Advertising Law

Wikipedia Link Trips up Ninth Circuit False Ad Suit

Ruling that a California federal court incorrectly relied upon a Wikipedia link when considering a summary judgment motion in a false advertising suit, the Ninth Circuit Court of Appeals reversed dismissal of a suit against GNC Corporation.

Michael Bitton and other consumers filed suit against GNC, Gencor Nutrients, related entities, and corporate executives in connection with Testofen, an extract of the herb fenugreek. The defendants manufactured nutritional supplements containing the extract and marketed them as a testosterone supplement that could increase muscle mass, strength, and libido in males, the plaintiffs said.

The putative class action complaint alleged that the defendants violated California and New York false advertising laws as well as the federal Racketeer Influenced and Corrupt Organizations Act (RICO), by working together to promote fraudulent claims to dupe consumers.

To market their products, the defendants claimed they conducted a "double-blind, randomized, placebo-controlled human clinical study" that established "statistically significant results" showing increases in "free testosterone" in study participants. The plaintiffs alleged that they relied on this representation, which they further said was false.

The plaintiffs conceded that a clinical trial occurred, but according to their complaint, the trial's results did not establish a statistically significant increase in free testosterone levels in study participants when subjected to "universally-accepted principles of statistical analysis." To support this contention, the plaintiffs provided an expert report relying upon what they characterized as the most common method of making a statistical adjustment, the Bonferroni correction.

A federal district court judge granted the defendants' motion to dismiss all counts. As part of its reasoning, the court cited an article found online for the proposition that "[t]he Bonferroni correction is the simplest and most conservative approach used to correct for" multiple variables. Failing the Bonferroni correction test does not necessarily mean that a study's results are not statistically significant, the court said, and less conservative methods of correction could show that the results of the Testofen study were statistically significant.

The plaintiffs appealed and the Ninth Circuit reversed as to the false advertising and deceptive business practices claims.

"The district court erred in relying on its interpretation of the Bonferroni correction," the panel wrote in an unpublished memorandum. Although the complaint incorporated by reference a Wikipedia page on the Bonferroni correction, "the district court relied on a different publication (a link to which was apparently embedded in the cited Wikipedia page) for the proposition that it is the 'most conservative' correction. The latter article was not before the court, which should have ruled only on the sufficiency of the allegations in the complaint."

"More importantly, the accuracy of statements on the Wikipedia page and in the article, and the court's assumption that application of other corrections would confirm that the Gencor study produced statistically significant results, are not proper subjects for judicial notice," the Ninth Circuit declared.

The panel did affirm the district court's dismissal of the plaintiffs' RICO claims, however, finding that the complaint lacked plausible allegations of a fraudulent scheme. "The complaint contains no factual allegations plausibly suggesting that the results of the study were altered or that any Defendant knew that the study was either falsified or unreliable," the court said.

To read the memorandum in Bitton v. Gencor Nutrients, Inc., click here.

Why it matters: While the Ninth Circuit reinstated the false advertising and deceptive business practices claims against the defendants (providing a reminder about the proper subjects for judicial notice), the court was not persuaded that the complaint's allegations were sufficient to state a criminal enterprise occurred in violation of the federal RICO statute.

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FTC Settles Charges Over Product Claiming to Alleviate Withdrawal, Addiction

The Federal Trade Commission settled with Sunrise Neutraceuticals and principal Joshua Erickson over charges that the defendants deceptively marketed a powered drink mix as capable of helping opiate-addicted individuals overcome addiction and withdrawal.

The Elimidrol powder was touted by the defendants as alleviating the symptoms of withdrawal and increasing the chances of overcoming addiction, the agency said. The Florida-based operation used Internet advertising to get opiate-dependent consumers, with unsubstantiated claims that Elimidrol has a "high success rate … in overcoming opiate withdrawal" and "turns up the chances of a successful recovery," to "permanently overcome withdrawal—the first time."

According to the FTC's November 2015 federal court complaint, the defendants marketed the powder mix as "America's #1 scientifically formulated detox supplement that will provide you with the strength and comfort to successfully overcome opiate withdrawal by alleviating the intense mental and physical discomfort during the process."

All of the claims were unsubstantiated, the FTC said, in violation of Section 5 of the Federal Trade Commission Act. The defendants opted to settle.

Pursuant to the deal, the defendants are prohibited from making deceptive claims for any health-related products and must have competent and reliable scientific evidence for efficacy claims for any health-related product.

Specific to opiate-treatment products, the order requires that the defendants have competent and reliable human clinical testing to back up claims for opiate dependence, addiction, or withdrawal. Such testing must also be used to support claims that a product cures, mitigates, or treats any other disease, including claims related to other substance abuse disorders.

Finally, the defendants must pay $235,000 in redress or disgorgement (with the remainder of the almost $1.4 million judgment suspended).

To read the complaint and the stipulated final judgment order in FTC v. Sunrise Neutraceuticals, click here.

Why it matters: "Opiate addiction has taken a tremendous toll on the American public," Jessica Rich, Director of the FTC's Bureau of Consumer Protection, said in a statement about the case. "By peddling their unproven product, these defendants have prevented people from seeking legitimate treatment." In addition to keeping a close eye on misleading health advertising, the agency noted that the action highlighted its participation in the National Prevention Council, which provides coordination and leadership at the federal level for prevention, wellness, and health promotion practices for Americans at every stage of life.

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"Natural" Claims Cost Seventh Generation $4.5M

False advertising suits over "natural" claims continue to cost advertisers millions, with Seventh Generation reaching a $4.5 million deal over claims for its cleaning products.

A trio of consumers alleged that despite labeling terms including "natural," "non-toxic," and "hypoallergenic," the company's laundry detergent and dish liquid contained synthetic preservatives such as methylisothiazolinone and benzisothiazolinone.

After years of litigation and a round of mediation, the parties reached a settlement agreement. Pursuant to the plaintiffs' unopposed motion in support of preliminary approval of the deal, Seventh Generation will pay $4.5 million to establish a settlement fund. Class members—defined as all purchasers of the products nationwide dating back to November 14, 2008, and estimated to be in the "thousands"—who have proof of purchase would receive a full refund on their purchases while those without can get 50 percent of what they paid for up to ten products.

The fund will also pay for $5,000 awards for the three representative plaintiffs, all costs of notice and claims administration, and attorney's fees of up to 33 percent of the $4.5 million. Any remaining funds shall be given to the Center for Science in the Public Interest and the National Consumer Law Center.

In addition, Seventh Generation agreed to remove claims of "all natural" and "100% natural" from its labels and clarify advertising claims about nontoxic and hypoallergenic properties. Specifically, if the products contain challenged synthetic preservatives, the company will feature a disclosure on its website that "hypoallergenic," "non-toxic," or similar statements do not mean that the product will not cause any allergic reaction or irritation in any person, and that a small percentage of individuals may have some form of reaction or irritation to the preservatives.

Further, any product label using the word "natural" will contain a biobased seal or content disclosure that lists the percentage of biobased other ingredients on product labels and provide ingredient information (including origin, such as plant-derived or synthetic) and function on Seventh Generation's website. The defendants must also abide by industry or regulatory labeling standards where applicable.

The settlement "provides excellent relief" to class members, the plaintiffs wrote.

In a statement, the company said it elected to settle to avoid the costs of litigation but stands behind its product labels. "In an industry where there are loose regulations and many corporations are concerned with protecting trade secrets more than public health, we think there is much to cause consumer concern," a spokeswoman for the company said. "But we assure you that you should never doubt the integrity and efficacy of Seventh Generation products or the claims on our packaging."

To read the plaintiffs' unopposed motion in support of preliminary approval of settlement in Rapoport-Hecht v. Seventh Generation, click here.

Why it matters: "Natural" claims continue to be risky labeling choices for advertisers. Seventh Generation is only the latest company to reach a multimillion-dollar settlement in a consumer class action challenging such claims, following on the heels of others including Tom's of Maine, which agreed to pay $4.5 million for claims related to its personal care products and Naked Juice, which poured out $9 million for its "All Natural" and "Non-GMO" labeling.

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Revlon's "Age Defying" Product Line Defies Class Action With $900,000 Deal

For $900,000, Revlon has settled a false advertising suit challenging the name of its "Age Defying with DNA Advantage" product line.

Anne Elkind and Sharon Rosen filed suit in 2014 accusing the cosmetics giant of using the product line's name to mislead consumers into believing the foundation, powder, and concealer would alter the genetic code of their skin cells. In reality, the products just had sunscreen, the plaintiffs said, and contained no ingredients that could interact with or otherwise affect the DNA in human skin cells.

After a federal court judge trimmed the suit last year, the parties began to negotiate a settlement and reached a deal last month. They filed a joint motion in support of preliminary approval of the deal in New York federal court.

The terms of the agreement require Revlon to provide $900,000 for a settlement fund that will pay for notice and administrative costs, two class representative awards of $5,000, and a class counsel award of up to $590,000. The remainder will be used to refund class members $3 per purchase, with up to three claims possible without a receipt. Class members with receipts shall receive $3 per claim with no cap on the number of the claims.

No less than $250,000 but no more than $400,000 shall be paid to the estimated tens of thousands of nationwide claimants, so in the event that claims exceed $400,000, payments will be reduced on a pro rata basis.

The motion noted that discovery revealed a Revlon document assigning a premium price to the DNA Advantage products of about 7 percent per package, or approximately $1 for a $15 purchase. "Here, the Settlement provides $3 per package to class members, or triple the expected trial result," the parties wrote. "Since the premium price attributable to the allegedly false advertising is the most the class could have received at trial, and the Settlement trebles that amount, the result is favorable to the class."

Revlon also agreed to "discontinue and not recommence manufacturing, advertising, promotion, distribution, offer for sale, and sale" of the three products in the DNA Advantage line by the end of December 2017. The company noted it has already stopped the manufacturing and sale of the concealer and powder.

To read the joint motion in support of preliminary approval of settlement in Elkind v. Revlon Consumer Products Corp., click here.

Why it matters: The motion in support of the agreement emphasized the "complex issues" presented by the plaintiffs' claims, arguing that the value of the settlement far outweighed the costs and risks of continuing to litigate the efficacy of the DNA Advantage claims, particularly as Revlon agreed to pay about three times the price premium for the products.

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Shield Yourself: Final Data Transfer Agreement Is Here

The final agreement between the United States and the European Union to regulate the transatlantic transfer of data is now in place.

The proposal for the EU-U.S. Privacy Shield was released in February after the previous iteration of the agreement, the Safe Harbor, was struck down by the EU's highest court in 2015.

That decision resulted from a complaint filed by Austrian citizen Max Schrems in the wake of Edward Snowden's revelations about the surveillance activities of the National Security Agency. He sought an order to prohibit a social networking site from transferring his personal data to the United States. Schrems argued that the U.S. did not ensure adequate protection of his data as required by EU law because of the surveillance activities exposed by Snowden.

The Shield features several additions intended to ameliorate concerns in the EU over the handling of data in the United States, such as a promise from the U.S. government not to conduct mass surveillance of transferred data, the establishment of a cause of action for European citizens to allege violations of their privacy rights in American courts, and the creation of an ombudsperson to deal with complaints from the EU with regard to data transfer.

Critics were unimpressed with the changes from the Safe Harbor, with some governments in the EU expressing concern that the Shield still did not go far enough to protect the data of its citizens.

In response, some tweaks were made to the initial version of the deal, including a commitment that the ombudsperson will be independent from national security services as well as explicit data retention rules requiring companies to delete data that no longer meets the purpose for which it was collected.

The changes were enough to sway the members of the EU, who voted to ratify the agreement on July 8. The European Commission formally adopted the data transfer pact on July 12. Companies will be able to begin certifying their compliance on August 1 with the U.S. Department of Commerce.

To read guidance on how to join the Privacy Shield, click here.

Why it matters: While some members of the EU continue to grumble about the deal and critics caution that the Shield will not withstand judicial scrutiny (Schrems has promised to file a similar challenge), regulators and governmental entities hailed the fact that the agreement is in place. "[T]he EU-U.S. Privacy Shield will ensure a high level of protection for individuals and legal certainty for business," Andrus Ansip, the Vice President for the Digital Single Market on the European Commission and Vera Jourova, the European Commissioner for Justice, Consumers, and Gender Equality, said in a joint statement. "It is fundamentally different from the old 'Safe Harbour': It imposes clear and strong obligations on companies handling the data and makes sure those rules are followed and enforced in practice." Federal Trade Commission Chair Edith Ramirez agreed. "I welcome the European Commission's approval of the EU-U.S. Privacy Shield Framework," she said in a statement. "The FTC has a strong track record of protecting consumer privacy, and we will remain vigilant as we enforce the new framework. We will also continue to work closely with our European counterparts to provide robust privacy and data security protections for consumers in the United States and Europe."

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News and Views

Direct Marketing News recently caught up with Manatt's Marc Roth, co-chair of the firm's TCPA compliance and class action defense practice, for insights into the wide world of mobile. In "Five Minutes With: Marc Roth on Mobile Tracking, Compliance, and Self-Regulation," Marc discusses the basic opportunities and challenges in mobile tracking and shares his thoughts on the recent FTC settlement with InMobi on deceptive data collection regarding children's privacy. Roth was also recently tapped by Bloomberg BNA to discuss why political campaigns that use an automated dialing system should be extra careful to obtain consent from consumers in order to comply with the TCPA in an article titled "Clinton and Trump and Robocalls, Oh My."

Some clarity on GMO labeling may be on its way. In "President Obama Expected to Sign Divisive Senate GMO Labeling Bill Into Law," Organic Authority turned to Ivan Wasserman, partner in Manatt's advertising, marketing and media practice, to comment on the Stabenow-Roberts bill S. 764, which passed in the House last week and is on its way to the White House for President Obama's signature. "Having different labeling rules in different states is very difficult for manufacturers and potentially very confusing to consumers. The particulars of this bill clearly will not satisfy everyone, but laws like this seldom do," said Wasserman.

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