Advertising Law - May 2014

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

  • W3C Reaches Milestone: “Do Not Track” Specification Set

  • FTC Reaches Full Capacity

  • $3.75M Settlement Reached In “Barefoot” Running Shoe Suit

  • Time For Tea: Judge Certifies Class In False Ad Suit – But Only For Injunctive Relief

  • Noted and Quoted . . . Marc Roth Authors Article for Response on FTC Enforcement Activity

W3C Reaches Milestone: “Do Not Track” Specification Set

The road to establish an industry standard for Do Not Track has been long and winding.

Last year, efforts at consensus stalled, grinding the work of the World Wide Web Consortium’s Tracking Protection Working Group to a halt.

But after more than three years, co-chair Justin Brookman announced that the Working Group finally agreed to a definition of “Do Not Track.” Specifically, the group set a “tracking preference expression” that defines “the DNT request header field as an HTTP mechanism for expressing the user’s preference regarding tracking, an HTML DOM property to make that expression readable by scripts, and APIs that allow scripts to register site-specific exceptions granted by the user.”

In other words, consumers can request that ad networks not collect their information, although certain types of data may still be collected (though the extent of such data is yet to be determined). The Working Group noted that the specification doesn’t define the requirements for complying with a user’s expressed tracking preference and that a compliance regime remains a work in progress.

In a blog post, Brookman wrote that reaching the agreement and creating a standardized meaning of the oft-debated term “is a big deal.” He encouraged readers to review and provide feedback on the proposal. Comments will be accepted until June 18.

In other tracking news, the Digital Advertising Alliance unveiled a new data tracking option for consumers that would allow them to opt out of data collection by clicking the blue icon that appears on ads. Two years in the making, “browser choice” is expected to be released in the coming weeks.

The opt-out will still allow ad networks some collection of data. “For the Internet to function, there still has to be some data collection,” Stu Ingis, counsel for the DAA, told AdWeek. “We’ll have the whole industry buying into it,” DAA executive director Lou Mastria told the publication. “The broad buy-in is what makes it a meaningful program. We won’t face the challenge about implementation and enforcement.”

To read the Working Group’s tracking preference expression, click here.

Why it matters: Brookman touted the technical specification as “a huge milestone” in his blog post, but the advertising industry believes “browser choice” has a better chance at success because of the industry’s ability to provide compliance and maintain enforcement. The W3C’s definition “may be a technical step, but it falls short as a privacy step,” Mastria told AdWeek. “That’s the challenge. The W3C doesn’t deliver a privacy regime that works. Consumers can send the signal, but so what.”

FTC Reaches Full Capacity

For the first time in more than one year, the Federal Trade Commission is now fully staffed.

On April 28, Terrell McSweeny began her official duties as a Commissioner, joining Chairwoman Edith Ramirez and fellow Commissioners Julie Brill, Maureen K. Ohlhausen, and Joshua D. Wright.

“We are very pleased that Terrell McSweeny is joining the Commission,” Chairwoman Ramirez said in a statement. “Her considerable experience in the law and public policy will be an asset to the agency as it continues to pursue its missions of protecting consumers and promoting competition.”

McSweeny, former Chief Counsel for Competition Policy and Intergovernmental Relations for the U.S. Department of Justice Antitrust Division, graduated from Harvard University and Georgetown University Law School before joining a law firm.

After leaving private practice, she served as chief of staff and policy director for Vice President Joe Biden during his tenure in the Senate and worked as counsel for the Senate Judiciary Committee. She then advised Vice President Biden and President Barack Obama as Deputy Assistant to the President and Domestic Policy Advisor to the Vice President from January 2009 until February 2012.

McSweeny was approved in a 95-1 Senate vote to a term ending September 25, 2017.

Why it matters: Voting on McSweeny’s confirmation was held up because of other political fighting in Congress, leaving the FTC with just four Commissioners for more than one year after the departure of former Chairman Jon Leibowitz in February 2013. The Commission is now fully staffed.

$3.75M Settlement Reached In “Barefoot” Running Shoe Suit

To settle a false advertising suit challenging claims for its five-toed running shoes, Vibram USA agreed to pay a total of $3.75 million and change its marketing practices.

The plaintiffs alleged that Vibram lied about the health benefits of the FiveFingers line of shoes, which resemble gloves for feet and launched a trend for barefoot-style running.

Under the terms of the settlement, class members are eligible for up to $94 per pair of FiveFingers shoes based on a pro rata distribution from the settlement fund, although the parties estimate that most class members will receive between $20 and $50 per pair. Class counsel can request up to 25 percent of the settlement fund—about $937,500—without objection from the defendant.

Class members can make a claim for two pairs of shoes without proof of purchase, but that documentation must be provided for more than two pairs. Although the parties said they expect the settlement fund to be fully consumed, any money remaining after disbursement of claims will be donated to the American Heart Association.

The company also agreed to modify its marketing and advertising about the health benefits of the shoes (like challenged claims that they can strengthen muscles and prevent injury), unless the claim is supported by competent and reliable scientific evidence.

To read the joint motion in support of settlement in Bezdek v. Vibram USA, click here.

Why it matters: In March 2012 the plaintiff filed her suit, which was consolidated with similar cases from California and Illinois. The settlement deal covers all of the litigation. Vibram was not alone in facing a wave of consumer class actions. The makers of once trendy “toning shoes,” including New Balance and Reebok, were similarly hit with cases over false and deceptive ad claims about the health benefits of their shoes.

Time For Tea: Judge Certifies Class In False Ad Suit—But Only For Injunctive Relief

Tea company Twinings is facing a certified class of plaintiffs in a false advertising lawsuit but won’t be paying them a dime.

U.S. District Court Judge Ronald M. Whyte granted the plaintiff’s class certification motion for injunctive relief but ruled that she failed to present a viable theory for financial relief.

Nancy Lanovaz claimed that Twinings mislabeled 51 different varieties of green, black and white tea products in violation of state and federal law. Product packaging for all of the tea stated “Natural Source of Antioxidants,” while the green teas elaborated that they offered “[a] natural source of protective antioxidants . . . Twinings’ Green Teas provide a great tasting and healthy tea drinking experience.”

Twinings’ tea contains flavonoids, a type of antioxidant, but the Food and Drug Administration does not allow nutrient content claims about flavonoids because the agency has not established a recommended daily intake for flavonoids, Lanovaz alleged. Therefore, the labels are “deceptive, misleading and unlawful even if technically true,” she contended.

After the court denied Twinings’ motion for summary judgment, Lanovaz moved to certify a class of California tea purchasers. Although he determined the proposed class met the requirements for ascertainability, commonality, and typicality, Judge Whyte certified the group under Federal Rule of Civil Procedure 23(b)(2) for injunctive relief only.

Because the class was certified under Rule 23(b)(2), none of the class members will receive an individualized award of monetary damages in the form of restitution, refund, reimbursement, or disgorgement.

Although Lanovaz sought monetary damages, the court held that she failed to present a viable theory.

Plaintiffs must show that monetary relief resulting from the defendant’s conduct is measurable on a classwide basis through use of a common methodology, Judge Whyte wrote. In a false advertising suit such as Lanovaz’s, the damages are limited to the price premium paid as a result of Twinings’ allegedly misleading statements.

In a declaration from a damages expert, Lanovaz proposed three possible models for measuring damages. The first suggested a full refund for the register price of the tea. Judge Whyte quickly rejected that model as not the proper measure of damages.

The court also vetoed the “benefit of the bargain” model, which would have compared Twinings products to comparable products that do not have the antioxidant label. “[The expert] has no way of linking the price difference, if any, to the antioxidant label or controlling for other reasons why ‘comparable’ products may have different prices,” the court said.

Finally, the “econometric or regression analysis” was ruled out by the plaintiff herself, the court said. This method would allow the expert to estimate the portion of sales earned by Twinings as a result of the allegedly false statements. But since antioxidant claims were on the labels over the entire class period, it was not possible to invoke the regression analysis in the absence of any variable in sales or units sold attributable to the antioxidant claims.

“[P]laintiffs do not present any damages model capable of estimating the price premium attributable to Twinings’ antioxidant labels,” the court concluded.

To read the court’s order in Lanovaz v. Twinings North America, click here.

Why it matters: The court’s order presented a mixed bag for the advertiser. Twinings still faces a class action lawsuit but dodged any monetary damages for the class.

Noted and Quoted . . . Marc Roth Authors Article for Response on FTC Enforcement Activity

Manatt partner Marc Roth penned an article for the April 2014 issue of Response Magazine titled “The FTC Reminds Companies That Compliance Counts.” Over the past few months, the FTC has obtained contempt orders in five cases of recidivist offenders. The article reminds companies that have entered into a consent decree to strictly adhere to the compliance process to avoid penalties such as a contempt order.

Marc wrote, “Based on the FTC’s recent, aggressive pursuit of recidivist violators, marketers would be well advised to carefully consider the injunctive and/or monetary relief terms of any proposed settlement agreement before agreeing to be bound by them. . . . Moreover, while the [recent] cases reflect only the FTC’s approach towards recidivists, many state regulators look to the FTC for guidance on enforcement efforts and, as a result, may also ramp up efforts to target repeat offenders through state regulatory action.”

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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