In recent months, companies have scored some notable victories in lawsuits involving various types of green claims, including carbon emission claims, aspirational claims, and recyclability claims. As we noted in some of those posts, the decisions may have turned out differently if the cases had been heard by NAD. A new decision in a challenge that NAD initiated against various claims made by the American Beverage Association (or “ABA”) shows how strictly NAD reviews these types of claims.

NAD found that several of ABA’s claims – including claims that “our bottles are made to be remade,” “we’re carefully designing our bottles to be 100% recyclable, and that the association was “increasing awareness about the value of 100% recyclable plastic bottles” – were substantiated. But NAD came to a different conclusion on other claims that, in NAD’s view, may have exaggerated the results of ABA’s efforts. Here are some of the highlights.

Although NAD determined that certain bottles could be recycled in 60% or more recycling programs nationwide, NAD found that ABA’s claim that “they’re collected and separated from other plastics so they can be turned back into material that we use to make new bottles” conveys a message that the bottles are recycled (as opposed to a message that they can be recycled). NAD held that “the challenged claim does not make clear that this is a goal towards which the companies are working to achieve.”

NAD also determined that ABA’s claim that it is “working with World Wildlife Fund through their ReSource: Plastic to reduce our plastic footprint” is “an objective claim that requires substantiation, even if it is premised on a third-party tracking mechanism tied to an aspirational goal.” NAD had several concerns about the mechanism. For example, a WWF report had “identified several flaws in the data collection” and cautioned readers “about significant data assumptions and limitations.”

NAD also inquired about ABA’s claims about its efforts to “modernize the recycling infrastructure in communities across the country.” NAD found that ABA’s efforts are occurring in some communities in many states, but not broadly in communities “across the country,” as the claim states. In addition, NAD found that although ABA had made some noteworthy progress, some of that progress “does not necessarily relate to infrastructure modernization.”

ABA has indicated that it will appeal parts of the decision, so we may not have the last word on this yet. Nevertheless, the case suggests that green claims continue to be a high priority at NAD. (Indeed, several of the recent cases involving green claims were initiated by NAD itself, as opposed to being initiated by competitors.) It also shows how carefully NAD will parse words in claims and how deeply it will dive into the evidence presented. We expect this trend to continue.

In January, we reported that the Texas Attorney General had filed a lawsuit against Google alleging that the company engaged iHeartMedia DJs to provide endorsements for its Pixel 4 phone, even though they had never used it. This week, the FTC and several state attorneys general announced settlements with Google and iHeartMedia over the same conduct. The complaints provide more insights into what may have happened behind the scenes.

According to the FTC and states, Google hired iHeartMedia and other radio networks in 2019 to have DJs read ads for the Pixel 4 phone. GooglePixel 4 provided scripts that included endorsements written in the first-person. For example:  “It’s my favorite phone camera out there, especially in low light, thanks to Night Sight Mode;” “I’ve been taking studio-like photos of everything;” and “It’s also great at helping me get stuff done, thanks to the new voice activated Google Assistant that can handle multiple tasks at once.”

Despite the first-person endorsements, the FTC and states allege that most of the DJs who made these statements had never used a Pixel 4 phone. Apparently, iHeartMedia recognized the problem and asked Google to provide phones for its DJs. Google responded that it couldn’t provide the phones, and instead provided a link to a webpage about the phone’s features. Although Google ultimately provided five phones, more than 40 DJs recorded endorsements using Google’s scripts.

The proposed FTC orders and the state settlements with Google and iHeartMedia bar both companies from misrepresenting that an endorser has owned or used a product and from misrepresenting their experience with certain products. In addition, the settlements impose ongoing recordkeeping, cooperation, compliance monitoring and recordkeeping on the companies.  Collectively the settlements also require the companies to pay $9.4 million in penalties. Texas settled with iHeartMedia, but their case against Google seems to be ongoing.

This case holds valuable lessons for companies using influencers or other endorsers. It’s common for companies to provide talking points for their endorsers. There’s nothing inherently wrong with that – in fact, it can help companies and endorsers steer clear of misleading claims. But keep in mind that endorsements must reflect an endorser’s honest opinions, beliefs, or experiences with the products, so you need to avoid scripting those too much.

Time is money, and when you’re hungry for mac-and-cheese, a few seconds can be worth millions of dollars. Or at least that’s what a Florida woman suggests in her class action lawsuit against Kraft Heinz over a claim on single-serve cups of Velveeta Shells & Cheese stating that the product can be “ready in 31/2 minutes.”

Alas, life isn’t always that easy, and a close look at the instructions reveals that 31/2 minutes isVelveeta Package just the amount of time it takes for the product to cook in the microwave. You also need to do things like remove the lid, add water, and stir. That takes extra time, so our woman in Florida argues that the claim on the front of the package is false and misleading.

(The woman doesn’t say how long it took her to complete these extra steps, but in our tests, a person with moderate culinary skills can manage them in under 60 seconds. You may quibble and say that if I had waited for the cheese to thicken, it would have taken longer. But I’d tell you that if I didn’t have two dogs underfoot, I could have moved faster. So let’s call it 60 seconds.)

The extra 60 seconds may not be a big deal to some, but the plaintiff argues that underestimating cook time “offends established public policy and is immoral, unethical, oppressive, and unscrupulous to consumers.” It has shaken her faith not only in the instructions for this particular product, but also for “other similar products that claim they are ready in a specific amount of time.”

The plaintiff claims that she and other class members who endured extra minutes of hunger have suffered over $5 million in damages. But the case isn’t just about the money. The plaintiff also wants the court to order Kraft Heinz to “engage in a corrective advertising campaign” to inform consumers that the product takes longer than 31/2 minutes to be ready for consumption.

What can you learn from this suit? If you’re a business, review claims to make sure they are as precise as possible. Even though Kraft Heinz will likely win this case, a slight change in wording may have helped them avoid it, in the first place. If you’re a consumer who is pressed for time, review cooking instructions before you buy something. Five seconds up-front could save you 60 seconds of frustration later.

Imagine that Megan Thee Stallion told you that by investing as little as $1 in Bitcoin, with herMegan Thee Stallion Ad knowledge and your hustle, “you’ll have your own empire in no time.” Would you think that $1 is all you need to amass a fortune? No, I wouldn’t either. What if Megan was stacking shiny bars of gold while she told you that? I still wouldn’t be convinced, but if you’re on the fence, NAD is looking out for you in a recent decision involving an ad for Cash App.

NAD initiated its own inquiry into the ad, worried that viewers who may not be familiar with the “risks associated with investing or the volatility associated with Bitcoin” might be misled into thinking that it’s easy to build an empire of their very own. The advertiser argued that the “empire” claim was puffery, and that no reasonable consumer would think that they could amass a personal fortune by investing $1 in Bitcoin through Cash App. NAD wasn’t convinced.

Although the express claim that “you’ll have your own empire in no time” standing alone might be puffery, NAD was concerned that “it is accompanied by images of bouncing coins beside accumulating gold bars.” Even if reasonable consumers understand that the claim “exaggerates the expected results from investing in Bitcoin on the Cash App,” NAD was worried that the ad may still convey “a message that consumers can achieve significant wealth with small investments.”

The advertiser noted that a disclosure warns that “investing has risks” and “you may lose money” and that Megan tells viewers that the price of Bitcoin “can go up and down by the hour.” NAD wasn’t swayed. The on-screen disclosure appeared in “a long mice-type super” that consumers were likely to miss. Although the audio disclosure was “spoken slowly and clearly,” NAD didn’t think it was enough to counter the “net impression” of the ad “that Bitcoin investing generates significant wealth with minimum investment.”

In this decision, NAD seems to take a narrow view of what constitutes puffery and a broad view of how viewers will interpret the ad. It’s hard to say whether NAD is likely to take this approach on all ads or whether NAD thought that the audience for this ad was particularly vulnerable and likely to be misled. Either way, this case demonstrates that there can be a very thin line between puffery and a claim (and a very wide line between $1 and a stack of gold bars).

This month, the DC Superior Court dismissed a lawsuit brought by Earth Island Institute against Coca-Cola, alleging that the company falsely represents itself as “a sustainable and environmentally friendly company, despite being one of the largest contributors of plastic pollution in the world.” The court held that many of the challenged statements are aspirational and do not include anything that can be measured to determine whether they are true or false.

Just two weeks later, Coca-Cola scored a second victory, this time in a case brought by the Sierra Club and a group of consumers over claims that certain water bottles were “100% recyclable.” The plaintiffs alleged that the claims were false and misleading because most plastic bottles are not recycled. Plaintiffs argue that most bottles end up in landfills or incinerators due to a lack of recycling capacity and a lack of demand for recycled plastics.

In a short opinion, a California federal court determined that “no reasonable consumer would understand ‘100% recyclable’ to mean that the entire product will always be recycled or that the product is ‘part of a circular plastics economy in which all bottles are recycled into new bottles to be used again.’” Instead, the court held that “recyclable” simply means that a product is capable of being recycled. The plaintiffs’ interpretation of the word ran counter to common sense, the FTC’s Green Guides, and California law.

This decision is good news for Coca-Cola and any other company that wants to advertise that a product is “recyclable.” Had the plaintiffs prevailed, that could have resulted in a standard that would require companies to foresee whether a product will actually be recycled before advertising that it can be recycled. Not only is that standard unworkable, if companies were prohibited from informing consumers that a product can be recycled, it’s likely that even fewer products would be recycled.

We’re likely to see a lot more activity in this area over the coming months, both in terms of litigation and (eventually) in terms of the FTC’s eagerly-awaited update to the Green Guides. Stay tuned.

This week, the World Cup kicked off amidst cheers and chants from the fans who had made their way to Qatar to watch the games. Although most fans chanted in support of their teams, Ecuadorean fans in one section of Al Bayt Stadium had a different message: “Queremos cerveza, queremos cerveza.” They want beer. Sadly for them, there is no beer to be had after the government in Qatar made a last-minute decision to ban sales at all World Cup stadiums.

If the fans from Ecuador are unhappy about the ban, imagine how unhappy Budweiser — who paid $75 million to sponsor the World Cup — must be.

Those of us who work on sponsorship agreements probably reacted to the news the same way — by  wondering about what’s in the agreement between Budweiser and FIFA. Although we may never know the details, given Qatar’s history of tight restrictions on alcohol and the lessons that both sponsors and event organizers have learned after more than a year of COVID-related cancellations, it’s likely that the parties contemplated this possibility and addressed it in the sponsorship agreement.

When you’re negotiating a sponsorship agreement, it’s important to spend some time at the outset thinking about what will happen if an event is cancelled, altered, or you don’t otherwise get the benefits you paid for. For example, do you have a right to cancel the agreement? If so, what will happen to the money you’ve already paid? Or do you have the ability to get make-good benefits? If so, how will those be determined?

There isn’t a one-size-fits-all approach to these issues, but if you want some things to consider, grab a cerveza and listen to this podcast that we recorded earlier this year. Just don’t try to do that if you’re sitting in a stadium in Qatar. The podcast will still be here when you get back.

Since Lina Khan took the reins of the FTC, the agency has launched five new rulemakings under its Section 18 (“Mag-Moss”) authority – specifically, rules to combat government and business impersonation scams, deceptive earnings claims, “commercial surveillance,” deceptive endorsements, and “junk fees.” (I’m excluding here revisions to existing Mag-Moss rules, as well as rulemakings under other statutory authority.) While much has been written about how long Mag-Moss rulemakings generally take to complete (including by us, here), at least one of these rulemakings is proceeding apace – the first one, involving impersonation scams.

Indeed, the FTC issued its ANPR in December 2021, seeking comment for 60 days. Then, in October of 2022, it released its NPR proposing rule text and seeking comment for another 60 days (until December 16). At this point, it seems possible that the FTC could complete the process shortly after the comment period closes, just a little over a year after it started. That’s because one of the key steps under Mag-Moss – an informal public hearing – is only necessary if the FTC determines that it is, or if an interested party requests one. (See FTC Rules of Practice 1.11.) The FTC has said that no hearing is necessary and, so far, we’re unaware of any hearing requests from stakeholders.

Why is this rule moving so fast? Mainly because, for the most part, it’s a narrow, targeted rulemaking to ban practices that everyone agrees are fraudulent, and that have been the subject of many dozens of FTC cases. It’s also based solely on deception, which is far more straightforward than unfairness. For these reasons, even when the FTC was split 2-2 with the Commission sharply divided, both Republicans voted for this rule, paving the way for quick action and signaling to the public that there’s nothing controversial here.

Means and Instrumentalities

One key aspect of this rulemaking isn’t so simple, however, and requires more attention than it’s getting. Specifically, the proposed rule (which, in four short provisions, bans falsely posing as, or misrepresenting affiliation with, a government entity or business) tacks on a prohibition against providing the “means and instrumentalities” to engage in the banned practices. The NPR explains that means and instrumentalities (aka “M&I”) is a form of direct liability under Section 5 that’s distinct from secondary liability theories not allowed under Section 5. As the NPR states:

[T]he case law describes a form of direct liability for a party who, despite not having direct contact with the injured consumers, ‘passes on a false or misleading representation with knowledge or reason to expect that consumers may possibly be deceived as a result.’ In other words: ‘One who places in the hands of another a means of consummating a fraud or competing unfairly in violation of the Federal Trade Commission Act is himself guilty of a violation of the Act.’ (citations omitted)

In fact, while the FTC doesn’t use the M&I theory every day, it has done so over the years (in both litigated cases and settlements) to challenge the “passing along” of deceptive promotional materials, badges, logos, or other items. Still, the precise contours of this legal theory remain somewhat murky. That murkiness raises special concerns where, as here, rule violations could lead to hefty civil penalties.

Strict Liability?     

The confusion here starts with the NPR, which sends mixed messages as to whether knowledge is an element of an M&I violation. The passage from the NPR cited above (referencing “knowledge or reason to expect” consumers may be deceived) suggests that knowledge is required. However, the proposed rule itself doesn’t mention knowledge. Does this mean, then, that a supplier or middleman could be strictly liable if he or she unwittingly passes along misleading claims to purchasers who then uses them to deceive consumers? Yes, it’s possible. Here are some points to consider:

First, knowledge isn’t an element of deception generally, and FTC precedent suggests that it isn’t an element of means and instrumentalities either, at least not technically. For example, the FTC’s recent complaints against ECM Biofilms, Office Depot, and Nerium all include M&I counts that don’t mention knowledge. The same is true in Shell Oil and C. Howard Hunt, two earlier cases that the FTC cites in its NPR.

On the other hand, the facts cited in M&I cases often (though not always) include evidence of knowledge, even if knowledge is absent from the complaint count. In Office Depot, for example, the complaint describes how (the entity charged with M&I) deliberately furnished Office Depot with a deceptive software program in order to mislead consumers into thinking they needed to buy computer repair services. See also Waltham Watch (court stressed that watch manufacturer knowingly furnished deceptive claims to distributors); Shell Oil (statement accompanying order said Shell knowingly passed along deceptive claims); and Nerium (complaint says Nerium encouraged its partners to make deceptive health claims).

In addition, a 2021 blogpost from former BCP Director Andrew Smith describes means and instrumentalities as “providing a false representation (or a forged or counterfeit item) to another with knowledge that it was possible that the means could be placed in the stream of commerce and passed on to consumers….”

Finally, there’s been debate over the years about the contours of means and instrumentalities, with some Commissioners saying that others are using it as a substitute for “aiding and abetting,” a form of secondary liability not within Section 5 (and that, incidentally, requires proof of knowledge). For example, in his dissent in Shell Oil, then-Commissioner Swindle said that because the claims Shell passed along to marketers were different from the claims ultimately made to consumers, Shell didn’t make its own deceptive claims through intermediaries as required for M&I liability, but at most engaged in aiding and abetting. (See also the partial dissent of then-Commissioner Ohlhausen in the FTC’s case against TRUSTe.)

While some of this gets fairly legalistic, their overarching points are that (1) it’s a big deal to hold someone liable for deceptive claims made by another, and there should be clear legal criteria for doing so; and (2) M&I means that a person or entity has disseminated their own claims through an intermediary.

Bottom Line  

The FTC’s bare bones rulemaking proposal doesn’t clear up any of these issues and questions. Further, while my research was hardly exhaustive, it suggests that the case law won’t provide quick and easy answers either. With the rulemaking barreling towards completion with an M&I provision on board, stakeholders who may be concerned about these issues should consider (1) submitting comments to the FTC asking for clarification in the final rule and/or (2) requesting an informal hearing to address these questions. (See here for more information.)

We will also be watching carefully to see whether the FTC includes similar means and instrumentalities provisions in the many other rules it is developing.

Earlier this month at the 2022 NAAG Consumer Protection Fall Conference panelists including current and former AG personnel discussed recent consumer protection legislation and rulemakings that have been implemented or proposed, as well as recent court actions affecting consumer protection laws to provide AGs and staff a year in review.

In the wake of the Supreme Court’s unanimous decision in AMG, which held the FTC could not obtain monetary redress under Section 13(b) of the FTC Act, the agency has since been exploring new ways to expand its civil penalty and restitution authority. Efforts in Congress to amend the law have so far failed. Given the cumbersome process to proceed administratively, the panel touched on the FTC’s issued rulemakings mostly brought under its Mag-Moss authority, including proposed changes to endorsement guides and an ANPR on junk fees, impersonation fraud, and earning claims. The panel also noted that it remains to be seen whether, as the FTC had previously committed, we will see more state partnerships with the FTC in combined enforcement efforts.

With emergencies ebbing and flowing this year, price gouging continued to be a focus for the states this year.  New York announced a rulemaking on price gouging. Some constituents fear that New York will broaden the definition of “excessive” price, while others have noted appreciation for further clarification of the undefined standard. Like most price gouging laws, New York’s law was originally designed to address life or death emergency situations creating an irregular marketplace. Two cases will be interesting to watch as they unfold because they will give greater clarity on outer bounds of state price gouging laws. Texas v. Cal-Maine Foods Inc. and NY v Quality King were brought early in the pandemic against non-consumer-facing companies. Allegations involved pandemic-related price gouging that was trickling down to consumers. Both cases were initially thrown out on a motion to dismiss. But, over the summer, both cases went up on appeal and were overturned and remanded back to the trial court.

Similarly, states have increasingly turned their attention to automatic renewal legislation. Panelists noted that Washington announced study results on recurring charges and signaled their interest in enforcement efforts in that area. Panelists partly attributed this shift to how subscription services are playing a more prevalent role in this different economy, and others noted the similarities between these issues and so-called dark patterns.

While states realize the need to legislate for consumer protection, there is also a need to create a regulatory clarity for businesses that want to operate in this space. We will continue to provide updates as these conversations continue among State AGs.

On Thursday, November 10th, the Colorado Attorney General’s Office held the first of three stakeholder meetings on its Colorado Privacy Act draft rules. The initial meeting covered Universal Opt Out Mechanisms (UOOMs) and consumer rights. Pre-registered participants were given three minutes to present on each topic. AG staff then posed a variety of questions, encouraging input and engagement between participants.

Universal Opt Out Mechanisms (UOOMs)

Participants provided a variety of suggestions regarding UOOMs. Consumer rights groups recommended requiring data minimization, preventing controllers from collecting more personal information than necessary to complete the transaction, and requiring that opt-out signals not be intrusive. Industry commenters focused on companies needing more time to implement UOOMs. Commenters noted that the rules could provide additional guidance related to authenticating the residency of users. Some asserted that Colorado should avoid requiring technical specifications, as they could stifle innovation and create additional regulatory burdens. Others suggested how controller obligations could be clarified, including around secondary uses.

Afterwards, AG staff posed the following questions about UOOMs:

  • What are potential benefits and concerns associated with recognizing certain default tools as valid UOOM mechanisms?
  • What are additional processes the AG’s office should consider for authenticating consumers’ residency, and what are some pros and cons of those processes? Are there any good alternatives to IP addresses for authentication?
  • What are the challenges with ‘Do Not Sell’ lists?
  • What is an appropriate cadence for updating the Department’s list of valid UOOMs?  What is an appropriate timeframe for businesses to implement UOOMs after the list is published?
  • What standards should an UOOM meet to be included on the Department’s list?
  • Should businesses be required to indicate that they have processed opt-out requests transmitted through a UOOM?

Responses to these questions echoed participants’ previous comments, although some participants were not prepared to address specifics. Participants agreed that the time frame for controllers to implement UOOMs should be at least 6 months, but more appropriately 9 to 12 months to account for the time required by design cycles.

Consumer Rights

On consumer rights, participants provided thoughtful suggestions, including that the rulemaking be free of legal jargon, provide consumers meaningful control over data, and prioritize consumer rights over other considerations.

AG staff asked the following questions about consumer rights:

  • What does it mean to offer a “clear and conspicuous” method for opting out of consumer requests?
  • Right of access: In what form should a controller provide personal data to a consumer in response to an access request? What is the right balance between creating an accessible format and providing all of the information requested? What would be the effect of adding “to the extent feasible” to the draft rules?
  • Right to correction: How can language of the rule be used to deter controllers from abusing the purpose of this provision? When consumers and controllers disagree on accuracy, what should happen?
  • Right of portability: Regarding the trade secret exemption – when can algorithms be reverse engineered from disclosing an inference?
  • Do authorization requirements sufficiently consider identity theft?
  • Appeal process: Would additional rules be helpful? Which part of the appeal process needs the most clarification?

Commenters observed that documents presented by authorized agents can be falsified, raising questions of whether a centralized registry or software solution would provide greater assurances of authenticity.

We will continue to monitor rulemaking developments in Colorado.

In today’s open meeting, the FTC voted unanimously to issue an Advance Notice of Proposed Rulemaking (ANPR) considering expansions to and revisions of the FTC’s existing Business Opportunity Rule (“BOR”). This will be the first review of the BOR since it was promulgated back in December 2011.  In her statement announcing the ANPR, Chair Khan indicated that “[t]he rule had served the public well over the years,” but “several varieties of scams . . .  fall outside the scope of the existing rule, [including] certain kinds of business coaching and work-from-home programs, investment programs, and e-commerce opportunities.” In a familiar refrain in the FTC’s push for rulemaking, Chair Khan argued that “case-by-case enforcement has key limitations—especially after the Supreme Court’s AMG decision” finding that the FTC lacked authority to obtain equitable monetary redress under Section 13(b).

Notably, the ANPR did not identify specific proposals under consideration for expanding the scope of the Rule other than to highlight work-from-home programs, investment coaching programs, and e-commerce opportunities as generally outside the scope of the current BOR.  The ANPR also notes that the Commission may consider comments previously submitted in response to the ANPR on Earnings Claims as an admittedly related endeavor (which we discussed here) and noted that it  “solicited and received comments about the following industries: multilevel marketers, for-profit schools, and gig platforms” for that ANPR.  Today’s ANPR does not otherwise specifically address direct selling companies, for-profit schools, and/or the gig economy, although it remains possible that revisions to the BOR could potentially sweep in practices of those groups.

What is the “Business Opportunity Rule”?

The BOR as currently written applies a “commercial arrangement” in which a “seller solicits a prospective purchaser to enter into a new business”; the “prospective purchaser makes a required payment”; and the “seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will” either (1) provide locations for the purchaser’s equipment, such as a vending machine; (2) provide outlets, accounts, or customers for the purchaser’s goods or services; or (3) buy back any or all of the goods or services that the purchaser makes or provides.  The BOR was an outgrowth of the initial Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures Rule, which was later divided into the Franchise Rule and the BOR.

The BOR requires sellers of business opportunities to provide a highly prescriptive disclosure document that includes information about possible earnings and related substantiation, involvement in certain legal actions, cancellation or refund policies and related terms, and a list of references who have purchased the business opportunity in the last three years.  The current BOR also includes a list of prohibited claims and misrepresentations and prescribes requirements for sales in languages other than English.

What is the FTC Seeking Comment on?

The ANPR seeks comments on a series of specific and general issues related to the BOR, including:

  • Whether the BOR or any specific provisions of the BOR should be retained, eliminated, or modified;
  • Whether the BOR should be expanded to more broadly cover other types of moneymaking or business opportunities, including coaching or mentoring programs, e-commerce opportunities, and investment opportunities;
  • Whether the BOR overlaps or conflicts with other federal, state, or local laws or regulations;
  • Whether there amendments are necessary to address practices that disproportionately affect low-income communities, communities of color, and other historically underserved communities.

Interested parties will have 60 days after the ANPR is published in the Federal Register to provide comments and feedback. While Commissioner Wilson has not consistently voted for new ANPRs, she voted affirmatively for this ANPR and highlighted in the open meeting the need to correct information symmetries of the market and allow potential investors to make better decisions.