Phillips & Sutherland, LLP

‘BOGO’ Refunds Commence in Allstar’s Snuggie Settlement

On March 12, the Federal Trade Commission (FTC) began mailing refund checks totaling some $7.2 million to more than 218,000 consumers who purchased products from Allstar Marketing Group LLC that included an offer for a free product in connection with those purchases. The refunds, averaging $33 per consumer, are a result of an investigation by the New York State Office of the Attorney General and a subsequent 2015 settlement with the FTC.

Allstar is alleged to have violated multiple consumer protection laws by its deceptive advertising practices involving products including, among others: Snuggie, Perfect Bacon Bowl, Magic Mesh Door, Perfect Brownie Pan, and Cat’s Meow. According to the FTC complaint, consumers who purchased Allstar’ s products thought, for example, that they were getting two Snuggies for the low price of $19.95, but in reality, were charged processing-and-handling (P&H) fees for both items, bringing the total purchase price to $35.85. Further, customers were not given the option to decline the promotional buy-one-get-one-free (BOGO) offer.

With the multimillion dollar settlement and refund checks making national news, consumers and regulatory bodies may be on the lookout for similar marketing strategies by other leading marketers. To be sure, FTC law enforcement actions led to more than $6.4 billion in refunds for consumers during the one-year period from July 2016-June 2017. As such, marketers should be cognizant of what product offerings may raise red flags, particularly since consumer protection laws are typically broad generalizations rather than prohibitions on specific marketing strategies.

Accordingly, while some disclosures need to be more conspicuous than they once were, BOGO offers still generally have the green light. That being said, there are three main areas of concern: the use of the word “free” (especially with a modifier such as “absolutely”); P&H disclosures; and the ability to opt out of the free offer.

First, use of the word “free” could garner some unwanted attention and scrutiny from regulatory agencies. Even when the only cost for the additional item may be processing and handling, and the additional item is technically free, if the charges for P&H are as costly as the product itself, and nonrefundable if the product is returned, that offer would likely constitute deceptive advertising tactics. It is therefore recommended that distributors avoid BOGO offers with costly P&H charges. However, those who insist on a BOGO offer while still charging significant P&H fees should use alternative language to convey that the second item is “free.” Not so creatively, for example, “As a bonus, we will also send you this second [product]. Just pay an additional [amount] for processing and handling.”

To further steer clear of FTC scrutiny, P&H fees should be shown on the screenshot in the commercial (preferably stated in the script as well), on the website’s order page, and in a confirmation email to the consumer. According to compliance guidance provided by the New York Attorney General, the amount of any processing and handling or other fees (excluding taxes) is a material term that must be disclosed in an advertisement if the total amount of such fees exceeds the amount consumers would reasonably expect to pay for processing and handling. Expectations take into account the applicable shipping method for a product of similar price, size, and weight. Finally, a consumer should be provided with the option to opt out of the BOGO offer and be allowed to purchase a single item.

As laws can vary from state to state, be sure to consult with an attorney experienced in consumer protection regulations prior to launching a marketing campaign for a new product.

Cryptocurrency: Too Risky – or a Strategy for DR Survival?

Cryptocurrency – such as Bitcoin – is volatile, easily hacked, plagued with fraud issues, and has even been compared to Ponzi schemes. Sounds great, right? Well, regardless of the risks and challenges involved, it continues to take the world by storm, with major companies – possibly including Amazon – getting involved in the exchange. With so many companies trending toward accepting cryptocurrency, it may be necessary for direct response and other performance-based marketers to get in the game.

Many heavy hitters believe that cryptocurrency is the cash of the future, including Shark Tank’s Mark Cuban and Robert Herjavec. While Herjavec is a bit more cautious and won’t be diving in just yet, Cuban recently announced that fans would be able to use Bitcoin and Ether to purchase season tickets to Dallas Mavericks games for the 2018-2019 season. This will make the Mavs the second NBA team (after the Sacramento Kings) to delve into the cryptocurrency market.

More notably, retailers such as Overstock.com, Expedia, Newegg, Shopify stores, Etsy sellers, Subway, and Dish Network are among companies currently accepting cryptocurrency as payment for some or all of their products/services. Though these companies are not in direct competition with DR players, there is some overlap, which could make shopping at these retailers more appealing to consumers than those that do not accept cryptocurrency.

Still not convinced? Rumor has it that the big kahuna, Amazon, may be all in. In November, Amazon purchased the domains amazonethereum.com, amazoncryptocurrency.com, and amazoncryptocurrencies.com. Such purchases suggest that not only might Amazon be accepting cryptocurrency soon, but it may also be setting up its own exchanges. While the domains could mean nothing at all (three years ago, Amazon purchased amazonbitcoin.com, which merely redirects to amazon.com), with so much activity in the cryptocurrency market right now, it would be foolish to think that such a forward-thinking and progressive company that doesn’t shy away from new ventures wouldn’t have cryptocurrency in its game plan.

If Amazon does get in the market, it will put direct response companies at an even bigger disadvantage. Currently, Amazon is perhaps the biggest distributor of counterfeit and knockoff goods, and now it is even in the market of manufacturing its own competing products. Add a new purchase payment option, such as Bitcoin or Dash (commonly used to purchase consumer products), and it could be game over for the direct response industry.

Think about it. If a consumer has a choice between going to a product website and paying $19.99 plus processing and handling and (P&H) waiting possibly weeks for delivery … or going to Amazon and paying $19.99 or less in cryptocurrency and receiving the product in two days with Prime shipping, the choice is obvious. While many distributors do sell their products on Amazon, as well, the return is certainly not as high as the online and phone sales that allow for upsells and marked up P&H charges. Of course, distributors can always add Amazon Pay as a payment option on their sites (assuming cryptocurrency becomes an Amazon Pay option), but this may not be enough to keep sales on product websites. If product distributors and their merchants begin accepting cryptocurrency, it may help keep those sales competitive.

Despite the volatility of cryptocurrency right now, demand for it appears to be there. With kinks needing to be worked out, the house is not on fire just yet, but it is certainly the time for performance-based marketers to at least start doing their homework. There are whispers that some companies may be doing just that.

Feeling Frosty?

For much of the country, the new year brought in winter storm warnings and bitter cold temperatures.  However, the arctic blast has nothing on the seemingly chilly relationship between a couple of cereal giants; bestowing one last holiday surprise upon consumers.

After speculation that it may be a ruse, on December 29th, General Mills officially announced the launch of its latest cereal, Lucky Charms Frosted Flakes.  Sugary cereal lovers everywhere rejoiced on social media as the news spread and the cereal began appearing on supermarket shelves.  Two classic childhood cereals combined…what’s not to love?  Well, we suspect Kellogg, Corp., the distributor of Frosted Flakes, is not feeling so GR-R-REAT about the latest breakfast sensation that is taking the internet by storm.

Frosted Flakes is probably one of the most iconic cereal brands in the US.  Most everyone can recognize the product from just a glance of the blue box baring the lovable Tony the Tiger, who first debuted back in 1952.  So, with such an established brand, how is it that General Mills can so blatantly use the name of a Kellogg product?  As it turns out, unlike “Kellogg’s Frosted Flakes,” “Frosted Flakes” is not a registered trademark in the cereal or breakfast food categories.  This is likely because the term “frosted flakes” is merely descriptive; that is to say, the words themselves describe exactly what the product is.  Descriptive names are generally not granted federal trademark protection.

Fortunately for Kellogg, it is not without some recourse should it wish to pursue legal action against General Mills.  Trade dress protects the appearance of a product or its packaging under federal and state unfair competition laws, even without formal registration (though registration is recommended).  In this case, rather than the traditional red Lucky Charms box, General Mills’ newest member of its cereal line is blue – strikingly similar to Kellogg’s Frosted Flakes box.   Kellogg therefore may have a good argument that consumers, seeing the words “frosted flakes” combined with the blue box, would be confused by the source of the product.

This is the second time in just a matter of months that Kellogg has been involved in some sort of cereal box controversy, and it will be interesting to see if and how it responds to General Mills’ actions.

If your company is launching a product or creating new ad content, be sure to hire counsel with experience with intellectual property protection laws.  Please email us if you have any questions or if you would like more information regarding the content above.

Advertising in a World of PC Police

It seems like every time you turn on the news these days, another company is being accused of racist or sexist advertising material.  Are companies and ad agencies really being that insensitive, or have we, as a society, become a bit thin-skinned; looking to make anything, no matter how trivial, a matter of discrimination?  Either way, in addition to the numerous governmental regulations that product distributors and marketers have to abide by when advertising and labeling a product, the feelings of eggshell consumers are now likely another box that needs to be checked.

The Kellogg Company was the latest brand to be roasted by consumers for allegedly promoting racist stereotypes in a cereal box cartoon that displayed a lone brown janitor corn pop cleaning the floor of a shopping mall full of yellow corn pops who appeared to be enjoying themselves.  Consumers were quick to smear Kellogg for this supposed portrayal of race and status, but was it really warranted?  If you just glance at the cartoon, the yellow pops appear to be a bunch of ill-behaved, nude delinquents, with dilated pupils that lead us to question whether they were enjoying a different kind of “puff.” On the other hand, the brown corn pop is the only one who is being productive and wearing clothes.  He (she?) is also the only one actually smiling.  We liked the brown corn pop.  Obviously, not everyone felt the same, and we certainly understand how this cartoon could be considered offensive.

Similarly, Unilever came under attack for its ad that portrayed a black woman’s skin undergoing a transformation to a white woman following the use of Dove soap.  For many, this evoked a long-running racist allegory in soap advertising: a “dirty” black person cleansed into whiteness; so much so that Unilever removed the ad and issued extensive apologies.  However, the African American actress who appeared in the commercial supported it by saying that it was not racist, but rather, celebrated ethnic diversity.

While avoiding the use of imagery or notions generally known to be discriminatory is advisable, interpretation of an advertisement is subjective and thus, it is hard to please everyone.  Likewise, when it comes to marketing and labeling guidelines as defined by entities such as the FDA and FTC, there are black and white do’s and don’ts, as well as gray areas as to what can and cannot be said.

Product marketers and distributors may not be able to anticipate what may or may not be offensive in every scenario, nor can they please every consumer, but with the help of a knowledgeable attorney, they can ensure compliance with federal and state regulations.  If your company is launching a product or creating new ad content, be sure to hire counsel with experience in federal advertisement and consumer protection laws.

Please email us if you have any questions or if you would like more information regarding the content above.

Patent Assignments to Native American Tribes: Brilliant or Bad Business?

The recent trend of companies transferring patents to Native American tribes has raised some concerns about anticompetitive business practices.  Lawsuits brought by patent-holding tribes as a result of these assignments have been popping up a lot lately, and major companies are fit to be tied.

Essentially, companies are assigning their patents to tribes in order to take advantage of the tribes’ sovereign immunity, thus shielding them from the patent review process and potential patent invalidation.  The most recent targets of these lawsuits in the tech industry have been Apple, Amazon and Microsoft.

The method works something like this.  A company files for and is granted a patent.  That patent is assigned by the company to a Native American tribe, meaning the tribe is now the owner of the patent. The tribe then licenses the patent back to the company in exchange for a substantial royalty (last month pharmaceutical company Allergan agreed to pay the St Regis Mohawk Tribe $13.5 million up front and a royalty of $15 million annually for its now defunct Restasis patent).  Then, when instructed by the company, the tribe files a lawsuit against a third party (i.e. Apple) for patent infringement.

Normally at this stage (as previously discussed in our Battle of the Copper Pans article), the best course of action for the company being sued would be to attempt to invalidate the patent it is allegedly infringing upon through the USPTO’s inter partes review process (“IPR”).  The IPR occurs before the Patent Trial and Appeals Board (“PTAB”) rather than in the courts, and is therefore a much more time and cost-effective way to invalidate improperly issued patents.  However, if the owner of the patent is a Native American entity, it has sovereign immunity, and is not subject to the jurisdiction of the PTAB.  The company is therefore forced to litigate the infringement claims, which typically lasts over a year, and can result in the defendant companies being enjoined from selling their “infringing products” during such time.

Although defendants are crying foul at this tactic, it seems brilliant for owners who want to ensure their patents are not subject to invalidation proceedings.  However, this trend may not continue for long as we certainly expect to see the defendants of the lawsuits challenge these so-called “sham” transactions and the sovereign status of the tribes.

It is best to have a knowledgeable attorney during all stages of the patent process.  Please email us if you have any questions or if you would like more information regarding the content above.

Jury Awards 9.4 Million to Quincy Jones in Michael Jackson Royalty Suit

Remember the time when Michael Jackson and Quincy Jones were a power duo, churning out music that rocked our world? Jones produced Michael’s Off the Wall, Thriller and Bad albums. Jones and the rest of musical world were devastated by the King of Pop’s untimely death in June 2009.

Luckily for fans, Michael’s death spurred the release of new material from and inspired by MJ; material that Jones claimed he was owed royalties based on contracts dating back to 1978 and 1985. As producer of Michael’s albums, Jones was granted rights and royalties to the music he produced, including the right of first refusal for reediting or remixing songs. Jones claimed that not only was he not consulted by companies such as MJJ Productions and Sony prior to the release of material containing edited music, but he was not paid royalties in full. Though Quincy has received $8 million in royalties since 2009, taking his cue from Michael, Jones was not going to stop till he got enough, and sued Michael’s Estate seeking $30 million in damages.

Material at the heart of the suit included, This Is It, a concert movie and documentary that was released just a few months after Michael’s death. Gross receipts from the film topped $500 million, with Jackson’s estate allegedly receiving $90 million. Additionally, the Cirque du Soleil production, Michael Jackson: The Immortal World Tour, was performed for over 2 million audience members and earned over $300 million. Michael Jackson One, the Cirque production at Mandalay Bay in Las Vegas, continues to wow audiences 5 times a week.

As trial was getting underway, Jones made an off the wall allegation of elder financial abuse; a cause of action dismissed by the judge as being too late to include in the case. Jones may have been getting a little greedy, but perhaps that’s just human nature. After the refusal, Jones’ attorneys got down to business and made the case out to be a very black and white breach of contract.

Jones should be pleased with his award of $9.4 million (as Michael’s Estate alleged he was owed less than $400,000). Jones’ case is a great example of why it is so important to have clear and concise contract terms, including those regarding royalties and audit rights in the event of a dispute. These types of disputes are more common than some may think; particularly for video/infomercial production companies. Be sure to consult with an attorney when negotiating or attempting to collect royalties.

Update: The USPTO’s Slanted Viewpoint on Trademark Applications is Unconstitutional

In January, we told you about how the Asian-American rock band, The Slants, had been making noise in the courts for years fighting for the right to register the band’s trademark with the United States Patent and Trademark Office (USPTO). The USPTO had denied registration of the band’s name, citing Section 2(a) of the Lanham Act, which allowed the USPTO to refuse registration of marks that it deemed to be immoral, scandalous, or disparaging.

However, the band is likely singing the Supreme Court’s praises because just this week the Court ruled in an 8-0 onion that this “disparagement clause” violates the First Amendment. The government’s arguments in support of the clause fell flat, and Justice Alito wrote that “[i]t offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.” Thanks to the unanimous ruling, The Slants will likely be able to register their name once and for all.

This is not only good news for the rockers, but for other groups and businesses seeking to protect and profit from their names, brands, etc., as well. This is particularly true for the Washington Redskins. Relying on the disparagement clause, the USPTO canceled the NFL team’s trademarks after over 40 years of registration due to complaints by members of the Native American community. The team should now be able to reclaim its rights to the marks for good.

Intellectual property, including trademarks, can be incredibly valuable assets and are key to protecting against infringement. If you are launching a new band, brand, or product, be sure to work in concert with an intellectual property attorney to keep your business humming along.

Bounding into Trouble: Trampoline Review Sites Launch Brothers into FTC Investigation

Trampoline selling brothers, Sonny and Bobby Le, are prohibited from engaging in deceptive marketing practices after sending consumers to “independent” product review sites that were actually owned and operated by the brothers’ company.

According to the FTC complaint, the brothers advertised and sold Infinity and Olympus Pro trampolines through various websites. These e-commerce websites displayed logos and seals for the Bureau of Trampoline Review, Trampoline Safety of America, and Top Trampoline Review. As a result, consumers were led to believe that these review sites containing ratings based on safety and performance, were comprised of unbiased, expert reviews. In reality, these organizations were made up by the brothers.

Not only did the websites for these “independent” bodies promote the products being sold by the brothers, but they also made representations regarding product safety. The Trampoline Safety of America site stated the organization included structural engineers. The Bureau of Trampoline Review website stated that safety was one of the bureau’s primary focuses, and that trampolines were put through rigorous testing such as having cars dropped on them. Allegedly, the only product to pass the car test was one of the brands sold by the brothers.

This of course is not the first time that product owners have created fake review sites; however, the safety claims contained in the brothers’ websites take these reviews to a dangerous new height. Despite this, the FTC surprisingly did not impose a monetary penalty. Perhaps no injuries resulted from the brothers’ claims on the review sites, and therefore the FTC was lenient. Instead, the brothers must refrain from engaging in these deceptive practices and must provide compliance reports and remain subject to compliance monitoring. As such, the pair has already made changes to the review sites, including identifying their company as being the owner and author.

Fake review sites and false claims are very common in the consumer product industry, and should they become the focus of an investigation, a company exposes itself to hefty monetary penalties. Be sure to contact an attorney prior to making product claims or participating in review sites.

Please email us if you have any questions or if you would like more information regarding the content above.

Truth in Advertising Going to the Dogs?

Last week a class action lawsuit was filed in California against Ainsworth Pet Nutrition, the owners of Rachael Ray™ Nutrish® dog food products for, among other claims, negligent misrepresentation and violations of California’s false advertising law and Consumer Legal Remedies Act.

According to the complaint, the defendants engaged in deceptive labeling practices by marketing the food as “natural” and containing “no artificial preservatives.” The ingredients at the center of the lawsuit are synthetic versions of vitamins B, C and K, as well as caramel color. Although not proven to be harmful, and present in animal and human foods, the ingredients are technically not “natural.”

The FDA regulates animal feed, including dog food. Although it has not defined the term “natural,” in human food labeling, the FDA considers “‘natural’ to mean that nothing artificial or synthetic (including all color additives regardless of source)” has been included or added to a food that “would not normally be expected to be in that food.” Further, according to an FTC publication, if companies market their products as “all natural” or “100% natural,” consumers have a right to believe they do not contain any artificial ingredients.

There has been much litigation in the last few years regarding use of the word “natural;” so much so that at the end of 2015, the FDA put out a call for comments on how to define the term. It received over 7000 responses! This probe by the FDA has had the effect of halting some, but not all, litigation. In fact, the judge presiding over a California class action lawsuit against Kraft Foods for using the term “natural cheese” to describe cheese containing artificial coloring, stated that FDA standards were not determinative of whether Kraft violated the relevant California laws; but rather, the issue is whether a reasonable consumer is likely to be deceived by the product’s packaging. The case is still pending.

These “natural” cases will be interesting to track, and it is not far-fetched to believe that if a definition is established by the FDA, the FTC and FDA may start barking up the trees of other companies engaged in similarly deceptive or misleading labeling practices.

Stay out of the dog house and treat yourself to a consultation with an attorney regarding product packaging.

Battle of the Copper Pans

Imitation may be the highest form of flattery, but such flattery is unwelcome when it comes to copying products. In the consumer product industry, hot items are quickly adapted by competing companies, resulting in consumer confusion as to the origin of the product; sometimes resulting in lengthy legal battles. We saw this most recently with retractable hoses (X Hose, Pocket Hose, etc.), which has been in litigation since 2013. Right now, the hottest product igniting lawsuits is copper.

Copper pots and pans (or at least copper in color) are the latest sensation in cookware. Big sellers such as Copper Chef (Tristar Products, Inc.), Red Copper (Telebrands Corp.) and Gotham Steel (E Mishan & Sons, Inc (“Emson”)) have spent thousands in marketing dollars to promote these competing products. However, with so many cooks in the kitchen, someone is bound to get burned; and if Keith Mirchandani has it his way, it won’t be Tristar.

On February 21, 2017 Tristar filed lawsuits against Telebrands (and Bulbhead.com LLC) and Emson for patent infringement, trade dress infringement and unfair competition. According to the complaints, Tristar has been marketing its Copper Chef product line since as early as June 2016 and holds three patents for its Copper Chef line, two of which were just issued this month. Tristar has also filed for injunctions to prevent Telebrands and Emson from “making, using, selling [and] offering for sale” the products allegedly infringing on the Copper Chef line. As of today, February 28, 2017, the orders have yet to be granted.

This isn’t the first time these companies have faced off in court, and at least Telebrands has proven time and time again that it has the recipe for stalling litigation so it can continue to sell a product. Telebrands’ secret sauce: the United States Patent Trial and Appeal Board (“PTAB”).

When an action is filed with the PTAB, courts halt litigation until such time that the PTAB makes a ruling on whether the patent in question is valid. In at least two separate lawsuits brought against Telebrands for patent infringement (for its Pocket Hose & Balloon Bonanza products), the company has filed invalidation proceedings with the PTAB challenging the validity of the patents it was accused of infringing. The strategy for invalidation is that if the patent is determined to have been improperly issued then, no infringement could have occurred. Telebrands successfully invalidated some of the patent claims with regard to the balloon product, but the PTAB declined to review the hose patent on the basis that it was determined to be valid. The action is now proceeding in court and could still take years to reach an outcome.

A successful product invites copycats, and Tristar will likely have a long battle on its hands for this one. It will be interesting to see if Telebrands stays true to its methods and attempts to invalidate Tristar’s patents.

It is imperative to have seasoned intellectual property attorneys filing patents and trademarks and diligently monitoring infringing activity as well as advising you on the risks of infringing third party patents. In some instances, it is more cost effective to license a product than to knock it off and face the consequences. A well-planned IP strategy will help product owners to better survive or avoid the messy and lengthy proceedings of IP litigation. Remember, if you can’t stand the heat, get out of the kitchen.

Please email Jessica@DigitalLawGroup.com if you have any questions or would like more information regarding the content above.