Alerts

AD-ttorneys@law – September 18, 2020

Alerts / September 18, 2020

In This Issue:

Plaintiff: Salmon Farmer’s All-Natural Claims Are, You Know, Fishy

Consumer expectations front and center in new class action against Ducktrap Salmon

Wide Net

According to its own account, Mowi, a Norwegian fish-farming multinational with a presence in 25 countries around the world, supplies one-fifth of the world’s farm-raised Atlantic salmon. As part of its global appeal, Mowi has made sustainability a keystone of the company’s identity: It claims to be leading a “blue revolution,” through which more of the world’s global calorie intake will be harvested from the seas.

On a smaller scale, one of the company’s U.S. brands—Ducktrap River of Maine—also does its fair share of progressive marketing. The company adopts standard, if somewhat less grandiose, claims to sustainability and “natural” products and flavors. With rough-and-ready origins in a small fishing shack inhabited by the company’s young founder and his dog, Ducktrap rounds out a folksy, close-to-nature brand identity.

Survey Says…

Enter the Federal Trade Commission (FTC or Commission). Or not.

The Commission previously has brought a handful of cases on “all natural” claims, but not in several years, and it declined to provide any guidance on “natural” in the Green Guides. The regulatory agency has kept mum on the question of what constitutes “natural”—an important issue—for years now. (We recently discussed the Commission’s MIA status when it comes to natural food labeling.) The Food and Drug Administration (FDA) also has not defined the term through rulemaking. While the FDA has stated generally that “natural” means nothing artificial or synthetic has been added, it hasn’t addressed food production methods, which is at issue in this case.

Without well-defined guidance from a big-dog agency such as the FTC—and therefore without clear jurisdictional authority—questions about what is or is not “natural” are being raised and resolved in the courts. And in the case of Organic Consumers Association vs. Mowi ASA, the standard that is invoked for what constitutes “natural” relies heavily on empirical data about consumer expectations.

The Organic Consumers Association (OCA) sued Mowi in the civil division of the Superior Court of the District of Columbia in July, accusing the company of deceptive representations about its products.

OCA leans on consumer survey data to undermine the “all natural” claims that appear on Ducktrap salmon packaging and Twitter and Facebook. “Studies demonstrate the consumers believe that ‘all natural’ fish products are made from fish that are not treated with artificial chemicals such as antibiotics and pesticides,” the complaint notes. “57% of consumers believe the claim ‘natural’ on food labels means that ‘no antibiotics or other drugs were used….’ 63% of consumers think that the ‘natural’ label on packaged foods means ‘no toxic pesticides were used.’”

Because Ducktrap uses antibiotics and pesticides in its manufacturing process, the plaintiff claims, the tags are misleading.

The Takeaway

There are additional attacks on the brand’s sustainability claims and its claims that its products are “from the coast of Maine” in the first place.

The case has just begun, but it drives home an important point: “Natural” advertising claims are part of an uncertain legal and regulatory landscape.

So: Effectively qualify your natural claims. If they seem ridiculously narrow, perhaps they should be abandoned. If they aren’t, it’s wise to anticipate how they can be critiqued and rework them to avoid a potential deceptive net impression.

Scalp-Blasting Laser Hats May Have Been Falsely Advertised

Plaintiffs’ case survives with positive claim about side effects and endorsements

Future Follicle

We have no beef with outlandish or exotic medical treatments; yesterday’s ridiculous ideas have become today’s orthodox medical applications.

Balloon angioplasty, immunological cancer treatment, the germ theory of disease, hand-washing—each of these thoroughly conventional ideas were once considered false or downright crazy. (Medscape has a longer list.)

So when we read about “baseball-style hats with lasers in them,” we thought: Hey, no problem. Bring ’em on.

These hats—the fever-dream of a haberdasher who had just read a Philip K. Dick novel and nodded off after eating some funny brownies—are the brainchildren of Curallux, a Miami-based medical therapy company offering a variety of laser-light products. Its Capillus brand product line consists of—you guessed it—baseball caps with lasers in them.

The caps, according to the company’s website, are a “clinically proven, 6 min daily laser technology for thicker, healthier hair.” The user places the cap on his or her noggin, and the lasers built into the underside of the cap “stimulate, energize, and renew cells within the hair follicle for thicker, healthier hair.”

“Side Burns”

Even if you’re not reflexively skeptical about medical claims, you can see where this is headed.

Golden State resident Janice Cooper sued Curallux in the Northern District of California back in April. She alleges that she tried one of the company’s (quite expensive) laser caps, in part on the strength of two marketing claims—that the caps worked “without side effects” and were “physician recommended.”

Unfortunately, according to Cooper, she developed an itchy scalp, dry scalp, dandruff, headaches and dizziness—symptoms that she claims were side effects of Curallux’s product.

Cooper brought false advertising charges under the California Consumer Legal Remedies Act, the California False Advertising Law and the California Unfair Competition Law. Curallux moved to dismiss in July.

The interesting part of this case, which might otherwise serve as an example of a run-of-the-mill false advertising action, lies in just how the defendant tried to wiggle out from under the claims. Curallux maintained that Cooper’s allegations were issues of substantiation rather than vanilla false advertising.

The Takeaway

“A substantiation claim involves an advertising claim ‘that has no evidentiary support one way or the other,’” the court notes in its recent order. “In contrast, a false advertising claim is one in which… ‘the plaintiff can point to evidence that directly conflicts with the claim.’” Under California law, the court writes, only “‘the [California] Director of Consumer Affairs, the Attorney General, any city attorney, or any district attorney’ may bring a substantiation claim.”

If Cooper, a private citizen, was merely arguing that the “without side effects” claim and the physician recommendations were unsubstantiated, she would have to drop the main portion of her suit.

But this line of counterattack failed, mainly because Cooper was plainly asserting that the advertising itself was false. Some of the side effects she suffered had been documented in at least one study. As for the doctor endorsements: “Plaintiff is not alleging that the products lack competent clinical evidence. Rather, she alleges that there was clinical evidence (i.e., physicians recommend the product) but defendant failed to disclose a potential source of bias (that the physicians were compensated for their statements).”

While the court granted the dismissal of an unjust enrichment claim, the rest of the charges survived—an instructive guide to one of the wrinkles in California’s law.

FTC Group Up On Loot

What should developers and platforms do in the wake of the FTC’s Staff Report following its Loot Box Workshop

Luck Be a Llama

We recently wrote about a class action in California’s Northern District that took aim at “loot boxes”—those in-game purchases that provide a chance to win valuable power-ups, character skins and other desirable game-related bonuses for players. The action alleges that selling this special loot is part of an effort by developers to foster addictive behavior in children who buy their games.

The odds of receiving truly valuable loot, the action claims, are low. Pursuing loot boxes is therefore no different from gambling, the plaintiff argues, posing similar risks to users.

That Was Your Best Acronym?

The action was filed in mid-August, so there’s not much to report on it. But loot boxes are receiving increasing attention as more of us derive entertainment from online gaming—witness the recently tossed loot box suit against Epic Games.

Witness also increased regulatory and legislative attention. There’s the Protecting Children from Abusive Games Act, introduced in May of last year by Missouri Sen. Josh Hawley, which would empower the FTC to regulate loot boxes and similar mechanics from games aimed at children.

What’s Up at the FTC?

In October of last year we mentioned, in a separate blog, a live workshop held by the pre-COVID-19 FTC discussing loot boxes and “their implications, and possible legal issues and regulatory solutions.” The Commission assembled “a variety of stakeholders, including industry representatives, consumer advocates, trade associations, academics, and government officials,” for the workshop.

The Commission’s staff perspective paper on the event lays out what you’ve already gathered from our writing on the topic—what they are and why people are concerned about them. There’s also discussion of self-regulatory initiatives, including increased disclosures—for example, as part of the ESRB ratings system. Other initiatives include displaying in-game sending in dollar amounts as opposed to in-game currency and making special loot box items available via direct purchase.

The Takeaway

The FTC is continuing to monitor developments but noted that the “industry has taken steps to enhance self-regulation” since the workshop.

The Commission further noted, “Commenters and panelists expressed diverse viewpoints on whether video game loot boxes warrant government regulation.” Some panelists “emphasized that self-regulation is adaptable and effective, and voiced concern that poorly crafted regulation could harm the industry and inadequately protect consumers.”

What to do?

Read the paper, review the proposals and ask yourself some questions. How prepared are you to analyze and document the chances of winning loot, if industry groups demand it?

And, as we said in our prior report, disclosure is your friend. Share as much information with the users (or their parents) as you can.

Online Therapy Company Settles With Cali AG

PresenceLearning will pay $600K fine, submit to outside expert

Mantra

“…competent and reliable scientific evidence that is sufficient in quality and quantity based on standards generally accepted in the relevant field, when considered in light of the entire body of relevant and reliable scientific evidence…”

If you want to learn about California Attorney General Xavier Becerra’s $600,000 settlement with PresenceLearning Inc., memorize that phrase—it’ll save you some time.

From the AG’s original complaint, it’s hard to determine in which medium the offending statements were made. The generic term “marketing and advertising” is used, but more specific information about marketing channels isn’t offered.

An Embarrassment of Pitches

But there were quite a few claims that withered under Becerra’s angry eye.

First, let’s review PresenceLearning’s business model. The company represents itself as “the leading provider of live online special education related services to K-12 schools nationwide.” This entails student assessments, speech therapy, occupational therapy, and behavioral and mental health services—all delivered via an in-house “teletherapy” platform. The company serves more than 100 schools nationwide.

Becerra claims that PresenceLearning “made or disseminated untrue or misleading statements…to induce school districts and parents of K-12 students…to use its teletherapy services.” The offending claims included statements that students progress faster using the PresenceLearning platform than do children in traditional therapy; that online speech therapy was just as effective as face-to-face therapy—and that U.S. government research backed this up; that online occupational therapy meets 70 percent of students’ posture, motor skills and sensory goals; and that schools found the company’s services appropriate for most of their students with disabilities.

The list goes on, and each accusation wraps up with the quote from our first paragraph. Additionally, Becerra accuses the company of citing “numerous leading national medical associations and federal agencies,” including the Mayo Clinic, the American Occupation Therapy Association and the U.S. Department of Health & Human Services.

The AG pursued charges under California’s False Advertising Law, Unfair Competition Law and Consumers Legal Remedies Act.

The Takeaway

The settlement, which was announced on Aug. 19, wasn’t a purely monetary penalty. PresenceLearning is required to retain a “settlement expert” steeped in applicable federal and California laws and regulations as well as “tele-health in the context of speech/language and occupational therapy for children and youth.” This expert will have the run of the company’s information to “oversee the company’s compliance with California’s laws and regulations on telehealth.”

It’s hard to say more about this case without examining the underlying claims, but the heft of the dual penalty should give pause to anyone who is marketing online academic, therapeutic or other educational capabilities.

COVID-19 is forcing parents to rely on distance learning to cope with school lockdowns. This means that regulatory attention—and penalties—will be ramping up.

Your experts should regularly and rigorously review your suite of advertising claims and ensure they are backed up by “competent and reliable scientific evidence,” or the government might appoint an expert for you.

Zarbee’s Challenges Rival Before NAD in Syrup Claim Cough-Off

A mix of claims may lead to radical repackaging for Maty’s Healthy Products

Twee v. Twee

And now for a cautionary tale.

(We share cautionary tales all the time, but allow us a rhetorical flourish for the sake of variety, OK?)

Consider Maty’s Healthy Products and Zarbee’s Inc., two earnestly cutesy manufacturers of children’s medicines.

But they also have their differences. Zarbee’s brought Maty’s before the National Advertising Division (NAD) in a challenge addressing more than 20 individual claims related to Maty’s cough syrup dietary supplements. The tags in question included a mix of ingredient-specific and general-product claims. And that’s why this one got messy.

Less Than the Sum of Its Parts

When Maty’s responded to the challenge, it failed to deliver any studies on its products—only studies related to the effectiveness of specific ingredients they contain.

Accordingly, NAD recommended discontinuations and claim qualifications.

For instance, the tag “works to help soothe hacking cough”: “The advertiser provided a reasonable basis for the soothing effect of its honey ingredient on coughs,” NAD maintained, but recommended “that the advertiser modify the claim to indicate that the claimed effect was attributable to the ingredient honey, and not the product as a whole.” (Other ingredient claims failed.)

On the other hand, Maty’s claims, “When modern medicine didn’t work…Maty’s mom create[d] pure, whole food-based alternatives”: “NAD determined that a reasonable consumer would understand the claim to mean that the specific Maty’s product being advertised was developed as an effective and superior treatment alternative to comparable drug products,” the watchdog noted, “an unsupported and potentially misleading claim.”

The Takeaway

NAD’s findings represent a variety of reactions. For instance, the tag “we’re the better choice, and here’s why” was recommended for discontinuation because the claim was “a broad message of superiority regarding all competing cough syrups, whether dietary supplements or OTC drugs.” Cut it back to a comparison with dietary supplements, NAD held, and perhaps we’ll be OK with it.

There was also a slew of claims that Maty’s threw overboard on its own, which weren’t reviewed by NAD.

The upshot? On the simplest level, ingredient claims are not sufficient to cover product claims. You need to back up both, separately.

In a more abstract sense, if you can back up your claims, specificity is your friend. It may feel liberating for copywriters to let fly with a tag like “We’re the better choice,” but such generalities as this one can only land you in trouble or send you back to the writer’s room for revisions.

Perhaps that leads to a third takeaway: Pay copywriters by the job, not the hour.

Podcasts: Have You Heard the One About…

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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.