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October 2014 edition

Using aggregated online consumer reviews for advertising claims; children's online privacy; Delaware business organization statutory amendments

Using aggregated online consumer reviews for advertising claims

Companies should reevaluate how they use aggregated online reviews to substantiate product claims given a recent case of first impression from the National Advertising Division (NAD).

The NAD recently recommended that Euro-Pro Operating, LLC discontinue advertising that its vacuum cleaner is "America's Most Recommended" because that claim was not sufficiently substantiated. Euro-Pro's claim was based on its survey of over 10,000 consumer reviews aggregated from various national retailers' websites. Euro-Pro argued that its compilation of online reviews:

  • Is reliable and represents the general American consumer's view.
  • Should not be subjected to the same standard of representativeness required for more traditional studies.

Although the NAD agreed that the aggregated reviews created a statistically significant sample size, it found that Euro-Pro's aggregated data:

  • May not be representative of American vacuum consumers, the majority of whom buy vacuums in stores and might not submit reviews online.
  • Lacked the controls and demographic information found in more traditional surveys.
  • Is not reliable since the reviews cannot be authenticated and the authors cannot be verified as actual product owners or users.

The NAD allows advertisers to support product claims using new technology and information, such as crowd-sourced, online data. However, advertisers must adhere to the NAD's standards of truthfulness, reliability and representativeness for substantiating claims. Because aggregated online reviews may lack the reliability and controls of individual reviews, advertisers should be cautious about using this type of data for making claims. The risks are arguably higher for comparative claims than they are for monadic or non-comparative claims.

When relying on aggregated online reviews to substantiate product claims, companies should ensure that the data meets the NAD's standards for substantiation and is:

  • Demographically representative of the relevant consumers and market.
  • Sufficiently reliable and robust to provide a reasonable basis for making the claim.

For resources to assist in identifying key legal and business issues when undertaking advertising and marketing activities, see the Advertising and Marketing Toolkit.

Children's online privacy

Companies subject to the Children's Online Privacy Protection Act (COPPA) and the parties that assist them in obtaining verifiable parental consent should review their practices for obtaining consent to ensure compliance with recently updated FTC guidance.

The FTC issued updates in July 2014 to its FAQs for complying with COPPA and the COPPA Rule, addressing COPPA's verifiable parental consent requirement. Specifically, the FTC:

  • Revised FAQ H.5 to clarify that while collecting a credit card or debit card number outside the context of a monetary transaction does not alone satisfy the COPPA Rule's standard for obtaining verifiable consent, there are circumstances where collecting a card number together with implementing other safeguards may be adequate.
  • Revised FAQ H.10 to clarify that the developer of a child-directed app may rely on an app store or other third party to obtain verifiable parental consent on the developer's behalf, but the developer remains responsible for ensuring that the third party does so in a way reasonably calculated to ensure that the person providing consent is the child's parent.
  • Added a new FAQ H.16 addressing an app store's potential liability when providing a consent mechanism for app developers to use.

These updates reflect the FTC's continued focus on ensuring accountability for COPPA compliance. Both companies subject to COPPA and the parties that assist them in obtaining verifiable parental consent should make sure that they understand each other's practices when relying on those practices.

For more on COPPA and COPPA compliance, see Practice Note, Children's Online Privacy: COPPA Compliance.

For model COPPA privacy policy disclosures, see Standard Clause, Children's (COPPA) Privacy Policy Notice.

Delaware business organization statutory amendments

A recent amendment to the Delaware General Corporation Law (DGCL) broadens access to Section 251(h) for buyers of public companies. This amendment, in addition to other amendments to the DGCL, the Limited Liability Company Act (LLC Act), the Delaware Revised Uniform Limited Partnership Act (DRULPA) and the Delaware Revised Uniform Partnership Agreement (DRUPA), became effective on August 1, 2014.

DGCL Section 251(h) was enacted in 2013 to allow tender offers to proceed to a second-step merger after acquisition of a majority of the target shares, rather than 90% of those shares. Under the amended statute:

  • "Interested stockholders," including controlling stockholders and third-party buyers who enter into tender and support agreements with large stockholders, can take advantage of the Section 251(h) process.
  • The parties can choose to switch from a tender offer to a single-step merger, rather than conclusively opt in to Section 251(h).
  • The second-step merger can proceed before the buyer pays for the tendered shares.

The other amendments relate to:

  • Charter amendments. An amendment to the DGCL authorizes a corporation to amend its charter without stockholder approval to change the corporate name or delete certain historical provisions.
  • Escrow of written consents. Amendments to the DGCL, LLC Act, DRULPA and DRUPA allow the escrow of written consents by individuals who are not yet directors, stockholders, members or partners of their respective entities, as long as the signor holds that position as of the relevant record date.
  • Current records. Amendments to the LLC Act and DRULPA require their respective entities to maintain current records of the names and addresses of their members, managers or partners, as applicable, and to make those records available on request.
  • Dissolution. Amendments to the LLC Act and DRULPA provide additional means for these entities to revoke dissolution.

For more on these amendments and their purposes, see Legal Update, Delaware 2014 Statutory Amendments Signed into Law.

About Practical Law

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