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Brand Protection & Advertising

Stay ADvised: 2024, Issue 17

Brand Protection & Advertising Law News
09.04.24
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In This Issue:

 

One Small "Step" for the FTC: Deceptive Employment Site To Pay $43 Million

In a win for the Federal Trade Commission (FTC), a deceptive career advancement service will pay $43.5 million to settle false advertising allegations.

The FTC accused Career Step of engaging in a laundry list of deceptive marketing tactics that deliberately targeted U.S. service members with inflated employment rates, misrepresentations about the typical time-to-completion for its programs, a deceptive incentivized review program, and false promises of career gains and job placements. The company will pay a $27.8 million portion of the settlement in the form of debt cancellation to former students and the remaining $15.7 in cash to provide consumer redress.

According to the complaint, Career Step offers online career training and certification programs in healthcare and markets educational services to help consumers "advance their careers" and "connect with employers." The FTC alleged that the company made false or unsubstantiated claims to lure in service members with deceptive promises of career advancement. It advertises on digital and social media, uses "AI" technology to replicate human sales representatives (e.g., by contacting consumers via text message for the purpose of initiating a conversation), and advertises directly on its website and on military bases.

The list of alleged wrongdoing is extensive and follows the pattern of these types of cases involving inflated promises of success and bogus earnings claims. According to the complaint, Career Step misrepresented the employment outcome of its service, repeatedly claiming that those who completed the program had an over 80% employment rate. These claims were based entirely on an optional survey which most students did not complete, and also directly negated Career Step's own reporting that the company only had a 43% graduate employment rate.  

Additionally, Career Step misled consumers when it touted employer partner relationships with leading companies such as Walgreens and CVS, claiming that the service could help connect students with these companies and obtain a job with them.

Career Step also told students that it would place them in externships, but according to the FTC, fewer than 10% of students ever benefited from this service. The company also claimed that most students would complete the program in four months, but that was rarely the case, and students often had to pay extra fees to complete the program.

The FTC also alleged that the company ran a deceptive incentivized review program through which it offered students an incentive to post reviews of the program. Though it told students to disclose the incentive "per the FTC guidelines," when Career Step received reviews that did not disclose the material connection, it still approved them for publication.  

The complaint alleged violations of Section 5(a) of the FTC Act, the Telemarketing Sales Rule, and Section 521 of the Gramm-Leach-Biley Act (GLB Act), which prohibits obtaining information of a financial institution based on false information.

In addition to the monetary component, the settlement, which must still be approved by a federal judge, prohibits Career Step from engaging in further deceptive advertising of educational services.

Key Takeaways

The case makes clear that the FTC remains vigilant and is still raking in large monetary settlements regrading deceptive earnings claims, deceptive reviews, and the targeting of the military and vulnerable consumer groups. 

 

$10 Million FTC Settlement Shields Consumers From Car Repair Service Bait-and-Switch

"Don't get stuck with expensive car repairs." That was the claim made by the company selling car breakdown service plans. But, according to the FTC, consumers who paid for the service were misled about the terms and offerings of the plan, and now the company settled with the FTC for $10 million.

CarShield used celebrities like Ice-T, Vivica A. Fox, and others to advertise what seemed like a great deal: vehicle service contracts (VCSs) to cover vehicle breakdown expenses. For example, in one of the ads, the FTC emphasized that Ice-T said that CarShield "get[s] expensive car repairs taken care of, so I don't have to."

According to the FTC complaint, CarShield and its parent company NRRM, together with American Auto Shield (AAS), which administered the VCS, advertised that its service plan would give them "peace of mind" in case their car broke down. The company promised that consumers who signed up for its plan would have all repairs to "covered" systems paid under the plans, would receive a rental car for free in the event of a breakdown, and could choose the repair facility.

The service was marketed as a way to protect consumers from unexpected car repair costs and seemed like a great deal, not least because of the celebrities CarShield hired to make its case. In CarShield commercials, the celebrities not only made CarShield's claims but also often said they were also CarShield customers though in many cases this was apparently not true.

Turns out, these promises of "peace of mind" and "protection" were a whole lot of hot air. according to the FTC, which alleged that CarShield consumers "are often stuck paying for the very repairs they were assured would be covered." In many cases, consumers could not use the repair facility of their choice, usually because AAS imposed burdensome requirements on repair facilities (e.g., requiring repair facilities to submit maintenance records, photographs, and other documents; perform diagnostic work; and allow third-party inspectors to access the repair to inspect the consumer's vehicle) or because of repair facilities' prior bad experiences with CarShield and AAS. The FTC said that CarShield was aware of this issue yet continued to market the perk.

Additionally, CarShield falsely advertised that most repairs would be covered. In fact, all VSCs sold by CarShield contained material terms and conditions that were not disclosed on its advertising or by telemarketers, but that AAS routinely used to deny claims. Specifically, the FTC noted that the VSCs contain a host of exclusions, including exclusions of entire vehicle systems, exclusions of parts within "covered" vehicle systems, and exclusions for breakdowns that AAS determines were due to one or numerous causes. In short, consumers did not receive the advertised benefit of CarShield paying even for "covered" repairs. Finally, many consumers did not receive a car rental when their car broke down or received it for a shorter period of time than it took to repair the car, said the FTC.

The complaint cited causes of action for violations of Section 5 of the FTC Act and the Telemarketing Sales Rule (TSR), the latter invoked because many of these deceptive claims were made by telemarketers making inbound and outbound calls to consumers.

In addition to the $10 million payment that defendants will pay, the proposed settlement prohibits CarShield from making misrepresentations, requires them to make disclosures according to the law, and prohibits them from violating the Telemarketing Sales Rule.

Key Takeaways

Although none were accused of wrongdoing here, celebrities who hawk goods and services should take care—if they have reason to know that a company's claims are false, they too can be liable.

 

Nail Fungus Treatment Companies Go Toe to Toe at NAD

NAD is developing a small specialty in fungal treatments with quite a few cases over the years. In the latest, Advantice Health (Advantice), which sells nail fungus treatment products Kerasal and Emtrix, challenged claims by competitor Dr. Luke's Healthcare about its Dr. Luke's Fungal Nail Renewal.

Advantice challenged express claims by Dr. Luke's that its product is "formulated to effectively treat Nail Damage" and fungus and that it "kills fungus, stops itching and burning," and is "proven effective against nail fungus," as well as implied claims that Dr. Luke's cures nail fungus and is doctor recommended.

Advantice argued that Dr. Luke's falsely advertises its product as "natural" containing Chinese medicinal herbs because it contains a synthetic compound. Additionally, it argued that there was no evidence to support the claim that the product repairs fungal-damaged nails.

As an initial matter, NAD determined that Dr. Luke's claims that the product can "Repair and Renew—that is that it can radically repair damaged nails, such as nail discoloration, nail thickening, nail splitting, nail crumbling"—crossed the line from cosmetic claims into health treatment claim territory:

The phrase "radically repair" implies a restoration of nail health beyond mere cosmetic improvement, suggesting a treatment effect on the underlying nail damage. This language transforms what might otherwise be a cosmetic claim about improving nail appearance into a claim that promises a substantive improvement in nail health, making it a treatment claim.

Having determined that the treatment claim was a health claim subject to the higher substantiation standard for such claims, NAD determined that Dr. Luke's had not submitted competent and reliable scientific evidence that the product treats nail fungus. First, Dr. Luke's cited to a study showing the ability of its ingredient acetic acid to reduce nail fungus and improve nail health. NAD found that this study was not a good fit for the claims because the composition, dosage and mode of administration in the study differed from those used in the product.

Second, Dr. Luke's argued that because its product contained 1% tolnaftate, it could rely on an FDA monograph that concluded that tolnaftate is safe and effective to treat fungal skin conditions. But NAD concluded that the monograph could not be relied on for claims to treat nail fungus as distinct from skin conditions. Finally, NAD found that even if, as Dr. Luke's argued, "Chinese medicine has a long history of using these herbs to treat fungal infections," this was insufficient to substantiate the claim that these herbs as included in the product could treat nail fungus. Studies submitted by Dr. Luke's to demonstrate the benefits of these herbs were also not a good fit for the claims because they didn't demonstrate any benefits in relation to the specific safety, dosage and efficacy used by Dr. Luke's formulation.

With respect to Dr. Luke's "natural" claims, NAD also determined the claims unsupported. Advantice argued that the standard for a natural product is that it not be artificial and that it be minimally processed. By contrast, Dr. Luke's contains the ingredient tolnaftate which is not "natural." Dr. Luke's countered that its "natural" claims are truthful as the product contains Chinese herbs derived from natural sources. It further argued that it doesn't make "all natural" claims, just "natural" claims. NAD determined that Dr. Luke's use of the words "Natural Formula—the natural solution for nail fungus" reinforces the message that Chinese herbs are the active ingredient in its product, while its "active ingredient" is synthetic, rendering the claim unsupported.

Key Takeaways

This matter is particularly interesting for NAD's analysis of claims toeing the line between cosmetic and health claims, a significant distinction given the higher standard required to substantiate health claims.

 

Dyson and Shark Back at NAD Over Detect Pro Cordless Vacuum

Another day, another challenge between fierce competitors Dyson, Inc. (Dyson) and SharkNinja Operating Company LLC (Shark).

Dyson led the charge this turn around, challenging claims Shark made that its Shark Cordless Detect Pro Auto-Empty System ("Detect Pro") vacuum has "Up to 50% better dirt pickup" and that its "Detect Pro" feature "offers 1000X Less Dust Exposure," and "holds dirt and debris for up to 30 days."

NAD first examined whether the claim "50% better dirt pickup" in the "Eco vs. Boost" context was substantiated. This claim mostly appeared in the description of the vacuum's smart sensors, and included the disclosure "Based on ASTM F608, Eco mode vs. Boost mode." Dyson argued that this claim conveyed the unsupported message that the Detect Pro offers 50% better dirt pickup than other cordless vacuums, and that the disclosure would not be understood by most consumers as a limitation on the claim. (ASTM F608 is an international testing standard for carpet dirt removal.)

Shark countered that in context, the claim explains that in Detect mode the Detect Pro automatically switches from "Eco mode" to "Boost mode," resulting in a "50% better dirt pickup" than if the vacuum was used in "Eco mode." Shark explained that "Eco vs. Boost" refers to the Detect Pro setting in the Shark Detect Pro vacuum, which is marketed as detecting the ideal cleaning mode (Eco vs. Boost) automatically.

NAD disagreed, finding that the claim reasonably conveys a comparative superiority message that the Detect Prop gets up to 50% better dirt pickup than other competing vacuums. The disclosure was insufficiently clear to limit the meaning of the claim to the message that Detect Pro has 50% better dirt pickup when in Boost mode vs. Eco mode, as Shark argued. As a result, NAD recommended that Shark discontinue the claim or modify it to make clear that Detect Pro achieves 50% better dirt pickup comparing pickup in the two modes (Eco vs. Boost).

Dyson also challenged claims that the Shark is "30% Lighter than the Shark Vertex Pro" but still offers the performance of a full-size cordless stick. On the first part of the claim, NAD found that Detect Pro is 5.65 pounds and Vertex Pro is 8.9 pounds, substantiating that part of the claim. On the second part of the claim, although Shark's offered testing provided a reasonable basis for the claim that the Detect Pro cleans as well as the Shark Vertex, the claim "full sized Shark cordless stick" was broader than the evidence provided as it may be interpreted to mean any full-sized Shark cordless stick. NAD recommended the advertising be modified to disclose the specific "full-sized Shark cordless stick" being compared to the Detect Pro.

NAD next analyzed the claim that the Detect Pro Auto-Empty System can "Hold Dirt & Debris FOR UP TO 30 DAYS." Shark said it based the claim on the results of two separate studies it performed on common household debris pickup amounts on two other of its cordless vacuums in 2022 (the WandVac) and 2023 (the Simba). NAD found that the two studies combined provided a reasonable basis for the claim. Though there was a variation in debris pickup between the studies, NAD found that the variety of households tested and the percentage of testers who collected debris that could be contained in the Detect Pro base made up for this slight deficiency. As a result, NAD found that a high percentage of consumers achieve the maximum "up to 30 day" benefit, supporting the claim.  

Finally, NAD found that the challenged claim that Detect Pro "Offers 1000X Less Dust Exposure" was supported by a study Shark submitted that showed that manual emptying resulted in thousands more dust particles being released than automatic emptying.  

Key Takeaways

As this matter is a reminder, effective disclosures should not only be conspicuous but clear—and that means they should be easily understood by the reasonable consumer rather than containing technical jargon only known to those in the applicable industry. 

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