Advertising Law - July 2014 #2

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • Ninth Circuit Finds No TCPA Vicarious Liability for Taco Bell for Texts Sent By Franchisee
  • L’Oreal’s Antiaging Claims Draw FTC Ire
  • Massachusetts Considering Postmortem Publicity Rights
  • T-Mobile’s Alleged Cramming Focus of New FTC Action
  • NYC’s Soda Ban Fizzles Out
  • Noted and Quoted . . . AdvertisingAge Turns to Linda Goldstein on “Food Babe” Blogger’s Affiliate Marketing Practices

Ninth Circuit Finds No TCPA Vicarious Liability for Taco Bell for Texts Sent By Franchisee

On July 2, 2014, the Ninth Circuit issued an unpublished decision in Thomas v. Taco Bell Corp. that is certain to give heart to defendants finding themselves being sued for calls/texts/faxes sent by another corporate entity under a vicarious liability analysis.

In 2005, an association of 12 Chicago-area Taco Bell store operators (one of which was Taco Bell Corp., with 160 stores, collectively, “ESW”) promoted its Nachos Bell Grande product through a text message campaign, hiring an advertising agency isph!net (“Ipsh”) to conduct the campaign. Tracie Thomas received one of the texts, which spawned her California-based Telephone Consumer Protection Act (TCPA) lawsuit against Taco Bell Corp.

Click here to read the full story in this month’s issue of TCPA Connect.

L’Oreal’s Antiaging Claims Draw FTC Ire

L’Oreal deceptively advertised skincare products with unsubstantiated claims that they could provide antiaging benefits by targeting consumers’ genetic makeups, the Federal Trade Commission charged in an administrative complaint.

At up to $132 per container, products such as Lancôme Genifique were touted as “clinically proven” to “boost genes’ activity and stimulate the production of youth proteins,” resulting in “visibly younger skin in just 7 days.” Similarly, L’Oreal’s Youth Code products promised a “new era of skincare: gene science” that could “crack the code to younger acting skin.”

The national advertising campaigns, which included print, radio, television, Internet, and social media outlets and ran beginning in February 2009 for the Lancôme line and November 2010 for L’Oreal, falsely emphasized the “science” behind the products, the agency said. L’Oreal relied, in part, on a bar graph labeled “Clinical Study” that appeared in a L’Oreal Paris Youth Code ad. The FTC challenged the study on the grounds that it failed to test a L’Oreal product or even one of its ingredients.

To settle the charges, L’Oreal agreed to a proposed settlement that prohibited the company from claiming that its facial skincare products can target or boost the activity of genes that will allegedly make skin look or act younger, absent competent and reliable scientific evidence to substantiate the claims.

Misrepresentations about test or study results would also be banned, as would claims that the product lines can affect genes, unless supported by competent and reliable scientific evidence.

To read the case documents in In the Matter of L’Oreal USA, click here

Why it matters: “It would be nice if cosmetics could alter our genes and turn back time,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement about the case. “But L’Oreal couldn’t support these claims.” Advertisers should ensure that scientific claims are supported by competent and reliable evidence and be careful not to overstate the science behind the ads.

Massachusetts Considering Postmortem Publicity Rights

Will Massachusetts become the 14th state to provide for postmortem publicity rights?

The state Senate passed a law that would prohibit the commercial use of the “name, image, and likeness of a personality” for 70 years after his or her death without written permission from either the personality or “persons who collectively own more than 50 percent of the aspect of the personality’s right of publicity that was commercially used.”

Senate bill 2022 defines “personality” as “an individual whose identity has commercial value.” The personality at issue must have been domiciled in Massachusetts at the time of death to receive protection under the proposed law.

Under the proposal, damages for infringement of the right of publicity are set at the greater of $1,000 or the actual damages suffered, including profit earned by the infringer, as well as attorneys’ fees and costs.

The bill is backed by Bay State resident Bill Cosby. If passed by the state House and signed into law by the Governor, Massachusetts would become the 14th state to extend publicity rights after death, joining Arizona, California, Florida, Indiana, Kentucky, Nevada, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, and Washington.

To read S. 2022, click here.

Why it matters: In addition to adding to the trend of state recognition of postmortem publicity rights, the Massachusetts bill would also provide one of the longer terms of protection. Currently, Tennessee offers perpetual publicity rights to decedents domiciled within its borders, while Indiana gives personalities 100 years of protection, and Massachusetts would join California with a 70-year period.

T-Mobile’s Alleged Cramming Focus of New FTC Action

T-Mobile placed hundreds of millions of dollars of bogus charges on mobile phone bills that were never authorized by customers, according to a complaint filed by the Federal Trade Commission. It estimated that between 35 and 40 percent of the company’s total charges were based on “cramming.”

Services such as horoscope information, celebrity gossip, and flirting tips cost unknowing consumers $9.99 per month, the agency said, and T-Mobile continued to make the charges even for services with refund rates of 40 percent – an obvious sign that consumers were not authorizing the charges. Internal company documents demonstrate that T-Mobile received “a high number of complaints” about cramming charges dating back to early 2012.

“T-Mobile disregarded telltale signs of fraud,” director of the FTC’s Bureau of Consumer Protection Jessica Rich said at a press conference about the case. “There were oodles of complaints.”

According to the FTC, T-Mobile also made it difficult for consumers to realize they were being charged by third parties by listing the items under headings such as “Premium Service” or “Use Charges” without showing that the charges were recurring or from a third party. The actual charges were itemized in a less-than-clear format, such as “8888906150BrnStorm23918.”

When consumers did attempt to challenge the charges, T-Mobile often failed to provide a full refund, refused refunds, or claimed the consumers had authorized the charges, the agency said. And prepaid customers had no way of knowing about the charges as the $9.99 deduction occurred without notification.

The complaint, filed in Washington federal court, seeks to permanently enjoin T-Mobile from engaging in mobile cramming and requests disgorgement and refunds for consumers.

To read the complaint in FTC v. T-Mobile, click here

Why it matters: In a statement about the action, FTC Chairwoman Edith Ramirez said the agency’s goal “is to ensure that T-Mobile repays all its consumers for these crammed charges,” an amount estimated in the millions of dollars. Last December, the FTC reached a deal with multiple third-party companies accused of issuing the charges; the agency said T-Mobile billed its customers for the services of these defendants.

NYC’s Soda Ban Fizzles Out

Soda fans can raise a glass to New York’s highest court, which affirmed lower court rulings striking down the New York City Board of Health’s ban on “giant soda.”

In September 2012, the Board of Health approved a law banning the sale of 16 ounces or larger beverages that were “sweetened with sugar or another caloric sweetener that contain more than 25 calories per 8 fluid ounces.” Industry groups, including the American Beverage Association and the National Restaurant Association, challenged the law.

Just one day before the ban was set to take effect, a trial court judge issued an injunction on constitutional grounds. He concluded that the Board violated the separation of powers doctrine because it exceeded its authority and impermissibly trespassed on legislative jurisdiction. A unanimous appellate panel agreed.

In a 4-to-2 opinion, the state’s highest court affirmed. “By choosing among competing policy goals, without any legislative delegation or guidance, the Board engaged in law-making and thus infringed upon the legislative jurisdiction of the City Council of New York,” the court said.

The City Council is the sole legislative body of the city, the majority wrote, and the Board’s authority reflects only a regulatory mandate. The Board overstepped its bounds by engaging in value judgments entailing “difficult and complex choices between broad policy goals – choices reserved to the legislative branch.”

A minority opinion argued that the majority incorrectly curtailed the powers of the Board and misunderstood that the Board was responding to a public health threat in the 21st century.

To read the opinion in In the Matter of New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, click here.

Why it matters: The decision from the state’s highest court sounded the death knell for the soda ban, one of Michael Bloomberg’s final efforts before concluding his term as mayor. Other regulatory efforts in the battle over sugary beverages – ranging from an additional tax to a California proposal to add warning labels to drinks – have also failed.

Noted and Quoted . . . AdvertisingAge Turns to Linda Goldstein on “Food Babe” Blogger’s Affiliate Marketing Practices

On July 14, 2014, AdvertisingAge spoke with Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, about the popular but controversial “Food Babe” blog, in which author Vani Hari questions processed food ingredients and manufacturing methods used in the packaged foods industry. Ms. Hari often refers her readers to organic and GMO-free food brands and receives payments from some of the transactions.

Asked whether the blogger’s disclosure statements likely met the “clear and conspicuous” threshold required by the FTC, Goldstein told AdvertisingAge that “the rules are subjective and judged on a case-by-case basis. . . . [T]he FTC might favor a stand-alone message that does not include extraneous language, such as how the blog reader’s support is crucial.”

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

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