Advertising Law - July 2014 #3

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • Suit Seeks To Include E-Mail Address Under Song-Beverly Protections
  • Data Sharing Bill Advances
  • Gift Cards Not “Just Like Cash,” Suit Claims
  • FDA Dislikes Dietary Supplement Company’s Social Media Activity
  • Noted and Quoted . . . The Wall Street Journal Seeks Commentary From Linda Goldstein on Native Advertising

Suit Seeks To Include E-Mail Address Under Song-Beverly Protections

First zip codes, now e-mail addresses?

According to a new complaint filed in California federal court against Express Fashion Apparel, LLC, the retailer’s collection of a customer’s phone number and e-mail address during a credit card transaction violates the state’s Song-Beverly Act.

Andrew Staveley alleges that he visited an Express store in San Luis Obispo, California. When he made his purchase using his credit card, the cashier requested his telephone number and e-mail address. Believing that he was required to provide the information, Staveley shared it with the cashier. Shortly thereafter, he received an e-mail advertisement from Express.

Pursuant to California’s Song-Beverly Credit Card Act, companies may not request and record “personal identification information,” which is defined as “information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder’s address and telephone number.”

In February 2011, the California Supreme Court held that the act’s definition of personal information included a customer’s zip code, setting off a wave of litigation in the state and beyond.

Express has a “uniform policy” of requesting e-mail addresses and phone numbers, Staveley claimed in his suit, which seeks to certify a class of customers who made credit card purchases at Express stores in California over the last year.

Characterizing the defendant’s conduct as intentional and “of potentially great benefit” to Express, Staveley said each class member is entitled to $1,000 in statutory damages.

To read the complaint in Staveley v. Express Fashion Apparel, click here.

Why it matters:“If successful, this action will enforce an important right affecting the public interest and will confer significant benefits, both pecuniary and non-pecuniary, on a large class of persons,” Staveley’s complaint stated. At the very least, the suit is likely to generate copycat actions.

Data Sharing Bill Advances

With the potential to bring big changes for businesses, a bill that would encourage companies to share data about cyberthreats with the government moved out of a Senate committee for consideration by the full Senate.

The Cyber Information Sharing Act (CISA) was passed in a 12-3 vote by the Senate Select Committee on Intelligence despite opposition from privacy advocates concerned about the sharing of data.

Backers of the bill argue that the creation of a safe harbor for businesses that voluntarily disclose cyberthreats for the purpose of assisting government or industry partners will thwart hackers and other cybercrime and that appropriate privacy protections have been built into the legislation.

The bill was introduced by Sens. Dianne Feinstein (D-Calif.) and Saxby Chambliss (R-Ga.) in response to what they called the “massive and growing” threat from cyberattacks on retailers and banks.

Information sharing would work both ways under the legislation. The director of national intelligence would increase the sharing of both classified and unclassified cyberthreats with the private sector, while businesses would be encouraged to voluntarily pass along data with other companies and the government.

“To strengthen our networks, the government and private sector need to share information about attacks they are facing and how best to defend against them,” Sen. Feinstein said in a statement after the bill was approved by the committee. “This bill provides for that sharing through a purely voluntary process and with significant measures to protect private information.”

To read the CISA, click here

Why it matters: The bill now moves before the full Senate for consideration with significant backers – and opposition. Groups like the Retail Industry Leaders Association and the American Bankers Association voiced their support, while privacy organizations, including the Electronic Frontier Foundation and the American Civil Liberties Union, expressed concern about the potential for government use of the data for purposes other than cybersecurity.

Gift Cards Not “Just Like Cash,” Suit Claims

A new lawsuit filed against Sunoco alleges that the company touts its gift cards as “just like cash,” but charges customers the higher price charged for credit and debit purchases not the lower price when the customer pays in actual cash.

New Jersey resident Howard Stern says he purchased a gift card based on Sunoco’s “like cash” representations. One ad stated: “Looking for a gift anyone can use? The Sunoco Gift Card is always a good option. It can be used for everything from getting your car repaired, to filling up your tank, to filling up your coffee cup.” Signage on Sunoco gasoline pumps declared: “Sunoco Gift Cards SAME AS CASH.”

The national chain of gas stations – with 4,900 retail outlets in 23 states – charges lower prices for gasoline cash purchases than when a customer pays with debit or credit cards. But on the five occasions in 2013 when Stern used the card, he claims that he was charged the higher credit or debit card price each time he purchased gas and paid using the gift card.

Stern filed a complaint in Pennsylvania federal court seeking to certify a nationwide class of gift card holders who were similarly deceived by Sunoco’s “unconscionable” practice of “knowingly” omitting and failing to disclose material terms and failing to honor its gift card program in violation of New Jersey and Pennsylvania laws.

“Sunoco has received an economic benefit by charging more money and receiving more money from customers than if the gift card program’s public representations had been honored,” according to the complaint.

The suit requests disgorgement and restitution as well as compensatory and punitive damages.

To read the complaint in Stern v. Sunoco, click here.

Why it matters: The complaint alleges violations of common law (breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment) as well as alleging Sunoco’s actions ran afoul of consumer protection statutes in both New Jersey and Pennsylvania.

FDA Dislikes Dietary Supplement Company’s Social Media Activity

In a warning letter to Zarbee’s, Inc., the Food and Drug Administration recently cautioned the dietary supplement maker that its social media activity ran afoul of the Food, Drug and Cosmetic Act.

Zarbee’s offers six products for sale on its Web site and on social media pages, including “Zarbee’s Natural Children’s Cough Syrup” and “Zarbee’s Naturals Seasonal Relief.” According to the FDA, the company advertised that the products are intended for use as drugs, despite not being approved as such by the agency.

According to the FDA, the company posted testimonials on its Web site that “recommend[ed] or describ[ed] the use of [its] products for the cure, mitigation, treatment, or prevention of disease,” citing an example stating: “I feel much safer taking these tablets, compared with prescription or OTC sleeping pills, because melatonin & L-theanine are natural substances.” Zarbee’s social media activity included posts like “RT@MomCentral Have you tried #ZarbeesCough for cold and cough relief?”

A social media user posted: “I received your…Zarbee’s Naturals Children’s Sleep Product. I have a daughter…born with cerebral palsy and she suffers from Complex Regional Pain Syndrome…[s]he took the samples you sent and slept through the night…best sleep she has had in years.” In response, Zarbee’s commented “Mary, Thank you for writing this!!! We love to hear that we have helped people.”

The FDA cited the comments and “likes” as evidence that Zarbee’s promoted its products for use as drugs, even though none of them has been approved for such use. The agency requested a response within 15 days with documentation that Zarbee’s has undertaken efforts to correct its mistakes.

To read the FDA’s letter to Zarbee’s, click here

Why it matters: The FDA said Zarbee’s was effectively “recommending or describing” its products as a cure or treatment that eases a condition based on its social media activity, including tweets, the use of testimonials on its Web site, and by “liking” or commenting favorably about posts made by consumers. The agency has sent previous letters about social media activity to drug companies, including one earlier this year addressing a drug’s “false and misleading” page. To help guide pharmaceutical companies and drug manufacturers, the FDA released draft social media guidance last month.

Noted and Quoted . . . The Wall Street Journal Seeks Commentary From Linda Goldstein on Native Advertising

On July 22, 2014, The Wall Street Journal’s “CMO Today” blog published insight from Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, on the practice of “native advertising,” or sponsored content that is designed to look similar to editorial content. The article highlights results from a study that analyzed perceptions of native advertising and whether it is clear to consumers that they are viewing paid placements.

“When native advertising first appeared many [companies] thought about whether disclosure was necessary or not. I think everyone recognizes now the answer is ‘yes’, but the debate has shifted to how that disclosure actually needs to be made,” Goldstein said.

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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