The U.S. Food and Drug Administration (“FDA”) requests that consumers report any issues they experience with FDA-regulated products so that the FDA can further protect the public health. But it isn’t always clear which products the FDA regulates and which products it doesn’t. Generally, the FDA regulates the following product categories: certain foods, drugs, biologics, medical devices, electronic products that give off radiation, cosmetics, veterinary products, and tobacco products. Within each category is a number of products subject to the FDA’s regulatory authority. A more detailed, though non-exhaustive, list of the products the FDA regulates can be found on the FDA’s website. According to the FDA, these products account for about one-fifth of annual spending by U.S. consumers.

FDA
Copyright: bakhtiarzein / 123RF Stock Photo

The FDA is committed to ensuring that the products it regulates are safe, effective, and correctly labeled. But the FDA does not pre-approve for safety and effectiveness all of the products it regulates before such products can be marketed and sold. For example, the FDA does pre-approve new drugs, biologics, and certain medical devices, but does not pre-approve cosmetics (with the exception of certain color additives) or dietary supplements (though a notification is required for those containing a new dietary ingredient). However, the FDA requires that cosmetics, dietary supplements, and other products be safe for their intended use and be properly labeled/advertised. Accordingly, for such products that the FDA does not pre-approve, the FDA still has regulatory authority to take action when a safety issue arises. With respect to tobacco products, the FDA does not regulate safety in the same way as with other products, as the FDA views tobacco use as a major threat to public health. Notably, last year, the FDA finalized a new rule extending its regulatory authority to all tobacco products, including e-cigarettes, and restricting youth access to such products.

As always, companies should ensure that they products they market and sell are safe for their intended use, are properly labeled, and are fairly advertised. One form of advertising that has caught the FDA’s attention is the phrase “FDA Approved.” The FDA’s recently-updated explanation on what it does and doesn’t approve (and under what circumstances) can be found on the FDA’s website. The FDA’s website also contains detailed information for companies that market and sell FDA-regulated products, including the ability to search for guidance documents that describe the FDA’s interpretation on various regulatory issues and the ability to submit questions regarding the FDA’s policies, regulations, and regulatory process.

Last week the FTC issued three letters closing three separate investigations of advertising practices by three different businesses. The letters are notable for the two common themes present in each. First, each investigation centered on allegedly unsupported “Made in the USA” claims, demonstrating the FTC’s continued vigilance on this issue–a point that has been the topic of past posts. Second, each investigation was closed without further action due to, at least in part, the advertisers’ willingness to cooperate and take remedial action to change is advertising practices.

Made in the USA Banner
Copyright: lifeking / 123RF Stock Photo

These investigations demonstrate that the FTC will continue to enforce its rules regarding “Made in the USA” claims. According to the FTC, a blanket, unqualified claim that a product is “Made in USA” is likely to suggest to consumers that the product was “all or virtually all” made in the United States. So the FTC will hold an advertiser to that standard. In fact, the FTC stated in its Enforcement Policy Statement on the matter (as we blogged about here) that if “a product is not all or virtually all made in the United States, any claim of U.S. origin should be adequately qualified to avoid consumer deception about the presence or amount of foreign content.” And as the recently closed enforcement investigations show, if some of your products are made in the USA, but some are not, the advertising should be clear as to which ones are made here and which ones are imported.

These now-closed investigations also demonstrate an important practical point in dealing with the FTC. In each of these investigations, the advertiser cooperated and agreed to take remedial action, including altering the advertising at issue, training employees regarding the proper and substantiated advertising claims, and taking steps to clear the marketplace of the prior claims. This demonstrates that cooperating with the FTC’s investigation and coming to an agreement on revised advertising could be the most effective route in dealing with an FTC investigation in some circumstances.

 

A New York case decided this week by the U.S. Supreme Court involving a state prohibition on credit card surcharge fees would not, at first blush, seem to involve “speech,” let alone “speech” that needs to be protected by the First Amendment.  Indeed, a credit card surcharge fee – such as, for example, a nondescript warning stating “3% added for credit cards” – hardly seems to be in the same league as The Pentagon Papers, or Fanny Hill, or even the fundraising advertisement “Heed Their Rising Voices” by the Committee to Defend Martin Luther King, all of which were subjects of profound First Amendment cases.

ice cream sundae
Copyright: tul / 123RF Stock Photo

Nevertheless, the Supreme Court’s decision announced on Wednesday (Mar. 29, 2017) in Expressions Hair Design v. Schneiderman, 551 U.S. —, 2017 WL 1155913, involving something as innocuous as a thirty cents surcharge for using a credit card to pay for a ten dollar sundae at Brooklyn Farmacy & Soda Fountain marks a significant evolution in free speech law, one that has the prospect of affecting many areas of economic regulation.  The Court’s holding means that trade regulations that previously were perceived as solely government restrictions on economic activity having nothing to do with free speech rights are now potentially subject to First Amendment challenges if the government’s restrictions impose unwarranted burdens on a merchant’s ability to communicate information concerning the merchant’s products or services.  As a result, this “sleeper” decision from the Roberts Court marks yet another step in the continuing expansion of the Court’s use of the First Amendment to limit the ability of government to regulate economic activity.

The case itself is arcane in its details.  The matter involves a New York statute that was a duplicate of a federal measure that Congress enacted in 1981 but which Congress let expire in 1984.  The New York statute has the same effect as a contractual prohibition that previously had been incorporated into credit card companies’ contracts with merchants, but which the credit card companies dropped under pressure from antitrust lawsuits brought by merchants upset with the credit card companies’ efforts to prevent merchants from steering customers toward using cash instead of credit cards.

The New York statute establishes that “[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

On its face, this statutory language has nothing to do with speech.  The statute simply prohibits a merchant from imposing a “surcharge” on a customer who elects to use a credit card instead of cash.

However, both the five-justice majority for the Court led by Chief Justice Roberts as well as a concurring opinion by Justice Breyer held that this statutory provision regulates more than mere conduct – what price a merchant may impose – but it also regulates speech.  The Court held that the operation of the New York statute regulates “how sellers may communicate their prices”:

“A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say ‘$10, with a 3% credit card surcharge‘ or ‘$10, plus $0.30 for credit‘ because both of those displays identify a single sticker price–$10–that is less than the amount credit card users will be charged. Instead, if the merchant wishes to post a single sticker price, he must display $10.30 as his sticker price.”

The Court then concluded that “[i]n regulating the communication of prices rather than prices themselves, §518 regulates speech.”

This short assertion – that the statute regulates speech, rather than conduct – opens up the entire panoply of the First Amendment’s commercial speech doctrine.  As a result, and as the Supreme Court directed, the State of New York must now attempt to defend the statute, either on the grounds that it is a valid, non-discriminatory “disclosure” requirement, or on the grounds that it is “narrowly tailored” to serve a “substantial government interest.”  The trial court which heard the case initially concluded that the New York statute could not survive these First Amendment tests.  On remand from the Supreme Court, it will now be up to the Second Circuit to determine whether the trial court judge was correct.

In any event, the ruling now given by the Supreme Court to the first question – does the statute regulate speech – has the potential to open up constitutional challenges against various and sundry economic regulations that could be said to regulate the “communication” of a price as opposed to the “price” itself.  Hence, statutes or regulations that prohibit “Ladies Night” discounts at bars or clubs might now be said to regulate the “communication” of such discounted prices, rather than prohibiting the prices themselves, and as a result, the prohibitions against such prices might now be challenged on First Amendment grounds.  Similarly, local ordinances requiring the imposition of a 5 cents surcharge on customers who want their groceries in a plastic bag might well be challenged on First Amendment grounds, on the strength that such ordinances regulate how merchants “communicate” their prices, as opposed to the conduct of the price itself.  Additionally, regulations that prohibit merchants from imposing differential pricing based where a customer comes from – such as prohibitions against “residents” discounts – also now may be challenged on First Amendment grounds.

As Justice Breyer remarked in his concurrence in the Expressions Hair Design case, “virtually all government regulation affects speech.”  (Justice Breyer’s point was actually that it is less important whether a government provision regulates speech than it is to consider how much speech, and what kind, is affected by the regulation.)

In light of that observation – that government regulations fundamentally affect speech of all kinds – this latest case from the Supreme Court opens up a new tool for businesses to consider when challenging a regulation that affects their abilities to communicate with their customers.  This new decision means that businesses might now require the government to prove that an economic regulation that previously was subject only to highly deferential “rational basis” review is instead justifiable under more rigorous “substantial interest” scrutiny.

In this regard, the Court’s decision in Expressions Hair Design will come to be seen as a watershed moment for those wishing to challenge government regulation of economic activity.

Made in the USA Banner
Copyright: lifeking / 123RF Stock Photo

In the last two months, the Federal Trade Commission (“FTC”) has reached two settlements related to complaints it initiated against companies regarding “Made in the USA” advertising claims.

First, in February, the FTC announced that it had reached a settlement with a Georgia-based water filtration systems company named iSpring Water Systems, LLC.  According to the FTC, iSpring advertised its water filtration systems on its website and through third parties as “Built in USA” (and other similar claims).  The FTC found such advertising false or misleading because the water filtration systems were either entirely imported or contained significant parts that had been imported, thus violating the FTC’s long-standing requirement that “all or virtually all” of the product be made in the USA in order to be advertised as such.  The settlement allows iSpring to make certain qualified claims, with a clear and conspicuous disclosure, but prohibits iSpring from advertising contrary to the FTC’s “all or virtually all” requirement.  More information regarding the settlement is available on the FTC’s blog.

Second, earlier this month, the FTC announced that it had reached a settlement with a Texas-based pulley company named Block Division, Inc.  According to the FTC, Block Division advertised its pulleys in various media using “Made in USA” text and graphics.  The FTC found such advertising misleading given that the pulleys had significant and essential parts that had been imported.  Further, some of the pulleys contained steel plates stamped as “Made in USA” before they were imported.  The settlement allows Block Division to make certain qualified claims, again with a clear and conspicuous disclosure, but prohibits Block Division from advertising contrary to the FTC’s “all or virtually all” requirement.  More information regarding the settlement is available on the FTC’s blog.

Both of these FTC actions and resulting settlements demonstrate that the FTC takes “Made in the USA” claims seriously and will enforce its requirements regarding such advertising.  A prior blog post outlines those requirements in more detail.

This week, the Federal Circuit issued a new decision that once again reflects the tricky conundrum facing businesses whose trademarks are a collection of descriptive words.

In such circumstances, the Patent & Trademark Office – as well as the courts that review PTO decisions – frequently require such a business to “disclaim” any rights in the words that comprise the business’ mark.  This disclaimer requirement is imposed on the grounds that the words in the mark are merely descriptive on their own and that as a result, the business should not be permitted to own trademark rights which would otherwise prevent other businesses from using those words for their own separate businesses.

In some cases, as was the situation for DDMB, Inc., the Chicago business involved in the current case, the Trademark Office will require the business to disclaim every word in the business’ name, such that the business is not entitled to any rights in any of the individual words apart from their inclusion in the full mark.

This legal doctrine came to bear most recently against a company that operates a pair of Chicago restaurants, in the case In re DDMB, Inc., — Fed. Appx. —, 2017 WL 915102 (Fed. Cir. Mar. 8, 2017).  In its decision, the Federal Circuit affirmed a prior ruling in January 2016 by the Trademark Trial and Appeal Board, denying federal registration for a service mark using the phrase “EMPORIUM ARCADE BAR.”  The examining attorney at the Trademark Office had required the applicant to disclaim the word “emporium,” after the business already had disclaimed the words “arcade” and “bar,” in its application to register the following mark:

Emporium Arcade Bar - Trademark Registration Application
Source: In re: DDMB, Inc. Opinion, Issued March 6, 2017

When the Chicago business refused to agree to the additional disclaimer of the word “emporium,” the Trademark Office refused to approve the registration, which was being sought in connection with bars, bar services, and providing video and amusement arcade services. The Office’s insistence on a disclaimer of the word “emporium” was approved by the TTAB in a subsequent decision in January 2016. And, that decision has now been affirmed in this week’s ruling by the circuit court.

In holding that a disclaimer of the word “emporium” is required because it is merely descriptive of the applicant’s bar and arcade services, the TTAB had ruled that this word describes attributes of a large establishment with a wide variety of merchandise and activity going on within it, and that as a result, the word functions as a description of the applicant’s services rather than as an indicator of the origin or source of the services. The TTAB’s ruling was premised on dictionary definitions and at least seven other trademark registrations where the word “emporium” had been seen to be descriptive and where a disclaimer was required as a result. Specifically, for example, the TTAB cited registrations where disclaimers were imposed for the marks “THE FLYING SAUCER DRAUGHT EMPORIUM,” “McDADE’S EMPORIUM,” and “STAMPEDE MESQUITE GRILL & DANCE EMPORIUM,” each of which involved businesses with similar bar services.

(The circuit court affirmed the TTAB’s ruling, in a non-precedential, per curiam decision in light of the extremely generous standard of review on appeal for such factual determinations by the TTAB because the circuit court is required to affirm such determinations if there is “substantial evidence” to support them.)

The In re DDMB case stands as a cautionary tale for businesses with names that are otherwise descriptive words, or collections of descriptive words. The trouble for the applicant here is that there is a long history of the Trademark Office requiring applicants to disclaim the word “emporium.” This trouble was accentuated by the fact that the applicant sought to register a composite mark that had other descriptive words in the mark that the applicant already had disclaimed. The specimen that the applicant submitted with its application highlighted this trouble:

Emporium Arcade Bar - USPTO File Wrapper Record Image
Source: USPTO file-wrapper record, U.S. TM Serial No. 86312296, June 17, 2014.

In such circumstances, instead of seeking registration for a mark in which the word “emporium” was displayed with equal visual significance as “arcade” and “bar,” the applicant might have considered applying for registration of a different version of the mark, with only the one word “emporium,” such as what is now visible at the applicant’s storefront at its Logan Square restaurant in Chicago, as shown on its website:

Emporium Arcade Bar - Front
Source: Emporium Arcade Bar Website, March 10, 2017

Ultimately, however, even if the application had focused on only one word, as opposed to three, it is still likely that the Trademark Office would have required a disclaimer of the word “emporium” because of the long history of treating this word as merely descriptive.

As a result, and as a lesson for businesses with highly descriptive words in their names, it may be wise to accept a demand from a trademark examiner to disclaim the descriptive word in a business’ mark – if only as a means of moving forward with the federal trademark registration –and then to invest in building consumer recognition of the business’ mark. Some of the most famous marks today, which have been around for generations, continue to have disclaimers on portions of the mark. Hence, The Coca Cola Co.’s registration of DIET COKE® continues to carry a disclaimer for the word “diet,” and KFC Corp.’s registration of KENTUCKY FRIED CHICKEN® continues to carry disclaimers for the words “fried” and “chicken.”

The moral of this story may be that disclaimers are a necessary evil when a business’ mark is a word that the Trademark Office already has concluded is merely descriptive.

In the United States, unlike overseas, you get a lot of legal protection right away simply by coming up with a brand name and USING it to sell goods and services. USE is the crucial issue here.

This means that we trademark attorneys spend a lot of time thinking about how to prove that our clients’ trademarks have been used. It’s not as easy as it sounds!

For example, last month the USPTO’s reviewing board rejected a real estate company’s attempt to prove it was using its name. The company submitted digital photos of the front door of its facility where it provided and managed its real estate services:

door
Source: In re Republic National LLC (TTAB Opinion), February 23, 2017

Not good enough. As experienced trademark attorneys know, the USPTO is persnickety about what proof it will accept to show a trademark is actually in use. In this case, it wanted to see a description of the services being offered, not just a name on a door.

In December 2016, the Consumer Review Fairness Act became law. On February 21, 2017, the FTC published guidance for businesses in following the new law. The law protects the consumer’s right to express and share his or her honest review of a company or its products, even if the review is negative. To accomplish this, the law targets contractual provisions used by companies to stifle negative reviews. The law specifically prohibits any such provisions, whether in online terms and conditions or in some other contract.

18572446 - stylized illustration of somone with a hood gesturing symbol of silence with finger on lips

The law makes it illegal for a company to use a contract provision in a “form contract” that:

  1. Prohibits or restricts the ability of an individual who is a party to the contract to review the company’s products, services, or conduct;
  2. Imposes a penalty or a fee against an individual giving a review; or
  3. Requires individuals to give up their intellectual property rights in the content of their review.

The law provides that any such provisions in a form contract are void, barring some specific exceptions. The law also exposes companies using prohibited contractual provisions to FTC enforcement actions, including potential financial penalties.

To ensure compliance and avoid enforcement actions, the FTC recommends that businesses: (1) “review their form contracts and online terms and conditions; and (2) remove any provision that restricts people from sharing their honest reviews, penalizes those who do, or claims copyright over people’s reviews (even if you’ve never third to enforce it or have no intention of enforcing it.)”

As stated by the FTC: “The wisest policy: Let people speak honestly about your products and their experience with your company.”

Yesterday, on February 13, 2017, the Eighth Circuit issued a resounding affirmation of First Amendment principles in a case raising the question of just how far a public university can go in preventing the use of its marks by student organizations whose views the university may oppose or object to. We previously discussed the dispute in early December, before the court heard arguments in the case.

ISU NORML t-shirtIn the opinion, the unanimous appellate panel held that the First Amendment trumps normal trademark licensing principles for public universities, ruling that Iowa State University violated the First Amendment rights of students at the ISU chapter of NORML, the National Organization for the Reform of Marijuana Laws, when ISU barred the chapter from using ISU’s marks in conjunction with images or messages that advocated in favor of marijuana.

In this case, Gerlich v. Leath (8th Cir., No. 16-1518), the court ruled that the university’s trademark licensing program for student organizations – which otherwise allows student groups at the university to use certain of the university’s marks on a royalty-free basis, subject to standard trademark licensing arrangements – constituted a “limited-purpose public forum” in which student organizations could take advantage of the university’s marks to advance their own causes.

The court then ruled, applying standard and well-settled First Amendment principles, that because the trademark licensing program is a public forum, the First Amendment prohibits the university from discriminating against or between speakers in that forum on the basis of the speakers’ viewpoints.

That conclusion necessarily means, the court held, that ISU violated the First Amendment when it prevented the NORML chapter at ISU from taking advantage of the university’s trademark licensing program in the wake of public controversy surrounding the chapter’s advocacy in favor of reforming marijuana laws:  “The defendants’ rejection of NORML ISU’s designs discriminated against that group on the basis of the group’s viewpoint. The state engages in viewpoint discrimination when the rationale for its regulation of speech is ‘the specific motivating ideology or the opinion or perspective of the speaker.’ . . . The defendants’ discriminatory motive is evidenced by the unique scrutiny defendants imposed on NORML ISU.”

Although ultimately unsurprising in terms of its application of First Amendment law, the Eight Circuit’s decision is likely to have a significant impact on public universities and colleges in how they handle trademark licensing requests.  The holding in this case means that when a university establishes a typical trademark licensing program, especially one for student organizations, the university may not distinguish between licensees (and potential licensees) on the basis of those licensees’ public statements or viewpoints.  The bottom line is that public unviersities and colleges may not do what any other trademark owner could otherwise do in controlling who gets to use the trademark owner’s marks, at least when the public institution has established a trademark licensing program that is otherwise available to certain classes of licensees, such as student groups.

The case stands as an important reminder that trademark licensing principles are different for governmental organizations because of the overarching constraints of the First Amendment.

In April 2016, the FTC filed a Complaint against Dr. Joseph Mercola and his companies alleging that their indoor tanning system advertisements violated section 5(a) of the FTC Act, which prohibits unfair or deceptive practices in commerce, and section 12(a) of the FTC Act, which prohibits the dissemination of false advertisements in commerce for the purpose of inducing the purchase of foods, drugs, devices, services, or cosmetics.  According to the FTC, indoor tanning systems qualify as “devices” under the FTC Act.

tanning bed
Copyright: kzenon / 123RF Stock Photo

In its Complaint, the FTC alleged that the defendants disseminated a number of false, misleading, deceptive, and unsubstantiated advertisements on the Mercola.com website, in search engine advertising, in a YouTube video of Dr. Mercola himself, and via newsletters.  Such advertisements include:

  • Tanning with Mercola brand indoor tanning systems is safe;
  • Tanning with Mercola brand indoor tanning systems will not increase the risk of skin cancer as long as consumers top using the system when their skin is only the slightest shade of pink and not burned;
  • Tanning with Mercola brand indoor tanning systems does not increase the risk of skin cancer, including melanoma skin cancer;
  • Tanning with Mercola brand indoor tanning systems reduces the risk of skin cancer;
  • The FDA has endorsed the use of indoor tanning systems as safe;
  • Research proves that indoor tanning systems do not increase the risk of melanoma skin cancer;
  • Certain Mercola brand tanning systems will pull collagen back to the surface of the skin, increase elastin and other enzymes that support the skin, fill in lines and wrinkles, and reverse the appearance of aging;
  • Tanning with Mercola brand tanning systems provides various benefits to consumers, including increasing Vitamin D and providing Vitamin D-related health benefits; and
  • The Vitamin D Council recommends Mercola brand tanning systems (without disclosing that the defendants arranged for the Vitamin D Council to be compensated for its endorsement).

Today, the FTC announced that, as a result of a settlement agreement reached with Dr. Mercola and its companies, the FTC is mailing $2.59 million in refunds to more than 1,300 purchasers of Mercola indoor tanning systems. According to the FTC, the average refund check is $1,897.  Additionally, under the settlement agreement, the defendants are banned from selling indoor tanning systems in the future.

More information regarding the FTC’s views on indoor tanning advertising can be found on the FTC’s website and blog.  According to the FTC, no government agency recommends indoor tanning and the FDA requires indoor tanning equipment to contain signs warning users of the risk of cancer.  In addition, the FTC actively investigates false, misleading, and deceptive advertisements related to indoor tanning.

Several large retailers likely thought that they were finally clear of legal problems relating to advertising sale prices for products that were not truly on sale.  With a post on September 28, 2016, https://advertisinglaw.foxrothschild.com/?s=class+action, Dennis Hansen discussed these class action lawsuits, several which have settled for millions of dollars.  For example, JC Penny paid $50 million to settle a class action suit against it alleging that its advertised and listed sale prices were not actually sale prices, but were more akin to regular prices.  However, the bad news for these retailers continues as local government enforcement actions have now been brought.

The Los Angeles city attorney brought claims against Kohl’s, JC Penny, Macy’s and Sears based upon the same alleged conduct.  These lawsuits could subject these retailers to additional substantial penalties, on top of the money already spent on the consumer class actions.  Additionally, the Alameda County Attorney’s office recently brought claims against My Pillow for making health claims in its advertising that are allegedly not supported by any scientific research or studies.  My Pillow settled with Alameda County, agreeing to pay over $1 million in fines.

These actions brought by local governments are unique in that false advertising claims are usually left to the Federal Trade Commission (FTC”), consumer class actions, or lawsuits brought by competitors.   The FTC, however, does not have the resources to bring claims against all improper advertising, even focusing on just advertising relating to health claims.  However, these local government enforcement actions can somewhat fill that gap and give more effect to state statutes regulating advertising, such as California’s statute regarding what is a sale price.  As a result, it is important to make sure that you are aware of the advertising statutes in each state in which you are advertising, particularly if you are frequently listing a product as being on sale.  For example, in California, a sale price cannot be compared to a previous price (such as 50% off) unless that previous price was the actual market price of the product within the previous three months.  And, as always, all advertising claims, especially health claims, should be substantiated so that if a competitor, the government, or a consumer class action lawyer brings a claim, you are able to quickly show that the advertising is accurate.