ABA Section of Antitrust LawConsumer Protection Committee

Consumer Protection UpdateDecember 2014

January 14, 2015

December 2014

Presented by:Matthew Shultz, Danielle Garten, Seth Wiener,

Erica Connolly

FTC Update

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Weight Loss & Health Claims

FTC v. Kevin Wright, HCG Platinum, LLC, and Right Way Nutrition, LLC(Dec. 11, 2014)

• Defendants sold HCG drops (HCG Platinum) on their websites and at GNC,Rite Aid, and Walgreens.

• FTC alleged that defendants claimed that the drops cause rapid and• FTC alleged that defendants claimed that the drops cause rapid andsubstantial weight loss, that efficacy was clinically proven, and thatconsumers are likely to achieve weight loss claimed in testimonials.

• FDA and FTC sent joint warning letter in Nov. 2011; FTC sued in Oct. 2013.

• Settlement bans certain “red flag” weight loss claims; requires 2 adequateand well-controlled human clinical studies for other weight loss claims; andimposes $10 million monetary judgment, all but $1 million suspended.

• Three statements by Commissioners on substantiation requirement.

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Weight Loss & Health Claims (cont’d)

FTC v. Solace International, Inc., et al. (Dec. 23, 2014)

• Defendants marketed weight-loss supplement (Lipidryl).

– FTC charged that defendants falsely claimed to have clinical testsproving that Lipidryl caused substantial weight loss.

• Defendants also marketed DermaTrend for removal of warts, skin tags, and• Defendants also marketed DermaTrend for removal of warts, skin tags, andmoles.

– FTC charged that defendants lacked adequate substantiation forproduct claims; failed to disclose that it paid for consumerendorsements and that affiliate marketers received compensation basedon product sales; and falsely claimed that affiliates’ sites containedindependent reviews.

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Weight Loss & Health Claims (cont’d)

FTC v. Solace International, Inc., et al. (Dec. 23, 2014), cont’d

• Under the settlement:

– Defendants must have randomized, double-blind, placebo-controlledhuman clinical testing for skin blemish/lesion product claims; and 2adequate and well-controlled human clinical studies for weight-lossadequate and well-controlled human clinical studies for weight-lossclaims.

– Defendants must disclose material connections with endorsers.

– Defendants must monitor affiliate marketers, and prohibit them frommaking representations defendants can’t or misrepresenting themselvesas independent or as ordinary consumers.

– $11.3 million monetary judgment, suspended except for ~$400,000 incash and proceeds from property sale.

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Auto Advertising

FTC v. Ramey Motors, Inc., et al. (Dec. 12, 2014)

FTC v. Billion Auto, Inc., et al. (Dec. 12, 2014)

• FTC brought civil penalties actions for violating 2012 consent orders thatprohibited defendants from misrepresenting costs of buying or leasing a carby promoting low monthly payments or attractive finance terms whileby promoting low monthly payments or attractive finance terms whileburying material limitations in fine print, with distracting visuals, or in rapid-fire verbal disclosures; failing to make required credit disclosures; andfailing to retain and produce records per consent order.

• Billion Auto agreed to settle for $360,000 in civil penalties, and agreed toabide by the prior order and additional compliance obligations.

• Ramey Motors did not settle.

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Auto Advertising (cont’d)

In re TXVT Limited Partnership (Dec. 23, 2014)

• FTC alleged that dealership failed to adequately disclose offer terms inadvertising and failed to make adequate disclosures as required by theTruth In Lending Act (TILA), Regulation Z, Consumer Leasing Act (CLA),and Regulation M.

– FTC alleged that in print and web ads material offer terms were buried in fineprint, and in video ads material terms appeared on screen for 2 seconds in textthat did not contrast well with the background.

• Consent order requires defendant to clearly and conspicuously disclosematerial terms and conditions of promotional offers and incentives, and tocomply with TILA, Regulation Z, CLA, and Regulation M.

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Sensitive Personal Information

In re PaymentsMD LLC & In re Michael C. Hughes (Dec. 3, 2014)

• Defendants operated website through which consumers could pay medicalbills. In 2012, defendants began developing a new service designed toprovide consumers with comprehensive online medical records, andincluded authorizations for collection of sensitive personal healthinformation on the medical billing site.information on the medical billing site.

• FTC alleged that authorizations did not adequately disclose that defendantswould be collecting sensitive personal health information and thatconsumers only understood that they were providing authorization formedical billing services.

• Under the consent orders defendants cannot misrepresent how they use,maintain, and protect consumers’ information; must disclose outside of theEULA, privacy policy, and terms of use their health information practicesbefore seeking authorization to collect health information from third parties;and must get express affirmative consent to seek consumers’ healthinformation from third parties. 8

Sensitive Personal Information (cont’d)

FTC v. Sitesearch Corp., et al. (Dec. 23, 2014)

• FTC filed complaint alleging that data broker defendants sold sensitivepersonal information obtained from payday loan applications, includingSSNs and bank account numbers, to buyers with no legitimate use for theinformation.

• One of the buyers -- Ideal Financial Solutions -- allegedly used theinformation to make unauthorized debits of consumers’ accounts forfinancial products they never purchased.

– FTC brought case against Ideal Financial Solutions in Feb. 2013.

• Defendants hired a key Ideal Financial Solutions executive and allegedlyknew that Ideal Financial Solutions was making unauthorized debits.

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COPPA

BabyBus Letter (Dec. 22, 2014)

• BabyBus is a Chinese developer of apps to teach children letters, counting,shapes, etc.

• Letter from FTC staff says that apps collected geolocation information andtransmitted it to ad networks and analytics companies, but BabyBus failedtransmitted it to ad networks and analytics companies, but BabyBus failedto provide notice of privacy practices and to obtain verifiable parentalconsent before collecting geolocation information as required by COPPA.

• Letter emphasizes that COPPA’s requirements apply to foreign companiesthat direct their products or services to children in the U.S.

• Letter says that staff will review practices again within the next month tocheck on compliance.

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Cramming

FTC v. Nathan M. Sann (Dec. 17, 2014)

• 2013 complaint alleged that individual was involved in placing unauthorizedcharges on landline bills for non-call services such as voicemail and faxes.

• Settlement includes ban from placing charges of any kind on phone bills;disclosing all material terms and obtaining express verifiable authorizationdisclosing all material terms and obtaining express verifiable authorizationbefore otherwise charging consumers for goods or services; and $21 millionmonetary judgment, suspended except for personal assets to besurrendered.

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Cramming (cont’d)

FTC v. T-Mobile USA, Inc. (Dec. 19, 2014)

• In July 2014 FTC brought suit alleging that T-Mobile violated Section 5 bybilling customers for unauthorized services and not adequately disclosingsuch charges to consumers on their bills.

• Settlement with FTC requires T-Mobile to pay at least $90 million in refunds;• Settlement with FTC requires T-Mobile to pay at least $90 million in refunds;get express informed consent before placing third-party charges on bills,and to monitor whether consent is being appropriately collected anddocumented; send purchase confirmations; provide customers withinformation on third-party charges and how they can be blocked; and, goingforward, provide refunds if T-Mobile determines that a consumer did notgive express informed consent for the charges.

• $4.5 million in fines and penalties to FCC.

• $18 million in fines and penalties to all 50 states and D.C.

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Mortgage Relief Services

FTC v. FMC Counseling Services, Inc., et al. (Dec. 15, 2014)

• In July 2014 suit FTC alleged that defendants received payments fromhomeowners but failed to make any effort to modify loans or apply moneyreceived to pay down existing mortgages.

• Settlement permanently bans defendants from offering debt relief services,and includes $815,000 monetary judgment.and includes $815,000 monetary judgment.

FTC v. A to Z Marketing, Inc., et al. (Dec. 11, 2014)

• FTC brought suit in 2013 against 22 defendants for alleging collecting up-front fees and providing little or no assistance to consumers to preventforeclosure or modify mortgages.

• In a series of stipulated and default judgments, defendants are banned fromoffering debt relief services and had monetary judgments totaling $51million imposed.

• Two defendants are appealing default judgments. 13

Business Directory Services

FTC & Florida v. 7051620 Canada, Inc. (Dec. 22, 2014)

FTC v. Your Yellow Book Inc. (Dec. 22, 2014)

• FTC alleged in 2014 suits that defendants deceived small businesses intopaying for directory services they never authorized or received.

• Settlements ban Canadian defendant from telemarketing and both• Settlements ban Canadian defendant from telemarketing and bothdefendants from providing business directory services; and include $1.7million and $715,000 monetary judgments, respectively.

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Federal Agency UpdateFederal Agency Update

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FDA Announces Final BeerLabeling Rules

• Issued December 22

• Draft guidance issued in 2009 following2008 Alcohol and Tobacco Tax and TradeBureau rulingBureau ruling

• Non-malted-barley-beers must follow FDAfood labeling laws and regulations

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CFPB Enforcement Actions AgainstStudent “Debt Relief” Companies

• Two actions filed on December 11– College Education Services (with Florida AG)

– Student Loan Processing.US

• Allegations of unlawful student debt relief conduct:– Illegal Fees

– False promises of lower payments, quick default orgarnishment relief

– False representation of U.S. DoEd affiliation

– Deceptive costs and terms

• CFPB seeking injunctive relief and equitableremedies

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CFPB Filed “Cramming” SuitAgainst Sprint

• Suit against Sprint filed on December 17alleging unfair charges

• Alleged unlawful conduct under ConsumerFinancial Protection ActFinancial Protection Act– Facilitating unlawful third-party charges

– Automatic billing without customer consent

– Ignoring or refusing to redress customercomplaints

• CFPB seeking injunctive relief and equitableremedies as well as damages

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CFPB Brought Suit to Stop AllegedCredit Card Deception

• December 17 suit against Union Workers CreditServices (UWCS) for alleged “sham credit card”– Advertised as general-use; can only be used for

UWCS’s own products

– Consumers pay $37 to join by mail; $95 to join online– Consumers pay $37 to join by mail; $95 to join online

– CFPB alleges hundreds of thousands of consumersjoined

• Also alleging false association with unions andmisuse of credit reports

• CFPB seeking injunctive relief and equitableremedies

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State and Local UpdateState and Local Update

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45 States, DC Billing PracticeSettlement with SiriusXM

• December 4 settlement of claims involvingalleged misleading advertising andunlawful billing practices

• SiriusXM to pay $3.8 million and restitution• SiriusXM to pay $3.8 million and restitutionto eligible consumers

• SiriusXM also agreed to change certainbusiness practices related to advertisingand billing

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Mass. AG Settles Claims withAspen Dental

• Alleged Aspen used deceptive advertising,illegally billed consumers, and failed to giverefunds

• Settlement reached on December 22– $770,000 restitution for “free” dental exams or x-

rays between September 2009 and December2014

– Refunds of prepayments for services not provided

– $220,000 to Massachusetts and agreementAspen will not require pre-payment in mostcircumstances

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Six States Settle with Digital AdCompany for Alleged Privacy Breach

• $750,000 settlement on December 11between PointRoll, Inc. and Connecticut,Florida, Illinois, Maryland, New Jersey, andNew YorkNew York

• Settles allegations of consumer privacyviolations through circumventing userprivacy settings

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SF, LA DAs File Suit Claiming UberMisleads Customers; Settle with Lyft

• Suit filed against Uber on December 9

– Allegations that Uber overcharges and misleadscustomers about safety

– DAs seeking injunction and civil penalties– DAs seeking injunction and civil penalties

• DAs settled suit against Lyft

– Lyft agreed to permits for airport pickups

– Lyft agreed to allow California to test accuracy ofapp fare measurement

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Private Litigation Update

Consumer Class Actions/Lanham ActConsumer Class Actions/Lanham Act

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FDCPA

Zweigenhaft v. Receivables Performance Management,Case No. 14-cv-01074 (E.D.N.Y. Nov. 13, 2014)

• Debt collector left message on plaintiff’s son’s voicemail that included the debtcollector’s phone number and statement that debt collector had an “importantmessage.” Plaintiff’s son called back, told the debt collector he wasn’t theplaintiff, and debt collector volunteered to take the number off its call list.

• Plaintiff sued alleging that message was a third-party communication prohibitedunder the Fair Debt Collections Practices Act (“FDCPA”).under the Fair Debt Collections Practices Act (“FDCPA”).

• The district court held that the collector did not engage in a “communication” asdefined by the FDCPA because the collector never mentioned plaintiff owed adebt, never disclosed information about any debt, and was “thoroughlyprofessional and courteous.”

– The district court noted that the FDCPA was out of touch with moderntechnology but nevertheless held that the statute sought tobalance protecting consumers from harassment by debt collectors and notplacing unnecessary restrictions on debt collectors and thus required thisresult.

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Lanham Act

Eastman Chemical Co. v. Plastipure, Inc.,Case No. 13-51087, --- F.3d ---, 2014 WL 7271384 (5th Cir. Dec. 22, 2014)

• Plastipure published a three-page sales brochure stating that EastmanChemical’s resin emitted chemicals that triggered estrogen activity in humans,an effect that can lead to cancer or other health problems. A jury entered averdict for Eastman, finding that Plastipure had violated Section 43 of theLanham Act.

• On appeal, Plastipure argued that its statements were not actionable becausethey were “commercial statements relating to live scientific controversies” that“should be treated as opinions for Lanham Act purposes.”

• The Fifth Circuit disagreed, distinguishing ONY, Inc. v. CornerstoneTherapeutics, Inc., 720 F.3d 490 (2d Cir. 2013), on which Plastipure reliedbecause in ONY the defendant had been sued for an academic article, whereasPlastipure had made its statements in commercial advertisements directed atcustomers.

– “The First Amendment ensures a robust discourse in the pages of academicjournals, but it does not immunize false or misleading commercial claims.”

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Lanham Act

Groupe SEB USA Inc. v. Euro Pro Operating LLC,Case No. 14-2767, --- F.3d --- (3d Cir. Dec. 17, 2014)

• Euro-Pro sold its Shark brand irons in packaging that stated the Shark ironoffered “MORE POWERFUL STEAM vs. Rowenta” (SEB’s iron) with a footnotestating “Based on independent comparative steam burst testing to RowentaDW5080 (grams/shot).” The packaging also stated that the Shark offers “#1MOST POWERFUL STEAM,” with the footnote, “Offers more grams per minute(maximum steam setting while bursting before water spots appear) when(maximum steam setting while bursting before water spots appear) whencompared to leading competition in the same price range, at time of printing.”

• SEB tested these claims and determined they were false. After filing suit againstEuro-Pro, SEB sought a preliminary injunction, which the district court granted.

• On appeal, Euro-Pro argued that its “MORE POWERFUL STEAM vs. Rowenta”claim was not unambiguous and therefore could not be literally false.

• The Third Circuit disagreed, finding that the footnote made the claimunambiguous because it defined the claim through the testing it described.When a claim is defined on the package, that definition becomes part of theexplicit message conveyed by the claim.

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Class Action Developments – Motion to Dismiss

Yingst v. Novartis AG--- F. Supp. 3d ---, 2014 WL 6791423 (D.N.J. Nov. 24, 2014).

• Plaintiff claimed that Excedrin Migraine and Excedrin Extra Strength haveidentical ingredients at identical quantities, but Excedrin Migraine labeldeceptively induced consumers to pay a higher price on belief that ExcedrinMigraine is better suited for migraine pain in violation of New Jersey’sConsumer Fraud Act (“NJCFA”).Consumer Fraud Act (“NJCFA”).

• The district court dismissed the putative class action complaint because thehigher price for Excedrin Migraine was not an “unconscionable commercialpractice” under the NJCFA -- The ingredients and their quantities werepublished on the packaging of both Excedrin Migraine and Excedrin ExtraStrength, and the price differential was small enough ($1.05 more for 300pack of pills) to fall outside of the NJCFA’s prohibitions.

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Class Action Developments – Summary Judgment

Brazil v. Dole Food Co., Inc.Case No. 5:12-cv-01831 (N.D. Cal. Dec. 8, 2014)

• Plaintiff alleged that the statement “All Natural Fruit” on the label of Dole fruitjuices is misleading because the products contain ascorbic acid and citric acid,both of which Plaintiff alleged were synthetic.

• Plaintiff offered only his own testimony to support that the “All Natural Fruit”statement was misleading.

• Noting that the FDA’s policy is to treat the term “natural” as meaning “notingartificial or synthetic . . . has been included in, or has been added to, a food thatwould not normally be expected to be in the food,” the court found that Plaintiffoffered no evidence that the chemicals of which he complained “would notnormally be expected” in Dole’s food. Accordingly, summary judgment waswarranted.

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Class Action Developments - Decertification

Yeoman et al v. Ikea USA West Inc., et al,Case No. 3:11-cv-00701 (S.D. Cal. Dec. 5, 2012)

• Ikea instructed its checkout workers to ask for zip codes from shoppers todetermine where new Ikea stores should be built. Plaintiff claimed that aclass of consumers like her were not told the zip code request wasvoluntary, in violation of the Song-Beverly Act.

• The company claimed that it instructed its workers to inform consumers theinformation was voluntary, and at self-checkout kiosks, zip codes wereinformation was voluntary, and at self-checkout kiosks, zip codes wererequested but included a “No Thanks” button to opt out.

• The district court determined that once lawful collections of zip codes (i.e.,home delivery, home installation, false zip codes) were eliminated, Plaintiffcould not establish that Ikea had violated the law given the inconsistenciesas to whether customers were even asked for their zip codes or if, whenthey were asked, there was a uniform practice of not informing consumersthat providing their zip codes was voluntary.

• Given that failure, the district court determined that class certification wasno longer appropriate.

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Class Action Developments - Decertification

Werdebaugh et al v. Blue Diamond Growers,Case No. 5:12-cv-02724-LHK (N.D. Cal.), Dec. 18, 2014

• Almond milk was allegedly misleadingly labeled as containing “evaporatedcane juice” instead of sugar, and as “All Natural” despite containingpotassium citrate.

• Expert’s damages methodology “measures the ‘combined effect’ of BlueDiamond’s brand value and Blue Diamond’s use of ‘evaporated cane juice’and/or ‘All Natural’ on the prices of the challenged products.”and/or ‘All Natural’ on the prices of the challenged products.”

• The district court found that this methodology fails to isolate the damagesfrom the allegedly misleading labels because it conflates Blue Diamond’sbrand value with the allegedly misleading claims, relying on Comcast Corp.v. Behrend, 133 S. Ct. 1426.

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Settlements

Howerton v. Cargill,Case No. CV 13-00336-LEK-BMK (D. Haw. Nov. 26, 2014)

• Settlement over Truvia “natural” claims (i.e., “Nature’s Calorie-FreeSweetener”; “Natural Ingredients”; and “Natural flavors complement theclean sweet taste of Truvia natural sweetener”).

• $6.1 million in settlement funds

– $4.27 million for consumers with four compensations levels from $7.50– $4.27 million for consumers with four compensations levels from $7.50cash or three vouchers ($6 each value) to $45 cash and 15 vouchers

• $1.83 million as fees and costs for plaintiffs’ attorneys

• Disclaimer added to “natural” claims: “For more information about ouringredients go to Truvia.com/FAQ.”

• Replace “Erythritol is a natural sweetener, produced by a natural process,and is also found in fruits like grapes and pears,” with “Erythritol is a naturalsweetener, produced by a fermentation process. Erythritol is also found infruits like grapes and pears.”

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Settlements

New v. Lululemon USA Inc.,Case No. 1:14-cv-20589 (S.D. Fla. Dec. 19, 2014)

• Settlement over claims that Lululemon’s failure to provide textured keypadsfor its debit card machines required blind patrons to verbally disclose theirPINs, rendering them vulnerable to bank fraud.

• Without admitting liability, Lululemon agreed to equip its stores withmachines that have tactile pads by May 31, 2015.machines that have tactile pads by May 31, 2015.

• Joint Class Representative Award of $7000 in cash and $7000 in Lululemongift cards.

• Attorneys Fees/Expenses/Costs: Class counsel are limited to $37,000.

• Several other retailers are facing similar suits, including Hobby LobbyStores, Inc., Kay Jewelers, Express Inc., Build-A-Bear Workshop Inc.,Littman Jewelers, Madewell, and Wawa Inc.

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NAD/CARU/ERSP UpdateNAD/CARU/ERSP Update

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• Expedia, Inc., challenged Fareportal’s search enginemarketing (SEM) ads provided through CheapOair.comand OneTravel.com.

• Expedia argued that the ads listed price information forflight destinations, but not from the origin location

NAD Case #5789: Fareportal Inc.-12/8/14

flight destinations, but not from the origin locationrequested by the user.– For example, on July 1, a customer searching for flights from Miami to

Houston received an SEM ad stating “Houston $149 Airfares-CheapOair.com”, but when the ad was clicked, the consumer didn’t seeany references to flights from Miami to Houston at the advertised price.Instead, the cheapest fare listed was from Kansas City to Houston for$170.50.

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Fareportal (cont.)

• NAD noted that a reasonable consumer could takeaway the message that CheapOair.com offers flights atthe rates listed in the SEM ad.– NAD further determined there is a difference between listing a

specific price and saying “cheap flights” are available.

• NAD also considered Fareportal’s “Best Price• NAD also considered Fareportal’s “Best PriceGuarantee.”– NAD recommended modification allowing consumers to

choose whether to receive a full ticket refund, or requireFareportal to match the competitive price.

• NAD recommended that discounts or savings that aretaken off of fees, rather than ticket prices, be disclosedand clarified.

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NAD Case #5792: Novartis ConsumerHealth, Inc.- 12/15/14

• Pfizer challenged claims made by Novartis for TherafluMulti-Symptom Severe Cold

– “Starts to get to work in your body in 5 minutes”

• Pfizer argued the active ingredients in the Therafluproduct are standard and challenged Novartis’s claimsproduct are standard and challenged Novartis’s claimsthat the product relieves symptoms especially quickly.– Novartis countered that the claim relates to absorption and

does not imply Theraflu starts to provide symptom relief in 5minutes.

• NAD found that the claim conveyed an unsupportedonset-of-action message that the product providessymptom relief in 5 minutes and recommendeddiscontinuing the claim.

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NAD Case #5788: Sumo Logic, Inc.• Sumo Logic and Splunk are software makers.

Splunk argued that Sumo Logic misleadinglycompared the two companies.– Charts were used showing Splunk and Sumo Logic share some

of the same features, but Splunk argued Sumo Logic does not, infact, have all of the advertised features. Splunk also argued thatfact, have all of the advertised features. Splunk also argued thatSumo Logic does not have six features it claims to have thatSplunk does not have.

• Sumo Logic disagreed with the contentions, but removedthe comparison charts. The company also overhauledits website and marketing materials and removed all ofthe challenged claims.

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ERSP Cases• Recommended that Premier Care in Bathing modify or

discontinue certain claims for walk-in tubs.– Inadequate substantiation for claims that “other manufacturers use

harsh water jets that can carry bacteria and damage or bruise yourskin.”

– $150 per month financing offer disclosed material information, butconcerns about whether it is clear and conspicuousconcerns about whether it is clear and conspicuous

• Referred advertising for Plymouth Direct’s ‘BeActive’ braceto the FTC and FDA– General, broad claims about pain relief in the lower back are

inaccurate

– Evidence did not support claims that product relieves sciaticaconditions

– Inadequate substantiation for “pain free” claims

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