientific evidence, and misrepresenting any tests or studies; and
7. violating the EFTA and Regulation E.

Summary:

The FTC is carefully scrutinizing the manner in which companies describe and advertise their products’ benefits.
False claims regarding "free trial offers" and deceptive marketing continues to be a hotly-investigated and penalized area on both state and federal levels.
It is imperative to have all programs and associated marketing creative carefully reviewed by counsel prior to promotional launch.

Industry Accountability Program – First Enforcement Cases

Council for Better Business Bureaus, Press Release – November 8, 2011

DAA Principles for Online Data Collection

Digital Advertising Alliance, Press Release – November 7, 2011

World Wide Web Consortium Publishes Draft Do-Not-Track Standards

W3C, Press Release – November 14, 2011

CBBB Action:

The Council for Better Business Bureaus (“CBBB”) administers the Online Interest-Based Advertising Accountability Program (the “Program”).
The Program imposes privacy restrictions on companies that track consumers’ online activities for targeted marketing purposes.
The CBBB initiated the formal enforcement of the Self-Regulatory Principles for Online Behavioral Advertising (the “Principles”), by releasing decisions in its first six (6) compliance cases.
According to the Press Release, “All companies have the obligation to monitor their data collection and advertising practices to ensure compliance with the Principles, including ensuring that their notice and choice mechanisms are fully compliant with the Principles at all times.”
Based on CBBB reviews, the six (6) companies were found to be non-compliant and have since voluntarily modified their data collection practices.

DAA Principles for Online Data Collection:

The recently announced Principles for Multi-Site Data (the “Principles”) significantly expand the scope of self-regulation of online data collection.
The Principles establish comprehensive self-regulatory standards governing the collection and use of Multi-Site Data, data collected from a particular computer or device regarding Web viewing over time and across non-affiliated websites.
The Principles build on, and adopt, the Federal Trade Commission’s (“FTC”) recommendations in its recent privacy report regarding the collection of web viewing data.
Salient topics covered by the Principles:
1. transparency and consumer control for purposes other than online behavioral advertising;
2. collection/use of data for eligibility determination;
3. collection/use of children’s data; and
4. meaningful accountability.

World Wide Web Consortium Draft:

The draft "do-not-track" standards address a consumer’s right to avoid having their online activities followed by companies.
Under the rules, firms would need “affirmative, informed consent” in order to follow the web behavior of consumers who have implemented the new “do-not-track” tools available on the web.
The W3C invites review of the draft which is expected to become effective by mid-2012.

Take Away:

Within a month’s time, three (3) separate organizations focused on an area of increasing consumer and regulatory concern: the emergence of behavioral advertising, which involves the tracking of consumers’ online activities for targeted marketing purposes.
In a preliminary report, the FTC suggested the creation of an Internet "do-not-track" mechanism, and is expected to release a final report early this year.

Defendants to Pay Millions to Settle FTC Charges of Fraudulent “Homeowner Relief” Services

Federal Trade Comm’n. v. U.S. Homeowners Relief, Inc. (C.D. Cal., Case No. SACV10-01452 JST (PJWx))

Federal Trade Commission
Press Release – December 15, 2011

FTC Complaint:

Six (6) defendants allegedly promoted a “Government Mortgage Relief Program” that would “purportedly” reduce mortgage payments as part of a government-sponsored program, even though defendants were not affiliated with the government.
Defendants sent mailers to consumers with the term “PRE-SELECTED,” leading them to believe that they could receive a loan modification.
The complaint alleged that defendants claimed a 90% or higher success rate, charged consumers up to $4,250 and promised to reduce their mortgage payments, interest rates and, on occasion, their principal loan amounts.
Despite the fact that defendants promised full refunds if they were unsuccessful, the Federal Trade Commission (“FTC”) alleged that once consumers paid the fee, they did not get a refund.
Further, it is alleged that defendants failed to return phone calls and email messages from dissatisfied consumers, and even disconnected telephone lines and changed the name of their businesses.

Settlement Orders:

Several orders were entered against the various defendants, each imposing million dollar judgments, ranging from $2.1 million to $3.9 million.
All six (6) defendants are prohibited from providing debt relief and mortgage assistance services and from making future misrepresentations about other products and services.
The defendants are required to have adequate evidentiary support for any and all claims that they make about the benefits, performance and efficacy of financial products that they promote.
Finally, defendants are required to comply with the Telemarketing Sales Rule.

Take Away:

The FTC continues to pursue companies that target the financially-burdened consumer.
Companies in the business of advertising debt relief services should be aware of the FTC’s efforts to protect consumers from misrepresented and fraudulent products and services.

North Carolina State Bar Ethics Opinion Allows Lawyer Advertising on "Deal of the Day" or Group Coupon Websites

North Carolina State Bar Ethics Committee
Formal Opinion 2011-10
October 21, 2011

Ethics Committee Opinion:

The North Carolina State Bar Ethics Committee issued an opinion on October 21, 2011, which provides, in pertinent part, that "a lawyer may advertise on a website that offers daily discounts to consumers where the website company's compensation is a percentage of the amount paid to the lawyer if certain disclosures are made and certain conditions are satisfied."

No Violation of Fee Splitting Rule:

Rule 5.4 of the North Carolina State Bar Rules of Professional Conduct prohibits, with few exceptions, the sharing of legal fees with non-lawyers.
The rule seeks to prevent the interference in the independent professional judgment of a lawyer by a non-lawyer.
Here, the fee is deducted from the amount paid by a purchaser for the anticipated legal service, and is paid regardless of whether the purchaser actually claims the discounted legal service.
The Committee noted that there is no interaction between the Internet marketing site and the lawyer with respect to the legal representations once the fee is paid and the transfer of the "daily deal" proceeds is made.
Under these circumstances, the Ethics Committee views the fee retained by Internet advertising companies as the cost of advertising on their websites and not fee sharing.

Lawyer's Professional Responsibilities Remain:

Lawyers may not engage in misleading advertising and must include certain professional disclosures in their marketing materials.
A professional relationship with a purchaser of the discounted legal service is established once the payment is made and the relationship must be honored.
A lawyer has a duty of competent representation.

Take Away:

Lawyers in North Carolina may advertise their services at discounted prices on group coupon websites, such as Groupon and LivingSocial.

Internet Marketers Agree to Stop Selling Contact Lenses Without Prescriptions

U.S. v. Thy Xuan Ho, d/b/a MyCuteLens.com (D. Minn., No. 1:11-cv-03419-JRT-LIB)
U.S. v. Gene Kim, d/b/a BuyExclusive.net (E.D.N.Y., No. 1:11-cv-05723-DLI-RER)
U.S. v. Royal Tronics, Inc., d/b/a MyCandyEyes.com (S. Fla., No. 0:11-cv-62491-DMM)

Federal Trade Commission
Press Release – November 28, 2011

Complaints:

At the request of the Federal Trade Commission (“FTC”), the Department of Justice filed the above-referenced complaints against three (3) marketers of cosmetic “circle” contact lenses.
Circle lenses are decorative contact lenses that cover the entire eye (including the white area), making the eyes appear larger.
According to the complaints, defendants sold various types of contact lenses, both cosmetic and prescription, without obtaining the consumers’ contact lens prescriptions or verifying their prescriptions directly with their prescribing doctors.
Further, it is alleged that defendants failed to keep adequate records, all in violation of the FTC’s Contact Lens Rule.
The FTC Contact Lens Rule requires sellers to verify that a consumer has a valid prescription for all contact lenses, including cosmetic lenses that do not correct vision.

Settlements:

The three (3) Internet marketers have agreed to resolve the FTC’s charges by entering into settlements that will halt this alleged practice.
Defendants are prohibited from selling contact lenses without obtaining a prescription from the consumer or verifying prescriptions by communicating directly with a prescriber, and from failing to maintain such records.
The civil penalties against defendants range from $5,400 to $68,000.

Take Away:

The FTC is continuing its effort to help protect consumers from the risks associated with the improper sale and use of contact lenses.