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Today at the ABA: State AG Advertising Actions

Greetings from the ABA’s Spring Antitrust Meeting in Washington DC!

The day started with a truly informative session on state Attorney General enforcement actions in the area of deceptive and unfair advertising.  The session was moderated by Kevin O’Connor of Godfrey & Kahn (formerly with the Wisconsin AG’s office), and included the following panelists:

  • William Brauch, Director, Consumer Protection Division, Iowa Attorney General’s Office
  • Patricia A. Conners, Associate Deputy Attorney General, Florida Attorney General’s Office
  • Robert M. Langer, Wiggin and Dana LLP
  • Paul L. Singer, Assistant Attorney General, Consumer Protection and Public Health Division, Texas Attorney General’s Office

The panel discussion touched on a number of procedural and substantive questions about this emerging area of state AG enforcement.

What types of deceptive or unfair advertising actions are state AG offices initiating? Since 2008, the States have brought and settled numerous actions for deceptive and unfair advertising violations – individually, as multi-states, and in coordination with the FTC. These include:

  • Off-label marketing – Multistate action against Eli Lilly for Zyprexa, led by Iowa AGO
  • Deceptive promotion & marketing – Multistate action against Pfizer, led by Oregon AGO
  • Deceptive advertising – Multistate action against Michelin, led by Kentucky AGO
  • Deceptive advertising – Joint action and settlement involving 35 states and the FTC against Lifelock

In the wake of the recession, the States are particularly focused on debt management programs and healthcare marketing; they are also keeping an eye on retailer marketing practices, especially towards children, and have also submitted comments to the FTC on negative option marketing practices. Clearly, AG enforcement in this area is not limited to any one industry or type of advertising/marketing activity.  Instead, state AG offices are looking closely at any instance where consumers are relying on deceptive or unfair representations made by companies about products and services.  And now, more than ever, they are working in close contact with both other state AG offices and the FTC, a trend that the panelists said is likely to continue.

How does a state AG office investigate and develop advertising actions? Consumer complaints are often a starting point for these investigations, and most states now accept complaints electronically (although online comments often lack requisite specificity).  According to Paul Singer of Texas, a common misconception is that there must be a certain number of complaints for a state to act.  Instead, States do their own research first to determine the validity of such complaints before initiating an investigation.  For instance, Bill Brauch of Iowa noted that a lack of complaints did not prevent the States’ investigation and subsequent settlement with Ameriquest in 2006.

Another potential trigger for an AG investigation are competitor complaints.  Of course, the challenge here is not to appear too self-serving.  To successfully initiate an investigation in this manner, the panelists suggested that the complaint should be framed in terms of its impact on consumers (and perhaps competition), and not just the competitors’ business.  The AG’s office may pro-actively initiate an investigation – based on news reports, or on information shared by another AG offices or federal agency.

A key point here is that AG offices often seek to settle a complaint before bringing a lawsuit.  This is often due to resource constraints.  So it’s important for clients to cooperate with a state AG office in the event of an investigation.  An investigation will most likely begin with informal contacts, followed by the issuance of a subpoena or CID.  In many cases, it might actually be preferable to have a CID issued – to protect the confidentiality of the information being produced.

What statutory authority does an AG office have to bring advertising actions? Most states bring actions under their UDAP statutes; more than half the states have “little FTC” Acts, while others still apply the “capacity to deceive” or “credulous consumer” standard.  According to Bob Langer (formerly with the Connecticut AG’s office), there is little practical difference in how these two standards are applied when it comes to deception claims.

The statutory analysis gets a little more difficult with unfairness claims because of inconsistent application under different state laws of the FTC’s unfairness test.  Several states still apply the definition of unfairness that was articulated in the 1972 Supreme Court case of Sperry v. Hutchinson, i.e. is the practice injurious to consumers, violate established public policy or is it unethical or unscrupulous? Other states follow the current FTC test for unfairness that was articulated in the 1994 amendments to the FTC Act.  These amendments define an unfair act or practice as one that causes or is likely to cause substantial injury to consumers, is not reasonably avoidable and is not outweighed by countervailing benefits to consumers or competition.  An added complication is that not all states follow all prongs of either test.  This means that practitioners should carefully research the relevant state’s laws and case law – to determine how that state defines an unfairness claim.

According to Trish Conners of Florida, the statutory bases for state AG enforcement may be increasing. One recent example was found in the HiTech Act, which now allows state AGs to file for HIPAA violations.  Such expansions of state AG enforcement authority under federal consumer statutes may allow state AG offices to file consumer multi-state advertising actions more easily.

How does a state AG advertising action differ from one brought by private litigants? Probably the biggest difference comes in the area of remedies – the States’ primary objective is usually to stop the bad conduct and an AG lawsuit will most likely seek equitable remedies including injunctive relief, consumer restitution and disgorgement.   In contrast, private class action litigants are usually focused on obtaining damages.

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