A new trend in false advertising lawsuits targets specific characterizing flavor claims on the labels of foods and beverages. For example, Frito-Lay was recently sued in California federal court alleging the company’s “Tostito’s Hint of Lime” tortilla chips falsely implies that natural lime is a primary flavoring ingredient and that consumers were misled by various misrepresentations of lime on the product packaging. Kellogg, Hershey, and Bimbo Bakeries were all sued because the “fudge” in their respective products allegedly are produced with vegetable oil substitutes instead of butter and milk, which the complaint alleges is known to consumers as the traditional way of making fudge.

Typically, in these false or misleading flavoring ingredient lawsuits, a plaintiff attempts to represent a class of consumers and alleges they were charged a premium price for the products because of the specific ingredient, based on the misleading representation.  The plaintiff generally must also allege that they would not have purchased the product in the first place if they had known that the specific ingredient was missing.

Continue Reading Despite the Pandemic, Food-Related False Advertising Lawsuits Continue to be Frequent Filers

With COVID-driven litigation ongoing across the nation, close analysis of commercial lease language is now more important than ever as many questions remain unanswered. The first wave of commercial lease disputes dealt in large part with whether commercial tenants were required to pay rent while forced to close due to the pandemic and related governmental orders. Now, new disputes are arising based on the lingering impacts of the pandemic and certain key clauses like co-tenancy, sales kickouts, operating covenants, casualty clauses and force majeure provisions are likely to play a crucial role.

For example, retail leases commonly contain co-tenancy clauses that allow tenants to reduce their rent or, in some cases, terminate the lease if key tenants or a certain number of tenants are not open and operating. These provisions are front and center given the government-mandated closures, curfews and social-distancing requirements that forced businesses to significantly alter and/or reduce their operations. As with every lease, it is important to read and understand the fine print. Some questions that we have seen arise with respect to co-tenancy clauses are: Continue Reading Commercial Lease Disputes During the Ongoing Pandemic: The Second Wave

Recalls in Review: A monthly spotlight on the trending regulatory enforcement issues at the CPSC.

As children head back to the classroom this Fall, the CPSC issued a news release reminding parents to “Think Safety First” as kids return to schools.  Recognizing that many back-to-school shopping carts also include new clothes and pajamas, we look back at CPSC regulatory actions involving Children’s Sleepwear in this month’s installment of “Recalls in Review.”

The Consumer Product Safety Commission has regulated the flammability of children’s sleepwear since at least the 1970s.  In addition to other safety standards imposed on children’s products, children’s sleepwear is governed by Federal Safety Standards for the Flammability of Children’s Sleepwear based on sizing of the garments (16 CFR Part 1615 and 16 CFR Part 1616).  The regulations apply to any product of wearing apparel, such as nightgowns, pajamas, or similar or related items, such as robes, that is intended to be worn primarily for sleeping or activities related to sleeping.  Specific items—including diapers, underwear, and certain infant tight-fitting garments—are exempted from the definition of children’s sleepwear.

The CPSC began monitoring the safety of children’s sleepwear more closely in 2011.  At least 82 recalls of children’s sleepwear have been conducted since 2001, with 77 of those recalls occurring after 2010.  Only a handful of related recalls were conducted prior to 2001.  However, at least 11 civil penalties relating to children’s sleepwear were issued between 1980 and 2001, with somewhat dated fines ranging from $3,500 to $850,000.

Continue Reading Recalls in Review: Children’s Sleepwear

On September 8, 2021, Crowell & Moring attorneys Karel Bourgeois and Judith Bussé will be presenting a webinar in collaboration with IBJ/IJE.

This webinar will discuss some of the most important European and national initiatives and their likely impact in practice: from the EU Action Plan on Sustainable Finance (March 2018) to the more recent proposal for a Corporate Sustainability Reporting Directive, and the EU Taxonomy for Sustainable Activities as part of the European Sustainable Finance Package of April 2021. Our guest speaker, Mathieu Verleyen from Bank Delen, will provide us with some practical insight on how to get through this maze of regulations to develop a future-proof ESG-strategy. In addition, we will look at developments in competition law regarding cooperation between companies for the achievement of sustainability goals, as well as the rules on greenwashing and unfair advertising.

Speakers:

  • Mathieu Verleyen, Legal Counsel, Bank Delen
  • Karel Bourgeois, Partner, Crowell & Moring LLP
  • Judith Bussé, Counsel, Crowell & Moring LLP

Date/Time:

Wednesday, September 8, 2021 – 12:00 – 14:00 CEST

Click here to register!

On August 20, 2021, China’s national legislature passed the Personal Information Protection Law (“PIPL”), which will become effective on November 1, 2021. As China’s first comprehensive system for protecting personal information, the PIPL is an extension of the personal information and privacy rights enshrined in China’s Civil Code, and also a crucial element of a set of recent laws in China that seek to strengthen data security and privacy. Among other things, the PIPL sets out general rules for processing and cross-border transfer of personal information. A number of provisions, notably various obligations imposed on data processors, restrictions on cross-border transfer, and hefty fines, will have significant impact on multinational corporations’ HR activities, including recruitment, performance monitoring, cross-border transfers, compliance investigations, termination of employment relationships, and background checks.

This alert will highlight specifically how the PIPL will apply to workplace scenarios in China and provide suggestions to help ensure data privacy compliance for multinational corporations’ China labor and employment operations.

Employee Consent and Exceptions to Consent

Under Article 4 of the PIPL, “personal information” is defined broadly as information related to natural persons recorded electronically or by other means that has been used or can be used to identify such natural persons, excluding information that has been anonymized. Specific types of personal information have been noted for additional protection under Article 28 of the PIPL as “sensitive personal information”. Sensitive personal information is defined under the law as personal information that is likely to result in damage to the personal dignity, physical wellbeing or property of any natural person, and includes, among others, information such as biometric identification, religious belief, special identity, medical health, financial account, physical location tracking and whereabouts, and personal information of those under the age of 14. Continue Reading Employee Personal Information Protection in China – Are You Up to Speed?

On July 9, 2021, the European Commission published its long-awaited draft of the revised Vertical Block Exemption Regulation (VBER) and Vertical Guidelines. The significant changes proposed by the Commission take into account the specific challenges brought about by the growth of e-commerce and online platforms in the “digital age.” The Commission has also taken this opportunity to update and clarify the rules on exclusive and selective distribution, providing businesses with more flexibility to design their distribution system according to their needs.

Businesses distributing goods and services in the EU rely on the Vertical Block Exemption Regulation (VBER) for legal certainty. The VBER and the accompanying guidelines set out the conditions under which distribution agreements are presumed to comply with EU competition law. The current VBER is set to expire on May 31, 2022. Over the past few years, the Commission has been working with stakeholders to assess, update and amend the existing rules to take account of market developments, including the emergence of online platforms and e-commerce (see also our Client Alert of October 26, 2020). The most important changes proposed by the Commission can be summarized as follows:

  • Resale price maintenance (RPM) (i.e., the practice by which a supplier directly or indirectly establishes a fixed or minimum resale price to be observed by the distributor) continues to be a hardcore restriction under the revised VBER. However, the new draft guidelines include further clarification regarding efficiency justifications for RPM and elaborate on the three examples of an efficiency defense, (already mentioned in the current version of the Vertical Guidelines) namely when a new product is introduced, if there is a short-term low-price campaign, and to avoid free-riding on pre-sale services for complex products.
  • Non-compete obligations are not covered by the VBER if their duration is indefinite or exceeds five years. However, the new draft VBER would cover tacitly renewable non-compete obligations (i.e., for a period of more than five years) provided the distributor can effectively renegotiate or terminate the agreement with a reasonable notice period and at a reasonable cost.
  • Dual distribution (i.e., where a supplier sells not only through independent distributors, but also directly at retail level in competition with its distributors) is currently covered by the VBER. However, in recognition of the significant increase in dual distribution in recent years, the revised VBER would only fully exempt vertical agreements between competitors at the retail level when the supplier’s and distributor’s aggregate market share in the retail market does not exceed 10%. If the supplier and distributor have an aggregate market share of between 10% and 30%, the exemption would apply, but not as regards any exchange of information between the parties: this would have to be assessed under the rules applicable to horizontal agreements. The dual distribution exemption applies not only to manufacturers, but also to wholesalers and importers. However, providers of online intermediation services with a hybrid function (i.e., online platforms that offer products in competition with companies that use the platform to offer products) are excluded from the exemption. Their vertical agreements will have to be assessed on a case-by-case basis.
  • Most Favored Nation (MFN) or parity clauses (i.e., containing an obligation to offer the same or better conditions to the contracting party as those offered through any other sales channel or the company’s own sales channels) are currently covered by the VBER. In recent years, the Commission has seen increased enforcement action in this area and it is in particular concerned about so-called across-platform retail parity obligations. These are parity obligations imposed by suppliers of online intermediation services obliging distributors not to offer, sell or resell to end users under more favorable conditions using competing online intermediation services. These parity obligations are to be excluded from the benefit of the revised VBER and they will need to be assessed individually. All other types of parity obligation, including those requiring distributors not to offer, sell or resell to end users under more favorable conditions when using their own channels, continue to be covered by the revised VBER.
  • Active sales restrictions: The revised VBER allows active sales restrictions to be passed on to a distributor’s customer if the customer has entered into a distribution agreement with the supplier, or with a party that has been given distribution rights by the supplier. This change aims to better protect the investment incentives of exclusive distributors. In addition, the Commission has introduced the concept of shared exclusivity – meaning that suppliers will be able to appoint more than one exclusive distributor in a particular territory or for a particular customer group. The number of possible exclusive distributors will be determined in proportion to the allocated territory or customer group in such a way as to secure a certain volume of business that preserves their investment efforts.
  • Online sales restrictions: Dual pricing, where the same distributor charges a higher wholesale price for products sold online than for products sold in a brick-and-mortar shop, has until now been prohibited. Under the revised VBER it will be permitted, as long as the price difference incentivizes an appropriate level of investment and relates to the difference in costs related to the online and offline channels. In addition, the revised Vertical Guidelines no longer requires the criteria in relation to online sales imposed by suppliers in a selective distribution system to be identical to those imposed on brick-and-mortar shops. It will therefore be possible to reflect the fact that these channels are inherently different in nature. Finally, the new Vertical Guidelines codify case law from the EU Court of Justice, in which the Court has acknowledged that a supplier is allowed to prevent its distributors from selling through online marketplaces.

The Commission has invited stakeholders to submit comments on the draft revised rules. Once finalized, the new rules will enter into force on June 1, 2022 and will apply immediately to new agreements concluded after May 31, 2022. Agreements already in force on May 31, 2022 will benefit from a transition period until May 31, 2023, as long as they satisfy the conditions of the current VBER. This transitional period aims to provide businesses with sufficient time to prepare for the upcoming changes.

Recalls in Review: A monthly spotlight on trending regulatory enforcement issues at the CPSC.

As we launch into the third quarter of 2021, we have taken a look back to identify and highlight trends from the CPSC’s recalls through the first half of the year.  The Commission has conducted 134 total recalls so far this year—about ten fewer recalls than in the first half of 2020.  The types of products recalled vary widely, including ATVs and UTVs, bicycles, kitchen appliances and cooking utensils, exercise equipment, toys, essential oils, portable generators, charging cords, and heavy machinery, among many others.

Some product categories have appeared on a repeat basis this year, including: furniture, recreational vehicles, such as ATVs, UTVs, and motor bikes, and children’s clothing.  The Commission has recalled furniture and recreational vehicles at a fairly consistent rate since January. The rate of recalls for recreational vehicles, which have historically been highly regulated, is on par with 2020 and past years as well.  However, the recalls of children’s clothing began much later in the year.  That upswing is largely attributable to recalls of children’s jackets and sleepwear.

Continue Reading Recalls in Review: Recall Trends in 2021

On July 1, 2021, the Federal Trade Commission’s (FTC) finalized a new Made in USA labeling rule that becomes effective August 13, 2021. The new rule codifies the FTC’s “all or virtually all” standard for unqualified “Made in USA” claims.  The rule is intended to “crack down on marketers who make false, unqualified claims that their products are Made in the USA.” Until now, the FTC has primarily enforced Made in USA claims under its Section 5 authority, issuing hundreds of closing letters.  In recent years, the FTC has pursued penalties, for example obtaining a $1.2 million settlement in a follow-on action against a  glue manufacturer and  a consent decree resolving allegations the company falsely claimed novelty products were “Made in USA.”

The FTC conducted this rulemaking under Section 45a of the FTC Act, which authorizes the Commission to issue rules governing ‘‘Made in the U.S.A.” claims on “labels,” which the FTC defines as including advertisements disseminated electronically, including by e-mail and on websites. The new rule applies not only to product labeling, but to any “mail order catalog” or “mail order promotional material” that includes a seal, mark, tag, or stamp that labels a product as having been made in the United States. The FTC defines mail order catalogs and promotional material as “any materials, used in the direct sale or direct offering for sale of any product or service, that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method without examining the actual product purchased

The final Rule provides that “labels” may not contain unqualified “Made in USA” claims unless:

(1) Final assembly or processing of the product occurs in the United States;

(2) all significant processing that goes into the product occurs in the United States; and

(3) all or virtually all ingredients or components of the product are made and sourced in the United States.

The Rule does not cover qualified claims, which will remain subject to the FTC’s general authority to police deceptive and unfair claims under Section 5 of the FTC Act. The FTC has said that, even if certain components of a product cannot be sourced from the U.S., and must be imported, they still must be included in the analysis of whether a product was made in the United States.

The Rule outlines a procedure for partial or full exemption where an advertiser can sufficiently demonstrate that their Made in USA claims are not deceptive. The rule also allows the agency to seek civil penalties of up to $43,280 per violation and expands the FTC’s remedial options.

One of the FTC Commissioners, Rohit Chopra, explained that this is a restatement rule that is intended to affirm past FTC guidance and legal precedent. Apparently, the final Rule does not significantly deviate from the one proposed nor from the FTC’s 1997 Enforcement Policy on U.S. Origin Claims, and, more importantly, the Rule does not appear to impose additional requirements on advertisers.

Following the issuance of FTC’s Made in USA Rule, Agriculture Secretary Tom Vilsack released the following statement “the Federal Trade Commission took important steps to enhance its ability to enforce the Made in USA standard….USDA will complement the FTC’s efforts with our own initiative on labeling for products regulated by FSIS, an area of consumer labeling where USDA has a long tradition of protecting consumers from false and misleading labels.”

Last month, U.S. Representative Grace Meng (D-NY) announced that she has reintroduced legislation—the Total Recall Act—to change the way that businesses notify the public about recalls.  The text of the legislation can be found here.

H.R. 3724, entitled the “Total Recall Act,” requires firms engaged in a product recall to post recall notices on their websites and all social media accounts, and also spend a defined amount of money on publicizing the recall depending upon whether it is mandatory or voluntary.  For a mandatory recall, which is an incredibly rare event, businesses would be required to expend a sum of money that equals at least 25% of what the firm spent on marketing the product prior to its recall.  On the other hand, for common voluntary recalls, firms would be required to use at least 25% of the product’s original marketing budget as well as 100% of the product’s social media marketing budget on publicizing the recall.  The bill would also mandate that the U.S. Consumer Product Safety Commission provide an annual report to Congress on participation rates for each recall. Continue Reading Product Recall Notification Legislation Reintroduced in Congress

The July 4th holiday weekend started a tad late for those of us who practice in the field of consumer product safety.  Late Friday afternoon, the White House announced that President Biden has nominated two new commissioners to serve on the U.S. Consumer Product Safety Commission (CPSC)—Alexander Hoehn-Saric and Mary Boyle.  Both are Democrats and, once confirmed, will shift the balance of power at the Commission to a 3-2 split between Democrats and Republicans.  This development is significant to say the least—the Democrats have not held three seats on the Commission since May 2018 and there has not been a permanent chairman of the agency since President Trump removed then-Chairman (and now Commissioner) Elliot Kaye in February 2017.

If confirmed, Mr. Hoehn-Saric will become the new—permanent—chairman of the Commission, while Ms. Boyle will replace Commissioner Kaye who is currently serving in his “hold-over” year as his term expired last October.  Current Acting Chairman Robert Adler will remain on the Commission as the third Democratic commissioner until his term expires in October and he retires from the agency as previously announced.  These three will be joined by current Republican Commissioners Peter Feldman and Dana Baiocco to give the five-member Commission a full complement of commissioners.  Of course, if these nominations stall and/or current members of the Commission depart the agency in the coming months (e.g., Adler), other possibilities with respect to the balance of power are conceivable. Continue Reading Breaking: Hoehn-Saric and Boyle Nominated to CPSC; Democratic Majority in Sight