Boohoo Group has reached a final settlement in a consolidated class action lawsuit accusing it of engaging in a scheme to inflate the original prices of its fast fashion wares in order to “deceive customers into a false belief that the sale prices [that they advertise on their e-commerce sites] are deeply discounted bargain prices.” That is what plaintiffs Farid Khan, Haya Hilton, and Olivia Lee argued in the respective complaints that they filed against Boohoo Group-owned brands – Boohoo, Nasty Gal, and PrettyLittleThing – in the spring of 2020. Boohoo confirmed the settlement, which is still subject to court approval, on Tuesday. 

Boohoo confirmed that it has agreed to the settlement without any admission of wrongdoing, per Reuters, and that the associated monetary sum is “within its existing legal provisions, which stood at 17.8 million pounds ($22.4 million) as of Feb. 28.” 

The matter got its start back in April 2020 when Khan, Hilton, and Lee filed their since-consolidated lawsuit, arguing that “on a typical day,” the Boohoo brands “prominently display on [their] landing pages some form of a sale where all products or a select grouping of products are supposedly marked down by a specified percentage – for example, 40, 50, or 60% off.” The problem with that, they contend, is that such a “sale” is “not really a sale at all,” and that “all the reference prices on the Boohoo websites are fake” since the retailers never offered up the “sale” garments for their original, pre-sale prices. 

Given that the plaintiffs and other consumers have “relied on [the Boohoo brands’] representations that each of the products” that they purchased “was truly on sale and being sold at a substantial markdown and discount” when that was not true, the plaintiffs claim that Boohoo, Nasty Gal, and PrettyLittleThing are each on the hook for damages of more than $5 million for violating California Unfair Competition Law, California False Advertising Law, and California Consumer Legal Remedies Act. 

In the answers that they filed in response to the proposed class action complaints in February, the Boohoo Group brands denied the bulk of the plaintiffs’ lawsuit and set out nearly 30 affirmative defenses in an attempt to shield themselves from claims that they are actively engaging in a “scam” in order to “lure unsuspecting customers into jumping at a fake ‘bargain.’”

Boohoo Lawsuit

Specifically, the brands argued that despite the plaintiffs’ claims that they “fell victim to the deception” of various sale events, the plaintiffs do not actually allege any tangible harm. Khan, for instance, claims that he was duped by Boohoo’s “50% Off Everything” advertising, but “does not allege that he is out-of-pocket anything (e.g., that his $6 t- shirts were worth less than the rock-bottom price he paid for them).” As such, Boohoo and co. argued that the plaintiffs lack standing to bring their suits since “they do not plausibly allege that they suffered any damages, i.e., that the price they paid was more than the value received.” 

Beyond that, Boohoo, Nasty Gal, and PrettyLittleThing each assert that “purchasing behavior is complex, and the overwhelming majority of [their] customers bought items for many different reasons that had no connection to the reference pricing, and without any misunderstanding as to what the reference price means.” In reality, they contend that “most of [their] customers” shop on their sites “because of [the] competitive pricing,” not necessarily because of any reference pricing tactics.

Still yet, the defendants have also argued that “all or part of the claims” asserted by the plaintiffs are barred by the First Amendment to the U.S. Constitution and the free speech provision of the California Constitution, “which protect, among other things, [the] defendants’ right to promote and advertise the products at issue.” The statutes that the plaintiffs rely on, including California Business and Professions Code section 17501 – the statute upon which their false advertising claims are based on – “unconstitutionally regulate free speech.” 

The Free Speech Argument

Such a free speech assertion is not unprecedented, as J.C. Penney, Sears, Kohl’s, and Macy’s argued – in a similar case – that Section 17501 violates the First Amendment and California’s liberty of speech clause, and is unconstitutionally vague. In that case, which was filed in 2017, the Los Angeles city attorney argued that the retailers ran afoul of the California state law by offering up their products at “reference prices” that purported to reflect former prices. 

(Section 17500 states, “No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement.”)

However, instead of actually reflecting previously-used prices, J.C. Penney and co. “deliberately and artificially set the false reference price higher than its actual former sales price so that customers are deceived into believing that they are getting a bargain when purchasing products,” according to the city. 

In a motion to dismiss in that case, the defendant retailers argued that the statute restricts free speech rights and is unconstitutionally vague, and the trial court agreed, only to be overturned by the state appeals court in May 2019. 

“By vacating the trial court’s grant of demurrer on grounds the statute was void for vagueness, the appellate panel’s decision reaffirms the validity of Section 17501,” Manatt’s Richard Lawson stated at the time. “It also puts retailers on notice that additional enforcement actions may be in their future.” At the same time, Holland & Hart’s Brent Johnson and Nathan Archibald noted that in light of the court’s decision, and the difference between the California state statute – which focuses on the “prevailing market price” – and the Federal Trade Commission’s – which centers on a retailer’s “own former price,” unless and until “a California court strikes down Section 17501 for violating the free speech rights of retailers, even a truthful price comparison is a violation if it does not meet the strictures of California’s pricing statute.” 

*The cases are Farid Khan, et. al., v. Boohoo, et. al., 2:20-cv-03332 (C.D.Cal.).

A New York federal court has ordered MSCHF to refrain from offering up, marketing, and/or fulfilling existing orders for its allegedly infringing Wavy Baby sneakers for the duration of the trademark-centric case that Vans filed against it last month. In a decision and order dated April 29, Judge William Kuntz of the U.S. District Court for the Eastern District of New York sided with Vans, granting its motion for a temporary restraining order and preliminary injunction on the basis that Vans is likely to prevail on the merits of its underlying claims, including trademark infringement, and that the sneaker-maker is likely to suffer irreparable harm unless MSCHF’s alleged infringement is stopped.

First addressing the likelihood that consumers will be confused as to the nature of MSCHF’s Wavy Baby sneakers, the court pointed to the “striking visual similarities between the [Vans] Old Skool shoes and the Wavy Baby shoes and their respective packaging.” The court was not persuaded by MSCHF’s argument that while it makes use of marks that are similar to Vans’ marks, it has “distorted” those marks, thereby, making them different from the ones that Vans uses to indicate the source of its offerings. The marks “need not be identical, but rather only similar, for there to be a likelihood of confusion,” per Judge Kuntz, who stated that the critical question is not whether the differences between the two shoes/marks “are easily discernable on simultaneous viewing, but whether they are likely to be memorable enough to dispel confusion on serial viewing.”

MSCHF’s distortion of the original Vans trademarks is insufficient to dispel consumer confusion, according to the court, which also noted that Vans sufficiently establishes that there is actual confusion at play, namely, by way of comments from consumers about the similarity of the two parties’ shoes, and more importantly, comments that demonstrate that “consumers have misunderstood the source of the Wavy Baby sneakers as a collaboration between” MSCHf and Vans.

As for consumer sophistication (a factor in the likelihood of confusion analysis), the court sided with Vans here, unpersuaded by MSCHF’s claims that “few of the purchasers of the Wavy Baby shoes were likely to be unsophisticated members of the general public” by virtue of the fact that the shoes were only available for a short time on MSCHF’s app. The court stated that the MSCHf sneakers were offered up to the general public “through self-service mediums accessible without professional assistance,” and noted that “shoes generally are a common consumer item.” Also weighing in Vans’ favor, according to the court, is the fact that MSCHF engaged in a “broad advertising campaign” for the Wavy Baby shoes in collaboration with Tyga, which makes it “likely that at least some buyers of the Wavy Baby shoes purchased them as a result.”

(To be fair, while the court states that the MSCHF sneakers were offered up and advertised to the general public, and that sneakers, generally, are a common consumer product, which suggests that the level of consumer sophistication and attention to detail in connection with such a purchase is low, there is actually a very good chance that most of the individuals who are in the market to buy MSCHF sneakers are distinct from the average sneaker buyer, which stands to impact the level of consumer sophistication at play here, and thus, the likelihood of confusion.)

MSCHf Wavy Baby

In terms of the proximity of the two parties’ offerings (another likelihood of confusion factor), the court determined that Vans demonstrated “sufficient proximity,” specifically pointing to its practice of regularly releasing special edition versions of the Old Skool shoes, including in limited quantities, in collaboration with others, and at similar price points as the MSCHF sneakers. And in pushing back against MSCHF’s argument that its sneakers are more akin to artworks “likely to be kept in glass cases or on shelves” than to Vans’ more wearable Old Skool shoes, the court cited a podcast interview with MSCHF chief creative officer Lukas Bentel, who stated that the Wavy Baby sneakers, as distinct from previous MSCHF sneaker releases, are a move by MSCHF to “transcend into more of a straight sneaker space.” 

Turning his attention to MSCHF’s First Amendment arguments, namely, that Vans is unlikely to succeed on the merits of its trademark claims because the Wavy Baby sneakers are a “parodic or artistic expression” of Vans’ marks, Judge Kuntz asserted that the MSCHF sneakers “do not meet the requirements for a successful parody.” While the Wavy Baby sneakers “convey their similarly and reference to the Old Skool shoe trademarks,” they do not “sufficiently articulate ‘an element of satire, ridicule, joking or amusement’ clearly indicating to the ordinary observer that [MSCHF] is ‘not connected in any way with [Vans],” according to the court. 

MSCHF included its own branding on the shoe label and “distorted” the original Vans trademarks, but “the extensive similarities and overall impression [of the MSCHF sneaker] overcome any such distinguishing features,” Judge Kuntz stated, “as evidenced by actual confusion in the marketplace.” Moreover, the judge stated that while the manifesto accompanying the shoes – which commented on the rampant copying in the sneaker space, Vans’ “outsized role” in consumer culture, and Vans’ ventures in the metaverse – “may contain protected parodic expression,” the shoes, themselves, and the packaging “fail to convey the satirical message.”

MSCHf Wavy Baby

Addressing MSCHF’s reference to the Louis Vuitton v. My Other Bag case, in which MOB successfully argued parody in connection with its manufacture and sale of canvas tote bags bearing depictions of Louis Vuitton-like bags, Judge Kuntz says the case at hand is distinguishable, as “the satirical message presented by the Wavy Baby shoes is not readily perceived from the product without the accompanying manifesto or descriptions.” As such, this is different from the play on the well-known “my other car …” joke in the My Other Bag case, Judge Kuntz asserts. 

Judge Kuntz also shoots down MSCHF’s comparison of the Wavy Baby sneakers to the rubber dog toys in the Bad Spaniels case. Unlike the MSCHF and Vans sneakers, the dog toy in the Bad Spaniels case “does not occupy the same market as Jack Daniels whiskey,” per Judge Kuntz, who notes that “where the infringement claim involves a competing product, ‘parodic use is sharply limited.’” Beyond that, the dog toy incorporates “clear puns and parodic references and displays clear distinctions between the products, making the parody more discernable and overt,” according to the judge. 

Finally, Judge Kuntz determined that the irreparable harm factor weighs in favor of Vans, as the Wavy Baby shoes “create a strong risk of consumer confusion and irreparable harm to the consumer recognition and good will cultivated by [Vans,’” namely, the brand recognition and success of the Old Skool shoes and associated trade dress that Vans has spent forty-five years and millions of dollars in marketing. The court also stated that MSCHF “failed to many any representations” that it would “not continue to produce iterations of the Wavy Baby shoes following the conclusion of the present litigation for one reason: it intends to do precisely that.”

Against this background, the court granted Vans’ request for a temporary restraining order and preliminary injunction, thereby, requiring MSCHF and all persons acting in concert with it to refrain from “advertising, marketing, prompting, offering to sell, selling, distributing, and/or taking orders” – or fulfilling existing orders – for the Wavy Baby shoes. MSCHF must also “reverse and/or cancel any orders for the shoes that have been places as of the time” of the court’s order, and put the revenues from all of orders for the Wavy Baby sneakers that it did fulfill (roughly 4,000 pairs) into escrow.

It is not yet clear whether MSCHF will appeal, and as of now, all mention/images of the Wavy Baby sneakers have been removed from MSCHF’s website. Imagery of the Wavy Baby sneakers remains on the social media accounts of MSCHF collaborator Tyga, who is not named as a defendant in Vans’ suit. 

UPDATED (May 2, 2022): Counsel for MSCHF has filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit in response to the district court’s grant of a temporary restraining order and preliminary injunction.

The case is Vans, Inc. v. MSCHF Product Studio, Inc., 1:22-cv-02156 (EDNY).

Allbirds has escaped a false advertising lawsuit accusing it of failing to live up to the claims that it makes in its sustainability-centric marketing, including ones about the carbon footprint of its popular footwear, and its “sustainable” and “responsible” manufacturing practices. In an opinion and order dated April 18, Judge Cathy Seibel of the U.S. District Court for the Southern District of New York granted Allbirds’ motion to dismiss, tossing out the lawsuit that plaintiff Patricia Dwyer filed against it in the summer of 2021, in which she alleged that despite Allbirds’ advertising being “replete with eco-friendly phrases,” the reality of its operations does not match that “eco-friendly”-focused marketing, and the footwear brand has peddled “false, deceptive and misleading” information. 

Specifically, Dwyer alleged in her June 2021 complaint that in furtherance of its offering up its wool-based footwear, Allbirds makes “representations such as: ‘Sustainability Meets Style,’ ‘Low Carbon Footprint,’ ‘Environmentally Friendly,’ ‘Made with Sustainable Wool,’ ‘Reversing Climate Change…’ and ‘Our Sustainable Practices,’” which Dwyer claimed are misleading. Among other things, she took issue with Allbirds’ use of the Higg Material Sustainability Index (“MSI”) to measure the environmental impact of apparel materials, arguing that the Higg MSI “only [addresses] raw materials and lacks standards for comparing different materials,” among other things. 

Additionally, Dwyer asserted that Allbirds’ life cycle assessment (“LCA”) tool – which it uses to identify the carbon footprint of each of its products – does not assess the environmental impact beyond the manufacturing of the shoes, themselves, such as the impact of “wool production, including on water, eutrophication, or land occupation,” and thus, “exclude[s] almost half of wool’s environmental impact.” As such, she argued that the carbon footprint figures that Allbirds advertises “are based on ‘the most conservative assumption for each calculation, [which] skew the calculations in [Allbirds’] own favor,’ so it can make more significant environmental claims.” 

And still yet, Dwyer accused Allbirds, which went public on the Nasdaq in November 2021, of making “misleading animal welfare claims” by improperly “promot[ing] the ‘happy’ sheep” whose wool is at the heart of its products and claiming that its “wool harvesting practices are sustainable [and] humane.”

Not Misleading to a Reasonable Consumer

In her April 18 order, Judge Seibel sided with Allbirds across the board, first finding that Dwyer failed to plausibly allege that the statements that Allbirds makes about the environmental impact of its products and animal welfare are materially misleading. This means that she fell short of making her deceptive business practices and false advertising claims under New York General Business Law. “To state a claim under either section [of the New York General Business Law], a plaintiff must show ‘first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act,’” the Judge stated.

First examining Allbirds’ environmental impact claims, and namely, Dwyer’s pushback against its use of the LCA tool and the Higg MSI as the basis for such claims, Judge Seibel determined that Dwyer’s “criticism [is] of the tool’s methodology,” not with Allbirds’ statements about its products. Specifically, the court states that Dwyer does not allege that the calculations that Allbirds provides in connection with its carbon footprint are wrong, or that Allbirds “falsely describes the way it undertakes those calculations.” Dwyer also does not “allege that a reasonable consumer would expect [Allbirds] to use another method of calculation or would be misled by [its] use of the LCA tool or the Higg MSI,” according to the court. 

In fact, “in advertising [its] product’s carbon footprint calculations, Allbirds describes the exact components of the calculation, and [Dwyer] provides no facts suggesting that [it] is not calculating the carbon footprint as advertised,” the court states, noting that Allbirds “does not mislead the reasonable consumer because it makes clear what is included in the carbon footprint calculation, and does not suggest that any factors are included that really are not.” 

While the court states that “there may well be room for improvement in the Higg MSI,” that does not mean that Allbirds’ reliance on that “current standard” is deceptive. 

Allbirds Lawsuit

Turning to Allbirds’ animal welfare claims, namely, its marketing that depicts “happy” sheep in “pastoral settings,” which Dwyer claims are based on “empty welfare policies that do little to stop animal suffering,” the court, again sides with Allbirds on the basis that Dwyer fails to identify “any misstatement in any advertisement that would deceive consumers.” 

Dwyer points to two advertisements that show sheep in a field, one of which says, “What if every time you got a haircut they made shoes out of it? That would be pretty cool,” and the other of which says, “Behind every shoe is a sheep. And behind every sheep, is another sheep, probably.” However, according to the court, “These ads, which are obviously intended to be humorous, make no representations at all,” and thus, are not actionable.

As for Allbirds’ claim that its wool harvesting practices are “sustainable, humane and that it intends to eventually source ‘only wool from ‘regenerative’ sources,” the court states that the underlying evidence that Dwyer relies on (i.e., a PETA publication that found cruelty to sheep at over 100 large-scale operations) “does not describe any animal cruelty specific to Allbirds or its products.” Beyond that, Judge Seibel stated that Dwyer’s “allegations that the [wool] industry as a whole deceives consumers do not satisfy her burden to allege that a specific advertisement or statement by Allbirds would mislead a reasonable consumer as to [its] product.” 

And finally, the court shot down Dwyer’s claim that Allbirds’ statement “Our Sheep Live The Good Life” is misleading and deceptive, finding that “this statement, and the depictions of ‘happy’ sheep in ‘pastoral settings,’ are classic puffery, which is not actionable under §349,” which prohibits “deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in [New York] state.” 

Specifically, the Judge determines that “‘The Good Life’ is a subjective, non-specific, unmeasurable, and vague statement” that “does not specify any fact about the sheep from which [Allbirds] gets its wool, let alone suggest, as [Dwyer] alleges, that the sheep receive individual care or do not undergo [an inhumane] procedure.”  

Because Allbirds’ “statements, advertisements, and practices relating to [its] products are not materially misleading,” the Judge dismissed Dwyer’s New York General Business Law claims. She similarly dismisses Dwyer’s claims for breach of express warranty, fraud, and unjust enrichment, stating they are “all premised on the assertion that Allbirds’ environmental impact and animal welfare claims are materially misleading” and noting that she “already determined that [Dwyer] fails to allege that the statements, advertising, and practices relating to the [Allbirds products] would be likely to deceive or mislead a reasonable consumer.”

While this loss for Dwyer in her lawsuit against Allbirds may serve to dissuade other potential plaintiffs from taking action over sustainability-centric advertising claims, it is worth noting that a number of other cases that center on sustainability marketing, including cases filed against Reynolds Consumer Products and Red Lobster, are still underway in federal courts in the U.S., and may result in different outcomes for the parties and potentially, for how courts look at sustainability marketing more generally. 

The case is Patricia Dwyer v. Allbirds, Inc., 7:21-cv-05238 (SDNY).

A lawsuit over allegedly misleading advertising from Canada Goose has come to a close, with the parties seemingly settling their fight out of court. In a joint filing on Wednesday, counsels for plaintiff George Lee and Canada Goose alerted the U.S. District Court for the Southern District of New York that they have “stipulated and agreed … that the action is voluntarily dismissed.” Lee filed suit against Canada Goose in 2020, accusing the Toronto-based outerwear brand of allegedly misleading consumers as to the nature of the trapping methods that are used to source the fur for its buzzy jackets by claiming that it is dedicated to “the ethical, responsible, and sustainable sourcing and use of real fur,” and running afoul of the District of Columbia Consumer Protection Procedures Act in the process. 

According to the proposed class action complaint that he filed in November 2020, Lee claimed that when he purchased a fur-trimmed parka from Canada Goose in 2017, he relied on the company’s sustainability-centric representations, including that its fur is sourced using ethical and humane trapping methods, only to learn that “Canada Goose’s suppliers use cruel methods” to trap “coyotes and other animals.” Against that background, Lee argued that the popular outerwear-maker has been unjustly enriched as a result of such misleading advertising because consumers “are willing to pay more for products labeled and marketed … [as being] ethically and sustainably sourced” than they are for “competing products that do not provide such assurances.” Canada Goose knows this, Lee asserted, which is why it “cultivates an image of products [that are] a humane alternative for consumers who wish to avoid fur products that are sourced using inhumane, unsustainable, and unethical trapping practices.” 

Lee moved to voluntarily drop the case, which was dismissed by the court in its entirety with prejudice on April 27, and Canada Goose is not believed to have made any financial payment to prompt a settlement.

A Case Worth Noting

The proceedings in the Canada Goose lawsuit are notable for at least a couple of reasons. Primarily, it is worth noting that Lee’s allegations survived the motion to dismiss that Canada Goose filed early last year, in which it argued that Lee’s claims should be tossed out on the basis that its allegedly misleading statements about the “sustainability” of its business, for instance, are not actionable because they are too general to be proven or disproven. More than that, Canada Goose argued that Lee’s “subjective views” regarding fur-trapping standards “do not render [its] statements misleading or deceptive,” and that he has failed to show injury anywhere outside of Washington, D.C., and therefore, lacks standing to bring claims under other states’ consumer-protection statutes. 

In a decision in June 2021, Judge Victor Marrero of the U.S. District Court for the Southern District of New York refused to dismiss Lee’s DC Consumer Protection Procedures Act claim with respect to Canada Goose’s statement that it is committed to “ethical, responsible, and sustainable sourcing,” holding that Lee had “plausibly alleged that this statement has the tendency to mislead a reasonable consumer.” Specifically, the court held that Canada Goose’s statement may be misleading because the company “obtains fur from trappers who use allegedly inhumane leghold traps and snares,” which Lee alleges “is widely considered inhumane by industry professionals.” 

The court held that Lee’s allegations were “thin,” but in viewing the complaint in the light most favorable to him, found that he had plausibly alleged that a reasonable consumer would be misled by Canada Goose’s advertising claims, a determination that could serve as impetus for other potential plaintiffs, particularly in light of a surge in sustainability marketing by brands in fashion and beyond. As Hogan Lovells’ Isabel Carvalho and David Tyler stated recently, sustainability marketing “has become a key component to leverage businesses that are based on” – or allegedly based on – “environmentally and socially conscious practices, since consumers have become increasingly focused on various aspects of sustainability.” 

The distinction between sustainability-centric statements that are too forward-looking to be actionable or that amount to mere puffery, and those that are actionable from a false advertising perceptive has been relatively hazy, and largely, unchecked by lawsuits. However, in light of the sheer surge in sustainability-focused marketing by apparel and footwear brands has come widespread claims of greenwashing and a growing wave of lawsuits, which makes the Canada Goose lawsuit significant, as it is one of a growing number of sustainability-related class actions that have been filed over the past couple of years. 

Reynolds Consumer Products, for instance, was sued in May 2021 in a California federal court for advertising its bags as “recyclable” and as enabling users to “reduce your environmental impact.” A month later, Red Lobster was sued in federal court in California in connection with its claims that its offerings are “Traceable, Sustainable. Responsible” and made from “Seafood With Standards.” (Both of those cases are still underway.) 

And also in June 2021, Allbirds was slapped with a headline-making suit in New York federal court for allegedly failing to live up to the claims that is makes in its sustainability-centric marketing, including about the carbon footprint of its products, and its “sustainable” and “responsible” manufacturing practices. In an order dated April 18, Judge Cathy Seibel granted Allbirds’ motion to dismiss, finding that, among other things, plaintiff Patricia Dwyer failed to plausibly allege that Allbirds advertising statements are materially misleading. 

The case is George Lee, et. al., v. Canada Goose US, Inc., 1:20-cv-09809 (SDNY).

The Federal Trade Commission (“FTC”) is on the receiving end of a new complaint urging it to take action over Roblox, the wildly popular metaverse/gaming platform. In a complaint lodged with the FTC this month, Truth in Advertising (“TINA”), a Connecticut-based advertising watchdog, alleges that Roblox Corporation, “a multibillion-dollar public company,” is on the hook for failing to “establish any meaningful guardrails to ensure compliance with truth in advertising laws, effectively allowing marketers, including but not limited to Alo Yoga, DC Entertainment, Forever 21, Hasbro, Hyundai Motor America, Mattel, Netflix, NFL Enterprises LLC, Nike, Paramount, and VF Corp., to manipulate millions of consumers in one of the largest and most captivating virtual platforms on the internet today.” 

Setting the stage in its 44-page complaint, which is addressed to FTC Bureau of Consumer Protection Direct Samuel A.A. Levine and Division of Advertising Practices Associate Director Serena Viswanathan, TINA asserts that in furtherance of its operation of a closed platform metaverse, Roblox “pushes [advertising] in front of millions of consumers, including more than 25 million children and adolescents, by a multitude of companies and their avatar influencers.” The problem, it argues, is that in “jump[ing] into the Roblox metaverse” in order to connect with young consumers, Roblox and these big-name companies are allegedly “exploiting children’s inability to distinguish organic content from marketing, and manipulating them and other Roblox users with undisclosed promotions that are nearly identical to organic virtual items and experiences on the platform.” 

Specifically, TINA claims that companies re able to market to consumers in a variety of ways on Roblox, including using: (1) branded worlds (also known as “advergames”); (2) sponsored content placed within organic worlds; and (3) AI-controlled, as well as human-created, avatar brand influencers. Regardless of the marketing format, TINA alleges that the distinction between marketing and organic content is “almost always missing – undisclosed advertisements disguised as games are sprinkled in and among regular games, sponsored brands and items are mixed in with non-sponsored items in organic worlds, and undisclosed bots and avatar brand influencers are walking among, communicating with and playing with other Roblox users.” 

Roblox

Diving into each of these marketing models, TINA states that “most of the sponsored worlds currently on Roblox are advergames, which combine advertisements and gaming in virtual experiences that are always accessible but beyond the control of any one user.” The watchdog points to Vans World, for instance, which it says “has had more than 61 million visits since its April 2021 launch.” Part of the problem, per TINA, is that “because there are more than a dozen different Vans Worlds in the Roblox metaverse, determining which one is the advergame is almost impossible.”  

“Because Roblox advergames, including Nikeland, Vans World, and Hot Wheels Open World, lack clear and conspicuous disclosures informing players that the content with which they are about to engage is marketing material, millions of Roblox users are deceived and unwittingly manipulated into playing within advertisements on a regular basis,” TINA contends. “In fact, the commercial content is so covert in these ad formats that even after adults enter sponsored worlds, they can have trouble accurately identifying them as advergames.” 

In addition to branded worlds, companies are allegedly making use of undisclosed sponsored content within organic worlds. According to TINA, Roblox “highlights ‘events’ on its platform but does not disclose when these events are sponsored.” Popular game Jailbreak, for example, which was developed on Roblox in 2017, hosted a limited-time sponsored event called the “OFFICIAL McLaren F1 Event” that was timed to coincide with the real-world reveal of the new McLaren MCL36. However, TINA claims that “there was no disclosure informing Roblox users of the promotional nature of this marketing event.” Despite being required by law “to clearly and conspicuously disclose the presence of sponsored content within their games and world” (just like how “real” life brands and influencers are legally obligated to disclose material connections), Roblox “does not disclose when these events are sponsored.” It also does not abide by its own terms, TINA argues, which “preclude children under the age of 13 from seeing and/or interacting with such marketing.” 

Finally, in addition to “undisclosed sponsored brand content,” TINA claims that Roblox and other companies “employ undisclosed brand avatar influencers – both human-created and AI-generated – who are playing, communicating and socializing with uninformed users.” With respect to human-created avatar influencers, Roblox and various other brands have enlisted “hundreds of social media influencers, who have built their avatars in this digital metaverse, to promote brands, games and worlds,” per TINA, which states that “it appears that none of these avatar influencers are or have disclosed their material connections to the applicable brands inside the Roblox metaverse.” This means that “potentially millions of users are seeing and interacting with brand endorsers in the Roblox metaverse without ever knowing it.” 

Roblox

TINA points to Nike, which it claims has “enlisted at least a dozen influencers who have not only promoted Nikeland on social media platforms, but also promoted Nikeland in the Roblox metaverse through their avatars.” These Nike gear-wearing avatar influencers “spend time in Nikeland and interact with other avatars – playing games, building mini-games, ‘buying’ Nike gear and communicating with fans – yet none of them appear to have disclosed their material connection to Nike in the advergame.” 

Another key takeaway point from TINA’s complaint is its emphasis on Roblox’s failure to secure the assets of its users, namely, the digital goods that they acquire for use in the Roblox metaverse. In a corresponding release, TINA states that “on its website, Roblox assures parents that its platform is ‘a safe and fun space for players,’” and yet, “in complaints to the FTC, many parents accuse Roblox of failing to protect their children in a variety of ways, including failing to protect their digital assets.” TINA cites a complaint that one parent lodged with the FTC, asserting that “their 12-year-old daughter was ‘heartbroken over her digital loss’ after hackers gained access to her Roblox account and stole valuable items including rare and legendary pets from her inventory in Adopt Me! a pet-raising game” on Roblox. 

Unlike other metaverse platforms, TINA contends that “Roblox virtual items and its currency are not created or secured using blockchain technology, which means Roblox objects are not NFTs (non-fungible tokens) and Robux is not a cryptocurrency.” As a result, when Roblox users lose their accounts for whatever reason, “they also lose every asset that was in the account, an occurrence that appears to happen with some frequency according to complaints filed with the FTC.” 

With the foregoing and other issues in mind, TINA “strongly urges the FTC to commence an investigation into the deceptive marketing on and by Roblox and take appropriate enforcement action,” arguing that “little has been done, and legislative efforts to stop manipulative online marketing that threatens children and teens have not yet come to fruition.” 

A spokesperson for Roblox told TFL on Monday, “Roblox is committed to ensuring our users and developers have a positive and safe experience on our platform. We have strict guidelines for developers that want to promote or use ads within their experiences, including specific rules to protect users under 13, expectations that all developers adhere to Community Standards we strictly enforce, and no tolerance for fraud or scams. We have stringent rules and monitoring processes aimed at combating content to exploit or trick users. We also make significant investments in new ways to allow creators to be compensated for their efforts while ensuring ad experiences are transparent and comply with applicable laws and regulations.”

Reps for Nike and Vans-owner VF Corp. were not immediately available for comment.