Stay ADvised: What's New This Week, May 4
In This Issue:
- Phony Supplement Marketer Bites the (FTC) Dust Over Outrageous Health Claims
- FTC Split on $175 Million Settlement With Retail Rent-to-Own Co.
- NAD Weighs In On Natural Ingredients Petco Campaign, Says Some Claims Supported, Others Not So Much
- Judge Upholds Most Claims in MTD of False Ad Suit Against Pacifier Co.
- LA City Attorney Sues Medical Retailer Over Deceptive Ads for At-Home COVID-19 Test
Phony Supplement Marketer Bites the (FTC) Dust Over Outrageous Health Claims
Five related companies marketing supplements for older adults have agreed to settle an FTC complaint alleging they made a litany of false advertising claims in violation of the FTC Act.
Targeting consumers online and with direct marketing tactics tailored to give the impression that product advertisements were pages from legitimate magazine spreads, defendants made outrageous claims about the healing powers of their supplements. Further, the companies are alleged to have fabricated testimonials to promote their products.
The FTC’s unanimously approved stipulated settlement order imposes a $38.1 million judgment on defendants Mile High Madison Group, Inc.; Nordic Clinical, Inc.; Encore Plus Solutions, Inc.; Le Groupe Mile High Madison, Inc.; and Clinique Nordique, Inc., and company principals Vittorio DiCriscio and Vito Proietti.
While the multimillion dollar judgment will be largely suspended after payment of $1.3 million (due to defendants’ inability to pay), the settlement does bar these companies and their principals from making any false advertising claims.
According to the FTC complaint, filed in Florida federal court, the defendants ran multiple advertisements touting fabricated health benefits for three supplements: Neurocet, Regenify, and Resetigen-D. Defendants allegedly claimed Neurocet provided a cure for joint-related ailments, with the ability to eradicate joint back, arthritis, stiffness, inflammation, and even headaches. Ads for Neurocet claimed the ingredient in the supplement was recently “discovered” by “scientists” and was “the most powerful natural pain relief known to science.”
Likewise, Regenify and Resetigen-D were promoted as “anti-aging cure-alls that could repair cells and treat multiple ailments,” including arthritis, skin issues, asthma, and more. One Regenify ad featured a picture of a man using an inhaler beside the words “Asthma? Not me … Not Anymore. Regenify Made Me Feel Normal For The First Time In My Life.” An advertisement for Resetigen-D claimed it was “backed by the greatest minds in the world” and promised to “reboot every organ and cell in your body [to] feel young and alive again.” In reality, each of the supplements allegedly contained merely ordinary collections of herbs and vitamins with no particular usefulness for treating any ailments.
This significant monetary judgment highlights the FTC’s growing impatience with companies advertising false health claims, even those not claiming to treat Covid. As Andrew Smith, Director of the Bureau of Consumer Protection, put it, “Companies need scientific evidence to back up health claims for their products; the Commission will continue to take action against marketers who can’t support their claims.”
FTC Split on $175 Million Settlement With Retail Rent-to-Own Co.
The FTC reached a $175 million settlement to resolve claims against a rent-to-own company accused of falsely advertising its rates and charging wildly different prices for its services than promised. The proposed settlement order further requires the company to cease making the offending misrepresentations and “conspicuously disclose the total cost to own a product when marketing its plans” and obtain informed consent before any charges are made.
Although the settlement appears to adequately resolve the allegations, the outcome has evoked strong disagreement within the FTC. The vote on the settlement resulted in a split decision of 3-2, as FTC Commissioner and Chairman Rohit Chopra and FTC Commissioner Rebecca Kelly Slaughter dissented with the majority’s vote.
Specifically, Slaughter argued that the defendant should also have been charged with violations of the Restore Online Shoppers’ Confidence Act (ROSCA) because virtually every aspect of the defendant’s customer application occurred online. ROSCA makes it “unlawful for any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature” unless the terms of that feature are adequately disclosed. (More on the FTC’s decision in our Key Takeaways below.)
Prog Leasing, LLC, dba Progressive Leasing, provides rent-to-own services to tens of thousands of U.S. retail stores, marketing a “90 day payment option” for consumers to finance large purchases in installments for furniture, appliances, jewelry, electronics and more at third-party retail stores. However, the FTC’s complaint alleges that Progressive’s marketing significantly misrepresents the cost of its services in violation of the FTC Act.
According to the complaint, on its in-store ads, printed on banners, posters and brochures prominently displaying the company’s “90 day payment option,” Progressive marketed its services as costing little more than retail price.
In reality, the interest rates charged by Progressive often cost customers double the item price and always cost more than the retail price. Even consumers who paid off the full amount early still incurred a premium of about 20 percent on the ticket price. The complaint states that “[d]espite being aware of widespread consumer confusion, Defendant continues to employ the same practices to lure consumers.”
The FTC also accused Progressive of continuing to falsely promote these low prices after receiving multiple customer complaints about the discrepancies between prices advertised and prices charged. Further, company training allegedly encouraged sales associates to make the deceptive claims, and its contracts mandated that retailers comply with its marketing tactics, giving the company the right to “demand corrective action” including terminating the relationship in the event of noncompliance.
Commissioner Slaughter’s five-page dissent argued the FTC should be concerned not only with the deceptive marketing of the “rent-to-own” industry but with its practice of charging “as much as 150% interest on basic household goods,” which required uniform consumer protections.
Slaughter argued the settlement was inadequate because it: (1) did not provide monetary relief sufficient to remedy the harm; (2) failed to assess individual accountability, thereby “diminish[ing] the order’s specific and general deterrence;” and (3) did not charge Progressive with violations of ROSCA.
In response to Slaughter’s dissent, Commissioner Christine Wilson claimed the terms of the settlement were adequate. Regarding ROSCA, she contended the law does not apply because it was enacted to prevent “misleading sales tactics” for internet purchases. Applying it where, as here, the vast majority of the transaction occurred in person and the internet’s only role was to complete the transaction in an online portal “would extend ROSCA to virtually any transaction in the modern age,” she said. Future discussion among the Commissioners regarding application of ROSCA should prove interesting to watch.
NAD Weighs In On Natural Ingredients Petco Campaign, Says Some Claims Supported, Others Not So Much
The National Advertising Division (NAD) gave the “go ahead” to some claims made by Petco Animal Supplies, Inc., as part of Petco’s new campaign to remove artificial ingredients from its dog and cat food products, while recommending other claims be discontinued.
NAD said that given Petco’s initiative to stop selling pet food with artificial ingredients, and the concurrent advertising campaign educating consumers about its “new standard,” the company had “submitted evidence sufficient to demonstrate that it” can confidently claim that it is “setting a bold new standard for nutrition” and “will continue to evaluate and evolve [its] standards and assortment to take pet nutrition to new levels.”
NAD, however, found a number of the company’s claims that it had removed “all” artificial ingredients from its products went too far and were not adequately supported by the evidence. NAD also said Petco should discontinue claims that the company’s push to remove artificial ingredients provided “better nutrition” to cats and dogs or resulted in “better health” for them, a takeaway the NAD found unsubstantiated.
NAD noted that Petco had not required removal of some synthetic vitamins, minerals and amino acids from the products it carries. Petco admitted it had not removed “[s]ubstances that are derivatives or mimics of natural compounds” or those that “may fall into categories outside the Petco definition of artificial flavors and preservatives.” Having included some artificial ingredients, Petco could not accurately claim it had removed “all” artificial ingredients. Instead, said NAD, the company should qualify the advertising to convey a “limited message” that it had begun removing certain artificial ingredients from its products.
NAD also recommended Petco stop advertising that its products would no longer contain “more nasties,” and that it cease using marketing slogans like “bye bye bad stuff.” Petco argued these claims were mere puffery, but NAD disagreed. Use of such language could not be mere puffery because the ingredients of the food consumers feed their pets matters to them, and because Petco had not submitted evidence that artificial ingredients are objectively less healthy than natural ingredients, it could not make these claims.
Still, said NAD, “nothing in its decision precludes the advertiser from accurately communicating that Petco listened to consumers and responded to their preferences and concerns via an ongoing initiative to remove certain artificial ingredients from its shelves.” Petco agreed to comply with NAD’s recommendations, although it disagreed with certain findings regarding Petco’s implied claims.
Good intentions, like humor, is never enough to save a misleading campaign. NAD continues to be very clear that all reasonable interpretation of an advertising claim must be supported by competent and reliable evidence. Further, all claims based on that evidence must be narrowly tailored to maintain a good “fit” between claims and support.
Judge Upholds Most Claims in MTD of False Ad Suit Against Pacifier Co.
An Illinois federal judge allowed the majority of plaintiff’s claims to proceed in a suit alleging a manufacturer of “orthodontic” pacifiers falsely advertised the products were safe for older toddlers.
Plaintiffs Shelly Benson and Lisa Caparellil filed a class action lawsuit alleging that Newell Brands and NUK USA marketed “orthodontic” pacifiers as appropriate for children older than 24 months when studies showed that the pacifiers can cause serious damage to teeth and jaw alignment to children in that age range.
The complaint alleges the companies promoted the pacifiers as “orthodontic” to capitalize on a positive perception of the term, to give the impression the pacifiers were good for children’s’ dental health. The U.S. Food and Drug Administration, however, has not approved a definition of “orthodontic” pacifier, nor is there an industrywide standard for “orthodontic” pacifiers.
Although he ruled primarily for plaintiffs, Judge Ronald A. Guzman pared down plaintiffs’ claims for injunctive relief, reasoning plaintiffs are now aware of the dangers the pacifiers are alleged to pose. For that reason, he also dismissed plaintiff’s cause of action under the Illinois Trade Practices Act, which only offers injunctive remedies.
The rest of plaintiff’s claims may proceed, with Judge Guzman finding that they were sufficiently pled. Judge Guzman rejected defendants’ argument that plaintiffs had no standing to bring the claims since their children were not injured by the pacifiers on the ground it was sufficient for plaintiffs to claim economic injury from the purchase of the product.
Defendants had also argued that the Illinois Consumer Fraud and Deceptive Practices Act claims should be dismissed because plaintiffs “overstated” conclusions in studies cited as evidence that defendants violated the Act. The court found the allegations were sufficient to overcome a motion to dismiss, declining to “delve too far into the merits of the claims.”
Judge Guzman similarly found plaintiffs had sufficiently pled that Newell and NUK knew of the risks of pacifier use in older children. He also rejected defendants’ argument that reasonable consumers would not interpret “orthodontic” to mean good for dental health, crediting the plaintiffs’ allegations that several portions of defendants’ website implied just that.
Judge Guzman also dismissed defendants’ argument that claims from class members outside of Illinois should be dismissed, finding the argument premature. Finally, he refused to throw out unjust enrichment claims on the grounds plaintiffs did not plead state law, reasoning that plaintiffs invoked state law by pleading they are Illinois citizens.
One takeaway is that claims for injunctive relief may fail where plaintiffs can no longer be injured by the harm once they are aware of it. The case is also a reminder that courts generally will not “delve too far into the merits of the claims” at the pleading stage if the basic facts are adequately pled.
LA City Attorney Sues Medical Retailer Over Deceptive Ads for At-Home COVID-19 Test
Los Angeles City Attorney Mike Feuer filed suit against a medical company accused of illegally marketing an “at-home” COVID-19 test.
The complaint alleges Santa Monica-based medical retailer RootMD falsely advertised “at-home” COVID-19 testing kits which are not approved by the U.S. Food and Drug Administration (FDA). At the time of the complaint, no “at-home” test for the virus had been approved, but since the filing of the suit the FDA has approved one specific testing kit. Nevertheless, that is the only at-home virus testing kit approved by the FDA, and it is not the one offered by RootMD.
Historically, RootMD has sold “gut” cures out of its online storefront, i.e., products to help treat and heal chronic gut diseases such as Irritable Bowler Syndrome. In March 2020, the company began offering what it advertised as a COVID-19 testing kit, which it said tested exposure to the virus and immunity and which retailed for $249. The LA City Attorney’s complaint claims that RootMD’s testing kits were not approved by the FDA. Although RootMD did not market the tests as FDA-approved, it did falsely claim the agency greenlighted the test for use under an emergency provision.
“Because these ‘at-home’ tests have not been validated by the FDA, the reliability of these ‘at-home’ tests have varied wildly and tests of ‘frankly dubious quality’ have flooded the American market, leading to false positives and false negatives,” said the city attorney’s office.
The complaint alleges violations of California’s Unfair Competition Law, False Advertising Law, and the state’s Sherman Food and Drug Act, which regulates the manufacture and sale of medical devices in California. The lawsuit seeks to bar RootMD from continuing to offer the offending testing kit and monetary damages in the amount of $2,500 for each violation of the law.
As of April 8, 2020, RootMD has said it is no longer selling the testing kits. The company, however, has continued to claim that the tests were effective in showing whether users had been exposed to COVID-19 and had developed immunity. As of this writing, the company’s home page prominently features a banner advertising the “COVID-19 Antibody Collection Kit,” which leads users to a page that explains that the test is not available for sale:
“Recently, RootMD offered an at-home collection kit to determine the presence of SARS-CoV-2 antibodies. As a result of the federal government’s recent decision to authorize select SARS-CoV-2 antibody lab testing kits, RootMD is pausing the distribution of our collection kits until governing bodies complete their validations to respect that process,” reads the site. Nevertheless, following that statement the company continues to claim that the test to determine the presence of coronavirus antibodies “fully met industry standards.”
Like the FTC, the FDA, and multiple attorneys general, the LA City Attorney has pursued matters against companies hawking deceptive COVID-19 cures. It recently settled a complaint against another company accused of advertising deceptive at-home testing kits for COVID-19. In that case, the company was accused of running a widespread marketing campaign promoting the test. Here, despite having ceased the marketing and sale of the test kit, RootMD has continued to claim the test works.