Advertising Law -- May 16, 2013

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In This Issue:

Linda Goldstein to Provide Insight on FTC’s Dot Com Dislosure Guidance at Upcoming Bloomberg BNA Webinar

The Federal Trade Commission recently released its revised online advertising disclosure guidelines – known as its Dot Com Guidance – and now it’s up to marketers to put this guidance into practice. To help marketers adhere to these new requirements while continuing to implement creative digital media strategies, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will team up with Michael Ostheimer of the FTC’s Division of Advertising Practices to lead a webinar discussion titled, “The Fine Print: Analyzing the FTC’s Updated Digital Advertising Guidelines.”

Throughout this Bloomberg BNA webinar, the presenters will focus on the disclosures that are required in online advertising; highlight what is required in light of the space constraints of mobile device screens and social media platforms; discuss the placement of disclosure statements; and consider whether a URL linking to a disclosure statement placed elsewhere may be used.

The webinar will be held from 1:00 pm – 2:30 pm Eastern on June 11. For more information or to register for this event, click here.

NOTE: Be sure to take advantage of Manatt’s friend-of-the-firm discount of 20%. On the registration page, choose the “live webinar” option from the drop-down menu and add it to the cart. If necessary, create an account with Bloomberg BNA, then type the promo code LGAUEBR3 into the specified field and choose “proceed to check out” to complete the process. Your connectivity information for the day of the program will arrive via email shortly thereafter.

“All Natural” False Ad Suits Continue, Stalled

In two suits alleging false advertising over “All Natural” claims, two defendants received very different results, with one suit going forward and another stalled for the time being.

In the first suit, a California federal judge refused to dismiss a class action against Frito-Lay over claims that the label on a variety of snack products – including Fritos original corn chips and Lay’s potato chips – were falsely advertised as “All Natural.”

U.S. District Court Judge Samuel Conti disagreed with the defendant that the claim “All Natural” was not false or misleading because it was part of a longer phrase, “Made with All Natural Ingredients” and that reasonable consumers would read that statement in context and check the nutrition box for further information.

“The label is ambiguous because the phrase ‘all natural,’ lacking a hyphen, could suggest either that the labeled product is exclusively natural or that the product simply includes some all-natural ingredients,” the court said. “A reasonable consumer could interpret a bag of chips claiming to have been ‘Made with All Natural Ingredients’ to consist exclusively of natural ingredients, contrary to the reality described in the nutrition box. Even though the nutrition box could resolve any ambiguity, the Court cannot conclude as a matter of law…that no reasonable consumer would be deceived by the ‘Made with All Natural Ingredients’ labels.”

Judge Conti also allowed the suit to continue based on Frito-Lay’s “No MSG” and “0 Grams Trans Fat” claims.

The decision wasn’t a total plaintiffs’ victory, however. The court narrowed the suit by eliminating generic claims made by the plaintiffs about “other varieties” of Frito-Lay snack products. The court ruled that the allegations about unidentified products failed for lack of specificity. And Judge Conti held that content on the defendant’s Web sites did not “accompany” the products sufficiently to constitute labeling.

“The Court does not find that the language on the www.fritolay.com website constitutes labeling under the [Food, Drug, and Cosmetic Act], because as cited by plaintiffs, none of the website language explains or supplements the individual named products such that the website could generally be found to ‘accompany’ the named products. . . . Even though the named products’ labels ask consumers to visit the website, they do not state that the website will inform consumers of the details of the named products’ nutritional facts.”

In a second suit, Arizona Iced Tea won a renewed motion for summary judgment in a class action over “All Natural” claims for its beverages. The plaintiffs argued that the defendant’s drinks were falsely advertised because they contain high fructose corn syrup and citric acid.

Although the court had previously certified a statewide class of consumers who purchased the drinks over a seven-year period, U.S. District Court Judge Richard Seeborg changed his mind.

The plaintiffs argued that both citric acid and high fructose corn syrup are not natural products because they require processing by human beings. Enzymes are added to processed corn starch to create HFCS, while certain strains of the mold Aspergillus niger produce citric acid.

But the plaintiffs failed to back up their allegations with evidence that either ingredient was not natural, Judge Seeborg said, other than pointing out that patents have been issued for the process of making HFCS. In addition, the defense produced an expert report and multiple declarations that both citric acid and HFCS are natural ingredients.

“Plaintiff’s request is properly characterized as an argument that HFCS is not natural as a matter of law. . . . But plaintiffs have cited no legal authority supporting their contention… In the face of a motion for summary judgment, rhetoric is no substitute for evidence.”

The plaintiffs similarly failed to meet their burden of proving damages, offering “not a scintilla of evidence from which a finder of fact could determine the amount of restitution or disgorgement to which plaintiffs might be entitled if this case were to proceed to trial,” Judge Seeborg determined.

Granting the defendant’s motion for summary judgment, the court went one step further and decertified the class. “Since the class was certified, the Court has found that plaintiffs’ counsel has been dilatory and has failed to prosecute this action adequately,” Judge Seeborg wrote. In lieu of creating a res judicata effect against the class, he chose the “more appropriate” option of decertification.

To read the court’s decision in Wilson v. Frito-Lay, click here.

To read the court’s order in Ries v. Arizona Beverages USA, click here.

Why it matters: Suits challenging “All Natural” advertising claims continue to fill the courts, and both the Frito-Lay case and the Arizona Iced Tea suit will likely continue for the foreseeable future. The Frito-Lay plaintiffs survived the defense’s preemption motion and have already filed a second amended complaint in response to the court’s dismissal of certain claims without prejudice. The Arizona Iced Tea plaintiffs face a more daunting uphill battle to success. But by decertifying the class instead of granting summary judgment against it, Judge Seeborg reserved their ability to continue the suit.

Wake Up! FDA Considers Caffeinated Foods

The Food and Drug Administration is investigating the rise of caffeine-infused food with an eye toward the possible inclusion of warning labels on products like gum, potato chips, and waffles.

“The only time that FDA explicitly approved the added use of caffeine in a food was for cola and that was in the 1950s. Today, the environment has changed,” Michael R. Taylor, Deputy Commissioner of the FDA said in a statement. “Children and adolescents may be exposed to caffeine beyond those foods in which caffeine is naturally found and beyond anything the FDA envisioned when it made the determination regarding caffeine in cola. For that reason, FDA is taking a fresh look at the potential impact that the totality of new and easy sources of caffeine may have on health, particularly vulnerable populations such as children and youth, and if necessary, will take appropriate action.”

The investigation was triggered by the release of a new product: Wrigley’s Alert Energy Caffeine gum, which contains 40 mg of caffeine in each stick, or the equivalent of about half a cup of coffee. Although the product is marketed to adults as an on-the-go energy solution, the FDA expressed concern about its use by children. Medical organizations have expressed concern about the side effects of caffeine for children – who process the stimulant less effectively than adults – warning that it can have a harmful impact on developing neurologic and cardiovascular systems.

And while Wrigley’s gum was cited as the impetus for the agency’s interest in the topic of caffeinated food products, it is just one of many now on the market. They include Jelly Belly’s Extreme Sport Beans (50 mg of caffeine per pack) and two flavors of Frito Lay’s Cracker Jack’D Power Bites, cocoa java and vanilla mocha, which contain ground coffee and caffeine. The agency also noted that caffeine is added to foods like marshmallows, sunflower seeds, instant oatmeal, and waffles, as well as energy drinks.

“The proliferation of these products in the marketplace is very disturbing to us,” Taylor said.

The agency plans to assess the total cumulative impact on children who consume multiple sources of caffeine. Factors like consumption levels, rates, and patterns among specific populations will be considered, as well as other information like scientific data on toxicity, behavioral effects, and other health effects caused by foods with caffeine additives.

To read Commissioner Taylor’s statement, click here.

To read the agency’s investigation announcement, click here

Why it matters: Commissioner Taylor warned that the agency will take “appropriate action” as necessary to address concerns about caffeinated foods, but the form of that action remains unknown. Although Taylor noted that age restrictions for such products “would be challenging” to enforce, other possibilities include a warning label on caffeine-infused food products, limitations on the marketing and sale of products with caffeine additives to adults only, or even a limit on the amount of caffeine in certain products. Taylor also suggested to The Wall Street Journal that the agency would like to see self-regulatory efforts by the food industry, as it could address the problem more quickly than government regulations.

California Legislature Considers Multiple Privacy Bills

Continuing the state’s efforts to lead the way on privacy-related legislation, California lawmakers are considering multiple bills that address issues like Do Not Track, data collection and disclosure, and a prohibition on certain online advertising to minors.

As the drama over federal implementation of a Do Not Track standard continues, Rep. Al Muratsuchi (D- Torrance) introduced AB 370 in the California legislature. “This bill would require an operator to disclose whether or not it honors a request from a consumer to disable online tracking. . . . The bill would also require an operator to disclose if it does not allow third parties to conduct online tracking on the commercial Web site or online service.”

The Assembly voted unanimously to pass the bill, and it was referred to the Senate for consideration.

Meanwhile, the Senate unanimously approved SB 368, which would allow Internet users under the age of 18 to remove content they had previously posted online. In addition, the bill would prohibit companies from serving ads to minors for products or services they cannot legally purchase or participate in – alcoholic beverages, for example.

The proposed law, introduced by Rep. Darrell Steinberg (D-Sacramento), would take effect Jan. 1, 2015 and would apply to mobile apps as well as Internet sites, services, and online applications.

Finally, a third piece of legislation intended to update and expand the 2003 Shine the Light law – which requires companies to provide state residents with certain information about their sharing of consumer data with third parties for marketing purposes – received such pushback from opponents that it has already been shelved by its sponsor.

Rep. Bonnie Lowenthal (D-Long Beach) introduced the Right to Know Act of 2013, AB 1291, which would have expanded the original law to the Internet and required online companies to inform consumers about the information that has been collected and disclose which ad networks, data brokers, or third parties have received the data. Under the proposed legislation, “personal information” is defined as “any information that identifies or references a particular individual or electronic device” which includes everything from name and e-mail address to location information, medical and employment data, and IP addresses.

Concerned about the scope of the covered data as well as the administrative burden the bill would place on Internet companies – particularly small businesses – groups like the California Chamber of Commerce, NetChoice, and the Direct Marketing Association spoke out against the legislation.

In response, Rep. Lowenthal pulled her proposal, but she told the Silicon Valley News that she plans to re-introduce a similar bill next year. “Californians don’t need to be persuaded that they should be able to ask a business what it knows about them,” she said. “But in the legislature, it has become clear that we still have our work cut out for us.”

To read AB 370, click here.

To read SB 568, click here.

To read AB 1291, click here.

Why it matters: These multiple pieces of legislation reinforce the message that California lawmakers are focused on all aspects of consumer privacy, from protections for minors to DNT to behavioral advertising. We will provide continued coverage as the bills progress through the legislative process.

2nd Circuit Finds Collages, Paintings Using Photos Transformative Enough for Fair Use

In a closely watched copyright infringement suit, the U.S. Court of Appeals for the Second Circuit ruled that an artist’s use of photographs in a series of collages and paintings were transformative and therefore constituted fair use.

Patrick Cariou, a photographer, published a book of landscapes and classical portraits called Yes Rasta after spending six years living with Rastafarians in Jamaica. Richard Prince, a well-known “appropriation artist,” used the photographs in a series of collages and paintings called Canal Zone.

In one collage, Prince tore 35 photographs out of the book and painted “lozenges” over the subjects’ facial features, using only portions of some of the images. In other pieces, Prince enlarged or tinted photographs or incorporated photos from other artists in addition to Cariou.

When Cariou sued for copyright infringement, Prince raised a defense of fair use. A federal court judge disagreed, ruling that Prince’s work was not transformative because it did not “comment on, relate to the historical context of, or critically refer back to the original works.” She granted summary judgment to Cariou and ordered that Prince transfer the infringing works to Cariou to destroy.

While the 2nd Circuit appeal panel noted that many types of fair use – most notably satire and parody – invariably comment on an original work or popular culture, such commentary is not required to establish that a secondary work is transformative.

“The law imposes no requirement that a work comment on the original or its author in order to be considered transformative, and a secondary work may constitute a fair use even if it serves some purpose other than those (criticism, comment, news reporting, teaching, scholarship, and research) identified in the preamble to the statute,” the court said. “Instead…to qualify as a fair use, a new work generally must alter the original with ‘new expression, meaning, or message.’”

Twenty-five of Prince’s works satisfy that requirement, the court held, and “manifest an entirely different aesthetic from Cariou’s photographs. Where Cariou’s serene and deliberately composed portraits and landscape photographs depict the natural beauty of Rastafarians and their surrounding environs, Prince’s crude and jarring works, on the other hand, are hectic and provocative.” The photographs and the secondary work also differed in “composition, presentation, scale, color palette, and media,” the panel added.

On the other hand, the 2nd Circuit did find that five of Prince’s works so minimally altered Cariou’s pictures that they might not be considered fair use and remanded the case to the district court for a determination of whether the works “present a ‘new expression, meaning, or message.’”

In a partial concurring and dissenting opinion, Judge J. Clifford Wallace (sitting by designation from the 9th Circuit) agreed with the majority about the legal standard for transformative works. But he suggested the court should have remanded all of the artworks for consideration by the district court.

“While I admit freely that I am not an art critic or expert, I fail to see how the majority in its appellate role can ‘confidently’ draw a distinction between the twenty-five works that it has identified as constituting fair use and the five works that do not readily lend themselves to a fair use determination,” he wrote.

To read the decision in Cariou v. Prince, click here.

Why it matters: The 2nd Circuit’s decision establishes that a secondary work does not need to comment on the original artist or work or popular culture to be transformative for purposes of a fair use defense. “Prince’s work could be transformative even without commenting on Cariou’s work or on culture, and even without Prince’s stated intention to do so,” the panel explained. “We instead examine how the artworks may ‘reasonably be perceived’ in order to assess their transformative nature,” the panel explained. The court did caution that secondary works could modify originals without being transformative, however, using the example of a book of synopses of television shows.

FTC Seeks Comment on Internet of Things, Mail or Telephone Order Merchandise Rule

The Federal Trade Commission is seeking public comment on two different topics: an upcoming workshop addressing the Internet of Things and a staff report with recommended changes to the Mail or Telephone Order Merchandise Rule.

On Nov. 21, the agency will host a public workshop to discuss the privacy and security issues posed by the “Internet of Things” which refers to the growing connectivity of consumer devices like cars, appliances, and medical devices – using a smartphone to adjust a thermostat or check vital signs, for example. “In the not too distant future, consumers approaching a grocery store might receive messages from their refrigerator reminding them that they are running out of milk,” the FTC cautioned.

Because connected devices can compile data – some of which could be sensitive – and share it with third parties, consumers face security and privacy risks, the FTC said. The agency presented several lines of inquiry for comment, including any information on the prevalence of use of such services and products, information about the various technologies that enable this connectivity and types of companies that are involved in the ecosystem, as well as any predictions about the future use of smart technology.

Additional questions included what privacy and security concerns are associated with the technology and the data involved, and what companies can do to prevent devices from becoming targets for malware or adware. The agency also wondered how to weigh privacy risks against the potential societal benefits of the technology.

The FTC will accept comments until June 1.

Turning to more traditional matters, the agency released a staff report recommending that the Commission adopt four changes to the 1975 Mail or Telephone Order Merchandise Rule.

The Rule currently requires sellers who solicit buyers via phone or mail to ship purchases within 30 days or a specifically advertised time frame; a buyer must consent to a delay in shipping or receive a refund for unshipped merchandise.

In 2007, the FTC accepted an initial round of public comment to update the Rule for the 21st Century. The proposed staff report now recommends four amendments to the Rule, including a name change. The Rule should be clarified to make explicit that it applies to orders placed over the Internet, the agency said. Therefore, the name should be updated to the “Mail, Internet or Telephone Order Merchandise Rule.”

Other changes include a requirement that refunds be made within 7 working days for purchases made with third-party credit; a revision to allow sellers to provide refunds and refund notices to buyers “by any means” at least as fast and reliable as first-class mail; and an update about a seller’s various obligations when buyers use payment methods not addressed in the original Rule, such as debit cards or prepaid gift cards.

Public comment will be accepted by the agency until July 15.

For more information about the Internet of Things workshop or to make a comment, click here.

To read the staff report on the recommended changes to the Mail or Telephone Order Merchandise Rule, click here.

Why it matters: The two opportunities for public comment provide a snapshot of the agency’s regulatory scope – from mail and telephone orders (now to include the Internet) to the technologically advanced Internet of Things, a topic new FTC Chairperson Edith Ramirez indicated she wanted to investigate.

Noted and Quoted . . . Corporate Counsel Turns to Linda Goldstein on COPPA FAQs

On April 29, 2013, Corporate Counsel quoted Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, on the Federal Trade Commission’s recently released “Frequently Asked Questions,” which are intended to help Web site operators, mobile app developers, advertising networks and others prepare for the forthcoming changes to the Children’s Online Privacy Protection Act Rule.

COPPA requires that operators of child-directed sites and online services obtain parental consent before collecting children’s personal information. The final amended rule – which goes into effect on July 1 – broadened several definitions, including “personal information” and “operator.”

According to Linda, “Because of the expansive definition of personally identifiable information, it’s hard to imagine that a kid-directed site wouldn’t be collecting some kind of information that would trigger COPPA.”

To read the full article, click here.

Topics:  Advertising, COPPA, Fair Use, FDA, FTC, Transformativeness

Published In: Antitrust & Trade Regulation Updates, Communications & Media Updates, Consumer Protection Updates, Intellectual Property Updates, Privacy 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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