AAF Government Report

July 16, 2009

Clark Rector Jr., Executive Vice President – Government Affairs

*This issue of the AAF Government Report includes the first installment of a new monthly feature, a legal brief provided by AAF member Frost Brown Todd, LLC. We hope you find it useful and informative.

DTC Advertising Not in Initial Revenue Bill

Eliminating the deductibility of prescription drug advertising was not in the healthcare reform revenue raising proposal released by the House Ways and Means Committee July 14. Advertising deductibility had been on the list of revenue option being considered by committee members. In June, Ways and Means Chairman Charles Rangel, D-N.Y. made comments favoring the option. AAF members, and others in the advertising industry, flooded committee member’s offices with calls and emails opposing any reduction in advertising deductibility and explaining the economic benefits and jobs supported by advertising.

Eliminating deductibility may still be considered as a funding source for healthcare reform. The revenue option chosen by the committee, a surtax on high income earners, is very unpopular and is not assured of passing. If it fails all options, including advertising, will be back on the table.

Eliminating prescription drug advertising deductibility has reportedly been discussed by members of the Senate Finance Committee, although it has never been publicly disclosed as a revenue option by that Committee.
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Committee Scrutinizes FCC Nominees

The Senate Commerce Committee conducted a July 15 confirmation hearing for Federal Communications Commission nominees Mignon Clyburn and Meredith Baker. When asked about the hot button Internet issue of net neutrality Clyburn stated, “I believe in preserving the openness of the Internet. I will do everything in my power to preserve that.” Baker supported reasonable management of network traffic by broadband providers and said she does not believe there is adequate justification for government intervention.

Both nominees said that will not support reinstating the Fairness Doctrine. The Fairness Doctrine was an FCC policy that mandated that broadcasters cover conflicting views of issues of public importance. While the policy was abolished in 1987, some members of Congress continue to push for its reinstatement.
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Commerce Secretary Looking at Relationship With ICANN

Commerce Secretary Gary Locke has responded to a May letter from Sens. Bill Nelson D-Fla. and Olympia Snowe R-Maine that he is paying “serious attention to the critical responsibilities” of the Commerce Department in respect to the Internet Corporation for Assigned Names and Numbers (ICANN). Locke said “Given the Internet’s importance as a global medium supporting economic growth and innovation, any decision that the Department makes with respect to the future of the joint project agreement with ICANN will be guided by the need to continue preserving the security and stability of the Internet’s domain name and addressing system.”

Echoing concerns raised in a letter from the AAF and many others, Locke said “accountability remains a threshold issue.” See the AAF letter here.
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Senate Committee to Hold Advertising Hearing

The Consumer Protection Subcommittee of the Senate Commerce Committee has scheduled a July 22nd hearing to discuss deceptive advertising. The hearing comes as the Committee prepares to work on reauthorization of the Federal Trade Commission. Future hearings centered on children’s issues and possibly behavior marketing are anticipated before the FTC Reauthorization.

The advertising community will be represented by Lee Peeler of National Advertising Review Council, the self-regulatory arm of the advertising industry. Other witnesses will likely be a representative from the FTC and someone from a professional consumer group.
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Froot Loops and Cap’n Crunch False Advertising Claims Rejected

By Kevin T. Shook, Frost Brown Todd, LLC

A federal district court in California recently dismissed two putative class action lawsuits alleging that the marketing and packaging of Froot Loops and Cap’n Crunch with Crunchberries deceived consumers into believing that the products actually contained real, nutritious fruit.  Both lawsuits were brought under California’s Unfair Competition Law and were rejected on virtually identical grounds. 

The Froot Loops lawsuit alleged that Kellogg’s use of the word “Froot” in the product name, coupled with pictures of fruit and the brightly colored cereal on the packaging was deceptive.  The Plaintiff, Keith Videtto, claimed that he purchased Froot Loops over a period of four years in large part because he had been exposed to this packaging.  The ingredients list on the Froot Loops box reveals that the cereal contains no actual fruit, but only “natural fruit flavors.”
Similarly, the Cap’n Crunch with Crunchberries lawsuit alleged that the Defendants’ use of the word “berries” in the product name, along with the packaging depiction of “Cap’n Crunch thrusting a spoonful of ‘Crunchberries’ at the prospective buyer,” was deceptive.  The Plaintiff, Janine Sugawara, claimed that the packaging led her to believe that Crunchberries actually  contained elements of redeeming fruit.  The ingredients listed on the Cap’n Crunch box indicate that the only fruit content in a Crunchberry is a touch of strawberry fruit concentrate.

In granting both motions to dismiss, the court distinguished the Ninth Circuit decision in Williams v. Gerber Co. (2008), which found that the packaging of a Gerber product “could likely deceive a reasonable consumer.”  In that case, the product was called “Fruit Juice Snacks,” and the packaging depicted a number of different fruits and contained statements that the product was made with “all natural ingredients” and would “help toddlers grow up strong and healthy….”

Contrasting the Gerber case, the court noted that the Froot Loops packaging does not prominently feature pictures of fruit and contain phrases suggesting nutritional value.  Instead, it features the name Froot Loops, a picture of Toucan Sam, a picture of a bowl of Froot Loops, a small banner stating “natural fruit flavors” with “small vignettes of fruit next to it,” and the phrase “sweetened multi-grain cereal.”  The court stated that “the fanciful use of a nonsensical word cannot reasonably be interpreted to imply that the Product contains or is made from actual fruit.”  With the absence of any nutritional claims on the box, the court found that it’s “entirely unlikely” that members of the public would be deceived.

Similarly, the court found that the Cap’n Crunch packaging was not deceptive because it makes no claim “to be particularly nutritious or to be designed to meet the nutritional needs of toddlers or children….”  The court further noted that is was not aware of any actual fruit referred to as a “Crunchberry,” and the packaging clearly depicted a Crunchberry as “round, crunchy, bright colored cereal balls.”  Under these facts, the court concluded that a consumer was not likely to be deceived as a matter of law. 

Videtto v. Kellogg, E.D.Calif. No. 08-1324 (2009 U.S. Dist. LEXIS 43114)
Sugawara v. Pepsico, E.D. Calif. No 08-01335 (2009 U.S. Dist. LEXIS 43127)

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