In This Issue:

• In This Case, What You Can't See in Fact Is Not There: FTC Takes Down the Makers of the Invisible COVID Mask
• NAD Finds Candle Company's Comparative Claims Smell Fishy
• 2nd Circuit Burns Hawaiian Tropic Over Misleading "Reef Friendly" Claims, Reverses Dismissal
• Parties Shutter Shutterfly False Reference Pricing Suit as They Agree to Settle
• Conclusory Allegations Sink Plaintiff's Second Challenge to Gatorade Fit "Healthy" Claims
• For YouTube TV, Price Differences Just Don't Quite Add Up, Affirms NARB

In This Case, What You Can't See in Fact Is Not There: FTC Takes Down the Makers of the Invisible COVID Mask

After what has seemed like a lull in both diagnosed COVID cases and the enforcement variety—both the virus and the FTC are back. Once again, the Federal Trade Commission is on the trail of virus-themed misinformation with a recent complaint and proposed settlement against a company accused of falsely advertising an "Invisible Mask" to protect against COVID.

According to the FTC's complaint, the product looks like a badge worn at a professional convention rather than anything related to medicine. Yet defendants Gary Kong and his companies, KW Technology and KW Technology NV, and defendant Timothy Wetzel claimed that the Invisible Mask provided a three-foot barrier of protection against viruses, including COVID-19, and that they had scientific evidence to prove it.

What was that scientific evidence? Defendants called it "a proven, simple science called 'ion-exchange' science." They then went on to describe that the ions collided and "the reaction causes select compounds, at the point of collision, to omit an invisible gas" which then hung around the wearer's face and functioned as a "protective 'gas' living in front of your face."

The "Invisible Masks" sold for about $29.99 and generated gross revenues of at least $100,000 since March 2020, according to the complaint.

The defendants also falsely advertised that the Food and Drug Administration (FDA) and Environmental Protection Agency (EPA) had approved the "Invisible Mask," including by using a fabricated "Certificate of Registration" featuring the FDA logo.

In reality, the claims had zero competent and reliable scientific evidence to back them up, said the FTC.

The FTC sent the company a letter as early as July 2020 warning that it lacked competent and reliable scientific evidence for these claims and that it should stop making them. Those warnings, however, were to no avail.

The FTC alleged violations of the FTC Act based on the defendants' deceptive claims that the mask could prevent COVID, that they possessed scientific proof that it prevents airborne disease, and the false claims that the FDA and EPA approved the Invisible Mask.

Three of the defendants, namely Kong and his companies, have agreed to settle the claims. The proposed settlement requires them to cease advertising any products claiming to treat COVID-19 that are not backed up by competent and reliable scientific evidence. They must also make a payment of $150,000.

Key Takeaways

Like a flashback to 2020, this matter is a reminder that COVID—and COVID-related scams—are alive and well.

NAD Finds Candle Company's Comparative Claims Smell Fishy

It's that time of year again: piles of fallen, colorful leaves. The holiday season in full swing. The smell of pumpkin, pine trees, and pine tree-scented holiday candles.

And so it goes at the National Advertising Division (NAD), where two competitors in the scented candle space duked it out over fragrance and ingredient claims. Scented products favorite Bath & Body Works (B&BW) challenged claims made by family owned scented product company Goose Creek Candles.

At a macro level, B&BW took issue with comparative claims it said conveyed false denigrating messages about competing candles and body products, including its own. The company challenged the express claim "Avoid the harmful chemicals found in other body care products" and the implied claim that its products and those of other Goose Creek competitors contain harmful chemicals.

On the comparative ingredient claim, B&BW successfully argued that an advertiser needn't mention a competitor by name for it to constitute a competitive claim, as is well established at NAD. In its analysis, NAD first found that that juxtaposition of Goose Creek's claims about its products being clean, proximate to the recommendation to avoid harmful chemicals in other products, reasonably conveyed the message that B&BW products contain harmful chemicals.

This denigrating type of comparative message, which can particularly sway public opinion, was not substantiated, found NAD. Such claims must be "truthful, accurate, and narrowly drawn" to "not falsely disparage a competitor's product," said NAD. Here there was no evidence that the chemicals in the competitor's products were harmful, and there was nothing in the record to provide a reasonable basis for these express and implied ingredient claims.

NAD held similarly on the fragrance superiority claims. Goose Creek claimed that its candles last longer and have a stronger fragrance than competitor candles, but the evidence Goose Creek provided was minimal and flawed, so NAD recommended these claims be discontinued.

Most of NAD's analysis focused on the endorsements and reviews which B&BW challenged. It argued that Goose Creek's videos posted on social media convey the impression that paid endorsers are actual consumers commenting on their preference for Goose Creek candles versus competitor candles. The challenger also noted that in many cases B&BW did not disclose the material connections of vloggers who posts about the candles.

Relying on the FTC Guides Concerning the Use of Endorsement and particularly the 2023 updates, NAD found that the video did not meet the Guide's standards because the video didn't adequately disclose that the individuals are actors and not real consumers.

Goose Creek argued that it provided an adequate disclosure with a disclaimer on the video that read "includes paid promotion." However, NAD reasoned that the wording was ambiguous, did not convey the facts and relationships, and was no more than the company's standard "blanket" disclosure without sufficient specificity.

NAD cited to the FTC Guides which explain that blanket disclosures are ineffective, yet Goose Creek's YouTube channel featured a blanket disclosure on its channel stating that "some videos may contain paid endorsements." Further, the disclosure was not clear and conspicuous and in some instances violated the Guides by requiring users to click on a "see more" hyperlink.

B&BW also took issue with reviews on Goose Creek's website, but here NAD did not fully agree with the challenger. B&BW questioned the authenticity of some of these reviews and whether Goose Creek only publishes select positive reviews because Goose Creek offers a free gift to consumers who review a recent purchase.

NAD found that nothing in the evidence indicated that Goose Creek's review collection process put pressure on consumers to only leave positive reviews. Indeed, it was clear that the company incentivized positive and negative reviews. Still, NAD cautioned Goose Creek to carefully vet a review-posting software it used to ensure its only removed irrelevant reviews. Finally, NAD recommended that the company include a clear and conspicuous disclosure that reviews are incentivized.

On the "Made in USA" issue, NAD held that it was unclear whether some of the factories the company used were in the United States, so it asked the company to modify its "Made in USA" claim to be consistent with FTC guidance or limit it only to candles processed in the US.

Key Takeaways

This case provides a smorgasbord of guidance and warrants close reading for those making everything from comparative claims to those using reviews and influencers in marketing. So that means pretty much everyone.

2nd Circuit Burns Hawaiian Tropic Over Misleading "Reef Friendly" Claims, Reverses Dismissal

In a win for environmentalists and scuba and snorkeling enthusiasts everywhere, a federal appeals court revived a class action lawsuit alleging that the makers of Hawaiian Tropic sunscreen misled consumers by calling it "Reef Friendly."

The lawsuit alleged that Edgewell Personal Care, which makes Hawaiian Tropic sunscreens, falsely advertised one of its sunscreens as "Reef Safe" and claimed it contains "no oxybenzone or octinoxate," even though it contains several other ingredients harmful to coral reefs. The suit alleged violations of New York's General Business Law, which prohibits "false advertising in the conduct of any business, trade, or commerce" in New York, as well as breach of express warranty.

Edgewell had argued that a reasonable consumer would simply take away the message that the "reef friendly" claim means the product does not contain oxybenzone and octinoxate—the two chemicals which the Hawaiian government banned in 2018—and not a broader safety claim.

The lower court dismissed the case, finding that the plaintiff had not plausibly alleged that the "Reef Friendly" representation on the front label was materially misleading. The 2nd Circuit disagreed, holding that the reasonable plaintiff need not look past a misleading front label to check (and understand) the chemical names in the ingredient list on the back in order to determine whether the label was deceptive. The panel reversed and remanded back to the district court. The court explained that it is not the plaintiff's responsibility to look past any misleading representations on the front label to "discover the truth" based on the ingredient list. Further, the court noted that "A reasonable consumer cannot be expected to know the universe of chemicals harmful to coral reefs such that she could discern from an ingredient list describing the product's contents in scientific terminology whether a product is in fact 'Reef Friendly.'" The 2nd Circuit emphasized that the "Reef Friendly" claim on the front of the pack could plausibly mislead a reasonable consumer into thinking the products contain no reef-harming ingredients.

The back label was also potentially problematic, the court found. It featured a disclaimer that the product contained "No Oxybenzone or Octinoxate." But this disclaimer was "incomplete" because it omitted a list of chemicals that are potentially harmful to coral reefs. Viewing this claim alongside the "Reef Friendly" claim, "a reasonable consumer could conclude that the only substances known to harm reefs are those listed in the back-label disclaimer." The court explained that this kind of disclaimer did not constitute the type of "clarifying language" that could "defeat a claim of deception."

Key Takeaways

An important reminder for advertisers here: A truthful disclaimer that conveys a deceptive or misleading message to the reasonable consumer will not qualify as the type of "clarifying language" that may "defeat a claim of deception."

Parties Shutter Shutterfly False Reference Pricing Suit as They Agree to Settle

Photo printing shop Shutterfly has agreed to settle class action allegations that it advertised its products at a false reference price.

Under the terms of the settlement, Shutterfly will provide each affected class member who submits a claim a $25 voucher toward Shutterfly purchases. The company has also agreed to pay $12,500 to the named plaintiff and no more than two million and change in attorneys' fees to plaintiffs' counsel.

Though the company admits no liability, under the terms of the agreement it has committed to an injunction not to violate the California consumer protection statutes at issue in the case.

The 2022 lawsuit alleged that Shutterfly engaged in a false and misleading reference pricing advertising scheme on its website. According to the complaint, plaintiff Rose Rivaly purchased several Shutterfly photo products under the mistaken belief that she was getting a significant discount from the original price—a belief that was deliberately and falsely cultivated by Shutterfly.

In reality, these products (several prints and a magnet) were never offered at the original or "full" price, and certainly not within the 90 days prior to the purchase (California law provides that a seller may only offer a discount from an item's original price for up to 90 days).

Plaintiff alleged that Shutterfly's false reference pricing scheme deceives consumers into making purchases they wouldn't otherwise have made and ensures they pay "substantially more for products they believed to be heavily discounted" and worth more than their actual value. She claimed that Shutterfly did this in order to artificially inflate the value of its products and drive sales.

"In sum, the false reference prices, the strikethrough of said prices, and the sale prices all displayed next to each other on product listing pages on Defendant's e-commerce website are all part of Defendant's purposeful, deceptive scheme. The products sold through Defendant's e-commerce website are never offered for sale, nor sold, at the advertised false reference price."

Additionally, plaintiff argued that the strikethrough of the false reference pricing created a false sense of urgency for consumers, which is also illegal reference pricing conduct.

The complaint alleged violations of the FTC Act as well as California's Unfair Competition Law (UCL), False Advertising Law (FAL) and the California Legal Remedies Act (CLRA).

Key Takeaways

Is this settlement a win for plaintiffs and consumer advocates? A California state court judge will be the final arbitrator of whether the settlement agreement is fair, but this is only because the parties agreed, as a part of their settlement negotiations, that the plaintiff would dismiss her federal lawsuit and re-file it in the Superior Court of California, County of San Diego. This is a common tactic used to avoid the strict scrutiny of federal court fairness hearings and get a class settlement approved in a quicker fashion. A final fairness hearing will occur on February 9, 2024.

Conclusory Allegations Sink Plaintiff's Second Challenge to Gatorade Fit "Healthy" Claims

A federal judge dismissed with leave to amend a plaintiff's second attempt to allege in a putative class action that Gatorade Fit "healthy" claims are false advertising.

Plaintiff David Gumner alleged that PepsiCo falsely advertises the Gatorade Fit brand by labeling it "Healthy Real Hydration" in violation of Food and Drug Administration (FDA) regulations and California's Unfair Competition Law.

Gumner's prior complaint was dismissed in August after the court determined that though he plausibly alleged that Gatorade Fit "healthy" claims could theoretically state a claim, he failed to allege he relied on these misrepresentations.

His second amended complaint didn't fare any better as the court concluded that plaintiff "has changed essentially nothing," offered only conclusory allegations, and still had not alleged facts to support his allegations that he wouldn't have purchased Gatorade Fit if the drink hadn't been labeled "healthy."

In the prior complaint, the plaintiff alleges that he "was exposed to, read, and relied upon the Misbranded Claims that appeared on the labeling" and "relied on these labeling claims in deciding to purchase Gatorade Fit in that, but for the Misbranded Claims[, he] would not have purchased Gatorade Fit."

The second amended complaint "merely 'shuffles around the same conclusory language' and has 'again failed to give factual detail about the circumstances of his purchase,'" the court said, agreeing with Pepsi.

That conclusory language fell short of the factual details needed to properly show Gumner was injured by the misrepresentations. For example, the court said the complaint should detail facts like whether plaintiff expected a "healthy" product, what he expected a "healthy" product to contain, what he thought the label "Healthy Real Hydration" meant, and the like.

Key Takeaways

In false advertising law, as in fiction, the old axiom to show and not tell still stands true. As the judge exhorted the plaintiff for his final attempt at making the allegations: "Plaintiff must show the Court through facts how he relied on PepsiCo's mislabeling, not just tell the Court he did so … through conclusory statements."

For YouTube TV, Price Differences Just Don't Quite Add Up, Affirms NARB

Mathematics may be "the poetry of logical ideas," but in the world of advertising, the numbers don't always add up—or so said the National Advertising Review Board (NARB) in affirming a prior decision by the National Advertising Division (NAD).

Charter Communications had challenged claims by Google that its YouTube TV is "More than cable. For $600 less than cable." NAD, in the case originally brought under its Fast-Track single well-defined issue (SWIFT) jurisdiction, found that Google was unable to support the price differential for the breadth of competitive services it agreed with Charter were swept in by the claim. Charter, which offers its competing Spectrum TV services that can be accessed via cable boxes, Apple TV, or other retail devices, or apps on a smart TV, tablet, or smartphone, argued that Google's qualifying disclosure about that claim, which appeared at the bottom of the advertisement, was insufficient:

"Annual average savings based on a study by SmithGeiger of the published cost of comparable standalone cable, in the top 50 Nielsen DMAs, including all fees, taxes, promotion pricing, DVR box rental and service fees and a 2nd cable box."

Google, relying on SmithGeiger's media research survey, argued the price difference was actually close to $900, far more than the $600 cited in its ads. Google further argued that it properly compared comparable Spectrum TV plans with "the same core channels as YouTube TV." Additionally, it argued that a comparison of streaming services to cable services was irrelevant because consumers viewing its commercials would understand "cable" to mean "traditional cable" requiring use of a cable box.

NAD disagreed and found that the claim was unsupported and should be discontinued. First, it noted that Google should have tallied the price difference based on the price of cable in the Los Angeles market only because that's the market where it was making the comparison. NAD pointed out that in that market the difference was in the $200 range, not the $600 difference as claimed in the ad. Second, it concluded that consumers would interpret the price comparison to be among all plans offered by traditional cable companies, including plans that do not use cable boxes, so Google should have also made the comparison inclusive of plans that do not use cable boxes.

Addressing whether the Spectrum TV service was sufficiently similar to YouTube TV to justify a price comparison, NAD found that Google further erred in adding the cost of Spectrum TV's Sports View for purposes of the price comparison, since YouTube TV did not have a comparable component of its service.

On appeal, Google argued first that consumers understand that Google's commercials reference traditional cable rather than streaming so that "NAD had no basis in the record for deviating from that well-accepted meaning" of cable for purposes of calculating the savings claim. Second, Google argued that its disclosure is clear and conspicuous and alerted consumers to the parameters of the price comparison. Finally, Google argued that its decisions about which services were comparable to YouTube TV were reasonable and "NAD had no basis in the record to conclude that the local sports programming not available from YouTube TV was material to consumers, in light of the sports programming that is available."

NARB agreed with NAD and concluded the disclosure wasn't clear and conspicuous because consumers were unlikely to read it. NARB also agreed with NAD's conclusion that at least one reasonable consumer interpretation of the claim is that YouTube TV costs $600 less than any available Spectrum TV service and that since many households can subscribe to Spectrum TV without paying for a cable box, Google's inclusion of the two cable boxes in its calculation was misplaced.

Finally, the NARB panel agreed with NAD's analysis of the comparability of the Spectrum versus YouTube basic plans. Since Google does not offer regional sports networks with YouTube TV, the NARB panel said Google should not have added the cost of Spectrum's Sports View in the calculation used to reach the touted cost differential.

Key Takeaways

The case, which was remarkably granular for a SWIFT action followed by an NARB appeal, is a good reminder of NAD's (and FTC's) golden rule—what is given by a claim may not be taken away via disclaimer.

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