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Stay ADvised: What's New This Week, September 9

By Marc Roth, Nancy J. Felsten, and Robert J. Driscoll
09.11.19
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Google Agrees to $170 Million Settlement with FTC Over YouTube COPPA Violations

Google and its subsidiary YouTube recently agreed to a record $170 million settlement with the Federal Trade Commission (FTC) to resolve allegations the company violated federal privacy laws by illegally collecting data from minors without parental consent.

Prior to the public announcement of the settlement, both the FTC and Google had remained mum as rumors circulated about the exact details of the deal terms. The FTC approved the settlement on a 3-2 vote along party lines, which is now set to go to the Justice Department for review. The FTC and the State of New York will split the fine, receiving $136 and $34 million respectively.

The settlement resolves FTC allegations that the video streaming juggernaut violated the Children’s Online Privacy Protection Act (COPPA) by tracking and collecting data from children for targeted advertising without parental consent. A coalition of consumer advocates also filed their own complaint with the FTC alleging unlawful treatment of children’s privacy by YouTube. Under COPPA, companies may not without parental consent collect personal information from children under 13 in order to show them targeted ads.

In addition to the fine, the proposed settlement requires Google and YouTube to take certain steps to ensure compliance with COPPA. First, Google and YouTube must implement and maintain a system that will ensure content for children does not contain targeted ads. The system will allow YouTube channel owners to identify children’s content in order to flag it for compliance with COPPA and exclude it from targeted ads. Second, Google and YouTube must notify channel owners that child-directed content may be subject to COPPA obligations.

The companies must also provide annual training about COPPA compliance for its employees who work with channel owners. Finally, the settlement also prohibits Google and YouTube from violating COPPA and requires them to provide notice about their data collection practices and obtain verifiable parental consent before collecting personal information from children.

Even before details of these other terms of the settlement were released, YouTube quietly announced the launch of a separate YouTube Kids online service that replaces the YouTube Kids app that parents previously had to download to access the kid-friendly version of the service, ostensibly to implement the requirement of the settlement.

Despite the record-setting monetary penalty, the settlement has been criticized as a drop in the bucket for Google, which makes an estimated $500 to $750 million in revenue a year on children’s media alone.

Jeff Chester, executive director of the Center for Digital Democracy, said that "the punishment should’ve been at least half a billion dollars," adding that "it sends the signal that you in fact can break a privacy law and get away largely scot-free" and that it merely obligates YouTube to agree to comply with the law. Democratic Senator Ed Markey criticized the settlement as partisan and said it "falls short of the Commission’s responsibility to consumers and risks normalizing corporate bad behavior."

Underscoring the importance of the settlement, the FTC held an in-person press conference to discuss it.

"YouTube touted its popularity with children to prospective corporate clients," said FTC Chairman Joe Simons. "Yet when it came to complying with COPPA, the company refused to acknowledge that portions of its platform were clearly directed to kids. There’s no excuse for YouTube’s violations of the law."

Key Takeaways

The penalty is the largest ever imposed by the FTC for violations of COPPA, although some have criticized the terms as insufficient, "woefully low," and "terribly inadequate." Besides the criticism of the financial terms of the settlement, privacy advocates have also said measures barring YouTube from targeting ads to children are not enough if company executives are not held personally responsible for the illegal practices of the companies they run.

Online College Operator to Pay $30 Million Settlement for its Telemarketers’ Illegal Sales Tactics

The operator of several online colleges agreed to pay a $30 million fine to settle Federal Trade Commission (FTC) allegations that it employed lead generators that used deceptive marketing tactics to sell the company’s services and illegally called consumers registered on the Do Not Call registry.

According to the FTC complaint, since at least 2012, Career Education Corporation (CEC) and its subsidiaries have used lead generators that employed a range of unlawful and deceptive tactics to attract students to CEC’s schools. The FTC said CEC’s lead generators solicited contact information from consumers by pretending they were offering job-search or other services unrelated to secondary education, and then used that information to contact those consumers regarding CEC. Even worse, the FTC alleged that the lead generators falsely represented that they were from the military or that CEC schools were endorsed by the military.

In addition, the complaint alleged that CEC and its lead generators violated the Telemarketing Sales Rule (TSR) by repeatedly calling numbers on the National Do Not Call (DNC) Registry, many of which were obtained under false pretenses, to pitch CEC schools, sometimes as often as six times a day.

Meanwhile, according to the complaint, CEC knew or should have known about the illegal marketing efforts of the telemarketers working on its behalf. In many instances, the FTC claimed, the company knew of the wrongdoing and did nothing to prevent it.

CEC also had the opportunity to review the marketing materials used by its lead generators but never required the marketers to change their tactics. In some cases, the company even approved deceptive telemarketing scripts, according to the FTC.

The FTC is also pursuing some of the lead generators directly, including Sun Key, Edutrek, and Expand.

Key Takeaways

As this case demonstrates, the FTC will not allow companies to hide behind third parties’ deceptive practices when prospecting new customers. Similarly, companies that use third parties for these purposes cannot hide their head in the sand and ignore signs of malfeasance. Instead, they must remain aware of what these outsourced vendors are doing and when signs of trouble arise, take swift action to stem the harm.

The End May Soon Be Near: Man Sues Popeyes Chicken Over Sold Out Sandwiches

The nationwide craze for Popeyes' new chicken sandwiches reached new and litigious proportions after a Tennessee man filed suit alleging the fried chicken chain is liable for false advertising. The plaintiff filed a civil summons seeking $5,000 in damages over allegations Popeyes engaged in "false advertising" and "deceptive business practices" to the "public." According to the complaint, Popeyes deliberately created the frenzy around the chicken sandwich and under-delivered. 

After filing his complaint in Hamilton County General Sessions court, Craig Barr of East Ridge, Tennessee, told reporters that Popeyes' advertising is "totally deceptive. Who runs out of chicken? It’s a big fiasco. Someone has to stand up to big corporate. Everyone is captivated by these sandwiches. They’ve got everyone gassed up on them."

Popeyes' new chicken sandwich became an instant sensation following a viral exchange on social media between the company and competitor Chik-fil-A. The new chicken sandwich blew up on social media, inspiring countless memes and GIFs, and setting off a rush for Popeyes' chicken sandwich leading to lines down the block and a sold-out sandwich.

Plaintiff’s summons claims Popeyes advertised that the chicken sandwiches would be available but that they were not, causing him to waste "countless driving time" looking for the elusive breaded and fried chicken served on brioche bread with pickles. Barr filed the suit one day after the chain announced it was sold out of the sandwiches.

According to Barr, the search for the advertised sandwich caused him financial harm as well as a series of unfortunate incidents and ensuing damage plaintiff maintains he incurred as a result of the alleged false advertising of the chicken sandwich's availability.

Barr alleges that while making trips to multiple Popeyes locations in search of the promised sandwich, he incurred damages to his car totaling $1,500. Desperate for the advertised goods, he answered a Craigslist ad posted by someone claiming to be a Popeyes' employee promising to sell the sandwiches outside the store for $25 apiece.

Barr coughed up the money but that, too, proved a bust as the man ran off with the cash without providing the sandwich.

Popeyes refused to comment on the matter, saying they "don’t comment on pending litigation."

Although the suit may appear amusing to some at first glance, consumers have had some success with false advertising claims that initially seemed frivolous. One prominent example: the 2014 class action suit against Red Bull alleging the company engaged in false advertising via its "Red Bull gives you wings" slogan (it does not). The company settled that suit for $13 million dollars.

As for the plaintiff in this case, Barr's court date is set for October 28, by which time one hopes for his sake he will have found and eaten at least one Popeyes chicken sandwich. "I can’t get happy; I have this sandwich on my mind. I can't think straight. It just consumes you," Barr said.

Key Takeaways

The plaintiff may cluck cluck all he wants, but it is unlikely that this suit will go very far. If Barr does prevail – or if Popeyes pays him to settle the lawsuit – the question is whether he will use those funds to then actually buy Popeyes chicken sandwiches. All joking aside, experts estimate the social media marketing frenzy culminating in this suit has earned Popeyes the equivalent of millions of dollars in advertising exposure, thus validating the marketing adage, "there’s no bad publicity."

NARB Refers Adhesive Manufacturer to FTC Over Deceptive "Made in U.S.A." Claims

The Federal Trade Commission (FTC) is not the only "cop on the beat" when it comes to monitoring "Made in the U.S.A. claims." The National Advertising Review Board (NARB) of the Council of Better Business Bureaus recently referred an adhesive manufacturer to the FTC over allegedly misleading product and packaging origination claims.

J-B Weld Company manufactures epoxy products. Its product packaging proudly claims the product is "Made in the U.S.A." The question before the NARB was not whether the epoxy alone is made in the U.S.A. but, rather, whether the product’s packaging is as well.

The matter first came to the attention of the National Advertising Division (NAD)—the investigative unit of the advertising industry’s system of self-regulation—following a challenge by competitor Illinois Tool Works, which claimed that J-B Weld’s assertions its product is made in the U.S.A. is deceptive because its product does not meet the stringent FTC standard for such claims.

That standard requires that "all or virtually all" of a product’s parts or processing must be of U.S. origin, and that the product contain little to no foreign materials.

After an investigation, the NAD determined that consumers are likely to conclude the company’s "made in the U.S.A." claim applies to both the epoxy and the containing material, including caps, tubes, syringes and applicators. Therefore, it set out to determine if the company’s claims that its products are made in the U.S.A. are sufficiently supported as to the entire product, including the containing material. It concluded they are not.

Following an appeal by J.B. Weld, the NARB panel agreed with NAD’s determination that most reasonable consumers would conclude the product packaging was part of the product, especially given the promotion of a "re-sealable/no waste cap." According to the NARB, this claim would lead consumers to believe the cap is an important part of the product, which J-B Weld should have expected, since the company touts the cap as a vital component of the product that adds value.

Having concluded as such, the NARB then determined that the evidence does not support the company’s "Made in the U.S.A." claims. NARB reasoned that:

"the percentage of the total manufacturing cost represented by the foreign content was necessary to support a domestic-origin claim, and that, because the advertiser declined to submit the relevant cost data, the claims are not properly supported."

J-B Weld, however, disagreed and said that it was declining to follow the NARB’s recommendations and that it "believes that its Made in the U.S.A. advertising is adequately substantiated in accordance with applicable laws and regulations."

Key Takeaways

As covered in past issues of Stay ADvised here and here, enforcing country-of-origin claims is a hot topic these days. The NARB’s decision coincides with renewed concerns about enforcement of these claims and the FTC’s Made in the U.S.A. workshop later this month.

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