State AG Election Winners

With the majority of votes tallied, the projected state AG election winners include:

Pennsylvania is the only state AG race where the party flipped, with Republicans winning the office. In addition, as not all state AGs are elected by popular vote, two states and two territories may have AG changes that will be determined at a later time. In Maine, the AG is selected by a secret ballot of state legislators for a two-year term. The current attorney general is Aaron Frey, who is in his third term and has served since January 2019. It will be up to the legislature to determine whether Attorney General Frey will be elected for a fourth term or if another will be chosen to begin serving in January 2025. In New Hampshire, the AG is appointed by the governor and approved by the Executive Council. John Formella (R) was nominated by Governor Chris Sununu (R) and is the current attorney general, having served since April of 2021. Kelly Ayotte (R and former attorney general) won the open seat for governor and can ask General Formella to continue to serve or nominate a new attorney general. Finally, in American Samoa and Puerto Rico, the attorney general is appointed by the governor. As there were gubernatorial elections this cycle in both jurisdictions, it could impact whether American Samoa Attorney General Fainu’ulelei Falefatu Ala’ilima-Utu and Puerto Rico Attorney General Domingo Emanuelli Hernández continue in their roles.

AG Alums Elected to Other Office

The National Association of Attorneys General (NAAG), a nonpartisan organization of attorneys general, has teasingly been referred to as the “National Association of Aspiring Governors.” This election cycle gives credence to that tease as three current attorneys general have won gubernatorial elections, in addition to former New Hampshire Attorney General Kelly Ayotte, as mentioned above. These include Josh Stein of North Carolina, Bob Ferguson of Washington, and Patrick Morrisey of West Virginia. In addition, former Kansas Attorney General Derek Schmidt has won election to the U.S. Congress. And while this election was not a success for Vice President Kamala Harris, we would be remiss to not remind readers that prior to serving in her current role, she was the California Attorney General. All of this is to say that it is good for businesses to get to know the AGs -- due to their role in enforcing consumer protection laws and because they may move on to other political careers after serving as a state’s top law enforcement official.

In particular, the letter describes how “the Task Force regularly reviews call traffic information provided by several industry sources,” and that based on this data, “it appears that iDentidad is transmitting calls associated with high-volume illegal and/or suspicious robocall campaigns.” These include, for example, “IRS/SSA government imposters, tax relief, financial impersonation, private entity imposters, Chinese-language delivery and impersonations, and utilities disconnect scams, with iDentidad serving as the gateway provider,” as well as several hundred calls to numbers on the National Do Not Call Registry, which caused the Task Force to be “concerned about whether iDentidad is taking any proactive steps to mitigate this traffic.” The letter then suggested that such conduct “could subject iDentidad to damages, civil penalties, injunctions, and other available relief provided to State Attorneys General under both federal and state laws,” including the Telemarketing Sales Rule, Telephone Consumer Protection Act, Truth in Caller ID Act, and “state laws regulating various aspects of the initiation and transmission of illegal robocall and telemarketing call traffic across the U.S. telephone network.”

The letter also highlights the cross-jurisdictional focus of regulators on robocall issues, noting that iDentidad had previously received warnings from both the Federal Trade Commission and Federal Communications Commission about its conduct. And indeed, the same day the Task Force issued its letter, the FCC sent a similar Notification of Suspected Illegal Robocall Traffic to the company, and separately issued a Public Notice to “all U.S.-based voice service providers” informing them that they would be permitted to block call traffic from iDentidad’s network if the company failed to take certain remedial measures to mitigate illegal traffic.

The letter to iDentidad is just the latest example of the Task Force focusing attention on companies that either originate or facilitate alleged unlawful call traffic. Earlier this year, the Task Force sent a similar letter to Texas-based Life Corporation based on its apparent involvement in originating “an artificially generated robocall campaign sought to dissuade New Hampshire voters from participating in” the state’s presidential primary election. And in 2023, 49 Attorneys General filed a joint lawsuit against Avid Telecom in Arizona for allegedly facilitating millions of illegal robocalls across the U.S.

Given the broad bipartisan consensus on combating robocalls, State AGs will undoubtedly continue to pursue investigations and enforcement actions against businesses that they perceive to be in violation of the law.

• Duration of the restrictions: While many states impose price gouging restrictions for 30 days following a declaration of emergency, the duration of price gouging restrictions varies significantly on a state-by-state basis. For example, some states impose restrictions only for the duration of the emergency, while others extend them to 180 days post-emergency for certain goods and services (e.g., repair and construction services). But note that (i) what constitutes an ​“emergency” may be open to interpretation under some state statutes; and (ii) state governors often renew or extend their emergency declarations, which may serve to reset the duration of a statute’s price gouging restrictions.
• Scope of goods and services covered: Price gouging laws generally apply to the sale of essential goods and services. While some state statutes provide a list of what is considered ​“essential” (e.g., food, water, medicine, fuel, medical supplies, and/or lumber, among other things), other states leave ​“essential” up to interpretation. For example, Texas’s price gouging statute provides a catchall provision that prohibits excessive pricing for any ​“necessity.” Based on this statute, in 2020 the Texas Attorney General asserted that businesses had ​“tak[en] advantage of a disaster” and violated state law by increasing the price of ammunition during the Covid-19 pandemic. Lastly, other states (e.g., Connecticut) broadly apply their price gouging laws to any goods or services sold or offered during a state of emergency.
• How ​“price gouging” is defined: The definition of price gouging is often quite vague and varies considerably by state. A handful of states simply refer to price gouging as any ​“excessive” or ​“unconscionable” price without defining those terms. (As we’ve explained in the past, this can—and has—led to litigation regarding the scope and applicability of those states’ price gouging laws.) Other states apply a ​“percentage increase” approach (e.g., offering a price that is ten percent higher than immediately before the emergency constitutes price gouging). A minority of states, including Hawaii, define price gouging as any price increase applied during an emergency. Note that states generally apply these restrictions both at the wholesale and retail level.

In the past few weeks, many states have issued press releases warning companies of increased enforcement relating to price gouging. For example, North Carolina Attorney General Josh Stein announced in a statement that his office recently issued three civil investigative demands in response to complaints about Hurricane Helene-related price gouging. In his statement, he explained that North Carolina plans to ​“aggressively enforce” its price gouging law and that Stein’s office will take a ​“close look at the complaints” they receive. Similarly, Florida Attorney General Ashley Moody has received more than 200 complaints about price gouging in the aftermath of Hurricane Helene and in advance of Hurricane Milton, and has extended the state’s price gouging hotline. And just this week, Michigan Attorney General Dana Nessel testified in support of legislation that would enhance price gouging protections for consumers in the state.

Given the recent surge in natural disasters in the U.S., it is likely that state attorneys general will make price gouging an enforcement priority. Businesses across the supply chain should monitor state emergency declarations and analyze relevant state laws for compliance.

For further discussion on price gouging, register for the American Bar Association’s Tuesday, October 15th webinar, ​“When Should Price Hikes Be Illegal?” Speakers include Kelley Drye’s Paul Singer and discussion will explore regulatory and legislative efforts aimed at controlling price increases. Panelists will discuss presidential candidates’ vows to bring down prices, the legal tools available to do so, and the broader economic impact of price control laws.

The 14-page complaint, filed in the District Court of Galveston County, asserts that TikTok failed to comply with a number of the Act’s requirements, including:

• No Parent/Guardian Verification: The SCOPE Act requires that digital service providers such as TikTok use a “commercially reasonable method” to verify a parent or guardian’s identity and relationship to the minor. The lawsuit alleges that, even though TikTok allows parents of children between 13 and 17 years old to “manage a variety of content, privacy, and well-being settings,” it does not verify parents’ identities. Texas further asserts that even if TikTok were to verify parents’ identities, its current practices are not “commercially reasonable” because (i) minors have sole discretion to deny their parent access to TikTok’s “limited” parental tools; and (ii) TikTok requires a parent to create an account before being able to use the app’s tools.

• Unlawful Sharing, Disclosing, and Selling of Minors’ PII: The Act prohibits social media companies from sharing, disclosing, or selling a minor’s PII unless a verified parent or guardian has provided otherwise. The complaint alleges that TikTok, without parental permission, shares, discloses, and sells minors’ PII to advertisers and search engines. Additionally—and notably—Texas asserts that TikTok also violated the Act by sharing and disclosing minors’ PII to other TikTok users. Specifically, the lawsuit alleges that TikTok users who search for a minor on the app are able to view the minor’s PII, including name, username, profile image, social media contacts, and/or user content, depending on the minor’s account settings.

• Failure to Create and Provide Parental Tools: The complaint asserts that TikTok failed to create and provide “parental tools” in contravention of the Act. According to the lawsuit, these tools must include, among other things, the ability for a verified parent to control or limit a known minor’s privacy and account settings.

Through the lawsuit, Texas AG Ken Paxton is seeking civil penalties of up to $10,000 per violation and injunctive relief to prevent future violations of the Act.

The suit highlights that youth privacy remains a top priority for Texas and demonstrates that the state is not afraid to use untested tools in its related enforcement actions. Digital service providers (which we defined in our previous post) operating in Texas should review the Texas AG’s complaint and ensure their practices are consistent with the SCOPE Act’s requirements and the suit’s allegations.

SCOPE Act

According to the state, the SCOPE Act aims to protect children under 18 from “harmful content and data collection practices.” It applies to digital service providers (DSPs) that host platforms for users to make public profiles, post public content, and interact with other users. Note, however, that a number of entities are exempted from the statute, including small businesses as defined by the U.S. Small Business Administration, financial institutions subject to the Gramm-Leach-Bliley Act, and higher education institutes.

The law (as originally intended) imposes a number of requirements on DSPs, including:

• (1) Duty to Register: DSPs must register the age of a person who signs up for an account on their platform and prevent that person from later altering their age.
• (2) Limits on Data Collection, Sharing, and Targeted Advertising: They are required to limit their collection and use of minors’ PII and must prohibit minors from making purchases or engaging in other financial transactions through the platform unless their parent or guardian has provided consent (in which case, the service provider still must “restrict” minors’ ability to effectuate purchases). DSPs also are prohibited from collecting minors’ geolocation data, displaying targeted advertisements to minors, and sharing or selling minors’ PII (unless a parent or guardian has, using the parental controls described in (4) below, permitted such data practices).
• (3) Algorithm-Related Disclosures: They must clearly disclose (either in their terms of service, privacy policy, or other similar agreement) how they use algorithms to show content to minors, how their algorithms rank or filter content, and what PII their algorithms take into account.
• (4) Parental Tools: DSPs are further required to create and publish parental tools that allow a parent or guardian to, after their identity has been verified by the service provider, control the minor’s privacy and account settings, monitor the amount of time the minor spends on the platform, and review, download, or delete the minor’s PII. The parental controls also must give parents the ability to alter the DSP’s duties relating to data collection, data sharing, targeted advertising, and child purchases.
• (5) Advertising and Marketing: They must work to prevent advertisers on their platforms from targeting minors with advertisements that promote products or services that are unlawful for minors in Texas.
• (6) Harm Prevention: As originally intended, the SCOPE Act requires DSPs to develop and implement a strategy to prevent minors’ exposure to “harmful” material—i.e., material that “promotes, glorifies, or facilities suicide, self-harm, eating disorders, substance abuse, stalking, bullying, harassment, grooming, trafficking, child pornography, or other sexual exploitation or abuse.” (These terms are not defined in the statute.) Under these “harm prevention” provisions, DSPs must apply filtering technology to, and create a database of, such “harmful” material, and are required to use hash-sharing technology and other protocols to identify recurring harmful content. If, after this, the DSP knowingly publishes or distributes content, more than one-third of which is “harmful” to minors, it must use a “commercially reasonable age verification method” to verify the age of the user seeking access to the content.

Harm Prevention Requirements Blocked by Injunction

On July 30, 2024, free speech advocacy groups filed suit in the Western District of Texas seeking to block the SCOPE Act in its entirety, alleging that it violates the First Amendment, is void for vagueness, imposes unconstitutional prior restraints, and is preempted under Section 230 of the Communications Decency Act.

In a 38-page order, Judge Robert Pitman sided partly with the plaintiffs, preliminarily enjoining what we described above as the statute’s “harm prevention” requirements (i.e., (6), above), but leaving intact the rest of the statute (i.e., (1)-(5), above). In granting a preliminary injunction as to the harm prevention requirements, Judge Pittman expressed doubt that Texas has a compelling interest in regulating the types of content it describes in the statute as “harmful” and explained that, in any event, the regulated topics are too vague and overbroad as written. In his opinion, Judge Pitman wrote: “Under these indefinite meanings, it is easy to see how an attorney general could arbitrarily discriminate in his enforcement of the law.”

What You Should Know Moving Forward

On September 1, the majority of the SCOPE Act’s requirements (i.e., (1)-(5), above) went into effect—meaning social media platforms and similar companies should ensure they are compliant. Of particular note are the statute’s requirements that service providers must, unless a parent or guardian has permitted it through parental controls, (i) prohibit minors from making purchases or engaging in other financial transactions and (ii) forego the collection and sale of minors’ geolocation data and PII.

The SCOPE Act is just one of a number of state statutes addressing youth privacy that have been blocked by injunction this year. For example, Mississippi, Ohio, and California tried to pass similar pieces of legislation but were blocked in whole or in part by advocacy group-initiated lawsuits. While we will continue to monitor for any updates, it is clear that youth privacy continues to be a hot topic for both regulators and advocacy groups alike.

Recently, Iowa Attorney General Brenna Bird led two notable amicus objections to class action settlements.

Google Settlement

Iowa, along with nineteen other states through their Republican AGs, objected to a $62 million class action settlement with Google, which was intended to resolve claims that the company illegally tracked smartphone users' location data. The core issue, as raised in the amicus brief, was that the settlement provided no direct benefit to the class members. Instead, the bulk of the settlement was allocated to cy pres recipients – third-party organizations – and attorneys' fees, leaving class members without financial relief. The settlement has secured preliminary approval earlier this year, but now faces additional challenges in the Ninth Circuit.

The State AGs argued that under Rule 23 of the Federal Rules of Civil Procedure, class action settlements require a direct benefit to the class, and that "when a settlement fails to award damages to class members, there is no direct benefit.” The AGs contended that the settlement's approach of directing funds to third-party organizations failed to meet this requirement, as the class members received neither direct nor meaningful indirect benefits. As the brief emphasizes, "[a] class receives no benefit from a settlement that directs funds to groups whose interests’ conflict with, or are even opposed to, those of the class."

Although the Ninth Circuit has previously approved cy pres only settlements, the AGs argued that many of the recipients, such as the ACLU, advance unrelated social and political causes, rather than addressing the privacy violations central to the suit. According to the AGs, there was no "substantial nexus" between these organizations and the harm suffered by the class. Additionally, the AGs took issue with the $18.6 million in attorney fees, which represented 30% of the total settlement. The brief called this allocation "untenable" because these class members received nothing. The AGs argued that while a 30% fee might be reasonable in some contexts, "this settlement is better characterized as 100% of damages going to attorneys and third parties.”

Wawa Settlement

In a similar amicus brief led by the Iowa AG, 16 Republican AGs objected to the proposed settlement related to Wawa's 2019 data breach. The settlement made $9 million available in class relief ranging from $5 and $15 gift cards to up to $500 in monetary payments for claimants. $2.9 million was actually claimed by class members (mostly in the form of $5 gift cards), while $3.2 million is designated for attorney fees. The Third Circuit remanded the attorney fees award back to the trial court level, which ultimately granted approval. The AGs filed the brief on appeal with the Third Circuit where the case resides again.

The amicus brief emphasized that consumers received neither a meaningful direct nor indirect benefit, stating that the compensation offered – Wawa gift cards – was inadequate compared to the extent of the data breach and the attorney fees awarded. The AGs disputed the defense’s claim that 97.2% of Wawa gift cards are typically redeemed, explaining that there is a significant difference between a customer who intentionally purchases a gift card, and one who receives an unsolicited gift card. The AGs argued that unsolicited gift cards are more comparable to “corporate issued promotional coupons,” which typically have a redemption rate “between one and 3 percent.” As a result, the AGs contended, nearly all the gift cards will remain unspent, leaving attorneys with a larger percentage of the settlement. Interestingly, of the states that joined the amicus brief, only two states (Florida and Alabama) have Wawa locations inside their borders.

State AGs have long expressed concerns over class action settlements that may not provide sufficient direct benefits to class members (see, e.g. here). As these settlements are reviewed, AGs are continuing to pay close attention to those where funds primarily go to attorneys or third-party organizations through cy pres arrangements. Moving forward, states are likely to remain active in ensuring that settlements strike a fair balance between compensating affected individuals and addressing broader concerns.

Echoing sentiments from the recent NAAG Presidential Summit we recently covered, the AGs state they are united in their concern for children’s safety, particularly when it comes to the impact of “algorithm-driven social media.” They note that features like infinite scrolling and constant notifications are designed to keep kids engaged, often leading to negative effects on mental health. In his op-ed, the Surgeon General highlighted that just as warning labels on tobacco products have been shown to increase awareness and change behavior, similar labels on social media could help address these risks.

The AG letter describes state enforcement addressing children’s mental health, which we described in our post earlier this year, including lawsuits against multiple social media platforms for deploying what AGs allege to be addictive and harmful features. The AGs also note several state laws recently enacted that are intended to protect children. Despite these state actions, the AGs stress the need for broader federal measures to “complement other efforts,” acknowledging that while a surgeon general’s warning wouldn’t solve everything, it could be a “consequential step” in protecting the youth.

Pointing to recent bipartisan progress like the Senate’s Kids Online Safety Act and Children and Teens’ Online Privacy Protection Act, the AGs see a good start but insist more is needed. They “urge Congress to consider other legislative solutions focused on the challenges posed by Internet platforms.”

The letter reflects the ongoing focus of AGs on protecting youth overall and in the digital space, and a willingness to engage in a bipartisan manner to creatively address consumer protection priorities.

One theme that emerged was the difficulty in determining the best way to distribute responsibility for these impacts: among children themselves, parents, industry, and government. For example, New Mexico Attorney General Torrez noted that parents need to lead by example in their use of social media. New Hampshire Attorney General Formella similarly discussed families changing the discussion with their children around money, encouraging talking about it rather than making it taboo.

Nevada Attorney General Aaron Ford moderated a panel called “Fun and Games? Gaming’s Impact on Youth.” He also discussed the difficulty of determining a parent’s responsibility in monitoring kids’ gaming, joking that parents may have to start from the cradle -- “Rock-a-bye baby, don’t talk in the chat!” The AG also criticized mobile games that pressure users to make purchases in order to continue playing, a sentiment echoed by a Portland State University student who described the investment some players make in video games to avoid missing out on limited edition items. Panelists described the incorporation of social media into gaming through chat features and external third-party gaming-related sites. They noted similar positive and detrimental effects of social media can be echoed through the community aspects of games, and children have shown ingenuity in getting around parental settings. A panelist also commented on how gaming can sometimes get mixed with promotion of gambling, especially through advertising. A representative of the gaming industry responded to this conversation reminding the audience of the separate responsibility of social media companies to comply with ad targeting laws, and that parents can look to game ratings and platform parental controls to help restrict children’s access as appropriate.

Overall, the Summit showed the importance many AGs place on protecting youth. Businesses who market to children and young adults should be aware of the AGs activities in this space, whether it be through consumer outreach or enforcement actions, to help ensure they don’t run afoul of the law.

Several states have adopted their own version of the INFORM Act. Because these INFORM Acts threaten the ability of criminals to profit off of stolen merchandise when they attempt to sell through online marketplaces, many retailers have seen a shift in seller behavior to take transactions offline, or find other ways to avoid obligations under those laws. Recently, Georgia and California state legislatures introduced (and later passed) bills to address these perceived loopholes.

Georgia

On May 6, 2024, Georgia Governor Brian Kemp signed Senate Bill 472 (Act 564), the “Combating Organized Retail Crime Act.” Act 564 aims to address certain loopholes in the Georgia Inform Consumers Act.

• Act 564 removes the necessity for a high-volume third-party seller to be paid electronically, instead also addressing instances when the seller is paid through other, non-electronic means, like cash and check.

• Act 564 addresses instances when the high-volume third-party seller takes a transaction off of an online marketplace platform. This effectively changes obligations of online marketplaces, now requiring them to monitor significantly more transactions, including those that occur off-platform.

Netchoice, LLC v. Carr

On June 6, 2024, NetChoice, LLC (NetChoice) sued the Georgia Attorney General (GA AG), seeking to enjoin Attorney General Christopher Carr from enforcing Act 564. NetChoice argued that Act 564 effectively “radically” expands online marketplaces’ obligations under the Georgia Inform Consumers Act.

Among other arguments, Netchoice alleged that Act 564 is preempted by the federal INFORM Act, which forbids a state from “establish[ing] or continu[ing] in effect any law, regulation, rule, requirement, or standard that conflicts with [its] requirements.” 15 U.S.C. §45f(g).

On June 30, 2024, the district court granted a motion for preliminary injunction, enjoining the GA AG from enforcing Act 564. The court concluded that, by making requirements applicable to transactions made outside of the online marketplace, Act 564 is in conflict with the federal INFORM Act, which “only” applies to transactions made through the online marketplace.

On July 15, 2024, GA AG Carr appealed the district court decision to the Eleventh Circuit.

California

On August 16, 2024, California Senate Bill 1144 (“SB 1144”) was signed into law by California Governor Gavin Newsom and will be effective July 1, 2025. SB 1144 amends California Civil Code § 1749.8 and § 1749.8.4 and adds § 1749.8.9 to similarly address perceived loopholes in California’s INFORM Act. Notable changes include:

Section 1749.8:

• This section makes the law applicable to instances when the high-volume third-party seller takes a transaction off of an online marketplace platform, similar to Georgia Act 564.
• This section also clarifies the requirement that sales must be to buyers located in California.

Section 1749.8.4:

• This amendment permits enforcement by a district attorney, city attorney, or county counsel, expanding from just the California Attorney General.

Section 1749.8.9:

• This section directs online marketplaces to alert law enforcement agencies in California if they know that a third-party seller is selling or attempting to sell stolen goods to a California resident.
• This section further directs online marketplaces to do the following:

• Establish and maintain a policy that prohibits the sale of stolen goods.

• Provide a mechanism that allows individuals to notify the online marketplace that a seller is or may be selling stolen goods.

• Provides a mechanism on the online marketplace that allows the online marketplace and law enforcement to communicate in a timely and confidential manner.

• Maintain internal written policies to monitor listings to prevent organized retail crime.

Given the similarities between CA SB 1144 and GA Act 564, a challenge against SB 1144 is likely. Nonetheless, we expect to see states continue to explore ways to expand or improve existing laws in their ongoing fight against organized retail crime.

Kelley Drye continues to monitor enforcement in this space, and will provide updates as they occur.

In the Maryland matter, the state alleged multiple violations of the Consumer Protection Act (CPA) for deceptive and unfair trade practices regarding fees and pricing, including the use of “junk fees,” against car dealership DARCARS Honda and related parties. In addition to the general CPA allegations Maryland asserts in the complaint, the state also describes its interpretation of how the Maryland Transportation Article, and its corresponding regulations, regulate vehicle dealers in Maryland, “including through consumer protections that prohibit dealers from misleading consumers about vehicle pricing and that prohibit dealers from charging surprise junk fees (i.e., fees from which a consumer gets no added value and that simply add to the cost of a transaction that are, in essence, price increases under a guise).” Specifically, the Transportation Article prohibits dealers from, among other things, stating the purchase price in an ad “unless the price is the full delivered purchase price of the vehicle, excluding only taxes, title fees, and any freight or dealer processing charge” and requires the full price be printed “in the largest font used in the advertisement to provide any information related to the price of the vehicle.”

In the complaint, the Maryland AG claims Respondents charged consumers an optional fee of 2% of a vehicle’s sale price termed a “Sales Commission,” when in reality, it was an “Overhead Fee” to offset Respondents’ existing obligations. Per the complaint, neither consumers nor Respondents’ employees received added benefit when consumers paid the fee. The complaint further states consumers were not adequately informed about the ‘optional’ fee and that the fee “cannot be considered truly ‘optional’ when the onus is entirely on the consumer to notice the charge, figure it out, deduce that it can be removed while still completing the purchase of the car, and then demand that the fee be removed.”

The Rhode Island action also makes similar fee and pricing claims, including claiming Defendant UPP Global, LLC used “junk fees” in its operation of multiple parking facilities in violation of the Rhode Island Deceptive Trade Practices Act (DTPA). For example, the state alleges Defendants charged consumers a fee identified as a tax and then kept the proceeds instead of paying it to the government. At times, Defendants also charged a 10% service fee the state termed as “junk,” saying this fee was not in fact for additional services and instead was used for some other undisclosed purposes. In addition, the state alleged Defendants charged fees to consumers who stayed past their prepaid parking time under the guise of a “citation.”

Whatever industry you are in, be aware state AGs are carefully reviewing fee charges. Here are a few things to consider:

• What is the fee for and what value does the consumer get from paying the fee? Is this accurately described to the consumer?
• Is the fee mandatory or optional?
• What is disclosed to consumers regarding the fee, and when and by what method is that disclosure made?
• Are there industry- or state-specific laws or regulations defining and/or outlawing “hidden fees”?

The complaint alleges that StubHub uses “dark patterns” and a “bait-and-switch scheme” known as “drip pricing,” in which it leads by advertising only part of the price and “then revealing other charges later as the consumer goes through the buying process.” When consumers see the initial price, they are confronted with a countdown clock which creates “a false sense of urgency,” and then have to click through over a dozen pages before they see the full price. Added fees can total “upwards of 40% of the advertised ticket price” and are not clearly explained. The complaint also alleges the overall amount is hidden until after a consumer provides personally identifying information, obstructing users from comparing prices.

Although StubHub purports to provide users with an option to “Include Estimated Fees” in the displayed prices, the AG alleges that this option “is hidden under multiple drop-down menus such that a reasonable user of the service is unlikely to find and use the filter.” And even when the filter is selected, the complaint alleges that the displayed prices still did not include all mandatory fees until at least March 2024, which was after the AG contacted StubHub about this issue.

StubHub didn’t always display prices this way. The complaint reveals from 2014-2015, StubHub utilized an “all-in pricing” approach, in which it included mandatory fees in its price. Around that time, StubHub conducted a test to determine whether consumers were more likely to purchase tickets if fees were presented up-front or later in the process. The test showed that consumers were less likely to purchase if the fees were displayed up-front. The complaint alleges that after these tests, StubHub abandoned the “all-in pricing” approach, “knowing that it could extract more and higher fees from its consumers through [the] unfair and deceptive practice” of hiding fees until the end.

With this lawsuit, the AG asks the court to (a) issue injunctive relief to stop StubHub’s deceptive and unfair practices, (b) disgorge the money that StubHub has gained from these practices and require the company to pay damages and restitution, (c) pay civil penalties for every violation of the law, and (d) pay reasonable attorneys fees. Like the fees in StubHub’s purchase flow, all of those fees will be determined later in the legal process. We expect that the AG will be looking for big numbers, though. For example, in the DC Attorney General’s December 2022 settlement with GrubHub addressing its alleged “hidden fees,” the company paid $2.7 million in restitution and $800,000 in civil penalties.

This is just the latest in a series of cases challenging how companies display prices and fees. It won’t be the last. If you haven’t reviewed your purchase flows recently to see how they stack up against the new laws and enforcement actions in this area, this may be a good time to do that.

In 2020, Cameo launched a service called Business Cameo that allows companies to pay celebrities to make videos endorsing their products. According to a bipartisan group of 30 state Attorneys General, though, Cameo failed to take steps to ensure the celebrities disclosed that their videos were paid messages. If you read this blog, you already know that’s required under the FTC’s Endorsement Guides and state laws.

To settle the AG investigation, Cameo agreed to implement procedures to ensure that endorsers “clearly and conspicuously” disclose any material connections they have to the companies they promote. (Like the FTC’s Endorsement Guides, the settlement goes into detail about how disclosures should appear so that they are easy to notice and difficult to miss.) The procedures that Cameo agreed to implement include:

• Maintaining a watermark or similar disclosure system to indicate that a video was paid for;
• Requiring users and endorsers to acknowledge that they need to comply with rules related to endorsements;
• Establishing detailed procedures for monitoring videos to ensure compliance; and
• Establishing a system that will allow third parties to report videos that don’t comply.

In addition to changing its practices, the company will pay $100,000 to the states, which was reduced from $600,000 because of their inability to pay the full amount.

Although there are some elements of the settlement that are unique to Cameo’s business model, most of the themes are broadly relevant to other influencer campaigns. For example, companies need to instruct influencers to clearly make the required disclosures. What’s clear to marketers is usually not the same as what’s clear to regulators, so pay attention to what ends up in settlements like this one and in warning letters.

Good instructions aren’t enough, though. You should also establish procedures to monitor posts and address problems. As part of the settlement, Cameo agreed to establish detailed procedures that include reviewing videos from problematic advertisers, as well as a random sampling of other videos. Those procedures may not make sense for you, but make sure you have something in place that’s reasonable for your campaign.

The world of influencer marketing is getting more complicated, but you can contact us if you need help figuring out the rules. You can also contact us if you’d like to see if our celebrity podcast narrator would be willing to record a Cameo message for you. According to Jimmy Kimmel, George Santos charged up to $500 per message. Be warned that our narrator is worth a lot more (and has access to better legal representation.)

We will continue our roundtable discussion on investigations and enforcement actions led by state attorneys general (AGs) and the broad authority the states have to perform pre-litigation discovery through investigative subpoenas, often called civil investigative demands or CIDs. In Part l, we discussed common issues that may trigger a state – or multi-state – investigation, other pre-suit investigatory authority, and the basics of a CID. Join us for Part ll, as we discuss:

• Types of objections to CIDs businesses may make

• Background and caselaw on AG CID authority

• Strategies for avoiding an AG inquiry

Register Here.

The California legislature swiftly took action to override this part of the guidance in passing an amendment that adopts a modified standard for a restaurant, bar, food concession, grocery store, or grocery delivery service. Specifically, SB1524 rushed through both chambers in California on an urgency clause and was signed by the Governor on June 29 – two days before the now effective fee law took effect. The bill that provides that the requirement to include all mandatory fees as part of product price does not apply to “a mandatory fee or charge for individual food or beverage items sold directly to a customer by a restaurant, bar, food concession, grocery store, or grocery delivery service” or for catering services. However, the bill does not carve-out such establishments altogether and instead requires that these businesses clearly and conspicuously display a mandatory fee or charge “with an explanation of its purpose, on any advertisement, menu, or other display that contains the price of the food or beverage item.” The sponsor of the bill noted in the Senate Floor Analyses that the bill “strikes the right balance between strengthening transparency for consumers and providing restaurants with clarity and flexibility in how they cover their costs.”

While the general “hidden fee” law under SB 478 is now fully enforceable as of July 1, 2024, this exception’s requirement for clear and conspicuous disclosure is not effective until July 1, 2025. We expect to see an uptick in litigation and regulatory enforcement in light of the now effective legislation, though SB 1524 should offer some reprieve to the restaurant industry.

• The States Contend Concurrent Enforcement by the FTC and State Governments is a Common, Widely Accepted Practice that Does Not Undermine the Validity of the FTC Order. State AGs contend that the FTC’s order is not duplicative of the previous multistate settlement. For example, the FTC order prohibits Intuit from engaging in a wide range of misleading practices beyond the previous settlement’s specific and enumerated prohibitions. Further, the FTC order requires Intuit to use specific language in advertisements claimed to ensure consumers are adequately informed that free service is available only for a limited group of taxpayers, going beyond the states’ settlement. In terms of compliance duration, the FTC order requires 20 years, whereas the previous settlement required 10 years. Even if similarities are present with the previous settlement, state AGs argue that concurrent enforcement by the federal and state governments is a longstanding practice that is well-supported by principles of dual sovereignty that have complementary enforcement mechanisms.
• The States Support FTC’s Application of Net Impression Standard. According to the state AGs’ own enforcement experience, the FTC’s order is consistent with longstanding principles of both state and federal consumer protection law. As explained by the FTC, assessing what claim is conveyed by an advertisement requires discerning the overall net impression of the advertisement for the reasonable consumer-viewer. The states explain that federal and some state consumer protection laws specifically require as part of a context-driven analysis for deception claims, that advertisements claiming a product is “free” clearly identify any conditions or disclaimers associated with that offer to ensure consumers properly understand the terms.
• The States Argue the Alleged Conduct Was Deceptive and Harmful. According to the brief, the states claim Intuit’s advertisements consistently conveyed to consumers that they could file a tax return for free using a TurboTax product, even though that message was false for most taxpayers. They also argued that Intuit conducted search engine manipulation to promote its commercial TurboTax products, while steering consumers away from a different TurboTax product that was entirely free for many consumers at or below a certain income threshold. As a result, state AGs argue that millions of consumers were harmed through lost time or money (or both).

State AGs and the FTC have a long history of working together in their missions to protect consumers, whether it be through support by way of an amicus brief, coordinating on enforcement actions, or providing consumer education. Businesses should be aware of this relationship and recognize that action by one may not preclude other investigation or enforcement activity by others. This productive collaboration extends even where the states have already obtained relief against a defendant (e.g., Intuit), indicative of the states’ willingness to opine and support additional FTC enforcement even after they've already settled their claims.

Arkansas brought the action pursuant to the Arkansas Deceptive Trade Practices Act (ADTPA), which prohibits deceptive and unconscionable business practices, and the Arkansas Personal Information Protection Act (PIPA), which requires businesses protect data concerning Arkansas residents with reasonable security practices. Numerous allegations by the state against Temu regarding app user personal information include that it is:

• Using the inducement of low-cost Chinese-made goods to lure users into unknowingly providing near-limitless access to their PII,
• Misleading users regarding how it uses their data,
• Not allowing users to avoid being tracked on the internet,
• Collecting virtually limitless amounts of data, and in addition to Bluetooth and Wi-Fi access, gaining full access to user contacts, calendars, and photo albums, plus all social media accounts, chats, and texts,
• Gaining permission from user devices upon app installation to subsequently install any further program it wishes without user knowledge or control,
• Obtaining personal information in a way that is purposely secretive and intentionally designed to avoid detection,
• Providing or selling user data to unauthorized third parties or using user data in a way that users did not authorize,
• Potentially harvesting data of non-users who have communicated with users, and
• Subjecting user data to misappropriation by Chinese authorities.

The state cites reports and third-party research throughout its complaint to support its claims against Temu. Temu, in response, said the company was “surprised and disappointed” by General Griffin filing the lawsuit without what the company called “any independent fact finding.”

In addition to the allegations regarding privacy harms of the app, the state claims defendants make deceptive representations about the quality of the goods sold, which it says are frequently counterfeit, and that users experience undelivered packages and poor customer service. The state further claims Temu uses “false-reference pricing,” in which a retailer represents to a prospective customer that a product is on sale at a steep discount when the “discounted price” is the product’s regular market price. The state’s allegations against Temu also include the use of fake and deceptive reviews, a concern to many AGs, and the claim that Temu failed to take adequate measures to protect minors, among others.

The state requests the court preliminarily and permanently enjoin defendants from treating Arkansas consumers unlawfully, unconscionably, and deceptively as described in the complaint, plus requests civil penalties and other monetary and equitable relief. Temu said, “We categorically deny the allegations and will vigorously defend ourselves.”

Arkansas is not the only state concerned about Temu’s practices. In 2023, Montana banned the download of the Temu app (and a handful of other apps) on devices issued by the state or connected to the state network based on its affiliation with foreign adversaries. The state also banned third-party firms conducting business for or on behalf of the state of Montana from using Temu and the other apps in question.

This action demonstrates the breadth of authority provided to state AGs, especially related to consumer protection. AGs routinely use UDAP laws to bring expansive matters, which can evolve from looking at one issue into many. Here, while there is much attention to the allegations related to Temu’s data collection and security practices, the other general UDAP violations on the quality of products and fake reviews show how multiple areas of misconduct claims will be addressed by AGs. All of these areas continue to be a hot topic for state AGs, as are companies with foreign affiliations thought of as problematic. As we have discussed many times before, the AGs often work together in their missions to protect consumers; only time will tell if more AGs follow with complaints against the popular shopping app.

Attorney General Formella of New Hampshire kicked off the conference with a fireside chat on AI, where platforms promoted open access principles, more STEM graduates to compete internationally in AI, and combatting CSAM. Panelists discussed how just because an AI service is built on the same model does not mean that it works in the same way. South Carolina Attorney General Wilson followed up with a panel on the ethics of using AI as attorneys, where panelists noted that it may actually be a violation of ethical obligations to underutilize AI. Arizona Attorney General Miyares led another fireside chat touching on AI, asking his panelist about responsible AI and whether AI regulation will actually solve problems in the space.

Kansas Attorney General Kobach led a discussion regarding preemption, noting that it cuts both ways politically. While conservatives may view preemption as positive because unified federal norms make regulation easier for businesses, he noted progressives want preemption in areas such as immigration. Panelists then discussed the value of ERISA preemption and pointed to alternatives to addressing potential issues with pharmacy benefit managers such as using UDAP laws or regulating medical practitioners in that space instead.

Attorney General Ken Paxton of Texas spoke with small business owners in different industries and a professor to learn how tech platforms may both help and harm businesses. Small businesses noted that review platforms and targeted advertising have made positive impacts on their businesses by providing access and feedback on customers’ needs, while the professor countered that big tech also carries some additional downsides. General Paxton elaborated on the risks to small businesses including a constantly changing dynamic environment, government taxes, and a lack of “bailouts”.

Members of the conference applauded Oregon Attorney General Rosenblum as she commemorates her last year as Attorney General. She led a panel related to her National Association of Attorneys General initiative on America’s Youth. General Rosenblum began her panel noting that she believed her initiative was something all AGs could come together on -- the health, well-being, and success of young people. The panel focused on preventing computer generated CSAM and sexploitation of children, then turned to the effectiveness of COPPA and promoting safety by design. Panelists remarked that even a tracking cookie question where you can’t find the “no” button may be a dark pattern, especially when it comes to children online. Others noted that privacy torts can be used creatively, as the New Mexico AG’s office did, to bring lawsuits affecting children’s privacy.

The conference concluded with breakout sessions including an update on the Organized Retail Crime enforcement space. There we learned about new legislation, including amendments to state INFORM laws and the creation of new task forces, from our own Paul Singer. Other panelists provided updates on the new scams criminals are using to evade detection including sophisticated skimmer rings.

Stay tuned, as the National Association of Attorneys General Presidential Initiative conference will take place in early September to focus more on AGs protecting America’s youth.

But now, some states may soon have new tools to combat potential unfair and deceptive practices throughout a variety of industries. With the legislative season coming to a close, we have your rundown of the spread of “hidden fees” regulation including California and beyond. So, if a vacation from hidden resort fees is all you ever wanted – and a trip to see Carhenge or the Alamo (attractions in states where attorneys general have been active in enforcement) has already been checked off your bucket list – here are your ideal places to get away:

California: The Golden State’s newly minted Consumers Legal Remedies Act (SB 478) amendment will take effect on July 1, 2024, specifically making it unlawful for companies across virtually all industries to advertise or display a price without including all mandatory fees and charges, save taxes and fees imposed by the government (though the bill states that “drip pricing” is already prohibited). Click here and here for more details. California is such a lovely place, and if you are traveling on a dark desert highway looking for somewhere to rest your head, you should be aware the California Resort Fee Bill (AB 537) contains similar measures even more specific to the short-term lodging industry (effective July 1, 2024).

When all of this raises your appetite, you can dig into the legal back-and-forth between lawmakers and California’s food and beverage industry. In response to questions about how SB 478 would apply to bars and restaurants, lawmakers recently introduced an urgency measure (SB 1542) that would make clear that restaurants may still display mandatory gratuities, services charges, and other fees separately so long as they are clearly displayed on the menu and don’t come as a post-dessert surprise. Interestingly, the legislature specifically noted that this is intended as a clarification, not a change in existing law. As of today, this hasn’t passed yet, but we will be sure to provide updates.

Massachusetts: If the Cape is more your style, you may want to pay attention to Massachusetts AG Andrea Campbell’s proposal of a new slate of regulations that would require businesses to “clearly disclose” the total price of goods and services. Like in California, this would apply across industries. If enacted, non-compliance would constitute an unfair and deceptive trade practice. Read our full coverage here.

Minnesota: If you have the land of 10,000 lakes in mind, the state recently passed HF3438 requiring that an advertised or displayed price include all mandatory fees and surcharges (not including taxes), including additional clarity on “mandatory fees” compared to California’s statute. The bill provides exemptions or specifications for several industries, including specifically requiring that hotels (among other food or beverage establishments) must clearly and conspicuously disclose the percentage of any automatic or mandatory gratuities that consumers will be charged. The law will take effect January 1, 2025.

The Near Hits: As state lawmakers leave for their own summer vacations, some notable legislation got left on the drawing board. For instance, in the Land of Lincoln, the state’s proposed Junk Fee Ban Act gained momentum when it easily passed the Illinois House in a 71-35 vote but then never made it to the Senate floor. We saw similar attempts in Connecticut and New York. While these bills didn’t cross the finish line this year, we expect many states will take on this issue in the next legislative season.

Against this backdrop of state activity, the FTC is in the midst of rulemaking process that would ban hidden fees and further regulate the types of fees companies can charge. Revisit our coverage on that here and here. Also in Washington, the House of Representatives just passed the No Hidden Fees Act. If made law, the Act would require hotels and other short-term rentals to clearly display mandatory fees.

Clearly, multiple levels of government are “checking out” hidden fees. Even President Biden denounced “surprise” fees in his 2023 State of the Union Address.

Of Importance…

• Updates to regulation are occurring but general state consumer laws still apply. While some states may be setting specific standards in this area, remember state consumer laws, which outlaw deceptive acts and practices (and in many states, unfair acts and practices), still apply. Therefore, just because a state doesn’t specifically spell-out fees requirements in its statutes or regulations, it does not mean fees disclosures comply with states’ interpretations of the law. (For example, the AG’s office in Washington DC issued guidance on the types of restaurant fees that may violate existing law.)
• Some fees face greater scrutiny than others. AGs have sought out so-called “bogus” fees they feel offer consumers little value. Companies should be mindful of what the fees actually deliver for consumers and convey the value accurately and clearly.
• Messaging and disclosures are critical. The crux of the states’ take on drip pricing is a failure to disclose certain fees in a timely manner (if at all), and AGs have taken issue with tactics that do not clearly describe when a fee is mandatory or not.

We expect to see more on “junk fees” in the weeks and months ahead. Subscribe to our monthly newsletter AG Chronicles and Ad Law Access blog to stay up-to-date.

This month we will have a roundtable discussion on investigations and enforcement actions led by state attorneys general (AGs) and the broad authority the states have to perform pre-litigation discovery through investigative subpoenas, often called ​civil investigative demands or CIDs. We will break down the investigation process and discuss:

• Common issues that trigger a state – or multi-state – investigation
• What to expect when under investigation and how to respond
• Background and caselaw on state AG CID authority
• Other pre-suit investigative tools available to state AGs
• Strategies for avoiding a state AG inquiry

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While AGs have generally used state consumer protection laws in these enforcement actions, which are inherently broad in scope, there is also an increased legislative focus on hidden fees. For instance, California has passed a first-in-the nation law effective July 1, 2024, specifically requiring disclosures of all mandatory fees within a total price, including in the lodging industry. (The California AG’s Office has released FAQs related to the law.) Stay tuned for more on hidden fee legislation in an upcoming post.

What major actions have AGs taken to date?

The FTC first sounded the alarm in 2012 with a warning letter accusing hotels of unlawful “drip pricing” by not including resort fees in advertised daily room rates. Then, in 2016, a coalition of AGs launched a multistate investigation into whether disclosures of hotel fees violated state consumer protection laws. In 2019, Nebraska sued Hilton and Washington DC sued Marriott, beginning the resort fee enforcement actions by the states. Since that time, multiple lawsuits and settlements have been filed regarding hidden resort fees.

For instance, Choice Hotels International has settlements with Colorado, Nebraska, Oregon, Texas, and Pennsylvania. Also regarding Choice Hotels, Maryland successfully sued to enforce a subpoena served on the company and recently, the state filed a petition for constructive civil contempt for alleged failure to comply with the court order; the matter is ongoing. Another major hotel company, Omni Hotels, has settlements with Colorado, Nebraska, Pennsylvania and Texas.

Meanwhile, litigation against Marriott International continues in Washington DC, while Colorado, Nebraska, Pennsylvania, and Texas have settled with the chain. Regarding Hilton, Texas sued with litigation ongoing, while Nebraska settled its suit. In separate lawsuits, Texas also sued Hyatt Hotels Corporation and Booking Holdings Inc., which includes online travel companies such as Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK, and Opentable, with litigation ongoing in each matter.

AGs are watching for so-called hidden fees, and AG staff often have first-hand knowledge as they stay in hotels just like other consumers. After Pennsylvania settled with Marriott International, the hotel chain added a new sustainability fee at some of its locations. The AG claimed the hotel had failed to comply with their agreement, which led to a court order and new settlement requiring payment of $225,000 for the alleged previous compliance shortcomings.

What acts did the States find problematic?

In general, the AGs alleged that hotels advertised low base rates to attract consumers away from competitors. Then the hotels later disclosed resort fees, amenity fees, and destination fees when travelers had already begun the booking process. These could range from $9 to $95 per room, per day. States argued failing to disclose all fees up front made it difficult for consumers to compare prices and make informed choices as they booked their stays.

AGs also questioned the purpose of some fees, alleging that hotels made confusing or contradictory claims about what fees actually covered. This included amenities fees for generally complimentary services (like internet access, local and toll-free calls, and access to a fitness center) or resort fees charged by hotels that may not provide resort-like services. States also questioned the practice of including these fees in a general “Taxes and Fees” section, which they alleged could mislead consumers into believing the fees were imposed by the government, not the hotel.

What do these settlement agreements require?

The AG settlements followed common themes requiring:

• The total price is afforded “most prominent display.” This means that all mandatory fees are clearly and conspicuously disclosed and that full price, including those add-ons, gets premium billing on booking websites.
• When a consumer sorts by price (e.g. lowest to highest), the “sorting” price includes all mandatory fees. This prohibits hotels from suggesting that a room is less expensive than others if that is not actually the case at check-out.
• Distinguish taxes from fees. The agreements require hotels draw a clear line separating their own fees from government (or quasi government) tax charges.
• The goods and services included in an “amenity” fee are clearly disclosed, before booking.

Businesses can look to these requirements to gain insight on how broadly states may interpret their current consumer protection laws as well as their expectations of businesses in industries beyond lodging. For our next installment on new legislation in this area, be sure to subscribe to the AdLaw Access blog.