The Federal Trade Commission yesterday announced that it has ordered Membership Services Direct, Inc. (also known by other names) to pay $28.2 million to the FTC. The amount represents the net profits made by the company after engaging in a telemarketing scheme designed to bilk consumers of their money. Dubbed the Wal-Mart Shopping Spree Scam, the order also bars several of the company’s principles from engaging in deceptive practices in the future.

The original complaint, filed in federal court by the FTC in 2007, alleged that MSD made cold calls to consumers, falsely promising them shopping sprees at retail department stores like Wal-Mart and Macy’s. They also promised discount coupons, gas vouchers, and free movie tickets, if consumers joined a discount club. The ruse was designed to get unsuspecting customers to reveal their private bank account information, which MSD later used to directly debit the consumers accounts.

Practice Note: Consumers should be advised never to release their social security number or their bank account information over the phone. No reputable organization will ever ask for that information from a consumer. The FTC has a special mailing address for consumers to use if they have had money debited from their account by MSD or any of the other defendants in this Wal-Mart case. Consumers can send a letter to Faye Chen Barnouw or Jennifer Brennan, 10677 Wilshire Boulevard, Suite 700, Los Angeles, CA 90024. Consumers should identify which entity took the money, and supply supporting documentation.

Blockbuster may not be able to rely on the what I learned in Kindergarten defense when it answers charges it illegally shared a plaintiff’s movie preferences with third parties. In a suit filed in Texas earlier this month, Cathryn Harris sued Blockbuster for sharing her rental history on Facebook.

The suit, which is currently seeking class action status, claims Blockbuster’s actions of feeding renters video choices to a news feed violate the Videotape Privacy Protection Act, (“VPPA”) which states in relevant part that a video tape service provider is liable under the VPPA if that provider knowingly discloses personally identifiable information without the renter’s “informed, written consent.” Harris contends the online “opt out” options she was given did not constitute her informed written consent as intended by the VPPA.

The sharing comes as a result of Blockbuster’s participation in the Beacon advertising program, which has received considerable attention and criticism from consumer activist groups and corporations over the past 18 months. Beacon is a form of “social advertising” that allows Facebook friends to see your purchases (as well as other transactions you make) through news feeds. After considerable controversy, Facebook changed the “opt out” provision to an “opt in” provision, so that users would not inadvertently share their personal information simply by accepting the use agreement. Even so, last year, Coca-Cola announced it would not be participating in the program, as did Overstock.com and several other companies, citing privacy concerns. For instance, research showed that participating companies were sending information to Facebook even for buyers who were not Facebook members. Although Facebook claims it deletes such information if and when it is received, many partner sites determined the program contained too many privacy problems for them to feel comfortable participating.

The VPPA was enacted in 1987. It is rarely cited and was clearly not created with the sort of digital transmission of private information in mind that happens today. In fact, the VPPA was enacted after Robert Bork’s video rental history was published during his Supreme Court nomination hearings.

Practice Note: Privacy policies are tricky things. Clients should be advised to create policies that they can follow. Any updates to a privacy policy, particularly ones that will change the way a user’s information is shared, should be highlighted in bold.

Last week, a district court in Maryland ruled that Tyson was not immune from false advertising liability based upon a United States Department of Agriculture (“USDA”) label ruling.

The flap over advertising came when Plaintiff competitors Perdue Farms and Sanderson Farms, alleged that Tyson had been running a series of consumer ads that contained the message “Raised without Antibiotics,” what Plaintiffs called an unqualified Raised without Antibiotics claim (“RWA” claim). Plaintiffs further alleged defendant was running ads with a similar, but qualified RWA claim, namely, “aised Without Antibiotics that Impact Antibiotic Resistance in Humans.” Plaintiffs complaint alleged the unqualified RWA claim was literally false on its face, and the qualified RWA claim was misleading and therefore false by implication. In fact, Plaintiffs claimed, the defendant’s chicken feed contained inophores which are in fact, antibiotics.

By way of background, the Food Safety and Inspection Service (“FSIS”) of the USDA originally approved the unqualified RWA claim, but quickly revoked the approval and informed defendant it could no longer use the unqualified RWA claim on its label. It was silent as to advertising, since the FSIS has no jurisdiction outside of labeling. It later approved defendants qualified RWA claim. In its moving papers, defendant crowed that because the statements were approved for use on defendant’s chicken labels, the pecking order had already been established: plaintiffs Lanham Act claims must be dismissed on the ground that the labels’ language was already approved by the USDA.

In denying defendant’s motion to dismiss on the unqualified RWA claim, the court held that defendant could not rely on a former position held by the USDA “to defend itself against allegations that it continues to run false and misleading advertisements carrying the ‘Raised Without Antibiotics’ language.” Regarding the qualified RWA claim, the court noted that both sides were winging it on cited case law, because it could find no cases that involved “whether a USDA-approved label insulates a company from allegedly false non-label advertising under the Lanham Act.” The court noted that while the USDA may have jurisdiction over chicken labels, it does not have congressional authority to regulate advertising. Accordingly, “a label approved by the USDA may nonetheless be false or misleading in other contexts.” Looks like defendant doesn’t have a leg (or thigh) to stand on.

Increasingly, teenage celebrities are being used by marketing companies to gain a competitive edge in the increasingly growing teen market share. USA Today Online reported today that several large retailers and merchandisers have signed teenage singers and actors to hawk their wares, including Fergie, who was recently retained to give the MAC Cosmetics “Viva Glam” line a boost, the 15 year old Sprouse twins from The Suite Life with Zach and Cody, and basketball’s Stephon Marbury.

Clearly, using these Hollywood “role models” is a strategy that works. The Zandi Group, a marketing research firm, indicates that teenage spokespersons are perfect for clothing and product lines directed at teens because teens already try to emulate celebrity style. Legally, however, using underage spokespersons to target minors can be tricky. While going after teenage dollars is relatively fair game, many young stars attract even younger consumers, including ‘tweens (those under 13), which can lead to problems with the major television networks, with self-regulatory agencies, such as CARU, and in some cases, with the FTC with parents. Many major networks have guidelines consistent with those at CARU that do not allow certain celebrity advertising during times when children under 13 are likely to be looking at television. The practice of Host Selling (airing commercials featuring a teen celebrity at the same time as the teen’s program is scheduled) is not allowed by most networks, and CARU’s self-regulatory guidelines also proscribe the message that buying a certain product will make a kid more popular among his friends or smarter in class.

Practice Pointer: Attorneys should remind their clients that while many teens have their own money, in many cases, that money comes from their parents, who frown upon hard-sell tactics. In particular, parents do not like to be nagged about the purchase of a product they feel is too expensive, compromises their child’s integrity, or is sexually provocative. Generally speaking, clients should use common sense about the type of promotion they engage teenagers to endorse.

Electrolux turned the tables on former distributor-turned-competitor Imig, Inc., which filed a complaint against the famous vacuum and home appliance company, for interfering with relationships with perspective customers. Electrolux filed several counterclaims, alleging that Imig copied Electrolux’s protected trade dress, copyright protected user manuals, and that Imig made false claims in its advertising.

The district court dismissed all of Imig’s claims on summary judgment, and found for Electrolux on copyright infringement and false advertising. The court found that Imig had copied the user manuals in violation of U.S. Copyright law. From a false advertising perspective, the court found that specific numerically based claims about the Imig vacuum’s superiority were false on their face, because the products did not actually meet those objective standards. The remaining counterclaims proceeded to trial. On March 31, 2008, the court issued its finding that Electrolux had not met its burden of establishing a protectable trade dress in its vacuum and therefore, did not find Imig liable.

The facts show that Imig, afraid that it would lose its distributorship of the Electrolux SANITAIRE brand, developed its PERFECT brand vacuum as a replacement. Discovery produced evidence of copying: in creating the PERFECT design, Imig referred its Chinese manufacturer to the specifications of the SANITAIRE line. It was also revealed that Imig’s patent attorney sent a letter to a patent research company noting his clients’ desire “to make a private label vacuum cleaner that is virtually identical in appearance” to defendant’s vacuum. The court also noted numerous visual similarities between the SANITAIRE vacuum and the PERFECT vacuum.

Notwithstanding Imid’s clear intent to copy, the court did not find liability. The court noted that Electrolux had not met its burden of establishing trade dress infringement. In order to establish trade dress infringement, the court wrote, a company must show that the product design is distinctive and that consumers are likely to be confused by seeing the distinctive trade dress on another product. The court held that the elements claimed by Electrolux were functional in nature, and that the company had not proved otherwise, despite Electrolux’s survey evidence showing consumers recognized the various elements of the vacuum as being uniquely from the SANITAIRE brand. The court also determined that secondary meaning had not been established, even though the product had been in use for several years. Addressing the issue of confusion, the court, citing Cadbury Beverages, Inc. v. Cott Corp. determined that Eletrolux had to show a “probability – not merely a ‘possibility’ – of confusion,” a burden that it also did not meet. Even with the victory on the copyright and false advertising claims, we’re guessing Electrolux thinks the decision, well, sucks.

Practice Note: One method of distinguishing trade dress elements is to use “look for” advertising tactics in marketing the products. If a product contains non-functional elements that truly distinguish the product, a company can generate recognition around those features by directing clients to look for them when they make a purchase. Such use may be more persuasive than survey evidence in making clear to both customers and competitors what elements of a design are trade dress.

For years, health crisis centers for pregnant women have fought against rogue elements providing false information about abortion services. Using the Internet and phonebook advertising, anti-abortion groups pose as counseling centers and pretend to offer counseling and information services about abortion to pregnant women. In actuality, these groups direct viewers to fake sites that provide false information about abortion options, and provide counseling designed to persuade women to keep their unwanted babies, even when keeping the baby represents a significant risk to the mother’s health.

This month, women’s health centers are asking women to contact their congressperson about a bill recently introduced to “direct the Federal Trade Commission to prescribe rules to prevent deceptive advertising of abortion services.” The ”Stop Deceptive Advertising for Women’s Services Act” would provide special guidelines specifically related to how crisis centers would be able to advertise what they offer.

Practice Note: The bill seeks to tie the act to the already existing powers held by the FTC under Section 5 of The FTC Act, which regulates false and deceptive advertising. Even if the bill does not pass, under the current power, the FTC could independently go after these agencies for their deceptive ads.

The National Advertising Division of the Better Business Bureau has found that Wal-Mart’s claim that it saves Wal-Mart shoppers $2500.00 a year is misleading, and the self-regulatory organization has requested Wal-Mart discontinue the advertising campaign.

The Wal-Mart ad campaign claim is not based on the actual savings of Wal-Mart shoppers, but rather on a calculated number derived from a study it commissioned in 2005. The study in 2005 found that Wal-Mart’s advertising focus on low prices, had resulted in an actual overall price drop in consumer products of 3%. A 3% drop is roughly equal to $287 Billion, which means roughly $2500.00 per household. The statistic, therefore, represents the cost savings to every household, whether the consumer shops at Wal-Mart.

Practice Note: In any advertisement where a measurable statistic is used, the ad sponsor should be able to point to evidence supporting that statistic. Even when a statistic is numerically accurate, as it is here, if the implication is false, then the ad may be deemed false, too. The test for misleading advertising is not merely what is said, but what is implied by the statement.

A U.S. District Court in Nevada granted Plaintiff Paradise Canyon’s motion for preliminary injunction against Defendant Integra Investments for Integra’s advertising of its resort properties. The court found Defendant attempted to lure consumers into buying homes by creating a false impression of association with Plaintiff’s famous Wolf Creek Golf Club.

Paradise Canyon owns and operates the famous Wolf Creek Resort and Golf Club in Mesquite, Nevada. The club is renown for its golfing and has been featured as one of the “50 Toughest Courses” in the world. Plaintiff holds four trademark registrations in various classes that include the words WOLF CREEK. Defendant owns a 33 acre parcel of land adjacent to the golf club, which it had earlier attempted to name “Wolf Creek Estates,” but was enjoined from doing so by a court order. Defendant now calls its community Hidden Wolf, and has created advertising to entice buyers to the new development. One such advertisement begins, “WORLD CLASS GOLFING” and goes on to suggest that residents of Hidden Wolf can “play this amazing [Wolf Creek] course every day – just by stepping outside your door.” Various other ads reference the Wolf Creek Golf course by name and then suggest that Hidden Wolf provides access privileges to the famous club.

The court found that while the statements in the ads were not literally false (Defendant never stated it was part of Wolf Creek), the ads had a tendency to deceive potential buyers into thinking a Hidden Wolf home purchase came with golf privileges.

Practice Note: Clients should look critically at their use of third party trademarks in advertising. There are many ways in which defendant might have fairly used the WOLF CREEK. For instance, making an association with the town of Mesquite, which is home to the Wolf Creek Resort, and noting Hidden Wolf’s proximity to the resort, would likely have achieved the same marketing effect without raising the ire of Plaintiff.

Reuters is reporting that the well-known rock band Smashing Pumpkins has filed suit against Virgin Records, claiming that the record company sullied its image by associating it with a Pepsi/Amazon promotion.

According to the law suit, filed in Los Angeles Superior Court on Monday, March 24, 2008, the band claims Virgin used the band’s name, music and images in its “Pepsi Stuff” Promotion, which allows Pepsi drinkers to purchase selected merchandise. In the law suit, the Smashing Pumpkins claim that by using the Band’s image and music as part of the promotion, Virgin has falsely given consumers the impression that Smashing Pumpkins endorsed and was affiliated with the Pepsi Stuff campaign.

Practice Note: Promotions Sponsors must not advertise their promotion in such a way that they create a false sense of Sponsorship with a third party. For instance, while a Sponsor may list the brand name of the prize to be awarded, it may not be able to display a third party trademark or call special attention to that brand in its advertising.

Debunking the myth that a group of attorneys can never agree on anything, 30 attorneys general recently sent a letter to the administrator of the federal Alcohol and Tobacco Tax and Trade Bureau, requesting that the organization investigate the aggressive marketing campaigns that surround the promotion of new energy drinks that mix caffeine and alcohol (a trend started by want-to-have-it-all professionals whose drink of choice is a Vodka and Red Bull cocktail).

The recent boom in energy-alcohol drinks, coupled with the super-sweet alcohol “soft drinks” is sparking a trend by consumers of drinking alcohol beverages designed to feel alcohol-free. If nothing else, the proliferation of drinks like Anheuser Busch’s Bud Extra, Miller Brewing Company’s Sparks, and other alco-energy drinks like Charge and Liquid Core, make clear that such drinks are speeding up the cash conveyor for large companies.

AGs nationwide are concerned that the aggressive position marketers are taking with these drinks, coupled with the “outlandish” health-claims related to the consumption of these energy-pops are misleading. Moreover, many AGs believe that the target market is underage drinkers. Slogans like “You can sleep when you’re 30” and references to “pulling an all-nighter,” appear, at least in the minds of the attorneys general, to be focusing on the under 21 crowd.

Practice Pointer: Even when a marketing campaign is legally sound, and regardless of the product, when companies engage in advertising that is directed at a younger crowd, they run the risk of having parents and watchdog groups complain if the message, however understated, suggests a behavior that is either illegal, or promotes unhealthy habits. Attorneys should advise their clients to be prepared for fallout when launching aggressive marketing campaigns.