Plastwood SRL v. Rose Art Industries (Case No. c07-0458LJR, W.D. Wash. Dec. 5, 2008).

District Court Judge James Robart granted the Motion for Summary Judgment filed by Rose Art, finding that its packaging did not contain literally false statements.

At issue in this case was Rose Art’s line of MAGNEXT toys, plastic and magnetic construction sets that compete directly with Plaintiff Plastwood’s SUPERMAG construction sets. In its complaint, Plaintiff alleged false advertising under Section 43(a) of the Lanham Act for claims made on the packaging. In particular, Plaintiff contended that while Defendant’s packaging makes the claim that “500 designs” can be made from the contents in the box, many of the structures described collapse under their own weight and/or cannot be made by kids.

During discovery, Defendant provided an adult expert who was able to construct all of the structures claimed on the box. Plaintiff complained that even if the expert was able to construct each of the structures, the toy was intended for children, not expert toy builders. Accordingly, the advertising was literally false as to its intended audience. In dismissing Plaintiff’s contention, the court noted that Defendant’s box had an age range of 3 to 100. Thus the court, while acknowledging that the question of whether a statement is false is a question of fact to be decided by a jury, found that Plaintiff had failed to “establish any genuine issue of material fact in support of its assertion that the structures cannot be built,” and further noted that Plaintiff provided no evidence that consumers were actually misled. According to the decision, in fact Plaintiff did show that at least three of the structures could not be built and that many more could be built, but not in the manner shown by the instructions. Nevertheless, the court found that there was no material issue of fact with regard to the truth of Defedant’s statement and granted its motion.

Comment: The decision is an interesting one. Plaintiff brought its case on a theory literal falsity of Defendant’s statements. Under the Lanham Act, if a statement is “literally false,” then a Plaintiff does not have to provide evidence that consumers were actually deceived; rather, if a statement is found to be literally false, the court must assume consumers were misled (Rosco, Inc. v. Saks Fifth Ave., 284 F.3d 302, 311 (1st Cir. 2002) ). Thus, it seems in part, the court may have been using the test for whether a statement, though true, is false by necessary implication, to find for Defendant.

Had the Plaintiff alleged implied false advertising or, in the alternative, “false by necessary implication” (literally true, but misleading), it would have had to provide evidence that consumers were misled. On the other hand, by bringing such a claim, Plaintiff could have made a credible showing that the box indication of “ages 3-100” does not really reflect the toy’s intended audience. Evidence of where the toy was sold (and who bought the toy) could have narrowed the range and survey evidence might have shown that in fact, parents who bought the toy assumed the product designs could be constructed by their child.

Practice Pointer: Appropriate disclaimers should be included on a box (or, if online, at the point of purchase) to notify the purchaser of product limitations. In this case, a claim that the box’s contents make 500 different structures might have been followed by a simple statement that “expert skill may be required to make some structures.” Such a statement would have been unlikely to change the buying habits of a parent interested in the toy, and would likely have alleviated the need to defend against the claim brought.

Winter 2009. Reebok, in conjunction with the National Hockey League, is hoping consumer recognition of its brand will translate to money in the bank. Reebok will run a “Find the Lost Logo” promotion during the NHL Winter Classic, where it will ask fans to find the hockey player who is not displaying the Reebok logo on his jersey.

Entrants can play by watching the Classic on television and submitting their answer via text message or online; or attendees of the game can submit their answers via text message. All answers submitted will have an opportunity to win four tickets to the Stanley Cup final game. The winner will be announced at the 3rd period.

Practice Pointers:

1. The law is still not clear regarding whether a proper alternate method of entry for a text-messaging sweepstakes can be an online entry. Currently, the matter is being litigated in California courts.
2. This sort of promotion is categorized as a “treasure hunt” and is generally considered a sweepstakes, not a contest.

On December 5, 2008, The Children’s Advertising Review Unit (”CARU,”) a division of the Better Business Bureau, issue a press release admonishing advertisers to make clear disclosure about the need for adult supervision with certain toys, particularly when those toys are advertised directly to children.

CARU highlighted a new product from Wham-O, called the Slip ‘N’ Slide Mega Shark, a water toy for children’s play. The toy was advertised on Nickelodeon during a time when children are the primary viewing audience.

CARU questioned whether a small graphic disclosure on the screen was sufficient to inform children that no one over 5’ tall or weighing over 110 pounds should use the toy. Moreover, CARU expressed concern that because the disclosure was not properly made, the toy might be misused by children.

The lack of adequate disclosure was only one of the concerns CARU expressed. CARU also worried that the commercial should have shown adequate adult supervision, noting there was only a brief showing of a woman watching the children play on the slide. Overall, CARU found, the commercial did not meet CARU’s voluntary requirements.

Case law supports CARU’s contention that more precautions should be taken. In particular, with water sliding devices, the weight and height requirement is important, as spinal cord injuries, rendering users unable to walk, have been reported, and numerous law suits have dealt with this issue.

Practice Note: In an era of childhood obesity, it is not unusual for children to weight over 110 pounds. Clients CARU is self-regulatory and speaks softly, but carries a big stick. In cases where an advertiser refuses to alter its ad campaign, CARU can (and will) refer matters directly to the Federal Trade Commission for prosecution. Moreover, CARU can alert the CPSC if it believes the product or its advertising present a problem.

In Williams v. Gerber Prods. Co., 523 F.3d 934 (9th Cir. Cal. 2008), a panel of the United States Court of Appeals for the Ninth Circuit (”Court” or “Court of Appeals”), in a published opinion, reversed the judgment of the District Court, and found, under California law, Plaintiffs could proceed with their case against Gerber Products Company (“Gerber”). The issue? Whether Plaintiffs (a certified class of parents) had alleged a valid legal claim that a Gerber fruit juice product, developed for toddlers, was deceptively marketed.

Gerber, “one of the most trusted names in baby food and baby care,” marketed its Fruit Juice Snacks product (”Snacks”) in a package featuring images of fruit such as oranges, peaches, strawberries and cherries. The side panel of the packaging described the product as made “with real fruit juice and other all natural ingredients.” In addition, another side panel contained a statement announcing Snacks was, “one of a variety of nutritious Gerber Graduates foods and juices.”

Thinking they purchased healthy snacks for their kids, Plaintiffs sued Gerber under, among other things, California state tort law for misrepresentation and breach of warranty, as well as claims under California’s Unfair Competition law (Bus. & Prof. Code § 17200, et seq.) and California’s Consumer Legal Remedies Act (Civil Code § 1750, et seq.). Plaintiffs’ deception claims were based, in part, upon the following allegations: (1) The product contained no fruit juice from any of the fruits pictured on the packaging; (2) The only juice contained in the product was white grape juice from concentrate; and (3) The two most prominent ingredients in the product were corn syrup and sugar.

Gerber filed a motion to dismiss and the District Court granted Gerber’s motion fining the package statements were not likely to deceive a reasonable consumer. The Court of Appeals disagreed. In reversing the District Court’s order, the Court recognized that “whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer.” It further found a number of Gerber’s packaging features could likely deceive a reasonable consumer. “The product is called ‘fruit juice snacks’ and the packaging pictures a number of different fruits, potentially suggesting (falsely) that those fruits are contained in the product,” stated Judge Pregerson in the Opinion of the Court. Further, the Court found the statement that the product “was made with ‘fruit juice and other all natural ingredients’ could easily be interpreted by consumers as a claim that all ingredients in the product were natural, which appears to be false.” Disagreeing with the District Court, the Court found, “reasonable consumers should [not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.”

Finally, in a statement sure to make consumer products manufacturer’s take note (especially those marketing products for infant or toddler use), the Court added, “We do not . . . think that a busy parent walking through the aisles of a grocery store should expect to verify that the representations on the front of the box are confirmed in the ingredient list. Instead reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging. We do not think the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misrepresentations and provide a shield for liability for the deception.”

Practice Note: In reading the full opinion, this commentator is of the opinion the Court of Appeals, while correct on the application of the law, held Defendant Gerber to a higher standard than that of an ordinary manufacturer of consumer products. Gerber, in its own words, is “one of the most trusted names in baby food and baby care.” The Court likely took note of this when crafting its opinion. One wonders if the same standard would have been applied to a beer manufacturer or a coffee beverage manufacturer, i.e. products marketed to and primarily intended for adults.

The Federal Trade Commission yesterday announced that it has ordered Membership Services Direct, Inc. (also known by other names) to pay $28.2 million to the FTC. The amount represents the net profits made by the company after engaging in a telemarketing scheme designed to bilk consumers of their money. Dubbed the Wal-Mart Shopping Spree Scam, the order also bars several of the company’s principles from engaging in deceptive practices in the future.

The original complaint, filed in federal court by the FTC in 2007, alleged that MSD made cold calls to consumers, falsely promising them shopping sprees at retail department stores like Wal-Mart and Macy’s. They also promised discount coupons, gas vouchers, and free movie tickets, if consumers joined a discount club. The ruse was designed to get unsuspecting customers to reveal their private bank account information, which MSD later used to directly debit the consumers accounts.

Practice Note: Consumers should be advised never to release their social security number or their bank account information over the phone. No reputable organization will ever ask for that information from a consumer. The FTC has a special mailing address for consumers to use if they have had money debited from their account by MSD or any of the other defendants in this Wal-Mart case. Consumers can send a letter to Faye Chen Barnouw or Jennifer Brennan, 10677 Wilshire Boulevard, Suite 700, Los Angeles, CA 90024. Consumers should identify which entity took the money, and supply supporting documentation.

Blockbuster may not be able to rely on the what I learned in Kindergarten defense when it answers charges it illegally shared a plaintiff’s movie preferences with third parties. In a suit filed in Texas earlier this month, Cathryn Harris sued Blockbuster for sharing her rental history on Facebook.

The suit, which is currently seeking class action status, claims Blockbuster’s actions of feeding renters video choices to a news feed violate the Videotape Privacy Protection Act, (“VPPA”) which states in relevant part that a video tape service provider is liable under the VPPA if that provider knowingly discloses personally identifiable information without the renter’s “informed, written consent.” Harris contends the online “opt out” options she was given did not constitute her informed written consent as intended by the VPPA.

The sharing comes as a result of Blockbuster’s participation in the Beacon advertising program, which has received considerable attention and criticism from consumer activist groups and corporations over the past 18 months. Beacon is a form of “social advertising” that allows Facebook friends to see your purchases (as well as other transactions you make) through news feeds. After considerable controversy, Facebook changed the “opt out” provision to an “opt in” provision, so that users would not inadvertently share their personal information simply by accepting the use agreement. Even so, last year, Coca-Cola announced it would not be participating in the program, as did Overstock.com and several other companies, citing privacy concerns. For instance, research showed that participating companies were sending information to Facebook even for buyers who were not Facebook members. Although Facebook claims it deletes such information if and when it is received, many partner sites determined the program contained too many privacy problems for them to feel comfortable participating.

The VPPA was enacted in 1987. It is rarely cited and was clearly not created with the sort of digital transmission of private information in mind that happens today. In fact, the VPPA was enacted after Robert Bork’s video rental history was published during his Supreme Court nomination hearings.

Practice Note: Privacy policies are tricky things. Clients should be advised to create policies that they can follow. Any updates to a privacy policy, particularly ones that will change the way a user’s information is shared, should be highlighted in bold.

Last week, a district court in Maryland ruled that Tyson was not immune from false advertising liability based upon a United States Department of Agriculture (“USDA”) label ruling.

The flap over advertising came when Plaintiff competitors Perdue Farms and Sanderson Farms, alleged that Tyson had been running a series of consumer ads that contained the message “Raised without Antibiotics,” what Plaintiffs called an unqualified Raised without Antibiotics claim (“RWA” claim). Plaintiffs further alleged defendant was running ads with a similar, but qualified RWA claim, namely, “aised Without Antibiotics that Impact Antibiotic Resistance in Humans.” Plaintiffs complaint alleged the unqualified RWA claim was literally false on its face, and the qualified RWA claim was misleading and therefore false by implication. In fact, Plaintiffs claimed, the defendant’s chicken feed contained inophores which are in fact, antibiotics.

By way of background, the Food Safety and Inspection Service (“FSIS”) of the USDA originally approved the unqualified RWA claim, but quickly revoked the approval and informed defendant it could no longer use the unqualified RWA claim on its label. It was silent as to advertising, since the FSIS has no jurisdiction outside of labeling. It later approved defendants qualified RWA claim. In its moving papers, defendant crowed that because the statements were approved for use on defendant’s chicken labels, the pecking order had already been established: plaintiffs Lanham Act claims must be dismissed on the ground that the labels’ language was already approved by the USDA.

In denying defendant’s motion to dismiss on the unqualified RWA claim, the court held that defendant could not rely on a former position held by the USDA “to defend itself against allegations that it continues to run false and misleading advertisements carrying the ‘Raised Without Antibiotics’ language.” Regarding the qualified RWA claim, the court noted that both sides were winging it on cited case law, because it could find no cases that involved “whether a USDA-approved label insulates a company from allegedly false non-label advertising under the Lanham Act.” The court noted that while the USDA may have jurisdiction over chicken labels, it does not have congressional authority to regulate advertising. Accordingly, “a label approved by the USDA may nonetheless be false or misleading in other contexts.” Looks like defendant doesn’t have a leg (or thigh) to stand on.

Increasingly, teenage celebrities are being used by marketing companies to gain a competitive edge in the increasingly growing teen market share. USA Today Online reported today that several large retailers and merchandisers have signed teenage singers and actors to hawk their wares, including Fergie, who was recently retained to give the MAC Cosmetics “Viva Glam” line a boost, the 15 year old Sprouse twins from The Suite Life with Zach and Cody, and basketball’s Stephon Marbury.

Clearly, using these Hollywood “role models” is a strategy that works. The Zandi Group, a marketing research firm, indicates that teenage spokespersons are perfect for clothing and product lines directed at teens because teens already try to emulate celebrity style. Legally, however, using underage spokespersons to target minors can be tricky. While going after teenage dollars is relatively fair game, many young stars attract even younger consumers, including ‘tweens (those under 13), which can lead to problems with the major television networks, with self-regulatory agencies, such as CARU, and in some cases, with the FTC with parents. Many major networks have guidelines consistent with those at CARU that do not allow certain celebrity advertising during times when children under 13 are likely to be looking at television. The practice of Host Selling (airing commercials featuring a teen celebrity at the same time as the teen’s program is scheduled) is not allowed by most networks, and CARU’s self-regulatory guidelines also proscribe the message that buying a certain product will make a kid more popular among his friends or smarter in class.

Practice Pointer: Attorneys should remind their clients that while many teens have their own money, in many cases, that money comes from their parents, who frown upon hard-sell tactics. In particular, parents do not like to be nagged about the purchase of a product they feel is too expensive, compromises their child’s integrity, or is sexually provocative. Generally speaking, clients should use common sense about the type of promotion they engage teenagers to endorse.

Electrolux turned the tables on former distributor-turned-competitor Imig, Inc., which filed a complaint against the famous vacuum and home appliance company, for interfering with relationships with perspective customers. Electrolux filed several counterclaims, alleging that Imig copied Electrolux’s protected trade dress, copyright protected user manuals, and that Imig made false claims in its advertising.

The district court dismissed all of Imig’s claims on summary judgment, and found for Electrolux on copyright infringement and false advertising. The court found that Imig had copied the user manuals in violation of U.S. Copyright law. From a false advertising perspective, the court found that specific numerically based claims about the Imig vacuum’s superiority were false on their face, because the products did not actually meet those objective standards. The remaining counterclaims proceeded to trial. On March 31, 2008, the court issued its finding that Electrolux had not met its burden of establishing a protectable trade dress in its vacuum and therefore, did not find Imig liable.

The facts show that Imig, afraid that it would lose its distributorship of the Electrolux SANITAIRE brand, developed its PERFECT brand vacuum as a replacement. Discovery produced evidence of copying: in creating the PERFECT design, Imig referred its Chinese manufacturer to the specifications of the SANITAIRE line. It was also revealed that Imig’s patent attorney sent a letter to a patent research company noting his clients’ desire “to make a private label vacuum cleaner that is virtually identical in appearance” to defendant’s vacuum. The court also noted numerous visual similarities between the SANITAIRE vacuum and the PERFECT vacuum.

Notwithstanding Imid’s clear intent to copy, the court did not find liability. The court noted that Electrolux had not met its burden of establishing trade dress infringement. In order to establish trade dress infringement, the court wrote, a company must show that the product design is distinctive and that consumers are likely to be confused by seeing the distinctive trade dress on another product. The court held that the elements claimed by Electrolux were functional in nature, and that the company had not proved otherwise, despite Electrolux’s survey evidence showing consumers recognized the various elements of the vacuum as being uniquely from the SANITAIRE brand. The court also determined that secondary meaning had not been established, even though the product had been in use for several years. Addressing the issue of confusion, the court, citing Cadbury Beverages, Inc. v. Cott Corp. determined that Eletrolux had to show a “probability – not merely a ‘possibility’ – of confusion,” a burden that it also did not meet. Even with the victory on the copyright and false advertising claims, we’re guessing Electrolux thinks the decision, well, sucks.

Practice Note: One method of distinguishing trade dress elements is to use “look for” advertising tactics in marketing the products. If a product contains non-functional elements that truly distinguish the product, a company can generate recognition around those features by directing clients to look for them when they make a purchase. Such use may be more persuasive than survey evidence in making clear to both customers and competitors what elements of a design are trade dress.

For years, health crisis centers for pregnant women have fought against rogue elements providing false information about abortion services. Using the Internet and phonebook advertising, anti-abortion groups pose as counseling centers and pretend to offer counseling and information services about abortion to pregnant women. In actuality, these groups direct viewers to fake sites that provide false information about abortion options, and provide counseling designed to persuade women to keep their unwanted babies, even when keeping the baby represents a significant risk to the mother’s health.

This month, women’s health centers are asking women to contact their congressperson about a bill recently introduced to “direct the Federal Trade Commission to prescribe rules to prevent deceptive advertising of abortion services.” The ”Stop Deceptive Advertising for Women’s Services Act” would provide special guidelines specifically related to how crisis centers would be able to advertise what they offer.

Practice Note: The bill seeks to tie the act to the already existing powers held by the FTC under Section 5 of The FTC Act, which regulates false and deceptive advertising. Even if the bill does not pass, under the current power, the FTC could independently go after these agencies for their deceptive ads.