AD-ttorneys@law – May 23, 2023

Alerts / May 23, 2023

In This Issue:

FTC Lays Out Some AI Ad Essentials

But specific guidance isn’t here yet, so...let’s be careful out there.

Advocatus Dramatica

The Federal Trade Commission (FTC) is on a bit of an artificial intelligence (AI) kick. Since February—and likely coinciding with the release of the generative AI model ChatGPT-4—the regulator has released a string of blog posts warning of the risks of (i) making deceptive or misleading claims about AI products, (ii) using AI systems to deceive audiences, and (iii) accidentally installing malware by clicking on fake AI software ads. The FTC also issued a joint statement with several other federal agencies discussing their ongoing enforcement efforts against discrimination and bias in AI and other automated systems.

Most of these articles were penned by Michael Atleson, a career FTC staffer who has spent time at the Bureau level and is currently an attorney in the FTC’s Division of Advertising Practices. We like Mike’s style. He references cool movies, like the great 2014 sci-fi flick Ex Machina; indulges in some OTT melodrama; makes the odd Prince reference; tosses around dad slang (“We always keep it real here at the FTC”); and lays out a cheesy pun (“we’re in FTC territory, a canny valley where businesses should know to avoid practices that harm consumers.”)

You go on, Mike!

Tractatus Advertisio-Philosophicus

The latest blog entry, titled “The Luring Test”—see what they did there?—focuses on generative AI tools such as chatbots, and warns that the “design or use of a product can [] violate the FTC Act if it is unfair” (emphasis in original). “Under the FTC Act, a practice is unfair if it causes more harm than good…if it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or to competition.”

The key concern seems to be companies deploying generative AI tools to “tap[] into unearned human trust,” using the tools in a manner that “deliberately or not, steer[s] people unfairly or deceptively into harmful decisions.” However, another issue is marketers placing unlabeled ads within a generative AI output, much like one can place ads in search results, without proper disclosures. The post cautions that “manipulation can be a deceptive or unfair practice when it causes people to take actions contrary to their intended goals.”

The Takeaway

The FTC has built many a successful enforcement action against companies for these deceptive practices in the analog world. And this blog serves as a harbinger that the regulator is keeping vigilant tabs on companies for use of similar misleading methods in the digital world.

So, the takeaway remains: as with all advertising, be honest and open about how you deploy your AI technology. Always keep your target audience informed, and disclose any paid relationships that may underlie your messaging.

New Food Labeling Bill Tickles Staid Watchdog Types

CSPI excited over potential for colorful new labels

Funny...Like, Ha-Ha Funny?

Just a few months ago, we covered a citizen’s petition to the Food and Drug Administration (FDA) advocating for front-of-package nutrition labeling (FOPNL)—­just the sort of burning topic that sends most civilians running for the door, gets nutrition advocates all hopped up, and gives government agencies heartburn.

The petition, signed by bigwigs at the Center for Science in the Public Interest (CSPI), the Association of SNAP Nutrition Education Administrators (ASNNA), and the Association of State Public Health Nutritionists (ASPHN), was 35 pages of exhaustive argument about the benefits of FOPNL and how current labeling— including the voluntary industry initiative “Facts Up Front”—in their view wasn’t cutting it.

A Strong and Slow Boring of Hard Boards

In the petition, CSPI argued that the Facts Up Front standard may have increased visibility of nutritional information by moving it to the main display panel, but it didn’t help consumers interpret the nutritional impact of the food they were consuming.

Accordingly, CSPI pushed a different approach, which it called “interpretive FOPNL”—using labels that provide evaluative judgments on the nutrient content in the food. Interpretive FOPNL utilizes colorful iconography and other striking design choices to emphasize the consequences of consuming the product.

The petition further lamented that the FDA had ignored the watchdog’s recommendation to adopt FOPNL back in 2006.

But good things may come to those who wait...

Enter the Energy and Commerce Committee Democrats, who have their own, green-themed web presence. Very hip.

House Ranking Committee Member Frank Pallone, Jr. (D-NJ), and Senator Richard Blumenthal (D-CT) introduced a new bill last month titled the Food Labeling Modernization Act of 2023. And it may just make the dour folks at CSPI crack a smile.

The Takeaway

Perhaps they were smiling when they published this fact sheet breaking down the bill’s salient points, the first of which involved the long-hoped-for FOPNL:

The FLMA’s signature initiative directs the FDA to establish a standard front-of-package nutrition labeling system for all of the packaged foods it regulates. This system would complement the Nutrition Facts label and would clearly convey when high levels of sodium, added sugar, or saturated fat (nutrients that are overconsumed, linked to chronic disease, and recommended to be limited in the diet) are present in foods.

And here’s the proof that the petition’s signatories were indeed filled with glee—an honest-to-goodness exclamation point in a policy document:

Front-of-package labeling leads to healthy reformulations and better choices!

Settle down, guys!

Other provisions of the bill include rules for (i) sodium substitution, (ii) application of the same nutritional labeling requirements for in-store goods to online purchases, (iii) undercutting the “healthy” packaging of unhealthy foods, and (iv) centering information about dangerous ingredients on packaging.

Will the bill pass?

The CSPI press release announcing the legislation notes that a bill with the same name was proposed in 2013 and “led to successful bipartisan efforts to improve food labels, including passage of the FASTER Act of 2021, which established sesame as the ninth major allergen required to be disclosed on food labels and whose text originated as part of the FLMA.” But that’s about all the Center says about the impact of the earlier bill.

If this one passes? Expect multiple exclamation marks, maybe even an emoji or two!

Google to Longtime App Users: We Never Promised You a Rose Garden

Can “free-for-life” claims survive a termination-clause divorce?

Forever, Forever Ever? Forever, Ever?

It isn’t often that we here at the ad-ttorneys@law offices dispense romantic advice, but this case is about a breakup. It’s also a class-action case, so if you’re uncomfortable with polyamory, stop reading.

Plaintiffs Steven Rabin of California and Ian Graves of Wisconsin are the remaining lead plaintiffs in an action originally filed in the Northern District of California against high-tech bad boy Google in August of 2022. (Why is Google a “he” in this allegory? Is it simple misandry on our part? Can’t women break hearts too?)

The pair contend that they were lured by Google into signing up for the service then known as Google Apps back in 2009 and 2012, respectively. The service, which has been renamed since and is currently called “Workspace,” introduced cloud versions of standard PC productivity applications—luring many a user away from their faithful-but-sort-of-boring former main squeeze.

Rabin and Graves maintain that part of Google’s sweet talk entailed a “free-for-life” promotion that promised early adopters, those who signed on between 2006 and 2012, free, unlimited access for as long as the service was offered.

Ah, young love!

He’s Just Not That Into You

The jilted plaintiffs claim that Google dumped them (and other potential class members) last year when the company announced it was going to discontinue the free version of Workspace—in direct breach of Google’s promise to the free-for-life customers.

This change, the complaint states, forced Rabin and Graves to choose between (a) paying for their previously free service and (b) suspending services, the latter of which they claim would deprive them of a valuable and “contractually-based” benefit and require them to transfer to another service and risk losing valuable stored data.

Obviously, all the drama is locked up in that improperly hyphenated “contractually-based” phrase. What rights did the original contract establish?

Google’s inevitable motion to dismiss argued, among other things, that because there was a termination provision in the contracts, either party could torch the agreement and walk away, like Angela Basset in Waiting to Exhale.

The Takeaway

Then came a moment that just begged for the sort of comeuppance one often sees in a courtroom drama climax.

In a recent Zoom hearing in the case, the court asked Google if it had invoked the termination clause when it told the plaintiffs that the free ride was over. According to Law360, the Google team acknowledged that the word “terminated” had not been included in notifications to consumers; however, attorneys argued it was deliberate, as the notification emails were targeted to “laypeople, who won't understand complex legalese.”

Well, the comeuppance came up. Earlier in the hearing, the judge noted that “‘free for life’ is really not a concept that wins very often,” a statement that most likely gave Google some hope that it would be able to finish the breakup and move on to a relationship with younger, more attractive users. But those hopes were soon put on hold. While the judge declined to deny the motion to dismiss outright, she did keep the suit alive, allowing for discovery and requiring the parties to enter mediation and set a trial date. The lesson here, dear readers, is that in the early, exciting phase of a relationship, you have a choice to make. If you market yourself as being around “forever,” you might end up like Meatloaf at the end of “Paradise by the Dashboard Light”—praying for the end of a long, long relationship.

Or you can spell out what you want explicitly, in great detail. It isn’t especially romantic, but at least it keeps everyone safe.

Safe to love again.

Second Circuit Splits a Hair Bigger Than Bergen County

Definition of puffery now embraces provably false but nutty claims

The Ford Madox Ford of the Garden State

Did your high school have that one kid (or several kids) who constantly lied? The one who lied not to harm anyone, but just to get attention?

We suspect every high school did.

In our school, we humored that person but loved to swap the tall tales and exaggerations during lunch period, mainly because they were, quite simply, entertaining stories—imaginative and ridiculous.

Oily Claims

A recent Second Circuit panel must have had similar influences in their high schools, as they introduced an interesting interpretation of the difference between misleading product claims and puffery that harkened back to those bygone days around the lunch table.

The case we’ll start with is MacNaughton v. Young Living Essential Oils, originally filed in the Northern District of New York back in January 2021.

Lori MacNaughton alleged Young Living misrepresented their essential oil products as “‘therapeutic-grade” that would provide a “physical, mental, or medicinal benefit.” The Northern District, however, sided with Young Living’s interpretation of these claims as nonactionable puffery and granted Young Living’s motion to dismiss. MacNaughton appealed the decision to the Second Circuit.

Fortunately for MacNaughton, the appeals court had a different spin on the issue, drawing an interesting distinction between two separate forms of puffery: (i) “subjective statements that cannot be proven true or false and are therefore non-actionable puffery as a matter of law,” and (ii) “objective statements that can be proven true or false but are so exaggerated that no reasonable buyer could justifiably rely on them.”

The Takeaway

We’re all familiar with examples of the first variety—“the ultimate ice cream experience,” for instance—broad, vague, nonspecific tags that are too subjective to be tested and understood as an expression of the seller’s opinion only.

The example of the second variety, on which the court relied to reverse the lower court’s ruling, is instructive:

If a bubblegum brand advertised that its gum permits chewers to “blow a bubble as big as the moon,” the statement would be literally false, but it is facially implausible that any reasonable buyer could justifiably rely on that claim. That statement would therefore be ripe for dismissal on puffery grounds. Yet, if the company falsely advertised that you could “blow a bubble bigger than your own head,” it is plausible that a reasonable buyer could be misled.

With the bubblegum moon example, the appellate court is quoting itself—they first advanced this dollop of absurdist puffery in a separate order they issued last summer in a completely different case.

But because the district court’s initial decision in favor of Young Living preceded that case, the lower court did not have the benefit of this new analysis. According to the Second Circuit, because Young Living’s “therapeutic-grade” claim could be seen as both testable and plausible enough to trick someone into buying it—were the claim false— the appellate panel asked the lower court to apply this rule and let the testing of the claims begin.

So, dear reader, while the puffery defense is still narrow, one might be able to argue that totally objective but completely bananas claims are not actionable. It is risky business to rely on puffery as your only defense and preferable to also have substantiation to back your claims, but courts continue to find puffs more readily that do the FTC or the NAD.

Class Certification Falters in Peloton Music Depletion Case

False ad action fails in ways both run-of-the-mill and completely crazy

Double Take

There’s a hard-and-fast rule when it comes to writing about Ad Law: If you scan the docket of the case you’re writing about and you see a “psychosexual assessment” of one of the plaintiffs, you know it’s going to be interesting.

To be fair, this particular case, which we covered more than a year ago, was already a compelling read.

Here are the basics:

After a banner year of explosive profits, ubiquitous exercise equipment company Peloton found itself in a bit of an intellectual property pickle. Music publishers accused the fitness company of streaming copyrighted music as background for workout videos on its app without permission. In response, Peloton dropped over a thousand songs from its service and settled with the music publishers.

A proposed class of Peloton customers, however, wasn’t going to be left out.

According to the class members’ original complaint filed in 2019 in the Southern District of New York, certain of Peloton’s ads promoted the company’s burgeoning library of on-demand fitness classes. “Peloton’s ‘ever-growing’ on-demand library is central to its marketing,” the suit claims, “because it needs to ensure that customers spending thousands of dollars on the Peloton hardware and accompanying workout classes will not run out of new classes over time and will also be able to take and retake older classes.”

But, the plaintiffs argued, Peloton allegedly continued to make the claims despite the fact that music publishers were coming after it for copyright infringement. When the thousand songs—including tunes by Beyoncé, Rihanna, Bowie, Lady Gaga, and Jay Z—were pulled from the service, the number of online classes dropped by nearly 60 percent.

Hence the class action, which alleged false advertising under New York State law.

Plaintiff Problems: A Prelude

Peloton moved to dismiss, firing off what we characterized at the time as a “buckshot blast of an opposition memo” that attacked the proposed class, the plaintiffs’ analysis of the company’s pricing model, and the propriety of including a named plaintiff who allegedly was in the habit of impersonating an attorney (yikes!).

Jump ahead to August 2022. The case is now on its third amended complaint, and the original named plaintiffs have all exited the suit for a variety of reasons. Peloton’s final motion to dismiss had been denied by the court that month. But as class certification moved forward in October, new cracks began to show in the case.

The court heard oral arguments regarding the class certification, which failed for a number of reasons. “The Court finds that because the questions of causation and injury and of damages are not common among the putative class members, individual questions predominate and a Rule 23(b)(3) class cannot be certified,” the Southern District wrote in its order, issued early in May.

First, the court held the plaintiffs had failed to demonstrate that a price premium—the extra amount that they allegedly paid because of the false advertising—existed at all, in part because “no purchaser of a Peloton product need have been exposed to the [marketing in question] and the evidence suggests that many of the purchasers were not [so] exposed….” Moreover, the court found that the plaintiffs had failed to isolate the price premium that would have resulted from the false statements from the company’s pricing in general, thus failing to demonstrate common damages that might unite the class.

The Takeaway

But worst of all, Peloton raised one of the named plaintiffs’ disturbing history of legal trouble, “including...convictions spanning thirty-five years...[for] peeping, breaking or entering, simple assault, first degree burglary, third-degree rape, second-degree criminal trespass, third degree attempted burglary, public lewdness, and unlawful surveillance.”

While the court rejected Peloton’s assertion that the plaintiff’s troubled past compromised his ability to represent the class and said it did “not alone disqualify him from acting as class representative,” they acknowledged that he was an “inadequate class representative” for other reasons—namely “his demonstrated lack of understanding of the case and of his role and responsibilities” as a class representative.

Again, yikes.

With that, the proposed class went up in smoke. The quality of the named class representatives had taken quite a journey, from allegedly impersonating an attorney to…whatever this was. The plaintiffs in this case were a motley crew—just the type of enemy across from whom a defense lawyer loves to sit. We are reminded that should a defendant have the stomach not to settle after a motion to dismiss is denied, many (but not all) courts do hold plaintiffs to their Rule 23 burden of proof.

Check Out Our Latest Blog Posts

FTC’s 20th Public Meeting – Privacy, Privacy and More Privacy

It has been a while since we last gathered for one of the monthly public meetings of the Federal Trade Commission (FTC or Commission). Clearly, the monthly nature of the meetings is questionable, but then again, there are only so many policy statements that an agency can issue. When we last met in March 2023, former Commissioner Christine Wilson had just loudly announced her exit from the Commission and the agency had launched a few new studies that won’t see the light of day for quite some time. So we return to an agency that – for the first time in decades – has only Democrat commissioners and no Republicans.

Holidays and Marketing May Not Always Be a Perfect Match

The other day I was trying to make heads or tails of a new Federal Trade Commission announcement when I heard the familiar sound indicating that a new email had arrived. Nothing out of the ordinary. The email was from a small company I had done business with, and the subject line said, “Your mom called.” It was a bit of a jarring message for me to receive, given that my mom had passed away just six short months ago and was not likely to be calling these days. I expressed my concerns to the company that had sent the email, and not long after, a deeply apologetic email was sent to me and the rest of the email distribution list.

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Emerging Legal Implications with AI in Advertising

From ChatGPT to Dall-E, generative AI tools – those using AI to create content – are capturing imaginations, including those of advertising and marketing teams. Join us for a one-hour webinar in which we provide an overview of what generative AI is and can do, important intellectual property and data privacy concerns, and the regulatory and legislative landscape in the US and abroad.  We will also discuss how brands may be able to harness the creativity of this technology while mitigating legal risk.

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