/>iThe ArentFox Schiff Consumer Products Industry team reviews 10 of the most pressing legal issues for the industry in 2023.
1. Consumer Law Reforms
2023 will see an increase in class action lawsuits targeting per- and poly-fluoroalkyl substances (PFAS) in consumer products as more PFAS-limiting laws go into effect. Specifically, we expect food packaging, fabric, and cosmetic products to be targeted in class action lawsuits. Many of these laws take a multi-year approach, but states affected this year include California, Maine, New York, and Hawaii, among others. In California, Proposition 65 warning requirements for certain PFAS went into effect at the end of last year or will soon go into effect this month. Additionally, PFAS restrictions under the California Safer Food Packaging and Cookware Act of 2021 targeting food packaging went into effect in January 2023, and in July 2023, limitations on PFAS in juvenile products under California Health and Safety Code section 108945, et seq. go into effect as well.
The first phase of Maine’s sweeping PFAS law, An Act to Stop Perfluoroalkyl and Polyfluoroalkyl Substances Pollution, began to take effect in January 2023, and restricts intentionally-added PFAS in carpets, rugs, and fabric treatments. New York introduced recent limits to food packaging with intentionally added PFAS under the New York Hazardous Packaging Act. Later this year, Hawaii and Washington’s restrictions for PFAS in food packaging go into effect. We expect this trend to grow as PFAS prohibitions and restrictions continue to take effect over the next few years in these states and in others, such as Colorado and Michigan. In addition to PFAS claims under these statutes, there has been a recent trend of false advertising-related claims for consumer products that are marketed as “natural” or “clean,” when the plaintiffs allege that the products contain PFAS.
2. Tackling Subscription Traps
Automatically renewing subscriptions are subject to a complex patchwork of federal and state laws. At the federal level, the Restore Online Shopper Confidence Act (ROSCA), includes requirements related to the disclosure of auto-renewal terms, consumer consent, and cancellation methods. More than 30 states have enacted auto-renewal laws of their own that impose additional obligations on sellers using subscription and free trial models. This has been an especially hot area for state legislative activity in recent years. Several state laws went into effect last year, including amendments to California’s auto-renewal law that adopted stricter renewal notice and cancellation requirements, which could be accompanied by heightened enforcement by state regulators. In addition, new auto-renewal laws in Idaho and Tennessee went into effect on January 1, 2023. At the federal level the Federal Trade Commission (FTC) has steadily increased its enforcement activities for ROSCA violations, and we can expect this trend to continue in 2023. Meanwhile, courts continue to regularly interpret aspects of state auto-renewals laws, resulting in an evolving set of obligations for sellers using subscription and free trial models.
3. Addressing Fake Reviews
As consumers continue to rely on ecommerce reviews before making purchasing decisions, state and federal government agencies, as well as consumer protection groups, will continue to try to thwart fake and manipulated reviews. The FTC plans in 2023 to make specific rules to combat fake reviews and other forms of deceptive endorsements, including the practices of using fake reviews, suppressing negative reviews and paying for positive reviews. As noted by the FTC, “Deceptive and manipulated reviews and endorsements cheat consumers looking for real feedback on a product or services and undercut honest businesses.” The agency is aiming to set forth a rule that clearly spells out prohibited practices and will allow the agency to impose civil penalties. On the state level, several have pending legislation that will address the same conduct and others are using existing consumer protection statutes to sue online companies, including service companies like a roommate-finding website, which allegedly paid for fake reviews to increase listings.
AFS anticipates that the increased scrutiny of online reviews will significantly impact consumer products companies and their sellers who rely heavily on customer feedback. Companies must consider the entirety of their online review programs, including avoiding any impression that negative reviews are being filtered or suppressed, or that reviews are in any manner manipulated or generated, particularly by new artificial intelligence (AI) technologies. Safeguards such as verification processes or use of third-party software may help ensure that you are complying with new requirements.
4. Environmental Claims
Environmental claims, generally speaking, tend to affect consumer product companies in at least two ways, either as premises claims for alleged chemical discharges made during the manufacturing process, or as products liability/class action claims contending that the presence of some chemical in the supplier’s end product has caused harm to users. These claims require distinct expertise. Premises claims benefit from our decades of experience interpreting groundwater regulations and the administrative processes surrounding them; products liability and class action claims benefit from our products liability team, which helps clients separate the serious challenges from the “shakedowns,” and the ability to distinguish good science from bad. PFAS are the chemicals most frequently in the news at the moment, often advanced by state or federal agencies, and AFS attorneys are actively engaged in the defense of premises, products liability, and class action claims arising from them.
5. Price Practices
Section 5 of the FTC Act gives the Federal Trade Commission broad enforcement authority over unfair and deceptive trade practices, and misleading pricing practices have long been a recurring theme in the agency’s enforcement priorities. In Fall 2022, the FTC released a staff report on one of the buzziest terms in the consumer protection landscape: “dark patterns,” which the agency has described as user interface designs intended to trick or manipulate consumers into purchasing decisions they would not otherwise make. The report addressed a number of pricing practices, including the imposition of hidden fees, drip pricing, and tactics that prevent price comparison (e.g., disclosing only the price per payment without disclosing the total cost). These and other “dark patterns” are likely enforcement priorities for the FTC in 2023. At the state level, sellers have to navigate a maze of laws targeting specific promotional pricing practices, including mark downs, “up to” pricing, and “free” offers. In recent years, dozens of retailers have been hit with class action lawsuits over allegedly false or misleading comparisons to former prices — i.e., claims that the seller offered a discount from a base price that was never the bona fide going rate — and there is no sign of this slowing in 2023.
6. Influencer Marketing
Over the past 18 months, the FTC has stepped up enforcement against the use of allegedly unfair and deceptive endorsements and testimonials in advertising and that trend is likely to continue through 2023. In October 2021, the FTC published Notice of Penalty Offenses, a procedural step that allowed it to levy steep fines for future violations. More recently, the FTC has sought public comment on clarifications and revisions to its influential “Endorsement Guides,” while also considering codifying some of its non-binding guidance on unfair and deceptive endorsement practices. Among other things, the FTC is considering action that might discourage the use of existing, built-in tools that are widely used by brands and influencers to disclose paid promotions; modify the definition of “endorsers” to bring virtual influencers under the guides; and clarify that it is misleading to “suppress” negative reviews. These efforts are likely to result in an even more assertive regulatory posture from the FTC, with more ways for the Commission to prevent companies from using false or deceptive endorsements and more authority for the Commission to impose significant fines against violators.
7. Marketing NFTs and Crypto Assets
The regulation of tokens and other digital assets by The US Securities and Exchange Commission (SEC) by enforcement, including by stopping “improper” celebrity endorsements, does not appear likely to slow down or change course in 2023. In fact, the SEC seems to be expanding its regulatory empire to cover staking and stablecoins based on charges against Kraken, a crypto exchange that offered staking as a service, and the Wells Notice sent to Paxos, a stablecoin issuer. Given the emphasis that the Howey Test places on a token purchaser’s expectations, marketing NFTs and other digital assets will continue to pose traps for the unwary, with recent cases involving Dapper Labs and DraftKings urging caution. Private enforcement by brand owners is also likely to continue, as illustrated by the luxury brand Hermes suing the artist, Mason Rothschild for trademark infringement and dilution over an NFT project he called MetaBirkins, named after the brand’s most exclusive handbag. A New York jury found the NFT was not protected speech and awarded the brand $133,000 in damages for the infringement.
8. Consumer Duty
Consumer products have consistently been subject to high standard import duties. As of recent years, these importing costs have been exacerbated by additional tariffs upwards of 25% imposed on imported products originating in China. Given the costs associated with imports in this category, and since the additional tariffs on Chinese goods are not anticipated to be eliminated any time soon, importers should identify whether there are any mechanisms by which duties, additional tariffs, and fees can be mitigated, eliminated, or deferred to achieve costs savings.
The customs and import attorneys and specialists within ArentFox Schiff’s International Trade and Investment practice can help clients take advantage of special duty programs to successfully achieve cost reduction and deferral of both standard import duties and fees, as well as additional tariffs. Such programs are in the context of the various free trade agreements, duty preference programs, slight changes in product design, shifting of manufacturing operations, Foreign Trade Zones, duty drawback, Temporary Importation under Bond, personal importations not exceeding $800 in retail value, first sale, and costs that may be excluded from the value declared to US Customs. Prior to the initiation of reviewing a specific program, our team often analyzes client import data, in conjunction with responses to questionnaires, to obtain an estimate of the potential duty savings for a given program as compared to the costs associated with the review and implementation of that program for prioritization and program selection purposes. With our assistance, companies have saved tens of millions of dollars.
9. New Privacy Laws
Consumer products companies beware! 2023 has brought with it five new state privacy laws, with two having taken effect on January 1 (California and Virginia). Two additional laws take effect July 1 (Colorado and Connecticut). And, Utah’s law takes effect in December. Consider this a reminder to assess your data privacy program and update internal- and external-facing policies, vendor agreements, and more. For further information on compliance triggers and things to consider, please see here.
10. Post-Sale Duties of Product Sellers and Manufacturers
Historically, a product seller’s duty ended at the time of sale and sellers did not have a post-sale duty to inform customers of safety improvements to products if the original product was properly designed and manufactured. In 1998, the Restatement (Third) of Torts: Products Liability made clear that, in specific circumstances, a post-sale duty to warn arises if the product seller or distributor knew or reasonably should have known that the product posed a substantial risk of harm to consumers. Even so, the seller was not required to recall the product unless a government directive specifically required a recall.
Courts and legislative action have since expanded post-sale duties and interpreted the Restatement to create an affirmative duty on product suppliers to exercise reasonable care to learn of previously unknown safety risks in products and, if feasible, inform customers who have purchased the product of these potential risks. Increased consumer access to the internet and the ease of staying connected with the consumer online has fueled this expansion of post-sale duties. Accordingly, the majority of states now recognize a post-sale duty on sellers to warn about dangers that may arise when using their products. Manufacturers and product suppliers should be aware that a strong online presence can lend further support to imposing post-sale duties to inform consumers about potential product risks, planned retrofits, and recalls.
B. Thorne Maginnis, Michelle Mancino Marsh, Eva, J. Pulliam, Angela M. Santos, and Amanda M. Simpson also contributed to this article.
