This post is authored by Fox Rothschild associate Rashanda Bruce.

The National Advertising Division (NAD) announced revisions to its procedures governing advertising industry self-regulation during its Annual Conference on September 24-25. The revisions are in response to recommendations by the ABA Antitrust Section’s Working Group.

NAD is a branch of the Council of Better Business Bureaus (CBBB) responsible for monitoring the truthfulness and accuracy of all media advertising. NAD works to increase and maintain the public’s confidence in advertising by independently examining advertising claims that breach these standards. In addition to its independent review, NAD accepts consumer complaints about misleading advertisements and provides a forum for competitors to resolve advertising disputes.

The most recent revisions relate to NAD’s handling of competitors’ advertising claims that were previously recommended for modification or discontinuation. In the past, when NAD found that an advertising claim was unsubstantiated, it issued a decision recommending discontinuation or modification of the claim. NAD refused to reopen a case if an advertiser later proved its claims and wanted to resume advertisement. Under the new revisions, advertisers who believe they have developed new substantiation for their original advertising claims may now either resume use of the disallowed claim and request that NAD consider the new evidence, or the advertiser may seek NAD’s review of the new evidence prior to resuming the claims.

NAD made additional revisions to its procedures including: (1) identifying who should be contacted about a pending or closed case; (2) increasing the filing fee for challengers who have been National Partners of the Council of Better Business Bureaus for less than one year; (3) amending the construction of the Advertiser’s Statement to remove the option for advertisers to state that they will not comply with NAD’s recommendations; and (4) adding language to the section governing compliance decisions.

Laura Brett, the National Advertising Division Director, said NAD believes “the change balances allowing advertisers to make truthful, substantiated claims with the need for speed and finality in the self-regulatory process for competitive challenges.” Read the full text of revisions here.

The Food & Drug Administration (“FDA”) has published a Consumer Update with a reminder regarding the implementation of the new Nutrition Facts label.  According to the FDA’s Update, at least 10% of food packaging already carries the new label and therefore consumers are, and will be, seeing two different versions of the Nutrition Facts label on the shelf.  As I previously blogged about, the FDA announced in 2016 that there would be changes to the label required for packaged foods starting in 2018.  However, the FDA has extended the deadline to comply until 2020 for manufacturers with $10 million or more in annual food sales and 2021 for manufactures with less than $10 million in annual food sales.

In a nutshell, the FDA’s Update describes the new Nutrition Facts label as reflecting “updated scientific information, including our greater understanding of the links between diet and chronic disease” (e.g. obesity and heart disease) and as being “more realistic about how people eat today.”  The changes that the FDA has highlighted in its Update are provided verbatim below:

1. The new label makes it easier if you or a member of your family is counting calories by putting the calories, the number of servings, and the serving size in larger, bolder type. We thought it was important to better highlight these numbers because nearly 40 percent of American adults are obese, and obesity is associated with heart disease, stroke, certain cancers, and diabetes.

2. FDA is required to base serving sizes on what people actually eat and drink, so serving size requirements have been adjusted to reflect more recent consumption data.  This way, the nutrition information provided for each serving is more realistic. For certain packages that contain more than one serving, you will see nutrition information per serving as well as per package. That means for a pint of ice cream, calories and nutrients are listed for one serving and the whole container.

3. Added sugars are now listed to help you know how much you are consuming. The 2015-2020 Dietary Guidelines for Americans recommends you consume less than 10 percent of calories per day from added sugars. That is because it is difficult to get the nutrients you need for good health while staying within calorie limits if you consume more than 10 percent of your total daily calories from added sugar.

4. Good nutrition means that you are getting the right amount of nutrients for your body to function correctly and to fight chronic diseases like obesity, heart disease, certain cancers, and type II diabetes. The FDA has updated the list of nutrients required on the label to include Vitamin D and Potassium because Americans today do not always get the recommended amounts of these nutrients. Conversely, Vitamins A and C are no longer required, because deficiencies in these vitamins are rare today, but they can be listed by manufacturers voluntarily.

5. The old label lists calories from fats, but the new label does not. The FDA made this change because research shows the type of fat consumed is more important than total fats. For example, monounsaturated and polyunsaturated fats, such as those found in most vegetable oils and nuts, can reduce the risk of developing heart disease when eaten in place of saturated and trans fat.

6. Daily values for nutrients like sodium, dietary fiber, and Vitamin D have been updated and are used to calculate the % Daily Value (DV) that you see on the label. The % DV helps you understand the nutrition information in the context of a daily diet. The footnote at the bottom of the label has changed to better explain the meaning of the % DV.

See FDA Consumer Update, available at https://www.fda.gov/ForConsumers/ConsumerUpdates/ucm620013.htm?utm_campaign=Nutrition%20Facts%20Label%20Reboot%3A%20A%20Tale%20of%20Two%20Labels&utm_medium=email&utm_source=Eloqua.

What does “natural” mean in the context of product advertising?  Consumers see phrases like “natural,” “all natural,” and “100% natural” over and over again in modern marketing.  The trouble is that “natural” may not mean what consumers expect it to mean, thereby opening companies up to claims of false or misleading advertising.

Two recent lawsuits against Pret A Manger, the sandwich company, provide a cogent illustration.  One complaint was filed by two consumers as a class action.  The other was filed by three non-profit organizations (including the Organic Consumers Association) on behalf of their members and the general public.  Both complaints assert that Pret A Manger has deceptively labeled, marketed, and sold certain bread and other baked goods as “Natural Food” when the products contain trace amounts of a chemical biocide.  According to the non-profit plaintiffs, consumers are willing to pay more for “natural” products and consumers expect such products to be free of pesticides.

This isn’t the first time the Organic Consumers Association, the Federal Trade Commission, or others have gone after companies advertising their products as “natural.”  Companies should be mindful when marketing their products using that term, and should be prepared to defend the claim with substantiation if necessary.

 

Soy milk. Almond milk. Coconut milk. With the increase in health-conscious shopping and non-dairy diets, these terms and others have become household names.

But the Food & Drug Administration (“FDA”) recently suggested these products don’t constitute milk at all, since they do not come from animals. According to multiple sources, during the Politico Pro Summit in July, the FDA Commissioner commented that the FDA is probably not currently enforcing its “standard of identify” for milk considering the FDA defines “milk” by referencing the milking of cows.

Manufacturers and sellers of non-dairy products currently advertised and labeled as “milk” should keep watch on whether the FDA issues guidance on this issue or decides to strictly enforce its current definition of “milk.” If it does, the marketing for these products may drastically change.

The FTC has amended its Jewelry Guides (formally, the “Guides for the Jewelry, Precious Metals, and Pewter Industries”) which aim to help prevent deception in jewelry marketing by providing clear standards.

The Jewelry Guides, like other industry guides published by the FTC, are intended to help marketers understand their responsibilities with respect to avoiding consumer deception.  The Guides themselves are not binding law, but instead offer the FTC’s interpretation of how Section 5 of the FTC Act applies to certain practices within the industry.

For those in the jewelry industry, the issuance of these changes suggests it may be a good time for a compliance check.  Some noteworthy changes include:

  1. No more thresholds for describing alloys as “gold” or “silver.”

Under the old Guides, marketers were prohibited from using the terms “gold” and “silver” to describe a product made of a gold or silver alloy (combination of gold or silver and one or more other precious metals) unless the ratio of gold/silver to other metals met certain minimum thresholds.

The revisions eliminate these requirements.  From now on, any gold alloy may be marketed as “gold” as long as the marketing contains “an equally conspicuous, accurate karat fineness disclosure.”  The same goes for silver alloys as long as the marketing contains a conspicuous and accurate disclosure of the parts-per-thousand measurement.

  1. New requirements for describing silver- and platinum-coated products.

A preexisting rule advises against using the term “gold” to describe a product that is merely gold-coated.  The revised Guides extend this rule to silver and platinum products.

  1. New rule prohibiting the use of incorrect varietal names to describe gemstones.

The FTC now expressly prohibits the use of incorrect varietal names like “yellow emerald” or “green amethyst” to describe gemstones.  Instead, marketers should use scientifically-correct terms like “heliodor” and “prasiolite.”

  1. Relaxed rules for lab-grown diamonds and gemstones.

The revisions make several changes to the rules for marketing lab-grown diamonds and gemstones.  For the most part, these changes benefit the lab-grown sector.  For instance, the FTC now cautions marketers not to use the terms “real, genuine, natural, or synthetic” to imply that a lab-grown diamond “is not, in fact, an actual diamond.”

The Guides still prohibit the use of terms like “real” and “natural” to describe lab-grown diamonds and gemstones, but the FTC indicated that it might be willing to reconsider this position.

When evaluating how to address what you believe constitutes infringement, false advertising, or unfair competition, the decision to send a cease and desist letter or to file a lawsuit becomes an important one.  Is there a right approach in each instance?  No.  There are pros and cons to each and, in a typical lawyer answer, the best approach “depends.”

On the one hand, sending a cease and desist letter has the potential of resolving the issue outside of court, with fewer legal fees and on a quicker timeline.  It also has the effect of placing the other party on notice of your claim and allowing you to make an argument for willfulness down the road (if the party continues the conduct despite the allegations).

On the other hand, filing a lawsuit shows the seriousness of the allegations and preserves your choice of venue—i.e. which court you want to be in.  Sending a cease and desist letter first would let the other party know that there is a potential of a lawsuit, which would allow that party to file a declaratory judgment action in its own choice of venue before you have the chance to do so.  As a reminder, under the Declaratory Judgment Act, a party who has been accused of illegal conduct like infringement, false advertising, or unfair competition can affirmatively file suit and ask that a court declare its conduct lawful.

Deciding which approach to take will depend on the situation and any prior history with the alleged infringer or advertiser.  Make sure to weigh all of your options and discuss with your legal counsel if necessary.

The FTC filed a lawsuit earlier this month in the U.S. District Court for the District of Utah charging telemarketers with violating the FTC Act and the Telemarketing Sales Rule.  The FTC alleges that defendants deceptively claimed their “business coaching” would help consumers earn thousands of dollars a month by starting a home-based Internet business.

According to the complaint, the defendants’ telemarketing operation relied on “leads” supplied by other companies.  Typically, these were consumers who had purchased some work-from-home-related product or service online for less than $100. For a fee or a percentage of defendants’ sales, the company that sold the product or service would encourage the buyer to contact an “expert consultant” or “specialist” to see if they qualify for an “advanced” coaching program.  However, when the consumer called to speak to a “specialist” they were merely routed to defendants’ telemarketers.

According to the lawsuit, the defendants then charged consumers up to $13,995 for their purported business coaching program, which merely provided information that was already freely available on the Internet.  Ultimately, most people who bought the service did not develop a functioning business, earned little or no money, and ended up deeply in debt.

When hoping to resolve advertising concerns or disputes quickly and easily, companies should not only consider utilizing the National Advertising Division (“NAD”), but also the potentially lesser-known Electronic Retailing Self-Regulation Program (“ERSP”).  ESRP is a self-regulatory program administrated for the Advertising Self-Regulatory Council (“ASRC”) by the Council of Better Business Bureaus.  The program was established in 2004 and its mission is “to enhance consumer confidence in electronic retailing by providing a quick and effective mechanism for resolving inquiries regarding the truthfulness and accuracy of claims in direct response advertising.”

Like actions before the NAD, ERSP actions provide guidance regarding certain advertisements.  ERSP is focused on reviewing direct-to-consumer advertising campaigns—largely infomercials but also radio ads, internet marketing efforts, TV shopping channel marketing, and pop-up advertising—for substantiation of claims, with the goal of preventing continued dissemination of deceptive claims.  ERSP members, as well as consumer or advocacy groups, can refer campaigns to ERSP for review, and ERSP reviews approximately 7-10 per month.  After review, ERSP may recommend that marketers discontinue making certain claims and may even alert the Federal Trade Commission about non-compliant companies.  ERSP reports that it has worked with companies to modify or discontinue use of almost 200 advertisements.

For more information, visit the Electronic Retailing Association’s website or read the ASRC’s blog posts regarding recent ERSP actions.

When marketing products or services to children, companies should be aware of applicable statutes and guidance and should be particularly cautious with their advertising claims.

Lanham Act & FTC Act

The prohibitions against false, misleading, and deceptive advertising under the Lanham Act and Section 5 of the FTC Act of course apply to advertising claims directed at children.  It’s important to remember that the advertisements may be viewed by a court or by the FTC as ordinary children would view them (not as the actual buyers, i.e. parents or other adults, would view them).  Therefore, companies should ensure that any advertising claims directed at children do not have the tendency to mislead or deceive those children.

FTC Guidance

The FTC advises companies to comply with truth-in-advertising standards when advertising directly to children or when marketing kid-related products to parents.  For example, the FTC is concerned with child privacy, marketing violent entertainment to children, and, given the rise in childhood obesity rates, food advertising to children.

COPPA

38772807 - little girl hand touch touch pad notebookThe Children’s Online Privacy Protection Act (COPPA) is a federal statute meant to protect children’s privacy and safety online by prohibiting unfair or deceptive practices relating to the collection of personal information from internet users under the age of 13.  COPPA requires providing certain information in privacy policies, giving parents direct notice, and obtaining parental consent before collecting personal information from children.  The FTC’s step-by-step COPPA compliance guide can help a company determine if it is covered by COPPA and, if so, how to comply with the rule.

CARU

The Children’s Advertising Review Unit (CARU) is an investigative unit of the advertising industry administrated by the Council of Better Business Bureaus.  CARU monitors advertisements (tv, print, radio, and online media) with the goal of advancing truthfulness, accuracy, and consistency and eliminating deceptive or inappropriate advertising directed toward children.  CARU publishes self-regulatory guidelines for advertisers and relies upon voluntary cooperation and change by advertisers themselves.

The FTC filed a lawsuit this week against Lending Club, a peer-to-peer lending company that operates an online marketplace for personal loans.  The lawsuit accuses Lending Club of luring consumers to its website with online advertisements promising “no hidden fees,” only to go ahead and deduct significant “up-front” origination fees from the loan proceeds.  As a result, customers were surprised when the amount that actually showed up in their bank account was less than the “Loan Amount” they thought they had signed up for.

According to the FTC, this deception is made worse by the fact that Lending Club never adequately discloses the up-front fee to consumers during the entire online application process.  The fee is only mentioned once—inside an explanatory “pop-up bubble” that only appears if the applicant happens to click or tap on a relatively small and inconspicuous icon. Because applicants are not required to click or tap on the icon in order to move forward with their loan application, many applicants never saw the disclosure at all.

“This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders,” said Reilly Dolan, acting director of the FTC’s Bureau of Consumer Protection, in a statement. “Stopping this kind of conduct will help consumers make informed choices about loan offers.”

This case is a reminder of advertisers’ responsibility to ensure that advertisements are honest and forthcoming, especially in the ever-changing landscape of online advertising.  Some key takeaways:

  • If a disclosure is needed to prevent an online ad from being deceptive or unfair, it must be clear and conspicuous. This rule applies to all forms of online advertising, including paid blog posts or ads on social media platforms.
  • The “clear and conspicuous” rule also applies across all devices and platforms that consumers may use to view the ad. Advertisers must therefore ensure that required disclosures function properly on all programs and devices.
  • Putting necessary disclosures in hyperlinks or “pop-up bubbles” is strongly discouraged, particularly where the disclosure involves important information like additional costs or consumer safety. Where they are used, ensure the link is labeled accurately and that it functions properly regardless of device or platform.