Advertising Litigation Report: January/February 2016

The Advertising Litigation Report provides legal commentary on developments in advertising litigation and consumer fraud class actions. Our editorial team provides insights into Lanham Act cases, consumer fraud class actions, NAD challenges, data privacy and regulatory issues.

In This Issue:

Lanham Act False Advertising Cases

Consumer Fraud Class Action Developments 

National Advertising Division (NAD) Update 

Federal Trade Commission (FTC) Guidance 

Consumer Privacy and Data Security 

Lanham Act False Advertising Cases

The Yogurt Wars

Preliminary Injunction Granted Against Chobani's Literally False Ads Chobani, LLC v. Dannon Co., No. 16 CV 30, 2016 WL 369364 (N.D.N.Y. Jan. 29, 2016); Gen. Mills, Inc. v. Chobani, LLC, No. 16 CV 58, 2016 WL 356039 (N.D.N.Y. Jan. 29, 2016)

Yogurt manufacturers moved to enjoin Chobani's ads that touted its yogurt's all-natural ingredients and claimed that its competitors' Greek yogurts contain "bad stuff": General Mills' Yoplait Greek 100 contains potassium sorbate ("that stuff is used to kill bugs!") while Dannon's Light & Fit contains Sucralose [Splenda] ("That stuff has chlorine added to it!"). The court granted the competitors' motions for a preliminary injunction on the ground that Chobani's ads were false by necessary implication, i.e., Chobani's claims conveyed the literally false message that the challengers' yogurts were "unsafe to eat." The court rejected Chobani's contention that its "no bad stuff" claim was mere puffery -- and that its claims about its competitors' ingredients are in fact true. The court noted that the context in which claims are made matters to an advertiser's puffery defense, drawing a critical distinction between general statements and comparison claims that disparaged competitors' products. View the decisions Chobani v. Dannon and Gen. Mills, Inc. v. Chobani.

Materiality Matters

Reed Constr. Data Inc. v. McGraw-Hill Cos., 49 F. Supp. 3d 385 (S.D.N.Y. 2014), aff'd --- F. App'x ---, 2016 WL 80577 (2d Cir. Jan. 7, 2016)

Reed, the sole competitor of defendant McGraw-Hill as national providers of construction product information, alleged that McGraw-Hill's ads, which exaggerated the comparative advantage of McGraw-Hill's platform, violated the Lanham Act. The Second Circuit affirmed summary judgment for McGraw-Hill, finding materiality was lacking where "overwhelming" evidence established that consumers did not base their decision about which platform to use on McGraw-Hill's advertising. View the decision.

Bad Faith and Attorneys' Fees Granted in "Exceptional Case"

Sleepy's LLC v. Select Comfort Wholesale Corp., No. 07 CV 4018, 2016 WL 126377 (E.D.N.Y. Jan. 11, 2016)

The court awarded statutory attorneys' fees to prevailing defendant Select Comfort because the evidence showed "substantial overtones" that the lawsuit was filed as a "competitive ploy" after a retail agreement collapsed, rather than a good-faith Lanham Act suit. The court also found support for its decision to award attorneys' fees in plaintiffs' "egregious" conduct in spoliating evidence. View the decision.

Consumer Fraud Class Action Developments 

SCOTUS: Rule 68 Offer Does Not Moot Class Action

Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016)

The Supreme Court held that defendants cannot moot putative class action claims by making an offer of full relief to individual plaintiffs. "[A]n unaccepted settlement offer has no force," Justice Ginsburg wrote for the Court. "Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant's continuing denial of liability, adversity between the parties persists." In so holding, the Court distinguished decisions where plaintiffs had "received full redress for the injuries asserted in their complaints" from those (like the present case) where plaintiff was not actually provided any relief. Indeed, the Court specifically noted: "We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff's individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical." View the decision.  

"Specifically Worded Statement" Necessary to Certify Class Action Alleging Misrepresentations in Advertising

Cabral v. Supple LLC, No. EDCV-12-85-MWF(x) (C.D. Cal. Jan. 7, 2016)

The Ninth Circuit previously vacated an order granting class certification, finding that plaintiff failed to establish the "critical" requirement of a case alleging misrepresentations in advertising: namely, that the misrepresentation in question was made to all class members. Plaintiff sought to renew her motion for class certification, attempting to limit the class to consumers who viewed defendant's infomercials (which, plaintiff maintained, included various false statements). The court denied plaintiff's request, rejecting the theory that a class could be certified without showing that a "specifically worded statement" was made to the entire class. View the decision.

Consumers' "Willingness to Pay" Is an Inadequate Measure of Classwide Harm

In re NJOY Consumer Class Action Litig., No. CV 14-428-JFW (C.D. Cal. Feb. 2, 2016)

Plaintiff claimed that manufacturer NJOY engaged in a false and misleading advertising campaign conveying the message that its electronic cigarettes are safer than regular tobacco cigarettes and that NJOY omitted material information from its packaging, including both an ingredient list and the potential risks associated with certain ingredients. In a previous order denying class certification, the court held that a consumer's subjective willingness to pay is an inadequate measure of classwide harm, and the proper measure of damages is "the difference between the market price actually paid by consumers and the true market price that reflects the impact of the unlawful, unfair, or fraudulent business practices." The court rejected plaintiffs' renewed motion for class certification, concluding that their new and revised models again failed to meet this standard. View the decision.  

Denying Certification of Injunctive Class: Article III

Torrent v. Yakult U.S.A., Inc., No. SACV 15-00124-CJC(JCGx) (C.D. Cal. Jan. 5, 2016)

Plaintiff, who alleged that defendant falsely labeled its probiotic beverages as providing health benefits, had Article III and statutory standing to pursue his claim to recover restitution and declaratory relief. Nevertheless, the court simultaneously concluded that plaintiff lacked Article III standing to seek injunctive relief because he had no intention of purchasing the challenged product again, and therefore could not satisfy Article III's standing requirement that a plaintiff seeking injunctive relief must proffer evidence that there is a sufficient likelihood that he will be wronged in the same way in the future. View the decision.

Football Fans Lack Standing Under Article III

Finkelman v. Nat'l Football League, 810 F.3d 187 (3d Cir. 2016)

Consumers who were allegedly frustrated in their attempts to purchase tickets to the Super Bowl at face value brought a putative class action against the NFL. The court held that a consumer who decided not to purchase tickets due to allegedly exorbitant prices did not suffer an injury-in-fact under Article III since he took no meaningful action to attempt to attend the event and experienced no out-of-pocket loss. A consumer who did purchase tickets on the secondary market at prices in excess of the printed ticket value likewise lacked Article III standing because he "can only speculate as to whether, absent the NFL's withholding, the prices he paid in the resale market would have been cheaper. He has to guess. In the final analysis, Article III requires more than this kind of conjecture." View the decision.

Individual Statute of Limitations Issues Defeat Class Certification

Enea v. Cal. Culinary Acad., Inc., No. A141886, 2016 WL 409939 (Cal. Ct. App. Feb. 3, 2016)

Plaintiffs brought a putative class action against a culinary program, alleging that the program falsely advertised postgraduation employment rates in order to induce students to enroll and to take on expensive loans. The appellate court affirmed the trial court's denial of class certification, finding that plaintiffs' allegations raised numerous statute of limitations questions that necessarily require individualized inquiries regarding many, if not all, plaintiffs. Because these individualized issues predominated over common questions of law and fact, class certification was inappropriate. View the decision.  

Claims Alleging Intentional Misuse of "Organic" Label Are Not Preempted

 
Quesada v. Herb Thyme Farms, Inc., 195 Cal. Rptr. 3d 505 (Cal. 2015)

Plaintiff alleged that herbs were labeled and sold as organic even though some were conventionally grown. The California Supreme Court unanimously held that preemption of state law claims under the federal Organic Foods Production Act of 1990 (OFPA) does not extend to state lawsuits alleging intentional misuse of the organic label. The court held: (1) because the pertinent provisions of OFPA do not reference enforcement, the statute expressly preempts state law only as to the definition of organic and the process for certifying that a grower's methods of production entitle it to use the organic label; and (2) the claims are not impliedly preempted because they did not pose an obstacle to the uniform federal regulatory scheme but, rather, furthered the purpose of that scheme. View the decision.

National Advertising Division (NAD) Update 

NAD/NARB Filing Fees Increased as of Feb. 1, 2016

The filing fee for all appeals before the National Advertising Review Board (NARB) increased to $15,000 from $12,000. The fee can be adjusted/waived on showing of economic hardship, and consumers may file challenges free of charge. In addition, NAD filing fees were increased for National Partners of the Council of Better Business Bureaus, to $15,000 from $10,000, as well as for other challengers with gross annual revenue of less than $1 billion, to $20,000 from $15,000. View the decision.

Novartis Consumer Health, Inc., Case No. 5873 (Dec. 17, 2015)

NARB reviewed an NAD decision finding that Benefiber's "helps maintain regularity" claims lacked substantiation. Both NARB and NAD concluded that the claim conveyed to consumers that Benefiber provides a meaningful benefit with respect to regularity. NAD found that Novartis did not provide sufficient information to assess whether the studies it submitted to substantiate its claim were competent and reliable. NARB also noted that the study summaries provided insufficient detail as to the overall study results, because findings related to regularity were cited only for selected subgroups. Novartis could not rely on "conventional wisdom," but needed to show studies demonstrating that wheat dextrin, or its functional equivalent, at doses similar to the recommended dose for Benefiber have a meaningful impact on regularity. View the decision.

American Dryer, Inc., Case No. 5916 (Jan. 5, 2016)

NAD reviewed claims about a hand dryer's efficacy at killing germs that included: "CPC technology is proven to kill germs by leading microbiology labs."; "ExtremeAir CPC is the most hygienic method of hand drying ever!"; and "Independently proven to kill: E. Coli, Salmonella, Influenza A, Staph, C. diff, MRSA." American Dryer relied on testing purportedly demonstrating that cold plasma technology has germ-killing efficacy on surfaces in a laboratory setting. In this case, however, American Dryer made claims of germ-killing efficacy with respect to cold plasma technology on air drawn into and expelled from its product under real-world conditions. NAD concluded that the evidence was not sufficient to support the challenged express claims or the reasonably conveyed messages that its product killed germs on hands dried under the device, or offered a more hygienic or superior public health benefit than that of conventional hand dryers, and recommended that the claims be discontinued. View the decision.

Church & Dwight Co., Inc., Case No. 5919 (Jan. 29, 2016)

Clorox, the maker of Clorox Bleach, challenged advertisements for bleach-alternative OxiClean. The ads included statements touting the product's whitening power, stating: "Get the tough stains out without the worry of chlorine bleach," bleach is "scary" and "We read care labels on thousands of white garments and we were surprised they had this warning symbol which means do not use chlorine bleach." NAD recommended that the advertiser discontinue the "Scary Bleach" commercial to avoid conveying the message that chlorine bleach is damaging to white clothes. NAD also held that advertising statements referring to clothing care labels recommending only non-chlorine bleach were acceptable and not misleading. View the decision.

Federal Trade Commission (FTC) Guidance 

FTC Issues Guidance on Native Advertising

The FTC released in December 2015 an enforcement statement and companion guide for businesses on native advertising, focusing particularly on digital media advertising. The watchword for the guidance is "transparency" -- the commercial nature of an ad is evident, either on its face or through appropriate disclosures. The Enforcement Policy Statement on Deceptively Formatted Advertisements guidance points out, for example, that even if an ad is formatted the same way as content, the commercial nature of the ad may be obvious and not require disclosure. Similarly, sponsored content that does not pertain to a company's products or services would not require full disclosure; however, content that is produced by a publisher, but sponsored by the company and featuring or discussing company products, must be clearly disclosed.

Guidance specific to digital media: 

• Click-on ads: Disclosures may be necessary on both originating page (including news feed) and clicked page. 
• Even if content was produced independently, clear disclosures are necessary if content/article is reproduced or "recommended" on other sites in a manner that would appear that recommended content is not a paid ad. 
• Sponsored videos: Disclosures will generally be necessary if a product is recommended or featured in a way that advertises the product. 
• Shares and news feeds: Need for disclosures depends on reasonable expectations (e.g., does the post come from the company directly or through a different site or user?) 
• Paid content coming up in non-paid search results: Disclosures for any link or other visual elements, for example, webpage snippets, images or graphics, intended to appear in non-paid search results must effectively disclose their commercial nature.

In all situations, disclosures must be stated in clear and unambiguous language, placed as close as possible to the native ad, and use a font, color and shade that are easy to read and conspicuous. Video ads must include disclosures that are visible on the screen long enough to be noticed, read and understood, and audio disclosures should be read in clear language and at a cadence that's easy to understand.

FTC's Big Data Report

The FTC released a report titled Big Data: A Tool for Inclusion or Exclusion: Understanding the Issues. The January 2016 report examines how big data is used, after it is collected and analyzed, and outlines questions for businesses to consider in order to help ensure legal compliance (Fair Credit Reporting Act and equal opportunity laws, as well as the FTC Act) and avoid discriminatory or exclusionary impact of their big data policies.

Specifically, the report poses four key policy questions drawn from research into the impact of big data on underserved populations: 

• How representative is your data set? 
• Does your data model account for biases? 
• How accurate are your predictions based on big data? 
• Does your reliance on big data raise ethical or fairness concerns? 

Consumer Privacy and Data Security 

U.S.-EU Privacy Shield Replaces Defunct Safe Harbor Framework

The European Commission announced Feb. 2, 2016, that the Commission and the U.S. Department of Commerce had reached an agreement on a new trans-Atlantic data transfer framework: the "EU-US Privacy Shield" or, colloquially, Safe Harbor 2.0. The Privacy Shield replaces the former U.S.-EU Safe Harbor framework, which was struck down by Europe's highest court this past October in Schrems v. Data Protection Commissioner. In order to address European concerns about U.S. government surveillance, U.S. officials provided written assurances that intelligence and law enforcement surveillance of personal data will be subject to "clear limitations, safeguards and oversight mechanisms" and "ruled out indiscriminate mass surveillance on the personal data transferred" under the arrangement. U.S. companies receiving personal data from EU citizens must "commit to robust obligations on how personal data is processed and individual rights are guaranteed" and must publish those commitments, under the oversight of the Department of Commerce. The FTC will have the authority to enforce those obligations. To further aid in data-transfer under this agreement, on Feb. 24, 2016, President Barack Obama signed into law the Judicial Redress Act, which will allow European citizens to seek legal redress if their personal data is misused.

NYAG Settlement With Uber in Data-Breach Investigation

The New York State Office of the Attorney General Jan. 6, 2016, issued an "assurance of discontinuance" memorializing its settlement with Uber over its handling of riders' (and drivers') personal information, following the discovery of a substantial data breach in 2014. Under the terms of the settlement, Uber must encrypt riders' GPS information and adopt authentication measures before any employee can access riders' sensitive personal information. Uber also agreed to pay a $20,000 penalty for violation of New York's privacy law for failing to provide timely notice of the breach, when one of its engineers posted an access ID for the company's cloud storage on an unsecured website and Uber drivers' names and license numbers were accessed by someone unaffiliated with the company. View the decision.

ERISA Preempts Data Breach Claims

In re Anthem, Inc. Data Breach Litig., No. 15-MD-2617-LHK (N.D. Cal. Jan. 27, 2016 & Feb. 14, 2016)

In this lawsuit arising out of the breach of unencrypted protected health information, the court denied plaintiffs' request for remand in January 2016, as well as a subsequent motion for reconsideration. The court issued an 82-page decision Feb. 14, 2016, holding that the loss of personal information could constitute harm under New York's General Business Law (GBL). Although the court found that the loss of the value of personal information and of the "benefit of the bargain" are cognizable injuries under the GBL, out-of-pocket costs to protect against the consequences of identity theft and the "fear of imminent further costs" are not cognizable injuries under that law. View the decision.

After $100 Million FTC Settlement, LifeLock Settles Consumer Fraud Class

Action Ebarle v. LifeLock, Inc., No. 15-CV-00258-HSG, 2016 WL 234364 (N.D. Cal. Jan. 20, 2016)

The FTC entered a $100 million settlement in December 2015 with LifeLock, an identity theft protection provider, over claims that the company violated a 2010 federal court order requiring it to secure consumers' personal information and prohibiting the company from deceptive advertising. Apart from the FTC action, LifeLock was involved in a consumer fraud class action alleging that misrepresentations about consumers' personal data security in defendant's advertising violated Arizona consumer protection law. The class action settlement includes a $68 million fund, which the defendant can fund using part of the $100 million FTC settlement for consumer redress. View the decision.