Wednesday, October 26, 2011

Easy To Digest: 7th Circuit Affirms Preemption Dismissal And Spares Labelers From Going Bananas

Last week, the United States Court of Appeals for the Seventh Circuit did its part to stem the tide of consumer fraud food labeling class action claims by dismissing with prejudice a preempted claim concerning fiber in chewy bars.  Turek v. General Mills, Inc. and Kellogg Co., No. 10-3267 (7th Cir. Oct 17, 2011) (Posner, J).   Ms. Turek alleged that the defendants misled her and other similarly situated consumers by failing to disclose the source of the inulin – the primary fiber –  in the chewy bars.  Ms. Turek alleged that the defendants used inulin extracted from chicory root, which she further alleged is inferior to unprocessed inulin within, for instance, bananas and onions. 
The Seventh Circuit assumed that the allegation was true but irrelevant.  The National Labeling and Education Act of 1990 (21 U.S.C. 341 et. seq.) (“NLEA”) and various regulations explain how food manufacturers must label fiber content.  The NLEA precludes states from imposing any labeling requirement which is “not identical” to the requirements in the NLEA.  As the Court put it:
It is easy to see why Congress would not want to allow states to impose disclosure requirements of their own on packaged food products, most of which are sold nationwide.  Manufacturers might have to print 50 different labels, driving consumers who buy food products in more than one state crazy. 
The NLEA does not create private rights of action, so putative consumer class action representatives must allege violations of state law.  Those allegations either must address issues which the NLEA does not cover or must assert state law standards identical to NLEA standards.   Ms. Turek technically alleged violations, but Judge Posner analyzed the NLEA label requirements for fiber and determined that the defendants’ fiber label statements complied with the NLEA and applicable regulations.  Thus, Judge Posner easily found that the NLEA preempted Ms. Turek’s state law claims which sought additional “non-identical” disclosure regarding the source of the fiber on the product labels.
The opinion is not limited to fiber labels.  The opinion contains a helpful curt statement regarding the standard:  “consistency is not the test; identity is.”  Perhaps this blunt clarification of the “identity” standard will dissipate the next label litigation wave concerning other products.  The lesson:  If the NLEA and applicable regulations cover statements on a food label, a label which complies with those requirements should not be subject to liability under state law claims.   
Judge Posner further clarified that the preemption decision is on the merits, under Federal Rule 12(b)(6).  The District Court dismissed for want of jurisdiction, after reaching similar conclusions about NLEA preemption.  Judge Posner altered the original judgment to render the dismissal with prejudice. 
Food makers must continue to be vigilant about complying with established federal food label guidelines, and the Turek decision provides additional support for that vigilance. 
Authors:       Terrence P. Canade        Gregory T. Casamento

Monday, October 24, 2011

Think Your Ad or Package Claims Have Adequate Substantiation? The Reebok Case Has Some Lessons

            Recently the FTC announced a high-profile agreement to settle its lawsuit against  athletic shoe maker Reebok The agreement requires Reebok to pay  $25 Million for refunds to people who bought Reebok EasyTone or RunTone shoes or apparel. Reebok also agreed to an onerous injunction against making claims that the shoes were effective in strengthening muscles or that wearing the shoes will result in quantified percentage or amounts or muscle toning or strengthening.
            The FTC press release seemed to imply that Reebok had taken almost no steps to substantiate its claims.  According to the FTC complaint, Reebok made unsupported claims in advertisements that walking in its EasyTone shoes and running in its RunTone running shoes strengthen and tone key leg and buttock (gluteus maximus) muscles more than regular shoes.  The ads claimed, for example: “Get a Better Butt.  Get Better Legs.  Get EasyTone.  EasyTone sole technology gives you up to 28% more toning in your calves, hamstrings , and, oh yes, your butt.”
            Here is one of Reebok’s EasyTone advertisements:
            A close examination of an earlier proceeding  of the National Advertising Division (NAD) of the Better Business Bureau suggests that Reebok had undertaken scientific testing to support its claims, but that its testing was inadequate to serve as “reliable and competent substantiation for the claims” required by Sec. 5 of the FTC Act.
Actual Testing by Reebok
            The NAD examined some of the same products and claims as in the FTC action  While the NAD found that Reebok had conducted an independent lab study by a qualified expert, it. concluded that the study was too small and did not necessarily reflect real world conditions of women using the shoes.  In other words, Reebok lacked adequate substantiation for the claims made in its advertisements .
Definition of Adequate Substantiation
            The Reebok case demonstrates that good faith substantiation efforts do not necessarily immunize a company from charges of failure to meet the FTC standard of reliable and competent evidence. The agreed injunction gives some guidance on the type of scientific testing the FTC deems adequate substantiation: “For purposes of this Section, competent and reliable scientific evidence shall consist of at least one
·         clinical study . . . of at least six weeks duration;
·         [that] uses an appropriate measurement tool or tools (e.g., a dynamometer if measuring strength);
·         . . . is conducted by persons qualified by training and experience to conduct and measure compliance with such a study;
·          conforms to acceptable designs and protocols, and
·         the result of which, when considered in light of the entire body of relevant and reliable scientific evidence, is sufficient to substantiate that the representation is true.”
[bullet points and indenting added for clarity]           
            In light of the guidance provided by this high-profile settlement, the key question companies should ask themselves is, do the company’s advertising claims (or that of its competitors) meet these elements of competent and reliable substantiation?
     Authors:       Paul Van Slyke               Greg Casamento                 Tom Casagrande

Tuesday, October 18, 2011

FTC proposes to extend Mail or Telephone Rule to e-commerce

By:  Paul Van Slyke

The FTC recently announced it proposes to extend its Mail or Telephone Order Merchandise Rule (the “Rule”) to orders placed online. If ultimately adopted, the proposed changes will affect advertising agencies and marketers of consumer goods doing business over the Internet.
The FTC is accepting public comments on the proposed extension of the Rule through December 14, 2011.  Comments can be filed online.
Proposed Changes to the Rule
In addition to extending the Rule to online commerce, the FTC is also proposing to make certain other changes.   Some examples of what is  in the proposal are:
·         an amendment to allow sellers to provide refunds and refund notices to buyers by any means at least as fast and reliable as first-class mail;
·         a clarification on sellers' obligations when buyers use payment methods not spelled out in the Rule — debit cards or prepaid gift cards, for example; and
·         a requirement that companies make refunds within seven working days for purchases using third-party credit, like Visa or MasterCard.  (For credit sales where the seller is the creditor — for example, when merchants have their own store charge cards — the refund deadline would remain one billing cycle.)
Other FTC Rules and Guides for Online Advertising
The Rule proposed to be added to online advertising is an addition to several existing statutes and FTC rules and guides bearing on the subject of online advertising and commerce.  For example:
·          the FTC has issued  the Advertising and Marketing on the Internet: Rules of the Road as an overview of all the FTC rules and guides that apply;
·         The FTC Staff paper Dot com Disclosures: Information About Online Advertising offers practical tips on how to make effective disclosures online;
·         In 2000, the FTC issued a report Privacy Online: Fair Information Practices in the Electronic Marketplace with guidelines for websites that collect personal information from consumers; and
·         In 1998, Congress passed the Children's Online Privacy Protection Act ("COPPA"), which governs collection of personal information from children under the age of 13.  The FTC guides Children's Online Privacy Protection Rule and How to Comply with the Children's Online Privacy Protection Rule give additional guidance and practical suggestions on compliance with COPPA.
Locke Lord has an Advertising & Marketing team experienced in compliance with FTC rules and submitting comments on proposed rules 

Thursday, October 13, 2011

E.D. Tex. denies class certification in Lanham Act challenge to Google AdWords program

Author:  Tom Casagrande
Not to gloat, but . . . we told you so!
In the Spring of 2009, two putative class action complaints were filed against Google and several other defendants.  Both lawsuits alleged that Google’s AdWords program violated the Lanham Act because the resulting ads were likely to confuse Internet searchers.  Locke Lord attorneys issued a Client Alert discussing the potentially significant implications of these suits if they succeeded, but opining that they were unlikely even to be certified as class actions because they required the court to resolve too many detailed individualized issues, such as the strength of each class member’s mark, whether each resulting “Sponsor Link” ad was likely to cause confusion, and individualized defenses such as fair use.
On Sept. 29, 2011, U.S. District Judge T. John Ward issued a short order adopting the detailed recommended ruling of the Magistrate Judge denying class certification for precisely these reasons (and a few more).  The Magistrate Judge’s detailed opinion in FPX, Inc. v. Google, Inc., No. 2:09-cv-142 (E.D. Tex.) is available here.