FTC Gone Viral: Commission Puts 700+ Companies on Notice About Deceptive Endorsements

Yesterday the Federal Trade Commission (“FTC”) announced that it sent “Notices of Penalty Offense” (the “Notice”) to over 700 companies in nearly every industrial sector, ranging from leading retailers, tech platforms, top consumer product companies, and major advertising agencies, warning them that they could incur significant civil penalties – up to $43,792 per violation – if they use endorsements in ways that run counter to prior FTC administrative cases.

The Notice outlines a number of practices that the FTC determined to be unfair or deceptive in prior administrative cases, including, but not limited to the following:

  • Falsely claiming an endorsement by a third party;
  • Misrepresenting whether an endorser is an actual, current, or recent user;
  • Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the view presented;
  • Using an endorsement to make deceptive performance claims;
  • Failing to disclose an unexpected material connection with an endorser; and
  • Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.

The FTC stated it was prepared to use “every tool at its disposal” to go after bad actors with regard to deceptive endorsements and reviews. The move comes just months after the Supreme Court stripped the FTC of its authority to seek monetary relief directly in district court in consumer protection and antitrust matters under Section 13(b) of the FTC Act, which we previously wrote about here. In this latest move, the FTC has dusted off its hidden weapon – the Penalty Offense Authority – which allows the agency to seek civil penalties against a company that engages in conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.

By sending the Notice, the Commission aims to create the requisite knowledge to potentially institute civil penalty investigations later. It is important to note that while past endorsement actions have primarily resulted in consent orders, the FTC has been laying the groundwork to seek monetary penalties for quite some time.

The FTC makes clear on its list of recipients that inclusion on the list does not in any way suggest that the company has engaged in deceptive or unfair conduct. However, even brands not included on the notice list should take heed of the FTC’s warning – as this latest move indicates the FTC’s intention to pursue violations more aggressively.

Takeaway: This is another action by FTC chair Lina Khan signaling the Commission’s aggressive stance towards reviving its administrative powers under the FTC Act. We recommend that marketers review their overall marketing practices with respect to influencers, reviews and endorsements, including: (i) refreshing or implementing policies on endorsements and reviews for all relevant categories of individuals (i.e., employees, paid influencers, those who receive anything of value); (ii) reviewing active or pending campaigns to confirm compliance; (iii) collaborating with key stakeholders to conduct appropriate training, including for business / legal teams and influencers; (iv) assessing how influencers are engaged (whether directly or through an ad agency), including contractual best practices; and (v) reviewing the applicability of SAG-AFTRA obligations based upon the new influencer agreement and influencer waivers, which impact both signatories and non-signatories.

Reliance on sweepstakes official rules to avoid litigation requires publication

No one who plans and operates a promotional sweepstakes wants to litigate over the prizes. But one of the primary reasons an operator wants a set of experienced eyes on a set of Official Rules is to ensure that the operator is covered – just in case there is a dispute with one or more of the contestants. Sometimes, operators cleverly anticipate that an arbitration clause will help to lower the risk of a dispute involving a contest or sweepstakes. And, undoubtedly, there might be situations where arbitration can help the operator lower the risk of costly litigation. But, like many substantive provisions of the promotional contract between an operator of a sweepstakes and a participating consumer, the clever protections you and your attorney put in place are only effective if they are made a part of the contract.

In Root v. Robinson, No. 5:20-cv-00239-M, 2021 U.S. Dist. LEXIS 5550 (E.D.N.C. June 23, 2021), Tony Robinson, along with his companies Tony the Closer LLC and I Close Deals LLC (collectively Robinson), was in the business of setting up conferences to teach others how to be successful in the real estate business. Robinson organized one such conference in Las Vegas called “The 100K Club Conference 2019.” Robinson sought to promote the conference by way of a sweepstakes. The promotional structure was as follows: Those who purchased tickets to attend the conference would be entered into a drawing to win $100,000 cash. The sweepstakes was advertised through an FAQ section of the conference website, which read in part:

How Can I Win $100,000? Buy a ticket of any level and attend live or online through our pay-per-view option. Is there a catch? No, one lucky person will walk away with $100,000. In order to win you must purchase a ticket in person or pay-per-view. Winner will be drawn randomly from ticket buyers. That is it!

There was also a “100K Drawing Disclaimer” that read, “Only one lucky person (in person or pay-per-view) will walk away with $100,000. In order to win you must purchase a ticket in person or pay-per-view. Winner will be drawn randomly from ticket buyers, complimentary tickets do not apply.”

A consumer, Gaege Root, bought a ticket to attend the conference. He did attend the conference, and he alleged that he did so in reliance on Robinson’s advertisement of the sweepstakes. Root was drawn as the winner and was presented with an outsize replica of a check for $100,000. But Root did not “walk away” with $100,000 in cash. Rather, Robinson presented him with an Affidavit of Eligibility and Release form (Affidavit) that Root was required to execute and have notarized and then return to Robinson within five days. The Affidavit contained blanks where Root was to fill in personal information. It also contained a representation that Root was the “potential winner” of a prize and that the Affidavit was being submitted “to assist in determining whether [Root was] eligible to receive the Prize in accordance with the Official Rules of the Promotion.” The Affidavit also contained a representation that Root had complied with the Official Rules and that Root understood that the prize would be paid out according to a specified payment schedule. Finally, the Affidavit provided Root’s consent to use his likeness and his release of Robinson from any claims Root might have against Robinson or its affiliates regarding the sweepstakes.

After Root executed the Affidavit and had it notarized and returned it to Robinson, Robinson sent Root a check for $30,000. Root demanded the remaining $70,000; Robinson refused to pay the additional amount, and Root sued in federal court alleging (1) breach of contract; (2) fraud; (3) unfair and deceptive trade practices; and (4) constructive trust. He sought punitive damages (which helped to push the amount in controversy over the $75,000 threshold).

For purposes of this discussion, we will ignore whether the prize promotion was actually an illegal lottery because participants were required to pay for the conference ticket in order to enter the drawing. The focus of this case, on Robinson’s motion to dismiss and to compel arbitration, was whether Root should be bound by the Official Rules and specifically the arbitration provision contained therein.

Initially, Robinson argued that the Official Rules, which were referenced only in the Affidavit, were the controlling terms for the relationship between the parties. The Official Rules contained a requirement that disputes be submitted to arbitration. Accordingly, Robinson argued, the court should dismiss the case because the terms of the Official Rules, agreed to through the Affidavit, precluded Root’s lawsuit.

The court initially ordered limited discovery in order to flesh out the record as to whether or not the Official Rules had been made part of the contract between Root and Robinson. Subsequently, Robinson presented two pieces of evidence to support its contention that Root had agreed to the Official Rules in connection with his participation in the sweepstakes. First, Robinson testified that the Official Rules were made available to all Sweepstakes participants through an unspecified website and an unspecified “app” through which conference participants communicated. Second, Robinson presented a copy of the Official Rules themselves which contained the statement, “Participation in the Sweepstakes Constitutes Your Agreement to be Bound by these Official Rules,” as well as release language and the arbitration clause, among other provisions. The court noted that at the hearing following the limited discovery, Robinson dropped the specious contention that the signed Affidavit referencing the Official Rules was sufficient to bind Root to the rules after the fact.

The court held that Robinson did not meet his burden of proving that Root was aware of, saw, or agreed to be bound by the Official Rules. The court did not address at this stage any of the substantive claims alleged by the plaintiff. Rather, the court merely concluded that Robinson was not entitled to rely on the Official Rules to compel arbitration of the dispute. Despite the preliminary nature of this decision in relation to the underlying causes of action, the need to litigate the matter in federal court is likely to lead to a settlement favoring Root. Continue Reading

Joint Commitment: Alcohol Producers and Major Agencies Create Standards for Influencer Alcohol Marketing

The International Alliance for Responsible Drinking (IARD), which represents major global alcohol producers, partnered with leading advertising, public relations and influencer agencies to sign an Influencer Pledge that sets standards and rules for influencers who market alcohol on social channels. The Pledge is meant to prevent influencer alcohol marketing from reaching minors and to encourage influencers to promote responsible drinking. In addition to the Pledge, the companies created a set of five safeguards applicable to influencers that work with alcohol brands.

Major agencies and communications players signed on, including Dentsu, Evins, ICF Next, and Publicis Groupe, as well as prominent global beer, wine, and spirit companies such as Asahi, Bacardi Limited, Heineken, and Molson Coors.

Given alcohol companies’ increasing involvement in the ever-growing influencer marketing industry, the Pledge includes standards to address advertising disclosures and transparency, local laws and health claims, age-affirming mechanisms, and responsible drinking resources. The IARD believes the Pledge encourages transparency and allows influencers to utilize the correct tools to safeguard their content to help ensure that posts do not reach minors or encourage wrongful consumption of alcohol.

The Pledge signatories recognize the importance of incorporating these standards into contracts and practices, conducting due diligence on influencers, and regularly auditing influencer campaigns for compliance with these new rules. Furthermore, the signatories will assess their relationships with influencers who fail to modify their posts after notification of noncompliance with the standards. Finally, the Pledge expresses the importance of feedback mechanisms for influencers so they can flag issues concerning responsible drinking.

Moreover, the IARD created a how-to video outlining best practices influencers may engage in to partner with various alcohol brands and to promote alcohol on their social channels, such as including labels to indicate sponsored content or ads.

Takeaway: As various companies increasingly utilize influencer marketing to promote their brands, new standards will continue to develop to ensure transparency and consumer protection. These tools will help support brands, agencies, and influencers alike to market products responsibly.

Personavera v. CHIME: An Innovation Contest Goes Sour

A lucrative prize incentive can be the engine for an exciting and socially beneficial innovation competition. Despite the good intentions of the organizer, a lot can go wrong even when the sponsor is a nonprofit. An innovation contest generally promotes the generation of ideas or prototypes for new advancements in an industry. We have worked with many entities that seek to encourage innovation through prize incentives. Such promotions can involve very large prizes, and they can engender a lot of press coverage. Regardless of whether the purpose of the contest is for commercial, educational, or social purposes, a company or organization can still end up in federal court if the contest is not properly structured and conducted.

In Personavera, LLC v. College of Healthcare Information Management Executives, C.A. No. 18-633, 2021 U.S. Dist. LEXIS 68250 (E.D. Pa. Apr. 8, 2021), the College of Healthcare Information Management Executives (CHIME) was an Illinois nonprofit corporation that represented chief information officers and information technology professionals involved in managing information technology in the health care industry. According to its website, CHIME “provides a highly interactive, trusted environment enabling senior professionals and industry leaders to collaborate, exchange best practices, address professional development needs and advocate the effective use of information management to improve the health and healthcare in the communities they serve.” One of its missions was to encourage development of a national patient identification (NPI) system that would help health care providers quickly identify and exchange information about patients. CHIME created an Innovation Trust as a vehicle for it to design, promote, and run a contest to devise a usable NPI system.

In the first level of the challenge, participants were required to submit a proposal for an NPI system. The two top-scoring proposals, based on judging criteria published on the website, would each win $30,000. The second level of the challenge comprised two rounds. In the first round, participants were asked to submit proposals regarding improvements on their designs from the first level. In the second round, the same participants had to build prototypes according to that improved design. After both rounds, one winner would be awarded $1 million.

In order to enter the challenge, participants had to accept certain terms and conditions, including a provision that CHIME could cancel the challenge at any time for any reason. Those terms and conditions were sent through HeroX, a website used to conduct contests.

Michael Braithwaite was the majority owner of a company called Personavera, LLC (we refer to both Braithwaite and his company collectively as Braithwaite, although he entered on behalf of his company). Around January of 2016, Braithwaite entered the challenge and designed a biometric system that used the unique pattern of a person’s iris and the shape of their face to identify them. On June 1, 2016, Braithwaite was announced as one of the top two winners of the first level and was awarded $30,000. Nearly a year later, on May 15, 2017, after several deadline extensions, CHIME identified Braithwaite as one of four finalists. CHIME mentioned that each finalists “exhibited an extraordinary level of innovation, adoptability and implementation in creating a viable solution to solve this critical patient safety issue.”

But, on November 15, 2017, CHIME announced that it was suspending the challenge and informed all of the finalists, including Braithwaite, that it would not be awarding the $1 million prize. CHIME stated the reason for the cancellation was Innovation Trust’s failure to achieve the results they sought. Although CHIME initially communicated that the cancellation was not related to the quality of the submissions, it later stated that the poor quality of the submissions did contribute to the cancellation decision.

After the challenge was cancelled, Braithwaite demanded return of his prototype, but CHIME refused. Braithwaite filed a complaint alleging breach of contract, promissory estoppel, conversion, fraud, negligent misrepresentation, and violations of the Illinois Consumer Fraud and Deceptive Practices Act, 815 Ill. Comp. Stat. 505, and the Illinois Prizes and Gifts Act, 815 Ill. Comp. Stat. 525. The case was heard by the court on CHIME’s motion to dismiss.

Breach of contract

First, Braithwaite argued that CHIME breached a contract because the challenge and the rules that formed the contest constituted a unilateral offer that Braithwaite accepted through performance of the contest requirements. CHIME argued that the challenge was not a unilateral, promotional offer, but rather a part of a larger, general mission to develop initiatives not subject to contract law.

According to the court, the facts alleged established the existence of a unilateral contract between the parties. CHIME published an offer in the form of the conditions and rules of the contest, which promised participants that they would have the opportunity to win a prize if they submitted proposals and prototypes in accordance with its directions, including the judging criteria. As with most promotional structures, the contest and its official rules constituted a unilateral contract, and Braithwaite’s full performance constituted acceptance, binding CHIME to the contract’s terms.

Braithwaite argued that CHIME’s cancellation of the challenge was a breach of the contract. CHIME’s official rules included a provision allowing CHIME to cancel the challenge at any time for any reason. However, the court ruled that even if the terms expressly gave CHIME the right to cancel the challenge, notwithstanding Braithwaite’s full performance, Braithwaite could make out a claim for breach of contract based on the implied covenant of good faith and fair dealing. Good faith is always an inherent quality of any contract, and Braithwaite, according to the court, sufficiently alleged that CHIME may have breached its contract by exercising the cancellation provision contrary to the implied covenant of good faith and fair dealing, notwithstanding the cancellation clause.

Promissory estoppel

The court ruled that Braithwaite successfully alleged that CHIME made express and implied promises to him designed to induce his participation in the challenge. In addition, Braithwaite further alleged that he expended significant time, energy, and money, in reliance on CHIME’s promises, successfully making out a cause of action for promissory estoppel.

Conversion

Braithwaite argued that he was the rightful owner of the prototype he had submitted pursuant to the contest. He had repeatedly demanded return of it, and CHIME refused to return it. Because Braithwaite met all of the elements of common law conversion under Pennsylvania law, the court maintained his cause of action.

Common law fraud

Braithwaite also alleged that CHIME knowingly made several untrue statements about the challenge that were material to Braithwaite’s decision to enter the challenge. The court ruled that Braithwaite demonstrated an actual misrepresentation by alleging that CHIME acted with a particular state of mind with regard to the truth or falsity of its statement. The court found that the statements CHIME made were all stated with particularity and supported Braithwaite’s argument that CHIME knew or recklessly disregarded that the statements were false at the time they were made.

Negligent misrepresentation

Braithwaite alleged that CHIME made several untrue statements related to the second level of the challenge that were material to Braithwaite’s decision to enter the challenge. Since Braithwaite sufficiently pled misrepresentations under the heightened pleading standard for fraud, the court concluded that Braithwaite sufficiently alleged misrepresentations for purposes of their negligent misrepresentation claim.

Illinois Consumer Fraud and Deceptive Practices Act

Although the case was brought in Pennsylvania federal court, Braithwaite argued that CHIME had violated the Illinois Consumer Fraud and Deceptive Practices Act, 815 Ill. Comp. Stat. 505 (Consumer Fraud Act or the Act). Section 2 of the Consumer Fraud Act prohibits “deceptive acts or practices…or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact…in the conduct of any trade or commerce.” 815 Ill. Comp. Stat. 505/2.

Although the language of the Act is broad, the court looked to the Illinois Supreme Court’s holding that the Act only applies to a particular fraudulent transaction if the alleged transaction took place within Illinois. To determine whether a transaction occurred “primarily and substantially” within the state, courts in Illinois had examined several factors including where the Official Rules were drafted; the residence of the plaintiff; the place of incorporation or place of business of the defendant; where the deceptive statements were made; and where complaints were directed to, among others.

Although the facts were insufficiently developed to compel a conclusion that Illinois law applies, they were sufficiently developed such that the court could conclude that they could not defeat the application of Illinois law. Although Braithwaite resided in Pennsylvania and was injured in Pennsylvania, CHIME was an Illinois nonprofit corporation, and the website and fraudulent communications were created in and publicly available to residents of Illinois.

Illinois Prizes and Gifts Act

Lastly, Braithwaite argued that CHIME had violated the Illinois Prizes and Gifts Act, 815 Ill. Comp. Stat. 525 (Prizes Act). The Prizes Act requires a sponsor of a “written promotional offer” to disclose in the offer’s materials a variety of items, including the name of the sponsor, the sponsor’s principal place of business, and the retail value of each prize that participants could receive, among other material terms. The court held that Braithwaite had sufficiently pled facts demonstrating that the challenge induced participants to contact a person in Illinois. Accordingly, CHIME’s failure to make the required disclosures could constitute a violation of the Prizes Act.

CHIME argued that Braithwaite was not a “consumer” for purposes of the Prizes Act because he did not purchase any goods or services from CHIME. The court acknowledge that the Prizes Act only allows “consumers” to bring a private action, but the Prizes Act does not define the term “consumer.” The court held that it would be contrary to the plain language of the Prizes Act to confine the term to the narrow definition of one who has purchased a good or service. It was sufficient for Braithwaite to have participated in the challenge to be considered a “consumer” for purposes of application of the Prizes Act.

Key takeaways

The terms and conditions – the Official Rules – of a competition usually constitute the terms for an enforceable contract between the sponsor or organizer of a competition and the participants. Because the contract will be construed against the drafter, it is critical that the organizer of a competition draft the Official Rules carefully. This general principle is triply important when the prize is very great in value and the involvement level by participants is intense. Participants will read the contest rules. Do not make the mistake of believing that the terms and conditions of the contest are just a bunch of boilerplate language. Participants will pore over them, especially if they become semifinalists or finalists.

One of the danger signs of a contest about to go sour is the continual use of extensions. Pushing out the deadline for entries often means that the organizer has not received entries impressive enough to justify the large cash prize. There are ways to mitigate against the risk of low turnout or poor performance against the judging criteria. But simply extending the contest’s deadline is rarely a no-risk option. When one changes the end date, an organizer likely affects the pool of eligible contestants, potentially prejudicing those who entered on time. There were many extensions of the deadline for the contest in this case, but the real problem that led to litigation was the eventual cancellation of the contest entirely. There is no easier way to attract negative attention to one’s competition than to fail to award the prize.

The court’s attention to the principle of good faith and fair dealing was interesting. CHIME had placed a clause in the Official Rules that gave CHIME the unilateral right to cancel the competition at any time for any reason. Depending on the circumstances, a court might be more likely to enforce that term. Generally, if an organizer needs to cancel a promotion, it should contemplate the circumstances under which it would do so and what relief it would give to those entrants who had participated in the contest and had partially or fully performed. The facile use of a boilerplate cancellation provision seems to have bothered the court, leading it to invoke an equitable approach – at least at the motion to dismiss stage.

One of the head-scratchers of this case is why CHIME did not simply return the prototype when Braithwaite requested it. It seems as though Braithwaite might have taken his $30,000 preliminary award and called it a day but for CHIME’s refusal to return the manifestation of Braithwaite’s innovation. Quick, quiet, and courteous accommodation of participants who complain can often quell a rancorous pool of contestants.

Turning to the statutory causes of action, it is notable that Braithwaite chose to invoke the statutes of the state from which the offer emanated rather than the state in which Braithwaite resided. Not all unfair and deceptive acts and practices (UDAP) statutes are the same; in fact, UDAP statutes can vary greatly in terms of their scope and the penalties available to private plaintiffs. Very often a breach of a promotional contract can constitute a UDAP violation, and there can be civil penalties associated therewith as well as attorney’s fees, costs, and sometimes even punitive damages. Thus, invocation of a UDAP statute is common in situations where a contest has gone sour and large prizes remain unawarded.

Finally, a word about the Illinois Prizes Act. It is sometimes easy to forget that a skill-based contest can be subject to state prize and gift law just like a sweepstakes. This means that state law that governs the disclosure of certain material terms can apply with equal force to a skill contest. Thus, a comprehensive, well-drafted set of Official Rules not only protects the organizer practically by laying out the process for determining winners and awarding prizes but also helps the organizer comply with applicable gift and prize statutes, which can authorize consumers to bring private actions to enforce their requirements.

Facebook Demolishes Housing Ad Discrimination Suit

The Northern District of California has dismissed for the third and final time a proposed discrimination class action against Facebook that challenged Facebook’s former tool that allowed advertisers to select target audiences for their housing advertisements in violation of the federal Fair Housing Act. Plaintiffs alleged that this tool could exclude protected classes of consumers from seeing certain advertisers’ housing ads. Facebook moved to dismiss, arguing that plaintiffs lacked standing and its publishing conduct was protected under Section 230 of the Communications Decency Act.

Plaintiffs asserted that Facebook created an Ad Platform that published and disseminated targeted housing ads. The Ad Platform included tools that allowed advertisers to exclude or include people based on certain demographic characteristics. Plaintiffs alleged that these demographics-based advertising filters allowed for selective discrimination against poor and minority communities in accessing certain housing opportunities.

The court agreed that plaintiffs lacked standing. Plaintiffs did not plausibly allege that they were in fact injured by the use of Facebook’s now-defunct ad targeting tools. Plaintiffs did not allege that housing was generally available in their desired markets under their search criteria, or that housing ads that satisfied their criteria were even on Facebook.

The court stated plaintiffs assumed that the reason they received no results was because of unidentified advertisers that theoretically used Facebook’s tools to exclude them based on their protected class status from seeing paid housing ads that plaintiffs assumed were available and met their criteria. The court found this to be a “generalized grievance that is insufficient to support standing.”

Further, Section 230 of the CDA would have immunized Facebook from these claims even if plaintiffs did allege injury. Section 230 “‘immunizes providers of interactive computer services against liability arising from content created by third parties.’” Plaintiffs argued Facebook’s role in “creating, promoting use of, and profiting from paid advertisers’ use of the Targeting Ad tools” removed its immunity under Section 230. The court found Facebook’s advertising tools to be neutral that left it up to the users to determine what content to post. The use of Facebook’s tools were not “mandated nor inherently discriminatory.” Therefore, the claims were barred by Section 230.

Takeaway: The mere possibility that advertising technology could be used to target certain audiences by an unspecified actor to discriminate against protected classes will not be enough to maintain a case. There needs to be a concrete injury that someone suffers from targeted advertising. Further, even if someone is able to show a concrete injury, there is always Section 230 of the CDA to contend with.

Mexico leads media transparency efforts with new law

On April 30, 2021, the Mexican Chamber of Senators and Deputies passed a new law on “Transparency, Prevention and Combating of Unfair Practices in Advertising Contracting.” The law seeks to eliminate and prosecute non-transparent media practices between advertisers, media owners, and agencies. The law will go into effect on September 1, 2021.

The new law signals significant changes to common industry practices, including (i) prohibiting agencies from buying media in their own name with the purpose of re-selling such media afterwards to advertisers, and (ii) ensuring agencies may now only buy media space that has been ordered by advertisers. The law also ensures that:

  • An agency may only receive compensation that has been agreed to by an advertiser pursuant to a contract.
  • All discounts that the agency receives from the media must be passed on to the advertiser in full.
  • Neither the agency nor a contracted third party can receive compensation, commission, or benefit from a media vendor.
  • An agency that provides services to an advertiser cannot provide services to a media vendor at the same time – thus, services to a media vendor must be provided by a separate legal entity.
  • The media vendor will have to issue the invoice directly to the advertiser and not the agency, although the invoice can be paid by the agency.
  • The media vendor will have to comply with transparency obligations with the advertiser by providing detailed information on the dates and location of the campaign; ad format; unit prices; and rating, including any discounts offered by the media vendor.
  • The agency must inform the media vendor as soon as possible of the advertiser’s identity.
  • The agency must submit a detailed report to the advertiser the month following the airing/publication of the advertising.
  • The agency must inform the advertiser about the financial relationships it has with the media vendor.

The law imposes a range of penalties up to 4 percent of total annual revenue for noncompliance.

Takeaway: Mexico’s new law signals the country’s aim to tackle media transparency issues head-on. The law, which applies to advertisers located in Mexico and advertising placed in Mexican media, regardless of the place of establishment of the agency, will require advertisers to review and adjust current and future media agency agreements in Mexico to ensure compliance with the new law’s provisions and avoid potential penalties. The new law makes Mexico the second country to legislate transparency in media buying, with France being the first.

Transparency in media buying has been an issue that has plagued the advertising industry for years. In the United States, it came to the forefront when the Association of National Advertisers (ANA) published its 2016 “An Independent Study of Media Transparency in the U.S. Advertising Industry” report with K2 Intelligence. The report uncovered rebates arrangements and other non-transparent business practices in media buying. Since then, other industry reports have either reaffirmed the ANA’s findings or have highlighted other transparency issues in media buying, such as the lack of visibility into the programmatic supply chain. The ANA also issued an RFP earlier this year to commence a study to further probe the programmatic media buying ecosystem.

Sweet Victory: Ninth Circuit Affirms Dismissal of Trader Joe’s Honey False Ad Suit

The Ninth Circuit affirmed the dismissal of a class-action lawsuit that alleged Trader Joe’s Manuka Honey product labeling was misleading. Trader Joe’s marketed its store brand Manuka honey as “100% New Zealand Manuka Honey” or “New Zealand Manuka Honey.” Plaintiffs claimed that these labels were misleading because the honey only consisted of between 57.3% and 62.6% honey derived from Manuka flower nectar. Plaintiffs alleged that the label and ingredient list created a “false impression” that the Trader Joe’s honey contained a higher percentage of honey derived from Manuka.

The FDA provides guidelines about honey that allow for the labeling of honey by its “chief floral source” which means the principal source of honey is a single floral source. Trader Joe’s Manuka honey met the standard of the FDA definition. Therefore, the Trader Joe’s label was accurate because there was no dispute as to whether all of the honey was technically Manuka honey.

Despite the fact that the front label was accurate under the FDA guidelines, Plaintiffs argued that consumers could still be misled into thinking the honey was “100%” derived from the Manuka flower nectar. The court understood that there was an ambiguity surrounding the meaning of the “100%” claim. The district court concluded, and the Ninth Circuit agreed, that other available information about the honey would “quickly dissuade a reasonable consumer” from believing the honey was 100% derived from Manuka.

A reasonable consumer may look at information beyond the physical label to learn about the product itself and its packaging. The court found that a reasonable consumer of Manuka honey would be dissuaded from Plaintiffs’ interpretation of “100%” based on three key “contextual inferences” from the product: (1) it is impossible to create honey 100% from Manuka (or other floral source); (2) the low price of the product; and (3) the presence of the “10+” on the label. On the first point, bees forage and therefore it is impossible to ever have honey derived from one source. On the second, Manuka honey is a fancy product, and the fact that it only cost $13.99 should indicate it was not made solely from Manuka flower nectar. And, third, Manuka honey producers have created a scale that grades the honey based on the purity of the Manuka honey. Trader Joe’s only has a “10+” out of 26+.

Therefore, a reasonable consumer would not reach the conclusion that “100% New Zealand Manuka Honey” is making the claim that the product consists exclusively of honey derived from Manuka. Rather, a reasonable consumer would conclude that the “100%” claim means that it is “100% honey whose chief floral source is the Manuka plan” (an accurate statement).

Takeaway: Context clues matter. A reasonable consumer can be expected to look beyond just the wording on the label in front of them. Be conscious of ambiguous language; just because an advertisement is ambiguous, does not automatically mean that it is misleading or deceptive.

So Fresh and So Clean: Wet Ones Wipes Suit Dismissed

On June 7, 2021, the Southern District of California dismissed a case against Edgewell Personal Care, Co., alleging that defendants’ label on its “Wet Ones” antibacterial hand wipes was false and deceptive. Plaintiff brought a putative class action against defendants for making misleading representations about the efficacy and skin safety of its hand wipes. The suit was filed under the California Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”).

Plaintiff alleged that Wet Ones wipes do not kill 99.99% of germs as advertised. The active ingredient in the hand wipes was allegedly ineffective against certain viruses and bacteria. Plaintiff also alleged that the hand wipes contained ingredients that were allergens or skin irritants, contradicting the label’s claim that the hand wipes were hypoallergenic and gentle.

The court determined that plaintiff had standing. Under the UCL and FAL, plaintiff needs to show that she suffered an economic injury that was caused by the unfair business practice or false advertising at the root of the claim, and that she actually relied on the misrepresentations. Here, plaintiff lost money on hand wipes she would not have bought, or bought on different terms, if she knew the truth about their efficacy and she relied on these representations when purchasing.

The court found that plaintiff’s claims failed the reasonable consumer test, which requires a probability that a “significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled” by the representations.

First, the court stated that a reasonable consumer would not expect the hand wipes to kill the types of bacteria, viruses and germs plaintiff named, like the ones that cause polio or food-borne illnesses. A reasonable consumer would only expect the wipes to kill bacteria more likely to be found on hands. Second, the court found that no reasonable consumer would understand hypoallergenic and gentle to mean the product is completely free of ingredients that could cause an allergic reaction. Further, it is unlikely a reasonable consumer would think hypoallergenic and gentle meant that the hand wipes had no risk of irritation, rather than just a lower risk of skin irritation. A reasonable consumer may also understand the label claims to refer to the product’s effect, not the ingredients.

Takeaway: The way in which an average consumer would actually read and understand a label’s promises is key. In a time where consumers rely heavily on cleaning products, this case shows it won’t be enough for a plaintiff to allege any possible misreading of a label; a consumer’s reading of the label needs to be reasonable.

Score One for the Student Athletes: NCAA Adopts Interim Name, Image, Likeness Policy

The National Collegiate Athletic Association (NCAA) has officially adopted interim policy changes that will allow college athletes the opportunity to benefit from their name, image, and likeness (NIL). This change comes on the heels of NCAA v. Alston, discussed here, where the Supreme Court ruled 9-0 that the NCAA violated anti-trust laws when it limited education-related benefits a college or university could offer student athletes. We previously wrote about the NCAA’s adoption of a new rule allowing elite Olympic and Paralympic athletes to have “additional training expenses” paid without jeopardizing their NCAA eligibility. This new policy goes well beyond the NCAA’s previous rule.

This policy change also comes right as select states’ laws go into effect that allow students to profit from their NIL rights. Without this policy change, a college athlete going to school in one state would have been able to earn money from their NIL without worrying about their college eligibility, while a student in another state would risk violating NCAA rules.

Some of the policy changes also include allowing college athletes to enter into sponsorship and endorsement deals, to get compensated for making personal appearances and signing autographs, and to work with agents. College athletes will have opportunities unlike ever before, which in turn means brands will have new audiences to reach if they choose to enter into deals with student athletes.

However, this journey is far from over. The NCAA views this policy change as temporary as it waits either for (a) Congress to pass federal legislation addressing the problem or (b) new NCAA permanent rules to be approved.

Takeaway: Uniformity is key. The temporary policy the NCAA implemented was important to avoid a scenario where students in one state could profit off their NIL rights, while others could not. This change opens up possibilities for brands and student athletes alike.

Maryland Legalizes Sports Betting and College Athletes’ Image Ownership

In May 2020, Maryland made two major moves in the sports world: it legalized sports betting and passed a law allowing college athletes to profit from their names, images, and likeness.

HB 940 legalizes sports betting and provides a framework for the industry to operate. It allows for in-person betting, including at major Maryland sports stadiums belonging to the Baltimore Orioles and the Baltimore Ravens. It also provides licenses for mobile and online sports wagering.

SB 439 allows college athletes to profit from their names, images, and likeness (NIL). This has been a point of contention with the National Collegiate Athletic Association (NCAA), whose rules prohibit athletes from earning money off their names, images, and likeness. The NCAA plans to vote on athletes’ NIL rights in the very near future. Maryland is the latest state to pass such legislation ahead of any action by the NCAA.

The newly enacted laws will likely have a major impact in Maryland, both in the sports world and beyond. HB 940 anticipates over $15 million a year in revenue, which will support education and be used to help small, minority owned and women-owned businesses. SB 439 may encourage the NCAA to revisit their policy on college athletes’ abilities to profit from their names, images, and likeness.

Now that the Supreme Court has ruled in favor of the student-athletes over the NCAA in their antitrust suit regarding compensation restrictions, NCAA v. Alston, the NCAA may feel even more pressure to revise their rules regarding student-athletes’ NIL rights.

Takeaway: We will have to wait and see if more states follow Maryland by legalizing sports betting and allowing their athletes to profit off themselves. Or, perhaps the federal government will step in and pass legislation to legalize sports betting and protect college athletes’ individual rights. Congress has introduced legislation for college athletes’ name, image, and likeness rights. Either way, states are not waiting for the federal government or the NCAA to make their own moves.

 

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