FTC Finally Strikes Gold With Made in USA Enforcement: Williams-Sonoma Agrees To Pay $1 Million in Consumer Redress

In the past few months, a minority of the commissioners have called for the Federal Trade Commission (FTC or Commission) to take the heretofore unprecedented step of seeking consumer redress in Made in USA (MUSA) cases. (In the past such cases only involved money when penalties were imposed for violating an existing order).  In a concurring statement in a series of Made in USA settlements announced in September 2018, Commissioner Slaughter and Chairman Simons noted the possibility that consumer redress could be an option for Made in USA enforcement when consumers paid a premium for the allegedly mislabeled products. In subsequent statements, both clarified that in their view a showing of a price premium, while an important factor, was not legally required for the Commission to obtain redress. Further, as noted in their initial concurring statement, both Commissioners emphasized the importance of the  Commission’s intended review of its approach to remedies and emphasized the need to have a forward-looking approach to the issue, including signaling to the public how the Commission intends to approach enforcement in this area. How to incentivize the right behavior was also a topic of discuss at the FTC’s Made in USA workshop last fall (which is worth watching in full if you have time on your hands available here. Continue Reading

COVID-19 Update: FTC and States Combat Scams, Price Gouging and Deceptive Ads

We recently blogged about regulatory warning letters and a consumer class action stemming from consumer-facing advertising related to the coronavirus. Today, we write to provide updates on state and federal efforts to protect consumers and a Federal Trade Commission (FTC) press release sounding the alarm on B2B coronavirus scams.

State regulators are confronting many of the same issues the FTC identified in its joint warning letters with the Food and Drug Administration. Specifically, many products continue to be advertised as curing, treating or preventing COVID-19, the disease caused by the coronavirus, despite the fact that there is no known cure or vaccine as of yet. Additionally, states have been confronting price gouging on disinfectant products such as hand sanitizer, wipes and cleaning solutions. And with stimulus checks being a frequently discussed news topic while federal lawmakers negotiated the package, states have seen an uptick in scams targeting the elderly that solicit bank account information and Social Security numbers to facilitate receipt of stimulus checks.

State attorneys general are working closely with state lawmakers, congressional representatives and each other to confront these issues head-on and protect consumers. For example, Michigan Attorney General Dana Nessel enlisted state lawmakers to field price gouging complaints and recently filed a cease and desist letter against two businesses marketing a “Coronavirus Defender Patch.” A bipartisan group of 32 state attorneys general sent letters to executives at some of the biggest online retailers, urging them to help prevent price gouging. Arizona Attorney General Mark Brnovich has partnered with Sen. Kyrsten Sinema, D-Ariz., to increase awareness among seniors of the stimulus check scams. And New York Attorney General Letitia James sent letters to website domain name registrars requesting that they halt new registrations of – and de-list current – domain names associated with coronavirus and COVID-19, alleging many of these sites perpetuate scams.

The FTC, which has recently increased its focus on B2B advertising, issued a press release warning that not only are consumers vulnerable to coronavirus scams, but so too are other businesses. Specifically, the FTC identified seven types of scams that have targeted business employees, leaving both employees and employers at risk: public health scams, government check scams, business email scams, IT scams, supply scams, robocall scams and data scams. While many of these scams are nothing new, they take advantage of new circumstances – with many (if not most) employees working remotely, it no longer seems out of the ordinary to get an email from “the IT department” asking for certain password or account information.

Lastly, FTC Chairman Joe Simons released a statement outlining current enforcement efforts. Per the chairman’s statement, the FTC is working with both federal and state law enforcement, as well as business and community stakeholders, to protect consumers from unfair and deceptive commercial practices and to educate the public about such practices. In short, the FTC “will not tolerate businesses seeking to take advantage of consumers’ concerns and fears regarding coronavirus disease, exigent circumstances, or financial distress.” The chairman added that “the FTC will remain flexible and reasonable in enforcing compliance requirements that may hinder the provision of important goods and services to consumers.” While this does not give businesses carte blanche in how they advertise or market important goods and services, Chairman Simons noted that “good faith efforts undertaken to provide needed goods and services to consumers will be taken into account in making enforcement decisions.”

Takeaways: The circumstances surrounding COVID-19, including widespread misinformation and the transition of entire companies to remote work operations, have resulted in a time of heightened regulatory scrutiny at both the state and federal levels. As such, companies would do well to (re)examine their claims and substantiation, as well as their pricing, to evaluate whether any changes should be implemented. While it is often difficult to control the price at which some third-party sellers offer products, to the extent the company has control, it should exercise it to avoid price gouging. Lastly, now would be a great time to (re)educate employees on information security policies to protect not only their personal information, but also that of the company.

It’s a Mixed Salad for the ‘Natural’ and ‘Pure’ Claims for Foods With Trace Pesticides

Can you call your processed food product “natural” or “pure” when it contains a residual amount of an herbicide or pesticide that the manufacturer did not add but was used by a producer in growing an ingredient in the product? Recent cases confirm that such a product can still be called “natural” – at least according to most federal courts – but probably not “pure.” Let’s take a look at the state of the law and how we got here, so that your brand can carefully craft claims for your processed food products.

In February in Parks v. Ainsworth Pet Nutrition, LLC, the Southern District of New York considered Rachael Ray Nutrish’s advertisements and labeling of its line of Super Premium Food for Dogs as “natural.” The plaintiff alleged that the dog food products contain residue of glyphosate, an “unnatural” biocide, and that the presence of glyphosate is not disclosed to consumers, who rely on the “natural” representation when purchasing the products. The court had ruled on a prior motion to dismiss that, to survive dismissal, the plaintiff must plead that the products contain a material amount of glyphosate because “a reasonable consumer would not be so absolutist as to require that ‘natural’ means there is no glyphosate, even an accidental and innocuous amount.” In his amended complaint and brief in opposition to the second motion to dismiss, the plaintiff argued that the amount of glyphosate is not relevant, and any glyphosate, regardless of amount, makes a “natural” label misleading, in violation of Section 349 of the New York General Business Law, New York’s core consumer protection law. The court disagreed. Because the amount of glyphosate was lower than the Food and Drug Administration’s (FDA’s) allowed tolerance level for glyphosate in animal feed, the court found that the glyphosate residue was not likely to affect consumer choice, resulting in the “natural” label not being materially misleading to a reasonable consumer. Accordingly, the court dismissed the complaint for a second time and, this time, without leave to amend.

The court in Parks drew on the now-consistent federal case law on “natural” claims arising from the discovery of trace amounts of glyphosate used in growing an ingredient in a processed food product. When federal-court plaintiffs began challenging these claims, around 2014, the plaintiffs’ allegations often survived the motion to dismiss stage. For example, in California in Von Slomski v. Hain Celestial Group, Inc., the court found that plaintiffs adequately alleged that a reasonable consumer would likely be deceived by defendant’s “100% Natural Teas” logo on the outer packaging of its teas because the teas were, according to plaintiffs, “contaminated” by insecticides, fungicides and herbicides that are “man-made” and “not natural.”

As the years have progressed, plaintiffs’ claims have been less successful, and some of the same defenses used in earlier cases have resonated with federal courts across the country, such as the argument, rejected by the court in Von Slomski, that a reasonable consumer would understand that a product labeled anything less than “organic” (and, as noted in 2017 by the District of Minnesota in In re General Mills Glyphosate Litigation), even “organic” products, may contain trace pesticides. That and several other arguments have been successful with federal courts and resulted in the dismissal of plaintiffs’ complaints, including that the term “natural” contemplates the use of pesticides and herbicides. The Federal Trade Commission’s (FTC’s) Green Guides, which are designed to help marketers avoid making environmental claims that mislead consumers even though they do not have the force of law, provide support for this argument. The Green Guides specifically permit a seller to make a “free-of” claim “even for a product, package, or service that contains or uses a trace amount of a substance if: (1) the level of the specified substance is no more than that which would be found as an acknowledged trace contaminant or background level; (2) the substance’s presence does not cause material harm that consumers typically associate with that substance; and (3) the substance has not been added intentionally to the product.”

Despite this fairly clear recent precedent in federal court on the “natural” issue, in February, a California court in Tran v. Sioux Honey Associate, Cooperative certified a class challenging the advertisements and labeling of various honey products as “Pure” or “100% Pure.” These products also contain trace amounts of glyphosate, like the products in Parks. The court had first considered this case in 2017, but stayed the action for at least six months pending resolution by the FDA of a central issue in the case, namely the tolerance level for glyphosate in honey. Six months elapsed. The FDA then responded to a letter from the court, respectfully declining to provide a determination regarding whether and in what circumstances honey containing glyphosate may or may not be labeled “Pure” or “100% Pure.” The court lifted the stay, and litigation restarted in earnest. While the court in Tran did not consider the merits of the “Pure” and “100% Pure” representations in granting class certification, class counsel may now represent a class of “all persons residing in California, who, from January 2014 to the Present, purchased, for personal use and not resale, Sue Bee Products.”

The takeaway is that brands should be sensitive about making “natural” and “pure” claims when they know their processed food products contain glyphosate residue. If your product contains less than the FDA-established tolerance level of glyphosate for the ingredients in processed food products, then you’re probably in the clear – though you may still have to defend against a class action in this evergreen area.

COVID-19 Update: Consumer Class Action Filed Over Hand Sanitizer Claims

Earlier this week, we blogged about the FTC and FDA’s joint warning letters to seven companies that claimed their products could treat or cure coronavirus. However, the regulators aren’t the only ones taking action over deceptive advertising practices related to coronavirus. A group of California consumers filed a class action complaint alleging Vi-Jon Inc. “advertised, marketed, and sold” its Germ-X brand alcohol-based hand sanitizers with claims that they prevent the flu and other viruses, including the coronavirus, when they allegedly do not.

The plaintiffs did a deep-dive into the various ways Germ-X allegedly advertises the hand sanitizers and alleged that the explicit statements on the Germ-X and third-party retailers’ websites, as well as the combination of certain text and images throughout the sites, mislead consumers into believing the products prevent the flu. For example, the complaint alleges that the products are described as being “meant for coronavirus/flu prevention” on third-party retailers’ websites. The complaint also points to various sections of the Germ-X website – such as “Seasonal Illness,” “Schools” and “CDC Resources” – that, due to the combination of text and images, allegedly give the impression that the government recommends Germ-X to prevent the flu and other viruses and that Germ-X can help users avoid getting sick. Continue Reading

Regulators Issue Warning: These Products Cannot Treat Coronavirus

Last week at our #BakerDigitalForum (BakerHostetler’s forum on advertising, e-commerce, data privacy & security law) we heard from Richard Cleland, assistant director, Advertising Practices, for the Federal Trade Commission (FTC)’s Bureau of Consumer Protection. He informed attendees that the FTC’s priorities often come from the headlines, citing COVID-19 as the first example of current events informing enforcement priorities. A mere three days after these remarks, the FTC and the Food and Drug Administration (FDA) issued seven – yes, seven – joint letters to a variety of companies that allegedly are taking advantage of fears surrounding the pandemic and making advertising claims related to the coronavirus. The agencies invoked Uncle Joey from Full House, warning the companies (and others making similar claims) to cut it out.

As the letters state, there “currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products to treat or cure” COVID-19, so any advertising claims touting such benefits “are not supported by competent and reliable scientific evidence,” which is the standard for substantiating health claims under the FTC Act. For its part, the FDA also considers the products at issue as “unapproved new drugs” and “misbranded drugs” in violation of the Federal Food, Drug, and Cosmetic Act. The products range from essential oils to colloidal silver products to frankincense to a “Coronavirus Protocol” of teas and tinctures. The agencies allege the recipients of the letters are making unsubstantiated efficacy claims tantamount to a public health threat, and warn that the agencies are “prepared to take enforcement actions against companies that continue to market this type of scam.” Continue Reading

Court Invalidates New York’s Legalization of Fantasy Sports

The New York Appellate Division dealt a shocking blow to the fantasy sports industry by ruling earlier this month that daily fantasy sports contests are a form of gambling and that the law passed by New York in 2016 legalizing and regulating fantasy sports was unconstitutional.

Fantasy sports have historically had a rocky history with the state of New York. Back in 2016, DraftKings and FanDuel exited the state following a lawsuit filed by the New York attorney general alleging that these companies’ daily fantasy games violated New York’s prohibition on gambling. Later that year, the Legislature passed an amendment to the Racing, Pari-Mutuel Wagering and Breeding Law, declaring that what it referred to as “interactive fantasy sports” are not games of chance and do not constitute gambling under the state’s penal law. The amendment also created a regulatory scheme similar to those that were being adopted in other states to govern the operation of the contests. Following the passage of that amendment, a group of private citizens sued Andrew Cuomo and the state of New York. The lower court sided with the plaintiffs and ruled that the amendment was invalid. Continue Reading

Butt isn’t it just puffery if it is funny?

We’ve said it before, and we’ll say it again: NAD does not have a great sense of humor when it comes to false disparagement dressed up in a joke. And it hurts our hearts, as at least one of us really is a tween boy trapped in a middle-aged lady’s body. Yes, farts make Amy laugh. Hard.

In what may be one of the greatest lines in an NAD case report, from the challenger’s portion: “Char-Broil asserted Traeger’s sophomoric humor does not relieve it of its obligation to support its objective and extraordinarily pejorative claims.” Wow. So what happened here?

This was a cheeky little ad by a wood pellet grill maker targeting gas grills. Two neighbors (men, natch) are grilling side by side. The one grilling with wood pellets asks the other, “What flavor propane are you grilling with?” The propane griller responds, “Gas,” as he holds up a burnt piece of meat and says, “Smells like gas; let’s eat!” Partygoers eating food cooked on the propane grill try it and say it “tastes like gas.” As they keep repeating the phrase, it sounds like “tastes like ass.” (This brings to mind Kmart classics — the “ship my pants” ad and the “big gas savings” ad) Char-Broil said this was falsely disparaging because propane grills do not leave any gas taste on grilled foods. Continue Reading

The FTC, AI and Algorithms

If you got past the title to this point, congratulations – not sure that we would have. In exchange for your trust, we promise to try to address a complicated and fascinating subject in a relatively clear manner.

That’s pretty much what Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC) did in a recent speech on this topic, and the many companies increasingly utilizing artificial intelligence (AI) should pay heed (and if you think your company is not using AI or algorithms, recheck – it probably is). Commissioner Slaughter emphatically rejects the idea that an outcome or practice cannot be unlawful or cannot be remedied because it is the result of AI. And what kind of harms could there be from rogue AI?

  1. Denial of a benefit – you don’t get the job or the loan.
  2. Higher cost of a benefit – you get the loan or other product but at a higher cost.
  3. Denial of opportunity – you aren’t even presented with the opportunity to apply for the job or loan or to purchase the home or other good.

And what can cause AI to go awry even when designed with the best of intentions? We still don’t know what happened to HAL in 2001: A Space Odyssey, but Commissioner Slaughter provides four examples of how algorithms can go bad. Continue Reading

Who Can I Trust on the Way to the Dog Show? The FTC on Review Websites and Fake Reviews

I am making my annual pilgrimage next week to bring my mother to the Westminster Dog Show.  We need to stay and eat near Madison Square Garden, as she likes to be very close to all the action; plus, there is a chance we might be in the same hotel as Wilma the champion Boxer, and nothing could be better than that. But I am not a regular in the NoMad area, so I turned to reviews, rankings, ratings and recommendations. Sometimes we may doubt reviews written on a restaurant or hotel web page – they probably picked the best of the best to highlight. So we turn to articles or websites that research and rate various options. But can they be trusted?

The FTC’s recent proposed settlement with LendEDU gives us reason to pause. The complaint alleges the website www.lendedu.com promoted itself as a resource for consumer products to research options for financial products such as loans and insurance. The website provided star rankings and rate tables that it said were objective and unbiased.

The FTC alleged that LendEDU offered to improve the status of companies in exchange for higher payments per click. It is pretty clear that a company cannot say it is providing unbiased reviews but then offer to improve reviews in exchange for moneys. What is less clear is what happens if a review site is silent about its practices and provides a ranking without any indication that compensation is involved. Is there always an implied claim that review sites are free from the taint of filthy lucre? And what if the reviews themselves are neutral and objective as promised, but companies that are reviewed can pay for better visual highlighting or a more favorable placement than competing companies, even ones receiving a more favorable ranking? Is this a legitimate way for companies to monetize their web content or deceptive conduct?

In LendEDU, the company did have an “Advertiser’s Disclosure” link that at least in part disclosed that it was compensated by some of the companies featured on the website. We know that disclosures must appear in proximity to the claims they modify. The FTC has explained in its .com Disclosures Guide how to use and not to use hyperlinked disclosures. In the proposed order, the FTC takes hyperlinking off the table by defining “close proximity” to mean “that the disclosure is very near the triggering representation. For example, a disclosure made through a hyperlink, pop-up, interstitial, or other similar technique is not in close proximity to the triggering representation.” One might say this is the standard applied to LendEDU as a company now under FTC order, but it should give other companies pause as to whether the hyperlinked disclosure might be falling into even deeper disfavor.

In addition, the FTC alleged that positive reviews written about the LendEDU website were actually written by company employees and friends. We saw similar allegations recently in the Sunday Riley case, alleging the company encouraged employees to create fake profiles on Sephora to favorably review the company’s products. Shortly thereafter, Commissioner Wilson tweeted:

Perhaps she was foreshadowing this case, but there may well be others in the pipeline as well. It seems most of the FTC’s advertising cases now involve a count of fake reviews, both on an advertiser’s own websites and on third-party sites. I hear, often, things like, “we would never do that,” but claims of fake reviews seem to be so commonplace it would be a good time to really dig into the practices of your marketing department to make sure they are not engaged in any after-hours review activity. In addition, be careful about endorsing your client’s products. The LendEDU complaint included at ¶37 an allegation that a review of LendEDU’s comparison tool by LendEDU’s outside counsel should have disclosed the connection between the lawyer and the company.

Commissioner Slaughter issued a concurring statement in the LendEDU case that is a loud warning bark: “I write separately to highlight the importance of this case in addressing a cutting-edge market practice that I fear is becoming increasingly common online: purportedly neutral rankings and recommendations that actually reflect paid product placement. . . . Companies that engage in pay-to-play rankings and ratings should take heed: This conduct robs consumers of vital information, pollutes our online marketplaces, and violates the law, which will result in serious consequences.”

Anyone with organic, unbiased recommendations for where to go around Penn Station, please let me know!

The Ad Industry Wants a Delay to CCPA Enforcement As It Considers CCPA Cookie Compliance Frameworks and Ongoing Rulemaking

A letter penned by the top ad industry trade associations (the American Association of Advertising Agencies, the Interactive Advertising Bureau (IAB), the Association of National Advertisers, the American Advertising Federation and the Network Advertising Initiative) was sent on Jan. 29 to California Attorney General (AG) Xavier Becerra requesting a delay in enforcement of the California Consumer Privacy Act (CCPA) until at least six months from the final promulgation of the regulations called for by that new law, which became effective on Jan. 1. A first draft of the regulations was published on Oct. 10, 2019, the period for public comments on that first set of proposed regulations closed on Dec. 6 and the AG has yet to respond with revised rules. The legislature amended the CCPA back in 2018 to delay the AG’s enforcement until the earlier of six months from the finalization of the regulations or July 1, 2020. Given the state of the rulemaking, it is clear that July 1 will be the commencement of enforcement under the terms of the current statute, unless that date is pushed back. However, the problem, the letter points out, is that with no second set of regulations available, and accounting for the further comment, review and revision process that will follow them, it now appears likely “that the draft rules will not be finalized before, or only a short period prior, to the law’s July 1, 2020, enforcement date.”

The associations requested the further delay to allow companies more time to figure out how to implement the CCPA requirements given the “extraordinary complexity” of the law and the “wide range of open issues” in need of clarification. The letter goes on to explain that at least six months from the date final rules are available would be practically necessary to implement those rules. While the request is reasonable and would be sound policy for these reasons, it is unclear whether the enforcement date can be changed without legislative action, which is highly unlikely to occur. The CCPA gives the AG authority to “adopt regulations as necessary to further the purposes of this title,” and allowing sufficient time for businesses to design and implement compliance solutions that reflect the final regulations would seem to be in the spirt of that. In addition, the AG could exercise prosecutorial discretion to simply fail to take action on certain aspects of the law and regulations for a given period after the enforcement commencement date, to enable businesses reasonable time to implement the final regulations and any guidance that may accompany them. The AG’s office has stated that it received the trade associations’ letter, but that it will not be responding to anything outside the formal rulemaking process, so we will have to wait for the next version of the regulations to see if the AG adopts the associations’ reasoning. In any event, the AG has already stated that he does not believe the delay in enforcement is a safe harbor for noncompliance. Accordingly, businesses should be working expeditiously to implement their CCPA obligations based on the statute and the proposed regulations to the greatest extent practical. Continue Reading

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