Last month, the Direct Selling Association (DSA) launched the Direct Selling Self-Regulatory Council (DS-SRC), a new enforcement agency charged with policing the direct selling industry. The DS-SRC will be administered by the Advertising Self-Regulatory Council, which operates under the Council of Better Business Bureaus.

Direct selling companies use independent sellers to market and sell products and services, typically outside of a fixed retail establishment. One form of direct selling that has received significant scrutiny from the Federal Trade Commission (FTC) is multilevel marketing (MLM), which distributes products or services through a network of independent salespeople who earn income from their own retail sales and from retail sales made by their direct and indirect recruits. Continue Reading Proactive Self-Regulatory Council for the Direct Selling Industry Launches in January

It’s been a busy year in consumer protection law and during this holiday season, we’re taking stock of the past year and looking ahead to what’s next.  In 2018, we saw many class actions related to pricing practices, scrutiny of Made in USA claims, continued growth in popularity and the evolution of influencers (CGI influencers!), changes to automatic renewal laws, and a new slate of FTC Commissioners.

In 2019, we expect significant activity in these areas, plus more activity related to consumer reviews and the Consumer Review Fairness Act.  Further, representatives from the FTC are signaling that the FTC may start seeking more monetary remedies for consumer protection violations moving forward (versus only injunctive relief and ongoing monitoring).  Finally, the growth of the blockchain and digital currencies has raised a number of complex legal issues that companies using the blockchain must navigate, and 2019 will likely bring additional guidance (and challenges) in this area.

For more thoughts on what comes next, see our Hot Ad Law Topics for the New Year.

On September 26, 2018, Christine S. Wilson was sworn in as a Commissioner at the Federal Trade Commission into the seat previously held by Maureen Ohlhausen.  Commissioner Wilson most recently held a senior legal role at Delta Airlines, previously was an antitrust partner at two large law firms, and during the George W. Bush Administration served as Chief of Staff to FTC Chairman Timothy Muris.

With the addition of Commissioner Wilson, the FTC now has a full slate of five commissioners at the helm, all of whom joined the agency within the last six months.  It is still early days at the FTC under the leadership of Chairman Joe Simons but there are already signs that change is afoot.  For example, the FTC has begun a broad review of whether it is using the full range of its remedial powers as effectively as possible, including whether there are new or infrequently applied remedies, such as monetary relief or notice to affected consumers in deceptive advertising cases.  Continue Reading Christine S. Wilson Sworn in at FTC, Completing New Slate of FTC Commissioners

As consumers shift towards “organic,” “natural,” and “clean” foods for themselves and their families, they are also making similar purchasing decisions when it comes to pet food. However, as sales of “premium” pet food have increased in recent years, so has the number of consumer class action lawsuits filed against pet food manufacturers, specifically those involving claims that marketing and labeling pet foods as “natural” is false and misleading when they contain artificial ingredients, synthetic ingredients, chemicals, heavy metals, and/or toxins. Continue Reading Rise of “Natural” Pet Food Claims

Key Takeaway:

Companies making Made in USA claims should adhere to Federal Trade Commission guidance and state law, as such claims are likely to draw attention from regulators and class action plaintiffs.  Additional detail on regulatory compliance can be found in our prior post.

Deceptive Made in USA advertising continues to draw attention from the FTC. The FTC recently settled with hockey puck producer Patriot Puck and recreational equipment sister companies Sandpiper and PiperGearUSA regarding their allegedly false Made in USA claims. This brings the total number of FTC enforcement actions arising from misleading U.S.-origin claims to 25 since 1999, with six of those actions having been initiated since April 2017.[1] Continue Reading Made in USA: The FTC Moves Against Two More Retailers

Consumers notice and are more likely to buy products that are marketed as Made in USA, but companies face significant legal risk, negative publicity, and decades of government oversight if they overstate the extent to which their products are made in the United States.

  • Companies marketing their products without qualification as Made in USA must at least meet the “all or virtually all” standard, meaning that all significant parts and processing that go into the product are of U.S. origin.
  • Federal, state, self-regulatory, and private actors are increasingly bringing enforcement actions and other litigation for false or misleading use of Made in USA labels.

This update from September outlines the FTC’s enforcement policy on U.S.-origin claims and analyzes recent actions challenging such false or misleading claims. Read the full Update here.

Takeaways:

  1. Support any comparative claims and clearly disclose the basis of the comparison.
  2. Be specific about claims regarding products or components made in the United States.

Last month, the National Advertising Division (NAD), a self-regulatory body, recommended that Telebrands, Corp., discontinue certain advertising claims for the company’s Atomic Beam flashlight, including claims comparing its brightness and durability, associating it with the U.S. military, and identifying its components as made in the United States.

NAD recommended, among other things, that Telebrands discontinue its claims that the Atomic Beam is “40 times brighter” and more durable than ordinary flashlights and provides features (such as strobe or zoom) that ordinary flashlights do not provide because the company did not submit evidence showing a superior brightness over such “ordinary” or “regular” flashlights or that the “tactical” features of its flashlights were not available on other flashlights.

In response to the challenge from Energizer Brands LLC alleging that the advertising also created the false impression that the Atomic Beam was endorsed by or associated with the U.S. military, Telebrands changed the name of the product to “Atomic Beam” from “Atomic Beam USA” and removed a statement in a commercial that the Atomic Beam uses “U.S. Special Forces Tactical Technology” while displayed with an action shot of military commandos.

NAD also recommended that the company discontinue its claim that the “critical components” in the flashlights are “made right here in the USA” but confirmed that the company could make truthful and qualified claims that specific parts are made in the United States.

See NAD’s press release for more information about these and other claims about the Atomic Beam flashlight.

A California appeals court has allowed a putative-class-action complaint to proceed against an online retailer based on a consumer’s allegation that the retailer falsely advertised price discounts and that the consumer would not have purchased the items if he knew he was not receiving a discount.

In Hansen v. Newegg.com Americas Inc., Case No. B271477, the Fifth Appellate District of the California Court of Appeals reversed the lower court. The lower court had dismissed for lack of standing, reasoning that plaintiff received exactly what he paid for. The Court of Appeals held, however, that the plaintiff had established standing because he claimed the “list prices” (which were crossed out and next to a lower, actual price) were inflated and that he would not have purchased his items if he had known the list prices were misrepresented. This was enough to establish injury to “money or property,” as required by California law. The opinion discussed both California Supreme Court and Ninth Circuit precedent interpreting California’s Unfair Competition Law and False Advertising Law.

Takeaway: Companies will want to carefully monitor compliance with pricing laws as pricing and discount class actions will continue to be filed in California.

 

Takeaways:

  1. Health-related advertising claims must be supported by competent and reliable scientific evidence, generally consisting of human clinical trials that are methodologically sound and statistically significant to the 95% confidence level.
  2. Advertising claims must be clearly expressed as ingredient claims if the substantiation addresses only the efficacy of the ingredients in the product, not the product itself.

Continue Reading National Advertising Division Recommends that VH Nutrition Discontinue Claims for TriDrive Supplement Marketed to Athletes

The NAD recently recommended that Perdue Farms, Inc. modify or discontinue certain TV and YouTube ads about Perdue’s “Harvestland Organic” chicken. Tyson Foods, Inc. challenged the Perdue ads before the NAD, arguing that they broadly communicated that all of Perdue’s chickens are “happy” and raised “organically” (free-range, non-GMO, 100% vegetarian-fed, and raised without antibiotics). Perdue responded that ads only communicated claims about Perdue’s “Harvestland Organic” sub-brand. The NAD, however, viewed the overall “net impression” conveyed by the ads and found that they communicated broad claims about all of Perdue’s chickens, in part because the ads contained many visual and audio references to the primary Perdue brand, but only fleeting visual references to the Harvestland Organic logo. Perdue announced that it will appeal the NAD’s decision. Continue Reading National Advertising Division Recommends that Perdue Farms Discontinue Ads About Happy, Organic Chickens