Proskauer on Advertising Law
Proskauer on Advertising Law

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.


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

Instant Dismissal: Court Dismisses Instant Oatmeal Case against Whole Foods Market

Judge Rachel Kovner of the Eastern District of New York recently dismissed a putative class action challenging Whole Foods Market’s label claims that its Oats & Flax Instant Oatmeal contains “dehydrated cane juice solids” and is “100 % Whole Grain – 18g or more per serving.” Plaintiffs alleged these labels communicate that the oatmeal is sweetened using fruit juice rather than sugar, and that the product consists entirely of whole grains and no other ingredient. In dismissing plaintiffs’ claims, the court concluded that no reasonable consumer would be materially misled by these labels. Warren v. Whole Foods Market Group, Inc., No. 19-CV-6448 (E.D.N.Y. Dec. 3, 2021).

In considering the “dehydrated cane juice solids” claim, Judge Kovner determined that plaintiffs offered no reason why a reasonable consumer would conclude that “cane juice” refers to “a fruit juice ingredient as opposed to the common sweetener, sugar.” Judge Kovner noted the packaging contains no claims like “contains fruit” or “made with real fruit,” nor does the product’s name (Oats & Flax Instant Oatmeal) suggest it contains fruit. Further, the court observed the label only speaks of cane juice, not fruit juice, and juices can come from products besides fruit.

The court also found the reasonable consumer would not be tricked into believing the product is sugar-free or low in sugar. Although consumers may not be familiar with “dehydrated cane juice solids,” they would recognize sugar from the nutrition label listing “Sugar 11g.” The court also noted that the package lacked any affirmative representations that the product is “sugar-free,” “low in sugar,” or “without added sugar.”

Judge Kovner also rejected plaintiffs’ allegation that the “100% Whole Grain – 18g or more per serving” stamp necessarily implies that the product consists entirely of whole grains. The court commented that plaintiffs’ purported takeaway is “hard to square away with their assertion that they believed, based on the ingredients label, that the product contained ‘a fruit juice ingredient.’” Plaintiffs’ purported interpretation was also implausible because the stamp in question did not simply say “100% Whole Grain,” but added the detail of “18g or more per serving.” As a result, the court found the stamp communicated that the whole grain made up a portion of each serving of oatmeal, not the whole thing. Moreover, the court highlighted that the product’s name itself, Oats & Flax Instant Oatmeal, discloses the presence of “another, nongrain ingredient—flax.”

This decision reinforces the importance of considering context and common sense in determining reasonable consumer takeaways. When plaintiffs allege an objectively unreasonable takeaway with no connection to the text of the advertising (or two contradictory takeaways), their claims are ripe for dismissal.


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On Notice: Disclosing Unexpected Material Connections in Advertising

In this final installment of our “On Notice” series about the FTC’s Notice of Penalty Offenses Concerning Endorsements, we discuss when and how to properly disclose the existence of a material connection between an advertiser and an endorsing party.

Per the FTC’s Notice of Penalty Offenses, “[i]t is an unfair or deceptive trade practice to fail to disclose a connection between an endorser and the seller of an advertised product or service, if such a connection might materially affect the weight or credibility of the endorsement and if the connection would not be reasonably expected by consumers.” In support, the FTC cited Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984), a case where “[n]one of the testimonials used in the respondents’ advertisements and promotional materials indicate that at the time of their writing, the testimonialists personally knew the manufacturers or various marketers…or were connected with them in any way.” The FTC’s Endorsement Guides contain the same guidance. See 16 C.F.R. § 255.5.

The FTC does not require that every connection be disclosed – only connections that are material to a consumer’s perception of the endorsement, and that consumers would not reasonably expect. A “material connection” can include payment, free product, or a family or employee relationship with the advertiser.  As for whether a consumer would reasonably expect such a connection, the Endorsement Guides provide an example where an ad for an anti-snoring product features an endorsement from a physician. The FTC notes that while consumers would expect the physician to be reasonably compensated for his appearance in the ad, consumers would be unlikely to expect that the physician receives a percentage of gross product sales or that he owns part of the company – and knowing this would materially affect the weight and credibility of the endorsement. Accordingly, the FTC advises that the latter two connections should be disclosed.

Where consumers would not reasonably expect a particular material connection, the FTC’s Endorsement Guides instruct that the person making the advertisement must “clearly and conspicuously disclose” (i) either the payment or promise of compensation prior to and in exchange for the endorsement, or (ii) the fact that the endorser knew or had reason to know or believe that they would receive some benefit if they favored the advertised product. The Endorsement Guides provide an example where a college student who has earned a reputation as a video game expert receives a free gaming system from the manufacturer, in exchange for reviewing the product on his personal website or blog. Noting that because his review is disseminated via “a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious,” the FTC recommends that the blogger should clearly and conspicuously disclose that he received the gaming system free of charge.

Overall, the primary question is whether knowing about the compensation or other benefit would affect the weight or credibility the audience would ascribe to the recommendation.  These requirements apply equally across different platforms and types of media, whether the endorsement appears in a television commercial, YouTube video, or Instagram post.

So what does it mean for a disclosure to be “clear and conspicuous?”  While there is no special wording that must be used, the disclosure must effectively communicate that the endorsement was provided in exchange for some benefit.  For example, if an endorser is sent free product in exchange for providing a video review, it would be appropriate to say something like “Company X gave me this product to try,” or “Company X gave me [name of product] and I think it’s great.”  For video reviews, the FTC requires an audio disclosure as well as a written disclosure in the description or caption for the video.  For sponsored social media posts, hashtags such as #sponsored, #ad, or #[Brand]_Ambassador can be used, but vague or ambiguous hashtags like “#sp,” “#spon,” “#thanks,” or the word “#ambassador” standing alone are not sufficient. As with any disclosure, the hashtags must be unambiguous and easy to find.  A hashtag that is buried in a string of other hashtags, or that is not visible unless the viewer clicks to see “more” would not be considered an adequate disclosure.

Factors the FTC considers in determining whether a particular disclosure is clear and conspicuous include:

  • The placement of the disclosure in the advertisement and its proximity to the claim it is qualifying;
  • The prominence of the disclosure;
  • Whether the disclosure is placed so prominently that a consumer will invariably see it;
  • The extent to which items in other parts of the advertisement might distract attention from the disclosure;
  • Whether the disclosure needs to be repeated several times in order to be effectively communicated, or because consumers may enter the site at different locations or travel through the site on paths that cause them to miss the disclosure;
  • Whether disclosures in audio messages are presented in an adequate volume and cadence;
  • Whether visual disclosures appear for a sufficient duration; and
  • Whether the language of the disclosure is understandable to the intended audience.

The FTC has been particularly active in monitoring this space in recent years as partnerships between advertisers and social media “influencers” have become increasingly common.  The FTC has issued warning letters to and brought enforcement actions against both advertisers and influencers for their alleged failures to comply with FTC regulations concerning undisclosed material .

In one recent example, the FTC brought an enforcement action against Teami, LLC, the maker of various diet and detox tea products, and issued warning letters to several of Teami’s influencers. We referenced this action in a previous “On Notice” post. In addition to allegations of unsubstantiated testimonials, the FTC’s complaint cited a failure to disclose that Teami paid well-known Instagram influencers to promote its products.  Though Teami implemented a social media policy in May 2018 that specifically instructed its paid influencers to make clear and conspicuous disclosures, the FTC found that subsequent sponsored Instagram posts clearly flouted these directives.  This case underscores that simply instructing influencers to comply with disclosure requirements is not enough; an advertiser should actively monitor its influencers’ advertisements, and take proactive steps to take down any advertisements that do not comply.

Following FTC guidance, NAD and ERSP, too, have made failure to disclose material connections a priority. For example, in one case, ERSP was concerned social media influencer advertising for athletic apparel did not contain sufficiently clear or conspicuous disclosures. Alo, LLC (Alo Yoga), ERSP Case #429 (2019). In particular, ERSP identified certain posts where the disclosure was not visible until viewers hit the “more” button, where the disclosure was couched between several hashtags, and where the disclosure was made in a different language from the original post. Although Alo provided its influencers with “Ambassador Program Guidelines,” which instructed influencers to comply with the FTC’s disclosure requirements, ERSP found this to be insufficient because the company did not follow up with social media influencers engaging in questionable practices.

Additionally, NAD recently rolled out its Fast-Track “SWIFT” process, expediting the process for singe-issue disputes that do not require complex evidence or argument. NAD’s SWIFT process can only be used for three types of cases – one of which is cases involving the prominence or sufficiency of disclosures, including disclosure issues in influencer marketing, native advertising, and incentivized reviews. We will monitor if and how the NAD uses the SWIFT program to consider issues of influencer advertising.


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

On Notice: Unsubstantiated or Unrepresentative Testimonials

Continuing our “On Notice” series about the FTC’s Notice of Penalty Offenses Concerning Endorsements, we address the FTC’s prohibition against using testimonials to (1) make or imply unsubstantiated or otherwise deceptive performance claims even if such testimonials genuinely reflect the endorser’s own experience, and (2) misrepresent explicitly or implicitly that the experience described by endorsers of a product or service “represents the typical or ordinary experience of users.”

The FTC cited several prior decisions in support of its Notice, including:

  • Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984). The advertiser used testimonials to make performance claims for a device that supposedly improved fuel economy for automobiles. The testimonials included statements by users about their fuel saving experiences. The FTC found that by printing the testimonials the advertiser “implicitly made performance claims” that the Commission had found to be false and deceptive.  Therefore, “irrespective of the veracity of the individual consumer testimonials,” the testimonials themselves were deceptive.
  • Macmillan, Inc., 96 F.T.C. 208 (1980). The advertiser, LaSalle University, relied on endorsements by successful graduates in its ads. The FTC noted that “[t]hese testimonials created the impression that such success was ordinary and typical of LaSalle graduates.” Because the typical graduate did not experience the type of success represented in the testimonials, the FTC required the advertiser provide a disclaimer stating that “this testimonial does not reflect the typical or ordinary experience of [the student]” and required it be displayed “in print as large as that of the testimonial itself, adjacent to or integrated with the testimonial.”
  • Porter & Dietsch, Inc., 90 F.T.C. 770 (1977), aff’d, 605 F.2d 294 (7th Cir. 1979). An advertiser of weight loss tablets touted testimonials “reciting great weight losses achieved by users.” However, the advertiser could not substantiate that the results represented the ordinary experience of people using the tablets. The Commission therefore prohibited the advertiser from “[u]sing any testimonial…which reports a result unless the testimonial or a related disclosure in close conjunction therewith reveals clearly and conspicuously the typical or ordinary experience of members of the public with such product.”

The FTC’s Endorsement Guides echo those decisions and the recent Notice letter, stating that: “the advertiser must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support [] claims made through endorsements in the same manner the advertiser would be required to do if it had made the representation directly.” 16 CFR § 255.2(a). The Endorsement Guides provide the following example: if an advertisement for a cholesterol-lowering product features an individual who claims that his serum cholesterol went down by 120 points, the advertisement would be deceptive if the advertiser cannot adequately substantiate that the product can produce that result. Consistent with the general principle that a disclaimer cannot contradict the main claim, the FTC explains a disclaimer that “well-conducted clinical study shows that the product reduces the cholesterol levels of individuals with elevated cholesterol by an average of 15%” would not cure that deceptive message.  16 CFR § 255.2(a).

The Endorsement Guides also state that “[a]n advertiser should possess and rely upon adequate substantiation” for claims that “the endorser’s experience is representative of what consumers will generally achieve with the product or service in actual, albeit variable, conditions of use.” Absent such substantiation, advertisers must “clearly and conspicuously disclose the generally expected performance in the depicted circumstances.” 16 CFR § 255.2(b) The FTC has specified that statements like “Results not typical” or “Individual results may vary” are not enough to insulate advertisers from these obligations.

Issues of unsubstantiated or inflated performance claims in testimonials have come into the limelight in recent years, with the rise of influencer and social media marketing. For example, in 2020, the FTC reached a $1M settlement with Teami LLC, the maker of “detox” teas promoted by celebrities and well-known Instagram influencers. The FTC alleged that Teami’s influencers made a number of unsubstantiated health claims that do not represent the typical experience of the ordinary user. These include claims that Teami’s teas can help consumers lose weight, treat or fight cancer, clear clogged arteries, relieve migraines, and prevent common colds and the flu.

These portions of the FTC’s Notice of Penalty Offenses remind advertisers that it is not enough for an endorser’s opinion to accurately represent the endorser’s own experience. Advertisers should be careful to ensure that endorsers’ statements are substantiated, and are representative of what a typical or ordinary user can expect to experience.


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

Court Cuts Short Challenge to Zicam’s “Clinically Proven to Shorten Colds” Claims

In Yamasaki v. Zicam, LLC, Case No. 21-cv-2596 (N.D. Cal. 2021), Plaintiff alleged certain Zicam® cold remedy products were falsely advertised as “clinically proven to shorten colds.”  On this basis, Plaintiff sought to represent a putative class of California consumers for seven different Zicam products.  Zicam, represented by Proskauer, moved to dismiss Plaintiff’s amended complaint in its entirety.  Judge Gilliam granted the motion, agreeing with Zicam that Plaintiff failed to state a claim for relief.

Under California law, a private litigant may not challenge advertising claims on the ground that the advertiser allegedly lacks substantiation for its claims.  A private litigant must affirmatively allege that the defendant’s advertising is false.  For example, in the Ninth Circuit’s precedential decision in Kwan v. Sanmedica Int’l, 854 F.3d 1088 (9th Cir. 2017), the Court expressly rejected the argument that “clinically tested,” “clinically proven,” or similar statements referring to the existence of studies to support an advertising statement should be subject to a different standard than other advertising statements.

In Yamasaki, the Court found that Plaintiff’s amended complaint lacked any factual allegations supporting a reasonable inference that Zicam’s “clinically proven” statements were false.  While Plaintiff cited a variety of studies relating to zinc in her amended complaint, none tested a Zicam product, let alone found a Zicam product ineffective at shortening colds.

Plaintiff tried to overcome California’s bar on lack-of-substantiation claims with two arguments, both of which the Court rejected.  First, Plaintiff argued that reasonable consumers would interpret “clinically proven” to mean there is a scientific consensus about the efficacy of the challenged Zicam products.  Plaintiff alleged no such consensus existed because Zicam has not published its clinical studies (which are proprietary to Zicam) in a peer-reviewed journal.  However, the Court found that Plaintiff failed to plausibly allege reasonable consumers would construe “clinically proven” to mean “scientific consensus.”

Second, Plaintiff argued that homeopathic products can never be clinically proven.  The Court rejected this argument too, noting that Plaintiff did not actually plead this theory in her amended complaint.  As a result, the Court found that Plaintiff failed to state a claim for relief and dismissed the amended complaint in its entirety. Plaintiff did not seek to amend her complaint and the Court subsequently dismissed her claims with prejudice.

Advertisers faced with a California consumer class action related to “clinically proven” claims should keep in mind the lack of substantiation bar.


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


On Notice: Continued Use of Endorsements

Continuing our series on the FTC’s Notice of Penalty Offenses Concerning Endorsements, this post considers the FTC’s statement that it is unlawful under Section 5 of the FTC Act “for an advertiser to continue to advertise an endorsement unless the advertiser has good reason to believe that the endorser continues to subscribe to the views presented in the endorsement.”

In support, the FTC cited Nat’l Dynamics Corp., 82 F.T.C. 488 (1973), an almost 40 year old case in which the FTC found that by publicizing undated testimonial letters written 5 to 10 years in the past, the advertiser “created the impression, contrary to fact, that they were recent statements of persons contemporaneously using [the advertiser’s product] and that the statements represented the contemporaneous opinions of the authors.”  The FTC rejected the advertiser’s defense that it had no notice that the endorsers were no longer using the product and no longer endorsed it until relatively recently, finding that it was the advertiser’s “duty to ensure that the testimonials they publish reflect facts and opinions existent at the time of publication and circulation.”  The FTC thus ordered the advertiser to cease and desist from using, publishing, or referring to any testimonial or endorsement unless it had “good reason to believe that at the time of such use, publication, or reference, the person or organization named subscribes to the facts and opinions therein contained.”

The language of the FTC’s recent notice mirrors that of the Endorsement Guides, which state that: “An advertiser may use an endorsement of an expert or celebrity only so long as it has good reason to believe that the endorser continues to subscribe to the views presented.”  16 C.F.R. § 255.1(b).  However, the notice appears to go a step further in applying this requiring to any endorsement, not just those by experts or celebrities.

The Endorsement Guides clarify that advertisers can satisfy this requirement by “securing the endorser’s views at reasonable intervals.”  16 C.F.R. § 255.1(b).  Reasonableness in this context is determined by factors like:

  • New information on the performance or effectiveness of the product,
  • A material alteration in the product,
  • Changes in the performance of competitors’ products, and
  • The advertiser’s contract commitments.

Id.  For example, if a building contractor states that he uses the advertiser’s paint because of its quick drying properties and durability, but the advertiser subsequently reformulates its paint, the advertiser must contact the contractor to determine whether he or she would continue to subscribe to the views presented previously before continuing to use that contractor’s endorsement.  See 16 C.F.R. § 255.1, Example 1.

NAD has applied this principle to advertisers’ touting of ratings and reviews from independent third-party organizations. For example, in American Dental Supply, LLC (White Brilliance Tooth Whitening System), NAD Case #4183 (May 2004), Good Housekeeping Magazine challenged the advertiser’s use of the claim “Good Housekeeping Magazine – ‘Best Results Overall’”.  Four years prior, in 2000, Good Housekeeping had in fact evaluated the advertiser’s product together with other tooth whitening products, and concluded that the advertiser’s product offered the “best results overall.”  However, in bringing this challenge, Good Housekeeping made clear it no longer subscribed to its evaluation that was conducted back in 2000.  Citing the Endorsement Guides and the fact that the marketplace of tooth whitening products had significantly changed since that time, and the use instructions on the product had also changed in the interim, NAD recommended the advertiser discontinue this claim attributed to Good Housekeeping.

Advertisers who use or reference endorsements and testimonials from individuals or third-party organizations, whether they are affiliated with the advertiser or independent, should periodically contact their endorsers to ensure they continue to subscribe to the advertised views.  In particular, they should do so any time there is a material change in the advertised product or, where the endorsement concerns competitive products, where there is a change in those competitive products or the competitive market.


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


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