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Stay ADvised: Brand Protection & Advertising Law News

12.15.23
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In This Issue:

FTC Warns Influencers That Disclosures Miss the Sweet Spot

The Federal Trade Commission (FTC) continues to be very clear that policing the failure to disclose material connections by influencers when posting social media endorsements remains an agency priority. In the last weeks, agency staff sent warning letters to two trade groups and a dozen influencers apparently engaged by the groups, concerning social media posts that endorsed sugar and artificial sweeteners without including proper "material connection" disclosures, in contravention of the recently revised FTC Guides for Endorsements and Testimonials.

The letters went to the American Beverage Association (AmeriBev), the Canadian Sugar Institute, and 12 registered dieticians and online health influencers. The influencer activity that was the subject of the letters included social posts claiming that it would be safe to consume up to 75 packets of aspartame per day, disputing that aspartame causes increased cancer risk and encouraging parents to "stop being the candy police" and let their children eat Halloween candy.

The FTC staff letters indicated that some of the influencer posts included no disclosure at all of the connection between the influencers and the groups, and the rest, while including some form of disclosure, did not satisfy the requirement that such disclosures be "clear and conspicuous."

Among the concerns the FTC stressed in the warning letters were the following:

  • Insufficiently conspicuous or missing disclosures in videos—as the FTC reminded many of the influencers, a video posted on social media should include any required disclosure clearly and conspicuously in the video itself, not just in the accompanying caption. The FTC also emphasized that the disclosure should be presented in the same manner as the endorsement itself, e.g., if the endorsement is only made audibly, the disclosure should be audible, and if the disclosure is made through both visual and audible means, the disclosure should be both in the visual and audible portions of the video.
  • Disclosures appearing far down in the descriptions of a post—these should be presented conspicuously within the first two or three lines of a post, the FTC asserted, and always without the need to expand the copy, e.g., to click for "more."
  • Disclosures in the form "Paid partnership," #sponsored or #ad in situations in which the identity of the sponsor of the post is not apparent. Such disclosure wording sometimes will suffice, but will be inadequate if it's not clear who the sponsor is and the influencer does not clearly identify the sponsor in a way that viewers can easily understand.
  • Reliance on the social media platform's built-in disclosure tool, which the letters noted might appropriately be used in combination with other disclosure but is likely inadequate as a stand-alone disclosure method.

The letters included copies of the FTC's Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials, putting the recipients on written notice that disclosure omissions or failures are deceptive or unfair and are unlawful under Section 5 of the Federal Trade Commission Act and that such conduct could subject the recipient to civil penalties of up to $50,120 per violation.

Key Takeaways
The warning letters highlight the FTC's expansion of what constitutes clear and conspicuous disclosure, a key component of the updated guidance, particularly when it comes to health and wellness-type claims as made here. Warning letters of this type can be a precursor of more aggressive FTC enforcement action, so brands and influencers would do well to brush up on their compliance mechanisms to ensure they adhere to the nitty gritty of the revised guides.

 

"Groundbreaking" New York AG Suit Claims PepsiCo Misleads Consumers About Plastics

In a new twist to a classic false advertising tale, New York State Attorney General Letitia James has filed a lawsuit alleging that PepsiCo's sale and marketing of single-use plastics is a public nuisance that's harming New York residents by contributing to pollution on the Buffalo River. The suit also draws on consumer protection theories, alleging that PepsiCo packaging misleads consumers.

Nonetheless, focused on a public nuisance theory, the complaint makes the case that PepsiCo's production, marketing, and distribution of "vast quantities of single-use plastic packaging" has significantly injured the city of Buffalo, New York. Excessive plastic pollution (to which the suit alleges PepsiCo contributed far more than the next-leading culprit in New York) leads to a variety of environmental harms, including the presence of microplastics harmful to human and animal health, according to the complaint.

On the false advertising front, the complaint alleges that "PepsiCo's repeated and persistent omissions and misleading statements relating to the actual and threatened harm caused by its plastic packaging in the sale of its products in New York" violates New York's General Business Law § 349, which prohibits "deceptive acts or practices in the conduct of any business, trade or commerce," and grounds false advertising claims under New York law.

According to the complaint, PepsiCo knows there is a "plastic pollution crisis" and has acknowledged its contribution to that problem and the limited solutions to its harms, yet also misleads consumers and fails to warn them about the extent to which its single-use plastic containers are a contributing cause of that crisis.

In an argument that echoes "greenwashing" claims, AG James alleges that PepsiCo has misled the public about the efficacy of plastic recycling and its efforts to combat plastic pollution, repeatedly portraying recycling as a solution that will help the company achieve its sustainability goals. The company's press "deliberately creates the misleading impression" that plastic is infinitely recyclable, when the company knows it is not.

According to the complaint, PepsiCo also misleads consumers with claims that it has made progress to reduce its plastic pollution, when the company has allegedly failed to attain its targets, and simply changed them "without fundamentally changing its practices." Likewise, the company promotes its use of "virgin plastic" to give the "misleading impression" that it is making progress towards combatting plastic pollution, motivated by its knowledge of the effects such claims have on "consumers' decisions about whether to purchase their products," according to the complaint.

Finally, the complaint alleges that the company's packaging fails to warn consumers about the "dangers" of plastic pollution, with full knowledge that consumers' perception of the environmental impact of its plastic packaging directly impacts consumer behavior and the bottom line. Calling PepsiCo's marketing and packaging "irresponsible," Attorney General James said in a statement that they "endanger Buffalo's water supply, environment, and public health."

The lawsuit names PepsiCo, Frito-Lay and Frito-Lay North America as defendants, and seeks to stop the sale and distribution of products with single-use plastic packaging in the region that do not contain "an adequate warning." In addition to monetary relief, it further asks that PepsiCo take affirmative steps to remediate the contamination and to reduce plastic packaging entering the Buffalo River. 

Key Takeaways
This is not your mother's "greenwashing" lawsuit. The complaint alleges deceptive marketing practices, as in a traditional false advertising suit. But the complaint more fundamentally alleges that PepsiCo's activities and "failure to warn" have contributed to a "public nuisance" that is harming the public. The allegedly false advertising in large part consists of a failure by PepsiCo to acknowledge those harms and its role in bringing them about. This combination of claims may give the AG a powerful new route to address environmental harms allegedly caused or contributed to by marketers.

NAD Won't Sugarcoat "RxSugar" Recommendations, But Advertiser Gets Prescription to Continue "Rx" Claim

How sweet it is to be substantiated. How bitter to be asked to modify or discontinue a claim—especially when part of a product name.

The National Advertising Division (NAD) weighed in on a challenge by a trade group that represents the interests of the sugar industry regarding claims it viewed as too sugary to be true. The Sugar Association, Inc. (SAI) challenged both the product name as well as claims made by Nutrishus Brands ("Nutrishus"), the maker of RxSugar, a sweetener made of allulose, which is a "rare" sugar that exists only in trace amounts in nature, is chemically distinct from sugar, and is metabolized differently by the body.

SAI charged that the product name itself—RxSugar—was deceptive on two counts: one because use of "Rx" conveyed an express and unsupported message that the product is of prescription quality, and two because inclusion of the term "sugar" conveyed that the product was in fact made of sugar. SAI further challenged what it viewed as implied claims that the "sugar" substitute is somehow healthier than competing sweeteners, and claims that the product is not only a true "sugar" but is further a "certified sugar," even though it is neither sugar nor certified as such by any recognized body. The challenger further alleged that RxSugar falsely claimed to be "real sugar … just like your traditional sugar, except for one piece…" despite the chemical differences between RxSugar and sugar.

Regarding the product name claim, SAI argued that "Rx" falsely denotes that the sweeteners are prescription grade and that the Food and Drug Administration (FDA) and NAD have both said that using Rx to market nonprescription products may be inappropriate. But NAD was not too sweet on this argument, finding that since no prescription is needed to purchase sugar and other sweeteners, reasonable consumers would be unlikely to take away a prescription message from the RxSugar name. Moreover, the term Rx itself doesn't necessarily connote a prescription meaning and is in fact used in the brand names of many non-prescription items.

NAD came to a different conclusion regarding use of the word "Sugar" in the product name. There, NAD concluded that the RxSugar name conveys a misleading message that the products contain sugar (sucrose – e.g., common table sugar). It further noted that the product's label doesn't clarify that the product's "sugar" ingredient is instead allulose—a type of sugar unfamiliar to consumers.

In its analysis, NAD noted that although allulose is indeed a sugar, it is not the sugar consumers expect when viewing the name. Rather, NAD determined—without consumer perception evidence—that the reasonable consumer (as well as the FDA) commonly understand sugar to mean sucrose, which allulose most assuredly is not.

NAD further noted that sugar could be qualified to refer to other substances, such as "palm sugar," "maple sugar," "coconut sugar," "corn sugar," or "milk sugar," but this argument worked against the advertiser since it "merely reinforces the fact that consumers are accustomed to seeing sugars that are not sucrose only when qualified and when the source of the sugar is identified."

RxSugar did not qualify the product name to prevent the misleading message that the products contain sugar, especially relevant here where many consumers may not be familiar with allulose. Several statements on the label also added to this misimpression, such as the trademarked phrase "Sugar Reimagined," and the back label statement "Allulose is a plant-based sugar." One product image showed white crystals that look very similar to table sugar.

For these reasons, NAD found that RxSugar conveys a misleading message that the product is or contains sucrose sugar and recommended that the RxSugar product name be modified by Nutrishus to avoid conveying this message. Interestingly, NAD rejected as insufficiently reliable a consumer survey submitted by the challenger in an attempt to show that consumers were misled. Nonetheless, NAD agreed with the challenger on this point. In the absence of reliable survey evidence, NAD stepped into the shoes of the consumer, found that the name conveyed an expressly false claim (that the product was or contained "sugar") and required modification.

SAI also argued that the advertising statement "plant-based certified sugar" conveyed the message that RxSugar is "certified sugar" under the basic rules of grammar where an adjective is deemed to modify the noun that is immediately following. SAI claimed that the Supreme Court has recognized this role of grammar in parsing the meaning of phrases. Nutrishus contended that its statement was truthful and accurate due to the fact that RxSugar products have been certified as plant-based.

While not disputing the role of grammar, NAD explained that the analysis does not stop there, and it found that SAI's argument ignores the context within which the challenged claim is actually delivered in the segment of a QVC commercial. NAD explained that because the terms as spoken all have equal weight, and there are no audible cues to which the word "certified" relates, it is not entirely clear what the phrase "plant-based certified sugar" means or what exactly is being certified—confusion that is further exacerbated by the lack of a body or standard that could "certify" sugar. Consequently, NAD found that the phrase "plant-based certified sugar" (as presented in the QVC commercial segment) was misleading and recommended that the claim be modified to make clear that the certification relates to the plant-based attribute of the RxSugar.

As it relates to the statement that RxSugar is "real sugar … just like your traditional sugar, except for one piece…," SAI alleged that this statement falsely characterizes the distinction between sugar and allulose and that allulose is not just like traditional sugar expect for one piece as the differences in chemistry between allulose and sugar (fructose) are significant.

NAD agreed and concluded that the statement that allulose is "just like your traditional sugar, except for one piece…." oversimplifies the chemistry of RxSugar and conveys a misleading message about the differences between allulose and sugar. As such, NAD recommended that Nutrishus discontinue making this claim or modify it to accurately illustrate the chemical differences between RxSugar and sugar.

Key Takeaways
The case is a reminder of two important NAD principles: technical arguments will not overcome a reasonable consumer takeaway and NAD will require that product names be modified or discontinued, even absent extrinsic evidence of consumer confusion, if they constitute what NAD deems to be expressly false claims.

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