In This Issue:
- The FTC is Coming Soon to a Phony Earnings Scheme and Celebrity Endorser Near You
- FTC and DOJ Say Ovulation-Tracking App Premom Shared Sensitive Personal Health Data
- CARU Finds Roblox Influencer Advertising Deficient, Despite Company's Updated Ad Standards
- False Ad Claims Move Forward in Suit Calling Unilever's Murad Eye Serum Marketing Deceptive
The FTC is Coming Soon to a Phony Earnings Scheme and Celebrity Endorser Near You
The FTC is making good on its promises to protect consumers from phony get-rich-quick opportunities, wrapped in costly training programs, and promoted by so-called experts and celebrities who should know better. The FTC teamed up with Utah's Division of Consumer Protection and ended a multi-year odyssey by settling with Nudge LLC, Response Marketing Group LLC and their principals for $16.7 million and a permanent prohibition from participating in "any wealth creation product or service, including any training or coaching related to: (a) real estate; (b) stocks or options; (c) other investments; or (d) online stores or work-at-home opportunities." What makes this case particularly notable are the additional settlements collecting $1,250,000 from one celebrity defendant, Dean Graziosi, and a largely suspended stipulated judgment again the other, Scott Yancey, of $4.5 million.
The story is as old as snake oil. Defendants' real estate investment seminars promised wealth to participants. But these were empty promises, according to the FTC. Here's how it worked: the company, going by one of many names, advertised free workshops in which real estate "celebrities" (like the two implicated here—Scott Yancey of Flipping Vegas fame and Dean R. Graziosi, author of Millionaire Success Habits) persuaded attendees to cough up $1,000 for additional real estate workshops they claimed would turn attendees into successful (read: rich) real estate investors. Once at the workshops, the company pitched additional training and coaching costing tens of thousands of dollars.
Rather than teaching bankable skills, the company sold dreams and empty promises of exclusive tools that would catapult participants into real estate investment success and wealth. Among the many alleged deceptions, customers were told they'd be given leads to properties at deeply discounted prices, be provided access to individual real estate investors, and even that Response Marketing and Nudge would provide funding for consumers to start their real estate investing. Unfortunately, most participants, even (or especially) those that paid $30,000 to be part of an "Inner Circle" coaching program, apparently didn't become successful real estate investors at all. And it was no wonder that didn't happen, alleged the FTC. According to the complaint, defendants used the workshops not to teach real estate investment, but as a self-serving tool to sell more deceptive services.
According to the FTC, the company also encouraged consumers to provide personal identifying information with promises that it would be used to raise funds for real estate deals, then turned around and gave that information to third parties who applied for multiple credit cards on costumers' behalf. The complaint alleged violations not only of the FTC Act, but of the Telemarketing Sales Rule, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and a host of Utah consumer protection laws.
It was a long road to the settlement. Prior to the final stipulated order, a district court judge partially granted the FTC's motion for summary judgment in June 2022, finding many of the defendants' claims false or misleading.
Key Takeaways
This is not the first time the FTC has gone after allegedly deceptive business opportunities or misleading endorsement practices. Nor are real estate schemes news. What was different here were the settlement with two celebrity defendants for big bucks. The FTC has long promised more than just warning letters to endorsers who don't follow the rules; it has now made good on those promises. It is also worth noting that for the state of Utah, it is the largest consumer protection division settlement in its history.
FTC and DOJ Say Ovulation-Tracking App Premom Shared Sensitive Personal Health Data
Easy Healthcare, developer of a fertility and related health-data tracking app may be on the hook for a host of health data privacy violations.
The FTC and the Department of Justice (DOJ) have teamed up to pursue a civil action against Easy Healthcare, alleging that the company shared health data of consumers who used the Premom app without consent and perpetrated a laundry list of other data violations.
The suit alleges that the company's reckless treatment of its customers' personal health data violated the Federal Trade Commission Act (FTC Act) and the Health Breach Notification Rule (HBNR). The complaint alleges seven separate violations of the FTC Act, including for misrepresentations about how the company would protect users' privacy, and the company's failure to disclose it had shared the health information of Premom users. The HBNR claim is based on the Easy Healthcare's failure to notify individuals, the FTC, and/or the media that it caused a breach of personally identifiable health data.
According to the complaint, Premom played fast and loose with users' reproductive health data, significantly compromising it. The company allegedly shared the private health information of some of the hundreds of thousands of women who downloaded the app, without obtaining their affirmative express consent. They also failed to take reasonable steps to address privacy risks created by its use of third-party automated tracking tools (called software development kits).
This occurred despite repeated promises in Easy Healthcare's privacy policies that it does not share any health information with third parties, only collects non-identifiable data, and only uses that data for its own analytics or advertising. These representations were false and deceptive, according to the allegations.
Instead, Easy Healthcare disclosed private, sensitive identifying health information to marketing firms including AppsFlyer and Google, then failed to notify users that it disclosed this data without authorization. Easy Healthcare apparently also shared sensitive information with Chinese-based third parties, including social media accounts, "precise geolocation information," and Wi-Fi network identifiers which the FTC complaint explains cannot be changed by the user without buying a new device.
The FTC and DOJ also allege that Easy Healthcare failed to encrypt data it shared with third parties, and further did not limit how these third parties could use the data. Easy Healthcare allegedly simply accepted each third party's standard terms of service, which gave the third parties broad latitude to use the data as they saw fit, notwithstanding Easy Healthcare's ability and obligation to protect Premom's users' privacy.
Alongside the complaint the FTC proposed a settlement order which would bar Easy Healthcare from sharing personal health data with third parties and require it to obtain user consent before sharing any data. The FTC also proposed Easy Healthcare pay civil penalties of $100,000 and pay a total of $100,000 to the various states that assisted FTC's investigation.
Key Takeaways
The timing of this matter is no coincidence. After a long comment period the FTC has proposed changes to the HBNR rule to account for the rapid proliferation in the use of private health data in recent years. The proposed changes include clarifying that a "breach of security" includes an "unauthorized acquisition of identifiable health information" and "Expanding the required content that should be provided in the notice to consumers."
It's also useful to look at this case within the context of the recent abortion bans. Abortion advocates have pointed out that fertility tracking apps contain a wealth of data that could be used to incriminate those who have abortions in states that have outlawed the procedure. The complaint certainly bolsters that concern and supports the conclusion that this data is not being adequately safeguarded against improper use.
CARU Finds Roblox Influencer Advertising Deficient, Despite Company's Updated Ad Standards
Roblox once again came under fire, in a decision by the Children's Advertising Review Unit (CARU) finding that the online game creation platform violated CARU's advertising guidelines by failing to ensure that content was sufficiently identified as advertising within the site and that influencers adequately disclosed their relationship to the brands advertised. The children's advertising arm of advertising self-regulation emphasized the importance of disclosing material connections in language kids can easily understand.
The Roblox site is made for kids: its users are primarily kids and it's ranked as "one of the top online platforms" for kids under 18. Its largest demographic is kids aged 9-12, according to CARU, which puts it squarely within CARU's jurisdiction.
CARU initiated the challenge as part of its self-monitoring of ads targeted at kids.In its defense, Roblox provided CARU with a copy of its influencer agreement and noted that the company's influencer program rules "closely mirror the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising … and requires influencers…to always disclose their material connection to Roblox in all content posted online." CARU nonetheless concluded that measures taken by Roblox to ensure that influencers posting on the site through Roblox's Video Stars Program clearly and conspicuously disclose their material connections to and renumeration by brands fell short of its standards.
CARU was unconvinced by Roblox's argument that its monitoring program for influencers provides enough guidance on how to make effective disclosures to children. In fact, it noted that many Roblox influencer videos were either noncompliant or only partially compliant when it came to adequate ad disclosures. It recommended that the Roblox Video Stars program be modified to provide influencers with additional guidance on advertising to kids and examples of clear and conspicuous disclosures, and that the company increase its monitoring and enforcement efforts.
Finally, although CARU initially also took issue with problematic advertising elsewhere on Roblox, it narrowed recommendations to focus solely on influencer marketing after Roblox's recent announcement that it adopted new advertising standards committing not to advertise to children under 13. Nevertheless, CARU recommended and "anticipated" that Roblox would implement an enforcement program to ensure it and its creators met the standards in the new Advertising Policy.
Key Takeaways
CARU initiated the review as part of its regular self-monitoring process, but was alerted to the problem by watchdog Truth In Advertising (TINA) complaint regarding Roblox filed with the Federal Trade Commission (FTC) in April of last year. Interestingly, NAD recently decided a challenge against The Princeton Review that was directly brought by TINA as challenger. Time will tell if we will see more and more intersection between TINA and the BBB National Program self-regulatory bodies.
False Ad Claims Move Forward in Suit Calling Unilever's Murad Eye Serum Marketing Deceptive
A federal judge refused to dismiss false advertising claims in a class action lawsuit alleging that Unilever falsely advertised its Murad brand eye serums as safe for use around the eyes.
Plaintiffs in the New York class action lawsuit alleged that Unilever advertised several Murad beauty products specifically for use in the eye area, though the products contain color additives that the FDA has said are harmful and prohibited for use in eye cosmetics. Plaintiffs do not allege any physical injury from using the products. Rather, Plaintiffs claim they would not have purchased these products had they known they were unsafe to use.
Unilever argued that the court should dismiss the false advertising and deception claims because:
(1) "deception" alone is not a compensable injury under New York statutory consumer protection laws, and
(2) Plaintiffs cannot rely on a price premium theory of injury because they did not allege that the products have a "unique quality" that commands a price premium.
The court rejected both arguments, first finding that that the Plaintiffs successfully asserted a "price premium" injury theory, and not merely a "deception" injury. Second, the court held that Plaintiffs were not required to assert that the product was somehow unique and received a price premium due to that unique quality. To the Court, it was sufficient that Plaintiffs alleged:
(1) defendant charged a price premium for the products, and
(2) there is a connection between the misrepresentation / deception and any harm from the product.
Critically, the Court further noted that for these New York statutory claims, only "bare-bones notice-pleading" standards of Rule 8(a) apply and not Rule 9(b)'s requirement that fraud be pled with particularity. Note that claims raised under other state consumer protection statutes often require the heightened pleading standard of Rule 9(b).
In addressing the Defendant's motion, the Court also agreed with Plaintiffs that whether a reasonable consumer would be deceived by Unilever's conduct is a question of fact that cannot be determined at the pleading stage.
Key Takeaways
This case is important because of what it is not. Although this case alleges loss from an allegedly defective product (i.e., it claims a loss stemming from purchase of a product that is allegedly contaminated with an unsafe additive), the case is not raised under a products liability theory. There is no physical injury alleged.
By bringing this suit as a statutory consumer fraud putative class action, the plaintiff does not have to prove a physical injury, that the product has a defect, or that the defendant failed to warn of the defect. The case, from the plaintiff's perspective, is thus simpler. Moreover, the plaintiff can seek a broader range of monetary relief, such as class wide damages, attorneys' fees, and possibly punitive (or exemplary) damages. This expanded range of damages and seemingly lower liability bar makes this case more attractive to plaintiffs' attorneys.
And, finally, as plaintiffs' lawyers know, it is tough to get anything past the reasonable consumer argument at the motion to dismiss stage. And when it comes to chemical and scientific ingredients, courts have overwhelmingly and repeatedly concluded that a reasonable consumer is not expected to understand or interpret complex scientific matters, or to research ingredients to uncover deceptions when making purchasing decisions.
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