AD-ttorneys@law – August 21, 2019

Alerts / August 21, 2019

In This Issue: Misled Users by Promising Privacy Protection

Company settles with Commission over alleged gathering of “extra” information


The internet economy is built on “free” services. From search engines to email to countless other services, the model is as old as Netscape Navigator: You get a free service that you soon can’t live without, and they get to watch you using the service you can’t live without. (Wait – is that really “free”?)

It’s all there in the user agreement, which you reviewed with your lawyer.

And it works, most of the time. We’re willing to sacrifice a little of our privacy to get a lot of value. And thanks to several high-profile privacy breach scandals, more of us are educated about what we’re giving up and can therefore make informed choices about opting out.

Or can we?

Tragic: The Gathering

That’s the question lurking behind the Federal Trade Commission’s (FTC’s) recent settlement with Unrollme Inc. The company offers a useful (if not groundbreaking) service; in its own words, it allows you to “instantly see a list of all your subscription emails” and “unsubscribe easily from whatever you don’t want.”

To engage the service, users hand over the login info for their email accounts, and Unrollme scans their contents to assemble the list.

The problem, the FTC asserted in its original complaint, was that Unrollme was gathering extra information from any e-receipts in the user’s inbox – “the user’s name, billing and shipping addresses, credit card information, and information about sensitive health-related products or services or other products and services purchased by the consumer.” Unrollme’s parent company, Slice, was allegedly using this information to sell market data research products, even though disclosure of these activities was hidden in a “confusing” privacy policy.

The Takeaway

But that’s not all. The complaint, filed this August on the same day as the settlement, maintained that Unrollme took notice of potential users who declined to grant access to their email and aborted setup.

The company, the Commission claimed, would send emails to these potential users urging them to continue setup – but made deceptive promises regarding privacy. One email read, in part: “In order to use Unrollme, you need to authorize us to access your emails. Don’t worry, this is just to watch for those pesky newsletters, we’ll never touch your personal stuff.” Over 55,000 consumers changed their minds and decided to complete the sign-up process after viewing these messages. Customer support allegedly reiterated these deceptions when users called with privacy-related questions.

The FTC charged Unrollme with false representation and failure to disclose, charges that were settled the same day. Under the settlement, Unrollme was forbidden from misrepresenting how it “collects, uses, stores, or shares information it collects from consumers.” The agreement also requires the company to notify users who joined after reading one of the statements in question. And the company was required to delete its ill-gotten data.

If true, the Commission’s claims about the deceptive return emails and customer service contacts are clearly problematic. But the lesson for anyone offering an online service that involves data collection is clear: Mention of a practice buried somewhere in a privacy policy is often not enough for the FTC. Companies need to be explicit and open when explaining key privacy ramifications of their services. It’s not worth the trouble of doing anything else.

Influencer Who Failed to Influence Settles Dispute

Kardashian protégé Sabbat to admit to … something, hand back cash

Gen Z-Envy

Remember self-styled creative director, design director, actor, model and stylist Luka Sabbat? We covered him back in December 2018, when he got sued for failing to live up to his contract with PR Consulting.

Sabbat – at the time a noted Kardashian crony and possible boy toy – signed a plum agreement with PRC. According to the company’s complaint, Sabbat was contracted to promote its client Snap Inc.’s line of eyewear.

The sum and substance of this job seems breathtakingly simple: feature Snap products in three Instagram stories and one Instagram feed post during and related to fashion week events in New York, Paris or Milan. He also agreed to be photographed wearing Snap’s products during the Milan and Paris fashion weeks.

PRC claims that the contract was for $60,000 – $45,000 of that upfront.

Your Mission, Should You Choose to Ignore It

Here’s the part we find hard to believe, considering some of the jobs we held in our early 20s (Sabbat is 20): According to PRC, he dropped the ball, making only one Instagram feed post and one Instagram story post. If that weren’t enough, PRC claims that Sabbat admitted that he had failed at his appointed tasks but refused to return the funds.

Sabbat was sued for breach of contract and unjust enrichment. PRC sought the return of its payment and claimed monetary damages.

By comparison, no one ever sued us over that summer we flipped burgers.

The Takeaway

This case is a rare, high-profile legal dispute between influencers and their agency enablers – expect more of these disputes to crop up as influencers come into their own and contract rulings in the space start piling up.

The whole thing settled in early August, and he agreed to hand back $15,000 and produce an “original confession of judgment” that has not been made public.

Seventh Circuit Pours Cooler of Gatorade on Gatorade

Gatorade and parent PepsiCo win affirmance of “Sport Fuel” brand win

Rebrand Out of Hand?

You probably haven’t heard of SportFuel, an “integrative nutrition consulting firm” that serves the likes of the Chicago Blackhawks and Rockford IceHogs. While they have a modest online store that features a variety of health- and performance-related supplements, they’re more of a behind-the-scenes presence in the sports nutrition world.

But they’ve got some pluck. In 2016, they slung a stone at beverage giant PepsiCo’s Gatorade Company brand, suing them in the Northern District of Illinois. The dispute centered on Gatorade’s then-recent rebranding as “Gatorade The Sports Fuel Company.”

Fair Juice

There was no win for the underdog in this matchup, however. The suit, which charged Gatorade and PepsiCo with trademark infringement, unfair competition and false designation of origin under the Lanham Act, was tossed by the district court in June 2018. Gatorade argued that the new brand did not risk confusion for consumers and, moreover, constituted fair use under the Lanham Act (the court tied the other charges to the Lanham Act claims and dismissed them at the same time).

At the end of the day, it came down to Gatorade’s fair use defense, which permits a junior user of a mark to use the mark in good faith in its descriptive, as opposed to its trademark, sense. The district court embraced this defense and didn’t bother moving ahead with the question of consumer confusion.

The Takeaway

SportFuel appealed to the Seventh Circuit, which reviewed the claims de novo and affirmed the district court opinion on all three elements of the fair use defense. Analyzing the first element, which is whether the “Sports Fuel” mark was used as a trademark, it concluded that Gatorade had not used “Sports Fuel” as a trademark, but rather as a tagline subservient to its house trademark that was always more prominent in display and advertisement design. Additionally, the appellate court wrote, “Gatorade specifically disclaimed exclusive use of the phrase ‘The Sports Fuel Company’ in its trademark application for ‘Gatorade The Sports Fuel Company.’”

Considering the second element of the fair use defense, which is whether the term is used descriptively instead of suggestively, the Seventh Circuit agreed that Gatorade’s use of the phrase “Sports Fuel” was descriptive rather than suggestive; “Sports Fuel,” Gatorade proved, is a term used in the nutrition industry to describe a category of products rather than to suggest a specific brand identity.

Finally, the appellate court concluded that Gatorade had used the slogan “fairly and in good faith,” satisfying the third element for fair use. SportFuel raised a number of points challenging Gatorade under this third element, the most interesting of which was that its rival had adopted the slogan as payback for SportFuel’s founder Julie Burns, who had formerly worked with Gatorade and 10 years earlier had refused to endorse one of its products. “The problem with this claim,” wrote the appellate court, “is that SportFuel provides no relevant evidence as support. It relies on Burns’s deposition testimony. … However, Burns’s relationship with Gatorade ended more than a decade before the alleged infringement began.”

GNC Reaches Settlement in Phantom Markdown Class Action

Nutrition company joins a topflight roster of retailers suffering the phantom menace

Sale Fail

General Nutrition Centers is like the Gap of vitamin and supplement retailers: It’s everywhere. The chain has about 8,000 locations, nearly 6,000 of which are in the United States. The sheer number of products it sells are impossible to count. It’s a behemoth.

But a lone pair of consumers accused the personal-care giant of playing fast and loose with its pricing. In May 2016, Ashley Gennock and Daniel Styslinger launched a suit against GNC claiming that it violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (along with similar laws in dozens of states) and the Federal Trade Commission Act. The suit, filed in the Western District of Pennsylvania, maintained that the company’s website listed sales prices alongside false regular prices. This practice, known as a “phantom markdown,” presented consumers with falsely inflated discount figures.

“Defendants’ pricing information regarding its ‘on sale’ products is false, misleading and deceptive,” declared the complaint, “because the ‘sale’ price is the same as, or above, the products’ actual market and/or former price, and the ‘regular’ price is a false price at which the product was never sold. Indeed, many, if not all of the ‘on sale’ products located on Defendants’ Website have never been sold at their ‘regular’ price.”

The Takeaway

Negotiations between the class and GNC began in late 2017, and an amended complaint swept up several other cases into a single joint action in June of this year. A settlement was finally struck a few weeks ago.

Under the agreement, GNC will fork over $6 million; customers who file can receive $5 in cash or $15 transferable credit toward online purchases with no expiration date, as well as other credits and discounts. Of that total, $1.5 million covers attorneys’ fees. Given GNC’s profile and footprint, it’s no surprise that the class is big – 3.6 million members. The settlement also requires GNC to take reasonable steps to ensure its comparative discount advertising on its website complies with the law.

Phantom markdown cases – virtual or IRL – have experienced an upswing in recent years. We’ve written about cases involving Kate Spade and J. Crew, and other famous names that have been drawn into similar suits.

Holy Crepe! NAD Hits Guthy-Renker With a Detailed, Nuanced Critique of Skin Products

Beauty product marketer wins some, loses some, appeals a little too

Crepey Fixation

“Crepey” – as in “looks like finely wrinkled crepe paper” – is a condition caused by the intersection of sunlight and age, which can leave skin saggy, wrinkled and depleted of moisture.

A whole genre of skin-care products promising to mitigate or reverse crepey skin has sprouted up around the condition; successful direct marketer Guthy-Renker is one of the top sellers in the field. But the sheer scope of the company’s operations – it serves up a ubiquitous menu of infomercials, television ads, telemarketing and internet marketing – is probably what landed the company’s “Crepe Erase Anti-Aging Body Care Treatment System” in the sights of the National Advertising Division (NAD).

NAD compiled a lengthy decision regarding the system, and here are a few of the takeaways from the NAD’s investigation.

Apples and Oranges

NAD claims that Guthy-Renker produced several tags that combined performance claims of different types for its Crepe Erase Anti-Aging Body Care Treatment Systems, which consists of two products to be used sequentially; for instance, that the system “prevent[s] accelerated aging for visibly plumper, firmer, younger looking skin,” and “Crepe Erase is the leading anti-aging body care system clinically shown to reverse crepey-looking skin.”

NAD felt that the studies backing these claims supported only one aspect of the tags: “[T]he study was not a good fit for the challenged claims because the results fall short of complete or near elimination in skin crepiness,” NAD noted. Nonetheless, “the same study was a good fit, and thus provided a reasonable basis, for the claim that for skin crepiness ‘Improvement is immediately visible!’” As a result, the NAD asked that only the offending portions be struck from the ads.

Winter Is Going?

NAD also took issue with Guthy-Renker’s claim that the system can “transform your dry, crepey winter skin into softer, smoother, younger-looking skin all year round,” because most of the cited studies didn’t take place in the winter, and the study that was conducted during the winter did not include a valid endpoint that reflects the claims at issue. NAD recommended that the claim be modified to remove “winter” altogether.

On another point, NAD challenged Guthy-Renker’s use of several juxtaposed before-and-after photographs that depicted dramatic improvements in crepey skin. “NAD was concerned that the photos depicted outlier results and were not reflective of the improvements consumers can reasonably expect to achieve when using the products as directed. NAD recommended that the company modify the pictures to depict results consumers can reasonably expect from the product.

Claims on Ice

What investigation would be complete without a celebrity endorsement?

In a fit of ’70s-retro enthusiasm, Guthy-Renker tapped figure skating champion Dorothy Hamill to endorse its anti-crepe system. “I started using Crepe Erase and saw improvement immediately,” Hamill is quoted as saying. “I’ve been using it for two years now, and I really don’t see any crepey skin.”

This claim was measured against the distinction the NAD drew between Guthy-Renker’s crepe-elimination and skin-improvement claims. Since the first was declared verboten, it recommended that the testimonial be discontinued, or modified to limit its claims to the “improvement in the look of crepey skin with continued use.”

The Takeaway

Guthy-Renker plans to appeal some of the claims, including the foundational “reversal” claim, to the National Advertising Review Board. In the meantime, NAD’s decision is worth a read – it contains a variety of NAD’s standard lines of inquiry and serves as a great primer for the basics.

We’ll close with a classic NAD mainstay: the problem with claiming you are “#1.” Guthy-Renker claimed that the Crepe Erase System is the “#1 Anti-aging system” and “#1 Solution” for crepey skin. If you’ve been reading this column with any regularity, you know that the NAD asked the company to add “selling” after that #1 – because although the claim was valid regarding its sales numbers, it could be construed as a misleading claim about the overall quality of the treatment

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