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McNees 2016 In Review – Advertising Law

January 31, 2017

Advertising and marketing laws affect all businesses that expose consumers to their goods and services. In 2016, highlights of advertising and marketing law issues included disclosures and celebrity endorsements, “Made in USA” claims, “natural” and improved health claims, and changes to federal labeling requirements. Here is a look back at these topics.

When in Doubt, Disclose
In December of 2015, the Federal Trade Commission released its Commission Enforcement Policy Statement on Deceptively Formatted Advertisements. Not long after, the FTC went after Lord & Taylor for a series of deceptive advertising practices that violated the new policy. The practices centered on a social media campaign for Lord & Taylor’s Design Lab collection, particularly a certain asymmetrical dress. Lord & Taylor did not require 50 endorsers who wore the dress and posted pictures of themselves on Instagram to disclose that they had been paid $1,000 to $4,000 to promote the dress via social media. The Lord & Taylor personnel who reviewed the endorsers’ posts did not edit them to disclose these facts. In addition, Lord & Taylor paid for, reviewed, and pre-approved a post in Nylon Magazine about the dress and Design Lab collection, but none of that was disclosed either. The FTC and Lord & Taylor reached a settlement setting forth the following requirements of Lord & Taylor: (1) do not misrepresent the independence of endorsers; (2) clearly and conspicuously disclose any relationship between Lord & Taylor and endorsers; (3) do not misrepresent that paid advertising is independent or objective; and (4) institute a compliance system to ensure that endorsers follow their obligations under the settlement.

Later in 2016, the FTC went after Sage Auto Group, a series of nine Los Angeles-based auto dealerships, for using deceptive and misleading practices that allegedly violate the Federal Trade Commission Act, the Truth in Lending Act, and the Consumer Leasing Act. Some of these practices included advertising misleading prices and financing opportunities to lure unwary consumers into dealerships. The FTC also alleged the dealerships were promoting reviews that were actually written by employees or agents. We can expect the dealerships and the FTC to reach a settlement in 2017.

The FTC’s heightened interest in transparent advertising should be a warning call to all advertising and marketing departments to carefully analyze endorsements and reviews of their goods and services. Best practices include clearly and conspicuously disclosing all material relationships between brands and endorsers in advertisements and avoiding language that misleads consumers to believe paid advertisements are independent or objective.

The Celebrity Seal of Approval
A similar area of FTC enforcement concerns celebrity endorsements. Celebrity social media profiles blur the line between personal preference and paid endorsement. Is that performing artist being paid to endorse the lip liner she is wearing and promoting on Snapchat? Did that musician post a picture on Instagram of himself wearing those jeans because he finds them comfortable, or because he is paid to do so? In 2016, consumer watchdog organizations—Public Citizen, Commercial Alert, the Campaign for a Commercial Free Childhood, and the Center for Digital Democracy—requested that the FTC crack down on celebrity influencers for failing to disclose they are being paid to endorse certain brands and products. It is likely that the FTC will increase their activities to monitor brands and their influencers for compliance with FTC policy as we head into 2017.

From Sea to Shining Sea
In the realm of class action lawsuits, “Made in USA” claims are once again on the upswing. The FTC enforces against deceptive “Made in USA” claims in which all or virtually all of the product’s components are made, manufactured, or produced outside of the United States. At first blush, “all or virtually all” appears a nebulous standard, but the FTC has clarified this to mean that significant parts must originate in the United States and significant processes must occur in the United States. In other words, the amount of foreign process or product that goes into the final product should be negligible. Some factors the FTC uses to evaluate the strength of a “Made in USA” claim are the amount of total manufacturing costs that comes from domestic parts and processing and how removed foreign content is from the final product.

These “Made in USA” claims know no boundaries when it comes to jurisdiction or product. In 2016 alone, there have been claims filed against glue and jean manufacturers. In its complaint against the glue manufacturer, Chemence, Inc., the FTC alleged that 55 percent of the cost of the essential chemical inputs to the glues came from outside the United States. According to the FTC, this amount of foreign content rendered the claim “Contents proudly made in the U.S.A.” on Chemence’s product packaging inaccurate. Chemence agreed to pay $220,000 to settle the claim.

Many United States consumers believe they are supporting domestic companies when they purchase goods that are labeled “Made in USA.” As the FTC has suggested, this label should only be applied when both the components of the product and the assembly of the product originate in the United States. As patriotism carries on and offshore manufacturing increases, expect continued enforcement of the FTC’s “Made in USA” standard.

“Natural” and Health Claims
The FTC has continued to scrutinize claims that products are “natural” or improve health. These claims have provided the basis for numerous consumer class action lawsuits filed in 2016.

In 2016 the FTC issued consent orders against companies manufacturing shampoos, sunscreens, and moisturizers as “all natural.” The settlements in these cases show that the FTC is not concerned when a product is advertised as “natural,” but adding the modifiers “100 percent” or “all” to “natural” is misleading when the product contains some amount of synthetic ingredients. Interestingly, the settlement terms did not ban the companies from using “natural” to describe products with synthetic ingredients. Rather, the settlements required the companies only to refrain from making unsubstantiated natural claims, leaving many unanswered questions about what it takes to prove a “natural” claim. While the FTC has provided some guidance on an acceptable “natural” claim, the FDA turned to the public to request comment on use of the term “natural” on food labeling. The comment period closed on May 10, 2016.

Health claims have attracted FTC attention as well. In August of 2016, the FTC and Mars Petcare U.S. reached a settlement over health claims on pet food that allegedly lacked proper substantiation. In a series of advertisements for Eukanuba dog food, Mars Petcare touted the health benefits of the food, including claims that dogs that ate Eukanuba dog food lived 30 % longer than those that did not. According to the FTC, these baseless claims came from a single study with results that did not lead to this conclusion.

Settlement terms between the FTC and companies making unsubstantiated health claims require “competent and reliable scientific evidence” for future claims. Similar to its position on defining “natural,” the FDA announced its plan to seek opinions from consumers, companies, and the public on how to define “healthy” in the context of food labeling.

Perhaps 2017 will bring more clarity on how the FTC and FDA define “natural” and “healthy” and the standards used to evaluate these claims.

Hungry for Change
In 2016, the FDA announced its Final Rule on new labeling requirements for food and dietary supplements. Big changes—literally—include increasing the type size for “Calories,” “Servings per container,” and “Serving size” on the Nutrition Facts section of food packaging. For supplements, the Final Rule changes which nutrients must be disclosed. Supplements will now have to declare amounts of vitamin D, potassium, and added sugar, but declaring vitamin A, vitamin C, and Calories from Fat is no longer necessary.

Compliance with these changes is required by July 26, 2018. For more detailed analysis of new food labeling requirements, take a look at our August client alert here.

The year 2016 has provided plenty of insight in how the FTC monitors and enforces its policies on disclosures, endorsements, “Made in USA” claims, “natural” claims, and improved health claims. We also got a preview of new food labeling requirements. We will continue to track developments in these and other areas of advertising and marketing law in 2017 and beyond.

 This was a big year for the Intellectual Property Group at McNees with four new hires. The McNees IP Group enhanced the depth of its trademark and copyright practice by hiring Lois Duquette, who spent the last 18 years managing The Hershey Company’s trademark portfolio and Emily Hart, a graduate of Drexel University School of Law. Our Patent Division brought onboard as patent agents, Brett Crouse, a former Patent Office Examiner who also worked at DuPont and Robert Bosch, and Danny Kim, a former Patent Office Examiner. The new agents provide additional depth in the electrical and chemical areas.

© 2017 McNees Wallace & Nurick LLC
McNees Intellectual Property Alert is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.