Advertising Law

Website, Mobile App Get Changes Thanks to CARU

By Jesse M. Brody, Partner, Advertising, Marketing and Media

A new decision from the Children’s Advertising Review Unit demonstrates the self-regulatory body’s efforts to work with a mobile application and website operator to ensure it complies with CARU’s guidelines and the Children’s Online Privacy Protection Act.

Tiny Piece operates both the 6677g.com website and the mobile application Baby Pet Vet Doctor. The website contained various online games organized by category including favorites, cooking and kids. Users could register for an account by providing an email address, password and date of birth. Once registered, the user could set the account to private or public, which shared the user’s gender, birthdate and email address.

The app was an easy-to-play animated game featuring baby animals. Located in the general games category of the Apple App Store, it was described as a “Kids games” and rated 4+, although it was not located in the Kids category of the store. In the Google Play Store, the app was also located with general games, and although it was rated T for teen, the operator described it as “the perfect game for children.”

“CARU recognizes that there are thousands of apps in the app stores that consist of easy animated games and cute characters that are not specifically targeted to children,” the self-regulatory body wrote. “Here, the subject matter, format and visual content of the App, in combination with the ratings and the descriptions of the App in both app store platforms led CARU to conclude that the App was directed to children.”

CARU had several concerns with both the website and the mobile app. With regard to the website, it lacked a privacy policy and did not collect an email address of a parent when a child registered on the site. Even though the website had actual knowledge that some of its users were under the age of 13 because it collected a date of birth from users, no notice was sent to obtain parental consent in violation of both CARU’s guidelines and COPPA.

As for the mobile app, despite its child-friendly description, it displayed advertisements approximately every 30 seconds, most of which were problematic. For example, CARU observed pop-up ads for other apps created by the operator such as “Plastic Surgery Simulator” and “My Ex-Boyfriend Comes Back,” which featured inappropriate and/or disturbing subject matter.

Other ads promoted 12+ rated games with violent content, such as “Mobile Strike,” described as “an action game of modern war,” or products targeted at adults, like an advertisement for Orajel Cold Sore Relief, an item labeled “Keep out of reach of children.”

“CARU’s guidelines provide that advertisers should take care to assure that only age-appropriate videos, films and interactive software are advertised to children,” the decision noted. Because the app featured “numerous advertisements” for games rated for children 12 and over as well as products that pose a safety risk for children, CARU determined that the in-app ads did not comply with its guidelines.

Tiny Piece agreed to bring both the website and the app into compliance. Specifically, the operator agreed to remove the “Kids” area from its website, block children under the age of 13 from its site, and delete all accounts of users under 13. Turning to the app, the operator agreed to ensure that Baby Pet Vet Doctor will not be recommended for children younger than 12 and will not refer to children in its title or game descriptions in either the Apple or Google store platforms.

To read CARU’s press release, click here.

Why it matters: “As Internet use by young children continues to grow, so does the opportunity for operators and advertisers to interact with and collect data from this impressionable demographic,” CARU wrote in the decision. “CARU’s guidelines recognize the special vulnerabilities of children and were designed to take into account evolving technologies and advertising practice.” The self-regulatory body used the case to emphasize the importance of obtaining parental consent before collecting personally identifiable information from children and limiting in-app ads to age-appropriate products.

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Bottoms Up! NFL Lifts Ban on Liquor Ads

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

In a touchdown of sorts for the spirits industry, the National Football League has officially lifted its ban on liquor ads.

Describing the change as a “2017 NFL season test,” the league imposed several extra rules for liquor advertisements that do not apply to other products (including beer). Only four 30-second liquor ads will be permitted per game, with an additional limit of two ads during any one quarter or during halftime.

The advertisements may not have a football theme, target underage drinkers or contain sponsorship messages. In addition, liquor ads must also include a “prominent social responsibility message,” and at least 20 percent of ads airing during the season must consist “exclusively of social responsibility messaging.”

CBS, ESPN, Fox and NBC all partner with the league and will be permitted to run two additional spots during their pre- and post-game programming.

“This is welcome news but not too surprising, given spirits companies have partnered with individual NFL teams, and other major professional sports leagues began accepting spirits advertising more than a decade ago,” Kraig R. Nasaz, president and CEO of the Distilled Spirits Council, a group that represents the liquor industry, told AdAge. “Adult fans realize alcohol is alcohol and our responsible spirits sports marketing has been met with broad public acceptance.”

Why the change of heart by the NFL? The addition of liquor ads reflects both societal changes (liquor ads did not appear on any TV show from 1948 to 1996 due to a self-imposed ban) as well as financial trends. Liquor has increased its share of the alcohol market from 28 to 32 percent, while beer dropped from 58 to 50 percent.

Including liquor advertisements doesn’t mean the NFL has changed its position on several other products or services that remain prohibited from advertising during its games, including energy drinks, birth control products and gambling sites.

Why it matters: Even with the limitations placed on liquor advertisements, their inclusion during game broadcasts allows the NFL to tap into an additional advertising revenue stream. It may also suggest that the league may soon accept ads from other currently prohibited groups.

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California Appellate Panel Affirms $6.8M Penalty Against Overstock

By Richard P. Lawson, Partner, Advertising, Marketing and Media

In affirming a $6.8 million penalty against Overstock.com for deceptive pricing, a California appellate panel found that the amount was not excessive.

District attorneys in eight counties filed suit in 2010, claiming that the Internet retailer posted an inflated list price next to the sale price to trick consumers into thinking they were saving more money because the list price was not always based on an actual price.

The complaint cited one incident where Overstock advertised a patio set for $449.99 with a list price of $999. A consumer claimed that when he received the set, it had a retailer sticker on it with a price of $247.

A state court judge ordered the retailer to pay the $6.8 million penalty in 2014, holding that the defendant had made untrue and misleading statements regarding pricing in violation of the unfair competition law (UCL) and the False Advertising Law (FAL). In addition to the civil penalty, the court ordered injunctive relief regarding Overstock’s advertising practices.

Overstock appealed, but the appellate panel affirmed the trial court’s decision.

“The trial court carefully considered Overstock’s culpability, explaining that the seriousness of the misconduct was moderate, but that the offending practices were numerous, persistent, and willful, and the record fully supports these findings,” the court wrote. “The penalty the court set was both far below the maximum allowed by the statute and well within Overstock’s ability to pay.”

Overstock argued that the trial court applied the incorrect statute of limitations for the penalties under the UCL. Instead of the four-year period found in the UCL, the retailer argued that the court should have applied the one-year limitation found in the Code of Civil Procedure section 340, which applies to actions “upon a statute for a forfeiture or penalty to the people of this state.”

Reading section 340 in conjunction with section 312—which provides that the periods described in the Code should give way where “a different limitation is prescribed by statute”—the appellate panel found the UCL to present just such a different limitation and kept the four-year period in place.

The court also rejected Overstock’s contention that the government failed to present sufficient evidence of false or misleading statements, holding that the DAs provided “ample evidence” for the trial court to find violations of the UCL and FAL and that Overstock knew the use of the challenged practices was false or misleading.

“In sum, the record more than adequately supports the court’s findings that Overstock knew or should have known the use of formulas, prices for similar products, or the highest market prices as [comparators]—all without disclosure—had the capacity to mislead consumers,” the panel wrote.

Turning to the penalties imposed by the trial court, the appellate panel noted that both the UCL and FAL authorize civil penalties of up to $2,500 for each violation. The trial court considered three possible ways to compute the number of violations: the number of Californians who saw the offending advertisements, the number of sales made through the offending pages or the number of days Overstock violated the statutes.

Choosing the third approach, the court imposed a daily penalty of $3,500 for the period between March 24, 2006, and Oct. 1, 2008, calculated as $1,000 for each of three types of violations (basing pricing on formulas, nonidentical products and the highest possible price), with an additional $500 for “the lack of controls that led to various abuses.” From Oct. 1, 2008, through the date of the first trial, the penalty was $2,000, as Overstock implemented a pricing validation process and no longer used formulas, for a total of $6,828,000.

Overstock told the court the award was an abuse of the trial court’s discretion and that no evidence existed that its practices caused concrete injury to consumers. Neither position swayed the appellate panel.

“Although one factor—the finding that the seriousness of the conduct was moderate—weighed in Overstock’s favor, the other statutory factors all weighed against Overstock,” the court wrote. “Those included ‘the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, [and] the willfulness of the defendant’s misconduct.’ The offending conduct took place persistently over a period of years and continued not only after Overstock received customer complaints, but after it became aware its conduct was being investigated and prosecuted.”

Further, the trial court expressly found that Overstock’s deceptive pricing practices not only had the capacity to cause harm but “in fact did so,” the court noted. “The fact that Overstock in fact (according to its undisputed evidence) offered the lowest prices in the market does not mean no injury occurred.” The trial court only declined to order restitution not because no harm existed, the panel added, but because there was no practical way to determine what might be an appropriate award or how to identify those who should receive it.

The appellate panel also upheld the injunctive relief ordered by the trial court, as it had already determined the findings were supported by substantial evidence.

To read the opinion in People v. Overstock.com, Inc., click here.

Why it matters: The action against Overstock triggered the current wave of lawsuits alleging deceptive pricing, and the appellate court’s affirmation of the $6.8 million award will do little to stem the tide. An attorney for Overstock said the company is considering an appeal to the California Supreme Court.

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