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A Year of Change Brings Lessons for Marketers

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Each fall, ERA’s D2C Convention brings the industry together to catch up and compare notes. It’s also a good time to take stock of your business, go over the year’s legal and regulatory developments, and consider what may be coming on the horizon. Below are some of our picks for the more interesting happenings in the world of direct response law over the past year.

The Federal Trade Commission

This past spring, Maureen K. Ohlhausen, acting chairman of the Federal Trade Commission (FTC), offered an update on its actions during the first 100 days of the Trump administration and provided a guide to the FTC’s priorities under her leadership. Her remarks focused on preventing substantial harm to consumers, avoiding government overreach, and pursuing regulatory reform—all topics relevant to direct response.

Focus on substantial harm. An oft-repeated theme in Ohlhausen’s remarks was one of caution when it comes to possible government overreach in consumer protection. Ohlhausen said she has “directed agency staff to focus on where it will do the greatest public good [in] both [the FTC’s] competition and consumer protection work.”

As her guidance relates to consumer protection, this will mean focusing on substantial harm to consumers. While she did not define “substantial harm,” she did provide examples of typical consumer protection cases where the FTC may focus:

  • A fraudster selling a bogus product or service that swindles consumers out of their money;
  • A company that deceptively exaggerates the virtues of its legitimate products to collect an unfair price premium that hurts consumers and disadvantages competitors; and
  • A debt collector who intimidates and bullies consumers into paying debts they don’t owe and turns their fear into a paycheck.

The FTC has pursued these types of cases actively in the past, and marketers shouldn’t expect its pursuit of hardcore fraud to slacken under Ohlhausen’s tenure.

Ohlhausen also announced the formation of an internal task force to clarify the commission’s economic reasoning on issues relating to privacy and data security, and to better quantify the costs and benefits of different actions that the FTC or others could take.

Regulatory reform. Consistent with her comments as an FTC commissioner, Ohlhausen’s recent remarks reiterated her belief in eliminating unnecessary and burdensome regulatory requirements perceived to hurt the economy, as well as her commitment to improving the efficiency and effectiveness of FTC operations.

She announced an in-house effort to “streamline the FTC’s procedural processes” in order to avoid excessive costs on the private sector. As it relates to consumer protection, the FTC is examining its Civil Investigative Demand (CID) process, recognizing that CIDs can impose significant costs upon companies. The FTC will also review its regulations to identify any that may have “outlived their usefulness.” For example, the FTC, at the time of this writing, is seeking comment on certain aspects of textile labeling rules and the CAN-SPAM Act.

While the DR industry should be cautiously optimistic about Ohlhausen’s goal of easing the burden on business, her remarks should not be taken as a sign that the FTC is going to lessen its enforcement efforts. This is especially true in regard to fraud, data protection, and cybersecurity, which are clear areas of focus for the Ohlhausen FTC.

The Lanham Act

Recent case law confirms that false advertising under the Lanham Act is a strict liability offense, regardless of the advertiser’s intent in making the claim. This is true even if the advertisement was once true, but the claim has been rendered “stale” in the marketplace through new product innovation.

In Dyson, Inc., v. SharkNinja Operating, LLC, SharkNinja challenged advertising claims made by Dyson that one of its vacuums had “twice the suction of any other vacuum.” Dyson’s defense hinged on the fact that at the time it first made the claim, it was truthful. Sometime after Dyson launched its campaign, however, SharkNinja launched a new vacuum whose performance rendered Dyson’s advertising claim false. During litigation, both parties moved for summary judgment.

Recent case law confirms that false advertising under the Lanham Act is a strict liability offense, regardless of the advertiser’s intent in making the claim.

Dyson argued that it never intended to advertise its vacuum falsely, and when it learned that SharkNinja’s new product had rendered the advertising claim false, Dyson moved quickly to remove the claim and, thus, should not be found liable for false advertising. The court denied Dyson’s argument, stating: “The language of the statute is compulsory, and it includes no exceptions for cases in which a manufacturer undertakes good-faith, commercially reasonable efforts to remove a false claim from the marketplace upon learning of its falsity. Good faith is simply not a defense to a false advertising claim under the Lanham Act.”

In light of this decision, advertisers should keep this strict liability standard in mind not only when developing claims, but also when monitoring claims through the life of an advertising campaign.

National Advertising Division

The National Advertising Division of the Council of Better Business Bureaus (NAD) is the Advertising Self-Regulatory Council (ASRC) unit charged with monitoring and evaluating “the truth or accuracy of national advertising.” Many companies in the DR space take advantage of NAD’s expertise, as well as ASRC’s Electronic Retailing Self-Regulation Program (ERSP), in resolving competitor advertising disputes for a fraction of the cost of litigation in federal court.

Dietary supplements and other food products dominated NAD’s docket in 2017. As of the time of this writing, more than half of the 42 decisions published on NAD’s website this year have dealt with dietary supplements or other food products. Several common themes run through these cases.

Magic beans. Many of the challenges, whether they were from competitors or NAD itself, focused on the substantiation of product performance claims. For example, NAD challenged whether or not Jelly Belly’s Sports Beans “are formulated to help fuel the body during intense exercise” and are “clinically proven to maximize sports performance.” The Jelly Belly Candy Co. provided substantial evidence (including multiple clinical tests) in support of its claims. However, while NAD found many of the claims substantiated, it determined that the “maximize sports performance claim” was not substantiated.

Named and shamed. In another case, Gatorade Co., Inc., challenged a broad ingredient advertising claim made by BA Sports Nutrition, LLC. The ads urged consumers to “Ditch Artificial Sports Drinks: Artificial flavors, artificial sweeteners, and artificial colors.” In spite of the fact that the ad did not reference Gatorade by name, NAD found that the ad was comparative, stating that an “advertiser does not need to mention a particular competitor in order for the claim to be considered comparative … Gatorade is the market leader in sports drinks and a consumer could quite reasonably take away the message that the competitor[’s] sports drink mentioned in the advertisement is Gatorade.”

Moreover, NAD found that at least one of Gatorade’s sports drinks did not contain artificial sweeteners or flavors—rendering the advertiser’s claim false.

DR marketers can expect NAD and ERSP to continue reviewing competitor challenges, and institute their own challenges related to product performance claims. Special attention should be given to performance claims that are comparative, because they are sure to draw the ire of competitors. Marketers should be sure to have competent and reliable testing to support any measurable performance claims before they make those claims in the marketplace.

Change is ongoing in advertising regulation. But regular discussions with experienced advertising and marketing law counsel can help marketers and their service providers stay abreast of shifting legal and regulatory obligations, mitigate risk, and help in identifying potential opportunities.

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