“Judicially Found to Help Prevent False Advertising Litigation”: Fourth Circuit Clarifies Requirements for Pleading a Dietary Supplement False Advertising Claim

On June 19, 2015, the U.S. Court of Appeals for the Fourth Circuit issued its decision in In re GNC Corporation; Triflex Products Marketing and Sales Practices Litigation (No. II), — F.3d –, No. 14-1724, 2015 WL 3798174 (4th Cir. June 19, 2015), handing a significant victory not just to the defendants in that multidistrict false advertising class action litigation, but to dietary supplement manufacturers nationwide that face false advertising claims brought under state consumer protection laws.  More specifically, the Fourth Circuit’s decision made clear that, in order for a false advertising case to proceed beyond the dismissal stage, the complaint must allege that there is not a single qualified expert who would opine that the challenged representation is truthful.  The ruling should prove a useful tool to any dietary supplement manufacturer finding itself the defendant in a class action alleging unfair, deceptive, or misleading advertising or marketing.

In In re GNC Corporation, the plaintiff-consumers had purchased glucosamine- and chondroitin-based joint health supplements manufactured and sold by the defendants, GNC Corporation and Rite Aid Corporation.  The defendants alternately advertised on the supplements’ labels that the products “promote[] joint mobility & flexibility”; “protect[] joints from wear and tear of exercise”; “rebuild[] cartilage and lubricate[] joints”; “promote[] joint health”; and provide “[m]aximum strength joint comfort.”  The product label for GNC’s “Triflex Fast-Acting” product also represented that the supplement was “[c]linically studied” by means of a randomized, double-blinded, placebo-controlled trial, which concluded that the supplement was “shown to improve joint comfort and function.”  The plaintiffs alleged that the defendants violated the false advertising statutes and consumer protection acts of California, Illinois, Florida, Ohio, and New York by marketing their supplements as promoting joint health, even though many scientific studies purportedly have shown that glucosamine and chondroitin are “no more effective than placebo” in providing the advertised health benefits.  In essence, the plaintiffs asserted that the various health representations made by the defendants were false because the vast weight of competent and reliable scientific evidence indicate that glucosamine and chondroitin do not provide the promised health benefits.  Continue Reading

NAD Doesn’t Trim Back Humor with a Razor – Important New Ruling on Puffery

We just read one of our favorite NAD decisions ever. And it just so happened to involve one of our favorite recent ad campaigns. We have blogged before about Dollar Shave Club, as a vehicle to talk about Restore Online Shopper’s Confidence Act (“ROSCA”) and a reminder of the legal issues with negative option plans. But we really just wanted to share the web ads because they are hilarious. If you have not seen them, stop reading this blog (yes, you read that right) and have a look.

And even if you have seen it before, you need to refresh your memory to put the NAD’s holding in context. (We promise we are in no way affiliated with the Dollar Shave people and get no pay-per-click revenues. We would like to have a beer with these guys, however.).

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Beastie Boys Win Sizeable Attorney’s Fee Award

By WikiLaurent (CC BY-SA 3.0)

Last week’s sizeable attorney’s fee award in the lengthy Beastie Boys v. Monster Energy Company legal battle is an important reminder of how critical it is to clear third party IP rights in your advertising materials and the financial risks of not doing so.  Last week, a New York federal court ordered Monster Energy to pay the Beastie Boys’ parties $667,849.14 in attorney’s fees, in addition to the $1.7 million in damages that a jury previously awarded—all because Monster Energy ran a promotional video on its website that used portions of five Beastie Boys songs as the soundtrack and included other references to the group without proper permission.

The Beastie Boys originally sought $2,385,175.50 in fees.  The court awarded fees under the Copyright Act but not under the Lanham Act.  In arriving at the final fee award, the court relied on a number of factors, including, (a) some of the work on the case was on the Lanham Act claims, for which attorney’s fees were not recoverable in this case because this case was not “exceptional”; (b) some of Monster Energy’s positions were reasonable whereas other positions taken were unreasonable; (c) certain legal work on certain specific issues should not be borne by Monster; and (d) the Beastie Boys’ bills were higher than typical because the case was staffed heavily with senior lawyers.  The court opined that the still very substantial fee award furthers the goals of the Copyright Act.  Specifically, the court determined that the fee award, coupled with the $1.7 million damages award, serves to compensate the Beastie Boys for their reasonable attorney’s fees in litigating their claims.  The court also noted that such a fee award serves the purpose to deter future would-be infringers and should lead future parties contemplating infringement or “designing corporate protocols with respect to the handling of intellectual property to think twice before disrespecting others’ copyright interests.”  The Beastie Boys’ parties are also seeking roughly $100,000 in costs from Monster Energy from this litigation, and the court directed the Beastie Boys to submit their Bill of Costs to the Clerk of Court for initial review.

The original post regarding the facts of this case and jury award is here.

*Picture by WikiLaurent [CC BY-SA 3.0], via Wikimedia Commons

FDA Gives Food Industry Three Years to Cut Out Trans Fat

The debate over the use of trans fats has been ongoing for years.  Despite claims that trans fats are unhealthy, the Food and Drug Administration historically considered them safe for use in food.  Many of our favorite foods contain the ingredient, including Popeyes fried chicken and Betty Crocker frosting and cake mix.

On June 16, 2015, FDA banned the use of partially hydrogenated oils (“PHOs”), the primary source of artificial trans fat, unless and until a company gets food additive approval from FDA for use of the ingredient.  FDA’s final determination found that PHOs are no longer generally recognized as safe (“GRAS”) because there is no longer a consensus among experts that PHOs are safe for use in food.  The ban only applies to artificial trans fats, not naturally occurring trans fats.  Food manufacturers and distributors have until June 18, 2018 to make sure they remove trans fat from their foods.

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FCC Open Meeting May Open TCPA Class Action Litigation Floodgates . . . Further

For over a year, telemarketers have anxiously awaited clarity on a number of issues relating to the Telephone Consumer Protection Act (“TCPA”), including the treatment of reassigned numbers and the definition of “autodialer.”  At the June 18, 2015, Open Meeting held by the Federal Communications Commission (“FCC” or “Commission”) to vote on updates to the TCPA, the FCC previewed its positions on a number of these issues.  Staying true to the language in the fact sheet circulated by Chairman Tom Wheeler several weeks earlier on May 27, the FCC majority adopted a broad interpretation of “capacity,” emphasizing that the definition of autodialer includes the future or “potential” capacity to dial random or sequential numbers.  This decision could lead to even more devices being classified as autodialers and more litigation.  The FCC also addressed concerns regarding telemarketers’ potential liability for calling reassigned numbers, the limited exceptions for urgent circumstances, and the technological ability to block “robocalls.”

As we have noted in the past, there have been ongoing debates within the FCC and among the courts regarding how broadly “autodialer” (or “automatic telephone dialing system” as is used in the Act) should be defined under the TCPA.  Autodialer consistently has been defined as, “equipment which has the capacity to store or produce telephone numbers to be called using a random or sequential number generator and to dial such numbers,” but until today, there was no clear guidance as to whether “capacity” meant present capacity or future, potential capacity with courts going different ways in their interpretations.  The FCC’s new guidance considers any technology with the capacity, present or future, to dial random or sequential numbers an “autodialer.”  This is troubling to telemarketers because almost any device, with the right engineering, can be programmed to record and redial telephone numbers.  In his dissent, Commissioner O’Rielly highlighted this issue, noting that under the new, expansive definition, the FCC had to use a rotary phone as an example of a device that is not an autodialer.  Despite the deep frustration expressed by the two dissenters, the majority has provided an expansive definition of “autodialer” that will maintain telemarketers’ status as prime targets for class action litigation.  Continue Reading

From Bamboo to Rayon: What a Long Strange Trip It Is

Picture by Luan Anh  (CC BY 2.0)

Rayon, or Viscose if you’re British or just want to sound British, is typically made from wood pulp or plant fibers, including bamboo.  However, in doing so the fibers are subject to significant processing, including numerous chemicals, thus the Grateful Dead reference in the title.  Nevertheless, in a time when consumers are concerned about the environment and their own health, manufacturers and retailers alike are often drawn to evoking the image of lush fields of bamboo and its sustainability and eco-friendly features and thus labeling or advertising textile products as “bamboo,” which, let’s face it, does sound a lot better than rayon.  The difficulty with this is the Textile Fiber Products Identification Act, or Textile Act, for short.  The FTC, which enforces the Act, has established generic names for manufactured fibers that must be used in labeling and advertising.  “Bamboo” definitely is not on the list, while Rayon and Viscose are.  (If you’re a total fiber geek, there is such a thing as a natural bamboo fiber but in the FTC’s view it is rarely if ever used in commercial textiles.)  Just to demonstrate their generous nature, the FTC has said it won’t quibble with terms like “rayon from bamboo,” just so long as the magic word “rayon” appears.  Continue Reading

Don’t Doom Your Crowdfunding Project with the FTC: Keep Your Promises

Picture by methodshop .com  (CC BY 2.0)

Picture by methodshop .com (CC BY 2.0)

The crowdfunding world got a bit more crowded this week–from a legal perspective, at least–when the Federal Trade Commission entered the fray with its first crowdfunding case against a project creator and his allegedly deceptive Kickstarter® Campaign.  The FTC announced Monday on its website that it took action under Section 5 of the FTC Act against Forking Path, Co. and Erik Chevalier, alleging that Chevalier had promised to produce a board game called “The Doom that Came to Atlantic City” with the funds that consumers provided to fund his campaign, but instead used most of the $122,000 that he raised on himself.

According to the FTC, Erik Chevalier misled consumers donating to his Kickstarter project to develop a board game called “The Doom that Came to Atlantic City,” when he represented to backers that if he raised $35,000, they would get certain rewards, such as a copy of the game or specially-designed pewter game figurines. The project garnered a lot of support, and Chevalier ended up raising more than $122,000 from backers, most of whom pledged more than $75 in a bid to obtain those (apparently highly desirable) figurines. For a number of reasons, Chevalier was unable to produce the game, and announced after 14 months that he was cancelling the project.  He promised his backers refunds, but then failed to provide them—which triggered multiple complaints.  Instead, Chevalier used the money raised on unrelated personal expenses such as rent, moving himself to Oregon, personal equipment and other projects. Continue Reading

Distributors Beware: Don’t Get Caught with Your Hand in the Cookie Jar

Picture by slgckgc  (CC BY 2.0)

Picture by slgckgc (CC BY 2.0)

The reasonable consumer couldn’t possibly believe that every Danish cookie, must, as a matter of law, be made in Denmark.  Yet, a recent NAD decision may suggest that this reasonable consumer is not as cookie-cutter as one might expect.

In today’s global economy, it is common for U.S. distributors to sell products manufactured and packaged overseas.  A downside of this system, is that neither the distributors nor the sellers can necessarily oversee each advertising claim placed on the product’s packaging.  This practice contradicts a recent NAD decision, which warns that before a seller can distribute an international product throughout the United States, it should be cognizant of any and all claims found on the product’s packaging.  Continue Reading

Running a Compliant Sweepstakes Ain’t No Game: U.S. Department of Justice Claims $2.7 Million in Illegally Obtained Sweepstakes Entrance Fees

IronmanSweepstakes and contests seem like they’re a dime a dozen these days, and social media sites like Facebook and Twitter have made the administration of giveaways more accessible and user-friendly for even small business users.  We find that some businesses downplay the complexity of the rules and regulations governing these valuable promotional tools while others don’t even know such laws exist.  A case brought recently by the U.S. Department of Justice (“DOJ”) against the World Triathlon Corporation (best known for running Ironman® Competitions), however, should serve as a warning to think twice before running a sweepstakes or contest without conducting proper legal due diligence.

On May 12, 2015, the DOJ filed a complaint alleging that the World Triathlon Corporation (“WTC”) should forfeit $2,761,901 it obtained in entrance fees from various sweepstakes it conducted from 2013 to 2015.  According to the complaint, the WTC has run the “Ironman Lottery” (the “Lottery”) since 1983 as a means to provide athletes with an opportunity to compete in the Ironman World Championship if they did not otherwise qualify.  In 2015, the fee to enter the Lottery was $50, and participants had the option of purchasing “membership” in the Passport Club for an additional $50, which afforded them an increased chance of being selected in the Lottery.  Winners of the Lottery were selected in a random chance drawing and given the “prize” of participating in the Ironman World Championship. Continue Reading

FIFA Fame to Shame – How Brands Can Protect against Potential Reputational Harm Resulting from Relationships with Scandalized Organizations

FIFA, the International Federation Soccer Association which is in charge of awarding lucrative World Cup hosting rights and promoting soccer worldwide, has longstanding sponsorship relationships and contracts with some of the largest global corporations. FIFA is supported by hundreds of millions of sponsorship dollars; however, the organization’s sponsorship relationships are being challenged by recent events, and sponsors are making their displeasure with the organization known. The May 27 indictment of nine top FIFA officials by the U.S. Department of Justice for corruption highlights scandals as one of the major risks facing sponsors. Compounding this most recent scandal is the ongoing controversy around conditions in Qatar, the planned site of the 2022 World Cup, where, reportedly, workers helping to build World Cup facilities are dying as a result of unsafe building conditions. After unsuccessfully attempting to distance himself from the scandals, FIFA President, Sepp Blatter, announced his resignation on June 2. Continue Reading