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Brand Protection & Advertising

Stay ADvised: What's New This Week, February 15

02.19.21
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In This Issue:

Not All Fun and Games for Mobile Advertising Co.

Mobile ad company Tapjoy has agreed to settle false advertising claims brought by the Federal Trade Commission (FTC) that portrayed the company as something of a killjoy for its alleged failure to fulfill advertised in-app rewards.

The FTC has explained that these types of advertisements are ubiquitous on apps and mobile games: click on this survey to receive gold or diamonds for use in the game; watch that ad and unlock new app features, all for free, or so the unwary consumer is led to believe. The FTC's complaint alleged that Tapjoy promoted in-app rewards on behalf of third-party advertisers on multiple gaming apps, but often failed to provide the promised rewards, even where consumers had paid for the underlying advertised goods or services.

Tapjoy advertised virtual currencies for use in these gaming apps that users could get in exchange for payment or subscription enrollment, for example. App users could also earn game currency by performing actions like watching a short video, completing a survey, or even disclosing sensitive identifying information.

The problem, alleged the FTC, was that Tapjoy's advertisements were often mere bluffs. Many users completed the requested action—but earned none of the advertised rewards in exchange.

In the grand tradition of suspicious schemes involving free trials, Tapjoy is also alleged to have offered rewards in exchange for free trials that automatically converted to recurring charge subscriptions after the expiration of the "free" trial period, while users waited in vain to receive the promised rewards. Also, when users provided personal identifying information to earn rewards, they allegedly received requests for additional and even more sensitive personal disclosures.

Tapjoy knew there was a problem too, said the FTC. It received "hundreds of thousands" of consumer complaints from users upset that they never received promised rewards. Most complaints went nowhere, as Tapjoy failed to respond and actively discouraged complaints. According to the FTC, internal company documents showed the company knew it "[had] a problem," and that the issue was "not news" to Tapjoy. It also knew that requests for personal information were "out of control," said the FTC.

The settlement agreement prohibits Tapjoy from misrepresenting reward offers and requires it to provide clear and conspicuous offer terms. The company must also let users know that third-party advertisers are the ones who determine whether a reward is issued—not Tapjoy.

Key Takeaways

As the gaming world grows ever-larger, the FTC interest in the so-called gatekeepers of offers such as those at issue here grows as well. The FTC Commissioners made clear it is looking closely at companies including Apple and Google to ensure they, and others platforms, are performing and enforcing their gatekeeping policies when it comes to apps and games.

Judge Takes a Bite Out of PetSmart "Natural" Label Class Action

All has not gone to the dogs just yet for named class-action plaintiff Alexa Grossman whose lawsuit alleges that PetSmart and Simply Nourish Pet Food misled her and others through ads touting the companies' dog food as "natural," despite containing synthetic vitamins and minerals. A New York district court judge did, however, scale the complaint back significantly on defendants' motion to dismiss.

The March 2020 complaint alleges that plaintiffs paid a premium to the pet supermarket giant and the dog food manufacturer based on their falsely and deceptively marketing their pet food as made from "Natural Ingredients" and "Natural Wholesome Ingredients." Plaintiff argued she and the class relied on these false representations which lowered the monetary value of the products below what plaintiff had paid for them, causing economic damage.

Judge Kiyo A. Matsumoto dismissed claims of unjust enrichment, breach of warranty and violations of the Magnuson-Moss Warranty Act, but allowed claims for false and misleading marketing and business practices. Although much of the product ingredients were indeed natural, the judge noted that consumers might reasonably believe that the "natural" labeling applied equally to added vitamins and minerals.

The Judge rejected defendants' arguments that the phrase "added vitamins and minerals" necessarily differentiated those ingredients from those that were natural. Judge noted that plaintiffs had "plausibly alleged that a reasonable consumer viewing the Products' label may interpret 'natural' … to mean that the products do not contain synthetic ingredients."

On the other hand, the court agreed with defendants' argument that plaintiff had no standing to sue on the injunctive claims. Plaintiff's admission that she was aware the products contained synthetic ingredients, and that she would not purchase them as a result, precluded her from claiming the risk of future deception and injury required to seek injunctive relief, reasoned the court.

Plaintiffs' arguments that defendants' actions constituted breach of the federal Magnuson-Moss Warranty Act were similarly unavailing. According to the court, the use of the moniker "natural" was a product description, and not the type of warranty or promise of a "specified level of performance" that is protected by law.

The court also dismissed plaintiff's express warranty claims, holding the assertion that she placed defendants on notice of the breach "within a reasonable time after they knew or should have known" of the breach was not sufficient to plead the required notice. The court granted plaintiff leave to amend this cause of action, however.

Key Takeaways

Natural food claims continue to fuel the class action bar, whether for human or animal consumption. To that end, synthetic vitamins are generally chemically indistinguishable from those sourced naturally. Nonetheless, unless and until courts determine the difference is therefore not material to consumers (and there are cases going both ways), food manufacturers are wise to take care in their labeling and advertising.

J&J Tries to Slip Out of "Oil-Free" False Ad Class Action

Johnson & Johnson has moved to dismiss a class action lawsuit alleging it falsely advertised more than 40 beauty products from the company's Neutrogena and Clean & Clear skincare lines as "oil free skincare" when, says plaintiff, these products actually contain oil. In response, the company said plaintiff's claims are "unsupported by the evidence." The case hinges on whether the included substances at issue are—or are not—oils.

The class complaint alleges that Johnson & Johnson labeled as "oil-free" products ranging from make-up removers to sunscreen to facial cleansers and more, despite containing "oil soluble" ingredients plaintiffs' alleged can be characterized as oil. According to plaintiffs, the company did so intentionally, expecting consumers would not know the difference. The complaint alleges fraud claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, breach of express warranties, and for unjust enrichment.

Johnson & Johnson forcefully rejected plaintiff's allegations, arguing that her characterization of "oil free" is fundamentally flawed. As Johnson & Johnson explained, "[p]laintiff's position is that "oils" include materials that are "fat-soluble" and "oil soluble," albeit "oil soluble" and oil are not synonymous. The company notes that "every product in existence" contains the type of "fat-soluble (i.e. lipoliphic)" substance that plaintiffs call "oil."

No reasonable consumer would interpret the products as containing oil, argues Johnson & Johnson. Indeed, lead plaintiff does not allege that "she personally understood 'oils' to mean anything that is fat-soluble or even suggest that reasonable consumers buying "oil-free" products would understand the term "oil-free" in the same way," argued the company.

Further, Johnson & Johnson argues that the named plaintiff failed to properly allege basic facts necessary for relief, including which products she purchased, that any of the products didn't work as advertised, or that they had an adverse effect on her due the oil she claims they contain. Plaintiff also failed to allege she was personally injured by the allegedly deceptive advertising, according to the motion.

Key Takeaways

Named plaintiff Norah Flaherty has also filed complaints alleging similar claims against Maybelline and L'Oréal. If these claims hold water, the litigation could have implications for the beauty industry, since products marketed as "oil-free" make up a popular segment of the beauty market.

Nano Glutathione Health Claims Are a No-Go at NAD

As part of its initiative with the Council for Responsible Nutrition (CRN) to clean up the market for dietary supplements, the National Advertising Division (NAD) has recommended Nanoceutical Solutions discontinue or modify a broad swath of health-related claims for its liquid dietary supplement Nano Glutathione, finding a poor fit between the claims and the proffered substantiation.

Nanoceutical Solutions promoted its Nano Glutathione supplement as a naturally occurring "disease buster and master detoxifier that can "prevent aging, obesity, cancer, heart disease, dementia, joint pain, and is necessary to treat everything from Fibromyalgia, Alzheimer's disease, Immune Disorders, … [to] Diabetes." The advertiser also touted clinical studies that allegedly showed that "levels of Glutathione in the test group increased by 804% compared to the placebo group."

NAD concluded that although Nanoceutical Solutions offered scientific studies in support of the claims, they did not provide a reasonable basis for its powerful health-related performance claims.

First, NAD recommended Nanoceutical discontinue the claims that reasonably conveyed a message that the product was effective as a treatment and therapy for various health conditions. Here, Nanoceutical Solutions tried to rely on an in vitro permeability study and a preliminary pilot study designed to assess the bioavailability of glutathione after a single dose, neither of which was designed to show any therapeutic benefit. NAD also noted that the existing literature regarding the effects of glutathione supplementation is inconclusive.

Second, with respect to the establishment claim tying an 804% increase in glutathione levels in a double-blind study to "reducing oxidative stress and therefore reduction of a vast majority of diseases," NAD again concluded that the advertiser had "overstated" the limited nature of the studies. Crucially, the double blind study was in fact single blind, and the substantive findings of that study—the staggering increase in glutathione levels and the reduction of stress and disease—did not support Nanoceutical's far-reaching claims.

With respect to specific disease- and condition-related claims, Nanoceutical argued that there are "hundreds of studies" supporting the connection between glutathione and the various ailments identified in its ads. However, NAD agreed with CRN that the claim implied that the product itself could treat or cure these diseases, so the studies merely showing a connection between these conditions and glutathione levels were beside the point.

Key Takeaways

As always at NAD, health-related claims must be supported by competent and reliable scientific evidence. Advertisers must take care not to exaggerate the limits of their support, or to connect data showing that a substance permeates the skin or is bioavailable with specific health benefits, absent correspondingly specific support.

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