Stay ADvised: What's New This Week, August 23
In This Issue:
- Reduce! Reuse! Recycle! (But Only Certain Types of Resin and Please Maintain a Record)
- FTC Takes the Long Way Over Charges That FleetCor Fleeced Customers
- NAD Finds Butterball Claims Far From Im-Peck-Able
- Owlet Baby Monitor False Ad Suit Put to Bed
Reduce! Reuse! Recycle! (But Only Certain Types of Resin and Please Maintain a Record)
A recently introduced California "truth in labeling" bill may soon make it harder to market plastic containers as "recyclable" in the Golden State.
SB343 aims to curb what its proponents say is the deceptive marketing of plastics as recyclable when realistically only about 15 percent of California's single-use plastics are actually recycled. The legislation would prohibit products or packaging from including the recycling symbol (that triangular triplet of "chasing arrows") unless the product or packaging meets certain criteria, e.g., those that are widely recycled in the United States. Beyond significantly narrowing the categories and types of items that may be labeled as recyclable, the legislation would also add significant substantiation and record-keeping requirements.
Policy-wise, SB343 is predicated on California's existing robust advertising laws and makes it unlawful to make an "untruthful, deceptive, or misleading environmental marketing claim" as defined in the Federal Trade Commission's (FTC) Green Guides for environmental marketing. The bill seeks to amend California's Business and Professions Code and Public Resources Code to make it specifically unlawful to sell "any product or packaging for which a deceptive or misleading claim about the recyclability of the product or packaging is made."
If passed, the law would forbid certain "resin identification codes," which denote the type of resin used in the particular plastic and therefore its recyclability, from being placed on the inside of the "chasing arrows" unless the state has determined that those types of resin products are recyclable. Though the exact materials that would be permitted to promote the recycling symbol are yet to be determined, initially it appears only soda bottles and milk jugs would be permitted to advertise the recyclable symbol—products like yogurt containers would not be labeled as recyclable.
All of this has led opponents in the plastics industry to argue that the legislation's significant compliance burden would result in higher prices for Californians, along with creating more waste by limiting the types of plastics that can be recycled.
But proponents—including the bill's sponsor California Senator Ben Allen—argue that the bill targets a serious problem of deceptive marketing of plastics as recyclable when in reality most products are only truly recyclable in the best of circumstances, and consumers end up "wishcycling" more often than not.
SB343 is part of a broader package of 12 bills introduced to the California legislature in March of this year seeking to strengthen environmental protections. SB343 has passed the State Senate and was scheduled for a hearing in the State Assembly on August 19, 2021.
Everywhere you look these days nonprofits and legislatures are targeting what they say are misleading environmental marketing claims (including for plastics). But if past attempts to pass similar legislation are any indication, it will not be a smooth path for passage of SB343. Just last September, despite significant support, an attempt in California to pass a bill aggressively restricting single-use plastics failed due to efforts by the plastic industry to prevent its passage.
FTC Takes the Long Way Over Charges That FleetCor Fleeced Customers
The Federal Trade Commission (FTC) has filed an administrative complaint alleging that FleetCor, a publicly traded marketer of corporate fuel solutions, falsely marketed its cards and charged consumers millions in bogus fees. The agency had previously filed suit against the company in Georgia federal court, but refiled the matter as an administrative complaint after the U.S. Supreme Court's decision in AMG Capital curtailed its power to seek monetary redress directly, without going through its administrative process.
The 99-page complaint alleges that FleetCor, marketing under the name "Fuelman," violated Section 5 of the FTC Act by lying to consumers about the perks and costs of its fuel card and engaging in unfair and deceptive billing practices. The complaint also lists company CEO Ronald Clarke as a defendant.
The complaint alleges a textbook example of a systemic pattern of misrepresentations intended to gouge customers. The company's marketing claims were vastly different from the reality of its products' operations—and FleetCor and its CEO knew as much, according to the FTC. The complaint alleges that FleetCor made a number of false representations about the cost-effectiveness of the card and other benefits like fraud protection and lack of setup, transaction, and membership fees.
The FTC further accuses FleetCor of defrauding consumers with deceptive savings claims. FleetCor advertised specific per-gallon savings for users of its fuel cards, but it—and CEO Clarke—allegedly knew that most customers would not achieve these savings.
FleetCor also represented that its products featured built-in fraud protection to "eliminate unauthorized purchases." The company even provided an option for customers to select the types of purchases a card would be authorized to make, except that the cards authorized all kinds of transactions, regardless of the customer selecting this limited-purchase option. For example, an internal FleetCor document explains that "fuel only restrictions only work for getting the authorization and there is no restriction on what can be purchased or added to the transaction."
The FTC alleges that FleetCor lied to customers about the fees it would (or would not) impose. Though it promised no annual or transaction fees, it charged multiple set-up, transaction, and membership fees (e.g., account administration fees and high credit risk account fees).
On top of that, it also charged unexpected fees like "program" fees, late fees, and interest charges. The FTC alleges that the late fees and interest charges were often a result of FleetCor's own deceptive billing practices—failure to send a billing invoice, listing an incorrect invoice amount, and delay in processing payments, among others. As a result, the company pocketed hundreds of millions of dollars in fees, says the FTC.
According to the FTC, FleetCor played a sort of hidden fee whack-a-mole game, removing fees after customers complained about them, only to charge the same customers different fees "to make up the difference." And there were quite a few complaints—tens of thousands, according to the FTC.
By filing this administrative complaint, the FTC is signaling it is willing to play the long game and will aggressively seek monetary damages where it believes they are warranted. The outcome here will be telling for future enforcement and monetary relief efforts.
NAD Finds Butterball Claims Far From Im-Peck-Able
In a wide-ranging decision that walks a fine line between aspirational claims supported by independent third-party certification and those that are not, the National Advertising Division (NAD) recently found many claims made by poultry manufacturing giant Butterball supported, and others not so much. In a nutshell, NAD reviewed claims that Butterball's products are "all natural" and that its husbandry methods are humane and environmentally responsible. The challenge to the claims was made by nonprofit Animal Outlook (AO).
Taking the easier part of the challenge first, NAD found that Butterball's claim about its products being "all natural" stood up to scrutiny, but only when made together with Butterball's clear and conspicuous disclosure that "all natural means minimally processed and no artificial ingredients." Without that disclosure, NAD held that consumers could reasonably interpret "natural" to refer to Butterball's production practices—a claim which was not supported.
In reaching its conclusion NAD considered the challengers' general consumer perception evidence (from the literature, not tied to the advertising at issue), as well as the U.S. Food and Drug Administration (FDA)'s guidance on labeling foods as natural. NAD noted, as it has many times, that it attempts to harmonize its decisions with regulators, but is not bound by FDA guidance. Instead, it makes its determinations based on what it considers consumers' reasonable expectations in the context of the advertising claims.
Turning to the advertiser's so-called "aspirational" claims, NAD repeated its guidance from past decisions that such claims may well require support both as to actual practices that support such aspirations, and with respect to claims that state or imply the advertiser has achieved its goals. One question NAD considers in these cases is whether the advertiser ties its "stated aspiration or 'commitment' to a more objective statement about its practices."
Here, NAD examined Butterball's many express and implied claims that it treats its turkeys humanely, which appear throughout its advertising. These included claims that it has a "commitment to animal care and well-being" and that it enforces a "zero-tolerance policy against any form of animal mistreatment."
NAD concluded that reasonable consumers would take away the message that Butterball has a commitment to humane practices, which is a statement requiring support. It concluded that, as long as Butterball made these claims in close proximity to its American Humane's (AH) seal (as it mostly did), the claims were substantiated because the seal communicates "a narrower message that Butterball complies with a specific set of independent standards" about humane animal treatment.
It is important to note that NAD's decision here hinged on its determination that the claims were tied to "a clear and conspicuous third-party certification—a certification that is independent and based on scientific standards, enforced and audited by the certifier, with the origins of the seal clearly identified" in the advertising materials. NAD noted this is the case even if consumers don't know the specifics of certification.
As to Butterball's environmental sustainability claims about the "green" benefits of purchasing its product, NAD took a different view. NAD held that Butterball's claims of "sustainable" practices were not supported by the evidence on the record.
Sustainable "used in connection with the phrase 'the most responsible and sustainable way'… could be understood by consumers to mean that Butterball's practices are optimized in relation to the environment," but nothing in the record supported this message, NAD determined. NAD accordingly recommended the company modify that claim.
In contrast, NAD found other "aspirational" sustainability claims by Butterball about its goals to "preserve the planet" were permissible. NAD held such claims reasonably conveyed the message that Butterball was implementing a plan to improve its environmental impact. Taken together with evidence that the company had made some headway towards this goal—such as a 7.9 percentage reduction in waste per pound—NAD held that such nonspecific messages were supported.
Sustainability and "corporate responsibility" advertising is a tricky area with little guidance yet from the FTC or other regulators. As it often does, NAD is taking a leading role, and threading the needle very carefully, just as the courts are seeing more and more related cases from the class action bar.
Owlet Baby Monitor False Ad Suit Put to Bed
A federal court in Utah has dismissed a class action lawsuit claiming that the makers of Owlet Smart Sock Baby Monitors falsely advertised the product's efficacy and accuracy, finding that plaintiffs' attempts to amend their complaint failed to allege how a reasonable consumer would be deceived by the company's marketing.
Owlet Smart Socks are devices that monitor newborns' heart rate and blood oxygenation levels using similar technology to the pulse oximeters that hospitals use to monitor babies' vitals. The monitors have been marketed to parents "anxious" to monitor young babies' vitals, according to the complaint filed by plaintiffs Amanda Ruiz and Marisela Arreola. The pair alleged that Owlet has been deceptively marketing the Smart Sock because the product does not work as advertised: its frequent false alarms cause "parents extreme anxiety," and the products regularly fail to detect abnormal oxygen levels and heart rates.
The district court dismissed plaintiffs' original complaint, finding that they had failed to allege the company fell short of its marketing promises or what the reasonable consumer would have expected from a pulse oximeter device. Plaintiffs sought leave to amend, but Judge Howard C. Nielson said the proposed amended complaint did not remedy the gaps in their original complaint because they did not "allege any facts regarding what a reasonable consumer expects from a pulse oximeter."
The court also found the amended complaint's allegation that Owlet should have disclosed the Smart Sock's "frequent and unnerving false alarms, inaccurate readings, and complete failure to detect and alert to abnormal oxygen readings" lacking. Without alleging "facts supporting a reasonable inference that the omission of such a disclosure was material," plaintiffs' allegation fell short "because it is not clear what the disclosure means, and thus whether it differs from what a reasonable consumer would expect from" such a consumer product.
Judge Nielson also took issue with the vague use of words like "frequent," "complete," and "regular" to describe the Smart Sock's failures, finding that the lack of "clarity" made it "impossible" to determine what the reasonable consumer would expect from such devices.
Although they did allege how they experienced Smart Sock's performance differently from the company's advertisements, plaintiffs committed the fatal flaw of failing to plead materiality and what the reasonable consumer would have expected from pulse oximeters.