Crowell & Moring has released Litigation Forecast 2020: What Corporate Counsel Need to Know for the Coming Year. Retailers and consumer products company can benefit from the Forecast’s forward-looking insights from leading Crowell & Moring lawyers which will help legal departments anticipate and respond to challenges that might arise in the year ahead.

For 2020, the Forecast focuses on how the digital revolution is giving rise to new litigation risks, and it explores trends in employment non-competes, the future of stare decisis, the role of smartphones in investigations and litigation, and more.

The cover story, “A Tangled Web: How the Internet of Things and AI Expose Companies to Increased Tort, Privacy, and Cybersecurity Litigation,” explores how the digital revolution is transforming not only high-tech companies, but also traditional industries with products, business models, and workforces that are being affected by increased connectivity, artificial intelligence, and the ability to gather and use tremendous amounts of data.

In a story on advertising practices, “False Advertising Claims: Opting for Court,” outlines a growing trend in advertising that shifts claims against competitors being solved via self-regulation to being addressed in federal court cases.

When the U.S. Food & Drug Administration (FDA) issued 15 warning letters to companies selling CBD-infused products late last year, it more than doubled the number of warning letters directed to manufacturers of such products in 2019. The warning letters were announced in a November 25 press release in which FDA also stated that, at this point, it “cannot conclude that CBD is generally recognized as safe (GRAS) among qualified experts for its use in human or animal food.”

FDA accompanied its press release with a revised Consumer Update stressing its concerns about the safety of CBD products and highlighting three possible risks that can go unnoticed by consumers: (1) liver injury, (2) unsafe drug interactions that can lead to serious side effects, and (3) male reproductive toxicity. FDA also outlined three areas in which its research is ongoing: (1) the effects of cumulative exposure to CBD, (2) effects on special populations (such as children and pregnant women), and (3) effects on animals.

The FDA’s recent warning letters cited health claims disseminated on company websites, blogs, and social media pages. They targeted ingested products like essential oils and food products, as well as topical products like face creams and bath bombs. And while products for humans were an obvious concern, all but two of the warning letters also targeted products marketed for animals.

The FDA’s new warning letters are the latest evidence of the government’s interest in regulating the growing market for CBD-infused products. They build on prior warning letters sent to CBD product manufacturers and distributors by FDA and the Federal Trade Commission (FTC), which also has regulatory authority in this area. The FTC has issued warning letters to companies advertising CBD products on its own and jointly with FDA to remind companies that they are at risk for legal action if their advertising claims—including claims on labeling, websites and consumer testimonials—lack sound scientific support. The FTC has the authority to enforce violations of the FTC Act and its warnings are a reminder that advertising that a product can prevent, treat, or cure human diseases requires competent and reliable scientific evidence, which may include well-controlled human clinical studies.

What Does This Mean for Stakeholders?

The FDA and FTC’s line on CBD products has not moved: CBD cannot legally be added to food and beverage products and, regardless of whether or not the CBD product is ingested, it cannot be marketed with unsubstantiated health claims. The FTC continues to stress that companies must review any claims made for their products, including consumer testimonials, to ensure that they “are supported by competent and reliable scientific evidence.” Since her July 25 testimony before Congress, FDA Principal Deputy Commissioner Amy Abernethy has emphasized a commitment to “sound, science-based policy.” Commissioner Abernethy stressed in FDA’s November 25 press release that “a number of questions remain regarding CBD’s safety—including reports of products containing contaminants, such as pesticides and heavy metals—and there are real risks that need to be considered.”

What’s Next?

Regulators are closely scrutinizing the CBD industry. While we have seen warning letters before, we are likely to see more intense federal enforcement activity in the future. We know that the FDA still does not recognize CBD as GRAS in either conventional foods or dietary supplements. And, as FDA’s recent press release indicates, “the FDA plans to update on its progress regarding the agency’s approach to these products in the coming weeks.” Furthermore, the FTC has repeatedly reminded advertisers of the substantiation requirements for the health claims that commonly appear in advertising for CBD-infused products. Stakeholders should carefully review their advertising—including consumer testimonials—to ensure that the claims will pass muster with both agencies.

Companies should have robust procedures in place so they can quickly respond to the receipt of information concerning the safety of their product(s). Last month, we posted an article about best practices for collecting safety complaint data, which focused on how to gather and save data when a consumer safety complaint comes through the door. Below is a bigger picture checklist to ensure all teams within a firm—legal, compliance, engineering/design, manufacturing, and marketing—are aligned and all bases are covered when a potential product safety issue arises.

Consumer Safety Complaint Checklist

DO

  • Immediately alert the appropriate regulatory, compliance, and legal personnel as designated by company policy.
  • Immediately determine any applicable reporting obligations under the Consumer Product Safety Act or other applicable statutes and regulations.
  • Collect, review, and assess any customer service, marketing, engineering, supply chain, or other relevant records; and preserve materials which may be considered evidence.
  • Have counsel determine whether it is necessary to communicate the issue to supply chain partners.
  • Conduct outreach to the team responsible for designing the product at issue in order to determine whether safety issues were anticipated in the design process.
  • Confirm that the product has been tested, classified, and labeled properly in observance of all applicable regulations and industry best practices.
  • Consult with legal counsel about whether a stop sale or similar measures should be taken.

DO NOT

  • Do not ignore or bury the complaint and/or potential issue and hope that it goes away.
  • Do not accept liability for any incidents involving your product before a thorough investigation can be conducted.
  • Do not consent to a search of any facilities or seizure of any materials unless instructed by a signed warrant.
  • Do not deploy public relations or other external messaging in response to a product issue before legal counsel is involved and overseeing all communications.

Time is of the essence when dealing with consumer safety complaints. Taking immediate action helps significantly minimize liability to both consumers and the government. Be sure to train and prepare the appropriate personnel to be ready to hit the ground running if a consumer safety complaint is received.

The Federal Bar Association’s Fashion Law Conference will be held on February 7, 2020 at the National Arts Club in New York, NY. Crowell & Moring is pleased to be a sponsor of the event, which promotes the advancement of fashion law in today’s globalizing world.

Coinciding with New York Fashion Week, this year’s programming will cover corporate responsibility, sustainability, international developments, and labor considerations. The full-day program will offer CLE credit and networking opportunities. It is open to attorneys, fashion industry professionals, and law students.

Register for the Fashion Law Conference before January 10, 2020 to receive the early bird rate. Please contact Frances Hadfield for more information.

You’ve just received news that a consumer’s experience with your product did not go as expected. They’ve called, e-mailed, left a review, or even sent a tweet about a negative experience. As you address the consumer’s concerns, it is important to recognize if any reportable safety issues have been raised. If so, there is certain information that should be collected in order to complete the required section 15(b) report to the CPSC, which is listed below. In working with clients that have received consumer complaints, we’ve identified some best practices for collecting the necessary data responsibly:

  1. Be transparent; tell consumers how and why you are collecting their data.
  2. Safeguard the data:
    • Back up your data in case your systems crash.
    • Have malware, antivirus software, and firewalls that protect from data breaches (and make sure it’s all up to date).
    • Have an emergency plan in the event of a data breach.
  3. Set data governance policies and guidelines.
    • Define acceptable uses of data, authorized access to data, and management of the data. Make sure they are up to date and make sense for your company and what you use your data for.
    • These policies and guidelines should be easily accessible on your website and social media sites.
  4. Maintain the data. The CPSC expects firms to maintain records of complaints, warranty returns, insurance claims, and product lawsuits.

Information that should be collected

  1. Incident Description: Include details such as how the product was being used, what happened to prompt the report, and any injuries that were sustained.
  2. Incident Date: If the actual date is unknown, an estimated or approximate date can be provided.
  3. Incident Location: Include the type of property and the location’s address.
  4. Consumer Contact Information: Include phone number, address, and e-mail address when possible.
  5. Product Information: Model number, serial number, and UPC code.
  6. Purchase Information: Include from where the product was purchased and the purchase date.
  7. Photographs: Include any photographs that inform the incident, such as photos of the product, the environment in which the incident occurred, and the injury or damage (if any) that resulted.
  8. Product Disposition Information: Include whether the consumer still has the product, if the product was damaged or modified before the incident, or if the product was modified before or after the incident.

More information for manufacturers, importers, retailers, and others in the regulated community regarding their reporting responsibilities and what steps should be taken after they’ve become aware of an issue can be found here in the CPSC’s Regulated Products Handbook.

Memes, animated GIFs, and other images online are a crucial part of today’s Internet experience and have undoubtedly prompted many Internet users to laugh out loud in front of their screens. In the fashion industry, such images and animated pictures are frequently used to create an experience for the consumer and to evoke an emotion in connection with a certain product or brand.

These images or texts are also frequently shared, saved, or posted through a #regram on someone’s own page (be it their blog, Instagram, or Facebook) without considering copyright. However, a work being publicly available on the Internet does not mean that the work can be copied, re-blogged, or otherwise shared without consent of the creator or copyright holder. To claim the contrary is a common misconception: after all, the Internet is not free of rights and the risk of copyright infringement is a daily reality for the Internet user.

This post will discuss in more detail the European copyright protection of memes, animated GIFs, and other images online.

European copyright principles

As a rule, European copyright protection is mostly harmonized and reserved for works created by an author that meet the originality requirement. Although the Belgian Copyright Law Act makes an explicit reference to “literary and artistic works,” it does not define or enumerate specific types of works that are eligible for copyright protection. European copyright protection is reserved for any work that has been expressed in a concrete form (whether tangible or intangible).

This “expression in a concrete form” constitutes the first requirement for copyright protection. Ideas, concepts, or principles, even if they would be original or inventive, are not protected by copyright as they have not yet taken a concrete form. The second requirement for copyright protection is that the work must be “original.” This originality requirement means that the work is the author’s own intellectual creation and bears the author’s personal stamp. As soon as these two cumulative requirements are met, an author automatically, without any formal registration, enjoys exclusive copyrights for a period up to 70 years after their death.

European copyright consists of a patrimonial or economic component, and a personal or moral right of the author. The economic copyrights give the author the possibility to exploit his work (or have it exploited) to obtain income. More specifically, it is about the reproduction right (or the right to copy a work) and the right of communication to the public. These rights are also transferable. On the other hand, an author also has inalienable moral rights, such as the right to divulgation (the right to publish a work for the first time), the paternity right (the right to recognition), and the integrity right (the right to oppose change in his or her work).

What about memes and GIFs?

Many forms of expression can enjoy European copyright protection. As applied to memes, GIFs, and more generally to images or photos on the Internet, the originality requirement will nearly always be met. Certainly when the photo is the result of the creativity of the photographer who has made a number of free choices such as shooting angle or lighting, it will be an original work. While the copyright sign © that is often displayed underneath a photo adds little extra protection under Belgian or European law, it indicates that a certain person is claiming rights with regard to that photo.

With memes and GIFs there is little doubt about the originality when it concerns the original work. The fact that a copyright on these approved images, texts, and animations is likely reinforced by the fact that Grumpy Cat (or rather its cat parent) has already won a copyright infringement case in the United States (United States District Court, Central District of California Southern Division, Grumpy Cat Limited/Grenade Beverage LLC, et al., 1 December 2017, Case no. SA CV 15-2063-DOC (DFMx)). The creator of Pepe the Frog has also successfully challenged the copying of his frog meme through other media several times.

Image rights

Image rights can also play a role. This personality right protects the use of a person’s image. Based on this right, any physical person can oppose the creation and use of images in which he or she is recognizable. This protection also applies to famous or public persons, albeit that in those cases it is generally limited to the financial element involved in the exploitation of their image.

Explicit consent is of course also required for the use of images of lesser known people (like you and me perhaps). For example, Arató András, better known as ‘hide the pain Harold’ and Laina Morris, the ‘overly attached girlfriend,’ suddenly saw their images appear as the subject matter of a meme.

Conclusion

The success of social media such as Facebook, Twitter, and Instagram has brought new IP issues to the foreground. However, the possibility and practice of sharing photos, articles, or videos – often protected by copyright – on social media at a rapid pace and with incredible ease, may carry a significant risk of infringement of both copyright and personality rights.

Therefore, before an image is shared online, retweeted, or placed online via a blog or #regram, it is best to first check whether the work is original and can therefore be protected by copyright. If the answer to this question is yes, the author or copyright holder’s consent must be sought for the copying or distribution of the work or for the processing thereof into a meme or GIF. In addition, the persons depicted and identifiable must also have given their consent for the use and further distribution of their photographs. It is very important to respect the copyrights of the parties involved, especially when these images are used for commercial purposes. It is also important that the photographer or designer and the model have transferred all intellectual property rights by means of a written agreement.

This post originally appeared in FashionUnited.

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.

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.