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FTC Updates – Intuit, Twitter, Mag-Moss, And More – Advertising, Marketing & Branding


It’s late August, but there’s a lot going on at the FTC
and in consumer protection news more generally. This blogpost
highlights some recent FTC-related news, as well as several issues
related to the FTC’s legal authority that bear watching.

Intuit

As we blogged here, the FTC filed suit in March against
Intuit for its alleged deception in claiming that its online tax
preparation service is “free” when it’s only free for
taxpayers filing “simple returns.” As we reported, the
FTC filed an administrative complaint while also seeking a TRO in
federal district court, even as multiple State AGs were
investigating and Intuit claimed it had pulled its “free”
claims off its website. Soon after, the FTC lost its motion for the
TRO; the States and Intuit entered into a multi-state settlement; and Intuit moved for withdrawal of the FTC’s case
from administrative adjudication (per FTC Rule 3.26(c), to allow the FTC to determine
“whether the public interest warrants further
litigation”), which the FTC granted.

In its motion for withdrawal, Intuit argued that the case had
become moot, in large part due to the multi-state settlement.
However, on August 19, the Commission issued an order disagreeing with that assessment and
returning the case to administrative litigation. Soon after, FTC
complaint counsel filed a motion for summary decision seeking entry of a
cease-and-desist order without need for a trial.

The merits of this case are interesting – FTC counsel argues
that Intuit shouldn’t be able to use the word “free”
unless the product is free for everyone or, alternatively, the
conditions for making it free (and the fact that it isn’t free
for everyone) are clearly disclosed at the outset of the offer. But
the dynamics between the FTC and the State AGs are just as notable.
In its recent motion, FTC counsel argues that an FTC order is
necessary because the State settlement is “inadequate,
allow[s] ongoing deception and harm, and . undermine[s] consumer
welfare.” In particular, says FTC counsel, the State
settlement allows key disclosures to be “hidden behind” a
hyperlink for “space-constrained” ads and sunsets key
provisions after 10 years. At a time when the FTC is increasingly
teaming with the States to obtain monetary relief (post-AMG), this
battle over the adequacy of their settlement could get messy.

Twitter

The recent Twitter news – that a highly respected whistleblower has alleged “extreme,
egregious” and longstanding deficiencies in the privacy and
security of Twitter’s platform – has huge ramifications on many
fronts, which we will likely be learning for months to come.
Several key questions relate to the FTC:

  • How was Twitter able to hide these deficiencies from the FTC
    for so long, when it was under a 2011 order for (yes) alleged security
    deficiencies? Why didn’t the order’s third-party audits
    catch them? Why didn’t FTC oversight (which led to a settlement in May based on far narrower
    allegations) discover them?

  • Are FTC orders (as opposed to, e.g., the examinations that
    banking agencies conduct) adequate to give the agency insight to
    what is really happening on the ground?

  • Will these alleged failures add fuel to the bipartisan privacy
    legislation pending in Congress (the ADPPA) or the rulemaking the FTC is exploring on
    “commercial surveillance and data security?”

Lesser-Known Kids’ Advertising Provision in Mag-Moss
(Section 18(h))

There’s a provision in Mag-Moss that’s worth a reminder.
Section 18(h) reads: “The Commission shall
not have any authority to promulgate any rule in the children’s
advertising proceeding pending on May 28, 1980, or in any
substantially similar proceeding on the basis of a determination .
that such advertising constitutes an unfair act or
practice..”

Congress added this provision to the law (along with
Mag-Moss’ onerous rulemaking requirements) in response to the
FTC’s perceived overreach in the 70s – notably, its proposal to
regulate kids’ advertising (“kid vid”), the
“pending proceeding” referenced in 18(h). While that
proceeding was generally viewed as an effort to regulate TV ads for
unhealthy food, the FTC’s proposal extended more broadly – to a
potential “[b]an [on] all televised advertising for any
product . [to] audiences composed of a significant proportion of
children who are too young to understand the selling purpose of or
otherwise comprehend or evaluate the advertising.” In other
words, the rulemaking record makes it possible to construe
“substantially similar proceeding,” within the meaning of
18(h), quite broadly.

At least one Senator hasn’t forgotten about this provision:
In the markup to Senator Markey’s kids privacy bill (S. 1628), Senator Lee inserted an amendment stating that “[n]othing in this
Act may be construed to authorize any action by the Commission that
would violate Section 18(h) of the [FTC] Act.”

The question now is how this provision might affect the
FTC’s current efforts to strengthen privacy protections for
kids and teens. The FTC’s “commercial surveillance”
ANPR includes numerous questions about kids and teens that extend
far beyond the FTC’s authority under COPPA, presumably in
reliance on other legal authority. The FTC also is planning an
October virtual event on “stealth
advertising” directed to kids and teens, and just this week invited additional public comment on this
issue. Is the FTC considering Mag-Moss rulemaking here? Would it
proceed under its deception or unfairness authority? If the latter,
would Congress or the courts find the rulemaking to be
“substantially similar” to kid vid?

The FTC’s Other Mag Moss Rulemakings

With so much focus on the FTC’s “commercial
surveillance” ANPR, we shouldn’t forget that the FTC has
two other Mag-Moss rulemakings underway – one on impersonation fraud (launched December 2021),
and another on deceptive earnings claims (launched February
2022). So far, the FTC has sought comment in both proceedings
(through an ANPR) but has not yet advanced to the stage of
proposing a rule.

We’re watching here for clues about the FTC’s ability to
navigate the cumbersome Mag-Moss process in proceedings that (at
this juncture) are narrower and more focused than the FTC’s
privacy effort. The impersonation fraud rulemaking is fairly
specific, and is based on numerous FTC cases that, the agency
states, demonstrate the “prevalence” required by
Mag-Moss. While the earnings claims rulemaking is broader
(especially given the multiple contexts and industries in which
earnings claims are made), it’s still more defined than the
privacy ANPR, since it relates to a specific type of claim. (Even
with this more defined focus, the ANPR has resulted in over 1600
comments, which the FTC must now review before proceeding to the
proposed rule stage.) Progress in these first two rulemakings could
shed light on how the FTC will fare in the third.

Another Threat to the FTC’s Authority – Axon Enterprise v.
FTC

On the heels of its loss in AMG, the FTC is facing another
challenge at the Supreme Court, this time in a case involving its
administrative process. The question in this case (Axon Enterprise v. FTC) is whether a company
can challenge the constitutionality of the FTC and its
administrative process in federal district court or whether it must
follow the procedures laid out in Section 45 of the FTC Act for review of
cease-and-desist orders. As a legal matter, the Supreme Court will
be considering whether, in enacting Section 45, Congress
“impliedly stripped” federal district courts of
jurisdiction over constitutional challenges to the FTC’s
structure and process.

If the answer is “yes,” then companies must wait until
an order has been entered before raising constitutional challenges,
and then pursue their claims in a court of appeals, per the Section
45 review process. If the answer is “no,” then companies
may bring constitutional challenges to federal district court
whenever they have standing to do so, potentially in the midst of
an investigation or administrative litigation.

Why is this important? The AMG case blocked the FTC’s main
avenue for obtaining monetary relief (Section 13(b)), forcing it to
rely on other tools to obtain such relief. One of those tools is
obtaining a cease-and-desist order through administration
litigation and then seeking monetary relief in federal district
court under Section 19. If companies can bring constitutional
challenges in the midst of an investigation or administrative
litigation, the FTC’s path to obtaining monetary relief (indeed
any relief) becomes that much more difficult. In addition, federal
district courts weighing constitutional challenges may lack
relevant expertise (on, e.g., privacy or advertising issues) and
are not obliged to provide the FTC with the deference afforded by
the Rule 45 review process. The consequences here could be
significant.

Individual Liability

One final tidbit to highlight is the fact that, in at least two
recent high-profile cases (involving Twitter and Facebook), the FTC decided not to pursue
individual liability. As readers may recall, some FTC Commissioners
have emphasized the need to name individuals in its cases and have
criticized settlements that fail to do so. For example, Commissioner Slaughter and then-Commissioner Chopra dissented from the 2019
settlement with Facebook, despite other significant relief
obtained, largely due to the failure to name Mark Zuckerberg in the
case. They leveled similar criticisms in TikTok and Google. Chair Khan has also emphasized
individual liability in her speeches.

We don’t believe that the FTC is retreating from its
commitment to pursue individual liability in its cases. However,
these two data points suggest that it at least recognizes the
challenges and trade-offs of doing so in particular cases.
We’ll be watching for further developments on this front to see
how the current set of Commissioners is approaching the issue of
individual liability.

***

We’ll continue to track all of these developments and will
provide updates here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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