Alerts

AD-ttorneys@law - January 31, 2018

Alerts / January 31, 2018

In This Issue:

Countdown to GDPR

European Commission launches implementation guidance website

Rising Tide

With only four months remaining until the EU General Data Protection Regulation takes effect on May 25, 2018, the European Commission has launched a new website offering guidance on requirements and implementation targeted at an array of stakeholders including Member State governments, businesses, data subjects, and other entities whose operations or data processing activities will bring them into the GDPR’s orbit. Read our latest Data Privacy Monitor blog post for complete details.

StubHub Earns a Ticket to the FTC

Ticket exchange company flouts NAD recommendations regarding additional fees

Everybody Else Is Doing It!

The National Advertising Division was unmoved.

Under the National Advertising Division’s (NAD) consideration: StubHub, a website that features tickets to sports events, concerts, theater and other live entertainment events. The division was taking a close look at StubHub’s pricing conventions – specifically, the fact that the website was advertising ticket prices upfront without adding in taxes and fees (which were disclosed to the customer only at checkout).

StubHub’s response to the investigation would be familiar to any parent of a middle-schooler: All major ticket-sale websites followed the same disclosure practices. Because everyone was doing it, the consumer had an understanding of what to expect when making a purchase. In addition, the company claimed that it had, in the past, listed the entire charge upfront, and lost market share because of it.

Practice Imperfect

NAD maintained that an industry-standard practice wasn’t enough to establish that consumer expectations conformed to that practice.

In particular, NAD noted that StubHub listed a new, higher price at checkout, but did not itemize the additional amount except on a separate disclosure page. Moreover, service fees in the industry are not standardized and can vary significantly, making apples-to-apples price comparisons difficult prior to the purchase process.

The Takeaway

NAD notes in its case report that “information that is material to a claim must be clearly disclosed in close proximity to the claim,” with the upshot that StubHub’s fees and services need to be disclosed when the initial price is advertised. This, the division maintains, follows the Federal Trade Commission’s (FTC) disclosure philosophy: Consumers must have all the information they need before they decide to buy.

NAD requested that StubHub update its advertising to reveal its service fees. StubHub declined to adopt this recommendation, saying, “StubHub thanks NAD for its review of the company’s fee-disclosure practices but respectfully disagrees with NAD’s conclusions.”

The case has been referred by NAD to the FTC.

California Lawmaker Takes Steps to Fence In ‘Internet of Things’

Proposed ‘Teddy Bears and Toasters’ legislation mandates security

Bride of Chucky?

The demise of My Friend Cayla in the German market wasn’t exactly a scene from a vintage horror movie – there were no pitchforks and torches – but the doll was run out of town nonetheless. However, the story was scary enough to move a California lawmaker to try to prevent the same situation from happening in her state.

The Cayla doll, aimed at young children, listens to its living playmates, records their speech and uploads those recordings to an app connected to the doll over Bluetooth. The app conducts internet searches about the content of the recordings and fashions a reply, which is sent back to the doll that then “speaks” it to the child.

This was too much for Germany’s Federal Network Agency, the country’s telecom watchdog, which banned the doll in early 2017 as a threat to the privacy of its owners. The doll was removed from store shelves, and parents were asked to destroy dolls they had purchased. If this seems extreme, consider that only two years earlier, the doll had been hacked by security firm experts, who had publicized their feats; one expert claimed to have loaded the doll with sound clips from Poltergeist.

On this side of the Atlantic, Cayla’s makers faced scrutiny from the Children’s Advertising Review Unit (CARU). Genesis Toys, Cayla’s creator, ignored CARU’s inquiries, and as a result, its case was forwarded to the Federal Trade Commission for review in July 2017. There has been no word from the commission yet.

Prophylactic

My Friend Cayla is a cautionary tale, and not just for parents. Device manufacturers staking out territory in the rapidly expanding “internet of things” are harnessing the internet to create innovative products, but will their creations be seen as monsters in the United States?

California lawmaker Hannah-Beth Jackson, state senator representing San Diego, is attempting to put some restraints on internet-connected products. In early 2017, she introduced California Senate Bill 327 – the “Teddy Bear and Toaster Act” – which, as its name suggests, aims to address the myriad devices that are currently appearing in the matrix.

As California law, the act’s scope would be significant; the Golden State is the epicenter of global high technology and boasts the world’s fourth-largest economy. Any move by the state to affect electronic privacy or security will impact manufacturers and consumers around the globe.

Opening Salvo

The law as originally introduced in February 2017 was nothing short of sweeping. It required that manufacturers equip “connected devices” sold in California with “reasonable security features appropriate to the nature of the device.”

But the privacy provisions of the bill were even more ambitious.

All connected devices would be required to disclose on the packaging, corporate website or product itself whether the device is capable of collecting various types of information, including audio, video and location – and to explain the process of collection: its frequency, and what actions or situations trigger collection. Moreover, the bill required connected devices to obtain consent from the consumer before collecting or transmitting “information beyond what is necessary in order to fulfill a user transaction or for the stated functionality of the connected device.”

The Takeaway

In June 2017, after several amendments the month before, Bill 327 was shelved as “inactive” at Sen. Jackson’s request. It was only recently shocked back to life: It was ordered for a second reading on Jan. 11, 2018, and passed by a 28-9 vote in the Senate on Jan. 23. It will now be put forth for consideration by the Assembly.

But it’s a much different bill. The revision history is a sea of red: As currently construed, all the disclosure provisions have been removed. Only the security provision remains. The cause for the changes is unclear, but no matter what final form the act takes, it will have an outsized effect on the evolving connected landscape.

Heat From CARU Brings Stride Rite Down to Earth

Company agrees to rejigger ad featuring superhuman acrobatics

Copy Delight

The Children’s Advertising Review Unit (CARU), as an organization sponsored by the Better Business Bureau, is admirably sober in its public pronouncements. But sometimes the subject matter of its investigations gets the better of it. (We are talking about advertising aimed at children, after all.)

In the middle of a recent CARU press release, readers were treated to this wonderful sentence: “In one sequence … a boy jumps so high that he reaches and eclipses the sun, remains airborne long enough to do a 360-degree flip and high-five with an animated frog while remaining in the air.”

Icarus

We have Stride Rite to thank for this gem, which describes an ad for the company’s Leepz brand footwear that recently came under CARU review.

Drawing its design inspiration from a frog’s padded feet, Leepz also boasts a high-tech angle: LEDs light up the side of the shoe when the wearer’s heel strikes the ground. As you might expect, the advertisement for sneakers like these is colorful and hyperkinetic. But the acrobatic feats accomplished by the animated kids in the ad, when combined with the ad’s messaging, gave CARU pause.

As noted earlier in the greatest sentence ever crafted, the kids in the commercial engage in unbelievable leaps and midair flips. The children jump distances more than twice their height, soar through the air and so on. CARU notes that text at the bottom of the ad reads, “Does not make you jump higher.”

Interpretive Dance

CARU asked Stride Rite to provide substantiation for the “implied claim” that Leepz allowed kids to jump higher than they would without the sneakers. CARU also requested backup for the explicitly stated claims in the ad: “the incredible shoe with sky-high technology” and “reach new heights with Leepz!”

Stride Rite maintained that “sky-high technology” referred to the “high-tech” nature of the LEDs on the side of the shoe. As for the second tagline, the company claimed that “reaching new heights” was allegorical and did not literally refer to heights jumped.

The Takeaway

CARU was not persuaded. In its analysis, it held that the ad copy, combined with the extreme heights achieved by the children jumping in the ad, might lead children to believe that they would gain enhanced leaping ability if they wore the shoes.

Two additional points of interest were addressed in CARU’s decision. First, CARU dismissed Stride Rite’s argument that because shoes are generally purchased with adult supervision, any confusion the children might have regarding the powers conferred on them by the sneakers would be mitigated by an adult at the time of purchase. CARU noted that it has “long held that a child’s first contact with a product is generally the advertisement itself” and that subsequent clarity does not alleviate a misleading ad.

Additionally, CARU noted that the text that appears in the ad was not sufficient to avoid censure. Superimposed text – especially if it is small or difficult to read – is “not an adequate means of conveying material facts” to children.

Stride Rite agreed that it would modify the ad accordingly if it chose to air it again.

Kramer Labs Itchy Over NAD Critique of Fungus Cream

Manufacturer ignores recommended fixes, is referred to FTC and FDA

The Few. The Brave.

Treating athlete’s foot is not glamorous work. But the men and women of the foot fungus treatment industry take their work seriously. And we should as well; we are in their debt. At any given moment, 15 to 25 percent of us are plagued by the condition.

So perhaps we can view the inflammation that erupted between foot-care product manufacturers Kramer Laboratories and Moberg Pharma with some indulgence. Even though they may be in conflict with each other, they remain heroes to us all.

By Any Other Name

Moberg took aim at Kramer Labs in 2017, presenting product claims by Kramer to the National Advertising Division (NAD). Specifically, Moberg took exception to the name of Kramer’s product – Fungi-Nail Toe & Foot. Moberg maintained that this name would lead consumers to believe that the product treats toenail fungus when it does not. Kramer disagreed, noting that although the product was intended to treat the skin around toenails, the name didn’t expressly address toenail fungus itself.

NAD claims to be cautious when it comes to addressing product names – it won’t recommend a name change unless there is firm evidence that consumers have been “confused or misled” by the moniker. But in this case, it abandoned its traditional reticence and recommended that Kramer find a new name for the product.

Clipped

It seemed clear, NAD maintained, that the name itself communicated to consumers that the product treats nail fungus. NAD focused specifically on the fact that the word “toe” in the name is adjacent to “fungi” and “nail,” which reinforces the idea that it treats “toenail conditions.”

NAD recommended that the Fungi-Nail Toe & Foot name and associated marketing images be discontinued. It also asked that commercials and packaging using the name be scrapped unless a conspicuous disclaimer was added noting that the product was intended for athlete’s foot. It also recommended that Kramer drop a number of other claims about product performance and endorsement that NAD believed were unsubstantiated.

The Takeaway

Kramer put its foot down. In its reply to NAD, the company maintained that it “will not discontinue use of its trade name.” Kramer cited the product’s storied history. “Kramer has provided its FUNGI-NAIL TOE & FOOT brand, without interruption, for over 40 years to a very satisfied consuming public and is committed to continuing to demonstrate high standards for quality and integrity.”

“Where advertisers decline to comply,” the NAD press release noted, “the advertising claims at issue may be referred to the appropriate government agency for further review.” And with that reply, Moberg’s initial objection was kicked upstairs to both the Federal Trade Commission and the Food and Drug Administration.

Judge Slams Brakes on Uber Settlement

$3 million agreement gets a flat because of nonclass payment and conditional terms

Careening

For a company whose name is infused with overtones of exultant triumph – think “Deutschland Über Alles,” “Übermensch” – it has seemed more like the underdog for the past year or so, especially in the legal arena.

Settlements with the Federal Trade Commission over massive data breaches and misleading pay claims, the ouster or resignation of its CEO and other management leaders over failed security policies and allegations of sexual harassment coverups, lawsuits over stolen technology and defrauded passengers, an “F” rating from the Better Business Bureau – it’s been a rough year.

But after all this constant drama, there was a small share of good news in January 2018. Or there seemed to be.

All Done, Nothing to See Here …

Uber reached a proposed settlement agreement with a class of drivers, led by Joce Martinez, who accused the company of saddling its drivers with fees that unfairly included taxes and other fees.

The plaintiffs also charged Uber with false advertising: “UBER’s marketing materials and advertisements to drivers [that] induce them to work for UBER,” alleged the class complaint, “are materially misleading in that UBER offers guaranteed compensation without disclosing the actual conditions imposed.” The complaint specifically cited an advertisement that stated, “Drive & Make $5,000 – Guaranteed, during your first month.”

The fee dispute was killed off by the court back in March 2017, and Martinez’s individual claims had been thrown out, but the false advertising claim remained. Uber later publicly admitted that it had, in fact, underpaid the New York drivers, and laid out $80 million to tens of thousands of drivers in an effort to address the mistake. Following this revelation, the plaintiffs spent the summer working to win another day in court for their original wage claims.

The Takeaway

Before that could happen, Uber tried to put sand in the claim’s tank by attempting to settle with the drivers, including Martinez, in early January. The proposed settlement, in which Uber admitted no wrongdoing, would cost the company a cool $3 million. But at least the agreement would put an end to one of the company’s ongoing legal conflicts – a badly needed pit stop in the midst of all its other challenges.

But it was not to be. The proposed settlement ran out of gas shortly after the agreement was announced. (We promise – this is the last ham-handed car metaphor in this story.)

First, a group of Los Angeles drivers who were pursuing a parallel litigation attacked the settlement for improperly shutting down a number of viable claims.

Then the Eastern District of New York, where the original complaint was filed in 2015, nixed the agreement. The court objected to a small individual settlement promised to Martinez, which it deemed improper – Martinez was no longer in the class and couldn’t claim funds that were to be set aside for the remaining members. The complaint also rejected a settlement provision that would revive the breach-of-contract claims that had been dismissed if the settlement was approved in the end.

Pre-emption Preserves ‘Earth’s Best’ Organic Status

Recent appellate ruling may provide future avenue for defense

My Kid Eats That!

The Organic Consumers Association (OCA) targeted Hain Celestial, maker of Earth’s Best brand infant and toddler formula products, for labeling the products “organic” when they actually were far, far from it. The ingredient list, OCA claimed in an April 2016 suit, contained a “spectacular array” of nonagricultural and nonorganic ingredients forbidden by the U.S. Department of Agriculture from being added to products that make the claim.

The “spectacular array” of alleged nonorganic ingredients included chemical preservatives, toxic chemicals and ingredients that are synthetically produced from toxic compounds.

The complaint, which was originally filed in the District of Columbia Superior Court but was later removed to the D.C. District Court, accused Hain of violating the Organic Food Production Act (OFPA) of 1990, which limits the use of nonagricultural ingredients in organic-labeled products to a “National List” of exceptions. The OCA claimed that 29 of the nonagricultural ingredients listed in the Hain products were not on the exceptions list.

The OCA alleged violations of the D.C. Consumer Protection Procedures Act and sought revised packaging, new advertising, costs and disbursements, and punitive damages.

We Interrupt This State-Law Litigation...

Hain moved to dismiss, claiming that D.C.’s state law was pre-empted by the OFPA – presenting an obstacle to “the accomplishment and execution of the full purposes and objectives of Congress,” as stated by a case cited in the District Court’s decision.

Hain argued that lawsuits demanding state enforcement of the OFPA would initiate a cacophony of dissonant rulings about what “organic” actually means. In addition, Hain maintained that the USDA is empowered under the OFPA to lead enforcement efforts – not the states.

The OCA countered that its case actually championed the OFPA’s standards. For example, it pointed out that the case was meant to enforce the “National List” – an inventory identifying substances that may or may not be used to produce organic crops, livestock or processed goods, published by the USDA.

The Takeaway

The court clearly sided with Hain on the question of federal pre-emption, relying most heavily on a 2010 ruling by the Eighth Circuit Court of Appeals in In re Aurora Dairy Corp. Organic Milk Mktg. & Sales Practices Litigation. Aurora dealt with alleged misrepresentations about the care of livestock under several different state statutes.

The Eighth Circuit ruled in this case that claims against the certifying agent were federally pre-empted, because direct challenges to the agent’s decision would “present an obstacle to the federal certification scheme itself …” Moreover, while consumers might be more comfortable with a state’s particular certification of organic, any standard thus enforced would chip away at the OFPA’s authority.

The court noted that District Court decisions have generally followed the Aurora decision, citing an Eastern District of New York decision which maintained that “[o]nce the federal government, through a USDA-accredited certifying agent, permits a manufacturer to label a product as ‘Organic’ because it has met that standard, any allegation that the product is not truthfully labeled … is a challenge to the certifying agent’s decision” – rather than to the manufacturer’s claims.

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