Just when you thought that you heard it all, the FTC announced yesterday that it settled with marketers of caffeine-infused “shapewear” over unsubstantiated weight loss claims. According to the FTC, marketers urged consumers to wear a fabric that was allegedly infused with, among other things, caffeine for metabolizing fat. The caffeine was supposed to dehydrate fat cells, making the wearer appear slimmer and firmer. Claims like “[t]ake up to 2” off hips,” “[i]nstant trimming when you wear them,” and “works with your body to eliminate cellulite” came under attack by the Commission. The FTC was critical of the studies that had been offered as alleged substantiation. Besides being uncontrolled and unblinded, the studies revealed average reported hip reductions of less than of fractions of an inch. Outlier results were not persuasive. In the end, the companies entered into proposed Consent Orders requiring over $1.5 million to be refunded to consumers. Once again, companies have been pursued when the Commission felt that they distorted results and made outlandish claims. Consumers continue to search for quick fixes for weight loss and the FTC continues to hold companies accountable. This sector has been a priority for the Commission for years due to the inherent health-related concerns associated with specious weight loss claims. Any company operating in this domain should err on the side of caution in its advertising.
As a former FTC staffer, I am asked about what’s the worst that can happen if a company doesn’t have substantiation for its weight loss or other health-related claims. Well, that depends. Taken to its extreme, there can be serious consequences. It’s been reported that late night TV infomercial pitchman, Kevin Trudeau, was sentenced yesterday to 10 years in prison for criminal contempt of a federal court order. Trudeau’s latest problems can be traced back to a 2004 FTC Stipulated Final Order barring him from misrepresenting the contents of his books in advertising. As you may recall, Trudeau had also agreed to be banned from advertising products in infomercials. In 2010, Trudeau was ordered to pay consumers nearly $38 million based on the books that he sold. His books focused on all-natural cures for serious illnesses, such as cancer, arthritis, etc. that he felt were being suppressed by the FDA, FTC and pharmaceutical industry. Trudeau tried to escape paying the nearly $38 million, but was found guilty of contempt last year. Trudeau was finally sentenced and received 10 years for his acts. So, what’s the worst that can happen? Taken to the extreme, you may go to jail. One thing is for certain. If you make unsupported claims about curing serious illnesses- claims that discourage consumers from following traditional medical treatments for such ailments- you are sure to go to the top of the federal government’s list in terms of its enforcement efforts as public health remains a top priority.
What happened at the Boston Marathon last week was horrific. And even though unfathomable, there are some people that will try to profit from this tragedy. As the FTC warns, refrain from giving cash donations to unknown sources and consider these simple rules provided by the FTC when solicited in person, online or on the phone:
- Ask for the name of the charity if contacted by phone and the telemarketer does not provide it promptly;
- Ask what percentage of your donation will support the cause described in the solicitation;
- Verify that the charity has authorized the solicitation;
- Do not provide any credit card or bank information until you have reviewed all information from the charity and made the decision to donate; and
- Ask for a receipt showing the amount of the contribution and stating that it is tax deductible.
The FTC has limited resources. Knowing what it has focused on in the last year can give you a sense of the types of issues that might be more likely to trigger a FTC inquiry. As Chairwoman Ramirez recently explained, in 2012, the Agency brought actions in the following areas:
- Privacy, especially in the digital arena
- Data security failures, collecting personal information and children’s online privacy;
- Health care mergers and anti-competitive health care provider conduct;
- Standard setting and pharmaceutical pay-for-delay patent settlements;
- Health and safety claims;
- Business opportunity and “get rich quick” schemes;
- Tech support scams; and
- Marketing of healthier food choices to children and teens.
It’s been reported that several websites owned by the FTC were hacked last Thursday. Seven domains were alleged taken down, including, business.ftc.gov, consumer.gov, and consumer.ftc.gov. This is allegedly the second attack on the FTC within a month. The alleged motivation for the attacks was to protest the FTC’s reluctance to prevent a well known search engine from changing its terms of service. Also, the hackers’ efforts were allegedly in protest of the Anti-counterfeiting Trade Agreement, which has come under recent scrutiny for being overreaching and excessively intrusive. So, what did this act really accomplish? The FTC’s consumer protection-related resources were hijacked for a period of time. Taking someone else’s property without their permission does not promote freedom of expression, which seems to be their point.
Yesterday, the FTC reported that it had filed its 11th case involving the promotion of dietary supplements via fake news sites run by affiliate marketers. Sure, companies need to be concerned about how consumers are driven to their websites. However, it appears that the driving factor for many of the FTC’s complaints involving fake news sites was not the misleading claims on the affiliates’ websites, but rather the undisclosed negative option continuity plans on the defendants’ websites and the inability of consumers to get refunds. Even though technology has improved, it’s the same old story. At the end of the day, consumers complain to their state AG’s offices and the FTC because they claim that they were enrolled in undisclosed continuity plans, not that they lost $1.95 for a sample of a product that did not work. The FTC’s Complaint involving the sale of acai berry/colon cleanse products is yet another example of this common fact pattern. The fact that these products were pitched through allegedly fake new sites is only icing on the cake. If companies honored their 100% money back guarantees, not enough people would complain to give the FTC the incentive to bring an action. The FTC has limited resources so many of its cases are derived from consumers’ complaints. Make no mistake that if you make claims that are on its top hit list (e.g., claims to children or claims directed at curing diseases), you could see an FTC inquiry. However, if everyone is happy, then it’s less likely that your claims will come under scrutiny. Now, it might not be economically feasible to offer 100% refunds because companies pay out commissions to affiliates to drive consumers to their websites before consumers request refunds. This makes it even more important for companies to make sure that they have defensible positions for using any negative option continuity plans. Also, companies need to understand how consumers were pitched to arrive at their websites. If the true “product” is the continuity plan, then companies need to be ready to defend why all of the downstream affiliate marketing as well as the marketing on their own websites focused on the $1.95 product. While companies like to blur the issue, the question is fairly simple. If at the end of the day, the consumer believed that it was just buying the $1.95 product instead of signing up for the $79.95 plan, you could have an issue. Also, failing to investigate how consumers got to your website (i.e., by failing to monitor downstream affiliate marketing) can only lead to further trouble. Be clever in your marketing, but make sure that consumers understand what they are buying.
Yesterday, the FTC and DOJ announced the release of their Joint Policy Statement regarding the enforcement of U.S. antitrust laws with respect to Accountable Care Organizations (“ACOs”). This is reminiscent of when the Agencies issued their Joint Healthcare Guidelines in 1994, and capitation, HMOs, PPOs and PHOs were the topics of issue. It should be interesting to see how the industry reacts in light of these guidelines.
Earlier this week, the FTC approved a final Order settling charges against Beiersdorf, Inc. relating to marketing claims for its Nivea My Silhouette! skin cream product. The Decision and Order can be found on the FTC’s website along with a copy of the Complaint. What can be learned from this case? First, don’t believe that just because your competitors’ products have not been questioned by the FTC, your products are immune from review. Second, there can be serious financial repercussions for making questionable claims. According to Section V of the Order, Beiersdorf is required to pay $900,000 to the FTC to settle this matter. Third, in addition to being concerned about whether your more traditional types of marketing are compliant, you need to be careful about the types of keywords that you are purchasing to promote your products. As noted in the Beiersdorf matter, the FTC complained about the purchase of terms, such as “stomach fat” and “thin waist.” Finally, while the matter may be over, Beiersdorf is now under Order with the FTC (the violation of which will trigger significant financial penalties) and has agreed to be monitored by the FTC for five years with regard to certain future claims. While such monitoring provisions are not new, companies often forget about how invasive these provisions can be as it allows the FTC, “upon reasonable notice and request” to ask for, among other things, substantiation for the subject claims. In other words, unlike in civil litigation, the matter is far from being over even though a settlement has been reached. Learn from how the FTC settled matters with others in your field and consider the significant disruptions, both financial and otherwise, that can result if your company makes unsupported or questionable claims.
The FTC has announced changes to several sections of its Rules of Practice used in consumer protection and competition matters before an Administrative Law Judge. According to the FTC, they are designed to help streamline discovery and motion practices. Details of the changes can be found at http://www.ftc.gov/os/fedreg/2011/08/110812part3frn.pdf, which reportedly address such issues as how to label "confidential" documents and the admissibility of expert reports. The FTC's Press Release can be found at http://www.ftc.gov/opa/2011/08/part3.shtm.