Alerts

AD-ttorneys@law – April 3, 2020

Alerts / April 3, 2020

In This Issue:

Webinar Series

Please join former Congressman Mike Ferguson, leader of BakerHostetler’s Federal Policy team, and former Congressman Heath Shuler, Senior Advisor for the Federal Policy team, for a series of webinars on the federal government’s response to the COVID-19 pandemic. Information and registration are available at the following links:

Congresswoman Stephanie Murphy, D-Fla.
Monday, April 6, 2020, 1:00 p.m. EDT (1 Hour)
Register now >>

Congressman Josh Gottheimer, D-N.J.
Thursday, April 9, 2020, 12:00 p.m. EDT (1 Hour)
Register now >>

FTC Makes Coronavirus Readiness Announcement

Not quite business as usual, but response seems confident

Meddling With the Primal Forces of Nature

The United States, and its partners in industry and technology across the globe, spent the years following the dawn of the internet ironing out and hammering down inefficiencies in the global marketplace. It’s an impressive achievement, something that would have been pure science fiction even at the optimistic midpoint of the 20th century.

Would your parents (or grandparents) ever have imagined the speed and accuracy with which a product could be delivered to your door?

The efficiency of this economic system – the thing that’s made it profitable – is its own enemy, of course, which is the lesson the coronavirus has driven home. The near-perfect seamlessness of our manufacturing, distribution and marketing technologies renders the whole system vulnerable to a disruption in any of its parts. This is why so many of our public safety systems were caught flat-footed by the pandemic: What automatic, algorithm-besotted system would ever have predicted the need for thousands of ventilators, billions of surgical masks or trillions of gallons of hand sanitizer?

Backup Plans

Despite the heartbreak of the current moment, we hope our system will be stronger for it; by the time it’s over, we may have learned a little about designing robust, seemingly irrational redundancies into the systems we depend on – so they can take a sucker punch such as the ongoing pandemic with much less pain.

Keep the faith.

In the meantime, some of our institutions seem to be coping perfectly well, including one of the dominant characters in our weekly news coverage: The Federal Trade Commission (FTC or Commission).

The Takeaway

The FTC recently issued a “Keep Calm and Carry On” press release outlining its response to the pandemic. It’s like many of the releases you’ve probably read recently on the same subject: “[T]he health and safety of our people, their families, and the entities and individuals who appear before us; and the continuity of our mission” are the continuing priorities of the Commission.

As for the details: The FTC has sent most of its workforce home to work remotely, has banned all personnel from travel and has placed Commission facilities in lockdown. These are familiar responses.

But the release ends on a positive note: “Despite these procedural changes, the FTC will be conducting the business of the Commission without interruption. Our work is as important now as ever, and we remain committed to protecting consumers and competition.”

We are tracking COVID-19 issues and reporting on them here, on our blog and at our COVID-19 Resource Center. Additionally, our most recent webinar on the CARES Act, which provided analysis and practical advice for businesses, can be viewed here.

Takeshi 6ix9ine Has Marketing Troubles Too

In an increasingly familiar scenario, a young influencer is accused of bailing on an agreement

Naughty by Nature?

Is Tekashi 6ix9ine an act or the real deal?

The Brooklyn-born rapper’s criminal record is certainly not a joke. According to an excellent article by The Fashion Law blog, he has been accused of choking a woman, attacking a police officer, uploading a video of an underaged girl involved in a sex act, driving without a license, violating his parole and being involved in gang violence.

All this trouble was merely a prelude to his 2018 arrest by the NYPD; the Bureau of Alcohol, Tobacco, Firearms and Explosives; and – yes – the department of Homeland Security on RICO and firearm violations. The charges related to his alleged involvement with the Bloods street gang, and Takeshi – born Daniel Hernandez – was held for sentencing in early 2020.

A plea deal in February of this year knocked 37 years off his sentence in exchange for testimony against his former fellow gang members. And this is where Takeshi became infamous not only among the general public but also the criminal underworld. The “critical insight into the structure and organization” his testimony provided about his former gang meant that he had a target on his back. Soon he required protective custody.

New Template?

Takeshi’s defense asserted, in part, that the rapper was playing out a fantasy – essentially, a marketing campaign – that, once drawn into, he could not escape. His seemingly forthright testimony launched a debate about the always blurry line between public image and individual culpability, between artistic expression as performance and as evidence.

Themes of authenticity find themselves repeated, although writ small, in a lawsuit filed against the young rapper and multiple corporate entities related to him. Fashion Nova, a clothing and accessories company marketing to a constituency that is “bad-ass, fashion-forward, and in control of their own destiny,” filed a complaint in Los Angeles Superior Court against Takeshi and crew in March 2020.

Fashion Nova claims that Takeshi signed on for a $225,000 payday in exchange for providing “multiple posts marketing Fashion Nova on his Instagram and music videos in exchange for the advanced payment.” The agreement, allegedly signed in October 2018, also required Takeshi to name-drop the company in his lyrics.

The Takeaway

Fashion Nova maintains that Takeshi never intended to carry out his end of the agreement; in fact, the complaint states, he “approached [their] negotiations in bad faith without ever having the intent to perform.”

Unfortunately for Fashion Nova, Takeshi was incarcerated only two weeks after the agreement was minted. How the rapper would deliver on his promises from a jail cell was unclear; Fashion Nova demanded the advance back.

The company is suing for breach of contract, breach of the covenant of good faith and fair dealing, conspiracy, aiding and abetting, false promises, unfair business practices under California law, and a handful of other charges. It seeks damages of more than $2.2 million.

If all this sounds familiar, we reported the similar case of Luka Sabbat in December 2018. Expect more cases to follow: Influencers, once the do-no-wrong darlings of social network advertising, are proving themselves to be all too human.

And with that truism in mind, we’ll leave you with a single sentence from Fashion Nova’s complaint – a remark that overflows with irony:

Hernandez’s criminal court testimony completely contradicted the Defendants’ representations to Fashion Nova about Hernandez being a great marketing prospect and a qualified person for the services promised in the Service Agreement.

Which raises the question: Did the company ever bother to listen to Takeshi’s music in the first place?

Gatorade Beats Body Armor in Natural Ingredient Showdown

Don’t cross the (product) streams, says NAD

New Flavor

Here’s an interesting new decision from the National Advertising Division (NAD) that should send your marketing department into fits.

It’s all about product lines.

Here are the basics: Stokely-Van Camp Inc., surely the company whose name is most likely to be mistaken for the name of a fictitious company in a feature film, is the maker of a thoroughly recognizable product: Gatorade (we’ll just call the company Gatorade from here on in).

Gatorade hauled BA Sports Nutrition LLC, makers of rival Body Armor-brand drinks, before NAD to dispute two basic claims.

Terms of the Debate

Here they are:

  • That Body Armor is “the more natural sports drink.”
  • That Body Armor has “More Natural Ingredients Than Gatorade Thirst Quencher & Gatorade Zero.”

These claims were also made about the company’s Body Armor drink and Body Armor Lyte drinks – for clarity’s sake, we’ll be discussing all of them together under the “Body Armor” moniker.

NAD’s critique of these claims rests on two premises: First, that “without meaningful qualification … a reasonable consumer could take away the message that Body Armor and Body Armor Lyte products contain more natural ingredients than Gatorade products by numerical count, by volume, or by both”; and second, that the claims “reasonably communicate that the product benefits promised are true for all of the products in a line.”

The Takeaway

Here’s how those premises play out.

Because the claims involved four different product lines – Body Armor, Body Armor Lyte, Gatorade Thirst Quencher and Gatorade Zero – Body Armor was required to support the claims across all products in each line. Body Armor could support the “more natural ingredients” against five flavors in each Gatorade product line, but that still left several Gatorade flavors that have the same number of natural ingredients as Body Armor. As a result, NAD found that Body Armor could not support the broad line claim of “more natural ingredients.”

Separately, Body Armor had also not supplied evidence describing the volume of natural products in Gatorade’s drinks. This was an issue because the claim could also be interpreted as the largest volume of natural ingredients, as opposed to the highest number of separate ingredients.

The last conclusion is quotidian; unsupported claims decisions are relatively straightforward; we see them all the time. It’s the product line comparison decisions that are interesting.

When making “natural” claims about many products under one moniker, you need to get your ducks in a row – you need to be able to provide evidence backing up all the possible cross-comparisons that are inspired by your claims. If you’re lucky, the basic ingredients are similar across the entire range of products and the comparisons will be easily summarized.

If you’re not lucky, you’ll have to abandon the claims or gear your copywriters up for some serious overtime.

Aw-Shucks Natural Pancake Mix Hero Faces Double Trouble

Lawsuits say the product isn’t what it’s cracked up to be – and there isn’t enough of it, either

Fanfare for the Pancake Man

Kodiak Cakes, maker of “whole grain, protein packed, non-GMO” pancake and waffle mixes, is a family business straight out of a Frank Capra movie. The original mix was invented by Clark family matriarch Penny, who made healthy, homemade foods in her own kitchen. Her eight-year-old son Joel would package her pancake mix into plain paper bags and rove the neighborhood, selling the mix out of his – get this – little red wagon.

And it doesn’t stop there. The doughty little company experienced growth and setbacks, with Joel Clark (now leading the company) running the show at night and completing his MBA during the day. After years of ups and downs and a series of cash infusions from Joel’s father, and a brief dalliance with a licensee, the company enjoyed serious if not sustainable growth. Then, the real movie moment happened.

Joel and Kodiak COO Cameron Smith talked their way into a guest spot on Shark Tank, the ABC reality TV show where a panel of businesspeople grill entrepreneurs who are seeking an investment in their company. In a classic Hollywood victory of integrity and grit over the allurement of cold, hard cash, the pair rejected a $500,000 investment for fear of losing control over their homegrown business. The show’s hosts were surprised and impressed.

If you’re a fan of feel-good films, you won’t be surprised by what happened next: Even though they had walked away from the money, the appearance on Shark Tank launched Kodiak into hyper success. Consumers loved the company’s all-American gumption and cleaned its mixes off the shelves. “Kodiak Cakes’ sales rose from $3.6 million in 2013 to $6.7 million the [year following the Shark Tank appearance] … Now Kodiak Cakes competes with multiple brands across the breakfast space … [including] Aunt Jemima, Krusteaz and Birch Benders [and] Betty Crocker and Duncan Hines,” said Inc. in a glowing profile.

The Takeaway

And that’s where any feel-good movie should end: the triumph of the honest, hardworking little guy with an idea.

Not so fast. In the real world, every story – no matter how picture-perfect – has some grit mixed in with the batter. Kodiak has had its wholesome image – and ingredient list – challenged by two lawsuits.

The first, filed in 2015 in St. Louis, Missouri, circuit court, alleged violations of Missouri’s Merchandising Practices Act and unjust enrichment. At issue was an “all-natural” claim made by Kodiak on the packaging of its “Big Bear Brownies.” “On the label … Defendant prominently represents that the Brownies are ‘ALL NATURAL,’” the complaint reads. “They are not. The Brownies contain sodium acid pyrophosphate, a synthetic chemical that is used to remove iron stains in leather products, is used as an oil drilling fluid, and is used to de-feather poultry – and that the FDA has said has no place in purported ‘all natural’ products.” That case was dismissed by the parties with prejudice, which typically means it settled out.

In the second case, filed in the Southern District of California in late 2019, the plaintiffs add a slack-fill counter to a health claims punch. The plaintiffs maintain that Kodiak’s “all-natural,” “healthy” and “protein-packed” claims are deceptive, and quotes Food and Drug Administration (FDA) guidelines chapter and verse, alleging that Kodiak products fall short on benchmarks for all three claims. But even if the mixes allegedly fail to meet FDA marketing standards, there still isn’t enough of them to go around: “Kodiak Cakes has sold its cooking mixes in an entirely non-transparent box that resembles cardboard,” the plaintiffs write. “The box is filled substantially less than the capacity of the package by more than half … concealing the amount of product actually contained therein and [preventing] consumers from directly seeing or handling the product … to facilitate value comparisons.”

Both cases challenge Kodiak’s rough-hewn, pioneer-days affect. Which is a shame, because – if the allegations are true – the company seems to be tripping up on truly obvious mistakes. The FDA’s guidelines aren’t hidden at the end of the credits.

Check Out Our Latest Blog Posts

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

The FTC took this unprecedented step without having yet issued any report from its Made in USA workshop or any explanatory statements. Read more here.

Healthcare Providers Remain Targets for Ransomware Attacks in the Midst of COVID-19 Pandemic

In order to combat the COVID-19 pandemic, healthcare providers have had to radically change their normal business processes, which could make them more vulnerable to ransomware attacks. Learn more here.

3D Printing Comes of Age in the COVID-19 Crisis

Recent activities show that 3DP has advanced far beyond a plaything for home hobbyists and is now a globally distributed tool for quick-turnaround manufacture. These activities also raise important legal considerations for those with 3DP capabilities. Read more here.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.