In This Issue:

POM Loses Again to the FTC – Will Other Advertisers?

On January 16 the Federal Trade Commission announced its decision that POM Wonderful had made false and deceptive health claims in its product advertising and ordered the company to substantiate all future disease prevention or treatment claims with at least two randomized, well-controlled, human clinical trials (RCTs).

The decision generally affirms a 2012 ruling by the agency’s Chief Administrative Law Judge but also imposes greater restrictions on the pomegranate juice maker and its owners. 

By way of background, in 2010 the agency alleged that POM violated the FTC Act by making false and deceptive establishment claims that its pomegranate juice and dietary supplement products aid in the prevention and treatment of heart disease, prostate cancer, and erectile dysfunction. Claims like “SUPER HEALTH POWERS! . . .100% PURE POMEGRANATE JUICE . . . Backed by $25 million in medical research. Proven to fight for cardiovascular, prostate and erectile health” appeared in national publications like The New York Times, Parade and Fitness magazines, as well as on Web sites, bus stops, billboards, and tags attached to the product.

According to the FTC’s complaint, POM’s claims were not supported by competent and reliable evidence. The agency sought an order barring the company from making any health-related claim about a food, drug, or dietary supplement without the support of two randomized, well-controlled, human clinical trials. In addition, it sought to mandate preapproval by the Food and Drug Administration of all future claims that POM’s products could cure, prevent, or treat any disease.

An administrative trial was conducted in front of the FTC’s Chief Administrative Law Judge, D. Michael Chappell. In a 335-page ruling issued May 21, 2012, the ALJ disagreed with the FTC Complaint Counsel that only RCTs could substantiate claims that POM’s products could treat or prevent disease. Nevertheless, he ultimately concluded that POM lacked adequate substantiation for claims appearing in 19 advertisements. “The weight of the persuasive expert testimony demonstrates that there was insufficient competent and reliable scientific evidence to support the implied claims . . . that the POM Products treat, prevent or reduce the risk of heart disease, prostate cancer or erectile dysfunction, or were clinically proven to do so.”

Judge Chappell also limited the scope of the FTC’s requested order, ruled that FDA preapproval would be “unnecessary overreaching” and rejected the FTC’s request that POM must support future claims with two randomized, well-controlled, human clinical studies.

Both parties appealed and the case was reviewed by the full Commission.

In a January 16 opinion authored by Commissioner Maureen K. Ohlhausen, the commissioners unanimously upheld Judge Chappell’s finding that POM made deceptive, unsubstantiated claims and increased the number of deceptive ads from 19 to 36.

With respect to the type of substantiation needed to support the claims that POM’s products could treat or prevent disease, the Commission disagreed with the ALJ and found that they could be supported only by RCTs. The Commission, however, did not address the issue of how many RCTs were needed, or what types of substantiation may be necessary in other cases. Instead, it limited its decision to the specific facts of this case.

“Having fully considered and weighed all of the evidence and the expert testimony on the Respondent’s [POM’s] basic science and clinical trials, the greater weight of the persuasive expert testimony demonstrates that there is insufficient competent and reliable scientific evidence to substantiate a claim that clinical studies, research or trials prove that the Challenged POM Products treat heart disease, prostate cancer, or ED,” the commissioners concluded. “Similarly, we find that the greater weight of the persuasive expert testimony demonstrates that there is insufficient competent and reliable scientific evidence to substantiate a claim that clinical studies, research or trials prove that the Challenged POM Products prevent or reduce the risk of heart disease, prostate cancer, or ED. Consequently, such claims are false.”

The Commission entered an Order that prohibits POM from making any claim that a food, drug, or dietary supplement is “effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease,” including heart disease, prostate cancer, and erectile dysfunction, unless the claim is supported by two randomized, well-controlled, human clinical trials. In explaining the rationale for requiring two clinical trials, the Commission wrote:

“[E]xpert testimony in the record before us recognized the need for consistent results in independently-replicated studies . . . . The Respondents have demonstrated propensity to misrepresent to their advantage the strength and outcomes of scientific research, as reflected by our conclusion that they made false and misleading claims about serious diseases, including cancer, in a number of the advertisements before us. Like the ALJ . . . the Commission finds that the Respondents have engaged in a deliberate and consistent course of conduct – no mere isolated incident or mistake – in deceptively touting the Challenged POM Products’ purported ability to affect diseases and the scientific studies ostensibly showing such effects.”

While it included the two-RCT requirement in the Order, the Commission declined to impose the even more restrictive and commonly found provision in FTC Orders: the requirement that any disease treatment or prevention claims be preapproved by the FDA. While the FTC argued that the restriction was needed to provide POM with exact guidance regarding future claims, the Commission disagreed and found that the two-RCT requirement provided POM with sufficient clarity.

In a statement, POM said it will appeal the decision to the U.S. Circuit Court of Appeals. “With this ruling, the FTC is taking the unprecedented step of holding food companies like POM Wonderful to the same standards as pharmaceuticals. Their new legal standard would require food companies to conduct double-blind, placebo-controlled studies in order to talk about potential health benefits of fruits and vegetables,” the company stated.

To read the Commission’s decision in In the Matter of POM Wonderful,
click here.

Why it matters: While the FTC’s decision obviously dealt a serious blow to POM, it is very important that all advertisers pay attention to this case as it winds its way through the court system. Ultimately, a federal court may decide whether the FTC is correct that only RCTs can substantiate these type of claims, or whether POM is right that other types of scientific evidence may suffice. A court may also decide whether the FTC can legally require that advertisers gain FDA preapproval for disease claims or to have two randomized, well-controlled, human clinical trials supporting the claims. First Amendment arguments will undoubtedly be raised. Given what has already transpired, it seems clear that both sides are prepared to vigorously defend their positions, and that this case could ultimately have a significant and long-lasting impact, not only on advertisers in the food and dietary supplement industries, but on all advertisers.

Instant Instagram Controversy

Popular photo-sharing app Instagram received coal in its stocking after announcing new terms of service just before the holidays.

Under its updated Terms of Service, the Facebook-owned company assumed the right to license photos posted on the site to third parties, including advertisers, without paying licensing fees, or obtaining users’ permission, or even providing prior notice to the person who posted.

Instagram did not claim ownership of the photos, but its Terms of Service stated that by uploading their photos, users “hereby grant to Instagram a nonexclusive, fully paid and royalty-free, transferable, sublicensable, worldwide license to use the Content that you post on or through the Service.”

In addition, the agreement stated that “You agree that a business or other entity may pay us to display your user name, likeness, photos (along with any associated metadata) and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you.”

Even minors were included, although those under 18 were required to warrant that a parent had agreed to let him or her post the photo that Instagram could license for advertising purposes.

A public outcry ensued. Diverse users ranging from National Geographic to Kim Kardashian threatened to stop using the site once the terms were set to take effect. Legislators also weighed in, with Rep. Edward J. Markey (D-Mass.), co-chair of the Bipartisan Congressional Privacy Caucus, noting that “A picture is worth a thousand words; posting one to Instagram should not cost you your privacy.”

Relenting to the pressure, Instagram retracted the proposed changes and released new Terms of Service without the licensing provision. In blog posts, cofounder Kevin Systrom called the outcry a misunderstanding and said the company would return to its October 2010 terms. 

“Our intention in updating the terms was to communicate that we’d like to experiment with innovative advertising that feels appropriate on Instagram. Instead it was interpreted by many that we were going to sell your photos to others without any compensation. This is not true and it is our mistake that the language is confusing. To be clear, it is not our intention to sell your photos,” he wrote. “Going forward, rather than obtain permission from you to introduce possible advertising products we have not yet developed, we are going to take the time to complete our plans, and then come back to our users and explain how we would like for our advertising business to work.”

The site then posted updated proposed Terms of Service to take effect January 19. But even the amended changes received criticism. In addition to mandating arbitration of most claims against the site, the terms prohibited users from bringing class action suits and capped certain kinds of damages at $100.

One user filed a federal lawsuit in response to the changes even before they took effect, alleging that the site is “taking its customers’ property rights.” In order to reject the Terms of Service, users must quit the site, which forfeits their rights to photos previously shared, the plaintiff argued. “In short, Instagram declares that possession is nine-tenths of the law and if you don’t like it, you can’t stop us,” according to the complaint.

To read Systrom's blog post following the introduction of the New Privacy Policy & Terms of service, click here.

To read his blog post regarding the decision to revert back to the original advertising section, click here.

To read the complaint in Funes v. Instagram, click here.

Why it matters: The proposed changes cost Instagram many users and damaged its reputation. Users were horrified that they had no control over the use of their images, while celebrities like Kardashian complained that her endorsement and licensing deals could be reduced. As social media companies struggle to justify their market value, and expensive purchases (e.g., Instagram’s hefty $741 million price tag), they will continue to seek ways of monetizing user information. However, if pushed too far, users will revolt, as they did here.

LASIK Providers Need Corrective Advertising

Advertising for LASIK eye surgery is misleading consumers by failing to include adequate warnings of possible side effects, the Food and Drug Administration cautioned in recent warning letters.

Sent to five eye care providers – 20/20 Institute Indianapolis LASIK, Scott Hyver Visioncare Inc., Rand Eye Institute, Eye Center of Texas, and Woolfson Eye Institute – the FDA’s warning letters said the recipients failed to inform consumers of possible side effects from the corrective laser eye surgery. They included severe dry eye syndrome; various visual issues (halos, glare, starburst, double vision and loss of sight); and the continued need for glasses or contact lenses after the surgery.

LASIK surgery is intended to reduce or eliminate the need for corrective eyewear. A laser is used to reshape the cornea and change the focusing power of the eye. Because the procedure is heavily marketed, the agency emphasized that consumers need to understand the potential risks.

“The FDA reminds consumers that eye surgery such as LASIK is irreversible, that not all patients will achieve optimal results, and that some patients may need additional procedures,” according to the agency’s press release.

The letters instructed the providers to cure their advertising or face agency action, such as an injunction halting the providers from conducting business, seizure of their equipment and inventory, and/or civil fines.

“Advertising by many eye care professionals who perform laser vision correction surgery provides patients with the risk information that they need to make informed decisions,” Steve Silverman, compliance director at the FDA’s Center for Devices and Radiological Health, said in a statement about the letters. “But providers whose advertising does not provide adequate risk information are finding out today that the FDA is serious about consumer protection.”

To read the FDA’s press release about the warnings, click here.

Why it matters: The FDA has cracked down on LASIK providers in the past, having sent two prior rounds of warning letters in May 2009 and September 2011. Marketers of products and services related to health or bodily functions must be extremely careful in their advertising so consumers are provided with complete information about the benefits and risks involved.

FTC Reports on Food Industry Marketing to Kids

Continuing its recent focus on children, the Federal Trade Commission released a new study detailing the marketing and advertising expenditures directed to teens and kids by the food and beverage industry.

The agency conducted a similar study in 2008, and the new report, “A Review of Food Marketing to Children and Adolescents: Follow-Up Report,” charts changes in the industry from 2006 data to that reported in 2009. Data was obtained from 48 major food and beverage marketers using compulsory process orders.

“The overall picture of how marketers reach children, however, did not significantly change,” the report concluded. “Companies continue to use a wide variety of techniques to reach young people, and marketing campaigns are heavily integrated, combining traditional media, Internet, digital marketing, packaging, and often using cross-promotions with popular movies or TV characters across all of these.”

The use of cross-promotions linking children’s movie and TV characters with food increased over the years from 80 instances to 120. Characters appeared in television advertising, on packaging, and in online sweepstakes, the agency found. The FTC also documented “pester power,” where a parent purchases a product based upon a child’s request. Seventy-five percent of parents bought a product after their child asked for it, with food ads and packaging leading the field.

The new report also included an analysis of the nutritional profile of the foods marketed to youth. Some food categories – including cereals, drinks, and fast-food kids’ meals – showed “modest” nutritional improvement over the years, in part because of the Children’s Food and Beverage Advertising Initiative. Members of the CFBAI have agreed to adopt standardized nutritional criteria for foods marketed to children, which will likely lead to further improvements in the nutritional quality of foods marketed to children, the FTC added. The criteria will take effect at the end of 2013.

The report noted that some companies “with significant marketing to children” still have not joined in the industry self-regulatory efforts. The entertainment industry “lags further behind” the food and beverage industry, the agency said. For example, media companies have not limited the licensing of children’s characters and placement of ads during kids’ programming to more nutritious foods, with limited exceptions.

To read the FTC’s report, click here.

Why it matters: “The encouraging news is that we’re seeing promising signs that food companies are reformulating their products and marketing more nutritious foods to kids, especially among companies participating in industry self-regulatory efforts,” FTC Chairman Jon Leibowitz said in a press release about the report. “But there is still room for improvement: We will look for continued progress by the food industry and greater participation by the entertainment industry.”

Google, Viacom Accused of Violating Children’s Privacy

On the heels of the FTC’s updated Children’s Online Privacy Protection Rule, Google and Viacom are facing multiple lawsuits for alleged child-related privacy violations. 

According to the six different class actions filed in federal courts across the country, cookies were placed by Viacom and Google in the computers of children who visited sites such as Nick.com and NickJr.com. The companies then collected and shared information about children who visited the site.

In the California lawsuit, a plaintiff under the age of 13 created a profile on the Nickelodeon sites and watched videos. During the plaintiff’s visits to the sites, Google’s DoubleClick placed cookies in the child’s computer that tracked communications both to the Nick Web sites and other Web sites visited by the computer, according to the complaint. The suit alleges Viacom allowed Google to track the plaintiff’s use of the site and to then use that data to sell targeted advertising “based on [the plaintiff’s] individualized web usage communications and videos requested and obtained.”

As the registration process requires that users provide their birthdates, the suit contends Viacom was aware of the users’ age. Despite this knowledge, “Viacom does not attempt to gain permission or otherwise inform the parent or guardian” that an account has been created, the plaintiff claims.

The suits allege violations of the Video Privacy Protection Act and the Wiretap Act and seeks statutory damages of $2,500 per violation to $100 for each day the plaintiffs’ data was wrongfully obtained or $10,000 per violation, respectively. The complaints also request punitive damages and injunctive relief.

To read the complaint in L.G. v. Google, click here.

Why it matters: The lawsuits were filed one week after the FTC updated the COPPA Rule and may benefit from the current regulatory focus on children’s privacy. In the updated Rule, the FTC revised the definition of “personal information” to include persistent identifiers such as cookies, which have the ability to identify an individual, either by themselves or coupled with other information.  Not surprisingly, consumers (and perhaps more importantly, the plaintiffs’ bar) have embraced this new definition and are now seeking to apply these data collection practices to decades-old privacy statutes in the hopes of proving liability and exacting penalties from the defendants.

Neutrogena Settles “Natural” Suit for $1.8 Million

To settle a consumer class action alleging it falsely advertised its cosmetic products as “natural,” Neutrogena has agreed to pay $1.8 million and change its advertising.

According to the suit, filed in California federal court, six of the products in Neutrogena’s Naturals line – the pore scrub, face and body bar, cleaner, makeup remover, and multiple moisturizers – contain “chemically derived, synthetic fragrances” despite the company’s “natural” claims. Only the lip balm in the line the company touted as “pure, natural skin care” was wholly natural, the plaintiff said.

To settle the suit, Neutrogena agreed to change its product labeling, and in some instances, the packaging of the products. A statement regarding the exact percentage of the product that is naturally derived will appear on the front labels and/or packaging for each product. Neutrogena will also remove the term “petrochemicals” from its claim that the product line contains “No harsh chemical sulfates, parabens, petrochemicals, dyes, or phthalates.”

In addition, the company will pay $1.3 million into a settlement fund for the nationwide class, as well as $500,000 in attorneys’ fees. Class members are eligible to recover up to $10 each ($1 per cleanser product purchased and $2 for each moisturizer product). Any remaining funds will be distributed to “an appropriate nonprofit or civic entity(ies)” chosen by the court.

A hearing for preliminary approval of the settlement is set for late February.

To read the proposed settlement in Stephenson v. Neutrogena Corp.,
click here.

Why it matters: Products advertised as “natural” – ranging from cosmetics to ice cream to deodorant – are a natural target for class action lawsuits, as the term has not been defined by either state or federal regulators. However, the FDA has indicated that it will address this issue this year. In the meantime, marketers should ensure that when making a “natural” claim, it can be supported with adequate and reliable evidence.

Noted and Quoted . . . Katz Authors Article on Conflicting Video Game Decisions Involving Right of Publicity

Law360 recently sought Manatt litigation partner Ron Katz’s analysis of case law that attempts to balance First Amendment rights with the right of publicity in the context of a video games that use images of athletes.  A New Jersey federal district court decision, Hart v. Electronic Arts Inc., ruled that the game maker was entitled to First Amendment protection.  Hart’s conclusion was in opposition to a California federal district court decision on the same issues (Keller v. Electronic Arts).  Both cases are currently on appeal.

In an article published on January 10, 2013, Mr. Katz explores the central issue of these cases – transformativeness – and notes that “the results of these appeals on the issue of transformativeness are likely to have a dramatic impact on athletes’ right of publicity in one of the most important marketplaces for those rights, video games.”

Topics:  Advertising, COPPA, False Advertising, FDA, Food Marketing, FTC, Google, Instagram, LASIK, Right of Publicity, Viacom, Video Games

Published In: Antitrust & Trade Regulation Updates, Communications & Media Updates, Consumer Protection Updates, Privacy Updates, Science, Computers & Technology Updates

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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