Stay ADvised: 2024, Issue 3 | Davis Wright Tremaine LLP

In This Issue:

• FTC’s Two for Two Against Companies Facilitating Illegal Robocalls
• NAD Expands on Rankings Website Precedent, Keeps Bar High on Identifying Advertising
• Plaintiffs Say Unilever “Preservative-Free” Claims for Liquid I.V. Drink Mix Are False Advertising
• Battle of the Beef Jerkies: When is “Clearly the Best” Puffery?

FTC’s Two for Two Against Companies Facilitating Illegal Robocalls

In its ongoing action focused on robocalls, the Federal Trade Commission (FTC) is taking steps against two companies that make robocalls possible. It recently announced separate settlements against companies accused of assisting telemarketers to make prerecorded messages or calls to numbers on the Do Not Call (DNC) list.

The FTC sent notice to XCast Labs in May 2023 warning that by assisting and facilitating illegal robocalls originating on its network it was violating the FTC Act and the Telemarketing Sales Rule (TSR). But as far back as 2018, the Federal Communications Commission (FCC) had notified the company that it was transmitting suspected illegal robocall traffic.

After the company ignored the warnings, the Department of Justice (DOJ) sued on behalf of the FTC, alleging that XCast funneled billions of illegal robocalls (including scams) on behalf of telemarketers to consumers through its internet telephone system. The complaint alleged XCast’s own phone records as well as “traceback” inquiries showed it had facilitated these robocalls to consumers.

The FTC also sued lead generator Response Tree alleging that the company’s actions facilitate the work of robocallers, in its case by selling illegally obtained consumer information to telemarketers. The FTC alleged that Response Tree operated as a “consent farm,” obtaining “consent” from consumers to use their contact information under false pretenses. But such consent did not meet the requirements of the TSR, said the FTC, and was illegal.

According to the complaint, Response Tree used dark patterns to trick consumers into divulging their contact information, then sold thousands of these leads to the telemarketers, who turned around and called consumers with illegal robocalls. The FTC alleged that the “primary method” by which the company obtained leads was by posting fake websites such as PatriotRefi.com, which purported to collected consumer contact information for the purpose of providing home refinance quotes. Instead, the true purpose, according to the FTC, “was designed to compile lead lists by harvesting and selling consumers’ personal information without consumers’ informed consent.”

Both companies have agreed to settle the allegations. XCast has agreed to settle the suit in exchange for a permanent ban on facilitating and assisting illegal robocalls. As for Response Tree, the proposed order, which still requires court approval, imposes a $7 million monetary judgement (suspended because of the company’s inability to pay). It also bans the company from collecting or selling consumer information in connection with lead generation and from assisting anyone in initiating robocalls.

Key Takeaways

The FTC is targeting the backbone of the Robocall ecosystem, and we should expect the agency to take further action to undermine the underpinning that makes these calls and scams possible. Samuel Levine, Director of the Bureau of Consumer Protection, explained that “the FTC will continue to target every corner of the illegal telemarketing ecosystem to protect consumers and hold wrongdoers accountable.”

NAD Expands on Rankings Website Precedent, Keeps Bar High on Identifying Advertising

When an advertiser promotes an objective-looking rankings site it runs, what constitutes content clearly identifying the website as advertising to ensure that consumers are not misled?

The National Advertising Division (NAD) examined this question in a challenge brought by online business service platform LegalZoom about claims of competitor ZenBusiness, in a case that builds on recent NAD precedent.

Both companies provide corporate formation and other services. LegalZoom argued that ZenBusiness’s advertising “conveys false and misleading messages about the nature of [ranking] websites and reviews that rank ZenBusiness’s services #1.”

The rankings website is headlined “Best Service Providers (Top 4 Reviewed)” and is accessible not through the ZenBusiness site but when consumers click on an external link on other websites with names like “bestllcservices.com.” The page ranks ZenBusiness as #1 and LegalZoom as #3. A button below the rankings is titled “Start Your LLC.” It only provides ZenBusiness service options.

LegalZoom argued that ZenBusiness misleads consumers into thinking the ZenBusiness rankings page is an objective review site, and NAD agreed. Relying on FTC guidance and its own recent precedent in the Amerisleep case, it concluded that the rankings and reviews on this site are controlled by ZenBusiness and are advertising, but that’s not clear to the consumer.

FTC Guidance provides that advertising not identified as such by advertisers is deceptive if it misleads consumers into believing it emanates from a neutral, third-party source. “Underlying this statement is the recognition that consumers assign more weight and credibility in their purchasing decisions to product information that they believe comes from independent sources than from an advertiser,” noted NAD. Advertisers should clearly identify advertising in this context to avoid misleading consumers.

In Amerisleep, NAD found that editorial-style rankings and review websites with names like SleepJunkie.org and SavvySleeper.org, which were operated by the manufacturer of the top-ranked mattress on the sites, conveyed the misleading message that the reviews were independent. Like the ZenBusiness site, the sites ranked mattresses in a way that suggested the sites were third-party independent content.

ZenBusiness attempted to distinguish Amerisleep by arguing that, unlike in that case, ZenBusiness branding was present on the webpage and domain, alerting consumers that the rankings site is ZenBusiness advertising. The company also added a disclosure to the top of the site stating that the site is owned by ZenBusiness.

As far as NAD was concerned, this was not enough: “The message that the rankings and reviews are from an independent and impartial source is not cured by the presence of limited ZenBusiness branding.” Consumers were unlikely to notice the URL reference to ZenBusiness, and the large headline and rankings format drew attention away from the smaller branding of ZenBusiness.

Another factor that NAD considered in reaching its decision was that a search for terms like “best llc formation” or “reviews of llc services” brought up the ZenBusiness-controlled ranking site. These search terms would be used by reasonable consumers when searching for impartial reviews. Finding such other impartial review sites alongside ZenBusiness, and perhaps not knowing that ZenBusiness provides LLC services, the reasonable consumer might conclude that the site provided impartial reviews.

ZenBusiness’s disclosure at the top of the rankings page did not cure the misleading message because the rankings appear to be unbiased and because consumers may be first drawn to the prominent “Best LLC Services (Top 4 Reviewed)” graphics. Further, the disclosure didn’t clarify that the rankings were created by ZenBusiness to promote its brand and that the services are not, “as they appear to be, a third party’s impartial and unbiased evaluation.”

Key Takeaways

Review sites that are advertiser-controlled, are fully pay-for-play, or use rankings influenced by advertiser payment have long flown under the radar. For NAD (and the FTC), they have increasingly become the focus of enforcement, which can only help to level what has become a very bumpy playing field. This latest case adds to the increasing body of NAD guidance explaining the kind of labeling and disclosure necessary for advertiser-controlled sites.

Plaintiffs Say Unilever “Preservative-Free” Claims for Liquid I.V. Drink Mix Are False Advertising

A recent class action lawsuit alleges that Unilever falsely advertises its Liquid I.V. product as preservative-free, citing the presence of citric acid on the ingredient list as the reason it is not.

The lawsuit challenges claims made by Unilever and The Liv Group about Liquid I.V., a popular electrolyte drink mix marketed as a “hydration multiplier.” The product label claims that it contains “No Preservatives,” but the complaint alleges that the product contains citric acid and other preservatives, rendering defendants’ representations false and misleading.

Plaintiffs argue that reasonable consumers don’t have the specialized knowledge needed to identify citric acid as a preservative and therefore would have no way of knowing that the “No Preservatives” claim is deceptive.

Further, they maintain that citric acid is a preservative and functions as a preservative regardless of it having additional functions. They allege that citric acid is a preservative within the meaning of the federal Food Drug & Cosmetic Act (“FDCA”), which defines a chemical preservative as “any chemical that, when added to food, tends to prevent or retard deterioration thereof.” They note that the FDA, in a publication, also defines “citric acid” as a preservative.

Additionally, plaintiffs argue that citric acid is a preservative even if it potentially has additional functions and that its inclusion renders Unilever’s label misleading: “It functions as a preservative in the Products, regardless of Defendants’ subjective purpose(s) for adding it to the Products, and regardless of any other functions citric acid may perform.”

According to the complaint, the product additionally contains other preservatives including potassium citrate, sodium citrate and ascorbic acid, further rendering the “no preservatives” representation false.

Plaintiffs allege that Unilever’s marketing of the “No Preservative” claim is deliberately done to capitalize on health-conscious consumers’ desire for “clean” and “healthy” products—the “clean label movement” which “is most often associated with foods that are natural, healthy, and devoid of additives and preservatives.” Consumers perceive these types of products as healthy, and companies like Unilever seek to capitalize on that perception, plaintiffs allege.

“[A]s a result of this false and misleading labeling, [Unilever and The Liv Group] were able to sell these Products to hundreds of thousands of unsuspecting consumers,” say plaintiffs.

Key Takeaways

Unilever has been on the hot seat lately over alleged false advertising claims related to possible greenwashing in a U.K. regulatory investigation and now to health claims. Here, when plaintiffs say that reasonable consumers “such as Plaintiffs do not have specialized knowledge necessary to identify ingredients,” they are suggesting that citric acid is the type of ingredient a reasonable consumer would not recognize as a preservative on an ingredient list.

This legal theory is increasingly common, and courts are reluctant to dismiss these claims even where the defendant contends that the ingredient does not function as a preservative in the product. Courts often hold that how the ingredient functions in the product is a fact issue that cannot be resolved on a motion to dismiss. Defendants in this predicament should consider the possibility for an early motion for summary judgment. This case also highlights the need for written confirmation from manufacturers or suppliers as to how each additive performs in the product.

Battle of the Beef Jerkies: When is “Clearly the Best” Puffery?

A forum not known for finding puffery, the NAD once again looked at the question of puffery versus claim requiring substantiation—this time in the context of a campaign touting one beef jerky brand as “Clearly the Best.” NAD’s answer? Sometimes yes and sometimes no.

Advertiser Old Trapper Smoked Products, the second largest manufacturer of beef jerky in the U.S., argued that its claims were puffery, especially since the company offers its jerky in “clear” packaging (clearly being a pun on that). Challenger and global beef jerky leader Link Snacks argued otherwise. It also challenged claims that Old Trapper has the best ingredients.

In analyzing whether “best” was a comparative claim requiring substantiation or mere puffery, NAD said the answer depended, as always, on the reasonable consumer takeaway. “Vague and fanciful” superlatives of manufacturer price regarding which a consumer would not expect support are puffery, whereas a provable claim in a comparative context generally is not.

Here, NAD found that Old Trapper “best” claims conveyed non-comparative claims and were puffery in some contexts but not others. The “Clearly The Best Beef Jerky Claim” as it appeared on product packaging and a short YouTube ad was puffery because it was presented in a monadic rather than comparative way and did not mention or promote any specific attribute of Old Trapper beef jerky nor reference a competitor. Instead, it conveyed a message of corporate pride in the jerky. Likewise, NAD found the claim “The Best Ingredients Create the Best Beef Jerky” on the website landing page and on packaging superimposed over images of tasty-looking ingredients did not convey a specific comparative message,.

Regarding product packaging, Link made the argument that because Old Trapper and Link are often sold together, physical proximity on store shelves makes the language de facto comparative. But NAD said it had already addressed this argument in another case, and it was a dud. The placement of products on store shelves next to one another with the “Clearly the Best” phrasing on the label did not—without more—render the claim comparative.

The product ingredient claims presented a different picture, however, and were not mere puffery. Like the “best” claims, these claims appeared beside images of quality-looking ingredients. But here, the statements linked the general “best” claim to a specific product attribute, resulting in the need to substantiate the statements: “We use only the highest quality ingredients. That’s just one of the reason why Old Trapper is #ClearlyTheBest.” This claim “ties the quality of the ingredients to the ‘Clearly the Best’ claim and conveys [an] objective message that requires support.” Because Old Trapper did not provide support for the “highest quality” ingredients claim, NAD asked that it be discontinued.

Key Takeaways

As with most NAD cases, context matters, and this case provides a careful analysis helpful for determining whether a statement will constitute puffery. This case is also notable because it highlights the pitfalls of failing to submit substantiation materials. On its ingredient claim, Old Trapper apparently relied on its “puffery” argument instead of providing evidentiary support for the quality of its ingredients. NAD recommended Old Trapper discontinue the ingredient claim, finding that “We use only the highest quality ingredients” is an objective claim that requires support.

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