Advertising Law

Ivan Wasserman to Speak at Immune Health Sector Forum, June 30

Ivan Wasserman, partner in the firm’s Advertising, Marketing & Media division, will present at NutraIngredients-USA’s webinar titled “Trends in the Immune Health Sector Forum” on Tuesday, June 30. Wasserman will be joined by experts from Abbott Nutrition, the University of Southampton, Vynna LLC, and NutraIngredients-USA’s Hank Schultz for an hour-long discussion of the booming immune health sector. The panelists will explore the growth of the industry, answer regulatory questions regarding product claims, and forecast changes for immune support in the United States.

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In Case You Missed It: FCC Adopts Significant Changes to TCPA Rules

Last week, in TCPA Connect, our newsletter devoted to cases and developments surrounding the Telephone Consumer Protection Act, we reported on the FCC’s June 18th Open Commission Meeting. Commission Chairman Tom Wheeler’s proposal to revise the TCPA rules passed by a 3-2 vote. To read our summary of the ruling based on the press release and commissioner statements during the meeting, click here.

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Lawmakers Oppose Changes to Ad Tax Deduction

In a letter addressed to House leaders, 87 lawmakers stated their position that the tax code should not be revised to modify the current tax deduction for advertising.

“For more than 100 years, advertising expenditures have received the same tax treatment as any other ordinary and necessary business expense, much the same as employee wages, rent, utilities, and office supplies,” Reps. Eliot Engel (D-N.Y.) and Kevin Yoder (R-Kansas) wrote to Speaker of the House John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.). And now is not the time to change it, the lawmakers said.

In his 1,000-page tax reform package, Rep. David Camp (R-Mich.) proposed cutting the current 100 percent advertising tax deduction for businesses to 50 percent in the first year, with the remaining half amortized over a 10-year period.

The proposal drew the ire of the ad industry, which called the suggestion counterproductive to the stated goal of stimulating the economy. Now legislators have spoken up as well.

Reps. Engel and Yoder authored the letter and reached out to fellow lawmakers for support by asking them to sign on. Eighty-five members of Congress agreed, including Reps. Darrell Issa (R-Calif.), Bobby L. Rush (D-Ill.), and Nita M. Lowey (D-N.Y.).

While the letter acknowledged the need to “streamline the corporate tax code” and “eliminate loopholes and special benefits while lowering the overall tax rate,” cutting the ad tax deduction doesn’t make sense, the lawmakers said.

“Changes that will make advertising more expensive cannot be justified as a matter of tax or economic policy,” the legislators wrote. “Such changes would be severely detrimental to local advertisers, broadcasters, print media, online service providers, national media companies, news-gathering organizations, and other businesses that rely on advertising as their primary source of income. Imposing this cost on advertising would threaten the ability of these businesses to continue to support jobs and offer the high-quality news, information, and entertainment on which our constituents rely.”

Advertising supported 21.7 million jobs and generated $5.8 trillion in sales in the United States in 2013, according to a study by economic consulting firm HIS Global Insight that they cited in support. The study also noted that every dollar of advertising spent produced $22 of economic activity.

“Fixing our country’s tax code is a challenge that we welcome,” the lawmakers wrote. “As this Congress delves deeper into these issues over the coming weeks and months, we ask that any changes contemplated are meaningful and based in sound economic principles.”

To read the letter, click here.

Why it matters: The letter demonstrates a significant legislative concern that the advertising tax deduction should be modified, a proposal strongly opposed by the advertising industry. The Association of National Advertisers reiterated its objection to the legislation in a statement praising the letter. “We believe this letter by a broad bipartisan group of representatives demonstrates their clear understanding of the value of advertising to each and every congressional district across the United States,” the group wrote, as well as “shows that these members believe that changing the tax treatment of advertising expenses would cause undue economic harm to their constituents and the nation as a whole.”

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Not the FTC’s Crowd: Agency Takes First Action Involving Crowdfunding

In the agency’s first case involving crowdfunding, the Federal Trade Commission filed suit against Erik Chevalier for raising money through a Kickstarter campaign ostensibly to produce a board game—only to spend the money on himself.

Chevalier—doing business as The Forking Path Co.—requested contributions on Kickstarter to produce The Doom That Came to Atlantic City, a board game created by two prominent game artists. In his appeal, Chevalier represented that if he raised $35,000, contributors would receive rewards like a copy of the game or specially designed game figurines, the FTC said.

The Kickstarter campaign raised more than $122,000 from 1,246 contributors, with most pledging $75 or more. Chevalier provided multiple updates on the project, stating that he was making progress. But 14 months later, he announced that the project was cancelled and he was refunding contributors’ money.

However, the agency accused Chevalier of not only failing to refund the money as promised, but also spending it on personal expenses, such as rent, personal equipment, licenses for a different project, and the cost of moving to Oregon.

The parties reached a deal prohibiting the defendant from making deceptive representations related to crowdfunding campaigns in the future. Specifically, Chevalier may not deceive consumers about whether they will receive a deliverable in exchange for a contribution, and he must disclose the purpose for which funds raised from a crowdfunding campaign will be used and any facts material to a consumer’s decision about whether to contribute to a crowdfunding campaign.

Chevalier is also required to honor any stated refund policy and is prohibited from disclosing or benefiting from contributors’ personal information, which he must promptly delete. A judgment of $111,793.71 was suspended due to his inability to pay.

To read the complaint and proposed stipulated consent order in FTC v. Chevalier, click here.

Why it matters: The agency’s first crowdfunding case demonstrates the FTC’s efforts in the new and emerging financial technology, or fintech. “As technological advances expand the ways consumers can store, share, and spend money, the FTC is working to keep consumers protected while encouraging innovation for consumers’ benefit,” the agency said in a statement about the case. In a blog post, the FTC suggested two tips for businesses that are planning a crowdfunding campaign: keep your promises and use the money raised only for the purpose represented.

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At the Intersection of “All Natural” Claims and GMO Ingredients: Litigation

Litigation challenging “all natural” advertising claims has been filling courthouses for years, but the suits have incorporated another trend recently, by targeting manufacturers that use genetically modified organisms.

In the new suit, Sandahl Nelson said she purchased Campbell’s Prego-branded sauces in part because of the representation that the product line was “100% Natural.” But the company deceived consumers with the claim, as the sauces contain canola oil made from genetically modified canola, Nelson alleged.

“A reasonable California consumer, like Plaintiff, would not expect a Product labeled ‘100% Natural’ to contain ingredients made from genetically modified crops, which are, by definition, artificial and synthetic,” according to the complaint. “Furthermore, Plaintiff and other California consumers would not have purchased the Products if they had known that the Products contained ingredients made from genetically modified crops.”

Citing violations of California’s Consumers Legal Remedies Act, False Advertising Law, and Unfair Competition Law, the complaint seeks damages and restitution for a statewide class.

A few days earlier, the parties in a similar case told the court they had reached a deal.

Two plaintiffs sued Kashi Co. arguing that the labeling of products like Trail Mix Chewy Granola Bars and Pumpkin Spice Flax Crunchy Granola Bars as “All Natural” was false and deceptive because the products were made with GMO ingredients. After three years of litigation—including multiple motions to dismiss filed by the defendant, amended complaints from the class, and a trial set for June 1—the parties filed a joint motion in support of preliminary approval of their deal, calling it “a tremendous result for the Class.”

Kashi agreed to provide full reimbursement for customers who can produce a receipt for the covered products or pay $0.55 per product, up to $27.50, for those who can’t provide proof of purchase. The total payout for the deal will depend on the number and type of claims, but Kashi said it would pay at least $2 million and no more than $4 million.

Notice and administrative costs will be shouldered by Kashi, along with $5,000 awards for the named plaintiffs and attorneys’ fees up to $1.5 million.

Kashi will also remove the “All Natural,” “100% Natural,” and “Nothing Artificial” claims from the challenged products (unless a federal agency or controlling regulatory body designates the included ingredients as “natural”). For additional consideration to the class, the company will participate in a supervised non-GMO verification program and provide plaintiffs’ counsel with compliance information about its products for a three-year period.

The nationwide class excludes California residents, who were covered in a separate $5 million settlement last year.

To read the complaint in Nelson v. Campbell Soup Co., click here.

To read the motion for preliminary approval of settlement in Eggnatz v. Kashi Co., click here.

Why it matters: GMO-related cases have filled court dockets and kept the false advertising litigation of “all natural” claims alive and well. In addition to Kashi’s earlier $5 million settlement, a New York federal court denied Smucker’s motion to dismiss in a false advertising suit alleging that the company’s vegetable oil, corn oil, and canola oil contain GMOs. Advertisers should use caution when adding “all natural” language to a product label when GMOs are involved, particularly since states like Connecticut and Vermont have enacted GMO labeling legislation.

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CFPB Cautions Consumers About Deceptive Reverse Mortgage Ads

The Consumer Financial Protection Bureau recently tackled deceptive advertising by issuing a report and a consumer advisory based on a study that found reverse mortgage ads frequently deceive consumers—particularly older Americans—about the risks associated with such loans.

“We want older Americans to be aware of certain factors when they see these ads,” CFPB Director Richard Cordray said in a statement emphasizing the importance of the issue given the “graying of America.”

The Bureau reviewed 97 unique TV, radio, Internet, and print ads for reverse mortgages—a type of loan that allows older homeowners to access equity in their homes and defer payment until they pass away, sell, or move out. In addition, the CFPB interviewed 60 homeowners aged 62 and older in focus groups and one-on-one settings in Chicago, Los Angeles, and Washington, D.C.

Based on the study, the Bureau found that many of the ads were incomplete or contained inaccurate information. It concluded that since the ads don’t always provide every detail about a product, “the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners.”

The study found that ads failed to list interest rates or hide rates in fine print. Some consumers misunderstood that reverse mortgages are actually loans with fees and compounding interest. Others believed that because the money they received was based on their equity in the house, it was not a loan they were required to satisfy.

The CFPB study found that some advertisements implied a government affiliation, which left homeowners with the mistaken impression that they would receive consumer protections that were not applicable. In prepared remarks about the consumer alert and report, Cordray noted that the Bureau brought a joint enforcement action with the Federal Trade Commission in February against three mortgage companies that featured an eagle similar to the Great Seal of the United States in their ads with language reading, “GOVERNMENT LENDING DIVISION.” More than $300,000 in total civil penalties was assessed.

Other ads featured celebrity spokespeople who sang the praises of reverse mortgages without disclosing the risks, the Bureau said. In one focus group, a consumer told the Bureau: “When it’s a former Congressman endorsing it, it makes it sound like a good idea.”

False impressions about financial security among the elderly and their ability to stay in their homes for the rest of their lives also raised concerns for the Bureau. According to the study results, many of the ads suggested that a reverse mortgage provides financial security for the remainder of a consumer’s life. But additional requirements are often not mentioned in reverse mortgage ads, including the costs of property taxes and homeowners insurance, which could jeopardize a homeowner’s financial security—or even lead to foreclosure, the CFPB cautioned.

To read the CFPB’s study, click here.

To read the consumer advisory, click here.

Why it matters: The CFPB noted that the reverse mortgage market is only about 1 percent of the size of the traditional mortgage market (with roughly 628,000 outstanding loans), but is expected to grow in the coming years with the aging “baby boom” generation. The Bureau stopped short of indicating that additional regulation was necessary, but in prepared remarks, Director Cordray promised that the agency “will continue to exercise appropriate oversight and we will pursue enforcement actions as justified by the facts as we understand them.”

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Webinar: Midyear Update on Privacy and Data Security, July 14

The proliferation of emerging digital applications and technologies offer seemingly limitless ways for marketers to engage consumers through social media. At the same time, keeping up with legislative and regulatory developments related to privacy—and developing best practices for compliance—can be daunting. With that in mind, Manatt is pleased to present a complimentary webinar titled “Midyear Regulatory and Legislative Update in Privacy and Data Security.” Charles Harwood, Regional Director at the Federal Trade Commission, and Linda Goldstein, chair of Manatt’s Advertising, Marketing and Media practice and a member of the firm’s Privacy and Data Security practice, will serve as faculty of this one hour program. To register or learn more about Manatt’s continuing Webinar Learning Series in Privacy and Data Security, click here.

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Webinar: Proceed with Caution: Navigating Safely Through the Intersection of TCPA and HIPAA, July 23

In an in-depth webinar, Marc Roth and Christine Reilly, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, and Anne O. Karl, an attorney in Manatt’s healthcare practice, will examine and clarify the uncertainties surrounding the FCC’s Telephone Consumer Protection Act consent requirements exemption for health care messages regulated by the Health Insurance Portability and Accountability Act (HIPAA). The Manatt panelists will provide industry counsel and compliance professionals insights into what is—and isn’t—a health care message and marketing under HIPAA, outline key questions to consider before sending out automated communications, and provide suggestions in order to minimize risk in this area. 

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Noted and Quoted . . . Reilly and Roth share TCPA insights, updates and rule changes from FCC Open Commission Meeting with Advertising Age, Mobile Marketer and Corporate Counsel

Marc Roth and Christine Reilly, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, provided media commentary in the wake of the FCC’s vote to revise the TCPA rules on June 18.

Advertising Age turned to Reilly to discuss the ruling which would make it easier for consumers to revoke consent for robocalls and automated mobile text messages from companies they previously opted to receive messages from. Reilly expressed her concern for advertisers and companies, stating, “one of the real challenges for advertisers is going to be how do you comply with that rule?” To read “FCC Telemarketing Rule Changes Could Mean More Advertiser Vigilance,” click here.

Roth told Mobile Marketer that while the FCC attempted to clarify issues such as exceptions for fraud alerts and medication refills, it is still unclear how these calls will be screened. To read “FCC Rules for Carrier Robocall Blocking, Clears Developers of Some Liability,” click here. In an interview with Corporate Counsel, Roth discussed a positive business revision for phone and messaging services, like Snapchat or WhatsApp, where the courts have recognized that these platforms do not themselves initiate calls and therefore aren’t liable for their clients’ usage of the services. To read “FCC Dials in Updated Rules for Consumer Calls,” click here.

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