Advertising & Product Risk Management

Crowell & Moring has issued its seventh-annual “Litigation Forecast 2019: What Corporate Counsel Need to Know for the Coming Year.” 

The Forecast provides concise, forward-looking perspectives on technological developments that can help corporate counsel identify the many opportunities and challenges ahead as they harness the power of technology. The Forecast further explores the developing legal, regulatory, and technology developments affecting a wide range of companies in twelve areas of law: antitrust, corporate, cybersecurity, e-discovery, environmental, government contracts, health care, intellectual property, international trade, labor and employment, torts, and white collar.

In the article, “AGs: Watching Out For Consumers,” authors examine why state attorneys general are especially focused on consumer protection, bringing increased risk as well as potential opportunities to companies.

Be sure to follow the conversation on social media with #LitigationForecast.

businesswoman checking the time on watch

Do not assume a government shutdown means that reporting obligations at the CPSC are on hold. While the Commission’s staff designated as essential personnel are dedicated to protecting against substantial, immediate or “imminent threats to human safety” under the Commission’s shutdown directive[1], they will be reviewing reports to make that determination. The obligation to report is not suspended during the shutdown, even if there may be slower than normal response on matters that do not present an immediate threat. The filings are tracked by date and time electronically, and with 15 million in penalties at stake for failure to timely report, it is important not to confuse a partial shutdown of government operations with a stay on statutory obligations. There is no stay of the reporting obligations If you are a manufacturer, importer, distributor, and/or retailer of consumer products, you continue to have a legal obligation under the Consumer Product Safety Act (CPSA) and other statutes administered by the CPSC to report the following types of information to the CPSC:

  • A defective product that could create a substantial risk of injury to consumers;
  • A product that creates an unreasonable risk of serious injury or death;
  • A product that fails to comply with an applicable consumer product safety rule or with any other rule, regulation, standard, or ban under the CPSA or any other statute enforced by the CPSC;
  • An incident in which a child (regardless of age) chokes on a marble, small ball, latex balloon, or other small part contained in a toy or game and that, as a result of the incident, the child dies, suffers serious injury, ceases breathing for any length of time, or is treated by a medical professional; and
  • Certain settlements of lawsuits.

Notably, the government shutdown has no impact on the timely reporting of lawsuit settlements. The New Year brings a new time period for an additional and separate reporting requirement under Section 37 of the Consumer Product Safety Act. It requires manufacturers of consumer products to report information about settled or adjudicated lawsuits during specific 24-month periods. Specifically, companies are required to report when at least three civil actions filed in federal or state court involve the same model of a product and each suit alleges the product was involved in death or grievous bodily injury.  15 U.S.C. § 2084(a). The products at issue in the three cases must involve the same particular model, distinctive as to functional design, construction, warnings, and instructions, i.e. the characteristics that affect the product’s safety related performance.

The CPSC regulations define grievous bodily injury to include certain categories of injury, including, but not limited to:

  • Mutilation or disfigurement including permanent facial disfiguration or non-facial scarring that results in permanent restrictions in motion;
  • Dismemberment or amputation;
  • The loss of important bodily function or debilitating internal disorder such as the permanent injury to the loss of an organ, or blindness or permanent loss, to any degree, of vision.
  • Injuries requiring extended hospitalization, including in-patient care of 30 days in acute care facility or 60 days in a rehabilitation facility;
  • Severe burns or severe electrical shock.[2]

Section 37 sets forth specific statutory time periods within which three settlements involving the same product would trigger reporting. Each of the 24-month statutory periods begin every odd year.  For purposes of this analysis, the applicable statutory periods are:

  • January 1, 2015 – December 31, 2016;
  • January 1, 2017 – December 31, 2018; and starting now
  • January 1, 2019 – December 31, 2021.[3]

In addition to Section 37 reporting, lawsuits should be reviewed with an eye towards whether they contain information reportable under Section 15, such as if the allegations reasonably support the conclusion that a product contains a defect which could create a substantial product hazard or an unreasonable risk of injury. In-house counsel should keep these intersections in mind and make sure they bridge the gap between litigation and this regulatory reporting obligation.

It is a common tendency to think about product safety issues in separate buckets depending on whether they raise litigation or regulatory risks. But each should not be considered in isolation as they can overlap in various ways, including within the Consumer Product Safety Act.

 

[1] Order No. 0921.1

[2] 16 C.F. R. §1116.2

[3] See 15 U.S.C. § 2084(b); see also 16 C.F.R. § 1116.2(a); CPSC Recall Handbook at page 9 (found at https://www.cpsc.gov//PageFiles/106141/8002.pdf).

 

 

This article originally appeared in Bloomberg Law Big Law Business.

Pop-star Selena Gomez is an international celebrity with 144 million followers on Instagram. That’s second only to soccer icon Cristiano Ronaldo who trumps her by 500 followers.

So you might think companies would jump at the opportunity to enlist them as brand ambassadors. But companies are increasingly turning away from deals with mega stars like Gomez and Ronaldo and tapping lesser known social media personalities to represent their products. Too often, though, the liabilities involved in working with so-called micro-influencers are overlooked.

Companies can do more to protect themselves by simply using the same high level of caution with non-celebrity influencers as is used when entering arrangements with household names.

Influencers are becoming sought-after for two primary reasons:

  • they are considered more cost effective, and
  • their endorsements are often seen as being more authentic and better able to reach a highly engaged audience.

In fact, it is estimated that nearly 80 percent of professionals in fashion, luxury, and cosmetic industries in the U.S. and Europe implemented influencer campaigns last year.

However, the line between the traditional celebrity and the influencer is not as clear-cut as it once was. While influencer marketing continues to be far cheaper and can be more effective in reaching potential buyers, many influencers have shifted from casually filming videos in their bedrooms to becoming highly recognizable household names. Influencers are increasingly transforming this celebrity to build their own brands. With this transformation comes more risk.

While many companies have rapidly embraced influencer marketing, their legal strategies haven’t always kept pace. Missteps around content ownership and the lack of cohesive policies around disclosure requirements have led to costly and drawn out legal battles.

Accordingly, we suggest treating influencers like more conventional celebrities, specifically by focusing on the following.

1. Social Media Content Ownership

Companies should ensure that influencers are aware that sharing any image containing copyright-protected works might be infringing on third-party intellectual property and privacy rights and establish indemnity clauses and/or holdbacks for infringement by an influencer in any contract.

Further, while it is standard for influencers to own the content in social media posts, the brand should be sure both to retain the right to re-use it for future campaigns or advertisements and the ability to require the influencer to take down a post.

2. Design Collaborations

As influencers grow in popularity, many have established or are seeking to establish their own “brand” identity. Deals with influencers now go beyond mere endorsements, as many influencers aspire to launch their own product lines. This creates a gray area: does that, let’s say, pocket design belong to the company or is it emblematic of the influencer’s own brand?

In 2015, when Becca Cosmetics entered into a partnership with makeup artist and influencer Jaclyn Hill, it appears the company failed to establish ownership of the product packaging design of their wildly popular “Champagne Pop” collection. When another cosmetics company called Morphe later collaborated with Hill to launch a new “Vault” eyeshadow pallet with an arguably similar packaging design, Becca sent Morphe a cease and desist letter, prompting Morphe to file a lawsuit, leaving the two makeup companies embroiled in a legal battle. (See Morphe LLC v. Becca Inc., No. 2:18-cv-06667, C.D. Cal.)

Where both company and influencer may be competing for brand recognition, agreements with influencers should clearly specify which party owns the various elements relevant to the design collaboration and require an assignment of rights where necessary.

3. Risk of Reputational Harm

Brands may also want to make sure contracts with influencers protect against the reputational harm that can be associated with an influencer’s behavior, and not just focus on number of followers.

Influencers, like conventional celebrities, can become embroiled in scandals which can embarrass companies they work closely with. For example, beauty guru Laura Lee’s eponymous makeup line was recently dropped by Ulta Beauty after fans of rival beauty guru Jeffree Star uncovered racially charged tweets Laura sent in 2012.

To protect against these potential reputational risks, Companies should add mortality and non-disparagement clauses to the influencer’s contract, allowing them to terminate the relationship and/or recover damages in the event the influencer does anything that would reflect unfavorably on the brand.

4. Disclosure Requirements

In April 2017, the FTC sent letters to 90 influencers and marketers reminding them of their obligation to clearly disclose their relationships with brands when endorsing them on social media. The issue here is not always whether companies know that influencer disclosure requirements exist, but rather whether brands monitor their influencers’ compliance with these requirements.

Indeed, lack of compliance is so widespread that the FTC cracked down on companies and influencers and released updated FAQs clarifying how and when to comply with the 2008 Endorsement and Testimonial Guides.

While companies can’t shift the legal burden of disclosure to an influencer, they can protect themselves by crafting proactive compliancy policies, training influencers in the best practices for disclosure, and including a clear, simple, and specific disclosure mandate in the influencer’s contract. Companies must also actively monitor the influencer’s compliance.

Final Thoughts

As marketers have enthusiastically seized on influencer marketing as a relatively inexpensive and powerful way to reach their target consumers, the influencer economy has evolved. Influencers have increasingly transformed themselves into quasi-celebrities, building their own brands as they amass larger followings and command higher fees and more lucrative brand deals.

As the line between traditional celebrity and the influencer blurs, risk to brands engaged in influencer marketing increases. Legal departments can no longer engage with influencers as unsophisticated amateurs and should rethink the way they enter into agreements, incorporating some of the same protections they would when engaging with traditional celebrities.

This article originally appeared in Bloomberg BNA.

Image of ruler at the 10 inch mark
@GettyImages

When Subway faced a class action over its “footlong” sandwiches coming up short, a quick settlement seemed like a good bet. Instead the case became a memorable example of how the courts and the Justice Department are cracking down on settlements that often do little more than generate easy money for plaintiffs’ attorneys.

Companies facing meritless class actions often move to quickly settle to avoid costly drawn-out legal battles, but in this new legal climate, companies should reconsider their strategies for resolving these lawsuits.

One of the most famous examples of this trend is the proposed settlement of class action lawsuits filed after a picture of a Subway “footlong” sandwich measuring less than 12 inches went viral. The lawsuits claimed the sandwich company engaged in deceptive marketing and sales practices. But the company quickly provided discovery showing it used the same amount of dough in each “footlong” roll. Thus, any variation in length of the rolls was merely a fluke of the baking process and not an indication that consumers were receiving less food.

Still, Subway agreed to settle the case and committed to institute quality-control practices designed to ensure consumers received 12-inch rolls. The company also agreed to post notices explaining that, even with the quality-control practices, the bread-baking process sometimes results in rolls measuring less than 12 inches.

For obtaining these concessions, plaintiffs’ attorneys were to receive more than $500,000 in fees.

No Benefit to Class

Subway, like many companies, embraced the opportunity to quickly settle a meritless lawsuit for only the cost of legal fees and a few minor business changes. But the U.S. Court of Appeals for the Seventh Circuit, one of a number of increasingly skeptical courts, rejected the settlement because it provided “zero benefits for the class,” noting “[a] class settlement that results in fees for class counsel but yields no meaningful relief for the class is no better than a racket.”

Courts are not alone in turning a more critical eye on proposed class action settlements.

Earlier this year, the Department of Justice signaled it would be making a concerted effort to review class action settlements. For the past 13 years, the DOJ has had the authority to review and weigh in on the fairness of class action settlements but has rarely done so. But in February, departing Associate Attorney General Rachel L. Brand indicated that the DOJ would use its authority to ensure class action settlements provide meaningful value to class members.

Soon after, the DOJ made good on its promise and issued a statement of interest opposing a proposed consumer class action settlement in federal court in New Jersey. Again, the concern was that class counsel was receiving $1.7 million for a settlement of dubious value to consumers. The plaintiffs claimed that an online wine retailer had misled them by showing very high “original” prices for bottles of wines, leading consumers to believe they were getting a better discount. However, as the DOJ pointed out, the plaintiffs “actually received the products they ordered at the prices to which they agreed.”

But even assuming the plaintiffs could show they suffered a loss, the proposed settlement offered only rebate codes that would allow a plaintiff a $2 discount per bottle of wine purchased from the defendant. The DOJ determined that, either way, the settlement was not fair.

The court agreed and ultimately rejected the settlement.

Do Your Homework

With courts and the DOJ viewing class settlements more stringently, companies should carefully consider whether a settlement that appears to be an easy way out is truly the best approach.

Such settlements may prove a waste of time and resources if they are challenged by the DOJ or ultimately rejected by the court. Although plaintiffs’ attorneys could withdraw their claims following a rejected settlement, often companies are faced with months or even years of continued litigation. And even if the settlement survives the increased level of scrutiny, it will not necessarily reduce the risk of similar lawsuits by plaintiffs that were not bound by the agreement.

Instead, companies should determine whether, even if more costly in the short term, they may ultimately have more to gain from seeking a dismissal of the action on the merits.

If companies still decide to settle, they should avoid the hallmarks of settlements that were found not to provide benefits to the class. If the value to the class involves only business practice changes, the companies should make certain to include changes that were not already in place before the settlement and that will materially reduce the risk of harm to consumers.

And instead of offering consumers coupons, which have limited value because customers need to spend money to get the benefit, companies should offer them small credits instead. Apple showed benefit to its customers when it settled a 2016 class action lawsuit by agreeing to pay $400 million to consumers who bought e-books at an inflated price by automatically crediting their e-book accounts.

Given the increased scrutiny on class action settlements, a more thoughtful approach to settlements that seem like a quick fix could save companies time and money in the long run.

 

Join Us For A Complimentary Webinar – Thursday, October 25, 2018 – 12:00 – 1:00 PM ET

Two years into the Trump Administration and:

  • The Consumer Product Safety Commission finally has a Republican majority,
  • the Department of Transportation has released its 3.0 guidance on autonomous vehicles,
  • NIST has published a 375 page recommendation on medical device security,
  • the FTC is holding a series of hearings on the transformative nature of the digital transformation on markets.
@GettyImages

What does all this activity in the United States mean for companies following the rapidly evolving regulations globally related to the safety and security of products?

This PLAC webinar will describe the current landscape at the federal agencies setting policy for product safety and security. With all the recent talk of regulatory humility in the face of great technological change, we’ll discuss whether regulators practice what they preach and if recent actions encourage or stifle innovation. Our session will compare and contrast activities across the federal government relevant to consumer products broadly defined with a particular focus on product safety and security.

Presenters:

Cheryl Falvey, Partner, Crowell & Moring, Washington, DC
John Fuson, Partner, Crowell & Moring, Washington, DC
Peter Miller, Senior CounselCrowell & Moring, Washington, DC

Please click here to register for this webinar.

@GettyImages

Earlier this summer, President Trump nominated Republican Peter Feldman to serve as the fifth commissioner on the U.S. Consumer Product Safety Commission (CPSC). The Senate has now confirmed Mr. Feldman to both (1) serve out the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019; and (2) serve a seven-year term beginning in October 2019.

Significantly, the confirmation of Mr. Feldman gives the Republicans their first majority control of the Commission in nearly twelve years, and presents an opportunity for Acting Chairman Ann Marie Buerkle to further move the agency in a direction that reflects her regulatory priorities, as well as those of the Administration. Notably, the Commission will soon consider its FY 2019 operating plan which sets the agency’s agenda for the coming year.

Interestingly, the Senate voted 80-19 to confirm Mr. Feldman to serve out the remainder of former Commissioner Mohorovic’s term. However, on the following day when it came to vote on Mr. Feldman’s own seven-year term that would start in October 2019, the Senate split along strictly partisan lines confirming Feldman by a slim 51-49 majority. Some had argued that since Mr. Feldman’s “new” term would not begin until 2019, the next Senate should take up the nomination after the midterm elections.

Mr. Feldman is well-known among the product safety community. Having served as legal counsel to Senator John Thune (R-SD) at the Senate Committee on Commerce, Science, and Transportation since 2011, he is experienced and well-versed in consumer product safety law and the activities of the Commission.

The CPSC released the following statement upon Mr. Feldman’s confirmation including this quote from Mr. Feldman himself:

“I believe strongly in the mission of the agency because American consumers have every right to expect that the products they purchase will be safe and will not pose an unreasonable risk of injury to themselves or their families,” Feldman said. “CPSC’s safety work is critical, particularly when it comes to protecting our most vulnerable populations. I look forward to advancing these agency priorities while ensuring fairness in the execution of its duties.”

We look forward to working with Commissioner Feldman in the years ahead and congratulate him on his confirmation.

 

© Getty Images

Two weeks ago, after the Senate confirmed Dana Baiocco to the U.S. Consumer Product Safety Commission (CPSC), we wrote that it would not be a surprise if President Trump appointed a fifth commissioner in the coming weeks to give the Republicans a 3-2 voting majority on the Commission. Well, on June 4, the President nominated Peter A. Feldman to be a Commissioner of the CPSC. This is a very significant development. If confirmed, Feldman will fill the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019, and give the Republicans their first majority at the Commission in nearly twelve years. The confirmation would also allow Acting Chair Ann Marie Buerkle to start to move the agency in a direction that reflects her regulatory priorities, as well as those of the Administration.

Mr. Feldman is known to many in the product safety community. Having served as legal counsel at the Senate Committee on Commerce, Science, and Transportation since 2011 (most recently as Senior Counsel), he is knowledgeable and well-versed in consumer product safety law and the activities of the Commission. He is a graduate of American University’s Washington College of Law.

Upon his nomination, Senate Commerce Committee Chairman John Thune (R-SD) stated the following:

“Peter has been part of the Commerce Committee team and an invaluable resource during my entire tenure as ranking member and chairman. While I will miss his steady hand in our committee’s bipartisan efforts to fight for consumer safety and fairness, the Consumer Product Safety Commission will benefit from his expertise and leadership. Once the committee receives the formal nomination and other required submissions, I expect we will move quickly to convene a confirmation hearing.”

We expect Feldman’s nomination to move faster than that of Commissioner Baiocco. Should Feldman be confirmed to fill former Commissioner Mohorovic’s term, we also expect President Trump to re-nominate him for a new seven-year term in October 2019. In the meantime, until Feldman’s confirmation, the Commission remains in a 2-2 voting “tie.”

© Thinkstock

Multiple class actions have alleged violations of the Telephone Consumer Protection Act (TCPA) for use of automated dialing systems (auto-dialer). In a 2015 Order, the Federal Communications Commission (FCC) defined an auto-dialer under the TCPA to mean any device with the theoretical “capacity” to place autodialed calls, even if had the potential to be transformed into an auto-dialer. Importantly, the FCC’s definition was prospective and applied even if additional software was required. However, several recent cases have narrowed the scope of the definition of “auto-dialer,” creating a potential hurdle for plaintiffs and creating confusion about the viability of class actions that hinge on whether the marketing platforms used to send messages to consumers qualify as “auto-dialers.”

In March, in ACA International v. Federal Communications Commission, No. 15-1211 (D.C. Cir. Mar. 16, 2018), the D.C. Circuit limited the FCC’s 2015’s broad prospective definition of auto-dialer, stating that it would “subject ordinary calls from any conventional smartphone to the act’s coverage” and that the statute did not necessitate such a “sweeping swoop.”  Instead, the court reasoned, the proper analysis of whether a device is an auto-dialer under the TCPA should turn on the capacity of a device to behave as an auto-dialer, as well as the amount of effort required to turn a device into an auto-dialer.

Continue Reading Who You Gonna Call? (Just Don’t Use an Autodialer!)

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The 3-1 Democratic majority at the U.S. Consumer Product Safety Commission has officially come to an end one and a half years after the election of President Trump and eight months after the nomination of Dana Baiocco as a commissioner of the CPSC. This afternoon, the United States Senate voted 50-45, mostly along party lines, to confirm Ms. Baiocco to the Commission. This confirmation is significant.

As of today, Ms. Baiocco will be able to take her seat on the Commission, and Commissioner Marietta Robinson, currently in her “hold-over” year as her term expired last October, will depart the agency. Commissioner Baiocco’s arrival at the CPSC will shift—or at least begin to shift—the Commission’s balance of power from Democratic to Republican control.

With Ms. Baiocco’s confirmation, Republicans will hold two seats on the Commission currently occupied by Acting Chair Ann Marie Buerkle and Commissioner Baiocco. They will serve alongside Democratic Commissioners Robert Adler and Elliot Kaye. The fifth seat on the Commission has remained vacant since former Republican Commissioner Joe Mohorovic resigned from the agency last October.

Commissioner Baiocco’s confirmation marks an end to the unusual dynamic whereby the Commission’s leader, Acting Chairman Ann Marie Buerkle, a Republican, was in the minority, and generally unable to implement the regulatory priorities of the Administration. Although Acting Chairman Buerkle will not command a 3-2 majority until the President appoints a fifth commissioner (who must also be confirmed by the Senate), the Democrats will no longer have a de facto majority to control the agency’s agenda.

While Ms. Baiocco’s confirmation certainly changes the balance of power at the Commission, some political limbo and uncertainty remains. Acting Chairman Buerkle’s nomination to be permanent Chairman remains pending—and there is no indication from the Senate that it plans to move the nomination forward as it has just done with Ms. Baiocco’s nomination. Moreover, although the Democrats have lost their 3-2 majority on the Commission, a 2-2 voting “tie,” may result in stalemate as Acting Chairman Buerkle does not have any tie-breaking authority as Chairman.

Nevertheless, we can now expect the Commission to start to move in a direction that reflects some of the Administration’s regulatory priorities and agenda. Furthermore, we would not be surprised if President Trump appointed a fifth commissioner in the coming weeks to once again shift the balance of power—this time, giving the Republicans a 3-2 voting majority.

You may have received an e-mail notice this week from the CPSC about the FOIA office’s new “Electronic Manufacturer Notification Collaboration Portal.”  The main purpose of the Portal is to reduce costs by using e-mail instead of snail mail for Section 6(b) and other FOIA-related notifications. 

Generally, automation of this process shouldn’t result in any meaningful changes in the FOIA notification and objection process.  The Commission’s regulations allow firms to submit information with a request for confidential treatment.  If the Commission receives a FOIA request for information previously designated confidential, the person who previously submitted the request for confidentiality is notified of the FOIA request and the need for quick response to protect that information from disclosure.

Given the quick turnaround time on requesting exemption from disclosure under FOIA, it is imperative for all industry players to make sure that the right contact is assigned – including someone in the Legal Department – to receive Portal notifications so your team can make quick decisions and take action if filing an objection with the CPSC is necessary.  The same contact person used for the Clearinghouse or Saferproducts.gov is a good bet.  But requesting an exemption under FOIA takes some analysis of the regulations.  Was the information submitted under section 15?  Is it a trade secret?  And so, companies would be well advised to make sure they have a process in place and conduct a training program to protect confidential data from disclosure.

If you haven’t yet received any notifications about the new automated Portal, you should check in with the CPSC at cpsc-foia@cpsc.gov and provide contact information for the proper registration person.  The full text of the notification recently sent by the CPSC is below:

Continue Reading Check Your Spam Filters!: CPSC Has Automated FOIA Communications