Alerts

AD-ttorneys@law – February 11, 2021

Alerts / February 11, 2021

In This Issue:

Product Guides Don’t Protect Speech

Ninth Circuit overturns First Amendment dismissal of hidden endorsement suit

First, Do No Harm

NutriSearch, publisher of the “NutriSearch Comparative Guide to Nutritional Supplements,” seems to take its mission of examining “current research on the health benefits of supplementation for prevention of degenerative disease” very seriously. After all, it leads off an explanation of its comparison criteria with a quote from Hippocrates:

“There are, in fact, two things, science and opinion; the former begets knowledge, the latter ignorance.”

Science and opinion—all fine and good. But what about commerce?

Cyrano

NutriSearch was sued in California’s Southern District back in February 2017 by Ariix, a Utah-based “international health and wellness company that markets exclusively branded products through independent representatives.” The charges struck squarely at NutriSearch’s finely calibrated image.

Ariix claims that the sixth edition of the “NutriSearch Comparative Guide to Nutritional Supplements” (the Guide), written by founder and former CEO Lyle MacWilliam, granted its sole highest rating to Usana, also a Utah-based company in the nutritional and dietary supplement business. A simple case of jealousy, perhaps? No—according to Ariix, NutriSearch was hiding a business relationship with MacWilliam, who allegedly served on Usana’s scientific advisory board and formerly worked as a Usana sales rep.

The Guide, Ariix claims, was originally conceived by MacWilliam as a vehicle to boost Usana’s sales. The intricacies of this alleged undisclosed relationship and the various guises it wore are complex, but they boil down to “hundreds of thousands of dollars in speaking and promotion fees to NutriSearch and MacWilliam in exchange for being rated the top supplement company in the Guide,” as summarized by the Ninth Circuit Court of Appeals.

Unsafe Speech

The case was batted back and forth in the Cali Southern District for two years, with amended complaints and two motions to dismiss, both granted by court order. In reply to both motions, the district court ruled that the Lanham Act did not apply to consumer product reviews, “even if they are biased, inaccurate, or tainted by favoritism.”

Moreover, the court found that the Guide failed to meet the definition of commercial advertising or promotion “because it was not commercial speech and because its statements of neutrality were not sufficiently disseminated.” Likewise, “the statements in the Guide were unactionable statements of opinion rather than actionable statements of fact.”

Ariix appealed to the Ninth Circuit, as you may have guessed, and won a resounding victory in January with a reversal of the district court’s latest order. The appellate court found that NutriSearch’s Guide did, in fact, constitute commercial speech, and therefore was unprotected from the Lanham Act charges by the First Amendment.

“On its face, the Guide purportedly describes the science of nutritional supplements and provides ratings for various nutritional supplement products,” the Ninth Circuit wrote. “But speech that does not propose a commercial transaction on its face can still be commercial speech.”

Leaning on an earlier Supreme Court decision, the appellate court referenced three factors to consider when looking for “hidden” commercial speech. “‘Strong support’ that the speech should be characterized as commercial speech is found where [1] the speech is an advertisement, [2] the speech refers to a particular product, and [3] the speaker has an economic motivation.”

Takeaway

The third factor received the most thorough consideration. “Not all types of economic motivation support commercial speech,” the circuit court wrote. “A simple profit motive to sell copies of a publication or to obtain an incidental economic benefit, without more, does not make something commercial speech. Otherwise, virtually any newspaper, magazine, or book for sale could be considered a commercial publication.”

Drilling deeper, a consumer transaction that results from the speech itself isn’t the only criterion for commercial speech. “Courts have found commercial speech even when it involves indirect benefits, such as benefits to employee compensation,” the appellate court wrote. “The type of economic motivation is not the focus; rather, the crux is on whether the speaker had an adequate economic motivation so that the economic benefit was the primary purpose for speaking.”

Given that motivation, “Ariix has plausibly alleged that NutriSearch and MacWilliam published the Guide mainly with the economic goal of furthering their own self-interests beyond simply benefiting from sales of the publication.” The goal was to “reap the financial benefits of a hidden marketing arrangement with Usana rather than to inform consumers about nutritional supplements.”

We can’t imagine any of our gentle readers indulging in this sort of (alleged) chicanery. But the opinion in this case demonstrates how advertising and the covenants that define and bind it permeate the media environment deeply. Claims of objectivity—which NutriSearch made repeatedly and explicitly—are not enough to protect any company from legal scrutiny without real-world support and substance, and a company cannot dress up commercial speech as editorial speech and get a free pass. Just as with astroturfing and flogs (fake blogs), courts will look to see the true motives of the speaker.

FTC Brings First BOTS Act Cases Against Ticket Brokers

Three New York companies get hit with $30 million-plus in penalties

Acronym Fail

Chalk up a whiff for New York Rep. Paul Tonko and Tennessee Rep. Marsha Blackburn and their BOTS Act of 2016.

BOTS stands for Better Online Tickets Sales, and, as an acronym, it just doesn’t do the trick. Like the CAN-SPAM Act we discussed in these pages not so long ago, its ambiguity keeps it from becoming a great legislative acronym, let alone becoming a classic of the genre.

CAN-SPAM seemed to give permission for the very behavior it was meant to discourage (“Go ahead, you CAN SPAM whomever you like!”). Likewise, does the BOTS Act stand for or against bots, those annoying automated scripts that wreak so much havoc on social media and in online marketplaces?

No—BOTS doesn’t sport the true flair demonstrated by the greats, like the spot-on accuracy of the Electricity Needs Rules and Oversight Now (ENRON) Act, or the dad-humor-groan of the Financial Literacy for Youth (FLY) Act, or the sly cultural reference of the Robo Calls Off Phones (Robo COP) Act.

The BOTS Act was designed to smack down anyone who knowingly used bots to circumvent ticket seller security and fairness efforts. The penalties are stiff—about $42,500 per violation.

Takeaway

The Federal Trade Commission made history last month with the very first cases brought under the BOTS Act—three cases against New York-based ticket brokers.

The penalties racked up by the three companies across three separate complaints—Cartisim Corp., Just In Time Tickets and Concert Specials—amounted to $31 million. Because of their inability to pay, the companies won’t fork over more than $3.7 million; the settlements (you can review them here, here and here) include the usual proscriptions against future violations of the BOTS Act.

Companies in the online-ticket-selling and -buying marketplace must engage in strict scrutiny and review of their technology—even legitimate code that provides the backbone of an online service can easily and unexpectedly slide into a questionable practice. This caution applies generally to nearly every online endeavor.

When Will Dove Get Some Peace?

Mars Wrigley brand gets hit with another ingredient class action

Strike Three?

Yet another update on the alleged swarm of “strike suit” cases that are swamping Mars Wrigley’s Dove product line.

It seems that the same counsel that launched a case accusing the company of misrepresenting the derivation of vanilla in its chocolate-covered-vanilla bar and a suit accusing Mars of failing to properly label the chocolate coating in the same chocolate-covered-vanilla bar is back, yet again, with a brand-new suit.

Chewy Legal Filling on the Inside

It’s about chocolate coating, yet again, but this time, the underlying food is berries. (If you’re getting hungry, feel free to pause here and raid the freezer.)

Where the earlier suits engaged in some fancy footwork—the first case attempts to stitch together two separate Food and Drug Administration (FDA) rules about vanilla—this latest case is downright straightforward.

Richard Lyons, a New York consumer, sued Mars Wrigley in his state’s southern district. The complaint blames the company for using tags like “Real Mixed Berries” and “Made with Real Fruit” on its chocolate-covered berry snacks—even though the ingredients list contains more than simply chocolate and blueberries (or strawberries, or cranberries).

Takeaway

The ingredient list on the label notes that the berries contain everything from added sugar to citric acid, natural flavor and ascorbic acid. “The ‘made with real fruit’ statement and pictures of the fruit causes consumers to expect fruit ingredients that are not modified by sugar, citric acid, natural flavor and ascorbic acid,” Lyons notes. And those consumers paid a premium.

This case is yet another flavor of class action brought by the same counsel against the same defendant. This one, however, does not invoke FDA rules or novel arguments about consumer taste expectations. It simply argues that the packaging tags on the front are not the same as the ingredients on the back.

Clorox Wipes Up Coronavirus Case

Disclaimer that its product does not disinfect or sanitize protected the company

Going Mainstream

We’ve covered our share of coronavirus-related scams and “grey zone” behavior since the virus broke out—like the reverend Jim Bakker’s colloidal silver suspensions, the dozens of Federal Trade Commission letters sent to those hawking a preventive measure or a cure, or ghostly disinfectant companies and their phantom websites.

But after about a year of our living with this monstrous pandemic, the virus is becoming the pretext for lawsuits involving some of the country’s most well-established brands.

For example: Clorox, an iconic powerhouse brand that is a byword for “cleaning,” has been drawn into what is nothing more than a standard false advertising suit. It’s just that the underlying facts involve the coronavirus.

Expect coronavirus-related cases against legitimate companies to become their own pandemic.

Bubbling Up

Last August, Florida resident Shana Gudgel sued the company in California’s Northern District. She claims she purchased a 116-ounce container of the company’s Splash-Less Liquid Bleach product as a direct response to the World Health Organization’s March 2020 declaration that the coronavirus was a true pandemic; she says she planned to use the product to disinfect surfaces of the virus. But according to the product’s own label, it is not capable of disinfecting or sanitizing at all, a fact she discovered only after the purchase.

As the case involved misrepresentation charges under California’s Consumer Legal Remedies Act, Unfair Competition Law and False Advertising Law, its survival of a motion to dismiss hinged on the reasonable consumer standard—was there any chance that a reasonable consumer would have been deceived by the product’s packaging?

Circular Reasoning

No, said the court in its January 2021 order dismissing Gudgel’s charges. According to the court, there were a handful of charges made by Gudgel that required review under the standard. The most significant, in our opinion, involved the disclaimer on the label noting that the product did not sanitize or disinfect.

Gudgel argued that the disclaimer print was too small, rendering it unable to outweigh the deceptions made by the rest of the product label. The court dismissed this quickly, noting that “this case involves no actual misrepresentation or deception that conflicts with the language of the product’s disclaimer … the Clorox label at issue contains no misleading words or images … that would lead a reasonable consumer to believe that the product was capable of sanitizing or disinfecting.”

Therefore, Gudgel could not “state a claim under the reasonable consumer test based on the insufficiency of the label’s disclaimer.”

The Takeaway

The remaining six charges concern the misrepresentative text on the label (or omitted from it) that allegedly conflicted with the disclaimer. But, as we noted, the court didn’t accept any of these arguments in the first place. For instance, regarding the fact that Clorox failed to print the percentage of sodium hypochlorite in the product on the label, the court said, “Plaintiff has not adequately explained how a reasonable consumer would be deceived by this omission, especially in light of the disclaimer stating that the product is ‘not for sanitization or disinfection.’”

The other claims were disposed of in a similar fashion. Although it sounds as if Gudgel’s accusations of deceptive labeling would not have passed muster on their own, the disclaimer served as an extra protection from the charges, no matter how small the type.

If any of the six other claims had been interpreted as deceptive, for instance, the disclaimer would still have provided a robust argument against the basis of the litigation.

Dog Food ‘Natural’ Claims Fit to Be Tried, Says NY Eastern

District court throws out some scraps, keeps the meat

In the Doghouse

Alexa Grossman, New York State resident and concerned pet owner, purchased Simply Nourish-branded large-breed dog foods and snacks from a store in Long Island, NY. But it wasn’t long before she felt deceived.

Upon examining the package more closely, she came to believe that there was a discrepancy between the products’ “Natural Ingredients” or “Natural Wholesome Ingredients” claims and the “added vitamins and minerals” that the label also boasted. Namely, Grossman alleged that while the ingredients of the food itself might indeed be natural, the added nutrients were synthetic—including components like niacin, thiamine mononitrate, riboflavin, citric acid and a passel of others.

Outside Authorities

Grossman sued the Simply Nourish Pet Food Co. in March 2020, alleging deceptive advertising in violation of New York General Business Law, state warranty laws, the Magnuson-Moss Warranty Act and common law. Her argument: The U.S. Department of Agriculture maintains that the added ingredients are synthetic, which gives the lie to the “natural” food ingredient claims.

The case proceeded, with the company filing a motion to dismiss in June. Simply Nourish claimed that its use of the term “Natural” was appropriate because it aligned with the Association of American Feed Control Officials (AAFCO) guidelines, which hold that a feed can be labeled natural even if it has added synthetic vitamins and minerals, as long as the advertising is qualified with the phrase “natural with added vitamins” (or minerals, and so on).

The Takeaway

Grossman’s suit was trimmed in late January when the Eastern District issued its order granting the motion in part. Out the window went Grossman’s request for injunctive relief, warranty, and unjust enrichment claims.

But the false advertising claims remained. “Viewing the complaint in context and in the light most favorable to the plaintiff,” the court wrote, “a reasonable consumer could plausibly construe the Products’ labeling to suggest that the ‘added vitamins and minerals,’ like the rest of the ‘natural ingredients,’ are also ‘natural.’”

As for the AAFCO guidelines, they just didn’t make a difference to the court, which declined to adopt the guidelines because it “finds no authority requiring it to follow these standards … discovery is needed to determine whether a reasonable consumer would be deceived and this Court cannot conclude, as a matter of law, that plaintiff failed to state a claim under” New York’s General Business Law.

Check Out Our Latest Blog Post

California AG Becerra Tweets Endorsement for a Universal Opt-Out Tool

On Jan. 28, California Attorney General Becerra tweeted his support for a newly developed privacy tool that may function as a means for universal opt out.“#CCPA requires businesses to treat a user-enabled global privacy control as a legally valid consumer request to opt out of the sale of their data. CCPA opened the door to developing a technical standard, like the GPC, which satisfies this legal requirement & protects privacy.” GPC stands for Global Privacy Control, a browser extension that can be downloaded and is compatible with a few commercial browsers, but it does not currently have integrations with browsers that have the greatest market share. Read more here.

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