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Online Advertiser Settles FTC Charges for Deceptive "Opt-Out" Policy
In re ScanScout, Inc. (FTC File No. 1023185)
Federal Trade Commission
Press Release - November 8, 2011
FTC Complaint:
- ScanScout, Inc. (“ScanScout”) is an online advertiser that places third-party video advertising on Internet websites.
- ScanScout engages in behavioral advertising by collecting information concerning consumers' online activities through the use of cookie technology and then serving video ads tailored to their interests.
- According to the Federal Trade Commission (“FTC”), from at least April 2007 through December 2010, ScanScout's privacy policy misled users into thinking that they could opt-out of ScanScout’s use of cookies by changing their Internet browser settings.
- In fact, according to the complaint, changing the browser settings did not remove or block the Adobe Flash cookies used by ScanScout.
- The FTC alleged that ScanScout's cookie opt-out policy claims were deceptive and violated the FTC Act.
Settlement:
- ScanScout agreed to settle the FTC charges.
- The settlement will bar ScanScout from misrepresenting the extent to which consumer data is collected, used, shared and disclosed.
- ScanScout is required to prominently place on its homepage the following statement: "[w]e collect information about your activities on certain websites to send you targeted ads. To opt-out of our targeted advertisements, click here."
- The “click here” link must provide a mechanism to allow consumers to prevent the company from: 1) collecting information that can identify them or their computer; 2) redirecting their browser to third parties that collect data without their approval; and 3) associating any previously collected data with their personal information.
- Further, the consumer’s cookie opt-out election must last for at least five (5) years, unless the consumer changes it.
- ScanScout is also required to place, within close proximity to the opt-out mechanism, a disclosure that it collects consumer data to send targeted advertising, that opting out will prevent the collection, the current status of the consumer's choice, and circumstances that could automatically change consumer choice.
- Finally, also within close proximity to the targeted display ads, ScanScout must embed a hyperlink taking consumers to the choice mechanism that allows consumers to opt-out of receiving targeted ads.
Take Away:
- The original investigation and the ultimate settlement are a clear example of the FTC's continuous efforts to protect consumer privacy online.
- The settlement underscores the strict and rigorous rules that must be followed when implementing online behavioral advertising programs.
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Parties Settle Class Action Charges of Unauthorized
Text Message Advertisements
Kramer v. Autobytel, Inc. (N.D. Cal., No. 10-cv-02722-CW, July 15, 2011)
Facts:
- In November 2009, plaintiff class representative Christopher Kramer brought a putative class action against Autobytel, Inc. (“Autobytel”) and B2Mobile, LLC (“B2Mobile”), alleging that he had received several unauthorized text message advertisements in violation of the Telephone Consumer Protection Act (“TCPA”).
- The following year, the class action complaint was amended adding LeadClick Media, Inc. (“LeadClick”) to the list of defendants.
- In October 2010, Autobytel and plaintiff entered into a stipulation, individually settling the claims against Autobytel.
- Together, with an experienced mediator, the remaining parties came to terms on a settlement agreement.
Settlement Terms:
- In general, the injunctive relief contained in the settlement agreement appears to be designed to: (1) change the defendants’ manner of doing business; (2) influence others in the industry to change their manner of doing business; and (3) require obtaining explicit prior written consent from consumers before sending them text messaging advertising.
- Pursuant to the terms of the settlement agreement, class members are entitled to submit claim forms for settlement fund benefits.
- Each claim form will include an additional option to remove any LeadClick or B2Mobile class member’s cell phone number from any list or database of numbers to which text messages could be sent by or on behalf of those two (2) companies in the future.
Take Away:
- The settlement reached herein was achieved with the assistance of an experienced mediator.
- In its compromise, the defendants refused to admit any wrongdoing.
- It is clear from the settlement that defendants are required to take significant effort to ensure that consumers are not the unwitting recipients of unauthorized text messages.
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New Jersey Voters Back Sports Gambling
The New Jersey Sports Betting Amendment
Public Question 1
November 8, 2011
Referendum:
- This past Election Day, New Jersey voters overwhelmingly approved a statewide referendum challenging the federal ban on sports wagering.
- The non-binding referendum, calling for a constitutional amendment, was the only question to appear on the statewide ballot.
- State Senator Raymond Lesniak (D., Union) is a major proponent of sports wagering, and plans to introduce legislation that would authorize the New Jersey Casino Control Commission to begin the process for licensing sports betting at casinos and horse tracks throughout New Jersey.
- The proposed law would contain a carve-out prohibiting wagering on any college sports or athletic event that takes place in New Jersey or in which a New Jersey college team is participating.
PASPA:
- An obstacle to allowing sports wagering in New Jersey is the Professional and Amateur Sports Protection Act (“PASPA”).
- This federal law must be overturned or repealed in order for New Jersey to pursue its course of action.
- PASPA was enacted in 1992 and prohibits wagering on sports in all states.
- Within 18 months following its enactment, any state that wanted to allow for sports betting had to apply for an exemption. Only four (4) states (Nevada, Oregon, Montana and Delaware) obtained the exemption.
- New Jersey failed to meet this deadline.
- The passage of the referendum gives the State the momentum and backing it needs to sue for an exemption.
- Governor Chris Christie is reported as saying, “[w]ith this referendum, we have an opportunity that gives the State more solid footing to challenge the federal ban on sports wagering outside of a few select places.”
Take Away:
- We will continue to track and report on any further developments concerning the state of sports wagering in New Jersey.
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Advertising Campaign Violating Facebook’s Terms of Service
May Violate CAN-SPAM and CFAA
Facebook, Inc. v. MaxBounty, Inc. (N.D. Cal., No. 10-4712, Sept. 14, 2011)
Facts:
- Facebook, Inc. (“Facebook”) is a social networking website that requires users to agree to its statement of rights and responsibilities, including advertising guidelines prohibiting false, misleading, fraudulent and deceptive advertisements.
- MaxBounty, Inc. (“MaxBounty”) is an advertising and marketing company that employs a network of publishers to drive traffic to its customers’ websites.
- MaxBounty acts as an intermediary between its network of publishers and its advertisers.
- The MaxBounty marketing program utilizes a cost-per-action model.
Allegations:
- Facebook alleges that MaxBounty is engaging in impermissible advertising and commercial activity on Facebook.com.
- Specifically, it is alleged that MaxBounty, through its affiliates, creates Facebook pages that are intended to re-direct unsuspecting Facebook users away from Facebook.com to third-party commercial websites.
- Further, MaxBounty is alleged to have received payment for the traffic it directed to the third-party sites.
- Facebook brought an action alleging violations of the CAN-SPAM Act, the Computer Fraud and Abuse Act (the “CFAA”) and various related state laws.
- MaxBounty moved to dismiss the claims.
Court:
- On March 28, 2011, the court denied MaxBounty’s motion to dismiss Facebook’s CAN-SPAM and CFAA claims, concluding that both claims were pled sufficiently. The court did grant the motion to dismiss the common law fraud claims, indicating that the claims needed additional specificity.
Fraud Claims:
- The court directed Facebook to plead facts identifying who at MaxBounty had knowledge of the alleged fraud, what they knew, how MaxBounty contributed to the alleged fraud and which of the affiliates were responsible for creating the Facebook pages at issue.
- Facebook provided names of individuals at MaxBounty, as well as specific affiliates, involved in the alleged fraud.
- The court was satisfied with the pleadings and allowed the fraud claims to proceed.
CAN-SPAM Claims:
- The CAN-SPAM Act makes it unlawful for any person to “initiate the transmission” of a “commercial electronic mail message” that is “materially false or materially misleading.”
- Facebook alleged that one of MaxBounty’s affiliates sent the messages at issue and “duped” Facebook users into sending additional messages.
- Further, Facebook alleged that none of the messages associated with MaxBounty’s campaigns identified MaxBounty as the initiator despite the fact that it sent the messages by inducing Facebook users to execute computer code that caused messages to be sent automatically to all of their Facebook “friends.”
- The court found the pleadings to be sufficient and allowed the CAN-SPAM claims to proceed.
CFAA Claims:
- The CFAA makes it unlawful for anyone knowingly and with intent to defraud to access a protected computer without authorization (or exceeding authorization) and through such conduct to further the intended fraud.
- Facebook alleged that MaxBounty and its affiliates registered for Facebook accounts and accepted Facebook’s Terms of Use, which places restrictions on their use of the Facebook site.
- The court found these pleadings to be sufficient and allowed the CFAA claims to proceed.
Take Away:
- Unauthorized Facebook-originated advertising may violate assorted state and federal laws.
- We will continue to monitor this case as it develops and will report back in a future Newsletter.
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Court Upholds Online Multi-Step Consent Program
Hager v. Vertrue, Inc. (D. Mass., No. 09-11245, Sept. 28, 2011)
Facts:
- In May 2008, plaintiff class representative Susan Hager visited the website located at free3bureaucreditreport.com to receive credit reports for herself and her husband.
- The site advertised the sale of an Adaptive Marketing, LLC (“Adaptive”) product – “Privacy Matters 1-2-3.”
- The site described the product as a “three-in-one” credit report.
- Hager clicked on the “Get It Now” button.
- The next landing page presented offer details indicating that by signing up for the Privacy Matters product, one will also receive “Your Savings Club,” a premier shopping and savings program.
- Additional information was contained on this page featuring the offer details.
- Hager admits that she did not read the “Offer Details” box, but did enter her name, address and email address and clicked “Continue.”
- The next page featured fields for credit card information, which plaintiff entered, as well as a certification that stated, “[b]y typing my email address below as my electronic signature and clicking ‘Submit,’ I have read and agree to the Offer Details on the previous page, the Privacy Policy and Terms and Conditions for both Privacy Matters 1-2-3 and Your Savings Club.”
- The next page further invited Hager to become a member of another program offered by Adaptive called “Privacy Matters Identity,” an identity-theft protection service.
- The following pages presented the same details as above, requiring Hager to enter her email address, which would constitute her electronic signature.
- A final landing page summarized and thanked Hager for enrolling in the various programs described above and indicated that she would receive a confirmation email for each program.
- Hager proceeded to enroll in two (2) more programs with similar “Offer Details” and methods for providing consent.
- Hager was subsequently charged monthly membership fees for the various programs in which she enrolled online.
- The credit card charges appeared as separate line items with the name of each membership program, her account number, and a toll-free telephone number for each program.
- Hager commenced a class action lawsuit alleging that defendants’ method of advertising their membership programs violated Massachusetts Law, Chapter 93A, which prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
- Defendants moved for summary judgment.
Court Decision:
- The court granted defendants’ motion for summary judgment, finding that Hager failed to allege sufficient facts to demonstrate that the defendants’ enrollment process for the contested programs was deceptive or caused her injury.
- In fact, the court found that the entire process was not deceptive and was, instead, adequate to put a reasonable consumer on notice of a new offer, as well as the basic terms of the offer, if accepted.
- In relying on Bott v. VistaPrint USA, Inc., 392 F. App’x 327, 328 (5th Cir. 2010), the court pointed out that “a consumer cannot decline to read clear and easily understandable terms that are provided on the same webpage in close proximity to the location where the consumer indicates his agreement to those terms and then claim that the webpage, which the consumer has failed to read, is deceptive.”
- The court explained that there is clear language contained on each of the subject landing pages advising consumers before they enter their email address and click “Yes” that doing so: 1) authorizes the company to charge/debit their accounts according to the offer details; and 2) indicates that the consumer has read and agrees to the details.
Take Away:
- Here, the court was satisfied with the multi-step disclosure process requesting that consumers enter their email addresses as their digital signatures only after they received notice of the offer details.
- The court also considered the language of the offer details to be clear and in close proximity to the offer.
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Revenue Agency Issues Draft Directive For Application of
Sales Tax to Third Party Coupons
Massachusetts Department of Revenue
Working Draft Directive 11-XX
September 16, 2011
Summary of Initiative:
- The Massachusetts Department of Revenue (the “Agency”) is seeking to clarify whether, and at what point, sales tax may be collected in connection with the sale and redemption of third-party coupons issued by companies such as Groupon, Living Social and Buy With Me.
- The Agency’s draft directive describes the sale of third-party coupons as a “marketing technique.”
- According to the directive, “vendors may contract with third parties to issue certificates that are sold on the Internet to potential customers at below face value and can be redeemed to purchase taxable property or meals from those vendors.”
- When the certificate/coupon is used or redeemed, the vendor receives from the issuer part of the consideration that the potential customer paid for the certificate/coupon, and the balance is retained by the issuer.
Tax Issues Addressed:
- The sale of a third-party certificate/coupon that may be redeemed for taxable property or meals at face value is not subject to tax.
- The sales price subject to tax in transactions where the retail customer pays in whole or part with a third-party certificate/coupon is not reduced by the amount of the third-party certificate/coupon.
- The vendor is also required to report that amount as gross receipts subject to tax on its sales and use tax return.
Applicable Law:
- In an earlier ruling, the Agency held that the sale of gift certificates did not involve a transfer of tangible personal property and that when a vendor makes a sale of a meal or other taxable items, and the purchaser presents a gift certificate in lieu of cash, the “sales price” includes the face value of the certificate as well as any other cash or consideration paid.
Take Away:
- The Agency concluded that the certificates/coupons described herein should be treated the same as a gift certificate issued by a vendor for sales tax purposes.
- The date for accepting comments on the proposed directive expired on September 30, 2011. We will report back with further developments.
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Reebok Settles FTC Deceptive Marketing Practice Charges
for $25 Million
Federal Trade Comm’n v. Reebok Int’l Ltd. (N.D. Ohio, No. 1:11-cv-02046-DCN, File No. 102 3070)
Press Release – September 28, 2011
FTC Complaint:
- Reebok International Ltd. (“Reebok”) sells “Easy Tone” walking shoes, “RunTone” running shoes and “EasyTone” flip flops.
- According to the Federal Trade Commission (“FTC”), advertisements for the footwear “claimed that sole technology featuring pockets of moving air creates ‘micro instability’ that tones and strengthens muscles as you walk or run.”
- The FTC alleged that Reebok made unsupported claims in advertisements that walking in its EasyTone shoes and running in its RunTone running shoes strengthen and tone key leg and buttock muscles more than regular footwear.
- Further, it is alleged that Reebok falsely claimed that walking in EasyTone footwear had been proven to lead to 28% more strength and tone in the buttock muscles, 11% more in the hamstring muscles, and 11% more in the calf muscles as compared to regular walking shoes.
- Reebok has been making these claims via print, television and Internet advertisements since early 2009.
Settlement:
- Reebok agreed to resolve charges that it deceptively advertised its toning shoes and will pay $25 million as part of the settlement agreement.
- Reebok is barred from:
- making claims that toning shoes and other toning apparel are effective in strengthening muscles, or that using the footwear will result in a specific percentage or amount of muscle toning or strengthening, unless the claims are true and supported by scientific evidence;
- making any health or fitness related efficacy claims for toning shoes and other toning apparel unless the claims are true and supported by scientific evidence; and
- misrepresenting any tests, studies, or research results regarding toning shoes and other toning apparel.
Take Away:
- The FTC continues to patrol the marketplace for deceptive advertising claims.
- Mainstream companies are not immune from deceptive marketing liability.
- Companies creating advertising campaigns for their products or services should ensure that their claims are backed by appropriate clinical studies.
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