When Vibram, the “FiveFinger” shoe company, was hauled into federal court in Boston in late March, it became the latest prominent business swept up in the growing wave of consumer class actions based on false advertising claims. That wave does not yet appear to have reached its crest, and with recent revisions to the “green” labeling guidelines, it may be far from its peak. Ultimately, no matter what products or services your company sells—whether it is shoes, razors, baby formula, dietary supplements, juice, cat litter, wireless telephone service, cleaning supplies, or yogurt—advertising content can leave you awash in class action lawyers—and more importantly, can lead to tens of millions of dollars in exposure to damages for false or misleading advertising claims.
It’s not just the class action lawyers that in-house counsel need to worry about—competitors also sue over unfavorable product comparisons. If they win, they stand to recover substantial monetary damages, including the disgorgement of profits and attorneys’ fees under the Federal Lanham Act.
On the consumer side, often, a false advertising case will begin with one proposed class action. Defending that one suit could be costly enough, but it often gets worse as copycat lawsuits follow. The possibility of defending one case is replaced with the prospect of defending several suits filed in up to 50 different jurisdictions and involving as many as 50 different state consumer protection laws. As potential defense costs mount, a global class settlement worth millions is routinely seen as the best available business decision.
Government enforcement actions surrounding false advertising create additional risk because they often co-exist with and/or encourage tag-along consumer class actions, and can increase the costs of resolution significantly. The maker of the popular Airborne cold-prevention products faced just this problem when it agreed to pay $23.5 million to settle a consumer class action, but then had to add another $6.5 million to the pot in order to resolve the separate Federal Trade Commission action.
Although every advertiser is at some risk, there are some types of ads that seem to chum the water for false advertising claims.
Claims of Health or Nutrition Benefits
Accused of exaggerating the fitness benefits of some of its shoes, Reebok concurrently settled a consumer class action and a separate FTC action by agreeing, among other things, to provide $25 million in customer refunds, plus more than $3.5 million toward plaintiffs’ attorneys’ fees and costs.
It gets worse. When sued for claiming that the health benefits of certain yogurt products were “clinically” and “scientifically proven,” Dannon ultimately agreed to provide between $35 and $45 million in customer refunds, and to pay more than $7.5 million to class action counsel. Subsequently, Dannon had to pay an additional $21 million to 39 states whose attorneys general had collaborated with the FTC.
AT&T and Verizon went to court over the wireless coverage maps used in Verizon’s television commercials, which AT&T alleged to be misleading.
Arm & Hammer has now sued Clorox twice for ads comparing Clorox’s carbon-based Fresh Step cat litter to Arm & Hammer litter containing baking soda.
To resolve a class action based on its ads touting a closer shave from its vibrating M3 Power razor, Gillette was required to provide up to $7.5 million in refunds, rebates, and/or replacements, plus pay $1.85 million in plaintiffs’ attorneys’ fees.
Even Apple has not escaped the fray. It has recently been named in proposed class actions in New York and California, alleging that the commercials for its popular “Siri” feature misrepresent the true functionality of the program.
To resolve claims that Enfamil LIPIL infant formula was falsely advertised as the only formula that contained certain beneficial ingredients, Mead Johnson agreed to provide $8 to $12 million worth of cash refunds or replacement products to consumers, and pay more than $3.5 million to class action counsel.
When sued by a plaintiffs’ firm alleging that it could not legally call its taco filling “beef,” Taco Bell launched a multimillion-dollar campaign to show that the filling is actually 88% beef. The suit was later dropped.
Sears was sued by at least seven different plaintiffs, all seeking to represent a class of consumers, in connection with allegedly deceptive advertising claiming that Craftsman tools are made in the USA, when many of the tools actually are foreign-made or contain foreign parts. Thus far, Sears has been able to avoid class certification, but has likely spent millions of dollars defending these claims.
As consumers continue to demand environmentally friendly products, lawsuits related to “green” advertising and “green” labeling are likely to be the next wave. Statements that a product: a) is biodegradable, compostable, or recyclable; b) was made with renewable materials or renewable energy; c) is “free of” harmful ingredients; d) is certified or has received a seal of approval related to environmental benefits; or e) is generally “eco-friendly” or “environmentally safe,” all pose significant risk for advertisers.
The FTC’s increased interest in “green” marketing is reflected both in enforcement actions as well as recent revisions to its “Guides for the Use of Environmental Marketing Claims,” also called the “Green Guides.” With the expanding market for “green” products and a road map provided by the FTC, class action lawyers will invariably test these waters.
So what can in-house counsel do to reduce these risks? Ad copy touting performance, health, or nutritional benefits should receive additional scrutiny to ensure that it does not overstate or unduly exaggerate the truth. Competitor comparisons must be similarly vetted. No one is likely to have a greater incentive to bring suit than a competitor whose product is subjected to an unflattering, widely advertised comparison. In all cases, any supporting information and disclosures must be specific, clear, and conspicuous. If an ad claims that “studies show . . .” or “studies prove . . .”, those studies should be made available, perhaps on your website. If anything is altered in an ad for demonstration purposes (i.e., simulated images), that fact should similarly be disclosed conspicuously and not buried in fine print.
Finally, for those engaging in “green” marketing, the analysis should start with the FTC Green Guides. Compliance with the FTC’s guidelines may not be enough to escape the welter of individual state consumer protection laws, but a compelling argument can be made that such compliance should constitute a safe harbor.
When false advertising suits begin to arise over the appropriate use of the word “beef” to describe fast-food taco filling or to cast doubt on the purported benefits of minimalist running shoes, it seems clear that complete protection from suits based on advertising copy may not be possible. However, setting up an appropriate review and approval process for those advertisements that are most likely to garner unwelcome attention is an important preventive measure.
Wayne Dennison and Daniel Brown, partners in the Boston office of Brown Rudnick, focus their practices on business litigation. Dennison is the co-chair of the firm’s litigation and arbitration group. Both he and Brown have substantial experience with class action practice and consumer protection claims.