Stay ADvised: What's New This Week, February 28
In This Issue:
- FTC Wants You! (To Comment on a Potential New Rule Targeting Bogus Earnings Claims)
- True to Its Name, Champion Petfoods Prevails in False Ad Appeal
- I Will Survive! In the Battle of the Survival Food Kits, Some Claims Don't Make It Out
- "Yes" to Heavy Consequences for Baby Food Co. Falsely Advertising "No Heavy Metals" in NY
FTC Wants You! (To Comment on a Potential New Rule Targeting Bogus Earnings Claims)
Faced with a combination of aggressive earnings claims aimed straight at consumers and diminished pathways to getting monetary redress for them, the Federal Trade Commission (FTC) has announced it's considering rulemaking to beef up the agency's enforcement powers against bogus earnings claims made by multilevel marketers, for-profit colleges, "gig economy" sites, and other business ventures promising consumers riches while delivering debt.
The deceptive earnings claims have not slowed down. Indeed, just last week we covered the joint efforts of the FTC and Department of Justice (DOJ) against a fast-food franchise's deceptive earnings claims. From for-profit colleges promising impossibly juicy salaries for graduates to multi-level companies marketing riches for their salesforce members, the FTC says "consumers are inundated with claims from businesses about how much money they will or could make."
The result? Consumers are ending up mired in debt. On top of all that, the U.S. Supreme Court's decision in AMG Capital Management that the FTC may not seek monetary relief under Section 13(b) of the FTC Act significantly curtailed the agency's power to seek monetary penalties from wrongdoers.
Enter the Commission's Advanced Notice of Proposed Rulemaking (ANPR), an action that allows the FTC to take a temperature-check on and to gather preliminary input for a potential proposed rule. The FTC is seeking comments from the public about the state of earnings claims, specifically on "false, misleading, and unsubstantiated earnings claims."
There are a few specific things the FTC wants to hammer out through the ANPR. For one, the FTC is asking consumers to comment on whether they think disclaimers attached to earnings claims cure iffy statements. The Commission also wants to know whether businesses that make earnings claims should be required to provide consumers with specific financial information.
Additionally, the ANPR explores whether such a rule should address the (usually misleading) use of data in the promotion of money-making opportunities. The FTC also wants to know what kind of substantiation should exist behind any earnings claim and the cost-benefit analysis of implementing such a rule. The FTC asks whether a rule on this issue is needed and whether the Commission should engage in more education and outreach.
The potential rule, if finalized, would allow the Commission to seek monetary penalties from offenders and use it to pay back impacted consumers. In addition, such a rule would also enhance the Commission's deterrence powers and its ability to move quickly to nip the conduct in the bud, said the FTC. Further, the rule would clarify what constitutes a deceptive earnings claim, according to the agency.
Why did the FTC propose rulemaking on the subject of earnings claims when it recently issued a Notice of Penalty Offenses permitting it to seek civil penalties for misleading and deceptive earnings claims? The FTC says the Notice is not enough of a basis to provide redress to consumers.
The proposed rulemaking may also prove to be an incentive to move along stalled efforts to pass a legislative solution to the FTC's money problem since AMG Capital Management. As Commissioner Christine S. Wilson noted in her concurring opinion, she's game for passing such a proposed rule but would prefer a "13(b) fix," in which case she would retract her backing for the rule.
True to Its Name, Champion Petfoods Prevails in False Ad Appeal
The 10th Circuit affirmed a lower court's decision to throw out claims alleging that Champion Petfoods falsely advertised two of its dog food brands as premium fresh and local products that mirror the types of foods that dogs might encounter in the wild, holding that the advertising fails to deceive or mislead reasonable consumers on any material facts.
Plaintiffs filed the suit against Champion in 2018 alleging that the company's advertising of its Orijen and Acana brands as "Biologically Appropriate," "Trusted Everywhere," using "Fresh and Regional Ingredients," and containing "Ingredients We Love [From] People We Trust" violated the Colorado Consumer Protection Act (CCPA) for being false and/or misleading.
To prevail on a CCPA claim, a plaintiff must prove that: (1) the defendant engaged in unfair or deceptive trade practices (2) in the course of its business, (3) that the deceptive trade practices significantly impacted consumers, (4) the plaintiff suffered a legal injury, and (5) that the deceptive trade practices caused plaintiff actual damages.
The Colorado district court considered whether the statements Champion made on these dog food products were misleading and deceptive to the reasonable consumer or were non-actionable puffery. The district court held for Champion, finding the statements not materially misleading to the reasonable consumer and were either unactionable puffery or overly subjective. The appeals court agreed: "None of the phrases supports claims of deceptive advertising."
Plaintiffs had argued that the phrases "Trusted Everywhere" and "Ingredients We Love [From] People We Trust" were not puffery because plaintiffs believed that the statements referred to a specific testing regimen Champion employed and that the company avoids using certain ingredients. But the appellate panel said plaintiffs were reaching, and that there was no "there, there." These claims were indeed puffery.
… Plaintiffs implausibly allege these vague packaging statements to mean something they do not say. Champion does not make claims about its testing regimens on the dog food packaging. Nor does Champion say on the packaging that the dog food is free from filler.
Plaintiffs also failed to demonstrate that those statements are falsifiable, as Champion hadn't advertised, for example, that "100 percent" of its customers trust the dog food or that "everyone" loves the ingredients. The statements were vague and unprovable.
Further, the claim "Fresh Regional Ingredients" was a "vague generality" that couldn't mislead a reasonable consumer "who examined the entire package" in context. Statements that the ingredients are "fresh" and "regional" are not subject to measurement, and no reasonable consumer would find the statements misleading because the amount of "fresh" or "regional" ingredients a reasonable consumer would expect the product to have was not quantifiable.
The panel also affirmed the district court's finding that plaintiffs lacked standing to challenge the "Biologically Appropriate" claim. This allegation was based on the FDA's notification to Champion in 2018 that some of its dog food was contaminated with a controlled substance. However, this contamination occurred after plaintiffs would have purchased the products, and so the plaintiffs had no standing to sue.
Over and over, courts have found Champion's claims on these products too vague to be deceptive to the reasonable consumer. Champion faced similar claims in the 7th Circuit and prevailed. There, the court affirmed a motion for summary judgment in Champion's favor on the grounds that the plaintiff hadn't offered enough evidence.
In 2020, a Minnesota federal district court likewise found that Champion had not misrepresented the quality of its dog food (once again on the same claims) because no reasonable consumer was likely to interpret the claims as a guarantee that the food contained no traces of heavy metals.
I Will Survive! In the Battle of the Survival Food Kits, Some Claims Don't Make It Out
In a National Advertising Division matter (NAD) that's a cross between a cooking show and the famous '70s anthem, two companies promising self-reliance in the event of an emergency via long-term shelf-stable emergency food supplies battled over claims about the caloric sufficiency per advertised duration of the emergency food.
My Patriot Supply challenged competitor 4Patriots' marketing of its Long-Term Survival Food Kits, which appeared on the advertiser's website and on YouTube. My Patriot Supply challenged 4Patriots' duration claims conveying the message that its kits would last for as long as advertised and that consumers could survive on the survival kit food alone without adverse health effects (e.g., loss of body weight or hunger). It also challenged '4Patriots' online endorsements.
The challenger argued the ads imply that consumers would not experience any adverse health effects while eating the products for the duration for which they're advertised (enough food for three months, a year, and so forth), with 4Patriots countering that "survival" as used in the ads merely meant just that: survival, "which means being alive."
In considering the duration claims, NAD first found that the consumer perception evidence provided by 4Patriots didn't stand up to scrutiny. For one, although the results of the survey showed that a "majority" of users were not confused about whether their health would be affected by eating just the food in the kits, NAD said that as "long as 15 to 20% of respondents in a consumer perception survey take away a misleading message, there is evidence of consumer confusion."
NAD then agreed with the challenger that the survival claims implied by 4Patriot's marketing conveyed that its products provided more than mere survival. On its website and in videos, 4Patriots featured images of generous stacks of pancakes, an abundant Thanksgiving-like feast, and generally "heaping amounts of food." The site also consistently featured words and phrases like "more food," "more calories," and "bigger."
4Patriots' disclosures about the adequacy of the calories provided in the kits were not sufficient, as NAD concluded they were not clear and conspicuous given how many times the claims requiring the disclosures appeared. Although the disclosures appeared in a few places, including near the "Add to Cart" button, given the lengthy website product descriptions and multiple references to generous portion amounts, the disclosures appeared too infrequently. They were also often in small font.
Taking all this into account, NAD recommended 4Patriots modify the advertising to avoid conveying the message that its kits contain an abundant amount of food that will last the claimed duration and to ensure that disclosures are clear and conspicuous, including stating that some people will need more calories than those provided in the kits. Still, NAD okayed 4Patriots' use of these same claims in the product name, in keeping with its self-described longstanding reluctance to interpret implied messages conveyed in a product name.
The challenger also took issue with endorsements in YouTube videos that it said were not adequately disclosed as paid promotions. A disclosure that "sometimes [customers] receive a free product" in exchange for an "honest" review are insufficient, said NAD. The disclosures did not appear in one video on 4Patriots' website; and customers had to click on the "Show More" button to see the disclosure in another video. NAD found this was not clear and conspicuous enough for their liking.
The more times you make a claim, the more times you should make the disclosure. In other words, advertisers making claims multiple times throughout their marketing should ensure that they include multiple and "persistent" disclosures that are clear and conspicuous enough "to prevent consumers from being confused by the multiple iterations of the claim." In addition, make sure the words, images, and other elements used in advertising support the same message.
"Yes" to Heavy Consequences for Baby Food Co. Falsely Advertising "No Heavy Metals" in NY
New York's attorney general has warned a baby food manufacturer that it is falsely advertising its products as "lead free" and may face future action as a result.
NY Attorney General Letitia James sent a cease and desist letter to EU-based brand JSG Babyfood LLC and JSG Organics LLC, doing business as HolleUSA, asking it to stop advertising its baby food as "lead free" and "having no detectable traces of heavy metals." HolleUSA sells baby food products including vegetable and fruit purees and formula-like products. It markets its products as healthy, organic, and lead- and mercury-free—"ensuring your family is growing up with the best that nature has to offer."
The AG's office tested several HolleUSA brand baby foods—including "'Carrot Cat' Fruit & Veggie Puree," "'Zebra Beet' Fruit Puree & Veggie Juice," and "'Veggie Bunny' Veggie Puree"—and found detectable levels of lead, cadmium, and/or arsenic in all of the 18 sampled pouches.
The AG's letter, which attached screenshot examples of the questionable marketing, warns HolleUSA that it may be engaging in false and misleading advertising, deceptive business practices, and fraud by marketing these products in violation of NY Executive Law and the General Business Law.
The letter warns HolleUSA that the AG's office may investigate the potentially fraudulent or deceptive business practices, including the alleged false advertising. AG James also told HolleUSA that her office may bring an action to enjoin the company's false advertising and obtain restitution, damages, and other appropriate equitable relief. According to AG James, the AG's office may seek penalties of up to $5,000 per violation under NY's General Business Law.
AG James directed the company to remove all false and misleading claims about the absence of heavy metals in its products from all marketing materials, including both explicit claims and images or graphics that suggest the products have no heavy metals. "These false or misleading claims prey upon parents' concerns about the continuing problem of toxic heavy metals in their children's food, and they must end. We will continue to hold accountable any company that misrepresents its products to New York consumers," said AG James.
The issue of lead in baby food has been in the news since a congressional report cracked the problem open in February 2021. Multiple false advertising lawsuits have been filed against various baby food manufacturers since that report, and state attorneys general are taking note and action.
As AG James put it, her office is a "national leader in advocating for the federal government to accelerate actions to remove heavy metals from infant and toddler foods, within days of a February 2021 congressional report finding 'dangerous levels' of toxic heavy metals in commercial baby foods." It will be interesting to see if her pursuit of this matter will have an additional impact on the advertising.
It's also a reminder that a claim a food is "free" of heavy metals is a high standard—even if the product falls below the limits set by the government for heavy metals (as these products did in the EU, where the company is based)—"free" can be interpreted to mean "below the level of detectability" or (more likely for the plaintiff's attorneys) "absolutely zero."