In This Issue:
- Get Smart! NAD Sends Review Site to FTC, Suspecting Advertising Disguised as Editorial Content
- April Showers Bring May "Reference Pricing" and "False Discount" Lawsuits
- In a "Made in the USA" Plot Twist … The Problem Is the Product Was Made Here
- Suit Claiming Big Ag Company Falsely Advertises Its "Sustainability" Efforts Survives Anti-SLAPP Attempt
Get Smart! NAD Sends Review Site to FTC, Suspecting Advertising Disguised as Editorial Content
The National Advertising Division (NAD) referred the website Smarter-Reviews.com (Smarter Reviews) to the Federal Trade Commission (FTC) on suspicion of publishing advertising disguised as editorial content because it lacks conspicuous disclosure after the company failed to substantively respond to NAD's inquiry.
The case illustrates the NAD's (and FTC's) continuing interest in seemingly independent review sites—that quite possibly aren't. The Smarter Reviews site provides "best of" rankings for products from eye creams to children's probiotics, along with the occasional peppering of feel-good blog posts. NAD initiated the challenge in its self-monitoring capacity, asking whether published content comprised largely of "best of" articles really reflected neutral, third-party rankings or, rather, constituted advertiser-paid reviews.
The focus of the NAD's scrutiny in this case was an article published on Smarter Reviews' website touting a review of the top five best eye creams currently available: "2023's Top Eye Treatments for Refreshed, Youthful-Looking Eyes." At the core of NAD's inquiry was a concern expressed repeatedly by NAD and by the FTC that "The reviews and rankings on Smarter Reviews appear to be independent, objective rankings … when, in fact, they are advertisements for listed products with the material connection between the advertisers and the site not being clearly and conspicuously disclosed."
Though NAD never received a response from the advertiser given Smarter Reviews' unwillingness to participate in the self-regulatory process, a simple Google search yielded some additional evidence that further piqued NAD's suspicions. The results revealed that at least some Smarter Reviews posts that are represented as being independent editorial opinions are actually sponsored advertising content.
Following one search link for a "Top Eye Treatment" to Smarter-Reviews.com revealed text that the site's beauty editors choose the products and mete out the rankings based on objective standards such as "the quality of ingredients, safety … projected effectiveness, and customer satisfaction." On further inspection, however, a footnote in light gray small print at the bottom of the page states that "This website is owned and operated by a company that has ownership interest in this product."
Following the advertiser's failure to respond to the inquiry, NAD referred the matter to the Federal Trade Commission. Time will tell whether the FTC convinces the advertiser to return to NAD, takes action in its own right, or merely closes the inquiry.
Key Takeaways
This case is another in an increasingly long line of NAD cases requiring that review sites, affiliate marketers, and advertisers each disclose their relationship to the other in order to allow the consumer to determine how much weight to give to any particular recommendation. The issue of not-so-independent content will continue to raise the hackles of the NAD—and the FTC—for some time to come.
April Showers Bring May "Reference Pricing" and "False Discount" Lawsuits
These days it seems many a class action lawsuit is coming up reference pricing and false discounts. In the last few months alone, plaintiffs have filed multiple class action lawsuits alleging that big-name retailers are deceptively advertising sales prices—against fraudulent "reference" or "original" prices—to give consumers the false sense that they're getting a better value. Other suits allege the cheaper items are in fact inferior goods or criticize "false urgency" offers.
In April, as we discussed here on Stay ADvised, J. Crew faced a lawsuit alleging that it deceptively advertises its much cheaper J. Crew Factory (JCF) brand as comparable in quality to the regular J. Crew (JC) product line. Plaintiffs claimed that the preppy retailer does this to give consumers the (false) impression that the JCF-branded clothes are a bargain. The case was notable for alleging false advertising of the quality of the products rather than the price, albeit within the context of standard reference pricing allegations.
Likewise in April, Old Navy was hit with a "deceptive promotion" class action alleging the company sent emails with deceptive subject lines that "mis-state the duration of given promotions, in an apparent effort to drive sales by creating a false sense of urgency." With subject lines like "today only" and "3 days only," the emails allegedly promoted what appeared to be limited-time sales that weren't. Plaintiffs allege that Old Navy then falsely claimed to "extend" the sales, when in reality it had intended to continue them all along.
In May, plaintiffs filed suit alleging that Michael Kors engaged in false and misleading marketing via a pricing scheme which fabricated what it claimed to be the original price of its outlet store products in order to create an "artificial price disparity" that misled consumers into believing the outlet items were more highly discounted than reality would support.
More specifically, plaintiffs' claimed that "Aware of the intertwined connection between consumers' buying decision processes and price, retailers like [Michael Kors] lure consumers with advertised discounts that promise huge savings and high value. But the promised savings are false and the product's value reflected in its price is incorrect, when the retailer inflates its prices due to advertised discounts off of some higher, made up 'original' price that no one ever pays," alleged plaintiffs.
Yet another recent false reference pricing/fake limited-time sale class action lawsuit alleged that the Shade Store listed sale prices in orange alongside a crossed out "regular price," and claimed that these sale prices would only be available for a limited time. But neither the "regular" price nor the limited duration of the sale was truthful, according to the suit.
Similarly, earlier this year, another class suit alleged the twin advertising deceptions of false reference pricing and fabricated limited-time sales in a case against Wilson Leather Goods. The plaintiffs alleged that the company's pricing scheme "creates an illusion that customers are receiving a limited-time discount" when, in fact, products were never sold at the regular price.
Here, again, time will tell how these suits net out, but it is clear that these issues are top of mind for the class action bar—many brought under California law with its strong consumer protection laws that specifically prohibit false reference pricing.
Key Takeaways
Decades ago, false price suits were top of mind for many regulators—in particular, state regulators. There was then a period of quiet. Quiet time has ended, and the class action bar has taken over (there has been renewed regulatory interest as well during the past few years). Retailers, online and brick and mortar, would do well to rein back in their sales and pricing practices.
In a "Made in the USA" Plot Twist … The Problem Is the Product Was Made Here
A sake maker falsely advertised some of its products as made in Japan when they are actually made in California, according to a lawsuit that will largely move forward after the Court recently denied defendant's motion to dismiss the false advertising claims.
Crucial to the complaint, although the back label of the sake packaging says the drink is made in California, the front label features a statement that the product is "Licensed by Takara Japan, Since 1851" (along with other images and representations). Declining to dismiss the action, the Court found that, in the context of sake, that information may communicate to the reasonable consumer that the drink is made in Japan.
The problem apparently started when plaintiff Colby Tunick decided to purchase a bottle of Takara Sho Chiku Bai Nigori Unfiltered Sake to enjoy in San Diego in the summer of 2020. Based on the brand and product name, the Japanese letters on the front label, a gold emblem on the front label stating "Licensed by TaKaRa Japan, Since 1851," and the placement of the product alongside sakes made in Japan, plaintiff said he believed the product was made in Japan.
To the contrary, the product was made not far (relatively) from plaintiff's place of imbibement, somewhere in the great state of California. Tunick filed a lawsuit alleging that three of Takara's sake products are deceptively labeled and marketed. The plaintiff further alleged that Takara also sells products that are made in Japan, with substantially similar labeling, further compounding the deception. The complaint alleged violations of California's Consumer Legal Remedies Act (CLRA), False Advertising Law (FAL) and the Unfair Competition Law (UFL), as well as express warranty, implied warranty of merchantability, and unjust enrichment claims.
Takara's response seemed reasonable enough and mirrors successful arguments in some other front versus back of label cases—although not necessarily false origin cases. The company argued that the packaging is not misleading because the front label does not specifically say where the sake is made, and the back label affirmatively states that it is made in California.
So what is a reasonable consumer to think? The court considered plaintiff's argument that the phrase "Licensed by TaKaRa Japan" is the type of statement courts have focused on as an "affirmative representation … that the products are from a particular location" in cases featuring "similar theories that products are misleading as to origin."
The Court seemed initially skeptical that "Licensed by TaKaRa Japan" would be reasonably understood by consumers to imply that the sake was Japanese. However, it turns out that for those in the sake know, the term "license" has an important meaning in the context of sake production—given that Japan bans brewing sake without a license. Taking into account this contextual meaning of the word "licensed," the court said reasonable consumers could interpret "Licensed by" to mean the sake was made in Japan.
This together with the "prominent" Japanese characters, the brand name, and the "strong historical and cultural associations between sake and Japan" was enough for the court. It found that reasonable consumers could be misled and refused to dismiss these claims at this stage in the litigation.
Key Takeaways
As is so often the case in false advertising cases—context (and the product and marketplace at issue) is key and here ruled the day.
Suit Claiming Big Ag Company Falsely Advertises Its "Sustainability" Efforts Survives Anti-SLAPP Attempt
A recent case once again showed that corporate "ESG" claims had best be true because such statements are advertising claims and will be reviewed for their truth and accuracy as such. A lawsuit challenging a California agricultural corporation's environmental impact claims as false advertising recently survived an anti-SLAPP motion to strike for that reason. The Court held that the statements at issue were commercial speech, which does not fall within the state's anti-SLAPP statutory protections.
According to a class action suit brought against Grimmway Enterprises in late 2022, statements the company made on its website and in its Inaugural Report on Environmental, Social and Governance Actions (ESG), all of which tout its earth-friendly farming practices, are deceptive. The complaint alleges that Grimmway's claims about its "environmental stewardship," including that its manufacturing process restores the ecosystem—are "false, untrue, and misleading." Instead, plaintiff claims the company's farming methods are "causing severe harm to the ecosystem," rendering the claims false advertising.
Grimmway countered with a motion to strike, arguing that the lawsuit was an attempt to stifle its free speech rights to make statements of political advocacy and public interest under California's Anti-Strategic Lawsuit Against Public Participation (anti-SLAPP) statute, enacted to protect defendants from lawsuits motivated by a desire to use the courts to improperly silence speech on public issues.
The question for the Court here was whether, as plaintiff argued, Grimmway's advertising statements were commercial speech exempt from the anti-SLAPP statute's protections. The four factors in Simpson Strong-Tie Co. v. Gore guided the Court's analysis:
- the cause of action is against a person primarily engaged in the business of selling or leasing goods or services;
- the cause of action arises from a statement or conduct by that person consisting of representations of fact about that person's or a business competitor's business operations, goods, or services;
- the statement or conduct was made either for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person's goods or services or in the course of delivering the person's goods or services; and
- the intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer.
Applying the four factors, the Court found the ESG report was indeed commercial speech. On the first factor, the Court found that it is "undisputed" that Grimmway primarily is in the business of selling or leasing goods.
With respect to the second factor, the Court found that the ESG report contained several representations about Grimmway's business operations, such as content about its "Quality Assurance and Food Safety" and "Leadership in Organics."
On the third factor, the Court found that the report was at least partially created to promote the company's business, as evidenced by highlights on the quality of the company's goods and the safety of its manufacturing practices. "Taken in conjunction," these representations advertise a company that sells produce that is "fresh, safe, healthy, sustainable, and grown by a reliable and ethically responsible business organization." Though the Court did acknowledge that some portions of the ESG report about diversity and philanthropy did not directly discuss topics related to Grimmway's goods or services, it concluded that the overall message of the report was that the company is a seller of food products (and an ethically responsible one at that).
Finally, the Court found that the ESG report met the fourth factor because the audience for the report included actual and potential customers. It rejected Grimmway's argument that its report was "directed at internal and external stakeholders like employees, policymakers and advocacy groups." The report itself included customers in its definition of stakeholders and could be found on the company's website and social media, where it was easily accessible to consumers.
Key Takeaways
Given the trend toward "sustainable" advertising and the concurrent wave of litigation challenging many so-called "sustainable" advertising claims as false, manufacturers should take heed that these and other ESG statements may be problematic, even outside traditional advertising mediums. Recent precedent makes clear that companies should be equally meticulous about aspirational ESG claims—it is not enough to want to be "sustainable" or "ethically sourced" by a certain date, there must be an active gameplan to get there already in effect.
[View source.]
