Recently the National Advertising Division (NAD), as part of its routine monitoring program, evaluated whether certain claims made by Petco Animal Supplies, Inc. (Petco) in marketing and advertising materials for its “no artificial ingredients” advertising campaign were adequately substantiated. The NAD determined that Petco presented sufficient evidence to demonstrate that it is “setting a bold new standard for nutrition” and that it “will continue to evaluate and evolve [its] standards and assortment to take pet nutrition to new levels.” However, it recommended that Petco modify certain claims that it was removing “all” artificial ingredients or that there would be “no more artificials” in any of the pet food or treats it carries. The case provides some important guidance on the rules for making claims regarding “no artificial ingredients.”

Petco launched an initiative to remove artificial ingredients from its dog and cat foods and marketed that initiative heavily. Petco had adopted definitions of “Artificial Flavor,” “Artificial Color,” and “Artificial Preservative” that mimicked the FDA’s definitions and language, and expressly disclosed to consumers its definitions of these terms. Specifically, Petco disclosed that its definition of “artificial ingredients” did not include “synthetic vitamins, minerals and amino acids,” “substances that are derivatives or mimics of national compounds,” and “substances that may fall into categories outside the Petco definition of artificial colors.”

Continue Reading Make No Bones About It: NAD Finds Petco Is “Setting a Bold New Standard for Nutrition” but Recommends “No Artificials” and “Better Nutrition” Claims Should Be Discontinued

A major point-of-sale financing and leasing company and the Federal Trade Commission (FTC) have reached a proposed settlement to resolve an investigation into whether the company’s practices and representations to retail consumers violated the FTC Act. The announcement of the settlement highlights the importance of disclosing all material pricing terms to consumers, including in an e-commerce environment and, for point-of-sale financing companies, reviewing and synchronizing their promotional messages with retail partners. The settlement also revealed disagreements among the Commissioners on issues of individual liability and the proper measure of monetary relief.

The settlement resolves an investigation into Aaron’s, Inc. and its wholly owned subsidiary, Progressive Leasing (Progressive), regarding disclosures related to lease-to-own and other financial products. Under the proposed agreement, which remains subject to the approval of the United States District Court for the Northern District of Georgia, Progressive would make a payment of $175 million to the FTC and enhance certain of its compliance-related activities, including monitoring, disclosures, and reporting.

Continue Reading FTC Settlement Underscores Importance of Pricing Disclosures for Lease-to-Own Companies

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

Venable attorney Jonathan Pompan joined LeadsCon’s Warren Pickett on the LeadsCon Industry Insider podcast episode, “Lead Generation Compliance and Regulation in Today’s World. Who’s Minding the Store?” to discuss current lead generation advertising compliance issues. With government, the private sector, and the daily news cycle engulfed by all things related to COVID-19, speakers discussed amongst other topics, what the pandemic means for privacy, protection, and regulations related to the lead-gen industry, and how companies are positioning their compliance efforts in the face of new work environments. To listen to the recording, click here.

The FTC continues to devote substantial time and attention to its enforcement battle against companies seeking to take unfair advantage of consumers amid the COVID-19 pandemic. This week, the FTC announced its latest round of warning letters to ten companies making unsubstantiated claims that their products can treat or prevent the disease.

As we have previously blogged, the FTC began taking action last month when it issued its first round of warning letters, jointly with the U.S. Food and Drug Administration (FDA), to sellers of unapproved and/or misbranded products and announced its commitment to aggressively pursuing such scams. Earlier warning letters targeted entities selling homeopathic drugs, cannabinol (CBD) products, essential oils, colloidal silver and other supposedly scientifically proven COVID-19 treatments. The FTC also reached out to Voice over Internet Protocol (VoIP) service providers, warning them that assisting and facilitating entities involved in unlawful robocalling tied to COVID-19 is also illegal.

Despite the FDA’s declaration that there are currently no products or services scientifically proven to treat or prevent the COVID-19 virus, the latest round of letters, to companies both in the United States and abroad, targets a wide variety of products—from an immunity-boosting system supposedly using sound frequencies to penetrate cells, to a coronavirus-fighting “Sonic Silicone Facial Brush,” to intravenous “therapies” with high doses of Vitamin C. A list of the latest warning letter recipients can be found in the FTC’s announcement.

The FTC’s use of warning letters should not give companies involved in such conduct comfort that this is their only risk. The letters appear to be an effort by the agency to stop as much conduct as it can as quickly as it can. Companies that ignore the warning letters or whose conduct the agency views as harming a large number of consumers are likely to hear from the agency with a CID or lawsuit. Marketers selling products with a COVID-19 spin should be especially careful to make sure their claims are substantiated properly.

In February, we highlighted constitutional challenges that Axon Enterprise, Inc. (“Axon”) brought against the FTC related to a merger challenge against Axon. To briefly recap: Axon brought a declaratory judgment action alleging that the administrative trial procedures and the structure of the FTC violated Axon’s due process rights and Article II of the Constitution. Last week, the District of Arizona dismissed Axon’s claims, finding the Court lacked subject matter jurisdiction over Axon’s declaratory judgment claims where the administrative proceedings before the FTC were still pending. The Court’s lengthy opinion, which was consistent with prior unsuccessful challenges to the FTC’s administrative trial process, demonstrates the importance of raising a constitutional challenge early in a proceeding, even if that is the very proceeding, before the very agency, being challenged.

As previously discussed, Axon makes two constitutional arguments. First, the procedures authorizing the FTC to bring an enforcement action before an FTC Administrative Law Judge violate Axon’s Fifth Amendment due process rights. Second, the structure of the FTC violates the president’s “at will” removal power under Article II because FTC commissioners and administrative law judges are not subject to such removal. Though the Court acknowledged in dismissing the case that Axon’s constitutional claims “are significant and topical[,]” the Court determined that it “is not the appropriate forum to address Axon’s claims.”

Continue Reading On the Chopping Block: District Court Axes Constitutional Challenge to FTC’s Structure

At the same time that consumers are turning to the internet to purchase everything – food, diapers, work-from-home office equipment, wine, and impossible-to-find puzzles – e-commerce businesses are facing unprecedented challenges in their ability to fulfill orders: disruptions to their supply chains, sick employees, warehouse and distribution center shutdowns, and a crippled US Postal Service. We thought this was a good time to remind businesses that sell goods (services are exempted) online – or by phone or mail – of their obligations under the FTC’s Mail, Internet, or Telephone Order Merchandise Rule (MITOR, for short). Many states also have look-alike laws or regulations that often impose additional requirements on sellers.

Introduction

MITOR was originally promulgated in 1975 in response to consumer complaints that catalog sellers failed to ship ordered merchandise timely or at all and were not providing refunds in a timely fashion. It was updated several times over the years, including to include telephone and then internet sales.

In sum, MITOR requires that when you advertise, you must have a reasonable basis for stating or implying that you can ship the advertised goods within a certain time. If, however, you make no shipment statement, you must have a reasonable basis for believing that you can ship within 30 days.

Continue Reading Timely Shipping in the Age of COVID-19

Customer reviews can be used to promote or protect a brand. Reviews are relied upon by consumers when making any purchase. On March 26, Alexandra Megaris and Deborah Bessner hosted a webinar on “Customer Reviews: The Dos and Donts.” The webinar focused on a number of pressing topics surrounding customer reviews, including endorsements and testimonials, FTC and NAD enforcement and the Consumer Review Fairness Act. Best practices to comply with the Endorsements and Testimonials Rules and the Consumer Review Fairness Act were also presented. View the webinar here.

In the wake of the COVID-19 pandemic, many small businesses and restaurants have been forced to close or to provide only limited services to customers. To ensure a sustained income stream, some businesses have been emphasizing the sale of gift cards or gift certificates—and the media have been encouraging consumers to support their favorites by pitching gift cards as the “war bonds” of the coronavirus pandemic. But while buying and selling gift cards can be a win-win for both consumers and the businesses issuing them, gift card issuers must remember to comply with federal and state gift card laws that impose restrictions on expiration dates and fees, require specific disclosures, and impose other regulatory requirements. With the upsurge in gift card activity, it’s a good time to review these laws and restrictions to ensure one does not end up as the target of a Federal Trade Commission or state attorney general inquiry or an expensive class action lawsuit.

Federal Regulation of Gift Cards

The Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”) was signed into law on May 22, 2009. Although the name suggests this law pertains only to credit cards, it also applies to gift cards, stored value cards, and general-use prepaid cards that are sold or issued primarily for personal, family, or household use. Section 401 of the CARD Act requires specific disclosures regarding expiration dates and fees, limits dormancy, inactivity, and service fees, and establishes a minimum expiration date for these cards.

Continue Reading Are Gift Cards the War Bonds of the COVID-19 Era? Maybe So, but Issuers Still Need to Consider the Consumer Protection Laws

Times of national crisis tend to trigger an uptick in charitable solicitations and charitable giving. And for-profit businesses, including recognizable retail brands, want to do all they can to help as well. As the COVID-19 crisis unfolds, with its far-ranging economic and societal repercussions, many brands are engaging in coronavirus-related commercial co-venture (CCV) activities and cause marketing promotions, advertising to consumers that purchase or use of their product or service will benefit a charity or a charitable purpose.

Although the COVID-19 pandemic has resulted in a delayed federal income tax filing deadline, mortgage relief programs, and other types of suspended governmental requirements, the regulations applicable to charitable sales promotions and the commercial coventurers who carry them on remain fully in place. In some ways, compliance with these rules—particularly disclosure requirements—is more important than ever given the increased desire to act now and do good. There is no “pandemic exception” for compliance with states’ CCV laws, or state and federal truth‑in-advertising laws. Indeed, while states may accommodate reasonable filing or registration delays caused by COVID-related business interruptions and the FTC similarly has acknowledged the strain on all businesses right now, these regulators will also crack down on marketing abuses that take advantage of consumers’ generosity or fear during the pandemic. For brands wanting to capitalize on the moment, keep in mind the following basics when it comes to conducting a compliant campaign:

Continue Reading Charitable Sales Promotion Rules and Best Practices: Be Sure to Cross Your T’s and Dot Your I’s During the Pandemic