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Massachusetts Attorney General Proposes New Advertising Regulations With Global Reach

Feb. 25, 2009

The Massachusetts Attorney General’s Office has proposed amendments to its Retail Advertising Regulations to expand the reach of its coverage to internet advertising, simplify the requirements for price comparison analyses, and address a host of other issues relating to retail advertising. The proposed regulations are of significance to retailers located in any jurisdiction or country, since they apply to any advertisement “accessible to Massachusetts consumers on the Internet.” As with prior versions of the regulations, violations of any provisions are considered “unfair and deceptive acts” under the state consumer protection act, Mass. Gen. L. c. 93A. The Attorney General’s Office is holding hearings on these proposed amendments during the month of February 2009, and anticipates filing final revised regulations in the spring.

There are a number of proposed changes in the regulations of importance to all retailers selling goods over the internet, regardless of where located.

Scope of Definition of Internet Advertising

  • “Advertisement” is redefined to include representations made on the internet, and to include representations “accessible to Massachusetts consumers on the internet.” “Disseminate” also is redefined to include “make available for access on the internet.” The amendments exclude from the definition of “seller,” however, persons who are not engaged in trade or commerce and who place a classified advertisement on the internet (or in another medium).

Form of “Clear and Conspicuous” Disclosures

  • The amendments materially revise the definitions of what is considered a “clear and conspicuous disclosure.” For internet advertising, they add a requirement that all the material terms must be confirmed as “accessed by the consumer” — presumably by means of a click-through acknowledgement — before a purchase transaction can be completed. A disclosure is not “clear and conspicuous” if any material terms that affect the price, impose conditions, or affect the scope of eligibility for a promotion, prize, or program are not disclosed in the advertisement itself, but require reference to an outside source, including but not limited to offers that state “see store for details,” “see web site for details,” or “call this number for additional details.” It is unclear whether including in the website a direct link to further information containing material terms would satisfy this requirement.
  • The proposed amendments make the requirements for clear and conspicuous disclosures in video advertisements applicable to videos accessible on the internet. They also require that for video advertisements in general, any disclosures must appear for a time period that is reasonably sufficient for a viewer to read it, given the length of the disclosure, and in any event for at least three seconds. They delete the requirement that representations must be at least 14 scan lines in height.
  • The amendments delete the requirement that representations relating to the availability of financing, compliance with truth-in-lending requirements, and lease or rent-to-own transactions appear in type which is at least eight points. The amendments keep the requirement, however, that the type face of such representations be at least one-third the size of the largest type face of information they modify.

Price Comparisons and Safe Harbors

  • The amendments prohibit price comparisons unless the seller “clearly and conspicuously describes the basis for the price compensation.” Where the comparison is to a seller’s own former price, the former price must have been a “bona fide, actual price at which the seller offered the product to the public, openly and in good faith.” Two of the new factors in making such a determination are: (1) whether the former price exceeds the seller’s usual and customary retail mark-up for similar merchandise; and (2) the duration of the offering of the current price as compared to the duration of the offer at the former, non-sale price.
  • At the same time, the proposed regulations provide a “safe harbor” in which a former price qualifies as “bona fide.” The safe harbor requirements are met if: (1) during the six months preceding the price comparison, the former price was charged with respect to 40% of the sales of the item; (2) the former price was charged openly and in good faith for the 14 days immediately preceding the comparison price; or (3) the former price is equal to or below the price(s) at which the seller has offered the product for sale in Massachusetts for less than 14 days, and the seller clearly and conspicuously discloses in all advertisements for the product the specific period during which the seller offered the product at the former price.

Prizes

  • For advertisements of “prizes” in conjunction with a sales presentation or promotional contest, under the proposed regulations sellers must make new disclosures, including (1) the address at which individuals may request the identity of prize winners, (2) upon such request, the name and town of residence of each prize winner, date of receipt of the prize and value of the prize, and (3) all other material conditions and limitations related to the prize or contest, which must be included in the official rules made available at the time and place of entry or participation and about which the prospective buyer/entrant must be made aware.

Corrections of Advertisements

  • The proposed regulations add a number of requirements with respect to corrections of advertisements. They require a seller to honor the terms of an advertisement that contains a material error, prior to the posting in the store in close proximity to the advertised product of a correction of the error. There is an exception, however, if (1) the material error is a “gross error” (defined as a price which was never intended as the selling price at any time during the previous 30-day period, and which, for an item with an actual selling price of not more than $20.00, is less than half the price stated by the seller as the actual selling price, or which, for an item with an actual selling price of more than $20.00, is more than 20% below the price stated by the seller as the actual selling price), or (2) if the seller offers a comparable product at comparable savings that is acceptable to the reasonable consumer, until the corrected information is posted within the store.

Miscellaneous Provisions

  • The amendments require sellers to have available at the service desk or other identified locations in the store, for customer review, copies of any disseminated advertisements for the duration of the sale.
  • The amendments prohibit the sale or distribution of products in Massachusetts subject to a recall after the date of a recall.
  • In the case of hard goods individually identified for sale, the exemption from the specific disclosure requirements for such goods is increased from goods offered for sale at a price under $25.00 to a price under $50.00. Similarly, the price floor triggering specialized notification requirements for “rainchecks” for products or services is increased from $25.00 to $50.00.

For more information about this alert, please contact the attorneys listed below:

Janice Howe, Co-Chair, Consumer Products Litigation
janice.howe@bingham.com, 617.951.8504

Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained herein does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose.

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