Stay ADvised: What's New This Week, August 8

Davis Wright Tremaine LLP

Davis Wright Tremaine LLP

In This Issue:

  • NAD Weighs In—Again—on #1 Claims
  • FTC Returns $25 Million to U.S. & International Victims of Phony Next-Gen Sweepstakes Scam
  • All That Glitters Ain't Gold After FTC Sues Harris Jewelry, Alleges It Swindled Servicemembers

NAD Weighs In—Again—on #1 Claims

Although the contexts differed, in two recent cases the NAD reviewed support for #1 claims and came to the same conclusion: the advertisers didn't meet the standard for making their "powerful" #1 claims.

First, NAD felt the burn—heartburn, that is. It reviewed a challenge by Johnson & Johnson to advertiser Sanofi's claims that its heartburn medication Zantac 360° "contains the #1 doctor recommended medicine approved to both prevent and relieve heartburn;" is sold "[w]ith the #1 doctor recommended heartburn medicine;" and generally that it is "#1 Doctor Recommended." The challenger asserted that consumers would understand the claim as a #1 recommended brand claim, rather than as a #1 recommended ingredient claim, the message that Sanofi said it intended. Sanofi's position was particularly interesting, because until recently Zantac's main ingredient was ranitidine, an ingredient the FDA asked be withdrawn from the market. Zantac thereafter replaced ranitidine with famotidine—the main ingredient as well in the challenger's competing product. Ultimately, NAD found Sanofi could not support either a #1 recommended brand or ingredient message, albeit it agreed with the challenger that one reasonable take-away from the advertising was indeed a #1 recommended brand claim.

In reaching its conclusion, the NAD first considered Sanofi's argument that use of the term "medicine" in its #1 claims was a reference to the product ingredient—famotidine—and not to the product or brand itself (as J&J alleged). NAD was not persuaded that use of qualifying words such as "with" and "contains" in the main claims clearly communicated a message about a product component and not about the product itself. It noted the use of the word "medicine" could reasonably be interpreted by consumers to mean both the product or the ingredient, depending on context, and that "the imprecision of the term has also resulted in findings of misleading messages in the challenged advertising." The NAD explained that merely using the qualifying words "with" and "contains" didn't establish that the claim referred to Sanofi's recently adopted use of the ingredient famotidine in Zantac.

NAD next considered Sanofi's support, a survey which considered doctor recommendations generally in the heartburn category. Although the survey did not directly consider product ingredients, most of the products recommended contained the H2 blocker famotidine—which to Sanofi meant its product contained the most doctor recommended "medicine" or ingredient. NAD considered whether the survey therefore could substantiate "modified claims that Zantac 360° contains famotidine which, among H2 Blockers, is the #1 Doctor Recommended ingredient to prevent and relieve heartburn." As always for "doctor recommended" claim, NAD noted that claims should mirror "with precision the specifics of the data relied on in support."

NAD determined that the survey data was not a good fit for Sanofi's claims because the survey did not directly probe ingredient recommendations, but rather sought recommendations generally in the acid reducer category, a category which includes both protein pump inhibitors (PPIs) and H2 Blockers, as well as name brands and store/generic brands in the answer choices. Sanofi's claims therefore relied on an inference that the products recommended in the survey were recommended based on their active ingredient (largely famotidine, at least for the H2 blockers)—but the survey fell short as support because it did not ask about ingredients or about why the doctors recommended the products they choose.

Sanofi had argued that because a product's active ingredient is what drives its efficacy, a recommendation for a product is by extension a recommendation for the active ingredient, and that this type of data has been used in the industry to support both brand and ingredient claims. However, NAD found that although a product ingredient is an important consideration for recommending a product, a product recommendation is not explicitly an active ingredient recommendation. Additionally, NAD noted that many products have more than one active ingredient. It also noted that Sanofi's argument didn't consider other reasons doctors may recommend a product or brand besides its active ingredient.

In response to NAD's decision, Sanofi agreed to clarify that its claim referred to its active ingredient and not to the brand, but determined to appeal the portion of NAD's decision that the survey could not be used to support an ingredient claim.

Moving on from heartburn to data, in a second matter, NAD also considered the sufficiency of #1 claims in the context of ads for one advertiser's customer data platform (CDP), a product that businesses use to gather and unify customer data to provide a "360 customer profile" for marketing. Here too, NAD recommended that the advertiser modify the claim.

The challenge involved claims made by Twilio that its CDP product segment "Is the World's #1 CDP - #1 Customer Data Platform." The claims appeared in Google search results, press releases, a billboard (#1 CDP for worldwide market share) and the Twilio website. Twilio also made implied claims that Twilio is #1 in the CDP industry for gross revenue, growth, customer satisfaction and customer retention.

Twilio argued that the 2020 International Data Corporation (IDC) market share report it submitted backed up its #1 CDP claims because it is the independent research of a "highly reputable market observer." That report found Twilio had the largest market share of any CDP and "presents a compelling new model for customer experience infrastructure."

Examining the #1 CDP market share claim, NAD determined the "#1 CDP" claim was substantiated if and only to the extent it clearly communicates that the basis for the claim is the 2020 market share as determined by IDC.

Though Twilio modified a number of claims to reflect that #1 CDP refers to market share as per the IDC report, other claims in press releases and on Google search results did not reflect these requested modifications, found NAD. While acknowledging that some press releases which had already been published may not be amendable, NAD recommended Twilio make a bona fide good faith effort to make these same revisions throughout.

One such requested revision involved a billboard featuring the words "Twilio Segment" in large type with the words "The #1 CDP" in smaller font, and another line at the bottom of a digital screen that read "#1 CDP for worldwide market share." NAD noted that #1 claims convey powerful messages to consumers and that this billboard did not clearly and conspicuously disclose the basis of the claim to avoid the impression that the "product or service is '#1 by some other metric.'" NAD therefore recommended that Twilio modify the billboard to incorporate the basis for the claim—the 2020 market share.

NAD further concluded that on the Twilio website the use of the "Twilio #1 Customer Data Platforms" claim alongside a small font disclosure referencing the IDC report on market share was potentially confusing because it did not make it sufficiently clear that the claim referred only to market share. NAD recommended Twilio modify the claim accordingly to clarify the basis for the #1 claim.

Key Takeaways

Advertisers love to be #1, and such claims are ubiquitous regardless of marketplace or product. NAD remains the #1 standard bearer, doing its best to provide guidance and to rein in overly broad, vague, or unsubstantiated #1 claims.

FTC Returns $25 Million to U.S. & International Victims of Phony Next-Gen Sweepstakes Scam

As part of an international effort to upend a broad and prolific sweepstakes scam, the Federal Trade Commission (FTC) is finally sending out checks, pre-paid debit cards, and PayPal credits totaling almost $25 million to the (mostly) senior citizens targeted by the Next-Gen sweepstakes scheme.

The matter stems from a 2018 action filed jointly by the FTC and the State of Missouri against three individuals and a web of corporations under their control. The suit accused the defendants of sending deceptive personalized mailers—tens of millions of them—to consumers around the world.

The mailers, sent primarily to older consumers, promised cash prizes of up to $2 million in exchange for fees ranging from $9.00 to $139.99. The bogus prize offers came in three flavors: notice of million-dollar winnings advertised as coming from the "International Award Services" or "Award Notification Commission;" fliers offering a cash prize to those who solved an (impossible to solve) "game of skill;" and finally subscription solicitations disguised as opportunities to win million-dollar prizes.

According to the complaint, many consumers paid the fees multiple times before realizing they'd been scammed, to the tune of more than $110 million. Unsurprisingly, not a single participant received a cash prize. To give their scam "a veneer of authenticity," the defendants peppered the phony sweepstakes with indicia of authenticity like rubber stamps and the signature of the "senior director of payment," and sent multiple such mailers making similar false or misleading claims that consumers had already won or were likely to win significant cash prizes.

The case was not only a joint effort of the FTC and Missouri, but was brought as part of a 2018 U.S. Department of Justice elder fraud sweep extending not only to older Americans but also to older consumers around the world.

The payments sent out by the FTC were the result of a stipulated final order entered by the defendants with the FTC in March 2019, which imposed a monetary judgment of $114,776,732, to be suspended once the defendants returned around $30 million in cash and assets, due to defendants' inability to pay. The stipulated order also banned the defendants from running prize promotions or advertising using any misrepresentations.

Key Takeaways

Along with $21 million in cash recovered from the defendants, the FTC and the State of Missouri also obtained a wealth of assets, including two luxury homes, a yacht, and a Bentley, making this the "largest forfeiture the FTC has ever obtained against a sweepstakes scam." But it did so prior to the Supreme Court's AMG Capital decision curtailing the FTC's ability to obtain such redress, as the FTC was quick to remind readers in its press release announcing the return of the moneys to consumers.

All That Glitters Ain't Gold After FTC Sues Harris Jewelry, Alleges It Swindled Servicemembers

Illustrating once more that unscrupulous businesses often set their sights not just on seniors but also on servicemembers and veterans, the Federal Trade Commission (FTC) and 18 states are pursuing an action against a jewelry retailer that built its business on marketing its baubles (and the financing for their purchase) to members of the U.S. armed forces. The FTC alleges the now-defunct Harris Jewelry cheated active duty servicemembers (and particularly the youngest and lowest paygrade servicemembers) by using illegal sales and financing tactics.

The FTC claims that the company falsely promised that jewelry purchases using the company's financing plans would increase servicemembers' and veterans' credit and allow bigger and better deals on additional big ticket item purchases. The "central theme" of the company's sales pitch, according to the complaint, was that purchasing from Harris would improve servicemembers' credit scores, regardless of past or future borrowing and payment activity, opening the door to significant savings on car loans and military promotions. These claims, says the government, were false, misleading, or unsubstantiated.

Harris Jewelry also allegedly misrepresented that its protection plans were required, and often added these plans to purchases without consumers' consent, excluding them only if servicemembers affirmatively questioned their inclusion. The complaint also alleged that Harris Jewelry's ads often failed to state the down payment amount for financing, the full repayment obligation, and the annual percentage rate (APR).

The complaint alleges violations of the FTC Act, the Truth in Lending Act, the Electronic Fund Transfer Act, the Holder Rule, state laws in connection with jewelry sales and financing to members of the military and, in a first for the FTC, the Military Lending Act, which imposes a number of specific restrictions on institutions lending to servicemembers and their dependents.
In a stipulated proposed order filed with the complaint, a $24 million judgment would be imposed payable in the event Harris Jewelry fails to comply with the obligations under the order, which compels the company to implement a number of measures to ameliorate its allegedly deceptive advertising. This would include limits on how the company advertises consumer credit. Under the order, Harris Jewelry would further agree to stop collection of millions of dollars in debt and aid its customers in deleting negative credit entries.

To make amends for the allegedly deceptively obtained purchase protection plans, the order would obligate Harris to provide around $10.9 million in refunds for the plans, as well as for overpayments. The order would also obligate Harris to complete dissolution of operations after meeting its obligations under the order.

Key Takeaways

The Harris Jewelry matter was filed shortly after the FTC spoke to Congress' Committee on Oversight and Reform Subcommittee on National Security regarding the need to protect servicemembers and veterans from financial scams. There the FTC highlighted its enforcement of actions against identity theft, impostor, credit reporting, lending, sweepstakes, and many more types of scams targeting the military community.

[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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