Advertising Law -- Mar 21, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Manatt Advertising Litigation Team Twice Defeats Efforts to Enjoin TurboTax Television Commercials

On March 11, a Manatt cross-disciplinary team comprised of members of its Litigation and Advertising practices, again defeated efforts by H&R Block, represented by O’Melveny & Myers, to have the centerpiece of TurboTax’s 2013 advertising campaign enjoined. As described by

“For the second time in less than two months, the District Court of the Western District of Missouri dealt H&R Block a legal depantsing, refusing to grant injunctive relief preventing Intuit, the maker of TurboTax software, from airing commercials that poke fun at the experience level of H&R Block’s tax preparers.”

In denying H&R Block’s efforts to obtain relief, the Court carefully reviewed the TurboTax television commercials, one featuring a plumber and the second featuring a retail store clerk, which were designed to highlight the fact that H&R Block actually advertises for and hires tax preparers with no tax experience necessary.  After a lengthy hearing in which live testimony from the key witnesses was heard, the court found the express claims in the ads, for which Intuit (the maker of TurboTax) sought Manatt’s strategic advertising guidance, were literally true.  These included the fact that major tax stores like H&R Block advertise for tax preparers with no experience necessary, that TurboTax hires only “real” tax experts (IRS enrolled agents, CPAs, and tax attorneys) to answer consumers’ tax questions, and that more Americans used TurboTax to file federal returns than all the major tax “stores” combined. 

H&R Block also asserted that the ads conveyed “impliedly” false messages about the relative expertise of its tax preparers – that H&R Block hires preparers who are incompetent or unskilled. As is often the case with Lanham Act matters involving false advertising, this case turned on consumer perception survey evidence that H&R Block introduced allegedly showing that the ads were misleading in this way. Following cross-examination of H&R Block’s survey expert and the testimony of a rebuttal witness who critiqued H&R Block’s survey, the court found in its Opinion on literally every point argued by the Manatt team: that the consumer survey was unreliable and that there was no evidence that the ads were misleading in any respect. The court’s opinion provides a detailed analysis of the consumer perception survey and will undoubtedly be cited in the future as significant precedent in Lanham Act cases.

The Manatt team was comprised of Linda Goldstein, Chad Hummel, Noel Cohen, Jessica Slusser, Don Brown, Jeff Edelstein, Tom Morrison, Seth Reagan and Lindy Willingham.

Sen. Rockefeller Tries Again with Do Not Track

Will the second time be the charm for Sen. John Rockefeller (D-W.V.), who reintroduced his Do Not Track Online Act privacy legislation?

In 2011 Sen. Rockefeller introduced the bill, which stalled in the Senate Commerce Committee. Now, almost two years later, he is trying again.

The bill would establish a mechanism by which consumers could opt out from having “personal information” collected about their online activities. Companies could collect consumer information that was necessary for a Web site or online service to function, but the information would have to be destroyed or anonymized when no longer needed.

The bill, cosponsored by Sen. Richard Blumenthal (D-Ct.), does not define the scope of “personal information,” and leaves the job to the Federal Trade Commission. The agency is also tasked with enforcement.

“Online companies are collecting massive amounts of information, often without consumers’ knowledge or consent,” Sen. Rockefeller said in a statement about the legislation. “My bill gives consumers the opportunity to simply say ‘no thank you’ to anyone and everyone collecting their online information. Period.”

Although the ad industry has launched a self-regulatory program for online behavioral advertising since he first proposed the bill, Sen. Rockefeller said it isn’t enough. “Industry made a public pledge to develop Do Not Track standards that will truly protect consumer privacy – and it has failed to live up to that commitment. They have dragged their feet long enough,” Sen. Rockefeller told The New York Times.

To read the Do Not Track Online Act of 2013, click here.

Why it matters: The second attempt will also be Sen. Rockefeller’s final attempt at passing Do Not Track legislation, as he has announced he will not seek reelection in 2014. The chances of passage for the bill are unclear. Privacy remains a hot topic in Washington, D.C.. The legislation faces less competition this go-around as it did in 2011 when Sen. Rockefeller’s bill had to compete with another Senate privacy bill cosponsored by Sens. John Kerry (D-Mass.) and John McCain (R-Ariz.). However, the ad industry has established a self-regulatory system in the intervening years that may work against Sen. Rockefeller’s success. In response to the lawmaker’s comments about the industry’s efforts – or lack thereof – Lou Mastria, executive director of the Digital Advertising Alliance, which manages the self-regulatory program, disagreed. “We serve the ad choices icon a trillion times a month,” he told AdWeek. “It’s pretty hard to say it’s not working.”

NAD: Price Match Offer by Toys “R” Us Needs a Change

An overly broad price-matching claim by Toys “R” Us should be modified or discontinued, the National Advertising Division recently recommended after a review based on a consumer complaint.

The claim – “Price Match Guarantee – Spot a lower advertised price? We’ll match it. See a Team Member for details” – appeared on in-store banners. A customer attempted to purchase a dice game at Toys “R” Us with a page of competitors’ prices printed from an Internet search. But store employees refused to match the lower prices. Instead, they told him the guarantee only applied to prices posted by Best Buy and the Toys “R” Us Web site, The consumer left the store to make his purchase elsewhere and reported the company.

The terms and conditions stated by the employees were incorrect, Toys “R” Us told the NAD. The company does indeed match competitors’ print ads, but does not match online pricing (with exceptions for its own Web site and certain baby gear competitors). Had the consumer checked with a store manager or looked online, the consumer could have found the accurate terms and conditions, the toy company said. It noted that its conditions are similar – and in many cases less stringent – than competitors like Target.

Toys “R” Us told the self-regulatory body that consumers were also put on notice by the store banner’s “See a Team Member for details” language that the program contains terms and conditions.

But the NAD said that reasonable consumers would not expect that online pricing for competitive pricing would be excluded from the price-matching guarantee. “[T]he disclosure that consumers ‘[s]ee a Team Member for details,’ only to be told that the price-matching does not apply to online competitors’ toy prices, directly contradicts the main message conveyed by a toy store banner reading, ‘Price Match Guarantee – Spot a lower advertised price? We’ll match it,’” the NAD concluded.

While the self-regulatory body acknowledged the limited space on in-store banners, it determined Toys “R” Us’s claim was “overly broad” and it gave the chain two choices: either discontinue the claim entirely or modify the language “to more accurately reflect that the price-match guarantee for toys applies to competitors’ print advertisements. . . . thereby allowing the Team Member to explain other additional price matching and/or other limitations.”

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

Why it matters: The NAD found that the Toys “R” Us’s price-match guarantee was overly broad without a statement setting forth the limitations of the offer. Advertisers should remember that appropriate disclaimers must be made even when faced with space constraints like an in-store banner.

FTC Targets Text Message Scammers

Targeting the senders of 180 million illegal text messages, the Federal Trade Commission announced eight enforcement actions against 29 defendants who sent spam messages offering free gift cards.

The messages “are more than just a nuisance,” said FTC Midwest Region Director Steve Baker at a press conference announcing the actions. “Collectively, they cost people who receive them millions in higher charges on cellphone bills and the people who respond to them also can become victims to scams.”

In the complaint against AdvertMarketing, for example, the agency alleged that the company inundated 30 million consumers with texts like “You won a free $1000 Walmart Gift Card, enter code ‘FREE’ at”

But “even if [consumers] get the gift card, it isn’t free,” Baker charged. Consumers who clicked on the link in the messages were taken to a Web site where they were required to provide pages of information that included their e-mail addresses (leading to e-mail spam, Baker said), their credit card information for “free” trial offers (used to enroll them in continuity plans), their contact info for three friends to receive similar offers, and the answer to questions like “Are you a diabetic?” As consumers were forced to enroll in a continuity plan to obtain a gift card, the “free” scheme constituted a deceptive practice.

Both the message itself and the claims contained in the messages violated federal law, the agency said in complaints against AdvertMarketing and six other affiliate marketers: Superior Affiliate Management, Rentbro, Inc., Jason Q. Cruz, Rishab Verma, Henry Kelly, and Seaside Building Marketing. In the final case, the agency sued SubscriberBASE Holdings, Inc., and related defendants, which the FTC alleged operated the Web sites on which the deceptive schemes were conducted.

At the press conference Baker said the agency received roughly 20,000 complaints about the free gift card text messages. The FTC spent months investigating the texts, but struggled to trace their origin and actually find people to sue. It remains unknown how the defendants acquired the phone numbers they used, and since no particular demographic was targeted, Baker said the selection appears to be random.

All the suits – filed in district courts in California, Georgia, Illinois, and Texas – seek injunctive relief to halt the texts and the freezing of the defendants’ assets. Baker estimated that the defendants collectively made “millions of dollars” from the spam texts.

To read the FTC’s complaints in the enforcement actions, click here.

Why it matters: With another slew of enforcement actions, the FTC has reinforced its focus on the mobile ecosystem. Marketers must not only receive prior, express consent before sending text messages as part of an advertising campaign, they must ensure that any claims within the message itself are not deceptive or misleading.

FDA Doesn’t “Like” Dietary Supplement Maker’s Facebook Activity

In the agency’s first enforcement action based on social media activity, the Food and Drug Administration published a warning letter sent to dietary supplement maker AMARC Enterprises for “liking” a consumer testimonial about one of its products and for marketing other products as a drug.

The letter – which was sent in December 2012 but just made public – addressed the Poly-MVA products that were marketed on Web sites, in information packets that accompany purchase of the product, and through social media. According to the FDA, the human and animal dietary supplements were promoted as a drug within the meaning of the Food, Drug, and Cosmetic Act.

In one example, the FDA noted a consumer testimonial that read, “I want everyone to know that I am now 3 years clear of lung cancer!! When I was told I had a mass in my lung, the first thing I did when I returned home was to call AMARC Enterprises – the PolyMVA people. PolyMVA helped save my life. . . .Thank you again and again for the support that PolyMVA gave my body in my fight against cancer!”

“The claims in the literature and on your websites establish that this product is a drug because it is intended for use in the cure, mitigation, treatment, or prevention of disease,” the agency wrote. “The marketing of your product with these claims violates the Act.”

But the agency went one step further, criticizing the company for “liking” a March 10, 2011, comment on the AMARC Facebook page for Poly-MVA. The comment read, “[Product] has done wonders for me. I take it intravenously 2x a week and it has helped me tremendously. It enabled me to keep cancer at bay without the use of chemo and radiation. . . .Thank you [Company.]” In response, AMARC “liked” the comment.

By liking the post, the company made an impermissible drug claim that the product at issue was intended for use in the diagnosis, cure, mitigation, treatment, or prevention of a disease, the FDA said. “Your products are not generally recognized as safe and effective for the above referenced conditions and therefore…[are] “new drugs,” the marketing of which must be preapproved by the FDA. The agency further stated that, [the] products are offered for conditions that are not amenable to self-diagnosis and treatment by individuals who are not medical practitioners; therefore, adequate directions for use cannot be written so that a layperson can use this drug safely for its intended uses,” making them misbranded under the FDA Act.

AMARC was given 15 days to respond to the agency’s letter or face regulatory action.

To read the FDA’s warning letter, click here.

Why it matters: While drug companies have sought guidance on marketing their products in the context of Web 2.0, the agency has not provided any direction. Although the FDA has said the regulation of social media is under consideration (for example, how to fit all the required drug warnings in a 140-character tweet), for the present, the drug industry must use care when engaging with consumers online. The warning letter serves notice that the FDA will treat the “liking” of a consumer comment as marketing or promotional activity and that it will scrutinize all forms of social media activity in the future.

FCC Should Update Sponsorship, Product Integration Guidance, GAO Recommends

The Federal Communications Commission should update its sponsorship identification guidelines with examples relevant to modern issues and improve communication with the targets of FCC investigations, according to a recent report by the U.S. Government Accountability Office.

“Recognition of sponsored programming has become increasingly difficult because of new technologies and increased access to sponsored programming such as video news releases,” the GAO said. The agency’s investigation and report were requested by Reps. Nancy Pelosi (D-Calif.) and Henry Waxman (D-Calif.).

Existing sponsorship identification statutes and regulations mandate that licensed broadcasters operating television and radio stations and cable operators that originate programming must disclose on-air when a party gives money or a payment in kind for the broadcast of programming content.

While the GAO reported that most broadcasters could generally identify commercial content and comply with existing requirements, modern technology and advertising methods have raised some new questions. A reality television show may accept money to prominently feature a brand of soft drink or a news program may accept money to broadcast a prerecorded segment on allergy medication, for example.

Another problem for broadcasters: video news releases. VNRs are prepackaged news stories that may include only film footage or may also include a suggested script, the GAO explained. Facing shrinking budgets and appreciative of free material, broadcasters may use a portion of a VNR or even the entire piece.

According to the FCC, broadcasters should always air a sponsorship announcement when using VNRs. But some broadcasters told the GAO they believe VNRs should be treated akin to a press release, particularly if only a portion of the content is used and it was provided free of charge. In one example, a news program might use VNR footage of the interior of a car manufacturing plant because it doesn’t otherwise have access to the plant. Broadcasters were divided about how to handle such a situation and the FCC should step in and provide guidance, the GAO advised.

“FCC guidance for the sponsorship identification requirements has not been updated in nearly 50 years to address more modern technologies and applications,” the GAO wrote. Therefore, the agency should “initiate a process to update its sponsorship identification guidance and consider providing additional examples relevant to more modern practices,” including the use of VNRs.

The report also documented the FCC’s investigation and enforcement process for complaints related to sponsorship. Most complaints do not end with an enforcement action, the GAO found. But the FCC rarely – if ever – communicates to broadcasters that an investigation has been closed. While the report acknowledged that the agency has no legal obligation to communicate with the broadcaster named in the complaint, the GAO said the FCC concluded that broadcasters should be provided with more information.

Despite objection from the FCC, based on its determination that it does not have the resources for increased communication and its concern that informing broadcasters an investigation is closed might be interpreted as an endorsement of the action being questioned, the GAO recommended greater transparency. “By providing this information, for cases in which the FCC conducts a full investigation and determines the broadcaster’s actions not to be a violation of requirements, the outcome could provide guidance to the broadcaster of allowable activities.”

To read the GAO’s report, click here.

Why it matters: The FCC’s goal of protecting the listening and viewing public requires the agency to hold broadcasters to a basic principle: the public is entitled to know when and by whom it is being persuaded. To reach that end, the GAO made three recommendations: First, the FCC should update its guidance on product integration notices to keep pace with technology and changing marketing practices. Secondly, the agency should improve communication with broadcasters during the investigation and enforcement process. Finally, the FCC should complete its investigations in an expeditious manner and it should develop goals for completing sponsorship identification cases within a specific time frame. As the process unfolds, we will keep you apprised of the FCC’s actions.

Noted and Quoted . . . Linda Goldstein Highlights Importance for Marketers of FTC’s New Settlement Language

An article published on March 11 by Advertising Age, “Not So Settled: FTC Language Change Could Add Liability,” notes a potentially troubling development regarding the Federal Trade Commission’s new boilerplate language that changes how marketers are allowed to describe settlements with the agency.  Because the FTC now states that the defendant “neither admits nor denies” the charges, this could fuel follow-on class actions.

According to Linda Goldstein, Chair of Manatt's Advertising, Marketing and Media Division, who was quoted in the article, the new approach means “you don’t have to admit liability, but you cannot expressly deny liability.”  She also noted that making the denial was important “because it allows you to present the settlement in a certain way publicly – that the settlement was entered into for expediency and the company doesn’t admit any wrongdoing.” 

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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