Consumer Advertising Law Blog

Another "Juicy" Denial of Motion to Dismiss in Pomegranate Case

Judge S. James Otero of the Central District of California issued his second order denying Defendant Coca-Cola’s motion to dismiss Plaintiff POM Wonderful’s complaint concerning advertising for Coke’s “Minute Maid® Enhanced Pomegranate Blueberry Flavored 100% Juice Blend”. Judge Otero’s decision raises important issues concerning exposure to Lanham Act claims for companies whose products are subject to FDA regulation, the standing of companies to bring suits against competitors under California’s Unfair Competition Law (“UCL”), and the scope of the restitution remedy available under the UCL.

This case is one of the latest of a series of cases that POM has brought against competitors. According to POM’s complaint, the “main” ingredients in Coke’s juice blend are neither pomegranate, nor blueberry, but instead apple and grape juice. Coke’s first motion to dismiss argued that POM’s claims were preempted by the Federal Food, Drug and Cosmetic Act and FDA regulations. That motion was granted in part and denied in part. The Court essentially held that to the extent POM’s Lanham Act claim implicated federal juice naming and labeling requirements, it was improper, but to the extent the claim was directed at Coke’s broader advertising, it could proceed. 

After POM amended its complaint, Coke again moved to dismiss, arguing: (1) POM’s Lanham Act claim was still improperly directed at the naming, labeling, and packaging of Coke’s juice blend and (2) POM lacked standing to pursue its UCL and False Advertising Law (“FAL”) claims because POM had not “lost money or property” due to Coke’s allegedly false advertising. Judge Otero denied the motion.

In his decision, Judge Otero held that POM’s Lanham Act claim could continue because it was still not certain whether POM’s claims focused on the naming and labeling of the juice blend, or Coke’s advertising and marketing. For instance, Judge Otero stated POM’s complaint had allegations aimed at Coke’s website, which “place[] a ‘prominent image of a split open pomegranate’ next to the Juice name, and advertise[] the Juice . . . as ‘cranberry and pomegranate juice.’” According to Judge Otero, these “informal cues” could be considered advertising or marketing and subject to a Lanham Act claim. Moreover, to the extent there was “informal naming and labeling” on Coke’s website, it would not implicate FDA regulations, and thus could also be the subject of a Lanham Act claim.

Judge Otero also rejected Coke’s argument that POM lacked standing to pursue its UCL and FAL claims. The Court noted that standing under the UCL and FAL is limited to plaintiffs who have “‘suffer[ed] losses of money or property that are eligible for restitution.’” Although the California Supreme Court has made clear that the restitutionary remedy under the UCL is limited to the return of money or property that a defendant took directly from a plaintiff, and POM had merely alleged lost market share and profits, Judge Otero still held POM has alleged facts entitling it to restitution and thus had standing. The Judge reasoned that restitution under the UCL is also proper if the plaintiff has lost money or property in which it has a “vested interest,” and POM had a “vested interest” in profits derived from Coke’s allegedly unlawfully increased market share. As such, POM had standing to bring its UCL and FAL claims.

In allowing POM’s case against Coke to proceed, Judge Otero’s decision raises a number of important issues. For companies selling products subject to FDA regulation, Judge Otero’s conclusion that Coke’s website may be subject to a Lanham Act claim because it has “informal” advertising and marketing may justify an advertising review for certain products. Furthermore, Judge Otero’s decision represents another instance in which a court has tied standing under California’s UCL to eligibility for restitution, an issue that may well be addressed in another case, Kwikset Corp. v. Superior Court, currently pending before the California Supreme Court. Finally, by finding POM may be entitled to “restitution” of the profits Coke generated from POM’s allegedly lost market share, Judge Otero’s decision raises the question of whether it has interpreted the restitution remedy available under the UCL to be indistinguishable from damages, which the California Supreme Court has clearly held are not available under the UCL.

- Suzanne Wilson, James Speyer, and Chris Tarbell

Google AdWords Gets Cleared by European Advocate General from Keyword Trademark Infringement Claims

The Advocate General of the European Court of Justice today gave his opinion on three cases concerning Google’s AdWords system, which permits advertisers to purchase third-party trademarks as keywords to trigger sponsored links in search results. The opinion is not binding on the ECJ, but the court often follows the Advocate General's opinion in the majority of cases. The three cases encompassed by today’s opinion are: Google France v Louis Vuitton, Google v CNHRR and Google v Viaticum Luteceil, (Joined Cases C-236/08, C-237/08 and C-238/08).

These cases were brought to address on a large scale issues frequently confronted by brand owners in their efforts against counterfeiters. Specifically, counterfeiters frequently purchase keywords from Google that correspond to registered trademarks such as “Louis Vuitton. ” When an Internet user searches for “Louis Vuitton,” this triggers advertisements in Google’s search results that redirect consumers to websites where they can purchase counterfeit merchandise (e.g., “Louis Vuitton Replica” and “fake Louis Vuitton handbags”). The Advocate General’s resolution of the questions posed to the ECJ is bad news for trademark owners.

Upcoming Webinar: False Advertising Disputes: Benefits, Challenges and Risks of Making and Defending Against False Advertising Claims

The editors of the Consumer Advertising Law Blog wanted to let our readers know about an upcoming webinar that may be of interest to you, entitled, "False Advertising Disputes:  Benefits, Challenges and Risks of Making and Defending Against False Advertising Claims". [Full disclosure: Our firm, Arnold & Porter LLP, is sponsoring the event]

Panelists at the event will include:

• Mary Engle, Associate Director Advertising Practices, Bureau of Consumer Protection, Federal Trade Commission
• David Mallen, Associate Director, National Advertising Division, Better Business Bureau
• Michael Mazis, Professor Emeritus of Marketing, American University School of Business
• Randy Miller, Litigation Partner, Arnold & Porter LLP (moderator)

The above attorneys and professionals in false advertising disputes will present an informal dialog on:

• Identifying and challenging implied claims in advertising litigation
• Lessons learned from recent cases -Comparison of the self-regulatory process to litigation
• How false advertising cases play out at the Federal Trade Commission (FTC) and the National Advertising Division of the Council of Better Business Bureaus, as well as those cases involving the Lanham Act, consumer class action, and state attorneys general
• The perspective of the regulators: recent developments at FTC
• How surveys are used (and misused) in advertising disputes
• Defenses: puffery, primary jurisdiction, voluntary cessation, truth, and counterclaim

The event will take place from 8:00 a.m to 10:00 a.m on October 22, 2009. For more information, please click here for a PDF flyer of the event (and RSVP link).

UPDATE: Audio from the program is available here. 

NAD Energy Drink Smackdown: 16 oz Equals One “Shot”

You’ve likely often heard the advice “don’t compare apples to oranges.” Well signs are beginning to emerge that at least when it comes to serving sizes that’s not always the case and that a more practical, real world standard may be taking hold.

NAD recently rejected a challenge by Hansen Beverages, makers of Monster, to an ad for 5 Hour Energy featuring heaping spoonfuls of white sugar being poured into a 16 ounce Monster Energy can while a voiceover touted the effects of 5 Hour Energy with its “zero sugar and only 4 calories.” Hansen argued that the ad constituted an “apples-to-oranges” comparison since the 16 ounce Monster Energy can contained two whole servings, while the 5 Hour Energy product was a mere single serving “shot” of liquid.

NAD looked at two questions: 1. Whether 5 Hour Energy could make the comparison at all in light of the obvious differences in serving sizes; and 2. If the comparison is consumer relevant, was the disclosure used by 5 Hour Energy about the serving sizes adequate? NAD began by noting that 16 ounce cans are the standard size in the industry and that consumers typically consume an entire can in one sitting. Moreover, NAD noted that it’s unlikely Monster Energy is meant to be drank over several sittings given that it is served as a carbonated beverage in a can; not particularly portable or good after sitting for long periods of time. As a result, NAD concluded that the comparison between the two products was consumer relevant given that 5 Hour Energy was intended for the same type of use. Moreover, NAD cited to the FDA Nutrition Labeling; Guidance for Industry, finding that one can is typically considered a single serving. NAD also pointed out that FDA has been encouraging manufacturers to be flexible with current regulations concerning serving sizes and consider representing a “single serving” as one that can be consumed at a single sitting.

NAD noted, however, that while it has “long held that, although advertisers are not required to limit their comparative claims to a competitor’s ‘most similar’ product, when making an apples-to-oranges comparison, the advertiser must clearly disclose any material differences between the products.” 5 Hour Energy had indeed included a tiny statement noting that the comparison was to a 16 ounce can of Monster and that each 16 ounce can contained two servings. After the initiation of the challenge by Monster, 5 Hour Energy agreed to increase the size of the disclaimer and leave it on the screen for a longer period of time. NAD was satisfied with this resolution.

The Great Behavioral Advertising (BA) Debate Continues

In our last blog entry on Behavioral Advertising, we asked you to watch this space, noting new Congressional concern that the FTC’s self-regulation Principles alone will be sufficient to protect consumers. In that piece, we reviewed in passing the latest effort by one industry group to convince legislators and regulators more attention is not always better, the IAB’s “Self-Regulatory Principles for Online Behavioral Advertising”. Since then, while others have come forward attempting to interpret the IAB’s Guidelines in a more user friendly way, we have not seen a comparison of the IAB’s Guidelines and the NAI’s revisions to its Code late last year, either to each other or the FTC’s Principles.

The first question that comes to mind is “why would anyone do so?” and we have either three sound reasons, or at least three reasons that sound good. First, there’s no guarantee anything new will emerge from either Congress or the FTC without another “DPI” scare or unauthorized data breach fiasco to spur them along, leaving the two industry regimes as the only “guidance” companies have other than the Principles (and what the Commission may occasionally say the Principles relate to). Second, even if something new does emerge, good money is on the option where the FTC or Congress craft something that operates on top of self-regulatory programs rather than replacing them, making any differences between the Principles and those programs more important. Finally, some moves last week by a coalition of consumer privacy organizations may have upped the ante a bit. By offering detailed suggestions to address holes they see in the industry regimes, and urging Congress to plug these holes (and more), it becomes more important to know if holes really exist, and how big they might be.

As space is limited, we’ll tackle a review of the privacy organizations’ proposals in a companion piece, and focus here on the industry guidelines and the FTC’s Principles. This task is challenging enough given the size of the guidelines, inconsistent commentary or explanations, and the tendency of their drafters to use different terms, define the same terms differently, and consequently make life a bit more difficult for anyone attempting to do what we’re doing for you. 

FCC Wants Consumers to Get the Truth, Nothing but the Whole Truth, So Help Them

It should come as no surprise to those in the blogosphere that consumers are relying on mobile broadband and innovative telecom services at an ever-increasing pace. The Federal Communication Commission (FCC) under the leadership of Chairman Julius Genachowski – who, in a short time at the helm, has the FCC blogging, tweeting and on YouTube – is looking at the FCC’s “truth-in-billing” and other consumer protection policies in light of the dynamic changes in communications services since the FCC last examined these issues. To update its record, the FCC recently released a Notice of Inquiry seeking comment on whether there are ways to protect and empower consumers by developing policies to ensure sufficient access to and disclosure of information by communications providers through billing and other practices.

The FCC’s existing truth-in-billing rules, which currently only apply to wireline and wireless voice service providers, require that customer bills:

• Be clearly organized, clearly identify the service provider, and highlight any new providers;
• Contain full and non-misleading descriptions of charges; and
• Contain clear and conspicuous disclosure of information needed for the consumer to contest charges or make inquiries related to the bill.

The FCC’s present inquiry suggests that the FCC could attempt to expand (through a formal rulemaking) the scope of these rules in two ways.

First, the FCC’s existing information disclosure policy has focused on the formatting of consumer bills. The FCC now seeks information available to consumers at all stages of the purchasing process (including selecting a service provider, selecting a service plan, managing use of the service plan, and switching an existing provider or plan).

Second, the FCC has solicited comment on whether any existing truth-in-billing rules or other rules that may develop out of the current inquiry should – for the first time – apply to providers of broadband Internet access, interconnected Voice over Internet Protocol (VoIP) and video subscription services.

The FCC is asking for public input in several key areas including:

• to which services any new and current truth-in-billing rules should apply;
• whether the FCC has jurisdictional authority to adopt truth-in-billing and other consumer protections;
• information that consumers need in all stages of the purchasing process;
• best practices for display of consumer information;
• technological tools that currently or will in the future help consumers compare services and receive information;
• processes for resolving complaints;
• additional consumer education initiatives; and
• relevant consumer disability issues.

Comments and reply comments in response to the Notice are due October 13, 2009 and October 28, 2009, respectively.

- Stephanie Phillipps, Maureen Jeffreys, and Stefanie Alfonso-Frank

Sloppy Record Keeping Leads to Loss of Significant Green from Coral Calcium

The FTC can claim another victory against infomercial pitchman Donald W. Barrett and his affiliates over the dietary supplements, "Coral Calcium" and “Supreme Greens” ― products that were found to be falsely marketed as treatments or cures for a host of serious diseases, including cancer, diabetes and heart disease. (FTC press release found here)

This saga began when the FTC initiated an action on June 2, 2004 against the defendants charging them with making false claims regarding the Coral Calcium and Supreme Greens products (complaint found here). A preliminary injunction issued on July 3, 2004 enjoining defendants from making false or misleading claims concerning any dietary supplement during the pendency of the action. Thereafter, and following discovery, the FTC filed a motion for summary judgment against the defendants arguing that they were liable for falsely claiming that the Coral Calcium and Supreme Greens products would treat, cure or prevent any number of health related problems.

In July 2008, District Judge George A. O’Toole, Jr. of the United States District Court for the District of Massachusetts granted the FTC’s motion for summary judgment, finding that the defendants were liable for deceptively touting the cure-all affects of the Coral Calcium and Supreme Greens products. (Summary judgment decision found here) Following this decision, discovery was conducted and a bench trial had to determine the appropriate terms of injunctive relief and the amount of monetary relief to be ordered.

Judge O’Toole has now spoke . . . and he has hit hard. (August 27 decision and order found here) Acknowledging the willful nature of defendants conduct, Judge O’Toole permanently enjoined the defendants from making any representation about the health benefits, performance, or efficacy, of any product (including the Coral Calcium and Supreme Greens products) unless the representation is true, non-misleading, and, at the time the representation is made, the defendants possess and rely upon competent and reliable scientific evidence that substantiates the representation. As for the assessment of disgorgement, Judge O’Toole determined that defendants’ record keeping with respect to profits of the products was not reliable. The Court was troubled that there were multiple different versions of Defendant’s financial statements with different amounts listed for sales and net income, stating “The degree of difference was not so great that a reasonable estimate could not be made on the basis of the differing figures, but the very fact of the variations, together with other evidence about the casual and deceptive way financial information was maintained and reported . . . undermines any confidence that even the ranges reported are close to accurate. The defendants were fiction writers in their infomercial and there is reason to be concerned they were fiction writers in their financial statements.” Thus, the Court accepted the sales numbers advanced by the FTC ― net revenue numbers rather than net profits during the time the ads at issue were run, totaling approximately $70 million. The disgorged sum will be used for consumer redress.

Trudeau Slips Out of the Noose . . . For Now

Kevin Trudeau -- infomercial seller of cures for cancer, AIDS, and obesity -- has been a target of the FTC for over a decade. A recent decision by the Seventh Circuit has put off sanctions for his most recent activities for at least a little while longer. Although the court agreed that Trudeau should be held in contempt for violating the terms of a consent order with the FTC, the court vacated a $37.6 million sanction and a three-year ban on all infomercials, remanding to the district court for further proceedings.

We have blogged in this space before about some of Trudeau’s past run-ins with the FTC. The current chapter in the FTC-Trudeau saga arises from alleged violations of a 2004 consent order, which banned Trudeau from making further infomercials -- with the exception of infomercials for books. Even for books, Trudeau agreed not to “misrepresent the content of the book” in the infomercial. His infomercial for The Weight Loss Cure “They” Don’t Want You to Know About trumpeted the book as containing an “easy,” “simple” weight loss program able to be completed at home. In fact, the book’s dozens of dietary and lifestyle restrictions included a 500-calorie daily diet and injections of a prescription hormone not approved for weight loss. For this violation of the 2004 Consent Order, the district court held Trudeau in contempt, a result that the Seventh Circuit affirmed three weeks ago.  The district court also attempted to sanction Trudeau by ordering him to pay $37.6 million and banning him from appearing in infomercials of any kind for the next three years. This, the Seventh Circuit found “troubling.” 

Dare to Compare (Credit Cards) at NAD

We Americans love our freebies, and the competition for “what’s in your wallet” has never been more intense, with issuing banks focusing on wooing our loyalty with cash back, airline miles and points to get other free stuff as much or more often than focusing on credit terms. (I must confess I have no idea how the rate I am getting for my Disney Rewards Card compares but I reach for my “Mickey card” most often as I sure love my earned discounts when I go to the World!) NAD was asked to review a campaign for the US Bank FlexPerks Visa card, that gave side by side comparisons to American Express’ SkyMiles card, with claims such as “more value vs. less,” earn points “fast,” and “double points,” and recommended modifications to certain of the claims.

Because the parties did not submit any consumer perception evidence, NAD put on its consumer hat and made its own determinations as to how a reasonable buyer would interpret the advertising claims. Any company bringing or defending an action at the NAD has to make the difficult choice as to whether to conduct consumer surveys, almost always an expensive proposition if done right and still subject to critique, or roll the dice with NAD’s interpretations.

NAD found that the “more value vs. less” claim stating that 20,000 FlexPoints are worth up to $400 of airline travel whereas 20,000 SkyMiles are only worth $200 worth of airline travel, misled consumers to believe that SkyMiles could only be redeemed with American Express’ “Pay with Miles” program. However, SkyMiles may be redeemed in a variety of ways and 20,000 SkyMiles have potential values greater than $200.00. US Bank did provide a parenthetical disclosure that the “more value for less” claim applies only to comparisons between US Bank’s “Awards Tickets” program and the American Express “Pay with Miles” program. However, NAD found the disclosure to be inadequate for two reasons: 1) many ordinary consumers would not understand these terms and the fact that the programs are qualitatively different, and 2) the parenthetical was too small and inconspicuous.

In addition, NAD found that there was no evidence that FlexPerks consumers earned points “fast” as compared to SkyMiles consumers. Further, FlexPerks consumers do not “always” earn “double rewards” on either gas, groceries or airline purchases because the “double rewards” program does not apply to such expenditures exceeding $12,000 per year; and SkyMiles redemptions are not subject to “blackout dates” because consumers could choose to redeem more miles to obtain tickets for certain flights that are unavailable at the general miles requirement level.

Government Enforcement Of Consumer Protection Statutes Increases in California

As many who follow California consumer law issues are aware, the state’s 2004 ballot initiative (often referred to as “Proposition 64”) restricted private plaintiffs’ rights to sue under California’s Unfair Competition Law, California Business & Professions Code section 17200 et seq. However, at the same time, Proposition 64 also gave government prosecutors “the exclusive use” of any civil penalties they obtain in enforcement actions (the funds are to be used “by the Attorney General, the district attorney, the county counsel and the city attorney for the enforcement of consumer protection laws”). See California Business & Professions Code section 17206(c).

Thus, despite the fact that it has become more difficult for private plaintiffs in California to enforce laws, Proposition 64 hung a carrot in front of government agencies, giving them an incentive to file suit against the state’s businesses. Not surprisingly, the result has been an increasing trend of government enforcement of California’s consumer laws. Because a company’s violation of any law -- local, state, or federal -- is a violation of California’s Unfair Competition Law, it provides for catchall enforcement regardless of the policies of regulatory agencies. Areas of special focus include false advertising, slack fill prohibitions, financial disclosures, and chemical labeling requirements. The consumer protection divisions of many government prosecutors’ offices now have a growing source of funds dedicated solely to the enforcement of these laws. Furthermore, state and local prosecutors also regularly work across county lines to increase the impact of these new-found resources.

These actions include the recently-settled alleged violations of California’s unusually detailed gift card requirements brought by a coalition of district attorneys from of Sonoma, Monterey, and Shasta counties. See here. California’s gift card requirements have traditionally been enforced almost exclusively by private plaintiff’s lawyers under the state’s Unfair Competition Law. But recently, California’s district attorneys and city attorneys have become increasingly active in enforcing this statute and other “only in California” requirements. 

UK Update: Lynx Bullet Advert Cleared of Sexism Claim

The UK Advertising Standards Authority (ASA) received 41 complaints about the recent Lynx Bullet campaign. The TV ad featured a man meeting fully-clothed women in several situations. The women the man saw were fully clothed until he looked back and each was in her underwear. He then sprayed himself with Lynx Bullet and when the woman looked back at him, she saw him wearing only underpants. They exchanged glances and a voiceover says “Never miss an opportunity with the new Lynx Bullet. Pocket pulling power”. Complaints were made on a number of grounds including that the TV ad was offensive and demeaning to women and that the ads glamorised guns and violence by linking the bullet-shaped body spray with sex. The ASA dismissed the complaints, saying that the TV ad depicted a clearly fictional situation and used humour to “depict a scenario that took place only in the man’s mind”. The ASA also found no link to glamorising guns as there was no other reference to guns, shooting or violence.

Click here to read the full adjudication. A video of the advertisement can be found here.

- Richard Dickinson and Jake Marshall