Advertising Law - Feb 6, 2014

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Linda Goldstein to Serve on Faculty of BAA’s Annual Marketing Conference
  • High-Profile Mistake Could Cost Data Brokers
  • Not So Safe Harbor: FTC Settles with 12 Companies Claiming U.S.-EU Certification
  • NAD Recommends Product Name Change for Laundry Detergent
  • Judge Chews Up Gum False Ad Suit
  • Noted and Quoted . . . Ivan Wasserman and La Toya Sutton Shed Light on FDA’s New Guidance Regarding Liquid Dietary Supplements for Law360

Linda Goldstein to Serve on Faculty of BAA’s Annual Marketing Conference

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will lead a session at the Annual Marketing Conference hosted by the Brand Activation Association (BAA) on March 26-27, 2014, in Chicago.

Linda’s presentation, titled “Because SHIFT Happens . . . Proceed with Caution,” will focus on the marketing strategies used to form the connection between brands and their customers and highlight key areas of liability that may arise. She will also provide practical advice to help brands successfully operate within the boundaries of the law.

The conference will be held at The Westin Chicago River North. For more information or to register for this event, click here.

High-Profile Mistake Could Cost Data Brokers

Could a recent marketing error by OfficeMax impact the entire data-driven marketing industry?

The company sent a mailer addressed to “Mike Seay, Daughter Killed in Car Crash or Current Business.” Seay’s 17-year-old daughter Ashley was killed in a car accident last year. Seay asked his local news outlet, NBC 5, “Why would they [Office Max] have that type of information? Why would they need that? What purpose does it serve anybody to know that? And how much other types of other information do they have if they have that on me, or anyone else? And how do they use that, what do they use that for?” Seay’s interview – and the image of the mailer – went viral.

In spin control, OfficeMax issued a statement that it was not trying to market its products to a targeted group (i.e., parents of children killed in auto accidents). Instead, the company explained that it requested a “Businesses, Small Offices and Home Offices” mailing list – without personal qualifiers – from a third-party data broker. OfficeMax declined to name the broker.

Even taking OfficeMax’s statement at face value, opponents of data marketers claimed that the mailer made it appear that brokers are compiling such unpleasant lists. Proponents of reining in the data-driven marketing seized upon the mailer as evidence of the dangers of the industry and called for legislation.

The Federal Trade Commission is currently conducting an investigation of data brokers and Sen. Jay Rockefeller (D-W. Va.) recently released a report on the data broker industry. At a hearing to discuss his findings, Sen. Rockefeller specifically cited the creation of categories such as “Tough Start: Young Single Parents” as “tailor made to businesses that seek to take advantage of customers.”

Why it matters: As OfficeMax copes with the negative publicity (a spokesperson said the company has “upgraded the filters designed to flag inappropriate information” to avoid future mishaps), the data broker industry will hold its breath to see if the incident will be the tipping point for a legislative crackdown.

Not So Safe Harbor: FTC Settles with 12 Companies Claiming U.S.-EU Certification

Accused of deceptively claiming to abide by the U.S.-EU Safe Harbor privacy framework, 12 companies reached a deal with the Federal Trade Commission to halt future misrepresentations about their participation in privacy or data security programs.

The companies, ranging from the Atlanta Falcons to P2P network BitTorrent to aluminum foil maker Reynolds to accounting firm Baker Tilly Virchow Krause, told consumers they had current certifications under the Safe Harbor framework.

Launched in 2000, the Safe Harbor program is administered by the U.S. Department of Commerce in consultation with the European Commission and allows American countries to transfer data from the European Union to the United States without violating EU’s data laws. To participate, companies must annually self-certify compliance with the seven principles in the EU’s standard: notice, choice, onward transfer, security, data integrity, access, and enforcement. To demonstrate compliance, companies can place the Safe Harbor certification on a Web site.

According to the FTC’s complaints, certifications for all companies had lapsed. (Three of the companies also falsely claimed to be certified under the U.S.-Swiss Safe Harbor, the agency added.) Despite this, and in violation of Section 5 of the FTC Act, the 12 defendants held themselves out as currently certified by using statements in their privacy policies or displaying the certification mark.

The FTC alleged that the Falcons’ privacy policy and Web site falsely represented that it was a current participant in the Safe Harbor program from September 2005 until November 2013. According to the complaint, the Falcons failed to renew its certification in September 2006.

The FTC noted that it was not alleging that any of the companies committed substantive violations of the Safe Harbor privacy principles and therefore made no monetary demands. Instead, the 12 companies pledged to refrain from misrepresenting their involvement in any privacy or data security program, whether government-sponsored or self-regulatory. The agreements are open for public comment until February 20.

To read the complaints and proposed settlement agreements, click here

Why it matters: “Enforcement of the U.S.-EU Safe Harbor Framework is a Commission priority,” FTC Chairwoman Edith Ramirez said in a press release about the settlements. “These twelve cases help ensure the integrity of the Safe Harbor Framework and send the signal to companies that they cannot falsely claim participation in the program.” At a minimum, the agency’s actions should serve as a reminder to companies that a Safe Harbor compliance audit must be conducted annually in order to maintain certification.

NAD Recommends Product Name Change for Laundry Detergent

Noting its reluctance to advise a company to change a product name, the National Advertising Division nevertheless recommended that Church & Dwight discontinue the use of “4x Concentrated” in the name of its Arm & Hammer Ultra Power 4x Concentrated and Sensitive 4x Concentrated liquid laundry detergents.

Competitor Sun Products Corporation – maker of detergents such as all, Wisk, Sun, and Surf – challenged multiple claims for the Arm & Hammer products. Express claims such as “50% WHITER” and “50% FRESHER” were unqualified and unsubstantiated, Sun argued, while the advertiser’s use of “double scoops of baking soda” exaggerated the amount and efficacy of the baking soda contained in the products. The detergents’ “4x concentrated” claims are based on an outdated and irrelevant concentrated standard, the challenger added.

Church & Dwight responded that all of its claims were adequately substantiated. The “two scoops” claim is not deceptive, the company said, because a “scoop” is not a defined unit of measurement that promises consumers a certain amount. As for the “4x concentrated” claims, the advertiser noted the language is a “crucial” part of the detergents’ names and that no evidence had been presented that consumers were misled by the claims.

The NAD first tackled the “50%” claims, finding that although Church & Dwight could substantiate the “50% WHITER” claim, the company failed to properly qualify the claim with the disclaimer “Versus the leading value brand on a wash load basis per load.” The disclaimer appeared at the bottom of the back label of the bottle, below the Spanish translation of warnings and the ingredients.

“[T]his basis of comparison to one other product tested is material and necessary to avoid conveying a wholly unsupported message of superiority against all competitive products,” the NAD wrote. Because of the remote location of the disclaimer and the “vague” wording, the NAD recommended that the disclosure be modified both substantively and geographically.

As for the “50% FRESHER” claims, the NAD said “reasonable consumers could take away a message regarding the absence of odor,” in part due to the close proximity of the baking soda claims. Testing substantiated that the detergents could get clothes whiter and cleaner but not reduce odor by 50 percent, leading the NAD to recommend that the claim be discontinued.

The baking soda claims should also be modified, the NAD said. A commercial featuring two scoopers pouring baking soda into an open bottle of the detergent left the self-regulatory body concerned that consumers could reasonably take away an unsupported message of efficacy, particularly as the commercial explicitly linked the baking soda to performance claims: “It’s ultra concentrated and packed with two scoops of baking soda so it’s super charged to take on double shifts, double plays, even double trouble to get their clothes 50% whiter, 50% fresher.” Church & Dwight should modify the commercial, the NAD advised.

Turning to the “4x concentrated” claims, the NAD reviewed the history of concentration claims for laundry detergents, recognizing a 2008 shift to a stronger industry concentration. Noting that 73 percent of the market does not make numerical concentration claims, NAD determined that one of the messages reasonably conveyed by Church & Dwight’s unqualified “4x” concentration claims “is that its products are four-times more concentrated than competing brands which appear on the shelves next to them that do not contain such claims.”

The claims appear on the front of the product packaging, standing side by side with competing brands, the NAD observed. And even if consumers were cognizant of the industry’s concentration switch, that understanding “has not persisted 5 years after the leading detergent companies made the transition,” the NAD added.

The unqualified “4x” concentration claim “is likely to cause consumer confusion by conveying the unsupported message” that Church & Dwight’s products are four times more concentrated than competing products that do not feature any concentration claims, the decision concluded, recommending that the company discontinue the claim and remove it from the product name.

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

Why it matters: “When recommending a product name change, NAD does not make such recommendations lightly and only does so after due consideration that consumers could reasonably take away an unsupported message from language in a product name,” the self-regulatory body wrote. Advertisers should take note, however. Despite its reluctance, the NAD still found that the message conveyed by Church & Dwight’s liquid laundry detergents could mislead consumers, even without actual evidence of confusion.

Judge Chews Up Gum False Ad Suit

Wrigley Sales Co. scored a victory when a California federal court judge dismissed a putative class action alleging that the company’s “sugar free” claims were false and misleading.

Phyllis Gustavson claimed products such as Eclipse sugar-free gum in Polar ice flavor and Orbit sugar-free gum in Spearmint were misbranded. The products claimed to be “sugar free” on the front of the packaging and stated they contain “fewer calories” than sugared gum or candy on the back of the packaging.

The court found that the suit – which also challenged Wrigley’s labeling for failing to disclose that certain products are sweetened with nutritive and non nutritive sweeteners – was preempted by the Food, Drug, and Cosmetic Act as amended by the Nutrition Labeling and Education Act.

The applicable federal regulations for “sugar free” label statements, 21 C.F.R. § 101.60(c)(1), offer advertisers three choices of an additional statement to include on their product packaging: (1) “the food is labeled ‘low calorie’ or ‘reduced calorie’ in compliance with federal regulations; (2) the food ‘bears a relative claim of special dietary usefulness’ in compliance with federal regulations; or (3) the ‘sugar free’ claim ‘is immediately accompanied, each time it is used, by either the statement ‘not a reduced calorie food,’ ‘not a low calorie food,’ or ‘not for weight control.’”

Wrigley said that it complied with “a relative claim of special dietary usefulness” because its products make a “fewer calories” statement that the specific gum or mint contains at least 25 percent fewer calories of an appropriate reference food identified in immediate proximity to the claim with quantitative information.

For example, immediately below the “Nutrition Facts” box on the back of the Winterfrost flavor of Eclipse sugar-free gum, Wrigley included a statement that the product contains “35% fewer calories than sugared gum. Calorie content has been reduced from 8 to 5 calories per two piece serving.”

U.S. District Court Judge Lucy H. Koh agreed that Wrigley’s packaging complied with the federal regulations. “[T]he FDA does not require a relative claim of special dietary usefulness to appear separately from the comparative information that must accompany such a claim,” she wrote, citing commentary to a final rule entitled “Food Labeling: Nutrient Content Claims, General Principles, Petitions, Definition of Terms; Definitions of Nutrient Content Claims for the Fat, Fatty Acid, and Cholesterol Content of Foods; Food Standards; Requirements for Foods Named by Use of a Nutrient Content Claim and a Standardized Term; Technical Amendment.”

Gustavson’s argument that the fewer-calorie claims were not conspicuous enough failed, the court said, as the claims appeared on the gum’s “information panel.” Because the packaging for the products was small, “the information panel therefore is the back of the package,” the court said.

“In sum, because the court concludes that defendants’ fewer calorie claims comply with FDA regulations governing the use of relative claims of special dietary usefulness, the court finds that Gustavson is attempting to impose a labeling requirement that is ‘not identical to’ federal requirements,” Judge Koh concluded.

She also concluded that Gustavson’s claims under California’s unfair competition and false advertising laws were therefore expressly preempted, and she dismissed the suit with prejudice.

To read the dismissal order in Gustavson v. Wrigley Sales Co., click here.

Why it matters: The court’s dismissal of the suit with prejudice is a clear victory for Wrigley, which found refuge in the federal labeling standards.

Noted and Quoted . . . Ivan Wasserman and La Toya Sutton Shed Light on FDA’s New Guidance Regarding Liquid Dietary Supplements for Law360

On February 5, 2014, Manatt attorneys Ivan Wasserman and La Toya Sutton coauthored an article titled “Labeling Beverages and Supplements Post-FDA Guidance,” which published in Law360. The article provides an overview of the FDA’s recently issued guidance that outlines the agency’s current position on how it will distinguish between liquid dietary supplements and conventional beverages. The determination as to whether a product is a conventional food or a liquid dietary supplement has important ramifications with respect to how it is regulated, including which ingredients are permitted to be in the product.

According to the authors, “These new guidance documents are without a doubt a good wake-up call to the industry, as the FDA continues to increase its enforcement against dietary supplement products. A single word, ingredient, manufacturing step or even the shape of a container can mean the difference between a legal and illegal product.”

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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