Advertising Law -- May 03, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Manatt and ERA to Lead Teleseminar on Compliance with FTC’s New Dot Com Disclosure Guides

The Federal Trade Commission’s long-awaited changes to its “Dot Com Disclosures” set forth a number of new directives, examples and warnings relating to digital and mobile media to which direct response marketers should pay particular attention.

To this end, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, and Bill McClellan, VP of Government Affairs for the Electronic Retailing Association (ERA), will lead a teleseminar discussion that will highlight nuances marketers need to understand about the new disclosures in order to make the necessary changes to their digital campaigns. This timely event is just one example of how the ERA ensures its members stay ahead of the curve on important industry and regulatory developments and comes on the heels of its hugely popular Government Affairs Fly-In on May 21-22, 2013.

The teleseminar will be held on Tuesday, May 7 at 2:00 pm – 3:00 pm EST. For this special event, the ERA has opened the program to members and non-members. Please RSVP to Bill McClellan.

Updated Florida Sweepstakes Law Takes Effect

Florida has updated its sweepstakes law which was designed to clarify that games of chance may be operated by commercial entities only on a “limited and occasional basis” as a marketing tool incidental to the sale of a product or service.

The changes to the Game Promotion Statute took effect April 10. Game promotions are defined as games of chance that are conducted by for-profit commercial entities on a limited and occasional basis as an advertising and marketing tool and are incidental to bona fide sales of consumer products or services. Operators of “game promotions” are subject to the requirements of the new Florida law. They must be bonded and registered if the total prize package exceeds $5,000, they must provide a winner’s list to the state, and they cannot have a pre-selected winner format, to name just a few requirements.

Not-for-profit entities cannot conduct “game promotions” as they do not generally sell goods or services. However, they can otherwise conduct a sweepstakes provided it complies with Florida lottery and charitable promotion laws. By way of example, nothing would prevent the American Cancer Society from conducting a fundraising sweepstakes with a free method of entry. The sweepstakes would not be a “ game promotion” and is therefore exempt from the game promotion law requirements. But it would be lawful under Florida lottery laws.

A modified definition of an “operator” of a game promotion now includes a “retailer who operates a game promotion or any person, firm, corporation, organization, or association or agent or employee thereof who promotes, operates, or conducts a nationally advertised game promotion.”

In addition, the updated law applies to retailers who operate game promotions on a local basis as well as those who operate a game of chance both in and out of the state.

The revisions did not change the penalties for violations of the law but did add that a violation also constitutes an unfair trade practice under Florida law. A violation of the Game Promotion Law can result in a civil penalty of up to $1,000 per violation as well as an injunction, and referral for criminal prosecution is also available if appropriate.

To read the Game Promotion Statute, click here.

Why it matters: National companies operating a sweepstakes in Florida as well as local entities should review the updated law to ensure compliance with the new requirements as well as the prior regulations. For example, all advertising copy must include the material terms of the rules, which must also be posted in all outlets. Operators must also meet state requirements to file with the Department of Agriculture and Consumer Services.

More Time Needed for COPPA Compliance, Groups Tell FTC

The Interactive Advertising Bureau recently urged the Federal Trade Commission to extend the date for compliance with the amended Children’s Online Privacy Protection Act Rule, citing the complicated changes at issue.

On July 1, changes to the FTC’s COPPA Rule are set to take effect. They include the expanded definitions of key terms like “personal information” and “operator,” as well as the creation of new mechanisms for obtaining verifiable parental consent and a requirement for operators to adopt reasonable procedures for data retention and deletion.

But the changes – the first to the Rule in over a decade – are too much for some companies to handle in the time period allotted, the IAB said in a letter to the FTC. In particular, the definition of “personal information” now encompasses persistent identifiers (like mobile device IDs and IP addresses), geolocation data and photos, videos, and audio files that contain a child’s image or voice.

The broadened definition brings companies that were not previously covered within the scope of the COPPA Rule, the IAB wrote, and they “need time to update their software and business models, which may have been planned well in advance of the release of the updated COPPA Rule.”

The IAB requested an additional six months for companies to achieve compliance, with a new effective date of Jan. 1, 2014.

A similar delay was sought by the Application Developers Alliance, an organization that represents 20,000 individual developer members and more than 100 corporate members. They maintained that “the rule changes are so significant and the penalties so severe that, absent delay, many developers and publishers will simply stop publishing, placing their entire business at risk.”

ADA President Jon Potter said the changes “create significant new obligations for app developers and their partners that are still not well understood.” The necessary modifications to apps and user interfaces require time and money, and “app developers are justifiably concerned about investing those resources absent certainty about their changed responsibilities.”

To read the ADA’s letter to the FTC, click here.

Why it matters: The COPPA Rule changes came about after a lengthy public comment period that began in April 2010. The FTC has not responded to the requests for a delay in implementation of the new Rule, although the FTC recently released guidance on the forthcoming changes in the form of “FAQs.”

NARB Upholds, Reverses in Review of Origins Anti-Aging Claims

The National Advertising Review Board upheld certain advertising claims but recommended that Origins Natural Resources discontinue claims that its Plantscription Anti-Aging Serum rivals an anti-wrinkle prescription and provides 88 percent of the visible wrinkle-reducing power of a prescription.

The case arose when the National Advertising Division requested substantiation from Origins for several advertising claims, including the comparative claims with respect to prescription products and cosmetic surgery, express claims about the presence of Anogeissus in the product, implied claims about the extent to which the product is natural, and use of the term “repair.”

After reviewing Origins’ substantiation, the NAD found the company could not support the claims and recommended that they be modified and/or discontinued.

Origins appealed to the NARB, which sustained one NAD finding and set aside the others.

A five-person panel agreed with the NAD that the two studies provided by Origins did not support the company’s express claim that “Nature’s Plantscription rivals an anti-wrinkle prescription” because it “reasonably conveys [an unsupported] message that the Origins product is equal to or better than the anti-wrinkle prescription. . . .” Looking at the “88 percent” claim, the NARB found that the failure to include a time period limiting the statement conveyed a broad message that overstated the effectiveness of Plantscription.

But the panel found the remainder of Origins’ claims passed muster. References that the products are formulated “with Anogeissus” in the overall context of the advertisements convey “only the messages that the products contain Anogeissus and that Anogeissus contributes to the anti-aging effect of the products,” not that the ingredient is “key” to reducing lines and wrinkles, as the NAD found.

Claims that Plantscription can “visibly repair” signs of eye aging split the panel. While a minority found that the phrase could convey a message that the products could permanently fix facial lines and wrinkles, the majority determined that consumers would take away the “less dramatic message” that the Plantscription products help improve facial appearance, a claim the company could support.

Emphasizing the company’s attempts at humor, the NARB said ad content like “Two dabs a day helps keep the surgeon away” and “the knifestyles of the rich and famous” did not promise comparable results to cosmetic surgery but was instead a comical play on words.

And, after examining the product name, plant imagery, and references to nature, the NARB disagreed with the NAD and said Origins’ visual and textual references did not overstate the extent to which the product is comprised of natural ingredients. It noted that Plantscription Anti-Aging eye treatment has a “substantial number” of natural ingredients.

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

Why it matters: In analyzing Origins’ claims, the NARB repeatedly emphasized the importance of evaluating challenged claims in the overall context of the advertisements. The panel also provided some guidance to advertisers in its discussion of the two studies provided by Origins to support its comparative ad claims. The studies were both double-blind, used the same methodology, relied on the same objective measurements, and were conducted by the same investigators in the same lab, but were conducted separately. While the NAD dismissed the studies as lacking substantiation because there was no head-to-head testing of the two products being compared, the NARB said the two studies were “essentially identical,” stating, “The panel agrees with the NAD that head-to-head testing is the most reliable substantiation when comparative performance claims are made. However, the panel finds, consistent with prior NAD decisions, that different tests may provide adequate substantiation for comparative claims if the tests are essentially identical or all of the variables are accounted for.”

Actress Loses Suit Against IMDb for Age Reveal

In a closely watched case in Washington federal court, a jury found in favor of entertainment Web site IMDb (Internet Movie Database) over an actress who sued after the site revealed her true age.

Huong Hoang, who used the stage name Junie Hoang to garner acting credits like Zombie Postwoman in Z: A Zombie Musical and the Headless Woman in Domain of the Damned, created a profile on IMDb to increase her exposure to the film and television industry, and the profile listed her birthdate as 1978. Hoang later asked the site to remove her age and sent altered documents to support her cause. The company, however, cross-referenced her credit card data with public records and updated the site to reveal her real year of birth: 1971.

Hoang sued, alleging that the disclosure resulted in lost employment.

“In the entertainment industry, youth is king,” Hoang wrote in her complaint. “If one is perceived to be ‘over-the-hill,’ i.e., approaching 40, it is nearly impossible for an up-and-coming actress, such as the plaintiff, to get work.”

After a two-day trial, a federal jury ruled in favor of Amazon subsidiary IMDb on Hoang’s breach of contract claim (her other allegations of fraud and breach of state privacy law were dismissed last year).

According to a report from The Hollywood Reporter, Esq., Hoang faced tough cross-examination when she took the stand about her actual earnings from her acting career even prior to the revelation of her true age. Tax returns showed her acting income in 2010 was between $1,000 and $2,000, which the defense used to imply that Hoang’s acting was less a career and more of a hobby. Defense counsel also grilled Hoang about her efforts to post a fake age on the Web site, a violation of IMDb’s terms of service. He asked her repeatedly, “You knew you were obligated to make sure the information you provided [to IMDb] was true and accurate, didn’t you?”

Why it matters: Companies that engage in comparable data-mining activity were concerned that a verdict paid in favor of Hoang could open the door to potential liability and paid close attention to the suit. Hoang alleged that the site ascertained her actual age by using her credit card information to search publicly available data. But the defendant argued that even if it did use her credit card information, it was allowed to under the terms of its privacy policy, which stated that IMDb uses information given to the site for “improving our site.” It listed examples of collected data like names, e-mail addresses, age, and gender. The jury seemingly agreed.

Judge Melts “All Natural” Ice Cream Settlement

A plaintiff alleging ice cream makers falsely advertised their products as “All Natural” may have lost her second chance at a settlement.

Colleen Tobin elected to opt out as a class member in a $7.5 million settlement that was reached in a suit against Ben & Jerry’s and Unilever. That suit – known as Astiana v. Ben & Jerry’salleged that the defendants deceptively marketed their ice cream as “All Natural,” when it actually contained cocoa alkalized with potassium carbonate, a man-made, synthetic substance.

Instead, Tobin filed her own class action in New Jersey federal court last November. The case was transferred to California and the parties negotiated a settlement that provided for a $1.3 million fund from which class members could receive between $6 and $50 without proof of purchase.

In ice cream parlance, another scoop was added to the cone. Although the Astiana settlement was initially approved, U.S. District Court Judge Phyllis J. Hamilton denied final approval in light of the U.S. Court of Appeals for the Ninth Circuit’s decision in Dennis v. Kellogg Co. In that case, consumers alleged that Kellogg made false claims that its Frosted Mini-Wheats cereal could improve children’s cognitive development. The parties reached a deal totaling $10.6 million, but the 9th Circuit reversed the approval based on objections from class members, citing concerns about the cy pres award and the size of the attorneys’ fees. Judge Hamilton found similar problems with the Astiana deal and declined to approve it. Skye Astiana then filed a motion to intervene in the Tobin suit.

But U.S. District Court Judge Jeffrey S. White in the Tobin case put his foot on the brakes, “tentatively deny[ing]” both the motion to intervene and the motion for preliminary approval of the settlement. Ordering the parties to prepare themselves for oral argument, he listed several areas of concern with the proposed deal.

Judge White sought answers on a number of issues with the case, beginning with whether venue was proper after the transfer from New Jersey and whether Tobin lacked standing to bring her claims under New Jersey law. The court also questioned what the parties had learned from the failure of the Astiana deal, noting that settlement had a very low response to the publication notice, with fewer than 5,500 claims (totaling less than $33,000). Tobin argued that notice via the Internet and e-mail would boost the response rate, but Judge White asked for substantiation for her argument. “What is the parties’ best argument that additional publication notice would not be the best notice practicable under the circumstances? Do the parties have any evidence regarding the efficacy of their proposed Internet notice?” he asked.

In addition, the Tobin settlement allows class members to donate their award to a charity that receives grants from the Ben & Jerry’s Foundation, and if the settlement fund ends up being undersubscribed, the parties proposed to donate the remainder to charity. Given these conditions, the “Court disagrees with the parties’ view that there is no cy pres component and the Court does not see the nexus between the proposed charities and the nature of the claims,” Judge White noted.

Judge White queried why he should not “view this settlement with greater skepticism, given that it substantially reduces the funds available for settlement purposes” from the $7.5 million Astiana deal.

Finally, the court asked the parties to consider various outcomes with the addition or exclusion of Astiana from the case, including whether her motion to intervene was merely an “end run” around Judge Hamilton’s ruling declining approval in the earlier settlement.

To read the motion for settlement in the Tobin case, click here.

To read Judge White’s order, click here.

Why it matters: While the case presents some unique procedural complications, it reinforces the trend of judges taking a hard look at the terms of class action settlements in false advertising suits. Citing the Kellogg decision, Judge Hamilton denied final approval in the first attempt at settling claims against the ice cream defendants. Judge White appears ready to follow suit unless the parties can overcome his numerous concerns. Parties agreeing to a settlement that includes provisions for charitable donations or a cy pres fund should be prepared to face close scrutiny about whether a sufficient nexus exists to the underlying claims. As the 9th Circuit explained in the Kellogg case, “The gravamen of this lawsuit is that Kellogg advertised that its cereal did improve attentiveness. Those alleged misrepresentations are what provided the plaintiffs with a cause of action under [false advertising laws], not the nutritional value of Frosted Mini-Wheats. Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising,” the court said.

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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