Alerts

AD-ttorneys@law – September 27, 2018

Alerts / September 27, 2018

In This Issue:

  • FTC Pulls Hat Trick, Ices Three Made-in-USA Claims
  • Small Is Beautiful, But Is It Trustworthy?
  • Cali South Cuts Proposed Weight-Loss Class
  • FTC Approach to False Advertising Case ‘Not Rational,’ Court Says
  • TCPA Class Action Claims Extended by Pipe Decision
  • California Delays Privacy Law Enforcement and Congress Is Lobbied to Pre-empt the Law

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FTC Pulls Hat Trick, Ices Three Made-in-USA Claims

Puck maker and outdoor gear sellers will have to qualify their claims

He Imports, He Scores!

The Federal Trade Commission (FTC or Commission) recently took aim at several companies for made-in-the-USA claims.

The first complaint, against one George Statler III, the head of four New York-based companies doing business as Patriot Puck, claims that the defendant made a series of false origin claims in his advertising. The Commission claims that while Patriot Puck deployed tag lines like “Proudly Made in the USA,” “100% American Made!” and “The Only American Made Hockey Puck!” the companies’ wares were wholly manufactured outside the United States – in China, to be specific.

The complaint alleges that Patriot imported more than 400,000 pucks from overseas during the past two years.

Tag, You’re Not It

The second complaint was brought against SandPiper of California and PiperGear USA, companies that together manufacture and sell travel bags, backpacks and other gear.

The FTC alleges that despite several claims advanced by the companies, including made-in-the-USA marketing slogans, hashtags and logos, between 80 percent and 95 percent of the companies’ products were imported as finished goods or contained “significant imported components.” In one bold instance, the Commission claims, the companies hid “Made in Mexico” origin markers on the backs of fabric tags in wallets while cards claiming a U.S. origin were inserted into the product.

The settlement orders agreed to by both Statler and the SandPiper companies forbid the companies from making unqualified U.S.-origin claims about their products in the future, unless they can prove that all of the final assembly of the goods takes place in the United States, or that the product components were “made and sourced” here.

The Takeaway

Many consumers are persuaded by made-in-the-USA claims, which is likely why the FTC continues to treat them as an enforcement priority. Companies intending to make such claims should carefully review these settlements and other FTC guidance regarding qualified and unqualified made-in-the-USA claims.

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Small Is Beautiful, But Is It Trustworthy?

Major cosmetics player L’Oreal won’t trust micro-influencers at first blush

Popularity Contest?

L’Oreal Active Cosmetics takes an interesting but increasingly popular tack when it comes to working with influencers – the social media personalities who have come to dominate the online marketing palette. The company sets aside significant ad dollars to work with so-called micro-influencers – social media personalities with around 10,000 followers.

But why? Successful influencers can sport tens or hundreds of thousands of followers; a mega-influencer, someone like Kim Kardashian, sports tens of millions of followers. It would stand to reason that companies would be all about bidding up on the most-followed personalities that their budgets can afford, right?

Social Peaking

Nope. Turns out there’s a significant drop-off in an influencer’s … well … influence once a certain follower threshold is reached. One study, for instance, suggests that rate of engagement (the number of collected likes and comments) drops off after an influencer garners 1,000 followers or so.

The key to this phenomenon seems to be personal investment – the micro-influencer’s very proximity to their smaller fan base means that micros are trusted advisers about their areas of expertise.

So, smart money would be spread out among a larger group of micro-influencers who could provide multiple sources of high engagement instead of a small number of prominent influencers who leave little room for growth.

Sounds good, but here’s the challenge: Mega-influencers like Kardashian are trusted assets – they’ve been vetted by hundreds of thousands or even millions of consumers, and the big-business ad dollars they can command leave much less room for chicanery. Because their profiles are under the radar, micro-influencers are much more likely to expose brands to fraud, fake followers, and disreputable content than their high-profile peers.

The Takeaway

L’Oreal is attempting to meet the challenge by purifying its micro-influencer cohort through a three-pronged strategy.

First, it’s using automated analysis to pick out which of its possible micro-influencers are suspect: accounts with sudden spikes in follower numbers, for instance, or large numbers of foreign followers. Next, the L’Oreal program relies on analog advice in the form of manuals used by its social media divisions to weed out micro-influencers who are genuine but nonetheless associated with products or subject areas the company doesn’t want to be paired with. Finally, the company runs background checks on influencers before moving ahead – looking over post histories for offensive, illegal or otherwise troubling content.

It’s important to note that L’Oreal’s hybrid approach involves human review and personal assessment of the characters of individual influencers. This sort of analog engagement doesn’t guarantee against nasty surprises, but it sure goes a lot further than a purely algorithm-based method can.

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Cali South Cuts Proposed Weight-Loss Class

Arbitration provision on company website kills false advertising action

Eternal Return

We’re always coming back to Sensa.

The now-defunct weight-loss-supplement company sold shakers filled with “tastant crystals” that consumers were supposed to sprinkle on their food. But the company tanked after it was fined $26.5 million in a settlement with the Federal Trade Commission (FTC or Commission), which penalized the company for misleading product claims.

The alleged claims were … outlandish by many accounts. According to the Commission, Sensa claimed to enhance “food’s smell and taste, making users feel full faster, so they eat less and lose weight, without dieting, and without changing their exercise regime.” It should come as no surprise that litigation followed in the wake of the settlement.

But that’s not the interesting part.

Start Over

After a byzantine series of complaints, consolidated cases and amended complaints, Stokes v. Sensa Products reached its more-or-less recognizable form in November 2016. In her complaint lodged that month, Susan Grace Stokes charged Sensa Products and a slew of codefendants with violations of the Magnuson-Moss Warranty Act; violations of California’s Consumers Legal Remedies Act, Unfair Competition Law, and False Advertising Law; violation of Florida’s Deceptive and Unfair Trade Practices Act; and breach of express and implied warranties and negligent misrepresentation.

Unsurprisingly, Stokes referenced the FTC settlement and fine and a nest of other actions and claims involving the defendants and their principals.

The Takeaway

What might have seemed to be a surefire filing was derailed by the Southern District of California in September, in an order denying class certification of Stokes’ proposed class.

At issue was an arbitration clause on Sensa’s website that stated that all customers agreed to arbitrate claims individually. Stokes did not contest the claims made by the defendants that more than 80 percent of the purchases made during the proposed class period had been made through the website. For this reason, the court argued, Stokes failed to meet the predominance requirement for certification.

Furthermore, the court found that the proposed class did not exclude customers already reimbursed by the original FTC settlement.

Thus, for now, a many-tentacled litigation has ceased to squirm. We’ll see if an appeal shocks it back to life.

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FTC Approach to False Advertising Case ‘Not Rational,’ Court Says

Northern Cali District: Just drop the consent decrees and make a deal already!

Lending Snub?

The Federal Trade Commission’s (FTC or Commission) suit against LendingClub Corp. was straightforward enough. Back in April 2018, the Commission slapped the company with violations of the FTC Act for deceptive and unfair practices. LendingClub, the Commission alleged, offered “unsecured personal loans” to consumers nationwide, advertising them as having “no hidden fees” but delivering disbursements that were hundreds and sometimes thousands less than the original loan amount.

The Commission also claimed that LendingClub would send false application confirmations to consumers who would never receive a loan and withdrew payments from consumers even after their loan had been paid off.

LendingClub moved to dismiss in June, claiming that its disclosures were not hidden, but were Truth in Lending Act compliant and discoverable on the website during the application process, rendering the Commission’s charges of deception baseless.

The parties wound up in front of the court on a motion to dismiss hearing on Sept. 13, 2018, and found themselves on the business end of some strong words from the bench.

The court called into question LendingClub’s rationale for its motion, reminding its counsel that tens of thousands of consumers had complained about the fees: “The inference to be drawn is that consumers aren’t understanding it,” the court said. “So, I’m to say as a matter of law, all those consumers are unreasonable?”

The Takeaway

Far more interesting was the court’s rebuke of the Commission’s approach to the case. Despite the FTC’s accusations of a pattern of previous misconduct, the “no hidden fees” language had been scrubbed from LendingClub’s site, leaving the Commission’s complaint a bit thin in the opinion of the court.

The court urged the Commission to take a less conventional path in this case, avoid consent decrees, and settle.

“If you can get the same disclosures and relief, I don’t see how the public is being served by the delay,” the court maintained. “If they agree not to do it anymore in an enforceable way, then why are we here? That is not a good use of court resources. To me, it’s not rational, and it doesn’t make sense. I can’t conceive of why the case shouldn’t be resolved.”

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TCPA Class Action Claims Extended by Pipe Decision

Supreme Court statute of limitations doctrine takes its toll on defendants

Eons Ago…

American Pipe & Construction Co. v. Utah, a 1974 class action that made its way to the Supreme Court, recently cast its shadow over a Telephone Consumer Protection Act (TCPA) class action in the District of Minnesota – and, by extension, many other similar cases.

The doctrine that flowed from the American Pipe decision more than 40 years ago is simple: When a class action begins, the statute of limitations is suspended for all members belonging to the class in question, even if the class action fails to move ahead.

In the original case, a suit brought by the state of Utah was not allowed to move forward as a class action; the district court then maintained that the putative class members could not sue on their own because their claims were barred by the statute of limitations. Upon review, the Supreme Court ruled that the launch of the class action tolled the statute of limitations for putative class members, who would be allowed to enter a suit.

Ocwen’s Rager

The current TCPA case in question, Christianson v. Ocwen Loan Servicing, presents a set of familiar facts: Minnesota resident Shelly Christianson claims to have received more than 1,400 calls from Ocwen’s automatic telephone dialing system from April 2011 through April 2014. Before that period, she claims that she had requested that the company cease contacting her, to no avail. She sued under the TCPA in May 2017.

In the initial complaint, Christianson cites the American Pipe decision, noting that the normal four-year statute of limitations under the TCPA was tolled by the commencement of a class action brought in 2014 by another individual against Ocwen.

Ocwen’s latest motion to dismiss, filed in May 2018, argued that subsequent cases suggested that American Pipe “does not toll the limitations period for individual actions brought by members of the class while the class still exists.”

Citing multiple decisions, including Second and Ninth Circuit Court decisions, the court dismissed Ocwen’s argument and denied its motion.

The quoted Ninth Circuit Court decision is especially concise, stating that “although the American Pipe doctrine protects plaintiffs from being forced to file suit before the certification decision, that doesn’t mean that plaintiffs who file before certification are not entitled to tolling. They have a right to file at the time of their choosing and denying tolling would diminish that right.”

The Takeaway

TCPA plaintiffs again seem to have the law on their side, with the statute of limitations paused whenever a class action is brought against their prospective opponent. And given the volume of TCPA class actions, one must wonder how meaningful the four-year limit is in practice.

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California Delays Privacy Law Enforcement and Congress Is Lobbied to Pre-empt the Law

This summer California enacted, effective Jan. 1, 2020, the California Consumer Privacy Act (CCPA), a privacy law unprecedented in the U.S. that grants California residents a broad range of European-like privacy rights. Amendments passed as SB 1121 on Aug. 31 and signed into law by Gov. Brown on Sept. 23 extend the time for the California attorney general (CaAG) to promulgate regulations to July 1, 2020, push back enforcement until the earlier of that date or six months from issuance of the regulations, and remove the CaAG’s ability to intervene in private lawsuits – changes made at the request of the CaAG. Fortunately for industry, the CaAG’s recommendation that the CCPA’s limited private right of action be expanded was rejected, and language was even added to clarify the limits of consumer lawsuits. The U.S. Chamber of Commerce is lobbying Congress to pass a federal omnibus privacy and data protection law that would pre-empt the CCPA and other existing and future state data protection laws. See its proposal and statement here. The Internet Association, a trade group that represents leading internet companies, has also released a proposed framework for federal legislation. Most recently, on Sept. 24, the Interactive Advertising Bureau, with 650 digital advertising industry members, joined in the calls for a federal omnibus law to pre-empt CCPA in a letter to the Senate committee exploring such a bill. Read more here.

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