stayADvised: What's New This Week, July 22

Articles

• Nothing to Sneeze At: FTC Settles with Gerber over Anti-Allergy Ad Claims
• Premera Blue Cross Settles Multistate Data Breach Litigation
• Industry Groups Express Concern over FCC Call Blocking Rules
• Consumer Advocates Push FTC to Investigate Secret Predictive Customer Scores
• Home Fragrance Maker Ends Ad Claims After NAD Cries Foul

Nothing to Sneeze At: FTC Settles with Gerber over Anti-Allergy Ad Claims

Five years after filing its original complaint against Gerber Products Co. over allegedly false claims about the allergy-prevention abilities of its Good Start Gentle baby formula, the Federal Trade Commission (FTC) announced this week that it had approved a settlement with the baby food giant.

According to the FTC’s 2014 complaint filed in New Jersey federal court, Gerber (doing business as Nestlé Nutrition) claimed its Good Start Gentle formula could prevent or reduce the risk that babies with a family history of allergies would develop allergies themselves. The FTC alleged these claims lacked sufficient scientific substantiation and were therefore deceptive.

Gerber also falsely represented it received Food and Drug Administration (FDA) approval to make certain health claims about the Good Start Gentle formula, according to the complaint. Gerber featured a gold badge stating that Good Start Gentle is the “1st and Only” formula that “Meets FDA Qualified Health Claim,” but the FDA never approved such a broad health claim, the FTC said.

At the time the complaint was filed in 2014, then-Director of the FTC’s Bureau of Consumer Protection Jessica Rich noted “parents trusted Gerber to tell the truth about the health benefits of its formula, and the company’s ads failed to live up to that trust. Gerber didn’t have evidence to back up its claim that Good Start Gentle formula reduces the risk of babies developing their parents’ allergies.”

As part of the settlement, Gerber is enjoined from making any misrepresentations linking the Good Start Gentle formula to a reduction in allergies or marketing it as an effective cure for any disease. The stipulated order also bars Gerber from making any misrepresentations about FDA approval of the product or about its health benefits, and Gerber must further submit to a compliance reporting requirement for a period of ten years.

The stipulated administrative order, which provides for no monetary penalty, redress or restitution for consumers, was issued more than two months ago, but the FTC announced its unanimous approval just this month. The order has the force of law once approved by the New Jersey federal court.

Key Takeaways

Claims of FDA approval must be accurate and specific. Notably, here, after the FDA denied Gerber’s original petition to make a connection between the baby formula and allergy fighting powers, Gerber petitioned the FDA again and received narrow, qualified permission on a different claim. Despite only obtaining permission to state “the relationship between [the formula] and [atopic dermatitis] is uncertain,” Gerber nonetheless went ahead and made the broadest claims about FDA approval.

Premera Blue Cross Settles Multistate Data Breach Litigation

Premera Blue Cross recently agreed to a multimillion-dollar settlement with dozens of states to resolve claims that the company committed privacy law violations revealed through a massive data breach that exposed the personal information of over 10 million customers across the United States.

Led by Washington state Attorney General Bob Ferguson, over 29 states joined the lawsuit alleging that Premera violated the states’ consumer protection and medical information laws, as well as the federal Health Insurance Portability and Accountability Act (HIPAA).

The matter arose from a 2014 data breach, which lead to an investigation by the states. The probe revealed that Premera failed to adequately secure consumer data and then misled consumers about the extent of the data breach and its data security protections. Specifically, Premera failed to provide even basic data security to protect its users’ sensitive information and did not monitor its network for malicious activity, according to the allegations in the states’ suit. Premera’s lax security allegedly enabled hackers to access its network.

From March 2014 until 2015, the suit alleged, hackers infiltrated Premera’s network by sending malware-infected emails which allowed them to access Premera’s customers’ personal information—including names, social security numbers, medical and bank account information, dates of birth and email addresses. The suit further alleged that Premera knew about the breach and failed to take action to rectify it, despite warnings from cybersecurity experts and the company’s own auditors for over a year.

Even after the breach became public, Premera told its members in privacy notices that “we take steps to secure our buildings and electronic systems from unauthorized access.” Call center agents reassured customers that significant security measures were in place and that there was “no reason to believe that any of your information was accessed or misused.”

“Premera had an obligation to safeguard the privacy of millions of Washingtonians — and failed,” Attorney General Ferguson said in a statement announcing the settlement. “As a result, millions had their sensitive information exposed. Premera repeatedly ignored both its own employees and cybersecurity experts, who warned millions of consumers’ sensitive health information was at risk.”

“Premera’s failure to protect the private information of millions of patients is unacceptable. This settlement should send a strong message to companies with loose data privacy practices: it doesn’t pay to cut security corners,” said California Attorney General Xavier Becerra.

Aside from assessing a $10 million nationwide settlement, the resolution imposes a number of injunctive requirements on Premera, including implementing ample and strong security measures to safeguard consumers’ privacy and ensuring its data security programs protect personal information and comply with HIPAA. Premera must also create a compliance program as part of the settlement.

Separately, Premera has also entered into a proposed settlement of a class action complaint arising from the same data breach.

Key Takeaways

Companies must ensure that their data security policies and procedures are adequately equipped to anticipate and withstand hacker intrusions. But, as the adage goes in such matters, “it’s not if, but when.” So upon learning of a hack, the prudent approach is to take prompt action to reduce the impact of the unauthorized access and harm and to timely and accurately report on such matters to affected stakeholders, including customers and law enforcement. These cautionary words apply even more so for companies that hold sensitive data, such as sensitive health information.

Industry Groups Express Concern over FCC Call Blocking Rules

Following the Federal Communication Commission’s (FCC) announcement last month of new rules that will allow telephone carriers to unilaterally block unwanted “robo-calls,” various industries that rely on automated calls and text messages to reach consumers have expressed serious concerns with the approach.

One such industry, the American Dental Association (ADA), recently sent a letter to the FCC on June 28 requesting that the new rules proposed in the agency’s Declaratory Ruling on Advanced Methods to Target and Eliminate Unlawful Robocalls explicitly ensure that the call-blocking rules do not impact legitimate callers. The ADA is concerned that the regulation might affect its members’ ability to send communications to consumers, such as reminders to patients about upcoming dental appointments.

While those who fear the dentist’s chair may rejoice at the thought of never receiving another appointment reminder from their dentist, many in the call-placement sector think the new rule is no laughing matter. In addition, companies such as debt collectors, credit unions, health care companies and others that rely on automated phone calls and texts to conduct their business have also expressed concerns that the regulation would have unintended and detrimental consequences.

A May 30, 2019 letter to FCC Chairman Pai co-signed by various banking and mortgage-related companies urged the FCC to first seek public comment on the proposal, cautioning that “if adopted as drafted, [the proposal] would result in the erroneous blocking of lawful calls — including urgent calls affecting consumer health, safety, and financial well-being. Public safety alerts, fraud alerts, data security breach notifications, product recall notices, healthcare and prescription reminders, and power outage updates all could be inadvertently blocked under the draft Declaratory Order, among other time-sensitive calls.”

For its part, the ADA also notes that the regulation will confuse consumers by requiring them to opt out of the default blocking service. In its letter to the FCC, it said it fears that “these consumers will likely not realize the effect that this guidance could have on the calls they are used to receiving from their dentist or other medical provider.” The association asked the FCC to block only illegal calls and to add specific provisions ensuring the call blocks don’t affect communication from legitimate callers.

“The ruling is contrary to Congress’ longstanding intent that the FCC work to block only illegal calls and not lawful calls from legitimate businesses like private dental offices,” the association said. While it acknowledged the ADA’s letter, the FCC did not comment on its contents.

Even some high-ranking officials at the FCC share similar concerns. FCC Commissioner Michael O’Rielly said he was apprehensive about “giving carriers such vast discretion to decide which calls are unwanted.” The power could “lead to wanted calls containing highly pertinent consumer information being blocked,” he said.

The FCC has acknowledged that the proposed rule is not popular in some sectors, but did not take up call-placement industry suggestions to narrow the ruling to target only illegal calls.

Key Takeaways 

Robocalls are widely considered a scourge among consumers and rank among the top complaints at the FTC and FCC. It therefore comes as no surprise that the FCC’s new regulation has been applauded by many, including consumers, consumer advocates and regulators. But the ADA’s letter (as well as similar ones from the ABA and others) raises valid points that need to be considered in order to protect various consumers’ interests. The FCC will need to balance mechanisms intended to protect consumers from unwanted calls and texts with potentially restricting the flow of important information from entities such as medical providers, banks and others.

Consumer Advocates Push FTC to Investigate Secret Predictive Customer Scores

How would you feel if companies priced products using data collected about you by data brokers, resulting in an unregulated retail scoring system that ranks your trustworthiness as a consumer? According to a recent letter filed with the Federal Trade Commission (FTC) by a consumer advocate group, this is a discriminatory and illegal practice employed by retailers and others and is harming consumers.

The Consumer Education Foundation’s (CEF) group #REPRESENT filed the 38-page letter with the FTC in late June. The letter outlines how companies use data points collected about consumers to decide not only how much to charge individuals for products but also the quality of and access to customer service and even whether to approve someone for housing or a job in some cases.

The CEF is urging the FTC to examine the predictive scoring industry and whether “surveillance scoring” violates laws against unfair and deceptive business practices. “This is a way for companies to discriminate against users based on income and wealth,” said Laura Antonini, the policy director of the CEF. “It can range from monetary harm or basic necessities of life that you’re not getting.”

Unlike credit scores, which offer a level of transparency and accountability as required by the federal Fair Credit Reporting Act and its implementing Regulation Z, consumers have no opportunity to contest these secret scores or even find out what they are.

“The ability of corporations to target, manipulate and discriminate against Americans is unprecedented and inconsistent with the principles of competition and free markets,” notes the letter. “Surveillance scoring promotes inequality by empowering companies to decide which consumers they want to do business with and on what terms, weeding out the people whom they deem less valuable. Such discrimination is as much a threat to democracy as it is to a free market.”

The FTC addressed this and similar issues during a 2014 public workshop but has not returned to the issue substantively since then, either in additional fact-finding efforts or enforcement, even as the amount of data collected about consumers and used for this purpose has grown exponentially, asserts CEF.

Key Takeaways

CEF’s letter comes on the heels of recent record-breaking FTC privacy enforcement actions and as large technology companies increasingly come under scrutiny for their consumer data collection and use practices. Now add the issue of consumer information being used to impact product prices and the availability of services. Harvey Rosenfeld, who leads CEF, said “[t]his technological discrimination is in stealth mode at the moment” and when it surfaces, “there will be a public uproar.”

Home Fragrance Maker Ends Ad Claims After NAD Cries Foul

The National Advertising Division (NAD) recently recommended that Reckitt Benckiser discontinue certain advertising for its “Dimensions Home Fragrance” product following the industry self-regulatory body’s finding various express and implied claims that the product line provides health benefits unsupported.

S.C. Johnson, maker of the competing “Glade” home fragrance products, challenged Reckitt Benckiser express and implied claims that its Dimensions Home Fragrance uses “100% essential oils,” provides certain health benefits and has an objective consumer rating of 4.5 stars of 5. To resolve the challenge, Reckitt said it would modify the “essential” claim so that the phrase “100% essential oils” would not appear on its own but, rather, in the context of a more specific claim that Dimensions is “infused with 100% natural essential oils.”

Unsatisfied, the NAD concluded that the modified language still conveyed a broad and unintended message that the products are 100% natural and made with 100% essential oils, recommending that Reckitt Benckiser further modify the claim to avoid that impression.

Moving from the ingredient claim to product benefits, the NAD examined the claim “scent is the most impactful sense we have. It has the power to evoke deep emotion, enhance your mood, trigger a far beyond memory and reduce your anxiety.” Although the advertiser offered to remove references to the product’s anxiety-reducing abilities, the NAD said it was a good first step but was not enough.

The NAD determined a reasonable consumer could still come away with the impression that because Dimensions has “scents crafted for your home wellness, with 100% natural essential oils” the product can provide objective health benefits and thus recommended the advertiser discontinue the claim entirely.

Perhaps the NAD’s strongest recommendation involved Reckitt’s product names. It found the name “Aromatherapy Collection” could lead consumers to conclude that the product provides aromatherapy benefits, with all the associations the name has to specific scientific claims about aromatherapy. NAD recommended the names be modified “to avoid conveying the unsupported message that the fragrances will provide objective benefits,” though it qualified the recommendation, saying it “is not suggesting an entire product name change, but instead a modification of only the portion of the name that refers to ‘aromatherapy.’”

Finally, the NAD recommended that Reckitt stop advertising its products as having a high customer rating of “4.5/5” stars, or explicitly state that those ratings include reviews from customers who received free product in exchange for the reviews.

Regarding certain other challenged claims, including an online video and others about the founder of the brand and a brand partnership with “top perfumers,” Reckitt said it would cease using them altogether, resulting in the NAD not examining the merits of those claims.

The NAD did side with Reckitt on one claim, concluding that the company provided a reasonable basis for the claim that its product was “crafted by a master perfumer.” Here, the NAD found no concern since the company has a relationship with a fragrance maker and identified a specific master perfumer with whom it worked.

Key Takeaways

Reckitt Benckiser, which controls a wide variety of brands beyond fragrances ranging from coffee (Stumptown) to doughnuts (Krispy Kreme), has been a regular habitué at the NAD lately, facing a number of challenges involving its Air Wick Scented Oils and Resolve Carpet cleaner brands. Perhaps these challenges should come as no surprise to a company with such a wide-ranging and large portfolio of products—and competitors. Nevertheless, NAD’s recommendations in this case were more far-reaching than usual, even going so far as to recommend modifying the name of certain products.