United States: AD-Ttorneys@Law – July 30, 2018

Last Updated: August 10 2018
Article by Alan L. Friel

In This Issue:

COPPA Not Satisfied by Simple Age Request

Tyson Blocks Kraft Heinz Poultry Slam

Final Two Skin Care Defendants Settle With FTC

UCAN Can't Pitch SuperStarch Benefits, Says Class Action

Webloyalty Suit Sees New Class Cert Request

COPPA Not Satisfied by Simple Age Request

Karaoke app-maker must obtain consent or change its product

Aria Antenna

The Children's Advertising Review Unit (CARU) has recently focused on selfie-stick products and how companies are marketing these products to children of varying ages.

In the most recent instance, CARU reviewed StarMaker Interactive's StarMaker app, a karaoke smartphone application that was pitched to users of the "Selfie-Mic."

The Selfie-Mic is a standard selfie stick that includes a microphone. For some time, the makers of the Selfie-Mic have been pushing the StarMaker app along with their product, suggesting that the app was the Selfie-Mic's ideal partner to record users' interpretations of their favorite songs. Together, the two products formed a system that would allow interaction with the product as well as the app in a unique way.

Back in 2016, CARU took Moose Toys, the Selfie-Mic's manufacturer, to task over television advertising that promoted the StarMaker app to children. In this instance, Moose Toys had a commercial that depicted children texting a music video to a friend through the app, a functionality which would only be allowed to children over the age of thirteen who pass the app's age gate.

That review sparked an additional review of the StarMaker app by CARU, which culminated in a decision released in July 2018. During its review, CARU noted there were many users of the StarMaker app who appeared to be under age 13. While the decision acknowledged that children under 13 were not the primary audience, it still determined that the app's age gate was not sufficient to meet the requirements of the Children's Online Privacy Protection Act (COPPA). Here, although the app was deemed a mixed audience service, because it was targeting children, the app administrator's obligations went beyond merely needing an age gate to comply with COPPA. CARU reasoned that the app administrator may age-screen its users, "but then must either obtain parental consent or provide child visitors with content consistent with what is being advertised to them in a way that does not involve the collection, use or disclosure of personal information" in order to fully comply with COPPA.

StarMaker Interactive accepted CARU's suggestions and stated that it has "started efforts to incorporate changes to our app, as recommended by CARU ... and will keep working with CARU to build and maintain a safe and sound online world."

The Takeaway

CARU's review process and decision highlight another example of regulatory bodies evaluating emerging technology that affects children and analyzing whether such advertising or technology complies with the strict requirements of COPPA. Brands and advertisers should take notice of decisions such as these, which may largely influence how companies can effectively market products to target youth audiences while still obtaining the proper and necessary consent.

Tyson Blocks Kraft Heinz Poultry Slam

Omission of packaging in commercial is an artistic choice, says NAD

Out of the Bag

Three seconds of a one-minute commercial clip stirred up trouble for two food production companies.

In those three seconds, Tyson Foods, makers of the advertised Hillshire Farm Ultra Thin Oven Roasted Turkey Breast, depicted slices of its product being removed from its packaging without an inner plastic bag, even though the product traditionally is packaged in a plastic bag.

Kraft Heinz challenged the advertisement at the National Advertising Division (NAD) and alleged that the depiction of a bagless Hillshire product conveyed the freshly sliced deli appearance of its own product. Kraft Heinz's Oscar Mayer cold cuts are packaged in a clear plastic tub without a bag, allowing the consumer to see the product clearly and associate it with the deli-fresh meat that Kraft Heinz alleges consumers prefer. Kraft Heinz alleged that the Oscar Mayer packaging is patented and required an investment of significant resources and time on Kraft Heinz's part. Thus, according to Kraft Heinz, Tysons' imitation of the packaging in the commercial was intended to procure competitive benefit that it had not earned.

What's Inside?

Marketing how the sliced turkey looks within a product package may seem to be a straightforward process, but NAD's review hinged on artistic license. NAD maintained that advertisers are allowed such license when depicting their product, provided that "they do not, directly or by implication, mislead consumers with regard to a material attribute of the performance of the product."

In this decision, NAD put itself in the shoes of consumers because there was no consumer perception evidence presented. NAD determined that the commercial did not depict the Hillshire product as fresher or more delicious than Oscar Mayer cold cuts.

The Takeaway

This decision marks a victory for Tyson Foods, who received NAD's approval of the advertisement based on artistic license. Nevertheless, this decision is an example of how closely NAD will evaluate and toe the line between what is considered misleading advertising and what is merely creative use of artistic license. Brands and advertisers should continue to exercise caution when casting a positive light on their product that they cannot guarantee will be passed to the end consumer.

Final Two Skin Care Defendants Settle With FTC

More than 30 defendants blemished since 2015 complaint

Bait and Switch

The scheme, the Federal Trade Commission (FTC, or the Commission) alleges, was at its core a simple one. More than a dozen companies and seven individuals who were in the business of marketing skincare products offered free trials including AuraVie and LéOR Skincare branded products. Customers were asked to pay only shipping fees, which required a credit card number.

Once the marketers had the numbers, however, they allegedly signed the unwitting customers up for a subscription that included regular shipments of product and recurring monthly charges – often close to $100 a month.

Line Up

The complaint, filed back in 2015, featured 22 California-based defendants, which were a mix of companies and corporate directors. The companies were accused of various activities related to the scheme, including advertising, marketing, selling and distributing the products, or providing customer support to buyers. The group was charged as a common enterprise with multiple FTC Act violations, including failure to disclose material terms, false "risk-free" trial claims, false representation of an "A-" Better Business Bureau rating (the actual rating was "F") and charging customers without authorization. The group was also accused of violating the Restore Online Shoppers' Confidence Act's (ROSCA) negative option prohibitions and unauthorized debiting in violation of the Electronic Fund Transfer Act.

The Takeaway

Amendments to the complaint increased the defendant count to 33 entities and individuals. However, in the intervening years the FTC has whittled down the remaining defendants through court orders and default judgments.

In late June 2018, the last two defendants standing – Alan Argaman and Secured Merchants, LLC – settled with the FTC. The agreement bars the defendants from engaging in future deceptive practices and imposed a fine of $320,000 in favor of the FTC as equitable monetary relief. The agreement also stated that all money paid to the FTC may be "deposited into a fund administered by the Commission or its designee to be used for equitable relief, including consumer redress and any attendant expenses for the administration of any redress fund." As evidenced by this hefty penalty, companies and brands should exercise utmost caution when marketing negative option subscriptions to consumers without adequate disclosure and consent. ROSCA violations have continued to be a source of enforcement for the FTC and will continue to be an important mechanism to deter companies from misleading consumers.

UCAN Can't Pitch SuperStarch Benefits, Says Class Action

Plaintiff claims the evidence points in the opposite direction

Cure for Spikes

In July 2018, a class action was filed against the defendant, The UCAN Co., which alleged that the defendant's marketing violated numerous states' Consumer Fraud Acts and unjustly enriched the defendant.

The complaint alleged that "[f]rom the serious beginner to the most highly paid professional, athletes are notorious for their susceptibility to being taken in by products that claim to improve performance." The products under scrutiny in this particular action are part of the Generation UCAN line: snack bars and drink mixes powered by a key ingredient, "SuperStarch," which is also available as a stand-alone powder.

SuperStarch – "an all-natural, slow-releasing carbohydrate" – is pitched as a bit of a miracle supplement; the UCAN website boasts that SuperStarch is "improving the performance of elite athletes, providing everyday athletes with healthy nutrition for workouts, even assisting children with a rare condition." The site goes on to claim that SuperStarch, unlike competing energy drinks, "provides sustained natural energy levels without spikes and crashes" by "uniquely" stabilizing blood sugar and causing "virtually no reaction from the fat-storing hormone insulin."

These broad claims promise the athlete spike-and-crash-free, improved workout capabilities and enhanced peak performance.

Ouch

"In reality," the complaint claims, "according to laboratory tests and peer-reviewed research, ingesting the Products at recommended rates before and during exercise does not enhance performance and, in fact, impairs performance due to Product-induced increases in gastrointestinal distress."

Therefore, the complaint takes aim at UCAN's advertising, particularly its reliance on allegedly inadequately sourced and reviewed white papers which it claims were written by a member of the company's advisory board. What's more, the plaintiff cites the company's own description of SuperStarch against it: "SuperStarch is just ground up corn (non-GMO) that is cooked with a unique patent-pending natural process."

Additionally, the complaint alleges that the only peer-reviewed study cited by UCAN to address the benefits of similar compounds on athletic performance actually illustrates no benefit at all. The study, which pits a SuperStarch-like chemical against an artificial sweetener, actually shows that SuperStarch conferred no reliable performance improvements or fat-burning rates over the artificial sweetener.

The Takeaway

As of mid-July 2018, there has been no response to the action. However, this class action will be an interesting one to follow as it once again demonstrates customers' willingness to scrutinize brands for their broad claims of product effectiveness and superiority while allegedly failing to substantiate such claims.

Webloyalty Suit Sees New Class Cert Request

Plaintiff alleges a scheme to snatch card numbers for renewable charges

Another Tricky Day

In the third iteration of his class action lawsuit against Webloyalty, originally filed in the Southern District of California in 2012, Kevin Park outlined a scheme that he and millions of other consumers allegedly fell prey to.

In Park's case, it all started in 2009 when he visited a popular video game retailer website to buy his son a gift certificate. During the purchasing process, he claims, he was presented with a coupon offer that stated it would save him money on his next purchase. He clicked on the coupon link and entered his email address, assuming he was communicating with the retailer website for the purpose of receiving the discount. He then finished the transaction and went about his business.

Cloaking Device

However, Park alleges that the coupon offer wasn't what it seemed. By clicking on the link and providing his email address, he was unknowingly entering into an undisclosed financial arrangement with Webloyalty, which began charging him a recurring $12 monthly fee. Park claims that he did not discover the charges for two years.

According to the complaint, Webloyalty gathers consumer payment information from its legitimate online retail partners, sets up the recurring fees and shares the charges harvested from the unknowing participants with the partner. Because disclosures on the coupon are hidden down-page and in fine print, Park claims, consumers are not aware that they are entering a separate agreement with a third party. The fact that the coupon used language like "Congratulations ... here's your Special Reward to thank you for being a valued ... customer!" further concealed the arrangement, Park believes.

A Role to Play

Park also claims that Webloyalty played a role in the enactment of the Restore Online Shoppers' Confidence Act (ROSCA) in 2010. As a target of Senate investigations in 2009, the company came under withering scrutiny regarding its practices. One report maintained that Webloyalty and similar companies used "highly aggressive sales tactics to charge millions of American consumers for services the consumers do not want and do not understand they have purchased."

Park draws a straight line from these conclusions to ROSCA's enactment, noting that the legislation "requires full disclosure of the goods and services offered and their costs," and forbids online merchants from charging consumers unless the merchants obtain the consumer's full account number, name, address and contact information "directly from the customer."

The complaint charges Webloyalty with violations of the Electronic Funds Transfer Act, civil theft, unjust enrichment and other infractions, including ongoing violations of ROSCA.

The case has turned into quite a saga; the precipitating events are almost a decade past, and the case was dismissed and sent up to the U.S. Court of Appeals for the Ninth Circuit for appeal, where it was resurrected. The latest chapter in the story is Park's motion for certification of three classes: state residents of California, California residents who were allegedly wronged after the passage of ROSCA and nationwide debit card users.

The Takeaway

Webloyalty's efforts to dismiss the ROSCA claims in 2017 were denied, although the court maintained that this decision would not impact future rulings on which classes would be allowed to move forward with the suit. The outcome of this case will surely be an important one for retailers as well as online membership subscription companies, as the relationships between these businesses continue to grow in tandem and can substantially benefit from collaboration. As consumers become more aware and pursue vigilance against companies for these types of violations, we can expect more litigation to come to light for potentially unfair and misleading campaigns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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