Advertising Law -- Sep 13, 2012

by Manatt, Phelps & Phillips, LLP

In This Issue:

Manatt Partner Linda Goldstein Invited to Speak at PMA's 2012 Digital Shopper Marketing Summit

The Promotion Marketing Association's Digital Shopper Marketing Summit will convene brand and marketing leaders from national and international companies who will hear about the latest trends and developments concerning shopper marketing, retail activation, integrated marketing and digital, social and mobile marketing.

Linda Goldstein, Chair of Manatt's Advertising, Marketing & Media Division, will lead a session titled "Ten Social & Mobile Marketing Techniques That Will Get Your Company the Attention of Law Enforcement." She will explore various marketing practices that may attract attention from regulators and the plaintiffs' bar and will offer best practices for structuring an effective and compliant integrated marketing campaign.

The event will be held on September 19–20, 2012, at the Sheraton Stamford Hotel in Stamford, CT. For more information or to register, click here.

Eat Some Fruit, CARU Says

Kraft Foods should modify television advertising for an Oscar Mayer Lunchables product to better depict a balanced meal, the Children’s Advertising Review Unit (CARU) has recommended. 

The television ad at issue featured a child eating the peanut butter and jelly sandwich from his Lunchables meal. None of the additional meal contents – Dole Fruit and a Chocolate Drizzle Rice Treat – were pictured. In another scene in the commercial, other children in a cafeteria sat with their brown bag lunches in front of them with milk and orange juice drinks visible.

CARU expressed concern that the image of the boy eating his peanut butter and jelly sandwich failed to exemplify a “nutritionally balanced meal” as defined by the Self-Regulatory Program for Children’s Advertising. The USDA Dietary Guidelines require the depiction of a nutritionally balanced meal, which should include at least three of the five major food groups (e.g., fruits, vegetables, fat-free or low-fat milk and milk products, and whole grains).

Kraft argued that the image of the sandwich in combination with the shot of an overall cafeteria lunchroom scene with a “significant juice or milk presence” amounted to three of the five groups: bread in the sandwich satisfied the whole-grain requirement, peanut butter met the protein requirement, and milk fell into the milk product group. The commercial delivered the balanced meal message “in an informative and entertaining manner,” Kraft said.

CARU disagreed and said that the commercial was not in compliance with the Guidelines.

While the self-regulatory group “applauded” the inclusion of milk and juice in the cafeteria scenes, “the food depicted in these scenes is not the subject of the commercial,” CARU noted, and the “depiction of the advertised food product, specifically, the depiction of the boy eating just the Lunchables peanut butter and jelly sandwich without the additional fruit component, did not adequately depict a ‘nutritionally balanced meal.’”

CARU said it was unclear why Kraft would rely on the milk and juice images when the fruit included in the product itself would have constituted the third food group and satisfied CARU’s balanced-meal requirement. It recommended that the commercial “feature all of the components of the Lunchables [product] that are necessary to meet the Guidelines requirement for a balanced meal.”

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

Why it matters: “Advertising representing a mealtime should depict the food product within the framework of a nutritionally balanced meal,” CARU reminded advertisers. CARU was not persuaded by Kraft’s argument that CARU had reviewed storyboards for an earlier version of the commercial without comment. Noting that the ad was still in “the early stages of development and in storyboard format,” CARU said its approval was “limited to the specific version of the advertisement reviewed. CARU does not issue blanket approval for an entire campaign after reviewing one phase of the advertising campaign.”

Judge Imposes Record $478M Fine, Ban on Telemarketing

A U.S. District Court judge has imposed a record $478 million fine against the makers of John Beck’s Free & Clear Real Estate System in a suit brought by the Federal Trade Commission (FTC), as well as a lifetime ban on individual defendants from the infomercial and telemarketing businesses.

In its complaint, the agency alleged that the defendants marketed deceptive “get-rich-quick” and personal coaching systems. According to the FTC, the defendants claimed that consumers could make easy money by following tips like buying real estate at foreclosure sales and could quickly and easily earn “substantial” amounts of money with “little” financial investment.

Each system included a free 30-day club membership, which the defendants did not disclose became a recurring monthly fee if consumers failed to cancel. Instead, consumers paid $39.95 per month for the systems and up to $14,995 for personal coaching, with “nearly all” consumers losing their money, the FTC said.

The lifetime ban on telemarketing and infomercials for various defendants was appropriate based on a “long history of blatantly disregarding the law,” a “technique of deception” that could be easily transferred to an advertising campaign for another product, the severity and pervasiveness of the violations at issue, and the “massive” size of the consumer injury, U.S. District Court Judge Jacqueline H. Nguyen concluded. Considering all of the circumstances, “the court believes that a less restrictive injunctive relief will be ineffective.”

As for the record fine, Judge Nguyen said the $478,919,765 represented the total net revenue the defendants received from approximately 1 million consumers. She rejected the defendants’ request to reduce the award for the benefit of actual services rendered and monies attributable to consumers who benefitted from the programs.

“Because defendants’ gains flow from their deceptive activities, the court agrees with the FTC that defendants’ liability should not be reduced to account for consumers who received some form of benefit. Whether the consumer is lucky enough to make a profit or some small amount of money from applying what he learned from defendants’ products is irrelevant to the issue of whether defendants’ representations were deceptive and misleading,” Judge Nguyen wrote.

To read the final judgment in FTC v. John Beck Amazing Profits, LLC, click here.

Why it matters: The FTC said the settlement should provide a warning to companies scamming consumers. “This huge judgment serves notice to anyone thinking of using phony get-rich-quick schemes to defraud consumers,” Jeffrey Klurfeld, director of the Western Region of the FTC, said in a statement. “The FTC will come after you if you violate the law. It’s also a reminder to consumers that they should be skeptical about these types of easy-money claims.”

FTC: Your Baby Can't Read

The FTC has filed a new complaint, alleging false advertising charges against Your Baby Can LLC, Hugh Penton, Jr., the company’s former president and CEO, and Dr. Robert Titzer, the product creator. The complaint charges that the Your Baby Can Read! program falsely led consumers to believe that it could teach toddlers and infants to read.

The $200 program, which included videos, flash cards, and pop-up books, was advertised online and via infomercials, with claims that children as young as nine months could learn to read. One ad featured a two-year-old girl reading a page from Charlotte’s Web, while another depicted a home video of 18-month-old Charley reading flash cards like “turtle.”

The agency said the defendants failed to provide competent and reliable scientific evidence that babies could learn to read using the program.

The company and Penton reached a settlement with the agency, agreeing to pay $500,000 to suspend a $185 million judgment (reflecting total sales from January 2008 to the present). The defendants are also barred from future use of the term “Your Baby Can Read,” as well as misrepresenting the benefits, performance, or efficacy of any product or service for teaching reading or speech.

Dr. Titzer – who is also accused of making deceptive expert endorsements – is continuing to litigate the case.

To read the complaint in FTC v. Your Baby Can, click here.

Why it matters: The case reminds marketers they must be able to substantiate claims with competent, reliable scientific evidence or face the potential of regulatory action with accompanying financial and injunctive relief.

FTC Warns Window Manufacturers About Energy Claims

On the heels of a similar enforcement action, the FTC recently sent 14 warning letters to the manufacturers of windows and window glass cautioning the recipients that they may be making unsupported energy-savings claims.

Earlier this year the agency filed an administrative complaint against five companies that it alleged were making exaggerated and unsupported claims about the energy efficiency of their windows and how much money consumers could save on their heating and cooling bills by installing them. The defendants settled the charges by agreeing to stop making “up to” claims about the amount of money consumers might save, as well as halt making energy-savings claims absent reliable scientific evidence.

In its letters the agency warned the recipients about similar conduct.

In one letter, to Virginia-based West Window Corp., the FTC said it reviewed the company’s Web site and found questionable claims, including “Energy-efficient windows can help you save a bundle. In fact, you can reduce your energy bills by one-third by simply using low-emissivity glass.”

While the agency said it “hasn’t decided that [the] claims violate the law,” the letter urged the company to review its marketing materials, both on the Web site and in other media, including materials given to dealers and those used during in-home presentations.

Specifically, the agency emphasized the following points:

  • Energy-savings claims must be backed by scientific evidence. This includes claims about efficiency, energy savings, fuel compensation, operation cost, cost recovery, or “payback” of an energy-saving product.
  • Be specific about the type of savings consumers can expect. The agency noted that a difference exists between total home energy savings and heating and cooling savings. Claims should state whether the savings will impact the overall home energy bill or just a heating or cooling savings.
  • Avoid deception when making “up to” claims. To avoid deception, marketers must be able to substantiate that all or almost all consumers are likely to get the specified percentage in an “up to” claim.
  • Avoid deception when selecting home characteristics for modeling. Energy savings depend on a variety of factors, so companies should choose typical home characteristics when modeling to determine potential savings.
  • Clearly and prominently disclose any assumptions. If certain circumstances are required for savings, the marketer must disclose the circumstances clearly and prominently near the claim.
  • Exercise care in using testimonials or case studies. As stated in the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, advertisers cannot convey claims through consumer testimonials that would not be substantiated if the advertiser made the claims directly.
  • Be careful with claims made to dealers and retailers. Marketers can be liable for misleading or unsubstantiated claims made to dealers or retailers as well as for the claims those dealers or retailers pass on to customers.

To read the FTC’s warning letter to West Window Corp., click here.

Why it matters: The letters are the latest example of the agency’s focus on ensuring that companies can substantiate environmental claims with competent and reliable scientific evidence. However, all marketers should take note of the FTC’s reminders to use care with testimonials and case studies as well as its cautionary note about deceptive “up to” claims.

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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Manatt, Phelps & Phillips, LLP

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