Winter 2009. Reebok, in conjunction with the National Hockey League, is hoping consumer recognition of its brand will translate to money in the bank. Reebok will run a “Find the Lost Logo” promotion during the NHL Winter Classic, where it will ask fans to find the hockey player who is not displaying the Reebok logo on his jersey.

Entrants can play by watching the Classic on television and submitting their answer via text message or online; or attendees of the game can submit their answers via text message. All answers submitted will have an opportunity to win four tickets to the Stanley Cup final game. The winner will be announced at the 3rd period.

Practice Pointers:

1. The law is still not clear regarding whether a proper alternate method of entry for a text-messaging sweepstakes can be an online entry. Currently, the matter is being litigated in California courts.
2. This sort of promotion is categorized as a “treasure hunt” and is generally considered a sweepstakes, not a contest.

On December 5, 2008, The Children’s Advertising Review Unit (”CARU,”) a division of the Better Business Bureau, issue a press release admonishing advertisers to make clear disclosure about the need for adult supervision with certain toys, particularly when those toys are advertised directly to children.

CARU highlighted a new product from Wham-O, called the Slip ‘N’ Slide Mega Shark, a water toy for children’s play. The toy was advertised on Nickelodeon during a time when children are the primary viewing audience.

CARU questioned whether a small graphic disclosure on the screen was sufficient to inform children that no one over 5’ tall or weighing over 110 pounds should use the toy. Moreover, CARU expressed concern that because the disclosure was not properly made, the toy might be misused by children.

The lack of adequate disclosure was only one of the concerns CARU expressed. CARU also worried that the commercial should have shown adequate adult supervision, noting there was only a brief showing of a woman watching the children play on the slide. Overall, CARU found, the commercial did not meet CARU’s voluntary requirements.

Case law supports CARU’s contention that more precautions should be taken. In particular, with water sliding devices, the weight and height requirement is important, as spinal cord injuries, rendering users unable to walk, have been reported, and numerous law suits have dealt with this issue.

Practice Note: In an era of childhood obesity, it is not unusual for children to weight over 110 pounds. Clients CARU is self-regulatory and speaks softly, but carries a big stick. In cases where an advertiser refuses to alter its ad campaign, CARU can (and will) refer matters directly to the Federal Trade Commission for prosecution. Moreover, CARU can alert the CPSC if it believes the product or its advertising present a problem.

In Williams v. Gerber Prods. Co., 523 F.3d 934 (9th Cir. Cal. 2008), a panel of the United States Court of Appeals for the Ninth Circuit (“Court” or “Court of Appeals”), in a published opinion, reversed the judgment of the District Court, and found, under California law, Plaintiffs could proceed with their case against Gerber Products Company (“Gerber”). The issue? Whether Plaintiffs (a certified class of parents) had alleged a valid legal claim that a Gerber fruit juice product, developed for toddlers, was deceptively marketed.

Gerber, “one of the most trusted names in baby food and baby care,” marketed its Fruit Juice Snacks product (“Snacks”) in a package featuring images of fruit such as oranges, peaches, strawberries and cherries. The side panel of the packaging described the product as made “with real fruit juice and other all natural ingredients.” In addition, another side panel contained a statement announcing Snacks was, “one of a variety of nutritious Gerber Graduates foods and juices.”

Thinking they purchased healthy snacks for their kids, Plaintiffs sued Gerber under, among other things, California state tort law for misrepresentation and breach of warranty, as well as claims under California’s Unfair Competition law (Bus. & Prof. Code § 17200, et seq.) and California’s Consumer Legal Remedies Act (Civil Code § 1750, et seq.). Plaintiffs’ deception claims were based, in part, upon the following allegations: (1) The product contained no fruit juice from any of the fruits pictured on the packaging; (2) The only juice contained in the product was white grape juice from concentrate; and (3) The two most prominent ingredients in the product were corn syrup and sugar.

Gerber filed a motion to dismiss and the District Court granted Gerber’s motion fining the package statements were not likely to deceive a reasonable consumer. The Court of Appeals disagreed. In reversing the District Court’s order, the Court recognized that “whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer.” It further found a number of Gerber’s packaging features could likely deceive a reasonable consumer. “The product is called ‘fruit juice snacks’ and the packaging pictures a number of different fruits, potentially suggesting (falsely) that those fruits are contained in the product,” stated Judge Pregerson in the Opinion of the Court. Further, the Court found the statement that the product “was made with ‘fruit juice and other all natural ingredients’ could easily be interpreted by consumers as a claim that all ingredients in the product were natural, which appears to be false.” Disagreeing with the District Court, the Court found, “reasonable consumers should [not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.”

Finally, in a statement sure to make consumer products manufacturer’s take note (especially those marketing products for infant or toddler use), the Court added, “We do not . . . think that a busy parent walking through the aisles of a grocery store should expect to verify that the representations on the front of the box are confirmed in the ingredient list. Instead reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging. We do not think the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misrepresentations and provide a shield for liability for the deception.”

Practice Note: In reading the full opinion, this commentator is of the opinion the Court of Appeals, while correct on the application of the law, held Defendant Gerber to a higher standard than that of an ordinary manufacturer of consumer products. Gerber, in its own words, is “one of the most trusted names in baby food and baby care.” The Court likely took note of this when crafting its opinion. One wonders if the same standard would have been applied to a beer manufacturer or a coffee beverage manufacturer, i.e. products marketed to and primarily intended for adults.

The Federal Trade Commission yesterday announced that it has ordered Membership Services Direct, Inc. (also known by other names) to pay $28.2 million to the FTC. The amount represents the net profits made by the company after engaging in a telemarketing scheme designed to bilk consumers of their money. Dubbed the Wal-Mart Shopping Spree Scam, the order also bars several of the company’s principles from engaging in deceptive practices in the future.

The original complaint, filed in federal court by the FTC in 2007, alleged that MSD made cold calls to consumers, falsely promising them shopping sprees at retail department stores like Wal-Mart and Macy’s. They also promised discount coupons, gas vouchers, and free movie tickets, if consumers joined a discount club. The ruse was designed to get unsuspecting customers to reveal their private bank account information, which MSD later used to directly debit the consumers accounts.

Practice Note: Consumers should be advised never to release their social security number or their bank account information over the phone. No reputable organization will ever ask for that information from a consumer. The FTC has a special mailing address for consumers to use if they have had money debited from their account by MSD or any of the other defendants in this Wal-Mart case. Consumers can send a letter to Faye Chen Barnouw or Jennifer Brennan, 10677 Wilshire Boulevard, Suite 700, Los Angeles, CA 90024. Consumers should identify which entity took the money, and supply supporting documentation.

Blockbuster may not be able to rely on the what I learned in Kindergarten defense when it answers charges it illegally shared a plaintiff’s movie preferences with third parties. In a suit filed in Texas earlier this month, Cathryn Harris sued Blockbuster for sharing her rental history on Facebook.

The suit, which is currently seeking class action status, claims Blockbuster’s actions of feeding renters video choices to a news feed violate the Videotape Privacy Protection Act, (“VPPA”) which states in relevant part that a video tape service provider is liable under the VPPA if that provider knowingly discloses personally identifiable information without the renter’s “informed, written consent.” Harris contends the online “opt out” options she was given did not constitute her informed written consent as intended by the VPPA.

The sharing comes as a result of Blockbuster’s participation in the Beacon advertising program, which has received considerable attention and criticism from consumer activist groups and corporations over the past 18 months. Beacon is a form of “social advertising” that allows Facebook friends to see your purchases (as well as other transactions you make) through news feeds. After considerable controversy, Facebook changed the “opt out” provision to an “opt in” provision, so that users would not inadvertently share their personal information simply by accepting the use agreement. Even so, last year, Coca-Cola announced it would not be participating in the program, as did Overstock.com and several other companies, citing privacy concerns. For instance, research showed that participating companies were sending information to Facebook even for buyers who were not Facebook members. Although Facebook claims it deletes such information if and when it is received, many partner sites determined the program contained too many privacy problems for them to feel comfortable participating.

The VPPA was enacted in 1987. It is rarely cited and was clearly not created with the sort of digital transmission of private information in mind that happens today. In fact, the VPPA was enacted after Robert Bork’s video rental history was published during his Supreme Court nomination hearings.

Practice Note: Privacy policies are tricky things. Clients should be advised to create policies that they can follow. Any updates to a privacy policy, particularly ones that will change the way a user’s information is shared, should be highlighted in bold.

Last week, a district court in Maryland ruled that Tyson was not immune from false advertising liability based upon a United States Department of Agriculture (“USDA”) label ruling.

The flap over advertising came when Plaintiff competitors Perdue Farms and Sanderson Farms, alleged that Tyson had been running a series of consumer ads that contained the message “Raised without Antibiotics,” what Plaintiffs called an unqualified Raised without Antibiotics claim (“RWA” claim). Plaintiffs further alleged defendant was running ads with a similar, but qualified RWA claim, namely, “aised Without Antibiotics that Impact Antibiotic Resistance in Humans.” Plaintiffs complaint alleged the unqualified RWA claim was literally false on its face, and the qualified RWA claim was misleading and therefore false by implication. In fact, Plaintiffs claimed, the defendant’s chicken feed contained inophores which are in fact, antibiotics.

By way of background, the Food Safety and Inspection Service (“FSIS”) of the USDA originally approved the unqualified RWA claim, but quickly revoked the approval and informed defendant it could no longer use the unqualified RWA claim on its label. It was silent as to advertising, since the FSIS has no jurisdiction outside of labeling. It later approved defendants qualified RWA claim. In its moving papers, defendant crowed that because the statements were approved for use on defendant’s chicken labels, the pecking order had already been established: plaintiffs Lanham Act claims must be dismissed on the ground that the labels’ language was already approved by the USDA.

In denying defendant’s motion to dismiss on the unqualified RWA claim, the court held that defendant could not rely on a former position held by the USDA “to defend itself against allegations that it continues to run false and misleading advertisements carrying the ‘Raised Without Antibiotics’ language.” Regarding the qualified RWA claim, the court noted that both sides were winging it on cited case law, because it could find no cases that involved “whether a USDA-approved label insulates a company from allegedly false non-label advertising under the Lanham Act.” The court noted that while the USDA may have jurisdiction over chicken labels, it does not have congressional authority to regulate advertising. Accordingly, “a label approved by the USDA may nonetheless be false or misleading in other contexts.” Looks like defendant doesn’t have a leg (or thigh) to stand on.

Increasingly, teenage celebrities are being used by marketing companies to gain a competitive edge in the increasingly growing teen market share. USA Today Online reported today that several large retailers and merchandisers have signed teenage singers and actors to hawk their wares, including Fergie, who was recently retained to give the MAC Cosmetics “Viva Glam” line a boost, the 15 year old Sprouse twins from The Suite Life with Zach and Cody, and basketball’s Stephon Marbury.

Clearly, using these Hollywood “role models” is a strategy that works. The Zandi Group, a marketing research firm, indicates that teenage spokespersons are perfect for clothing and product lines directed at teens because teens already try to emulate celebrity style. Legally, however, using underage spokespersons to target minors can be tricky. While going after teenage dollars is relatively fair game, many young stars attract even younger consumers, including ‘tweens (those under 13), which can lead to problems with the major television networks, with self-regulatory agencies, such as CARU, and in some cases, with the FTC with parents. Many major networks have guidelines consistent with those at CARU that do not allow certain celebrity advertising during times when children under 13 are likely to be looking at television. The practice of Host Selling (airing commercials featuring a teen celebrity at the same time as the teen’s program is scheduled) is not allowed by most networks, and CARU’s self-regulatory guidelines also proscribe the message that buying a certain product will make a kid more popular among his friends or smarter in class.

Practice Pointer: Attorneys should remind their clients that while many teens have their own money, in many cases, that money comes from their parents, who frown upon hard-sell tactics. In particular, parents do not like to be nagged about the purchase of a product they feel is too expensive, compromises their child’s integrity, or is sexually provocative. Generally speaking, clients should use common sense about the type of promotion they engage teenagers to endorse.

Electrolux turned the tables on former distributor-turned-competitor Imig, Inc., which filed a complaint against the famous vacuum and home appliance company, for interfering with relationships with perspective customers. Electrolux filed several counterclaims, alleging that Imig copied Electrolux’s protected trade dress, copyright protected user manuals, and that Imig made false claims in its advertising.

The district court dismissed all of Imig’s claims on summary judgment, and found for Electrolux on copyright infringement and false advertising. The court found that Imig had copied the user manuals in violation of U.S. Copyright law. From a false advertising perspective, the court found that specific numerically based claims about the Imig vacuum’s superiority were false on their face, because the products did not actually meet those objective standards. The remaining counterclaims proceeded to trial. On March 31, 2008, the court issued its finding that Electrolux had not met its burden of establishing a protectable trade dress in its vacuum and therefore, did not find Imig liable.

The facts show that Imig, afraid that it would lose its distributorship of the Electrolux SANITAIRE brand, developed its PERFECT brand vacuum as a replacement. Discovery produced evidence of copying: in creating the PERFECT design, Imig referred its Chinese manufacturer to the specifications of the SANITAIRE line. It was also revealed that Imig’s patent attorney sent a letter to a patent research company noting his clients’ desire “to make a private label vacuum cleaner that is virtually identical in appearance” to defendant’s vacuum. The court also noted numerous visual similarities between the SANITAIRE vacuum and the PERFECT vacuum.

Notwithstanding Imid’s clear intent to copy, the court did not find liability. The court noted that Electrolux had not met its burden of establishing trade dress infringement. In order to establish trade dress infringement, the court wrote, a company must show that the product design is distinctive and that consumers are likely to be confused by seeing the distinctive trade dress on another product. The court held that the elements claimed by Electrolux were functional in nature, and that the company had not proved otherwise, despite Electrolux’s survey evidence showing consumers recognized the various elements of the vacuum as being uniquely from the SANITAIRE brand. The court also determined that secondary meaning had not been established, even though the product had been in use for several years. Addressing the issue of confusion, the court, citing Cadbury Beverages, Inc. v. Cott Corp. determined that Eletrolux had to show a “probability – not merely a ‘possibility’ – of confusion,” a burden that it also did not meet. Even with the victory on the copyright and false advertising claims, we’re guessing Electrolux thinks the decision, well, sucks.

Practice Note: One method of distinguishing trade dress elements is to use “look for” advertising tactics in marketing the products. If a product contains non-functional elements that truly distinguish the product, a company can generate recognition around those features by directing clients to look for them when they make a purchase. Such use may be more persuasive than survey evidence in making clear to both customers and competitors what elements of a design are trade dress.

For years, health crisis centers for pregnant women have fought against rogue elements providing false information about abortion services. Using the Internet and phonebook advertising, anti-abortion groups pose as counseling centers and pretend to offer counseling and information services about abortion to pregnant women. In actuality, these groups direct viewers to fake sites that provide false information about abortion options, and provide counseling designed to persuade women to keep their unwanted babies, even when keeping the baby represents a significant risk to the mother’s health.

This month, women’s health centers are asking women to contact their congressperson about a bill recently introduced to “direct the Federal Trade Commission to prescribe rules to prevent deceptive advertising of abortion services.” The ”Stop Deceptive Advertising for Women’s Services Act” would provide special guidelines specifically related to how crisis centers would be able to advertise what they offer.

Practice Note: The bill seeks to tie the act to the already existing powers held by the FTC under Section 5 of The FTC Act, which regulates false and deceptive advertising. Even if the bill does not pass, under the current power, the FTC could independently go after these agencies for their deceptive ads.

The National Advertising Division of the Better Business Bureau has found that Wal-Mart’s claim that it saves Wal-Mart shoppers $2500.00 a year is misleading, and the self-regulatory organization has requested Wal-Mart discontinue the advertising campaign.

The Wal-Mart ad campaign claim is not based on the actual savings of Wal-Mart shoppers, but rather on a calculated number derived from a study it commissioned in 2005. The study in 2005 found that Wal-Mart’s advertising focus on low prices, had resulted in an actual overall price drop in consumer products of 3%. A 3% drop is roughly equal to $287 Billion, which means roughly $2500.00 per household. The statistic, therefore, represents the cost savings to every household, whether the consumer shops at Wal-Mart.

Practice Note: In any advertisement where a measurable statistic is used, the ad sponsor should be able to point to evidence supporting that statistic. Even when a statistic is numerically accurate, as it is here, if the implication is false, then the ad may be deemed false, too. The test for misleading advertising is not merely what is said, but what is implied by the statement.

A U.S. District Court in Nevada granted Plaintiff Paradise Canyon’s motion for preliminary injunction against Defendant Integra Investments for Integra’s advertising of its resort properties. The court found Defendant attempted to lure consumers into buying homes by creating a false impression of association with Plaintiff’s famous Wolf Creek Golf Club.

Paradise Canyon owns and operates the famous Wolf Creek Resort and Golf Club in Mesquite, Nevada. The club is renown for its golfing and has been featured as one of the “50 Toughest Courses” in the world. Plaintiff holds four trademark registrations in various classes that include the words WOLF CREEK. Defendant owns a 33 acre parcel of land adjacent to the golf club, which it had earlier attempted to name “Wolf Creek Estates,” but was enjoined from doing so by a court order. Defendant now calls its community Hidden Wolf, and has created advertising to entice buyers to the new development. One such advertisement begins, “WORLD CLASS GOLFING” and goes on to suggest that residents of Hidden Wolf can “play this amazing [Wolf Creek] course every day – just by stepping outside your door.” Various other ads reference the Wolf Creek Golf course by name and then suggest that Hidden Wolf provides access privileges to the famous club.

The court found that while the statements in the ads were not literally false (Defendant never stated it was part of Wolf Creek), the ads had a tendency to deceive potential buyers into thinking a Hidden Wolf home purchase came with golf privileges.

Practice Note: Clients should look critically at their use of third party trademarks in advertising. There are many ways in which defendant might have fairly used the WOLF CREEK. For instance, making an association with the town of Mesquite, which is home to the Wolf Creek Resort, and noting Hidden Wolf’s proximity to the resort, would likely have achieved the same marketing effect without raising the ire of Plaintiff.

Reuters is reporting that the well-known rock band Smashing Pumpkins has filed suit against Virgin Records, claiming that the record company sullied its image by associating it with a Pepsi/Amazon promotion.

According to the law suit, filed in Los Angeles Superior Court on Monday, March 24, 2008, the band claims Virgin used the band’s name, music and images in its “Pepsi Stuff” Promotion, which allows Pepsi drinkers to purchase selected merchandise. In the law suit, the Smashing Pumpkins claim that by using the Band’s image and music as part of the promotion, Virgin has falsely given consumers the impression that Smashing Pumpkins endorsed and was affiliated with the Pepsi Stuff campaign.

Practice Note: Promotions Sponsors must not advertise their promotion in such a way that they create a false sense of Sponsorship with a third party. For instance, while a Sponsor may list the brand name of the prize to be awarded, it may not be able to display a third party trademark or call special attention to that brand in its advertising.

Debunking the myth that a group of attorneys can never agree on anything, 30 attorneys general recently sent a letter to the administrator of the federal Alcohol and Tobacco Tax and Trade Bureau, requesting that the organization investigate the aggressive marketing campaigns that surround the promotion of new energy drinks that mix caffeine and alcohol (a trend started by want-to-have-it-all professionals whose drink of choice is a Vodka and Red Bull cocktail).

The recent boom in energy-alcohol drinks, coupled with the super-sweet alcohol “soft drinks” is sparking a trend by consumers of drinking alcohol beverages designed to feel alcohol-free. If nothing else, the proliferation of drinks like Anheuser Busch’s Bud Extra, Miller Brewing Company’s Sparks, and other alco-energy drinks like Charge and Liquid Core, make clear that such drinks are speeding up the cash conveyor for large companies.

AGs nationwide are concerned that the aggressive position marketers are taking with these drinks, coupled with the “outlandish” health-claims related to the consumption of these energy-pops are misleading. Moreover, many AGs believe that the target market is underage drinkers. Slogans like “You can sleep when you’re 30” and references to “pulling an all-nighter,” appear, at least in the minds of the attorneys general, to be focusing on the under 21 crowd.

Practice Pointer: Even when a marketing campaign is legally sound, and regardless of the product, when companies engage in advertising that is directed at a younger crowd, they run the risk of having parents and watchdog groups complain if the message, however understated, suggests a behavior that is either illegal, or promotes unhealthy habits. Attorneys should advise their clients to be prepared for fallout when launching aggressive marketing campaigns.

The latest trend in customer loyalty and brand value is the creation of the Limited Edition gift card. Currently, consumers can purchase the gift card for the value of the card. When the value is depleted, the gift card is theirs to keep. The retention by the consumer of the commemorative card is associated with a positive perspective on the client.

Recently, the Texaco Company has begun selling what it calls commemorative gift cards, featuring the image of Juan Pablo Montoya on the cards and touting it as a limited edition card. Currently, the special edition card costs no extra.

Some state laws forbid the charging of a sizeable premium for a gift card. This new twist, however, paves the way for companies to recoup any losses they may rack up in the creation of the cards themselves. So long as the card is legally a “limited edition,” and there is some real value associated with collecting the card, companies may start trying to push the envelope with regard to charging a premium for gift cards. It appears that the “free drinking glass with fill-up” days are long over.

The advent of the DVR has turned those hard-earned advertising dollars into mush as target customers easily zip past commercials to get to their favorite shows. And while YouTube, GoogleVideo, and other easy-upload sites have been hosting bootlegged-and-previously televised commercials since their inception, only recently has the advertising industry stopped using their legal muscle to take down these rogue postings and adopted a if-you-can’t-beat-’em-join-’em attitude.

Indeed, actually getting consumers to affirmatively seek out commercials seems to be the new craze. And it’s working. In fact, many companies, like Burger King, are using YouTube and other social networking sites, to launch full-scale campaigns. The grainy, slightly do-it-yourself style of the ads is actually adding to their appeal. In some cases, it’s unclear whether the ads are corporate sponsored or created by individuals, another attractive component for the Gen-X-Zers whose mantra seems to be “don’t hard-sell me.”

This ad recently appeared on YouTube, to the delight of consumers. The controversy it sparked is only adding to the commercial’s viewership. Moreover, Smirnoff likely didn’t have to make a million-plus ad buy as it would have for television.

If your spidey senses are tingling because you’re wondering about alcohol beverage control laws, misleading advertising claims, CARU challenges and the like, stay tuned. Ad law is getting interesting again.

At attorney in New York is seeking class action status in a lawsuit filed against Starbuck’s for its coupon campaign that closed early after the tell-a-friend response got out of hand. The Starbucks chain offered its employees an email coupon for a free cup of coffee and allowed the employees to pass the coupon onto friends and family. Evidently having not learned from Napster, within hours, the friends and families contacted numbered in the thousands, and Starbuck’s, inundated with coupons, was forced to shut down the promotion early.

New York attorney, Peter Sullivan, sued. According to the Orange County Register, he believes that “Starbucks should account to the thousands of consumers who relied upon the advertisement, went out of their way to stop by a Starbuck’s and ended up being charged $3.00 for coffee.”

Hardly a “bait and switch” in this attorney’s opinion, (the measure by which a jury is likely to judge the Starbuck’s debacle), Starbuck’s may be able to show that it was merely an honest mistake and a good deed that got out of hand. Moreover, it’s not likely that all that many people went out of their way to get the free drink, considering there’s a Starbuck’s on most corners. Still, it would have been wise for the coffee chain to attach certain restrictions on the coupon.

Practice Pointer:
Viral marketing coupons are popular and companies endeavoring to use them should take certain precautions to insure that it is not overwhelmed with responses. Some examples are as follows:

The FTC has ordered Sunmark to pull its matchmaking advertising campaign because the ad misleads consumers into thinking that the company has a higher marriage rate than it can prove. The ads amounted to false advertising, under Section 5 of the FTC Act.

Sunmark, which operates a matchmaking service, ran advertisements in national magazines in which it claimed that it was responsible for the marriages of 3,478 of its members. In fact, only about 950 of its members actually married other members; 1600 members were married to third parties not related to the site. Another 800 members included in the count were dating, but had not actually married. The ads, which ran in magazines for 2 months, suggested that Sunmark’s matchmaking rate was 8%, when in fact it was only 4.7%.

Practice Note: To rectify the blunder, Sunmark could have placed a disclaimer in its advertisement, noting that of the 2,550 actual marriages, only 950 marriages were member-to-member. Simply stating that “some” marriages were not member-to-member, however, would have been insufficient. Indeed, the FTC cited another matchmaking company for failing to provide the actual number of non-member marriages, even though it placed a disclaimer in its ad.

On April 6, 2006, the FTC entered judgement against OptIn Global, which advertised, inter alia, home mortgages via e-mail, in violation of the Federal CAN-SPAM Act. Under the Act, companies may not send e-mails that are primarily advertisements unless the e-mail contains an opt-out provision, and truthfully informs the e-mail recipient who is sending the communication and for what purpose.

The judgment calls for OptIn to return the roughly half million in revenue that it made running the advertisements, and adds a penalty of $2.4 million, effectively gutting the company. Finally, it imposes on the company and its affiliated companies (of which there are at least 12 DBAs) specific duties should it advertise in the future, that go beyond the provisions of CAN-SPAM, making it so they Can’t Spam any longer.

Practice Pointer: The Federal CAN-SPAM Act lays out specific guidelines for commercial advertising that must be adhered to in sending e-mail communications that are primarily commercial in nature. Most notably, those guidelines state that the email must:

The National Advertising Division (“NAD”) has requested that 1-800-patches.com discontinue many of its advertising claims on its Green Tea 300 product because the claims are misleading.

In one instance, an ad states that Green Tea 300 is “30 Times more potent than regular green tea.” The ad goes on to ask clients to “Join Oprah” in losing 10 pounds. In addition, the ad shows a doctor extolling weight loss virtues of Green Tea and quotes him as saying, “[Lose] 10 pounds in six weeks. I will guarantee it.”

In its defense, 1-800-patches.com stated it based its potency claim on the fact that Green Tea 300 has 30 times more polyphenol than green tea steeped in a testing laboratory (the company did not pay for the study; it merely read the findings). The polyphenol count is the only measure by which 1-800-patches.com makes its claim. The company claims the “Join Oprah” and doctor guarantee portion of the advertising was specifically related to an episode of the Oprah Winfrey Show in which a doctor guaranteed a weight loss of 10 pounds for a diet regimen that included consumption of Green Tea (although not the Green Tea 300 product).

NAD correctly found that advertisers may not make claims using consumer testimonials or expert endorsements that cannot be substantiated by the advertiser. Moreover, advertisers must have appropriate scientific evidence to support scientific claims. The use of Oprah’s name and a quote by a doctor each suggested an endorsement of the company’s product that was not accurate. Ultimately, 1-800-patches.com pulled the questionable advertising.

Practice Pointer: While it was improper for 1-800-patches.com to suggest an endorsement of its product by either a doctor or a celebrity that it didn’t have, it would have been acceptable to have mentioned the television show. For instance, the advertiser could have stated “A recent episode of The Oprah Winfrey Show highlighted the virtues of green tea.” Depending on the size and placement of such a statement, such use would likely not suggest an affiliation between the advertiser and the celebrity.

SC Johnson & Sons, Inc., through the National Advertising Division (“NAD”), challenged Colgate-Palmolive’s recent claims pertaining to Murphy Soft-Wipes pre-moistened dust cloths. Among the claims SC Johnson found questionable were those found in a newspaper FSI, stating the product:

SC Johnson, a Colgate-Palmolive competitor, asserted that the claims made in the advertising and on the product packaging were false, misleading, and unsubstantiated, and requested substantiation of the claim that the Soft-Wipes actually repelled dust. In response, Colgate-Palmolive provided NAD with proprietary evidence showing that the Soft-Wipes comtained anti-static agents that, when applied to a surface, created electrical charges that repelled dust.

Because SC Johson was not allowed to view the actual claims (Colgate-Palmolive released them only to NAD, claiming trade secret in the results), it tested the product in its own laboratories and provided those non-proprietary results to NAD. The SC Johnson results show that there was no difference in the dust collection rate of surfaces cleaned with a regular dust product and surfaces cleaned with a Soft-Wipe.

In reviewing the evidence from both parties, NAD found that in fact, Colgate-Palmolive had not met its burden of showing that there was a reasonable basis for claiming that the Soft-Wipes actively repelled dust. Colgate-Palmolive issued a statement vehemently disagreeing with the findings of NAD. Nonetheless, it has relaunched the product with a new advertising campaign, pending new test results.

Practice Pointer: Under Section 5 of the FTC Act, the advertiser has the initial burden of presenting a reasonable basis for its claims. While a “reasonable basis” can amount to internal laboratory testing of a premise, standard practice is to have tests conducted by an independent laboratory.