“Safe for Consumption by Infants” Formula Claim Could Be Misleading

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Infant formula purchasers alleging that Abbott Laboratories misled consumers about safety in connection with the sale of five million containers of contaminated Similac brand formula stated claims under the New York Deceptive Practices Act, Texas Deceptive Trade Practices Act, and New Hampshire Consumer Protection Act, the federal district court in Central Islip New York has ruled.

Regardless of whether the claims “sounded in fraud” or were premised on specific misrepresentations rather than an “advertising scheme,” they were not subject to the heightened requirements of pleading fraud with particularity under Rule 9(b) of the Federal Rules of Civil Procedure, the court determined. The applicable standard for claims under all three statutes was notice pleading under Rule 8(a).

The purchasers alleged that Abbott misled consumers as to the safety of Similac through the following affirmative statements:

(1) Similac is “safe for the consumption by infants”;

(2) Abbott was “dedicated to the highest standards of manufacturing and marketing—and to complying with all applicable laws and regulations”;

(3) Similac “provid[es] babies with excellent nutrition for growth and development and has been clinically proven to aid brain, bone and immune system development”; and

(4) Abbott is “committed to conducting research to ensure that formula-fed infants receive the highest quality products to meet their nutritional needs.

Puffery v. Affirmative Misrepresentation

Statements that are vague or mere puffery or hyperbole such that a reasonable consumer would not view them as significantly changing the general gist of available information are not material, even if they are misleading. Under this standard, statements (2), (3), and (4) were not actionable, the court decided.

However, the court held that statement (1) about safety supported claims under the statutes based on affirmative misrepresentation. By identifying the alleged misrepresentation as being located on the product packaging and alleging that they relied on this statement in purchasing and paying a premium price for the contaminated formula, the purchasers asserted the requisite causal connection between the deceptive act and their injuries.

Recall

A recall program did not render the claims under the New York and New Hampshire statutes moot, according to the court. Without more specific information about whether the recall program would reasonably compensate the Texas plaintiffs, the question of whether the program constituted a reasonable offer under the Texas statute was not ripe for review.

Ohio Laws

A class action claim failed under the Ohio Uniform Consumer Sales Practices Act because the purchaser did not contend that she could meet the Act’s class action notice requirements, the court ruled. The Act provided that a class action could not be maintained unless the purported violation was either (1) an act or practice declared to be deceptive or unconscionable by a rule adopted by the Attorney General before the consumer transaction on which the action was based or (2) an act or practice determined by an Ohio state court to violate the Act and committed after the decision had been made public.

The purchaser could not pursue a claim under the Ohio Uniform Deceptive Trade Practices Act because consumers lacked standing to sue under the Act, according to the court.

Claims Under Texas Law

Purchasers bringing a claim under the Texas Deceptive Trade Practices Act were ordered to provide written notice to Abbott Laboratories of the claim within 20 days, after which the claim would be abated for 60 days.

The March 5 opinion in Leonard v. Abbott Laboratories, Inc. will be reported at CCH Advertising Law Guide ¶64,612.

Snapple Purchasers’ “All Natural” Claims Meet Fraud Pleading Standards

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Purchasers of Snapple drink products pleaded with particularity that “all natural” labeling of beverages containing high fructose corn syrup (HFCS) was deceptive and fraudulent under California consumer protection laws, the federal district court in Sacramento has ruled.

The purchasers' broader allegations regarding unspecified “commercial advertisements” and “other promotional materials” were dismissed.

Labeling Claims

The purchasers alleged that between March 4, 2005 and March 4, 2009, Snapple used “All Natural” and other similar terms in labeling its drink products. The purchasers submitted examples of the labels from bottles of each of the sixty drink products, all of which contain the term “All Natural” or “100% Natural.”

The purchasers alleged that this labeling deceived consumers because the drink products contained HFCS, which they asserted is not a natural product. The purchasers further alleged that if they had not been deceived by the labels on the products, they would not have purchased the products, but would have purchased alternative drink products.

These allegations satisfied the heightened standard for specifying the who, what, where, and how of fraud, under Rule 9(b) of the Federal Rules of Civil Procedure, the court held.

Advertisements, Promotional Materials

The purchasers' allegations regarding unspecified “commercial advertisements” and “other promotional materials” were dismissed because they failed to (1) identify any specific advertisements or promotional materials; (2) allege when plaintiffs were exposed to each advertisements or materials; or (3) explain how such advertisements or materials were false or misleading, according to the court.

The January 6 opinion in Von Koenig v. Snapple Beverage Corp. will be reported at CCH Advertising Law Guide ¶64,116.

Overpayment Caused By Deceptive Ad Could Be Recoverable Under Massachusetts Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A baby formula purchaser stated a Massachusetts Consumer Protection Act (CPA) claim against the formula manufacturer that allegedly engaged in unlawful and deceptive advertising, according to the federal district court in Boston.

Mead Johnson & Company sent out direct mailings and developed print advertisements for its Enfamil LIPIL baby formula, stating that it was the only formula on the market that improved brain and eye development and contained two important nutrients.

The purchaser alleged that she and other consumers chose to pay more for Enfamil than for other brands based on these statements and that the statements were deceptive because other brands of baby formula contained the nutrients as well. Accordingly, the purchaser filed a class action under the CPA.

Pleading Requirement

To state a CPA claim, the purchaser needed to meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b). The manufacturer argued that the purchaser failed to meet the Rule 9(b) standard by not including (1) the exact amount of loss, (2) the advertisements that were untrue as opposed to misleading, and (3) the dates of the advertisements.
It was sufficient to allege that the purported class consisted of purchasers that bought the baby formula from September 25, 2005 to the present and to include copies of the advertisements.

Ascertainable Injury

Some Massachusetts courts have held that overpayment for a product is not a recoverable injury where the purchaser no longer has the products and did not suffer any other injury from the product. However, the federal district court rejected the magistrate judge’s recommendation that the claim be dismissed for lack of injury.

The Massachusetts Supreme Judicial Court has held that overpayment was recoverable if the underlying advertisement was false. The facts of the case were more analogous to cases in which the purchaser had standing based on pleading of an injury stemming from his decision to pay a higher price because of a company’s advertising.

Puffery

A jury could find the statements made in the advertising deceptive because a reasonable consumer would have chosen the Enfamil over cheaper products because of the advertising. Finally, it was reasonable to rely on the statements made in the advertising because they were specific enough to be interpreted as more than a mere opinion or puffery.

The decision is Martin v. Mead Johnson Nutrition Co., CCH State Unfair Trade Practices Law ¶32,145.

Further information regarding CCH State Unfair Trade Practices Law appears here.

Online Retailer Faces Class Action for Allegedly Negligent Rebate Ad

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

An online purchaser established that class certification should have been granted on claims that online retailer Buy.com misleadingly advertised a $30 Connect 3D memory card with a $30 rebate, which Connect 3D failed to pay, a California appellate court has ruled.

The purchaser alleged negligent misrepresentation and violations of the California Unfair Competition Law and the California Consumers Legal Remedies Act (CLRA).

The class was defined in the purchaser's memorandum of points and authorities as all persons in the United States who purchased a Connect 3D product from Buy.com, Inc. that included a rebate offer and whose rebate submissions were approved for payment, excluding anyone who was paid a rebate by Buy.com.

The trial court erred by holding that the class was not ascertainable because of an inconsistency with the class definition in a proposed order, the appellate court held.

While relief under the CLRA was limited to proposed class members who bought products for consumer use, the class could be certified even though some members of the class were not consumers, according to the court.

Nationwide Class, California Law

Even though the proposed class was nationwide, common issues of law predominated, the court found. A California choice-of-law provision in Buy.com’s terms of use agreement was applicable. Buy.com was headquartered in California. The allegedly misleading rebate information on Buy.com’s website originated from California. The due diligence Buy.com allegedly failed to perform would have been performed in California.

Buy.com unsuccessfully contended that the purchaser's claims were vague. The purchaser alleged that every member of the class must have seen and relied on Buy.com's negligent misrepresentations that the rebate was available.

The decision is Kershenbaum v. Buy.com, Inc., CCH Advertising Law Guide ¶64,005.

Class Action Preferable to Thousands of Suits on Dietary Supplement Claims

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A purchaser of the dietary supplement Relacore established that a class action, rather than the prosecution of thousands individual small claims, was the superior method for proceeding on allegations that Carter-Reed Company violated the New Jersey Consumer Fraud Act by falsely representing that the product would shrink belly fat and improve mood, among other benefits, the New Jersey Supreme Court has ruled.

The core issues were (1) whether common issues of law and fact predominated, (2) whether the class action was superior to a myriad of individually litigated cases, and (3) whether a class action—given the number of individual claims involved—was manageable.

Carter-Reed did not dispute that the claims met the class action requirements of numerosity, commonality, typicality, and adequacy of representation.

Predominance of Common Issues

Carter-Reed argued that the purchaser had challenged only the marketing of Relacore as a weight-reducing dietary supplement and that class certification inevitably would spawn a host of individual questions concerning why a particular consumer bought Relacore and whether the advertised benefits were realized.

However, the purchaser's detailed allegations asserted that Relacore provided none of the advertised benefits, that no sound scientific evidence supported Carter Reed’s representations about Relacore, and that Carter Reed’s entire marketing scheme was nothing more than a web of lies, according to the court.

A corporate defendant engaged in a marketing scheme founded on a multiplicity of deceptions should not be in a better position in fending off a motion for class certification than a defendant engaged in a sole marketing deception, the court reasoned.

The alleged out-of-pocket ascertainable loss was the purchase price of a bottle of Relacore. While individual questions remained as to the number of bottles purchased by each class member without refunds, these questions did not present an insuperable obstacle, the court found.

Superiority, Manageability

The class action was a superior means for resolving the dispute despite a 30-day refund policy that Carter-Reed offered in some of its advertising but that did not appear on Relacore packaging and labeling, the court determined.

Denying class certification on manageability grounds was disfavored in general and not in any way justified in this case, the court held. If discovery indicates that some of Carter's Reed's claims for Relacore were scientifically sound, then the trial court would have options including subdividing, or in a worst-case scenario, decertifying the class.

The burden would be on the plaintiff to provide the necessary evidence to support the allegations that justified the grant of class certification, the court observed.

The September 29 opinion in Lee v. Carter-Reed Co., LLC, will be reported at CCH Advertising Law Guide ¶64,004 and CCH State Unfair Trade Practices Law ¶32,144.

FTC Releases Revised Guides for Endorsements, Testimonials in Advertising

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Can an advertiser be held liable for a blogger’s misleading statements about the advertiser’s products? What about the blogger?

Maybe, says the Federal Trade Commission, in releasing today its final Guides Concerning the Use of Endorsements and Testimonials in Advertising.

The revised guides will take effect on December 1, 2009. The proposed revisions were announced last November. (See Trade Regulation Talk story of November 21, 2008.)

Most of the revisions were adopted as announced at that time, with minor modifications.

The existing guides (16 C.F.R. Part 255) were published in 1980. The guides are advisory in nature and are designed to help advertisers avoid using deceptive testimonials or endorsements in marketing their products.

The revised guidelines address the role of blogs and other new consumer-generated media to market products and make other changes to bring the guidelines up to date.

Blog Endorsements

In discussing the role of blog endorsements in advertising, the FTC provides an example of a situation in which an advertiser would incur liability for a blogger’s misleading statements. Liability arises when an endorser-sponsor relationship is established.

According to the guides, an advertiser is subject to liability under Sec. 5 of the FTC Act for a blogger’s endorsement where:

 The advertiser initiates the process that leads to the endorsement (by utilizing a blog advertising service to locate a blogger who will promote the advertiser’s products on a personal blog or by providing products to a well-known blogger, for example);

 The advertiser requests that the blogger try a product and write a review of the product on the blog; and

 The blogger recommends the product using misleading or unsubstantiated claims (and not just the blogger’s opinion about subjective product characteristics).

The blogger would also be liable under the FTC Act if the blogger failed to adequately disclose any payment for services.

Non-typical Consumer Testimonials

The FTC has also decided to go forward with its proposed elimination of a safe harbor for non-typical consumer testimonials accompanied by disclaimers of typicality. The guides dating from 1980 allow advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as “results not typical.” Starting December 1, advertisers will be expected to disclose “the generally expected performance in the depicted circumstances” under the revised guides.

The FTC’s proposal faced much resistance from the weight-loss products industry. Many advertisers in that industry had argued that they would not be able to determine what the generally expected performance would be in the depicted circumstances, and thus would not be able to use aspirational testimonials. (See Trade Regulation Talk story of July 22, 2009.)

According to the FTC, the effect of the revision is to treat ads that use testimonials the same as all other ads. Sect. 5 of the FTC Act requires advertisers to have substantiation for the messages that consumers reasonably take from their ads. The agency believes that an advertiser should not be exempt from those basic obligations simply because it used a consumer testimonial to communicate its claims.

The FTC’s notice of the adoption of the revised guides appears here on the FTC website.

The Guides Concerning the Use of Endorsements and Testimonials in Advertising, effective through November 30, 2009, appear at CCH Trade Regulation Reporter ¶39,038.

Sales Representatives' Statements Could Constitute Advertising Under Lanham Act

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Dental equipment companies Dentsply and Tulsa Dental Products could have engaged in commercial advertising or promotion under the Lanham Act by encouraging their sales representatives to contact all of the customers of a small competitor (Guidance Endodontics) and make false and disparaging statements about its business, the federal district court in Albuquerque has ruled.

The element of “commercial advertising or promotion” was not controlled purely by the instances of disparaging statements for which there was direct evidence. Both direct and circumstantial evidence were to be considered in determining whether there had been sufficient dissemination of the statements at issue.

Guidance Endodontics presented evidence of the following:

(1) Three specific instances of a representative of Dentsply or TDP contacting customers of Guidance, making a false statement that Guidance could no longer provide certain products, and, in two cases, attempting to persuade the customer to buy the defendants’ products instead;

(2) Dissemination of the same false information among the defendants’ sales representatives and other employees;

(3) A rash of mysterious telephone calls inquiring whether Guidance could still supply certain products; and

(4) An internal policy of extremely competitive marketing on the defendants’ part.

Based on this evidence, viewed in the light most favorable to Guidance, and on the fact that Guidance and the defendants shared target markets, the court held that Guidance created genuine issues of material fact as whether the defendants had made false or misleading representations constituting commercial advertising or promotion within the meaning of the Lanham Act.

The court further held that New Mexico law was applicable to the dispute, as the place where the injury occurred, and that Dentsply and Tulsa Dental Products could have violated the New Mexico Unfair Practices Act. Knowledge of the falsity of the sales representatives’ statements was imputed to the defendants.

The decision is Guidance Endodontics, LLC v. Dentsply International, Inc., CCH Advertising Law Guide ¶63,569.