Transcript Program Materials - American Bar Association

ABA Consumer Protection
January 2007 Update
Davis Wright Tremaine LLP
Alan Middleton
Maurita Coley
Ronnie London
Agenda




FTC Update
State Attorneys General Update
Private Litigation Update
National Advertising Division Update
FTC Update: Health Products
 Settlement with four weight-loss pill marketers
reported last month
 Xenadrine EFX, CortiSlim/CortiStress;
TrimSpa; One-A-Day WeightSmart
 Further implementation
FTC Update: Debt consolidation
 Leshin d/b/a Express Consolidation
 Action filed January 8 in S. District of Florida
 Alleged violations of FTC Act and
Telemarketing Sales Rule
 False claim to nonprofit status; fees
misrepresented; claimed savings overstated;
claim to improve credit unsubstantiated
FTC Update: “Free” Software CDs
 FTC v. Think All Publishing (E.D. Tex.)
 Marketing practices of internet operation that
advertised “free software CDs” but billed consumers’
credit cards for them without authorization



Free CD
Additional CDs; fee charged if not returned within 10
days
“Continuity program”
 FTC charged violation of FTC Act and Unordered
Merchandise Statute
 Magistrate recommends entry of preliminary
injunction
FTC Update: Dietary Supplements
 2000 FTC order requiring Lane Labs, Inc. and its officers to




have competent and reliable scientific evidence to substantiate
ad claims and prohibiting deceptive claims about tests, studies,
or research (D. N.J.)
2007 action for civil contempt, same case
FTC charges defendants violated order by claiming dietary
supplement “Fertil Male” enhanced male fertility
Also charges defendants violated order by claiming AdvaCAL, a
calcium supplement also sold as AAACa, is superior to other
calcium products and on par with or superior to prescription
drugs used to fight osteoporosis
Action contends claims are based on flawed scientific studies
FTC Update: CDs
 Sony BMG Music Entertainment
 Sold CDs without telling consumers that CDs:




Contained software limiting devices on which the music could be
played
Restricted number of copies that could be made
Contained technology that monitored listening habits to send them
marketing messages
Software also exposed consumers to significant security risks and was
unreasonably difficult to uninstall
 Settlement:




Requires Sony BMG to clearly disclose limitations on consumers’ use
of music CDs
Bars Sony BMG from using collected information for marketing
Prohibits installation of software without consumer consent and
requires Sony BMG to provide means of uninstalling software
Requires Sony BMG to allow consumers to exchange the CDs through
June 31, 2007, and to reimburse consumers up to $150 to repair
damage to their computers
FTC Update: X-Rated Spam
 2005 lawsuit against TJ Web Productions (D. Nev.)
 Alleged violations of FTC’s Adult Labeling Rule and
CAN-SPAM Act



Rule and Act require commercial e-mailers of sexually
explicit material to use phrase “SEXUALLY EXPLICIT:”
in the subject line
Also to ensure that the initially viewable area of the
message does not contain graphic sexual images
Rule and Act also require that unsolicited commercial
e-mail contain opportunity for consumers to opt out
 Settlement includes injunctive relief and payment of
$465,000 civil penalty
FTC Update: Franchises
 Updated Franchise Rule
 Closer alignment with state disclosure laws, UFOC Guidelines
 Greater disclosure to franchise purchasers than UFOC:
Lawsuits filed by franchisor against franchisees
 Franchisor’s use of “confidentiality clauses” in lawsuit
settlements
 Warning when there is no exclusive territory
 Clear explanation of “renewals”
 Trademark-specific franchisee associations
 Less disclosure than UFOC:
 No “risk factors”
 No franchise broker information
 No extensive information about computer system franchisee
must purchase

FTC Update: Nursery Guides
 FTC retains Guides for the Nursery Industry
substantially unchanged
 Promulgated in 1979; amended
 FTC undertook cost/benefit review
 Notice published in Federal Register retaining
Guides substantially unchanged
FTC Update: Endorsement Guides
 FTC’s Guides Concerning the Use of Endorsements
and Testimonials in Advertising
 Comments sought on



Costs/benefits, conflicts with other laws, impact of
changes in technology
FTC-commissioned studies on effect of consumer
testimonials in context of dietary supplements
Consumer expectations regarding celebrity
compensation
 Comments due March 19
FTC Update: Appliance Labeling
 Seeking comments on proposed
amendments to the Appliance Labeling Rule
(16 CFR Part 305)
 Proposed amendments include new design
for the EnergyGuide label and changes to
labeling requirements for heating and cooling
equipment
FTC Update: Amicus Briefs I
 Leegin Creative Leather Prods., Inc. v. PSKS,
Inc. (US S. Ct.)


Joins DOJ in urging that all vertical minimum
resale price maintenance agreements be
judged under rule of reason
Urges overruling of Dr. Miles
FTC Update: Amicus Briefs II
 Credit Suisse First Boston v. Glen Billing (US S. Ct.)
 Class action alleging agreement to require payment of
additional fee for allocation of IPO shares
 Clash of securities and antitrust laws
 District Court dismissed based on implied antitrust
immunity; Court of Appeals reversed, narrowly
construing immunity
 FTC joins DOJ in arguing that proper result falls
between trial and appellate courts, that securities laws
shield collaborative conduct “specifically authorized”
and “inextricably intertwined with permitted
collaboration”
State AG Update: Bayer Corp.
 Thirty-state settlement with Bayer Corp.
 Allegations that Bayer did not adequately
disclose safety problems associated with its
product, Baycol, a drug used to lower
cholesterol (withdrawn from market in 2001)
 Settlement bars Bayer from making false and
misleading claims about its products and
requires Bayer to pay total of $8 million to
settling states
State AG Update: Refund Loans
 California AG settled claims against Jackson Hewitt,
Inc., nation’s second-largest tax prep firm
 Alleged violation in marketing high-cost refund
anticipation loans (RALs) mainly to low-income
customers



Inadequately disclosed fees forced some consumers to
pay interest exceeding 200 percent
Failure to characterize advances as “loans”
Misleading consumers into believing they would
receive cash quicker than simply waiting for IRS refund
 Settlement requires Jackson Hewitt to pay $5 million,
including $4 million in consumer restitution
State AG Update: Internet Age Verification
 Connecticut AG calling for MySpace age
verification
 Claims coalition of 39 states; Kansas AG
refers to MySpace Multi-State Working Group
 Plans unclear; undefined legal action
threatened
State AG Update: Debt Collection
 Illinois AG filed suit against two debt collection
services, Arrow Financial Services and Leading Edge
Recovery Solutions
 Alleges violations of Illinois Consumer Fraud and
Deceptive Business Practices Act



Attempts to collect on time-barred debts
Attempts to collect on debts discharged in bankruptcy
or settled
Abusive practices including use of profanity, failure to
provide proof of debt, contacting debtors’ families and
workplaces, withdrawal of money without authorization
from debtors’ accounts, misrepresenting
consequences if consumers failed to pay
State AG Update: Online Diplomas
 Indiana AG filed suit against
noveltyworksdegrees.com
 Alleged sales of fake diplomas, transcripts
State AG Update: Cellphone Spam
 Illinois AG filed lawsuit against C & C Global
Enterprises, www.resortsellers.com, others
 Alleges defendants sent millions of unsolicited text
messages to Illinois consumers and wireless phones
across the country
 Illinois residents received receiving unsolicited text
messages alerting them that “We have someone
interested in buying or renting your Time Share” and
directing the recipient to logon to
www.webuyresorts.com or www.resortsellers.com for
more information
 Violation of the federal Telephone Consumer
Protection Act and the state Consumer Fraud and
Deceptive Business Practices Act
State AG Update: Annuities
 Minnesota AG filed suit against Allianz Life
Ins. Co.
 Allianz allegedly sold deferred annuities to
senior citizens that were unsuitable for their
financial needs
 Allegedly failed to disclose that seniors could
have limited savings tied up for 15 years,
could not cash in annuities early without
paying hefty surrender penalties, and
payments advertised as “immediate” bonuses
were not payable for up to 15 years
State AG Update: Katrina Insurance
 Mississippi AG announced settlement with
State Farm
 Settlement terms:





Full disclosure of claim files
Independent reevaluation of claims
Minimum offer on slabs
Pay costs of arbitration
Provide annual notice clearly explaining that
storm surge is not covered
Private Litigation Update – Decisions
 Medtox Scientific v. Tamarac Medical and ESCA
Tech., 2007WL37793 (D. Mn. Jan. 4, 2007)

Provider of lead testing supplies for blood tests Medtox sought
P.I. against ESCA, manufacturer of patent-pending “D-Lead”
waterless soap and “D-Wipes” that remove lead from skin
before blood tests, and Tamarac, distributor of D-Lead/DWipes under exclusive license from ESCA


Medtox alleged Tamarac references to patent application in ads
and communications unfairly suggested no other company could
market D-Lead and D-Wipes, even though Medtox occasionally
uses D-Lead and D-Wipes when required by its customers
D. Minn. granted preliminary injunction, holding that:

Though Tamarac/ESCA license granted exclusive contract right,
pending patent application cannot confer monopoly on Tamarac

Accordingly, statements that rights of exclusivity are protected by
patent application are false and inclusion of “U.S. patent applied
for” directly following exclusivity claims are false by implication
National Advertising Division Update
 Isomil Advance


Nestle challenged claims by Abbott Laboratories subsidiary
Ross Products about Isomil Advance baby formula that:

it made babies go from crying, gassy and uncomfortable to
smiley, happy and satisfied, and reduced fussiness, gas and spitup, in three days

no other formula has been shown to relieve symptoms faster

clinical evidence supported the claims
NAD subjected claims to “careful scrutiny” due to formula
possibly being sole source of nutrition for end-user (babies)
and vulnerability of target audience (parents of infants)
National Advertising Division Update
 Isomil Advance (cont’d)

NAD noted ads’ main claim that symptoms will be eliminated
contradicted establishment claim that switch to Isomil would
reduce symptoms and package disclaimer that symptoms
may be from causes other than formula

While NAD found test subjects of proper age and enrolled
based on doctor recommendations for formula switch, study
was flawed and insufficient for strong performance claims:


Ross did not test advertised product but rather prior formulations

Studied symptoms more severe than those highlighted in ads
and not representative of most babies

No testing of competing brands despite references to them
NAD recommended Ross discontinue claims and though
Ross disagreed, it will follow out of “respect” for NAD and the
self-regulatory process
National Advertising Division Update
 CherryPharm All Natural Cherry Tart Juice

As part of “ongoing monitoring program,” NAD challenged
CherryPharm, Inc. online claims that it:

facilitated “less muscle damage, less pain, faster recovery”

is “scientifically shown” to reduce pain and strength loss



has a “unique formulation” that “predicts” inflammation and
targets it for relief “pro-actively and re-actively”
has cherries that are “nature’s pain relief” without side effects
CherryPharm updated website to bifurcate claims: those
related to cherries and those pertaining to the product
National Advertising Division Update
 CherryPharm All Natural Cherry Tart Juice (cont’d)

NAD found that, once claims about cherries and CherryPharm
were separated, that:




studies provided reasonable basis for claims about reducing
pain- and strength-loss and recovery from intensive exercise
evidence did not support “prevents muscle damage” claim
while there have been interesting findings regarding cherries
and/or cherry juice generally, claims regarding pain relief and
anti-inflammation effects were over-stated
In response to NAD suggestion to discontinue unsupported
claims, CherryPharm expressed commitment to compliance
with ad laws and to ensuring “marketing of all cherry industry
products adhere to the same . . . high standards”
National Advertising Division Update
 NFL Network

CSC Holdings, Inc. (Cablevision) challenged printed claims by
NFL that viewers will miss live and/or playoff-critical games if
they do not subscribe to the NFL Network, arguing the NFL:

Overstated number of missed games as NFL Network carries
only one a week not otherwise aired on broadcast or ESPN

Failed to account for local broadcast carriage that airs even if
game otherwise is restricted to NFL Network

Predicted late-season games would be significant to playoffs
when that could not be known at time ads appeared
National Advertising Division Update
 NFL Network (cont’d)

NAD determined claims were truthful but additional qualifying
information, provided in newspapers but not other peripherals
(door-hangs, mailers, etc.) was necessary to make them so

Claim citing missed games was truthful and accompanied by
detailed disclosure of games restricted to NFL Network
 Where disclosure of NFL Network schedule not accompanied
by statement of local simulcast possibility, suggesting all NFL
Network games would be missed was misleading


Games status as “best” and playoff relevance are subjective
and not susceptible to objective meaning or substantiation
NFL had already discontinued peripherals and will take NAD
recommendations into account in future advertising
National Advertising Division Update
 Extra Strength Tylenol Rapid Release Gels

Wyeth Consumer Health Care challenged claims by McNeil
Consumer Health Care that:





Laser-cut holes in Rapid Release Gels are “one of the
biggest breakthroughs in pain relief” and represent the
“latest technology”
Development allows medicine to be released from the pill
into user’s system to reach pain “faster than ever before”
NAD held “main message” was Rapid Release Gels provide
faster pain relief rather than just more rapid release but tests
proved only the latter, not the former
Claims that comparison was to only other Tylenol gel-coated
products, not all Tylenol or pain-relief, was not evident
Touting “breakthrough” and “latest” technology supported,
but should limit as compared to other gel-coated Tylenol
National Advertising Division Update
 Pledge Anti-Dust formula

Colgate-Palmolive (maker of Murphy Soft Wipes) challenged
S.C. Johnson’s claims that Pledge’s “anti-dust formula” keeps
wood less dusty longer and allows for less frequent dusting

NAD determined that two studies S.C. Johnson conducted
(one on wood, the other on a variety of surfaces) measured
Pledge’s effect on the appearance of dustiness, not its ability
to actually remove dust, and thus were insufficient to support
claims relating to the actual amount of dust on surfaces

S.C. Johnson disagreed with NAD assessment as to the what
the claims implied but agreed to take findings into account for
future ads and toe make modifications in accordance with
NAD recommendations to discontinue the claims
National Advertising Division Update
 Shout Stain Remover

Reckitt Benckiser (maker of Spray ‘n’ Wash) challenged S.C.
Johnson’s claims that Shout is better on “greasy” stains

NAD found S.C. Johnson’s testing was sufficient to support a
claim that Shout removes more stains better than Spray ‘n’
Wash, but dramatically overstates its superiority with respect
to “greasy” stains

S.C. Johnson indicated its appreciation that NAD affirmed the
ability to advertise Shout as superior to Spray ‘n’ Wash and,
while disagreeing with NAD’s conclusions regarding “greasy”
stain claims, stated its support of the self-regulatory process
and willingness to take NAD concerns into consideration for
future advertising
National Advertising Division Update
 Cortaid Advanced 12-Hour Anti-Itch Cream

Pfizer Inc. (maker of Cortizone-10 1% hydrocortisone cream)
challenged Johnson & Johnson’s claims that that Cortaid
works for 12 hours, that no other OTC hydrocortisone cream
did so, that Cortaid is strongest available without prescription,
and that Cortaid includes “major scientific breakthrough” that
makes it superior to other OTC hydrocortisone creams

NAD determined that results of controlled, randomized,
investigator-blinded, head-to-head study of more than 70% of
OTC cortisone creams provided reasonable basis for J&J’s
claims regarding Cortaid
National Advertising Division Update
 Dyson, Inc.

Euro-Pro challenged Dyson claims that its vacuum cleaners
never lose suction have no loss of suction and “no clogging”
and Dyson’s video on Youtube.com comparing Dyson
vacuums to Euro-Pro’s Shark Infinity, Hoover’s Windtunnel
and Kenmore's Progressive vacuums

NAD closed case because claims were subject to litigation
were subject to pending litigation and Dyson had permanently
discontinue used of the challenged Youtube video
National Advertising Division Update
 Spitz Sunflower Seeds

ConAgra Foods challenged Spitz’s claims of status as “#1
sunflower seed” and being “all-natural”

ConAgra claimed its David brand sunflower sees were #1 in
sales and volume share, and certain Spitz ingredients were
not natural under informal FDA policy

Spitz refused to participate in NAD self-regulatory forum

NAD referred to FTC and FDA