FTC Warns 11 Companies Over Made in USA Claims

It seems to be another star-spangled banner year for the Federal Trade Commission (“FTC”) and its crackdown on certain “Made in USA” claims. In 2016, the FTC cited 29 companies for their misleading “Made in USA” claims.  With the year’s halfway mark behind us, reports indicate that the FTC has similarly warned 11 companies for their use of the all-American claim on a range of products, including pillows, coffee makers and air purifiers.

To make a “Made in USA” advertising claim, the FTC believes that “all or virtually all” portions of the advertised product must be made in the United States. After the FTC stepped up its enforcement efforts, some companies tempered their origin of manufacturing claims with appropriate disclosures, including clarifications that a product may contain foreign components, or simply that the product may be assembled in the United States.  As we previously reported, however, the FTC appears to be keeping a close eye on those claims as well.

TAKEAWAY: Advertisers that make manufacturing origin claims, including “Made in USA” claims, should carefully review the source of origin for products, including all sub-components—particularly in light of the current enforcement climate.


Instagram Updates Sponsored Post Disclosures

Last month, Instagram launched a new feature to let users know when a post is sponsored, making it easier for users to determine if a celebrity was paid to sponsor a post. Instagram will now have a “Paid partnership with” tag in organic content posts and Instagram Stories, in order for creators and businesses to “be able to quickly disclose their partnerships easier than ever before, maintaining authenticity across the board.”  Those who use the tag will be able to track the performance of branded content posts and stories to monitor and gage reach and engagement metrics.  Says Instagram, “launching this branded content tool is the first step in ensuring transparency of paid partnerships on Instagram.” In the coming months, Instagram also plans on launching a paid partnerships policy that will attempt to provide guidance to advertisers based on Facebook’s current practices

 Takeaway:  Advertisers seeking to promote their message on social media should take note that users are calling for – and platforms are responding to – a request for more transparency among celebrities, creators, and influencers to clearly alert their followers when they are getting paid for promoting something on social media.

Jewelry Company Sues Macy’s for Copyright Infringement

California-based jewelry company Brighton Collectibles LLC (“Brighton”) filed suit against Macy’s Inc. (“Macy’s”) for copyright infringement. According to the complaint, Brighton alleges that Macy’s infringed copyrighted designs for Brighton’s Reno heart bracelet and necklace products.

Brighton alleges that Macy’s damaged its brand, reputation and goodwill by continuing to sell the alleged copies, despite receiving a letter from Brighton informing it of the infringement. The complaint demands Macy’s stop selling the allegedly infringing products, destroy any jewelry or promotional material it has in stock, and requests that Macy’s place all profit made from selling the allegedly infringing products into a trust for Brighton’s benefit.

Takeaway: Product designs may be protectable under trademark or copyright law. Retailers should thus take caution when advertising and selling designs that are similar to competitors, even if the designs appear to be common or ornamental.


SoulCycle Settles Gift Card Lawsuit For Up To $9.2 Million

Popular indoor cycling company SoulCycle Inc. recently settled a nationwide putative class action in an agreement valued between $6.9 million and $9.2 million. The suit alleged that SoulCycle defrauded customers by selling gift certificates with expiration dates (and keeping the expiring, unused balances), in violation of state and Federal law. According to the complaint, SoulCycle sold gift certificates with short enrollment windows, knowing that it is often difficult for consumers to use the certificates within the allotted time period due to a lack of available classes.

Under the settlement agreement, SoulCycle agreed to reinstate up to two expired classes or to reimburse up to $50 to customers with unused, expired gift cards. The company also agreed to adopt policy changes to ensure consumers understand the differentiation between purchasing a SoulCycle class, which expires, and purchasing a gift card or gift certificate, which do not.

Takeaway: Companies may be permitted to offer services with expiration dates, but should take caution when offering expiring gift cards/certificates for those same services.


SCOTUS Grants Review of Federal Ban on Sports Gambling

In one of its final acts of the October 2016 term, the Supreme Court of the United States recently agreed to hear a New Jersey challenge to the constitutionality of the Professional and Amateur Sports Protection Act (“PAPSA”), a federal statute banning states from authorizing and regulating gambling on sporting events.[1]

As we reported earlier this year, legislators in numerous states have introduced legislation aiming to legalize and regulate sports wagering. Thus far, sports wagering legalization efforts by various states have been blocked by federal courts on the basis that PAPSA prevents states from taking such actions. Most notably, the United States Court of Appeals for the Third Circuit held in an en banc decision that a New Jersey statute seeking to legalize sports wagering was preempted by PAPSA and that PAPSA was a constitutionally valid exercise of congressional power.

The Supreme Court’s decision to grant review was issued at the end of the October 2016 term because the Court gave the then-incoming Trump administration an opportunity to file an amicus brief expressing its views on whether the Court should take up the matter. The Trump administration took the position that the Court should not grant review to the Third Circuit’s en banc decision. Despite waiting for the Trump administration’s views, the Court disagreed with the Trump administration’s position and granted review of PAPSA to determine whether the statute’s language prohibiting states from authorizing sports wagering exceeds the constitutional power of the federal government, which is constrained by the Tenth Amendment. The key legal battleground in this case will be the Court’s interpretation of PAPSA under the controlling precedent of New York v. United States, a 1992 decision which held that “the Federal Government may not compel the States to enact or administer a federal regulatory program.” 505 U.S. 144, 188.

Takeaway: Advertisers will need to watch this case closely. Should PAPSA be struck down, there will be new opportunities for states to legalize sports wagering, creating an entirely new competitive advertising market in the gaming industry.

[1] Nevada and certain other states are exempt from the PAPSA prohibition because they allowed legal sports wagering before PAPSA was enacted.

Texas Passes New Driverless Car Law: Drivers Not Required in Texas

Last month, Governor Greg Abbott signed a bill into law that expressly allows motor vehicles with “automated driving systems” to operate on Texas highways.

While Texas had previously been silent on the issue of driverless cars, Texas Senate Bill 2205 authorizes these vehicles to operate on the roadways, provided that the operators (who may or may not be inside the vehicle) and their vehicles adhere to clearly listed specifications. The vehicles are allowed to operate “only for the purpose of research or testing” and, among other requirements, must display a sign stating that the vehicle is “a test automated motor vehicle.”  The vehicle operator must also give notice to the relevant Texas agencies of the anticipated date and location of the automated vehicle testing on the highway.

Takeaway: Companies testing self-driving cars should take care to comply with the common-sense requirements outlined in the new Texas law when it goes into effect on September 1, 2017.




Ninth Circuit Concludes No First Amendment Issue with California Ban on Paid in-Store Alcohol Advertisements

Last month, the Ninth Circuit, sitting en banc, upheld a California “tied house” law prohibiting manufacturers and wholesalers from providing anything of value to retailers in exchange for advertising their alcohol products.

Retail Digital Network, LLC, (“RDN”) an advertising agency that placed advertisements in wine and spirit retail stores, alleged that alcohol manufacturers and wholesalers refused to enter into advertising agreements with it as a result of the statute, California Business and Professions Code § 25503(f)–(h). RDN filed suit for declaratory and injunctive relief against the Acting Director of the California Department of Alcoholic Beverage Control (the “ABC”) alleging that Section 25503(f)–(h) impermissibly restricted RDN’s commercial speech in violation of the First Amendment.

A divided Ninth Circuit disagreed. In affirming summary judgment in favor of the ABC, the panel held that the statute survived intermediate scrutiny because it “directly and materially advances the state’s interest by eliminating any danger of alcohol manufacturers and wholesalers circumventing the triple-tiered distribution scheme by using advertising payments to conceal illegal payoffs.”

Takeaway: Advertisers seeking to act as a middle-man by offering paid advertisements from alcohol manufacturers or wholesalers to be aired or displayed by alcohol retailers in California should note that such activity could be in violation of California alcohol advertising laws.

You’re invited to an ANA and Reed Smith Webinar: “GDPR, ePrivacy and Advertisers: Sorting out the Confusion”

As we’re now less than a year away from the GDPR taking effect, there is a lot of confusion out there over myths versus reality. Reed Smith presenters will participate in a webinar hosted by the Association of National Advertisers (ANA) that will explore the practical considerations and the new thinking that brands and their agencies must consider in getting ready:

  • The major differences between GDPR, EU Data Protection Directive and U.S. Requirements.
  • Vexing issues such as profiling, consent and data protection officers, and avoiding GDPR penalties.
  • Uniform Law: will the patchwork go away? When does EU data protection law apply to U.S. marketers?
  • Cookies, PII and Non-PII: time for new thinking in light of new technology?

Please join us on Tuesday, July 11, 2017 at 1:00pm ET for an informative discussion.

Please register here.

Sugarfina Sues Candy Competitor for Trademark Infringement

Sugarfina Inc. (“Sugarfina”), a high-end candy retailer, recently filed suit against competitor Sweet Pete’s LLC (“Sweet Pete’s”) alleging copyright, trademark, and trade dress infringement of its products and packaging. Sugarfina considers itself a candy retailer known for its unique and luxurious products. The complaint alleges that Sweet Pete’s uses several design elements of Sugarfina’s distinctive packaging and marketing, including use of exact or near-exact replicas of Sugarfina’s trademarks, packaging labels, shapes and containers. For example, Sugarfina packages some of its products in three-by-three cell candy bento boxes. Sugarfina alleges that Sweet Pete’s began marketing a “copycat” bento box in 2015.

Sugarfina alleges that consumers have turned to social media to voice their confusion over the similarity of Sugarfina and Sweet Pete’s products. Sugarfina is seeking injunctive relief and treble damages, alleging that Sweet Pete’s is willfully infringing.

TAKEAWAY: Design and packaging for products are still subject to trade dress, trademark, and copyright rules.  Not all individual packaging elements of a product garner protection against infringement. However, when looked at together, the combination of all of the elements may be protectable.  Companies should therefore heed caution in packaging their products in a manner similar to that of another’s—particularly those of competitors.

FTC Submits Comments on Security Support for IoT Devices

The Federal Trade Commission in June submitted comments to the working group convened by the U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA), which is studying the security of Internet of Things (IoT) connected devices and how they interact with consumers.

This request for comments focused on how IoT device manufacturers can effectively inform consumers about security updates for their devices so that consumers can make informed purchasing decisions. Many IoT observers have identified the risks associated with IoT devices that either are not designed to address data privacy and security vulnerabilities or quickly become vulnerable when security threats evolve, but the devices are not updated. The Commission, which has made effective disclosures a hallmark of its privacy and security enforcement and guidance, weighed in on best practices in IoT disclosures by suggesting a number of enhancements to NTIA’s proposed messaging.

Among other recommendations, the FTC suggested that manufacturers avoid telling consumers an “anticipated timeline” during which they will provide security support as such aspirational timelines can become misleading; instead, the Commission recommended that they communicate a minimum support period. Furthermore, if a device will stop functioning or become highly vulnerable after security support ends, manufacturers should inform consumers so that they are not misled. The FTC also suggested that manufacturers adopt a uniform notification method, such as a standard position on the device’s screen, so that consumers know where to expect to see information about security updates.

The Commission has previously brought enforcement actions against IoT device manufacturers, including TrendNet (for its home security cameras and baby monitors) and Vizio (for their smart TVs). In these cases, the Commission emphasized the need for companies to communicate clearly and honestly about the data privacy and security capabilities of their products, and to be upfront about what was done with consumers’ personal information. In the Vizio case, the FTC determined the company did not provide sufficient notice and choice options to consumers when it sold viewing data to third-party marketers who used it to target advertisements. These cases have underscored the Commission’s focus on the vast information-collection capabilities of connected devices and the need to adequately protect the use of this consumer information. These comments provide further context to how the Commission may frame further enforcement and guidance on this subject.