SALEM, Ore. (Legal Newsline) - The Oregon Supreme Court turned a victory into a loss for the company that sells 5-hour Energy, saying two lower courts got the law wrong by ruling the state must prove advertising has a material effect on a consumer’s decision to buy in order to violate consumer-protection laws.
Oregon Attorney General Ellen Rosenblum sued Living Essentials in 2014, saying claims that it provided more energy than caffeine and was approved by doctors were false and misleading. Living Essentials won a bench trial and the Oregon Court of Appeals affirmed the decision, ordering the state to pay Living Essential’s legal fees as required under the consumer protection statute.
The Oregon Supreme Court reversed that decision, however, saying both courts wrongly held advertising misstatements must be “material to consumer purchasing decisions” to violate the Unlawful Trade Practices Act. While the statute doesn’t contain the word “materiality,” it outlaws advertising that will “cause likelihood of confusion or of misunderstanding” about a product. The lower courts read that to mean the advertising had a material effect on a consumer’s decision to buy.
The text of the law “says nothing expressly about whether the potential confusion or misunderstanding must be of the sort that would materially affect a consumer’s purchasing decision,” the Supreme Court observed, however. Turning to the dictionary definitions of “likelihood,” “confusion” and “misunderstanding,” the court said the law refers to conduct that leads to a “diminished ability to distinguish or choose.”
The Court of Appeals held that materiality is implied because if advertising has no effect on a consumer’s buying decision, it is also unlikely “to create a state of discomfort, chagrin or uncertainty.” The high court disagreed, saying a consumer might be led to believe a product is “certified” when it is not, regardless of whether that affects their decision to buy.
“One can understand the UTPA as a legislative judgment that the specified unlawful practices are inherently `material’ in the sense that they are all adverse to the societal interest in a healthy marketplace where consumers can expect goods and services to be as they are represented to be,” the court said in a May 5 decision.
The court also rejected 5-hour’s argument a looser interpretation of the law would infringe on its First Amendment right of free speech. First, the court placed the law in a category not subject to facial challenge, or challenge based on its wording. The court then rejected an as-applied challenge, citing U.S. Supreme Court precedent on commercial speech. If advertising is `”more likely to deceive the public than to inform it,’ the government can prohibit it as unprotected speech,” the court concluded.
Living Essentials lost a $4.3 million verdict to the Washington AG in a similar case in 2017.