Retail & Consumer Products Law Observer

Retail & Consumer Products Law Observer

Legal Insight for the Retail and Consumer Products Industry

Can the Government Foster Innovation While Regulating New Technology? Check Out “Digital Transformation: The Sky’s The Limit” – Part of Crowell & Moring’s 2018 Regulatory Forecast

Posted in Privacy & Data Protection

Crowell & Moring has issued its “Regulatory Forecast 2018: What Corporate Counsel Need to Know for the Coming Year.”

With the development of artificial intelligence, blockchain, 3D printing, the Internet of Things, autonomous vehicles, and other advances in technology, the cover story, “Digital Transformation: The Sky’s the Limit,” provides a look at how technology is helping companies soar to new heights and how regulation can help companies to succeed. While data is a driver for innovation, the article examines how it also carries new and unintended implications for regulatory enforcement, product liability, cybersecurity, and intellectual property.

The overall theme of the fourth-annual Forecast is how digital technology is driving the future of business across a wide range of industries – and how Washington, as well as state and global regulators, is forging the appropriate balance between fostering innovation and protecting consumers. This report is the companion piece to the firm’s 2018 Litigation Forecast, which was published in January and also focused on the opportunities and challenges general counsel face in navigating the Big Data revolution.

Be sure to follow the conversation on Twitter with #RegulatoryForecast.


Holding Agencies Accountable: Ad Agency Agrees to Pay Largest Penalty Ever for False Advertising

Posted in Advertising & Product Risk Management

In the largest-ever penalty issued against an ad agency, the Federal Trade Commission announced that Marketing Architects, Inc. (MAI) agreed to pay $2 million dollars to settle a false advertising complaint filed with the FTC and the State of Maine Attorney General’s Office.

The ad agency came to the FTC’s attention after the Commission settled with Direct Alternatives (DA) and Sensa Products, LLC  for more than $16 million and more than $26 million respectively to resolve claims that the companies engaged in the false and deceptive advertising, marketing and sale of weight loss products.  According to the Complaint, MAI created direct response radio ads for Sensa and DA as well as MI6 Holdings, LLC (MI6) and other unidentified clients with toll free numbers inviting consumers to call and purchase weight loss. In addition, for some clients, including DA, MAI created and implemented scripts for its Interactive Voice Response (IVR) system, providing testing, analysis and strategic advice regarding the performance of its IVR scripts and ads as well as collecting payment information.

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Don’t Settle for Less: Ninth Circuit Rules That Courts Must Consider Variations Among State Laws Before Certifying Nationwide Settlement Classes

Posted in Consumer Class Action

© Getty Images

Recent years have seen federal courts applying increased scrutiny to proposed “multistate” class actions that invoke a hodgepodge of state consumer-protection laws. The main reason: The variations among these state laws are not only extensive but often case-determinative, preventing class representatives from proving their claims on a classwide basis.

These decisions have, in turn, raised another question that has divided judges, commentators, and practitioners: Does the same high bar apply to the certification of nationwide classes that are purely vehicles for settlement—meaning that the court will never have to address the practical and legal difficulties of managing an actual classwide trial involving fifty (or more) state laws? In late January the Ninth Circuit weighed in to answer that it does, in a potentially seminal opinion that could, in the words of one dissenting judge, strike a “major blow” to multistate class action settlements.

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Pharmavite, Maker of NatureMade Omega-3 Xtra Blend Dietary Supplement, Referred to FTC After Declining to Comply with NAD Recommendation to Discontinue Absorption Claim

Posted in Advertising & Product Risk Management

© Getty Images

The National Advertising Division, referred Pharmavite, LLC to the Federal Trade Commission after the company refused to comply with NAD’s recommendations that it discontinue its claim that its NatureMade Omega 3 Xtra Blend dietary supplement has “Nearly 4X Better Absorption* *than standard fish oil concentrate.”

To substantiate its “Nearly 4X Better Absorption” claim, Pharmavite relied on a study that compared the absorption of 630 mg and 1680 mg doses of EPA/DHA omega 3 fatty acids manufactured with and without a self-microemulsifying drug delivery system (SMEDS). The study determined that the absorption of EPA/DHA manufactured with SMEDS was better than the absorption rate of standard fish oil (manufactured without SMEDS) for the two doses of EPA/DHA. The study concluded that there was a 6.2 differential for a 630 mg dose and a 9.6 differential for a 1680 mg dose.

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How to Navigate the Big Data Revolution? Read “Data, Data Everywhere” – Part of Crowell & Moring’s 2018 Litigation Forecast

Posted in Privacy & Data Protection

Crowell & Moring has issued its “Litigation Forecast 2018: What Corporate Counsel Need to Know for the Coming Year.”

With the development of artificial intelligence, chat bots, the Internet of Things, autonomous vehicles, and other advances in technology, the cover story, “Data, Data Everywhere,” takes a deep dive into the opportunities and challenges general counsel face in navigating the Big Data revolution. While data is a driver for innovation, the article examines how it also carries new and unintended implications for regulatory enforcement, product liability, cybersecurity, and intellectual property.

Be sure to follow the conversation on Twitter with #LitigationForecast.


FTC Settles First Connected Toy Case With VTech After Massive Data Breach

Posted in Advertising & Product Risk Management

On January 8, 2018, the FTC announced settlement of its first connected toy case with VTech Electronics Ltd (“VTech”) for violating the Children’s Online Privacy Protection Act (COPPA) Rules by failing to properly collect and protect personal information about and from children and violating the FTC Act by misrepresenting its security practices. In addition to paying a $650,000 civil penalty, VTech agreed to comply with COPPA, implement and maintain a comprehensive information security program with regular third-party security audits for the next twenty years, and not misrepresent its privacy and data security practices.

The settlement comes more than two years after VTech learned that a hacker had gained remote access to databases for its interactive electronic learning products (ELPs), including for its Kid Connect chat application, in what was described at the time as the largest known hack targeting children. According to the FTC’s Complaint, the hacker accessed VTech’s databases “by exploiting commonly known and reasonably foreseeable vulnerabilities,” and VTech was unaware of the intrusion until it was informed by a reporter.

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Surveys Seal the Deal in Defeating Starbucks and 5 Hour Energy Class Actions

Posted in Advertising & Product Risk Management, Consumer Class Action

Surveys play an increasingly important role in consumer class actions, whether used to deny class certification, defeat plaintiffs’ allegations of consumer “deception,” or even refute damages arguments.

Recently, beverage giant Starbucks Corp. defeated a proposed class action alleging that Starbucks had violated consumer protection statutes in California, Florida, and New York by uniformly filling its lattes and mochas with more foam – and less actual beverage – than a reasonable consumer would expect. In dismissing the case on summary judgment and denying class certification as moot, U.S. District Judge Yvonne Gonzalez Rogers for the Northern District of California focused on the plaintiffs’ flawed survey results. Strumlauf et al. v. Starbucks Corp., No. 16-CV-01306-YGR, 2018 WL 306715 (N.D. Cal. Jan. 5, 2018). The plaintiffs had introduced an expert report presenting the results of two surveys purporting to show that 70-80% of consumers expected that the “Promised Beverage Volume” of Starbucks lattes did not include foam. The first survey showed respondents a sample menu board with small, medium, and large and asked how many fluid ounces of beverage they expected to receive. This survey was flawed, the court found, because it did not measure consumers’ understanding of what “fluid ounce” means. The second survey showed images of a cup with varying amounts of fluid and foam and then asked which “medium 16 fl. oz. beverage” the respondents expected to receive. This survey, too, fell short because it showed a “caricatured image” and “the ‘question begg[ed] its answer [and was] not a true indicator of the likelihood of consumer confusion.’” In sum, the Court attacked the surveys as “leading and suggestive” and ultimately found they failed to establish a triable issue on consumer deception.

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Five California Communities Settle Auto-Renewal Claims with Online Dating Company eHarmony for More than $2 Million

Posted in Advertising & Product Risk Management

Online dating company eHarmony will pay more than $2 million to settle a consumer protection lawsuit brought by four California counties and the city of Santa Monica. In total, the company will pay up to $1 million to California customers who enrolled in eHarmony’s automatic subscription program between March 10, 2012 and December 13, 2016 and an additional $1.28 million civil penalty to the California communities that brought the lawsuit.

Pursuant to the Settlement Order, eHarmony is required to make several improvements to its business practices, including:

  • Disclosing the terms of the automatic renewal offer in a clear and conspicuous manner before the subscription is fulfilled.
  • Only charging a consumer for an automatic renewal service once obtaining affirmative consent to the automatic renewal term offers. Specifically, consent must be “obtained by an express act by the consumer through a separate check-box, signature, or other substantially similar mechanism.” The automatic renewal terms must be conveyed in a clear and conspicuous disclosure immediately above the check box and the disclosure cannot include any other information.
  • Sending an acknowledgement with a clear and conspicuous disclosure of the automatic renewal terms. The subject line must identify the message as confirmation of the transaction.
  • Providing a toll free number or e-mail address or other easy cancelation mechanism. Additionally, eHarmony must provide written notice of cancellation by email. All cancelations must be effective within one business day.

The eHarmony settlement follows on the heels of several settlements with companies promoting subscription serves, including the FTC’s settlement with AdoreMe last month as well as recent updates to the California Automatic Renewal Law and ongoing enforcement in that state. Advertisers offering subscriptions that automatically renew should review their advertising and cancelation procedures. Not only should offer terms be clearly and conspicuously communicated to consumers before they are charged, the terms of recent settlements suggest that advertisers should require consumers click a separate check box to obtain express consent and offer an easy, online cancelation mechanism.

For additional recommendations, please see our prior blog post on auto-renewals.


Crowell & Moring received a statement on the settlement from eHarmony:

“Since eharmony’s inception, we have endeavored to give appropriate contract notices and disclosures to our subscribers. We remain as committed today as we were 17 years ago to providing a high-quality user experience. Without any admission, we have cooperated with the government, which has previously launched similar investigations against a long list of eCommerce companies, and have chosen to settle to avoid the distraction and expense of protracted litigation. In collaboration with the government, eHarmony has implemented a new industry standard when disclosing terms in order to make the user experience even better. With the settlement now behind us, we look forward to continuing the important work of helping singles find enduring love.” – Ronald N. Sarian, Vice President & General Counsel, eharmony


ROSCA Enforcement Ahead: FTC Settles with AdoreMe for $1.38 Million

Posted in Advertising & Product Risk Management

© Thinkstock

Subscription services for everything from food delivery to beauty products to exercise gear have grown exponentially in the past five years. Such services require consumers to enroll in a program to purchase goods on a consistent basis. They typically automatically renew, often on a monthly basis, and require customers wishing to cancel to take affirmative steps to avoid being charged. Marketers know that consumers often fail to take steps to cancel timely, which only benefits the marketers’ bottom lines.

With the explosion of subscription business models, consumer complaints have skyrocketed as well, with consumers complaining that the terms of the negative option offer – an offer that interprets a consumer’s failure to take an affirmative action as an agreement to be charged – were not clearly explained. For example, consumers have complained that were not told they would be charged each month, were not adequately reminded of how to “skip” being charged each month, that prepaid credits expire without notice, and that it can be difficult to cancel. Thus, subscription businesses have faced increasing regulatory scrutiny and all advertisers that offer products or services that automatically renew should pay close attention.

AdoreMe Settlement

AdoreMe, a subscription lingerie service launched as a rival to Victoria’s Secret, recently agreed to pay $1.38 million to settle the Federal Trade Commission’s charges that the company did not clearly communicate to consumers the terms of its “VIP Membership” program which automatically billed consumers if they failed to “skip” a month within a 5-day window, falsely claimed that store credits could be used “any time,” and made it difficult for subscribers to cancel their memberships in violation of Section 5(a) of the FTC Act as well as the Restore Online Shoppers’ Confidence Act.

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“Do Not Resuscitate”: Lessons for Advertisers

Posted in Advertising & Product Risk Management

The DNR Tattoo

Last week, the Associated Press reported the fascinating story of an unconscious man admitted in acute distress to Miami’s Jackson Memorial Hospital. The words “Do Not Resuscitate” were tattooed across his upper chest, where one would see them before engaging in chest compressions. He carried no identification, so the medical staff could not reach his next of kin. A decision had to be made immediately, however: do we attempt to revive him?

© Getty Images

If doctors took the tattoo at face value, the patient would die. If they rejected the literal words, reading ambiguity into it (perhaps it was merely the result of youthful indiscretion), he might live. The stakes could not have been higher. “We’ve always joked about this, but holy crap, this man actually did it,” said the attending ER physician. “You look at it, laugh a little, and then go: Oh no, I actually have to deal with this.” Fortunately, Jackson Memorial has an ethics team on call for these kinds of situations, and after swift consideration, they recommended that the doctors honor the man’s tattooed request — they allowed the man to die.

Apparently, this is not the first DNR tattoo story. An author in the Journal of Internal Medicine writes of a patient admitted to the hospital for serious surgery, who had the letters “D.N.R.” tattooed on his sternum. When interviewed as part of preoperative procedure, he indicated that he in fact did want to be resuscitated if he went into arrest during surgery, contrary to what was written on his chest. He explained that he acquired the DNR tattoo after losing a drunken poker bet. The author dryly remarks, “It was suggested that he consider tattoo removal to circumvent future confusion about his code status.” The patient declined, however, saying that “he did not think anyone would take his tattoo seriously…”

Can Advertisers Be Taken at Their Word?

The tattoo story has me thinking about its application to advertising. In our line of work, we are frequently confronted with ad copy that expressly says one thing, but arguably implies something else. Indeed, most comparative advertising disputes arise from this kind of situation. The advertiser has carefully crafted a claim, believing it to be truthful and well substantiated. A challenger argues that the literal words may be true, but that the claim also implies something different, and that the different implication is false. Very few sophisticated advertisers are careless or unscrupulous enough to communicate literally false claims. Arguing about implied claims is where the action is.

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