Stay ADvised: What's New This Week, June 8
In This Issue:
- LA City Attorney Suit Alleges Deceptive COVID-19 Scheme
- LendEDU Settles FTC Allegations It Passed Off Paid Reviews as Authentic
- NAD Affirms Guidance on Claims Based on Online Ratings and Reviews
- In a Second Challenge by Casper, NAD Finds Review Sites Conveyed Unsubstantiated Impression of Impartiality
- Don’t Get "Fresh" With Me, NAD Tells Baby Food Co.; Refers to FTC and FDA
LA City Attorney Suit Alleges Deceptive COVID-19 Scheme
Although the FTC, FDA, and numerous attorneys general have pursued those accused of marketing fake COVID-19, the breadth and depth of these false claims still have the capacity to shock, and to draw multi-agency review, ire and sanction.
Here, the California regulatory action took place after the SEC temporarily suspended trading of the company's stock and the U.S. House Committee on Oversight and Reform indicated it was looking into the company's practices.
Los Angeles City Attorney Mike Feuer filed a lawsuit at the end of May, accusing Wellness Matrix Group of a series of illegally deceptive advertising practices, all centered on the peddling of false cures and treatments for COVID-19.
The complaint alleges that Wellness Matrix and operators George A. Todt and Barry Migliorini "built and profited from multiple business scams" calculated to take advantage of "fear, anxiety, and misinformation arising from the global pandemic" for profit. The suit alleges violations of California's Unfair Competition Law, False Advertising Law, the Greenwashing Law, and other California consumer protection laws.
Wellness Matrix, which bills itself as the "next generation health and wellness platform," allegedly saw COVID-19 as the perfect springboard for selling sham products for its diagnosis, treatment, and prevention. Although, as the lawsuit notes, the sale of unregistered disinfectants is illegal in California, Wellness Matrix nonetheless allegedly sold such unregistered "disinfectants" under names such as CoronaStop28, CoronaStopper, CoronaStoppers, and StopCorona28, all marketed specifically for killing COVID-19.
The company allegedly claimed the products were approved by the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA), as well as by scientific experts. It even went so far as to fabricate FDA registration numbers and affix them to the products, a claim City Attorney Feuer called "unsettling." According to the complaint, the company made up scientific studies and white papers claiming its COVID-19 cures were legitimate, going as far as to attribute the materials to an unsuspecting researcher.
Further, Wellness Matrix allegedly marketed for "at home" use a "legitimate" test kit sold to healthcare practitioners, albeit the company had no license or authorization from any bona fide third party manufacturer to sell or distribute the kits. It is perhaps not surprising, therefore, the company never actually delivered any of the ordered "CoronaCide" kits, and that the makers of that product, CoronaCide LLC, have also sued Wellness Matrix.
When City Attorney Feuer reached out to the company to put it on notice of his office's authority to enforce the state's false advertising laws and demand it substantiate these advertising claims, the company did not respond. The complaint seeks an injunction prohibiting the company from engaging in the deception alleged in the complaint, as well as civil damages and restitution.
LendEDU Settles FTC Allegations It Passed Off Paid Reviews as Authentic
COVID-19 does not mean regulators have shifted focus away from bread and butter issues such as the failure to disclose material connections! Beware the company that thinks it can get away with deceptively hyping "objective" product reviews that are actually compensated.
As FTC Commissioner Rebecca Kelly Slaughter noted, "pay-to-play greed and deception have corrupted the ratings and rankings on which consumers increasingly rely to make informed purchasing choices online." And that is an issue that continues to rankle federal and state consumer protection enforcement agencies as well as consumers and of course the NAD.
The Federal Trade Commission (FTC) has finalized a settlement with a company and its principals accused of posting deceptive customer reviews on third party sites and creating fake rankings of financial products on its own comparison shopping website.
Inviting users to "finance confidently," LendEDU's website purports to offer comparison shopping information on loan and insurance products. The company markets itself as an "objective," "unbiased," "accurate," and "honest" source of information in the industry. The reality is far different though, says the FTC—it claims LendEDU actually gets paid to promote companies by giving them higher rankings, and also posts its own fabricated reviews that advertise its website on third party sites, in violation of the FTC Act.
The administrative complaint alleges that despite LendEDU's claims that its content was not influenced by compensation, it very much was. LendEDU heavily promoted a perception of impartiality, which extended throughout the company's marketing, from website copy that explicitly touted its "ratings are completely objective and not influenced by compensation in any way" and representations that its editorial staff did not receive "direction" from advertisers, to assurances that said editorial staff only published "accurate and fact-based analyses." LendEDU even had a full page on its site explaining just how its ratings methodology was unbiased.
In contrast, the FTC describes a company whose modus operandi was practically the diametrical opposite of its representations. According to the complaint, LendEDU ranked companies higher if they paid more money and actively solicited payment of higher fees from companies, offering higher ratings in exchange. And when companies did not pay up, it sometimes lowered their ratings.
Additionally, the FTC alleged that LendEDU posted deceptive reviews of its services by hyping its site on third party websites. For example, the company had employees post positive reviews on Trustpilot, to the extent that, at one point, over 90 percent of LendEDU's reviews on Trustpilot were fabricated. LendEDU then reposted some of these fabricated positive reviews on its own site.
The proposed settlement order obligates the company and operators Nathaniel Matherson, Matthew Lenhard, and Alexander Coleman to pay monetary relief of $350,000 to the FTC. It further prohibits them from making any misrepresentations about the impartiality of its rankings, or about compensation received in exchange for rankings.
NAD Affirms Guidance on Claims Based on Online Ratings and Reviews
This case provides a road map for advertisers seeking to show that they do not have a material connection to their affiliate marketers. With respect to the ratings-based claim, the most surprising aspect of the case is Saavta's apparent failure to submit any direct evidence supporting the reliability of the third-party reviews upon which it relies, and NAD's arguably surprising response.
Given that NAD has yet to find aggregated reviews sufficiently reliable to support a claim, this was a clever gamble on the part of this advertiser, but may not be a "win" for the consumer.
Followers of NAD cases are familiar with that body's historical distrust of claims that seek to aggregate online reviews or ratings for an advertiser's products. A recent challenge brought by competing luxury mattress company Casper Sleep (Casper) builds on that precedent.1
Casper challenged claims that competitor Whitestone Home Furnishings (doing business as The Saavta Company) is "America's best-reviewed luxury sleep brand." Casper also alleged that several of the review sites upon which Saatva relied in making its "best-reviewed" claim—including consumermattressreport.com, bestmattresspicks.com, top10matressesonline.com, and mattressreviwer.org—were in fact "unbranded" sites owned or controlled by Saatva.
In support of its position, Casper noted that its products are highly rated on well-known, independent review sites, such as Wirecutter, Consumer Reports, and Good Housekeeping. By contrast, Casper products were not even referenced on those sites that rate Saatva the "best" overall.
In response, Saatva submitted a declaration from a company representative stating that Saatva does not own, operate or control the content of the challenged websites—although there is a connection between the sites and the company. According to Saatva, that connection was "merely that of an affiliate marketing relationship through which the Websites may receive a commission if a consumer makes a purchase that is tracked to a specific Website."
Saatva further asserted that it does not exert editorial control over the site; cannot control how its own or its competitors' products are reviewed; and does not have any quid pro quo arrangement with the sites, such as a paying higher click-based commissions for higher-ranking.
NAD applied a traditional burden-shifting analysis, finding that the advertiser had provided sufficient evidence that there was no material connection between Saatva and the sites, and that they could not be deemed Saatva's "advertising." Although Casper was skeptical of Saatva's assertions, NAD found that Casper failed to provide stronger, more persuasive evidence reaching a different result. Accordingly, NAD determined Saatva had not engaged in "national advertising" and administratively closed the challenge pursuant to rule §2.2(C)(1)(a) with respect to those allegations.
By contrast, the claim "America's best-reviewed luxury sleep brand" admittedly appeared on Saatva's website, and NAD proceeded to review it on the merits. Here, NAD recommended that Saavta "exercise caution" and discontinue that claim if it is based on unrepresentative ratings, uses metrics which are irrelevant to the consumer making the purchasing decision, or if the company has undisclosed material connections to a third party site reviewing its products:
"Consumers could reasonably expect the claim to be based on reliable and representative reviews across the entire luxury mattress product category. Accordingly, if Saavta's claim is based on third-party reviews that assess only a segment of the luxury mattress market, then the broad and unqualified 'best-reviewed luxury sleep brand' claim is potentially misleading to consumers who reasonably expect the claim to reflect a comprehensive review of luxury mattresses across the entire product category."
Saavta agreed to comply with the NAD's recommendations.
In a Second Challenge by Casper, NAD Finds Review Sites Conveyed Unsubstantiated Impression of Impartiality
This case reaffirms NAD's longtime position that "advertisers have an obligation to inform consumers" when what they are viewing is advertising – an obligation that is particularly important when advertising appears in "editorial-like" formats.
In a second challenge by Casper Mattress (Casper), NAD recommended that mattress company Amerisleep modify representations and disclosures on the overall "editorial" appearance of two mattress ratings websites—SleepJunkie.org and SavvySleeper.org—to avoid conveying the implied message that such sites are impartial and independent from Amerisleep.2
As NAD has frequently observed, product reviews that appear on independent, third-party websites have a powerful effect on purchasing decisions. As mattress manufacturers increasingly move to online advertising and promotion, there has been a concomitant rise in online mattress review sites.
As NAD noted, many of these sites are affiliate marketers for multiple companies, apparently offering unbiased reviews, as well as various sleep-related content. The same was not true, NAD found, with respect to the sites challenged here.
The challenged websites offer both "Mattress Guides," which list the websites' picks for "best mattresses" both overall and in a variety of categories based on mattress type and consumer need, and "Mattress Reviews," which either look at a particular brand's line of mattresses or compare two brands' mattresses to each other.
Both sites are also owned and controlled by Amerisleep, a relationship Amerisleep sought to disclose as follows: "We may receive financial compensation for products purchased through links or codes on this website. [SleepJunkie.org/SavvySleeper.org] is owned by Healthy Sleep, LLC, which is affiliated with Amerisleep, LLC. Learn more."
NAD found this hybrid affiliate/material relationship disclosure insufficient to make it clear that the sites are owned and controlled by Amerisleep. Moreover, NAD found that a number of other elements contributed to the overall impression that the sites were impartial and independent, including the sites' .org domain names; the complete absence of Amerisleep branding; the rating and review format, combined with other articles related to sleep; and statements such as "We've spent countless hours finding the best mattresses out there so you don't have to hunt for them."
NAD concluded that reasonable consumers could believe that this was editorial content—not advertising. Moreover, even though the site did not couch ratings in terms of objective testing or assessments, NAD found that the commentary describing the various products' attributes furthered the misimpression that these were independent reviews.
Accordingly, NAD recommended Amerisleep discontinue or modify the websites to dispel that impression. Amerisleep said it would comply with NAD's recommendations, though it disagreed with its assessment.
Don’t Get "Fresh" With Me, NAD Tells Baby Food Co.; Refers to FTC and FDA
When substantiating claims, advertisers should remember that NAD will seek to harmonize its claims with relevant regulatory guidance, as well as at its own precedent.
Little Spoon's refusal to comply with NAD's recommendations led to a double referral to two federal agencies; we will follow this case to see if the advertiser can be brought into line.
After an organic baby food company refused to comply with recommendations that it discontinue a number of ads claiming its products are "fresh" and unprocessed, NAD has referred the company to the FTC and the FDA.3
Plum Organics, a subsidiary of Campbell Soup Company, offering shelf-stable, organic baby food, challenged claims by competitor Little Spoon Baby Food, which sells organic, refrigerated baby food meant to be eaten within 14 days of receipt. According to the challenge, Little Spoon misleadingly touts its products as "fresh," including "Little Spoon is amazing because not only is it easy, but it is fresh food," "GET FRESH," "Let's keep it fresh," and similar uses of the word fresh. Plum Organics also targeted claims that processed foods contain "little nutritional value;" and the implication that products with a long shelf-life are unhealthy and unsafe.
NAD agreed with Plum Organics, finding that Little Spoon improperly used the term "fresh" in marketing its baby foods and recommending that Little Spoon cease marketing its product with these claims going forward. In reaching its decision, NAD considered the FDA's definition of "fresh," as well as prior NAD and NARB decisions involving products that had undergone high-pressure processing (HPP).
NAD concluded that the generally-accepted meaning of the word "fresh" in this context is "unprocessed"—"i.e. that the food in its raw state has not been subjected to any form of thermal processing." As a result, NAD recommended that the company cease all use of the word "fresh" in marketing claims.
NAD also recommended Little Spoon cease making comparative advertising claims to shelf-stable baby food, finding the company had not provided any evidence that baby food sold in grocery stores has less nutritional value:
"NAD determined that one message reasonably conveyed by the challenged advertising, including a video featured on Little Spoon's website, is that shelf-stable baby food products available at grocery stores are of little or no nutritional value, 'stale' or otherwise unsuitable for consumption or unpalatable—claims that are unsupported by the record."
NAD finished off by further recommending that Little Spoon steer clear of claims that painted shelf-stable baby foods as nutritionally-deficient, "old," "stale," and the like.
1 NAD Case #6367 (May 2020).
2 NAD Case #6369 (May 2020).
3 NAD Case #6368 (May 2020).