On August 15, 2018, plaintiffs filed a putative class action on behalf of advertisers who get less than they pay for when Facebook allegedly overstates its user numbers.

Facebook provides its advertisers with an approximate “Potential Reach,” an “estimation of how many people are in an ad set’s target audience.”  The lawsuit alleges that Facebook fudges the numbers.

The complaint alleges that the “purported Potential Reach among the key 18-34 year-old demographic in every state exceeds the actual population of 18-34 year olds.”  The lawsuit further alleges that Facebook also vastly overstates the number of total users.  For example, the lawsuit alleges that “Facebook asserted its Potential Reach was approximately 4 times (400%) higher than the number of real 18-34 year-olds with Facebook accounts in Chicago.”

Plaintiff Danielle Singer owns an online business that sells aromatherapy fashionwear and accessories, including scarfs, jewelry and essential oils.  She spent more than $14,000 on Facebook ads.  Her suit asserts claims on behalf of any person or entity who advertised on Facebook.com from January 1, 2013 to the present.

The complaint quotes three former Facebook employees (Confidential Witnesses 1-3) who allege that Facebook “did not give a sh—“ about the accuracy of its actual numbers, that it is only concerned that “advertising revenue not be negatively affected,” and that it had no interest in “stopping duplicate or fake accounts in calculating Potential Reach.”

The lawsuit admits Facebook’s “Potential Reach” includes a disclaimer that:

Estimates are based on the placements and targeted criteria you select and include factors like Facebook user behaviors, user demographics and location data.  They’re designed to estimate how many people in a given area could see an ad a business might run.  They’re not designed to match population or census estimates.  Numbers may vary due to performance reasons. (Emphasis in Pleading).

Citing data from the Pew Research Center, the plaintiff alleges that even this disclaimer is false, since Facebook claims to be estimating how many people “could see an ad,” but there simply aren’t that many people, much less that many Facebook users.

The lawsuit, filed in Federal Court in the Northern District of California, alleges Facebook violated California’s Unfair Competition Law and quasi contract claims, seeking restitution or disgorgement of profit.

It will be interesting to see what happens next;  whether: (a) this lawsuit quietly vanishes, with Facebook and Plaintiff/Plaintiff’s counsel reaching quick confidential resolution; (b) Facebook changes its posting regarding its Potential Reach, and/or (c) Facebook stands tall and defends its Potential Reach.

It is a topic that I have written on before—the law of “puffery.” Check out my post on The Best Allegation in a Lawsuit. The concept is familiar. Most of us probably tend to be wary of a salesperson’s boasts and are apt to take his or her claims about a product with a grain of salt.

Watching the recent Presidential debate got me thinking again about outsized boasting and grandiose claims.

In the context of commercial transactions, the law recognizes that there are certain statements that ought not to be considered representations of fact and cannot give rise to legal liability if the statements turn out not to be true. It has been held that “[a] statement is considered puffery if the claim is extremely unlikely to induce consumer reliance.” Newcal Industries, Inc. v. Ikon Office Solution (9th Cir. 2008) 513 F.3d 1038, 1053. A statement that is “quantifiable” and “makes a claim as to the specific or absolute characteristics of a product”  may be an actionable statement of fact. Id. This is to be juxtaposed with a “general, subjective claim about a product,” which is “non-actionable puffery.”  Id. For example, labeling a product “premium” is mere puffery because it has “no concrete, discernable [sic] meaning.” Viggiano v. Hansen Natural Corporation (C.D. Cal. 2013) 944 F.Supp.2d 877, 894.

Thus, the more generic the praise—think superlatives like “great,” “tremendous,” and the “best ever”—the less likely a statement will be regarded as an actionable statement of fact. And all the easier to avoid being called to account for real, substantive and quantifiable representations.

As pointed out by the Newcal Industries court, the reason puffery should not give rise to liability is that no one ought to be so gullible as to rely on these types of assertions. I wonder what lesson we might draw from this well established legal premise that might apply to the upcoming Presidential election? Food for thought. Or perhaps I should say, the best advice ever …

And the California Supreme Court said “Let there be more litigation” and there was more litigation.

This week, the California Supreme Court held that private citizens (i.e. class action plaintiffs’ attorneys) can bring state court actions against produce companies that falsely label their products “organic.”

The Plaintiff in this case alleged that she paid a premium for Defendant Herb Thyme’s “Fresh Organic,” believing they were in fact 100 percent organic. She was vexed to discover that Herb Thyme allegedly blends its organic produce with non-organic produce, selling it under the “Fresh Organic” label.  She filed a putative class action for violation of California’s Consumer Legal Remedies Act, unfair competition law and false advertising.

Defendant Herb Thyme argued that the federal  Organic Foods Production Act of 1990 (OFPA) vests the USDA with “exclusive authority to regulate the labeling and marketing of organic products and both expressly and implicitly preempts state truth-in-advertising requirements.”  The trial court agreed with Herb Thyme’s arguments and dismissed the case.  The intermediate Court of Appeal agreed that OFPA implicitly preempted state law claims, but disagreed that it did so explicitly.

But the California Supreme Court reversed, finding that OFPA neither expressly nor implicitly preempts state court actions.  The Court noted that while OPFA preempts states from creating alternative: (A) definitions for the term “Organic,” and (B) certification processes that growers must meet to qualify as “Organic,”   OPFA does not preempt state court actions like the one against Herb Thyme.  The Court noted that OPFA permitted states to enact more stringent standards regarding organic production and that other courts, including the Eighth Circuit, had also found that OPFA did not preempt state court actions.

So, we can add state litigation regarding the term “organic” to the virtual smorgasbord (check out the U.S. Chamber report “The New Lawsuit Ecosystem,” p.88) of food labeling litigation buzz words like “natural,” “hand-crafted,” “healthy,” “all-natural,” “whole-grain,” “lite,” “pure,” and “100%.”

In the past couple years, there have been several consumer class action lawsuits filed against alcohol beverage makers claiming that their labels or marketing campaigns are false or misleading. Several lawsuits have been filed against distilled spirits makers alleging that the use of the terms “handmade” or “handcrafted” was misleading consumers. Similarly, MillerCoors was sued in a California state court action alleging that it was misleading the public by marketing Blue Moon beer as a craft beer. And this past August, Diageo, the makers of Red Stripe beer, was sued in a suit alleging that it failed to fully disclose that the beer was brewed in Pennsylvania, rather than Jamaica.

These suits are part of a larger trend of consumer class action cases filed against food and beverage makers claiming that terms used in labels or marketing materials are false or misleading. The early cases tended to focus on the use of the terms “natural” or “nature” which is not defined under federal labeling statutes. But the more recent suits against alcohol beverage makers are based on other allegedly misleading practices.

What is “Handmade” Alcohol?

After much early publicity, these “handmade” lawsuits seem to be dying a slow death. In May 2015, Judge Robert Hinkle of the Northern District of Florida dismissed a suit against Beam Suntory and its Maker’s Mark Distillery alleging that the use of “handmade” in labeling and marketing materials mislead the public. See Salters v. Beam Suntory, 2015 WL 2124939 (N.D. Fl. May 1, 2015). And in August, a federal court in California dismissed a similar suit against Maker’s Mark. Welk v. Beam Suntory Import Co., et al, Case No. 3:15-CV-00328 (S.D. Cal. August 21, 2015) (Dkt. No. 17) (“[a] reasonable consumer wouldn’t interpret the word ‘handcrafted’ on a bourbon bottle to mean that the product is literally ‘created by a hand process rather than by a machine.’”) Most recently, on September 23, 2015, Judge Hinkle also dismissed most of the “handmade” claims filed in a similar suit against Fifth Generation, the maker of Tito’s Handmade Vodka. Pye v. Fifth Generation, Inc., Case No. 4:14-CV-00493-RH-CAS (N.D. Fla. Sept. 23, 2015).

In the first Florida action against Maker’s Mark, Judge Hinkle found that “no reasonable person would understand ‘handmade’ in this context to mean literally by hand. No reasonable person would understand ‘handmade’ in this context to mean substantial equipment was not used.” Salters v. Beam Suntory, 2015 WL 2124939 (N.D. Fl. May 1, 2015).  He dismissed the claims “with prejudice” meaning they cannot be brought again against these defendants. And in the Florida action against Tito’s Handmade Vodka, Judge Hinkle stated that “the term [handmade] obviously cannot be used literally to describe vodka. One can knit a sweater by hand, but one cannot make vodka by hand. Or at least, one cannot make vodka by hand at the volume required for a nationally marketed brand like Tito’s. No reasonable consumer could believe otherwise.”

Notably, in the Florida Maker’s Mark decision, Judge Hinkle also seemed to distinguish the use of “handmade” by craft breweries (in addition to knitters) versus the use of the term by bourbon makers, stating that “[i]f ‘handmade’ is understood to mean something else – some ill-defined effort to glom onto a trend toward products like craft beer – the statement is the kind of puffery that cannot support claims of this kind.” Salters, 2015 WL 2124939 at *3.  That could mean that the use of “handmade” by craft breweries is legitimate and not misleading, or that the term is so ill-defined that even a bourbon maker can use “handmade.” Or both.

As to the Florida suit against Tito’s Handmade Vodka, a claim for negligent misrepresentation still remains, but not regarding the use of the term “handmade.” Rather, Judge Hinkle found that the complaint’s allegation that the vodka was not made in “an old fashioned pot still” (as stated on the vodka’s label) was sufficient to state a claim for breach of an express warranty. Pye v. Fifth Generation, Inc., supra.

And in a similar California federal suit against Tito’s, Judge Jeffrey Miller dismissed the plaintiff’s statutory false representation claims on the grounds that the plaintiff had failed to allege that the plaintiff (and class members) would not have bought the vodka had they known it was not “handmade.” Hofmann v. Fifth Generation, Inc., 14-cv-2569, Dkt. No. 15 (S.D. Cal. Mar. 18, 2015)). However, as to the plaintiff’s negligent misrepresentation claim, the Court did not dismiss this tort claim because the plaintiff, at least as to this claim, did allege that it bought the vodka in reliance on the claim that the product was “handmade.” This suggests that statutory claims might survive too if properly alleged. In any event, Tito’s has filed a summary judgment motion which is currently pending.

Blue Moon: What Does “Craft” Mean?

As to the widely-publicized Blue Moon case filed in California state court this summer, it is still ongoing. In that case plaintiff alleged the labeling and marketing of Blue Moon beer was misleading in part because the owner of the beer is MillerCoors though MillerCoors is not identified on the label; rather, the label says “Blue Moon Brewing Company.” The marketing of the product is such that “MillerCoors” is never or hardly mentioned.

Social media users were critical of the lawsuit, and craft beer aficionados expressed incredulity that anyone really believed that Blue Moon was made by a small craft brewery. Nonetheless, there is probably some segment of craft beer buyers, perhaps those that are not yet craft beer aficionados, who are unaware of the corporate ownership of Blue Moon and who prefer to buy beer made by a small craft brewery rather than a huge macrobrewery like MillerCoors or Anheuser-Busch InBev (whether or not a class of such people could be legally ascertained is another question). While many consumers may not care if their ketchup is made by a local ketchup maker, certain craft beer buyers may care about where their beer is brewed.

So there may be some amount of “deception,” but is that deception material, and does it go beyond the “deception” that is inherent in much product marketing? That’s harder to say.

That question becomes even harder as there have been more and more acquisitions of craft breweries in the past year. Anheuser-Busch has bought several craft breweries this past year including Elysian Brewing, Ten Barrel Brewing, and recently Golden Road Brewing. This past month MillerCoors acquired Saint Archer Brewing of San Diego. And in the mother of all beer deals, Anheuser-Busch is even trying to acquires SAB Miller, which is a partner with Molson Coors in the U.S. joint venture MillerCoors (though such a deal will likely result in a divestment of the Miller brand in the United States).

For the past few years, the national Brewers Association has called for transparency in labeling, including in identifying ownership. See Transparency in Labeling (“Consumers have an interest in knowing the name of the brewing company or parent corporation that ultimately owns the beer brand”). That is a laudable goal. But is the failure to identify corporate ownership “false” or “misleading” under current false advertising law?

This is somewhat analogous to the controversy over contract brewing in the industry. Back in the mid-1990s, when craft brewing was experiencing a growth spurt, a Dateline television program portrayed Boston Beer Company (Samuel Adams) in a negative light because much of Samuel Adams beer was contract brewed by another brewery. The implication was that Boston Beer was misleading the public, and this cast the craft brewing industry in a negative light.

But there is a difference between a craft brewer using contract brewers in order to meet demand versus a macrobrewery trying to portray a beer as “craft.” In the former case, the craft brewer may not have the capital to buy enough tanks, fermenters, and other equipment to meet demand, and contract brewing allows the brewer to get started, to ramp up production to generate more revenue which then allows the brewer to buy his/her own equipment. And that is exactly how many craft breweries were able to grow. In the latter case, a macrobrewery has the resources, but is simply trying to portray its beer as a “micro” beer or craft beer.

Many beer experts and fans will state that all that should really matter is how the beer tastes. They also point out that Blue Moon beer and its brewer, Keith Villa, do have craft origins even though it was a Coors project. That is worth pointing out. Blue Moon is not Shock Top (which does identify Anheuser-Busch on the label but is not hailed by anyone as having any “craft” roots). But in this day and age, an increasing number of consumers do care about who is brewing their beer or producing their food. These consumers want to know if their money is going to a large conglomerate with headquarters overseas, or to a local or small company. Taste matters, but so does origin.

Nonetheless, the Blue Moon suit may meet the same fate as other food and beverage false labeling suits – eventually dismissed due to federal preemption or the primary jurisdiction doctrine, or may settle. Perhaps a settlement might require MillerCoors to add the “MillerCoors” name to the label and/or to the Blue Moon website in the future.

Your Imported Beer Is Made In the U.S.A.

The geographic-origin beer labeling suits have mostly settled. A lawsuit against Kirin Beer, which is brewed and distributed by Anheuser-Busch in the United States rather than Japan, was settled this past year. Anheuser-Busch agreed to print the statement “Brewed under Kirin’s strict supervision by Anheuser-Busch in Los Angeles, CA and Williamsburg, VA” on its labels. Consumers who applied to a settlement fund were also eligible to receive 50 cents for each six-pack of Kirin beer, one dollar for each 12-pack, and ten cents for each bottle or can. See Kirin Beer Settlement (the settlement claims period closed on June 15).

Anheuser-Busch settled a similar lawsuit alleging that Beck’s beer labels (also owned by AB) were misleading since the beer is not brewed in Germany. See Beck’s Beer Settlement. The amount Anheuser-Busch paid to plaintiffs’ attorneys in the case was over $3.5 million, according to the Wall Street Journal.  The suit against Red Stripe beer still pending.

Maybe this will all go away if Anheuser-Busch simply buys every brewery on the planet, then there would only be one brewery. Less lawsuits, but less filling.

All of these cases  highlight the need for beverage makers to carefully examine their labeling and advertising materials, and consider whether consumers could challenge statements made by beverage makers as being either false or misleading.  Even as these claims get dismissed or settled, the high costs of litigation make such reviews warranted.

(Note: A previous version of this article stated that AB-InBev owned, Kirin Beer.  It does not, rather it brews and distributed Kirin Beer in the United States).

And the award for Best Allegation in a Lawsuit goes to … Overton v. Anheuser-Busch Company.

Fed up with television beer commercials, the plaintiff in Overton sued the defendant Anheuser-Busch Company under Michigan’s Pricing and Advertising Act for allegedly making “untrue, deceptive and/or misleading” representations in Bud Light television advertisements.

The plaintiff, Richard Overton, alleged that in the beer giant’s television advertisements Bud Light is “shown to be the source of fantasies coming to life, involving otherwise impossible manifestations of scenic tropical settings, beautiful women and men engaged in endless and unrestricted merriment.”

Despite the award winning allegation, the trial court threw out the suit and the summary disposition was upheld by the Michigan Court of Appeals. Overton v. Anheuser-Busch Company (Mich. App. 1994) 205 Mich.App. 259. The case illustrates an important concept of advertising law.

The appellate court observed, first, that such a “grandiose suggestion” that Bud Light is the source of fantasies coming to life was mere “puffery.” Overton v. Anheuser-Busch Company, supra, 205 Mich.App. at 261. A concept long recognized under the law, “puffery” amounts to a salesman’s praise of his or her own wares, involving matters of estimate or judgment upon which reasonable people may differ.

Second, the Court reasoned that to the extent Bud Light television ads failed to disclose the undisputed dangers of alcohol consumption, that omission was not actionable because “the dangers inherent in alcohol consumption are well known to the public.” Id. at 261-262. Because these dangers are well known to the general public, the Court concluded that nothing material was concealed. Id.

There are limits, however. The California Supreme Court has observed that “[a]lthough courts traditionally have allowed the seller considerable latitude in which to ‘puff’ the virtues of his product, ‘(t)he tendency of the modern cases is to construe liberally in favor of the buyer language used by the seller in making affirmations respecting the quality of his goods and to enlarge the responsibility of the seller to construe every affirmation by him to be a warranty when such construction is at all reasonable.’” Hauter v. Zogarts (1975) 14 Cal.3d 104, 112, fn. 7, quoting Lane v. C. A. Swanson & Sons (1955) 130 Cal.App.2d 210, 214.

Unless you are confident that your advertisements are mere puffery such that no reasonable person could construe anything contained in the advertisements as amounting to affirmative representations about the quality of your goods or services—or you are making beer commercials depicting the endless merriment of beachgoers consuming your product—consider consulting with your intellectual property counsel.

L’Oreal’s Deceptive Advertising

The Federal Trade Commission (“FTC”) accused L’Oréal of making deceptive advertising claims regarding the benefits of two of its product lines. L’Oréal claimed that its Génifique facial skincare products were “clinically proven” to “[b]oost genes’ activity and stimulate the production of youth proteins” that would cause “visibly rejuvenated skin in just 7 days” and would provide results to specific percentages of users. See Image 1 below. Similarly, L’Oréal claimed that its Youth Code facial skincare products could combat the effects of aging by targeting specific genes to make skin act younger and respond five times faster to aggressors such as stress, fatigue, and aging. See Image 2 below. The FTC asserted that L’Oréal’s representations were not substantiated at the time the representations were made. Given the FTC’s allegations, L’Oréal agreed to settle the dispute.

The Settlement

With a slap on the silky wrist, L’Oreal agreed that it will cease:

1. All claims that any of its product boosts the activity of genes or targets specific genes that would result in skin that looks younger or acts younger or cause skin to respond five times faster to aggressors such as stress, fatigue, and aging unless the claims are supported by competent and reliable scientific evidence;
2. All claims that certain products affect genes unless the claims are supported by competent and reliable scientific evidence; and
3. All claims about its products that misrepresent the results of any test or study.

Take-Away

Be careful with overzealous marketing claims. All product claims must be true and require substantiation.

Here are 11 Ways To Avoid Advertising Missteps as described in a prior IP Legal Forum post.

Although advertisements are everywhere, many companies are not aware of the numerous state and federal laws and regulations that govern advertising. Below are several basic advertising concepts to help spot and avoid advertising problems.

1. An advertisement cannot be false or misleading – an advertisement is false or misleading if members of the public are likely to be deceived.
2. The literal truth of an advertisement will not prevent it from being deceptive if the advertisement is misleading when read as a whole – the overall visual image and placement of words and text can make an otherwise innocent advertisement deceptive.
3. Disclaimers must be clear and conspicuous, and a disclaimer cannot cure inaccurate or false information in an advertisement.
4. For online advertisements, all disclosures should be placed as close as possible to the advertising claim – making sure that the disclosures are able to be viewed across various devices and online platforms.
5. It is illegal to advertise a product with no intent to sell the product at the price stated, but instead intend to sell something else, usually at a higher price – this is known as “bait and switch” advertising.
6. California and other states prohibit sweepstakes/enter to win contests where entrants are required to pay money or other consideration to enter the contest and the winner is selected by chance – these are known as “illegal lotteries”.
7. All claims must be true and advertisers should have substantiation for all claims.
8. Where an advertisement includes an endorsement or testimonial, the marketer must disclose all material connections with or consideration given to the endorser that might affect the weight or credibility of the endorsement or testimonial.
9. Where an advertisement lists a “regular price,” the price stated must be the amount at which the retailer has recently, openly and actively sold the product in the area – or in California, is the prevailing market price in the area at the time of the advertisement.
10. Care must be taken in an advertisement that states a customer can receive a product for “free” with the purchase of another product – the product required to be purchased must be sold for the “regular price” and the advertiser cannot increase the price to directly and immediately recover the cost of the “free” product.
11. Marketers should not make unqualified general environmental benefit claims – e.g., the product is “green” or “eco-friendly”.

Although seemingly simple, advertising requirements are often subtle and contain pitfalls for the unwary. Understanding key advertising legal concepts and exercising care and good judgment when designing advertisements can go a long way towards helping avoid legal issues in advertising.

If a competitor circulates false advertising about your products you can sue under federal law, but what do you do when the person making the false claim is not a competitor? Sue them anyhow.

What’s False Advertising?

Under the typical case, a company sues its competitor for making a false claim about either the competitor’s products or its own products. Remember the viral (and false) rumor that Taco Bell’s beef contained sawdust? If Del Taco ads repeated that rumor, Taco Bell could sue under federal law. Likewise, if Puma falsely claimed its running shoes included tufts of cheetah fur that made you run faster, Nike could sue Puma for false advertising.

Supreme Court Expands Standing

The Supreme Court’s recent decision expands the reach of false advertising claims to advertisers who do not compete with the victim. The Court clarified and expanded the standing requirement for filing such claims for products or services in interstate commerce under the Lanham Act (15 U.S.C. § 1125(a)). This is important because a plaintiff without standing (the right to sue) quickly finds himself knocked out of court.

Anything That’s Fit to Print?

The Court’s decision involved toner cartridges for printers, the ones you always need to replace when you are finally printing something for work, instead of Game of Thrones maps, pictures of kittens or directions to the bowling alley. Defendant Lexmark sells printers and replacement cartridges and sought to control the replacement cartridge market for its printers. Plaintiff Static Control reverse-engineered Lexmark’s microchips, creating functional equivalents without copying/infringing Lexmark’s intellectual property, that effectively replaced the chips on Lexmark cartridges. But Static Control didn’t actually manufacture replacement cartridges. However, Static Control’s chips enabled other companies (Lexmark competitors) to sell generic cartridges, which liberated consumers from purchasing Lexmark’s more expensive replacement cartridges. Unhappy about lost market share, Lexmark sent notices to most of the replacement cartridge manufactures, alleging that using Static Control’s chips was illegal. Static Control sued Lexmark claiming false advertising under the Lanham Act, the trial court dismissed the lawsuit, the Sixth Circuit reinstated the lawsuit and the Supreme Court affirmed, allowing Static Control to continue to prosecute its claims against Lexmark.

New Standing Standard

Prior to this decision, the thirteen federal circuit courts (12 plus the Federal Circuit) had applied a smorgasbord of standing requirements, which generally limited standing to direct competitors. But the Court reviewed the circuits’ standing requirements and unanimously voted “none of the above.” Instead, the Court held that a plaintiff has standing if: (A) it suffers an injury to its commercial interest in reputation or sales, and (B) the injury flows directly from the deception caused by the defendant’s advertising:, which occurs when the deception causes consumers to withhold trade from the plaintiff. In the Lexmark case, Static Control had standing because Lexmark’s (allegedly) false statements influenced Static Control’s customers (Lexmark’s competitors) to stop purchasing Static Control’s chips. The Court reinstated Static Control’s lawsuit, even though Lexmark does not directly compete with Static Control. If Static Control ultimately prevails, the court could force Lexmark to stop making false statements, issue “corrective” advertising and pay damages and attorneys’ fees.

What’s Next?

So, advertisers and other commercial “speakers” beware. If you make false claims that injure companies selling products or services interstate, even if those companies are not your competitors, you’re exposing yourself to liability under the Lanham Act. And if a company makes false claims that impact your business, feel free to make a federal case out of it. Of course, you can also make a state case out of it, as many states have their own false advertising/competition laws, like California’s which begins at Business and Professions Code section 17200.