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by BakerHostetler
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In This Issue:

  • FTC Moves Against Influencers Directly
  • Class Action Brews Trouble for Hawaiian Beer Label
  • Gwyneth Paltrow’s Company Goop-Smacked With Investigation Request
  • FTC to Telemarketers: Cállate La Boca!
FTC Moves Against Influencers Directly

Commission claims YouTubers failed to disclose financial relationships

Spawn Point

Tom “Syndicate” Cassell and Trevor “TmarTn” Martin serve up high-octane reviews and commentary on games and gaming culture on YouTube. Both are wildly popular – Cassell’s YouTube channel is one of the top 100 subscribed channels on the site – but both recently fell afoul of the Federal Trade Commission, which filed a complaint against the pair. It is the FTC’s first action against individual influencers.

Area of Effect

Martin and Cassell run the online gambling site CSGOLotto, which allows players in the online multiplayer game “Counter-Strike” to gamble using assets from the game. The FTC alleges that Martin, the company’s president, and Cassell, its vice president, created a series of YouTube videos on their channels promoting the site, portraying each of them as users of the site’s services – but never disclosing their personal involvement. They also mentioned the site through their social media accounts, without referencing their positions in the company.

In addition, the FTC charged the pair with creating an influencer program, which paid other prominent gaming celebrities to promote the site, without discussing the reimbursement they were receiving.

Game Over

Cassell and Martin settled the FTC’s complaint, resulting in a September 2017 consent order.

The proposed settlement forbids either of the pair, or their company, from misrepresenting that any endorser is an independent objective user of their service, and requires them to clearly and conspicuously disclose any connections they maintain with endorsers of their service.

The Takeaway

The FTC is paying increasing attention to the role of endorsers in online and social media advertising. It recently sent more than 20 warning letters to influencers and related brands to which it had previously sent “educational materials” in April of this year. The April letters instructed the recipients on how and when to properly disclose relationships within the endorsements; the more recent letters got specific, presenting examples of media posts that were raising the FTC’s eyebrows.

The FTC also recently updated “The FTC’s Endorsement Guides: What People Are Asking,” a publication that provides guidance for online influencers. It’s the first significant revision of the Guides since 2015, which makes it essential reading for any enterprise that wants to avoid negative attention for its online influencers and endorsers. The Guides and subsequent FAQ guidance impose specific and substantial obligations on both influencers and the agencies and brands that engage them to prevent consumer deception. At this point it is clear that brands, agencies and even individual influencers ignore this guidance at their own peril.

Class Action Brews Trouble for Hawaiian Beer Label

Court says Kona’s motion to dismiss is mostly froth

Pitted

With brand names like Longboard Island Lager, Big Wave Golden Ale, Fire Rock Pale Ale, Wailua Wheat Ale, Hanalei Island IPA, and Castaway IPA, it’s fairly obvious that Kona Brewing Co., a subsidiary of Craft Brew Alliance (CBA), is happy to move product based on a cheery, Hawaiian-island vibe. But plaintiffs Sara Cilloni and Simone Zimmer, filing in the Northern District of California, objected to the labeling and advertising by bringing a class action against Kona back in March.

Kona beer, they claim – the Kona beer sold on the U.S. mainland, specifically – is not brewed in the Hawaiian Islands; it’s produced in mainland breweries. And this discrepancy inspired them to pursue a number of charges, including violations of the California False Advertising Law, the California Consumer Legal Remedies Act and the California Unfair Competition Law.

Island Allure

How much influence can implied Hawaiian origin have on the popularity of a product? Quite a bit, the plaintiffs claim. Alongside the labeling and advertising that is alleged to appeal to consumer sentiments inspired by a Hawaiian origin, they cite Kona’s own brewmaster, who once stated that the Hawaiian water used in the original brews contributed positively to the taste and the quality of the beer. So much so, in fact, that the company installed a water treatment system on the mainland to mimic the original Hawaiian water.

Moreover, the plaintiffs claim, Hawaiian products carry a certain cache on the mainland; they cite massive purchases of island products by Whole Foods as proof. Together these factors lead them to claim that the net impression of Kona’s labeling and marketing is deceptive and that they were injured by paying a premium for an attribute that does not exist.

Is Product Origin a State of Mind?

Leading off with the memorable line “Hawaii is a state as well as a state of mind,” the court blocked a motion to dismiss by the defendant in September 2017. The motion argued that the references to Hawaii were nothing more than non-actionable puffery or were qualified by a clear disclaimer – at best suggestive marketing on which a reasonable consumer would not rely. CBA also noted that five brewery locations were referenced on the product label.

The court responded by noting that for a claim to be actionable, a statement must be “specific and measurable” and capable of being proven true or false. “If the…complaint solely alleged pictures of surfboards and the vague phrase ‘Liquid Aloha’ on the beer packaging, the case would end there,” the court wrote.

However, it went on to find that the Hawaiian address, the Hawaii map pinpointing Kona’s brewery, and the marketing tag “visit our brewery and pubs whenever you are in Hawaii” were specific and measurable claims that could deceive a reasonable consumer. Additionally, the court noted that the list of brewery locations on the label was not “an explicit statement that the beer is brewed and packaged at a particular location.” Moreover, the list was obscured by packaging – and a reasonable consumer should not be expected to open or remove a product from packaging to learn the truth about the purchase.

The Takeaway

In short, companies should ensure their marketing claims are substantiated. If the net impression suggests an implied claim that cannot be supported, it can only be qualified by language that is clear, conspicuous and proximate to the potentially deceptive elements such that a reasonable consumer’s net impression would not be mistaken.

Gwyneth Paltrow’s Company Goop-Smacked With Investigation Request

TINA.org spotlights lifestyle company before California DAs

Haters Gon’ Hate

With its recent letter to the Santa Clara and Santa Cruz County district attorneys, Truth in Advertising, Inc. (TINA.org), is increasing the scrutiny on Goop, Gwyneth Paltrow’s lifestyle brand. The Aug. 22 letter requests that the DAs launch an investigation into what they allege are unsubstantiated and illegal claims by Goop regarding the health benefits of its products.

Goop, launched in 2008 as Paltrow’s personal e-newsletter, grew enough over the past few years to attract serious venture capital funding. But controversy has dogged the service: negative press attention, a result of Paltrow’s public profile as an out-of-touch celebrity, has only been fueled by some of the outlandish products, services and ideas Goop promotes.

Otherworldly Claims

Yoni eggs, aromatic stress treatments, blog posts claiming that breast cancer is caused by underwire bras – both Goop and its founder have taken heat for a variety of product claims that developed into PR missteps. Paltrow was even called out personally during an appearance on Jimmy Kimmel Live! for her claims about “grounding” – the notion that walking barefoot can help cure insomnia and depression.

The most recent and highest-profile fracas occurred when Goop was publicly rebuked by NASA for promoting “wearable healing stickers” that supposedly incorporated the same material used by NASA to line space suits. NASA claimed that it had never used the material in its suits in the first place.

TINA.org’s letter, however, goes further, cataloguing a list of 50 instances when the site claimed that its products offered treatment, cure or prevention of a number of medical problems, including depression, anxiety, insomnia, infertility, uterine prolapse and arthritis. The list is the product of several months of scrutiny by the watchdog group, including an undercover visit by one of TINA.org’s employees to a Goop-sponsored wellness summit in June. TINA.org alleges that “the company markets a variety of products, including supplements, oils, and crystals, using illegal health and disease-treatment claims.”

The Takeaway

It should go without saying that all claims must be substantiated or they are deceptive. Further, a greater level of substantiation is required for health claims. Finally, the TINA.org complaint is an example of a growing trend of consumer watchdog groups conducting investigations and presenting findings to regulatory enforcers with a demand to take action.

FTC to Telemarketers: Cállate La Boca!

Commission alleges shady, sometimes threatening behavior toward Spanish-speakers

Los Abusos

The threats were the worst part, according to the Federal Trade Commision, which alleges that Spanish-speaking consumers throughout the United States were harassed by telemarketers who, in an escalating series of abusive phone calls, threatened to sue the consumers for fraud. Sometimes the callers threatened to sic the authorities on the consumers; sometimes they claimed that they would seize the consumers’ passports and residency papers.

When they were through threatening one individual, they would begin making similar calls to the victim’s relatives.

All this under the supposed aegis of a well-known and trusted organization or business – a government “help center,” a Spanish-language radio station, or Walmart.

Las Acusaciones

In February 2017, the FTC launched a complaint against California-based ABC Hispana, Inc. and ISB Latino, Inc.; Florida-based ABC Latina, LLC; and two of the companies’ principals, Gonzalo Ricardo Bazán Jiménez and Milagros Raquel Urmeneta, for an alleged telemarketing scam that targeted Spanish-speakers and led to the escalating threats.

The FTC alleges that the defendants hired Peruvian telemarketers to call consumers throughout the country, offering a variety of English-language instruction material – CDs, DVDs, books, Spanish-English dictionaries, and translation devices. They would identify themselves as representatives from trusted public businesses or organizations, offering a steep discount on the supposed price of the instructional material.

The FTC maintained that the discounts were completely chimerical; that the companies were unaffiliated with any of the groups claimed by the callers; and that in certain cases prizes or additional discounted products offered by the callers were sub-par or never arrived. The Commission pursued charges under the FTC Act and the Telemarketing Sales Rule.

Palabras Para Llevar Contigo

The following April, the Central District of California froze the defendants’ assets pending resolution of the case. A final order was issued in late August, banning the defendants from telemarketing, forbidding them from misrepresenting material facts about their products and imposing a judgment of more than $6.3 million against the defendants.

Immigrant communities are particularly susceptible to fraudulent schemes. We have seen an increase both in scams targeting immigrant communities in their native language and in enforcement actions against the predators. A fraud is a fraud, in any language.

 

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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