Advertising Law -- Apr 18, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

No Rest for the NAD, As it Decides Multiple Mattress Disputes

The National Advertising Division stayed up past its bedtime to evaluate three disputes between warring mattress companies.

The first decision pitted Tempur-Pedic Management, Inc. against Simmons. Tempur-Pedic challenged comparative performance and superiority claims touting the cooling, support, and pressure relief for Simmons’ ComforPedic Mattresses from Beautyrest. They included “Unlike traditional memory foam, our Aircool Memory Foam, a better memory foam, is uniquely formulated to dissipate heat for the ultimate in comfort” and “[As opposed to traditional memory foam], Beautyrest has created a better memory foam…more supportive, and more comfortable.”

Tempur-Pedic argued the claims were unsubstantiated and misleading.

The NAD noted that no industry standardized or universally accepted set of tests exists for the cooling capabilities of memory foam mattresses. But analyzing results from Simmons’ ASTM testing, the self-regulatory body found the evidence sufficient to support both monadic and comparative airflow and breathability claims.

Turning to the support and pressure relief claims, the NAD found Simmons’ monadic claims acceptable. However, the evidence was insufficient to support claims that Simmons’ mattresses are “more supportive” than ordinary/traditional memory foam. In addition, the use of the comparative phrase “superior pressure relief” was unsupported, and the NAD recommended that it be discontinued or modified to a monadic context.

Tempur-Pedic also took issue with claims by Simmons that its mattresses “deliver the comfort and support your body needs to wake up living life fully charged” and “It’s more than a better night’s sleep; it’s You Fully Charged.”

But the claims at issue “are likely to be understood by consumers as merely exhibiting the advertiser’s pride in the quality of its product,” the NAD said. Accordingly, the comfort claims did not require substantiation because they were mere puffery.

In a second decision, Tempur-Pedic was on the receiving end of a challenge brought by Serta, which disputed Tempur-Pedic’s claims that its beds “sleep cooler” than other mattresses, particularly Serta’s iComfort gel-infused memory foam.

Even though Tempur-Pedic undertook a rigorous study by an independent lab in Germany, the NAD found the testing was problematic and insufficient to establish a reasonable basis for the company’s claims. The temperature differences between the two parties’ mattresses was quite small – less than one half of one degree and not necessarily perceptible by consumers.

In addition, the NAD was “troubled” by Tempur-Pedic’s bar graph that focused on just a span of three degrees, which exaggerated the slight difference in temperature between the two mattresses. “Displaying comparative data in such a manner reasonably conveys the message to consumers that the differences between two products are greater than in reality,” the NAD cautioned. It recommended that Tempur-Pedic discontinue its “cooler” claims.

Tempur-Pedic should also modify or discontinue the phrase “unique ability to react continuously to your body’s unique shape, weight and temperature,” which communicated to consumers that the company’s memory foam is the only one that has the ability to react to a sleeping individual and not simply a unique mechanism of action, the NAD said.

Finally, the NAD concluded that Tempur-Pedic should modify its claims that “other companies buy generic memory foam off the shelf,” which conveyed an unsupported message that Tempur-Pedic’s competitors use inferior “generic” foam product in their mattresses.

The self-regulatory body addressed yet another mattress dispute, recalling an earlier challenge brought by Tempur-Pedic to Serta’s advertising claims for its iComfort Sleep System memory foam mattresses. In December 2012, the NAD recommended that Serta discontinue inadequately supported comparative superior “cooling” claims. It concluded, however, that Serta could make more limited monadic claims with regard to the design of air flow in its products.

Tempur-Pedic filed a compliance challenge with the NAD regarding advertising on Serta’s homepage that read “Smarter. Cooler. Better.” It also supplied photographs of various Serta retailers’ in-store promotional material and screenshots of their Web sites which contained comparative cooling claims the NAD had recommended be discontinued.

Serta informed the NAD that the homepage phrase was a trademarked claim in use for two years and had not been challenged by Tempur-Pedic in the underlying challenge. The NAD agreed that the phrase was not addressed but advised Serta to review the use of the phrase “to ensure that it does not reference (nor is placed near) any comparative to traditional/ordinary memory foam.”

NAD also said it appreciated Serta’s attempts to modify advertising by third party retailers. Serta said it updated the official copy library for its third party retailers it communicated to sales managers and representatives, and it directed dealers to update Web copy. The Web sites identified by Tempur-Pedic were “a small percentage” of the more than 2,000 retailers carrying the iComfort Sleep System, Serta argued.

“In light of the efforts made by Serta since the issuance of NAD’s decision to comply with NAD’s recommendations, and its continued efforts in this regard, NAD was satisfied that the advertiser had made a good faith effort to comply with the recommendations in NAD’s decision,” it said. “NAD concluded that no further action was required at this time and closed the compliance proceeding.”

To read the NAD’s press release about the Tempur-Pedic/Simmons dispute, click here.

To read the NAD’s press release about the Serta/Tempur-Pedic dispute, click here.

Why it matters: In the Tempur-Pedic/Simmons and Serta/Tempur-Pedic decisions, the NAD recognized “how important it is for advertisers to be able to distinguish their products from their competitors by touting any distinctive technological advances and/or product innovations, which provide benefits to consumers.” This need has been “readily apparent in the memory foam mattress industry, which has been the subject of a number of recent NAD challenges. As the industry has expanded and innovated, numerous memory foam manufacturers have been promoting their products with new advertising claims. Such claims, however, must be truthful, accurate and not misleading,” the self-regulatory group cautioned.

Fur Sure? Retailers Make Faux Faux Fur Claims

A trio of retailers violated the Federal Trade Commission Act and the Fur Products Labeling Act when they misled consumers by advertising clothing items as faux fur when they in fact contained real fur.

The Neiman Marcus Group Inc., Inc., and Eminent Inc. reached a proposed consent order with the FTC in which they agreed to a 20-year ban on violations of the Fur Act and accompanying rules and regulations.

According to the Commission, Neiman Marcus not only misrepresented fur content on its Web site, but it also failed to disclose the animal name and country of origin for a Burberry Outerwear Jacket and an Alice + Olivia Kyah Coat. The third product, a $325 Stuart Weitzman Ballerina Flat, was described as having a “Faux fur (cotton/viscose) pom on round toe” online and sold as a “dyed mink pouf” in a catalog and a direct mail piece. The shoe in fact contained rabbit fur. made similar misrepresentations for three products on its site – a Snorkel Jacket by Crown Holder with a fur-lined hood, a Knoles & Carter vest with exterior fur, and a fur-lined New York Subway Leather Bomber Jacket by United Face, according to the complaint.

And outerwear including a Marc Jacobs Runway Roebling Coat and a Dakota Xan Fur Poncho were among the four products that Eminent Inc. failed to correctly label, the agency said.

The Truth in Fur Labeling Act was passed by Congress in 2010 and amended the Fur Act to require disclosure of any fur content in wearing apparel for all products. Previously, the Act exempted items valued at less than $150.

The proposed consent orders incorporate the Enforcement Policy Statement Regarding Certain Imported Textile, Wool, and Fur Products announced by the FTC in January, which established a safe harbor for retailers. Under the safe harbor, retailers can avoid liability for misrepresentations about fur products by meeting three requirements: if they do not embellish or misrepresent claims provided by the products’ manufacturers; they do not sell the product under a private label; and they neither know nor should have known if the product is marketed in a manner that violates the Fur Act.

To read the complaints against the retailers, click here.

Why it matters: Retailers of fur products should take note of the proposed settlement and attempt to remain within the protective confines of the safe harbor of the FTC’s Enforcement Policy Statement. To do so, retailers should not embellish or misrepresent claims provided by a manufacturer or make their own claims, nor should they sell the product as their own. And retailers who knew or should have known that the marketing or sale of a good that violates the Fur Act will not be covered by the safe harbor.

Got Settlement? Muscle Milk Suit Settles for $5.3 Million

Muscle Milk’s manufacturer, CytoSport Inc., agreed to pay $5.3 million to settle a class action claiming the company overstated the nutritional value of the company’s drinks and snack bars.

The California federal lawsuit alleged that claims like “Healthy, Sustained Energy” and “healthy fats” ranged from misleading to bogus. They called Muscle Milk products the nutritional equivalent of “fat-laden junk food.” Plaintiff Claire Delacruz compared the beverages to Krispy Kreme doughnuts and alleged that the drinks had as much – if not more – total fat and saturated fat.

Under the terms of the settlement deal, which totals $5,275,000, consumers who purchased the drinks between 2007 and 2012 can receive up to $30 with proof of purchase or up to $10 without.

The company will make an $85,000 donation to the American Heart Association to “further the class’ interest in cardiovascular health,” and will not challenge an award of attorney’s fees up to 23.5 percent of the total settlement fund value.

CytoSport also agreed to change some of its labeling by removing the phrase “Healthy, Sustained Energy” from the principal display panel of the products for three years. The phrase “healthy fats” will also be removed from the labels for a three-year period unless the product contains less than 0.5 grams of saturated fat per serving or the company modifies the statement to include the phrase “See nutrition information for saturated fat content.”

To read the proposed settlement in Delacruz v. CytoSport, click here.

Why it matters: CytoSport has been busy defending its advertising in recent years from regulatory investigations by the Food and Drug Administration and the FTC as well as consumer class actions. Both agencies declined to take action against the company, but the FDA cautioned that some product labels were false and misleading because they included “healthy” claims but exceeded the maximum fat and saturated fat content as prescribed by regulation. Delacruz’s lawsuit was filed not long after the FDA sent CytoSport a warning letter, the effect of which would remind advertisers on the receiving end of an agency letter to brace themselves for consumer actions to follow.

TCPA Class Actions Prohibited in New York

Class actions pursuant to the Telephone Consumer Protection Act seeking statutory damages are not allowed under New York law, a federal judge in the state ruled.

After receiving a pre-recorded call advertising Independence Energy Group LLC’s electricity-related services, Todd Bank filed a TCPA suit against the company on behalf of himself and an estimated 10,000 other residential phone lines. He claimed the putative class had not given the defendant permission to make the calls and sought statutory and double damages as well as an order enjoining the company from future TCPA violations.

The defendant sought to dismiss the lawsuit for failure to state a claim. Instead, U.S. District Court Judge William F. Kuntz II sua sponte tossed the case for a lack of subject matter jurisdiction.

State courts “unequivocally” have exclusive jurisdiction over private actions under the TCPA and federal courts lack federal question jurisdiction over such claims, he wrote. He also cited precedent from the U.S. Court of Appeals for the Second Circuit that §901(b) of New York Civil Practice Law and Rules bars TCPA class actions in federal court.

“The specific language of the TCPA creates a private right of action only ‘if otherwise permitted by the laws or rules of a court of a state.’ New York state law ‘prohibits class actions predicated on statutory damages.’ Therefore, plaintiff’s class action seeking statutory damages pursuant to the TCPA may not proceed,” Judge Kuntz concluded.

To read the court’s order in Bank v. Independence Energy Group LLC, click here.

Why it matters: While the decision is a clear victory for marketers in New York, the decision neglected to reference last year’s U.S. Supreme Court decision in Mims v. Arrow Financial Services, where the Court reached the opposite conclusion. Analyzing the same language referenced by Judge Kuntz that TCPA private right of actions are permitted only “if otherwise permitted by the laws or rules of a court of a state,” the justices held in Mims that federal courts do have jurisdiction over TCPA claims. “Beyond doubt, the TCPA is a federal law that both creates the claim [the plaintiff] has brought and supplies the substantive rules that will govern the case,” Justice Ruth Bader Ginsburg wrote for a unanimous court. “We find no convincing reason to read into the TCPA’s permissive grant of jurisdiction to state courts any barrier to the U.S. District Courts’ exercise of the general federal-question jurisdiction they have possessed since 1875.” Whether or not Bank appeals his decision based on the contradictory ruling remains to be seen.

Employer Violated Privacy, Publicity Rights by “Hijacking” LinkedIn Account

In a closely-watched case, a federal court judge ruled that by taking control of a former employee’s LinkedIn account after she was terminated, a company violated her privacy and publicity rights under Pennsylvania law but awarded her no damages.

Linda Eagle was involuntarily terminated from Edcomm, a banking education company, after another company purchased it. The same day, remaining members of the company accessed Eagle’s LinkedIn account, changed the password, and updated the profile with the name, picture, education, and experience of the new CEO, Sandi Morgan. An online search for “Linda Eagle” would direct a searcher to the URL but the page displayed information about Morgan.

Eagle eventually regained access to her account but filed suit against Edcomm, alleging misappropriation of publicity, invasion of privacy by misappropriation of identity, and unauthorized use of her name, among other claims.

At trial, Edcomm argued that the company’s social media policy dictated that it owned employees’ LinkedIn accounts, which were established on company computers, with company e-mail accounts, on company time, and at the company’s direction.

U.S. District Court Judge for the Eastern District of Pennsylvania S.J. Buckwalter disagreed, finding that no such policy existed and that Edcomm used Eagle’s name without her consent for commercial or advertising purposes.

“By looking for Dr. Eagle, an individual would [unknowingly] be put in contact with Edcomm despite the fact that Dr. Eagle was no longer affiliated with Edcomm and did not consent to Edcomm’s use of her name,” the court said. “In turn, Edcomm obtained the commercial benefit of using Eagle’s name to promote the services of its business. Such actions by Edcomm reflect its improper use of her name for the purpose of advertising and/or promotion.”

Similarly, Eagle’s privacy and publicity rights under Pennsylvania state law were also violated. “Plaintiff had a privacy interest not just in her picture and resume, but in her name,” the court said. “Someone searching for Dr. Eagle on LinkedIn would be unwittingly directed to a page with information about [the new CEO] and Edcomm. Such a scenario could be deemed to be ‘appropriat[ing] to [Edcomm’s] own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of plaintiff’s name.’”

The court – which had earlier struck Eagle’s claims under the Lanham Act and the Computer Fraud and Abuse Act – found for the defendant on other causes of action for identity theft, conversion, tortious interference with contract, conspiracy, and aiding and abetting.

However, despite winning several claims, the court declined to award Eagle any damages. Eagle presented testimony from the CEO during her tenure about her annual sales figures – ranging from $1.6 million to $6.6 million – a percentage of which she claimed resulted from her LinkedIn connections. Eagle valued her contacts at $250 per contact, per year, and arrived at lost income ranging from $248,000 to $496,000 for the three months Edcomm controlled her account.

But Judge Buckwalter said Eagle had “not established the fact of damages with reasonable certainty.” Calling the testimony “creative guesswork based on mere speculation,” the court also said the plaintiff failed to connect her alleged damages with Edcomm’s actions. “Plaintiff cannot even name, let alone document, a single lost customer, deal, or transaction,” he wrote.

To read the order in Eagle v. Morgan, click here.

Why it matters: The case presented a thorny issue: who really owns a social media account? Judge Buckwalter called his decision “a somewhat mixed bag for both sides,” with the plaintiff victorious on three counts only to fail to meet her burden to prove damages. The court also declined to rule on the issue of whether a company policy that employees’ LinkedIn accounts are the property of the employer would be legally valid, but did note that such a policy would directly contradict the contract created by the site and an individual user.

Noted and Quoted . . . Adweek and InsideCounsel Turn to Linda Goldstein and Marc Roth on Impact of FTC Regulatory Developments

On March 17, 2013, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, shed light on the Federal Trade Commission’s updated guidelines for online and mobile advertising in an article published by Adweek, “The Do’s and Don’ts of Dot-Com Marketing.”

In its Dot-Com Disclosures, the Commission advises marketers to make ad disclosures clear and conspicuous across all platforms, a requirements that marketers might find challenging given the format or smaller screen size on mobile phones. The burden is largely on marketers to put this guidance into practice. According to Linda, “The FTC won’t relax enforcement just because the ad is in a constrained space. Marketers will need to figure it out.”

To read the full article, click here.

On March 13, 2013, Manatt partner Marc Roth penned a column for InsideCounsel on recent developments affecting privacy and data security, the second article in a series of three on this topic. Marc’s article focused on last year’s privacy report by the FTC, “Protecting Consumer Privacy in an Era of Rapid Change,” as a starting point to help guide companies on how to incorporate privacy into their regular business practices.

Marc emphasized the practical points corporate counsel can take away from the Commission’s report “to build privacy and data security into all aspects of corporate decision making so that such issues are ‘baked’ into companywide initiatives and marketing plans and remain front of mind.” He also noted that “the report offers a simple road map for establishing a privacy program” and he highlighted these steps for in-house counsel.

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

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