In This Issue:

  • Online Reviews Not Sufficient To Support Ad Claim, NAD Rules
  • U.S. Supreme Court: FDCA And Lanham Act Can Coexist
  • FDA Issues Social Media Guidance
  • Redskins Mark Disparaging, Board Concludes Again
  • 7th Circuit Solves Mystery Of Sherlock Holmes Copyright Protection
  • FTC Challenges Plastic Lumber Environmental Claims
  • “Torture” Test Can’t Support Oil Claims, Says NARB
  • Consumer Groups Petition FTC To Investigate CarMax
  • Noted and Quoted. . . Inside Counsel Turns to Linda Goldstein on Impact of POM v. Coke Decision

Online Reviews Not Sufficient To Support Ad Claim, NAD Rules

While recognizing the benefits of using new sources of information, the National Advertising Division (NAD) decided that an advertiser’s use of aggregated online reviews was insufficiently reliable and representative to support a claim that its vacuum was “America’s Most Recommended.”

Dyson Inc. challenged Euro-Pro’s advertising claims for its Shark brand vacuum cleaners in television commercials, infomercials, and on its Web site. The advertiser touted the Shark line as “America’s Most Recommended Vacuum Brand,” with a disclaimer that the claim was “Based on percentage of consumer recommendations for upright vacuums on major national retailer websites through August 2013, U.S. only.”

Euro-Pro based the claim on a quarterly survey of the Web sites of certain online retailers (including Amazon and Target) that sell upright vacuum cleaners and also solicit customer reviews. After collecting and amalgamating the data – specifically the answers given by consumers regarding whether they would recommend the product under review – Euro-Pro then tallied and compared the percentage of recommendations for various brands.

Dyson identified several problems with the claim support. Not only did the universe of consumers not represent American vacuum cleaner consumers (likely excluding purchasers of vacuums from retail locations, which constitute 84 percent of all buyers in the country), but the data was also unreliable, the challenger said. Euro-Pro could not provide any evidence that the largely anonymous population of online reviewers actually bought and used the product, were American customers, based their recommendations on actual experience with or use of the product, or represented a demographically representative data set by age, region, gender, or income.

In response, Euro-Pro pointed out that since online reviews have become an important influence in many consumers’ buying decisions, they provide a new, reliable way to discern consumer opinions. Consumers understand the limitations of online reviews, the advertiser added.

The NAD agreed that while consumers increasingly use and rely upon online reviews – and that the reviews provide “important new sources of information” for advertisers – “the standards of truthfulness, reliability, and representativeness to which advertisers’ substantiation is held remain the same.”

Euro-Pro’s substantiation failed to support its claim, the self-regulatory body concluded. A large majority of consumers continue to purchase their upright vacuum cleaners in brick-and-mortar stores and are far less likely to submit online reviews. The reviewer demographics were unverified, which presented a high possibility of fraud. The advertiser could not even verify whether the reviewers actually owned or used the vacuums. The Web sites from which Euro-Pro culled its data varied in how they worded their recommendation questions and had different policies for how long reviews remained available on the site.

“[T]here is a difference between the reliability of online reviews for consumers who directly read and analyze them when considering which product to purchase and their reliability as the basis of a broad advertising claim regarding the opinions of a wide swath of U.S. consumers,” the NAD wrote.

Finding the evidence insufficiently reliable or robust to provide a reasonable basis for the claim, the NAD recommended that the “most recommended” claim be discontinued.

In its advertiser’s statement, Euro-Pro said it intends to appeal to the National Advertising Review Board, so stay tuned.

To read the NAD’s press release about the decision, click here.

Why it matters: In light of this decision, advertisers using crowd-sourced or aggregated data collected across multiple platforms to support claims should take heed and consider whether such data would pass muster under the NAD’s strict and evolving standards of truthfulness, reliability, and representativeness. Advertisers considering the use of new types of claim support such as online reviews should also keep in mind that “[w]hile NAD will consider information sourced from new technology as claim support, NAD will hold that evidence to the same standards of reliability that it has with more traditional forms of substantiation.”

U.S. Supreme Court: FDCA And Lanham Act Can Coexist

In a unanimous opinion authored by Justice Anthony Kennedy, the U.S. Supreme Court held that POM Wonderful may proceed with its Lanham Act suit against Coca-Cola and that the statute can peacefully coexist with the Federal Food, Drug, and Cosmetic Act (FDCA).

No stranger to litigation, POM challenged Coke’s labeling of the Pomegranate Blueberry Flavored Blend of Five Juices drink, arguing that the drink’s contents (0.3 percent pomegranate juice and 0.2 percent blueberry juice) belied its label in contravention of the Lanham Act.

Lower courts agreed with Coke that the Lanham Act could not proceed because the labels were regulated under the FDCA and regulations promulgated by the Food and Drug Administration. But the Supreme Court reversed.

“Nothing in the text, history, or structure of the FDCA or the Lanham Act shows the congressional purpose or design to forbid these suits,” Justice Kennedy wrote. “Quite to the contrary, the FDCA and the Lanham Act complement each other in the federal regulation of misleading food and beverage labels. Competitors, in their own interest, may bring Lanham Act claims like POM’s that challenge food and beverage labels that are regulated by the FDCA.”

The Court disagreed with Coke’s argument that the FDA should take the lead to encourage national uniformity in food and beverage labeling and found no evidence that Congress intended to foreclose private enforcement of other federal statutes.

Neither statute by its express terms references the other and the two have coexisted since the Lanham Act was enacted in 1946. Both have been amended in the last 70 years, the justices added, without the addition of language precluding enforcement of other federal laws, adding support that FDA oversight is not the exclusive means of food and beverage label regulation.

“The Lanham Act and the FDCA complement each other in major respects, for each has its own scope and purpose,” Justice Kennedy wrote. “Although both statutes touch on food and beverage labeling, the Lanham Act protects commercial interests against unfair competition, while the FDCA protects public health and safety.”

To read the opinion in POM Wonderful v. Coca-Cola Co., click here.

Why it matters: In reversing the Ninth Circuit, the U.S. Supreme Court established that, at least in the false advertising/unfair competition context, manufacturers cannot always hide behind one federal statute in order to avoid liability under another. The mere fact that a product name or label may comply with the provisions of the FDCA does not mean that the chosen name or label is not misleading or otherwise deceptive under the Lanham Act. The Court makes clear that companies are entitled to challenge a competitor’s representations – even where such representations are consistent with another federal statute – in order to ensure that marketplace competition remains fair. The U.S. Supreme Court’s green light for Lanham Act suits brought by competitors could result in brand wars and potentially open the litigation floodgates. Accordingly, companies must carefully market their products to satisfy FDCA guidelines while simultaneously guarding against Lanham Act challenges.

FDA Issues Social Media Guidance

The Food and Drug Administration has released draft social media guidelines for pharmaceutical companies and medical device manufacturers in which they emphasize that despite limited space, risk information must be adequately conveyed.

The agency issued two documents: “Guidance for Industry: Internet/Social Media Platforms with Character Space Limitations – Presenting Risk and Benefit Information for Prescription Drugs and Medical Devices” and “Guidance for Industry: Internet/Social Media Platforms: Correcting Independent Third-Party Misinformation About Prescription Drugs and Medical Devices.”

The overarching principle for the FDA: communicate risk information to consumers and provide a balanced presentation. “Risk information should be comparable in content and prominence to benefit claims within the product promotion,” the agency wrote. “Achieving a balanced presentation requires firms to carefully consider the desired benefit claims and risk profiles for their products when choosing a promotional platform.”

While the guidelines recognize the space constraints on social media – Twitter’s 140-word limit, for example – they nonetheless state that drug and device companies must still disclose product risks and indications in every communication, from a tweet to a Facebook post. Where possible, font and formatting should be used to highlight risk information.

If the allotted space doesn’t permit the listing of all possible risks, the FDA said companies should prioritize, leading with boxed warnings and fatal risks. Also important: provide a link to a source for more complete information about the drug or device and its risks. The agency approved the use of short links as another space-saving measure, but recommended that the link indicate the landing page’s information and refrain from using the truncated link as a promotional opportunity.

And if space constraints preclude the listing of reasonable disclosures, companies should reconsider the social media platform being used, the agency advised.

The FDA, as an example, recommended the following tweet for fictional prescription drug, NoFocus, to treat mild to moderate memory loss and may cause seizures in patients with seizure disorder: “NoFocus (remembrine HCl) for mild to moderate memory loss – may cause seizures in patients with a seizure disorder www.nofocus.com/risk.”

In the second document, the agency acknowledged the interactive nature of social media and the need for manufacturers to correct misinformation on the Internet. But when attempting to correct mistakes (like on a discussion forum), companies should self-identify, provide the correct information, and refrain from using the posting as a promotion opportunity.

The guidelines offered several examples of when and how to make corrections, including a situation where a firm corrects misinformation posted on a blog that allows comments. In the hypothetical, the company corrected the misinformation but failed to address other postings that state exaggerated efficacy claims for the product.

“Even if the firm corrects the misinformation in the limited posts it chose, the firm’s actions are not in accord with this guidance because it has intentionally selected only negative information about its product to correct while readily accessible and visible positive misinformation was not corrected,” the agency noted.

To read the FDA’s draft guidance on social media marketing, click here.

To read the draft guidance on correcting misinformation, click here.

Why it matters: The guidance focuses on the FDA’s interpretation and expectation of how companies will promote their products in social media. The draft guidance is nonbinding and remains to be finalized. However, pharmaceutical companies and device manufacturers would be well-advised to familiarize themselves with the documents if they are planning to promote their products on social media, especially as the issuance of draft guidance could indicate an uptick in the FDA’s enforcement efforts. Manufacturers should review their social media current policies and procedures, decide whether to submit their marketing materials to the FDA, and determine whether to provide comments and suggestions to the FDA before the August 18 and September 16, 2014, deadlines.

Redskins Mark Disparaging, Board Concludes Again

In the latest ruling of the long-running legal battle, the Trademark Trial and Appeal Board (TTAB) ruled that the Washington Redskins mark is “disparaging to Native Americans” and must be canceled.

Five Native American citizens brought the cancellation proceeding before the Board, arguing that six registrations for the professional football team were obtained contrary to Section 2(a) of 15 U.S.C. § 1052(a) of the Trademark Act, which prohibits marks that may disparage persons or bring them into contempt or disrepute.

The TTAB agreed that the term “Redskins” was disparaging to Native Americans at the respective times it was registered and renewed in 1964, 1967, 1974, 1978, 1990, and 2000.

The case began in 1992 when a prior group of Native Americans filed a similar petition. In that proceeding the TTAB found the marks disparaging, and ordered the registrations canceled. But the case underwent several years of appeals, bouncing between federal district and appellate courts, until the D.C. Circuit Court of Appeals ultimately held that the doctrine of laches barred the claim.

In the second attempt the TTAB reviewed the entire record from the earlier proceeding, including newspaper articles, reports, official records, letters, and statements from the petitioners and concluded that “at a minimum, approximately thirty percent of Native Americans found the term Redskins used in connection with respondent’s services to be disparaging at all times including [the years the marks were registered and renewed].”

An ethnic term in origination, the Board noted that dictionary definitions began identifying “redskin” as an offensive term in 1966 and that general use of the term showed a drop-off in usage since that time. Perhaps most importantly for the majority of the TTAB, the Executive Council of the National Congress of American Indians passed a resolution in support of cancellation of the mark in 1993 and advocated against using the term as early as the 1960s.

“Section 2(a) prohibits registration of matter that disparages a substantial composite, which need not be a majority, of the referenced group. Thirty percent is without doubt a substantial composite. To determine otherwise means it is acceptable to subject to disparagement 1 out of every 3 individuals,” the Board wrote. “There is nothing in the Trademark Act, which expressly prohibits registration of disparaging terms, or in its legislative history, to permit that level of disparagement of a group and, therefore, we find this showing of thirty percent to be more than substantial.”

The TTAB rejected the Redskins’ laches defense, finding that it “does not apply to a disparagement claim where the disparagement pertains to a group of which the individual plaintiff or plaintiffs simply comprise one or more members.”

A dissenting judge argued that the dictionary evidence was inconclusive and the 30 percent figure cited by the majority for the membership of the National Congress of American Indians was uncorroborated. Calling the petitioners’ evidence a “database dump,” the dissent suggested that the majority was distracted by current feeling about the term.

To read the TTAB’s ruling in Blackhorse v. Pro-Football, Inc., click here.

Why it matters: The TTAB’s decision garnered headlines but may have limited practical impact, at least in the near future. If upheld, the ruling could make enforcement more challenging, although the team’s common-law trademark rights can prevent others from using the mark. Daniel Snyder, the owner of the Washington Redskins, has continually refused to change the team’s name, despite the legal battle and public pressure, and has already promised to appeal. However, more broadly, the controversy over the Redskins mark highlights the problems that a brand owner may face when a mark conjures negative associations and nuances. Traditionally, much of the value of a brand lies in its “goodwill” – the positive aura of quality and competence associated with the mark. In the debate over the Redskins mark, many critics have questioned the continuing value of that mark’s goodwill.

7th Circuit Solves Mystery Of Sherlock Holmes Copyright Protection

The mystery of copyright coverage for Sherlock Holmes continues, with the 7th U.S. Circuit Court of Appeals rejecting an argument that “complex” literary characters justify the extension of copyright protection.

The appellate panel’s decision leaves 4 novels and 46 short stories about the detective and his sidekick Dr. Watson in the public domain.

The case involved Leslie Klinger, the author of numerous books and articles on Sherlock Holmes, who sought a declaratory judgment against the estate of Sir Arthur Conan Doyle about the scope of copyright protection for the famous detective as well as other characters and story elements. Klinger faced the possibility that his new anthology of stories based on Holmesian elements would not be published after the estate demanded payment for a license.

Last December a federal court judge declared that only a handful of elements from 10 short stories about Holmes and Watson remain protected by copyright, having been published after Jan. 1, 1923. The federal district court drew a dividing line between Doyle’s works published prior to 1923, ruling they were all in the public domain, and those published after, which remained protected by copyright.

The estate appealed, arguing that complex characters like Holmes and Watson should remain under copyright because their characters continued to evolve in the later stories. Under this theory, the original character could not lawfully be copied without a license from the writer until the copyright on the later work, in which that character appears in a different form, expires.

But a three-judge panel of the 7th Circuit disagreed with the estate’s “quixotic” argument. “We cannot find any basis in statute or case law for extending copyright beyond its expiration,” the court wrote. “When a story falls into the public domain, story elements – including characters covered by the expired copyright – become fair game for follow-on authors.”

Incremental additions of originality in the later works do not extend copyright protection, the court concluded. Allowing such an extension would shrink the public domain and reduce creativity for writers generally as well as the original author, who would have an incentive to write stories involving old characters in an effort to prolong copyright protection, the panel said.

The court refused to distinguish “round” or “complex” fictional characters as worthy of greater copyright protection, even if Holmes and Watson were more complete in the later works.

“The spectre of perpetual, or at least nearly perpetual, copyright…looms, once one realizes that the Doyle estate is seeking 135 years (1887-2022) of copyright protection for the character of Sherlock Holmes as depicted in the [first story],” the panel wrote.

The court affirmed summary judgment for Klinger. The estate’s attorney told the ABA Journal his client is considering appellate options, expressing concern about the feasibility of using the characters without using the remaining protected elements.

To read the decision in Klinger v. Conan Doyle Estate, click here.

Why it matters: The 7th Circuit refused to extend copyright protection for “complex” characters who may be developed in later works by the author, finding no support for the contention in case law, statute, or even policy.

FTC Challenges Plastic Lumber Environmental Claims

The Federal Trade Commission settled charges with California-based American Plastic Lumber that the company deceptively marketed its products – such as picnic tables, benches, trash bins, wheel stops, and speed bumps – as made virtually entirely of post-consumer recycled content.

APL implied its products were made “virtually all” out of post-consumer recycled content, including milk jugs and detergent bottles, the agency said. For example, one promotional document stated: “APL’s HDPE products are made of high-density polyethylene (HDPE), UV-inhibited pigment systems, foaming compounds and selected process additives. The HDPE raw material is derived from post-consumer bottle waste, such as milk jugs and detergent bottles…with the resulting finished product containing over 90% recycled plastic by weight.”

But on average the products contained less than 79 percent post-consumer content, the FTC alleged. Worse, 8 percent of the products contained no post-consumer content at all and almost 7 percent contained only 15 percent post-consumer content.

Such deceptive and misleading advertisement over a two-year period violated Section 5 of the Federal Trade Commission Act, the agency charged in its administrative complaint.

To settle the charges, APL agreed to a prohibition on making misleading statements about the amount of post-consumer recycled plastic content in its products or other environmental benefit claims. Future claims must be supported by competent and reliable evidence, the agency said, and recycled-content claims must be substantiated by demonstrating that the content was made of materials recovered from the waste stream.

To read the case documents in In the Matter of American Plastic Lumber, click here

Why it matters: The settlement – the second action taken by the agency against a company this year for misleading consumers about the environmental attributes of its products – should serve as a reminder to advertisers to familiarize themselves with the FTC’s Guides for the Use of Environmental Marketing Claims and ensure compliance for any environmental marketing claims.

“Torture” Test Can’t Support Oil Claims, Says NARB

Results from a “torture” test to demonstrate the strength of an oil product could not support claims to consumers about their normal driving conditions, a panel of the National Advertising Review Board recently concluded.

ExxonMobil challenged claims for BP Lubricants USA’s Castrol EDGE Motor Oil found in television commercials as well as on BP’s Web site, YouTube, and Facebook pages that its oil was stronger. Claims included: “Some motor oils are strong. We push Castrol EDGE harder to prove it’s stronger. Because a stronger oil is an oil you can count on.”

BP relied upon a “torture” test to support the claims, which involved vehicles loaded with 1,600 pounds and run at an incline at 75 miles per hour in second gear for up to five days until engine failure – circumstances the advertiser conceded would be impossible for consumers to replicate.

Despite a recommendation from the National Advertising Division to discontinue the claims, BP argued to the NARB that the “torture” test – by definition – was meant to test extreme conditions that exceed normal consumer use and that it accurately disclosed and depicted the testing conditions in the ads.

The NARB agreed that the test description was generally accurate and clearly conducted under extreme conditions, but the panel focused on whether or not the advertisement reasonably conveyed a message that the test results were relevant to consumers.

“[T]he panel finds that the overall context of the challenged advertisements and their unqualified ‘stronger’ claims reasonably convey a message that BP’s test shows that Castrol EDGE will provide consumers with stronger (i.e., longer and better) protection under normal driving conditions,” according to the decision. “This message is reinforced by specific references to consumers demanding stronger oil and Castrol EDGE providing stronger oil that consumers can count on.”

BP lacked substantiation for such a claim because the torture test does not measure strength under normal use and typical driving conditions, the panel said, adding that it also had concerns about the reliability of BP’s testing.

In response to the NARB’s recommendation that BP discontinue the challenged claims, the company issued a scathing advertiser’s statement. The panel “fails to appreciate even how the depiction relates to the underlying testing,” BP said, and “raises superficial, immaterial concerns.” The advertiser also took issue with what it described as a new standard of “unprecedented and entirely impractical level of substantiation” imposed by the NARB for comparative product testing.

To read the NARB’s press release about the decision, click here

Why it matters: The takeaway for advertisers: even accurately disclosed or depicted test results may convey a message to consumers that is irrelevant. In the case of BP, while the torture test was intended to demonstrate extreme conditions, the NARB said the claims made by the company conveyed a message that the test results translated into a stronger product under normal driving conditions – a message that was unsupported by the test itself.

Consumer Groups Petition FTC To Investigate CarMax

Requesting that the Federal Trade Commission launch an investigation, a coalition of 11 consumer groups claimed in a letter to the agency that CarMax puts lives in danger by deceptively advertising its inspection process and the condition of used cars it sells.

“It is inherently deceptive for an auto dealer to represent that its vehicles have passed a rigorous inspection, while failing to take even the most basic step of checking the vehicle’s safety recall status in order to identify known safety defects that have triggered a federal safety recall, and ensuring that the safety recall repairs have been performed, prior to selling the vehicle to a consumer,” groups such as Consumers Union, the National Consumer Law Center, and the Center for Auto Safety told the agency.

The nation’s largest retailer of used vehicles, CarMax claims that its vehicles are “CarMax Quality Certified” and have undergone a “rigorous 125+ point inspection.” The claims “lull car buyers into a false sense of security,” the groups said, despite the fact the company does not fix safety recalls prior to sale.

Citing safety concerns for consumers on the road in cars in need of repair, the letter noted that the National Highway Traffic Safety Administration lacks authority over used-car dealers, leaving the FTC to take action. The groups asked that the agency investigate CarMax’s advertising and sales practices and reach out to consumers who purchased cars with pending safety recalls.

Joining in the effort, Sen. Charles E. Schumer (D-N.Y.) sent his own letter to FTC Chairwoman Edith Ramirez to express his “grave concern” about the issue.

“Compounding safety risks with misleading and deceptive advertising and sales practices only further endangers the safety of used-car customers and everyone who shares the roads,” he wrote, adding that the agency should launch “a full-fledged investigation to determine whether other used-car dealers engage in similar practices.”

A spokesperson for CarMax said the company “provides the necessary information for customers to register their vehicle with the manufacturer to determine if it has an open recall and be notified about future recalls,” but that “automakers did not give retailers like CarMax the authority to carry out recalls at their facilities,” although “CarMax would like to see legislation that would make that possible.”

To read the petition to the FTC, click here.

To read Sen. Schumer’s letter, click here

Why it matters: The timing of the petition could catch the attention of the FTC, given the current outcry over General Motors’ alleged feet-dragging with regard to vehicle recalls.

Noted and Quoted. . . Inside Counsel Turns to Linda Goldstein on Impact of POM v. Coke Decision

InsideCounsel featured commentary by Manatt’s Advertising, Marketing & Media Division Chair Linda Goldstein throughout its July 2nd story on “The True Impact of the Supreme Court POM Wonderful Case.” In its decision, the U.S. Supreme Court ruled that compliance with FDA labeling laws does not bar additional lawsuits from competitors under the Lanham Act.

“I think this could potentially open the floodgates to more brand war litigation and raises the stakes significantly,” says Goldstein. “Now. . . if a company’s labeling claims are found to be misleading, it’s not just a question of changing the advertising or removing the offending advertising from the marketplace, but the product itself will have to be removed from the shelves with nothing to replace it. The consequences to the company could be devastating.”

To read the full article, click here.

Topics:  Advertising, Coca Cola, False Advertising, FDA, FDCA, FTC, Lanham Act, NAD, POM Wonderful, POM Wonderful v Coca Cola, Redskins, SCOTUS, Social Media

Published In: Administrative Agency Updates, Antitrust & Trade Regulation Updates, Civil Procedure Updates, Communications & Media Updates, Intellectual Property 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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