914-908-6757 anthony@vernalaw.com

Over time, the FTC has settled with several companies for advertising violations.

So, yes, the Federal Trade Commission does fine companies for advertising violations.  These advertisements were deceptive and misleading in various industries. 

Usually, those fines include refunds to consumers, penalties to be paid to the Federal Trade Commission, and/or a court order against making deceptive and misleading advertisements.  Here are a few examples:

Nutraceuticals

The Federal Trade Commission recently prevailed in a deceptive advertising lawsuit against COORGA Nutraceuticals Corporation and its principal.  The judgment provides for, among other things, a monetary penalty of approximately $400,000 for consumer refunds and a prohibition against COORGA and its owner from making misleading prevention and other health-related claims about their products in the future.

The FTC had accused COORGA of violating the Federal Trade Commission Act in connection with its sale of a dietary supplement by engaging in the following practices:

  • Making an efficacy claim regarding the supplement’s ability to reverse hair-greying without properly substantiating the claim; and
  • Falsely claiming that the dietary supplement was scientifically proven to prevent and reverse hair greying, without specific substantiation.

Although COORGA vigorously contested the allegations, the FTC ultimately was awarded summary judgment by the United States Court for the District of Wyoming.  The court determined that there was no reliable scientific evidence to support COORGA’s claims that the dietary supplement prevents or reverses grey hair and that any claims that the product was scientifically proven to do so were false.

This case was similar to the fine that POM Wonderful, Inc. had to pay the FTC for its advertising revolving around unscientific claims about the benefits of pomegranate juice.  While there may be benefits, the claims that are involved in the advertising of a product must have scientific evidence to show such claims exist.

Multi-level Marketing Companies

Herbalife International of America, Inc., Herbalife International, Inc., and Herbalife, Ltd. had agreed to fully restructure their U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission charges that the companies deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.

In its complaint against Herbalife, the FTC also charged that the multi-level marketing company’s compensation structure was unfair because it rewards distributors for recruiting others to join and purchase products in order to advance in the marketing program, rather than in response to actual retail demand for the product, causing substantial economic injury to many of its distributors.

For example, as stated in the complaint, the average amount that more than half the distributors known as “sales leaders” received as reward payments from Herbalife was under $300 for 2014. According to a survey Herbalife itself conducted, which is described in the complaint, Nutrition Club owners spent an average of about $8,500 to open a club, and 57 percent of club owners reported making no profit or losing money.

Apps and Software

Some mobile apps use geolocation in order to serve advertisements to users.  It is a helpful way to target the proper consumers.  However, those mobile apps need to have settings to turn on and off the geolocation and must tell users how the data is being used.  If that does not happen, the software creator risks being deceptive to its users.

According to the Federal Trade Commission, mobile ad company InMobi illegally collected location data from “hundreds of millions” of consumers, including young children.

The Singapore-based company — which says its mobile ad nework reaches more than one billion mobile devices — has agreed to delete the geolocation data it collected.

The company also will pay a $950,000 fine for allegedly violating the Children’s Online Privacy Protection Act by gathering geolocation data from children younger than 13 without their parents’ consent.  The Children’s Online Privacy Protection Act requires parental involvement when software and websites target children specifically. 

InMobi “undermined consumers’ ability to make informed decisions about their location privacy and to control the collection and use of their location information,” the FTC alleged in a complaint.

Phone Cards

The FTC did settle with several calling card companies that one person owned over the amount of minutes received in purchasing calling cards.  The FTC charged in a complaint filed in the U.S. District Court for the District of New Jersey that consumers who purchased the calling cards did not receive the promised amount of minutes per card.  The FTC alleged that the cards delivered an average of only 45% of the advertised minutes due to extra fees.  Those extra fees could be found on the cards, but they were in fine print that was difficult to read.

The FTC claimed that the agency tested the cards extensively, and that 139 of 141 cards failed to deliver the number of minutes advertised on the point-of-sale posters.  The FTC also alleged that the cards had hidden fees, such as “hang-up” fees and weekly fees.

All of this is defined as deceptive marketing of the products (calling cards) in violation of the Federal Trade Commission Act, 15 U.S.C. §41.

Instead of fighting the FTC allegations, the New Jersey companies decided to settle.  They agreed to a Consent Order with the FTC, which is an agreement with the FTC in which a company will change its behavior in some manner in order to conform to FTC regulations.  These changes include:

  • Paying a fine of $2.32 million;
  • Being barred from misrepresenting the amount of time consumers will receive from prepaid calling cards;
  • Being required to clearly and prominently disclose any fees or charges; and
  • Needing to routinely monitor the advertising materials displayed by their distributors and the number of minutes of talk time their prepaid calling cards deliver to consumers.

Obviously, the difficult part of this settlement is the amount of the fine.  $2.32 million is a lot for a small company to pay.

More can be read on the FTC’s website at: http://www.ftc.gov/opa/2012/02/millennium.shtm

How can my company avoid these FTC fines?

Ultimately, this answer depends upon your business.  To say “avoid being deceptive” is simplistic and yet exactly what every business must do.  Businesses make claims in advertising.  Those claims must have substantiation.  To substantiate (i.e., back up) the claims in your advertisements means utilizing expert testimony, extrinsic evidence, tests, studies, etc. in advertising. This is so whether the type of claim you’re making, or plan to make, is express or implied. Yes, you should be aware of what your ad may imply. So review your ads carefully–preferably with a lawyer with expertise in this area–and be sure that you can back up your ad claims.

If you have an advertising law question, call Verna Law, P.C. at 914-908-6757 or send an e-mail to anthony@vernalaw.com.