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Last week, New York Attorney General Letitia James announced that online travel agency Fareportal Inc., which operates several travel-related websites and mobile platforms, including CheapOair.com and OneTravel.com, will pay $2.6 million to New York for misleading consumers with deceptive marketing tactics.

“Consumers wanted to land affordable tickets through Fareportal’s platforms, but were met with lies instead,” James said in a statement. “Fareportal used deeply deceptive tactics to trick millions of consumers into booking airline tickets and hotel rooms.”

The investigation into Fareportal revealed that, since at least 2017, the company created false urgency around the availability of airline tickets and hotel rooms to pressure consumers into making purchases on its platforms. The AG challenged these marketing tactics as “dark patterns,” referring to alleged misleading design features and methods used to manipulate consumers into buying goods and services. As we have covered previously, alleged “dark patterns” have become a priority in rulemaking and enforcement.…

Continue Reading New York Attorney General Secures $2.6 Million from Fareportal for Deceptive Marketing Tactics

On Friday, March 11, the Federal Trade Commission (FTC) filed an administrative complaint against HomeAdvisor, Inc., charging it with using deceptive and misleading tactics to sell leads for home improvement projects to small businesses, including small “gig-economy” workers. The action underscores the current administration’s effort to protect workers, especially those engaged in the gig economy through large platforms.

The FTC alleges that since at least 2014, HomeAdvisor—a popular service that matches service providers with consumers seeking home improvements—made false, misleading, and unsubstantiated claims about the quality and source of leads it sells, and about the likelihood that the leads would result in actual jobs. According to the complaint:…

Continue Reading Burning Down the House: FTC Accuses HomeAdvisor, Inc. of Deception in Selling Leads for Home Improvement Projects

A recent decision in the Ninth Circuit sheds new light on whether, and the standard by which, a false advertising claimant must prove equitable damages under the Lanham Act. In Grasshopper House, LLC v. Clean & Sober Media, LLC, the Plaintiff obtained a jury verdict finding the Defendants liable for false advertising. But the district court cancelled the damages phase of the jury trial after the exclusion of Plaintiff’s damages expert, which the court reasoned was Plaintiff’s only evidence concerning actual losses as a result of Defendants’ misrepresentations. Therefore, the district court held a bench trial concerning equitable relief, where it entered a permanent injunction against Defendants’ false advertising, but denied Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs.

Plaintiff appealed to the Ninth Circuit, and the appeals court affirmed the district court’s exclusion of Plaintiff’s damages expert and cancellation of the damages phase of the trial, but found that the Court had erred in denying Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs. First, the appeals court found that after the Supreme Court’s subsequent decision in Romag Fasteners, Inc v. Fossil, Inc., the district court was now incorrect to require proof of willfulness to sustain a finding of disgorgement. Romag Fasteners, Inc. established that while mental state is a highly important consideration in determining whether to award disgorgement under the Lanham Act, there is no categorical rule that willfulness is necessary. Therefore, the appeals court here ordered the case remanded for the district court to consider “Defendants’ mental state – whatever that may be – when determining what award of profits is appropriate.”…

Continue Reading Ninth Circuit Clarifies Standards for Equitable Damages in False Advertising Cases

On November 10, 2020, the District of Utah decided a case involving two sellers of supplements, Vitamins Online, Inc. v. Heartwise Inc. d/b/a NatureWise, which, among other things, examined defendant NatureWise’s allegedly manipulated reviews on a major online marketplace. In deciding the case, the court addressed customer reliance on reviews in their purchasing decisions.

NatureWise’s reviews appeared manipulated. For example, on one of NatureWise’s product pages, reviews were posted before the product had launched. Many reviews were from unverified purchasers that appeared within minutes of each other and gave the product 5-star ratings. Notably, 14 unverified 5-star reviews appeared on the product page within 25 minutes of each other and had similar patterns in the titles of the reviews. NatureWise’s other products similarly garnered a substantial number of positive reviews soon after their launch.…

Continue Reading Don’t Fake It Till You Make It: Company’s False Advertising Costs Them

The FTC continues policing business-to-business deception and its focus on small-business financing. On June 10, 2020, the FTC filed a Complaint in the Southern District of New York against two New York-based companies and several of their owners and officers for allegedly violating the FTC Act in connection with their business financing activities.

According to the Complaint, the defendants targeted small businesses, medical offices, non-profit organizations, and religious organizations. Since 2015, defendants allegedly deceived these consumers by misrepresenting terms of the merchant cash advances (MCAs) defendants provided, and subsequently used unfair collection practices to compel these entities to pay.…

Continue Reading New York-Based Business Financing Companies Allegedly Deceive and Threaten Business Consumers

The California Supreme Court has held that causes of action under two of the state’s most prominent consumer protection statutes—the unfair competition law (“UCL”) and the false advertising law (“FAL”)—are to be tried by the court rather than a jury. In doing so, the court affirmed decades of California Court of Appeal precedent and overturned a lower court’s ruling that a jury trial is required when civil penalties are sought in state court.

In Nationwide Biweekly Administration Inc. v. Superior Court, the district attorneys of four counties filed a complaint alleging that mortgage servicer Nationwide Biweekly, its subsidiary and its owner (collectively, “Nationwide”) had violated the UCL and FAL through false and misleading advertising practices and operating without a license, among other allegations. The government sought an injunction, restitution of all money wrongfully acquired by Nationwide from California consumers and civil penalties of up to $2,500 for each violation found.…

Continue Reading California High Court Holds No Right to Jury Trial for False Advertising and Unfair Competition Claims in State Court

Last week, the FTC filed its first lawsuit involving COVID-19 disease claims, but the Commission took an approach it had largely abandoned in consumer protection cases, by filing for a temporary restraining order and preliminary injunction in federal court and simultaneously filing an administrative action. Although COVID-19 claims are new, the procedural approach taken by the FTC is one that it has not used in years.

On April 24, the FTC filed a Complaint for a Temporary Restraining Order and Preliminary Injunction in the United States District Court for the Central District of California, in FTC v. Marc Ching. The Complaint alleged that the defendant, Marc Ching doing business as Whole Leaf Organics, disseminated false or unsubstantiated advertisements that its product, Thrive, treated, prevented, or reduced the risk of COVID-19. In addition, the defendant marketed a cannabidiol (CBD) product that it claimed could treat cancer.

The defendant had been the recipient of a warning letter from the federal Food and Drug Administration in November 2019, which warned the defendant that it was making unapproved new drug claims in violation of the Federal Food, Drug, and Cosmetic Act by claiming that its CBD products are intended for use in the mitigation, treatment, or prevention of diseases. According to the complaint, the defendant did not remove the unapproved drug claims from its website.…

Continue Reading FTC Files Lawsuit Against Company Selling CBD Products, Claiming to Prevent or Treat COVID-19 and Cancer

A recent decision involving both antitrust and Lanham Act claims sheds light on the risks of false advertising. On March 23, 2020, the District Court of Colorado granted and denied in part Johns Manville’s (“JM”) motion to dismiss Chase Manufacturing’s (“Chase”) complaint alleging that JM violated the Sherman Act by engaging in tying and monopolization and the Lanham Act for false advertising. Both JM and Chase sell calcium silicate, known as calsil, which insulates pipes, tanks, and other equipment in industrial facilities. JM accounts for the majority of the domestic calsil market.

According to Chase’s complaint, JM’s sales managers allegedly told customers that Chase’s calsil “may have asbestos and may put…customers and employees at risk,” was poor quality and could not be “trusted to meet specifications,” and was “Chinese” (meaning it was produced in China). A JM sales representative asked a purchaser why it would “risk buying an unproven product that may not meet specifications.” Chase alleged that that two of the five largest distributors heard these comments. JM’s sales managers also allegedly told a smaller distributor that JM never sold calsil that was made in China. Finally, JM’s website FAQ page stated “[w]hile we are aware of one other manufacturer in Asia that produces water resistant calcium silicate, it is an expensive, custom-order product that is not readily available.”…

Continue Reading Truth or Consequences: The Multiple Perils of False Advertising

When we think of superiority claims in advertising, we usually think of NAD or Lanham Act challenges.  When we think of brake pads, we usually think of Callaghan Auto Parts. Last  week, however, the FTC resolved an investigation regarding superiority claims for brake pads with Federal-Mogul Motorparts LLC (Federal-Mogul), a manufacturer and seller of after-market automotive parts.  According to the FTC, Federal-Mogul violated Section 5(a) of the FTC Act by disseminating a series of false and unsubstantiated advertisements concerning its Wagner OEX brake pads.   Specifically, Federal-Mogul claimed that (1) in an emergency Wagner OEX brake pads will stop a pickup truck, SUV, or crossover up to 50 feet sooner than competing brake pads; and (2) Wagner OEX brake pads would significantly reduce the risk of collisions compared with competing brake pads.
Continue Reading FTC Puts the Brakes On Superiority Claims

Growing concern over the coronavirus (COVID-19) has seeped into the regulatory and legal world. Agencies and plaintiffs’ attorneys are targeting companies that claim their products can treat or prevent COVID-19. As people search for health products to counter the growing threat of coronavirus, companies should keep in mind that any advertising claims made must be substantiated. Health claims trying to trade on the panic caused by the virus will be closely monitored and pursued by law enforcement and the plaintiffs’ bar.

A few days ago, the Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) issued seven joint warning letters to companies making allegedly unapproved and unsupported advertising claims related to their products’ ability to treat or prevent the coronavirus. The letters state that any advertising claims trumpeting a product’s ability to treat COVID-19 “are not supported by competent and reliable scientific evidence” — which is required under the FTC Act.…

Continue Reading FTC, FDA, State AGs, and Class Action Lawsuit Clean Up Claims that Products Can Treat or Prevent Coronavirus