1 AMERICAN BAR ASSOCIATION CONSUMER PROTECTION UPDATE February 2007 Theodore W. Atkinson Ellen T. Berge

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AMERICAN BAR ASSOCIATION CONSUMER PROTECTION UPDATE

February 2007

Theodore W. Atkinson

Ellen T. Berge

I.I. Federal Trade Federal Trade CommissionCommission

Notable CasesNotable Cases

FTC ReportsFTC Reports

FTC WorkshopsFTC Workshops

II.II. State Enforcement UpdateState Enforcement Update

III.III. NAD UpdateNAD Update

IV.IV. Private Actions UpdatePrivate Actions Update

FTC Update – Notable CasesFTC Update – Notable Cases

U.S. v. The Broadcast TeamU.S. v. The Broadcast Team– Florida-based “voice broadcaster” agreed to pay $1 million for Florida-based “voice broadcaster” agreed to pay $1 million for

using an automated phone dialing system and prerecorded using an automated phone dialing system and prerecorded messages to call and illegally hang up on more than 64 million, messages to call and illegally hang up on more than 64 million, and called more than a million numbers on the national do not and called more than a million numbers on the national do not call list. FTC also charged that TBT failed to pay for access to call list. FTC also charged that TBT failed to pay for access to the DNC registry.the DNC registry.

– FTC also charged TBT with violations of its call abandonment FTC also charged TBT with violations of its call abandonment rules. According to FTC, when the calls TBT made were rules. According to FTC, when the calls TBT made were answered by people, instead of voice mail or answering answered by people, instead of voice mail or answering machines, TBT ended the call or hung up after playing a machines, TBT ended the call or hung up after playing a recording.recording.

– TBT argued that the TSR did not apply to its delivery of TBT argued that the TSR did not apply to its delivery of prerecorded messages and should not apply to its plans to use prerecorded messages and should not apply to its plans to use prerecorded messages to solicit funds on behalf of a charity. prerecorded messages to solicit funds on behalf of a charity. This argument was rejected.This argument was rejected.


FTC vs. Select Personnel Management, FTC vs. Select Personnel Management, Inc., et al.Inc., et al. – Federal court ordered Federal court ordered ex parteex parte injunctive relief, including asset injunctive relief, including asset

freeze, against Canadian telemarketer that targeted consumers in freeze, against Canadian telemarketer that targeted consumers in the U.S. and falsely claims it could reduce their credit card interest the U.S. and falsely claims it could reduce their credit card interest rates.rates.

– Company was charged with violating Section 5 of the FTC Act and Company was charged with violating Section 5 of the FTC Act and the TSR.the TSR.

– According to complaint, defendants sold credit card interest rate According to complaint, defendants sold credit card interest rate reduction services since December 2005; claimed affiliation with reduction services since December 2005; claimed affiliation with consumers’ credit card companies.consumers’ credit card companies.

– Complaint also alleges Caller ID spoofing.Complaint also alleges Caller ID spoofing.– For $625 plus $20 s/h, defendants sent consumers promotional For $625 plus $20 s/h, defendants sent consumers promotional

materials with additional false promises. When receiving credit card materials with additional false promises. When receiving credit card information back from the consumer, defendants initiated three-way information back from the consumer, defendants initiated three-way telephone calls with consumes to the consumers credit card telephone calls with consumes to the consumers credit card companies and asked the credit card companies to lower the companies and asked the credit card companies to lower the consumers’ interest rates. The requests were typically denied, and consumers’ interest rates. The requests were typically denied, and that was the extent of defendants services.that was the extent of defendants services.


FTC v. Rawlins & Rivera, Inc. et al.FTC v. Rawlins & Rivera, Inc. et al. – Lawsuit filed by FTC against debt collection operation Lawsuit filed by FTC against debt collection operation

that allegedly threatened consumers with lawsuits, that allegedly threatened consumers with lawsuits, seizure of property, and arrest.seizure of property, and arrest.

– Complaint alleges that defendants used misleading Complaint alleges that defendants used misleading and threatening letters and telephone calls while and threatening letters and telephone calls while trying to collect debts for beauty schools, truck driving trying to collect debts for beauty schools, truck driving schools, bail bondsmen, fitness centers, and other schools, bail bondsmen, fitness centers, and other small businesses; and that they falsely threatened small businesses; and that they falsely threatened consumers with lawsuits, property seizure, garnished consumers with lawsuits, property seizure, garnished wages, legal costs, and (in some cases) arrest.wages, legal costs, and (in some cases) arrest.

– FTC seeks preliminary injunction and asset freeze.FTC seeks preliminary injunction and asset freeze.


FTC vs. ConsumerInfo.ComFTC vs. ConsumerInfo.Com– FTC charged that the “free credit report” offer failed to explicitly FTC charged that the “free credit report” offer failed to explicitly

disclose that subscribers would be automatically signed up into a disclose that subscribers would be automatically signed up into a paid credit-monitoring program [www.freecreditreport.com].paid credit-monitoring program [www.freecreditreport.com].

– FTC charged it had engaged in deceptive marketing practices FTC charged it had engaged in deceptive marketing practices through requiring credit card information for consumer to through requiring credit card information for consumer to purchase their “free credit report,” then billing them $79.95 purchase their “free credit report,” then billing them $79.95 annually unless they opted out within 30 days.annually unless they opted out within 30 days.

– Also charged with violating the terms of an earlier settlement Also charged with violating the terms of an earlier settlement with the FTC over similar practices in August 2005. (Previous with the FTC over similar practices in August 2005. (Previous settlement of $950,000 and requirements to stop engaging in settlement of $950,000 and requirements to stop engaging in deceptive business practices and to clearly disclose the deceptive business practices and to clearly disclose the terms/conditions of service).terms/conditions of service).

– $300,000 settlement; also bars defendant from advertising any $300,000 settlement; also bars defendant from advertising any of its services as related to the free annual credit reports that of its services as related to the free annual credit reports that consumers can receive each year under the Fair Credit consumers can receive each year under the Fair Credit Reporting Act.Reporting Act.


FTC v. World Traders Association, Inc. et al.FTC v. World Traders Association, Inc. et al. – Two individuals agreed to settle charges for their Two individuals agreed to settle charges for their

roles in fraudulent business opportunity schemes. roles in fraudulent business opportunity schemes. Stems from “Project Biz Opp Flop,” a crackdown Stems from “Project Biz Opp Flop,” a crackdown on violations of FTC Franchise Rule.on violations of FTC Franchise Rule.

– Complaint alleged false and deceptive promises to Complaint alleged false and deceptive promises to franchise purchasers who paid $4000 - 8000 in franchise purchasers who paid $4000 - 8000 in return for access to overstocked merchandise, return for access to overstocked merchandise, expert training in the surplus goods industry, and a expert training in the surplus goods industry, and a list of customers interested in purchasing such list of customers interested in purchasing such merchandise.merchandise.

– Judgments of $12 million and $1.8 million Judgments of $12 million and $1.8 million (suspended due to inability to pay)(suspended due to inability to pay)


FTC v. DirectRevenue LLCFTC v. DirectRevenue LLC – Company agreed to pay $1.5 million to settle charges that it Company agreed to pay $1.5 million to settle charges that it

illegally downloaded advertising software (adware) onto illegally downloaded advertising software (adware) onto consumers’ computers and made it difficult to locate and consumers’ computers and made it difficult to locate and remove. remove.

– Company offered free content (e.g., screensavers and games), Company offered free content (e.g., screensavers and games), and included the adware with the free applications without and included the adware with the free applications without adequate notice. The software also tracked consumers’ Internet adequate notice. The software also tracked consumers’ Internet use and served them target pop-up ads.use and served them target pop-up ads.

– Settlement bars Direct Revenue from downloading its adware Settlement bars Direct Revenue from downloading its adware without consumers’ express consent and requires the company without consumers’ express consent and requires the company to establish easy, effective ways to remove the software from to establish easy, effective ways to remove the software from their computerstheir computers

– Privacy advocates complained that the fine was insufficient, Privacy advocates complained that the fine was insufficient, because it apparently left Direct Revenue with more than $20 because it apparently left Direct Revenue with more than $20 million in profitmillion in profit


FTC v. Entertainment Media, Inc., et al.FTC v. Entertainment Media, Inc., et al. – Affiliate “webmaster” used “free” music downloads Affiliate “webmaster” used “free” music downloads

to spread malicious computer code. FTC alleged to spread malicious computer code. FTC alleged that bundling “free” music with “malware” was a that bundling “free” music with “malware” was a deceptive practice.deceptive practice.

– Order bars defendant from interfering with Order bars defendant from interfering with consumers’ computer use, including distributing consumers’ computer use, including distributing software that can track consumer Internet activity software that can track consumer Internet activity or collect personal information, change a browser or collect personal information, change a browser homepage or other browser settings, insert new homepage or other browser settings, insert new tool bards, install dialer programs, insert tool bards, install dialer programs, insert advertising hyperlinksadvertising hyperlinks


FTC v. Action Research Group Inc., et FTC v. Action Research Group Inc., et al.al. – FTC filed a complaint in U.S. District Court, Middle District of FTC filed a complaint in U.S. District Court, Middle District of

Florida, Orlando Division to order a permanent halt to operations Florida, Orlando Division to order a permanent halt to operations that deceptively obtained and sold consumers’ confidential that deceptively obtained and sold consumers’ confidential phone records without their knowledge and consent. phone records without their knowledge and consent.

– Pretexting is the practice of impersonating a phone customer to Pretexting is the practice of impersonating a phone customer to gain access to his phone records. In January 2006, President gain access to his phone records. In January 2006, President Bush signed law criminalizing the practice and imposing Bush signed law criminalizing the practice and imposing penalties including up to 10 years in prison.penalties including up to 10 years in prison.

– Proposed FCC rules implementing the law are circulating among Proposed FCC rules implementing the law are circulating among the commissions; rules will require that customers use a the commissions; rules will require that customers use a password to access their account information; also expected to password to access their account information; also expected to require that phone companies get a customer’s permission require that phone companies get a customer’s permission before releasing information that may be used for telemarketing.before releasing information that may be used for telemarketing.

– Resistance from phone companies – balance security against Resistance from phone companies – balance security against customers’ wishes for easy access to their information.customers’ wishes for easy access to their information.

– DOJ and Homeland Security have taken issues with a provision DOJ and Homeland Security have taken issues with a provision that would tell phone companies to destroy customer records as that would tell phone companies to destroy customer records as soon as the records are no longer needed for legitimate soon as the records are no longer needed for legitimate business purpose. business purpose.

FTC Update – ReportsFTC Update – Reports

FTC Report to Congress on COPPAFTC Report to Congress on COPPA – FTC reports that COPPA and COPPA rules have FTC reports that COPPA and COPPA rules have

been effective in protecting children’s privacy and been effective in protecting children’s privacy and security online without unduly burdening web site security online without unduly burdening web site operators; did not recommend any changes to operators; did not recommend any changes to COPPA.COPPA.

– Notes that age falsification remains a risk on Notes that age falsification remains a risk on general audience web sites because widespread general audience web sites because widespread age verification technology is not available.age verification technology is not available.

– Also identified social networking sites and mobile Also identified social networking sites and mobile Internet access as new and emerging issues in Internet access as new and emerging issues in children’s online privacychildren’s online privacy


FTC Report to Congress on COPPAFTC Report to Congress on COPPA – FTC reports that COPPA and COPPA rules have FTC reports that COPPA and COPPA rules have

been effective in protecting children’s privacy and been effective in protecting children’s privacy and security online without unduly burdening web site security online without unduly burdening web site operators; did not recommend any changes to operators; did not recommend any changes to COPPA.COPPA.

– Notes that age falsification remains a risk on Notes that age falsification remains a risk on general audience web sites because widespread general audience web sites because widespread age verification technology is not available.age verification technology is not available.

– Also identified social networking sites and mobile Also identified social networking sites and mobile Internet access as new and emerging issues in Internet access as new and emerging issues in children’s online privacychildren’s online privacy


CONSUMER COMPLAINTSCONSUMER COMPLAINTS1.1. Identity Theft Identity Theft 246,0353246,0353 6%6%2.2. Shop-at-Home/Catalog Sales Shop-at-Home/Catalog Sales 46,99546,995 7%7%3.3. Prizes/Sweepstakes and LotteriesPrizes/Sweepstakes and Lotteries 45,587 45,587 7%7%4.4. Internet Services/ComputerInternet Services/Computer 41,243 41,243 6%6%5.5. Internet AuctionsInternet Auctions 32,832 32,832 5%5%6.6. Foreign Money OffersForeign Money Offers 20,411 20,411 3%3%7.7. Advance-Fee Loans/Credit Protection/RepairAdvance-Fee Loans/Credit Protection/Repair 10,85710,857 2%2%8.8. Magazines and Buyers ClubsMagazines and Buyers Clubs 8,924 8,924 1%1%9.9. Telephone ServicesTelephone Services 8,1658,165 1%1%10.10. Health CareHealth Care 7,4677,467 1%1%

FTC Update – WorkshopsFTC Update – Workshops

Broadband Connectivity Competition Policy Workshop (Feb. 13 Broadband Connectivity Competition Policy Workshop (Feb. 13 and 14, 2007)and 14, 2007)– Webcast, presentations, and transcripts available at Webcast, presentations, and transcripts available at http://http://

www.ftc.gov/opp/workshops/broadband/index.htmlwww.ftc.gov/opp/workshops/broadband/index.html– Reviewed technical aspects of routing data over the Internet and Reviewed technical aspects of routing data over the Internet and

capacity limitationscapacity limitations– Discussion on Network Neutrality, ISP discrimination/blocking of content Discussion on Network Neutrality, ISP discrimination/blocking of content

or applications, quality of service issues, tiering, and charging fees for or applications, quality of service issues, tiering, and charging fees for prioritized delivery; disclosure of material terms in Internet access prioritized delivery; disclosure of material terms in Internet access agreementsagreements

““Rebate Debate” Workshop Announced Rebate Debate” Workshop Announced – April 27, 2007 in San Francisco; Issues related to mail-in rebates by April 27, 2007 in San Francisco; Issues related to mail-in rebates by

manufacturers and retailers; explore “best practices” in the offering and manufacturers and retailers; explore “best practices” in the offering and fulfillment of rebatesfulfillment of rebates

““Identity Authentication” Workshop AnnouncedIdentity Authentication” Workshop Announced– April 23 and 24, 2007. “Proof Positive: New Directions in ID April 23 and 24, 2007. “Proof Positive: New Directions in ID

Authentication”Authentication”– Will explore methods to reduce identity theft through enhanced Will explore methods to reduce identity theft through enhanced

authentication. authentication.

State Enforcement ActionsState Enforcement Actions

Bud.tvBud.tv– Launch of Bud.tv followed by an attorney from 21 state attorneys Launch of Bud.tv followed by an attorney from 21 state attorneys

general attacking A-B’s online TV network, charging that it is too easily general attacking A-B’s online TV network, charging that it is too easily accessed by people below drinking age.accessed by people below drinking age.

– ““We feel strongly that since you are creating the programming and We feel strongly that since you are creating the programming and controlling the internet-based network, not just advertising on it, you controlling the internet-based network, not just advertising on it, you have a higher responsibility to ensure that youth are not exposed to the have a higher responsibility to ensure that youth are not exposed to the marketing on your site…. We fail to see how your use of age verification marketing on your site…. We fail to see how your use of age verification on the Bud.tv site is a genuine attempt to keep youth from accessing the on the Bud.tv site is a genuine attempt to keep youth from accessing the site’s content.”site’s content.”

– Access to the site is restricted to users who can provide name, birth Access to the site is restricted to users who can provide name, birth date and zip code of a legal drinker (more than the “honor” system most date and zip code of a legal drinker (more than the “honor” system most alcohol sites use)alcohol sites use)

– Letter suggested A-B could do more to confirm age, including follow-up Letter suggested A-B could do more to confirm age, including follow-up phone calls or direct mailings and software that checks to make sure the phone calls or direct mailings and software that checks to make sure the information on a single ID can’t be used for multiple users’ registrations.information on a single ID can’t be used for multiple users’ registrations.

– Also raised issues with site functions allowing users to download Also raised issues with site functions allowing users to download programs to their iPods and send them via email to friends, noting that programs to their iPods and send them via email to friends, noting that such functions negate the point of age verification.such functions negate the point of age verification.


““Net Send” Internet Advertisers Sued by Washington StateNet Send” Internet Advertisers Sued by Washington State– Lawsuit involves three California-based Internet affiliate advertisers Lawsuit involves three California-based Internet affiliate advertisers

accused of violating the state’s Computer Spyware Act and Consumer accused of violating the state’s Computer Spyware Act and Consumer Protection Act by sending anonymous “Net Send” messages to Protection Act by sending anonymous “Net Send” messages to consumers’ computers that simulate Windows operating system consumers’ computers that simulate Windows operating system warnings, and transmit bundled software that changes Internet browser warnings, and transmit bundled software that changes Internet browser home pages and marketing registry-cleaner programs through the use home pages and marketing registry-cleaner programs through the use of “free” scans. of “free” scans.

– Causes of action include feigning the discovery of critical errors on a Causes of action include feigning the discovery of critical errors on a computer; preventing a computer from declining the installation of computer; preventing a computer from declining the installation of software; modifying computer settings; intentionally misrepresenting the software; modifying computer settings; intentionally misrepresenting the necessity of new software for security purposes; misleading consumers necessity of new software for security purposes; misleading consumers into believing that registry cleaner software has performed indicated into believing that registry cleaner software has performed indicated repairs. repairs.

– State seeks injunctive relief; fines of up to $100,000 per violation of the State seeks injunctive relief; fines of up to $100,000 per violation of the Computer Spyware Act and $2000 per violation under the Consumer Computer Spyware Act and $2000 per violation under the Consumer Protection ActProtection Act


Blue Coat Systems, Inc.Blue Coat Systems, Inc. (New York) (New York)– Resolves dispute over the company’s use of an end use license Resolves dispute over the company’s use of an end use license

agreement that claimed to prevent consumers from testing and agreement that claimed to prevent consumers from testing and criticizing Blue Coat’s enterprise-level security hardware and software criticizing Blue Coat’s enterprise-level security hardware and software products.products.

– EULA required the company’s permission in order to publish test results EULA required the company’s permission in order to publish test results comparing Blue Coat products to competitors’ products (“benchmark comparing Blue Coat products to competitors’ products (“benchmark tests”)tests”)

– Complaint alleged customers did not have the opportunity to review the Complaint alleged customers did not have the opportunity to review the license agreement before purchasing the product; Blue Coat’s terms license agreement before purchasing the product; Blue Coat’s terms were only revealed after the purchase. were only revealed after the purchase.

– In the settlement, Blue Coat agreed not to include anti-benchmarking In the settlement, Blue Coat agreed not to include anti-benchmarking clauses in license agreements with New York parties, or any other clauses in license agreements with New York parties, or any other clause that interferes with a third party’s right to test and comment on clause that interferes with a third party’s right to test and comment on Blue Coat’s products. Also, Blue Coat agrees not to enforce anti-Blue Coat’s products. Also, Blue Coat agrees not to enforce anti-benchmarking clauses included in earlier license agreements with NY benchmarking clauses included in earlier license agreements with NY customers.customers.

– Blue Coat pays NY $20,000 in penalties and $10,000 for costs of Blue Coat pays NY $20,000 in penalties and $10,000 for costs of investigation.investigation.


InPhonic SettlementInPhonic Settlement (District of Columbia)(District of Columbia)– 3900 complaints regarding rebates logged with the BBB and the D.C. 3900 complaints regarding rebates logged with the BBB and the D.C.

Attorney General’s OfficeAttorney General’s Office– InPhonic sells wireless phones and service plans through retail web InPhonic sells wireless phones and service plans through retail web

sites, Liberty Wireless and Firefly. sites, Liberty Wireless and Firefly. – Under settlement terms, InPhonic must pay $100,000 to D.C. and make Under settlement terms, InPhonic must pay $100,000 to D.C. and make

restitution to about 9000 customers nationwide.restitution to about 9000 customers nationwide.

Sprint NextelSprint Nextel (Texas)(Texas)– Alleged violation of the Texas Deceptive Trade Practices Act by implying Alleged violation of the Texas Deceptive Trade Practices Act by implying

that an additional fee of customers’ bills was a state-imposed tax.that an additional fee of customers’ bills was a state-imposed tax.– Sprint Nextel also charged with violating a 2004 order prohibiting the Sprint Nextel also charged with violating a 2004 order prohibiting the

company from using deceptive billing practices and from implying that company from using deceptive billing practices and from implying that their discretionary fees are required by the government. their discretionary fees are required by the government.

– Lawsuit requests temporary and permanent injunctions, reimbursement Lawsuit requests temporary and permanent injunctions, reimbursement to all customers who paid fee, civil penalties of $20,000 per violation.to all customers who paid fee, civil penalties of $20,000 per violation.


The TJX Companies, Inc. (T.J. Maxx)The TJX Companies, Inc. (T.J. Maxx) (Massachusetts, Rhode Island; multi-state)(Massachusetts, Rhode Island; multi-state)– Massachusetts and Rhode Island are opening investigations into Massachusetts and Rhode Island are opening investigations into

the TJ Maxx security breach involving private data of thousands the TJ Maxx security breach involving private data of thousands of shoppers.of shoppers.

– Massachusetts is leading a multi-state civil investigation into the Massachusetts is leading a multi-state civil investigation into the breach, which it says put thousands of consumers at risk for breach, which it says put thousands of consumers at risk for fraud and identity theft. fraud and identity theft.

– Rhode Island filed a CID against The TJX Companies, Inc. for Rhode Island filed a CID against The TJX Companies, Inc. for alleged failure to prevent intrusions into its computer network alleged failure to prevent intrusions into its computer network and to use every available means to notify consumers of the and to use every available means to notify consumers of the recent security breach as soon as possible.recent security breach as soon as possible.

Movie GalleryMovie Gallery (North Carolina)(North Carolina)– North Carolina attorney general settles with Movie Gallery, Inc. North Carolina attorney general settles with Movie Gallery, Inc.

and two other companies; agree to pay $65,000 to the state for and two other companies; agree to pay $65,000 to the state for illegally disposing of files containing personal customer illegally disposing of files containing personal customer information, employee and job applicant data. information, employee and job applicant data.


Samsung DRAM SettlementSamsung DRAM Settlement– DRAM chip maker Samsung agrees pay $90 million to settle DRAM chip maker Samsung agrees pay $90 million to settle

lawsuit charging the company and others with price-fixing. lawsuit charging the company and others with price-fixing. (Dynamic Random Access Memory)(Dynamic Random Access Memory)

– Investigation since 2002; suit filed in July 2006 at the NY state Investigation since 2002; suit filed in July 2006 at the NY state attorney general’s office in Manhattan claimed Samsung and 7 attorney general’s office in Manhattan claimed Samsung and 7 other companies regularly exchanged price information and other companies regularly exchanged price information and other confidential business data in order to raise the prices that other confidential business data in order to raise the prices that OEMs and other DRAM customers paid for the chips.OEMs and other DRAM customers paid for the chips.

– $80 million of the settlement will go to consumers nationwide; $80 million of the settlement will go to consumers nationwide; $10 million will cover losses suffered by states and local $10 million will cover losses suffered by states and local governments; decision on how to distribute money will be made governments; decision on how to distribute money will be made when pending cases against other DRAM manufacturers are when pending cases against other DRAM manufacturers are resolvedresolved

– 38 states involved in the settlement38 states involved in the settlement


Berkley Premium NutraceuticalsBerkley Premium Nutraceuticals (Texas) (Texas) – Texas settlement covers five Ohio companies who sold 15 Texas settlement covers five Ohio companies who sold 15

products, including the Enzyte product sold through “Smiling products, including the Enzyte product sold through “Smiling Bob” television commercials.Bob” television commercials.

– Agreement with Steve Warshak, owner of all five companies, Agreement with Steve Warshak, owner of all five companies, provides refunds to consumers; pay $350,000 in civil penalties provides refunds to consumers; pay $350,000 in civil penalties and attorneys fees to the State; refrain from deceptively and attorneys fees to the State; refrain from deceptively promoting his products and offering deceptive “free trial offers”promoting his products and offering deceptive “free trial offers”

Illegal Pyramid SchemesIllegal Pyramid Schemes (New York) (New York) – New York settlement involving a pyramid scheme operating under New York settlement involving a pyramid scheme operating under

the names “Women 4 Change,” “The Women’s Gifting Circle,” the names “Women 4 Change,” “The Women’s Gifting Circle,” and “Women Empowering Women.” Spread through work and and “Women Empowering Women.” Spread through work and church settings.church settings.

– Women pay $5000 to occupy an entry level position (“appetizer”); Women pay $5000 to occupy an entry level position (“appetizer”); as more people joined, move up through “soup and salad,” as more people joined, move up through “soup and salad,” “entrée,” and “dessert.”“entrée,” and “dessert.”

– Civil penalties under $10,000 for each of the principals.Civil penalties under $10,000 for each of the principals.


National Furniture Manufacturing SettlementNational Furniture Manufacturing Settlement (North Carolina) (North Carolina) – North Carolina obtains a temporary injunction against online furniture retailer, National North Carolina obtains a temporary injunction against online furniture retailer, National

Furniture Manufacturing Co. for deceptive trade practices.Furniture Manufacturing Co. for deceptive trade practices.– Company barred from taking up front payments for furniture orders unless they place money Company barred from taking up front payments for furniture orders unless they place money

in an escrow, order the furniture within 5 days, and give a realistic delivery time.in an escrow, order the furniture within 5 days, and give a realistic delivery time.– Follows months after the N.C. Attorney General filed for a temporary injunction against Follows months after the N.C. Attorney General filed for a temporary injunction against

another N.C. online retailer, N.C. Furniture Buy Direct, which was taking orders for furniture another N.C. online retailer, N.C. Furniture Buy Direct, which was taking orders for furniture and never fulfilling them.and never fulfilling them.

““Senior Sting” – Missouri Direct MailSenior Sting” – Missouri Direct Mail (Missouri) (Missouri) – Missouri Attorney General sued 27 companies alleged to have sent deceptive direct mail Missouri Attorney General sued 27 companies alleged to have sent deceptive direct mail

pieces into Missouri; issued 27 cease-and-desist orders. Investigations continue into 20 pieces into Missouri; issued 27 cease-and-desist orders. Investigations continue into 20 other companies. other companies.

– Most involved fraudulent sweepstakes and foreign lotteries.Most involved fraudulent sweepstakes and foreign lotteries.– Orders requires companies to immediately cease violations of MO consumer protection Orders requires companies to immediately cease violations of MO consumer protection

laws, including ensuring future solicitations are not fraudulent or deceptive. Violations of the laws, including ensuring future solicitations are not fraudulent or deceptive. Violations of the order result in felony criminal charges.order result in felony criminal charges.

– Senior Sting launched in 2006 with help of hundreds of senior volunteers.Senior Sting launched in 2006 with help of hundreds of senior volunteers.

The Mandatory Poster AgencyThe Mandatory Poster Agency (North Carolina)(North Carolina)– Company ordered to pay fine $10,000 fine and refund North Carolina consumers following Company ordered to pay fine $10,000 fine and refund North Carolina consumers following

North Carolina attorney general attorney general investigation that the company was North Carolina attorney general attorney general investigation that the company was misrepresenting legal requirements when selling the posters. Mandatory posters (e.g., misrepresenting legal requirements when selling the posters. Mandatory posters (e.g., reminding employees to wash their hands) are available for free from government agencies.reminding employees to wash their hands) are available for free from government agencies.


Simon Mall Card SettlementSimon Mall Card Settlement (New Hampshire)(New Hampshire)– Simon Property Group reached out-of-court settlement with New Hampshire, Simon Property Group reached out-of-court settlement with New Hampshire,

which contested fees applied to Simon prepaid gift cards before Sept. 1, 2005.which contested fees applied to Simon prepaid gift cards before Sept. 1, 2005.– Simon argued that because the cards were issued by Bank of America, state Simon argued that because the cards were issued by Bank of America, state

laws regarding prepaid cards were preempted. New Hampshire challenged the laws regarding prepaid cards were preempted. New Hampshire challenged the preemption issue because Bank of America did not market the cards.preemption issue because Bank of America did not market the cards.

Jackson Hewitt Inc.Jackson Hewitt Inc. (California) (California)– Tax preparation service agrees to pay $5 million to settle allegations it violated Tax preparation service agrees to pay $5 million to settle allegations it violated

state and federal laws when marketing its refund anticipation loans to California state and federal laws when marketing its refund anticipation loans to California customers. customers.

– Complaint alleged violations of 13 state and federal laws, and sharing Complaint alleged violations of 13 state and federal laws, and sharing consumers’ tax information without their consentconsumers’ tax information without their consent..

Kansas Consumer Protection Act Applies to PhysiciansKansas Consumer Protection Act Applies to Physicians– Kansas Supreme Court ruled that the Kansas Consumer Protection Act can Kansas Supreme Court ruled that the Kansas Consumer Protection Act can

apply to a physician’s conduct in providing treatment to a patient, but expert apply to a physician’s conduct in providing treatment to a patient, but expert testimony may be required to prove a claim.testimony may be required to prove a claim.

NAD UpdateNAD Update

Mead Johnson NutritionalsMead Johnson Nutritionals– Nestle USA, Inc. challenged a coupon claim made by Mead Johnson Nutritionals; the coupon compares Nestle USA, Inc. challenged a coupon claim made by Mead Johnson Nutritionals; the coupon compares

Mead’s Enfamil ProSobee LIPIL infant formula and Nestle’s Good Start Supreme Soy with respect to Mead’s Enfamil ProSobee LIPIL infant formula and Nestle’s Good Start Supreme Soy with respect to sucrose content.sucrose content.

– NAD concluded the advertising was consistent with prior recommendations made by NAD in resolving an NAD concluded the advertising was consistent with prior recommendations made by NAD in resolving an earlier dispute between the companies on similar advertising issues.earlier dispute between the companies on similar advertising issues.

BornFree Baby BottlesBornFree Baby Bottles– American Chemisty Council (ACC) challenged various claims made in Internet advertising and packaging American Chemisty Council (ACC) challenged various claims made in Internet advertising and packaging

for BornFree Baby Bottles as false, deceptive, and unsubstantiated; ACC argued that the Born Free’s for BornFree Baby Bottles as false, deceptive, and unsubstantiated; ACC argued that the Born Free’s claims falsely communited that polycarbonate baby bottles, which are made with Bisphenol A (BPA), disrupt claims falsely communited that polycarbonate baby bottles, which are made with Bisphenol A (BPA), disrupt the hormones of babies.the hormones of babies.

– Born Free voluntarily agreed to promptly and permanently discontinue certain claims, including, among Born Free voluntarily agreed to promptly and permanently discontinue certain claims, including, among others:others:

““Bottles made with polycarbonate plastic harm the environment.”Bottles made with polycarbonate plastic harm the environment.”The BornFree bottle “will last up to 50% longer than most other types of plastic bottle[s].”The BornFree bottle “will last up to 50% longer than most other types of plastic bottle[s].”““The BornFree bottle is made from a new honey colored plastic and will last much longer than all other types of plastic The BornFree bottle is made from a new honey colored plastic and will last much longer than all other types of plastic bottle.”bottle.”BPA is “potentially harmful to the environment.”BPA is “potentially harmful to the environment.”

Eyetuck Anti-Bag TechnologyEyetuck Anti-Bag Technology– NAD requested substantiation for performance claims made in print and online advertising by Skin Doctors NAD requested substantiation for performance claims made in print and online advertising by Skin Doctors

Cosmeceuticals for its Eyetuck Anti-Bag Technology.Cosmeceuticals for its Eyetuck Anti-Bag Technology.– Claims: “An eyetuck without surgery?” “Discovery the new technology that could make eye surgery a thing Claims: “An eyetuck without surgery?” “Discovery the new technology that could make eye surgery a thing

of the past!” “Results in just 15 days.”of the past!” “Results in just 15 days.”– Advertiser voluntarily agreed to discontinue: “The first and only product specifically developed to treat Advertiser voluntarily agreed to discontinue: “The first and only product specifically developed to treat

serious under eye bags and puffiness.serious under eye bags and puffiness.– NAD found no evidence that the results that can be achieved by using Eyetuck are comparable to eyelid NAD found no evidence that the results that can be achieved by using Eyetuck are comparable to eyelid

surgery and recommended discontinuance of “an eyetuck without surgery?” claim. surgery and recommended discontinuance of “an eyetuck without surgery?” claim. – NAD also found insufficient evidence to support product performance claims (“Results in 15 days”), NAD also found insufficient evidence to support product performance claims (“Results in 15 days”),

including before and after photographs, and recommended discontinuance of the photographs. including before and after photographs, and recommended discontinuance of the photographs.


McNeil-PPC, Inc. (Tylenol Arthritis Pain)McNeil-PPC, Inc. (Tylenol Arthritis Pain)– Aspirin Foundation of America (AFA) challenged claims for Tylenol Arthritis Pain Formula.Aspirin Foundation of America (AFA) challenged claims for Tylenol Arthritis Pain Formula.– NAD recommended further modifications to the advertising to provide cautionary language NAD recommended further modifications to the advertising to provide cautionary language

in a more prominent manner and determined no further action warranted.in a more prominent manner and determined no further action warranted.

Beverage Partners Worldwide (Enviga)Beverage Partners Worldwide (Enviga)– NAD had requested substantiation for nutrition-related claims for Enviga. (“The drink proven NAD had requested substantiation for nutrition-related claims for Enviga. (“The drink proven

to burn calories.” “Enviga increases calorie burning.” “By drinking Enviga, consumers can to burn calories.” “Enviga increases calorie burning.” “By drinking Enviga, consumers can lose weight.”)lose weight.”)

– Challenged claims became the subject of pending litigation, and NAD administratively Challenged claims became the subject of pending litigation, and NAD administratively closed the inquiry.closed the inquiry.

Schering-Plough Healthcare Products, Inc.Schering-Plough Healthcare Products, Inc.– NAD reviewed broadcast advertising for Dr. Scholl’s Dual Action Freeze Away Wart as part NAD reviewed broadcast advertising for Dr. Scholl’s Dual Action Freeze Away Wart as part

of routine monitoring.of routine monitoring.– Claims: “Dual Action Freeze Away is twice as effective as freezing along on large warts.” Claims: “Dual Action Freeze Away is twice as effective as freezing along on large warts.”

“Using Dual Action Freeze Away is just as effective as going to the doctor for treatment of “Using Dual Action Freeze Away is just as effective as going to the doctor for treatment of large warts.”large warts.”

– Determined both claims were substantiated.Determined both claims were substantiated.

University Medical PharmaceuticalsUniversity Medical Pharmaceuticals– NAD reviewed print advertising for DeCellulite, a topical “Time-Release Anti-Cellulite NAD reviewed print advertising for DeCellulite, a topical “Time-Release Anti-Cellulite

System” manufactured by University Medical.System” manufactured by University Medical.– Advertiser did not submit any evidence to substantiate a number of claims identified by Advertiser did not submit any evidence to substantiate a number of claims identified by

NAD, but advised NAD that it would remove the claims.NAD, but advised NAD that it would remove the claims.– Claims included: “Announcing the End of Cellulite.” “The body looks more contoured, Claims included: “Announcing the End of Cellulite.” “The body looks more contoured,

smoother…cellulite free!” “Measurably decreases puffiness and roughness.”smoother…cellulite free!” “Measurably decreases puffiness and roughness.”


CARU - Barbie Doll & Tanner DogCARU - Barbie Doll & Tanner Dog– CARU was concerned that children viewing the commercial would think that dolls CARU was concerned that children viewing the commercial would think that dolls

can perform certain movements without the aid of outside hand manipulation.can perform certain movements without the aid of outside hand manipulation.– CARU administratively closed the matter, but decided to develop a guidance that CARU administratively closed the matter, but decided to develop a guidance that

would provide clearer direction on adequate hand manipulation that can be would provide clearer direction on adequate hand manipulation that can be implemented by all toy advertisers.implemented by all toy advertisers.

CARU - Mattel, Inc. – My Scene Fab Faces DollsCARU - Mattel, Inc. – My Scene Fab Faces Dolls– CARU was concerned that the commercial could mislead children about the CARU was concerned that the commercial could mislead children about the

potential abilities of the dolls to perform certain movements with the ease potential abilities of the dolls to perform certain movements with the ease depicted in the commercial. CARU was also concerned that children viewing the depicted in the commercial. CARU was also concerned that children viewing the commercial might take away the message that the dolls can move without the aid commercial might take away the message that the dolls can move without the aid of outside hand manipulation.of outside hand manipulation.

– CARU determined the commercial created an unreasonable expectation with CARU determined the commercial created an unreasonable expectation with respect to the ability of the dolls to touch their hands to their faces; found that it respect to the ability of the dolls to touch their hands to their faces; found that it violated CARU’s Self Regulatory Guidelines for Children’s Advertising. violated CARU’s Self Regulatory Guidelines for Children’s Advertising.

CARU - Turner Broadcasting System, Inc. – Bamzu.comCARU - Turner Broadcasting System, Inc. – Bamzu.com– CARU inquiry focused on banner advertising for the TV-MA rated television CARU inquiry focused on banner advertising for the TV-MA rated television

program NYPD Blue, and TV-14 rated programs Law & Order and ER on the program NYPD Blue, and TV-14 rated programs Law & Order and ER on the “kids” section of the web site.“kids” section of the web site.

– Advertiser agreed to remove the banners.Advertiser agreed to remove the banners.

Private Litigation UpdatePrivate Litigation Update

Enviga “Calorie Burner” ClaimsEnviga “Calorie Burner” Claims (D. New (D. New Jersey)Jersey)– Center for Science in the Public Interest (CSPI) is suing Nestle Center for Science in the Public Interest (CSPI) is suing Nestle

and Coca-Cola for false claims involving the green tea soft drink, and Coca-Cola for false claims involving the green tea soft drink, EnvigaEnviga

– ““Negative calorie” claims.Negative calorie” claims.– CSPI alleges that the claims are not substantiatedCSPI alleges that the claims are not substantiated

Goen Technologies, Inc. - Trimspa Class Goen Technologies, Inc. - Trimspa Class ActionAction (Superior Court, Los Angeles)(Superior Court, Los Angeles)– Filed in Superior Court, Los Angeles against TrimSpa and Anna Filed in Superior Court, Los Angeles against TrimSpa and Anna

Nicole Smith; alleges deceptive business practices and a violation Nicole Smith; alleges deceptive business practices and a violation of California’s unfair competition law for making false and of California’s unfair competition law for making false and misleading claims.misleading claims.

– Follows January 2007 FTC settlement of $1.5 million, which was Follows January 2007 FTC settlement of $1.5 million, which was approved by the FTC this month.approved by the FTC this month.


The ApprenticeThe Apprentice (filed 2/2 in Gwinnett County (filed 2/2 in Gwinnett County Superior Court, Georgia)Superior Court, Georgia)– Lawsuit filed against Donald Trump and the creators of the NBC series, Lawsuit filed against Donald Trump and the creators of the NBC series,

The Apprentice, for allegedly creating an illegal lottery in the state of The Apprentice, for allegedly creating an illegal lottery in the state of Georgia.Georgia.

– ““Get Rich With Trump” sweepstakes; watch-and-win promotion where Get Rich With Trump” sweepstakes; watch-and-win promotion where entrants text in which Apprentice contestant should be sent to “Tent City.”entrants text in which Apprentice contestant should be sent to “Tent City.”

– Rules state that in addition to any mobile phone text charges that may Rules state that in addition to any mobile phone text charges that may apply, Sponsor will charge entrant a $.99 premium charge per text entry. apply, Sponsor will charge entrant a $.99 premium charge per text entry. The rules allow for a free method of entry online.The rules allow for a free method of entry online.

Merrill LynchMerrill LynchMerrill Lynch will pay $40 million to 400,000 Merrill Lynch will pay $40 million to 400,000 investors to settle three class action lawsuits investors to settle three class action lawsuits claiming it provided misleading research about claiming it provided misleading research about Internet companies to purchasers of mutual Internet companies to purchasers of mutual fundsfunds


The ApprenticeThe Apprentice (filed 2/2 in Gwinnett County (filed 2/2 in Gwinnett County Superior Court, Georgia)Superior Court, Georgia)– Lawsuit filed against Donald Trump and the creators of the NBC series, Lawsuit filed against Donald Trump and the creators of the NBC series,

The Apprentice, for allegedly creating an illegal lottery in the state of The Apprentice, for allegedly creating an illegal lottery in the state of Georgia.Georgia.

– ““Get Rich With Trump” sweepstakes; watch-and-win promotion where Get Rich With Trump” sweepstakes; watch-and-win promotion where entrants text in which Apprentice contestant should be sent to “Tent City.”entrants text in which Apprentice contestant should be sent to “Tent City.”

– Rules state that in addition to any mobile phone text charges that may Rules state that in addition to any mobile phone text charges that may apply, Sponsor will charge entrant a $.99 premium charge per text entry. apply, Sponsor will charge entrant a $.99 premium charge per text entry. The rules allow for a free method of entry online.The rules allow for a free method of entry online.

Merrill LynchMerrill LynchMerrill Lynch will pay $40 million to 400,000 Merrill Lynch will pay $40 million to 400,000 investors to settle three class action lawsuits investors to settle three class action lawsuits claiming it provided misleading research about claiming it provided misleading research about Internet companies to purchasers of mutual Internet companies to purchasers of mutual fundsfunds


Microsoft Corp.Microsoft Corp. (Iowa class action) (Iowa class action) – Microsoft agreed to settle a class action Microsoft agreed to settle a class action

lawsuit filed on behalf of Iowa consumers who lawsuit filed on behalf of Iowa consumers who claimed they were systematically overcharged claimed they were systematically overcharged for the company’s software products.for the company’s software products.

– Iowa consumers had received class Iowa consumers had received class certification and sued Microsoft for $329 certification and sued Microsoft for $329 million in damages, which could have been million in damages, which could have been tripled under Iowa law. Trial began in tripled under Iowa law. Trial began in December.December.

– Terms of the settlement are unknown. Must Terms of the settlement are unknown. Must be approved by the judge in the case.be approved by the judge in the case.

Documents

1 AMERICAN BAR ASSOCIATION CONSUMER PROTECTION UPDATE February 2007 Theodore W. Atkinson Ellen T. Berge