Alerts

AD-ttorneys@law – October 26, 2020

Alerts / October 26, 2020

In This Issue:

Supremes Deny Energy Drink Company’s First Amendment Petition

5-Hour Energy drink maker asks to pour unsubstantiated claims down the drain

Free Speech Spotting

Not too long ago, we covered a dustup between a state regulator and a vegan creamery—a case in which the creamery, as plaintiff, asserted that its First Amendment rights had been violated by regulatory overreach that chilled its speech. Miyoko’s Kitchen was able to convince California’s Northern District that the California Department of Food and Agriculture overstepped its bounds when it sent a warning letter that demanded the company adhere to a strict, dairy-based definition of “butter.”

The free-speech-meets-marketing-claims trend continues this week—but in this case, the party invoking the First Amendment, Living Essentials, did not fare as well.

Study Aid

In 2014, the attorney general of Washington state sued Living Essentials, the maker of 5-Hour Energy drinks—the common one-shot energy beverage whose label is eagerly sought on bodega countertops by desperate American undergraduates looking to prep for their midterms at 3 a.m. the night before.

The case, which was lodged in Washington state court, led to a trial loss for the beverage maker, amounting to $2.2 million in civil penalties and $2.1 million in legal costs to the state.

At issue were three claims made by Living Essentials: first, that 5-Hour Energy drinks were “superior to coffee”—that the ingredients in the drinks “make the biochemical or physiological effects last longer than caffeine alone”; second, that the decaf version of the drink provided energy and focus for hours; and finally, the implication that “73 percent of doctors would recommend” the products. The court concluded that while the claims might be true, they were unsubstantiated—and therefore deceptive under the Washington Consumer Protection Act according to Federal Trade Commission (FTC) standards.

Marginalia

Living Essentials mounted an unsuccessful appeal—the substance of which, for our purposes, was less important than a footnote in the opinion denying its request handed down by the Washington State Court of Appeals:

“Living Essentials also argues that the trial court violated the First Amendment by shifting the burden of proof and not requiring the government to prove Living Essentials’ [a]ds were misleading. … Living Essentials fails, however, to cite to anywhere in the trial court’s findings or conclusions that actually shifted the government’s burden of proof. Its claim is without merit.”

This claim seems to have been the germ of the company’s certiorari petition before the Supreme Court of the United States.

The gist of Living Essentials’ argument went like this: The FTC’s guidance, upon which Washington state relied, is fundamentally flawed. The attorney general may have (mistakenly, in the mind of Living Essentials) decided that the company’s advertising was unsubstantiated, but such a determination did not prove that the speech involved was false—and falsity, not lack of substantiation, should be the criteria for trimming freedom of commercial speech.

The Takeaway

“This case presents an important question under the First Amendment about whether the government can punish commercial speech if the speaker lacks prior substantiation that its factual claims are true,” the petition states.

“The prior substantiation doctrine”—a main underpinning of the FTC’s ability to punish commercial claims—“relieves the government of this burden,” the petition goes on to claim. “The doctrine allows the government to punish commercial speech it suspects is false without proving it is actually false—only that it is ‘unsubstantiated.’”

But the Supreme Court did not take it up.

We don’t know why the Supreme Court rejects any petition, of course.

But if we were to take a guess in this case, it would follow the lines of Washington state’s opposition brief: that allowing companies to go unpunished for claims that may be true but are unsubstantiated would “undermine First Amendment values and public confidence in the accuracy of advertising claims.”

It seems unreasonable to expect the Supreme Court to defang the FTC—although many companies have, at times, wished that it would.

Edgewell Tries To Wipe Out Class Action With Jurisdiction, Standing Beefs

Claims that its Wet Ones don’t kill germs should be heard by the FDA, company says

She Blinded Me With Science!

If ever there was a lawsuit that encapsulates the general public’s newfound obsession with disinfection and cleanliness, this is it.

Back in August, we discussed California resident Lauren Souter’s class action against Edgewell Personal Care Co., maker of Wet Ones hand wipes, that it advertised on its labeling “kills 99.99% of germs.”

Souter armed herself to the gills with science—her complaint exhaustively attacks the central active ingredient in Wet Ones, benzalkonium chloride, for failing to kill certain microorganisms that cause disease and thereby giving lie to the Wet Ones’ label claim. If you’re interested in a detailed discussion of the difference between nonenveloped viruses, gram-negative bacteria and spores, put on some relaxing music, pour yourself some vino and settle down with this complaint for a night of blissful reading.

Collision

For the next chapter in this litigation, however, we ask you to switch from biology to physics and recall Newton’s third law of motion: Every action has an equal and opposite reaction.

Edgewell’s motion to dismiss is a bracing recoil to Souter’s complaint. But while it is similar in quantity—it’s a detail-rich piece of writing, to be sure—it differs in quality: Souter’s arguments are given little attention in favor of purely legal distinctions that, nonetheless, pose a real threat to her claims.

Her claims should be dismissed because “they are subject to the primary jurisdiction of the U.S. Food and Drug Administration.” As antiseptic hand wipes are an over-the-counter drug, claims involving them are preempted by the Federal Food, Drug, and Cosmetic Act. Souter lacks standing to sue because she fails to allege an injury-in-fact and “fails to allege reliance on any ‘advertising’ or ‘marketing.’” Moreover, she “fails to articulate the who, what, when, where and how surrounding her purchase of the product and any pre-purchase reliance on any ‘advertising’ or ‘marketing’ of the product.”

The Takeaway

Finally, she “fails to allege how a ‘reasonable consumer’ would understand ‘[k]ills 99.99% of [g]erms’ or ‘keep hands fresh and clean when soap and water are not available’ to mean the product kills chlamydiae, parvoviruses, tuberculosis, coccidian.”

We won’t list here every germ she allegedly omitted, but we would like to note (ahem) that we predicted in our earlier article that the issue boiled down to “the gap between the advertising claim that Wet Ones kill ‘99.99%’ of germs and the fact that Wet Ones allegedly fail to kill many types of germs.”

Next up: The Southern District of California will (hopefully) cut through the thicket. We’ll keep you posted.

Speed Claim Straightened Out by Orthodontists

Smile Direct Club fails to realign marketing tags before NAD or NARB

Is It Safe?

Here’s an update on an appeal to a National Advertising Division (NAD) finding we mentioned in passing in an article back in August.

The main article discussed how “teledentistry” upstart Smile Direct Club (SDC) was brought before the NAD by the maker of Crest White Strips for certain speed-of-use claims. Those claims failed when the NAD found that SDC hadn’t provided evidence that it delivered whiter teeth; if you can’t establish that your product delivers similar results to those of the competition, then you can’t brag about how fast you achieve them.

We mentioned in passing how, in July, the American Association of Orthodontists (AAO), one industry association you do not want to anger, brought SDC before the NAD hoping to curb some of its recent advertising claims. Again, they involved “3x” speed claims.

Triple X

First, here’s the lowdown on the service SDC provides. The company creates custom dental aligners based on impressions mailed in by patients—cutting down on office visits and, hopefully, saving everyone some dough.

In the AAO inquiry, the NAD lingered over the company’s assertion that SDC’s system “delivers results ‘3x sooner than braces’ as well as the claim that SDC customers receive ‘the same level of care from a treating dentist or orthodontist as an individual visiting a traditional orthodontist for treatment.’”

The 3x claims failed, according to the NAD, because the company could not substantiate the reasonable inference that “the typical SDC consumer would obtain the same results for a similar level of treatment in one-third of the time it would take for a typical braces patient to obtain the same results.”

And the NAD held that SDC failed to establish a benchmark measuring in-person orthodontic care. Without such a standard, the comparison claims about its own care levels needed to be discontinued.

The Takeaway

This time, SDC decided to appeal its 3x claims to the National Advertising Review Board (NARB), and it took an interesting approach. According to the NARB, SDC said that it had replaced the original “we’re 3x faster than braces” claim with “get a smile you’ll love, 3x sooner than braces.”

While SDC thought there was a significant difference in meaning between the two tags, the NAD did not—and the NARB agreed. “The two versions of the 3x claim convey the same comparative message to consumers,” the NARB maintained.

We’re curious to learn what SDC’s argument was—characteristically, the NARB’s summary does not elaborate. Perhaps the company believed that adding the subjective value judgment “a smile you’ll love” removed the need for objective comparison. Who knows?

SDC agreed to comply with the NARB’s final decision but announced that it may challenge the original NAD judgment with new evidence in the future.

Popular Habit Tracker Noom Accused of ‘Wiretapping’ Users

California consumers launch class action against company and partner Fullstory

Teaser

There are two types of alleged misbehavior in the class action that Californians Audra Graham and Stacy Moise recently filed against Noom, the popular weight-loss application. We’ll let you decide which, if true, is scarier.

First, a Noom refresher: The company combines artificial intelligence, physiology and psychology to address the habitual behaviors that undermine health and fitness. The company plays down calorie and step counting and other quantitative measures.

In June, we covered another class action against the company that alleged the app made unauthorized auto-renew charges. Noom recently moved to dismiss that case.

The Big Dig

Graham and Moise accuse Noom of partnering with Fullstory (also a defendant in the case) to hoover up their personal information without their consent.

The first set of information involves personal physical characteristics—height, weight, etc. —and medical history. This data is entered into Noom’s site prior to the user accepting a report on what the service can do for the user’s weight issue. But Graham and Moise claim that this information is scooped up by Fullstory and Noom before the user requests the report—before they agree, in effect, to share the information.

The second set of information is user behavior data, a specialty of Fullstory. According to the complaint, the company records user sessions on websites, logging user interactions, mouse clicks and swipes, geographic locations, IP addresses, and, yes, individual keystrokes. Fullstory allegedly sweeps up this information and offers it to Noom in a video recording of the user’s session, complete with a real-time log of the user’s various actions in a sidebar.

The Takeaway

Will California’s Northern District, where the suit was filed, treat the gathering of these two distinct sets of data differently? After all, personal weight and health data is what Noom is supposed to be collecting. But keystrokes?

Swiping personal information without consent is one thing but combining that with the sort of granular behavioral and location data Fullstory gathers opens new, unexpected privacy weaknesses.

Perhaps that’s why the plaintiffs are using unconventionally strong terms in their complaint, harkening back to a world where surveillance was difficult to conduct and, once detected, avoidable. The pair calls Fullstory and Noom’s alleged misbehavior “wiretapping.” It’s an evocative move given the present-day somnolent attitude toward monitoring and tracking.

Graham and Moise are suing the companies under the California Invasion of Privacy Act and the state’s constitution, and the complaint is the only significant step in the litigation thus far.

Casino Game App Settles Gambling Accusations for $6.5 Million

Huuuge Inc. required to offer self-exclusion policy for class members

Humbling Dice

The line between computer gaming and gambling has gradually been erased over the past few years. Since 2017, we’ve covered cases in which penny arcades, conventional video game companies and kid-oriented apps were accused of hiding addictive games of chance within their products. The Federal Trade Commission is also on the prowl.

One of the cases we covered way back in the mists of time—July 2018, to be precise—involved a class action against interestingly named defendant Huuuge Inc. (all three u’s are mandatory).

Plaintiff Sean Wilson claimed that Huuuge offers “free chips” to new players of its Huuuge Casino app to play on the app’s slot games. Once these chips evaporate, players are offered “deals” on additional chips—$4.99 for 100 million chips, for example.

Since chips are required to play, and winners are selected at random, the app is essentially a gambling enterprise, Wilson argued. He sought damages under Washington state’s Consumer Protection Act, along with an injunction from the court to end the alleged illegal conduct.

The Takeaway

Wilson and Huuuge buried the hatchet in early September with a significant settlement: Along with the usual denials of wrongdoing, Huuuge will fork over $6.5 million to class members, who can claim 10 percent to 50 percent of their damages.

Additionally, Huuuge is signing on to a policy “that will allow players to exclude themselves from further [g]ameplay.” The company must “make a link to that policy prominently available within the games, and its customer service representatives will provide the link to players who contact them and reference or seek help for video game behavior disorders.”

One wonders if a voluntary self-exclusion policy can really help users who are addicted to the app, but that remains to be seen. Perhaps future settlements—or legislation, for that matter—will create solutions for online gambling that spare addicted users from financial harm before the first chip gets played.

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California OAG Proposes New CCPA Regs Two Weeks Before Voters Decide on the Fate of CCPA 2.0

On Monday, Oct. 12, the California Office of the Attorney General (the Attorney General or OAG) released a third set of proposed modifications to the California Consumer Privacy Act (CCPA) regulations (the Regulations). The proposed modifications to the Regulations are limited to four sections. While the proposed changes are relatively minor in substance, they nevertheless provide helpful and important guidance. Learn more here.

Jeewon Kim Serrato Co-Authors Article about Pricing, Value of Consumer Data and CCPA’s Non-Discrimination Requirement

Partner Jeewon Kim Serrato co-authored an article published in the California Lawyer Association’s Fall 2020 issue of the “Competition Journal” of the Antitrust, UCL and Privacy Section.  The article, “Privacy, Pricing, and the Value of Consumer Data: Complex Nature of the CCPA’s Non-Discrimination Requirement,” discusses the intersection of privacy and competition law and provides an in-depth examination of the non-discrimination right under the California Consumer Privacy Act, which is a first-of-its-kind law to require companies to calculate whether pricing differences are reasonably related to the value of the consumer data. Read it here.

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