First Amendment

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The first rule of comparative advertising has always been that you can say pretty much whatever you want so long as you don’t lie.  But there is a new wrinkle—don’t threaten or stalk the competition.  A recent Ninth Circuit decision in Thunder Studios v. Kazal, has shed new light on the extent of protection afforded by the First Amendment to reprehensible and confrontational speech.  The case is quirky in that the individuals protected by the First Amendment were not US Citizens and were not themselves in the US when the “protests” occurred, but the case is a cautionary tale as to the limits of First Amendment protection of comparative claims.  Importantly, however, the case cannot—and should not—be read to provide for an open invitation for competitors to promote or otherwise engage in extraterritorial smear campaigns with impunity.  Indeed, there is nothing in the Ninth Circuit’s opinion to suggest that it should be read to preclude or immunize parties from claims of defamation, product disparagement, or even invasion of privacy torts arising out of similar behavior.  Nor would it likely protect a party from liability from organizing a secondary boycott.  The case is pending en banc review by the Ninth Circuit so stay tuned.

Following the souring of a multimillion-dollar business deal between Australian citizens Roderick David, on the one side and Charif Kazal, Adam Kazal, and Tony Kazal on the other, the Kazals undertook an international campaign to inform the citizens of Los Angeles, California about the “despicable crimes” allegedly committed by David (then a resident of Los Angeles).  The Kazals sent hundreds of emails to David and his employees, hired protesters to picket and distribute flyers near his residence and business—Thunder Studios Inc., in Los Angeles—and had vans emblazoned with their message driven around the city.  Leaflets and signs held by protesters described David as a “corporate thief” and a “fraudster” who “robbed his business partners of $180 million.”

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Continue Reading Sticks and Stones May Break Your Competitor, But Protests May Be Protected

The Supreme Court recently plucked public access television out of your neighbor’s basement and clarified the state-action doctrine in Manhattan Community Access Corp. v. Halleck. The result has made it all the more important for content creators to understand the types of entities hosting their content. So let’s drop the blue screen and roll cameras because we’re live in 5-4-3-2-1.

The plaintiffs in Halleck alleged that MNN, the private nonprofit that manages the New York City public access channels, violated their First Amendment rights by restricting them from using the channels based on the content of their programs.

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Continue Reading “Public Access” isn’t a “Public Function”: No First Amendment Liability for Privately Managed Public Access Channels

You want to start taking supplements, so you turn to a guide containing consumer reviews. Is the guide just a collection of advertisements? Last month, the Southern District of California again confronted this question, and also took into consideration whether the reviews should be afforded First Amendment protection. The court reiterated its prior finding that the Lanham Act does not apply to a nutritional supplement guide that faced a false advertising challenge.

In the fifth edition of the NutriSearch Comparative Guide to Nutritional Supplements (the “Guide”), NutriSearch recognized four companies—but not Ariix—with the Gold Medal of Achievement, even though NutriSearch allegedly acknowledged Ariix met the standards for the distinction. For its part, NutriSearch explained that it was reworking its awards recognition program for the sixth edition of the Guide, and that the fifth edition Gold Medal winners were merely prior winners who were grandfathered in. Ariix filed suit against NutriSearch and the Guide’s author, Lyle MacWilliam, claiming that the failure to award the Gold Medal amounted to a false representation that Ariix or its products are not as good as its main competitor, Usana, or Usana’s products. Ariix also alleged that the Guide claims to be objective and neutral, but is actually a shill for Usana, because of a previously undisclosed business relationship between MacWilliam and Usana.

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Continue Reading To Be an Ad or Not to Be an Ad: That is the Question

Whether merchants can charge consumers who pay with a credit card more and how that increase in price is described has been the subject of extensive litigation. According to a divided New York Court of Appeals, New York’s anti-surcharge law, which banned merchants from imposing a surcharge on credit customers, does not actually prohibit a merchant from charging more or characterizing the difference in price for cash versus credit as a “surcharge” as long as the total price for credit purchases is posted. As a result, retailers are free to call the higher price for credit whatever they want as long as consumers do not have to do math to figure out what that price is. The decision sets the stage for the law to be upheld against claims that it restricts commercial speech in violation of the U.S. Constitution.

In 2013, a group of retailers sued the New York Attorney General in the case Expressions Hair Design v. Schneiderman, alleging that New York General Business Law § 518 violates the First Amendment by permitting higher prices for credit card users while restricting the manner in which retailers may describe those prices. Specifically, the plaintiffs would like to use a “single-sticker” pricing scheme under which they would post a single price for cash or credit with an additional amount or percentage for credit purchases, for example, “$10 for a haircut, plus 3% if paying by credit card.”

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Continue Reading No Math Allowed – The Saga of New York Surcharge Law Continues

soft drinkSan Francisco found itself in a sticky situation after the Ninth Circuit struck down a city ordinance that would have required soda companies and other makers of sugar-sweetened beverages to place the following warning on their ads:

WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco.

Advertisers challenged the ordinance under the First Amendment and sought a preliminary injunction to halt its enforcement, but lost in the district court. The Ninth Circuit reversed, agreeing with advertisers that the ordinance unconstitutionally chilled their protected commercial speech because the warning was too one-sided and burdensome – constituting 20% of an ad’s space – and that advertisers were likely to discontinue advertising completely.

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Continue Reading 9th Circuit Delivers Sweet Victory to Soft Drink Advertisers

United States Supreme Court BuildingThe U.S. Supreme Court ruled unanimously on June 19, 2017 that the Lanham Act’s disparagement clause prohibiting federal registration of “disparaging” trademarks unconstitutionally limits free speech in a case involving a band named “The Slants.” The near-term effect on trademark applicants, however, is in question due to other viewpoint based prohibitions that were not ruled upon.

In this 8-0 decision, the U.S. Supreme Court found in favor of Simon Tam, the front man for Asian-American rock band The Slants, who had been denied a trademark because the U.S. Patent and Trademark Office deemed the name disparaging to people of Asian descent. The rock band challenged the denial as a violation of free speech rights under the First Amendment.

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Continue Reading Supreme Court Strikes Lanham Act’s Disparagement Clause; Near-Term Effect Uncertain in Light of Other Viewpoint Based Prohibitions

cash and credit cardsOn March 29, 2017 the Supreme Court of the United States held that a New York law prohibiting retailers from disclosing credit card surcharges, while allowing discounts for cash purchases (effectively eliminating the surcharge), regulates speech and not just conduct. The Court, however, passed on evaluating whether the statute violates the First Amendment. Instead, the Court remanded the case, Expressions Hair Design et al. v. Schneiderman et al., No. 15-1391, back to the Second Circuit for review under the First Amendment.

At issue in this case was New York’s “single sticker” requirement in General Business Law Section 518. In the Court’s Opinion, Chief Justice Roberts, explained that “[m]erchants who wish to employ differential pricing may do so in two ways relevant here: impose a surcharge for the use of a credit card, or offer a discount for the use of cash. In N.Y. Gen. Bus. Law §518, New York has banned the former practice.”

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Continue Reading Supreme Court Rules New York Law Prohibiting Disclosure of Surcharges Regulates Speech, Sends Case to Second Circuit for First Amendment Analysis

The long running saga of the FTC versus POM Wonderful took a major turn today as the D.C. Circuit affirmed in part and reversed in part the FTC’s Order that POM had made deceptive claims about its pomegranate juice products.   In 2010, the FTC sued POM alleging it had made false and unsubstantiated claims about the ability of its product to prevent or ameliorate heart disease, prostate cancer and erectile dysfunction.  After an extended trial, the FTC’s Administrative Law Judge largely found for the FTC (not a huge surprise).  The FTC Commissioners largely affirmed that decision (another shocker).  However, Commissioner Ohlhausen, in what would turn out to be an ominous foreshadowing for the Commission as a whole (jump to the end of the blog if you can’t stand the suspense), and who wrote the Commission’s opinion,  disagreed with the majority’s view that two Randomly Controlled Clinical Trials (RCTs) should be required as part of the order. POM appealed to the DC Circuit challenging the factual and legal bases on which the FTC relied as well as the remedy imposed.  The DC Circuit affirmed on liability, but modified that part of the FTC’s order that required POM to have two RCTs to substantiate any disease claims going forward.  The revised order will require only one RCT for any disease claims.

The DC Circuit found that there was no basis for setting aside the FTC’s finding of what efficacy and establishment claims POM had made in its advertising, noting the careful record the ALJ had made and the thorough treatment the Commission had given the issues in its opinion.  The DC Circuit agreed with the FTC that the use of words such as “promising,” or “initial”  to describe certain studies referenced in POM’s advertising failed to adequately qualify the ad so that an establishment claim was not made. Regarding the level of substantiation necessary, the court noted the FTC’s special expertise in this area.  The court noted that its role was not to independently weigh the evidence but to determine whether there was substantial evidence to support the FTC’s findings.  The court decided there was.  The FTC had found that RCTs were necessary to substantiate the disease claims made.   The court found adequate evidence to support that finding noting that the controlled, random and double blind aspects of an RCT all serve important functions in evaluating the efficacy of a product or treatment. POM argued that applying the RCT standard to food products was too onerous and expensive.  The court agreed with the FTC that although there might be certain instances where it was not possible to conduct double-blind studies of food products, this was not such a situation.  Among other things, the court pointed to the fact that POM had done some RCTs on its products.  Regarding cost, the court displayed no sympathy for the marketer’s plight finding that if the claim was too expensive to substantiate then the claim should not be made.  Significantly, the court noted that marketers could make lesser health claims without an RCT including claims that accurately reflect the type and results of the science supporting a claim.

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Continue Reading The Saga of the Forbidden Fruit Part III

Anonymous fake online reviews are back in the news, but this time marketers may not be the only ones who should be wary. As we have written before, astroturf is making a comeback, and not necessarily on the athletic fields. In September 2013, the New York AG agreed to settle  with 19 companies engaging in “astroturfing,” requiring the companies to essentially stop writing their own fake online reviews and pay more than 350,000 in fines.

These fake reviews are particularly attractive to companies that lack a good reputation as they offer a quick fix to their reputation woes. A Harvard Business School study recently asserted that roughly 16% of online reviews are classified as fraudulent, a number which Yelp later confirmed,adding that its fraud logarithm excludes about 25% of reviews submitted. Despite efforts undertaken by companies such as Yelp, some false reviews inevitably slip through the cracks.

But what happens when the roles are reversed and private citizens or competitors slip negative reviews about a company past the goalie in an attempt to hurt the company’s reputation? In a recent case, a company alleged that it was a victim of false attacks in online reviews. In response, the Virginia Court of Appeals held that Yelp must identify the online reviewers accused of defamation. …
Continue Reading When Anonymous Reviewers Have No Clothes