Welcome to the 2023 inaugural issue of our newsletter, where we explore litigation and regulatory trends and developments from around the food, dietary supplement, and personal care industries.  Like most everybody else, we’ve given up on our new year’s resolutions, so let’s go to the food court.

The Food Court – Vanilla Cases Melt Away But Other Ingredient Theories Rise

With courts expressing continued skepticism about vanilla bean false advertising theories, plaintiffs are targeting a slew of other ingredient-based false advertising angles.  For example, in Patoni et al. v. Spindrift Beverage Co., the plaintiff claims that Spindrift’s “clean” branding and messaging trumpeting that the drinks contain only water and fruit are false and misleading because the products also contain citric acid, which is plainly disclosed on the ingredient declaration.  Because many courts do not expect consumers to look beyond a product’s front panel to read ingredient declarations, those three words – yup, that’s it – which are pervasive in Spindrift’s branding, are likely to be highly significant because they expressly tell the consumer that there is nothing else in the products.

Where consumers are basing their lawsuits on assumptions rather than express claims, courts are more likely to view them as… half-baked.  An Illinois court dismissed a claim that Bimbo Bakery’s brown bread was falsely advertised because the bread’s dark color, visible flecks of grain and “brown bread” name caused consumers to believe it has a higher grain content, when it is actually made with enriched flour and has only 4% of the daily fiber value.  The court found that the plaintiff’s assumptions about the bread content were unreasonable.  Even if the bread’s color and obvious presence of grain suggested that the product had whole grains, it was no guarantee of the product’s precise grain content.  The court stated: No reasonable consumer could conclude what percentage of whole wheat the bread contains merely by these toppings.

Continue Reading Food + Personal Care Industry Insights – January 2023

While seventeen new state attorneys general are now sworn in and getting settled into their offices across the country, consumer protection continues to be the top of their agenda. Enforcement continues to take shape in different forms including individual actions, multistate investigations, and partnering with the Federal Trade Commission (FTC).  This year we expect states to target particularly salient issues such as dark patterns, autorenewal concerns, and/or data security and privacy, but those priorities will continue to evolve through discussions at the forums of their main national organizations.

For our first State AG webinar of the year, we dove into consumer protection in the Tennessee attorney general office with our guests, Chief Deputy Lacey Mase and Executive Counsel Jeff Hill. If you missed it, we’ve recapped what we learned.

Background of the Office

Unlike other states,  Tennessee is the only state where the AG is appointed by the state Supreme Court, with the AG serving for an eight year term. Qualified attorneys submit applications to the Supreme Court and are interviewed publicly before being selected to serve as AG.

Within the AG’s office, the Consumer Protection Division handles both consumer protection and antitrust work. The AG’s consumer protection priorities are constantly shifting in order to respond to consumer needs. The office evaluates whether resources should be allocated to large scale litigation needs such as multistate actions or whether there are smaller consumer concerns that need to be addressed within the state.

The Consumer Protection Division now houses the Division of Consumer Affairs which serves as the point of contact for consumer complaints about unfair or deceptive acts conducted within the state (until a few years ago, the Division was a separate agency). Tennessee does provide complaint mediation for consumers, where the office will routinely ask businesses for a response.

Continue Reading State AGs and Consumer Protection: What We Learned from….Tennessee

Mikayla Nogueira is a 24-year-old beauty influencer with over 14 million followers on TikTok. At last count, that’s more than the number of followers we have at Ad Law Access, so she must be doing something right. (Or perhaps we’re doing something wrong by neglecting our readers’ beauty needs, but that’s a topic for another day.) In any event, Mikayla recently shared a tip that “literally just changed [her] life” and figuratively just ignited a battle on the internet.

Last week, Mikayla posted a sponsored video in which she applied L’Oreal’s Telescopic Life mascara to her eyelashes and invited her followers to judge the results. And judge, they did. Some followers seemed skeptical that the product could achieve those results and many accused the influencer of wearing false eyelashes in the “after shot.” Mikayla responded: “Noooo omg loreal would never allow that in a partnered post!!! But ya’ll proving my point.”

Within hours, other influencers popped up all over the internet determined to disprove Mikayla’s point. They posted close-up photos of Mikayla’s eyelashes and explained to their own followers why those results couldn’t be achieved with mascara alone. Others defended Mikayla and felt confident that the product might just be that good. While forensic beauticians continue to debate the limits of what mascara can achieve, let’s consider this from an Ad Law standpoint.

Would the FTC allow an influencer to enhance the results of a product? “Noooo omg they would never allow that in a partnered post!” Although most recent enforcement actions have focused on whether influencers clearly disclose their connections to the companies they endorse, the FTC has noted that advertisers and influencers can be held liable for misleading or unsubstantiated representations regarding a product’s performance or effectiveness.

In the UK, the Advertising Standards Authority has addressed this more directly in guidance related to the use of filters for beauty products. “The use of filters in ads is not inherently problematic but is likely to become an issue if a filter exaggerates the efficacy of the product being advertised, and it will be the advertiser’s responsibility to demonstrate that is not the case.” The same would be true in the US (whether the efficacy is exaggerated through a filter or other means).

For more tips on how to manage influencer campaigns, click here. And for more beauty tips, click here

Instant Brands advertises that its Pyrex glass products are “Proudly Made in USA” and as “American as Apple Pie.” For many years, it appears that Instant Brands’ claims complied with the requirements set forth in FTC’s Made in USA Labeling Rule. But when the COVID-19 pandemic hit and consumers who were stuck at home turned to baking for solace, Instant Brands had trouble meeting the increased demand for its products and it had to look for options outside the country.

For about ten months between 2021 and 2022, Instant Brands shifted the production of some of its measuring cups to China. The company did not, however, shift its marketing strategy, and some ads still suggested that its products were made in the USA. According to the FTC, though, more than 110,000 customers who ordered measuring cups that were advertised as “Made in USA” on Amazon received products that were labeled as “Made in China.” That’s clearly not where apple pie originated.

(Incidentally, there are some who allege that apple pie actually originated in England, rather than America, but the FTC side-stepped that debate, and so will we.)

The FTC questioned whether Instant Brands could support its “Made in USA” claims. Even if the company could support the claims most of the time, the FTC argued that the change in the supply chain rendered claims during that ten-month period misleading. Ultimately, Instant Brands decided to settle the FTC’s investigation by agreeing to pay $129,000 and to make several changes to its marketing practices.

This settlement is an important reminder that advertisers have a continuing obligation to ensure they can support their claims at all times they are in the market. That’s true not only of “Made in USA” claims, but also of any other objective claims. If you’re no longer able to support a claim – even if you could at the time you first made it – you must generally change it or take it down. Click here for an extreme example of how that principle can apply to comparative claims.

“Made in the USA” claims are going continue to be a hot topic for the FTC. Click here for more posts related to those claims. And click here for more posts related to baking.

Pyrex Ad

Update: On February 6, 2023, a plaintiff filed a class action lawsuit against Instant Brand over the same claims that were challenged by the FTC.

The Federal Communications Commission (“FCC” or “Commission”) is seeking comments on a Notice of Proposed Rulemaking (NPRM) to refresh its customer proprietary network information (“CPNI”) data breach reporting requirements (the “Rule”).  Adopted earlier this month by a unanimous 4-0 vote of the Commission, the NPRM solicits comments on rule revisions that would expand the scope of notification obligations and accelerate the timeframe to notify customers after a data breach involving telephone call detail records and other CPNI.  The FCC cites “an increasing number of security breaches of customer information” in the telecommunications industry in recent years and the need to “keep pace with today’s challenges” and best practices that have emerged under other federal and state notification standards as reasons to update the Rule.

According to the current Rule, a “breach” means that a person “without authorization or exceeding authorization, has intentionally gained access to, used, or disclosed CPNI.”  As summarized in the NPRM, CPNI includes “phone numbers called by a consumer, the frequency, duration, and timing of such calls, the location of a mobile device when it is in active mode (i.e., able to signal its location to nearby network facilities), and any services purchased by the consumer, such as call waiting.”  (The NPRM does not propose any changes to the definition of CPNI.)

Continue Reading FCC Seeks Comments on Updates to CPNI Breach Reporting Rule

Join Kelley Drye in a discussion to explore how the FTC’s proposed ban may impact your company and get practical tips on how employers can prepare for a world with endangered noncompetes.

We will cover the following topics:

  • What exactly would the proposed rule prohibit?
  • Could a rule this sweeping become final?
  • What can we expect in the next several months?
  • What should employers do to prepare? 

To RSVP for this webinar, please click here.

These days, consumers can obtain everything from newspapers to meal kits to credit monitoring services through subscriptions. The prevalence of these services, and the ease with which consumers can sign up, have gotten the attention of regulators who are concerned that some negative option marketing might confuse or trick consumers. The CFPB, FTC, and state AGs have been particularly vocal about practices they deem “dark patterns,” and continue to focus on the area.     

Today, the CFPB put out guidance warning covered companies and service providers that “dark patterns” surrounding negative option marketing violate the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices. As the circular makes clear, the CFPB has already brought enforcement actions alleging deceptive practices around negative options (see this case against a consumer reporting agency, and this case against a company that provided registration and payment services to organizers of events and races). The announcement also notes that the CFPB’s approach to negative option “dark patterns” is generally harmonized with that of the Federal Trade Commission (the FTC put out its own Enforcement Policy Statement Regarding Negative Option Marketing in October 2021). The guidance highlights the need for companies using negative option marketing to ensure that consumers: 1) understand the material terms of the negative option; 2) provide informed consent before being charged; and 3) are able to easily cancel recurring charges.

Continue Reading Regulators Continue to Focus on “Dark Patterns” in Negative Option Marketing

By now, most of our readers have likely heard about the FTC’s proposed rule to ban noncompete clauses in employment contracts, including from Kelley Drye’s other posts on the topic discussing the sheer breadth of the proposal and the potential implications for employers.  In this post, we zero in on an issue that merits a lot more attention than it’s getting – namely, the serious legal and practical questions that the FTC’s proposal raises.  

Brief recap of how we got here and what the rule would require

This is the first of many rulemakings that the FTC has said it will launch based on its supposed authority to issue rules banning “unfair methods of competition” (“UMCs”) under the FTC Act. Notably, starting with a statement of regulatory priorities submitted to OMB in December 2021, the FTC has said repeatedly that it may launch multiple competition rulemakings based on this authority (as well as multiple consumer protection rulemakings based on its Magnuson-Moss authority, which it has done). More recently, the FTC issued a policy statement taking an expansive view of what’s an UMC, so the scope of the FTC’s intended reach here could be very broad indeed.   

Continue Reading The FTC’s Proposal to Ban Noncompetes is on Shaky Legal Ground

The Federal Trade Commission’s (“FTC”) proposed rule banning the use of non-competes with employees and workers could regulate nearly every employer in the nation. If a final rule emerges from this proposal it could potentially prohibit non-disclosure, non-solicitation, and non-recruitment agreements and functional non-compete clauses. How can individual firms and industry groups alike weigh in on one of the most substantial regulatory actions facing employers right now? And what should businesses do to prepare? Kelley Drye’s Labor and Employment practice shares practical guidance to help employers prepare for a world without noncompetes.

Mark Konkel, chair of Kelley Drye’s Labor and Employment practice, details what employers need to know – https://www.labordaysblog.com/2023/01/ftc-insights-how-employers-can-prepare-for-a-world-without-noncompetes/  

On Friday, the FTC announced what would ordinarily be an unremarkable enforcement action against a company for unsubstantiated earnings claims.  The FTC alleges that WealthPress, an investment advice company purporting to offer training from experts on trading strategies, made a series of unsubstantiated earnings claims such as “make $24,840 or more every single week,” “track the BIG money,” and the opportunity may “quite literally transform your life.”

The case marks two important firsts for advertisers offering products or services through automatic renewal terms and for companies making money-making claims or using endorsements and testimonials.  Specifically, the action is the first time the FTC has obtained civil penalties under the Restore Online Shoppers’ Confidence Act (ROSCA).  The FTC also made good on its promise to bring cases under its Penalty Offense Authority, marking the first time the FTC has obtained civil penalties from a recipient of its Penalty Offense Notice for Money-Making Claims.

Civil Penalties for Misrepresentations related to Automatic Renewal Terms under ROSCA

The FTC previously laid the groundwork for the ROSCA count against WealthPress in its 2021 action against MoviePass, which we discussed here.  In that case, the FTC alleged that MoviePass violated ROSCA by deceptively advertising its passes as offering “one movie per day” and then preventing subscribers from using the service as advertised.  While that settlement did not include civil penalties, then-Commissioner Phillips dissented on the grounds that ROSCA could not be fairly interpreted as addressing any claim about the characteristics of a product/service subject to an automatic renewal term.  Instead, ROSCA authorizes civil penalties for failure to clearly and conspicuously disclose “all material terms of the transaction” before obtaining a consumer’s express informed consent to the negative option offer.

That tension is also present in the WealthPress case – with Commissioner Wilson issuing a concurring statement on the 4-0 vote (Commissioner Phillips’ former slot remains open) stating that she supports “the inclusion of a ROSCA count in this complaint under the highly specific circumstances presented here.”  Commissioner Wilson goes on to explain that the defendant made the deceptive claims “part of the terms of sale” by including a disclosure about profitability in the Terms and Conditions that consumers consented to at purchase.  She notes that “[i]nformation of this type that appears in another format, though, may more appropriately be viewed as a claim about the good or service and not a term of the transaction,” which would render it outside the scope of ROSCA.

Other Commissioners appear to be less cognizant of that distinction, such that any advertiser offering an automatic renewal feature could be on the hook for civil penalties for alleged misrepresentations if the FTC views the misrepresentation as part of the “material terms of the transaction.”

Civil Penalties under Penalty Offense Authority

While the FTC has brought many actions involving earnings and opportunity claims (including one in November that explicitly references the Penalty Offense Notices), the WealthPress case marks the first time that the FTC has obtained civil penalties against an advertiser following receipt of its Penalty Offense Notice for Money-Making Claims

Many of the claims identified in the complaint are quintessential examples of aggressive claims likely to garner regulatory scrutiny, whereas others are more mundane, such as “we give you everything you need, and if you’re a beginner not a problem.”  The FTC also notes that disclaimers in the Terms and Conditions (for example, “The past performance of any trading system or methodology is not necessarily indicative of future results”) were incapable of qualifying the aggressive earnings claims made elsewhere.

In addition to Penalty Offense Notices concerning Money-Making Claims, the FTC has issued notices concerning Endorsements and Testimonials and For-Profit Educational Institutions, which may be the next target for civil penalties under the Penalty Offense Authority.