stayADvised: What's New This Week, August 19

Articles

• Lighting Manufacturer Backtracks from "Made in USA" Claims
• Email Subscription Service Settles with FTC over Misrepresentations
• Consumer Groups Call for FTC to Investigate Itself Over Equifax Payouts
• Connecticut Becomes First State to Adopt New ABA Model Advertising Rules
• NARB Sends Cat Litter Maker to FTC for Failing to Comply with Recommendations

Lighting Manufacturer Backtracks from "Made in USA" Claims

How much of a company’s manufacturing must take place in America for it to promote its products as made in the United States without running into trouble? A lighting company that promoted its products as "Made in USA" recently found out the hard way, having to answer to and ultimately agreeing to change its marketing program following a Federal Trade Commission (FTC) review.

Wisconsin-based Kenall Lighting (Kenall) had proudly advertised its products’ provenance in the USA. The slogan "When you choose Kenall, you are investing in America" featured prominently on the company’s website as late as January of this year, among other similar claims.

However, an FTC review found the company’s "marketing materials may have overstated the extent to which Kenall products are made in the USA" because they "incorporate significant imported content." Companies advertising their products as "built," "made" or "manufactured" in the USA without qualifying language such as "with imported parts" must comply with the FTC’s Made in USA standard.

The press release announcing the inquiry noted "The Commission may analyze a number of different factors to determine whether a product is ‘all or virtually all’ made in the United States, including the proportion of the product’s total manufacturing costs attributable to U.S. parts and processing, how far removed any foreign content is from the finished product, and the importance of the foreign content or processing to the overall function of the product."

Based on Kenall’s level of domestic manufacturing, the FTC concluded the company could not claim to meet the "Made in USA" standard and, therefore, was not able to make the marketing claims associated with that standard. While the FTC did not take formal action against Kenall, it recommended that Kenall clarify and qualify its “Made in USA” claims to avoid deceiving consumers and violating the FTC Act, as acknowledged in a staff closing letter concluding the inquiry.

But all was not lost for Kenall. The FTC did allow the company to make qualified claims under the Buy American Act (41 U.S.C. §§ 8301–8305) (BAA) because its products meet the BAA’s domestic manufacturing requirements, which mandate more than 50 percent of the components be made in the USA. The agency also noted so long as the company’s marketing materials do not overstate the extent of their ties with American manufacturing, it could promote the processes it conducts in the US.

Kenall complied with FTC recommendations by instituting a remedial action plan to alter the extent and manner in which it markets its products’ country of origin, including instituting employee training on the issue and committing to removing made in the USA claims from marketing materials on the company’s website, social media accounts, product labels, and search engine optimization content.

Kenall also agreed to introduce qualified marketing claims where appropriate.

Key Takeaways

The FTC’s inquiry into and closing letter to Kenall serves as a useful reminder to advertisers that all claims must be substantiated, including claims regarding product manufacture origin. In order to claim a product is made, built or manufactured in the USA, a company must demonstrate that all or virtually all of the product is made in the United States.

Email Subscription Service Settles with FTC over Misrepresentations

An email management system operator that helps users consolidate their existing email subscriptions into one email and unsubscribe from unwanted emails has settled Federal Trade Commission (FTC) charges that it deceived users about the ways it utilized and shared their private information.

The FTC alleged that Unrollme, Inc., a Delaware corporation based in New York City violated the FTC Act by falsely representing to users that the company would not share any information in their emails but, in fact, did share user email receipts containing their personal information, including names, addresses, and product preferences, with its parent company Slice Technologies, Inc.

In signing up for Unrollme, users must grant the company full access to their email accounts. Unrollme uses this permission to access and scan user inboxes for subscriptions and provide its services. Prospective users who declined to grant this access received a message from Unrollme promising the security of their information:

"It looks like you clicked No thanks. In order to use Unroll.me, you need to tell Google to allow us to monitor your emails. Don’t worry, we won’t touch your personal stuff."

This message proved to be a tipping point for thousands of users on the fence about granting access to their emails, who changed their minds and joined Unrollme, believing that that their information would not be used for other purposes.

According to the FTC, Unrollme’s promise not to "touch your personal stuff" was deceptive because it provided e-receipts to Slice, which included information such as users’ names, billing and shopping addresses, and information about the products or services they ordered. The FTC found that Slice then used that private information without consent in its market research analytics products.

"What companies say about privacy matters to consumers," said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. "It is unacceptable for companies to make false statements about whether they collect information from personal emails."

The proposed settlement, approved unanimously by the FTC, bars Unrollme from misrepresenting how it collects, shares or uses consumer information. The settlement further requires the company to notify consumers who signed up following receipt of the deceptive message that the company uses and shares e-receipts with Slice. Finally, Slice must delete all e-receipts unless it obtains explicit user consent to keep them.

Key Takeaways

Perhaps the irony of this case is not lost on the FTC and may have contributed to the action: a company that offers services meant to extricate users from companies that use their data actually engaged them further and unwittingly, with a service that used their personal information without their consent for user analytics, ostensibly exposing those users to more unauthorized use of their information.

Consumer Groups Call for FTC to Investigate Itself Over Equifax Payouts

Turning the tables on the Federal Trade Commission (FTC), consumer watchdog groups are accusing the consumer protection agency of falsely advertising payouts to consumers affected by the landmark Equifax data breach.

The criticism centers on the FTC’s handling of its $575 million settlement with credit bureau giant Equifax over its massive 2017 data breach. According to various consumer advocates and news media outlets including VICE, Demand Progress, and The American Prospect, the FTC misrepresented the amount of financial payouts to consumers affected by the breach, in what they say amounts to the same type of false advertising the FTC generally pursues. Demand Progress in particular has started a petition demanding that the agency investigate itself.

The current hubbub began following the Equifax data breach, which exposed the personal information of over 147 million people. Following an investigation into Equifax’s data security practices, the FTC announced that around $425 million would be made available to affected consumers. Those who could not prove they were victims of identity theft would be able to choose between a $125 cash payment or free credit monitoring offered by Equifax.

The FTC then backtracked on the $125 monetary payment, for which it had set aside $31 million. Just a week after announcing the original settlement, the FTC announced the change on its site, and in a blog post, Robert Schoshinski, the assistant director of the FTC’s Privacy and ID Protection Division, cited the unprecedented and overwhelming consumer response to justify why the agency would no longer be offering the monetary reward, claiming the money would have been available “if there hadn’t been such an enormous number of claims filed.”

Consumer advocates call this change a “bait and switch” tactic akin to those schemes usually prosecuted by the agency. The groups further assert the FTC should not have been surprised by the demand for cash payouts, and that the credit monitoring offered instead is practically useless.

"The FTC has authority under Section 5 of the FTC Act to police unfair and deceptive practices such as this. In addition to a full investigation, we demand the FTC issue an immediate cease and desist to itself and prohibit itself from making future deceptive statements," asserts one petition.

Even lawmakers have joined the chorus, "With just $31 million to be divided up by all the Americans who filed to receive their $125 check, Americans have the choice of receiving pennies for having their credit details spilled out online, or receiving virtually worthless credit monitoring," said U.S. Senator Ron Wyden. "Another clear failure by the FTC."

According to reports, Demand Progress is working on a formal complaint against the FTC.

Key Takeaways

Although it is highly unlikely, if not downright unfeasible, that the FTC will honor Demand Progress’ petition, this development illustrates the growing frustration among consumers (and lawmakers) with the federal agency tasked with monitoring the marketplace to protect consumers’ best interests.

Connecticut Becomes First State to Adopt New ABA Model Advertising Rules

Although not generally considered to be on the cutting edge of legal developments, Connecticut will soon become the first state to adopt the American Bar Association’s new model advertising rules for attorneys practicing in the state.

With the change, the Constitution State is revising its ethics rules pertaining to attorney advertising and aligning them with the new ABA Model Rules of Professional Conduct, including Connecticut rule 7.1—communications concerning a lawyer’s services, 7.2—specific rules concerning communication about services, and 7.3—solicitation of clients, as well as repealing rules 7.4 and 7.5.

Notably, the amendments change references to "advertising" to "communication regarding the lawyer’s services," which reflects advancements in technology and appears broad enough to capture social media and other new communication platforms. The revised rules also allow lawyers to give "nominal" gifts as a thank you for referrals.

Before the changes, attorney advertising rules in Connecticut were "internally inconsistent, rarely enforced, and inhibited lawyers from using new technologies to keep pace with the communication methods currently used by the consumer public," said one prominent Connecticut litigation partner.

The ABA approved the revised model advertising rules in August of last year, encouraged by the Association of Professional Responsibility Lawyers, which in a report said the old advertising rules were outdated and unworkable.

For its part, Connecticut’s adoption of the new rules is the first change made by the state to its ethics rules regarding attorney advertising since 1980, an acknowledgement of how vast technological changes have altered the advertising landscape since then.

Experts say the new rules will likely lead to more affordable legal services and greater consumer awareness of how lawyers solve legal problems.

The new Connecticut advertising practice rules go into effect in January 2020.

Key Takeaways

With this change Connecticut becomes the first state to adopt the new model ABA advertising rules for attorneys, and it remains to be seen whether other states will follow suit. For many states, these revisions may be a long time coming, at least according to some practitioners. As one San Francisco law firm partner put it, the old rules are "outdated and unworkable in most jurisdictions."

NARB Sends Cat Litter Maker to FTC for Failing to Comply with Recommendations

Something doesn’t smell right at Doskocil, a business selling cat litter pans as Petmate, according to the National Advertising Review Board (NARB). The appeals arm of the National Advertising Division (NAD) recently referred the company to the Federal Trade Commission (FTC) amidst claims the company failed to comply with NARB recommendations that the company discontinue certain claims about its cat litter pan products’ anti-microbial odor reduction qualities.

The issue surfaced in 2018 when competing cat litter pan maker Van Ness Plastic Molding Company referred certain Doskocil claims about the Petmate pan to NAD, the investigative arm of the advertising industry’s self-regulating unit. Van Ness challenged Doskocil’s claims that the litter pan came "with built-in antimicrobial protection" and "inhibits the growth of odor-causing bacteria on the pan."

After reviewing the claims, NAD concluded that Doskocil failed to provide a reasonable basis to substantiate them, recommending they be discontinued. Doskocil appealed the findings to the NARB, but the panel affirmed NAD’s recommendations. It noted that the antimicrobial properties claim implied the cat litter pans provided odor protection, but Doskocil had not provided any evidence to support this claim or to suggest that its pans offered odor protection benefits.

Doskocil agreed to comply with NARB’s recommendations, but in July 2019 NARB launched a compliance inquiry into the matter when alerted once again by competitor Van Ness that Doskocil might not be honoring its promise. NARB’s compliance inquiry examined whether the advertiser complied with the decision and "if not, whether, after ‘a reasonable amount of time,’ it has failed to make a ‘bona fide attempt’ to bring its advertising into compliance."

The claims brought to NARB’s attention by Van Ness that triggered the compliance inquiry were not the same exact claims at issue in the initial inquiry but similar. Petmate’s website and packaging now contained the revised claim that the product is "treated with microban for built-in antimicrobial protection," which the NARB viewed as fundamentally the same as the original claim.

NARB also looked at the revised claim substantively to see if it was supported, and concluded it was not supported by the technical analysis provided by Petmate’s supplier. That data analysis measured only the quantity, and not quality of antimicrobial activity, so it could not measure the degree to which odor was reduced.

Key Takeaways

Now that the cat’s out of the bag on Petmate’s challenged claims, the lesson for advertisers is clear: perfunctory changes to claims that the NAD or NARB recommended be discontinued are insufficient. To comply with recommendations, advertisers should take care the claims are not “fundamentally the same” and not merely rephrase the same claim but, rather, substantively alter debunked claims.