Advertising Law - June 2014 #4

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • Don’t Forget: FTC Settlement Over Memory Claims
  • Beastie Boys Win $1.7M Infringement Verdict
  • Positive Result? Court Moves False Ad Suit Over Pregnancy Test Forward
  • Tea’s “100% Natural” Claims Not Puffery, Court Rules

Don’t Forget: FTC Settlement Over Memory Claims

The marketers of the BrainStrong dietary supplement – which claimed to improve adult memory and prevent cognitive decline – reached a settlement with the Federal Trade Commission over charges their advertising was false and deceptive.

i-Health Inc. and Martek Biosciences Corp. sold the BrainStrong Adult supplement at major national retail stores and Web sites at a price point of $30 for a 30-day supply. But the defendants falsely claimed on television, the product’s Web site, and Twitter that they had clinical proof that the supplement contained Omega-3 fatty acid DHA that improved adult memory, the FTC alleged.

For example, product packaging stated: “Strengthen your brain and boost your short-term memory, naturally!” while one of the company’s television ads showed a woman walking into a room and forgetting why she is there. A voice-over informs the viewer that she is looking for her sunglasses that are on top of her head. A second voice then asks: “Need a memory boost? Introducing BrainStrong…Clinically shown to improve adult memory.”

“Supplement marketers must ensure that adequate scientific proof supports their specific advertising claims,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement about the deal. “When the results of a scientific study don’t match the hype, consumers are likely to be misled.”

According to the FTC, the problem with the defendants’ claims is that “memory” can refer to different concepts like episodic memory, procedural memory, and sensory memory. The defendant’s study only supported claims that DHA improved certain types of memory, not all variations of memory and cognition as promised.

Pursuant to the proposed administrative settlement (which covers dietary supplements, and foods or drugs that contain DHA or are promoted to prevent cognitive decline or improve memory), the defendants cannot make claims about the prevention of cognitive decline or memory improvement unless such claims are truthful and supported by human clinical testing.

In addition, claims about the health benefits, performance, safety, or effectiveness of such products must be supported by competent and reliable scientific evidence. Statements about clinical proof where none exists are prohibited.

To read the complaint and proposed administrative order in In the Matter of i-Health, Inc., click here.

Why it matters: The case demonstrated the continuing split among Commissioners about required substantiation for health claims. Commissioner Maureen Ohlhausen dissented from the three other members (new Commissioner Terrell McSweeny did not participate in the case). Ohlhausen took the position that the double-blind, placebo-controlled clinical study published in a peer-review journal was sufficient to support i-Health’s establishment claims and that the order imposed “an unduly high standard of substantiation” which “not only risks denying consumers useful information in the present but may also, in the long term, diminish incentives to conduct research on the health effects of foods and dietary supplements and reduce the incentives of manufacturers to introduce such products. The majority’s approach may ultimately undermine an efficient and reliable competitive market process and make consumers worse off.” FTC Chair Edith Ramirez and Commissioners Julie Brill and Joshua D. Wright did not “simply defer to the authors’ interpretations of the study results,” and conducted their own evaluation of the results to assess whether they substantiated i-Health’s advertising claims.

Beastie Boys Win $1.7M Infringement Verdict

Continuing to vigorously enforce their intellectual property rights, the Beastie Boys won a $1.7 million verdict in a copyright infringement and false endorsement suit against Monster Energy Company.

The rap group filed suit after the drink company used five of its songs for a soundtrack that played to a video recap of a snowboarding competition sponsored by Monster. The words “RIP MCA” appeared at the end of the video, that was, according to the Beastie Boys, an allusion to member Adam “MCA” Yauch who had passed just days prior to the airing of the soundtrack. The soundtrack was also made available as a free download on Monster’s Web site, Facebook page, and YouTube channel.

At trial in New York federal court, Monster admitted that its use was infringing in the company’s opening statement. With liability conceded, the weeklong proceedings focused on the issue of damages. Monster told jurors that an award ranging from $93,000 to $125,000 was appropriate based on the five weeks the video was available online when it garnered less than 14,000 views.

The Beastie Boys requested a total of $2 million, emphasizing the group’s refusal to license their songs for commercial purposes. Surviving members of the group cited Yauch’s will, which specifically included a provision denying his permission to use the group’s songs for advertisements.

While the jury awarded less than the Boys requested, the $1.7 million verdict far surpassed Monster’s suggestion. Finding the infringement willful, jurors awarded the Beastie Boys $1.2 million in statutory damages on the copyright claims and $500,000 in damages on the false endorsement claim.

Monster reacted to the verdict with a statement that it intends to appeal.

To read the verdict form in Beastie Boys v. Monster Energy Company, click here.

Why it matters: The suit is a cautionary tale for marketers who use copyrighted songs to advertise their products or services. The Beastie Boys have made no secret of their refusal to license their music and are not afraid to litigate to protect their rights. In addition to the suit against Monster, the rappers filed suit against GoldieBlox last year after the toy maker used the group’s song “Girls” in an ad. The high-profile dispute ended with a settlement deal where GoldieBlox issued a public apology and agreed to donate a percentage of revenues to one or more charities selected by the Beastie Boys.

Positive Result? Court Moves False Ad Suit Over Pregnancy Test Forward

Food and Drug Administration regulations do not prevent Church & Dwight Co. from bringing a false advertising suit against SPD Swiss Precision Diagnostics GmbH in connection with the company’s Clearblue home pregnancy tests, a federal court judge in New York recently held.

In 2013, SPD launched a new line of Clearblue pregnancy tests with a “Weeks Estimator.” In addition to informing a woman if she was pregnant, the test was designed to estimate the number of weeks that had passed since she last ovulated. According to Church & Dwight, the name of the product line itself – “Advanced Pregnancy Test With Weeks Estimator” – was deceptive, as were the graphics that informed a user “Pregnant 1-2 Weeks,” “Pregnant 2-3 Weeks,” or “Pregnant 3+ Weeks.” Also deceptive were statements in television ads like “It’s like two tests in one!” and similar representations made by SPD on its Web site, in point of purchase and retail advertising, and in a press release announcing the product.

According to C&D, the claims communicated to women that the Weeks Estimator can inform them how many weeks they have been pregnant, based on their last day of ovulation. But the medical profession does not measure pregnancy by reference to the time of ovulation, C&D argued. Instead, the measurement is based on the “universally accepted convention” that pregnancy begins at the time of the woman’s last menstrual period, typically two weeks prior to ovulation. In addition to the factual falsity, C&D said SPD overstated in its press release the accuracy of its product as “approximately 93 percent accurate” when the package insert pegged the range between 45 to 99 percent.

SPD moved to dismiss the suit on preemption grounds, pointing to FDA regulations, the Food, Drug, and Cosmetic Act, and the FDA’s Clearance Letter for the product line, which demanded certain requirements of the product packaging and labeling.

But U.S. District Court Judge Alison J. Nathan said “a close reading” of the complaint did not involve the direct application of the FDA’s regulation.

She concluded that C&D asked the court to decide whether the Weeks Estimator marketing conveyed to consumers a misleading message about the duration of pregnancy, a task that does not require the court “to interpret, apply, or enforce the FDCA, the FDA’s regulations, or the Clearance Letter.”

“On this view of C&D’s complaint, its claims are directed at the simple factual falsity of SPD’s marketing of the Weeks Estimator,” the court wrote. “In that case, the court’s task in adjudicating C&D’s claims would be essentially two-fold: determine the message conveyed to consumers by SPD’s marketing and then determine whether that message is either literally false or likely to mislead and confuse consumers.”

The fact that the FDA regulates in an area does not inevitably lead to preclusion, Judge Nathan noted. “[T]he mere facts that C&D’s complaint cites actions taken by the FDA and that the FDA has some authority to act in this area do not counsel in favor of applying preclusion.”

Assessing the potential consumer confusion fell squarely within its jurisdiction, the court concluded.

To read the opinion in Church & Dwight Co. Inc. v. SPD Swiss Precision Diagnostics, click here.

Why it matters: The decision indicates that pre-emption may not always serve as a defense in matters that the FDA has promulgated regulations. The court engaged in a detailed analysis of FDCA preclusion as well as the doctrine of primary jurisdiction, finding that neither applied to C&D’s claims against SPD. Judge Nathan recognized that the preemption issue “does not lend itself to a simple application,” and noted that while dismissal was inappropriate, the questions raised by the preclusion analysis “are often fact-intensive, and are frequently resolved after the pleading stage,” so that SPD might be able “to re-raise this argument at a later stage, if appropriate given the development of the proceedings.”

Tea’s “100% Natural” Claims Not Puffery, Court Rules

Hain Celestial Group’s “100% Natural” claims for numerous teas are not mere puffery, a California federal court judge determined, denying the company’s motion to dismiss a consolidated class action challenging the advertising.

Four cases were consolidated in California federal court, alleging that ten of the Celestial Seasonings teas – including Sleepytime Herbal Tea and Peach Blossom Green Tea – contained “significant levels of one or more” chemical insecticides, fungicides, and herbicides, despite bearing labels claiming to be “100% Natural.”

Hain raised three arguments to toss the cases: the plaintiffs failed to sufficiently allege the teas contain unnatural pesticides or that the public would actually be deceived by the claims. It also maintained that the claims were nothing more than puffery. U.S. District Court Judge Andrew J. Guilford rejected each contention.

The plaintiffs based their pesticide allegations on test results published by “an admittedly biased short-seller that admits it issued the report in hopes of driving down Hain Celestial’s stock price.” Bias might weaken the evidentiary value of the study, the court said, but did not support dismissal of the case at the pleading stage.

Similarly, Judge Guilford refused to dismiss the case on the grounds that the tea labels would be unlikely to deceive a consumer. Although the plaintiffs did not offer a definition of “natural,” he wrote that the complaint clearly alleged “a food product is not ‘100% Natural’ in the minds of consumers if the product contains unnatural chemicals. The court doesn’t see why plaintiffs need to allege a more specific definition.”

Finally, the court concluded that the “100% Natural” claims were not mere puffery. Although Hain argued that “the phrase is puffery because it is not capable of being proved false,” the court said under the plaintiff’s theory, even traces of any man-made chemicals rendered the product not entirely natural. “If that is what consumers understand the phrase to mean, then ‘100% Natural’ can be proven false with evidence of those chemicals,” Judge Guilford wrote.

Notably, the defendants also sought dismissal under the doctrine of primary jurisdiction, which would permit the Food and Drug Administration to consider the plaintiffs’ claims. Under the doctrine, courts may determine that a relevant agency should be responsible for initial decision making on a claim where enforcement is subject to a specific regulatory scheme that requires the special competence of an administrative body. The court declined to dismiss the case under the doctrine, noting that the FDA’s “lack of interest in providing further guidance on the use of the word ‘natural’ ” and citing several recent instances where the FDA has declined referrals from other district courts considering similar issues.

To read the order in Von Slomski v. The Hain Celestial Group, Inc., click here.

Why it matters: While the FDA has repeatedly declined to provide guidance on the use of the word “natural” in food labeling, litigation around “natural” claims continues unabated, with Judge Guilford addressing common issues for advertisers like puffery and whether consumers are deceived by such labels. He also faced questions of standing and the viability of class certification, which he deferred. The plaintiffs sought to represent a class of consumers who purchased ten different types of the teas, but only purchased two of the varieties cited in the complaint. Noting that courts have gone both ways on the questions of standing and class certification, Judge Guilford characterized the “questions of adequacy, typicality, or predominance of common issues” as better considered at the class certification stage.

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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