Advertising Law - January 2015 #3

by Manatt, Phelps & Phillips, LLP
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In This Issue:

  • President Obama Focuses on Cybersecurity, Privacy, Data Breach Notification
  • FTC Settles Deceptive Marketing Claim With Supplement Maker
  • NAD Sweeps Away Swiffer’s Comparative Performance Claims
  • Fourth Circuit: Fluoride Labeling Suit Preempted, Properly Tossed

President Obama Focuses on Cybersecurity, Privacy, Data Breach Notification

Data security and privacy concerns received special attention in President Obama’s State of the Union address where the President advocated his recently released data security and privacy legislative proposals. During the speech, with respect to data security, President Obama urged Congress to pass legislation that would guard against cyberattacks, combat identity theft, and protect children’s data. He called for a bipartisan effort and noted that failing to take action would leave the country and the economy vulnerable. President Obama addressed privacy concerns in the context of the government’s surveillance programs. He noted that intelligence agencies have worked with the recommendations of privacy advocates to increase transparency and build more safeguards against potential abuse. He promised to release a report next month explaining how the government has protected both national security and privacy interests.

Leading up to the State of the Union, President Obama announced several pieces of legislation touching on privacy, data security, and data breach notification with potential ramifications for businesses nationwide.

“If we’re going to be connected, then we need to be protected,” President Obama said, characterizing the time as a “dizzying age of technology and innovation.”

In a speech at the Federal Trade Commission, the President unveiled his Personal Data Notification & Protection Act, a bill that would establish nationwide, uniform consumer data breach notification rules in lieu of the current patchwork of 47 different state laws. The law would beef up criminal penalties for hackers and features a requirement that companies notify consumers of a breach within 30 days.

A second piece of proposed legislation, the Student Digital Privacy Act, which would prohibit the sale of sensitive student data for non-education purposes, has the support of 75 major companies (like Apple and Microsoft) that have already signed onto a student privacy “pledge” promising not to send them behaviorally targeted ads. “Data collected on students in the classroom should only be used for educational purposes, to teach our children, not to market to our children,” the President said.

By the end of February, President Obama said he intends to ask Congress to codify the Consumer Privacy Bill of Rights issued by the White House in 2012. If enacted, businesses would be held accountable for compliance with seven principles related to consumer privacy: individual control, transparency, request for context, security, access and accuracy, focused collection, and accountability.

The Bill of Rights sets out “basic baseline protections across industries,” the President explained. “For example, we believe that consumers have the right to decide what personal data companies collect from them and how companies use that data, that information; the right to know that your personal information collected for one purpose can’t then be misused by a company for a different purpose; the right to have your information stored securely by companies that are accountable for its use.”

The President continued his focus on privacy and data security with a visit to the National Cybersecurity Communications Integration Center, where he announced a legislative proposal intended to encourage businesses to share cyberthreat information with the NCCIC.

Pursuant to the bill, companies that share such information and take “measures to protect any personal information that must be shared” would be granted “targeted liability protection,” President Obama promised.

To read a transcript of President Obama’s remarks at the FTC, click here.

To read the Personal Data Notification & Protection Act, click here.

To read the proposal for sharing cyberthreats, click here.

Why it matters: President Obama’s State of the Union address, along with the President’s recent focus on multiple legislative measures, signals that the issue of privacy and cybersecurity will be front and center on his agenda for 2015. While recent high-profile cyberattacks could give the bills momentum and some groups have indicated their support for the laws, passage is not a done deal. For example, although the Direct Marketing Association and the Interactive Advertising Bureau praised the national data breach notification bill, Consumer Watchdog expressed concern that the proposal would preempt stronger state law protections. Could 2015 be the year for a national privacy or data breach notification law? It remains to be seen.

FTC Settles Deceptive Marketing Claim With Supplement Maker

The Federal Trade Commission settled with NourishLife, LLC, and its owner after charging the defendants with making deceptive claims about their dietary supplements.

Speak softgels, capsules, and Speak Smooth liquid supplements were advertised to help children with speech disorders, including those associated with autism. But the FTC said the company took advantage of parents’ trust by charging $70 per bottle for products that lacked scientific support for its claims.

Over at least a four-year period, the defendants marketed Speak products on the Internet and via sponsored links on search engines. When consumers searched for the term “toddler speech problems,” for example, a Speak sponsored link would display the statement “Healthy Speech for Child – SpeechNutrients speak Supplement” with a link to a Web site with product endorsements made by parents whose children used the Speak line. According to the agency, the site itself was maintained by the defendants.

The defendants’ claims – that the supplements could develop and maintain normal, healthy speech and language capabilities in children, including those with verbal apraxia (a motor speech disorder that impacts the ability to make sounds, syllables, and words) were unsupported, the FTC said, despite being touted as clinically proven.

The agency also found fault with the endorsements (such as “Speak vitamins have made my little boy talk. He is five years old and has not spoken until I began giving him vitamins”). The defendants failed to disclose their affiliation with parent endorsers who had received free supplements, the FTC said.

Pursuant to the settlement, the defendants will pay $200,000. NourishLife and its owner are prohibited from making false or unsubstantiated claims about the effectiveness of any dietary supplement, food, or drug and are banned from providing third-party distributors with deceptive marketing materials.

They must disclose any material connections to endorsers, and they are also barred from misrepresenting that their Web sites or publications advertising their products are independently owned.

To read the complaint and stipulated order in FTC v. NourishLife LLC, click here.

Why it matters: The settlement with NourishLife is an important reminder for advertisers and provides a refresher course of how to comply with the FTC’s Endorsement and Testimonial Guides, which mandate that any material connections between advertisers and endorsers be clearly and conspicuously disclosed. In addition, the agency found the terms purchased by the defendants for keyword advertising were relevant in evaluating the net impression the campaign conveyed to consumers. Finally, marketers should note the FTC found the defendants liable for the promotional materials they provided to third parties that perpetuated the deception about Speak products.

NAD Sweeps Away Swiffer’s Comparative Performance Claims

Comparative performance claims made by Procter & Gamble for its Swiffer Sweeper products should be discontinued, the National Advertising Division recently recommended.

Competitor Libman Company challenged P&G claims including “Swiffer Sweeper Leaves your floors up to 3X cleaner than a broom** **on dirt, dust and hair” and “Swiffer Sweeper Pick[s] up 50% more dirt, dust, and hair than with a broom” that were made in stores, on product packaging, and in Internet advertising.

Libman argued that the claims were false and misleading superior performance claims that could not be supported since they were tested under limited conditions (a small surface area of nine square feet and only three surfaces), using non-consumer-relevant test soil (dirt, dust, and hair instead of using other particles or food commonly found in homes), and compared against only two brooms.

P&G responded that its testing was both robust and consumer-relevant, that it provided a reasonable basis for support, and the claims were appropriately limited in scope by the disclaimer that only dirt, dust, and hair were used in testing.

But the NAD determined the claims conveyed “the unsupported message that the Swiffer Sweeper significantly outperforms all brooms on all household surfaces, a message that indisputably is not supported by the evidence in the record.”

The advertiser tested only two brooms, the NAD said, and did not provide evidence that they represented or performed similarly to the vast majority of brooms in the marketplace. “Given the strong, competitive nature of the claims, this limitation in the advertiser’s testing is significant,” the NAD wrote, adding that P&G failed to disclose that the testing was limited to just three types of surfaces.

Consumers could also be misled by the material characteristics of the advertiser’s test soil, which was limited to microns of a certain size, according to the decision. Although P&G argued that the use of the term “dirt” – and not “crumbs,” for example – sufficiently limited its claims to represent the smaller particles tested, the NAD disagreed.

“[C]onsumers could reasonably understand ‘dirt’ as comprising at least some of the larger particles that were sifted out prior to testing and the particles that Swiffer Sweeper is shown to clean up on its website,” the self-regulatory body wrote. “Again, this limitation of the advertiser’s testing does not represent a good fit between the testing conditions and the challenged comparative performance claims.”

Finally, the NAD was “troubled” by the very small test area used in P&G’s study, “a small fraction of the size of the rooms in which the Swiffer Sweeper or a broom would typically be used” as “a smaller test area necessarily [favors] the Swiffer Sweeper given the ease of maneuverability of the swiveling implement and the ability of the pad to trap [dirt, dust, and hair] versus the broom which is not maneuverable and is more likely to scatter [dirt, dust, and hair] by virtue of its flicking motion.”

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

Why it matters: The NAD emphasized that while an advertiser may choose the object of its comparison, any information material to that comparison must be clearly communicated in the advertising. Because P&G failed to effectively tailor its claims based on the limitations of Swiffer’s testing – the small test area, the specific particle size, and with just two brooms in comparison – the self-regulatory body recommended that the advertiser’s claims be discontinued.

Fourth Circuit: Fluoride Labeling Suit Preempted, Properly Tossed

Affirming a victory for Nestle, Gerber, and The Dannon Company, the Fourth U.S. Circuit Court of Appeals agreed with a federal district court judge that a challenge to the companies’ labels was preempted by federal law.

Michelle Nemphos filed a putative class action alleging that the defendants violated Maryland state law by deceptively advertising their products as beneficial to children and in failing to warn purchasers about the risks of dental fluorosis for children who consume large amounts of fluoride. Her use of the defendants’ bottled water, infant formula, and baby food for her daughter resulted in dental fluorosis, or damage to her baby’s tooth enamel, she said.

A federal court judge granted the defendants’ motion to dismiss the suit based on federal preemption grounds. Nemphos appealed.

The Nutrition Labeling and Education Act, which fortifies the Food, Drug, and Cosmetic Act, prohibits states from disrupting national uniformity by prohibiting non-identical requirements, the Fourth Circuit said. Specifically, 21 U.S.C. Section 343-1(a)(1) forbids states from establishing any requirement that is “not identical to” the federal requirements in specific areas of food labeling, including federal standards of identity.

Pursuant to the standard of identity for water, fluoride is classified as an optional ingredient. Manufacturers may add fluoride within the limitations set forth in the regs, the panel explained, and must only add a statement to its label if the level of fluoride surpasses the specified maximum concentration. In addition, the Food and Drug Administration, when promulgating the regs, considered – and rejected – a required warning about the risks of dental fluorosis.

“Federal law already covers the ground that Nemphos aims to unsettle through her claims. She seeks a required warning that is additional to and certainly ‘not identical to’ the federal standard,” the court said, reiterating the value of “a nationally uniform regulatory system, rather than a fifty-state patchwork.”

“To allow a nonidentical state requirement to contravene the Food and Drug Administration’s approach in this area would undermine the NLEA’s preemption framework,” the court wrote. “Without this system of preemption, a manufacturer might be whipsawed by federal regulations delineating permissible labeling and state law claims of impermissibility.”

The three-judge panel also rejected Nemphos’ attempt to distinguish the standard of identity labeling regulation from other forms of advertising and marketing. The NLEA’s preemption provision “makes no exception for marketing or advertising in areas regulated by the FDA,” the court said.

Carving out such an exception “when the FDA has already made an explicit determination about fluoride-related labeling, would be not only inconsistent but also potentially confusing,” and would undermine the NLEA’s preemption framework, the panel added.

The Fourth Circuit affirmed dismissal of the plaintiff’s complaint with prejudice, noting that any amendment of her claims “would be futile.”

To read the opinion in Nemphos v. Nestle, click here.

Why it matters: In its opinion upholding dismissal based on preemption, the federal appellate panel emphasized that the uniform labeling system provided by the FDCA and the NLEA benefits the manufacturer and the consumer. “Manufacturers can produce and market foods consistently and cost-effectively across the United States,” the court wrote. “Consumers gain a reliable and comprehensible means of ascertaining the nutritional content of the foods they buy, wherever they may live or travel in this country. Armed with such information, consumers can make well-informed decisions about the types and quantities of ingredients in their diets.”

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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