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Internet Marketers of "Free" Products Ordered to Pay $9.9 Million The FTC continues to crack down on Free Trail Offers sold on the Internet. The most recent settlement with Ultralife Fitness, Inc. is similar to the FTC's settlement with Think All Publishing and NextClick Media that we reported on back in June 2008.
Trudeau Banned from participation in production or publication of any infomercials A federal district court imposes three year ban on marketer for participation in production or publication of any infomercials, for products including any books or publications in which he has an interest. While the FTC requested that judgment be entered for the full gross revenue received, in an unusual twist, the agency alternatively requested only the profit that he made. The court entered judgment for the amount of royalties that the defendant had received, and ordered that sum to be disgorged.
FTC v. Direct Marketing Concepts, Inc., et. al. In FTC v. Direct Marketing Concepts, Inc., et. al, the FTC obtained summary judgment against the marketers and its supporting firms relating to disease treatment, and weight loss infomercials, "Coral Calcium" and " Supreme Greens". Importantly, the federal district court held not only the marketing companies but the credit card processing intermediary ("Triad"), the media purchasing firm ("King Media") and the individuals liable for consumer redress in addition. The FTC also sought to recover royalties received by the company that organized the database.
Website Host of User-Generated Content Not Liable for Copyright Infringement A Magistrate Judge in the United States District Court, Northern District of California, recently rendered an important decision with potential implications for (1) any website that hosts user-supplied content; and, (2) owners of copyrighted material that is placed by others on such websites. In Io Group, Inc. v. Veoh Networks, Inc., No. C06-03926 (HRL), 2008 WL 4065872 (N.D.Cal. August 27, 2008), summary judgment was granted against a publisher of adult films on the ground that an internet television network that enables the sharing of user-provided content was protected from copyright liability by the safe harbor of the Digital Millenium Copyright Act ("DMCA"), 17 U.S.C. § 512(c). Section 512(c) of the DMCA exempts an online service provider from liability for damages for (and significantly reduces the scope of injunctive relief in connection with) the "infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider." Io's suit alleged that between June 1, 2006 and June 22, 2006, it found ten videos it owned posted to Veoh without its authorization. Without availing itself of the take-down remedies provided by the DMCA or making any other demand, Io filed its copyright infringement suit. Veoh had taken certain measures, typical of similar websites, so that it could claim the protection of the DMCA's user storage safe harbor by offering the statutorily-specified process for copyright holders to request that infringing matter be taken down, by adopting a repeat infringer policy, and by taking other steps required for DMCA compliance. On cross-motions for summary judgment, the court considered the sufficiency of Veoh's policies and practices to satisfy the DMCA's requirements for safe harbor eligibility, and concluded that the DMCA does not contemplate that "Veoh should shoulder the entire burden of policing third-party copyrights on its website (at the cost of losing its business if it cannot). Rather, the issue is whether Veoh takes appropriate steps to deal with copyright infringement that takes place." The court found that Veoh did. While online service providers eligible for the safe harbor are immune from monetary damages but may still be liable for injunctive relief, Veoh had removed all matter that infringed Io's copyrights even before learning of the lawsuit. Thus, the court deemed injunctive relief moot. Although it has its critics, because this decision addressed many questions related to liability for user-generated content, it will be interesting to see the influence it will have on similar cases, such as the Viacom v. YouTube case pending in the Second Circuit. With respect to user-generated content sites, the issue pertaining to the extent to which those sites should be required to police their sites and stop or limit the distribution of infringing files vs. the burden of policing infringement on the copyright owners will certainly be seen again - perhaps with different results.
Seller of Sexual Enhancement Product Gets 25 Years in Fraud Case A business owner has just been convicted of defrauding customers seeking sexual enhancement drugs as well as a variety of other dietary herbal supplements. Steve Warshak, CEO of Berkeley Premium Nutraceuticals, was sentenced last week to 25 years in federal prison. Eight other former executives and employees also received sentences ranging from one month to one year for their roles in assisting the fraud. Warshak and his company were convicted on 93 counts of conspiracy, fraud, and money laundering.
INBLF Featured in Legal Business (Russia) The International Network of Boutique Law Firms, of which The Lustigman Firm, P.C., is an active member serving as the advertising and marketing law firm for the New York Chapter, was prominently featured in the June 2008 issue of Legal Business (Russia), a leading legal periodical in Russia. A translation of the article is reprinted below.
Pennsylvania Requires Licensing For Internet Payday Lenders The Pennsylvania Department of Banking will require Internet payday lenders and other out-of-state companies that make consumer loans to Pennsylvania residents to be licensed by the Department of Banking and comply with state laws.
NY AG Settles with Auto Dealer for Using Deceptive Scratch-Off Game Cards to Lure Consumers A Nassau County auto dealer will pay consumers for persistently using misleading promotions intended to lure them into the dealership. The consumers, once baited into the dealership, were also subject to other fraudulent and unfair sales practices.
RULING THAT NONCOMMERICAL CONTENT ON ATKINS DIET WEBSITE GETS FIRST AMENDMENT PROTECTION AFFIRMED BY SECOND CIRCUIT The First Amendment's constitutional protection of speech loomed large in a recent Second Circuit Court of Appeals decision. In Gorran v. Atkins Nutritionals, Inc., No. 07-0120-cv (May 22, 2008), a disgruntled former Atkins dieter appealed the ruling by Judge Denny Chin of the Southern District of New York that dismissed his negligent misrepresentation, product liability, and state unfair competition claims.
Payday Loan Lead Generators Settle FTC Charges Two payday loan lead generators have agreed to settle FTC charges that their Internet advertising stated payday loan costs and repayment periods without disclosing annual percentage rate (APR) information as federal law requires. The settlements require the respondents to disclose APR information in similar payday loan ads in the future and to comply in all other respects with the Truth in Lending Act (TILA) and its implementing Regulation Z. APR information helps consumers compare the costs of payday loans.
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FTC Cracks Downon Free Trial Offers Chances are you've gotten offers to try a product or service through a "free trial." Companies use these offers to sell a variety of items, from books and CDs to videos, magazines, and pills. But as part of a trial offer, a company also must tell you if any conditions are attached to the deal.
New UK Consumer Protection Rules Enacted Sweeping new consumer protection rules that provide civil and criminal penalties for a variety marketing practices have been enacted in the UK. The new law known as the Unfair Trading Regulations 2008 was enacted on May 26, 2008 and provides for statutory fines and up to two years imprisonment for violation, including some 31 commercial practices which are in all circumstances considered to be unfair.
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FTC and Internet Free Trial Promoter Enter Into Stipulated Preliminary Injunction A website that offered "free trials" of its herbal products, including smoking cessation patches, has agreed to halt its allegedly deceptive practices, pending trial. The FTC sued NextClick Media alleging that the trials weren't free, the patches didn't work as claimed, and the operation was illegally debiting consumers' bank accounts without their authorization. In entering the Stipulated Preliminary Injunction the defendants have agreed to abide by a federal court order that bars them from making deceptive claims, restricts their ability to dissipate assets, requires them to preserve records and other evidence, and account for the money they made from their venture.
Ninth Circuit Reverses Dismissal of Case Against Gerber for Deceptively Marketed Fruit Snacks Parents who purchased Gerber "Fruit Juice Snacks" brought a class action against Gerber alleging that its Fruit Juice Snacks product contained no fruit juice from oranges, peaches, strawberries or cherries as illustrated on the packaging. Instead it contained only grape juice from concentrate. The lawsuit also complained the product contained mostly corn syrup and sugar rather than juice. Claims were brought under California's false advertising and unfair competition statutes, and were governed by a "reasonable consumer" test.
Tyson Told to Withdraw ?Raised Without Antibiotics? Advertisements Competitors Sanderson Farms and Perdue Farms sued Tyson for nationally advertising its chicken as "Raised Without Antibiotics" and "Raised Without Antibiotics that impact antibiotic resistance in humans." A federal court recently issued a preliminary injunction ordering Tyson Foods to withdraw the advertisements at issue, finding that the ads are false and misleading to the consumer and could violate the Lanham Act's false advertising prohibition.
Ninth Circuit Affirms $120 Million FTC Judgment After Defendants Fail to Comply With Settlement Agreement Requiring Lien on Real Estate In FTC v. Seasilver USA, Inc., et. al. (CV-S-03-0676-RLH) (D. Nevada) defendants entered into a standard settlement agreement providing for injunctive relief and a monetary judgment, representing the approximate gross sales of the product, which was one hundred twenty million dollars. The Stipulated Final Judgment provided that all but three million dollars of the one hundred twenty million would be suspended provided certain monies were paid and security interests in property were provided. In the interim between the defendants executed the settlement agreement and the Commission approved the settlement, certain of the property listed was foreclosed upon and defendants were unable to provide the promised liens. The FTC therefore entered judgment for the full $120 million. The Ninth Circuit Court of Appeals affirmed, ruling that defendants should have expected that changing conditions could make their performance more difficult, and the $120 million amount was not barred as punitive.
FTC Charges Three Internet Payday Lenders with Not Disclosing Required APR Information in Ads Three payday lenders have agreed to settle FTC charges that their Internet advertising stated the cost of loans without disclosing annual percentage rate information that federal law requires. This information helps consumers compare the costs of these payday loans to other payday loans and to alternative forms of short-term credit. Among other things, the settlements require that the lenders must disclose the annual percentage rate in similar loan ads in the future. As a reminder, marketers shoudl be careful to include key disclosures, such as the APR, as required by the Truth in Lending Act and Regulation Z when advertising certain credit offers.
FTC and Seven States Sue Payment Processor The FTC announced on December 11, 2007, that it along with seven state attorneys general filed suit in federal court against Your Money Access, LLC, a payment processor and its principals with violating federal and state laws by debiting, or attempting to debit from consumers' bank accounts on behalf of alleged fraudulent telemarketers and Internet-based merchants. The action is particularly noteworthy for the government's pursuit of a supplier for conduct beyond telemarketing. In particular, the FTC has included as part of its case, YMA's processing of Internet merchants under the unfairness prong of Section 5 of the FTC Act, with similar state-based claims asserted on behalf of the individual state attorneys general.
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Attorney General Settles with Dealer and Ad Firm for Deceptive Auto Marketing Washington Attorney Rob McKenna reached a settlement with Bruce Titus Automotive Group and Louisiana-based Level 10 Marketing, Inc., resolving allegations that the defendants advertised cars without disclosing all the terms, including how many vehicles were available at a specific price; that they suggested that financing could be guaranteed regardless of a consumer's credit history; and used "simulated checks" and contest promotions to mislead consumers. |
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