The Legal Lowdown on Marketing and Advertising in 2017

A number of developments are likely to impact the legal landscape for marketing and advertising in 2017. Regulatory changes stemming from the presidential transition, as well as developments in class action lawsuits, are likely to be important issues for advertisers to follow in 2017. As an initial matter, the presidential transfer of power in 2017 has already led to some changes in senior leadership at key government regulatory agencies like the FTC, FDA and FCC. Additional leadership changes will occur in the future. These personnel changes — and the resulting modifications to agency policies, strategies and priorities — are likely to have a significant impact on advertisers in 2017. For example, President Donald Trump recently appointed FTC Commissioner Maureen Ohlhausen to serve as acting chairwoman after Chairwoman Edith Ramirez announced she would resign from the agency. In a recent speech, Ohlhausen announced updates to the agency’s consumer protection priorities that will likely impact advertisers. FTC Priorities, Going Forward [caption id="attachment_62472" align="alignright" width="300"] FTC Acting Chairwoman Maureen Ohlhausen[/caption] Specifically, Ohlhausen indicated she plans to increase transparency into agency decision-making and to provide additional guidance to businesses. She further stated that the FTC will refocus on fraud and consumer harm in its enforcement activities. Advertisers have generally reacted favorably to her announcement, partly because they indicate FTC decision-making will continue to be guided by traditional principles of consumer protection law, and partly due to their hope that those traditional principles will be applied in ways that are predictable and understandable to advertisers. When Commissioner Ramirez steps down from the FTC this month, however, there will be three open positions for FTC Commissioners that the new administration will need to fill. The individuals who fill those positions will also undoubtedly bring their own perspectives and priorities to the agency. In addition to the regulatory agency changes, developments in class action lawsuits alleging false advertising claims against major advertisers will also be important issues to follow in 2017. If advertisers are able to roll back the tide of class action litigation via procedural or substantive defenses, the future will look different than it will if advertisers are unable to stop the forward-movement of such litigation. Reviewing 2016: High-Dollar Settlements Involving High-Profile Brands and the FTC A few high-profile brands, such as Volkswagen and DeVry University, entered into extremely high-dollar settlements with the FTC in 2016. In the DeVry case, the FTC accused the company of making false promises in its TV, radio, online and print ads by promoting inflated job placement rates and post-graduation income levels. The FTC filed suit in January 2016, and announced a $100 million settlement with the company in December 2016. The settlement requires DeVry to pay almost $50 million in cash to be distributed to qualifying students, and to provide slightly more than $50 million in debt relief. In June 2016, Volkswagen entered into a settlement with the FTC and others in which the company agreed to spend up to $14.7 billion to settle allegations over misleading “clean diesel” advertising claims. This major settlement will affect owners of the brand’s 2.0-liter diesel vehicles. In February 2017, the FTC announced another settlement with Volkswagen covering 3.0-liter diesel vehicles. That settlement will cost the company between $1.2 and $4 billion dollars. Ohlhausen has indicated that, going forward, the FTC will focus on redressing consumer harm stemming from deceptive advertising via its enforcement actions rather than on obtaining disgorgement of funds from deceptive advertisers. On initial review, this change in priorities might suggest that there will be fewer high-dollar settlements from the FTC in 2017. Nevertheless, it’s important to note that Ohlhausen voted in favor of both the DeVry and Volkswagen settlements. In 2017, advertisers should keep an eye on FTC settlements to see whether the refocus on consumer harm from the agency has an impact on the dollar value of its settlements with advertisers. Reviewing 2016: The FTC Cracks Down on Endorsement Disclosures in Social Media Campaigns In 2016, social media advertising budgets reached an estimated $31 billion worldwide, and many expect the number to increase in 2017. The popularity of social media platforms as a promotion mechanism has drawn attention from the FTC. The agency has made clear — via industry guidance documents, speeches and enforcement actions — that its material connection disclosure standard for endorsements applies to ads disseminated via social media. In 2016, the FTC announced settlements with Lord & Taylor and Warner Bros. on this issue. In March 2016, Lord & Taylor entered into a settlement with the FTC over claims that it deceived consumers by paying online fashion influencers to post social media photos of themselves wearing clothing from the brand without requiring a disclosure that the influencers were compensated for the posts. According to the FTC, Lord & Taylor not only paid the fashion bloggers/influencers for the social media posts, it also gave them the clothing items for free without requiring disclosures of those facts. In July 2016, Warner Bros. entered into a settlement with the FTC over claims that it deceived consumers by failing to disclose adequately that it paid online influencers to post favorable game play videos for a video game on YouTube and social media. The FTC alleged in part that Warner Bros. instructed the influencers to place the disclosures in the video description box that appeared below the videos rather than in the video itself. According to the FTC, these disclosure instructions were inadequate, because consumers would be unlikely to view disclosures placed in such a location. Advertisers should be prepared to watch the FTC in 2017 for additional guidance on acceptable and unacceptable social media advertising techniques. Such guidance may arrive in the form of business guidance materials, enforcement actions or settlements. Given the growing importance of social media to advertisers and to consumers, the FTC is likely to continue paying attention to this channel. Reviewing 2016: Retailers Continue to Face Legal Challenges About Pricing/Savings Claims In December 2016, the city of Los Angeles filed suit against several major retailers, asserting they disseminated misleading pricing claims by comparing their “sale” prices for thousands of products to higher “list” or “regular” prices for those same items, when the products were never actually offered or available for purchase at the higher prices. This lawsuit was filed against JCPenney, Kohl’s, Macy’s and Sears, and alleges that the retailers engaged in a “misleading and deceptive false price advertising scheme.” This litigation is certainly not the first recent lawsuit over allegedly misleading sale or discount prices. In recent years, many high-profile brands, such as Amazon, Nordstrom, the Gap and T.J. Maxx have also faced putative class actions asserting that price claims comparing an item’s in-store or online price to a higher “MSRP” or “List” or “Compare at” price are deceptive, because the higher comparison price is a fictitious one. In 2017, savvy advertisers – especially retail advertisers – will keep an eye on developments in these cases. Reviewing 2016: The Ongoing Debate on ‘Natural’ and ‘Healthy’ Claims In recent years, many well-known brands, such as Quaker Oats, Snapple, Tropicana, Chobani and KIND, have faced class action litigation challenging advertising claims that their food products are “natural” and/or “healthy.” Existing FDA guidance indicates that “natural” foods cannot contain anything artificial or synthetic. However, the FDA’s stance on the application of that standard to high fructose corn syrup, GMOs and similar newer ingredients has been unclear. That lack of clarity has likely motivated at least some of the class action challenges. In 2016, the FDA said it would continue collecting and reviewing public comments on the definition of “natural,” and also announced that the agency would review its approach to uses of the word “healthy” and other nutrient-content claims. Consequently, consumers and companies alike are awaiting further clarification from the FDA on the meaning of “natural,” as well as possible revisions to the definition of “healthy.” In the interim, many conservative food product companies are avoiding “natural” claims and strictly adhering to the FDA’s current written standards for “healthy” claims. Until these issues are resolved, the class action lawsuits may well continue to pile up.

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The Legal Lowdown on Marketing and Advertising in 2017

Char B. Pagar

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