Advertising Law -- Sep 12, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Linda Goldstein to Participate as Panelist at the Food Regulatory Compliance Summit

On October 3-4, 2013, in-house compliance officers, legal counsel and regulatory executives will gather at the Food Regulatory Compliance Summit to hear about evolving regulatory requirements under FDA and USDA law.

Manatt’s Advertising, Marketing & Media Division Chair Linda Goldstein will take part in a panel discussion titled “Marketing and Claim Substantiation: How to Ensure Your Product Claims and Marketing Message Meet Key FDA and FTC Requirements While Still Effectively Communicating with Your Market.” Along with copanelists Mary Lynn Bedell (VP, Food & Regulatory Law, The Hillshire Brands Company) and Jim Pepin (Associate General Counsel, Nestlé HealthCare Nutrition, Inc.), the presenters will provide an overview of key food and beverage product marketing and advertising claims; recent legal developments impacting these types of claims; and enforcement red flags.

The conference will be held at the Wit in Chicago, Illinois. For more information or to register for this event, click here.

Actress Claims Sponsorship Deal Soured Over “#spon”

Did the use of a hashtag cause Sensa Products, a weight loss company, to commit fraud and to breach its contract with celebrity endorser and Academy Award-winning actress Octavia Spencer? According to the complaint filed by Spencer in Los Angeles Superior Court, the answer is yes.

Shortly after winning the Oscar for Best Supporting Actress in February 2012 for her role in The Help, actress Octavia Spencer entered into an endorsement agreement with Sensa, the maker of a weight loss system that Spencer had used to lose five pounds. Sensa agreed to pay Spencer $1.25 million over a one-year period for which she agreed to make at least two social media posts per month; schedule various appearances at media tours; produce sound bites; and sit for photo and video shoots.

According to the complaint, Spencer turned down a $3 million offer from one of Sensa’s competitors because Sensa agreed to emphasize that Spencer was interested in living a “healthier lifestyle” – not just significant weight loss. Spencer also claimed she pushed for a change from prior ad campaigns, which relied upon advertorials and editorials in tabloid magazines that focused on extreme weight loss.

As part of her endorsement agreement, Spencer promised to comply with all applicable laws relating to her social media efforts, including the Federal Trade Commission Guidelines concerning the use of endorsements and testimonials in advertising (i.e., including disclosure language such as #SPON).

In her complaint, Spencer contends that she kept up her end of the bargain by using good faith efforts to participate in Sensa’s marketing campaign. She also posted tweets such as “Just had the best breakfast meatless sausage, banana pancakes, sensa! @Sensa Weightloss!!!!! #spon” and “thanks @Sensa Weightloss! Losing weight never tasted so good! #flourlesschocolatecake #spon.”

According to Spencer, the Sensa team informed her and her team in April 2013 that the ad campaign “was not living up to expectations” and that sales had not been good since Spencer’s endorsement began. Sensa indicated that its research showed that many consumers did not recognize Spencer, or did not perceive that she had lost weight. In addition, they also told her that her social media posts “generally received less likes than the brand saw with their normal posts,” and that the company felt that her use of “#spon” at the end of her tweets, which she believed to be a requirement of both the Agreement and FTC guidance, was detrimental.

In the complaint, Spencer describes five occasions where Sensa executives requested that she remove “#spon” from her tweets and alleges that when the company provided copy for her tweets, it omitted the “#spon.” “Not wanting to breach her Agreement, FTC regulations or her talent agency’s custom and practice, Spencer’s re-tweets contained the ‘#spon’ language,” according to the complaint.

The relationship between the parties continued to deteriorate. Sensa reportedly failed to pay Spencer for multiple months of her contract before issuing a termination letter in early August. Spencer claims that the company then “fabricated an after-the-fact breach of the endorsement deal,” in which “Sensa alleged that Spencer’s failure to get a half dozen tweets pre-approved by Sensa, and Spencer’s insistence to add ‘#spon’ at the end of her tweets, as required by the Agreement and the FTC, constituted a material breach of the Agreement, was bad faith and led to a significant loss in sales for Sensa.”

Spencer seeks compensatory damages with interest, costs, and punitive damages for breach of contract, breach of the covenant of good faith and fair dealing and fraud.

To read the complaint in Spencer v. Sensa Products LLC, click here

Why it matters: The FTC’s updated Guides Concerning the Use of Endorsements and Testimonials in Advertising took effect in December 2009 and apply to social media, word-of-mouth marketing, and other promotions and advertising in which consumers or celebrities speak on behalf of companies. In an FAQ document offering guidance, the agency noted that celebrity endorsers can now be liable for false or unsubstantiated claims made in their endorsements, or for a failure to disclose material connections between the advertiser and endorser. The FTC notes that when making disclosures on Twitter – where messages are limited to 140 characters – hashtags such as “#paidad,” “paid,” or “ad” are sufficient. Spencer’s suit highlights the Catch-22 of complying with the Guides: while advertisers and their endorsers are required to designate paid tweets or other sponsored social media, consumers may be less apt to be engaged or interested in such communications, leading to fewer “likes” or less of a social media presence.

Missouri AG Sues Walgreens Over Deceptive Advertising, Sales Prices

For more than one year, Walgreens has “consistently and systematically displayed inaccurate sales tags, overcharged customers, failed to remove expired sales tags, failed to consistently ensure the price charged is the same as the price advertised, and used misleading or confusing in-store signs” in violation of state law, according to a new complaint filed by Missouri Attorney General Chris Koster.

The suit follows an investigation that included undercover visits by members of the AG’s office to eight Walgreens stores in five cities across the state in June and July. The suit alleges that nearly every store visited had pricing discrepancies where the checkout cost was higher than the displayed or advertised price. On a single day in July 2013, “overcharges and inaccurate advertisements were documented in every store inspected,” the AG alleged, with overcharges ranging from a few cents to more than $15.00 per item. Of a total of 205 purchased products, investigators found 43 price discrepancies – nearly 21 percent of the purchases.

The suit also claimed that Walgreens’ shelf tags are confusing. “The numerous price tags displayed and the format of the tags containing multiple prices, discounts, or points require consumers to review tags for an unreasonably long period of time, and are likely to cause confusion to a reasonable consumer as to the actual price of the item being offered,” the suit contends.

According to the complaint, Walgreens further lures consumers to buy with a rewards program promising additional price reductions and savings. But rewards members do not receive all the membership savings as advertised, Koster said, and some shelf tags include fine print indicating that reward members need a coupon in addition to their membership to receive additional savings.

The complaint alleges that these unfair and deceptive practices violated Missouri state law and seeks injunctive relief, the costs of the investigation and prosecution of the action, as well as a civil penalty.

To read the complaint in Missouri v. Walgreens, click here.

Why it matters: “Consumers have a right to expect the price they will pay at the register is the same as the price displayed on the shelf,” Koster said in a statement about the case. “The sheer volume of tags on the shelves makes it nearly impossible to recall the details of each offer. Consumers should not have to double-check the price tags or signage and compare them to the prices charged at the register.” The AG also encouraged consumers who observed or incurred any deceptive pricing at Walgreens – or other retailers – to contact his office.

Organix Agrees to Pay $6.7 Million to Settle False Advertising Class Action

To settle a false advertising suit filed in the U.S. District Court in the Northern District of California, Organix recently agreed to pay a class of consumers $6.5 million and to stop using the word “organic” unless a product contains at least 70 percent organically produced ingredients.

Per the settlement, class members – purchasers of the company’s hair and skin care products dating back to October 2008 – are eligible to recover $4 per product up to a maximum of $28. Todd Christopher International (doing business as Vogue International), the maker of Organix, had previously moved to dismiss the complaint, but the parties reached a deal before the court decided the motion.

In addition to the misleading name of the product line itself, the complaint alleges that front and back product labels used the term “organic” when the products were actually composed “almost entirely” of nonorganic ingredients (none of the products contained more than 10 percent organic ingredients). Plaintiffs allege that consumers paid a premium for the products because they believed they were organic.

In their motion for preliminary court approval of the settlement, plaintiffs claim that class members will receive two benefits from the settlement. First, the deal “will prevent future alleged violations of state consumer protection and false advertising laws” as the word “organic” will be prohibited unless the 70 percent threshold is met. Second, purchasers will receive a financial benefit. Calling the deal “fair and reasonable,” the plaintiffs said it “provides substantial benefits to the class by requiring changes in Vogue’s labeling and marketing practices, and by securing just compensation for past purchases of the products.”

Defendant has agreed not to oppose class counsel’s request for attorneys’ fees and costs of $1.625 million, or 25 percent of the total claim fund.

To read the settlement agreement in Golloher v. Todd Christopher International, Inc., click here.

Why it matters: If approved, the settlement would be Vogue’s second involving allegations of false advertising in connection with the Organix line. In June 2011, the Center for Environmental Health sued the company – and 25 others – in California state court in a private attorney general action alleging violations of the California Organic Products Act. Vogue settled with CEH, a California nonprofit, in September 2012. The settlement included injunctive relief restricting Vogue’s use of the Organix brand name and the word “organic” on product labeling, advertising, and marketing materials in California. The Golloher suit was filed two months later.

Study Says Fast-Food Chains Broke CFBAI Rules

A new study has harsh words for certain fast-food retailers that have failed to make good on promises made in connection with the Children’s Food and Beverage Advertising Initiative.

Released in late August, the study, titled “How Television Fast-Food Marketing Aimed at Children Compares with Adult Advertisements,” found that companies such as Burger King emphasized movie tie-ins and toy giveaways in their advertising more than food, in contravention of the CFBAI pledge. Currently, 17 food and beverage companies have agreed to follow the industry’s self-regulatory guidelines, including the directive to focus advertising aimed at children on healthier foods and lifestyles instead of toys or promotions.

The study reviewed television advertisements airing between July 1, 2009, and June 30, 2010. Burger King accounted for 29 percent of the child-directed ads during that time frame, which ran on Cartoon Network, Nickelodeon, Disney XD, and Nicktoons. Researchers compared ads for children’s meals with adult advertisements from the same companies to evaluate whether the self-regulatory guidelines were being followed.

The study cited the Children’s Advertising Review Unit guidelines, which provide that “Since children have difficulty distinguishing product from premium, advertising that contains a premium message should focus the child’s attention primarily on the product and make the premium message clearly secondary.”

According to the study, “little emphasis was placed on actually showing the food compared with adult advertisements from the same companies, and toy premiums and tie-ins were presented prominently in both the visual and audio elements of these advertisements. We conclude that these companies did not follow through with their self-regulatory promises during the study period.”

Researchers found giveaways or toy premiums present in 69 percent of child-directed ads, and movie tie-ins in 55 percent (versus just 14 percent of adult advertisements). In addition, the “audio script for children’s advertisements emphasized giveaways and movie tie-ins whereas adult advertisements emphasized food taste, price and portion size,” according to the study.

“When we first saw the ads, we were shocked,” Dr. James Sargent, a professor of pediatrics in Dartmouth College’s Geisel School of Medicine and one of the six researchers who conducted the study, told AdWeek. “It’s hard to tell with the kids ads what they are marketing; food was an afterthought.”

Images of food packaging were also presented in a majority of the ads reviewed (88 percent for child-directed as opposed to just 23 percent of advertisements geared toward adults), leading one of the study’s authors to conclude that the companies were more focused on creating brand association with children than selling food. “If the purpose is to advertise the food [to kids], that’s not what we saw,” Anna Adachi-Mejia, another study author and assistant professor at the Geisel School of Medicine at Dartmouth College, told AdAge.

To read the study, click here

Why it matters: In a statement, Burger King defended its advertising. “Burger King is committed to responsible marketing practices to children, and we disagree with the results of the study,” a spokesman for Burger King told AdAge. “We work closely with CARU and CFBAI to make sure that our advertising properly balances the depiction of premiums and our pledge compliant kids meals.” The fast-food retailer’s comments were echoed by Elaine Kolish, director of CFBAI, who said in a statement that fast-food companies have “honored their commitment” to the self-regulatory program. “Our independent monitoring shows that, as promised, [fast-food companies] have limited their child-directed advertising to meals meeting meaningful nutrition criteria. [They] also have made improvements in the kids meals they advertise to children compared to 2006, before CFBAI was launched.”

Noted and Quoted . . . Manatt Attorneys Provide Insight on New Developments Related to Consumer Protection Laws and FTC Action

La Toya Sutton, an attorney in Manatt’s advertising practice, authored the first chapter in a newly published book titled 2013 Review of Consumer Protection Law Developments (American Bar Association Section of Antitrust Law). The book provides a comprehensive update on consumer protection issues, including developments in federal and state enforcement, data security, privacy, advertising substantiation and self-regulation, Lanham Act and other private litigation and international issues.

La Toya’s chapter, “Deception and Unfairness,” summarizes important developments over the past few years, including a section on the advertising substantiation required for “up to” claims and a discussion of the update to the Green Guides. For more information, click here.

Ed Glynn and Lauren Aronson, attorneys in Manatt’s advertising practice, were on the ground reporting on developments at the Electronic Retailing Association’s Government Affairs Fly-In, which was held on May 21-22, 2013 in Washington, D.C. They co-authored a bylined article for Electronic Retailer magazine that distilled a number of substantive topics discussed throughout the conference by industry leaders, including recent developments at the FTC and in self-regulation.

To read the full article, “Window on Washington,” 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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