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

In previous posts, we’ve noted that sending SMS messages to consumers without their consent could violate the Telephone Consumer Protection Act (the “TCPA”). Similarly, it is generally unlawful to send fax advertisements to consumers without their consent. Our colleagues at the Telecom Law Monitor recently posted that the FCC may be planning to issue a number of forfeitures and proposed forfeitures for so-called "junk faxes” that were sent in violation of the TCPA. You can read the complete post here.

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This post was written by Dana Rosenfeld and Kristi Wolff.

The National Advertising Review Board (“NARB”) recently added fuel to a growing fire in the food and beverage industry regarding the meaning of “natural” claims. The NARB decided an appeal filed by Heartland Sweeteners, LLC (“Heartland”) regarding its Ideal sweetener product, which Heartland claimed was “more than 99% natural.” The National Advertising Division (“NAD”) previously recommended that Heartland modify or discontinue the “more than 99% natural” claim because although Ideal is 99% natural by ingredient weight, the majority of its sweetness is derived from sucralose, a high-intensity artificial sweetener that makes up about 1% of Ideal’s weight but supplies 80% of its sweetness.

The NARB shared NAD’s concern about implied claims conveyed by “more than 99% natural” insofar as consumers could understand it to mean that all or virtually all of Ideal’s sweetness comes from natural ingredients. The NARB’s decision, like NAD’s, relates the “natural” claim to the main product attribute, sweetness, rather than the natural or artificial classification of the ingredients that make up the finished product.

The FDA outlined its policy on use of “natural” in 1993 but has not officially defined the term. As use of “natural” claims have proliferated, scrutiny has increased as well. The makers of Snapple and AriZona Iced Tea have been the target of consumer class actions relating to claims that their products are “natural” despite containing high fructose corn syrup.

Advertisers need to be fully aware of the messages and risks created by use of the term “natural.” The Heartland decision demonstrates that the intended message is not always the only message. Further, advertisers can expect that a “natural” claim will draw not only the eyes of potential consumers but those of critics as well.

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One of the most powerful tools in a marketer’s arsenal is the word “free.” And it’s precisely because that word is so powerful, that consumers, regulators, and competitors, closely scrutinize how the word is used in ads and are quick to complain when they think the word is used inappropriately. Recently, Office Depot challenged ads in which OfficeMax and Staples claimed that participation in their rewards programs was “like” getting goods “free.” The National Advertising Division of the Counsel of Better Business Bureaus (the “NAD”) recommended that both companies change their ads.

OfficeMax advertised its rewards program with the phrase “It's like getting one FREE” and the following disclosure: “Pay $34.99 plus earn $35 in MaxPerks Bonus Rewards.” The Rewards, however, were subject to various restrictions. For example, customers couldn’t use reward points for 30 days, the points were subject to cancellation at any time, and the points expired after 90 days. Similarly, Staples advertised its rewards program with the following phrases: “Buy ANY of these office supplies, get 100% back in Staples Rewards” and “It’s like getting supplies for FREE.” The rewards program was also subject to certain exclusions and limitations.

Office Depot argued that both ads violated the FTC’s Guide Concerning Use of the Word “Free” and Similar Representations which states, in part, that when advertising a free offer, “all of the terms, conditions and obligations should appear in close conjunction with the offer of ‘Free’ merchandise or service.” The NAD agreed, noting that “merchandise is either free or it’s not” and that the word “free” has “cachet with consumers and should be reserved for offers that are truly without cost.” Both OfficeMax and Staples argued that no consumers were misled by the ads and indicated that they would appeal the NAD’s decisions.

Regardless of what happens with these cases on appeal, marketers should be careful when advertising that something is “free,” or even “like free.” If there are costs, requirements, or limitations associated with the free goods, those should be clearly disclosed so that consumers know exactly what they are getting.
 

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This post was written by Sarah Roller and Kristi Wolff.

Last week, the Food and Drug Administration (FDA) took the first steps needed to implement the new restaurant food labeling requirements of the Federal Food, Drug & Cosmetic Act (FDCA), requesting public comment on a number of regulatory issues that will affect compliance burdens and liability risks for companies subject to the new requirements. Submissions responding to the FDA notice can be made until September 7, 2010.

The new labeling requirements were established under FDCA amendments adopted as part of the recently enacted health care reform legislation (i.e., section 4205 of the Patient Protection and Affordable Care Act of 2010). The amendments expanded the scope of mandatory nutrition labeling requirements under FDCA section 403(q)(5), and require restaurants and other retail food establishments with at least 20 or more locations to provide “clear and conspicuous” calorie information to consumers. The FDA is specifically seeking information relating to the following issues:

• Chain Retail Food Establishments
• Determination of Calorie Content of Foods Offered by Chain Retail Food Establishments
• Vending Machine Operations
• Implementation and Enforcement

For further information about the new nutrition labeling requirements, or assistance in responding to the FDA notice, please contact one of the Kelley Drye attorneys listed above.

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This post was written by Dana B. Rosenfeld and Raqiyyah R. Pippins.

On May 26, 2010, the GAO submitted testimony to the U.S. Senate Special Committee on Aging, entitled “Herbal Dietary Supplements: Examples of Deceptive or Questionable Marketing Practices and Potentially Dangerous Advice.” The testimony was requested by the Special Committee on Aging, because “recent studies have shown that use of herbal dietary supplements…by the elderly within the United States has increased substantially.”

According to the report, “the GAO was asked to determine (1) whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices and (2) whether selected herbal dietary supplements are contaminated with harmful substances.”

The GAO concluded that “certain dietary supplements commonly used by the elderly were deceptively or questionably marketed,” with claims the supplements could treat, prevent, or cure conditions such as diabetes, cancer, cardiovascular disease, high cholesterol or Alzheimer’s disease—claims that, under the Federal Food Drug and Cosmetic Act, and related FDA implementing regulations, are not permitted for use in the labeling or marketing of dietary supplements. The GAO referred the names of companies that made these claims to FDA and the FTC “for appropriate action.”

The GAO’s testimony also states that while the GAO “found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplements products tested,” no contaminants were found “in amounts considered to pose an acute toxicity hazard.” The GAO noted that “the levels of heavy metals found do not exceed any FDA or Environmental Protection Agency EPA) regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming [the tested] supplements.”

Click here for more information about the GAO’s study, including a full copy of the testimony.

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On May 19, 2010, Senator John D. Rockefeller, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, introduced legislation that may have a significant impact on Internet retailers offering negative option programs. Negative option programs generally cover offers in which goods or services are provided automatically and consumers must either pay for the service or specifically decline it in advance of billing.

The proposed legislation was released on the same day that the Committee on Commerce released the second of two reports regarding companies that allegedly used aggressive sales tactics to enroll online consumers in services without their consent. The proposed bill contains a number of provisions relevant to companies that offer negative options:

• Requirements for Certain Internet-Based Sales. The proposed bill would make it unlawful for any post-transaction third-party seller to charge a consumer’s credit card for a good or service without providing clear disclosures regarding the terms of the offer and receiving the consumer’s express informed consent to billing. Express informed consent requires that the consumer provide all billing information and take an additional affirmative step (such as clicking on a box that indicates the consumer’s consent to billing).
• Prohibition on Data Pass of Billing Information. Sen. Rockefeller’s proposed legislation would prohibit the practice of merchants disclosing and transferring a consumer’s billing information to any post-transaction third party seller for use in any Internet-based sale of goods or services from the third-party seller.
• Limitations on the Use of Negative Options in Internet-Based Sales. The proposed bill would make it unlawful to charge a consumer through an Internet-based negative option program unless: (1) the seller clearly and conspicuously discloses, prior to the sale, the material terms of the offer and the identity of the entity making the offer; (2) the seller has obtained the express informed consent to bill; (3) the seller provides a simple process to cancel billing that must be available through both the Internet and telephone; and, (4) the seller provides a notice of billing to a purchaser at least 10 days prior to each billing interval.

Companies who offer any type of Internet-based negative option program would be well-served to keep a close eye on how this proposed legislation makes its way through the Senate. As evidenced by the report released with the proposed legislation, Senator Rockefeller has taken on a strong pro-consumer agenda, and he will certainly seek to bring further attention to these types of offers.

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This post was written by Sarah Roller and Megan L. Olsen.

On May 19, 2010, the Federal Trade Commission (FTC) approved a final settlement order with the Indoor Tanning Association charging that the association exaggerated the health benefits of indoor tanning and misrepresented that indoor tanning increases the risk of skin cancer. The settlement bars the Association from making misrepresentations about the health and safety of indoor tanning and requires that future advertisements from the association that make health or safety claims be accompanied by clear and prominent disclosures about the risks of indoor tanning. The Indoor Tanning Association represents tanning facilities and suppliers of tanning equipment.

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A recent lawsuit filed by the Los Angeles City Attorney's office should serve as a good reminder to retailers and manufacturers to comply with state and local weights and measures statutes.  Last week the city filed a multi-count criminal case alleging that Ralph's Grocery Company and its parent, the Kroger Company, overcharged consumers for prepackaged and weighed products in violation of the Business and Professions Code. 

The lawsuit includes 14 counts of false and misleading advertising, 18 violations of unlawful computation of value, 9 violations of selling prepackaged commodities in less quantity than represented, and 18 violations of false labeling.  Each company could face fines and penalty assessments up to $256,000.  Ralph's had been put on notice of overcharges, including payment of $6,500 in fines in 2008 and $10,400 in fines in 2009.

Practice Pointer:  Although the fines for these alleged violations may seem relatively low, they can quickly add up if inspectors visit different stores in the same state or if inspectors in other states begin enforcing those state statutes.  Companies that receive notice of overcharges should review their practices to address any recurring issues.

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This post was written by Sarah Roller and Kristi L. Wolff.

The Food and Drug Administration (“FDA”) issued a notice last week seeking public comment and consumer research data in support of the agency’s initiative to improve the usefulness of nutrition information provided to consumers at the point-of-purchase, including through front-of-package (“FOP”) labeling and shelf tags in retail stores (“FOP initiative”). FDA’s request for information comes while a related study by the Institutes of Medicine (“IOM”) remains pending. The IOM Committee on Examination of Front-of-Package Nutrition Rating Systems and Symbols currently is evaluating scientific evidence concerning the nutrition information and ranking systems that currently are used by food manufacturers and retailers for FOP labeling, shelf tags, and other food marketing purposes.

The FDA notice specifically requests research data and other information addressing the following matters:

• Data and information on the extent to which consumers notice, use, and understand nutrition symbols on front-of-pack labeling of food packages or on shelf tags in retail stores;
• Research assessing and comparing the effectiveness of particular possible approaches to front-of-pack labeling;
• Graphic design, marketing, and advertising data and information that can inform and guide the development of better point-of-purchase nutrition information; and
• The extent to which point-of-purchase nutrition information may affect decisions by food manufacturers to reformulate products.

Click here to see the specific elements of each of these categories of interest to FDA.

FDA will consider public comment submitted in response to its notice until July 28, 2010.

For more detail, please reference the Kelley Drye client advisory. 

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The Federal Trade Commission has launched a multi-media campaign through the website www.admongo.gov to educate children and teens, ages 8 to 12, about advertising. With “tweens” becoming a larger and more important part of the marketplace, the initiative seeks to raise kids’ awareness about advertising so they can make more informed decisions when they shop or play a role in family buying decisions.

The goal of the campaign is to boost advertising literacy by:

• Raising awareness of advertising and marketing messages
• Teaching critical thinking skills that will allow tweens to better analyze and interpret advertisements
• Demonstrating the benefits of being an informed consumer

In addition to an online game featured on Admongo.gov, other elements of the campaign include in-school curricula, sample ads that can be used at home and in the classroom, and teacher training videos. The FTC partnered with Scholastic in creating resources which have been distributed to elementary and middle school teachers nationwide.

In an interview on NBC's Today Show, Bureau of Consumer Protection Director David Vladeck explained that the program is designed to teach kids how to think critically about advertising messaging. He explained that while the FTC is not taking a position of whether ads are good or bad, the campaign gives kids the tools they need to "navigate through this very intensely commercial environment they live in."

As the tweens market is estimated at $200 billion in sales, advertisers should take note of these efforts to educate young consumers about how to distinguish between advertising and content, and consider how best to both inform and engage tweens with innovative messaging and product promotions.

For additional background on Director Vladeck's enforcement agenda, reference The Antitrust Source article, "Interview with David Vladeck, Director, FTC Bureau of Consumer Protection."
 

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Last week, Best Buy filed a lawsuit against Ultimate Electronics over ads that compare Best Buy’s prices to Ultimate’s prices. According to the complaint filed in a Minnesota federal court, Ultimate’s ads make statements such as: “Every day, we shop . . . Best Buy, then adjust our prices to beat theirs, so you know we have the lowest electronics prices.” Best Buy alleges that Ultimate’s prices are frequently higher than Best Buy’s and, therefore, that consumers do need to comparison shop to obtain the lowest prices. Best Buy is seeking a permanent injunction, monetary damages, and that the court order Ultimate to run corrective advertisements.

Earlier this year, Best Buy had filed a complaint against Ultimate at the NAD, but Ultimate failed to respond to the inquiry. As a result, the NAD announced that it would refer the advertisements to the FTC for review.

Advertisers need to be careful when they make price comparisons against competitors. The NAD and NARB have both opined that generalized claims that an advertiser always offers the lowest prices are “difficult, if not impossible, to substantiate,” especially given how quickly prices can change. As this case demonstrates, if a competitor thinks that an advertiser’s price comparisons are not substantiated, the advertiser can find itself challenged in court, at the NAD, or by the FTC.

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The American Bar Association’s The Antitrust Source published an article, “Interview with David Vladeck, Director, FTC Bureau of Consumer Protection.” The in-depth interview examines Mr. Vladeck’s career as a litigator and professor and how his accomplishments and challenges are shaping his tenure at the Federal Trade Commission. The interview probes Mr. Vladeck’s views on topics including the commercial speech doctrine, social media, alternative remedies for data breaches, and a proposed Consumer Financial Protection Agency, among other subjects.

Click here to read a PDF of the article.
 

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Florida Attorney General Bill McCollum recently sued a company and its affiliates over allegations the companies enrolled consumers in a monthly subscription program without the consumers' knowledge or consent. The AG alleges that the company advertised a “free trial” of their products and claimed that only a payment for shipping and handling was required. However, an investigation by the AG’s office revealed that after consumers made this payment, they were automatically enrolled in a subscription program in which their credit cards were charged every month. Some consumers also reported that they were charged the full price of the products, even after canceling.

Companies that use trial offers to promote their products must clearly and conspicuously disclose the terms of the offers to consumers before consumers sign up and incur any costs. Among other things, a company must disclose whether there are any costs associated with the offers and whether a consumer has to cancel to avoid incurring future charges. Failure to clearly disclose this information is certain to lead to complaints from consumers and challenges from regulators. These challenges can often result in costly settlements. For example, last year the FTC imposed a $7.8 million penalty on a company that failed to adequately disclose the terms of its free trial.
 

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This month, a Maine legislative committee voted to repeal a controversial online marketing law that was enacted just last year. Among other things, the law, entitled “An Act To Prevent Predatory Marketing Practices Against Minors,” prohibits companies from knowingly collecting personal information or health-related information from minors under 18 without parental consent.

Shortly after the law was enacted, a group of plaintiffs filed suit arguing that the law was unconstitutional. Maine Attorney General Janet Mills acknowledged that the law was “not presently enforceable” and the case was later dismissed. In the court order, the judge wrote the Attorney General had "acknowledged her concerns over the substantial overbreadth of the statute and the implications of [the law] on the exercise of First Amendment rights, and accordingly has committed not to enforce it."

The Maine legislature must still vote on the repeal in order to make it effective. But given the constitutional problems with the law and the inevitable challenges that would be filed against the law should it be enforced, we expect the law to be repealed within the coming weeks.

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Late last night, the Senate unanimously confirmed Edith Ramirez and Julie Brill to fill the two vacant seats on the Federal Trade Commission (FTC).1 Ms. Ramirez will replace Republican Deborah Majoras, who stepped down from the Commission in March 2008, and Ms. Brill will replace Independent Pamela Jones Harbour, whose term ended in September 2009. Their positions start immediately upon confirmation. A brief background on each new Commissioner is provided below.

Julie Brill

Since February 2009, Ms. Brill has been a Senior Deputy Attorney General and Chief of the Consumer Protection and Antitrust Division for the North Carolina Department of Justice. Prior to joining North Carolina’s Department of Justice, Ms. Brill served as an Assistant Attorney General for the Vermont Attorney General’s Consumer Protection and Antitrust Divisions for over 20 years. Ms. Brill’s experience at the Vermont Attorney General’s office included a wide-variety of consumer protection litigation, legislative, and regulatory matters in the fields of privacy, credit reporting, financial services, tobacco, food, drugs and other health-related industries. As an Assistant Attorney General for the state of Vermont, Ms. Brill also testified before Congress regarding data security breach legislation and consumer privacy issues.

Ms. Brill has served as a Vice-Chair of the Consumer Protection Committee of the American Bar Association Antitrust Section since 2004 – the ABA committee chaired by John Villafranco (2002 to 2005) and August Horvath (2005-2009) of Kelley Drye. She has received several honors for her consumer protection and privacy work, including the National Association of Attorneys General Privacy Subcommittee Award in 2001 for drafting proposed privacy principles, Privacy International’s 2001 Brandies award for work on state and federal privacy issues, and the National Association of Attorneys General Marvin Award in 1995 for her “outstanding leadership, expertise, and achievement in advancing the goals of the association.” Additionally, she is also a Lecturer-in-Law at Columbia Law School.

Before beginning her career in law enforcement, Ms. Brill was an associate at Paul, Weiss, Rifkind, Wharton & Garrison in New York and she clerked for Vermont Federal District Court Judge Franklin S. Billings Jr. Ms. Brill is a graduate of New York University School of Law, where she received a Root-Tilden Scholarship for her commitment to public service. She received her bachelor’s degree from Princeton University.

Edith Ramirez

Ms. Ramirez is currently a partner in the Los Angeles office of Quinn Emanuel Urquhart Oliver & Hedges, LLP where she specializes in intellectual property and complex business litigation matters. She has represented a diverse range of clients in actions involving copyright and trademark infringement, antitrust and unfair competition claims, business tort, and other general business litigation cases. Notable litigation includes Hathaway Dinwiddie Construction Co. v. United Air Lines, Inc., where Ms. Ramirez successfully represented Hathaway Dinwiddie Construction on breach of contract claims, and Christian v. Mattel, Inc., where Ms. Ramirez helped obtain a $500,000 sanction against Mattel’s opposing counsel pursuant to Federal Rule of Civil Procedure 11 for filing a frivolous copyright infringement action against Mattel. Ms. Ramirez has also represented American Broadcasting Companies, The Walt Disney Company, The Scotts Company, and Northrop Grumman in a variety of intellectual property, antitrust, and contract litigation matters.

Ms. Ramirez is also involved with a number of community outreach activities. She has served as the Vice President on the Board of Commissioners for the Los Angeles Department of Water and Power, a member of the Board of Directors for Volunteers of America, and the California Deputy Political Director and Director of Latino Outreach for Obama for America.

Previously, Ms. Ramirez served as a law clerk to the Honorable Alfred T. Goodwin, United States Court of Appeals for the Ninth Circuit. She also worked as an associate at Gibson, Dunn & Crutcher, LLP. Ms. Ramirez attended Harvard Law School, where she was an editor for the Harvard Law Review, and she received her bachelor’s degree from Harvard-Radcliffe College.

1  http://senatus.wordpress.com/2010/03/03/nominations-confirmed-march-3/

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This post was written by Kristin A. Hird and Dana B. Rosenfeld.

A broad coalition of advertising associations has agreed on a standard icon – a white “i” surrounded by a circle on a blue background dubbed the “Power I” – which will be added to websites and will link consumers to a page explaining how the advertiser uses their demographics and behavioral data to send certain ads. Developing the new symbol is part of self-regulatory principles agreed to by major advertising groups including the American Association of Advertising Agencies, the Association of National Advertisers, the Direct Marketing Association, and the Interactive Advertising Bureau, in an effort to address the FTC’s concerns about the behavioral advertising industry’s activities.

There is no legal requirement that the groups’ members adopt the icon but the advertising coalition expects that most of its members, including many major online retailers, will begin running it by midsummer. It is anticipated that the icon will initially appear with phrases such as “Why did I get this ad?” and the Interactive Advertising Bureau has started an online advertising campaign to explain the icon to consumers. The idea is to establish an immediately recognizable and trusted symbol as well as provide a link to information.

It’s yet to be seen how widespread implementation of the self-regulatory principles will be by the coalition’s members, much less whether the coalition’s steps will be sufficient to ward off regulation by the FTC. But keep an eye out for the little blue icon appearing on websites this summer.
 

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The law of comparative advertising covers advertising that compares alternative brands on price or other measurable attributes and expressly or impliedly identifies the alternative brand by name, illustration, or other distinctive information.

A new article in IP Litigator, “The Law of Comparative Advertising in the United States,” provides an overview, including the treatment of comparative advertising claims by the Federal Trade Commission and the National Advertising Division of the Council of Better Business Bureaus, Inc., and a discussion of some of the particular proof and burden-shifting issues triggered when comparative advertising claims are challenged under the Lanham Act. The article then provides practical guidance to in-house attorneys and outside counsel on strategies for challenging comparative advertising claims made by a competitor when the client contends that the claims cannot be substantiated.

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This week, the Direct Marketing Association announced new changes to their Guidelines for Ethical Business Practice for endorsements and testimonials.

Among other things, the new Guidelines require marketers to do the following: (a) clearly and conspicuously disclose the generally expected results of an advertised product or service, if the results described in a testimonial are not typical; (b) disclose any material connections between marketers and their endorsers that a consumer would not expect; and (c) ensure that celebrity endorsers disclose their relationships with marketers when making endorsements outside the context of traditional ads. The DMA also clarified that the Guidelines apply not only to traditional of marketing, but also to marketing in social media, such as blogs and word-of-mouth marketing campaigns.

These amendments bring Guidelines into alignment with the Federal Trade Commission’s latest Guides Concerning the Use of Endorsements and Testimonials in Advertising. As we explained in a post last month, the FTC’s new Guides pose various challenges for many companies, particularly in the context of social media. Click here for an article (starting on page 19) that provides some tips for dealing with these challenges.
 

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Yesterday People for the Ethical Treatment of Animals ("PETA") announced that it will pull ads featuring the likeness of first lady Michelle Obama. The image was used without Michelle Obama's permission and created the impression that she endorses PETA. The ads also featured Oprah Winfrey, Carrie Underwood, and Tyra Banks and began appearing on New Year's Day in subway stations in Washington, DC, and on PETA's van and website.

PETA admitted that it did not have authorization, but thought that the first lady's announcement in June that she had sworn off fur justified including her in the campaign. PETA claims that it is not selling a product (or otherwise using the image for commercial purposes); rather, it is honoring beautiful women who do not wear fur.

As with Weatherproof's use of President Obama's image, PETA's predicament is a good reminder that organizations should evaluate the circumstances before using images of public figures or celebrities in ads.  An individual's statement that he or she uses a product (or, in this case, does not use a product) may not be a significant basis to use the individual's image or to imply that he or she endorses the product.
 

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Last week, the White House asked Weatherproof to remove a Times Square billboard that featured President Obama wearing a Weatherproof jacket in front of the Great Wall of China. According to the White House, the billboard was misleading because it suggested that the clothing was endorsed by the President and that the White House had approved the ad.

The photo was taken by a photographer from The Associated Press and Weatherproof subsequently purchased the right to use the photo from AP Images. According to The AP, their agreement with Weatherproof required the company to seek any necessary clearances before using the picture. The company's president, however, said he did not believe permission was necessary because the billboard did not explicitly say Obama endorses the jacket. News reports indicate that two newspapers and one magazine refused to publish the Weatherproof ad without evidence of the President's approval.

Be careful about using an image of an individual for advertising purposes unless you have permission from that individual. Simply having permission from the photographer is not enough. If you use the image of an individual in an ad without the individual's permission, you could face a lawsuit under right of publicity laws. Although the White House simply requested that Weatherproof remove the billboard for now , some companies have had to pay millions of dollars to settle these types of unauthorized or implied endorsement issues.

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