Consumer Advertising Law Blog

Is My Product Really Better Than Your Product?

We’ve commented often in this space about how virtually everyone is jumping on the green marketing bandwagon. I couldn’t help noticing that fact even while on vacation. Standing in line at the beach to buy ice cream for my kids a poster implored me to ask for a cone instead of a dish because ice cream cones were the “environmentally cone-scious” choice. (Thankfully, bad puns don’t violate Section 5 or else we’d be in trouble here as well.) Ice cream cones have an obvious environmental advantage over dishes and plastic spoons when it comes to waste disposal, but as many of you no doubt know, you can’t always stop the inquiry at the most obvious. If ice cream cones were made from a scarce plant found only in rain forests then they might not be better for the environment in that regard than a plastic spoon or cardboard dish. A general, unqualified claim of environmental superiority likely has to be true in all respects, not just one or two.

Of course, ice cream cones aren’t superior to dishes and spoons when it comes to making me fat or, even more importantly these days, causing obesity in kids. However, as a general rule, if you’re going to tout the benefit of a product you generally only need to disclose any downsides if they are closely related to the advertised benefit. For example, in its Food Advertising Enforcement Policy Statement, the FTC notes that if you market a product as low in cholesterol it may be misleading to omit the fact that the food is high in sodium since sodium can lead to many of the same health problems that low cholesterol is designed to avoid. So will it be the environment or your waistline, or maybe just go with a kid size scoop on a cone and have it all. Either way, the advertiser probably doesn’t have a duty to inform your choice.

- Randy Shaheen

UK Advertising Rules Do Apply To Online Sponsored Links

Joint guidelines have been released by UK’s The Office of Fair Trading and the Financial Services Authority on the use of online sponsored links by UK advertisers of financial products and services. The regulators have made it clear that, in their view, the rules governing credit advertising and financial promotions apply equally to sponsored links as they do to other forms of paid for online advertising. In essence, consumers must be treated fairly and not be misled when they use keywords to search for information on financial products and services. Advertisers are also expressly advised not to sponsor the names of other firms/competitors if this could result in misleading the consumer or creating an expectation that their firm is the same as the one the consumer has searched for.

Examples of potential breaches of the rules are given in the guidelines. These include selecting search terms that don’t accurately reflect the business being advertised – for example, an advertiser sponsoring the term “independent financial advisers” when it is not independent – and consumers being misled by discrepancies between the impression given by the wording of the link and the consumer’s experience once the link has been followed. For example, a sponsored link claiming “Save up to £160 on your home insurance” could mislead the target audience if in fact only 10% of applicants are expected to qualify for the saving.

The full guidance is available here.

- Richard Dickinson and Jake Marshall

In a Battle of Experts, Only the Fair Survive

What makes up “competent and reliable scientific evidence?” That’s a question that has vexed many a practitioner and client. A federal district court judge in New Jersey recently weighed in on that topic (opinion here) and it wasn’t good news for the FTC. In FTC v. Lane Labs-USA, Inc., et al., the FTC asked that the U.S. District Court for New Jersey fine Lane Labs, a supplier of dietary supplements, $24 million as a result of the lab’s alleged violation of a nine year old consent order in which it agreed to only make representations about the effects of its dietary supplement products that could be supported by competent reliable scientific evidence. In its complaint the FTC alleged order violations relating to two Lane Labs’ products — AdvaCAL, a calcium supplement, and Fertil Male, a product derived from a Peruvian plant known as “Maca” that allegedly increases male fertility.

The Defendant relied upon several clinical studies and the testimony of a scientific expert for each of its products. The FTC’s experts criticisms of the study were familiar ones to those who practice in this area. They included the fact that the studies were underpowered, used rats instead of humans, that the products had inert ingredients not found in the products tested, and that the studies tested one proposition (increase in bone density) from which the claim (reduced risk of fractures) had to be inferred. Defendant’s experts rebutted each of these criticisms.

The Court found that the FTC had not met its burden of proof and that the Defendant had taken reasonable steps to comply with the Order:

• The court found that while all four experts were credible and knowledgeable, the Defendant’s experts were more reasonable. In particular, the court was critical of the overly exacting standard of one of the FTC’s experts in evaluating the reliability of clinical studies.
• Neither of the FTC’s experts found that Lane Labs’ supplements were not effective or constituted a health risk to the public, but instead that the studies relied upon by Lane Labs had “questionable aspects,” including using rats versus humans to study effects and having a smaller number of participants. As the court pointed out, however, Lane Labs’ experts were able to successfully explain why those aspects didn’t corrupt the overall value of studies, thereby swaying the court in their favor.
• The court agreed with Lane Labs’ experts’ more inclusive view of the kinds of research that substantiate claims, including research that is tangentially related, if not directly on point, to a claim.
• The court would not find a violation of the Order where there was simply a difference of opinion among credible experts
• Lane Labs “did what they were supposed to do” in seeking expert advice before relying upon scientific articles and peer reviewed studies attesting to the purported effects of AdvaCAL and Fertil Male. To ask the company to do more would be unreasonable, said the court.

If the Court’s decision is upheld in the face of a likely appeal, it may present a clearer and potentially less exacting path to substantiating dietary supplement and other claims. In particular, so long as a company relies upon legitimate studies that a credible expert says are good, a few flaws here and there or the contrary views of an FTC expert may not be enough to sink the product claims.

Gift Card Glitch - Major Coffee Retailer Pays $225k To Settle With California District Attorneys

Entered by a California court earlier this month, the settlement resolves allegations regarding recently added provisions in California’s gift card statutes. Specifically, the amendments, enacted by California’s legislators in January 2008, require all businesses to, upon customer request, redeem gift cards and certificates for cash if the remaining balance on the card or certificate is under $10.00.

Among other things, the terms of the settlement require the coffee retailer to pay $225,000 for civil penalties, investigative costs, and restitution. Additionally, to prevent future violations of the statute, the settlement also requires that the coffee retailer include a button on its point of sale devices to allow employees to redeem gift cards in the store, implement employee training programs about redemption of gift cards, post detailed procedures to inform employees how to redeem gift cards, and post signs in its California stores to inform customers of their right to redeem gift cards for cash if the balance is less than $10.00. (Retailers generally are not required by law to post such a disclosure, but this was agreed to as part of the settlement.)

The settlement is noteworthy because it not only shows the state’s willingness to prosecute alleged violations of this little known law, but media attention about the settlement may make consumers more aware of the law and bring the statute to the attention of private plaintiffs’ attorneys. Accordingly, when doing business in California, a state already running rampant with frivolous lawsuits, any company issuing gift cards should be aware of this special statutory requirement. Other provisions in California’s gift card statute prohibit the sale of gift cards with expiration dates or service fees.

UPDATE: For a more comprehensive write-up of this settlement, click here.

- Mark Pifko

Cybercrime Mastermind: The Lord of the Rings?

On August 17, the US Attorney’s Office for the District of New Jersey charged Miami native Albert Gonzalez and two other men in what the Department of Justice is calling “the largest hacking and identity theft case ever prosecuted.” The indictment alleges that Gonzalez and some unnamed co-conspirators stole over 130 million debit and credit card numbers in a scheme to breach the data security systems of a number of companies, including Heartland Payment Systems, 7-Eleven, and Hannaford Brothers. Gonzalez also is separately facing trial in the District of Massachusetts for alleged his role in the much-publicized “TJX” data breach.

The Gonzalez case should serve as a cautionary tale about an alarming trend in the ever-increasing size of data breaches and sophisticated identity theft schemes.  As recently as September 2004, for example, the US Attorney’s Office for the Southern District of New York announced the guilty plea of Philip Cummings to charges relating to an identity theft scheme that was, at the time, hailed as the “largest identity theft case in [the] nation’s history.”  Cummings and his accomplices were charged with unlawfully stealing the credit reports of more than 30,000 people. (Full disclosure: one of the authors of this post, Marcus Asner, led the Cummings prosecution while serving as an AUSA in the SDNY.)  Subsequently, in February 2005, ChoicePoint announced the theft of data pertaining to 145,000 individual victims, and, in August 2008, DOJ announced the TJX data breach that involved the theft of 40 million debit and credit card numbers. Then-Attorney General Mukasey called the TJX case the single largest and most complex identity theft case ever charged in this country.

FTC and NAD Cut Down Bamboo Claims

Last week the FTC announced its latest actions in the agency’s reinvigorated environmental enforcement efforts.  In complaints against four companies -- Sami Designs, LLC (d/b/a Jonäno); CSE, Inc. (d/b/a Mad Mod); Pure Bamboo, LLC (website); and The M Group, Inc. (d/b/a Bamboosa) -- the FTC alleged that these companies made false and misleading statements about their products being made from “bamboo fiber,” the environmentally friendly nature of the manufacturing process, and the products’ biodegradability, as well as violated the Textile Act and Rules.  (And they scooped us on the best play on words using bamboo in their press release:  “FTC Charges Companies with ‘Bamboo-zling’ Consumers with False Product Claims.”)

Bamboo is popular in environmentally conscious circles for its ability to grow quickly without the use of pesticides.  (Long-term readers of this blog will recall that bamboo was a topic of interest during the FTC’s workshop on green building and textile claims in July 2008.)  The companies charged by the FTC advertised that their textile products were made of bamboo or bamboo fiber.  The FTC did not contest that bamboo was used as the raw material for the manufacture of the textiles used.  The FTC alleged that despite this, the final product was not bamboo or bamboo fiber but rayon that happened to be produced from cellulose derived from bamboo.  Thus, under the consent orders agreed to by Sami Designs, CSE, and Pure Bamboo, these companies are allowed to state that the source of cellulose for their textile is bamboo as long as they also state the recognized generic name of the fiber, e.g., “rayon made from bamboo.”  In addition to the Textile Act issue, this also emphasizes the need to be as specific as possible when making statements that might implicitly convey claims of environmental benefits.

Sami Designs and The M Group both included descriptions of the manufacturing process on their websites a couple of clicks from the main pages.  The FTC declined to find that sufficiently qualified the companies’ claims, alleging that these disclosures were not clear and conspicuous or in close proximity to the claims made.

The FTC also objected to these three companies making claims that their manufacturing processes were environmentally friendly when the processes used toxic chemicals and released hazardous air pollutants.  As we’ve discussed in this space many times before, general claims of environmental benefit, such as “environmentally friendly” or “green,” standing alone, are likely to be considered deceptive.

Pure Bamboo and The M Group also made biodegradability claims about their products.  Consistent with its recent enforcement actions, the FTC alleged that these claims are deceptive because textile products are usually disposed of by recycling or in a landfill, neither of which present conditions that will allow textiles to break down completely as required in the Green Guides.

CPSC Issues Final Rule on Accessibility of Lead-Containing Components in Children's Products

On August 7, 2009, CPSC issued a final rule providing guidance as to which component parts of a children’s product are “inaccessible” and therefore not subject to the CPSIA’s lead content limits. As discussed below, the rule affirms CPSC’s position in the proposed rule that inaccessible components are those that a child cannot touch and explains how the standard will be applied.

Background

The Consumer Product Safety Improvement Act (CPSIA) set lead content limits applicable to “children’s products,” i.e. , those consumer products designed and intended primarily for children 12 years of age and younger. As of August 14, 2009, children’s products cannot contain more than 300 ppm of lead. And, on August 14, 2011, the lead content limit will be decreased further to 100 ppm, unless CPSC determines that the 100 ppm level is not technologically feasible.

CPSIA Section 101(b)(2) provided that the lead content limits shall not apply to any component part of a children’s product that is “not accessible to a child through normal and reasonably foreseeable use and abuse,” and required CPSC to provide guidance on what product components , or classes of components, will be considered inaccessible. The section further specified that a component part is not accessible “if such component part is not physically exposed by reason of a sealed covering or casing and does not become physically exposed through reasonably foreseeable use and abuse of the product . . . includ[ing] swallowing, mouthing, breaking, or other children’s activities, and the aging of the product.” Finally, the section provided that “paint, coatings, or electroplating may not be considered to be a barrier” rendering lead in the substrate inaccessible.

CPSC published a proposed interpretative rule on inaccessibility in the Federal Register on January 15, 2009 (74 FR 2439), and published the final rule on August 7, 2009 (74 FR 39535).

Do Advertisers Need to Contend with Consumer Baggage?

A recent study concluded that organic foods aren’t any healthier (although interestingly the study looked at nutrient levels and not pesticides). Of course, most consumers are likely spending more money for organic foods precisely because they believe such food is better for them and their family. Should that matter if it can’t be proven or even turns out not to be true? As long as it’s not the advertiser who has created that perception in consumer’s minds it typically shouldn’t. Courts and the FTC have endorsed the notion that advertisers aren’t responsible for consumer’s pre-existing beliefs. (See In Re Kraft). It’s in part for this reason as well that surveys often try to filter out “noise,” i.e. opinions consumers have that don’t come directly from the advertisement. But like any good rule there seem to be exceptions.

Several years ago both R.J. Reynolds and Santa Fe Natural Tobacco Company marketed cigarettes “with no additives.” Both companies drew the wrath of the FTC which required them to use a disclaimer that stated that no additives did not mean the cigarette was any safer. The disclaimer requirement was triggered by the mere use of a “no additives” claim. Similarly, some organic milk producers have labeled their milk as free of artificial growth hormones. A few states have tried to ban the use of this claim and at least one dairy was sued over the claim. The suit alleged in part that there was no health difference between the two types of milk. The company settled by agreeing to add the disclaimer: "FDA states: No significant difference in milk from cows treated with artificial growth hormones.” The FDA also recommends the use of this disclaimer but to date has not required it.

So, does an advertiser have to worry about consumer’s preexisting beliefs and are we going to see disclaimers in organic foods stores anytime soon next to the claim that their products are “pesticide free?” Probably not, but it’s just another reminder that while the truth may set you free, it can also sometimes land you in hot water.

CPSIA: Ready, Set, Go -- New Requirements Take Effect on One-Year Anniversary

The Consumer Product Safety Improvement Act (CPSIA), which Congress enacted one year ago, contains several provisions that take effect on August 14, 2009. The CPSC has urged businesses to comply with these new requirements in a press release issued on August 13. The new requirements include:

Lead Content

The limit for lead in children's products under the Federal Hazardous Substances Act (FHSA) drops from 600 parts per million (ppm) to 300 ppm. After August 14, it will be unlawful to manufacture, import, sell, or offer for sale, a children's product that has more than 300 ppm of lead in any part that is accessible to children. The new, lower limit is applicable to those products already in inventory as of August 14. Certain children’s electronic devices are exempt from the lead content limits because of technological infeasibility. For purposes of the lead content limits, a “children’s product” is defined as consumer product intended “primarily” for children 12 years of age and under.

Lead in Paint and Similar Surface Coating Materials

The limit for lead in paint and similar surface-coatings for consumer use drops from 600 ppm to 90 ppm. More specifically, paint in the can, toys and other articles intended for use by children, and furniture articles for consumer use (whether for adults or children), will be banned if they exceed the new 90 ppm limit, absent an exemption in 16 C.F.R. Part 1303. Products subject to the lead paint standard -- including products already in inventory as of August 14, 2009 -- cannot be sold, offered for sale, imported or manufactured after August 14 unless they meet the new limit.

However, soluble limit testing for lead paint under ASTM F963-07 is no longer necessary. The CPSC staff previously explained in an FAQ that, in addition to being tested for compliance with the limits in 16 C.F.R. § 1303.1 on the totallead content, based on the total weight of the non-volatile portion of the paint, toys manufactured after February 10, 2009 would also need to meet the limit imposed by ASTM F963-07 based on the soluble portion of lead. The staff went on to explain that, as of August 14, 2009, the lead paint limit under the CPSIA will be more restrictive than under F963: “Beginning on August 14, 2009, . . . the soluble limit testing for lead paint under ASTM F963-07 will not be necessary because the maximum total lead content in paint will be reduced to 90 ppm in 16 CFR § 1303.1, which would be a more stringent requirement in all cases. It will remain necessary to conduct ASTM F963-07 solubility testing for antimony, arsenic, barium, cadmium, chromium, mercury, and selenium, as those are not covered by 16 CFR § 1303.1.” 

CPSIA: CPSC Provides Guidance on Phthalates Limits

On Friday, August 7, CPSC issued a Statement of Policy regarding compliance with the phthalates ban in section 108 of the CPSIA, which applies to certain toys and childcare articles. Specifically, CPSC will evaluate a product’s compliance based on whether each of its “plasticized component parts” complies with the standard. This reverses CPSC’s previously proposed interpretation of the provision, as published on February 9, which had provided that a product would be banned only if the phthalates content of the product as a whole exceeded the 1000 ppm limit, rather than the new stricter interpretation requiring that each component part be at or below the limit. In addition, the Statement of Policy provides guidance to manufacturers and importers -- the entities responsible for certifying products -- on deciding whether specific products or components should be tested for phthalates.

New Interpretation of Section 108

In reversing course in its interpretation of section 108, CPSC states that “[t]esting component parts to the phthalates limits established in section 108 is more protective of human health and effectuates the intent of Congress to limit children’s exposure to phthalates.” CPSC asserts that its new interpretation is supported by the statutory language. Specifically, CPSC reasons that section 108 applies both to “toys” and “childcare articles” and their components because (1) Section 108 applies to certain “toys” and “childcare articles,” (2) the definitions of both these terms include the term “consumer product,” and (3) the CPSA defines “consumer product” in part as both an “article” or a “component part” of an article.

Identifying Affected Components

CPSC acknowledges in the Statement of Policy that certain toys and childcare articles may not require testing for phthalates. In that regard, CPSC provides useful guidance on the following issues that many companies have been asking about since the CPSIA was enacted:

(1) Examples of materials and products that may contain phthalates:

• Polyvinyl chloride (PVC) (used in products including toys, floor and wall coverings, household furnishings, building materials, wire and cable insulation, footwear, rainwear, and automobile interiors) and related polymers, such as polyvinylidene chloride (PVDC) and polyvinyl acetate (PVA) -- CPSC notes that these materials should always be tested;
• Soft or flexible plastics, except polyolefins;
• Soft or flexible rubber, except silicone rubber and natural latex; and
• Foam rubber or foam plastic, such as polyurethane (PU);
• Solvents and/or plasticizers in surface coatings, non-slip coatings, finishes, decals, printed designs, air fresheners, and scented products;
• Elastic materials on apparel, such as sleepwear;
• Adhesives and sealants; and
•  Electrical insulation.

(Note that while some of the products identified by CPSC -- e.g., floor and wall interiors, building materials, air fresheners and electrical insulation not used as components of toys or childcare articles -- would be outside the scope of section 108, they are covered by California’s Proposition 65.)

If State Law Preemption Is the Best Stuff On Earth, It Is Now Endangered

In a much anticipated ruling (opinion found here), yesterday the Third Circuit revived a consumer class action against the maker of Snapple, holding that FDA did not preempt a review under state law of whether Snapple’s claims that its drinks are “all natural” was misleading because they (used to) contain corn syrup.

The New Jersey trial court dismissed the case (opinion found here) because of implied preemption or that “FDA regulations so thoroughly occupy the field of beverage labeling at issue in this case that it would be unreasonable to infer that Congress intended states to supplement this area.” The law of field preemption took multiple hits after the dismissal, including the Third Circuit’s decision on Fellner v. Tri-Union Seafoods allowing a class action regarding failure to warn over mercury in tuna, the Supreme Court’s Wyeth v. Levine decision involving field preemption in failure-to-warn cases involving pharmaceuticals, and Obama’s May memo urging restraint by feds in preempting state law. The panel first noted there was a strong presumption against preemption that Snapple had to overcome and that states had been regulating in the area of food and beverage labeling and branding long before the FDA ever got into the game. The Court did not expressly decide whether the Nutrition Labeling and Education Act (NLEA) expressly preempted the state claim challenge, concluding the issue was not properly before it. It did note, however, that the NLEA “regulated only what a company must place on a label, [Plaintiff’s] claims go to what a company cannot put on a label for the purposes of commercial marketing, an important distinction.” It next concluded that there was no implied preemption or field preemption at issue because Congress had not clearly and manifestly concluded that this is an area that leaves no room for state law and they were “reluctant to find field preemption predicated solely on the comprehensiveness of federal regulations.” Finally, the court did not find implied conflict preemption based on the FDA’s policy statement regarding “natural” or based on its opinion letter that high fructose corn syrup could be termed “natural,” concluding that these determinations were not the result of “formal, deliberative process.” The weight the trial court gives to this evidence on remand as the case moves forward will be of considerable interest to all food and beverage marketers.

The class rep initially alleged the tagline “Made from the Best Stuff on Earth” was false and misleading as well, but amended the complaint to remove these allegations. It is almost as refreshing as a glass of Snapple Pink Lemonade that she recognized puffery when she saw it!

States Skipping Summer Vacation Opting for Heightened Regulation

The state enforcers have been busy of late, many focusing efforts on combating financial fraud schemes (Last week, Julie Brill who heads the NC AG consumer protection division, noted “it is a full time job” just to keep up with predatory lending and mortgage relief scams). State legislators are also busy at work and we detail some current updates for you:

Maine: Maine has enacted a new law in effect in September restricting the collection or use of any minor’s personally identifiable information or health-related information in product or service marketing. Section 9552 of LD 1883 allows collection of such information only with parental consent but use of such information in marketing or advertising is a per se offense, regardless of whether Mom or Dad approve. The proposed law provides for civil penalties even for first time violators and a private right of action. This law goes far beyond COPPA, which provides limits on advertising to kids under 13, and reportedly is a reaction to marketing taking place to tweens on social networking sites. Not surprisingly, at least several businesses have announced an intent to challenge the law.

UPDATE (9/10/09): Maine Independent Colleges Association, the Maine Press Association, and Reid Elsevier, Inc. sued to enjoin Maine’s Predatory Marketing Practices law from going into effect on September 12, 2009. On September 9th, the court issued a stipulated order of dismissal in light of the State Defendant’s representation that it will not enforce the statute and that the Legislature will reconsider it when they reconvene in January 2010. The Court opined the statute likely violates the First Amendment on overbreadth grounds, and advised third parties considering suing to enforcing rights under the law that a private challenge "could suffer from the same constitutional infirmities."

Iowa: Effective July 1, the Consumer Fraud Act gives Iowan consumers a private right of action for fraud or deception. Iowa was the only state not to allow a private right of action under its consumer protection statute. Previously Iowans had to rely on their AG to protect them or if wanting to go it alone, had to rely on common law fraud theories, requiring a showing of reliance and intent. The new law, according to the AG, allows consumers to recover on a showing of deception and provides for recovery of attorneys fees and damages.

Florida: The Investor Protection Act expands the AG’s authority to file civil and criminal case and to seek restitution and penalties in cases involving investor fraud.

Retailers Required to Verify Substantiation on All Products Sold?

There has been some buzz lately about retailers having a responsibility to verify claims substantiation for products that they sell. In our view such concern is overblown. It is true that the FTC recently entered into consent orders with retailers (such as here and here) regarding claims for products sold in their respective stores. However, both products were sold as store brand products. In other words, in both instances the retailer was acting both as advertiser and retailer. (Note that retailers can be held liable, though, under California's notorious Prop 65) Requiring a retailer to have substantiation for claims carried on products that bear its brand is hardly a novel concept under Section 5 nor is it the same as requiring a retailer to verify the substantiation for the tens of thousands of products that it might carry in its stores.

The FTC has gone after at least one catalog company for claims in its catalog which essentially parroted the manufacturer’s claims, and the consent order in that case does not distinguish between claims created by the catalog company and any manufacturer’s claims which it simply repeats. Here’s what the FTC currently says about catalog companies in response to a question about their responsibility to insure the accuracy of claims for products manufactured by others:

“Rather than just repeating what the manufacturer says about a product, catalog marketers - including companies with online catalogs - should ask for material to back up the claims. If the manufacturer doesn't come forward with proof or turns over questionable material, a catalog marketer should see a yellow "caution light." This is especially true for products with extravagant performance claims, health or weight loss promises, earnings guarantees, and the like. In writing ad copy, catalogers should stick to the claims that can be supported and avoid embellishing manufacturers' representations. Most importantly, catalog marketers should trust their instincts when a product sounds too good to be true.”

Click here for the source document. As you can see, the FTC dances a bit around the issue of liability.

Nevertheless, while a retailer may “republish” some manufacturers’ claims in their weekly ads, most products are simply sold from the shelf without the retailer ever “disseminating” a claim. So, while the FTC would no doubt love to have retailers voluntarily keep products with outrageous claims off their shelves, it seems unlikely that the FTC is going to impose such a requirement, both because of the undue burden it would likely impose and the not insignificant legal obstacles the agency might face.

- Randy Shaheen

Good Behavior Cause for Champagne and Lobster Bites Following FTC Closing Letter

The FTC issued a closing letter recently in a matter regarding Long John Silver’s Lobster Bites.  In a time of threatened heightened enforcement under Chairman Leibowitz’s watch, it is good to see that despite the trend where more and more investigations end up in some form of payment by the targets, the FTC may still exercise its enforcement discretion and reward prompt, no holds barred cooperation.  The FTC notes in the letter that the staff “based its decision on Long John Silver’s cooperation in making prompt revisions to its marketing materials.”  Therefore it seems that notwithstanding Vladeck’s stated intention to renew focus on national advertising, cooperation and up-front communication still counts.  

In this case, Long John Silver’s “Lobster Bites” were marketed without the disclosure that they are made from langostino lobster, a “squat” lobster that is a different species than the lobsters folks from Maine hope we all envision when we hear the term.  FTC staff were particularly concerned with a Long John’s television commercial showing an American lobster in conjunction with the marketing of the Lobster Bites, potentially misleading customers into thinking that Lobster Bites consist of American lobster meat. 

The FTC took the position that Long John Silver’s should place the word “langostino” next to the word “lobster” in any marketing materials for the Lobster Bites.  In addition, the term “langostino” needs to be prominent enough for consumers to be clear that the Lobster Bites are in fact made of that type of meat.  Customers also need to be made aware that langostino is a different species than the more commonly known American Lobster. 

The FTC also noted that the FDA has similar requirements about labeling food products made with langostino.  The FDA only allows the word “lobster” to be used without a qualification when the product consists of European or American lobster, not langostino.  The labeling of a product as “lobster” without disclosing that it consists of langostino violates the Food, Drug and Cosmetic Act.

Specifically, Long John’s agreed to discontinue the television ad, make changes to its website marketing of Lobster Bites, and agreed to have all point-of-sale materials modified within eight weeks.  The quick responsiveness of Long John Silver’s appears to have been enough for the FTC to close their investigation.

Can’t Buy Me Love?

…but for $1,800, Twentieth Century Fox hired a high school valedictorian to profess her love for a classmate during her valedictory address, as part of a viral ad campaign.

The Wall Street Journal Online recently reported that Fox paid a Hamilton High School student to plug its movie “I Love You, Beth Cooper” during a graduation speech last month. She told her audience that watching the film’s trailers had “inspired” her to confess her own passion, and then she proclaimed, “I love you, Jake Minor!” in front of the cheering crowd. According to the WSJ, Fox also paid a company to film the scene as a home video and to post it onto YouTube, in the hopes of starting a viral ad for the now widely panned film.

Advertisers increasingly use such tactics to generate buzz around new products, but companies should take heed: viral ads attract the attention of more than just customers. As other commentators have noted, such ads risk falling under the scrutiny of the FTC for deceptive advertising. Under Section 255.5 of the FTC's Guides Concerning Use of Endorsements and Testimonials in Advertising, advertisers must disclose material connections between the endorser and the seller of the advertised product. While the FTC has not recently brought enforcement actions involving viral advertisements, the agency has said that it has the power to regulate this area and that it is closely monitoring viral advertising activity. But the agency also spoke highly of the Word of Mouth Marketing Association’s attempts to self-regulate. WOMAA publishes a Code of Conduct in its “Ethics Toolkit,” which aims to help companies train their staffs and contractors to assess ethics issues in word-of-mouth campaigns. For example, the Code of Conduct requires “consumers involved in a word of mouth initiative to disclose the material aspects of their commercial relationship with a marketer, including the specific type of any remuneration received.” Of course, out and out fraud in this area has and will continue to be subject to endorsement efforts, the most recent being a NY AG settlement with a cosmetic surgery company for reportedly engaging is “astroturfing” or encouraging its employees to post fake glowing reviews and comments of their fabulous results on the web.

As we have mentioned before, we may see FTC enforcement against word-of-mouth advertising once its revised testimonial guides are approved (likely later this year). So companies should think twice before launching viral ads that mask the endorser’s relationship with the seller.