Alerts

AD-ttorneys@law - May 6, 2019

Alerts / May 6, 2019

In This Issue

Chambers and Partners USA Honors 127 Attorneys and 43 Practice Areas in 2019 Guide

BakerHostetler’s nationwide advertising, marketing and digital media practice was among the practices ranked, as were practice co-leaders Linda Goldstein and Amy Mudge and partner Alan Friel. This year Goldstein was again recognized as the category’s sole “star individual,” described by Chambers as “the standard by which others are judged. These attorneys immerse themselves in the most significant deals and bring a degree of gravitas to the negotiating table. Their reputation is cultivated through a long history of excellence, and it usually shows up in the research process through the sheer weight of recommendations compared to their peers. Additionally, they have managed to change the legal landscape in dramatic ways.

20 Years Young: The Maturing of COPPA in a Privacy-Conscious Age

We cover issues surrounding marketing to children on a regular basis. However, in light of the recent 20th anniversary of the Children’s Online Privacy Protection Act (COPPA), and in the wake of the most successful Children’s Advertising Review Unit (CARU) conference yet, we enlisted CARU super lawyer Katie Goldstein to help us recap the past 2.5 decades. Be sure to read it here.

Made-in-USA Review: Sports Manufacturers Settle Up With FTC

Hockey puck king and outdoor outfitter travails provide necessary cautionary tales

It’s a grand old brag

The exact nature of American identity has never been more up for grabs than it is now. The “hyperpoliticization” of our present moment guarantees it.

And that means that the impact of origin claims is especially poignant. To wrap oneself (or one’s product) in the flag is a great way to boost sales. But if made-in-the-USA labeling is not handled with the required precision and sensitivity, it can backfire in a spectacular fashion – not merely erasing gains but diminishing a business’s profile.

Bar down

Two recent made-in-the-USA complaints filed by the Federal Trade Commission last September serve as cases in point.

The first complaint, against hockey puck manufacturer George Statler III and his “Patriot Puck” companies, blasted his false origin claims. The commission alleged that Statler and Cos. made bold claims such as “Proudly Made in the USA” and “The Only American Made Hockey Puck!” – all the while selling pucks entirely manufactured in China.

SandPiper and PiperGear USA, companies that manufacture and sell travel bags, backpacks and other gear, came under fire in the second complaint. Here, the commission claimed that 80%-95% of SandPiper products were imported as finished goods or contained “significant imported components,” making their made-in-the-USA slogans and logos lies.

The takeaway

Both companies settled with the commission; final consent orders were inked in mid-April. The orders forbid both companies from making unsubstantiated unqualified claims about the national origin of their products. The companies also agreed to include clear and conspicuous notices on products clarifying qualified made-in-the-USA tags – making clear “the extent to which the product contains foreign parts, ingredients, and/or processing.”

These cautionary tales provide an occasion to reflect and, if necessary, refine existing made-in-the-USA claims. The key is to avoid negative exposure that can be twice as bad as any gains in sales.

Luckily, the FTC has posted thorough guidance on how to handle these claims. If you’re a glutton for punishment, there’s the two-decade-old Enforcement Policy Statement that addresses the issue in detail; but the commission also offers a handy compliance guide that answers common questions and provides concrete examples. If you’re anywhere near making claims like these, check out the appropriate guidance and, if you’re clear, go ahead and wrap yourself in the flag.

The FDA’s Got a Little List

Administration highlights supplement ingredients that might otherwise be missed

Blowup

The global dietary supplement industry is growing. But is it growing up?

According to some sources, the industry is sitting on a total market value of $124.8 billion, which is nothing to sneeze at. But projections indicate that the sector is going to balloon up to $210 billion during the next seven years.

This expected growth promises a flood of new products, new ingredients and new product claims. And regulators are already hopping to keep up with the industry.

Minding the gap

The Food and Drug Administration (FDA) is feeling the heat, and has developed a novel response: the Dietary Supplement Ingredient Advisory List, which sits here on the FDA website. What’s the gist?

The tool is intended “to quickly alert the public when [the FDA] becomes aware of ingredients that appear to be unlawfully marketed in dietary supplements.” The FDA will make “preliminary evaluations” of new ingredients and place them on the list if it feels the ingredient may be unlawfully included in supplements.

The key here is “may”: Ingredients on the list are not necessarily unsafe and may be removed from the list at some point.

The takeaway

Why all the caution? “As the dietary supplement marketplace has grown, the introduction of new ingredients often raises complex questions involving science, policy, and the law,” the administration writes in a related press release. “In the time it takes the FDA to make a final determination, consumers and industry might mistakenly conclude that a lack of action by the FDA indicates that these ingredients are lawful.” The list is intended to get information to the public quickly and let manufacturers know that their ingredients are under review so that they can respond with more information.

The list is part of the administration’s recent ramp-up of its dietary supplement regulation regime, which it detailed back in February, and which it intends to expand with public meetings scheduled for May.

Court Turns Volume Down on Bluetooth Wiretapping Charges

Bose dodges Wiretap Act claims, but case still moves forward

Inspiration

Bose Corporation is a true American success story. Bose was founded in 1964 by Amar Gopal Bose, the American son of a refugee Bengali freedom fighter, who was educated at the Massachusetts Institute of Technology and began his career there as an assistant professor. A tinkerer in the best sense of the word, Bose began putting together audio technology products in the 1950s.

Today Bose is a household name and the company’s products are celebrated for their high quality. Bose (the company) is also distinguished by the fact that Bose (the man), who held a professorship at MIT for decades, donated the majority of his company’s nonvoting shares to his employer. The dividends are used by MIT to advance the mission of the school.

Zak attack!

Bose’s reputation for technical excellence took on some tarnish in 2017 when it was sued by Illinois consumer Kyle Zak. Zak’s complaint – filed in the Northern District of Illinois – asserted that an app promoted along with Bose speakers and headphones was listening in on the products’ Bluetooth connections. The alleged eavesdropping would deliver user information – including song selections – to a third-party data miner that, in turn, would hand the data back to Bose so that it could build detailed user profiles around their preferences.

Zak couldn’t deal, so he went ahead and filed suit.

But he brought an interesting set of charges against the company: violations of the federal Wiretap Act, the Illinois Eavesdropping Statute and Intrusion Upon Seclusion, a tort claim (alongside more mundane charges under Illinois’ Consumer Fraud and Deceptive Business Practices Act, a common-law unjust enrichment claim).

The takeaway

Bose moved to dismiss an amended complaint in August 2017, but only prevailed in part.

The court dismissed Zak’s novel wiretap and eavesdropping claims, writing that the complaint failed to adequately allege that Bose is not a party to communication, as is necessary for violations of these statutes. “ … [T]he relevant inquiry,” the court wrote, “is whether the defendant is a participant in the conversation, as opposed to a nonparticipant that uses other means to gain access to – i.e., intercept – the communication.” Bose wasn’t an intruding third party, so this line of attack was shut down.

Nonetheless, the unjust enrichment and Illinois state consumer fraud charges survived. And, to make things a little more interesting for the defendant, the court left the door open for Zak to file again under the Wiretap Act if he could prove “that Bose is in fact not a party to the communication or that Bose, while a party, nevertheless intercepted a communication with the purpose of committing a crime or tort independent from the alleged interception.”

Alleging eavesdropping is a novel approach to a consumer app-related privacy suit, but in a win for industry, the court determined that there’s a radically different set of questions raised by wiretapping allegations than one finds in a run-of-the-mill data privacy case.

Mastercard Targets Free-Trial Merchants

Preventative measures target consent, hidden autopayments at the source

Rumble strips

It happened a while ago – back in January – but it’s worth noting now as the policy goes into effect: A major credit card company is putting novel provisions in place to restrict free-trial subscriptions.

Mastercard’s new policy throws speed bumps in front of merchants who use a free-trial consent as the gateway to automatic payments.

Mastercard-approved merchants will be required “to gain cardholder approval at the conclusion of the trial before they start billing,” the company announced. “To help cardholders with that decision, merchants will be required to send the cardholder – either by email or text – the transaction amount, payment date, merchant name along with explicit instructions on how to cancel a trial.”

Additionally, the merchant is required to provide email or text receipts for each transaction after the initial sign-up. These communications must also be accompanied by clear instructions on how the consumer can cancel future payments, and the cardholder’s statement must also include the merchant’s URL or phone number.

The takeaway

It will be interesting to monitor the effects of this policy in the coming months, as it represents a real change in both the source and scope of automatic renewal restrictions. These requirements go beyond the law of even the most aggressive states, such as California or Vermont, and require virtually all merchants offering free trials to comply because of the ubiquity of Mastercard. The importance of Mastercard and Visa to consumers, even more so for online shopping, puts them in a position to become the most important regulators in this field.

ViSalus Trial Produces the Largest TCPA Verdict Ever?

Massive $925M jury verdict looms on the telemarketing landscape

Nutrition pyramid?

Multilevel marketing company ViSalus sells a variety of drinks, snacks, meals and supplements that are bundled into “kits” that the company claims promote health, well-being and weight loss. The company’s “Balance Kit,” for instance, offers a blend of “fast and medium release proteins,” that “[deliver] nutrients to your body quickly and effectively.” One of the products in the kit, the Vi-Shape Nutritional Shake, is branded by the company as “the Shake Mix that Tastes like a Cake Mix.”

That sounds amazing.

But accusations and legal actions involving the company have proven slightly less sweet and wholesome. ViSalus has been involved in, among other disputes, RICO suits alleging the computer hack of one of its competitors, in-depth investigations and class actions accusing the company of, among other things, running a pyramid scheme.

From molehill to mountain

Similar accusations sparked a separate Telephone Consumer Protection Act (TCPA) class action filed more than three years ago by Oregon consumer Lori Wakefield.

Wakefield’s suit claims that ViSalus’ sales and marketing force, heavily incentivized through promotions and contests, was spurred on to place “thousands of outbound telemarketing calls each day to consumers nationwide,” some of which reached consumers on the National Do Not Call Registry.

After a bitter class certification battle in 2017, ViSalus stood accused of making 1,850,436 prerecorded calls to an estimated class comprising 800,000 members.

Yes, you read that correctly. More than 1.8 million calls (Wakefield claims to have received four).

The takeaway

ViSalus rolled the dice, went to trial and lost. Based on the alleged 1.8 million-plus calls, the TCPA’s $500 per-call fine creates possible damages of at least $925 million. If the court believes the violations were willful, the damages will be tripled – that’s $2.77 billion for anyone keeping score at home.

ViSalus still clings to hope, however. In their verdict, the jurors indicated that although the calls placed by the company targeted both residential and landline users, they “cannot tell” the exact number made to either group. The company’s counsel thinks that this indeterminate answer will undermine the whopping damages figures, if not the class itself.

As ViSalus’ defense lawyers told one outlet: “Whether there will even be a damages award, as well as whether the class should now be decertified as a result of the jury’s answers, will be the subject of further proceedings in the coming weeks and months.”

One thing we know for sure: This trial is destined to become yet another talking point in the current extended freak-out over the scope and purpose of the TCPA.

Check Out Our Latest Blog Posts

Judge Rules That USDA’s Approval of “Natural” Label Claims Protects Same Claims Used in Advertising

On April 8, 2019, a judge in the Superior Court of the District of Columbia, Civil Division, granted summary judgment to Hormel Food Corporation (Hormel) in a case filed by the Animal Legal Defense Fund (ALDF) on the grounds of standing and pre-emption, confirming the rule established in jurisdictions across the country that the approval of “natural”-related claims by the United States Department of Agriculture (USDA) pre-empts state-law allegations of false and misleading advertising when the manufacturer has used the terms as approved. Read more and subscribe here.

California Assembly Privacy Committee Votes in Favor of Advancing CCPA Amendments

The California Assembly’s Committee on Privacy and Consumer Protection (Assembly Privacy Committee), which has jurisdiction over matters related to privacy, the protection of personal information and information technology, held a committee hearing in which it voted in favor of advancing eight industry-backed bills that would amend the California Consumer Privacy Act (CCPA), set to take effect on Jan 1, 2020. To the benefit of businesses, the bills, which now move on to the Assembly’s Appropriations Committee, would clarify the text and limit the scope of the unprecedented, sweeping privacy law that grants consumers a great degree of transparency and choice with respect to their personal information, defined broadly under the act. Learn more and subscribe here.

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.

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