Advertising Law Blog

Highest court affirms the right of the SEC to recover fraudulently obtained profits

Advertising, Marketing & Promotions practice chair Andrew Lustigman, Intellectual Property/Privacy partner Mary Grieco, AMP partner Scott Shaffer, and associate Morgan Spina authored four Guidance Notes on direct marketing in California recently published in the prestigious OneTrust DataGuidance (subscription required). The first, entitled “California – Emarketing,” covers both the state and federal legislation, as well as regulatory guidance from the Federal Trade Commission, concerning emarketing. In the second, “California – Telemarketing,” the authors examine the numerous pieces of state and federal legislation governing telemarketing, including the “Automatic Dialing Law” and the “Unwanted Calls Law.” The third, entitled “California – SMS/MMS Marketing,” discusses various state and federal laws on SMS/MMS, including the Telephone Consumer Protection Act, and the consent requirements that advertisers must follow when using these services. In the fourth, “California – Postal Marketing,” the authors explore various state and federal laws on postal marketing, such as California’s “Mail Solicitation Law” and the federal “Deceptive Mail Act.”

Class-action lawsuit seeks recovery of fees obtained through subscription renewal plan.

We continue to monitor the effects of the COVID-19 pandemic on telemarketing regulations. The FCC has allowed health care providers to place emergency automated calls and text messages related to COVID-19, but three states have seen new telemarketing restrictions triggered by state-of-emergency declarations. Meanwhile, California is considering changes to its telemarketing statute unrelated to the pandemic. The following summarizes these recent developments:

The U.S. Securities and Exchange Commission (the “SEC”) filed enforcement actions on May 14, 2020, against two unrelated companies, Turbo Global Partners, Inc. (“Turbo”) and Applied BioSciences Corp. (“APPB”). The SEC charged both companies with securities fraud based on alleged materially misleading statements that the companies were offering and shipping products to combat the coronavirus (COVID-19). These actions taken by the SEC are consistent with approaches taken by other regulators, including the Federal Trade Commission and Food and Drug Administration (the “FDA”), with regard to misleading statements made in connection with coronavirus-related products. On the whole, regulators appear to be particularly cognizant of businesses and individuals seeking to take improper advantage of the circumstances created by the global pandemic, and as such are taking action against such companies and individuals.

To expedite advertising challenges on discrete issues, the National Advertising Division (NAD) of the Better Business Bureau has launched a new fast-track process.  The new process will resolve eligible matters within 20 business days from initiation of the challenge.

Andrew Lustigman, head of Olshan’s Advertising, Marketing & Promotions Practice Group, was quoted in a Bloomberg Law article on the coordinated attack on coronavirus scams led by The Justice Department (“DOJ”), the Federal Trade Commission (“FTC”), and the Food and Drug Administration (“FDA”). All three agencies have filed charges against and have sent warning letters to people and companies for advertising unapproved COVID-19 treatments or preventatives. Given the import that these efforts have to public health during the pandemic, the agencies’ attention is intensely focused on preventing coronavirus fraud, so while the DOJ is investigating a wide range of fraudulent activity, the FTC and the FDA are evaluating false claims about treatments and cures. “That intensity is shown by how quickly the agencies are taking cases to court and asking for orders to stop the fraudsters,” said Mr. Lustigman. Wasting no time, the DOJ has filed at least four civil lawsuits against people allegedly selling fraudulent cures/treatments, obtaining temporary restraining orders against three of the defendants. The FTC and FDA, meanwhile, have sent warning letters both to sellers of unapproved treatments and to multi-level marketing companies for unsubstantiated claims made by their independent distributors.

Multinational corporation, 3M Company (“3M”), has filed a string of lawsuits alleging trademark infringement against distributors of its 3M-branded N95 respirator masks. N95 respirator masks have become crucial in the fight against COVID-19. 3M has supplied healthcare workers and other first responders with 3M-branded N95 respirators. 3M’s recent lawsuits target false and deceptive price-gouging on the part of unauthorized third-party distributors, seeking to take advantage of the heightened demand for N95 respirators during the COVID-19 pandemic. Interestingly, these lawsuits do not allege that the defendants are selling counterfeit products. Instead, 3M alleges that the defendants, unauthorized resellers, are implying a direct relationship with 3M when selling 3M-branded products at inflated prices.

Resolving a circuit split, the Supreme Court (the “Court”) has held that willfulness is not a precondition for disgorgement of an infringer’s profits from the infringement in a trademark infringement case. In Romag Fasteners, Inc. v. Fossil Group, Inc., the Court considered willfulness as but one of the factors that may be considered in deciding whether or not to award an infringer’s profits to a trademark holder, rejecting the premise that a showing of willfulness is required before an infringer’s profits may be awarded.