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Tips From an FTC Pro: How to Avoid Becoming an FTC Target

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This presentation is from Affiliate Summit East 2018 (July 29 - July 31, 2018 in New York).

Session description: The Trump FTC has been cracking down on Internet marketers and tightening the noose around affiliates and others in their ecosystem. Learn from an FTC expert how to stay compliant and avoid “FTC Jail”.

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Tips From an FTC Pro: How to Avoid Becoming an FTC Target

  1. 1. William I. Rothbard Law Offices of William I. Rothbard
  2. 2. FTC 101 Deception Claim Substantiation Negative Option Endorsement Guidelines Remedies Supplements, Continuity, and Affiliate Mktg – Perennial FTC Priorities Recent FTC Supplements/Negative Option/Affiliate Cases FTC “Take No Prisoner” Enforcement: Is it Still the Policy? Data Privacy (GDPR) Best Practice Compliance Tips
  3. 3. WHEN IS AN AD DECEPTIVE?  When a claim or omission would materially mislead consumers acting “reasonably” in the circumstances.  Claim can be express or implied  STRICT LIABILITY – Intent to Deceive not required. Knowledge of Deception also not required except for money judgments against principals
  4. 4.  COMPETENT AND RELIABLE SCIENTIFIC EVIDENCE ◦ Objective performance, efficacy, health & safety claims – express and implied ◦ What would independent scientists with expertise in field rely on?
  5. 5.  WHAT IT ISN’T  Anecdotal consumer experience  Subjective consumer surveys  Good press  Manufacturer’s sales literature  Low complaint, return, refund or chargeback rates  Money-back guarantees
  6. 6.  WHAT IT IS  Methodologically sound tests, studies, scientific research (controlled human clinical studies)  Based on expertise of professionals in field  Conducted by qualified experts  Yielding statistically significant results
  7. 7.  Randomized, double-blind, placebo- controlled , statistically significant human clinical studies (RCTs) on advertised product by separate, independent researchers  At minimum, independent third party RCTs on active ingredients
  8. 8.  “Restore Online Shoppers’ Confidence Act” -mandates disclosure of online negative option terms “before obtaining consumer billing data” simple, easy cancel mechanism  “Clear ” - “Plain English” (non-legalese) disclosure of:  product/service description; ◦ trial period length; ◦ specific billing terms; ◦ billing entity if not clearly disclosed in ad; ◦ how charge will appear on the billing statement if billing entity not disclosed; ◦ amount and dates or frequency of recurring charges; ◦ all material terms and conditions of purchase and use; ◦ how to cancel and obtain a refund.  “Conspicuous” – Above the fold, in “close proximity” to credit card fields and order button – so visible and prominent as to be “unavoidable.”  “Express Informed Consent “ -disclosures “immediately adjacent” to “consent” button or box which must be clicked or checked by the consumer.
  9. 9.  Testimonials must be substantiated like other claims  Testimonials must reflect “typical” consumer experience   BUT: if not, “Results not typical” disclaimer no longer OK  Disclosure of “generally expected results” now required, unless advertiser can prove consumers don’t think results are typical.  Disclosure of material connections between advertisers and lay (non-expert) endorsers must be made.  Affiliates/Paid Bloggers/Social Influencers/Reviewers can be liable for making false claims  Advertiser principally liable for failure to disclose
  10. 10.  Priority under Obama, No Change Under Trump  Fraud and Consumer Harm Prevention Are Top FTC Priorities  FTC Places False Supplement Claims and Deceptive Negative Option Offers in Fraud Category  Weight Loss and Cognitive (“Brain”) Claims are Particular Targets
  11. 11. ◦ Triangle Media – July 2018, Pending ◦ Dietary Supps, Skin Care, E-Cigarettes ◦ Free Trial/Negative Option/Forced Upsells ◦ TRO/Asset Freeze/Receivership ◦ ◦ BioTherapex/NeuroPlus –Settlement ◦ Arthritis, Weight Loss, Alzheimer’s, Dementia and Other Cognitive (“Brain”) Claims ◦ No Negative Option – Straight Sale ◦ $3.7 million Judgment (suspended on payment of $800,000) ◦ Tarr - Settlement ◦ Weight Loss, Muscle Building and Skin Care ◦ Free Trials/Negative Option ◦ Clear & Conspicuous Negative Option Disclosure, Express Consent and Cancel ◦ Post-Sale Written Confirmation Restating Negative Option Terms ◦ $179 Million Dollar Judgment (suspended on payment of $6.4 million) ◦ RevMountain - Settlement Teeth Whitening ◦ Free Trial Negative Option ◦ TRO/Asset Freeze/Receivership ◦ Negative Option/Customer Service Providers Named Along with Marketing Companies ◦ $92 million judgment (suspended on turnover of all business and personal assets, including home, except retirement accounts)
  12. 12. ◦ Credit Bureau Center - Settlement ◦ TRO/Asset Freeze/Receivership ◦ Affiliates falsely advertised rental properties and free credit reports to drive traffic to credit monitoring service ◦ Strict affiliate monitoring obligations in consent order ◦ $6.8 million Judgment (suspended on payment of $762,000) ◦ LeadClick - Final Judgment ◦ Affiliate Network liable for use of fake news sites by publishers to promote weight loss supplement ◦ $11.9 million judgment ◦ Coleadium (Ads4Dough) - Settlement ◦ Affliiate Nerwork liable for use of fake news sites by publishers to promote acai berry supplements and “colon cleansers” as weight-loss products. ◦ $1million judgment
  13. 13.  Cease & Desist Orders – conduct restrictions; compliance reporting and recordkeeping  Consumer Redress - FTC wants your money  Civil Penalties for Rule and Order Violations  Bans & Bonds – death knell for livelihood  Ex Parte (without notice) TROs, asset freezes, receiverships – death penalty for business
  14. 14.  X = TOTAL CLAIMED CONSUMER LOSS  Y = DEFENDANT’S ASSETS  IF Y IS LESS THAN X (ALWAYS)  FTC SETTLEMENT DEMAND IS: ◦ 100% of Y + Transfer “Clawbacks”  NO COMPROMISE – PAY OR SEE YOU AT TRIAL
  15. 15.  If your marketing reaches into the EU, you’re subject to its new, sweeping General Data Privacy Regulation (GDPR).  Encompasses consumer’s right to have data deleted and not to be tracked, based on fundamental “right to be forgotten.”  Data Processor must have a “lawful basis” to process personal data.   Most obvious and stongest is consent - affirmative, unambiguous opt-in consent.  If consent is lawful basis, GDPR also:  • requires consent to be separate from other T&Cs;  • generally prohibits consent from being a precondition of service signup;  • bans pre-checked opt-in boxes;  • requires granular (separate) consent for distinct processing operations;  • grants specific right to withdraw consent, which right must be disclosed and easy to exercise at any time.   Other lawful bases for data processing:  • compliance with contractual obligation, i.e., to supply requested goods or services;  • compliance with legal obligation, such as an EU law requiring data processing for a particular purpose;  • vital interests, i.e., processing personal data if necessary to protect a life; and  • legitimate interests to process data (includes direct marketing or other commercial benefit), unless outweighed by harm to individual’s “fundamental rights and freedoms.”  Compliance guidance available from UK’s Information Commissioner’s Office (“ICO”), https://ico.org.uk/media/about-the- ico/consultations/2013551/draft-gdpr-consent-guidance-for-consultation-201703.pdf
  16. 16.  Continued emphasis on traditional, bipartisan consumer fraud enforcement  Continuing Asset Freeze actions against free trial continuity marketers  More cases focusing on redress of concrete consumer harm and fewer testing the outer limits of the FTC’s authority and enforcement standards   Con artists and line-crossers should expect no reprieve. Those who are just carelessly inattentive to compliance are also in the line of fire  Remember: Poor treatment of consumers on the back end – barriers to easy cancellation, refund abuse, etc. – can get you in as much trouble as poor negative option disclosures and bad affiliate traffic on the front end
  17. 17.  You’re in the FTC’s, AGs’ and Class Action Lawyers’ Cross- Hairs. Act accordingly.  Whether as an affiliate or a merchant, you’re directly and strictly liable for false or unsubstantiated claims.  Have at least one RCT for your efficacy and safety claims, ideally on advertised product itself or at least on the active ingredients.  Make your negative option disclosures as clear and prominent as possible. Treat your customers well!  Add an Arbitration/Class Action Waiver Clause to your terms to mitigate your class action risk, especially as to supplements and negative option offers
  18. 18.  Everyone in the advertising stream who engages in consumer fraud/deception could end up in “FTC Hell”  Make truthful, non-deceptive claims and offers, containing the proper disclaimers and disclosures, in order to avoid a painful FTC, state AG, or class action  Reliance on expert counsel with insight into FTC thinking and enforcement strategies can help you navigate this perilous landscape and avoid FTC Hell
  19. 19. Bill Rothbard 310-453-8713 Rothbard@FTCAdLaw.com www.FTCAdLaw.com

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