Fast Track Interview

Adrian Bye: Today, I’m talking with Jim Kaminski, an attorney who has worked at the Federal Trade Commission (FTC) and is now a partner at Hughes and Bentzen, PLLC, a law firm in Washington D.C. He’s going to share with us a little about consumer protection issues. Jim, can you start by telling us a little bit about yourself?

Jim Kaminski: Sure. I’m originally from Gary, Indiana, which is about 45 minutes southeast of downtown Chicago. I’ve been studying foreign languages my entire life. I even studied in France and worked in Russia. I went to Indiana University and received a Political Science degree. After college, I lived in Moscow. When I came back, I started working (including interpreting) for a human rights organization north of Chicago. Eventually, I went to law school.

Upon graduation, I moved to Washington, D.C., and my first job was at the Federal Trade Commission. I stayed there for almost three years. Then I moved into a large D.C. law firm with a heavy advertising, marketing, and consumer protection practice. Oddly enough, three months after I started, the entire practice moved to another firm. I stayed and was really the FTC point of contact at that firm. I received a lot of experience within a broad range of areas. I stayed there for almost eight years. Then I decided to take a big risk. As of February, I have been a partner at another D.C. firm named Hughes and Bentzen, PLLC.

Adrian Bye: Obviously, you’re in a contentious and interesting area. What is it like working in consumer protection?

Jim Kaminski: The first thing is not to underestimate the resources the FTC has available. When the government feels an issue is important, they’re able to throw resources at it. When I started working at the FTC in 1998, the Web was in existence, but things were still new. The FTC put a lot of resources into learning about the technologies, how to police it, and what the new issues would be. They also went across the country and taught other government agencies how to do the same thing.

Another important issue is how the FTC forms its policies. They listen a lot to consumer complaints. They have pretty vast databases of consumer complaints that are affiliated with other organizations, including the state level and private sector. They’re able to really gauge what the public feels is deceptive.

The consumer protection/trade regulation issues are also extremely political. The FTC’s staff has what they perceive as important issues and possible violations of the FTC Act. Then you have Congress a couple of blocks away that can pass legislation and order the FTC to take on issues. When we see Congress becoming involved in an issue, such as the CAN-SPAM Act of 2003, people need to be very careful.

Adrian Bye: What occurs at the FTC when you find a lot of complaints about someone in the databases? How do you go through and actually stop what they’re doing?

Jim Kaminski: The FTC generally tries to bring lawsuits or law enforcement actions that have several different impacts. A few minutes on the evening news is the equivalent of many millions of consumer-alert brochures they could publish. If they choose cases that are more likely to get a lot of press, they can alert industry and consumers at the same time.

Keep in mind that the antitrust and the consumer protection portions of the FTC are two separate bureaus: the Bureau of Competition and the Bureau of Consumer Protection. Your antitrust cases are going to be larger. On the consumer protection side, the FTC will take on a small case if it is something that is high-profile or politically in vogue. That’s what we’re seeing now with behavioral marketing.

Adrian Bye: A friend of mine had a consent decree issued against him a couple years ago. He had a process where if you bought his product, you could continue to resell it. It would teach you Internet marketing. The FTC stopped him saying that the number of people that could’ve bought it after he got through a couple of years can exceed the population of the Earth. In a case like that, how would they have found out about it?

Jim Kaminski: I used to be the Multilevel Marketing Coordinator between the FTC and each state’s attorney general.

They are probably looking for consumers in marketing programs who were losing in spite of the earnings claims. The issue is a pretty standard marketing law that if you have a testimonial or an earnings claim it has to be true for the typical person. If you structure a marketing plan in that manner, a certain percentage of the participants are never going to earn the amount claimed in the earnings claim. On its face, that earnings claim is deceptive.

I’m not saying that you can’t set up a program like that. What I’m saying is that if you don’t do it properly, you can run afoul of the FTC Act.

Adrian Bye: How does that actually work for the owner when the FTC tells them to stop? Does someone come to your door or do you get a letter in the mail?

Jim Kaminski: You can get a letter in the mail that’s voluntary and asking you to send in information about your practices. You can get an administrative subpoena, called a C.I.D., in which case compliance with that subpoena has the force of law. You can have people show up at your business saying they have a receiver with them. They’ve been to a court, and they filed a lawsuit against you under seal. The judge appointed a receiver, and you’re no longer in control of your business because the receiver is. That’s a drastic measure that does occur.

Adrian Bye: What do you do in a scenario like that? Basically one day, everything is fine. Then the next day, everything is shut down.

Jim Kaminski: You call an attorney. When you’re going up against an 800-pound gorilla that just happens to be the government, don’t do it alone. If you’re getting a call from the FTC, it’s very likely that a law enforcement action has already been initiated internally.

Adrian Bye: Let’s say you’re working with someone, and one of your partners is taking some risks by doing some aggressive things. How are partners generally affected in these situations?

Jim Kaminski: The general rule is that if you’re a principle in a company and your partner is initiating a marketing campaign that typically runs afoul of one of the deception or unfair practices, acts, or statutes, the company itself is going to be liable for that. Keep in mind that the FTC and the states are able to easily pierce the corporate veil under these circumstances. Typically, you’ll see the company named in an action as well as the principles.

Suppliers also have liability under the FTC Act. For example, Company X is an ad agency that’s developing copy for Company Y. Company X could have liability if it produces deceptive or unsubstantiated copy for Company Y.

List providers have to be pretty careful. There’s case law that says if they were aware that their lists were going to be used to run a telemarketing campaign that involved deceptive marketing materials, the provider could get in trouble for that.

Adrian Bye: What about negative option programs, which we call continuity programs?

Jim Kaminski: It’s an issue the FTC is very concerned about. The key here is to make sure that the terms of that agreement are clearly and conspicuously disclosed. In other words, consumers have to know that they’re getting into a continuity program. It raises many red flags if customers don’t know and then complain that “I have false charges placed on my credit cards.” That’s basically fraud, even though many times it’s just a misunderstanding.

I’m kind of using that word a little generically. The FTC doesn’t have the ability to prosecute fraud because it doesn’t have criminal authority. The Department of Justice does, though. The FTC might consider it to rise to the level of fraud, but they’re going to still prosecute it as an unfair, deceptive trade practice.

Adrian Bye: What does it mean that the FTC is very concerned about it?

Jim Kaminski: The FTC has been running workshops on negative options marketing. I don’t have the specific dates in front of me, but it illustrates the point that the FTC is very concerned about the disclosures associated with negative options. I would caution everyone that this is something that is really on the radar screen and to be careful. I know that it’s extremely profitable, but you need to make sure that it’s being done right.

Adrian Bye: What are some examples of typical disclosures people do wrong that they should be doing differently?

Jim Kaminski: Sometimes, there’s not a whole lot of guidance. You have to look at case law, what other people are doing, and what the FTC has done in the past. You have to intuit as well. You can end up with the gold standard of disclosure, which is basically stopping everything, putting on the blinking lights, telling the consumer what it is you want to disclose, and having them “X” here to agree to it. We all know that’s not going to fly from a marketing standpoint. As you make your disclosures more discreet, you’re less likely to have a clear and conspicuous disclosure.

Adrian Bye: Do you have specific examples of things people have changed?

Jim Kaminski: You can make something an opt-in. You can make them put an “X” in a click box. By the way when I’m talking like this, I have to give the typical lawyer disclosure that I’m not issuing legal advice. I’m just giving a feel for the way these things are done.

You can use the click box that says, “Click here if you understand that you will be charged monthly on your credit card.” If it’s not clicked, you can have a window pop up that says the same thing. That is an example of a very clear and conspicuous disclosure because it takes an affirmative response. There are other ways to do it, but that’s a typical example.

Adrian Bye: What about CAN-SPAM?

Jim Kaminski: I worked on CAN-SPAM mainly in private practice. Actually, I just had a conversation with an FTC official about it. A new regulation will be coming out by the end of the year. It is going to address the issues of how you define who a sender is.

For example, we were in a situation where an electronic newsletter had many different advertisers contributing to it. It became a gray area as to whether every person that submitted marketing material for that electronic newsletter would qualify as a sender under CAN-SPAM. If that were the situation, an opt-out request made by a consumer would have to be transmitted to every person who submitted advertising for the newsletter. It would be a disaster.

The FTC issued a proposed rule. It’s not a final rule yet. They set a standard for how to determine whether or not a person is a sender. What happens under that scenario is that if it’s done properly and you follow the FTC’s guidelines under its CAN-SPAM proposed regulation, all the other advertisers in the newsletter would be excluded from any compliance obligations. In other words, if you have 10 people sending advertising through an electronic newsletter, you could have it so that only one person is considered the sender of it for legal reasons.

Adrian Bye: Are there any things that we haven’t talked about which you would like to?

Jim Kaminski: I have a very broad practice that involves advertising, marketing, privacy, sweepstakes, telemarketing, e-mail, and direct mail.

I had a talk with the Executive Director of the Electronic Retailing Self-Regulatory Program to get a read from him as to where the organization was going. It’s basically the self-regulatory body for the Electronic Retailing Association. In other words, people can be challenged there or you can challenge a competitor in this forum. The results are not binding. However, when most people are in front of this forum, they are told they need to change something about their marketing program. The compliance levels are pretty high. If people don’t comply, then they might send you to a government body like the FTC. The FTC takes those referrals pretty seriously. He told me that they brought over 200 cases now since inception in 2004. They do a lot with health products.

They’re starting to take a very close look at home-based businesses and claims on Google. They’re also starting to screen YouTube and other third-party sites for deceptive claims and practices.

Adrian Bye: Specifically, what does that mean?

Jim Kaminski: If you get a letter from this organization, you need to be careful and take it seriously. It also means that if you’re dismayed about a competitor or what a competitor is doing, you also can possibly initiate a self-regulatory action in this forum.

There’s another one called the National Advertising Division, the NAD. That’s for more traditional advertising and marketing and is associated with the Counsel of Better Business Bureaus. You can have advertising challenged or defended there. If the NAD makes a recommendation about your advertising and you don’t adhere to it, they can send you to a government body like the FTC or state’s attorney general. These are attempts for industry to regulate itself.

Adrian Bye: You’ve done work in telemarketing, CAN-SPAM, negative options, and privacy policies. Is there any one big, outstanding piece of news that we should know about?

Jim Kaminski: The FTC is probably going to ban recorded messages in telemarketing by the end of the year unless you get written consent. Hopefully, we’re not going to see any activity on the Hill regarding behavioral marketing, but something is going to be done. I don’t know if it’s going to be more self-regulatory efforts or if the FTC is going to issue guidance material on what you should and should not do. The CAN-SPAM regulation coming out is going to have certain implications for e-mail as well.