Advertising Law - September 2016 #3

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In This Issue:
  • Consumer Groups Urge FTC Action on Influencers
  • VPPA Meets Spokeo—and Court Lets Case Continue
  • Game Over: New York Appellate Court Tosses Lohan, TV Star Suits
  • Kellogg to Tweak Packaging After CARU Review

Consumer Groups Urge FTC Action on Influencers

Consumer groups are urging the Federal Trade Commission to review comments by social media influencers for possible violations of the agency's guidance regarding nondisclosed native advertising.

Public Citizen, the Center for Digital Democracy, and the Campaign for a Commercial-Free Childhood sent a letter to the FTC's Bureau of Consumer Protection expressing concern "that the agency is failing to keep pace with developments in the social media space." Companies are routinely paying "influencers"—or social media users with a large following—to post endorsements of their products without disclosure, particularly on Instagram.

"A long-standing, core principle of fair advertising law in the United States is that people have a right to know when they are being advertised to," the groups wrote. "[D]isguised advertisements are inherently deceptive, because consumers do not know to apply appropriate screens. The issue is acute with disguised ads featuring paid endorsements, where deceived consumers believe admired celebrities are making genuine, self-directed and enthusiastic endorsements of brands, not realizing that those celebrities are instead paid and may not even use the touted brand."

Public Citizen conducted an investigation of the disclosure practices among movie stars, reality TV personalities, famous athletes, fitness gurus, fashion icons, and pop musicians and quickly found 113 influencers "who endorsed a product without disclosure." These noncompliant posts, including those from Rihanna to Victoria Justice, are not outliers, the groups wrote, adding that the cosmetics and weight-loss industries are prominent users of influencers.

The FTC needs to take action, and fast, the letter said. It encouraged the agency to investigate the current practices and take "aggressive enforcement action" against those that continue to engage in the practice of nondisclosed influencer advertisements.

The letter also suggested that the agency begin its work by taking a closer look at products such as Flat Tummy Tea and companies such as L'Oreal USA. While the groups said the emphasis of enforcement activity should focus on advertisers, "the agency should also communicate with prominent influencers, especially the highest-compensated among them, and warn them that they too will be subject to enforcement action for future non-compliance with FTC rules."

"The very viability of FTC fair advertising rules is at stake," the letter stated. "Consumer deception through hidden advertisements is now pervasive in social media, particularly on Instagram. It's past time for the FTC to bring the industry into compliance with the law."

To read the letter from the consumer groups, click here.

Why it matters: The groups expressed concern that social media norms have already sufficiently evolved so that advertisers routinely contravene FTC policies as a non-objectionable matter of practice. "An important part of an FTC initiative must be to shift the center of gravity on social media so that advertisers take affirmative steps to ensure they comply with FTC rules designed to protect consumers from trickery and deception," according to the letter. "This problem has reached epidemic proportions. One agent who casts influencers estimates that there are 100,000 Instagram 'influencers' paid to endorse, a vast majority of whom do not disclose their advertisements."

VPPA Meets Spokeo—and Court Lets Case Continue

In the latest decision involving the application of the Video Privacy Protection Act to modern technology, a federal court in Massachusetts refused to dismiss a putative class action against the company behind the USA Today app.

In late 2013, Alexander Yershov downloaded and began using the USA Today app on his Android device. He sued the app manufacturer, Gannett Satellite Information Network, Inc., alleging that each time he watched a video on the app, the company shared the unique identification number of his smartphone with Adobe Systems, Inc., a third-party data analytics company. This transfer of data constituted a violation of the VPPA, Yershov claimed, because the company disclosed his personally identifiable information (PII) without his consent.

Gannett moved to dismiss, first arguing that the information disclosed was not PII and that Yershov was not a "subscriber" as defined by the statute, because the download and use of the app were free. U.S. District Court Judge F. Dennis Saylor IV agreed, but the First Circuit Court of Appeals reversed on both issues.

On remand, Gannett argued that Yershov lacked standing to bring suit, relying upon the U.S. Supreme Court's recent decision in Spokeo, Inc. v. Robins to assert that the plaintiff failed to allege he suffered a concrete injury sufficient to establish standing. This time, Judge Saylor sided with the plaintiff.

While the justices made clear in Spokeo that "a bare procedural violation, divorced from any concrete harm," would not satisfy the injury-in-fact requirement, Yershov's claim of VPPA violations was more than that, the court said. "Here, the complaint alleges an intangible harm: the invasion of Yershov's privacy interest in his video-viewing history."

Both historical precedents and the judgment of Congress played important roles in this conclusion, the court explained. By enacting the VPPA, lawmakers "elevated an otherwise non-actionable invasion of privacy into a concrete, legally cognizable injury," and English law has long recognized the right to privacy in personal information, particularly information in compilations.

"[T]he VPPA 'plainly' provides plaintiffs like Yershov, who allege wrongful disclosure of their PII, with standing and a right to relief," Judge Saylor wrote, citing a Third Circuit decision that reached a similar conclusion for support. "The intangible harm allegedly suffered by Yershov from Gannett's alleged disclosure of his PII is a concrete injury in fact."

To read the memorandum and order in Yershov v. Gannett Satellite Information Network, Inc., click here.

Why it matters: Courts across the country have struggled to apply the VPPA, adopted in 1988, to 21st-century technology. The First Circuit's opinion finding that Yershov was a "subscriber" for purposes of the statute created a circuit split on the issue, with contrary authority from the Eleventh Circuit and several district courts. In this plaintiff-friendly ruling, the district court found that a statutory violation occurred and the invasion of a consumer's privacy was sufficient to meet the injury-in-fact requirements of Spokeo and Article III.

Game Over: New York Appellate Court Tosses Lohan, TV Star Suits

Reversing a trial judge, a panel of the New York appellate court dismissed lawsuits filed by Lindsay Lohan and a reality TV star alleging that the makers of a video game used their likenesses without permission.

Lohan and Mob Wives star Karen Gravano claimed their right to privacy under New York law was violated by Take-Two Interactive Software, the company behind the popular video game Grand Theft Auto V. The game, which takes place in the fictional city Los Santos, features a character named Andrea Bottino who allegedly incorporates Gravano's image, portrait, voice, and likeness, and contains a backstory about a father who ratted on the mob, which forced his family to deal with the repercussions.

Lohan alleged that the defendants used a bikini-clad look-alike who flashed the sometime actress's "signature peace sign" pose to evoke her persona.

Neither argument swayed the court, which granted the defendant's motions to dismiss the suits. "Both Gravano's and Lohan's respective causes of action under Civil Rights Law Section 51 'must fail because defendants did not use [plaintiffs'] name, portrait, or picture,'" the court wrote. "Despite Gravano's contention that the video game depicts her, defendants never referred to Gravano by name or used her actual name in the video game, never used Gravano herself as an actor for the video game, and never used a photograph of her."

As for Lohan, "defendants also never referred to Lohan by name or used her actual name in the video game, never used Lohan herself as an actor for the video game, and never used a photograph of Lohan."

Even if the court accepted the plaintiffs' position that the video game depictions were close enough to be considered representations, their "claims should be dismissed because this video game does not fall under the statutory definitions of 'advertising' or 'trade,'" the panel added. "This video game's unique story, characters, dialogue, and environment, combined with the player's ability to choose how to proceed in the game, render it a work of fiction and satire."

To read the order in Gravano v. Take-Two Interactive Software, Inc., click here.

Why it matters: The appellate panel made short work of the plaintiffs' allegations, finding that the New York statute's limited protections did not extend to the avatars and likenesses found in the video game. Since the defendants never used either plaintiff's name, portrait, or picture, the video game company was off the hook.

Kellogg to Tweak Packaging After CARU Review

Based on a recommendation from the Children's Advertising Review Unit, Kellogg Company will revise the packaging for its Fruit Flavored Snacks featuring cartoon characters to better convey the contents and avoid confusing children.

The packaging featured cartoon characters from popular children's film and television shows against a colorful background. A long strip around the product appeared with the following statements: "Assorted Fruit Flavored Snacks," "Naturally & Artificially Flavored," and "10 pouches." Under that, a large red apple was pictured with a statement on it reading, "Made with REAL FRUIT."

Underneath the apple in small typeface were the words "see side panel for details." Alongside the Nutrition Facts on the side panel was a disclosure stating, "Made with equal to 20% fruit."

CARU expressed concern that the "Made with REAL FRUIT" label within the image of the apple communicated the implied claim that the product contains substantial amounts of fruit, particularly as directed to a children's audience.

Kellogg disagreed. The claim was truthful, substantiated, and not misleading, the advertiser told CARU, and the use of the statement within the apple was simply "a truthful call-out" of the makeup of the product—not a statement on nutritional value. The advertiser also noted that the U.S. Department of Agriculture lists "pureed fruits" as part of the "fruit group" and the apple was used to convey the type of fruit in the product.

Emphasizing that children are "not just little adults" and require extra protections, "CARU found that one reasonable takeaway message was that the Kellogg's Fruit Flavored Snacks contain substantial amounts of fruit," the self-regulatory body wrote, highlighting the use of the apple.

CARU recalled working with marketers—including Kellogg—in 2005 to accurately describe what were then called "fruit snacks." At that time, the self-regulatory body recommended that "Made with real fruit" claims with accompanying depictions of real fruit, without accompanying statements of the amount of fruit juice, be removed so that children would not believe that these products were made with substantial amounts of fruit.

"Kellogg complied with these recommendations, but has since reformulated its Fruit Flavored Snacks to use fruit puree rather than fruit juices," CARU said. "The consideration of such a claim when the product contains fruit puree is therefore new."

Despite being a new formulation of the question, CARU reached the same conclusion. "While CARU does not believe that Kellogg intended to mislead anyone, children or adults, by the use of the apple containing the statement 'Made with REAL FRUIT,' it is well-settled that advertisers must substantiate all reasonable interpretations of its claims, even those it did not intend to convey," CARU said.

Because Kellogg could not substantiate the implied claim that the product is made substantially of real fruit (with fruit puree concentrate the third ingredient in the snacks after two non-fruit sweeteners), CARU recommended that Kellogg remove the "Made with REAL FRUIT" representation within the apple from packaging featuring cartoon characters that appeal to children under the age of 12.

In its advertiser's statement, Kellogg disagreed with CARU's ruling but said it would modify the product packaging.

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

Why it matters: Advertisers can take two lessons from the decision: a reminder that they are obligated to substantiate all reasonable interpretations of their claims—including messages they may not have intended to convey—and that a claim that is literally true may, in the context in which it is presented, still convey a message that is false or misleading.

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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