Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

Last Thursday, Republican and Democrat members of the U.S. House of Representatives expressed some desire to modify the Consumer Product Safety Improvement Act ("CPSIA"). The House Committee on Energy and Commerce, Subcommittee on Commerce, Manufacturing, and Trade, which is now chaired by Rep. Mary Bono Mack (R-CA), held its first hearing and heard from CPSC Chairman Inez Tenenbaum and Commissioner Anne Northup. Our Government Relations and Public Policy group covered the hearing.

Chairman Bono Mack opened the hearing by describing her plan to focus on getting the economy back on track and bringing jobs back to America, starting with looking at problematic provisions of the CPSIA. Even Rep. John Dingell (D-MI), who has a long history of involvement in product safety laws, suggested that CPSC regulations requiring third-party safety testing of all children's products were too broad and should be revised.

Much of the discussion focused on the consumer incident database, which is scheduled to launch in March. CPSC Chairman Tenenbaum and Commissioner Northup had differing views on several aspects of the database, including its cost, whether a cost-benefit analysis is appropriate, and whether the database collects sufficient information for a manufacturer to conduct a meaningful review.

Opponents of the database made some progress early Saturday morning as the House passed an amendment to an appropriations bill that would strip financing for the database. Manufacturers and importers should continue to watch closely as this dialogue continues.

This post was written by Christie L. Grymes and Michael P. McGinn.

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On February 11, 2011, Rep. Jackie Speier (D-CA) introduced “Do Not Track” legislation that would provide consumers with the ability to opt out of having their personal information tracked by online advertisers. If passed, the Do Not Track Me Online Act (H.R. 654) would direct the Federal Trade Commission (“FTC”) to promulgate regulations to establish standards for an online, consumer opt-out mechanism. Consumers would be able to opt out of the collection and use of their personal information, such as web activity, geolocation, IP address, name, physical address, email address, driver’s license or Social Security number, and financial account numbers, by online advertisers and website operators.

If enacted, the Act also would require online advertisers and website operators to disclose their data collection, use and disclosure practices, including identification of third parties that receive such personal information. The Act gives the FTC regulatory discretion to require that consumers have access to the data stored by the online advertiser or website operator.

The FTC and state Attorneys General would be able enforce the Act, and may seek civil penalties up to $11,000 per day for violations (maximum $5,000,000 for related violations), as well as injunctive relief.

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Last month, consumers filed a class action lawsuit against Groupon, alleging that the company’s deals violate California and federal gift certificate laws. This month, a similar lawsuit was filed against LivingSocial, alleging that the company’s deals violate Washington and federal gift certificate laws.

Approximately half the states have laws that either restrict or prohibit expiration dates. In addition, a recent federal law requires gift certificates to be valid for at least 5 years. The plaintiffs in these cases are arguing that the Groupon and LivingSocial deals constitute gift certificates and that the expiration on the deals violate federal and state laws. In addition, the plaintiffs in the LivingSocial lawsuit are arguing that the no cash back provision on the company’s deals violates a Washington law that requires issuers to give cash back, under certain circumstances.

These lawsuits demonstrate that plaintiff’s lawyers are attempting to stretch gift certificate laws to cover various types of offers that don’t fit the traditional mold of gift certificates. Companies should take a close look at any offers that combine pre-payment with an expiration date in order to evaluate their risk of being a target of these types of suits. 

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On February 1, 2011, the Food and Drug Administration (FDA) issued a warning letter to dietary supplement maker Tennessee Scientific, Inc., relating to a number of product claims on the company’s website. The letter states that the products are unapproved drugs and that the claims are unauthorized disease claims. The claims at issue involve treatment and mitigation of a host of diseases including numerous cancers, inflammatory conditions, and heart disease.

What is unusual about this particular warning letter is that the FDA cites the Federal Trade Commission’s (FTC) advertising standards as a further basis for challenging the company’s conduct. The letter states: “In addition, it is unlawful under the FTC Act, 15 U.S.C. § 41 et seq., to advertise that a product can prevent, treat, or cure human disease unless you possess competent and reliable scientific evidence, including, when appropriate, well-controlled human clinical studies, substantiating the claims are true at the time they are made.”

FTC enforcement actions pertaining to Nestlé, Iovate and Dannon have garnered significant attention in the food and dietary supplement communities because the consent orders in these cases require the advertiser to obtain FDA approval before making certain health benefit claims in advertising.

For marketers of foods and dietary supplements, the Tennessee Scientific warning letter is notable for the following points:

• it further confirms the high level of cooperation ongoing between the FDA and FTC given that this is the second joint warning letter issued by the agencies in recent months;
• it confirms that websites may be considered both labeling and advertising, and that features such as product name, website name, metatags and clinical study titles on websites may give rise to actionable claims by either agency; and
• by sending a joint letter, the FTC has already established a record that Tennessee Scientific does not have FDA approval for their products or their product claims. Although FTC Consumer Protection Bureau Director David Vladeck recently stated that FDA approval is not a prerequisite to health benefit advertising claims, a joint letter sets an easy stage from which the FTC can take the position that unauthorized disease claims violate the FTC Act. This action further supports the conclusion that the drug-like substantiation provisions in the Nestlé, Iovate and Dannon orders are the new de facto standards for all advertisers making similar claims.

Industry stakeholders should evaluate the substantiation behind their products’ health benefit claims in light of these recent developments and fully consider FDA and FTC standards when creating website or other claims content that could be considered advertising or labeling.

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 This post was written by Dana B. Rosenfeld, Alysa Z. Hutnik, and Christopher M. Loeffler.

On February 10, 2011, the California Supreme Court released its decision in Pineda v. Williams-Sonoma Stores, Inc., holding that zip code information is personal identification information ("PII") under the Song-Beverly Credit Card Act (the "Song-Beverly Act") The court's decision restricts businesses in California from requesting and recording a person's zip code as part of a credit card transaction.

In Pineda, the plaintiff made a purchase at the retailer's store with her credit card and, during the sales process, the cashier requested the plaintiff's zip code.  The plaintiff believed that her zip code was necessary to complete the transaction, and provided it to the cashier.  The plaintiff later alleged that the retailer used the plaintiff's zip code information and her name to find the plaintiff's address and add it to the retailer's marketing database, in violation of the Song-Beverly Act.

Under the Song-Beverly Act, a business is prohibited from requesting, or requiring as a condition to accepting a credit card payment, the cardholder's personal information, which the business records.  The California Court of Appeal had previously held that a zip code, without additional information, was not PII in Party City Corp. v. Superior Court.  However, in Pineda, the California Supreme Court clarified California's broad interpretation of PII.  The court examined statutory language and legislative history in determining that zip code information is considered PII.

The Song-Beverly Act defines PII as "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."  The court examined dictionary definitions of "concerning" (such as "pertaining to" and "regarding"), and stated that a cardholder's zip code is certainly information that pertains to or regards the cardholder.

To resolve the conflict posed by PartyCity, which stated that zip code was not PII because it pertains to a group of individuals that live in a certain area, as opposed to a single individual, the court provided three statutory explanations for its holding:

1. A zip code is readily understood to be part of an address, and the statute expressly prohibits collection of an address.  Thus, the word "address" in the Song-Beverly Act should be construed as encompassing not only a complete address, but also its components.
2. A complete address and telephone number (both of which may not be collected under the Song-Beverly Act), can refer to more than one individual residing at the address or location of telephone service.  The fact that a zip code may also refer to more than one person, does not make it dissimilar to an address and telephone number.
3. Address and telephone number are both information unnecessary to the sales transaction that, alone or together with other data such as the cardholder's name or credit card number, can be used for the retailer's business purposes.  Zip code information falls into this same category.

Further, the court examined the legislative history of the statute to support its holding that zip code information is PII.  The court stated:

1. When the Song-Beverly Act was revised to permit businesses to require cardholders to provide identification so long as it was not recorded, the revision was described as "a clarifying, non-substantive change."  The court stated that this suggests that the legislature understood the provision to already prohibit the requesting and recording of any of the information , including zip codes, contained on driver's licenses and state ID cards.
2. The Song-Beverly Act was revised to prohibit not only "requiring" the PII, but also "requesting" the information.  This revision was intended to prevent a retailer from circumventing the law by claiming that the customer voluntarily provided the data.

Businesses that operate in California and collect customer information at the sales register should pay close attention to how this decision may affect them, with particular attention to when personal information is being collected, and if it might reasonably be construed as being requested during the transaction, and as a mandatory request to complete the transaction.

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In recent years, companies have gotten in trouble for failing to get consent before sending text messages to consumers. In a series of lawsuits, courts have determined that many text message campaigns are subject to the Telephone Consumer Protection Act, and that the law requires companies to get consent before sending text messages. Many companies have also gotten in trouble for failing clearly disclose offer terms. For example, the Florida AG has challenged companies that buried the price of their services in the fine print. The costs of getting these things wrong can be high, with settlements costing many millions of dollars.

Although these types of cases are likely to continue, in 2011, mobile marketers are likely to see a greater focus on privacy issues. Indeed, when the FTC issued a preliminary staff report on privacy last year, the Commission cited various potential privacy issues in the mobile space. Last week, Mobile Commerce Daily published an article I wrote that outlines some of the key privacy issues in the mobile space. The article appears on page 22 of Mobile Commerce Outlook 2011.

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On Friday, February 4, 2011, Judges Calabresi, Lynch, and Wesley of the U.S. Court of Appeals for the Second Circuit heard oral argument in FTC v. Bronson Partners, LLC, No. 10-878.  The district court had found that appellant Bronson Partners violated the FTC Act by making deceptive claims in advertising for two weight loss products, and, in addition to awarding injunctive relief, ordered the company to pay nearly $2 million in "equitable restitution."  On appeal, Bronson Partners challenged the propriety of the district court's award of consumer redress.  

Bronson Partners' appeal argues, first, that monetary relief is not even a permissible remedy under Section 13(b) of the FTC Act.  Indeed, Section 13(b) only specifically identifies injunctions and temporary restraining orders as relief that the FTC may obtain in such actions.  However, despite the plain language of the statute, various courts have awarded the FTC  monetary relief - typically either restitution or disgorgement - under the courts' inherent equitable powers.  While several other Circuit Courts of Appeal have ruled that monetary relief is available under Section 13(b), the Second Circuit has not yet  decided that issue. 

Second, Bronson Partners argued that, assuming monetary relief  were available in a Section 13(b) case, the particular monetary award in this case was not permissible. It is well-established that only equitable forms of  relief may be awarded under Section 13(b). However,  while the district court in this case labeled its award as "equitable restitution," Bronson contends that it was actually legal relief because  the FTC failed to "trace" the  consumer payments at issue into the defendant's current possession, as required for equitable restitution.   Bronson Partners argued that,  to the extent any monetary relief may be available to the FTC under Section 13(b), it should be limited to a disgorgement of  defendants'  profits, if any. 

Bronson Partners is represented on appeal by Lew Rose, Steven Caley (who argued on behalf of Bronson Partners before the Second Circuit), Dan Blynn, and Damon Suden of Kelley Drye & Warren LLP. A decision is expected within the next few months. 

The specific issues involved in the Bronson Partners appeal were discussed in more detail in a previous blog posting available here.  

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The Food Safety Modernization Act (FSMA), signed into law on January 4, 2011, requires the Food and Drug Administration (FDA) to undertake sweeping regulatory action to strengthen the safety of the nation’s food supply. Many of the items on FDA’s “to do” list require significant and swift action. Over the next two years, FDA must engage in a number of rulemakings and issue several guidance documents to implement the FSMA.

FDA must take certain actions in 2011, including:

• Issue guidelines regarding new dietary ingredients in dietary supplements
• Promulgate facility registration suspension guidelines

Several of FDA’s action items must be completed by January 4, 2012, including:

• Issue notice of proposed rulemaking regarding safe fruit and vegetable harvest and processing
• Designate high-risk foods requiring additional recordkeeping
• Promulgate rules establishing the foreign supplier verification program for importers
• Develop and publish a list of acceptable customer notification methods that grocery stores may use to post recall information

Other action items affecting a large portion of the food industry have a July 4, 2012 deadline:

• Promulgate regulations establishing science-based minimum standards for hazard analyses and preventive controls
• Promulgate rules regarding the sanitary transportation of food

Industry stakeholders should determine how the new law affects them and prepare to participate in the notice and comment process. For a copy of the Kelley Drye client advisory regarding the FSMA, please click here. For a timeline of all FDA actions required under the FSMA, please click here.

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Last month, the Food and Nutrition Service of the U.S. Department of Agriculture (“USDA”) issued a proposed rule that would revise the meal patterns and nutrition requirements for the National School Lunch Program (“NSLP”) and the School Breakfast Program (“SBP”). The proposed rule, which is intended to improve the dietary habits of school children, would align the NSLP and SBP with the 2005 “Dietary Guidelines for Americans,” as required by the Richard B. Russell National School Lunch Act (“NSLA”).

The proposed rule represents a substantial shift in the nutritional composition and quantity of a number of food items that make up current school breakfast and lunch meals and is likely to have far-reaching implications for companies that make or market food products for use in school breakfast or lunch programs. Affected companies are advised to evaluate the legal and business implications of the USDA proposal now, and bring issues and concerns to the attention of the appropriate policymakers, including by submitting written comments to USDA on or before the April 13, 2011 deadline.

See the Kelley Drye client advisory for more information, and please contact us if you have questions concerning the USDA proposal or other matters.

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Written by Sarah Roller and Raqiyyah Pippins.

On January 31, 2011 the U.S. Department of Agriculture (USDA) and U.S. Department of Health and Human Services (HHS) issued the Dietary Guidelines for Americans, 2010. A copy of the executive summary is available here. Supporting documents include Questions and Answers on the 2010 Dietary Guidelines, a Backgrounder regarding the History and Process for the Dietary Guidelines, and Selected Messages for Consumers.

The Dietary Guidelines for Americans (Dietary Guidelines) are reviewed by USDA and HHS every five years, pursuant to Public Law 101-445. Traditionally, the Dietary Guidelines recommendations have been intended for healthy Americans ages 2 years and older. “[R]ising concern about the health of the American population,” however, has led the USDA and HHS to publish Dietary Guidelines for all Americans ages 2 years and older, including those at increased risk of chronic disease.

Taken together, the 2010 Dietary Guidelines recommendations encompass two overarching concepts, encouraging Americans to:

• "maintain calorie balance over time to achieve and sustain a healthy weight," by decreasing calorie consumption and increasing the calories expended through physical activity; and
• "focus on consuming nutrient-dense foods and beverages," by reducing intake of sodium and calories from solid fats, added sugars, and refined grains, and increasing consumption of nutrient-dense foods and beverages such as vegetables, fruits, whole grains, fat-free or low-fat milk products, seafood, lean meats and poultry, eggs, beans and peas, and nuts and seeds.

The 2010 Dietary Guidelines note that while “nutrient needs should be met primarily through consuming foods,” in some cases “fortified foods and dietary supplements may be useful in providing one or more nutrients that otherwise might be consumed less than recommended amounts.” The Dietary Guidelines also encourage consumer education on food preparation and preservation to promote food safety and prevent foodborne illness.

The information in the 2010 Dietary Guidelines is used in developing educational materials and aiding policymakers in designing and carrying out nutrition-related program, including federal food, nutrition education and information programs. In addition, the 2010 Dietary Guidelines has the potential to offer authoritative statements as provided for in the Food and Drug Administration Modernization Act (FDAMA), which, in some cases may be used by food marketers to substantiate use of new health claims or nutrient content claims in food labeling.

More information regarding the 2010 Dietary Guidelines is available here.

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The Consumer Product Safety Commission (“CPSC” or "Commission") has voted 4-1 to extend the stay of enforcement for third-party, lead-content testing on certain children’s products until December 31, 2011. Section 102 of the Consumer Product Safety Improvement Act (“CPSIA”) requires manufacturers, importers, and private labelers of children’s products to have a third party test and certify that the product complies with the CPSIA’s lead-content limits. The stay extension does not excuse entities from complying with the underlying lead-limit regulations; rather, it gives entities more time to comply with the third-party testing requirements.

The extension will also give the CPSC more time to promulgate rules, which were proposed in May 2010, regarding component part testing and general testing and certification requirements. The proposed component part testing rule would set forth conditions under which the Commission would accept the test results of component parts instead of the entire consumer product, while the proposed general testing and certification rule would promulgate specific requirements for third-party testing and certification, as well as create product labeling standards to indicate that a consumer product meets the applicable certification requirements.
 

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