Stay ADvised: What's New This Week, September 16

Articles

• North Carolina AG Sues Eight More E-Cigarette Companies For Marketing to Kids
• FTC Secures Preliminary Injunction against Fake "Free Trial" Offer Operator
• TINA Files FTC Complaint Accusing Anti-Aging Hormone Peddler of Deceptive Marketing
• ASA Bans PETA Ad Equating Treatment of Animals for Wool to Fur
• Judge Strikes Latest Blow against Anheuser-Busch in Light Beer Wars

North Carolina AG Sues Eight More E-Cigarette Companies For Marketing to Kids

North Carolina Attorney General Josh Stein recently filed suit against eight e-cigarette companies for allegedly marketing their tobacco vaping products to children. The legal actions come amid growing concern over the dangers of vaping products and increased targeting of such products to children.

The lawsuits against Beard Vape, Direct eLiquid, Electric Lotus, Electric Tobacconist, Eonsmoke, Juice Man, Tinted Brew and VapeCo allege violations of North Carolina’s Unfair or Deceptive Trade Practices Act. They follow on the heels of the state’s ongoing litigation filed in May of this year targeting popular e-cigarette maker Juul over similar activities, as well as mounting federal and state efforts to rein in marketing to underage children by e-cigarette companies accused of violating consumer fraud laws.

According to the allegations in the complaints, the e-cigarette companies “aggressively” market their products to children and do not require age verification when selling tobacco products, as mandated by law. The complaints cite a direct and “predictable” link between increased underage vaping use and “youth-oriented marketing and product design” that is “specifically targeted to lure minors to using [e-cigarette company] products.”

The complaints assert that the marketing tactics employed by these companies are calculated to lure in children, much like the now-banned marketing practices of traditional cigarette companies that promoted their cigarettes via cartoon characters and celebrity endorsements. For example, the complaints note the flavors offered by these companies use names like “bubblegum,” “candy cane,” and “gummy bears,” and in packaging reminiscent of popular kids’ cereals like Fruit Loops. In other instances, the vaping devices – which look like flash drives - are purposely designed to disguise their true purpose from parental prying eyes.

As a specific example of these practices, one of the complaints pointed to an Eonsmoke Instagram post featuring a vaping device similar in appearance to a USB drive with a caption that read “Mom! It’s a USB drive!!” The complaint asserts that this practice “aims to assist youth in obtaining and concealing product use from adults and other authority figures.”

The lawsuits further allege that the vaping companies deliberately use social media like Instagram and Snapchat to market to kids, since social media appeals more to teenagers than adults. E-cigarette companies use language popular with teenagers online—for example, by posting memes featuring popular cartoon characters and engaging influencers to hype up the vaping products.

Some of the complaints acknowledge that certain vaping companies have amended their marketing strategies and toned down the appeal to children since the start of Attorney General Stein’s investigation. However, the complaints note that these efforts generally have been insufficient, and the ultimate result is that products are still targeted towards kids due to extant factors including candy flavors and promotional copy that asks users whether they “ever wanted to drop everything and enjoy a slice of NY style cheesecake with strawberries on top,” as Beard Vape allegedly does.

The complaints seek to enjoin the defendants from marketing their products to minors in North Carolina where the legal age for consuming tobacco products, including e-cigarettes, is 18 years old.

“Our complaints allege that these eight e-cig companies are helping to fuel an epidemic of vaping among high school and middle school students,” said Attorney General Stein. “One look at their marketing materials demonstrates just how egregious their sales tactics are—with flavors like cotton candy, gummy bear, unicorn, and graham cracker, they’re clearly targeting young people. To teenagers, the health and addiction risks of vaping are simply too high. That is why my office is asking the court to protect our kids by shutting down these operations in our state.”

The vaping companies deny targeting their products to children. Bruce Gibson, CEO of The Electronic Tobacconist, whose products include flavors like “Don’t Care Bear” and a Harry Potter-themed “Buttered Beer,” has stated that his company “absolutely affirm[s] that these products don’t belong in the hands of children.”

Key Takeaways

Until now, most regulatory actions and press surrounding vaping has focused on industry leader Juul, but North Carolina’s actions here signal a trend of widening investigations across the industry. These allegations come as vaping companies are facing scrutiny on several fronts, including virtually all state AGs, Congress, state legislatures, and health departments.

FTC Secures Preliminary Injunction against Fake "Free Trial" Offer Operator

The Federal Trade Commission (FTC) recently obtained a preliminary injunction halting the activities of a company accused of running deceptive “free trial” offers that converted into paid programs. These offers, which the FTC alleged violated the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA) and the Electronic Fund Transfer Act, duped consumers out of over $35 million.

According to the FTC’s complaint filed this July in the United Stated District Court for the Northern District of California, AH Media Group and its principals, Henry Block and Alan Schill, marketed to consumers a line of cosmetics and dietary supplements intended to provide youthful skin and aid in weight loss. After drawing consumers in with the promise of a free trial and paying just shipping and handling, the FTC claimed the defendants enrolled the trial participants in an unauthorized monthly subscription, charging their credit cards around $90 in fees per month. AH Media also used aggressive selling tactics to trick consumers into signing up for a second free trial, which also turned into a second unauthorized subscription, according to the allegations.

All of the terms of these offers, claimed the FTC, were buried in fine print at the bottom on the order page and displayed in faded font against a non-contrasting background.

To further facilitate their scheme, the defendants also engaged in a number of practices designed to make it difficult for consumers to cancel. For example, subscribers could not cancel online, and when they called to cancel on the phone, they were often put on hold for long periods of time. The defendants also allegedly operated through a network of shell companies in order to skirt legal and regulatory requirements. When subscribers initiated chargeback requests with their credit card issuers, the defendants hid behind falsified websites to dispute the chargebacks.

Key Takeaways

As the FTC continues to crack down on deceptive free trial schemes that convert to paid programs, it also took this opportunity to remind consumers to be vigilant when accepting these types of offers. As Andrew Smith, Director of the FTC’s Bureau of Consumer Protection put it: “When you sign up for a free trial, but the merchant asks for your credit card for shipping and handling, you should be on-guard. Read the fine print of the offer, pay attention to your credit card statement, and contact your bank if you see any charges that you did not authorize.”

TINA Files FTC Complaint Accusing Anti-Aging Hormone Peddler of Deceptive Marketing

Truth In Advertising (TINA) has filed a complaint letter with the Federal Trade Commission (FTC) and the Federal Drug Administration (FDA) accusing New U Life, a seller of a “hormone regeneration” gel, of a laundry list of deceptive advertising practices.

“Empower yourself to look and feel younger,” New U Life tells visitors on its website where it markets a product called Somaderm Gel. The company claims the product contains human growth hormone (hGH), a supposed anti-aging supplement capable of alleviating all kinds of ailments from arthritis to anxiety.

New U Life, which sells its products via a multilevel marketing scheme, has by its own accounts made over $60 million dollars in sales of what it claims are the only non-prescription products in the market containing hGH.

However, according to TINA’s complaint letter now before the FTC and FDA, these assertions are not true. First, TINA’s letter accuses the company of lying about its product claims. Second, TINA asserts its investigation into the company has “revealed a host of issues, including an emphasis on recruitment over product sales, the marketing of the business opportunity using inappropriate income claims, and illegal disease-treatment claims being made by the company, its founder and distributors.”

TINA’s allegations about New U Life read like a textbook case of deceptive advertising and possessing all the hallmarks of a pyramid scheme.

For one, according to an FDA study cited by TINA, Somaderm Gel in actuality contains only a negligible amount of hGH, to the point where it is really just “oil and water” sold for $170 per bottle. In addition, TINA points out that were the product to actually contain hGH, this would be in violation of the Food Drug & Cosmetic Act as it is illegal to distribute hGH without the order of a physician.

Furthermore, TINA alleges that the company, on its own and through its network of 94,000 distributors, makes a number of unsubstantiated health claims about Somaderm Gel—including that the product increases bone density, improves memory and cures a variety of diseases. These facts were revealed in an investigation conducted earlier this year by the Electronic Retailing Self-Regulation Program (ESRP), they then-industry investigative unit of the Better Business Bureau.

Finally, TINA asserts that claims that the product is “FDA registered” are false, which is especially problematic because creating the impression that a drug has a registration number is “misleading” and constitutes “misbranding” under FDA regulations. “The most that can be said,” TINA claims, “is that someone filled out an online form to obtain a National Drug Code (NDC) listing for Somaderm.”

According to that listing, Somaderm Gel is marketed as an “Unapproved Homeopathic.”

TINA notes that this is not the first time New U Life or its founders find themselves in the crosshairs of the FTC and FDA. According to TINA, the FTC has received over 100 complaints about New U Life’s marketing tactics, seeking refunds for purchases and complaining about unauthorized charges, as well as warning others that New U Life is a pyramid scheme.

The FDA also received a number of complaints about health issues experienced while using Somaderm.

TINA says founder Alexy Goldstein has himself been in the FTC’s sights before as well. The FTC considered action against Goldstein over another product that he sold via another company, which was marketed as achieving similar results as those claimed by Goldstein for Somaderm, although it did not pursue action when Goldstein took the product off the market.

Key Takeaways

While TINA’s claims about Nu U Life and Goldstein are just that – claims – and not based on findings established in an actual law enforcement investigation, if true there is a strong possibility of the FTC taking action against both. Add the FDA into the mix and these parties could find themselves on the wrong side of a civil regulatory investigation for the product claims, and possible criminal charges for conducting a pyramid scheme.

ASA Bans PETA Ad Equating Treatment of Animals for Wool to Fur

The U.K.’s independent advertising regulator, the Advertising Standards Authority (ASA), recently banned an advertisement by People for the Ethical Treatment of Animals (PETA) that equated the treatment of sheep sheared for wool to that of animals used for fur, finding it misleading and in breach of the organization’s advertising codes.

The ad in question was a bus display featuring the claim: “Don’t let them pull the wool over your eyes. Wool is just as cruel as fur. GO WOOL-FREE THIS WINTER PeTA.” The accompanying photograph pictured a woman wearing a sweater over her face.

The advertisement came before the ASA following ten complaints challenging the claim as misleading and unsubstantiated.

After reviewing the ad and considering PETA’s defense, ASA sided with the complainants and banned the ad, finding that it was misleading and unsubstantiated marketing in violation of the Committee of Advertising Practice (CAP) advertising regulations.

Specifically, ADA found that the advertising violated the following code sections:

• 3.1 - "Marketing communications must not materially mislead or be likely to do so"; and
• 3.7 - "Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation."

In its response to the ASA, PETA argued the claims were not misleading and in support provided evidence claiming shearing wool is just as cruel to animals as taking their fur. It further attempted to make the case that animals used for wool are abused and mutilated in order to increase wool production.

PETA also cited lower life expectancies for sheep bred for wool, among other evidence it said proves that the wool industry is as cruel to animals as the fur industry.

The ASA was unconvinced by these arguments. Noting that “although the general public would recognise the ad was from an animal rights organisation and as such that the claim would represent its views, it was presented as a factual claim and a direct comparison between the two industries.”

The ASA then looked at the facts behind the treatment of sheep by the wool industry to assess whether the claims were misleading. Ultimately, the deciding evidentiary factor used was Britain’s law protecting animals used for wool.

Since British law contains very clear guidelines protecting sheep from mutilation and abuse, the ASA determined that this “demonstrated that the main method of obtaining wool from sheep by shearing would not be regarded by consumers as cruel.” Moreover, sheep were not killed for their wool, unlike animals used by the fur industry, said the ASA.

As a consequence of the decision, PETA must stop using the ad in its current form.

Key Takeaways

This is not the first time the animal rights organization has come under fire for its provocative pro-animal rights ads, in the U.K. or in the U.S. PETA was scrutinized in the past over an ad that equated letting children eat meat to allowing them to smoke. PETA has also come under fire for other ads claiming hot dogs can lead to erectile dysfunction and that drinking milk can lead to autism.

Beyond the issues related to PETA, this case is a useful reminder for organizations advertising in the U.K. that even though the public may be aware that a certain ad reflects an organization’s views, if a claim in an ad is “presented as a factual claim” then it may be subject to an assessment of its factual veracity. And also noteworthy, advertisers that do not comply with ASA decisions may be referred to enforcement bodies and be subject to sanctions, in addition to potential reputational harm.

Judge Strikes Latest Blow against Anheuser-Busch in Light Beer Wars

In the battle of the light beer giants that started brewing following Super Bowl LIII, Anheuser-Busch suffered a new blow this month as a federal judge ruled the Bud Light manufacturer had to remove the “no corn syrup” claim from its beer packaging.

The ruling is the latest development in a false advertising suit filed by MillerCoors against Anheuser-Busch earlier this year, alleging Bud Light’s Super Bowl ad campaign that singled out MillerCoors for using corn syrup in its light beers was misleading and deceptive. In its suit, MillerCoors argued that Miller and Coors light beers only use viscous liquid as a fermentation aid and not as an actual ingredient, as suggested by Anheuser-Busch.

MillerCoors’ lawsuit claims that Anheuser-Busch was deliberately deceptive when it confused the corn syrup used in the beer brewing process with the high-fructose corn syrup that many consumers associate with unhealthy eating.

In the preliminary injunction issued by U.S. District Court Judge William M. Conley, Anheuser-Busch was enjoined from making claims—as it had on Bud Light packaging— that its product contains “no corn syrup,” since the claim could be seen as an implied comparison to rivals Coors Light and Miller Lite and could also be taken to imply that MillerCoors’ beer products do contain corn syrup. Judge Conley noted that a “reasonable jury could find that the implicit message of the packaging is that other beers contain corn syrup.”

Under the terms of the injunction, Bud Light may use the claim “No Corn Syrup” only on packaging it had on hand as of June 2019 or that is sold by March 2020, whichever is sooner.

This is the second injunction in the case. An earlier May injunction barred Anheuser-Busch from claiming on print, broadcast and social media ads that Miller Lite or Coors Light contain corn syrup, although the company may still claim that the beers are “brewed” or “made with” corn syrup. MillerCoors appealed that ruling, which is still pending.

Anheuser-Busch was further ordered to take down certain billboards and information on its website following that ruling. MillerCoors did not pull any punches in its response to the recent injunction, couching it in terms of protecting consumers against false advertising.

According to various news outlets, MillerCoors CEO Gavin Hattersley said in a press release “Today’s ruling is another victory for MillerCoors, but more importantly it is another victory for the American public against deceptive advertising like Bud Light’s,” adding that its competitor’s “campaign was bad for the public, bad for the industry, and that the packaging at issue ‘intentionally mislead the American public.’”

Bud Light stuck to its guns, however, publishing a statement that “Bud Light is brewed with no corn syrup—plain and simple,” and adding that “we look forward to defending our right to inform beer drinkers of this fact at trial and on appeal.”

Key Takeaways

By acknowledging that the “no corn syrup” claim on Bud Light packaging is a direct reference to the problematic ads that targeted its competitors, the latest injunction is a repudiation of such tactics. Of note here is that content appearing on a product’s packaging can be seen as an implicit reference to the advertiser’s competitors in light of other contemporaneous advertising.