Suits Against Car Dealers Spark Legislation

Hundreds of California car dealers over the past few years have been sued by plaintiffs’ lawyers over violations of highly-complex federal and state advertising laws. In response to the tidal wave of litigation, the California Motor Car Dealers Association sponsored legislation that aims to clarify the regulatory landscape. AB 2397, passed by the Legislature and awaiting action by the Governor, would amend the Vehicle Code and remove a few traps. For example, existing law requires that the qualifying phrase “on credit approval” appear in a font at least one-third the size of advertised credit terms. AB 2397 would allow “on credit approval” to appear in any font size provided that it is clear and conspicuous. This would give the dealer more flexibility in ad design. While the changes made by this bill are modest, it would eliminate several mirrors from the maze.

“No Tax” Claims Violate the Law

Labor Day and other holidays often inspire retailers to promote “TAX FREE!” sales events. Since retailers in California must collect sales tax, these promotions are really a seven or eight percent discount wrapped in an attractive package. It may surprise you to learn that California law (Revenue and Taxation Code section 6205) broadly prohibits any retailer from advertising, directly or indirectly, (1) that sales tax will be assumed or absorbed by the retailer, (2) that the tax will not be added to the selling price, or (3) that it will be refunded. This law has been on the books for 60 years in California. While many retailers overlook this prohibition, they do so at their peril since prosecutors and plaintiffs’ lawyers can file lawsuits based on any “no tax” advertisement that appears in the state.

Lockyer Investigates Unsolicited Faxes

Attorney General Bill Lockyer announced that his office was investigating Fax.Com, a company that sends broadcast fax advertisements to a database of millions of fax numbers. According to Lockyer, unsolicited faxes cost California consumers tens of millions of dollars each year in lost efficiency and increased toner and paper use. California law (Bus. & Prof. Code section 17538.4) requires senders of unsolicited fax and e-mail advertisements to provide a toll-free number and/or valid return e-mail address so that consumers can notify the sender not to send additional ads. This is an area of increasing regulation by federal and state governments, sparked by numerous consumer complaints. Marketers beware!

It’s Now or Never

Competitors can sue one another for false ads, but if they wait too long they will lose their rights. A federal appellate court in San Francisco recently ruled that a nutritional supplement manufacturer could not wait seven years after first threatening litigation to file suit against a rival. The challenged ads pertained to the potency and effectiveness of the product. Interestingly, even though the public interest weighs in favor of stopping any deceptive ad, the court found that it would be unfair to the defendant manufacturer to allow a legal challenge after it had invested so much time and money linking the product’s identity to the claims. The lesson is that prompt action must be taken to stop a competitor’s deceptive ad.

FTC Scrutinizes Internet Health Claims

In cooperation with consumer protection agencies of other countries, the Federal Trade Commission sent over 280 warning letters to domestic and foreign web sites that made dubious claims about dietary supplements. The supplements were touted as treatments for diseases such as cancer and HIV/AIDS. The regulators will check these sites again to see if they have removed the questionable claims. If not, lawsuits may follow.

Advertising & Marketing Law Update is a publication of Downey Brand LLP