Advertising Law

Use of Flawed Study Results in $3.5M Settlement with FTC

For relying upon the results of a flawed study to make what the Federal Trade Commission characterized as “baseless” and “hopelessly flawed” weight-loss claims for a green coffee extract, a Texas company will pay $3.5 million to the agency and be subject to higher standards of substantiation for future claims.

Applied Food Sciences sells a green coffee ingredient used in dietary supplements and foods. Applied paid for a study conducted in 2010 on overweight adults in India. But according to the FTC, the study was anything but scientific, as the lead investigator changed key measurements about the subjects and misstated which were taking the placebo and which ingested the green coffee. When the investigator was unable to get the study published, Applied hired researchers to rewrite it and never verified the authenticity, despite receiving conflicting data.

Instead, Applied relied upon the study to claim that its green coffee ingredient could help consumers lose 17.7 pounds, 10.5 percent of body weight, and 16 percent of body fat without diet or exercise in 22 weeks, the FTC alleged in its complaint.

The flawed study was also referenced on a popular daytime talk show. Applied promoted the appearance, even though the company knew or should have known that the study did not prove anything, the agency said. “In publicizing the results, it helped fuel the green coffee phenomenon,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, noted in a press release about the action.

Pursuant to the proposed consent order, Applied must pay the agency $3.5 million and notify trade customers that it lacked reasonable scientific support for the weight-loss claims. Going forward, Applied is prohibited from misrepresenting any aspects of tests or studies relating to its products and must provide at least two adequate and well-controlled human clinical tests as scientific substantiation for any future weight-loss claims.

To read the complaint and proposed consent order in FTC v. Applied Food Sciences, click here

Why it matters: The FTC has taken multiple actions against marketers of green coffee products for deceptive advertising. Earlier this year, the agency filed suit against Pure Green Coffee, a company that made allegedly bogus claims that its extract of green coffee beans could help users lose weight and burn fat. Coupled with the Applied Food Sciences action, the agency’s efforts serve as a reminder that all advertisers can face liability for deceptive claims, even if – like Applied – they do not sell their products directly to consumers.

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Mobile Apps Need Privacy Improvements, Study Finds

According to a new study, mobile apps are doing a poor job of explaining their privacy policies.

In May, members of the Global Privacy Enforcement Network conducted a privacy sweep to analyze the privacy disclosures of mobile apps. Twenty-six privacy regulators from around the world examined 1,211 mobile apps and found that “a high number of apps are accessing large amounts of personal information without adequately explaining how people’s information is being used.”

Specifically, the group found that 83 percent of the apps failed to clearly explain how they were collecting, using, and disclosing personal information. More than half of the apps made it a challenge to locate even basic privacy information, the GPEN said, and almost one out of three apps appeared to request access to more information than was needed.

Forty-three percent of the apps studied did not alter their privacy communications to fit a small, mobile screen, forcing consumers to scroll or click through multiple pages to read the policy.

The study wasn’t all bad news.

Some of the apps provided a basic explanation for how personal information would be used and provided links to more detailed information, GPEN said. And, just as impressive was the use of just-in-time notifications by some apps informing users about the potential collection or use of personal data as it was about to happen.

To read the study results, click here.

Why it matters: While some positive findings were noted, one of the researchers emphasized that there was “clear room for improvement” for apps to explain how consumer information is used. “Today’s results show that many app developers are still failing to provide this information in a way that is clear and understandable to the average consumer,” Simon Rice, group manager for technology at the United Kingdom’s Information Commissioner’s Office, said in a statement. Mobile apps have faced scrutiny for their failure to provide consumers with information about privacy policies from the Federal Trade Commission as well. The agency recently released findings from a study of mobile shopping apps and reached a conclusion similar to that of GPEN, that many of the apps failed to explain key information prior to download and had vague privacy policies.

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Consumers Get Right to Review in California

A new law in California protects a consumer’s right to post online reviews about a company.

Governor Jerry Brown signed the bill into law in early September, and it took immediate effect. The legislation was spurred by the story of a couple on the receiving end of a $3,500 bill from online retailer KlearGear.

John Palmer and Jennifer Kulas wrote a negative review of the company on RipoffReport.com. Claiming that the couple violated a non-disparagement clause in its terms of service, KlearGear sent the bill. The couple refused to pay and later claimed in a lawsuit against the company that their credit was damaged as a result. In July, a federal judge ordered KlearGear to pay Palmer and Kulas $306,750.

When the story made headlines and consumers learned about the existence of such clauses, the California Legislature sprang into action and passed the bill by a vote of 27 to 9 in the Senate and 63 to 14 in the Assembly.

Assembly Bill 2365 bans non-disparagement clauses or similar terms that restrict a consumer’s right to post a review. A consumer may agree to a clause, but his or her rights must be “knowingly, voluntarily and intelligently” waived.

Attempts to enforce such a clause could result in penalties ranging from $2,500 for a first-time offense up to $10,000. State attorneys are tasked with enforcement, but the law also grants consumers a private right of action and notes that the penalties set forth in the statute are not the exclusive remedies available to plaintiffs.

Individuals or businesses that host online consumer reviews or comments are not prohibited from removing a statement that is otherwise lawful to remove.

To read the new law, click here.

Why it matters: Companies should familiarize themselves with the new law and remove or amend non-disparagement clauses in consumer contracts as necessary.

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Court Keeps Deceptive Advertising Suit Against Beer Company Alive

Is the beer better in Germany or Missouri?

The answer is up for debate, but one plaintiff filed suit against Anheuser-Busch claiming he was duped into believing that Beck’s beer was brewed in Germany when it was actually made in Missouri.

Francisco Rene Marty claimed he purchased Beck’s based on his understanding that Beck’s had long been an imported beer from Germany, brewed with German requirements, and featuring German ingredients. Since 2012, however, Beck’s has been brewed in St. Louis, Mo., with American ingredients, leaving Marty with an unpleasant taste in his mouth. He filed a putative class action alleging violations of consumer protection laws in California, Florida, and New York.

Although the company argued that a reasonable consumer could not have been misled given the “Product of USA” label on the beer, a federal court judge in Florida disagreed. The disclaimer was small, hard to read, was printed in metallic white on a metallic silver background, and worst of all, the court said, the words were blocked by the carton.

“A consumer would have to either open the cartons of twelve-pack bottles and twelve-pack cans or lift the bottle from the six-pack carton in order to see the ‘Product of USA’ disclaimer,” U.S. District Court Judge John J. O’Sullivan wrote. “A reasonable consumer is not required to open a carton or remove a product from its outer packaging in order to ascertain whether representations made on the face of the packaging are misleading.”

Approval of the beer’s label by the Alcohol and Tobacco Tax and Trade Bureau did not entitle the defendant to safe harbor protections under the consumer protection statutes at issue, the court added. Because the labeling cannot be seen before the packages are purchased, the judge found the agency’s approval did not trigger the protections.

The court further noted that an additional statement on the label, “Brauerei Beck & Co., Beck’s Beer, St. Louis, Mo.,” may not be sufficiently descriptive to alert a reasonable consumer as to the location where Beck’s is brewed.

Beck’s argument that the statement “German Quality” was mere puffery also failed to persuade the court. Evaluating the phrase in conjunction with the other statements on Beck’s cartons, the company’s overall marketing campaign, and Beck’s German heritage with a 139-year history of being brewed in Germany, Judge O’Sullivan said a reasonable consumer could be misled to believe the beer is an imported beer brewed in Germany.

Ruling that the plaintiff has sufficiently pled that he suffered harm by paying a premium based on Beck’s misrepresentations, the court denied Anheuser-Busch’s motion to dismiss on the consumer protection statute and unjust enrichment claims.

However, the judge did toss Marty’s request for injunctive relief. He ruled that the complaint was devoid of any allegations that the plaintiff would purchase Beck’s in the future, thereby eliminating the potential for a real or immediate threat of future injury.

To read the order in Marty v. Anheuser-Busch Companies, click here.

Why it matters: The “Product of USA” disclaimer, Beck’s strongest argument against deceptively marketing the beer, was undermined by the fact that the statement was not visible to consumers prior to purchase. While the court agreed with the plaintiff that the font was small and difficult to read, it was the location of the statement that required consumers to open the packaging that tipped the scales in favor of the plaintiff.

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Noted and Quoted . . . Wasserman Talks to NutraIngredients-USA About Significance of FTC Warning Letters Sent to Advertisers

Following the news that the Federal Trade Commission sent warning letters to 60 companies, including 20 of the nation’s largest advertisers, warning them about their failure to make adequate disclosures in their print and television ads, NutraIngredients-USA asked Manatt partner Ivan Wasserman to weigh in on the scope of the effort and its implications for advertisers.

To read Ivan’s comments in the article, “FTC Warns 60 Companies for Noncompliance on Ad Disclosure Guidelines,” click here.

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Don’t Miss our Complimentary TCPA Webinar on October 16

One year has passed since the implementation of the Federal Communication Commission’s revised Telephone Consumer Protection Act (TCPA) rules. Are you up-to-date on the most important and trending TCPA developments and what you need to do to stay ahead of the curve in meeting TCPA challenges?

Manatt, Phelps & Phillips, LLP and Bloomberg BNA invite you to join this complimentary webinar, “TCPA Update: The Year in Review and What Lies Ahead,” led by speakers Marc Roth and Donna Wilson, co-chairs of Manatt’s TCPA Compliance and Class Action Defense Group, and moderator Katie Johnson, legal editor on Bloomberg BNA’s Privacy & Security Law Report. The program will be held on Thursday, October 16, 2014 at 3:00 – 4:30 p.m. ET.

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