Look Around...The FTC is Really Busy

Monday, October 17, 2011

David Navetta

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Article by Jamie Rubin

If you haven’t noticed, the FTC has had a monster year announcing or significantly moving forward various reviews of long-standing FTC interpretations, rules and guides.

According to a report issued by the FTC in September of this year, the FTC is accelerating its typical 10-year review cycle for a number of rules and guides, in particular to account for recent changes in technology and the market place. The FTC launched a web page here that provides information about each rule and guide under review.

And the FTC posted a chart here showing the schedule of all rule and guide reviews from now through the year 2020 (note that the Guides Concerning Use of Endorsements and Testimonials in Advertising will go under review again in 2020 – hopefully it won’t take the marketplace over 3 years to understand any modifications).

I counted 21 rules or guides currently under review by the FTC and its report indicates that another 14 will go under review in 2012 and 2013 and many more through 2020. Let’s take a look at just a few that are at the heart of both online and offline advertising:

MAIL OR TELEPHONE ORDER MERCHANDISE RULE (notice of proposed rule making) – ecommerce sites; pay attention

The Mail or Telephone Order Merchandise Rule (16 CFR 435) generally requires sellers of goods (whether via mail, facsimile or certain internet connections) to be able to ship an item once ordered within the time frame advertised by the seller. If the seller does not provide the customer with a shipping date, the seller must ship the goods within 30 days of order receipt.

If the seller learns that it cannot ship within the time stated or 30 days (if no time was stated), the seller must seek the customer’s consent to a delayed shipment and provide the customer with an option to cancel the order (using the mechanisms allowed by the Rule).

If the customer does not consent, the seller must quickly cancel the order and return the customer’s money. Note that the time period on a seller’s obligation to ship begins as soon as the seller received enough information to fulfill the order and process full or partial payment.

The time when the seller actually processes payment is irrelevant. The FTC amended the Rule in 1993 to clarify that the Rule applied to order placed with facsimile machines or computers with telephone modems.

Now the FTC wants to:

(i) clarify that the Rule covers all internet merchandise orders regardless of how the customer accesses the internet (note that the FTC already takes this position and no commenters appear to take issue with the interpretation),  It is now time for all ecommerce sites to establish a policy and procedure with respect to shipping dates, shipments, shipment delays, refunds and cancellations.

(ii) allow sellers to provide refunds and refund notices by any means at least fast and reliable as 1st Class mail (e.g., electronic transfer);

(iii) clarify sellers’ obligations with respect to sales made using payment methods not specifically enumerated in the Rule (such as debit card, prepaid gift card, or payroll card payments); and

(iv) clarify that sellers must process any third party credit card refund within 7 working days of a buyer’s refund right.

Note that the FTC has actively enforced this Rule, and not just in connection with the direct sale of merchandise. In fact, in 2005, the FTC enforced the Rule against CompUSA for its alleged failure to fulfill rebate checks in a timely manner.

Go here for the notice of proposed rule making (comment period closes December 14, 2011).

THE CHILDREN’S ONLINE PRIVACY PROTECTION ACT (notice of proposed rule making)

Please see InfoLawGroup’s prior post here about the FTC’s notice of proposed rule making with respect to COPPA. And here on how the FTC is already enforcing COPPA against mobile app developers. The comment period closes November 28, 2011.

DOT COM DISCLOSURE (not really a rule or guide, but rather a “business guidance publication”)

This publication was originally issued in 2000 by the FTC to provide marketers guidance on how to provide clear and conspicuous disclosures to consumers associated with goods and services offered on the internet.

Possibly one of the most important elements in this publication is the FTC’s statement that all of the laws applicable to consumer protection offline apply online too. The FTC advised that we should use the same factors we use to determine if a disclosure is conspicuous in the offline world to determine if it is conspicuous in the online world, namely:

(i) the placement of the disclosure and its proximity to the claim;
(ii) the prominence of the disclosure;
(iii) whether there are distracting elements;
(iv) whether the ad is so long that the disclosure needs to be repeated;
(v) whether audio disclosures are loud and slow enough;
(vi) whether visual disclosures appear long enough; and
(vii) whether the disclosure is generally uncomplicated.

The original publication is a lengthy document that goes into much more detail than above and ends with a series of example internet advertisements and FTC commentary associated with the same. The publication even answers the question (from a year 2000 perspective): “Can I link to the disclosure?”.

The FTC recognizes, however, that times have changed dramatically over the past 11 years, and therefore, the guidance needs to change to account for viewing the internet on mobile devices, apps and app stores, social networking, etc. The FTC issued a notice requesting answers to a list of 11 questions (check out the list of questions here).

I expect that if the FTC issues an updated version of the publication, new examples and commentary will be included. Some commenters request that the FTC not rush to revise the publication, but rather take time to understand all the ways the “online” world has changed in the past 11 years, including how internet users are more savvy than ever.

The Promotion Marketing Association, an association that this firm is a member of, submitted comments requesting the FTC to hold workshops to gain that full understanding and to approach any revisions with flexibility in mind rather than offering a prescriptive approach.

WARRANTIES AND GUARANTEES (request for comment)

The FTC has published a request for comment with respect to its warranty-related interpretations, rules and guides – namely:

(i) its interpretations of the Magnuson-Moss Warranty Act, which governs written warranties on consumer products;

(ii) the Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions, which establishes disclosure requirements for written warranties on consumer products that cost more than $15.00, including:

a. language that must be used pursuant to certain state laws on the duration of implied warranties and the availability of consequential and incidental damages; and

b. what needs to be disclosed by sellers who use warranty registration or owner registration cards.

(iii) its Rule Governing Pre-Sale Availability of Written Warranty Terms, which, as you might expect, requires the terms of any written warranty on a consumer product to be made available to the purchaser prior the sale of the product. This Rule allows doing so by displaying the warranty document in close proximity to the product or furnishing the warranty document on request and posting signs in prominent locations advising consumers that warranties are available. The Rule also provides guidance on how to comply with the pre-sale available requirements for products sold through catalogs, mail order or door-to-door sales;

(iv) its Rule Governing Informal Dispute Resolution Procedures, which requires a seller to follow specific protocols if it wants to require a consumer to first resort to informal dispute resolution prior to filing a lawsuit associated with a warranty; and

(v) its Guides for the Advertising of Warranties and Guarantees, which recommend that the actual warranty document be made available to consumers to read prior to purchase and makes recommendations about how to offer satisfaction and lifetime guarantees.

The FTC, in its request for comments, asks a number of questions, including on the continued need for its interpretations, rules and guides, their benefits, recommended changes, whether the interpretation, rules or guides should be amended to cover service contracts and whether warranty documents should be allowed to be made available online for purposes of compliance.

Go here for the request for comments (comment period closes October 24, 2011).

GREEN GUIDES (ENVIRONMENTAL MARKETING CLAIMS) (notice of proposed rule making)

The comment period has long since closed on the FTC’s proposed changes to its Green Guides. The proposed changes were issued in October of 2010 and the comment period ended on December 10, 2010. We await the publication of the revised guides. While we do so, let’s refresh just a few of the important issues in play here:

(i) The FTC does not want marketers to make general environmental benefit claims. The FTC uses “green” and “eco-friendly” as examples of claims that are difficult, if not impossible, to substantiate.

(ii) Certifications and seals should be viewed as endorsements covered by the FTC’s Endorsement Guides and should be expressly limited to the claim(s) for which the advertiser has substantiation.

(iii) No unqualified degradable claims for items destined for landfills, incinerators or recycling facilities. And other solid waste products should only be advertised as “degradable” if they completely breakdown and return to nature in no more than one year after disposal.

(iv) Clarification on when and how a “recyclable” claim can be made and when an unqualified recyclable claim can be made.

(v) “Free-of” claims should not be used in associated with a substance never associated with the product category (this one seems obvious to me).

(vi) No unqualified “renewable materials” claims unless the item is made entirely out of renewable materials. Generally, renewable claims should explain why a product or element of a product is renewable.

Notably, the FTC declined to provide guidance on the terms “sustainable,” “natural,” and “organic” in the proposed Guides. You can read the current Green Guides here and the notice of proposed rule making here.

MORE & INTO THE FUTURE

Some other important guides that are currently under review: Fuel Economy Advertising, Negative Option Plans and the Unavailability Rule. And the following Guides or Rules are set to go under review in 2012/2013: Deceptive Pricing, Bait Advertising, Use of the Word “Free”, Advertising Allowances and the Telemarketing Sales Rule.

So, needless to say, we will have much more to write about soon….

Cross-posted from InfoLawGroup

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