Stay ADvised: What's New This Week, March 16
- Tea Company Settles With FTC; Cardi B and Other Influencers Receive Warnings
- Pain Relief Device Co. to Pay $4 Million to FTC Settling False Ad Claims
- Crackdown on False Advertisers Capitalizing on COVID-19 Health Crisis
Tea Company Settles With FTC; Cardi B and Other Influencers Receive Warnings
A self-described all-natural tea company recently settled Federal Trade Commission (FTC) allegations of misrepresenting the curative powers of its teas and improperly using influencers in its advertising.
In its complaint against Teami and owners Adi Halevy and Yogev Malul, the FTC alleged the defendants deceptively promoted the detoxification powers of the company’s 30 Detox Pack product and falsely claimed the drink would help customers lose weight, all without scientific support. The company also claimed the product could heal a number of other ailments including cancer, clogged arteries, migraines, and the flu.
The FTC further alleged that Teami violated agency guidelines when contracting with social media influencers to tout the tea’s weight loss and curative powers, including, most prominently, hip hop star Cardi B and singer Jordin Sparks. The FTC claims the company failed to ensure these celebrities disclosed their commercial relationship with Teami, in violation of the agency’s Guides Concerning the Use of Endorsements and Testimonials in Advertising.
Unlike many other actions the FTC has taken in this area, the allegations did not focus as much on the influencers failing to disclose they were compensated for their promotion (which they did, somewhat), but that Teami did not itself properly make that disclosure. The FTC asserted that Instagram users could not immediately discern Teami’s social media posts were being promoted when scrolling through feeds or viewing individual posts. The paid promotion disclosures could only be viewed by clicking “more” in the visible post and expanding the post caption, the FTC claimed.
The FTC alleged that despite sending a letter to Teami in April 2018 warning about the inadequate influencer disclosures, the company continued its non-complaint practices.
In a separate though somewhat related action, the FTC also sent warning letters to the 10 influencers implicated in the complaint, reminding them to prominently disclose their connection to the company,
If you are endorsing a product or service in a photo you post to Instagram (such as by prominently featuring a branded product in the photo or by tagging a brand in the photo), the same rule applies: the disclosure must be above the “more” button. A disclosure should not be hidden among multiple tags, hashtags, or Instagram handles. In addition, you should put a disclosure in each and every social media post and not assume that consumers will see and associate multiple posts.
“Social media is full of people peddling so-called detox teas, promising weight loss,” noted Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “Companies need to back up health claims with credible science and ensure influencers prominently disclose that they’re getting paid to promote a product.”
The order settling the matter imposes a $15.2 million judgment on the defendants, suspended to $1 million and payable over a year due to their inability to pay. The order also bars Teami from making any representations that the product cures or prevents diseases, helps with weight loss, or is FDA-approved. The order further prohibits defendants from misrepresenting product endorsements and ensuring that influencers and others to whom it provides free products or pays to promote its products disclose tier connection to the company.
Not long ago, we reported on the FTC’s release of disclosure guidelines for influencers when engaging with brands in social media. Now, in addition to the agency cracking down on companies that fail to properly disclose paid relationships, it continues to warn influencers that they too must abide by these rules. By issuing these letters, the FTC is signaling its intention to increase enforcement actions against influencers.
Pain Relief Device Co. to Pay $4 Million to FTC Settling False Ad Claims
The Federal Trade Commission (FTC) has reached a $4 million settlement with a medical device company accused of making exaggerated, unsubstantiated marketing claims about the pain-relieving capabilities of its flagship product.
NeuroMetrix and its CEO Shai Gozani are accused of falsely marketing a product called Quell, an over-the-counter “transcutaneous electrical nerve stimulation device” worn below the knee to provide relief for chronic or severe pain due to various ailments throughout the whole body.
The company sells Quell through healthcare professionals and major retailers such as Best Buy, CVS, Hammacher Schlemmer, Walmart, and others. The marketing claims in question were made online, on television, via social media, and at consumer electronics industry trade shows.
According to the FTC, the company deceptively promoted that the product worked by “activating areas of the brain responsible for the central inhibition of pain,” thereby producing “widespread relief of chronic and severe pain throughout the body.” The FTC also allege the defendants claimed the product was clinically proven to provide this type of pain relief—in many cases citing specific studies it said showed these results—and that the Food and Drug Administration (FDA) approved the product for such use.
The product may have provided some localized pain relief in the area where it was placed, but claims of any efficacy beyond that were false, alleged the complaint, which accused the company of violating Section 5(a) the FTC Act.
Although NeuroMetrix did rely on certain scientific studies to make these claims, they were “substantially flawed,” said the FTC:
To substantiate the … advertising claims of widespread relief from chronic and severe pain from a fixed application site below the knee, including pain that is distant from the application site or due to conditions such as osteoarthritis [and other such maladies] … would require randomized, placebo-controlled, prospective, human clinical trials …. However, neither … Quell (nor any substantially similar device with comparable dosing and placement), nor the entire body of relevant scientific evidence, demonstrate that Quell is effective in relieving chronic and severe pain beyond the site of application.
Moreover, the company’s CEO received and disregarded “multiple warnings” that the evidence provided in support of the company’s claims was insufficient.
Aside from the $4 million monetary judgment imposed on the defendants, the stipulated order and judgment requires an additional $4.5 million in future foreign licensing payments, and requires the company to cease making misleading or unsupported claims or misrepresentations “about clinical proof or the scope of FDA clearance.”
Considering that high dollar monetary payments in many FTC settlements are partially suspended due to defendants’ inability to pay, this settlement is a strong repudiation of Quell, NeuroMetrix, its CEO, and marketers for the aggressive and unsupported pain-relief devices they made, including misrepresenting FDA approval of the product.
The particularly harsh penalty is likely due to the FTC’s concerns with products deceptively marketed to address the consumers’ over-reliance on opioids. As Daniel Kaufman, the Deputy Director of the FTC’s Bureau of Consumer Protection said, “With the opioid crisis, consumers are searching for drug-free pain relief. Devices claiming pain relief without scientific support harm consumers and undermine the market for non-drug products. The FTC will act on empty promises of pain relief.”
Crackdown on False Advertisers Capitalizing on COVID-19 Health Crisis
As the coronavirus outbreak has spread, unscrupulous advertisers have sought to take advantage of public fears and concerns to make a buck. But in a pair of recent cases as far away from each other as the United Kingdom and Branson, Missouri, advertisers were punished for falsely advertising nonexistent cures and remedies for the coronavirus.
In the U.K., the Advertising Standards Authority (ASA) issued a ruling banning ads by Novads OU, doing business as Oxybreath Pro, which published a number of online ads exhorting the benefits of its Oxybreath Pro masks to protect against COVID-19.
The online ads featured language warning of a “growing sense of panic,” and in several cases resembled news articles with headlines such as “Just Released: The Mask That Will Keep Your Mind More At Ease During The Spread of The New Virus.” The ASA condemned the use of alarmist language to encourage consumers to act quickly before the masks sold out. The appeal to peoples’ fear of the virus was problematic as well, noted the ASA.
Further, despite health guidance in England showing “very little evidence of widespread benefit from [mask use] outside of … clinical settings,” the ads made representations about the efficacy of the masks to prevent the spread of “viruses, bateria [sic] and other air pollutants.”
For these reasons, the ASA found the ads breached several sections of the U.K. Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code) pertaining to misleading advertising and violations of social responsibility. Novads OU failed to respond to the ASA’s inquiry regarding the ad, but the Authority said it informed the company that it must “ensure [the ads] did not state or imply that their product could protect consumers from coronavirus and to ensure their ads did not cause fear without justifiable reason.”
Meanwhile, back on this side of the pond, New York Attorney General Letitia James took Branson, Missouri-based televangelist Jim Bakker to task for offering his own kind of cure—a “Silver Solution” that he claimed on his television show could cure the coronavirus and “eliminate it within 12 hours.” During the show, both Bakker and guests said the product had been tested and been found effective on other coronavirus strains.
Attorney General James sent Bakker a cease and desist letter accusing him of false advertising and advising him to stop making the misleading claims. Her office also noted that the product has not been tested by the Food and Drug Administration (FDA) and that product labels should reflect this fact.
Bakker has been on the wrong side of the law before, having served time in federal prison for financial fraud in the 1980s.
It is not surprising that bad actors would seek to take advantage of widespread public fears during a pandemic in order to make a profit. As these matters show, such behavior will be met with swift action by regulators.