2022 Marcom Trends - Magazine - Page 28
FTC: REGULATORY AND STATE
NAD/GREEN MARKETING
The Changing Regulatory Paradigm
for Food Delivery Services
Ronald R. Urbach, Partner/Co-Chair Advertising + Marketing, rurbach@dglaw.com
Stuart Lee Friedel, Partner, sfriedel@dglaw.com
Louis P. DiLorenzo, Associate, ldilorenzo@dglaw.com
The food and grocery delivery space is a testament to how a
regulatory scheme can develop organically for a nascent industry
that has quickly found itself in the spotlight.
An Increase in Demand
Although delivery services were already growing rapidly to
accommodate consumers’ busy lifestyles, COVID-19 created a
massive need that delivery services were happy to fill. Restaurants
were forced to close their doors and could only serve patrons using
third-party delivery services like Grubhub and DoorDash. Aversions
to crowded grocery stores meant that many consumers were staying
home and paying companies like Amazon and Instacart to deliver
their groceries.
The increased importance of food delivery services has been met
with increased regulatory scrutiny. Every major delivery service
has been hit with some combination of class action lawsuits and
enforcement actions from the Federal Trade Commission (FTC) and
state attorneys general, and the scrutiny has led several states to
consider legislation or regulation aimed at curbing billing practices.
The Toll of Fees
There have been a number of class actions regarding delivery fees
in the past couple of years. For example, a class action complaint
filed in 2020 against DoorDash, Postmates and Uber Eats alleged
that the “exorbitant” fees charged by these entities violated antitrust
laws.
Regulators have also been particularly active in the space. To date,
the largest regulatory action over delivery fees came in February
2021 with a $61.7 million settlement between Amazon and the
FTC. According to the FTC, Amazon advertised to its delivery drivers
and customers that 100% of tips would go to delivery drivers, when
in actuality Amazon lowered delivery driver wages and used tips
to make up the shortfall. Similarly, Instacart received a lawsuit in
2020 from the Washington, D.C. Attorney General over allegations
that it pocketed the optional “service fee” that the company claimed
it would use to pay its delivery personnel, and the D.C. Attorney
General has brought further regulatory action over fees as recently
as March 2022.
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28 DAVIS+GILBERT LLP
Given how important delivery services have become for both
consumers and restaurants, a number of municipalities chose
to begin regulating delivery services more directly. Los Angeles,
Chicago and other major cities passed ordinances that limit delivery
fees to 15% while pandemic-related restrictions are in effect. Some
cities also require apps to increase fee transparency by listing the
restaurant’s actual menu price and the app’s fees, and prohibit apps
from retaining tips meant for restaurant workers.
Permanent caps have also been implemented in San Francisco
and New York City. The New York City law has been particularly
controversial. In June, a class action was filed alleging that major
delivery apps have been deliberately flouting the New York City law.
And in September, Grubhub, Uber Eats and DoorDash filed suit to
enjoin the New York City law, arguing that the legislation “bears no
relationship to any public-health emergency, and qualifies as nothing
more than unconstitutional, harmful, and unnecessary government
overreach.”
California and Texas have also recently passed laws that more
comprehensively regulate the industry statewide. The California law
makes it unlawful for a food delivery platform to charge a purchase
price that is higher than the price posted by a restaurant, or to retain
any amounts designated as a tip or gratuity. The bill also requires
delivery platforms to provide a cost breakdown to consumers for
each order. The Texas law takes a lighter hand, simply prohibiting
delivery apps from charging restaurant fees unless the restaurant
has agreed to those fees in writing.
What’s on the Horizon
• The regulatory scrutiny being faced by food delivery
services demonstrates what can happen when an industry
grows rapidly.
• Regulation begins with individual, targeted actions
by regulators and consumers that are aimed to curb
particularly harmful practices.
• But, if a particular industry is seen as wielding too much
power, it can find itself subject to a more pervasive
regulatory scheme.
Evergreen Focus on Green Marketing
at the National Advertising Division
Ronald R. Urbach, Partner/Co-Chair Advertising + Marketing, rurbach@dglaw.com
Alexa Meera Singh, Associate, alsingh@dglaw.com
The National Advertising Division’s role (NAD) in evaluating green marketing is significantly
important because the FTC’s Green Guides (which are used to help guide both legal
advice and business decisions) were last updated in 2012 and are under review this year.
The expectation is that the new Green Guides will focus on some of the more current
and consumer-relevant green claims, which the current Green Guides do not specifically
address.
Q:
How have green claims (and related NAD challenges)
evolved over the years?
Q:
What are some claims that are becoming increasingly
popular, but primarily informed by NAD precedent?
A:
As a self-regulatory adjudicative body, the NAD will look to
the FTC for guidance as it reviews green advertising claims
and evaluates the substantiation for such claims. Although
the FTC’s Green Guides and FTC actions provide specific
direction for certain types of claims (e.g., eco-friendly) and
espouse general principles to be followed (e.g., no overbroad
claims), the NAD has a lot of room in which to interpret the
law and provide its own perspective on what constitutes
legally compliant environmental advertising. For example, we
successfully defended clients in two NAD challenges that, in
one case, concerned use of the term “eco” in a product name,
and in the other established guidelines for what qualifies as a
“green” computer. These NAD decisions established de facto
standards and provided industry guidance.
A:
“Sustainability” claims — undoubtedly some of the most
popular types of green marketing claims today — are
primarily informed by NAD decisions. The Green Guides
specifically address claims like “green” and “eco-friendly,”
but do not specifically reference “sustainability”— largely
because sustainability marketing was not as prevalent a
decade ago. But NAD decisions help to fill this gap. In BeechNut Nutrition Company (Beech-Nut Baby Foods), NAD clarified
that “sustainability” — like “green” and “eco-friendly” — is
a general environmental benefit claim. When used without
qualification, these claims are misleading because they
may convey a wide range of reasonable, but unsupported,
meanings.
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TRENDS IN MARKETING COMMUNICATIONS LAW 29