Alerts

AD-ttorneys@law - August 1, 2017

Alerts / August 1, 2017

In This Issue:

FTC Gives False Trampoline Advertising the Bounce

Siblings send consumers to false review sites, hoping they’ll flip

Trampoline Trouble

Sonny and Bobby Le, brothers from Anaheim California, caught the Federal Trade Commission’s attention with a series of websites (titled Infinity Trampolines, Happy Trampoline, and Trampoline Jumpers) through which they sold Infinity and Olympus Pro brand trampolines.

These websites, which were owned and operated by the brothers, prominently featured logos from independent review sites with monikers including “Trampoline Safety of America,” “Top Trampoline Review,” and the Monty Pythonesque “Bureau of Trampoline Review.” Each of these independent organizations offered ratings and reviews, pointedly recommending the Le brothers’ trampoline models.

The problem was simple. The Le brothers owned each of the review sites as well. According to the FTC, the logos were fake, as were the structural engineers and gymnastic coaches who purportedly provided the reviews. The FTC also accused Bobby Le of penning fake customer testimonials playing up their products–not the sort of activity the FTC takes lightly.

Gravity’s Pull

The Commission slapped the brothers with two counts of false advertising, one for each of the sales and review sites.

Pursuant to the settlement, the brothers are barred from making future misrepresentations about any sports, recreational or exercise equipment they sell, including claims that a reviewing entity is an independent organization or provides objective information about their products or claims about the existence or nature of tests, studies, or research concerning the performance or safety of a covered product. They also agreed to disclose any connections between the reviews and the sales sites.

The Takeaway

The brothers’ brush with the FTC demonstrates the importance of full disclosure and of drawing clear, bright lines around the relationships that underlie reviews, sales, and testimonials.

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NAD Pulls the Thread on Kate Hudson’s Workout Gear VIP Program

Owner JustFab has faced deceptive marketing accusations before

Sucker Punch

On the surface, it seemed like a good deal. Fabletics, the workout gear line fronted by Kate Hudson, offered customers who joined their VIP program a deep discount on athletic clothing. “First outfit 75% off [and] free shipping!” crowed one such ad.

Unfortunately for members, the offer had significant limits which, according to the National Advertising Division of the Council of Better Business Bureaus, were not well-disclosed. Once enrolled in the program, consumers could indeed secure deep discounts on workout gear–but they were required to do so within the first five days of any given month. They could buy discounted items, or skip the offers for that month, but if they did neither, they would be charged a hefty $49.95, which was credited toward future purchases. The NAD issued the decision as a part of its routine monitoring program.

Consumers had also complained about difficulties extricating themselves from the program once they decided to quit.

Track Record

JustFab, the owner of Fabletics, and Adam Goldenberg, JustFab’s founder, have had their share of run-ins with consumers, regulatory agencies and watchdog groups.

In 2015, the Better Business Bureau revoked JustFab’s accreditation. Just a year earlier, the company settled a misleading advertising lawsuit with the Santa Clara and Santa Cruz district attorney’s offices for hidden subscription fees attached to online discounts. And in 2014, Goldenberg’s Sensa weight loss company paid $26.5 million in a settlement with the FTC, which slapped the company for misleading product claims.

These recent blemishes are only the latest chapters in a long story–Goldenberg and the various companies he has founded or run for more than a decade have long suffered under consumer and regulatory complaints.

The Takeaway

JustFab agreed to adopt the NAD’s recommendations that the company disclose the terms of the VIP program openly in the advertising that offers related discounts. Every online advertiser should follow suit.

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TCPA Provisions Up Before House Subcommittee

Phone number collectors launch alleged bogus suits

Parley

Telecom services companies and their representatives met with a group of plaintiff’s lawyers in June as they aired grievances before the House Subcommittee on the Constitution and Civil Justice. At issue in the hearing, titled “Lawsuit Abuse and the Telephone Consumer Protection Act,” were purported abuses of the TCPA by plaintiffs who sought to monetize provisions in the Act.

Hit and Run

Rob Sweeney, founder of Mobile Media Technologies (MMT), a Kansas City-based company that enables its clients to broadcast noncommercial texts to the client’s subscribers, gave testimony. Schools, media companies and hospitals are among just some of MMT’s clients.

Sweeney testified that plaintiffs–most likely spurred on by lawyers eager for a big payout–had been empowered to launch unfair lawsuits against his clients, using a recent tweak to the TCPA.

Sweeney dated the beginning of his troubles to a July 2015 declaratory ruling order by the Federal Communications Commission that broadened TCPA rules. Anyone receiving text messages could use any reasonable means to revoke their prior consent to be texted, making future texts unlawful. According to Sweeney, the DRO made it very easy for consumers to drop out of a text program and then file a complaint under the Act upon receiving another text. While the lawsuits that Sweeney described were against his clients, he claimed that MMT had suffered from the change in policy since many of his customers opted out of his company’s text services to avoid legal trouble.

Plaintiffs’ underlying motivation became clear, he maintained, when he examined the actual circumstance of the plaintiffs’ engagement with his service. According to Sweeney, plaintiffs were signing up multiple phone numbers using multiple derivations of their names, and then opting out of the service after only a few texts–knowing full well that MMT’s clients could not turn off the service fast enough to avoid a repeat text. “The entire exercise,” Sweeney maintained, “…was nothing more than a shake down.”

The Cure?

In response to abuses of the kind outlined by Sweeney, the U.S. Chamber Institute for Legal Reform proposed a number of changes to the TCPA that would soften its impact on companies like MMT, including:

  • Implementing a statute of limitations on TCPA cases, thereby shortening the default four-year period to one year;
  • Expanding the applicability of affirmative defenses to protect companies attempting in good faith to comply;
  • Interpreting the “capacity” of an autodialer according to the text of the statute, thereby limiting causes of action to devices that have the actual ability to randomly/sequentially dial telephone numbers;
  • Including a safe harbor for businesses that sent texts to reassigned or wrongly provided numbers; and
  • Reforming the law to focus on intentional fraud rather than on companies trying to contact their consumers for legitimate business purposes; to reconsider the cell phone carve-out and to address new technologies, such as test messaging.

Overwhelming Need

Hassan Zavareei, a plaintiff’s lawyer, argued against changes to the TCPA. He noted that the Act–including the 2015 ruling–already included ample protections for businesses by creating a blanket defense against any TCPA action: consent.

The broad definition of consent, he claimed, could require nothing more than the consumer’s provision of his or her phone number to a company. Thus, there was plenty of latitude for companies to obtain customers, as long as those customers’ wishes to cease receiving text messages are honored.

Additionally, according to Zavareei, many of the objections lodged by proponents of changes to the Act were dubious. For instance, a common objection was that the TCPA had been created to punish illegitimate businesses, and that these provisions, when applied on a broad scale, punished legitimate companies that were attempting to contact existing customers. But, Zavareei maintained, the Act was specifically engineered to place limits on ALL companies, legitimate or not, to end the inconvenience of massive robo-calling programs.

He also noted that TCPA cases amounted to a tiny sliver of total federal cases filed and that the number of TCPA filings had decreased during the prior year.

The Takeaway

Congress has been put on notice by both business and consumer advocates regarding perceived problems with the TCPA. While it remains unclear how, or whether, Congress will respond, companies that engage in large-scale telemarketing campaigns should pay close attention to possible changes to the TCPA.

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Biopsy Rivals Square Off Yet Again in California

Patent-challenged developer stirs up Lanham Act claims

Brave New World

Guardant Health, Inc., a developer of non-invasive cancer diagnostics, claims to have invented a breakthrough product to identify the genetic progeny of cancerous cells.

Its Guardant 360 product tests the blood of the patient, picking up stray DNA strands from cancerous cells in the body without invasively gathering tissue. This method is more sensitive and accurate than a traditional tissue biopsy, as the genetic makeup of various cancers may differ within one patient or even within one tumor. Tissue-based biopsies are more limited by the particular cancer profiles drawn from the specific area tested.

Guardant 360 also identifies the distinct strains of the cancer throughout the patient and allows doctors to target those strains with appropriate drugs–an approach preferable to a broad treatment of chemotherapy.

Bad Blood

Guardant sued Foundation Medicine, Incorporated (FMI), a rival biopsy developer, for making misrepresentations about Guardant 360 in its advertising. Guardant claims that FMI’s advertising falsely claimed that Guardant 360 is inaccurate, with high rates of false negatives and positives. The complaint also calls out FMI for touting its own product’s accuracy as superior to that of Guardant 360. Most concerning to Guardant was FMI’s purported insinuation that Guardant’s product is dangerous to a patient’s health.

The suit is the latest round of an ongoing slugfest between the two companies; FMI sued Guardant last year in the Eastern District of Texas, claiming that Guardant 360 violated the patent of its own biopsy diagnostic technology. The suit was recently transferred to the District of Delaware.

The Takeaway

This latest salvo was filed by Guardant in June in the Northern District of California, and it includes allegations that FMI’s advertising violates Section 43(a)(1) of the Lanham Act as well as the California Business and Professional Code’s provisions concerning misleading statements and unfair business competition. The diagnostics industry awaits the next iteration of this feud.

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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.

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