Insights from Day 2 of the 2024 NAD Conference: FTC Perspectives, Data-Based Claims, Dark Patterns, and Artificial Intelligence

The Bottom Line

• Day two of the NAD Conference featured conversations surrounding a variety of topics from the FTC’s authority to how advertisers can make effective claims without crossing the line.
• Companies should closely follow the impact of the Supreme Court’s recent decision in Loper Bright.
• NAD and the FTC remain focused on the potential risks of using generative AI while interacting with consumers.

The second day of the BBB National Programs’ 2024 National Advertising Division (NAD) annual conference opened with highly notable remarks from FTC Commissioner Holyoak, and closed with an engaging discussion on the responsible use and regulation of artificial intelligence. Here are some key takeaways from different presentations on the second day of the NAD conference.

Remarks of Commissioner Holyoak

FTC Commissioner Melissa Holyoak spoke at the NAD Conference and laid out a vision for the FTC that stands in sharp contrast to current perceptions of the agency’s position on key issues important to the advertising and marketing industry.

Commissioner Holyoak shared her concerns that the FTC may be exceeding the authority delegated to it by Congress by engaging in backdoor rulemaking through its penalty offenses authority and issuing notices of proposed rulemaking without first demonstrating that targeted unfair or deceptive acts or practices are prevalent. The Commissioner cautioned that Congress may decline to give the FTC greater authority (including by restoring its ability to obtain financial penalties under Section 13(b) of the FTC Act) and future funding in light of this overreach.

The Commissioner emphasized that FTC activity should be based on empirical research and evidence-based discussions, and that the agency should use its authority under Section 6(b) of the FTC Act to conduct industry-wide studies before issuing rules or guidance in emerging industries. To illustrate, the Commissioner noted that restrictions on commercial surveillance and behaviorally targeted advertising focus on information asymmetry, but may not consider the fact that these technologies enable free internet for consumers, and that consumers may prefer receiving relevant advertising.

The Commissioner advocated for a more nuanced approach to privacy issues, emphasizing that revising notice and choice practices to address possible consumer concerns may well be a preferred approach, as a focus on data minimization could result in unintended consequences that decrease competition and limit the development of innovative products and services.

Commissioner Holyoak laid out an alternative vision for the FTC’s work on privacy and AI, in which:

• The agency focuses on tailored enforcement actions to protect sensitive data, rather than enact sweeping rules that focus on all types of data. A particular focus would be placed on harm to consumers from the mishandling of children’s data or precise geolocation data relating to political or religious preferences.

• The agency focuses on researching and understanding potential harms and benefits presented by AI. Specifically, the agency should approach AI by (1) engaging in targeted enforcement to stop AI-powered fraud, like voice cloning used to commit fraud; (2) protecting consumers from deception about AI capabilities; (3) examining AI usage to ensure compliance with existing laws; and (4) looking at AI as a market-wide issue, with a focus on its impact on competition.

FTC Rulemaking, Court Decisions, and NAD Decisions

Panelists outlined that though NAD seeks to harmonize its decisions with FTC rules and guidance, courts may diverge from such. For example, some courts have been more willing to find disclosures on the back of product packaging sufficient in qualifying marketing claims on the front of product packaging, and courts have generally taken a different approach to “up to” claims than NAD and the FTC.

Under the recent Supreme Court decision in Loper Bright, courts cannot simply defer to an agency’s interpretation of a statute, but instead must exercise independent judgment when determining whether an agency acted within its statutory authority.

While Loper Bright is unlikely to directly impact most FTC false advertising cases (as the FTC’s determination that a claim is unfair or deceptive under Section 5(a) of the FTC Act is a finding of fact, rather than law), it will impact FTC cases enforcing statutory rules.

The FTC’s use of its Penalty Offense Authority under Section 5(m)(1)(b) of the FTC Act may also be vulnerable to challenge. Following the Supreme Court’s decision in AMG Capital Management LLC v. FTC, the agency has increasingly turned to other authorities to obtain monetary penalties. Under its Penalty Offense Authority, the FTC can seek civil penalties against companies that knowingly engage in conduct that the FTC has determined in a litigated administrative case to be unfair or deceptive. However, in situations where a determination of deception is fact-specific and requires a judgement call – such as determining if an advertiser has a “reasonable basis” for a claim, as noted in the FTC’s Notice of Penalty Offenses Concerning Substantiation of Product Claims – this practice may be challenged.

Data-Based Claims

It is a fundamental principle of advertising law that data must be a “good fit” for a claim – meaning that that an advertising claim cannot be broader than the support for such. The conference featured a discussion of this principle, noting that:

Dark Patterns

Dark patterns, or user interfaces designed to override a user’s own judgment, remain a focus of the state and federal regulators.

• In enforcement actions against Amazon and Adobe, the FTC has focused on deceptive subscription practices such as failure to sufficiently provide material terms, and difficult cancellation procedures.
• In an FTC and CA AG enforcement action against CRI Genetics, the regulators focused on deceptively formatted marketing websites designed to look like independent review sites, fake customer reviews, and a practice of trapping consumers into making purchases by deceptively labeling pop-ups as transaction steps.
• The NY AG brought an enforcement action against Fareportal, focusing on fake countdown clocks, false messages about a limited number of tickets available at advertised price, and false claims that specific number of consumers were currently looking at the same tickets.
• The PA AG brought an enforcement action against Marriott for engaging in drip pricing by failing to list fees (like resort and amenity fees) in the total price of the hotel room, and only disclosing such when a customer is in the final steps of the purchasing process, or upon check-in.
• In Pier 1 Imports Online, Inc. (Pier 1 Rewards), NAD determined that the advertiser’s practice of automatically adding a paid subscription-based customer loyalty program to a consumer’s cart (as a pre-selected option) was misleading and recommended that material terms of the subscription be clearly and conspicuously disclosed.

Artificial Intelligence

It would not be a conference in 2024 without a robust discussion of artificial intelligence. Some states have enacted AI-specific laws, and hundreds of bills have been proposed to help regulate this emerging technology, ranging from those focused on specific use cases and outcomes, to bills focused on models that could potentially cause harm.

Given the potential for consumer harm, the FTC and NAD have flagged this area as a priority for enforcement and monitoring inquiries.

• The FTC ordered eight companies offering surveillance pricing products and services that incorporate data about customer’s characteristics and behaviors to provide information about the potential impact that these practices have on privacy, competition and consumer protection.
• The FTC and Los Angeles District Attorney’s office issued an order banning NGL Labs from offering anonymous messaging apps to kids under the age of 18 and requiring the company to cease making deceptive claims about AI content moderation.
• NAD opened an independent monitoring inquiry into advertising for Google Gemini that depicted the performance of Gemini in responding to user voice and video prompts, as well as the timing or pace of Gemini’s responses. Google agreed to voluntarily unlist the video.
• CARU opened an investigation into KidGeni, a website based on generative AI technology. CARU determined that the website violated CARU Privacy Guidelines and COPPA, and in part required that the website take necessary steps to ensure that there is no collection, retention, or use of children’s personal information to develop or deploy machine learning or similar algorithms.  

All in all – another terrific NAD Law Conference. See you next year in Washington DC for the BBB National Programs’ 2025 NAD Annual Conference.