Stay ADvised: What's New This Week, January 27

Articles

• NAD Refers Supplement Co. to FTC Over Unsubstantiated Health Claims
• Home Chef Gets a Mixed Bag "OK" From NAD for Superior Customization Claims
• Class Action Suit Alleges CBD Website ADA-Deficient
• Washington State Takes Center Stage for Privacy Legislation
• Supreme Court Agrees to Review TCPA’s Constitutionality

NAD Refers Supplement Co. to FTC Over Unsubstantiated Health Claims

The National Advertising Division (NAD) has referred health supplement retailer Creekside Natural Therapeutic (Creekside) to the Federal Trade Commission (FTC) over its marketing of a "natural" supplement for children with ADHD, after the company failed to indicate it would comply with NAD’s recommendations.

The Council for Responsible Nutrition (CRN) challenged claims touting Creekside’s "Focused Mind Jr." supplement as a "clinically proven" and “natural alternative to prescription pharmaceutical products which improves focus & memory in children.” According to the advertiser, Focused Mind Jr. contains DMAE (25mg), inositol (100mg), and phosphatidylserine—ingredients that allegedly have been proven to help improve children’s mental focus, mood and emotional well-being. The challenged advertising also claimed that the product was formulated with input from a pediatrician, further bolstering the strong efficacy claims.

Unsurprisingly, NAD found that Creekside’s "powerful health-related claims," which were directed at a vulnerable population, must be supported by competent and reliable scientific evidence. Generally, competent and reliable scientific evidence consists of randomized, placebo-controlled, well-conducted human clinical trials that yield results that are statistically significant and consumer meaningful. In response to the advertiser’s contention that it could not test its products on children for ethical reasons, NAD noted both that it had previously reviewed many supplement studies involving children, and that an advertiser that seeks to rely on adult studies must be able to "bridge the gap" between its support and target population. Also unsurprisingly, the supplement company was unable to meet this rigorous standard.

NAD recommended that Creekside discontinue its “clinically proven" performance claims, which were grounded in studies of the individual ingredients—not the product as a whole. NAD reiterated that, as a general rule, product performance claims should be supported by testing on the product itself. Although NAD has recognized that ingredient-based studies can be used to support narrow, ingredient-based claims, Creekside’s advertising asserted that the product was "clinically proven" to perform as advertised—a message that lacked any reasonable basis.

In addition, NAD recommended that Creekside discontinue claims tending to portray the product as a "natural alternative" to prescription drugs, such as:

Why we created Focused Mind Jr. … [w]e kept getting requests to help children with symptoms normally associated with ADHD. Parents wanted a natural alternative to prescription medicines for attention support during the day.

These types of claims left consumers with the reasonable takeaway that Focused Mind Jr. "is at a parity with prescription drugs." Because the company had not provided any head-to-head testing comparing Focused Mind Jr. against pharmaceutical drugs, this message was deemed unsupported.

With respect to the pediatrician-formulated claims, NAD found that Creekside was entitled to describe the pediatrician’s role in formulating the product, "as long as the claims are carefully tailored [so as not] to state or imply that the product has been scientifically proven to be effective."

Lastly, even where Creekside had made a narrower claim about the efficacy of a specific ingredient, NAD found that Creekside’s evidence was not a good fit for its claims. At NAD, 

Reliable, methodologically sound studies on the ingredients in a product may support properly qualified claims when those ingredients are present in their products in the same amount, formulation and route of administration as the underlying ingredient studies.

Creekside failed to show that its studies, which involved different doses and routes of administration, and were conducted in animal models, adults, or the elderly, could be extrapolated to children. NAD also took issue with Creekside’s reliance on abstracts, noting that an abstract does not contain sufficient information for NAD to assess a study’s reliability.

Creekside failed to file an advertiser’s statement indicating whether it would comply with NAD’s recommendations or intended to appeal, leading the NAD to refer the matter to the FTC for enforcement.

Key Takeaways

Advertisers should take note that substantive health claims must be supported by "competent and reliable scientific evidence." Companies should also tread carefully when making efficacy comparisons between supplements and prescription drugs, which generally require head-to-head clinical trials in the relevant patient population. The FDA does not take such claims lightly, as we’ve seen. It will be interesting to see how the FTC responds; supplements promising to improve cognitive function have been a hot button issue for the agency for several years.

Home Chef Gets a Mixed Bag "OK" From NAD for Superior Customization Claims

Meal kit delivery services are on the rise—so much so that it can be difficult for consumers to distinguish one from the next. Enter Home Chef: a meal delivery service that promises consumers that it offers significantly greater flexibility to customize meals versus its competitor and well-known market leader, HelloFresh.

The National Advertising Division (NAD) found that Home Chef had a reasonable basis for its claims that its meal kit delivery service, with its “Customize It” feature, offers consumers more flexibility than HelloFresh, noting that "it cannot be disputed that Home Chef’s Customize It program offers a significant number of opportunities to either upgrade (or not), switch out the protein (thereby changing the recipe), or increase the amount of protein in its weekly meal selections." 

However, NAD recommended that Home Chef modify the majority of the challenged claims to "avoid overstatement and more narrowly and accurately inform consumers" about the limitations on customization. Among other changes, NAD recommended that Hello Chef modify some claims related to customers' ability to customize meals, specifically that Home Chef provides more choices than Hello Fresh. While agreeing that Home Chef does offer more customizable choices, NAD reasoned that "Home Chef's claims overstate the extent and amount of customization it offers." To remedy this, NAD recommended that Home Chef "more narrowly tailor these claims."

NAD was particularly concerned that many of the limitations on customization would not be apparent to consumers until after they had subscribed to the plan. NAD thus recommended that Home Chef carefully tailor claims that consumers see before subscribing to Home Chef, in order to "more accurately inform … as-yet unsubscribed customers" about the specifics of just how many choices they have, the implication being that Home Chef’s current claims overstate the breadth and freedom of consumers' "customization" ability.

Along those same lines, NAD recommended Home Chef modify claims suggesting that it offers "26 choices" in its customizable menu, as opposed to Hello Fresh’s 18 choices. The NAD reasoned that some of the plates Hello Chef considers unique recipes are not actually different recipes, but just different configurations of the same meal, such as recipes that double up or upgrade a protein. Thus, NAD recommended that the number of meals in this claim be modified to account for a more accurate representation of the number of actual unique provided choices. Similarly, NAD recommended Hello Chef discontinue the claim that it provides "18 new choices each week," finding that the evidence did not support that figure.

NAD further recommended that Home Chef modify its "Rated #1 Customer Satisfaction" claim to clarify that the customer satisfaction referred solely to customers' satisfaction with the service and not as compared to any competitor’s service.

Home Chef said it would comply with the NAD’s recommendations, adding that it had already discontinued certain challenged claims, including "Don't Settle for Hello Fresh," and claims that it was rated highest on Trustpilot.

Key Takeaways

Like the FTC, NAD is concerned that consumers, who increasingly purchase goods by subscription, have access to accurate and truthful information before they commit to a purchase. Although NAD recognizes a competitor's need to distinguish itself, particularly in a saturated market, and to tout the attributes that distinguish its product or services, such claims must be tailored to bona fide substantiation and avoid overstatement.

Class Action Suit Alleges CBD Website ADA-Deficient

A blind plaintiff filed a class action lawsuit against a CBD company accusing it of failing to provide a website that meets Americans with Disabilities Act (ADA) standards.

Plaintiff John Mahoney filed his complaint against Green Growth Brands LLC, a cannabis manufacturer trading on the Canadian stock exchange, which touts its ambition to "become the leading cannabis retail company worldwide." 

Mahoney charged that Green Growth failed to comply with ADA standards by not providing consumers with a website compatible with screen-reader software for the visually impaired, which allows blind and visually-impaired individuals to access content by rendering a website into text. Plaintiff alleged that Green Growth’s failure to provide an ADA-accessible website amounts to discrimination against the visually impaired. "By failing to make its [w]ebsite available in a manner compatible with computer screen reader programs, Green Growth Brands… deprives blind and visually-impaired individuals the benefits of its online goods, content, and services." 

In addition to remedying the website accessibility issue, the complaint also asks that Green Growth implement a comprehensive corporate policy regarding website accessibility for the visually impaired that leads to periodic evaluation of accessibility, as websites are by nature constantly in flux.

The proposed class for the suit is all legally blind individuals nationwide who attempted to access the Green Growth website, but were unable to do so.

Plaintiff seeks a declaratory judgment that defendant is violating the ADA and a permanent injunction requiring the company to bring its website into full compliance with the law by making it fully accessible to visually impaired consumers. Plaintiff also requests that the injunction grant the court continuing jurisdiction "to ensure that defendant has adopted and is following an institutional policy that will in fact cause it to remain fully in compliance with the law." Further, plaintiffs seek to recover costs and attorneys' fees.

Key Takeaways

Mahoney's class action suit is only one such claim facing CBD companies. In New York and Colorado, visually impaired consumers filed separate suits alleging similar violations of the ADA on the websites of CBD companies. This type of litigation is one of many legal woes facing the still new cannabis industry, including multiple false ad claims against companies accused of mislabeling their products, as we've covered here and here. It may also highlight the growing pains that such companies face as they seek to expand their reach, and are subject to many of the same legal requirements and restrictions that apply to other online retailers.

Washington State Takes Center Stage for Privacy Legislation

As the 2020 legislative session begins, Washington State looks like Ground Zero for privacy bills.

Most prominent, of course, is Senate Bill 6281, the "Washington Privacy Act." This bill is a comprehensive consumer privacy statute, modeled generally on the GDPR (and, to some extent, on the CCPA). This bill deserves its own deep-dive blog post, which will be forthcoming as the legislative session proceeds.

At a very high level, however, this bill would:

• Give consumers rights of access, correction, deletion, and data portability, as well as the right to opt out of the processing of their information;
• Impose on businesses (data "controllers") obligations to minimize the data they collect, to specify the purposes for which they collect data, to avoid secondary uses beyond the specified purposes, and to conduct periodic "data protection assessments;"
• Define "deidentified" and "pseudonymized" data, with separate (more relaxed) rules about how businesses can use such data;
• Exclude from its scope a range of data covered by other federal and state laws, such as health-related data, financial data, and educational data;
• Impose a range of restrictions and requirements on the use of facial recognition technology; and
• Vest enforcement in the Attorney General, explicitly denying any private right of action.

The Washington Privacy Act will clearly be the focus of a great deal of lobbying and legislative activity in the coming weeks.

That said, a range of more focused privacy bills has been introduced as well. While the prospects of these bills vary, it’s worth reviewing them briefly, both to get a sense of the issues of concern to legislators and because any of them could at least potentially be enacted, either as a stand-alone bill or added as an amendment to the broader legislation.

Washington State Privacy Legislation

Here's a quick look at the bills that would regulate commercial entities:

• House Bill 2364 is a shorter and less detailed version of a comprehensive privacy bill. It "declares, in plain language, the new baseline norms and expectations for the protection of personal data by businesses and enacts a lasting charter of personal data rights." These new rights and obligations would include:
• A consumer's right to know what data a business collects and processes about the consumer; the right to access that data and have it available in a readily usable format; the right to object to and opt out of selling or licensing the data to third parties; the right to correct erroneous information; and the right to delete any information collected or processed by the business.
• A business's obligation to provide clear notice of what information is collected and what the business does with it; to minimize data collection to that reasonably necessary to provide services requested by an individual; to avoid secondary uses; to keep personal data secure; to not discriminate against individuals who exercise their rights under the law; and to manage and supervise third parties engaged to store or process data on behalf of the business.
  

  In addition, consumers would not be permitted to waive their rights under the law; and violations of those rights (or failure to fulfill a business’s obligations) are declared to be unfair deceptive practices and unfair methods of competition, subject to individual actions by consumers and actions by the Attorney General. The only specified exemption relates to a business collecting data regarding job applicants, employees, or contractors.

• House Bill 2363 would declare that people have an "exclusive ownership interest" in their biometric identifiers (broadly defined). This bill would require the Attorney General to convene a task force, comprised mostly of advocates for civil liberties, consumer protection, and privacy rights, which would recommend legislation to "provide justice to those whose ownership rights in biometric identifiers are violated."
  

  At a high level, this bill would apply the logic of intellectual property (copyrights and patents) to the question of individual control over their own biometric identifiers. While conceptually interesting, it seems evident that there would be a range of practical issues in adopting this approach – which is probably why the bill calls for a report and recommendations rather than actually proposing any new substantive obligations.

• House Bill 2365 would require the design and deployment, by January 1, 2022, of stickers for connected devices that disclose that the device transmits consumer information to the device manufacturer and/or third parties. It would ban the sale of any connected device without the appropriate accompanying sticker.
• House Bill 2396 would regulate bots in a variety of contexts:
• First, the bill would make it unlawful (and an unfair or deceptive practice and an unfair method of competition) to use a bot to mislead any person about the bot’s artificial identity, but with no liability if the bot’s role in making the communication is adequately disclosed;
• Second, the bill would require online platforms to investigate reports by users of suspected misleading bot activity;
• Third, the bill would make it unlawful to use a bot for misleading online political advertising, again unless the bot’s role in making the communication is adequately disclosed.
• House Bill 2399 addresses connected devices with voice recognition capability. It would require manufacturers of devices with voice recognition capability, at "initial setup or installation," to prominently and separately advise consumers of that capability and that it may be used to process and retain recordings and transcripts of spoken words.
  

  In the absence of express written consent, recordings and transcripts (a) could not be used for any advertising purpose; (b) could not be disclosed to any third party; and (c) could not be retained anywhere other than the device itself, unless affirmatively consented to by the user. Even if consent is given, the user would have to be able to delete any transcripts or recordings at any time, and could withdraw any consent given at any time.

  Failure to comply with the new requirements is deemed to be an unfair and deceptive act and an unfair method of competition.

• Finally, House Bill 2401 addresses the use of artificial intelligence to process video recordings of job interviews. Employers would be required to:
• Notify the applicant that AI may be used to process the interview recording before the interview;
• Provide the applicant with information about how the AI works and what types of characteristics it uses to evaluate applicants;
• Obtain consent from the applicant to have the AI perform those functions; and
• Delete recordings of video interviews upon request of the applicant.

In addition, employers would be barred from:

• Using AI to evaluate applicants who have not consented to it;
• Sharing applicant videos beyond those people needed to evaluate the applicant; or
• Rejecting an applicant solely based on refusal to consent to the use of AI to analyze the interview.

Washington State Public Sector Privacy Bills

In addition to the foregoing, the legislature has introduced the following bills which would address privacy issues in the public sector:

• Senate Bill 6280 imposes a wide range of limitations and restrictions on the use of facial recognition technology by state and local government agencies. These include:
• Preparation of a detailed "accountability report" prior to deploying the technology;
• Preparation of an annual report on the extent of use of the technology, an assessment of compliance with the accountability report, and disclosure of any apparent violations of the report;
• Meaningful human review of any decisions having significant effects on consumers made using facial recognition technology, such as decisions about housing, education, or criminal justice;
• The obligation to test facial recognition technology before it is deployed and to require system providers to allow third-party testing for potential bias;
• The obligation to train users of the system regarding its capabilities and limitations, as well as the requirement of meaningful human review;
• Limitations on the use of facial recognition technology by law enforcement, including a warrant requirement before using the technology for ongoing surveillance; and
• The obligation to disclose to criminal defendants in a timely manner prior to trial the use of the technology.
• House Bill 2366 would make the state's Chief Privacy Officer an elected position.
• House Bill 2400 would require the state Office of Data Privacy and Protection to annually survey state agencies regarding their data collection, use and sharing, and their data security practices. 

We'll provide periodic updates on the progress of these bills through the Washington legislature as developments warrant.

Supreme Court Agrees to Review TCPA's Constitutionality 

The U.S. Supreme Court has granted certiorari to review whether a 2015 amendment to the Telephone Consumer Protection Act (TCPA) violates the First Amendment and/or if it perhaps renders the statute unconstitutional as a whole.

Specifically, on a petition for review of the decision by the U.S. Court of Appeals for the Fourth Circuit in American Association of Political Consultants v. FCC, the Supreme Court agreed to consider the question presented of "[w]hether the government-debt exception to the TCPA's automated-call restriction violates the First Amendment, and whether the proper remedy for any constitutional violation is to sever the exception from the remainder of the statute."

Reed v. Town of Gilbert

The constitutional issue in American Association of Political Consultants arises in significant part from a confluence of events in 2015. The TCPA, and implementing rules administered by the Federal Communications Commission (FCC), regulates telemarketing and prohibits the use of automated telephone dialing equipment to call or text cell phones and use of prerecorded messages generally, except with prior consent of the called party or for emergency purposes.

Part of the Bipartisan Budget Act of 2015 amended the TCPA to exempt from this ban calls to "collect a debt owed to or guaranteed by the United States," and in 2016, the FCC adopted rules formalizing that exemption. Meanwhile, also in 2015, the Supreme Court in Reed v. Town of Gilbert clarified that governmental regulations are content-based if they apply to particular speech because of the topic discussed or idea or message expressed—i.e., if content must be examined to assess whether and/or how a regulation applies.

Reed came to be featured prominently in First Amendment attacks on the TCPA and its implementing rules, and on state analogs, which (pre-Reed) typically had been upheld under intermediate scrutiny. Post-Reed, litigants have sought strict scrutiny and invalidation on First Amendment grounds, alleging that the TCPA's federal debt collection exemption and/or other exceptions or allowances such as those created by the FCC for, e.g., noncommercial calls, health care calls, generic debt-collection, etc., are content based.

Mixed Results from Reed

In some cases, courts have held Reed applies and, for example, struck down state laws under strict scrutiny. Other courts held strict scrutiny does not apply and upheld the TCPA (or the state law), while still others held strict scrutiny applies but that regulation of "robocalling" and/or telemarketing involve rare cases of when a statute (or rule) survives strict scrutiny.

And some courts, like the Fourth Circuit in Political Consultants, have held strict scrutiny applies due to the TCPA's federal debt collection carve-out, but rather than invalidating the statute as a whole, severing the content-based exception renders the law constitutional.

TCPA's Fate and Reed's Application

The outcome of Supreme Court review in Political Consultants is anxiously awaited. There is a great deal of litigation under the TCPA and with it has come divergent authority. Along with the Political Consultants' constitutional issue, the question of how to identify "automatic telephone dialing systems" for the TCPA autodialer restriction has resulted in differing answers across the country after the U.S. Court of Appeals for the District of Columbia decision in ACA International v. FCC left stakeholders in search of nationwide consistency.

Supreme Court review in Political Consultants should not only provide a nationwide answer on whether the TCPA is unconstitutional now that it includes a federal debt collection exception and, if so, whether invalidation or severance is the proper result, but also guidance on how to apply Reed to statutes like the TCPA.

The case should be briefed this term but likely not heard and decided until the next.