[email protected] – November 11, 2021

In This Issue:

Kanye’s Kicks Cos. Clobbered by Cali Code

Yeezy failed to deliver the goods; part of uptick in MITOR attention

Gotta Have It

We made a big deal of the Federal Trade Commission’s (FTC) investigation of and actions on late and nondelivery of products in July 2020 because it was one of the first pandemic-specific litigation stories in the ad space. The commission accused the defendant in question of pandemic-related chicanery, namely selling face masks and other personal protective equipment products but failing to meet its ambitious promises of speedy delivery.

The legal nougat at the center of this tasty issue is the FTC’s Mail, Internet, or Telephone Order Merchandise Rule (commonly known as the Mail Order Rule), which was invoked by the commish in the case. “That the somewhat archaic Mail Order Rule was invoked in this instance,” we wrote, “demonstrates that the FTC is widening its enforcement repertoire.”

Ye v. the People

We spoke too soon – or, rather, we were a little pandemic-myopic. We went on to cover another case, that of Fashion Nova, which paid out $9.3 million as part of an agreement with the commission regarding its own alleged late deliveries. But the underlying accusations predated the pandemic.

So too do some of the allegations in The People of the State of California v. Yeezy Apparel LLC et al., which involve two companies related to – you guessed it – Yeezy himself, known to the older and more exhausted of us as Kanye West.

Unlike Kanye’s most recent release, the complaint is short and to the point, coming in at seven pages – the Golden State accuses his companies of violating Cali code Section 17538(a) by failing to deliver their high-end sneakers and clothing within 30 days of customers’ orders. Also short is the history of this case, having just now settled for $950,000.

The Takeaway

So Mail Order Rule and related state law violations were certainly occurring prior to the pandemic. But we stand by our original story – understanding the rule and similar legislation is important to anyone shipping goods right now.

Certainly, the pandemic put a crimp in delivery schedules. But those delays have been exacerbated by well-publicized supply chain disruptions, which is why federal and state actions will undoubtedly ramp up.

State rules vary, but as we’ve said in a more comprehensive treatment of the federal regulation:

The Mail Order Rule gives sellers two options with respect to delivery time claims ‒ specify a delivery time frame, or don’t. If a seller opts not to specify a time frame, the seller is expected to deliver within 30 days. If a seller cannot meet its shipping obligation within the required or specified time frame, the Mail Order Rule requires the seller to notify the customer of the delay and present “an option either to consent to a delay in shipping or to cancel the [customer’s] order and receive a prompt refund.”

For a first delay that is 30 days or less, if the consumer does not respond to the notice, consent to the delay is presumed. For a second delay, or if the first delay is for more than 30 days, the seller must cancel the order unless the consumer affirmatively consents to the delay.

Get familiar with the rule, and review your shipping and fulfillment processes. Commerce is becoming more unpredictable, so everyone shipping goods needs to take stock – no pun intended – of their promises.

Consumers Look a Gift Beer in the Mouth

Exciting ‘solid gold’ giveaway goes awry for BrewDog

All That Fizzes

Somebody in the marketing department at Scotland-based brewery BrewDog has a serious hangover right about now.

Back in late 2020/early 2021, the company, which has had its share of bad marketing press in the past, launched two promotions claiming that 15 “solid gold” cans were squirreled away in 12-, 24- and 48-can packs of BrewDog beer and ale for customers to find. But it didn’t take long for consumers – and British ad watchdogs – to find the contest leaky.

The cans, it turned out, were gold plated, not solid gold through and through. BrewDog estimated that the value of each gold-plated 330ml can was somewhere in the neighborhood of $20,000. Sounds like a delightful surprise after a trip to the liquor store, right?

… Out of You and Me

Contest winners and other consumers weren’t having it, however; two dozen complaints rolled into the UK’s Advertising Standards Authority (ASA) decrying the fact that the cans weren’t solid-gold replicas, a design that, by BrewDog’s own admission, would have increased the value of a winning can to about $500,000.

In its own defense, BrewDog stated that while “they should not have used the word ‘solid’ in their initial Tweets” and “had apologised [sic] publicly for doing so,” the half-a-million-dollar value of a solid-gold replica meant “that any reasonable consumer who entered the competition [wouldn’t] assume they were going to win over half a million dollars of gold, particularly when they gave a rough estimate for the value of the can of £15,000.”

Unfortunately, no one ever went broke underestimating the likelihood of consumers taking a company’s ad literally.

BrewDog learned this the hard way when the ASA ruled against the company; despite the fact that BrewDog had advertised a correct estimate of the price of a gold-plated can, “We considered a general audience was unlikely to be aware of the price of gold,” the ASA wrote, and “how that would translate into the price of a gold can, and whether that was inconsistent with the valuation as stated in the ad.”

The Takeaway

We covered a problematic contest recently, in which the sponsor of a competition felt that the fine print of the prize rules would exempt it from being penalized for withdrawing the contest altogether. But in BrewDog’s case, the problem is right out there on the surface; they never should have promised solid-gold cans when they couldn’t (or wouldn’t) deliver them.

That problem, which would have been a problem in any case, was compounded by the company’s response.

First, its guess about what a reasonable consumer would assume about the stated value of a winning can involved a bit of pretzel logic. BrewDog effectively expected customers to take the stated value of £15,000, determine the amount of gold used to plate an empty can and check BrewDog’s math by determining if they were correct about the price of gold – after it stated that the can was “solid” gold.

Even worse – and every company should pay attention to this point – even though BrewDog had corrected its incorrect advertising when the first promotion garnered negative attention, it repeated the mistake when it launched another contest only two months later. “BrewDog said that when they launched the [second] campaign … the error was repeated and initial posts contained the words ‘solid gold,’” ASA explained. “They said that appeared to have been due to a miscommunication between their marketing and social media teams where an old version of the post was used for the new campaign … they said that they had put more robust measures in place to ensure that such an error was not repeated.”

Put your robust measures in place now, OK? Before you’ve got the hangover.

Careful Packaging Disclosure Keeps Junior Mints Suit in the Box

Parent company Tootsie dodges third slack-fill suit, but will plaintiffs ever learn?

The Rest Is Silence

There was a time when we here at [email protected] were a tad … obsessed … with slack-fill cases. We knocked out five reports on slack-fill slugouts in 2018 alone. But then … only two in the years since?!

No, our love for multiplying serving sizes or cardboard sheaths over plastic sandwich wrappers didn’t wane. As we noted in our first writeup involving Tootsie Roll Industries (TRI) and their Seinfeld-famous product, Junior Mints, “While slack-fill cases have seen a major uptrend in filings – approximately 300 such cases were filed in 2016 and 2017 … it is becoming increasingly more difficult for plaintiffs to get past the pleading stage on such cases.”

Courts were heavily scrutinizing the glut of slack-fill cases that were bubbling up in the dockets, and filings reflected that difficulty. Slack-fill cases indeed dropped off in 2018 and 2019.

Strung Along

But TRI’s delicious, pepperminty Junior Mints seem to be the product that keeps on giving to slack-fill obsessives.

The first case we quoted was dismissed by the Southern District of New York back in August 2018, but it was followed up quickly by another Junior Mints-related class action filed in the Northern District of Illinois. The court dismissed the second case in 2019, ruling that although the plaintiff “expected to receive something more than what she got,” that disappointment “in and of itself, does not constitute actual damages.” She had failed to prove that the candy she bought “was defective or worth less than the dollar she paid for it,” and so TRI escaped once more.

But despite this victory and the ever-spreading slack-fill draught, TRI faced yet another Junior Mints slack-fill class action last year. Filed at the end of December, the case, brought under the New Jersey Consumer Fraud Act by resident Regan Iglesia in that state’s district court, was cut down in yet another successful motion to dismiss.

The Takeaway

There’s no common denominator with the other cases that accounts for TRI’s latest success; the 2018 case hinged on the presumption that consumers could calculate the amount of Junior Mints they would receive by multiplying the serving sizes in the package by the number of pieces in a serving, while the 2019 case failed on a point that the current case succeeded in making.

To be precise, the court rejected several of Iglesia’s claims. A set of slack-fill allegations regarding Junior Mints’ sister candy Sugar Babies went by the wayside because the complaint failed to specify whether he ever had purchased the offending product, for instance. But the real heart of the matter was a disclosure printed on the Junior Mints box.

“Plaintiff’s allegations about the Products’ packaging and labeling do not amount to ‘misleading’ conduct that will ‘victimize the average consumer,’” the court wrote. “The Products contain a disclosure that the Products are sold by weight, and not volume, which addresses the very information that Plaintiff alleges was misrepresented.” If that weren’t enough, “the net weight of the candy, both in metric and standard measurements, is displayed on the front of the Products’ boxes in easily discernable font.”

There’s the lesson in this latest episode of Junior Mints Slackdown: A little bit of well-placed print copy can spare you an appearance in court – or at least a lengthy appearance in court.

But we wait with bated, minty breath – will the slack-fill bar attack Junior Mints again?

New Pricing Dispute Just Up the Bend for Uber

Plaintiffs: Company charges low upfront price, then hikes it when rider crosses finish line

Rearview Mirror

Uber’s entire business model is about matching riders with drivers and connecting them safely and efficiently. But over the years, as the company has grown, lawsuits and investigations have chipped away at the pillars of this approach – the company’s relations with drivers, its relations with riders, and its ability to guarantee secure, private storage of the data generated by each ride.

The list is capacious – we couldn’t summarize it here even if we simply published a bulleted list of actions the company has faced. If you need an overview, just skim the company’s Wikipedia page.

We’ve written about some of its data woes in the past – a privacy policy settlement with the FTC and a showdown with the city of Chicago over a personal data breach. And on the driver relations front, we discussed a false advertising settlement that ran aground in January 2018 and finally resolved in August of that year. The drivers brought the false advertising case, asserting that “UBER [offered] guaranteed compensation without disclosing the actual conditions imposed.” The complaint cited an ad that promised “Drive & Make $5,000 – Guaranteed, during your first month.”

Objects Closer Than They Appear

Presently, there’s trouble brewing for Uber on the rider relationship front – a class action lawsuit notice posted in late October to topclassactions.com seeking class members for an upfront pricing suit. The as-of-yet-to-be-made accusations include allegations that the company was promising riders cheaper rates before the ride began and then upping the charge once the ride was over. This alleged lowball-bait-and-switch practice “enticed” the riders to pick Uber over other rideshare companies, or so they claim.

Although the exact origin of the suit (or investigation – it’s not clear which) is difficult to verify, the posting notes an earlier, alleged pricing bait-and-switch case that focused on how Uber drivers and Uber divided up the fare.

In Dulberg v. Uber Technologies, Inc. et al., filed in California’s Northern District, a class of Uber drivers sued the company for duplicitous pricing packages. According to the complaint, Uber calculated an upfront price for the rider, and at the end of the ride, Uber, which deducts a service fee when the ride ended, kept the upfront fare. “It then performs a separate calculation after the ride is over,” based on actual mileage and time, the plaintiffs argued, “which, because of Uber’s aggressive upfront calculation, results in a lower amount, and Uber pays drivers their agreed-upon percentage of that [lower] amount … which has no relation to the amount that the passenger actually paid to Plaintiff.”

Dulberg settled in 2019, with the class receiving about $400,000.

The Takeaway

Will the new case take on the same contours as Dulberg? We’ll have to wait and see. But the double-edged nature of that complaint highlights the perils faced by “middleman” companies of every stripe.

In the conventional retail or service model, pricing deceptions occur when the vendor or the service provider conceals, adjusts or otherwise manipulates prices or fees charged directly to the customer. Companies like Uber, which are in the business of connecting service providers to clients, face twice the exposure to accusations of unfair pricing. Anyone who serves in that role needs to take extra care to ensure their pricing structures are simple and clear and don’t sacrifice the interest of one group of customers to another.

Peloton Tries to Knock Class Certification Off Balance

Consumers allege in-home fitness company promised more content than it delivered

Spun Out

Peloton, the apotheosis of in-home fitness equipment, is having quite the time of it in the Southern District of New York.

The company, whose fitness bikes occupy thousands of homes across the United States, should be sitting pretty. The COVID-19 pandemic, which decimated many industries, did wonders for the at-home fitness business, and Peloton, one of the sector’s leading lights, is flying high. Before the pandemic, it executed a monster $1.2 billion initial public offering. By first quarter 2021, it boasted 4.4 million members on its platform and more than $1 billion in quarterly revenue.

But a class action in the SDNY is aiming to clip the company’s wings. Back in early 2019, several music publishers served notice that Peloton was streaming their copyrighted music to support workout videos on the company’s backbone service – high-end, in-home fitness bikes and treadmills. Peloton responded by nixing more than a thousand songs from its service. And that’s when customers got ornery.

Ever-Groaning

According to a complaint filed by three Peloton customers who purchased membership and equipment, the company’s ad tags touted its “ever-growing” library of on-demand fitness classes. “Peloton’s ‘ever-growing’ on-demand library is central to its marketing,” the suit claims, “because it needs to ensure that customers spending thousands of dollars on the Peloton hardware and accompanying workout classes will not run out of new classes over time and will also be able to take and retake older classes.”

Peloton kept making these claims about its ever-growing library even though it had been notified as early as 2018 that it was infringing copyrights by including certain songs. When the thousand songs – including works by Beyoncé, Brittany Spears, Snoop Dogg, Rihanna, David Bowie, Adele, Lady Gaga, Justin Timberlake, Mariah Carey and Jay Z – were yanked, the number of online classes dropped by nearly 60 percent.

Because this drastic decrease gave the lie to the company’s advertising, the plaintiffs said, they deserved redress for deceptive business practices and false advertising under New York state law.

Peloton is fighting back with one buckshot blast of an opposition memo, hoping to derail the class before it’s certified. The motion, filed in October, features a dizzying array of arguments, from the standard to the salacious.

The Takeaway

First, Peloton challenged whether the plaintiffs were typical plaintiffs – to our mind, the most serious attack on the class. Put simply, it was not clear that an ever-growing library of classes was central to the company’s marketing; the plaintiffs couldn’t build a class around it. “The record demonstrates that ‘ever-growing’ and ‘growing’ appeared only in ads that represented a small portion of Peloton’s overall marketing,” the suit states. Moreover, the proposed class included members who had purchased three separate products in three different marketplaces and saw different ads at various times. “Plaintiffs have offered nothing demonstrating that all class members were exposed to the same alleged deceptive language here.”

Additionally, Peloton leaned heavily on the fact that the prices for bikes and treadmill hardware components as well as for the subscription services themselves remained the same “before, during, and for approximately a year and a half after the class period, regardless of whether it used ‘growing’ or ‘ever-growing’ to describe its class library.” Because of this, there was no price premium on which to hang an allegation of harm.

Least important to the meat of the case, but most fun on a gossipy level, was the company’s attack on one of the named plaintiffs, Eric Fishon.

Fishon, Peloton claims, had impersonated a lawyer on several occasions prior to launching the lawsuit. One email read, “To whom it may concern: My client, Eric Fishon … is awaiting your response from correspondence to your last email and request for corporate intervention. Still nothing and waiting FULL resolution on matter from corporate and not an email correspondence from rep.” The emails were signed “Barbara Diperio LLP, ABCO Attorney.” ABCO, Peloton claims, also happens to be the name of a pest control company owned by Fishon’s family.

If the allegations are true, that’s some chutzpah from Mr. Fishon. Peloton claims that when he was confronted with the emails, “Fishon obfuscated if not outright perjured himself.”

It will be fascinating to see which, if any, of Peloton’s defenses go the distance.

Check Out Our Latest Blog Posts

So we have been writing quite a lot about the recent deluge of FTC Notice of Penalty Offense letters. And as we have told you, at their core, the letters are a vehicle that would potentially allow the agency to seek significant civil penalties against companies with actual knowledge that their actions violate the principles described in the letters. My colleagues recently wrote a great blog discussing some of the limitations of this authority and raising questions about the legal underpinnings of aspects of this authority. Click here to read more.

The FTC’s Notice of Penalty Offenses concerning endorsements and testimonials is barely a week old and it’s likely already had its intended effect. Hundreds, if not more, of consumer products companies are taking a second or third look at their practices when it comes to endorsements and testimonials and are beefing up their training and guidance materials. We blogged about the basics concerning the FTC’s notice when it first came out, but it is perhaps time to take a closer look at the extent to which the FTC has a legal basis to assert the right to civil penalties. Please, however, do not take our analysis of the FTC’s legal authority as an invitation to go back to not caring about how your company uses endorsements and testimonials; no one likely wants to find themselves in the position of having to argue to a court about whether the FTC’s notice is legally sufficient. However, given that this is a tool the FTC has begun using extensively and promises to utilize even more in the future (just today, the FTC announced an additional round of letters), we thought it worth a closer look at the legal underpinnings of the FTC’s actions. Click here to read more.

The Latest FTC Policy Statement Sets Its Sights on Negative Option Marketing

Policy statements are neither rules nor notices of penalty offenses, but when the FTC issues a policy statement discussing an area that has been the subject of a lot of enforcement activity, it warrants serious attention, particularly when the press release discusses ramping up enforcement on “illegal dark patterns that trick or trap consumers.” That’s some pretty strong language. Click here to read more.

 

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