Dietary Supplement Makers Reach Deal With FTC
The makers of a dietary supplement touted to help users lose weight and aid with the symptoms of menopause settled with the Federal Trade Commission over charges that their claims were unsubstantiated and violated Section 5 of the Federal Trade Commission Act.
According to the agency, Lunada Biomedical and three principals promised that Amberen was "clinically proven" to cause substantial and sustained weight loss, loss of belly fat, and an increase in metabolism for women over 40 who were perimenopausal or menopausal. They also asserted that Amberen provided relief from symptoms such as hot flashes, night sweats, fatigue, and irritability.
The defendants marketed the dietary supplement commercials via websites, e-mails, and radio and television commercials with female announcers making claims such as "Amberen restores hormonal balance naturally, so the weight can just fall right off. Even that stubborn belly fat," and that Amberen is "the ONLY product on the market today clinically proven to cause substantial weight loss for women over 40." Almost $65 million worth of Amberen was sold nationwide between 2010 and 2013, the FTC said, with the defendants charging up to $150 for a three-month supply.
However, according to the complaint, the only science backing the claims was a 2001 Russian clinical trial conducted by the scientists who developed the Amberen formula, who used a double dose of the dietary supplement and did not specifically measure weight loss. A later clinical study failed to demonstrate a statistically significant difference in weight loss between the test and control groups, the agency added.
The defendants also neglected to disclose their relationship with consumer endorsers (including a registered nurse who blogged about the benefits of the supplement, but was paid for her work). They also falsely promised customer satisfaction with "success rates" of nearly 93 percent, and offered a "risk-free" 30-day trial where they charged consumers up front, provided them with a 90-day supply, and instructed them to return two unopened boxes at their own expense within a certain time period to receive a refund for the 30 days.
To settle the charges, the defendants agreed to a consent order in California federal court with a host of advertising prohibitions. Pursuant to the deal, the defendants may not claim that any dietary supplement, food, or drug causes weight loss, sustained weight loss, or loss of belly fat, boosts metabolism, relieves hot flashes, night sweats and other specific symptoms of menopause, or cures, mitigates, or treats any disease, unless they have human clinical testing that meets certain requirements and is sufficient to substantiate the truth of the claims.
In addition, the order prohibits defendants from making any misleading or unsubstantiated claims about the health benefits or efficacy of any dietary supplement, food, or drug and bans misrepresentations about the results of any product test. Further, the defendants may not misrepresent any material fact about the product or any material terms and conditions of any offer, or fail to disclose any material connections—financial relationships, for example—they have with endorsers.
A $40 million judgment will be suspended upon a payment of $250,000.
To read the complaint and the stipulated final order in FTC v. Lunada Biomedical, click here.
Why it matters: This case serves as a reminder that the FTC will closely scrutinize weight loss and health claims. Furthermore, once the FTC begins investigating false advertising cases, the scope of the investigation can expand. In this case, the FTC amended its complaint to add two additional allegations: (1) that the advertisers failed to disclose material connections with consumer endorsers, and (2) that the advertisers falsely claimed to offer a "Risk Free Clinical Trial" for 30 days while also requiring consumers, at their own expense, to return unopened boxes of Amberen within 30 days of placing their orders.
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FTC Discloses New Workshop on Disclosure Testing, Evaluation
Mark your calendar: The Federal Trade Commission will host a free public workshop on September 15 to consider disclosures.
The "Putting Disclosures to the Test" workshop will "examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, and other information," with the goals of encouraging and improving disclosures.
Topics for discussion include privacy-related disclosures (such as privacy policies and other mechanisms to inform consumers they are being tracked), disclosures that are meant to prevent deceptive claims in specific industries (environmental claims or fuel-economy ads, for example), and disclosures in advertising designed to prevent ads from being deceptive.
Advertisers use disclosures in an effort to prevent their ads from being deceptive, the FTC said, but disclosures "must be crafted with care" in regard to both language and presentation. To that end, Commission staff has recommended that disclosures be tested for effectiveness.
Privacy-related disclosures pose particular challenges, the agency noted, and privacy policies are often "long and difficult to comprehend," and have privacy-related icons that sometimes fail to meaningfully communicate information to consumers and have accompanying mechanisms that are often confusing. "The Commission has long encouraged the development and testing of shorter, clearer, easier-to-use privacy disclosures and consent mechanisms," the agency said.
The workshop will also explore how to test the effectiveness of the disclosures so that consumers notice them, understand them, and can use them in the decision-making process. Several factors impact the effectiveness of disclosures, the FTC said, including whether they contain the most essential information, whether consumers notice them or comprehend them, and whether consumers are able to use information from the disclosure in their decision-making.
Interested parties can submit presentation proposals to the agency as well as comments.
For more details on the workshop, click here.
Why it matters: Effective disclosures are critical in helping consumers make informed decisions in the marketplace, the agency explained, adding that the Commission "is especially interested" in discussing the costs and benefits of disclosure testing methods in the digital age.
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FTC Obtains First Telemarketing Sales Rule Verdict Ever: Jury Finds Defendants Liable for 117M Illegal Calls
Siding with the Federal Trade Commission, a federal jury determined that three Utah-based companies and their owner engaged in deceptive and unlawful telemarketing campaigns that included more than 117 million illegal calls to consumers in violation of the Telemarketing Sales Rule (TSR).
The decision is the FTC's first jury verdict ever in an action to enforce the TSR and the Do Not Call Registry rules, with relief to be decided by the court at a later date.
According to the complaint filed by the Department of Justice on behalf of the FTC, Forrest S. Baker III and three companies he controlled operated a nationwide calling campaign where telemarketers offered to send two complimentary DVDs and requested feedback on whether the movies should be on the company's recommended list.
Consumers were not informed that if they acquiesced, they would later receive calls pitching other DVDs to buy. Although telemarketers informed consumers that "all of the proceeds" from sales would benefit a nonprofit organization, the FTC presented evidence at trial that the company retained 93 percent of the sales. In 2009, the defendants made another round of calls to promote a film produced by Baker. No effort was made to avoid calling more than 2.5 million consumers on the Do Not Call Registry, the agency told jurors during the eight-day trial.
Consumers who received telemarketing calls testified that even after informing the defendants not to call them, they were contacted again. Records were introduced to back up the FTC's claims that "tens of millions" of consumers made such requests that were not honored.
Jurors found the defendants responsible for a total of 117 million violations of six different provisions of the TSR, including 99 million illegal calls to numbers listed on the Registry and more than 4 million calls where telemarketers made misleading statements to induce DVD sales. They also found that defendants failed to comply with FTC regulations requiring telemarketers to use caller identification names that tell consumers what seller is calling, and failed to connect consumers to a sales representative within two seconds of the consumer's greeting.
In addition, the unanimous Utah jury determined that the defendants had actual or implied knowledge of the violations, leaving open the possibility of civil penalties of up to $16,000 per violation.
To read the jury verdict form in U.S. v. Corporations for Character, click here.
Why it matters: The FTC's first jury verdict in an action to enforce the TSR and DNC Registry rules could prompt the court to proscribe sizable penalties of up to $16,000 per violation, based on the jury's finding that the defendants had actual or implied knowledge of the violations. Companies that engage in telemarketing should ensure that they are complying with the TSR or risk facing enormous potential fines.
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News and Views
Ivan Wasserman and La Toya Sutton, attorneys in Manatt's Advertising, Marketing and Media practice authored an article for Food Safety Magazine which explores the way the FDA is enforcing the rules set out in their guidance documents, "Distinguishing Liquid Dietary Supplements from Beverages" and "Considerations Regarding Substances Added to Foods, Including Beverages and Dietary Supplements." To read the full story, "What's in This Stuff? An Update on FDA's Policies and Enforcement Actions Concerning Novel Ingredients in Food and Dietary Supplements," click here.
The Wall Street Journal asked Manatt's Linda Goldstein, chair of the Advertising, Marketing and Media group, to comment on a recent study that focused on the use of rebates to reward ad agencies for buying advertising time or space on behalf of their clients. Goldstein said it is possible some of the practices even amounted to a breach of contract or a breach of fiduciary relationship. To read the article "Ad Business Full of Nontransparent Practices, Study Finds," click here.
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