Advertising Law - August 2014

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • FTC Sues “Yellow Pages” Scammers
  • Google Can’t Dodge Class Action Over Kids’ In-App Purchases
  • Made in the USA . . . Maybe?
  • NAD: Drop the Fruit and Vegetable Claims for Powdered Form
  • Noted and Quoted . . . Law360 Turns to Wasserman and Sutton for Insight on Regulatory Enforcement of Genomic Marketing Claims

FTC Sues “Yellow Pages” Scammers

In three new complaints filed in Florida and Washington federal courts, the Federal Trade Commission requested a halt to the operations of Canada-based telemarketers that scammed small businesses for unwanted “Yellow Pages” directory listings.

Churches, nonprofits, local government agencies, and small businesses were the targets of National Business Advertising, Your Yellow Pages,, and related individual defendants, the FTC said. The scam – which the agency claimed earned the defendants millions of dollars – operated by sending targets deceptive invoices for unordered business directory listings.

Some recipients simply paid the bill. According to the agency, those that challenged or disputed the invoices (which ranged from $200 to $1,800) were subject to a variety of harassing collection tactics in which the defendants acted as debt collection companies or played recordings that claimed to prove that the business actually authorized the listing. According to the FTC, the recordings sounded as if they were either doctored or simply reflected that an employee confirmed the contact information for the business and did not agree to any services. And in some cases, the directory listing did not even exist.

The FTC alleged that the defendants ran afoul of the FTC Act by making three different misrepresentations: (i) the existence of a preexisting business relationship with the target companies; (ii) that the businesses had agreed to buy directory listings; and (iii) that the companies owed them money.

In two of the suits, federal judges in Florida entered temporary orders halting the operations of National Business Advertising and Your Yellow Pages and freezing their assets. fared slightly better in the Washington federal court, where it avoided the asset freeze but was ordered to stop conducting business.

All the complaints seek permanent injunctions against the defendants as well as consumer redress and civil penalties.

To read the FTC complaints against the defendants, click here.

Why it matters: While telephone directory listings certainly don’t have the following that they used to, directories remain popular with scammers. In addition to the three new cases, the agency filed a similar suit last year against Online Public Yellow Pages. A federal judge in that case banned the Canadian defendants from the directory business and entered a $15.6 million default judgment. Pursuing small business scams is a priority for the FTC, even when defendants are across international borders.

Google Can’t Dodge Class Action Over Kids’ In-App Purchases

A federal court judge in California denied Google’s motion to dismiss a suit brought by a parent who alleged that the company engaged in deceptive advertising by marketing apps as “free” in Google Play and then inducing minors to purchase in-app content, such as virtual supplies, cash, and other content designed to be used in the app itself.

Ilana Imber-Gluck alleged that her minor sons made $65.95 worth of purchases in the “Run Jump Smash” app she downloaded from Google. After a download, Google did not require that customers reenter their passwords to make additional purchases during a 30-minute window. That policy was not adequately disclosed to parents, the plaintiff’s putative class action complaint said, and left parents on the hook for charges they did not approve.

U.S. District Court Judge Ronald M. Whyte tossed several of the plaintiff’s claims, including claims brought under California’s Consumer Legal Remedies Act and Unfair Competition Law, with leave to amend. However, the court found that Imber-Gluck sufficiently alleged that Google engaged in unfair, deceptive, or misleading advertising in violation of California’s Unfair Competition Law.

Claims based on unjust enrichment and a breach of Google’s duty of good faith and fair dealing also survived. “[P]laintiff has alleged that Google encouraged children to make In-App Purchases, without providing notice to the parent or guardian of the 30-minute window in which the account holder’s password is not required to make subsequent purchases,” Judge Whyte wrote. “Such acts may frustrate the common purpose of the [terms of service] agreement by forcing parents to pay for purchases that Google induced parents’ minor children to make.”

To read the order in Imber-Gluck v. Google, click here

Why it matters: In-app purchases by children in games marketed as free have made headlines recently. In February, the FTC settled a similar suit with Apple for $32.5 million based on a similar policy that allowed in-app purchases without the need to reenter a password. The agency followed up that action with a recent suit against Amazon, in which it charged the company with violations of the FTC Act and requested an order that Amazon reimburse parents for charges made by their children.

Made in the USA . . . Maybe?

Made in the USA Brand, LLC (Made in the USA) deceived consumers by allowing any company that applied to use its “Made in USA” certification seal without independently verifying that products were actually made in the United States or disclosing that the companies certified themselves, the FTC charged in an administrative complaint.

When a company filed an application to use the “Made in USA” certification mark, Made in the USA accepted between $250 and $2,000 for a one-year license and included the applicant in a database of “certified” companies. But Made in the USA did not conduct any independent verification of the origin of the products and did not even have procedures in place to make such a determination, the FTC said. Made in the USA also never terminated a company’s use of the seal. Nor did Made in the USA disclose to consumers that some companies engaged in self-certification.

The FTC noted that products labeled or advertised as “Made in the USA” must be “all or virtually all” made in the United States pursuant to the agency’s Enforcement Policy Statement on U.S. Origin Claims.

The FTC alleged that defendants violated Section 5 of the FTC Act by falsely advertising that it independently and objectively evaluated whether products bearing the mark met its accreditation standard and by providing companies using the seal with the means to deceive consumers with additional false claims by listing the companies as “certified marketers” in its database.

Pursuant to the terms of a proposed settlement, Made in the USA must stop claiming that products or companies meet its certification standard unless it discloses that seal users are self-certified or it conducts “an independent and objective evaluation” that the claim is true and supported by competent and reliable evidence.

To read the complaint and proposed consent order in In the Matter of Made in the USA Brand, LLC, click here.

Why it matters: This complaint highlights the fact that false and deceptive claims can arise in various contexts – not only in express claims by advertisers, but also by the display of seals or certifications. “Seals can be very helpful when consumers purchase products based on claims that are difficult to verify – like the Made-in-the-USA claim,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement. “When marketers provide seals without any verification, or without telling consumers the seal is unverified, consumers are deceived and the value of all marketers’ seals is diminished. This case makes it clear that the FTC will not let that happen.” The FTC has pursued similar claims against companies making deceptive use of “green” or eco-friendly certifications.

NAD: Drop the Fruit and Vegetable Claims for Powdered Form

Claims that vitamin products are made with “26 fruits and vegetables” should be discontinued because the products contained only the powdered form and not whole fruits and vegetables, the National Advertising Division, the investigative unit of the advertising industry’s system of self-regulation, recommended.

Several claims for Nature’s Way Brands, LLC’s “Alive!” vitamin products were challenged by competitor Bayer HealthCare LLC, a manufacturer of a competing line of multivitamins. Although some of the claims withstood the self-regulatory body’s scrutiny (such as “Superior Potency – 100%+ daily value of 20 vitamins/minerals”), others did not fare as well.

The “26 fruits and vegetables” claim, which appeared in print and television ads accompanied by visual images of whole fruits and vegetables, was most troubling for the NAD. The overall net impression “reasonably conveys the message that Alive! multivitamins are made with whole fruits and vegetables and/or that the vitamins and minerals contained in Alive! are sourced from real fruits and vegetables rather than synthetic sources,” according to the decision. In fact, the multivitamins contain 50 mg powered juice from 14 different fruits and 50 mg powdered juice from 12 different vegetables. The NAD noted that it is undisputed that these blends are not the equivalent of eating whole fruits and vegetables.

Consumers typically purchase multivitamins to improve or sustain their health, the NAD noted, and could “reasonably believe that the added fruits and vegetables (or naturally sourced vitamins and minerals) provide a health benefit above and beyond the traditional vitamins and minerals that comprise most multivitamins.”

The NAD recommended that the advertiser modify the claims to avoid the unsupported claim that the multivitamins are sourced from fruits and vegetables. Alternatively, if the visual depictions of fruits and vegetables remain on the packaging, the NAD recommended that a clear and conspicuous disclaimer be used to indicate that the product is not made with whole fruits and vegetables.

The NAD also objected to assertions that Alive! could boost energy because of the inclusion of Vitamin B (by claiming that “Alive! is nutrition you can feel!” and “high potency B-vitamins for energy”). Concerned that consumers could take away the message that the multivitamins provide “a literally palpable energy boost” akin to a caffeine stimulant, the decision said even the use of humor and whimsy couldn’t save the Nature’s Way television ads, where campy music played while actors hyperactively sang and danced. “While consumers probably wouldn’t expect themselves to burst into song, they could reasonably assume that they would receive a boost akin to the type of energy depicted in the commercial,” the NAD wrote.

In addition to finding that the advertiser had a reasonable basis to support its “Superior Potency” claim, the NAD found the claims “nothing beats feeling Alive!” and “there’s nothing like feeling Alive!” were mere puffery and therefore required no substantiation.

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

Why it matters: Health claims continue to be subject to strict scrutiny both at the NAD as well as the FTC. This decision reinforces that health claims could be implied from the overall context of the ad. Nature’s Way’s use of visual imagery in conjunction with the “26 fruits and vegetables” claim serves as a reminder that advertisers should consider the express words and visual images as a whole when deciding whether any express or implied claims are substantiated.

Noted and Quoted . . . Law360 Turns to Wasserman and Sutton for Insight on Regulatory Enforcement of Genomic Marketing Claims

On July 22, 2014, Law360 published an article coauthored by Manatt attorneys Ivan Wasserman and La Toya Sutton titled “The Promise and Problem of Genomic Marketing.” The article focuses on three case studies from the cosmetics, dietary supplements and medical device industries that illustrate high levels of scrutiny by the FDA and FTC over advertising claims involving genomics.

In the article, Wasserman and Sutton note: “Companies that are interested in occupying this space should be prepared with the appropriate level of evidence and consider more than once whether their claims will be able to withstand the dual oversight of the FDA and FTC.”

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.

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