Advertising is all about capturing consumers’ attention in an entertaining, informative way to garner interest in a product or service – the success of which is measured in increased sales figures. But some campaigns are too successful, attracting not only consumers but competitors and regulators. In the worst-case scenario, that campaign could be front page news as the subject of the latest advertising consumer class action.
As the class action bar grows, so do advertisers’ questions: What types of claims are most likely to result in class action suits? Could a campaign be subject to a regulatory action AND a class action suit? What are some successful techniques and strategies to protect against this situation?
These questions and more were the subject of a recent Davis & Gilbert LLP webinar, “False Advertising and Deceptive Marketing Practices: Trends in Consumer Class Actions and Government Enforcement Actions.” D&G is a leading marketing communications and intellectual property firm based in New York City, and developed this presentation to respond to client concerns regarding which advertising claims would attract attention from government agencies, what triggers an FTC investigation, and how to respond to and defend against false advertising and unfair competition claims. Two D&G attorneys in the Intellectual Property group and an FTC staff attorney gave a comprehensive, complete perspective of the issues at hand.
Beginning with a brief overview of the FTC’s authority to regulate “unfair or deceptive acts and practices in or affecting interstate commerce,” under Section 5 of the FTC Act, the presentation focused on an oft-missed point: consumers do not have standing to pursue a claim under the FTC Act. Only the FTC, in its regulatory capacity, may investigate, adjudicate and hold liable advertisers deemed to have violated Section 5. So then, how can other aggrieved parties pursue a claim? Using state law equivalents to Section 5 (aka “Baby FTC Acts”), consumers, state Attorney Generals or some combination of them may seek redress. Depending on the state, there may be an adoption of the Uniform Deceptive Trade Practices Act or Uniform Consumer Sales Practices Act that provide additional remedies to consumers.
The FTC has always reviewed advertisers’ claims and campaigns, and upon the FTC’s ruling, the issue was a done deal. However, in recent years there has been a wave of so-called “piggyback” class action lawsuits filed after FTC investigation. Regulators have become more aggressive as campaigns are staged on a national scale, and thus the potential class could be in the millions. Consumers, state AGs and plaintiffs’ attorneys closely monitor the FTC findings – if the FTC determines there has been a violation, or that terms of a consent order were violated, it will file suit in federal court or with an FTC administrative judge in Washington, DC. This regulatory action is fodder for the piggyback class action, and both come with great risks to the advertisers involved. Civil penalties can range from the thousands to the millions of dollars, and can include partial or full refunds to the aggrieved consumers, on top of regulatory cease-and-desist or consent agreements, or corrective advertising measures – in short, that ad might end up costing much more than you bargained for.
However, if an advertiser should find themselves in this unfortunate position, there are strategies to minimize the damages, both pecuniary and potential piggyback. One such tactic is to consider the discoverability of information provided to regulators – is there a chance that piggyback plaintiffs would be able to access it? While the FTC will keep some information confidential, state AGs follow the Freedom of Information Laws (FOILs), which differ considerably among the states. For example, in New York if there is a request made pursuant to the FOIL for your company’s information, you will get a notification; while in New Hampshire the information can be released without any notice. Another strategy to employ is to avoid anything resembling an assertion of liability in regulator settlement proceedings. This extends to refunds, should they be offered – it is important to include language that limits or waives the right to further redress should the refund be accepted. Along these lines, advertisers impacted by regulatory or piggyback suits can control their perception with careful marketing and press releases to minimize negative exposure. While there are normally no joint releases by the FTC, careful timing and control of the message goes a long way to repairing reputation. Finally, ensure that the settlement documents are narrowly tailored to curtail any unforeseen consequences – for example, specify which practices are to be impacted (like all practices versus solely online practices), but include flexibility to incorporate technological advances (like online versus mobile platforms).
I hope that you found this summary as insightful and helpful as I did! If you’re interested, the entire Davis & Gilbert LLP presentation can be found here.