Stay ADvised: What's New This Week, March 21
In This Issue:
- Restaurant Chain Orders Up Class Action Lawsuit Over Google's "Order Now" Button
- Court Flushes Some "Dude Wipes" Allegations, but False Ad Claims Cling
- FTC Processes $2.3 Mil Settlement From Rogue Payment Processor That Enabled Fake "Discount Club" Charges
- FTC Shuts Down "Raging" Deceptive Earnings Claims for $2.425 Mil
Restaurant Chain Orders Up Class Action Lawsuit Over Google's "Order Now" Button
The operator of Miami restaurant chain "Six Lime Fresh Mexican Grill" claims that Google is violating the Lanham Act by routing online orders to Google-branded websites and third-party food delivery providers without the restaurants' authorization to hawk its food online—and making a profit from these practices.
Lime Fresh filed a class action lawsuit alleging that Google's "Order Online" button leads consumers to an unauthorized online storefront in a "bait and switch" tactic that enriches Google and third-party delivery food providers (such as Doordash and Postmates), which costs plaintiff money in the form of delivery service fees. Plaintiff also alleges that Google makes unauthorized use of its tradename, which falsely implies a business relationship with the restaurant.
According to the complaint, Google intentionally designs its search results with the "Order Online" button included under the business name so that it appears to be sanctioned by restaurants and can lead consumers to mistakenly think that clicking the "Order Online" button will redirect them to the restaurant's official website, when instead they end up on Google's branded pages. Plaintiff asserts that Google's wrongdoing manifests in one of two ways.
In the first scenario, Google's "Order Online" button takes consumers to an "unauthorized storefront" owned by Google and branded with the restaurant's trade name where customers can place orders. Google uses the restaurant's name and other distinctive information to give the impression that the site is affiliated with or otherwise authorized by the restaurant. Orders from this storefront are routed to third-party food delivery providers which results in the restaurant incurring additional fees.
In the second scenario, the "Order Online" button takes consumers to another Google site which links to delivery providers. Plaintiff claims that Google "deliberately misbrands the webpage" so that consumers believe it is "sponsored and approved by the restaurant."
Either way, the results are the same, says plaintiff. Google takes a cut of the profits, uses restaurants' tradenames without authorization, and falsely implies a commercial relationship with the restaurants which was never authorized.
"Google cannot use the restaurant-class members' hard-earned tradenames without their approval, much less to suggest associations and sponsorships that do not exist; nor can it engage in false advertising by misrepresenting the nature and characteristics of its own commercial activities and those of its advertisers," charges plaintiff. These actions constitute deceptive practices and a misappropriation of goodwill and tradenames in violation of the Lanham Act, alleges plaintiff, who seeks to stop Google's allegedly deceptive conduct.
This isn't the first time this issue has come up for restaurants as delivery services take a large cut of profits. A similar lawsuit from 2019 was filed against one of the big food delivery companies alleging that it bought domain names like those of popular restaurants without the restaurants' consent and featured their trade dress.
Court Flushes Some "Dude Wipes" Allegations, But False Ad Claims Cling
An Illinois federal court significantly curtailed claims in a proposed class action lawsuit alleging that a brand of wipes that is marketed as disposable and flushable isn't actually flushable.
Defendant Dude Products manufactures personal hygiene products marketed to men. The product at issue in this case is defendant's Dude Wipes product, hygiene wipes that are marketed as "Flushable Wipes." Plaintiffs, taking issue with that characterization, sued Dude Products, alleging that its wipes are not in fact flushable, despite the claims on the product's label.
Plaintiffs allege that after using the product, they each attempted to flush it down their respective toilets and subsequently experienced problems with their home plumbing systems. The complaint alleges violations of California and Illinois consumer protection laws and breaches of express and implied warranties.
Dude Wipes argued that the court should dismiss plaintiffs' consumer protection and false advertising claims because the product's side panel includes a disclaimer that "destroys Plaintiffs' claims that the packaging contains an actionable deceptive misrepresentation." The side panel features a warning listing the types of situations in which the wipes are flushable and the types of situations in which the wipes cannot be flushed.
Plaintiffs countered that the court could not assume that a reasonable consumer would look at the fine print disclaimer and that even if it does make that assumption, the question of whether the consumer would be deceived after looking at the panel is not for the court to decide at this stage.
The court agreed with plaintiffs on this point. "Even if reasonable consumers referenced the side panel to assess the front label's assertion, the disclaimer language does not destroy Plaintiffs' claims" because a consumer reading the disclaimer would see that flushing is OK, although only under certain specific conditions, it noted.
Although this "directly contradicts the Plaintiffs' allegation that Dude Wipes are never flushable," the court held that plaintiffs "plausibly alleged that the packaging is likely to deceive reasonable consumers that the wipes are flushable." It was still a question of fact whether consumers understood the wipes to be flushable only under certain circumstances, added the court.
However, the court agreed with Dude Products that plaintiffs have no standing to seek injunctive relief because "no consumer would repurchase a product she believes is deficient." The court was not persuaded by plaintiffs' arguments that they would consider purchasing the Dude Wipes if they were assured that the product was flushable, noting that once someone knows a product is deficient, that person is unlikely to purchase it again.
Finally, the court dismissed plaintiffs' implied breach of warranty of merchantability claim because plaintiffs did not properly respond to Dude Products' argument that even if the wipes were not flushable, they could still be used for their ordinary purpose—hygiene.
The side panel strikes again. Advertisers should be wary of relying on side panels to buttress their liability in the event of a false advertising class action. Here, it's not so much that the side panel explicitly contradicted the claims, as we've seen in other matters, but rather that it contradicts the claims in certain situations, making the whole thing confusing to consumers.
FTC Processes $2.3 Mil Settlement From Rogue Payment Processor That Enabled Fake "Discount Club" Charges
A payment processor has agreed to pay the FTC $2.3 million to settle charges that it knowingly facilitated bogus discount club charges that cost consumers approximately $40 million.
The FTC's complaint, which also targets the defendants that ran the so-called discount club, alleged that iStream Financial Services debited funds from consumers without their consent while acting as the payment processor for the fraudulent scheme. Via websites and telemarketing calls and under the guise that it was promising payday and cash advance loans, a company called EDP (more on them later) enrolled unwitting consumers in a discount club, then charged them an initial fee ranging from $50 to $100 and recurring monthly fees up to $20—using iStream to do so.
iStream's role in the scheme was that of an enabler, the payment processor that charged the fees via unauthorized "remotely created checks" (RCCs) to withdraw the money from consumers' accounts, said the FTC. Yet the overwhelming majority of consumers charged for these "discount clubs" never accessed the coupons, according to the complaint. And hundreds of thousands of consumers called to cancel and request refunds and sought chargebacks through their banks for the unauthorized debits.
For its part, multiple indicators suggest iStream knew about the nefarious nature of these charges, said the FTC. The company "consistently disregarded the high return rates generated by the discount club transactions, a red flag indicating unlawful debiting." It also disregarded other indicators of possible fraud, including the fact that the primary merchant and current ongoing defendant in the matter was a descendant of EDebitPay (EDP), a company that had already faced previous FTC action for similar shenanigans.
In addition to the monetary penalty, the stipulated order bars iStream Financial from working with high-risk clients (meaning clients who deal in outbound telemarketing, discount clubs, or offers to provide payday loans) and using any RCCs.
Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, took the opportunity to take a dig at the Supreme Court and Congress: "Unfortunately, this amount represents a small fraction of the approximately $40 million in total losses suffered by consumers—a direct result of the Supreme Court's decision in AMG. Without a statutory fix to restore the FTC's strongest authority to obtain refunds, these consumers, and millions more like them, cannot be made whole," he said.
As this matter shows, it's not just the schemers who may be on the hook for illegal acts. The FTC has a long history of prosecuting third-party processors who knew or should have known they were profiting off fraud.
FTC Shuts Down "Raging" Deceptive Earnings Claims For $2.425 Mil
Popular trading site Ragingbull.com will pay the Federal Trade Commission nearly $2.5 million to settle allegations that it made deceptive earnings claims to lure consumers into a costly subscription plan trap.
According to the December 2020 complaint, Ragingbull.com advertised its platform as a place to get expert trading advice from its instructors—most of whom also happened to be the company's principals. Representative claims included that the platform offered "the simplest, most consistent strategy on Wall Street," and "trades that can work for everyone," and that individuals could make "$9,100 per day." However, the FTC alleged that Raging Bull falsely represented what customers could earn—that is if they followed the advice of the "gurus" they could "double or triple" their earnings.
In promoting its product, Raging Bull also claimed that the trading strategies it marketed would allow consumers to garner the same level of return on investment as its expert instructors, said the FTC. According to the FTC, the company also misrepresented that consumers could make substantial profits regardless of the money in their account.
Instead, many consumers lost "substantial sums of money" investing with Ragingbull.com. The company did not "in fact, provide effective strategies that consumers can reasonably use to make market-beating profits," according to the FTC. "Nor can consumers make market-beating returns" by using their trade alerts, it added. In fact, the educational materials that Raging Bull marketed consisted merely of "generic trading concepts and technical indicators not sufficiently concrete to be implemented."
The FTC also took issue with testimonials the company published that claimed to be from customers who boasted about thousands of dollars of returns and an over 100 percent profit from a single trade. Fine print buried at the bottom of the site indicated that the testimonials used in advertising were not verified, a wholly insufficient disclosure, said the FTC.
Additionally, the complaint alleged that Raging Bull sold its services as a recurring subscription, then made it extremely difficult for consumers to cancel. Some of the tactics the company allegedly used included "chronically understaffing" its customer service line and providing inconsistent cancellation instructions.
In addition to the monetary penalty, the company also is prohibited from promoting any earnings claims not backed up by written evidence of results typical for most consumers.
This case checked many FTC hot button boxes: misleading endorsements, misleading automatic renewal policies, and misleading earnings claims. Regarding false earnings claims, the FTC recently announced it is considering rulemaking to strengthen its enforcement powers in this area.
In December 2020, this case was one of four filed by the FTC as part of what it dubbed "Operation Income Illusion," a "nationwide crackdown" on deceptive earnings claims in partnership with other federal and local enforcement agencies.