Advertising Litigation

What’s New in Advertising Litigation

2016 Legal & Regulatory Conference

Norman C. Simon

Copyright 2015

Overview

 Recent regulatory developments of interest  Recent Lanham Act false advertising decisions of interest

 Recent consumer fraud class action decisions of interest  Recent NAD decisions of interest

1 Copyright 2015

Regulatory Developments

Copyright 2015

December 2015: FTC Issues New Guidance on Native Advertising

 “[T]he watchword is transparency. An advertisement or promotional message shouldn’t suggest or imply to consumers that it’s anything other than an ad.”  Some native ads “may be so clearly commercial in nature that they are unlikely to mislead consumers even without a specific disclosure.”  If a disclosure is necessary to ensure that consumers understand that the content is advertising, it must be “clear and prominent.”  Disclosure Basics:  “Clear and unambiguous” language.  “[A]s close as possible” to the native ads to which the disclosure relates.

 Easy-to-read font and color, in a shade that stands out against the background.  Video disclosure: On screen long enough to be noticed, read and understood.  Audio disclosure: Read at a cadence that consumers can easily follow, and in words that consumers will understand.

3 Copyright 2015

FTC Brings – and Settles – its First Native Advertising Enforcement Action Following its Release of the Guidance In the Matter of Lord & Taylor, LLC, Matter No. 152 3181 (F.T.C. Mar. 15, 2016)

 On March 15, 2016, retailer Lord & Taylor agreed to settle charges with the FTC that it deceived consumers by paying for native advertisements without disclosing that these were actually paid promotions for the retailer’s Design Lab clothing line.  The enforcement action centered on two features of the advertising campaign:

 Lord & Taylor sponsored article in Nylon magazine without disclosing that the article was paid content. Nylon also posted a photo of dress on Instagram  Lord & Taylor gifted a Design Lab dress to "50 select fashion influencers" who were paid to post a photo of themselves wearing it.

 Contractually required to mention the company using the '@lordandtaylor' Instagram user designation and the campaign hashtag ‘#DesignLab’  Lord & Taylor did not require them to disclose that (i) they had received the dress for free, (ii) they were being compensated for their posts, or (iii) their posts were a part of an advertising campaign.

4 Copyright 2015

FTC Brings – and Settles – its First Native Advertising Enforcement Action Following its Release of the Guidance In the Matter of Lord & Taylor, LLC, Matter No. 152 3181 (F.T.C. Mar. 15, 2016)

5 Copyright 2015

FTC Brings – and Settles – its First Native Advertising Enforcement Action Following its Release of the Guidance In the Matter of Lord & Taylor, LLC, Matter No. 152 3181 (F.T.C. Mar. 15, 2016)

 FTC allegations:  Lord & Taylor falsely represented that the article and post “were independent statements or opinions regarding [Lord & Taylor's] Design Lab collection,” and not “paid commercial advertising.”  Lord & Taylor falsely represented that the postings reflected “the independent statements of impartial fashion influencers,” and failed to disclose that the influencers were "paid endorsers," which would have been material to reasonable consumers.  Consent Order requires, among other things, Lord & Taylor to refrain from representing that its endorsers are independent users or ordinary consumers, and to disclose material connections between itself and its endorsers.

6 Copyright 2015

FTC Enforcement Action: Made in USA Claims FTC v. Chemence, Inc., No. 1:16-cv-228 (N.D. Ohio) (Filed 2/1/2016)

 Defendant Chemence is a manufacturer of superglue. Its marketing materials contain various iterations of “Made in USA” claim.  “[A]pproximately 55% . . . of the cost of the chemical inputs . . . is attributable to imported chemicals, and these imported chemicals are essential to the function of Defendant’s glue products.”  Core allegations:  “Defendant’s claims that its cyanoacrylate glues are made in the USA deceive consumers because Defendant’s products are actually made in the USA with domestic and imported materials.”  “Defendant has represented, directly or indirectly, expressly or by implication, that its cyanoacrylate glue products, including the materials used to make such products, are all or virtually all made in the United States.”

7 Copyright 2015

“Made in USA” Claims: FTC Issues 28 Closing Letters in 2015  Office Depot:  In April 2015, FTC ended its investigation into Office Depot’s failure to remove “Made in USA” claims on the website listing for private-brand desks after production was moved overseas, based on its “remedial action plan,” which includes “(1) removing inaccurate claims from the website; (2) reviewing catalogues, signage, packaging, and social media content to ensure the accuracy of claims for the affected products; (3) reviewing online descriptions for all products; (4) implementing a procedure wherein legal personnel review weekly reports regarding any items where production has shifted from U.S. to non-U.S. manufacturers; and (5) increasing legal review of . . . U.S-origin claims.”

 Toagosei:  In April 2015, FTC ended its investigation into “Made in USA’ claims on Toagosei’s glue products that contain “a significant percentage” of foreign-sourced raw materials, based on the company’s “comprehensive action plan,” which includes: (1) updating relevant “Made in USA” claims to state “Made in USA with Foreign Materials”; (2) scrapping or stickering over unqualified “Made in USA” claims; and (3) repackaging certain products so that claims on tubes are not visible to consumers at the point of purchase.

 Wal-Mart:  In October 2015, FTC ended its investigation into country-of-origin claims on Walmart’s website, based on changes which: “(1) removed "Made in USA" logos from all product listings; (2) removed country-of-origin information from all product specifications, except where required by law; (3) removed U.S.-origin claims that appeared in product descriptions or titles; and (4) implemented a procedure to flag and remove new U.S.-origin claims made in ad copy submitted by suppliers.”

 Walmart also agreed to redesign its “Made in USA” logos for private brand products to include “larger disclosures regarding the percentage of U.S. content contained in the product, as well as a disclosure intended to convey that the U.S.-origin claim is self-certified by the supplying factory.”

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“Natural” Product Labeling: Regulatory Action  In 2015, the FDA opened a pre-rulemaking docket, seeking public comment on the use of the term “natural” in food labeling, including:  Whether it is appropriate to define the term “natural,”  If so, how the agency should define “natural,” and  How the agency should determine appropriate use of the term “natural” on food labels, including whether to prohibit its use.  The comment period recently was extended to May 10, 2016.  FDA now seeking information on consumers’ understanding of the term “natural,” including whether consumers equate this term with the term “organic,” or “associate, confuse, or compare the term ‘natural’ with ‘healthy.’”  April 2016: FTC Enforcement Actions  Four companies that market skin care products, shampoos, and sunscreens online agreed to settle FTC charges that they falsely claimed that their products are “all natural” or “100% natural,” despite the fact that they contain synthetic ingredients.

 The Director of the FTC’s Bureau of Consumer Protection stated, “‘All natural’ or ‘100 percent natural’ means just that – no artificial ingredients or chemicals” “Companies should take a lesson from these cases.” 9 Copyright 2015

FDA Action on “Natural” Food Labeling: Impact on Consumer Class Action Litigation  Food: Several cases stayed under Primary Jurisdiction doctrine

 See, e.g., Kane v. Chobani, LLC, -- Fed. Appx. --, 2016 WL 1161782 (9th Cir. Mar. 24, 2016), the Ninth Circuit vacated the an order granting defendant’s motion to dismiss and remanded for entry of an order staying the proceedings until the FDA completes its ongoing proceedings regarding use of the terms “evaporated cane juice” and “natural.”  Cosmetics: Stay tuned, particularly in light of Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753 (9th Cir. 2015).  Plaintiff alleged that defendant falsely labeled lotion, deodorant, shampoo, conditioner and other cosmetic products as “All Natural,” Pure Natural” or “Pure, Natural and Organic.”  Ninth Circuit held that the district court “did not err in invoking primary jurisdiction” because “[d]etermining what chemical compounds may be advertised as natural on cosmetic product labels is a particularly complicated issue that Congress has committed to the FDA.” Id. at 761 (citations and internal quotation marks omitted).  “On remand, the district court may consider whether events during the pendency of this appeal . . . demonstrate that another referral to the agency would be futile,” including a 2013 letter from the FDA indicating that the “public health and safety matters are currently fully occupying the resources that FDA has available for proceedings on cosmetics matters” and “proceedings to define ‘natural’ do not fit within [the agency’s] current health and safety priorities.” Id. at 762, 760. 10 Copyright 2015

Lanham Act: False Advertising Recent Decisions of Interest

Copyright 2015

Review: The Supreme Court’s POM Wonderful Decision POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014)

 Clarified that false advertising claims relating to food and beverage labeling can proceed despite plaintiff’s argument that it had complied with federal Food, Drug, and Cosmetic Act (FDCA) regulations. “There is no statutory text or established interpretive principle to support the contention that the FDCA precludes Lanham Act suits like the one brought by POM in this case. Nothing in the text, history, or structure of the FDCA or the Lanham Act shows the congressional purpose or design to forbid these suits. Quite to the contrary, the FDCA and the Lanham Act complement each other in the federal regulation of misleading food and beverage labels. Competitors, in their own interest, may bring Lanham Act claims like POM’s that challenge food and beverage labels that are regulated by the FDCA.” (Id. at 2233 (emphasis added)). 12 Copyright 2015

POM Wonderful Jury Verdict: No False Advertising

 On March 21, 2016, a California federal jury returned a verdict finding that Pom Wonderful LLC had not proven by a preponderance of the evidence that the labeling of Coca-Cola’s Minute Maid’s “Enhanced Pomegranate Blueberry Flavored 100% Juice Blend” misled consumers into believing that it had more than ½ percent of pomegranate and blueberry juice combined.  Coca-Cola’s attorney told the jury during closing arguments that Minute Maid’s labeling complied with FDCA regulations, and was fairly marketed to consumers.

13 Copyright 2015

Using the Lanham Act to Enforce Foreign Trademark Rights By Means of an Unfair Competition Claim Belmora LLC v. Bayer Consumer Care AG, --- F.3d ----, 2016 WL 1135518 (4th Cir. Mar. 23, 2016)

 Bayer, which sold Naproxen Sodium under the trademark FLANAX in Latin America, had standing to sue Belmora, which sold Naproxen Sodium as FLANAX in the U.S., under the false association and false advertising provisions of the Lanham Act.  The Fourth Circuit observed that although the Lanham Act requires a trademark infringement plaintiff to have establish use of the mark in commerce in the United States, the statute contains no such requirement for unfair competition plaintiffs:  “Under the statute, the defendant must have ‘use[d] in commerce’ the offending ‘word, term, name or symbol,’ but the plaintiff need only ‘believe[] that he or she is or is likely to be damaged by such act.’” Id. at *6 (emphasis in original).  Bayer plausibly alleged a Lanham Act claim for false advertising and false association under the Supreme Court’s Lexmark standing requirements. 14 Copyright 2015

Requirements to State a Lanham Act Claim Lexmark Int’l Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014)

 The Supreme Court set a straightforward two-prong test for standing under the Lanham Act:  Are the plaintiff’s injuries the kind of commercial interest that the Lanham Act aims to protect (e.g., lost sales and injury to business reputation)  Did the defendant’s allegedly false or misleading advertising proximately cause the plaintiff’s injuries

15 Copyright 2015

Attorney’s Fees in “Exceptional Cases” Sleepy’s LLC v. Select Comfort Wholesale Corp., 2016 WL 126377 (E.D.N.Y. Jan. 11, 2016)

 Attorney’s fees may be awarded under the Lanham Act under “exceptional circumstances.”  Lanham Act false advertising case alleging defendant Select Comfort disparaged a line of its own products sold through plaintiff retailer, Sleepy’s.  Court awards statutory attorneys fees to Select Comfort:  Evidence showed “substantial overtone[s]” that lawsuit was filed as a “competitive ploy,” rather than a good-faith suit;  Sleepy's had no real evidence, in part, because . . . it spoliated evidence (instructions for the “secret shops,” or original recordings or reports thereof; also, some reports were “altered”)

 Note: Octane Fitness, LLV v. Icon Health & Fitness, 134 S. Ct. 1749 (2014) (under Patent act, “exceptional circumstances” requires a flexible, totality of circumstances analysis, focusing on substantive strength of a party’s litigation position, or the unreasonableness of its advocacy; rejects an “overly rigid” standard requiring proof of bad faith and objectively baseless litigation). 16 Copyright 2015

Foodfight! Chobani LLC v. Dannon Co., 16 CV 30 (N.D.N.Y) Gen. Mills, Inc. v. Chobani LLC, 16 CV 58 (N.D.N.Y)

 Chobani touts all-natural ingredients, claims ingredients in its competitors’ Greek yogurts are “bad stuff”:  General Mills’ Yoplait Greek 100 contains potassium sorbate (“that stuff is used to kill bugs!”);  Dannon’s Light & Fit contains Sucralose [Splenda] (“that stuff has chlorine added to it!”).  January 29, 2016: Challengers’ motions for preliminary injunctions were granted:  The court’s analysis hinged on challengers’ false by necessary implication theory (i.e., Chobani’s claims conveyed the literally false message that the challengers’ yogurts were “unsafe to eat”).  The court rejected a puffery defense: Although “[a] puffing statement is not actionable because the audience . . . cannot be deceived by it . . . [a]n advertiser treads a far different line when it no only lauds its own products but directly attacks a competitor.”  April 22, 2016: Chobani’s motion for reconsideration was denied. 17 Copyright 2015

Chobani’s Ads

18 Copyright 2015

Claim against 5-hour ENERGY Rejected as Puffery Martin v. Living Essentials, LLC, --- F. Supp. 3d ---, 2016 WL 374142 (N.D. Ill. Feb. 1, 2016)

 Holder of the hacky sack “world record for most consecutive kicks,” sued Living Essentials, the manufacturer of the energy drink “5-hour ENERGY,” over a television commercial for the drink, in which which an actor claims to have “disprove[n] the theory of relativity, master[ed] origami while beating ‘the record’ for hacky sack, sw[a]m the English Channel and back, and f[ou]nd Bigfoot all within the span of five hours . . . .” Id. at *5.  The court granted defendant’s motion to dismiss plaintiff’s claim that the commercial falsely represented that one could “beat[] the record for Hacky Sack” by drinking 5-hour ENERGY.  The commercial was “clearly a comedic farce” — “an obvious joke that employ[ed] hyperbole and exaggeration for comedic effect,” id. at *1, *6 — and was therefore non-actionable puffery. Id. at *4.  Thus, it did not matter that the commercial conveyed the literally false message that drinking 5-hour ENERGY would enable one to break the “hacky sack record (while mastering origami, no less),” because the commercial was “so grossly exaggerated that no reasonable buyer would take it at face value.” Id. As a result, the court held, there was “no danger of consumer deception and hence, no basis for a false advertising claim.” Id. (citation omitted)

19 Copyright 2015

Fake Online Reviews May Be Actionable False Advertising Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2016 WL 815205 (S.D.N.Y. Feb. 29, 2016)

Parties were competing laser hair-removal businesses operating in New York City.

 Negative online reviews about Plaintiff began appearing on websites such as Yelp.com and HairTell.com,, including many that promoted Assara’s services after disparaging Romeo & Juliette’s.  Evidence linked these disparaging reviews to an Internet Protocol address associated with Defendant’s place of business and many of the reviews were attributed to Yelp and HairTell usernames registered to Defendant’s employees.

 In denying Defendant’s motion for summary judgment, the court held that “anonymous comments . . . constitute[d] commercial advertising or promotion” under the Lanham Act.  “In pursuit of their commercial interests defendants repeatedly posted disparaging comments to public fora used by consumers to select laser hair removal services. By anonymously disparaging the plaintiff’s business and simultaneously promoting Assara, the defendants acted in pursuit of their economic interests.”  The court did grant summary judgment to a handful of disparaging comments were limited to statements that could not be proven true or false, finding that these statements were “largely matters of opinion” and without more, were not “actionable as false statements of fact.”

20 Copyright 2015

Consumer Fraud Class Actions Recent Decisions of Interest

Copyright 2015

SCOTUS: Rule 68 Offer Does Not Moot Class Action, But Does Depositing Payment? Campbell–Ewald Co. v. Gomez, 136 S.Ct. 663, 193 L.Ed.2d 571 (Jan. 20, 2016)

 Plaintiff refused to drop his putative class action claims alleging that defendant sent unsolicited text messages in violation of the Telephone Consumer Protection Act (“TCPA”), even after defendant offered him the maximum allowed under the statute.  SCOTUS held that defendants cannot moot putative class action claims by making an offer of full relief to individual plaintiffs.  “[A]n unaccepted settlement offer has no force.” “Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.” Id. at 666.  “We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff ’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.” Id. at 672. 22 Copyright 2015

Ninth Circuit Answers: Depositing Payment does Not Moot Class Action Chen v. Allstate Ins. Co., --- F.3d ----, 2016 WL 1425869 (9th Cir. Apr. 12, 2016)

 The Ninth Circuit held that even if the district court entered judgment affording plaintiff complete relief on his individual claims for damages and injunctive relief, mooting those claims, plaintiff would still be able to seek class certification.  Further, the court held:  “Under Supreme Court and Ninth Circuit case law, a claim becomes moot when a plaintiff actually receives complete relief on that claim, not merely when that relief is offered or tendered. Where, as here, injunctive relief has been offered, and funds have been deposited in an escrow account, relief has been offered, but it has not been received. [Plaintiff’s] individual claims, therefore, are not now moot. Nor will we direct the district court to moot them.” Id. at *1 (emphasis in original).  The Eastern District of New York is in accord:  On February 3, 2016, the court denied defendants’ letter-motion “for permission to deposit funds with the Clerk of Court,” highlighting the language in CampbellEwald that “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Brady v. Basic Research, L.L.C., No. 13-cv-7169 (SFJ) (ARL) (E.D.N.Y. Feb. 3, 2016) (ECF No. #81) (emphasis in original). 23 Copyright 2015

Consumers’ Standing to Seek Injunctive Relief under Article III  District courts throughout the country are split as to whether a consumer who is at no risk of suffering the same alleged injury in the future, has standing to seek injunctive relief under Article III of the U.S. Constitution. In 2016, many courts have weighed in. For example:  Torrent v. Yakult USA, Inc., 15-CV-00124-CJC (JCGX) (C.D. Cal. Jan. 5, 2016): The court denied plaintiff’s motion for class certification under Rule 23(b)(2): “Because Torrent has not even alleged that he intends to buy Yakult in the future, let alone submitted evidence to that effect, the Court concludes that he lacks Article III standing to pursue injunctive relief here”  Reid v. GMC Skin Care USA, Inc., 2016 WL 403497 (N.D.N.Y. Jan. 15, 2016): The court granted defendant’s motion to dismiss claims for prospective injunctive relief, holding that “a plaintiff who has not alleged that she will purchase the offending product in the future has not established the likelihood of future injury required by the Supreme Court and Second Circuit precedent.”  Khasin v. Bigelow, Inc., 12 cv 2204 (N.D. Cal. Mar. 29, 2016), the court found insufficient to confer Art. III standing plaintiff’s “conclusory” assertion in his declaration that he “would consider buying Bigelow tea again if the antioxidant claims were removed from the packages and I was assured that the product was in compliance with California law.” The court observed that “[o]ther courts considering these ‘conditional’ declarations have found them unavailing.”

 In a non-precedential decision, (Luman v. Theismann, -- Fed. Appx. --, 2016 WL 1393432 (9th Cir. Apr. 8, 2016)), the Ninth Circuit held that plaintiff lacked standing to seek injunctive relief; “Because Plaintiffs do not allege that they intend to purchase SBP in the future, they cannot demonstrate a likelihood of future injury. Therefore, the district court properly dismissed Plaintiffs’ claims for injunctive relief.” Id. at *2 (citation omitted).

24 Copyright 2015

Recent NAD Decisions of Interest

Copyright 2015

New NAD Procedures  Effective November 1, 2015:  Implementation of a 20-page limit in case filings.  New rule allowing for administrative closure upon consent/settlement of the parties.  Limiting the scope of claims in a competitor challenge to those set out in the challenge.  Changes to the Advertiser’s Statement.  Changes to the amount of time NAD has to draft a decision.  Providing for a scheduling conference at the outset of a challenge to set the timing for all filings by and meetings with the parties.  Certain changes to NARB procedures (including NAD’s role in NARB appeals).

26 Copyright 2015

Bausch & Lomb Inc. (ULTRA Contact Lenses with MoistureSeal Technology), NAD Case No. 5944 (4/04/16)

27 Copyright 2015

Bausch & Lomb Inc. (ULTRA Contact Lenses with MoistureSeal Technology), NAD Case No. 5944 (4/04/16)  “[B]est-in-class properties for best-in-class performance” conveys the message that ULTRA contact lenses objectively perform better than the other silicone hydrogel lenses. . . . advertiser’s subjective preference evidence was insufficient to support . . . objective comparative performance claim.”  “When reviewing data offered in support of a comparative claim, NAD expects that the demonstrated difference will be clinically significant (i.e., consumer relevant).” That was not the case here.  B&L’s preference test was flawed:  Failure to account for the potential that patients had not previously complied with their habitual lens’ recommended length of wear  Duration of study did not mirror modality. “[S]urvey answers provided only a week into wearing a pair of ULTRA lenses do not accurately measure the comfort of wearing ULTRA lenses over the course the recommended month long wear schedule.”  Upon receipt of ULTRA lenses, subjects received a “concept card” that positively discussed the benefits of ULTRA lenses, which “serve[d] to ‘prime’ study subjects to expect to have a better result with the test lenses, likely biasing the test results in favor of the advertiser’s product.” 28 Copyright 2015

Novartis Consumer Health, Inc. (Benefiber Fiber Supplement), NARB Panel No. 206 (12/17/15)  Advertisement asserts that Benefiber “helps maintain regularity.”  NARB agreed with NAD that “helps maintain regularity” reasonably conveys a message that Benefiber provides a meaningful benefit to consumers with respect to regularity.  Novartis submitted study summaries as evidence.  NAD found that short descriptions of certain study results, as a general rule, do not provide sufficient information to determine whether the studies are competent and reliable scientific evidence.  NARB found that in addition to the inability to review test methodology, the summaries provided insufficient detail as to the overall study results.  Novartis also relied on “conventional wisdom.”  NARB was unconvinced due to the lack of studies demonstrating that wheat dextrin or functionally equivalent fibers at doses similar to the recommended dose for Benefiber have a meaningful impact on regularity.

29 Copyright 2015

American Dryer, Inc. (ExtremeAir CPC Commercial Jet Air Hand Dryers), NAD Case No. 5916 (1/05/16)  NAD reviewed claims that included:  CPC technology is proven to kill germs by leading microbiology labs  “ExtremeAir CPC is the most hygienic method of hand drying ever!”  “Independently proven to kill E-Coli, Salmonella, Influenza A, Staph, C. diff, MRSA.”  American Dryer relied on testing purportedly demonstrating that cold plasma technology has germ-killing efficacy on surfaces in a laboratory setting.  In this case, however, American Dryer made claims of germ-killing efficacy with respect to cold plasma technology on air drawn into and expelled from its product under read-world conditions.  NAD concluded that the evidence was insufficient to support the challenged express claims or the reasonably conveyed messages that its product killed germs on hands dried under the device, or offered a more hygienic or superior public health benefit than conventional hand dryers and recommended that the claims be discontinued. 30 Copyright 2015

Questions  Norman C. Simon Partner & Co-Chair, Advertising Litigation Kramer Levin Naftalis & Frankel LLP (212) 715-7816

[email protected]

31 Copyright 2015