Advertising

June 2017

$30 Million Settlement In Deceptive Pricing Suit

Horosny v. Burlington Coat Factory
$30M settlement – Burlington allegedly used artificially inflated reference pricing to induce sales by misleading consumers as to an actual discount. Plaintiffs claimed the quoted ‘Compare to’ prices did not represent the price paid for substantial sales of comparable items at any other retailer, at any time or location. Plaintiffs further alleged Burlington failed to provide disclosures clarifying the basis for its Advertised Reference Prices (ARPs).

Highlights include:
• $29,824,500 non-reversionary settlement fund
• $7.50 merchandise certificate for each class member (~3.7M members), redeemable as $5 cash in-store or via mail
• $5,000 for each class representative (2)
• $1,137,000 for settlement administration
• $927,500 for class counsel (3% of settlement fund)
[C.D. CA; 2:15-cv-05005]
jbho: discount rates must be based on an actual price, supported by evidence of the price basis (how a company actually listed prices: MSRP, etc.), and you must disclose the basis for the pricing to consumers.

Interesting here is that recent cases I’ve seen seem to focus on store brand markups, and the fact that base pricing is deceptive since store brand merchandise is only sold at defendants’ locations. Here, the allegations seem to include any item sold, and that the MSRP/ARP quoted weren’t based on any available data.

 

$1.55 Million Settlement For Less Than Honest Natural Claims

In Re The Honest Company SLS Litigation
$1.55M preliminary settlement – The Honest Company allegedly marketed its Laundry Detergent, Dish Soap, and Multi-Surface Cleaner as being natural and free of harmful chemicals like Sodium Lauryl Sulfate (SLS). The Honest Company advertised on its products, its website, and on social media that its products were ‘Honestly Free of SLS‘ or ‘Honestly made without SLS,’ and instead contained Sodium Coco Sulfate (SCS), a coconut based cleanser that was a gentler alternative to harsh chemicals like SLS. However, plaintiffs claimed, the representation that SCS products were SLS free was misleading, as Sodium Coco Sulfate was 66% Sodium Lauryl Sulfate (according to studies cited in the complaint). The products allegedly contained SLS in concentrations of up to 14%.

Highlights include:
• $1,550,000 non-reversionary settlement fund
• at least $50 for each class member (eligible for more if have proof of purchase)
— class members may also opt for an Honest Company credit , valued at 1.5 times the recovery amount
• $1,000 for each class representative
• $387,500 for class counsel (25% of settlement fund)
[C.D. CA; 2:16-ml-02719]
jbho: another reason to be careful when using absolutes in advertising.

Additionally, a reason to make sure you know the products you’re advertising. I doubt the copywriters or marketing department would have known SCS contained SLS. But someone, somewhere in the chain dropped the ball. Maybe you should consider adding product ingredient claims to your QA checklists?

It appears The Honest Company has agreed to reformulate its products excluding SLS/SCS entirely.

 

Natural Cheese Suit Get Shredded

Morales v. Kraft
Defendant’s MSJ granted in part – Kraft allegedly marketed its ‘Natural Cheese’ as natural despite the fact it contained artificial color (neither healthy nor safe).

In decertifying the class, the court found the study produced by plaintiffs that determined consumers would pay $0.75 more for a ‘natural’ alternative cheese was insufficient to establish a basis for calculating restitution (based on perceived loss rather than actual money received by defendant in connection with the sale of the Product).

(The study) did not measure the market value of the Product either with the “natural cheese” label or without it. Rather, his analysis measured how much consumers value that label.”

Therefore, the class was decertified as to remedies.

The court ordered the parties to file briefs on recertifying the class, but for injunctive relief only. Triable issues of fact being:
(1) whether a reasonable consumer would interpret ‘natural cheese’ to mean no artificial coloring added
(2) whether that belief is material to a purchasing decision
(3) whether all artificial colors, regardless of source, are artificial ingredients
Plaintiff’s brief is due 16Jun2017, defendant’s response 23Jun2017.
[C.D. CA; 2:14-cv-04387]
jbho: interesting, the court declined to exclude the study that determined consumers would pay $0.75 more for a ‘natural’ alternative cheese. The court found many of Kraft’s challenges spoke to the weight, not the admissibility of the study. Thus, the reliability of the study was an “issue for the factfinder,” and denied Kraft’s motion to exclude. Although given the decertification, the point seems moot. However, the court felt the report still addressed materiality concerns relent to the injunctive relief claims.

Al told, the 20 pages of dicta dedicated to analysis of the study & methodology make for some interesting reading.

 

NJ Hospital Allegedly Misappropriated Likeness For Fitness Ads

Llopiz v. Hackensack UMC
Class complaint – Hackensack University Medical Center (UMC) allegedly used photos of plaintiff, photos taken for ‘internal use’ only, on Out-Of-Home (OOH) advertising materials, including in brochures and on a roadside billboard. Plaintiff claimed she only consented to ‘internal use,’ and the signature on a release allowing commercial use of her likeness was forged.
[Bergen Co. Sup. Ct.; L-3821-17]
jbho: a reminder of the importance of having well-structured agreements, clearly and conspicuously communicated, and well preserved in the event consent needs to be verified.

And if you’re going to use likenesses in advertising, you might want to plan ways to retrieve or pull down that advertising in the event the subject changes his/her mind.

 

May 2017

Retailer Accused Of Misleading Base Prices

Chase v. Hobby Lobby
Class complaint – Hobby Lobby allegedly used fictitious ‘marked’ prices on Hobby Lobby merchandise that induced sales by misleading consumers as to an actual discount. Plaintiff further alleged that Hobby Lobby never sold products – available only at Hobby Lobby – at the claimed ‘marked’ prices. Plaintiff claimed she never would have bought items has she known the actual prices, and the true value she was receiving from her purchases.
[S.D. CA; 3:17-cv-00881]
jbho: note that Hobby Lobby recently settled similar allegations with the AG in Virginia, and agreed to cease comparison pricing in violation of VA state law, as well as pay $8,000 to cover the costs of the AG’s investigation.

Supplement Maker Accused Misleading BOGO Prices

Larson v. Puritan’s Pride
Class complaint – Puritan allegedly artificially inflated the prices of its products in Buy One Get One (BOGO) free promotions, inducing consumers to unknowingly purchase products at a premium price. Plaintiff further alleged that Puritan ran promotions indicating the BOGO offers were limited in time, however, they had been running continuously for the past four years. Plaintiffs claimed they would not have bought items had they known the cost of the ‘free’ product was built into the base price.
[N.D CA; 3:17-cv-02536]
jbho: a new twist on misleading base pricing litigation? Remember discount rates must be based on an actual price, supported by evidence of the price basis (how a company actually determines the listed prices), and the basis for the pricing to consumers must be readily available.

 

March 2017

Social Media And Risks Of User Generated Content (UGC) In Advertising

Kraft v. Anheuser-Busch
Complaint – Anheuser-Busch allegedly used a photograph of plaintiff, without permission, to promote its ‘Natural Light’ product. Plaintiff alleges a Facebook picture was used without her permission as part of an “Every Natty has a Story” Natural Light advertising campaign.

Timeline of events:
• Feb 2013 – photo of plaintiff taken, posted to plaintiff’s Facebook account
• March to June 2014 – “Natty Rewards” promotion
• 2014 to 201? – Every Natty has a Story campaign
• May, June 2016 – ownership of photo assigned to plaintiff, copyright registered
• Feb 2017 – complaint filed

Anheuser-Busch has stated it had permission to use the image, as it was submitted through its “Natty Rewards” Facebook promotion.
[E.D. N.C.; 4:17-cv-00022]
jbho: a reminder to make sure you are getting appropriate consent for third-party content in your ads.

If you are going to use a likenesses or User Generated Content (UGC) in advertising campaigns, you might want to get a signed consent release, rather than rely on click-wrap terms. And make sure the submitter actually has the authority to grant the necessary rights.

The Natty terms did grant Anheuser-Busch an “exclusive, worldwide, perpetual, irrevocable, unrestricted, royaltyfree, sub-licensable right and license to exploit your Entry…” (https://natty-rewards.herokuapp.com/rules.pdf). Perhaps the validity of that agreement will be analyzed.

Alternatively, Anheuser-Busch could well be a victim of “sabotage liability,” and some unknown third party surreptitiously entered plaintiff. Guess we’ll have to wait and see.

 

Suit Over Alleged Use-Or-Lose Audiobook Credits

McKee v. Amazon (Audible)
Class complaint – Amazon allegedly failed to adequately inform Audible subscription holders there was a ceiling on credits, and any unused credits would be forfeited when cancelling a subscription. Plaintiff claimed this was inconsistent with claims made in advertisements that stated:
• one credit equals one audiobook
• stored credits are ‘rolled over’ to your next billing cycle
• ‘no strings attached’ if a consumer wants to cancel

Plaintiff claimed the restrictions and loss of credits were not adequately disclosed at the ‘point of sale’ (the tickbox to check at purchase), and were only presented in “inconspicuous fine print,” stating:
• “once you have reached the roll over limit for your membership plan, your oldest credit(s) will expire in order for you to receive new credits
• “membership credits do not expire’ as long as you have a membership
Thus, argued plaintiff, one credit did not equal one audiobook, as credits could expire or be revoked. Plaintiff further claimed the restrictions violated gift cards laws – the Audible credits being ‘gift cards’ since they were only redeemable at Audible.

Plaintiff also alleged the automatic payment renewal information did not meet statutory requirements*, and failed to inform consumers they would be charged every month in perpetuity, without notice, against any card associated with any Amazon account. That notification.

*in text larger than surrounding text, in contrasting type, font, or color, or otherwise set off from the surrounding text.
[C.D. CA: 2:17-cv-01941]
jbho: a reminder that and restrictions or limitation must be clearly and conspicuously disclosed. And disclaimers cannot contradict the claim. Also for recurring charges, make sure to get express informed consent, which is, of course, dependent on the quality of the aforementioned disclosures.

 

February 2017

Entire Chain Of Events Must Be Considered In False Ad Suit

Veera v. Banana Republic
Reversed – Banana Republic allegedly posted 40% discount signs in store windows that did not disclose sale limitations. Plaintiffs claimed the limitations were only made know when ringing items at the register, after investing time in selecting items and waiting in a checkout line. Plaintiffs purchased some of the items selected, stating, “to leave with nothing would be a complete and utter waste of energy and time.” They did not ask to speak to a manager or call Banana Republic to complain. Plaintiffs claimed embarrassment, frustration, and desires to “not make a scene” caused them to make purchases and promptly leave.

The county court granted defendant’s motion for summary judgement finding that lost shopping time was not money or property required to confer standing (particularly since some plaintiffs made purchases anyway).

The appellate court found plaintiffs adequately pled economic harm by alleging Banana Republic sold items to plaintiffs in violation of California law* (“plaintiffs had a legally protected interest in knowing from the outset, when they started to shop, the true prices of the items they chose to buy“). If reliance on the alleged misleading advertising was a substantial
factor in plaintiffs’ decisions to buy, there would be a causal link to any economic harms. That plaintiffs made a purchase (i.e., the scheme was successful), did not deprive plaintiffs of standing.

Additionally, there were factual disputes as to the contents of the signage viewed by plaintiffs. Some were qualified or disclaimed: “Save 40% on select styles*” or “Save 40% on your purchase.*”, but Exhibits presented signage with no asterisks (disclaimers).

The appellate court therefore reversed, ruling there were triable issues of fact and evidence presented by defendant was insufficient to warrant summary judgment.
[CA Appelate Ct. 2nd Dist.; B270796 (Orig: LA Co Super. Ct.; BC541146)]
jbho: a reminder of the importance of clear and conspicuous disclosures. Following the 4Ps (presentation, proximity, prominence, and placement) is always a good idea. If plaintiffs can show they were lured into a purchase, there is always the potential for UDAP-type violations.

Although, this one is likely far from over. In a dissenting opinion, one justice criticized the “momentum to buy” theory, and felt since plaintiffs changed their purchase decisions, they cannot say they relied on any misrepresentations – thus the defendant’s MSJ should have been affirmed.

*For the record, claims were brought under California’s Unfair Competition Law (UCL – Bus. & Prof. Code §§ 17200 et seq.), False Advertising Law (FAL – Bus. & Prof. Code §§ 17500 et seq.), and Consumers Legal Remedies Act (CLRA – Civ. Code §§ 1750 et
seq.).

 

One Million Dollars Per Hour For Alleged Energy Drink Misrepresentations

State of Washington v. Living Essentials (5-Hour-Energy)
$4.3M final judgement – Living Essentials (LE) ran ads and used product packaging that allegedly made misleading claims about the effectiveness of its Decaf 5-Hour Energy drink. The AGs office alleged that Decaf 5-Hour Energy was deceptively advertised as:
• superior to coffee
• recommended by doctors
• generated energy and alertness that ‘lasts for hours’
• ‘provides a sustained energy boost’

As a result LE was:

  • Enjoined from making performance claims that are not supported by competent and reliable scientific evidence, alone or in combination with other products/ingredients
  • Enjoined from misrepresenting survey results in advertising survey data used in advertising claims must be created, conducted, and evaluated by qualified professionals, using survey industry accepted/approved methods
  • Ordered to pay the AGs office $2,095,992.63 in fees and costs
  • Ordered to pay $2,183,747 in civil penalties for allegedly deceptive ads/packaging
    • Ask Your Doctor” ad (aired 19,716 times * $100 = $1,971,600)
    • “Choose Wisely” ad (aired 1,040 times * $100 = $104,000)
    • “Construction Site Cowboy” ad (aired 975 times * $100 = $97,500)
    • misleading product labels (2,482 units sold * $4.29 = $10,647)

The AGs office argued the penalties were reasonable as there were a large number of sales over a short period of time, once consumed there was no way to return the product or reverse any health impacts, and defendant “spent more time trying to justify the science behind their ads after-the-fact (i.e., at trial) than they did before marketing the products”.
[King Co (WA) Super. Ct.; 14-2-19684-9]
jbho: I think the main lesson here is if you are going to cite product tests, or scientific testing in your ads, make sure those test are verified by an independent 3rd party.

Living Essentials has indicted they will appeal. Interestingly, LE prevailed in a similar suit in Oregon, where the court found the claims were puffery as they were subjective statement about “a ‘feeling’ of energy or alertness” (Multinomah Co (OR) Circ. Ct; 14CV09149), and even if misleading would not materially influence consumer purchasing decisions. Additionally, the studies cited were subject to varying interpretations, so to the extent statements may have been misleading, the court felt they were not willful.

 

November 2016

Real Suit Over Fake Sale Prices Moves Forward

Shimono v. Harbor Freight Tools
Motion to dismiss denied – Harbor Freight allegedly inflated base prices of tools/equipment, failed to disclose warranty terms (of its inferior products), and printed misleading coupons (obscured that 20% was off one item rather than entire purchase & discount applied to lowest-priced item not the ‘any item’ advertised). Plaintiff alleged he would not have made purchases or not paid as much, absent Harbor Freight’s misrepresentations.

The court found plaintiff’s alleged losses (economic injury) were both ‘concrete and particularized’ injuries. Since plaintiff’s allegations were based upon a reasonable investigation (strike-through prices did not represent prevailing retail prices), plaintiff stated a plausible claim (pattern of deception, even if plaintiff may not have purchased all products in his research).
[C.D. CA; 5:16-cv-01052]
jbho: a reminder to make sure ad copy is accurate, and any needed disclosures are displayed clearly and conspicuously

 

October 2016

Qualified Statements Not Misleading

XYZ Two Way Radio v. Uber
Dismissed – Uber allegedly misrepresented its background checks in its advertising. The court found that the challenged statements were aspirational, and qualified with terms like ‘committed to,’ ‘aim to,’ ‘believe deeply.’
[E.D. N.Y.; 1:15-cv-03015]
jbho: a reminder to avoid absolutes in advertising copy.

Also interesting it appears that Uber had pulled statements like ‘industry leading’ and ‘leads the industry’ from its copy in late 2014. Uber now uses phrases like ‘constantly improving’ instead.

 

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