Advertising Law

Wasserman Invited to Speak at FDLI Annual Conference

Manatt partner Ivan Wasserman will serve on the faculty of this year’s Food and Drug Law Institute (FDLI) Conference, the largest and longest-running legal conference for the food and drug law community, which covers every product category regulated by FDA. The conference will highlight the legal, regulatory, policy and economic issues spanning the broad range of FDA’s authority by convening leading professionals from the federal government, industry, the private bar, patient and consumer advocates, consulting organizations and academia.

Ivan will participate in a panel session titled “FTC Update: The Commission’s Health Claims Scrutiny Deepens.” He will be joined by co-panelists Richard Cleland (Assistant Director, Division of Advertising Practices, Bureau of Consumer Protection, FTC), Laura Protzmann (Senior Counsel, Marketing, Legal Department, Unilever US), and Daniel Fabricant, PhD (Executive Director and CEO, Natural Products Association) who will examine recent case law involving health claims substantiation. The speakers will offer practical guidance for in-house attorneys, as well as regulatory, R&D and marketing professionals who are evaluating proposed claims and substantiation.

The conference will be held on April 20-21, 2015 at the Grand Hyatt Washington in Washington, D.C. For more information or to register, click here.

NOTE: As a friend of Manatt, Phelps & Phillips, be sure to take advantage of a 15% discount off the cost of registration by entering the following code: ANNUAL2015.

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Pink Cadillac Not Included: Mary Kay Sues Over “Fraudulent Couponing Scheme”

According to a new federal court complaint filed by Mary Kay, Inc., online deal site RetailMeNot has tricked consumers with a “fraudulent couponing scheme” by offering coupon codes for the cosmetic and skin care company’s products.

RetailMeNot, which purports to operate the “world’s largest digital coupon marketplace,” features a Mary Kay merchant page with various offers and coupons on its Web site, and even provides a link to submit coupons directly.

The company argues that codes—posted on the defendant’s Web site and touted in Google search ads—mislead consumers into believing the site has a relationship with Mary Kay, and that they can purchase products from Mary Kay at a discount.

“In essence, RMN is running a fraudulent Mary Kay couponing scheme,” the complaint alleges. “By listing these purported Mary Kay ‘sales’ and ‘codes’ on its website, RMN misleads consumers into believing that Mary Kay has a relationship with RMN, that Mary Kay products can be purchased directly from Mary Kay at a reduced price, and that the coupon ‘codes’ are legitimate. In short, RMN’s use of the Mary Kay marks implies that Mary Kay has endorsed or approved of RMN’s activities, which it has not and does not.”

In reality, Mary Kay sells its products to “beauty consultants” who in turn sell the company’s wares to consumers. The company’s success can be attributed to this “carefully designed” direct sales business model, the company argues, and RetailMeNot presents a fraudulent image of Mary Kay because the company “does not publish or distribute Mary Kay coupons or discount offers to the general public or permit others to do so.”

Mary Kay has already received multiple complaints from beauty consultants who have been pressured by consumers to accept the unauthorized coupons from RMN’s Web site, which, in the company’s view demonstrates that consumers are confused.

The complaint alleges that RetailMeNot has infringed Mary Kay’s trademark and has engaged in false advertising and unfair competition. Mary Kay seeks injunctive relief and monetary damages.

To read the complaint in Mary Kay Inc. v. RetailMeNot, Inc., click here.

Why it matters: The complaint does not identify the source of the coupon codes that appeared on the defendant’s Web site, and RetailMeNot issued a statement that it intends to fight the lawsuit. “RetailMeNot, Inc. continues to believe that it operates in compliance with law and in the best interests of consumers and its retail partners by aggregating information to help shoppers save money using its websites and mobile apps,” the company said.

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On the FTC’s Agenda: Cross-Device Tracking

The Federal Trade Commission has scheduled a November 16 workshop to consider the privacy issues related to cross-device tracking, where companies follow a consumer for advertising and marketing purposes from their laptop to smartphone to wearable device, for example.

As the number of consumer devices increases, advertisers have explored alternate ways to reach them with targeted advertising techniques.

Since consumers are often unaware of or cannot control the cross-tracking, participants at the workshop will discuss the data security and privacy implications of the practice.

In preparation for the workshop, the FTC has asked for public comment on a variety of issues.

Specifically, it asks what are the different types of cross-device tracking, how do they work, and what are they used for? The agency would also like to hear about the types of information and benefits that companies gain from using cross-device technologies, as well as the benefits that consumers derive from such technologies.

It also asks what are the privacy and security risks associated with the use of these technologies, and how can companies make their tracking more transparent, and provide consumers with greater control?

Finally, the agency wondered if current industry self-regulatory programs apply to different cross-device tracking techniques.

“More consumers are connecting with the internet in different ways, and industry has responded by coming up with additional tools to track their behavior,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release about the workshop. “With the advent of new tracking methods, though, it’s important to ensure that consumers’ privacy remains protected as businesses seek to target them across multiple devices.”

To learn more about the workshop, click here.

Why it matters: Workshops held by the agency signal the FTC’s interest in particular issues such as “big data” or native advertising, and the potential for enhanced enforcement efforts or a push for possible regulation of an industry.

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FTC Wants More From Data Breach Bill

What does the Federal Trade Commission think about the latest piece of privacy legislation to hit Congress?

Testifying before the House Subcommittee on Commerce, Manufacturing, and Trade, the agency’s director of Consumer Protection, Jessica Rich, expressed concern that the Data Security and Breach Notification Act does “not provide the strong protections that are needed to combat data breaches, identity theft, and other substantial consumer harms.”

After highlighting the recent data breaches that have impacted millions of Americans—and explaining the FTC’s three-prong data security approach of law enforcement, policy initiatives, and business guidance and consumer education—Rich focused on the bill recently introduced by Reps. Peter Welch (D-Vt.) and Marsha Blackburn (R-Tenn.).

The bill covers entities that “acquire, maintain, store, sell or otherwise use personal information in electronic form” and requires them to maintain “reasonable security measures and practices” as appropriate for the size and complexity of the business. Covered data includes an individual’s first and last name combined with a driver’s license number, home address or telephone number, mother’s maiden name, birthdate, financial account credentials, full Social Security number, or unique biometric data.

A breach of such information would mandate “a reasonable and prompt investigation” to determine the economic loss, economic harm, or financial harm that consumers would suffer as a result of identity theft. If the investigation finds consumer harm, the company has 30 days to notify consumers of the breach.

The Act would preempt all state and federal data security laws currently in place, with enforcement power granted to state attorneys general as well as the FTC. No private cause of action would be created, and companies already subject to federal data security and notification regimes would be exempt.

Rich also emphasized the FTC’s long-standing support for a federal data security and breach notification law. “Although most states have breach notification laws in place, having a strong and consistent national requirement could simplify compliance by businesses while ensuring that all consumers are protected,” she said.

Certain elements in the Act met the agency’s approval, such as a provision that requires companies to implement reasonable data security standards, a provision that grants the FTC’s jurisdiction over common carriers and nonprofits, and a section that permits the Commission’s ability to seek civil penalties, “an important tool to deter unlawful conduct.”

However, Rich expressed four concerns about the Act. First, the agency felt the bill “does not strike the right balance,” and needs stronger protections such as adding precise geolocation and health data to the list of information covered by the legislation. Second, the Commission believes that the law “should apply to all key parts of the data ecosystem, including to devices that collect data, such as some Internet-enabled devices, as bad actors could target such devices to cause physical harm even if they do not steal any data.”

Third, rulemaking authority under the Administrative Procedures Act should be added to the FTC’s powers so the agency can keep pace with evolving technology, she suggested. “Rulemaking authority would allow the Commission to ensure that even as technology changes and the risks from the use of certain types of information evolve, companies are required to appropriately protect such data.”

Fourth, the trigger for notification also requires an adjustment, Rich said. Consumers need to protect themselves when their data is at risk without facing “over-notification,” which causes them to ignore the notices or become confused. The Act’s standard of notice, “Unless there is no reasonable risk that the breach has resulted in, or will result in, identity theft, economic loss or economic harm, or financial fraud,” is too lenient, she said.

Instead, “The Commission supports an approach that requires notice unless a company can establish that there is no reasonable likelihood of economic, physical, or other substantial harm,” Rich told lawmakers.

To read the Data Security and Breach Notification Act, click here.

To read Director Rich’s prepared remarks, click here.

Why it matters: Rich was not alone in expressing her concerns about the Data Security and Breach Notification Act. Of the seven panelists at the hearing, just one spoke out in support of the bill. The others—including the assistant attorney general for the state of Massachusetts and a representative from the National Retail Federation—criticized the legislation for a variety of reasons, from the failure to include geolocation as a covered class of data to the loss of stronger state protections. “It would be better for privacy to pass no bill than to pass this bill as currently drafted,” Laura Moy of the New America Foundation’s Open Technology Institute testified at the hearing.

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Plaintiff Loses Challenge to “No Refined Sugars” Claim

The second time was not the charm for a plaintiff suing Kind LLC over label claims for its snack bars.  

Rochelle Ibarrola alleged in her Illinois federal complaint that the company’s claim that its Vanilla Blueberry Clusters bar contained “no refined sugars” was false and misleading. After reading the ingredients list, she saw that the snack bar had evaporated cane juice and molasses, both of which contain refined sugars.

She claimed she understood that unrefined sugars provided certain health benefits over refined sugars and chose Kind’s product based on this preference.

Kind responded that Ibarrola failed to fully explain her confusion—did she think that the Vanilla Blueberry Clusters bar contained only naturally occurring sugars that had not been refined at all?

Dismissing the case for a second time—and with prejudice—the court said Ibarrola’s allegations were “not plausible,” as she could not have believed that the bar contained unrefined sugars with evaporated cane juice and molasses listed as ingredients.

“Because Ibarrola read the entire product label and thus saw that the product contained evaporated cane juice, she recognized that at least one of the sweeteners in the Vanilla Blueberry Clusters was derived from sugar cane,” U.S. District Court Judge Sara L. Ellis wrote. “Thus, taken at her words, Ibarrola alleges that she thought that Vanilla Blueberry Clusters contained sugar cane in its natural state, not having gone through any process to refine it.”

The court recognized that sugar cane in its natural state is inedible, and is “a grass that contains jointed stalks resembling bamboo,” made up of “fibrous flesh surrounded by bark.”

“Given this reality, no reasonable consumer would think—as Ibarrola alleges she did—that the sugar contained in Kind’s Healthy Grains products was still in its natural, completely unrefined state,” Judge Ellis said. “Even though a reasonable consumer may not understand everything that happens to sugar cane before its derivative can be added as an ingredient in Vanilla Blueberry Clusters, a reasonable consumer would know that all sugar cane-derived sweeteners suitable for human consumption must be at least partially refined. Reasonable consumers do not believe that they are eating straight sugar cane in Vanilla Blueberry Clusters or any other food product because sugar cane in its natural, unprocessed state is indigestible.”

A reasonable consumer would know that sugar cane must be at least partially refined to be edible, the court said. “Thus, the Court finds that the only reasonable conclusion after reading the entire Vanilla Blueberry Clusters label is that Kind used the word ‘refined’ as a term of art to distinguish partially refined sugars like evaporated cane juice and molasses from fully refined sugars like table sugar.”

Judge Ellis analogized the plaintiff’s claims to a false advertising suit alleging that consumers believed Crunchberries cereal contained actual berries.

To read the opinion in Ibarrola v. Kind, LLC, click here.

Why it matters: The court noted that its decision should not be read as a “get out of jail free” card for advertising claims. “That is not to say that food producers have carte blanche to make false assertions so long as the nutritional and ingredient information is accurate; rather, the Court finds that to arrive at a reasonable understanding of the claim ‘no refined sugars,’ Ibarrola should have considered the other information she encountered on the product’s packaging,” Judge Ellis explained. “Thus, the Court finds that because Ibarrola has not plausibly alleged that Kind’s packages contained any deceptive statements, her fraud claims are dismissed.”

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Most Read Stories

In case you missed any, here are our top 10 most widely read stories in February:

1. “SPECIAL FOCUS: D.C. Circuit Limits FTC’s Ability to Require Two Randomized Clinical Trials to Substantiate Disease Claims in Long-Awaited POM Decision

2. “FTC Consumer Protection Head Addresses Do’s, Don’ts for Privacy

3. “BBB Tweaks Advertising Code for Modern Media

4. “Sweepstakes Promoter Violates FTC Deal, Faces Ban and $9.5M Judgment

5. “Internet of Things Report Issued by FTC

6. “Class Action Challenging ‘Natural’ Deodorant Settles for $1.9M

7. “Alcohol Ads Banned in Los Angeles

8. “Podium P-O-V: Observations From Marc Roth on ERA’s Great Ideas Summit"

9. “FCC Chair Announces New Net Neutrality Regs"

10. “FTC Takes Down International Telemarketing Fraud"

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