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Timestamp: 2018-06-20 22:33:01
Document Index: 285642814

Matched Legal Cases: ['§ 2068', '§ 2068', '§ 2068', '§ 2064', '§1127', '§ 10', '§1125', '§ 43', '§ 1127', '§ 101', '§ 101']

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Now Available — Updated Desk Reference on CPSC Notification Requirements, Recalls and Recent Enforcement Actions
We have updated our handy, in-depth CPSC Desk Reference, which explains the Section 15 notification requirements and the routes to a product safety recall, and discusses penalties and injunctive relief for late reporting violations. The new information includes case updates concerning a late reporting enforcement action in the Spectrum case and a challenge to CPSC’s recall order in the Zen Magnets case, both of which could have important implications for companies going forward.
In the last several years, CPSC has been aggressively pursuing multi-million dollar penalties for alleged late reporting and other violations. Moreover, helping to protect consumers and guarding a company’s brand reputation remain powerful incentives for companies to identify and address potential safety issues quickly and effectively. It is more important than ever for companies to ensure that they understand the scope of Section 15 and have internal controls in place to capture, track, and analyze complaints and other information that may trigger a duty to notify CPSC.
- Eric A. Rubel, Michelle F. Gillice, Jennifer A. Karmonick, and Jessica L. Wang
Posted on June 20, 2018 in CPSC/Product Safety | Permalink
Now Available — Desk Reference on CPSC Notification Requirements, Recalls and Recent Enforcement Actions
The US Consumer Product Safety Commission (CPSC) is a small federal agency with a big job: protecting consumers from unreasonable risks of injury from more than 15,000 types of products. With a budget request for fiscal year 2019 of approximately $123 million and 538 employees — tiny by federal government standards — CPSC uses safety data submitted by companies pursuant to the notification requirements in Section 15 of the Consumer Product Safety Act (CPSA) to help carry out the agency’s mandate.
Further, following implementation of the Consumer Product Safety Improvement Act of 2008 (CPSIA), which expanded the Section 15 requirements and increased dramatically the maximum penalties for noncompliance, CPSC has been aggressively pursuing multi-million dollar penalties for alleged late reporting and other violations. Moreover, helping to protect consumers and guarding a company’s brand reputation remain powerful incentives for companies to identify and address potential safety issues quickly and effectively. It is more important than ever for companies to ensure that they understand the scope of Section 15 and have internal controls in place to capture, track, and analyze complaints and other information that may trigger a duty to notify CPSC.
We have published a handy, in-depth Desk Reference that first explains the Section 15 notification requirements, including the broad scope of CPSC’s jurisdiction, and then discusses routes to a product safety recall, reporting and recall trends, and penalties and injunctive relief for late reporting.
-- Eric A. Rubel, Michelle F. Gillice, Jennifer A. Karmonick, and Jessica L. Wang
Posted on March 29, 2018 in CPSC/Product Safety | Permalink
On-Line Retailers Coming Under Fire from EPA
On February 20, 2018, Amazon agreed to pay more than $1 million to settle an enforcement action brought by the U.S. Environmental Protection Agency (EPA) alleging violations of the nation’s pesticide law (the Federal Insecticide, Fungicide, and Rodenticide Act; FIFRA). EPA alleged that Amazon violated FIFRA by selling six unregistered pesticide products, as well as two misbranded pesticide products that made false claims, including claims that the products were safe for children and pets.
Under the terms of the Consent Order, Amazon has agreed to pay a civil penalty of $1.2 million and to implement a Supplemental Environmental Project (“SEP”) at a cost of another $1.6 million. The SEP requires Amazon to develop a training program to “educate third-parties that sell pesticides through Amazon.com” and other on-line channels. The training program must cover topics including FIFRA and its implementing regulations, import requirements, exceptions from the registration requirements, and “foreign and ‘grey market’ pesticides.” Amazon must implement the training program by April 2019, and ensure that all sellers of pesticides on Amazon.com complete the training before they offer pesticides for sale. Amazon is required to operate the training program for at least 36 months, during which time Amazon also must provide support staff to answer questions about the training program, as well as substantive questions about pesticide regulations.
Upon discovery of Amazon’s alleged sale of unregistered and misbranded pesticides in January 2016, EPA issued a “Stop Sale Order” against Amazon to stop selling pesticides on Amazon.com. As a consequence of EPA’s enforcement actions, during October 2016, Amazon refunded $130,000 to purchasers of the products at issue.
EPA’s enforcement action against Amazon puts on-line and other distributors on notice of the need to verify a products’ compliance with applicable laws before agreeing to market a product. This is no easy task given the breadth of products marketed on-line and the difficulty of policing product claims – which often trigger EPA’s product registration requirements. For example, the popularity of claims that a product will control “germs” and “bacteria” are particularly troublesome, as antimicrobial products require EPA registration and must meet strict efficacy standards. Distributors in all sectors, especially on-line retailers, must also take note that state regulations may also apply to pesticide products. For example, with few exceptions, each state requires that pest control products have both a federal and a state registration. As the Amazon case demonstrates, failing to determine the compliance status of a pest control product being sold on-line can potentially disrupt business, adversely affect goodwill with customers, lead to expensive recalls, and result in significant penalties.
- Larry Culleen & Camille Heyboer*
* Not admitted to the practice of law.
Posted on February 26, 2018 | Permalink
DTSC Identifies Scope of Future Regulation Under California’s Green Chemistry Program
On February 8, 2018, the California Department of Toxic Substances Control (DTSC) published its 2018-2020 Draft Priority Product Work Plan. The Draft Work Plan identifies the product categories that DTSC will evaluate over the next three years as potential “Priority Products” under California’s green chemistry program. The Draft Work Plan can be found here.
California’s Safer Consumer Products Initiative, also known as the “Green Chemistry” Initiative, delegates broad authority to DTSC to identify product-chemical combinations, or “Priority Products.” Manufacturers of such products must then conduct an Alternatives Analysis to assess whether safer alternatives exist. Depending on the outcome of the Alternatives Analysis, DTSC may issue a “Regulatory Response,” including use restrictions, product sales prohibitions, end-of-life product management, among others.
The Draft Work Plan includes the following product categories:
Beauty, Personal Care, and Hygiene Products
Household, School, and Workplace Furnishings and Décor
Building Products and Materials Used in Construction and Renovation
Consumable Office, School, and Building Supplies
The Draft Work Plan includes several product categories that were not included in the 2015-17 Work Plan, such as Food Packaging and Lead-Acid Batteries. DTSC selected food packaging because of studies demonstrating a correlation between the ingestion of packaged foods and exposure to certain chemicals such as phthalates, bisphenol A, and perfluorochemicals. Lead-acid batteries were selected as a result of 2016 legislation requiring them to be listed. The Draft Work Plan also eliminates two previously included product categories, Clothing and Fishing and Angling Equipment, but the Draft Work Plan does not provide an explanation for their exclusion.
Because DTSC essentially has a “blank check” to regulate or even ban the sale of Priority Products, companies that manufacture products that are sold in California and within the scope of the Draft Work Plan should pay close attention to future developments and consider engaging in the process. DTSC is accepting written comments on the Draft Work Plan until March 9, 2018 and will be holding a public hearing on February 26, 2018. DTSC is expected to release a final 2018-20 Work Plan later this year.
- Anthony Samson, David Barnes, Peggy Otum, and Trent Norris
Posted on February 12, 2018 in Green Chemistry | Permalink
FDA Is Not the Only Sheriff in Town for Drug Product Safety Issues: First Civil Penalty Imposed for Alleged Violation of Child-Resistant Packaging Requirements for Drug Products and CPSC Notification Requirements
On January 18, 2018, a federal district court entered a consent decree imposing a $5 million civil penalty on Dr. Reddy’s Laboratories Inc. (Dr. Reddy’s) for alleged violations of the Poison Prevention Packaging Act (PPPA) and Consumer Product Safety Act (CPSA). The consent decree also imposed a permanent injunction against Dr. Reddy’s, requiring Dr. Reddy’s to implement a compliance program designed to ensure compliance with the PPPA and the CPSA.
The consent decree represents the first civil penalty against a pharmaceutical company for allegedly knowingly (1) distributing drug products that violated the PPPA child-resistant packaging regulations (a prohibited act under 15 U.S.C. § 2068(a)(1)), (2) failing to timely notify the U.S. Consumer Product Safety Commission (CPSC) about the potential non-compliance of drug products with child-resistant packaging regulations and the potential hazard presented by such drugs (a prohibited act under 15 U.S.C. § 2068(a)(4)), or (3) failing to issue certificates of compliance of drug products with child-resistant packaging regulations (a prohibited act under 15 U.S.C. § 2068(a)(6)). The consent decree comes nearly six years after CPSC began investigating these alleged violations, and nearly two years after CPSC referred the case to the Department of Justice (DOJ).
The government alleged in its complaint that Dr. Reddy’s knowingly violated the above-referenced provisions of the CPSA and should be subject to civil penalties, based on alleged actions including the following:
From or about August 14, 2008 through June 1, 2012, Dr. Reddy’s imported, manufactured, and distributed five household oral prescription drugs in unit dose packaging (blister packs) that were required by law to be in child-resistant packaging, but had not been tested for compliance;
In or around November 2010, Dr. Reddy’s employees requested that its parent company manufacture placebo samples of its then-marketed prescription drugs packaged in blister packs so Dr. Reddy’s could test those packages for child resistance;
In or around February 2011, Dr. Reddy’s packaging engineers prepared and provided to other Dr. Reddy’s employees a Risk Analysis that (a) explained the testing requirements under the PPPA and the reporting and certification requirements of the CPSA, (b) concluded that the existing blister packaging would not pass the required testing to prove compliance, (c) recommended that Dr. Reddy’s immediately change the packaging rather than conduct testing, and (d) described the potential harm to children from accidental ingestion of the prescription drugs;
Reddy’s began developing replacement drug packaging while continuing to sell the drugs in the existing untested packaging, and declined to have testing conducted when it received placebo samples in the existing, untested packaging on or about May 12, 2011;
On April 2, 2012, Dr. Reddy’s notified CPSC pursuant to 15 U.S.C. § 2064(b) about the potential noncompliance of the packaging of one of the prescription drugs; and
Reddy’s failed to issue certificates of compliance of the drugs to the packaging requirements, as was required after February 10, 2010.
Dr. Reddy’s agreed to settle the case without admitting that it had violated the law.
This settlement is an important reminder to manufacturers, importers, distributors and retailers –ensure that drug products (and other products covered by the PPPA) comply with requirements for child-resistant packaging, issue certificates of compliance, and notify CPSC if a product does not comply with the PPPA.
– Jennifer Karmonick and Eric Rubel
Posted on January 30, 2018 in CPSC/Product Safety | Permalink
California Legislature Passes First in Nation Cleaning Products Disclosure Law
The California Legislature recently passed SB 258 (Lara) -- the Cleaning Product Right to Know Act of 2017 -- which requires manufacturers of cleaning products sold in the State of California to disclose ingredients on the product label and on the product’s website. This is the first cleaning product disclosure legislation in the country and will likely result in new labeling of cleaning products sold nationwide. The bill awaits the Governor’s signature.
On-Product Labeling Requirements
SB 258 provides cleaning product manufacturers with two options for disclosing certain ingredients on the product label. First, the product label may list all intentionally-added ingredients (those that have a functional effect in the product) contained on a list of 22 specified chemical databases, as well as each fragrance allergen included on a list compiled under the EU Cosmetics Regulation when present in the product at a concentration at or above 100 parts per million (ppm). Alternatively, the product label may list all intentionally-added ingredients contained in the product, as well as a statement that reads “Contains fragrance allergen(s)” if the product contains a fragrance allergen listed on the EU Cosmetics Regulation at a concentration level at or above 100 ppm. Intentionally-added ingredients on the California Proposition 65 list that are not fragrance allergens must be included on product labels regardless of concentration level.
Product labels that do not list all product ingredients must also include a statement that reads “For more ingredient information visit” followed by a web address, as well as a toll-free number, where the ingredient information can be obtained.
Online Disclosure Requirements
SB 258 also requires manufacturers of cleaning products to include additional ingredient information online, including a complete list of intentionally-added ingredients listed in descending order of predominance by weight, and a list of all nonfunctional constituents present in the designated product at a concentration level above 100 ppm. Nonfunctional constituents include a list of specified chemicals that are a incidental components of an intentionally added ingredient or byproducts of the manufacturing process that have no functional effect in the product. Nonfunctional constituents on the California Proposition 65 list must be included online only if exposure to the constituents would require a Proposition 65 warning.
Confidential Business Information Protections
SB 258 contains provisions that protect confidential business information (CBI). Specifically, the bill does not require manufacturers to list on their product labels intentionally-added ingredients--including fragrance ingredients--that are protected as CBI. Under the bill, CBI includes any intentionally-added ingredient for which a claim has been approved by the federal Environmental Protection Agency for inclusion on the Toxic Substances Control Act Confidential Inventory, or for which the manufacturer or its supplier claim protection under the Uniform Trade Secrets Act.
Scope of Products
SB 258 applies to a finished product that is an air care product, automotive product, general cleaning product, or a polish or floor maintenance product used primarily for janitorial, domestic, or institutional cleaning purposes. The bill does not, however, apply to foods, drugs, cosmetics, personal care products, or industrial products specifically manufactured for oil and gas production, steel production, heavy industry manufacturing, industrial water treatment, industrial textile maintenance and processing other than industrial laundering, or food and beverage processing and packaging.
The online disclosure requirements take effect on January 1, 2020 and the on-label disclosure requirements take effect on January 1, 2021. Product manufacturers need not list ingredients on the California Proposition 65 list of chemicals until January 1, 2023.
SB 258 was the product of intensive negotiation and is therefore quite complex. It will require cleaning product manufacturers to begin changing their labeling practices well in advance of the effective dates. Arnold & Porter Kaye Scholer was deeply involved in the legislative process and is well-equipped to assist companies with compliance.
- Trent Norris, Peggy Otum, or Anthony Samson.
Posted on September 26, 2017 in Disclosures, Prop 65 | Permalink
President Trump to Nominate Dana Baiocco to be CPSC Commissioner, Signaling Shift in Control
On September 21, 2017, President Trump announced his intent to nominate Dana Baiocco to be Commissioner of the US Consumer Product Safety Commission (CPSC), for a 7-year term beginning October 27, 2017. Ms. Baiocco is a lawyer in private practice. Her biography indicates that she has handled the defense of product liability lawsuits and class actions on behalf of companies, as well as CPSC counseling.
The timing of Senate action on Ms. Baiocco’s nomination is of significant interest. Commissioner Robinson can continue to serve up to one year after her term ends, which would maintain the Democratic majority pending Ms. Baiocco’s confirmation.
Upon Ms. Baiocco’s confirmation and the departure of Commissioner Marietta Robinson (whose term ends in October), there will likely be a shift in the balance of power at CPSC, which has had a 3-2 Democrat majority for a number of years. The change should provide Ann Marie Buerkle—who has been nominated as CPSC Chair and has been serving as Acting Chair—greater latitude to chart CPSC’s course going forward. Acting Chairman Buerkle is scheduled to appear at a confirmation hearing before the Senate Committee on Commerce, Science, and Transportation on September 27, 2017.
- Eric Rubel, Michelle Gillice, Omomah Abebe
Posted on September 25, 2017 in CPSC/Product Safety | Permalink
CPSC Reduces Testing Requirements for Phthalates in Children’s Toys and Childcare Articles
On September 8, 2016, we reported that the Consumer Product Safety Commission (CPSC) had issued a notice of proposed rulemaking that would reduce the burden of testing for phthalates in children’s toys and child care articles. Phthalates are commonly used to soften plastics and as components of paints and adhesives. Under the final rule issued on August 30, 2017, CPSC has determined that the following plastics made with any additive specified in the rule would not contain prohibited phthalates, and therefore third party laboratory testing for the prohibited phthalates will no longer be required: Polypropylene (PP), Polyethylene (PE), Acrylonitrile butadiene styrene (ABS), High-impact polystyrene (HIPS), and—added to the final rule—General Purpose Polystyrene (GPPS), Medium-Impact Polystyrene (MIPS), and Super High-Impact Polystyrene (SHIPS).
Under the Consumer Product Safety Improvement Act of 2008 (CPSIA), manufacturers (including importers) are required to certify, based upon testing by an accredited third party lab accepted by CPSC, that a children’s product complies with all CPSC-enforced standards before the product is imported or distributed in commerce. Among the CPSC-enforced standards for which such third party lab testing is required is the 0.1 percent limit on the following phthalates in accessible components of children’s toys and child care articles that are plasticized or may contain phthalates: di-(2-ethylhexyl) phthalate (DEHP), dibutyl phthalate (DBP), benzyl butyl phthalate (BBP), diisononyl phthalate (DINP), diisodecyl phthalate (DIDP), and di-n-octyl phthalate (DnOP).
This new rule does not change the underlying obligation to comply with the phthalates prohibition and certify compliance of children’s toys and child care articles with the prohibition, but the rule should provide manufacturers and importers some relief from the required testing.
The effective date for the rule is September 29, 2017.
- Jennifer Karmonick, Eric Rubel and Michelle Gillice
Posted on August 30, 2017 in CPSC/Product Safety | Permalink
GAO Aims to Increase Consumer Clarity Regarding The Regulation of Memory Supplement Advertising
People are willing to do anything to improve their memory (especially if it means drinking champagne and eating dark chocolate!). It’s no surprise that dietary supplements that are intended to improve memory are a booming market. According to a recent report, the surprise is how little consumers know about who regulates the promotion of such products.
On June 15, the Government Accountability Office (GAO) released a report recommending that the U.S. Food and Drug Administration (FDA) and Federal Trade Commission clarify their roles in overseeing marketing of memory supplements on the internet. Generally speaking, the FDA and FTC share oversight of dietary supplement marketing and claims, based on a 1971 Memorandum of Understanding (MOU) between the agencies. Under the MOU, FDA has primary jurisdiction over labeling, while FTC exercises primary jurisdiction in regulating the truth or falsity of all other advertising.
The GAO found that while memory supplement advertising is primarily on the internet (as opposed to other mediums, such as TV or magazines), consumers and other stakeholders are either unaware or unclear about how the agencies share oversight of internet advertising.The FTC has never published formal guidance on this issue (although it has discussed how to effectively format disclosures in internet advertising in the FTC’s Dietary Supplement: Advertising Guide for Industry, .COM disclosures, and other guidance), and the FDA’s guidance is limited to a 2007 Dear Manufacturer letter on food labeling (recognizes that company websites that promote a regulated product and allow a purchaser to purchase the product directly from the website are likely to be considered "labeling"). The GAO found that the lack of clarity could risk that consumers would not report issues to the proper agency, and/or that it could take longer for the appropriate agency to learn about a potential problem.
The FDA and FTC are now working to develop and provide additional guidance to consumers, which delineates the agencies’ differing roles in overseeing dietary supplement marketing on the internet. And the GAO’s report suggest that increased scrutiny of such claims could be forthcoming. Sellers of memory supplements should beware of this report and the likelihood that forthcoming FDA and FTC guidance can increase the level of consumer complaints submitted regarding the products.
- Raqiyyah Pippins and Pari Mody
Posted on June 21, 2017 | Permalink
District Court Hangs Up on Call to Strike Down FTC’s Guidance on Soundboard Technology
A federal district court sustained the validity of the FTC’s informal opinion letter that brings telemarketing calls that utilize soundboard technology within the purview of the Telemarketing Sales Rules (TSR) and rejected a First Amendment challenge to the TSR on summary judgment.
The TSR prohibits telemarketing calls that deliver prerecorded messages, commonly referred to as “robocalls,” without the call recipient’s prior written consent. As we previously reported, the FTC issued a Staff Opinion Letter in November 2016 in which the FTC determined that telemarketing calls that use soundboard technology are akin to robocalls and therefore are subject to the TSR. This was a reversal from the FTC’s prior determination in 2009 that telemarketing calls utilizing soundboard technology were outside the scope of the TSR. The FTC’s new guidance on soundboard technology went into effect on May 12, 2017.
In January 2017, the Soundboard Association, a trade group representing companies that manufacture and use soundboard technology, sued to block the implementation of the November 2016 letter. The Soundboard Association made two primary arguments against the FTC’s soundboard technology guidance. First, the Soundboard Association argued that the November 2016 letter constituted a change to the statutory or regulatory scheme applicable to telemarketers and therefore the FTC was required under the Administrative Procedure Act to provide notice and receive comments from the public before issuing the letter. The district court rejected this argument, finding that the November 2016 letter was an interpretive rule not subject to notice-and-comment rulemaking because it merely “communicates to the telemarketing industry the agency’s view that an existing regulation now applies to a particular form of telemarketing technology as currently used by the industry.”
Second, the Soundboard Association argued that the November 2016 letter violated the First Amendment because the TSR contains an exception in which a call recipient’s prior written consent is not required for robocalls soliciting donations from a prior donor or member of a charity, but prior written consent is required if the call recipient is a non-member and has not previously donated to that charity. This distinction, according to the Soundboard Association, constitutes an impermissible regulation on the content of speech. The district court rejected this argument reasoning that the prior written consent exception was not a regulation on the content of speech, but rather a regulation dependent on the relationship between the caller and the recipient to which intermediate scrutiny applies. The court found that the November 2016 letter satisfies intermediate scrutiny because it advances the government’s interest in protecting privacy while allowing charities to freely make robocalls to those who have effectively indicated their consent to receive such calls (i.e., their members and past donors) and leaving charities alternative means for contacting first-time donors (e.g., advertising, direct mail, in-person solicitations, etc.).
The Soundboard Association has appealed the district court’s decision, which means the fight over the validity of the FTC’s November 2016 letter is not over yet. But for now, the FTC’s guidance on soundboard technology remains effective pending the appeal, and telemarketers using soundboard technology should align their practices with the FTC’s new guidance.
- Doug Quzack
Posted on May 16, 2017 in FTC, Litigation, Telemarketing | Permalink
Very Little Relief on the Way Regarding EPA’s NanoScale Chemicals Rule
EPA has officially announced a wee bit of regulatory relief by handing down a 90-day extension of the effective date on an information gathering rule concerning nanoscale chemicals the Agency had issued in the closing days of the Obama administration. The announcement, however, did not contain the full-throated regulatory relief many had come to hope might be meted out in the form of a complete revocation of the rule by the incoming political appointees from the Trump administration.
On January 12, 2017, EPA issued in final form a reporting and recordkeeping rule issued pursuant to the Toxic Substances Control Act (TSCA). 82 Fed. Reg. 3641. [For more on the announcement of the final nanoscale chemicals reporting rule see our previous advisory.] TSCA was amended in 2016, forty years after its enactment, following a years-long bipartisan effort that produced the first major piece of environmental legislation to emerge from Congress in more than 20 years. Ironically, the nanoscale chemicals reporting rule was proposed by EPA well in advance of the 2016 amendments and is grounded on Section 8(a) of TSCA, a provision not substantially touched by the 2016 amendments. The final rule requires reporting to EPA to both identify and to provide further production and commercial information on chemical substances when they are manufactured, imported or processed in the US at the nanoscale. The effective date of the final rule was delayed from May 12, 2017, to August 14, 2017.
Continue reading "Very Little Relief on the Way Regarding EPA’s NanoScale Chemicals Rule" »
Posted on May 11, 2017 | Permalink
The Eagles’ Hotel California Case: Who Will Win “In the Long Run”?
There may be “plenty of room” at the Hotel California in Todos Santos, Mexico, but The Eagles aren’t checking in any time soon.
On May 1, Eagles, Ltd. (The Eagles), which own all trademark rights associated with the famous rock band of the 1970’s, sued Hotel California Baja, LLC in U. S. District Court for the Central District of California for trademark infringement and common law unfair competition. A copy of the Complaint can be found here. The defendant, located in Todos Santos, Mexico, originally used the name “Hotel California” in the 1950’s, but then changed its name to “Todos Santos Hotel”, and also changed ownership. According to The Eagles’ complaint, the current owners of the Mexican hotel are selling merchandise to U.S. consumers displaying the “Hotel California” mark in which The Eagles have common law trademark rights. The band’s music (including its legendary “Hotel California” song) is also piped throughout the hotel, allegedly making guests believe that the hotel is connected with or sponsored by the famous rock band. In short, through capitalizing on the band’s fame, the defendants are giving the Eagles “A Heartache Tonight.”
While the Eagles have just filed suit, this case potentially raises a host of issues and is thus one to watch. For example, who really came first? Will the Mexican hotel counterclaim, alleging that it has prior rights in the name? The defendant hotel actually began using “Hotel California” back in the 1950’s, long before Don Henley and Glenn Frey founded The Eagles and became “The New Kids in Town”. But did the defendant abandon any trademark rights it acquired in the hotel’s name through nonuse? Under the U.S. federal trademark statute, the Lanham Act, abandonment of a trademark may be presumed after three years of non-use. See 15 U.S.C. §1127. The apparent long hiatus between when the defendant hotel first used “Hotel California”, and when the new owners took up the name, suggests that any priority argument the defendant asserts would not succeed.
Then there is the jurisdictional issue: Is it even clear that the Lanham Act applies to what the defendant hotel in Todos Santos calls itself, given that it is located in Mexico?? The complaint alleges that the hotel has solicited business in the Central District of California. In similar cases, courts have found south-of-the-border establishments within the reach of U.S. trademark law, and this court may do so too, on the theory that the U.S. public has frequented the hotel.
The scope of the claimed infringement is also an issue. “Hotel California” is, of course, the band’s most famous album and song title -- arguably The Eagles’ greatest hit. In general, titles of single works, such as a book or song title, are not protected as trademarks. See generally 2 McCarthy on Trademarks and Unfair Competition § 10.4 (4th ed. Mar. 2017) (explaining that the titles of individual works may not be registered as trademarks). They may, however, be protected under the unfair competition laws, including Section 43(a) of the Lanham Act, 15 US.C. §1125(a). See EMI Catalogue P’ship v. Hill, 228 F.3d 56, 63 (2d Cir. 2000) (“Titles of works of artistic expression, including films, plays, books, and songs, that have acquired secondary meaning are protected from unfair competition under § 43(a)”). Interestingly, although the Eagles claim to have begun selling merchandise bearing the “Hotel California” mark as early as the 1970’s, the band does not hold any trademark registrations with the U.S. Patent and Trademark Office (PTO) for this mark, which would have conferred exclusive nationwide rights in the mark for the goods for which it were registered. Instead, it is the defendant that has sought registration for “Hotel California” with the PTO -- a registration that The Eagles have challenged.
Although this case is in its early stages, the Eagles will likely “Take it to the Limit” to protect their rights. So stay tuned.
- Roberta Horton
Posted on May 10, 2017 in Trademark/IP | Permalink
Understanding the US Ban on Importing Forced Labor Goods
The United States Government since 1930 has prohibited the import into the United States of goods “mined, produced, or manufactured wholly or in part” by convict, forced, or indentured labor. The sweep of this prohibition is potentially very broad. Approximately 21 million people around the world are currently subjected to forced labor, including millions of children. Enforcement of this prohibition was relatively rare until February 2016, when Congress, on a bipartisan basis, repealed the so-called “consumptive demand” exception to the import ban as part of the Trade Facilitation and Trade Enforcement Act of 2016. That exception had allowed goods into the United States, despite their production by forced labor, if the domestically produced supply of the goods was not sufficient to meet domestic demand for the goods.
In the 86 years between the Tariff Act of 1930 and the Trade Facilitation and Trade Enforcement Act of 2016, CBP issued only 39 “withhold release” orders or official findings of cause. The vast majority of these actions—26 orders and 6 findings—targeted goods imported from China; the only other countries on CBP’s list of enforcement actions so far are India, Japan, Mexico, Mongolia, and Nepal. From November 2000 to March 2016, CBP had not issued a single enforcement action. However, in the year following TFTEA’s passage, CBP has issued four detention orders:
Soda ash, calcium chloride, caustic soda, and viscose/rayon fiber from China (March 29, 2016).
Potassium products from China (March 29, 2016).
Stevia from China (June 1, 2016).
Peeled garlic from China (September 16, 2016).
This uptick in enforcement actions highlights the potential for increased enforcement of the prohibition against forced labor goods. It remains to be seen whether its current geographical focus on China expands to capture other countries as well.
The Trump Administration has emphasized the need to fight much more aggressively against “unfair” trade. President Trump and his team have been outspoken, both during the presidential campaign and in the first months of his term, about trade enforcement in general. This has applied to a number of US trading partners, with China as a particular focus.
The fact that China was the subject of all four of CBP’s most recent forced labor enforcement actions may therefore presage a potential new enforcement trend moving forward. The likelihood of active enforcement of this law is only enhanced by Congress’ recent attention to this issue, and the bipartisan consensus it reflects. This law may become one of the tools employed actively in that effort, and other countries, in addition to China, could become targets.
Importers of goods into the United States are advised to be aware of this issue and take actions to mitigate the risk of forced labor products in their supply chains. Importers may monitor US Government resources such as CBP’s list of all enforcement actions and the Bureau of International Labor Affairs’ list of goods and their source countries that raise concerns about forced or child labor. Many companies also review other publicly available information, including reports in the countries from which they import, comments by international organizations, press reports, and other data sources. They may draft and issue a policy against using forced labor in their supply chain, perform a supply chain audit and conduct due diligence on outside parties, and implement a strong anti–forced labor compliance program. It is important for importers to document these and other efforts clearly, to ensure there is a clear record of the company’s compliance in this area, and to help address inquiries by federal authorities, should any occur.
For a more full description of this issue, read our Advisory that can be found here.
- Claire Reade, Samuel Witten, and Amanda Claire Hoover*
*Licensed to practice law in Virginia; application pending in Washington, DC.
Posted on April 25, 2017 | Permalink
“Reserve” Can’t be Reserved: The Limitations on Descriptive Terms as Trademarks
A word to those brand managers and marketers choosing new product names: for maximum trademark protection, select unusual or made-up monikers for your goods and services. A trio of recent decisions issued by the Central District of California in Reserve Media, Inc. v. Efficient Frontiers, Inc. et al., Case No. CV 15-05072 DDP (here, here and here), described in this blog, highlights the limited protection that merely descriptive -- as opposed to more imaginative --terms may enjoy.
Imagine if only one baker could make and sell “Pumpkin Nut Bread”, only one beauty company had the rights to “Lathering Soap”, or a sole drycleaner could offer “Clean and Pressed Shirts Daily”. These phrases, which merely describe the characteristics of certain products and services, would no longer be in the public domain, but instead would be co-opted by one manufacturer or seller -- something the trademark laws are intended to prevent.
The limitations on terms that serve as trademarks is a time-honored legal principle. A brand name must signify to the public a product or a service from a single source as distinguished from other sources. That is to say, it must be distinctive. The federal Trademark Act defines a “trademark” as "any word, name, symbol, or device or any combination thereof" used by any person "to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown." 15 U.S.C. § 1127. The courts frequently categorize terms across a spectrum of distinctiveness in four separate classes: “Arrayed in an ascending order which roughly reflects their eligibility to trademark status and the degree of protection accorded, these classes are (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary [common words used in an uncommon way, such as “Ivory” for soap”] or fanciful [made-up or coined words or phrases].” Abercrombie & Fitch Co. v. Hunting World, Inc. As the US Supreme Court has explained: “Marks which are merely descriptive of a product are not inherently distinctive. When used to describe a product, they do not inherently identify a particular source, and hence cannot be protected. However, descriptive marks may acquire the distinctiveness which will allow them to be protected”. Two Pesos, Inc. v. Taco Cabana, Inc. Acquisition of such distinctiveness, by a public association of the trademark exclusively with a particular product, is called “secondary meaning.”
A trio of recent summary judgment decisions out of the federal district court for the Central District of California illustrates the limited protection descriptive terms merit. Reserve Media, Inc. v. Efficient Frontiers, Inc. et al., Case No. CV 15-05072 (here, here and here). Efficient Frontiers, Inc. (EFI) marketed software products facilitating dining reservations under several brands including the word “Reserve”, such as “Reserve Interactive”, “Reserve Cloud”, “Reserve It”, “Reserve 2.0”, “Reserve Gateway”, and “Reserve Q”. Start-up Reserve Media later adopted “Reserve” and “Reserve for Restaurant” for software programs allowing consumers to book restaurant reservations through mobile devices or websites. EFI, smelling something suspect brewing in the kitchen, charged Reserve Media with infringing EFI’s marks. In turn, start-up Reserve Media sued for a declaration that it had not violated EFI’s trademark rights, claiming that EFI’s “Reserve” marks were not valid and protectable, but merely descriptive.
In a series of summary judgment decisions, the California district court agreed with Reserve Media in large part. While EFI prevailed in the parties’ most recent clash earlier this week, in which the court found EFI’s “Reserve Q” name distinctive, the court ruled, in two earlier decisions, that the bulk of EFI’s “Reserve” marks were merely descriptive. See decisions of November 28, 2016 and January 11, 2017. Specifically, in the first of these cases, the court ruled that EFI’s use of “Reserve Interactive” was not a valid and protectable mark. Likewise, in granting Reserve Media’s second summary judgment motion, the court found that of EFI’s use the phrases “Reserve It”, “Reserve Cloud” , “Reserve 2.0”, and “Reserve Gateway” were not protectable as a matter of law, but instead were merely descriptive.
In the first two cases, the district court applied two tests in reaching these conclusions. First, it asked whether or not use of the “Reserve” phrases at issue would require the public to use its imagination or make a “mental leap” to determine the product referenced by the supposed brand name; only if this were the case would the product name qualified as a trademark. Second, the court applied the competitors’ needs test, asking whether the would-be trademark owner’s competitors would need to use the same “trademark” to market their goods or services. If so, then the mark was likely descriptive. On both tests, the court found EFI’s uses of its “Reserve” phrases failed to qualify as trademarks. For instance, the court stressed that consumers need not exercise any imagination to connect “Reserve Interactive” with EFI’s restaurant reservation systems offered through computer programs, and that competitors would be hard-pressed to offer reservation systems under product names that did not include the word “reserve”. So, too, conferring exclusive trademark rights on EFI’s use of “Reserve Cloud” would risk excluding any competitor who wanted to create a cloud-based reservation system” from using that descriptive phrase.
The lesson of these “Reserve” cases? Brand Managers would be wise to steer clear of developing merely descriptive product names. Instead, they should consider devising brand names that require their consumer bases to exercise some thought or imagination, or, ideally, to create made-up words for their products or services.
Posted on April 20, 2017 in Trademark/IP | Permalink
Arbitration Battles Continue in McGill v. Citibank
It’s been five years since Concepcion made “clear” that the Federal Arbitration Act (FAA) preempts state laws that forbid class action waivers. Concepcion did not protect arbitration agreements from laws of general applicability (such as unconscionability), but it did confirm that the FAA preempts state laws that seek to limit or invalidate various arbitration provisions.
In its decision last week in McGill v. Citibank, the California Supreme Court fired the latest salvo in the battle over arbitration clauses. In McGill, Citibank sought to compel arbitration of claims under California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA) asserted by one of its customers. Citibank’s petition to compel arbitration turned on application of California’s Broughton-Cruz “rule,” which makes agreements to arbitrate claims seeking an injunction that would benefit the public at large (and not just benefit an individual consumer) invalid. Applying this rule, the trial court denied the petition to arbitrate the plaintiff’s claims for relief. The Court of Appeal reversed, finding that Concepcion preempts Broughton-Cruz. The California Supreme Court took the case, seemingly prepared to directly address the question of whether it views the Broughton-Cruz rule as still valid in light of Concepcion.
The Court avoided addressing that issue, however, by finding that the arbitration agreement at issue did NOT require arbitration of claims seeking an injunction that might benefit the public. Indeed, the Court determined that the agreement at issue precluded arbitrating such claims -- and further precluded customers from asserting such claims in court as well. In other words, the arbitration provision “purports to preclude [McGill] from seeking public injunctive relief in any forum.” That complete preclusion, the Court said, rendered the arbitration agreement invalid because California law prevents parties from waiving a right that is “established for a public reason.” Since the public injunctive relief provisions of the UCL and CLRA are intended for the public benefit, the Court found that they cannot be waived, and the arbitration provision that stopped the customer from seeking such relief in any forum was improper.
It is not the first time the California Supreme Court has avoided the issue of continued validity of Broughton-Cruz in a case seemingly primed to address the question. In 2015, the California Court in Sanchez v. Valencia Holding Co. declined to address Broughton-Cruz, noting that the plaintiff chose not to argue against arbitration on that basis. Meanwhile, the Ninth Circuit has spoken, but only in a limited sense. In Kilgore v. KeyBank, a three judge panel of the Ninth Circuit declared Broughton-Cruz dead. However, a later en banc ruling avoided the direct question, noting instead that “even assuming the continued viability of the Broughton-Cruz rule, Plaintiffs’ claims do not fall within its purview.” The issue therefore remains murky.
In light of the courts’ ability to tip-toe around addressing the question of continued application of Broughton-Cruz in a post-Concepcion world (including in McGill), businesses are left in a difficult position. McGill highlights the need for businesses to think carefully about how to craft arbitration class action waiver provisions to meet their goals, including consideration of the forum in which customers will be permitted to seek injunctive relief.
- Sean Morris & Caitie Lynch
Posted on April 13, 2017 in Class Actions, Litigation | Permalink
FDA’s Policymaking and the Changing Compliance Landscape for “Healthy” Foods
On March 9, 2017, the U.S. Food and Drug Administration (FDA) held a public meeting to seek stakeholder input on its plan to update the regulatory standards for using “healthy” as an implied nutrient content claim in human food labeling. The meeting follows FDA’s announcement, during the waning days of the Obama Administration, that delayed the close of the comment period on its September 2016 Request for Information for another 90 days, until April 26 (which we discussed here).
FDA’s efforts to redefine “healthy” responds, in part, to KIND LLC’s December 2015 Citizen Petition, which was submitted following FDA’s 2015 Warning Letter and scrutiny of the company’s compliance program (see here and here). At the public meeting, KIND advocated for FDA to change the regulatory standard to focus on the health benefits of whole foods, such as salmon, nuts, and olives, rather than on their nutrient content (e.g., limits on total fat per serving, which result in none of the aforementioned foods meeting the current criteria for a “healthy” nutrient claim). Other panelists also recommended a focus on whole foods, noting that while many processed and packaged foods may bear labels claiming they are “healthy,” raw, unaltered fruits and vegetables typically are not labeled at all -- but perhaps should be, given FDA’s mandate to improve public health.
Clinical guidelines have changed since “healthy” was first defined in 1993. A new focus on the presence of added sugar and avoidance of allergens such as gluten has emerged, and FDA has proposed new targets for sodium content. Alternatively, some interest groups recommended that FDA create a more flexible approach with exceptions for certain types of products, suggesting that chicken livers, avocados, specialty foods processed by small enterprises, and even bottled water might qualify for exceptions. Another group of stakeholders recommended that FDA eliminate the definition of “healthy” altogether, as they believe that the term is overly broad and inflexible, and therefore meaningless, to both consumers and the food industry.
Breakout sessions at the public meeting discussed both the food-based and nutrient-based standards as potential policy options, with FDA staff apparently favoring a hybrid approach. Many details remain open for debate, including the nutrients (and quantities of them) that FDA should include in a new standard, and how best to distinguish whole foods and ingredients that are derived from whole foods (e.g., fresh apples… and dried apples? Applesauce? Apple juice? Apple pie?) Other major themes that emerged include the need to align the FDA’s regulations with other government initiatives to simplify compliance, and to encourage investment in innovative products that are “healthy” but also meet consumers’ preferences for taste, price, and convenience.
The decision to update the definition is not without controversy, and while there is an emerging consensus on some issues, the path forward for FDA’s policy-making activity is presently unclear. FDA has released guidance stating that the Agency intends to apply enforcement discretion for foods that bear “healthy” labeling and exceed the limits for total fat, provided that mono- and polyunsaturated fats are present in larger amounts than saturated fats. FDA also plans to exercise enforcement discretion for foods rich in potassium or vitamin D, despite their absence from the current regulations.
Based on the discussion at the public meeting, it could be some time before new regulations will be proposed, and there is still ample time to influence the agency’s thinking. But FDA’s focus could quickly shift over the coming months with a new Commissioner. And it is reasonable to expect that drafting new regulations may be a lower priority than eliminating existing ones.
- Raqiyyah Pippins, Pari Mody, Dana Weekes, and Jen Madsen, MPH
Posted on March 15, 2017 in FDA, Food and Beverages | Permalink
Recommended Reading: FTC Report Highlights Privacy Concerns Associated with Cross-Device Tracking
We recommend that you read this blog post from Arnold & Porter Kaye Scholer's Digital Health Download blog, a post that provides a summary and perspective on the January 23 Federal Trade Commission (FTC) report regarding the increased incidence of cross-device tracking. The report, which follows a November 2015 FTC workshop on cross-device tracking, sheds light on the privacy concerns raised by the practice and alerts companies engaged in cross-device tracking of certain best practices for avoiding potential violations of applicable law and regulations.
- Nancy Perkins & Anthony Raglani
Posted on January 31, 2017 in FTC, Internet | Permalink
Can We Say That, Now? FDA Draft Guidance Offers Opportunity for Medical Product Companies to Reevaluate Risk Profile for Product Claims
On January 17, 2017, FDA issued a draft guidance entitled “Medical Product Communications That Are Consistent With the FDA-Required Labeling—Questions and Answers” that should be on the reading list for every manufacturer engaged in the marketing of consumer healthcare products. The guidance addresses how FDA will treat medical communications that present information that is not contained within the FDA-required labeling of a product but is, nonetheless, “consistent with the FDA-required labeling” and, in pertinent part, discusses (1) specific examples of the types of communications that FDA would consider to be “consistent with” the FDA-required labeling (e.g., claims regarding the mechanism of action for a product or the product’s onset and duration of action), (2) how FDA will exercise its enforcement discretion for such communications and (3) general (but not comprehensive) recommendations to companies wishing to communicate information that is consistent with the FDA-required labeling in a truthful and non-misleading way.
The Draft Guidance also offers several recommendations about the types of evidentiary support that, in FDA’s view, are required to substantiate communications that are consistent with FDA-required labeling. Notably, the examples provided by FDA in the draft guidance document reflect a shift away from strict application of the “substantial evidence” test to a more flexible standard that rests on disclosure of context and material limitations on underlying study design. In this respect, the Draft Guidance is arguably closer to standards applied by the FTC to health product claims, as well as the PhRMA-BIO principles on responsible communications to health care professionals issued last Summer. For more information about the Draft Guidance, we invite you to read our recent advisory on the topic, here.
FDA released the draft “Medical Product Communications That Are Consistent With the FDA-Required Labeling—Questions and Answers” guidance in conjunction with two other very important documents that address product communications by manufacturers: (1) Memorandum: Public Health Interests and First Amendment Considerations Related to Manufacturer Communications Regarding Unapproved Uses of Approved or Cleared Medical Products; and (2) Drug and Device Manufacturer Communications with Payors, Formulary Committees and Similar Entities--Questions and Answers (see also our advisory on the guidance here).
It is possible that the Trump Administration could take different positions than (and, subsequently, alter course from) those taken in these documents. Collectively, however, the documents set forth FDA’s current positions on the First Amendment as it relates to manufacturer communications and offer companies an opportunity to reevaluate the types of claims they would like to make for their medical products in the context of FDA’s new guidance. The agency is accepting comments on each guidance until April 19, 2017.
- Raqiyyah Pippins
Posted on January 26, 2017 in FTC | Permalink
Obama Administration Continues to Push Food Policy Agenda
In its final weeks, the Obama Administration has continued to implement its food labeling policies with full force. Over the holidays and within the first few days of the new year, FDA released two draft guidance documents clarifying key aspects of the Nutrition Facts and Serving Size Rules, confirmed the compliance date for calorie labeling on menus, and extended the comment period for the use of the term “healthy” on food labeling. We briefly discuss each development below.
Draft Guidance on the Nutrition Facts and Serving Size Rules
On January 5, 2017, FDA released two draft guidance documents to help manufacturers comply with the sweeping changes to conventional food and dietary supplement labels under the Nutrition Facts and Serving Size final rules. See our prior post here for an analysis of the new requirements, which were finalized on May 27, 2016.
The first draft guidance document, which is in the form of questions-and-answers, addresses several compliance issues, including proper declaration of quantitative amounts of vitamins and minerals, nuances related to the labeling of added sugars, and formatting of the label. Of note, the draft guidance clarifies when the new label must be included on food packages. Under the final rule, manufacturers are required to comply by July 26, 2018 (with manufacturers with less than US$10 million in annual food sales given until July 26, 2019). After publication of the final rule, however, FDA received several questions about the required compliance date for products at various points in the distribution chain. The draft guidance clarifies that FDA “would not consider the location of a food in the distribution chain,” and, instead, will consider “ the date the food product was labeled for purposes of determining the compliance date.”
The second draft guidance document provides examples of products that belong in each of the Reference Amounts Customarily Consumed (RACCs) per Eating Occasion product categories. The guidance is split into two tables: (1) RACCS per Eating Occasion for foods for infants and young children ages one through 3 years; and (2) RACCs per Eating Occasion for individuals four years and older. The 31-page document goes into extensive detail, by for example, clarifying which crackers are considered “crackers that are usually not used as a snack” (e.g., melba toast) versus “crackers that are usually used as a snack” (e.g., peanut butter sandwich crackers).
Despite release of the latest guidance documents, it is possible that the Nutrition Facts and Serving Size final rules could be delayed or repealed by the incoming administration or legislatively. The Freedom Caucus, a faction of conservative House Republicans, has requested that President-elect Trump undo both rules within his first 100 days in office, and the President-elect has previously advocated for rolling back FDA’s regulation of foods.
Delayed Compliance for the Menu Labeling Requirements
On December 30, 2016, FDA clarified that it is extending the compliance date for the menu labeling rule from December 31, 2016 to May 5, 2017.
As we previously discussed here, FDA promulgated regulations in December 2014 requiring certain restaurants and retail food establishments to post calorie counts on their menu or menu boards. In December 2015, however, Congress passed a policy rider prohibiting FDA from enforcing the menu labeling requirements until at least one year after issuing final guidance to help industry comply with the rule. FDA finalized the guidance on May 5, 2016, and announced its intention to extend the compliance date to one year thereafter. The December 30, 2016 final rule clarifies and confirms that the compliance date for the menu labeling requirements is May 5, 2017.
Extension of the “Healthy” Labeling Comment Period
On December 30, 2016, FDA announced that stakeholders will have an additional 90 days to comment on the use of the term “healthy” on food labels.
As we discussed here, FDA began reassessing its standards for making a “healthy” claim in September 2016, in an effort to align labeling regulations with shifting dietary recommendations and in response to requests from stakeholders, including a citizen petition filed by KIND, LLC. After several requests for an extension, asserting that the 120-day comment period did “not allow sufficient time to develop meaningful or thoughtful comments,” the Agency agreed to extend the comment period from January 26, 2017 to April 26, 2017.
Encouraging Americans to eat healthier has been a key priority for the Obama Administration and is a signature achievement of the First Lady’s Let’s Move initiative. As such, industry will want to keep a close eye out for additional last-minute efforts to cement their nutrition and food labeling legacy.
Given that January 20 will bring a new Administration that has been openly resistant to several Obama Administration regulations, manufacturers will want to continue to look for congressional and administrative actions that aim to roll back or modify food labeling policies.
- Dana Weekes, Pari Mody, and Raqiyyah Pippins
Posted on January 06, 2017 in FDA, Food and Beverages | Permalink
FDA Objects to Branded Pre-Approval YouTube Video
We thought our readers might be interested in a recent Untitled Letter that FDA sent to Zydus Discovery DMCC, the US agent/subsidiary of Indian pharmaceutical company Zydus Cadila, alleging that the company’s promotional claims for the product on YouTube, prior to obtaining FDA approval for the drug in the U.S., caused the product to be misbranded under the U.S. Federal Food, Drug, and Cosmetic Act.
Zydus launched the drug Lipaglyn™ (Saroglitazar) in India, which is approved by Indian regulators to treat Type 2 diabetes patients with hypertriglyceridemia or diabetic dyslipidemia, not controlled by statins alone. Saroglitazar is not, however, approved for any indication in the US. Zydus is currently studying the drug in Phase 2 trials (under an FDA-approved IND) for possible US indications in dyslipidemia and NASH.
The Dec. 21, 2016 Untitled Letter cites Zydus Discovery DMCC for preapproval promotion of Saroglitazar. (FN: FDA has requested a response to the Untitled Letter by Jan. 6, 2017. Cadila Healthcare Ltd., who markets the drug in India, noted on Wednesday that it has already taken responsive corrective action.) Specifically, FDA took the position that a YouTube® video posted by a Zydus representative, in which safety, efficacy, and superiority claims are made about Saroglitazar, renders the investigational drug misbranded under 21 USC 352(f). Among other things, FDA alleged that the YouTube content caused the drug to be misbranded because the content includes unsubstantiated compound-specific safety and efficacy claims (e.g., “novel, superior, dual acting” and “dual lipid and glycemic control”), associates these claims with the Lipaglyn proprietary name, and is cross-linked to a Lipaglyn promotional website. The cross-linked Lipaglyn.com promotional website was not access-restricted or user-limited in any way (e.g., with a “speed bump” or other viewer acknowledgement message). (FN: We note that in response to the Untitled Letter, a disclaimer that the drug is only approved in India now appears on the site). And, according to FDA, some of the claims in the YouTube video were also present in a branded Lipaglyn booth banner used by the company at the American Diabetes Association Scientific Sessions meeting this past June.
The Saroglitazar Untitled Letter is an important reminder of why FDA-regulated companies and their communications agencies need to continue to be sensitive to pre-approval promotion risks not only in traditional promotional channels, but also when developing web-based and social media content. Companies with global brands must take into account local marketing restrictions when developing global web and social media content. This is particularly important for companies conducting studies in the US on investigational compounds that have been approved in other jurisdictions. Pre-approval “pipeline” presentations, trial recruitment initiatives, investor communications, and disease awareness activities should all be subject to careful review to ensure that they do not run afoul of the regulatory requirements that govern the target audience. However, global marketing teams should not despair: often, creative web and other content design (e.g., thoughtful “redirect” messages, well-placed disclaimers, use of country-specific URLs, etc.) can be a way to artfully manage US regulatory expectations while also meeting global communication needs in a competitive business environment.
- Mahnu Davar
Posted on January 03, 2017 in FDA, Internet | Permalink
FTC Reverses Course on Soundboard Technology to Curtail Abusive Telemarketing Calls
This month, the FTC issued a Staff Opinion Letter that will revoke a prior opinion letter and will now bring outbound telemarketing calls that utilize soundboard technology within the purview of the Telemarketing Sales Rule’s (TSR) provisions governing outbound telemarketing calls that deliver prerecorded messages, commonly referred to as “robocalls.”
In 2008, the FTC amended the TSR to include new restrictions on the use of prerecorded messages in telemarketing, including the prohibition on certain telemarketing calls that “deliver a prerecorded message” without prior written consent. (See our prior post on the 2008 amendments).
In 2009, the FTC issued a Staff Opinion Letter (2009 Letter) to address the use of soundboard technology to make telemarketing calls. Soundboard technology allows a live agent to communicate with a call recipient by playing recorded audio snippets instead of using his or her own live voice. The 2009 Letter concluded that telemarketing calls using soundboard technology were outside the scope the 2008 amendments to the TSR “because a single live agent stays with the call from beginning to end, listens to every word spoken by the call recipient, determines what is heard by the call recipient, and has the ability to interrupt recordings and use his or her own voice to communicate with the call recipient if needed.” At that time, the FTC understood soundboard technology to be “virtually indistinguishable” from normal two-way conversations with live operators.
Now, however, FTC has issued a mea culpa on the issue and is revoking its 2009 Letter for three primary reasons.
First, in the seven years since the issuance of the 2009 Letter, the FTC has observed that telemarketers were improperly relying on the 2009 Letter to engage in what effectively were not two-way calls. According to the FTC, telemarketers have been using soundboard technology to allow a single live agent to handle more than one call at the same time. The FTC concluded that use of soundboard technology in this manner does not represent a normal, continuous, two-way conversation between the call recipient and a live person and is inconsistent with the TSR’s provisions and the 2009 Letter because “a human being cannot conduct separate conversations with multiple consumers at the same time using his or her own voice.”
Second, the FTC noted that it is has received numerous complaints from consumers about telemarketing calls utilizing soundboard technology since the issuance of the 2009 Letter. For example, consumers complained about not receiving appropriate responses to their questions, live operators no intervening when requested to do so, and calls that were terminated in response to questions.
Third, the FTC added that, because calls made using soundboard technology do indeed deliver a prerecorded message, such calls are covered by the plain language of the TSR.
The revocation of the 2009 letter will be effective as of May 12, 2017, rather than immediately, affording companies using soundboard technology time to come into compliance with the TSR’s provisions.
The revocation of the 2009 Letter, however, does not render all calls made using soundboard technology subject to the TSR’s restrictions. Some calls, such as purely informational calls, political calls, and calls from charities themselves, for example, do not fall under the TSR’s provisions.
The FTC’s decision to revoke its 2009 Letter is the latest development in the FTC’s continuing efforts over the years to combat telemarketing abuses. As previously reported by this blog, the FTC has pursued telemarketing scammers that target Spanish speakers has pursued “friends” of telemarketers (here), and even has held a contest soliciting ways to block illegal robocalls on landlines and mobile phones (here). It should also be noted that the FCC also has rules that align with the FTC’s TSR (we blogged about the FCC rules here).
Telemarketers that use soundboard technology, or similar methods, to make telemarketing calls should modify their business practices accordingly in light of the FTC’s new guidance.
Posted on November 22, 2016 in FTC, Telemarketing | Permalink
FTC Issues Enforcement Policy Statement on Marketing Claims for Over-the-Counter Homeopathic Drugs
On November 15, 2016, the Federal Trade Commission (FTC) released a new “Enforcement Policy Statement on Marketing Claims for Over-the-Counter (OTC) Homeopathic Drugs” memorializing its position that, (1) when reviewing substantiation for claims for homeopathic products, the FTC will apply the same legal standard that it applies to other OTC drugs and (2) in cases where the substantiation in support of the efficacy for a homeopathic product is less than what would be required for an OTC drug product, the FTC will require any advertising for the homeopathic product to include prominent disclosure of the limited evidence supporting the efficacy of the homeopathic product.
According to the FTC’s press release, the agency issued the Policy Statement in response to the “burgeoning mainstream marketing of OTC homeopathic products alongside other OTC drugs.” The FTC’s Policy Statement was informed by last year’s FTC workshop entitled “Homeopathic Medicine & Advertising,” and accompanied by a staff report that summarizes the results of the agency inquiry into the marketing and sale of homeopathic products.
As part of its efforts to understand the homeopathic marketplace and obtain information about consumers’ knowledge and understanding of homeopathic products, the FTC commissioned consumer focus group research. According to the FTC, this research, which began in 2010 and is described in the staff report, “suggests that a significant percentage of consumers do not understand the nature of homeopathic products, how they are regulated, or how much evidence there is to support their claims.” The FTC has also stated that this finding was the impetus behind its new enforcement policy, which FTC says will make clear “that marketers of OTC homeopathic drugs must either have adequate substantiation for their efficacy claims or effectively communicate the lack of scientific evidence backing them.”
Moving forward, FTC’s new enforcement policy is a signal that the agency will monitor the marketing of OTC homeopathic drugs more closely. Pursuant to the FTC Act, companies are required to have a reasonable basis for making product claims and the FTC has taken the position that in the case of health-benefit claims a reasonable basis requires competent and reliable scientific evidence. The FTC’s Policy Statement, however, notes its position that (1) for the vast majority of OTC homeopathic drugs, “the case for efficacy is based solely on traditional homeopathic theories and there are no valid studies using current scientific methods showing the product’s efficacy” and (2) as such, the marketing claims for these products are likely misleading, in violation of the FTC Act.
Notably, after sharing its position that most homeopathic products are being marketed in violation of the FTC Act, the FTC offers guidance to homeopathic product manufacturers on how they may, nevertheless, continue marketing their products for indications for which they do not have competent and reliable scientific evidence supporting the products’ efficacy. The Policy Statement indicates that the promotion of an OTC homeopathic product may not be considered deceptive under the FTC Act if the advertising effectively communicates to consumers that: (1) there is no scientific evidence that the product works and (2) the product’s claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts. More specifically, FTC concludes with the following guidance:
Any disclosure should stand out and be in close proximity to the efficacy message; to be effective, it may actually need to be incorporated into the efficacy message.
Marketers should not undercut such qualifications with additional positive statements or consumer endorsements reinforcing a product’s efficacy.
In light of the inherent contradiction in asserting that a product is effective and also disclosing that there is no scientific evidence for such an assertion, it is possible that depending on how they are presented many of these disclosures will be insufficient to prevent consumer deception. Marketers are advised to develop extrinsic evidence, such as consumer surveys, to determine the net impressions communicated by their marketing materials.
The Commission will carefully scrutinize the net impression of OTC homeopathic advertising or other marketing employing disclosures to ensure that it adequately conveys the extremely limited nature of the health claim being asserted. If, despite a marketer’s disclosures, an ad conveys more substantiation than the marketer has, the marketer will be in violation of the FTC Act.
The FTC’s Policy Statement is the most recent development in the balancing act that has occurred in FDA and the FTC’s joint regulation of homeopathic products. While, all products that meet the definition of a drug under the Food, Drug, and Cosmetic Act are subject to regulation by the FDA, due to an explicit reference to homeopathy in the 1938 statute, FDA has generally permitted homeopathic products to remain on the market if their composition and claims are consistent with the tenets of homeopathy. Specifically, under FDA’s Compliance Policy Guide (CPG) addressing its approach to homeopathic products, FDA does not take enforcement action against drug products labeled as homeopathic and marketed without pre-market review and approval, provided that certain conditions are met regarding ingredients, labeling, prescription status, and good manufacturing practices). FDA has on a number of occasions sent warning letters to manufactures of homeopathic products who are not in compliance with the CPG’s conditions. Examples include letters sent to Nutri-Dyn Midwest, Inc. (January 15, 2016), HomeopathyStore.com (July 6, 2015), A Nelson & Co., Ltd. (July 26, 2012), Pacific Naturals (April 28, 2011), and Homeopathy For Health (June 8, 2010).
The FTC has also taken enforcement action challenging misleading claims for homeopathic products, but, as noted in the FTC’s Policy Statement, such challenges were rare (e.g., FTC complaints filed against HCG Diet Direct, LLC (January 7, 2014) and Iovate Health Scis. USA, Inc. (July 14, 2010)). The FTC’s issuance of this Policy Statement, however, is a clear indication that the FTC will be more active in monitoring and challenging the truthfulness and accuracy of health-benefit claims made for homeopathic products going forward.
For more information regarding the FTC’s scrutiny of homeopathic products, please see our prior post here.
- Raqiyyah Pippins, Matthew Shultz, and Bethan Jones*
*Licensed to practice law in Pennsylvania; application pending in Washington, DC.
Posted on November 17, 2016 in Dietary Supplements, FTC | Permalink
Avoid Sticky “Made in U.S.A.” Situations
The latest in a line of Federal Trade Commission (FTC) enforcement actions challenging “Made in USA” claims by manufacturers was recently resolved with a stipulated order in the FTC’s lawsuit against the glue manufacturer Chemence, Inc. The FTC’s lawsuit alleged that Chemence engaged in misleading practices by labeling and marketing its glue products Kwik Frame, Kwik Fix, and Krylex as “Proudly Made in the USA” or “Made in the USA.” (See our previous post on the FTC’s complaint against Chemence).
In addition to a monetary judgment of $220,000 against the glue manufacturer, the stipulated order prohibits Chemence from making unqualified “Made in USA” claims for any product unless it can show that the product’s final assembly or processing – and all significant processing – take place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States.
As we discussed in other posts (e.g., here), in order for a product to be labeled or advertised as “Made in the USA,” the FTC requires that “all or virtually all” of the production and content of the product be of U.S. origin. According to the FTC’s Enforcement Policy Statement on US Origin Claims, “all or virtually all” made in the United States means that all significant parts and processing that go into the product are of U.S. origin. Therefore, the product should contain only “a de minimis, or negligible, amount of foreign content.” Among other factors, the FTC assesses the portion of the product’s total manufacturing costs that are attributable to U.S. parts and processing, and how far removed from the finished product any foreign content is. California, on the other hand, has a bright-line rule that allows a product to be labeled as “Made in USA” as long as foreign parts compromise no more than 5% of the product, or 10% if the manufacturer can establish that the part is not domestically made (See our post discussing the California law that went into effect earlier this year).
According to the FTC’s complaint, Chemence failed to meet the “all or virtually all” standard because its glue products are made with a significant amount of imported chemicals. Specifically, the FTC alleged that approximately 55% of the costs of the chemical inputs to the glues are attributable to imported chemicals that are essential to the glues’ function.
The Chemence case is part of the FTC’s effort to closely scrutinize glue manufacturers’ “Made in U.S.A.” claims. In the past, however, the FTC had only issued closing letters to glue manufacturers making “Made in USA” claims. In those instances, the FTC decided that no further enforcement action was necessary because the companies were taking corrective actions to remove or modify their “Made in USA” claims on labeling, advertising, and websites. (See closing letters in April, June, and September 2015).
These glue cases are a reminder that businesses making unqualified “Made in USA” claims need to evaluate carefully whether foreign-sourced ingredients and other inputs are “significant” to the final product in terms of cost, function, or role. Even if an unqualified claim is not appropriate, a qualified claim—such as “Made in USA of Domestic and Imported Materials”—may be. The Chemence case in particular also illustrates that prompt and comprehensive corrective actions may help companies avoid a costly and burdensome FTC order. Businesses should also check their “Made in USA” claims against California’s statute. It is at least conceivable that products that meet the FTC standard may not automatically meet the California standard, and vice versa.
Doug Quzack & Matthew Shultz
Posted on October 31, 2016 in Claim substantiation | Permalink
FDA Initiates Its “Healthy” Review of Nutrient Content Claims
On September 28, the U.S. Food and Drug Administration (FDA or the Agency) published a Request for Information regarding FDA’s intent to update the standards for using “healthy” as an implied nutrient content claim in human food labeling. Importantly, the standards for making a “healthy” claim in food labeling have not been updated since 1993, when the Agency published its initial final rule on defining “healthy.” FDA’s recent efforts are intended to align the standards for the claim with science findings reflected in the 2015 Dietary Guidelines for Americans and relied upon by FDA in the final Nutrition Facts Panel and Serving Size rules. FDA’s guidance also is intended to align closely with its 2016-2025 Foods and Veterinary Medicine (FVM) Program Strategic Plan.
The Agency’s request for information specifically seeks stakeholder comments on proposed changes to the “healthy” nutrient content claim addressed in a citizen petition filed by KIND LLC. FDA also requests comments on a range of topics, including the food categories for which “healthy” can be used, nutrient criteria, the public health benefits of defining the term “healthy,” and the costs to industry. Comments are due to FDA by January 6, 2017. The Agency also plans to host public forums to receive additional feedback from stakeholders, but FDA has yet to announce dates and locations.
In conjunction with the request for comment, the Agency released guidance for industry on how companies can use a “healthy” claim that complies with the current regulation while FDA is updating the rule. FDA has indicated that it may initiate enforcement if manufacturers fail to implement certain changes. For example, if a manufacturer uses the term “healthy” on the food label of a product not low in fat, then the amount of mono- and polyunsaturated fats must constitute the majority of the fat content. A manufacturer must also display the mono and polyunsaturated fat content on the label. If a manufacturer meets these requirements, then FDA intends to exercise enforcement discretion and permit the manufacturer to include “healthy” on its label.
Additionally, FDA may exercise enforcement discretion when manufacturers use the nutrient content claim of “healthy” on products that contain at least ten percent of the Daily Value (DV) per reference amount customarily consumed (RACC) of potassium or Vitamin D, which are currently two nutrients of public health concern because of their general under-consumption by the U.S. population. For manufacturers who have not implemented the final rule on the Nutrition Facts Panel as it relates to the new DVs for potassium or Vitamin D, FDA will allow them to use the previous DVs for potassium and vitamin D. The Agency explains that its change reflects shifts in nutrient intake and the fact that vitamins A and C are no longer nutrients about which adequate intake is a concern.
As noted in our recent client advisory Key Conventional Food & Dietary Supplement Regulatory Developments That (May Have) Occurred While You Were on Summer Vacation, FDA is expected to evaluate other labeling claims as part of an effort to ensure that food labeling regulations are consistent with evolving scientific recommendations and the dietary needs of the current population. We will continue to monitor these developments and circulate updates, accordingly.
- Raqiyyah Pippins, Dana Weekes, Pari Mody
Posted on October 05, 2016 in FDA, Food and Beverages | Permalink
Upcoming Webinar: Navigating the Patchwork of Federal Laws and Regulations Governing IoT
The editors of the Seller Beware Blog want to let our readers know about an upcoming webinar that may be of interest to you, entitled, “Navigating the Patchwork of Federal Laws and Regulations Governing IoT”. [Full disclosure: Our firm, Arnold & Porter LLP, is sponsoring the event]
The “Internet of Things” (IoT) is dramatically changing business around the globe. It touches companies in numerous industries and is creating a wealth of opportunities and risks. The Internet of Things working group at Arnold & Porter combines diverse subject-matter experience, deep industry knowledge, and innovative thinking to help our clients navigate the complex legal and regulatory issues in this actively evolving industry.
This is the first program in our 2016-2017 IoT webinar series, Internet of Things: Changing Business Rapidly Around The Globe.
This webinar for in-house counsel will take place on Tuesday, September 27, 2016 (12:00– 1:00 pm ET).
CLE Credit is pending. For more information and to RSVP, click here.
Posted on September 26, 2016 in Internet | Permalink
Upcoming Webinar: Proposition 65 -- Big Changes to California’s Warning Regulations
The editors of the Seller Beware Blog want to let our readers know about an upcoming webinar that may be of interest to you, entitled, “Proposition 65 -- Big Changes to California’s Warning Regulations”. [Full disclosure: Our firm, Arnold & Porter LLP, is sponsoring the event]
On August 30, 2016, California approved an overhaul of Proposition 65’s longstanding warning regulations. The regulatory amendment finalizes significant changes to the decades-old “safe harbor” warnings that businesses have relied upon for their compliance programs and which have been incorporated in thousands of Proposition 65 settlement agreements. The amendment stems from Governor Jerry Brown’s 2013 initiative to reform Proposition 65, and it followed four different regulatory proposals that received numerous public comments.
The regulatory amendment makes critical changes to the language of Proposition 65 warnings and the methods by which warnings are communicated. Businesses that provide Proposition 65 warnings, either under their own compliance programs or under a settlement agreement, will need to revisit their existing warnings and ensure future warnings are in compliance.
Please join our panel of experienced Proposition 65 attorneys and policy professionals to understand the significance of these major developments and their potential impact on your company’s compliance efforts.
This webinar for in-house counsel will take place on Monday, September 26, 2016 (10:00-11:00 am PT / 1:00– 2:00 pm ET).
Posted on September 15, 2016 | Permalink
New Changes to Proposition 65 “Safe Harbor” Warnings
On August 30, 2016, the California Office of Administrative Law approved California’s nearly three-year effort to overhaul Proposition 65’s longstanding warning regulations. The new regulations are a significant departure from the regulations that businesses have relied on for decades. Accordingly, they will require businesses to reassess and potentially overhaul their long-established compliance programs.
Proposition 65 requires businesses to provide “clear and reasonable” warnings before exposing individuals in California to any of over 800 listed chemicals. The regulatory amendment, promulgated by the Office of Environmental Health Hazard Assessment (OEHHA) makes significant changes to the decades old “safe harbor” warnings that business have relied on and which have been incorporated in thousands of Proposition 65 settlement agreements. The regulations provide for a two-year phase-in period. Although businesses are not required to follow the safe harbor warning regulations, other warnings lack presumptive validity and thus carry a greater risk of being challenged.
Some notable changes to the safe harbor warnings are as follows:
Pictogram : All warnings except for food exposure warnings must contain a triangle symbol. The symbol may be printed in black and white if the sign, label, or shelf tag for the product is not printed using the color yellow.
Identifying chemicals by name: If a warning is not provided on the product itself, such as on a shelf display or a store sign, a business must name at least one chemical for which the warning is being provided and specify whether that chemical is known to cause birth defects or reproductive harm, cancer, or both. This is a significant change. With the exception of warnings for alcohol, the prior safe harbor warnings do not require warnings to specify chemicals.
WARNING: This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer, and [name of one or more chemicals], which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov.
Truncated Warnings: The new regulations allow businesses to avoid specifying a chemical in their warnings, but only if the warning is provided on the product, contains the pictogram, and states the following for exposures to both a listed carcinogen and a reproductive toxicant: “WARNING: Cancer and Reproductive Harm - www.P65Warnings.ca.gov.” (This statement can mention only “Cancer” or “Reproductive Harm” if the warning is provided for only one of those endpoints.)
Warnings after the point of purchase are prohibited: Warnings must be provided to consumers prior to or during purchase. This is also a significant change from the prior regulations, which, consistent with the Act, allow warnings to reach the consumer before exposure, i.e., use of the product. Warnings in operating manuals or inside of a boxed unit (such as slip sheets) would not meet this new requirement. It also means that if a product is sold online or in a catalog, the safe harbor warning must be given online or in the catalog.
For internet sales, to meet the safe harbor, the warning must be provided on the product display page or prior to purchase, and the warning should be easy to find so that the consumer does not need to search for it.
Link to OEHHA website: Warnings must include a link to the appropriate OEHHA Proposition 65 website based on the type of exposure.
Other languages: Safe harbor warnings must be provided in English, and if a product sign, label, or shelf tag used to provide a warning also contains consumer information in a language other than English, the Proposition 65 warning must also be provided in that language.
The regulatory amendment also includes (1) tailored “safe harbor” warnings for over a dozen specific exposure scenarios, such as foods (including dietary supplements), restaurants, enclosed parking facilities, amusement parks, and designated smoking areas; (2) changes to warnings for environmental and occupational exposures; and (3) a statement that businesses may use alternative warnings so long as such warnings are deemed “clear and reasonable” by a court if challenged.
The new regulations are intended to implement only one part of Governor Brown’s 2013 reform initiative, which was to “improve how the public is warned” under Proposition 65. Unfortunately, the Governor’s call to curb litigation abuse has not achieved success, and the new regulations may actually make things worse. The prior safe harbor warnings have been quite workable, and the safe harbor warnings were rarely if ever challenged. However, the new regulations may result in a new type of litigation under Proposition 65 in which the adequacy of safe harbor warnings under the regulations is targeted.
Businesses that already provide Proposition 65 warnings, either under their own compliance programs or under a settlement agreement, should revisit their existing warnings in light of the new safe harbors and the pitfalls associated with the new regulations. Businesses that will provide warnings in the future will also need to review the new regulations if they want to provide safe harbor warnings and for useful guidance on what the agency considers to be a “clear and reasonable” warning that complies with Proposition 65’s amorphous requirements.
- Trent Norris, Sarah Esmaili, Anthony Samson, and Tiffany Ikeda
Posted on September 14, 2016 in Prop 65 | Permalink
CPSC Proposes to Reduce Testing Requirements for Phthalates
On August 17, 2016, the Consumer Product Safety Commission (CPSC) issued a notice of proposed rulemaking that would reduce the burden of testing for phthalates in children’s toys and child care articles. Phthalates are commonly used to soften plastics and as components of paints and adhesives. Under the proposed rule, third party laboratory testing for certain phthalates would no longer be required for four plastics—Polypropylene (PP), Polyethylene (PE), High-impact polystyrene (HIPS), and Acrylonitrile butadiene styrene (ABS)with specified additives.
Under the Consumer Product Safety Improvement Act of 2008 (CPSIA), manufacturers (including importers) are required to certify, based upon testing by an accredited third party lab accepted by CPSC, that a children’s product complies with all CPSC-enforced standards before the product is imported or distributed in commerce. Among the numerous CPSC-enforced standards for which a manufacturer is required to test using a third party lab are limits on certain phthalates. Section 108 of the CPSIA prohibits six types of phthalates in a concentration above 0.1 percent in children’s toys and child care articles —di-(2-ethylhexyl) phthalate (DEHP), dibutyl phthalate (DBP), benzyl butyl phthalate (BBP), diisononyl phthalate (DINP), diisodecyl phthalate (DIDP), and di-n-octyl phthalate (DnOP). Congress directed CPSC to seek opportunities to reduce third party testing burdens and authorized CPSC to issue new or revised third party testing regulations if the Commission determines “that such regulations will reduce third party testing costs consistent with assuring compliance with the applicable consumer product safety rules, bans, standards, and regulations.”
CPSC contracted with the Toxicology Excellence for Risk Assessment (TERA) to conduct research on four types of plastic (PP, PE, HIPS, and ABS) to determine whether these plastics (with specified additives) contain certain phthalates in concentrations in excess of 0.1 percent. TERA reviewed 11 phthalates—six prohibited by statute and others that CPSC has proposed to add to the prohibited phthalates list. TERA found that the plastics did not contain any of the 11 phthalates in a concentration in excess of 0.1 percent. Thus, CPSC concluded that third party testing for the six phthalates (currently prohibited) is not necessary for PP, PE, HIPS, and ABS when combined with the specified additives (as the additives were found not to contain the prohibited phthalates.)
This new rule would not change the underlying obligation to comply with Section 108 phthalate prohibitions, but would provide some relief from required testing for manufacturers and importers.
CPSC is accepting comments regarding the proposed rule until October 31, 2016.
- Michelle Gillice, Eric Rubel, Jennifer Karmonick, and Omomah Abebe*
*Application to the District of Columbia bar pending.
Posted on September 08, 2016 in CPSC/Product Safety | Permalink
FTC Settles with Herbalife Over Business Model and Misleading Earnings Claims
Herbalife’s 2+ year FTC investigation came to an end last month when it settled with the FTC for $200 million, which will be distributed to former Herbalife program participants. The Stipulated Order entered on July 25 also requires Herbalife to restructure its business model to compensate its distributors based on verifiable retail sales, and prohibits Herbalife from paying compensation solely for enrolling or recruiting new distributors. If less than 80% of Herbalife’s sales are to actual end-users, it must reduce compensation.
The Herbalife settlement is consistent with how the FTC has treated multilevel marketing programs in the past. Under the FTC’s test, a multilevel marketing program runs afoul of the FTC Act if participants pay money in return for “(1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users.” Here, the FTC alleged that Herbalife did not offer “a viable retail-based business opportunity” and that the compensation structure “incentive[d] not retail sales, but the recruiting of additional participants.” If your company uses multilevel marketing, you’ll want to read the complaint and order carefully to see how your company’s program stacks up.
While this part of the complaint and settlement grabbed the headlines, another part has implications beyond multilevel marketing programs. The FTC also alleged that Herbalife misrepresented that its distributors can earn substantial income. As detailed in the complaint, Herbalife conveyed specific income expectations through testimonials, anecdotes, and other means. And according to the FTC, it also implicitly represented that participants can earn significant incomes through lifestyle imagery portraying “expensive houses, luxury automobiles, and exotic vacations.”
The FTC alleged that these earnings claims were misleading because the “overwhelming majority of Herbalife Distributors . . . make little or no money, and a substantial percentage lose money.” According to the FTC, “the only way to achieve wealth from the Herbalife business opportunity is to recruit other Distributors,” but recruitment rewards are “highly concentrated” with most distributors receiving little or no money from recruitment. The complaint alleges that among the top 13% of distributors, more than half received recruitment rewards payments of less than $300 in 2014, while the top 0.03% of distributors averaged over $600,000. The FTC rejected as ineffective Herbalife’s disclosures of what participants could expect to earn. According to the complaint, the disclosure, which was made in a separate document, “does not provide clarity or realistic expectations, but instead obfuscates through a dense maze of verbiage and numbers.”
The settlement bars misleading and unsubstantiated income representations. It also prohibits Herbalife from representing or implying that participation in the program “is likely to result in a lavish lifestyle,” including through images of mansions, exotic automobiles, yachts, or similar luxury items. This demonstrates again the FTC’s willingness to look beyond words to the surrounding imagery, and to hold companies responsible for implicit messages in their marketing and promotional materials that create unrealistic or unsubstantiated consumer expectations. This enforcement action is also a reminder that companies will be well-served by providing clear, simple, and prominent disclosures of the typical results consumers can expect in ads and endorsements touting above-average outcomes.
- Matthew Shultz and Karen Otto
Posted on August 05, 2016 in FTC | Permalink
Ninth Circuit Provides Guidance for Pleading Reliance On False Advertisements
Last month, the Ninth Circuit clarified the requirements for pleading a fraudulent advertising claim. In Haskins v. Symantec Corp., the court ruled that a plaintiff seeking damages for fraudulent advertising must allege reliance on specific advertisements to avoid dismissal under Federal Rule of Civil Procedure 9(b) ("FRCP 9(b)"). The court distinguished plaintiff's factual allegations from those in the Tobacco II case, which recognized an exception to FRCP 9(b) for ubiquitous and widespread advertising campaigns.
In Haskins, plaintiff asserted multiple causes of action under California's Unfair Competition Law and Consumers Legal Remedies Act alleging that Symantec Corp., an antivirus software maker, had fraudulently concealed that hackers had stolen the secrets to its antivirus software, which left computers relying on Symantec's products more vulnerable to hackers. The district court dismissed the plaintiff's first three complaints under FRCP 9(b) because they each failed to cite any specific advertisement the plaintiff had relied upon when she made her decision to purchase Symantec's software. The plaintiff attempted to work around her inability to cite a specific advertisement by citing Tobacco II's exception to the usual pleading requirements of FRCP 9(b).
In Tobacco II, the plaintiff class was allowed to pursue fraudulent advertising claims against a number of tobacco companies without citing any specific advertisements that class members had relied upon, by convincing the court that the defendant tobacco companies' advertisements were so widespread and pervasive that they had "saturated" California. Proving a plaintiff's reliance on any single advertisement would be unrealistic in those circumstances, the court decided.
The Haskins court found Tobacco II inapposite, however, because the plaintiff had failed to allege that Symantec had saturated the California market with advertisements in the same way as the Tobacco II defendants had. Accordingly, the plaintiff would have to plead reliance on a specific Symantec advertisement prior to her purchase to survive a motion to dismiss.
This decision will pose an obstacle to consumer advertising class actions in California federal courts. To satisfy FRCP 9(b), plaintiffs will have to allege they relied on specific advertisements, which will make class certification less likely where each plaintiff relies on distinct and individualized facts.
- Paul Beavers
Posted on August 02, 2016 in Litigation | Permalink
Upcoming ABA Event: Complying with FTC’s Endorsement and Testimonial Guidelines
For information about the Warner Bros. settlement and other considerations to keep in mind when developing influencer or other media campaigns, you may want to consider attending the ABA’s upcoming program entitled “Complying with FTC’s Endorsement and Testimonial Guidelines,” which will be held on July 26, 2016 from 12:00 p.m. to 1:00 p.m. ET. The program will be moderated by Raqiyyah Pippins of Arnold & Porter and include remarks from Robin Spector of the Federal Trade Commission, Kathryn Farrara of Unilever, and David Mallen of Loeb & Loeb about the Warner Bros. settlement and other developments impacting companies interested in using novel marketing strategies to promote their products.
For more information regarding the seminar, click here.
Posted on July 22, 2016 | Permalink
Game Reset: Warner Bros. Settlement Reminds Legal Departments to Further Influence Their Company’s Agreements with Endorsers and Other Influencers
Earlier this month, Warner Bros. Home Entertainment, Inc. settled Federal Trade Commission charges for deceptive marketing practices stemming from a 2014 online “influencer” campaign for its video game Middle Earth: Shadow of Mordor. According to the FTC’s complaint, Warner Bros. paid YouTube influencers to post positive gameplay videos on YouTube and other social media platforms without ensuring that the influencers adequately disclosed their material connection to the company. As a result, the FTC took the position that the company’s marketing campaign violated the FTC Act because it insinuated that sponsored, positive gameplay videos posted on YouTube by gaming enthusiasts were objective and independent assessments of the video game, when they were not.
The Warner Bros. settlement highlights the importance of consumer product companies ensuring that all agreements governing the promotion of company products are reviewed by attorneys who are familiar with the FTC’s concerns about native advertising. In the Warner Bros. matter, the Company hired Plaid Social Labs, LLC to coordinate a “YouTube Influencer Campaign” to help generate interest for the Shadow of Mordor game. Plaid Social Labs contracted with influencers, tasking them with creating YouTube videos reviewing the game and then, subsequently, promoting the videos on other social medial platforms. Per the agreements, the influencers were required to disclose that the videos were sponsored, but they were instructed to place the disclosure in the description box below the gameplay videos. (According to the complaint, this requirement often resulted in the influencer placing the disclosure in a place that could only be seen if a viewer clicked on a “Show More” button.) The agreements also required the influencer’s reviews to be positive, prohibiting the influencer from showing any bugs or glitches in the game or communicating any negative sentiment about Warner Bros., its affiliates or the game.
The FTC took the position that the resulting videos were in essence “sponsored advertisements” and thus “misled consumers by suggesting that the gameplay videos of Shadow of Mordor reflected the independent or objective views of the influencers” when they did not. The FTC also took the position that Warner Bros., due to improper instruction and monitoring of the YouTube influencers, failed to adequately disclose that the gamers were compensated for their positive reviews.
This settlement is a helpful reminder of the importance of marketing and legal departments taking a collaborative approach when developing marketing campaigns that include special attention to the FTC’s enforcement priorities related to native advertising. It is no longer prudent for a company to rely on a third party marketing company or media consultant to handle digital media campaigns. Instead, to mitigate risk, the strategy must include a legal review focused on ensuring that the relationship between the company and potential influencers does not develop unexpected legal obligations for the company.
- Raqiyyah Pippins and Stephanie Roberts
Posted on July 21, 2016 in Disclosures, FTC, Internet | Permalink
Vermont GMO Labeling Law Preempted, Only Two Weeks After Going Into Effect
On July 14, hours before the start of a seven-week congressional recess, the House passed a national GMO labeling bill by a vote of 306 to 117. As we discussed here, the Senate recently approved the measure by a vote of 63 to 30. House passage effectively ends a multi-year debate over a national GMO labeling standard and brings preemption of the Vermont GMO labeling law almost to the finish line just two weeks after going into effect.
This bill marks a compromise for both sides of the aisle, with 81 Democrats and 36 Republicans voting against the bill on the House floor. While Democrats were successful in securing a mandatory GMO labeling standard, Republicans negotiated flexibility in the disclosure, which can be in the form of text, a symbol, or a QR code.
President Obama is expected to sign the bill into law within the coming days. Food manufacturers will then want to watch closely for USDA’s implementation of the GMO labeling standard.
Posted on July 15, 2016 in Food and Beverages, Legislation | Permalink
Senate Passes Bipartisan GMO Labeling Bill to Preempt Vermont Law
On July 7, 2016, the Senate passed a compromise GMO labeling measure led by Senate Agriculture Committee Chairman Pat Roberts (R-KS) and Ranking Member Debbie Stabenow (D-MI) by a vote of 63-30. The bill would preempt Vermont and other states and localities from establishing or implementing conflicting GMO labeling laws by requiring the U.S. Department of Agriculture (USDA) to establish a mandatory GMO labeling standard within two years after enactment. The bill intends for manufacturers to then label packages of food products with text, a symbol, or a Quick Response (QR) code or similar technology. (Read our June 27 blog post for more information about the bill.)
The House will need to consider the bill, but will likely take it up in September because its recess starts the week of July 17. Last July, the House passed its GMO labeling preemption bill (H.R. 1599) that would allow manufacturers to voluntarily label their food products -- instead of being required to label -- under the jurisdiction of the Food and Drug Administration (FDA). House Agriculture Committee Chairman Mike Conaway (R-TX) has indicated that leadership is determining its strategy and considering all options, but has provided no further detail.
Although passage of the Senate bill required a simple majority, Sens. Roberts and Stabenow faced challenges from opponents on both sides of the aisle. Opponents notably argued that the bill’s definition of “bioengineering” would create consumer confusion and that the digital disclosure option could limit consumers’ access to information. Vermont Sens. Patrick Leahy (D) and Bernie Sanders (I) attempted to hold up the bill in protest of Majority Leader Mitch McConnell’s (R-KY) decision not to consider amendments.
Disagreement over key provisions of the bill extends to USDA and FDA, which may inform some of the challenges USDA will face in implementing the bill should it be enacted. FDA contends that genetically engineered foods (“GE”) do not pose any safety concerns and, for that reason, GMO labeling should remain voluntary. FDA also contends that the QR code option conflicts with the agency’s statute and regulations requiring disclosures directly on food labels.
FDA also believes the bill’s mandatory disclosure standard would conflict with FDA’s labeling requirements at times. For example, depending on USDA’s GMO labeling requirements for small packages, manufacturers may have difficulties including both the USDA information and the FDA required statements on the label.
FDA also finds the definition of “bioengineering” in the bill to be narrow in scope, which could lead to consumer confusion. The agency points to the phrase “that contains genetic material” and argues that foods from GE sources (e.g., GE soy, starches, and purified proteins) will fall outside of the scope. USDA disagrees with FDA’s interpretation. USDA asserts that it has the authority to require GMO labeling on food products with ingredients from commercially grown GMO crops, but the agency would consider its authority to determine the threshold of bioengineered material needed for foods to be regulated under the legislation.
Additionally, FDA has concerns with the bill limiting its application to foods where the genetic modification “could not otherwise be obtained through conventional breeding or found in nature,” because this would be difficult to prove.
While waiting for the House’s consideration, manufacturers should evaluate their compliance with the Vermont law, which took effect on July 1. As we noted previously, the Vermont law presumes compliance for foods distributed before July 1, 2016 and sold for retail until January 1, 2017. By contrast, foods produced before July 1, 2016, but distributed after that date, will be subject to penalties. The Vermont Attorney General may enforce the law today, but private rights of action may not be brought until July 1, 2017.
- Raqiyyah Pippins, Dana Weekes, and Pari Mody
Posted on July 08, 2016 in Food and Beverages, Legislation | Permalink
FDA Clarifies Declaring Small Amounts of Nutrients and Dietary Ingredients on Nutrition Labels
On July 1, the U.S. Food and Drug Administration released yet another clarification on its food and dietary supplement labeling policies by way of guidance for industry on declaring small amounts of nutrients and dietary ingredients on nutrition labels.
The guidance narrowly focuses on how FDA would exercise enforcement discretion when a conflict occurs between complying with the requirements for declaring the nutrient value in a serving of food or dietary supplement (21 C.F.R. § 101.9(c)(1)-(8)) and the compliance requirements for declaring nutrients and dietary ingredients in nutrition labeling (21 C.F.R. § 101.9(g)(4)-(5)). While in most cases the regulatory requirements do not conflict, in some cases, certain small amounts of nutrients or dietary ingredients cannot be stated in accordance with both the declaration and compliance regulations. In these cases, the guidance recommends that manufacturers declare the amounts in accordance with the declaration regulations rather than the compliance regulations.
Food and dietary supplement manufacturers should continue to watch FDA, which is expected to finalize gluten-free claims and address claims based on the Nutrition Facts and Serving Size Rules in future rulemaking.
- Pari Mody, Dana Weekes, and Raqiyyah Pippins
Posted on July 05, 2016 in FDA, Food and Beverages | Permalink
House Energy and Commerce Committee Likely to Mark Up #DisruptFTC Legislation After Recess
When Congress returns to Washington DC next week, we expect the House Energy and Commerce Committee to mark up legislation to reform and limit the authority of the Federal Trade Commission (FTC) as part of its #DisruptFTC series during the two weeks Congress is in session (weeks of July 5 and 11). Congress then leaves for a seven-week recess for party conventions and its traditional August recess.
Last week, the full committee postponed a June 23 mark-up of the #DisruptFTCF legislation due to last-minute changes to the congressional calendar related to the Democrats’ gun control sit-in. If the committee does not find time in its schedule to mark up the FTC bills in July, it will have to wait until September to consider the legislation.
The committee is expected to mark up several FTC bills, including the bipartisan Consumer Review Fairness Act (H.R. 5111) and the FTC Process and Transparency Reform Act (H.R. 5510). H.R. 5510 is a comprehensive bill that combines several other bills that were previously introduced and are aimed at reforming the FTC’s authority, including the following:
Technological Innovation through Modernizing Enforcement (TIME) Act (R. 5093)
Statement on Unfairness Reinforcement and Emphasis (SURE) Act (R. 5115)
Clarifying Legality and Enforcement Action Reasoning (CLEAR) Act (R. 5109)
Revealing Economic Conclusions for Suggestions (RECS) Act (R. 5136)
Solidifying Habitual and Institutional Explanations of Liability and Defenses (SHIELD) Act (R. 5118)
Start Taking Action on Lingering Liabilities (STALL) Act (R. 5097)
Freeing Responsible and Effective Exchanges (FREE) Act (R. 5116)
The Consumer Review Fairness Act and the comprehensive bill were approved by the Subcommittee on Commerce, Manufacturing, and Trade on June 9. For more information about these bills, please see our previous posts from May 5 and June 2.
- Amy Davenport and Dana Weekes
Posted on June 29, 2016 in FTC, Legislation | Permalink
Congress Likely to Reach Last Minute GMO Labeling Deal, But Only After Vermont GMO Labeling Law Goes Into Effect
Vermont’s GMO Labeling Law will go into effect in less than a week, despite numerous congressional attempts to pass a national GMO labeling standard.
Most recently, on June 23, Senate Agriculture Committee Chairman Pat Roberts (R-KS) and Ranking Member Debbie Stabenow (D-MI) unveiled a bipartisan agreement that would establish a mandatory, nationwide label for foods that contain GMOs. If enacted, this agreement would preempt Vermont and other states and localities from establishing or carrying out conflicting GMO labeling laws. Under the proposal, the U.S. Department of Agriculture (USDA) would be directed to establish a mandatory GMO labeling standard within two years after enactment. Members intend that manufacturers would be able to disclose GMOs on their food packaging either through text on the package, a symbol, or a link to a website using a Quick Response (QR) code or similar technology.
The bill directs USDA to provide alternative, reasonable disclosure options for food contained in small packages. There would also be allowances for small food manufacturers. “Small food manufacturers” would have at least one additional year to comply with the labeling standards, while “very small food manufacturers” would be exempt from the GMO labeling requirement altogether. The bill, however, does not define either term.
This agreement is the result of months of negotiations between Chairman Roberts and Ranking Member Stabenow, and it contains key priorities for both Members. Aligned with the interests of the Chairman’s constituent ranchers, the bill would prohibit the USDA from considering any food derived from an animal to contain GMO based solely because the animal may have eaten GMO feed. Likewise, Ranking Member Stabenow fought to ensure that organic producers would be able to display a “non-GMO” label in addition to the organic seal. Although organic foods are by definition non-GMO, Ranking Member Stabenow recognized the importance of providing consumers with more information about the foods that they buy.
Chairman Roberts and Ranking Member Stabenow are now scrambling to get the 60 votes needed to pass their negotiated deal before the Senate recesses for the Independence Day holiday. As the House has already recessed, the lower chamber will not consider the measure before Vermont’s law goes into effect on July 1. Assuming that the Senate approves the agreement before recessing, the House could consider the legislation when it returns on July 5. House Agriculture Committee Ranking Member Collin Peterson (D-MN) has endorsed the bill.
Manufacturers should, by now, be prepared to comply with the Vermont law. Under the law, there is a presumption of compliance for foods distributed before July 1, 2016 and sold for retail until January 1, 2017. Foods produced before July 1, 2016, but distributed after that date, will not receive this presumption and be subject to penalties. As for civil liability, consumers must wait until July 1, 2017, one year from the law taking effect, to bring a private right of action against a manufacturer.
If enacted, Congress’s GMO labeling measure would preempt the Vermont law, and manufacturers would need to pay close attention to USDA’s implementation of the GMO labeling standards.
- Dana Weekes and Pari Mody
Posted on June 27, 2016 in Legislation | Permalink
Sweeping Amendments to U.S. Chemical Control Law Will Take Effect Immediately
President Obama will soon sign sweeping amendments to the nation’s cornerstone chemicals control law, the forty-year-old Toxic Substances Control Act (TSCA). The amendments will re-invigorate the Environmental Protection Agency’s (EPA’s) program for controlling risks to human health and the environment from chemical substances. The amendments represent the results of more than a decade of legislative initiatives and more recent bipartisan negotiations. Companies that make or distribute products in the US should understand the key features of the final legislation before it impact their products.
TSCA provides EPA broad authority to regulate importers, manufacturers, and processors of chemical substances, including authority to regulate commercial and consumer use products into which chemical substances are blended. For example, under the current law, EPA must be notified before any “new” chemical substances enter U.S. commerce. The Agency can require new and existing chemical substances and products that contain those substances to be tested for health or environmental effects, and EPA may regulate chemicals in commerce when the Agency determines that the chemical substance presents an unreasonable risk to health or the environment. As enacted in 1976, TSCA did little to preempt the authority of the various states to regulate chemical substances. The law never fully realized its potential, and EPA took very few actions using TSCA to completely restrict specific chemical substances.
Significant Changes Coming Soon
Parallel legislative efforts in the House and Senate culminated this year when the chambers reconciled differing bills, enacting harmonized amendments to TSCA that were overwhelmingly supported by their members. The President will sign the bill this week.
Important Features of the New Law
Requires EPA to prioritize chemical substances for review and management and establishes deadlines. EPA must prioritize substances that are actively in commerce and undertake risk evaluations and make risk management determinations accordingly. Within six months of enactment, the Agency is required to rapidly identify an initial cluster of 10 “high priority” chemical substances that are undergoing risk evaluations and expand that list to at least 20 during the next three and one-half years. Simultaneously, EPA must designate substances as “low-priority.” A manufacturer of a chemical substance may voluntarily request a risk evaluation for its substance, provided the manufacturer pays a service fee to offset the Agency’s cost to perform the assessment. Persistent and bioaccumulative substances to which the general population is exposed will be subject to expedited regulatory actions.
Revises the standard for regulating chemicals and products. When assessing risks from exposures to chemicals and products that contain those substances, EPA will need to consider risks to vulnerable populations -- subgroups that may be uniquely susceptible (such as children and pregnant women). If EPA’s evaluation determines that a substance will present an unreasonable risk, the Agency must issue a regulation to manage those risks. EPA’s decisions will be expected to reflect the “best available” science and the “weight of the evidence.”
New chemicals will be subject to EPA review and determinations. New chemical substances may not enter commerce until EPA makes an affirmative determination concerning health and environmental risks, including to vulnerable subpopulations.
Expands EPA’s authority to compel chemical testing. The Agency gains authority to issue administrative orders to require testing on chemical substances.
Increases public access to information on chemicals and data. EPA will need to issue an annual work plan for reviewing chemicals and data and publish information on substances and uses of chemicals undergoing EPA reviews.
Expands and escalates fees. The amended law authorizes EPA to collect fees from chemical makers and processors to defray EPA’s costs of implementing the new law.
Partial preemption of state chemical-regulatory actions. In recent years, state chemical control requirements have popped up around the county, wreaking havoc for the makers and distributors of nationally-marketed products. Under the amended law, certain final EPA regulatory actions on chemical substances will preempt state regulation of the same substances, subject to various exceptions.
More Information and Guidance on Steps You Can Take Now.
An in-depth evaluation of the legislation, including the ways it can affect businesses and the steps that can be taken now to avoid significant disruptions is available here. Arnold & Porter is hosting an informational session June 28th in collaboration with the ABA’s Committee on Pesticides, Chemical Regulation, and Right-to-Know law. Contact jay.jantz@aporter.com by email to sign up to participate, or use the ABA’s enrollment page.
- Lawrence E. Culleen
Posted on June 21, 2016 in Legislation | Permalink
The Seven Things to Know about the #DisruptFTC Bills Being Considered in Congress
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.
- Amy Davenport (Senior Policy Specialist) and Dana Weekes
Posted on June 02, 2016 in FTC, Legislation | Permalink
Recommended Reading: FDA Gives Nutrition Facts and Supplement Facts Labels a Major Makeover After Two Decades
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.
Posted on May 31, 2016 in FDA, Food and Beverages | Permalink
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