Proskauer on Advertising Law
Proskauer on Advertising Law

Third Circuit Splits with the Seventh Over Standing To Sue For Alleged Inefficient Design of Eye Drop Dispenser

In a surprising decision and split with the Seventh Circuit, the Third Circuit recently held that plaintiffs have standing to sue for unfair trade practices under the theory that a manufacturer is obligated to optimize the number of eye drop doses in a container of a fixed volume, even if there is no alleged misrepresentation as to the number of doses in the product.  Cottrell v. Alcon Labs., 874 F.3d 154 (3d Cir. 2017).  The Third Circuit suggested that claims based on such a theory may be addressed in a 12(b)(6) motion, or on preemption grounds, but that such grounds are separate from a standing analysis.

Plaintiffs in Cottrell alleged that defendants are manufacturers of FDA-approved eye drop medications for serious medical conditions such as glaucoma.  According to the complaint, defendants deliberately designed and manufactured the tips of the droppers to dispense a dose of medication that exceeds the capacity of the eye and is expelled from the eye, thus conferring no benefit and possibly causing unwanted side effects.  Plaintiffs alleged violations of consumer protection laws of New Jersey and five other states, seeking damages corresponding to the “wasted” portion of medication.

The U.S. District Court for the District of New Jersey dismissed the complaint for lack of standing under Article III of the U.S. Constitution, which the Supreme Court has held requires a plaintiff to have suffered (and at the pleading stage to have plausibly alleged) an injury in fact to a legally protected interest.  The district court held that plaintiffs failed to allege such an injury because plaintiffs’ pricing theory was too speculative, i.e., that it assumed (without support) that eye drop manufacturers price their medication solely based on the volume of fluid contained in the bottles, regardless of other factors.  The district court also held that plaintiffs’ theory of damages did not give rise to standing because consumer fraud claims under a benefit-of-the-bargain or out-of-pocket theory normally require allegations that the product at issue failed to perform as advertised or was somehow defective, which was not alleged here.  The court noted that defendants’ dispenser design was approved by the FDA and that defendants never promised a certain number of doses.

On appeal, a panel of the Third Circuit reversed in a 2-1 decision.  The majority held that plaintiffs adequately alleged an injury in fact to a legally protected economic interest because they were allegedly forced to spend money on medication that was impossible for them to fully use due to defendants’ business practices in alleged violation of state consumer protection statutes.  The majority determined that the district court overcomplicated plaintiffs’ pricing theory, which in the circuit court’s view posited that a smaller drop size—with no other changes to the product’s design or price—would provide more doses per bottle.  (The dissent faulted as implausible the majority’s assumption that therapies are priced by volume rather than by number of doses in light of contrary evidence).

The majority also criticized the lower court’s treatment of plaintiffs’ reimbursement theory as one sounding in fraud only.  The majority concluded that the district court failed to appreciate that the state statutes asserted by plaintiffs provide legal protection against “unfair” business practices, not just fraudulent ones, and that plaintiffs’ allegations satisfied the injury requirement.  The court acknowledged that the Seventh Circuit had reached the opposite conclusion on similar allegations but opined that the Seventh Circuit improperly based its standing analysis on a finding that the complaint failed to state a cause of action on the merits, which the majority argued is a separate inquiry from whether plaintiffs claim an injury in fact to a legally protected interest.

The Third Circuit noted that the district court’s reading of the asserted state consumer protection statutes could potentially provide a basis for dismissal under a 12(b)(6) motion, which the district court never reached.  Nor did the trial court consider defendants’ preemption arguments, having ruled on the issue of standing.  It remains to be seen whether other circuits will follow the Third or Seventh Circuit’s approach in subsequent cases, or whether the clear split between these Circuits will find its way to the Supreme Court.  Watch this space for further developments on these issues.

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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.

 

Second Circuit Dismisses Claims of Would-Be Ad-Blockers

On November 22, 2017, the Second Circuit in Heskiaoff v. Sling Media affirmed the dismissal of a class action complaint against Sling Media that alleged deceptive business practices in connection with Sling’s introduction of advertisements into its television streaming service.  In a summary order, the panel affirmed the district court’s holding that the complaint and proposed amendments to the complaint failed to plausibly allege a violation of New York General Business Law Section 349 because plaintiffs failed to point to any affirmative statement or omission made by Sling Media that would have misled a reasonable consumer into believing that the service would never include advertisements.

Sling Media produces the Slingbox, a device that attaches to a television and, in conjunction with software installed on a computer or mobile device, allows the user to stream television programming remotely on that computer or mobile device.  Aside from advertisements inherent in the underlying television programming, the Slingbox service was offered free of advertisements until 2014.  At that time, Sling Media began transmitting its own ads to subscribers in the form of videos that played upon opening the software and banners displayed alongside the streamed content.  The complaint alleged that by failing to disclose to consumers its plans to introduce advertising content, Sling Media had engaged in deceptive business practices.

The district court held that plaintiffs failed to state a claim because there was no plausible allegation that Sling had knowledge of a plan to disseminate advertising and failed to disclose its plan to plaintiffs when they purchased their Slingboxes prior to 2014.  Nor did plaintiffs plausibly allege that this information, if disclosed, would have been material to a reasonable consumer’s purchasing decision because, among other things, the complaint failed to allege that plaintiffs expected an ad-free experience or were even aware that Slingbox was ad-free when purchased.  In affirming, the Second Circuit held that the complaint failed to allege why a reasonable consumer would have been led to believe that Slingbox would always be an ad-free product.

The Second Circuit also affirmed the district court’s denial of plaintiffs’ motion to replead because the proposed misrepresentations or omissions—such as an alleged failure to explicitly warn consumers in advance of the advertising—would not have caused a reasonable consumer to believe that Slingbox was, and always would be, ad-free.

The case serves as a reminder that a false advertising claim based on an alleged omission of information cannot survive dismissal under New York law unless the alleged omission plausibly would mislead a reasonable consumer.  The decision also gives comfort to media companies that plan to introduce advertising into their services, though additional disclosures may be necessary if they ever affirmatively represented that their products would remain ad-free.

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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.

Court Says “Lights Out” on UL Certification Lanham Act Claim

Last week, a federal judge in Manhattan examined the intersection of false advertising and trademark infringement law in connection with the alleged misuse of a certification mark, and found the plaintiff to be entitled to neither body of law as a means to stop a competitor from advertising its products as “UL Certified.”  The court granted a motion to dismiss a Lanham Act claim that alleged the defendant’s light switches were falsely labelled as meeting the Underwriters Laboratories (“UL”) safety certification standard.  Board-Tech Elec. Co. v. Eaton Elec. Holdings LLC, No. 17-cv-5028 (KBF).  This case sheds light on how courts treat false advertising claims based on alleged non-compliance with an awarded certification marking.

Underwriters Laboratories registered the UL certification under Section 1054 of the Lanham Act as a “mark [that] is used by persons authorized by [UL] to indicate that representative samplings of the products conform to the safety requirements of [UL].”  Eaton, the defendant, labeled its light switches as having been certified by Underwriters Laboratories as meeting a safety standard for “General Use Snap Switches.”  According to plaintiff Board-Tech, it tested eight samples of six models of Eaton’s light switches that bear the UL certification mark and found that none of them complied with the UL safety standard.  Board-Tech alleged based on its testing that several of Eaton’s product lines—which included at least 30 different models in total—were falsely labeled as meeting the UL standard.

The Court snuffed out Board-Tech’s claims on two independent grounds.  First, Board-Tech’s complaint failed to identify with any specificity the defendant’s products at issue in the lawsuit, thus failing to meet Rule 8(a)’s specificity requirements.  Although Board-Tech alleged in general terms that it tested six different light switch models, it failed to specify which models it tested and failed to allege any plausible basis on which one could extrapolate that all of Eaton’s other light switch models failed to comply with the UL standard.  Board-Tech’s failure to identify to the Court and Eaton which particular light switches failed to meet the UL standard in Board-Tech’s testing was especially inexcusable since it had twice amended its complaint and this issue had been raised previously by the Court.

The second and more noteworthy basis for dismissal was that Board-Tech failed to plausibly allege that Eaton’s advertising was false.  The Court drew a distinction between a claim alleging that a product is advertised as UL certified without authorization, versus a claim that a product permitted to use the UL certification fails to actually comply with the UL standard.  Board-Tech conceded that Eaton’s light switches were UL certified and that Eaton was authorized to display a UL certification mark on its light switches, but nonetheless contended that Eaton was deceiving consumers by using the UL mark.  While Board-Tech acknowledged that UL tested a representative sample of Eaton’s light switches and found that they conformed to the safety standard, Board-Tech alleged it had tested Eaton’s light switches itself and found the devices did not meet the UL standard, rendering Board-Tech’s advertising that its switches met the UL standard false.

The Court held that allowing Board-Tech to allege a false advertising claim on this basis would be nothing less than allowing it (and future plaintiffs) to police the UL mark.  That, Board-Tech was not entitled to do, and the court wisely considered the implications of allowing these types of claims to proceed.  To the extent Board-Tech believed that the certification itself was unwarranted, the court recognized that plaintiff could seek to cancel the mark under Section 1064(5) of the Lanham Act.  However, Board-Tech’s Section 1125(a) Lanham Act false advertising claim was extinguished.

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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.

New Jersey Supreme Court Announces Last Call for TCCWNA Happy Hour

In recent years, creative plaintiff-side class action attorneys in New Jersey have attempted to seek relief under the Truth in Consumer Contract, Warranty and Notice Act (“TCCWNA”), which allows for $100 in statutory damages per violation to “aggrieved consumers” when terms in certain contracts or other writings violate a “clearly established legal right of a consumer or responsibility of a seller.” N.J. Stat. Ann. § 56:12-14 et seq.  Although the TCCWNA has been around since the 1980s, it has only recently been employed by named plaintiffs in putative class actions, most likely in an attempt to circumvent the ascertainable loss and causation requirements of New Jersey’s Consumer Fraud Act (“CFA”) and because the prospect of $100 per violation greatly exceeds actual damages in many cases.  Thankfully for defendants, a recent New Jersey Supreme Court decision, Dugan v. TGI Fridays, Inc., 2017 WL 4399352 (N.J. Oct. 4, 2017), makes it more difficult to certify class actions brought under the TCCWNA and circumscribes the type of “clearly established legal right[s]” that may form the basis of a TCCWNA claim.

Dugan is a consolidated appeal of two actions in which plaintiffs alleged that the defendant operators of New Jersey restaurants engaged in unlawful practices with respect to the disclosure of prices charged to customers for alcoholic and non-alcoholic beverages. In the first action, plaintiffs alleged that TGI Fridays and Carlson Restaurants (collectively, “TGIF”) offered beverages in menus without listing their prices. Plaintiffs claimed this was a violation of the CFA and a related regulation, § 56:8-2.5, which provides that it is unlawful to sell merchandise at retail unless the “total selling price” is plainly marked at the point where the merchandise is offered for sale. The named plaintiff in the second action similarly claimed that Carrabba’s Italian Grill (and other restaurants) violated the CFA and the same regulation based on allegations that menus and other displays failed to disclose drink prices and discounts in effect at different times the restaurant was open. Plaintiffs in both actions also sought relief under the TCCWNA.

At the class certification stage, the lower courts in the two cases were split on whether common questions predominate over individual issues with respect to ascertainable loss.  On appeal, the Supreme Court of New Jersey held that class certification was improper for the TCCWNA claims because, among other things, plaintiffs failed to show that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members.” Specifically, the Supreme Court noted that the TCCWNA, by its terms, does not apply when a defendant fails to provide the consumer with a required writing, be it a “contract,” “warranty,” “notice” or “sign.” Thus, each member of the class would have to prove he or she was presented with a menu during his or her visit to the defendants’ restaurants. This individual question would require testimony by each class member or another witness to prove that the member is an aggrieved consumer.

The Supreme Court also held that the failure to provide prices on a menu is not a violation of a “clearly established legal right of a consumer or responsibility of a seller” as required under the TCCWNA because such cases have never arisen in the history of prosecutions under § 56:8-2.5. Moreover, the Supreme Court noted that “if plaintiffs were to prove that each of the thirteen to fourteen million restaurant visits by a member of the plaintiff class gave rise to a TCCWNA violation warranting a civil penalty of $100, [then] TGIF would be liable for penalties amounting to more than a billion dollars.”  The Supreme Court found there is nothing in the legislative history of the TCCWNA suggesting the legislature intended to impose billion-dollar penalties on restaurants that serve unpriced food and beverages to customers.

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.

Chambers and Partners Releases Pharmaceutical Advertising 2018 Guide

We are pleased to announce that Chambers and Partners has released its 2018 Pharmaceutical Advertising Global Practice Guide, the U.S. chapter of which was authored by Proskauer partners Lawrence Weinstein and Alexander Kaplan.  The Guide’s U.S. chapter provides a detailed overview of U.S. civil and criminal laws, regulations and ethical codes governing the advertising and promotion of prescription and over-the-counter drugs.  It also highlights important FDA regulations and recent guidance, judicial decisions and legislative developments relevant to pharmaceutical marketing.  Read the full U.S. chapter of the Chambers guide here.

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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.

FDA Approves First Qualified Health Claim about Allergy Prevention on Baby Food Labels

Last month, the FDA announced that companies will be able to label baby food products with advice about how the early introduction of peanuts in an infant’s diet may reduce the risk of developing a peanut allergy. This marks the first time the FDA has permitted a qualified health claim of food allergy prevention. These labels will be allowed on foods containing ground peanuts suitable for infant consumption, but not whole peanuts, which may be a choking hazard for young children.

The permitted qualified health claim states that “for most infants with severe eczema and/or egg allergy who are already eating solid foods, introducing foods containing ground peanuts between 4 and 10 months of age and continuing consumption may reduce the risk of developing peanut allergy by 5 years of age.” In addition, the claim includes language that recommends that parents check with their child’s health care provider before introducing food that contains ground peanuts and discloses that the claim is based on one study.

The study, a clinical trial funded by the National Institutes of Health, found that introducing foods containing smooth peanut butter to babies as early as 4 months of age who are at high risk of developing a peanut allergy due to severe eczema, egg allergy, or both, may reduce their risk of developing peanut allergies later in childhood by about 80 percent.  As a result, the NIH issued new guidelines in early 2017 recommending that parents of infants with such risk factors introduce peanut-containing foods to their child’s diet as early as 4 to 6 months of age. The guidelines also advise parents to check with the child’s health care provider before introducing peanut-containing foods to determine if an allergy test should be administered and whether feeding should be done under a doctor’s supervision. The NIH’s recommendations have been supported by groups such as the American Academy of Pediatrics and the National Institute of Allergy and Infectious Diseases.

In permitting this new qualified claim, the FDA stated that its goal was to make sure parents are aware of the latest science so they can make informed decisions about these important issues in their children’s lives. According to the FDA’s announcement, around 2% of American children are allergic to peanuts, a figure that has more than doubled from 1997 to 2008. According to the announcement, peanut allergies are the leading cause of deadly food-induced anaphylaxis in the United States, and the majority of people who develop this allergy as children never outgrow it. The FDA noted that doctors had previously advised parents not to feed peanuts to children who were at high risk of developing a peanut allergy before age three, but that the NIH now recommends a “different approach.”  Companies have already begun making baby food specifically for the purpose of introducing infants to peanuts.

Now that the FDA has allowed one qualified allergy prevention claim on food labels, future evidence-based dietary recommendations may expand beyond peanuts and baby food. The prevalence and danger of food allergies in children, combined with the rapidly developing research on these subjects, make food labeling a particularly interesting space to watch.

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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.

SEC Issues Risk Alert on the Most Frequent Advertising Rule Compliance Issues and Use of Accolades in Advertisements

On September 14, 2017, the staff of the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a National Examination Program Risk Alert on the most frequent advertising rule compliance issues identified in OCIE examinations of investment advisers.  This Risk Alert reflected issues identified in deficiency letters generated in the course of over 1,000 adviser examinations conducted by OCIE staff.  Among other things, the issues pertain to advertising of past performance results and use of accolades in marketing materials under the Advertising Rule of the Investment Advisers Act.

Proskauer published a client alert summarizing this Risk Alert, which may be read here.

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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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