Advertising Law -- Sep 21, 2012

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


Manatt Partners Invited to Speak at 34th Annual PMA Marketing Law Conference

In the fast-changing world of promotions and advertising, it is crucial for marketers to stay on top of the latest developments on hot-button issues, including social media, sweepstakes and contests, mobile marketing, environmental marketing, financial services marketing, food marketing, sponsorships and endorsements.  The Promotion Marketing Association’s Annual Marketing Law Conference will address these topic and more on November 13-14, 2012 in Chicago, Illinois.

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will explore cutting-edge legal issues involving multiplatform sweepstakes and contests as well as offer practical guidance for structuring innovative promotional campaigns in her presentation, “Panopticon – The All-Seeing View from All Sides.”   

Partner Marc Roth will participate in a panel discussion concerning the risks and opportunities in advanced consent, negative option and affiliate marketing (“On and On and On”), with other speakers to include C. Steven Baker (Regional Director, Midwest Region, FTC) and Albert Norman Shelden (Deputy Attorney General, Department of Justice, California, Retired Annuitant). 

Partner Chris Cole will explore tried-and-true tactics for defending class actions and governmental investigations in a presentation titled “Class Warfare.” 

Additionally, Chuck Washburn, Co-Chair of Manatt’s Consumer Financial Services practice, will participate in a special spotlight session focused on the Consumer Financial Protection Bureau and its impact on the financial, marketing and advertising sectors.

PLEASE NOTE: Discounted rates for early registration are currently in effect.  Sign up before September 23, 2012 and you will save $300.  For more information or to register for this event, click here.

CARU: Do a Better Job Disclosing In-Game Advertising Online

Advertising that appears within games and activities on Kellogg’s Froot Loops Web site must be disclosed, the Children’s Advertising Review Unit has recommended.

The cereal-centric Web site, www.FrootLoops.com, is “colorful” and “vibrant,” the self-regulatory body said, and the 12 different interactive games feature the Froot Loops mascot, Toucan Sam, and his cousins.

But missing from the games – each of which includes Fruit Loops cereal and/or Toucan Sam – was a disclosure that advertising was integrated, CARU said.

“The games appear on Kellogg’s Froot Loops website and prominently feature the Froot Loops cereal and mascot, Toucan Sam. CARU determined that the integration of the branded cereal product into the games clearly presented an advertising message. Indeed, the themes of these games are indistinguishable from those used in other child directed advertisements.”

The CARU guidelines were revised in 2006. Under these revisions, when marketers include advertising that is integrated into the content of a game or activity on a child-directed Web site, such marketers must make clear that advertising is included. “Advertising” is defined to include “persuading the audience of the value or usefulness of a company, product or service.”

To bring the site into compliance, Kellogg agreed to add disclosures not only to the Froot Loops site, but across all of its child-targeted Web sites. The disclosures will appear on the Web site landing page and on all pages that contain games, with the disclosures remaining on the page during gameplay. The disclosure, in a bold and contrasting color to the background in order to attract a child’s attention, reads “This is advertising from Kellogg’s.”

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

Why it matters: “On websites directed to children, if an advertiser integrates an advertisement into the content of a game or activity, then the advertiser should make clear, in a manner that will be easily understood by the intended audience, that it is an advertisement,” CARU emphasized. 

FTC Lacks Authority to Regulate Data Security, Defendant Argues

The Federal Trade Commission lacks the authority to regulate the data security practices of private companies, Wyndham Hotel & Resorts argued in a recent motion to dismiss a suit brought against it by the agency.

In July, the FTC filed a complaint against Wyndham alleging that the hotel chain violated Section 5 of the FTC Act by misrepresenting the security measures in the company’s privacy policy and failing to protect customer information. The hotel suffered three data security failures in less than two years and caused millions of dollars in loss, the agency said.

But coming out swinging, Wyndham argued to the Arizona federal court that the FTC lacked authority to regulate data security practices and that the case should be dismissed. “Relying on Section 5’s prohibition on ‘unfair’ trade practices – which has traditionally been read to prohibit certain unconscionable or oppressive acts toward consumers – the FTC assumes that it has the statutory authority to do that which Congress has refused: establish data security standards for the private sector and enforce those standards in federal court,” according to Wyndham’s brief.

According to Wyndham, the agency’s enforcement authority is limited in light of several pieces of legislation prescribing very specific data security standards for certain elements of the private sector that are subject to FTC enforcement authority. It cites as examples the agency’s authority to enforce the requirements for the collection, disclosure, and disposal of data collected by consumer reporting agencies under the Fair Credit Reporting Act; the agency’s authority to promulgate its COPPA Rule under the Children’s Online Privacy Protection Act, which sets the boundaries for information collection from children; and the agency’s mandate to enforce data security requirements for financial institutions under the Gramm-Leach-Bliley Act.

The grant of authority delegated in those statutes would be “entirely superfluous” if the agency had all-encompassing powers to regulate data security for all companies and those statutes “are powerful evidence that the FTC lacks authority to regulate data security practices in cases (like this one) that fall outside the confines of these narrow delegations,” the brief contends.

Even if Section 5 granted the agency the authority to mandate data security standards, the FTC would have to establish such standards through rulemaking rather than adjudication like the suit brought against it, Wyndham added. 

Wyndham also noted that the agency itself disclaimed the authority to promulgate all-encompassing data security standards in a 2000 report on information security, requesting the passage of legislation to provide it with the authority to issue detailed standards on the issue.

To read Wyndham’s motion to dismiss, click here.

Why it matters: If the court were to grant Wyndham’s motion, the implications would be far-reaching.  A limitation on its authority would create real hurdles to the regulation of data security and privacy, an area of particular focus for the agency.

It’s Not All Greek (Yogurt)

Cabot Creamery is facing a consumer class action suit in a California federal court alleging that the company’s Greek yogurt products are not authentic and therefore falsely labeled and advertised.

The complaint states, “Just as the mineral pyrite resembles gold, Cabot Greek resembles Greek yogurt. But fool’s gold is not gold. And Cabot Greek is not yogurt.”

According to plaintiff Timothy Smith, to manufacture authentic Greek yogurt, the solids must be strained after the fermentation of milk (regular yogurt keeps both the solids and liquids). While regular yogurt requires one gallon of milk to produce one gallon of yogurt, Greek yogurt takes four gallons of milk per gallon. The result should be a “thick, protein-packed yogurt with consistency like sour cream.”

Cabot’s Greek yogurt “is different” and “not made the way Greek yogurt is supposed to be made,” Smith argues, because instead of filtering out excess liquids, the product is thickened by adding whey protein concentrate and milk protein concentrate.

In addition, such concentrates have been banned from use in yogurt by the Food and Drug Administration, Smith says, making the product adulterated. Therefore, the product is not yogurt as a matter of law, according to the complaint.

The suit seeks to certify a nationwide class of consumers entitled to injunctive and monetary relief, both compensatory and punitive.

To read the complaint in Smith v. Cabot Creamery, click here.

Why it matters: Manufacturers must be increasingly mindful in this Internet age that consumers are far more educated than in times past about how foods are produced.  Companies that falsely advertise how their products are made or the ingredients they contain are more than ever the targets of class action suits.

Fight Over the “No. 1 Champagne in the World”

Asserting that competitor Armand de Brignac falsely claimed that its champagnes are “Rated the No. 1 Champagne in the World,” Moet Hennessy filed suit in federal court.

Moet, the maker of Dom Perignon and Veuve Clicquot, alleges the claim is literally false. Only one of Armand’s champagnes – Brut Gold – has ever been ranked first by Fine Champagne Magazine and that occurred in 2010, Moet says, and none of Armand’s other champagnes have ever been rated number one. Since 2010, the company has not had a champagne rank higher than No. 22, according to the complaint.

Armand has used the claim in false comparative advertising specifically targeting Moet’s Dom Perignon, the suit contends. On social media sites like Twitter and Facebook, as well as other promotional materials, Armand states that Brut Gold is ranked No. 1 and Dom Perignon No. 2, without a disclosure that this ranking was limited to a 2010 test.

Moet already complained to Armand directly with a cease and desist letter and was told that the company changed its advertising and added a disclaimer limiting the claim to the year 2010. However, the false comparative ad is still being used in the United States and internationally, Moet says, and the “No. 1” claim can be found on Armand’s many social media sites, advertising materials, promotional materials, and product packaging. While a disclaimer was added to the homepage of Armand’s Web site, Moet argues that the “inconspicuous footnote fails to cure Armand’s deception” and “may not even be visible to certain website visitors, depending on their browser settings.”

Armand’s use of the false statement also violates the Federal Trade Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, according to the complaint, because the company does not have “good reason to believe that the endorser continues to subscribe to the views presented.” Fine Champagne Magazine clearly no longer subscribes to the view that Brut Gold is the No. 1 champagne as the rankings have changed each year since 2010, Moet argues.

Moet demands that Armand be enjoined from continuing to make the “No. 1” claim and ordered to recall all bottles on which the allegedly false claims are stated. Monetary damages should also be awarded and trebled for Armand’s intentional conduct.

To read the complaint in Moet Hennessy v. Ace of Spades, click here.

Why it matters:  Advertisers who wish to use magazine rankings, ratings, and/or reviews to support #1 claims should take care to communicate to consumers any limitations contained in the ratings.  Advertisers who tout themselves as being #1 on ratings or rankings that are not current may face claims of false advertising.

Don’t Infringe on My Red-Soled Shoes

Reversing a federal court decision, the 2nd Circuit has ruled that a single color mark can acquire secondary meaning – and therefore trademark protection – in the fashion industry.

Designer Christian Louboutin started a high-fashion war when he sought an injunction against fashion house Yves Saint Laurent’s sale of shoes with a red sole. YSL successfully argued to the lower court that the Lanham Act does not allow a trademark for a single color as it serves an “ornamental and aesthetic” function in the fashion industry.

But the 2nd Circuit disagreed, holding that the red soles had acquired “limited ‘secondary meaning’ as a distinctive symbol that identifies the Louboutin brand.” Louboutin has painted the outsoles of his women’s shoes with red lacquered paint since 1992, the court noted. Color alone – at least sometimes – can meet the basic legal requirements for use as a trademark, the court recognized.

Analyzing the “aesthetic functionality” of Louboutin’s mark, the court considered both the markholder’s right to enjoy the benefits of its effort to distinguish its product and the public’s right to the “vigorously competitive market” protected by the Lanham Act.

“We see no reason why a single-color mark in the specific context of the fashion industry could not acquire secondary meaning – and therefore serve as a brand or source identifier – if it is used so consistently and prominently by a particular designer that it becomes a symbol, ‘the primary significance’ of which is ‘to identify the source of the product rather than the product itself,’” the 2nd Circuit wrote.

The court noted “extensive evidence” of Louboutin’s advertising expenditures, media coverage, and sales success, which it said demonstrated “both that Louboutin has created a ‘symbol’. . . and that the symbol has gained secondary meaning that causes it to be ‘uniquely’ associated with the Louboutin brand. . . . By placing the color red ‘in [a] context [that] seems unusual,’ and deliberately tying that color to his product, Louboutin has created an identifying mark firmly associated with his brand which, ‘to those in the know,’ ‘instantly’ denotes his shoes’ source.”

However, the panel said that Louboutin failed to present sufficient evidence to extend protection for the mark to the use of a red sole used on an all-red shoe – just four pictures of the hundreds of images of Louboutin shoes presented were monochromatic. “It is the contrast between the sole and the upper that causes the sole to ‘pop,’ and to distinguish its creator,” the court said.

Therefore, the court granted the injunction against YSL for “uses in which the red outsole contrasts with the color of the rest of the shoe” and instructed the Patent and Trademark Office to limit Louboutin’s trademark registration accordingly.

To read the 2nd Circuit’s opinion in Louboutin v. Yves Saint Laurent,
click here.

Why it matters:   In this landmark decision, the Second Circuit held that a single color can function as a trademark in the fashion industry. Nonetheless, this closely watched case was not an outright win for Christian Louboutin and his famous red-soled shoes. Although the court held that the use of a single color could be trademarked in the fashion industry, it limited protection only to red-soled shoes with a contrasting upper. The YSL shoes at issue were monochromatic red, leaving them unaffected by the injunction and both sides claiming victory.

Noted and Quoted . . . Cole Authors Article on FTC’s Upcoming Green Guides

The FTC’s long-awaited revisions to its Green Guides are expected to be released in the coming weeks, completing a five-year initiative to update this source of advice for advertisers regarding how to make truthful and substantiated environmental claims.  In a Law360 article published on September 20, 2012 (“6 Areas to Watch In The Upcoming Green Guides”), Manatt partner Chris Cole outlines some of the most pressing issues to watch when the FTC issues its new iteration of the Guides.  According to Cole, “One can assume that the publication of the final document will be followed by a serious FTC enforcement program that will focus on high-profile targets in order to send a message to the industry about the importance of compliance.” 

Cole advises advertisers and marketers to keep a close eye on the following six issues:

  • Will the FTC keep its categorical ban on unqualified “general environment benefit claims”?

  • Will the Commission adjust its proposed rules on recycled content claims?

  • Will the FTC reconsider its categorical approach to claims of degradability and compostability, and will it permit reliance on industry standards such as American Society for Testing and Materials (ASTM)?

  • Will the FTC retain its currently proposed approach to seals and certifications?

  • Will the FTC further adjust its guidance on recyclable claims?

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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