Proskauer on Advertising Law
Proskauer on Advertising Law

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

By Baldassare Vinti, Jeff Warshafsky and Jessica Griffith on Posted in Deceptive Trade Practices, Labeling 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.

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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.

 

Tags: California, Class Action, Deceptive Trade Practices, Labeling, Marketing, Ninth Circuit

On Notice: Continued Use of Endorsements

By Baldassare Vinti, Jennifer Yang and Anisha Shenai-Khatkhate on Posted in Deceptive Trade Practices, FTC

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.

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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

Tags: Deceptive Trade Practices, Endorsements, FTC, Marketing, National Advertising Division, On Notice Series

On Notice: Misattributed, False, or Mischaracterized Endorsements

By Baldassare Vinti, Jeff Warshafsky, Anisha Shenai-Khatkhate and Alyson Tocicki on Posted in Announcements, Deceptive Trade Practices, FTC, NAD/NARB/CARU/ERSP, Regulatory

Continuing our series on the FTC’s Notice of Penalty Offenses Concerning Endorsements, this post considers the issues of falsely attributed, mischaracterized, and fabricated endorsements – practices that the FTC highlighted in its Notice as unfair or deceptive. In particular, the FTC stated that:

  • It is an unfair or deceptive trade practice to make claims which represent, expressly or by implication, that a third party has endorsed a product or its performance when such third party has not in fact endorsed such product or its performance.
  • It is an unfair or deceptive trade practice for an advertiser to misrepresent that an endorsement represents the experience, views, or opinions of users or purported users of the product.”
  • It is an unfair or deceptive trade practice to misrepresent an endorser as an actual user, a current user, or a recent user of a product or service.

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

  • Ar-Ex Cosms., Inc., 48 F.T.C. 800 (1952). The advertiser, Ar-Ex, touted that its Special Formula (Non-Permanent) Lipstick was the only lipstick recommended by third party product-testing organization, Consumers’ Research, for women who suffer from cracked, sore, dry, or chapped lips.  However, Consumers’ Research had merely noted that Ar-Ex sold lipsticks free from certain compounds­—not that it recommended the products.  The FTC therefore found the advertiser’s claim to be false and misleading.
  • J. Reynolds Tobacco Co., 46 F.T.C. 706 (1950). The FTC determined it was deceptive for the makers of Camel cigarettes to advertise using testimonials that did not accurately reflect the endorsers’ opinions. Camel recruited a number of individuals to sign off on testimonials, in exchange for compensation. But some of these individuals stated that they could not read, and the testimonials they signed off on were not read to them. Other testimonials were fabricated entirely, mischaracterized, or distorted. For example, several testimonials stated or implied the endorser was an exclusive Camel smoker, when the endorser did not smoke cigarettes at all. And some of the testimonials stated the endorser preferred Camel over all other brands when, in actuality, the endorser could not tell the difference between Camels and other cigarettes.
  • Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984). The FTC found the advertiser deceptively implied that testimonials came from current or recent product users of its “Ball-Matic” device. For example, the testimonials used language like “. . . now I get four miles more per gallon” and “now that I have installed your unit . . .” (emphasis added). In truth, the endorsements were written five to six years before the date of the advertisements – not by individuals who had currently or recently used the device.

The FTC’s Endorsement Guides are consistent with those decisions, stating that:

  • “Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser.” 16 CFR § 255.1(1).  Therefore, in order to make a claim that a third party endorses your product or its performance, the third party must actually endorse the product or its performance.
  • “When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given. Additionally, the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a bona fide user of the product.” 16 CFR § 255.1(c).
  • “Advertisements presenting endorsements by what are represented, directly or by implication, to be ‘actual consumers’ should utilize actual consumers in both the audio and video, or clearly and conspicuously disclose that the persons in such advertisements are not actual consumers of the advertised product.” 16 CFR § 255.2(c).

Allegations of misattributed, false, or mischaracterized endorsements have made headlines in recent years, as brands have attempted to capitalize on the value of celebrity endorsements. This often arises when a celebrity or public figure is spotted using an advertiser’s product. For example, when then President Barack Obama was photographed wearing a Weatherproof jacket on a trip to China, Weatherproof turned this photograph into a billboard in Times Square. A White House aide publicly responded, stating “[t]his ad is clearly misleading because the company suggests the approval or endorsement of the president or the White House that it does not have.” Weatherproof voluntarily agreed to take down the billboard.

Similarly, when actress Katherine Heigl was photographed carrying Duane Reade shopping bags, the pharmacy Tweeted the image, with the caption “Love a quick #DuaneReade run? Even @KatieHeigl can’t resist shopping #NYC’s favorite drugstore.” In response, Katherine Heigl filed suit in the Southern District of New York, alleging violations of the Lanham Act, New York state unfair competition law, and the right of publicity. Heigl’s complaint sought $6 million in damages, though the parties later reached a settlement, the terms of which were not disclosed.

In more extreme cases, brands have faced allegations that they fabricated celebrity endorsements out of whole cloth. For example, in early 2020, Tom Hanks spoke out against an ad for CBD products that featured a photo of the actor, alongside a quote he said was falsely attributed to him. Calling it a “false and intentional hoax,” Hanks stated “I’ve never said this and would never make such an endorsement.” Celebrity doctor Dr. Oz was featured in the same ads, and re-Tweeted Hanks’s message, adding “[t]his is a fake and misleading advertisement intended to take advantage of consumers using false claims and our likenesses illegally.”

With the rise of influencer marketing, endorsements from celebrities and other public figures are more valuable than ever before. Advertisers should be careful to convey any celebrity or influencer endorsements in a way that is faithful to the endorser’s opinion and message – particularly now that the FTC’s Notice of Penalty Offenses has identified this as an area of focus for the FTC.

These portions of the Notice of Penalty Offenses are also of particular importance for advertisers who use consumer endorsements or reviews in their advertising. For example, if a television commercial depicts paid actors rather than actual product users, this should be clearly and conspicuously disclosed. See 16 CFR § 255.2, Example 6. And if a consumer appearing in an advertisement says something or is portrayed in a manner that suggests the consumer is a current or recent product user, the advertiser should periodically verify that remains true, or else discontinue its use of that endorsement after a reasonable amount of time. Advertisers who quote consumer reviews in their advertising should also take steps to confirm that each such consumer actually bought and used the product, and should keep records to that effect. See, e.g., Function Inc. (Shampoo and Conditioner), NAD SWIFT Case #6938 (February 2021) (cautioning that “advertisers using consumer reviews in their advertising should maintain a record of reviews to demonstrate that each review represents a person that has used the product”).

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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.

 

Tags: Deceptive Trade Practices, Endorsements, FTC, Marketing, National Advertising Division, On Notice Series

On Notice: Procedural Overview of the FTC’s Section 5 Penalty Offense Authority

By Lawrence Weinstein, Jennifer Yang and Timothy E. Burroughs on Posted in FTC, Regulatory

As discussed in our earlier post, on October 13, 2021, the FTC issued “Notice of Penalty Offenses” letters to more than 700 companies, placing them on notice of civil penalties up to $43,792 per violation if they use endorsements or testimonials in an unfair or deceptive manner. These letters are the first step for the FTC to obtain civil penalties in administrative adjudication proceedings under Section 5 of the FTC Act. In this post, we explain the process for the FTC to obtain such penalties under Section 5. Future posts in our “On Notice” series will cover the substantive aspects of the Notice of Penalty Offenses concerning endorsements and testimonials, and will offer tips to comply with the FTC’s precedent and guidelines.

The FTC may enforce the FTC Act’s prohibition on unfair or deceptive acts or practices either by commencing administrative adjudication proceedings under Section 5 of the Act or by suing a party in court under Section 13(b). As noted in our previous post, the Supreme Court’s decision this past April in AMG Capital Mgmt., LLC v. FTC has significantly curtailed the FTC’s ability to pursue civil penalties under Section 13(b). Thus, the FTC seems to be looking to increase its utilization of Section 5, which explicitly allows for civil penalties.

Under Section 5 of the FTC Act, the Commission can obtain civil penalties against a company that acted unfairly or deceptively through the Penalty Offense Authority. The FTC can seek civil penalties if it proves that (1) the company knew the conduct was unfair or deceptive in violation of the FTC Act and (2) the FTC had already issued a written decision that such conduct is unfair or deceptive. 15 U.S.C. § 45(m)(1)(B). The Notice of Penalty Offenses letters provide a non-exhaustive list of conduct relating to endorsements and testimonials that the FTC has determined to be unfair or deceptive, including:

  • Falsely claiming an endorsement by a third party;
  • Misrepresenting whether an endorser is an actual, current, or recent user;
  • Using an endorsement to make deceptive performance claims;
  • Failing to disclose an unexpected material connection with an endorser;
  • Misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users;
  • Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience; and
  • Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented.

Future posts in our “On Notice” series will explore these types of conduct in further detail.

The letters make clear they are not an indication the recipients have engaged in any unfair or deceptive practices. However, the letters put the recipients on notice of the prohibited conduct and may enable the FTC to seek civil penalties if a company is found to be engaged in such activity.

To begin an administrative adjudication under Section 5, the FTC issues a complaint setting forth its charges if they have “reason to believe” that a violation has occurred. § 45(b). Respondents may elect to settle with the FTC, sign a consent agreement, consent to entry of a final order, or contest the charges. If the FTC accepts a proposed settlement agreement, the corresponding order is made available for public comment for 30 days before the FTC determines whether to make the order final.

If a respondent contests the charges, the complaint is adjudicated in a trial-type proceeding governed by the FTC’s rules of practice before an administrative law judge (“ALJ”). The FTC is represented in the proceeding by an FTC “complaint counsel.” After the ALJ issues a decision setting forth findings of fact and law, and recommending a remedy or dismissal, either party may appeal the decision to the full Commission. After the Commission’s final decision, a losing respondent may file a petition for review with a US Court of Appeals. After all judicial review of the FTC’s order is completed, the FTC may seek consumer redress in federal district court for the conduct at issue in the administrative proceeding. If the district court determines that a reasonable person would have known under the circumstances that the conduct was dishonest or fraudulent, the respondent will be liable for consumer harm and subject to civil penalties. As noted, the civil penalty amount is currently $43,792 per violation. It is adjusted for inflation annually.

Watch this space for best practices on using endorsements and testimonials in advertising. We will also be on the lookout for instances of the FTC bringing an enforcement action relating to this subject matter.

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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.

 

Tags: FTC, On Notice Series

On Notice: FTC Issues Warning to Hundreds of Companies Regarding the Use of Fake Reviews and Other Misleading Endorsements in Online Marketing Campaigns

By Lawrence Weinstein, Jeff Warshafsky and Jessica Griffith on Posted in Announcements, Deceptive Trade Practices, FTC, Regulatory

Prompted by the proliferation of social media advertising that often blurs the line between authentic content and sponsored posts, the Federal Trade Commission last week sent more than 700 companies a Notice of Penalty Offenses warning them against the use of deceptive endorsements in their online advertising.  The Notice advises recipient companies that engaging in advertising conduct the FTC has previously determined to be unfair, unlawful or deceptive under Section 5 of the FTC Act can subject them to civil liability of up to $43,792 per violation.  As we had previously predicted, these letters may reflect a shift in the FTC’s focus towards reliance on §5 of the FTC Act, following last term’s Supreme Court opinion in AMG Capital Mgmt. v. FTC which curtailed the FTC’s ability to seek monetary relief under §13(b) of the Act.

Companies receiving the Notice include large household names including leading retailers and major advertising agencies.  Recipients were also directed to distribute copies of the Notice to each of their subsidiaries engaged in the sale or marketing of products or services to consumers in the United States.  While the FTC makes clear that recipients of the Notice are not alleged to have engaged in any wrongdoing, the scope of the Notices sent out—and the Commission’s 5–0 vote to authorize the Notice and its distribution—demonstrates that the FTC is highly focused on the use of deceptive endorsements in online advertisements and is willing to aggressively pursue advertisers that flout its directives.

The Notice sent to companies provides a non-exhaustive list of practices the FTC has found to be unlawful in previous FTC administrative orders, including:

  • Falsely claiming an endorsement by a third party;
  • Misrepresenting whether an endorser is an actual, current, or recent user;
  • Using an endorsement to make deceptive performance claims;
  • Failing to disclose an unexpected material connection with an endorser;
  • Misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users;
  • Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience; and
  • Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented.

Copies of the case decisions discussed in the notice are available on the FTC’s website.  The Notice also points advertisers to additional resources, including a staff business guidance document The FTC’s Endorsement Guides: What People Are Asking¸ and the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, 16 C.F.R. Part 255, for further guidance on their responsibilities under the FTC Act.

While navigating the evolving regulatory landscape regarding deceptive online advertising can present challenges for companies and their advertising partners, avoiding the practices outlined above will likely go a long way in mitigating the risk of facing an FTC enforcement action and subsequent liability.  Our team continues to monitor these changes and will apprise our readers of any FTC enforcement actions that arise as a result of the Notices issued today.  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.

 

Tags: Deceptive Trade Practices, Endorsements, FTC, On Notice Series

“Butter” Luck Next Time: Court Finds California Cannot Preclude Vegan Dairy from Using “Vegan Butter” Labeling

By Lawrence Weinstein, Anisha Shenai-Khatkhate and Alyson Tocicki on Posted in Class Actions, Deceptive Trade Practices, FDCA, First Amendment, Labeling Claims

Judge Richard Seeborg of the Northern District of California recently ruled in favor of Miyoko’s Kitchen in a suit concerning Miyoko’s labeling of its plant-based spread as “vegan butter.” In doing so, Judge Seeborg determined that absent evidence that the “vegan butter” label was false or would mislead consumers, the state of California could not restrict Miyoko’s constitutionally protected commercial speech. Miyoko’s Kitchen v. Karen Ross, Case No. 20-cv-00893 (N.D. Cal. August 10, 2021).

By way of background, in 2019, the California Department of Food and Agriculture notified Miyoko’s that the company’s labeling of its “vegan butter” violated state and federal law, and requested that Miyoko’s remove the following five claims: “hormone free,” “butter,” “lactose free,” “cruelty free,” and “revolutionizing dairy with plants.”  According to the Department, Miyoko’s marketing of its “vegan butter” gave the misleading impression that the product was a dairy product without traditional dairy characteristics.  In response, Miyoko’s filed a lawsuit against the State, arguing that the Department lacked the authority to regulate the company’s commercial speech under the First Amendment.  In December of 2020, the State filed a motion for summary judgment, and in March 2021, Miyoko’s filed a cross-motion for summary judgment.

In deciding the parties’ cross-motions, the court applied the Central Hudson standard applicable to the censorship of commercial speech.  Under Central Hudson, the court first must determine whether the restricted speech is misleading or related to unlawful activity.  If it is, the First Amendment does not apply, and the government is free to restrict the speech. If it is not, the restriction survives only if the censoring body “assert[s] a substantial interest to be achieved by [the] restriction,” and the restriction both directly advances that interest and is not more extensive than necessary.

Applying this standard, the court held that the First Amendment afforded Miyoko’s no basis for relief with respect to the “hormone free” claim.  Because the spread contains naturally occurring plant hormones, the claim is irrefutably false, and First Amendment protections do not apply.

But the court reached a different conclusion as to the “butter” claim, finding none of the State’s evidence of consumer confusion to be compelling. First, the State cited the FDA’s statutory definition of “butter,” arguing that because the statute has been on the books for ninety-odd years, it must be reflective of what consumers understand “butter” to mean. As the court noted, the FDA defines “butter” as a product “made exclusively from milk or cream, or both . . . and containing not less than 80 per centum by weight of milk fat.” Because Miyoko’s spread did not meet the dairy and fat-content requirements for the FDA’s statutory definition of “butter,” the State argued it did not comport with consumer understanding of the term. But the court was unmoved, noting that this argument “defies common sense” because “language evolves.” Absent any indication that “old federal food definitions are more faithful indicators of present-day linguistic norms,” the court found the federal definition of “butter” insufficient to make the State’s case..

The court was likewise unconvinced by the State’s consumer perception survey evidence, which indicated that consumers correctly identified plant-based cheese products 74% of the time. The State argued this indicates a 26% confusion rate, and shows that the label is misleading. However, the court observed that the State conveniently ignored the study’s other findings – including that consumers were only able to correctly identify animal-based cheese products 81% of the time. The court determined this survey does little other than suggest that “consumers are perhaps a bit better at identifying traditional cheese than vegan cheeses.”

Having found no compelling evidence of consumer confusion, the court rejected the State’s attempt to assert an interest in avoiding such confusion as a justification for restricting Miyoko’s labeling.  The court noted that any such confusion was mere speculation, and that “the record lacks material reasonably supporting the conclusion that removing ‘butter’ from Miyoko’s labeling ‘will in fact’ advance that interest ‘to a material degree.’”  The court applied the same logic to the remaining claims, finding that absent evidence that consumers are misled by Miyoko’s use of the claims, the State may not restrict Miyoko’s use of “lactose free,” “cruelty free,” and “revolutionizing dairy with plants.”

Advertisers can take some comfort in this decision; it serves as a reminder that the First Amendment gives advertisers the freedom to brand their products in creative or fanciful ways, so long as the advertising is not false, and as long as the government lacks a compelling interest that justifies limiting the speech.  But of course, government interference is hardly advertisers’ only concern; the risk of a consumer class action or a competitive advertising challenge (whether in court or at the National Advertising Division) is always in play.

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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.

Tags: California, Class Action, Deceptive Trade Practices, FDA, FDCA, First Amendment, Food and Beverages, Labeling, Marketing, Surveys

Third Circuit Affirms Decision to Reject FTC’s False Advertising Claims Against Housing Insulation Company

By Lawrence Weinstein, Jennifer Yang and Anisha Shenai-Khatkhate on Posted in Deceptive Trade Practices, Regulatory

A Third Circuit panel recently affirmed a Pennsylvania district court decision in favor of defendant Innovative Designs (“IDI”) in an advertising challenge by the FTC. We previously blogged about the district court decision, which found the FTC failed to present any credible expert testimony to support its claims. On appeal, the Third Circuit panel affirmed, finding  the FTC failed to show that IDI’s advertising claims were not scientifically supported. FTC v. Innovative Designs (3d Cir. July 22, 2021).

IDI manufactures and sells Insultex House Wrap, a weather-resistant barrier used in building construction. The insulation power of house wrap products is determined through the product’s R-value, a measure of the product’s ability to restrict the flow of heat. The higher the R-value, the higher the product’s insulation power. IDI advertised that Insultex had an R-value of either R-3 or R-6. The FTC alleged IDI overstated the R-value of its products because “(1) IDI did not use the standard ASTM C518 test to yield its purported R-values,” and standard ASTM C518 testing “did not yield IDI’s claimed results.” Instead of the standard ASTM C518 test, the FTC alleged IDI used a modified ASTM test to yield the advertised R-values.

The Court found that to prevail on a lack of substantiation theory, the FTC must identify the evidence that the advertiser should have to support its claim in the relevant scientific community, and then prove that the substantiation the advertiser claims to possess would not satisfy the relevant scientific community. Here, the Court found the FTC’s arguments failed because the FTC did not establish that the modified ASTM test did not comply with the standard ASTM C518 testing; the Court noted ASTM C518 testing explicitly contemplates that variations of the standard method may be acceptably used. In addition, the FTC failed to prove that the modified test would not satisfy the relevant scientific community, and failed to show “through expert testimony or otherwise” that the modified test yielded inaccurate results.  The Court clarified that the burden fell on the FTC to prove that the testing would not be acceptable to the relevant scientific community, not on IDI to prove that it would.

Like the district court decision, the Third Circuit’s opinion reinforces the importance of scientific evidence, including through a properly vetted expert witness, where the advertising claims at issue are highly technical, and where the FTC’s theory of falsity hinges on a lack of substantiation.

Tags: FTC
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