New York Bill Gives Credit Card Holders 90 Days to Redeem Rewards

The New York Senate recently passed a bill that is expected to give New York residents a 90-day grace period to redeem credit card rewards after their account is changed, canceled, closed, or terminated. The bill will address issues where a cardholder’s account is closed without notice for inactivity, default, or delinquency – in such case, the cardholder may not have the opportunity to redeem his or her credit card rewards. While the bill has passed through the Senate, it is currently awaiting approval from the State’s Assembly.

Most credit card issuers that offer reward programs include terms and conditions regarding point/reward redemption when an account is closed or no longer active. For example, one bank states that points will not expire “as long as your account is open,” but the cardholder will lose all of his or her points if the account status changes or the account is closed for reasons that include delinquency. Under the bill, a notice must be sent to the cardholder within 15 days of the cancellation, closure, termination, or modification of the credit card account. The cardholder will have 90 days to redeem, exchange, or use the rewards.

Takeaway: This bill protects New York State residents from losing the rewards they earned through credit card purchases. Card issuers may be wise to start considering updates to its terms and conditions that give cardholders a grace period to redeem their rewards, otherwise more states may follow New York’s lead. For now, however, cardholders should redeem or transfer their rewards before cancelling or changing their credit card account.

The Latest Celebrity Lawsuits in the CBD and Cannabis Space

Two recent actions involving sellers and marketers of cannabidiol (CBD) and cannabis prove the “wellness” industry is not always so chill.

Clint Eastwood Sues CBD Companies over False Endorsements

In the first action, Clint Eastwood filed two lawsuits in federal court in Los Angeles against CBD companies and marketers, claiming the companies promoted false news articles about Eastwood and used his name and likeness to promote their CBD products. Eastwood seeks “millions of dollars” in damages, with claims including false endorsement, defamation, trademark infringement, and false light invasion of privacy.

The first lawsuit accuses several CBD makers of using fake quotes from Eastwood, claiming he was stepping away from the movie business to spend more time pursuing a career in wellness. Eastwood also claims the companies used false headlines for promotional purposes, including false statements that large pharmaceutical companies were “in outrage” over Eastwood’s CBD products.

In one example from the complaint, Eastwood purported that the companies spread a false article with the headline “Breaking News: Clint Eastwood Exposes Shocking Secret Today.” The article included links to purchase “Eastwood’s CBD Products” and fake quotes from an interview Eastwood gave on the “Today” show where Eastwood stated that he was leaving the film business because he wanted to do “something bigger than the movies.” According to Eastwood’s attorney, no such interview ever took place. Below are examples from the complaint of the fabricated articles:

In his second lawsuit, Eastwood alleges that online marketers and CBD companies used Eastwood’s name in metatags to drive search traffic and manipulate consumers into thinking he supported the products being sold, while making it easier for consumers to find the defendants’ products online.

Takeaway:  As with any other advertiser, CBD companies must obtain an individual’s consent to use his or her name and likeness to promote its product.  However, even with such consent, in no event should any advertiser use fake quotes or fabricated stories to sell its product or service.

Master P Settles Over Failed Pot Deal

Master P and Privateer Holdings, a cannabis private equity firm, recently settled a lawsuit over claims that Privateer breached its oral agreement to support Master P’s cannabis brand, “Master P’s Trees.”

Under the agreement, the parties would split profits from the distribution of Master P’s Trees, but Privateer would front the cost of the initial batch and cover all marketing costs.  The parties agreed to a July 3, 2017 deadline to launch the product, which would coincide with a music festival performance by Master P.  Privateer failed to meet the deadline and despite the parties’ decision to delay the launch, Privateer pulled out of the agreement later that month.

According to Master P’s 2017 complaint, the failed deal cost him millions in expected profits.  Nearly three years later, the parties have agreed to settle the dispute, and the case was dismissed earlier this month.  Under the settlement, Master P would drop his lawsuit, and Privateer would drop its bid for thousands of dollars in sanctions against Master P for skipping two depositions and using an unauthorized videographer for another one.  There is no large settlement number though.  Instead, neither party will admit fault, and both parties will pay their own attorneys’ fees.

Takeaway:  Not all partnerships are meant to be, but a written agreement governing a potential fallout is always best.  When it comes to partnerships to promote and produce a product within a specified timeframe, not only are key deadlines necessary, but the agreement should indicate remedies in the event the party fails to meet such deadlines.

More resources: Cannabis entities, like all businesses, require sound and strategic legal advice. Reed Smith assisted Drake in the launch of the Cannabis Wellness Company and continues to provide counsel related to all facets of the industry and the law affecting it. Visit our website for more relevant articles and information on our cannabis experience.

A Not-So-American Style: Williams-Sonoma to pay $1M to FTC Over Deceptive “Made in USA” Claims

The FTC recently approved a final consent order against home product and kitchen ware company, Williams-Sonoma, Inc. Under the order (available here), Williams-Sonoma is required to pay $1 million to the FTC in connection with charges that it made false, misleading, or unsubstantiated “Made in USA” claims.

The FTC first announced its compliant in March 2020, alleging Williams-Sonoma made deceptive claims in advertisements that all of its Goldtouch Bakeware products, certain Rejuvanation-branded products, and Pottery Barn Kids and Pottery Barn Teen-branded furniture is all or virtually all made in America. Below are examples from the FTC’s complaint:

Despite Williams-Sonoma’s unqualified claims, the FTC found that such products are wholly imported from outside the US or contain significant imported materials or components.  Therefore, the FTC alleged that such false or unsubstantiated claims about the products’ origin deceived consumers in violation of Section 5 of the FTC Act.

Under the final order, Williams-Sonoma is prohibited from making false or misleading Made in USA claims unless:

  • For unqualified Made in USA claims, Williams-Sonoma must show that (i) the product’s final assembly or processing, as well as all significant processing, takes place in US, and (ii) all or virtually all of each product’s components are made and sourced in the US.
  • For qualified claims, Williams-Sonoma must include disclosures about the extent to which the products contain foreign parts, components, or processing.
  • For claims that a product was assembled in the US, Williams-Sonoma must prove such product was last substantially transformed in the US, its principal assembly takes place in the US, and its US assembly operations are substantial.

Takeaway: While the FTC continues to monitor claims about a product’s US origins, advertisers should note that the FTC recently proposed updates to its “Made in USA” rule. In the future, FTC enforcement actions relating to such Made in USA claims might look a bit different, including the possibility of civil penalties for rule violations.

New Florida Law Gives College Athletes Right to Profit from their Name, Image and Likeness

Last month, Florida Governor Ran DeSantis signed a new bill into law allowing college athletes to be paid for use of their names, images and likenesses. The new law is set to take effect on July 1, 2021 with the hopes that not only will other states follow Florida’s lead, but such state legislation will apply more pressure on the National Collegiate Athletic Association (“NCAA”) to move forward with its proposed changes to allow college athletes to take advantage of these rights.

The new law, SB 646, will allow college athletes to earn compensation for the use of their name, image or likeness “commensurate with market value” by a third party unaffiliated with the athlete’s school. The law also prevents the athlete’s school from restricting the athlete’s right from obtaining agent or attorney representation to negotiate such deals and from revoking or reducing an athlete’s school scholarship as a result of earning compensation or obtaining representation.

The law also contains such provisions as: (i) the athlete’s deal cannot conflict with their school’s own sponsorship contracts, (ii) the athlete must disclose the deal to their school, (iii) the duration of the contract cannot extend beyond the athlete’s participation in the athletic program at their school, and (iv) schools are to conduct a “life skills workshop for a minimum of 5 hours” at the beginning of the athlete’s first and third academic years, covering such information as financial aid, debt management, recommended budget, and time skills management.

Governor DeSantis’ action makes Florida the third state to pass such legislation, with similar laws passed in California and Colorado. However, Florida’s legislation is scheduled to go into effect eighteen months sooner than the others – which are scheduled to take effect January 1, 2023.

Takeaway: As we previously wrote about here, the NCAA Board of Governors announced it would take steps toward allowing college athletes the “opportunity to benefit from the use of their name, image and likeness in a manner consistent with the collegiate model.” In April, the Board of Governors approved rule changes with certain “guardrails” on the new system designed to maintain a clear distinction between college sports and professional leagues. However, the specific rules are not expected to be adopted until January 2021. Florida’s new law signifies the growing unwillingness of many states to wait for the NCAA’s slow moving bureaucracy to make changes in modernizing its decades-old policies by taking matters into their own hands.

Reese Witherspoon and her fashion line Draper James face a privacy class action and breach of contract over ‘free dress’ giveaway

Hollywood movie star Reese Witherspoon and her clothing line, Draper James, LLC, have found themselves the subjects of a public relations debacle, and now, a class action after running a promotion for teachers that has gone horribly wrong.

To read more about the implications of advertising and promotion rules and the impact of the California Consumer Privacy Act, please click here.

Self-Serve TikTok for Small Businesses, Too

In the wake of COVID-19, businesses of all sizes continue to take stock of their spending practices, losses, ongoing threats, and opportunities for revival and growth.  Investment in marketing is ripe for such an evaluation, including advertising mix, production expenses, and return.  In June, 2020, the Interactive Advertising Bureau (IAB) reported that while overall spending on advertising is in decline, digital ad spending continues to grow. These increases were particularly noticeable in social media and digital video.  From an efficiency perspective, this is no surprise.  Digital ads tend to be less expensive to produce, generally cost less to traffic, and are highly targeted.  In many cases, digital ads also meet consumers at their point-of-purchase, i.e. their smart phones.

Digital platforms are quickly responding to the shifting needs and budgets of their advertiser constituents.  In a press release issued on July 8, TikTok announced its launch of an advertising solution geared towards small and mid-size businesses.  The solution begins with a “suite of creative tools,” that allow the ads to reflect the inventive themes and style of the TikTok community.  Presumably, these creative tools will allow advertisements to appear more native to the platform and to interact naturally with user generated content.  Such tools may also help advertisers continue to save on production costs.

Another benefit of the solution is an advertiser’s ability to target new prospective customers.  TikTok allows its advertisers to target its audience using “gender, location, age, interests, and other unique variables” as well as “Custom” and “Lookalike” audiences.  Further, small and mid-size advertisers will be supported with analytical tools and flexible spending options to allow them to understand and respond to their new viewers.

The platform also introduced a global “Back-to-Business” program designed to help small and midsize businesses begin rebuilding in the wake of the global pandemic.  Thus far, TikTok has committed USD $100 Million in ad credits to the program worldwide.  To participate in the program, small and midsize businesses must apply through the platform’s website.  Those accepted can redeem a one-time ad credit of USD $300 that must be used by December 31 of this year.  Participating businesses will also receive a one-to-one ad credit match for additional spending up to USD $2,000.

For advertisers looking for a change, TikTok is meeting small and midsize businesses with open arms and few hurdles.

The Fyre Festival Storm Continues: Kendall Jenner Settles Over Social Post

For those following the fallout from the Fyre Festival, the drama continues.  Last week, model and influencer Kendall Jenner settled a bankruptcy lawsuit for $90,000 relating to her promotion of the Festival.

To refresh your memory, Fyre Festival was planned for spring 2017, advertised as a music and culinary paradise held on a private island in the Bahamas.  However, the Festival faced a growing number of logistical and financial hurdles leading up to the start dates, including cancelled talent bookings and incomplete accommodations.  Organizers marketed the Festival as an extremely exclusive event and paid top dollar to some of the world’s most followed social media influencers to promote the Festival, including Jenner, Bella Hadid, and Emily Ratajkowski.  Ticketholders were charged thousands of dollars to attend the Festival, but arrived to FEMA-like tents and prepackaged sandwiches.  In 2018, the Festival’s organizer and CEO of its parent company, Billy McFarland, was sentenced to six years in prison after pleading guilty to charges of wire fraud and bank fraud.

Gregory Messer, the bankruptcy trustee overseeing the liquidation of Fyre Festival LLC, initially sought $275,000 from Jenner for her involvement in the Festival.  According to the Netflix documentary detailing the Festival, Jenner was paid no less than $250,000 to promote the Festival on Instagram and direct consumers to the Festival’s website.

While it is not often that an influencer has to return his or her fee (especially when they satisfy their obligations), bankruptcy law provides trustees with a right to claw back payments made by the company before the company files for bankruptcy.  Jenner’s fee was only part of the $5.3 million paid by Fyre Festival organizers to the world’s top modeling agencies and vendors to hold and promote the Festival – nearly $1.5 million of which was paid to two modeling agencies.

Takeaway:  Influencers should remember that they are not shielded from liability with respect to acts and practices of the brands in which they endorse.  Careful consideration should be paid to what it is the influencer is promoting and the potential risk involved – and, in some cases, whether the whole event sounds too good to be true.

 

ANA Trust Consortium release “Data Sources for Media: A Buyer’s Guide”

Advertisers spend a tremendous amount of money on third-party data to influence media buying decisions. Third-party data can come from many different sources, and multiple methodologies can be used in its collection, structuring, and marketing. This often makes it difficult for advertisers to understand exactly what they’re buying, leaving advertisers at a disadvantage and at risk of purchasing data that’s unsuitable for their purpose. To address this problem, the ANA’s Trust Consortium, in partnership with Reed Smith, released a new report, “Data Sources for Media: A Buyer’s Guide,” which outlines key criteria for marketers to focus on when evaluating your data. To download the report, click here.

The Trust Consortium was launched by the ANA in 2019 in partnership with Reed Smith, the ANA’s outside legal counsel. The Consortium’s mission is to restore trust in the marketing ecosystem through transparency, integrity, and growth.

LA Sues Seller of “Must-Have” Radish Paste that Falsely Claims to Prevent COVID-19

Last week, the Los Angeles City Attorney’s office filed a civil lawsuit against KNature Co., Inc. d/b/a Insan Healing, Inc. (Insan), a Los Angeles-based herbal remedy retailer, for attempting to pass off an untested radish paste as an immune-boosting, “must-have product for the protection and prevention” of COVID-19.

The product is made from a combination of “white radish harvested during frost,” garlic, ginger, and other herbs and retails for $99.95 a bottle. According to the complaint, the Insan Healing website falsely touted the product as “an immunity boost to your lungs!” as well as “a must-have product to enhance immunity” and “for the protection and prevention of the COVID-19, cold and flu season [sic].” The U.S. Food and Drug Administration (FDA) has repeatedly warned that there are currently no FDA-approved medical countermeasures for COVID-19.

The complaint asserts claims for false and misleading advertising and unfair competition under California law. It alleges that Insan has violated state and federal food and drug laws by advertising that its product can be “used or [is] intended for use in the diagnosis, cure, mitigation, treatment, or prevention” of COVID-19. The complaint also asserts that the company’s advertisements give the false or misleading impression that its product is a drug for sale in California that can protect consumers from COVID-19 and lung and respiratory issues, and that it is an FDA-approved drug or medical countermeasure against COVID-19.

The lawsuit seeks an injunction stopping the sale of the product, fines of up to $2,500 per violation of California’s unfair competition law, and restitution to consumers for money paid for the product.

Takeaway: The LA City Attorney’s lawsuit is the latest example in the plethora of false advertising investigations, enforcement actions, warning letters, and lawsuits that have been initiated to stop the proliferation of consumer scams and frauds by companies touting fake drugs and treatments in an attempt to profit from the COVID-19 public health emergency.

The FTC Sends Additional Rounds of Warning Letters Over Health and Earnings Claims Related to Coronavirus

The Federal Trade Commission (“FTC”) announced it has issued twenty-one additional warning letters to marketers throughout the United States for making unsubstantiated claims that their products and therapies can treat or prevent coronavirus (COVID-19). Relatedly, the following day, the FTC announced it has issued ten warning letters to multi-level marketing companies (“MLMs”) to remove or address claims they are making about their products’ ability to treat or prevent coronavirus and about the earnings that people who have recently lost income can make.

The marketers included in the batch of twenty-one warning letters include those advertising vitamins, supplements, IV therapy, ozone therapy, and stem cell therapy. The marketers’ coronavirus treatment claims included: “high-dose vitamin C protects against coronavirus”; “build up your immune system against coronavirus”; claiming consumers infected with COVID-19 have been “cured with ozone”; and claims that stem cell therapy has “successfully treated” a COVID-19 patient. Despite the companies’ claims, according to the U.S. Food and Drug Administration (“FDA”), there currently are no products that are scientifically proven to treat or prevent the virus.

In the letters, the FTC reminded the marketers that, under the FTC Act, in order to advertise that a product can prevent, treat, or cure human disease, the marketer must have “competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating that the claims are true at the time they are made.” The FTC requested the companies respond within forty-eight hours describing the specific steps they have taken to address the FTC’s concerns.

The FTC’s warning letters to the ten MLM companies highlighted such impermissible coronavirus treatment and earnings opportunities claims as: “[A] lot of us are worried about getting the virus and since a vaccine has yet to be developed we’re going to have to rely on our good-old immune system to keep us healthy” and “[t]his is a great stimulus package, because you get to teach somebody how to go earn $1,730 literally in their first 10 days in the business.”

In the warning letters, the FTC reminded the MLM companies that claims about the potential to achieve a wealthy lifestyle, career-level income, or significant income are false or misleading if business opportunity participants generally do not achieve such results. As with the other warning letters, the FTC requested that the companies respond within forty-eight hours describing their actions taken to address the FTC’s concerns.

Takeaway:  This latest round of warning letters illustrates that regulators are continuing to significantly increase their efforts to stop scams and remove bogus treatment – and now earnings claims—from the marketplace during the current health and economic crisis.

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