Advertising Watchdog Refers CBD Health Claims to the FTC

The National Advertising Division of the Better Business Bureau (“NAD”), the investigative unit of the advertising industry’s system of self-regulation, recently referred to the Federal Trade Commission (“FTC”) advertising claims made by Grade A Nutraceuticals for its CannaPure CBD Oil dietary supplement, after the company failed to respond to NAD’s requests to provide substantiation for its claims.

Council for Responsible Nutrition (“CRN”) brought an NAD action and challenged Grade A Nutraceuticals’ advertising claims about its CannaPure CBD Oil dietary supplement, such as, “Clinically Validated: Experience the medically proven therapeutic benefits of hemp”; “CannaPure CBD Oil helps with relieving all forms of chronic pain by inhibiting neural transmissions in pain pathways”; “67% Increase in Cognitive Performance & Health”; and “Fighting cancer cells.”

According to NAD, the company also advertised a testimonial by actor Morgan Freeman, who in a late-night television program interview, allegedly stated that CannaPure CBD is a “special oil” that has helped him “live a normal healthy life” after a near-fatal car crash in 2008 left him with extensive nerve damage in his hand.

In light of the company’s “failure to provide a response to NAD’s request for substantiation for the challenged claims or participate in any way in the self-regulatory process,” NAD referred the matter to the FTC for possible enforcement action.

Takeaway: As we have previously blogged here and here, advertisers should be aware that their failure to participate in an NAD action or comply with a self-regulatory decision by NAD may lead the case to be referred to the FTC for enforcement action. In particular, CBD companies making unsubstantiated health or therapeutic benefit claims about their products should make all efforts to meaningfully comply, as they have been subject to a string of recent warning letters and enforcement actions by the FTC and FDA.

Cannabis Company is Sued for Showing Mural in Advertising Campaign

Artist Diana Perez filed a copyright infringement lawsuit in Colorado federal court against a cannabis company and two advertising agencies over allegations that her street mural was featured in advertisements for cannabis-infused essential oil products without her permission.

According to the complaint, Perez created the mural at issue, entitled “Besties” as a part of the 2019 Crush Walls Arts Festival in Denver. Perez alleges that Cannabistry used the mural in at least two Instagram ad campaign posts. An example of the post can be found here:

Perez claimed that she has been “significantly damaged” by the unlawful uses of the mural, and is requesting statutory damages, actual damages, disgorgement of profits and a permanent injunction halting the defendants from displaying the allegedly infringing ads.

Takeaway: This lawsuit serves as a reminder that advertisers may need to obtain permission from third party content creators even for works which appear in the background or may appear to the advertisers as incidental use.

Class Action Alleges Starbucks Shortchanges Customers’ Caffeine

Last month, a putative class action was filed against Starbucks, Inc. in California federal court alleging that the coffee giant is tricking customers into purchasing larger espresso-based drinks when they contain the same amount of caffeine as the smaller size.

The complaint alleges that Starbucks engages in a “classic bait-and-switch scheme that causes unsuspecting consumers to shell out more money for Venti-sized espresso beverages under the false belief that the Venti-sized espresso beverage contains more espresso, and thus more caffeine, than the medium Grande-sized drinks. However, in reality, consumers receive a more expensive Venti-sized drink containing the same amount of espresso and caffeine as the cheaper Grande-sized” drink. The complaint further alleges that Starbucks’ misleading practice “offends reasonable consumer expectations” that as the drinks increase in size, so too does the amount of coffee or espresso, and correspondingly, the caffeine.

The complaint further alleges that nowhere on Starbucks’ in-store or drive-thru menus does it inform customers as to the true amount of espresso or the caffeine content of its Venti-sized espresso beverages and that such information can only be found by reference to Starbucks’ website.  According to the plaintiff, she and those similarly situated would not have paid more to purchase the Venti-sized drink had they known the truth about its caffeine content.

Takeaway: This lawsuit appears to be one in a long string of related lawsuits to beverage drink sizes.  As we wrote about previously, a class action was dismissed regarding the claim that Starbucks offered deceptive drink sizes simply by including ice in their various iced beverages.  Advertisers should be ready for potential copycat lawsuits from the class action bar.

FTC Settles With Financial Company Over Fake Rankings of Financial Products and Reviews

This month, the Federal Trade Commission (“FTC”) announced that it reached a settlement with the operators of a website that compares student loans and other financial products over allegations of misleading ratings and reviews.

According to the FTC’s complaint, LendEDU falsely claimed that its website provided “objective,” “accurate,” and “unbiased” information about consumer financial products, including student loans, personal loans and credit cards. Specifically, LendEDU misrepresented that the information on its website was not affected by compensation from advertisers. However, the FTC alleged that, in fact, the company sold its rankings to the highest bidder.

In addition, the complaint alleged that LendEDU touted fake positive reviews on its website. The FTC argued that of 126 reviews posted on third-party review platform trustpilot.com, 90% “were written or made up by LendEDU employees or their family, friends or other associates. All of those reviews provided five-star ratings for the company.”

Under the terms of the settlement, LendEDU will need to (i) pay to the Commission a $350,000 fine; (ii) refrain from making the same types of misrepresentations cited in the FTC’s complaint in the future, express or implied; and (iii) disclose any compensation that it receives for featuring content on its site.

Takeaway: This settlement highlights the FTC’s continued interest in policing fake reviews and pay-to-play rankings. Advertisers should ensure that reviews are honest based on actual experiences with the products and services, and that if incentivized, the reviews will disclose the relationship between the reviewer and the advertiser.

 

 

Recent federal court decision highlights importance of effective TCPA compliance measures before sending marketing texts

A federal court in Missouri recently held that a restaurant’s promotional text messages did not violate the Telephone Consumer Protection Act (TCPA) because the messaging equipment used by the restaurant did not qualify as an automatic telephone dialing system (ATDS) as defined by the statute. The district court noted a split between the circuit courts on this issue, highlighting the uncertainty regarding whether the equipment at issue must have the capacity for sequential or random number generation to fall within the definition of an ATDS, thus requiring prior express written consent.

To read more about the implications of the issues raised in Beal v. Outfield Brew House, Case No. 2:18-cv-4028-MDH (W.D. Mo. Feb. 20, 2020) please click here.

To learn more about this topic, please join Reed Smith for a CLE webinar on February 26, 2020 for a discussion on the latest TCPA legal developments and regulatory and compliance risks.

Proposed updates to German influencer labeling #Ad

On February 13, 2020, the German Federal Ministry of Justice and Consumer Protection (BMJV) published a proposal to soften the regulatory requirements for influencers for labeling their posts as advertising (Proposal). Under the Proposal, statements posted on social media about products for which no consideration was given – either in the form of monetary compensation or other benefits – shall be excluded from labeling requirements. In the view of the BMJV such posts are intended solely to shape public opinion and are not made in the pursuit of commercial purposes (see the BMJV’s press release of February 13, 2020, available in German here).

To read more about how these proposed changes might affect the legal framework on labeling requirements, please click here.

Was it all a fantasy? New York Appeals Court says fantasy sports are illegal

Introduction
On February 6, 2020, the New York Supreme Court’s Appellate Division, Third Department upheld a lower court ruling from 2018 which held that daily fantasy sports (DFS) contests amount to illegal gambling, and are thus unconstitutional in the state. In light of this decision, the New York DFS operations of popular companies like FanDuel and DraftKings will be called into question at the same time that legal sports betting is in its relative infancy in the state.

Background
New York’s Constitution provides that “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling . . . shall hereafter be authorized or allowed within this state.” However, the constitution does not include a definition of “gambling,” and the legislature and courts have instead looked to the New York Penal Code’s definition, which states that “[a] person engages in gambling when he [or she] stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his [or her] control or influence, upon an agreement or understanding that he [or she] will receive something of value in the event of a certain outcome” Penal Law section 225.00(2). There has been ongoing debate as to whether DFS, which involves an arguably skill-based element of assembling a lineup of a fantasy team (namely, a group of players that do not actually play together) to win contests based on the performance of that team’s players, qualifies as such a “contest of chance.” That debate has reached both the New York legislature and the courts.

The February 6 decision in White v. Cuomo, N.Y. App. Div., No. 528026, stems from the legislature’s 2016 amendment to New York’s “Racing, Pari-Mutuel Wagering and Breeding Law,” which sanctions certain forms of gambling. The 2016 amendment excluded DFS contests from the definition of gambling, and formally qualified DFS contests as games of skill rather than games of chance. Stop Predatory Gambling, an anti-gambling organization, filed the lawsuit in an effort to invalidate the amendment, arguing that DFS is, in -fact, gambling, and thus the legislature’s decision to exclude DFS from the definition of gambling violated New York’s constitution. So far, New York courts have agreed with this assessment.

Implications
The ruling leaves the status of DFS uncertain, and highlights separate legal issues in the potentially even more lucrative mobile sports betting market in New York. DFS may no longer be legal, but more traditional in-person sports betting on the outcome of actual sporting events is currently legal and operational at New York’s brick-and-mortar commercial and Native American upstate casinos. While the debate over whether DFS is gambling or not continues, New York legislators are considering whether and how to operationalize mobile sports betting, which could raise different constitutional issues regarding whether or not the 2013 bill that allowed sports gambling at brick-and-mortar casinos can be stretched to include online operations, and could require a separate constitutional amendment to legalize if such legislation cannot pass. In the meantime, DFS may continue to operate until the case is fully decided.

The state may still appeal the decision to the New York Court of Appeals, New York’s highest court, which would automatically stay the Appellate Division’s order. In the event an appeal is filed, it could mean business as usual for DFS customers until the Court of Appeals rules. However, in the event that the state decides not to pursue an appeal (or the appeal is lost), companies offering DFS services in New York will need to quickly reevaluate how to approach their operations in New York, and may consider alternatives such as pursuing a constitutional amendment to formally recognize legalized DFS, or pivoting their focus to nearby markets, like New Jersey, where mobile sports betting and DFS have been legal and operational since 2018’s Supreme Court decision in Murphy v. NCAA, which invalidated a federal prohibition on state-authorized sports betting and opened New Jersey for the betting business in casinos and online.

Advertising Watchdog Says Gwyneth Paltrow’s Goop Is Making False Health Marketing Claims

Last month, prominent advertising watchdog, Truth in Advertising, Inc. (“TINA”), notified the California Food, Drug and Medical Device Task Force (the “Task Force”) in a formal complaint letter that Gwyneth Paltrow’s lifestyle brand Goop is violating a 2018 stipulated judgment that it entered into with the State of California.

The 2018 stipulated judgment prohibits Goop from, among other things, making false or misleading statements about a nutritional supplement or medical device and claiming that any nutritional supplement or medical device can diagnose, mitigate, treat, cure or prevent any disease without prior FDA approval.

In its letter, TINA claims that Goop is “deceptively marketing products as able to treat and/or mitigate the symptoms of several medical conditions including anxiety, depression, OCD, hormonal imbalances, and hair loss, as well as address the symptoms of excessive alcohol consumption” in violation of the 2018 stipulated judgment. To illustrate, TINA points to more than a dozen examples, including Goop’s $165 Edition 02 Shiso perfume, in which the ingredient descriptions claim that the perfume’s clove leaf ingredient helps to “improve memory,” while birch oil “treats OCD,” patchouli “dissipates” anxiety and depression, and agar wood/aloe wood “treats neurosis.”  Similarly, Goop sells a “Yoga in a Cup” supplement on its website, which is marketed as able to relieve anxiety.

TINA’s letter states that despite a $145,000 monetary penalty and court order prohibiting Goop from making deceptive and unsubstantiated marketing claims, “Goop continues to deceive consumers with inappropriate health claims in order to sell products.” TINA’s letter urges the Task Force to re-open its investigation into Goop’s marketing and take “appropriate enforcement action.”

Takeaway: Advertisers should be aware that in addition to regulators and consumers, watchdog groups, including TINA will be reviewing advertising and sending letters to governmental organizations when it believes certain advertising is in violation of a truth in advertising law.

Former “Bachelor” Contestant Stripped of $1 million Fantasy Football Win

Last month, a former Bachelor contestant was stripped of her $1 million prize won in a DraftKings online fantasy football contest after the company opened an investigation into the win amidst accusations of collusion.

As we previously wrote about here, Jade Roper-Tolbert, a former contestant on the reality TV show “The Bachelor” beat more than 100,000 entries to win first place in the DraftKings’ Millionaire Maker Contest. Roper-Tolbert and her husband both submitted the maximum of 150 lineups per person for the contest. However, nearly none of the couple’s entries duplicated the other’s, leading to accusations that that the couple may have colluded to increase their chances of holding the winning combination.

After conducting an investigation into the contest, DraftKings issued a statement that it “decided to update the standings for several contests. All customers affected by the updated standings will be notified directly. It is our general policy not to comment further on such matters.”

On the same day, attorney Alan Milstein tweeted that his client was declared the winner in the DraftKings’ Millionaire Maker Contest, in which he further stated, “I have had my share of interesting cases but never conceived this would be one of them.”

It remains unclear whether a settlement was reached with Roper-Tolbert to strip her of her prize or if she will pursue legal action against DraftKings.

Takeaway: This resolution serves as a reminder to contest sponsors to have clear language in the rules that set forth methods for dispute resolution and disqualifying entrants who engage in fraud.  Additionally, games with public leader boards and other voting contests should employ fraud-detection technologies.  Contest sponsors should work with their agencies to ensure such software and processes are in place.

Proposed Class Action Targets CBD Maker Over ADA Website Accessibility

Last month, a putative class action lawsuit was filed in New York federal court against Charlotte’s Web, Inc., a Colorado-based maker of cannabidiol (“CBD”) oils, balms and gummies claiming that its website is not accessible to visually impaired shoppers, in violation of the Americans with Disabilities Act (“ADA”).

According to the complaint, plaintiff Joseph Guglielmo, who is visually impaired, visited Charlotte’s Web’s website several times in December 2019, where he had difficulty navigating the site because it was not coded such that it was compatible with his screen-reading software. As a result, Guglielmo claims he was effectively barred from determining what specific products were offered for sale.

The complaint further alleges that the company’s website does not meet the World Wide Web Consortium’s guidelines for blind and visually impaired website accessibility. Moreover, the complaint alleges that because websites are places of public accommodations under the ADA, the company’s alleged denial of equal access to its website and refusal to make changes to improve the accessibility of the website amounts to an ADA violation.

The suit seeks a court order requiring the company to modify its website to conform to the Web Content Accessibility Guidelines, hire a consultant to improve the accessibility of the website, and regularly monitor the site’s current state of accessibility.

Takeaway: This putative class action serves as an important reminder to all companies who maintain websites for promoting and selling their products that such websites should be free of accessibility barriers that could support a plaintiff asserting an ADA claim. Unless a website has been coded with accessibility in mind, cannabis companies and dispensaries appear to be among the disability rights bar’s next targets in the ever increasing number of class action lawsuits filed alleging digital access ADA violations.

 

 

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