Source: https://www.consumeradvertisinglawblog.com/page/2/
Timestamp: 2019-04-20 15:11:13+00:00

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The House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade plans to take up legislation to reform and limit the authority of the Federal Trade Commission (FTC) as part of its #DisruptFTC series. Subcommittee Chairman Michael Burgess (R-TX) said that he plans to combine some of the FTC reform bills considered at a recent May 24 legislative hearing to create a comprehensive piece of legislation. While he has not decided which bills he will include in his combined legislation, Chairman Burgess noted that the bills focused on reforming the FTC’s processes are his highest priority. A date for a mark-up of the bills has not been announced but is likely to occur before Congress recesses for the presidential conventions in July.
At the recent legislative hearing, FTC Chairwoman Edith Ramirez was a key witness and opposed a majority of the FTC reform bills given the effect the legislation would have in limiting the Commission’s authority. While most of the witnesses supported the subcommittee’s FTC reform efforts, David Vladeck, a law professor at Georgetown Law and Director of the FTC’s Bureau of Consumer Protection from 2009 to 2012, was one of the witnesses invited by the Democratic members of the Subcommittee and opposed most of the bills along with Chairwoman Ramirez. A complete witness list is available here.
Below are seven takeaways on the key bills in the #DisruptFTC series, which we initially profiled in our May 5 blog post.
General Federal Trade Commission Opposition. The Federal Trade Commission opposes all of the #DisruptFTC bills, except for the Consumer Review Fairness Act (see Takeaway #3). In sum, Chairwoman Ramirez believes the bills would create unintended consequences, administrative burdens, and at times, processes that undermine the objectives they are trying to achieve.
Technological Innovation through Modernizing Enforcement (TIME) Act (H.R. 4093). Supporters want the bill strengthened by including an additional procedural change that allows a company subject to a consent decree to petition for review of its consent decree. Chairwoman Ramirez, however, opposes the bill because the Commission already has review procedures in place. Supporters also are asking the committee to consider a shorter sunset time for all consent orders -- from the agency practice of requiring 10 to 20 year consents to 8 years.
Consumer Review Fairness Act (H.R. 5111). This is the only measure to receive support from all of the witnesses. The Chairwoman views the bill as an additional law enforcement tool to prevent companies from removing unfavorable reviews of products and services from websites and other sources of product information for consumers. Other supporters believe the bill’s approach is a better alternative to piecemeal FTC enforcement actions. This bill is a priority for online review platforms, such as Yelp, TripAdvisor, and others.
Clarifying Legality and Enforcement Action Reasoning (CLEAR) Act (H.R. 5109). Chairwoman Ramirez opposes the bill because companies under investigation could be easily identified from the legal analysis and industry details in the required annual report to Congress. Opponents also argue that the burdens imposed do not outweigh the benefits. Supporters counter by requesting Congress to appropriate funds to implement the bill.
Start Taking Action on Lingering Liabilities (STALL) Act (H.R. 5097). The FTC fails to support the bill because “[i]t is intended to relieve businesses of a burden - uncertainty about whether an FTC investigation is still open - but may impede the Commission’s ability to protect consumers without adding corresponding benefits,” according to Chairwoman Ramirez. Supporters request that the bill be strengthened by requiring the FTC to send notification of an investigation’s extension.
Solidifying Habitual and Institutional Explanations of Liability and Defenses (SHEILD) Act (H.R. 5136). The bill would allow compliance with policy guidelines and guidance to be used as evidence of compliance with the law. Chairwoman Ramirez believes that the measure creates challenges for the FTC when considering how the law applies to the specific facts of a case, as guidance could be substituted for law. Supporters seek further clarifications, including amendments to: (1) ensure that reports, consent decrees, and FTC practices are not binding; (2) specify when a defendant may provide evidence to show compliance with FTC guidance; and (3) encourage the FTC to issue more guidance and policy statements.
Statement on Unfairness Reinforcement and Emphasis (SURE) Act (H.R. 5115). The FTC opposes this bill because codifying selected portions of the Policy Statement on Unfairness will unintentionally create challenges for the Commission to initiate law enforcement actions. Chairwoman Ramirez noted that the bill might undermine the FTC’s efforts to prevent likely substantial harm before it occurs, despite the fact that Section 5 expressly empowers the Commission to prevent entities from engaging in unfair or deceptive acts or practices. Supporters requested amendments to require a preponderance of the evidence standard in unfairness actions and a requirement that the Bureau of Economics publish a separate cost-benefit analysis with consent decrees.
We will continue to monitor developments in this area and provide updates, accordingly.
We recommend that you read an Advisory from Arnold & Porter discussing FDA’s two final rules overhauling the agency’s policies for its Nutrition and Supplement Facts labels and Serving Sizes, and highlighting future FDA action that should be on the radar of any company involved in the manufacture or labeling of conventional foods and dietary supplements. These final rules mark the most significant changes to FDA’s food labeling policies in more than 20 years. Companies will want to pay close attention to the changes, which include a redesign of the nutrition facts label and new requirements for dual-column labeling, a mandatory declaration of added sugars, a narrower definition of dietary fibers, and new age categories for infants and children.
As previously discussed, FDA’s overhaul of its Nutrition Facts label and related nutritional labeling requirements is only one of many actions taken by the agency this year to update its regulation of what can and cannot be said about food. Last week, the agency released updated guidance for industry upholding its 2009 guidance against the use of the term “evaporated cane juice” to declare the presence of sweeteners derived from the fluid extract of sugar cane (an action that is expected to have a material impact on current and future litigation regarding the use of “evaporated cane juice” as the common and usual name for sugar in product labeling). Earlier this month, FDA issued updated guidance for industry regarding medical foods and announced its intent to reevaluate its regulation of nutrient content claims in the same week. The announcement regarding nutrient content claims was due in part to a citizen petition filed by KIND LLC regarding FDA’s requirements for labeling a product as “healthy.” By the end of the year, the FDA is expected to opine on the use of “natural” on food labels. The agency formally closed the docket on its November 2015 request for comment regarding the use of “natural” on food labels (which we discussed here) on May 10.
The FDA’s recent policy changes should remind food manufacturers to be vigilant and attentive about claims made based on ingredients in their products. In addition to regulatory changes, companies should be mindful that the updated labeling policies may fuel increasing pressure from consumers, public health advocates, and plaintiffs’ attorneys related to claims regarding the nutritional content (and benefits) of food.
Think You Know How FDA Defines A Menu? Think Again.
Along with spring showers, the month of May has brought with it a flurry of FDA action related to the labeling of food product. On Friday, FDA announced that it has finalized a new Nutrition Facts label. On May 10, FDA announced its intent to reevaluate its regulation of nutrient content claims (including the term “healthy”). And, on May 5, FDA provided further guidance to restaurants on how to comply with menu labeling requirements through FDA’s Guidance for Industry: A Labeling Guide for Restaurants and Retail Establishments Selling Away-From-Home Foods -- Part II.
We will address FDA’s reevaluation of the Nutrition Facts label and nutrient content claims in a forthcoming client advisory. In this post, we would like to discuss an important nugget embedded in FDA’s recent guidance regarding the labeling of “away-from-home foods”--specifically, in the world of tweets, posts, and vines--what constitutes a menu?
As background, FDA’s Labeling Guide for Away-From-Home Foods is intended to help “covered” establishments (restaurant chains with 20 or more locations that offer substantially the same menu items) understand the nutrition-related menu labeling rules that apply to “restaurants or similar retail establishments.” As established by the menu labeling provision of the Affordable Care Act of 2010, a food sold in covered establishments must include calorie labeling on the menu or menu board adjacent to the name or the price of the standard menu item (or, in the case of self-service foods and foods on display that are not listed on the menu or menu board, in “a manner in close proximity and clearly associated with the standard menu item”).
FDA’s definition of a “restaurant or similar retail establishment” is broad; it includes bakeries, cafeterias, coffee shops, convenience stores, delicatessens, food service facilities and concession stands located within entertainment venues (such as amusement parks, bowling alleys, and movie theatres), food service vendors (such as ice cream shops and mall cookie counters), food takeout or delivery establishments (such as pizza takeout and delivery establishments), grocery stores, retail confectionary stores, superstores, quick service restaurants and table service restaurants.
Interestingly, FDA’s recent guidance reminds companies that FDA’s definition of a “menu” is broad too.
Continuing its recent trend of enforcement, the FTC announced last week that the developers and marketers of the LearningRx “brain training” programs agreed to stop making a range of false and unsubstantiated claims and pay $200,000 under a settlement with FTC. This enforcement is an important reminder of the scrutiny that is provided to any product promoted with claims that it can improve cognition, including the promotion of such products with ads that target search terms related to brain-related diseases or injuries.
The company also allegedly claimed that LearningRx brain training is 10 times more cost-effective than tutoring.
According to the FTC’s Complaint, the company promoted LearningRx through LearningRx.com and affiliated websites, as well as through a blog, Facebook and Twitter posts, print and radio ads, and direct mail pieces, in addition to using Google search ads to target consumers searching for terms such as “cure for ADD,” “autism cure,” “Asperger cure,” and “severe traumatic brain injury cure.” The company’s training is also offered through more than 80 LearningRx centers that it franchised in 25 states.
Similar to other recent cases, the FTC asserted that LearningRx made the above noted health or other real-world claims without scientific or reliable evidence to support such claims. The agency also posted a short blog post to consumers about the settlement entitled, “Before you get on the brain train …” Among other things, the proposed order settling FTC’s charges would prohibit LearningRx from making the aforementioned claims unless the claims are not misleading and substantiated by human clinical testing.
The LearningRx case is yet another example of FTC’s scrutiny of cognitive and brain training games. Both the FTC and FDA have been active in this space over the past few years.
For example, as we reported back in January, the creators of Luminosity brain training program agreed to pay $2 million to settle charges alleging that they deceived consumers with the unfounded claims that Lumosity could help users perform better at work and in school, and reduce or delay cognitive impairment associated with age and other serious health conditions. In November 2015, we reported that FDA had issued a Warning Letter regarding the Quotient ADHD Systemis, a software program made by Pearson Education, Inc, alleging that the company’s website was promoting the software and making claims that constituted a “major change or modification” to its intended use for which it lacked clearance or approval. And, in January 2015, the FTC entered into a Consent Order with Focus Education, LLC to resolve allegations that the company made false and misleading claims about its ADHD educational software for which there was not adequate substantiation or reliable scientific evidence.
On Tuesday, May 24, the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade will continue its #DisruptFTC effort by holding a hearing titled, “Legislative Hearing on 17 FTC Bills.” As part of the hearing, subcommittee members will consider several bills aimed at limiting the authority of the Federal Trade Commission, including the six bills we discussed in our May 5 post. The lead sponsors of these six bills are all members of the subcommittee, including Subcommittee Chairman Michael Burgess (R-TX), Subcommittee Vice Chairman Leonard Lance (R-NJ), Rep. Brett Guthrie (R-KY), Rep. Susan Brooks (R-IN), Rep. Mike Pompeo (R-KS), and Rep. Markwayne Mullin (R-OK). We’ll continue to track the progress of these bills as they move through Congress, so check back here for updates.
The hearing is scheduled for 10:00am on May 24th and will be broadcast live on the committee’s website.
The editors of the Seller Beware Blog want to let our readers know about an upcoming series of webinars focused on strategies and best practices for defending class actions hosted by our firm, Arnold & Porter LLP.
The first webinar, entitled “Four Things Every In-House Counsel Should Know About Economic Injury Class Actions”, will provide insights and practical tips on four important aspects of defending against economic injury class actions.
This webinar for in-house counsel will take place on Wednesday, May 18, 2016 (12:30 – 1:30 pm ET).
CLE Credit is pending. For more information and to RSVP, click here.
US Magistrate Judge Joseph C. Spero granted motions to dismiss filed by two famous chocolatiers facing putative class actions for alleged unethical supply chain practices on March 29, 2016. The plaintiffs alleged Nestle USA Inc. and The Hershey Company failed to disclose on their products’ labels that “child slaves” in the Ivory Coast harvested cocoa beans used in their products. The plaintiffs claimed that nondisclosure violated California’s Unfair Competition Law, Consumers Legal Remedies Act, and False Advertising Law.
In two similar opinions, the court held that “[a] duty to disclose under California law does not extend to all information that may persuade a consumer to make different purchasing decisions” and that the defendants were only required to disclose “issues of product safety, unless disclosure is necessary to counter an affirmative misrepresentation.” The plaintiffs also failed to state a claim under the False Advertising Law because they alleged “pure omissions,” rather than false or misleading statements.
Earlier this year, Judge Richard Seeborg dismissed a similar suit brought against Mars, Inc.
This webinar for in-house counsel will take place on Tuesday, June 7, 2016 (Noon – 1:00 pm ET).
On Thursday, May 28, the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade introduced six bills limiting the authority of the Federal Trade Commission (FTC) as part of the launch of the subcommittee’s initiative - The Disrupter Series (#DisruptFTC). The series represents arguably the most congressional scrutiny the FTC has received since the 1980s. Subcommittee Chairman Michael Burgess (R-TX) described the aim of the series as an evaluation of the FTC to inform the subcommittee’s policy decisions on job creation and to remove challenges to innovation within the current and future marketplace.
Six of the 12 Republican subcommittee members, including Chairman Burgess and Subcommittee Vice Chairman Leonard Lance (R-NJ), introduced the bills that address consent orders, silencing of online consumer complaints, investigative actions, and enforcement actions.
Technological Innovation through Modernizing Enforcement (TIME) Act (H.R. 5093). The bill would change the current agency practice of requiring 10 to 20 year consents and limit it to 8 years for most consent orders to small businesses. Chairman Burgess sponsored the bill.
Consumer Review Fairness Act (H.R. 5111). The measure would prohibit companies from trying to silence customer opinions online. This bill is an outlier because it supports action the FTC has taken in this area. For example, in September 2015, the FTC filed a complaint against a weight-loss supplements manufacturer claiming the company attempted to prevent consumers from sharing their negative experiences online. Subcommittee Vice Chairman Leonard Lance sponsored the bill.
Clarifying Legality and Enforcement Action Reasoning (CLEAR) Act (H.R. 5109). The legislation would require the FTC to submit annually to Congress a report on its consumer protection investigations. Rep. Brett Guthrie (R-KY) sponsored the bill.
Start Taking Action on Lingering Liabilities (STALL) Act (H.R. 5097). The legislation would terminate an FTC investigation that has been inactive for six months, except when the FTC votes to extend the investigation before the six-month expiration period or the FTC sends a written communication about the investigation to the person who is the subject of the investigation. Rep. Susan Brooks (R-IN) sponsored the bill.
Solidifying Habitual and Institutional Explanations of Liability and Defenses (SHIELD) Act (H.R. 5118). The bill would clarify that the FTC’s policy guidelines and guidance should not create an independent basis for liability. It also would allow compliance with policy guidelines and guidance to be used as evidence of compliance with the law. Rep. Mike Pompeo (R-KS) sponsored the bill.
Statement on Unfairness Reinforcement and Emphasis (SURE) Act (H.R. 5115). The bill codifies the basic unfairness standard in Section 5(n) of the FTC Action and additional parts of the FTC’s unfairness analysis as set forth in its Policy Statement on Unfairness. Rep. Markwayne Mullin (R-OK), the bill’s sponsor, believes that the measure would prevent the FTC from “going rouge” and ignoring its own unfairness guidance.
Although some proponents view the FTC reform bills as common sense business measures, the likelihood of enacting the reform bills is slim, with it being an election year and Democrats opposing some of the measures. In the House, there may be further discussion within the Energy and Commerce Committee on these bills and possible floor consideration, although it is unclear at this time. In the Senate, some of the bills may be incorporated into the Standard Merger and Acquisition Reviews Through Equal Rules Act (SMARTER) Act (S. 2102/H.R. 2745), which aims to have the FTC and Department of Justice use the same standards and procedures when they review mergers.
For over 25 years, those selling products in California have been able to rely on the regulatory “safe harbor” level for lead of 0.5 micrograms per day in order to determine whether they need to provide Proposition 65 warnings for their products. Thanks to the April 11 ruling of the Alameda Superior Court, they can continue relying on that level for the time being. But an appeal looms, and the agency is still considering lowering the level by 60 percent.
With the ruling, businesses can breathe a bit easier that they will not be placed in limbo without a lead threshold specified by law. Because lead is one of the most commonly targeted chemicals in Proposition 65 enforcement actions, the safe harbor level for lead is of particular importance to businesses that rely on it to avoid or minimize costly litigation.
As we discussed previously, the Mateel Environmental Justice Foundation had argued that the agency’s determination of this level in 1989 was based on faulty and outdated science. The California Chamber of Commerce and California Farm Bureau Federation, represented by Arnold & Porter, intervened on the side of the agency to defend the regulation. Although the court declined to dismiss the case on statute of limitations ground, it ultimately ruled on the merits that the agency’s scientific determinations are entitled to deference.
After the lawsuit was filed, another Prop 65 activist group, the Center for Environmental Health, filed an administrative petition with the agency seeking repeal or a reduction in the lead safe harbor level as well as a determination that the level can only be applied on a single-day basis. This would overturn the Beech-Nut decision we discussed here: the Court of Appeal held that, in measuring whether exposures exceed the safe harbor level or not, it is appropriate to average exposures to lead over a period of time greater than a single day for products that are consumed less frequently than every single day.
Lead Safe Harbor Revision: OEHHA issued a draft proposal to reduce the lead safe harbor to 0.2 mcg/day on a one-day basis and higher levels when consumption occurs at longer intervals. Comments are closed and OEHHA is considering them but reportedly intends to move forward with a formal proposal on this topic in the next few months.
Averaging: OEHHA’s draft proposal on the lead safe harbor was accompanied by two proposals (here and here) incorporating three revisions to how averaging is done: (1) the arithmetic mean would be used to calculate exposures, instead of the geometric mean approved in Beech-Nut; (2) all existing safe harbor levels set by OEHHA would apply on a single-day basis and cannot be averaged for consumption rates less frequent than daily; and (3) levels of chemicals in food products would have to be averaged only within each “lot” and not across lots. These are also pending review within OEHHA, but they are reportedly moving forward in the next few months despite serious policy and technical concerns expressed by the business community.
Naturally Occurring: OEHHA’s draft proposals also including proposed concentration levels of lead in most foods and arsenic in rice that would be deemed to be naturally occurring and therefore exempt. This proposal responds to repeated requests from the food and agriculture sectors for greater specificity regarding the elusive “naturally occurring” exemption in the regulations. OEHHA is also reportedly planning to move forward on this in conjunction with the other proposals.
Warning Regulations: OEHHA has issued a “near final” set of proposed regulations on safe harbor warnings, which made many substantive revisions to the last proposal. Comments are due on April 26, 2016. This proposal would completely overhaul the way that warnings are provided to California consumers and includes references to a new website managed by OEHHA to provide additional information to consumers under a recent regulation.
The court’s ruling in the Mateel case is rare good news for businesses on Prop 65. But they cannot let down their guard and will need to continue to address challenges on multiple fronts in the coming months.
NTIA plans to analyze the comments and then issue a “green paper” identifying key issues impacting the deployment of IoT technologies, potential benefits and challenges, and possible roles for the federal government, in partnership with the private sector, to advance IoT technologies.
Comments are due on or before 5 p.m. Eastern Time on May 23, 2016.
For a more detailed discussion of NTIA’s RFC, read Arnold & Porter's advisory, NTIA Seeks Comment on Policy Issues Related to the Internet of Things.
Telemarketers and other businesses that make telephone calls using an artificial or prerecorded voice should take note of a new proceeding in which the Federal Communications Commission (FCC) is considering the meaning of a “residential line” under the Telephone Consumer Protection Act (TCPA) and the FCC’s implementing rules. Under those rules, a telemarketer must obtain prior express consent from a called party before initiating a telemarketing call to a residential line using an artificial or prerecorded voice. Todd C. Bank, a plaintiffs’ class-action attorney, has petitioned the FCC for a “bright-line” rule that any telephone lines registered by a telephone company as “residential”—including lines used by home businesses—be treated as a “residential line” under the regulations.
Mr. Bank just happens to be the named plaintiff in a purported class-action lawsuit currently pending before the Second Circuit, where he asserts that the defendants violated the TCPA by calling the phone number he uses for both his residence and his business without first obtaining his consent. Having lost at summary judgment in the district court, Mr. Bank clearly hopes an FCC ruling in his favor will lead the Second Circuit to reverse the decision below. More broadly, a ruling in Mr. Bank’s favor could spur similar class-action suits against businesses making “robocalls,” both in the Second Circuit and nationwide.
The FCC has asked for comments on Mr. Bank’s petition by May 2, 2016, with reply comments due on May 17, 2016. Companies or organizations with an interest in the outcome should answer this call. For additional discussion of the FCC’s notice and Mr. Bank’s petition, read Arnold & Porter's Advisory, FCC Seeks Comment on Whether the Telephone Consumer Protection Act’s Restrictions on Prerecorded Calls Apply to Home Business Telephones.
On March 29, 2016, Judge William H. Orrick III denied certification of a class of California tea drinkers because the named plaintiff failed to put forth a viable damages model and is not entitled to injunctive relief. The case, Khasin v. R.C. Bigelow, Inc., Case No. 12-cv-002204 (N.D. Cal.) centered on plaintiff’s allegations that Bigelow’s labels for its green tea products are deceptive because they misleadingly tout the benefits of healthy, powerful antioxidants but do not contain the sufficient nutritional content and antioxidants to make such claims. Bigelow asserted that there was no reliable way to determine class membership because it rolled out changes to all of its green tea labels in 2013 and had no means of tracking which retailers sold inventory under the older labels at any point in time.
Finally, the Court held that the plaintiff could not “manufacture standing” to warrant certification for injunctive relief under Rule 23(b)(2). Plaintiff’s declaration stating he “would consider” purchasing Bigelow’s tea products in the future if their labeling complied with California law was “unsupported” and failed to show a “sufficient likelihood” of future injury. Thus, the Court denied plaintiff’s motion for class certification.
Interestingly, a growing trend in the Northern District of California has been to stay mislabeling cases pending the Ninth Circuit’s decisions in three mislabeling class actions: Jones v. ConAgra Foods, Inc., No. 12-cv-01633 (N.D. Cal. June 12, 2014) (appeal filed July 15, 2014); Brazil v. Dole Packaged Foods, LLC, No. 12-cv-01831 (N.D. Cal. Dec. 8, 2014) (appeal filed Dec. 18, 2014); Kosta v. Del Monte Foods, Inc., 308 F.R.D. 217 (N.D. Cal. 2015) (appeal filed Oct. 2, 2015). Here, however, rather than stay the case, both parties urged the Court to decide the class certification motion, ultimately resulting in a “win” for Bigelow. While a stay is often considered a safe and favorable outcome for defendants facing class certification, the Bigelow decision should remind manufacturers that tackling weak cases head on at the class certification stage can provide a meaningful opportunity to avoid lengthy, expensive, and protracted litigation.
If your company is involved in consumer-directed health-related mobile apps or Health IT solutions, attend our April 19 webinar on advertising, data privacy, and data security issues raised by such products.
Consumers are increasingly relying on mobile apps and Health IT for a variety of purposes, such as managing their fitness goals, monitoring chronic conditions, monitoring adherence to prescriptions, tracking symptoms, and identifying new health problems ranging from ear infections to autism. As technologies become increasingly sophisticated, the legal framework surrounding them is rapidly developing. At the federal level, the Federal Trade Commission has issued guidelines on compliant advertising and privacy and data security practices for mobile apps; the Food and Drug Administration has issued guidelines on the security of medical devices; the Office of Civil Rights at the Department of Health and Human Services has issued guidance on the application of the HIPAA privacy and security regulations to mobile health apps; and the FTC, FDA and HHS have jointly created a web-based tool to help familiarize mobile app developers with the federal laws and regulations governing their apps. Although few states have yet adopted legislation to protect personal medical data collected and transmitted through new technologies, state regulators have expressed concern regarding the collection, transfer, storage, and dissemination of patient-specific data through such platforms.
As the regulatory environment evolves and becomes more complex, developers as well as providers of back-end services, such as cloud-based storage providers, are finding it critical to stay abreast of legal developments and to contribute to the regulatory process driving those developments. This webinar will explore the emerging law governing advertising and data privacy and security as it relates to consumer-directed mobile apps and Health IT, as a means to help stakeholders stay ahead of the curve.
In a recently announced decision, the National Advertising Division (NAD) examined environmental benefit and performance claims made by LEI Electronics Inc. (LEI) for its Eco Alkaline batteries. In response to the NAD’s inquiry, LEI discontinued certain advertising and agreed to modify most claims as recommended by NAD. However, LEI refused to discontinue the carbon neutral claim it was making for its batteries, challenging NAD’s conclusion that this claim was not adequately supported. In accordance with its procedures, NAD referred the carbon neutral claim to the Federal Trade Commission (FTC) for review.
This case exemplifies the difficulties inherent in substantiating carbon offset and carbon neutral claims. The FTC’s Green Guides require that the emissions reductions represented by carbon offsets be quantified by competent and reliable scientific and accounting methods. Advertisers are responsible for ensuring that their carbon offsets are legitimate and that their claims about carbon neutrality are adequately supported. As we’ve discussed before (see, e.g., here and here), there are many factors that go into determining whether offsets count under the Green Guides, including whether the activity truly offsets emissions, whether the activity would have occurred anyway, and how quickly the emissions offset will occur. Advertisers can be put in a difficult position when they want to be environmentally responsible by reducing their carbon footprints because they have to rely on information provided by third-party offset providers.
LEI presented life cycle assessment (LCA) to establish the carbon footprint of its Eco Alkaline batteries and certifications from third-party carbon offset providers. NAD expressed concerns that the LCA were not reliable and did not accurately calculate the carbon footprint because the assessment was limited to Canada. In addition, NAD concluded that the quantity of carbon offset by the third-party certifications was not sufficiently substantiated because no evidence of when the carbon reductions would occur were presented. Under the Green Guides, a disclosure must be made if the reductions will not occur within two years.
In the Advertiser’s Statement accompanying the NAD’s decision, LEI argued that the LCA and third-party certifications comply with the Green Guides and thus adequately substantiate its carbon neutral claim. As a result, LEI refused to discontinue this claim, and NAD said it will refer the claim to the FTC. The FTC strongly supports the NAD process, but does not always look into matters referred to it. Whether the FTC does investigate is influenced by available resources and enforcement priorities. This could be an opportunity for the FTC to provide additional guidance on carbon offsets, but time will tell whether the FTC will take the opportunity to do so.
On March 25, 2016, less than a month after CPSC Chairman Kaye called for “double digit” (million dollar) civil penalties at the ICPHSO Annual Meeting and Training Symposium, as we discussed here, CPSC announced that the Commission voted (4-1) to provisionally accept a record-setting $15.45 million civil penalty settlement agreement with Gree Electrical Appliances Inc. of Zhuhai, China, Hong Kong Gree Electrical Appliances Sales Co., Ltd., and Gree USA Sales, Ltd. (collectively “Gree”). CPSC staff alleged violations of the Consumer Product Safety Act (CPSA) involving approximately 2.5 million dehumidifiers sold in the U.S. This is the largest CPSC civil penalty on record by a wide margin -- the prior record was $4.3 million.
CPSC staff alleged that Gree failed to timely notify CPSC that its dehumidifiers were defective and created a unreasonable risk of serious injury or death, despite having information that reasonably supported such a conclusion. The dehumidifiers allegedly caught fire, causing significant property damage, although no personal injuries were reported in either the settlement agreement or the recall announcements. In addition, CPSC staff alleged that Gree violated the CPSA by (1) using a UL certification mark on its dehumidifiers when it knew the dehumidifiers were not compliant with UL flammability standards, and (2) making material misrepresentations to the staff that the dehumidifiers met UL flammability standards, and also making material misrepresentations about the date upon which it became aware that the dehumidifiers were not UL compliant.
The settlement agreement is sparse on details regarding the alleged violative conduct. According to staff allegations, in July 2012, Gree began receiving incident reports involving the dehumidifiers and subsequently implemented design changes. CPSC staff declined to identify when it believed Gree had information which should have prompted it to notify CPSC. According to Commissioner Marietta Robinson’s statement, Gree did not notify CPSC about the dehumidifiers until March 2013, (approximately nine months after the company began receiving incident reports.) The dehumidifiers were recalled in September 2013, the recall was expanded in January 2014, and re-announced in May 2014.
While voting in favor of the penalty agreement, Commissioner Joseph Mohorovic issued a statement that was critical of the lack of details in the settlement agreement, explaining that the agreement’s ambiguity is not helpful in deterring other companies from avoiding similar conduct. (“If other companies better understand the behavior that drew our ire in this instance, they can better understand what behavior they should avoid.”) Commissioner Mohorovic also pointed out that, as the maximum penalty for material misrepresentation is $100,000 per violation, “the great bulk of the penalty is derived from the alleged failure to report.” Finally, in keeping with other recent CPSC settlement agreements for alleged late reporting, Gree has agreed to implement and maintain an internal compliance program.
What can you call a fruit juice made of 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice? It depends on the flavor. And according to FDA and a California jury, calling a pomegranate-blueberry flavored fruit juice “Enhanced Pomegranate Blueberry Flavored 100% Juice Blend” is just fine. On March 21, 2016, a California jury in POM Wonderful LLC v. The Coca-Cola Company, Case No. 2:08-cv-06237 (C.D. Cal.) rejected POM Wonderful’s allegations that the labeling for The Coca-Cola Co.’s pomegranate-blueberry juice blend (which complied with FDA labeling requirements) was, nevertheless, misleading because the juice contained only 0.5% pomegranate and blueberry juices. We had blogged about previous developments in the case here, here, and here.
The unanimous jury verdict is the culmination of a nearly eight-year legal battle between POM Wonderful and The Coca-Cola Co. over the name and labeling of Coca-Cola’s pomegranate-blueberry flavored juice blend. POM, a manufacturer and seller of competing pomegranate-blueberry juice products, brought suit under the Lanham Act alleging unfair competition arising from Coca-Cola’s allegedly misleading product label. While Coca-Cola’s juice product contains pomegranate and blueberry juice, it mostly consists of apple and grape juice.
POM’s Lanham Act claims were originally dismissed by the district court on the ground that claims based on labeling regulated by FDA pursuant to its authority under the Federal Food, Drug and Cosmetic Act (FDCA) are preempted by that Act. In June 2014, the Supreme Court cleared the way for POM’s Lanham Act claims alleging that the name and label of Coca-Cola’s juice blend mislead consumers, holding that a competitor like POM may bring Lanham Act claims that allege that food and beverage labels that are regulated by the FDA under the FDCA also violate the Lanham Act.
At trial, POM’s lawyers argued that the prominence of a pomegranate picture on the label, coloring of the juice to resemble pomegranate juice, and font size of “Pomegranate Blueberry” on the product’s label all showed that Coca-Cola’s labeling misled consumers into thinking they were purchasing a beverage with more than 1% pomegranate and blueberry juices. Coca-Cola’s lawyers told the jury that Coca-Cola’s label was literally true and followed the labeling guidelines set by the FDA in its implementing regulations. After less than a day of deliberations, the jury returned a special verdict finding that POM did not prove by a preponderance of the evidence that the label or packaging of Coca-Cola’s juice product, even if literally true, nevertheless misled a substantial portion of consumers.
This is not POM’s first time suing competitors over their allegedly deceptive product labels. In 2010 and 2011, California juries also sided with POM’s competitors, Ocean Spray Cranberries, Inc. and Tropicana Products, Inc., finding that POM had not shown that Ocean Spray’s labeling for its pomegranate-cranberry juice blend or Tropicana’s labeling for its pomegranate-blueberry juice drink were misleading. And we had previously blogged here about POM’s lawsuit against Welch Foods Inc. in which the jury found that Welch had deceptively marketed its white grape pomegranate juice product but that POM had not proven its lost sales.
The POM v. Coca-Cola jury verdict is considered a win for many manufacturers in the food and beverage industry, particularly in an environment where misleading labeling lawsuits brought by competitors or putative classes are increasingly common. It also provides an opportunity an important reminder that, when faced with threats of litigation, consumer products companies need not necessarily underestimate consumers’ ability to understand packaging labels. Food and beverage labeling lawsuits often settle quickly, but the POM verdict should give manufacturers some courage (and ammunition) to push back.
In a letter written in defense of its finalized consent order with Carrot Neurotechnology, Inc. (Carrot), the FTC took the position that the peer-review process may not always catch the “misreporting of underlying data” and “improper data analysis” that is noticed by the FTC during its review of claim substantiation. When coupled with FDA’s focus on data integrity issues, the FTC’s statements in the letter suggest that companies may want to more closely scrutinize the data underlying even published, peer-reviewed study reports before relying on the reports as support for health-related product claims.
The FTC’s settlement with Carrot came in response to an earlier complaint in which the FTC alleged that Carrot’s ocular-improvement claims for its interactive game application called Ultimeyes were unsubstantiated. The finalized order included a provision that requires Carrot to “secure and preserve all underlying or supporting data and documents generally accepted by experts in the field as relevant to an assessment” of any test relied upon by Carrot as support for future health-benefit claims for any product, if the test was conducted, controlled, or sponsored, in part by Carrot or its agents. While this “data collection and retention” provision has become commonplace in FTC orders since 2014, statements by the agency in the letter reflect an intended use for the data that should not be taken lightly by any consumer product company considering whether a published, peer-reviewed study provides sufficient substantiation for a health-benefit claim.
[I]n evaluating substantiation for advertising claims, the Commission assesses the quality and reliability of the scientific evidence underlying the claim. In this regard, peer review, while valuable and often indicative of a well-designed and executed study, is not a guarantor of high quality. During an investigation, the Commission may obtain additional information, not available to the peer reviewers, that is relevant to an assessment of the reliability and implications of the peer-reviewed study. For instance, this additional information may identify study design flaws, misreporting of the underlying data, or improper data analysis. Moreover, results from a peer-reviewed study may support some claims, but not the specific advertising claims the Commission has challenged. (emphasis added).
The references to “misreporting of the underlying data” and “improper data analysis,” in particular, forewarn companies to think twice before blindly relying on data from published peer-reviewed sources. During an inquiry into the truthfulness and accuracy of a claim, the FTC may take it upon itself to double-check the accuracy of data and analysis reflected in a published peer-reviewed study offered in support of the claim. Further, if a discrepancy is discovered, the FTC may attempt to hold the company responsible for claims made in reliance on the inaccurate study report, especially if the study was conducted, controlled, or sponsored, in part by the company or its agent.
The FTC’s interest in the accuracy of the underlying data and analysis reflected in study reports is in alignment with FDA’s focus on similar data integrity issues. Over the past few years, FDA has issued a series of warning letters regarding alleged data integrity issues reflected in study reports that FDA has uncovered during facility inspections (see e.g., here, here, and here and, more generally, FDA’s Bioresearch Monitoring Program). When reviewed in context, the FTC’s focus on data integrity may reflect a convergence between what the FDA and FTC consider to be sufficient quality control measures for the data and analysis underlying study reports. With this in mind, companies may want to take advantage of the opportunity afforded by the agencies’ publicized enforcement activity related to data integrity concerns to review (and strengthen) internal protocols for evaluating studies before they are relied upon to support health benefit-claims for consumer products.
In a February 12, 2016 guidance document, Washington’s Department of Ecology announced that it will begin to enforce limits on phthalates, cadmium and lead content in children’s products that are within the scope of Washington’s Children’s Safe Products Act (CSPA) but are outside of the scope of the federal Consumer Product Safety Improvement Act of 2008 (CPSIA). This guidance is notable because in a 2009 report, the Department of Ecology had announced that it would defer to the federal law on the use of these chemicals. Therefore companies that manufacture, distribute or sell children’s products outside the scope of the federal limits on these chemicals might not have been taking steps to help ensure that such products comply with the CSPA.
Clothing (including footwear, per the February 12 guidance document) (restrictions on phthalates and cadmium in clothing for all ages of children; and lead in clothing for children over the age of twelve years).
It remains to be seen when and how broadly Washington will begin to enforce the CSPA chemical restrictions and whether a challenge will be mounted on preemption grounds. Companies that manufacture, distribute or sell products in Washington that are intended or designed for children should determine whether such products are covered by the CSPA and if necessary have them tested to determine whether they comply with the applicable limits.

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