Retailers have had a tough year when it comes to advertising prices. In January, a California court issued a multimillion dollar penalty against Overstock.com, after determining that the company advertised discounts in a misleading manner. Since then, retailers across a range of industries have been dragged into costly lawsuits and regulatory investigations involving similar issues. If you’re wondering how something as mundane as advertising the price of an item could lead to so much trouble, it’s because the issue is more complicated than most people think.

To learn more, read my article in RetailingToday.

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.

Those of us who spend our days at the intersection of law and advertising of health products generally accept that the prescription drug world is a universe unto itself, overseen by the FDA pursuant to the Prescription Drug Marketing Act. As prescription drug companies have increased their direct-to-consumer outreach through social media, native advertising, and health information platforms, questions have arisen as to the role that the NAD might play in regulating these advertisements.  For those who are unfamiliar, the NAD is the National Advertising Division of the Better Business Bureau.  It is an industry self-regulatory body that is charged with hearing and rendering decisions in advertising disputes, typically among competitors.  It is commonly used amongst advertisers of consumer-directed products and services.  It is not commonly used amongst prescription drug advertisers and, until recently, many likely assumed that NAD did not have jurisdiction to hear prescription drug advertising challenges.

A relatively recent NAD decision makes clear that that body believes that it has jurisdiction over prescription product advertising, however. Late last year, the NAD evaluated advertising by Synergy Pharmaceuticals for its Trulance product, which is prescribed for chronic idiopathic constipation.  Allergan, maker of a competing product, challenged the advertising on the basis that it included false implied superiority claims, expressly false superiority claims, and undisclosed native advertising in the form of a waiting room pamphlet that allegedly was positioned as independent and impartial patient education material.  Continue Reading Think Your Prescription Drug Advertising is Beyond NAD’s Purview? NAD Disagrees.

For the first 28 weeks of 2017, the most frequently alleged claims in new food and beverage false-advertising class actions have related to featured product ingredients that allegedly are absent, or present only in small quantities, in the food at issue.

We reviewed news reports and other mentions of newly-filed food advertising class actions for the first part of 2017 and tabulated the central cause or causes of action to learn where the current substantive focus is in these cases. Out of 52 new food advertising class actions reported between January 1 and July 15 as having been newly filed, the largest single category – 12 cases – alleged the absence of an ingredient that was featured on the product’s label and/or marketing.  Three of the suits concerned truffle-infused cooking oils, alleging that these products actually contained no truffles.  Two cases were filed against makers of ginger ales, which the suits alleged contained no ginger.  Single cases alleged that a guacamole contained very little avocado, that coconut water contained no coconut, that veggie snacks contained no vegetables, that canned octopus was really squid, and that “steak” in a sandwich was really non-steak ground beef.

The other major categories reflect the types of food advertising claims that have been much in the news in recent months. Nine cases concerned “natural” claims.  Nine cases objected to “no sugar added” or similar claims, generally on the basis that evaporated cane juice allegedly was not characterized as a sugar.  Seven cases concerned slack fill, and a further four cases alleged underfill (i.e., not that there was empty space in the package, but that the actual weight of product was less than the stated weight).  Five cases accused the food of overstating its healthiness, and a further three charged that the product falsely claimed a nutritional benefit.  Four cases alleged that an undesirable ingredient claimed not to be in the product, such as trans fat or preservatives, actually was present.

The accompanying chart shows the 52 actions broken down into categories of claims asserted. The total assertions amount to more than 52 because some cases asserted more than one type of claim.

Based on this analysis of 2017 thus far, the two takeaways for food manufacturers are (1) advertising class actions are alive and well and remain a threat, and (2) manufacturers should pay close critical attention to the accurate characterizing of their ingredients. Other well-known controversies over hot-button issues like “natural” claims, slack fill, and the treatment of evaporated cane juice continue to play out in the courts and to be the subject of new challenges.

(Click here to enlarge image.)

Kelley Drye’s Advertising and Marketing Law practice group has been named a “Practice Group of the Year” by the legal publication Law360. The award, now in its fourth year, recognizes firms that have “excelled at the getting the job done.” Law360 noted that in 2013 Kelley Drye notched wins for clients in court, at the National Advertising Division (NAD), and at the Federal Trade Commission (FTC). They highlighted Kelley Drye’s work for several major companies in a variety of industries each facing its own legal challenges.

Please click here to read the complete announcement.

“Clinically proven…” “Laboratory tested.” “45% More Effective!” Claims like these sell product. They also carry with them the assertion that the advertising claim has been “established” or proven by competent and reliable testing. Establishment claims can be express (e.g., “Studies show…”) or implied (e.g., use of a caduceus or images of actors in lab coats). In all cases, however, they require that a company have the form of substantiation alluded to by the claim and that the touted performance benefit be both statistically and clinically meaningful. The risks for the unprepared advertiser are substantial, and include Lanham Act litigation, competitor-initiated challenges at the National Advertising Division (NAD), regulatory inquiries, consumer class actions, and adverse publicity.

In two recent articles, John Villafranco provided helpful tips for companies interested in using establishment claims in advertising and discuss the appropriate use of consumer feedback to develop marketing strategies. In addition to providing tips on substantiating establishment claims stemming from consumer feedback, Villafranco discussed the risks involved with using testimonials obtained through social media.

As companies increasingly integrate establishment claims and consumer feedback into marketing campaigns, these articles can assist teams in effectively marketing product without incurring substantial and unnecessary risks.

 

The best marketers train one eye on their marketing message and the other on their competitors’.  And when a competitor’s claim is deemed to go too far, it is the legal department that must consider its options in trying to end the claim or campaign before it threatens the company’s market position.  In this context, litigation may not be the best option given the claims at issue or resources available.   The National Advertising Division (NAD) of the Council of Better Business Bureaus is a self-regulatory body that reviews national advertising to determine whether claims made are adequately supported and is considered to be the forum of choice for competitor advertising challenges, as it is a well-respected, swift and relatively inexpensive alternative to litigation.

Our article, published in Metropolitan Corporate Counsel, "Gain With Less Pain: Ending Your Competitor’s False Or Misleading Advertising Claims Without Having To Litigate," discusses the points that every company should consider before filing an NAD challenge.

This post was written by Sarah Roller

The U.S. 8th Circuit Court of Appeals recently ruled that certain false advertising claims based on state consumer protection and anti-deception statutes were not preempted by the Organic Foods Production Act of 1990 (OFPA)— a federal Act that establishes national standards for the sale and labeling of organically produced agricultural products, and creates a certification program through which agricultural products may be certified to produce organic products. The court reversed and remanded the district court’s ruling that the false advertising claims were preempted by the OFPA, holding that, while claims challenging certification of a product as organic (e.g., alleging that a defendant’s products are falsely represented as organic when in fact the products were not organic), are preempted by the OFPA, false advertising claims challenging the facts underlying an organic certification (e.g., alleging that a defendant’s advertisements “misrepresent[] the manner in which its dairy cows were raised and fed,” and “suppress[ ] or omit[ ] material facts regarding the production of its ‘organic’ milk or milk products, specifically that . . . the dairy cows were not raised at pasture”) are not preempted by the OFPA.

As background, following a 2007 consent agreement between USDA and Aurora Dairy Corporation (Aurora) regarding Aurora’s violations of the OFPA and related implementing regulations, known as the National Organic Program (NOP), nineteen class action lawsuits were brought in federal district courts on behalf of organic milk consumers (class plaintiffs) against Aurora and various retailers, claiming violations of state law arising from Aurora’s alleged failure to comply with the OFFPA and the NOP. The U.S. Judicial Panel on Multi-District Litigation (JPMDL) consolidated these cases in the Eastern District of Missouri. In June 2009, the Eastern District court dismissed the case, finding the OFPA preempted all of the class plaintiffs claims.

The 8th Circuit’s decision distinguishes between “state law challenges to [organic] certification determination, itself, which conflict with the OFPA, and state law challenges to the facts underlying certification,” taking the position that state law “challenges to the underlying facts do not necessarily conflict with the OFPA’s purposes,” in a manner justifying preemption of such claims. A copy of the 8th Circuit’s decision is available here.

 

Effective March 15, 2010, the Council of Better Business Bureaus will increase the fee it charges for CBBB Corporate Partners to file an NAD challenge from $2,500 to $3,500.  This is the first increase in the Corporate Partner filing fee since 2005.  Non-partners must pay between $6,000 and $20,000, depending on the gross annual revenue of the company.  A copy of the CBBB’s announcement is available on the NAD website.

Despite this increase, the cost of bringing a challenge before the NAD is still significantly less than the cost of bringing a lawsuit under § 43(a) of the Lanham Act. Click here for an article that provides a detailed analysis of the options available to a company that wants to challenge a competitor’s claims.

Normal 0

The news media have taken notice of the increase in advertising lawsuits and formal grievances filed against competitors. This month, The New York Times and The AmLaw Daily reported on the recent up-tick in false advertising challenges.

The New York Times article, “Best Soup Ever? Suits Over Ads Demand Proof” from November 22, 2009, noted that the number of cases appears to have grown as the economy has declined. Kelley Drye & Warren partner, John E. Villafranco, explained, “In this economy, where margins are a bit tighter, a lot of marketing departments have decided to become more aggressive in going after their competitors in the hopes that they can either protect their market position or capture additional market share.”

Continue Reading Advertising Litigation On the Rise