Advertising Law - October 2015 #2

Manatt, Phelps & Phillips, LLP

In This Issue:

"Flying Rabbi" Suit Crash Lands in NY Appellate Court

A New York man was unsuccessful in his lawsuit accusing Jimmy Kimmel of misappropriating his image during a skit on the late night TV show, Jimmy Kimmel Live!

In August 2010, Kimmel related the news that LeBron James reportedly visited a rabbi for business advice. As part of the joke, Kimmel said he also visited a rabbi for business advice and played a YouTube video clip of Daniel Edward Sondik. Dubbed the "Flying Rabbi," the video showed Sondik gesturing dramatically while speaking Yiddish on the streets of New York.

Sondik filed suit in New York state court, alleging that Kimmel violated his privacy in contravention of a state law that allows private citizens to sue when their name or image is used for commercial purposes without permission. He also argued that the nonconsensual use of the video clip used for the segment misappropriated his image in violation of California state law. Kimmel made him "look foolish," Sondik told the court, and presented "him as a laughingstock."

A trial court judge granted Kimmel's motion to dismiss, in part because it found New York law governed the dispute and California law did not apply. The judge also said an exception to the New York law applied because Kimmel's skit was focused on a newsworthy event, James' meeting with the rabbi.

Sondik appealed but a panel of the state's appellate court affirmed using an "interest analysis," under which the law of the jurisdiction having the greatest interest in resolving the particular issue is given controlling effect.

"[T]he law of New York, where the alleged injury or damage occurred, applies," the court wrote. "Although the alleged tortious conduct, the editing of the video clip, occurred in California, the plaintiff's alleged injury occurred in New York, where he is domiciled and resides. Moreover, New York is the state with the greater interest in protecting the plaintiff, its citizen and resident."

Because New York law governed, the trial court properly dismissed the counts under California law, the appellate panel said.

Sondik's New York claims for invasion of privacy met a similar fate. "[T]he video footage in which the plaintiff's voice, picture, and likeness appeared was not used for advertising or trade purposes," the court said. "Moreover, the video footage falls within the public interest exception."

The panel affirmed dismissal of Sondik's suit, with costs. Sondik's attorney said his client is considering an appeal. "What happened here on a human level was not a fair thing—you take a guy who's a little eccentric and make a joke out of him," the attorney told the New York Daily News. "This was deeply hurtful to him."

To read the opinion in Sondik v. Kimmel, click here.

Why it matters: The appellate court opinion provides minimal analysis of the New York law at issue, other than to state Kimmel's use of the YouTube clip doesn't constitute advertising or trade purposes. The panel also didn't elaborate on the public interest exception to the law other than to affirm the trial court judge's finding that LeBron James' meeting with a rabbi constituted a newsworthy event.

FTC Removes the Gag, Takes Action Over Marketer's Confidentiality Clauses

The Federal Trade Commission filed suit against Roca Labs and Roca Labs Nutraceutical, along with their principals, alleging that they violated Section 5 of the Federal Trade Commission Act by making deceptive claims about weight loss products and by threatening to sue consumers who shared their negative experiences online.

Included in the terms and conditions of purchase of the defendants' Anti-Cravings powder, among other weight loss products, was a "gag clause" intended to keep consumers quiet, the agency said. The online terms stated: "You agree that regardless of your personal experience with RL, you will not disparage RL and/or any of its employees, products, or services. This means that you will not speak, publish, or cause to be published, print, review, blog, or otherwise write negatively about RL, or its products or employees in any way."

In addition, the defendants included a stand-alone insert in product packaging that stated: "You were given a discount off the unsubsidized price of $1,580 in exchange for your agreement to promote our product and when possible share your weight loss success with us (keep those YouTube videos coming). As part of this endorsement you also agree not to write any negative reviews about RLN or our products. In the event that you do not honor this agreement you may owe immediately the full price of $1,580."

The Florida-based marketers threatened to sue—and actually did sue—consumers who complained to the Better Business Bureau or shared a negative experience online, the FTC said, and consumers who did post negative reviews were told they owed the "full price" for their purchases, usually hundreds of dollars more than the product was advertised for.

"Roca Labs had an adversarial relationship with the truth," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement. "Not only did they make false or unsubstantiated weight-loss claims, they also attempted to intimidate their own customers from sharing truthful—and truly negative—reviews of their products."

In online and social media advertising, the defendants claimed that their weight-loss products were a safe and effective alternative to gastric bypass surgery for individuals seeking to lose 50 pounds or more. Users were allowed to continue "to eat what you like" with "no menus, no diet restrictions," and lose up to 21 pounds per month, with a 90 percent success rate, according to the defendants' website. Testimonials and "third-party" reviews were used by the defendants to promote their products, but the FTC said the "Success Videos" were solicited from purchasers who received their products half-price for a positive review.

The FTC's complaint presented claims under both the unfairness and deceptive prongs of the FTC Act. Unfairness charges were based on the gag clauses, while the weight loss claims and the failure to disclose that the positive reviews were compensated constituted deceptive and misleading advertising, the agency alleged.

Requesting a permanent injunction as well as financial redress for consumers, the agency noted the defendants have sold at least $20 million of their products since 2010.

To read the complaint in FTC v. Roca Labs, click here.

Why it matters: According to the FTC, the defendants managed to violate both the unfair and deceptive prongs of Section 5 of the FTC by making unsubstantiated weight loss claims and instituting gag clauses. Non-disparagement clauses in contract terms have received publicity lately as consumers fight back against such provisions. Now that the FTC has joined the fight, marketers using such clauses definitely want to reconsider using a similar provision.

NAD Considers Comparative, Performance Claims for Hair Supplements

In a challenge to a line of hair supplements, the National Advertising Division recommended that several claims be discontinued, but found that the product name was unlikely to mislead consumers.

Lifes2Good, the maker of Viviscal hair supplements, challenged Lang Pharma Nutrition's claims for the Nourishing Hair Dietary Supplements product line. The products contain ingredients like biotin, zinc, keratin, and iron, and are intended to encourage hair growth.

The challenger argued that the claims at issue—"Compare to Viviscal," "Supports existing hair growth from within," and "Scientifically formulated for beautiful hair," for example—were comparative or performance claims that require competent and reliable scientific evidence for support. Because Lang lacked such evidence, Lifes2Good argued the claims should be discontinued.

Lang countered that the "Compare to Viviscal" claim was simply an invitation to compare the products and "Scientifically formulated for beautiful hair" was puffery. The other claims were fully supported by clinical testing on the ingredients in the products, the advertiser said.

Considering the "Compare to Viviscal" claim, the NAD agreed with the challenger that it should be discontinued. While separate from the product performance claims, the self-regulatory body expressed concern that consumers at the point of purchase would be unaware that Viviscal has been clinically tested while the Lang product has not. "NAD shared the challenger's concern that consumers were unlikely to have the necessary information to make an informed comparison," according to the decision. "A reasonable consumer could take away the message that the Lang product and Viviscal brands are similar in type, composition and efficacy, a message not supported by any evidence in the record."

The decision also advised Lang to discontinue several product performance claims, including "Scientifically formulated to support existing hair growth" and "drug-free nutrient formula for thinning hair." The advertiser did not submit a single ingredient study that provided a reasonable basis for the "thinning hair" claim, the NAD wrote, and the evidence in the record failed to support the "scientifically formulated" claim.

Lang provided ingredient testing to back its claims but the NAD found that "the advertiser had not demonstrated that the supplementation of these nutrients in the absence of a deficiency would promote hair growth beyond a person's natural capacity."

The product name survived the self-regulatory body's scrutiny, as the record lacked any evidence of consumer confusion and "the claim 'hair nourishing supplement' is literally true in that the product contains many nutrients that are associated with normal hair maintenance and growth."

Finally, the NAD determined that the "Scientifically formulated for beautiful hair" claim met all the criteria for puffery: "'beautiful hair' is in the eye of the beholder, vague and not capable of objective measurement," the decision noted.

To read the NAD's press release about the case, click here.

Why it matters: The NAD's decision provided an important reminder for advertisers that substantiate product performance claims for health products with ingredient testing. Lang submitted studies and articles on the ingredients contained in its supplements. "[W]hen making claims based on the ingredients in a product, advertisers bear the burden of demonstrating that the advertised product has the same ingredient in the dosage, formulation and route of administration as the underlying studies submitted in support of its health claims," the self-regulatory body explained. Further, in order to be considered sufficiently reliable evidence, "the submitted evidence studies must constitute competent and reliable evidence," generally defined as at least one human clinical trial that is methodologically sound and statistically significant at the 95 percent confidence level.

Commissioner Brill: FTC Stays the Course on Truthful Advertising

Speaking at the National Advertising Division's annual conference, Federal Trade Commissioner Julie Brill urged attendees to protect consumer privacy and keep their ads truthful, even in the face of rapid technological advancement.

Brill discussed three areas of special interest to the agency, while recognizing the impact that "the swirling cyber-atmosphere" has on endorsement disclosures, data use and disclosures in ad tech, and health claims for mobile apps, dietary supplements, and other products and services.

Endorsement and testimonial disclosures remain essential in new media, Brill emphasized, particularly since statistics show that 60 percent of consumers read online reviews before making a purchase. "[E]ven in the face of new challenges and new technologies, our fundamental goal is to make sure that consumers have the information they need to make meaningful choices," she explained. Referencing FTC actions taken against companies that failed to disclose positive reviews were paid for or posted by employees, "that means that consumers ought to know about connections between endorsers and advertisers," she said.

"[A]t the FTC, we are concerned that an aura of authenticity can shield reviews that deceive rather than inform consumers," she said. "[E]ven in the age of YouTube, Twitter, and other people-powered social media platforms, fundamental disclosure principles still apply. Endorsements must be truthful and not misleading. If there is a connection between an endorser and an advertiser that would affect how consumers evaluate the review, that connection must be clearly and conspicuously disclosed."

Turning to data collection and use, Brill recognized that advertising "has become one of the most technologically advanced and data driven industries in our economy." Targeted advertising can be beneficial for business in general and consumers in particular, she recognized, "[b]ut how much data is collected about consumers, how it is stored, and how it is used, raise significant privacy concerns."

Companies should communicate with and provide choices to consumers about data collection and use, Brill told the NAD conference attendees, adding that "self-regulation needs to keep up with the times: after all these years, consumers still don't understand what's happening with their personal information, and they continue to struggle to control targeted advertising and data collection."

Brill also referenced consumer demand for ad-blocking technology, and urged "the industry to create robust and innovative tools to address this demand in a sophisticated way. Not to find ways around consumer choice, but to provide consumers with something they clearly want: to see advertising that respects their privacy and that they can trust."

She also cautioned advertisers that the FTC is keeping close tabs on online medical health and diagnosis issues. Health claims on mobile apps and dietary supplements have been the subject of multiple enforcement actions recently, Brill noted, and she mentioned, as examples, the app that promised to detect symptoms of melanoma from pictures of users' moles, and the children's computer game that touted its ability to improve memory, focus, and school performance.

She also recalled the D.C. Circuit Court of Appeal's decision earlier this year in the FTC's lawsuit against POM Wonderful. While the court did not uphold the agency's requirement for two randomized and controlled human clinical trials for future disease claims, the court did affirm the FTC's order requiring POM to have at least one such study before making disease prevention or treatment claims, and said that two trials might be warranted in other cases, depending on the facts.

To read Commissioner Brill's speech, click here.

Why it matters: The overarching message from Commissioner Brill's remarks: Even as the world of advertising changes, the FTC will stay its course, albeit tweaking and tailoring its guidance in a new era of connectivity. "Yes, the explosion of social media, connected devices, mobile apps, data, and methods of data analyses have wrought benefits and threats to consumers unimaginable even three years ago," she told attendees. "But the principles of truth in advertising, consumer control over their data, and privacy protection behind which the FTC has always stood can and do still apply. In these times, hanging on to what has served us so well in the past is perhaps the best way to ensure we can adequately protect consumers in what will certainly continue to be a challenging future."

Goldstein Guest Blogs for American Lawyer on the Parallel Career Paths of Herself and Mad Men's Peggy Olsen

While most people's lives are not quite as dramatic as an episode of Mad Men, Linda Goldstein points out that Peggy Olson's career trajectory mirrored her own in many ways. On her way to becoming the chair of Manatt's Advertising, Marketing, and Media practice, Goldstein learned a lot of lessons and shares them in a guest blog post for American Lawyer titled "I Am Peggy (Or How I Became an Ad Lawyer)."

To read the full guest blog post, 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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