Deck 13: Consumer Law

Question 1

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT
The FTC's Guideline Regulating Astroturfing
A stroturfing is a term that was first used in politics. Long before the Internet existed, the preferred way of influencing legislation was to "write your congressperson." Groups opposed to or in favor of particular legislation would send out a call for letters to be sent to members of Congress. In that way, it appeared that there was a "grass roots" campaign to initiate, approve, or oppose the legislation. AstroTurf is artificial grass. Hence the term astroturfing.
Today, the term also refers to posting fake reviews of products and services online in return for payment. Some have argued that Microsoft is one of hundreds of companies that engage in astroturfing to promote their products.
Astroturfing may take the form of tweets, blog posts, Facebook comments, and Amazon.com reviews, among others. This modern-day version of word-of-mouth advertising is popular because consumers tend to trust reviews written by other consumers. An estimated 60 percent of consumers read online reviews before making a purchase.
Astroturfing Is Everywhere
It has been estimated that from 20 to 40 percent of all online reviews are fake. Indeed, among social media reviews alone, more than 15 percent are undercover promotions, according to the technology research and advisory company Gartner.
A plethora of online reviewing companies pay their reviewers. These reviewers may use a company-written review, which is then posted on several online forums under the writers' own user names or e-mail addresses. It is certainly legal to write such reviews, but failing to disclose the connection between the writer and the employer is illegal.
The FTC Steps In
The act that created the Federal Trade Commission (FTC) states, "Unfair methods of competition and dissemination of false advertisements are illegal." c Nonetheless, the FTC did not at first actively pursue online astroturfers. State attorneys general, however, began to sue companies that created fake reviews. One of the first cases occurred in New York in 2009 when that state's attorney general sued Lifestyle Lift, a cosmetic surgery company. Its employees were posting fake consumer reviews online.
Finally, for the first time in over twenty-nine years, the FTC amended its guidelines in an effort to crack down on false reviews posted online. By the time you read this, these guidelines will be in effect. They require full disclosure of all payments to bloggers and consumer reviewers. For instance, anyone who is on a company's payroll must disclose that information when posting online comments, testimonials, or reviews about the company's products or services.
Consumer advocates believe that the new guidelines include blogs by average consumers. If a consumer blogger has received free product samples, the blogger must disclose this fact when reviewing the product. The FTC also can now require proof to support claims about a product. Many companies will have to revise their marketing strategies to ensure compliance with the new FTC rules.
Critical Thinking
In the long run, is astroturfing likely to benefit a company that is selling an inferior product Why or why not

Answer 1

Astroturfing is a term which refers posting or publishing false reviews of products or services online with an offer for payment. Nowadays, online customers ensure or verify the reviews of the product or service before buying them or placing an order.
If an inferior product is made popular by astroturfing, and a customer purchases this product, definitely, the customer will come to know the real worth of the product in the due course of his use. Then he may give negative remarks for the product and thus, the company's sales will get affected. Thus, this process will affect the seller's sales and reputation in the long run.
In the long run, every customer will come to know about this false popularity of the product and thus may think of the company negatively which will negatively affect the brand image of the company. Thus, astroturfing is a dangerous game which will ruin the player in the long-run.

Question 2

Unsolicited Merchandise. Andrew, a resident of California, received an advertising circular in the U.S. mail announcing a new line of regional cookbooks distributed by the Every-Kind Cookbook Co. Andrew didn't want any books and threw the circular away. Two days later, Andrew received in the mail an introductory cookbook entitled Lower Mongolian Regional Cookbook, as announced in the circular, on a "trial basis" from Every-Kind. Andrew was not interested but did not go to the trouble to return the cookbook. Every-Kind demanded payment of $20.95 for the Lower Mongolian Regional Cookbook. Discuss whether Andrew can be required to pay for the book. (See Advertising, Marketing, and Sales. )

Answer 2

Statutes protect consumers by making the seller businesses disclose the rules regulating the door-to-door sales, mail-order sales, unwanted merchandise etc.
Facts : In this case, Mr. A received a mail stating that a new kind of book series is available from E. seller. Two days later, Mr. A received a parcel of a book saying it is an introductory or trial book from E seller. When Mr. A did not return the book, E seller charged Mr. A with the price of the book.
Outcome : This case is a clear case of deceptive selling. In this case, Mr. A never showed interest in buying the book, nor he placed an order with the E seller, nor he inquired about it. E seller voluntarily sent the book as a trial and after some time demanded payment of the book. In this case, if the seller voluntarily sends a book as a trial or introductory, it is deemed to be considered as a gift and Mr. A is not bound to return the gift as it is presented to him without his consent. E seller has no right to demand any payment for the book.

Question 3

BEYOND OUR BORDERS
Europe Bans Foods That Americans Eat
Many Americans believe that the foods sold in our country are some of the safest foods on earth. The Food and Drug Administration (FDA) and other government agencies regulate much of what we eat. Nonetheless, the European Union (EU) and a number of other countries, such as Canada, have banned many common processed foods that the FDA assumes to be safe for human consumption.
Internationally Banned Ingredients
The following ingredients are banned throughout Europe and in some other places.
• Olestra/Olean.
• Brominated vegetable oil.
• Potassium bromate.
• Azodicarbonamide.
• BHA and BHT.
Consequently, any processed foods made in the United States that have these ingredients are banned in the EU and elsewhere. These foods include some soft drinks, such as Mountain Dew, numerous breakfast cereals, and some reconstituted potato chips. Many sports drinks, such as Gatorade, contain brominated vegetable oil. They are therefore banned in the EU. The chemical azodicarbonamide may be found in bagels, bread, and tortillas (as well as flip-flops and yoga mats). Such foods are banned in the EU if they contain this substance.
Banned Colorings
Many countries also ban the use of certain food colorings, such as Blue #1, Blue #2, Blue #3, Yellow #5, Yellow #6, and Red 40. Therefore, some countries, particularly in Europe, have banned Nutri-Grain bars because they contain Blue #1 food coloring. Austria and Norway have banned Yellow #5. Therefore, you will find no Kraft Macaroni Cheese in those nations. M Ms in Europe do not have Blue #2 coloring, as they do in the United States.
Critical Thinking
One chemist claims that the list of "dangerous" chemicals is an example of "chemophobia." What do you think he meant

Answer 3

Some individuals have distrusts or dislikes of anything seen as chemical which is termed as chemophobia. Chemophobia term is non-clinical as it is not recognized as an actual irrational fear, but rather describes a set of prejudices against chemicals. Chemophobia is an irrational psychological habit.
In the given question, some countries banned many common processed foods that the FDA assumes to be safe for human consumption. Consequently, any processed foods made in the united states that have banned ingredients are not allowed in the Country EU and elsewhere. Additionally, many countries also ban the use of certain food colorings.
One chemist claims that the list of dangerous chemicals is an example of Chemophobia. It is because even after FDA's assurance that coloring and preservatives used in the foods are safe for human consumption, some countries have still banned the food products. The countries have banned those ingredients and colorings because of irrational fear associated with that.

Question 4

POM Wonderful, LLC v. Federal Trade Commission
United States Court of Appeals, District of Columbia Circuit, 777 F.3d 478 (2015).
FACTS POM Wonderful, LLC makes and sells pomegranate-based products. In ads, POM touted medical studies claiming to show that daily consumption of its products could treat, prevent, or reduce the risk of heart disease, prostate cancer, and erectile dysfunction. These ads mischaracterized the scientific evidence.
The Federal Trade Commission (FTC) charged POM with, and held POM liable for, making false, misleading, and unsubstantiated representations in violation of the FTC Act. POM was barred from running future ads asserting that its products treat or prevent any disease unless "randomized, controlled, human clinical trials" (RCTs, for "randomized controlled trials") demonstrated statistically significant results. POM petitioned the U.S. Court of Appeals for the District of Columbia Circuit to review this injunctive order.
ISSUE Can an advertising claim based on limited scientific evidence be deemed deceptive
DECISION Yes. The U.S. Court of Appeals for the District of Columbia Circuit enforced the FTC's order. "An advertiser who makes express representations about the level of support for a particular claim must possess the level of proof claimed in the ad and must convey that information to consumers in a non-misleading way."
REASON POM's ads conveyed the impression that clinical studies had established the ability of its products to treat, prevent, or reduce the risk of serious disease. To establish such a relationship, however, requires RCTs. The FTC examined the studies that POM cited and concluded that the studies did not qualify as RCTs that would adequately substantiate POM's claims.
Experts in cardiology and urology require "randomized, double-blinded, placebo-controlled clinical trials to substantiate any claim that a product treats, prevents, or reduces the risk of disease." Investigators can use an RCT's control group to distinguish the real effects of a tested product from other changes, such as those due to the act of being treated (the placebo effect). The random assignment of a subject to a treatment or control group increases the likelihood that the groups are similar, so that any difference in the outcome between the groups can be attributed to the treatment. When a study is double-blinded, the participants and the investigators do not know who is in which group, making bias less likely to affect the results.

CRITICAL THINKING-Ethical Consideration POM argued that it is unethical to require RCTs to substantiate disease-related claims about food products because "doctors cannot... ethically deprive a control group of patients of all Vitamin C for a decade to determine whether Vitamin C helps prevent cancer." Is this a valid argument Why or why not

Question 5

Laws against bait-and-switch advertising should be abolished because no consumer is ever forced to buy anything.

Question 6

United Pharmaceuticals, Inc., has developed a new drug that it believes will be effective in the treatment of patients with AIDS. The drug has had only limited testing, but United wants to make the drug widely available as soon as possible. To market the drug, what must United prove to the U.S. Food and Drug Administration (See Protection of Health and Safety.)

Question 7

When will advertising be deemed deceptive

Question 8

Leota Sage saw a local motorcycle dealer's newspaper advertisement offering a MetroRider EZ electric scooter for $1,699. When she went to the dealership, however, she learned that the EZ model had been sold out. The salesperson told Sage that he still had the higher-end MetroRider FX model in stock for $2,199 and would sell her one for $1,999. Sage was disappointed but decided to purchase the FX model. When Sage said that she wished to purchase the scooter on credit, she was directed to the dealer's credit department. As she filled out the credit forms, the clerk told Sage, who is an Asian American, that she would need a cosigner to obtain a loan. Sage could not understand why she would need a cosigner and asked to speak to the store manager. The manager apologized, told her that the clerk was mistaken, and said that he would speak to the clerk about that. The manager completed Sage's credit application, and Sage then rode the scooter home. Seven months later, Sage received a letter from the manufacturer informing her that a flaw had been discovered in the scooter's braking system and that the model had been recalled. Using the information presented in the chapter, answer the following questions.
Did the dealer engage in deceptive advertising Why or why not

Question 9

Question with Sample Answer-Credit Protection. Maria Ochoa receives two new credit cards on May 1. She had solicited one of them from Midtown Department Store, and the other arrived unsolicited from High-Flying Airlines. During the month of May, Ochoa makes numerous credit-card purchases from Midtown Department Store, but she does not use the High-Flying Airlines card. On May 31, a burglar breaks into Ochoa's home and steals both credit cards, along with other items. Ochoa notifies Midtown Department Store of the theft on June 2, but she fails to notify High-Flying Airlines. Using the Midtown credit card, the burglar makes a $500 purchase on June 1 and a $200 purchase on June 3. The burglar then charges a vacation flight on the High-Flying Airlines card for $1,000 on June 5. Ochoa receives the bills for these charges and refuses to pay them. Discuss Ochoa's liability in these situations

Question 10

Lexmark International, Inc. v. Static Control Components, Inc.
United States Supreme Court, __ U.S. __, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014).
FACTS Lexmark International, Inc., sells the only style of toner cartridges that work with the company's laser printers. Other businesses-known as remanufacturers-acquire and refurbish used Lexmark cartridges to sell in competition with the cartridges sold by Lexmark. To deter remanufacturing, Lexmark introduced a program that gave customers a 20-percent discount on new toner cartridges if they agreed to return the empty cartridges to Lexmark. Static Control Components, Inc., makes and sells components for the remanufactured cartridges, including microchips that mimic the chips in Lexmark's cartridges.
Lexmark released ads that claimed Static Control's microchips illegally infringed Lexmark's patents. Lexmark then filed a suit in a federal district court against Static Control, alleging violations of intellectual property law. Static Control counterclaimed, alleging that Lexmark engaged in false advertising in violation of the Lanham Act. The court dismissed the counterclaim. On Static Control's appeal, the U.S. Court of Appeals for the Sixth Circuit reversed the dismissal. Lexmark appealed to the United States Supreme Court.

ISSUE Did Static Control adequately plead the elements of a cause of action under the Lanham Act for false advertising
DECISION Yes. The United States Supreme Court affirmed the lower court's ruling. The Supreme Court's decision clarified that businesses do not need to be direct competitors to bring an action for false advertising under the act.
REASON A cause of action for false advertising under the Lanham Act extends to plaintiffs whose interests "fall within the zone of interests protected by the law." To establish a claim, a plaintiff must allege an injury to a commercial interest in reputation or sales. The injury must have been proximately caused by a violation of the statute, which can be shown by a loss in business reputation or sales that directly flows from the defendant's false advertising. Under these principles, Static Control fell within the class of plaintiffs who can sue under the Lanham Act.
Static Control alleged injuries consisting of lost sales and damage to its business reputation by Lexmark's advertising. Static Control also alleged that the injuries were proximately caused by the ads. The misrepresentations included Lexmark's assertion that Static Control's business was illegal. And because Static Control's microchips were necessary for, and had no other use than, refurbishing Lexmark's cartridges, any false advertising that reduced the remanufacturers' business also injured Static Control.
WHAT IF THE FACTS WERE DIFFERENT Suppose that Lexmark had issued a retraction of its ad claims before this case reached the Supreme Court. Would the outcome have been different Discuss.

Question 11

Gert buys a laptop computer from EZ Electronics. She pays for it with her credit card. When the laptop proves defective, she asks EZ to repair or replace it, but EZ refuses. What can Gert do (See Credit Protection. )

Question 12

What information must be listed on the labels of food products

Question 13

Spotlight on McDonald's-Food Labeling. A McDonald's Happy Meal ® consists of an entrée, a small order of French fries, a small drink, and a toy. In the early 1990s, McDonald's Corp. began to aim its Happy Meal marketing at children aged one to three. In 1995, McDonald's began making nutritional information for its food products available in documents known as "McDonald's Nutrition Facts." Each document lists the food items that the restaurant serves and provides a nutritional breakdown, but the Happy Meal is not included.
Marc Cohen filed a suit in an Illinois state court against McDonald's. Cohen alleged, among other things, that McDonald's had violated a state law prohibiting consumer fraud and deceptive business practices by failing to follow the Nutrition Labeling and Education Act (NLEA) of 1990. The NLEA sets out different, less detailed requirements for products specifically intended for children under the age of four. Does it make sense to have different requirements for children of this age Why or why not Should a state court impose regulations where the NLEA has not done so Explain. [ Cohen v. McDonald's Corp., 347 Ill.App.3d 627, 808 N.E.2d 1, 283 Ill.Dec. 451 (1 Dist. 2004)] (See Labeling and Packaging. )

Question 14

Paduano v. American Honda Motor Co.
California Court of Appeal, Fourth District, 169 Cal.App.4th 1453, 88 Cal.Rptr.3d 90 (2009).
FACTS Gaetano Paduano bought a new Honda Civic Hybrid in California. The information label on the car stated that the fuel economy estimates from the Environmental Protection Agency (EPA) were forty-seven miles per gallon (mpg) and forty- eight mpg for city and highway driving, respectively. Honda's sales brochure added, " Just drive the Hybrid like you would a conventional car and save on fuel bills." Paduano soon became frustrated with the car's fuel economy, which was less than half of the EPA's estimate.

When Honda refused to repurchase the vehicle, Paduano filed a suit in a California state court against the automaker, alleging deceptive advertising in violation of the state's Consumer Legal Remedies Act and Unfair Competition Law. Honda argued that the federal Energy Policy and Conservation Act (EPCA), which prescribed the EPA's fuel economy estimate, preempted Paduano's claims under the state statute. The court issued a summary judgment in Honda's favor. Paduano appealed to a state intermediate appellate court.
ISSUE Does a federal law with respect to fuel economy estimates preempt a state claim for deceptive advertising against an automobile manufacturer
DECISION NO. The California Court of Appeal for the Fourth District concluded that federal law did not preempt Paduano's claims concerning Honda's advertising. The court reversed the judgement of the trial court and remanded the case.
Reason The reviewing court examined the basic rules of preemption that were not in dispute. Clearly, Congress has the power "to preempt state law concerning matters that lie within the authority of Congress. In determining whether federal law prempts state law, a court's task is to discern congressional intent."
Honda argued that the federal EPCA prevented Paduano from pursuing his claims. According to this argument, Paduano's claims of deceptive advertising and misrepresentation violated the EPCA's provision that prevents states from enforcing disclosure regulations that are not identical to the federal ones. The state intermediate appellate court did not agree, however. Paduano was not asking Honda to do anything different with respect to its disclosure of the EPA mileage estimates. Rather, Paduano sought to " prevent Honda from making misleading claims about how easy it is to achieve better fuel economy." The state should be allowed to regulate false advertising, and in so doing, may even further the EPCA's goals.
What does the interpretation of the law in this case suggest to businesspersons who sell products labeled with statements mandated by federal or state law

Question 15

What law protects consumers against contaminated and misbranded foods and drugs

Question 16

Debt Collection. 55th Management Corp. in New York City owns residential property that it leases to various tenants. In June 2000, claiming that one of the tenants, Leslie Goldman, owed more than $13,000 in back rent, 55th retained Jeffrey Cohen, an attorney, to initiate nonpayment proceedings. Cohen filed a petition in a New York state court against Goldman, seeking recovery of the unpaid rent and at least $3,000 in attorneys' fees. After receiving notice of the petition, Goldman filed a suit in a federal district court against Cohen. Goldman contended that the notice of the petition constituted an initial contact that, under the Fair Debt Collection Practices Act (FDCPA), required a validation notice. Because Cohen did not give Goldman a validation notice at the time or within five days of the notice of the petition, Goldman argued that Cohen was in violation of the FDCPA. Should the filing of a suit in a state court be considered "communication," requiring a debt collector to provide a validation notice under the FDCPA Why or why not [ Goldman v. Cohen, 445 F.3d 152 (2d Cir. 2006)] (See Credit Protection. )

Question 17

What does Regulation Z require, and how does it relate to the Truth-in-Lending Act

Question 18

Deceptive Advertising. Brian Cleary and Rita Burke filed a suit against cigarette maker Philip Morris USA, Inc., seeking class-action status for a claim of deceptive advertising. Cleary and Burke claimed that "light" cigarettes, such as Marlboro Lights, were advertised as safer than regular cigarettes, even though the health effects are the same. They contended that the tobacco companies concealed the true nature of light cigarettes. Philip Morris correctly claimed that it was authorized by the government to advertise cigarettes, including light cigarettes. Assuming that is true, should the plaintiffs still be able to bring a deceptive advertising claim against the tobacco company Why or why not [ Cleary v. Philip Morris USA, Inc., 683 F.Supp.2d 730 (N.D.Ill. 2010)] (See Deceptive Advertising. )

Question 19

What federal statute is aimed at preventing inaccurate credit reporting

Question 20

Business Case Problem with Sample Answer-Fair Debt-Collection Practices. Bank of America hired Atlantic Resource Management, LLC, to collect a debt from Michael Engler. Atlantic called Engler's employer and asked his supervisor about the company's policy concerning the execution of warrants. The caller then told the supervisor that, to stop process of the warrant, Engler needed to call Atlantic about "Case Number 37291 NY0969" during the first three hours of Engler's next shift. When Engler's supervisor told him about the call, Engler feared that he might be arrested, and he experienced discomfort, embarrassment, and emotional distress at work. Can Engler recover under the Fair Debt Collection Practices Act Why or why not [ Engler v. Atlantic Resource Management, LLC, 2012 WL 464728 (W.D.N.Y. 2012)] (See Credit Protection.)
-For a sample answer to Problem 32-4, go to Appendix F at the end of this text.

Question 21

Deceptive Advertising. Innovative Marketing, Inc. (IMI), sold "scareware"-computer security software. IMI's Internet ads redirected consumers to sites where they were told that a scan of their computers had detected dangerous files-viruses, spyware, and "illegal" pornography. In fact, no scans were conducted. Kristy Ross, an IMI cofounder and vice president, reviewed and edited the ads, and was aware of the many complaints that consumers had made about them. An individual can be held liable under the Federal Trade Commission Act's prohibition of deceptive acts or practices if the person (1) participated directly in the deceptive practices or had the authority to control them and (2) had or should have had knowledge of them. Were IMI's ads deceptive If so, can Ross be held liable Explain. [ Federal Trade Commission v. Ross, 743 F.3d 886 (4th Cir. 2014)] (See Advertising, Marketing, and Sales. )

Question 22

A Question of Ethics-Fair Debt-Collection Practices. Barry Sussman graduated from law school, but also served time in prison for attempting to collect debts by posing as an FBI agent. He theorized that if a debtcollection business collected only debts that it owned as a result of buying checks written on accounts with insufficient funds (NSF checks), it would not be subject to the Federal Debt Collection Practices Act (FDCPA). Sussman formed Check Investors, Inc., to act on his theory. Check Investors bought more than 2.2 million NSF checks, with an estimated face value of about $348 million, for pennies on the dollar. Check Investors added a fee of $125 or $130 (more than the legal limit in most states) to the face amount of each check and aggressively pursued its drawer to collect. The firm's employees were told to accuse drawers of being criminals and to threaten them with arrest and prosecution. The threats were false. Check Investors never took steps to initiate a prosecution. The employees contacted the drawers' family members and used "saturation phoning"-phoning a drawer numerous times in a short period. They used abusive language, referring to drawers as "deadbeats," "retards," "thieves," and "idiots." Between January 2000 and January 2003, Check Investors netted more than $10.2 million from its efforts. [ Federal Trade Commission v. Check Investors, Inc., 502 F.3d 159 (3d Cir. 2007)] (See Credit Protection. )
1. The Federal Trade Commission filed a suit in a federal district court against Check Investors and others, alleging, in part, violations of the FDCPA. Was Check Investors a "debt collector," collecting "debts," within the meaning of the FDCPA If so, did its methods violate the FDCPA Were its practices unethical What might Check Investors argue in its defense Discuss.
2. Are "deadbeats" the primary beneficiaries of laws such as the FDCPA If not, how would you characterize debtors who default on their obligations

Question 23

Business Law Critical Thinking Group Assignment. Many states have enacted laws that go even further than federal laws to protect consumers. These laws vary tremendously from state to state. (See Advertising, Marketing, and Sales.)
1. The first group will decide whether having different laws is fair to sellers, who may be prohibited from engaging in a practice in one state that is legal in another.
2. The second group will consider how these different laws might affect a business.
3. A third group will determine whether it is fair that residents of one state have more protection than residents of another.