Proskauer on Advertising Law
Proskauer on Advertising Law

En Banc Ninth Circuit Reinstates and Clarifies Standard for Nationwide Class Action Settlement

Last month, the Ninth Circuit sitting en banc affirmed, by an 8–3 vote, a nationwide class settlement of a multidistrict litigation against automakers Kia and Hyundai over alleged misrepresentations regarding certain vehicles’ fuel efficiency. In re Hyundai and Kia Fuel Economy Litigation, 15-56014 (9th Cir. 2019). The en banc decision overturned the controversial decision last year by a split Ninth Circuit panel invalidating the settlement based on potential variations in state consumer protection laws. The panel decision cast serious doubt on the viability of nationwide settlements of class action suits filed within the Ninth Circuit.

This lawsuit was first filed in 2012 in the Central District of California, and subsequently was consolidated with a number of similar complaints into a single multidistrict litigation. In 2013, the parties reached a class-wide settlement agreement, and the district court certified for settlement purposes a nationwide class of all current owners and lessees who bought or leased the vehicles in question before the defendants announced downward adjustments of fuel efficiency estimates. The district court then granted final approval of the class settlement, which included an award of attorneys’ fees to class counsel. A number of objectors appealed the settlement class certification decision to the Ninth Circuit and, in 2018, a divided three-judge panel vacated the certification of a nationwide class and remanded to the district court.

The three-judge panel’s 2018 opinion held that in certifying a nationwide settlement class, the district court was required to analyze all applicable state laws to determine whether variations in the 50 state laws defeated predominance. In short, the panel required that the parties establish the predominance element in the same way as a plaintiff would need to do to certify a nationwide litigation class in a contested class certification motion. Because the district court did not conduct such an inquiry for the settlement class here, the panel concluded that the certification decision was in error. The Ninth Circuit’s 2018 opinion caused widespread consternation among counsel for both class action plaintiffs and defendants, because it raised the prospect that any certification of a nationwide settlement class in a case pending within the Ninth Circuit would have to be preceded by a burdensome and expensive analysis of variations in state law, threatening the viability of nationwide class action settlements in the Ninth Circuit.

In reversing the panel decision, the en banc court noted that no objectors had met their burden of establishing that the law of any state other than California applied. Moreover, and more importantly, the en banc court held that a district court need not conduct the same rigorous analysis of trial manageability when certifying a settlement class, noting that “a class that is certifiable for settlement may not be certifiable for litigation if the settlement obviates the need to litigate individualized issues that would make a trial unmanageable.” As a result, differences in available rights and remedies under the various laws of the 50 states no longer warrant denial of certification for settlement purposes in federal courts in California (where more class actions are brought than in any other state) or in the other states of the Ninth Circuit.

The In re Hyundai and Kia en banc decision provides an important clarification of the standards for certification of settlement classes as compared to litigation classes, and revives the viability of nationwide class settlements in the Ninth Circuit. The en banc court’s decision also brings the Ninth Circuit in line with the Third and Seventh Circuits, which both have held that variations in the laws of different states do not defeat predominance in the context of a settlement class. Watch this space for further developments.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

SCOTUS to Decide Whether the Lanham Act Requires Proof of Willfulness for Disgorgement of Profits

On Friday, June 28, 2019, the Supreme Court granted certiorari in Romag Fasteners, Inc. v. Fossil, Inc. to decide whether a showing of willfulness is necessary to obtain a defendant’s profits under the Lanham Act.

In Romag, the plaintiff, a manufacturer of magnetic snap fasteners, sued Fossil and various retailers for, among other things, infringement of an unregistered trademark in violation of section 1125(a) of the Lanham Act based on their sale of merchandise that featured snaps bearing the Romag mark. A jury found Fossil liable for infringing Romag’s trademark and determined that Fossil should disgorge close to $90,000 in profits to prevent its unjust enrichment. However, the district court held that Romag was not entitled to disgorge Fossil’s profits because it failed to prove Fossil’s trademark infringement was willful. The Federal Circuit affirmed the district court’s decision not to permit disgorgement.

As both the district court and the Federal Circuit acknowledged, there is a stark circuit split as to whether proof of willfulness is required to recover a defendant’s profits for a violation of section 1125(a). The split centers over how to interpret section 1117(a) of the Lanham Act, which reads as follows:

When a violation … under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled … subject to the principles of equity to recover defendant’s profits. (Emphasis added)

The circuit conflict revolves around whether the above italicized language reflects Congress’s intent that a showing of willfulness is required only for disgorgement awards in trademark dilution cases brought under section 1125(c), or instead that willfulness is also required in cases brought under section 1125(a) for infringement of an unregistered trademark, false designation of origin, or false advertising. The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits do not require plaintiffs to show willfulness for disgorgement in section 1125(a) cases, while the remaining circuits do.

Of particular relevance to this blog, the Supreme Court’s ultimate decision in Romag should apply to false advertising cases as well as trademarks, as Lanham Act section 1125(a) covers both. The availability of a disgorgement remedy is particularly vital in many false advertising cases, because it is often difficult for the plaintiff to prove that its own profits were diminished by the defendant’s false advertising, as opposed to other factors in what often is a noisy marketplace. Thus, a requirement that Lanham Act false advertising plaintiffs must prove willfulness to obtain disgorgement may be the difference between a significant damages award and no recovery at all. Accordingly, this is an important case for false advertising litigants, and one we will be monitoring closely.

Watch this space for further developments in Romag. We will report back once the Supreme Court issues its decision.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

NAD Not Influenced by Verification Platform’s Claims

In a recent decision, the advertising industry self-regulatory body NAD recommended that influencer marketing firm Ahalogy tone down some of its claims about the capabilities of its new product, the Tri-Verified influencer marketing platform.

The decision comes at a time when influencer marketing is becoming an increasingly popular— and challenging—field. Influencer marketing is what the NAD describes as “a form of marketing where a seller leverages the popularity and credibility of specific individuals to market a product in a testimonial manner.” For example, a Snapchat “celebrity” might get paid to endorse a product in hopes that some of his or her followers might be “influenced” to buy such product. However, advertisers often have difficulty measuring influencers’ effectiveness in engaging audiences. Companies have developed ways to inflate subscriber numbers, distorting the accuracy of the data advertisers rely on to determine how many people view the posts placed by the influencer on the platform (“organic posts”).

Ahalogy purchases sponsored posts on social media platforms and uses these “promoted posts” to display influencer-created content. Through its Tri-Verified platform, Ahalogy is then able to track and measure the impact of these promoted posts. Ahalogy claimed that its new platform was the “first-ever solution for verifying that influencer marketing impressions, traffic and other key engagement measures are valid.” Ahalogy also said it was the first company to verify such data by using third-party software, “making Ahalogy the first influence platform that is 100% verified.”

Competitor Collective Bias, Inc. challenged these claims at NAD, arguing, among other things, that Ahalogy’s statements misleadingly implied that the platform could verify all social media engagements. In fact, the platform could only verify the influence of promoted posts, not organic posts.

Though NAD found Ahalogy did reasonably support certain claims about its ability to detect fraud , it recommended that Ahalogy discontinue its “100% verified” claim, given that it could not verify data with respect to organic posts. The NAD also suggested Ahalogy remove references to the platform being the first and only platform using third party verification, since there was no evidence to support this claim.

Ahalogy’s products seek to address the new challenges that social media presents to advertisers. However, NAD’s decision shows that in doing so, companies like Ahalogy must themselves ensure that they can adequately support the claims they make in differentiating their services from other companies seeking to help marketers address these challenges. Watch this space for developments in this fast-moving field.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Supreme Court Limits Removal of Class-Action Counterclaims

On May 28, the Supreme Court decided Home Depot U.S.A. v. Jackson, 17-1471 (2019), ruling 5–4 that third-party counterclaim defendants may not remove class actions from state to federal court. The decision, besides keeping in state court certain class actions that otherwise could be removed to federal court, is noteworthy for the highly unusual composition of the majority, in which the four justices comprising the so-called liberal wing of the Court, banded together with Justice Thomas, who authored the majority opinion.

The case began as a debt-collection action that Citibank brought against respondent Jackson for charges incurred on a Home Depot credit card. Jackson counterclaimed against Citibank, and also asserted a third-party class-action claim against Home Depot on behalf of an alleged class of those victimized by a purported Home Depot scheme to induce homeowners to buy water treatment systems at inflated prices. Citibank dismissed its claims against Jackson, after which Home Depot filed a notice of removal of the class action counterclaims to federal court under both the general removal statute and the removal provision of the Class Action Fairness Act (“CAFA”). The district court granted Jackson’s subsequent motion for remand and the Fourth Circuit affirmed.

Under the general removal statute, 28 U. S. C. §1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants” to federal court. Under the CAFA removal provision, 28 U. S. C. §1453(b), a class action may be removed to federal court by “any defendant without the consent of all defendants.”

The question the Supreme Court confronted in Home Depot seemed simple: does the category of “defendants” permitted to remove a class action under either the general removal statute or CAFA include third parties who have been brought into the lawsuit through a counterclaim filed by the original defendant? The majority opinion, written by Justice Thomas and joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, answered in the negative, affirming the judgment of the Fourth Circuit.

Applying the canon of statutory construction that words in a statute must be read in the context of the statute as a whole, the majority held that the right of removal under the general removal statute is based on the federal court having original jurisdiction over the civil action, which is determined by the plaintiff’s complaint. The “defendants” who can remove must therefore be defendants named in the complaint, not counterclaim defendants. The majority also rejected Home Depot’s reliance on CAFA’s removal provision on the basis of the same statutory canon. The majority reasoned that the CAFA removal provision was meant to clarify that certain barriers to removal (such as the consent of all named defendants) do not apply to class action suits. But the majority found no indication that Congress intended to alter the limitation on who can remove, namely the defendant or defendants named in the complaint. Moreover, the majority concluded that the CAFA removal provision’s reference to “defendants” being eligible to remove a class action suit contrasts with other statutes that permit removal by “parties,” further indicating that in enacting CAFA, Congress did not intend to expand the category of persons who could remove an action.

Interestingly, the dissent – written by Justice Alito and joined by Chief Justice Roberts and Justices Gorsuch and Kavanagh – also took a strict constructionist approach to reading CAFA, but reached a different result. The dissent argued that third-party counterclaim defendants fall within the plain meaning of “defendant,” and that CAFA’s specification that removal can be made by “any defendant” indicates that “defendants” should be read expansively. In addition, the dissent maintained that Congress intended the CAFA removal provision to provide an independent basis for removal, such that removal rights under CAFA did not need to track the general removal statute. Finally, the dissent argued that in any case, the consensus that the general removal provision could not be invoked by third party counterclaim defendants was based on a misunderstanding of Supreme Court precedent.

Home Depot did not cabin its holding to any particular type of class action, and thus could include false advertising suits. Whether plaintiffs’ litigation strategies change in light of the decision remains to be seen.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Chambers Pharmaceutical Advertising 2019: USA

Proskauer partners Lawrence Weinstein and Alexander Kaplan wrote the book – 11 chapters of it – on U.S pharmaceutical advertising law. The 2019 Chambers Global Practice Guide: Pharmaceutical Advertising is a great, curated resource for drug companies, hospitals, medical practices and other U.S. health care organizations. The guide provides insight to topics such as:

  • FDA and FTC Regulation of Prescription and Over-the-Counter Drugs
  • Prohibitions on off-label advertising of prescription drugs
  • The ethical guidelines of the American Medical Association and the PhRMA Foundation concerning Prescription Drug Marketing
  • FDA and FTC Regulation of Homeopathic Medicine
  • The Effect of General and Healthcare-Specific Federal Anti-Bribery Statutes on the Marketing of Prescription Drugs

UPDATE: Since publication, the Department of Health and Human Services (HHS) has announced a rule requiring pharmaceutical companies to include the price of prescription drugs in television ads if they cost over $35 per month, as part of a larger plan to address rising drug prices. The rule will further require that prices be updated quarterly, and is expected to go into effect this summer. Watch this space regarding further developments in this fast-moving field.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Suit Over Use of American Heart Association Certification Mark Maintains a Pulse

Is it deceptive to label food products with the mark of the American Heart Association (“AHA”) without disclosing that the AHA was paid for use of its certification mark? This was the question raised by a putative class action lawsuit in the Northern District of New York, which largely survived dismissal on March 25, 2019. Warner v. StarKist Co., 18-406 (N.D.N.Y. 2019). The court found that plaintiff had adequately stated his claims under New York state statutes and common law, but held that he did not have standing to seek injunctive relief. The defendant filed a motion for reconsideration last month.

Defendant StarKist Co. is a producer of seafood products, a number of which bear the “Heart-Check Mark,” a white checkmark in a red heart accompanied by the statement: “American Heart Association – CERTIFIED – Meets Criteria for Heart-Healthy Food.” The complaint alleged StarKist does not disclose that it paid the AHA to place the mark on its products, and that inclusion of the mark on labels is therefore misleading as an undisclosed paid-for endorsement. In addition to claims for deceptive practices under GBL § 349 and false advertising under GBL § 350, the complaint included claims for dealing in misbranded food and for unjust enrichment.

StarKist moved to dismiss, arguing that its use of the Heart-Check Mark is not materially misleading because the information it contains is accurate – the StarKist product meets AHA’s certification standards. The court rejected this argument, noting that the complaint alleges the labelling is misleading because StarKist does not disclose that it pays an annual fee to the AHA to use the mark, and that StarKist failed to argue that this omission would not mislead a reasonable consumer. Although StarKist noted that the AHA discloses on its website that participants in the Heart-Check program pay administrative fees to the AHA, the court declined to take judicial notice of this part of the AHA website.

The court also rejected StarKist’s argument that the unjust enrichment claim was duplicative of the GBL claims. Because the elements for an unjust enrichment claim are different from those for either a deceptive practices or a false advertising claim, and Starkist did not argue that the plaintiff failed to plausibly allege facts to support unjust enrichment, the court denied dismissal of this count “in an abundance of caution.”

The ruling was not a complete victory for the plaintiff, however, with the court accepting StarKist’s argument that the plaintiff lacked standing for injunctive relief because he did not allege a future harm. It noted a split of authority within the Second Circuit as to whether plaintiffs in the consumer protection context must allege a future injury in order to be eligible for injunctive relief, and determined that such an allegation was necessary. Because plaintiff did not explicitly allege that he was at risk of future injury, and was now aware of StarKist paying for use of the Heart-Check mark, there was no real and immediate threat of future injury.

This decision, while only a denial of a motion to dismiss, underscores the importance for advertisers to consider whether the use of certification marks that require payment could be considered misleading where the fact that use of the mark requires a fee is not communicated to the consumer. It also adds to the growing body of case law grappling with the question of when injunctive relief is available in consumer protection actions – a subject that the Supreme Court recently declined to address, as we covered in a previous post. Given that no resolution on the issue of injunctive relief appears to be forthcoming from the nation’s highest court, this will be an area to monitor closely.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Justin Timberlake Waves Bai Bai Bai to Partially Dismissed “No Artificial Flavors” Beverage Mislabeling Suit

Last month, a judge in the Southern District of California partially dismissed a putative class action against beverage company Bai Brands, LLC (“Bai”) and related defendants. Branca v. Bai Brands, LLC, No. 18-00757 (S.D. Cal. 2019). Plaintiff Kevin Branca filed this lawsuit against Bai, its parent company Dr. Pepper Snapple Group, Inc. (“DPSG”), the CEOs of both these companies, and Bai investor Justin Timberlake, alleging that they violated California and federal statutes and state consumer protection laws by labeling Bai drinks as containing “NO artificial flavors” and as being “naturally flavored” when they allegedly contain an artificial form of malic acid, and by failing to identify this form of malic acid by its scientific name in the product ingredients list. In granting in part defendants’ motion to dismiss, the court held that it lacked jurisdiction over the individual defendants, including Timberlake, and that defendants were not required to list beverage ingredients by their scientific names. However, the court declined to dismiss plaintiff’s claims that it was false and misleading to label the beverages as containing “NO artificial flavors” and as being “naturally flavored,” leaving defendants Bai and DPSG to defend those claims.

The product labels of the Bai beverages in dispute indicate that they contain malic acid. According to plaintiff, malic acid can take one of two forms: (1) 1-malic acid, which occurs naturally and is found in certain fruits and vegetables, and (2) d-1-malic acid, which is chemically manufactured. Plaintiff alleged that Bai’s products contain the latter, and that defendants were therefore required to identify the ingredient on the product label by its scientific name “d-1-malic acid,” rather than simply by its common name “malic acid.” The court, however, disagreed, finding that FDA regulations “specifically instruct that ingredients should be listed by their common or usual name,” and plaintiff’s contention that defendants were required to do something different is preempted.

The court also dismissed Timberlake and the other individual defendants from the lawsuit on the grounds that they are not California state residents, and their roles as corporate officers or agents of the corporate defendants did not confer specific personal jurisdiction over them. In addition, plaintiff’s consumer protection claims were dismissed to the extent they were barred by the 3-year statute of limitations for CLRA and FAL claims, or the 4-year statute of limitations for UCL and breach of warranty claims. Branca purported to assert claims on behalf of a class of individuals who purchased products as far back as 2012, but did not file his lawsuit until April 2018. In defense of these claims, Branca argued that he and other putative class members had to rely on the manufacturer’s labeling and therefore could not have discovered defendants’ allegedly deceptive practices earlier than April 2018. The court rejected these arguments, instead agreeing with defendants that the CLRA and FAL claims were barred to the extent they arose prior to April 2015, and the UCL and breach of warranty claims were barred to the extent they arose prior to April 2014.

But defendants were not able to drink up a total victory. In declining to dismiss plaintiff’s claims that the Bai beverages should have been labeled as “artificially flavored,” and that it was deceptive to label them as containing “NO artificial flavors” and as “naturally flavored,” the court found the complaint sufficiently pled that the products contained the manufactured form of malic acid. Defendants argued that, regardless, malic acid is not used as a “flavor” but rather as an acidulant (an ingredient that makes food more acidic and serves as a pH control agent), and therefore under federal regulations could not be described on the product label as an “artificial flavor.” The court acknowledged that FDA regulations distinguish between a “flavor” (which imparts a distinctive flavor of its own) and a “flavor enhancer” (which has no distinctive flavor of its own, but intensifies flavors from other ingredients), but found that plaintiff sufficiently pled in this case that malic acid was a “flavoring ingredient,” and that whether it was in fact an “artificial flavor” was a factual determination that the court could not make on a motion to dismiss. Bai and DPSG are therefore still left to defend this claim.

Watch this space as we continue to cover how courts are grappling with what constitutes an “artificial flavor.”

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

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