The FTC Weighs In Again On "Up To" Claims

Frankfurt Kurnit Klein & Selz


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The FTC recently announced a proposed settlement with Arise Virtual Solutions, a platform where would-be customer-service representatives seek work and businesses seek remote workers.
United States Media, Telecoms, IT, Entertainment
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The FTC recently announced a proposed settlement with Arise Virtual Solutions, a platform where would-be customer-service representatives seek work and businesses seek remote workers. Arise's platform does the match-making. As alleged in the complaint, Arise "promotes [the work] as a lucrative business opportunity that allows consumers to be their own boss, work from home, and set their own schedule" rather than as a conventional job, and to "entice consumers to enroll in its business opportunity, Defendant that... falsely promised [that] consumers will earn 'up to' $18 per hour working for Arise."

The FTC, in coordination with the Department of Labor (which separately sued Arise for misclassifying its agents as independent contractors rather than employees in violation of the Fair Labor Standards Act), charged Arise with misleading consumers about the money they could make on Arise's platform and marketing a business opportunity without complying with the FTC's Business Opportunity Rule, including the requirement to truthfully disclose the basis for earnings claims to consumers. The proposed settlement requires Arise to pay $7 million, to be refunded to the harmed workers (consumers), and requires it to substantiate any future earnings claims.

There are several noteworthy aspects of this case, including that it is apparently the first case where the Commission has charged a gig economy company with violating the Business Opportunity Rule. Also, the FTC relied on its prior Notice of Penalty Offense to Arise to charge the company with a knowing violation of the Rule. And it's also noteworthy that the complaint specifically calls out the fact that Arise targeted women of color to be workers on the platform.

Because I'm an advertising lawyer, though, this post is going to focus on the ever-confounding "up to" claim issue. (To read about how the 9th Circuit just addressed an "up to" claim, please see my colleague Hannah Taylor's recent blog post). As noted above, Arise ran ads claiming that workers could earn "up to $18 per hour." However, according to the complaint, the "vast majority" earned nowhere near that amount. This, as alleged in the complaint, constituted a violation of the Business Opportunity Rule as well as a false or deceptive practice in violation of Section 5 of the FTC Act.

The proposed settlement prohibits, among other things, Arise from making any earning claims unless it "has in its possession written materials that substantiate the claimed earnings and that the claimed earnings are typical for consumers similarly situated to those to whom the Claim is made" (emphasis added). What would be considered "typical" is not further addressed or defined in the proposed settlement itself, but there's exegesis in Chair Khan's Statement and Commissioner Ferguson's Concurring Statement.

Commissioner Ferguson, although voting to approve the complaint and stipulated order regarding claims that Arise failed to substantiate its "up to" claims under Section 5 of the FTC Act, withheld "judgment on what Section 5 requires for substantiation of "up to" advertising claims," stating that the FTC has articulated inconsistent standards for such claims. According to Commissioner Ferguson, "up to" claims are "highly contextual," and consumers will understand their meaning very differently depending on the nature of the claim, the target audience, and where the claim appears.

The Concurring Statement goes on to say that the FTC's standard has evolved over time from one requiring just an "appreciable number" (i.e., noticeable and non-negligible) of consumers achieving the maximum touted benefit, to "all or almost all" consumers doing so. According to Commissioner Ferguson, this meant that "[c]ompanies went from having to show a relatively small minority had achieved the maximum benefit to having to show that almost every consumer was likely to achieve it" and that companies would be expected to "substantiate that consumers are likely to achieve the maximum results promised under normal circumstances." Commissioner Ferguson then goes on to muse as to whether the "typicality" requirement articulated in the Arise settlement is different from the "likely to achieve" standard and concludes with his refusal to "take a position on these perplexing questions, nor on the Commission's shifting answers."

Chair Khan's Statement rejects the Concurring Statement's characterization of the FTC's position on "up to" claims as an open question. Although Chair Khan agrees that the interpretation of an "up to" claim and what would be required to substantiate it is context-specific, she reiterates that prior cases are clear that "[c]laims that individuals could earn 'up to' a certain amount might lead them to 'reasonably believe that the statements of earnings potential represent typical or average earnings'..." (emphasis added). Certainly, in this case, it wouldn't have been a hard call to determine that the "up to $18/hour" claim was misleading when .1% of consumers actually made that amount, as the complaint alleges. However, most "up to" claims are usually based on a more credible number of consumers achieving the maximum touted benefit.

So, where does this leave us when counseling clients using an "up to" claim, given the potentially conflicting standards for substantiating such a claim at the FTC, in the courts, and at NAD? Clearly, if only a tiny number of consumers can achieve the maximum touted result and the ad communicates something different, that's a problem. Conversely, if most consumers can and do achieve the best touted result, no problem.

But what about the vast middle? Context really does matter, and you should consider first and foremost what is communicated -- or potentially communicated – by the ad. Is it clear that there is a range of possible achievable results or does the overall ad convey typicality? Also, it will always be appropriate to consider what proof is needed for a claim in light of the Pfizer factors, namely "the type of claim, the product, the consequences of a false claim, the benefits of a truthful claim, the cost of developing substantiation for the claim, and the amount of substantiation experts believe is reasonable." Is the nature of the claim such that you should conservatively approach the question of how many consumers achieving the maximum touted benefit is enough?

Unfortunately, there's no magic formula for getting this right, or there wouldn't be conflicting standards. But relying on longstanding truth-in-advertising principles and the good judgment you always need to make those hard advertising law calls will serve you well.

This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

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