Alerts

AD-ttorneys@law – December 21, 2018

Alerts / December 21, 2018

In This Issue:

  • Puppies Don’t Bring Grandma Home, Says CARU
  • Influencer Sued for Failure to Influence
  • FTC Settles With Anti-Diabetes Supplement Company 
  • Ad Agencies Off the Bid-Rigging Hook
  • Consent Confusion Can't Save Pizza Hut From TCPA
  • 11th Circuit Splits Misleading Advertising Decision

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Puppies Don’t Bring Grandma Home, Says CARU

By Amy Ralph Mudge

No matter our age, we all remember wishing for that perfect gift for the holidays. For me, it was a Merlin handheld “computer” game and a Shawn Cassidy record. Just this week, the Children’s Advertising Review Unit (CARU) reminds advertisers that ads for dream toys aimed at kids should not overpromise what the toys can do. Many of CARU’s cases in the past year have focused on the Children’s Online Privacy Protection Act (COPPA) and privacy, but the case is an excellent reminder to brands of advertising side requirements in the CARU guidelines. The Wish Me Puppy ad showed an adorable stuffed dog whose bow about the ears lights up with a kiss or other touch to the nose. It also showed kids in the ads making wishes, including Grandma arriving for a visit or rain clearing up, and showed the wishes coming true. CARU was concerned a child audience might think their wishes really would come true with the puppy. The advertiser believed the use of fantasy and hyperbole are understandable even to a young audience, who would not literally believe a stuffed dog could affect the weather or transport a beloved relative to the door. CARU was concerned that at least very young children might believe that their wishes would really come true with the purchase of the toy. The advertiser noted that such young children likely cannot make a purchase decision on their own; however, CARU reiterated that it “has consistently held that because a commercial is the first point of contact that a child has with a product, it is imperative that it is truthful and accurate.”

The Takeaway

While children’s products evolve and the means to reach them with ads also evolve, the basics of the self-regulatory guidelines still apply, and when ads are intended for children, it is important to take a step back and consider the ad through the lens of that younger, more impressionable audience.

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Influencer Sued for Failure to Influence

PR firm says multifaceted Luka Sabbat forgot to post

Sabbat's Day

Luka Sabbat is hard to define. Intentionally.

“I don't believe in titles I believe you do what you want and find the right people who share your vision,” the 20-year-old writes on his website. “If i had to put a name to it, I am a Creative Entrepreneur exploring all the world has to offer. Stylist, Creative Director, Design Director, Actor, Model, etc…..”

Note: The punctuation and capitalization choices are all his.

In 2018, this attempt at self-definition is associated with distinguishing oneself as a social media influencer. If there's any cultural role that sums up the present moment, the social media influencer role is it (here's a list of our previous coverage on influencers and their travails).

Nice Work If You Can Get It ...

Aside from his wide-ranging interests, Sabbat boasts a public profile that other up-and-coming online celebs surely envy. First, he has a television role with his own spot on Young-ish, a cable spinoff of ABC's hit Black-ish. Second, he may have had some sort of romantic attachment to Kourtney Kardashian. And that seems to have been the catalyst for his nascent career as an influencer.

According to Esquire, Sabbat signed an influencer contract with PR Consulting (PRC), a brand imaging and public relations firm, the day after he was first photographed and associated with Kardashian.

Although Sabbat is still in the minor leagues of online influence when compared with Kardashian (or other family members who share her last name), the deal he swung was very lucrative compared with a typical job. According to PRC, Sabbat was contracted to promote the Snap, Inc., line of eyewear (one of PRC’s clients), including posting 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.

He would be paid $60,000 for his efforts. Three-quarters of that was paid upfront.

The Takeaway

Unfortunately, the arrangement soured rapidly. At the tail end of October 2018, PRC sued Sabbat in New York Supreme Court for failing to live up to his side of the bargain. PRC's complaint alleges that Sabbat did not post all the required material and failed to be photographed sporting Snap's eyewear.

What's more, PRC maintains that Sabbat admitted that he had failed at his appointed tasks but refused to return the funds. Sabbat is being sued for breach of contract and unjust enrichment, and PRC is seeking the return of its payment and claiming monetary damages.

This dispute represents an unusually high-profile legal dispute between influencers and their agency enablers. Normally, we're reporting about influencers who fall afoul of advertising regulations; but as online influence matures as a market, expect conflicts like Sabbat's to surface in greater numbers. Also, this scenario is another example of the prevalence of influencers on social media platforms who have become subject to increased scrutiny in regulatory and litigation proceedings. As this ever-growing method of leveraging people’s social media presence to promote and advertise products continues to gain ground as an effective business plan, we will surely see continued disputes between and among brands, influencer agencies and the influencers themselves. The need for good contracting for these relationships should be apparent, but is too often ignored.

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FTC Settles With Anti-Diabetes Supplement Company

Nobetes Corp. gets hit with $182,000 fine over alleged unsubstantiated claims

Triple Threat

According to the Federal Trade Commission (FTC), this one's got it all: unsubstantiated claims, a false medical endorsement by a paid actor and a negative option enrollment plan with undisclosed fees.

The company that came into the FTC’s crosshairs, Nobetes Corp., along with founders Marvin Silver and Jeffrey Fleitman, were named in an FTC complaint at the beginning of December. Their product, Nobetes, was advertised as a diabetes treatment via television spots, radio ads, YouTube videos and other online avenues. The alleged claims made about the product were significant and likely would have raised the hopes of diabetics who watched or listened to the ads. “When I started taking Nobetes, my blood sugar levels were up to 285,” says a customer in one commercial. “After only one day of taking Nobetes, my blood sugar dropped to 115. Now, I know it seems unbelievable and, quite frankly, when I looked down at my glucometer, I was surprised at what I was seeing as well.”

These claims also surprised the FTC, which concluded that there was no evidence that Nobetes lowered blood sugar, replaced insulin as a necessary therapy or even treated diabetes in general.

I’m Not an Actor, but I Play One on TV

Moreover, the company was accused of misrepresenting the identity and credentials of one of its product endorsers. Mitch Darnell, an endorser on the company's TV and YouTube commercials, was allegedly presented standing in front of “official” framed diplomas, leading consumers to believe that he spoke with medical or professional authority when he told them that “... this is the miracle product you’ve been waiting for.” The FTC maintains that Darnell is an actor. Also, other endorsers in the ad campaign allegedly received free products from the company in exchange for their appearance.

Additionally, the FTC pursued charges related to a negative option enrollment scheme, wherein Nobetes Corp. would charge a nominal fee of $6.95 for “shipping and handling” to deliver an otherwise free offer, and then turn around and auto-enroll the consumer in a continuity plan with undisclosed fees and insufficient notice of how to cancel.

The Takeaway

Nobetes Corp. settled with the FTC the day the complaint was filed. Like many similar settlements, the order included prohibitions against all of the alleged illegal activity; it also added a $182,000 fine to provide refunds to customers. This case is another example of the FTC closely scrutinizing unsubstantiated claims and misleading advertising directed toward consumers of health-related products and services, long a hot-button issue for the commission. Importantly, this case also demonstrates the FTC’s ongoing enforcement of the Endorsement and Testimonials Guide and its increased attention to negative option schemes that are likely to greatly mislead consumers and generate unconsented-to financial charges.

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Ad Agencies Off the Bid-Rigging Hook

DOJ declines to pursue alleged unfair video production business practices

Whew!

Big ad agencies are breathing a sigh of relief with the conclusion of a major Department of Justice (DOJ) probe.

The investigation, launched in 2016, lifted the lid on suspected video production bid rigging by the big five ad holding companies ‒ MDC, IPG, WPP, Publicis and Omnicom. The DOJ was following up on reports that the agencies were unfairly directing production business away from independent shops and straight into their own in-house units. The companies were allegedly asking production houses to bump up their prices so that contracts would be delivered in-house.

The announcement of the investigation two years ago landed with a loud thump amid overall industry concern about transparency and fair play, following closely on the heels of an Association of National Advertisers' investigation that revealed widespread use of rebates and “other non-transparent practices” within the industry. According to Ad Age, questions regarding video production were addressed in the ANA's original report, but were subsequently removed.

The Takeaway

Various subsidiaries of the major holding companies received subpoenas over the course of the investigation, but by mid-November all five reported that they had received confirmation from the DOJ that the investigation had closed without any action.

Video advertising has emerged as a critical source of revenue for the agencies, with video ad spending expected to increase from $91 billion in 2018 to $103 billion over the next five years. The close of the investigation is therefore a big boost for the companies as they try to maintain client trust in a marketplace troubled by transparency concerns; consider the ongoing probe by the Federal Bureau of Investigation into media-buying practices, including wire fraud, conspiracy and racketeering. Nevertheless, advertising agencies should remain vigilant about increasing scrutiny of their business practices.

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Consent Confusion Can't Save Pizza Hut From TCPA

Pizza chain needs to do more than speculate on relationships to kill this class

Friends Like These?

Brian Keim claims he began receiving text messages from Pizza Hut back in 2011 as part of the company's “Friend Forwarded” program. The program was a feature of a Pizza Hut “texting club” that consumers joined to receive text offers for Pizza Hut products. Once consumers joined, they were encouraged to provide the Pizza Hut texting club with the phone numbers of friends who in turn began to receive messages.

Keim sued Pizza Hut for violations of the Telephone Consumer Protection Act (TCPA), arguing that because his number had been provided to Pizza Hut by a third party, he had not consented to the texts.

After several years of various pleadings being filed in the Southern District of Florida ‒ the original case was filed in 2012, with a second amended complaint reaching the court in 2015 ‒ the defendants, which included Pizza Hut and related businesses, opposed Keim's class certification in 2017. Their argument was the class as defined by Keim contained serious flaws related to consent.

Consent and a Slice

Pizza Hut started off by arguing that some of the putative class members had forwarded the text messages to numbers for which they were the subscribers (the main subscriber to a family plan, for instance, who forwarded the number of a family member included in their plan).

Other class members, the defendants argued, had given consent to the person who had forwarded their phone number to Pizza Hut.

Finally, the company argued that the issue of consent couldn't be nailed down with certainty because, in the court's words, “the class includes individuals whose telephone numbers were forwarded by family members and others with whom the class members shared a personal relationship,” establishing an agency relationship with the forwarder.

The Takeaway

The court favored Keim in its ruling, maintaining that “subscriber-forwarded numbers, once excluded, would not defeat satisfaction of the commonality requirement,” and arguing that a simple change to the class definition would exclude those putative members who fell into this category, allowing the case to move forward (the court calculated that less than 8 percent of the putative class fell into this group).

As to the second group, the court relied on an earlier FCC ruling that stated that “for consent through an intermediary to be valid, the intermediary must convey the consent to the caller.” Although Pizza Hut provided declarations from more than 20 individuals that they had received consent to provide phone numbers to the company, there was no evidence that the individuals had conveyed the consent to Pizza Hut. “Defendants did not even ask the forwarders whether they had obtained consent from the consumer,” the court wrote. “Defendants asked only for the telephone number.”

Finally, the court dismissed the argument that “agency relationships” might exist between forwarders and class members as pure speculation on Pizza Hut's part. Moreover, unlike in cases involving important financial or medical matters where individuals may routinely give others the authority to act on their behalf when they cannot do so, “there is no evidence that pizza deals garner the same careful planning and attention” to form this type of agency relationship.

The court granted certification for a slightly trimmed version of the original class and allowed the case to proceed. The TCPA has complex consent and revocation of consent requirements and severe penalties for noncompliance, particularly for marketing communications. Companies considering telemarketing or text marketing should seek professional legal advice prior to initiating campaigns. While there are many competent vendors helping companies engage in these types of campaigns, not all are as well-versed on the law as they should be, and ultimately it will be the brand that is sued.

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11th Circuit Splits Misleading Advertising Decision

State-law claims pre-empted; Lanham Act claims soldier on

Pumped

A visit to the website of HBS International subsidiary Allmax is an experience. Like many of its competitors, Allmax, which creates diet and nutrition supplements for bodybuilders and other athletes, boasts a hyperkinetic web presence ‒ gigantic sans-serif fonts, vivid colors and slow-zoom effects that evoke the cinema of Michael Bay.

However, compared to their hyperkinetic web presence, an ingredients list on Allmax product labels seems nearly invisible. But one such product landed Allmax and its parent company, HBS, in Georgia’s Northern District Court on claims of deceptive advertising.

Lift-Off

Competitor Hi-Tech Pharmaceuticals Inc. sued Allmax and HBS in 2016 for allegedly misrepresenting the contents of Allmax’s “Ultra-Premium 6-Protein Blend HexaPro,” a protein-powder drink mix that targets bodybuilders. Hi-Tech charged that HBS and Allmax violated the Georgia Uniform Deceptive Trade Practices Act and the Lanham Act by misrepresenting the quantity of protein in the product and the source of that protein. Additionally, Hi-Tech claimed that the claims on the label about the source of protein were close enough typographically to claims about the overall amount of protein to mislead consumers into believing that all the protein in the product came from the same source.

In the complaint, the descriptions of various protein sources are very detailed and go into relevant specific points. Georgia’s Northern District Court granted HBS’s motion to dismiss both of Hi-Tech’s claims. The court determined that the Georgia state law claims were pre-empted by the Food, Drug, and Cosmetic Act ‒ in part for failing to establish the protein content of the product in question through an FDA-compliant test.

The district court also tossed the Lanham Act claims, holding that HexaPro’s label “provides a detailed breakdown of all … ingredients, including the mix of amino acids,” which should be enough to inform consumers.

The Takeaway

The 11th Circuit Court of Appeals affirmed the district court’s first conclusion but reversed the dismissal of the Lanham Act claims.
Explaining the reversal, the 11th Circuit held that HBS was wrong to argue that Hi-Tech’s complaint was required to “provide evidence for the factual allegations” about the protein content and said the “allegations in the complaint and the undisputed product label allow the plausible inference that HexaPro’s labeling is misleading.”

Even more interesting is the 11th Circuit’s toss of another of HBS’s attacks on the Lanham claims: that “a claim under the Lanham Act is barred ‘if determining the truth or falsity of the [challenged] statement would require a court to interpret FDA regulations, which is generally left to the FDA itself.’” The circuit court disagreed here as well, maintaining that “Hi-Tech’s claim under the Lanham Act would not require a court to question the regulatory determination ‒ in this case, the method of measuring protein content in the product.” This case serves as an example of how courts will continue to wrestle with the intersection of federal and state law as well as federal agency versus judicial review of these claims.

This case also serves as a warning to companies that even if state law claims can be validly pre-empted, the Lanham Act may remain a source of law for plaintiffs to try to successfully use against their competitors.

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