Duane Morris TechLaw

March 14, 2023 by Sheila Raftery Wiggins

Preservation of Ephemeral Messaging for Business Purposes

Ephemeral messaging is short-lived, yet the data preservation and regulatory obligations remain.

Ephemeral messaging apps – like WhatsApp and SnapChat – are a form of digital communication available for a limited time and then deleted. The two key characteristics of ephemeral messaging are: (1) automated deletion of message content for both the sender and the receiver and (2) end-to-end encryption which enhances privacy by making it more difficult for hackers and others to read the encrypted data while it is in transition between devices.

The three degrees of ephemerality in messaging apps are:

Pure which involves the permanent and automated deletion of messages;
Quasi which permits preservation of messages in certain circumstances; and
Non-ephemeral in which messages usually remain on a source (such as a server) and may not include end-to-end encryption.

The benefits of ephemeral messaging include:

Information governance: Data storage and records preservation/management are reduced by ephemeral messaging.
Legal compliance: Encryption and automatic deletion of personal data help reduce exposure if a data breach occurs.
Data security: Even if a mobile device is lost, the automatic deletion of data will likely protect against hackers.

The legal risks of ephemeral messaging include: (1) complying with subpoenas and (2) preservation of data when litigation is “reasonably anticipated”.

Subpoenas often define documents and communications broadly to capture all communications, including ephemeral messaging. Thus, the failure to preserve documents may result in an inability to fully comply with a subpoena and/or a criminal exposure, particularly if the subpoena was issued by the government.

Regarding the preservation of data, legal hold policies may need to be amended to address ephemeral messaging, including when a company is dealing with government regulators. See e.g., Federal Trade Commission v. Noland, et al., Case No. CV-20-00047-PHX-DWL (D. Ariz. 2021) (sanctioning defendants for installing and using ephemeral messaging after learning they were investigation targets).

Some regulators caution against the use of ephemeral messaging. For example:

The U.S. Securities and Exchange Commission (“SEC”) issued a guidance in 2018 that prohibits business use of apps which permit automatic destruction of messages.
The U.S. Department of Justice (“DOJ”) updated its Evaluation of Corporate Compliance Programs in March 2023 which discusses the factors that prosecutors should consider in conducting an investigation of a corporation including the adequacy and effectiveness of the corporation’s compliance program at the time of the offence as well as at the time of the charging decision.

Accordingly, establishing adequate and effective corporate compliance programs are important, including:

establishing a corporate compliance program which is monitored, updated, and works in practice, and
reviewing the company’s document-retention policies and procedures, including whether they address ephemeral messaging and mobile device data.

In sum, although ephemeral messaging is short-lived, the consequences – of failing to comply with data preservation and regulatory obligations – may be long lasting.

March 14, 2023April 19, 2023 by Duane Morris

ChatGPT in Class Action Litigation

Daily news reports about ChatGPT are ubiquitous. Can it replace legal tasks undertaken by humans (with law degrees and state bar licenses)? Can lawyers use it to enhance their legal work? Quite naturally, this raises the issue of whether ChatGPT will make its way into class action litigation – where the stakes are enormous, and the workloads of lawyers involved in those cases are enormous.

To read the full text of this post by Duane Morris attorney Brandon Spurlock, please visit the Duane Morris Class Action Defense Blog.

February 27, 2023March 3, 2023 by Duane Morris

District Court Reaffirms Dismissal of Wiretapping Claims Under California Invasion of Privacy Act

On the heels of holding that defendants’ use of session replay software did not constitute a violation of the California Invasion of Privacy Act, Judge William Alsup in Williams v. What If Holdings LLC and ActiveProspect Inc. has now denied the plaintiff’s request for leave to amend. In doing so, the court reaffirmed its previous holding that the plaintiff’s allegations only established that ActiveProspect’s use of session replay software functioned as a tool that supported What If’s management of its own website data, and not as a means of eavesdropping and aggregating information for ActiveProspect’s own purposes.

Read the full Alert on the Duane Morris LLP website.

February 13, 2023March 3, 2023 by Duane Morris

Will Website Chat Feature Wiretapping Lawsuits Rise?

Entering the conversation, the United States District Court for the Central District of California recently denied a motion to dismiss claims alleging that a website’s chat features and use of session replay software violate the California Invasion of Privacy Act (CIPA). Notably, this court rejected a forum selection clause in the website’s terms of use and went on to hold that allegations that the plaintiff shared “personal information” in the chat were sufficient to maintain a claim.

Read the full Alert on the Duane Morris LLP website.

February 8, 2023 by Sheila Raftery Wiggins

Privacy Concerns for Health Apps

Free health apps – often funded by advertising revenue – may result in disclosure of private health information to third parties without permission from consumers.

A company that operates a health app or collects consumer health data should analyze how ad-tracking tools are used within their ecosystem. In 2021, the Federal Trade Commission (“FTC”) issued a policy statement clarifying mobile health app makers’ obligations to notify consumers if their data is exposed or shared without their permission, and the FTC stated that the policy was meant to fill a “gap” in regulations for health apps which generally are not covered by the Health Insurance Portability and Accountability Act (“HIPPA”).

Failure to fulfil these obligations may result in a government action, such as an action by the FTC which: (1) has authority over businesses that collect health information under the FTC Act and (2) may bring enforcement actions regarding deceptive claims about the use or disclosure of health data. Recent federal and state enforcement actions include:

FTC action: Flo Health Inc. settled FTC allegations that the company shared health information of its users with outside data analytics providers after promising such information would be kept private. The FTC filed the Complaint against Flo Health asserting that Flo Health: (1) disclosed health data from millions of users of its Flo Period & Ovulation Tracker app to third parties that provided marketing and analytics services to the app, including Facebook’s analytics division and Google’s analytics division, (2) disclosed sensitive health information, such as the fact of a user’s pregnancy, to third parties in the form of “app events,” which is app data transferred to third parties for various reasons and, (3) did not limit how third parties could use this health data.
California AG action: Glow Inc. settled a probe by the California Attorney General regarding its fertility-tracking mobile app that stores personal and medical information. The Attorney General’s Complaint alleged that the app: (1) failed to adequately safeguard health information, (2) allowed access to user’s information without the user’s consent, and (3) had additional security problems with the app’s password change function that could have allowed third parties to reset user account passwords and access information in those accounts without user consent. Within the settlement, Glow was required to: (1) incorporate privacy and security design principles into its app and (2) obtain affirmative consent from users prior to sharing or disclosing personal, medical, or sensitive information and require the users to revoke previously granted consent.

In sum, a company that operates a health app or collects consumer health data should analyze how ad-tracking tools are used within their ecosystem.

January 27, 2023January 27, 2023 by Sheila Raftery Wiggins

FTC Targets Online Fake Reviews and Endorsements

Fake and deceptive reviews and endorsements – prevalent in online shopping – are a target of the FTC’s proposed rulemaking. The FTC has authority to promulgate trade regulation rules that define with specificity the acts or practices that are unfair or deceptive in or affecting commerce under 15 U.S.C. 45(a)(1).

The FTC states that it is concerned that some platforms may have mixed incentives to deal effectively with the problematic reviews and, despite some platforms purporting to take enforcement of problematic reviews seriously, fake and deceptive reviews continue to flourish on those very platforms. The sheer number of people engaged in fraudulent or deceptive reviews and endorsements makes them even more difficult to combat, especially given such content is often created by individuals or small companies, some of whom are located abroad.

The FTC is considering civil penalty remedies as a potent deterrent. The FTC is considering initiating a Magnuson-Moss rulemaking to address certain types of clear Section 5 violations involving reviews and endorsements. The FTC also noted that it reviewed many comments to the Use of Endorsements and Testimonials in Advertising, 16 CFR part 255.

The FTC has a long history of challenging reviews and endorsements, including, for example, that the FTC has challenged:

Fabricated consumer reviews. See, e.g., Complaint 9-17, FTC Roomster Corp., No. 1:22-CV-07389 (S.D.N.Y. Aug. 30, 2022) (purchase and sale of fake app store and other reviews for room and roommate finder app and platform); Complaint at 2-4, Sunday Riley Modern Skincare, LLC, No. C-4729 (Nov. 6, 2020) (company personnel created fake accounts to write fake reviews of company’s products on third-party retailer’s website); Complaint at 12-13, 15-16, Shop Tutors, Inc., No. C-4719 (Feb. 3, 2020) (reviews of LendEDU were fabricated by its employees, other associates, or their friends and published on a third-party website); Complaint at 20, FTC v. Cure Encapsulations, Inc., No. 1:19-cv-00982 (E.D.N.Y. Feb. 26, 2019) (Amazon reviews of defendants’ product were fabricated by one or more third parties whom defendants had paid to generate reviews). It has similarly challenged fictitious endorsements. See, e.g., Complaint at 14, 19, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (D. Colo. Dec 5, 2019) (fake consumer testimonials); Complaint at 20-22, 31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019) (fake consumer testimonials); Complaint at 27-28, 43, Jason Cardiff (Redwood Sci. Techs., Inc.), No. ED 18-cv-02104 SJO (C.D. Cal. Oct. 24, 2018) (testimonials in infomercial were paid actors who had not used defendants’ product); Complaint at 12-3, 20, FTC v. Mktg. Architects, Inc., No. 2:18-cv-00050-NT (D. Me. Feb. 5, 2018) (fake testimonials); Complaint at 14, 21, FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467-JDL (D. Me. Nov. 30, 2017) (fake consumer testimonials and expert endorsements); Complaint at 13, 18, 28, XXL Impressions LLC, No. 1:17-cv-00067-NT (D. Me. Feb. 22, 2017) (defendants do not know whether consumer endorsers of their products who appeared in their ads actually exist); Complaint at 5, 7, 12-13, FTC v. Anthony Dill, No. 2:16-cv-00023-GZS (D. Me. Jan. 19, 2016) (fake testimonials); Amended Complaint at 38-39, 43-44, FTC v. Lisa Levey, No. 03-4670 GAF (C.D. Cal. Mar. 8, 2004) (fictitious expert endorsements). It has also challenged false claims that specific celebrities endorsed specific products, services, or businesses. See, e.g., Complaint at 15, 19-20, 30-31, Global Cmty. Innovations LLC, No. 5:19-CV-00788 (N.D. Ohio Apr. 10, 2019); Complaint at 5, 18-20, 22-23, 36, FTC v. Tarr, Inc., No. 3:17-cv-02024-LAB-KSC (S.D. Cal. Oct. 3, 2017); Complaint at 13-15, 18, Sales Slash, LLC, No CV15-03107 (C.D. Cal. Apr. 27, 2015); Complaint at 2, 4-5, Norm Thompson Outfitters, Inc., No. C-4495 (Sept. 29, 2014); The Raymond Lee Org., Inc., 92 F.T.C. 489 (1978) (use of the names, photographs and words of public officials, including members of the Congress, misled consumers that the officials recommended or endorsed the business). It has similarly challenged false claims of endorsements by specific entities. See, e.g., Complaint at 15-16, 18, FTC v. Mercola.com, LLC, No. 1:16-cv-04282 (N.D. Ill. Apr. 13, 2016) (misrepresentation the FDA endorsed the use of indoor tanning systems as safe); Mytinger & Casselberry, Inc., 57 F.T.C. 717, 743-46 (1960) (misrepresentation that a consent decree restraining respondents from making certain claims was an endorsement by the U.S. government of its product); Trade Union Courier Publ’g Corp., 51 F.T.C. 1275, 1300-03 (1955) (misrepresentation that newspaper was endorsed by the American Federation of Labor when it was only endorsed by some unions within the AFL); Ar-Ex Cosms., Inc., 48 F.T.C. 800, 806 (1952) (misrepresentation that lipstick had been recommended by Consumers’ Research); A. P. W. Paper Co., Inc., 38 F.T.C. 1, 15-17 (1944) (misrepresentation that product was endorsed by the American Red Cross); Wilbert W. Haase Co., Inc., 33 F.T.C. 662, 681-83 (1941) (misrepresentation that insurance company had endorsed burial vault business and its vaults). Furthermore, the Commission has challenged advertisements that misrepresent endorsers’ experiences. See, e.g., Complaint at 14, 18, FTC v. A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (testimonialists had used a prior product formulation that contained substantially different ingredients); Complaint at 22, 25, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (testimonials in ads misrepresented the actual experiences of customers); Complaint at 22-24, 27, FTC v. Russel T. Dalbey, No. 1:11-cv-01396-CMA—KLM (D. Colo. May 26, 2011) (testimonials misrepresented earnings from brokering promissory notes using defendants’ system); Computer Bus. Servs., Inc., 123 F.T.C. 75, 78-79 (1997) (testimonials by purchasers of home-based business ventures did not reflect their actual experiences); R. J. Reynolds Tobacco Co., 46 F.T.C. 706, 731-32 (1950) (endorsements communicated endorsers exclusively smoked Camel cigarettes whereas they did not smoke cigarettes, did not smoke Camels exclusively, or could not tell the difference between Camels and other cigarettes).
Giving an incentive for a review or endorsement and requiring that it be positive. See, e.g., Complaint at 14, 19-20, FTC A.S. Resch., LLC (Synovia), No. 1:19-cv-3423 (offered consumer endorsers with free product in exchange for “especially positive and inspiring” reviews); Complaint at 5-6, 8, Urthbox, Inc., No. C-4676 (Apr. 3, 2019) (deceptively provided compensation for the posting of positive reviews on the BBB’s website and other third-party websites); Complaint at 2-3, AmeriFreight, Inc., No. C-4518 (Feb. 27, 2015) (every month past customers were encouraged to submit reviews of respondent’s services in order to be eligible for a $100 “Best Monthly Review Award”, given to “the review with the most captivating subject line and best content” and that they should “be creative and try to make your review stand out for viewers to read!”).
Sellers who control websites claiming to provide independent opinions of products. See, e.g., Complaint at 2, 8-9, Son Le., C-4619 (May 31, 2020) (respondents operated purportedly independent websites that reviewed their own trampolines); Complaint at 19-20, 28, FTC v. Roca Labs, Inc., No. 8:15-cv-02231-MSS-TBM (M.D. Fla. Sept. 24, 2015) (defendants operated Gastricbypass.me website, a purported independent, objective resource, which endorsed defendants’ products); Complaint at 21-25, 28, FTC v. NourishLife, LLC, No. 1:15-cv-00093 (N.D. Ill. Jan. 7, 2015) (defendants operated Apraxia Research website, a purported independent, objective resource, which endorsed a type of supplement sold only by defendants). It has also challenged sellers who control purportedly independent organizations or entities that reviewed or approved the sellers’ products or services. See, e.g., Complaint at 3-5, Bollman Hat Co., No. C-4643 (Jan. 23, 2018) (respondents created seal misrepresenting that independent organization endorsed their products as made in the United States); Complaint at 18-20, 26, NextGen Nutritionals, LLC, No. 8:17-cv-2807-T-36AEP (M.D. Fla. Jan. 9, 2018) (misrepresentation that sites displaying the Certified Ethical Site Seal were verified by an independent, third-party program); Complaint at 2-4, Moonlight Slumber, LLC, No. C-4634 (Sept. 28, 2017) (respondent misrepresented that baby mattresses had been certified by Green Safety Shield, when in fact the shield was its own designation); Complaint at 4-6, Benjamin Moore & Co., Inc., No. C-4646 (July 11, 2017) (respondent used seal of its own creation to misrepresent that paints had been endorsed or certified by independent third party); Complaint at 2-4, ICP Constr. Inc., No. 4648 (July 11, 2017) (same); Complaint at 2-3, Ecobaby Organics, Inc., No. C-4416 (July 25, 2013) (manufacturer misrepresented seal was awarded by industry association when in fact it created and controlled that association); Complaint at 2-4, Nonprofit Mgmt. LLC, No. C-4315 (Jan. 11, 2011) (respondents misrepresented their seal program was endorsed by two associations when in fact a respondent owned and operated them); Complaint at 34, 37, FTC v. A. Glenn Braswell, No. 2:03-cv-03700-DT-PJW (C.D. Cal. May 27, 2003) (defendants established Council on Natural Nutrition and then misrepresented it was an independent organization of experts who had endorsed defendants’ products).
Suppression of customer reviews based upon their negativity. See Complaint at 1-2, Fashion Nova LLC, C-4759 (Mar. 18, 2022). Commission staff has also addressed the issue in a closing letter. See Letter from Serena Viswanathan, Acting Associate Director, Division of Advertising Practices to Amy R. Mudge and Randall M. Shaheen, Counsel for Yotpo, Ltd. (Nov. 17, 2020), https://www.ftc.gov/system/files/documents/closing_letters/nid/202_3039_yotpo_closing_letter.pdf.

The FTC obtained comments to the proposed rulemaking so expect new rulemaking and guidance in 2023.

January 20, 2023March 3, 2023 by Duane Morris

30-Year-Old Video Tape Statute Fueling New Class Action Lawsuits

Perhaps you are old enough to recall when consumers used to have to go to video stores like Blockbuster Video to rent a movie. And perhaps you recall the excitement of scoring a copy of the always limited “new release.” It was during these “archaic” times that Congress passed the federal Video Privacy Protection Act in response to a newspaper publishing Robert Bork’s video rental history during his U.S. Supreme Court nomination.

Read the full Alert on the Duane Morris LLP website.

January 18, 2023 by Sheila Raftery Wiggins

TCPA Class Action Ruling: Nonprofits Acting With Dual Purposes

The TCPA “nonprofit exemption” may not apply to a nonprofit entity acting: (1) on behalf of a for-profit entity and/or (2) with dual commercial and non-commercial purposes.

In this putative class action, Plaintiff challenges Defendant’s alleged practice of making unsolicited telemarketing calls to individuals who registered their phone numbers on the national Do Not Call registry (“DNC”). Defendant operates a nonprofit company and “purports to offer credit counseling services and debt management plans on a nonprofit basis.” Plaintiff asserts that another entity: (1) provides back-office and administration services to Defendant, (2) exerts control over Defendant’s telemarketers, and (3) generates income from Defendant’s telemarketing activities. Pinn v. Consumer Credit Counseling Foundation, Inc., No. 22-cv-04048, 2023 WL 21278 (N.D. Cal. Jan. 3, 2023).

Plaintiff asserted class action claims under the Telephone Consumer Protection Act, 47 U.S.C. § 227(c)(5) (“TCPA”). Defendant filed a motion to dismiss because the calls were to promote Defendant’s tax-exempt nonprofit “debt counseling services.” The District Court denied the motion and permitted the case to proceed by analyzing the dual commercial and non-commercial purpose of a nonprofit entity’s communications:

- TCPA’s regulation: The TCPA authorizes “[a] person who has received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of the regulations prescribed under this subsection” to bring an action for injunctive relief and/or actual or statutory damages of up to $500 per violation. 47 U.S.C. § 227(c)(5). The corresponding regulations provide in relevant part that “[n]o person or entity shall initiate any telephone solicitation to … [a] residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry of persons who do not wish to receive telephone solicitations that is maintained by the Federal Government.” 47 C.F.R. § 64.1200(c)(2). This prohibition also applies to wireless telephone numbers. 47 C.F.R. § 64.1200(e). A telephone solicitation “does not include a call or message … [b]y or on behalf of a tax-exempt nonprofit organization.” 47 C.F.R. § 64.1200(f)(15)(iii) (emphasis added).

- 2003 FCC Order: The Federal Communications Commission (“FCC”), in a 2003 order, states concerns about calls made jointly by nonprofit and for-profit organizations,” including that the exemption “frequently has been used to veil what is in reality a commercial venture.” In Re Rules & Reguls. Implementing the Tel. Consumer Prot. Act of 1991, 18 F.C.C. Rcd. 14014, 14087-88 (2003) (emphasis added).

- 2005 FCC Order: The FCC, in a 2005 order, states that “[i]n circumstances where telephone calls are initiated by a for-profit entity to offer its own, or another for-profit entity’s products for sale–even if a tax-exempt nonprofit will receive a portion of the sale’s proceeds–such calls are telephone solicitations as defined by the TCPA.” In the Matter of Rules & Reguls. Implementing the Tel. Consumer Prot. Act of 1991, 20 F.C.C. Rcd. 3788, 3800 (2005).

- Massaro/PETA ruling: In Massaro v. Beyond Meat, Inc., 3:20-cv-510, 2021 WL 948805, at *6 (S.D. Cal. March 12, 2021), the court ruled that the nonprofit exemption did not apply, at the pleadings stage, to a nonprofit – People for the Ethical Treatment of Animals (“PETA”) – which could be held liable under the TCPA for sending marketing text messages promoting alternative animal food products because the text messages were made with dual commercial and non-commercial purposes. PETA denied that it received compensation from Beyond Meat for the marketing messages, but the court was obligated to accept the allegations as true for purposes of the motion to dismiss. See also, Aranda v. Caribbean Cruise Line, Inc., 179 F. Supp. 3d 817, 828 (N.D. Ill. 2016) (analyzing a different TCPA exemption for calls made for a non-commercial purpose).

In sum, courts will not automatically dismiss a TCPA action against a nonprofit entity and, instead, the court will analyze the commercial and noncommercial purposes of the communications.

November 7, 2022November 9, 2022 by Sheila Raftery Wiggins

FTC Asserts ROSCA Claims Against Vonage Over Process To End Subscriptions & Vonage Settles For $100M

The Federal Trade Commission protects e-commerce consumers from “dark pattern” tactics which prevent consumers from cancelling their services. Vonage agreed to pay $100 million – a record-breaking settlement amount – to the FTC to settle charges that it created a series of obstacles for its customers – both residential and business consumers – to cancel their service which included hidden termination fees.

In its Complaint filed in the United States District Court for the District of New Jersey on November 3, 2022, the FTC alleged that Vonage made it very easy to sign up but much harder to cancel a subscription contract, including by:

- Eliminating cancellation options: Since 2017, Vonage allegedly made the decision to force customers to speak with a live “retention agent” in order to cancel service. In contrast, customers could sign up for services online, over the phone, and through other venues.
- Making cancellation process difficult: The company allegedly: (1) made it difficult to find the phone number for the “retention agent” on the website, (2) failed to consistently transfer consumers to that number from the normal customer service number, (3) offered reduced hours the line was available, and (4) failed to provide promised callbacks.
- Surprising customers with expensive fees when attempting to cancel: Vonage allegedly charged early termination fees (“ETFs”) that were not clearly disclosed when the customer initially signed up for service. At times, these ETFs were hundreds of dollars.
- Charging customers who already cancelled service: Vonage allegedly continued charging customers and then only provided partial refunds when customers complained.

In its Complaint, the FTC alleged that these actions violated Sections 13(b) and 19 of the Federal Trade Commission Act, 15 §U.S.C. 53(b), 57(b), and Section 5 of the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. § 8404.

ROSCA was passed and effective in 2010 in order to help promote consumer confidence for online commerce and thus requires the Internet to provide accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business. Section 2 of ROSCA, 15 U.S.C. § 8401.

Section 4 of ROSCA, 15 U.S.C. § 8403, generally prohibits charging consumers for goods and services sold in transactions effected on the Internet through a negative option feature, as that term is defined in the Commission’s Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(w), unless the seller, among other things, (1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent for the charges, and (3) provides simple mechanisms for a consumer to stop recurring charges. The TSR defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services “under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(u).

In the Complaint, the FTC alleged that Vonage violated ROSCA by failing to:

- provide required disclosures, including disclosing all material transaction terms such as the methods of cancelling services,
- obtain express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products, and
- provide a simple mechanism for stopping recurring charges.

Federal Trade Commission v. Vonage Holdings Corp., et al., No. 3:22-cv-06435 (D.N.J. Nov. 3, 2022). The FTC will use the $100 million settlement to provide refunds to Vonage consumers.

ABCmouse – disclosure membership terms: Similarly, in an earlier case, the FTC filed a Complaint against Age of Learning, Inc., which operates the children online learning program ABCmouse. Federal Trade Commission v. Age of Learning, Inc., a corporation also d/b/a ABCmouse and ABCmouse.com, No. 2:20-cv-7996 (C.D. Cal. Sept. 1, 2020). In that case, the FTC asserted that Defendant failed to disclose membership terms which led to consumers being charged without their consent, and the FTC settled with Defendant for $10 million.

Swifties and concertgoers – petition against Ticketmaster: As recently as last week, Taylor Swift fans (a/k/a Swifties) and concertgoers petitioned for an investigation regarding fees charged and processes of the website operated by Ticketmaster. Stay tuned!

In sum, companies should evaluate their e-commerce disclosures, fee structures, and process for providing/ending service.

November 7, 2022 by Sheila Raftery Wiggins

TCPA Class Action: Website Disclosure and Lead Marketers

The Ninth Circuit reviewed a website disclosure form – for a marketing website that generates leads – to determine when consumers assent to terms through interacting with a website. The Ninth Circuit analyzed the factors of: (1) reasonably conspicuous notice, (2) manifestation of assent, and (3) use of the word – arbitration – in the notice itself. Berman v. Freedom Financial LLC, 30 F.4^th 849 (9^th Cir. 2022). Many similar federal court rulings concern websites in which the consumer is engaging in a transaction – such as buying a product – so Berman has a different factual basis because the marketing website was giving away free items as a means of obtaining leads for other companies.

In the facts underlying this case, Fluent is a digital marketing company that generates consumer leads for its clients by collecting information about consumers who visit Fluent’s websites. Fluent offers free items via its websites such as gift cards and free product samples as an enticement to get consumers to provide their contact information and answer survey questions. Fluent then uses the information it collects in targeted marking campaigns conducted on behalf of its clients.

Fluent asked the first plaintiff to: (1) “confirm her zip code” by clicking a button and then (2) click on a large button stating “this is correct, continue!” Fluent asked the second plaintiff to: (1) confirm “gender” by clicking a large button and then (2) click the “continue” button. Significantly, located in between these two buttons were two lines of text – in small gray font which was partially underlined – stating: “I understand and agree to the Terms and Conditions which includes mandatory arbitration and Privacy Policy.”

Defendants used the contact information provided by consumers like plaintiffs to conduct a telemarketing campaign on behalf of defendants.

Plaintiffs filed a TCPA class action on behalf of consumers who received unwanted calls or text messages from defendants during the telemarketing campaign. Defendants filed a motion to compel arbitration which was denied. The Ninth Circuit reviewed the denial of the motion.

The Ninth Circuit noted that the Federal Arbitration Act (“FAA”) limits the court’s role to determining whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue. Plaintiffs did not contest that the arbitration provision on the websites’ terms and conditions encompasses their TCPA claims. Thus, the only legal issue was whether either plaintiff assented to the terms, including the arbitration agreement.

The Ninth Circuit first discussed whether New York or California law governs, and the result would be the same under either state’s law because both states require mutual consent. Absent a showing of “actual knowledge” of the contract terms by the consumer-plaintiff, inquiry notice will result in a contract only if: (1) the website provides “reasonably conspicuous” notice and (2) the consumer makes an “unambiguous” manifestation of assent. The Ninth Circuit ruled that neither condition is satisfied and analyzed:

Reasonably conspicuous notice: Website users are entitled to assume that important provisions – such as those that disclose the existence of contractual terms – will be prominently displayed. The Ninth Circuit looked at:
- Font size: the size of the text in the disclosure was smaller than the font in the surrounding website elements
- Color: the gray color of the text containing the hyperlink to the full terms and conditions made the disclosure hard to read
- Phrase: the specific phrase used on the button that users click to agree to the terms and conditions was generically phrased as “continue”
- Underlining: the underlining for the hyperlinks to the arbitration agreement did not sufficiently denote the hyperlink
Manifestation of assent: The “continue” button did not indicate to the user what action would constitute assent to those terms and conditions. Further, the text of the button itself gave no indication that it would bind plaintiffs to a set of terms and conditions.
Including “arbitration” in the notice: Merely because the notice references the word “arbitration” is not enough because the key question is whether the plaintiffs can be deemed to have manifested their assent to the terms.

The Ninth Circuit affirmed the denial of the motion to compel arbitration.

In sum, websites should comply with the three bullet-point analysis – reasonably conspicuous, manifestation of assent, and use of “arbitration” in the notice – to create enforceable contracts via website disclosures.