Alerts

AD-ttorneys@law – January 29, 2019

Alerts / January 29, 2019

In This Issue:

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Diet Supplement Ingredient Company Drops a Fistful of Claims

NAD abandons critique of ingredient supplier NuLiv

The Source

Here’s an interesting part of the diet supplement industry we don’t often cover: the diet supplement ingredient manufacturer. These are the companies that provide the raw materials for the consumer brands whose claims we have so often reviewed – or, rather, whose reviews we’ve reviewed.

Consider NuLiv Science, an ingredient manufacturer that claims to be dedicated to making “new discoveries of traditional medicinal healing power by modern scientific protocol.” NuLiv provides “advanced nutritional & wellness ingredients” through a focus on “higher end extracts and hard to source/produce ingredients.” The company’s AstraGin ingredient certainly seems to be representative of their self-proclaimed product space: The material is a compound created from “highly purified saponins” isolated from the Astragalus membranaceus and Panax notoginseng plants – for those keeping track, both species are ingredients used in traditional Chinese medicines (also, Panax notoginseng is usually simply called “ginseng”).

Given AstraGin’s background of highlighting its exotic ingredients and traditional remedies, readers of this newsletter won’t be surprised by the attention the company received from the advertising authorities – even if its advertising was never aimed at the consumer market.

The Takeaway

AstraGin came under the scrutiny of the National Advertising Division (NAD) through NAD’s routine monitoring program, which we might, in a poetic moment, imagine as a grizzled gang of Old West lawmen and -women ranging over the advertising wilderness.

In this case, NuLiv retreated without firing a shot: The company discontinued a number of claims about AstraGin that were challenged by NAD, including its effects on insulin sensitivity (the company claimed AstraGin increased insulin sensitivity by 38 percent), its ability to “improve the absorption of many essential life supporting and health promoting nutrients” as allegedly demonstrated by “close to a dozen in vitro studies,” and its GRAS status (“Generally Recognized as Safe,” a standard set by the Federal Food, Drug, and Cosmetic Act).

NAD was also concerned with the advertiser’s incentive program through which NuLiv sent free product to consumers who sent the company “before and after” lab bone density and blood chemistry reports. NAD believed that the incentive program “provided free product samples as an incentive for positive testimonials” in possible violation of the Federal Trade Commission’s (FTC) Endorsement Guides, which require that material connections between sellers and consumers be clearly and conspicuously disclosed. As with its claims about AstraGin, NuLiv discontinued its incentive program. Given the discontinuation, NAD did not pursue further action on the claims.

“We have modified all of our literature and marketing material for clarity,” the company said in its advertiser’s statement, which closed with an indication of how unexpected NAD’s attention was for an upstream supplier: “[a]s of 2018, AstraGin is not available direct to retail consumers.”

While we often think of advertising law as a form of consumer protection law, which it is, we should keep in mind that business-to-business companies are also advertisers, and many advertising laws and self-regulatory programs do not carve out business-to-business companies. For instance, the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 (CAN-SPAM) applies to business-to-business companies. California’s new (albeit inappropriately named) Consumer Privacy Act applies to business-to-business companies and even to employee records. Section 5 of the FTC Act applies to deceptive or unfair acts in or affecting commerce, not just to those directly affecting consumers. As for NAD, its jurisdiction is clear – any national advertising.

“The term ‘national advertising’ shall include any paid commercial message, in any medium (including labeling), if it has the purpose of inducing a sale or other commercial transaction or persuading the audience of the value or usefulness of a company, product or service; if it is disseminated nationally or to a substantial portion of the United States, or is test market advertising prepared for national campaigns; and if the content is controlled by the advertiser.”

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Samsung Pursued by Pixel Plaintiffs

New consumer suit claims that phone and tablet manufacturer skimped on crucial color depth

Not Again!

We begin with a lesson in high technology.

We’ve all used the word “pixel” – used it to brag about the picture quality of our digital camera, or the depth and “reality” of our computer monitor or tablet screen. But how many of us know what a pixel is?

A pixel, it turns out, isn’t a physical quality of the underlying technology at all – it isn’t a tiny LCD bulb, for example. A pixel is a conceptual unit – the smallest piece of an image that can be controlled or manipulated by a computer on a digital display. One pixel can represent a varying range of colors and brightness depending on the sophistication of the display; the more pixels your monitor or your smartphone can cram into its screen, the deeper and richer the images it displays.

Sub-Mission

So far so good. But to complicate matters, let’s introduce the subpixel. Subpixels can control the blend of color displayed by a pixel; a traditional arrangement is three subpixels per pixel – one displaying red light, one green and one blue. If the red subpixel is off and the blue and yellow subpixels are at full intensity, the overall pixel will display as green.

With us so far? The more pixels a display can control, the better the image. The more subpixels in each of those pixels – well, the better the image.

A whole passel of plaintiffs – five total, hailing from California, New York, Pennsylvania and New Jersey – are suing Samsung Electronics America and Samsung Electronics Co. (collectively, Samsung) in the Southern District of New York over the number of pixels in Samsung’s various phone and tablet devices. The suit, filed in mid-December 2018, alleges that Samsung deceptively advertised certain of its phone and tablet screens by claiming they boast more pixels than they have.

The plaintiffs claim that Samsung omitted half of the red and blue subpixels in each display, especially when compared with similar products from competing device manufacturers. Because of such an alleged misrepresentation, according to the plaintiffs, Samsung’s devices appear more appealing to customers than they actually would be if the true pixel counts were revealed. As the suit states:

“They have half of the advertised number of pixels and two thirds of the advertised number of subpixels. For example, where a traditional screen would have four pixels (and 12 subpixels, 4 of each primary color), Defendants remove every other red subpixel and every other blue subpixel, resulting in hardware with 8 subpixels (4 green, 2 red, and 2 blue) that are only capable of forming two true pixels (because there are only two red and two blue subpixels, and a true pixel needs at least one red, blue, and green subpixel).”

The plaintiffs claim that not revealing the lack of subpixels deceives consumers who reasonably expect a full roster and are instead wrongly induced into purchasing Samsung devices that they believe have superior screen resolutions.

In what may be anticipation of Samsung’s response, the suit maintains that the pixel arrangement at issue here turns on a lack of red and blue pixels, rather than the benefit of extra green pixels.

The plaintiffs are seeking damages under various false advertising, unfair competition and unfair trade practices laws in their home states.

The Takeaway

Advertisers should keep in mind that the test for deception concerns the net impression of the reasonable consumer. Where complex technological jargon is used to convey claims of performance or superiority, advertisers need to be cautious. This case will be an interesting one to watch, to see whether the plaintiffs are able to establish that the claims resulted in consumers being deceived as to material issue, or whether Samsung successfully defends the charges.

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Settlement Snaps Ginger Case Shut

Epic deceptive marketing cases are settled ... but is there a sequel brewing?

Ginger Tale

The whole story is almost impossible to summarize in our limited space.

As 2016 drew to a close, two California residents filed suit against Keurig Dr. Pepper (KDP) in Santa Cruz County Superior Court. The pair alleged that the company’s Canada Dry Ginger Ale, which claimed to be “Made from Real Ginger” in a claim on its can, was deceptively marketed and sold because it did not contain “real” ginger and misleadingly implied that the drink had health benefits. The charges included violations of the California Legal Remedies Act as well as various false advertising and unfair business practices laws and regulations; the plaintiffs sought to strip the marketing tag from the can and recover the premium they paid for a “real ginger” drink. The case was moved to the Northern District of California in early 2017.

As the case began to consolidate other suits filed in California, the plaintiffs survived two motions to dismiss before titanic discovery efforts rolled ahead in 2017. Material totaling 200,000 pages was unearthed, senior KDP marketers were deposed, and California consumers were surveyed for their opinions and feelings regarding “real ginger” and its importance to their purchasing decisions. Economists and chemists were retained. Class certification was challenged up to the Ninth Circuit, which subsequently rejected KDP’s appeal.

It was a brawl.

Fitful mediation in the summer of 2018 failed to end the battle, and trial preparations began to ramp up in November 2018 for an early January 2019 court date.

However, plaintiffs’ counsel had been making moves in other jurisdictions earlier in the year, with similar cases against KDP filed in the District of Massachusetts and the Western District of New York. The Massachusetts case was amended in August, widening it to a putative 49-state class of all states other than California. Making matters worse for KDP were a number of single-state “copycat” cases filed by new plaintiffs in Illinois, Missouri, Texas and Florida.

The Takeaway

Through machinations too complicated to outline here, the new plaintiffs collapsed their suits into a single, 49-state putative class in Missouri. The California plaintiffs’ counsel accused their counterparts in this action of recapitulating their efforts in their East Coast cases and began seeking intervention in the Missouri case. Mediators who had worked on the action since the summer were contacted, and a settlement agreement was reached in the California case on Jan. 4, 2019.

The final settlement in the California case mirrored a settlement reached in the Missouri 49-state action, which, according to the court, had been modeled on the California counsel’s efforts in the three states where it had filed suit.

The final provisions included a $.40 refund for each Canada Dry Ginger Ale product purchased in the class period, with a limit of 13 product claims without proof of purchase ($5.20 total) and 100 claims with proof of purchase ($40 total). KDP is required, through a stipulated injunction, to stop using “Made from Real Ginger” in its product packaging, and include the words “taste,” “extract” or “flavor” if “ginger,” “real ginger” or “natural ginger” is used on the label.

One key difference between the California settlement and the earlier settlement is the absence of a cap to the $.40 product payouts. The 49-state settlement capped monetary relief at $11.2 million; in the California settlement, KDP has the right to exit the settlement “if more than one million valid claims are submitted by California purchasers, meaning the parties will return to litigation. ...”

If the provision is triggered, then this monster of a case – which started small in Santa Cruz County, ballooned to encompass a settlement in every other state in the union and then was laid to rest in its “home state” – will return to haunt ad law journalists yet again.

The lesson for advertisers: Be sure you have substantiation for all claims and revise or qualify claims, where necessary, to avoid being misleading.

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Olivia de Havilland’s Right-to-Publicity Suit Is Gone With the Wind

SCOTUS denies Hollywood royalty a starring role

The Dark Mirror

Ryan Murphy’s presence in our culture is virtually inescapable. Chances are he’s the creator, producer, writer or director of at least one show or movie you’ve seen – his credits include Glee, American Horror Story, Nip/Tuck, The People v. O. J. Simpson and Eat Pray Love, among many, many others.

Murphy’s critically acclaimed miniseries Feud: Bette and Joan explored the fractious relationship between Hollywood icons Bette Davis and Joan Crawford, beginning with What Ever Happened to Baby Jane? The show had real celebrity firepower – Jessica Lange and Susan Sarandon played Crawford and Davis, respectively – and proved a ratings success, winning 2.25 million viewers when it aired on FX in March 2017.

Lady in a Rage

But Hollywood legend Olivia de Havilland, who was portrayed by Catherine Zeta-Jones in Feud, was not a fan of the show. De Havilland felt that the show undermined her professional reputation, which was built up over an eight-decade career in show business. She sued FX Networks and Ryan Murphy Productions in California State Superior Court over the movie’s portrayal of her as a gossip in the thick of the Davis/Crawford war. “A key reason for the public’s deep respect for Olivia de Havilland,” her complaint reads, “is that … she has steadfastly refused to engage in typical Hollywood gossip about the relationships of other actors.”

De Havilland claimed that the documentary-style Feud unfairly gave the lie to that reputation by presenting true, real-life details (the producers apparently got the details right on the hair, gown and jewelry she wore to the 1978 Academy Awards) alongside statements that the actress claims she never made. “FX defendants’ portrayal of Olivia de Havilland in ‘Feud’ creates the public impression that she was a hypocrite, selling gossip in order to promote herself at the Academy Awards,” the suit maintained. “This did not happen and was false.”

The Takeaway

De Havilland sued FX and Ryan Murphy Productions for infringement of the statutory right of publicity and common-law tort of misappropriation, false light invasion of privacy, and unjust enrichment, claiming that the show itself was not protected First Amendment speech, and that her name, likeness and identity had been used without her permission.

FX moved to strike the complaint under California’s anti-SLAPP statute, which was designed to prevent litigation that chills free speech. But the court denied FX’s motion, maintaining that the production was not entitled to First Amendment protection because it attempted to portray de Havilland realistically and was not sufficiently transformative. FX appealed to the California State Supreme Court.

In March 2018, the California Court of Appeal for the Second District upheld FX’s motion – arguing from a 2016 Ninth Circuit Court of Appeals decision that Feud “is speech that is fully protected by the First Amendment, which safeguards the storytellers and artists who take the raw materials of life – including the stories of real individuals, ordinary or extraordinary – and transform them into art, be it articles, books, movies, or plays.”

In July, after the California Court of Appeal refused to review her case, de Havilland petitioned the United States Supreme Court for review. “The Court of Appeal’s decision is a radical departure from traditional First Amendment precedent and benefits no group other than those who seek to use the names and identities of others in untrue and salacious ‘historical dramas’ for their own profit,” said de Havilland’s lawyer Suzelle Smith in a statement released in early October.

On Jan. 7, 2019, the Supreme Court denied certiorari to de Havilland, bringing this high-profile case to a less-than-dramatic halt. But not so fast, advertisers – keep in mind that this case is about editorial, not commercial, speech. Advertisements have a far lower level of First Amendment protection, and lately, advertisers are typically on the losing end of rights of publicity cases.

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Ninth Circuit Sets Vitamin E Free

Appeals court halts marketing suit, citing FDCA-pre-emption and structural claims

Intent to Prevent

When Paul Dachauer filed suit against Nature’s Bounty Inc. in January 2016, he was coming after the vitamin and supplement manufacturer under California’s Unfair Competition Law and Consumers Legal Remedies Act. His argument seemed straightforward enough: Nature’s Bounty was making spurious claims about the vitamin E supplements he purchased.

Before we proceed, it’s probably a good idea to get a feel for the language used on Nature’s Bounty’s supplement packaging. According to the complaint, Nature’s Bounty “uniformly represent on the front of every label of their products that their Vitamin E supplements will promote immune, heart and circulatory health ... each and every bottle of their Vitamin E supplements ... represent[s] that the Product ‘Promotes’ Immune Health, Heart Health and, Circulatory Health.”

Note the words “will promote,” please.

So what, specifically, was Dachauer’s beef? The California resident claimed that the product violated California law because it did not prevent cardiovascular disease. More seriously, he claimed use of the product might lead to higher rates of mortality among users.

Distinction With a Difference

At the heart of the case is a distinction that Dachauer probably wishes he had not introduced to his suit: disease claims vs. structure claims (we’ll try to make this painless for you).

When it comes to diet supplements, federal law draws a distinction between “structure/function” claims (an assertion that describes the role of a nutrient or dietary ingredient in a bodily function in humans) and a “disease claim”(a statement that the product or ingredient prevents, treats or cures a specific disease).

The Northern District of California, where the case was filed, agreed with Nature’s Bounty’s motion for summary judgment, noting that Dachauer had chosen to build his case the hard way.

“Common sense suggests that the claims on the vitamin E labels – claims that refer not just to heart, circulatory, and immune function, but to heart, circulatory, and immune health – imply a connection to disease. …” The court also noted that Nature’s Bounty’s own evidence seemed to indicate that the specifics of the facts at hand meant that a “health” claim implied some sort of “disease outcome.”

“Had Dachauer built a case around this theory, things might have gotten interesting,” the court wrote. If the claims could be shown to be disease claims, California law might have been on Dachauer’s side. “Instead, Dachauer is suing on the theory that the defendants’ labels are false, or misleading based on their representations about structure or function,” the court continued. “This makes for a more difficult burden … a burden Dachauer can’t meet.”

The Takeaway

The Ninth Circuit upheld the district court’s order on appeal. First, the appeals court ruled that the Federal Food, Drug, and Cosmetic Act (FDCA) pre-empted the California statutes under which Dachauer pursued his claim because both the FDCA and California law “have the same labeling requirements with respect to failing to disclose an increased risk of death.”

Next, the appeals court held that, under the FDCA, Nature’s Bounty’s structure/function claims about vitamin E’s promotion of cardiovascular health were not challenged by Dauchauer’s evidence that the product did not prevent cardiovascular disease altogether.

“The FDA allows manufacturers of supplements to make general claims – such as ‘promotes heart health’ – and to substantiate them with evidence that a supplement has some structural or functional effect on a given part of the human body,” the Ninth Circuit panel wrote. “Manufacturers need not also have evidence that those structural or functional effects reduce the risk of developing a certain disease. … Plaintiff disagrees with the federal statutory scheme for dietary supplements, but we cannot accept his invitation to upend it.”

Finally, the court found that Dachauer lacked evidence that vitamin E caused actual harm to consumers, therefore failing to create “a genuine issue of material fact as to whether defendants’ immune-health structure/function claim was misleading.”

The lesson for advertisers here is not in the successful defense, based on the narrowness of the pleadings, but is in the court’s dicta that there might have been actionable claims made in the advertising. As always, claims need to be carefully constructed, substantiated and checked for regulatory compliance.

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Public Forums on the California Consumer Privacy Act Continue in Los Angeles – Rulemaking to Follow

The public forums on the California Consumer Privacy Act, held by the California Attorney General and the Department of Justice, continued on Friday, Jan. 25, in Los Angeles, California. We discuss what speakers urged the AG’s office to do here

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