Advertising Law - July 2015 #5

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

  • Place Your Bets: Yahoo to Host Fantasy Sports Games
  • W3C Makes Progress on DNT
  • New False Advertising Lawsuits: Baby Food, Uber, Chicken Lifestyles, and Almonds
  • On the Menu: A One-Year Extension

Place Your Bets: Yahoo to Host Fantasy Sports Games

In a new business venture that adds to an ever expanding field, Yahoo announced that it will host daily and weeklong pay-to-play fantasy sports games for cash prizes.

To start, Yahoo will offer a baseball league only in the United States; expansion to the other professional leagues will occur once their respective seasons commence. Players can participate on desktops, on a mobile site, or an iPhone app, against a single competitor or a small group, with an initial prize package of about $6,500, Yahoo said.

"We're taking the game to the next level and giving fans what they've always wanted—the chance to compete with their friends and win cash every day," the company said in a press release about the new games.

Yahoo has already hosted season-long fantasy sports leagues for more than 16 years, with users spending an average of 500 minutes each month on its site, the company said. Research has found that players spend an average of $465 each year on fantasy sports and that the daily games could generate an estimated $2.6 billion in entry fees—with the potential for growth.

Although the Unlawful Internet Gambling Enforcement Act of 2006 prohibits online poker and sports betting, the statute contains an exception for fantasy sports as a "game of skill." However, betting on fantasy sports remains illegal in five states (Arizona, Iowa, Louisiana, Montana, and Washington). "We stay very close to the laws," Yahoo's Vice President for Publisher Products Ken Fuchs told The New York Times. "We certainly encourage people to play responsibly."

To read Yahoo's press release about its plans, click here.

Why it matters: With the company's built-in user base and estimated 56 million fantasy sports players in the United States and Canada, Yahoo's move could be trendsetting and lucrative, not just from entry fees but by selling advertisements or sponsorships around the games.

W3C Makes Progress on DNT

After four years of effort—and controversy—the World Wide Web Consortium published a tentative standard for the implementation of Do Not Track requests that users can send through their browsers.

"Do Not Track is designed to provide users with a simple mechanism to express a preference to allow or limit online tracking," according to the Last Call Working Draft on Tracking Compliance and Scope. "Complying with the user's preference as described in this document includes limits on the collection, retention and use of data collected as a third party to user actions and the sharing of data not permanently de-identified."

Pursuant to the Working Draft, ad networks would stop using and collecting data from consumers who have turned on the DNT request, with limited exceptions for auditing, security, debugging, and frequency capping. Other purposes—such as market research or product improvement—were excluded from the list of exceptions despite a push by ad industry members of the W3C's Tracking Protection Working Group.

The proposal would apply to cross-site tracking, retargeting, interest-based advertising, and the collection of data from outside publishers (how Facebook gets information when a user hits the "Like" button on a third-party website, for example).

Currently, all the major browser companies offer a DNT setting. When a consumer elects to opt out, publishers and ad networks receive a notice about the choice but can decide not to comply. Under the W3C's standard, ad networks and publishers must respond with a signal stating whether or not they comply with the standard.

The Working Draft will be open for public comment until October 7.

The proposal signals major progress by the Working Group, which has struggled mightily over the last few years to reach an agreement on a DNT standard. Stakeholders ranging from members of the ad industry to privacy advocates were unable to achieve consensus, with the leadership of the Working Group changing multiple times. In 2013, several members of the Working Group left, frustrated at the lack of progress after the deadline passed to establish a DNT standard with no agreement.

To read the Last Call Working Draft on Tracking Compliance and Scope, click here.

Why it matters: The Working Draft demonstrates significant progress from the W3C Working Group, and interested stakeholders should weigh in on the proposed standard during the three-month comment period.

New False Advertising Lawsuits: Baby Food, Uber, Chicken Lifestyles, and Almonds

Class action plaintiffs and their attorneys are not taking a summer vacation from filing false advertising lawsuits challenging claims for products and services that range from baby food, to Uber, to the lifestyle of chickens, and to the content of almond milk.

In one suit, a pair of putative class action plaintiffs alleged that Gerber baby food products have only "trace amounts" or none of the fruits and vegetables the company claims are contained in Graduates Puffs and Puffs Organics. In a California state court complaint, the mothers say they purchased the products at least weekly for their children because of the healthy representations.

According to plaintiffs, Gerber violated California's Business and Professions Code and Consumers Legal Remedies Act as "The closest ingredient to fruits or vegetables in the Puffs is little more than a [powdered] dried apple puree," with more sugar than fruit or vegetable ingredients. The defendant's conduct extended to deceptive illustrations of fruit and vegetable ingredients found on mailer coupons and in magazine ads for the products, the plaintiffs said.

Also in California state court, an Uber rider sued the company alleging that it falsely states in ads that its services are 30 percent cheaper than taxis. Uber already faces a false advertising lawsuit from a group of cab companies based on allegedly false claims that the company offers safer rides. In the new lawsuit, Sennett Devermont says the company's actions "have been immoral, unethical, oppressive, unscrupulous, and substantially injurious to consumers."

Devermont—a regular Uber user—characterized the company as a "systemic" violator of California's Unfair Competition Law, since cab companies can charge lower rates than Uber during certain peak times. He also said the company fails to tell consumers that their $10 and $20 referral credits have an expiration date that caused him to lose several credits.

The plaintiff asked that the court order Uber to halt its misleading advertisements to disclose expiration dates for referral credits, and to certify a class of California Uber users over the last four years who would receive disgorgement payments.

In another recently filed case, a putative class alleged that Foster Poultry Farm deceived consumers by falsely promoting a certification from the American Humane Association when, in reality, its chickens are not killed quickly and painlessly and do not live comfortably. Carol Leining purchased the chicken products because of the "American Humane Certified" certification, not realizing that Foster's chickens are mutilated and mistreated, she alleged.

The Los Angeles Superior Court complaint maintains that Foster engaged in forced molting and beak trimming, that it starved and deprived chickens of water, and that it dunked chickens into electrified water while shackled upside down.

For claims of unfair competition, negligent misrepresentation, breach of express warranty, and breach of implied warranty of merchantability, Leining asked the court to award injunctive relief as well as monetary damages.

Another new suit contended that Kraft understates the amount of calories, saturated fat, sodium, and sugar listed on the labels for its Knudsen Hampshire brand sour cream—by a multiplier of four.

A 48-ounce container of the sour cream (purchased at Costco) featured an ingredient label stating that a half-cup of the product contains 60 calories, 3.5 grams of saturated fat, 10 milligrams of sodium, and 1 gram of sugar. Lawrence Appel's complaint asserted that the correct math for the serving size actually amounts to 240 calories, 14 grams of saturated fat, 40 milligrams of sodium, and 4 grams of sugar. The saturated fat alone reaches 72 percent of the recommended daily amount, Appel added, not the 18 percent listed on the label.

As a remedy, Appel suggested that Kraft change its labels and provide restitution and damages (both compensatory and punitive) to customers who purchased the sour cream.

Meanwhile, in a Florida federal court, a consumer sued Publix Supermarkets over labels for its toaster pastries, which she said contain artificial ingredients despite the "real fruit" claim made by the defendant.

Amber Michelle Jackson argued that Publix deceived consumers into believing that its toaster pastries actually contained real fruit and cited claims such as "Made with Real Fruit" and "Indulge in the sweetness of juicy strawberries surrounded by tender pastries." The claims appeared with imagery of "large, brightly colored pictures" of the fruit. Instead, she alleged the products are made with artificial coloring and high-fructose corn syrup.

On behalf of a proposed class of Publix's toaster pastries purchasers nationwide, Jackson requested that the court award damages, restitution, and declaratory relief for violations of Florida's Deceptive and Unfair Trade Practices Act and for negligent misrepresentation and breach of express warranty.

And in a New York federal court, a suit claimed Blue Diamond misrepresented the amount of almonds actually present in its almond-branded milk products, including Almond Breeze, which are touted as primarily made from almonds. According to the plaintiff, the products contain far less than the typical 25 to 30 percent found in almond drinks, the packaging misleadingly displays a picture of a handful of almonds, and deceptively states that the drinks are "Made from REAL almonds," all of which are designed to emphasize that the drinks are "heart healthy" foods. Contrary to the claims, "the so-called 'almond milk' is being made from various types of thickening agents, such as locust bean gum, gellan gum, xanthan gum, and carrageenan, which are less costly ingredients, and Defendants' almond milk labeled products only contain 2% of almonds," she said.

Albert—who alleged that she purchased the defendant's drinks based upon the statements and claims on the packaging—seeks to certify a nationwide class of almond milk drinkers dating back to 2009, and requests compensatory and punitive damages as well as injunctive relief.

To read the complaint in Gyorke-Takatri v. Nestle USA, click here.

To read the complaint in Jackson v. Publix Supermarkets, Inc., click here.

To read the complaint in Albert v. Blue Diamond Growers, click here.

Why it matters: The half dozen new complaints represent the scope and volume of false advertising litigation. Filed in both state and federal courts and targeting products ranging from baby food to sour cream, as well as services like Uber, the lawsuits provide an important reminder to advertisers that any and all claims can be the subject of potential litigation.

On the Menu: A One-Year Extension

Answering pleas from industry, the Food and Drug Administration agreed to give food service establishments an additional year to achieve compliance with the new menu labeling rules that were set to take effect December 1.

The new rules—issued by the agency in accordance with Section 4205 of the Patient Protection and Affordable Care Act—require establishments with 20 or more locations that do business under the same name and offer substantially the same menu items to "clearly and conspicuously" declare the number of calories for each standard menu item, along with the suggested caloric intake in the context of an overall diet. Menus and menu boards must include the statement: "2,000 calories a day is used for general nutrition advice, but calorie needs vary."

The rule applies to fast-food restaurants, grocery stores, and movie theaters. A second rule applies to the operators of vending machines.

Seasonal items, daily specials, and condiments are exempt. Upon request, covered establishments must provide additional nutrition information in writing, such as total calories, total fat, calories from fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, fiber, sugars, and protein contained in a product.

But as the deadline for enforcement approached, covered businesses sought more time.

The FDA said it received four requests to delay the enforcement date from the National Association of Theater Owners, the Food Marketing Institute, the American Beverage Association, and Publix Grocery Stores. Each of the three trade groups and the grocery store chain said more time was necessary to design new menu boards, retrain staff, and develop software to label their food products.

"The final rule requirements are intended to ensure that consumers are provided accurate, clear, and consistent nutrition information for foods sold in covered establishments in a direct and accessible manner to enable consumers to make informed and healthful dietary choices," the FDA wrote in the Federal Register explanation of the compliance extension. "Therefore, allowing adequate time for covered establishments to fully implement the final rule's requirements, as described in the requests, helps accomplish the primary objective of the final rule and is in the public interest."

Granting a one-year extension, the agency said enforcement of the final rule will begin December 1, 2016.

To read more about the FDA's extension for the effective date of the menu labeling rules, click here.

Why it matters: In addition to the year-long reprieve that provides time to ensure compliance with the new menu labeling rules, covered entities in the food industry should keep an eye on pending legislation that could eliminate some businesses from coverage. The Common Sense Nutrition Disclosure Act, or H.R. 2017, would amend the rules to limit application to entities that earn 50 percent or more of their revenue from the covered food items. Single menu items that are available in "different flavors, varieties, or combinations," such as soft drinks, could use a range or average in lieu of a specific calorie count for each option. And the bill would eliminate the availability of civil suits for violations of the menu labeling rules.

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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