Category Archives: E-commerce

Online Business Law: Is Your Auto-Renewal Setup Compliant?

Auto-Renewal online checkout rulesA lot of online businesses are running auto-renewal subscriptions that shirk FTC regulations.

Auto-Renewal Subscriptions: Common and Convenient

Auto-renewal subscriptions are a win-win for companies and consumers. They afford businesses better forecasting abilities and improve retention rates. For users, automatic renewals and payments save time and money (late fees be gone!).

Auto-Renewal Subscriptions: Compliance Standards

Authorities Slap eHarmony With Auto-Renewal Legal Action

Businesses must understand that Auto-renewals are bound by nuanced compliance standards. In fact, authorities from four California counties recently slapped  online dating platform eHarmony with a lawsuit because the company allegedly “did not clearly and conspicuously explain the automatically charged subscription fee, did not provide the consumer with their dating contract, or explain their right to cancel as required by law.”

To be fair, it doesn’t appear that eHarmony purposefully tried to pull the wool over customers’ heads, but they did overlook standing regulations. In the end, the dating website settled; it paid $1.28 million to the claimants, and an additional $1 million to affected consumers. Site updates are also part of the deal.

The FTC Is On The Prowl For Auto-Renewal Violators

It’s also only fair to note that eHarmony isn’t an outlier when it comes to auto-renewal legal troubles. Blue Apron, Birchbox, and LifeLock have all tangled with the FTC over the issue.

Just as the FTC is stepping up social media marketing enforcement, the agency is also cracking down on auto-renewal compliance. To make matters even more critical, on July 1, California will press play on a new auto-renewal law.

Use Several Disclosures throughout the Checkout Process

A single notification or clause buried in a user agreement doesn’t cut it. Auto-renewal compliance is a multi-tiered process. The checkout notifications must conspicuously feature several “We Will Charge You On A Regular Basis” warnings at specific points.

Companies that offer free trial periods must clearly publish the post-trial price, recurrence schedule, and cancellation information before the final checkout page. Make sure to delineate device restrictions, as well.

The final checkout page should include:

  1. A summary of all the disclosures and terms;
  2. A clear link to the terms of service, with a checkbox the user must tick to indicate their agreement;

Once a purchase is complete, users should be presented with a confirmation page that conspicuously gives cancellation information and contact information.

Remember, it’s almost always not enough to state a disclosure once. Complying with FTC standards means including disclosures several times throughout the online checkout process.

California’s New Auto-Renewal Law (ARL)

California’s auto-renewal law (ARL) requires companies to implement online cancellation options for online auto-renewal subscriptions. To put it another way: On July 1, it will be against regulations to only provide call in, or mail cancellation options for auto-renewal subscriptions initiated online. Moreover, to comply with California’s auto-renewal laws, companies that offer subscriptions with renewal periods longer than 30 days must remind users, 30 to 45 days in advance, of the impending auto-renewal charge.

Connect With An FTC Compliance Lawyer

Now is the time to review your online checkout process and concomitant SaaS and subscription agreements to ensure they comply with federal, state, and local regulations. Believe it or not, depending on your client base, you may even have to contend with E.U. online privacy and e-commerce regulations.

We can help you sort through the FTC compliance maze. Let’s chat about it. The consultation is on us.

Internet Sales Tax Law: Amazon Gives Account Info To Rhode Island

Internet sales tax lawyerDue to Rhode Island’s Internet sales tax, Amazon is handing over the names and addresses of online sellers who sold goods to residents in 2017.

Amazon to Online Sellers: We Sent Your Info To Rhode Island

Recently, Amazon.com wrote selected sellers explaining that the e-commerce giant had handed over their contact information to Rhode Island authorities. Some recipients scratched their heads and wondered: “What does Rhode Island want to do with me? I don’t live there.”

In the interest of brevity, here’s the legal scoop on Amazon’s letter regarding Rhode Island’s Internet sales tax:

Online Sellers Must Register In Sales Tax States

Businesses must register with every state in which they remit sales tax. The concomitant paperwork can prove exceptionally complicated; because as stated earlier, simply using a warehouse or vendor in a given state can tie you to it for tax purposes.

If you need help sorting through it all, give us a call.

What Will Rhode Island Authorities Do With The Amazon Online Sellers Data?

Rhode Island authorities will likely compare Amazon’s data with the state’s business registration records. Agents will research discrepancies. Then, people with a nexus to Rhode Island, who previously failed to register or submit taxes, may have some negotiating to do.

If you find yourself in that position, our e-commerce tax team can, and will, help. We’ve untangled similar knots for other online sellers across the country.

Contact An E-commerce Lawyer

Are you an online seller or e-commerce business that needs help with Internet sales tax? We can help. Our e-commerce legal team helps individuals and companies across the country — and overseas — overcome tax controversies and build beneficial tax positions. Let’s discuss how we can assist you. Get in touch today to begin the conversation.

E-commerce Tax: What Online Sellers Need To Know In 3 Minutes

e-commerce tax law tipsWe get it: You’d rather sit through a 5-hour Nickelback concert (sorry Nickelback fans) than deal with the tax man — but alas, with the entrepreneurial glory must come a bit of paperwork pain.

But there’s great news: Our e-commerce tax team can handle it all for you.

We’ll calculate your state sales tax commitments and business reporting requirements. Even better? We’re known for reducing the tax debts of online businesses, affiliate marketers, and e-tailers by up to75%; and we’re often able to do the same for new clients.

So, if you’re looking for an e-commerce tax lawyer, get in touch today! We’re ready to take those tax woes off your plate.

In the meantime, we’ve put together a quick list of things to remember about online sales tax reporting requirements. Questions? Shoot us a message or give us a call. We’ve got the answers to your e-commerce tax questions.

4 Things Every Affiliate Marketer and Online Seller Should Know About E-commerce Tax Reporting Requirements

Connect With An E-commerce Tax Lawyer

Do you need help sorting out taxes for your e-commerce business? We can handle it for you. Our e-commerce tax team will calculate how much you owe and where. We’ll also make sure you pay the least amount possible by applying every possible deduction and credit.

Get in touch today to begin the conversation and start exploring your e-commerce tax options.

 

Monday E-commerce Inspiration: The Ballad of Xue Minxiu

e-commerce businessIn the mood for an inspiring e-commerce story? Good, because we’ve got one for you!

Earlier this year, Xue Minxiu, who was born in 1936, finally got her college degree — in e-commerce!

The 81-year-old from Tianjin (a city in Northern China) had always yearned for a bachelor’s degree. Back in the 1950s, the autodidact, who speaks Chinese dialects, English, French, Russian, and Latin fluently, was offered a university spot, but for (unclear) work commitment reasons, she had to decline.

For decades, China’s laws also kept Xue Minxiu separated from her dream, as before 2001, higher education was blocked for married folks and people over 25.

Despite the practical and legal obstacles, Xue kept the dream alive! And in 2014, the octogenarian’s dream came true: She enrolled in Tianjin University’s School of Online Education.

Now, it wasn’t all smooth sailing from there. Since Xue Minxiu was born before the technological age, her computer skills weren’t quite up to snuff, and it took her six tries to pass the computing portion of her course. But, she persevered.

A few weeks ago, she got her e-commerce degree, and is now an Excel and Photoshop wiz!

So, as you start this week, think of Xue Minxiu! If she can earn an e-commerce degree, you, too, can reach your goals! No excuses!

Have a great week, everyone!

 

E-commerce Law: Price Scraping Can Lead To Legal Troubles

price scraping legal mattersPrice scraping tools help companies match competitors’ prices. But be warned: using them can lead to FTC anti-competition allegations.

What Is Price Scraping?

Price scrapping programs mine product and pricing information from competitor websites. Popular brands include Upstream Commerce and Mozenda.Typically, businesses use them to ensure that their prices stay in-line with the market; some companies manually change prices based on the price scraping data, while others set it up to change automatically, based on a predetermined metric.

Though helpful to many businesses, the problem with these systems is twofold.

  1. Businesses that become overly dependent on the price scraping data may not develop their own (potentially more profitable) sale program and only lower prices when competitors do.
  2. The FTC may classify excessive price scraping initiatives as anti-competitive since one company’s price increase has a market-wide ripple effect. In a market in which demand is inelastic, one company’s price increase could result in all of the companies raising their prices if all are using a similar price-scraping software.

While regulations have not yet been put into effect to control online price-scraping technologies in the U.S., some regulatory efforts in the European Union have already begun, leading an FTC attorney to believe that it is only a matter of time before the use of these technologies falls under similar scrutiny in the U.S.

Potential Antitrust Problems

E.U. authorities have opened two investigations into companies that have allegedly used price scraping tools for anti-competitive reasons. Though U.S. authorities have yet to follow suit, the potential for private antitrust litigation looms.

Take Uber. The ride share company is currently on the hot seat for its price surge algorithm. Some people say it’s a price-fixing scheme. Why? Because the algorithm reportedly manipulates price based on the demand of all Uber drivers in a given area.

Uber’s case is similar to a DOJ action targeting online poster sellers. In that case, several poster companies agreed to use the same algorithm to standardize prices. What made the case slightly different, however, was that it featured a prior agreement.

Potential Robinson-Patman Problems For Distributors

The Robinson-Patman Act forbids sellers for charging buyers who are competing for products different prices for the same products. If that occurs, a buyer who is disfavored by the use of the pricing algorithm may be able to successfully sue the company under the Robinson-Patman Act.

The FTC has decreased its enforcement of violations under the Robinson-Patman Act in the past few years. Before the presidential election, however, some folks were calling for stepped-up enforcement. Even if the FTC does not pursue enforcement, private actors still could file lawsuits.

A longstanding Supreme Court decision barred manufacturers from forcing distributors to charge specific prices. To get around it, manufacturers started the “suggested retail price” program. And though the Supreme Court overturned that decision in 2007, companies must still contend with state laws that forbid vertical price-fixing.

Price scraping tools aren’t all bad. However, as FTC attorneys, we advise companies to be careful with pricing algorithms. Again, though the Federal Trade Commission may not take action, the risk of private antitrust lawsuits may simply outweigh the potential benefits.

Connect With An FTC Lawyer About A Price Scraping Matter

Do you have a price scraping question? Want to make sure your pricing algorithm complies with federal, state, and local laws? Our e-commerce legal team can do that for you. Get in touch today.

FTC v. POM Wonderful: Lessons for Affiliate Marketers

FTC defense lawyer: POM Wonderful casePOM Wonderful, LLC, et. al. v. Federal Trade Commission (“The POM Case”) is a seminal affiliate marketing lawsuit that:

  1. Provides helpful insight into the legalities related to scientific marketing claims.
  2. Establishes precedence that strengthens the defensive position of affiliate marketers facing private consumer class action litigation under the Illinois Consumer Fraud and Deceptive Business Practices Act (“CFA”).
  3. Provides a legal marketing framework for affiliate marketers. Although The POM Case involves health and dietary advertising concerns, the legal analysis also applies to affiliate marketers in other industries, since it focuses on general marketing legalities  (e.g. efficacy claims, establishment claims, etc.).

#1: Case Summary – POM Wonderful, LLC, et. al. v. Federal Trade Commission

FTC Accuses POM of Making False Statements

The POM Case began in 2010 when the FTC filed an administrative complaint alleging that POM Wonderful, LLC (“POM”) and related executives had made false, misleading, and unsubstantiated representation in violation of the FTC Act.

In May 2012, a judge found that nineteen of POM’s promotional materials violated substantiation rules by improperly implying that products treated, prevented, or reduced the risk of heart disease, prostate cancer, and erectile dysfunction.

The Court held that POM parties were liable under the FTC Act and ordered the company to cease and desist from making further claims about the health benefits of any food, drug, or dietary supplement — unless the claims were non-misleading and supported by competent and reliable scientific evidence.

Ruling Set New Bar For “Disease” Marketing Claims

In Part I of the Final Order, the Commission imposed heightened requirements for claims about the treatment or prevention of “any disease” (including, but not limited to, heart disease, prostate cancer, and erectile dysfunction). The order mandated that such disease-related claims, like the broader category of health claims covered by Part III, must be “non-misleading” and supported by “competent and reliable scientific evidence.”

However, controversy arose over how the Commission defined “competent and reliable scientific evidence.”

“Competent and reliable scientific evidence” was narrowly defined in Part I to consist of “at least two randomized controlled human clinical trials (“RCT”s)” that “yield statistically significant results” and are “double-blinded” whenever feasible. Alas, Part III’s baseline requirement for all health claims didn’t require RCT substantiation, whereas the specific requirement in Part I for disease-related claims not only contemplated RCT substantiation but called for —  as a categorical matter — two RCT’s.

As for the petitioners’ efficacy claims and non-specific establishment claims, the Commission found that “experts in the relevant fields” would require one or more “properly randomized and controlled human clinical trials” —“RCTs” — to “establish a causal relationship between a food and the treatment, prevention, or reduction of risk.” Without at least one such RCT, the Commission concluded, POM’s efficacy and non-specific establishment claims were inadequately substantiated.

Appeals Court Looks At POM FTC Marketing Case

On review, the U.S. District Court of Appeals for the District of Columbia Circuit almost entirely affirmed the lower court’s ruling against POM, as well as the injunction against further advertisements. However, the Order stated that it was unreasonable to require two double-blind, randomized, placebo-controlled RCT’s for the company to continue advertising “unqualified” health benefits of its products, and ultimately lowered the bar to one RCT. The Court held that the Commission fail[ed] adequately to justify a categorized floor of two RCTs for any and all disease claims.” The Court elaborated on its rationale, explaining:

“Requiring additional RCT’s without adequate justification exacts considerable costs, and not just in terms of the nutritional resources often necessary to design and conduct a properly randomized and controlled human clinical trial. If there is a categorical bar against claims about the disease-related benefits of a food product or dietary supplement in the absence of two RCTs, consumers may be denied useful, truthful information about products with a demonstrated capability to treat or prevent serious disease. That would subvert rather than promote the objectives of the commercial speech doctrine.” See Edenfield v. Fane, 507 U.S. 761,766 (1993).

The Appeals Court did rule, however, that the two trial requirement was not unreasonable.

#2: First Take-Away for Affiliate Marketers: Know When to Include Citations for Your Advertisements and Cite Properly

First and foremost, brands should appreciate the importance of content monitoring. Because according to the law, brands are responsible for all advertising done on their behalf. So, if an affiliate flouts FTC rules, the brand could be held 100% responsible.

Secondly, it’s imperative to understand that the courts often to defer to the FTC because the Commission “is often in a better position than are courts to determine when a practice is ‘deceptive’ within the meaning of the [FTC] Act,” and that “admonition is especially true with respect to allegedly deceptive advertising since the finding of a violation in the field rests so heavily on inference and pragmatic judgement.” (FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965)).

As such, minimizing liability for deceptive advertising claims makes financial and legal sense. Enhancing the depth and regularity of advertisement screenings (and that of  affiliates) increases the odds of catching problems before the FTC does.

This particular case illustrates the importance of backing up promotional claims with evidence. While it might seem like common sense, affiliate marketers should always mention limitations in cited research and conspicuously note any irregularities or conflicting studies. For example, despite POM’s knowledge of arterial thickness studies, which largely invalidated the findings of a POM study, a doctor associated with POM distributed a statement in 2006 claiming that “POM Wonderful Pomegranate Juice [had] been proven to promote cardiovascular health.”

So be proactive, verify your citations, and stay current with industry research. Also, cite any invalidated studies that might expose you to liability for deceptive advertising practices.

A: Relevant Affiliate Marketing Law

The FTC distinguishes between “efficacy claims” and “establishment claims.” (See Thompson Med. Co. v. FTC, 791 F.2d 189, 194 (D.C. Cir. 1986)). An efficacy claim suggests that a product successfully performs the advertised function or yields the advertised benefit, but fails to suggest any scientific proof of the product’s effectiveness. (See id.; Removatron Int’l Corp. v. FTC, 741 F.2d 1146, 1150 (9th Cir. 1984)).

If an ad conveys an efficacy claim, the advertiser must possess a “reasonable basis” for the claim. (See In Re Pfizer Inc., 81 F.T.C. 23, 62 (1972)). The question of whether “a claim of establishment is in fact made is a question of fact the evaluation [sic] of which is within the FTC’s peculiar expertise.” (Thompson Med. Co. v. F.T.C., 791 F.2d 189, 194 (D.C. Cir. 1986); see also Removatron Int’l Corp. v. F.T.C., 884 F.2d 1489, 1496 (1st Cir. 1989)).

#1: Efficacy Claims

The FTC examines whether an efficacy claim was made under the so-called “Pfizer factors,” including “the type of product,” “the type of claim,” and “the amount of substantiation experts in the field would consider reasonable.” (Daniel Chapter One, No. 9329, 2009 WL 5160000, at *25 (U.S. Fed. Trade Comm’n Dec. 24, 2009) (citing Pfizer, 81 F.T.C. at 64), aff’d, App’x 505 (D.C. Cir. 2010); see also Thompson Med. Co.m 104 F.T.C. at 821.)

#2: Establishment Claims

For establishment claims, the Commission generally does not apply the Pfizer factors.( See Removatron Int’l Corp., 111 F.T.C. 206,297 (1988), aff’d, 884 F.2d 1489 (1st Cir. 1989).) Rather, the amount of substantiation needed for an establishment claim depends on whether it is “specific” or “non-specific.” (See Thompson Med. Co., 791 F.2d at 194. ) Therefore, the Commission “determines what evidence would in fact [sic] establish such a claim in the relevant scientific community” and “then compares the advertisers’ substantiation evidence to that required by the scientific community.” (Removatron, 884 F.2d at 1498.)

Even if the Commission concludes that an advertiser conveyed efficacy or establishment claims but determines them to be false, misleading, or unsubstantiated, it can issue a finding of liability only “if the omitted information would be a material factor in the consumer’s decision to purchase the product.” (Am. Home Prods. Corp., 98 F.T.C. 136, 368 (1981), enforced as modified, 695 F.2d 681 (3d Cir. 1982); see also Colgate-Palmolive, 380 U.S. at 386-88.)

#3: Second Take-Away for Affiliate Marketers: Defending Against Private Consumer Class Actions Alleging Violations of the CFA

In addition to providing guidance on how affiliate marketers can enhance advertising disclosures, The POM Case also gives affiliate marketers’ more defensive options in the face of state-tried, private, deceptive marketing class actions  that rely on statutes like the CFA, 815 ILCS 505/2. Furthermore, the decision illustrates:

CFA Basics: Illinois State Advertising Law

Before exploring how the decision bolsters the potential defenses of affiliate marketers facing consumer class action litigation, it is necessary to wrap our heads around some CFA basics.

For starters, private plaintiffs cannot enforce the FTC Act. And, unlike the FTC, courts cannot state a cause of action based on an affiliate marketer’s alleged failure to substantiate their advertising claims. (Holloway v. Bristol-Myers Corp., 485 F.2d 986,997 (D.C. Cir. 1973); Fraker v. Bayer Corp., No.CVF08-1564 AWI GSA, 2009 WL 5865687, at *7 (E.D.  Cal. Oct. 6, 2009). ) Section 2 of the CFA provides that “deceptive acts or practices or the concealment, suppression, or omission of any material fact, with intent [sic] that others rely upon the concealment, suppression, or omission of such material face in the conduct of any trade or commerce are hereby declared unlawful.”

To prove a private cause of action under section 10a(a) of the Act, a plaintiff must establish:

(Avery v. State Farm Mut. Auto Ins. Co., 216 III. 2d 100, 179-80 (2005))

False Advertising Defendants May Have A New Defense Tool

CFA plaintiffs often allege that affiliate marketers’ establishment claims are rendered false and misleading by the lack of RCT’s — essentially the gold standard of scientific substantiation. Moreover, many plaintiffs make the argument that if advertising claims can’t be substantiated under the FTC’s standards, the company needs to prove that its product has the benefits advertised. The POM Case might be helpful in providing affiliate marketers a stronger position to refute such contentions, in light of the Court’s recognition that the “baseline requirement for all health claims does not require RCT substantiation.”  While the Court did not specify the type of substantiation required, it’s clear that something less than two RCT’s could suffice in supporting such claims.

Having at least one RCT can be powerful evidence in a consumer class action that a particular claim is not misleading. In fact, Illinois Courts have held that “[t]aken together, the cases stand for the proposition that the [Illinois] CFA will not impose higher disclosure requirements on parties that are sufficient to satisfy federal regulations.” (Bober v. GlaxoWellcome PLC, 246 F.3d 934, 941 (7th Cir. 2001). )The D.C. Circuit’s conclusion that a second RCT has little marginal benefit should also provide some cover to companies lacking the resources to conduct and include multiple RCTs to support an advertising campaign. However, just as the lack of two RCTs is not itself a fatal blow, companies should not view the inclusion of one supportive RCT as providing immunity from consumer class action liability.

“Preliminary Study” or “Initial Study” Loophole?

Calling a study “preliminary” or “initial” is no longer sufficient. Instead, a “substantive disclaimer” may be requested, such as a statement that “evidence in support of this claim is inconclusive.” By adequately describing the deficiencies of the product, companies can avoid shelling out for expensive clinical trials to substantiate advertising claims.

 

Contact A Marketing and Advertising Lawyer Today

If you are an affiliate marketer, and you would like to speak to a marketing and advertising attorney, get in touch today!

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Case Source

POM Wonderful, LLC v. F.T.C., No. 13-1060, 2015 WL 394093, at *12 (D.C. Cir. Jan. 20, 2015); See FTC Act 5(a)(1), 12(a); 15 U.S.C. 45(a)(1); 15 U.S.C. 52(a)