As products liability lawyers, we spend our days focused on the nature and proof of defectiveness.  The tort law recognizes limitations on claims that products have defects when there are obvious dangers and user conduct defenses (think drunk driving).  Contributory negligence, whether from failure to follow instructions or warnings, reckless behavior, or frankly, deliberate misuse of an otherwise safe product, is a well-recognized defense to product liability claims.  Yet misuse defenses are disfavored at the CPSC—and often labeled victim blaming—even though the defect rules written by the Commission direct the CPSC to consider the product liability law.  Recalls have been required by the CPSC in cases where the defectiveness of the product may have been beyond what a court would consider “ordinary use” under state tort law.  It can be tough going to advise a client that the CPSC expects reporting on a potential product defect when our advice can sometimes sound like we are asking them to report in the face of deliberate misuse or otherwise solve for what can seem like stupid behavior.

Last Thursday, the Acting Chairman of the U.S. Consumer Product Safety Commission (“CPSC”) Robert Adler generously spent time with interested ABA members to share his thoughts on these issues.  At a meeting of the ABA’s Administrative Law and Regulatory Practice Section, Consumer Products Regulation Committee, Chairman Adler discussed his recent law review article, “The Misuse of Product Misuse: Victim Blaming at its Worst,” co-authored by Andrew R. Popper.  The theme of his presentation could not have been clearer—if there is a reasonably foreseeable safety risk present with a product, including potential misuse, and there is a cost effective measure to address it, take action!  Adler explained that the article was inspired by his self-professed “pet peeve” of arguments that effective safety measures need not be promoted because foolish consumers are misusing products in ways that do not deserve protection.  In his words, the “penalty for stupidity” shouldn’t be death or serious injury.  He expressed his strong policy perspective that CPSC should regulate broadly for foreseeable misuse, either through rulemaking or its recall authorities.  He further expressed his view that companies must consider foreseeable misuse in designing safe products and in reporting under Section 15(b) of the Consumer Product Safety Act.

Chairman Adler drew distinctions repeatedly between the CPSC’s role in protecting the consumer versus the product liability system’s focus on compensation for injuries, noting that it’s “easier to re-design products than it is to re-design consumers.”  His position is grounded in the CPSC’s authorizing legislation, which has as its purpose “to protect the public against unreasonable risks of injury associated with consumer products.” He pointed to the Poison Prevention Packaging Act and the Refrigerator Safety Act as successful initiatives to protect consumers from unreasonable risks, even though it is clear product misuse for children to drink chemicals or to hide in abandoned refrigerators.  Chairman Adler also expressed skepticism over warnings noting that, although there is a place for warnings, they should be used as a last resort and that a redesign in the case of a potential hazard is optimal and 100% effective.

Chairman Adler welcomed dialogue on his policy perspectives.  Attendees voiced uncertainty about where lines are drawn between product misuse that manufacturers can foresee and should reasonably prevent (such as a safety standard to ensure baby walkers cannot fall down unguarded stairs) and clearly reckless behavior (such as teenagers daring each other to eat laundry detergent pods).  Others noted the concern that recalls for product misuse often have low response rates as consumers who intend to use the product properly may choose not to participate in the recall.  Chairman Adler sympathized with this concern as low response rates can be used to criticize the agency as well.  He did try to articulate a legal standard for when misuse would not require the Commission to take action—reckless behavior such that it was the proximate cause of the injury.  But, even in those cases, he stated that the CPSC would have “little obligation” to protect consumers—not a complete absence of obligation – given the CPSC’s mission to protect consumers and prevent unnecessary risks.

At the end of the day there is still no black and white standard for when industry members will be held responsible when consumer misuse of their products presents unreasonable risks of injury.  But insight into how Chairman Adler views the issue is important and the proximate cause test he articulated provides a touchstone for discussion of the issue of consumer misuse. Commissioner Adler’s article can be found in the William & Mary Business Law Review (10 William & Mary Business Law Review 337 (2019) Robert S. Adler and Andrew F. Popper).

The discussion, hosted by the ABA’s Administrative Law and Regulatory Practice Section, Consumer Products Regulation Committee, was the first of several meetings to address legal issues in consumer products regulation . To receive notices of 2020 programming, sign up for this Committee is available at here.

Our retail multinational clients often ask if there is an effective way of protecting intellectual property rights (“IPR”) in China. While traditional enforcement remedies in China have been ineffective in the past, customs border protection schemes in recent years have provided a cost effective tool to protect the IPR of brand owners in the retail industry.

There are generally two customs IPR border protection schemes available in China: (i) the ex-officio or active protection scheme, and (ii) the passive protection scheme.

The precondition for active protection from China Customs is recording the IPR with the General Administration of Customs of China (“GACC”). Potential advantages for brand owners include the customs authorities monitoring for suspicious activities, inspecting import and export shipments, and working with the brand owners to identify infringing goods. If a specific shipment of goods is suspected of infringing a recorded IPR, China Customs has the ability to suspend the clearance of the goods, detain the goods upon the request of the brand owner after posting a deposit, and investigate the suspected infringement. If infringement cannot be determined, the brand owner can still pursue the case in court.

If a brand owner has not yet actively registered its IPR with the GACC, the passive protection scheme would apply. China Customs generally would not initiate an investigation on the detained shipments in the passive protection scheme. However, a brand owner may request the customs authority to detain a suspected shipment by providing evidence to prove the existence of infringement and a deposit equivalent to the value of the goods. The brand owner would then need to file a lawsuit in court within 20 working days or the customs authority would release the goods.

Around 50,000 valid IPR registrations have been recorded with the GACC up to September 2019. China Customs took over 49,700 border protection measures in 2018, resulting in seizures of over 47,200 shipments of goods suspected of IPR infringement. In 2018, 97% of the seizures were based on customs’ ex-officio actions, while only around 3% was initiated by brand owners under passive protection scheme.

Registration of IPR with GACC has been FREE since 2015, so a brand owner has no reason not to register. To make customs IPR protection even more effective, a brand owner should maintain close contact with China Customs and offer product identification training sessions to customs officials located at ports where infringing products are most likely to enter or exit China. The more awareness a brand owner can bring to its products and potential infringement, the more effective border enforcement actions will be.

Sustainable fashion is in vogue and retail chains are all too eager to respond to consumers who want to shop more environmentally consciously. ‘Sustainable’, ‘ecological’, and ‘environmentally ethical’ are words that we see appearing more and more often in fashion advertising. But are these clothes and materials really environmentally friendly? Or is this just a convenient marketing tool (so-called greenwashing)? In this piece we will take a closer look at this and give some practical legal guidelines for advertising sustainable fashion.

To greenwash or not to greenwash? Problems with advertising for sustainable materials in Europe

A study by the European Commission (‘Consumer market study on environmental claims for non-food products’, 2014) shows that both green claims and misleading marketing occur in the European fashion industry. Some fashion companies claim that their garments are made of sustainable materials. However, the central issue is that no European legal standards have been established to verify claims of sustainability. Moreover, there is no guidance to consumers and other market players to find out what exactly is meant by so-called “sustainable” materials and how they can be verified. Without these standards, consumers may consider a piece of clothing more environmentally conscious than it really is. For example, some collections claim to be “sustainable” fashion because they are made of 100 percent cotton, Tencel, or recycled polyester. Therefore, when ‘green claims’ are made in a sector, the question of misleading advertising arises.

European ban on misleading advertising for sustainable materials

Misleading advertising is classified under European law as an unfair market practice and is prohibited. A market practice is considered misleading when it contains false information and statements. Advertising is also considered to be misleading if it deceives or is likely to deceive the average consumer as to the main characteristics of the product (such as its benefits, composition or process) influencing the consumer’s decision to make a purchase that they would not otherwise have made, even if the information is factually correct.

The ‘Compliance Criteria on Environmental Claims,‘ published in 2016, obliges market players to present their environmental claims in a specific, accurate, and unambiguous way. In order to comply with these criteria, advertisements for environmental claims must avoid vague wording or, in the case of general wording, sufficiently substantiate claims.

In practice, an advertisement for allegedly sustainable fashion items should contain the following indications:

  • The statement ‘made with recycled material’ must be clear and prominent;
  • The trader should be able to substantiate that the entire product, excluding minor, incidental components, is made from recycled material;
  • In general, the recycled material should make the product more environmentally friendly, creating an overall environmental benefit;
  • The ad’s context does not imply other misleading claims.

In addition, companies should be prepared to provide scientific evidence in a clear manner in case a claim is contested.

Possible solution: the European certification mark

A possible solution for this is a certification mark. A certification mark is a mark that indicates a certain characteristic of goods or services of different companies. It usually arises as a convention between a group of industry participants and guarantees that the goods or services meet a certain standard, regardless of the company that produces the goods or services. By analogy, “Fairtrade”, a label that enables consumers to easily identify products whose ingredients originate from fair trade.

In the context of the fashion industry, the merit of a certification mark could therefore be to reassure consumers that certain garments are genuinely environmentally friendly or have certain clearly verifiable environmentally friendly characteristics. To date, however, such a guarantee or certification brand is not yet available in Belgium. In Germany, the first pilot project of the German authorities to award a ‘Grüner Knopt’ for textile products meeting certain social and environmental requirements was launched in September 2019.

Conclusion

In anticipation of a possible certification mark, industry participants in the European Union would do well to provide more information with regard to the qualities they promise. Consumers, in turn, are advised to remain vigilant and critical towards promising advertising. To this end, they can already make use of existing organizations or applications (such as “Good on you” and “Rank a Brand”) that inform consumers about, among others, the ecological efforts of certain fashion brands.

This post originally appeared in FashionUnited.

Enterprise Resource Planning (ERP) software is the integrated management of core business processes: the artificial intelligence that organizations, including retailers, use to collect, store, manage and interpret data from a multitude of business activities. And, as we discussed in a previous alert, ERP software is increasingly prevalent, with some studies reporting that 81 percent of organizations have either installed or are in the process of installing an ERP system.

Likewise, failed (or failing) installations are increasing. Market studies show that 26 percent of installations were judged by the licensee as a “failure,” 46 percent of licensees were “very dissatisfied” with their ERP vendor, and 74 percent of installations exceeded project budget. Bearing in mind these alarming statistics, we cautioned that it is incumbent on in-house counsel to anticipate potential installation problems in order to make a record to secure their company’s right to demand remedial repair efforts and/or seek recovery of lost fees and other damages.

Now, in the wake of a recent class action filing against Revlon, Inc., companies should also be aware of potential legal action under the securities laws from troubled ERP installations.

In May 2019, a plaintiffs’ firm filed a class action lawsuit against Revlon alleging violations of federal securities law in connection with a failed ERP installation at Revlon by SAP. Within the span of a few weeks, at least four separate law firms announced the Revlon class action, soliciting additional plaintiffs for the matter. With this clear sign that the plaintiffs’ bar is looking for an entry point to seek damages caused by failed or failing ERP installations, in-house counsel should consider steps to protect their companies while installing ERP systems.

The Revlon Class Actions

According to the allegations in the complaint, Revlon made false and misleading statements in its public filing by failing to disclose that it failed to create measures to monitor its ERP system and failed to design, implement, and operate process-level controls on its ERP system. The complaint also alleges that SAP’s failed installation resulted in Revlon’s inability to fulfill approximately $64M in product shipments, an additional $53.6M of incremental remedial charges, and, ultimately, a drop of over 6% in the value of Revlon shares. Plaintiffs allege these failures violate §§ 10(b) and 20(a) of the Securities and Exchange Act and Rule 10b-5 promulgated thereunder by the U.S. Securities and Exchange Commission.

This litigation is still in its infancy. No dispositive motions have been filed, and plaintiffs’ counsel has not yet moved to certify the class.

Tips for In-House Counsel Facing a Difficult ERP Installation

This litigation could signify the emergence of yet another sizeable threat to ERP installations. Accordingly, in-house counsel monitoring tricky installations may want to keep the following in mind:

  1. Consider Disclosure Requirements. Section 302 of the Sarbanes-Oxley Act requires that companies attest to the accuracy of financial reporting, disclose any material changes to their internal controls over financial reporting, and disclose all fraud. Counsel should watch the Revlon class actions and others for guidance on the application of those requirements to ERP installations.
  2. Protect the Record. The Revlon class action suggests that the best practices for companies adversely affected by failed ERP installations may be to protect the record for potential litigation and to perfect any claims against the at-fault installation vendor. Already good advice for restitution purposes and damages, it may also serve as a viable defense against class action claims by aggrieved investors.
  3. Retain Litigation Counsel Early. Naturally, protecting your company may not necessitate actually filing an action against your ERP vendor. However, throughout the course of a troubled installation, there are multiple points during which an otherwise viable claim can be inadvertently compromised. Early retention of counsel experienced with ERP software and installations can best protect your company.

For more insights, please join us on Wednesday, December 4 for an encore presentation of our webinar, Surviving a Failed ERP Installation: Recovering Your Company’s Lost Costs After a Botched Software Launch, where we will share our experiences resolving disputes regarding troubled ERP installations. Click here to register. We will keep you updated on recent developments as this case unfolds.

In the last three weeks more than 90 retailers and restaurants have been sued in federal courts in New York because they do not offer Braille-embossed gift cards. Many of these complaints are substantively identical, alleging violations of Title III of the Americans with Disabilities Act (ADA). The complaints allege that the defendant’s failure to emboss the issuer of the gift card as well as the denomination of the card in Braille violates ADA Title III, and corresponding New York law, and seek class action status.

The ADA requires places of public accommodation (which includes brick and mortar retailers) to provide disabled individuals the “full and equal enjoyment of the goods and services” offered by the business. The complaints allege defendants violate the statute by failing to make available “appropriate auxiliary aids and services where necessary” to ensure effective communication with individuals with a disability.

These cases present novel legal issues. The threshold question is whether the ADA and state laws even apply. Existing regulatory authority suggests that the ADA does not extend to cover this particular business practice. The ADA’s auxiliary aid requirement, which requires places of public accommodation to offer “Brailled materials and displays” in certain circumstances, has been interpreted by the Department of Justice to be a flexible standard, allowing retailers discretion to “choose among various alternatives as long as the result is effective communication.” (28 C.F.R. § Pt. 36, App. C.). A common example of this requirement is Brailled signage on elevators in commercial buildings. There are no reported decisions addressing the question of whether Brailled gift cards are required.

These complaints are the latest example of how enterprising plaintiffs’ lawyers are attempting to extend the previously settled understanding of the scope of the ADA. When it was initially enacted in 1990, lawsuits alleging ADA violations focused on physical access barriers, such as the absence of a wheelchair ramp or an elevator. The concept of access barriers has been extended in recent years; many retailers are by now familiar with the flood of recent ADA lawsuits brought complaining that internet websites are not compliant for the blind and hearing impaired. The unavailability of Braille gift cards may be an easy target for the plaintiffs’ bar, as most businesses do not offer Braille gift cards.

There may be both procedural and merits-based defenses to these lawsuits, including the question of whether the claims are barred by an ADA exemption for situations in which “compliance would ‘fundamentally alter the nature of the good, service, facility, privilege, advantage, or accommodation being offered or would result in an undue burden,’” 42 U.S.C. § 12182(b)(2)(A)(iii)). One of the issues that may affect the applicability of this exemption is the existence of at least one retailer with a gift card on the market that contains Braille, a fact pointed out in many of these complaints. Because these cases have just been filed, answers to some of the novel legal questions will take some time.

This new wave of Title III ADA litigation presents risks for restaurants, hotels, merchants, traditional retailers, or any business that offers gift cards for sale in conjunction with their goods or services. As new complaints continue to be filed, businesses should take the time to understand their compliance obligations under the ADA.

An Analysis of the Requirement to Verify Consumer Requests and Parental Consents

On October 10, 2019, California Attorney General Xavier Becerra announced a long-awaited notice of proposed rulemaking and draft regulations for the California Consumer Privacy Act (CCPA), California’s new consumer privacy law, which we have analyzed here and here.

In parts one and two of our multi-part series regarding the draft CCPA regulations, we focused on businesses’ notice obligations and handling consumer requests.

In this third part of our series, we focus on proposed regulations regarding “verifiable” consumer requests, including the standards for verifying different types of requests received from consumers. As discussed below, the proposed CCPA regulations provide detailed guidance that will have important ramifications for businesses that possess or process consumer information.

Click here to continue reading the full version of this article.

On November 5, 2019, the Federal Trade Commission released a, first-of-its kind, guidance targeting online influencers. The new guide titled “Disclosures 101 for Social Media Influencers” informs influencers when and how they must disclose sponsorships with brands to their followers.  This is part of the FTC’s increasing focus on making product endorsements more transparent.

When the FTC revised the Testimonial and Endorsement Guides (“Endorsement Guides”) in late 2009, the blogosphere panicked, assuming that the government would target the so-called “mommy bloggers.”  However, these fears were assuaged when the FTC’s enforcement activities were focused on brands, advertising industries, and the networks that linked brands to influencers.  Beginning in 2017, the FTC’s focus has increasingly shifted to the influencers.

In 2017, the FTC had sent more than 90 educational letters to social media influencers and brands and later, the FTC sent 21 warning letters to social media influencers regarding their Instagram posts.  In addition, the FTC settled its first ever case against two social media influencers with an ownership stake in CSGO Lotto, an online gambling service.  According to the FTC’s Complaint, the influencers promoted CSGO Lotto without disclosing that they owned the company.

In its November 2019 guidance, however, the focus is squarely on influencers. The FTC released a guidance document, “Disclosure 101 for Social Media Influencers,” designed to give influencers pointers for complying with the Testimonial and Endorsement Guides.  In this document, the FTC states “As an influencer, it’s your responsibility to make these disclosures, to be familiar with the Endorsement Guides, and to comply with laws against deceptive ads. Don’t rely on others to do it for you.” (emphasis in original).

Not surprisingly, the guidance document reiterates prior guidance and reminds influencers to disclose material connections, ensure that their reviews reflect actual experiences with the product, and avoid making false claims that the advertiser cannot substantiate.  However, the guidance document also underscores the need for the FTC to revise the FTC Guides and update them to the social media ecosystem of 2019.  Ten years later, the FTC’s guidance can generate significant confusion about what to disclose and how.

For example, the Disclosure 101 Guidance states that an influencer is required to disclose his or her relationship with the brand “if [the] brand gives [the influencer] free or discounted products or other perks” and the influencer “mention one of its products, even if [the influencer wasn’t] asked to mention that product.” (emphasis in original).  The ambiguity of this language can create conflicting expectations between the brand and the influencer.  What if the brand has periodically given the influencer free or discounted products but there is no formal relationship? Is the influencer still obligated to disclose the relationship when showing or discussing a product that the influencer purchased but was not gifted?  What if a brand takes an influencer on an all-expense paid trip to a tropical location to celebrate a product launch?  Is the influencer obligated to disclose that he or she went on that trip when discussing the brand’s products in the future, even when the influencer purchased those products? The FTC’s guidance suggests that some type of disclosure may be needed and the brand should clearly communicate its expectations to the influencer.

Furthermore, the FTC’s guidance suggests that there should be a one-size-fits-all approach for disclosures.  We can all agree that the FTC believes that gifting a free product to an influencer in the hopes that the influencer mentions the product to his or her followers constitutes a material connection requiring disclosure.  However, how should that relationship be disclosed? In an example in the Disclosure 101 document, shown below, the FTC suggests that the influencer could state “Thanks to Acme for the free product! #AcmePartner #ad” in combination with a post featuring gifted products.

© FTC

Many brands currently suggest different types of disclosure language to reflect the range of relationships they have with their influencers.  It is not clear that #AcmePartner and #ad are interchangeable ways to describe the relationship between the brand and the influencer, as the FTC suggests.  Within the social media ecosystem, there are different levels of ties between influencers and brands.  A brand “Partnership,” for example, suggests a close relationship between an influencer and a brand that extends beyond receipt of free product.  And an influencer’s audience may understand the disclosure “ad” to describe content that the brand pays for and has pre-approval rights.  While sending “PR” to influencers without any obligation that the influencer talk about or show the product to their followers indisputably creates a material connection that requires disclosure if the influencer talks about the freebies, the brand does not ordinarily have a right of prior approval for such content. Thus, while the FTC’s guidance recommends #ad as an appropriate disclosure, the brand may prefer the influencer to disclose by stating “Thank you for the free product” to distinguish it from content that the brand directly pays for and controls.

Going forward, brands should consider referring influencers to the FTC’s Disclosure 101 Guide in its agreements as a reminder that influencers are potentially liable for failure to comply with the Endorsement Guides.  However, it is equally important for brands to provide clear guidance to influencers to ensure that the brand and the influencer are aligned on disclosure obligations and how best to disclose.

 

Chris Cole, co-chair of Crowell & Moring’s Advertising & Media Group and chair of the American Bar Association’s Section of Antitrust Committee on Advertising Disputes and Litigation, recently joined the ABA antitrust section’s podcast, “Our Curious Amalgam,” to provide insights into how advertising disputes and investigations are triggered.

In this episode, “Who is Watching the Ads? The Biggest Mistakes Advertisers Make that Trigger Investigations,hosts John Roberti and Ricardo Woolery asked Chris to cover some of the key questions regarding this area of law, including some common mistakes advertisers make – and how to avoid them. The interview covered a range of topics including:

  • How advertising disputes relate to antitrust law
  • Today’s multi-faceted advertising campaigns, which include online video, social media, and influencers
  • Types of advertising risks
  • Enforcement activity at the State AG and federal levels, including the FTC and NAD

Click here to listen to the episode.

About the Podcast

Our Curious Amalgam explores topics in antitrust, competition, consumer protection, data protection, and privacy law around the world with leading experts in those areas. It is an amalgam because it is a group of diverse topics all in one place. It is curious because it gets the experts and asks them in-depth questions.

 

On October 10, 2019, California Attorney General Xavier Becerra announced a long-awaited notice of proposed rulemaking and draft regulations for the California Consumer Privacy Act (CCPA), California’s new consumer privacy law, which we have analyzed here and here.

In part one of our multi-part series regarding the draft CCPA regulations, we focused on businesses’ notice obligations. In this second part of our series, we focus on businesses’ obligations to respond to consumer requests. As discussed below, the draft CCPA regulations provide detailed guidance that will have important ramifications for businesses that control or process information about California consumers, particularly in light of CCPA’s broad definition of personal information.

Before these proposed CCPA regulations are approved and implemented, interested parties have until December 6, 2019, to submit written comments regarding the draft regulations and to participate in town hall meetings hosted by the Attorney General’s Office in Sacramento, San Francisco, Los Angeles, and Fresno. Any businesses impacted by the CCPA should carefully consider whether submitting comments or requested amendments are appropriate.

Representatives of the Attorney General’s office have indicated that July 1, 2020 is the anticipated date for CCPA enforcement to begin, but reiterated that CCPA takes effect on January 1, 2020, which means that class action exposure and other provisions apply as of that date.

Click here to continue reading the full version of this article.

How can you tell if an online review is truly genuine? Who’s regulating? Who’s watching?

Lauren Aronson, vice chair of the Consumer Protection Committee at the ABA Antitrust section, addresses these questions in Episode #7 of the ABA antitrust section’s podcast, “Our Curious Amalgam,” speaking on the topic, “Too Much Influence? Consumer Protection for online reviews and influencers.” It is well known that consumers increasingly refer to online reviews before making purchases.  They consult retailer platforms and often search for reviews from their favorite social media influencers. In this podcast, Lauren joins hosts John Roberti and Elyse Dorsey to discuss the regulation of online reviews and influencers and issues brands should consider when working with influencers or soliciting consumer reviews.

Click here to listen to the podcast.

About the Podcast

Our Curious Amalgam explores topics in antitrust, competition, consumer protection, data protection, and privacy law around the world with leading experts in those areas. It is an amalgam because it is a group of diverse topics all in one place. It is curious because it gets the experts and asks them in-depth questions.