All About Advertising Law

Regulatory & Litigation Developments for Advertisers and Marketers

$40 Million Reasons to Have RCTs

By Leonard L. Gordon, Mary M. Gardner and Gary R. Dunn on October 21, 2019

On September 18, 2019, the FTC prevailed in its long-waged battle against Hi-Tech Pharmaceuticals. In a per curiam opinion, the Eleventh Circuit affirmed the district court’s decision, holding the defendants in contempt for violating the court’s prior order, which enjoined the defendants from making certain claims about health products without “competent and reliable scientific evidence.” Fed. Trade Comm’n v. Nat’l Urological Grp., Inc., No. 17-15695, 2019 WL 4463503, at *1 (11th Cir. Sept. 18, 2019). The Eleventh Circuit also upheld a $40 million sanction for the defendants’ violation of the order. The case provides a good example of how the FTC views substantiation for dietary supplement claims and the consequences of lacking that substantiation.

In its ruling, the Eleventh Circuit affirmed the district court’s stringent interpretation of “competent and reliable scientific evidence” to mean randomized controlled trials (“RCTs”) because the defendants had fair (and repeated) notice for nearly a decade that the FTC and the district court interpreted “competent and reliable scientific evidence” to mean RCTs.

A New Challenge for FDA?

By Todd H. Halpern and Anton Lesaca on October 17, 2019

Two Executive Orders Continue Trump Administration Efforts to Restrain Agency Policymaking

Last week, President Trump signed two executive orders designed to limit the ability of federal agencies to make and enforce policy through the use of guidance documents. While this may seem like a mere technical issue, the ramifications could be significant.

A federal agency may issue a guidance document for a variety of reasons. Some agencies, such as the U.S. Food and Drug Administration (“FDA”), use it as the primary instrument for announcing and explaining significant policies. Many FDA guidance documents clarify agency positions regarding complex and ambiguous laws and regulations governing the broad range of companies it regulates. This includes manufacturers and marketers of food, dietary supplements, cosmetics, drugs and medical devices.

Some question whether agencies (including FDA) have gone too far. Agencies are supposed to promulgate a regulation when creating a new rule. In contrast, an agency may convey an interpretation of a currently existing rule through the issuance of a guidance document or other, less formal means. While it is often challenging to distinguish a new rule from an interpretation, the distinction has serious implications. The cost, time and effort required to publish a guidance document are far lower. Notably, a regulation may only be finalized after the agency has received and addressed all public comments. No such requirement exists for guidance documents.

New Requirements for Subscription Merchants Accepting Visa Cards

By Ellen T. Berge, Ari N. Rothman and Shahin O. Rothermel on October 17, 2019

Subscription merchants that take payment by Visa cards will have new acceptance, disclosure, and cancellation requirements imposed on their transactions beginning April 18, 2020. As Visa recently announced, the card brand is updating its rules for merchants that offer free trials or introductory offers as part of an ongoing subscription program.

The Visa rules follow on the heels of similar Mastercard rules that became effective earlier this year. However, while MasterCard’s rules focus on merchants selling subscriptions for physical goods, Visa’s rules apply to merchants selling either physical or digital products if the merchant offers a free trial or introductory offer that rolls into an ongoing subscription arrangement.

The new requirements are more specific than what the Restore Online Shoppers’ Confidence Act (ROSCA) prescribes, and while they don’t have the force of law, noncompliance could put a merchant’s credit card processing capabilities at risk. Here are some of the components of the new Visa rules:

The FTC’s Negative View of Negative Options – Are Expanded Regulations Coming?

By Ellen T. Berge and Leonard L. Gordon on October 16, 2019

The Federal Trade Commission’s “Negative Option Rule” is up for review, and the FTC is steering toward stricter regulations for automatic renewal plans and subscription programs. The FTC completed its last regulatory review of the Negative Option Rule in 2014 and decided then to retain the rule in its current form. But, will this time be different?

The Rule Under Review

The rule under review is the “Rule Concerning the Use of Prenotification Negative Option Plans,” also referred to as the “Negative Option Rule.” However, the scope of the Negative Option Rule only covers prenotification plans, like book-of-the-month clubs, where the seller sends notice of a book to be shipped and charges for the book only if the consumer takes no action to decline the offer, such as sending back a postcard or rejecting the selection through an online account.

FTC’s COPPA Rule Workshop: A Summary of Priorities from Advocates and Industry, and the FTC’s Poker Face

By Melissa Landau Steinman, Christopher S. Crook and Kathleen K. Sheridan on October 8, 2019

The Federal Trade Commission held a workshop yesterday in Washington, D.C., to discuss possible updates to the COPPA Rule, which implements the Children’s Online Privacy Protection Act (“COPPA”). COPPA was originally enacted in 1998 and regulates the way entities collect data and personal information online from children under the age of 13. The Rule hasn’t been updated since 2013, and the intervening years have produced seismic technological advances and changes in business practices, including changes to platforms and apps hosting third-party content and marketing targeting kids, the growth of smart technology and the “Internet of Things,” educational technology, and more.

For the most part, FTC staff moderators didn’t tip their hand as to what we can expect to see in a proposed Rule revision. (One staff member was the exception, whose rapid-fire questions offered numerous counterpoints to industry positions, so much so that the audience would be forgiven for thinking they were momentarily watching oral argument at the Supreme Court.) Brief remarks from Commissioners Wilson and Phillips staked out their positions more clearly, but their individual views were so different that they too offered little assistance in predicting what a revised Rule may look like. Commissioner Wilson opened the workshop by sharing her own experience as a parent trying to navigate and supervise the games, apps and toys played by her children, and emphasized the need for regulation to keep up with the pace of technology to continue protecting children online. Commissioner Phillips also referred to his children at one point, but his remarks warned against regulation for regulation’s sake, flagged the chilling effect on content creation and diversity when businesses are saddled with greater compliance costs, and advocated a risk-based approach.

We Got The Beet: Trademark Claims and Puns

By David. E. Fink and Whitney L. Tolar on October 7, 2019

Lettuce Turnip the Beet: When puns are “functional”

In LTTB LLC v. Redbubble, Inc., plaintiff LTTB, an online apparel company, contended its success was “largely due to public fascination with its Lettuce Turnip the Beet trademark,” and alleged that defendant Redbubble’s sale of products featuring the phrase “Lettuce Turnip the Beet” infringed its mark, 18-cv-00509-RS. Redbubble, an online marketplace selling products made by independent artists, argued that LTTB was not entitled to preclude others from using the “Lettuce Turnip the Beet” pun absent any evidence of source confusion. On July 12, 2019, the Northern District of California issued its decision granting summary judgment in favor of defendant Redbubble, finding that LTTB did not have an exclusive right to sell products displaying the pun “Lettuce Turnip the Beet,” and that LTTB therefore did not have a viable trademark infringement claim.

The court’s decision turned on its application of the “aesthetic functionality doctrine,” a controversial trademark law principle unevenly applied by federal courts. See McCarthy on Trademarks and Unfair Competition § 7:80 (5th ed.). Under the aesthetic functionality doctrine, when goods are bought largely for their aesthetic value, their features may be functional – if a feature is an important ingredient in the commercial success of the product, the interest in free competition permits its imitation in the absence of a patent or copyright. See Pagliero v. Wallace China Co., 198 F.2d 339 (9th Cir. 1952). The issue in LTTB was whether LTTB had a viable infringement claim where the alleged infringing products merely displayed the pun “Lettuce Turnip the Beet” and did not otherwise include any indication that they were produced by LTTB. In other words, was the pun “Lettuce Turnip the Beet” a functional feature permitting imitation? The LTTB court explained that while the Ninth Circuit’s modern application of the “aesthetic functionality” doctrine has been more limited, the circumstances of the LTTB case “undeniably” called for the application of the aesthetic functionality doctrine.

Update Required for Youth Esports

By Christopher S. Crook and Kathleen K. Sheridan on October 3, 2019

Many in the industry are familiar with the following scenario. A young gamer, grinding tirelessly for untold hours perfecting her skill, honing her strategy, finally qualifies for an esports tournament. For that gamer, the true hard work begins after qualification. She now has to try to convince her parents to agree to let her participate, which may include travel (though compensated) to a far off location. In many cases, the first time the parents become aware that their child even entered a tournament (much less won an all-expense paid trip to an esports tournament) is this conversation—after the child has already been offered compensation to travel to and compete in the tournament.

If you are a game publisher, tournament organizer, or otherwise involved in the logistical chain of events described herein, there may be a big problem. The collection and use of data provided by children is regulated in the United States by the Children’s Online Privacy Protection Act (“COPPA”). COPPA is designed to protect the privacy of children by establishing certain requirements for websites that market to children. Most notably, COPPA requires website operators to obtain “verifiable parental consent” before collecting personal information from children. The FTC operates under the assumption that if children are the target demographic for a website, the website must assume that the person accessing the website is a child, and proper consent must be obtained. This assumption exists even if the website did not start with children as the target audience.

FTC Workshop on “Made in USA” Claims

By Leonard L. Gordon on October 1, 2019

Being able to advertise your product as “Made in the USA” can be a key advantage to marketers and is an attribute that is important to many consumers. Aware of this, the FTC has been on the watch for deceptive Made in the USA claims. Last week, the FTC held a workshop on “Made in the USA” claims to consider consumer perception of these claims and the need for any changes to the existing guidance provided by the FTC.

Current FTC guidance on these claims stems from a 1997 FTC Enforcement Policy Statement in which the FTC concluded consumers are likely to understand an unqualified U.S. origin claim to mean that the advertised product is made in the USA with “all or virtually all” of the components made in the United States.

#StrikeAPose #CopyrightInfringement

By Meaghan H. Kent, Katherine C. Dearing and Danae Tinelli on September 30, 2019

Supermodel Jelena Noura “Gigi” Hadid was not the first celebrity to be photographed by paparazzi and then to post the resulting photo to social media, nor was she the first to be subsequently sued for copyright infringement for doing so. Other celebrities, including Jennifer Lopez and, most recently, Victoria Beckham, have made news for the same situation.

This trend falls into an interesting intersection of two significant tenets of law: a celebrity’s right of publicity in their own image and a photographer’s right to copyright their artistic work. The district court dismissed the case due to a lack of a copyright registration. In addition to that defense, though, her attorneys also raised the defenses of fair use and implied license. The second may have begun paving the way for future legal challenges to clarify these issues by raising a novel argument—implied license—alongside the more typical defense of fair use.

An NAD Update

By Christopher S. Crook and Deborah Bessner on September 26, 2019

The 2019 National Advertising Division (“NAD”) closed out its Annual Conference with an update from Laura Brett, the Director of the NAD, and Alexander Goldman, an attorney with the NAD. The update focused on three main points: NAD statistics from the past year, NAD practice pointers, and the future of the types of cases being brought at NAD.

Statistics

First, competitor challenges are trending toward a one third growth for 2019 as compared to 2018, while simultaneously decreasing the time to decision on challenges from 113 days on average to 100 days. Needless to say, the NAD is committed to promptly moving cases through the process. Ms. Brett made a point to bestow some well-deserved praise on her team for their hard work throughout the last year.

Major product categories subject to NAD challenges continue to be: appliances/consumer electronics/household products, drugs and dietary supplements, food and beverage, and telecom/entertainment. Whereas some categories are noticeably absent from NAD proceedings including automobiles, clothing and cosmetics, industrial products/office supplies, and travel/lodging. In addition, Mr. Goldman made the point that there remains a noticeable lack of service-based challenges at NAD despite services accounting for a large part of the U.S. economy.