Rimon Law Blog
Watch out greenwashers; here comes the FTC
The Federal Trade Commission ("FTC") was created in 1914 to regulate unfair trade practices. It issued its first set of Guides for the Use of Environmental Marketing Claims (commonly known as the Green Guides) under in 1992, which it then updated in 1996 and 1998. The Green Guides are meant to provide guidance to marketers so they can avoid making unfair and/or deceptive environmental advertising claims. Imagine that! Technically, the Green Guides informally interpret Section 5 of the FTC Act (15 U.S.C. §§ 41-58) ("The Act"), which governs unfair and/or deceptive advertising claims, including claims about environmental benefits and practices. Essentially, the Guides are a play book for how to stay out of trouble with the FTC.
First, the Green Guides outline general principles applicable to all environmental marketing claims and make suggestions for avoiding greenwashing, which means making false green claims. For example, the Guides state that an environmental claim on product packaging should make clear whether it refers to the product itself, or just the product's packaging.; Likewise, a claim that a service has an environmental benefit should make clear what aspect of the service produces the claimed benefit. The Guides also caution against making overstated and unqualified claims. It's pretty simple, really; if you cannot prove it, you shouldn't use it. Use of specific "green" terms in marketing and advertising, namely, biodegradable, compostable, recyclable, recycled content, refillable and ozone safe & friendly also is addressed by the Guides. The Guides state that marketing claims using these terms should be substantiated by competent and reliable scientific evidence and qualified to the degree necessary to avoid consumer deception.
Although the Green Guides are advisory in nature, the FTC may order a company to take corrective action if it believes that the company's marketing or advertising claims are unlawfully unfair or deceptive under the FTC Act. From 1990 through 2000, there were 37 FTC Environmental cases. Most of the cases challenged the use of the terms listed above, like biodegradable and recyclable. Not surprisingly, there were no FTC environmental cases during George W. Bush's Presidency. Since President Obama took office, the FTC has brought seven environmental enforcement actions. In 2009, the FTC pursued four bamboo clothing and textile companies for deceptively labeling products as made from bamboo, when really they were made from rayon. The FTC also pursued Kmart and others in 2009 for making false biodegradability claims. In February of this year, the FTC sent letters to 78 retailers, including Wal*Mart, Target and Kmart, cautioning them not to sell rayon products labeled as bamboo. One would think these companies would know better, though apparently not.
Since green claims now are as common as sarcasm on the Colbert Report, the FTC began reviewing its Green Guides in November, 2007, a year earlier than originally scheduled. Who knew the U.S. Gov't did anything ahead of schedule; that alone seems newsworthy. The FTC previously requested public comment on the Guides and also held workshops to discuss various green marketing issues, including the marketing of carbon offsets and renewable energy certificates (RECs), green packaging claims and green building and textiles over the past few years.
Apparently, the FTC plans to release the new guidelines by the end of this summer. For now, companies will have to wait and see if they have what it takes to continue calling themselves green. A recent article in Advertising Age on-line magazine relayed concerns over the effect of the new Green Guides. In addition to increased FTC enforcement, presumably, the new Guides will have a expanded the list of regulated environmental terms which may include frequently used buzzwords like sustainable, carbon neutral, zero waste and zero emissions. According to the AdAge article, some experts predict that many, or most, enviro "seals of approval" will violate the new Green Guides, especially if their claims are not substantiated.
Despite all the questions about the forthcoming updated Green Guides, one thing is certain; just as greenwashing is becoming more common, thankfully, better tools are being developed to combat it.
Has the PTO Gone to Pot?
Pipe dreams of trademark protection for marijuana go up in smoke . . .
On April 20, 2010 the USPTO issued a federal service mark registration to Sunny Chan d/ba Good Leaf Collective for the mark GOOD LEAF COLLECTIVE for "Retail store and on-line retail store services featuring medical marijuana". Ironically (and probably much to the delight of Mr. Chan), April 20 is a counter-culture holiday amongst marijuana users. Unfortunately for Mr. Chan and the nearly 100 other applicants who are waiting for the USPTO to issue registrations for their marijuana related products and services, on July 20, 2010 the PTO had a change of heart and the applicant's pipe dreams may have gone up in smoke.
On July 20, 2010, the USPTO sent Mr. Chan a letter informing him that his federal service mark registration was issued mistakenly and has since been canceled. The letter continues to state that Mr. Chan's application has been restored to pendency and the file returned to the Examining Attorney to issue a refusal.
In a related twist, the USPTO publishes a Manual of Acceptable Identifications of Goods and Services on its website for use by federal trademark registration applicants . According to a July 19, 2010 WSJ article, on April 1, 2010 the PTO approved an ID for "Processed plant matter for medicinal purposes, namely medical marijuana". The USPTO offers a public service whereby applicants (or their counsel) can suggest IDs to be added to the manual. I have used this service many times to assist clients in the sustainabiltiy space get their innovative product and service descriptions pre-approved by the PTO. Apparently, someone suggested the medicinal marijuana ID, which the PTO approved given that there are fifteen states in which medical marijuana is legal (AK, CA, CO, DC, HI, ME, MI, MO, NV, NJ, NM, OR, RI, VT, WA). The addition of marijuana to the manual apparently created a rush on the PTO with several new applications filed for marijuana and marijuana related products and services. Apparently, the marijuana ID was removed in mid-July admist questions from the Wall Street Journal about its prudence.
Thus, for now, legal medical marijuana growers and purveyors will have to rely on common law rights, or use broader categories in their trademark applications -- such as dried plants or agricultural seeds -- to protect their trademarks nationwide.
Obama Administration Approves $1.5 Billion in Foreclosure-Prevention Funding
On June 23, the Obama Administration approved $1.5 billion in "Hardest Hit Fund" foreclosure-prevention funding for state Housing Financing Agencies. The funding is meant to support struggling homeowners in Arizona, California, Florida, Michigan, and Nevada.
President Obama established the "Hardest Hit Fund" in February 2010 in order to provide aid to those most affected by the housing downturn. This recent approval will assist struggling homeowners with negative equity through principal reduction, assist some individuals with mortgage payments, facilitate the settlement of second liens, facilitate short sales and/or deeds-in-lieu of foreclosure, and assist in the payment of arrearages.
The full press release from the Department of the Treasury is available here.
Supreme Court Upholds Employer’s Right to Read Employee Text Messages
The Supreme Court recently held in City of Ontario v. Quon that in certain circumstances an employer has the right to read text messages sent from and delivered to a pager issued by the employer to one of its employees. While reading employee text messages may generally violate the Fourth Amendment's guarantee against "unreasonable searches and seizures," the Court held in this case that since the employer conducted its review for a noninvestigatory, work-related purpose, it was withing its rights.
The source of the litigation arose in 2001 when the City of Ontario, CA, issued pagers to its employees, among them Jeff Quon who was working for the Ontario Police Department. Under the wireless service plan, monthly text allowances were limited and excess usage was charged. Quon was told by his supervisor that his text messages would not be monitored as long as Quon paid the overage fees. However, before acquiring his pager, Quon and others accepted the City's "Computer Usage, Internet and E-Mail Policy" under which the City "reserve[d] the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources." Although texts were not explicitly included in this policy, the City made clear that texts would be treated the same as e-mails. When Quon and other officers incurred overage charges numerous times, it was proposed that perhaps the text allowance was too low and that the department should determine whether the excessive texting was work-related, and if so, to expand the monthly text allowances. In fact, the vast majority of Quon's texts sent and received while at work were not work related, and he was disciplined. However, Quon and others felt the review had violated their Fourth Amendment rights and filed this action. The Court upheld the City's right to review the texts.
This opinion is an important reminder to employers to ensure that their personnel policies convey a clear message to employees regarding privacy issues related to use of company communication systems. Also, employers should make sure that their managers are aware of company policy and are not making misrepresentations to employees.
House Passes Changes to Carried Interest Taxation
On May 28th, the House passed H.R. 4213, the "American Jobs and Closing Tax Loopholes Act." The Act addresses an array of issues, but has particular signficance for certain partnership and LLC "carried interests" for investment fund managers. If it goes through, the Act would prevent investment fund managers of venture capital, private equity, hedge and real estate funds from paying taxes at capital gain rates on investment management services income received as carried interest in an investment fund.
Under the proposed changes, return on invested capital in the form of carried interest would continue to be taxed at capital gain tax rates. But to the extent that carried interest does not reflect a return on invested capital, investment fund managers would eventually be required to treat seventy-five percent of the remaining carried interest as ordinary income.
The proposed changes would not take effect until 2011. However, for the bill to become effective it must also be passed by the Senate, an outcome which is not certain to occur.
Class Action For 1.5 Million Wal-Mart Employees Affirmed By Ninth Circuit
In the recently decided case of Dukes v. Wal-Mart Stores, the Ninth Circuit upheld a 2004 district court's decision to certify a class that could potentially consist of 1.5 million women employed by Wal-Mart since 1997. Through this gender discrimination class action, the employees seek back pay, declaratory relief, and injunctive relief.
The plaintiffs allege that Wal-Mart engaged in discriminatory pay and promotion practices in violation of Title VII by paying female employees less than their male counterparts and giving fewer promotions to women than to men.
In 2005, after the district court held that class certification was appropriate under Federal Rule of Civil Procedure 23, Wal-Mart appealed that decision claiming that the class did not satisfy Rule 23(a)'s class requirements and that the potential size and cost of the claim violated Rule 23(b)(2). While the Ninth Circuit did not comment on the merits of the case, it held that there was no violation of Rule 23 that would prevent the class action. Wal-Mart plans to appeal the case to the Supreme Court.
The Ninth Circuit also held that when a district court is determining class status under Rule 23, it must apply a "rigorous analysis." It will be interesting to see whether this standard benefits parties opposing or advocating class certification in the future.
FINRA Regulatory Notice Regarding Regulation D Offerings
The Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 10-22 on April 20, 2010. The notice, which came in light of recent abuses in Regulation D offerings, was intended to be a reminder to broker-dealers of their obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings made under the Security and Exchange Commission's Regulation D under the Securities Act of 1933 (also known as private placements).
This obligation arises from the broker-dealer's "special relationship" to the customer and the representation, in recommending the security, that the broker-dealer has conducted a reasonable investigation and is basing the recommendation on conclusions drawn from the investigation.
If such a reasonable investigation is lacking, the broker-dealer must make that fact and the risks that arise from the lack of information known when making a recommendation.
Additionally, broker-dealers recommending securities offered under Regulation D must meet its suitability requirement under NASD Rule 2310, and must comply with the advertising and supervisory rules of FINRA and the SEC. That is, a broker-dealer must conduct a suitability analysis when recommending securities to both accredited and non-accredited investors that will take into account the investor's knowledge and experience.
While the notice admits that no list of reasonable investigation practices would suffice since each investigation must be tailored to the specific facts of the Regulation D offering in question, it does provide a list of sample investigative practices. A few of those include:
- Examining the issuer's governing documents, noting particularly the amount of its authorized stock and any restriction on its activities.
- Looking for any trends indicated by the financial statements.
- Inquiring about internal audit controls of the issuer.
- Contacting customers and suppliers regarding their dealing with the issuer.
The full notice is available at FINRA.org.
Ninth Circuit Broadens Definition of “Copyright Registration” for Litigation Purposes
In order to initiate an infringement action in federal court, the Copyright Act requires the litigating party to hold a copyright registration. While the circuits are split on what constitutes a copyright registration, the Ninth Circuit recently joined the Fifth and Seventh Circuits in Cosmetic Ideas v. IAC in holding that anapplication for copyright registration suffices for a registration for litigation purposes.
In this case, Cosmetic Ideas developed, manufactured, and sold a unique piece of costume jewelry starting in 1999. Sometime thereafter, another company, HSN, started manufacturing and distributing a "virtually identical" piece of jewelry. Cosmetic applied for copyright registration of its jewelry on March 6, 2008 and received confirmation from the Copyright Office of receipt of the application on March 12. Cosmetic filed its infringement action on March 27, before the Copyright Office had issued a registration certificate for the jewelry (which it subsequently did). Despite that fact, the Ninth Circuit held that the application sufficed for the purposes of initiating an action in court.
This decision by the Ninth Circuit is beneficial to plaintiffs who can now proceed with infringement actions without worrying about their cases being dismissed or impeded for lack of subject-matter jurisdiction if they have not yet been granted a copyright registration from the Copyright Office.
New Employee Rights Poster Issued Under National Labor Relations Act
The Department of Labor recently published a poster listing employees'; rights under the National Relations Labor Act (NRLA). The notice, which Federal contractors and subcontractors are required to display in a conspicuous location, informs employees that under the NRLA they are guaranteed:
- the right to organize and bargain collectively with their employers;
- the right to engage in other protected concerted activity; and
- protection from certain types of employer and union misconduct.
The notice is required to be posted all places where notices to employees are normally displayed, whether physical or electronic. It is available in both a one-page 11 x 17 in. format and a two-page 8.5 x 11 in. format. There is a fact sheet provided which lists, among other things, exceptions to the posting requirements and information on posting the notices and acquiring translated posters. More information is available at the Office of Labor-Management Standards website.