Alerts

AD-ttorneys@law - October 13, 2017

Alerts / October 13, 2017

In This Issue:

Simmons and Bob’s Discount in False Ad Pillow Fight

Mattress giant tells discount chain to give mattress claims a rest

Come On Down!

It’s always been about those commercials.

Former waterbed salesman Bob Kaufman built a discount furniture empire. It expanded outward from a single Connecticut warehouse in the early 1990s to reach more than 80 locations in 15 states by 2017. This successful expansion was anchored by the company’s ubiquitous television commercials, which are awkward and endearing in the unique way that only local television advertising can be.

The spots generally feature a mix of personalities, including Kaufman, Bob’s PR Director Cathy Poulin, local sports celebrities and “Little Bob,” a diminutive CGI caricature of Kaufman. And the spots have no shortage of cheesy taglines: “Come on down!” was a prominent early catchphrase.

Among the company’s tags is “dare to compare,” which highlights the price difference between a competitor’s product – a bedroom set, let’s say – and Bob’s much cheaper version of the same.

Go to the Mattresses

In September 2017, Simmons Bedding filed a complaint in the Northern District of Illinois against Bob’s Discount Furniture for just such a comparison. A Bob’s commercial dared consumers to compare its “Black Label Gel Euro Top” mattress against Simmons’ “Beautyrest Black Mariela.” Bob’s claimed that both products featured the same components: supportive latex foam, gel-infused memory foam and so forth. But the price tag was another matter: The Simmons mattress was $1,800 more than the Bob’s version. “You get the satisfaction of knowing you didn’t just spend $1800 on a fancy logo,” says the ad.

Simmons sent Bob’s a cease-and-desist letter in June to little effect: Bob’s released a new ad a fortnight later with a similar side-by-side comparison, which concluded by saying, “Sure, they’re not exactly the same, but you be the judge. Theirs is priced at a whopping $2799, while ours is priced at only $999. Dare to compare at Bob’s Discount Furniture…”

Not Sleeping Around

Simmons was unimpressed.

Simply put, Simmons and its sister company, Serta, do not take jabs about the impact of their mattress technologies lightly. The Simmons website boasts a “rich” history stretching back more than 100 years. The complaint against Bob’s references this history, including highlights like how it introduced the queen- and king-sized mattresses and the company’s more than 100 patents.

At the heart of the complaint are some of these innovations. Despite the similar features highlighted in the commercial, Simmons claims its technology sets the Black Mariela product apart. “Bob’s [product] does not employ any of Simmons’ proprietary Micro Diamond™ Memory Foam, Simmons’ patented Advanced Pocketed Coil™ Technology, or the luxurious fabrics used in Simmons’ Beautyrest Black® mattress,” the complaint states.

The Takeaway

How will Bob’s respond? The addition of the “not exactly the same” phrase in the second ad may offer a hint; Bob’s may maintain that its ad is claiming the use of similar components rather than specific proprietary technology.

Simmons and Bob’s have tussled before. In 2013, Simmons’ sister company Serta sent a cease-and-desist letter to the discount chain, demanding that it discontinue commercials claiming that Bob’s mattresses contained “twice the gel-infused memory foam at half the price” of Serta’s product. In that instance, Bob’s complied.

In this case, Simmons seeks an end to the commercials, injunctive relief enjoining Bob’s from claiming its mattresses have the same components as Simmons’, corrective advertising addressing the alleged false claims, damages, and related fees, costs and expenses.

Gatorade Sprints Toward Settlement With California

Olympian Usain Bolt was used to lure kids away from water, says AG

Usain’s Other Job

In a recent settlement with the state of California, The Gatorade Company agreed to stop undermining water.

The settlement comes after an investigation by the California attorney general into “Bolt!,” a mobile app created by Gatorade in 2012.

The game featured Olympic gold medalist Usain Bolt, whose in-game character attempts to retrieve gold coins that have been stolen by pirates. California Attorney General Xavier Becerra claimed that the game had been downloaded 2 million times and played 87 million times between 2012 and 2013. Its audience, he says, consisted overwhelmingly of young adults aged 13 to 24.

H2OhNoNoNo

The investigation was not an expression of California’s uncompromising anti-pirate stance. Instead, “Bolt!” got attention for another aspect of the game: fuel.

Specifically, in-game Usain required fuel to run and pursue the pirates; his two fuel options were Gatorade and water. And here’s what got AG Becerra’s attention. “Gatorade portrayed its products positively while inaccurately and negatively depicting water as hindering athletic performance,” his office stated in a press release.

In the game, when Bolt touched Gatorade he ran faster and his fuel increased. When he touched water, he slowed down and lost fuel. Moreover, in the game’s tutorial, Gatorade explicitly stated that the player should keep their performance level high by “avoiding water.”

Becerra lashed out at Gatorade. “Making misleading statements is a violation of California law,” he said in the press release. “But making misleading statements aimed at our children is beyond unlawful, it’s morally wrong and a betrayal of trust.”

The Takeaway

The settlement was reached on Sept. 21, 2017. Gatorade will pay California $300,000-$180,000 to defray investigation costs and $120,000 to fund child and teen nutrition research and education. The company is required to disclose endorser relationships in social media messaging, and can no longer advertise in media where more than 35 percent of the audience is under age 12. Gatorade is also prohibited “from negatively depicting water in any form of advertisement.”

Pact Settles ROSCA and FTCA Claims With the Commission

App maker accused of failing to live up to business model

Dieter’s Dilemma

It’s an interesting approach, both to business and to healthy living: First, build a community. Next, set standards of behavior. Then, pay people who succeed at meeting those standards by penalizing people who fail to do the same.

This is the basic model behind Pact, a Seattle-based app developer that launched its flagship Pact app back in 2012. Pact would charge members between $5 and $50 when they missed a health-related activity – exercising, for instance, or hitting dietary goals. That money would fund members who did hit their goals.

The model was unique, if a bit Orwellian: A member’s success or failure would be tracked by other apps, such as MyFitnessPal, or even by GPS monitoring, which was used to monitor whether or not a member was inside a gym!

Stick Over Carrot

Trouble started brewing, however, when Pact failed to pay successful members, charged successful members even though they had completed goals and continued to charge unsuccessful members – even after the latter group asked to cancel the service. Some members who met their goals were told that their proof of success was wanting – for instance, the app failed to recognize a gym on a military base when a member of the military who used Pact tried to check in.

These are among the allegations raised by the Federal Trade Commission (FTC) in its recent complaint charging Pact; its CEO, Yifan Zhang; and its CPO, Geoffrey Oberhofer, with violations of the FTC Act, including deceptive acts and practices, unfair billing practices, and violations of the Restore Online Shoppers’ Confidence Act, including failure to disclose all material terms.

The Commission maintained that, at the least, “tens of thousands” of consumers had complained to Pact about the failed rewards and continuing charges. Moreover, the FTC claimed, Pact expanded its services and continued billing inappropriately even as the complaints rolled in.

The Takeaway

The complaint, filed Sept. 21, 2017, in the Western District of Washington, concluded in a settlement with the company and its co-defendant officers. They agreed to enter a consent order to cease misrepresentations about the conditions for charges or payments, to secure consent from users before charges were made and to stop offering products that include negative option billing. Pact will also disburse $940,000 in earned cash rewards and refunds.

Pact’s idiosyncratic business model and the various check-in methods that were integral to its application make this case quite interesting. However, technological faults that result in a failure to treat consumers as represented can be the basis of a deception claim, as can internal process errors and omissions. Even if Pact’s issues were unintentional, the failure to promptly remedy them in light of the multitude of complaints invited the enforcement action. Further, business models using continuity payments or negative option programs need to comply with state and federal laws regulating such practices, including disclosure requirements, and provide an easy and effective way for consumers to terminate future charges.

FTC Lifts Lid on Online Affiliate Marketing

Education efforts and recent settlements may signal new interest in a shadowy world

What Lies Beneath

For most consumers who use the internet, online ads are a fact of life. On many sites, advertising is nearly ubiquitous, squeezed into any piece of screen real estate that might grab the attention of a website visitor.

But the simple fact of online advertising disguises a complex reality. It would be hard to blame a consumer for thinking that product-pushing advertisements are created (or at the very least paid for) by the company producing the product. Underneath countless online ads is a complicated web of relationships that can lead to risks for consumers.

Partners In ... ?

Product manufacturers team up with affiliate networks, which act as middlemen between manufacturers and teams of marketers. It’s an ideal structure for the way the web works, because it subjects the marketers to extreme competition: The marketers get paid when you click on an ad, and then earn more if you eventually buy the product.

Nonetheless, this competitive atmosphere can engender negative results. Affiliate marketers, who are by definition remote from the manufacturer, may make dishonest or misleading statements just to garner more clicks, which is the real currency of their work. Additionally, the marketers track individual customers as they move through the web, building up a profile that allows them to create ever-more-targeted ads. While there may be some benefit to this practice – consumers get to see ads that reflect their actual tastes – privacy concerns are raised as well.

The Takeaway

The Federal Trade Commission (FTC) recently released a blog post and infographic covering the practices and potential dangers of affiliate marketing. The post describes a simple low-cost trial scam that sucked consumers into massive monthly payments when they were sold at one low upfront cost for the product.

In the post, the Commission referenced its recently announced pursuit of a number of defendants in just such a case. The FTC has also tackled affiliate marketing in recent settlements involving alleged false claims by a diet-pill operation and a tech support service.

The Commission’s willingness and interest in informing consumers about the inner workings of affiliate marketing may signal increased scrutiny ahead for marketers and networks alike.

Florida’s Professional Models Unite Behind Lanham Claim

Middle District draws on well-developed body of decisions to deny dismissal bid

Habeas Corpus?

Back in April 2016, seven professional models, led by Ms. Cielo Jean Gibson, sued a handful of Florida businesses that “[engage] in the business of entertaining its patrons with nude and/or semi-nude dancing and alcohol.” The models, who were not purportedly dancers at the clubs, claimed that the businesses, along with their president and director, Michael Tomkovich, had used their images to promote their clubs without their permission.

After a series of consolidations and one amended complaint, the suit boasted 15 separate defendants, all suing for compensation under the same counts: false advertising and false endorsement under the Lanham Act; and violations of Florida’s right of privacy and Deceptive and Unfair Trade Practices Act, among others.

They’re Back …

Recently, the defendants moved to dismiss the charges, claiming – in what may be a landmark example of self-deprecatory legal argument – that the plaintiffs had failed to state claims on several counts because “no consumer would honestly expect to find any of the plaintiffs at defendants’ strip clubs.”

The court’s decision was a model of judicial efficiency.

“Throughout the Middle District, and elsewhere in Florida, courts have handled a plethora of similar cases involving many of the same plaintiffs, defendants, lawyers, and claims,” the court stated. “Since most of the issues before this Court have already been decided, this Court will adopt portions of those opinions where appropriate.”

The Takeaway

All told, the court cited six separate cases that it believed were recapitulated in the present suit in whole or in part. Armed with these references, the court denied each of the defendant’s motions to dismiss, while also asking for a new amended complaint to simplify the previous 290-plus-page amended complaint filed in August 2016.

In handling the motion to dismiss the false endorsement claim, the court had to decide between conflicting decisions from the earlier cited cases. One previous case pointed out that the plaintiffs had not argued that their own “personas [were] sufficiently distinctive to be protected as common law marks.”

Striking a blow for an oft-maligned profession, the court followed two earlier cases that held “that the plaintiffs’ allegations of substantial modeling careers and social media followings, coupled with their use of social media to advertise, were sufficient to survive a motion to dismiss.”

Advertisers should keep in mind that licensing a photograph from the copyright owner is only part of what is required to use an image in advertising. What is depicted in the photos may be subject to separate copyright (e.g., a painting or mural), and persons depicted have a right to control the commercial use of their image (right of publicity) and to not be falsely associated with a brand, product or service they have not agreed to endorse.

Attribute Proximity Leaves Dish Detergent Claims Spotty

NARB: Claims misplaced on packaging won’t come out in the wash

Undisputed Confusion

Back in January 2017, the Procter & Gamble Co. appealed to the National Advertising Division (NAD) to review and assess the advertising of one of its fiercest rivals, Reckitt Benckiser, producer of the Finish brand dishwasher detergent. Among other topics at issue, Finish’s advertising and packaging touted the product within as the “#1 World’s Recommended Brand.”

This tag line appeared next to several product attribute claims – that Finish “helps prevent limescale, cuts through grease” and boasts “quick dissolving cleaning power.”

The NAD concluded that the proximity of these attribute claims to the “#1 World’s Recommended Brand” tagline was misleading, since it was not clear whether the recommendations were due to the specific listed attributes or to some other feature or rationale (the truth of the No. 1 claim was never in dispute).

Additionally, NAD noted that it was unclear how Reckitt defined Finish’s No. 1 status in the first place, even raising the specter of incentives offered to endorsers in exchange for recommendations.

The Takeaway

Reckitt disputed these claims and appealed to the National Advertising Review Board (NARB), but sustained the same fate as before. In a June 2017 recommendation, the NARB reaffirmed the NAD’s earlier judgment and recommended action: Reckitt should modify its product packaging to separate the No. 1 claim from specific attributes and provide clear disclosure about the nature of the claim to consumers.

As far as the NAD and the NARB are concerned, it’s not enough to tell the truth when making an advertising claim; advertisers need to make sure their truthful claims are not compromised by the context of other claims nearby.

Deception can include implicitly false claims, that is, a claim that may be literally true on its face but misleading in the net impression of the ad. Advertisers must look at the ad as a whole and ensure that the net impression would not have a tendency to deceive an appreciable number of consumers in the intended audience. Possible implicitly false claims can be fixed by changing the context in which they are made, and potentially by clear, conspicuous and proximate qualifying disclosures.

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.