The Government’s Agenda

Consumer privacy was a hot topic at the Promotion Marketing Association’s Law Conference last month in Washington, DC.

Keynote speaker J. Howard Beales, director of the Federal Trade Commission’s Bureau of Consumer Protection, discussed the agency’s plans to enforce laws as it shifts gears to focus on the misuse rather than the collection of data. “What really worries consumers is the potential adverse use of their information,” Beales says.

The FTC is recommending amendments to the Telemarketing Sales Rule which would create a national do-not-call list and prohibit use of pre-acquired account information (through which marketers charge a credit card for purchase after a “free trial” offer granted for an earlier purchase expires). If the FTC creates a national do-not-call list, the Federal Communications Commission likely would follow suit, thereby pre-empting state lists.

The FTC is also cracking down on deceptive spam. “Expect the first round of cases soon,” says Beales, who spoke with PROMO earlier about the FTC’s agenda (see “Private Eyes,” page 37).

The commission also promises to go after marketers who misrepresent their data security measures; track online retailers’ timely delivery of goods (via its “Holiday Smarts.com” investigation); and reexamine testimonial ads that rely on disclaimers (“Results may vary”) instead of proof.

“The results consumers expect from testimonials will be the platform for a new approach” to pursuing testimonial claims, Beales says of that last directive. The first concern is weight loss and health-related claims: The FTC sent warning letters to 50 sites selling bio-terrorism antidotes, and targeted some of them for action under Operation Cure-All, which began in summer 2001. Beales warns that the commission will look beyond outlandish claims. “All ad claims must be supported by evidence,” he says.

Earlier in the day, a murmur ran through the crowd when attorney Reed Freeman of DC-based Collier Shannon Scott suggested that warranty cards need disclosures on how collected data is used. “[FTC director Tim] Muris’ Oct. 4 speech should shock the list industry,” says Freeman, a former FTC staffer. “List brokers should go negotiate with the FTC before it sweeps the industry.” He also warns that the FTC may pursue marketers who buy opt-in lists without proof that consumers agreed to have their data used the way the list buyer intends.

Some sweepstakes also may be treading on thin ice over privacy, says Linda Goldstein, partner with Hall Dickler Kent Goldstein & Wood, New York City. “We’re seeing more-aggressive attempts to collect data as a condition of entry. Some aggressive regulator could … define that as consideration” because it requires entrants to give something which may be seen as having commercial value in order to play.

The FTC also may require more corrective advertising, suggests Stephen Durchslag, partner with Chicago-based Winston & Strawn. In 1997, Exxon Corp. was required to run ads clarifying earlier claims, and in 1999, Doan’s Pills spent $8 million on a corrective campaign stating its “extra” ingredient was not more effective than competitors, Durchslag says.

Florida Flailing?

Goldstein raised alarm with a slide headlined “Caution! Florida goes insane.” Since shifting sweepstakes law enforcement to the Department of Agriculture (from the Department of State) last year, Florida has been inconsistent in granting bond waivers. The state also has sent deficiency notices for minor changes made to promotions after marketers filed for bonding, but has not followed up after those promos have run, says Goldstein. Marketers could be hit with a $1,000 fine per violation, lose their bond waiver or, in rare cases, have the promo enjoined.

There’s also a risk of enforcement for campaigns with unclaimed prizes. Marketers can hold a second-chance drawing, void Florida from the campaign, or “hold your breath and see what happens,” says Goldstein.

Florida also requires more information on winners’ lists, says Shelley Rowan, an attorney with Cohen and Silverman, Denver. The state requires first and last names, street addresses, date prizes were won, and the exact prizes won.

In Simon’s Wake

Speakers didn’t directly discuss the security breach at Simon Marketing that let one employee embezzle more than $13 million in winning gamepieces from McDonald’s Corp. promotions, but several offered advice on improving game security.

Rick Herman, corporate counsel for Excite@Home, suggests marketers scrutinize their internal “chain of custody” for possible leaks and videotape everything — including the opening of mail from potential winners. Herman has used videotapes to answer postal inspectors’ questions about winner fulfillment.

He also recommends training customer service reps to give correct and consistent — but not too much — information on games to thwart would-be cheats. Rowan advises marketers take notes on all conversations with potential winners. Goldstein recommends marketers hire reputable vendors, conduct staff background checks, and visit facilities.