Legal Trouble Spots: Social Media, Data Privacy, and False Advertising

November 5, 2019

Ronald Urbach of the law firm Davis & Gilbert shared legal guidance on the topics of social media, data and privacy, and false claims in advertising.

As companies try to a) navigate a business landscape that is increasingly digitalized and b) meet the increasingly steep demands of consumers, they find themselves faced with the need to both maximize their competitive advantage and minimize their exposure to legal risks — needs that often compete with one another. To help companies in this situation, Ronald Urbach of the law firm Davis & Gilbert offered guidance on the subjects of:

  • Social media
  • Data and privacy
  • Avoiding false claims in advertising

Social Media

Influencers: Urbach noted that one of the issues that complicates marketers’ ability to capitalize on social media influencers is the use of bots to inflate follower accounts and engagement figures. Dramatizing the significance of the problem, the New York and Florida attorneys general have taken action against the selling of fake accounts, and the FTC has followed with action of its own. To help prevent marketers from being manipulated by inflated follower numbers, Urbach urged them to:

  • Have fake-follower clauses built into contracts with influencers.
  • Monitor accounts to detect sudden jumps in follower numbers — an obvious red flag.

In addition to defending marketers against inflated engagement figures, counsel should also, according to Urbach, ensure that influencers don’t misuse the intellectual property of others. Even if the IP in question consists of pictures of the influencers themselves, they can be sued if it belongs to someone else. The singer Ariana Grande was recently sued for just such a misuse of another’s IP.

Digital Influencers: Urbach also drew attention to the emerging area of digital influencers, which aren’t real people, just computer-generated avatars that look almost identical to a real human being. One example of such a digital influencer is Shudu, a computer-generated black model. The benefits to brands of working with such digital influencers are that they:

  • Don’t make the kind of PR stumbles that fallible humans do
  • Can’t be sullied through connections with disreputable humans
  • Display a continuity of persona, which humans can fail to do when skeletons escape from their closets and discredit their carefully crafted public images

Despite these advantages, the use of digital influencers is not without risks. For instance, they can fail to disclose their material obligations to a brand they are pictured with. Moreover, they can have their public images complicated by the questionable judgment of their human operators. When female-identified digital influencer Lil Miquela was pictured kissing a real-life female model, Gigi Hadid, the incident prompted accusations of “queerbaiting” and it was alleged that the image should have pictured LGBTQ-identifying influencers rather than straight-identifying ones. Shudu has also attracted disapproving scrutiny. Its creator, who is white, was accused of cultural appropriation for designing a black model.

Data and Privacy

Recently Enacted Laws and Regulations

The GDPR, which came into effect in May 2018, has already had an impact on businesses. European regulators have handed out fines for:

  • Failing to properly encrypt data
  • Not maintaining sufficient security programs
  • Failing to disclose data-collection practices

In the latter case, the fines have reached as high as €50,000,000. Notably, U.S. companies are subject to these regulations if they do business with anyone in the EU or if they collect data on anyone in the EU.

Heretofore, in the U.S., states have been adopting individualized approaches to data privacy laws. The California Consumer Privacy Act is the most ambitious of these laws, but states such as New Jersey, Texas, and Oregon have all enacted digital privacy laws of their own. The result is a crazy-quilt of discrepant state regulation that will persist until an overarching federal law is enacted.

Urbach reminded companies that they will risk large financial penalties, reputational harm, and modifications to their business practices and even governance if they:

  • Process personal data without necessary safeguards
  • Mislead the public about data practices
  • Fail to comply with applicable privacy laws

The Children’s Online Privacy Protection Act

The Children’s Online Privacy Protection Act (COPPA) is a law created to protect the privacy of children under 13, and which the app TikTok recently ran afoul of, demonstrating the liabilities to which companies can be exposed. The FTC found that TikTok knew that kids were using its video creation/viewing app but that it did not seek parental consent while collecting their personally identifiable information. As a result, TikTok:

  • Was fined $5.7 million
  • Was forced to remove all videos made by children under 13
  • Developed a separate, limited in-app experience for kids

Google’s YouTube was accused of similar COPPA violations and had to reach a settlement with the FTC and the New York attorney general, paying a $170 million fine. In addition, it had to implement a system for content creators to identify their child-directed YouTube content and adopt a practice of notifying channel owners of COPPA obligations.

False Claims and Advertising

“Made in U.S.A.” Claims

Urbach observed that both Congress and the FTC have called for more enforcement and penalties for misleading claims about where a product is made. A number of cases demonstrate the liabilities that some companies expose themselves to with their claims. New Balance shoes had to reach a $750,000 settlement in a case that found that its “Made in the U.S.A.” claims were belied by the fact that 30 percent of the shoes’ labor and components were foreign.

Food Claims

Urbach reminded listeners that claims that a product is “natural” have been challenged where the product:

  • Contains trace amounts of artificial or synthetic ingredients
  • Underwent processing
  • Is derived from genetically modified ingredients
  • Contains trace amounts of pesticides

Health and Safety Claims

Urbach drew attention to the FTC’s appetite for contesting health and safety claims with a number of illustrations.

  • Gerber was forced to settle with the FTC over false claims that its baby formula prevented allergies.
  • The FTC forced oat drink brand Oatly to discontinue claims of “no added sugar” since the process of converting oats to a milk-like liquid triggers the release of sugar.
  • The FTC has sent warning letters to CBD and cannabis companies over unsubstantiated claims that their products can prevent and/or treat conditions such as Alzheimer’s, cancer, and multiple sclerosis.

"Legal Trouble Spots: Social Media, Data Privacy, and False Advertising." Ronald Urbach, Chairman and Co-Chair, Advertising, Marketing, and Promotions Practice at Davis & Gilbert LLP. 2019 ANA/BAA Marketing Law Conference, 11/5/19.

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