healthcare and fitness appsLast week, in an ironic twist of fate, the Federal Trade Commission (FTC) charged the operators of the Pact Mobile App, which paid consumers for keeping their fitness promises and charged consumers who missed their goals, for failing to honor its promises to consumers.

According to the FTC’s complaint, when consumers signed up for the Pact App (formerly GymPact), consumers provided the app with their payment card information and set a workout or fitness goal. When signing up, users specified an amount of money the app could deduct if the user missed a workout or fitness goal for the week. The charges ranged from $5 to $50 per missed activity. If, on the other hand, the user achieved the goal, Pact would pay them. To track consumers’ compliance with their goals, Pact required users to check in at gyms using their phones’ GPS. Pact also allowed consumers to set other goals, using the app’s VeggiePact and FoodLoggingPacts options.

Continue Reading Mobile App Settles Charges with FTC that it Broke Pact with Consumers

In case you were like Alabama football coach Nick Saban and unware, there was an election last week. One post-election issue has been the use of “fake news” to try and sway voters and possible steps to prevent those types of stories going forward. The FTC has been trying to stop “fake news” advertising for some time; see our earlier posts on the Lean Spa case, Lord & Taylor case, and Native Advertising Statement. Earlier this month, a court affirmed those efforts. The case provides a list of lessons on what not to do when advertising your products.

The FTC sued a company called Pure Green Coffee and others in 2014 alleging that they violated the FTC Act by making unsubstantiated and false weight loss claims and through the use of deceptive advertorials and testimonials in the sale of Green Coffee Weight Loss products. Apparently, the defendants entered the business after having seen an excerpt of the Dr. Oz Show touting the effects of Green Coffee Extract. The company’s advertising made claims that the product could cause dramatic weight loss including: 17 lbs. in 22 weeks; 17 lbs. in 12 weeks, 16% of body fat in 22 weeks, 20 lbs. in four weeks, and 1-2 inches of belly fat in one month.

In 2015, most of the defendants settled for judgments in the amount of $30 million, with almost all of that suspended based on the inability to pay. One defendant, Nick Congleton, chose to fight. In early November, the court entered summary judgment against him for $29 million, a HUGE amount.

Continue Reading FTC and Courts Remain Real Serious About Fake News Advertising

avalancheReaders know that the FTC frequently settles its cases through suspended judgments, where the full amount of the judgment is suspended based on the defendant’s ability to pay.  A recent case highlights the risks companies and individuals face if they fail to adequately disclose their assets to the FTC during settlement discussions.

The FTC sued HCG Direct and its principal Clint Ethington in January 2014 for making false and deceptive claims regarding the weight loss efficacy of liquid homeopathic HCG drops (a hormone) that the company sold.  A settlement was announced simultaneously that provided for a $3.2 million judgment.  The settlement further provided that the obligation to pay that judgment was suspended in its entirety based on the company and Mr. Ethington’s inability to pay as evidenced by the sworn financial disclosure statements and back up documentation the defendants provided to the FTC.

Continue Reading Look Out Below: FTC Brings Down the Avalanche

By Mike Mozart [CC BY 2.0] via flickr
By Mike Mozart [CC BY 2.0] via flickr

The FTC suffered a resounding defeat late last month in the U.S. District Court in New Jersey in its effort to hold Bayer Corporation in contempt of a 2007 court order.  The 2007 order resulted from allegations that Bayer made unsubstantiated representations for its One-A-Day WeightSmart product in violation of a 1991 order.  The current litigation was based on the FTC’s allegation that Bayer made unsubstantiated representations for its Phillips’ Colon Health (“PCH”) probiotic.  Both the 1991 and 2007 orders required competent and reliable scientific evidence for any dietary supplement claims in the future.  The orders used the FTC’s standard definition of competent and reliable scientific evidence:  “tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.”

Bayer made the following express claims for PCH:  “To promote Overall Digestive Health” and “Helps Defend against Occasional Constipation, Diarrhea, Gas and Bloating.”  The FTC argued that these express claims also implied a claim that PCH can help prevent, treat or cure, constipation, diarrhea, gas, and bloating. 
Continue Reading Court Finds FTC’s Effort to Hold Bayer in Contempt to Be Gaseous

valleygirlThe FTC, in its finest Valspeak, said “Gag Me With a Spoon” to a marketer’s practice of trying to silence negative reviews through contractual provisions with customers.

As user reviews become more and more powerful in driving market share, regulators continue to pay attention.  In this recent action, the FTC filed suit against Florida-based marketers to stop allegedly misleading weight loss claims. What makes this FTC complaint stand out from other deceptive advertising actions, is a count that challenges, as an unfair practice, the use of consumer gag clauses to prohibit customers from writing negative online reviews about the company.

In its federal court complaint, the FTC alleged that Roca Labs and its principals sued and threatened to take legal action against consumers who wrote negative reviews about their experiences online or who complained to the Better Business Bureau. Roca Labs pursued such actions against consumers who purportedly violated certain non-disparagement provisions included in the “Terms and Conditions,” which consumers allegedly agreed to at the time of purchase. According to the FTC’s complaint, under the Terms purchasers agreed not to “speak, publish, cause to be published, print, review, blog, or otherwise write negatively about [Roca Labs], or its products or employees in any way. This encompasses all forms of media, and especially including the internet.” Purchasers who violated the Terms had 72 hours to retract the content in question, were required to pay the “full price” of the product (around $1580), and were subject to potential legal action for breach of contract by Roca Labs. 
Continue Reading FTC Goes After Marketer for Unfair Consumer Gag Clause

On June 19, 2015, the U.S. Court of Appeals for the Fourth Circuit issued its decision in In re GNC Corporation; Triflex Products Marketing and Sales Practices Litigation (No. II), — F.3d –, No. 14-1724, 2015 WL 3798174 (4th Cir. June 19, 2015), handing a significant victory not just to the defendants in that multidistrict false advertising class action litigation, but to dietary supplement manufacturers nationwide that face false advertising claims brought under state consumer protection laws.  More specifically, the Fourth Circuit’s decision made clear that, in order for a false advertising case to proceed beyond the dismissal stage, the complaint must allege that there is not a single qualified expert who would opine that the challenged representation is truthful.  The ruling should prove a useful tool to any dietary supplement manufacturer finding itself the defendant in a class action alleging unfair, deceptive, or misleading advertising or marketing.

In In re GNC Corporation, the plaintiff-consumers had purchased glucosamine- and chondroitin-based joint health supplements manufactured and sold by the defendants, GNC Corporation and Rite Aid Corporation.  The defendants alternately advertised on the supplements’ labels that the products “promote[] joint mobility & flexibility”; “protect[] joints from wear and tear of exercise”; “rebuild[] cartilage and lubricate[] joints”; “promote[] joint health”; and provide “[m]aximum strength joint comfort.”  The product label for GNC’s “Triflex Fast-Acting” product also represented that the supplement was “[c]linically studied” by means of a randomized, double-blinded, placebo-controlled trial, which concluded that the supplement was “shown to improve joint comfort and function.”  The plaintiffs alleged that the defendants violated the false advertising statutes and consumer protection acts of California, Illinois, Florida, Ohio, and New York by marketing their supplements as promoting joint health, even though many scientific studies purportedly have shown that glucosamine and chondroitin are “no more effective than placebo” in providing the advertised health benefits.  In essence, the plaintiffs asserted that the various health representations made by the defendants were false because the vast weight of competent and reliable scientific evidence indicate that glucosamine and chondroitin do not provide the promised health benefits. 
Continue Reading “Judicially Found to Help Prevent False Advertising Litigation”: Fourth Circuit Clarifies Requirements for Pleading a Dietary Supplement False Advertising Claim

In recent years, affiliate marketing has emerged as a profitable medium to generate interest in a merchant’s products or services, with affiliate marketers often earning huge payouts for generating leads or sales for merchants.  The FTC has taken notice, filing a number of actions against affiliate marketers for violations of Section 5 of the FTC, including several high-profile suits against marketers of weight-loss products.  In March, the FTC obtained summary judgment against LeadClick Media, Inc., an affiliate marketing network operator hired by LeanSpa, LLC to advertise its weight-loss products through affiliate websites using a number of fake news websites.  The Ruling highlights the broad net the FTC now casts in its cases.

The FTC originally sued LeanSpa for making deceptive claims about its weight loss products through fake news stories.  The FTC later amended its complaint to include LeadClick and CoreLogic, the corporate parent of LeadClick.  LeanSpa and its principals settled in December 2013, while LeadClick and CoreLogic continued toward trial.  Most recently, both the FTC and the remaining defendants moved for summary judgment, which the court granted in the FTC’s favor. 
Continue Reading FTC Leads Charge Against Deceptive Affiliate Marketing Tactics

On March 31, 2015, the United States District Court for the District of Columbia issued an opinion, granting the Department of Justice’s (DOJ) motion for a final order providing injunctive relief, monetary relief, and civil penalties against Daniel Chapter One and James Feijo for making claims that Daniel Chapter One’s dietary supplements could treat, cure, or prevent cancer, inhibit tumors, and lessen adverse side effects of radiation and chemotherapy.  For those following this case, this final order is a long time coming, as the defendants repeatedly refused to comply with earlier cease-and-desist orders.  As a result, the FTC and DOJ have doggedly pursued enforcement against the defendants since the FTC first initiated an administrative proceeding for false and deceptive practices under the FTC Act in 2008.

The court granted summary judgment on liability for violations of the cease-and-desist order in September 2012, and finally, in 2014, the U.S. filed a motion for entry of final judgment. The recent opinion represents the culmination of a long battle between the supplement marketer and the government, and demonstrates the various penalties available to the court when orders are violated.  In particular, the opinion highlights the court’s authority under FTC Act Section 13(b), 15 U.S.C. § 53(b) to order equitable redress, and serves as a cautionary tale for how high civil penalties can become when a business fails to comply with an order. 
Continue Reading Tough Pill to Swallow: Court Imposes Over $3 Million in Civil Penalties on Dietary Supplement Company

Are paid search terms about to receive a lot more Federal Trade Commission (FTC) attention?  That’s the question you could be asking after the FTC last week announced a settlement with Nourish Life LLC.  Defendants marketed a dietary supplement called Speak that contains among other things omega-3 and omega-6 fatty acids, vitamin E and vitamin K.  According to the FTC, defendants lacked adequate substantiation for the claim that Speak would help children develop and maintain normal speech, including children who suffer from autism and verbal apraxia (a speech disorder).

The FTC’s complaint cites claims made on websites and social media as well as in direct mail, brochures, and displays at medical conferences.  In addition, the complaint makes reference to paid search terms and sponsored links as one of the mechanisms by which the defendants marketed their product.  The paid search terms cited included “toddler speech problems,” “help my child talk,” “autism treatment,” and “verbal apraxia treatment.”

Does this mean that paid search terms and sponsored links are now fair game for FTC scrutiny?  Well like any good lawyer, we think the answer is “it depends.” 
Continue Reading The FTC Speaks Softly But Carries a Big Stick – Do Paid Search Terms Go Under the Microscope?

A free trial of a weight loss pill is the best of both worlds, right?  Not according to the FTC, which recently brought its first Restore Online Shoppers’ Confidence Act (ROSCA) case against a group of marketers who advertised exactly that.

Weight loss substantiation is old territory for the Commission.  ROSCA, however, is not.  The FTC’s first ROSCA case, filed in Nevada district court, alleges that health companies made unsubstantiated claims that their dietary supplements would lead to weight loss, muscle building, virility, and improved skin.  More significantly, however, are the allegations surrounding the marketers’ “free trial” and “buy-one-get-one free” offers.  According to the FTC, the companies collected customers’ debit and credit card information in order to enroll customers in a negative option (subscription) program.  While there is certainly nothing wrong with subscription programs on their face, the FTC alleges that the companies here inadequately disclosed the nature of the program – they never clearly told customers their accounts would be charged each month.  ROSCA prohibits marketers from charging customers in an Internet transaction unless the marketer has clearly disclosed all of the material terms of the transaction and obtained customers’ express informed consent. In this case, according to the FTC, the marketers did not provide the required disclosures for a negative-option program before accepting payment; failed to disclose material facts about their refund and cancellation policy, among other facts; and didn’t give customers a simple, effective way to stop the automatic charges.

Continue Reading FTC Says Companies Have a Fat Chance of Getting Away With Deceptive Online Marketing in First ROSCA Case