Advertising Litigation

In February 2018, I reported on a 20-state objection brief, filed with the U.S. Supreme Court, asking the Court to reverse the approval of the class action settlement in Gaos v. Google.  That deal would have distributed a few million dollars to nonprofit groups, while the AGs wanted money paid to real people, even if that meant holding a lottery to do it.  Today, although the Supreme Court reversed the settlement, it did so on standing grounds and did not address whether a class action can be settled solely through “cy pres” settlements to non-profits.

The Supreme Court cited its recent Spokeo v. Robins decision in which it held that plaintiffs must allege concrete harm, and not just a bare statutory violation, in order to have Article III standing to sue in federal court.  Spokeo was not the Court’s most edifying decision and lower courts have split wildly on what it means in practice.  The Court’s decision today didn’t address that split; it just told the lower courts to analyze the Gaos plaintiffs’ standing in light of Spokeo without opining on the issue one way or the other.

Justice Thomas dissented alone.  He expressed his disagreement with Spokeo, believing that if Congress made conduct illegal, violating that statute suffices to confer standing.  He then said he would have reversed the settlement.  In Justice Thomas’s view, if a settlement provides no benefit to class members, and looks to be solely a means to extinguish a claim, courts should not approve it.

Perhaps the biggest takeaway from today’s decision, therefore, is that eight of the nine Justices think differently from Justice Thomas on this issue.  How differently, only time will tell.

Last week, in Cline v. Touchtunes Music Corp., No. 18-1756,  the Second Circuit Court of Appeals upheld a Manhattan district judge’s decision to approve a low-cost class action settlement in what the judge termed a “nuisance” case, while basically zeroing out the $100,000 fee requested by the plaintiffs’ class counsel.

Defendants who have faced silly but not entirely motionable class actions can momentarily enjoy the schadenfreude of watching a plaintiff’s law firm come away with nothing for its efforts.  The problem with decisions like Cline, however, is that they may make plaintiffs’ counsel more hesitant to settle a cheap case on cheap terms.  For the class action defense bar, raising potential settlement costs is nothing to celebrate.

The facts of Cline are almost too silly to merit repeating.  The defendant provided a digital jukebox application to (for example) bars and restaurants.  Patrons could pay money to play songs, and the app’s terms told the patrons clearly that their songs weren’t guaranteed to play and that no refunds would be provided under any circumstances.  What the terms didn’t disclose, however, is that the restaurant manager had the ability to manually skip songs.  The plaintiff, ostensibly on behalf of a class of people whose songs were skipped, sued for the lost value—about 40 cents each—of not hearing the songs be played.

The defendant, after two tries, couldn’t quite get the whole suit dismissed.  A highly experienced district judge left alive a false advertising claim for the non-disclosure.  At that point, early last year, the parties agreed to a settlement.  About 166,000 patrons whose songs weren’t played, and for whom the defendant had contact information, received a code by email good for one free song play on any of the defendant’s jukeboxes.  Other people could file claims for codes, and 2,200 people did so.

The plaintiff’s counsel sought a $100,000 fee for themselves and a $2,000 incentive fee for the plaintiff.  The judge approved the settlement but not these fees.  He rejected the incentive award and, in place of the $100,000 fee, which plaintiffs’ counsel contended was their “lodestar” of hours worked, the judge instead granted a fee of 20 cents per song code that class members actually redeem within the one-year expiration period.  That fee is likely to be less than $1,000.  The plaintiffs’ counsel appealed that reduction, but the Second Circuit upheld it in a summary order, finding that the district judge acted within his discretion, especially in a “coupon”-type settlement.

What should not be lost in any analysis of Cline is this key statement in the Second Circuit’s opinion:  “[C]lass counsel’s lodestar fee application was not supported by contemporaneous billing records, and…no substantial explanation had been provided for a $10,000 ‘consulting fee’ for which reimbursement was sought.”  The Second Circuit thus reinforced that plaintiffs’ counsel absolutely can still seek lodestar-based fees even when settling for coupons or in-kind goods, provided that they support those fees with appropriate billing detail.

If plaintiffs’ counsel try to tell you that they don’t want to enter into a coupon or in-kind settlement because Cline makes them fearful of receiving no fee in the case, therefore, remind them that the problem in Cline wasn’t the settlement structure; it was the law firm’s failure to document its fees.  Don’t make that mistake, and Cline shouldn’t be an issue.  Low-value cases like Cline still should be able to settle on low-value terms.

 

In a decision that will limit the Federal Trade Commission’s (FTC) ability in both consumer protection and antitrust matters to bring certain claims in federal court, the Third Circuit Court of Appeals held in FTC v. Shire Viropharma, Inc. that the FTC may only bring a case under Section 13(b) of the FTC Act when the FTC can articulate specific facts that a defendant “is violating” or “is about to violate” the law.

Since the 1980s, the FTC has filed most of its cases challenging deceptive or unfair practices under Section 5 of the FTC act in federal court, instead of administratively. The FTC’s authority to file these types of cases in federal court is found in Section 13(b) of the act, added to the act in 1973, which permits the FTC to seek an injunction in federal court “[w]henever the Commission has reason to believe . . . that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC].” While in cases of pending acquisitions or ongoing fraud it may be clear that the FTC has reason to believe someone “is violating” or “is about to violate” the law, the FTC has also brought cases under Section 13(b) for claims arising from abandoned conduct. The Shire decision addressed the FTC’s authority to bring an action in federal court under Section 13(b) in these circumstances.

In Shire, the FTC alleged that Shire abused the U.S. Food and Drug Administration’s citizen petition process to maintain its monopoly on a drug it manufactured. The complaint alleged that Shire filed forty-six citizen petitions between 2006 and 2012. In 2017, the Commission filed its complaint, which alleged, inter alia, that “[a]bsent an injunction, there is a cognizable danger that Shire will engage in similar conduct” and “[Shire] has the incentive and opportunity to continue to engage in similar conduct in the future. At all relevant times, [Shire] marketed and developed drug products for commercial sale in the United States, and it could do so in the future.”

Shire filed a motion to dismiss, arguing that Section 13(b) only allowed the Commission to pursue injunctive relief where the violation is occurring or is about to occur. After considering the text of the statute and the legislative history, the court agreed. Because the FTC failed to “plausibly suggest [Shire] is ‘about to violate’ any law enforced by the FTC, particularly when the alleged misconduct ceased almost five years before filing of the complaint,” the court dismissed the case.

On appeal, the FTC argued that a “likelihood of recurrence” standard, borrowed from the common law standard for injunctive relief, should govern when the FTC may bring an action in federal court under Section 13(b). The FTC also advanced a “parade of horribles” argument that crafty defendants could flaunt the FTC’s authority by swiftly shutting down their operations at the outset of an FTC investigation to immunize themselves from a federal court action.

The Third Circuit rejected these arguments. It concluded that the statutory text under Section 13(b) requiring that the FTC have reason to believe a wrongdoer “is violating” or “is about to violate” the law unambiguously prohibits only existing or impending conduct. The Court also rejected the FTC’s arguments that its decision would hamper its law enforcement efforts, noting that Section 5 of the FTC Act would continue to allow the FTC to bring administrative actions based on past conduct. The Court further noted that if the FTC determined during the pendency of an administrative action that a respondent was violating or about to violate the law, it could then seek injunctive relief in federal court under Section 13(b). Having determined the appropriate legal standard, the Court of Appeals upheld the district court’s holding that the FTC failed to allege in its complaint that the defendant “is violating” or “is about to violate” the law.

The FTC is likely to appeal the decision in Shire, but there is no guarantee that the Supreme Court will grant certiorari given the plain language of the statute and the lack of any contrary circuit authority. In the meantime, the same issue in the context of a consumer protection action is likely headed to the Eleventh Circuit Court of Appeals in FTC v. Hornbeam Special Situations, LLC, No. 1:17-cv-3094 (N.D. Ga.). where the FTC sued a variety of defendants, including the estates of deceased individuals, for allegedly billing consumers without their authorization.

While the FTC continues to have the option to bring cases against past violations administratively under Section 5, including to seek a cease and desist order, it may decide to exercise more restraint in bringing cases involving abandoned conduct. This is especially true for claims subject to statutes of limitations. Where the FTC does decide to pursue conduct that has ceased, it may seek tolling agreements during the investigational phase.

The FTC may consider bringing more administrative actions under its Part 3 authority. As former Commissioner Maureen Ohlhausen has observed, “[t]he FTC’s Part 3 authority is a powerful tool for developing or clarifying the law.” Yet, over time, the FTC has brought far fewer Part 3 cases – 94 cases during the period 1977 to 1986 compared to 12 during the period 2007 to 2016. Shire, and quite possibly Hornbeam, should cause the Commission to assess the reasons behind this trend and to take steps to ensure the Part 3 process fulfills the role intended by Congress when it was created. That could very well mean that cases that would have been brought in federal court may find their way to hearing being brought before administrative law judges.

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.

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 Slack Fill Plaintiffs May Win Battles But Lose the War

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.

Early this year, a Ninth Circuit panel upended a major nationwide class action settlement because it found that the District Court had not sufficiently considered material differences among the 50 states’ relevant laws.  I called that decision—now likely headed for en banc review–“Regrettable But Forgettable” because the district court should be able to correct the error the Ninth Circuit identified.  The district court had not conducted any predominance analysis at all, which always is required, even for settlement classes.  Had it done so, it very likely could have found that for settlement purposes, with no questions for a jury to try, variations in state law would not have been material.

Yesterday, the Second Circuit reminded us that for litigation classes, variations in state laws absolutely can and should tank class certification.  Langan v. Johnson & Johnson Consumer Cos., No. 17-1605 (2d Cir. July 24, 2018) is a “natural” case, challenging that label on two several baby-oriented bath products.  The plaintiff allegedly purchased some in Connecticut and contended that 20 other states have similar consumer fraud laws.  The district court certified a 21-state class, after which J&J successfully petitioned the Second Circuit, under Rule 23(f), to hear an interlocutory appeal. 

J&J tried to argue that the plaintiff lacked Article III (constitutional “case or controversy”) standing to sue on behalf of purchasers in other states, but the Second Circuit rejected that contention.  “[A]s long as the named plaintiffs have standing to sue the named defendants, any concern about whether it is proper for a class to include out-of-state, nonparty class members with claims subject to different state laws is a question of predominance under Rule 23(b)(3), not a question of ‘adjudicatory competence’ under Article III.”  The court recognized some tension in case law over this question, but thought that Supreme Court guidance counseled treating “modest variations between class members’ claims as substantive questions, not jurisdictional ones.” Continue Reading Second Circuit Bounces Multistate “Natural” Class. Now, Keep An Eye On the Ninth Circuit

A federal jury in Illinois recently awarded Dyson, Inc. over $16 million in damages after finding that SharkNinja falsely advertised that its Rotator Powered Lift-Away vacuum was better than Dyson’s best-performing vacuum, the DC65.  SharkNinja ran ads that claimed that independent testing showed that the Rotator Powered Lift Away vacuum was proven to have “more suction” and “deep-cleans carpets better than Dyson’s best vacuum.”

The commercial also featured a graph that purported to measure each machine’s cleanability, but Dyson alleged that the results were not actually from referenced independent tests but rather internal tests.  Dyson further alleged that the tests failed to comply with industry standards for vacuum cleaning testing in the first instance and that SharkNinja effectively rigged the third-party tests by directing the testing company on how to test the machines.  The jury found that SharkNinja’s advertising of results from unsound tests was an intentional act to mislead consumers and awarded significant damages accordingly.

The case underscores the importance of conducting objective and reliable testing and carefully tailoring ad claims to accurately convey the results of tests.  The decision also is striking in terms of the size of the award, particularly as the jury found it appropriate to disgorge nearly all of the $18 million in profits that SharkNinja made from its vacuum during the time the commercial aired.

Summer associate Vishwani Singh contributed to this post. Ms. Singh is not a practicing attorney and is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

Although we normally try to stay away from celebrity gossip, we can’t ignore the latest controversy over Kanye West’s tweet. No, not that one – the other one.

In 2016, Kanye announced that he would release his album, The Life of Pablo, exclusively on Tidal. He tweeted: “My album will never never never be on Apple. And it will never be for sale… You can only get it on Tidal.” (That’s four “nevers” in 107 characters, if you’re counting.) Fans took that seriously, and rushed to sign up. In just over a month, Tidal’s subscriber base tripled, potentially saving the service from collapse.

Kanye Tweet

Six weeks after Kanye promised the album would never (x4) be available anywhere else, he released it on other services, including Apple Music. Many fans became angry that they’d signed up for Tidal based on Kanye’s promise, and one of them filed a lawsuit. The complaint alleged that the representations of exclusivity in the tweet constituted false advertising and asked the court to grant damages, disgorgement of profits, and restitution.

Last week, a New York court ruled on a motion to dismiss filed by Kanye’s legal team. Although the court dismissed some of the claims, it kept the allegations about the tweet alive. “Regardless of whether or not Mr. West’s argument will persuade a jury at a later stage in the case, the court has little difficulty concluding that the complaint plausibly pleads that Mr. West’s statement that his album would never never never be available on Apple Music or for sale was false.”

It’s too early to tell how this case will turn out, but the case raises at least two important points. The first is that claims made in social media are still subject to advertising laws. Even something as seemingly innocent as a short tweet can lead to liability, if what you say isn’t accurate. The second is that you should be careful about far-reaching promises. Many companies want to advertise that things will always be a certain way. Think carefully about making these promises because some consumers will take you at your word. If the market changes and you want to go back on your promises, those consumers may not be forgiving.

Earlier this week, the FTC settled its case with BLU Products, Inc., a cell phone company the FTC claimed misled consumers about its privacy and data security practices. According to the agency, the company represented that it did not collect unnecessary personal information and that it imposed specific data security procedures to protect consumers’ personal information. But the FTC claimed not so fast, alleging that BLU allowed one of its partners, an advertising software company, to collect sensitive consumer information such as text message contents and call logs with full telephone numbers. The FTC also alleged that BLU failed to implement the security features it represented to consumers, allowing the company’s devices to be subject to security vulnerabilities that could allow third parties to gain full access to the devices.

In settling the case, BLU agreed not to misrepresent its data collection or data security practices. The order also requires BLU to clearly and conspicuously disclose: (1) all of the “covered information” that the company collects, uses, or shares; (2) any third parties that will receive this “covered information”; and (3) all purposes for collecting, using, or sharing such information. This disclosure must be separate from the company’s privacy policy or terms of use and the company must obtain the consumer’s affirmative express consent to the collection, use, and sharing of such information. “Covered Information” is defined as geolocation information, text message content, audio conversations, photographs, or video communications from or about a consumer or their device. Continue Reading Why So BLU?: FTC Settles Privacy and Data Security Claims with Mobile Company; Fencing-In Relief Requires Consumer Opt-In to Data Sharing