Source: https://www.crowell.com/NewsEvents/AlertsNewsletters/all/Recent-Happenings-in-Advertising-Product-Risk-Management-February-2018
Timestamp: 2019-04-22 12:56:40+00:00

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This news bulletin is provided by the Advertising & Product Risk Management Group of Crowell & Moring. If you have questions or need assistance, please contact Chris Cole, Cheryl Falvey, or any member of the APRM Group.
Last year at this time, we were awaiting the inauguration of President Trump and forecasting the potential impacts to federal and state consumer protection inherent in a transition to a Republican administration. Here’s a recap of how our predictions panned out and a new set of predictions for 2018.
Who would have predicted that, one year in, the FTC would be operating with only two Commissioners and that President Trump would have only reported Commissioner nominations to the Senate just last month?
In late 2016, we cited rumors that Utah Attorney General Sean Reyes was a frontrunner for Chairman. Mr. Reyes’ candidacy never materialized, however, and the President has since nominated Joe Simons, a Republican and former Director of the Bureau of Competition. Also nominated are Rohit Chopra, a Democrat and former Assistant Director of the CFPB; Christine Wilson, a Republican and currently in-house counsel at Delta Airlines; and Noah Phillips, a Republican staffer for Senator John Cornyn of Texas. Acting Chairman Maureen Ohlhausen (R) has been nominated to the Court of Federal Claims. Commissioner McSweeny (D) will depart as soon as new Chairman Simons is confirmed. Senator Chuck Schumer’s Chief Counsel, Rebecca Slaughter, is reportedly a candidate for the second Democratic spot. None of the impending nominations are expected to face significant opposition.
The nominees are carefully being slotted into specific vacancies to ensure a Republican majority persists on the Commission. Commissioner terms are staggered in order to avoid an exodus every two years. That broke down over the last two years, however, as the Commission suffered attrition. Now, Mr. Simons has been tagged to occupy departing Commissioner McSweeny’s seat, giving him the longest available term. By contrast, Mr. Chopra has been tagged to serve out former Commissioner Josh Wright’s term. Since Mr. Wright had resigned early, his term is up in September 2019. Thus, Mr. Chopra will have a short, roughly 2+ year term, unless nominated again in 2019.
We also predicted that FTC enforcement would likely diminish in severity and frequency. This came half-true, but the FTC also brought notable privacy and data-security actions against TaxSlayer, Uber, and Vizio, among others. We also foresaw continued enforcement by the FTC in its traditional consumer protection role, such as seals and certifications, green claims, negative-option marketing and testimonials and endorsements. These things happened, too. Lesley Fair of the FTC has a characteristically informative “year in review” post up on the FTC’s Business Blog.
In 2018, we predict a somewhat softer year from the FTC in consumer protection matters, given the uncertainty surrounding Commission staffing, the onboarding of new Commissioners, and the overall deregulatory agenda. We likely will not experience the routine demands for monetary relief that were the norm during the Obama years. Moreover, some of the more notable actions coming out of the FTC Bureau of Consumer Protection in 2018 may be to revisit prior orders that are found after review to be outdated and too onerous. For example, a notable petition for relief has been submitted by Sears, which is currently under order regarding consumer internet-tracking practices it engaged in prior to 2008, and the FTC may be tempted to exhibit a newfound flexibility and willingness to reconsider certain terms.
The FTC will also have grapple with continuing fallout from cases that were commenced in the waning days of the Obama presidency. These cases include FTC v. DIRECTV, Inc., No. 4:15-cv-01129 (N.D. Cal.), in which the FTC sought $3.9 billion in damages arising out of allegations that DIRECTV had misled its customers by failing to include material disclosures in its advertising regarding promotional end dates and total subscription fees. After hearing the FTC’s case-in-chief at trial, however, the United States District Court for the Northern District of California stayed the proceedings and, signaling the Court’s deep reservations regarding the government’s case in chief, requested that DIRECTV file a motion for partial judgment. The case has substantial ramifications and could signal a stronger judicial focus on the FTC’s burden of proof in the future. If it comes out as many predict, it could also embolden more defendants to take their cases to court instead of settling.
The FTC is also attempting to overturn a decision out of the Ninth Circuit in FTC v. AT&T Mobility LLC, No. 15-16585 (9th Cir. Aug. 29, 2016), in which the court held that the FTC lacks jurisdiction over ISPs, because of the common carrier exemption. The case has since been re-argued to the court en banc and a decision is pending. In the meantime, as discussed below, the FCC has removed ISPs from Title II classification and rescinded its Net Neutrality order.
The FTC has typically enjoyed bipartisan support from the Hill. The newly proposed Commissioners are all highly experienced and qualified and will likely enjoy Congressional support. There is no reason to believe that the FTC will swing wildly away from traditional principles of consumer protection as applied in prior administrations. However, it is a safe bet that the Commission will be more cautious in the cases it brings.
Our predictions for the FCC were accurate. Chairman Ajit Pai followed through on his promise to repeal Net Neutrality. Perhaps more surprising was Chairman Pai’s cheeky video defending the action, which we could never have predicted. Assuming the FCC’s about-face is not successfully challenged in court, ISPs will henceforth be able to manage traffic on their networks as they see fit, provided they disclose the management practices to consumers. A number of ISPs have publicly reiterated voluntary commitments to abide by net neutrality principles, so the FCC’s decision seems unlikely to result in any immediate changes to the internet.
There is a movement afoot in Congress to overturn this FCC decision under the Congressional Review Act (CRA), through which Congress has plenary review of any major agency rulemaking within 60 days of the decision. We predict that such an effort will not muster enough votes to succeed.
There is also substantial, state-based activity to impose net neutrality requirements. First, 21 states have sued the FCC, arguing that its decision to rescind the rule was arbitrary and capricious. Several states have pending bills that would impose net neutrality on a statewide level (notwithstanding Commerce Clause concerns). New York has announced that it will not contract with any ISP that does not commit to net neutrality principles.
A key debate point in net neutrality is the issue of paid prioritization. For example, an ISP could sell special access (e.g., faster downloads or better streaming) to a content provider wishing to ensure its customers a better viewing experience. Proponents say that such prioritization deals benefit consumers and foster investment in innovation. Opponents decry them as harbingers of a downward spiral whereby ordinary internet users will lose access to services, receive degraded services, and the internet will slowly transform into a walled garden. In the current political environment, there is unlikely to be any Congressional groundswell in favor of reinstituting a net neutrality rule. However, these things might change very rapidly in the midterm elections.
Sometimes the battle ends with a whimper, not a bang. The year began with Director Richard Cordray engaged in a public tug of war with the President over his continued tenure at the helm of the CFPB. But Director Cordray stepped down in November, sparking a highly unusual battle for succession more reminiscent of England in 1066 than modern-day Washington. On his way out the door, Cordray attempted to appoint Leandra English as Acting Director, while President Trump appointed former Budget Director Mick Mulvaney to the same job. Thus, for a day or two, the agency was subjected to the demoralizing spectacle of English and Mulvaney occupying separate “Director” offices within the same building.
The turmoil at CFPB has resulted in a staff exodus. During this period of uncertainty, it is safe to say that there will be no major rulemaking initiatives from the Board, and enforcement will center only on clear-cut evidence of financial fraud.
The states have stepped into the void. Now, the hottest jobs in consumer protection are those in State Attorneys General offices. A reinvigorated National Association of Attorneys General Consumer Protection Committee is coordinating a large number of multistate consumer protection investigations. The NAAG has formalized training and coordination on consumer protection investigations, aiming to build state expertise to take on more complex, multistate cases.
States typically operate pursuant to “Little FTC Acts” that give them authority closely modeled on that of the FTC itself. In many cases, those state laws directly incorporate by reference FTC guidance, so the state laws often magnify and provide more expansive authority to take action against alleged consumer deception and unfairness.
Some of the most complex multistate cases focus on the nation’s opioid abuse problems, as well as student lending, financial services, cybersecurity, Medicaid fraud, drug pricing, and other matters of national importance. As discussed above with respect to the Net Neutrality litigation, the states have also been increasingly emboldened to oppose the federal government. These are trends that will continue to accelerate over the next several years.
As the federal government pulls back from consumer protection, states, private litigations and self-regulation step forward to fill the gap. In many ways, this increases uncertainty for industry, which must monitor a wider, more complex, and less predictable threat environment. We don’t foresee any blockbuster changes in 2018, although a change in Congressional control after the midterm elections could disrupt matters in 2019.
As consumer devices shrink, smaller but more powerful batteries are becoming more popular, and lithium-based batteries have become the preferred energy source to power a wide variety of consumer goods. Companies are constantly finding more novel applications for batteries, from children’s toys, to wearable technology in the fashion industry, to car accessories in the automotive industry. In the age of constant cell phone and laptop monitoring, lithium ion batteries are everywhere we look.
With the rise in number of lithium battery products, the safety and potential hazards of lithium batteries have attracted more media, legal and regulatory attention. Lithium batteries are safe and have been approved for consumer use, but with millions of consumers using batteries, failures are bound to happen. Historically, there have been a handful of battery-related recalls each year. However, the number of recalls has sharply increased in recent years. Although there were only about three battery-related recalls in 2015, there were over twenty in 2016, half of which included highly-publicized hoverboard and smartphone recalls involving lithium-based batteries overheating and posing a fire hazard.
Separately, the transportation of lithium ion batteries continues to garner significant attention, as there have been publicized reports of lithium batteries overheating, catching fire, or even exploding when disturbed or exposed to various conditions during transport. Most notably, the U.S. Department of Transportation (DOT) guidelines prohibit air shipments for any lithium battery products recalled for safety reasons.
This puts even the most well-meaning companies at a serious dilemma when it comes to the implementation of product recalls involving lithium batteries: how to collect recalled batteries to ensure proper disposal while accounting for the risk of transporting recalled batteries across the country. Furthermore, because recycling and waste facilities vary in the type of waste they will accept, it is difficult to issue consumers general instructions on how to properly dispose of lithium-based batteries. And it is even more uncertain as to whether those regional facilities will accept recalled batteries at all.
For now, the trend among CPSC recalls appears to favor the recalling company collecting recalled batteries from consumers in order to ensure proper disposal. To combat the increased risk presented by such transportation, a host of administration services that specialize in packaging and transport of recalled or damaged batteries have sprung up to meet this market need. But such services are typically expensive and in some cases, the cost of collecting the battery-operated product could be higher than the cost of the product itself. One potential alternative solution is to advise consumers to return recalled batteries to certain retail store locations. But this requires that collecting stores be willing to take on some risk, and retail staff must be properly educated about storage and disposal of the recalled batteries.
A circuit board that contains battery management electronics to prevent overcharge.
A positive thermal coefficient (PTC) including a plastic piece that expands when heated, causing conductive materials to separate under high current conditions.
A current interrupt device (CID) that activates and disables the battery under high pressure.
These protection mechanisms can help prevent an expensive recall of battery-powered products.
The litigation arena for the consumer products industry is as active as ever. Each newsletter we bring you a summary of the most important litigation developments from the past two months, from complaint filings and key court decisions to trial results and settlements. For more information about these and other developments, please visit our Food & Beverage Industry Tracking Report.
On January 22, 2018, a motorcyclist filed a lawsuit in California federal court against an automaker alleging that he collided with their vehicle that was equipped with self-driving equipment. This is the first known lawsuit involving self-driving vehicles and will be closely followed by public and private stakeholders. Nilsson v. General Motors, LLC (N.D. Cal. 4:18-cv-00471).
On February 7, 2018, in a New York federal court, a new class action lawsuit filed alleges that the packaging of Werther’s Original sugar-free chew caramels misrepresents the amount of candy in each bag, as well as the effect that the product has on blood glucose levels. As for the “slack-fill” allegation, the plaintiff consumer alleges that the bags of candy are manufactured, marketed, and sold with non-functional slack-fill space in violation of the Food Drug & Cosmetic Act and various state laws. Specifically, the complaint claims that the bags are less than 40 percent full causing consumers to overpay for the product. The complaint also alleges that Werther’s misrepresents the product’s effects on blood glucose levels because the candies contain maltitol syrup. Kpakpoe-Awei v. Storck USA, L.P. (S.D.N.Y. 7:18-cv-01086).
The Department of Justice (DOJ) and Consumer Product Safety Commission (CPSC) announced on February 13 that Michaels Stores (Michaels) has agreed to pay a $1.5 million civil penalty to settle litigation brought by the Government under the Consumer Product Safety Act (CPSA). In April 2015, the DOJ and CPSC sued Michaels for the imposition of a civil penalty and injunctive relief over Michaels’ alleged violations of the CPSA, including, but not limited to, the Company’s failure to timely report a potential product safety hazard under Section 15(b) involving certain of its glass vases. In addition to paying a $1.5 million penalty, Michaels has also agreed to maintain a compliance program to ensure future compliance with the CPSA. For more information about this case, visit our blog’s website for additional analysis (here and here).
Bumble Bee Foods has agreed to repackage certain of its canned salmon products to settle a class action alleging that the company misrepresented that its salmon was “smoked” and “wild-caught” rather than farmed and flavored with added liquid smoke. Last year, plaintiffs filed suit claiming that the Company made such misrepresentations on its Premium Select Medium Red Smoked Salmon Fillets in Oil. Under the terms of the settlement agreement, Bumble Bee will specify that the salmon is “smoke flavored” and more accurately depict a farm-raised salmon. Rodriguez v. Bumble Bee Foods, LLC (S.D. Cal. 3:17-cv-02447).
On February 12, 2018, a California federal court dismissed a putative class action complaint that alleged that certain representations on the label of Vitamin Shoppe’s “Garcinia Cambogia Extract” supplement were false and misleading. The Plaintiff alleged that she believed that the supplement was an effective dietary aid that would provide weight loss benefits and help appetite control based on the label’s phrases “Weight Management” and “Appetite Control” representations. In dismissing the suit, among other reasons, the court concluded that the promotion of “weight management” and “appetite control” do not equate to representations that the product provides weight loss benefits and that the plaintiff is merely asserting her subjective beliefs. Nathan v. Vitamin Shoppe, Inc. (S.D. Cal. 3:17-cv-01590).
With a new executive administration getting its bearings in Washington, the regulatory landscape is in a state of flux—with important changes on the horizon. Each newsletter we bring you a rundown of key developments for the consumer products industry from each of the three main regulatory agencies, as well as the NAD.
On February 1, 2018, CPSC announced a new federal safety standard for infant sling carriers. The new standard requires that all infant slings manufactured or imported after January 30, 2018, have permanently attached warning labels and come with instructions, such as illustrated diagrams that show the proper position of a child in the sling. Warning labels must include statements about the suffocation hazard posed by slings and prevention measures, the hazards of children falling out of slings, and a reminder for caregivers to check the buckles, snaps, rings, and other hardware to make sure no parts are broken. The mandatory standard also requires that slings carry up to three times the manufacturer’s maximum recommended weight; be durable enough to avoid seam separations, fabric tears, and breakage; and keep the child being carried from falling out during normal use.
On January 2, 2018, CPSC announced a grant program to assist state and local jurisdictions reduce deaths and injuries from drowning and drain entrapment incidents in pools and spas. The grants provide support for state and local officials to educate consumers about drowning and entrapment dangers and to enforce pool safety laws in their communities.
On February 6, 2018, FDA’s Commissioner Scott Gottlieb released a summary of the agency’s scientific evidence on the presence of opioid compounds in Kratom. Prompted by the FDA’s concerns about the use of Kratom to treat opioid withdrawal symptoms, the research further proves that the compounds found in Kratom are opioids. The FDA has announced that Kratom should not be used either to treat medical conditions or as an alternative to prescription opioids.
The FDA approved the RadioGenix System, a unique system for producing Technetium-99m (TC-99m), the most widely used radioisotope in medical imaging. The Nuclear Regulatory Commission (NRC) is issuing guidance and will license the RadioGenix System to enable the Tc-99m it produces to be used for its medical purpose. As a result of interagency collaboration among the FDA, NRC, and Department of Energy, the U.S. medical community will now have a domestic source of Tc-99m through the RadioGenix System, which marks the first non-uranium process for producing Mo-99 to prepare Tc-99m.
On January 26, 2018, the FDA approved Lutathera (lutetium Lu 177 dotatate) for the treatment of a type of cancer that affects the pancreas or gastrointestinal tract called gastroenteropancreatic neuroendocrine tumors (GEP-NETs). This is the first time a radioactive drug, or radiopharmaceutical, has been approved for the treatment of GEP-NETs. Lutathera is indicated for adult patients with somatostatin receptor-positive GEP-NETs.
On January 24, 2018, the FDA and the FTC posted joint warning letters to the marketers and distributors of 12 opioid cessation products, for illegally marketing unapproved products with claims about their ability to help in the treatment of opioid addiction and withdrawal.
The Federal Trade Commission has amended its Energy Labeling Rule by updating comparability range and cost information for several products, including dishwashers, furnaces, pool heaters and room air conditioners. The Rule seeks to help consumers consider the energy cost of consumer products by requiring yellow EnergyGuide labels on certain appliances and other products. The labels provide an estimated annual energy cost, an energy consumption rating, and a range for comparing the highest and lowest energy costs for all similar models.
The FTC filed a complaint against Nevada-based Prime Sites, Inc. alleging that the company – doing business as Explore Talent – violated the Children’s Online Privacy Protection Act (COPPA) by collecting and disclosing children’s personal information without obtaining parental consent and by failing to detail to parents and the public its collection, use, and disclosure practices. The complaint also alleges that the company violated the FTC Act by baselessly representing to prospective purchasers of its premium services that casting directors either had interest in them or had specifically chosen them for upcoming roles. On February 5, 2018, the web-based talent search company agreed to pay $235,000 in civil penalties to settle Federal Trade Commission charges.
On January 2, 2018, the FTC gave final approval to a settlement with Lenovo Inc., related to charges that the company harmed consumers by pre-loading software on some laptops that compromised security protections in order to deliver ads to consumers. As part of the settlement with the FTC, Lenovo is prohibited from misrepresenting any features of software preloaded on laptops that will inject advertising into consumers’ Internet browsing sessions or transmit sensitive consumer information to third parties.
Each week, Crowell & Moring’s Advertising & Product Risk Management Group brings you the top stories in retail and consumer products law.
After refusing to comply with NAD’s recommendations regarding advertising claims, Pharmavite has been referred to the FTC. Jessica Gilbert explains the background of the case.
Peter Miller and Lauren Aronson detail VTech’s violation of the Children’s Online Privacy Protection Act Rules, including what the allegations mean for the future of connected toys.
Julia Milewski provides lessons learned from the use of surveys in the recent Starbucks and 5-Hour Energy class actions and how surveys can benefit consumer goods companies and class action defendants alike.
Crowell & Moring received a statement from the Vice President & General Counsel of eHarmony, Ronald Sarian, in regards to this post from Lauren Aronson on the company’s settlement for auto-renewal claims.
Lauren Aronson discusses the FTC’s largest-ever penalty issued against an ad agency: Marketing Architects, Inc. agreed to pay $2 million dollars to settle a false advertising complaint filed with the FTC and the State of Maine Attorney General’s Office.
Recent years have seen federal courts applying increased scrutiny to proposed “multistate” class actions that invoke a hodgepodge of state consumer-protection laws. Josh Foust explains how the ninth circuit’s recent ruling will impact nationwide settlement cases.
Ryan Tisch will be presenting a panel titled “Breakout E: How to Keep the Customer Happy: Responding to Retailer “Asks” of Grocery Manufacturers.” Chris Cole will be speaking on a panel titled “Future CPG Industry Legal Challenges.” Click here for more information.
Chris Cole will be speaking at the annual Spring Meeting as part of a panel titled “Dieselgate – Strategies for Multi-Jurisdictional CP Investigations.” Lisa Kimmel will present on a panel titled “Antitrust & FRAND Enforcement.” Andy Gavil will speaking on a panel titled “Antitrust in a Time of Economic Populism.” Maarten Stassen will be part of a panel titled “GDPR – Pain Points and Enforcement Risk.” Click here for more information and to register for the conference.
Chris Cole and Lauren Aronson will be presenting at the Advertising Claims Support course on case histories and principles. Click here for more information and to register for the conference.
Chris Cole will be speaking at the at National Advertising Division’s first-ever West Coast Conference. Click here for more information and to register for the conference.
Chris Cole spoke at this inaugural event as part of a panel titled “Put it to the Test: Evaluating the Degree of Substantiation Necessary to Back Your Claim.” Lauren Aronson spoke on a panel title “Reading Between the Lines: Identifying Different Types of Claims and Mastering Their Nuances.” Click here for more information.
Frances Hadfield spoke on a panel titled “Trump’s NAFTA Renegotiation: Potential Changes and Impacts to Brands, Apparel and Textiles.” Click here for more information.
Matthew Cohen moderated the plenary session titled “ICPHSO and Product Safety: A Travel Through Time” discussing the dramatically changed product safety landscape in honor of ICPHSO’s 25th anniversary. Click here for more information.

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