Advertising Law - Mar 14, 2014

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

  • Sue Like Mike: Jordan Wins Reversal in Publicity Rights Suit
  • FTC, AG, Industry All Call for National Data Security Legislation
  • Nutrition Facts Label to Get Update
  • Judge: Overstock Must Pay $6.8M for Deceptive Price Advertising

Sue Like Mike: Jordan Wins Reversal in Publicity Rights Suit

An advertisement congratulating Michael Jordan on his induction into the Basketball Hall of Fame constituted commercial speech, the Seventh U.S. Circuit Court of Appeals has ruled.

The federal appellate panel’s decision reverses a lower court opinion and moves the case forward to consider Jordan’s publicity rights claim against the advertiser.

The dispute began in 2009 when Jordan was inducted into the Hall of Fame. Sports Illustrated offered grocery chain Jewel-Osco an ad page in a commemorative issue in exchange for stocking the magazine in its stores. Jewel-Osco’s marketing department created the ad, which featured an image of a pair of basketball shoes with the number 23 under text reading: “A Shoe In! After six NBA championships, scores of rewritten record books and numerous buzzer beaters, Michael Jordan’s elevation in the Basketball Hall of Fame was never in doubt! Jewel-Osco salutes #23 on his many accomplishments as we honor a fellow Chicagoan who was ‘just around the corner’ for so many years.”

The ad also featured Jewel-Osco’s logo and slogan “Good things are just around the corner.”

Jordan sued, alleging the ad violated Illinois’s Right of Publicity Act, a state deceptive practices statute, and the federal Lanham Act. Relying on the First Amendment, Jewel-Osco moved to dismiss the suit on the grounds that the ad was noncommercial speech and entitled to full constitutional protection. A federal district court agreed last year.

But the 7th Circuit reversed, finding the ad to be commercial speech and therefore subject to the laws invoked by Jordan.

The ad “prominently features the ‘Jewel-Osco’ logo and marketing slogan, which are creatively and conspicuously linked to Jordan in the text of the ad’s congratulatory message,” the panel wrote. “Based on its content and context, the ad is properly classified as a form of image advertising aimed at promoting the Jewel-Osco brand.”

Adopting a broad interpretation of the term “commercial,” the Court characterized Jewel-Osco’s ad as “image advertising” or “institutional advertising,” as distinct from product advertising, where a single item is promoted. The Court explained that image advertising occurs when a product or service is not explicitly offered for sale and instead the brand itself is promoted.

“Jewel’s ad has an unmistakable commercial function: enhancing the Jewel-Osco brand in the minds of consumers. This commercial message is implicit but easily inferred, and is the dominant one,” the Court said. “The ad is plainly aimed at fostering goodwill for the Jewel brand among the targeted consumer group – ‘fellow Chicagoans’ and fans of Michael Jordan – for the purpose of increasing patronage at Jewel-Osco stores.”

An opposite holding “would have sweeping and troublesome implications for athletes, actors, celebrities, and other trademark holders seeking to protect the use of their identities or marks,” the panel concluded. “Classifying this type of advertising as constitutionally immune noncommercial speech would permit advertisers to misappropriate the identity of athletes and other celebrities with impunity.”

To read the opinion in Jordan v. Jewel Food Stores, Inc., click here

Why it matters: The 7th Circuit emphasized that modern commercial advertising “is enormously varied in form and style,” and took pains to explain the intent behind institutional advertising. Although the lower court sided with Jewel-Osco in part because it found that “readers would be at a loss to explain what they have been invited to buy,” the federal appellate panel recognized the value of using “appealing images and subtle messages” to build goodwill for a brand. “There is no question that the ad serves an economic purpose: to burnish the Jewel-Osco brand name and enhance consumer goodwill,” the Court wrote. Jordan filed a similar suit against a steak restaurant that ran a congratulatory ad in the same commemorative issue. Dominick’s called Jordan “a cut above” near a steak coupon in its ad, and a federal district court judge found the steakhouse liable. A trial on damages is expected later this year.

FTC, AG, Industry All Call for National Data Security Legislation

Industry groups, Federal Trade Commission Commissioner Julie Brill, and Attorney General Eric Holder agree on at least one thing: the time has come for data security legislation.

Speaking at Princeton University, Brill referenced high-profile data breaches like the tens of millions of Target customers whose credit card information was hacked. “I think it is increasingly clear that the United States needs data security legislation,” she said.

The call for lawmakers to address data security was just one of three areas of legislation Brill advocated for in her “Big Data and Consumer Privacy: Addressing Challenges and Finding Solutions” address. She also called on Congress to enact bills regulating data brokers and establish “baseline” privacy rights for consumers.

Brill – who characterized herself as a “lifelong consumer protection advocate” – was joined in her support for data breach legislation by Attorney General Eric Holder, who expressed his views in a recent video address.

Also citing the Target incident, Holder said it “is time for leaders in Washington to provide the tools that we need to do even more by requiring businesses to notify American consumers and law enforcement in the wake of significant data breaches.” Holder said a “strong, national standard” could empower consumers to protect themselves and enable law enforcement efforts to track down hackers.

In addition, the legislation should “hold compromised entities accountable when they fail to keep sensitive information safe,” although it should also provide “reasonable exemptions for harmless breaches to avoid placing unnecessary burdens on businesses that do act responsibly,” Holder added.

The Direct Marketing Association and data broker Acxiom echoed the sentiment.

“The DMA aims to preserve the benefits of data-driven marketing by asking Congress to focus its legislative efforts on passing a national breach notification law that would preempt state laws,” senior vice president for government affairs Peggy Renken Hudson wrote in a letter to Congress last month. “The current state of affairs is that there are more than 47 state laws that may apply depending on the state in which a consumer lives. This patchwork of laws is unwieldy, inefficient, and confusing. Businesses and consumers will be better served with a single, cohesive, transparent federal law.”

Jennifer Barret-Glasgow, the chief privacy officer at Acxiom, said the company has backed legislation for the last decade. “There have been several bills introduced in this time frame, but none have passed, mainly because there were other provisions included in these bills that were not related to breaches and were controversial,” she told Ad Age. “We are hopeful that this year we may finally get a strong and workable national standard.”

At least four bills have already been proposed in the Senate this legislative term. Sen. Patrick Leahy (D-Vt.) introduced the Personal Data Privacy and Security Act, while Sens. Dianne Feinstein (D-Calif.), John Rockefeller (D-W.Va.), Mark Pryor (D-Ark.), and Bill Nelson (D-Fla.) sponsored the Data Security and Breach Notification Act.

Sens. Roy Blunt (R-Mo.) and Tom Carper (D-Del.) reintroduced their Data Security Act and Sens. Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.) got in on the action with the Personal Data Protection and Breach Accountability Act.

To read the full text of Commissioner Brill’s remarks, click here.

To watch AG Holder’s video, click here

To read the DMA’s letter, click here

Why it matters: The scope of the Target security lapse (currently estimated to impact at least 110 million customers) combined with other high-profile incidents such as the holiday breach at Neiman Marcus and the recent revelation of a security gap in Apple software have yielded strong support for national data security legislation from industry, regulators, and law enforcement. It remains to be seen whether that support will translate into legislative action and the enactment of a data security law.

Nutrition Facts Label to Get Update

For the first time in 20 years, the Food and Drug Administration has announced proposed updates to the Nutrition Facts label “as part of an effort to help families make healthier choices.”

The current label has not changed much since it was launched in 1993, but the FDA proposed some major tweaks, which it announced at a White House press conference with First Lady Michelle Obama, who called the updates “a big deal.”

“The updated information is consistent with current data on the associations between nutrients and chronic diseases or health-related conditions, reflects current public health conditions in the United States, and corresponds to new information on consumer behavior and consumption patterns,” the FDA said in its proposal. The agency emphasized that the primary goal of the changes is to “expand and highlight the information [consumers] most need when making food choices.”

Specific elements will now be emphasized, including calorie content and the servings per container which would be set forth in larger, bolder type. Serving sizes should “reflect the amounts people currently eat” based on current consumption data, the FDA said, rather than amounts based on consumption data from the 1970s and 80s. In an example provided by the agency, the serving size for ice cream would be bumped from half a cup to a cup, in turn increasing the calories per serving from 200 to 400.

Other proposals: Products that are typically consumed in a single sitting (a 15-ounce can of soup, for example, or a 20-ounce soda) must include information for a single serving instead of breaking down information for multiple servings on the label. New data points will be added for potassium and vitamin D, which are not currently listed, while other items – like calories from fat, and vitamins A and C – will be removed.

The “sugars” column will change to read “added sugars” to exclude naturally occurring sugar in the product. And the FDA said it plans to update the daily values for certain nutrients. Sodium, for example, will be revised from 2,400 mg per day to 2,300 mg.

The proposed changes are open for a 90-day public comment period.

To read the proposed changes, click here

Why it matters: The label changes will require new packaging and potentially new formatting for some products, all of which will come at a cost to the food industry. An updated label could also impact a company’s marketing and advertising claims, particularly with respect to the change in serving sizes (a larger serving size could mean more calories, for example) or the daily values for nutrients. The estimated cost to the industry is $2 billion according to the FDA, which also posited a $20-$30 billion public health benefit over time.

Judge: Overstock Must Pay $6.8M for Deceptive Price Advertising

A federal court judge has ordered Overstock to pay more than $6.8 million for deceptively advertising the original list price of products.

District attorneys in eight counties – Alameda, Marin, Monterey, Napa, Santa Clara, Santa Cruz, Shasta, and Sonoma – filed suit in 2010, claiming that the Internet retailer posted an inflated list price next to the sales price. Consumers were tricked into thinking they were saving more money because the list price was not based on the actual price of the product found elsewhere, but on a formula created by Overstock based on the highest price it could find, the DAs said.

Sometimes Overstock even included the phrase “you save” next to the sales price, further misleading consumers about their potential savings. The complaint cited one incident where Overstock advertised a patio set for $449.99, with a list price of $999. A consumer claimed that when he received the set, it had a retailer sticker on it with a price of $247.

California Judge Wynne Carvill, in a ruling issued last month, found Overstock had violated state false advertising and unfair business practices laws going back to 2006.

“Overstock has consistently used ARPs (advertised reference prices) in a manner designed to overstate the amount of savings to be enjoyed by shopping on the Overstock site,” he wrote.

In addition to issuing a civil penalty of $6.8 million ($853,500 for each of the eight counties), Judge Carvill ordered injunctive relief. Overstock must halt its deceptive advertising practices and achieve compliance with the law within 60 days, he wrote.

Specifically, the retailer cannot use unmodified terms like “compare” as the advertised reference price unless it reflects a “good faith effort” to determine the prevailing market price of the identical product. Pricing for a similar but nonidentical product may be used only if the basis for the advertised reference price is disclosed on the same page in a manner “reasonably designed to alert consumers.” The use of acronyms such as “MSRP” or other marketing terminology must include a “clear and conspicuous” hyperlink that both provides a definition and states that the term may not be the prevailing market price, the court said.

Overstock is also prohibited from relying upon an advertised reference price for longer than 90 days from the day on which it was verified and must maintain documentation of the reference price (like a screen shot) for two years.

Why it matters: According to a statement from Napa County District Attorney Gary Lieberstein, the verdict is “one of the largest of its kind for consumers across California.” Overstock has indicated its plans to appeal, however, and president Story Simon called the ruling “unjust.” “Since 2008 I have been an integral part of the process by which we log, verify and advertise ‘compare-at’ prices. I am aware of the lengths we have gone to get this right on the millions of products that flow through our website,” he said.

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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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