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Brand Protection & Advertising

Stay ADvised: 2024, Issue 16

Brand Protection & Advertising Law News
08.26.24
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In This Issue:

 

Class Action Calls Out Nordic Naturals' Fish Oil Heart Health Claims—by Questioning the Concept Itself

A recently filed California class action lawsuit alleges that supplement company Nordic Naturals falsely claims that its fish oil supplements support heart health.

Interestingly, the plaintiffs' primary argument that the advertising is false is not that Nordic Naturals' particular brand of fish oil is not heart healthy, but rather that there is no proof that fish oil in general provides benefits to heart health. Accordingly, by plaintiffs' estimation, any promotion of fish oil as providing heart health benefits, however broadly stated, is false advertising.

Citing multiple studies, the plaintiffs make the case that despite fish oil's status as "one of the most popular dietary supplements," "overwhelming evidence demonstrates that fish oil capsules do not actually provide … heart health benefits." Plaintiffs call Nordic Naturals' fish oil capsules "wholly worthless" and allege that growing scientific evidence shows that fish oil may actually be detrimental to heart health.

With this as its thesis, plaintiffs challenge the veracity of Nordic Naturals packaging, which states that its products are "for cognition, heart health, and immune support"—pointing specifically to the heart health portion of the claims.

According to the complaint, consumers reading this statement on the label reasonably expect that taking the capsules will be beneficial to their heart health, when it is not, rendering Nordic Naturals' representations false and misleading. Plaintiffs bring this action despite the FDA's decision in 2019 not to object to certain qualified claims related to Omega-3 fish oils.

The complaint includes causes of actions under state consumer protection statutes in California, New York, Illinois, and other states, including violations of California's False Advertising Law (FAL), Consumers Legal Remedies Act (CLRA), and Unfair Competition Law (UCL).

The plaintiffs seek damages and an injunction stopping Nordic Naturals from continuing to make the offending heart health claims.

Key Takeaways

Nordic Naturals has previously been in the crosshairs of false advertising suits regarding "natural" claims for its products, a still amorphous area where courts diverge as to the meaning and reach of the alleged "false" claims. The current suit just may make the natural space seem settled by comparison. Can a suit succeed where the allegations are categorywide, arguably speculative based on emerging science, challenge claims that otherwise hew closely to DSHEA requirements and regarding claims which FDA has arguably approved? Time will tell.

 

Battle of the Real Estate Listing Sites: Homes.com Web Traffic Claims Renounced By NAD SWIFT

In two separate NAD Fast-Track SWIFT cases, Realtor.com and Homes.com faced off in challenges to the latter's claims about website traffic.

Move Inc., which runs Realtor.com, brought two simultaneous SWIFT challenges to claims made by CoStar Group, which runs Homes.com. The Fast-Track SWIFT program provides an expedited process for single-issue advertising challenges to be brought to NAD.

In Move's first challenge, they took issue with online advertising claims on CoStar's Homes.com website that touted claims about how the advertiser had just reached 156M monthly unique visitors.

Move argued that these claims are false because Homes.com arrived at the number by adding the monthly visitors for 16 unique CoStar websites, and that the difference between the 156 million visitors to the CoStar family of websites versus the actual 110 million monthly visitors to Homes.com is highly consequential, as real estate agents pay for Homes.com memberships to promote their listings.

CoStar argued that its claims are substantiated by industry gold standard Google Analytics, and that a disclosure on the webpage featuring this claim clearly explains that traffic figures include all websites in the Homes.com network, consistent with industry standards.

NAD found these claims misleading and recommended they be discontinued, since one message reasonably conveyed by the advertising is that the 156 million website traffic number is for visitors to Homes.com alone. Further, NAD noted that one ad refers to the number of visitors to "our site," reinforcing the message that the number is for just the one site.

As for CoStar's disclosure, NAD explained that disclosures that contradict the main claim can't cure a misleading message, and besides, in some ads the disclosure did not appear at all.

In the second SWIFT matter brought against CoStar, Move challenged the comparative claim that "Homes.com now has DOUBLE Realtor.com's traffic." Here NAD similarly concluded that CoStar's claim is misleading.

Move and CoStar presented competing arguments focusing on the source of the traffic numbers—Move uses Adobe Analytics and CoStar uses Google Analytics. The parties offered different perspectives on whether one product is more reliable than the other and whether the analytics methods are comparable.

In the end, though, NAD considered the decision to be a matter of simple mathematics. Based on the findings of the first SWIFT matter, the 156 million visitors number pertains to the entire CoStar family of websites and not just to Homes.com, whereas Homes.com itself had only 110 million monthly visitors. NAD noted that number is clearly not "double" the 66 million unique visitors to Realtor.com—and therefore, NAD recommended, the claim should be discontinued.

NAD noted that this difference mattered in a context where the number of visitors is highly relevant to users seeking to promote their listings.

Key Takeaways

If Move had initiated these challenges under the traditional NAD jurisdiction, the two challenges would have been part of the same matter as they are clearly intertwined, but resolution of the issues would have taken much longer for Move to achieve. Given NAD decisions, at least in hindsight it seems these could have been brought as a single SWIFT challenge, given that SWIFT is for single issues but can encompass multiple claims. Instead, it seems Move based its second challenge on the lack of reliability of the analytics, rather than just the aggregation of multiple sites for its numbers. Regardless, Move got its desired results and got them quickly—albeit with two filing fees.

 

In a First, FTC Invokes Business Opportunity Rule Against Gig Economy Platform

According to the Federal Trade Commission (FTC), it has for the first time charged a company in the gig economy with violations of the FTC's Business Opportunity Rule. The FTC also alleged that the company—Arise, a platform that purports to place gig workers in work-from-home roles as customer services representatives for third-party companies—violated the FTC Act by making misleading statements about earnings opportunities.

The FTC's Business Opportunity Rule applies when a company solicits customers to enter into a new business, the customer is required to make a payment in connection with the opportunity, and the company makes certain claims about the opportunity. In those instances, the company is required to make disclosures to the potential customer before the customer signs any agreements or makes any payments. The company also needs to provide additional disclosures related to any earnings claims and generally comply with truth-in-advertising principles.

Here, the complaint alleges that Arise is subject to the Business Opportunity Rule because it solicits customers to become customer services representatives for third-party companies, requires the customers to make substantial payments in fees and equipment to use the services, and has made numerous claims regarding the earnings and success that these customers can achieve. 

As the FTC tells it, Arise promoted itself not as a conventional job but as a "business opportunity," a way for consumers to be their own boss, work from home, and set their own schedule. By inflating the earnings claims and not providing the necessary disclosures, the FTC alleges, Arise violated the Business Opportunity Rule.

According to the complaint, Arise has for years made unsubstantiated earnings claims, marketing its platform as a way for consumers to make up to $18 an hour online in customer service gig jobs—while in truth, hardly any of the company's customers earned that amount, most earned an average of $12 an hour, and many earned as little as $9 an hour.

Additionally, Arise allegedly charges its customers multiple startup fees, which places an additional burden on the low-income consumers who seek work on the site, while creating significant revenue for the company. For example, in order to earn money on the platform, consumers first have to pay for a mandatory training course, and those who fail to complete the program do not receive a refund. The company also charges $40 a month in mandatory fees which further reduced customers' earnings. On top of that, several of the third-party companies hiring these gig workers require them to purchase and maintain certain equipment (e.g., laptops and headsets) and high-speed internet.

Even after the FTC served Arise with a Notice of Penalty Offense Letter warning it that its money-making opportunities were deceptive due to misleading and unsubstantiated earnings claims, Arise allegedly did not cease the offending conduct.

The proposed settlement obligates Arise to pay $7 million, which will go to provide consumer redress, and permanently prohibits it from making earnings claims it cannot substantiate, as well as false or misleading claims. It also requires Arise to provide consumers with the disclosures mandated by the Business Opportunity Rule.

Key Takeaways

The case is notable for a number of reasons. One, it includes allegations of continuing violation of Section 5 of the FTC Act based on the company's receipt of the Penalty Offense Letter, an area the FTC continues to explore in order to seek (or cajole in settlement) monetary relief. Further, the FTC's Business Opportunity Rule, which requires companies to make upfront disclosures about earnings representations, cancellation, refund policies, and other material details, has in the past been used to pursue multi-level marketing companies who make unsubstantiated earnings claims. The FTC is signaling that it intends to continue to expand its use of this rule.

 

In Bitter Loss for Plaintiff, Sweet Win for Mars Chocolate, 9th Circuit Affirms Dismissal of Greenwashing Lawsuit

In another 9th Circuit win for advertisers, the appeals court affirmed the dismissal of a class action lawsuit alleging that Mars Wrigley falsely advertised its Dove Dark Chocolate products as ethically and sustainably sourced.

Plaintiff alleged that the claim on the label of Dove Dark Chocolate that "We buy cocoa from Rainforest Alliance CertifiedTM farms, traceable from the farms into our factory" misled her into believing that the product did not contain cocoa from farms that employ child slave labor or that contribute to deforestation in West Africa. According to plaintiff's complaint, "Child slavery is indisputably endemic in cocoa harvesting in West Africa," and "it is also well-settled that the 'Chocolate industry drives rainforest disaster in [the] Ivory Coast.'" Plaintiff alleged that Mars intermingles traceable with untraceable bean factories "so that no product can be guaranteed to contain any fair trade beans at all."

The panel first found that the district court incorrectly dismissed the complaint on the grounds that the label is "carefully worded" and "technically true," noting however that under California law, literal truth is not a defense. Advertising law generally, and California law specifically, prohibits not only advertising that is expressly false, but also advertising which, "although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public."

The panel nonetheless affirmed the dismissal of plaintiff's claims. In the short unpublished opinion, the court concluded that consumers might reasonably assume from the language of the label and its exclusive placement that some amount of beans from Rainforest Alliance Certified farms were used in the production of Dove Dark Chocolate. However, the panel found that the label does not represent that Rainforest Alliance Certified farms avoid deforestation and the use of child labor, and plaintiff does not allege that Rainforest Alliance Certified farms do so. Thus, "a significant portion" of reasonable chocolate consumers would not be led to believe that Dove Dark Chocolate contained cocoa beans produced without child labor and deforestation.

Key Takeaways

The case is a good reminder for advertisers to beware claims that are literally true but impliedly false. That said, it is also a reminder that implied claims must be reasonably conveyed by the advertising to the reasonable consumer. Here, the court found they were not.

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