Advertising Law -- Feb 21, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Neutrogena Escapes Class Certification

Neutrogena recently avoided certification of a nationwide class who charged that the company falsely claimed that its products could turn back the clock on aging.

Mara Chow alleged that she was part of a class of consumers who were duped into purchasing Neutrogena’s wrinkle cream, which the company said was “clinically proven” to make a user look younger. But the court said the class action device was inappropriate in the suit because the plaintiff failed to meet the threshold requirements of commonality, typicality, and adequacy.

“Individual issues predominate over common questions of law and fact,” U.S. District Court Judge Manuel L. Real determined.

The court said that Chow had to demonstrate that “each class member was exposed to the advertisements, and that as to each class member, the advertisements were false or misleading—that is, that each class member suffered the same injury.”

“In this case, there are significant individualized questions as to whether the product worked as advertised for each individual class member,” Judge Real wrote. “Resolving this question would necessitate consulting each class member individually to determine if they experienced the advertised result. Because those class members for whom the product worked as advertised would not have suffered the same injury as [the plaintiff], the class cannot be sustained without resorting to individualized inquiries into the merits of each class member’s claims.”

Further, a “significant portion” of consumers who purchased the product were repeat purchasers. Therefore, the court refused to rely upon an inference of classwide reliance.
“Plaintiff has not provided significant proof to distinguish between mere favorability toward products bearing the Neutrogena brand name, for example, and reliance upon specific advertised benefits of the products in this case,” the judge held. Chow also failed to distinguish between repeat purchasers who actually received benefits from the product and those repeat purchasers who were repeatedly deceived, Judge Real added.

To read the order in Chow v. Neutrogena Corp., click here.

Why it matters: In recognizing the significant hurdles to certifying a class in the Neutrogena suit, Judge Real determined that individualized assessments were necessary to establish who relied on the allegedly false advertisements and, if so, whether they suffered the same injury. 

It's Not "Hip" to Steal Contact Info

A class action has been filed against the popular Hipster app, raising the same allegations as a recent Federal Trade Commission action against mobile app maker Path for importing the address books of users.

The Hipster app allows users to create postcards from pictures taken on mobile phones and gives users the option to share their cards with friends via address books or contact lists on the mobile device.

According to the complaint, the free app collected information from users’ address books and shared the data without their consent or notice. Such data included “highly sensitive information such as passwords and geolocations” and was sent unencrypted over publicly accessible channels. Contact information included data for “professional treatment involving sexuality, mental illness, alcoholism, incest, rape and domestic violence” as well as the personal contact information of minors under the age of 13, contends named plaintiff Francisco Espitia. Accordingly, the “defendant acquired contact address book data and compiled profiles that were unnecessary to the Apps’ stated functions but were useful to the defendant in their commercial compilation, use, and sale of consumers’ personal information.”

Espitia alleged that Hipster violated the Electronic Communications Privacy Act, the Stored Communications Act, and the California Computer Crime Law, and also invaded his privacy. Plaintiff seeks restitution as well as compensatory, statutory, and punitive damages. The suit also requests an order that Hipster delete all of the information it illegally downloaded dating back to January 2011 when the app was first released.

In an attempt to establish an actual injury (a hurdle that often derails privacy class actions), Espitia argues that Hipster’s data collection drained the battery life and bandwidth of his mobile phone, for which he seeks compensation. In addition, class members should receive payment for the costs of removing the app’s embedded code and a complete forensic examination of their mobile devices, which the suit estimates will cost more than $2,450 per device.

To read the complaint in Espitia v. Hipster Inc., click here.

Why it matters: Although the suit was filed prior to the FTC’s press conference announcing its enforcement action against social networking app Path, the allegations in the complaint are nearly identical to those made by the agency. Perhaps the three-part settlement terms wherein Path agreed to (1) pay an $800,000 fine for alleged violations of the Children’s Online Privacy Protection Act; (2) delete the children’s information; and (3) establish a comprehensive privacy policy—will influence the outcome of the Hipster suit.

Leibowitz Leaves the FTC—Who Will Take His Place?

Federal Trade Commission Chairman Jon Leibowitz officially announced his departure from the agency effective February 15 after almost four years in office.

In a statement released by the agency, Leibowitz described his priorities as “protecting consumer privacy, stopping financial scammers, and promoting competition in health care and high-tech markets.”

During his tenure, the FTC issued a highly publicized report on privacy and updated the Children’s Online Privacy Protection Rule. The agency also reached settlements with major online businesses, including Google and Facebook, that required the companies to establish comprehensive privacy programs.

Leibowitz spearheaded more than 50 enforcement actions to protect consumers in financial distress, that included debt reduction and credit repair scams or mortgage modification schemes. His efforts in the antitrust arena focused on “pay-for-delay” cases and health care mergers.

Leibowitz joined the agency on September 3, 2004, after serving as the Vice President for Congressional Affairs for the Motion Picture Association of America from 2000 to 2004. Prior to his private sector work, Leibowitz engaged in a career of public service that included work for the U.S. Senate Antitrust Subcommittee and the Senate Subcommittee on Terrorism and Technology, as well as advising lawmakers such as Senator Herb Kohl (D-Wisc.) and Senator Paul Simon (D-Ill.). He ascended to the position of FTC Chairman in March 2009.

At a recent press conference announcing a staff report and enforcement action in the mobile ecosystem, Leibowitz spoke about how much he enjoyed his tenure at the “small but mighty” agency and said he does not know what his next step will be.

“I loved my more than eight years at this wonderful agency,” he said, adding that the job was “exhilarating, but exhausting.” “I’d like to think that [the agency’s work during my tenure] made America, in a small way, a better place to live.”

Speculation about a potential replacement for Leibowitz has named current commissioners Julie Brill and Edith Ramirez as front-runners. Other names suggested by The New York Times include Philip Weiser, Dean of the University of Colorado Law School, and Howard Shelanski, Director of the FTC’s Bureau of Economics.

Why it matters: Chairman Leibowitz leaves a solid legacy, particularly in the areas of consumer privacy and “pay-for-delay” deals in the drug industry. His departure will usher in a new chapter for the agency but it remains to be seen what areas will receive attention under the leadership of a new chairperson.

A Court Ruling Wouldn't Be Kosher

The First Amendment bars the court from adjudicating a suit in which plaintiff alleged that ConAgra Foods Inc. falsely advertised its Hebrew National products as "100% Kosher," a Minnesota federal court judge held.

In dismissing the suit with prejudice, U.S. District Court Judge Donovan W. Frank concluded that, “While the court finds the allegations in the complaint highly disconcerting, the court lacks the subject matter jurisdiction required in order for it to adjudicate plaintiffs’ claims on the merits.”

The suit alleged that ConAgra “failed to consistently inspect, slaughter, clean and segregate the animals and meat used” in Hebrew National products. Named plaintiff Melvin Wallace claimed the company established a system of quotas that determined which meat and how much of it would be certified as kosher, in direct opposition to religious doctrine and ideological standards of Orthodox Judaism.

ConAgra moved to dismiss the suit, citing the Establishment Clause and other First Amendment religious protections.

The plaintiff attempted to overcome the constitutional concerns by arguing that “objective” standards for kosher meat exist, but the court disagreed.

The U.S. Supreme Court “has firmly established the principle that civil courts may not be called upon to interpret doctrinal matters or tenets of faith,” the court said. “Adjudication of plaintiffs’ claims in this case would clearly require a review of doctrinal and religious matters.”

“The laws of Kashrut. . . and the determination of whether a product is in fact ‘kosher,’ are intrinsically religious in nature. Any judicial inquiry as to whether [ConAgra] misrepresented that its Hebrew National products are ‘100% Kosher’ (when Triangle K, an undisputedly religious authority, certified them as such) would necessarily intrude about rabbinical religious autonomy,” Judge Frank said. “‘An examination of the gradations in the rules’ of Kashrut or the ‘severity with which the rabbis enforced those rules is precisely the type of religious-based claim the court is forbidden from entertaining.’”

To read the court’s order in Wallace v. ConAgra Foods, click here.

Why it matters: Although the court noted that Wallace did not claim to keep kosher (instead claiming that he was harmed financially by paying a “premium price” for the kosher products), Judge Frank expressed concern about dismissing the suit. “Regrettably, however, the court recognizes that its decision likely leaves consumers without a remedy—save opting not to purchase or ingest defendant’s Hebrew National products, or other products certified by Triangle K—should the allegations in the complaint prove true. Nevertheless, whether such products are indeed ‘100% Kosher’ is a religious question that is not the proper subject of inquiry by this court.”

California Supreme Court: Some Online Retailers Can Request Personal Information

In a significant ruling addressing the application of the state's Song-Beverly Credit Card Act to online transactions, a divided California Supreme Court held that Apple could require customers to provide "personally identifiable information" to complete Internet credit card transactions.

Section 1747.08 of the Act generally prohibits retailers from requesting a credit card customer’s personal identification information when such information is recorded on a credit card transaction form.

David Krescent objected to Apple’s requirement that he provide his telephone number and address for an iTunes purchase and filed suit. A trial court overruled Apple’s demurrer and an appellate court denied a motion to review.

In a 4-3 decision, the state’s highest court reversed and found that the Act does not prohibit an online retailer from requesting or requiring personal identification information from a customer as a condition to accepting a credit card as payment for an electronically downloadable product.

“Because we cannot make a square peg fit a round hole, we must conclude that online transactions involving electronically downloadable products fall outside the coverage of the statute,” Judge Goodwin Liu wrote for the majority.

After examining the text, purpose, and history of the statute, the court said the Legislature intended not just to protect consumer privacy but also to limit the risk of fraud by allowing retailers to request additional information to verify a cardholder’s identity.

“Unlike a brick-and-mortar retailer, an online retailer cannot visually inspect the credit card, the signature on the back of the card, or the customer’s photo identification,” Judge Liu wrote.

The narrow statutory exception that permits gas stations to request zip code verification strengthened the court’s finding that the law does not apply to online retailers. “It seems counterintuitive to posit that the legislature created a fraud prevention exemption only for pay-at-the-pump retailers while leaving online retailers unprotected, when online retailers—a multibillion-dollar industry by the year 2011—have at least as much if not more need for an exemption to protect themselves and consumers from fraud.”

Two separate dissents criticized the decision as “a major loss for consumers, who in their online activities already face an ever-increasing encroachment upon their privacy” and “contrary to the terms, purpose, and legislative history” of the Song-Beverly Act.

Both dissents noted a shift from the court’s 2011 decision in Pineda v. Williams-Sonoma, where the court emphasized the “protective purpose” of the Act when it held that retailers may not collect zip codes from consumers who use their credit cards to make a purchase.

To read the decision in Apple, Inc. v. Superior Court of Los Angeles, click here.

Why it matters: The Apple decision is a clear victory for retailers of electronically downloadable products, although the application of the Song-Beverly Act to certain types of retailers remains unclear. The court explicitly declined to address whether the law governed online transactions that do not involve electronically downloadable products or those sold via mail-order or telephone-order transactions. And the California Supreme Court invited the State Legislature to revisit the issue of consumer privacy and fraud prevention in online credit card transactions. “The legislature may believe these measures are inadequate and, if so, may enact additional protections,” Judge Liu wrote. “Or the legislature may believe that existing laws, together with market forces reflecting consumer preferences, are sufficient. It is not our role to opine on this important policy issue.”

Noted and Quoted…Marc Roth Sheds Light on Expected Legal and Regulatory Trends Facing Marketers in 2013

On February 15, 2013, Mobile Marketer published an article authored by Manatt partner Marc Roth that summarizes the most significant advertising and marketing law trends and cases of 2012 and offers his predictions for issues to watch in 2013.  Among the hot topics of the past year were privacy concerns, as well as claims related to the environment, “natural” products and “health related” goods.

Marc outlined topics he believes will gain the most traction in the coming year, such as “privacy bills that relate to information gathered from children, at geolocations, and mobile devices [to] be reintroduced [by Congress], including possibly federal do not track legislation….”  He noted, however, that legislative uncertainty in the privacy area “leaves the door open for federal and state regulators to take action.”

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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