Every few years, the FTC puts out helpful guides in order to provide insight into various issues for consumers and businesses. Last December, the FTC released its Health Products Compliance Guidance pertaining to advertising interpretation, substantiation and enforcement issues. The provided examples are particularly instructive.
One example (Example 12) deals with the advertising of nasal strips that will reduce the sound of snoring. Even though the advertiser had “competent and reliable” evidence supporting this claim, the FTC took the position that a prominent disclosure should have been made, indicating that the product does not treat for sleep apnea for which snoring is a primary symptom.
I suspect that most businesses would not have considered the requisite sleep apnea disclosure. As such, it is always helpful to review the Guides and then consult your counsel.
Category: FTC
SUPREME COURT MAKES FTC’S JOB MORE DIFFICULT
For years, pursuant to Section 13(b) of the FTC Act, the FTC has been able to pursue violators in court for permanent injunctive relief as well as restitution or disgorgement. However, a question arose as to whether Section 13(b) actually allows a federal Court to award equitable monetary relief of this nature.
Yesterday, the Supreme Court answered the question in the case of AMG Capital Management, LLC v. FTC. The FTC may not seek restitution or disgorgement under Section 13(b) of the FTC Act.
While the FTC may still seek monetary relief after it has engaged in administrative proceedings and issued cease and desist orders, this ruling is a significant blow to its enforcement powers. Administrative proceedings typically take longer and are more cumbersome. Restitution and disgorgement under Section 13(b) were effective tools that I used at the FTC to address consumer fraud.
It will be interesting to see how this ruling affects the FTC’s approach as to future consumer protection matters.
COVID-19 CONSUMER PROTECTION ACT CLAIMS FIRST CULPRIT
Sometimes, companies decide to “test” the market with their advertising before having adequate substantiation. If they are first-time offenders, the mistaken belief is that the FTC will not do much to them if they are caught for violating Section 5 of the FTC Act. They think that the FTC will merely require them to take the product off of the market.
Enter the COVID-19 Consumer Protection Act (“Act”), which was enacted in late December 2020 for the duration of the COVID-19 public health emergency. This Act allows the FTC to seek civil penalties against first-time offenders that violate Section 5 of the FTC Act by engaging in deceptive acts or practices “associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID-19.” Indeed, the FTC brought its first case just last week against a company for marketing Vitamin D and Zinc products that were allegedly as, or more, effective than currently available vaccines.
Per the Act, the FTC can seek a maximum civil penalty of $43,280 per violation. However, it is unclear how this penalty will be applied.
The lesson is that companies marketing products in the COVID-19 space need to be weary of the significant civil penalties associated with this Act. First-time offenders of Section 5 of the FTC Act are no longer insulated from civil penalties while this COVID-19 law is operative.
DON’T FORGET ABOUT THE WEBSITE
Sometimes, companies spend significant resources trying to develop a particular theme for an advertising campaign while ignoring even more egregious claims being made on their website. So how does this happen? There is a disconnect between Legal and Marketing.
Legal might approve a particular ad and then Marketing decides that it can use a portion of it in another context because it has been “cleared.” The problem is that ads are vetted based on the “net impression” that is made on consumers. As such, taking a claim out of the context of the particular ad can cause an issue.
Often, companies list customer testimonials on their website, which contain atypical performance-related claims. They think that since they are truthful, there isn’t any sort of liability, which is untrue. Indeed, the performance claims (e.g., saved $1000) may be even more aggressive than the claims being vetted for use in the primary ad campaign.
Disclaimers are another area of concern. While certain disclaimers may have been approved for use in print advertising, they may not be effective when presented online because consumers can’t see them.
Simply stated, one size does not fit all when it comes to advertising. As such, companies should take a holistic approach to ensure that claims are being properly presented in all respective media.
Chances Were Slim to None: Shapewear Claims Fall Short
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.
You Be The Judge: Late Night King Trudeau Sentenced to 10 Years
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.
Give With Your Heart to the Victims of Boston, But Be Smart
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.
What’s On the FTC’s Radar? Chairwoman Ramirez Explains….
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.
Statement Or Stunt: FTC Sites Hacked
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.
If You Are Marketing Continuity Plans, Let Consumers Know.
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.