Retail and Consumer Products Law Roundup

In this month's highlights, a federal court rules that insurance coverage was triggered for the defense of garment hang tag "advertisements" in a trademark/copyright and unfair competition lawsuit…the California Supreme Court agreed to review the state's "day of rest" statute…the FTC reminds advertisers about the importance of environmental marketing claims…and Apple defeats a class action over bag searches. Read on for more details.

Hang Tags Are an Advertisement, Coverage Required for Copyright Suit

Why it matters

Do hang tags on clothing forming the basis of a trademark and copyright infringement lawsuit constitute an advertising injury? A federal court in Florida answered in the affirmative, ruling in a coverage dispute that started when a policyholder was sued by a competitor over the use of a similar shield logo. E.S.Y., a clothing manufacturer and retailer, used "an identical or substantially similar mark" on its hang tags, Exist alleged in its complaint, asserting claims for copyright infringement, trademark infringement, unfair competition, and false designation of origin.

But when E.S.Y. asked Scottsdale Insurance Company for defense of the suit, the insurer denied the request. The allegations in the underlying complaint did not fall under the commercial general liability policy's coverage for "advertising injury," the insurer argued. Noting the broad use of the term "your advertisement" in the policy, the court said it was unclear whether hang tags were covered by the definition. Because of the ambiguity of the policy, the court held the insurer had a duty to defend.

Detailed discussion

A clothing manufacturer and retailer, E.S.Y., Inc. purchased a commercial general liability (CGL) policy from Scottsdale Insurance Company that included coverage for advertising injury. The company was hit with a lawsuit from competitor Exist alleging that E.S.Y. used label and hang tags "in such a manner that its use causes and is causing actual confusion in the marketplace, or is likely to cause such customer confusion," displaying a "shield logo" similar to the one used by Exist.

The complaint included seven counts, including copyright infringement, trademark infringement, false designation of origin, and unfair competition, and requested injunctive relief, actual damages, and treble damages.

E.S.Y. turned to Scottsdale for a defense, but the insurer denied the request. The Exist complaint did not allege plaintiffs were liable for injury as defined under the policy, Scottsdale said, and even if it did, multiple exclusions applied.

The policyholder filed suit and then filed a motion for summary judgment. Taking a close look at the policy language, U.S. District Court Judge Cecelia M. Altonaga granted the motion.

She began with policy definitions. The policy defined "advertisement" as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters." Advertising injury covered a list of offenses, including three subsections applicable to the case: "(d) Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services"; "(f) The use of another's advertising idea in your 'advertisement'"; and "(g) Infringing upon another's copyright, trade dress or slogan in your 'advertisement.'"

As required by the policy, E.S.Y. proved an alleged violation gave rise to an advertising injury, that a causal connection between that injury and the advertising activity existed, and that Exist sought damages, the court said.

The court found the insured failed to trigger coverage under the "oral or written publication" subsection because it could not prove slander or disparagement was alleged in the underlying complaint. While the hang tags allegedly bear a resemblance, E.S.Y.'s "conduct was not alleged to make any express comparisons to Exist," the court said. "To the extent the visual similarity between the marks and tags can be construed as Plaintiffs' implicit reference to Exist, nothing about that reference was alleged to dishonor or denigrate Exist. Exist may not have liked that Plaintiffs allegedly copied them, but, at least under Exist's allegations, imitation is not disparagement as there was no comparison suggesting Exist's brand was inferior to Plaintiffs'."

E.S.Y. had better luck under the subsections for "use of another's advertising idea" and "infringing upon another's copyright." Judge Altonaga found that hang tags are a form of printed advertisement, rejecting Scottsdale's position that they were simply part of the garment. The hang tags "were attached to Plaintiffs' garments but were not part of the garments themselves—they hung off the garments," the court said. "And while the hang tags provided information—at a minimum, identifying [E.S.Y.'s brand]—the hang tags' special design presumably had the additional function of attracting consumers to the garments themselves and to the brand more generally. If the hang tags' only purpose was to provide information, they would not need such a particular aesthetic."

Certainly the issue was not as clear-cut as a billboard or magazine advertisement, "but the broad definition of 'advertisement' in the Policy governs," the judge wrote. "If the hang tags did not clearly fit within this category, the definition at least is ambiguous with respect to the question of the hang tags. Under Florida law, such ambiguities are resolved in favor of coverage. Thus, on a fair reading of the complaint and a liberal interpretation of this ambiguous Policy term, the hang tags were advertisements."

The "infringing upon another's copyright" subsection also triggered coverage, the court said, as no question existed that the complaint asserted a claim of copyright infringement.

After finding an "advertising injury," Judge Altonaga then determined that the Exist complaint alleged a causal connection between the injury and E.S.Y.'s advertising activity. "Exist claimed Plaintiffs' copying of Exist's hang tags caused harm to Exist by creating confusion among Exist's customers as to Exist's hang tags and Plaintiffs'," the court said. As for damages, the Exist complaint specifically requested damages in multiple counts.

The court then shifted the inquiry to the exclusions Scottsdale claimed precluded coverage.

The Infringement of Copyright, Patent, Trademark or Trade Secret exclusion barred coverage "arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your 'advertisement.' However, this exclusion does not apply to infringement, in your 'advertisement,' of copyright, trade dress or slogan."

While the first sentence of the exclusion arguably barred coverage, the carve-out at the end of the provision brought the complaint back within range of coverage, the court said.

A second exclusion—the Knowing Violation of Rights of Another provision—prohibited from coverage personal and advertising injury "caused by or at the direction of the insured with knowledge that the act would violate the rights of another and would inflict personal and advertising injury."

The Exist complaint stated violations of the Lanham Act, Copyright Act, and related state law claims, alleging "intentional, malicious, willful and wanton misconduct" and seeking actual and treble damages. But Judge Altonaga said the exclusion did not apply because a showing of intent is not necessary under the Lanham Act or Copyright Act to recover actual damages.

Granting E.S.Y.'s motion for summary judgment, the court said Scottsdale had a duty to defend in the Exist suit.

To read the order in E.S.Y., Inc. v. Scottsdale Insurance Company, click here.

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California Supreme Court to Consider "Day of Rest" Law

Why it matters

The California Supreme Court has agreed to weigh in on the number of consecutive days an employee may legally work without running afoul of the state's so-called "day of rest" statute. The issue arose when two employees of Nordstrom claimed the employer required them to work for more than six consecutive days without a day off, in violation of the law. Following a bench trial, a federal court judge ruled in favor of Nordstrom.

The plaintiffs appealed, but uncertain about how to interpret the statute, the Ninth Circuit Court of Appeals certified three questions to the state's highest court. The panel asked whether the required day of rest referenced in California's law should be calculated by the workweek or on a rolling basis for any consecutive seven-day period, also wondering about the application of a Labor Code exemption for employees who work fewer than 30 hours in a week or six hours in one day. Finally, the Ninth Circuit requested clarification about what it means for an employer to "cause" a worker to work more than six days in seven—force, coerce, pressure, schedule, encourage, reward, permit, or something else? The California Supreme Court agreed to tackle the questions, and employment lawyers should stay tuned for answers in the coming months.

Detailed discussion

In 2009, Christopher Mendoza filed suit against his former employer, Nordstrom. According to Mendoza, during his tenure as a barista at a Nordstrom espresso bar and a sales representative in the cosmetics department, the national retailer violated Sections 551 and 552 of the California Labor Code, the so-called "day of rest" law.

Section 551 provides that "[e]very person employed in any occupation of labor is entitled to one day's rest therefrom in seven," while Section 552 states that "[n]o employer of labor shall cause his employees to work more than six days in seven." California Labor Code Section 556 exempts an employer from the day of rest requirement "when the total hours [worked by an employee] do not exceed 30 hours in any week or six hours in any one day thereof."

Mendoza claimed that he worked more than six consecutive days on three occasions, one time working 11 days straight (although working fewer than six hours on two of those days), seven straight days another time (with fewer than six hours on three days), and eight consecutive days (five with fewer than six hours). On each of these occasions, Mendoza was not originally scheduled to work more than six consecutive days but did so after being asked by a coworker or supervisor to fill in for another employee.

A second employee, Megan Gordon, joined the suit in April 2011. She worked as a fitting room attendant at a Nordstrom Rack store for more than six consecutive days on one occasion, although on two of those days she worked fewer than six hours.

After a two-day bench trial, a California federal court judge sided with Nordstrom.

Section 551 applies on a rolling basis to any consecutive seven-day period rather than a workweek as defined by an employer (such as Nordstrom's Sunday-to-Saturday schedule), the court said. While that would appear to mean the defendant violated Sections 551 and 552, Labor Code Section 556 exempted Nordstrom from liability because each plaintiff worked fewer than six hours on at least one day in the consecutive seven days of work. And even if the exemption did not apply, Nordstrom did not "cause" Mendoza or Gordon to work more than seven consecutive days because they voluntarily chose to waive their rights and work extra days, the court added.

"The day of rest statutes only prohibit an employer from requiring or causing an employee to work more than six consecutive days," U.S. District Court Judge Cormac J. Carney wrote. "An employee can waive that protection if he or she wants to, which is exactly what Mr. Mendoza and Ms. Gordon did here."

This conclusion was consistent with the regulatory history of the "day of rest" law and was also confirmed by the California Supreme Court in Brinker Restaurant Corp. v. Superior Court, where the court found that employees could waive their right to a meal break, the court explained.

Gordon and Mendoza appealed to the Ninth Circuit Court of Appeals.

A panel of the federal appellate court considered the issue and, finding no controlling California precedent and an ambiguous statutory text, turned to the California Supreme Court for help.

The panel certified three questions to the state's highest court:

(A) California Labor Code section 551 provides that "[e]very person employed in any occupation of labor is entitled to one day's rest therefrom in seven." Is the required day of rest calculated by the workweek, or is it calculated on a rolling basis for any consecutive seven-day period?

(B) California Labor Code section 556 exempts employers from providing such a day of rest "when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof." Does that exemption apply when an employee works less than six hours in any one day of the applicable week, or does it apply only when an employee works less than six hours in each day of the week?

(C) California Labor Code section 552 provides that an employer may not "cause his employees to work more than six days in seven." What does it mean for an employer to "cause" an employee to work more than six days in seven: force, coerce, pressure, schedule, encourage, reward, permit, or something else?

The Ninth Circuit said it found the interpretations proffered by both sides plausible, discovered no useful legislative history, and unearthed no California appellate law to provide a guide, so it turned to the California Supreme Court with "the obligations of thousands of California employers, and the rights of tens of thousands of California workers … at stake."

To read the Ninth Circuit's order in Mendoza v. Nordstrom, click here.

To visit the California Supreme Court's page for Mendoza, click here.

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Eleventh Circuit's Surcharge Ruling Sets up Possible Supreme Court Showdown

Why it matters

Setting the stage for a possible visit to the U.S. Supreme Court, the Eleventh Circuit Court of Appeals ruled that Florida's prohibition on imposing a surcharge on credit card purchases while simultaneously permitting a discount for cash runs afoul of the First Amendment. The divided panel reached the opposite conclusion of the Second Circuit, where the court held last month that New York's anti-surcharge statute did not violate the First Amendment. Unlike the Second Circuit panel—which determined that the law only regulated conduct and not speech—the Eleventh Circuit said Florida's law targeted "expression alone" and could fairly be called a "surcharges-are-fine-just-don't-call-them-that law." A dissenting opinion agreed with the Second Circuit's finding that the law targeted conduct when a merchant added an additional amount to a credit card purchase and not the description of the amount.

The newly created circuit split is likely to expand, as similar suits are now pending before the Fifth Circuit (where a federal district court upheld Texas's law) and the Ninth Circuit (an appeal of a California court's determination the law was unconstitutional on First Amendment grounds).

Detailed discussion

In March 2013, family-run hobby shop Dana's Railroad Supply posted a sign indicating that customers would be subject to a fee for using credit cards to make purchases. Not long after, the business received a cease and desist letter from the Florida Attorney General demanding that Dana's refrain from practices that violated the state's no-surcharge law.

Together with three other recipients of such letters, Dana's filed suit in Florida federal court. Each of the businesses charged lower prices for customers paying with cash and higher prices for those using credit cards, telling the court they wished to express the price differential as an additional amount for credit card use rather than a lesser amount for cash payment.

Pursuant to Section 501.0117(1)-(2) of the Florida Statutes, a "seller or lessor in a sales or lease transaction" can be convicted of a second-degree misdemeanor for imposing "a surcharge on the buyer or lessee for electing to use a credit card," while allowing "the offering of a discount for the purpose of inducing payment by cash."

The AG moved for summary judgment, and after a rational-basis review of the law, a federal district court granted the motion. The plaintiffs appealed to the Eleventh Circuit Court of Appeals, where a divided panel reversed.

"Tautologically speaking, surcharges and discounts are nothing more than two sides of the same coin; a surcharge is simply a 'negative' discount, and a discount is a 'negative' surcharge," the majority wrote. "As a result, a merchant who offers the same product at two prices—a lower price for customers paying cash and a higher price for those using credit cards—is allowed to offer a discount for cash while a simple slip of the tongue calling the same price difference a surcharge runs the risk of being fined and imprisoned."

The First Amendment "prevents staking citizens' liberty on such distinctions in search of a difference," the court said. "Florida's no-surcharge law directly targets speech to indirectly affect commercial behavior. It does so by discriminating on the basis of the speech's content, the identity of the speaker, and the message being expressed. Because the at-best plausible justifications on which the no-surcharge law rest provide no firm anchor, the law crumbles under any level of heightened First Amendment scrutiny. We, therefore, must strike down Section 501.0117 as an unconstitutional abridgement of free speech."

Finding that the cease and desist letters from the Florida Attorney General were sufficient to establish standing for the plaintiffs to challenge the law, the court considered the facial validity of the statute under the First Amendment.

Unlike the Second Circuit Court of Appeals, which found that an anti-surcharge law in New York survived constitutional scrutiny because it regulated conduct and not speech, the Eleventh Circuit said the statute only regulated speech.

"[M]erchants can engage in dual-pricing so long as they offer only cash discounts, while credit-card surcharges are verboten," the majority wrote. "In order to violate the statute, a defendant must communicate the price difference to a customer and that communication must denote the relevant price difference as a credit-card surcharge. Calling Section 501.0117 a 'no-surcharge law,' then, is something of a misnomer. That statute targets expression alone. More accurately it should be called a 'surcharges-are-fine-just-don't-call-them-that law.'"

Florida's statute governs how to express relative values and imposes criminal liability for making the "wrong choice" between "equally plausible alternative descriptions of an objective reality," the court added. "Given our abhorrence of putting citizens of a free society to such 'choices,' laws that restrict speech in this fashion must overcome the robust protections of the First Amendment."

The court acknowledged that economic consequences might flow from how a cash or credit price difference is characterized, but as "a legal matter, potential incident effect, whether intended by the legislature or not, does not alter the fact that the no-surcharge law directly restricts speech."

Applying heightened scrutiny to the statute, the court found it failed to pass muster, depriving "the marketplace of ideas of the full range of public sentiment," and imposing "a direct and substantial burden on disfavored speech" by silencing it. "The no-surcharge law is content based: it applies only to how a merchant may frame the price difference between cash and credit-card payments," the court said.

Such a viewpoint-based restriction on speech warrants the greatest level of First Amendment protection, the majority said, and simply because some modicum of economic conduct was implicated did not permit the law to unconstitutionally restrict speech.

The Attorney General's asserted governmental interests failed to change the majority's mind. A generalized interest in consumer protection was "formulated too abstractly," the court said, while preventing bait-and-switch tactics, providing advance notice to consumers, and leveling the playing field among merchants could all be better served by direct regulation of actual pricing behavior.

"The available less strict-restrictive alternatives are legion," the court said. "What Florida cannot do, as a Constitution matter, is what its no-surcharge law does: abridge protected speech."

In a footnote, the majority distinguished the Second Circuit decision as "a combination of Pullman abstention and a narrow reading of the relevant statutory text and legislative history, both of which differ from Section 501.0117's."

A dissenting opinion argued that the majority neglected to consider the statute's definition of surcharge, which includes the limiting words "imposed at the time of a sale." That language demonstrates the law was intended to regulate conduct, such as when a customer goes to pay for an item with a credit card and is charged more than expected.

"The merchant can speak in any way he chooses so long as he does not ambush the credit-card-using customer with a higher price at the register," the dissent said. "What matters is when, from the customer's perspective, the merchant adds the additional amount to the price because a credit card is used, not how the merchant describes it."

To read the opinion in Dana's Railroad Supply v. Attorney General, State of Florida, click here.

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FTC Flushes Claims for "Flushable" Wipes

Why it matters

Reminding advertisers about the importance of environmental marketing claims, the Federal Trade Commission approved a final consent order in an enforcement action against Nice-Pak Products, Inc. for touting its moist toilet tissue as "flushable" and safe for sewer and septic systems.

This case highlights the FTC's continuing scrutiny of environmental claims. In addition, this case is an interesting example of the FTC's use of the "means and instrumentalities" provision of the FTC Act. According to the complaint, Nice-Pak disseminated materials to trade consumers that induced false claims on packaging for private label versions of Nice-Pak wipes.

Detailed discussion

Specifically, Nice-Pak claimed that the formulation of its wipes caused them to break apart shortly after being flushed, making them safe for septic systems, safe for sewer systems, and generally safe to flush. However, the FTC alleged that these claims were deceptive, in violation of Section 5 of the Federal Trade Commission Act, because the advertiser's testing did not reflect real-world household plumbing or septic conditions.

Furthermore, according to the complaint, Nice-Pak provided the "means and instrumentalities" for retailers—including BJ's Wholesale Club and Costco—to make similar misrepresentations by permitting them to sell the same formulation of its wipes under their own private labels.

The consent order prohibits Nice-Pak from misrepresenting that its wipes are safe to flush unless it can substantiate that they will disperse in a "sufficiently short amount of time" after flushing to prevent clogging and/or damage to household plumbing, sewage lines, septic systems, and other standard wastewater treatment equipment.

Any testing relied upon by the company must replicate the physical conditions of the environment where the wipes will be disposed, the FTC said, and the substantiation must be based on the expertise of professionals in the relevant area who have conducted and evaluated the testing in an objective manner using procedures generally accepted in the profession.

Any claims about the benefits, performance, or efficacy of moist toilet tissue are prohibited unless the statements are not misleading and the company relies on competent and reliable evidence—which may in some cases be competent and reliable scientific evidence. With respect to third parties, Nice-Pak is also banned from providing the means and instrumentalities to any other entities to make the prohibited misrepresentations.

To read the complaint and consent order in In the Matter of Nice-Pak Products, Inc., click here.

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You Choose, You Lose: Court Tosses Suit Over Bag Searches Where Employees Chose to Bring Them

Why it matters

Apple recently scored a victory when a California federal court tossed a lawsuit brought by employees at retail locations seeking compensation for time spent having their bags checked. After the court certified a class of more than 12,000 current and former workers at stores in the state, Apple moved for summary judgment. The plaintiffs had to prove two elements to prevail, the court said: that the employer restrains the employee's action during the activity in question and that the employee has no plausible way to avoid the activity.

While the judge found that the workers met the first element, they failed to satisfy the second as "the Apple worker can choose not to bring to work any bag or other items subject to the search rule." Apple let employees choose whether or not to bring bags and personal Apple devices into the store subject to the condition that the items must be searched when they left, the court explained. The "ability to bring a bag into Apple's stores is simply an optional benefit with a string attached—the requirement to undergo searches," the court said, granting summary judgment in favor of the employer.

Detailed discussion

In 2013, Amanda Frlekin sued Apple Inc. along with four other hourly paid and nonexempt employees who worked at California retail stores. The plaintiffs asserted claims under California law and the Fair Labor Standards Act (FLSA) for the time spent undergoing exit searches pursuant to Apple's bag search and technology card search policies and for the time spent waiting for the searches to occur.

Apple implemented the search policies because of concerns with internal theft of products. The "Employee Package and Bag Searches" policy imposed mandatory searches of all bags, purses, backpacks, or briefcases whenever workers left the store. Employees also filled out a "Personal Technology Card" that listed the serial numbers of their personal Apple devices, a list that was checked during the exit search to ensure any devices were already owned.

The policies detailed when and how the searches were to be conducted, and each of the 52 Apple stores in California performed the searches. The employees argued that they had to clock out prior to undergoing a search and their recorded hours did not account for the time spent finding a manager or a security guard to perform the search, that they had to wait in line if multiple employees sought to leave at the same time (such as at the end of a shift), or had to wait until the manager or security guard was free to conduct the search.

In earlier motion actions, the plaintiffs' FLSA claims were dismissed following the U.S. Supreme Court's decision in Integrity Staffing Solutions, Inc. v. Busk, where the court held that time spent during mandatory security screenings was not compensable under the federal statute.

The court certified a class of plaintiffs asserting California state law wage claims, and the parties narrowed the issue as to whether Apple had to compensate its employees for time spent waiting for bag searches for workers who voluntarily brought a bag to work purely for personal convenience. Importantly, no class members intervened in the action arguing they had special needs to bring a bag to work and none opted out.

Apple then moved for summary judgment.

Wage Order 4 requires employers to pay employees a minimum wage for "all hours worked in the payroll period," defining "hours worked" as "the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so."

Given this, the plaintiffs were required to prove two elements, the court said: that the employer "restrains the employee's action during the activity in question," and that "the employee has no plausible way to avoid the activity; put differently, the activity must be mandatory and not optional at the discretion of the worker."

"Here, the first element is met, namely control, for once the worker wishes to leave with a bag, the worker is restricted and must stand in line for the security screening," U.S. District Court Judge William Alsup explained. "The second element, however, is not met, for the Apple worker can choose not to bring to work any bag or other items subject to the search rule."

Apple could have prohibited employees from bringing bags and personal devices into the store altogether, the court pointed out. Instead, "Apple took a milder approach to theft prevention and offered its employees the option to bring bags and personal Apple devices into a store subject to the condition that such items must be searched when they leave the store."

Employee choice was dispositive and there was no dispute the plaintiffs had the freedom to elect to avoid searches. "It is undisputed that some employees did not bring bags to work and thereby did not have to be searched when they left the store," the court said.

The class limited itself to adjudicating liability for employees who voluntarily brought a bag to work purely for personal convenience, Judge Alsup said, noting that no plaintiffs intervened to assert claims based on any special-needs scenario that might have made the choice to bring a bag or not illusory. "The ability to bring a bag into Apple's stores is simply an optional benefit with a string attached—the requirement to undergo searches," he wrote, and the plaintiffs could have "avoided searches by declining to bring bags or Apple technology to work."

Judge Alsup rejected the argument that bringing a bag to work was not an affirmative benefit but a standard freedom of the job. "Apple was concerned that its employees could pilfer merchandise in their bags or claim that they already owned any Apple products they carried out of the store," the court said.

"Apple could have alleviated that concern by prohibiting its employees from bringing personal bags or personal Apple devices into the store. Instead, Apple took the lesser step of giving its employees the optional benefit of bringing such items to work, which comes with the condition that they must undergo searches in a manner dictated by Apple before they exit the store."

That free choice was fatal to the plaintiffs' claims, the court concluded.

As for the "suffered or permitted to work" prong of the analysis, the court said the searches had no relationship to the plaintiffs' job responsibilities and were simply peripheral activities relating to Apple's theft policies. Analogizing to the Integrity Staffing Solutions decision, the court said the security screenings undergone by Frlekin and her fellow Apple workers were two steps removed from their productive activity, just like those in the U.S. Supreme Court case.

"The time our plaintiffs spent waiting for the searches to be completed plainly does not constitute 'work' under the 'suffered or permitted' prong," Judge Alsup said. "Our plaintiffs merely passively endured the time it took for their managers or security guards to complete the peripheral activity of a search. Neither the searches nor waiting for them to be completed had any relationship to their job responsibilities. They cannot be compensated for that passive activity under the 'suffered or permitted' prong."

Denying summary judgment for the plaintiffs, the court granted the motion in favor of Apple.

To read the order in Frlekin v. Apple Inc., click here.

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NARB: Advertiser Lacked Support for Unqualified Claims

Why it matters

The National Advertising Review Board recommended that Bayer HealthCare discontinue two express claims for Claritin-D, finding that the advertiser lacked a reasonable basis to support one of the claims and that the other needed qualification to avoid conveying an unsupported message.

The panel determined that Bayer failed to substantiate either of the challenged claims for Claritin-D. While the study relied upon to support the onset of action claim was reliable and well-conducted, the NARB found the results were not statistically significant enough to support an unqualified claim. As for the "nothing works faster" claim, the panel said the combination of factors put forth by the advertiser—including claims and studies from competitors and prior NAD cases—was insufficient support.

Detailed discussion

Chattem, the maker of Nasacort and Allegra, challenged two claims made by Bayer for Claritin-D: "Claritin-D … starts to work on allergies in 30 minutes" and "Nothing works faster than Claritin-D." The National Advertising Division determined that Bayer provided a qualified approval for the onset of action claim, but failed to provide a reasonable basis for the "nothing works faster" claim. Both parties appealed.

The NARB first considered the onset of action claim. In support, Bayer provided a study that tested 593 subjects in five different outdoor parks. The study included three randomized, double-blind groups: a group given Claritin-D, a group given another drug, and a placebo group.

Individual allergy symptom scores were measured at 15-minute intervals for the first two hours after dosing and the total symptom score was evaluated for each measurement interval. The overall findings at 30 minutes for the combined sites showed statistically significant improvement in total symptom score for the Claritin-D group as compared to the placebo group.

But when results for individual sites were analyzed, the Claritin-D group demonstrated statistically significant improvement in total symptom score only at sites with a lower pollen count.

The study was reliable and well-conducted, the NARB said, but did not reasonably support the unqualified "starts to work on allergies in 30 minutes" claim. "Given the variability in [the study's] findings with respect to the higher and lower pollen sites, and the fact that [the study] is the sole study relied on by Bayer for its 30 minute onset of action claim for Claritin-D, the panel believes that any onset of action claim should be qualified to avoid conveying the unsupported message that Claritin-D will start to work for all consumers within the first 30 minutes."

Bayer could qualify the claim by stating that Claritin-D starts to work on allergies "in as little as 30 minutes," the NARB suggested.

Considering the "nothing works faster" claim, the panel found that the advertiser failed to meet its burden to substantiate the claim. Bayer argued that a combination of factors provided support, including the study relied upon for the onset of action claim, the clinical studies establishing the onset of action time for competitor allergy medications at more than 30 minutes, claims by competitor manufacturers as to when their allergy medications start to work, all of which indicated a time greater than 30 minutes, and prior NAD cases evaluating onset of action claims for competitors.

"The panel agrees with the NAD that unsurpassed claims such as 'nothing works faster' are best supported by head-to-head testing against at least 85 percent of the relevant marketplace," the NARB wrote. While other testing and scientific evidence may properly support an unsurpassed claim (such as multiple monadic studies), the multiple tests offered by Bayer were not sufficiently similar to permit a valid comparison with its study.

"The panel agrees with the NAD that manufacturer claims as to when their allergy medications start to work do not reasonably establish that the claimed times represent the fastest onset of action for these medications for purposes of supporting an unsurpassed claim," the panel said. "Similarly, the panel agrees with the NAD that prior NAD cases which substantiated an onset of action greater than 30 minutes do not reasonably establish that is the fastest onset of action time for those medications."

It is well established that the advertiser has the burden of providing a reasonable basis to support a "nothing work faster" claim through competent and reliable scientific evidence, the panel wrote. "Bayer has not met its burden in this case," the NARB concluded.

To read the press release about the decision, click here.

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Amazon Gives Fake Reviewers Zero Stars—And a Lawsuit

Why it matters

As the online marketplace continues to grow, companies are taking action against fake reviews. Amazon filed suit against several websites that sold fake reviews of products in April, after which most of the sites shut down. The company said the new lawsuit targeting individuals who provide the reviews is a continuation of those efforts. And Yelp took similar action earlier this year, filing suit against three websites that offered to write fake reviews.

Most recently, Amazon went after fake reviews on its website by filing suit against more than 1,100 individuals who offered to post positive reviews of products for a price.

Detailed discussion

Filed in Washington state court, Amazon's complaint alleged that the unnamed defendants advertised their services on the website, promising 5-star reviews and encouraging Amazon sellers to create the text for their own review. For example, "bess98" offered to place "awesome review on your amazon product" using multiple accounts and IP addresses.

Another Fiverr seller offered up to nine "Five Stars" reviews on Amazon for $5 each, adding, "You know the your [sic] product better than me. So please provide your product review, it will be better." In at least one instance, Amazon found a seller willing to receive an empty envelope—and not the product itself—to create a shipping record in an attempt to deceive Amazon customers, the plaintiff alleged.

Amazon emphasized the importance of customer reviews to its business, with "millions" of customers using the reviews each day to assist in purchasing decisions. "Reviews provide a forum for sharing authentic feedback about products and services—positive or negative," the company told the court, adding that it "takes the credibility of its customer reviews very seriously."

False and misleading customer reviews constitute "a very small minority" of reviews on the site, but "[w]hile small in number, these reviews can significantly undermine the trust that consumers and the vast majority of sellers and manufacturers place in Amazon, which in turn tarnishes Amazon's brand." The removal of individual listings from the Fiverr site—which Amazon has requested—does not address the root cause of the problem, Amazon said, nor does it serve as a deterrent.

In addition to violating the Washington Consumer Protection Act, the defendants' actions constitute breach of contract, Amazon said. In order to review a product, an individual must be an Amazon customer with an Amazon account, who has agreed to and is bound by the Conditions of Use for the Amazon site. Among other things, the conditions prohibit paid reviews.

The complaint requested an award of general, special, actual, and statutory damages, including treble damages under the state's consumer protection statute and injunctive relief that would halt the practice, provide identifying information for the John Doe and defendants, and establish an accounting of each defendant's profits.

To read the complaint in v. John Does 1-1114, click here.

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Second Circuit "Likes" NLRB Ruling That Termination Based on Social Media Activity Was Unlawful

Why it matters

Affirming the National Labor Relations Board (NLRB), a panel of the Second Circuit Court of Appeals ruled that employees who "liked" a comment a former coworker made on social media criticizing the employer and posted a negative remark engaged in protected, concerted activity and their termination violated the National Labor Relations Act (NLRA). Triple Play Sports Bar and Grille had appealed the NLRB decision, arguing that the social media conversation between current and former workers was defamatory (one comment referred to a manager as an "asshole") and was likely viewed by customers.

But in a non-precedential summary order, the Second Circuit said the social media interactions were just workers talking about labor issues. The panel wrote that the "discussion clearly disclosed the ongoing labor dispute over income tax withholdings, and thus anyone who saw [the cook's] 'like' or [the bartender's] statement could evaluate the message critically in light of that dispute." An opposite conclusion could chill virtually all employee speech online, the court added, while affirming the NLRB's decision "accords with the reality of modern-day social media use." The Second Circuit declined Triple Play's request to publish the decision or make it precedential, however.

Detailed discussion

What began as a conversation on social media between two current employees of Triple Play Sports Bar and Grille and a former employee led to years of litigation. Jamie LaFrance, a former employee at the bar, posted a status update that read: "Maybe someone should do the owners of Triple Play a favor and buy it from them. They can't even do the tax paperwork correctly!!! Now I OWE money … WTF!!!"

After several comments were made in response, current employee Vincent Spinella "liked" the initial status update. A second current employee, Jillian Sanzone, commented: "I owe too. Such an asshole." When the owners of the restaurant learned about the social media conversation, they discharged Sanzone, telling her that she was not loyal enough to be working at the restaurant because of her comment. As for Spinella, he was terminated because he liked the "disparaging and defamatory" comments and it was "apparent" that he wanted to work somewhere else.

Spinella and Sanzone filed a charge with the National Labor Relations Board (NLRB) and both an administrative law judge and a three-member panel sided with the employees, finding they were illegally discharged in violation of the National Labor Relations Act (NLRA).

The employer appealed. Triple Play first argued that the employees' social media activity removed itself from protection under the NLRA because the conversation contained obscenities that were viewed by customers, citing to a 2012 decision from the Second Circuit in NLRB v. Starbucks. In that case, comments made by employees were not subject to protection from the Act because obscenities were uttered in the presence of customers.

But the Second Circuit Court of Appeals said the logical extension of the employer's position "could lead to the undesirable result of chilling virtually all employee speech online. Almost all [social media] posts by employees have at least some potential to be viewed by customers. Although customers happened to see the [social media] discussion at issue in this case, the discussion was not directed toward customers and did not reflect the employer's brand. The Board's decision that the [social media] activity at issue here did not lose the protection of the Act simply because it contained obscenities viewed by customers accords with the reality of modern-day social media use."

Spinella's and Sanzone's communications—made to seek and provide mutual support looking toward group action—were not made to disparage Triple Play or to undermine its reputation, the panel added. "The [social media] discussion clearly disclosed the ongoing labor dispute over income tax withholdings, and thus anyone who saw Spinella's 'like' or Sanzone's statement could evaluate the message critically in light of that dispute."

The court rejected the employer's argument that Sanzone's comment was malicious and false because she knew that Triple Play had not made an error on her own tax withholding.

"Although Sanzone may not have believed that Triple Play erroneously withheld her taxes, that has no bearing on the truth of her statement 'I owe too' or her conceivable belief that Triple Play may have erroneously withheld other employees' taxes," the panel explained. "It is certainly plausible that Sanzone truly owed taxes, even if that was not the result of an error on Triple Play's part—and even if other employees' claims regarding erroneous tax withholdings later proved inaccurate, such inaccuracies by themselves do not remove the statement from the protection of the Act."

The panel also upheld the NLRB's conclusion that Triple Play's Internet and blogging policy violated Section 8(a)(1) of the NLRA by reasonably tending to chill employees in the exercise of their Section 7 rights under the statute.

To read the summary order in Three D v. National Labor Relations Board, click here.

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