AD-ttorneys@law – April 19, 2018

Alerts / April 19, 2018

In This Issue:

ERSP Sends Vitalizer Claims up to the FTC

Esoteric smartphone vibration claims will face new scrutiny

Nature’s Blueprints

Here’s the tagline on the home page of Vitalizer App’s website: “The Vitalizer™ was specifically developed to harmonize disorganized, aged or damaged Morphic Fields and Frequencies.”

This requires some unpacking.

The term “morphic field” originates from the research of a former Cambridge University biochemist and cell biologist named Rupert Sheldrake. Sheldrake’s research led him to conclude that “morphogenetic fields work by imposing patterns on otherwise random or indeterminate patterns of activity.” In other words, there are patterns in nature that stave off chaos by creating the structures of the world around us – including the shapes and internal structures of plants and animals, our memories and psychological habits, even our social structures. According to Vitalizer’s website, electromotive forces and other environmental pollutants damage and disrupt our own individual morphic frequencies, leading to accelerated aging and other issues. And that’s where the app comes in.

The Vitalizer is a smartphone app that, its marketing claims, generates vibrations that can “renew the influence of your own ‘morphic frequencies’” to have a “positive effect on your entire system.” When the app is played over or near water and other beverages or applied directly to the body itself, a person’s morphic frequencies are harmonized, the marketing claims, leading to improved balance, hydration, strength, thought processes and other benefits.

In March 2018, the Electronic Retailing Self-Regulation Program (ERSP, which is an investigative unit of the advertising industry’s system of self-regulation and is administered by the Advertising Self-Regulatory Council [ASRC] of the Council of Better Business Bureaus) announced that it was referring the Vitalizer’s advertising to the Federal Trade Commission (FTC) for review.

At issue was the company’s failure to respond to an earlier ERSP inquiry. ERSP staff had requested substantiation of claims like the ones outlined above, including these:

“The Vitalizer TM was specially developed to harmonize disorganized, aged or damaged Morphic Fields and Frequencies. How would you like to drink better tasting hydrating water? Smoother tasting wine? Boost your energy from your coffee or tea? Improve your energy, flexibility and focus?”

The Takeaway

The company was given two opportunities to provide a substantive response to ERSP’s initial inquiry and failed to do so. This issue underscores how failing to have adequate substantiation for advertising claims, and subsequently ignoring self-governing entities, can land companies in hot water. The FTC relies on industry self-regulation to help it conserve the commission’s limited resources. When advertisers refuse to cooperate with the ASRC and it refers a matter to the commission, FTC staff almost always investigates.

We’ll keep an eye out for future news about the FTC’s reaction to the Vitalizer’s advertising claims.

NAD Says Cardio Miracle Creator Dodged the Question

NAD alleges Evolution Nutraceuticals trumpets effect of a chemical, not the product that delivers it

Hearty Powder?

Way back in 1998, three doctors were awarded the Nobel Prize in Physiology or Medicine for their discovery of the cardiovascular effects of nitric oxide.

This simple molecule, it turns out, functions as an important signaling mechanism in the human cardiovascular system, helping cells maintain and repair themselves. Over the years, nitric oxide has been found to have applications for neonatal patients and those suffering lung injury, acute respiratory distress and pulmonary hypertension.

Evolution Nutraceuticals, a company that produces diet supplements, embraced the research on nitric oxide with its Cardio Miracle powder supplement. According to the company website, Cardio Miracle is “a combination of the finest organic, natural, and laboratory tested ingredients that supports extended nitric oxide delivery ... in the body.”

And it was banking on the persuasiveness of the nitric oxide research; the “Ultimate Pack” Cardio Miracle package costs $287 for a 100-plus-day supply.

You Say Potato, I Say ...

The Council for Responsible Nutrition, a trade organization that represents dietary supplement and functional food manufacturers, took exception to some of Evolution Nutraceuticals’ advertising for Cardio Miracle, and it called the manufacturer’s claims out before the National Advertising Division of the Council of Better Business Bureaus (NAD).

The company promised to improve the body’s ability to produce nitric oxide plus a score of benefits produced by the molecule itself: lowered blood pressure, help with neuropathy and dizziness, and, most notably, the prevention or reversal of heart attacks and strokes.

NAD launched an investigation but claims to have received an insufficient response from the manufacturer; Evolution Nutraceuticals answered the query by touting the ingredients of Cardio Miracle – including arginine, citrulline and the powders of various nitrate-rich vegetables – and their ability to stimulate nitric oxide production in the body.

NAD claims that Evolution Nutraceuticals dodged the pertinent question. NAD maintained that it was not concerned with, and did not dispute, claims that nitric oxide benefited cardiovascular health. The question at hand for NAD was whether Cardio Miracle itself delivered the benefits it advertised. It recommended that the advertisements be discontinued.

The Takeaway

NAD claims that Evolution Nutraceuticals failed to provide any evidence regarding the efficacy of the Cardio Miracle product itself. This again underscores the importance of a company providing adequate substantiation for its products and claims that it makes that directly relate to its use, not generalized benefits of component ingredients. Here, NAD determined that the advertiser’s evidence was insufficient to support any claims regarding the Cardio Miracle product and recommended that the advertiser discontinue all the challenged claims, since no evidence was offered for the product itself.

For its part, Evolution Nutraceuticals stressed once again the veracity of its claims regarding nitric oxide but added that it would adjust its advertisements to make it clear that Cardio Miracle was a “possible supporting product with clinically acceptable ingredients in meaningful amounts, to support the body’s natural signaling process of nitric oxide with such.”

CPSC Takes Smart Tech Safety to the Streets

Commission will gather public comment on connected products

On Their Mind

The Consumer Product Safety Commission (CPSC) has had the “internet of things” on its mind for some time now.

Back in January 2017, it released a wide-ranging report, titled “Potential Hazards Associated with Emerging and Future Technologies,” that dealt with the broad sweep of emerging consumer products and technologies and the hazards that may be associated with them. “Increased integration of smart technology and the Internet of Things” was one of the topics reviewed in the report, which tackled new related hazards such as a safety feature on a product being compromised digitally, a software glitch that creates abnormal operating conditions or false sensory inputs from a virtual reality application that causes real-life injury.

The report, which was driven in part by then-CPSC Chairman Elliot Kaye, was the first in a series of signs that the commission was paying closer attention to the product safety challenges posed by the internet of things and smart technologies. Commissioner Marietta Robinson made a high-profile trip to Israel to meet with technology leaders, academics and nonprofits to discuss consumer product issues raised by technologically advanced products. And acting CPSC chairwoman Ann Marie Buerkle referred to the issue in speeches and meetings.

Rap Session

A new major development in the CPSC’s engagement with these technologies is an upcoming hearing, scheduled for May 16, 2018, in Bethesda, Maryland. The hearing presents a unique opportunity for anyone who is interested in the intersection of technology and safety to offer input about “potential safety issues and hazards associated with internet-connected consumer products.” For those interested in attending, the hearing notice defines two separate streams of safety challenges to discuss – hazardous conditions caused by the inherent design of the product, and the hazards that accrue when an otherwise safe product is affected by changes to operational code.

The CPSC also goes out of its way to note that it does not consider personal data security and privacy part of its consumer safety mission. For more on that, see our recent blog post on IoT data privacy and security here.

The Takeaway

The hearing notice provides a list of questions – “areas for discussion” – that the CPSC hopes to address through the hearing and related commentary. The list includes, for instance:

  • Do current voluntary standards and/or safety regulations address safety hazards specific to IoT-connected devices?
  • Who should develop such standards or create a set of design principles?
  • What controls or supervisory systems on products are necessary to prevent injuries from unintended consequences of misinstallation, failed update, operational changes over time or misuse of an internet connection?

For designers, coders, manufacturers and marketers – anyone involved with the creation of connected products – these questions are helpful and instructive reading. They convey a sense of what the commission is thinking about as it begins to engage burgeoning technologies more closely. And they provide a worthwhile checklist for anyone contemplating creating – or selling – a new connected product.

ESRB Floats Changes to Its COPPA Safe Harbor Program

Self-regulatory organization moves to match earlier FTC-issued guidance

Port in the Storm

The Children’s Online Privacy Protection Act provides a “safe harbor” for companies that comply with self-regulatory certification guidelines issued by FTC-approved industry groups. Companies that comply with these certification requirements are exempt from agency enforcement under the Children’s Online Privacy Protection Act (COPPA). 

The Entertainment Software Rating Board (ESRB – responsible for, among other things, the familiar rating labels found on software game packages) was one of the first industry groups to create safe harbor guidelines (the ESRB’s were approved by the FTC in 2001). On March 13, 2018, the ESRB submitted a request for approval of modifications to its safe harbor program. According to the request, the board believes that a continual assessment of its program requirements against the changing standards of COPPA is necessary to “ensure they remain current with the Commission’s COPPA-related regulations and guidance.”

Among the modifications are changes that will make the ESRB’s program requirements “track” FTC guidance governing the collection of audio voice recordings under COPPA. The guidance, issued in October 2017, mandated that websites and online services that deal with children needed to obtain “verifiable parental consent” prior to collecting an audio recording of a child; this policy doesn’t apply to audio captures that are used strictly for a limited time and purpose – for instance, interactive search functions.

The changes also include the removal of the self-assessment questionnaire requirement for new members of the ESRB program (the ESRB is interested in taking a more personal approach to new members, including phone calls and video conferences) and a new insistence on “prominent and clearly labeled” privacy statements, including mandatory links to the privacy statements in the app store pages of companies that produce apps under the program’s umbrella.

The FTC is seeking comment on these changes; the public comment period closes on May 9, 2018.

The Takeaway

Under COPPA, commercial website operators that market services and products to children under the age of 13 must post comprehensive privacy policies, notify parents about their information-collection practices and, absent certain narrow exceptions, obtain verified parental consent before collecting personal information (defined to include device identifiers) from children. COPPA has been a hot issue over the past year, most recently and notably in a case filed against YouTube. COPPA gives the FTC the ability to levy fines, a power it lacks regarding its privacy regulation for adults, and the commission has been very active in bringing actions and fining companies that make COPPA errors. Working with an FTC-approved safe harbor provider is a good way to learn how to comply with the complicated regulatory scheme for children’s privacy and avoid FTC enforcement actions. Another popular safe harbor program is administered by CARU, the Children’s Advertising Review Unit of the Council of Better Business Bureaus.

9th Circuit Ices Class Action Against Starbucks

Rejects plaintiff claims that coffee chain inflated ounces of cold drinks

Pouring Violations

Back in June 2016, Alexander Forouzesh filed a class action complaint against Starbucks in Los Angeles County Superior Court, alleging that “a Starbucks customer who orders and pays for a Cold Drink receives much less than advertised – often nearly half as many fluid ounces.”

At the heart of the complaint is the standardized process by which Starbucks baristas create cold or iced drinks. First, the suit alleges, the base liquid is poured into clear cups with line markings that correspond to the sizes offered by the chain – tall, grande, venti and trenta. Once the liquid reaches the appropriate line, the barista uses specially designed scoops to add predefined amounts of ice to the cup.

Forouzesh alleges that the amount of liquid required to fill to the lines is significantly less than the advertised fluid ounces in a given cup size and disguised by the addition of ice; for instance, “a Starbucks customer who orders and pay [sic] for a Venti iced coffee, expecting to receive 24 fluid ounces of iced coffee based on Starbucks’ advertisement and marketing, will instead receive only about 14 fluid ounces of iced coffee.”

Forouzesh slapped the coffee chain with charges including breach of express warranty, breach of implied warranty of merchantability, negligent misrepresentation, unjust enrichment, fraud, and violation of California’s Consumers Legal Remedies Act, Unfair Business Practices Act and False Advertising Law.

A Child Will Lead Them

After the case was moved to California’s Central District, Starbucks filed a motion to dismiss. The Central District embraced the motion in its entirety.

The court’s August 2016 judgment began by disposing of the Consumers Legal Remedies Act, Unfair Business Practices Act and False Advertising Law charges. The court stated that all three laws are governed by the “reasonable consumer” test and argued that no reasonable consumer could be deceived into believing that the drinks in question contain the full liquid ounces of fluid advertised. “As young children learn,” the court maintained, “they can increase the amount of beverage they receive if they order ‘no ice.’” If children understood this basic principle, the court argued, a reasonable consumer would not be deceived in the manner described by the plaintiff.

The rest of the charges fell based on this initial observation. Because no reasonable customer would be so deceived, the court argued, the complaint failed to maintain that Starbucks was making a misrepresentation in the first place, leaving fraud and negligent misrepresentation by the wayside. Likewise, with the express and implied warranty claims, “Plaintiff has alleged no well-pleaded facts suggesting that Starbucks has stated, or expressly warranted, that its Cold Drinks contain a specific amount of liquid. As a result, there is no statement by Defendant of any ‘fact or promise’ that it has breached that forms the basis of the bargain.”

Forouzesh appealed the judgment.

The case reached its end in March 2018, when the Ninth Circuit affirmed the Central District’s judgment. The circuit court stated simply that “the statutory claims fail as a matter of law because no reasonable consumer would think (for example) that a 12-ounce ‘iced’ drink, such as iced coffee or iced tea, contains 12 ounces of coffee or tea and no ice.” The circuit court let go of the fraud claim as well “because (even assuming that there was a representation) justifiable reliance is absent.” It also tossed the warranty claim because the plaintiff never alleged that Starbucks promised a specific amount of liquid in the products.

Finding that the district court was permitted to deny leave to amend the complaint, the Ninth Circuit brought the appeal to a close.

The Takeaway

The Ninth Circuit was quick and clear in affirming the dismissal of all the plaintiff’s claims. There has been a large number of class actions against food companies for somewhat similar, “slack-fill” practices – using a package larger than is necessary to hold the product contents and filling the rest with air. This case is distinguishable, as the ice is itself a product component of iced coffee, which when melted becomes part of the beverage. Nonetheless, the reasonable consumer standard, when applied to some slack fill facts, may help food manufacturers win the day. For instance, a bag of chips that is clearly not entirely full of chips would not reasonably be thought to be full of chips.

Like all cases of potential deceptive advertising, the issue is the net impression of the reasonable consumer under the circumstances.

NAD & CARU West Coast Conferences

At the NAD & CARU West Coast conferences on May 1-2 in San Francisco, BakerHostetler partner Alan Friel will moderate a session titled “The State of COPPA.” Alan will engage Jonathan Adler, an Assistant Attorney General in the Bureau of Internet and Technology at the New York State Attorney General’s Office, and Stacey Schesser, Supervising Deputy Attorney General at the California Department of Justice, in a lively discussion around trends and practices relating to the online collection of personal information from children. Enacted twenty years ago, the Children’s Online Privacy Protection Act established an important regulatory framework for commercial practices on children's websites, a set of “rules of the road,” in effect, to guide the development of the children's digital marketplace. For more information, click here.

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