Insights
Brand Protection & Advertising

Stay ADvised: 2024, Issue 21

Brand Protection & Advertising Law News
11.04.24
Print this page

In This Issue:

Same Old Deception Schemes, Brand New AI Claims as FTC Sues Multiple Advertisers

The Federal Trade Commission (FTC) launched a volley of complaints aimed at companies allegedly making deceptive claims about their artificial intelligence (AI) products or selling AI products designed to cause deception in the marketplace. These actions are part of a broader FTC-driven law enforcement effort dubbed "Operation AI Comply."

One of these actions is against AI "writing assistant" Rytr. According to the complaint, Rytr advertised an AI-powered service called "Testimonial & Review" generation, which allows subscribers to use Rytr's AI tool to write fake reviews of subscribers' products and services. The complaint states that subscribers would then post those false reviews online in an effort to deceive potential customers into purchasing the applicable service or product. The complaint further alleges that at least some subscribers have utilized this service to create thousands of deceptive reviews.

In another lawsuit, the FTC targeted a company called DoNotPay, which promised to be "the world's first robot lawyer," offering customers the ability to file lawsuits and to "generate perfectly valid legal documents," including demand letters, complaints, and contracts, all using an AI tool and without using an attorney. The company claimed that its goal was to "replace the $200-billion-dollar legal industry with artificial intelligence." And yet, the complaint alleges, DoNotPay did not train its AI models on a "comprehensive and current" set of laws, regulations, judicial decisions, or the application of laws to facts. Further, according to the complaint, DoNotPay did not test whether its services actually acted like a human lawyer.

The remaining actions targeted business opportunity and e-commerce schemes where the companies in question offer AI tools that they claim will help consumers earn money through online storefronts. For example, the complaint against Ascend Ecom alleges that the company used deceptive earnings claims and marketed their AI-powered business model as a surefire opportunity to earn thousands in passive income with online storefronts. Instead, their customers lost over $25 million, says the FTC.

Similarly, Ecommerce Empire Builders marketed an "AI-powered Ecommerce Empire," which could be achieved through expensive training programs and/or shelling out thousands of dollars for "done for you" online storefronts. It promised earnings in the millions of dollars but allegedly delivered little. In this case, a federal court has already issued an order temporarily halting business operations and putting the company in a receiver's hands.

Finally, the FTC sued FBA Machine, another e-commerce business opportunity scheme which the FTC says cost consumers over $11.1 million.

Key Takeaways

The FTC is clearly concerned about how AI will impact the marketplace. So far in Operation AI Comply, we have seen the FTC target three categories of AI-related issues:

(1) companies mentioning their AI tools as one facet of their deceptive marketing scheme,

(2) companies building AI tools that fall short of their advertised capabilities, and

(3) companies using AI to generate deceptive marketing content.

Companies should expect that the FTC will continue to pursue companies in these categories and should be on the ready for the FTC to pursue new categories of AI-related actions in the future.

 

Amusing or Accusing? NAD Deliberates on SWIFT Challenge to Welch's Fruit Snacks' Gordon Ramsay Commercials

The National Advertising Division (NAD) weighed in on a challenge to fruit snack commercials between market-leader competitors via its Fast-Track SWIFT review process for single-issue advertising cases.

The question before NAD was whether the challenged ad reasonably communicated a falsely disparaging message that competitor fruit snacks are worthless. In other words, was it humor or was it disparagement?

General Mills (GM), which manufactures and markets the Annie's and Mott's brands of fruit-flavored snack products, challenged advertising for Welch's Fruit Snacks, made by competitor Promotion in Motion (PIM Brands).

PIM's ad featured celebrity chef Gordon Ramsay's trademark "strong opinions" on food and cooking, which the advertiser used to sell fruit snacks in a humorous way. In one of the challenged commercials described in NAD's decision, a mom says to her child, "I know you are not a fan of my snack choices, but did you really have to get him involved?" At this point the camera shows Ramsay, who shortly after takes a yellow box labeled "Fruit Flavored Snacks" from the pantry, puts the snacks in his mouth, and immediately spits them out and throws the box out the window. Then he pulls out a Welch's Fruit Snacks package and says, "All the fruit you see here, they're actually in the snacks. Welch's are made with whole fruit as the main ingredient. That's why they are the real deal." The second commercial takes place in a different setting but followed essentially the same plot outline and had a similar flavor.

GM argued that this advertising went beyond promoting the whole food content of the fruit snacks into disparaging or "ash canning" the competitors. GM claimed that Ramsay's "consistent and unqualified abuse" communicates the message that the competing products are worthless and that the consumer might as well just throw them in the trash.

PIM countered that its advertising highlights, in a humorous and entertaining way, the difference between the fruit content in Welch's and those of other fruit-flavored snacks, while providing evidence of efforts it made to ensure that Welch's Fruit Snacks contain at least 50% fruit puree made from real fruits.

Ultimately, NAD concluded that certain elements of the commercial go beyond communicating a message that Welch's Fruit Snacks is a superior product and instead veered off into false disparagement territory by conveying the competing product is worthless, evidenced by Ramsay throwing the products out the window, spitting them out, or kicking them into a lobster tank.

PIM argued that this was merely humor used to highlight a truthful message about the distinctions between the products. However, NAD said that "spitting, kicking and throwing" a product for lack of fruit conveys a message that the competing products are worthless. NAD says that type of messaging goes beyond making statements about "the relative merits of the products and their ingredients."

"(T)he net impression of the commercials is that parents should not purchase a product that is garbage for their children," wrote NAD. That's a no-no at NAD, regardless whether the ad tries to present it as humorous exaggeration. NAD recommended PIM discontinue the advertising or modify it to avoid the disparaging message.

Key Takeaways

SWIFT cases have become a quick avenue for challenging advertising as falsely disparaging, and NAD has always been quicker to find disparagement than have the courts.

 

Finding Defense Arguments Thin, Court Grants Class Certification in Wheat Thins False Ad Suit

The lawsuit alleging that Mondelez International falsely advertised its Wheat Thins as containing "100% Whole Grain" is set to proceed with an approved California class of consumers after a California federal court granted class certification. 

Plaintiffs in the case alleged that Mondelez's claim that its Wheat Thin crackers are "100% Whole Grain" is deceptive because the crackers contain cornstarch as one of the primary ingredients, and cornstarch is a refined grain. They argued that the "100% Whole Grain" appeared prominently on the product label in large all-caps font on top of the product name.

In trying to evade class certification, Mondelez argued that plaintiff David Wallenstein knew that the Wheat Thins contained cornstarch, pointing to a deposition exchange during which the plaintiff said that he had read the Wheat Thins ingredient label. Mondelez argued that this was evidence that Wallenstein had a different experience from other class members.

But the court was unconvinced and noted how Wallenstein stated that he didn't know that there was cornstarch in the Wheat Thins before he bought the Wheat Thins, even if he did say that he knew cornstarch was not a whole grain. Considering the "relatively unambiguous" representation that Wheat Thins are "100% Whole Grain," the court stated in its order granting the class certification that plaintiff was not required to read the ingredients label to verify that the representation was accurate. The court also failed to find any credibility issues with his testimony.

Mondelez also argued that Wallenstein couldn't show that common issues of law and fact predominate because Wheat Thins purchasers have different motivations for buying the product: "Reliance on the '100% Whole Grain' representation would be an individual determination."

Again, the court disagreed, reasoning that in California the inference of reliance arises as to the class if a representation is material, meaning if a reasonable consumer would ascribe significance to the representation in making the decision whether to purchase the product. Here the plaintiff provided evidence that a majority of consumers would consider the "100% Whole Grain" representation material to the decision to purchase Wheat Thins, and the court pointed to this evidence in saying that a reasonable consumer could decide that the representation was material to their purchasing decision.

Finally, Mondelez contended that there was no damages model for classwide relief, but the court found that the plaintiff had submitted expert reports explaining how the case was suitable for a relevant damages model. For all of these reasons the court granted class certification.

Key Takeaways

Courts have differed on whether front-of-pack statements are properly explained by back-of-pack ingredient lists. At least in the 9th Circuit, when the front-of-pack representation appears expressly false, or as the court said "relatively unambiguous," defendants may find back-of-pack labeling a cold comfort.

 

FTC "Invites" Mega Landlord To Pay $48 Million To Right Systemic Deceptions

Invitation Homes, a giant in the single-family home rental space, has agreed to pay $48 million to settle FTC allegations that it deceived consumers regarding a host of issues—from junk fees to maintenance promises.

The FTC's complaint alleges that Invitation Homes—the largest single-family home landlord in the U.S.—advertised spacious, remodeled homes and a "worry-free leasing lifestyle." In reality, the complaint alleges, the company deliberately misled consumers in order to pad its bottom line.

According to the complaint, Invitation Homes falsely advertised its rental prices, as they failed to disclose the ample additional fees, which added a significant amount to the cost of the monthly lease payments. The listings advertised one appealing price, but the actual price after adding all the hidden fees was much higher. The added fees allegedly included utility management fees, a "lease easy bundle," and other fees which in some instances added up to hundreds of dollars.

According to the complaint, which features damning internal correspondence, Invitation Home's CEO knew these tactics were good business for the company but not for the consumer, instructing senior management to "juice this hog" by making smart home fees mandatory for renters and otherwise encouraging hidden fees to drive revenue.

The complaint further avers that Invitation Homes falsely marketed other offerings, like quality assurance inspections before move-in and 24/7 emergency maintenance, while  in reality, according to the complaint, renters often found homes in disrepair or in need of major maintenance and cleaning. The company also failed to provide the advertised emergency maintenance service, said the FTC. This allegedly left many residents without basic utilities for days or weeks.

The FTC further alleged that Invitation Homes unfairly withheld security deposit funds when residents moved out, charging customers for normal wear and tear and damage that existed before move-in. Finally, the complaint accuses the company of lying to residents who sought to prevent eviction during the COVID-19 pandemic by steering them away from the government's anti-eviction procedures.

In addition to the payment, the settlement obligates Invitation Homes to cease deceiving consumers about the price of its rentals, to include all mandatory fees in the listing price, and to generally cease the misleading and deceptive behavior.

Key Takeaways

The significant settlement amount, which will be used to remunerate affected consumers, exemplifies the FTC's commitment to rooting out what it considers to be junk fees.

Related Articles