FTC Targets Risky “Free” Trials and Negative Option Plans in Complaint Against Marketers

The Federal Trade Commission (FTC) has been granted a temporary restraining order barring several online marketers from engaging in allegedly deceptive sales practices in violation of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA).

The FTC’s complaint against Triangle Media Corporation, Jasper Rain Marketing LLC, Hardwire Interactive Inc., and Brian Phillips, the alleged owner of Triangle Media Corporation, accuses the defendants of several deceptive practices in the marketing and sale of various products including dietary supplements, skin creams, and electronic cigarettes. In particular, the defendants allegedly offer “RISK FREE” trials of products supposedly in exchange for only the cost of shipping—in reality, consumers are charged as much as $98.71 for trial shipments and are automatically enrolled in negative-option continuity plans that continue to ship them the product monthly for full price.

Through their other negative option plans, the defendants allegedly make it very difficult to cancel recurring subscriptions and to obtain refunds.

Takeaway: Negative option plans continue to be an enforcement priority for the Commission, with strict guidelines for how they may be operated fairly and transparently for consumers. Falsely telling consumers that they are receiving something for “free” is also carefully scrutinized. With both federal and state regulators paying attention to these hot areas, marketers considering sales strategies in any way similar to those described here are advised to be aware of the law and very cautious.

Florida Federal Judge Admonishes “Shotgun Pleading,” Grants Dismissal

A Florida federal judge chided putative class action lead plaintiff Michael Fox for what she described as “a quintessential shotgun pleading” last month and dismissed two defendants to Fox’s consumer protection lawsuit. Fox alleged violations of Florida’s consumer protection and gratuity notice laws against Loews Corp., Loews Hotels Holding Corp., MB Redevelopment LLC, and Loews Miami Beach Hotel Operating Co. Inc., claiming that he was wrongfully charged a 20 percent service charge when dining at Loews hotels in Florida. The service charge, he stated, was added with either no notice provided on the restaurant menus or websites, or, if notice was provided, it was written in prohibitively small font.

The court granted the defendants’ motion to dismiss as to Loews Corp., Loews Hotels Holding Corp.—both Delaware corporations with principal places of business in New York—for lack of personal jurisdiction, and did not hold back in its reproach for Fox’s “shotgun” pleading style. A “shotgun complaint,” the Court explained, “typically contains several counts, each one incorporating by reference the allegations of its predecessors, leading to a situation where most of the counts (i.e., all but the first) contain irrelevant factual allegations and legal conclusions.”   “Shame on Plaintiff for not heeding the Eleventh Circuit’s repeated pronouncements criticizing shotgun pleadings like his.” Fox filed a second amended complaint after the dismissal, which the remaining defendants again moved to dismiss earlier this month.

Takeaway: “Shotgun” pleading, as the Florida court describes, may both draw the court’s ire and be grounds for dismissal.

Telomere Biology Company Reaches Settlement with FTC over Deceptive Advertising Claims and Endorsements

The Federal Trade Commission (“FTC”) approved a final consent order against Telomerase Activation Sciences, Inc. and Noel Patton (collectively, “TA Sciences”) following allegations that TA Sciences made certain substantiated claims regarding its supplement and topical serum products.  FTC alleged that TA Sciences lacked sufficient evidence to support its health-benefit claims, including claims that its products repair DNA damage, rejuvenate aging immune systems, increase bone density, improve biomarkers that decline with age, and that, with its products, “Cellular Aging Stops Here.”  FTC also alleged that TA Sciences’ advertisements and promotional materials failed to disclose, or adequately disclose, that it provided consumer endorsers with thousands of dollars of free products.  The final consent order prohibits TA Sciences from making misleading claims about health benefits, performance, efficacy, safety, or side effects of its products.  Additionally, the order requires that TA Sciences be clear and conspicuous in its endorsements.  In particular, the order requires TA Sciences to disclose its material connections with product endorsers and prevents TA Sciences from representing paid endorsers as independent.

Takeaway: This case serves as a reminder that the FTC continues to be active in areas involving health claims and endorsements and testimonials.

ANA Releases Version 2.0 of Media Agency Template

The Association of National Advertisers (ANA) released version 2.0 of the ANA Master Media Buying Services Agreement.  The original template was issued in July 2016 as a supplement to the ANA’s landmark report on media transparency, conducted with K2 Intelligence. Among other aspects, the new template includes language designed to reflect best practices on a global level so advertisers outside the United States can, with some local modifications, include it in their contracts, as well as adding new provisions to address marketplace changes. The new template also includes several other revisions and clarifications in other areas that had caused marketplace confusion since the release of the original template.  The new template can be found here.

For additional information regarding version 2.0 of the ANA template, contact the Reed Smith team of Doug Wood (DWood@ReedSmith.com), Keri Bruce (KBruce@ReedSmith.com) or Michael Isselin (MIsselin@ReedSmith.com).

A Puffed Quinoa By Any Other Name Would Still Be False Advertising

Puffed quinoa snacks presumably would contain mostly quinoa right? Not according to the putative class action lawsuit filed in a New York federal court earlier this year. Lead plaintiff Russell Ransom alleges that defendant I Heart Foods Corp.’s line of “I Heart Keenwah” puffed quinoa snacks are not, as the name implies, primarily quinoa. Rather, although the packaging lists quinoa flour as the first ingredient, because it lists two different rice flours and pea protein immediately thereafter, the combination of the other ingredients likely dwarfs the amount of actual quinoa in each puff according to the complaint. The complaint further details the mechanics of puffing various grains, claiming that the fat, moisture, and starch content of quinoa was unconducive to puffing without heavy augmentation by other grains, and that because “defendant, a recently established firm, may not have the scale or capacity to convert complex grains and cereal products into finished food products . . . It is probable that quinoa flour is not the predominant ingredient in the quinoa puff.” I Heart Foods has yet to answer the suit.

Takeaway: Smaller and newer companies may be at higher risk of false advertising suits due to their perceived vulnerability. Advertisers for such companies may want to trend their marketing toward transparency to minimize the risk of such suits.

Preparing for the Next Phase of Influencer Marketing – The CGI Influencer

Social media influencers are constantly competing for likes, partnerships, and ways to differentiate themselves from others. A surefire way to distinguish oneself in the ever-growing sea of social influencers? Being a robot.

Computer generated social media influencers like Lil’ Miquela and Shudu have racked up millions of Instagram followers and likes and have secured several campaigns for high-end designers. Miquela additionally supports political causes on her Instagram and has even released a few songs on Spotify. Unassuming followers were duped into believing Miquela was a real person until her account was “hacked” and her creators, a secretive software company named Brud, revealed that she was a robot. Despite her status as a computer-generated image (CGI), Miquela was recently named one of Time magazine’s top 25 most influential people on the Internet, among names like Kanye West and President Donald Trump.

Though Miquela and CGI model Shudu are not real people, the Federal Trade Commission (FTC) recently stated that CGI influencers must abide by their Endorsement Guidelines as well. In a statement to CNNMoney, an FTC spokesperson noted, “the FTC doesn’t have specific guidance on CGI influencers, but advertisers using CGI influencer posts should ensure that the posts are clearly identifiable as advertising.” As a reminder, the FTC requires that all online promoters comply with their Endorsement Guidelines and include disclosures to clarify in their communications any material relationship between the promoter and the brand promoted—apparently even if the promoters are not real people.

Some of the guidelines mesh well with the use of CGI influencers. Clearly, their posts fit within the broad definition of “endorsements” under the Guidelines (“any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness…) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser…”). One important consideration when brands are working with CGI influencers is the context of the endorsement itself—can it really be said that the avatars are bona fide users of the products?

While the scope of applicability of all provisions from the FTC Endorsement Guidelines with respect to CGI influencers remains a bit unclear, as social media marketing continues to evolve, early-adapting brands should be cautious and understand all of the legal considerations.

 

Got Margarine? Post Seeks Dismissal of Mashed-Potato False Labelling Suit

Briefing closed last month on Post Holdings Inc.’s attempt to dismiss a putative class action false labeling suit over Post’s prepackaged mashed potatoes, which Post claims are “made with real butter.” The plaintiffs allege that although the product does contain real butter, Post misrepresented that in fact it also contains margarine. The plaintiffs initiated suit in November 2017 and asserted causes of action for violations of New York consumer protection laws, fraud, and unjust enrichment, claiming: “Butter occupies the natural, simple and minimally processed category, while margarine is the epitome of an artificial and processed food consumers are trying to avoid.”

In briefing, Post urged the court to reject the plaintiff’s alleged attempt to recast the case as an “all natural” case, stating that it “never promoted Simply Potatoes as all-natural, either expressly or by implication” and asserted that the plaintiffs’ false labeling claims as to the “made with real butter” and “fresh” language are preempted by regulations promulgated under the Federal Food, Drug, and Cosmetic Act. The court’s decision remains pending.

Takeaway: If this case proceeds past dismissal, it could impact the claims advertisers may make on food packaging and require more explicit ingredient labelling.

University of Illinois Launches Suit Against “Make Illinois Great Again” Shirt Seller

The University of Illinois sued Ted O’Malley, the seller of shirts that feature the University’s former symbol, “Chief Illiniwek,” and the phrase “Make Illinois Great Again” for trademark and copyright infringement, false advertising, trademark dilution, various common law torts, and violations of Illinois consumer protection laws in March of this year. The University owns various intellectual property rights to the word “ILLINOIS” and the Chief Illiniwek image from which O’Malley allegedly based the shirts, and claims that O’Malley’s use of the image and the word “Illinois” with the school’s colors could lead consumers to mistakenly assume the shirts were sanctioned by the university, particularly because O’Malley “specifically marketed them to, and targeted fans of, the University’s sports teams.” O’Malley’s answer is due later this month.

Takeaway: Although the University framed the suit only around quality control and consumer confusion, this suit almost surely will implicate the First Amendment due to the allegedly infringing shirts’ association with the “Make America Great Again” Republican political slogan. As such, this suit may broaden or narrow the First Amendment defense to intellectual property infringement for political speech.

EU’s GDPR applied to promotion marketing

The European Union’s General Data Protection Regulation (GDPR) is underway, and companies and organizations around the world are analyzing its effects on how they collect, use, store and disclose data. U.S.-based sponsors of sweepstakes, contests, instant win games and other promotions opening entry to or targeting Europeans need to be mindful of the GDPR rules since they are processing personal data by collecting the entries contact information, sending marketing communications, and contacting the winners. To learn more on how US marketers can address this legal development, click here.

E.V.Oh.No! Olive Oil Salad Dressing Maker Must Face False Advertising Suit

An Illinois federal court recently rejected packaged food company Pinnacle Foods Group LLC’s attempt to dismiss a putative class action suit against it over its line of “Wishbone E.V.O.O. Dressing- Made With Extra Virgin Olive Oil” salad dressings. The lead plaintiff allegedly purchased a bottle of the dressing in Illinois and took it across state lines to his residence in Missouri. He contends that the “E.V.O.O.” and “Made With Extra Virgin Olive Oil” labels are misleading because the dressing in fact contains mostly water and soybean oil and only a small amount of extra virgin olive oil, causing him and other class members to overpay at least 25 percent for the “cheap, fraudulent imitation made with cheap fillers and other inferior ingredients.” He sued Pinnacle for violations of Missouri and Illinois consumer protection laws and common law unjust enrichment.

Although Pinnacle tried to dismiss the plaintiffs’ claims as preempted by the Federal Food, Drug, and Cosmetic Act and on grounds that the Missouri state consumer protection law was inapplicable because the lead plaintiff bought the salad dressing across state lines. However, the court held that it “cannot conclude as a matter of law that the representations are not deceptive” and cited broad prior applications of the Missouri consumer protection law to reject Pinnacle’s gambit. Pinnacle filed its Answer last month, over a year after the suit’s inception.

Takeaway: Many state consumer protection laws, like Missouri’s, have been held to be widely applicable and advertisers should note that purchases across state lines may not prevent liability under them.

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