Vegan Cookie Company Settles Deceptive Nutrition Label Suit For $5 Million

Vegan cookie company, Lenny & Larry’s Inc., has reached a $5 million settlement with a proposed class of consumers who accused the company of misstating the nutritional value of its “Complete Cookie.” The proposed class action plaintiffs alleged that the Complete Cookie’s label violated the federal Food, Drug and Cosmetic Act and a variety of state consumer protection laws by (i) understating the calorie, carbohydrate, fat and sugar content; (ii) overstating the protein content; and (iii) miscalculating the percent daily protein share.

Under the terms of the settlement, Lenny & Larry’s will put $5 million in a common fund, with $1.85 million towards cash payments – with portions of this cash payment going toward administrative costs, the plaintiff’s fees and costs, and named plaintiff’s incentive awards – and $3.15 million towards free product. Any unclaimed cash will go toward free cookie distribution instead, and if the initial free cookie distribution doesn’t exhaust the entirety of the $3.15 million product inventory, the remainder will be sent to retail outlets to be given to consumers for free. Additionally, Lenny & Larry’s retain the right to terminate the settlement if more than 300 settlement class members opt-out of the settlement.

Takeaway: As we have previously written, advertisers of food products should continue to pay special attention to the labelling of ingredients in light of the continued scrutiny by the class-action bar.

ANA Releases Latest White Paper on Transparency in Wake of FBI Investigation

The Association of National Advertisers (ANA) and Reed Smith released a white paper – Media Buying 2018: Transparency at a Crossroads – reporting on the state of transparency in the advertising industry and the recently announced FBI criminal investigation into agency media buying practices. Pursuant to the FBI’s request, the ANA notified its advertiser members that the FBI was requesting cooperation in the investigation if an advertiser believes it is a victim of any fraud or other criminal activities in media buying. The white paper can be found here.

The white paper provides insight on how the advertising industry reached this point and where it may go moving forward. Among other things, the white paper includes insight on how advertisers can cooperate with the FBI, the potential scale of the FBI investigation, the nature of the potential crimes, and how advertisers can protect their interests during the investigation.

It should be noted, however, that at this point in time, no one has been charged with any crimes and criminal activity should not be inferred simply because an investigation is underway.

For additional information regarding the white paper or the FBI investigation, contact the Reed Smith team of Douglas Wood (dwood@reedsmith.com), Keri Bruce (kbruce@reedsmith.com), or Steven A. Miller (samiller@reedsmith.com).

ANA Legal and Regulatory Webinar: Data Transparency

At the ANA’s March ANA Advertising Law & Public Policy Conference, a panel discussed how advertisers need to be on top of who has, or is, collecting advertiser data, what are they doing with it, how to access to it, and whether (or how) to use those data assets in data-driven transactions.

As a follow up to that session on November 13 at 1 pm, Keri Bruce and Kimberly Chow of Reed Smith LLP will share new insights and tips for marketers on how to collect and use data to further their business while minimizing data risk and liability.

Visit the ANA website to register today!

Six Years Behind Bars: DOJ Gives Dire Warning to Online False Advertisers

The First Circuit recently affirmed the six-year sentence of Mustafa Hassan Arif, who sold bogus drugs and health products under a panoply of brands he had concocted out of Pakistan. Arif created and operated over 1,500 websites to market and sell the products, and induced unwitting purchasers in the United States and elsewhere to buy his products online through altered clinical studies, fabricated testimonials, and false indicia of origin. Specifically, his web of subnetworks and referral networks included claims that the drugs had been clinically tested and been shown to cure a variety of diseases and that the drugs were manufactured and distributed from addresses in Europe and New Zealand. However, in fact, all of the studies, testimonials, and statistics were completely fabricated and the drugs were made in Pakistan. Arif’s scheme garnered over $11 million in revenues.

In affirming Arif’s sentence, the First Circuit rejected each of Arif’s arguments on appeal. Specifically, although Arif conditionally pled guilty to wire fraud in 2016, he argued that prosecutions such as his must be pursued exclusively by the Federal Trade Commission as false advertising cases, and not by the Department of Justice as wire fraud cases. The First Circuit rejected this argument squarely. Arif also argued that he could not have committed fraud as a matter of law because he “held an honest and sincere belief in the efficacy of his products [and] correctly identified their ingredients,” and that a purchaser of “reasonable prudence” would have known not to rely on the statements made on his websites due to a disclaimer on the third-party payment processor’s website. These arguments similarly failed, and the First Circuit held that “Arif’s belief in the efficacy of his products does not negate his fraudulent intent when he knowingly made false statements that went to the heart of his customer’s purchases” and “[customer] reliance is not an element of wire fraud.”

Takeaway: False advertising online may carry stiff penalties and even jail time; extreme cases may draw the ire of the Department of Justice as well as the Federal Trade Commission. Moreover, mere belief in the efficacy of the falsely-advertised products and a disclaimer will not protect online false advertisers from liability.

Just Fruit? Kind Faces Yet Another Class Action Lawsuit

Last month, a class-action lawsuit was filed in federal court alleging that Kind, LLC (“Kind”) deceptively advertises certain Kind bars and fruit packets. Specifically, the plaintiffs allege that Kind uses images of fruit on its products, and employs fruit sounding names, when the products do not contain whole fruit (e.g., the product containing mango, apple and chia is branded as the “mango apple bar” and its packaging includes images of mango slices and a whole apple). According to the complaint, the naming conventions and imagery communicates that the products are manufactured from start to finish directly from whole fruit ingredients; that the ingredients are not processed; and that the ingredients are fresher and healthier because they contain whole fruit. Plaintiffs seek preliminary and permanent injunctive relief to correct the alleged deceptive practices, and over Five Million Dollars ($5,000,000) in monetary damages.

TAKEAWAY: Class action attorneys are increasingly reviewing product packaging for consumer packaged food products. In addition to complying with Food and Drug Administration (“FDA”) requirements, advertisers should be aware that naming conventions and imagery may give rise to a complaint pursuant to federal and state laws prohibiting unfair and deceptive acts and practices.

Stung by the FTC: Aromaflage Owner Settles Mosquito Repellant Advertising Claims

Last month, the Federal Trade Commission (“FTC”) approved a final consent order settling deceptive advertising charges against Mikey & Momo, Inc. and its owners regarding claims that its Aromaflage sprays and candles effectively repel mosquitoes, including mosquitoes that may be carrying the Zika virus and other diseases.

According to the FTC’s complaint, Mikey & Momo and its owners made false and unsubstantiated claims, such as “fragrance with function,” “repels mosquitoes for 2.5 hours,” “scientifically tested” and “rigorously tested at one of the world’s leading Universities”. Specifically, the FTC alleges that such claims were not supported by rigorous and reliable scientific evidence.   Shifting gears, the FTC also alleges that Mikey & Momo promoted its products using what appeared to be independent and objective product reviews, without disclosing that such reviews were written by the owners of the company as well as family and relatives.

The consent order bars Mikey & Momo and its owners from engaging in deceptive conduct in the future and requires that they clearly and conspicuously disclose any material connection between a reviewer or endorser and the product being reviewed.

TAKEAWAY: Don’t get stung by the FTC. This case serves as a reminder that the FTC continues to be active in areas involving health claims and endorsements and testimonials.

Sport Supplement Company and Consumers Settle Deceptive Label Suit

Dietary supplement manufacturer PhD Fitness LLC (“PhD Fitness”) and a putative class of consumers have reached a settlement over claims that PhD Fitness deceptively labelled its sports supplements. The plaintiffs filed the proposed class action alleging that the marketing materials and labels on PhD Fitness’ “JYM” and “Post-JYM” supplements made false and misleading claims about the products ingredients, including that the ingredient dosage, and that the products contain sodium.

Takeaway: As we have previously written, advertisers of dietary supplements should continue to pay special attention to the labelling of supplement ingredients as well as the supplements’ claims made – and the substantiation required – in light of the continued scrutiny by the class-action bar.

The Cousteau Society Sues Jacques Cousteau’s Granddaughter for Trademark Infringement

The Cousteau Society (“TCS”) filed a lawsuit in New York federal court against Jacques Cousteau’s granddaughter, Celine Cousteau, alleging trademark infringement and unfair competition under federal and New York state law.

In its complaint, TCS argues that it owns all of the intellectual property associated with Jacques Cousteau – trademarks; rights of privacy, publicity, and personality (including Jacques Cousteau’s signature red stocking cap); and copyrights in films, images and photographs – and that Celine Cousteau improperly used such intellectual property without TCS’ permission for her upcoming documentary film, “Celine Cousteau, the Adventure Continues.” TCS alleges that after it learned about the production of the documentary, it sent notice to Celine Cousteau of TCS’ intellectual property ownership and requested Celine Cousteau not use such intellectual property; Celine Cousteau replied to TCS and assured the organization that its intellectual property would not be utilized in her documentary. Later, TCS viewed a press kit for the documentary which included what TCS claims is a copyrighted image of Jacques Cousteau in his signature red stocking cap as a background image for one of the pages. Shortly thereafter, TCS brought suit alleging a “flagrant usurpation” of its intellectual property seeking a permanent injunction, any profits derived from the use of its trademarks, and statutory and punitive damages.

Takeaway: Importantly, the depiction of famous apparel, including stocking caps, could give rise to a claim for publicity, trademark, or copyright infringement. Advertisers who wish to pay homage to celebrities, who like Jacques Cousteau, have a signature item of apparel, should be aware of the TCS enforcement action.

430,000 Consumers to Receive Refund Checks from Prepaid Debit Card Company Settlement

Over 430,000 consumers, who purchased and deposited money on NetSpend Corporation (“NetSpend”) prepaid debit cards will receive refund checks from the Federal Trade Commission (“FTC”), totalling more than $10,000,000 as part of NetSpend’s settlement with the FTC.

In November 2016, the FTC charged NetSpend with violations of the FTC Act alleging NetSpend deceptively advertised that: (i) NetSpend cards are ready to use immediately and consumers will have immediate access to their funds; (ii) consumers are guaranteed to be approved; and (iii) NetSpend will provide provisional credits for account errors. In its complaint, the FTC alleged that consumers did not receive access to their funds as promised; many consumers suffered severe financial hardship such as evictions, car repossessions, and late fees on bills while waiting for weeks, or longer, to access their funds. The FTC alleged that frustrated consumers who closed accounts and requested refunds had to wait several weeks, or longer, for their money, and, in some cases, the consumer’s funds were almost completely depleted by company fees. Additionally, the FTC alleged that NetSpend simply lied to consumers when it claimed that all consumers would be “guaranteed approved” and that consumers would get provisional credits to access their funds while any account disputes were resolved.

As part of the settlement, NetSpend agreed to notify and provide refunds to eligible consumers who requested refunds, as well as remit to the FTC any fees collected from NetSpend cards that were eligible for a refund, but were not paid out previously.

Takeaway: As we previously blogged, part of the FTC’s 2018 agenda is to bring cases which show actual harm to consumers and provide refunds when possible to injured consumers. This settlement and refund is evidence of the FTC’s continued enforcement of deceptive practices that in fact harm vulnerable consumers.

 

Have Something to Add? The NAD Updates Evidentiary Procedures

The National Advertising Division of the Better Business Bureau (“NAD”) recently announced updates to its procedures. The change was announced by the Director of the NAD, Laura Brett, at the NAD’s Annual Conference and is the self-regulatory body’s response to a recommendation from the ABA Antitrust Section’s Working Group.

The new procedural process is codified in sections 3.8-3.9 of The Advertising Industry’s Process of Voluntary Self-Regulation (available here). In sum, the change comes into play when the NAD reaches a decision that an advertiser’s claim must be discontinued. Previously, a case could be re-opened only in “extraordinary circumstances” but under the updated procedures, new evidence to support a claim can be grounds for re-opening a case.

Where the NAD has decided that an advertiser must discontinue its claim, the advertiser can either (1) continue using the claim at issue and ask the NAD to consider the new substantiation in a compliance proceeding, or (2) re-open the case by seeking the NAD’s review of the new substantiation before resuming use of the claim at issue. Whether or not the NAD allows a case to be re-opened is up to the Director of the NAD, and she can consider whether the new evidence was available to the party at the time the NAD case closed and whether the new evidence would have changed the NAD’s decision in a material way.

According to the Director of the NAD, this change “balances allowing advertisers to make truthful, substantiated claims with the need for speed and finality in the self-regulatory process for competitive challenges.”

TAKEAWAY: Under the updated procedures, advertisers may introduce new materials to support a previously discontinued claim. This opens the door to allow advertisers to re-introduce claims that were otherwise discontinued due to an NAD action.

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