Stay ADvised: What's New This Week, August 17
In This Issue:
- Ship It or Kick It: FTC Sues Three Over False Claims of Fast PPE Shipping
- Not So Rapid Resolution - Plaintiffs Drop False Ad Suit v. Walgreens After More Than Eighteen Months
- Kraft Heinz Bid to Dismiss False Ad Suit Not "Crystal" Clear at This Point
- Your Immunity Claims Smack of COVID Cures, NAD Tells Supplement Co.
- Survey Says … Ghirardelli False Ad Claims Are Out
Ship It or Kick It: FTC Sues Three Over False Claims of Fast PPE Shipping
The Federal Trade Commission (FTC) is once again stretching its COVID-19 scam-fighting muscles, this time by filing three separate complaints against companies it accuses of lying to consumers about the availability and shipping times of personal protective equipment (PPE).
The three companies all have one thing in common: they allegedly promised consumers that masks, hand sanitizers, and other PPE were in stock and that orders would be shipped promptly but failed to deliver when promised. The FTC claims that even though the defendants did eventually ship product to consumers, the businesses violated the Mail, Internet and Telephone Order Rule (Mail Order Rule), which requires that companies notify consumers of shipping delays in a timely manner and give consumers the chance to cancel orders and receive prompt refunds.
The FTC noted that this course of action is particularly troubling in light of the fact that consumers ordered the products precisely because the companies promoted their immediate availability – the importance heightened given the reported shortages associated with COVID-19. In addition to failing to deliver on time, these companies also allegedly failed to provide refunds or any updates on shipping times.
First, in a case filed in the U.S. District Court for the Central District of California, the FTC alleged that QYK Brands d/b/a Glowyy capitalized on demand for hand sanitizer "in the early days of the pandemic" by publishing ads promoting that its products were "In Stock" and would ship the very same day. Yet, it took more than a month for the products to arrive.
The company even allegedly created USPS shipping labels long before it actually shipped the products. Further, it did not offer refunds or allow consumers to consent to the delay, as the Mail Order Rule requires. The complaint against Glowyy also makes further serious allegations, including that the company falsely claimed that its products could treat or cure COVID-19 and were FDA-approved to do so.
Second, in a case filed in the U.S. District Court for the Southern District of Texas, the FTC alleged that Zaappaaz Inc. d/b/a wrist-band.com represented that its facemasks, hand sanitizer, shields, and gloves were "GUARANTEED TO SHIP TODAY." Instead, goods took more than two weeks to ship, consumers were not warned about the shipping delays, and complaints went ignored. The company also did not give consumers the opportunity to cancel their orders given the delay. The complaint also alleges that Zaappaaz delivered defective products and refused to give refunds.
Finally, in a case filed in the U.S. District Court for the Eastern District of Missouri, the FTC alleged American Screening, which sold PPE in bulk to hospitals, governments, and nursing homes, failed to ship on time after promising products would be shipped "within 24-48 hours." That promise did not materialize, even for a company that serviced healthcare providers. In some cases the hospitals and nursing homes relying on the orders had not received them weeks or months after ordering.
Regardless of whether COVID-19 cases are on the rise, leveling off or falling, the FTC is not relenting in its efforts to prevent profiteering. The Mail Order Rule is another effective weapon in the FTC's arsenal. These companies may not be peddling virus treatments or cures, but the FTC has been clear it is not viewing these false promises as simple miscalculations by the companies but, rather, as "safety concerns."
Not So Rapid Resolution - Plaintiffs Drop False Ad Suit v. Walgreens After More Than Eighteen Months
Plaintiffs in a class action lawsuit pending before the U.S. District Court for the Northern District of Illinois claiming that Walgreens misrepresented the speed of its "rapid release" tablets have voluntarily dismissed their suit without prejudice, putting an end (at least for now) to one of several ongoing suits making similar allegations that rapid release tablets are not as fast-acting as the manufacturers and sellers imply.
There is no word on the reason why plaintiffs dismissed the case or whether they plan to refile at a later date, although Walgreens had a pending motion to dismiss which it had filed back in February 2019.
Plaintiffs filed their initial complaint way back in November 2018, alleging Walgreens falsely represented that "Rapid Release" or "fast-release" acetaminophen gelcaps were the "quickest" and "fastest" acetaminophen products on the market, relieving pain faster than non-rapid release acetaminophen products. The complaint further seeks to hold Walgreens accountable for advertising claims made by the brand name manufacturer of acetaminophen by grafting those claims onto the Walgreens products.
Allegations in a number of similar cases allege that some manufacturers' "rapid release" products actually dissolve more slowly than their non-rapid release products, an issue separate from how quickly they work to provide relief.
In its motion to dismiss, Walgreens argued that plaintiffs' claims were preempted by the Food and Drug Administration (FDA) Modernization Act of 1996. According to Walgreens, that statute already regulates "every aspect of [over the counter] medication, including labeling and branding," setting forth standards for the rate of dissolution which Walgreens said its product was already meeting. Adhering to plaintiffs' arguments would require an over the counter drug using the "rapid-release" claim to have the fastest release time, going beyond the federal law requirement.
Walgreens also argued that plaintiffs' claims that Walgreens misrepresented that its rapid-release products worked faster than its standard pills could not survive given that nowhere did Walgreens actually claim that its rapid-release pills worked faster than its other products. It simply used the FDA-allowed term "rapid release." Walgreens further argued that a study submitted by plaintiffs in support of their claim, which showed that Walgreens "easily" met the FDA's requirements for its "Rapid Release" label, only hurt their case.
There have been recent rulings that the same types of claims made here are not preempted by the FDA and give rise to actionable non-puffery claims. While unclear from the docket, it could be that such decisions are paving the way for early resolutions of remaining actions as companies see the writing on the wall.
Kraft Heinz Bid to Dismiss False Ad Suit Not "Crystal" Clear at This Point
A suit alleging that Kraft Heinz falsely advertised as "natural" the presence of artificial flavors in its Crystal Light drinks will continue after a California court rejected Kraft's motion to dismiss, shooting down arguments it mostly characterized as premature at the pleading stage.
Plaintiffs filed a presumptive class action suit alleging that labeling on Kraft's Crystal Light drinks falsely advertises that the beverage contains no artificial flavors, when the malic acid listed in the ingredient list is synthetic DL-malic acid (a substance made "by hydration of fumaric acid or maleic acid") rather than L-malic acid (naturally-occurring in some foods).
Plaintiffs pointed out that the marketing of Crystal Light as having no artificial flavors misled them, and that they wouldn't have bought the product if they'd known it contained artificial DL-malic acid. They brought claims under California's Unfair Business Practices Act (UCL), False Advertising Act (FAL), and multiple New York, Georgia, and Texas laws governing deceptive and business practices. In its motion to dismiss, defendant argued that plaintiffs had not "adequately alleged that the malic acid in Crystal Light is 'artificial' or a 'flavor.'"
Judge Dale S. Fischer rejected defendant's motion to dismiss, finding that plaintiffs had adequately alleged that the "no artificial flavors" claim on Kraft's Crystal Light products was false or misleading. Kraft argued that plaintiffs' allegations it used DL-malic acid because it was cheaper than L-malic acid and because the company thought consumers would not notice the difference were "nothing more than speculation." The court found this argument irrelevant and reasoned that though plaintiffs may be speculating as to why Kraft used DL-malic acid, plaintiffs "unequivocally" alleged that the company was using the ingredient.
All the plaintiffs needed to allege at this stage, the court said, is that the malic acid in the drink was artificial, even if that allegation turned out to be incorrect at a later stage. Further, despite Kraft's arguments, plaintiffs were not "required" to explain "how they discovered that the malic acid in Crystal Light is 'artificial'" in order to survive a motion to dismiss.
Kraft also argued that the court should dismiss the suit because as alleged the malic acid was used as a flavor "enhancer" rather than as actual flavoring. But the court again held that this was a premature issue at this stage in the pleadings. Whether a plaintiff has "adequately alleged that malic acid acts as a flavoring agent, flavor enhancer, or a pH control agent in a particular product … [is] a factual dispute not properly resolved at the motion to dismiss stage," wrote the court.
Judge Fischer also rejected plaintiffs' arguments that the court does not have personal jurisdiction over class members outside of California, again on the grounds that the argument was premature. For the same reasons, it rejected Kraft's request to dismiss the claims of class members outside of the four states where plaintiffs alleged class members purchased Crystal Light, based on lack of standing.
Factual allegations at the pleading stages will be viewed by the court as true when evaluating a motion to dismiss, even if it the plaintiffs do not include the basis on which their claims are founded; a plaintiff need only allege enough facts to state a claim for relief. Courts may conclude that arguments in a motion to dismiss that attack the factual allegations are premature for the motion to dismiss phase.
Your Immunity Claims Smack of COVID Cures, NAD Tells Supplement Co.
Following an investigation it initiated as part of its routine monitoring program, the National Advertising Division (NAD) recommended that supplement company Nomolotus d/b/a Truvani discontinue certain claims that imply its product could prevent, treat, or cure COVID-19. The advertiser voluntarily agreed to discontinue the challenged claims as well as a number of cited customer reviews.
In this matter, NAD found that claims for the product's immunity-boosting powers, even when the claims did not expressly mention COVID-19, should be discontinued because in context they implied that the supplement could prevent, treat, or cure COVID-19. It's not the first time NAD has found that immunity claims imply protection against COVID-19, in large part because we are living in times of global pandemic.
For the ad in question, Truvani advertised its Immune Support dietary supplement on social media with the tagline "Support Your Immune Health Now…or Kick Yourself Later." The ad also featured text that read that "Right now everyone is thinking about their immune health." To NAD, this ad conveyed the message that the product protects against COVID-19.
It didn't help the company that two accompanying customer reviews for the product specifically expressed that message. One customer wrote that he felt "so well protected from COVID-19 with your supplements." Another customer wrote that the product was the only thing that helped with "undiagnosed corona virus."
NAD requested substantiation for the claims made in the customer testimonials. In doing so, it specifically mentioned that it has in other cases noted "that companies selling products with claims about immunity support must take care not to overstate those claims in a way that conveys the message to consumers that its products can provide benefits related to fighting COVID-19." It also reminded advertisers that the issue of claims about COVID-19 protection and cures is a major concern not just of NAD but of the FTC and FDA as well, which have sent multiple warning letters to advertisers over similar marketing.
NAD did not further analyze the claims or conduct a full review to determine whether the customer reviews constituted "advertising," because Truvani voluntarily agreed to discontinue both. For its part, Truvani maintained that it did not highlight or curate the reviews placed by consumers at its website, and so was immunized from liability by Section 230 of the Communication Decency Act. In short, Truvani argued the customer reviews were not advertisements (did not violate the FTC Endorsement Guidelines), and so product claims are not properly imputed to the advertiser.
At least at NAD, advertisers now need to consider how current public health and possibly social and political context may impact the messages implied by their advertising claims. And, as always, advertisers may not rely on customer comments to make claims they could not otherwise support.
Survey Says … Ghirardelli False Ad Claims Are Out
A California court dismissed with prejudice class action claims alleging that Ghirardelli falsely advertised its "Classic White" Premium Baking Chips product, finding that a survey submitted by plaintiffs in their latest bid to make their case did not suffice to show that the claims would deceive the reasonable consumer, as required under the California Unfair Competition Business Law (UCL), False Advertising Law (FAL), and the Consumer Legal Remedies Act (CLRA).
Plaintiffs' original class action complaint alleged that they purchased the Ghirardelli baking chips advertised as "Premium Baking Chips" and "Classic White Chips" because the labeling led them to believe the product was made with real white chocolate of a "premium" quality. They claimed that because the product did not actually contain any actual white chocolate, as defined by FDA regulations, Ghirardelli's claims constituted false advertising.
The court disagreed and dismissed the original complaint on the grounds that plaintiffs had not met the burden of showing that reasonable consumers would assume "white" referred to the type of chocolate rather than its color. The court also held that since the packaging did not include any affirmatively false statements, plaintiffs should have been aware that the ingredient list did not declare white chocolate (or otherwise use the words chocolate or cocoa) as an ingredient. Finally, the court held that the use of the word "premium" was mere puffery.
In an attempt to persuade the court otherwise, plaintiffs' first amended complaint argued that a new survey they commissioned showed that reasonable consumers would be deceived by the chocolate maker's claims. The survey showed that almost 92 percent of participants believed the product contained white chocolate. To plaintiffs, these survey results served as proof positive that the reasonable consumer would, in fact, be misled by Ghirardelli's claims.
The court disagreed. It found a number of issues with the survey and with plaintiffs' arguments. "The survey itself undermines, rather than supports, plaintiffs' claims," wrote the court. Its fatal flaw: the survey omitted the back panel from respondents and only showed them the front panel, "depriving respondents of relevant information, namely the ingredient list." By failing to address the ingredient list on the back panel, the survey was legally insufficient to render plaintiffs' unreasonable understanding of the claims into a reasonable understanding.
Consumer Perception Surveys are generally necessary to prove that consumers are deceived by "implied" advertising claims. A "bulletproof" survey, however, is hard to find, and some would argue survey design is as much art as science. This case is a reminder that leaving out part of what the consumer would see at retail (here the front and back of the package) is, at best, inartful.