Legal Pitfalls Marketers Should Avoid in 2016

Advertisers Will Find it Harder to Balance Key Objectives With New Legal Guidelines

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This year is likely to be another challenging one for marketers. False advertising lawsuits show no signs of abating. And as regulation of digital, social and mobile advertising becomes increasingly restrictive, marketers are going to find it harder to balance their marketing objectives with new legal guidelines. ¶

Over the last year, class action plaintiffs filed false advertising lawsuits on subjects including the fruit content of baby food, Uber prices, the lifestyle of chickens and Fitbit's sleep-tracking technology. In the current environment, be prepared for any and all claims to be the subject of potential litigation. ¶

Consumers are also pursuing a new angle on "all natural" advertising claims in suits against manufacturers that use genetically modified organisms, with products under fire spanning pasta sauce and granola bars. An end could be in sight, however, as the Food and Drug Administration has finally agreed to examine the term "natural." A definition from the agency could provide greater clarity and hopefully fewer lawsuits.

In a new trend, however, consumers have targeted deceptive pricing practices, alleging sale prices trick purchasers into thinking they are saving money because the retailer never intended to sell the items at the higher price. J.C. Penney recently paid $50 million to settle a class action lawsuit alleging deceptive pricing practices, which will likely spur copycat litigation.

In many ways, 2015 was the year of consumer privacy and data security. The Federal Trade Commission made ensuring transparency in how consumer data is used a top priority, bringing enforcement actions, hosting seminars and maintaining a child-centric focus with a review of privacy policies in children's apps.

But 2016 could be an even bigger year. In a pivotal case against the Wyndham hotel chain, the Third Circuit Court of Appeals affirmed the FTC's authority to bring actions under its "unfairness" authority based on allegations of failed data security promises to consumers. This huge win for the agency will likely play out over the coming year. Businesses should brace themselves for the FTC's scrutiny.
The agency did suffer a setback when an administrative law judge dismissed a complaint against LabMD because the FTC failed to prove actual harm to consumers. The issue of consumer harm in the context of privacy has split the courts, but 2016 could bring the disagreement to an end. The U.S. Supreme Court is set to rule in Robins v. Spokeo on the issue of whether consumers must suffer actual harm to sue for privacy violations such as a data breach, or whether, as Spokeo argued to the Court this fall, consumers need to suffer an actual economic injury. If the justices decide that a breach itself is enough, companies could be facing a flood of class actions.

Fifty years ago, landmark cases formed the basis for advertising law and language that is still used in ads today, from the principle of puffery to the establishment of the "dramatization" disclaimer. But both the media environment and social climate have changed drastically since 1965.

In an effort to modernize, the Better Business Bureau updated the Code of Advertising for the first time in decades. The changes include new language for testimonials and endorsements that align the bureau with the FTC's stance in its guides on such. Additions to the Code include considerations of claims relating to environmental benefits, continuity programs and the oft-challenged claim "Made in the USA."

The year 2015 also saw increased FTC focus on testimonial and endorsement enforcement. With its recent consent decree with multichannel network Machinima, the FTC sent a clear message that advertisers must not only require that their social influencers disclose material connections to the advertiser, but they must also monitor their social influencers to ensure that these disclosures are made.

The FTC's revised FAQs on the endorsement and testimonial guidelines reflect an increasingly restrictive approach as to what constitutes an endorsement, a material connection and adequate disclosure. Under the new FAQs, simply sharing, pinning or retweeting could be considered an endorsement. Disclosure of any material connections between a social influencer and advertiser must be close to the endorsement and travel with the endorsement as it is shared. We expect enforcement actions in this arena to escalate in 2016.

And just as the year ended, the FTC published its long-awaited guidelines for native advertising, getting very prescriptive about where and how disclosures should be made and what language is required. The guidelines say disclosures should appear near native ad headlines, suggest other placement requirements and emphasize the need to disclose that native content is an ad before the consumer clicks. They also suggest that labels such as "sponsored content" or "presented by" may not be sufficient in many instances. Many of these requirements are at odds with industry practices, which will require both marketers and publishers to reexamine their policies. We fully expect to see enforcement actions in the native advertising ecosystem from the FTC in 2016.

Linda Goldstein is chair of the advertising, marketing and media division at law firm Manatt, Phelps & Phillips. She is also chair emeritus and head of the Brand Activation Association's Government and Legal Affairs Committee.