The ABA Consumer Protection Conference

Advertising Issues

The liveliest issue of the day was advertising substantiation. Current and former directors of the FTC Bureau of Consumer Protection squared off in debate over whether the FTC has raised the bar for substantiation of health claims in advertising. J. Howard Beales, now a GWU professor, charged that FTC settlements in 2010 with Nestle, Iovate, and Dannon mark a major policy change ' to the effect that specific disease-prevention claims are now prohibited unless they have been approved by the FDA. Current Bureau Director David Vladeck emphatically denied that interpretation. He maintained that the settlements merely tightened the FTC's traditional consent order language requiring competent and reliable scientific evidence. The settlements do not, he continued, require a company to get FDA approval before making a claim unless the advertiser is already under FTC order.

Richard Leighton, of Keller and Heckman LLP, said that Vladeck's answer reminded him of Dr. Jekyll's response to his wife when she asked him what he had done the night before: “Oh, the usual.” The FTC's pending litigation with POM Wonderful 100% Pomegranate Juice is expected to shed further light on the issue.

A panel including Senior District Judge Thomas Ellis III of the Eastern District of Virginia debated a different advertising question: whether challengers of competitors' advertising claims are better off in court or in the self-regulatory process of the National Advertising Division (“NAD”) of the Council of Better Business Bureaus. Two practitioners and the deputy director of NAD concluded that both have advantages, depending on the degree of urgency and the type of relief desired.

Privacy

FTC Commissioner Julie Brill led off a privacy panel by tracing the history of FTC privacy enforcement and summarizing the preliminary staff report released on Dec. 1, 2010, which unleashed a torrent of debate on the “do not track” concept. She was encouraged that the report has “ignited” industry to act on behavioral advertising, a welcome change from what she called the “slow” response since the FTC first called on the industry in February 2009.

Leslie Harris, president and CEO of the Center for Democracy and Technology, was disappointed that the report did not call for baseline federal privacy legislation, but nevertheless predicted a “tsunami” of privacy activity on Capitol Hill. She credited the Department of Commerce green paper on privacy, released just weeks after the FTC staff report, for framing the business case for privacy ' a perspective very important to Congress. But she called “do not track” merely a slogan at this point, and thus not a reliable cornerstone for public policy development.

Liability for the Acts of Others

Slightly closer to home for franchisors, a panel including FTC Commissioner Edith Ramirez and Shelly O'Callaghan, assistant general counsel of International Dairy Queen, discussed liability for the acts of others. The discussion highlighted two FTC cases involving brand owners' use of independent marketing companies that violated federal telemarketing laws in contacting consumers. In Direct TV, settled by consent order, the FTC alleged that Direct TV was liable for both “causing” and “assisting or facilitating” the violations. Direct TV agreed to pay a $5 million civil penalty. The other case, Dish Network, is still ongoing. Albert Shelden, senior assistant attorney general of California, urged the audience to look at the Direct TV order for guidance on the FTC's expectations.

Financial Services

Joe Farrell, director of the FTC Bureau of Economics, and Joel Winston, associate director in charge of the Division of Financial Practices in the Bureau of Consumer Protection, were on a panel examining the dramatic shift in the legal landscape for financial services. They explored how the new Consumer Financial Protection Bureau (“CFPB”), housed at the Federal Reserve, will reshape the marketplace for consumer financial products and services.

Earlier in the day, FTC Commissioner J. Thomas Rosch had taken the position that the CFPB is completely unnecessary ' but his panel had a different job: to give a bird's-eye view of consumer protection enforcement priorities and policy initiatives. Commissioner Rosch harkened back to his days in the mid-70s as director of the Bureau of Consumer Protection to identify what has changed most. He singled out online shopping for blurring the distinction between “advertising” and “selling” ' with substantial implications not only for consumer protection enforcement, but also for resale price maintenance or vertical price fixing.

Canada

Not surprisingly, privacy was at the top of the list for Jennifer Stoddart, Privacy Commissioner of Canada. She summarized the consumer protection mission and activities of her office and spotlighted its investigations of Google and Facebook. She observed that more investigations are targeting companies with little or no presence in Canada, and she delivered a pointed message that Google and Facebook were “symptomatic of the failure of U.S. companies to consider local law outside of the U.S.”

Consumer Protection Priorities

For the Department of Justice, the consumer protection priorities are health care fraud, mortgage fraud, food safety, and false advertising. Assistant Attorney General Tony West, who heads the 1,000-lawyer Civil Division, claimed more than $10 billion in fraud settlements, fines, and penalties since January 2009 and promised to continue the momentum.

As a species of consumer protection, franchising regulation can be expected to be infused by trends in the larger policy sphere. The policy makers at GWU in February sent plenty of smoke signals.

David W. Koch is a principal at Plave Koch PLC in Reston, VA. He can be contacted at 703-774-1202 or [email protected].

Imagine your franchise lawyer sitting in a lecture hall with three of the five current commissioners of the Federal Trade Commission, two of the three current FTC Bureau directors, and two dozen other FTC staff members. Make you nervous? Now add the head of the Justice Department's Civil Division, a federal judge, and for good measure, the Privacy Commissioner of Canada. Breaking into a sweat?

Relax, there is nothing to fear. The occasion for the gathering at George Washington University (“GWU”) on Feb. 3 was the American Bar Association's Consumer Protection Law Conference. The full-day program, sponsored by the Section of Antitrust Law, featured seven distinguished panels and plenty of issues of interest to the franchising community.

Why should franchise systems' ears prick up? For starters, savvy franchisors should understand the larger consumer protection context in which their principal federal regulator operates ' especially when most of the top decision-makers show up.

Advertising Issues

The liveliest issue of the day was advertising substantiation. Current and former directors of the FTC Bureau of Consumer Protection squared off in debate over whether the FTC has raised the bar for substantiation of health claims in advertising. J. Howard Beales, now a GWU professor, charged that FTC settlements in 2010 with Nestle, Iovate, and Dannon mark a major policy change ' to the effect that specific disease-prevention claims are now prohibited unless they have been approved by the FDA. Current Bureau Director David Vladeck emphatically denied that interpretation. He maintained that the settlements merely tightened the FTC's traditional consent order language requiring competent and reliable scientific evidence. The settlements do not, he continued, require a company to get FDA approval before making a claim unless the advertiser is already under FTC order.

Richard Leighton, of Keller and Heckman LLP, said that Vladeck's answer reminded him of Dr. Jekyll's response to his wife when she asked him what he had done the night before: “Oh, the usual.” The FTC's pending litigation with POM Wonderful 100% Pomegranate Juice is expected to shed further light on the issue.

A panel including Senior District Judge Thomas Ellis III of the Eastern District of Virginia debated a different advertising question: whether challengers of competitors' advertising claims are better off in court or in the self-regulatory process of the National Advertising Division (“NAD”) of the Council of Better Business Bureaus. Two practitioners and the deputy director of NAD concluded that both have advantages, depending on the degree of urgency and the type of relief desired.

Privacy

FTC Commissioner Julie Brill led off a privacy panel by tracing the history of FTC privacy enforcement and summarizing the preliminary staff report released on Dec. 1, 2010, which unleashed a torrent of debate on the “do not track” concept. She was encouraged that the report has “ignited” industry to act on behavioral advertising, a welcome change from what she called the “slow” response since the FTC first called on the industry in February 2009.

Leslie Harris, president and CEO of the Center for Democracy and Technology, was disappointed that the report did not call for baseline federal privacy legislation, but nevertheless predicted a “tsunami” of privacy activity on Capitol Hill. She credited the Department of Commerce green paper on privacy, released just weeks after the FTC staff report, for framing the business case for privacy ' a perspective very important to Congress. But she called “do not track” merely a slogan at this point, and thus not a reliable cornerstone for public policy development.

Liability for the Acts of Others

Slightly closer to home for franchisors, a panel including FTC Commissioner Edith Ramirez and Shelly O'Callaghan, assistant general counsel of International Dairy Queen, discussed liability for the acts of others. The discussion highlighted two FTC cases involving brand owners' use of independent marketing companies that violated federal telemarketing laws in contacting consumers. In Direct TV, settled by consent order, the FTC alleged that Direct TV was liable for both “causing” and “assisting or facilitating” the violations. Direct TV agreed to pay a $5 million civil penalty. The other case, Dish Network, is still ongoing. Albert Shelden, senior assistant attorney general of California, urged the audience to look at the Direct TV order for guidance on the FTC's expectations.

Financial Services

Joe Farrell, director of the FTC Bureau of Economics, and Joel Winston, associate director in charge of the Division of Financial Practices in the Bureau of Consumer Protection, were on a panel examining the dramatic shift in the legal landscape for financial services. They explored how the new Consumer Financial Protection Bureau (“CFPB”), housed at the Federal Reserve, will reshape the marketplace for consumer financial products and services.

Earlier in the day, FTC Commissioner J. Thomas Rosch had taken the position that the CFPB is completely unnecessary ' but his panel had a different job: to give a bird's-eye view of consumer protection enforcement priorities and policy initiatives. Commissioner Rosch harkened back to his days in the mid-70s as director of the Bureau of Consumer Protection to identify what has changed most. He singled out online shopping for blurring the distinction between “advertising” and “selling” ' with substantial implications not only for consumer protection enforcement, but also for resale price maintenance or vertical price fixing.

Canada

Not surprisingly, privacy was at the top of the list for Jennifer Stoddart, Privacy Commissioner of Canada. She summarized the consumer protection mission and activities of her office and spotlighted its investigations of Google and Facebook. She observed that more investigations are targeting companies with little or no presence in Canada, and she delivered a pointed message that Google and Facebook were “symptomatic of the failure of U.S. companies to consider local law outside of the U.S.”

Consumer Protection Priorities

For the Department of Justice, the consumer protection priorities are health care fraud, mortgage fraud, food safety, and false advertising. Assistant Attorney General Tony West, who heads the 1,000-lawyer Civil Division, claimed more than $10 billion in fraud settlements, fines, and penalties since January 2009 and promised to continue the momentum.

As a species of consumer protection, franchising regulation can be expected to be infused by trends in the larger policy sphere. The policy makers at GWU in February sent plenty of smoke signals.

David W. Koch is a principal at Plave Koch PLC in Reston, VA. He can be contacted at 703-774-1202 or [email protected].