Advertising Law Blog

Class-action lawsuit seeks recovery of fees obtained through subscription renewal plan.

We continue to monitor the effects of the COVID-19 pandemic on telemarketing regulations. The FCC has allowed health care providers to place emergency automated calls and text messages related to COVID-19, but three states have seen new telemarketing restrictions triggered by state-of-emergency declarations. Meanwhile, California is considering changes to its telemarketing statute unrelated to the pandemic. The following summarizes these recent developments:

The U.S. Securities and Exchange Commission (the “SEC”) filed enforcement actions on May 14, 2020, against two unrelated companies, Turbo Global Partners, Inc. (“Turbo”) and Applied BioSciences Corp. (“APPB”). The SEC charged both companies with securities fraud based on alleged materially misleading statements that the companies were offering and shipping products to combat the coronavirus (COVID-19). These actions taken by the SEC are consistent with approaches taken by other regulators, including the Federal Trade Commission and Food and Drug Administration (the “FDA”), with regard to misleading statements made in connection with coronavirus-related products. On the whole, regulators appear to be particularly cognizant of businesses and individuals seeking to take improper advantage of the circumstances created by the global pandemic, and as such are taking action against such companies and individuals.

To expedite advertising challenges on discrete issues, the National Advertising Division (NAD) of the Better Business Bureau has launched a new fast-track process.  The new process will resolve eligible matters within 20 business days from initiation of the challenge.

Andrew Lustigman, head of Olshan’s Advertising, Marketing & Promotions Practice Group, was quoted in a Bloomberg Law article on the coordinated attack on coronavirus scams led by The Justice Department (“DOJ”), the Federal Trade Commission (“FTC”), and the Food and Drug Administration (“FDA”). All three agencies have filed charges against and have sent warning letters to people and companies for advertising unapproved COVID-19 treatments or preventatives. Given the import that these efforts have to public health during the pandemic, the agencies’ attention is intensely focused on preventing coronavirus fraud, so while the DOJ is investigating a wide range of fraudulent activity, the FTC and the FDA are evaluating false claims about treatments and cures. “That intensity is shown by how quickly the agencies are taking cases to court and asking for orders to stop the fraudsters,” said Mr. Lustigman. Wasting no time, the DOJ has filed at least four civil lawsuits against people allegedly selling fraudulent cures/treatments, obtaining temporary restraining orders against three of the defendants. The FTC and FDA, meanwhile, have sent warning letters both to sellers of unapproved treatments and to multi-level marketing companies for unsubstantiated claims made by their independent distributors.

Multinational corporation, 3M Company (“3M”), has filed a string of lawsuits alleging trademark infringement against distributors of its 3M-branded N95 respirator masks. N95 respirator masks have become crucial in the fight against COVID-19. 3M has supplied healthcare workers and other first responders with 3M-branded N95 respirators. 3M’s recent lawsuits target false and deceptive price-gouging on the part of unauthorized third-party distributors, seeking to take advantage of the heightened demand for N95 respirators during the COVID-19 pandemic. Interestingly, these lawsuits do not allege that the defendants are selling counterfeit products. Instead, 3M alleges that the defendants, unauthorized resellers, are implying a direct relationship with 3M when selling 3M-branded products at inflated prices.

Resolving a circuit split, the Supreme Court (the “Court”) has held that willfulness is not a precondition for disgorgement of an infringer’s profits from the infringement in a trademark infringement case. In Romag Fasteners, Inc. v. Fossil Group, Inc., the Court considered willfulness as but one of the factors that may be considered in deciding whether or not to award an infringer’s profits to a trademark holder, rejecting the premise that a showing of willfulness is required before an infringer’s profits may be awarded.

Online fast fashion retailer, Fashion Nova, has agreed to pay $9.3 million to settle FTC charges that it failed to properly notify consumers and give them a chance to cancel their orders that were not shipped in a timely manner. The FTC also alleged that Fashion Nova used gift cards to compensate consumers for unshipped merchandise instead of providing refunds, as required. 

The FTC has reached a settlement with Teami, LLC (“Teami”), a tea and skincare company that allegedly used deceptive health claims and a bevy of undisclosed social media influencer endorsements to promote its products. This settlement, comprised in part of a significant monetary judgment, comes on the heels of the FTC seeking public comment on its Endorsement Guides in light of the changing social media advertising landscape. The FTC’s recent policy and enforcement actions seem focused on online influencer advertising campaigns.

In 2017, California-based clothing company, Sunny Co. Clothing, posted a photo to its Instagram account displaying a model wearing Sunny Co. Clothing’s “Pamela” red, full-piece bathing suit. The caption stated that every person who reposts the image tagging Sunny Co. Clothing “will receive a FREE Pamela Sunny Suit.” Sunny Co. Clothing failed to set a maximum on the number of swimsuits available for the promotion. The post quickly went viral and Sunny Co. Clothing found itself in the undesirable position of not being able to fulfil its promotional obligations as it simply did not have enough swimsuits to meet the demand. Sunny Co. Clothing publicly learned the importance of having complete and conspicuously disclosed contest rules for social media giveaways. Reese Witherspoon’s fashion label, Draper James, is now learning the same lesson several years later.