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Brand Protection & Advertising

Stay ADvised: 2024, Issue 18

Brand Protection & Advertising Law News
09.09.24
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In This Issue:

 

2nd Circuit Affirms Summary Judgment in Walgreens False Ad Suit, Holds Label Claims Preempted by FDA

Another court has weighed in on the preemption or no preemption argument, this time affirming the lower court and ruling in defendant's favor regarding claims that Walgreens and supplement maker International Vitamin Corporation (IVC) mislabeled a glucosamine supplement. The 2nd Circuit refused to revive plaintiff's lawsuit, instead affirming the lower court's determination that the plaintiff's claims were preempted by the Federal Food, Drug, and Cosmetic Act (FDCA).

According to the complaint, the plaintiff bought IVC's Finest Nutrition brand "Glucosamine Sulfate," used to treat osteoarthritis pain at a Walgreens believing—based on the Supplement Facts panel on the back and the statement of identity on the front—that it contained a type of glucosamine she alleged is superior at alleviating joints pain (single-crystal glucosamine). The product label said the product contained "Glucosamine Sulfate Potassium Chloride," which plaintiff said denotes single-crystal glucosamine (rather than blended glucosamine).

After running some tests, plaintiff discovered that the product did not contain glucosamine sulfate (single-crystal glucosamine) but rather a combination of glucosamine hydrochloride and potassium sulfate (blended glucosamine), which plaintiff alleged was inferior. She sued, alleging that the product was mislabeled and falsely advertised under New York law.

The district court granted Walgreens and IVC's motion for summary judgment, and the panel upheld that decision on appeal.

Walgreens and IVC argued that plaintiff's claims were preempted by the FDCA because the product's ingredient satisfies FDA tests for ingredients of that name. It therefore complies with the statute's "common and usual name" requirement, which provides that dietary ingredients for which the FDA has not established a Reference Daily Intake (like glucosamine) must be declared by their "common or usual names."

The plaintiff countered that these testing methods are inappropriate because they don't distinguish between single-crystal and blended glucosamine. She also alleged that glucosamine sulfate potassium chloride, the active ingredient listed on the label, is not the "common or usual name" for blended glucosamine.

The panel wrote that because the FDA had not established Reference Daily Intakes for glucosamine-based dietary ingredients, a product is properly branded under FDA law if it is the "common or usual name" as determined by the FDA-approved AOAC naming method or other "reliable and appropriate methods."

Ultimately, although there was no applicable AOAC method for glucosamine sulfate potassium chloride, "there is no genuine dispute that the Product's glucosamine-based dietary ingredient conforms to the specifications of 'glucosamine sulfate potassium chloride' according to … 'reliable and appropriate' methods," wrote the panel.

Because of this, plaintiff's state law claims that the Supplement Facts panel was misbranded would impose a state law labeling requirement that is "not identical to" to FDCA's "common or usual name requirement," and were preempted.

Likewise, plaintiff's argument that the product was mislabeled because it displayed the wrong name on the front label also failed. The court "decline[d] to say that a name constitutes misbranding on the front of the label when the same name is not misbranded on the side."

Key Takeaways

If the FDA allows different forms of an ingredient to use the same name, a plaintiff challenging that the name is not "specific enough" (or, as specific as they would like it to be) will likely be out of luck in court—at least in the 2nd Circuit.  

 

Class Action Alleging H2O Containing Microplastics Isn't 100% Natural "Doesn't Hold Water"

In another case of preemption, and an early blow to a wave of class action lawsuits arguing that it is misleading for products that contain microplastics to call themselves "100% natural," an Illinois judge has thrown out just such a proposed class action lawsuit against BlueTriton Brands.

The complaint alleged that BlueTriton intentionally and falsely labeled its bottled water "100% Natural Spring Water" despite containing microplastics. Reasonable consumers, wrote plaintiffs, do not expect "100% Natural" products to contain synthetic contaminants like microplastics.

The Northern District of Illinois judge disagreed, holding the claim preempted by the Federal Food, Drug, and Cosmetic Act (FDCA) because plaintiffs were challenging the definition of spring water, which is formally defined by the FDA. That definition says nothing about microplastics, and plaintiffs' complaint would have the state impose an additional standard for "spring water"—a complete absence of microplastics.

Plaintiffs countered that it was not challenging the use of "spring water" on the label but rather the use of the words "100% Natural," but the court again disagreed. At its core, wrote the court, the complaint sought to impose a "no microplastics" requirement for spring water because plaintiffs posit that spring water isn't 100% natural spring water if it contains microplastics.

The court explained that the complaint also failed to plead a material misrepresentation that would dupe the reasonable consumer. Plaintiffs were essentially arguing that "the presence of microscopic particles means the water bottle contains more than simply water," and no reasonable consumer would ascribe to this way of thinking or read the phrase "100% Natural Spring Water" and "think that BlueTriton was making a guarantee at the molecular level," wrote the court.

Further, no reasonable consumer would be misled into thinking that a bottle of water was not water just because it contained tiny amounts of microplastics, said the court. And no reasonable consumer would "feel duped" by the fact the label did not reference the exact amount of water minus whatever amount of microplastics it contains, "say 99.9999999999% spring water (or whatever the number would be.)"

The court went on to say that "the likelihood of a reasonable consumer getting stumped is smaller than the size of a piece of microplastic. '100% Natural Spring Water' means that it is a bottle of water, and the water came from a natural spring. A consumer who is confused by that label probably has bigger problems on their hands than the need for a cool, refreshing drink."

The court stressed that microplastics are "inescapable" and have been found "in every ecosystem," from the "tundra" to "coral reefs."

Key Takeaways

Though the court granted leave to amend, this decision was a significant (and amusingly penned) repudiation of the recent wave of lawsuits alleging that microplastics render products labeled natural falsely advertised. Plaintiffs were ready, however, and have already refiled—within days of the decision. The amended complaint focuses more narrowly on the phrase "100% natural," which the plaintiffs contend is not defined by the FDA and so not subject to preemption.

 

NAD Gives a Failing Grade to Advertiser That Failed To Disclose Material Connection With Review Site

The independence (or not) of third-party review sites and the issue of whether content is advertising or editorial once again combined in a challenge to a top ranking received by financial planning software company Datarails Inc. on The Finance Weekly website. Competitor Cube Planning, Inc. brought the challenge in NAD's Fast-Track SWIFT program, claiming that a material connection disclosure between the site and the advertiser was badly needed.

NAD agreed. Upon review, NAD determined that the website—featuring financial news and insights—was not independent of the advertiser, making the "ranking" advertising, and necessitating appropriate disclosure. Datarails argued that no such disclosure was necessary given that they do not operate The Finance Weekly site, and that the publication maintains editorial independence. NAD disagreed.

First, NAD noted that even though Datarails appeared to be the only advertiser on The Finance Weekly, the site included rankings of third-party products and services, albeit with no disclosure of the material connection between Datarails and The Finance Weekly. Although Datarails argued that it had no ownership or control over the content of The Finance Weekly, NAD remained concerned given that Datarails is the only advertiser on the site, and reiterated that "consumers can be misled when an advertiser fails [to] disclose its relationship with a website that appears to be a neutral review or ranking website." NAD recommended that Datarails clearly and conspicuously disclose its material connection to The Finance Weekly site in the portions of the site featuring rankings and reviews.

Additionally, NAD found it problematic that Datarails advertised its ranking as an expert endorsement despite claiming that it had no knowledge of the site's ranking criteria. Advertisers using expert endorsements must ensure that such expert endorsements are based on the endorser's actual expertise, as per the FTC Endorsement Guides, said NAD. NAD recommended that the company discontinue using expert endorsements unless they come from experts with sufficient actual expertise to make the review, and who use that expertise in determining their rankings.

Key Takeaways

NAD has now decided a growing number of cases involving seemingly independent third-party review sites—a growing problem that the FTC has not directly addressed and which is left out of its recently published trade regulation rule regarding reviews. In arriving at its decision, NAD cited two significant sources of precedent in matters involving third-party editorial-style advertisers. First, NAD cited the FTC's Enforcement Policy Statement on Deceptively Formatted Advertisements to highlight that advertising that is not clearly identified as such is deceptive if it misleads consumers and can influence consumer purchasing decisions. Second, NAD cited to its own precedent in Straight Smile (Byte), which stands for the proposition that consumers expect rankings to be based on honest assessments and advertisers on these sites and the sites themselves should make sure that line is not blurred.

 

FTC Revs Up Actions Targeting Deceptive Car Dealerships in Texas and Arizona

The Federal Trade Commission (FTC) recently announced two separate actions targeting deceptive car dealerships accused of falsely advertising prices, charging for unwanted add-ons, and discriminating against certain minority consumers.

In the first matter, Arizona auto dealership Coulter Motor Company and its former general manager, Gregory Depaola, will pay $2.6 million to settle allegations that they advertised one price, then charged significantly more via unwanted add-ons and additional spurious fees, as well as allegations that they regularly charged Latino consumers more than non-Latino consumers in a discriminatory move.

The Arizona district court complaint brought the FTC together with the State of Arizona to allege that Coulter's advertised prices were often thousands of dollars less than what the company actually charged, thanks to what Coulter benignly called a "market adjustment." Coulter's ads led consumers to believe that Coulter would sell them a car for an advertised price that was lower than the MSRP price, yet by the time the company had finished tallying up additional fees for "required" add-ons such as VIN etching and window tinting, the actual price consumers paid was significantly higher than advertised. According to the complaint, customers did not authorize the add-ons in many cases, and the company sometimes even charged twice for the same add-on, once for the individual add-on and then a second time as part of an add-on package.

Additionally, the complaint claimed that Coulter discriminated against Latino customers by charging higher interest rates and add-on costs than were charged for non-Latino White consumers. The company also repeatedly charged Latino customers a higher mark-up on financing rates, according to the complaint.

In addition to the monetary damages, the proposed settlement requires that Coulter establish a comprehensive fair lending program to ensure that the deceptive practices do not reoccur. It also prohibits the company and its employees from making any future misrepresentations similar to the ones at issue in the current complaint.

In the case against Texas car dealership Asbury Automotive, the FTC filed an administrative complaint, with allegations that echo those in the Coulter matter. Asbury is accused of advertising one price, then charging consumers for additional add-ons, often by misrepresenting these charges.

Asbury is also alleged to have used "payment packing," which involves convincing consumers to agree to higher monthly payments than those needed to pay the price of the car, then packing on add-on items to the sales price to make up the difference.

Finally, the complaint alleged that, according to the company's own records, Asbury Automotive charged Latino and Black customers higher costs as a discriminatory practice, sometimes up to thousands of dollars more. According to the complaint, Asbury and its management encouraged employees to pack add-ons more often for Black and Latino customers and non-native English speakers.

Both dealerships received multiple consumer complaints—and ignored them—and both complaints allege violations of the FTC Act and violations of the Equal Credit Opportunity Act.

Key Takeaways

These cases are a great reminder that the FTC, together with the states, continue to take seriously and pursue price gouging and misleading programs, in particular those geared to minority communities.

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