Hunton Retail Law Resource

On March 29, 2016, the Federal Trade Commission (“FTC”) filed suit against Volkswagen Group of America (“VW”), which includes Volkswagen of America and Audi of America, for its “Clean Diesel” advertisements.

The complaint alleges VW’s “Clean Diesel” ads made various deceptive claims, including that its diesel technology produced “30% fewer emissions” and reduced “nitrogen-oxide emissions by 90%.” The FTC alleges that the vehicles with VW’s “Clean Diesel” technology were also equipped with a “defeat device” designed to calibrate the vehicle’s emission system to produce legally-compliant emissions during standard emissions testing.

For retailers operating in California, the state’s Safe Drinking Water and Toxic Enforcement Act of 1986 (“Prop 65”) is a constant and often costly headache. Among other requirements, Prop 65 prohibits businesses with ten or more employees, including those that ship products into California, from exposing people in California to any of the over 800 listed chemicals without first providing a “clear and reasonable” warning. The statute also contains a prohibition against discharging or releasing listed chemicals to “sources of drinking water” in the state, but those provisions are not discussed here. The list of over 800 chemicals is revised and updated annually.

This past week, the following consumer protection actions made headlines:

Litigation Halted:

Jury finds Pom Wonderful Failed to Prove Coke Misled Customers

A California federal jury found that Pom Wonderful failed to prove by a preponderance of the evidence its claims under the Lanham Act that Coca-Cola misled customers into thinking that Minute Maid’s “Enhanced Pomegranate Blueberry Flavored 100% Juice Blend” contained more than 50 percent of pomegranate and blueberry juice combined. Pom Wonderful had sought $77.5 million from Coca-Cola, claiming that the company had stolen its business by tricking consumers into buying its juice.

Over the past two years, Hunton & Williams has been carefully monitoring the application of Daimler AG v. Bauman in trial and appellate courts throughout the country. The U.S. Supreme Court’s landmark Daimler decision articulated a standard that significantly limits the types of contacts sufficient to subject a defendant to general jurisdiction in a particular forum. Under that standard, a plaintiff must demonstrate that the defendant’s contacts with the forum are so continuous and systematic as to render it “essentially at home” there. In most instances, a company is “essentially at home” only in the state where it is incorporated and the state where it operates its principal place of business. Since the opinion was issued, the risk of a company becoming subject to general jurisdiction outside its home states has substantially decreased—a largely positive outcome for companies in the retail products industry that have traditionally been subject to “all purpose” general jurisdiction in each state where they conduct business.

A recent flurry of Texas law changes have local and national retailers considering whether to prohibit customers from openly carrying weapons inside of their stores.

This past January, Texas’s “open carry” law went into effect, allowing gun owners to carry their weapons holstered either at their hip or on their shoulder. The Texas law does have limitations, including an exclusion banning open carry on the premises of restaurants and bars that make more than 51 percent of their gross profits from alcohol sales, and, significant for retailers, a provision that allows businesses to prohibit open carry on their premises, as long as they post certain specified signage alerting customers of the ban.

This past week, the following consumer protection actions made headlines:

NAD Actions

Rust-Oleum to Appeal NAD Ruling on “2X” Product Names and Marketing

The National Advertising Division of the Advertising Self-Regulatory Council (“NAD”) has recommended that Rust-Oleum Corp. stop making claims that its “Painter’s Touch Ultra Cover 2X Spray Paint” has double the coverage capacity as competing spray paints. The NAD also has recommended that Rust-Oleum change the product name. Rust-Oleum plans to appeal NAD’s decision to the National Advertising Review Board. NAD also found Rust-Oleum’s in-house testing to be lacking and its marketing claims to be unsupported by testing.

The trend of consumer products brand acquisitions that we identified in Looking Ahead: Retail Antitrust Enforcement in 2016 continued this week with announcements of three separate acquisitions:

Campari to Acquire Maker of Grand Marnier

Gruppo Campari announced that it will acquire Societe des Produits Marnier Lapostolle S.A., the maker of Grand Marnier, for €684 million (approximately $761 million USD). The announced acquisition, if completed, would add Grand Marnier to Gruppo Campari’s spirits and beverages brand portfolio, which includes its eponymous aperitif and other brands, including Skyy vodka and Wild Turkey bourbon.

On March 9, 2016, Hunton & Williams’ Global Privacy and Cybersecurity practice lawyers released a management guide on the EU General Data Protection Regulation (“GDPR”), entitled “Overview of the EU General Data Protection Regulation,” addressing the key impacts the new law will have on businesses. This high-level management guide is intended to provide companies with a roadmap to the Regulation, focusing on topics such as expanded territorial scope, data breach notification rules, the One-Stop Shop concept and the right to be forgotten.

Later this month, we will be ...

After a February 2015 proposed rulemaking (the “NPRM”) faced a firestorm of comments, the Federal Aviation Administration (“FAA”) has determined “that further engagement with industry and stakeholders is needed” before any attempt is made to finalize regulations for very small unmanned aircraft systems, also known as “Micro UAS.” In response, the FAA chartered the Micro UAS Aviation Rulemaking Committee (“ARC”) to continue the review process and prepare recommendations to the FAA for future rulemakings. As originally conceived by the NPRM, Micro UAS are drones weighing less than 2 kilograms (4.4 pounds) that are constructed of malleable materials that will break, bend or “yield on impact so as to present a minimal hazard to any person or object.” The Micro UAS ARC was formed amidst pressure from drone manufacturers and commercial users to appropriately balance safety and privacy concerns with wider drone use.

Yesterday, the Federal Trade Commission laid down a clear marker for retailers in announcing a settlement with Lord & Taylor. This is the agency’s first native advertising case since issuing its Enforcement Policy Statement on Deceptively Formatted Advertising and its Native Advertising Business Guidance in December 2015.

As reported on the Hunton Employment and Labor Law Blog, the Equal Employment Opportunity Commission (“EEOC”) has implemented nationwide procedures which require all EEOC offices to release copies of an employer’s entire position statement, together with all non-confidential documents submitted in support of the position statement, to an employee who has filed a discrimination charge, or his or her representative (including attorneys). These procedures apply to all position statements requested after January 1, 2016. Previously, such disclosures were made in the discretion of the particular field offices or investigators, and practices were inconsistent. As often as not, EEOC investigators might summarize the employer’s evidence and arguments for the employee, in order to solicit the latter’s response.

As reported on the Hunton Employment and Labor Law Blog, the implementation of the NLRB’s ambush election rules in April 2015 has considerably shortened the average time between the date of a petition being filed by a union and the date of election. This change substantially impacts the employer’s ability to conduct an effective campaign in the event of a union petition.

This past week, the following consumer protection actions made headlines:

Food Marketing: Consumers Respond to Motion to Dismiss their Claims Against Walmart’s Missing Pork

On March 9, 2016, plaintiffs in a suit against Walmart Stores, Inc. responded to the company’s  motion to dismiss, saying that their complaint sufficiently put the retailer on notice of allegations that Walmart’s Great Value Pork & Beans in Tomato Sauce lacked an important ingredient: pork. The plaintiffs argue that the USDA requires pork and beans products to contain at least 12 percent pork in order to advertise pork on its labels, and that plaintiffs’ testing did not show any traces of pork in the product. Walmart contends in its motion to dismiss that its labels plainly state that the product contains less than 2 percent pork, and that plaintiffs’ claims are preempted by food labeling laws.

Companies across all industries, including retail, are seeing a significant uptick in software audits and similar software license compliance reviews. These audits can disrupt the day-to-day operations of even the most efficient IT departments and result in additional license fees, back-maintenance payments, penalties for noncompliance and external legal fees. The more aggressive software licensors may also threaten breach of contract claims, infringement claims, remote disabling of software, suspension of maintenance and other more disruptive practical measures. However, there are ways to limit exposure to such costly software audits and the associated risks, and to even prevent them from occurring in the first place.

As reported in the Hunton Employment and Labor Law Blog, under the Fair Labor Standards Act (“FLSA”), employers who use a tip credit to satisfy their minimum wage obligations for tipped employees must follow certain rules related to those tips. One of those rules relates to the use of tip pools – i.e., pooling of tips received by multiple tipped employees and then dividing the total among the pool participants based on a specified formula. Under Section 3(m) of the FLSA, employers who rely on the tip credit and who require their tipped employees to contribute their tips to a tip-pooling arrangement must ensure that the only employees who participate in the pool are those that “customarily and regularly” receive tips. This typically means that managers, hostesses, cooks, dishwashers and other non-tipped employees cannot participate in the tip pool if the employer wants to rely on the FLSA’s tip credit.

On February 29, 2016, News Corporation reached a $244 million settlement with a consumer product manufacturer class to end claims that it monopolized the market for third-party, in-store promotions by entering into long-term, exclusive contracts, and that it overcharged its advertisers by over $674 million in the last seven years. News Corp. acts as an intermediary between retailers and consumer product manufacturers by buying up advertising space on shelves and store floors and then reselling that space to consumer product manufacturers. Plaintiffs alleged that News Corp. used exclusive contracts to tie up nearly 90 percent of the in-store promotions market, and manufacturers, including Dial and Heinz, claimed News Corp. used that monopoly power to extract unfairly high prices.

This past week, the following consumer protection actions made headlines:

Retail Pricing: Class Action Complaint Against Gap Dismissed

A putative class action, alleging that The Gap, Inc.’s deceptive advertising in stores confuses customers as to what products are actually discounted and tricks many into buying products at full price, was tentatively tossed by a California state judge last week. The Court granted Gap’s demurrer in part because the named plaintiff failed to identify particular advertisements relied upon in her purchases and, more importantly, could not allege that she was actually injured by Gap’s alleged practices. In fact, the Court stated that being “psychologically committed” to an item such that the named plaintiff did not return it was not enough to state a claim. The court gave the plaintiff one last chance to allege an injury.

As reported in the Hunton Employment and Labor Law Blog, on March 1, 2016, the United States Equal Employment Opportunity Commission (“EEOC”) sued employers for the first time for sexual orientation discrimination. The EEOC filed lawsuits in federal courts in Pittsburgh and Baltimore against manufacturing and health care employers for unlawful sex discrimination on behalf of employees alleging they were harassed and discriminated against based on their sexual orientation.

As reported in the Hunton Employment and Labor Law Blog, on March 1, 2016, the Securities and Exchange Commission (“SEC”) settled administrative charges against a popular telecommunications equipment supplier, Qualcomm Incorporated, under the Foreign Corrupt Practices Act (“FCPA”). According to the SEC, in addition to unlawfully providing meals, gifts and entertainment to foreign officials in an effort to win new business, Qualcomm also offered full-time employment and paid internships to family members and friends of foreign government officials in an effort to curry favor. In some cases, it appears these friends and family members would not have otherwise qualified for employment at Qualcomm and special accommodations were made to hire them. To settle the case, Qualcomm agreed to cease and desist from future violations, paid a $7.5 million civil monetary penalty and agreed to other heightened compliance measures.

There is general consensus that 3D printing has potentially revolutionary implications for industry and, along with it, for the law. Its consequences for consumers injured by 3D-printed products are potentially just as far-reaching.

Consider this fact pattern: A plumbing parts manufacturer makes CAD files available to plumbing stores so that they may 3D print replacement parts on demand and on-site in response to customer requests. A plumbing store sells such a 3D-printed part to a customer, but the part malfunctions, causing significant damage to the customer’s home.

In this fact pattern, the injured consumer may have recourse against the plumbing parts manufacturer and the plumbing store, although the manufacturer and store are likely to have agreements with indemnification and liability provisions.

For the past several years, the industry and the plaintiffs’ bar have been litigating over what is “natural” and what is not when it comes to food products. This issue hit home with retailers with news of multimillion dollar settlements resolving claims concerning use of the term “natural” on food product labels. The issue certainly became blurred when it came to modern processing methods and advances in biotechnology, particularly with respect to ingredients like high fructose corn syrup or genetically modified fruits and vegetables. Late last year, however, in response to four consumer petitions, the U.S. Food and Drug Administration (“FDA”) requested public comments concerning the use of the term “natural” on food labels. Whether and how the FDA ultimately defines the term “natural” will surely impact cases in the long-run. But the FDA’s decision to request comment has more immediate effects. It arms defendants with potential means to bring pending litigation to an immediate halt.