Aloe Vera Supplement Marketer Feels the Burn After FTC Settlement Over Company’s Misleading Health Claims

By Jason Gordon and Erika Auger on 4 November 2019 Posted in Industry, Regulatory - United States

Last month, the Federal Trade Commission (“FTC”) announced its settlement with a Florida-based marketer and seller of aloe vera-based supplements over allegations that it deceived consumers in claiming that its products were effective treatments for a range of conditions affecting seniors, such as chronic pain, ulcerative colitis, diabetes, and acid reflux.

According to the FTC’s complaint, since 2002, the company advertised, marketed and sold a variety of health-related products including TrueAloe edible capsules and AloeCran drink mix. The advertisements for the products deceptively claimed they reduced cholesterol levels, relieved chronic pain, and treated multiple health conditions such as diabetes and acid reflux. The company’s advertisements described various clinical studies that seemingly confirmed the power of aloe vera, and thus the company’s products, to provide such clinical benefits. However, the FTC alleged that the company never conducted any studies, let alone any properly designed, human clinical trials of its products to support its claims.

Furthermore, many of the company’s marketing materials included testimonials by seemingly independent users who claimed they experienced remarkable relief from pain and other ailments from using the company’s products. However, the company failed to disclose that the reviewers received free products or free lifetime memberships as compensation for providing the review – in violation of the FTC’s Endorsement and Testimonial Guides.

The FTC’s order prohibits the company from making health-related claims requiring human clinical testing for substantiation unless those statements are supported by randomized, double-blind, and placebo-controlled studies conducted by qualified and experienced researchers. The order further prohibits the company from making other misleading or unsubstantiated claims about the health benefits, performance, efficacy, or side effects of its products, unless supported by competent and reliable scientific evidence.

The order also prohibits the company from misrepresenting that an endorser is an independent consumer of its products and requires the company to clearly and conspicuously disclose any material connection with a consumer, reviewer, or endorser in close proximity to the representation. Lastly, the order imposed an $18.7 million judgment, which will be partially suspended upon the company paying $537,500. The FTC may use such funds to provide refunds to defrauded consumers.

Takeaway: The FTC continues to be vigilant in policing health-related claims, particularly those targeting seniors. Advertisers should ensure they are in compliance with the FTC Endorsement and Testimonial Guides and clearly and conspicuously disclose material connections with reviewers and endorsers.

Website and Its Operator Settle FTC Charges They Sold Fake Indicators of Social Media Influence

By David A. Smith and Jason Gordon on 30 October 2019 Posted in In the Courts, Industry, Regulatory - United States

Devumi, LLC (“Devumi”) and its owner and CEO, German Calas, Jr. (“Calas”) have agreed to settle the Federal Trade Commission’s (“FTC”) complaint alleging that Devumi and Calas engaged in deceptive online marketing tactics in violation of the FTC Act. In this first-ever type of complaint, the FTC alleges that Devumi and Calas sold fake indicators of social media influence – which are important metrics which businesses and individuals utilize in making purchasing, investing, hiring, licensing and viewing decisions.

According to the FTC’s complaint, Devumi and Calas used their websites Devumi.com, TwitterBoost.co, Buyview.com, and Buyplans.co to sell fake followers, subscribers, views and likes to users of various social media platforms, including Twitter, LinkedIn, YouTube, Pinterest, Vine and SoundCloud. For example, the FTC alleges Devumi and Calas filled more than 58,000 orders for fake Twitter followers; sold more than 4,000 fake YouTube subscribers and over 32,000 sales of fake YouTube views; and sold more than 800 fake LinkedIn followers. The FTC alleges that by selling and distributing fake indicators of social media influence, Devumi and Calas provided their customers with the means and instruments to commit deceptive acts or practices, which is itself a deceptive act or practice in violation of the FTC Act.

Under the terms of the proposed settlement, (i) Devumi and Calas are banned from selling or assisting others in selling social media influence to users of third-party social media platforms; (ii) Devumi and Calas are prohibited from making misrepresentations, or assisting others in doing so, about the social media influence of any person/entity or in any review/endorsement of any person, entity, product or service; and (iii) Calas is ordered to pay a monetary judgment of $2,500,000 – the amount the FTC alleges Calas was paid by Devumi.

Takeaway: As we have previously blogged, both federal and state regulators are continuing efforts to address deception in the e-commerce marketplace, by bringing enforcement actions against those who engage in fraudulent ad traffic and fraudulent social media activity.

FTC Obtains Temporary Restraining Order To Halt Company’s “Misleading” and “Bogus” Real Estate Seminars

By Jason Gordon and Erika Auger on 29 October 2019 Posted in In the Courts, Industry, Regulatory - United States

Earlier this month, a federal court entered a temporary restraining order against a Utah-based business, which the Federal Trade Commission (“FTC”) and the Utah Division of Consumer Protection (“DCP”) alleged used deceptive promises of big profits to lure consumers into real estate seminars costing thousands of dollars.

According to the complaint filed by the FTC and DCP, the company used endorsements from fix-and-flip and home renovation TV stars to lure consumers to attend free real estate seminars where it claimed it would teach them how to make large profits by flipping houses “using other people’s money.” In reality, the free events were used to sell the company’s three day workshop, which cost around $2,000. Presenters at the workshop often described it as merely a “beginner” course while upselling additional products and services to consumers that cost more than $41,000.

The complaint further alleged that the company instructed consumers at the three day workshop to contact their credit card issuers to obtain new credit cards or increase their credit limits to fund real estate deals. The company allegedly instructed attendees to give card issuers income information that was significantly higher than the attendees’ current income. When dissatisfied consumers sought refunds, the company allegedly required consumers to sign an agreement barring them from writing negative reviews or speaking to regulators – in violation of the Consumer Review Fairness Act.

The order prohibits the company from making such unsupported marketing claims as misrepresenting that the company’s products will allow consumers to make thousands of dollars in profit through real estate investing with little time and effort, as well as prohibiting the company from interfering with consumers’ ability to review the company and its products. Furthermore, the court has appointed a temporary monitor over the company and instructed the company to preserve its records and assets.

Takeaway: The FTC continues to target companies preying upon consumers looking to make additional income with their get-rich-quick schemes. Furthermore, advertisers should beware that they cannot make a prohibition on negative reviews a condition of chargebacks or a condition of customer service complaint resolution.

Does this new shirt make my claims look less puffy?

By John P. Feldman and Courtney E. Fisher on 28 October 2019 Posted in In the Courts, Regulatory - United States

Claims that a product is “revolutionary,” “never before seen,” or providing a solution to an unsolved problem can be sometimes cavalierly regarded as puffery. We often find ourselves warning clients that the National Advertising Division (NAD) has sometimes required advertisers to have a reasonable basis for innovation claims (i.e., claims that their product is a breakthrough or somehow entering into a whitespace in a particular market segment). See Ganeden Biotech, Inc., NAD Case #4863 (June 2008); Park Labs, NAD Case #4935 (Nov. 2008); Imagenetix, Inc., NAD Case #5167 (April 2010); The Andrew Jergens Company, NAD Case #2979 (Oct. 1992); but see Iovate Health Sciences, Inc. Cold MD, NAD Case #4653 (April 2007); Pilot Corporation of America, NAD Case #3392 (May 1997); Maximum Human Performance, LLC, NAD Case #5631 (Sept. 2013). So, it caught our eye that the United States District Court for the Central District of California held that these sorts of claims when challenged in the context of a civil action under the Lanham Act were nonactionable as a matter of law. But, before you conclude that such claims are always fair game without even a modicum of substantiation supporting your belief that the product or service you’re touting is in fact “revolutionary,” consider the facts more carefully. Context still should dictate whether you should have a reasonable basis for believing your product or service to be entering a “white space” in your industry.

In R and A Synergy LLC v. Spanx, Inc., the court dismissed R and A’s false advertising claims of innovation against Spanx. No. 2:17-CV-09147-SVW-AS, 2019 WL 4390564 (C.D. Cal. May 1, 2019). (There were other claims at issue in this case, but our focus here is on the claims about the innovation reflected in the advertised product.) In 2009, R and A Synergy introduced a sleeved undergarment designed to be worn under sleeveless tops called “Sleevey Wonders.” Several years later, Spanx introduced its own undergarment sleeve product, called “Arm Tights.” As part of its launch, Spanx described the product as “unlike any other layering options.” The Spanx CEO even stated publicly that her company “invented” the product, filling a “white space” in the market. The CEO was further quoted in a newspaper article stating “[t]ights have been around for our legs for so many years, I was thinking, ‘Why aren’t there tights for our arms?’”

In response to R and A Synergy’s suit for false advertising under the Lanham Act, the court found the statements concerning the innovative nature of the product to be non-actionable puffery. The court stated that “[m]erely advertising a product as being new, invented, filling a white space, and being unlike other layering options does not amount to an assertion of fact.”

Before we get too comfy with these sorts of “innovation” claims, consider that the statements in the Spanx case were arguably made off-the-cuff by the CEO in an interview rather than in a traditional advertisement. The utterances appear to have been isolated comments and possibly not “statements” that rise to the level required under the Lanham Act. Also, the court suggested that there was no indication that those statements were “material” to consumers. The court held that as a matter of law consumers simply do not care who was the original source of the “general concept of ‘sleeved undergarments.’” The court reasoned that even if R and A had properly alleged a false statement, and even if the statements were in fact false, they were of no consequence to sleeved undergarment purchasers.

WHY THIS MATTERS: Marketers will continue to make claims about the innovative and revolutionary nature of their products and services, and this case may serve as some comfort to the extent the substantiation for such claims is thin. That said, we’re not convinced that this recent decision is reliable enough to conclude that “revolutionary” or “breakthrough” claims never require substantiation as a matter of law. Context is almost always likely to be a factor in how the statements will be interpreted, especially by the NAD. And, we also suspect that if the claims had been made expressly in advertising as opposed to in the press by Spanx’s CEO, the court might have been less convinced that they were immaterial.

The FDA and FTC Join Forces in Issuing Warning Letter to CBD Product Company

By Cori Annapolen Goldberg, Adam D. Brownrout and Erika Auger on 25 October 2019 Posted in Industry, Regulatory - United States

On October 22, 2019, the U.S. Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”) issued a public statement regarding a joint warning letter sent to Rooted Apothecary, LLC, a Florida-based company, for unlawfully marketing several of its products containing cannabidiol (“CBD”). The warning letter indicated that Rooted Apothecary, LLC was illegally marketing its CBD products as dietary supplements and drugs in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”). Furthermore, Rooted Apothecary, LLC made unsubstantiated health and efficacy claims that its products can treat such conditions and diseases as autism, ADHD, Parkinson’s, Alzheimer’s, and cancer amongst others.

Specifically, the FDA stated that the company’s website and social media accounts market its “Hemp Capsules, 750 mg” and “Hemp Oil” products as dietary supplements that contain CBD, when the products do not meet the definition of a dietary supplement under the FDCA.

Furthermore, the FDA concluded that the company’s products (1) Teeth/TMJ – Essential Oil + CBD infusion; and (2) Ears – Essential Oil + CBD Infusion; (3) Hemp Capsules, 750 mg; (4) Hemp Infused Body Butter; and (5) Hemp Oil are “drugs” under the FDCA because they are intended for use in the diagnosis, treatment or prevention of disease and/or intended to affect the structure or function of the body. Moreover, because the drugs are not generally recognized as safe and effective for their aforementioned uses, the products are “new drugs” and may not be legally introduced into interstate commerce without prior FDA approval. Lastly, the FDA determined that the products are misbranded drugs as the product labels fail to provide adequate directions for use by a layperson.

In addition to the warnings from the FDA, the FTC additionally took issue with Rooted Apothecary, LLC’s potentially unsubstantiated health claims. Under the FTC Act, it is unlawful to advertise that a product can prevent, treat, or cure human disease unless the seller has competent and reliable scientific evidence substantiating that the claims are true when made.

Some of the claims with which the FDA and FTC took issue included:

“CBD oil may have neuroprotective properties and may protect against neurological conditions, such as Parkinson’s and Alzheimer’s disease.”
“CBD oil may improve depression, anxiety, and PTSD.”
“[P]ossible uses for CBD include helping with skin problems such as acne, autism, ADHD, and even cancer. It’s often used in conjunction with traditional treatments to provide extra help. Children can use high amounts of CBD safely and without any risk.”
“Increasing evidence suggests that CBD oil is a powerful option for pain . . . anxiety . . . and autism . . . It seems like an attractive and safe option for children.”

The company will have 15 working days to respond to the agencies with how they plan to correct the violations. Failure to do so could result in legal action such as product seizure, injunction and an order to repay consumers.

Takeaway:

The warning letter sent to Rooted Apothecary, LLC continues the string of recent enforcement actions taken by the FTC and FDA against CBD companies making unsubstantiated health claims. Although the FDA and FTC have seemingly sent warning letters to companies making only egregious health claims (e.g. curing Alzheimer’s), the warning letters have also indicated that less serious claims (e.g. reducing anxiety and muscle pain) are also unsubstantiated and subject to potential FDA and FTC enforcement. The FDA, in particular, has taken a hard line stance on CBD products marketed for therapeutic or medical uses and indicated that the warning letters “should send a message to the broader market about complying with FDA requirements.”

Accordingly, even though these warning letters are just that – warnings – the public nature of these letters poses reputational risks as well as the risk for more serious enforcement actions for non-compliance with FDA and FTC regulations. The FDA has indicated that it is “working quickly to further clarify [the] regulatory approach for products containing cannabis and cannabis-derived compounds like CBD,” however, until such regulations are codified, companies selling CBD products should avoid making any therapeutic or medical claims related to their products. Companies making these claims risk potentially being the subject of the next warning letter.

Internet Marketers Settle FTC Allegations They Deceived Consumers With False Claims of Free Trial Offers and Unauthorized Continuity Plans

By David A. Smith and Jason Gordon on 16 October 2019 Posted in In the Courts, Industry, Regulatory - United States

Apex Capital Group, LLC – including its two principals Philip Peikos and David Barnett – and the twelve (12) entities it controlled (collectively, “Apex Capital”) have agreed to two separate court orders settling the Federal Trade Commission’s (“FTC”) allegations related to Apex Capital’s operation of a multi-national scheme to defraud consumers through free trial and negative option plans.

The FTC alleged that Apex Capital marketed supposed “free trial” offers to consumers for personal care products and dietary supplements online, but instead charged consumers the full price for these products and enrolled them in negative option plans without their consent. To further this scheme, the FTC alleges Apex Capital used dozens of shell companies and straw owners in the US and UK to engage in “credit card laundering” – an illegal process by which credit card payments are processed through other companies’ merchant accounts – including manipulating chargeback levels, artificially spreading sales transactions across multiple merchant accounts (load balancing), and running low dollar value sales through merchant accounts that did not reflect actual sales to consumers (microtransactions).

Under both court orders, Apex Capital is permanently barred from using negative option plans, including using negative option features on a trial basis or as an add-on to a sale, to sell dietary supplements, cosmetics, foods, or drugs. If Apex Capital use a negative option plan to sell any other products, they are required to provide enhanced disclosures, secure consumer’s express informed consent prior to purchase, and provide a simple mechanism to stop recurring charges, using the same mechanism that the consumer used to purchase the products. Further, the court orders bar Apex Capital from credit card laundering and engaging in tactics to avoid fraud/risk monitoring programs, including load balancing and microtransactions.

Takeaway: As we have previously blogged, free trial and negative option plans continue to be an enforcement priority for the FTC, with strict guidelines for how they may be operated fairly and transparently for consumers. With both federal and state regulators continuing to pay attention to these hot areas, marketers considering free trial programs and negative option sales strategies should continue to be careful to follow all applicable rules.

FTC Settles with Beauty Brand Over False “Organic” and “Vegan” Claims

By Jason Gordon and Erika Auger on 8 October 2019 Posted in Industry, Regulatory - United States

Last month, the Federal Trade Commission (“FTC”) announced a $1.76 million settlement with Truly Organic, Inc. and its CEO over allegations that the company’s personal care products advertised as “100% organic” were anything but.

According to the FTC’s complaint, since at least 2015, the company advertised a range of personal care products including body washes, lotions, baby products, haircare, bath, and cleaning sprays as “certified organic, “USDA certified organic,” and “Truly Organic.” The company also claimed its products were “vegan,” despite the presence of animal-derived ingredients like honey and lactose. The FTC contended that none of the company’s products had been certified in compliance with USDA’s NOP. Further, many of the company’s products contain non-organic ingredients included only in lists that are buried among other text on product labels and websites, or contain no organic ingredients at all. The FTC further alleged that some of the company’s products contain non-organic ingredients that can be organically sourced, such as non-organic lemon juice. Other products contain non-organic ingredients that the USDA prohibits in organic handling, such as the chemicals cocamidopropyl betaine and sodium coco surfactant.

Truly Organic, who neither admitted nor denied the allegations, agreed to pay a monetary judgment of $1.76 million. Additionally, Truly Organic is barred from making future claims that its products are “organic,” “vegan,” or provide any environmental or health benefits without adequate substantiation and competent and reliable scientific evidence.

Takeaway: The FTC continues to be vigilant about policing deceptive environmental or health claims such as “organic” and “all-natural.” Importantly, the FTC is continuing to seek monetary relief against advertisers in addition to any consent decree.

New York attorney general continues to pursue cybersecurity compliance with latest lawsuit

By Kimberly Gold and Jacqueline Lefebvre on 7 October 2019 Posted in Data Privacy and Protection

New York Attorney General (AG) Letitia James has sued Dunkin’ Brands, Inc. (franchisor of Dunkin’ Donuts) over two data breaches in 2015 and 2018, accusing the company of mishandling a series of cyberattacks that together compromised more than 320,000 customer accounts.

In the complaint filed last week, AG James accused Dunkin’ of engaging in fraudulent practices and false advertising by misrepresenting to consumers the nature of the cyberattacks. The complaint goes on to allege that Dunkin’, by failing to notify consumers of the breaches or to take sufficient steps to investigate and safeguard consumer data, violated not only its internal data security procedures but also New York data breach notification and consumer protection laws.

The Dunkin’ lawsuit is just one of the latest examples of how the attorney general’s office is making cybersecurity a priority. To read more on New York attorney general’s recent data enforcement efforts and our recommendations for compliance, click here.

FTC Issues Warning Letters to Three CBD Companies

By Jason Gordon and Erika Auger on 23 September 2019 Posted in Industry, Regulatory - United States

This week, the Federal Trade Commission (“FTC”) sent warning letters to three companies that sell cannabidiol (“CBD”) products regarding the health claims found in the companies’ advertisements.

The companies sold a variety of products containing CBD, including oils, tinctures, capsules, creams, and “gummies.” Each company claimed that its CBD products can prevent, treat, or cure serious diseases, health conditions, and chronic pain. One company claimed that its product could treat pain better than opioid painkillers and that CBD was “clinically” proven to treat a host of diseases, including Alzheimer’s, cancer, and multiple sclerosis. The company further claimed that it participated in “thousands of hours of research” with Harvard researchers. The other two companies likewise made similar claims that their CBD products could treat pain and other conditions such as depression, fibromyalgia, heart disease, cancer and autism.

The FTC’s letters urged the companies to review their marketing claims to ensure they are supported by competent and reliable scientific evidence. The letters warned the companies that selling CBD products without such substantiation could draw legal action and an order to refund money to consumers. The companies have 15 days within receipt of the letter to respond to the FTC’s inquiry and provide the specific acts they have taken to address the FTC’s concerns.

Takeaway: Marketers selling CBD products should avoid making any express or implied health or therapeutic benefit claims about their products unless they are properly substantiated with competent and reliable scientific evidence.

New, state-approved label for environmentally certified “Green Button” textiles (Grüner Knopf) launched in Germany

By Dr. Alexander Hardinghaus, Dr. Philipp Süss and Sven Schonhofen on 18 September 2019 Posted in Intellectual Property, Regulatory

On 9 September 2019, the German Federal Ministry of Economic Cooperation and Development (Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung – BMZ) introduced a new, state-regulated environmental label for “Green Button” (Grüner Knopf) certified textiles with a press release, available here. The BMZ also launched the official Green Button website, which is available in German at www.gruener-knopf.de.

To read more on the introduction of the Green Button, how it works and industry feedback, click here.