Ad Law Access https://www.kelleydrye.com/viewpoints/blogs/ad-law-access Updates on advertising law and privacy law trends, issues, and developments Tue, 18 Jun 2024 07:55:46 -0400 60 hourly 1 NAD Reviews a Song and Dance on a Porch https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-reviews-a-song-and-dance-on-a-porch https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-reviews-a-song-and-dance-on-a-porch Mon, 17 Jun 2024 17:30:00 -0400 Jason Momoa moved into a new neighborhood and was sad because his internet hadn’t been connected. Zach Braff and Donald Faison tried to cheer him up, as good neighbors often do, by singing him a song and dancing on his porch. Unlike most neighbors, though, Zach and Donald chose to sing about the joys of T-Mobile home internet. Although they didn’t specifically sing about the company’s Price Lock feature, that feature was advertised on-screen in some versions of the commercial.

AT&T argued that the term “Price Lock” is misleading because T-Mobile isn’t locking the price of its service for any amount of time. T-Mobile countered that “Price Lock” isn’t a claim about locking its price, but rather the name of a policy that allows customers to cancel their service and receive their last month for free, if they cancel within 60 days of a price increase. In fact, an on-screen disclosure reads: “Get your last month of service on us if we ever raise your internet rate.”

NAD noted that the term “price lock,” without qualification, “conveys the message that the price is locked for monthly service as long as the consumer wants the service.” In this case, T-Mobile argued that term is clearly qualified by its on-screen disclosure. Even though NAD acknowledged that the disclosure in the commercial was fairly prominent – which is not something we frequently hear from NAD – it found that the disclosure wasn’t enough to prevent the claim from being misleading. Why?

Although companies can use a disclosure to clarify a claim, NAD wrote that “a disclosure cannot contradict the claim it qualifies.” More specifically: “A disclosure that ‘Price Lock’ does not lock the price but gives consumers one month of free service if certain conditions are met contradicts the main message communicated by the ‘Price Lock’ claim.” Accordingly, NAD recommended that T-Mobile either stop making the claim or better explain the details of its policy “as part of the main claim.”

A good song and dance can brighten a neighbor’s day, but it takes talent to pull that off. Drift off key or miss a few steps on the porch and your neighbors will show that Ring camera footage to their friends and laugh at you every chance they get. A good disclosure can save a claim, but it also takes talent to pull that off. If your disclosures aren’t clear or they clash with your claim, your competitors will show that footage to NAD and laugh at you, too.

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A Trademark Dispute Plays Out Before the NAD https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/a-trademark-dispute-plays-out-before-the-nad https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/a-trademark-dispute-plays-out-before-the-nad Sun, 16 Jun 2024 09:00:00 -0400 Planting Hope had a registration for the RIGHTRICE trademark, but that registration was canceled in January 2024 by the U.S. Patent & Trademark Office (“USPTO”) in a default judgment proceeding after Planting Hope failed to respond to a petition for cancellation. Planting Hope filed a motion to set aside the default judgment, but kept using the registered trademark symbol while that proceeding was pending.

Riviana Foods objected to Planting Hope’s continued use of the symbol and filed a challenge in an unusual venue – the National Advertising Division (“NAD”). Although NAD focuses on advertising disputes, Riviana argued that Planting Hope’s use of the registered trademark symbol conveys the misleading advertising message that the RIGHTRICE trademark is registered with the USPTO.

This is far from a typical advertising case, and it’s not clear whether Planting Hope disputed NAD’s jurisdiction over the matter, but in March 2024, NAD issued a decision in which it recommended that the company stop using the registered trademark symbol in ads unless there is a final determination reinstating the RIGHTRICE trademark on the federal register. Planting Hope agreed to comply.

In May 2024, Riviana initiated a compliance proceeding questioning whether Planting Hope had sufficiently complied. Planting Hope explained that it had made changes to digital materials, but not physical materials, and that its motion to set aside the default judgment had been fully briefed and was awaiting a decision from the Trademark Trial and Appeal Board (“TTAB”). A successful motion would moot NAD’s decision.

NAD determined that just because Planting Hope was waiting for the TTAB decision, that didn’t mean it could wait to comply with NAD’s decision. NAD asked the company to take down images on its social media pages that included the registered trademark symbol. NAD didn’t ask Planting Hope to remove existing inventory with that symbol from stores, but cautioned the company not to produce new inventory with that symbol at this time.

Although NAD has previously determined that trademarks can convey advertising claims, this is the first time NAD has explicitly determined that an advertiser’s use of a trademark symbol can itself constitute a claim. NAD isn’t going to turn into a venue for broader trademark disputes, but if you find yourself in this narrow fact pattern, NAD may present a good venue for a challenge.

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“Junk Fee” Legislative Roundup https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/junk-fee-legislative-roundup https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/junk-fee-legislative-roundup Thu, 13 Jun 2024 15:31:00 -0400 For the past several years, state AGs have been “checked-in” when it comes to hidden hotel and resort fees. (Revisit our round-up of AG actions against those fees here). To date, these enforcers have largely relied on their standard unfair and deceptive trade practice authority under state consumer protection laws to combat practices like so-called drip-pricing or “hidden” fees.

But now, some states may soon have new tools to combat potential unfair and deceptive practices throughout a variety of industries. With the legislative season coming to a close, we have your rundown of the spread of “hidden fees” regulation including California and beyond. So, if a vacation from hidden resort fees is all you ever wanted – and a trip to see Carhenge or the Alamo (attractions in states where attorneys general have been active in enforcement) has already been checked off your bucket list – here are your ideal places to get away:

California: The Golden State’s newly minted Consumers Legal Remedies Act (SB 478) amendment will take effect on July 1, 2024, specifically making it unlawful for companies across virtually all industries to advertise or display a price without including all mandatory fees and charges, save taxes and fees imposed by the government (though the bill states that “drip pricing” is already prohibited). Click here and here for more details. California is such a lovely place, and if you are traveling on a dark desert highway looking for somewhere to rest your head, you should be aware the California Resort Fee Bill (AB 537) contains similar measures even more specific to the short-term lodging industry (effective July 1, 2024).

When all of this raises your appetite, you can dig into the legal back-and-forth between lawmakers and California’s food and beverage industry. In response to questions about how SB 478 would apply to bars and restaurants, lawmakers recently introduced an urgency measure (SB 1542) that would make clear that restaurants may still display mandatory gratuities, services charges, and other fees separately so long as they are clearly displayed on the menu and don’t come as a post-dessert surprise. Interestingly, the legislature specifically noted that this is intended as a clarification, not a change in existing law. As of today, this hasn’t passed yet, but we will be sure to provide updates.

Massachusetts: If the Cape is more your style, you may want to pay attention to Massachusetts AG Andrea Campbell’s proposal of a new slate of regulations that would require businesses to “clearly disclose” the total price of goods and services. Like in California, this would apply across industries. If enacted, non-compliance would constitute an unfair and deceptive trade practice. Read our full coverage here.

Minnesota: If you have the land of 10,000 lakes in mind, the state recently passed HF3438 requiring that an advertised or displayed price include all mandatory fees and surcharges (not including taxes), including additional clarity on “mandatory fees” compared to California’s statute. The bill provides exemptions or specifications for several industries, including specifically requiring that hotels (among other food or beverage establishments) must clearly and conspicuously disclose the percentage of any automatic or mandatory gratuities that consumers will be charged. The law will take effect January 1, 2025.

The Near Hits: As state lawmakers leave for their own summer vacations, some notable legislation got left on the drawing board. For instance, in the Land of Lincoln, the state’s proposed Junk Fee Ban Act gained momentum when it easily passed the Illinois House in a 71-35 vote but then never made it to the Senate floor. We saw similar attempts in Connecticut and New York. While these bills didn’t cross the finish line this year, we expect many states will take on this issue in the next legislative season.

Against this backdrop of state activity, the FTC is in the midst of rulemaking process that would ban hidden fees and further regulate the types of fees companies can charge. Revisit our coverage on that here and here. Also in Washington, the House of Representatives just passed the No Hidden Fees Act. If made law, the Act would require hotels and other short-term rentals to clearly display mandatory fees.

Clearly, multiple levels of government are “checking out” hidden fees. Even President Biden denounced “surprise” fees in his 2023 State of the Union Address.

Of Importance…

  • Updates to regulation are occurring but general state consumer laws still apply. While some states may be setting specific standards in this area, remember state consumer laws, which outlaw deceptive acts and practices (and in many states, unfair acts and practices), still apply. Therefore, just because a state doesn’t specifically spell-out fees requirements in its statutes or regulations, it does not mean fees disclosures comply with states’ interpretations of the law. (For example, the AG’s office in Washington DC issued guidance on the types of restaurant fees that may violate existing law.)
  • Some fees face greater scrutiny than others. AGs have sought out so-called “bogus” fees they feel offer consumers little value. Companies should be mindful of what the fees actually deliver for consumers and convey the value accurately and clearly.
  • Messaging and disclosures are critical. The crux of the states’ take on drip pricing is a failure to disclose certain fees in a timely manner (if at all), and AGs have taken issue with tactics that do not clearly describe when a fee is mandatory or not.

We expect to see more on “junk fees” in the weeks and months ahead. Subscribe to our monthly newsletter AG Chronicles and Ad Law Access blog to stay up-to-date.

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Lessons on Sponsorship Agreements from an Unusual Place https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/lessons-on-sponsorship-agreements-from-an-unusual-place https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/lessons-on-sponsorship-agreements-from-an-unusual-place Wed, 12 Jun 2024 10:30:00 -0400 Some have called Joey Chestnut an “American hero” for his historic achievements. By “some,” I mean the Major League Eating organization. And by “historic achievements,” I mean eating 76 hot dogs and buns in ten minutes in 2021. Despite bestowing an honorific on Chestnut that is usually reserved for war veterans (and maybe lawyers recognized by Chambers), MLE has decided to bar Chestnut from competing in Nathan’s Famous Hot Dog Eating Contest this Fourth of July.

MLE’s beef with Chestnut stems from Chestnut’s reported sponsorship deal with Impossible Foods, a company that makes plant-based hot dogs. An MLE spokesperson said that Chestnut’s deal would be like Michael Jordan telling Nike that he was going to represent Adidas, too. Impossible Foods responded by saying they support Chestnut “in any contest he chooses” and that “meat eaters shouldn’t have to be exclusive to just one wiener.”

Should a meat eater be exclusive to just one wiener? If you’re just an amateur eater, you can probably eat whatever hot dog you want. But if you’re a professional eater, the analysis may change. MLE claims they have worked with Chestnut for years “under the same basic hot dog exclusivity provisions.” Chestnut, however, said he doesn’t have a contract with MLE or Nathan’s, and “they are looking to change the rules from past years as it related to other partners I can work with.”

Although we work on sponsorship agreements across a broad range of industries and events, we’ve not worked in the man-eat-dog world of competitive eating, so we don’t know what’s standard here. In most sponsorship agreements, though, it’s common to see an exclusivity clause that prevents a person from endorsing competing products (and how that’s defined can be highly-negotiated). In some cases, these agreements may also prevent a person from using a competing product in public.

If this post caught your attention because you’re looking to achieve fame for your company by partnering with a celebrity, you should probably work with a legal professional to help make sure you have the exclusivity rights you need for a successful campaign. But if this post caught your attention because you’re looking to achieve personal fame by eating massive quantities of food in a short amount of time, you should probably work with a medical professional to help make sure that’s really a good idea.

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Join Us for an Upcoming Webinar: A Conversation with the Kelley Drye State Attorneys General Team https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/join-us-for-an-upcoming-webinar-a-conversation-with-the-kelley-drye-state-attorneys-general-team https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/join-us-for-an-upcoming-webinar-a-conversation-with-the-kelley-drye-state-attorneys-general-team Thu, 06 Jun 2024 09:00:00 -0400 Join Kelley Drye’s State Attorneys General Ad Law team on Tuesday, June 25, 2024, at 2:00 p.m. ET for our upcoming webinar led by Chair Paul Singer, Special Counsel Abby Stempson, and Senior Associate Beth Chun.

This month we will have a roundtable discussion on investigations and enforcement actions led by state attorneys general (AGs) and the broad authority the states have to perform pre-litigation discovery through investigative subpoenas, often called ​civil investigative demands or CIDs. We will break down the investigation process and discuss:

  • Common issues that trigger a state – or multi-state – investigation
  • What to expect when under investigation and how to respond
  • Background and caselaw on state AG CID authority
  • Other pre-suit investigative tools available to state AGs
  • Strategies for avoiding a state AG inquiry

Register Here.

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NARB Disagrees with NAD on Package Disclosures https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/narb-disagrees-with-nad-on-package-disclosures https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/narb-disagrees-with-nad-on-package-disclosures Wed, 05 Jun 2024 11:00:00 -0400 Glad advertises that its ForceFlex MaxStrength bags are ​“25% more durable.” More durable than what? If you follow an asterisk, you’ll learn that they are 25% more durable than Glad’s own 13-gallon ForceFlex bags. A competitor – presumably worried that consumers would think that Glad was making a comparison to its bags – brought a challenge before the NAD, questioning whether the basis of comparison was sufficiently clear. NAD didn’t think that was clear, either on the website or on packages. (See our summary here.) Glad appealed the decision with respect to the packages.

The NARB panel majority came to a different conclusion from NAD on the packages. Two of the three panelists found that, in the context of the three samples they were provided, Glad’s “25% more durable” claim is not misleading. One panelist thought because an asterisk after the claim linked to a disclosure on the same panel, the disclosure was sufficiently clear. Another panelist thought the basis of the claim was clear, even without the disclosure. And the third panelist found the claim to be misleading because the disclosure wasn’t sufficiently clear.

This close decision underscores how tricky it can be to get disclosures on packages right, but there are a few lessons we can glean from it. First, it’s clear that NAD wants disclosures to appear on the same panel as the claims they qualify. (Some courts are more flexible.) Second, NAD wants those disclosures to appear in close proximity to the claims. This decision, though, suggests that advertisers may have some flexibility on that point as long as the disclosures are linked to the claim with an asterisk and are otherwise clear.

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Resort to “Hidden Fees” and You May End Up with a Heartbreak Hotel https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/resort-to-hidden-fees-and-you-may-end-up-with-a-heartbreak-hotel https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/resort-to-hidden-fees-and-you-may-end-up-with-a-heartbreak-hotel Tue, 04 Jun 2024 10:30:00 -0400 Consumer protection enforcers may be on the lookout for misleading hotel and resort rates and fees this summer travel season. This includes state attorneys general (AGs), who have announced multiple lawsuits and settlements regarding “hidden resort fees” in recent years.

While AGs have generally used state consumer protection laws in these enforcement actions, which are inherently broad in scope, there is also an increased legislative focus on hidden fees. For instance, California has passed a first-in-the nation law effective July 1, 2024, specifically requiring disclosures of all mandatory fees within a total price, including in the lodging industry. (The California AG’s Office has released FAQs related to the law.) Stay tuned for more on hidden fee legislation in an upcoming post.

What major actions have AGs taken to date?

The FTC first sounded the alarm in 2012 with a warning letter accusing hotels of unlawful “drip pricing” by not including resort fees in advertised daily room rates. Then, in 2016, a coalition of AGs launched a multistate investigation into whether disclosures of hotel fees violated state consumer protection laws. In 2019, Nebraska sued Hilton and Washington DC sued Marriott, beginning the resort fee enforcement actions by the states. Since that time, multiple lawsuits and settlements have been filed regarding hidden resort fees.

For instance, Choice Hotels International has settlements with Colorado, Nebraska, Oregon, Texas, and Pennsylvania. Also regarding Choice Hotels, Maryland successfully sued to enforce a subpoena served on the company and recently, the state filed a petition for constructive civil contempt for alleged failure to comply with the court order; the matter is ongoing. Another major hotel company, Omni Hotels, has settlements with Colorado, Nebraska, Pennsylvania and Texas.

Meanwhile, litigation against Marriott International continues in Washington DC, while Colorado, Nebraska, Pennsylvania, and Texas have settled with the chain. Regarding Hilton, Texas sued with litigation ongoing, while Nebraska settled its suit. In separate lawsuits, Texas also sued Hyatt Hotels Corporation and Booking Holdings Inc., which includes online travel companies such as Booking.com, Priceline, Agoda, Rentalcars.com, KAYAK, and Opentable, with litigation ongoing in each matter.

AGs are watching for so-called hidden fees, and AG staff often have first-hand knowledge as they stay in hotels just like other consumers. After Pennsylvania settled with Marriott International, the hotel chain added a new sustainability fee at some of its locations. The AG claimed the hotel had failed to comply with their agreement, which led to a court order and new settlement requiring payment of $225,000 for the alleged previous compliance shortcomings.

What acts did the States find problematic?

In general, the AGs alleged that hotels advertised low base rates to attract consumers away from competitors. Then the hotels later disclosed resort fees, amenity fees, and destination fees when travelers had already begun the booking process. These could range from $9 to $95 per room, per day. States argued failing to disclose all fees up front made it difficult for consumers to compare prices and make informed choices as they booked their stays.

AGs also questioned the purpose of some fees, alleging that hotels made confusing or contradictory claims about what fees actually covered. This included amenities fees for generally complimentary services (like internet access, local and toll-free calls, and access to a fitness center) or resort fees charged by hotels that may not provide resort-like services. States also questioned the practice of including these fees in a general “Taxes and Fees” section, which they alleged could mislead consumers into believing the fees were imposed by the government, not the hotel.

What do these settlement agreements require?

The AG settlements followed common themes requiring:

  • The total price is afforded “most prominent display.” This means that all mandatory fees are clearly and conspicuously disclosed and that full price, including those add-ons, gets premium billing on booking websites.
  • When a consumer sorts by price (e.g. lowest to highest), the “sorting” price includes all mandatory fees. This prohibits hotels from suggesting that a room is less expensive than others if that is not actually the case at check-out.
  • Distinguish taxes from fees. The agreements require hotels draw a clear line separating their own fees from government (or quasi government) tax charges.
  • The goods and services included in an “amenity” fee are clearly disclosed, before booking.

Businesses can look to these requirements to gain insight on how broadly states may interpret their current consumer protection laws as well as their expectations of businesses in industries beyond lodging. For our next installment on new legislation in this area, be sure to subscribe to the AdLaw Access blog.

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NAD Considers the Meaning of “Ultimate” Claims https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-considers-the-meaning-of-ultimate-claims https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-considers-the-meaning-of-ultimate-claims Mon, 03 Jun 2024 09:00:00 -0400 Reckitt Benckiser advertises that its Finish Powerball Ultimate Dishwasher Tablets provide the “ultimate clean,” even in the “toughest conditions,” and even when you “skip the rinse.” In my house, the pre-rinse cycle runs flawlessly on dual-canine technology, but if you don’t have that technology, I can see how these claims may catch your attention. They also caught Procter & Gamble’s attention, and the company filed an NAD challenge focused on the “ultimate clean” claim.

One of the key issues in the case is exactly what message the “ultimate clean” claim conveys to consumers. NAD reviewed a series of ads for the tablets and concluded that the claim could convey one of three different messages, depending on the context in which the claim appeared. It’s instructive to walk through some examples to see how NAD came to its conclusions and what those conclusions meant for the company’s substantiation requirements.

  • Product Line Superiority Claims: One web page ranked different Finish products as “Good,” “Better,” “Best,” and “Ultimate.” NAD determined that “in the context of this explicit hierarchy, the ‘Ultimate Clean’ reasonably conveys the message that Finish Ultimate is the superior product among the Finish line.” Similarly, a statement inviting consumers to try “our best clean & shine” conveyed the message that Finish Ultimate provides the best clean and shine among the Finish products.
  • Market Superiority Claims: In other places, the “Ultimate Clean” claim appeared in conjunction with language describing Finish Ultimate as “the only tab” with CycleSync technology and claims that it provides “revolutionary performance.” NAD determined these statements position Finish Ultimate “as having performance characteristics that other detergents do not have and, thus, reasonably conveys a comparative superiority message” across the market – not just across Finish products.
  • Monadic Performance Claims: Other places touted the benefits of CycleSync technology “without invoking a comparison.” For example, in these contexts, Reckitt didn’t mention that “it was the only detergent with that technology or that it provided revolutionary performance.” NAD determined that those claims “do not convey a message of comparative superiority. Rather, the description of the technology provides a monadic explanation for how Finish Ultimate achieves its performance in the toughest conditions.”

NAD noted that Reckitt’s substantiation requirements would differ depending on the context (and, therefore, meaning) of the claim. For example, for the “product line superiority” claims, Reckitt would just need to test against other products in the line. For the “market superiority” claims, Reckitt would need to test against all “significant competitors in the market” – a much higher burden. For the monadic claims, Reckitt may not need comparative tests at all.

This case is worth noting for anyone who wants to make an “ultimate” claim, but the lessons are broader than that. The same claim can convey a different message, depending on the context, and small differences in wording can translate into big differences in substantiation requirements. It’s important to scour through your claims to figure out what messages they convey as carefully as you scour your dishes to clean them (especially if you’re not lucky enough to have dual-canine pre-rinse technology).

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Budding Enforcement on Synthetic Cannabinoids https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/budding-enforcement-on-synthetic-cannabinoids https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/budding-enforcement-on-synthetic-cannabinoids Fri, 31 May 2024 10:00:00 -0400 Cannabinoids have been a popular topic of conversation for regulators as the cannabis landscape continues to evolve. Since the days of the tobacco Master Settlement Agreement and related investigations, Attorneys General (AGs) have long focused on protecting minors from health effects of both legal and illegal drugs (see, e.g., here and here). AGs are continuing to use their consumer protection powers in unique ways to protect against alleged misrepresentations relating to THC containing products.

Connecticut:

In March, Connecticut Attorney General William Tong announced a PSA on concerns related to deceptive THC products and protecting children. Last year, AG Tong, along with Stamford Police, confiscated thousands of illegal Delta-8 THC, Delta-8 THCO, Delta-9 THCO, and other high THC cannabis products found for sale at Stamford vape shops. Some of the products were allegedly packed with THC and put kids in danger, including products that resembled Oreos, Cheetos, and Sour Patch Kids. In addition, AG Tong recently announced a settlement with a company that operated events – that were accessible to individuals under the age of 21 – involving allegedly illegal marketing and sale of cannabis.

Missouri:

Missouri Attorney General Andrew Bailey issued civil investigative demands (CIDs) in April 2024 to multiple businesses that sell Delta-8 and Delta-9 goods after reports of alleged violations of the Missouri Merchandising Practices Act. AG Bailey stated that Missourians have a right to know if they will be subject to potentially dangerous side effects and highlighted the danger of marketing potentially harmful products directly to children. AG Bailey issued CIDs to both retailers selling Delta-8 and Delta-9 products, and manufacturers and distributors selling illicit vapes and e-cigarettes, showing that even those that don’t directly engage with consumers can still be liable for committing unfair and deceptive acts and practices. Per the CIDs, General Bailey believes businesses are engaging in illegal means to market and sell the products to Missourians, including potential misrepresentation or omission of material facts. The CIDs demand information such as measures taken to ensure proper labeling of products, measures taken to ensure quality and safety of products, and whether sales comply with age restrictions.

Nebraska:

Also in April, Nebraska Attorney General Mike Hilgers filed a lawsuit against Midwest Smoke Shop, which operates retail outlets in various cities in Nebraska. The lawsuit aims to address the repeated sale of allegedly mislabeled and contaminated THC products to children, including Delta-8 THC products. The state alleged Midwest Smoke Shop violated the Consumer Protection Act, Uniform Deceptive Trade Practices Act, and Nebraska Pure Food Act. Specifically, AG Hilgers allegations include that selling THC products at retail “without consideration for age restriction or youth buyers” is an unfair practice, and selling THC products similar to food products is a deceptive practice under the Consumer Protection Act. This lawsuit is the latest in a string of lawsuits filed against THC shops – in October 2023, AG Hilgers sued multiple retailers across the state.

Other Recent Enforcement:

Last year, Florida Commissioner Wilton Simpson announced Florida’s largest ever hemp inspection sweep, “Operation Kandy Krush,” which inspected almost 500 food establishments in various Florida counties and uncovered nearly 70,000 packages of hemp extract products, including high-potency THC products, marketed towards children. The Florida legislature recently added age requirements for the purchase of hemp products intended for human consumption and created protections for Florida minors by prohibiting marketing that targets children. This operation showed Florida’s intent to regulate hemp products and keep them out of the hands of minors.

These are just a few examples of recent enforcement actions against manufacturers and sellers of THC products to protect consumers, including children. As we often blog, AGs have long prioritized protecting the vulnerable, including minors, and are willing to target all levels of the supply chain for alleged offenses. We are also seeing AGs and legislatures working to protect youth through age verification of products and services that may harm children, such as THC, pornography, and social media. We expect more activity on this front as AGs and others work to protect consumers.

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CARU Reviews Disclosures in Sponsored Content Directed to Kids https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/caru-reviews-disclosures-in-sponsored-content-directed-to-kids https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/caru-reviews-disclosures-in-sponsored-content-directed-to-kids Thu, 30 May 2024 10:00:00 -0400 The Children’s Advertising Review Unit (or “CARU”) recently launched an investigation into the “Vlad and Niki” YouTube channel owned by CMG. The channel is described as a “global preschool phenomenon and highest rated kids channel on YouTube” that stars “the imaginative personalities and antics” of two kids “who are showcased in non-stop fun and crazy adventures.” Change a few nouns and that sentence could describe Ad Law Access. One difference, though, is that we don’t feature sponsored content.

CARU reviewed several types of videos on the “Vlad and Niki” YouTube channel and had concerns over whether the videos adequately disclosed the presence of ads or sponsored content. If you only advertise to adults feel free to skip this post and peruse some of our adult-oriented content. (You know what I mean.) But if you advertise to kids under 13, this decision will be relevant to you. Here are some of the highlights.

Sponsored Videos

Some of the videos on the channel are produced in connection with brand partnership agreements for which CMG earns compensation. These videos clearly disclosed – both in text and in audio – that the videos were “sponsored by” a brand or that they included “paid promotion.” CARU had some concerns with the disclosures, though. First, because the videos averaged 5:30 in length, CARU determined that the disclosures should be repeated throughout the video. While CMG did that in most cases, in a few videos, CARU thought additional repetition was necessary.

Second, CARU determined that although the “sponsored by” and “paid promotion” disclosures may work for adults, they may not work for kids. Instead, CARU recommended that CMG use language that kids in the target audience are more likely to understand. For example: “This is an advertisement for XXX;” “We were paid by XXX to make this video;” or “Thank you, XXX, for paying me to make this video.” These disclosures should appear in both text and audio at beginning and end of each video and, for longer videos, after each ad break.

Product Promotion Videos

CARU reviewed various videos promoting Vlad-and-Niki-branded products that are produced under licensing agreements under which CMG shares in the revenue generated by sales of the products. CMG argued that because each product is Vlad-and-Niki branded, the relationship between CMG and the toys is self-evident and that a disclosure isn’t necessary. CARU disagreed. Although it’s possible that argument may work in content directed to adults, CARU noted that advertisers have to be “extra-protective” when advertising to kids.

Although some videos included #ad in the description or a statement that the video “features products that Vlad and Niki helped to create,” CARU thought these disclosures weren’t sufficient. Again, CARU recommended language that kids are more likely to understand. For example, CARU recommended that CMG add a clear and conspicuous disclosure – such as “This is an ad for our Vlad and Niki toy,” or “We are selling this Vlad and Niki toy” – when Vlad and Niki are shown playing with or holding up the toys with the Vlad and Niki logo prominently in focus.

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This decision is a reminder that advertisers always need to think about what their target audience is likely to take away from ads. Because kids under 13 may not have the same abilities to distinguish between ads and content as adults do, the CARU Self-Regulatory Guidelines for Children’s Advertising impose enhanced disclosure requirements. While many of these requirements would likely be seen as excessive when advertising to adults, CARU – and likely the FTC – will see them as necessary when advertising to kids.

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Biden Administration Weighs In On the Need For and Appropriate Use of Carbon Credits https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/biden-administration-weighs-in-on-the-need-for-and-appropriate-use-of-carbon-credits https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/biden-administration-weighs-in-on-the-need-for-and-appropriate-use-of-carbon-credits Wed, 29 May 2024 11:00:00 -0400 The Biden Administration published a joint policy statement and set of principles for participating in the voluntary carbon markets (“VCMs”) on Tuesday, which is available here.

The set of principles recognize the role that carbon credits have in promoting the country’s climate goals and unlocking economic potential; however, the principles acknowledge that “widespread confidence in the integrity of credited emissions reductions and removals is critical for VCMs to reach their potential.”

We highlight some of the key takeaways below.

  • The activities that generate the credits and the credits themselves should be certified to a robust standard that accounts for the following considerations:
    • The activity should be additional. The principles define additionality as an activity that would not have occurred in the absence of the incentives of the crediting mechanism and is not required by law or regulation. This definition accounts for “incentives” as well as legal requirements, so is broader than the FTC’s definition in the current Green Guides, which only accounts for legal requirements.
    • The credit should be unique in that it corresponds to only one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere and is not double-counted.
    • The claimed emissions reductions or removals are based on credible methodologies and leakage does not occur, which means the carbon dioxide is not just displaced outside the project or program boundary.
    • The activity design should be validated and the results should be verified by a qualified, accredited, independent third party.
    • The emissions removed or reduced should be permanent.
    • Baselines for emissions reductions and removals should be based on rigorous methodologies and avoid over-crediting.
  • Corporate buyers that use credits should use VCMs to complement measurable within-value-chain emissions reductions as part of their net zero strategies. This includes working with suppliers on efforts to pursue decarbonization activities.
  • The principles recommend that credit users disclose when credits are purchased, cancelled, or retired on an annual basis, a recommendation that the principles acknowledge may be more than what is required by applicable law.
  • The principles note that standards for public claims based on carbon credits are constantly evolving, but that standards-setting organizations should allow companies to count reductions and removals based on carbon credits toward their Scope 3 emissions where it would be unreasonable to expect a company to fully abate those emissions within a given timeframe.

Some of these principles are addressed in the FTC’s current Green Guides, such as core integrity considerations around additionality and double counting, but overall the principles are far more robust than the FTC’s guidance on this topic. We do not expect the FTC will issue guidance in the revised Green Guides that would be contradictory to these principles, so marketers should closely review the principles and ensure that they are adhering to them when making claims based on carbon credits.

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California AG Says Funeral Service Provider Made a Killing – At Consumers’ Expense https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/california-ag-says-funeral-service-provider-made-a-killing-at-consumers-expense https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/california-ag-says-funeral-service-provider-made-a-killing-at-consumers-expense Fri, 24 May 2024 10:30:00 -0400 “Everyone dies.” This was the first line in the California Attorney General’s 2021 complaint against the nation’s largest funeral service provider, Service Corporation International (“SCI”). Earlier this month, Attorney General Rob Bonta announced a proposed settlement with SCI, based in Texas and doing business as the Neptune Society and the Trident Society. California alleged that SCI violated the Unfair Competition Law and False Advertising Law by engaging in false advertising in its marketing and sale of pre-need cremation packages.

Pre-need cremation packages allow people to pre-pay for their cremation services while they are still alive. The lawsuit alleged that SCI deceptively marketed its products, including promoting benefits to veterans and telling consumers they had 30 days to cancel their plans, when California Business and Professions Code §7735 (“Short Act”) provides that funds must be kept in a trust and allows for a full refund at any time before services are provided. The lawsuit further alleged that SCI’s “Standard Plan,” which includes both cremation services and merchandise (a memento chest with a photo frame lid, an urn, a plaque, thank you cards, planning guide, and access to an online memorial), was marketed and sold as a single plan with a single price and priced to be cheaper than stand-alone cremation services. When customers went to sign, however, SCI allegedly presented them with a heavily marked up contract for merchandise and a deeply discounted contract for cremation services, placing only the discounted cremation services funds in a trust account. When a purchaser requested a refund down the line, SCI supposedly only refunded the portion it had allocated to cremation services, and withheld the money allocated to merchandise.

California described this as a “scheme to underfund the preneed trust,” and explained that back in 2009 Neptune resolved similar allegations with Colorado’s Division of Insurance, and thereafter started its business practices in California. The lawsuit alleged that omitting the information about the fund allocation and refund policy violates the False Advertising Law. California further alleged the design of the business itself violates the Unfair Competition Law through omitting required mandatory disclosures under California’s retail installment contract law (the Unruh Act), violating the Short Act, and also failing to make proper disclosures as required under CLRA for veterans benefits.

The proposed settlement includes full restitution to consumers who cancelled their Standard Plans during the applicable period and did not receive a full refund, injunctive relief, and $23 million in civil penalties.

Federal regulation also covers this space — the Funeral Rule, among other things, gives consumers the right to buy only the funeral arrangements they want and get price information on the telephone. Earlier this year, the FTC conducted an undercover sweep, placing calls to funeral providers all over the country and discovering that providers violated the Funeral Rule on a substantial number of these undercover calls. The most common violation was providers refusing to answer price questions over the phone.

Funeral providers should remember that many states have their own funeral laws (or even departments, like California), in addition to the FTC’s Funeral Rule. In addition, all businesses should keep in mind that state AGs have broad authority over a variety of unique or even unusual types of businesses and they aren’t shy about bringing enforcement actions when they feel consumers are at risk.

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Consumer Enforcement Overview: 2024 NAAG Consumer Protection Spring Conference https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/consumer-enforcement-overview-2024-naag-consumer-protection-spring-conference https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/consumer-enforcement-overview-2024-naag-consumer-protection-spring-conference Thu, 23 May 2024 09:00:00 -0400 Last week, State Attorneys General (AGs) and staff convened to discuss the hot topics in consumer protection in private and public sessions during the NAAG Consumer Protection Spring Conference. The Executive Director of NAAG, Brian Kane, started off the day with a theme that would echo throughout the panels – that businesses should be mindful that their industry may be defined by “the least of” the actors in the space. We provide some of the most relevant insights from the public sessions.

IS IT REAL OR IS IT NOT? A DIVE INTO DEEP FAKES, DARK PRACTICES, AND INDUSTRY’S RESPONSE

In yet another AI-related panel for the year, speakers focused on the potential consumer protection issues that could occur from deepfakes, and how the deepfake technology has grown rapidly even in the last few months. The panelists expressed that they are often concerned more with the distribution channels for AI, referred to as “gatekeepers” and platforms, than with the manufacturers themselves. They gave the example of a large technology platform’s efforts to curb AI-generated book publications by limiting uploads to 3 books per day – a solution the panelists found to be inadequate. But the speakers acknowledged that it is not always simple to determine the “right” limits. They also predicted more personalization in advertising through AI. Overall, they emphasized obtaining consent to the use of content and disclosure of the use of AI to address the problem.

AG staff in attendance raised questions such as how to educate consumers about the proper use of AI, whether there are any clear lines for what should not be allowed for AI, and why they need to regulate the industry when scammers won’t comply. As a response, the panelists reminded the audience that they need to regulate the “good guys” and then go after the “bad guys” along the way.

PANEL OF ATTORNEYS GENERAL

Attorneys General Ellen Rosenblum of Oregon, Kwame Raoul of Illinois, and Edward Manibusan of the Northern Mariana Islands participated in a panel discussing their experiences with consumer protection issues as AGs. AG Rosenblum explained that we are all consumers, and having a free and fair marketplace is critical to consumers and businesses. AG Raoul discussed that he was often surprised by the extent that consumer protection impacted other areas of the office and how it could also be leveraged, for instance, to curb criminal activity. AG Manibusan noted prices and labeling as being especially important for his constituents given their geographic location.

On the power of the multistate consumer protection investigation, all three AGs agreed banding together for collective efforts is useful and involves compromise, with AG Raoul comparing the process to learning to play well together in a kindergarten sandbox. AG Raoul also emphasized the importance of injunctive relief and discouraged “unreasonable holdouts” from the group dynamic. AG Rosenblum noted that ideally multistate investigations could move faster, but pointed to some of the reasons they may not, including the complexity of the cases and the amount of documents to review. AG Rosenblum also mentioned that AGs are usually willing to take meetings, but it is important that they still communicate with staff to avoid “going behind their back.”

SOCIAL MEDIA LEGISLATION- A DISCUSSION OF EXISTING, PENDING, AND FUTURE LEGISLATION

Representatives from the AG offices of Minnesota, Arkansas, Utah, and New York presented on some of the latest social media laws that are pending or passed, and how they are working to overcome challenges. Many of these laws would require companies provide certain default privacy settings and parental controls for teens. The industry representative on the panel described the challenges in complying with these types of laws because of the variety of content on platforms, and free speech and access to information concerns. Furthermore, asking for certain age verification requires more collection of personal information, which could raise concerns both for privacy advocates and consumers wary of handing over their data.

When the panelists were asked why social media legislation is needed in addition to their existing UDAP laws, the states explained that UDAP laws work on a fact-specific level but where there is an industrywide problem, they need to level the playing field. For example, one bad company can ruin things for everyone. Additionally, panelists said these statutes help provide additional information to parents and encourage parental involvement.

OTHER PANELS

On the FTC Rulemaking session, Tom Dahdouh of the FTC described the agency’s recent rulemaking efforts. He described the importance of having a great relationship with State AG offices as “vital” to the agency as a result of the AMG decision. The FTC cannot get redress in many instances, but states can. Dahdouh pointed to the recent FTC Collaboration Report and the 33 joint actions with states and local DAs since 2020. He also described the need for rulemakings as a reaction to AMG.

In the State Privacy session, representatives from California, Colorado, and Indiana described the similarities and differences between their comprehensive privacy laws and the authority and makeups of their enforcement teams.

CONCLUSION

NAAG hosts two consumer protection conferences a year. These are good events to learn about issues important to attorneys general across the country, which can be helpful for the business community. Moreover, these events are great opportunities to hear from and interact with consumer protection staff, who are often driving the enforcement initiatives at AG offices. It is important to connect with AGs and staff alike to stay on top of office priorities.

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Join Kelley Drye for an Upcoming Webinar: A Conversation with First Assistant Attorney General Brent Webster https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/join-kelley-drye-for-an-upcoming-webinar-a-conversation-with-first-assistant-attorney-general-brent-webster https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/join-kelley-drye-for-an-upcoming-webinar-a-conversation-with-first-assistant-attorney-general-brent-webster Wed, 22 May 2024 09:00:00 -0400 Join Kelley Drye’s State Attorneys General team in our upcoming webinar led by Co-Chair, Paul Singer, Special Counsel Abby Stempson, and Senior Associate Beth Chun on Thursday, May 23, 2024 from 2:00 pm to 3:00 pm (EDT).

This month will feature First Assistant Attorney General Brent Webster, of the state of Texas, as our esteemed guest. First Assistant Webster was appointed by Attorney General Ken Paxton in 2020 and previously served as a criminal prosecutor, civil litigator, and criminal defense attorney. During our webinar, First Assistant Webster will share several key consumer protection updates and issues facing the state of Texas. Listen in as we discuss:

  • Texas investigative and enforcement tools
  • Big tech enforcement in areas such as biometrics, digital advertising, and general deceptive practices
  • Enforcement in the area of ​“junk fees,” the most affected industries, and why it matters
  • A breakdown of recent cases including case types, theories, and settlements
  • Investigations and the path to litigation
  • Multistate collaboration

Register Here.

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NY Case Addresses Publicity Rights for People in the Background of Social Media Photos https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/ny-case-addresses-publicity-rights-for-people-in-the-background-of-social-media-photos https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/ny-case-addresses-publicity-rights-for-people-in-the-background-of-social-media-photos Tue, 21 May 2024 09:00:00 -0400 This month, we posted about a lawsuit that an NBA Hall of Fame player filed against a company that allegedly used his image to sell products without his permission. Regardless of how that case turns out, it’s pretty clear you shouldn’t use a celebrity’s image in an ad without written consent. But what about cases that are less clear, such as a person in the background of a photo that your company posts on its social media account? A recent NY appeals court decision touches on this issue.

In 2014, a woman attended an event at a DASH, a boutique store founded by Kim, Kourtney, and Khloé Kardashian. The assistant to a stylist for Kim Kardashian published a photo from the event on her Instagram account. Although the photo allegedly focused on the assistant and stylist, the plaintiff appeared in the background. The plaintiff hadn’t granted permission for the use of her image and filed a lawsuit alleging, among other things, that the use violated her rights under New York’s Privacy Law.

Like similar laws in other states, New York’s Privacy Law generally prohibits “[a] person, firm or corporation” from using “for advertising purposes…the name, portrait, or picture of any living person without having first obtained the written consent of such person.” The law further states that “a person whose name, portrait, picture, or voice is used within this state for advertising purposes…may…recover damages for any injuries sustained by reason of such use.”

Citing pervious cases, the court determined that “the statute is to be narrowly construed” and “strictly limited to nonconsensual commercial appropriation” of a person’s name, portrait, picture or voice. The court determined that an image “is used for advertising purposes if it appears in a publication which, taken in its entirety, was distributed for use in, or as part of, an advertisement or solicitation for patronage of a particular product or service.”

Without much explanation, the court determined that the plaintiff failed to allege that the defendants had “used the plaintiff's name, portrait, picture, or voice within this state for advertising purposes.” Reading between the lines, it’s possible that the court determined that a casual social media post wasn’t the type of ad envisioned by the law or that simply appearing in the background of a photo wasn’t enough to constitute a prohibited use.

If you’re taking photos of customers at one of your company’s events with the intent to post those photos on social media, getting signed releases – or at least posting a sign letting people know that they are going to be photographed – may be good ideas. But this case suggests that the risks of posting an image from an event on social media when you don’t have permission from people in the background may not pose a significant risk, at least in New York.

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Arizona Turns Up the Heat in Amazon’s Legal Battles https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/arizona-turns-up-the-heat-in-amazons-legal-battles https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/arizona-turns-up-the-heat-in-amazons-legal-battles Mon, 20 May 2024 10:00:00 -0400 General Kris Mayes recently filed two new lawsuits against Amazon.

The first accuses Amazon of using “dark patterns,” or digital design tricks, that make it difficult for consumers to cancel their Prime subscriptions. According to the lawsuit, Amazon used misleading graphics and wording and emphasized the benefits of Prime before allowing consumers to cancel their subscriptions to the service, among other hurdles designed to exploit cognitive biases and influence a user’s choices.

While the case was filed in state court under the Arizona Consumer Fraud Act, it is similar to the FTC’s existing case against Amazon raising similar cancellation concerns. This new focus on Amazon is a reminder of states interest in targeting companies over so-called dark patterns and demonstrates again that states have separate authority to pursue concurrent actions even once the FTC pursues enforcement of the same issue.

The second lawsuit alleges antitrust violations over the “Buy Box” algorithm Amazon uses to determine which products get priority placement on the platform and the terms it imposes on its third-party sellers. Arizona also claims that Amazon has unlawfully maintained market dominance through illegal restrictions on third-party sellers. Seventeen state AGs and the FTC filed suit in September 2023 alleging similar conduct.

Sum it Up: These latest actions by Arizona add to the government actions against Amazon, which include:

  • The Federal Prime Case: In June of 2023, the FTC filed a lawsuit alleging that Amazon used dark patterns that tricked consumers into enrolling in Prime subscriptions that would automatically renew and intentionally made it difficult for consumers to cancel those subscriptions. The case is ongoing.
  • The Federal Antitrust Case: In September of 2023, the FTC and 17 state AGs sued Amazon alleging that it uses its monopoly power to inflate prices, degrade quality, and stifle innovation. That case is currently set for trial in October of 2026.
  • The District of Columbia’s Antitrust Case: In May of 2021, then Attorney General Karl Racine filed the inaugural suit against Amazon alleging its “most favored nation” agreements with third-party sellers violate the District of Columbia’s Antitrust Act. Amazon won dismissal in 2022 but the AG’s office has sought to revive it on appeal. A three-judge panel in the D.C. Court of Appeals heard arguments on whether the case was wrongfully dismissed in December. That appeal is ongoing.
  • The California Antitrust Case: In September of 2022, Attorney General Rob Bonta announced a lawsuit alleging that Amazon’s third-party seller agreements violated the California’s Unfair Competition Law and Cartwright Act. The case survived a motion to dismiss and litigation is ongoing.

These interrelated but separate actions demonstrate that state consumer protection actions don’t exist in a vacuum – antitrust cases sometimes are brought alongside more traditional consumer protection cases, and sometimes with or parallel to the FTC. And with Big Tech under attack under both umbrellas, we’ll keep watching as these cases evolve. To stay up-to-date, subscribe to Kelley Drye’s AdLaw Access here.

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NAD Reviews Green Claims for Trash Bags https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-reviews-green-claims-for-trash-bags https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nad-reviews-green-claims-for-trash-bags Sun, 19 May 2024 10:00:00 -0400 HoldOn makes trash bags that are certified by the Biodegradable Products Institute (“BPI”) and TÜV Austria as compostable in commercial and home composting settings. The company advertises that the bags are great for trash, composting, recycling and that they are more “sustainable” than competing bags that are resistant to biodegradation. A competitor filed an NAD challenge arguing that HoldOn overstates the benefits of its bags. The decision covers a lot of ground, but here are some highlights.

Although HoldOn was able to rely on its BPI and TÜV certifications to substantiate a claim that the bags break down “in weeks” in home and industrial compost settings, some of the company’s claims didn’t specifically mention composting. Both the challenger and NAD worried that consumers might interpret these claims to suggest that the bag will also break down quickly in other environments, such as landfills, which is not the case.

HoldOn volunteered to modify some of these claims so that they specifically referred to compost environments, but FAQs on the website told users that the HoldOn bags can be thrown out like any other trash bag and are designed to reduce plastic waste, no matter how you dispose of them. NAD reminded HoldOn that the evidence only supports this claim when the bags are composted, so NAD told HoldOn to either discontinue the FAQ claims or qualify them. If you think you can hide claims in an FAQ section, think again. HoldOn went even further in some ads by also touting how the bag “breaks down cleanly without producing microplastics or toxic residue.” NAD said the evidence did not support this.

The challenger argued that HoldOn’s claims that the bags are “a sustainable replacement for traditional plastic bags” and similar phrases could convey broad messages of environmental benefits that are not limited to the bag’s disposal in a composting environment. NAD agreed, noting that HoldOn had not produced evidence that its products provided environmentally preferable benefits outside of that disposal method. Accordingly, NAD recommended that the advertiser either stop making the claim or better qualify it.

The challenger also complained that some of HoldOn’s ads expressly stated or otherwise suggested its bags are not made from plastic. For example, an Instagram post included the following caption: “Say NO to plastic trash bags and YES to HoldOn Bags!” NAD agreed that this conveyed the message the company’s bags are not plastic. Although the bags were made from biobased plastic (renewable biomass sources) and not conventional plastic (petroleum-based polymers), they are still plastic and so NAD recommended that the company stop making these claims.

If your company makes trash bags or claims about how your products break down in the environment, this decision is worth a closer read. For others, this case still serves as a good reminder green claims are being scrutinized closely by competitors (as well as regulators and plaintiffs’ attorneys). It’s particularly important to ensure that you narrowly qualify any claims you make about environmental benefits to ones that you can substantiate.

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Supreme Court Upholds CFPB Funding Mechanism as Constitutional, Quelling Uncertainty and Reinvigorating the CFPB’s Docket https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/supreme-court-upholds-cfpb-funding-mechanism-as-constitutional-quelling-uncertainty-and-reinvigorating-the-cfpbs-docket https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/supreme-court-upholds-cfpb-funding-mechanism-as-constitutional-quelling-uncertainty-and-reinvigorating-the-cfpbs-docket Thu, 16 May 2024 20:30:00 -0400 In a long-awaited decision with profound implications for the future of the agency, the Supreme Court held 7-2 today that the Consumer Financial Protection Bureau (CFPB) is constitutionally funded. CFPB officials can breathe a sigh of relief as a contrary decision would have called into question many longstanding enforcement, investigative, and regulatory efforts. With the Court’s decision today, more than a dozen pending CFPB cases that had been paused pending the decision will now move forward.

As a refresher for those who have not been following the case, several trade associations representing payday lenders and credit-access businesses filed a complaint challenging CFPB regulations relating to high-interest consumer loans. The associations raised a number of statutory and constitutional arguments, including that the CFPB “takes federal government money without an appropriations act” in violation of the Appropriations Clause. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the Bureau draws public funds from the Federal Reserve System in an amount not exceeding an inflation-adjusted cap.

As we previously discussed here, after a district court upheld the funding mechanism, a panel of the Fifth Circuit reversed and found it to be unconstitutional on the grounds that its funding structure ​“goes a significant step further than that enjoyed by other agencies” based on its insulation from regular congressional control and oversight.

Today’s decision reverses the Fifth Circuit ruling and holds that “an identified source and purpose are all that is required for a valid appropriation.” Tracing pre-founding history and British parliament’s inability to direct how the Crown’s revenues were spent, the Court concludes that the Appropriations Clause required Congress to “designate particular revenues for identified purposes, but beyond that limit, early legislative bodies exercised a wide range of discretion.” The Court rejected a number of related arguments by the associations, including that it was problematic that the Bureau itself decided its amount of annual funding up to a specified limit without a requirement to periodically reobtain Congressional authorization.

It is difficult to overstate the impact of the decision on the Bureau and its ambitious agenda. A contrary ruling would have called into question past, current, and future regulations and enforcement. Now, the Bureau and Director Rohit Chopra will be emboldened to move forward with haste in the remaining months of President Biden’s current term.

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CFPB Report and Hearing with DOT Highlight Risks with Rewards Programs https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/cfpb-report-and-hearing-with-dot-highlight-risks-with-rewards-programs https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/cfpb-report-and-hearing-with-dot-highlight-risks-with-rewards-programs Sun, 12 May 2024 08:30:00 -0400 Yesterday, the CFPB released a report on rewards programs that traces the rise of such programs and warns that it views certain practices as unfair, deceptive, or abusive acts and practices ripe for investigation and enforcement. While the report addresses credit card rewards programs specifically, there are important takeaways for co-branded partners and any company offering a loyalty or rewards program to mitigate risk of enforcement and litigation.

The report was released in conjunction with a hearing co-hosted with the Department of Transportation and featuring remarks and a moderated panel discussion with CFPB Director Rohit Chopra and Secretary of Transportation Pete Buttigieg, along with panelists from consumer groups, policy advocacy organizations, financial institutions, and airlines. Both Director Chopra and Secretary Buttigieg emphasized the importance of transparency in promoting and offering rewards programs and expressed concerns around barriers to competition.

The CFPB report details four categories of common consumer complaints and potential regulatory issues with rewards programs:

  • Vague or hidden conditions. The report describes complaints from consumers misled by advertising for rewards programs where important limitations were buried in dense terms or not otherwise adequately disclosed. The reports suggests that such practices may constitute deceptive “bait and switch” offers and notes that the Bureau has brought enforcement actions against companies for failure to clearly and conspicuously disclose material conditions in rewards programs upfront. The report notes that such complaints were particularly prevalent for bonus or introductory offers and so-called “churning” prohibitions intended to protect companies from consumers manipulating rewards programs by serially signing up for and canceling accounts.
  • Devaluing earned rewards or changing program benefits. According to the report, consumers regularly complained about issuers or partners devaluing rewards or otherwise eliminating certain benefits associated with membership or status tiers. In remarks at the hearing, Director Chopra noted that, while the Credit Card Responsibility and Disclosure Act of 2009 (CARD Act) prohibits credit card companies from unilaterally changing certain terms in credit card agreements, issuers and partners regularly change terms to rewards and loyalty programs because the CARD Act does not apply. Director Chopra suggested that such changes are problematic and may violate the law if they deprive consumers of promised benefits, particularly where they occur without notice.
  • Customer service issues and technical glitches. The report details complaints from consumers who were unable to redeem rewards due to technical glitches, customer service issues, or so-called “doom loops” where consumers are unable to reach the correct entity or department.
  • Revocation and expiration. Finally, the report notes complaints from consumers who report having their accounts closed and associated benefits revoked, or consumers who had their rewards expired or benefits withheld notwithstanding a current and active account.

While potentially frustrating for consumers, many practices identified in the report are not necessarily unlawful – at least depending on how they are effectuated. Companies can – and often must – preserve flexibility in how they offer benefits and related redemption terms. Similarly, expiring rewards or conditioning benefits on meeting certain requirements is not inherently unlawful: those limitations just need to be clearly and conspicuously disclosed. As for program changes that may devalue rewards or change advertised benefits, companies should have a considered and deliberate execution plan that includes consumer notice and a reasonable opportunity to use already accrued rewards.

In addition to potential enforcement by the CFPB for programs offered in connection with financial products or services, or DOT for airlines rewards programs, the FTC and state AGs also scrutinize rewards programs and related advertising. Plaintiffs’ attorneys are also active in this space, and have brought class actions under state UDAP laws that may result in significant monetary settlements (see for example AutoZone’s class action settlement in 2019 for $50 million).

Ultimately, while the Bureau’s report questions whether rewards programs are ultimately beneficial for most consumers, it also seems to acknowledge that the growing popularity of these programs reflects that they are here to stay. Companies offering such programs – or partnering with third parties to offer such programs – should take note of the renewed regulatory interest and evaluate their marketing and servicing practices to ensure that any risk is worth the reward.

Kelley Drye Advertising and Marketing Paralegal, James Firsick, assisted with this blog post.

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NBA Hall of Fame Player Sues Over Unauthorized Use of Image https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nba-hall-of-fame-player-sues-over-unauthorized-use-of-image https://www.kelleydrye.com/viewpoints/blogs/ad-law-access/nba-hall-of-fame-player-sues-over-unauthorized-use-of-image Fri, 10 May 2024 12:00:00 -0400 Dominique Wilkins is an NBA Hall of Fame basketball player known for his acrobatic slam dunks and, after retirement, for his commentary during televised Hawks games. Wilkins also suffers from diabetes and has been an advocate for the treatment of the disease and its symptoms. As part of his advocacy, Wilkins entered into an endorsement agreement with Genesis Performance Group to promote PeptideVite, a supplement that helps with the side effects of diabetes medication.

AmeriHealth Partners is a health insurance provider and sells PeptideVite. Earlier this year, the company allegedly started using a picture of Wilkins to promote its sales of PeptideVite. Although Wilkins had authorized Genesis to use that particular picture, he claims that AmeriHealth does not have authorization to use it. In March, he sent the company a letter asking them to stop using his name, image, and likeness.

When Wilkins didn’t get a “substantive response” to his letter, he filed a lawsuit against AmeriHealth. The lawsuit alleges that the company’s unauthorized use of his name, image, and likeness constitutes false endorsement and false advertising under the Lanham Act and that it is a violation of his common law right of publicity in Georgia. Wilkins seeks damages in an amount of no less than $250,000.

We only have one side of the story and it’s too early to tell how this one will turn out, but the lawsuit is a good reminder that companies need to ensure that they have permission before using a celebrity’s name, image, or likeness for commercial purposes. Failure to do that can have significant consequences. Some cases – like this one involving 50 Cent – settle quietly behind the scenes but others – like this one involving Michael Jordan – make headlines with multi-million dollar verdicts.

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