© 2011 Winston & Strawn LLP · PDF fileBrought to you by Winston & Strawn’s Adiidvertising, ... (1 manager for each ... POM Wonderful –health benefits for its...

© 2011 Winston & Strawn LLP

Handling Governmental Investigations Into Deceptive and Unfair Trade Practices: How to Avoid the Top 5 Mistakes

h b i & ’ d i iBrought to you by Winston & Strawn’s Advertising, Marketing, and Entertainment Law Practice

© 2011 Winston & Strawn LLP 2

Today’s eLunch PresentersToday s eLunch Presenters

Tony DiResta

Advertising, Marketing, and EntertainmentW hi t

Brian Heidelberger

Advertising, Marketing, and Entertainment

ChiWashington

[email protected]

Chicago

[email protected]


AgendaAgenda

Who are the players? Who are the players?

What happens in a governmental investigation, and what are the appropriate strategies?pp p g

What’s hot in consumer protection, and what do I need to be looking out for?g

What are the common mistakes made by companies involved in governmental investigations, and what can be done to avoid them?


Overview of the Federal Trade Commission The Commissioners: The Commissioners:

Jon Leibowitz, Chairman (D)

William E. Kovacic (R)

J. Thomas Rosch (R)

Edith Ramirez (D)

J li B ill (D) Julie Brill (D)

The 3 Bureaus:Consumer Protection (“BCP”) Consumer Protection (“BCP”)

Competition (“BC”)

Economics (“BE”)


co o cs ( )

7 Divisions of the Bureau of Consumer

Advertising Practices enforces truth in advertising.

Protection

Consumer and Business Education plans national campaigns.

Enforcement litigates civil contempt and civil penalty actions.

Financial Practices enforces unfair practices in the financial services Financial Practices enforces unfair practices in the financial services industry.

Marketing Practices investigates internet, telecommunications, and direct‐mail fraud; deceptive spam; fraudulent business investment anddirect mail fraud; deceptive spam; fraudulent business, investment, and work‐at‐home schemes; and violations of the Do Not Call provisions of the Telemarketing Sales Rule.

Planning & Information provides technological investigative and Planning & Information provides technological, investigative, and litigation support.

Privacy and Identity Protection investigates breaches of data security; works to prevent identity theft; and implements laws and regulations for


works to prevent identity theft; and implements laws and regulations for the credit reporting industry.

Structure of the Bureau of Consumer

Staff (conducts investigations; day‐to‐day management of

Protection( g ; y y g

investigations and communications with counsel for target)

Assistant Director of the Division (2‐3 managers in each Division)

Associate Director of the Division (1 manager for each Division)Division)

Deputy Directors of the Bureau of Consumer Protection Chuck Harwood

Jessica Rich

Director of the Bureau of Consumer Protection


David Vladeck

Laws Enforced by the Bureau of Consumer ProtectionSection 5 of the FTC Act: "Unfair or deceptive acts or practices in or affecting commerce...are...declared unlawful."

Deception: a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment.

U f i ti th t " [] [ ] lik l t b t ti l i j tUnfairness: practices that "cause[] or [are] likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition."

Sample Consumer Protection Statutes:

Equal Credit Opportunity Act; Truth‐in‐Lending Act; Fair Debt Collection Practices Act;;

Fair Credit Reporting Act; Do‐Not‐Call Implementation Act of 2003; Children's Online Privacy Protection Act; and Fair and Accurate Credit Transactions Act of 2003.

© 2011 Winston & Strawn LLP 8Watch out for “abusive acts or practices”

2 Types of Enforcement

1. Administrative Enforcement:

2 Types of Enforcement

Commission may issue a complaint setting forth its charges.

If elect to settle the charges, sign a consent agreement (without admitting liability), consent to entry of a final order, and waive all right to judicial

ireview.

If the Commission accepts such a proposed consent agreement, it places the order on the record for 30 days of public comment (or for such other period as the Commission may specify) before determining whether to make theas the Commission may specify) before determining whether to make the order final.

Most consent orders valid for 20 years, require agreement to cease objectionable behavior and may require restitution or $$ damages

2. Judicial Enforcement:

Consumer protection enforcement can also be conducted directly in court rather than by means of administrative adjudication.


Overview of the Federal Trade

Injunctive relief

Commission: Remedies j

Civil penalties Violations of trade regulation rules

Vi l i f O d Violation of an Order

Equitable monetary relief Disgorgement/restitution for “ill‐gotten gains”

Consumer redress

Criminal Referral to Department of Justice

Deputize FTC attorney as Assistant United States Attorney


State Attorneys GeneralState Attorneys General

“Mini FTC Acts” are state consumer protection statutes.p

Every state has an unfair and deceptive acts and practices (“UDAP”) statute that’s enforceable by the state attorney

l d i di id lgeneral and individuals.

The National Association of Attorneys General (“NAAG”) promotes exchange between the state AGs and coordinates p gmulti‐state involvement. NAAG Committees, including Consumer Protection C ittCommittees

NAAG Special Committees and Projects


Regulatory ClimateRegulatory Climate

1. The FTC looks at issues from a “pro‐consumer” (least sophisticated consumer) perspective, with particular attention to:

a. Transparency (disclosing “material connections”)

b. Accuracy (communicating truthful information)y ( g )

c. Honesty (avoiding misleading or deceptive communications)

d. Respect (recognizing personal rights of others)

2 Coordinated activities leveraging resources and law enforcement2. Coordinated activities, leveraging resources, and law enforcement “sweeps.”

4. Federal and state law enforcement officials are seeking more regulatory power and more ability to obtain civil penaltiespower, and more ability to obtain civil penalties.

5. Redefining “consumer injury” or “consumer harm.”


Anatomy of a Governmental Investigation (Using FTC as the Model)

Triggering Event

“Access” Letter or Civil Investigative Demand (“CID”)Access Letter or Civil Investigative Demand ( CID )

Like a subpoena: compels information data reports and Like a subpoena: compels information, data, reports, and documents

Similar to Interrogatories and Requests for Production of g qDocuments in litigation


Tasks and Stages Presented by an InvestigationI. Review Letter or CID to determine compliance implications.p p

II. Circulate a Preservation/Litigation Hold on document destruction.

II. Develop and enhance an effective relationship with staff during every phase.

III Submit “White Papers ”III. Submit White Papers.

IV. If staff obtains “consent authority” to negotiate settlement or consent decree, negotiate with staff while following appropriate protocol.

V. Litigate if settlement negotiations fail.


Recent Actions by the FTC: Advertising and Marketing Dannon – health benefits for Activia yogurt and the DanActive dairy

drink.

POM Wonderful – health benefits for its product.

Kellogg’s:gg

1. Claims that Frosted Mini‐Wheats benefits cognitive health

2. Claims re immunity involving Rice Krispies

Walgreen’s and Rite Aid claims involving cold and flu remedies: Walgreen s and Rite Aid – claims involving cold and flu remedies:

Walgreen’s fined $6M

Rite Aid fined $.5M

TicketMaster – alleged tactics to sell event tickets to consumers.

K‐Mart – paper products were biodegradable.


Recent Actions by the FTC: Advertising and Marketing:

TROs against operators of fake news sites

Advertising and Marketing: FTC Guides on Endorsements and Testimonials

TROs against operators of fake news sites

Legacy Learning Systems

In re Reverb Communications In re Reverb Communications

Ann Taylor

Pending non public investigations focus upon: Pending non‐public investigations focus upon:1. Celebrities

2. Use of social media by agencies, affiliates, and third y g , ,parties; liability for company/brand


Recent Actions by the FTC: Privacy

1. Google

Recent Actions by the FTC: Privacy

g

Concerned allegations that Google used deceptive practices and violated its own privacy promises to consumers when it l h d it i l t k G l B i 2010launched its social network, Google Buzz, in 2010.

First time an FTC settlement order has required a company to implement a comprehensive privacy program.p p p y p g

First time FTC has alleged violations of the substantive privacy requirements of the U.S.‐EU Safe Harbor Framework.


Recent Actions by the FTC: PrivacyRecent Actions by the FTC: Privacy

2. Chitika2. Chitika 1st case against network advertiser

Company offers online behavioral advertising service, acting as intermediary between website publishers and advertisers

Concerned representations in privacy policy that consumers could opt out of behavioral advertising; but the opt outcould opt out of behavioral advertising; but the opt‐out expired in 10 days

Consent Decree: Notice to consumers that company engages p y g gin targeted advertising; giving consumers opportunity to opt out for minimum of 5 years


Recent Report by the FTC: PrivacyRecent Report by the FTC: Privacy

3. December 1, 2010: FTC released Report on privacy., p p y

Report = Framework for how commercial entities should protect consumer information.

Key point: Underscores importance of presenting consumers with clear and easily digestible information regarding their privacy choices, as well as ensuring that g g p y , gcompanies obtain informed consent for certain collection and use of consumer data.

K k h l i l i i hi i Key takeaway: suggests that legislation in this area is likely warranted.



FTC’s Division of Financial PracticesFTC s Division of Financial Practices

Focus on “protecting consumers in a troubled Focus on protecting consumers in a troubled economy”

Foreclosure rescue

Loan modification Loan modification

Mortgage servicing

Debt collection West Asset Management ($2.8M)

Allied Interstate, Inc. ($1.75M)

Fair lendingg Golden Empire Mortgage (violating Equal Credit Opportunity Act)

Joint enforcement with newly created Consumer Fi i l P t ti B


Financial Protection Bureau

Recent Coordinated Actions by the State Attorneys General LifeLock, Inc.: paid $11M to FTC and $1M to 35 state LifeLock, Inc.: paid $11M to FTC and $1M to 35 state attorneys general concerning marketing of identity theft protection services and failure to implement reasonable security measures to protect consumer information.

“Operation Short Change:” Law enforcement sweep involving 15 FTC cases, 44 actions by DOJ, and actions by 13 states and DC focusing on unfulfilledactions by 13 states and DC focusing on unfulfilled promises to consumers impacted by economic downturn.


downturn.

Recent Coordinated Actions by the State Attorneys General “Operation Bottom Dollar:” Law enforcement sweep Operation Bottom Dollar: Law enforcement sweep involving 7 FTC cases, 43 criminal actions by DOJ, and actions by 18 states focusing again on unfulfilled promises to consumers impacted by economic downturn.

Dish Network/Echostar: FTC/DOJ and 4 states filed action in federal court charging that satellite TV provider through its authorized dealers violated theprovider, through its authorized dealers, violated the Do Not Call regulations.


Recent Coordinated Actions by the State Attorneys General Publishers Clearinghouse: 33‐state settlement Publishers Clearinghouse: 33 state settlement concerning allegations that PCH led consumers to believe that buying would increase chances of winning.

Allegran: Paid 50 states and federal government $225M, including $33M in Medicaid reimbursement, for off‐label marketing allegations that the company allegedly led a national campaign to market Botoxallegedly led a national campaign to market Botox for unapproved uses, such as treating headaches, pain, and overactive bladder.


pain, and overactive bladder.

Other Advertising‐Related Actions by State AG's or Other Regulators Post Transaction Marketing Post Transaction Marketing

Ticketmaster, Movietickets, Shutterfly, etc. – NY AG

DOJ Indicts Founders of Major Online Poker jWebsites

Never Ending Sales – NY AG

State Internet Gambling/Sweepstakes Parlors Virginia, North Carolina, Florida laws in the works

Telemarketing/Do Not Call Violations

Products Not Appropriate for Children


Hot Topics and Trends in Consumer Protection: Advertising1. Brands Under the Microscopep

• FTC Chairman: “We tell consumer that they should deal with trusted national brands. So it’s especially important th t A i ’ l di i tt ti tthat America’s leading companies are more attentive to the truthfulness of their ads and don’t exaggerate the results of tests or research.”

2. Social Media

3. Claims

• Health/wellness

• Green/environmental


Hot Topics: Advertising Claim Substantiation FTC recently approved order language prohibiting FTC recently approved order language prohibiting companies from making disease prevention claims or treatment claims, unless FDA has approved such claims for use in labeling; and

For certain health claims, 2 well‐controlled clinical studies must exist to substantiate the claims.


Hot Topics and Trends in Consumer

4. Affiliate Marketing and Joint and Several Liability

Protection: Advertising

iWorks (“common enterprise”)

5. Target Marketing to Children and Adolescents Kellogg’s Kellogg s

Food marketing to kids

6. Disclosures: The “Clear and Conspicuous” StandardK th A idi i f (Q t f Key theme: Avoiding surprises for consumers (Query: movement away from the reasonable consumer standard?)

7. Mobile Marketingh l l ( ) Phil Flora (text message spam)

8. Sweepstakes In top 5 of consumer complaints to FTC in 2010


Hot Topics and Trends in Consumer

Liability Issues for Individuals and Company Principals

Protection: Obviously, Privacy, but also:Liability Issues for Individuals and Company Principals

Academy Collection (mid‐level managers responsible for conduct by debt collectors)

POM Wonderful (action against VP of Science and Regulatory Affairs for misleading advertising)

United States v Electric Mobility Corp AND Michael J United States v. Electric Mobility Corp. AND Michael J. Flowers (announced April 21, 2011)

EMC encouraged consumers to enter its sweepstakes, which contained in small print a form seeking entrant’s phone number so EMC could contact “the next lucky p g p ywinner.”

EMC contacted non‐winners with calls.

FTC alleged that obtaining a phone number through a sweepstakes form does not t “ t bli h d b i l ti hi ”


create an “established business relationship.”

United States v. EMC / FlowersUnited States v. EMC / Flowers

Flowers was the president and an owner of EMC. Flowers was the president and an owner of EMC.

“[H]e has had the authority and responsibility to prevent or correct the unlawful telemarketing p gpractices of EMC, and has formulated, directed, controlled, or participated in the acts and practices of EMC.”

Order requires Flowers to pay civil penalty of $$100,000.

Order also requires him to notify FTC for 10 years of hi ffili ti ith b i


his affiliation with a new business

Common Mistakes by Companies in Dealing with the Government

#1#1

“I’ll play hard‐ball and adopt a scorched‐earth approach.”pp

Staff is prosecutor, judge, and jury, who see themselves as public servants.p

Defense of governmental investigations is a unique form of advocacy; not like litigation.

Submissions are formal and “academic,” in contrast to briefs in traditional litigation.


Common Mistakes by Companies in

#2

Dealing with the Government#2

“I have nothing to hide, so I’ll give them a key to the warehouse.”

Additional issues can be uncovered. Additional issues can be uncovered.

Burying the staff with data/documents can be perceived as acting in bad faith.p g



#3

Dealing with the Government

“It’s no big deal. It’s just the cost of doing business.”

There can be fallout from investigations, such as parallel law enforcement actions as well as consumer class‐action litigation.

There are PR considerations that could impact the brand There are PR considerations that could impact the brand.

On the hook for next 20 years after consent order

Staff can sense when they aren’t being dealt with seriously, y g y,and will question the company’s commitment to a culture of compliance.



#4


“I’ll just fix the problem, and they’ll go away.”

The government looks through the rear‐view mirror The government looks through the rear view mirror.

Any “fix” must address:

(i) Policies and procedures;(i) Policies and procedures;

(ii) Implementation of those policies and procedures; andand

(iii) Being sure those policies and procedures are effective.


effective.


#5


“It’s the rogue employee. I’ve got policies and procedures to deal with this.”p

The staff will examine the corporate culture and the role and actions of the senior executives and management.

Again, in addition to just having policies and procedures' they must be implemented and they must be effective.


Final Thoughts: Risk Management Considerations

Develop a “Culture of Compliance.”



Questions?


Thank You.


Follow Us On Twitter@Wi t Ad L@WinstonAdvLaw


Email Us To Sign Up For Our Newsletters


Contact InformationContact Information

Brian HeidelbergerTony DiResta Brian HeidelbergerAdvertising, Marketing and Entertainment

Chicago

Tony DiRestaAdvertising, Marketing and Entertainment

Washington(312) 558‐5897

[email protected](202) 282‐5782

[email protected]
