Alerts

AD-ttorneys@law – October 17, 2019

Alerts / October 17, 2019

In This Issue:

Cannabis Industry Says ‘Please, No Department of Weed’

Recommends structure based on existing regulators

Token Humor

No more marijuana jokes. More properly, no more cannabis jokes; no more references to roach clips or Dazed and Confused or Pink Floyd. Truth is, cannabis is here; it will soon be a part of the American mainstream culturally and legally, and most important of all, it already is big business.

So, it’s time for our coverage of the topic to become a little more straitlaced.

Just watch.

The Story So Far

The long, slow march toward more comprehensive regulation and outright legalization of cannabis-derived products is an epic not easily condensed into a blog entry, but recent developments are worth noting. As we mentioned previously, much of the attention paid by the Food and Drug Administration (FDA) has dealt with cannabidiol (CBD) oil, the non-psychoactive cannabis ingredient that has emerged in a slew of products of late. CBD products combine the (beneficial?) trait of not getting anyone high with (unsubstantiated) health benefits as promoted by their manufacturers. The result is that CBD products are experiencing a surge in popularity with scads of attention from the Feds, even if that attention is, as of yet, inconclusive.

In early October, the National Cannabis Industry Association (the “Association”) tried to widen the scope of federal attention by advocating for a new, four-tiered structure to regulate all cannabis products.

Life in the Fast Lanes

The Association approach generally mirrors existing federal regulation by placing cannabis products under the watchful eye of the FDA. The classes of products would include pharmaceutical drugs, which would be highly regulated, including standard trials and testing; high-tetrahydrocannabinol (THC)-content products (products with more than 0.3% concentration of the psychoactive, or “fun,” chemical compound), to be regulated by state agencies and the U.S. Alcohol and Tobacco Trade Bureau, much like alcohol; CBD oils and other cannabis-derived products that contain little or no THC, to be regulated in the same fashion as diet supplements; and a final category – topical products with similarly low THC levels – to be regulated as cosmetics.

You can read the plan, “Adapting a Regulatory Framework for the Emerging Cannabis Industry,” here.

The Takeaway

What’s the upshot for marketers?

As a Schedule I drug under the Controlled Substances Act (CSA), much of the debate about how to regulate cannabis has concerned re-scheduling the drug at a “lower” level of scrutiny – schedule II or III – or removing it from the CSA altogether (descheduling). The Association promotes descheduling: “The first and most important step of a comprehensive regulatory system for cannabis would be for Congress to remove marijuana and its derivatives, including delta-9 tetrahydrocannabinol (THC), from the CSA, otherwise known as ‘descheduling.’ Descheduling is the only way for cannabis to be regulated in the manner proposed herein.”

Re-scheduling will keep the products under the FDA’s stringent drug approval process. Descheduling altogether without a federal regulatory framework would leave the market in legal limbo, but the Association promotes descheduling, while at the same time implementing a replacement framework. Neither would make marketing the products easier, for obvious reasons.

More important: The proposed plan will put marketers in familiar territory, where they can rely on a structure based on well-defined regulatory practices enjoyed by their alcohol-marketing brethren. It will also finally create a clear distinction between CBD and other cannabis products, which will put everyone in the booming CBD sector on firmer ground.

Chuck Yeager Sues Airbus for Right-of-Publicity Violations

Complaint says company keeps pushing his buttons

The Right Stuff

As a decorated Air Force pilot, the first man to fly faster than the speed of sound, and an Air Force leader and educator for decades, Chuck Yeager is justifiably proud of his accomplishments and public profile. Not everyone gets to be played by Sam Shepard in the movies, after all.

But in a recent trademark infringement, false endorsement and right-of-publicity case, Yeager maintains that his “valuable, unique identity and commodity” were threatened by the actions of European aerospace giant Airbus. This is not the first time Yeager has enforced his rights of publicity against an advertiser.

The complaint, filed in the Central District of California, centers on a blurb published on the Airbus website by its defense industry subsidiary in June 2017. The piece promotes the company’s Airbus Racer, a “High-Speed and Cost-Effective Helicopter.” Yeager claims that the company used the following text in the promotional piece:

“‘Seventy years ago, [American test pilot] Chuck Yeager broke the sound barrier,’ said Guillaume Faury, CEO of Airbus Helicopters, at the Racer announcement press conference. ‘Now,’ he said, ‘we’re trying to break the cost barrier. It cannot be “speed at any cost.”’”

The Takeaway

That’s as ham-handed as name dropping can be, but does it require a legal rebuke? Well, as we often counsel, advertisers need to be very cautious in invoking celebrity personas, and there is a long line of wins against advertisers by celebrities claiming commercial misappropriation.

This case may have just as much to do with Yeager’s uncomfortable history with Airbus as it does with the blurb. In the complaint, Yeager notes an earlier encounter with the company – a 2008 visit to an unspecified property owned by the company. Prior to the visit, Yeager maintains, “Airbus was informed that … no video was permitted to be used for sales or advertising unless a deal setting the terms of same was entered into … .” Nonetheless, the company wound up using the video in a marketing effort sometime later (the complaint is short on details).

Furthermore, Airbus allegedly approached Yeager with an offer to use his name in press releases. Yeager demanded $1 million for the use, and Airbus backed off.

We know what these allegations are meant to do – establish that Airbus has a history of flouting Yeager’s requests and that the company feels the need to glom on to his sterling image and reputation.

But a blurb is different from a video still, and courts have found a right-to-publicity violation for less. We will be watching to see if this settles, and if not, how the court addresses the claim.

Almond Milk Brand on the Block Over Alleged Vanilla Misrep

Class action sees conflict between packaging and ingredient list

Fake Out

Here’s a refreshing change of pace in alt-milk-related legislation: An almond milk manufacturer is being sued – but not over whether or not almond milk is “really” milk.

Alternative milk (oat, almond, rice and, the granddaddy of them all, soy) has served as a popular chew toy for the litigious, mostly due to the endless tug of war over definitions between various industry players and the Feds.

So, when plaintiff June Varelli sued almond milk manufacturer Blue Diamond for allegedly misrepresenting the type of vanilla flavoring used in its Almond Breeze brand product, we were taken aback. We had already written yet another screed, mad-libs style, about the vagaries of federal milk definitions; now we had to do real work!

The Takeaway

Still, we were fine; the suit was quite simple. Varelli accused Blue Diamond of inconsistent packaging: The Almond Breeze vanilla variety establishes its vanilla pedigree through the prominent wording on the front panel of the package and the depiction of vanilla beans on the same. But the product’s ingredients list names only “natural flavor,” a catchall that includes “‘oil, oleoresin, essence or extractive ... which contains the flavoring constituents’ from a natural source such as plant material and can refer to combinations of natural flavors.”

Varelli offered up “vanilla-flavored” as a possible substitute for “vanilla” on the packaging, since the amount of vanilla in the product, she claimed, is insufficient to independently characterize the product.

Varelli’s class action, filed in the Eastern District of New York, alleged negligent misrepresentation, fraud, unjust enrichment and false advertising; and just as soon as it had arrived, confounding expectations, it disappeared. The case was voluntarily dismissed by Varelli less than two weeks after it was lodged, without any comment to suggest why the effort was abandoned.

Energizer Sniffs Haughtily at Duracell Campaign

SDNY suit claims that copper-top claims die in the fine print

Don’t Poke the Rabbit

It’s a face-off between two marketing icons.

In one corner, there’s Energizer Holdings – yes, the crew responsible for the oft-maligned but nonetheless subconsciously omnipresent Energizer Bunny.

In the other corner, the well-known Duracell, of “copper top” battery fame.

The dispute? Energizer is livid over Duracell’s recent advertising campaign bragging on its Optimum brand battery and filed suit over it in the Southern District of New York as September ended.

The brag? “Duracell is intentionally misleading the public to conclude that Optimum batteries offer both ‘extra life’ and ‘extra power’ in all devices – when they do not ... .” Duracell alleges that one tag, for instance, says “extra life, extra power,” while another reads “both is better than not both.”

Standards

It isn’t just that Duracell’s claims are allegedly untrue; the complaint takes the company to task for the clumsiness with which it attempted to get away with them.

“Only those rare consumers willing to meticulously parse Duracell’s minuscule and ambiguous disclaimers may uncover Duracell’s actual, more limited claim,” the complaint states, before diving into a list of hedges Duracell allegedly made regarding competing batteries and the devices in which the batteries should be used.

The Takeaway

“These paltry and sporadic benefits are not the stuff great ads are made of,” the complaint sniffs, “and, indeed, barely seem worth touting at all.”

It’s a fun sort of thing that you might expect from Energizer, whose marketing department is surely besotted with its animatronic rabbit that now ceaselessly beats a drum in some dark compartment of the collective unconscious. At another spot in the complaint, Energizer says the disclaimers are printed in “barely legible mice-type.”

Snarkiness aside, disclosures cannot cure an explicitly false claim, and implicit deception can be cured only through effective notices, which must be clear, conspicuous, proximate and understandable.

Energizer accuses its rival of false advertising violations of the Lanham Act and New York state law, and unfair and deceptive trade under New York state law.

Multilevel Pyramid Crumbles Before FTC Onslaught

Health product company AdvoCare siphoned profits from a 100k+ sales force, say Feds

The Consumer Is the Salesperson Is the Product

There is a fine line between legal multilevel marketing and illegal pyramid schemes, and a key issue is reliance on recruiting efforts for profits rather than product sales. Unable or unwilling to sell goods in a limited market and then reengage that market with new or innovative products once initial growth slows, multilevel marketers too often try to create a market out of their own sales force. Depending on how long their practices go unchallenged, the folks at the top of such a pyramid scheme can ride wave after wave of profit through clever misdirection.

The main asset of a multilevel marketing company, then, is a sort of mercurial charisma: It takes a certain amount of salesmanship to get lower-level sales force members in the door, but that persuasiveness has to adapt as individual salespeople move up the pyramid and get a sense for how the whole enterprise actually hangs together. They must be sold on selling other salespeople, just as they were sold themselves.

Never Break the Chain

Pie-in-the-sky promises of financial independence and personal freedom are at the heart of many multilevel marketing company pitches. It was just such a pitch that landed AdvoCare, a multilevel marketing company that hawked nutritional, weight-management and sports-performance products, in hot water with the Federal Trade Commission (FTC, or the “Commission”).

According to the FTC’s October 2019 complaint, which went after AdvoCare, its former leadership and its lead promoters, the company allegedly promised “the average person a financial solution that will enable them to earn unlimited income, attain financial freedom, and eliminate the constraint of traditional employment.” That, although used for internal recruitment, is an advertising claim that must be true and substantiated.

The workhorses of the AdvoCare business model were salespeople known as distributors, who paid in $59 to have the right to sell products and get a cut from the distributors they, in turn, recruited. A second tier (advisors) received more benefits, including higher cuts from their recruits; but, the Commission alleges, advisors could expect to lay out thousands of dollars in AdvoCare purchases to reach advisor status.

According to the Commission, a “recent AdvoCare CEO [observed] that he was ‘not concerned about retailing the product. ... If you package dirt right ... [d]istributors will buy it.’”

The Takeaway

The dirt in question was sold through a mixture of wild promises of financial success pitched to more than a hundred thousand distributors, for whom the promises never really paid off.

This didn’t sit well with the FTC, which accused the defendants of running an illegal pyramid scheme, misrepresenting income and furnishing the means for the deception. As is so often the case, the suit was settled the same day it was filed, with the company and its former CEO agreeing to pay $150 million and getting slapped with a lifetime ban on multilevel marketing efforts. Two of the promoters settled separately for a similar ban and a $4 million fine.

Check Out Our Latest Blog Posts

FTC Takes a Peek at Loot Box Regulation

How many times have you felt the thrill of buying a lottery ticket? What about the excitement before opening a sealed pack of baseball cards or the curiosity before diving for a mystery prize in a cereal box? Now imagine digitalized versions of all these items – in your favorite video game – and they’re up for grabs, at least, for a price. Whether it is real money, game time, or in-game currency, you’re asked to pay for these digital mystery boxes, otherwise known as “loot boxes.” For most of these loot boxes, what you get is a surprise. For others, you can guess what you might get. But is this gambling? Read more and subscribe here.

CCPA Amendments Signed into Law by California Governor

On Friday, October 11, 2019, California’s governor signed into law each of the six CCPA amendment bills passed by the legislature, bringing some finality and clarity to the scope of the CCPA (at least with respect to details which will not be affected by the attorney general’s regulations). Learn more here.

CCPA Regs: “This is the meat on the bones….”

“Data is today’s gold. Everyone is rushing to mine data. Here in California, we are not unfamiliar with gold rushes… [in fact,][w]e are better than Captain Kirk and the Enterprise. We are going [with the CCPA regulations] to where no one has gone before! [A]nd it’s going to be a great series, maybe they will even make a movie about it.” With this lofty introduction, livestreamed on YouTube (see it at here) from a press conference in San Francisco at 10:30 a.m. on Oct. 10, California Attorney General Xavier Becerra released advance copies of the much awaited proposed implementation regulations to the California Consumer Privacy Protection Act (CCPA) and announced public hearings on the regs across the Golden State, to take place Dec. 2 through 5. Learn more here.

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