Advertising Law - Oct 12, 2012

by Manatt, Phelps & Phillips, LLP

In This Issue:

"Faster,” “Stronger” Toothpaste Claims Must Be Discontinued, NARB Rules

Affirming a decision by the National Advertising Division, the National Advertising Review Board recommended that Colgate discontinue “stronger” and “faster” relief claims for its Sensitive Pro-Relief toothpaste.

In a case brought by competitor GlaxoSmithKline, the maker of Sensodyne toothpaste, the challenged claims include “Gets to the nerve faster for long-lasting relief” and “FASTER & LONG-LASTING Hypersensitivity relief* [*Faster vs. Sensodyne toothpaste.]”

After reviewing the two clinical tests and one in vitro study Colgate submitted in support of its claims, the NARB said that Colgate failed to provide sufficient support. The studies – which compared users’ pain relief at intervals of two, four, and eight weeks after using Sensitive Pro-Relief and Sensodyne – “had too few data points to generate meaningful results,” and the earliest test assessment did not occur until after two weeks of usage.

“The panel agrees with NAD that one of the reasonable messages conveyed by Colgate’s ‘faster’ claims is that Colgate Sensitive Pro-Relief toothpaste starts to provide meaningful relief from sensitivity pain more quickly than Sensodyne toothpaste,” the NARB wrote. But “reasonable support for this message cannot be provided by testing that first assesses pain relief at 2 weeks. Because no measurements after baseline were taken prior to 2 weeks, there is nothing in the record to sufficiently establish when the tested products began to provide meaningful relief and whether Colgate Sensitive Pro-Relief toothpaste was the first to do so.”

The single in vitro test was also insufficient to support the “faster” claims, the decision noted.

Addressing Colgate’s “better” claims, the panel again found the test results provided insufficient support. The studies indicated a relatively high level of consumer discomfort at two weeks for both toothpaste products, and although study participants demonstrated a 20 percent advantage using Colgate at two weeks, it was not achieved at four weeks – a meaningful difference as established by the American Dental Association for products effective in relieving tooth sensitivity.

Colgate should discontinue its “better” than Sensodyne claims, the NARB said, except for the eight-week measurement point, where the 20 percent advantage was achieved.

The panel also determined that in advertising directed to professionals, Colgate could reference its test results provided they were accompanied by appropriate disclosures about the findings at all data points and the methodology that was used.

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

Why it matters: The NARB’s decision affirms for marketers the need to have sufficient evidentiary support for product comparison claims. Although Colgate argued that its two clinical studies and one in vitro study provided a reasonable basis for the messages conveyed by its advertising, the NARB said more data points and an earlier assessment were needed. “Health claims, as made in the challenged advertising, require substantiation by competent and reliable scientific evidence,” the panel noted.

Sallie Mae Settles TCPA Suit for $24 Million

A federal court judge approved a $24 million settlement in a class action suit brought by borrowers against Sallie Mae for alleged violations of the Telephone Consumer Protection Act.

The borrowers claimed in a District of Columbia federal court that the student loan company willfully and knowingly made automated calls and/or sent texts to an estimated 8 million class members over a five-year period, from October 2005 to September 2010.

The parties first agreed to a settlement of $19.5 million in October 2010, but the terms of the deal were changed after the court included additional class members. The additional $4.65 million will cover borrowers who had been 180 days or more delinquent on a loan payment at any time and those who had already paid off their loan balances.

Under the terms of the updated settlement, class members are entitled to different awards depending on the status of their loans.

Those who have never been 180 days or more delinquent on their loans are eligible for a cash award, estimated in the range of $20 to $40 but not to exceed $500, or a reduction of their principal balances. Borrowers who have been delinquent in the past, but whose balances are now current may only request a cash payment. Those who have been delinquent and are not current may only receive a loan reduction.

The class is also entitled to submit a “revocation request” instructing Sallie Mae – and its affiliates and subsidiaries – not to make automated calls or texts to a given phone number. Class members who do not submit the request form will be deemed to have provided prior, express consent pursuant to the TCPA.

To read the amended settlement agreement in Arthur v. Sallie Mae, click here.

Why it matters: In their motion in support of the settlement, plaintiffs’ counsel said the $24.15 million deal was the largest TCPA settlement of which they were aware. Class actions alleging violations of the statute – particularly those based on text messages sent without prior, express consent – continue to proliferate, and marketers should ensure compliance with the TCPA’s requirements or face a potentially costly lawsuit.

Ninth Circuit Approves Facebook Settlement Over Objections

Despite the fact that class members will not receive any compensation, the Ninth Circuit approved the “fundamentally fair” settlement terms in a lawsuit brought by users who alleged that Facebook’s Beacon program violated their privacy rights.

The class action suit was filed after the company launched Beacon, which integrated with other companies to share information about Facebook users – like a movie they had rented from Blockbuster, or in the case of one plaintiff, a diamond ring purchased on as a surprise for his wife.

The parties agreed to a $9.5 million settlement, which required the social networking site to spend $6.5 million to create a new charity organization, the Digital Trust Foundation, to fund and sponsor privacy-related programs. The company also agreed to terminate the Beacon program.

But several plaintiffs objected, arguing that the inclusion of Facebook’s director of public policy on the three-person Foundation board created an unacceptable conflict of interest that would prevent the organization from acting in the interests of the class.

In a 2-1 decision, the Ninth Circuit disagreed.

“We do not require . . . that settling parties select a cy pres recipient that the court or class members would find ideal,” U.S. Circuit Court Judge Procter Hug, Jr., wrote for the majority. “Defendants often insist on certain concessions in exchange for monetary payments or other demands plaintiffs make, and defendants can certainly be expected to structure a settlement in a way that does the least harm to their interests. Here, in exchange for its promise to pay the plaintiff class approximately $9.5 million, Facebook insisted on preserving its role in the process of selecting the organizations that would receive a share of that substantial settlement fund by providing that one of its representatives would sit on DTF’s initial board of directors, and the plaintiffs readily agreed to this condition. That Facebook retained and will use its say in how cy pres funds will be distributed so as to ensure that the funds will not be used in a way that harms Facebook is the unremarkable result of the parties’ give-and-take negotiations.”

The panel also rejected the contention that the dollar amount of the settlement was too low, as certain plaintiffs were potentially eligible for $2,500 per violation of the Video Privacy Protection Act. After evaluating the fairness of the settlement as a whole, the court said the plaintiffs with a VPPA claim represented only a fraction of the estimated 3.6 million member class.

“Ultimately, we find little in [the objectors’] opposition to the settlement agreement beyond general dissatisfaction with the outcome,” the court said.

In his dissent, U.S. Circuit Court Judge Andrew J. Kleinfeld bemoaned the fact that the plaintiffs would not “get one cent.” “This settlement perverts the class action into a device for depriving victims of remedies for wrongs, while enriching both the wrongdoers and the lawyers purporting to represent the class,” he wrote. “Facebook deprived its users of their privacy. And now they are deprived of a remedy.”

To read the court’s opinion in Lane v. Facebook, click here.

Why it matters: Judge Kleinfeld’s dissent cited another recent Ninth Circuit opinion addressing a false class action settlement. In that case, the court set aside a $10.6 million deal in a suit alleging that Kellogg made false claims that its Frosted Mini-Wheats cereal could improve cognitive development. Even though class members were set to receive $2.75 million, the court said a charitable donation of $5.5 million worth of cereal did not have a sufficient nexus to the plaintiffs’ underlying claims. The majority in the Facebook case acknowledged that the cy pres recipient was not “ideal,” but found the creation of the Foundation had a sufficient nexus to the plaintiffs’ claims, as it would benefit class members and “further the purposes of the privacy statutes that form the basis for the class-plaintiffs’ lawsuit.

Groups Comment on FTC’s COPPA Rule Changes – Again

As the deadline ended for public comment on the Federal Trade Commission’s proposed update to the Children’s Online Privacy Protection Act Rule, various groups weighed in on more possible changes.

In September 2011, the FTC released proposed changes to the Rule that included clarification of the applicability of COPPA to online services, the broadening of definitions such as “personal information” and “collection,” updated requirements for parental notice, and new requirements for data retention and deletion.

After receiving more than 350 comments, the agency issued additional modifications to the Rule and requested another round of public comment.

A coalition of consumer groups, including the Center for Digital Democracy, Consumers Union, and Public Citizen, argued in a joint submission that the FTC’s proposals should go further. While the groups “generally support the Commission’s revised proposals,” the agency still has room for improvement, they said.

The definition of “personal information” should be expanded to include persistent identifiers, the groups wrote. “When marketers use information collected about an individual to display an advertisement chosen to appeal to that person at that time, they are contacting a specific individual online, even if they do not know the person’s full name.”

The coalition also suggested that parental permission should be required prior to the collection of data, regardless of whether ad networks have reason to know they are present on children-directed sites. “If third-party information collectors could be relieved from COPPA liability by claiming they did not know how their plugins were being utilized or where advertisements were placed, they would have an incentive not to know or find out this information.”

In response to comments on whether a Web site or online service designed “for both children and a broader audience” could be COPPA compliant without treating all of its users as children, the groups took a stance against the proposed change. The idea – supported by the Walt Disney Company for the creation of a “family-friendly” classification – would result in less protection for children, the groups said.

In its comments, Disney proposed the new classification as “a rational path for the development of family-friendly, privacy-protective Internet content and services, which would in turn encourage greater investment in family-friendly services such as premium content incorporated into a family-oriented service.” But the coalition said the proposal “would permit child-directed websites or services to avoid COPPA by ‘age gating,’ and children’s privacy would receive much less protections as a result.”

In other comments, the Interactive Advertising Bureau opposed a proposed change that would add “unique identifiers” to the definition of personal information. The adoption of identifiers would require prior parental consent before serving targeted ads to children. The change “would restrict children’s access to online resources by undermining the prevailing business model,” the IAB wrote.

The group also objected to the FTC’s idea that publishers would be liable for COPPA violations committed by app developers or ad networks. In addition to posing technical challenges, the “statute does not provide the authority to impose vicarious liability on first parties based on third-party practices,” wrote Michael Zaneis, senior vice president of the IAB.

Alternatively, the IAB said self-regulation of the industry “remains the best and most efficient means to address concerns about the collection of children’s online browsing data, without running the risk of dramatically reducing online resources available to children. Moreover, the proposed changes to the existing COPPA rule would undermine the active efforts of industry to promote and implement effective self-regulation.”

Facebook also objected to the changes and cited First Amendment concerns if the agency’s third-party liability proposal was adopted. Because those under the age of 13 face restrictions on the social networking site, including an inability to “like,” comment on, or recommend Web sites, Facebook argued that teens are being unconstitutionally restricted. “The Supreme Court has recognized on numerous occasions that teens are entitled to First Amendment protection. A government regulation that restricts teens’ ability to engage in protected speech – as the proposed COPPA Rule would do – raises issues under the First Amendment.”

To read the comments filed by the coalition, click here.

To read the IAB’s comments on the proposed Rule changes, click here.

To read Facebook’s comments, click here.

Why it matters: Now that the public comment period has expired, advertisers and marketers should keep a close eye for the finalized updates to the COPPA Rule that, according to The New York Times, should be issued “within weeks.”

Maybelline’s “Super Stay” Lipsticks Don’t Live Up to Their Name, Suit Claims

In a new suit filed in New York federal court, three plaintiffs allege that Maybelline is falsely advertising its “Super Stay” lipstick products.

Television ads and claims on the company’s Web site and product packaging tout that the “Super Stay 10HR Stain Gloss” “stays vibrant and shiny, yet transparent, and won’t fade” for a 10-hour period, while the “Super Stay 14HR Lipstick” “won’t weight you down” and has “Super rich color with super staying power” for 14 hours.

But the lip gloss dries up and fades away in less than one hour after application and the lipstick lasts only a few hours before fading, the plaintiffs argue. 

According to the complaint, “The misrepresentation as to the duration of the product’s staying power is inherent in the very name of the product.”

The plaintiffs claim they purchased the lipstick and lip gloss for their purported long-lasting attributes after having used other Maybelline products that lived up to their names. The suit seeks to certify a nationwide class with individual state subclasses, requests injunctive relief, and asks for monetary compensation.

To read the complaint in Leebove v. Maybelline, click here.

Why it matters: The suit alleges violations of state business and/or consumer protection in Michigan, New Jersey, and New York, where each of the named plaintiffs reside. The proposed subclasses of New Jersey and New York class members also seek punitive or trebled damages. A spokesperson for the company told The Wall Street Journal Law Blog that the suit “has no merit” and that Maybelline “stands proudly behind our products.” “We will strenuously contest these allegations in court,” Rebecca Caruso, a spokesperson for L’Oreal USA, which owns Maybelline, told the blog.

Noted and Quoted . . . New York Times and Westlaw Journal Turn to Manatt for Industry Insight

On October 2, 2012, The New York Times sought commentary from Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, on the legal nuances surrounding affiliate marketing practices in the social media realm.  The Federal Trade Commission has indicated that the practice of offering payments to shoppers who post product links through Twitter and other channels “blurs the line between a recommendation and a paid endorsement.”  It’s unclear, however, whether Twitter posts should be treated as endorsements.

According to Goldstein, “Consumers are now being used to generate leads – I don’t know if that raises the same concerns as an endorsement.  You’re not expressing an opinion about the product, you’re sending it to someone you think might be interested.”

To read the full article, click here.

Manatt partners David Killalea and Marc Roth and associate Stacey Mayer coauthored an article titled “The State of Coverage Disputes Concerning Advertising and Privacy Claims” in the September 2012 issue of the Westlaw Journal. 

The article focuses on the uptick of false advertising and data breach lawsuits filed against retailers and marketers and stresses the importance of evaluating existing insurance policies to determine whether retailers and marketers are covered for these particular types of risks.

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

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