Sep 15, 2010
In the first application of the new guidelines on testimonials and endorsements, the Federal Trade Commission reached a settlement with a public relations firm accused of illegally advertising its clients’ gaming applications by having employees pose as consumers and post reviews on iTunes.
Under the proposed settlement, Reverb Communications will be required to remove any previously posted endorsements by authors posing as independent users who were in fact paid employees. The company and its sole owner, Tracie Snitker, will also be barred from making future claims without disclosing any relevant connections to the seller of the product or service.
The FTC alleged that Reverb, a public relations and marketing firm, posted reviews about its clients’ mobile gaming applications at Apple’s iTunes store between November 2008 and May 2009. The reviews did not disclose that the authors were hired to promote the games, according to the FTC complaint, nor that they received a percentage of the sales. Instead, they purported to be from independent consumers. Reverb employees gave their clients four and five star ratings and submitted glowing comments such as “Amazing new game,” “ONE of the BEST,” and “Really Cool Game,” according to the complaint.
To read the consent order in In the Matter of Reverb Communications, Inc., click here.
Why it matters: The action is the first complaint issued pursuant to the FTC’s revised endorsements and testimonials guides. While the agency investigated Ann Taylor earlier this year for giving gifts to bloggers, no charges were filed. Advertisers and marketers should remember that under the guides any endorsement by a person connected to the seller, or who receives cash or in-kind payment to review a product or service (including bloggers and celebrity endorsers), must disclose his or her material connection with the seller. The enforcement action against Reverb serves as a reminder that the guides apply to employees of both the seller and the seller’s advertising agency.
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A third class action lawsuit has been filed in California federal court against shoemaker Skechers, alleging that the company deceived consumers about the health benefits of its “Shape-up” line of shoes.
Print, television, and Internet ads, according to the complaint, tout the “noticeable physiological benefits to consumers” of the shoes, including weight loss, firmer muscles, reduced cellulite, improved circulation, and improved posture. Plaintiff Venus Morga claims that she paid a premium for the shoes and did not experience any of the benefits described by Skechers in its advertising.
The Shape-ups contain what Skechers describes as a “unique kinetic wedge,” or a piece of foam, that is, thicker at the heel and progressively thinner towards the toes, which alters the way the wearer stands and walks. Relying on clinical studies, Sketchers maintains that the altered posture results in health benefits that allow wearers to “[g]et in shape without setting foot in a gym.” But the suit claims that the studies are bogus“marketing tools and that the shoes can actually harm wearers who have flat feet or preexisting difficulties with balance.
Morga is the third plaintiff in as many months to file suit over the shoes. Two other plaintiffs made similar claims in suits filed in June and July in California federal courts. All three suits argue that Skechers violated California’s unfair business practices law by engaging in deceptive advertising.
To read the complaint in Morga v. Skechers, click here.
Why it matters: Advertisers should be careful to use claims that are substantiated, and that studies used in support produce accurate, verifiable results.
The California legislature initiated legislation that would prohibit labeling any plastic product sold in California as “biodegradable,” “degradable,” or “decomposable,” absent standard specification for such terms. Currently, California law forbids such terms on food packaging or plastic bags, but Senate Bill 1454 would expand the scope of covered items to include all products that contain plastic components.
The American Society for Testing and Materials presently has no standard specification for the term “biodegradable” or “degradable” as it applies to plastic. According to the bill, the use of such terms on plastic items is inherently misleading to consumers, who will be more likely to litter an item labeled “biodegradable,” resulting in harm to the state and environment.
“Littered plastic products have caused and continue to cause significant environmental harm and have burdened local governments with significant environmental cleanup costs,” according to the legislation. “It is the intent of the Legislature to ensure that environmental marketing claims, including claims of biodegradation, do not lead to an increase in environmental harm associated with plastic litter by providing consumers with a false belief that certain plastic products are less harmful to the environment if littered.”
The legislation leaves room for labeling a product “compostable” or “marine degradable,” terms for which the ASTM has set a standard specification. The bill provides for civil penalties but expressly leaves room for actions under the state’s consumer protection law as well.
Governor Arnold Schwarzenegger has until September 30 to veto the legislation or sign the bill into law.
To read SB 1454, click here.
Why it matters: The law could have implications for national retailers who sell products in California. The issue, however, could be mooted by the soon-to-be released updated Green Guides from the Federal Trade Commission. The Guides currently allow an item to be labeled “biodegradable” or “degradable” if the claim is “substantiated by competent and reliable scientific evidence that the entire product or package will completely break down and return to nature.” Such claims must also be qualified “to the extent necessary to avoid consumer deception about: (1) the product or package’s ability to degrade in the environment where it is customarily disposed; and (2) the rate and extent of degradation.”
The Federal Trade Commission issued subpoenas to 48 food companies to gather information as part of a follow-up to its 2008 report, “Marketing Food to Children and Adolescents: A Review of Industry Expenditures, Activities and Self-Regulation.”
In 2007, the FTC sought information from 44 companies to examine how they marketed to children and teenagers.
The new round of subpoenas will measure changes over the last few years. “This is a follow-up to measure the effects that self-regulation has had over the last three years,” said Carol Jennings, spokeswoman for the FTC’s Division of Advertising Practices/Bureau of Consumer Protection. “We are supportive of industry voluntary efforts to limit their marketing to kids and this will see whether more is needed.”
The list of companies – including Campbell Soup Co., Kellogg Co., Kraft Foods, and McDonald’s Corp. – has changed slightly from 2007 to 2010. Thirty-six companies are repeats, with 12 new recipients, including Dunkin’ Brands, Hostess Brands, and Sunny Delight Beverages Co.
Information sought includes the amount spent to communicate marketing messages about food products to youth; the nature of the marketing activities used to market food products to youth; the types of youth marketing to a specific gender, race, ethnicity, or income level; and any marketing policies, initiatives or research in effect or undertaken by the companies relating to the marketing of food and beverage products to children and adolescents. Specific nutritional data was also requested for each food product that the companies marketed to children or adolescents in 2009.
The FTC also requested expenditure data for new media, such as online display advertising, e-mail marketing, mobile marketing, and digital marketing.
For the full list of companies that received subpoenas, click here.
Why it matters: While the FTC spokesperson denied that the subpoenas were the first step in a process toward new legislation, the agency’s concern regarding on marketing food products to children is clear.
Linda A. GoldsteinPartnerEmail212.790.4544
Jeffrey S. EdelsteinPartnerEmail212.790.4533
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