Proskauer on Advertising Law
Proskauer on Advertising Law

Proskauer Panel on Environmental Advertising Claims at ANA

Please join us on Tuesday, September 13, for a Proskauer panel at ANA covering the latest legal developments related to environmental advertising claims.  Our panelists, Jeff Warshafsky, Jennifer Yang, and Nicole Sockett, will discuss carbon offsets and lifecycle assessments, recyclability and recycled content claims, general environmental benefit claims, and other key takeaways from the FTC Green Guides, the NAD, and the courts.  You can register for the event with ANA here: Environmental Claims: Latest Legal Developments | Webinars | Events & Webinars | ANA.

 

“Born in the USA”?: Place of Origin Claims Take Center Stage in False Advertising Suits and FTC Enforcement

It has been almost forty years since Bruce Springsteen first famously celebrated being “Born in the USA.” From an advertising industry perspective, this song’s lasting popularity is no surprise; as advertisers know, “Made in the USA” is often a selling point for American industries.

The FTC knows this too. In late 2021, the FTC finalized a new rule cracking down on deceptive or misleading unqualified U.S. origin claims. The FTC’s new rule, which went into effect on August 13, 2021, does not create new substantive requirements for advertisers, but gives the FTC the ability to impose new, substantial monetary penalties for violating the rule.

Following the enactment of this rule, we have seen a rising number of class actions targeting place of origin claims. This post discusses some such class actions, as well as the FTC’s enforcement of its new rule.

FTC Rule On Unqualified “Made in the USA” Claims

The FTC’s rule prohibits marketers from making unqualified U.S.-origin claims unless:

  • Final assembly or processing of the product occurs in the United States;
  • All significant processing that goes into the product occurs in the United States; and
  • All or virtually all ingredients or components of the product are made and sourced in the United States

This rule differs from the FTC’s prior guidance because:

  • The new rule enables the Commission for the first time to seek civil penalties of up to $43,280 per violation.
  • The new rule includes a full or partial exemption if marketers have evidence showing their unqualified Made in USA claims are not deceptive. This exemption was not part of the previous policy.
  • Unlike the prior guidance, the new rule does not make an exception for foreign ingredients unavailable in the U.S. Under the new rule, an unqualified U.S.-origin claim can be made only where no more than a de minimis amount of the product is of foreign origin – with no special accommodations if an ingredient in the product cannot be found in the U.S.
    • Under the prior guidance, advertisers were given more flexibility for products containing raw materials that are “inherently unavailable in the United States.” In the prior enforcement policy, the FTC advised that unless the nonindigenous imported material constitutes “the whole or essence of the finished product” consumers are likely to understand a “Made in the USA” claim means that “all or virtually all of the product, except for those materials not available here, originated in the U.S.” In the new rule, the FTC stated it sees no support for this exception.
  • According to the new rule (and the FTC’s press release announcing it), it applies only to labeling. But the rule also says it encompasses “materials, used in the direct sale or direct offering for sale of any product or service, that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method without examining the actual product purchased” that include “a seal, mark, tag, or stamp labeling a product Made in the United States.”
    • It is unclear how broadly the FTC will interpret this definition. That said, Commissioner Christine S. Wilson, who dissented to the rule, expressed concern that this language could be interpreted to cover stylized marks in online advertising or paper catalogs and potentially other advertising marks, such as hashtags, that contain Made in USA claims.

Note that qualified U.S.-origin claims are not covered by this new rule, and are still subject to the FTC’s prior guidance.

FTC Enforcement Efforts Following Enactment of Rule

Under the new rule, the FTC has brought claims against:

  • Lithionics Battery LLC, a battery company that labeled its batteries as being “Made in U.S.A.” along with an image of the American flag, often accompanied by the statement “Proudly Designed and Built in USA.” The FTC’s complaint, filed April 12, 2022, alleged the products included imported lithium ion cells and incorporate significant other imported components. The parties settled for a penalty of about $105,000, which was equal to three times Lithionics’ profits attributable to the advertising. The settlement also required Lithionics to refrain from making unqualified “Made in the USA” claims unless it can show that the product’s final assembly or processing – and all significant processing – occurs in the U.S., and that all or virtually all ingredients are made and sourced in the U.S. Under the settlement, the FTC also required Lithionics to notify affected customers, and to submit compliance reports to the FTC for the next ten years.
  • Lions Not Sheep Products, LLC, a clothing company that advertised its clothing and accessories as “Made in U.S.A.,” along with similar claims (including “Made in America,” “100% American Made,” and “Best Damn American Made Gear on the Planet”). The FTC alleged that, in most instances, the products advertised using these statements consisted of wholly imported shirts and hats with limited finishing work performed in the USA. The FTC’s complaint also named Lions Not Sheep’s owner, Sean Whalen as a defendant. The FTC alleged that between May 10, 2021 through October 21, 2021, Whalen and Lions Not Sheep removed tags disclosing accurate foreign country of origin information and printed “Made in USA” at the neck of the shirts. Whalen and Lions Not Sheep have not yet filed a response to the FTC complaint.

Consumer Class Actions

The consumer class action space has seen challenges to similar “Made in USA” claims, including in recent cases against New Balance sneakers (Cristostomo v. New Balance Athletics, Inc., No. 21-cv-12095 (D. Mass. Dec. 20, 2021)), Genfoot America boots (Jackson v. Genfoot America, Inc., No. 22-cv-00036 (D.N.H. Jan. 28, 2022)) and Reynolds’ plastic wrap (Shirley v. Reynolds Consumer Products, No. 22-cv-00278 (N.D. Ill. January 17, 2022)).  A recent class action was filed against American Tuna Inc. for its claims that tuna products are “caught and canned” in the United States.  Craig v. American Tuna, No. 22-cv-00473 (S.D. Cal. Apr. 8, 2022).  Land Air Sea Systems, Inc. is facing a similar lawsuit for marketing its GPS devices as “USA Manufactured.”  Pinter v. Land Air Sea Systems, No. 22-cv-00185 (E.D.N.Y. Jan. 12, 2022).

Other Active “Place of Origin” Lawsuits

Place of origin claims, of course, are not limited to “Made in the USA.” Recent cases have challenged advertising claims that products are made in other places, such as:

  • “English” breakfast tea. Mangels v. Twinings, No. 21-cv-04138 (W.D. Mo. Jul. 19, 2021)
  • “Icelandic” yogurt. Steinberg v. Icelandic Provisions, Inc., No. 21-cv-05568 (N.D. Cal. Jan. 25, 2022)
  • “Himalayan” sea salt. Brown v. Morton Salt, Inc., No.  21-cv-06855 (N.D. Cal. Sept. 2, 2021)
  • “Italy’s #1 brand of pasta”. Sinatro v. Barilla America, Inc., No. 22-cv-03460 (N.D. Cal. Jun. 11, 2022)
  • “El Sabor de Mexico! Hardy v. Ole Mexican Foods, Inc., No. 21-cv-01261 (W.D.N.Y. Dec. 3, 2021)

In deciding whether complaints state a plausible claim that reasonable consumers are deceived by such advertising, courts tend to distinguish between claims explicitly touting that a product has been “made in” a certain location versus claims that merely tend to evoke a certain locale. For example, in a recent case involving King’s Hawaiian rolls, the court found that a mere reference to “Hawaii,” even when combined with imagery that evoked references to Hawaii, did not deceive reasonable consumers into thinking that King’s Hawaiian made its rolls in Hawaii.  Hodges v. King’s Hawaiian Bakery W. Inc., No. 21-cv-04541-PJH, 2021 U.S. Dist. LEXIS 215707 (N.D. Cal. Nov. 8, 2021).  The court in Steinberg v. Icelandic Provisions, Inc., No. 21-cv-05568, 2022 U.S. Dist. LEXIS 13478 (N.D. Cal. Jan. 25, 2022) reached a similar decision, finding that “heirloom Icelandic Skyr cultures” and advertisements created in Iceland did not mislead consumers into thinking the yogurt was made in Iceland, particularly since the product label indicated it was manufactured in New York.

When evaluating product claims for litigation risks, advertisers should keep in mind this distinction between claims that refer to or evoke imagery of a location, and claims that state the product was sourced in a location.  We will continue to watch this space for further developments.

Other Developments in U.S.-Origin Labeling

The new FTC rule is not the only significant development surrounding U.S.-origin claims. Immediately following the FTC’s decision to strengthen regulations surrounding these claims, Agriculture Secretary Tom Vilsack released a statement indicating the USDA intends to “complement” the FTC’s efforts by “initiating a top-to-bottom review of the ‘Product of USA’ label” in order to “determine what that label means to consumers.” The review appears to be ongoing. This past February, the USDA announced “a web-based survey/experiment to help gauge consumer awareness and understanding of current ‘Product of USA’ labeling claims on meat (beef and pork) products and consumer willingness to pay (WTP) for meat product labeled as ‘Product of USA’ using the current and potentially revised definitions of the claim.” And more recently, the House and Senate have considered proposed legislation that would limit “Product of USA” labels to beef products that are born, raised, and slaughtered in the United States.

Last year, President Biden issued an executive order directing the federal government to “maximize the use of goods, products, and materials produced in, and services offered in, the United States,” and advising that “[t]he United States Government should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.” As a result, “Made in the USA” claims may now be more important to marketers than ever.  But given the new FTC rule, its potential effects on consumer class actions, and recent developments in legislation and USDA regulation, the consequences of making an unsupported and unqualified “Made in the USA” claim may also be greater than ever.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at bvinti@proskauer.com /212-969-3249

 

A Slammed (Open)Door: FTC Reaches $62 Million Proposed Settlement with Real Estate Company

Last month, the FTC announced that it reached a $62 million proposed settlement with Opendoor Labs, related to the Commission’s investigation of the company’s representations in advertising to prospective home sellers. Opendoor is an online real estate business in the “iBuying” (or “instant buying”) space. iBuying companies use algorithms to determine a home’s value and make instant offers to consumers, allowing them to purchase homes directly from consumer sellers as an alternative to traditional sales through a broker.  iBuying companies often tout their offering as a simpler, more convenient alternative to a traditional home sales.

According to the FTC’s complaint, Opendoor misrepresented to prospective home sellers that they would make more money from selling their homes to Opendoor than by selling on the open market. In actuality, the FTC maintains that most home sellers who used Opendoor’s services made thousands of dollars less than they would have had they sold it via traditional channels.

The FTC alleged Opendoor advertised it would save consumers money by providing “market-value” offers and reducing transaction costs.  For example, the FTC’s complaint cited charts in Opendoor’s marketing materials that purported to compare consumers’ net proceeds from selling to Opendoor versus on the open market. The agency alleged these representations were deceptive because Opendoor’s offers were, on average, consistently significantly below market. Additionally, according to the FTC, Opendoor’s costs were higher than those of traditional sales because it requires consumers to pay for repairs they would not have had to make otherwise. Opendoor further misled consumers, according to the FTC, by overstating the costs of traditional sales.

iBuying is currently estimated to account for about 1 percent of all home sales in the U.S., though in certain metro areas, it may be as high as 6 percent. While iBuying still makes up just a small segment of the market, it may increasingly represent the future of real estate – in which case, the FTC’s settlement with Opendoor will be instructive to companies looking to enter this space. This decision is also a reminder that companies making cost comparisons should make sure those comparisons are accurate at the time they are first made, remain accurate throughout their use, and do not fail to disclose material differences with competing options.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at bvinti@proskauer.com /212-969-3249

 

Sheep’s Clothing: Court Dismisses Lawsuit Over Allbirds’ Carbon Footprint and Animal Welfare Claims

Judge Cathy Seibel of the Southern District of New York recently dismissed a putative class action lawsuit challenging various environmental impact and animal welfare claims made by Allbirds in ads for its wool shoes.  In doing so, the court determined that plaintiff’s allegations, which largely consisted of criticisms of the wool industry in general, did not plausibly allege that Allbirds’s descriptions of its own practices were false or misleading. Dwyer v. Allbirds, Inc., 7:21-cv-05238-CS (S.D.N.Y. Apr. 18, 2022).

Plaintiff’s complaint focused on two categories of claims: 1) claims about animal welfare, including claims that Allbirds’s sheep “Live The Good Life” and are treated “humanely,” and depictions of Allbirds’s sheep as “happy,” and living in “pastoral settings”; and 2) claims about Allbirds’s environmental impact, including “Sustainability Meets Style,” “Low Carbon Footprint,” “Environmentally Friendly,” “Made with Sustainable Wool,” “Reversing Climate Change,” and “Our Sustainable Practices.”

Animal Welfare Claims

Plaintiff alleged Allbirds’s animal welfare claims are misleading because “[e]conomic realities dictate – and require – that all sheep bred for wool are also slaughtered and sold for their meat,” and investigations of more than 100 large-scale wool operations have revealed inhumane conditions. According to plaintiff, Allbirds’s sheep cannot “live the good life” when it’s impossible to provide individual care to sheep raised in large numbers.

The court rejected plaintiff’s claims because plaintiff alleged nothing related to the wool used by Allbirds in particular. For example, the court noted that plaintiff failed to plausibly allege that Allbirds works with any of the 100 farms in the cited investigation. And unlike in Lee v. Canada Goose – a case we previously blogged about involving similar allegations – plaintiff failed to plausibly narrow Allbirds’s sourcing to regions or companies highly likely to use inhumane methods.

Plaintiff also criticized Allbirds’s certified wool supplier, but the court found that plaintiff’s allegations went to the supplier’s methodology for certifying farms and did not amount to allegations that inhumane practices occur at those farms.

Further, in a decision reminiscent of Ehlers v. Ben & Jerry’s, the court found that the depictions of “happy” sheep in “pastoral settings” were “obviously intended to be humorous” and would not be understood as making a factual claim on which a reasonable consumer would rely.  The court called these depictions and the statement that “Our Sheep Live The Good Life” “classic puffery.”

Environmental Impact Claims

Plaintiff alleged Allbirds’s environmental impact claims are misleading because they are based on tools that only measure the carbon footprint of each product, without assessing wool production’s other environmental impacts. According to plaintiff, if Allbirds had calculated the carbon footprint from sheep farming overall, as opposed to the carbon footprint generated only by its products, its environmental impact figures would be significantly higher.

The court found that merely criticizing this methodology was not enough to state a claim. Importantly, the court noted that Allbirds’s advertising makes clear what is included in its carbon footprint calculation. Although plaintiff believed Allbirds should have used a different method to measure its carbon footprint – one that includes the entire lifecycle of wool production – the court found this does not plausibly allege that Allbirds’s environmental impact claims are materially misleading.

As discussed in our post on Lee v. Canada Goose, animal welfare and sustainability-related class actions are on the rise. This decision serves as a reminder that advertisers should be careful not to overstate the breadth of their carbon footprint analyses. When making carbon footprint claims, advertisers should be sure to disclose any limitations or assumptions that go into their claims (as Allbirds did here). Additionally, the court’s decision here may curtail the impact of Lee on future class actions of this kind. In fact, Judge Seibel explicitly questioned the reasoning of Lee, noting that she is “not sure [she] would have reached the same conclusion.” Following Dwyer, Lee may effectively be cabined to cases where a plaintiff is able to plausibly narrow an advertiser’s sourcing to companies that use inhumane or unsustainable practices. In other words, generalized allegations about industry practices may not be sufficient. 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 bvinti@proskauer.com /212-969-3249

Advertising Class Action Trends in 2021

2021 saw well over 500 new class actions in the advertising space. With the number of these cases increasing, it is more important than ever for businesses to stay on top of the latest trends, including the types of products and claims that are being targeted.  Our full report, available here, goes into detail on these points and others.  This post summarizes some of the key takeaways.

Food & Beverage

As in past years, the Food & Beverage industry remained a main target of the plaintiffs’ bar in 2021. Ingredient claims remained the main focus. While 2020 was the year of “vanilla” litigations, the plaintiffs’ bar branched out to other flavors in 2021, including “chocolate,” “smoked,” “fudge,” “strawberry,” and “honey.”

Other class action trends in this industry in 2021 include:

  • “Natural” and “no artificial flavors” cases – particularly with respect to products containing malic acid, citric acid, ascorbic acid, xylitol, and maltodextrin;
  • Cases against coffee product manufacturers, alleging that they falsely advertise the number of servings in their products;
  • Place of origin claims, alleging advertisers deceptively market where their product is made; and
  • Environmental and animal welfare claims, alleging that advertisers misrepresent the sustainability or living conditions of the source of their food products, or that they deceptively market their packaging as recyclable.

Consumer Packaged Goods

The Consumer Packaged Goods industry (including personal care, household cleaning, cosmetics, pet, baby, and other consumer products) faced over 250 advertising class actions in 2021. These included:

  • Class actions challenging safety claims and alleging a failure to disclose alleged health risks;
  • Cases against manufacturers of sanitizing products, challenging allegedly deceptive claims that the products kill a certain percentage of germs; and
  • Cases involving “natural” claims.

Drugs & Supplements

Although the pandemic continued to rage on in 2021, the focus of advertising class actions involving drugs & supplements shifted largely away from immune and COVID-19-related claims this year. Instead, homeopathic products came under fire. Proskauer successfully represented the defendant in one such case – Yamasaki v. Zicam, 2021 U.S. Dist. LEXIS 150394 (N.D. Cal. Oct. 25, 2021). Plaintiff challenged Zicam’s claims that its cold remedy products are “clinically proven” to shorten colds. In granting Zicam’s motion to dismiss, the court found that none of plaintiff’s allegations supported a reasonable inference that this claim is false.

Other trends in drug & supplement advertising class actions included:

  • “Natural” cases; and
  • Claims regarding a product’s ability to improve mental acuity or mental health.

Our full report provides further analysis on the above trends, and much more, including insights into the biggest names in the plaintiffs’ bar, analyses of 2021 trends in advertising class action resolutions and settlements, and litigation trends in other industries.

Download our full report at the following link.

Key 2021 Decisions from the NAD and NARB

With more than 80 closed cases, 2021 was another unprecedented year at the National Advertising Division and National Advertising Review Board. Proskauer’s False Advertising Group closely tracks these decisions from the advertising industry’s self-regulation system to stay apprised of the latest developments and trends, and has compiled a guide providing case summaries, with our insights and key takeaways, of key 2021 decisions from the NAD and NARB. This resource, organized by industry, will help advertisers stay up-to-date on current trends, best practices and recent important changes to NAD’s procedures.

Download the Guide Here

 

Crypto Chaos: EthereumMax Executives, Kim Kardashian, Floyd Mayweather, Jr., and Paul Pierce Sued in Cryptocurrency Advertising Class Action

Cryptocurrency, social media, and celebrity or influencer endorsements have all been top of mind recently, including for advertisers. A newly filed lawsuit is asking a federal court to consider the intersection of these areas, with potential implications for advertisers looking to expand into the cryptocurrency space. EthereumMax executives (“Executive Defendants”) and a few well-known celebrities, including Kim Kardashian, Floyd Mayweather, Jr., and Paul Pierce (“Celebrity Defendants”) were recently met with a class action complaint in California federal court filed on behalf of all purchasers of EthereumMax’s EMAX tokens between May and June 2021.  Plaintiff alleges that Defendants hatched a scheme to misleadingly promote and sell EMAX Tokens, cryptocurrency digital assets, through social media advertisements and other promotional activities, while failing to adequately disclose material connections between EthereumMax and the Celebrity Defendants endorsing EMAX.  Huegerich v. Gentile, No. 2:22-cv-00163 (C.D. Cal. Jan. 7, 2022).

Plaintiff alleges the Executive Defendants used celebrity endorsements and promotions from the Celebrity Defendants to falsely hype EMAX Tokens on social media, in what Plaintiff characterizes as a “pump and dump” scheme.  For example, Plaintiff cites a Tweet from Paul Pierce stating, “@espn I don’t need you. I got @ethereum_max I made more money with this crypto in the past month than I did with y’all in a year . . . my own Boss . . . check it out for yourself.”  According to Plaintiff, that same day EthereumMax issued a press release announcing that it was “now the exclusive CryptoCurrency accepted for online ticket purchasing for the highly anticipated Floyd Mayweather vs. Logan Paul Pay-Per-View event.”  Plaintiff alleges that as a result of these ads, the trading volume of EMAX rose almost five times higher than the previous day.

According to the Complaint, Floyd Mayweather, Jr. then further promoted EMAX at the “Bitcoin 2021” conference in Miami, where he and his entourage wore EthereumMax t-shirts.  The Complaint alleges Kim Kardashian also posted her own solicitation for EthereumMax on her Instagram account, stating, “ARE YOU GUYS INTO CRYPTO???  . . . SHARING WHAT MY FRIENDS TOLD ME ABOUT THE ETHEREUM MAX TOKEN! A FEW MINUTES AGO ETHEREUM MAX BURNED 400 TRILLION TOKENS – LITERALLY 50% OF THEIR ADMIN WALLET GIVING BACK TO THE ENTIRE E-MAX COMMUNITY.”  Her post included a disclosure in the far bottom right, stating “#AD.”  Plaintiff cites survey results indicating that up to 21% of American adults and nearly half of all cryptocurrency owners saw the ad, with 19% of respondents who said they saw the ad investing in EMAX as a result.

According to Plaintiff, the Celebrity Defendants received EMAX Tokens and other forms of compensation in exchange for their promotional posts. Plaintiff alleges that the Celebrity Defendants failed to adequately disclose the fact that they were being compensated for their endorsements. In particular, Plaintiff alleges that Mayweather and Pierce did not include a disclosure of any kind, while Kardashian’s “#AD” disclosure “tucked in the far bottom right of the post” was not sufficiently conspicuous.

Plaintiff further alleges that the Executive Defendants capitalized on the hype they caused via the Celebrity Defendants by artificially increasing the interest in and price of the EMAX Tokens, causing investors to buy the digital assets at inflated prices.  Approximately a month after these promotional activities, EMAX allegedly saw a 98% drop in its price.

With the disclosure of material connections being a hot area for the FTC and NAD (as discussed in our “On Notice” series), this class action complaint may provide one of the first insights into how these issues will be handled in the cryptocurrency space.  In the cryptocurrency space, in particular, disclosure issues may continue to come to the fore; by receiving cryptocurrency in exchange for their review, the endorser may be receiving a stake in the business (as opposed to just receiving compensation), which may not be obvious from context. We will continue to monitor this case and any other similar cryptocurrency advertising class actions that may be filed.

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Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at bvinti@proskauer.com /212-969-3249

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