Alerts

AD-ttorneys@law – April 9, 2020

Alerts / April 9, 2020

In This Issue:

Upcoming Webinars

Washington’s Response to COVID-19

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.

April 14: Senator Thom Tillis, R-N.C.
Click here to register.

April 16: Senator Chris Van Hollen, D-Md.
Click here to register.

A CCPA Q&A with the Tag Management Vendors

To help launch its new privacy law webinar series on April 24, the Interactive Advertising Bureau has invited BakerHostetler partner Alan Friel to facilitate “A CCPA Q&A with the Tag Management Vendors,” a discussion regarding CCPA-related capabilities in tag management. How are vendors helping track verifiable consent and what role, if any, should prior consent play in the U.S.? How are they helping companies integrate “do not sell” with tag management and to sync across systems to prevent sales for those consumers who have opted-out? Solution features, functionalities and advantages will be explored. To register, click here.

Journal to CBD Manufacturers: Don’t Be an Outlaw

Anyone creating CBD products should grok FDA guidance, even if the market still feels like the Wild West

Dry Powder

Cannabidiol (CBD) and CBD-derived products are everywhere. That’s why it pays to remind ourselves that the U.S. Food and Drug Administration’s (FDA) rules remain straightforward and categorical: CBD is an approved drug and thus cannot be added to food, beverages or dietary supplements. And that’s that.

But … we know it isn’t. As we’ve reported many times before (see this list), debate over how to regulate CBD rages on even as the FDA seems to take its time releasing final rules. And in the interim, the number of CBD products grows by leaps and bounds.

Confusion

“Widespread availability of hemp and hemp-derived CBD products is confounding,” writes a trio of authors in the latest issue of Cannabis and Cannabinoid Research, a “journal dedicated to the scientific, medical, and psychosocial exploration of clinical cannabis, cannabinoids, and the endocannabinoid system.”

“To date,” the article continues, “FDA enforcement has been limited to sending warning letters to manufacturers, largely for mislabeling or misbranding their products as unapproved new drugs, or for making claims that a product is intended to treat a disease condition on labels and marketing materials.”

It’s a confusion that anyone involved in the market shares. But while confusion reigns, the authors offer helpful advice for CBD product manufacturers – advice that will not only help consumers but will also nudge the CBD industry toward the respectable side of the aisle.

Toe the Line

The article urges manufacturers to take their cue from labeling practices already established by the FDA for standard products. For instance, manufacturers should accurately report what they put in the product: “Widespread mislabeling of hemp and Cannabis products has been documented by both independent researchers and the FDA and other organizations. Underlabeling and overlabeling of both CBD and THC [tetrahydrocannabinol] content have been reported.”

The authors provide reminders on FDA labeling ethics. Manufacturers should provide a product identity as a dominant label feature – is the product a cracker, a cereal or a supplement? They should also provide accurate “Serving Size” and “Servings Per Container” information on their labels and refrain from making absolute claims (“THC-free,” for example) until regulatory guidance is in full effect.

Nutrient claims on standard food products – “low-fat” or “high-fiber” – are carefully defined by existing regulation, but there is no similar set of definitions for CBD-related claims; they should be avoided for now. Health and drug claims are likewise well-defined and monitored and may court trouble if used on labeling.

The Takeaway

In short, “manufacturers of [CBD and hemp-based] products may reasonably be expected to understand and adhere to FDA regulations for labeling and marketing of food, dietary supplements, and drugs, both [over the counter] and prescription, even though FDA has interpreted federal law as excluding them from those categories.”

This is excellent advice, designed to set up manufacturers (and their label and package designers) for an easier ride once new regulations are revealed.

Scare Ad Smashes Brake Pad Manufacturer Into FTC Suit

Cited tests measured performance only under narrow conditions

Hardball Pitch

Federal-Mogul Motorparts LLC doesn’t pull punches.

In recent TV and YouTube spots, the manufacturer played on the worst fears of every parent: In the spot, two women in separate cars with separate sets of adorable tykes in the back seat are driving down the highway. They glance at each other and give a friendly nod.

Suddenly, a truck crosses the highway in front of both cars. Both slam on their brakes. One car stops while the other slams into the truck. The woman in the undamaged car asks her kids if they’re OK. A final title proclaims that “Wagner OEX brake pads can stop your truck, SUV or CUV up to 50 feet sooner.”

Throw on the Brakes

Stop! Before you run out and buy Wagner brake pads to save your kids, you should be aware that Federal-Mogul was sued by the Federal Trade Commission (FTC) for false or unsubstantiated claims and unfair or deceptive acts because of this advertisement, among others. The company settled at the end of March.

What was wrong with the pitch?

The FTC claims that Federal-Mogul was supporting the performance claims with shoddy testing – for example, the trials allegedly tested foot pressure at only a quarter of the force normally applied in an emergency stop and after certain repeated maneuvers that heated the brakes up in a manner inconsistent with a one-time slam on the pedal. Because of the particular claims made in the advertisements, and consistent with regulatory guidelines, the testing protocol should have evaluated conditions under which a driver tries to stop the vehicle in the shortest achievable distance, such as when trying to avoid a collision, and simulate testing under ordinary driving conditions.

The Takeaway

Federal-Mogul settled. The agreement – surprise, surprise – prohibits the company from making performance claims about the brakes in the future unless it has serious testing to back up such claims. In this case, that means testing using the regulatory guideline known as the Federal Motor Vehicle Safety Standard for Light Vehicle Brake Systems (FMVSS 135). “According to this standard,” the complaint states, “an evaluation of the stopping distance performance of a vehicle requires that the driver [push] on the pedal as hard as necessary to achieve the shortest stopping distance.”

So … if you’re testing, don’t construct a test to achieve the results you want. Stick to broad industry standards, and then stake your claims.

FTC Pays Back Businesses Stuck With Unordered Office Merch

California company fired off ‘trial’ offers and false invoices

The Whole Magilla

Is there any telemarketing taboo that the Federal Trade Commission (FTC) didn’t accuse Telestar Consulting of doing? According to the FTC, Telestar, the office-supply company, seems to have committed every one of them.

The company, along with head honcho Karl Wesley Angel, was accused in 2016 of failing to disclose full prices in telemarketing calls, failing to specify the quantity of products offered in special deals, promoting “trial” offers that it later charged for, and shipping unordered items with invoices and demanding payment when they were ignored. Among other things.

Telestar seemed to be betting on the confusion that often creeps in between different departments within a company – the high-pressure tactics would often lead accounting departments to pay invoices quickly without necessarily checking whether an order had even been placed or the products received.

The Takeaway

The case settled in 2017, before the Central District of California had a chance to weigh in. Telestar and Angel were banned from selling the supplies in question to consumers, prohibited from shipping off merchandise without a customer’s consent and barred from doing all the other bad things they were accused of.

The FTC took a victory lap this month when the checks for the settlement went out, amounting to $6.9 million for “small businesses, non-profits, and government agencies” that fell victim to the scheme.

Bonus Takeaway

Just a side note – at the bottom of the press release announcing the settlement, the FTC shares a link to its new “interactive dashboards for refund data.” It’s an interesting tool that provides a state-by-state breakdown of refunds, as well as graphs listing the largest refunds by dollar amount, number of recipients and other variables.

If you’re an FTC nerd, and you know you are, you can select your favorite settlement and compare it with the entire field.

H&R Block Loses Challenge to Free File Class Action

IRS offers free tax prep through the company, but consumers allege misdirection

The Best Things in Life?

Here’s a tip that you might want to pass along, especially now that the coronavirus has pushed back our tax filing deadline: Given certain income requirements (most important, an annual income of less than $70,000), taxpayers can get their taxes prepped online, for free.

The novel part of this offer isn’t some brand-new online payment platform brought to you by the Internal Revenue Service (IRS); they built no such thing. No, the IRS contracted with private tax prep companies, including H&R Block, which created the Free File Alliance to provide its services for free.

Market of a Fail

According to the director of the Alliance, only 3 million of the 100 million taxpayers who are eligible for free filing take advantage of it. Why? Apparently, the IRS slashed the program’s marketing budget, so no one hears about it. But the program persists nonetheless. And that’s stirred up some trouble for H&R Block.

California plaintiffs sued the company in California Superior Court for violations of California’s Consumers Legal Remedies Act, False Advertising Law and Unfair Competition Law. They claim that H&R Block engaged in a “bait-and-switch”: luring consumers with an offer of the free filing service but pushing them instead into filing services that required payment.

There were a number of alleged violating practices, including having the users enter information for the free version of the service “only to be informed at the end of the laborious … process that they ‘needed’ to pay for Defendants’ services to complete their taxes, without ever being informed of the availability of the actual free filing program that they may have qualified for.”

The Takeaway

In late December, H&R Block moved to dismiss the case before the Northern District of California, where the case had been relocated. They argued that the plaintiffs had not alleged injury in fact or reliance and were unable to pursue injunctive relief “because they are now aware of any alleged trickery by Defendants and are therefore unlikely to be tricked in the future.”

The court rejected H&R Block’s argument that the plaintiffs received the “benefit of the bargain” because they purchased H&R Block’s tax services on the basis of false price information, and instead found that “Plaintiffs clearly allege that they paid a premium for Defendants’ product based on misrepresentations by Defendants about their eligibility to file for free and the deceptive nature of Defendants’ fake ‘free’ offer. ... They were economically harmed in the amount that they paid for Defendants’ fee services.” On the plaintiffs’ request for injunctive relief, the court again sided with the plaintiffs because “Plaintiffs clearly allege that they intend to seek out free filing services in the future and that they will likely continue to be eligible for those services.” Because “[Plaintiffs] will be unable to discern whether Defendants’ future representations about their products are true, based on Defendants’ past conduct,” the court permitted the Plaintiffs to maintain their request for injunctive relief, as well as all the other allegations in their complaint.

Straightforward stuff. If a service or a product is free, make sure it’s free, in the clear. And make sure that consumers are free to get it.

Citronella Candle Maker Escapes Dislocated Class Action

Spectrum Brands lost on multiple motions to dismiss but survived on jurisdictional issues

The Smell of Summer

For thousands, perhaps millions, of Americans, citronella candles provide the pungent odor wafting through their memories of summer.

The oily smoke with the lemony overtones was a staple of camping trips, backyard barbecues and quiet evenings sitting on the porch making fun of the neighbors. Why put up with the smell and the haze? The idea was that citronella kept mosquitos at bay, so it was worth the watery eyes.

Unfortunately, citronella has received some mixed reviews when it comes to the bug-shooing business. The Centers for Disease Control and Prevention (CDC) notes that citronella may not be effective in fighting off mosquitos. The candle version of the repellent was even called out as ineffective by the American Mosquito Control Association (AMCA) (proving, once again, that there is an association for everything).

Twice Bitten …

All this official ambivalence about the candles popped up in a class action that was recently dismissed by the Eastern District of Missouri. Filed last July, the suit charged Spectrum Brands, manufacturer of Cutter Citro Guard Citronella Candles and Repel Insect Repellent Citronella Candles, with deceptive acts, false advertising, unjust enrichment and fraud. The plaintiffs alleged that despite the CDC’s and AMCA’s objections, Spectrum labeled the candles with packaging that declared “repels mosquitos.”

Even worse, the complaint quotes the Journal of Insect Science, which maintains that the candles had “no repellency effect” on mosquitos and “did not significantly reduce mosquito attraction.” Moreover, the paper stated that a lit candle, combined with a person sitting nearby, “attracted slightly more mosquitoes than the human bait person alone.”

And … it gets even worse. The complaint cites a press release from Spectrum stating that “67% of respondents identified citronella as a very or somewhat effective active ingredient for repelling insects. However, citronella is not one of the active ingredients that the CDC recommends as effective.”

Candle Clash

You have to give points to Spectrum for fighting the suit, but it did, moving to dismiss in November 2019 on various fronts. It turned out well for Spectrum – in a sense.

On the company’s lack-of-standing argument, the court favored the plaintiffs. Spectrum argued that the plaintiffs hadn’t established whether or not they had actually been bitten by a mosquito while using the candles or under what conditions the use took place (was the environment too windy, for instance, for the candle to work?).

No way, said the court – the class members were affected when the candles allegedly failed to work as promised, and were economically harmed when they paid for the products because they were misrepresented.

As for scienter, the court ruled again for the class. Spectrum’s awareness “is buttressed by defendants’ own press release that seems to undercut their product labeling by openly acknowledging government agency criticisms about citronella effectiveness as a mosquito repellant.”

The Takeaway

On a further reliance claim, the court again smacked down Spectrum, which claimed that consumers could learn that citronella was ineffective by citing “plaintiffs’ own identification of the studies and press releases now relied upon in the amended complaint.” But the plaintiffs’ “investigatory duty is not boundless” under New York law, the court wrote; the plaintiffs in this case did not have recourse as consumers to readily available information.

Things were looking bad for Spectrum. But choosing to fight is often the best choice – you never know how you might win.

The court dismissed the case on Spectrum’s lack of personal jurisdiction arguments, which had nothing to do with the efficacy of the candles. The plaintiffs’ assertion of specific jurisdiction in the case was “woefully insufficient, bordering on the frivolous,” according to the court. “This Court has found nothing in the complaint that would even arguably constitute the kind of contacts with the forum necessary to satisfy specific personal jurisdiction,” it wrote. “Spectrum Brands will, therefore, be dismissed.” One defendant – United Industries Corp. – remains in the case to deal with those pesky mosquitos.

Check Out Our Latest Blog Posts

The Sky Is Not Falling on Loyalty Programs – CCPA Regs Support Flexibility

While the CCPA will regulate loyalty programs and require certain compliance steps, it won’t shut down most programs. Learn more here.

Pricing During COVID-19 Without Gouging or Fixing

Click here for our discussion about how you can set prices during these difficult times while avoiding exposure for price gouging, price fixing or other antitrust violations.
 

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.