Advertiser’s Claims for Sex Supplement Too Vague for Lawsuit
An advertiser’s claims were too vague to be actionable, a California federal court held when dismissing a false advertising class action.
Jonathan Kanfer sued Pharmacare, asserting that the company deceived consumers with misleading label claims for its herbal sexual supplement IntenseX. False promises on the product’s label included “Sexual Power and Performance,” “Fast Acting!” and “designed to intensify endurance, stamina, and sexual performance,” the plaintiff said. He argued that the company had no evidence that the product improved sexual performance.
The court initially denied the defendant’s motion to dismiss, but the litigation momentum changed course when the court also denied the plaintiff’s motion for class certification, finding that consumers were not exposed to a widespread, long-term marketing campaign and that Kanfer did not submit sufficient evidence that the challenged claims were material to consumers or that others similarly found the product lacking.
Pharmacare then moved for summary judgment. The plaintiff argued that Kanfer failed to demonstrate actual reliance, and the claims on the product label were too generalized and vague to be actionable.
U.S. District Court Judge Marilyn L. Huff agreed.
“At his deposition, Plaintiff repeatedly testified that he only relied on statements appearing on the IntenseX package when purchasing the product,” she noted, with a sample exchange from Kanfer’s deposition: “Q: Have you given me all of the reasons why you purchased IntenseX? A. The reason was simple, the advertising on the box drew my attention to it.” The plaintiff’s complaint did not allege he ever looked at the defendant’s website prior to purchasing the product, the court added.
As for the packaging claims, the “Plaintiff’s own expert points out that … ‘the vague language used with respect to IntenseX effects on power and performance has no support as such terms remain scientifically undefined and therefore untestable,’” Judge Huff wrote. “Thus, it is not plausible that a ‘significant portion of the general public’ would be misled.”
With the plaintiff lacking actual reliance for his fraud claims and unable to pass the “reasonable consumer” test for allegations of violations of California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, the court granted Pharmacare’s motion for summary judgment.
To read the order in Kanfer v. Pharmacare, Inc., click here.
Why it matters: The court relied upon testimony from the plaintiff’s own expert to determine the allegations failed to meet the “reasonable consumer” test, granting summary judgment in favor of the advertiser.
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FTC Offers Guidance on Data Breach Response
What should you do when your business suffers a data breach? New guidance from the Federal Trade Commission suggests key steps to take and provides a model form to provide notification of the breach to consumers.
“Data Breach Response: A Guide for Business” breaks down post-breach actions into three categories. First up: secure your operations and “move quickly to secure your systems and fix vulnerabilities that may have caused the breach.” “The only thing worse than a data breach are multiple data breaches.”
To avoid a repeat performance, assemble a team of experts, consult with legal counsel, secure physical areas that may be potentially related to the breach, lock them and change access codes, if needed. All affected equipment should be taken offline immediately and those who discovered the breach should be interviewed. If any personal information was improperly posted, the business should immediately remove it, and a search should be conducted to ensure that other websites that may have posted the information have taken it down and not saved as a copy.
In the midst of all these efforts, however, the agency emphasized not to destroy evidence, which can be used to help track down the culprits.
The next phase of activity focuses on fixing vulnerabilities. Relationships with service providers should be considered: are they taking the necessary steps to make sure another breach does not occur? Companies should verify that any problems with service providers have actually been fixed, the FTC suggested. In addition, network segmentation should be evaluated, a communications plan that reaches all affected audiences (employees, customers, investors, and business partners) should be established, and recommendations from forensics experts should be adopted as soon as possible.
Notification is a major component of data breach response, and companies should call their local police department right away and then determine their legal requirements under state or federal laws. If electronic health information was involved in the breach, businesses face an additional layer of regulatory oversight from the Health Insurance Portability and Accountability Act Breach Notification Rule, the FTC’s Health Breach Notification Rule, and the U.S. Department of Health and Human Services Breach Notification Rule.
Also on the list of those who need notice are affected businesses, such as financial institutions that can monitor accounts for fraudulent activity, the credit bureaus, and individuals. The FTC advised businesses to designate a point person within the organization to handle breach response, consider offering at least a year of free credit monitoring or other support, and recommend to consumers they place a credit freeze on their file.
The agency’s guidance features a model letter for notifying consumers whose names and Social Security numbers have been stolen. For other notices, the FTC advised that the document include the steps consumers can take, the type of information exposed, relevant contact information, instructions on how to file a complaint with the FTC if information has been misused, and current information on how to recover from identity theft.
Why it matters: Given the ubiquity of data breaches—whether hackers take personal information from a server, an insider steals customer data, or information was inadvertently exposed on a company website—the guidance could prove useful to companies that are unsure about what steps to take and whom they should contact.
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Real Suit Over Fake Sale Prices Moves Forward
A plaintiff is not required to show economic loss in a lawsuit over fake “sale” prices, a California court recently ruled.
After purchasing items from discount tool and equipment retailer Harbor Freight for several years, Ted Shimono filed a putative class action against the company that challenged its advertised prices. Harbor Freight promoted its products at “sale” prices next to a comparative and fictitious “regular” price that was neither a customer store price nor a prevailing market price, the plaintiff alleged.
For example, in June 2015, Shimono purchased a solar security light for a purported “sale” price of $39.99. The advertising for the light contained the words “Only $59.99,” which was struck through with a line, suggesting to the plaintiff that Harbor Freight’s usual price for the item was $59.99 and that it was being offered at a discount from that former price. However, when he investigated, he discovered that the prevailing retail price for the security light during the three months immediately prior to his purchase was not $59.99.
Shimono proffered other examples, including a 50-foot retractable hose listed at a “sale” price of $89.99 next to a “comp at” price of $166.00. The same hose was on sale on Amazon.com for $67.29 plus shipping, the plaintiff claimed, with a comparable hose listed at $64.98 on Home Depot’s website. Harbor Freight never offered the hose, nor was it valued, at $166 as was implied by the company’s advertising, the plaintiff told the court, and was instead an amount intended to deceive consumers into paying higher prices.
Harbor Freight moved to dismiss the suit, arguing that the plaintiff failed to allege that he paid more than the value of its products and neglected to plead the circumstances indicating fraud with respect to his own purchases.
However, U.S. District Court Judge Christina A. Snyder reached the opposite conclusion.
“Plaintiff has offered detailed factual allegations supporting his general claim that defendant’s advertising scheme is misleading, that he purchased a product advertised pursuant to said scheme, and that he did so in reliance upon the misleading pricing scheme,” the court wrote, finding that Shimono stated a plausible claim for relief.
The court also rejected Harbor Freight’s position that the plaintiff had to allege he bought a product that was worth less than he paid. Shimono must only allege an “economic injury,” Judge Snyder wrote, as at the early stage of the litigation a specific measure of the amount of the loss is not required.
Further, the Consumer Legal Remedies Act only requires an allegation of “any damage,” the court added, a “capacious” standard that includes any pecuniary damages as well as opportunity costs and transaction costs that result when a consumer is misled by deceptive marketing practices.
The court denied the defendant’s motion to dismiss.
To read the order in Shimono v. Harbor Freight Tools, click here.
Why it matters: Consumer class actions alleging deceptive sale pricing are a hot trend right now, particularly against outlet stores. Federal lawmakers have stepped in, requesting that the Federal Trade Commission take a closer look at the issue and consider establishing a formal definition of terms like “list price.”
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California DAs Forgive but Don’t Forget Liberty Mutual’s False Advertising
To settle false advertising charges brought by three California District Attorneys, Liberty Mutual will pay almost $1 million and stop promoting an “accident forgiveness” benefit in its auto policies that is illegal under state law.
The insurer launched a national television campaign in 2014 to promote its “accident forgiveness” car insurance program. Many of the ads—which featured the Statue of Liberty in the background—focused exclusively on the program’s benefits to consumers, and Liberty Mutual estimated they reached 70 to 80 percent of California consumers. One problem: the California Department of Insurance prohibits “accident forgiveness” provisions in auto insurance policies in the state.
In response, the District Attorneys in Los Angeles, Riverside, and San Diego Counties filed suit against Liberty Mutual Group, Inc., and Liberty Mutual Fire Insurance Company. The DAs alleged that the ad campaign ran afoul of California’s Unfair Competition Law and False Advertising Law because the ads failed to clearly and conspicuously disclose material facts that viewers need to avoid being misled.
The ads conveyed an overall impression that California consumers would receive the “accident forgiveness” benefit as part of their Liberty Mutual car insurance, the DAs said.
To settle the charges, Liberty Mutual agreed to pay $925,000 (civil penalties of $830,000 and agency costs of $95,000), evenly divided between the three counties. The insurer admitted no wrongdoing but is subject to an injunction requiring full compliance with California’s advertising laws.
Why it matters: Advertising a benefit unavailable to California consumers in television ads that reached a majority of state residents was enough to convince three state DAs to bring suit against Liberty Mutual and reach a deal for almost $1 million.
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News and Views
With the holiday shopping season right around the corner, Direct Marketing News convened with Manatt’s Richard Lawson to warn businesses against common marketing missteps. “Of particular concern are permanent sales and disclosures of key terms, such as the costs of continuity plans,” Richard, partner in the firm's consumer protection practice, wrote. “And while such techniques as native advertising and social influencers may be new, the legal standards that apply are anything but.”
So what if an influencer doesn’t disclose their involvement with your brand? What could happen? Search Engine Watch turned to Linda Goldstein to comment on a recent popular instance of nondisclosure—when Kim Kardashian posted on social media to promote a morning-sickness pill during her pregnancy without any disclosure. Linda, chair of the firm's advertising, marketing and media practice, speculates that the FTC could pursue legal action against Kardashian for misrepresenting the drug in an ad.
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