Stay ADvised: What's New This Week, July 19
In This Issue:
- If It’s Broke, Fix It: TINA Urges FTC to Try a Different Tack on MLM False Ads
- FTC Makes It Official With New "Made In the USA" Rule
- Kushly to Pay to FTC Over Grandiose CBD Health Claims
- Another Vanilla Claim Bites the Dust
If It’s Broke, Fix It: TINA Urges FTC to Try a Different Tack on MLM False Ads
On the heels of the Federal Trade Commission's curtailed ability to impose financial penalties, the advertising watchdog group Truth in Advertising (TINA) is urging the FTC to keep up the fight. Citing alleged unchecked and "widespread deception" by multi-level marketing (MLMs), TINA is urging the FTC to take stronger deterrent action against deceptive earnings and health claims by adopting a financial penalty program.
In a recent letter to the FTC, TINA urged the Commission to utilize its power under the FTC Act to issue fines of up to $50,000 to MLM's making false and deceptive claims, by creating a penalty program designed for that purpose. According to TINA, the FTC can use this power when bad actors "knowingly engage in a practice that has been ruled unlawful" once the Commission issues a "final cease and desist order following a fully adjudicated administrative proceeding."
The FTC's recently-abridged use of money settlements may arguably have left it with comparatively few such final administrative proceedings, but the nonprofit says the FTC's many still-outstanding cease and desist orders authorize it to act, including an FTC order against POM Wonderful the group attached to its correspondence.
TINA argues that past efforts to stop MLM misrepresentations have been "ineffective at protecting consumers," who face financial and emotional harm from marketing of false earnings and health claims to attract participants, and its "time to try a new tactic." Companies continue to deceive consumers, says TINA.
The problem is so pervasive that even the Direct Selling Self-Regulatory Council (DSSRC)—which was funded in direct response to the pervasiveness of MLM marketing fraud—has said that despite some wins much work remains to ensure industry claims are "truthful and accurate." The "case-by-case battle that has played out over four decades between direct selling companies and the FTC [and] state attorneys general" has not made a dent, says TINA.
To ensure that the 660 MLMs currently operating in the United States are put on notice of any new enforcement mechanism, as required by the rule, TINA also provided the FTC with a list of these companies and their contact information.
In urging the FTC to "stop playing a game of whack-a-mole" and take real deterrent action, TINA is actually following the lead of FTC Commissioner Rohit Chopra, who published an article last year urging the FTC to resurrect the Penalty Offense Authority. This surely is also a reaction to the FTC's loss in AMG Capital Management, as the agency—and its friends—seek ways to make up the lost funds.
FTC Makes It Official With New "Made In the USA" Rule
The FTC may choose at some point to take up TINA's call to strengthen rules for MLM enforcement, but when it comes to deceptive "Made in the USA" claims, the future is now.
The Commission recently issued a "restatement rule" to deter what it calls "rampant" "Made in the USA" fraud by marketers who misrepresent their products' country of origin. The now-final rule prohibits advertisers from making unqualified Made in the USA claims on the labels of their products unless:
- (1) The final assembly of the product occurred in the United States;
- (2) All significant processing occurred in the United States; and
- (3) All or virtually all of the ingredients or components of the product are made or sourced in the United States.
This rule codifies the FTC's "longstanding enforcement policy," based on Congress's 1994 authorization, as well as a maximum penalty of just over $40,000 per violation of the rule. To supporters of the rule, including Commissioner Rohit Chopra, these changes will activate a "broader range of remedies" than previously available to the FTC, including the ability to seek redress, damages, and other penalties from advertisers who misrepresent their products' country of origin. The FTC also noted that the rule is likely to benefit small American businesses that may not have the resources to pursue competitors who aim to make money off false country of origin claims to their detriment.
The rule is applicable only to labeling claims; the FTC will continue to bring enforcement action against marketers that make deceptive U.S.-origin claims falling outside the rule under Section 5 of the Federal Trade Commission Act.
Kushly to Pay to FTC Over Grandiose CBD Health Claims
A purveyor of CBD products has agreed to settle Federal Trade Commission (FTC) allegations that the company made false health claims about the ability of its products to cure ailments large and small.
The FTC Complaint alleged that the company and its CEO Cody Alt made "false or unsubstantiated efficacy claims regarding CBD," including the express or implied claims that CBD could treat anything from sleep issues to skin diseases, multiple sclerosis, and "certain types of" cancer. Alt was actively involved in promoting the company and the CBD, said the FTC, and was often featured and quoted in articles about Kushly.
The complaint further alleged that Kushly and Alt made false establishment claims about CBD products. More specifically, defendants falsely claimed that scientific studies backed up their health claims, for example, the claim that "a lot of studies confirmed that [CBD] could be used to treat body conditions relating to the endocrine system." In another example, a blog post called "Eat Away Chronic Pain" touted CBD gummies as the solution for pain because "many scientists and doctors stated that CBD can help people with various diseases."
The final consent order pins a financial obligation of just over $30,000 on Kushly, equivalent to the amount consumers paid for the deceptively-marketed wares. It further prohibits Kushly and Alt from making any false health-related claims that CBD or their products can treat or cure any illnesses. The company must further cease misrepresenting that there is clinical proof that their products or CBD can treat or cure illnesses.
While CBD is currently approved for sale, false statements that paint the substance as a cure all or even a cure for specific ailments are not—absent actual support. To that end, the FTC has made it a priority to pursue myriad claims about the health benefits of cannabis-derived products. For CBD companies, the matter is a reminder that they must stick to accurate and scientifically substantiated claims while marketing CBD, and that the FTC takes these claims particularly seriously.
Another Vanilla Claim Bites the Dust
As previously highlighted on Stay ADvised, it isn't looking good for "vanilla" lawsuits, and the accretion of adverse decisions against not only Whole Foods—as in this case—but Kelloggs, McDonalds, Wegman's, Trader Joe's, and more. And that is merely a drop in the bucket. Indeed, one law firm has allegedly filed at least 100 lawsuits making similar allegations.
In this instance, a court dismissed yet another putative class action lawsuit alleging that "vanilla" claims on products with little to no natural vanilla are false advertising. Here, the claims targeted vanilla almond milk sold at Whole Foods that was labeled "vanilla" when it only contained traces of the actual ingredient. Yet again, the court held that plaintiff had not alleged that the Whole Foods packaging would lead consumers to think the word "vanilla" referred to the ingredient, rather than the flavor.