In January, we posted that Fashion Nova had agreed to settle an FTC complaint alleging that the company’s practice of suppressing negative reviews on its site “deprives consumers of potentially useful information and artificially inflates the product’s average star rating” in violation of Section 5 of the FTC Act. According the FTC’s complaint, the company would automatically post four- and five-star reviews, but failed to post any review with a lower rating for about four years.

This week, a plaintiff filed a class action against Fashion Nova based on the same facts. The plaintiff starts with statistics about reviews, noting one study suggesting that 93% of adults in the US read reviews before making a purchase online and another study suggesting many consumers will not even consider a product unless it has a minimum average rating of 3.4 stars. She alleges that because of this, Fashion Nova artificially inflated ratings to make products appear more appealing.

By hiding negative reviews, the plaintiff argues that Fashion Nova omitted important information – such as comments about product sizing, fit, or quality – that consumers frequently rely upon when deciding whether or not to purchase a product. She also argues making the products appear more popular than they actually were allowed the retailer to charge prices that are higher than it would have otherwise been able to charge if consumers had all of the facts.

This lawsuit doesn’t raise any new facts or alter any of the guidance we mentioned in our last post. It does, however, serve as a fresh reminder that regulators, competitors, and plaintiffs’ attorneys are carefully scrutinizing how companies generate and publish reviews.

Last year, we posted about a lawsuit against Allbirds alleging (among other things) that the company’s environmental claims – including claims about its “sustainable” practices, the “low carbon footprint” of its shoes, and its other “environmentally friendly” initiatives – are false and misleading. This week, the US District Court for the Southern District of New York dismissed the lawsuit. The decision covers a lot of ground, but here are some of the key points.

Among other things, the plaintiff took issue with Allbirds’ life cycle assessment (“LSA”) tool and its use of the Higg Material Sustainability Index (“MSI”)Allbirds-Carbon-Footprint-Image to measure the environmental impact of materials. For example, the plaintiff argued that the LSA tool only measures the carbon footprint of each product, while omitting other environmental impacts, and that the Higg MSI only includes raw materials and that it doesn’t account for the entire lifecycle of wool production.

The court determined that many of the plaintiff’s complaints about the LSA tool simply amounted to criticisms of the tool’s methodology, and that the plaintiff did not actually describe any false or misleading statements. The court held that Allbirds “does not mislead the reasonable consumer because it makes clear what is included in the carbon footprint calculation, and does not suggest that any factors are included that really are not.”

The court came to similar conclusions about use of the Higg MSI. The plaintiff’s criticism that the calculation doesn’t go beyond raw materials or that results would be higher if it had considered the entire lifecycle of wool production is “simply a critique of its methodology.” Just because a standard may have room for improvement, does not render a company’s reliance on that standard deceptive. Again, Allbirds clearly discloses its use of the Higg MSI.

The plaintiff also argued that Allbirds omitted information about “the environmental impact of the wool industry’s methane emissions, land occupation, and eutrophication.” Although companies are required to disclose material information, there is no obligation under New York law “to provide whatever information a consumer might like to know.” Again, the court found it unlikely that consumers would have expected Allbirds calculations to include anything other than what the company had described.

Although there are still a lot of gray areas when it comes to green claims, this decision suggests that companies have some flexibility in how they measure the environmental impact of their products. That flexibility has its limits, though. Companies will need to use reputable methodologies and clearly disclose the basis of their claims. Unqualified environmental benefit claims and claims that may imply a larger benefit than a company can substantiate still pose a high risk.

As we’ve discussed in recent posts, State Attorneys General often take positions on important consumer protection policy issues through a joint letter from the National Association of Attorneys General, often referred to as a “NAAG letter.”  This leads to the inevitable question – what is NAAG and what does it do?  As former State Assistant Attorneys General, we often find ourselves answering that question, and can shed some light into this organization that has often perplexed onlookers.

It is common for people to use “NAAG” as a description of a group of AGs acting together, like in a NAAG letter or consumer protection multistate.  But this is a misnomer — NAAG is really just a nonpartisan association that facilitates the goals of the State Attorney General Community. While letters, grants, working groups, and meetings may be administered by NAAG, the organization itself has little to nothing to do with the actual underlying policy.  Instead, NAAG is governed by an Executive Committee of Attorneys General, which employs an Executive Director and other leadership staff to run the operations of the organization.  With the recent announced retirement of the current Director, the AGs are currently on the hunt for a new leader of day to day operations.

So what does NAAG do when it comes to consumer protection?  Here are some key roles that they facilitate:

Policy Letters

NAAG policy letters are not drafted by NAAG, but rather by State AGs or their staff and signed onto by other participating AGs. States use NAAG to facilitate the sign-on process, including organizing discussion calls and collecting signatures.  If a bipartisan group of 36 or more Attorneys General agree, a policy letter can be placed on NAAG letterhead and become an official “NAAG letter.” Any revisions to these letters as part of that process are done by the AG offices.

Working Groups

State AG staff participate in a number of collaborative working groups on different topics of common interest, like privacy, combatting robocalls, negative options, and government imposters. These working groups share ideas and information, which can lead to multistate investigation efforts on common topics. NAAG itself does not determine these priorities and conversations, rather it provides administrative support for the groups such as conference lines and maintaining contact lists. NAAG staff are typically not participants in these calls.

Grants

NAAG administers multiple financial funds that were obtained from past consumer multistate enforcement efforts, for example the Financial Services Fund, which was created by the National Mortgage Settlement.  NAAG holds each fund, but use of the funds is determined by a bipartisan committee of AGs.  NAAG “grants” are available to State AGs who apply and meet specific criteria and are approved by the committee. Grants have been used to fund meetings, trainings, research, and the costs associated with certain investigations and litigation. Use of the funds is governed strictly by the application, and expenditures are monitored by NAAG to ensure compliance with the committee’s grant. Where applicable and consistent with law, applicants must agree to try and repay the grant if money is available when a matter is concluded with a monetary recovery. Grants are typically used to help fund the costs (largely document storage, expert witness costs, and travel) of more complex multistate investigations that involve a bipartisan group of State AGs, for example in the opioid settlements, including with McKinsey & Company. It may seem odd to an outsider to see millions paid “to reimburse NAAG” in these settlements, but this is essentially a reimbursement of the fund used to pay the expenditures of investigation that State AG budgets would not have been able to absorb.  No reimbursement to the funds is expected where the funded activity does not result in a recovery, and no interest factor is included.  Large settlements might even contribute extra money to these funds for future enforcement efforts.

Meetings and Trainings

As if one acronym wasn’t enough, NAAG also includes the National Attorneys General Training & Research Institute, or NAGTRI.  NAGTRI is guided by a bipartisan advisory board of Attorneys General.  NAAG and NAGTRI facilitate meetings and trainings throughout the U.S. each year, including through national events and locally for individual Attorney General offices. These meetings and trainings are invaluable to AG staff in particular, as it is one of the few opportunities they have to receive AG-specific trainings on a variety of topics that affect their practice. The content of trainings are largely spearheaded by State AG staff who participate on committees to identify topics and volunteer their time to serve as the faculty.  NAAG annually recognizes the AAGs who significantly contribute to developing and presenting these programs (shameless self-promotion here).

Conclusion

While NAAG provides a helpful role to State AGs by facilitating the interests of its members, the AGs and their staff, it ultimately is an association that acts at the direction of its members.  If you want to keep up with or even influence AG priorities, or have an issue that the State AGs might be looking at for enforcement, the real place to go is the AGs themselves, either directly or through some of the key meetings and working groups.  Our State AG group regularly facilitates such conversations and is here to help.

Companies that make environmental or “green” claims generally refer to the FTC’s Green Guides for guidance on what they can and cannot say and what substantiation they need. At this point, though, the Green Guides are more than ten years old and they don’t clearly answer many of the questions advertisers have today. Although the FTC has indicated that it plans to review and update the Green Guides, we don’t know when a new version will be out.

In the meantime, the World Federation of Advertisers – with the help from the International Council for Advertising Self-Regulation, the European Advertising Standards Alliance, and experts from the UK’s Advertising Standards Authority – recently issued Global Guidance on Environmental Claims. The Guidance is centered around six key principles, many of which are illustrated with case studies from various countries.

Here’s a summary: Continue Reading WFA Issues Guidance on Green Claims

ICYMI, the White House’s 2023 budget proposal includes $490 million for the FTC, reflecting a substantial increase ($139 million) over the FTC’s current budget of $351 million. To support this proposal, the FTC recently submitted a budget justification to Congress providing details about the need for the increase and how the funds would be spent. Our brief review of the FTC’s submission turned up some interesting insights:

Overview of the Budget Numbers   

The White House budget framed the FTC’s $139 million raise (plus an extra $88 million proposed for DOJ’s Antitrust Division) as necessary to support “vigorous marketplace competition through robust enforcement of antitrust law.” However, the underlying documents show that the FTC’s increase will actually be spread across both FTC missions – consumer protection and competition. (Although the increase skews slightly towards competition, consumer protection would remain the larger of the two missions.) Here are the numbers:

  • Overall headcount would increase by 300 (from 1140 to 1440), with 148 new FTE going to consumer protection and 152 going to competition (for a new total of 760 for consumer protection and 680 for competition).
  • The consumer protection budget would increase from $191,461,000 to $250,387,000, while competition funds would increase from $159,539,000 to $239,613,000.
  • Of the 300 new FTE, 201 would be “evenly distributed” in BCP, BC, and the FTC’s Regional offices (presumably 67 to each). The rest would be allocated among the other offices at the agency. (To avoid confusion, it’s important to remember that multiple offices contribute to the two missions. For example, BCP is just part of the “consumer protection mission” for budgetary purposes, and the Regional offices do substantial work that is classified under “consumer protection” as well.)

Need for Increase

According to the FTC, the increased budget is necessary to tackle the increased demand on the agency’s resources over past 5 years. It cites as key examples:

  • An increase in consumer complaints submitted to the FTC (from 2.9 to 5.7 million) during this period.
  • For consumer fraud alone, complaints increased from 1.3 to 2.8 million, reflecting a fivefold increase in reported financial losses (from $1.1 billion to over $5 billion).
  • Notice to the FTC and DOJ of 3,520 transactions in 2021, representing an increase of 66% over the prior 10-year high.

Expanded Regional Office Role

A key feature of the budget is how it allocates resources among BCP and BC (both in DC) and its eight Regional offices. Historically, the headcounts in BCP and BC have each been larger than the total headcount in the Regional Offices. Therefore, in allocating 201 new FTE equally among the three, the new budget would increase the proportion of staff in the Regions.

As the FTC explains, the proposed budget “leverages the agency’s existing Regional Office structure to expand the agency’s candidate pool and community presence, promotes the expansion of workplace flexibilities, and implements a more flexible workforce that will work seamlessly on both Consumer Protection and Competition matters.”  Further, expansion of the Regions will establish a more “national presence,” increase access to the “best and brightest employee candidates,” and attain “closer proximity to the communities the FTC serves.”

The FTC also states that it will “intentionally” hire and “cross-train” attorneys so they can support either mission “depending on the demands of the market.” (There’s some suggestion that this will occur agency-wide, not just in the Regions, but the document is vague on this point.)

For BCP in particular, the Regions will function as a “dispersed and nimble workforce” that can be deployed across all consumer protection program areas, including privacy, data security, deceptive advertising, protecting consumers in the financial marketplace, and fraud targeting specific populations.

For BC, the goal is to ensure that all of the Regional offices have the expertise and resources to do competition work, in contrast to the three that perform this work now.

Reallocation Within the Two Missions

The FTC’s submission also allocates resources to program areas within each of the two missions.  For consumer protection, the Privacy and Identity Protection program gets the biggest boost, with 40 additional FTE (for a total of 101). Meanwhile, Financial Practices gets 20 (new total 91); Advertising Practices gets 19 (new total 78); Enforcement gets 9 (new total 63); and Marketing Practice loses 3 (new total 119). (Again, these numbers include FTE in, not just BCP, but other parts of the agency, including the Regional offices.)

Even with its reduction, Marketing Practices remains the largest program, due in part to the large number of cases in this area (generally fraud) historically brought by the Regional offices. The loss of 3 FTE likely reflects the FTC’s goal to have the Regions perform more non-fraud work.

The new budget also provides new allocations for Competition’s programs, with increases chiefly allocated to enforcement activity. In particular, in its budget submission, the FTC emphasizes the need to increase the size and resources of BC’s Technology Enforcement division, which it states is outmatched by tech companies tenfold in some cases.

Other FTC Offices  

Some of the additional resources will be allocated to FTC policy and support functions – most notably, 25 new FTE to the Office of Policy Planning (OPP), 20 to the Bureau of Economics, 17 to the Executive Director’s office, and 10 each to the General Counsel and Commissioners’ offices.

The FTC’s narrative regarding OPP (a policy shop that has traditionally done studies and reports under the direction of the FTC Chair) suggests that most of its additions will be to hire data analysts, financial analysts, and technologists, likely giving OPP a more prominent role in advising and working with staff throughout the agency.

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The big takeaways here are not surprising: FTC Chair Khan has been saying for months that she wants to expand the role of the Regional offices. Further, the FTC has been requesting additional resources for years, especially for privacy and technology enforcement. However, the FTC’s budget request includes details not provided to date, and its fate will be worth watching in the coming months. Look for updates in this space.

Q: It has been nearly a year since the Supreme Court’s decision in AMG Capital Management, LLC v. FTC foreclosed the FTC’s ability to pursue monetary remedies under Section 13(b) of the FTC Act.  How has AMG affected the FTC’s enforcement program, particularly in consumer protection cases? 

A: As an initial matter, it’s Important to emphasize that the Supreme Court did not take any authority away from the FTC; it concluded 9-0 that the FTC did not have the authority in the first place.  Justice Breyer put it this way: Section 13(b) produces a “coherent enforcement scheme. The Commission may obtain monetary relief by first invoking its administrative procedures and then Section 19’s redress provisions; it can use Section 13(b) to obtain injunctive relief while administrative proceedings are foreseen or in progress, or when it seeks only injunctive relief.”

The inability to obtain equitable monetary relief under Section 13(b) has taken away the FTC’s weapon of choice, but it has not left it without other means to carry the attack, and it continues to push the boundaries of its authority.  Chair Khan has made clear that it will litigate on principle, and that often means without regard for litigation risk.  In many ways, the agency is less predictable and, from a respondent’s or defendant’s perspective, dangerous. I had expected more restraint, given the AMG decision.

During oral argument, Justice Kavanaugh commented that, as former Executive Branch employee, he understands how “with good intentions the agency pushes the envelope and stretches the statutory language to do the good or prevent the bad – the problem is it results in a transfer of power from Congress to the Executive Branch.”

I heard something similar from Commissioner Wilson, in her concurring opinion in Resident Home.  There, she said that AMG “should have been a wake-up call, a reminder to the Commission that, no matter how egregious the conduct or righteous our cause, the Commission is not entitled to go beyond the bounds of what the law permits.” Despite these warnings, in response to AMG, continues to explore the frontiers of its authority.

This means that the FTC has assumed an aggressive adversarial position, using all means at its disposal in an attempt to redress what it perceives to be consumer injury, even if it means advancing a litigation position that is ultimately unsuccessful.  In short, I doubt that companies currently adverse to the FTC consider the agency to be compromised to any significant extent – in many ways, it is emboldened. Continue Reading ABA Antitrust Spring Meeting: John Villafranco On Monetary Redress and FTC Enforcement Post-AMG

Last year, Prose – a company that makes customized haircare products – brought an NAD challenge against a competitor, Function, over Function’s claims that it had over 110,000 5-star product reviews. Shortly after that, Function filed a challenge against Prose over Prose’s claims that it had over 192,000 5-star product reviews. (You can read about those cases here and here.) NAD recently reopened the second challenge, and the new decision includes additional insights into how NAD examines reviews.

When a consumer buys a product from Prose, the company solicits star-ratings on various aspects of the customer’s experience after each purchase. Prose may then revise a formulation after receiving feedback. The iterative process of reviewing and refining happens every time a customer orders, and the customer can rate every iteration. In the original case, NAD recommended that Prose more clearly disclose that its 192,000 5-star product reviews claim was based on its “Review and Refine” process.

In the new decision, NAD looked at how Prose solicits ratings and discloses how the rating process works. NAD determined that Prose solicited ratings in a neutral manner, that it had proper controls to ensure reliability, and that its survey was properly designed. However, NAD recommended that Prose better disclose how the “Review and Refine” process works. Although the details were presented on the Review page, they weren’t presented in other places Prose made its 5-star claim.

NAD also examined Prose’s practice of including only 4- and 5-star reviews on its site. In doing so, NAD looked to the FTC’s recent guidance on “Featuring Online Customer Reviews.” (You can read more about that here.) NAD noted that “the context in which reviews are displayed should indicate whether the webpage features positive reviews as testimonials from satisfied customers, or acts as a platform publishing all collected reviews.”

The headline on the Reviews page touts “Featured Reviews and Ratings From Reviews & Refine,” and although the page mentions “225K 5-star reviews,” only a few are actually displayed. NAD found that this would lead reasonable consumers to understand that the posted reviews are highlighted as testimonials from happy customers, and not a display of all reviews. Because Prose was able to demonstrate that the highlighted reviews were typical, NAD found that the presentation was not misleading.

As reviews play a greater role in consumers’ purchasing decisions, companies are employing new strategies to solicit reviews and make claims based on those reviews. At the same time, many of those companies are also carefully watching what their competitors are doing and bringing challenges when they think those competitors go too far. With the FTC also listing this as an enforcement priority, we expect to see more challenges in the coming year.

If you follow the FTC, you likely saw its widely-covered filing this week alleging that Intuit, the marketer of TurboTax, has deceptively claimed for years that its online tax preparation services are “free,” when they’re free for only a subset of taxpayers. The FTC’s case parallels two class actions already underway; some state AGs are reportedly investigating the company as well.

The FTC timed its case strategically – two weeks before taxes are due – and is pursuing its case in an administrative proceeding while simultaneously seeking a temporary restraining order (TRO) to halt the conduct in federal district court. Unlike most of the consumer protection matters filed since Chair Khan joined the agency, Intuit has chosen to fight the FTC’s charges, forcing the agency to test its legal theories in court. (Home Advisor recently did the same.)

Brief summary of the allegations

The FTC’s various filings (which are partially redacted) allege that Intuit made prominent claims in its ads and on its website that its commercial (“freemium”) tax services were “free,” while only disclosing in fine print that this offer was limited to “simple returns” filed by a fraction of taxpayers (1/3 in 2020). The FTC further alleges that Intuit deliberately created confusion between its commercial services and the “truly free” services offered to low- and middle-income consumers through the IRS Free File Program. (Intuit participated in this program until 2021.)

In addition, consumers with more complex returns allegedly learned that the services weren’t free only after they visited the website and invested time and effort in creating accounts and inputting personal data. For example, if they input income from certain types of 1099s, pop-ups (called “Hard Stops”) would appear, informing them that they needed to upgrade to a paid service option to accurately report that income. In a nutshell, according to the FTC, Intuit drew consumers in with its “free” offer and then used “Hard Stops” to funnel consumers into paid options.

The case raises many interesting issues that bear mentioning here:

Deceptive door openers, net impressions, and dark patterns 

At times, the FTC characterizes Intuit’s claims as “deceptive door openers” that can’t be cured through later disclosures. At other times, it alleges that consumers’ experience on Intuit’s site created a “net impression” that the services were free to everyone when they were only free for a subset of taxpayers. Although the FTC doesn’t use the term “dark patterns,” many of the facts alleged echo its policy statements on this issue. For example, in addition to the attempts to confuse consumers (noted above), Intuit allegedly used search optimization to route consumers to its commercial (non-IRS) site.

In evaluating the FTC’s claims, the ALJ and the court will need to determine if Intuit’s claims indeed conveyed the message that the service is free to everyone, whether as a “deceptive door opener” or a matter of “net impression.” One issue they are likely to examine closely is whether the “Hard Stops” that the FTC alleges were deceptive and coercive actually served to alert users to potential costs, mitigating the alleged deception of the “free” claims.

3-1 Commission vote

The case drew a majority vote in a deeply divided Commission, with Commissioner Wilson voting to approve the complaint. Commissioner Phillips dissented, but doesn’t appear to have issued a dissenting statement (perhaps because such statements have in the past proved to be fodder for defendants and FTC critics).

Two-pronged administrative and federal court enforcement

In the wake of the AMG decision holding that the FTC can’t obtain consumer redress under Section 13(b), the FTC is pursuing the two-pronged strategy for obtaining redress under Section 19 – i.e., filing an administrative action to obtain a cease and desist order, which paves the way for a later federal court action seeking redress. At the same time, the FTC is seeking a TRO in federal district court to halt the alleged deception immediately. This process is well established and has been used in the past, but is being re-invigorated post-AMG. One key question is whether the administrative case will be caught in a backlog, since the FTC has recently filed several cases before its one ALJ. (The FTC is apparently trying to hire another one.)

Recurring harm?  

In its TRO brief, the FTC argues that, although Intuit has claimed that it is pulling its free ads off TV, the conduct is likely to recur because (1) it’s not clear whether Intuit has followed through on its pledges; (2) Intuit has been noncommittal as to whether it will pull its “free” claims off its website and social media; and (3) Intuit’s actions, if any, only occurred after it was “on the brink of litigation.” Overall, the FTC’s case for recurrence seems somewhat vague and uncertain, suggesting that there may be more to the story. Whether or not the conduct is continuing could prove decisive in the FTC’s quest for preliminary relief.

Harm to competition

Consistent with Chair Khan’s statements that the FTC will consider competition and consumer protection in tandem, the FTC includes a short section in its brief discussing “Injury to Honest Market Participants.” While the new headline here is noticeable, the FTC has long considered injury to honest businesses as a core justification for challenging deceptive claims. (See for example footnote 58 of the FTC’s Deception Policy Statement.)

Notice of contemplated relief  

Per FTC rules, the administrative complaint provides notice of the relief the FTC is seeking, and it’s very broad indeed. It would apply to all goods and services marketed by the company and would (1) ban any representations that a good or service is “free” and (2) ban any representations of material fact, unless the total costs, refund policy, and all other material terms, conditions, and characteristics are disclosed.

***

We will learn soon enough what the federal judge thinks about the FTC’s allegations, at least for purposes of granting preliminary injunctive relief. Of note, the federal judge assigned to the case (Charles Breyer) is the same judge overseeing one of the class actions – and he’s already made some rulings there that are adverse to Intuit. In the meantime, this case (like Home Advisor) may be a sign that companies are starting to resist FTC settlement demands and that more litigation will follow.

This month’s update kicks off spring with a Best in Show throwback ad comparing dog flea and tick medication, pivots to claims for survivalist ready-to-eat meals (don’t even try to act like you saw that coming), highlights FDA’s recently-issued voluntary recall guidance, provides a food court update on the latest ingredient class actions and cleans up with a pet food win in the Tenth Circuit on “fresh” and “regional” claims.  Call it March madness because there’s a lot going on. Let’s get started…

NAD

Best in Show NAD evaluated whether flea and tick medications were fairly compared via a television advertisement reminiscent of the beloved film Best in Show.  The challenged ad featured a comparison of NexGard and Bravecto in a dog show setting.  The host announces: “Welcome. It’s time to see which chew is best in show for long-lasting flea and tick protection.”  As shown below, a disclosure appears on the bottom the screen stating “BRAVECTO Chews for Dogs kills fleas, prevents flea infestations, and kills ticks (black-legged tick, American dog tick, and brown dog tick) for 12 weeks. BRAVECTO Chews also kills lone star ticks for 8 weeks. NexGard is approved for 30 days.”  By week 12, the host declares Bravecto the “clear winner”.

NAD determined that, viewing the commercial in its entirety, the commercial blends duration of action claims with a comparative superiority message and that one reasonable interpretation of  the commercial is that Bravecto is superior to NexGard in protecting dogs from flea infestations. Further, NAD determined that the presentation and plain language of the disclosure were inadequate to explain that dosing intervals were the basis for the product comparison, not overall efficacy.  NAD recommended discontinuing the advertisement.  Merck is appealing to the NARB.  For more on this “apples to oranges” comparison and, better yet, a picture of cute dogs, check out Gonzalo Mon’s blog post and podcast episode here.

Not #1 NAD reviewed baby wipes testing to determine whether Water Wipes could substantiate claims that its wipes were the “#1 wipe against the causes of diaper rash” and a similar “clinically proven” claim.  As support for its claims, the advertiser relied on the results of its “Baby Skin Integrity Comparison Survey” (BaSICS Study), involving home use tests of three baby wipe brands on infants from birth to eight weeks old.  NAD identified several concerns about the design of the BaSICS Study, including:

  • The study universe was too narrow to support the broad #1 claims;
  • The study’s failure to attempt to control for the use of skin creams and lotions to treat infants with diaper rash, which could significantly impact the role of the wipes in preventing diaper rash; and
  • The study did not attempt to blind the branding and marketing on the packaging itself, which could have biased the survey participants’ responses.

Based on this, NAD found that the “#1” and “clinically proven” claims were unsubstantiated.

Delivering Social Justice?  NAD initiated a challenge against app-based delivery service DoorDash relating to the following claim: “We are donating $1 million, with $500,000 going to Black Lives Matter and $500,000 to create a fund to be directed by the Black@DoorDash  ERG  (Employee  Resource  Group)  towards  state  and  local organizations.”  In response to the inquiry, DoorDash provided documentation that substantiated donations exceeding $1 Million to various state and local organizations pursuant to its Black@DoorDash ERG.  NAD determined that the documentation adequately substantiated the claim.

These kinds of campaigns, frequently called commercial co-ventures, are subject to various state registration and bonding requirements in addition to advertising laws.  For more resources on these campaigns, check out our commercial co-ventures resources.

Sign of the Times And finally, if your tastes tend more toward preparing for the end of days, check out NAD’s decision regarding advertising for survival food kits. In a challenge that explores a range of advertising issues, one among them is whether the name of the meal kit – “3-Month Survival Food Kit” or “1-Year Survival Food Kit” conveys any messages about serving size, caloric content, or adverse effects of consuming the food for the stated period.  NAD determined that no implied claims were conveyed by the names alone but suggested that the advertiser modify disclosures regarding the number of calories offered in each kit to ensure that they are clear and conspicuous.

This decision stands in contrast to FTC’s Dietary Supplements: An Advertising Guide for Industry, which explains that product names can convey claims.  See the Identifying Express and Implied Claims section here.

 

FDA + USDA

Updated Voluntary Recalls Guidance FDA published Initiation of Voluntary Recalls under 21 CFR Part 7, Subpart C, which is an update to draft guidance issued in April 2019.  The guidance describes steps that all FDA-regulated firms should take to prepare for recalls, including identifying appropriate personnel and training them on their responsibilities, identifying reporting requirements, use of adequate coding, and maintaining records.  In addition, the guidance discusses procedures relating to initiating and executing a recall and how FDA works with recalling firms.  Comments may be submitted here.

PFAS  FDA issued new test results regarding PFAS levels in a range of foods and shared an update on the voluntary market phase-out of certain short-chain PFAS used in food packaging.  From the agency’s summary: Results from the FDA’s most recent survey of the general food supply show that 89 of 92 food samples had no detectable levels of PFAS. Three seafood samples—tilapia, cod, and shrimp—had detectable levels of PFAS. The food samples analyzed were collected for the FY2021 regional collection of the Total Diet Study (TDS) and are the fifth set of general food supply testing done by the FDA. To date, there have been 10 samples with detectable PFAS out of 532 TDS samples the FDA has tested since 2019. Based on the best available current science, the FDA has no scientific evidence that the levels of PFAS found in the TDS samples tested to date indicate a need to avoid any particular food.

  • Alleged presence of PFAS in non-food products is being used as the basis for false advertising lawsuits involving a range of cosmetics and even underwear.  Check out this link for a few recent examples.   Companies seeking to evaluate risk around PFAS should look carefully at ingredients and warning language to determine whether disclosures are adequate.
  • On a related note, our friends at Kelley Green Law Blog wrote about EPA’s recent release of PFAS data and plans to eliminate a de minimis exemption for PFAS here.
  • In addition, Washington state is considering legislation to ban PFAS and other chemicals from cosmetics and personal care products.  SB 5703, the Toxic-Free Cosmetics Act, would ban PFAS, phthalates, and formaldehyde, among other chemicals.  If enacted, the new law would become effective in 2025.

Tech Talk  As part of FDA’s New Era of Smarter Food Safety initiatives, on March 21, the agency will air the third episode in a quarterly podcast series which focuses on the development and use of new technologies to accelerate prevention of food safety problems and speed responses to foodborne-illness outbreaks.

Climate Smarts USDA announced details of the Partnerships for Climate-Smart Commodities opportunity on February 7, 2022. Through this new program, USDA will finance partnerships to support the production and marketing of climate-smart commodities via a set of pilot projects lasting one to five years. Pilots will provide technical and financial assistance to producers who implement climate-smart practices on a voluntary basis on working lands; pilot innovative and cost-effective methods for quantification, monitoring, reporting and verification of greenhouse gas benefits; and market the resulting climate-smart commodities.

  • As we wrote about last month, climate-beneficial claims are getting an are likely to continue to get a significant amount of attention from consumers, regulators, and the plaintiffs’ bar.

FTC + State AGs

Looking to Make Money?  Whether it’s food or package delivery, sale of cosmetics or dietary supplements, or another interest-earning venture, the FTC is concerned about potentially deceptive earnings claims.  To that end, the FTC released an Advanced Notice of Proposed Rulemaking (ANPR) on earnings claims as it embarked on a mission to adopt a rule that would give the FTC, in its own words, “an important new tool to return money to consumers injured by deceptive income claims, and to hold bad actors accountable with civil penalties.”  Importantly, the ANPR also suggests that the rule could do more than just change the FTC’s enforcement tools and also seek to substantively change the standard that has long been applied in analyzing earnings and lifestyle claims.  Interested parties will have 60 days from publication in the Federal Register to submit comments and respond to the FTC’s questions and requests for evidence.  Check out the full blog post and podcast from Donnelly McDowell and John Villafranco to learn more about past enforcement and where the agency is headed.

But Are You Who You Say You Are? The State AG’s joined the FTC in expressing concern about impersonation scams such as deceptive mail solicitations and phone calls that appear to come from government agencies.  Our State AG team analyzes the multi-state efforts and what’s likely to happen here.

Class Action Update

The courts served up a bit of a mixed bag in February, deciding a number of dispositive motions in the voluminous “ingredient” class action docket.

Starting with the dismissals:  A New York federal court dismissed a lawsuit alleging that Mars falsely advertised its vanilla ice cream bars as having “milk chocolate” coating when, in fact, the coating contained vegetable oils.  The court ruled it was “nothing more than a conclusory leap” to allege that reasonable consumers read statements about milk chocolate “to implicitly mean that the product necessary contains no vegetable oils.”  Additionally, two different judges in the Northern District of California dismissed cases filed against Kind, LLC and Kashi Co., alleging that various food products were miscalculating the products’ protein content in the Nutrition Facts panel.  Applicable FDA regulations only require identification of the raw of number of grams of protein in a food product, and allow that calculation to be made using what is known as the “nitrogen” method.  If a label makes a protein nutrient claim on the front of the package, however, the Nutrition Facts panel must also include a “% Daily Value” calculated using a different method, the Protein Digestibility Corrected Amino Acid Score (“PDCAAS”).  The plaintiffs in both of these cases argued that if a protein nutrient claim is on the label, then both the raw protein content and the % Daily Value must be calculated using the PDCAAS method. The court disagreed, finding that such claims are preempted by the FDCA because they would impose labeling requirements that go beyond what the FDA regulations require.

Some courts took a different approach, denying motions to dismiss in several “ingredient” cases and sending them into discovery.  For example, an Illinois court sustained a complaint alleging that a product labeled “smoked almonds” suggested that the nuts were actually roasted over an open fire, particularly because the product’s red packaging was “evocative of fire.” And in California, a judge allowed a “vanilla” yogurt class action to proceed despite three prior dismissals.  The court previously ruled that dismissal of the California Unfair Competition Law (“UCL”) claim was appropriate because no reasonable consumer would conclude that the yogurt’s vanilla flavor was derived only from natural sources and therefore the plaintiff had failed to plausibly allege reliance as required by the UCL.  The amended complaint, however, contained allegations that the yogurt violated various FDA regulations, which are incorporated into California state law through the state Sherman Food, Drug, and Cosmetic Law.  Since the Sherman Act does not require reliance as measured by a reasonable consumer, nor should the plaintiffs’ UCL claim.

And some new filings:  We saw a number of new food class action filings following the same trends we have been seeing in recent months including: (1) challenges to the use of “natural flavoring” in Poland’s sparkling water (N.D. Illinois); (2) alleged misrepresentation of cacao content in various Mondelez’s dark chocolate products; and (3) allegations relating to the amount of whole grains used in The Cheesecake’s Factory’s “brown bread” (N.D. Illinois).  Infant formula and baby food products were also a target in February, with new actions filed against Abbott Laboratories alleging that various Similac infant formulas are causing infants to develop bacterial infections and gastrointestinal illness (N.D. Illinois and S.D. Florida), against CVS for allegedly misleading label similarities between its infant and toddler formula products (N.D. Illinois), and against Sprout Foods for suggesting its baby food products are healthier than its competitors’ products (N.D. California).

In the personal care, supplement, and drug space, new filings included:  (1) multiple actions challenging “non-drowsy” claims for over-the-counter cough and flu medicine (C.D. California, S.D.N.Y., M.D. Florida, N.D. Illinois, and E.D. Michigan); and (2) a number of efficacy challenges including to claims that E.T. Browne Drug Co.’s “Tummy Butter” drastically reduces the appearance of stretch marks (Illinois state court) and Mommy’s Bliss’s gripe water reduces symptoms of colic in newborns (N.D. California).

Finally, the Tenth Circuit affirmed the dismissal of various challenges to pet food marketing claims in Renfro v. Champion Petfoods USA, Inc.  Specifically, the court ruled that “Fresh” and “Regional” claims were subjective, and that the plaintiffs’ suggested meaning—that all ingredients were “fresh”—were belied by the rest of the products’ packaging.  The court also found that Champion’s “Trusted Everywhere” claims were inactionable puffery.  Finally, the court disagreed with the plaintiffs’ allegations relating to Champion’s “Biologically Appropriate” claims, finding that no reasonable consumer would interpret the claim to mean that the dog food mirrored the “richness, freshness, and variety” of a dog’s natural prey, and was “protein rich and carbohydrate limited.”

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Stay tuned for our next monthly update and, in the meantime, check out www.adlawaccess.com for regularly-posted content on all things advertising, privacy, and consumer protection.

NAD recently announced a decision in a challenge that Charter brought against T-Mobile for its home internet service. The decision covers a lot of ground and is worth reading if you work in the telecom space. But for the purposes of this post, we’re going to focus more narrowly on one specific issue that spans industries.

Charter challenged T-Mobile’s claim that it provided “average speeds over 100 Mbps for most customers.” Although T-Mobile voluntarily agreed to stop making that claim, NAD focused on another variation that still appeared on the company’s website. One question in an FAQ asked: “What speeds can I expect from T-Mobile Home Internet?” In response, T-Mobile stated that “many” users will experience average download speeds of over 100 Mbps.

How many consumers do you need to substantiate a “many” claim? NAD held that T-Mobile’s claim reasonably conveyed the message that “a substantial number of customers will achieve average speeds of over 100 Mbps.” This was particularly true when the speeds were presented in response to a question about the speeds that “I” – the individual consumer – could expect. In other words, consumers could read that to mean that they could expect those results.

OK, so if “many” requires a “substantial number” of consumers, what does a “substantial number” mean? Unfortunately, the answer isn’t clear. In this case, NAD referred to FCC guidance and its own previous decisions on internet speeds. Based on the “limited record” (into which we don’t have a good view), NAD determined that T-Mobile should stop the claim or modify it “to provide truthful and accurate information about the speed or range of speeds that its customers can consistently experience.”

It’s hard to walk away from this decision with a clear answer to the question of what it takes to substantiate a “many” claim, and the answer will probably depend a lot on the context. But even though we may not have a clear answer to the question, simply knowing that the question may be asked is helpful so that you can prepare. Consider how consumers may interpret your claims, what support you have, and whether it makes sense to qualify your claim.