Stay ADvised: What's New This Week, March 8
In This Issue:
- FTC Ads Second Story Onto Case Against Real Estate Schemers
- Vanilla False Ad Suit Dismissal Spoils "Food Fraud" Theory
- FDA Prescribes Opioid Maker a Warning Over Ads
- Influencers Gaining Influence in Hollywood With SAG-AFTRA Agreement
FTC Ads Second Story Onto Case Against Real Estate Schemers
The Federal Trade Commission (FTC) continues to expand the zone of liability for those it alleges participate in fraudulent schemes. The FTC has now filed a second amended complaint and added two defendants to an ongoing suit concerning a real estate investment training scheme that the FTC alleges has bilked consumers out of millions of dollars with false promises of real estate investment riches.
The amended complaint expands the number of defendants (both corporate and individual) the FTC alleges acted together or benefitted from Zurixx's real estate seminars set up to defraud consumers. Interestingly, one of the two new defendants, Stephenie Spangler, was added as a "relief defendant," not because she participated directly in the scheme but because she received funds shelled out by deceived consumers.
According to the complaint, Zurixx marketed too-good-to-be-true promises of wealth. It sold a training seminar "system" for thousands of dollars that promised to teach customers how to get rich buying, fixing, and flipping houses. Sadly, most of Zurixx's promises were false, said the FTC.
As avid readers of Stay ADvised may recall when first we reported on this, the complaint alleged that Zurixx deliberately misrepresented the efficacy of seminars. It allegedly used celebrity endorsements and outrageous (as well as false) earnings claims to profit from consumer interest in real estate investments.
To market its seminars, the company hosted free events during which it made these misrepresentations. For instance, it promoted three-day workshops as opportunities for participants to learn how to make thousands of dollars in profits with little risk or effort.
It also assured participants that they would learn how to receive full funding for their real estate investments, regardless of credit history. If they didn't, Zurixx gave a money back guarantee—but failed to disclose its many limitations. At the three-day workshops, the company also used these tactics to sell its advanced seminars—starting at a cost of upwards of $73,000.
As too often happens, the FTC claims, few consumers were likely to earn the advertised rewards, and Zurixx could certainly not guarantee such enormous earnings. Nor would most consumers get full funding for their investments, as Zurixx has assured them.
The complaint, as amended twice, alleges violations of the FTC Act, the Consumer Review Fairness Act, the Telemarketing Sales Rule, the Utah Consumer Sales Practices Act, and the Business Opportunity Disclosure Act.
Participants in schemes the FTC alleges are deceptive beware: cases linger and liability can expand along the way. The original complaint was filed by the FTC in October 2019 together with the Utah Division of Consumer Protection. A temporary restraining order from November 2019 halted the company's marketing practices. And, yet, the complaint has been amended twice, to add additional charges and additional defendants.
Vanilla False Ad Suit Dismissal Spoils "Food Fraud" Theory
In a significant setback for class action litigants attempting to show large-scale "food fraud" by the industry, a New York federal court dismissed another in a string of lawsuits accusing food companies of falsely promoting artificial vanilla flavor as real vanilla.
In the present case, plaintiffs alleged that beverage and drink product maker Oregon Chai falsely advertised its Chai Latte as "vanilla" even though the product contains mostly artificial vanilla flavoring. Plaintiffs argued that, beset by a shortage of real vanilla, food and beverage manufacturers have resorted to using flavor alternatives in place of real vanilla beans.
Plaintiffs further asserted that Oregon Chai's "prominent use of the term 'Vanilla'" on the front label and a description of the product as "Vanilla and honey … with premium black tea and chai spices" gave consumers the false impression that the tea contained greater quantities of vanilla than other flavor ingredients, and that the vanilla was derived from vanilla beans and not artificial vanillin.
The court, however, was unconvinced, finding that plaintiffs had failed to allege a misrepresentation actionable under New York's General Business Law. The court notably grounded its analysis on a lengthy review of relevant 2nd Circuit case law, finding the "logic of those cases leads this Court to conclude that Plaintiffs' allegations … do not suffice to state an actionable claim."
First, looking to precedent, the court held that the use of "Vanilla" alone, without any modifier, was a reference to the product's flavor and not a representation that the product contained vanilla beans. Even when defendants described the product as vanilla together with honey, black tea, and chai spices, the court found "nothing [on the product label] to suggest the exclusive, or even predominant, use of vanilla beans as opposed to other sources."
The court also shot down plaintiffs' argument that the label terms "natural flavors" and "made with natural ingredients" were deceptive because they gave consumers the impression the products contain real vanilla and not artificial vanillin. As the court observed, there are other "natural" sources that have a vanilla flavor, in addition to vanilla beans.
For the same reason, the court rejected plaintiffs' argument that "natural flavors" and "made with natural ingredients" were deceptive since the product contains the synthetic ingredients maltol, limonene, and linalool. Allegations that these ingredients are synthetic were conclusory because there are other natural sources that have a vanilla flavor, as other courts had found.
Because it was unclear if those three ingredients were derived from natural or artificial sources, plaintiffs' argument that Oregon Chai's use of "natural" ran afoul of FDA labeling guidelines also fell flat. FDA regulations specifically state that maltol, limonene, and linalool are artificial flavorings "except where these are derived from natural sources."
Cosgrove v. Oregon Chai Inc. may offer some comfort to manufacturers concerned by the 2nd Circuit's holding in Mantikas v. Kellogg Co. There, the 2nd Circuit held that the phrases "whole grain" and "made with whole grain" communicated the unsubstantiated message that Kellogg's Cheezits were made with predominantly whole grain—a message that was not dispelled by the ingredient statement on the back of the packaging. Joining other "vanilla" precedent, Cosgrove suggests that courts will not read representations about the nature of an ingredient into an unadorned claim.
FDA Prescribes Opioid Maker a Warning Over Ads
A drug company marketing a powerful and fairly new opioid drug has received a warning letter from the Food and Drug Administration (FDA) that its advertising violates the Federal Food, Drug, and Cosmetic Act (FDCA). The FDA's letter warns AcelRx Pharmaceuticals that recent ads for its powerful sublingual opioid Dsuvia make false and misleading claims about the risks and efficacy of the drug, which constitute misbranding in violation of the FDCA.
The FDA approved Dsuvia in 2018 after an uphill battle, coming as it did on the heels of the opioid epidemic. The drug is a single tablet opioid inside a plastic sublingual (under the tongue) applicator and is approved for application only in medically supervised settings by medical professionals.
The FDA's warning letter targeted a tabletop display and a banner ad, that the FDA found especially problematic because of the serious negative side effects of the drug, danger of overdose, and its highly addictive character.
As an initial matter, the FDA charged that the advertising sends misleading messages about dosage. More specifically, the FDA took issue with the use of the phrase "TONGUE AND DONE" because it implies that the drug is administered in a "simple, one-step process," when in fact there are multiple separate steps specifically intended to confirm accurate dosage. This misrepresentation is problematic because accurate information about dosage is essential for providers to avoid causing overdose or death. "By oversimplifying the administration process, these presentations create a misleading impression about the safe administration of Dsuvia," warns the FDA.
FDA was also troubled by the banner's claims about average one-hour and three-hour dosing intervals. The FDA says these claims create a misleading impression that the drug can be taken every one to three hours when the dosage limit is 12 tablets every 24 hours.
Although the ad contained safety information, the FDA was concerned that its comparatively low profile—included in small font against a plain white background—failed to mitigate the misleading dosage information, especially when contrasted with marketing for drug benefits, featured prominently and in bright colors. This emphasis on drug benefit claims and deemphasis of risks "create[s] a misleading impression about the safe and effective use of the drug," warned the FDA.
For its part, AcelRx has countered that it stopped disseminating the advertisements in question in late 2019, rendering the warning letter moot.
A drug may be misbranded if its advertisements are misleading due to express representations about the drug and/or due to exclusion or minimization of material facts or consequences that may result from the drug's use. In the context of an opioid epidemic, drug companies selling opioids will have to be especially careful about the claims they make (or don't make) in advertising to ensure that critical information about the risks of such drugs are adequately communicated to consumers.
Influencers Gaining Influence in Hollywood With SAG-AFTRA Agreement
On March 11, 2021, the Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) released a new promulgated agreement (Influencer Agreement) that will provide a path to SAG-AFTRA membership for some influencers—social media content creators who are paid to create content promoting brand services or products.
In addition, by treating the influencer's loan-out company as a union signatory, the Influencer Agreement enables influencers to have qualifying content production engagements subject to union coverage even when the brand is not a union signatory.
Nearly simultaneously, SAG-AFTRA and the Joint Policy Committee (JPC), which represents advertisers and advertising agencies in negotiations with SAG-AFTRA, released an "Influencer Waiver." The Influencer Waiver tracks the Influencer Agreement and provides a way for advertising agencies and advertisers that are signatories or JPC authorizers with respect to the SAG-AFTRA Commercials Contract to engage influencers under a union-approved arrangement.
Historically, the advertising industry has not conceded that all branded video content produced by influencers necessarily constitutes a "commercial" that is subject to the Commercials Contract. That debate likely is not over, but together, the Influencer Agreement and Influencer Waiver represent a significant step toward bringing influencer-produced content under the union umbrella.
In addition, even for brands that do not engage influencers on a union basis, the Influencer Agreement will affect their negotiations with influencers who seek to have their projects covered by the Influencer Agreement.
The Influencer Agreement establishes terms on which certain influencer engagements can be the basis for influencers to obtain union membership and other benefits. The agreement was promulgated by SAG-AFTRA, and is not the result of collective bargaining with advertising industry representatives.
Accordingly, there will be no advertiser or brand signatories of the Influencer Agreement. Rather, the Influencer Agreement essentially treats the influencer's company as the talent employer, content producer and union signatory, with union compliance obligations falling on the influencer's company.
Highlights of the new agreement include the following:
- The agreement is not available to individual influencers who do not work through loan-out companies or similar entities. It may be signed only by a corporation or LLC "controlled and operated" by the influencer. Other entities, such as partnerships, will not be eligible.
- The agreement can be used by influencers who satisfy the agreement requirements, whether or not the influencer is a SAG-AFTRA member. For non-members, signing the Influencer Agreement will not immediately make the influencer a SAG-AFTRA member. Covered engagements will count toward the influencer's satisfaction of SAG-AFTRA eligibility requirements and will allow the influencer to make contributions to the SAG-AFTRA benefits plans.
- The agreement is to be entered into on a single production basis, i.e., with respect to each project, the influencer can decide whether or not to have the project covered by the agreement.
- The agreement only covers on-camera and/or voiceover services by the influencer in connection with production by the influencer of content for distribution on the influencer's and/or brand's own digital and social channels.
- There is no required minimum compensation rate or formula. Compensation is to be freely negotiated by the influencer and the brand.
- The influencer's company must make contributions to the union's pension and health plans, based on the portion of the compensation attributable to covered services.
- The agreement applies only to projects in which the influencer alone produces the content, without the assistance of a third-party production company.
- Content produced in connection with a covered project must not include anyone other than the influencer.
- The agreement cannot be used "for content for a campaign involving" any Commercials Contract signatory or JPC authorizer.
- SAG-AFTRA has indicated that the agreement can be used only for projects in which the influencer works with and negotiates rates "directly with the brand." This likely makes the agreement unavailable to influencers whose services are provided to brands by influencer agencies, or who are engaged by social media platforms or publishers to provide content for a third-party advertiser.
The Influencer Agreement is not directly applicable to brands, but certain elements of the agreement could make influencer engagement more complicated for brands. For example, the agreement can be used only for situations in which the influencer will own the copyright in the influencer-produced content, and in which use of the influencer content is limited to brand and influencer social media channels.
At the moment, brands sometimes engage influencers to create content on a "work for hire" basis, and influencer deals often allow use of the content on third-party platforms. It remains to be seen whether brands will be willing to conform their engagements to these union-prescribed terms.
As noted above, the Influencer Agreement cannot be used by influencers with respect to projects involving a Commercials Contract signatory or JPC authorizer. The agreement also provides that a covered project must be addressed in a "standalone contract" that does not also provide for "services covered under any other SAG-AFTRA contract (for example, television commercials or motion pictures)," and requires the influencer's company to notify and negotiate terms with SAG-AFTRA with respect to any proposed use of the content in non-covered media such as television.
The Influencer Waiver can be seen as the counterpart of the Influencer Agreement. The Influencer Waiver extends to Commercials Contract signatories and authorizers who use the waiver obligations similar to those imposed on the influencer's company under the Influencer Agreement. The Influencer Waiver leaves compensation terms subject to bargaining, but obligates the advertiser or agency to make pension and health contributions based on such compensation (which, under the Influencer Agreement, would be the responsibility of the influencer's company).
Like the Influencer Agreement, the Influencer Waiver cannot be used for projects involving services covered under another the SAG-AFTRA collective bargaining agreement. Notably, however, the Influencer Waiver expressly reserves all rights of SAG-AFTRA and the JPC with respect to the definition of "commercial" contained in the Commercials Contract and the question of whether all or any influencer-produced, branded video content is a commercial for Commercials Contract purposes.
The Influencer Waiver deviates from the Influencer Agreement in certain ways, presumably as a result of it having been negotiated with the JPC rather than unilaterally promulgated by SAG-AFTRA. For example, the Influencer Agreement does not condition eligibility based on the influencer having achieved any particular level of recognition or success, but the Influencer Waiver is to be used only for engagement of influencers who have "amassed a substantial social media following."
In addition, the Influencer Agreement clarifies that the content must be self-produced by the influencer, but that does not preclude the advertiser or agency from providing the influencer with "notes, suggested messaging, or other guidance relating to the content as long as it is not scripting the content in its entirety."
Further implications of these new developments are sure to emerge soon. Watch this space!
Between the billions of dollars spent on influencer marketing and the way COVID-19 is increasingly driving traditional performers to social media, the union's Influencer Agreement and Influencer Waiver arrive at a key moment. Expect this to be the next phase of a long conversation between union and the industry about the scope of union coverage of influencer projects. The Influencer Agreement also is likely to have an impact on brands that do not take on union obligations in connection with engagement of influencers.