Stay ADvised: What's New This Week, July 4
In This Issue:
- Arm & Hammer's "2X MORE LOADS" Detergent Claim Does Not Add Up, Class Action Argues
- Nothing Natural About Nordic Naturals, According to Class Action
- FTC Investigating Mental Health Startup Subscription & Cancellation Claims
- Reynolds Facing a "Hefty" Load of Lawsuits Challenging Recycling Claims
- Dove "Deep Moisture Bodywash" False Ad Class Action Survives Motion to Dismiss
- FTC Drives Effort to Put the Break on Deceptive Car Selling Tactics
- As Energy Prices Rise, So Does FTC Enforcement (and Permanent Injunctions)
- Lenovo Product Prices Don't Compute, Are Deceptive, Claims New Class Action
Arm & Hammer's "2X MORE LOADS" Detergent Claim Does Not Add Up, Class Action Argues
Algebra officially has a place in false advertising litigation (and we have seen it lots at the NAD). In a class action lawsuit against Church & Dwight Co. Inc., home of the Arm & Hammer brand, plaintiff says the company's detergent is falsely advertised as containing enough product for "2X MORE LOADS." Plaintiff notes that "2X" has mathematic meaning that Arm & Hammer fails to live up to.
The complaint, filed in a federal court in New York, alleges that Arm & Hammer misrepresents the number of laundry loads a consumer can wash using its 144.5 oz container (the Large Product). The company claims that consumers can do "2X MORE LOADS" than its 67.5 ounce version (the Small Product), for a total of 107 loads versus the smaller detergent's 50 loads.
Plaintiff argues that 107 loads is not "two times" more than 50. The complaint goes on to provide the correct algebra formula for calculating 2X. Two times more actually means "X + 2 * X = 3X." Plaintiff explains that the detergent merely offers "twice as much," or simply "2X," instead of "2X more," which really amounts to 3X the original amount.
It's not just the objective math that leads to this result, claims plaintiff. It's also the way the public would interpret the claim, mathematically speaking. According to an expert cited by plaintiff in the complaint, "if someone has $100, and it is 'doubled,' they will have $200. However, if a person has 'two times more' than the original $100, they will have their original $100, plus $200, for a total of $300." In other words, Arm & Hammer's claim would be true if they had said the Large Product contained "twice" or "double" the loads of the Small Product, alleges plaintiff.
Plaintiff claims Church & Dwight makes an additional false claim when it fails to disclose on the front label of the product that the Small Product (with 67.5 oz) provides enough detergent for 50 loads (that information is listed on the front label of the Small Product bottle only, as per images on the complaint).
As a result, Plaintiff argues, consumers come away with the false impression that 107 loads advertised on the Large Product represents the number of loads yielded by the Small Product (with 67.5 oz), "plus twice the number of loads of laundry" yielded by that Small Product.
This reasonable consumer is not so sure plaintiff's math will hold up to predict consumer takeaway (not twice as much but 3X more). Proving this may be a steep hill to climb for plaintiff, but it's something the court will have to add up. By the way, Arm & Hammer has formerly faced a suit alleging its detergents were not filled up all the way.
Nothing Natural About Nordic Naturals, According to Class Action
With a name like Nordic Naturals, you've got to have natural ingredients, right? Or at least that's what consumers expect according to the class action filed in a federal court in New York, another filing to add to the by-now long-term class action "natural" trend. Plaintiff alleges that Nordic Naturals is misleading consumers about how "natural" its supplements really are—an area that has been explored by the NAD as well in the supplement world. The suit targets an extensive list of the company's supplements.
Because consumers value "natural" products for important reasons, including the belief that they are safer and healthier than alternative products that are not represented as natural, "these consumers paid a premium for the products," says plaintiff. The complaint alleges that Nordic Naturals markets its products to health-conscious consumers as "natural," but that the advertising claims are false, deceptive, and misleading because the products contain synthetic ingredients including pectin, gelatin, citric acid, sodium citrate dihydrate, sorbitol, silica and others, says plaintiff.
The complaint argues that the question of whether a reasonable person would be misled by the labeling of a product as natural may be answered by looking at regulatory agencies for guidance. This guidance includes the 2013 U.S. Department of Agriculture (USDA) Draft Guidance Decision Tree for Classification of Materials as Synthetic or Nonsynthetic, which delineates the difference between a synthetic and natural product (a product is natural if it is "extracted from a natural source," among other criteria). The guidance also includes Congress's definition of "synthetic" as a "substance that is formulated … by a chemical process" or one that changes it chemically.
Plaintiff further argues that a consumer would need to possess a level of scientific knowledge beyond that of the average consumer to ascertain that the synthetic ingredients in these products aren't natural. For this reason, "even though the ingredients listed above are identified on the back of the products' packaging in the ingredients listed, the reasonable consumer would not understand—nor are they expected to understand—that these ingredients are synthetic," argues plaintiff. Neither would the reasonable consumer be expected to "scour the ingredients list" for the synthetic ingredients, claims plaintiff, given the "prominent representations" that the product is natural.
The complaint alleges violations of New York's General Business Law's prohibition against deceptive practices in commerce and its false advertising provision, as well as breach of warranty.
The National Advertising Division (NAD) has explained that the word "natural" in supplement and related products generally means containing no synthetic actives or key ingredients. Just last week we wrote on one case by the NAD on point. On the other hand, the Food and Drug Administration (FDA) has not yet cemented a definition for "natural," and much of the litigation faced by advertisers is facilitated by this gray area, despite the other guidance plaintiff looks to here.
FTC Investigating Mental Health Startup Subscription & Cancellation Claims
The Federal Trade Commission (FTC) is investigating whether mental health startup Cerebral is making deceptive statements about its subscription service, according to a recent report by the Wall Street Journal.
Cerebral offers online access to a combination of mental health therapists and prescription medications, a business model which, according to press sources, has proven a potent mix with the startup getting a steep valuation of $4.8 billion.
Now it looks like the FTC might have some concerns about the company's marketing practices, specifically its subscription and cancellation process. In the FTC's June 1 letter to Cerebral, the Commission told the company that it is investigating whether it engaged in deceptive or unfair marketing practices.
Questions directed at Cerebral focused on its business and specifically on the company's use of negative option marketing, which is whereby companies enroll customers in a subscription based on their failure to take an affirmative action like canceling an agreement. This type of a subscription-based advertising model is technically legal, but closely scrutinized by state and federal regulators alike.
Cerebral operates in this way, according to the company's website. But the FTC apparently has some concerns that the company's practices may not be entirely up to par. Its letter asks the company "dozens of questions" about its business, with particular emphasis on its subscription service.
According to the WSJ report, many Cerebral consumers have complained that the company makes it exceedingly difficult to cancel a subscription and receive refunds for unused services, including in some cases even having to ask their credit card companies to block Cerebral's charges. Others have complained of having to send multiple messages to the company to cancel a subscription.
The company has stressed that the FTC has not accused it of any wrongdoing at this time.
It's no surprise the FTC is investigating Cerebral, given the complaints against the company and a separate ongoing Department of Justice investigation into its subscription practices. This matter also follows October's FTC enforcement policy statement on negative option marketing, which outlines specific requirements for companies to get consumer consent for negative option contracts, giving companies like Cerebral fair warning of how to properly comply.
Reynolds Facing a "Hefty" Load of Lawsuits Challenging Recycling Claims
Reynolds is facing trouble in court with recent lawsuits alleging that it is falsely marketing Hefty garbage bags as recyclable, via a California class action suit and a lawsuit filed by the State of Connecticut.
Both lawsuits make essentially the same point: that Reynolds Consumer Products markets a product called Hefty RECYCLING garbage bags but that the product is not recyclable. According to the complainants, the garbage bag's packaging makes a number of claims that the product may be recycled: "perfect for all your recycling needs," "developed for use in municipal recycling programs," and "transparent for quick sorting and curbside identification." It also bears the well-known recycling logo.
In fact, both the putative class action plaintiffs and Connecticut Attorney General William Tong argue, the Hefty bags are not recyclable as a practical matter (and that using them renders any recyclables placed inside unrecyclable as well).
The California class action complains that the bags are made of "low density polyethylene plastic" or LDPE, which is not cost-effective for recycling plants to process. Though technically recyclable, the cost prohibitions on recycling this type of plastic have rendered them unrecyclable. The result: Hefty RECYCLING bags end up incinerated or in the landfill.
Reynolds' representations violate California public policy that environmental marketing claims be substantiated by competent evidence so as not to mislead consumers about the environmental impact of plastics, asserts plaintiff. Hefty's misleading claims also violate the FTC's Green Guides, which prohibit labeling products as recyclable unless they can be converted into reusable materials. Further, the Green Guides make it "deceptive to misrepresent, directly or by implication, that a product or package is recyclable."
Likewise, Connecticut Attorney General William Tong alleges that despite Reynolds' representations, Hefty's bags are not recyclable in Connecticut and that when they are delivered to Connecticut recycling facilities, the bags end up in landfills instead.
The class action case alleges that Reynolds' false advertising and misrepresentations violate California's False Advertising Law (FAL) and other California and common laws. The plaintiff seeks an injunction stopping Reynolds from engaging in the false advertising, as well as damages for the potential classes. Connecticut cites violations of the Connecticut Unfair Trade Practices Act (CUPTA) and also seeks injunctive relief and damages.
The idea that recycling must be a reality and not a theoretical possibility has been around for some time in the FTC Green Guides as well as state regulation, guidance and prior case law. In California in particular, the Truth in Labeling for Recyclable Materials which was passed last year, specifically forbids advertising as recyclable items that are not truly recyclable in the state of California. These cases are ones to watch.
Dove "Deep Moisture Bodywash" False Ad Class Action Survives Motion to Dismiss
A New York federal court refused to dismiss allegations that Unilever's Dove "Deep Moisture Bodywash" label is deceptive and misleading, finding that the plaintiff had sufficiently alleged that a reasonable consumer might be misled by Unilever's representations.
Unilever advertises Dove Moisture Bodywash as "microbiome gentle" and containing "skin-natural nourishers." In this class action complaint, the plaintiff claimed these statements were deceptive under New York General Business Law sections prohibiting false advertising and deceptive acts or practices in commerce because the Dove Moisture Bodywash contains multiple ingredients that can cause negative skin reactions and whose inclusion is "incompatible with maintaining a balanced microbiome."
Plaintiff posited that consumers falsely understand the microbiome claims to mean that the product has additional benefits on the skin beyond cleaning and moisturizing. The complaint alleged that based on the representations at issue here consumers expect the bodywash to contain 100 percent natural ingredients in the belief that synthetic ingredients are harmful to the microbiome.
In turn, Unilever argued that no reasonable consumer would interpret "microbiome gentle" to mean that the product contains entirely natural ingredients or find the advertising to be misleading. Unilever further argued that reasonable consumers would understand that the "microbiome gentle" representation means that the product as a whole is "microbiome gentle," not each individual ingredient.
The court's position was that either party's interpretation is plausible, at least at this stage in the proceedings. The Court explained that "[w]here a representation is capable of two possible reasonable interpretations," the Court is not free to reject "the misleading one . . . simply because there is an alternative, non-misleading interpretation."
Unilever's arguments to the contrary did not persuade the court. As to the company's argument that the term "microbiome gentle" applies to the entire product, the court said that the relevant question was not the content of Unilever's representations but how the reasonable consumer might interpret these representations. "And, the Court is not convinced at this preliminary stage of the proceedings that it would be 'patently implausible,' for a reasonable consumer to conclude that a 'microbiome gentle formula' is made up of only microbiome gentle ingredients."
Unilever also argued that plaintiff's theory of deception is implausible due to several logical fallacies, but the court noted once again that at this point in the proceedings it wasn't its role to interpret the representations but to determine if a reasonable consumer could interpret them as plaintiff theorized.
As to Unilever's argument that a consumer could resolve any potential ambiguity about the phrase "microbiome gentle" by examining the product's ingredients, the court noted that it was "untenable" to expect a reasonable consumer to look through an ingredients list full of scientific terms with which most consumers are unfamiliar to resolve any potential ambiguity about the phrase "microbiome gentle." The court held the obtuse ingredient list was far different from if, say, there had been a disclaimer with clarifying language that might "defeat a claim of deception," added the court. The court distanced itself from a California court that found that no reasonable consumer could interpret "hypoallergenic" or "gentle" to mean that a product was "entirely free" of "allergens or skin irritants."
Finally, the court rejected Unilever's claim that the plaintiff mischaracterized certain reports to support her claims, saying that was a question to explore at discovery.
Not surprisingly, when it came to Unilever's "ingredients" argument, the court was unequivocal, as many other courts have been, that reasonable consumers are not expected to examine and understand highly technical ingredient lists to interpret a representation. Here, where the somewhat controversial "microbiome" was at the core of the case, it is perhaps more surprising that the Court decided not to weigh in on what is "reasonable" at this early stage of the litigation.
FTC Drives Effort to Put the Break on Deceptive Car Selling Tactics
In the wake of rising car prices, the Federal Trade Commission (FTC) is proposing a new rule to curb what it perceives as some of the industry's worst deceptions harming automobile purchasers.
The Motor Vehicle Dealers Regulation Rule would ban bait-and-switch advertising, junk fees, and other less than candid practices in the car dealership industry. The FTC issued a Notice of Proposed Rulemaking seeking comment on the proposed rule, which would prohibit car dealers from using misrepresentations while selling or leasing vehicles and require accurate disclosures in advertising and informed consent for charges, among other provisions.
As it stands, the comprehensive rule would protect consumers with guidelines making it harder for unscrupulous car dealers to make false representations to buyers. The following are some of the proposed provisions:
Prohibited Misrepresentations: The proposed rule explicitly prohibits a number of advertising misrepresentations and bait-and-switch tactics purportedly used by car dealers, including about the cost of a vehicle and any added features, available financing terms, the availability of rebates, the availability of the vehicle, and claims that consumers have won a prize, among others.
Disclosure Requirements: The rule would require significant disclosures from car dealers, including about pricing and financing information and the "offering price" of a vehicle in ads that mention specific pricing. This provision would prohibit deceptive practices regarding price because, as the FTC writes: "Price is one of the most material pieces of information for a consumer in making an informed decision. Yet it is difficult for consumers to uncover the actual price for which a dealer will sell an advertised vehicle until visiting the dealership and spending hours on the lot."
Ban fraudulent "junk fees": The rule would also ban charging for add-ons without express, informed consent. This would include add-ons for items that don't really work, such as "rustproofing" that doesn't prevent rust, or antitheft devices that don't actually prevent thefts.
Require a consumer's informed consent for add-ons: This rule would further bar dealers from misrepresenting that an optional add-on is a required purchase. This would include requiring disclosure of the cost of the transaction without the add-ons.
According to the FTC, the rule is intended to protect consumers from deceptive practices in an area that is a "difficult and time-consuming experience." It would use the FTC's authority under Section 5 of the FTC Act.
The FTC says it has brought more than 50 enforcement actions against car dealerships making misrepresentations in the last 10 years. If enacted, this rule could bring about a sea change in the relationship between car dealerships and consumers.
As Energy Prices Rise, So Does FTC Enforcement (and Permanent Injunctions)
And because it's not just car prices rising…
In the wake of rising energy prices, the FTC has announced it has obtained a permanent injunction against a company accused of falsely advertising deceptive energy efficiency claims about its wall coating insulation products.
Florida company SPM Thermo-Shield sells wall coatings marketed to provide insulation to keep home energy costs down. But a 2020 FTC complaint alleged that the company falsely advertised just how well its products can insulate a property and provide energy savings.
According to the complaint, SPM Thermo-Shield advertised that its products provide impressive energy savings, with claims inviting consumers to "SAVE ENERGY," and by using its roof and exterior wall products, consumers "CAN SAVE UP TO 50% ON YOUR HEATING AND COOLING COSTS."
As the FTC explained it, it all comes down to the R-value, that measure of an insulating material's ability to insulate. As explained in the complaint, as a technical matter the R-value "is a measure of resistance to heat flow: the higher the R-value, the greater the insulating power." Consumers use the R-value to make purchasing decisions about the ability of a certain product to improve their home's energy efficiency.
SPM Thermo-Shield advertised high R-values that they claimed were determined via "Official Test Reports," but these claims proved illusory because SPM Thermo-Shield's own testing showed that the products yielded far lower R-value results than those advertised, according to the FTC. The FTC alleged that the company's representations about its coatings were false and deceptive because, in fact, they "do not significantly restrict heat flow…and do not provide the advertised energy savings."
In deciding to grant the injunction, and noting that even SPM conceded that the R-values were false, the court found that the FTC "presented undisputed facts of Defendants' past conduct to show that the R-value claims are likely to recur." In particular, the court was concerned that SPM Thermo-Shield and its owners (also named as individual defendants) earlier certified under oath that the subject claims would not reappear; nonetheless, the claims resurfaced on their website even after the FTC filed its suit.
The opinion and order bars SPM Thermo-Shield and the individual defendants from misrepresenting the R-value of its products, making unsubstantiated claims about any home coating product, or claiming that a coating product can provide energy savings without disclosing that such savings will vary depending on factors like location, type of construction, and more.
This matter was one of four filed in 2020 against companies selling coating paint for insulation and advertising allegedly deceptive R-values. Those cases remain pending.
Lenovo Product Prices Don't Compute, Are Deceptive, Claims New Class Action
Deceptive pricing suits, once relatively rare, continue to find new life. Calling Lenovo's list price for its computers a "work of fiction," a newly minted class action lawsuit alleges that Lenovo deceives consumers about the true value of its PCs in order to give the impression it is offering discounts when it is actually charging above market rate.
The complaint alleges that Lenovo has orchestrated a deceptive "strategy" to augment its bottom line by deceiving consumers. According to the complaint, the company fabricates a "fictitious original price" or some other representation of a product's value or level of quality—to create the impression that the offered discounts are a great value. In fact, say plaintiffs, the value and quality of the products are much lower than advertised.
Plaintiffs allege that although this strategy is applied to almost all of Lenovo's products, "the reality is that no discount is provided over Lenovo's everyday pricing and its products' actual value and quality are much lower than advertised" and its discounts "grossly overstated."
Explaining the deceptive reference price, plaintiffs allege the original price used to calculate the discount doesn't reflect the market price of the product offered by other retailers carrying Lenovo computers nor the market price of a comparable PC sold by Lenovo competitors.
But what plaintiff calls "most damning" is that Lenovo itself sells its products on its website at Lenovo.com for a price which never reflects the illusory original price but instead a discounted price that is closer to or at market price. The complaint alleges violations of New York's General Business Law §§ 349 and 350, which prohibit false and deceptive statements in commerce.
The complaint alleges that the factors that go into the quality and overall value of a computer are numerous and complex. More than anything, they are the types of factors that "reasonable consumers are not technologically literate enough" to be able to consider together. As a result, Lenovo's representations about the computers' estimated value are "a kind of qualitative statement because they induce consumers to believe those representations are commensurate with the Products' actual quality" on which consumers rely, argue plaintiffs.
Consumers love the hunt for the deal, and they love a discount. But when there's a whiff that a company is advertising false discounts on consumer products, the litigation is close behind. Lenovo is actually facing another suit similarly alleging that it advertises false reference pricing to increase demand for its products. The plaintiff's bar is certainly busy in this regard, as litigation has also touched Dress Barn when they were alleged to have artificially inflated its original pricing, and thus goes the litigation trend.