Lanham Act False Advertising Cases

Second Circuit Adopts False Advertising Safe Harbor for Statements Made on FDA-approved Labeling 

Apotex Inc. v. Acorda Therapeutics, Inc., 823 F.3d 51 (2d Cir. 2016)

In a dispute between rival pharmaceutical manufacturers, the Second Circuit affirmed summary judgment for defendant Acorda Therapeutics, adopting the rule that “representations commensurate with information in an FDA label generally cannot form the basis for Lanham Act liability.” The court noted that the rule reflects proper deference to FDA expertise and insulates companies from liability when they engage in commercial speech consistent with labeling requirements. It rejected plaintiffs’ challenges to defendant’s advertising statements that did not appear on the FDA-approved label, as the statements were consistent with the information on the label. After agreeing with the district court that a reasonable juror could understand one of Acorda’s marketing brochures to communicate a literally false message, the appellate court nevertheless affirmed summary judgment, holding that plaintiff Apotex had failed to demonstrate materiality by adducing “evidence that this inaccuracy would dissuade consumers from purchasing” its product. “Falsity alone does not make a false advertising claim,” the court observed. View the decision. 

Court Dismisses Lanham Act Suit Targeting Better Business Bureau’s Statements About Own Rating System 

Wall & Assocs., Inc. v. Better Bus. Bureau of Central Virginia, No. 16-cv-119, 2016 WL 3087055 (E.D. Va. May 31, 2016)      

The Council of Better Business Bureaus Inc. (CBBB) is a not-for-profit organization that licenses the Better Business Bureau (BBB) name and model to a network of not‑for‑profit regional bureaus. Under the model, the regional BBBs provide ratings of and accreditation to local businesses. After Wall & Associates’ tax-settlement business received low ratings from several regional BBBs, Wall sued regional BBBs and the CBBB for false advertising under the Lanham Act, alleging they “falsely advertise and promote the rating system as a national, uniform, and unbiased standard when in reality it is implemented by regional, independent licensees applying their own ‘subjective, biased, and personal criteria.’” The court granted defendants’ motion to dismiss for lack of “statutory standing,” holding that “[w]hile the asserted injury” — Wall’s lost business — “may have been proximately caused by the unfavorable ratings, Wall had not adequately alleged a direct injury caused by Defendants’ characterizations of their rating system as uniform, objective and unbiased.” View the decision. 

Court Enjoins Likely False Exclusive-Formulation Statement  

Simone v. VSL Pharm., Inc., No. TDC-15-1356, 2016 WL 3466033 (D. Md. June 20, 2016) 

Plaintiff invented a probiotic formulation that was first manufactured by Danisco USA Inc. and sold by VSL Pharmaceuticals Inc. under the name “VSL#3” and, after he “parted ways” with VSL, began a new partnership with ExeGi Pharma LLC to market the same Danisco-manufactured formulation as “Visbiome.” Protracted litigation ensued. VSL sought an injunction to end advertising statements that VSL#3 was no longer on the market and that Visbiome was the rebranded version of that product. The court issued the injunction, noting that VSL had “stockpile[d]” the formulation and could continue to sell it; statements that the formulation was “exclusively available” were likely to be literally false, and VSL would be irreparably injured by the misrepresentations. View the decision. 

Food Certification Organization’s Email to Grocery Stores Enjoined as Commercial Speech 

Handsome Brook Farm, LLC v. Humane Farm Animal Care, Inc., --- F. Supp. 3d ---, No.16-cv-592, 2016 WL 3348431 (E.D. Va. June 15, 2016) 

Plaintiff is a farm selling eggs produced by it and others, some of which are packed in Illinois at a facility called Phil’s Fresh Eggs. Defendant, HFAC, is a food certification organization. During an annual inspection of Phil’s, an HFAC inspector reported that she was unable to find certain ethical certifications on file. On the basis of this report, HFAC’s executive director drafted an email stating that plaintiff’s certification was “not current” and that there was “no validation” for its “Pasture Raised” certification. She sent the email to individuals employed at 39 companies, including the top 10 conventional grocery chains in the United States, urging these grocery store representatives to consider changing suppliers. In fact, plaintiff’s USDA certifications were up to date. Plaintiff sought a temporary restraining order and, later, a preliminary injunction. The court granted the injunction, finding that the email was commercial speech given the sender’s organizational goal of directing consumer demand toward certain consumer goods. The court also affirmed plaintiff’s Lanham Act standing even though the parties were not direct competitors, and concluded that the email served a promotional purpose and was distributed sufficiently to constitute advertising. View the decision.

Consumer Fraud Class Action Developments

Bare Violation of Statute May Be Insufficient to Confer Article III Standing to Bring Class Action Claims  

Spokeo v. Robins, No. 13-1339, 578 U.S.___, 136 S. Ct. 1540 (2016)

In a highly anticipated Article III standing decision concerning online data privacy, the Supreme Court attempted to clarify the minimum threshold required for a plaintiff’s claims to survive the subject matter jurisdiction qualifications found in Article III of the Constitution. At issue was whether search engine Spokeo’s alleged posting of incorrect information about plaintiff on its “people search” site constituted a cognizable harm. The court vacated and remanded the Ninth Circuit’s ruling that plaintiff had standing to bring a class action against Spokeo because it allegedly violated the Fair Credit Reporting Act (FCRA) by posting false information about his employment, marital status and education background. In a 6-2 decision written by Justice Alito, the Court held that because the Ninth Circuit failed to consider the “concreteness” aspect of the injury-in-fact requirement, its Article III standing analysis was incomplete. To establish Article III standing, a plaintiff must demonstrate a concrete harm. In the Court’s view, a bare violation of the FCRA, which provides for statutory damages, does not necessarily confer standing, because some unlawful inaccuracies in a consumer’s information — dissemination of an inaccurate ZIP code, for instance — could not “without more, … work any concrete harm.” The Court remanded to the Ninth Circuit to address “whether the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement” of Article III. View the decision(Read our discussion of recent decisions applying Spokeoin Consumer Privacy and Data Security.) 

Second Circuit: Commonality Not Met Where Plaintiff Failed to Establish a Uniform Representation 

Garrido v. Money Store, No. 15-1891, 2016 WL 2956914 (2d Cir. May 23, 2016) (summary order)

Borrowers alleged that defendants made misrepresentations concerning fees that were charged in connection with their loans. The district court found commonality was not satisfied, because the documents containing the allegedly false statements were not routinely disseminated. The Second Circuit affirmed, noting that there was no evidence that class members received and relied on the same false representations. The mere fact that class members paid the disputed fees could not establish that they had done so based on common misrepresentations. View the decision. 

Premium Price Alone Cannot Constitute Misrepresentation 

Parent v. MillerCoors LLC, No. 3:15-cv-01204, 2016 WL 3348818 (S.D. Cal. June 16, 2016)  

Plaintiff’s first amended complaint alleged that he had regularly paid a premium when he purchased Blue Moon beer, based on his impression that Blue Moon is a “craft beer.” Plaintiff pointed to Blue Moon’s packaging and website, its “artfully crafted” trademark, and its “placement among other craft beers” at retail sellers. Plaintiff argued that although the internet advertisements “stop short of calling Blue Moon a craft beer, they feature all of the elements necessary to depict a craft beer.” The court granted defendant’s motion to dismiss, holding that the challenged internet advertisements contained only “mere puffery” and did not amount to actionable misrepresentations. Despite images suggesting a comparatively small-scale brewing operation, the advertisements do not claim that the depicted brewery was the only place Blue Moon was produced, that it was invented by an independent brewery or that it is currently brewed by a small, independent brewery. Moreover, the court held that the alleged “premium price” of Blue Moon, and its placement among other craft beers in retail stores, could not constitute a representation. View the decision. 

Individual Understandings of Allegedly Deceptive Product Name Destroyed Predominance 

Pierce-Nunes v. Toshiba Am. Info. Sys., No. CV 14-7242-DMG (KSx) (ECF No. 205) (C.D. Cal. June 23, 2016).  

A California federal court declined to certify a class of purchasers of defendant Toshiba’s LED‑lit LCD televisions in a case alleging that Toshiba falsely advertised the television sets as “LED TVs.” Plaintiff argued that “the very name of the product itself” was deceptive, since the “references to light emitting diodes (‘LEDs’) refer to the light source that illuminates the LCD panel, rather than the display technology itself.” The court disagreed. Noting the “lack of uniformity” in Toshiba’s product packaging and advertising during the class period, the court held that many class members would not have been exposed to the LED TV representation. And “[e]ven when the packaging did not reference LCD technology, evidence in the record indicate[d] that many retailers displayed information at the point of sale or online explaining that LED TVs use LEDs to backlight an LCD television.” Thus, the court held, plaintiff “will not be able to demonstrate with common proof … that each class member had the same understanding of the product labeling, let alone relied on the LED TV label when purchasing a Toshiba-brand LED-lit LCD TV.” Noting the many different influences on which consumers rely in purchasing a television, the court held that “[plaintiff] will not be able to demonstrate with common proof that the LED TV label was material to consumers’ purchasing decision.” View the decision. 

View additional Consumer Fraud Class Action case summaries

National Advertising Division (NAD) Update\

Verizon Communications, Inc. (FiOS), NAD Case No. 5886, NARB Case No. 209 (Apr. 11, 2016)

NARB reviewed an NAD decision finding that certain of Verizon’s advertising communicated that FiOS internet speed and HD picture quality were superior to its competition’s. The challenged claims included the following: “In customer satisfaction studies FiOS is rated #1 in Internet speed … 8 years running,” and “TV service rated number one in HD picture quality …based on customer satisfaction studies .…” NARB found that in the television advertisements containing visuals touting the No. 1 ratings in internet speed and HD picture quality, reasonable consumers could conclude that the rating was based on a direct measurement or comparison. NARB therefore recommended “the challenged advertisement[s] be modified to more clearly communicate that the higher rating with respect to Internet speed” and “HD picture quality” represents “a customer satisfaction rating based on consumers’ rating of their own Internet service providers.” View the press release.

The Clorox Company (Glad Tall Kitchen Drawstring Bags), NAD Case No. 5951 (May 10, 2016)

NAD reviewed the claim that Glad Tall Kitchen Drawstring Bags provide “Antimicrobial Protection of the Drawstring from Odors.” The challenger objected to the implied claim that the product protects against food-borne or disease-causing microbes. NAD found the challenger’s consumer perception survey to be insufficiently reliable in its sample and methodology. Instead, NAD used its own expertise to evaluate the advertisement’s message and concluded that, although the message is literally true, the design (including a prominent Clorox label) conveys a confusing message as to the product’s specific antimicrobial protection and has the potential to convey an inaccurate message as to the nature of Clorox’s partnership with the advertiser. NAD recommended that the packaging be modified to state that the product contains an antimicrobial agent to control drawstring odor. NAD also recommended that the font size be increased so as not to be “overshadowed by the presence of the Clorox logo.” View the press release.

Joyus, Inc. (Dr. Brandt’s Needles No More Wrinkle Relaxing Cream), NAD Case No. 5956 (May 19, 2016)

NAD reviewed a form of native advertising by an online shopping retailer for a product that appeared in “Stuff We Love” in People magazine’s online edition. The section contained a list of videos; only once a reader clicks on a link does the video reveal elements indicating that it is a shopping video. NAD was concerned that consumers may interact with this content thinking that it was purely editorial. NAD recommended that the advertiser disclose that the page is a shopping page and that each “link itself or text surrounding the link should advise consumers that the content to which consumers are linking is an advertisement or make clear that the links are ‘shopping’ links.” NAD also referenced the FTC’s recently issued Enforcement Policy Statement on Deceptively Formatted Advertisements stating that “advertising should be identifiable as advertising to avoid misleading consumers into believing that an advertisement is independent and impartial.” View the press release.

Sprint Corporation (Advertising by Sprint Corporation), NAD Case No. 5958 (May 20, 2016)

NAD reviewed broadcast, radio, internet and social media advertising containing pricing claims about Sprint’s wireless service compared to the competition’s. The advertiser voluntarily discontinued claims that switching to Sprint would “cut your bill in half,” and NAD recommended that Sprint’s comparative television commercials be discontinued because the “references to the limitations are blurred by the fast-moving audio and visual elements of the commercials which also make the supers, which refer to rate plans as well as limitations and restrictions, difficult to read, notice and understand.” NAD also noted that sweeping rate comparisons may simply be too complex to explain in 15- to 30-second broadcast commercials. NAD found the advertiser’s “50% off most T-Mobile rate plans” claim in print and internet advertising was reasonably substantiated but should “clearly and conspicuously state the basis of its comparison.” Additionally, the disclosure should include both “the $36-per-line activation fee” and “the material differences in its plans versus” its competitors’ plans. View the press release. 

View additional NAD case summaries

Regulatory Developments

Warner Bros. Settles FTC Allegations Concerning Failure to Disclose Use of Online “Influencers” to Market Video Game

In the Matter of Warner Bros. Home Entertainment, Inc., No. 152 3034 (Order Entered July 11, 2016)

In marketing its Middle Earth: Shadow of Mordor video game, Warner Bros. used paid online “influencers” to post positive gameplay videos on social media sites. According to the Federal Trade Commission (FTC) complaint, the entertainment company failed to adequately disclose that the videos were sponsored content and that it had paid influencers thousands of dollars for their online posts. The settlement prohibits Warner Bros. from misrepresenting that any gameplay videos are independent opinions by impartial gamers and requires the company to clearly and conspicuously disclose its relationship with influencers. The order also specifies measures that Warner Bros. and any entities it hires to conduct an influencer campaign must take to ensure that future campaigns comply with the order, including “educating influencers regarding sponsorship disclosures, monitoring sponsored influencer videos for compliance, and, under certain circumstances, terminating or withholding payment from influencers or ad agencies for non-compliance.” This settlement is the second major enforcement action the FTC has brought in connection with native advertising and sponsored content. View the press release. Read our summary of the FTC settlement with Lord & Taylor in Issue 2.

Volkswagen Settles “Clean Diesel” Charges to the Tune of $14.7 Billion

FTC v. Volkswagen Group of America, Inc., No. 3:16-cv-1534 (N.D. Cal.)

In the highly publicized scandal concerning “defeat devices” on certain Volkswagen (VW) diesel vehicles, VW settled environmental charges brought by the United States and the state of California. It also settled charges with the FTC over the advertising campaign VW used to promote its supposedly “clean diesel” VWs and Audis; the FTC charged that the campaign falsely claimed the cars were low-emission and environmentally friendly, met emissions standards, and would maintain a high resale value. VW will be offering a buyback program to consumers, and under the FTC order, consumers will receive additional compensation from Volkswagen for the harm caused by VW’s deceptive advertising. View the decision.

FDA Declares Label “Evaporated Cane Juice” False and Misleading in New Guidance

In its long-awaited final guidance issued May 25, the Food and Drug Administration (FDA) advised against the use of the term “evaporated cane juice” on food labeling, recommending that the ingredient be listed as “sugar” instead. While the ingredient would commonly be understood to be sugar, the term “evaporated cane juice” is misleading as it is not “juice” within the meaning of the FDA’s regulations. Thus, “FDA would consider a juice product sweetened with an ingredient derived from sugar cane and labeled as 100% fruit juice to be misbranded” under the Federal Food, Drug, and Cosmetic Act, “because the ‘100% fruit juice’ claim is false and misleading in that the product contains a non-juice sweetener in addition to the juice.” The agency would not, however, object to “the addition of one or more truthful, non-misleading descriptors before the common or usual name ‘sugar,’” including the use of a “coined term” to distinguish the ingredient from “other sugars on the market.” View the guidance.

Consumer Privacy and Data Security

Third Circuit Dismisses Bulk of Federal and State Claims Against Viacom for Collecting and Sharing Information About Children’s Internet Activities

In re: Nickelodeon Consumer Privacy Litig., --- F.3d ---, No. 15-1441, 2016 WL 3513782 (3d Cir. June 27, 2016)

“Most of us understand that what we do on the Internet is not completely private.… We browse the Internet, and the data-collecting infrastructure of the digital world hums along quietly in the background.” So began a decision by the Third Circuit holding that Viacom and Google did not violate federal or state law by tracking children’s internet activities. Plaintiffs alleged that Viacom and Google unlawfully used cookies to track children’s web browsing and video-watching habits on Viacom’s websites for the purpose of selling targeted advertising based on the users’ web history. The court dismissed claims that Viacom’s actions constituted a violation of the federal Wiretap Act as well as claims under the Federal Stored Communications Act. The court found that the information Viacom shared with Google did not violate the New Jersey privacy laws, because the information shared could not be considered personally identifiable information under the statutes. Looking at whether plaintiffs had standing under Spokeo, the court determined that they did because “each plaintiff complains about the disclosure of information relating to his or her online behavior.” The court, however, dismissed the majority of the claims and reversed and remanded on a discrete claim for intrusion upon seclusion. View the decision. (Read our discussion of Spokeo in Consumer Fraud Class Action Developments.

Applying Spokeo, Missouri Federal District Court Judge Dismisses Complaint Against Scottrade Alleging Injuries Suffered From a Hack of the Company’s Confidential Customer Information  

Duqum, et al. v. Scottrade, Inc., No. 4:15-cv-1537-SPM (E.D. Mo. July 12, 2016)

A Missouri federal magistrate judge dismissed, for lack of standing, a class action suit against Scottrade for claims stemming from data hacks. In February 2016, several Scottrade customers filed a class action against the company after it was revealed that personal information of over 4.6 million clients was stolen from the company’s servers between September 2013 and February 2014. While plaintiffs alleged that they had suffered injuries as a result of the data breaches, including increased risk of identity theft and identity fraud, costs of monitoring and mitigating against the data theft, and failure to receive the full value of the bargained-for services, the court held that plaintiffs failed to meet the injury-in-fact requirement of Article III of the Constitution. The court held that the increased risk of future harm of identity theft from an information breach alone did not constitute an injury in fact, distinguishing cases in which customers’ personal confidential information was stolen and later used for fraudulent purchases. Here, the information had not been used for two years following the hack. The court also rejected the argument that plaintiffs’ personal information had suffered a deprivation of value as “insufficient to demonstrate an injury in fact.” View the decision. (Read our discussion ofSpokeo in Consumer Fraud Class Action Developments.)

Applying Spokeo, Wisconsin Federal District Court Judge Dismisses Time Warner Cable Personal Information Collection Case  

Gubala v. Time Warner Cable, No. 15-1078 (E.D. Wis. June 17, 2016)   

A Wisconsin federal judge dismissed claims against Time Warner Cable by one of its former customers on the grounds that the customer lacked Article III standing. Plaintiff had alleged that Time Warner Cable collected personal information— including names, addresses and Social Security numbers — from customers and maintained the information even after those customers canceled their subscription plans. Applying Spokeo, the district court held that the complaint failed to allege any concrete injury as a result of Time Warner’s retention of customers’ personal information, as plaintiff had not alleged any misuse of his personal information. Plaintiff’s complaint was dismissed for lack of standing, as well as on separate grounds for failure to state a claim. View the decision. (Read our discussion of Spokeo in Consumer Fraud Class Action Developments.)

View additional Consumer Privacy and Data Security case summaries