Transcript Program Materials - American Bar Association

ABA Section of Antitrust Law
Consumer Protection and
Corporate Counseling
Committees
November 2006 Consumer
Protection Update
Robert M. Langer & Steven B.
Malech
© 2006 Wiggin and Dana
December 4, 2006
Agenda
•
•
•
•
•
Federal Trade Commission Update
State Attorneys General Update
The Children’s Advertising Review Unit
Lanham Act Litigation
Other Litigation
Preventing Spyware Distribution
• FTC law enforcement focuses on 3 questions:
– Were consumers aware of the software
installation?
– What harm did the installation cause?
– How difficult is “uninstallation” of software?
Goals: To preserve the consumer’s ability to
decide which program to install and retain,
and to prevent substantial harm
SPYWARE/ADWARE
• FTC announced the resolution of
two separate enforcement actions
against spyware distributors:
– FTC v. Odysseus Marketing
Inc., 05-cv-330 (D.N.H., filed
9/21/05)
– FTC v. Seismic Entertainment
Productions, Inc., 04-377-JD
– Settlements end the unlawful
distribution of spyware by these
companies to unsuspecting
consumers.
SPYWARE Cont’d
•
Odysseus advertised a bogus software program that purported to allow
consumers to engage in anonymous peer-to-peer file sharing.
•
In fact, the software was bundled with spyware that launched unwanted pop-up
ads, interfered with the operation of commercial search engines and transmitted
consumers’ personal information to Odysseus Marketing.
•
Odysseus is barred from downloading or installing software without the express
consent of consumers, enjoined from installing software that is not easily
uninstalled, required to destroy all personal information collected from consumers
and prohibited from misrepresenting the function of any software.
•
Odysseus’ principal, Walter Rines, must obtain a $500,000 performance bond
prior to downloading or installing any software that displays ads, modifies a Web
browser or collects personal information.
•
Odysseus is fined $1.75 million, but only had to pay $10,000 because of the
defendants’ inability to pay. (If it the Court finds at some future time that the
defendants misrepresented their financial condition, they must pay the entire
amount)
SPYWARE Cont’d
•
The FTC alleged that John Martinson paid Seismic Entertainment to promote,
advertise and sell two anti-spyware programs. In doing so, Seismic
Entertainment allegedly installed spyware that could only be removed by
purchasing and installing the two “anti-spyware” programs – “Spy Wiper” and
“Spy Deleter.”
•
The FTC also alleged that, if consumers didn’t purchase the program, they were
allegedly forced to “spend substantial time and money to fix the problems” these
programs caused. (See FTC press release dated Nov. 21, 2006 at
www.ftc.gov/opa/2006/11/seismicodysseus.htm.)
•
Pursuant to the settlement, Martinson was enjoined from installing or
downloading software without express consumer consent and from downloading
or installing software that exploits security defects in web browsers, that redirects
browser searches or that modifies the functions of a search engine.
•
A judgment of $1.86 million entered against Martinson, but he only had to pay
$40,000 because of his financial condition. If the court finds Martinson
misrepresented his ability to pay, Martinson must pay the entire amount of the
judgment.
MORE SPYWARE
• FTC v. ERG Ventures, LLC, 3:06-CV-578 (D.
Nev. Filed Oct. 30, 2006)
• Court grants TRO (Oct. 31, 2006) that
(1) freezes the assets of the Defendants;
(2) orders an accounting; (3) orders
preservation of records; and (4) enjoins the
Defendants from installing “mal-ware.”
• Defendants allegedly distributed free software
that was secretly bundled with spyware that
installed advertising toolbars, changed
browser homepages, created pop-up ads –
including “sexually explicit” ads, tracked
internet usage and disabled anti-spyware or
anti-virus software.
YET MORE SPYWARE
•
In re Zango, Inc., No. 052 3130.
•
FTC alleged that Zango used both deceptive and unfair means to
distribute adware (which monitors internet use and creates unwanted
pop-up ads).
– Deception allegations based on purported installation of adware
without warning or user consent by secretly bundling the adware
with other software.
– Unfair practice allegations based on Zango’s alleged failure to
provide consumers with information about the existence, location or
removal of the adware, often causing consumers to spend
substantial time and money to remove the unwanted software.
•
Proposed Consent Order prohibits Zango from using adware or
downloading software without verifying or obtaining the express consent
from the consumer, requires Zango to create a mechanism by which
consumers can complain and/or uninstall the adware, and requires
disgorgement of “$3 million in ill-gotten gains.”
CAN-SPAM
U.S.A. v. Yesmail, Inc., C-06-6611 (N.D. Cal. Oct. 27, 2006).
Unwanted e-mails lead to $50,717 civil penalty.
•
CAN-SPAM Act requires commercial e-mailers to
give recipients an opt-out and to honor
unsubscribe requests within ten days.
•
Yesmail, a commercial marketing service,
allegedly failed to honor unsubscribe requests
within the required period when its spam filter
software filtered out the unsubscribed requests
as spam.
•
Yesmail, in addition to the civil penalties, is
permanently prohibited from violating the CANSPAM act, including by failing to include in its
email a functioning return e-mail address.
FTC v. EPIXTAR CORP. ET AL.,
03-CV-8511
•
Stipulated final judgment bars defendants from misrepresenting the nature of their
ISP services, details specific disclosures defendants must make while marketing
to consumers and prohibits the defendants from billing consumers without
express consent.
•
A “Referee” is established to adjudicate consumer refunds and credits. FTC
claims that $3.6 million has already been refunded.
•
FTC complaint, filed in 2003, alleged that the Defendants misrepresented the
terms of their services, leading consumers to believe that they had a 30 day free
trial.
•
FTC alleged that defendants failed to tell consumers: (1)the service must be
cancelled before the end of the free trial period to avoid billing; (2) how to cancel
the service; (3) when the trial period began or ended; or (4) the date on which the
consumer would be charged.
•
FTC also alleged that the Defendants charged consumers who declined the
service and unfairly billed consumers without their consent.
PROTECTING CONSUMER DATA
Computer data security company settles with FTC over charges that security
failures allowed hackers to access credit card data for thousands of
consumers (In re Guidance Software, 062 3057).
• FTC complaint alleges that between Sept. 2005 and Dec. 2005, a hacker
exploited security flaws in Guidance’s systems, collecting sensitive consumer
data, including credit card numbers and financial information.
•
Guidance represented to its customers that their data was safe.
•
Settlement requires Guidance to: designate an employee to coordinate
information security; design safeguards to control risks identified through risk
assessment process; retain service providers capable of providing the
necessary safeguards and contract with those providers to monitor the
safeguarding.
•
Settlement also requires Guidance to obtain, within six months and then
again every other year for ten years, a third-party certification of the
effectiveness of its security program.
Miscellaneous FTC Matters
1. Canadian brothers and their companies settle charges that they
deceived elderly US residents by offering false Australian lottery
winnings. FTC v. Newport Group, C03-31662 (W.D. Wash)
2. A Florida company settled charges that it made false and
unsubstantiated claims about the ability of a diet supplement to
increase the height of children. FTC v. Sunny Health Nutrition
Technology & Products, Inc., et al., No. 8:06-CV-2193-T-24EAJ
(M.D. Fla.)
3. A scam selling prep materials for non-existent post-office jobs
was shut down. Simmons v. FTC, 3:0 (M.D. Tenn.)
NEWPORT
• FTC alleged that the brothers and their companies would contact
consumers and convince them to pay fee, ranging from $500 to
$35,000, to cover the costs of taxes and processing of their
“winnings” in an Australian or other foreign lottery.
• These actions, mostly done through telemarketing, allegedly
violated Section 5 of the FTC Act and the Telemarketing Sales
Rule.
• The settlement creates a $1.8 million suspended judgment and
requires the payment of $232,700 Canadian dollars and $57,500
in U.S. dollars for consumer redress.
Sunny Health
• Defendants claimed that the ‘HeightMax’ diet
supplement would cause users aged 12-25 to
grow as much as 2 to 3 inches in six months.
Defendants also claimed that ‘HeightMax’ was
created and tested through research and clinical
trials.
• Defendants also created a fake expert ‘William
Thompson’ to pitch their products.
• Settlement imposes a $1.9 million suspended
judgment (based on financial representations)
and restitution of $375,000
Simmons
• Defendants falsely claimed that they were affiliated
with the U.S. Postal Service and that postal jobs were
available.
• Defendants sold study materials for a fictitious postal
entrance exam. Passing the exam, according to the
defendants, guaranteed a job with the Postal Service.
As described by the FTC, the defendants “sold
worthless prep materials for jobs that didn’t exist.”
• Defendants agreed to “give up all of their material
assets.”
• A monetary judgment of approximately $1.3 million
was imposed, but suspended because of defendants’
financial condition
State Attorney General Update
• Omnicare Settlement
• U.S. Dept. of Energy to Issue
Energy Efficiency Standards
for Certain Consumer Goods
• Rent-A-Center
• Spyware Slayer
• State-chartered subsidiaries
of national banks
• Omnicare Settlement
• U.S. Dept. of Energy to Issue Energy Efficiency Standards for
Certain Consumer Goods
• Rent-A-Center
• Spyware Slayer
State AG Update
Company allegedly switched forms
and dosages of medications without
the consent of the prescribing
physician and/or the patient
• OMNICARE: A long
term care pharmacy
that provides drugs to
Medicaid beneficiaries
in 47 States
Allegations include substitution of:
Zantac tablets for capsules;
Generic Prozac capsules for tablets; and
One 15 mg dose into two 7.5 mg doses
No admission of liability, but agreement to
pay $49.5 million to U.S. and 42 states.
State
AG
Update
(Cont.)
State of New York et al. v. Bodman, No. 05 Civ. 7807 and
No. 05 Civ. 7808 (S.D.N.Y.).
Background: 15 states (including CA, CT & NY), the City of New
York and 3 public interest groups sued the U.S. Department of
Energy to force compliance with deadlines for issuance of energy
efficiency guidelines set forth in the Energy Policy and
Conservation Act . DOE was 6-13 years late in complying.
Resolution: Consent judgment establishing binding schedule for
setting overdue guidelines for 22 types of household and
commercial appliances, including air conditioners, heaters,
furnaces, clothes dryers and kitchen appliances.
Claimed Benefits: Financial savings, reduced dependence on foreign oil,
Reduced pollution and increased capacity of electrical grid
State AG Update (Cont.)
People v. Rent-A-Center, Inc. et al., No.
OGC06-45887 (Cal. Super. Ct.)
• California AG alleged that RAC (the
nation’s largest rent-to-own company)
failed to disclose the true cost of its
rent-to-own program and deceptively
marketed its Preferred Customer Club.
• Settlement and Final Judgment calls
for:
– Payment of $7 million in restitution
– Injunctive relief prohibiting certain
practices; and
– The deposit of $7 million in
unclaimed “restitution” funds from a
private lawsuit into a special
consumer protection trust.
State AG Update (Cont.)
• Defendants promoted “Spyware
Slayer” remove non-existent
spyware
• Defendants also provided
download services, but only
disclosed fees after obtaining
personal information.
• Settlement included:
– Restitution to Washington
victims
– $300,000 civil penalties (all
but $25,000 suspended)
– $30,000 attorneys’ fees
• State AGs also seek to
protect consumers against
spyware
•
State of Washington v. High
Falls Media, No. 06-2-37298
(King Co. Sup. Ct. 2006)
State AG Update (Cont.)
• Watters v. Wachovia Bank, 05-1342 (U.S. Supreme Court)
• Background: Dispute between the States and Federal
government regarding the enforcement of consumer protection
statutes against the subsidiaries of national banks. Primarily
driven by State challenges to predatory lending practices.
• The National Bank Act and OCC regulate national banks.
Pursuant to § 484 of National Bank Act, national banks are not
subject to State regulation
• The OCC, in adopting the regulations at 12 C.F.R. 7.4006,
expanded the reach of this exemption to cover subsidiaries of
national banks
• The State of Michigan sought to regulate Wachovia Mortgage, a
state-chartered non-bank subsidiary of Wachovia Bank, a
national bank. Wachovia opposed such regulation on the basis
of § 484.
State AG Update (Cont.)
• District Court and Sixth Circuit: Michigan cannot
regulate Wachovia Mortgage
Questions presented to Supreme Court:
1. Is the OCC’s conclusion that federal regulations
preempt state laws regulating mortgage lending as
applied to State-chartered non-bank operating
subsidiaries entitled to judicial deference under
Chevron doctrine?
2. Does a federal regulation, by equating a Statechartered non-bank operating subsidiary with a
national bank for purposes of federal preemption of
State regulation, violate the Tenth Amendment?
CARU
chat-avenue.com: provides chat rooms, message boards and
links to other chat sites and services. CARU initiated an
Investigation based on its routine monitoring of advertising to
kids:
•
•
•
•
“According to the United States Attorney General, one in five children has been
approached sexually on the Internet.” During its investigation, a CARU staff
member posing as an 11 year old, was “immediately approached to enter a
private chat and to engage in sex talk by a user that identified him as being 22
years old.” CARU “notified an appropriate law enforcement agency.”
CARU concluded that the website operator failed to: (1) neutrally screen for age;
(2) obtain parental consent for use by children under 13; (3) provide certain
contact information; and (4) provide links to the privacy policy on each page
where a child could disclose personal information.
CARU also concluded that the website operator had “actual knowledge” that it
was collecting personal information from children under 13, and that the site is
“directed to children”
The operator, although agreeing to make some changes, did not agree with all of
CARU’s findings and CARU referred the operator to the FTC
CARU (Cont.)
Kidschat.net – website composed of several chat rooms,
one of which was linked to another website run by chatavenue.com
• The website failed to properly screen for age or obtain parental consent for use
of children under 13.
• “More than once, a CARU staff member was solicited for sex or nude picture
immediately upon entering a the chat room and declaring herself to be 10 or 11
years old.”
• The website posted many advertisements and links to websites that were
inappropriate for children, including some for dating and singles sites
• The website operator has added some safeguards (such as neutral drop down
birthday menu). The operator also removed some of the features that attracted
young children,
• CARU concluded more changes needed to be made, such as the
implementation of a tracking system so users could not simply gain access by
changing their date of birth, the removal of the terms “kids” and “children” from
the description tags, and the change the domain name to remove the word “kids”
CARU Developments
Children’s Food and Beverage Initiative
•
•
•
Initiative will shift the mix of advertising messaging to children to
encourage healthier dietary choices and healthy lifestyles
Participating companies agree to devote half their advertising directed
toward children in various different media to messages encouraging
good nutrition or healthy lifestyles
Specific initiatives:
– (1) limits products shown in interactive games to healthier dietary
choices
– (2) stops advertising of food or beverage products in elementary
schools
– (3) stops food and beverage product placement in editorial and
entertainment content
– (4) reduces use of third-party licensed characters in advertising that
do not conform to the Initiative’s product or messaging criteria
CARU Developments (Cont.)
Revised CARU Guidelines
• Provides new authorization for CARU to take
action against unfair and misleading advertising
to children
• Prohibits “blurring” – advertising that obscures
the line between editorial content and advertising
messages
• Requires advertisements in interactive games to
make clear to children that the commercial
message is an advertisement
Lanham Act Litigation
• Issue: Does the failure to
properly identify the origin
of a foreign-made product
in violation of the Tariff Act
constitute a per se
violation of Section 43(a)
of the Lanham Act?
• Believing the answer was
“yes,” plaintiff moved for
summary judgment
York Group, Inc. v.
York Southern, Inc.,
2006 WL 3057782
(S.D. Tex. Oct. 25, 2006)
Lanham Act Litigation (Cont.)
•
Background: Casket manufacturer alleged that several of its distributors
were importing coffins manufactured in China, but failing to label them
“Made in China” as required by the Tariff Act of 1930 – which requires
that “foreign products be permanently marked with their country of
origin.” The manufacturer asserted that the Tariff Act violations
constituted a per se violation of Section 43(a) of the Lanham Act.
•
Relying on a previous 5th Circuit case to conclude that the “Court should
not allow a party under another guise of a Lanham Act claim to create a
private right of action where none exists under the regulatory or
statutory scheme,” the district court held that the per se claim was not
legally viable.
•
Declined to follow a Southern District of New York case holding that the
“failure to designate country of origin in violation of the Tariff Act violates
§ 43(a) of the Lanham Act as a matter of law.”
Lanham Act Litigation (Cont.)
• Issue: Did the
misappropriation of the
copyrighted works of
radiologist constitute unfair
competition in violation of
Section 43(a) of the Lanham
Act and New York common
law?
• Defendants allegedly:
– represented &
advertised that they
authored Plaintiff’s
copyrighted reports;
– sent out reports that she
authored without her
signature or consent; &
– Misrepresented the facts
surrounding the use of
her reports
Lanham Act Litigation (Cont.)
• Defendants moved to dismiss pursuant to
F.R.C.P. 12(b)(6) on the grounds that
copyright infringement did not give rise to a
misrepresentation or false designation of
origin claim under the Lanham Act or to a
state law unfair competition/fraud claim.
• The district court denied the motion, holding
that, at this stage of the proceedings, Plaintiff
might be able to demonstrate facts sufficient
to prove her claims.
Other Litigation
•
California resident sues Kraft Foods
• Alleges that avocado is less than 2% of “Kraft Dips” Guacamole
• No federal requirement regarding how much avocado a product
must contain to be called guacamole
• Kraft’s Response:
– listed on the All ingredients label
– Will re-label the product “to make
it clearer that the dip is
guacamole flavored”
– Source: Florida Sun-Sentinel
Internet Edition, 11/30/06
Other Litigation (Cont.)
Omega World Travel, Inc. v. Mummagraphics, Inc.,
No. 05-2080 (4th Cir. Nov. 17, 2006)
• Operator of websites, including sites
“devoted to opposing spam messages”
like sueaspammer.com,” pursued a
claim against Cruise.com for 11 e-deals
containing erroneous, but non-material,
errors
• Operator alleged violations of CANSPAM and Oklahoma law
• CAN-SPAM preempted Oklahoma anti-spam law because bare
falsity did not trigger CAN-SPAM’s preemption exemption.
•Bare falsity standard would “swallow the rule and undermine the
regulatory balance that Congress established.”
Other Litigation (Cont.)
Court dismissed both CAN-SPAM claims
(1) Allegation: Inaccurate header information violated CAN-SPAM prohibition
against the use of materially false or misleading “header information” (i.e.,
information that would permit an Internet access service to identify locate or
respond to the person initiating the e-mail).
Held: Inaccuracy was not material, as the spam e-mails were “chock full” of
ways to identify and locate the sender. Each message had (a) the required
“send no more” link, (b) a toll-free number, (c) a Florida mailing address and
local phone number, and (d) reference to the Cruise.com webpage.
(2) Allegation: Appellees failed to remove e-mail box from the E-Deals list within
10 days, violating CAN-SPAM requirements that marketers use an internetbased mechanism for permitting spam recipients to request not to receive
future emails, and that the operator to honor that request within ten business
days.
Held: Appellant could not show a “pattern or practice” of refusing to meet the
ten day requirement. Rather, operator could only point to one email address
that received the e-deal mailing beyond the ten day threshold.
Presenter
•
Robert M. Langer is a member of Wiggin and Dana and head of the firm’s
Antitrust and Trade Regulation Practice Group. Mr. Langer is involved in all
aspects of antitrust, consumer protection and trade regulation counseling and
litigation, representing clients before the Federal Trade Commission, the Antitrust
Division of the United States Department of Justice, as well as offices of state
attorneys general throughout the United States. His clients include consumer
products providers, direct marketers, domestic telecommunications companies,
hospitals, insurance companies, pharmaceutical companies, retailers and
sweepstakes sponsors.
•
Mr. Langer, who was the Assistant Attorney General in charge of the Antitrust and
Consumer Protection Department of the Office of the Connecticut Attorney
General prior to joining Wiggin and Dana, currently serves as both the Finance
Officer and the Co-Chair of the Janet D. Steiger Fellowship Project of the ABA’s
Section of Antitrust Law. He previously served in multiple other capacities with
the Section of Antitrust Law, including Consumer Protection Coordinator, Council
member, Chair and Vice-Chair of the Consumer Protection Committee, Co-Chair
of the Legislation Committee, Co-Chair of the Federal and State Legislative
Policy Task Force, Vice-Chair of the Continuing Legal Education Committee and
Chair of the State Antitrust Enforcement Committee.
Presenter
•
Steven Malech is a Senior Associate with Wiggin and Dana’s Litigation
Department and Antitrust and Trade Regulation group. He represents clients in
a broad variety of consumer protection matters involving administrative
investigations and litigation. He also counsels clients on compliance with state
and federal regulations and statutes regarding advertising, consumer protection
and promotional marketing. His experience includes the representation of
direct marketers, insurance companies, newspapers, pharmaceutical
manufacturers, providers of various consumer products and retailers.
•
He is a member of the American Bar Association and is active in the consumer
protection and Section 2 committees of the Associations’ Section of Antitrust
Law. He is a member of the Connecticut Bar Association’s Antitrust & Trade
Regulation Section and a member of the Executive Board of the Connecticut
Bar Association’s Business Torts Committee. Steve also belongs to the
Promotional Marketing Association.
ACKNOWLEDGEMENTS
•We greatly appreciate the
assistance in the preparation
of these materials provided
by:
Robert Huelin
Marianne Sadowski
and
Seth Huttner