In This Issue:

Court Limits 2015 Text Marketing Rules, Gives New FCC an Opportunity to Provide Clarity

On March 16, 2018, the D.C. Circuit issued a long-awaited decision in a challenge to the Federal Communications Commission’s July 10, 2015 Declaratory Ruling and Order regarding the Telephone Consumer Protection Act. Partners Alan Friel and Melinda McLellan provide a detailed analysis here.

Washington State Passes Net Neutrality Protection Law

States’ rights salvo latest shot in ongoing battle

Brevity in the Machine

If there is an inverse correlation between the written length of a law and its effectiveness, Washington State House Bill 2282 will have a major impact.

In an environment where legal measures are routinely pilloried for outrageous length – “Is there any one person who read this bill?” or “How many forests were cleared to print this?” – HB 2282 runs a modest five pages. But this short bill is the latest landmark in a lengthy struggle between competing industry interests and the FCC commissioners regarding the extent to which it should regulate broadband access – the so-called open internet.

Buffered Drama

Back in December 2017, we addressed the rollback of certain of President Obama’s net neutrality provisions by President Trump’s appointee to the Federal Communications Commission. The FCC removed net neutrality limitations on ISPs, allowing them significant leverage over the internet traffic that flows through their services, subject to some to-be-determined guardrails.

Enough leverage, net neutrality advocates maintain, to block or censor content and even charge more for faster speeds or for certain types of service (consumers might pay extra to stream movies, for example).

Rollback advocates countered that freeing the ISPs from onerous regulation would create greater business opportunities on the internet, stimulating innovation and economic growth.

The Takeaway

With the passing of HB 2282, Washington state became the first state in the country to institute its own net neutrality law. Others will certainly follow, as will constitutional challenges to the states’ authority.

The law allies itself unequivocally with net neutrality advocates, requiring ISPs (defined as broadband internet access service providers) to share accurate information about their networks, including management practices and commercial terms of service. And the law also forbids ISPs from blocking lawful content and from changing speed or service based on the traffic’s content or the price paid by the user for access.

There are several interesting aspects to the law, but it is especially noteworthy that the legislature defined the law as an extension of Washington’s Consumer Protection Act. A violation of the new law will be treated as “an unfair or deceptive act in trade or commerce and an unfair method of competition” under the act.

With other states advancing their own pushback to the FCC – more than 20 state legislatures are exploring similar measures, and several governors from New York to Montana have signed executive actions – several questions are raised. How will the commission respond to the new laws when it has previously asserted its authority over the entirety of internet traffic? Do the state laws create a constitutionally impermissible burden on interstate commerce? And, if the laws survive, how will ISPs shape their pricing and advertising rules to respect the differences between neutral and non-neutral states?

Dr. Brew Kombucha Steeped in Probiotic Class Action?

Company accused of falsely labeling microorganism levels in health teas

Colonized

Probiotics are defined by the World Health Organization as “live microorganisms which when administered in adequate amounts confer a health benefit on the host.” When consumed, probiotics form “colonies” that take up residence alongside the other assorted flora and fauna present in the human body’s ecosystem. Although regulators around the globe have not reached a consensus on the issue, many people believe that consuming probiotics confers digestive and other health benefits.

Not surprisingly, probiotic products and supplements have become big business, with an estimated market value of $45 billion in 2017 – and projections of nearly $20 billion in growth by 2022.

Bubbling Bacteria

One slice of that market, estimated at almost $2 billion, is owned by kombucha tea, one of the most popular probiotic delivery systems. Kombucha is essentially a green or black tea fermented with bacteria and yeast cultures; as hot water is added to the tea, the supposedly beneficial bacteria come to life, activating the health benefits of the brew.

As we mentioned before, not everyone is on board with the supposed health benefits of probiotics or, by extension, kombucha tea. And that’s why a recent class action filed against kombucha tea-maker Brew Dr. Kombucha in the Cook County, Illinois circuit court is interesting: It doesn’t accuse the manufacturer of advancing unsupported health claims. Instead, the plaintiff assumes the health benefits are real – but sues the company for misrepresenting the levels of probiotics in its product.

The Takeaway

In 2014, the International Scientific Association for Probiotics and Prebiotics, an industry oversight group, published a consensus document claiming that probiotics confer health benefits at doses of over 1 billion colony-forming units (a measure that defines the number of probiotic microorganisms required to create a functioning colony). This definition might have been in the minds of the marketers over at Brew Dr. Kombucha when they designed the label for their “clear mind” tea product, which, according to the class action, boasts “billions of probiotic bacteria, beneficial yeasts and organic acids.”

The complaint attacks this claim on the basis of an independent laboratory test that purported to show that the product had only 50,000 CFUs per bottle, “twenty thousand times less than the ‘billions’ advertised by Defendant.”

Accuracy of ingredient labeling is as important as any other advertising claim and, if materially inaccurate, can support a claim of deceptive advertising.

Is Ulta Beauty Giving Its Makeup a Makeover?

A new class action claims the beauty retailer repackages and resells returned products

Super Fan?

Paula Ogurkiewicz is an Ulta Beauty power-user, purchasing, by her own account, hundreds of dollars’ worth of Ulta products each year, including hair dye, mascara, lip cream, moisturizer and other products from the full-price and discount sections of Ulta stores. She is also a member of the company’s “Ultamate Rewards” loyalty program, accumulating points toward future purchases, which kept her coming back for more.

And now, she’s the lead plaintiff in a class action lawsuit against the company.

Kerfuffle

The action was inspired by a social media storm brought on by customers and former employees accusing Ulta, the largest beauty retailer in the United States, of refurbishing, repackaging and reselling products that had been returned by customers. According to the complaint, the practice originated in the Ulta corporate office and trickled all the way down to individual stores.

Employees were allegedly told by store managers to try to keep the number of returned or damaged products below certain quotas to save money that would otherwise be lost. In order to meet the quotas, employees were encouraged to touch up the used products so that they appeared new – and then repackage the used products and put them on the shelf for sale.

The Takeaway

There’s nothing wrong with many used or refurbished products. Used cars? Sure. Secondhand appliances? Fine. But there are some products that we simply cannot imagine taking a second pass at. Food, for instance. Or medicine. Underwear. You get the idea; it’s a health issue.

This is why this class action is a serious threat to Ulta – not just financially, but in terms of its reputation. A report cited by Ogurkiewicz’s complaint tested used makeup products from a number of retailers, including Ulta, and found that they had been contaminated with a variety of nasty substances, including E. coli and Klebsiella pneumoniae bacteria, the herpes simplex virus, and golden staph.

How will the company respond to Ogurkiewicz’s claims? How will it respond to the more general allegations in the news and in social media? Will the company broadly deny the accusations, or isolate “bad apple” managers who tried to cut corners?

The litigation is in its earliest days, and we’ll be watching to see how it develops.

Truth in Advertising Inc. Steps Back Into Stalled Prevagen Suit

TINA files appellate brief in a case it claims it inspired

Preva-Primer

Back in January 2017, the Federal Trade Commission (FTC) took aim at Quincy Bioscience. Quincy had aggressively marketed its supplement Prevagen, touting the results of “a landmark double-blind and placebo controlled” study that supported Quincy’s claims that Prevagen improved memory. The commission, teaming with the New York attorney general, filed a complaint against the company, challenging those claims in the Southern District of New York.

The complaint deconstructed Quincy’s study. The FTC first noted that the main study conducted by Quincy failed to show that Prevagen improved memory (an observation the court would later agree with). But Quincy, the commission claimed, was relying on the results of “more than 30 post hoc analyses” of the main study data – analyses that it claimed involved dubious math. By dividing the main study data into smaller chunks, the FTC claimed, Quincy could claim the results that it wanted to without true mathematical rigor – the smaller studies were in reality, the FTC contended, swamped in statistical noise and inherently unreliable.

Second Act

The court granted Quincy’s motion to dismiss in full, arguing that although the FTC had noted that the substudies were possibly faulty, it hadn’t presented definitive evidence that they were in actuality – not enough to establish the claims as false or unsubstantiated.

This decision was challenged by the plaintiffs in the 2nd Circuit Court of Appeals, which brought the case full circle. In March 2018, Truth in Advertising Inc. (TINA, along with the AARP, Advertising Law Academics and the National Consumers League) filed an amici brief in support of reversing the decision; TINA claims that the FTC and New York state action against Quincy was inspired by its own 2015 investigation against the Prevagen marketing.

The Takeaway

TINA’s brief argues that the original case should have stopped short when the district court acknowledged that the main study failed to show that Prevagen lived up to its claims. According to the brief, post hoc analyses “are not part of prospective, double-blind, clinical trials; they are separate retrospective analyses of trial data performed after the study has concluded to try to find patterns that were not primary objectives of the study.”

The brief then took the district court to task, claiming it had mistakenly elevated the post hoc analyses to the same level of credibility as the main study. “Though plaintiffs’ complaint includes allegations that pertain to inadequate post hoc analyses, the critical allegations are those that demonstrate that the best evidence available – the overall study results – contradict Quincy’s marketing claims.”

The 2nd Circuit’s eventual decision may establish precedent for evaluating the competing claims of double-blind studies and analyses based on smaller samples of the same data. This is a case we will be continuing to watch. Stay tuned for the 2nd Circuit’s ruling.

Ace Industrial Accused of Sawing Away at Plaintiff’s Cellphone

TCPA case leveled at toolmaker for screwing up do-not-call request

Playing Hard to Get

Steven Berning was an early adopter.

Berning claims that he signed up for the National Do Not Call Registry in 2004, back in the early days, before it was cool. And he stuck with it – he remained on the registry until 2014, when he purchased air hoses and blades from Ace Industrial Supply. In the course of that purchase, he consented to receive sales calls from the company.

Within a month of his purchase, he alleges he received eight phone calls from Ace. Figuring that was about enough, he started asking Ace representatives to stop calling and put him on the company’s do-not-call list.

The Takeaway

Unfortunately, Berning claims, the sales calls kept coming, with at least 70 more placed to his cellphone.

The resulting class action, filed in the Northern District of Illinois in March 2018, contains a litany of injuries and harm that should be as familiar as a catechism to anyone who knows about Telephone Consumer Protection Act cases: invasion of privacy, wasted time, battery depletion, electricity charges.

We’ll be waiting to see what happens when the hammer falls. The Federal Communications Commission requires that consumers be able to withdraw consent by any reasonable method, a requirement that, as we reported, the D.C. circuit court upheld.