Stay ADvised: What's New This Week, March 22
In This Issue:
- Ford Bronco Bucks Competitor Challenge at NAD
- FCC Charges Publisher Committed Con on Convicts
- Direct Selling Wine Company Imbibes DSSRC Recommendations to Chill Earnings Claims
- 5th Circuit Clicks Affirm on "Pay-Per-Click" Lanham Act Liability
Ford Bronco Bucks Competitor Challenge at NAD
Ford Motor Company successfully beat back a broad challenge to its 2021 Ford Bronco advertising brought by competitor FCA (Fiat Chrysler Automobiles) before the National Advertising Division (NAD), a BBB National Program.
FCA, maker of the Jeep brand of vehicles, challenged just about every claim Ford made for its newly re-designed and re-launched 2021 Bronco, right down to whether the Bronco was even real, or just a "concept" vehicle touted prematurely by Ford's marketing department. Underlying the laundry list of (nearly 40) claims FCA challenged were three overarching issues: whether Ford properly identified the vehicle "class" for its best-in-class claims; whether the timing of when those claims were made was proper; and whether Ford accurately represented the history and origins of the 2021 Bronco.
Virtually down the line NAD said yes, Ford's claims were fully and properly supported. NAD affirmed that when making "best-in-class" claims, an advertiser must have a reasonable basis for defining the competitors which make up the "class." Here, NAD found that comparing the Ford Bronco to the Toyota 4Runner and the Jeep Wrangler for Ford's "best-in-class" claims was reasonable and supported by the industry's and consumers' understanding of the competitive set.
Since the reveal of the 2021 Bronco in July 2020, industry and consumer publications have consistently compared these three vehicles to one another. The three are all midsized traditional/body-on-frame (as opposed to crossover/unibody) utility vehicles. NAD agreed that manufacturers, including FCA, treat their crossover (unibody) and traditional (body-on-frame) utility vehicles differently and that media and consumers recognize and value the difference.
In line with prior NAD precedent, NAD found that Ford properly further divided the class by size and price (thus excluding larger and/or more expensive traditional utility vehicles). NAD further concluded that Ford's calling the class of vehicles "medium traditional utilities" is not misleading to consumers, and noted that there is no uniform class nomenclature in the auto industry.
FCA next alleged that Ford should not be able to assert "best-in-class" claims when its 2021 Ford Bronco "was only a conceptual vehicle …, and not actually available to consumers in the marketplace." NAD found that FCA's arguments did not align with how and when claims are made in the auto industry generally, including by FCA. The key, said NAD, is that the claims are substantiated when made. Almost without exception, NAD found that Ford's claims were based on final and validated metrics, adding a few cautionary notes true for all advertisers about when and how claims should be updated.
NAD found the Bronco was long past the concept stage, and concluded that it was not misleading for Ford to qualify the Broncos displayed in Ford's advertising as "preproduction models," a practice in line with industry methods (including FCA's own). NAD likewise found truthful and in line with industry practice the use of terms like "projected" for supported claims awaiting further third-party certification.
NAD also put to rest FCA's complaints that Ford was appropriating Jeep's WWII history as its own. There again, NAD found that Ford provided a reasonable basis for its claims that Ford played a role in designing and building many of the famed quarter-ton 4x4 trucks during World War II and that the 2021 Bronco finds its origins in Ford's World War II efforts.
NAD is often thought of as a challenger-friendly forum. This case is a great example of the care NAD takes to examine challenged claims closely, and its willingness to find those claims supported. The case further points to the significant role that industry practice can play in determining whether an advertiser has a reasonable basis for its advertising practices and claims.
FCC Charges Publisher Committed Con on Convicts
A Florida-based magazine subscription service has been implicated in a scheme to bilk prisoners and their families out of millions of dollars by promising, but rarely delivering on, prepaid magazine subscriptions.
The complaint filed by the FTC and Florida Attorney General Ashley Moody alleges that Inmate Magazine Service (IMS) and its manager/owner Roy Snowden ran a scheme to defraud inmates and their families by advertising prepaid magazine subscriptions that, in most cases, were never delivered. Defendants are accused of violating the FTC Act, the FTC's Mail, Internet, or Telephone Order Merchandise Rule, and the Florida Deceptive and Unfair Trade Practices Act.
According to the FTC, the business's sole purpose, as indicated by its marketing strategy and even its name, was to sell magazines to inmates by advertising well-priced deals directly to its target audience via its website—inmatemagazineservice.com—as well as in prison-related publications such as Prison Legal News. The FTC alleges that inmates and their families paid upfront for most magazine subscriptions that arrived much later than the promised receipt window, or not at all. By then, IMS had already enriched itself with millions of dollars.
When customers tried to inquire about their orders, IMS made it nearly impossible to do so. Not only did the company advertise "only one customer service request per 30 days," but often customers who attempted to reach out to the company directly failed to receive a response. Only after multiple consumer complaints led consumer protection agencies, including the Better Business Bureau (BBB), to contact IMS, did the company give any sort of explanation for the missing and delayed orders, assuring the BBB that it was a temporary problem.
The allegations of underhanded behavior go on. Not even consumer protection agencies were able to obtain refunds for consumers, with IMS citing its "no refunds" policy. Sometimes the company offered "free" magazines as a remedy instead, which in many cases failed to materialize.
Moreover, IMS told consumer protection agencies it did not know if or when magazines had shipped. In at least one instance, a consumer contacted the magazine publisher directly and was told that the publisher "ha[d] not received any orders through" IMS and did not have a contract with IMS.
A federal court has already granted the FTC a temporary restraining order halting IMS' operations while the FTC case proceeds.
Direct Selling Wine Company Imbibes DSSRC Recommendations to Chill Earnings Claims
The Direct Selling Self-Regulatory Council (DSSRC) is urging One Hope, a California corporation, to cease or significantly modify some of its claims about the earnings potential associated with its direct marketing program for wine, coffee, and other beverages. The national self-regulation program is particularly concerned about the targeting of consumers who lost income due to the COVID-19 pandemic.
One Hope came to the DSSRC's attention recently as part of its ongoing monitoring of advertising claims in the direct selling industry. The company markets wines "for the good of others," indicating that it donates to charity portions of sales (both direct sales and sales made by customers who take part in One Hope's direct sellers program).
DSSRC's inquiry focused on recent claims One Hope made touting the earnings potential of its direct selling program, and specifically promoting it as a way for those who lost income during the pandemic to earn money. Examples include:
- "Need some extra income during COVID? This business has been such a blessing to me and my family. I would love to share my success with you."
- "Your income potential is as high as you want to be."
- "Whether you're looking to start a side hustle or turn your wine business into a full time career or make this something more, ONEHOPE will help you achieve your goals."
In response to the inquiry by DSSRC, One Hope removed most of the social media posts and revised its website statements claiming that the program could enable participating sellers to replace income lost due to the pandemic. In its decision, DSSRC explained that such claims generally are a concern, citing the battery of warning letters sent by the FTC to direct selling companies in 2020. Accordingly, DSSRC noted approvingly One Hope's removal of most such claims.
However, DSSRC remained concerned with other content which states that joining the program allowed "financial freedom," and suggesting it as a way to earn "extra income during COVID." DSSRC concluded that claims such as "financial freedom" create a "particularly high risk of being misleading," even when assessed in the full context in which they appear (in accordance with DSSRC's Guidance on Earnings Claims for the Direct Selling Industry). DSSRC recommended the company "immediately take any and all necessary steps" to have the social posts removed, including using the applicable social platform's take-down mechanism.
DSSRC further recommended the company modify the claim that its direct selling business was a good opportunity "whether you're looking to start a side hustle or something more," noting that One Hope had not provided any data showing that its salesforce would earn anything beyond "modest" or "supplementary" income. In its advertiser's statement, One Hope said that it disagreed with DSSRC's analysis, and accordingly was not yet committed to removing or modifying the claim. However, One Hope said it would do an "internal review" to consider how it might amend this claim again to "further clarify" it.
Direct selling marketers should be especially careful to steer clear of claims that promote a potential for more than modest earnings, unless they can back that up with real data. The FTC has long made this clear, and other regulators are aligned.
5th Circuit Clicks Affirm on "Pay-Per-Click" Lanham Act Liability
The 5th Circuit Court of Appeals has affirmed a judgment finding a "pay-per-click" advertiser violated Lanham Act Section 43(a) by committing "click fraud."
TriMax media and competitor Wickfire are "pay-per-click" advertisers, otherwise known as "pay-for-performance" advertisers. They purchase advertising keywords on behalf of retailers on search engines such as Google. They pay the search engine a commission every time someone clicks on the ad, and receive a commission from the retailer if the consumer makes a purchase.
In this case, "pay-per-click" marketer Wickfire alleged that competitor TriMax Media committed "click fraud" by "repeatedly clicking on Wickfire's advertisements without any intention of making purchases," thereby driving up Wickfire's costs for each click on search engines, without generating any actual sales commissions to offset the costs. Wickfire further alleged that TriMax created "fraudulent advertisements intended to deceive WickFire's customers into thinking the advertisements were created by WickFire."
WickFire asserted claims under Section 43(a) of the Lanham Act and state law. A jury found in Wickfire's favor, awarding damages on its tortious interference with existing contracts claim and its tortious interference with prospective business relations claim. With respect to the Lanham Act claim, the jury found that TriMax "misrepresent[ed] [WickFire] as the source of advertisements by placing advertisements containing identifying information distinctive of [WickFire] in a manner that was likely to cause confusion," but it did not award any damages.
TriMax argued that even if it had impersonated Wickfire's ads, clicks from those ads did not enrich TriMax. It further argued that the district court lacked subject matter jurisdiction because Wickfire's Lanham Act claim was foreclosed by the Supreme Court in Dastar Corp. v. Twentieth Century Fox Film Corp.
The 5th Circuit disagreed, noting that "WickFire is not alleging TriMax wrongfully incorporated WickFire's ideas or concepts into TriMax's advertisements. That is, WickFire is not concerned with protecting an original idea or its creative thought, as Fox was attempting to do in Dastar. Instead, WickFire is interested in protecting the genuineness of its brand."
As to TriMax's argument on the merits that it was entitled to judgment as a matter of law with respect to the Lanham Act claim, the court noted that since the jury did not award damages to WickFire, it could not be considered a prevailing party under the Lanham Act. On that basis, the 5th Circuit found any argument about the sufficiency of the evidence to be moot.
However, the 5th Circuit reversed the district court's judgment as to WickFire's tortious interference claims and its civil conspiracy claim, finding that WickFire failed to meet its burden of proof under Texas state law. The 5th Circuit found that WickFire had not shown that the defendant's actions led to breach of any specific contractual provision. Nor had it adequately alleged damages "by competent evidence with reasonable certainty."
This matter continues the trend towards finding liability for ad fraud, a growing—and expensive—problem in the search engine advertising industry. Plaintiffs who allege that competitor "pay-per-click" marketers violated Lanham Act Section 43(a) by creating advertisements intended to pass off as their own may prevail.