Advertising Law -- Aug 08, 2013

by Manatt, Phelps & Phillips, LLP
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In This Issue:

Mattress Claims Run Afoul of Green Guides

The Federal Trade Commission, applying the Green Guides to the advertising of three different mattress manufacturers, stated that the companies slept on the requirements for making environmentally friendly claims.

All three defendants – Relief-Mart, Inc., Essentia Natural Memory Foam Company, Inc., and Ecobaby Organics, Inc. – marketed their products as free of volatile organic compounds, or VOCs. Each company made troublesome claims, the agency said. California-based Relief-Mart touted its Biogreen memory foam mattresses as odor-free, while Canadian company Essentia advertised its mattresses as chemical-free, formaldehyde-free, and “made with 100% natural materials.” Ecobaby, also a California company, stated that its products were entirely free of chemicals (including formaldehyde, toluene, and benzene) and that it had tests to back up the claims. The company also included a seal on its promotional materials from the National Association of Organic Mattress Industry, suggesting to consumers that its products were certified as organic.

According to the FTC complaints, all of these claims were false and misleading in violation of Section 5 of the Federal Trade Commission Act. Neither substantiation nor studies existed to back up the claims. As for Ecobaby’s certification, the agency said that NAOMI is really an alter ego of Ecobaby, not an independent certifying organization that grants the seal based on objective standards. In effect, the company awarded the certificate to itself.

The FTC noted that while it typically does not address “odor free” claims, the agency concluded that consumers in this context would assume that the mattress lacks the common smell associated with memory foam and is therefore free of VOCs. As for “free of” claims, the FTC pointed advertisers to the Guides for the Use of Environmental Marketing Claims, better known as the Green Guides, that were updated by the agency last October. Marketers can only claim that a product is “free of” a chemical or other ingredient of environmental concern if the product does not contain the ingredient or has only a trace amount. To meet the agency’s “trace amount” test, a company must demonstrate that (1) the level of the ingredient is less than that which would be found as an acknowledged trace contaminant or background level, (2) the ingredient’s presence does not cause material harm that consumers typically associate with it, and (3) the ingredient has not been added intentionally.

Pursuant to the proposed consent decrees, all three defendants agreed to refrain from making VOC-free claims unless the VOC level is zero micrograms per cubic meter. Each proposed consent order further addressed the other challenged claims, with Ecobaby agreeing to stop making misrepresentations about certifications as well as “free of” chemical claims. Essentia is prohibited from making unsubstantiated “natural” claims or misrepresentations about studies or test results, and Relief-Mart is prohibited from making odor-free claims unless the company can back them up with competent and reliable scientific evidence.

The proposed settlements are now open for public comment.

To read the complaints and the proposed consent orders in the cases, click here.

Why it matters: In the wake of the updated Green Guides, the FTC has not shied away from challenging companies that make environmental claims. In addition to the actions against the mattress manufacturers, the agency brought similar suits against paint manufacturers over VOC-free claims. Both sets of cases should serve as a reminder to environmentally friendly advertisers to check their advertising claims against the Green Guides to ensure compliance.

Marketer of “Free” iPhones Settles with FTC

An Internet marketer accused by the Federal Trade Commission of sending millions of deceptive spam messages offering consumers a free iPhone has reached a settlement with the agency.

Henry Nolan Kelly, who allegedly sent more than 20 million texts to consumers nationwide, agreed to a suspended judgment of $60,950 and a ban on sending unsolicited text messages. He is also prohibited from misleading consumers about “free” product offers and whether they have won a free gift or a prize. A typical text read “iPhone 5 Confirmation Test and keep an iPhone 5 www.iappletestandkeep.com” or “You are selected to Test & Keep Unreleased iPhone 5. Go to: http://www.iappletestandkeep.com/iphone5.php & Enter Code: 4190 Code valid 24 hrs.”

According to the FTC, consumers who clicked on links in the unwanted text messages were taken to Web sites where they were required to submit substantial personal information, including their names, addresses, phone numbers, and dates of birth. In some instances, consumers had to make a purchase or pay for a subscription to be eligible for the “free” electronic devices, the agency said. Operators of the Web sites paid Kelly and other affiliates based on the number of consumers that clicked on the link and entered their information.

Some recipients had their monthly allotment of text messages lowered or depleted by Kelly’s messages. Others were forced to pay a fee for the text under the terms of their wireless service plans.

The suit against Kelly in Georgia federal court was one of eight complaints filed by the agency against a total of 29 defendants that collectively sent more than 180 million text messages to consumers. In addition to offers for free tech products, defendants promised gift cards to major retailers.

By failing to inform consumers about the many conditions attached to the “free” gift – such as the need to actually spend money – Kelly and the other defendants violated the Federal Trade Commission Act, the agency said.

To read the complaint and the stipulated final order in FTC v. Kelly, click here

Why it matters: Despite the settlement, the agency’s efforts to crack down on unwanted texts continue. Just days later, the FTC announced a new suit with almost identical allegations, involving defendants offering “free” gift cards and electronics to consumers who were then required to provide personal information or sign up for subscriptions.

The Past May Not Be Dead, But This Lawsuit Is

A nine-word quotation from William Faulkner’s Requiem for a Nun used in the movie Midnight in Paris did not violate either the Copyright Act or the Lanham Act, a Mississippi judge has ruled.

Woody Allen’s 2011 movie featured Owen Wilson as a screenwriter on vacation with his fiancée in Paris. At the stroke of midnight, Wilson’s character is repeatedly transported back to the 1920s, where he mingles with notable historical figures, such as Gertrude Stein, Zelda and F. Scott Fitzgerald, and William Faulkner.

Back in the present, he gets in a fight with his fiancée, accusing her of having an affair. When she says that the man is part of her past, Wilson retorts: “The past is not dead. Actually, it’s not even past. You know who said that? Faulkner. And he was right. And I met him, too. I ran into him at a dinner party.”

The actual quote reads: “The past is never dead. It’s not even past.” Faulkner’s estate filed a federal lawsuit alleging violations of the Lanham Act and the Copyright Act based on the slightly altered quote.

But U.S. District Judge Michael P. Mills – noting that he watched the movie and read the book – tossed the suit. A single line from a full-length novel paraphrased and attributed to the original author in a full-length Hollywood film cannot be considered a copyright infringement, he said.

Sony Pictures Classics, which distributed the film, made a successful fair use defense, Judge Mills determined, in large part because of how it transformed the use of the quote. “The speaker, time, place, and purpose of the quote in these two works are diametrically dissimilar,” he wrote. “[A] weighty and somber admonition in a serious piece of literature set in the Deep South has been lifted to present day Paris, where a disgruntled fiancé” uses the phrase “in a comedic domestic argument.” Lifting a phrase from a serious piece of literature for a speaking part in a comedy creates a transmogrification of medium that “undoubtedly ‘adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.’”

The estate contended that although brief, the quotation at issue described the essence of Requiem and was of qualitative importance. However, Judge Mills said the quote constituted only a small portion of the expression of the idea of not being able to leave the past behind, the central theme in Faulkner’s work. “Qualitative importance to society of a nine-word quote is not the same as qualitative importance to the originating work as a whole,” he explained.

Turning to the effect of the movie’s use of the quote on the potential market or value for the original work, the court found it “highly doubtful that any relevant markets have been harmed by the use in Midnight.”

“How Hollywood’s flattering and artful use of literary allusion is a point of litigation, not celebration, is beyond this court’s comprehension,” Judge Mills wrote. “The court, in its appreciation for both William Faulkner as well as the homage paid him in Woody Allen’s film, is more likely to suppose that the film indeed helped the plaintiff and the market value of Requiem if it had any effect at all.”

The court noted that other than a statutory entitlement to an award, the estate had not pled any additional injury. While the plaintiff wanted to present evidence that Sony had obtained permission to use other cited works in the movie – such as Pablo Picasso’s artwork and a Cole Porter song – the court said such evidence was irrelevant to whether the Faulkner quote was fair use and distinguished the artwork and song, which were used in their entirety, unlike the “fragment” of Requiem used.

Similarly, the estate’s Lanham Act claims failed. “The movie contains literary allusion, the name Faulkner and a short paraphrase of his quote, neither of which can possibly be said to confuse an audience as to an affiliation between Faulkner and Sony,” Judge Mills wrote. “Allusion is not synonymous with affiliation, nor with appropriation. [The plaintiff] has not provided any precedent suggesting that the mere use of a celebrity name in an artistic work somehow rises to the level of deception.”

To read the decision in Faulkner Literary Rights v. Sony Pictures Classics, click here.

Why it matters: While the court noted the “miniscule amount borrowed,” it wasn’t the brevity of the quote used that carried Sony’s argument. Instead, the court found that the first factor of the copyright infringement analysis – the purpose and character of the use – was so transformative it tipped the scales against Faulkner’s estate. From the medium of works to the “diametrically dissimilar” speaker, time, place, and purpose of the quote in the two works, the court found this factor “tip[ped] the scales in such heavy favor of transformative use that it diminishes the significance of considerations such as commercial use that would tip to the detriment of fair use.”

Not So Easy: Peter Fonda Sues Over “Easy Rider” T-Shirts

Actor, writer, producer, and member of the legendary Fonda acting family, Peter Fonda filed suit over the use of his image on T-shirts made by Dolce & Gabbana USA and sold by Nordstrom Inc., which he alleged misappropriated his image and violated his right of publicity.

The $295 shirts featured a shot of Fonda on a motorcycle from his best-known film, Easy Rider, with the title of the 1969 film or Fonda’s name written on the shirt. According to Fonda’s complaint, filed in Los Angeles Superior Court, he never granted the defendants permission to use his name, image, or likeness.

The two-time Academy Award nominee argued that the combination of his name and image reinforces the idea that the shirts were “endorsed and approved” by him. In addition to the T-shirts, D&G may have sold other clothing with Fonda’s image and likeness and used his name in advertisements for the products, he added.

Fonda “has suffered injuries to his peace, happiness, feelings, goodwill, reputation, image, loss of the fair market value of his services, and dilution of his current and future publicity value,” according to the complaint.

The suit seeks $3 million in damages for misappropriation of Fonda’s image and violation of his publicity rights, as well as interest, attorneys’ fees, and punitive damages.

To read the complaint in Fonda v. Dolce & Gabbana USA, click here.

Why it matters: The shirts were pulled from Nordstrom’s Web site, but in a statement, Dolce & Gabbana said the company acquired the rights to “usage of a selection of images” taken from the movie.

DAA, NAI Release Mobile Guidance

Marking the end of a two-year process, the Digital Advertising Alliance (“DAA”) released new rules that addressed mobile privacy and offered guidance to advertisers, agencies, media, and technology companies.

The new guidance is intended to complement the 2010 Self-Regulatory Principles for Online Behavioral Advertising (“OBA”) and the 2012 Principles for Multi-site Data (“MSD”). Like the other components of the self-regulatory program, the mobile guidance will be monitored by the Council of Better Business Bureaus and the Direct Marketing Association. DAA noted that it intends to release a consolidated set of Self-Regulatory Principles that integrate the OBA, MSD, and mobile guidance into one uniform set of Principles.

Under the new rules, opt-in consent is required prior to the collection of data such as geolocation and address books. To serve targeted ads, however, companies need only offer consumers the ability to opt out. The collection of data for employment, health care, insurance, and credit-related purposes is prohibited.

Users will be provided with a standard notice, similar to the ubiquitous blue AdChoices icon used by the DAA for OBA, that mobile data collection for advertising purposes. DAA general counsel Stu Ingis told MediaPost that the group is working on an AdChoices app that will function as an opt-out mechanism. Consumers will be able to download the app and “exercise choice with respect to all of the third parties,” he stated.

Concurrently, the National Advertising Initiative (“NAI”) released its own mobile code that applies to third-party ad network and exchange members. Similar to the DAA’s guidance, the NAI’s rules require that users be informed about cross-app advertising and be offered the ability to opt out of behaviorally targeted ads on mobile devices. The NAI’s Mobile Application Code “provides new guidance on how members can provide adequate notice and choice on small screens as well as best practices for the collection and use of precise location data and other types of personal data, such as contact lists and photos,” NAI said in a statement.

To read the DAA’s guidance, click here

To read the NAI’s guidance, click here.

Why it matters: The DAA said the release of the guidance signals the start of an implementation phase, during which the group will endeavor to educate the industry about the new rules before enforcement begins. For members of the NAI, enforcement will begin in roughly six to nine months, Marc Groman, executive director and general counsel at the NAI, told AdAge. He called mobile compliance monitoring “incredibly challenging.” The growth of the industry’s self-regulatory programs stands in opposition to regulatory efforts, Ingis noted, particularly the World Wide Web Consortium’s failure to reach consensus on a Do Not Track standard. “We have offered a heightened standard while the W3C continues to flounder,” he told AdWeek. “We’ve made that whole effort irrelevant.”

Noted and Quoted . . . Ivan Wasserman Talks to Law360 on FTC Authority to Bring Action Against Energy Drink Marketers

On August 6, 2013, Law360 turned to Manatt partner Ivan Wasserman to discuss whether it is likely that the Federal Trade Commission would launch an administrative action against the marketers of energy drinks, in response to calls to action from a group of Democratic senators who have expressed concern that the caffeinated drinks are marketed to children and teenagers and may pose health risks to them.

To read the full article, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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