Ad Law Defense

Are You Shipping Me! Is Delivery Charging The Next Big Thing In Consumer Class Actions?

** Shipping and Handling Case Dismissed in California – Beginning of the End? **                                                                                                                                                                                                                                                                                                                                            

Lately, there’s been quite a bit of buzz over a couple of lawsuits filed in California alleging that internet retailers are charging too much for shipping and handling:  Reider v. Electrolux Home Care Products, Inc., No. 8:17-cv-00026-JLS-DFM (C.D. Cal) and McCoy v. Omaha Steaks International, Inc., No. BC 658076 (Cal. Sup. Ct, L.A. Cnt’y).  Much of the reporting on these cases focuses on the possibility that this claim may be the next big thing in consumer class actions.  How likely is that?

The answer, of course, is “Who knows?”  But a closer inspection of the lawsuits suggests that this litigation too shall pass — and perhaps quickly.  First, both lawsuits were filed by Scott J. Ferrell, the founder of Pacific Trial Attorneys, who is no stranger to consumer class actions against online retailers having brought several under California’s Automatic Renewal Statute. California Business and Professions Code §17600, et seq.  But there hasn’t yet been a break out of these shipping and handling cases.  And second, the Electrolux action is over via a joint stipulation to dismiss filed just yesterday after the District Court granted Electrolux’s motion to dismiss with the observation that any attempt to amend would likely be futile.  Dkt. No. 30, May 8, 2017.

The plaintiff in Electrolux pursued a novel theory of liability in a case where it was undisputed that he was apprised of the shipping charges prior to purchase.  Indeed, there was no way plaintiff could have missed the disclosure because he had to actually choose between shipping options with different charges at the time of purchase:  Ground Service at $7.99; Second Day Air at $15.00; and Next Day Air at $25.00.  (He judiciously chose ground service given his purchase was for a $1.99 vacuum bag.)  Faced with those facts, plaintiff honed in on the unfair prong of California Business & Profession Code § 17200, which prohibits and makes actionable “unlawful, unfair or fraudulent” business practices.

While California courts have not addressed the unfair prong in consumer lawsuits, the Ninth Circuit has – holding that for a business practice to be unfair to consumers it must either:  (1) violate a “legislatively declared” policy; or (2) fail a balancing test that weighs the benefit to the company against the harm to consumers.  Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 736 (9th Cir. 2007).  In Electrolux, the plaintiff argued that the guidelines of the Direct Marketing Association (“DMA”) that encourage retailers to make sure that their shipping and handling charges bear a reasonable relationship to the actual costs of shipping and handling and a 1980 FTC consent order prohibiting a car dealer from charging more than its actual costs in shipping cars to its showroom reflect a public policy against excessive shipping and handling charges and show that the balance tilts to consumers.

The District Court disagreed.  Dkt. No. 27, April 21, 2017. The “legislatively declared” policy was an easy call – neither the DMA nor the FTC are legislatures.  On the balancing test, the District Court found that there was simply no harm to the plaintiff and, therefore, nothing against which to balance Electrolux’s benefit.  Striking a blow for free markets everywhere, the court observed, “Online shoppers are aware that online merchants are in the business of making money and generating profit, and those looking for the best deals will find their way to the merchants who offer the best combination of quality, price, and service.”  In what should become known as the “Mini Bar Rule,” the court cited Searle v. Wyndham Int’l, Inc., 102 Cal. App. 4th 1327, 1330 (2002) – a case where plaintiffs unsuccessfully challenged a hotel chain’s mandatory 17% service charge:

“Perhaps the best analogy is the one made in Searle. The hotel room guest knows he could buy the $3 minibar candy for less at a neighborhood store. Perhaps he pays the high price so he can stay in his comfortable robe and enjoy the high-priced, in-room movie. In any event,“[t]he minibar patron, like the room service patron, is given both clear notice the service being offered comes at a hefty premium and the freedom to decline the service.” Searle, 102 Cal. App.4th at 1334.” (Dkt. No. 27 at 6).

The District Court in short order dispatched plaintiff’s Consumer Legal Remedies Act claim that the practice of charging inflated shipping and handling fees is deceptive because consumers believe that the charges are reasonably related to the company’s actual costs by noting that Electrolux makes no such representation.

But what of the second shipping and handling charge case —  McCoy v. Omaha Steaks International, Inc., CA Sup. Court, County of Los Angeles, Case No. BC 658076?  That case was filed in Los Angeles Superior Court on April 14, 2017 – a week before the District Court’s decision in Electrolux.  The claims are the same.  The support is the same.  We’ll have to wait and see if the superior court and the federal court agree.

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Healthy Conscious

** FDA Updating Requirements for “Healthy” Claims on Food Labeling **

One of the trending areas we have blogged about last year was “healthy” claims in food labelling becoming the new “all natural” target; see Hunter v. Nature’s Way Prod., LLC, No. 16CV532-WQH-BLM, 2016 WL 4262188, at *1 (S.D. Cal. Aug. 12, 2016) (Coconut Oil); Campbell v. Campbell Soup Co., No 3:16-cv-01005 (S.D. Cal. August 8, 2016) (Dkt 18) (Healthy Request® canned soups); Lanovaz v. Twinings N. Am., Inc., No. 5:12-CV-02646-RMW (N.D. Cal. September 6, 2016) (Twinings bagged tea).  It is a lucrative area for the plaintiff’s bar.  James Boswell et al. v. Costco Wholesale Corp., No. 8:16-cv-00278 (C.D. Cal) (recent $750,000 coconut oil settlement based on “healthy” labeling).

In many respects this trend was kicked off in 2015 by the Food & Drug Administration (FDA) who issued the KIND® company a not so kind letter asking the company, pursuant to 21 U.S.C. § 343(r)(1)(A) to remove any mention of the term “healthy” from its packaging and website.  See our prior blog post.  The basis for the FDA’s action is that the term “healthy” has specifically defined meanings under 21 CFR 101.65(d)(2) which includes objective measures such as saturated fat content (must be > 1 g) (see 21 CFR 101.62(c)(2)).  Later in 2016 the FDA seemingly had a change of heart – emailing Kind and stating that the company can return the “healthy” language – as long use “healthy” is used in relation to its “corporate philosophy,” not as a nutrient claim.

Notably, this sparked a wider public health debate about the meaning of “healthy” and whether the focus, for example on the type of fat rather than the total amount of fat consumed, should be reconsidered in light of evolving science on the topic.  In September 2016 the FDA issued a guidance document (Guidance for Industry: Use of the Term “Healthy” in the Labeling of Human Food Products) stating that FDA does not intend to enforce the regulatory requirements for products that use the term healthy if the food is not low in total fat, but has a fat profile makeup of predominantly mono and polyunsaturated fats.

The FDA also requested public comment on the “Use of the Term “Healthy” in the Labeling of Human Food Products” – which comment period ended this week. Comments poured in from consumers and industry stakeholders, reaching 1,100 before the period closed on April 26, 2017. The FDA has not provided a timeline as to when revisions to the definition of “healthy” might occur following these public comments – and it is not clear if President Donald Trump’s January executive order, requiring that two regulations be nixed for every new rule that is passed, will hinder the FDA’s ability to issue a rulemaking on the term “healthy” in the near future.  It is also not clear whether the FDA will combine the rulemaking with its current musing of use of the term “natural” – as the terms are sometimes used synonymously.  Industry groups (and the defense bar) are hopeful though that some clarity will come sooner rather than later.

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Sugar in Missouri

** Do we have a new “sue-me” State for Food and Class Litigators? **                                                                                                                                                                                                                                      As we blogged about in the past the Food and Drug Administration (FDA) issued guidance in 2016 that it is false or misleading to describe sweeteners made from sugar cane as “evaporated cane juice” (ECJ). Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.  As anticipated this has opened the way forward for cases against companies using the ECJ term, including of course those cases where the matter had been stayed under the primary jurisdiction doctrine.  Much of this ECJ litigation continues to be focused in state and federal courts in California.

That said, plaintiffs are also filing in other venues.  Missouri for one is becoming increasingly well-known as a plaintiff-friendly jurisdiction following full throated verdicts in product liability cases, such as the $70 million talcum powder case.  And food labeling suits are increasingly being filed as well in this new “sue me” State (in particular, St. Louis City – the 22nd Judicial Circuit, has been called one of “worst places in the nation for a corporation to be sued” and the new hot spot for litigation tourists.”)  In a recent win for the Plaintiff’s bar with respect to food litigation and labeling claims, a Missouri state court of appeals recently issued an opinion rejecting defenses successful in sister courts. In Murphy v. Stonewall Kitchen, LLC, 503 S.W.3d 308, 310 (Mo. Ct. App. 2016) brought under the Missouri Merchandising Practices Act (MMPA) the plaintiff (and putative class representative) alleged Stonewall Kitchen misrepresented that its cupcake mix was “all natural” when it contained leavening agent sodium acid pyrophosphate (SAPP).  The trial court, relying on the  decision in Kelly v. Cape Cod Potato Chip Co., 81 F.Supp.3d 754 (W.D. Mo. 2015), granted the motion reasoning that because the ingredient label clearly disclosed the presence of SAPP, it was not plausible that a consumer would believe the “all natural” representation on the product including the SAPP.  The Court of Appeals reversed, expressly rejecting the ingredient list defense.

Since Murphy, at least 16 cases have recently been filed in St. Louis on the topic of evaporated cane juice alone.  The targeted defendants include manufacturers of Pacqui Corn Chips (Dominique Morrison v. Amplify Snack Brands Inc., No. 4:17-cv-00816-RWS (E.D. Mo.), Jelly Belly jelly beans(Jason Allen v. Jelly Belly Candy Company, No. 4:17-cv-00588 (E.D. Mo.), and Bakery on Main granola (Callanan v. Garden of Light, Inc., No. 4:17-cv-01377 (E.D. Mo.).  The cases do appear connected, many having the same plaintiff’s counsel.  It is likely too early to call St. Louis the new “food court” – we’ll monitor it throughout the year though to see if it is a “flash in the pan” or not.

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Updating Proposition 65 Warnings for the Online Era

** California Law Makers Turn Their Attention to the Prop 65 Implications of Online Retailing **                                                                                                                                                                                                                                                                                                                      

California’s Proposition 65, requires any person who exposes a consumer to a listed chemical deemed to be either a carcinogen or a reproductive toxicant “in the course of doing business” to first provide a warning about that exposure (California Health & Saf. Code § 25249.5 et seq.).  As many of our readers are no doubt aware, particularly those who represent clients in California, Proposition 65 has generated a substantial amount of litigation since its enactment, largely due to “public interest” standing creating a private right of action to “any person” (§ 25249.7(d)).

California’s Office of Environmental Health Hazard Assessment (OEHHA) is tasked with updating the list of offending chemicals – there are almost a thousand currently on the list – and once a consumer product is shown to contain one of the listed chemicals a defendant has a heavy burden to show that the amount of exposure is within a safe harbor level or that the product is manufactured in such a way which precludes exposure.  The usual practice for consumer companies has been to rely on the warning provision – foreclosing on Prop. 65 litigation.  That said, the warning, in order to properly immunize the consumer company has to be “clear and reasonable” (§ 25249.11(f)).

What does this mean for manufacturers and retailers that deal with consumers online?  Bear in mind that the initial passage of Proposition 65 was in 1985 and unfortunately the implementing rules had not kept pace with changing trends in online retailing (not having been updated since 2008).  So internet sellers have been left somewhat to wonder.  OEHHA has released new regulations to take effect August 30, 2018, and for the first time they provide added specificity for internet sellers, and demonstrate when and how a Prop 65 warning should be provided.

New Reg. § 25600.1 provides a definition of “Retail seller” which means “a person or business that sells or otherwise provides consumer products directly to consumers by any means, including via the internet” (emphasis added).  The new rules do not upend the presumption that “[t]o the extent practicable, warning materials such as signs, notices, menu stickers, or labels shall be provided by the manufacturer, producer, or packager of the consumer product, rather than by the retail seller” (old § 25603) – they recognize that the new implementing rules are intended to minimize the burden on retail sellers of consumer products (see § 25249.11(f) of the Act).  As such it is primarily the burden of the “manufacturer, producer, packager, importer, supplier, or distributor” to provide the written notice of exposure to the retailer seller (Reg. § 25600.2 (b), (c)).

However, a retailer sellers is responsible for providing a Prop 65 warning in the following instances (§ 25600.2(e)):

  • The retail seller is selling the product under a brand or trademark that is owned or licensed by the retail seller or an affiliated entity;
  • The retail seller has knowingly introduced a listed chemical into the product, or knowingly caused a listed chemical to be created in the product;
  • The retail seller has covered, obscured or altered a warning label that has been affixed to the product by a manufacturer; or
  • Where the seller has “actual knowledge” from a “reliable source” of the potential of consumer product exposure to a listed chemical AND where the manufacturer, producer, packager, importer, supplier, or distributor of the product is: EITHER not “doing business” (because for example, they have less than 10 employees ” ( 25249.11(b))) OR has no registered agent or place of business in California. See Reg. § 25600.2 (e)(5).  In essence this broadens the reach of Prop 65 to retailers as a proxy for manufacturers who were not otherwise caught by Prop 65, either because they were too small or not connected to California.  “Actual knowledge” means specific knowledge of the consumer product exposure received by the retail seller from any reliable source.”  If the source of this knowledge is a notice served pursuant to Section 25249.7 (d)(1) of the Act (i.e. the 60 day notice required under Prop 65 before litigation can commence), the retail seller shall not be deemed to have actual knowledge of any consumer product exposure that is alleged in the notice until five business days after the notice.  This 5 day rule provides an important safe harbor for retailers – and begs the question as to whether there is any incentive for retailers to investigate products – or just wait until notice is provided. The fact that the provision also only applies to retailers when they are dealing with small (or out of state companies) also begs the question whether they’ll be a perhaps unintended consequence – retailers refusing to deal with these small businesses out of fear of the pass-along risk.

A retail seller can also be liable to provide Prop 65 warning where the manufacturer , importer, etc. provides notice and materials for the retailer to affix them, to shelves, products, or the text to provide on internet listings.  (Reg. § 25600.2 (b), (c)). The retailer’s correlative obligation is the “placement and maintenance of warning materials, including warnings for products sold over the Internet, that the retail seller receives” from the manufacture, producer etc.  (Reg. § 25600.2 (d)).  However, a retailer who agrees in writing with the manufacturer, importer, etc., that allocates legal responsibility to the latter will be binding and effective against Prop 65 liability (provided the consumer receives the relevant warning) (Reg. § 25600.2 (d)).  This provision provides another important safe harbor for retailers.  It will be interesting to see in which retail-manufacturer relationships the retailer has the bargaining power to demand this agreement.

The new regulations also provide guidance on how a Prop 65 warning should be given (Reg. § 25602 (b)): “For internet purchases, a . . .  must be provided by including either the warning or a clearly marked hyperlink using the word “WARNING” on the product display page, or by otherwise prominently displaying the warning to the purchaser prior to completing the purchase.  If an on-product warning is provided pursuant to Section 25602(a)(4), the warning provided on the website may use the same content as the on-product warning. For purposes of this subarticle, a warning is not prominently displayed if the purchaser must search for it in the general content of the website.”  As many of you are aware, the new 2018 Regulations also provide new warning requirements, including a symbol, hyperlink and warning language more specific to the carcinogen, reproductive toxicant, etc. (Reg. § 25603).  There are also slightly different rules for specific products such as Food (Reg. § 25607.2), Raw Wood Products (Reg. § 25607.10), Furniture (Reg. § 25607.12), Products With Diesel Engines (Reg. § 25607.14), etc.

These new rules provide clarity . . . but also raise new questions.  For example, is an online platform which is merely connecting the ultimate seller and buyer, such as eBay (and to some extent Amazon) the actual “retail seller” or is the vendor who uses the site the “retail seller.”  See Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 96–97 (2d Cir.2010) (eBay does not “does not itself sell the items listed for sale on the site nor does it ever take physical possession of them.”); Butler v. eBay, Inc., No. 5:06–cv–02704–JW (N.D.Cal. 12, 2006) (“[T]he seller is in control of the sale, not eBay…. Thus, the sale transaction is between the seller and the bidder.”); see also Cal. Att’y Gen. Op. No. 02–111 (2003) (“We have little doubt that eBay does not sell or offer to sell or buy or offer to buy, on behalf of another or others, any of the items.”). Should retailers, as discussed above, be required to be affirmative or have constructive knowledge of Prop 65 chemicals?  And if online retailers, as a practical matter, have to make the warning nationwide – does this trigger dormant commerce clause challenges?  These developments and more to follow as the rules begin implementation next year.

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How Not To Advertise Your Supplement

** FTC Claims Major Scalp in Fake News Case **                                                                                                                                                              

The recent political season has contributed new words to our lexicon — “alternative facts” (Thanks, Kellyanne!) and “fake news.”  While these terms may sound novel to us, the Federal Trade Commission has long taken action to curb such practices in commercial advertising under its mandate to enforce prohibitions on unfair or deceptive acts or practices (15 U.S.C. § 45(a)) and specifically false advertisements for food, drugs, devices, services, or cosmetics (15 U.S.C. § 52).

Recently, the FTC obtained a $29+ million personal judgment (ouch!) against a Tampa Bay businessman based on advertising the FTC claimed lacked scientific substantiation and misled consumers by using a fake news site and article.  Fed. Trade Comm’n v. NPB Advert., Inc., No. 8:14-CV-1155-T-23TGW, 2016 WL 6493923, at *9 (M.D. Fla. Nov. 2, 2016).  The case centered around one Nicholas Congleton, who — inspired by a clip from The Dr. Oz Show discussing a clinical study of the weight loss effects of green coffee extract (the Vinson Study) — founded Pure Green Coffee.  The business was largely operated online, relying on search engine and other digital advertisements (click bait) to the tune of $9.5 million.  This advertising investment proved to be money well spent.  From 2012 to 2014, Pure Green Coffee generated gross receipts just shy of $34 million.

Much of Pure Green Coffee’s advertising practices are standard grist for the FTC mill – inadequate substantiation for efficacy claims, unsupported establishment claims, and customer testimonials.  Pure Green Coffee promised consumers fabulous results – twenty-eight pounds in nine weeks or ten pounds and one-to-two inches of belly-fat in a month.  Although Mr. Congleton admitted in his deposition that he had no scientific basis for Pure Green Coffee’s weight loss claims, in opposition to the FTC’s motion for summary judgment he cited to “news articles, blog entries, and manufacturers’ brochures” (non-starters) as well as nine studies – chief among them, the Vinson Study Dr. Oz discussed on TV.  Unfortunately, most of the studies either did not involve green coffee extract or weight loss.  The Vinson Study was debunked by the FTC’s expert on several bases – but primarily because Dr. Vinson, himself, withdrew it.

The FTC based its argument that Pure Green Coffee made establishment claims in its ads in part on a photo —  a man wearing a white doctor’s coat and stethoscope holding a pill.   The Court found that this image implied that a physician or scientist had established Pure Green Coffee’s efficacy.   As for testimonials, Pure Green Coffee’s online ads committed the cardinal sin – they did not disclose that the participants were compensated.

Which brings us to fake news.  Pure Green Coffee purchased the domain “dailyconsumeralert.org” and loaded the page with a spoof banner for “Women’s Health Journal,” a list of several health- or fitness-related categories, and a fake article by a non-existent columnist that offered a purportedly unbiased test of the efficacy of green coffee extract that Mr. Congleton copied and pasted from another website.  The online ad also employed the ever popular “AS SEEN ON” advertising device next to the logos of CBS, ABC, MSNBC, and CNN – creating the impression that these networks reported favorably on Pure Green Coffee.  The court found that the webpage appeared as a bona fide news outlet and thus misled consumers — despite Mr. Congleton placing the word, “Advertorial” at the top.

Mr. Congleton’s case was not a particularly difficult one for the FTC.  But it nevertheless presents a cautionary tale to supplement sellers.  First, the more specific the claim, the closer the FTC will scrutinize the substantiation.  Depending on the nature of the claim the F.T.C. will require the study to include randomized clinical trials, human as opposed to animal proxy trials, and will take a hard look at the methodology and controls in the testing.  Second, images of folks in white coats or hospital scrubs in supplement ads are sure to grab the FTC’s attention.  Third, paid endorsers must be identified as such.  And finally, supplement makers must guard against intentionally or inadvertently creating fake news.

On this last point, it is critical that supplement companies (and any company engaged in internet marketing for that matter) familiarize themselves with the FTC’s December 2015 Native Advertising Guidelines.  These guidelines were developed to advise businesses on how to advertise online without running afoul of the FTC’s prohibition of fake news.  While a business might believe its online advertisement clearly appears as such when a consumer views it and, therefore, is not deceptive, the FTC’s position is that “advertisers cannot use ‘deceptive door openers’ to induce consumers to view advertising content.  Thus, advertisers are responsible for ensuring that native ads are identifiable as advertising before consumers arrive at the main advertising page.”  (Emphasis added.)  This is no easy task — as shown by the Guidelines, themselves — which contain 17 different examples of online advertisements and how each should be treated.  Suffice it to say, native advertising is a hot button issue for the FTC, and enforcement actions against businesses who ignore the Agency’s guidelines are a growth industry for advertising defense lawyers.

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Unresolved Issues in Web Accessibility Consumer Lawsuits

** Despite Rash of Lawsuits by Private ADA Litigants, Major Web Accessibility Issues under Title III Remain Unresolved in 2016**                                                                                                                                                                                                                                                                                

Website Accessibility has been an expanding battleground for the plaintiffs’ bar over the past several years.  Title III of the ADA provides that “no individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation.”  42 U.S.C. § 12182.  “Public accommodations” includes private enterprises whose operations affect commerce and who fall within one of twelve enumerated categories (broadly covering everything from grocery stores to amusement parks to places of education).  42 U.S.C. § 12181(7).  Specifically, Title III imposes requirements on businesses to provide “auxiliary aids and services” to the disabled where such aids are necessary for effective communication unless the entity can demonstrate that taking such steps would fundamentally alter the nature of the goods, services, facilities, privileges, advantages, or accommodations being offered or would result in undue burden.  42 U.S.C. § 12182(b)(2)(A)(iii); 28 C.F.R. § 36.303.  For website owners, the most common accommodation for the disabled is embedding code beneath graphics that makes it possible for assistive technologies to access information and navigate websites.  According to the World Wide Web Consortium (W3C), an international body that develops open standards and guidelines for web developers, there are hundreds of such design options to make a website accessible such as providing links to definitions, removing time limits for activities, providing spoken word versions of text, and ensuring keyboard control for all website functions.

Under the auspices of Title III, plaintiffs’ attorneys have filed hundreds of accessibility suits in the past year claiming that websites are failing to provide necessary accommodations – their favorite target being deep pocketed online retailers.  Notably, only a handful of ADA focused firms are filing these cases — reports show that over 90% of the suits are bought by just 8 different  law firms.  Yet despite the attention garnered by this rash of law suits, two critical issues were NOT resolved in 2016.

The first unresolved issue: Does Title III —  enacted in the pre-internet era (all the way back in 1990) — even apply to websites (and if so, which ones)?  The Third, Sixth, Ninth and Eleventh Circuits apply the ADA only to websites that have a physical connection to goods and services available at one of the enumerated places of accommodation listed in 42 U.S.C. § 12181(7) i.e. extending the ADA only so far as the online version of a company’s physical store or location.  Accordingly, goods and services without a sufficient nexus to a physical location are not covered by Title III.  See, e.g., Weyer v. Twentieth Century Fox Film Corp., 198 F.3d 1104, 1114-16 (9th Cir. 2000) (requiring some connection between the goods or services complained of and an actual physical place); Ford v. Schering-Plough Corp., 145 F.3d 601, 612-13 (3d Cir. 1998) (finding no nexus between challenged insurance policy and services offered to the public from insurance office); Parker v. Metropolitan Life Ins., 121 F.3d 1006 (6th Cir. 1997); Earll v. eBay, Inc., 599 F. App’x 695, 696 (9th Cir. 2015) (ADA claim fails because eBay’s services not connected to any physical place); Cullen v. Netflix, Inc., 600 F. App’x 508, 509 (9th Cir. 2015) (Netflix not subject to ADA because Netflix’s services not connected to any physical place); Young v. Facebook, Inc., 790 F. Supp. 2d 1110 (N.D. Cal. 2011) (ADA claim fails because Facebook’s internet services do not have a nexus to a physical place of public accommodation).

The Second and Seventh Circuits, on the other hand, apply the ADA more broadly. See, e.g., Carparts Distrib. Ctr., Inc. v. Automotive Wholesaler’s Assoc. of New England, Inc., 37 F.3d 12 (1st Cir. 1994) (finding Title III not limited to physical places); Nat’l Fed’n of the Blind v. Scribd, 97 F.Supp. 3d 565 (D. Vt. 2015) (finding website with no nexus to a physical space covered by Title III); Nat’l Assoc. of the Deaf v. Netflix, Inc., 869 F. Supp. 2d 196 (D. Mass. 2012) (finding website with no nexus to a physical space covered byTitle III); cf. Doe v. Mutual of Omaha Ins. Co., 179 F.3d 557, 559 (7th Cir. 1999) (finding Title III coverage of websites in dicta); Morgan v. Joint Admin. Bd., Ret. Plan of the Pillsbury Co., 268 F.3d 456, 459 (7th Cir. 2001) (same); see also Nat’l Assoc. of the Deaf, et al. v. MIT, 15-cv-30024, 2016 WL 6652471 (D. Mass. Nov. 4, 2016) (denying motion to stay or dismiss claim that defendant violated Title III of the ADA and Section 504 of the Rehabilitation Act by failing to caption its online content); Nat’l Assoc. of the Deaf, et al v. Harvard Univ., 15-cv-30023, 2016 WL 6540446 (D. Mass. Nov. 3, 2016) (same).  This circuit split will have to be resolved by the Supreme Court or by congressional intervention.

Which brings us to the second unresolved issue: Will the Department of Justice, pursuant to its statutory authority to promulgate regulations to implement Title II & III, step in and give some guidance on what specific technical accommodations are required (and which are not)?  On July 26, 2010, the Department issued an Advanced Notice of Proposed Rulemaking (“ANPRM”) on Accessibility of Web Information and Services of State and Local Government Entities and Public Accommodations announcing the Department’s interest in developing more specific requirements or technical standards for website accessibility.  75 Fed. Reg. 43,460 (July 26, 2010).  In the ANPRM, the Department reaffirmed its longstanding position that the ADA applies to websites as public accommodations and reiterated, consistent with the preamble to the 1991 regulations, that the ADA should be interpreted to keep pace with developing technologies.  Id. at 43,464 (“The Department has also repeatedly affirmed the application of Title III to Web sites of public accommodations.”) The Department recognized, however, that in light of inconsistent court decisions on website-related obligations and differing technical standards for determining web accessibility, further guidance was warranted.  Id.  Despite these aspirational statements, the DOJ has yet to finalize its guidance.  Instead, on May 9, 2016, it issued a lengthy Supplemental ANPRM (SANPRM) for state and local government websites, and then extended the comment period.  With those delays — as well as the advent of a new administration — the Title II regulations (for governmental entities) will be pushed back into 2017 and the Title III regulations (which are expected to closely mirror the ones for Title II) to (at the earliest) the end of 2017.  In the meantime, the DOJ appears to be satisfied  intervening on a case by case basis through statement of interest filings (Nat’l Assoc. of the Deaf v. Netflix, Inc., 869 F. Supp. 2d 196 (D. Mass. 2012); Gil. v. Winn-Dixie Stores, Inc, 16-cv-23020 (S.D. Fl. Dec. 12, 2016) (Statement of Interest)) and through consent decrees (see Nat’l Fed. of the Blind and United States v. HRB Digital LLC and HRB Tax Group, Inc., No. 1:13-cv-10799-GAO (decree governing the accessibility of H&R Block’s website); Settlement Agreement Between United States and Ahold U.S.A. Inc. and Peapod LLC.)

These issues  are ripe for action in 2017.  Owners of websites of all stripes should be on the look-out.

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Say It Like You Don’t Mean It

Washington, DC - October 11, 2009: An entrance to the Federal Trade Commission office building in downtown Washington, DC. The doorway features an ornate bronze grillwork depicting various commercial trade conveyances. This is one of the smaller side entrances. The FTC is a government agency that regulates consumer protection laws, antitrust laws, trademark registration, antitrust laws, and other trade and commerce issues.

** The FTC Weighs In On OTC Homeopathic Drugs With New Disclosure Requirements **                                                                                                                                                                                                                                                                                                                                                                                                                                           

This past Tuesday, the FTC issued its brand new Enforcement Policy Statement on Marketing Claims for OTC Homeopathic Drugs.  In sum, the FTC is fine with homeopathic drug makers advertising and labeling their products as effective in treating certain conditions – as long as they prominently disclose that their products don’t really work.

As we’ve blogged about recently, homeopathy is the brainchild of  the German physician, Samuel Hahnemann (1755-1843), who divined the concept of “like cures like.”  As the FTC explains, “Homeopathy . . . is based on the view that disease symptoms can be treated by minute doses of substances that produce similar symptoms when provided in larger doses to healthy people.”  In what has become the subject of much controversy over time, homeopathy made its way into the Food Drug and Cosmetic Act of 1938.  The FDCA defines drugs to include “articles recognized in the . . . official Homeopathic Pharmacopoeia of the United States.  (‘HPUS’)”  21 U.S.C. § 321(g)(1)(A).  The HPUS is a weighty tome first published in 1897 that sets forth standards for manufacturing homeopathic drugs as dictated by the Homeopathic Pharmacopoeia Convention of the United States.  Just how homeopathic remedies became “drugs” under the FDCA is shrouded in the mists of time, but it is generally accepted that New York Senator Royal Copeland, a homeopath, family physician, and sponsor of the FDCA, had a hand in it.

In 1988, the FDA issued its Compliance Policy Guide (CPG) for homeopathic drugs titled, “Conditions Under Which Homeopathic Drugs May be Marketed.”  The CPG allows homeopathic drug makers to sell OTC products without demonstrating their efficacy.  CPG Sec. 400.400.  This allowance, however, applies only to homeopathic products intended for “self-limiting disease conditions” (i.e., medical problems that will go away on their own anyway) that are amenable to self-diagnosis and treatment.  The CPG mandates that OTC homeopathic drugs are labeled as “homeopathic” and that the labels display at least one major OTC indication for use.

The sale of homeopathic remedies has grown hand-in-hand with nutritional supplements over the past two decades.  Unlike supplements making nutritional deficiency, structure/function, or general well-being claims, however, the FDA does not require OTC homeopathic products to carry a disclaimer such as, “This statement has not been evaluated by the Food and Drug Administration.  This product is not intended to diagnose, treat, cure, or prevent any disease.”  So, in the world of OTC homeopathic drugs, the FDA actually requires a use indication but doesn’t require substantiation or a disclaimer.

Enter the FTC.  Responding to pressure from consumer advocacy groups and, particular to this case, the Center for Inquiry (an organization that aims “to foster a secular society based on science, reason, freedom of inquiry, and humanist values”), the FTC issued its Enforcement Policy.  In it, the FTC impliedly acknowledges that, even though it has always had enforcement authority over homeopathic OTC drug makers, it has generally chosen not to police false or misleading advertising or labeling of their products due to the FDA’s 1988 CPG.  But no more!  Directly contradicting the CPG’s requirement of usage indications without the need to demonstrate efficacy, the FTC is announcing to homeopathic product makers everywhere that their products are not exempt “from the general requirement that objective product claims be truthful and substantiated.”

The FTC believes this will be no easy feat:  “For the vast majority of OTC homeopathic drugs, the case for efficacy is based solely on traditional homeopathic theories and there are no valid studies using current scientific methods showing the product’s efficacy.”  So what’s a homeopathic OTC drug manufacturer to do?  Just add to your product’s label (in close proximity to the FDA’s required efficacy indication or incorporated into it) that “(1) there is no scientific evidence that the product works and (2) the product’s claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts.”  Simple enough (although try fitting it on a label).  But the FTC further warns, “In light of the inherent contradiction in asserting that a product is effective (the FDA’s requirement) and also disclosing that there is no scientific evidence for such an assertion, it is possible that depending on how they are presented many of these disclosures will be insufficient to prevent consumer deception.”  The FTC recommends that marketers conduct consumer surveys “to determine the net impressions communicated by their marketing materials.”  And to make sure there is no possible avenue of escape, the FTC includes this flourish:  “Marketers should not undercut such qualifications with additional positive statements or consumer endorsements reinforcing a product’s efficacy.”  In short, if you can’t say something bad about the product, say nothing at all.

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Container Size Speaks Volumes in a Lanham Act Case

** District Court Rejects Slack Fill Defendant’s Claims That Package Size is Not Commercial Speech **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        .

Cardboard Boxes Balancing on a Seesaw

We’ve blogged about the rise in slack-fill consumer class actions and, specifically, the numerous actions brought against McCormick and Company for allegedly under filling its red, white and blue pepper tins.  These lawsuits were consolidated and transferred to the United States District Court for the District of Columbia in December 2015.  Curiously, one individual action initially brought in Minnesota federal court was allowed to come along for the ride – and it was this single-plaintiff lawsuit that started the avalanche of consumer actions against McCormick.  “Who was the plaintiff?” you ask.  McCormick’s competitor, Watkins, Inc., claiming a Lanham Act violation for the alleged slack-fill in McCormick’s pepper tins.  Watkins filed its complaint on June 9, 2015, and a week later, the consumer class actions started cascading downhill.

Lanham Act cases are very different beasts from consumer class actions even though they both focus on alleged misrepresentations made to consumers.  In a Lanham Act lawsuit, the competitor is trying to collect lost profits (or disgorgement of the defendant’s profits) due to “a false or misleading representation of fact” in “commercial advertising or promotion.”  15 U.S.C. § 1125(a)(1).  In a consumer class action, on the other hand, the class representative is trying to recover for the class either the entire purchase price of the product or the “price premium” class members paid for it based on the misrepresentation under state statutes and common law.

Slack-fill cases, of course, do not involve words – rather, they focus on the size of the package.  As the FDA elucidates:  “A container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill. Slack-fill is the difference between the actual capacity of a container and the volume of product contained therein. Nonfunctional slack-fill is the empty space in a package that is filled to less than its capacity.”  21 C.F.R. § 100.100(a).  In McCormick’s case, it sought dismissal of Watkin’s complaint on the theory (among others) that a container’s size is not “commercial advertising and promotion” because no words are involved”, citing Farah v. Esquire Magazine, 736 F.3d 528, 541 (D.C. Cir. 2013), where the court concluded that the Lanham Act only applies to “commercial speech.”

In this case of first impression – there are no other reported cases of one competitor suing another over slack-fill – Judge Ellen Segal Huvelle was not buying what McCormick was selling:  “McCormick argues that size of its pepper tins is not commercial speech, but it is difficult to understand how the size of a package or container could possibly not be considered a form of ‘advertising or promotion.’  The size of a package signals to the consumer vital information about a product and is as influential in affecting a customer’s choices as an explicit message on its surface.”  Memorandum Opinion, MDL Docket No. 2665, Misc. No. 15-1825 (ESH) (October 17, 2016).  The court analogized package size to other non-verbal advertising, such as images appearing on a product’s container.  In sum, like Depeche Mode, Judge Huvelle concluded that “words are very unnecessary” to make out a Lanham Act claim.

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Alert: Ninth Circuit Opens A Door For All Natural Class Claims

** Appeal Court Panel Holds That Genuine Dispute Remained As To Whether All Natural Claims Would Survive Reasonable Consumer Test **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      hires-2Judge Lucy H. Koh gave all natural class defendants cause for celebration back in 2014 when she closed the door on a putative class representative’s claim that Dole’s fruit juices and fruit cups were wrongfully labelled as “All Natural.”  Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 6901867 (N.D. Cal. Dec. 8, 2014).  Last week, however, the Ninth Circuit re-opened that door slightly – at least enough for the plaintiffs’ bar to try to squeeze their feet in.

Mr. Brazil alleged in his 2012 Complaint that Dole’s fruit cups and fruit juices were falsely labelled as “All Natural” because they contained citric acid (i.e. vitamin C) and ascorbic acid (used to prevent discoloring).  Dole successfully argued on summary judgment that Plaintiff had failed to show that a significant portion of the consuming public or of targeted consumers, acting reasonably under the circumstances, would be misled by its labeling.  Id. at *4, citing Lavie v. Procter & Gamble Co., 105 Cal.App. 4th 496, 507 (2003).  Plaintiff’s own opinion about the added Vitamin C and absorbic acid was not enough.  Id.  Neither was his rationale that a reasonable consumer could be misled by virtue of a label that violated FDA guidance on the topic (the FDA is not a reasonable consumer and vice versa, Judge Koh reasoned).  Further, in a prior ruling, Judge Koh decertified Plaintiff’s main damages class because Plaintiff’s damages model (or lack thereof) failed the threshold test of Comcast Corp. v. Behrend, 569 U.S. ___ (2013), i.e., that damages could be adequately calculated with proof common to the class.  Brazil appealed both the summary judgment and decertification decisions.

The Ninth Circuit affirmed in part and reversed in part.  Brazil v. Dole Packaged Foods, LLC, No. 14-17480, 2016 WL 5539863, at *1 (9th Cir. Sept. 30, 2016).

The good news is that the Ninth Circuit agreed with Judge Koh’s decertification of the damages class – and by so doing signaling that the Circuit will continue adhering to the Comcast principle that Plaintiffs have the burden of demonstrating a viable class-wide basis of calculating damages.  It held that the lower court correctly limited damages to the difference between the prices customers paid and the value of the fruit they bought—in other words, the “price premium.”  2016 WL 5539863, at *2 – 3, citing In re Vioxx Class Cases, 103 Cal. Rptr. 3d 83, 96 (Cal. Ct. App. 2009).  The Ninth Circuit reiterated that under the price premium theory, a plaintiff cannot be awarded a full refund unless the product she purchased was worthless – which in this case – the fruit was not.  Id. citing In re Tobacco Cases II, 192 Cal. Rptr. 3d 881, 895 (Cal. Ct. App. 2015).  Because Mr. Brazil did not (and presumably could not) explain how this premium could be calculated across a common class, the motion to decertify was rightly decided.  Id. at *3.

The bad news is that the Appeals Court rejected the lower court’s reasoning that bare allegations of an individual’s claims of deception were insufficient to show the reasonable consumer would be equally deceived.  Troublingly, the court used the FDA’s informal policy statement (see Janney v. Mills, 944 F. Supp. 2d 806, 812 (N.D. Cal. 2013) (citing 58 Fed. Reg. 2302–01)) on the issue as determinative of the reasonable consumer standard.  As one commentator has noted, this converts informal guidance into binding authority.

With the damages class gone, the Ninth Circuit remanded the case for a determination of Plaintiff’s injunctive relief class.  That may be a pyrrhic victory in the end.  As we have blogged in the past, a plaintiff who is aware of the supposed deception is not in a position, as Pete Townshend penned, to be fooled again.

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Proving a Negative

** Plaintiffs in a Putative Class Action Successfully Rely on Internet Articles on Homeopathy to Support Their Falsity Claims **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            .

Close up of the word HOMEOPATHIE in an old French dictionary. Selective focus and Canon EOS 5D Mark II with MP-E 65mm macro lens.

One of the few dependable defenses on which nutritional supplement/homeopathic drug makers facing consumer class actions can rely is that false advertising claims cannot rest on an allegation that the advertising lacks substantiation .  In the ground-breaking case of Nat’l Council Against Health Fraud, Inc. v. King Bio. Pharm., Inc., 107 Cal. App. 4th 1336 (2003), the California Court of Appeals held that it is not enough for a plaintiff to allege that the defendant’s products were ineffective because there is “no scientific basis for [their] efficacy.”  Id. at 1340-41.  In King Bio. Pharm, the plaintiff advocated that the defendant should bear the burden of proving its homeopathic remedies worked.  The California Court of Appeal disagreed, finding that — while regulatory agencies are legally authorized to demand substantiation — private parties are not, id. at 1345.  This is an eminently reasonable decision — otherwise, the plaintiffs’ bar would bring “ready, shoot, aim” lawsuits.

The question arises, of course, as to what level of “proof” is necessary for a putative class representative to sustain a claim of false advertising/labeling.  Must plaintiff’s counsel hire experts to perform double blind studies?  Or is a literature review all that is necessary?  This issue is front and center and may have reached its logical extreme in an important case in the U.S. District Court for the Southern District of California, Hammock et al. v. Nutramarks Inc. et al., case number 3:15-cv-02056 (2015) – a case that implicitly threatens the entire homeopathic medicine industry.

Homeopathy is the brain child of the German alternative physician, Samuel Hahnemann (1755-1843), who has a fabulous monument dedicated to him on Scott Circle in D.C.  Hahnemann developed the concept similia similibus curantur – or “like cures like.”  The idea is that a disease causes symptoms, and by treating patients with a substance that causes the same symptoms as the disease, the disease can be cured – like cures like.  By way of example, homeopathic medicines intended to remedy colds may include onions because onions cause watery eyes and runny noses – the precise symptoms of the common cold.

Dr. Hahnemann, however, did not want his medicines to produce the same symptoms the patient was already suffering from so he created a preparation protocol known as “extreme dilution.”  The active ingredient would be diluted with water or alcohol and the container would then be banged against an elastic surface (usually, a leather book) to the point that few of the molecules of the active ingredient remained.  In the world of homeopathic medicine, the more diluted the remedy, the  higher its potency and more effective it is.

Homeopathic medicine was heralded upon its entry into the United States in 1835, primarily because –unlike traditional medicine of the time – it didn’t kill patients (like mercury tinctures) and wasn’t gross (like leaching).  As modern medicine evolved, however, homeopathy came to be branded by the “traditional” medical industry as quackery.  Nevertheless, to this day, homeopathic drugs are treated (as opposed to nutritional supplements) by the FDA under Section 201(g)(1) of the Food, Drug and Cosmetic Act.

Which brings us back to the Nutramarks case.  In Nutramarks, the plaintiffs allegedly purchased NatraBio® Smoking Withdrawal, Leg Cramps, Restless Legs, Cold and Sinus Nasal Spray, Allergy and Sinus, Children’s Cold and Flu Relief, and Flu Relief homeopathic products.  Did the plaintiffs’ lawyers conduct any independent research to determine whether these products were effective prior to filing the lawsuit?  Of course not.  Did the plaintiffs’ lawyers cite any previously published studies about the challenged products?  Nope.  Did the plaintiffs’ lawyers cite any research on the efficacy of the ingredients in the products?  Nyet.  So what did the plaintiffs use to satisfy their plausibility burden under Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)?  Answer:  Internet articles challenging homeopathy as a whole.

Nutramarks pushed back on the complaint asserting in a motion to dismiss that relying on internet articles that did not involve its products or the constituents of its products was not enough, citing Murray v. Elations Co., No. 13-CV-02357-BAS WVG, 2014 WL 3849911, at *7 (S.D. Cal. Aug. 4, 2014) (studies “must have a bearing on the truthfulness of the actual representations made by Defendants”).  Nutramarks also argued that, because some experts believe that homeopathic remedies are effective, the action must be dismissed under In re GNC Corp., 789 F.3d 505, 516 (4th Cir. 2015), in which the court held that “[i]n order to state a false advertising claim on a theory that representations have been proven to be false, plaintiffs must allege that all reasonable experts in the field agree that the representations are false.”

In Nutramarks, Chief Judge Moskowitz rejected these arguments and denied the motion to dismiss as it pertained to the products’ effectiveness.  (The Court dismissed plaintiffs’ claims for injunctive relief and breach of implied warranty.)  Judge Moskowitz saw nothing deficient in the plaintiffs’ failure to cite studies relating to defendants’ products or the ingredients in its products: “Although the Complaint only concerns the effectiveness of Defendants’ Products, Plaintiffs are alleging that homeopathy in general is ineffective.  Should Plaintiffs prove this allegation later on, Defendants’ Products would likewise be proven to be ineffective.”  As to Nutramarks’ “all reasonable experts” argument, the Court distinguished the Fourth Circuit’s opinion in In re GNC Corp. on the basis that In re GNC Corp dealt with false advertising and Nutramarks concerns alleged false labeling.  This latter holding is a stretch.  Indeed, the plaintiffs didn’t make the argument for it in their opposition — although they cited the same language from In re GNC Corp that Judge Moskowitz relied on.

The language from In re GNC Corp reads, “Our holding today should not be interpreted as insulating manufacturers of nutritional supplements from liability for consumer fraud.  A manufacturer may not hold out the opinion of a minority of scientists as if it reflected broad scientific consensus.  Nevertheless, we need not decide today whether any of the representations made on the Companies’ products are misleading, because Plaintiffs chose not to include such allegations in the [complaint].”  The most important sentence in this dicta is the second because it highlights the precise representation – be it on a print advertisement or on the bottle, itself — that the Fourth Circuit didn’t want its opinion to absolve — a manufacturer falsely claiming that  there is broad consensus supporting its health claim when it is really only the opinion of a minority of scientists.  This claim appears nowhere on any of Nutramarks’ packaging challenged by the plaintiffs.

In the end, it is clear from the Fourth Circuit’s opinion in In re GNC Corp that the panel was convinced that there really would be an impermissible “battle of the experts” as to the efficacy of glucosamine and chondroitin for joint health if the case were to proceed past the motion to dismiss.  The label of one of the challenged products referenced a private study showing the effectiveness of the ingredients.  In a footnote, the Court stated (with just a bit of sarcasm), “Although Plaintiffs were free to allege that the study cannot have been conducted in a reasonable or reliable way (because all reasonable experts support the opposite conclusion), they failed to do so.  We decline to speculate as to why, if the evidence is as clear and unequivocal as they claim, Plaintiffs exhibited such hesitation.”

Of course, all is not lost for Nutramark or the homeopathic medicine industry in general.  Just last year, a California jury returned a verdict in favor of a manufacturer of homeopathic products for, among other things, allergies, leg cramps, migraine headaches and sleeplessness finding that the plaintiffs could not sustain their burden of showing lack of efficacy.  Allen et al. v. Hyland’s Inc. et al., 2:12-cv-01150 (Central District).

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