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by BakerHostetler
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In This Issue:

  • PopSugar Earns the Ire of Two New Fashionistas
  • Trader Joe’s Alkaline Water Gets the Class Action Hose
  • Freeze! Drop That Voicemail!
  • IAB Blockchain Group Helps Technology Come of Age
  • Six-Year Prison Sentence for Misrepresentation Upheld
PopSugar Earns the Ire of Two New Fashionistas

Accusations of content hijacking will sound familiar to the millennial media machine

Humblebrag

The modest AD-ttorneys@law editorial staff rarely pats itself on its collective back, but we called it a few issues ago. We previously reported that fashion influencer Nita Batra’s lawsuit against global media company PopSugar would inspire “various other influencers” to bring “similar claims that the company infringed their personal social media content.”

Here they come.

Recap

Just a quick review of Batra’s allegations: As an online fashion influencer, Batra (who goes by the name Nita Mann on Instagram) is often sponsored by social media company liketoknow.it. She links her Instagram images to the liketoknow.it service, which allows her fans to purchase the product she’s promoting. Batra gets a percentage of sales generated by users clicking the links in her posts.

In her suit, filed in June as a proposed class action lawsuit in the Northern District of California, Batra accused PopSugar of interfering with this arrangement by copying her photos and posting them to ShopStyle, one of PopSugar’s former shopping platforms, after removing the original links to liketoknow.it and adding new links directing followers to ShopStyle. This practice, she maintains, was an unauthorized use of her persona and deprived her of profits from the effort she had invested in her brand.

She sought damages of up to $150,000 for each photo allegedly misappropriated by PopSugar.

PopSugar is a global media and technology company whose combined platforms have generated an audience of 27 million, with a focus on fashion-minded female millennials, so there’s a lot of room for overlap between the company’s media efforts and influencers like Batra.

New Kids on the Block

Meet Cathy O’Brien and Laura Adney. O’Brien is the force behind the fashion and lifestyle blog Bay Area Fashionista (“California Casual with a touch of glam”), while Adney is the author of the Have Need Want blog (“a consultative and friendly approach to personal styling”). Like Batra, the pair filed a proposed class action lawsuit against PopSugar in California’s Santa Clara County Superior Court in early June 2018, and PopSugar name-checked Batra’s suit in its July 2018 request to remove the case to California’s Northern District, arguing that O’Brien and Adney’s case contains “several overlapping claims and class allegations.” PopSugar also pointed to other pending litigations against it by influencers other than Batra asserting the same or similar claims as another reason why the suit is better situated in the Northern District.

O’Brien and Adney accuse PopSugar of much of the behavior that’s alleged in Batra’s lawsuit; the claims are similar as well, including violations of the pair’s right of publicity, California’s Unfair Competition Law and intentional interference with a contractual relationship (absent from their suit are the copyright and Lanham Act violations.

The Takeaway

While we often cover stories about influencers who run afoul of industry and government advertising disclosure rules, the Batra and O’Brien/Adney cases may be a sign of another trend: influencers flexing their muscle. O’Brien and Adney, in their complaint, cite a Nielsen study that shows that influencers deliver 10 times the return on investment that traditional digital advertising provides. Now that they have grown in number and demonstrate real marketing clout, we may see many more influencers filing suit to defend their roles as major players in the advertising industry.

Trader Joe’s Alkaline Water Gets the Class Action Hose

Cali consumer says health benefit claims and pH levels are out of whack

Basic Error?

Alkaline diets have become incredibly popular of late, and alkaline (or ionized) water is a big part of that trend, which makes sense. In a more-or-less busy modern life, consumers who do not have the time to plan and execute an alkaline diet can grab a bottle of alkaline water and get a taste of the same purported benefits.

Alkaline diets and related products like ionized water trade on the notion that consuming the right foods helps balance acid levels, leading to a multitude of health benefits, including cancer and heart disease prevention. But while the products are luxury items – some in-home water ionizers cost upward of $3,000 – there’s plenty of shade being cast on health claims made by manufacturers and producers of alkaline diet products.

Out of Balance

Enter Dana Weiss, a California consumer who is not happy with the claims made by alkaline water producers – specifically, iconic grocery store Trader Joe’s, which sells its own “Alkaline Water + Electrolytes” bottled water product. Weiss filed a class action complaint in the Central District of California in June 2018, taking issue with what she claims are false representations on the product label, including the tag “ionized to achieve the perfect balance” and “hundreds of plus symbols on the packaging next to [the] statement ‘refresh and hydrate’ connoting non-existent health benefits.”

Trader Joe’s “balance” claim, she argues, is unsupported by any reliable scientific evidence suggesting that ingesting the alkaline water would provide any substantial health benefits over those of regular bottled water. Weiss also claims that Trader Joe’s is misrepresenting the pH level of the water itself. Additionally, Weiss claims that enjoining Trader Joe’s from making the claims would reduce market demand and the price of the alkaline water product, which she argues are “artificially and fraudulently inflated” due to Trader Joe’s use of the allegedly deceptive label.

Weiss charges Trader Joe’s with breach of express warranty, unjust enrichment, violation of various state consumer protection acts, and violation of the California Unfair Competition Law and California’s false advertising law.

The Takeaway

Weiss’ suit illustrates how health claims, such as those referring to the alkalinity and benefits of a bottled water product in this case, continue to remain on the radar of regulators and are still ripe for class action lawsuits.

Although Weiss claims that the product label contains tags that are “not just puffery, but … instead deceptive and … therefore actionable,” the court could find that Trader Joe’s ad claims are fairly conservative and potentially noncontroversial (claiming that water “refreshes and hydrates,” for example, is not out of character for water product marketing). We’ll have to wait and see how it all washes out.

Freeze! Drop That Voicemail!

District court interprets TCPA to cover direct-to-voicemail messages

No Matter Who Calls …

By now, we know you’re familiar with the Telephone Consumer Protection Act (TCPA) and how one of its goals is to curb nuisance calls to cellphones.

Since its inception, the TCPA has been interpreted to address more and more forms of telephonic communication, including text messages (and other communications delivered as SMS messages). Figuring out a way around the act isn’t easy, but nonetheless, some clever users are giving it a shot using technologies that place voice messages directly in consumers’ voicemail boxes.

Collections

One such consumer, Michigan native Karen Saunders, received a number of voicemails during a period of four years, including a time between June 2016 and April 2017, which she alleged were “recorded ahead of time, and then … played when the dialing system detected that the call was answered by plaintiff’s voice mail.” Saunders’ proposed class action complaint alleges that her number was one of many on a list that the defendant’s equipment automatically and sequentially called. Claiming that she never consented to the calls or provided the caller (a debt collector, no less) with her phone number, she filed suit in the Western District of Michigan in 2017, alleging violations of the TCPA. Among other requests for relief, Saunders asked that the defendant be enjoined from using third parties to store and record prerecorded messages without first obtaining consent from call recipients.

But would the direct voicemails be considered actionable under the TCPA?

No, said the defendant, who filed for summary judgment in April 2018, claiming that “the delivery of a voice message directly to a voicemail box does not constitute a ‘call’ subject to the prohibitions set forth” by the TCPA. To be actionable, according to the defendant, the calls would have needed to be placed “using an automated telephone dialing system (or ATDS) or an artificial pre-recorded voice.”

A word about the underlying technology at issue in this case: The bill collector contracted with a third-party vendor called VoApps, whose voicemail messaging product DirectDrop was able to skip the consumer’s actual phone number and call the number assigned to the computer system that managed the voicemail service. Because it was directly calling the voicemail service, the defendant argued, the call was not covered by the TCPA.

The Takeaway

In a case of first impression, the court found in favor of Saunders and held that the defendant’s use of DirectDrop’s workaround was still a “call” under the act, bringing direct-to-voicemail messages under the TCPA’s umbrella. “A ‘call’ includes communication,” the order read, “or an attempt to communicate, via telephone … [B]oth the FCC and the courts have recognized that the scope of the TCPA naturally evolves in parallel with telecommunications technology as it evolves.”

Accordingly, and in line with the court’s findings, just because direct-to-voicemail messaging is a new iteration in that technology does not mean it escapes the long arm of the law.

IAB Blockchain Group Helps Technology Come of Age

Pilot programs planned to test blockchain apps in the industry

Chicken or Egg?

Which came first, bitcoin or blockchain? Did Satoshi Nakamoto, the inventor of both technologies, realize that bitcoin, the much-discussed cryptocurrency, was the perfect application to be built on top of blockchain? Or did he imagine bitcoin first and then realize that he needed blockchain’s distributed ledger system to make bitcoin work?

No one may ever know, since no one, except maybe the NSA, seems to know who Nakamoto is or whether “he” is even one person. (The rabbit hole of theories regarding Nakamoto’s real identity makes for fascinating reading).

If you’ve never heard of it or have closed your ears and hummed loudly whenever a self-proclaimed expert starts to explain it, here’s as brief a description as one can manage: Blockchain is a digital ledger that parties to a transaction of any sort use to record their interactions. The ledger itself is distributed across many servers, which means that no single party controls the record of the transaction. And it cannot be altered or edited without the knowledge of every participant.

Click here for an excellent introduction to blockchain by BakerHostetler partner Laura Jehl.

The Takeaway

Blockchain technology is slowly but steadily changing the way transactions take place online, and secure and distributed record keeping presents tremendous potential for the online advertising sector. With so many players involved in the marketing supply chain, there are myriad possible combinations of producers and outlets. Blockchain offers a new way of approaching the countless complex transactions that must take place.

The Interactive Advertising Bureau’s Blockchain Working Group is investigating blockchain applications and related standards and best practices. Recently, the group set up a pilot program whereby members can test their blockchain applications; the tests will involve agencies, publishers, brands and other related entities working together to uncover hidden value, savings and synergies. Pilot subjects include testing for automatic validation for transactions (smart contracts) and transparent record keeping. The group hopes to create a white paper that summarizes its findings and sketches out standards and best practices for using blockchain.

The IAB’s Blockchain Working Group also just published the Blockchain Technology Primer, and you can stay current on all things blockchain by subscribing to BakerHostetler’s Blockchain Monitor blog.

Six-Year Prison Sentence for Misrepresentation Upheld

Novel arguments from nonprescription drug hawker fall flat in the First Circuit

Bad Libs

Typically, when we cover cases about the Federal Trade Commission (FTC), we’re talking about cases in which people or companies are doing their best to avoid charges of one sort or another. This week, we’re writing our first item about a defendant who sought out charges under the Federal Trade Commission Act (FTC Act). What gives?

Allow us to introduce Mustafa Hassan Arif, a Lahore, Pakistan-based purveyor of nonprescription drugs. Not just any drugs, by his own admission – drugs that could cure a staggering array of medical conditions. To sell his product, he operated an elaborate network of more than 1,500 sales and affiliate websites, which were variously “located” at false addresses in Germany, Italy, New Zealand, Australia and other countries.

Problem was, most of the websites promoted the drugs through false and misleading statements, including “altered clinical studies, fabricated testimonials, and false indicia of origin;” many of the sites were based on the same fill-in-the-blank template with the names of Arif’s drug and a given medical condition swapped in.

Long Arm

All told, Arif pulled in about $12 million between 2007 and 2014. The money was processed through online payments that were then wired to his accounts in Pakistan and the United Kingdom.

All this we know from Arif himself and the court case that resulted from his scheme: He was sued by the United States in the District Court of New Hampshire in 2014, and in 2016, he pled guilty to one count of wire fraud. He was sentenced to six years’ imprisonment.

But Arif’s plea was conditional; he asked to be allowed to appeal the sentence on two arguments that the district court had rejected. The two arguments that were originally shot down were brought before the First Circuit in 2017.

They’re fascinating arguments. Were they effective?

First, Arif argued that he had been prosecuted under the wrong statute. He maintained that he should have been tried under the FTC Act for false advertising claims rather than by the Department of Justice for wire fraud. Why?

Arif argued that the FTC Act (enacted in 1938) held a “preemptive effect” over the wire fraud statute (which, while enacted in 1952, was based on the mail fraud statute first enacted in 1872). In a July 2018 opinion, the First Circuit rejected this argument, stating that such a “repeal by implication” of an older law by a new law is an exceptional case limited to situations where Congress’ desire to repeal is “clear and manifest” in the new law. Finding no “irreconcilable conflict” (one of the two methods of determining whether repeal by implication is an appropriate interpretation) between the FTC Act and the wire fraud statute and rejecting Arif’s argument that Congress intended the FTC to be the sole enforcer in false advertising cases, the court held that the prosecution could have moved ahead under either or both laws.

“This case provides a good example for why Congress has vested discretion in the prosecutorial agencies as to which statute to employ,” the court wrote. “The offense here was not a run-of-the-mill false advertising of a single product … The FTCA penalties for first or second offenders would hardly have been an adequate deterrent for such egregious conduct. Crime must be made not to pay.” Ouch.

In the second argument, Arif took exception to the district court’s dismissal of his argument that he did not commit wire fraud because he sincerely believed in the products he sold. The court rejected this argument as well. Belief was beside the point, because Arif “was not being charged ‛with selling drugs that did not work as intended ... or for harming his customers’” the court wrote. Arif was charged with making false representations through his schemes and for his knowledge of those false representations, namely claiming that the drugs were backed by clinical research, faking customer testimonials and claiming to operate from countries other than Pakistan.

After dismissing several other objections, the First Circuit affirmed the original ruling along with Arif’s six-year sentence.

The Takeaway

Aside from the obvious lessons that Arif’s case teaches about refraining from making false or misleading statements, the court’s decision in this case is illustrative of the ways in which the FTC Act can be interpreted. While the court does not equate the two laws (the FTC Act and the wire fraud statute) at issue in this case, its perspective is instructive with regard to how a “repeal by implication” argument is handled when the FTC Act is at issue. Similarly, the court reiterated (and advertisers should note) that one’s sincere belief in a product or service, as Arif argued here, is an insufficient defense against wire fraud allegations when the performance of the product or service is not at issue.

 

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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