Alerts

AD-ttorneys@law – March 17, 2021

Alerts / March 17, 2021

In This Issue:

DraftKings Settles Class Action Lawsuit for $8 Million

Settlement is a hybrid payment whose lion’s share is in-game currency

Two Fair Households

It wasn’t too long ago that DraftKings and FanDuel, the biggest names in the fantasy sports league business, were set to merge. But the downfall of the deal is implied in the description of the companies – they were the biggest players in the field, and the Federal Trade Commission (FTC) didn’t want them to get together.

But in a certain sense, the two companies got married anyway: They both experienced the same, or similar, legal woes brought on by their elevated position on the fantasy sports heap.

Ordinary Guys

The most persistent legal challenge shared by the companies was a multidistrict litigation filed by their customers that alleged the pair had engaged in an illegal gambling enterprise.

This bear of a dispute stems from lawsuits against each company that were combined and transferred to the District of Massachusetts in 2016. We won’t trace all the ins and outs, but the essence was this: Despite advertising that their games were “easy, simple, fair contests of skill that anyone could win,” the companies were “bringing in new, inexperienced players unlikely to win [against] high-value players who make up the biggest source of revenue…”

The plaintiffs accused DraftKings and FanDuel of negligent misrepresentation, deceptive practices, unjust enrichment and RICO violations under various state laws and FTC regulations.

The Takeaway

In 2019, after the court pushed most of the claims into arbitration, DraftKings filed for divorce from its competitor and almost-merger partner. The company began hashing out a settlement with players that reached fruition in early March.

DraftKings agreed to tag the profiles of sharks experienced players, and to “make statistics available to consumers about the percentage of all authorized players who are net winners, breakeven, and net losers over the previous 30 days…”

The settlement creates parallel funds that pay out to players and former players alike. Current players will draw on a fund of 7.28 million “DK Dollars,” which is DraftKing’s in-game currency. This stands to reason – if the purpose is to make players whole, then this gives them the funds they initially invested and lost, while also installing protections to educate them about the players involved in a given contest. A second fund of $720,000 is set aside for former players who closed their accounts. Neither pot is available to “net lifetime winners,” for obvious reasons.

Overall, probably a pretty good deal for DraftKings. While it remains to be seen how this will affect its market position compared to FanDuel, it’s not unlikely there will be future regulations in this area, and DraftKings just submitted an early draft for what that might look like.

Polio Reference Helps Plaintiff Lose Bid to Sue Hand Sanitizer Maker

Will the plaintiff need to catch a disease to provide an amended complaint?

Tide’s Out

It’s only been a year since the pandemic struck, but the press has already referred to our current environment as “the COVID era.” Normally, a whole era delineated by 12 months of lived history would seem typical journalistic overkill – but if any event is monumental enough to define an “era,” the COVID plague is probably it.

Or perhaps we are ever so haltingly edging toward the post-COVID era, given some of the recent good news about vaccine availability and effectiveness? Join us as we cross our fingers.

Whatever you want to call our unbelievable now, the effect of COVID on advertising law looks set to continue thereafter.

Yes, we’ve written quite a bit about proliferating COVID cure scams. But we wager that they are merely an early warning. The show will go on but focus on advertising claims made about iconic, well-established products – once-quotidian promises that will be assaulted from every quarter.

Polio Still Exists?

Take for example Anthony Moreno’s class action against Vi-Jon, maker of Germ-X brand hand sanitizer. It’s similar to a suit we covered back in August, if you’re up for a trip down memory lane.

Moreno’s claim focuses on the company’s allegedly false and misleading packaging, which states that the sanitizer “kills 99.99% of germs.” In reality, according to the complaint, the product is “ineffective against certain microbes, viruses, protozoa and bacterial spores” – a rogues’ gallery of nasty illnesses including “norovirus; polio; polyomavirus; hand, foot, and mouth disease; human papillomavirus; hepatitis A; cryptosporidium; C. difficile; enterococci; and influenza A.” Yikes.

The complaint, which Moreno filed in the summer of 2020 in the Southern District of California, inspired Vi-Jon to move to dismiss for failure to allege a concrete injury. The court agreed.

In its order granting Vi-Jon’s motion, the court enumerated the reasons that Moreno’s complaint failed to produce the necessary specificity. He had failed to allege any harm, material risk of harm or negative experience derived from his purchase of the product. He also did not allege that he “contracted any of the diseases or viruses he alleges that the Products do not purportedly protect against,” and failed to even “allege that he purchased or used the Products to prevent any of the diseases or viruses listed in the [complaint].”

The Takeaway

“Setting aside the unassailable reality that the Products do not represent they will kill, for example, polio, HPV, or other serious disease microbes,” the court continued, “Plaintiff has done nothing more than ‘mathematically’ calculate that the percentage of serious disease bearing ‘germs’ must, logically, exceed 0.01% of the universe of germs and, therefore, cannot ‘kill’ all of the most serious germs.”

And that, as they say, was that – although the court left the door open for a future amended complaint.

Even though the plaintiff was unsuccessful, we can’t help but imagine that cases like this one will become more common.

Moreno doesn’t even mention COVID in his complaint. But the threat of a deadly pandemic is surely going to create new litigation around formerly innocuous disinfection and sanitization claims.

Reckitt Benckiser Forks Over $53 Million in False Advertising Class Action

Plaintiffs claim that the company’s supplement made arthritis treatment claims

Variety Is the Spice of Strife

Reckitt Benckiser, as we’ve mentioned before, makes tons of different products. And it must be doing something right: It’s responsible for a number of “household name” brands – think Air Wick, Woolite, Mucinex, Easy-Off, KY and Calgon. We’ve covered RB in disputes involving carpet shampoo and dishwasher detergent. The company is everywhere.

Which is why we weren’t particularly surprised to discover that RB is in the dietary supplement business – why not, right? Next it’ll be airplane parts or emergency mustaches or cloning kits. God bless ’em.

A Crock on the Box?

Anyway – we discovered that they were involved in the supplement game through a class action filed in 2017 in California’s Northern District. RB was hit with several claims, including violations of California’s Unfair Competition Law, Consumers Legal Remedies Act, False Advertising Law, and related New York State law violations.

The plaintiffs, purchasers of RB’s “Move Free Advanced” supplement, maintained that the packaging “misled them into thinking that the products help alleviate the symptoms of arthritis.” RB moved for summary judgment, replying that the claims were preempted by the Food, Drug, and Cosmetic (FD&C) Act and that the products worked as advertised without implying that they treated arthritis at all.

“For starters,” the court wrote in its March 2020 order denying RB’s motion, “the labels say that the product ‘supports joint comfort’—an assertion that is dangerously close to a statement that a supplement ‘reduces joint pain.’ The Court would have trouble articulating a meaningful difference between the two.” This was particularly significant because the court had noted that Food and Drug Administration guidance states “reduce joint pain” is a disease claim. As such, it would be a loss on two fronts for RB: Their advertising would be an unsupported disease claim rather than a structure/function claim, which is much easier to substantiate, and, as a disease claim, would not be preempted by the FD&C Act because it violates it.

The Takeaway

Boxed in, as it were, RB decided to strike a settlement agreement with the plaintiffs that has been heralded as “the largest dietary supplement class action ever reached.”

The total settlement figure was a whopping $53 million, structured as a refund of up to $66 per customer with no proof of purchase, and full refunds on all purchases with proof provided. As an alternative, consumers were offered $225 for purchasing other RB products.

A painful end to four years of intense litigation.

NAD Gives Win to Teledentistry Company in Orthodontist Spat

SmileDirectClub squares off with nationwide orthodontists yet again and knocks out a few teeth

Not Their First Rodeo

(For the record, we’re not sure what “not their first rodeo” means, or why it applies to anything other than a résumé produced by a rodeo worker. And so, in what is not our first nonsensical segue, we move on to dentistry.)

SmileDirectClub (SDC) is back before the National Advertising Division (NAD) yet again.

2020 was a busy, if frustrating, year before NAD for the teledentistry company. It achieved mixed results in a challenge by Align Technology in April of last year; fought back with a challenge to Align one month later; was called out by the American Association of Orthodontists (AAO) on pricing and speed-of-use claims in July; and appealed that decision to the National Advertising Review Board in October.

But, like Frazier and Ali before them, NAD and the AAO are back for another contest. And the AAO took a bruisin’.

Upstart Choppers

Like Warby Parker and Blue Apron, SDC has transformed a service that once required an in-person visit into a service that can be delivered to the home. SDC creates custom dental aligners based on impressions taken and mailed in by the patient. Office visits are infrequent or nonexistent, which keeps prices down. So it’s no surprise that they’ve attracted negative attention from competitors and industry organizations alike.

In the current case, SDC was fighting back against AAO’s “Happy Mouth Now” commercial campaign, objecting to two sets of claims: First, the company accused AAO of implying that SDC’s retail locations lacked on-site medical professionals. Second, it called the organization out for implying that teledentistry is “risky, dangerous and ineffective,” that it does not involve medical professionals in any capacity, and that its in-home products were difficult to use and ineffective.

The Takeaway

To catch the flavor of the campaign, check out the commercials that we found here. The shorts poke satirical fun at the teledentistry model and are quite effective. Nonetheless, NAD mainly came down on the side of SDC.

On one implied claim, NAD supported the AAO – medical professionals, according to the record, are not present at SDC locations, but the watchdog “cautioned the advertiser against making the unsupported, broad claim that medical professionals are generally not involved throughout SmileDirectClub’s entire treatment process.”

SDC’s overall service offering, however, was unfairly impugned by the campaign. NAD held that claims “that SmileDirectClub’s direct-to-consumer teledentistry platform is risky due to the absence of in-person medical oversight, and that the at-home impression kit is difficult for consumers to use” were unsupported by any evidence. The implied claim that the service was difficult to use was likewise deemed unfounded.

There’s great temptation to knock the competition down to size, and satire as entertaining as the AAO’s Happy Mouth Now campaign can be enormously effective. But comedy, no matter how broad or finely tuned, can’t carry water for claims that can’t be backed up by customer surveys or other “objective” metrics.

Humor can be a highly effective way to communicate a message to prospective customers, and, on a personal note, it always spices up our professional lives. But just because it’s funny doesn’t mean consumers will assume it’s exaggerated, so make sure you have the proper support.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.