Court Finds 5-Hour ENERGY® Can Support Some but Not All of Its Claims

We have written several times about the FTC’s effort to rein in what it sees as unsubstantiated cognitive improvement claims (see prior blogs: Brain Training, Lumosity, Word Smart, and Your Baby Can Read). Well, the states appear focused on this segment, too. On October 7, 2016, after two years of litigation and a trial, Judge Beth Andrus of the Superior Court of King’s County Washington issued a 59 page opinion resolving claims the Washington State AG had made against the makers of 5-Hour ENERGY® for alleged deceptive advertising in violation of the Washington Consumer Protection Act (CPA). For those of you who do not watch TV, browse the Internet, visit convenience stores or spend time with college students, 5-Hour ENERGY® is an “energy drink” marketed as a dietary supplement, with ingredients consisting of caffeine, B vitamins and other nutrients. The court found for the AG on some claims and for the defendants on some others. How the court reached its decision is worth spending a little time if you have the energy.

The case arose out of a multi-state investigation that began in 2012. While the other states appear to have closed their investigations, in 2014, Washington State sued and subsequently filed an amended complaint in 2015. At trial, the court considered live or deposition testimony from close to 20 scientific experts, including a former Director of the FTC’s Bureau of Consumer Protection, Howard Beales. The legal framework used by the court mirrored that used by the FTC in determining whether the claims were deceptive. The court considered five claims at trial, assessing the company’s advertising to determine whether the claims were made, and then the substantiation to support the claim if made.

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CFPB Supervision and Enforcement: Thinking About Overlap

Thursday, October 27, 2016
2:00 p.m. – 3:00 p.m. ET

A Venable LLP Webinar

Since opening its doors, the Consumer Financial Protection Bureau has conducted dozens of examinations of banks and, for the first time for a federal regulator, non-bank financial services providers. As a result of this supervisory activity, the CFPB has ordered more than $350 million in consumer relief and, in some cases, brought follow-up public enforcement actions. How a company prepares for and manages a CFPB exam can make the difference between a passing grade and an enforcement action. This webinar will take a close look at the interplay between the CFPB’s supervision and enforcement work and what that means for companies that are subject to examination. Among other things, we will address:

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Native Advertising and Influencer Marketing Workshop

Join Venable on October 27 for a half-day workshop in the firm’s Los Angeles office designed to make sense of recent enforcement actions involving social, influencer, and native campaigns. Venable’s Amy Ralph Mudge, Randy Shaheen, Melissa Steinman, and Po Yi will share best practices that in-house counsel and compliance personnel at brands, agencies, and publishers can use to mitigate legal risk. In addition, the workshop will provide nuanced tips for structuring deals and licensing IP for these campaigns. CLE credit is available for this workshop.

If you are unable to attend the workshop in person, it will also be simulcast as a webinar.

Click here to learn more about the workshop and register to attend in-person or via the webinar.

Sweeping New Federal Regulations for the Prepaid Industry

Note: We have revised the description of the terms of the settlement in our recent blog post on the Carribean Cruise Line TCPA matter. Click here to read the corrected post.

paperworkHaving trouble sleeping and need something to read? Lucky for you the Consumer Financial Protection Bureau (the Bureau) recently released its 1700+ page final rule for prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act. On the other hand, if you’d rather spend your wakeless nights watching playoff baseball, we’ve got you covered with a brief summary of the rule and some implications for the prepaid industry.

What are the types of prepaid accounts subject to the rule? The final rule defines prepaid accounts to encompass a diverse group of products, including traditional general-purpose reloadable cards; non-reloadable prepaid cards; payroll cards; student financial aid disbursement cards; tax refund cards; government benefit cards; mobile wallets; person-to-person payment products; and other electronic prepaid accounts that can store funds. The rule excludes from coverage gift cards and gift certificates; accounts used for savings or reimbursements related to certain health, dependent care, and transit or parking expenses; and certain limited government program accounts.

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D.C. Circuit Addresses CFPB’s Constitutionality, RESPA Interpretation, and Statute of Limitations Issues in PHH Decision

The United States Court of Appeals for the D.C. Circuit today issued a highly anticipated decision in PHH Corp. v. CFPB (Case No. 15-1177). In a 110-page decision, the D.C. Circuit held that the CFPB’s structure as a single-director independent agency is unconstitutional. The decision on the constitutional issue, however, may have “important but limited real-world implications.” The Court described its ruling, severing the “for-cause” removal provision from the Dodd-Frank Act, as a “targeted remedy” that “will not affect the ongoing operations of the CFPB.”

The Court’s decision comes as part of a closely watched case in which PHH, a nonbank mortgage lender, appealed CFPB Director Richard Cordray’s $109 million order against the firm for allegedly improper payments involving mortgage reinsurance arrangements. Importantly, the Court’s decision made clear that it was not disbanding the CFPB, but instead severing the “for-cause” provision of the CFPA. In other words, the President can now remove the CFPB Director “at will” and can “supervise and direct” the Director, and need not rely on a case of “inefficiency, neglect of duty, or malfeasance in office” to remove the Director.

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FTC Wins Some, Loses Some at Second Circuit in LeanSpa Appeal

We wrote previously about the FTC’s efforts to hold an affiliate network (LeadClick) and that network’s successor (CoreLogic) responsible for their role in working with LeanSpa, a marketer of dietary supplements. LeanSpa primarily marketed its diet products through “fake news” stories placed by affiliate marketers. Here is a link to an example of the “fake news stories” at issue: The Second Circuit recently affirmed the FTC’s efforts to hold LeadClick responsible, but rejected the FTC’s efforts to hold CoreLogic responsible as a relief defendant. The opinion provides important guidance regarding the circumstances under which affiliate networks may be held responsible for advertising, the applicability of the Communications Decency Act (“CDA”), and the contours of relief defendant liability.

The FTC and the Connecticut AG sued LeanSpa in 2011, later amended the complaint to add LeadClick, and then further amended the complaint to add CoreLogic as a relief defendant. LeanSpa settled. In 2015, the District Court granted the FTC’s motion for summary judgment against both LeanSpa and CoreLogic, requiring LeadClick to disgorge all proceeds it received from LeanSpa and CoreLogic to disgorge $4.1 million, which was an amount LeadClick had transferred to CoreLogic. The defendants appealed, raising three issues: 1) LeadClick’s liability under Section 5 of the FTC Act and its Connecticut state counterpart; 2) LeadClick’s immunity under Section 230 of the CDA; and 3) CoreLogic’s liability as a relief defendant.

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Live from New York It’s the NAD Advertising Law Conference!

New York CityWith the end of summer and the start of school also comes the fall advertising law conference season, starting with the annual NAD conference. We wanted to share some highlights of the two-day event from last week.

FTC Bureau Director Jessica Rich gave the keynote. While the FTC will not discuss pending cases, when discussing priorities, the Bureau Director is obviously aware of what is in the pipeline and where the staff is investigating and considering new cases, so we always give these remarks close attention. Jessica said when deciding what cases to bring, “we take our cues from the marketplace and target our enforcement on practices that limit consumer choice and do consumers harm.” She said the marketplace issues are currently closely tied to technology – how people shop for goods and engage with friends and with the products they buy. She flagged the establishment of the Office of Technology Research and Investigation (OTech) and credited it with helping the Bureau of Consumer Protection get on top of tech issues including training staff about new technology, hosting visiting scholars, engaging with the tech community and planning workshops. She said “we want to be the consumer protection agency for tech issues.” As far as current advertising enforcement priorities, Jessica noted 3 trends in Advertising Practices, in addition to the “steady diet” of health and weight loss claims and problems of disclosures. These are health apps, health claims targeting older consumers and advertising in new media. In more detail:

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Ninth Circuit Decides Not To Stay Natural Case, But Read the Fine Print

orange splashWhen courts decide to stay actions to await FDA guidance in an area, it’s only natural that our ears perk up. Which has been going on a lot, with cases such as Kane v. Chobani and Swearingen v. Santa Cruz Natural, Inc.

Last week, however, the Ninth Circuit Court of Appeals, which had previously opted to wait for FDA guidance with respect to evaporated cane juice, decided there was no need to wait for FDA to provide further guidance on “natural” claims in Brazil vs. Dole. In 2013, the lower court had granted in part, and denied in part, Dole’s motion to dismiss or strike the first amended complaint. (More about the significance of the 2013 date below.) The Ninth Circuit found that a decision not to stay or dismiss the case under the doctrine of primary jurisdiction was not an abuse of discretion.

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Why the Caribbean Cruise Line Record-Breaking TCPA Settlement Could Contribute to “The End of the [TCPA] World As We Know It” (and We Feel Fine)

Caribbean Cruise Line Settlement

(Revised 10/13)

A Telephone Consumer Protection Act (“TCPA”) class action litigation, Birchmeier, et al. v. Caribbean Cruise Line Inc., et al., No. 1:12-cv-04069 (N.D. Ill.), has been winding its way through the court system for four years and finally settled this month. Caribbean Cruise Line and its co-defendants, who were sued for violating the TCPA by allegedly robocalling millions of individuals with offers for free cruise trips, will now pay between $56 million and $76 million, to settle claims of the approximately one million person class who received such calls from the defendants in 2011 and 2012, after the Northern District of Illinois certified several classes, granted partial summary judgment to the plaintiffs, and denied the defendants’ motions to decertify the class and for summary judgment in their own right. Individual class member recovery will be based on the number of valid claims submitted, with each class member being entitled to $500 for each call received (with a rebuttable presumption that each class member received three calls) but subject to reduction pro rata if the total payments exceed $76 million, after the costs of administration, incentive awards to the four class representatives ($10,000 each), and any award of attorneys’ fees (at most $24.5 million) are factored in. (should total payments at $500 per call (plus administration costs, incentive awards, and attorneys’ fees) be less than the $56 million settlement floor, each class member may receive a pro rata payment of more than $500 per call up to a maximum of $1,500 per call.) If the settlement is approved and Caribbean Cruise Line ultimately ends up paying the $76 million, then, as the plaintiffs’ attorneys noted in their motion for preliminary approval, the settlement “promises to go down as the largest settlement in TCPA history.”

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A Look Inside the Official CFPB Enforcement Policies and Procedures Manual

CFPB Enforcement Policies and Procedures ManualSince its launch in 2011, the Consumer Financial Protection Bureau (CFPB or Bureau) has developed a reputation for its aggressive investigation and litigation tactics. The Bureau’s Enforcement Policies and Procedures Manual for its enforcement staff provides a peek behind the curtain at how CFPB enforcement actions unfold.

Despite the CFPB’s push for transparency, a copy of the 390-page document is not available on its otherwise comprehensive website. (By comparison, the Federal Trade Commission (FTC) has for many years made available its Operating Manual as a public record.)

Following sections on document maintenance and retention policies, the manual includes a discussion of its policies governing the conduct of investigations, litigation, remedies, adjudicative proceedings, working with other law enforcement partners, practice guidance, and administrative issues, as well as model forms and sample language used in investigations and litigation by CFPB enforcement staff.

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