False Advertising

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The Federal Trade Commission’s recent action against Credit Karma serves as a reminder to advertisers that optimizing consumer conversion is not—and cannot be—the be-all and end-all. Regardless of what split or A/B testing results show, claims must be truthful, substantiated, and not misleading.

Per the FTC’s administrative complaint, Credit Karma advertised third-party credit offers to Credit Karma members as “pre-approved,” but, in fact, the creditors had not pre-approved the credit offers and consumers were required to apply and go through the creditors’ underwriting process. The FTC’s investigation showed that about one-third of those customers were denied the advertised credit.

Continue Reading FTC Action Against Credit Karma Underscores That Conversion Cannot Trump Compliance

Last week, the Federal Trade Commission filed a lawsuit in federal court in California against Gravity Defyer Medical Technology Corporation alleging the company made unsubstantiated claims that its footwear reduces knee, back, ankle, and foot pain and helps with conditions such as plantar fasciitis, arthritis, joint pain, and heel spurs.

But the FTC’s case is less about footwear than it is about the imaginative ways the agency continues to find ways to pursue monetary relief in the wake of AMG Capital Management LLC v. FTC. There are a few things here worth discussing.

First, the FTC is seeking civil penalties. How, you might ask? The complaint alleges that Gravity Defyer’s owner, Alexander Elnekaveh, violated a 2001 FTC consent order involving his former business, Gadget Universe, which sold an automotive aftermarket fuel-line magnet device. Under the order, Elnekaveh and Gadget Universe agreed to “not mispresent, in any manner, expressly or by implication, the existence, contents, validity, results, conclusions, or interpretations of any test, study or research.”

Continue Reading Tied Up with the FTC: Agency Dusts Off 20-Year-Old Settlement to Pursue Civil Penalties

“Free” must mean free?

Last week, the attorneys general for all 50 states and the District of Columbia announced a settlement with Intuit, Inc., the owner of TurboTax, which will require the company to hand over $141 million to consumers as restitution for allegedly tricking consumers into paying for tax-filing services when they qualified for free tax-filing services.

Recently, we wrote about the Federal Trade Commission’s legal action against Intuit for its advertisements regarding “free” tax-filing services. In that action, the FTC sought to definitively resolve that very question. As part of last week’s settlement agreement, Intuit will cease its advertising campaign promoting its “free, free, free” services in addition to paying the hefty restitution sum. The state settlement essentially ended the FTC action as well.

While the states’ investigation overlapped with the FTC’s action concerning Intuit’s alleged bait-and-switch advertising (i.e., representing the service is “free” but later requiring an upgrade to a paid version), their investigation also had another focus: “dark patterns,” which refers to a digital design feature that is intended to subtly influence a consumer’s online decisions.Continue Reading Intuit Will Pay $141 Million in State Attorneys General Settlement Over Deceptive TurboTax Advertising

Last week, the Federal Trade Commission filed a complaint in the Northern District of Illinois against the Saint James School of Medicine (SJSM), an Illinois-based for-profit medical school, claiming its Caribbean medical programs deceived consumers with fake student success rates and offers to finance students’ attendance with illegal lending contracts.

Over the last several years, the FTC has focused on for-profit higher education institutions and allegedly deceptive money-making claims, which the FTC challenges as flawed and costly get-rich-quick schemes. Its move last week suggests that the agency remains highly focused on alleged deception of any type involving paying money to make money, regardless of the format.

The FTC’s complaint alleges that SJSM advertises its Caribbean medical programs as an affordable alternative to American medical schools. However, SJSM also allegedly draws students into the program by advertising that more than 96% of its students pass the USMLE Step 1 exam—a critical standardized medical school test—the first time they take it. In fact, the FTC alleges that the passage rate for SJSM students since 2017 is 35%, and that is only for students who are allowed to take the exam after meeting prerequisites set by the school. The FTC claims that the true passage rates are disclosed to students only in hard-to-find areas of SJSM’s website and are buried in a student handbook that students receive only after SJSM has collected their reservation fees.Continue Reading The FTC Moves Its Attention to A For-Profit Medical School

At the peak of tax-filing season, when millions of consumers are still considering their method of filing, the Federal Trade Commission has set its sights on Intuit, Inc., one of the largest online tax-filing services.

On March 28, 2022, the FTC filed an administrative complaint against Intuit, alleging that the company’s marketing of TurboTax as a free tax-filing service misleads consumers because the free service applies only to some, while many end up getting hit with charges at the time of filing.

In a press release, Samuel Levine, director of the Bureau of Consumer Protection at the FTC, stated that Intuit’s advertising is a “bait-and-switch” tactic that a court should immediately halt to protect tax-paying consumers. The FTC simultaneously filed a complaint for a temporary restraining order and preliminary injunction against Intuit in federal court in the Northern District of California, seeking to immediately enjoin it from advertising its tax-filing product and service, TurboTax, as free.Continue Reading “Free” Must Mean Free? FTC Seeks to Enjoin Intuit from Advertising TurboTax as a “Free” Service

Last week, New York Attorney General Letitia James announced that online travel agency Fareportal Inc., which operates several travel-related websites and mobile platforms, including CheapOair.com and OneTravel.com, will pay $2.6 million to New York for misleading consumers with deceptive marketing tactics.

“Consumers wanted to land affordable tickets through Fareportal’s platforms, but were met with lies instead,” James said in a statement. “Fareportal used deeply deceptive tactics to trick millions of consumers into booking airline tickets and hotel rooms.”

The investigation into Fareportal revealed that, since at least 2017, the company created false urgency around the availability of airline tickets and hotel rooms to pressure consumers into making purchases on its platforms. The AG challenged these marketing tactics as “dark patterns,” referring to alleged misleading design features and methods used to manipulate consumers into buying goods and services. As we have covered previously, alleged “dark patterns” have become a priority in rulemaking and enforcement.Continue Reading New York Attorney General Secures $2.6 Million from Fareportal for Deceptive Marketing Tactics

On Friday, March 11, the Federal Trade Commission (FTC) filed an administrative complaint against HomeAdvisor, Inc., charging it with using deceptive and misleading tactics to sell leads for home improvement projects to small businesses, including small “gig-economy” workers. The action underscores the current administration’s effort to protect workers, especially those engaged in the gig economy through large platforms.

The FTC alleges that since at least 2014, HomeAdvisor—a popular service that matches service providers with consumers seeking home improvements—made false, misleading, and unsubstantiated claims about the quality and source of leads it sells, and about the likelihood that the leads would result in actual jobs. According to the complaint:Continue Reading Burning Down the House: FTC Accuses HomeAdvisor, Inc. of Deception in Selling Leads for Home Improvement Projects

A recent decision in the Ninth Circuit sheds new light on whether, and the standard by which, a false advertising claimant must prove equitable damages under the Lanham Act. In Grasshopper House, LLC v. Clean & Sober Media, LLC, the Plaintiff obtained a jury verdict finding the Defendants liable for false advertising. But the district court cancelled the damages phase of the jury trial after the exclusion of Plaintiff’s damages expert, which the court reasoned was Plaintiff’s only evidence concerning actual losses as a result of Defendants’ misrepresentations. Therefore, the district court held a bench trial concerning equitable relief, where it entered a permanent injunction against Defendants’ false advertising, but denied Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs.

Plaintiff appealed to the Ninth Circuit, and the appeals court affirmed the district court’s exclusion of Plaintiff’s damages expert and cancellation of the damages phase of the trial, but found that the Court had erred in denying Plaintiff’s requests for disgorgement of profits, attorneys’ fees, and costs. First, the appeals court found that after the Supreme Court’s subsequent decision in Romag Fasteners, Inc v. Fossil, Inc., the district court was now incorrect to require proof of willfulness to sustain a finding of disgorgement. Romag Fasteners, Inc. established that while mental state is a highly important consideration in determining whether to award disgorgement under the Lanham Act, there is no categorical rule that willfulness is necessary. Therefore, the appeals court here ordered the case remanded for the district court to consider “Defendants’ mental state – whatever that may be – when determining what award of profits is appropriate.”Continue Reading Ninth Circuit Clarifies Standards for Equitable Damages in False Advertising Cases

On November 10, 2020, the District of Utah decided a case involving two sellers of supplements, Vitamins Online, Inc. v. Heartwise Inc. d/b/a NatureWise, which, among other things, examined defendant NatureWise’s allegedly manipulated reviews on a major online marketplace. In deciding the case, the court addressed customer reliance on reviews in their purchasing decisions.

NatureWise’s reviews appeared manipulated. For example, on one of NatureWise’s product pages, reviews were posted before the product had launched. Many reviews were from unverified purchasers that appeared within minutes of each other and gave the product 5-star ratings. Notably, 14 unverified 5-star reviews appeared on the product page within 25 minutes of each other and had similar patterns in the titles of the reviews. NatureWise’s other products similarly garnered a substantial number of positive reviews soon after their launch.Continue Reading Don’t Fake It Till You Make It: Company’s False Advertising Costs Them

The FTC continues policing business-to-business deception and its focus on small-business financing. On June 10, 2020, the FTC filed a Complaint in the Southern District of New York against two New York-based companies and several of their owners and officers for allegedly violating the FTC Act in connection with their business financing activities.

According to the Complaint, the defendants targeted small businesses, medical offices, non-profit organizations, and religious organizations. Since 2015, defendants allegedly deceived these consumers by misrepresenting terms of the merchant cash advances (MCAs) defendants provided, and subsequently used unfair collection practices to compel these entities to pay.Continue Reading New York-Based Business Financing Companies Allegedly Deceive and Threaten Business Consumers