On October 21, 2019, the Federal Trade Commission (FTC) announced that it had settled two cases regarding alleged fake indicators of social media influence and fake product reviews.

In the first action, the FTC alleged that Devumi, LLC and its CEO had “sold fake indicators of social media influence, including fake followers, subscribers, views, and likes, to users of different social media platforms, including LinkedIn, Twitter, YouTube, Pinterest, Vine, and SoundCloud.”  These fake indicators were designed to make the influencers more attractive to businesses and individuals hiring the influencers or making purchase decisions related to the influencers (e.g., the more followers or engagement associated with the influencer, the higher fees a business might pay to engage them or more value consumers might give their opinion).
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In late September 2019, California enacted a new law, AB 647, that would impose expanded disclosure requirements on certain cosmetic and disinfectant products. Effective in July 2020, manufacturers and importers of cosmetics and disinfectants that contain hazardous substances, as defined by California’s Department of Industrial Relations (“DIR”), would need to post a safety data sheet (“SDS”) on the entity’s website by the product’s brand or commonly known name. The required SDS must also be translated into Spanish, Vietnamese, Chinese, Korean, and other languages as required by DIR.
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On August 7, 2019, the Federal Trade Commission convened an all-day workshop to discuss consumer protection issues associated with “loot boxes”—randomized virtual items players can purchase or earn in video games. While the production cost of video games has increased significantly, the average price of console games has largely not changed since the 1970s, and many mobile games are free to download. Panelists observed that loot boxes have helped bridge the gap between this high cost of video game production and their relatively flat sale price.
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With increasing attention to lawsuits based on “natural” claims, some litigants have also challenged claims that products were “100% pure.”  Many suits have attempted to use findings of chemical or pesticide residue to attack a product’s marketing regarding its purity.

While the Food and Drug Administration is yet to provide clear guidance on the term

Takeaways:

  • The intended uses of products are relevant to their classification as a cosmetic and/or a drug.
  • Products can be regulated concurrently as both a drug and a cosmetic depending on intended uses.
  • Companies should be aware of claims of intended uses of products to ensure these products are properly classified under federal law.


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On August 7, 2019, the Federal Trade Commission (FTC) will host a public workshop to examine consumer protection issues related to the sale of “loot boxes” in video games.

For those unfamiliar with the phrase, “loot boxes” are often in-game rewards that players can buy that typically contain a random assortment of virtual “loot” items for players to use in the game (e.g., to help them succeed or to customize their in-game avatars). Although loot boxes contain virtual rewards, they are purchased with real money and are becoming an increasingly popular revenue source for game developers. However, class action lawsuits, U.S. senators,  and the FTC have questioned the techniques used to market loot boxes in video games and whether there is a risk that minors can become addicted or otherwise be exploited by these in-game offers.
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In 2016, UrthBox, Inc., a subscription-based service sending monthly snack boxes to customers, had only nine reviews on the Better Business Bureau’s website and all of them were negative. By 2017 UrthBox had 695 BBB reviews, 612 of which were positive.

According to a complaint from the FTC however, the cascade of positive reviews was the result of an incentivized review program. Specifically, in 2017 UrthBox offered to send customers an incentive (a free snack box) in exchange for submitting a positive review for UrthBox on the BBB website. However, the BBB requires customers submitting reviews to affirm they have not been provided any incentive from the business they are reviewing. UrthBox also offered incentives for customers who posted about their products on Twitter, Instagram, Tumblr, and Facebook but, according to the FTC, UrthBox did not monitor or provide instructions to consumers on how to comply with the FTC’s Guidelines on endorsement disclosures. Those Guidelines put the onus on businesses to make sure that customers posting reviews sufficiently disclose any compensation received from the business.
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On March 28, 2019, the Federal Trade Commission (FTC) joined the Food and Drug Administration (FDA) in sending warning letters to three companies that market products that contain cannabidiol (CBD), which the companies claim can treat a variety of serious physical and mental disorders.
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Last month, the Direct Selling Association (DSA) launched the Direct Selling Self-Regulatory Council (DS-SRC), a new enforcement agency charged with policing the direct selling industry. The DS-SRC will be administered by the Advertising Self-Regulatory Council, which operates under the Council of Better Business Bureaus.

Direct selling companies use independent sellers to market and sell products and services, typically outside of a fixed retail establishment. One form of direct selling that has received significant scrutiny from the Federal Trade Commission (FTC) is multilevel marketing (MLM), which distributes products or services through a network of independent salespeople who earn income from their own retail sales and from retail sales made by their direct and indirect recruits.
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