Congress Passes "Restore Online Shoppers’ Confidence Act"
Obama Signs Senate Bill Into Law

S. 3386

Restore Online Shoppers’ Confidence Act:

Overview:

• The law is intended to prohibit (in most cases) any third-party seller from charging or attempting to charge a consumer, after an initial transaction, for any good or service sold over the Internet without obtaining consumer express informed consent.
• A third-party seller is defined as a vendor that offers a good or service to a consumer after the consumer has completed a transaction with a different Internet merchant.
• Any third-party seller that enters into a post-transaction sale is required to clearly disclose to the consumer its product/service offering and associated terms of payment.
• The law also prohibits the use of the "data-pass process." That is, third-party sellers must create a process for the consumer to re-enter personal and financial information before any transaction can be complete. This information may not be obtained from the initial transaction merchant.
• The new law also restricts third-party sellers from using "negative option" billing practices. Sellers employing this technique are required to: (1) provide a form that discloses the terms of any agreement; (2) obtain express informed consent from the consumer; and (3) provide an easy way for the consumer to cancel any ongoing charges or subscription fees.

Violation of the Law:

• Any violation of the law will be considered an unfair or deceptive act and practice under the Federal Trade Commission Act.
• Fines can reach $10,000 per violation, not including any potential Federal Trade Commission civil action.
• States also have the right to enforce and prosecute any violation of the law that takes place within its borders.
• Consumer complaints were the impetus behind the creation of the original bill.
• Consumers complained of the use of a "data-pass process" that allows e-commerce and online sales companies to forward personal financial information, including credit card numbers, to post-transaction third-party sellers.
• A post-transaction sale is when third party sellers insert sales offers into the transaction process of a primary seller.

Recent Related Attorney General Settlements:

New Law Addresses These Kinds of Allegations:

Investigation Began in January 2010

• As we first reported in our March 2010 Newsletter, with an update in our November 2010 issue, then-Attorney General of the State of New York Andrew M. Cuomo announced an investigation into 22 online retailers that had allegedly deceptively linked consumers to fee-based membership programs that charge unauthorized fees.
• According to Cuomo’s office, when consumers shop online, they may be presented with a discount or cash-back incentive offer as they complete their purchase.
• When clicking on one of these discount or incentive links, the Attorney General alleged that consumers are then directed to a membership program web page that is separate from the online retailer's site.
• Next, the consumer is instructed to accept the discount or incentive.
• Cuomo further claimed that information about joining the membership program and its implications is listed in fine print.
• Finally, after accepting one of the offers, consumers then begin receiving small and recurring charges on their credit or debit card bills.
• Fandango, Affinion and Webloyalty have entered into settlements with the New York State Attorney General’s Office, promising the payment of multi-million dollar penalties and restitution, but also agreeing to permanently end the practice of obtaining consumers’ billing information from online partner retailers.

Summary:

• The purpose of the law is to eliminate allegedly deceptive online sales tactics that result in recurring charges for various membership dues and other charges that are incurred until cancelled by unwitting consumers.
• Online retailers should pay close attention to the new law and its reach.
• We will continue to keep you abreast of any related developments.

FTC Approves Final Order Settling
Deceptive Advertising Charges Against PR Firm

In re Reverb Communications, Inc.
FTC File No. 092-3199
Federal Trade Commission
Press Releases - August 26, 2010, and November 26, 2010

FTC Complaint:

• Reverb Communications, Inc. ("Reverb") provides public relations, marketing and sales services to developers of video game applications, including mobile gaming applications.
• The Federal Trade Commission ("FTC") brought suit against Reverb and its owner, Tracie Snitker, for engaging in deceptive advertising.
• Specifically, the FTC alleged that Reverb and Snitker posted client game reviews at the iTunes store using account names that gave readers the impression that the reviews were submitted by disinterested consumers.
• Further, the complaint indicated that Reverb and Snitker failed to mention that they were hired to promote the games and that they often received a percentage of resulting sales.
• The FTC claimed that this information would have been relevant to consumers who were evaluating and considering the subject product endorsements.

FTC Revised Endorsements and Testimonials Guides Issued in 2009:

• Under the Revised Guides issued last year, all online posts by people connected to the seller, or those who receive cash or in-kind payment to review a product or service, should disclose the material connection shared with the seller of the subject items.
• For a more thorough summary of the Revised Guides, see our November 2009 Newsletter.

Final Order:

• The FTC order requires Reverb and Snitker to remove any previously- posted endorsements that misrepresent the authors as independent users or ordinary consumers, as well as those that fail to disclose a connection between Reverb and Snitker and the seller of a product or service.
• Reverb and Snitker are also barred from misrepresenting that the user or endorser is an independent, ordinary consumer, and from posting endorsement or user claims about a product or service unless any such posts disclose relevant connections that the reviewers have with the seller of the product or service.

Summary:

• The FTC has been busy policing the online behavior of marketers and public relations firms.
• It is wise for Internet marketing companies to stay abreast of new developments and heed any related laws and FTC promulgations, such as the Revised Guides.

FTC Settlement Shuts Down Websites Advertising
"Free Government Grants"

Federal Trade Commission v. In Deep Services, Inc.
Civil Action No. 09-CV-01193, FTC File No. 092 3103
Federal Trade Commission
Press Release - November 24, 2010

FTC Complaint:

• According to the Federal Trade Commission ("FTC"), defendants operated websites that allegedly deceived consumers by promising free government grant money.
• The complaint stated that the defendants asked for consumers’ credit or debit card information in order to process a $1.99 fee for grant information.
• This fee permitted consumers to access a "members only" section of defendants’ websites, which claimed to contain information on how to obtain free government grants.
• The FTC alleged that the "members only" areas of the subject websites were full of inaccurate and obsolete information.
• The FTC also maintained that the company had failed to disclose that consumers who signed up for website access and government grant information would be charged a recurring monthly fee of $72 to $95 and a one-time charge of $19.12.
• The websites at issue also allegedly falsely offered a "100% No Hassle Money Back Guarantee."
• According to the FTC, contrary to what had been advertised on defendants’ websites, the federal government does not provide grants to consumers for personal expenses or to pay off debt.

TRO Granted:

• The FTC brought suit against defendants in June 2009, at which time a U.S. District Court judge for the Central District of California granted a temporary restraining order shutting down the website operation. 

Settlements:

• The settlements permanently shuttered the website operation.
• Defendants are banned from marketing or selling any grant-related product or service and from marketing or selling any continuity or "negative option" program where consumers have to opt out to avoid being charged.
• The settlements also bar the defendants from automatically debiting consumers’ accounts without prior authorization.
• Defendants are prohibited from misrepresenting facts that would influence consumers’ decisions about whether to participate in their programs.
• The settlement orders each impose a judgment in the amount of $9,042,070, which will be suspended if the defendants: 1) pay back taxes owed to the Internal Revenue Service and the State of California; and 2) surrender their remaining assets to the FTC.

Summary:

• This action was part of the FTC’s ongoing "Operation Short Change" -- its stated effort to put an end to alleged "scams" that target financially-challenged consumers.

FTC Settles With Marketers of Children’s Vitamins for $2.1 Million

In re NBTY, Inc., Naturesmart LLC, and Rexall Sundown, Inc.
Federal Trade Commission
Press Release - December 13, 2010

FTC Complaint:

Allegations:

• The FTC charged marketers NBTY, Inc. and two (2) subsidiaries with making deceptive claims about the amount of DHA (an Omega-3 fatty acid) used in their Disney and Marvel Heroes-licensed children’s multivitamins.
• According to the FTC, the companies also made unsupported claims that a daily serving of the products promotes healthy brain and eye development in children.
• While the packaging and print ads employed by the marketers indicate that the vitamins contain DHA, the FTC claimed that the products have only a "trace" amount of DHA.
• In sum, the FTC alleged that the packaging and ads for the multivitamins misrepresented that they contained a significant amount of DHA and that the marketing companies made unsubstantiated claims that the amount of DHA supposedly found in the products promotes healthy brain and eye development in children.

Settlement:

• The marketing companies have agreed to pay $2.1 million to provide refunds to consumers who purchased their multivitamins.
• According to the settlement, the marketers are barred from misrepresenting the amount of any ingredient contained in any product.
• It further prohibits them from misrepresenting that any ingredient, including DHA, promotes brain or eye health or provides any other health benefit, unless that claim is true and supported by competent and reliable scientific evidence.
• The FTC will administer a refund program to distribute the $2.1 million to purchasers of the vitamins.

Summary:

• Marketers of products and services should ensure that endorsements and promotional ads are accurate and supported by competent and reliable sources. Where health claims are made, marketers must secure well-designed clinical studies that can substantiate any applicable claims.

FTC Issues Privacy Report - Suggesting "Do Not Track" Mechanism, FTC Testifies on New Legislation

Federal Trade Commission
Press Release - December 2010

"Protecting Consumer Privacy in an Era of Rapid Changes: A Proposed Framework for Businesses and Policymakers"

Report Proposes Balance of Privacy and Innovation:

• The Privacy Report provides suggestions on how to balance consumer privacy with the innovative use of consumer information by marketers.
• One suggestion is a "Do Not Track" mechanism. The "Do Not Track" mechanism may take the form of a setting on consumer browsers which will enable consumers to choose whether to permit the collection of their online searching and browsing-habit data.

Industry Self-Regulation "Too Slow":

• The report indicates that industry efforts to implement privacy mechanisms have been too slow and have not provided adequate and meaningful protection.

Report Claims Privacy Policies Not Effective Enough:

• The Federal Trade Commission ("FTC") argues that while privacy policies may exist on many websites, they are often too long, "legalistic" and unread or not understood by the consumer.

Report Recommendations:

• Companies should adopt a "privacy by design" approach by building privacy protections into their daily business practices.
• Consumers should be given a choice about the collection and sharing of their data at the time and in the context in which they are making online purchase decisions.
• Companies should improve the transparency of their information collection and use practices, allowing the public to compare the practices of competing companies.
• Consumers should be given reasonable access to the data that companies maintain about them.
• Finally, the Staff Report suggests that stakeholders undertake a broad effort to educate consumers about their commercial data practices and the choices available to control data collection, use and sharing with third parties.

FTC Testifies on "Do Not Track" Legislation:

• The FTC acknowledged that there are benefits to tracking consumers online as a means to facilitate targeted advertising, known as "behavioral advertising."
• But the Agency recommends the countervailing need to afford consumers a "Do Not Track" option, a simple method through which such tracking can be controlled.

How it Would Work:

• According to the FTC, the mechanism would work by "placing a setting similar to a persistent cookie on a consumer’s browser, and conveying that setting to sites that the browser visits, to signal whether or not the consumer wants to be tracked or receive targeted advertisements."

How it Would Work:

• Through legislation or industry self-regulation.
• If Congress takes on the task, the FTC has recommended certain items to consider when drafting legislation:
  1. it should be mindful not to undermine the benefits that online behavioral advertising provides, such as funding content and services;
  2. it should not require a registry of unique identifiers;
  3. it should consider an option that allows consumers to choose to opt out completely or to choose certain types of advertising that they want to receive or data they are willing to have collected about them;
  4. the opt out mechanism should be simple and easy to find and use; and
  5. the FTC should be given Administrative Procedures Act rulemaking authority and the ability to impose fines for violators.

Use of "NewYorkNewYork" Domain Name for Redirecting Hotel
Reservations was Cybersquatting

New York-New York Hotel & Casino v. Katzin
2010 WL 4386497 (D. Nev. Oct. 27, 2010)

Facts:

• Plaintiff New York-New York Hotel & Casino (located in Las Vegas, Nevada) is the registered owner of various "New York New York" trademarks.
• Defendant Ronnie Katzin registered the domain name "newyorknewyork.com."
• Plaintiff alleged that Katzin began using the domain name to divert consumers to a web page that used the "Expedia" reservation system for any number of hotels (including plaintiff’s).
• By doing so, plaintiff claimed that Katzin’s use of its registered mark was not a bona-fide non-commercial or fair use, but instead was intended to redirect consumers to a webpage in order to profit from plaintiff’s goodwill.
• Katzin argued that because "NEWYORKNEWYORK" is the name of a city and state, he could not infringe upon the plaintiff’s marks by creating a website accessible through a domain name that advertises or markets products and services in, or related to, the City or State of New York.
• Plaintiff moved for summary judgment arguing that Katzin’s registration and use of its marks constituted both cybersquatting and trademark infringement.

The Anti-Cybersquatting Consumer Protection Act ("ACPA"):

The statute states, in pertinent part:

"[A] person shall be liable in a civil action by the registrant of a mark . . . if,
without regard to the goods or services of the parties, that person -
(i) has a bad faith intention to profit from that mark . . . ; and
(ii) registers, traffics in, or uses a domain name that -
(I) in the case of a mark that is distinctive at the time of registration of the domain name is identical or confusingly similar to that mark; [or]
(II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark . . . ."

Court:

• The court reviewed whether plaintiff had met the various test elements of the anti-cybersquatting statute.
• First, the court found that plaintiff’s marks were distinctive, as they are marks for resort or hotel services (and a casino), not provided in the City or State of New York.
• Lending further support to the distinctive nature of the mark, the court explained that NEWYORKNEWYORK does not describe hotel or casino services. Katzin offered no evidence to the contrary.
• Ultimately, the court found that Katzin’s use of the domain name NEWYORKNEWYORK to divert consumers to a web page other than the plaintiff’s online location was done with the bad faith intent to profit from plaintiff’s marks.
• The court described the way that consumer diversion was accomplished by plaintiff: "on the website accessed through the NEWYORKNEWYORK domain name, Katzin also prominently and expressly depicted the plaintiff’s marks in the context of hotel services not located in the city or state of New York . . . . Katzin used the plaintiff’s mark to re-direct consumers to an online location from which Katzin would profit if the consumers book and used a room in Las Vegas."
• As for its trademark claim, the court found that Katzin’s use of a domain name identical to plaintiff’s marks in connection with an image representing plaintiff’s hotel evinces an intent to cause confusion.
• The court granted summary judgment in favor of plaintiff and awarded $1,000 in statutory damages and $1,000 in nominal damages.

Summary:

• Cybersquatting can result in a finding of trademark infringement. Once the elements of the ACPA are satisfied, the court will enjoin the use of the infringing mark.
• Here, although the NEWYORKNEWYORK mark seemed generic, the context within which it was registered and used resulted in a finding of infringement.