Advertising Law - August 22, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Diaper Rash Settlement Rubs 6th Circuit the Wrong Way

Characterizing a settlement agreement between Procter & Gamble and a class of parents alleging Pampers Dry Max diapers caused severe diaper rash as “nothing but nearly worthless injunctive relief,” the U.S. Court of Appeals for the Sixth Circuit threw out the deal.

Pampers released the new Dry Max diapers in March 2010 with its “Dry Max technology.” Two months later the Consumer Product Safety Commission began investigating the diapers after parents complained the diapers tended to cause a severe diaper rash. A dozen consumer class actions followed.

However, the Commission completed its study in August 2010 and concluded – based on a review of 4,700 incident reports – that no connection existed between the incidents of diaper rash and the Dry Max product. Procter & Gamble moved to dismiss the suits and the parties began to negotiate a settlement.

Before the class filed a response to the dismissal motion and before any formal discovery occurred, the parties reached a deal. According to the terms, the class would be certified pursuant to Federal Rule of Civil Procedure 23(b)(2), under which absent class members could not opt out of the deal. The settlement entitled class members to a refund of one box per household over a 38-month period if they presented the original receipt and UPC code from a Pampers box. Procter & Gamble also agreed to add a single sentence to its box labels for a two-year period suggesting that consumers “consult or call 1-800-Pampers” for “more information on common diapers questions.” Over the same two-year period, the company also said it would add information about diaper rash to its Web site, like a recommendation to “See your child’s doctor if severe symptoms like ‘pus or weeping discharge’ develop.”

In addition, named plaintiffs would receive incentive awards of $1,000 per affected child and Procter & Gamble would make a total of $400,000 in donations. Most significantly, class counsel was set to receive $2.73 million. Over the objections of multiple class members, a federal court approved the settlement.

In a stinging rebuke to the parties and the court below, the 6th Circuit reversed.

“On the one hand, the settlement agreement awards class counsel a fee of $2.73 million – this, in a case where counsel did not take a single deposition, serve a single request for written discovery, or even file a response to P&G’s motion to dismiss,” the court wrote. “On the other hand, the agreement provides unnamed class members a medley of injunctive relief.”

The value of that medley was questionable at best, the court determined. The labeling and Web site changes “amount to little more than an advertisement for Pampers,” the three-judge panel said. The information on offers only “negligible” value, and “we would denigrate the intelligence of ordinary consumers (and thus unnamed class members) if we concluded that – absent this suggestion from P&G – they would have little idea to ‘see [their] child’s doctor’ if their child’s rash was accompanied by a fever or boils or ‘pus or weeping discharge.’ And we would denigrate their intelligence still further if we concluded that the value of this suggestion was so great to ordinary consumers as to be commensurate with a fee award of $2.73 million.”

Simply because Procter & Gamble wasn’t thrilled about including language about diaper rash on its boxes did not make the statement more valuable, the panel noted.

The deal is “premised upon a fictive world, where harried parents of young children clip and retain Pampers UPC codes for years on end, [and] where parents lack the sense (absent intervention by P&G) to call a doctor when their infant displays symptoms like boils and weeping discharge, where those same parents care as acutely as P&G does about every square centimeter of a Pampers box, and where parents regard, rather than Google, as their portal for important information about their children’s health. The relief that this settlement provides to unnamed class members is illusory. But one fact about this settlement is concrete and indisputable: $2.73 million is $2.73 million,” the court said.

Concluding that the deal gave preferential treatment to class counsel while only perfunctory relief to unnamed class members, the court vacated approval of the settlement.

A dissenting judge argued the court applied the incorrect standard for approval of a class action settlement, adding that although “the relief offered to the unnamed class members may not be worth much, their claims appear to be worth even less,” given the results of the investigation by the Commission. “In the absence of this settlement, class members would almost certainly have gotten nothing. . . . Thus the concern that plaintiffs’ counsel ‘bargained away’ some valuable ‘interest’ is misplaced.”

To read the decision in In re: Dry Max Pampers Litigation, click here.

Why it matters: The case illustrates why class action settlements require judicial approval, the 6th Circuit said. Because such deals affect not only the interests of the parties and counsel but the interests of unnamed class members as well, “there is always the danger that the parties and counsel will bargain away the interests of unnamed class members in order to maximize their own.” The panel cited the recent 9th Circuit decision in Dennis v. Kellogg, in which the court similarly set aside a $10.6 million settlement in a consumer class action alleging Kellogg made false claims that its Frosted Mini-Wheats cereal could improve cognitive development. That decision focused on the “excessive” attorneys’ fees as well as a questionable $5.5 million cy pres payment. Lawyers should be prepared for close scrutiny of class action settlement deals, particularly those with sizable class counsel fees and limited recovery for the class.

NAD: “World’s Best” Claims Constitute Puffery

Broadcast advertising that claims that Tropicana Farmstand is the “world’s best fruit and vegetable juice” is puffery, the National Advertising Division determined in a challenge brought by Campbell Soup Co., the maker of competitive fruit and vegetable juice V8 V-Fusion.

Campbell challenged express claims in the television ad that “Tropicana Farmstand is the world’s best fruit and vegetable juice” and “If you want the world’s best fruit and vegetable juice, look in the cooler. Introducing Tropicana Farmstand, a deliciously chilled fruit and vegetable juice.” As the voiceover instructs viewers to look in the cooler, shelves of non-refrigerated juice products crash to the floor.

The commercial conveyed a false superiority message linked to the message of refrigeration, Campbell argued. Taken together with the crashing shelves of competitive products, the ad communicates that all other fruit and vegetable juice products are inferior.

In support of its case, Campbell commissioned a consumer perception study, where a nationwide sample of 368 consumers responded to open-ended questions about the commercial to determine their takeaways. The survey found that 51.9 percent of respondents took away a superiority message.

But the ad constitutes classic puffery, Tropicana Products responded. The statement “world’s best fruit and vegetable juice” is nothing more than an advertiser’s pride in a new product and was a “vague, general expression of opinion” for which consumers would not expect substantiation. Nothing in the commercial is expressly comparative, Tropicana added, and the suggestion to “look in the cooler” was simply a message intended to show consumers where to find the product.

As for the consumer perception study, Tropicana said it was fatally flawed because it lacked a control.

Noting that claims for “world’s best” may constitute puffery depending on the context of the advertisement, the NAD considered whether the use of the superlative was “vague and fanciful” or if it used adjectives accompanied by specific attributes suggesting the product was better in a recognizable or measurable way.

The self-regulatory body found Campbell’s consumer perception survey to contain “several significant flaws,” of which one was the lack of a control. Although the survey reported more than half of respondents took away a superiority message, the NAD noted that a relatively low percentage of respondents reported specific messages of superiority, with just 13 percent indicating a message of superior freshness for Tropicana Farmstand and only 6.8 percent specifying a message of taste superiority.

Rejecting Campbell’s reliance upon the survey results, the NAD then stepped into the shoes of the consumer and sided with Tropicana.

“Other than the fact that Tropicana Farmstand is refrigerated, the commercial makes no reference to any other product attribute,” the NAD wrote. The depiction of other juice products crashing to the floor is “fanciful,” according to the decision, distinguishing commercials where a competitive product is “thrown away by someone or otherwise denigrated.”

“NAD found that the challenged commercial was puffery and did not communicate a specific message of superiority,” the self-regulatory body concluded.

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

Why it matters: The NAD’s decision provides a quick recap for advertisers on what constitutes puffery. When evaluating claims that a product is the “best,” the self-regulatory body will evaluate the context of the advertisement. “If the use of the superlative is vague and fanciful and suggests no objective measure of superiority, then the claim is likely to be puffery,” the decision explained. “If, on the other hand, adjectives such as ‘best’ and ‘greatest’ are accompanied by specific attributes which are likely to suggest that the product is comparatively ‘better’ in some recognizable or measurable way, the defense of ‘puffery’ is unlikely to prevail.”

FDA Releases “Gluten-Free” Guidelines

In what the agency characterized as an attempt to protect the health of Americans with celiac disease, the Food and Drug Administration released a standard definition of products labeled “gluten-free.”

The new guidance also covers labels like “no gluten,” “free of gluten,” and “without gluten.” To be labeled as such, “a product must either be inherently gluten-free or not contain an ingredient that is: 1) a gluten-containing grain (e.g., spelt wheat); 2) derived from a gluten-containing grain that has not been processed to remove gluten (e.g., wheat flour); or 3) derived from a gluten-containing grain that has been processed to remove gluten (e.g., wheat starch), if the use of that ingredient results in the presence of 20 parts per million (ppm) or more gluten in the food. Also, any unavoidable presence of gluten in the food must be less than 20 ppm.”

“Establishing in this final rule a regulatory definition of the food labeling term ‘gluten-free’ and uniform conditions for its use in the labeling of foods is necessary to ensure that individuals with celiac disease are not misled and are provided with truthful and accurate information with respect to foods so labeled,” according to the final rule. “A food that bears the claim ‘no gluten,’ ‘free of gluten,’ or ‘without gluten’ in its labeling and fails to meet the requirements for a ‘gluten-free’ claim will be deemed to be misbranded.”

“Gluten” refers to naturally occurring proteins in wheat, rye, barley, and crossbred hybrids of these grains, the FDA explained. For the approximately 3 million Americans with celiac disease, such products trigger the production of antibodies that damage the lining of the small intestine and lead to other serious health problems like intestinal cancers, infertility, and nutritional deficiencies.

“Adherence to a gluten-free diet is the key to treating celiac disease, which can be very disruptive to everyday life,” FDA Commissioner Margaret A. Hamburg, M.D., said in a statement. “The FDA’s new ‘gluten-free’ definition will help people with this condition make food choices with confidence and allow them to better manage their health.”

The final rule comes six years after the agency first published its proposed rule in January 2007. Although the new rule takes effect in September, companies have one year to comply with the deadline of Aug. 5, 2014. The rule covers all products voluntarily labeled “gluten-free” and applies to all FDA-regulated foods, including dietary supplements. The rule also applies to restaurants and other retail food-service establishments.

To read the FDA’s new rule on gluten-free labeling, click here.

Why it matters: Although the FDA’s rule does not specifically require testing to ensure the accuracy of a “gluten-free” label, the agency noted that “manufacturers are responsible for ensuring that foods bearing a gluten-free claim meet the requirements of the final rule.” To achieve compliance, the agency suggested that manufacturers use quality-control tools like employing a third-party laboratory to conduct in-house gluten testing or requesting certificates of gluten analysis from ingredient suppliers. The FDA also reminded companies that it plans to “use the full range of its routine post-market monitoring activities to enforce the final rule,” including “periodic inspections of food manufacturing facilities, food label reviews, follow-up on consumer and industry complaints reported to the agency, and when needed, gluten analyses of food samples.”

From Across the Pond: U.K. Deals with Alcohol Ads, “Passing Off”

Advertising issues arose in the United Kingdom recently when the country’s advertising regulator criticized a network television channel for airing alcoholic beverage ads during youth-directed programming, and a retailer lost a suit brought by Rihanna over the sale of a T-shirt featuring her image.

The Advertising Standards Authority released four decisions addressing ads that ran during the airing of U.S. sitcoms How I Met Your Mother and The Big Bang Theory, as well as the movies Aquamarine and X-Men. The U.K. Code of Broadcast Advertising prohibits the airing of alcoholic ads “shown in or around programmes commissioned for, principally targeted at or likely to appeal particularly to audiences below the age of 18 years.”

Audience indexing should be used as a statistical tool to determine the representation of viewer age, the ASA noted. When the numbers were applied to The Big Bang Theory, the regulator found that the audience index demonstrated that a percentage of viewers under 18 watching during the 8 p.m. hour were over the set limits. The network said its policy was to review the index on a quarterly basis, but it had not noticed an increase in younger viewers because the review had not been conducted.

A quarterly review period was insufficient to comply with the Code, according to the decision, as it “could result in a situation where a programme consistently exceeded the [age] index for three months before action was taken, which should not be possible in a compliant forecasting process.”

The ASA similarly concluded that a breach of the Code occurred in decisions about How I Met Your Mother and Aquamarine and recommended that more frequent review of the audience index was required to achieve compliance.

However, the regulatory body found that alcohol ads aired during showings of X-Men and X-Men: The Last Stand did not violate the Code. Neither movie was “commissioned for or principally directed at audiences below the age of 18 years,” the ASA wrote.

In other British news, a judge ruled against retailer Topshop in a suit brought by Rihanna alleging the company used her image without her permission.

The store sold T-shirts in March 2012 bearing a picture taken of the pop star during the shooting of a music video. Topshop purchased a license for the image from the photographer but did not get permission from Rihanna. She filed suit, claiming that the use of the image constituted “passing off” under U.K. law. To set out a claim for passing off, a celebrity must establish that she has a goodwill and reputation among relevant members of the public, the conduct complained of must be shown to make a misrepresentation or is likely to deceive those members of the public into buying the product because they think it is authorized by her, and the misrepresentation must cause damage to her goodwill.

Judge Colin Birss of the High Court found that Rihanna had set forth a claim against Topshop. While he said it “is certainly not the law that the presence of an image of a well-known person on a product like a T-shirt can be assumed to make a representation that the product has been authorised,” he found that under the circumstances purchasers of the Topshop shirt could have been deceived.

Rihanna has built up “ample goodwill” with the public, particularly young females aged between 13 and 30, and Topshop makes an effort to connect its company with celebrities (for example, sending a tweet when Rihanna once shopped at a store). “The public links between Topshop and famous stars in general, and more importantly the links to Rihanna in particular, will enhance the likelihood in the purchaser’s mind that this garment has been authorised by her,” Judge Birss wrote.

Rihanna fans in particular “will be induced to think [the T-shirt] is a garment authorised by the artist,” the Court said. “The idea that it is authorised will be part of what motivates them to buy the product. I am quite satisfied that many fans of Rihanna regard her endorsements as important. She is their style icon,” Judge Birss concluded. “Many will buy a product because they think she has approved of it. Others will wish to buy it because of the value of the perceived authorisation itself. In both cases they will have been deceived.”

Judge Birss determined that Rihanna did suffer damage but did not assign a dollar value.

To read the ASA’s four decisions involving Channel 4, click here.

To read the decision in Fenty v. Arcadia, click here.

Why it matters: Judge Birss noted that the U.K. does not recognize a right of publicity. “Whatever may be the position elsewhere in the world, and however much various celebrities may wish there were, there is today in England no such thing as a freestanding general right by a famous person (or anyone else) to control the reproduction of their image,” he wrote. However, Rihanna was able to make a successful claim of “passing off” by establishing all three elements of the theory. Judge Birss determined that Topshop deceived consumers and caused injury to her goodwill. How damages will be calculated remains to be seen.

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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