Ad Law Access

GAO Concludes FDA Should Strengthen its Oversight of GRAS Ingredients

Raqiyyah R. Pippins — Thu, 11 Mar 2010 12:25:25 -0500

This post was written by Raqiyyah R. Pippins and Sarah Roller.

On March 5, 2010, the General Accountability Office (GAO) issued a report evaluating the Food and Drug Administration’s (FDA’s) policies concerning food ingredients that have been determined to be “Generally Recognized As Safe” (GRAS). GRAS ingredients are excluded from premarket clearance requirements for food additives under the Federal Food, Drug, and Cosmetic Act (FDCA). The GAO report was prepared at the joint request of Sen. Tom Harkin (D., Iowa), Chairman of the Senate Committee on Health, Education, Labor and Pensions, and Rep. Rosa DeLauro (D., Conn.), Chair of the House Committee on Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies, and was prompted by apparent congressional interest in FDA oversight of food ingredients, including those developed through nanotechnology and other emerging technologies.

The GAO evaluation considered data on FDA’s voluntary notification program from the first year a GRAS notice was submitted, 1998, through 2008; laws and regulations regarding GRAS substances; the 11 citizen petitions related to GRAS substances that were submitted to FDA between 2004 and 2008; information from FDA officials regarding the agency’s response to the 11 citizen petitions; FDA’s policies and guidance to companies regarding engineered nanomaterials; the activities of foreign governments—namely, Canada and the European Union—that have been particularly active in considering regulation of engineered nanomaterials in food; and interviews with a wide range of stakeholders, including officials from FDA, industry and trade organizations, consumer advocacy groups, academia, and foreign governments.

Based on the evaluation, the new GAO report concludes that greater FDA oversight is needed with respect to GRAS determinations concerning both (a) food ingredients and components that previously were determined to be GRAS ingredients and for which GRAS status has been challenged in pending citizen petitions (e.g., high fructose corn syrup, salt, hydrogenated oils), and (b) ingredients and components that are the subject of new GRAS determinations, including those developed through nanotechnology and other emerging technologies.

Based on these findings, GAO further concludes that "FDA should take steps to better ensure the safety of GRAS substances," and recommends that FDA:

Require companies that undertake a GRAS determination to make a submission to FDA identifying the substance and the conditions of use the company has determined to be GRAS, and make this information publicly available through the FDA website;
Establish standards aimed at minimizing the risk of conflicts of interest among scientists who serve as experts on GRAS panels, including by requiring information concerning potential conflicts to be submitted to FDA;
Evaluate the adequacy of GRAS determinations through random audits or other assessment procedures;
Establish standards with respect to the nature and scope of scientific evidence required to establish GRAS status, and procedures for documenting determinations of GRAS status.
Finalize FDA's pending proposed regulation governing the current voluntary GRAS notification program established by FDA (see “Substances Generally Recognized As Safe; Proposed Rule,” 62 Fed. Reg. 18937 (Apr. 17, 1997)).
Establish standards and systematic procedures governing FDA's reconsideration of substances previously determined to be GRAS, including through timely responses to citizen petitions, appropriate allocation of FDA resources; and the development of criteria defining the circumstances in which FDA reconsideration of GRAS status will be undertaken; and
Issue guidance responding to the recommendations of the FDA Nanotechnology Task Force issued in 2007, defining "engineered nanomaterials," and establishing premarket notification requirements for substances involving engineered nanomaterials.

FDA regulation of GRAS substances has been subject to heightened scrutiny over the past few years.

In 2006, Michael Taylor, J.D. wrote a report on nanotechnology, titled “Regulating the Products of Nanotechnology. Does FDA have the tools it needs?” Taylor concluded that, in addition to “missing some of the legal tools it needs,” FDA’s “readiness for nanotechnology is most seriously hampered by the lack of resources required to respond promptly to products in the market and in the development pipeline.”1 To address these issues, Taylor recommended that FDA “promptly establish criteria for judging when a nanomaterial is “new” for legal and regulatory purposes, i.e., for purposes of distinguishing it from versions that are already listed in FDA’s GRAS, food additive and food packaging regulations,” and “establish criteria for determining when a nanomaterial should be considered “new for safety evaluation purposes.”2 Michael Taylor is currently Deputy Commissioner for Foods at FDA.

In August 2006, FDA convened the FDA Nanotechnology Task Force, “charged with determining regulatory approaches that encourage the continued development of innovative, safe, and effective FDA-regulated products that use nanotechnology materials… [and] recommend[ing] ways to address any knowledge or policy gaps that exist so as to better enable the agency to evaluate possible adverse health effects from FDA-regulated products that use nanotechnology materials.”3 In July 2007, the Task Force issued a report of its findings, noting that “the emerging and uncertain nature of the science [regarding nanotechnology] and potential for rapid development of applications for FDA-regulated products highlights the need for timely development of a transparent, consistent, and predictable regulatory pathway,” for use of nanotechnology, and including a recommendation that FDA “provide guidance to manufacturers about when the use of nanoscale ingredients may require submission of additional data, change the product's regulatory status or pathway, or merit taking additional or special steps to address potential safety or product quality issues.”4

In July 2009, the House passed, H.R. 2749, which contained a provision requiring FDA to post notice of a determination that a substance is GRAS, and the supporting scientific justifications, on FDA's website within 60 days of receipt of a GRAS notification. Although the current Senate version of the bill, S. 510, does not contain this GRAS provision, the Senate bill is expected to reach the Senate floor by Easter.

In January 2010, Sen. Pryor, (D. AZ) introduced S. 2942, “to amend the Federal Food, Drug, and Cosmetic Act to establish a nanotechnology program.” The legislation has been referred to the Senate Health, Education, Labor, and Pension Committee.

1 Taylor, M.R., Regulating the Products of Nanotechnology: Does FDA Have the Tools it Needs? (October 2006), p. 3., (http://www.nanotechproject.org/publications/archive/regulating_products_nanotechnology_does/).
2 Id. at 8.
3 FDA Website, About the Task Force, http://www.fda.gov/ScienceResearch/SpecialTopics/Nanotechnology/NanotechnologyTaskForce/default.htm
4 FDA Website, Nanotechnology Task Force Report, http://www.fda.gov/ScienceResearch/SpecialTopics/Nanotechnology/NanotechnologyTaskForceReport2007/default.htm.

CBBB Increase Fee for Filing NAD Challenges

Gonzalo E. Mon — Tue, 09 Mar 2010 15:52:14 -0500

Effective March 15, 2010, the Council of Better Business Bureaus will increase the fee it charges for CBBB Corporate Partners to file an NAD challenge from $2,500 to $3,500. This is the first increase in the Corporate Partner filing fee since 2005. Non-partners must pay between $6,000 and $20,000, depending on the gross annual revenue of the company. A copy of the CBBB's announcement is available on the NAD website.

Despite this increase, the cost of bringing a challenge before the NAD is still significantly less than the cost of bringing a lawsuit under § 43(a) of the Lanham Act. Click here for an article that provides a detailed analysis of the options available to a company that wants to challenge a competitor’s claims.

Court Denies Motion for Summary Judgment in Case Involving User-Generated Content

Gonzalo E. Mon — Mon, 08 Mar 2010 14:55:42 -0500

In 2007, Quiznos launched the “Quiznos v. Subway TV Ad Challenge” and invited consumers to create videos demonstrating why Quiznos is better than Subway. To encourage submissions, Quiznos posted four sample videos on the contest site. After the contest, Subway sued Quiznos arguing, in part, that some of the videos submitted by consumers included false claims. Quiznos countered by arguing that it was immune from challenge under § 230 of the Communications Decency Act, a law that essentially provides that certain websites may not be held liable for content provided by third parties. A site may lose immunity, however, if it is responsible for creating or developing that content.

A federal court recently denied Quiznos’ motion for summary judgment. The court stated that the critical inquiry with respect to immunity is “whether the Defendants merely published information provided by third parties or instead were actively responsible for the creation and development of disparaging representations about Subway contained in the contestant videos.” The court noted a few factors that could destroy immunity: (a) Quiznos invited contestants to submit videos demonstrating why Quiznos is better than Subway; (b) the domain name for the Contest (meatnomeat.com) implies that Subway sandwiches have no meat; and (c) the sample videos may contain false claims. The court determined a jury should decide whether Quiznos is entitled to immunity.

This decision interprets CDA immunity more narrowly than other recent decisions in this area and serves as a reminder that there are circumstances in which companies may be held liable for content created by consumers. In a presentation this week, David J. Ervin and Gonzalo E. Mon will discuss strategies that companies can employ to help guard against liability.

Update: Quiznos and Subway agreed to settle the case.

Ramirez and Brill Confirmed as FTC Commissioners

Lewis Rose — Thu, 04 Mar 2010 11:09:12 -0500

Late last night, the Senate unanimously confirmed Edith Ramirez and Julie Brill to fill the two vacant seats on the Federal Trade Commission (FTC).1 Ms. Ramirez will replace Republican Deborah Majoras, who stepped down from the Commission in March 2008, and Ms. Brill will replace Independent Pamela Jones Harbour, whose term ended in September 2009. Their positions start immediately upon confirmation. A brief background on each new Commissioner is provided below.

Julie Brill

Since February 2009, Ms. Brill has been a Senior Deputy Attorney General and Chief of the Consumer Protection and Antitrust Division for the North Carolina Department of Justice. Prior to joining North Carolina’s Department of Justice, Ms. Brill served as an Assistant Attorney General for the Vermont Attorney General’s Consumer Protection and Antitrust Divisions for over 20 years. Ms. Brill’s experience at the Vermont Attorney General’s office included a wide-variety of consumer protection litigation, legislative, and regulatory matters in the fields of privacy, credit reporting, financial services, tobacco, food, drugs and other health-related industries. As an Assistant Attorney General for the state of Vermont, Ms. Brill also testified before Congress regarding data security breach legislation and consumer privacy issues.

Ms. Brill has served as a Vice-Chair of the Consumer Protection Committee of the American Bar Association Antitrust Section since 2004 – the ABA committee chaired by John Villafranco (2002 to 2005) and August Horvath (2005-2009) of Kelley Drye. She has received several honors for her consumer protection and privacy work, including the National Association of Attorneys General Privacy Subcommittee Award in 2001 for drafting proposed privacy principles, Privacy International’s 2001 Brandies award for work on state and federal privacy issues, and the National Association of Attorneys General Marvin Award in 1995 for her “outstanding leadership, expertise, and achievement in advancing the goals of the association.” Additionally, she is also a Lecturer-in-Law at Columbia Law School.

Before beginning her career in law enforcement, Ms. Brill was an associate at Paul, Weiss, Rifkind, Wharton & Garrison in New York and she clerked for Vermont Federal District Court Judge Franklin S. Billings Jr. Ms. Brill is a graduate of New York University School of Law, where she received a Root-Tilden Scholarship for her commitment to public service. She received her bachelor’s degree from Princeton University.

Edith Ramirez

Ms. Ramirez is currently a partner in the Los Angeles office of Quinn Emanuel Urquhart Oliver & Hedges, LLP where she specializes in intellectual property and complex business litigation matters. She has represented a diverse range of clients in actions involving copyright and trademark infringement, antitrust and unfair competition claims, business tort, and other general business litigation cases. Notable litigation includes Hathaway Dinwiddie Construction Co. v. United Air Lines, Inc., where Ms. Ramirez successfully represented Hathaway Dinwiddie Construction on breach of contract claims, and Christian v. Mattel, Inc., where Ms. Ramirez helped obtain a $500,000 sanction against Mattel’s opposing counsel pursuant to Federal Rule of Civil Procedure 11 for filing a frivolous copyright infringement action against Mattel. Ms. Ramirez has also represented American Broadcasting Companies, The Walt Disney Company, The Scotts Company, and Northrop Grumman in a variety of intellectual property, antitrust, and contract litigation matters.

Ms. Ramirez is also involved with a number of community outreach activities. She has served as the Vice President on the Board of Commissioners for the Los Angeles Department of Water and Power, a member of the Board of Directors for Volunteers of America, and the California Deputy Political Director and Director of Latino Outreach for Obama for America.

Previously, Ms. Ramirez served as a law clerk to the Honorable Alfred T. Goodwin, United States Court of Appeals for the Ninth Circuit. She also worked as an associate at Gibson, Dunn & Crutcher, LLP. Ms. Ramirez attended Harvard Law School, where she was an editor for the Harvard Law Review, and she received her bachelor’s degree from Harvard-Radcliffe College.

1 http://senatus.wordpress.com/2010/03/03/nominations-confirmed-march-3/

Social Media Seminar

David J. Ervin — Wed, 03 Mar 2010 14:37:20 -0500

On March 10, Kelley Drye will host an encore presentation of the seminar, "A New Legal Frontier for Social Media," at our New York office.

The legal landscape for social media and user-generated content is changing. Make sure you understand the risks and rewards. Companies engaged in blogs, social networking, and other types of interactive marketing campaigns face increased scrutiny in light of recent cases and sweeping changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. These developments have increased the scope of activities and content for which advertisers may be liable.

Join the Association of Corporate Counsel and Kelley Drye for a discussion about the important legal issues and best practices for leveraging social media. Topics will include:

Ways that companies are using social media in the form of sweepstakes, contests, blogs, wikis, and other promotions involving user-generated content;
Legal risks and the impact of recent cases and the FTC Guides on your advertising and marketing campaigns; and
Practical advice on how to minimize legal liability associated with social media websites and campaigns with user-generated content.

SPEAKERS:

David J. Ervin
Partner, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Gonzalo E. Mon
Associate, Kelley Drye & Warren LLP
Advertising and Marketing Practice

Josephine Belli-Marinos
Associate General Counsel & Litigation Counsel
Combe Inc.

Reginald M. Rasch
General Counsel
LinkShare

WHEN: March 10, 2010, from 3:00 - 5:00 PM

WHERE: Kelley Drye, 101 Park Avenue, 27th floor, New York, NY, 10178

REGISTER: email admin@accgny.com

Apple Allows Some Promotions on iPhone Apps

Gonzalo E. Mon — Mon, 01 Mar 2010 09:00:00 -0500

RegHardware reports that Apple recently changed the terms of its iPhone Software Development Kit ("SDK") to allow companies to offer certain promotional games on apps. Although some reports circulating online suggest that Apple is allowing companies to run "lotteries" on the iPhone, that is not exactly right.

Section 3.3.17 of the SDK states: "Your Application may include promotional sweepstakes or contest functionality provided that You are the sole sponsor of the promotion and that You and Your Application comply with any applicable laws." In addition, developers must "clearly state in binding official rules for each promotion that Apple is not a sponsor of, or responsible for conducting, the promotion." (As we discussed in a previous post, Facebook included a similar requirement in its Promotions Guidelines.)

Keep in mind that laws in the United States -- and laws in most foreign jurisdictions -- prohibit private parties from running lotteries. In general, a lottery includes the following three elements: (1) a prize; (2) awarded on the basis of chance; (3) to people who were required to pay consideration. Therefore, you can't require people to pay money to enter a chance-based promotion.

Although Apple's SDK does give developers more flexibility, it doesn't permit them to violate laws.

Italian Court Convicts Google Executives of Privacy Violations

Christopher M. Loeffler — Thu, 25 Feb 2010 19:14:58 -0500

On February 24, 2010, an Italian court convicted three Google executives for violation of Italy's privacy laws resulting from a video that was posted to Google Video showing a group of teenagers bullying another teenager with disabilities. Judge Oscar Magi sentenced Google Global Privacy Counsel Peter Fleischer, Chief Legal Officer David Drummond, and former Google CFO and board member George Reyes to six-month suspended jail sentences and fines. The executives were acquitted of criminal defamation charges. This appears to be one of the first cases in which a privacy executive is held personally liable for the actions of a site's users

The prosecutors alleged that the executives did not take sufficient actions to keep the video off of Google's site, despite the fact that Google received only two complaints about the video, and it was taken down less than 24 hours after being posted. Prosecutors stated that Google should have obtained consent from each party involved before permitting the video to be posted. European law provides a safe harbor for ISPs and does not hold them liable for third party content, provided the ISP takes down any content that someone complains about and is considered offensive.

Members of the technology and privacy communities have described the decision as "terrible," "astonishing," and "troubling." One commenter stated: "It is like prosecuting the post office for hate mail that is sent in the post."

If upheld on appeal, this decision could dramatically affect internet freedom. It appears to continue Italy's strong consumer protection stance and attempted regulation of social media. In a previous post, we noted the recent draft decree issued by the Italian government that would require social media sites to screen all posted content that may be harmful to minors.

Although the Google executives will appeal the conviction, the case demonstrates that the Internet makes it easy to take actions globally, but what is permitted in the U.S. does not always work everywhere.

FTC Warns Companies of Data Leaks on Peer-to-Peer File Sharing Networks

Dana B. Rosenfeld — Wed, 24 Feb 2010 13:56:00 -0500

This post was written by Dana B. Rosenfeld and Christopher M. Loeffler.

On February 22, 2010, the Federal Trade Commission (“FTC”) announced that it notified nearly 100 organizations that personal information about the organizations’ customers or employees is available on peer-to-peer (“P2P”) file sharing networks. [1] Most recently, it notified nearly 100 businesses and governmental entities through an Internet-wide sweep, the FTC discovered that sensitive data such as health-related information, financial records, drivers’ license numbers, and Social Security numbers have been shared from organizations’ computer networks and are susceptible to those who may use the data for illegal practices such as fraud or identity theft. The Commission has not publicly identified which organizations were notified, but it stated that letters were sent to large and small private and public entities including schools and local governments.

P2P file sharing programs are often used to share documents, and music or video files over the Internet. While an employee’s intended use of a P2P file sharing program may be innocuous, the configuration of the program on an organization’s network may allow unintentional access to the organization’s unsecured files. FTC Chairman Jon Leibowitz stated: “Companies should take a hard look at their systems to ensure that there are no unauthorized P2P file-sharing programs and that authorized programs are properly configured and secure.”[2]

If your company has received a notice letter it does not necessarily mean that a law enforced by the FTC has been violated. These letters are designed to urge these organizations to ensure that their data security practices are reasonable and provide the appropriate level of protection. Nonetheless, the FTC has reserved its right to bring an investigation if warranted by the facts of an individual scenario. Further, the FTC urged organizations to examine whether appropriate notice should be provided to customers and employees, as well as law enforcement agencies and the credit bureaus, regarding this disclosure of personal information. Such notice may be required under various state or federal agency data breach notification laws and regulations. The FTC also has opened non-public investigations into other organizations’ data security practices where customer or employee personal information has been made available on a P2P network.

Laws Enforced by the FTC

The FTC is authorized to prohibit unfair or deceptive acts or practices under Section 5 of the FTC Act, and the Commission also enforces laws and regulations affecting privacy and security in specific industries, such as the Gramm-Leach-Bliley Act. Under these laws, companies are required to take reasonable and appropriate security measures to protect personal information from unauthorized access. Further, companies are responsible for the practices of vendors and service providers that may have access to such data. Companies whose customers and employees’ personal information has been exposed on P2P networks may be in violation of these obligations.

FTC Business Guidance

As part of its notification effort, the FTC has provided companies with new business guidance on protecting personal information entitled Peer-to-Peer File Sharing: A Guide For Business.[3] This guidance offers tips for businesses when considering the security implications of using P2P file sharing technology on company networks including: (1) a description of P2P file sharing program; (2) identification of security risks presented by P2P file sharing programs; (3) steps to protect sensitive information from unauthorized or unintentional disclosure on P2P file sharing programs; and (4) various security and safeguarding techniques to employ, depending on whether the company intends to prohibit or permit the use of P2P file sharing programs.

What this Means for Organizations

If your organization has received a notice letter from the FTC indicating that the Commission discovered personal information about your organization’s customers or employees on a P2P file sharing network, you should fully investigate the potentially unauthorized disclosure of information, take immediate steps to secure your system, and assess whether your current information security program could benefit from further enhancements in light of current risks and threats to data. You also should carefully examine whether this disclosure triggers any legal obligation to notify your customers or employees of the incident, and take steps to provide notice if appropriate. The FTC has clearly indicated through this effort and other recent actions that it is closely monitoring the information security practices of organizations. Businesses would be wise to take this warning seriously and take proactive steps in response.

[1] Id.

[2] FTC, Peer-to-Peer File Sharing: A Guide for Business, available at http://ftc.gov/bcp/edu/pubs/business/idtheft/bus46.shtm.

[3] FTC, Peer-to-Peer File Sharing: A Guide for Business, available at http://ftc.gov/bcp/edu/pubs/business/idtheft/bus46.shtm.

New York Attorney General Announces Settlement Over Deceptive Sweepstakes

Gonzalo E. Mon — Tue, 23 Feb 2010 10:01:30 -0500

This week, the New York Attorney General announced a settlement with PlasmaNet, the owner of FreeLotto.com, for using deceptive and misleading advertisements. Consumers can enter sweepstakes on FreeLotto.com for free if they agree to receive e-mails from PlasmaNet and visit the site every day. Consumers do not have to visit the site daily if they purchase the “FreeLotto Automatic Subscription Ticket” (“F.A.S.T.”) service, for $14.99 per month. With the F.A.S.T. service, consumers can program PlasmaNet to automatically enter the sweepstakes for them.

The Attorney General alleged that PlasmaNet sent misleading e-mails to FreeLotto.com players notifying them of “pending” prizes and directing them to claim their winnings. The players had not actually won these prizes -- instead, they were unwittingly led to purchase the “F.A.S.T.” service. The Attorney General also alleged that PlasmaNet ran banner ads that falsely stated that a consumer had already won a prize. PlasmaNet did not, however, disclose that the consumer had to register with FreeLotto.com and agree to receive advertising from PlasmaNet in order to collect it.

Under the agreement, PlasmaNet will pay $1.5 million in penalties, costs, and fees and will make refunds available to eligible consumers over the next six months. PlasmaNet must also significantly reform its advertising practices.

This settlement serves as a good reminder that companies need to clearly and conspicuously disclose the material terms and conditions of their offers and that they cannot hide costs in the fine print. Also remember that consumers cannot be required to pay money to enter sweepstakes and that it is unlawful to give any advantage to people who enter by making a payment.

WOMMA Releases Guide to Disclosure in Social Media Marketing

Gonzalo E. Mon — Thu, 18 Feb 2010 11:59:19 -0500

This post was written by Gonzalo E. Mon and David J. Ervin.

In a previous post and article, we discussed how the FTC's new Guides Concerning the Use of Endorsements and Testimonials in Advertising include various provisions that apply to messages in social media, such as blogs, word-of-mouth marketing, and other promotions in which companies encourage consumers to speak on their behalf. Among other things, bloggers and other endorsers are required to disclose whether they have any materials connection to the company whose products they are writing about, including whether the company has given them any free products or samples. In some cases, however, that may be easier said than done.

In an attempt to provide some guidelines about how to make the required disclosures, this week, the Word of Mouth Marketing Association ("WOMMA") released a Guide to Disclosure in Social Media Marketing. The WOMMA Guide provides sample disclosures for a variety of contexts, including messages on blogs, online discussions, microblogs (such as Twitter), and status updates on social networks. The WOMMA Guide should not be used as a replacement for an individualized company social media policy, but it does provides good examples that companies may want to incorporate into their policies.

Behavioral Advertising Icon Adopted

Dana B. Rosenfeld — Wed, 17 Feb 2010 17:40:03 -0500

This post was written by Kristin A. Hird and Dana B. Rosenfeld.

A broad coalition of advertising associations has agreed on a standard icon – a white “i” surrounded by a circle on a blue background dubbed the “Power I” – which will be added to websites and will link consumers to a page explaining how the advertiser uses their demographics and behavioral data to send certain ads. Developing the new symbol is part of self-regulatory principles agreed to by major advertising groups including the American Association of Advertising Agencies, the Association of National Advertisers, the Direct Marketing Association, and the Interactive Advertising Bureau, in an effort to address the FTC’s concerns about the behavioral advertising industry’s activities.

There is no legal requirement that the groups’ members adopt the icon but the advertising coalition expects that most of its members, including many major online retailers, will begin running it by midsummer. It is anticipated that the icon will initially appear with phrases such as “Why did I get this ad?” and the Interactive Advertising Bureau has started an online advertising campaign to explain the icon to consumers. The idea is to establish an immediately recognizable and trusted symbol as well as provide a link to information.

It’s yet to be seen how widespread implementation of the self-regulatory principles will be by the coalition’s members, much less whether the coalition’s steps will be sufficient to ward off regulation by the FTC. But keep an eye out for the little blue icon appearing on websites this summer.

The Law of Comparative Advertising

John E. Villafranco — Fri, 12 Feb 2010 15:32:10 -0500

The law of comparative advertising covers advertising that compares alternative brands on price or other measurable attributes and expressly or impliedly identifies the alternative brand by name, illustration, or other distinctive information.

A new article in IP Litigator, “The Law of Comparative Advertising in the United States,” provides an overview, including the treatment of comparative advertising claims by the Federal Trade Commission and the National Advertising Division of the Council of Better Business Bureaus, Inc., and a discussion of some of the particular proof and burden-shifting issues triggered when comparative advertising claims are challenged under the Lanham Act. The article then provides practical guidance to in-house attorneys and outside counsel on strategies for challenging comparative advertising claims made by a competitor when the client contends that the claims cannot be substantiated.

Federal Trade Commission Requests Congress to Enhance the Agency's Enforcement Powers

Lewis Rose — Mon, 08 Feb 2010 11:45:39 -0500

The Federal Trade Commission told the U.S. Senate Committee on Commerce, Science and Transportation on Thursday, February 4, 2010, that additional law enforcement powers would allow the agency to protect consumers more effectively.

While much of the testimony detailed the FTC’s efforts to protect consumers from financial fraud that has occurred in connection with the downturn in the economy, the additional powers sought by the FTC would enhance its ability to protect consumers for any violation of one of the laws that it enforces. The agency encouraged Congress for authority:

to use more efficient rulemaking procedures to address consumer protection issues and enhance the agency’s ability to stop financial fraud;
to seek civil penalties for violations of the FTC Act rather than just rules or orders that have already been promulgated;
to act against those who assist others they know, or consciously avoid knowing, are engaged in unfair or deceptive practices under the FTC Act; and
to prosecute civil penalty cases in federal court in its own name so that it can bring cases more quickly and more effectively.

Interestingly, Commissioner Kovacic dissented from the Commission’s endorsement of authority to use, for promulgating all rules respecting unfair or deceptive acts or practices under the FTC Act, the notice and comment procedures of the Administrative Procedures Act (“APA”). While other agencies have the authority to issue significant rules following notice and comment procedures, Commissioner Kovacic stated that the Commission's rulemaking authority is unique in its range of subject matter (unfair or deceptive acts or practices) and sectors (reaching across the economy, except for specific, albeit significant, carve-outs). Except where Congress has given the Commission a more focused mandate to address particular problems, beyond the FTC Act's broad prohibition of unfair or deceptive acts or practices, Commissioner Kovacic believes it prudent to retain procedures beyond those encompassed in the APA. However, he supports sector-specific APA rulemaking to promulgate rules that set forth unfair or deceptive acts or practices relating to all financial services. Further, he would be willing to consider more generally whether all the procedures currently required to issue, repeal, or amend rules issued under the FTC Act are necessary.

Commissioner Kovacic also dissented from the Commission's endorsement of across-the-board civil penalty authority. Commissioner Kovacic believes that the existing consequences attendant to a finding that an act or practice is unfair or deceptive under the FTC Act are generally appropriate remedies, and they are consistent with the goal of developing FTC law to develop new doctrine and to reach new and emerging problems. In his view, the routine availability of civil penalties, even if subject to a scienter requirement, would risk constraining the development of doctrine, much as judicial concerns about the availability of private litigation with mandatory treble damages appear to be constraining the development of antitrust doctrine. Commissioner Kovacic would prefer that Congress grant more targeted authority to seek civil penalties, perhaps including civil penalty authority where financial services are involved, and particularly including civil penalty authority in matters where existing remedies are likely to be inadequate.

Regarding President Obama’s proposed Consumer Financial Protection Agency, the testimony expressed FTC support for the goal of making consumer financial protection more effective while ensuring that the FTC’s authority and ability to protect consumers remains uneroded and clear. The FTC told Congress that it should remain active and effective in policing financial and nonfinancial products and services. Commissioner Kovacic and Commissioner Rosch recommended, perhaps as an alternative to creating a new agency to perform the federal banking agencies’ current consumer protection functions, that the Committee consider a model by which consumer protection with respect to banks and other depository institutions would be enhanced by providing the Commission with a role in protecting consumers of depository institutions. Such expansion of the Commission’s consumer protection role would require a concomitant increase in the Commission’s resources to ensure the continuing excellence of its enforcement record.

FTC Continues to Explore Consumer Privacy Protection Measures

Dana B. Rosenfeld — Fri, 05 Feb 2010 15:29:25 -0500

On January 28, 2010, the Federal Trade Commission (FTC) held its second consumer privacy roundtable, focusing on technology’s effect on consumer privacy and its potential to both weaken and strengthen privacy protection. Similar to the first roundtable, the FTC’s second roundtable featured discussions by industry leaders, consumer groups, academics, and government representatives. The discussion continued to focus on whether the FTC’s current privacy paradigm, particularly the notice and choice model, sufficiently protects consumers and allows them to understand and control how personal information is collected and used.

FTC and Government Officials Reaffirm Concepts From December Roundtable and Highlight Future Practices

In keeping with themes from the FTC’s December roundtable[1], FTC officials discussed privacy policy concerns with the current notice and choice model of privacy protection. The FTC also provided insight into future Commission enforcement and potential regulation. For example, David Vladeck, the Director of the FTC’s Bureau of Consumer Protection, noted that the Commission intends to increase enforcement actions against organizations that engage in practices to undermine consumers’ privacy decisions about online marketing. Although Mr. Vladeck did not expand on the types of companies or practices that the FTC plans to target, he previously has raised concerns about the use of flash cookies, a technology that permits the storage of information about a user's browsing habits and enables targeted behavioral advertising, which cannot be deleted in the same manner as traditional HTTP cookies.

Further setting the stage for some of the days’ topics, Commissioner Pamela Jones Harbour spoke about technology’s role as a “double-edge sword” because of its ability to both protect consumers and lead to consumer harm if used in unfair and deceptive ways. Commissioner Harbour also advocated for comprehensive legislation that would address both online and offline data collection, noting that “behavioral targeting represents just one aspect of a multifaceted privacy conundrum.”

In addition to the FTC’s comments, Daniel J. Weitzner, the National Telecommunications and Information Administration’s Associate Administrator for Policy at the Department of Commerce (DOC), outlined the DOC’s and President Obama’s administration goals to protect consumer privacy, including promoting the United States’s role as a leader in global privacy discussions and addressing consumer privacy protection in an increasingly transparent online environment. Mr. Weitzner also set forth a framework for privacy regulation discussions, noting that lawmakers and regulators need to balance a regulation’s protection benefits with harmful effects to online systems and services. The DOC has indicated that it will issue a Notice of Inquiry requesting information from industry leaders, academics, and government representatives about privacy regulation issues and concerns, and hopes to work with the FTC to create privacy regulation.

Panels Focus on Technology’s Role in Privacy Protection

The panelists explored a wide array of privacy issues associated with new and emerging technology, such as social networking, cloud computing, online behavioral advertising, mobile marketing, and the collection and use of information by retailers, data brokers, and other organizations.

One panel focused on the developing tension between technology and privacy, noting that as technology becomes more sophisticated, consumers’ control over personal information diminishes. Panelists noted that many technologies developed for consumers’ benefit can be repurposed and used for nefarious data collection and other activities. Echoing the balancing theme advanced by the FTC and the DOC, panelists believe that the FTC should create privacy protections that control harm without robbing consumers of beneficial new technologies.
Other discussions focused on the nature of information sharing practices, finding that technology itself is not the problem, but that privacy risk and consumer harm stems from how information is used once it is divulged by the consumer. For example, panelists were concerned that once consumers provide personal information to an organization that shares data with third parties, consumers lose control over how that information will be used by the third party in the future. These panelists believe the FTC needs to address regulatory gaps for third-party companies that buy and collect information, and use that information in ways the consumer did not anticipate or consent.
Further, the panelists addressed privacy implications for social networking and similar online services. In particular, panelists explored how social networking sites affect consumers’ view of their privacy and discussed views held by some industry leaders that consumers who put personal data on social networking sites have surrendered their privacy expectations. Despite privacy concerns, many panelists touted the benefits of these services, noting that online social networking advances the global economy and facilitates social interactions. Finally, some panelists believe that social networking sites’ privacy measures offer a model for consumer privacy protection for other industries because many sites allow consumers to customize and control privacy settings in a very detailed manner.
In addition to social networking, panelists focused on privacy issues associated with cloud computing. This panel focused on consumer education and how the industry can help consumers understand data management, sharing, and use practices in the cloud. Many panelists noted that a high level of transparency is the key to helping consumers embrace cloud computing.
Privacy concerns with mobile computing were also discussed. Mobile computing, similar to social networking and cloud computing, is a rapidly expanding form of technology that presents unique privacy protection challenges. Of particular concern to panelists is the spread of location-based advertising, a form of behavioral marketing which allows advertisers to target consumers through mobile devices by delivering advertisements based on a consumer’s location. Many panelists believe that lawmakers and regulators should increase oversight of location-based marketing practices, as well as behavioral marketing as a whole.
Finally, discussions explored what role public policy should play in shaping and regulating technology. Panelists debated the efficacy of privacy enhancing technologies, such as spam filters, identity-theft monitoring software, and other products and services that consumers use to enhance online privacy protection. Many panelists supported government regulation that would promote the use of privacy enhancing technology, but cautioned that regulatory standards should be flexible in scope to avoid inhibiting the creation of new technology.

Themes that emerged from December’s roundtable included how organizations’ data collection and use practices should be regulated to best protect consumers without unduly constraining commerce. Similarly, this recent roundtable focused on how privacy protection measures can be created and applied without constraining technological development. FTC officials noted that future regulations should balance consumer privacy protections with the burdens on technological research and development, and take into account the benefits that new technology provides consumers. To protect the free-flow of commerce and technological development lawmakers and regulators may favor broad standards that can be applied to a wide-range of situations and technologies.

Based on comments from the January roundtable, it is likely that the FTC will increase its law enforcement efforts targeting deceptive or unfair online data collection and marketing techniques, particularly those using stealth technology, such as flash cookies, to potentially undermine consumers’ privacy choices. Other issues to monitor moving forward include the possibility of comprehensive privacy legislation, which has already generated some interest in Congress, but could gain momentum following any announcements by the FTC.

The FTC’s next roundtable will take place on March 17, 2010 in Washington, D.C. The focus of this final roundtable will be on protection of health data and other sensitive consumer information, as well as identity management and accountability approaches to privacy protection.

Legislative Activity

A bipartisan group of House Energy and Commerce Committee Members led by Communications, Technology, and the Internet Subcommittee Chairman Rick Boucher (D-VA) are expected to soon circulate draft legislation designed to create baseline privacy standards to guide the collection and handling of consumers' personal information over the Internet. Chairman Boucher has indicated that his goal is to provide consumers greater control and knowledge, thereby increasing their confidence in the security of the Internet. At the same time, he views targeted advertising as an essential business practice for many companies and hopes to promote, not interfere with, successful e-commerce. In his legislation, Chairman Boucher intends to replicate the best voluntary consumer protection and privacy practices that are already in place in the private sector and require industry-wide implementation of such practices, providing the FTC with broad rulemaking and enforcement authority. Chairman Boucher's goal is to enact legislation this year. There is no companion bill in the Senate at this time which could make enactment this year challenging. The Chairman's legislation also will be affected by activities at the Federal Trade Commission.

Chairman Boucher was a featured speaker at a recent Kelley Drye event, "A Congressional Forum: The Legislative Agenda for 2010." If you would like to receive invitations to future Kelley Drye Government Relations events, please email dcevents@kelleydrye.com.

[1] Kelley Drye & Warren LLP covered the FTC’s December 7, 2009, roundtable in greater detail in a past client advisory: FTC Debates Online Privacy Protection: Agency Seeks to Incorporate Views of Regulators, Industry Leaders, and Academics into Comprehensive Privacy Protection Model.

New Article Provides Tips for Mobile Marketers

Gonzalo E. Mon — Fri, 05 Feb 2010 09:05:00 -0500

As more companies engaged in mobile marketing last year, many struggled to figure out how laws written before mobile phones existed apply in the wireless world. Consequently, 2009 saw some significant legal challenges against mobile campaigns. The biggest problems had to do with failure to disclose offer terms or get consent, and two cases, in particular, will have a significant effect on campaigns in 2010.

An article written by Gonzalo Mon on page 37 of Mobile Marketer’s Mobile Outlook 2010 discusses some of the top legal issues in 2009 and provides tips to help marketers avoid those problems in 2010.

Direct Marketing Association Releases New Guidelines for Endorsements and Testimonials

Gonzalo E. Mon — Fri, 29 Jan 2010 14:58:15 -0500

This week, the Direct Marketing Association announced new changes to their Guidelines for Ethical Business Practice for endorsements and testimonials.

Among other things, the new Guidelines require marketers to do the following: (a) clearly and conspicuously disclose the generally expected results of an advertised product or service, if the results described in a testimonial are not typical; (b) disclose any material connections between marketers and their endorsers that a consumer would not expect; and (c) ensure that celebrity endorsers disclose their relationships with marketers when making endorsements outside the context of traditional ads. The DMA also clarified that the Guidelines apply not only to traditional of marketing, but also to marketing in social media, such as blogs and word-of-mouth marketing campaigns.

These amendments bring Guidelines into alignment with the Federal Trade Commission’s latest Guides Concerning the Use of Endorsements and Testimonials in Advertising. As we explained in a post last month, the FTC’s new Guides pose various challenges for many companies, particularly in the context of social media. Click here for an article (starting on page 19) that provides some tips for dealing with these challenges.

International Chamber of Commerce Announces New Framework for Green Claims

Christie L. Grymes — Tue, 26 Jan 2010 16:36:02 -0500

It’s no surprise that in our current economic condition consumer spending is down. A company's budget, and especially marketing dollars, have to work more efficiently than ever before. While consumers may be watching their purse strings, “green” products are prevalent, and green marketing claims can be an effective way to break out of the clutter. Marketers must ensure, however, that those claims do not overstate the “green” benefits or they could face regulatory investigations or challenges from competitors, which cause further budgetary strain.

From Paris to Peoria, companies should carefully consider the messages they could be communicating when touting environmental attributes of their products. Yesterday the International Chamber of Commerce ("ICC") announced its Framework for Responsible Environmental Marketing Communications -- guidelines for international marketers when making green marketing claims. The framework includes a checklist that marketers can use when making green claims and a chart with cross references to the Consolidated ICC Code of Advertising and Marketing Communications, which sets forth general principles governing all marketing communications. The ICC is the international association that coordinates and promotes self-regulation of advertising. Countries particpate through local chapters like the U.S. Council for International Business ("USCIB").

In the United States, the Federal Trade Commission has published Guides for the Use of Environmental Marketing Claims ("Green Guides") and is currently reviewing the Green Guides for possible modification. For more information, check out our recent article, Going Green Without Giving Up Your Greenbacks.

Italy Seeks to Regulate Social Media Sites

Gonzalo E. Mon — Tue, 26 Jan 2010 10:10:16 -0500

The Italian government recently drafted a decree that would require owners of social media sites to review all videos posted on their sites in order to screen out any content that could be harmful to minors, including pornography and excessive violence. Internet providers would be required to shut down any site that does not comply with the decree, or face fines ranging from €150 to €150,000 (approximately $210 to $210,860 USD).

The decree inherently challenges the business models of social media sites such as YouTube that allow users to upload videos without any review by the site owners. Opponents of the decree say that it would erode freedom of expression and make it burdensome -- if not impossible -- to monitor what consumers post on the internet. Google and other companies are working with the government to change the scope of the decree.

Although the internet makes it easy for American companies to promote their brands across borders, stories like this one -- as well as recent news about internet censorship in China -- demonstrate that just because a promotion may be lawful in the United States does not mean that it will be lawful in other countries. Check with your legal counsel before running a promotion outside of the United States.

FTC Expresses Interest in Facebook's Privacy Practices

Christopher M. Loeffler — Fri, 22 Jan 2010 17:29:51 -0500

On Tuesday, January 19, 2010, the Electronic Privacy Information Center (EPIC) publicly posted a copy of a letter from the Federal Trade Commission (FTC) that responds to a complaint filed by 10 privacy rights organizations regarding Facebook's changes to its privacy settings. In the letter, David Vladeck, director or the FTC's Bureau of Consumer Protection, noted that the "complaint raises issues of particular interest for us at this time," and referenced the privacy roundtables that the FTC is hosting to explore consumer privacy protection challenges, existing fair information practices, and the creation of a new privacy regulatory framework. A summary of the first privacy roundtable is available here.

While there is no indication as to whether the FTC is currently investigating Facebook, as any investigation would remain non-public until the FTC files a complaint or closes the investigation, this is not the first time Facebook has come under fire for its privacy practices. In 2008, a class action complaint was filed against Facebook alleging violations of various federal privacy and computer fraud laws, as well as California consumer protection and computer crimes laws, arising out of Facebook's Beacon program. It was alleged that under the Beacon program, information about Facebook users' online purchases with Facebook's partners was shared with the users' network without the users' consent and used in targeted advertising. A $9.5 million settlement agreement is pending approval by the court.

If your company maintains information about your customers, check with your legal counsel before adjusting privacy practices that could result in new or different customer information being shared.

CPSC Reports to Congress on Recommended Changes to CPSIA

Christie L. Grymes — Tue, 19 Jan 2010 16:18:02 -0500

Late Friday the Consumer Product Safety Commission ("Commission" or "CPSC") sent to Congress a report with recommendations for improving the Consumer Product Safety Improvement Act ("CPSIA"):

Provide greater flexibility in granting exclusions from Section 101(a) of the CPSIA. The CPSA has already tried to reduce any unduly burdensome effects of Section 101(a) where Congress may not have intended to include certain products within the scope of the lead content limits, but needs additional flexibility to grant exclusions for certain products, inicluding youth ATVs and bicycles, sporting equipment, and ordinary books.
Exclude ordinary children's books and other children's paper-based printed materials. Although the Commission has provided some relief for newer ordinary children's books, the staff has determined that some books printed before 1985 contain highly illustrated pages with lead content above the strict lead ban. Congress may not have intended for the CPSIA to cover those books.
Apply the 100 ppm Lead Content Limits Prospectively Only, Not Retroactively. Based on the CPSC's experience implementing the lead content limits retroactively, market disruption may occur if the 100 ppm lead content limits are applied retroactively. The new tracking label requirements will help to ensure that products manufactured after the 100 ppm deadline becomes effective are compliant.
Address Concerns of Low-Volume Manufacturers. The Commission will continue to consider the concerns of small manufacturers and crafters as it develops the mandatory rule on testing and certification. The Commission stated that it remains committed to working with Congress to explore other ways to reduce the burdens on those entities, but offered no specific recommendation to Congress.

Chairman Tenenbaum and Commissioners Nord, Adler, and Northup issued individual statements in connection with the report. The Commission prepared the report in response to a request from the House and Senate Appropriates Committees, the House Energy and Commerce Committee, and the Senate Commerce, Science, and Transportation Committee.