Stay ADvised: What's New This Week, August 26
In This Issue:
- Ad Watchdog Warns It's No "Belieber" in Justin Bieber and Other Celebs' NFT Endorsements
- Rent-A-Center to Pay $15.5 Million in California Consumer Protection Settlement
- Court Won't Get to "Makeup" It's Mind Over Influencer Liability as Molly Sims et al. Settle
- Enfamil and Plaintiffs Agree to an $8.4 Million Formula for Settlement of False Advertising Class Action
Ad Watchdog Warns It's No "Belieber" in Justin Bieber and Other Celebs' NFT Endorsements
A growing list of celebrities find themselves the recipients of letters from a certain advertising watchdog, and it's not fan mail they've been getting.
Truth In Advertising (TINA) recently announced it has sent letters warning big name celebrities including Justin Bieber, Reese Witherspoon, Gwyneth Paltrow, Madonna and more that in TINA's eyes, they are violating Federal Trade Commission (FTC) guidance on endorsements by hawking NFTs without clearly and conspicuously disclosing the material connection between themselves and the NFT companies they're promoting.
Following up on a set of letters the watchdog sent to Bieber and Witherspoon months back, TINA announced it has sent additional letters to counsel for Jimmy Fallon, Eva Longoria, Tom Brady, DJ Khaled, and a long list of other A (and B) listers, likewise claiming the celebrities are being compensated (TINA believes) to promote the NFT-related goods and services but are deceptively not disclosing the relationship.
TINA warned the celebs that their failure to disclose partnerships with NFT companies (such as Bored Yacht Club in Bieber's case and World of Women in Witherspoon's) amounts to a violation of FTC law. These celebrities and influencers may also be running afoul of the U.S. Securities and Exchange Commission, which has said that celebrity endorsements "may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement," warned TINA in the letters.
The celebrities—like everyone else and their mother, it seems—have been talking up NFTs, or "non-fungible tokens," on social media. Digital assets stored in the blockchain that convey ownership rights, most commonly in connection with digital art, NFTs (like crypto until the precipitous drop in value only a little while ago) are hot right now, a way to invest in digital art that, says TINA, may or may not go up in value.
And that's one of the problems with NFTs and their promotion by celebrities: it's a risky investment, but celebrity endorsements on social media don't offer up any nuance, notes TINA. TINA's letters say that celebrity NFT marketing fails to disclose the risks inherent in investing in such "speculative digital products, and the financial harm that can result from such investments."
In response to TINA's letter, Bieber's representatives denied wrongdoing but said the singer would nevertheless update his posts to "underscore his widely publicized connection" with the NFT company, though as of this writing TINA points out that no changes have been made. Witherspoon's legal team has denied receiving any financial benefit from her partnership with World of Women and said the posts do not violate the law.
TINA's letters are timely given that the FTC has just announced its proposed updates to its Endorsements and Testimonial Guides and is currently reviewing possible revision and update to its .com Disclosure guidance. Of course, even without any updates, the FTC has been clear that influencers must disclose when they're getting compensated for their promotions. Is FTC paying attention to TINA's complaints? Time will tell.
Rent-A-Center to Pay $15.5 Million in California Consumer Protection Settlement
Rent-A-Center will pay the state of California $15.5 million to settle allegations that it misled consumers for nearly a decade about the cost-savings and contractual terms of its furniture rental business.
California Attorney General Rob Bonta's complaint specifically calls out Rent-A-Center's Preferred Lease line of products, which offers furniture rental services at kiosks inside brick-and-mortar retail locations. It alleges that Rent-A-Center marked up its furniture by over 15% of the cash price and misrepresented many of its contract terms. According to the complaint, the company's "marketing scheme misleads customers about the most important aspects of the transaction." For starters, although the Rent-A-Center agreements are structured as rental contracts, the company skewed its marketing to make it seem as if the agreements were credit-based by using "credit-oriented language" such as "financing" and "interest."
Perhaps more troubling, the complaint alleges that the company also deceived consumers about their right to return merchandise. Although Rent-A-Center's lease agreements allow returns at any time—a "core feature of rent-to-own agreements"—Bonta claims that salespeople falsely told prospective customers that they could not return items.
Finally, California accused Rent-A-Center of violating the state's Automatic Renewal Law by failing to provide clear cancellation information and affirmative consent when enrolling consumers in the program in the first place.
In addition to the monetary component of the settlement, the vast majority of which will go towards reimbursing consumers affected by the company's predatory practices, Rent-to-Own will be enjoined from a number of the allegedly illegal tactics that California says got the company in hot water in the first place, including charging prices higher than the lowest advertised price and imposing unreasonable processing fees. The order also prohibits the company from limiting a consumer's right to terminate the agreement.
Finally, Rent-A-Center must abstain from "failing to disclose clearly and conspicuously in all marketing materials relating to Covered Rental-Purchase Agreements (including in-store displays) that the service being advertised is a rental-purchase transaction." On the same subject, Rent-A-Center is barred from use words like "financing" or "interest" to refer to its rent-to-own agreements.
The case is a reminder that companies need to worry about more than the FTC when it comes to negative option marketing. California has one of the most stringent automatic renewal laws in the country and requires companies to follow strict cancellation and notice requirements for subscription agreements, as Rent-A-Center now well knows.
Court Won't Get to "Makeup" It's Mind Over Influencer Liability as Molly Sims et al. Settle
A case with potentially significant implications for influencers' liability for false advertising and trademark infringement in the course of blogging and social media promotion work has come to a close with no clear resolution, after the parties settled the matter for undisclosed terms.
Plaintiff Petunia Products alleged that skincare company Rodan & Fields infringed on and diluted Petunia's BROW BOOST trademark by, among other things, promoting and offering for sale a Rodan & Fields product called "Brow Defining Boost." Petunia also asserted claims for false advertising and unfair competition, alleging that Rodan & Fields improperly used Google Ad Words and influencer marketing to advertise its competing brow grooming product, muddling consumer perception of Petunia's and Rodan & Fields' different products.
Notably, Petunia also in this action asserted claims against Molly Sims, a well-known fashion model with hundreds of thousands of followers on Instagram, arguing that her promotion of the Rodan & Fields product on her personal blog amounted to trademark infringement, false advertising, and unlawful and unfair business practices. Sims' blogging about the Rodan & Fields products compounded the consumer confusion, alleged Petunia.
The parties settled and agreed to dismiss the case, but not before the California federal court had a chance to weigh in on Sims' motion to dismiss the claims against her. Although the court dismissed false advertising claims against Sims on the ground that Petunia had not plead actual or constructive knowledge, it did so with leave to amend. Moreover, the court refused to dismiss the trademark infringement and unfair competition claims.
Sims had argued that not only was her blog post unlikely to cause confusion about the source of the product, but that trademark liability should not apply to third parties like her that "author sponsored blog posts about a product without confirming" whether the product violates trademark rights. She also argued that "legitimate commentary" would be stifled if the court considered her blog post commercial use.
But the court reasoned that Sims' use of the term "Brow Defining Boost" throughout her blog post made it possible that readers would believe her product was affiliated with Petunia. It also rejected her "legitimate commentary" argument, finding that the blog post was a paid advertisement, which rendered it commercial use.
Although the court's comments were made in the context of a motion to dismiss, without a fully developed factual record, the court's willingness at that stage to entertain plaintiff's argument that Sims as an influencer could be liable for trademark infringement and unlawful and unfair business practices, and its characterization of Sims' post as advertising, may send alarm bells ringing in the world of influencer marketing.
Enfamil and Plaintiffs Agree to an $8.4 Million Formula for Settlement of False Advertising Class Action
Baby formula maker Mead Johnson & Company and plaintiffs alleging that the company misrepresented the number of servings in a box of Enfamil have agreed to settle the allegations, with the resolution involving payment by Mead Johnson of up to $8.4 million.
The complaint alleged that Mead Johnson deceptively, misleadingly and unlawfully labeled and marketed its Enfamil baby food formulas (under a number of brands) by claiming the products contained more servings than they actually do. Mead Johnson also omitted material information about the true amount of formula contained in the product, claimed the plaintiffs.
According to the complaint, the front label of Enfamil product represented that a package of Enfamil yields a certain number of ounces of baby formula. The back label then provided the "Instructions for Preparation & Use," which featured the amount of formula and water that must be added to make a certain size of baby bottle.
The problem, said plaintiffs, was that when these instructions were followed, the Enfamil formulas yielded a decidedly lower number of bottles than advertised ̶ 8.9% to 10.2% less (figures the complaint states were confirmed by independent expert testing). That, alleged plaintiffs, amounted to untrue, misleading and false representations and false advertising.
Plaintiffs alleged violations of Missouri's Merchandising Practices Act Misrepresentations and False Statements, Unfair Practice, Concealment and Omission of Any Material Fact, and common law causes of action for unjust enrichment and breach of warranty.
In addition to the settlement payment, the settlement agreement requires Mead Johnson to either remove the challenged language from the product labeling or revise it so that it accurately reflects the product content, for a three-year period. Mead Johnson did not admit any liability.
With baby food formula shortages in the news, it seems that consumers are taking to the courts, as they have also done against Similac recently. Regardless, this settlement is a reminder that advertisers should take care to verify the accuracy of all claims on product packaging and labeling, not just those concerning the efficacy or functionality of their products.