Retail and Consumer Products Law Roundup

NLRB Upholds Retailer’s Rules on Confidential Customer Information

Why it matters

Macy’s rules prohibiting the disclosure of confidential customer information didn’t violate Section 8 of the National Labor Relations Act (NLRA), the majority of a panel of the National Labor Relations Board (NLRB) determined, and employees would not reasonably construe the rules as prohibiting their Section 7 activity.

Detailed discussion

Included in Macy’s policies were restrictions on the use of confidential information and personal data. The rules defined “confidential information” as “any information, which if known outside the Company could harm the Company or its business partners, customers or employees or allow someone to benefit from having this information before it is publicly known,” with examples such as pricing strategies, business or marketing plans, and documents that show Social Security numbers or credit card numbers.

“Personal data” encompassed names as well as home and office contact information of customers, vendors, and present and former associates.

“We are all trusted to maintain the confidentiality of such information and to ensure that the confidential information, whether verbal, written or electronic, is not disclosed except as specifically authorized,” according to Macy’s policy. “Additionally, it must be used only for the legitimate business of the Company.”

An administrative law judge (ALJ) found that the rules violated Section 8(a)(1) of the National Labor Relations Act (NLRA), as they placed limits on the use of information regarding customers. Employees have a Section 7 right to communicate with customers regarding matters affecting their employment, the ALJ said, and the rules were unlawful because they restricted such communications.

But the National Labor Relations Board (NLRB) disagreed, reversing the ALJ.

“There is no allegation in this case that the rules at issue explicitly restrict Section 7 rights, have been promulgated in response to union activity, or have been applied to restrict the exercise of Section 7 rights, so the question is whether employees would reasonably understand the rules to restrict Section 7 activity,” the majority wrote.

While recognizing that “employees indisputably have a Section 7 right to concertedly appeal to their employer’s customer for support in a labor dispute,” the NLRB found that employees would not reasonably construe the rules to prohibit Section 7 activity.

The “confidential information” rule specifically defines the data to which it applies, and there was no argument that employees have a right to use customers’ Social Security and credit card numbers. As for the scope of “personal data” as defined by the rules, the NLRB pointed out it was limited to only customer names and contact information obtained from Macy’s own confidential records.

“The Act does not protect employees who divulge information that their employer lawfully may conceal,” the majority said. “Thus, the Board has repeatedly held that employees may be lawfully disciplined or discharged for using for organizational purposes information improperly obtained from their employer’s private or confidential records. Consistent with these cases, because [Macy’s] rules only restrict the use or disclosure of confidential customer contact information that the [employer] ‘has’ or ‘maintains,’ they are lawful.”

One member of the panel dissented, arguing that the majority’s interpretation allowed any customer information obtained by an employer and maintained in its files to become protected if so designated by the employer’s policy. The dissent also concluded that Macy’s rules would be reasonably understood by employees to prevent them from contacting customers to appeal for support in connection with their concerted, protected activities.

To read the decision and order in Macy’s, Inc., click here.

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Statutes Protect Customers From Systemic Price Gouging

By Richard P. Lawson, Partner, Consumer Protection

With the headlines dominated by hurricanes Harvey and Irma, it will be important for companies to make sure that they don’t join the negative headlines with reports about systemic price gouging. Many states have enacted statutes designed to prevent excessive price increases during emergencies like those affecting the states along the Gulf and Atlantic coasts. While each state’s statutes will vary, most come into effect only when an emergency has been declared by the governor.

While most statutes will not prohibit price increases due to downstream business conditions (consider, for example, an increase in gasoline prices in Georgia due to some reduction in production in Saudi Arabia that drives up prices globally), companies can expect any local increases spurred on by demand from consumers desperate for emergency supplies to be quickly investigated by attorneys general and other local authorities. When storms are imminent, companies should anticipate increased consumer demand, and this is a prime opportunity for companies to show their best side of corporate citizenship. If there is a need to increase prices, companies should consider not only the impact on consumers affected by the emergency, but also the basis for the increase. An increase due to the natural forces of the market (the gasoline example above) should be carefully documented in order to establish the basis for the increase in case a regulator makes any inquiries.

Many statutes, it is important to note, hold that the state of emergency lasts for a fixed number of days; in other words, it is entirely possible that a state of emergency—with related constraints on prices—may last for up to 60 days after a storm has passed. Most price-gouging statutes will have a reasonableness test associated with prior prices before the state of emergency was declared, so it will be very hard to come up with a hard-and-fast rule as to what price increase will or will not be declared price gouging. Also, such statutes frequently apply only to increases on essential goods; while specific references to the pertinent state’s statute should be undertaken, in most states increased prices for cigarettes, for example, will not incur any of the legal entanglements that would accompany an increase in gasoline prices.

In moments such as these, the best practice is to remember that these communities have been the company’s loyal customers and have kept the company going, and now is the time to return the favor.

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California Court Tosses Challenge to Gap Outlet Labels

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

In a victory for outlet retailers, a California appellate panel recently tossed out a deceptive marketing and advertising suit against Gap.

Linda Rubenstein alleged that the national retailer’s Gap and Banana Republic outlet stores ran afoul of the state’s Unfair Competition Law (UCL), False Advertising Law (FAL) and Consumers Legal Remedies Act (CLRA) by misleading consumers about the quality and authenticity of its products.

By using “Gap” and “Banana Republic” in the names of its outlet stores and on the labels of the clothing sold in the stores, the company failed to disclose that the outlet store items are not sold at traditional stores and are of lesser quality, Rubenstein said. Reasonable consumers expect outlet stores to offer for sale at a discounted price items that were once for sale at retail stores, she claimed, and the use of the labels with retail store names communicated to the public that the outlet stores sold the same products of the same quality.

Gap demurred to the complaint, arguing that no misrepresentations had been made. The company was perfectly within its rights to put a Gap label on products sold at Gap stores, it told the court, and no obligation existed to disclose that the items had not been offered at retail stores.

The court agreed, affirming dismissal of the plaintiff’s complaint. Rubenstein couldn’t point to any statements made by Gap about the quality of its outlet store products or claims that the items were previously sold in retail establishments, the court said.

“As a matter of law, Gap’s use of its own brand name labels on clothing that it manufactures and sells at Gap-owned stores is not deceptive, regardless of the quality of the merchandise or whether it was ever for sale at other Gap-owned stores,” the panel wrote in addressing the FAL claim. “Retailers may harm the value of their brands by selling inferior merchandise at factory stores, but doing so does not constitute false advertising.”

Considering the UCL claim, the court again found that Gap’s use of its own brand names for outlet stores and on clothing labels was not likely to deceive a reasonable consumer “for the simple reason that a purchaser is still getting a Gap or Banana Republic item.” A consumer interested in the retail history of the outlet products can ask an employee, the court noted, and a reasonable consumer “would also inspect the quality of factory store clothing items before buying them and could return items after purchase if they turn out to be unsatisfactory.”

The CLRA claim also failed since Gap made no representation regarding outlet store clothing “other than a true one—the brand of the clothing is Gap or Banana Republic,” the panel said. It affirmed the dismissal without leave to amend.

To read the opinion in Rubenstein v. The Gap, Inc., click here.

Why it matters: At the end of the day, the products purchased at Gap and Banana Republic outlet stores were Gap and Banana Republic products, the court found, so no deception or misrepresentation occurred. The panel also declined to adopt a position advocated by the state’s attorney general as amicus curiae that a defendant may be liable for a fraudulent business practice under the UCL even absent a false or misleading representation or a duty to disclose material information.

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Footlong Litigation to Continue, Despite Settlement Dismissal

By Jesse M. Brody, Partner, Advertising, Marketing and Media

The saga over Subway’s “footlong” sandwiches will continue, a group of former plaintiffs vowed in a court filing after the U.S. Court of Appeals for the Seventh Circuit threw out a settlement agreement between the parties.

Multiple class actions were filed in 2013 after an Australian teenager posted an image of his 11-inch Subway footlong sandwich that went viral. The parties reached a deal that would have paid class counsel $525,000 and required Subway to implement a new series of policies and procedures to ensure the sandwiches are a full 12 inches in length. However, the settlement acknowledged that even with the new measures in place, some sandwich rolls would inevitably fall short due to the natural variability in the baking process.

A district court judge signed off on the deal, but when an objector appealed, the Seventh Circuit tossed the settlement, with some harsh words for the agreement.

“A class action that ‘seeks only worthless benefits for the class’ and ‘yields [only] fees for class counsel’ is ‘no better than a racket’ and ‘should be dismissed out of hand,’” the three-judge panel wrote. “That’s an apt description of this case.”

Early discovery in the case revealed that the plaintiffs’ claims were factually deficient, the court said, as “the vast majority” of the footlong sandwiches are at least 12 inches long. All the sticks of raw dough weigh the same amount, so even if a roll fails to bake to a full 12-inch length, it contains no less bread than any other, the court added. Subway also standardizes the amount of fillings, so the length of the bread “has no effect on the quantity of food each customer receives.”

Given the recognized variations in the baking process, the promised changes in the settlement provided little relief, the Seventh Circuit said. “In sum, before the settlement there was a small chance that Subway would sell a class member a sandwich that was slightly shorter than advertised, but that sandwich would provide no less food than any other,” the court wrote. “After the settlement—despite the new measuring tools, protocols, and inspections—there’s still the same small chance that Subway will sell a class member a sandwich that is slightly shorter than advertised.”

Calling the injunctive relief approved by the district judge “utterly worthless,” the panel, in reversing the approval of the deal, said the deal “enriches only class counsel and, to a lesser degree, the class representatives.”

Wasting no time, the plaintiffs continued pursuit of their claims and filed a notice that said they plan to terminate their settlement agreement.

According to the plaintiffs, much of the confidential discovery documented that short rolls were caused not by variabilities in the bread baking process, but because bread vendors failed to put enough dough in the frozen dough stick, “in order to increase their profits at the expense of Subway customers.”

Had the appellate panel been aware of these allegations, it would have reached the opposite conclusion with regard to the settlement agreement, the plaintiffs said: “On remand, plaintiffs intend to have all of the confidential information and documents made part of the public record, and plaintiffs intend to pursue this litigation.”

To read the opinion in In re: Subway Footlong Sandwich Marketing and Sales Practices Litigation, click here.

To read the plaintiffs’ notice of termination of the settlement agreement, click here.

Why it matters: The Seventh Circuit did not mince words when rejecting the argument that the deal improved the situation for sandwich consumers and could be judicially enforced. “Contempt as a remedy to enforce a worthless settlement is itself worthless,” the panel wrote. “Zero plus zero equals zero.” Despite this seemingly clear message, the plaintiffs announced their plans to pursue the litigation on remand.

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Break Me Off a Piece of That Infringement Lawsuit

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

Did Nestle’s recent advertising campaign for Kit Kat infringe the intellectual property rights of Atari?

According to the video game company, ads for Kit Kat used one of its first games, Breakout, to illegally promote the candy bar.

“In 1975, two little known but up-and-coming developers—Steve Jobs and Steve Wosniak—created Breakout for Atari,” according to the California complaint. “Forty years later, Nestle decided that it would, without Atari’s authorization, leverage Breakout and the special place it holds among nostalgic Baby Boomers, Generation X, and even today’s Millennial and post-Millennial ‘gamers’ in order to maximize the reach of worldwide, multi-platform advertisements for Nestle Kit Kat bars.”

For the advertising campaign, dubbed “Breakout,” Nestle replaced the game imagery—long, rectangular bricks that players “break”—with long, rectangular bricks made of Kit Kat chocolate bars. Some of the ads included comments such as “Is it time to break out of the Breakout?!”

Atari took particular offense at the alleged infringement not only because of the size of the campaign on Twitter, Facebook, Vimeo and YouTube, to name just a few social media sites, but also because the defendant, a major corporation well aware of intellectual property rights, infringed on more than one front.

“The use of the term ‘Breakout’—one word—in this context is the plainest invasion and infringement of Atari’s trademark rights,” the company alleged. “The use of the look, feel, sound, and operation of Breakout game screens is the plainest invasion and infringement of Atari’s trade dress and copyrights.”

Such across-the-board use of the Breakout IP inhibits Atari’s ability to license the material, the company added, and to generate income as the popularity of the game continues. Breakout has been downloaded more than 2 million times since it became available in the iTunes store in 2008.

The suit—which alleges trademark and copyright infringement as well as dilution, unfair competition and false designation of origin—seeks punitive damages and injunctive relief, as well as trebled monetary damages for willful and intentional violations of the Lanham Act.

To read the complaint in Atari Interactive, Inc. v. Nestle, click here.

Why it matters: Atari’s complaint attempted to foreclose any affirmative defenses raised by Nestle, by arguing that the advertising campaign made “significant, not fleeting” use of Atari’s IP; did not “meaningfully transform” the intellectual property of the video game company; and was not a parody of the game, “as it offers no critique or commentary on the Breakout game itself.” In a statement, Nestle said it was aware of the lawsuit and intends to “defend ourselves strongly against these allegations.”

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