Advertising & Marketing

The Food and Drug Administration recently invited public comment on an updated definition of what constitutes a “healthy” food.  An updated definition is not merely fodder for food policy gurus.  This will have a very real impact on advertisers and consumers alike because the new standard will set the stage for what brands will label and advertise as “healthy.”

What is “healthy” under the current definition—which reflects decades old views on nutrition—may no longer be “healthy” after the FDA’s final determination. Perhaps that is a good thing.  Take, for example, that some sugary breakfast cereals and pastries could be considered “healthy” under the current guidelines—which focus on overall fat content rather than sugar content—but things like fresh avocados and nuts are not considered “healthy” because of their fat content.

Copyright: dole / 123RF Stock Photo
Copyright: dole / 123RF Stock Photo

The FDA’s new guidance will likely force many brands to rethink and retool how they advertise their previously “healthy” (but suddenly not “healthy” anymore) products. On the flip side, the new definition could well breathe new life into a languishing product or push emerging products to even greater market prowess that will be suddenly considered “healthy” by the FDA.  According to the FDA, many consumers make their purchasing decisions in 3-5 seconds.  So, by that data, most folks are not loitering in the florescent lights of a big box supermarket comparing nutrition tables.  While the details may not be a focus to consumers, a big catchy label clearly stating that something is “healthy,” could make the difference between buying Brand X or Brand Y.

Perhaps most importantly, brand owners and the public will have a say on the final definition of “healthy.” The FDA is currently seeking input on a variety of questions about what “healthy” should mean – both from a nutrition standpoint and from a consumer’s understanding standpoint.  The public comment period opened on September 28, 2016, and comments can be submitted through the FDA’s website.

It makes complete sense that a brand owner shouldn’t be able to lie to the Trademark Office when it tried to register its brand name as a trademark. Let there be consequences for making false statements! But it is not always that easy to avoid the fraud cow pie.

For example, when you file an application to register a trademark you are supposed to list the goods and/or services associated with that trademark. Cow pie alert!

In 2002, a medical device company stepped in the cow pie when it filed a required declaration stating it had used its brand name on “neurological stents and catheters” but it had in fact only been using the name on catheters. Penalty: its trademark registration was cancelled, even though the company attempted to come clean by amending it to delete the offending language (“stents”).

For the next six or seven years, fraud was all the rage.  Litigants brought successful cancellation actions — or threatened to bring them — against all sorts of trademark registrations, triumphantly arguing fraud had been committed against the Trademark Office. Suddenly there were cow pies everywhere.

In 2009, a higher court tried to clean the field up, emphatically stating that proof of intent to deceive is required to establish fraud against the Trademark Office.

You would think that would put an end to the mess, but no. Fraud is still alive and well as a potential cow pie. The Trademark Office is willing to, and often has, concluded that some sneaky strategic behavior by brand owners can amount to an intent to deceive. And litigants are still trying to prove that trademark applicants intended to deceive the Trademark Office.

Just this month, a trademark registrant escaped stepping into the pie (but no doubt had to spend a pretty penny doing so).

A car dealership using its brand name in southeastern Massachusetts accused a Maine car dealership of fraud when it failed to disclose the Massachusetts outfit’s use of the same name in its application to federally register the trademark.

A federal registration entitles its owner to the exclusive right to use the registered name in the United States. Because of this, applicants are required to swear they believe “no one else, to the best of his or her knowledge and belief, has the right to use” a confusingly similar name. The board reviewing the case decided that though the Maine car dealership was wrong (the board kindly termed it “mistaken”) when it made this statement, there wasn’t enough evidence to show it was actually fraudulent. Phew!

Fraud continues to be an issue that brand owners (and we lawyers) must keep an eye on.

 

One likely result is that companies will get sued by its competitors. Such a lawsuit will cost money to defend, cause a distraction to the company, and has the potential to embarrass the company with consumers.

Another potential result is more troubling – an enforcement action by the FTC. Such actions, like competitor lawsuits, are expensive to defend, cause distraction, and have the added problem of communicating to consumers that the government thinks the company is making false statements.

A recent FTC enforcement action decision reinforces the necessity for companies to validate the advertising claims made about their products, particularly if such claims relate to health benefits.

In May 2015, the FTC filed a lawsuit against COORGA Nutraceuticals Corporation and its owner claiming that the Defendants violated the law in claiming that their “Grey Defense” dietary supplements reversed or prevented gray hair. The United States District Court for the District of Wyoming recently granted summary judgment in favor of the FTC, issued an injunction against the company and its owner, and asked the Defendants to pay nearly $400,000.

COORGA marketed Grey Defense to consumers as not only a product that could stop, reverse and prevent the natural graying of hair, but also that it was scientifically proven to do so. The Court found that the COORGA did not have the required scientific evidence to support such claims.  In addition to finding that the company was liable, the Court also found the owner liable because he controlled COORGA’s advertising.  The Court took COORGA’s owner to task for “arrogantly” relying on internet research to validate the company’s claims.  The Court found that this conduct constituted “reckless indifference” and issued an injunction against the company relating to advertising claims across a broad range of products in addition to finding Defendants liable for $391,335.

As this and other FTC enforcement cases make clear, a company must ensure that if it makes scientific claims about its products that it has the testing to back up those claims.

The FTC has long required that if an advertiser makes a specific, verifiable claim, the advertiser needs to have adequate substantiation for the claim before it is made. One of the more interesting and recognizable examples of this rule came on December 1, 2015, when the FTC announced a proposed settlement with Tommie Copper for its claims that its products—copper-infused compression clothing—relieve pain.  Tommie Copper’s advertisements claimed that its copper-infused compression clothing provides pain relief from a number of conditions.  In fact, the company proclaimed that its products provide pain relief comparable to, or better than, drugs or surgery.  For example, its infomercials featured Montel Williams declaring “Tommie Copper truly is pain relief without a pill.”  The advertisements also claimed relief from chronic pain and pain caused by multiple sclerosis, arthritis, and fibromyalgia, relying on some purported customer testimonials.

Copyright: dolgachov / 123RF Stock Photo (Not actually Tommie Copper apparel)

But, based on the 2015 proposed settlement, it appears that Tommie Copper did not have much support for these lofty claims.

The settlement, which will cost Tommie Copper at least $1.35 million, served as a reminder that before making any advertising claim, the advertiser must have adequate substantiation for the claim.  And the bar is higher for medical claims.  As the proposed settlement explains, before the company can make health-related claims related to chronic or severe pain, diseases, drugs, and surgery, it must have “competent and reliable scientific evidence” to support the claims.  FTC v. Tommie Copper, Inc., 7:15-cv-09304-VB, Dkt. 4-1 (S.D.N.Y. Dec. 1, 2015).

The proposed settlement specifically defined “competent and reliable scientific evidence” as “human clinical testing . . . based on standards generally accepted by relevant medical experts” that is “(1) randomized, double-blind, and placebo-controlled; and (2) . . . conducted by researchers qualified by training and experience to conduct such testing.”  Id.  The proposed settlement also prohibits the use of other health-related claims without substantiation from tests, analysis, research, or studies conducted by qualified persons in a manner that is generally accepted in the profession to be accurate and reliable. Id. The monetary judgment in the proposed settlement is a whopping $86.8 million, although Tommie Copper need only pay $1.35 million now.  The remainder of the judgment is suspended based on, among other things, the company’s representations regarding its finances.

Though the facts and circumstances of every advertisement will determine what amount and type of substantiation is required, this settlement shows the FTC will require “competent and reliable scientific evidence” when making health-related claims to consumers.

 

It says “sale,” but is it a bargain?  According to a number of class action lawsuits filed in recent years, the answer is no.

The situation is this:  You go to the store.  You see a nifty looking widget and HOLY BUCKETS it is 50% off!  But are you really getting a deal?  If the store is following the law, you are…but a recent series of putative class action lawsuits have alleged that the deal might be no deal at all.

The past few years (and 2015 in particular) have seen a significant number of class action lawsuits filed against retailers across the country for allegedly false and misleading price advertisements.  The lawsuits generally claim that the retailer advertised products as on “sale” or “discounted” from higher, “original” or “former” prices when in reality the product was always on sale.  The lawsuits allege that the phantom or sham markdowns are part of the retailers’ scheme of giving the false and misleading illusion of a discount to entice sales.

Copyright: petrnutil / 123RF Stock Photo
Copyright: petrnutil / 123RF Stock Photo

So what is the rule? How do you accurately advertise a sale?  The standards can vary from state to state, but intentionally creating a misleading or false illusion of a discount is likely a problem.  The Federal Trade Commission’s guidelines are a good starting point and guidepost for advertisers.  With respect to advertisements comparing a former price to the current price, the regulations promulgated by the FTC provide:

“One of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an article. If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious — for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction — the ‘bargain” being advertised is a false one; the purchaser is not receiving the unusual value he expects. In such a case, the ‘reduced’ price is, in reality, probably just the seller’s regular price.

“A former price is not necessarily fictitious merely because no sales at the advertised price were made. The advertiser should be especially careful, however, in such a case, that the price is one at which the product was openly and actively offered for sale, for a reasonably substantial period of time, in the recent, regular course of his business, honestly and in good faith — and, of course, not for the purpose of establishing a fictitious higher price on which a deceptive comparison might be based. And the advertiser should scrupulously avoid any implication that a former price is a selling, not an asking price (for example, by use of such language as, ‘Formerly sold at $XXX’), unless substantial sales at that price were actually made.”  16 CFR §233.1(a) and (b).

The FTC has similar regulations and guidelines for comparisons to prices charged by competitors ( 16 CFR §233.2), advertising against an MSRP (16 CFR §233.3), bargain sales—e.g. two for the price of one—(16 CFR §233.4), and “miscellaneous” price comparisons (16 CFR §233.5). 

While the FTC regulations are a good start, and advertiser should consult the laws in the state(s) in which they will advertise.  For example, advertisers in California should be particularly aware of California Business and Professions Code Section 17501, which sets out a specific rule for when and how a discounted price may be advertised:

“No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”

Failing to comply with these advertising laws can translate into a risk to the bottom line, and advertisers should take steps to make sure they do not become the target of a lawsuit or FTC enforcement action. When in doubt regarding whether a promotion complies with the applicable rules, consult with a qualified attorney.

You’ve done your due diligence and you are sure that the content of your advertisement is accurate and fully substantiated with reliable data. All good, right? Not necessarily.

It’s a good first step – but the FTC and advertising laws are not limited to content, they also require that the context and presentation of the advertisement not be misleading or deceptive. The FTC recently re-affirmed this rule in explaining its standards for so-called “native advertising.”

Copyright: adiruch / 123RF Stock Photo
Copyright: adiruch / 123RF Stock Photo

Native advertising is advertising that matches the design, style, and behavior of the digital media in which it is disseminated. One aim of a native advertisement is to blend in with the organic content of a website. Native advertising has been on the uptick in the past several years as advertisers try to convince increasingly savvy internet users to click on their advertisements. According to the FTC, however, a well-designed native advertisement may well be impermissibly deceptive.

In its recent pronouncement, the FTC did not rewrite the rules applicable to contextual advertising; but it made clear that the rules apply to native advertising just like all other advertising.

So what are the rules and what should be done to ensure compliance with them?

According to the FTC, the rule is as follows:

“Deception occurs when an advertisement misleads reasonable consumers as to its true nature or source, including that a party other than the sponsoring advertiser is the source of an advertising or promotional message, and such misleading representation is material.”

Pretty simple – all expect for what qualifies as “material.” Fortunately, the FTC provides a definition of what they consider material:

“[A] misleading representation is material if it is likely to affect the consumers’ choices or conduct regarding the advertised product or the advertisement, such as by leading consumers to give greater credence to advertising claims or to interact with advertising with which they otherwise would not have interacted.”

In other words, if the context and design of the advertisement misleads consumers into believing it is not an advertisement paid for by the advertiser, it very well may be deceptive under the FTC’s rule.

So what factors can an advertiser consider in developing a native advertisement?

Consider the entire context surrounding the advertisement. In assessing whether an advertisement is misleading, the FTC will consider the net impression of the advertisement, not just the statements in isolation. The FTC will “scrutinize the entire ad, examining such factors as its overall appearance, the similarity of its written, spoken, or visual style to non-advertising content offered on a publisher’s site, and the degree to which it is distinguishable from such other content.”

Consider the target of the advertisement. In some circumstances, the target audience for an advertisement will be an important consideration. For example, the FTC may apply different considerations to advertisements directed at children versus those directed at educated, sophisticated consumers.

Consider using a clear disclosure. Time and again, the FTC has suggested or required the use of a clear disclosure that an advertisement disguised as something else is, in fact, an advertisement. The classic example is the use of the word “ADVERTISEMENT” in sufficiently large and clear text on an advertisement in a newspaper that is disguised as a news article. Such disclosures will not always be sufficient – it will always depend on the full context of the advertisement.      

Don’t rely on the consumer “figuring it out” later on. The FTC considers deception harmful and illegal even if the consumer can later figure out that what he or she just clicked on was an advertisement by, for example, looking at the landing page or speaking to a sales representative. Curing the deception after the fact is, under the FTC’s guidelines, likely insufficient.

Read and know the rules. A good starting place is to read the FTC’s Enforcement Policy Statement on Deceptively Formatted Advertisements. And when in doubt, consult with an attorney experienced in advertising law.

Companies that advertise their products as “Made in the USA” should be aware of the Federal Trade Commission’s (“FTC”) stance regarding such advertisements.  The FTC regulates both express claims (e.g. advertising with the phrase “Made in the USA”) and implied claims (e.g. advertising with the phrase “true American quality” or with a U.S. flag symbol).  Before a company decides to advertise in this manner, the FTC requires that the company have a reasonable basis to substantiate the claim at the time it is made.

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

So what is a “reasonable basis” for this type of claim?  The FTC itself provides guidance to companies interested in advertising their products as “Made in the USA” in a lengthy Federal Registration Notice: 62 Fed. Reg. 63756.  But even with this guidance, the issue is not black and white.  The FTC explains that a product must be “wholly domestic” or be “all or virtually all” made in the United States in order for a “Made in USA” claim to be substantiated.  But “all or virtually all”—defined by the FTC as meaning that all significant parts and processing that go into the product are of United States origin (i.e. there is only a de minimus amount of foreign content)—may be a difficult standard to apply in some circumstances.

The FTC finds a number of factors relevant to the issue—such as whether final assembly/processing occurs in the United States, the portion of total manufacturing costs attributable to parts and processing in the United States, and how far removed any foreign content is from the finished product.  See 62 Fed. Reg. 63756 at 63765.  In general, the more that occurs in the United States, the better the claim that the product is “Made in the USA.”  In an attempt to provide clarity regarding the “all or virtually all” standard, the FTC’s staff has issued a separate publication meant to convey additional guidance.

Further complicating the issue though, certain states may also have specific prohibitions related to advertising products as “Made in the USA.”  For example, Cal. Bus. & Prof. Code § 17533.7 makes it unlawful to mark products with that or similar phrases if the product, or any part of the product, is “entirely or substantially” made outside of the United States (though there are a couple exceptions).

Advertising products as “Made in the USA” can be tricky.  Before advertising, make sure to consult an attorney to ensure compliance with the FTC’s guidance as well as any state-specific requirements.