Government-Mandated Health Warnings in Sweetened Beverage Advertising Found Likely to Chill Protected Free Speech

On September 20, the Ninth Circuit blocked the City and County of San Francisco from implementing an ordinance that would have required health warnings on advertisements for beverages that contain one or more added sweeteners and more than 24 calories per 12 fluid ounces of beverage. The Ninth Circuit’s panel opinion, in reversing a district court order, held the ordinance likely chilled protected commercial speech under the First Amendment.

The 2015 ordinance would have required that advertisements (not labels) for sweetened beverages contain an explicit health warning that “occup[ied] 20 percent of the advertisement [] set off by a rectangular border”, like so:

The American Beverage Association, the California Retailers Association, and the California State Outdoor Advertising Association (“Associations”) sued to enjoin the implementation of the ordinance on constitutional grounds.  The district court denied a preliminary injunction and the Ninth Circuit granted interlocutory appeal.

Under established precedent, regulations that compel speech by imposing a disclosure are governed by the framework set forth in the SCOTUS case of Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985) (upholding a state bar disciplinary rule requiring that attorney advertisements regarding contingent-fee rates inform clients they would be liable for costs (as opposed to legal fees), even if their claims were unsuccessful). The Zauderer framework historically had been applied to government-mandated disclosures needed to prevent consumer deception.

The Ninth Circuit panel opinion applied the Zauderer framework beyond the context of preventing consumer deception.  Under the framework, the Ninth Circuit held that compelled disclosures could be related to other substantial government interests, such as promoting public health, but had to be “factual and non-controversial” and not “unjustified or unduly burdensome.”

The San Francisco ordinance satisfied neither of these factors.  The Ninth Circuit panel observed the warning falsely conveyed the message that sweetened beverages contribute to obesity, diabetes, and tooth decay, regardless of the quantity consumed or other lifestyle choices.  This message was contrary to statements by the FDA that added sugars are “generally recognized as safe,”  and “can be a part of a healthy dietary pattern when not consumed in excess amounts.”

The Ninth Circuit also held the warning was misleading.  “By focusing on a single product, the warning conveyed the message that sugar-sweetened beverages were less healthy than other sources of added sugars and calories and were more likely to contribute to obesity, diabetes, and tooth decay than other foods.”  This message was found to be deceptive in light of the current state of research on the issue.

Finally, the court held the warning requirement unduly burdened and chilled protected commercial speech.  The panel observed the black box warning “overwhelms other visual elements” in the advertisement.  This, according to the panel, would defeat the purpose of the advertisement, “turning it into a vehicle for a debate about the health effects of sugar-sweetened beverages.”

Thus, Ninth Circuit panel concluded that the Associations had shown a likelihood of success on the merits of their First Amendment claim.

 

Gatorade Lands in Hot Water by Encouraging Others to Avoid Water

This week, the California Attorney General announced a settlement involving allegations that Gatorade made misleading claims about the relative performance benefits of Gatorade and water  in a mobile game that was targeted to teens.

Players controlled a cartoon version of Olympic Gold Medalist Usain Bolt, and ran a race to recover gold coins stolen by pirates. When the Bolt avatar touched a Gatorade icon, it would run faster and the “fuel meter” increased. But when the avatar touched a water droplet, it would slow down and the “fuel meter” decreased. There were more overt claims, too. The instructions at the start of the game urged players to “Keep Your Performance Level High By Avoiding Water.”

According to the AG’s complaint, the express and implied claims that Gatorade will increase athletic performance, while water will decrease it, were false and misleading, in violation of California law. And in the press release, the AG went further stating that “making misleading statements aimed at our children is beyond unlawful, it’s morally wrong and a betrayal of trust.”

As part of the settlement, Gatorade will pay $300,000, part of which will be used to fund research or education on water consumption and the nutrition of children and teens. In addition, the settlement requires Gatorade to disclose endorser relationships in any social media posts and prohibits the company from advertising its products in media where children under 12 comprise more than 35 percent of the audience. The settlement also prohibits the company from negatively depicting water in any ad.

Companies need to be careful when suggesting that their products will improve performance or that competing products will hinder performance. For another case involving beverages and comparative performance claims, check out this post from 2013.

Getting Closer: Progress on Nominations for CPSC Chairman and Commissioner

Yesterday, President Trump announced his intent to nominate Dana Baiocco as CPSC Commissioner. If confirmed, Ms. Baiocco would replace Commissioner Marietta Robinson when her term expires on October 27, and would serve a seven-year term. Ms. Baiocco would join Acting Chairman Ann Marie Buerkle and Commissioner Joseph Mohorovic, and give the five-member Commission a republican majority once again. She has already received the support of Chairman Bob Latta (R-OH) of the House Energy and Commerce Committee’s Digital Commerce and Consumer Protection Subcommittee.

Currently, Ms. Baiocco is a partner at Jones Day in Boston, and her practice focuses on products liability and tort litigation, as well as regulatory and reporting obligations enforced by the CPSC, for a number of high-profile clients. Ms. Baiocco attended Duquesne University School of Law, and clerked for The Honorable Gustave Diamond of the U.S. District Court for the Western District of Pennsylvania prior to joining Jones Day’s Pittsburgh office as an associate. She became partner in 2007, and helped found the firm’s Boston office in 2011.

The Senate Commerce Committee also announced yesterday that, on September 27, they will hold a nomination hearing for Acting Chairman Ann Marie Buerkle to become CPSC Chairman. She has served as Acting Chairman since February, and was nominated to become Chairman in July. Acting Chairman Buerkle has emphasized her desire to collaborate with stakeholders, to take a “balanced and reasonable approach” to regulation when data justifies rulemaking, and to use information campaigns to educate consumers and industry.

NAD Addresses “Best Selling” Claims

Benefit Cosmetics advertised that its They’re Real Mascara was the “#1 best-selling Prestige Mascara in the U.S.” and the “#1 best-selling Prestige Mascara in the U.S. for 3 years.” A disclosure linked to the first claim explained that the claim was based on NPD data from July 2015-June 2016, and a disclosure linked to the second claim explained that it was based on similar data from July 2013-June 2016.

Benefit enjoyed a good run at the top, but the most recent NPD data suggests that the top spot now belongs to Too Faced Cosmetics’ Better Than Sex Mascara. Too Faced argued that even though Benefit’s claims may have been true in the past, they no longer true now. And although the claims are qualified with the disclosures, consumers are still likely to interpret the claims to be current.

The NAD sided with Too Faced for a few reasons. First, the claims were in the present tense, suggesting that they were currently true. Second, the disclosures appeared in a “tiny, difficult to read font.” And, third, even if the disclosures had been clearer, they would have still been problematic. While a disclosure can clarify a claim, it can’t contradict it. Here, the NAD thought the disclosures would contradict a reasonable interpretation of the claim – that the mascara is currently the best-selling one in the US (and has been for the past three years).

It’s no secret that “best-selling” claims should generally be supported by current sales data. What is more complicated is how often data must be refreshed and, if new data no longer supports that claim, how fast the claim must be removed. Although there aren’t clear answers to those questions, at least one court has suggested that advertisers need to move very quickly. Companies should give this careful thought when they make temporal claims, especially on things like packages, which can take a long time to change.

Does the NAD’s Capillus Decision Baldly Contradict the FDA?

On September 12, the NAD released its decision in its review of the Capillus82 hair growth device (Case #6107).  This case is unusual in that it addressed a challenge to a prescription-only medical device, and related closely to the FDA’s clearance of that product to be marketed.  The NAD took pains to emphasize that its decision did not contradict the device’s FDA-cleared indication for use, but did it really?

First, a little background on how the FDA treats medical devices of this kind.  Low-to-moderate-risk medical devices may be marketed without preapproval through what is known as the 510(k) clearance process.  Instead of being evaluated and approved by the FDA for safety and efficacy, the device can be “cleared” if it is “substantially equivalent” to a device that already is legally marketed.  The existing “predicate device” may itself have undergone full approval, or it too may be a 510(k) cleared device pointing to a yet earlier predicate device.  The device maker’s 510(k) submission must convince the FDA that the new device is technologically equivalent to the predicate device or is otherwise substantially equivalent in safety and effectiveness.  The intended use must be the same as that of the predicate device.  The process has been analogized to a generic drug approval predicated on chemical equivalence to an existing branded drug.

The Capillus82 is a hat with 82 laser diodes lining the inside.  Its intended use is to treat androgentic alopecia (i.e., slow hair loss) and promote hair regrowth in men and women having certain kinds of pattern baldness.  It received FDA 510(k) clearance in January 2017, with the predicate devices being the Hairmax Lasercomb and the iGrow II – no, I am not making these up – which used different form factors to apply laser light to the head, something that apparently promotes hair growth.  Clearance was applied for and granted on the basis that the Capillus82’s technology was the same as those of the Lasercomb, iGrow and other laser hair growth treatments, with minor differences that should have no impact on safety or efficacy. Continue Reading

Claiming Privacy Shield Participation on Your Website? Lessons from the FTC’s First Privacy Shield Enforcement Action

The Federal Trade Commission recently announced settlements with Decusoft, LLC, Tru Communication, Inc. (doing business as TCPrinting.net), and Md7, LLC, resolving allegations that the companies misrepresented their participation in the E.U.-US and Swiss-US Privacy Shield. The announcement comes just before the first Privacy Shield annual review (scheduled for September 2017) and marks the FTC’s first enforcement action related to Privacy Shield. This post provides a brief overview of the Privacy Shield framework, notable facts from the enforcement action, and key takeaways for companies.

Privacy Shield. The E.U.-US and Swiss-US Privacy Shield frameworks are an alternative transfer mechanism for companies to transfer E.U. and Swiss individual data to the United States in compliance with E.U. and Swiss data protection requirements. To participate in either framework, a company must self-certify to the Department of Commerce (“Commerce”) that it adheres to the Privacy Shield Principles. The FTC enforces compliance with the Privacy Shield framework under its Section 5 deception authority, and companies who misrepresent their Privacy Shield participation run the risk of an FTC enforcement action.

Charges and Settlement. All three companies claimed, in their respective online privacy policies and statements, that they were Privacy Shield framework participants.  These representations were either express or by implication. Notably, in the case of TCPrinting.net, the company’s privacy policy stated that it would “remain compliant and current with Privacy Shield at all times.” Contrary to these claims, none of the three companies completed the steps necessary to participate in the Privacy Shield framework. The FTC settlement prohibits the companies from misrepresenting the extent to which they participate in any privacy or data security program and imposes FTC reporting requirements for a 20-year period.

Key Takeaways.  Since 2009, the FTC has settled 36 cases involving claims of Safe Harbor participation, three cases involving alleged violations of Safe Harbor Privacy Principles, and four cases involving claims of participation in the Asia-Pacific Economic Cooperation (APEC) Cross-Border Privacy Rules (CBPR) system. As noted in the chart below, the FTC has been active in enforcing cross border privacy frameworks, and companies should expect this trend to continue.  As part of the Privacy Shield negotiations, the FTC committed to give priority to Privacy Shield non-compliance referrals received from EU Member States, Commerce, and privacy self-regulatory organizations and other independent dispute resolution bodies.  With the first Privacy Shield annual review forthcoming, these enforcement actions affirm that commitment.

Year FTC Enforcement Actions and Warning Letters
2009-2013 -10 Companies Settle Safe Harbor Charges
2014 -14 Companies Settle Safe Harbor Charges
2015 -15 Companies Settle Safe Harbor Charges
2016 -1 Company Settles APEC CBPR Charges
-FTC Issues Warning Letters to 28 Companies Regarding APEC CBPR Participation
2017 -3 Companies Settle APEC CBPR Charges
-3 Companies Settle Privacy Shield Charges

In light of this activity, companies should review their privacy policies and similar statements to ensure that claims about participation in or compliance with self-regulatory or governmental privacy related programs are up to date and accurate.

FTC Takes Action Against Social Media Influencers

This morning, the FTC announced that it had reached a settlement in its first-ever complaint against individual social media influencers and that it had sent warning letters to other prominent influencers. In addition, the FTC announced that it had updated previous guidance on influencer campaigns.

Settlement

The settlement involves Trevor Martin and Thomas Cassell, owners of CSGO Lotto, an online multi-player game. Martin and Cassell are also social media influencers who have gaming channels on YouTube with millions of followers. Starting in 2015, both men posted videos of themselves playing the game and discussing how they had won money. They engaged in similar activities on other platforms, including Twitter and Instagram. None of the videos or posts, however, mentioned any connection to the company. Martin and Cassell also paid other influencers to promote the game on social media. Most of individuals did not disclose their connections to the company and the few who did only did so “below the fold.”

Last year, various media outlets broke the news that Martin and Cassell ran the CSGO Lotto site. Many fans who had assumed that the men’s reviews were unbiased became upset, controversy followed, and the game shut down. Now we know that the FTC got involved, as well. As part of the proposed settlement with the Commission, Martin and Cassell are prohibited from misrepresenting that any influencer is an independent user. Instead, any connection between an influencer and the product being promoted must be disclosed in a “clear and conspicuous manner.”

Warning Letters

In April, we noted that the FTC staff had sent “educational letters” to more than 90 social media influencers, reminding them of their obligation to disclose any connection they have to the companies whose products they promote. Today, the FTC announced that they had sent new “warning letters” to 21 of those influencers.

The new letters cite specific posts that concerned the FTC staff and explained why those posts might not comply with the Endorsement Guides or the FTC Act. For example, some of the letters noted that the staff believe that tagging a brand is an endorsement of the brand. “Accordingly, if you have a material connection with the marketer of a tagged brand, then your posts should disclose that connection.” Other letters stated that simply thanking a brand is not a sufficient disclosure. And others reminded influencers that disclosures must be easy to find, and that consumers shouldn’t be required to click a link in order to find them.

Updated Guidance

The FTC also released an updated document with answers to frequently asked questions. This version includes more than 20 new answers addressing specific questions that marketers and influencers may have about whether and how to disclose material connections in their posts. For example, the document covers topics such as including tags in pictures, disclosures on Instagram, disclosures on Snapchat, how to disclose free travel, and terms that can be used in disclosures.

Stay tuned for more coverage of these developments.

“Free Speech in the Fog of Scientific Uncertainty” by Professor Jane Bambauer

In the following article authored by University of Arizona Law Professor Jane Bambauer, the professor makes a compelling argument that FTC/FDA regulation of health claims should focus on situations  where the government has compelling evidence of actual harm.   Professor Bambauer offers an opinion that high standards for health benefit claims can effectively silence commercial speech in areas where science may still be developing, to the detriment of consumers.   The current method of analysis, the Professor contends, does not give adequate weight to consideration of the consequences of prohibiting a claim that may actually be true – one of the six Pfizer factors that is regularly overlooked in substantiation analysis.

To read the article, please click here.

Will the FTC’s Deception Evidence Fall Short? Court to Rule in DirecTV Case

U.S. District Judge Haywood S. Gilliam Jr. said Friday that the court would pause the trial to consider whether the FTC presented sufficient evidence to support its allegations that DirecTV misled consumers by failing to adequately disclose the terms of its two-year subscription and introductory pricing offer.  The judge instructed attorneys for DirecTV to file their partial judgment motion and a brief on findings of fact within two weeks.  The FTC will then have two weeks to respond to the motion and submit its own findings of fact.

As we previously discussed here and here, the FTC is seeking almost $4 billion in equitable relief based on allegations that DirecTV misled consumers by failing to disclose that it would raise its monthly subscription price after a consumer subscribed for three months, and then again after a year.  The case involves alleged violations of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA).  Over the first ten days of trial, testimony has addressed an array of issues from the proportion of consumers who may have been misled, to the proper calculation of damages assuming they were misled.

Most recently, last Friday, attorneys for DirecTV questioned the FTC’s expert, University of San Francisco economics professor Daniel Rascher, on the basis for calculating that DirecTV should pay almost $4 billion in equitable relief.  DirecTV’s attorneys argued that the figure fails to account for what proportion of consumers were actually misled.  Rascher countered that his role was not to analyze and interpret the ads but to calculate unjust gains based on DirecTV’s customer billing data.  After Rascher’s testimony, the FTC rested its case and Judge Gilliam addressed DirecTV’s partial judgment bid by pausing the trial and giving DirecTV two weeks to brief the issues.

We’ll continue to monitor and post updates related to the case here.

TINA Has Eyes on Goop

The consumer advocacy non-profit Truth in Advertising, Inc. (TINA.org) has set its sights on Goop, the lifestyle brand launched by Gwyneth Paltrow.  In a complaint filed earlier this week with the Santa Clara and Santa Cruz County California district attorneys, both members of the California Food and Drug and medical Device Task Force, TINA alleges they found over 50 instances where claims were made that products Goop produces or promotes “can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing a number of ailments.”  TINA has requested that the California district attorneys investigate Goop’s marketing practices. 

This is not the first time Goop has been forced to defend claims that it promotes.  Last summer, the National Advertising Division took issue with claims related to using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  The NAD closed the case after Goop agreed to permanently discontinue the dust claims. Continue Reading

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