The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from June 3 to 15, 2014]

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from June 3 to 15, 2014] Prepared for the ADL and CP Committees by Dan Blynn, Sherrie Schiavetti, Katie Riley, and Donnelly McDowell of Kelley Drye & Warren LLP; Dale Giali and Thibault Schrepel of Mayer Brown LLP; Dave Conway and Kristen Brown of Venable LLP; Douglas Brown, Darren McCartney, and Samantha Duke of Rumberger, Kirk & Caldwell, P.A.; Heather Goldman of Bryan Cave LLP; Lauren Valkenaar of Norton Rose Fulbright LLP; Hal Hodes and Linda Bean of the National Advertising Division of the Better Business Bureaus; Peter Farnese of Beshada Farnese LLP; Michael Mallow and Rachel Straus of Loeb & Loeb LLP; Jeremy A. Schachter of Kilpatrick Townsend & Stockton LLP; Eugene Benick of Finklestein Thompson LLP; and Scott Dupree of Shook Hardy & Bacon LLP. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. Supreme Court, in a Lanham Act false advertising action brought by POM Wonderful against Coca-Cola, reverses the Ninth Circuit and holds that Lanham Act claims challenging the truthfulness of FDA-regulated food and beverage labels are not precluded by the Federal Food, Drug, and Cosmetic Act ( FDCA ). POM had accused Coke of mislabeling one of its fruit juice blend products with the prominent title pomegranate blueberry despite the fact the product consisted mostly of less expensive apple and grape juices. Coke had successfully persuaded the Central District of California and Ninth Circuit that POM s Lanham Act claims were precluded by federal law because Coke s label satisfied FDA requirements. Justice Kennedy, writing for a unanimous Supreme Court, rejected this reasoning and, instead, held that Congress intended the Lanham Act and the FDCA to complement each other with respect to food and beverage labeling. The Court began by noting that neither the FDCA nor the Lanham Act expressly prohibits Lanham Act claims challenging FDA-regulated labels, despite the fact that both statutes have co-existed for 70 years and undergone numerous amendments. The Court especially was persuaded by the fact that the FDCA expressly preempts some state law claims but remains silent regarding the preclusion of federal causes of action. Additionally, the Court determined that the Lanham Act and FDCA complement one another because the former statute protects commercial interests, while the latter protects public health and safety. As the Court explained, the FDA does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess. The Court also rejected the notion that preclusion of Lanham Act claims was necessary to achieve Congress s goal of national uniformity in food and beverage labeling. Although the Court acknowledged that application of the Lanham Act could lead to some variation in outcome, it concluded that Congress intended to permit Lanham Act claims as a means to enforce a national policy to ensure fair competition because it chose not to apply the FDCA s express preemption clause to them. (POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct (2014)). 1

3 The U.S. District Court for the Eastern District of Pennsylvania grants in part and denies in part the parties respective cross-motions for summary judgment, including denying the plaintiff s motion for summary judgment on its Lanham Act claim for false advertising. With respect to the false advertising claim, the plaintiff alleged that the defendants had made literally false representations to customers regarding the defendants orthopedic device product as compared to the plaintiff s competing product. In denying the plaintiff s motion for summary judgment, the court found that the plaintiff had established only that the defendants made allegedly false statements to some customers or potential customers, and not that the defendants widely disseminated such statements. For that reason, the court held that the plaintiff fail[ed] to establish that the allegedly false statements were sufficiently disseminated as to constitute advertising. (Synthes, Inc. v. Emerge Medical, Inc., No , 2014 WL (E.D. Pa. June 5, 2014)). The U.S. District Court for the Southern District of New York denies the defendant s motion to dismiss the plaintiff s Lanham Act claims for false advertising arising out of the defendant s allegedly false statements concerning the ability of its home pregnancy test to tell how long a woman has been pregnant. The court, however, also denied the plaintiff s initial request for a preliminary injunction. Church & Dwight Co. alleged that SPD Swiss Precision Diagnostics claim that its Clearblue Advanced Digital Pregnancy Test with Weeks Estimator could tell a woman how many weeks she was pregnant was false because it measured the length of pregnancy from the date of last ovulation as opposed to the medically accepted date of the last menstrual period. SPD sought to dismiss the Lanham Act claim on the basis that it was precluded by the Food, Drug, and Cosmetic Act ( FDCA ) and, therefore, the FDA, not the court, was the proper body for resolving Church & Dwight s claims. According to SPD, the FDA explicitly is charged with regulating the marketing of medical devices, such as the pregnancy test at issue here. The court agreed that the FDA had authority over certain medical device marketing, including advertising for the product s intended use. The court disagreed, however, that the FDA s authority in that respect had any impact on the court s ability to determine whether the product s marketing conveyed to consumers that it could measure the duration of pregnancy based on the medically accepted standard. According to the court, that claim could be decided without the need to interpret, apply, or enforce the FDCA or the FDA s regulations. SPD also argued that the claim was subject to dismissal under the doctrine of primary jurisdiction, which is concerned with promoting the proper relationships between courts and administrative agencies. The court rejected this argument as well, finding that, while primary jurisdiction is typically invoked to allow an agency to have the first opportunity to address the issues that lie within its particular expertise, whether a product s marketing would cause consumer confusion is an issue that lies within the court s core competence. Finally, the court also decided not to grant Church & Dwight s initial request for a preliminary injunction because POM Wonderful v. Coca Cola was still pending at the Supreme Court at the time. The court believed that POM Wonderful would likely inform the court s analysis and possibly set forth controlling precedent, and decided that it would reserve judgment on the issue until after the Supreme Court issued the POM Wonderful decision. (Church & Dwight Co. Inc. v. SPD Swiss Precision Diagnostics, GMBH, No. 14 Civ , 2014 WL (S.D.N.Y. June 3, 2014)). State Consumer Protection Laws The U.S. district Court for the Southern District of Ohio grants the defendants motion for summary judgment in a suit alleging violations of the Ohio Deceptive Trade Practices Act, Federal Trade 2

4 Commission Act ( FTC Act ), and Ohio Consumer Sales Practices Act ( OCSPA ). Defendants sold the plaintiff a used car and the engine blew out six days later. Plaintiff brought a suit alleging that the defendants failed to display a Buyer s Guide in the car in violation of the FTC Act and that their website misrepresented they were family businesses. The court found that the website advertisements were not in connection with the sale of the car because the plaintiff never viewed the webpage before the purchase, and, thus, claims appearing thereon were not actionable under the Ohio Consumer Sales Practices Act. Because evidence showed that the defendants properly displayed the Buyer s Guide upon opening the car lot, no FTC Act violation occurred. Even if the guide was temporarily removed, this technical violation would not rise to the level of an OCSPA infraction because the act would not likely deceive the consumer. The court also held that the plaintiff lacked standing under the Ohio Deceptive Trade Practices Act because he was not a commercial entity, and thus not within the class the statute indented to protect. (Lester v. Wow Car Co., Ltd., No. 2:11-CV-850, 2014 WL (S.D. Ohio Jun. 6, 2014)). Consumer Class Actions The Florida Court of Appeals reverses a trial court order certifying a class alleging unfair conduct under the Florida Deceptive and Unfair Trade Practices Act ( FDUTPA ) and remands the matter for further proceedings. Plaintiffs claimed that the defendant Porsche A.G. s distribution of headlights mounted in such a fashion as to make it particularly susceptible to theft without having taken remedial steps, including notification to owners and the offering of replacement lamps, constituted unfair conduct under the FDUTPA. Applying the Federal Trade Commission s 1980 Policy Statement on Unfairness, the court held that the plaintiffs had not proven the not easily avoidable prong of FDUTPA because they had not shown that each consumer individually could not avoid the harm. On the contrary, the court found some consumers, including the plaintiffs, were aware of the high risk of theft before purchasing the vehicle and took a number of precautions to avoid incidents of theft. Therefore, the individual inquiry predominated over class-wide issues. (Porsche Cars N. Am., Inc. v. Diamond, No. 3D , 2014 WL (Fla. 3d DCA June 11, 2014)). The U.S. District Court for the Northern District of California denies defendants Mars Chocolate North America, LLC s and Mars, Inc. s motion to dismiss the plaintiff s complaint, which alleges that the defendants food products are deceptively packaged and labeled in violation of federal and California law. The complaint claims that the defendants made misleading claims on a number of chocolate products such as M&M, Dove Bar, and Snickers, regarding the caloric content of the product and nutrient content of flavanols in the product, and by failing to identify the ingredient polyglycerol polyricinoleic acid by its common name. In denying the defendant s motion to dismiss, the court rejected the argument that the plaintiff s claims were expressly preempted by the federal Food, Drug and Cosmetic Act ( FDCA ). Instead, the court found that the plaintiff s theory of liability as to the flavanol and calorie statements were plausibly consistent with the FDCA. Moreover, the court noted that the plaintiff s case was less about science than whether the product label was misleading, and the adjudication of deception cases fell squarely within the province of the courts. (Gustavson v. Mars, Inc., No. 13cv4537, 2014 WL (N.D. Cal. June 10, 2014)). The U.S. District Court for the Eastern District of California grants in part and denies in part defendant-beverage manufacturer Honest Tea, Inc. s motion to dismiss the plaintiff s complaint 3

5 regarding the alleged deceptive marketing of the defendant s Honey Green Tea. The court dismissed the plaintiff s claims to the extent they were based on the alleged misrepresentation about the antioxidant levels of its green tea after holding that the plaintiff had not used the appropriate testing method to determine the product s actual antioxidant levels. However, the court denied the defendant s motion to dismiss with respect to the defendant s use of the term honesty in conjunction with the terms refreshingly and brutally. Rejecting the argument the terms constituted puffery, the court held the terms refreshing and brutally could indicate complete, direct, and unfiltered honesty. This was particularly true when considered with defendant s general advertising campaign that sets out to paint itself as honest and bases virtually its entire product image on that characteristic. (Salazar, v. Honest Tea, Inc., No. 2:13-cv-02318, 2014 WL , (E.D. Cal. June 10, 2014)). The Judicial Panel on Multidistrict Litigation ( JPML ) transfers to the U.S. District Court for the District of Maryland class actions involving allegedly false and misleading claims regarding the effectiveness of defendant Natrol Inc. s joint health supplements. Plaintiffs opposed centralization on this basis that pending 28 U.S.C transfer motions, if granted, would result in all actions proceeding in the Eastern District of New York. Natrol stated its intention to oppose the motions, which were stayed pending the panel proceedings. The JPML held that the pendency of Section 1404 motions was not dispositive on the question of transfer and the potential for additional tag along actions made the panel inclined to centralize the cases. The panel also rejected the plaintiff s voluntary coordination of discovery argument out of concerns that the complex scientific issues in the case would necessitate duplicative Daubert hearings. (In re Natrol, Inc. Glucosamine/Chondroitin Mktg. & Sales Practices Litig., -- F. Supp. 2d. --, MDL No. 2528, 2014 WL (J.P.M.L. June 10, 2014)). Federal Trade Commission (FTC) Litigation The U.S. District Court for the District of Nevada Nevada denies various individual corporate officer defendants motions to dismiss a complaint brought by the Federal Trade Commission ( FTC ) and entered default judgments as to all of the corporate defendants. The FTC alleged that Ideal Financial Solutions and various other defendants engaged in deceptive and unfair acts and practices, including billing practices where customers were billed for services they had never requested or received. The court held that corporations and other entities in federal court only may be represented by a licensed attorney. The court previously had provided the defendant corporations an opportunity to engage counsel and answer the complaint, but the defendant corporations failed to do so. Thus, default judgments were warranted. As to the individual defendants, the court noted that the various materials attached to the motion to dismiss were outside of the pleadings, and in any event, were not in proper form to be considered by the court, or converted to a motion for summary judgment given that they were not properly admissible. The court held that a deceptive billing practice is any practice that is likely to mislead consumers acting reasonably under the circumstances and that [is] in any way that is material. The court considered the overall net impression the representation creates. The court also held that express claims are presumed material and the FTC does not have to prove actual reliance by consumers. One individual defendant argued in her motion to dismiss that she did not have decision-making authority, or sufficient control to impose liability upon her. The court found that she was an officer in at least one of the closely held corporations. The court further held that the complaint alleged that she knew of the unauthorized billing of consumer accounts and deceptive statements to consumers and was recklessly indifferent to those 4

6 acts, or was aware of a high probability of the fraud and intentional misconduct, but avoided the truth. (FTC v. Ideal Fin. Solutions, Inc., No. 2:13-cv-00143, 2014 WL (D. Nev. June 5, 2014)). National Advertising Division (NAD) Decisions The NAD has recommended that Pursuit of Research, LLC, discontinue claims for the company s Nutriiveda dietary supplements, which were challenged by Nourishlife, LLC, a manufacturer of competing supplements. The products are marketed as cures for conditions that include attention deficit disorder, apraxia, autism, diabetes, dyspraxia, seizures, traumatic brain injury, and stroke. The advertiser said that it will appeal NAD s decision to the National Advertising Review Board ( NARB ). The advertiser explained that Nutriiveda Original is an all natural gluten-free and casein-free food product that provides essential amino acids, vitamins, minerals, and soluble fiber. The advertiser posited that protein and essential amino acid deficiencies, as well as changes to gut bacteria through diet, are linked to autism, apraxia, and other neurological disorders. The advertiser had not conducted any clinical trials on the efficacy of its product, but maintained that the essential amino acids and whey protein in Nutriiveda are responsible for the claimed health benefits. The advertiser offered as support a number of research articles on amino acids and testimonials from its website. NAD determined that none of the articles submitted by the advertiser described studies that constituted competent and reliable evidence sufficient to support the claims. For example, NAD found that the results of amino-acid testing on mice relied upon by the advertiser were not sufficient to support its health claims regarding the benefits of Nutriiveda in children with autism, apraxia, traumatic brain injury, and global delays. Further, NAD found that testimonials of parents could not serve as claim support. (Pursuit of Research, LLC (Nutriiveda), NAD Report No (June 16, 2014)). The NAD has determined that Gerber Products Company can support advertising claims made on product packaging and in website advertising that various Gerber -brand baby and toddler food products are a good or excellent source of certain nutrients. However, NAD also recommended the company modify a claim made for Gerber Good Start Gentle Formula. The claims were challenged by Nurture, Inc., a maker of competing infant and toddler foods. The challenger took issue with Gerber s claims that certain of its products are a good source or excellent source of a particular nutrient. It noted that FDA regulations generally prohibit the use of nutrient content claims for food products intended for children under two years of age because the FDA s Reference Daily Intakes (or RDIs) apply only to people over age two. NAD noted in its decision that there was no dispute between the parties regarding the amounts of the named vitamins and nutrients that are found in the advertised products. It pointed out that it often looks to applicable governmental regulations to the extent that they are instructive as to whether the claims are misleading. Here, NAD found that the nutritional content of the advertised products supported the underlying claims. NAD, however, further determined that Gerber s claim that Good Start Gentle Formula may help reduce the risk of atopic dermatitis did not adequately reflect the uncertainty of the underlying evidence. NAD recommended the advertiser modify the claim by clearly and conspicuously disclosing the actual qualified health claim that was approved by the FDA. (Gerber Products Company (Gerber Baby Foods), NAD Report No (May 20, 2014)). 5

7 RECENT FILINGS Lanham Act and Other Competitor Actions Complaint filed by RCS Network against Planet Group, LLC in the U.S. District Court for the District of Massachusetts, alleging violations of the Lanham Act and Massachusetts law prohibiting unfair and deceptive trade practices. Both the plaintiff and defendant offer services and benefits relating to the promotion of energy management and efficiency. Plaintiff alleges that the defendantcompetitor made false and misleading advertising claims, including by publishing a comparison chart that suggested that the environmental management services offered by the plaintiff were inferior to those offered by the defendant. (RCS Network v. Clean Planet Group, LLC, No. 1:14-cv (D. Mass complaint filed on June 5, 2014)). Consumer Class Actions Putative class action filed against Minute Maid Company, a division of Coca Cola, in the U.S District Court for the Northern District of Florida, alleging violations of Flrorida consumer protection laws. Plaintiffs claim that Minute Maid Company makes a juice blend sold with a label that, in describing the contents, displays the words pomegrantate blueberry with far more prominence than other words on the label, which indicate the juice to be a blend of five juices. According to the plaintiffs, the juice contains 99.4% apple and grape juices which allegedly are less expensive than pomengranate and blueberry juice 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice. (Stansfield, et al. v. Minute Maid Co., No. 4:14-cv (N.D. Fla. complaint filed on June 13, 2014)). Putative nationwide and California-only class action filed against Citizens of Humanity, LLC, Macy s, Inc., and various John Doe defendants in the U.S. District Court for the Southern District of California, alleging violations of California s Consumers Legal Remedies Act, Unfair Competition Law, and False Advertising Law. Plaintiff alleges that Citizens of Humanity falsely represented on labels and packaging that its Boyfriend brand of jeans, and other denim jean apparel products, were Made in the U.S.A. However, according to the plaintiff, these products are substantially and/or partially made, manufactured, or produced with component parts including fabric, thread, buttons, rivets and/or certain subcomponents of the zipper assembly that are manufactured outside the United States. As a result, the plaintiff asserts that the defendants manufactured, marketed, and/or sold these products to consumers through an unlawful, deceptive, and unfair course of conduct, and an alleged predatory scheme to defraud the market. Plaintiff alleges that consumers generally believe that products made in the United States are of higher quality than foreign-made goods and that consumers often select U.S.-made goods to support American companies and jobs. Plaintiff asserts that the defendants allegedly misrepresented the origin of Citizens of Humanity s denim jean products in order to fraudulently induce consumers to purchase those products at inflated prices. Because, according to the plaintiff, foreign-made components are subject to lower regulatory and quality standards, the Boyfriend jeans marketed by Citizens of Humanity allegedly are of lower quality, and less reliable and durable than would be the case if all their components were made in the U.S.A. Plaintiff further maintains that the defendants fraudulently concealed information concerning the actual country of origin of Citizens of Humanity s products. Because Defendants possess superior knowledge of the true facts which were not disclosed, plaintiff asserts that any applicable statute of limitations has been tolled. 6

8 (Clark, et al. v. Citizens of Humanity, LLC, et al., No. 3:14-cv (S.D. Cal. complaint filed on June 9, 2014)). Putative class action filed against Robert Bosch LLC, USA in the U.S. District Court for the Middle District of Florida, alleging violations of the consumer protection statutes of Florida, California, Illinois, Michigan, New Jersey and New York. Plaintiff alleges that the defendant manufactures, markets, and sells its Bosch Platinum Series Spark Plugs at a substantial premium based on representations that they allegedly contain a platinum center electrode. According to plaintiff, however, the spark plugs do no not contain a platinum center electrode and, as a result, the marketing and sale of the spark plugs is deceptive and misleading. (Burnett, et al. v. Robert Bosch LLC, USA, No. 8:14-cv (M.D. Fla. complaint filed on June 9, 2014)). Putative California-only class action against Kraft Foods Group, Inc., alleging violation of California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, removed from California Superior Court (Los Angeles County) to the U.S. District Court for the Central District of California. Plaintiffs claim that Kraft falsely advertises its Kraft Natural Cheese Shredded Cheese Cheddar Fat Free product as natural or all natural when, in reality, the product contains artificial coloring. (Morales, et al. v. Kraft Foods Grp., Inc., No. 2:14-cv-4387 (C.D. Cal. complaint removed on June 6, 2014)). Putative nationwide and California-only class action filed against Merck & Co., Inc. and two of its subsidiaries, MSD Consumer Care, Inc. and Merck Sharp & Dohme Corp., in the U.S. District Court for the Southern District of California, alleging violations of California s Unfair Competition Law and Consumers Legal Remedies Act, and breach of express warranty. Plaintiff alleges that the defendant s Coppertone over-the-counter sunscreen products that are labeled with a Sun Protection Factor ( SPF ) of 55 and above convey a false, misleading and deceptive advertising message that these products provide superior UVB protection that is, proportionally greater sunburn protection than sunscreen products with an SPF of 50. According to the plaintiff, however, none of the defendant s Coppertone sunscreen products labeled with an SPF of 55 to 100+ provide any additional clinical benefit over Coppertone SPF 50 products, and the Coppertone line of sunscreen products make virtually identical representations and contain virtually identical active ingredients as the Coppertone 50 products. In fact, the plaintiff maintains that that the only two material differences between Coppertone SPF products and Coppertone SPF 50 products are the SPF values on the various products and the products prices. Plaintiff asserts that the Food and Drug Administration ( FDA ) has found that sunscreen products with SPF values over 50 do not provide any increased clinical benefit over SPF 50 sunscreen products, and that scientific studies demonstrate an immaterial difference in ultraviolet radiation protection between SPF 100 and SPF 50 sunscreens. Plaintiff further alleges that the FDA has suggested that labeling a product with an SPF higher than 50 may be misleading to consumers. Plaintiff asserts that the defendant knew or should have known, but failed to disclose, that its higher-value SPF sunscreen products do not provide superior UVB protection as compared to less expensive, lower-value SPF products. (Gisvold, et al. v. Merck & Co., et al., No. 3:14-cv (S.D. Cal. complaint filed on June 4, 2014)). Putative class action filed against AG Adriano Goldschmied, Inc. and Nordstrom, Inc. in the U.S. District Court for the Southern District of California, alleging that the defendants manufactured, 7

9 marketed, and/or sold a variety of AG -branded products with the false representation that they were Made in the U.S.A. According to the plaintiffs, the defendants sell certain AG apparel with a Made in the U.S.A. claim printed on the label, even though the products are allegedly made, manufactured, and produced from component parts that are manufactured outside the United States. Therefore, the plaintiffs claim that the defendants business practices are false and deceptive in violation of California s Unfair Competition Law Consumer Legal Remedies Act. Plaintiffs also claim that such conduct is a violation of California Business and Professions Code Section , which prohibits selling or offering for sale any merchandise on which the words Made in the U.S.A. or similar appear when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside the United States. (Paz, et al. v. AG Adriano Goldschmied, Inc., et al., No. 3:14-CV (S.D. Cal. complaint filed on June 4, 2014)). Putative California-only class action filed against The Coca-Cola Company and various John Doe defendants in California Superior Court (Los Angeles County), alleging intentional and negligent misrepresentation, fraud, and violations of California s False Advertising Act, Unfair Competition Law, and Consumer Legal Remedies Act. Plaintiff alleges that, as part of an extensive and longterm advertising campaign, the defendant made false and misleading representations that its Simply Orange juice product was 100% Pure Squeezed, Fresh Taste Guaranteed, 100% Orange Juice, contained No Water or Preservatives Added, and simple, the way nature intended. By contrast, the plaintiff asserts that the juices are engineered from multiple batches of oranges and orange products eight months to a year old with algorithms and flavor packs, concocted via an unnatural, complicated, and technical engineering process. As a result, the plaintiff alleges that the products do not qualify as pure or fresh, even though the defendant s descriptions and pictorial representations of the products convey that impression. Plaintiff also maintains that defendant s advertising campaign concealed the actual facts concerning the manner in which these juice products were created. (Phelps, et al. v. Coca-Cola Co., et al., No. BC (Cal. Super. Ct. complaint filed on June 3, 2014)). 8