5 Current Ad And Marketing Legal Risks To Watch Out For

By Amanda Beane and Jason Howell
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Law360 (May 27, 2021, 6:01 PM EDT) --
Amanda Beane
Amanda Beane
Jason Howell
Jason Howell
Companies continue to use various marketing initiatives and tactics to differentiate themselves in the marketplace, while navigating the ongoing pandemic and new legislative and regulatory developments. At the same time, many brands are determining how to best contribute to social justice efforts, and make a positive impact in their communities.

As they work toward these goals, businesses should be aware of advertising, marketing and promotion practices that present an increased risk of scrutiny from regulators, competitors and class action plaintiffs. With the first five months of 2021 almost behind us, here are five important areas of advertising and marketing law to keep in mind.

Cause Marketing and Fundraising Rules

Both COVID-19 and social justice movements have taken center stage in 2020 and 2021. As a result, an increasing number of companies have become involved with charitable causes.

However, brands should be aware that advertising that a consumer's purchase will result in a charitable donation — e.g., "for each purchase, we will donate one dollar" — triggers certain state commercial co-venture requirements. For example, many states require that the business and the nonprofit file a contract containing specific terms with a state agency.

In some jurisdictions, the company sponsoring the commercial co-venture must register and bond the promotion, and receive preapproval from the state. Certain states require that all ads for the commercial co-venture include the dollar amount or percentage of each purchase that will benefit the charity, contact information for the charity, maximum donations, and other material information to help consumers understand the impact of their purchase.

Collecting money at checkout or engaging in similar fundraising efforts for a nonprofit may also trigger paid solicitor or professional fundraiser laws, if the company collects a fee or other compensation for itself.

States are monitoring potential deceptive charitable activity and tracking certain transactions, and some have proposed legislative solutions. For example, California's A.B. 488, introduced in February and currently in committee, would update the existing fundraising regulatory framework, and require any website or technology platform that facilitates charitable giving to register with and report to the California Office of the Attorney General.

The California attorney general has brought multiple enforcement actions in the past few years related to improperly operated or unregistered charitable fundraisers, including a $120,000 settlement with Omaze Inc. in 2020. Businesses should ensure that their cause marketing and charitable giving policies are compliant to avoid legal and public relations issues.

Subscription Billing and Automatic Renewal Terms

States continue to pass and supplement laws regulating subscription billing, a trend that has shown no signs of slowing over the past few years. Since the beginning of 2021, at least 15 states have introduced bills to either update existing auto-renewal laws or establish new ones.

Several of the recent bills propose requirements similar to California's — one of the more restrictive state auto-renewal laws. For example, New York's new auto-renewal law, which went into effect in February, includes requirements to (1) clearly and conspicuously disclose the auto-renewal terms, including the price to be charged after a free trial ends; (2) obtain affirmative consent to the terms; and (3) provide an acknowledgment upon, or promptly after, signup that includes certain material information.

Class action lawsuits and government enforcement actions continue to target recurring subscription programs that fail to adequately disclose the recurring nature of the subscription or obtain consent to the auto-renewal terms, with settlements often reaching millions of dollars. The Federal Trade Commission's activity in this area — including its recent workshop on dark patterns — make it clear that the FTC is closely following deceptive practices related to online billing.

Companies with subscription programs that automatically renew should review applicable state laws and monitor for pending state regulation.

Consumer Review and Endorsement Practices

The FTC continues to prioritize consumer endorsement and review practices. Therefore, businesses should refresh their understanding of the nuanced compliance requirements related to incentivizing, prohibiting, curating and sharing consumer reviews.

In 2019, the FTC brought its first enforcements under the Consumer Review Fairness Act, a statute that makes it unlawful to use nondisparagement contract clauses to prohibit customers from posting negative reviews. The FTC's continued enforcement of the CRFA in 2020, including a $1.2 million settlement with Chemence Inc., demonstrates the commission's commitment to honest and unrestricted review practices.

At a 2020 marketing law conference, FTC and National Advertising Division representatives identified review gating (e.g., selectively soliciting positive reviews from customers while discouraging public disclosure of negative reviews), undisclosed review reorganizing (e.g., making positive reviews appear first) and selective deletion of negative reviews (e.g., deleting reviews without a goal to remove hate speech or similar justification) as potentially deceptive practices.

Acknowledging the need for updated policies on these issues in the face of an increasingly digital world, the FTC sought public comment on its existing Endorsement Guides in 2020. The FTC is now reviewing its endorsement-related guidance, and may issue updated guidance in 2021.

The FTC's new rulemaking group within its Office of the General Counsel further demonstrates the commission's commitment to updating rules and regulations.

Health Claims

Unsurprisingly, the FTC takes a dim view of companies making unsupported claims that their products prevent or cure COVID-19. In 2020 alone, the FTC sent warning letters to more than 350 companies and individuals making such claims. The trend has continued into 2021, as the FTC and U.S. Food and Drug Administration have already sent out over 40 such letters this year.

In April, the FTC exercised its authority under both the FTC Act and the new COVID-19 Consumer Protection Act to bring an action against a company and its owner for deceptively marketing products as scientifically proven to treat or prevent COVID-19.

Unlike the preexisting FTC Act, which only allowed the FTC to seek civil penalties for continued violations — e.g., violation of an existing order — the COVID-19 Consumer Protection Act authorizes the FTC to seek civil monetary penalties for first-time violations.

While advertisers should always avoid making unsubstantiated claims related to the treatment or prevention of disease, this is more important than ever for COVID-19 claims, given increased regulatory scrutiny.

Price-Gouging Regulations

The onset of the COVID-19 pandemic resulted in significant legal activity related to price-gouging, including:

  • Regulator actions against specific violators;

  • Letters from attorney generals to e-commerce platforms seeking help policing against price-gouging;

  • U.S. Department of Justice task force investigation of hundreds of companies and individuals selling personal protective equipment at high prices; and

  • Private companies filing lawsuits to protect their essential products under federal trademark, unfair competition, false advertising and state price-gouging laws.

In just one example, a year after Pennsylvania Attorney General Josh Shapiro's launch of a dedicated price-gouging email hotline, his office claims to have received more than 6,000 price-gouging tips, sent 522 cease-and-desist letters and filed 31 price-gouging legal actions.

Price-gouging regulations usually take the form of state laws and executive orders that are triggered during emergencies when businesses raise the price of essential, commodity or disaster-related products and services. While some jurisdictions prohibit price increases at or above specific thresholds, others simply prohibit charging "unconscionable prices."

The impacts of the pandemic on price-gouging laws may extend long after the current wave of COVID-19. During the pandemic, many states have refined their price-gouging laws, often resulting in new or enhanced penalties for violations.

Other states that have historically lacked price-gouging laws have passed new statutes. For example, the Washington Senate recently approved what would be Washington's first price-gouging law, S.B. 5191.

Given these changes, even as states like California begin loosening the price-gouging restrictions that have been in place over the past year, businesses should be aware that stronger and more clearly defined price-gouging regulatory regimes may be in place during the next state of emergency.

These issues will remain essential for businesses to consider as the year continues. Therefore, companies should ensure that they carefully manage legal and practical risks for their products, services and marketing campaigns in 2021 and beyond.

Amanda Beane and Jason Howell are partners at Perkins Coie LLP

Perkins Coie counsel Mark Goodrich and associates Jared Bryant and Caitlin Hoeberlein contributed to this article.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

For a reprint of this article, please contact reprints@law360.com.

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