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.

Kraft Foods, which markets drinks under the Capri Sun label, got a clean bill of health this week from the Children’s Advertising Review Unit, (”CARU”), which requested the food conglomerate substantiate its claims that its childrens sports drink “hydrates better than water.”

Kraft provided CARU with a study conducted at the University of Georgia that found Kraft’s sports drink actually helped to keep healthy, active children hydrated better than water alone. In addition to the foregoing, Kraft provided CARU with information collected from several associations devoted to athletics that had come to the same conclusion; namely, that drinking sports drinks, especially during prolonged intentive exercise, can help children stay hydrated.

Practice Pointer: Counsel should encourage its corporate clients to engage in whatever forms of industry self-regulation are available. Not only is the process generally faster and cheaper than being subjected to a private action or an FTC investigation, but it encourages Congress to allow the self-regulatory process to proceed, rather than enacting statutes that may hinder commercial progress.

Beware of Secret Downloads.
Take Two Interactive and subsidiary publisher Rock Star Games have been deflecting the firestorm fueled by their latest video game release, Grand Theft Auto: San Andreas (”GTA”).

Yesterday, the Australian Office of Film and Literature Classification revoked its original adult rating for the game, making GTA illegal to sell, advertise, or distribute in the country. This follows a decision by the U.S. Federal Trade Commission (”FTC”) to re-rate the game after it was alterted to “secret downloads” readily available on the web that added additional sex and violence scenes dubbed “Hot Coffee.”

The revocation by Australia coupled with the re-rating by the FTC has prompted certain large retailers, like Wal-Mart Stores to remove the game from sale. This has forced the company to ratchet down their sales predictions for the game by $40 Million.

Take Two is about to take two more: PC World reports that the company is facing two class-action lawsuits from plaintiffs alleging that the company engaged in false advertising and fraud when it failed to disclose hidden content that would have otherwise classified the game as adult. Ouch. That scalds.

Practice Pointer: Companies should be encouraged to participate honestly in the self-regulation process.

The FTC and the Department of Health and Human Services is planning a jointly sponsored workshop on Marketing, Self-Regulation, and Childhood Obesity on July 14th and 15th in Washington, D.C. The workshop will be the first of its kind and aims at bringing together the concerns and interests of the medical community, food and beverage marketers, media, and entertainment companies to discuss the issue of children’s obesity.

HHS secretary Michael Levitt has identified children’s obesity as one of the “major health challenges facing the nation.” The two-day workshop, says FTC Chairman Deborah Platt Majora, will allow affected industry professionals to devise strategies for dealing with the new issue and perhaps creating a self-regulatory body between industries.

Practice Pointer: Clients should be encouraged to participate in and support self-regulatory bodies. These bodies can actually work to reduce the amount of adversarial proceedings against private companies, and reduce the cost of reworking advertising.

The U.S. Supreme Court has ruled that states that allow their own in-state wineries to ship wine to consumers may not bar out-of-state wineries from also selling directly to those same consumers. This is of particular significance to direct-to-consumer wineries who are too small to use wholesalers to get wider distribution. Advertising and marketing analysts expect to see a boom in wine advertising in the coming months.

Roughly 23 states maintain laws on their books that bar out-of-state shipments of alcohol to consumers in-state unless the shipper either has a “brick-and-mortar” presence in the state (California & New York), or uses a wholesaler licensed to distribute in the state (Michigan). The Court points out that states that do not allow alcohol shipment from any company — in-state or otherwise — to their constituency, do not have to accept out-of-state shipments.

Consumer advocates say that the Supreme Court ruling is a victory for the consumer who may see prices reduced and selection increased. We’ll drink to that!

After a year-plus of wrangling with the FTC, Tropicana has agreed to discontinue its claim that drinking its Heart Healthy juice is guaranteed to lower bad cholesterol.

The FTC alleged that many of the claims made to consumers regarding its Tropicana Orange Juice were unsubstantiated, including the claim that Tropicana had clinical evidence to support a 10-point drop in blood pressue simply by drinking three glasses of its juice a day.

Without admitting guilt, Tropicana agreed to a consent order that would prohibit claims that any of its products will have a positive effect on the risk of heart disease, cancer, or stroke, unless it is substantiated with “competent and reliable scientific evidence.”

Given the current concern over obescity in America, its likely that the FTC will continue to look closely and carefully at food claims.

Practice Pointer: Until recently, many companies regarded an “FTC Warning” as advisory in nature. Clients who are making claims relating to food products should be made aware that the FTC appears now to be cracking down on health claims (be they “low fat,” “heart healthy,” or otherwise), and more and more companies will feel the weight of Congress behind them.

The FTC announced that it has reached a settlement with the makers of Tropicana Orange juice (Pepsi) for unsubstantiated claims about the ability of Tropicana Healthy Heart juice to decrease the likelihood of stroke and heart disease.

The juicy details: From 2002 until early 2004, Tropicana ran commercials on television and in magazines for its Healthy Heart orange juice. The ads claimed that by drinking 2 to 3 glasses a day, consumers could lower their systolic blood pressure by 10 points and increase their HDL cholesterol (the good one) by over 20%, all of which would lead to a decrease in likelihood of stroke. According to the FTC, Tropicana had no scientific evidence that the claims it was making were actually true. In peeling back the skin on Tropicana’s claims, the FTC charged that the studies pointing to these dramatic results did not actually prove Tropicana’s assertions.

Under the pithy terms of the settlement, Tropicana can no longer make claims relating to its orange juice increasing HDL cholesteral, lowering blood pressure, or contribution to a reduction in stroke unless it can scientifically substantiate its claims.

Practice Pointer Clients should be advised that all claims that do not amount to mere puffery must be substantiated with methods that may be easily replicated. Two independent scientific studies is considered good evidence of a claim.

The National Advertising Division, a self-regulatory agency that review and sometimes mediates disputes between competitors has referred a complaint to the FTC, after Federal Express refused to cooperate.

At issue is a commercial, aired by FedEx during the SuperBowl (and immensely popular), in which the company spoofs ad tactics used to get people to remember television advertising. In the commercial, the company lists Burt Reynolds, groin kicks, dancing bears, and 7 other things that research shows get people’s attention.

Evidently, it worked, because it caught the attention of Fedex competitor, UPS. UPS filed a complaint with NAD saying that the tagline at the end of the commercial, The Most Reliable Way To Send Your Package, constituted false advertising. But when NAD requested that FedEx participate in the inquiry and hand over documentation to substantiate the company’s claim, FedEx refused. NAD had no choice but to turn over the complaint for investigation by the FTC, which has the power to secure the necessary documentation needed to review the claim. The FTC, however, does not have to take the case, so UPS may have no choice but to bring a claim under Section 5 of the FTC Act for false advertising. Ouch… that really could hurt.

Practice Pointer: While each set of facts is different and there may be sound reasons for not participating in certain regulatory activities, clients should be counseled to participate in informal self-regulatory processes. Not only does it reduce the cost of resolving the matter, but it keeps Congress from interfering and enacting legislation that could impose even stricter requirements on advertisers.

Legal Side Note: In light of the recent decision holding that the ad claim, “AMERICA’S FAVORITE” was mere puffery, is “most reliable” on its way to being used by everyone?

In the wake of growing concerns over the expanding waistlines of children and adults across the country, McDonald’s has agreed to cut the fat, or at least the trans fat, from its cooking oil.

As part of a settlement with a number of plaintiffs, including consumer watch group called Ban Trans Fats, McDonald’s has agreed to pay plaintiffs $1.8 Million in damages (that’s 2.3 million hamburgers, for those keeping score), plus attorneys fees. In addition, McDonald’s has agreed to transition to oils with less transfat (which it has evidently already done). Finally, McDonald’s will give a $7 Million donation the American Heart Association, and spend a Million-plus on public notices about the status of the trans-fat situation at McDonald’s.

Ban Trans Fat has also been successful in encouraging Kraft to make health-conscious changes to its offerings, including increasing the size of nutrition labels and reducing the fat content in certain “junk foods.”

As consumer awareness grows regarding the growing health problem in the U.S. and Congress continues to pressure watchdog groups and regulatory agencies to crack down on food manufacturers, we can expect to see food companies making changes to their formulas, all of which will be reflected in advertising (how else is the word going to get out). This may translate into tougher analysis — from competitors and regulatory agencies — when it comes to claims made in advertising. Look out, consumers, truth in advertising is coming back.

The Telephone Consumer Protection Act (TCPA) prohibits telemarketers from calling homes that have been registered on the do-not-call list, maintained by the FCC. the TCPA does not protect businesses from those pesky phone calls. But what if your business is in your home? Currently, there is no provision in the TCPA to address this possibility. The FCC recently stated that it will not exempt telemarketers from liability should they make a call to a home-based business that is listed on the do-not-call list. Instead, it will review those calls to see if the call was made to a residential number or a business line. Watch out, Publisher’s Clearing House: if granny is raking in the dough selling potholders on eBay, you may be in trouble.

The FTC announced in February that it would not be proposing any new rules regarding product placement on television shows, despite its widespread use by advertisers to showcase products.

Commercial Alert, a consumer watchdog organization, has asked the FTC to investigate the practice of placing products such as household items, toys and other consumer goods in television shows. The watchdog group suggested that an on-screen disclosure be made each time a specially placed product was shown.

The FTC, after its own investigation, found that mere product placement did not violate Section 5 of the FTC Act, which prevents unfair and deceptive advertising practices. It reasoned that most product placements do not actively sell the product nor do they contain objective claims about the product. In cases where such claims were made, the FTC noted that the current regulations would suffice.

Recently, Kraft foods was asked to substantiate a claim that its grated parmesan and romano cheese products were 100% cheese and contained no fillers when in fact, the little yellow fluff in the green foil canister actually contains cellulose powder, an anti-caking agent, and sorbate or sodium benzoate, both of which are preservatives. The NAD determined, pursuant to a response submitted from Kraft, that its use of these agents is consistent with FDA regulations. Accordingly, Kraft may continue to use the 100% cheese proclamation.

Pursuant to 21 CFR 133.146 and 133.183, the addition of “safe and suitable” ingredients may be added to grated cheese products without compromising the claim that the product is 100% cheese. Moreover, the term fillers, Kraft explains, is designed to distinguish those cheese-like products that use non-dairy extenders.

On November 2, 2004 California voters amended Section 17200 et seq of the California Business and Professions code. Prior to the amendment, plaintiffs’ attorneys could sue for unfair competition on behalf of the general public. Proposition 64 modified the law such that an attorney may only sue on behalf of a client who has suffered a monetary or property loss as the result of advertising claims.

The amendment does not lower standards imposed upon advertisers to deliver consumer messages that are accurate and not misleading, but may make it easier for advertising to push the envelope for certain claims. That noted, the amendment does not apply to state actors, such as district attorneys, county counsels, or the state Attorney General. For any cases that are brought against an advertiser, the amended law provides that resultant penalties be used to enforce consumer protection laws.