You better not lie

About shipping times

I’m telling you whyBuyer lawsuits are coming to town 🎶

The holidays are upon us, and Black Friday sales have already kicked off as companies anticipate shipping delays due to current supply chain issues.  As such, some companies, such as Disney, will not be offering rush shipping at all this holiday season.  Walmart has gone so far as to charter its own cargo ships to various ports throughout the country to ensure goods make it to consumers on time.  Product distributors may want to implement similar policies and tactics through year-end to avoid be gifted lawsuits in their stockings for failure to timely ship to consumers pursuant to state and federal laws.

Case in point, Kanye West (or “Ye” as the billionaire is going by these days) recently saw his companies Yeezy Apparel LLC and Yeezy LLC slapped with a lawsuit in California alleging “unlawful business practices and false advertising by failing to ship items in a timely manner.”  According to the complaint, Yeezy “repeatedly violated” state law by (1) failing to ship items within thirty days; (2) failing to provide adequate notice of shipping delays to California consumers; and (3) failing to offer and provide refunds to those consumers whose goods were not shipped within the requisite 30-day time frame. Moreover, the complaint goes on to contend that Yeezy made misleading statements by posting two-to-seven-day shipping estimates on its websites; and, most egregiously, charged consumers additional fees for expedited shipping.  Yeezy will pay $950,000 to settle the claims which includes $50,000 in restitution, $100,0000 for investigative costs, and $800,000 in civil penalties.

The 30-day shipping requirement that Yeezy ran afoul of is not unique to California.  Many states have similar laws, and the Federal Trade Commission requires sellers who solicit buyers to order merchandise through the mail, via the Internet, or by phone to have a reasonable basis to expect that the sellers can ship within the advertised time frame, or, if no time frame is specified, within 30 days. The rule also requires that, when a seller cannot ship within the promised time, the seller must obtain the buyer’s consent to a delay in shipping or refund payment for the unshipped merchandise.

To ensure a happy holiday for all parties involved, product distributors must be transparent about shipping times (and delays) and offer consumers the right to cancel and receive a refund for product that does not ship within 30 days.  Contact and attorney familiar with FTC regulations if you need help drafting or reviewing consumer policies and website ordering terms. 

Case in point, Georgia-based distributor of water filtration systems, iSpring Water Systems LLC, has been accused by the Federal Trade Commission (FTC) of making false claims that its products are made in the United States, when they are, in fact, made entirely in China. Astoundingly, this is not the first time iSpring has attempted to profit off of the American name, as the current mislabeling is actually a violation of a 2017 FTC order prohibiting iSpring from making unqualified “Made in USA” claims for its products.

As part of the FTC settlement, iSpring has agreed to pay a $110,000 civil penalty, admit that it, along with its company owner and officer Zhuangyong Chen and vice president Pearl Cai, made false claims that the water filtration systems it sells are “designed and crafted in USA,” among other claims, and to notify all impacted consumers.

Some might be surprised to learn that the rules regarding product origin claims are not so black and white, and are governed by both the FTC and the U.S. Customs Service. For example, where an imported product incorporates materials and/or processing from more than one country, Customs considers the country of origin to be the last country in which a “substantial transformation” took place. Thus, a product with parts from say Mexico or Canada, may, under certain circumstances, be marked “Made in USA.” The FTC offers some guidance in this regard; however, product marketers and distributors should speak to a qualified attorney prior to making country of origin claims; especially if that country is the United States.

Fake reviews have been a pretty standard marketing tool for some time; with product owners paying companies to post rave reviews of its product and poor reviews of competing goods. Fake reviews are so ubiquitous that, according to Saoud Khalifah, founder and CEO of Fakespot, a site that flushes out fake reviews, up to 70% of reviews on Amazon are fake. This staggering figure is perhaps why the Federal Trade Commission (FTC) has finally decided (likely to the dismay of product owners) to take action.

On February 19, the FTC filed a complaint against Cure Encapsulations, Inc. and its owner Naftula Jacobowitz, alleging that the defendants violated the FTC Act by, among other fraudulent actions, paying amazonverifiedreviews.com to create and post approximately 30 Amazon reviews a day of their “weight loss” product, Garcinia Cambogia. The FTC argued that such practices constituted “unfair or deceptive acts or practices in or affecting commerce.” In light of the quick settlement by the defendants, there was no 5-star argument to refute the allegation.

The proposed court order settling the complaint prohibits the defendants from making claims for any dietary supplement, food, or drug unless they have competent and reliable scientific evidence in the form of human clinical testing supporting the claims. The order also requires the defendants to notify Amazon, Inc. that they purchased reviews of their product and to identify to Amazon the fake reviews. Finally, the order imposes a judgment of $12.8 million, to be suspended upon payment of $50,000 to the FTC, in light of the defendant’s current financial status.

While $50,000 may not seem so bad as compared to how much money can be made due to sales generated by fake product reviews, a deeper pocketed company could have been on the hook for the full $12.8 million.

This is the first time the FTC has gone after a company for paid reviews, and more actions should be anticipated now that the foundation has been laid.

In addition to bogus reviews on Amazon, fake review websites such as tvstuffreviews.com and freakinreviews.com, often featuring “as seen on tv” and weight loss products, are quite prevalent. Sites such as these look like a source of legitimate reviews; however, the “reviewers” have likely never actually tested or investigated the products they are allegedly reviewing. As such, it is probably just a matter of time before enough complaints generate an FTC investigation into the financial sources behind those reviews.

Be sure to consult an experienced attorney if you have questions or concerns about your marketing methods or how to spot and remove fake reviews.

According to their marketing materials, the elegantly packaged products sold by several retailers including Dillard’s, Overstock.com and Anthropologie, were “tested in the rice paddies of Southeast Asia as well as the finest locations in the Caribbean, Hamptons, and cottage country in the peak of summer,” and effectively repel mosquitoes for 2.5 hours. Further, the company claimed that the sprays and candles repel mosquitoes as effectively as 25% DEET. According the FTC’s complaint, the product website also stated that the sprays and candles were “rigorously tested at one of the world’s leading Universities” and “repels mosquitoes that may carry Zika, Dengue, Chikungunya, and Yellow Fever.” The FTC contends that none of these claims can be substantiated.

In addition to the lack of scientific evidence supporting the veracity of the products’ claims, the FTC was bugged by the fact that many of the purported impartial positive product reviews posted on the company’s Amazon storefront were, in fact, written by the owners of Mikey & Momo, as well as other individuals with a financial interest in the company.

Fortunately for Mikey and Momo, the proposed order settling the FTC’s charges does not include a monetary penalty. It does, however, prohibit the company and its owners from making any of the misrepresentations alleged in the complaint, and requires them to disclose clearly, conspicuously whether there is a connection between an endorser and the product or anyone associated with it.

Avoid the sting of the FTC by consulting with an attorney to make sure your product claims pass the smell test.

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

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.

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.

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.

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.

Ohlhausen will be bringing a new focus to the FTC; specifically, an emphasis on pursuing claims based on actual consumer harm, not just whether a regulatory violation occurred. For example, on a recent $2.2M settlement with Vizio regarding the software in its T.V.s that tracked viewing activity of 11 million consumers without their knowledge, Ohlhausen agreed that although Vizio’s actions were deceptive, she seemed to oppose the notion that television viewing activity constitutes sensitive information. Ohlhausen also stated that the FTC needs to reexamine how it defines “substantial injury” to consumers and focus on the misuse of historically sensitive private consumer information, including health and financial information, information on children and social security numbers.

Not wasting anytime in this regard, Ohlhausen just announced that Jessica Rich, Director of the Bureau of Consumer Protection, is leaving the agency on February 17 and is being replaced by Thomas Pahl. During Rich’s tenure, the FTC brought numerous actions against businesses that resulted in billions of dollars being returned to consumers. These awards may soon be a thing of the past as Pahl, like Ohlhausen, supports deregulation.

While deceptive marketing practices will still be on the FTC’s radar, the good news for marketers is that Ohlhausen is not a proponent of how cavalierly investigations have been initiated; nor does she believe in the total disgorgement of profits of companies found to be in violation of (some) consumer protection laws.

Ohlhausen is just the interim chair, but it is rumored that Trump has a couple of like-minded candidates for the permanent position, including Sean Reyes, a former attorney general of Utah. Dietary supplements are the largest industry in Utah (worth over $7B annually). If selected, Reyes could be much welcome news for nutraceutical marketers. In fact, Utah Senator Orrin Hatch helped draft the 1994 Dietary Supplement Health and Education Act which regulates product claims, labeling, etc., and he is a strong supporter of the industry.

Regardless of who is chosen to permanently chair, recent moves should be encouraging to most product marketers and nutraceutical producers alike, though they may be less protective of consumer interests.

For questions or more information regarding the above content, email DLG@DigitalLawGroup.com

The guidelines provide direction on antitrust issues that may arise when licensing intellectual property. The proposed updates to the guidelines embrace three general principles:

1. “For the purpose of antitrust analysis, the Agencies apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right.”
2. “The Agencies do not presume that intellectual property creates market power in the antitrust context.”
3. “The Agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally pro-competitive.”

With those principles in mind, the guidelines remain largely unchanged. Below is a summary of two areas that underwent a great deal of redlining, whether changing or affirming the rules due to recent developments.

Intellectual Property and Market Power

The agencies have reiterated in the revised guidelines – including in the principles above – that intellectual property ownership does not create a presumption of market power. Section 2.2 states “market power (or even a monopoly) that is solely ‘a consequence of a superior product, business acumen, or historic accident’ does not violate the antitrust laws.”

This reflects the 2006 U.S. Supreme Court ruling in Illinois Tool Works Inc. v. Independent Ink Inc., in which the court held that a patent does not necessarily confer market power on the patentee, and is good news for intellectual property owners. For example, you can own a great deal of patents in – let’s say – kitchen products, but without a showing of more, such as anticompetitive behavior, there is no presumption of market power and thus no prima facie case for antitrust violations.

Section 3.2 goes on to address market power and licensing agreements. As stated in the guidelines, licensing arrangements still raise anticompetitive concerns if they are likely to have an adverse effect on product prices and quality, for example. The proposed revisions add that if a licensing agreement appears to have anticompetitive effects, the FTC and DOJ normally will identify the effected markets and will typically analyze the competitive effects within the relevant market(s).

So, unlike above where mere ownership of intellectual property does not create a presumption of market power, it appears that a licensing arrangement for all of those patents in kitchen products may more quickly garner the attention and scrutiny of the agencies.

Resale Price Maintenance

The most notable change, perhaps, comes in the area of resale price maintenance. Minimum resale price maintenance usually refers to a pricing arrangement whereby a manufacturer requires resellers to sell at or above a certain price point. The same principle applies to intellectual property licensing agreements when the property owner conditions the license on a particular minimum resale price. The 1995 Guidelines stipulate that it is, per se, illegal for a licensor of intellectual property to fix a licensee’s resale price. However, due to a 2007 Supreme Court ruling in Leegin Creative Leather Products Inc. v. PSKS Inc. rejecting the per se analysis, the proposed guidelines now apply a rule of reason analysis to be applied on a case-by-case basis to weigh the competitive benefits against the harms of the agreement.

For more information on the proposed changes to the guidelines, see the redline copy, which can be found here. The deadline for public comment is September 26.