In This Issue:
- Court Takes a Bite Out of Smartfood Popcorn False Ad But Leaves a Big Portion
- "Longstanding Relationship" Triggers Brand Responsibility on Influencer Claims, NAD Says
- Mitopure Supplement Passes High "Clinically Proven" Bar at NAD
- "FTC Doubles Down on Student Loan Repayment and Impersonation Scams
- Equinox Settles Allegations Consumers Worked Up a Sweat Attempting to Cancel Subscriptions
- Class Action Claims Elevado THC Cocktails Are Hardly "Microdosing"
Court Takes a Bite Out of Smartfood Popcorn False Ad But Leaves a Big Portion
Smart plaintiffs will take note of a federal court's concern in reviewing the class action pleadings against PepsiCo's Smartfood Popcorn.
Plaintiffs brought a putative class action regarding two Smartfood popcorn varieties, alleging that Smartfood deceptively labeled its Smartfood White Cheddar Popcorn and Smartfood Movie Theater Butter Popcorn as made with "No Artificial Flavors" and "No Artificial Preservatives."
Plaintiffs alleged that contrary to these representations, the product contained maltodextrin, an artificial ingredient which functioned as both a preservative and a flavoring (a sweetener). Plaintiffs further alleged maltodextrin was a synthetic substance not found in nature, rendering the labeling false and deceptive, regardless of its purpose. Defendant moved to dismiss, inter alia, on the basis that plaintiffs' pleading lacked specificity, failed to allege the maltodextrin was indeed artificial and failed to allege it operated as a flavoring as distinct from merely a flavor enhancer.
Significantly, before addressing the motion, the U.S. District Court for the Northern District of Illinois dismissed the claims going to the Movie Theater Butter Popcorn variety, finding the court lacked jurisdiction over the claims (plaintiffs did not have standing to sue) because they had failed to allege that they purchased the product. The Court raised the jurisdictional issue on its own since apparently neither party raised it, dismissing the claims without prejudice.
Moving on to the main event, PepsiCo's dismissal motion contended that plaintiffs failed to allege that the maltodextrin in the product is artificial—relying on case law that assessed the artificiality of ingredients that can be derived both naturally and artificially. Here, plaintiffs repeatedly and generically contended maltodextrin is synthetic and not found in nature. Period. The Court disagreed, in so many words finding the argument overly technical.
Interestingly, PepsiCo further argued that even plaintiffs acknowledged that maltodextrin can be derived from natural ingredients like "water and enzymes," while at the same time claiming that maltodextrin is artificial. The Court reserved for a later day the question of whether the ingredient was indeed artificial, finding PepsiCo's argument that an ingredient could not be artificial when it is made from a natural source was not one for the pleading stage.
Regarding the main substance of the motion, the company addressed the preservative and the flavoring issue separately. Regarding flavor, PepsiCo argued that plaintiffs must allege that it is the maltodextrin that gives the popcorn its "characterizing flavor," because the FDA allows products with ingredients listed as flavor enhancers to bear a "no artificial flavors" claim. By way of contrast, products using an ingredient as the "characterizing flavor" must list that flavor as artificial or artificially flavored.
Here, plaintiffs had alleged the maltodextrin acted as an artificial flavoring agent that can give food a sweet flavor, but they had not taken the next step regarding its significance in flavoring the product, giving rise to a preemption argument. On the flavoring point, the Court agreed with PepsiCo that plaintiffs had failed to sufficiently allege that the maltodextrin is an artificial flavor, but said they could easily resolve the problem by amending their complaint and gave them leave to do so.
The Court next turned to the question of whether plaintiffs adequately alleged that maltodextrin is an artificial preservative and found that plaintiffs had succeeded in alleging that maltodextrin is an artificial preservative by citing supporting articles, although they "could have been slightly more precise and explicitly alleged that maltodextrin functions as a preservative in the popcorn." PepsiCo's argument that the FDA does not identify maltodextrin as a preservative was irrelevant for this point. What mattered, said the Court, was whether the labels are likely to deceive reasonable consumers.
Key Takeaways
What is and is not artificial is still subject to debate. Most interesting here was the Court's willingness to give plaintiffs the benefit of the doubt—at least at the pleading stage.
"Longstanding Relationship" Triggers Brand Responsibility on Influencer Claims, NAD Says
This National Advertising Division (NAD) Fast-Track SWIFT matter deals with the question of how far an advertiser has to go to get an influencer to remove content, when that influencer does not have a formalized relationship with the brand but receives complimentary products from the brand and has interacted with it positively on social media.
Charlotte Tilbury Beauty's (CT) challenge centered on a TikTok video posted by influencer Aleksandra Sosfa. In that video, Sosfa demonstrates how easily CT's makeup setting spray can be wiped off compared to advertiser Huda Beauty's comparable product, the Easy Bake Setting Spray.
Huda reposted the video on social media, but removed it immediately before CT's challenge. Huda's founder then commented from her personal account on the influencer's video, writing (with a sad/frown emoji): "Thank you for your review!! We had to take the video down bc Charlotte made us." That comment was also taken down after the NAD challenge was initiated.
As an initial matter, NAD rejected Huda's argument that it had no jurisdiction to hear the matter because Huda had permanently discontinued the claims. NAD noted that the influencer was still displaying the video, and that the comment had not been removed until the current challenge was initiated "in a manner which suggested that the Advertiser approved the content and is therefore responsible for the truthfulness of the claims made in the video."
Moving on to the substance of the challenge, NAD turned to whether Huda should be responsible for ensuring the influencer's original TikTok video is removed. Huda argued that the influencer had no contract with the advertiser, received no compensation for posting on the products, and was not asked to make the endorsement. Therefore, Huda claimed, it did not have the obligation or authority to ask this "unaffiliated" third party to take down the video.
NAD disagreed, concluding that when an advertiser and an influencer share a longstanding relationship, even if it is informal, and the advertiser has been "put on notice" that the influencer's claims may be unsupported, it must take additional remedial action.
Here, Huda had the means to communicate with the influencer, as it communicated regularly about free samples. And the influencer had regularly posted about the products using the free samples. Under these facts, even without a formal arrangement between them, Huda would be expected to communicate with the influencer about the claims.
Key Takeaways
This matter demonstrates yet again the high bar to which NAD holds advertisers when it comes to taking ownership of claims made about their products.
Mitopure Supplement Passes High "Clinically Proven" Bar at NAD
The National Advertising Division (NAD) initiated a self-monitoring action to claims by a supplement maker that its product boosts muscle function and reverses age-related muscular decline at the cellular level.
The advertiser's product, Mitopure Cellular Nutrition, consists of a single ingredient called UA. This substance is a metabolite found in some foods that stimulates "mitophagy," a cellular process that removes bad elements from the body, helping maintain normal bodily functions that generally diminish as we age and leading to poor muscle function.
NAD inquired as to the advertiser's claims that Mitopure is "clinically proven to revitalize mitochondria & boost muscle function" and is "the first nutrient clinically-proven to trigger a crucial recycling process within our cells called mitophagy, preventing age-related cellular decline." NAD also questioned claims that the product increases muscle strength and endurance by a significant percentage.
NAD analyzed the cellular performance claims first and found that the claim that Mitopure is "clinically proven to revitalize mitochondria" was supported. The three studies the company provided in support of this claim demonstrated how certain mitochondrial genes associated with aging and muscle function are positively impacted by UA in general and specifically at the dosage found in Mitopure. The results were statistically significant, and the studies were sufficiently reliable and provided a reasonable basis for the claim.
However, NAD determined that the advertiser failed to support the claim that Mitopure is the "first nutrient clinically-proven to trigger a crucial recycling process within our cells called mitophagy, preventing age-related cellular decline." Specifically, NAD recommended that the advertiser modify the claim to remove the reference to "first." In support of the "first" portion of the claim, the advertiser pointed to, among other things, the fact that the advertiser's search of PubMed did not disclose any other nutrients studied in relation to mitophagy or identified in a clinical trial to trigger mitophagy in humans. NAD acknowledged that UA has been well-studied, and even has been referred to in one study as a "first-in-class natural compound that induces mitophagy," but observed that this study was conducted on rodents, while Mitopure is intended for human use. NAD also wasn't convinced by the evidence that the company could find no other nutrients associated with mitophagy in the official scientific search engine.
On the muscle function claims (e.g., "boost muscle function"), NAD was also not convinced. The study provided in support was methodologically sound in many ways, said NAD: double-blind, placebo-controlled, long-term, relevant clinical endpoints, and a sufficient sample size. But the study tested only middle-aged, sedentary, obese people, whereas the ads showed a range of adults ages 20 to 90 who were physically fit. This conveyed a broad message about body type and effectiveness. Additionally, the only statistically significant results concerned hamstring muscles, such that the results were not necessarily applicable to other muscle groups.
Key Takeaways
Although establishment claims like "clinically proven" are difficult to substantiate and require a high standard of proof, NAD showed once again it is willing to consider them, even in the context of dietary supplements.
FTC Doubles Down on Student Loan Repayment and Impersonation Scams
Student loan debt relief scams are front and center at the Federal Trade Commission (FTC), which recently announced settlements in two separate cases targeting deceptive student loan repayment scams.
The eerily similar allegations in the separate matters center on deceptive promises to help consumers get relief from massive student loan debt, facilitated by impersonation of U.S. Department of Education personnel.
The FTC sued Panda Benefit Services in June 2024, alleging that the company, which also operated as Prosperity Benefit Services and under many other names, misled consumers by promising debt relief that never materialized. The company and its principals tricked former students already struggling with significant student debt into paying for its services by guaranteeing it would procure loan forgiveness or significantly reduce loan payments. These were all false claims, said the FTC, and cost consumers more than $20 million.
The company sent consumers mailers with language creating a false sense of urgency and boasting claims like "complete loan forgiveness." When consumers called, telemarketers made false and misleading representations guaranteeing loan forgiveness and claiming they would assume responsibility for servicing customers' student loans. In reality, the company did not apply for or obtain any loan forgiveness or reduced monthly payments on consumers' behalf.
When it was filed, the suit against Panda Benefit marked the first time the FTC filed a lawsuit under the Impersonation Rule, which makes it unlawful to impersonate a government entity. The FTC alleged that Panda Benefit falsely told consumers that it was affiliated with the U.S. Department of Education as part of the student loan debt relief scheme.
The more recent case filed against Florida-based Start Connecting and its Colombia counterpart Start Connecting SAS follows a similar fact pattern. The defendants ran "USA Student Debt Relief," which advertised that it could procure loan forgiveness and charged hundreds of dollars for this service, which it did not provide. The company also allegedly falsely promised that it could get consumers fixed monthly payments. Like Panda Benefit, it impersonated Department of Education personnel.
In both cases the companies are alleged to have made millions of dollars out of their schemes. And both settlements require the defendants to turn over all their assets and be permanently barred from the debt relief industry. The settlements also include multimillion-dollar monetary judgments against the defendants, although most of the money owed has been suspended due to inability to pay.
In Panda Benefit's case, the FTC already settled with several of the defendants and obtained a default judgment against others. This latest round enters stipulated orders with Select Student Services and company officer Eduardo Martinez.
Key Takeaways
Despite the change in Administration and FTC leadership, the FTC is still committed to preventing clear financial misconduct. Chairman Ferguson confirmed as much in his recent testimony before the House Subcommittee on Financial Services and General Government.
Expect the FTC to stay vigilant in this space.
The FTC will be active in bringing actions against companies that impersonate other business or government officials, in violation of the Trade Regulation Rule on Impersonation of Government and Businesses.
Equinox Settles Allegations Consumers Worked Up a Sweat Attempting to Cancel Subscriptions
Upscale gym Equinox Group has agreed to settle New York Attorney General Letitia James' allegations that it violated New York law and the federal Restore Online Shoppers' Confidence Act by making it difficult to cancel its automatically renewing subscriptions or "negative options."
Equinox must pay $600,000, offer additional refunds to customers who tried to unsubscribe from the membership but couldn't, and change its subscription policies to comply with New York law and federal law.
According to James, the details of subscriptions sold by Equinox and SoulCycle (which is owned by Equinox) were not clearly disclosed to customers, including the minimum 12-month term of the subscription, the fact that the subscription renews, and the cancellation policy. The 12-month term was allegedly disclosed only in small and lightly colored print, making it easy to miss. Other material terms like the cancellation policy and mechanisms were hidden behind lengthy terms and conditions.
James also alleged that Equinox did not obtain customers' affirmative consent to the automatic renewal terms during enrollment, only consent to the linked terms and conditions. The company's email confirmation of the membership further allegedly failed to include any information about the material terms of the membership or information on how to cancel.
Finally, James alleged that the company's cancellation policies left much to be desired. During the first year of membership, customers could only cancel for very specific reasons such as a physical disability, moving more than 25 miles away from an Equinox location or dying, which, to be fair, would probably make it hard to work out. And even when customers who had passed the 12-month threshold for cancellation tried to cancel, Equinox allegedly made the cancellation process more difficult than benching 300 pounds while standing on one foot. According to the investigation, many consumers complained to the Federal Trade Commission (FTC) and Better Business Bureau (BBB) about the confusion and inability to cancel their subscriptions, and most customers had the mistaken impression that they could "cancel at any time" and no knowledge of how difficult it was to cancel.
Key Takeaways
Even though the FTC has delayed enforcement of the new "Click to Cancel" rule, regulators have many existing statutory tools to target automatically renewing subscriptions that are not clearly disclosed to consumers, including ROSA and the federal Telemarketing Sales Rule (TSR). Expect states to continue to step up and step in.
Class Action Claims Elevado THC Cocktails Are Hardly "Microdosing"
A class action lawsuit alleges that a brand of THC-infused cocktails falsely advertises its drinks as "perfectly microdosed" even though the amount of THC and CBD is too high to be considered microdosing.
The complaint describes how Elevado Drinks sells canned "cocktails" in flavors like "Strawberry Daiquiri" and "Berry Mojito." These cocktails don't contain alcohol but they do contain, according to the front label, "5mg THC" and "5mg CBD," while in its marketing, Elevado touts the product as "perfectly microdosed" with THC according to the complaint.
As plaintiffs note, microdosing usually "refers to the practice of consuming minimal quantities of a substance at regular times during the day" in order to derive certain health benefits and avoid "the usual mind-altering or adverse effects linked with that substance."
Elevado's marketing claims that the product's "micro" dosage will give consumers a "smooth enjoyable buzz" to "savor or stack to find your ideal dose," say plaintiffs. The complaint describes how the company calls the THC cocktails "perfectly microdosed to deliver a light, balanced buzz. Think chill yet sociable, with vacay vibes in every sip. No hangovers, just good times."
But plaintiffs allege that the amount of THC contained in each drink is far above anything that could be called microdosing. They claim that microdosing typically refers to a dosage of between 1 to 2.5 mg, and that in many states the maximum amount of THC permitted in one serving is the same 5mg featured on the Elevado drinks. This renders the "microdosing" marketing deceptive, they say.
The complaint, filed in the U.S. District Court for the Eastern District of California, also alleges that the products are "unapproved drugs" under the Food, Drug & Cosmetic Act, which makes their sale unlawful. They allege that the marketing was unfair to competing retailers who did not use unapproved drugs in their products and unlawful because the Food and Drug Administration (FDA) categorizes THC and CBD as unsafe for food additives, in violation of California's Unfair Competition Law (UCL).
Among other requests for relief, plaintiffs want Elevado to cease marketing the cocktails with "deceptive and unlawful claims and ingredients," conduct a corrective marketing campaign, destroy misleading materials, and award them damages and attorney fees.
Key Takeaways
Plaintiffs will have a hard time arguing that a reasonable person would have been deceived by the advertising, given that the drink's front label and source of the alleged misrepresentations lists the 5mg THC amount. Moreover, plaintiffs do not allege that they or the reasonable consumer cannot be expected to understand THC dosing sufficiently well to gauge the alleged significance of the 5mg of THC to the microdosing claim. But with all of the other claims made by plaintiffs there may be enough in the complaint for Elevado to be stuck dealing with this suit for some time. We'll keep our eyes on this one.
