Stay ADvised: What's New This Week, April 13

Articles:

• FTC Settles Deceptive "Made in USA" Claims with Williams-Sonoma, Issues Closing Letters to Others
• New NAD SWIFT Process to "Fast Track" Ad Claims: Prescient or Just Timely!
• DOJ Shuts Down VoIP Companies Over Fraudulent Robocalls
• FCC Approves Shaken/Stir Call Authentication for VoIP in Robocall Fight
• 2nd Circ. Nixes False Ad Appeal Alleging Dunkin' Donuts "Steak" Ads Deceptive

FTC Settles Deceptive "Made in USA" Claims with Williams-Sonoma, Issues Closing Letters to Others

The Federal Trade Commission (FTC) recently settled charges against Williams-Sonoma over deceptive "Made in USA" claims in violation of the agency's Enforcement Policy Statement on U.S. Origin Claims. The settlement, which involves a $1 million payment by the national retailer, resolves a complaint filed by the FTC alleging that Williams-Sonoma had deceptively marketed certain products as being "all or virtually all made in the United States."

The Made in USA standard mandates that companies claiming their products are made in the United States comply with specific requirements. For unqualified claims that the United States is the country of origin, marketers must "rely upon a reasonable basis that the product is in fact all or virtually all made in the United States." For qualified "made in USA" claims, the marketer must ensure that "any qualifications or disclosures [are] sufficiently clear, prominent, and understandable to prevent deception."

Misbranding allegations against Williams-Sonoma go back as far as 2018, when the FTC initiated an investigation in response to reports that the company was marketing organic mattress pads as having been "crafted in America from local and imported materials" when they were actually made in China. At the time, the company corrected the misleading information and the FTC issued a closing letter ending the investigation.

The latest claims against Williams-Sonoma, which the FTC specifically noted in its complaint, relate to conduct occurring after the 2018 closing letter, this time in connection with the company's marketing of its Goldtouch Bakeware products, its Rejuvenation-branded products and Pottery Barn Teen and Pottery Barn Kids-branded upholstered furniture. Specifically, the FTC claimed Williams-Sonoma touted the products in question on its website and in its catalogue as "made in the USA" when, in fact, the products are "wholly imported, or contain[ed] significant imported materials or components."

The proposed order settling the matter requires Williams-Sonoma to pay $1 million to the FTC and bars the company from making any "made in USA" claims unless it can meet the requirements imposed by the FTC policy. For example, Williams-Sonoma must ensure that for any unqualified U.S. origin claims, it can show that final assembly and all significant processing took place in the United States, and all or virtually all components were made and sourced in the U.S. For any qualified "made in USA" claim, it "must include a clear and conspicuous disclosure about the extent to which the product contains foreign parts, components, and/or processing," said the FTC.

More generally, the order prohibits Williams-Sonoma from making any country of origin representation "unless the representation is non-misleading, and, at the time such representation is made, [the company] possesses and relies upon a reasonable basis for the representation."

Williams-Sonoma is not the only one in hot water with the FTC over deceptive "made in USA" claims. In the month of March alone, the agency issued closing letters to three companies: J-B Weld Company, Aqua Marine Deck, and Therm-Omega Tech. The FTC asserted these companies had claimed that certain of their products were either partially or entirely manufactured in the United States, despite substantial evidence to the contrary. Aqua Marine was approached by the FTC over concerns that it marketed some marine decking products as made in the USA, even though those products "contain significant foreign content." According to the FTC, J-B-Weld allegedly sold its adhesive products as made in the USA, despite the fact that the items in question "incorporate significant imported content, or are wholly imported." These claims were referred to the FTC by the National Advertising Review Board (NARB) after J-B-Weld refused to comply with the self-regulatory group's recommendations. Finally, the FTC accused Therm-Omega Tech of marketing its BBQ Guru products as made in USA, even though some "contain significant foreign content."

In the closing letters, the FTC wrote that all three companies took remedial action to correct potentially deceptive advertising after being contacted by the commission, resulting in staff closing the investigations.

Key Takeaways

For now, the remedial actions taken by these companies have led to issuance of closing letters, as was the case with Williams-Sonoma in 2018. But the recent settlement with Williams-Sonoma demonstrates that the FTC continues to monitor past offenders for deceptive country-of-origin claims. For marketers, the takeaway of these actions is to ensure that product packaging and advertising satisfy the FTC's Made in USA standard, especially if they have previously received an inquiry from the agency. 

New NAD SWIFT Process to "Fast Track" Ad Claims: Prescient or Just Timely!

In the wake of the spread of COVID-19, which has limited the availability of or delayed legal proceedings, the National Advertising Division (NAD) has launched an expedited program to "fast track" certain advertising disputes. Development of the new "SWIFT" procedures has been in the work for some months, but the launch during these difficult times may well lead to early adopters.

NAD is the investigative unit of the advertising industry's self-regulating arm. Its dispute resolution program generally reviews and rules on disputes concerning the truthfulness of advertising.

With the new Single Well-defined Issue Fast Track (SWIFT) program, NAD seeks to provide a "timely" expedited system to review and decide matters involving simpler challenges to certain straightforward, single-challenge advertising claims.

NAD recognizes that launch of the program now is particularly timely given the coronavirus emergency and its disruption of the legal system. "With state and federal courts across the country suspending trials and other legal proceedings to help contain the coronavirus pandemic," it noted, these challenges have created a need for a resource to provide "quick resolution of truth and transparency issues that arise in digital advertising."

"[T]he stakes for the expanding digital world get ever higher, and we recognize that advertising self-regulation needs to adapt to the speed at which claims come and go in the marketplace," said the organization.

With SWIFT, NAD will—at least in the early stages—only take on matters involving three types of claims: (i) misleading sales and price claims, (ii) challenges to the sufficiency of disclosures in influencer marketing and native advertising, and (iii) misleading express claims - as long as the latter do not require NAD to review complex evidence provided to substantiate challenged claims.

Further, only single-issue advertising challenges may be submitted to SWIFT, and NAD will permit only one substantive submission challenging or defending the claim per party. The advertiser may also challenge whether SWIFT is appropriate for the claim at issue. Not every dispute will lead to a meeting at the NAD (which will in any case be virtual, as are all NAD meetings at this time), and meetings will be at NAD's discretion.

NAD says it will review and issue decisions for SWIFT-eligible advertising challenges in an expedited 20 business-day period from challenge. Procedurally, SWIFT will work much like NAD's current COVID-related practices for its traditional challenges: all challenges and supporting materials will be submitted online, and all meetings will take place via videoconference.

Key Takeaways

In addition to the SWIFT program addressing the possibly increased volume of advertising disputes expected given the temporary slowdowns and closures of courts due to the coronavirus crisis, NAD also said the program is intended to address a "gap in self-regulation" identified by members of the advertising community who have sought a faster way to deal with less complex advertising issues.

DOJ Shuts Down VoIP Companies Over Fraudulent Robocalls

The Department of Justice (DOJ) announced it has obtained separate orders halting the operations of two voice-over-internet-protocol (VoIP) companies alleged to have facilitated "massive volumes of fraudulent robocalls" to U.S. consumers.

The U.S. District Court for the Eastern District of New York entered the orders against eight separate entities or individuals. In the first case, the order enjoins Nicholas and Natasha Palumbo and their VoIP company from continuing operations while the case against them proceeds. In the second, defendants entered into a consent decree settling allegations that certain VoIP carriers run by John Kahen provided services to robocall scammers.

The matters have much in common, with prosecutors targeting not just the robocallers but also the VoIP companies that facilitate these calls. Both involve some of the most financially harmful incidents of robocall fraud, often originating abroad, which has resulted in financial losses for many Americans, said the DOJ.

The complaints allege that defendants received and transmitted internet-based calls to U.S. telephone carriers and from there to individuals in a "widespread pattern of telecommunications fraud." Very often, the robocallers passed themselves off as U.S. government entities such as the Social Security Administration and the Internal Revenue Service or well-known businesses such as Microsoft.

Fraudsters frequently used the calls to impersonate these government and private entities in an attempt to obtain consumers' private information, such as credit card numbers, to use for fraudulent purposes. The robocallers that used the defendants' VoIP services also allegedly used coercive pressure tactics to obtain sensitive financial information from consumers, including making up suspect bank account activity, threatening imminent deportation, and other such false threats.

As the DOJ put it, "Each of these claims was a lie, designed to scare the call recipient into paying large sums of money. These calls led to massive financial losses to elderly and other vulnerable victims throughout the United States."

Defendants are also accused of selling U.S. numbers to these foreign entities, who then used that information to disguise their identity while making the illegal robocalls. Further, both parties were warned multiple times that their systems were being used for these illegal activities, but they ignored the warnings and continued profiting from the illegal activity.

In the case of John Kahen and the corporations Global Voicecom, Global Telecommunication Services and KAT Telecom, the defendants are permanently barred from using the U.S. telephone system to deliver robocalls, carrying calls originating from foreign countries, and providing toll-free services to calls from the U.S. In the case of KAT Telecom, the company must implement specific anti-fraud measures if it resumes operations.

Key Takeaways

Together with the Federal Trade Commission (FTC), the DOJ's pursuit of VoIP companies for facilitating robocalls marks a relatively recent strategy in the fight against these fraudulent calls, and now the courts of the Eastern District are signaling that they are willing to back these enforcement actions. As the court wrote in Palumbo, "the telecommunications 'intermediary' industry is set up perfectly to allow fraudulent operators to rotate telephone numbers endlessly and blame other parties for the fraudulent call traffic they carry."

FCC Approves Shaken/Stir Call Authentication for VoIP in Robocall Fight

The Federal Communications Commission (FCC) has voted to approve a rule requiring Voice over Internet Protocol (VoIP) carriers to provide call authentication technology intended to prevent robocallers from using spoofing tactics to hide their caller identification information. "Shaken/Stir," as the technology is called, allows carriers to verify whether phone traffic is authentic and to verify a provided caller identification number.

The framework was unanimously approved, with Democrat and Republican FCC commissioners lauding the development and expressing optimism that it will help stem the tide of illegal robocalls plaguing Americans every day.

FCC Chairman Ajit Pai had warned carriers that did not voluntarily implement the program would be forced by the FCC to do so. This new rule makes it a requirement for internet carriers to implement Shaken/Stir.

The congressional mandate is intended to block unwanted robocalls without blocking automatic prerecorded phone calls from authorized parties, said Republican FCC Commissioner Michael O'Rielly. Examples of authorized prerecorded calls would be automatic communications to which consumers have consented or, in an emergency situation, such as the current COVID-19 pandemic, automated emergency communications.

For now the extension of the rule to internet carriers will apply only to VoIP carriers, said Democratic FCC Commissioner Goeffrey Starks. The FCC said it is considering extending the mandate to non-IP based networks, but it is gathering information about how best to include small voice providers and enterprise calls in future iterations of the rule.

"The record makes clear that we have much more to do," said Starks. "To be fully effective against this scourge, we need all voice service providers to implement call authentication and other measures to combat illegal spoofing in all networks as soon as possible," he added.

The development is especially important given the current uptick in fraudulent robocalls seeking to take advantage of fears around the COVID-19 pandemic, noted Democratic FCC Commissioner Jessica Rosenworcel, who also said the rule is long overdue. The vote approving the rule was held ahead of the FCC's monthly meeting, which took place via teleconference in keeping with COVID-19 social distancing rules.

Key Takeaways

The implementation of Shaken/Stir was authorized by the recently passed TRACED Act. Large wireless carriers have already been implementing the framework. This new rule expands the mandate to VoIP carriers. Given the frenzy of enforcement activity against VoIP carriers over fraudulent robocalls, especially those originating abroad, this development may have a significant impact on and hopefully reduction of the current scourge of robocalls.

2nd Circ. Nixes False Ad Appeal Alleging Dunkin' Donuts "Steak" Ads Deceptive

The United States Court of Appeals for the Second Circuit recently affirmed dismissal of a class action suit alleging that Dunkin’ Donuts misled consumers about the presence of steak in its steak sandwiches and wraps, finding as a matter of law that a reasonable consumer would not be misled by the advertisements.

Plaintiff Chufen Chen, on behalf of a class of similar consumers, filed a class action suit alleging that Dunkin’ Donuts deceptively marketed its Angus Steak & Egg Breakfast Sandwich and its Angus Steak & Egg Wake-Up Wrap. Plaintiffs’ complaint alleged the products were advertised as containing steak when in fact they did not contain “intact” pieces of meat, which is what consumers expect when they purchase a product advertised as steak, as well as other “additives.” Rather, the complaint alleged the products contained “inferior” beef patties.

In making their case, plaintiffs included photographs from Dunkin’ Donuts television ads they said depicted the deception. The plaintiffs alleged they relied on the misrepresentations and paid a “premium” for the sandwiches, which run from $2 to $4.50, because they thought they were made with real steak.

The complaint, which sought damages and an injunction, alleged violations of New York’s General Business Law (GBL), state consumer protection laws and the federal Magnuson-Moss Warranty Act, which governs consumer product warranties. The lower court dismissed all of plaintiffs' claims except Chen’s, on the basis of lack of personal jurisdiction. It dismissed Chen’s false advertising claim on the merits.

Affirming the lower court’s ruling, the Second Circuit held that no reasonable consumer would have been deceived by Dunkin’s advertisements. According to the court, plaintiffs' claims did not meet the “reasonable consumer” test used under New York consumer protection law for several reasons.

First, the Second Circuit agreed with the lower court that because the three advertisements in question showed pictures that “clearly depict” the steak as beef patty, and therefore “clearly” disclosed the “allegedly deceptive practice,” there could be no GBL claim.

Additionally, the Second Circuit found that “while the word ‘steak’ can refer to ‘a slice of meat,’ it is also defined as ‘ground beef prepared for cooking or for serving in the manner of a steak,’” according to Webster’s Dictionary. The court held that plaintiffs could not claim to be deceived by ads depicting what is, in fact, one traditionally accepted meaning of steak.

Finally, the court noted that “context is crucial” in assessing whether an advertisement likely would deceive a reasonable consumer. In Chen’s case, the court noted that she purchased the steak sandwich for the low price of between two to four dollars and that the product was marketed as “grab-and-go.”

“A reasonable consumer purchasing one of the Products from Dunkin Donuts in that context would not be misled into thinking she was purchasing an ‘unadulterated piece of meat,’ as plaintiffs had alleged,” the court concluded.

As for the personal jurisdiction question (which led to dismissal of the claims of all plaintiffs except Chen), the court held that in the Second Circuit it is settled precedent that personal jurisdiction over a corporation is not established merely and only because that corporation has registered in New York, as plaintiffs had argued.

Key Takeaways

Key here: “It is well-settled that a court may determine as a matter of law that an allegedly deceptive advertising would not have misled a reasonable consumer,” wrote the court. In the Second Circuit, the court’s ruling puts to bed any argument that a court may not, on its own, determine whether a particular claim is false advertising.