Advertising Law -- Feb 28, 2013

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In This Issue:

Starbucks, Kraft Battle Over Coffee Claims

In a challenge brought by Starbucks, the National Advertising Division recommended that Kraft Foods discontinue claims that its Gevalia Kaffe lines taste similar to those sold by the coffee store chain.

The dispute began when Gevalia launched an advertising campaign for its single-serve coffees featuring claims such as “NEW! If you like Starbucks Breakfast Blend try this!” and “NEW! If you like Starbucks House Blend try this!”

Starbucks complained to the NAD that the claims implied that each variety of Gevalia Kaffe tastes the same or similar to the Starbucks blend of coffee identified on the package.  Kraft contended that the advertising was intended to encourage target audiences to try the new product and that the claims did not suggest the coffee is comparable to Starbucks. 

However, the NAD sided with the coffee giant.

Starbucks submitted a consumer perception survey and three taste tests to support its claim that Kraft’s ads were misleading.  Kraft criticized the methodology of the consumer survey, citing “numerous fatal errors.”  NAD agreed with Kraft that certain responses were unreliable, noting that the survey improperly underlined certain answer phrases, rotated only two of the four responses, and combined two separate and unrelated answer choices into a single answer option.  However, “Even if the survey was deemed insufficient or unreliable as evidence . . . NAD determined that the language communicates more than a mere invitation to try a Gevalia blend of coffee.”  “While consumers may choose coffees for different reasons and compare coffees based on different attributes, NAD noted that the phrasing of the invitation specifically calls out the hedonic component, ‘If you like Starbucks [blend] . . .’  The implied message, that consumers will like the Gevalia blend (and more particularly, like the taste of the Gevalia blend) as much as they like the named Starbucks variety is a message that may reasonably be understood by consumers who examine the language on the package.”

Kraft’s comparative message was not supported by any evidence in the record, NAD added.  Relying upon Starbucks’ three taste tests, the decision noted that “a large majority” of the participants concluded that the coffees tasted either “very different” or “somewhat different” from each other, ranging from 64 percent to 74 percent depending on the blend.  And Kraft failed to offer any evidence that its Gevalia blends are comparable or similar to the identified Starbucks varieties.

To avoid conveying an unsupported message of taste similarity, the self-regulatory body recommended that the comparative Starbucks claims be modified or discontinued.

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

Why it matters: Despite Kraft’s argument that its claims were merely a call to action that was not objectively provable, NAD found that the packaging language was not merely an invitation to try the Gevalia blend, but an implied comparative claim that conveyed an unsupported message of taste similarity.  As always, advertisers must support all express and implied advertising claims, even those that it does not intend to make.

NAI to Adopt Mobile Privacy Guidelines

The Network Advertising Initiative announced that it plans to adopt mobile privacy guidelines in 2013 for its almost 100 member companies.

The guidelines will address the collection and use of data from smartphones and other mobile devices, as well as the use of tracking technology by mobile ad networks.  Specifically, issues such as how data is transferred between apps and the collection and storage of location information will be covered.

The NAI’s guidelines will join the list of other advice recently issued in the mobile ecosystem, including recommendations from California’s Attorney General Kamala Harris and a report from the Federal Trade Commission.

The group announced its plans in conjunction with the release of its annual compliance report.  Currently, the NAI rules mandate that companies notify users about online behavioral advertising and give consumers the ability to opt out of receiving targeted ads.  In 2012, NAI sites (including those hosted by the Digital Advertising Alliance) were visited by 10 million unique consumers, according to the report, with roughly 14 percent visiting the opt-out page.  Those numbers represent an increase from 2011, when 10 percent of the 8 million unique visitors went to the opt-out page.

Executive director of the NAI Marc Groman told AdWeek that the report will demonstrate to lawmakers the effectiveness of self-regulation in the industry.  Seventy-six ad networks were compliant in 2012, up from 60 in 2011; the other 24 members went through a precertification process to join the group.  The NAI received a total of 37 complaints about members last year, but 29 of those did not raise compliance issues, Groman said.  And the eight violators were brought into compliance “almost immediately,” he added, noting that the group has yet to refer a case to the FTC.

To read the NAI’s 2012 Compliance Report, click here.

Why it matters: Despite the successful findings in the annual report, Groman recognized that he faces an uphill battle when promoting self-regulation to legislators.  “We will make a point of sharing this report with relevant policymakers in order to demonstrate the scope of the compliance program and show it’s working,” Groman told AdWeek.  “What policymakers call for is self-regulation with teeth, enforcement and accountability.  This is real and very tangible.” The addition of mobile guidelines for members may bolster his case.

Microsoft Ads Challenge Google on Privacy

A new Microsoft ad campaign targets the privacy protections offered by competitor Google – or rather, its lack thereof.

Some of the print, television, and online ads ask “Think Google respects your privacy? Think again.” while others emphasize the stronger privacy protections offered by Microsoft.

Microsoft also touts survey results where respondents were told that certain e-mail service providers automatically scan messages to display ads relevant to their content.  (For example, an e-mail message that references an upcoming cruise might result in an ad for cruises.)

Respondents overwhelmingly reacted negatively, with 88 percent disapproving of the practice.  One Microsoft ad drives home the point to consumers by proclaiming that “Google goes through every word of every Gmail that’s sent or received to sell ads.”

Microsoft emphasizes that it does not scan ads for potential target advertising.  The company also launched a petition (on its anti-Google site, www.scroogled.com), calling on Google to stop scanning users’ e-mail.

In response, Google spokesperson Chris Gaither told Bloomberg that the company works hard “to make sure that ads are safe, unobtrusive and relevant,” and that no humans read e-mail or Google Account information.  “Advertising keeps Google and many of the websites and services Google offers free of charge,” he added.

Why it matters: Microsoft’s campaign is an attempt to leverage the recent focus on consumer privacy into increased business by attacking Google’s Gmail practices.  Whether or not privacy concerns will motivate Gmail users to switch to Microsoft’s new Web e-mail system, Outlook.com, remains to be seen. 

California Lawmakers Consider Privacy

Taking a cue from their privacy-focused Attorney General Kamala Harris, lawmakers in California recently introduced two pieces of privacy legislation.

Democrat Ed Chau must be a man of few words, as his new bill, Assembly Bill 242, would limit companies to just 100 words to explain their data collection practices.  All businesses that collect personally identifiable information would be required to use “clear and concise language” that can be easily comprehended by those with an eighth-grade reading level.  A statement about whether the consumer’s collected data may be sold or shared with third parties must also be included.

A second piece of privacy legislation introduced was expressly based on AG Harris’s recent report offering recommendations for mobile privacy.  In January, Harris released “Privacy on the Go: Recommendations for the Mobile Ecosystem,” which she characterized as a set of “privacy best practices” for app developers, platform providers, ad networkers, and others involved in the ecosystem.

The report advised that companies include privacy protections in their mobile products and provide “accurate, conspicuous, and easy-to-understand privacy policies” for consumers to read prior to download.  The default settings for apps should be “privacy protective” (limiting the sharing of information, for example) and the collection of personally identifiable information should be limited.

Democrat Isadore Hall’s proposal, Assembly Bill 257, largely tracks the report, including a provision that would require companies to provide a supplemental privacy policy if an app collects data that is not “essential” to its basic function.  Special notice must also be provided if the app accesses text messages, call logs, the camera, dialer or microphone, or collects location, financial, or medical information or passwords.

Mobile app makers must provide consumers with access to data they collected and retained and obtain prior, express consent before showing users an advertisement.

To read AB 242, click here.

To read AB 257, click here.

Why it matters: The likelihood that either bill will pass is unclear.  Although California has a reputation for respecting consumer privacy and AB 257 is based upon the recommendations issued by the state’s Attorney General, the ad industry responded negatively to the report, which doesn’t bode well for the legislation.  AB 242’s shot at survival seems even slimmer since the 100-word cap, in conjunction with the detailed notice requirements, poses a challenge for even the tightest writer.  Case in point: As some of the snarkier commentators pointed out, the bill itself clocks in at 336 words. 

FTC Finalizes Tougher Deal Over Four Loko

After receiving more than 250 public comments on a proposed settlement with Phusion Projects over allegations that the company mislabeled its caffeinated alcohol drink Four Loko, the Federal Trade Commission released a finalized – and more stringent – deal. 

The case began when the agency investigated ad claims that consumers could drink one entire can of the beverage safely on a single occasion.  The company also said the 23.5-ounce can contained the alcohol equivalent of one to two regular 12-ounce beers.

Such labeling and packaging claims were deceptive, the agency alleged, because the can actually contained a similar alcohol content as four to five 12-ounce beers, an amount that if consumed on a single occasion, would constitute “binge drinking.”  Further compounding the deception regarding alcohol content, the company urged merchants to place Four Loko near other single-serve alcoholic beverages, and the Web site featured pictures of consumers drinking directly from the cans, both of which reinforced the impression that a person could safely drink an entire can in one sitting.

The agency was not the only regulator that took issue.  After a teenager allegedly died as a result of drinking too much Four Loko, several states banned the drink.  In response, Phusion Projects agreed to remove the caffeine and other stimulants from the drink.

The company and its principals then reached a deal with the FTC.  Under the terms of the proposed settlement, the company agreed to update its disclosures and modify its containers.  Phusion would disclose on the front of the container the drink’s alcoholic content as compared to the amount of alcohol found in regular beer.  Beverages with more alcohol than the equivalent of two and a half regular beers would be sold only in resealable containers.

However, after soliciting public comment on the deal, the FTC broadened the agreement by extending the disclosure requirements to containers with two servings of alcohol rather than two and a half. It also banned images of consumers drinking directly from such containers.

The updated deal also mandates a back-of-can “Alcohol Facts” panel that is subject to approval by the Alcohol and Tobacco Tax and Trade Bureau.  The panel disclosure sets forth the alcohol content, the number of servings per can, and the serving size in ounces.  “This back-of-can disclosure will effectively remedy the deception alleged in the complaint, allow consumers to better gauge their alcohol intake, and provide alcohol content information in a format analogous to the familiar ‘Nutrition Facts’ labels found on foods,” the Commissioners wrote in a letter to those who commented on the proposed settlement.

To read the finalized settlement order in In the Matter of Phusion Projects, click here.

To read the Commission letter to commenters, click here.

Why it matters: The additional settlement requirements reflect the outpouring of public comment received by the FTC.  The agency received several requests to ban the beverage entirely or place limitations on the size of the drink or its alcohol content, none of which it has the authority to do.  Although Phusion finalized its deal with the FTC, the company still faces a deceptive advertising consumer class action, as well as a wrongful death suit.

Manatt Partner Ken Kaufman Marks Ten Years as Co-Chair of PLI's Annual Entertainment Law Conference

On March 4-6, 2013, the Practising Law Institute (PLI) will host its annual conference on Counseling Clients in the Entertainment Industry.  As co-chair of this leading industry conference since 2004, Ken Kaufman, a partner in Manatt’s Entertainment practice, will help to kick off the three-day program which covers high-level legal and business issues and emerging trends in the television and video industries.  

Ken will also participate in a session that highlights recent developments involving online video and user-generated content and focuses on how to structure the acquisition of rights; production, financing and distribution agreements; and music rights for television productions, among many other issues.  He will be joined by Vernon Chu (General Counsel, BBC Worldwide Americas, Inc.) and Carlos Gutierrez (VP Business Affairs and Legal, 3net, a joint venture of Discovery Communications, Sony and IMAX) as co-panelists. 

The PLI event will be held in New York and via webcast.  For more information or to register for this event, click here.

Manatt Partner Ivan Wasserman Invited to Speak at Engredea Conference

On March 7-10, 2013, Engredea will convene leading suppliers, manufacturers and marketers to share best practices for better positioning brands and products in the global nutrition industry.

Ivan Wasserman, a partner in Manatt’s Advertising & Marketing practice, will be speaking on a panel titled “How Bad is the Public Safety Record of Dietary Supplements?” on which he and his co-presenters will help to guide dietary supplement companies as to how to stay ahead of Congress and regulators, from adverse events reporting to new dietary ingredient notifications.  Ivan’s co-panelists for the session are Steve Mister (President & CEO, Council for Responsible Nutrition) and Andrew Shao (VP, Global Product Science & Safety, Herbalife).

Engredea is co-located with Natural Products Expo West in Anaheim, California.  For more information or to register for this event, 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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