ACI’s Legal, Regulatory and Compliance Forum on Cosmetics February 20-21, 2014

Mitigating the Risk of and Defending Cosmetics Products Liability and False Advertising Class Actions

February 20, 2014 4:00 p.m.

Daniel R. Dwyer Anca Cornis-Pop Dennis S. Ellis Partner Senior Counsel, Global Partner, Litigation Kleinfeld, Kaplan and Marketing Department Becker, LLP Avon Products, Inc. Paul Hastings, LLP

Tweeting about this conference? #ACICosmetics 10 Suggestions for Aggressive but Defensible Cosmetic Claims

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 1. Use “appearance” claims

• To reduce the risk that your claim will be interpreted as a drug claim, wording such as – –“Helps minimize the appearance of lines and wrinkles” is better than –“Helps minimize lines and wrinkles”

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 2. Avoid high-risk claims

• Genetic claims • Collagen claims • Comparisons to the effects of Botox or face-lift surgery • Names of diseases

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 3. Define your terms

• For example – – “Repairs” • “Repairs better than the leading conditioner” means smoothes, reduces damage at the tips, strengthens and shines when that’s what the ad says or shows » Unilever, NAD Case 5057 (7/09) – “Natural” • “Natural shampoo” means that specific natural ingredients are added and certain ingredients are excluded when that’s what the label says – Note: No reasonable consumer would think that a shampoo is “existing in or produced by nature” » Balser et al. v. Hain Celestial Group, cv-13-05604-R (C.D. Cal., Dec. 18, 2013) (appealed, Jan. 13, 2014) – “Organic” – “Organic” means certified as organic under USDA’s National Organic Program, if that’s what the label says

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 4. If you make a claim about a specific level of performance, make sure your data support that level

• For “up to 45%” reduction in appearance of dark circles, testing on an ingredient could not be extrapolated to the marketed cosmetic – IQ Cosmetics, NAD Case 4666 (5/07) • “[Q]uantified claims of product performance require a level of substantiation that is very specific to the advertised product’s precise formulation, application and measurable performance.” – P&G, NAD Case 4266 (1/05). Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 5. For claims that are “puffery,” avoid specific details

• “No more dark circles and crow’s feet” is not puffery in a context of claims about dramatic skin changes, where “the implied message of eradication was a reasonable consumer takeaway.” – IQ Cosmetics, NAD Case 4666 (5/07). • But “Erase fine lines! Erase crow’s feet! Erase age spots!” was puffery in an ad where only 14% of consumers took away total elimination of imperfections. – Maybelline, NAD Case 5241 (11/10).

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 6. If you only have substantiation for ingredients, limit claims to ingredients

• “… [A]n advertiser … may not extrapolate testing results on a particular ingredient contained in its product to substantiate performance claims for its product when … it contains other ingredients that could impact upon product performance.” • However, the evidence might support more limited claims that “an ingredient in the product and not the product … itself [may] … potentially reduce under eye puffiness.” – Skin Doctors, NAD Case 4627 (2/07). Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 7. Make sure your substantiation is scientifically defensible

• The test product and subjects are representative of the actual product and consumers • The protocol is consumer-relevant • The test is blinded and well-controlled • Results are statistically significant • Comparative tests are head-to-head or otherwise reflect an accurate comparison

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 8. Match your claims to your substantiation • Objective scientific claims require a clinical study, not an in-home consumer use study • BreathAsure, NAD Case 3151 (11/94) • Subjective claims (e.g., “soothing”) require consumer perception testing, not a clinical study • Kimberly Clark, NAD Case 3574 (8/99) • “Clinically proven” claims require clinical proof

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 9. Use disclosures to clarify the limitations of claims • A disclosure may qualify or limit a claim (so as to avoid giving a misleading impression) • But a disclosure may not directly contradict a claim – For example, where the claim conveys that an antiperspirant leaves no perceptible residue on clothes, a demonstration that shows perceptible residue “contradicts instead of qualifies the main message,” and so cannot be relied upon to modify the claim • Unilever, NAD Case 4560 (9/06)

Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP 10. Keep the overall context “cosmetic”

• Focus on a temporary, superficial change in appearance – A consumer should not “expect[] anything other than a possibility that she may look better.” United States v. An Article of Drug … Magic Secret, 331 F. Supp. 912 (D. Md. 1971). • Avoid claims that, to an “ignorant, unthinking or credulous” consumer,” may imply a “medical- or drug-type” effect. – United States v. An Article … Sudden Change, 409 F.2d 734, 741-742 (2d. Cir. 1969). • However, claims “so associated with the familiar exaggerations of cosmetics advertising that virtually everyone can be presumed to be capable of discounting them as puffery” do not cause a product to be intended for use as a drug. – Id. Daniel R. Dwyer KLEINFELD, KAPLAN & #ACICosmetics KKB BECKER LLP Class Action Origins

• FTC • FDA • NAD • Advocacy groups • PETA

Anca Cornis-Pop

#ACICosmetics FTC/Scheuerman v. Nestlé Healthcare Nutrition, Inc.

Anca Cornis-Pop

#ACICosmetics FDA/In Re: L’Oreal Wrinkle Cream Marketing and Sales Practices Litigation

“The claims on your web site indicate that these products are intended to affect the structure or any function of the human body, rendering them drugs under the Act.”

Anca Cornis-Pop

#ACICosmetics FDA/In Re: Avon Anti-Aging Skincare Creams and Products Marketing and Sales Practices Litigation • Anew Clinical Advanced Wrinkle Corrector: • “The at-home answer to wrinkle-filling injections. Start rebuilding collagen in just 48 hours.” • “4D WRINKLE-REVERSE TECHNOLOGY IS DESIGNED TO: • Rebuild collagen to help plump out lines and wrinkles. • Stimulate elastin to help improve elasticity and resilience. • Regenerate hydroproteins to help visibly minimize creasing.” • “Formulated to boost shock-absorbing proteins to help strengthen skin's support layers.” • “Improve fine & deep wrinkles up to 50%. Immediately plumps out wrinkles and fine lines. Within 48 hours begins boosting collagen production.” • Anew Reversalist Night Renewal Cream & Anew Reversalist Renewal Serum • “[W]rinkles are a result of micro-injuries to the skin, so AVON studied how skin heals. As part of the repair process, the body produces Activin . . . . [E]xhaustive research, testing & review have resulted in an unprecedented discovery by AVON scientists: how to activate this key repair molecule. . . . Designed to boost Activin, ANEW’s Activinol Technology helps reactivate skin’s repair process to recreate fresh skin & help dramatically reverse visible wrinkles.” • Anew Clinical Thermafirm Face Lifting Cream • “Our effective lifting treatment is formulated to fortify damaged tissue with new collagen. In just 3 days, see tighter, firmer, more lifted skin.” • “[H]elp tighten the connections between skin's layers.” Anca Cornis-Pop

#ACICosmetics NAD/Alexander, et al. v. L’Oreal USA, Inc.

Anca Cornis-Pop

#ACICosmetics NAD/Chow v. Neutrogena Corp.

Anca Cornis-Pop

#ACICosmetics Public Advocacy Groups

Anca Cornis-Pop

#ACICosmetics Public Advocacy Groups/Beltran, et al. v. Estee Lauder, et al.

Anca Cornis-Pop

#ACICosmetics Recent Cases and Trends in Cosmetics Actions The Unilever Class Actions . Several consumer class actions were filed in 2012-2013, in various federal courts, against Unilever U.S., Inc. and related distributors, including: – Naiser v. Unilever U.S., Inc., No. 3:13-CV-00395-JHM (W.D. Ky 2013) – Wells v. Unilever U.S., Inc., No. 3:13-cv-04749-EDL (N.D. Cal. 2013) – Reid v. Unilever U.S., Inc., No. 12 C 06058 (N.D. Ill. 2012), available on Westlaw at 2013 WL 4050194.

. These class actions related to Suave® Professionals Keratin Infusion 30 Day Smoothing Kit, a hair product which allegedly caused hair loss and scalp burning

. Consumers sought damages under breach of warranty theories, violations of state consumer protection acts, the Magnuson-Moss Warranty Act, and under common law tort law claims (e.g., negligence, unjust enrichment, etc.)

Dennis S. Ellis #ACICosmetics Recent Cases and Trends in Cosmetics Actions Algarin v. Coty, Inc., No. 3:120cv-02868-JAH-JMA (S.D. Cal. 2012) . Consumer class action filed against manufacturer, seller and distributor of Rimmel London Lash Accelerator Mascara with Grow-Lash Complex . Plaintiff alleged the Product does not grow and multiply eyelashes within 30- days as promised, and that advertisements that the product was “advanced, ultra-lengthening” and “clinically tested,” as well as representations regarding its “Grow-Lash Complex” were misleading . Plaintiff sought relief under California consumer protection statutes (UCL and CLRA) and also alleged that Coty breached an express warranty . On February 20, 2013, Coty moved to strike the nationwide class allegations and to dismiss arguing that choice of law and due process bar a nationwide class, and that the Court lacked subject matter jurisdiction . Plaintiff filed a notice of voluntary dismissal on March 25, 2013

Dennis S. Ellis #ACICosmetics Recent Cases and Trends in Cosmetics Actions Other Notable Recent Consumer Class Actions . Astiana v. Hain Celestial Group, Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012) – Consumer alleged that cosmetics manufacturers’ use of the word “natural” was false and misleading – The Court granted a motion to dismiss because the FDA had not proffered rules or regulations regarding use of “natural” on cosmetics labels and the Court did not want, under primary jurisdiction, to independently determine whether the term was false or misleading as used with cosmetics . Balser v. Hain Celestial Group, Inc., No. CV 13-05604-R, 2013 WL 6673617 (C.D. Cal. Dec. 18, 2013) – Consumer alleged that cosmetics manufacturers’ use of the word “natural” and the phrase “100% vegetarian” on the Alba Botanica cosmetics line was false advertising – The Court granted a motion to dismiss because “Plaintiffs have not alleged what they believed the representation ‘natural’ to have meant, nor have they sufficiently pled how they relied and were harmed by the representation.” – The Court also noted that “‘natural’ is a vague and ambiguous term” and the definition Plaintiffs wanted to apply – “existing in or produced by nature; not artificial” – is implausible since “shampoos and lotions do not exist in nature, there are no shampoo trees, cosmetics are manufactured.” Dennis S. Ellis #ACICosmetics Recent Cases and Trends in Cosmetics Actions Other Notable Recent Consumer Class Actions

. In re L’Oréal Wrinkle Cream Mktg. & Sales Practice Litig., No. 2:12-03571 (WJM) (Dec. 9, 2013) – False advertising multidistrict litigation involving a series of putative class actions against L’Oréal alleging violations of consumer fraud acts, unjust enrichment, and breach of express warranty with respect to 30 anti-wrinkle creams, only 16 of which were purchased by the Plaintiffs – L’Oréal moved to dismiss Plaintiffs’ claims relating to products they did not purchase on standing grounds, but that motion was denied. The Court deferred the standing inquiry until the class certification stage because the 14 products Plaintiffs did not purchase were in the same product lines as the other 16, and were thus discussed in the same advertising campaign. – L’Oreal’s motion to dismiss claims relating to products Plaintiffs did purchase was granted in part, only as to the unjust enrichment claims sounding in New Jersey law. The Court reasoned that New Jersey law does not permit Plaintiffs to recover in unjust enrichment where a purchase was made from a third party.

Dennis S. Ellis #ACICosmetics Recent Cases and Trends in Cosmetics Actions Other Notable Recent Consumer Class Actions

. Greifenstein v. The Estée Lauder Corp., Inc., No. 12-cv-09235, 2013 WL 3874073 (N.D. Ill. July 26, 2013) – Consumer alleged that Defendants falsely advertised and sold “Origins Plantscription Anti- aging Serum” in violation of Illinois’ Consumer Fraud and Deceptive Practices Act – The product was purportedly specifically formulated to include tree bark found in West Africa – Plaintiff alleged that Defendant’s marketing claims about wrinkle reduction, strength of product, and speed of product effects were false – The Court granted Defendants’ motion to dismiss, finding that Plaintiff had failed to adequately plead how exactly the claims about the product were false. Notably, the Court found: • “An advertisement may be fraudulent if the ad lacks substantiation, but only when the claim at issue implies that support–any support–exists for the claim when there is none.” Per the Court, “the mere existence of the study alone defeats [Plaintiff’s] argument that [the Product’s] wrinkle-repair claims lack substantiation.” • Plaintiff’s reliance on the National Advertising Division (“NAD”) recommendation that Defendants discontinue certain claims about the product “does not plead with particularity that [Defendants’] wrinkle-repair claims are false.”

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

. Many states have relaxed the standing requirements for plaintiffs seeking to sue under their consumer protection statutes, making cosmetic companies easy targets for consumer class action lawsuits

. In particular, consumer class actions are frequently filed in California, New York and New Jersey

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

California

. There are three consumer protection statutes often cited in consumer class action complaints filed in California:

– Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 (“the UCL”); – False Advertising Law, Cal. Bus. & Prof. Code § 17500 (the “FAL”); and – Consumer Legal Remedies Act, Cal. Civ. Code § 1780(a) (the “CLRA”)

. The UCL Prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200.

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

California (cont’d)

. The FAL broadly prohibits the dissemination of advertising that is deceptive, untrue, or misleading. Cal. Bus. & Prof. Code § 17500; Jolley v. Chase Home Finance, LLC, 213 Cal. App. 4th 872, 906 – 907 (2013).

. The CLRA provides relief to “any consumer who suffers any damage as a result of the use or employment” of any unlawful “method, act, or practice.”

. All three statutes invoke the “reasonable consumer test” to determine whether allegedly false or deceptive advertising is unlawful. Colgan v. Leatherman Tool Group, 135 Cal. App. 4th 663, 682 (2006); Paduano v. Am. Honda Motor Co., Inc., 169 Cal. App. 4th 1453, 1497 (2009).

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

California (cont’d)

. Relief under the UCL and FAL is available “without individualized proof of deception, reliance and injury,” so long as the named plaintiffs demonstrate injury and causation. Mass. Mut. Life Ins. Co. v. Sup. Ct. (Karges), 97 Cal. App. 4th 1282, 1289 (2002); In re Tobacco II, 46 Cal. 4th at 326–27.

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

California (cont’d)

. Under the CLRA, a plaintiff must show actual reliance by demonstrating that the challenged business practice actually caused them harm. Wilens v. TD Waterhouse Group, Inc., 120 Cal. App. 4th 746, 754 (2003) (“Relief under the CLRA is specifically limited to those who suffer damage, making causation a necessary element of proof”); Kwikset Corp. v. Super. Ct. (Benson), 51 Cal. 4th 310, 329 (2011) (plaintiff’s lack of actual reliance on defendant's deceptive packaging and advertising defeated her CLRA claim).

. In class actions, causation may be established by materiality. Mass. Mut. Life Ins. Co. v. Sup. Ct. (Karges), 97 Cal. App. 4th 1282, 1292 (2002) (“plaintiffs [may] satisfy their burden of showing causation as to each by showing materiality as to all”].)

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

New York

. New York’s consumer protection statutes are codified at N.Y. GBL § 349, for deceptive business practices, and § 350, for false advertising.

. Under both sections, a plaintiff must show: “(1) that the act, practice, or advertisement was consumer-oriented; (2) that the act, practice, or advertisement was misleading in a material respect; and (3) that the plaintiff was thereby injured.” City of New York v. Smokes.com, Inc., 883 N.Y. 3d 616, 622 (2009).

. As with California’s UCL, the “standard for whether an act or practice is misleading [in New York] is an objective one, requiring a showing that a reasonable consumer would have been misled by the defendant’s conduct. Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26 (N.Y. 1995)

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

New York (cont’d)

. A claim for deceptive business practices pursuant to § 349 does not require a demonstration of reliance, although a claim pursuant to § 350 does. Stutman v. Chem. Bank, 95 N.Y.2d 24, 29 (2000) (“[A]s we have repeatedly stated, reliance is not an element of a section 349 claim.”).

. However, under New York law, there is a presumption of reliance when the defendant controls the relevant information and a consumer of ordinary intelligence could not discover the true state of affairs. Leider v. Ralfe, 387 F. Supp. 2d. 283, 293, 296 (S.D.N.Y. 2005).

. Courts have expressly held that a plaintiff has adequately pled an injury under the GBL by alleging that consumers paid a premium based on the defendants' misrepresentations. Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 57 n.5 (N.Y. 1999); Ackerman v. Coca-Cola Co., No. CV-09- 0395, 2010 WL 2925955, at *23 (E.D.N.Y. July 21, 2010).

Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

New Jersey

. The consumer protection statute in New Jersey is the New Jersey Consumer Fraud Act (the “NJCFA”), N.J. Stat. § 56:8-1, et seq.

. The NJCFA was intended to address “sharp practices and dealings in the marketing of merchandise and real estate whereby the consumer could be victimized by being lured into a purchase through fraudulent, deceptive or other similar kind[s] of selling or advertising practices.” Daaleman v. Elizabethtown Gas Co., 77 N.J. 267, 390 (1978).

. To state a claim under the NJCFA, a plaintiff must allege: (1) unlawful conduct by the defendant; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendant's unlawful conduct and the plaintiff's ascertainable loss. Mason v. Coca-Cola Co., 774 F. Supp. 2d 699, 702 (D.N.J. 2011).

. An “ascertainable loss” is a loss that is “quantifiable or measurable”; it is not “hypothetical or illusory.” Thiedemann v. Mercedes-Benz USA, LLC, 872 A.2d 783 (2005). Dennis S. Ellis #ACICosmetics State Level Deceptive or Unfair Trade Practices Acts – California, New York and New Jersey

New Jersey

. In cases involving product misrepresentation, “either out-of-pocket loss or a demonstration of loss in value will suffice to meet the ascertainable loss hurdle....” Thiedemann, 872 A.2d at 792.

. The “out-of-pocket” theory may include the purchase price of a misrepresented product if the purchasers did not receive a refund and the seller’s misrepresentations rendered the product essentially worthless. Lee v. Carter-Reed Co., L.L.C., 203 N.J. 496 (2010).

. A “loss-in-value” theory is based on the quantifiable difference in value between the merchandise as advertised and the merchandise as delivered. Thiedemann, 872 A.2d at 792 (stating that an expert may employ a “market conditions” approach to product value to determine ascertainable loss).

. -Under the third theory, an “ascertainable loss” can include a nominal overcharge for which the plaintiffs have not made a “pre-suit demand for a refund.” Bosland v. Warnock Dodge, Inc., 964 A.2d 741, 751 (2009).

Dennis S. Ellis #ACICosmetics