CA Court Considers When Disclosures Can Modify Claims

Pop quiz: If you purchased a bottle of “One A Day” gummy vitamins, would you: (a) assume that you should take one a day; or (b) check the back of the label to figure out how many you should take? If you answered (a), and didn’t check the back of the label, you might have been surprised. That’s one of the issues in a putative class action pending against Bayer in California.

Despite the name of the product, the back panel of a bottle of “One A Day” gummy vitamins directs consumers to “chew two vitamins daily.” In 2016, a One-A-Day Bottleconsumer filed a putative class action against Bayer, arguing that the name of the product is misleading because it suggests that people only need to take one vitamin per day, when the company recommends otherwise. Bayer disagreed, arguing that consumers carefully read labels to look for nutritional values and, thus, that the disclosure on the back panel prevents the name of the product from being misleading. Although the lower court agreed with Bayer and dismissed the case, last week, a California appellate court reversed the dismissal.

“The front of the product makes no attempt to warn the consumer that a one-a-day jar of gummies is in fact full of two-a-day products.” Instead, consumers have to turn the bottle over to find a direction that they should chew two vitamins daily. (The court worried that this direction appeared “in the smallest lettering on the bottle, an ocular challenge even when the bottle is full-sized and held in good light.”) The product name made things worse. Although consumers may be more likely to look for the directions “if this product were called Gazorninplat Gummies or Every Day Gummies,” that isn’t the case here. “The front label fairly shouts that one per day will be sufficient.”

Although this case is still pending, it illustrates a critical point about disclosures. As the court put it: “You cannot take away in the back fine print what you gave on the front in large conspicuous print.” Lesley Fair at the FTC has made that same point slightly differently: “What the headline giveth, the footnote cannot taketh away.” Either way, keep in mind that there are limits to what you can do with disclosures. Although they can help to prevent a claim from being misleading, they only work if (a) they are presented in a “clear and conspicuous” manner and (b) they clarify, rather than contradict, the claim.

CTIA Launches Internet of Things Cybersecurity Certification

Last month, CTIA, the wireless industry association, launched an initiative through which wireless-connected Internet of Things (“IoT”) devices can be certified for cybersecurity readiness.  According to the CTIA announcement, the CTIA Cybersecurity Certification Program (the “Program”) is intended to protect both consumers and wireless infrastructure by creating a more secure foundation for IoT applications that support “smart” cities, connected cars, mobile health apps, home appliances, and other IoT-enabled environments.

The Program was developed in collaboration with the nationwide wireless carriers, along with technology companies, security experts and test laboratories, and builds upon IoT security recommendations from the National Telecommunications and Information Administration (NTIA) and the National Institute of Standards and Technology (NIST).  According to the Program Test Plan, devices eligible for certification include those that contain an IoT application layer that provides identity and authentication functionality and at least one communications module supporting either LTE or Wi-Fi networks.

A device submitted for certification will undergo a series of tests at a CTIA-authorized lab.  The testing will assess the device for one of three certification levels or “categories.” To obtain a Category 1 certification, the device will be reviewed for the presence of “core” IoT device security elements, including a Terms of Service and a customer-facing privacy policy, along with technical elements including password management, authentication and access controls.  A Category 2 certification includes the Category 1 elements, in addition to enhanced security features, such as an audit log, multi-factor authentication, remote deactivation, and threat monitoring. A Category 3 certification features the most comprehensive level of cybersecurity threat testing, and covers elements such as encryption of data at rest, digital signature validation, and tamper reporting, in addition to the elements under Categories 1 and 2.

The Program comes at a time of rapid growth for IoT devices.  According to the latest Ericsson Mobility Report, the global IoT market will expand to 3.5 billion cellular-connected devices in the next five years.  Much of this growth is expected to be driven by the anticipated deployment of 5G technology and enhanced mobile broadband.

The Program will begin accepting devices for certification testing beginning in October 2018.  Details on how to participate in the Program are available on the CTIA website.

Third Circuit Tells “No Economic Injury” Plaintiff to Take a Powder

The debate between two Third Circuit judges and a dissenting colleague in In re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Liability Litigation, a case decided last Thursday, is the best distillation I have seen of a debate raging in federal and state courts throughout the country:  When, if ever, can a plaintiff who purchased and used a product without incident, and did not pay a price premium for it, sue for “consumer fraud”?

The plaintiff, Mona Estrada, purchased baby powder made from talc.  She alleged, and of course the defendant disputed, that baby powder made from talc can cause ovarian cancer.  But Estrada herself neither contracted cancer nor alleged that her use of the product put her at higher risk of contracting cancer.  Instead, she sued for “consumer fraud” under California law, contending that the defendant implicitly promised a safe product but did not live up to that promise.  (The case was transferred to the District of New Jersey as part of an MDL.)

Estrada alleged that she continues to buy baby powder, although she now chooses powder made from corn starch rather than talc.  She conceded that  when she bought the talc product, she did not pay a “price premium” for it.  She also conceded that that the defendant did not advertise its product as better than competing products.  Of equal importance to the majority, she conceded that she used the entire product she purchased and that it delivered all of the benefits the defendant explicitly promised.  On both grounds, this distinguished her claims from those in the California Supreme Court’s Kwikset Lock case, where plaintiffs alleged they paid a premium for locks falsely advertised as “Made in the USA.”

The Third Circuit panel thus characterized, and dismissed, Estrada’s allegations on the following terms: she “purchased and received Baby Powder that successfully did what the parties had bargained for and expected it to do; eliminate friction on the skin, absorb excess moisture, and maintain freshness.”  Absent a price premium or a promise of superiority, she simply had nothing about which to complain, and her “wish to be reimbursed for a functional product that she has already consumed without incident does not itself constitute an economic injury within the meaning of Article III.”

Defendants facing “no injury” consumer fraud class actions can stop here, celebrate the Third Circuit’s conclusion, and figure out the best way to bring it to their own courts’ attention.  Particularly where the absence of a pleaded economic injury can be characterized as a failure of statutory standing, which would preclude a claim from being litigation in federal court or state court, rather than just a failure of Article III standing, which might allow the plaintiff dismissed from federal court to replead claims in state court, the Third Circuit’s precedential decision may become a powerful defense weapon.

Where the debate will rage, however, is in cases where plaintiffs allege consumer fraud on the basis that a product “may” be “unsafe,” even if that alleged risk did not manifest in the plaintiff’s own case.

From the majority’s perspective, Estrada’s “own allegations require us to conclude that the powder she received was, in fact, safe as to her.”  She “chose not to allege any risk of developing ovarian cancer in the future,” and “[g]iven the absence of such an allegation, Estrada cannot now claim that she was ever at risk of developing ovarian cancer.”  The court therefore construed her claim as alleging “benefit of the bargain,” but the claim fell short because she failed to allege “that the economic benefit she received in purchasing the powder was worth less than the economic benefit for which she bargained.”

Judge Julio Fuentes, in dissent, said he would have held that “the safety of the product—as a general proposition, not specifically as to Estrada herself—was an essential component of the benefit of Estrada’s bargain.”  Judge Fuentes would have allowed Estrada to proceed to discovery, and if she could have established that the powder was indeed unsafe, “[t]he price increase…caused by the company’s alleged misrepresentation as to safety” may well have been “the total sum she paid for the product.”  In other words, she could have claimed a full refund, even though she purchased and used the product, it delivered its promised benefits, and it caused no harm.

Last week’s decision may not be the end of the road in this case.  The majority and dissent argued over whether the decision conflicts with two other Third Circuit precedents that found standing to exist, one involving event tickets and another involving prescription eye drops.  En banc review, therefore, is at least possible.  If the panel’s decision stands, however, its application in the lower courts, and its persuasiveness in federal and state courts elsewhere, will be fascinating to observe.

NARB Filing Fees to Increase this Month

Advertisers who lose a challenge at the NAD automatically have the right to appeal the decision to the National Advertising Review Board (or “NARB”). Challengers who lose may also request an appeal, but the appeal is not automatic – it must be approved by the NARB Chair. Although appeals from NAD decisions are relatively rare – there have only been six NARB decisions this year compared to almost 60 NAD decisions – they are still an important part of the self-regulatory process.

This week, the Advertising Self-Regulatory Council announced that it would raise NARB filing fees from $15,000 to $20,000 to better defray the costs of each appeal. This increase is effective for any advertiser appeal filed after September 5, 2018, and any challenger appeal approved after the same date.

Eggs-aggeration: Goop Settles With California District Attorneys Over Misleading Health Claims

The California Food, Drug, and Medical Device Task Force announced a settlement this week with Goop, the lifestyle brand founded by Gwyneth Paltrow, which we’ve written about here and here. The complaint alleges that Goop made false and misleading representations regarding the effects or attributes of three products—the Jade Egg, Rose Quartz Egg, and Inner Judge Flower Essence Blend. According to the complaint, Goop advertised that the Jade and Rose Quartz Eggs—egg-shaped stones designed to be inserted vaginally and left in for various lengths of time—as well as the Inner Judge Flower Essence Blend could balance hormones, prevent uterine prolapse, increase bladder control and prevent depression. The complaint also alleges that none of Goop’s claims regarding these products were supported by competent or reliable scientific evidence.

The stipulated judgment prohibits Goop from (1) making any claims regarding the efficacy or effects of any of its products without possessing competent and reliable scientific evidence that substantiates the claims; and (2) manufacturing or selling any misbranded, unapproved, or falsely advertised medical devices. In addition, Goop agreed to pay $145,000 in civil penalties and will provide refunds to consumers who purchased the products during 2017.

Goop responded, in part, as follows: “Goop provides a forum for practitioners to present their views and experiences with various products like the Jade Egg. The law, though, sometimes views statements like this as advertising claims, which are subject to various legal requirements.”

Yep. True story. Here are a few other lessons:

  • When made on a site promoting sale of a product, statements by practitioners or other testimonialists about the benefits of that product are advertising (not sometimes, always) and can never be used to support claims that are not otherwise supported by competent and reliable scientific evidence.
  • Competent and reliable scientific evidence is a flexible standard. For health claims, though, it frequently requires well-designed clinical tests. Simply put, the standard isn’t whether there is any evidence; it is whether there is credible evidence that experts in the field would agree is reliable.
  • Fanciful claims that do not rise to the level of disease prevention aren’t necessarily puffery either. Advertisers need to clearly understand when they are making objectively provable claims and have an obligation to substantiate them before dissemination.
  • Products that feature claims of disease treatment or reduction may be classified as medical devices or drugs and may be subject to FDA clearance or approval prior to marketing.

Goop claims to have modified its claims to comply with the settlement. Notably, the Jade Egg remains available. We’ll let you decide what to do with that.

California Passes Bill Requiring Reasonable Security Features for Connected Devices

Yesterday, the California legislature passed SB-327, a bill intended to regulate the security of internet-connected devices.  Unlike the California Consumer Privacy Act (CCPA), SB-327 is significantly more narrow.  As enacted, the bill is a “lighter” version of what was first introduced and amended in 2017 (which, at that time, would have included certain disclosure and consent requirements for connected devices).

At its core, SB-327 requires connected devices to be equipped with “reasonable security features” that are:

  1. appropriate to the nature and function of the device;
  2. appropriate to the information it may collect, contain, or transmit; and
  3. designed to protect the device and any information contained therein from unauthorized access, destruction, use, modification, or disclosure.

Subject to the above, if a connected device is equipped with a means for authentication outside a local area network, this is considered a “reasonable security feature” if either: (a) the preprogrammed password is unique to each device manufactured; or (b) the device contains a security feature that requires a user to generate a new means of authentication before access is granted to the device for the first time. These requirements, of course, are in addition to any duties or obligations imposed under other laws (i.e., CCPA).

The term “connected device” is defined as “any device, or other physical object that is capable of connecting to the Internet, directly or indirectly, and that is assigned an Internet Protocol address or Bluetooth address.” Pretty much every device connected to the Internet is assigned either an IP address or Bluetooth address when it is connected. This can include, for example, anything from computers, tablets, and mobile devices, to smart watches, smart home hubs, or app-controlled toys.

The bill does not provide a private right of action. Only the Attorney General, a city attorney, a county counsel, or a district attorney can enforce the law, and the bill does not address (either directly or by implication) any specific penalties or remedies that may be sought by these entities. However, it’s possible that we see the requirement to implement reasonable security measures asserted as a basis for a legal duty in conjunction with other claims (either by the AG or consumers).

The bill was ordered to engrossing and enrolling. If signed by Governor Brown, the law would become effective on January 1, 2020 (same day as the CCPA).

FTC Hits Road Block in DIRECTV Advertising Case Seeking $3.95 Billion Remedy

The Northern District of California recently ruled on DIRECTV’s motion for judgment on partial findings in a case where the FTC is seeking $3.95 billion in damages. The FTC’s case alleges that DIRECTV engaged in misleading advertising over a span of more than a decade and across a variety of media channels ranging from television to the company’s website, violating Section 5 of the FTC Act and the Restore Online Shopper’s Confidence Act (ROSCA).

Specifically, the FTC alleges that the company failed to prominently display certain key provisions, such as the 24-month contract requirement and that advertised prices would increase after 12 months, on over 40,000 advertisements. The agency did not allege that the advertising in question was false, but that the details were not displayed sufficiently.

In partially granting DIRECTV’s motion, the court found that the FTC failed to prove a Section 5 violation as to the company’s banner, print, or TV ads because the agency did not establish that there was a misleading net impression among consumers, and because the Commission did not sufficiently identify the alleged net impression. The proffered evidence did not establish that the advertisements were likely to mislead a reasonable consumer.

The FTC provided evidence for less than 1,000 of the challenged 40,000 advertisements at issue in the case. The court determined that this, along with the additional evidence that the FTC did provide, such as expert testimony regarding three specific ads, were not enough for the agency to meet its burden. The court noted that the agency was not required to introduce all 40,000 ads into evidence, but it did need to explain why the conclusions made about a few ads could be generalized among a large number of others that varied in format, content, and emphasis. The court also highlighted that DIRECTV’s print ads displayed the necessary disclosures in text that was in all caps, bolded, and in a dark font against a light background, which the court determined was likely sufficiently prominent and in compliance with the FTC’s .com Disclosure guidance.

Notably, the court declined to make a similar conclusion about DIRECTV’s website advertisements. The court found that the FTC’s evidence, although “far from overwhelming” was enough to defer a determination about the Section 5 and ROSCA claims associated with the website advertising at issue. Specifically, the court focused on the fact that the challenged advertising required consumers to hover over or click on a link or icon to learn about the pertinent terms of the offer. In theory, therefore, a consumer could have flowed through the entirety of the online order process without confronting important details about the offer.

The court also discussed the FTC’s nearly $4 billion potential remedy, suggesting that the agency would be unlikely to meet its burden to prove an adequate basis for relief due to the court’s partially granting DIRECTV’s motion. The court had issues with the FTC expert’s calculation of unjust gains because he presumed that all of the defendant’s subscribers for the time period at issue were misled in the same way, without a sufficient basis for that presumption other than the FTC’s instruction. This presumption was especially problematic because there were so many iterations of the advertisements. However, the court deferred the issue to see if the FTC would be able to prove liability with the remaining claims.

In a case that is historic for the breadth of advertising at issue and the amount of damages the FTC seeks, the court’s order creates significant challenges for the agency as to the remaining claims in the case. We will continue to monitor this case for any updates as it proceeds.

In the meantime, the case continues to be notable in highlighting the scrutiny that a company may face when failing to sufficiently disclose post-introductory prices and term commitments for subscription type plans. Following best practices and regulatory guidance on disclosing material terms are helpful steps to avoid such scrutiny in the first instance.

NAD Sheds Light on Comparisons Against “Regular” Products

Advertisers who want to tout the comparative advantages of their products have a number of options for framing those comparisons. For example, they can compare their products to specific products, they can compare their products to defined categories of products, or they can more vaguely compare their products to “regular,” “ordinary,” or “other” products. Although many companies think that making a vague comparison is a safer option, a new NAD decision demonstrates that it’s usually not the case.

Telebrands advertised its Atomic Beam flashlight by making various comparisons to “regular” and “ordinary” flashlights. For example, a TV commercial Atomic Beamcompares the brightness of the Atomic Beam to a “regular” flashlight with a “feeble” light output. And a chart on the company’s website compares the Atomic Beam to “ordinary” flashlights across five attributes, with the Atomic Beam coming out on top. Although some of ads don’t specify what a “regular” or “ordinary” flashlight is, others explain that “the comparison is based on a base model LED flashlight of a major manufacturer.”

Energizer argued that the ads were misleading, for a number of reasons. For example, the company argued that because the basis of comparison is not clear, reasonable consumers will interpret “ordinary” flashlights broadly to mean all flashlights priced similarly to the Atomic Beam. In reality, Telebrands had only tested against one flashlight and, although some of the comparisons may have been true against that specific flashlight, the comparisons were not true against many popular flashlights in the same price range.

The NAD agreed that the ads were misleading, noting that one message reasonably conveyed by the ads is that the Atomic Beam “is brighter and more durable than most flashlights, with features not found in most flashlights. Another reasonable takeaway is that ‘ordinary’ and ‘regular’ are a reference to the best-selling flashlights, or to flashlights sold at similar or lesser price points than the Atomic Beam.” Tests that compared the Atomic Beam to a single flashlight that was neither very popular nor very typical in terms of performance were not sufficient to support the broad claims.

As this decision demonstrates, vague comparisons often create more problems than they solve because they could be read to apply to many products. Not only does that increase your substantiation obligations, it increases the number of competitors who might want to challenge you.

Slack Fill Plaintiffs May Win Battles But Lose the War

Lawyers who file “slack-fill” cases against food manufacturers found a friendly venue in Missouri.  Missouri has a broad consumer fraud law and multiple courts have denied motions to dismiss slack-fill claims pleaded under that statute.  But the real fight in class actions—where the money is, in a bank robber’s parlance—is over class certification, and on Tuesday, a Missouri judge denied certification in one of the closely-watched slack-fill cases against a candy maker.

In White v. Just Born, Inc., a Missouri case against the maker of Mike and Ike® candies, it was no great shock that the Court denied multi-state class certification.  Convincing a court to certify a multi-state class is a tough slog for plaintiffs in any state law-based case, especially so if the case has only one plaintiff, rather than a plaintiff from each of the states in question.  Even a single-state class can pose the threat of massive statutory damages, however, so the real victory in White was the Court’s refusal to certify even a Missouri-only class.

The plaintiff in White bought two boxes of the defendant’s candy at a dollar store.  He pleaded that he personally “attached importance” to the “size” of the candy boxes and thought he was buying “more Product than [he] actually received.”  Bully for him, the Court thought, but “the question of whether any [consumer fraud] violation injured each class member will require individualized inquiry” because “if an individual [already] knew how much slack-fill was in a candy box before he purchased it, he suffered no injury.”  It does not matter at the class certification stage that a “reasonable consumer” may have been deceived.  What matters instead is whether the practice actually caused injury to all putative class members in a common and centrally determinable manner. In a slack-fill case over a dollar’s worth of candy, it seems, it cannot. Continue Reading

Some Sanity on “Slack Fill”

The “Show Me” state of Missouri has not been kind to candy makers in cases where consumers allege that packages contain non-functional “slack fill.”  Cases against the makers of Mike and Ike® candies, Raisinets®, and Reese’s® Pieces® all survived motions to dismiss within the last year or so, with judges finding that what “reasonable consumers” would and would not notice could not be determined without discovery. California has been fertile ground for these cases, too, with one candy maker just agreeing to a $2.5 million settlement of slack-fill claims. In New York, however, these claims have been much more likely to be greeted with the judicial equivalent of “give me a break,” and Judge Naomi Reice Buchwald in the Southern District of New York delivered a classic of the genre yesterday.

In the dock in yesterday’s case was the maker of Junior Mints®.  Plaintiffs claimed that different-size boxes of the tasty treats contain between 35-43 percent empty air.  In the plaintiffs’ opinion, “the size of the product boxes in Junior Mintscomparison to the volume of candy…makes it appear that consumers are buying more than what is actually being sold.”  Citing numerous New York cases, including one in which a plaintiff “attributes to consumers a level of stupidity that the Court cannot countenance and that is not actionable under “New York consumer fraud law, Judge Buchwald disagreed.

Judge Buchwald began her analysis with a fairly typical slack-fill analysis.  She held that the plaintiffs’ allegations about the empty space supposedly being “non-functional” were purely conclusory.  “Plaintiffs have not demonstrated, with factual assertions, that the slack-fill…is unnecessary to protect the Junior Mints, …is not the result of unavoidable product settling,” etc.  The plaintiffs also struck out when they attempted to compare the slack fill percentage of Junior Mints® and Milk Duds®.  Each product, Judge Buchwald held, must be judged according to its own physical characteristics, and mint and caramel just ain’t the same.

Plaintiffs conceivably could have bolstered their allegations to fix those shortcomings, but Judge Buchwald did not stop there.  She went on to hold that no “reasonable consumer” could have been deceived, because the Junior Mint® boxes “provide more than adequate information for a consumer to determine the amount of product contained therein.”  The weight of the candy is “prominently displayed on the front” of each box.  Then, equally importantly, each box listed the number of servings in each box and sufficient information in the “nutrition facts” to allow them to see the number of candies per serving.  Judge Buchwald thus likened the Junior Mints® case to one that another New York judge dismissed against the makers of a popular pain reliever.  “Slack fill” could not have deceived a reasonable consumer in that case because the number of pills was printed prominently on the bottle, too.

And then, the following injection of common sense:

“[C]onsumers are not operating on a tabula rasa with respect to their expectations of product fill.  To the contrary,…’no reasonable consumer expects the weight or overall size of the packaging to reflect directly the quantity of product contained therein.’….The law simply does not provide the level of coddling plaintiffs seek, [and] the Court declines to enshrine into the law an embarrassing level of mathematical illiteracy.  A reasonable consumer is capable of multiplying 3.5 by 12 (42), 4 by 12 (48), and 10 by 12 (120), the number of Junior Mints in the [three] boxes, respectively.”  Case dismissed, microphone dropped.

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