Stay ADvised: Brand Protection & Advertising Law News - September 2023

Davis Wright Tremaine LLP

In This Issue:

  • Suit Alleging Madison Reed Hair Color Claims Are Deceptive Will Live to "Dye" Another Day
  • Plaintiffs Sue to Squeeze the Truth Out of Colgate Recyclable Tube Claims
  • NAD Finds Laminate Maker Had a Hard Time Supporting Its Real Wood Claims
  • FTC Successfully Enjoins Automators AI from Operating Deceptive E Commerce Scheme

Suit Alleging Madison Reed Hair Color Claims Are Deceptive Will Live to "Dye" Another Day

Allegations that Madison Reed misrepresented the safety and quality of its at-home hair dying products survived a motion to dismiss, with the court finding that plaintiff's claims presented questions of fact that could not be resolved on a motion to dismiss.

Madison Reed markets its products as an alternative to other hair color products on the market made with "harsh ingredients" including ammonia, p-phenylenediamine (PPD), and parabens. According to the complaint, however, the company's claims that it sells "salon quality hair color products that use ingredients that are less 'harsh' on hair health, as well as the health of the user, than traditionally-formulated hair color product" are false. Instead, plaintiff alleges, the hair color contains "harsh" chemicals shown to cause hair loss "and more damage to hair than the chemical[s]" they supposedly replace.

Plaintiff Melissa Moore alleged that Madison Reed's marketing left her with the impression that the products were "gentler, safer and healthier than other hair dye companies she was researching." Contrary to the company's advertising, she claimed the hair dye left her with hair falling out in "clumps" and an irritated scalp.

Plaintiff brought claims for breach of the Magnuson-Moss Warranty Act, common law fraud, violation of New York's deceptive trade practices and false advertising acts, negligent misrepresentation, and product liability theories based on physical injuries suffered. In seeking to dismiss the false advertising and deceptive trade practice claims, Madison Reed argued that the representations at issue are non-actionable puffery and, to the extent they are not, are accurate and would not deceive a reasonable consumer. The company also argued that the complaint did not adequately allege that any representations were "materially misleading."

The court held it unnecessary to decide whether the company's allegedly deceptive statements could have misled the reasonable consumer at this stage of the case, and that while a number of the company's claims may be puffery, some clearly were not. For example, the court found Madison Reed's claims that the products were "non-damaging" and contain "no harsh ingredients" to be representations of fact and not subjective opinion and puffery. Conversely, wrote the court, claims that Madison Reed is an "honest" company and that its products contain "ingredients you can feel good about" are subjective statements of opinion "that likely amount to mere puffery."

Finally, the court explained that it was "not convinced by Madison Reed's argument that merely because it is technically true that the products do not contain ammonia, PPD, or resorcinol, that the labeling and advertising of the products could not, as a matter of law, be deceptive." In other words, "literal truth alone" was not a defense to the claims. Even if true that the products did not contain the enumerated chemicals, the determination of whether the reasonable consumer would have interpreted the claims in a way that rendered them deceptive remained up for grabs.

Key Takeaways

The court's decision presents a useful primer in how and when courts differentiate puffery from claims as well as the continuing importance of remembering that a claim may be expressly true, but impliedly false. The court's lesson is a good one: consider claims from all angles and consider all reasonable takeaways when creating advertising.

Plaintiffs Sue to Squeeze the Truth Out of Colgate Recyclable Tube Claims

A class action lawsuit alleges that Colgate misleads consumers when it calls its toothpaste tubes recyclable, because although the tubes are technically made from recyclable material, the vast majority of recycling centers do not accept and recycle them—and Colgate knows this.

According to the recently filed complaint, Colgate falsely advertises the toothpaste as having a "Recyclable Tube," as well as including the chasing arrows recycling symbol on the label, to gain an "edge" in a market in which consumers increasingly seek environmentally friendly products.

Plaintiffs allege that Colgate's claims of a "First of Its Kind Recyclable Tube" are misleading, false, and likely to deceive consumers because most (if not all) recycling facilities will not recycle the product, either because they cannot distinguish between technically recyclable tubes and traditional non-recyclable tubes, or because the leftover toothpaste renders the tubes non‑recyclable.

"Although the Product was designed to be theoretically recyclable, in practice, recycling facilities do not accept the redesigned tubes. Accordingly, they are not, in fact, recyclable," allege plaintiffs.

Worst, Colgate acknowledges the gap between its assertions and the reality on the ground at recycling facilities, say plaintiffs, having released a video claiming that it continues seeking a solution "beyond technically recyclable toward acceptance of tubes in recycling centers globally."

Plaintiffs make the case that Colgate's actions contravene the Federal Trade Commission (FTC) Green Guides for the Use of Environmental Claims (currently under review by the FTC for updating), which authorize marketing claims about recyclable products only when recycling facilities are widely available to most consumers.

Colgate further violates the Green Guides by failing to support the environmental claim with a reasonable basis, since the company cannot support the claim that the products are recyclable when most reasonable consumers understand that term as meaning that a product is actually, and not theoretically, recycled, allege plaintiffs. The complaint also alleges the company's marketing is an unfair practice under California's Unfair Competition Law.

To hear plaintiffs tell it, Colgate's "illegal marketing campaign has been extremely successful," and Colgate is able to charge a premium for a "green" product. If consumers knew that the toothpaste is only "theoretically" recyclable, they would not pay a premium for it, say plaintiffs.

Key Takeaways

This is yet another case stressing the importance of advertising's caution with claims that are literally true but may be impliedly false—and it does so in a hotbed context—environmental benefit advertising. Companies should take heed.

NAD Finds Laminate Maker Had a Hard Time Supporting Its Real Wood Claims

The National Advertising Division (NAD) once again weighed in on the issue of the need to take care when advertisers promote products that appear similar with like purposes, but in fact are not the same.

Challenger Decorative Hardwood Association (DHA) is, as the name suggests, a trade association representing the hardwood industry—which encompasses the hardwood plywood, hardwood veneer, and engineered hardwood flooring industries. DHA challenged advertising claims made by Mohawk Industries for its RevWood flooring – a "laminated wood flooring product" that it claims is "Wood Without Compromise," has the "Authentic Imprint of Hardwood," and is "The Perfect Wood for Your Home." What it does not have, however, is a real layer of wood, without which the challenger claimed it cannot meet any definition of wood.

DHA argued that the message communicated by the claim "Wood Without Compromise" is that RevWood is a hardwood product, but based on industry definitions, it is not. Mohawk countered that the slogan does not convey the message the product is hardwood, but rather it offers the look of wood with a difference that enables consumers not to have to "compromise" as they do with wood flooring (which can scratch, get water damage, etc.) Though Mohawk conceded that RevWood is a laminate and not hardwood, it argued that the multi-layered product is nonetheless made with wood—at least at its core, which is a high-density wood fiberboard made from pine chips and resin. Mohawk also disagreed that industry definitions cited by DHA are the accepted standard.

Taking into account technological advances which make it harder to distinguish between hardwood and laminate flooring, NAD found that consumers may take away the misleading message that RevWood is wood flooring. "When consumers can be confused about the material used in a product, NAD has recommended that advertisers describe the product in a way that avoids consumer confusion," wrote NAD.

NAD found that images on Mohawk's websites of wood planks combined with the use of the "Wood Without Compromise" slogan in large text strengthened the message conveyed by the claim that the product is made of wood. Further, a disclosure following the claim stating that "RevWood combines the beauty of hardwood with the toughness of laminate" did not cure the misleading nature of the message because the disclosure was in small font and not in close proximity to the main claim. Moreover, it did not alter the misleading nature of the claim because it directly contradicted it, said NAD. NAD recommended Mohawk discontinue the claim because the "plain language of the claim promises wood, yet RevWood is a laminate flooring product that merely mimics the appearance and texture of wood."

Likewise, NAD determined that the claim of RevWood being "The Perfect Wood for Your Home" conveyed a misleading message that RevWood is indeed hardwood. The claim appeared above a chart showcasing the product's positive characteristics, and Mohawk argued that because this claim followed multiple disclosures stating that RevWood is a laminate product, consumers were not misled. However, NAD reasoned that both the plain language of the claim and the images from the chart on the site which showcased the product's qualities reinforced the message that the product is wood.

DHA also challenged the claim that Mohawk offers the "Authentic Imprint of Hardwood," which Mohawk argued was not misleading because the context also included a display of RevWood placed side by side with real wood products to show the similarities. NAD agreed, finding that the message conveyed, on the whole by this claim, was that the product has a similar texture to hardwood, not that it is hardwood. Mohawk has said it will appeal NAD's decision with respect to its "wood without compromise" slogan.

Key Takeaways

As NAD has said previously, all that glitters is not gold, and when advertising products that simulate the real thing, manufacturers must be clear—whether talking about natural versus synthetic ingredients, mined versus man-made diamonds, and now hardwood versus laminate.

FTC Successfully Enjoins Automators AI from Operating Deceptive E‑Commerce Scheme

The Federal Trade Commission (FTC) has obtained a permanent injunction against Automators AI, a company billing itself as the "guide to starting a profitable e-commerce business" but which the FTC alleges operated a scheme that falsely promised consumers a "proven system" to make money, including with AI.

According to the complaint, Automators AI and its operators falsely promoted themselves as "ecommerce experts" and charged consumers dearly for their services. In reality, the FTC alleges that most of the company's claims were false and hardly a customer made any of the promised earnings using the company's services.

Automators AI billed its services as a way to "generate risk-free passive cash flow every month without lifting a finger," claims the FTC. Touting stellar (and false) credentials, together with fabulous (and also false) earnings claims, Automators AI used deliberately deceptive marketing to sell a product which failed to deliver any of the promised benefits.

Through email, websites, and social media advertising, Automators AI and its principals, operating under various other names before re-branding as Automators AI, made lavish claims that customers could make hundreds of thousands of dollars a month after using their services, if they paid the steep upfront fees for the "initial investment."

Especially on social media, the company advertised using success stories and testimonials. According to the FTC, some of these were fabricated by employees. The company's projected earnings claims were also allegedly false and unsubstantiated.

Promising generous profit margins if consumers used the service to run their e-commerce stores, coupled with the use of "AI machine learning" to maximize revenue, Automators AI made false and unsubstantiated earnings claims that cost consumers hundreds of thousands of dollars and, in some cases, all their life savings, according to the complaint.

In reality, many of the online stores that Automators AI managed for its customers as part of its service were shut down due to the company's violations, or they were never activated in the first place. The FTC alleged that the company did not disclose this information to potential customers.

The company also employed affiliate marketers to advertise on social media, with those marketers allegedly repeated the false claims. According to the complaint, one affiliate marketer made these claims while his own online store was losing money and getting shut down.

The complaint alleges that Automators AI and the principals' prior company received numerous consumer complaints about the poor performance of the stores it managed—so many that its head of customer service estimated that 70 to 80 percent of customer calls were complaints about stores getting terminated and losing money. Despite allegedly making multiple false and deceptive claims and receiving feedback from its customers that this issue was becoming a problem, the company refused to issue refunds. Instead, it required customers to obtain a new store, but not before making users signed an illegal "non-disparagement" clause to "dissuade dissatisfied customers from filing complaints."

The complaint alleged violations of the FTC Act, the Business Opportunity Rule, and the Consumer Review Fairness Act.

Key Takeaways

Mix together a bunch of individuals who have done business under different names and vastly aggrandized their credentials, add in false claims that consumers can make vast amounts of money, sprinkle in an illegal non-disparagement clause and a dash of trendy AI talk, and you have yourself a recipe for your standard deceptive earnings scheme. This one stood out for having it all!

[View source.]

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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