Stay ADvised: What's New This Week, July 26
In This Issue:
- Sour Grapes as Judge OKs Claims Wine Co. Misrepresented CA Wine as OR Wine
- Latest NAD SWIFT Decisions Feature Baby Formula and Beauty Claims
- Xarelto Not Falsely Marketed, Third-Party Insurer Allegations Dismissed
- UK Ad Watchdog Warns It Intends Dogged Pursuit of Misleading Crypto Marketing
Sour Grapes as Judge OKs Claims Wine Co. Misrepresented CA Wine as OR Wine
A California judge has given the green light to most claims in a putative class action lawsuit alleging that a Napa Valley wine company falsely labeled its wines as hailing from Oregon. The court found enough of a question as to whether a reasonable consumer would be misled by the labels for the case to proceed.
A pair of California and Louisiana plaintiff oenophiles purchased a pinot noir called "Elouan," which they said was described as an "Oregon Pinot Noir." According to plaintiffs, defendant winemaker Copper Cane labeled the 2016 and 2017 vintages as made in the "coastal hills" of Oregon, called it "Purely Oregon, Always Coastal," or included a map of Oregon with the names of specific Oregon wine-producing valleys or American viticultural areas (AVAs). However, plaintiffs allege that the wines were actually vinified (the process of turning grapes into wine via fermentation) and bottled in Napa Valley, Calif.
Plaintiffs alleged they only purchased the wine based on the label's marketing the beverage as "genuine Oregon wine." They further claimed they paid a premium for the wines based on this information, and that the deceptive labels violate California's False Advertising Law (FAL), the California Legal Remedies Act (CLRA), and the state's Unfair Competition Law (UCL).
In its motion to dismiss, Copper Cane argued that plaintiffs' claims of marketing misrepresentations failed because the bottle labels specifically note the wine is bottled in California. However, Judge Richard Seeborg of the U.S. District Court for the Northern District of California disagreed.
It was "too close to call" whether this reference on the "back-left corner of the label would clarify a consumer's misunderstanding." Further, though a nondisclosure of origin claim must describe with particularity the content omitted, it was unreasonable to expect plaintiffs to do so at this stage, especially when it was clear they sought more specific information about the origins of the wine.
Judge Seeborg also rejected Copper Cane's argument that the "safe harbor" doctrine insulated it from liability because the Alcohol and Tobacco Tax and Trade Bureau had already approved the labels, finding that the approval did not carry the force of law. Claims for unjust enrichment and breach of warranty also survived dismissal.
Still, it was not entirely bad news for Copper Cane. The court threw out the Louisiana plaintiff's UCL claims, agreeing with the vintner that there was not sufficient connection to California to support the extraterritorial application of California's UCL.
Origins matter (not just for Made in the USA claims). The same is true in Europe, where grape labeling requirements regarding "appellation" are stringently enforced. American winemakers have arrived, and regions matter here too.
Latest NAD SWIFT Decisions Feature Baby Formula and Beauty Claims
Though hair products and infant formula do not often have much in common, they shared billing last month at the National Advertising Division (NAD) where the industry's self-regulatory body considered claims about both products under the Fast-Track SWIFT system, NAD's relatively new single well-defined issue expedited review process.
First up was Case 6992, which concerned one of the growing number of companies that touts its personalized or customizable products. Beauty company Function challenged competitor PerSe Beauty's use of product reviews, specifically about its publication online of only select 5-star "Featured Reviews" together with the claim to have "over 192,000 5-star reviews."
NAD decided the matter through SWIFT because the challenge involved the "single issue" of product reviews, which NAD noted would not require analysis of complex evidence or legal arguments. Indeed, NAD determined quite quickly that it was unable to find any support for the claim that PerSe Beauty had "over 192,000 5-star reviews" in any of the evidence provided by the advertiser. It thus recommended that PerSe Beauty discontinue the claim.
PerSe Beauty provided an interesting explanation for how and why it made this claim: through a process it called "Review and Refine," PerSe Beauty solicits reviews after customers purchase an item and uses that feedback to further customize the product for that consumer (e.g., adding a stronger fragrance). PerSe Beauty then solicits feedback on the refined product from that same consumer, in an iterative process.
NAD found that the company had not met its burden of proving a reasonable basis for the claim "over 192,000 5-star reviews" because PerSe Beauty did not provide crucial details about how the reviews were collected, including who had collected them, whether they were collected in a manner that encouraged honest feedback, and how the questions were phrased. NAD was therefore unable to "assess the reliability of the advertiser's evidence."
NAD further noted that any claim that aggregates reviews based on the "Review and Refine process" must so inform the consumer. Otherwise, NAD found that the claim could convey the misleading message that the reviews reflect initial satisfaction with the product, without further refinement.
Finally, NAD agreed with the advertiser that its promotion of reviews with 5-star ratings did not convey the message that PerSe Beauty's products receive only positive reviews, noting that they were clearly labeled as "Featured Reviews." However, NAD cautioned the advertiser that it "must …have independent evidence to support any product performance claims" made by reviewers.
The second SWIFT matter, Case 7010, turned on a procedural issue that commonly arises at NAD. Nestlé Nutrition challenged advertiser Reckitt Benckiser's claims that its competing Nutramigen infant formula was "the only hypoallergenic formula" with (1) "no sugar (sucrose) added," (2) "probiotics to support immune system and digestive health," and (3) "expert recommended DHA amount." The claims appeared in online advertising, including on the advertiser's websites, retailer websites, and on YouTube.
The advertiser argued that the matter should have been administratively closed by NAD pursuant to Section 2(C)(1) because it had voluntarily permanently discontinued the claims prior to the challenge. NAD disagreed, noting that the discontinuance was "not fully effectuated" at the time the complaint was filed. Accordingly, NAD retained jurisdiction so that it could review the matter for compliance purposes.
For advertisers that want to avoid going through an NAD process—SWIFT or not—by permanently discontinuing claims, the claim must be out of market at the time of filing for NAD to administratively close for want of jurisdiction. If the claim has been permanently discontinued but remains in market at the time the challenge is filed, NAD will exercise jurisdiction; however, an advertiser can still avoid a full NAD review on the merits.
Xarelto Not Falsely Marketed, Third-Party Insurer Allegations Dismissed
Drug companies Bayer Corp and Janssen Pharmaceuticals have emerged victorious in litigation alleging they falsely marketed their embattled blood-thinning drug Xarelto. In the ruling, Louisiana Federal Judge Eldon E. Fallon dismissed the claims after finding no causation between the allegedly deceptive marketing and the three third-party payor plaintiffs' alleged injury.
The matter comes in the wake of multidistrict litigation involving 30,000 patients who alleged they suffered uncontrollable bleeding after taking Xarelto, all but a few of which were settled in early 2019. In that litigation, the patient plaintiffs alleged that their severe bleeding had been caused by "Xarelto's allegedly inadequate warning label, as well as other theories."
Plaintiffs in the current matter alleging "unfair and deceptive marketing practices" are third-party payors for Xarelto prescriptions that brought this action on behalf of themselves and a putative class of other third-party payors. They seek reimbursement for the amounts they paid to cover the drug, under the theory that Bayer and Janssen fraudulently marketed the drug as "one size fits all" and minimized dosage risks (including bleeding risks), which led the drug to be approved for reimbursement. Plaintiffs alleged claims under the Racketeer Influenced and Corruption Organizations Act (RICO), state law consumer protection statutes, and a theory of fraudulent misrepresentation.
In their motion to dismiss, the pharmaceutical companies argued that plaintiffs had not shown there was any direct or proximate causal relationship between the alleged injury they suffered as third-party payors and defendants' alleged misrepresentations. Judge Fallon found that though plaintiffs put forward theories tying together the alleged fraud and the third-party payors' injuries, there was "ultimately, between Defendants' alleged misleading marketing and Plaintiffs' prescription reimbursements …. 'a vast array of intervening events' including the independent judgement of physicians and the pharmacy benefit managers" (PBMs) tasked with approving the drugs for coverage by plaintiffs.
As to the fraud allegations, Judge Fallon agreed with Bayer and Janssen's argument that the insurers had neither identified specific physicians or PBMs who received misleading information nor alleged how the fraudulent marketing influenced the physicians' and PBMs' actions. "The Court cannot presume that a collective group of unnamed physicians and PBMs would have uniformly changed prescribing decisions… based solely on the marketing information from pharmaceutical manufacturers," noted the judge.
The "tenuous causal connection" alleged by plaintiffs resulted in the consumer law causes of action failing as well, reasoned the court, which did not consider the allegations pertaining to the "overall promotion and drug labeling of Xarelto" enough to establish a causal connection between the alleged injuries and the alleged marketing misrepresentations. As Judge Fallon wrote, plaintiffs "do not even allege that they received any misrepresentations from Defendants."
Alleging and proving proximate cause is a key component of surviving a motion to dismiss. Failure to show proximate causation between the defendants' allegedly misleading advertising and the plaintiffs' injuries caused these plaintiffs' RICO and more common consumer protection and fraud claims to fail.
UK Ad Watchdog Warns It Intends Dogged Pursuit of Misleading Crypto Marketing
It's about to get a lot more difficult for cryptocurrency advertisers to promote misleading messages about crypto in the UK, as the country's advertising watchdog has announced that it plans to step up enforcement this month.
The UK's Advertising Standards Authority (ASA), which enforces compliance with the Advertising Codes (CAP Codes), is calling cryptocurrency marketing a "crucial and priority area," and it plans a major crackdown on "misleading or irresponsible" advertisements for the investments, according to a Financial Times report.
The ASA has targeted misleading crypto ads only twice before. In May of this year it issued a ruling that banned an ad from a company called Luno that ran on public transportation and featured the text "If you're seeing Bitcoin on the Underground, It's Time to Buy," finding the ad misleading in violation of CAP Codes governing financial instruments and misleading advertisements. That same month the agency also banned another ad run by a cryptocurrency exchange featuring a pensioner touting the investment as safe and lucrative.
But now the watchdog says it has put the industry at "red alert," with the ASA's director of complaints and investigations Miles Lockwood calling it a "crucial and priority area for us." In addition to responding to consumer complaints about suspect crypto ads, the ASA said it plans to take proactive action to find and enforce questionable cryptocurrency ads using "web scraping" and artificial intelligence.
As part of these stepped-up enforcement efforts, the ASA will also consider whether additional guidance is needed for advertisers of cryptocurrencies. A key area for enforcement will be influencer marketing and online ads, which make up a large portion of crypto ads.
The move is partially in response to a lack of enforcement of cryptocurrencies by the UK's Financial Conduct Authority, which regulates financial services and markets in the country and has flagged cryptocurrency advertising as problematic. Though it has warned consumers that investors in cryptocurrency "should be prepared to lose all their money," it currently does not largely regulate cryptocurrencies.
On this side of the Atlantic, the Federal Trade Commission (FTC) itself issued a report in May 2021 warning about the meteoric rise in cryptocurrency scams. The FTC has been taking enforcement action targeting cryptocurrency scams since at least 2018, albeit via a different approach—e.g. it has targeted a crypto pyramid scheme, rather than focusing directly on misleading advertising claims.