Hat Makers Marketed Made-Up “Made In America” Claims, FTC Says

In January of this year, the FTC announced its complaint against the Bollman Hat Company and its wholly-owned subsidiary, SaveAnAmericanJob, LLC, for allegedly violating its policy on “Made in the USA” claims. Bollman and its subsidiary, which sells hats under the Bollman, Bailey Western, Betmar, Country Gentleman, Eddy Bros., Helen Kaminski, Jacaru, Kaminski XY, Kangol, Karen Kane, Pantropic, and other private label brand names, market their hats with such claims as “American Made Matters,” “Choose American,” and “Made in USA since 1868.”

However, according to the FTC, more than 70% of their hat styles were in fact imported as finished products, and the remaining styles contained “significant” imported content, in violation of FTC requirements for marketing products as “Made in the USA.” Furthermore, Bollman and its subsidiary improperly licensed their “American Made Matters” seal to various companies whose products also failed to meet FTC standards. The FTC recently approved a final consent order settling the charges against Bollman and SaveAnAmericanJob, which prohibits all deceptive use of their “American Made Matters” certification and marketing materials and enjoins them from providing others the means to make similar deceptive country of origin claims. This is the third case involving deceptive “Made in the USA” claims that the FTC has brought in the last year.

Takeaway: The FTC offers specific business guidance on how to comply with the “Made in the USA” standard, deviation from which may land manufacturers and advertisers in legal hot water. The FTC’s “Made in the USA” page is available here.

Trader Joe’s Candies Are Tart, But Not “Natural,” False Advertising Suit Claims

Trader Joe’s “Ts & Js Lemon Grapefruit Lime Tangerine Sour Gummies” have soured the palate of at least one consumer, according to a recently-removed Southern District of California lawsuit. Plaintiff Serena Wong, who filed her complaint against the grocery giant earlier this year, claims that the candies contain an undisclosed artificial ingredient, d-l malic acid, which enhances the candies’ tangy flavor. The label discloses the ingredient “malic acid,” which is in fact natural, but laboratory testing of commercial samples of the product showed the presence of the compound’s “d-l” form—“a synthetic petrochemical” that has “never been extensively studied for its health effects in human beings” according to the complaint. Wong claims the failure to declare the artificial flavor on the packaging and labelling the candies as “all natural” is unlawful, and she brought the putative class action suit against Trader Joe’s for violations of California’s Consumer Legal Remedies Act, unfair competition, false advertising, breach of express and implied warranties, and negligent misrepresentation.

Trader Joe’s removed the suit in May and was granted an extension until August to respond to the complaint.

Takeaway: The differences between which ingredients have been deemed “natural” versus “artificial” may seem minute—such as malic acid versus d-l malic acid—but advertisers should be wary not to open themselves to potential liability by mislabeling or ambiguously-labeling a product’s ingredients.

Defendants Reach Settlement with FTC Over Deceptive Get-Rich-Quick Scheme

Operators of a get-rich-quick scheme have agreed to a permanent ban on the marketing or selling of certain types of software as part of a settlement with the Federal Trade Commission (“FTC”) over allegations that the defendants deceived consumers by falsely claiming consumers could earn large sums of money working online utilizing the defendant’s products. The scheme falsely promised consumers that they could earn hundreds to thousands of dollars a day using the defendants’ “Mobile Money Code” software products, which were in fact generic software applications that help users make mobile-friendly websites. The FTC alleged that the defendants violated the FTC Act, by contacting consumers through deceptive spam e-mails, and the CAN-SPAM Act, by sending commercial email messages that included misleading subject lines; failing to identify themselves as advertisers; including no valid physical address of sender; and offering recipients no opt-out for future messages. The settlement order requires the defendants to pay $7,000,000, which will be suspended upon payment of $698,500 to be used to refund defrauded consumers; and bans the defendants from marketing or selling money-making software.

Takeaway: As we previously blogged, part of the FTC’s 2018 agenda is to bring cases which show actual harm to consumers or businesses. This settlement, along with recent cases brought by the FTC for deceptive work-from-home business coaching schemes, is evidence of the FTC’s continued enforcement of get-rich-quick schemes that in fact harm consumers.

FDA: “Milk” Probably Was a Bad Choice

Apparently even the Food and Drug Administration (FDA) is on board with ‘90s nostalgia. This week, the agency effectively rebooted the nearly 20-year-old debate on whether alternative milk and plant-based drink products should fall within the definition of “milk”.

The FDA governs the proper labeling of foods, including ensuring that foods conform to a certain “standard of identity”. FDA Commissioner Dr. Scott Gottlieb spoke at a Politico event this week, in part discussing the standards of identity used for milk in the United States. Regarding plant-based “milks”, Commissioner Gottlieb observed that there has “probably not” been proper enforcement of the agency’s standard of identity for milk.

Despite the increased consumption of alternatives, the FDA has yet to update its definition of “milk”: “the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.” When confronted with the reality that alternative milk products do not fit within the statutory definition, Commissioner Gottlieb cleared up any confusion by confessing, “an almond doesn’t lactate.” Accordingly, the “plant-based dairy imitators” may violate federal standards.

The Commissioner went on to state that the FDA plans on first developing guidance on notifying companies about the change and seeking public comment on how to enforce a new standard. The agency will likely issue such guidance this year.

Takeaway: Alternative milk and plant-based drink product manufacturers and marketers should keep an eye on the FDA over the coming months and create a plan for next steps if such products cannot be labeled as “milk”. Consumers should also practice ordering their coffee with “almond drink” or “soy liquid”, just in case.

 

Battle of the Bottles: Jack Daniel’s Brings Trademark and Trade Dress Infringement Suit Against Texas Distilleries

Jack Daniel’s is fighting hard to protect its iconic, all-American image against purported copycats. The famous Tennessee whiskey brand filed a lengthy complaint against Dynasty Spirits (“Dynasty”) and Buffalo Bayou Distilleries (“Buffalo Bayou”), two Texas distilleries, alleging trademark and trade dress infringement and dilution. Dynasty is responsible for the distilling and marketing of the accused whiskey, and Buffalo Bayou is responsible for the product’s labeling, packaging, and shipping.

At the center of Jack Daniel’s complaint is Dynasty’s bottle design, which Jack Daniel’s claims illegally replicates its own square bottle with angled shoulders, beveled corners, and ribbed neck. Dynasty’s bottle is also labeled with arguably similar black-and-white color scheme, arched lettering, and script font. Jack Daniel’s asserts that the accused whiskey creates a similar impression in the marketplace to Jack Daniel’s whiskey, leading consumers to believe that the two products are affiliated or sponsored by a common source. The complaint alleges that due to poor reviews of the taste and quality of Dynasty’s whiskey, such belief has and will continue to impair the Jack Daniel’s brand.

Takeaway: Trademark and trade dress lawsuits are common. New brands and startups should be aware that existing brands will likely be aggressive in protecting their IP.

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.

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