Self-Regulation and Claims Substantiation

Claims Enforcement

• Key Regulatory Actors– FTC– NAD– State AGs

• Basic Standard – Unfair or Deceptive• Interpret meaning of claims from standpoint of reasonable

consumer• Can have subset of reasonable consumers

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“Advertising” is Broadly Defined

• Anything You Use or Say To Promote Sale of Product or Service Could Include– Sales calls– Website/Social Media– Pamphlets – “Educational” Programs– Press Releases– Packaging – Social Media– Branded custom content/native advertising– Statements by Paid Endorsers or Influencers

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What is a Claim?

• 3 Types of claims

– Express claims

– Implied claims

– Puffing

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Express Claims

• Claim is clear “Stops Headache pain faster”

• Question to consider is generally not what is the claim but rather whether it is true or false.

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Implied Claims

• Literally true, but has tendency to deceive a substantial portion of target audience

• You don’t have to intend to make the claim• Problem with implied claims is that if you didn’t mean to

say it you may also not be able to show it’s true

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EXAMPLE: Implied Claim

Kraft Cheese Singles

• “Cheese made from 5 ounces of milk so you get all the calcium you need”

• False implied claim that same amount of calcium as 5 ounces of milk

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Visual Images Can Create Implied Claims

Coca Cola v. Tropicana• Visual

Bruce Jenner Squeezing an Orange Into Carton

• Claim Implied based on VisualTropicana Juice Is Fresh-Squeezed

• FalseJuice Actually Is Pasteurized

• ResultInjunction Ordered

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Coca Cola v. Tropicana, 538 F. Supp. 1091 (S.D.N.Y. 1982)

Implied Claim Used as a Defense

Avis v. Hertz• Claim

Hertz Has More Cars Than Avis• Literally False

Avis Actually Owned More Cars• Defense

Consumers Understood Ad to Mean “Cars Available for Rent”

• ResultInjunction Denied

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Avis Rent A Car System, Inc. v. Hertz Corporation, 782 F.2d 381 (2d Cir. 1986)

How to Find an Implied Claim

• Not just the most likely interpretation of an ad– There can be multiple claims from one ad– What a reasonable person can takeaway

• Look at context of ad as a whole

• FTC/NAD can use their expert judgment

• Can also do surveys– Lots of rules around what constitutes a good survey

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Puffery – A Narrow Exception

• “Determining whether a claim is puffery is more an art than a science”

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Puffery

• Puffery Defined:– A general statement that is so vague it cannot be

objectively measured– An exaggerated statement or obvious hyperbole

upon which no reasonable consumer would rely • Factors to consider:

– Whether the statements are general or specific– Can the statements be measured by research or

tests?• CONTEXT IS EVERYTHING!• It’s a Crap Shoot• Any reference to specific attributes will likely be

fatal

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Puffery

Puffery: Suave/Unilever

• Fragrances as “appealing” – deemed NOT puffery– Implies consumer preference

• Fragrances as “beautiful” – deemed puffery– Boasting/expression of pride in the product

Puffery: More for Your ThingNAD #6212 T-Mobile v. AT&T

• T-Mobile claims all ads implied that AT&T’s wireless plans have more data benefits than competitor plans

• NAD’s view of context key:– Billboard – Slogan with logo = Puffery– Right Zone – Context limited the claim to BOGO offer– More for Your Stream Like a Boss Thing Stream your favorites anytime/anywhere – say goodbye to overages Not limited to a specific offer = distinguished from BOGO

– Do Your Thing – Not puffery Expressly stated “more entertainment/internet and unlimited plans

• AT&T APPEALING

Puffing

• Not actionable, but narrow category

• Claims that you can’t objectively prove

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Example of Puffing

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You’re in Good Handswith Allstate

Bologna v. Allstate Insurance Company, 38 F. Supp. 2d 310 (E.D.N.Y. 2001)

Claim vs. Substantiation

• You can have great substantiation but it has to match your claim

• The prune juice preferred by most consumers– Study actually shows only by those consumers with a

preference

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What is Standard for Substantiating Claim: History of Reasonable Basis Standard• Must have a “reasonable basis”

for advertising claims

• What is a “reasonable basis?”

• Pfizer Factors (1972) – Type and specificity of claim– Type of product– Consequences of a false claim– Degree of consumer reliance– Type and accessibility of

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Reasonable Basis: Later Developments

• Advertising Substantiation Policy Statement (1983)

• Emphasizes that “reasonable basis” standard is a flexible standard

• Depends on number of factors relevant to benefits and costs of substantiating a particular claim.

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Competent and Reliable Scientific Evidence

• Applies to Health, Safety and some Product Efficacy claims

• Commission has said for these types of claims a “reasonable basis” consists of “competent and reliable scientific evidence.”

• Traditionally defined as:– “tests, analyses, research, studies or other evidence based on the

expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.”

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Competent and Reliable Scientific Evidence

• What is competent and reliable scientific evidence?

• Typically a double-blind, placebo controlled clinical study (often 2)

• But Commission has accepted lab testing or medical literature as substantiation in some instances

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Iovate and Nestle

• New Definition:

– “at least two adequate and well-controlled human clinical studies of the product, or of an essentially equivalent product, conducted by different researchers, independently of each other, that conform to acceptable designs and protocols and whose results, when considered in light of the entire body of relevant and reliable scientific evidence, are sufficient to substantiate that the representation is true.”

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Iovate and Nestle

• “Essentially equivalent” is in turn defined as:

– “a product that contains the identical ingredients, except for inactive ingredients (e.g., binders, colors, fillers, excipients), in the same form and dosage, and with the same route of administration (e.g. orally, sublingually), as is the covered product; provided that the product may contain additional ingredients if reliable scientific evidence generally accepted by experts in the field demonstrates that the amount and combination of additional ingredients is unlikely to impede or inhibit the effectiveness of the ingredients in the Essentially Equivalent Product.”

– Some variations in this definition if product is a food

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Iovate and Nestle

• What is the significance of this change?

• FTC in the past has often investigated a company’s health or safety claims and concluded that they should have had 2 clinical studies to substantiate the claim

• Why is this different?

• First, signals that even more so in the past, FTC is likely to conclude that two clinical studies are necessary to substantiate health or safety claims

• Second, companies signing consent orders have less flexibility in making future claims– FTC has “predetermined” type and quantity of evidence necessary to substantiate the

claim

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Iovate and Nestle

• Also, FTC has ratcheted up quality of clinical studies necessary to substantiate a claim

– Studies must use human subjects

– Must be a study of the product or an “essentially equivalent product”

– Must have used same form, dosage and route of administration

– Must be considered in light of the entire body of relevant scientific evidence

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Competent and Reliable Scientific Evidence

• Courts have been less accepting of FTC’s new definition– POM, Bayer, etc.

• FTC has come back around to a more flexible standard• But some changes persist

– Can’t rely on one or two studies if there are multiple studies that go the other way

– FTC will likely look at the underlying data and do its own statistical analysis

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Omissions

• Absence of information critical to understanding the claim or offer

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Pricing

• State law driven

• No perma-sales

• Real reference price

• Free means free

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Testimonials

• (1) Truthful

• (2) Typical or average results disclosed– No more “results may vary”

• (3) connection to advertiser disclosed

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Made in USA

• “All or substantially all” costs attributed to US sources, manufacturing and inputs

• Includes terms like “built”• California used to have much

stricter standard but recently amended law to close parity with FTC

• Can use qualified claims

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Green Claims

• FTC has Green Guides• Most common issues relate to:

– “Earth friendly”– “Biodegradable”– “Recycled”– “Recyclable”

• Don’t address things like “natural,” “sustainable” or “life cycle analysis”

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Natural

• Natural

• Minimally processed, no artificial flavors, no added colors. Sort of.

• Will FDA Act?

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Kids

• CARU guidelines require:

– Appreciate level of under 12-audience

– Show safe and appropriate activity with supervision

– For foods show reasonable portions

– Do not promise popularity or super powers

– Disclosures in audio and visual

– Do not encourage pressuring parents34

FTC Update: “All Natural” Claims• FTC recently entered into Consent Order with 4 companies

prohibiting false “all natural” claims• FTC Orders: A Glimmer of Guidance

– Consent Orders in all four cases prohibit representations that a product is all natural or 100% natural or the extent to which a product contains any natural or synthetic ingredients or the environmental benefits of the product unless supported by competent and reliable (scientific) evidence

– Comments submitted suggesting that the order prohibit any representation that the product is “natural” unless it is 100% natural and contains no synthetic ingredients

– FTC rejected the comments noting that a “natural “ claim does not necessarily mean “100% natural or “all natural”.

CONTEXT WILL BE KEY!

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What the FTC Said

• “In your comment, you state that products should not be represented as ‘natural’ if they contain any amount of synthetic ingredients, and that the term must be reserved only for companies that provide complete transparency and proof of the natural chemical makeup of their products. Thus, your comment arguably implies that the consent agreement should prohibit the claim ‘natural’ unless the product is ‘all natural’ (i.e., contains no synthetic ingredients).

• The record does not support revising the order in this way. We do not have evidence that consumers necessarily interpret ‘natural’ to mean ‘all natural’ or no synthetic ingredients. Absent such evidence, we do not feel it would be appropriate in this case for us to presume that consumers have that understanding of the term ‘natural.’"

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Consumer Class Action Targets

• Pricing Claims– Continuous Sales– Outlet pricing

• Natural Claims• Slack Fill Cases• Labeling

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Pricing Claims

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Pricing Claims

• Must compare comparable plans or services or material differences must be clearly disclosed

• Disclosure in small disclaimers not likely to be sufficient• Beware of line claims:

– Specify which plans/services are being compared and if there are material differences

• “Up to” Claims: At least 15% of items/consumers must qualify for the maximum savings

Pricing Claims

• FTC Guides concerning use of the word “Free” and Similar claims

• Prohibits “continuous” sales or free offers– FTC follows 6 month rule– States more restrictive- generally items must be at regular

price for 30 days within any 90 day rolling period• All material terms on use of term “free” must be clearly

and conspicuously disclosed– States have type size and placement restrictions

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Savings Claims

• “Up To” Savings Claims– At least 15% of items on sale must be at maximum savings– Various states require full range of savings

• Beware of New Jersey– Must indicate what savings apply to in same font size

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Pricing Litigation (Overstock; J.C. Penny / Justice and beyond)• B&P Sec. 12024.2 and

17501• CA Reg. Tit. 4 Sec 1301• CC 1770• The cases• The application of the FTC’s

– Guidance on Deceptive Pricing (16 CFR 233)

– Availability Rule (16 CFR 424)

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Other Pricing Issues

• Pricing based on Cash or Credit Card, CC 1748.1

• Selling below Cost, B&P17043 / loss leader B&P17030 and 17044

• B&P 12024 scanned price issues

• CC 7100 -- If POS and grocery– 85% on product– Accuracy

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Monadic vs. Comparative Claims

• Claims are monadic if they relate solely to the advertiser’s own product

• Context is key – similar to puffery• Key factors:

– Does the claim contain a provable quantifiable attribute?– Does the claim appear in an overall comparative context? Beware of dangling comparatives – may inherently imply a comparison Beware of halo effect Combination of monadic/comparative claims – comparative claim may taint

entire ad– Claims can be comparative even if no competitor named “Only T-Mobile lets you watch your favorite movies and shows in more

places without paying more”

Comparative Claims:Unnamed Competitors• Claim at Issue: “Some body

washes can be harsh”• NAD Ruling: Use of the word

“some” could reasonably be construed to include Dial – a market leader

Express vs. Implied Claims

• In absence of survey evidence or if survey evidence is flawed, NAD can and will determine implied claims on its own– NAD frequently finds surveys flawed but decisions more

frequently align with surveys• Implied claims can be created through visuals as well as

graphics • NAD takes broad view of “implied” claims in comparative

advertising cases especially where there is product disparagement

Line Claims

• Area of increased sensitivity for NAD• Advertising must clearly delineate the specific

product/service being advertised and the specific target of the comparison– Which plan or plans are being advertised– Which tiers of service– Which technology (i.e. entire network/4G LTE/5G?)

• NAD increasingly looking for limitations in audio – visual disclaimers may not be enough

Product Disparagement

• Rule: “Claims that expressly or implicitly disparage a competing product must be truthful, accurate and narrowly drawn.”

• Fine line between truthful superiority claim and product disparagement– Competitor’s product is NOT good– Like Puffery – It’s a crap shoot

Product Testing/Claim Substantiation

• NAD will generally subject testing to rigorous scrutiny and review

• In the face of competing testing, will make its own determination as to which testing is superior

• NAD does not consult its own experts – critical in complex substantiation cases to ensure that attorneys understand the testing

• Bringing our own experts is critical

Performance Testing

• Critical Issues for NAD:– Sample size/universe– Consumer relevant conditions for testing– Recency of the data – NAD is well aware that in our industry data

become stale fast– Third party testing always preferred over proprietary testing– Heavy reliance on industry standards– Results MUST BE statistically significant at 95% confidence level– Increasingly looking at consumer relevance of differences (less so

in our industry)– Close fit between the testing and the claim is key