Stay ADvised: Brand Protection & Advertising Law News
In This Issue:
- Sneaker Company's Editorial Articles Are Advertising, NAD Says
- Nothing But Hype: Investors Sue MLB, Formula 1, and Other "Promoters" Over "Zealous" Marketing of FTX Fraud
- NAD Hands Briquet Advertiser a Lump of Coal for Unsubstantiated Comparative and Superiority Claims
- How the Litigious Have Fallen: Court Holds "Vanilla Vigilante" False Ad Attorney in Contempt
Sneaker Company's Editorial Articles Are Advertising, NAD Says
The National Advertising Division (NAD) has been increasingly policing the line between advertising and editorial. In a recent decision, NAD weighed in again, this time on the question of whether a sneaker company's "editorial style" sponsored posts on social media inappropriately blurred the line between editorial content and advertising and, if so, whether the company's commercial relationship to the publisher of the posts was conspicuously—and sufficiently—disclosed. Although labeled as "sponsored," in context NAD determined such disclosure was not good enough.
Sponsored posts published by social media accounts for Travel & Leisure (T+L), US Weekly (US Weekly) and The Quality Edit (TQE) all praised the comfort and sustainability of Cariuma brand sneakers. NAD analyzed the posts as part of an ongoing monitoring program.
The T+L and US Weekly social media posts were titled, respectively, Celebrities like Helen Mirren and Jon Hamm are fans of the wear-anywhere sneakers that have gotten an upgrade for fall and Back in Stock! Shop These Sustainable Sneakers Before They Sell Out Again. The TQE post featured a photo of a person wearing the sneakers and the text "With seemingly every celebrity's and their mother's blessing, I recently tested a pair to see what the hype is about–and my feet have thanked me each day since."
NAD first analyzed the extent to which the publications retained editorial control over the posts: "When considering whether content that includes affiliate links but appears to be editorial is, in fact, advertising, NAD considers whether the content was created independent of the 'economic or commercial motivation' introduced by affiliate marketing revenue."
Here, Cariuma sent each of T+L and US Weekly a press pitch, and the publications were paid a commission for products sold to users who clicked on the Cariuma link in the articles. However, the publications retained complete discretion as to the content of the articles.
TQE also had complete editorial freedom to write about a specific topic, but unlike T+L and US Weekly, it was required to obtain prior approval from Cariuma before publishing the sponsored content.
Either way, the result was the same: NAD found that in all cases the posted content constituted advertising, and merely using the label "sponsored" was just not good enough.
The determining factor in NAD's analysis was the commercial motivation behind the posts. Even though Cariuma only retained full editorial control over the TQE creative content, and although NAD found that it was unclear whether T+L's and US Weekly's editorial writers were aware of the affiliate marketing relationship with Cariuma before determining what to write, the fact remained that "Cariuma paid to amplify the editorial content in all of the social media posts." That brought all of these posts within the advertising realm.
Having determined that these were sponsored posts, NAD next went on to look at whether there was a clear and conspicuous disclosure of a material connection that was sufficient to satisfy the requirements of the Federal Trade Commission's Endorsement Guides. NAD found there was not.
The "sponsored" label was insufficient because it did not make clear by whom the posts were sponsored—a violation, NAD found, of the recently updated FTC Endorsement Guides. NAD recommended that Cariuma clearly and conspicuously disclose the material connection—that is the entity that provided the sponsorship—in the social media posts.
Key Takeaways
The key here is not so much whether the content constituted advertising but, rather, NAD's view that merely labeling it as "sponsored" was insufficient to disclose the material connection to consumers.
Nothing But Hype: Investors Sue MLB, Formula 1, and Other "Promoters" Over "Zealous" Marketing of FTX Fraud
Promoters who hyped up the FTX Group are liable under securities laws for enabling the company's massive fraud, claim plaintiffs in massive series of class actions taking aim at Major League Baseball (MLB), Mercedes-Benz Grand Prix Limited d/b/a Mercedes-AMG Petronas Formula One Team (F1 or Formula 1), and others for contributing to investor losses.
The lawsuits arise out of the FTX fraud and subsequent fallout, which saw investors in the cryptocurrency exchange lose billions. Calling "[t]he FTX disaster among the largest financial frauds in history," plaintiffs make the case that FTX was only able to perpetrate the fraud "with the willing help and assistance of some of the wealthiest, most powerful and recognized organizations and celebrities across the globe," including MLB and F1.
Plaintiffs aver that by "zealously" marketing the platform, MLB and F1 (along with the many other brands and celebrities who promoted the company) provided FTX with the name recognition associated with the goodwill of the MLB and F1 brands.
According to the complaint, the promotions, which at their height saw the FTX logo featured prominently on multiple MLB-branded products, were a "wide-ranging conspiracy to promote and sell unregistered securities … and to aid and abet the FTX Group's fraud."
MLB and F1 aggressively advertised FTX, allege plaintiffs, so much so that FTX promoted itself as the official crypto sponsor of MLB and FTX became part of F1's "symbiotic 'ecosystem'" of sponsors. As such, MLB and F1 had financial incentives to induce class members to invest in FTX, allege plaintiffs. MLB aggressively endorsed FTX, "leveraging the global reputation and trust in the MLB brand" while knowing the risks inherent in promoting unregistered securities.
Yet each of MLB and F1 allegedly failed to disclose that FTX was compensating it for promoting the sale of its unregistered securities. Each also turned a blind eye to the red flags and failed to do due diligence on FTX while getting paid "handsomely" by FTX to push its respective brand.
"Influencers played a major role in the FTX disaster and in fact, FTX could not have risen to such great heights without the massive impact of these [i]nfluencers, who hyped the FTX platform for undisclosed payments ranging from tens of thousands of dollars to multimillion-dollar bribes."
Consumers relied on the celebrity and trusted-brand endorsements which gave the endorsers a legal obligation to confirm that the products would not cause financial damage to consumers, say plaintiffs.
Plaintiffs seek to hold promoters liable under several states' securities laws, the Florida Deceptive and Unfair Trade Practices Act, and the California Unfair Competition Law, and they argue both that there is precedent to find the promoters liable for false advertising under securities law and that they intend for the matter to "serve as precedent to warn and guide other promoters in the future."
Key Takeaways
A host of celebrities have been sued for promoting the now defunct crypto companies, including Tom Brady, Gisele Bundchen, Larry David, and Christiano Ronaldo. In some ways this suit is the next step—going after the big brands with big brand name recognition whose reputations, say plaintiffs, helped advance the fraud.
NAD Hands Briquet Advertiser a Lump of Coal for Unsubstantiated Comparative and Superiority Claims
In a challenge between two advertisers of coal briquets—those compressed blocks used to make fuel for kindling—the National Advertising Division (NAD) weighed in on comparative size and superiority claims.
Kingsford Products Company challenged claims competitor Royal Oak made about its briquets: that they are "50% bigger," that they offer the "Best Grilling Experience," and that "A Bigger Briquet is a Better Briquet."
NAD first analyzed whether the "50% Bigger" claim was comparative with Kingsford. This claim appeared in some cases next to a disclosure specifically comparing Royal Oak to Kingsford and in other cases with no reference to a competitor. Regardless, because Kingsford Original briquets make up a large portion of the market, consumers may reasonably understand the statement to refer to Kingsford even when it doesn't mention the company by name, concluded NAD.
Further, because the sample size in the study Royal Oak provided was too limited to reliably support the 50% bigger claim, the claim was not substantiated. Royal Oak could promote the size of its Super Size briquets and even compare size to competitive brands, but "any comparative size claims must not overstate the relevance of the size difference."
What about the claim that Royal Oak offers "the best grilling experience?" Kingsford argued this claim conveyed a message that Royal Oak briquets provide a better grilling experience than Kingsford. Royal Oak countered that the claim was subjective, that reasonable consumers would understand it as an opinion rather than a comparative claim, and that it was mere puffery.
The claim "best" can be either a substantive superiority claim (which requires substantiation) or puffery depending on the context. Here, "best grilling experience" was specifically tied to measurable performance attributes—the claims that the briquets light up fast and provide a long burn time. In this context, the reasonably conveyed message was that Royal Oak briquets perform better because they are larger, rather than the message being a subjective concept, reasoned NAD.
Had "best grilling experience" been presented standing alone as an opinion of company pride, the claim might have been mere puffery. In context, however, NAD found the claim was linked to "specific and measurable performance attributes." And because Royal Oak failed to substantiate the claim, NAD recommended it be modified to avoid conveying the message that the briquets provide a "better grilling experience" because they burn hotter or longer than competitors' [briquets].
On the "bigger briquet is a better briquet claim," NAD noted that "better" is an inherently comparative claim even when not referencing a specific competitor. It could be puffery when left vague or stated as a subjective opinion. But, again, when tied to "specific measurable attributes, it reasonably conveys a message that the product is better for objective (and supported reasons) and is not merely a statement of opinion."
Such was the case with the claim at issue here. Royal Oak specifically made the claim that its briquets are better because they are bigger. In its advertising, Royal Oak tied the "bigger is better" claim to burn time and superior performance, yet it did not provide reliable evidence that showed that its bigger briquet provides superior burning performance as compared to smaller briquets.
Key Takeaways
Puffery and the NAD are not happy bedfellows. This case reminds us, again, that NAD looks long and hard at context to determine the line between measurable and vague aggrandizing boastfulness. As often happens in this forum, NAD found the advertiser here crossed the line.
How the Litigious Have Fallen: Court Holds "Vanilla Vigilante" False Ad Attorney in Contempt
He has filed hundreds of cases alleging that brands falsely advertised the content of their food products: not enough real strawberries in Kellogg Strawberry Pop-Tarts; too little fudge and mint in Keebler fudge-mint cookies; deceptive amounts of potassium in Starbucks coffee. For a time, he even became somewhat notorious as a consumer rights advocate. Now a court has found attorney Spencer Sheehan in contempt of court, saying he filed (and continues to file) numerous false advertising claims knowing full well they are meritless.
New York federal Judge Frederick J. Scullin, Jr., found Sheehan in civil contempt for filing a complaint—one of many—grounded on baseless allegations. Judge Scullin held that Sheehan had acted in bad faith when he filed his action alleging that Starbucks Coffee falsely advertised its 100% Arabica Coffee brand.
In the underlying class action lawsuit, Sheehan claimed on behalf of plaintiff class that the name of Starbucks' French Roast Ground 100% Arabica Coffee misrepresents that it is "100% Arabica Coffee" even though it contains the additive potassium, and therefore Starbucks was falsely advertising its "100% Arabica Coffee" product for which it charges consumers a premium.
In the contempt proceedings, Sheehan argued that the court had failed to provide the "high degree of specificity" required of its factual findings. But the court disagreed, noting that in granting Starbucks' motion to dismiss, it had summarized plaintiff's allegations, identified and applied the relevant rules, and decided to dismiss the lawsuit because it found that Sheehan "filed a frivolous complaint … when he made meritless claims … based on an unreasonable interpretation of a food label and without providing any support for Plaintiff's allegations."
Judge Scullin was not persuaded by Sheehan's arguments that he had relied on multiple studies to make his allegations in the complaint and conducted his own independent analysis of the product, noting that the attorney had failed to attach any of those materials to the complaint or to any other relevant subsequent pleadings.
"Even if the Court had such information available to it at the time it considered Defendant's motion to dismiss and accepted such evidence as true, the Court ruled that Plaintiff 'ha[d] not shown that a reasonable person would believe that "100% Arabica Coffee" meant that the Product contained ground coffee beans without any vitamins or minerals, including added potassium.'"
Sheehan's failures in the Starbucks action and multiple others showed that he "is aware that he files class action lawsuits primarily pertaining to allegedly false labeling on consumer products … that plainly do not meet the pleading requirements for such claims on their faces." In other words, the court found it instructive that other courts had dismissed Sheehan's claims—over and over again.
Key Takeaways
As Sheehan's cases, which apparently often seemed almost a copy/paste of each other, piled on, his seeming legitimacy flailed. The case may serve as a warning to others to carefully consider before filing.