Advertising Law - Aug 29, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Facebook Changes Its Promotion Guidelines

Sponsors can rejoice. Effective August 27, 2013, Facebook no longer requires that sweepstakes and contests be conducted on third party apps. By dispensing the apps requirement, Facebook has greatly streamlined the method by which users can enter. For the first time, they can post content to or comment on the Page (a photo, a share message, etc.), or they can “Like” or message a Page and gain a sweepstakes entry, all of which are user friendly methods that up until now had been prohibited.

But with the give, there’s the take. Sponsors can no longer encourage users to tag themselves in content in which they do not actually appear. For example, they cannot tag themselves in a new product photo and expect an entry. They can, however, submit a suggested new product name and obtain an entry. Personal Timelines may not be used to administer promotions (for example, “share on your Timeline to enter” or “share on your friend's Timeline to get additional entries”).

Other things remain unchanged. Sponsors are still responsible for posting legally sufficient rules, for adhering to all laws, and for including a statement in the rules that Facebook does not sponsor, endorse or administer the promotion in any way.

Why it matters: Besides making entry easier, Facebook has removed the sponsor’s need to procure a third party app and incur the considerable expense of game administration. They can now directly control the promotion without the need of a third party

Nestlé Narrows False Ad Suit Over Myriad of Products

Nestlé successfully narrowed the scope of a consumer class action alleging the company made false claims about the health and nutrition of numerous products like Nestlé Juicy Juice, Nestlé Toll House Dark Chocolate Morsels, and Lean Pockets Breakfast Sandwiches.

Jude Trazo’s federal lawsuit challenged Nestlé’s overarching marketing strategy, as well as specific claims made on product packaging and Web sites like “No Sugar Added,” “All Natural,” and “Evaporated Cane Juice” for 13 different products. Nestlé moved to dismiss the claims.

Working his way through the various causes of action, U.S. Magistrate Judge Paul S. Grewal first picked off claims he found expressly preempted by federal law. According to the complaint, antioxidant claims for Dark Chocolate Raisinets and Dark Chocolate Toll House Morsels lacked the minimum daily values for the claims made. But federal regulations require such values to be included only when companies use a specific term listed in the regs, the court explained. Nestlé’s reference on the labels that the products were a “source” of antioxidants did not subject the company to these requirements and therefore, the plaintiffs’ claim went beyond the boundaries of the regulation and was preempted.

Claims against Nestlé’s Hot Pockets and Lean Pockets were similarly preempted by the Federal Meat Inspection Act and the Poultry Products Inspection Act, which govern all meat and poultry products to ensure proper labeling. Because the Pocket products featured a U.S. Department of Agriculture sticker on their label indicating they underwent the approval process, such claims were barred. “Permissible state regimes must complement, not usurp, the federal agency’s role,” Judge Grewal wrote.

The plaintiff also lost claims for “No Sugar Added” and “naturally flavored” for products containing the artificial flavor vanillin. Judge Grewal found it unclear if “vanilla” is a characterizing flavor of the Toll House Peanut Butter & Milk Chocolate Morsels challenged by the plaintiff.

Causes of action for unjust enrichment, violations of the Song-Beverly Act, and the Magnuson-Moss Act were all dismissed, as were claims for misleading and false advertising that the court said lacked sufficient detail.

The court did allow other claims to move forward, however, including those based on Nestlé’s use of the phrases “0g trans fat” and “evaporated cane juice” in lieu of the term sugar.

Finally, Judge Grewal placed an additional obstacle to the suit by striking the plaintiff’s class allegations for a lack of typicality. Some class actions may proceed where numerous products are implicated, he noted, using the “sufficient similarity” test. Trazo’s suit failed to pass this test.

“Plaintiffs’ allegations encompass all products with labels containing certain key words (i.e., ‘health’ and ‘all natural’), or having certain attributes (having the ‘wrong serving size’ or containing ‘unlawful slack fill’), but does not limit the class to certain product lines that are sufficiently similar in nature,” the court said. “A ‘No Sugar Added’ claim, for example, might be portrayed on different parts of the package, in different sizes, on wildly different products such as apple juice versus cheese, which would result in very different analyses to determine if the statements were false and misleading. All of plaintiffs’ claims depend on such context-specific analysis, requiring information about the food composition or actual labels that is not presented here.” Similar problems were presented with issues like commonality and trying to ascertain the class presented.

“While different products, if sufficiently similar, might be certified regarding one or similar misbranding theories, a class action suit involving nine unrelated theories cannot as a matter of law be certified,” the judge concluded.

To read the opinion in Trazo v. Nestlé USA, click here.

Why it matters: Many of the plaintiff’s claims lacked sufficient detail, the court said. For example, Trazo failed to allege either that a reasonable consumer would be deceived, or the circumstances in which he read the label and interpreted the label, or both. The plaintiff “must connect the dots showing how the alleged misbranding misled plaintiffs in a way that a reasonable consumer would be deceived,” Judge Grewal wrote. The ruling was a significant victory for Nestlé in this complex and convoluted suit with multiple misbranding theories, but it may not be the end of the case – the plaintiffs have until Sept. 2 to file an amended complaint.

NAD Doesn’t Like the Taste of Prego’s Taste Test Claims

Prego’s television and print advertising promoting taste test results with Ragu pasta sauce on a single variety of sauce should be modified or discontinued to avoid an unsupported line claim comparison, the National Advertising Division has recommended.

A television commercial for Prego traditional pasta sauce opened with the statement, “In blind taste tests, even Ragu users choose Prego,” followed by a statement, “Prego? But I’ve been buying Ragu for years.” The ad ended with “Choose Taste. Choose Prego.”

Unilever, maker of Ragu pasta sauces, challenged the ads, alleging that they communicated an implied claim that Ragu users prefer the taste of the entire line of Prego pasta sauces over the entire line of Ragu pasta sauces. Prego could not substantiate such a claim, Unilever said, as the taste test actually compared a single variant of each of the pasta sauce lines: Prego Traditional vs. Ragu Old World Style Traditional.

Prego disagreed. The commercials at issue contained a simple express claim about the two specific styles of pasta sauce compared with a true and accurate claim, not a claim message regarding the entire line of products, the advertisers argued. In support, Prego offered the results of a consumer perception survey of 324 national online respondents, where only 11 percent took a line claim message from the ads.

The NAD began with the survey, which it found flawed. For one thing, consumers repeatedly referred to “Prego” and “Ragu” and not Prego Traditional or Ragu Old World Style Traditional. While the advertiser argued that this was how consumers normally communicate and did not represent a reference to the entire brand or line of pasta sauces, the NAD said such a position was “mere speculation.” Such responses “could reasonably be interpreted (or coded) as brand or line claims.”

Further review of the survey results found that approximately 1 percent used singular terms (like “product” or “sauce”) and only three individuals referenced one of the two sauces actually compared.

Emphasizing the importance of moving from open-ended to increasingly focused questioning, the NAD said Prego improperly crafted the control question, which should have been posed in the same format as the question from which the results were subtracted to control for noise.

Given its “concerns and questions,” the self-regulatory body concluded the survey was not sufficiently reliable and stepped into the shoes of consumers.

Reviewing the ad as a whole – including the use of general brand references, if the copy limited the applicability of the claim, and how many varieties of the product were actually shown – the NAD found that Prego communicated an unsubstantiated line claim message.

“[T]he advertiser refers three times solely to the brand names in the prominent audio segments and not once to the specific varieties being compared,” according to the decision. No tight shot of the Ragu label was included that might help limit the variety being compared, as only a “single fairly fleeting image” of the Ragu Old World Style Traditional label was shown. “This is particularly problematic given . . . the similar trade dress of the parties’ products,” which makes it difficult to distinguish between the specific variants of pasta sauces that were compared.

Prego’s disclosure (“Prego Traditional vs. Ragu Old World Style Traditional”) failed to help, the NAD added, as it appeared for only two to three seconds in a 30-second commercial. “Clearly, there is additional opportunity within the challenged commercial to expressly disclose that only two specific variants of pasta sauce are being compared,” the NAD wrote.

Recommending that the ads be modified or discontinued, the NAD also expressed concern about a “spill-over” effect to print advertisements, which also included a “beauty shot” of two to three varieties of Prego pasta sauces. Those ads should be modified to limit the visual to depict the single variety tested.

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

Why it matters: In addition to offering guidance on consumer perception studies, the decision serves as a lesson in how the NAD will evaluate line claims. “In determining whether an advertisement conveys a product line message, NAD considers whether there are general brand references in the advertisement, the copy effectively limits the applicability of the claim, and if only one variety of the product is shown,” the NAD noted. “Generally, where an advertisement makes general brand references but fails to adequately qualify the claim to limit its applicability to the one product shown in the advertisement, it is likely to convey the message that the benefits or attributes touted extend to the entire product line.”

A Naked Settlement for $9M

A federal court judge has granted preliminary approval to a proposed $9 million deal between Naked Juice Co. and a class of consumers in a false advertising suit challenging “All Natural” claims for products that included Acai Machine, Protein Zone, and Mango Veggie juices.

Although the juice line was labeled “All Natural” and “Non-GMO” the products contained fibersol-2, genetically modified soy, and fructooligosaccharides, among other non-natural ingredients, according to five separate complaints filed in 2011. The suits were consolidated in the Central District of California. After discovery and four full-day mediation sessions – with months of negotiations in between – the parties reached a deal.

The settlement applies to all U.S. residents who purchased one of the covered products over a six-year period, each of whom is eligible for up to $75 in cash (with proof of purchase or other documentation) or between $5 and $45 (without). In addition to class payments, the $9 million fund will also cover the costs of notice and settlement administration, incentive awards to four of the named plaintiffs, and up to $3.12 million in class counsel fees and expenses.

Naked Juice also agreed to injunctive relief valued at $1.4 million. The company will redesign the labels, its marketing approach, and advertising copy for the covered products and eliminate the “All Natural” language. In addition, Naked Juice will substantiate the “Non-GMO” claim by funding a three-year independent testing verification program. For a five-year period, the company will pay a quality control manager to oversee the testing process and an electronic database will be created to track and verify the product ingredients for the line.

The fifth named plaintiff, Sara Sandys, objected. She challenged three aspects of the settlement: the attorney’s fees and costs, the cy pres recipients, and the sufficiency of notice to class members.

U.S. District Court Judge John A. Kronstadt overruled her objections, granting preliminary approval.

Noting that the precise amount of attorney’s fees had yet to be determined, the judge said the court will follow appropriate procedures at that point, with lodestar and other methodologies, to ensure the amount granted is appropriate. He also said that the $3.12 million amount “is approximately one-third of the total claims value of the settlement and is not per se unreasonable or greater than the percentage of fees and costs awarded in other consumer products class actions.”

Sandys pointed to the 9th U.S. Circuit Court of Appeals decision in Dennis v. Kellogg, where the federal appellate court tossed a $10.6 million settlement in a consumer false advertising class action, in part due to concerns about the cy pres recipients. But the court said the recipients in the Naked Juice case – the Mayo Clinic, the National Association of IOLTA Programs, and seven legal aid organizations – passed muster because the funds would be used “for consumer protection work” sufficiently related to the underlying claims. The Mayo Clinic, for example, told the court it would use the money to “support its nationwide education and research efforts around nutrition, vitamins, and food and beverage labels.”

The notice provisions also passed the court’s scrutiny, despite the fact that the company declined to include information about the settlement on its website.

The “extensive, arms-length negotiations before a sophisticated neutral” is “likely to produce a settlement that fairly addresses the strength of plaintiffs’ case, the risks and expense of continued litigation, and the risks associated with maintaining class action status throughout a trial,” Judge Kronstadt wrote. “In addition, the proposed settlement of $9 million, plus the injunctive relief valued at $1.4 million, is within the reasonable range of recovery for this case.”

To read the order in Pappas v. Naked Juice Co., click here.

Why it matters: The $9 million settlement in yet another consumer class action alleging the false use of the phrase “All Natural” doesn’t break any records. But it does indicate that consumers will challenge such claims and that companies will be forced to defend themselves to the tune of millions of dollars.

No CDA Immunity for Web Site Operator, Court Rules

In an unusual ruling, a Kentucky federal court judge held that a Web site operator could be liable for defamation under the Communications Decency Act for comments posted about a former schoolteacher’s promiscuity.

Kentucky resident Sarah Jones, who taught high school and was a cheerleader for the Cincinnati Bengals, sued and its founder, Hooman Karamian (also known as Nik Richie) over two allegedly defamatory posts and related comments. In October 2009, a picture of Jones was posted with a former Bengals kicker accompanied by a caption stating that she had sex with every member of the football team. Two months later, beneath another picture of Jones, a poster wrote about locations at the school where she and her ex-boyfriend had sex and suggested that she had various STDs. Richie then added his own tagline: “Why are all high school teachers freaks in the sack? – nik.”

Jones filed suit under the CDA. Richie moved to dismiss, arguing that he was immune under Section 230 of the Act. U.S. District Court Judge William O. Bertelsman denied the motion and sent the case to trial. The first jury hung but the second jury found for Jones, awarding $38,000 in compensatory damages and $300,000 in punitive damages.

After the verdict, Judge Bertelsman released a written opinion “to explain further” his reasons for denying the defendant’s motion. Reviewing case law from federal appellate courts across the country, the judge found support in landmark CDA decisions like the 9th U.S. Circuit Court of Appeals’ Fair Housing Council of San Fernando Valley v. and the 7th Circuit’s Chicago Lawyers’ Comm. For Civil Rights Under Law, Inc. v. Craigslist, as well as cases from the 8th and 10th Circuits. Although the panels in each of the cases cited ruled for defendants, finding Section 230 immunity, Judge Bertelsman found language in those cases on which to hang his hat. In Craigslist, for example, the court said that “[n]othing in the service craigslist offers induces anyone to post any particular listing or express a preference for discrimination.”

“Thus, although courts have stated generally that CDA immunity is broad, the weight of the authority teaches that such immunity may be lost,” the court wrote. “That is, a website owner who intentionally encourages illegal or actionable third-party postings to which he adds his own comments ratifying or adopting the posts becomes a ‘creator’ or ‘developer’ of that content and is not entitled to immunity.”

The evidence presented showed Richie did just that, the judge said. Postings like those made about Jones “were invited and encouraged by the defendants by using the name ‘’ for the website and inciting the viewers of the site to form a loose organization dubbed ‘the Dirty Army,’ which was urged to have ‘a war mentality’ against anyone who dared to object to having their character assassinated.”

Richie himself added his own defamatory comments concerning the plaintiff, Judge Bertelsman wrote. “Thus, Richie’s conduct cannot be said to have been ‘neutral with respect to the offensiveness of the content,’ such that he is not ‘responsible’ for it within the meaning of [the CDA],” the court said. While Richie’s post itself did not form the basis for the action, “it effectively ratified and adopted the defamatory third-party post.”

“It is clear, therefore, that Richie did far more than just allow postings by others or engage in editorial or self-regulatory functions,” the court concluded, affirming the jury verdict and damage award. “Rather, he played a significant role in ‘developing’ the offensive content such that he has no immunity under the CDA.”

To read the opinion in Jones v. Dirty World Entertainment, click here.

Why it matters: Although Judge Bertelsman cited to several of the leading CDA §230 decisions, his conclusion makes the case an outlier as very few courts have similarly found that immunity did not apply to a Web site operator under the statute. An opinion filed after a jury verdict addressing a ruling prior to trial is also unusual, as Santa Clara University law professor Eric Goldman noted. “It’s clear that the judge is advocating,” he told MediaPost. “The judge isn’t trying to call balls and strikes. He’s trying to persuade the appeals court that there’s a 230 exception that applies to this case.” Whether or not the appeals court will agree remains to be seen – the defendants have already filed their appeal to the 6th U.S. Circuit Court of Appeals.

Green Day’s Tour Video Constituted Transformative Use of Artist’s Drawing, Says 9th Circuit

The unauthorized use of a drawing as part of the backdrop for a video aired at concerts did not violate the artist’s copyright, the 9th U.S. Circuit Court of Appeals said in a suit brought against rock group Green Day.

Derek Seltzer sued the band after his “Scream Icon” – a drawing depicting a screaming face – was displayed during concerts on the group’s 2009-2010 tour. Seltzer created the drawing in 2003, printed it on posters and stickers, and put them on public spaces in the Los Angeles area. A set designer hired by the band saw the drawing, took a picture, and incorporated it into a video backdrop for the song “East Jesus Nowhere.”

The roughly four-minute video depicted a brick alleyway covered in graffiti. During the song, several days pass as various graffiti artists come and go and add new art and tags to the brick. The center of the frame is dominated by “Scream Icon,” to which the set designer added a large red spray-painted cross in the middle of the face. The contrast and color were also changed and black streaks were added, running down the right side of the face. The song itself addressed religious hypocrisy; the video featured at least three images of Jesus Christ, which were defaced during the course of the song.

Seltzer sued when he learned about the use of his drawing in the video, which played at approximately 70 concerts during the tour as well as during Green Day’s performance at the MTV Video Music Awards.

Evaluating Green Day’s fair use defense, the 9th Circuit analyzed the relevant four factors: “(1) the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for or value of the copyrighted work.”

The first factor – the purpose and character of Green Day’s use – was dispositive, the three-judge panel said, because the band’s use of “Scream Icon” was transformative. “Green Day used the original as ‘raw material’ in the construction of the four-minute video backdrop. It is not simply a quotation or a republication; although ‘Scream Icon’ is prominent, it remains only a component of what is essentially a street-art focused music video about religion and especially about Christianity,” the court said.

While the court found the “message and meaning” of the original “Scream Icon” to be debatable, “it clearly says nothing about religion.” In contrast, the video’s use of the drawing “[w]ith the spray-painted cross, in the context of a song about the hypocrisy of religion, surrounded by religious iconography, [the] video backdrop using ‘Scream Icon’ conveys ‘new information, new aesthetics, new insights and understandings’ that are plainly distinct from those of the original piece,” the panel wrote.

The court added that Green Day’s use of the drawing was “only incidentally commercial” because the band never used it to market the concert, CDs, or merchandise.

As a “creative work,” Seltzer’s drawing was entitled to strong protection under the second factor, the court said, which weighed slightly in his favor. As for the third factor, the drawing itself is not meaningfully divisible and therefore Green Day copied most of “Scream Icon,” both quantitatively and qualitatively. The court said this factor was neutral. Analyzing the fourth and final factor, the panel determined that the potential market for or value of “Scream Icon” was unchanged, and the band’s use did not perform the same market function as the drawing. This factor also weighed in favor of Green Day.

“The purpose and character of the use was transformative and not overly commercial,” the court concluded, finding Green Day’s use to be fair and affirming summary judgment for the band.

The panel did reverse a federal court’s award of $201,012.50 for Green Day, however. Unlike the federal district court, which found Seltzer’s claim “objectively unreasonable,” the 9th Circuit said it “was a close, difficult case.”

“We concluded that Seltzer’s work was transformed by Green Day’s use. But that transformation was far from obvious given Green Day’s only slight alterations to the original,” the court wrote.

To read the decision in Seltzer v. Green Day, click here.

Why it matters: The 9th Circuit noted that the law in the area of “transformative use” is splintered, but said that its conclusion about the use of “Scream Icon” was generally in line with other federal appellate authority, including a recent decision from the 2nd Circuit. The general principle: the allegedly infringing work must contain a new expressive message or content, the panel emphasized.

Most Read Stories

In case you missed any, here are our top 10 most widely read stories in July:

1. “NAD Washes Away Dove’s Ad Claims

2. “ ‘Natural’ False Ad Settlements for $9 Million, $3.2 Million

3. “From Attempted Hero to Plaintiff

4. “Kraft Cheese Wins Injunction Against Cracker Barrel Meat

5. “Orange Juice Suit Squeezes Its Way Forward

6. “Show Me the Substantiation, Says the NAD

7. “California AG Reports on Data Breaches

8. “Have COPPA Changes Resulted in Less Content, Higher Costs?

9. “Donna Wilson Joins Manatt’s National Litigation Practice

10. “Connecticut First to Enact GMO Labeling Law"

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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