Advertising Law -- Oct 28, 2013

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In This Issue:

"Made in California" Label Program Enacted

Will "Made in California" be the new trend in advertising?

On October 4, 2013, California Governor Jerry Brown signed a new law into effect that creates a "Made in California" labeling program, in which the Governor's Office of Business and Economic Development will adopt standards.

The law also makes it an unfair method of competition to use a "Made in California" label that does not comply with the requirements of the program.

Companies wishing to use the state-friendly label must register with the Governor's Office and may be required to pay a to-be-determined fee to a "Made in California" fund. To be eligible for the program, a company must establish that the product "is substantially made by an individual located in the state" and that "the finished product could lawfully use a 'Made in U.S.A.' label" without violating other provisions of California law.

"Substantially made" is defined by the law as "completing an act that adds at least 51 percent of a final product's wholesale value by manufacture, assembly, fabrication, or production to create a final, recognizable product." The term specifically excludes "the act of packaging a product."

The bill was modeled on the "Buy California/California Grown" program for marketing in-state agricultural products. Products that meet the California Grown program requirements will also be eligible to use the Made in California label.

Participants in the Made in California program will be required to submit third-party certification at least once every three years to demonstrate compliance with the statute.

To read the new law, click here.

Why it matters: The new law is designed to encourage consumer product awareness and foster purchases of high-quality products made in California. State Senator Ellen M. Corbett, who sponsored the bill, said it is intended to better market California products "in an increasingly competitive economic market." "This 'Made in California' marketing effort will clearly capitalize on California's cutting edge work and product excellence," she said in a statement. Scott Hauge, president of Small Business California, a group that also backed the law, told the Monterey Herald, "California has a sexy name. For companies to be able to have the 'Made in California' label, it's a great marketing tool." California advertisers that take advantage of the new label should ensure compliance with the program, or face potential liability. California is a leader with respect to consumer protection, so it will be interesting to see whether other states follow and adopt similar labeling programs.

"All Natural" Suit Moves Forward

A consumer class action alleging that Blue Diamond Growers falsely advertised its "all natural" products, such as Almond Breeze Chocolate Almond Milk, has survived the company's motion to dismiss.

Plaintiff Chris Werdebaugh challenged the advertising and labeling for the almond milk as well as for 18 Blue Diamond products purporting to be "all natural." According to his complaint, the products actually contain chemical preservatives, synthetic ingredients, added color, and other artificial ingredients. In addition, the term "evaporated cane juice" on 11 other products violated federal regulations and California law.

Although the complaint alleged violations of California law, including the Sherman Food, Drug, and Cosmetic Act, the state's Health and Safety Code, the California Unfair Competition Law and the California False Advertising Law, Blue Diamond argued that the claims were preempted by Food and Drug Administration (FDA) regulations and the federal Food, Drug, and Cosmetic Act (FDCA).

Rejecting Blue Diamond's preemption defense, a California federal court judge said the suit should move forward.

"As in previous food-labeling cases, the court finds that the FDCA does not preempt California Sherman Law claims based on requirements identical to FDA regulations," the court wrote. "Werdebaugh is not suing because defendant's conduct violates the FDCA. Rather, Werdebaugh is suing because defendant's conduct allegedly violates California's Sherman Law, which could have imposed the exact same regulations even if the FDCA were never passed." Therefore, the court found that defendant could not overcome the presumption against preemption, which is strong in health and safety cases, and cases involving food marketing claims.

Looking to the challenged claims, the court said plaintiff's evaporated cane juice claims were based on federal regulations that define juice and require that the juice of sugarcane shall go by the name "cane s[y]rup" or "sugar cane s[y]rup," and the instructions that ingredients must be described by their common or usual names.

The court also found that the FDA's position on a manufacturer's use of the term "evaporated cane juice" is settled, despite Blue Diamond's argument to the contrary. Guidance issued by the agency in 2009 coupled with the warning letters issued over the last nine years "demonstrate that Werdebaugh's evaporated cane juice claims do not implicate a question of first impression for which the court lacks the benefit of the FDA's views. The FDA has articulated a position on the use of evaporated cane juice that is both internally consistent and consistent with existing regulatory requirements." U.S. District Court Judge Lucy H. Koh found that Werdebaugh's claims did not depart from what is already included in federal regulations.

Blue Diamond tried a similar argument with respect to the "all natural" claims, pointing out that the FDA has explicitly declined to define the term "natural." But the agency has promulgated relevant regulations and guidelines, the court said, such as 21 C.F.R. §101.22 (prohibiting the use of the term natural on foods containing artificial or synthetic ingredients) and FDA Compliance Policy Guide Section 587.100 (which addresses terms such as "artificial color" and "natural color").

"In short, whether the FDA declined to promulgate a comprehensive general definition of 'natural' is not the critical inquiry for Werdebaugh's claims, because Werdebaugh does not rely on a general definition of 'natural,'" the court wrote. Although the court noted that the fight over "natural" is unsettled in some contexts (such as in the case of genetically modified organisms), "the FDA has spoken clearly and consistently on its position toward the use of the term 'natural' on foods containing artificial and synthetic ingredients."

Judge Koh also rejected the defendant's argument that plaintiff lacked standing to bring claims for products he had not purchased. Importantly, Koh applied the "substantially similar" approach – which is not universally accepted in her district – finding that Werdebaugh did not assert standing to sue over injuries he did not suffer. Instead, he asserted that he suffered the same injuries as a result of buying the purchased products that the unnamed class members suffered as a result of buying substantially similar products.

"The substantially similar approach therefore accommodates the commonsense conclusion that where, as here, a plaintiff claims that he was misled by the improper use of the term 'All Natural' on Blue Diamond Almond Breeze Chocolate Almond Milk, the injury he suffers as a result of that misrepresentation is not meaningfully distinguishable from the injury suffered by an individual who is misled by the use of the term 'All Natural' on Almond Breeze Original Refrigerated Almond Milk."

To read the order in Werdebaugh v. Blue Diamond Growers, click here

Why it matters: While Judge Koh's decision is a victory for the plaintiff, she noted that the case was still in the early stages. Importantly, the court declined to evaluate how California's choice of law rules affect the class claims at this time, noting that even after Mazzai, courts have declined to conduct the choice of law analysis at the pleading stage and that such a fact-specific inquiry should come during the class certification stage. "Utimately, Werdebaugh will bear the burden of proving that defendant's inclusion of certain ingredients in foods labeled 'All Natural' violates the restrictions of Section 101.22," the court said.

Google Searches Out a Court Victory

After some tough weeks in the courtroom, Google finally scored a victory in a Delaware federal court when a judge dismissed a suit claiming that the company illegally tracked consumers' Internet activity and served targeted ads by circumventing browser settings for Safari and Internet Explorer.

The case, which involved 25 complaints consolidated into multidistrict litigation, also named Vibrant Media, Inc., Media Innovation Group, and WPP as defendants. These companies are known for in-text ads that provide targeted advertising and other marketing communications services. A fifth defendant, PointRoll, settled with the plaintiffs in July.

According to the plaintiffs, the defendants took advantage of coding in advertisements to deceive browser settings into accepting third-party cookies. The cookies then tracked the plaintiff's online activities, resulting in targeted ads.

Google previously paid a record $22.5 million fine to the FTC over the same allegations in August 2012. The agency said the work-around constituted a violation of a 2011 consent decree between the FTC and the company.

In dismissing this suit, U.S. District Court Judge Sue L. Robinson ruled the plaintiffs failed to show that they suffered an injury in fact. Although the putative class alleged that personally identifiable information (PII) has a monetary value and is a commodity that companies trade and sell, the loss of PII, without more, did not rise to the level of actual harm.

"While plaintiffs have offered some evidence that the online personal information at issue has some modicum of identifiable value to an individual plaintiff, plaintiffs have not sufficiently alleged that the ability to monetize their PII has been diminished or lost by virtue of Google's previous collection of it," the court wrote.

Although the judge concluded the plaintiffs lacked an injury in fact to confer Article 3 standing, she also considered whether they had established standing by alleging a statutory violation by the defendants. Reviewing the Electronic Communications Privacy Act (ECPA), the Stored Communication Act (SCA), the Computer Fraud and Abuse Act, the California Computer Crime Law, the California Invasion of Privacy Act, and the California Constitution, the court again found that the plaintiffs failed to state a claim.

The ECPA protects the "contents" of an "electronic communication," but PII automatically generated by the communication is not considered "contents" under the Act, the court noted. With respect to Universal Resource Locators (URLs), the court found "it is important to note that plaintiffs' browsers would send a URL regardless of whether a third-party cookie was sent."

"While URLs may provide a description of the contents of a document . . . a URL is a location identifier and does not 'concern[] the substance, purport, or meaning' of an electronic communication. Even if plaintiffs' browsers were 'tricked' into sending the URLs to Google, the court concludes that Google did not intercept contents as provided for by the Wiretap Act."

The court reached a similar conclusion for California's privacy statute and the CCL. As for the SCA, the court declined to fit a square peg (modern technology) into the proverbial round hole (the intent of Congress as reflected in the statutory language of the SCA), and held that a personal computing device is not "a facility through which an electronic communication service is provided" under the SCA.

Claims under the CFAA, a primarily criminal statute, also failed because the plaintiffs did not allege "the kind of damage or loss required" under the statute, such as any impairment of the performance or functioning of their computers.

Finally, the court determined that no violation of the plaintiffs' privacy rights occurred. An invasion of privacy under the California Constitution requires (i) a legally protected privacy interest, (ii) a reasonable expectation of privacy in the circumstances, and (iii) conduct by defendant constituting a serious invasion of privacy. "The transfer of inputted information (which would have occurred regardless of Google's placement of cookies) does not rise to the level of a serious invasion of privacy or an egregious breach of social norms," Judge Robinson wrote. "Neither is Google's subsequent association of multiple instances of plaintiffs' inputted information with other personal information to provide targeted advertising a sufficiently serious invasion of privacy."

To read the opinion in In re: Google Inc. Cookie Placement Consumer Privacy Litigation, click here.

Why it matters: While acknowledging that "Google's actions may be objectionable," the court resoundingly ruled for the company on all of the plaintiffs' federal and state causes of action. The victory couldn't come at a better time for Google, after suffering legal setbacks from both the 9th U.S. Circuit Court of Appeals, which said the company could be liable for collecting data from unencrypted Wi-Fi networks while gathering information for its Street View Project in the Street View case, as well as a District Court ruling that the company may be liable under state and federal wiretap laws for scanning Gmail users' messages for the purposes of creating user profiles and serving targeted advertising.

Noted and Quoted . . . New York Times Turns to Linda Goldstein for Insight on Regulation of Native Advertising

On October 23, 2013, The New York Times sought commentary from Linda Goldstein, Chair of Manatt's Advertising, Marketing & Media Division, on the growing trend of native advertising, or ad-sponsored editorial content. Given concerns that some content could be considered deceptive to consumers, federal regulators are beginning to take a closer look at this practice.

According to Linda, as there is "mild concern" among advertisers about potential regulation, "there has been lots of talk within the industry about setting self-imposed guidelines."

To read the full story, click here.

Topics:  Advertising, Food Labeling, Google, Labeling

Published In: Civil Procedure 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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

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