Advertising Law -- Sep 18, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

E-Cigarettes Increase Presence With Traditional Tobacco Advertising – Will Regulation Follow?

E-cigarettes are following in the footsteps of their nonelectronic predecessors by utilizing advertising means no longer available to traditional cigarettes and increasing their ad spending on techniques such as television commercials, promotions, events, sample giveaways, celebrity endorsers, and slogans such as “A perfect puff every time.”

Electronic cigarettes are battery-powered devices that heat a nicotine solution into a vapor inhaled by users. While the chemicals of tobacco cigarettes are not included, the addictive feature of nicotine remains. The use of e-cigarettes has climbed steadily, with 6 percent of all adult Americans and 21 percent of adult smokers trying them in 2011, nearly twice the rates in 2010, according to the Centers for Disease Control and Prevention.

Unlike tobacco cigarettes, which are heavily regulated, e-cigarettes are free from laws that limit their methods of marketing. As a result, brands such as Blu eCigs have spent $12.4 million on advertising for the first quarter of 2013, up from less than $1 million last year. They feature endorsements from actor Stephen Dorff and personality Jenny McCarthy. Traditional cigarette companies such as Lorillard and Reynolds are also getting in on the action by purchasing or launching their own lines of e-cigarettes.

The advertising itself even references tobacco cigarettes, with campaigns that seek to make smoking acceptable again. In a Blu eCigs ad, for example, Dorff praises e-cigarettes because they can be smoked “at a basketball game . . . in a bar with your friends . . . virtually anywhere,” adding, “Come on, guys, rise from the ashes.”

But with the increased profile may come regulation.

“It is beyond troubling that e-cigarettes are using the exact same marketing tactics we saw the tobacco industry use in the ’50s, ’60s and ’70s, which made it so effective for tobacco products to reach youth,” Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, told The New York Times. “The real threat is whether, with this marketing, e-cigarette makers will undo 40 years of efforts to deglamorize smoking.”

States such as Indiana, New Jersey, North Dakota, Mississippi, and Utah have already extended restrictions on tobacco cigarettes to include e-cigarettes, while other states such as California and Pennsylvania are considering similar laws. Inhalation of e-cigarettes is prohibited on Amtrak trains and onboard U.S. planes.

The Food and Drug Administration is said to be planning the release of proposed regulations in October. Referencing a report from the financial group CLSA Americas, AdAge reported that the agency is expected to propose a ban on TV advertising to set limits on sales to minors, implement the possibility of a warning label, and restrict online sales. An FDA spokesperson said she could not comment on specifics of a proposed rule, but that the agency “intends to propose a regulation that would extend the agency’s ‘tobacco product’ authorities – which currently only apply to cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco – to other categories of tobacco products that meet the statutory definition of ‘tobacco product.’ Further research is needed to assess the potential public health benefits and risks of electronic cigarettes and other novel tobacco products.”

 Why it matters: The increasing use and potential regulation of e-cigarettes may trigger another round of tobacco wars between industry and the government. Debate about the product remains – is it an alternative form of smoking, or a means of quitting, like nicotine gum? Should e-cigarettes be taxed and regulated like traditional tobacco products, with age limits, warning labels, and a ban on certain forms of advertising such as TV, or are they a separate and distinct category of products? If and when the FDA wades into the issue, the fight will truly begin.

FTC False Ad Suit Against Car Dealers Settles

The Federal Trade Commission reached an agreement with two car dealers the agency claimed falsely advertised prices and available discounts for their vehicles. It prohibited the defendants from advertising future prices or discounts unless all qualifications or restrictions are clearly disclosed.

According to the agency’s complaints, Timonium Chrysler of Cockeysville, Maryland, and Ganley Ford West in Cleveland, Ohio, violated Section 5 of the Federal Trade Commission Act with their deceptive Web site and newspaper ads. Ganley’s advertisements touted great deals but failed to mention that the discounts generally applied only to more expensive versions of the vehicles depicted in the ads. For example, one newspaper ad read: “NEW 2013 FORD F-150. $12,000 OFF MSRP!” But the FTC said the deal only applied to a specific version of the truck with an MSRP of $47,000. The terms did not apply to the less expensive models, such as those with an MSRP of $23,670.

On its Web site, Timonium promised “dealer discounts” and “Internet prices” but failed to disclose requirements that purchasers must first qualify for additional rebates. As most failed to qualify, they were left with a higher price than advertised. In one ad, the pricing for a 2013 Chrysler 200 Limited Sedan was promoted as:

MSRP $27,320
Dealer Discount -$7,499
Internet Price $19,821

The math was actually more complicated, according to the agency’s complaint. The discount varied depending on a variety of factors that were not disclosed (being a recent college graduate, a member of the military, or having an account at a particular bank). Even if a consumer managed to meet all of the various requirements, he or she still paid more than the price listed.

Pursuant to the settlement agreements, the defendants are prohibited from advertising discounts or prices unless they clearly disclose any qualifications or restrictions pursuant to the settlement. They include the number of vehicles available at particular prices, the existence, price, value, coverage, or features of any product or service associated with the purchase, and the existence or amount of any discount, rebate, bonus, incentive or price.

The terms of the proposed 20-year deal “are designed to prevent [the defendants] from engaging in similar deceptive advertising practices in the future,” the agency noted. All advertisements and promotional materials must be retained for a five-year period and be made available to the FTC upon request.

To see sample ads challenged by the agency and read the complaints and settlement agreements, click here

Why it matters: The suits are “part of the FTC’s continuing crackdown on deceptive motor vehicle dealer practices,” according to a press release announcing the cases, which followed a March 2012 action against five national car dealers charged with deceptive advertising about trade-ins. “Buying a car is a huge financial commitment, and people often calculate what they can pay down to the penny,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, stated in the release. “They should be able to depend on the dealers to provide truthful information, and they can depend on the FTC to enforce consumer protection laws on the lot.” The case serves as a reminder that all marketers – not just car dealers – clearly disclose all the material terms in an advertisement.

#PRnightmare – Flyer Buys Promoted Tweets to Bash British Airways

Advertising in social media may take on a different meaning after one flyer took a new approach to complaining about a company’s service.

Hasan Syed purchased a promoted tweet in the New York City and United Kingdom markets to complain after British Airways lost his father’s luggage. Using Twitter’s self-serve ad platform, Syed (Twitter handle: @HVSVN) paid for messages, including “Don’t fly @BritishAirways. Their customer service is horrendous.”

While the tweet was certainly not the kind of ad campaign a company would run on Twitter, the airline made the problem worse with its response. Noting that its account is only monitored Monday through Friday, from 9 a.m. to 5 p.m., British Airways (@British_Airways) asked Syed for his claim number, and said it couldn’t message him directly.

Questioning how a 24/7 airline couldn’t monitor a social media feed around the clock, Syed responded that he was a follower of the airline on the social networking site – meaning the company was able to directly message him.

Syed declined to tell Mashable how much he spent on his tweets, which were picked up by various media outlets. He continued his anti-airline tweets (such as “@BritishAirways is the worst airline ever” and “how does a billion dollar corp only have 9-5 social media support for a business that operates 24/7?”) until British Airways found his luggage and apologized.

Why it matters: This story is an important cautionary tale for advertisers and marketers for two reasons. First, Syed’s willingness to purchase a promoted tweet presents a real concern for companies facing disgruntled, social media-savvy consumers. Whether others are willing to open their wallets to publicize their complaints remains to be seen, but brands should be aware of the possibility. And secondly, every airline loses luggage. Even Syed’s promoted tweets probably wouldn’t have resulted in a high-profile brand embarrassment, but for British Airways’ bungled response. An inability to figure out how to message Syed and the company’s failure to monitor its feeds made a mountain out of a molehill, reminding advertisers and marketers to sharpen their social media knowledge and skills.

Internet of Things: FTC Settles With “Secure” Camera Company

Camera feeds for home security and baby monitoring were hacked, despite claims that the products provided “secured viewing” and were marketed with the word “Security” next to a padlock, according to a complaint filed by the FTC against TRENDnet.

The suit marks the agency’s first action in the “Internet of Things” ecosystem, an area on which Chairwoman Edith Ramirez said earlier this year she planned to focus. The term refers to an everyday product with interconnectivity to the Internet and other mobile devices, the agency explained.

“The Internet of Things holds great promise for innovative consumer products and services,” Ramirez said in a statement about the case. “But consumer privacy and security must remain a priority as companies develop more devices that connect to the Internet.”

According to the complaint, TRENDnet marketed its SecurView cameras as providing secure viewing for personal use (including home security and baby monitoring) but faulty software left the camera feeds vulnerable to hacking. Accordingly, anyone with the Internet address for the camera could watch or listen.

The security flaws were present since at least April 2010, a problem compounded by the fact that TRENDnet failed to test its software for items such as a password setting for the cameras. In addition, the defendant failed to secure online communications with customers or provide login credentials in “clear, readable text” and failed to store information in a secure fashion.

The FTC estimated that the feeds of almost 700 consumers’ cameras were aired online after a hacker accessed the connections and posted the links. As a result, videos of babies sleeping in their cribs and families engaged in their daily lives were streamed for all to see.

California-based TRENDnet provided a security patch to its Web site once it learned of the hacking. Under the terms of the proposed consent decree, the company is now required to notify all customers of the security problems and provide free technical support for a two-year period to either update their software or uninstall the camera.

In addition, the company is prohibited from making future false representations about the security, privacy, confidentiality, or integrity of its software and is required to establish a comprehensive information security program, including third-party assessments of its security biannually for 20 years.

To read the complaint and proposed consent decree in In the Matter of TRENDnet, click here

Why it matters: In addition to making good on Ramirez’s promise to take action in the Internet of Things realm, the settlement reinforces the agency’s general focus on data security by bringing actions against companies that fail to live up to what the agency determines are reasonable security standards. Advertisers should ensure that their privacy and security activities comply with their promises, a job that includes keeping eyes and ears open for potential problems. In the complaint against TRENDnet, the FTC alleged that one of the defendant’s failures was that it did not “actively monitor security vulnerability reports from third-party researchers, academics, or other members of the public, despite the existence of free tools to conduct such monitoring, thereby delaying the opportunity to correct discovered vulnerabilities or respond to incidents.”

References to Fungi, E. coli Result in NAD Action

In a challenge brought by Procter & Gamble, the National Advertising Division determined that Reckitt Benckiser, the maker of Lysol disinfectant products, must discontinue claims that linked P&G’s Febreze product with fungi and E. coli.

In addition, the self-regulatory body recommended that Reckitt modify a revised version of the ads that implied that its disinfectant spray kills 99.9 percent of germs when sprayed on shoes and soiled diapers.

The Lysol television commercial at issue began with a scene of two women spraying air fresheners that appeared to be P&G’s Febreze Air Effects as a voiceover stated: “Mediterranean Lavender with a hint of . . . Fungi” and “Sweet Citrus with a note of . . . E. coli.” During the voiceover, the camera panned to a pair of dirty shoes and then a presumably soiled diaper in a garbage can. After a voiceover of “Air fresheners like Febreze smell nice, but aren’t approved to kill the germs that cause odors,” a super appeared, reading “Lysol disinfectant spray freshens the air and kills germs on hard surfaces when used as directed.” During the sequence, a visual showed a woman spraying the inside of a garbage can lid. To conclude the ad, the voiceover stated: “and now you can use it to freshen the air, too. Healthing. More than a pretty smelling home. It’s a healthy one.”

Recognizing that the Lysol products are intended to have a dual benefit of disinfectant and air freshener, P&G argued that the commercial conflated the two purposes and suggested that Lysol could kill germs in the air. The ad falsely implied that Febreze only masks or covers odors, P&G added, and suggests that Febreze products actually contain bacteria. Reckitt’s references to “Mediterranean Lavender” and “Sweet Citrus” – two popular names in the Febreze product line – combined with images of spray cans resembling Febreze products conveyed a message to consumers that Febreze is dangerous or unhealthy, P&G contended.

No reasonable consumer would take away the message that Febreze actually contains bacteria, Reckitt responded. Instead, the commercial conveys the message that Febreze does not have an effect on the germs found in sneakers or dirty diapers, the advertiser said, a message that is true and not misleading because P&G’s products are air fresheners and do not kill germs.

Noting that it was “very troubled” by the commercial’s association between E. coli and fungus and the Febreze product line, the NAD determined that the ads reasonably conveyed a message that Febreze “fails in its function as an air freshener by virtue of not being a disinfectant.” The evidence in the record did not support such a consumer takeaway, the opinion noted, as Febreze does in fact mitigate odors. “Febreze’s odor elimination mechanism is different, but has not been demonstrated to be less effective than Lysol’s,” the self-regulatory body determined, finding this aspect of the commercial to be misleading.

The removal of the statements “Mediterranean Lavender with a hint of . . . Fungi” and “Sweet Citrus with a note of . . . E. coli” as well as “more than a pretty smelling home” was therefore necessary and appropriate, the NAD said.

While Lysol is entitled to communicate the dual benefits of its product line in comparison to Febreze’s singular purpose, the NAD said the ad conflated the two functions and generated confusion. The sequence featuring the sneakers and diaper misleadingly “conveys the message that Lysol, if sprayed on a pair of dirty sneakers, could kill all of the fungi in the sneakers.” However, “no evidence in the record supports the message that Lysol could kill 99.9 percent of germs when sprayed on sneakers and dirty diapers – items that contain many crannies and layers in which germs might linger even if the product is sprayed on the surface.” Reckitt must modify the commercial to avoid this unsupported message, the NAD concluded.

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

Why it matters: Although Reckitt attempted to dodge the action by modifying the original version of the challenged commercial, the NAD found additional changes were necessary. The replacement of voiceover statements “Mediterranean Lavender with a hint of . . . Fungi” and “Sweet Citrus with a note of . . . E. coli” with “Gentle Lilac . . . fungi still there” and “Ocean Breeze . . . E. coli still around” passed muster as the removal of the phrases “a hint” and “a note” “no longer suggests that Febreze leaves malodors lingering in the air.” But the self-regulatory body “remained troubled” by the shoe and diaper imagery and recommended that Reckitt drop implied claims that Lysol could kill bacteria in dirty diapers and shoes.


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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