Alerts

AD-ttorneys@law - September 6, 2017

Alerts / September 6, 2017

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Supplement Marketers Settle FTC Claims With $6.5 Million Suspended Judgment

FTC alleges slick fake talk show pushed false product claims

Talking Heads

Slick, well-produced fake talk shows promoted dubious products and undisclosed payment plans. The Federal Trade Commission and the Maine attorney general accused XXL Impressions, ad agency Synergixx, marketing company J2 Response and an expert that endorsed the products in ads of unfair and deceptive acts and practices in the advertising, marketing, distribution and sale of health supplements FlexiPrin and CogniPrin in February 2017.

The FTC claimed a violation of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The FTC also claimed a violation of Section 12 of the FTC Act, which prohibits false advertisements for food, drugs, devices, services or cosmetics in or affecting commerce; violations of the Telemarketing Sales Rule (TSR), which prohibits deceptive and abusive telemarketing acts or practices; and violations of the Electronic Funds Transfer Act (EFTA), which regulates the rights, liabilities and responsibilities of participants in electronic fund transfer systems.

According to the Commission’s complaint, the defendants made false, unsubstantiated claims about the health benefits of diet supplements CogniPrin and FlexiPrin, which were praised for improving memory and brain function and strengthening damaged joints and cartilage “in under two hours,” among other virtues.

Synergixx and J2 Response, the complaint alleged, produced sophisticated, 30-minute radio ads that co-opted the format of an educational talk show to promote the supplements. These advertisements were augmented by in-call scripts that deceptively told potential customers that the products could be tried risk-free for 90 days with a money-back guarantee, while failing to disclose onerous requirements and timelines for making returns such as consumers being required to return empty bottles and pay hefty shipping charges.

But That’s Not All!

The complaint also alleges that Ronald Jahner appeared on the shows as a national board-certified naturopathic physician to offer his objective assessment and endorsement of the products. In reality, the FTC alleged, he hadn’t examined the supplements at all, and hid the fact that he was being paid a percentage of the sales of the product he was endorsing.

In addition, for some savings plans that were offered for sale, a 14-day trial period was offered and customers’ credit cards would automatically be billed a monthly payment after the initial trial period. The complaint alleged that those negative option terms were not clearly disclosed.

The defendants agreed to a $6.5 million monetary judgment, suspended based on inability to pay. Moreover, three separate court orders bar the marketing agencies from making false medical claims, require them to reveal any financial connection between the advertisers and endorsers, and impose consent requirements for the sellers’ poorly disclosed negative option offers.

The Takeaway

This action illustrates that individuals and ad agencies that an advertiser utilizes to facilitate false and deceptive advertising can be held accountable along with the advertiser itself.

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Can Health Supplements Perform Miracles in Vietnamese?

Lotus by Johnny Dung accused of promising miracle treatments to specific ethnic audience

Serenity Now

The Lotus by Johnny Dung website is the picture of wholesomeness, showing cherry blossoms, attractive young families, and the founder, Johnny Dung, seated in traditional garb before a peaceful garden pond. Its products boast a standard list of health and diet supplement benefits: toxin cleansing, immune system support and the promotion of overall health.

A class action filed in July by three defendants in the Southern District of California claims that the supplement maker’s efforts to target the Vietnamese community in the United States, with Vietnamese-language advertisements claiming that its products can cure asthma, kill cancer and strengthen the immune system, were false and misleading.

Language-Specific

The plaintiffs claim that the company’s Vietnamese-only advertising goes beyond the rather mild claims made by the Lotus website to promise “miraculous results” that are “not substantiated by competent scientific evidence and are factually baseless.”

One product named in the case, “Super Advanced Okinawan Fucoidan Plus 800MG,” is advertised in Vietnamese marketing materials as helping to destroy cancer cells, increasing immune system strength to “900%,” and fighting off the side effects of chemotherapy and radiation therapy. These claims, and similar claims about other products were made on Vietnamese-language television and in Vietnamese on a YouTube channel, on Facebook, on an e-commerce website and in printed brochures.

The Takeaway

The plaintiffs brought false marketing charges under the California Consumers Legal Remedies Act and the California Business and Professions Code, and charges of breach of implied and express warranty under the California Commercial Code.

Approval by the Food and Drug Administration is not required to produce and sell a dietary supplement, but the FDA requires that every health benefit claimed in the product’s marketing be truthful and not misleading. The language in which claims are made does not alter the requirement that claims be substantiated and non-deceptive.

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Hooters Settles TCPA Suit With Gift Card Giveaway

Single text nets $1.3 million in cards for text recipients

First Call

The Hooters TCPA saga began six years ago, when Hooters started a text message marketing campaign that asked customers to opt in to the company’s advertising and marketing text system. By sending a short code to the company, customers consented to receiving texts about special offers and promotions.

Michael Etzel alleged that he eventually opted out of the message system, and expected that he would not receive another text. Nonetheless, Etzel claims in his April 2015 class action, a new text did come – a solitary missive reading “Hooters Fans: Our mClub has moved! Don’t worry, you’ll still receive exclusive news, just from a new number. Reply STOP to unsubscribe Msg&Data Rates may apply.”

A Case With Wings

Etzel filed suit in the Northern District of Georgia under the Telephone Consumer Protection Act, seeking treble damages under the Act because Hooters had allegedly knowingly ignored opt-out requests. In November 2016, the court denied Hooters’ motion to dismiss that had argued that Etzel’s suit lacked standing because it did not allege any “injury-in-fact that is both concrete and particularized,” as required by the then six-month-old Spokeo Supreme Court ruling. The district court held that even “sending a single text message in violation of the TCPA constitutes an injury-in-fact to the recipient so as to provide standing.”

The Takeaway

Having lost the procedural standing defense, Hooters negotiated a settlement to resolve the litigation. Hooters denied violating the TCPA and that it did not have consent to send the texts, but promised to distribute $1.3 million in gift cards to the recipients of the text, agreed to pay attorneys’ fees of more than $400,000 and paid Etzel $10,000. The ambiguous Spokeo standing standard continues to be less of a shield for class action defendants than the defense bar had hoped, and TCPA claims continue to be popular with plaintiffs’ lawyers due to the law’s statutory penalties, which can become large when aggregated across a class. Had Hooters’ text program opt-in required acceptance of terms that included arbitration and class action waiver, it might have avoided this result, even if it had mistakenly ignored some opt-outs.

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Econo-Med Pharmacy Settles Class Action With Roche

Noncompliant “opt-out” notices weaponize fax machines

Just the Fax

Few would deny that unwanted faxes waste money and cause aggravation. Unlike the single call or text that sets off a multimillion-dollar TCPA class action, junk faxes cause tangible wear and damage to the underlying technology, using up expensive ink, paper and toner.

David v. Goliath

Econo-Med Pharmacy, a small, family-owned pharmacy in Cherokee Village, Arkansas, claims that it had received multiple junk faxes from Indiana-based Roche Diagnostics Corporation, a medical equipment company. One exemplary fax from Roche touted the “Accu-Chek Test Strip” product and its attachment to a major insurer.

The faxes, however, had not been solicited by Econo-Med; they also failed to include a TCPA-compliant opt-out notice that would give the receiver some measure of control over the number of faxes it received. Based on these allegations, Econo-Med launched a class action on behalf of recipients of similar ads from Roche. The action was filed in the Southern District of Indiana in April 2016, claiming violations of the TCPA and the Indiana Deceptive Consumer’s Sales Act, which incorporates the TCPA, and specifically referencing the disruption the faxes caused Econo-Med’s business.

In August, Roche and Econo-Med finalized a settlement, the terms of which were first worked out in mediation back in February. Pharmacies and other recipients of at least one unsolicited fax ad from Roche would receive around $1,100. The deal covered faxes received between April 2012 and March 2017; altogether, the settlement cost Roche $17 million, $5.6 million of which was set aside for attorneys’ fees.

The Takeaway

It is important to note that the Roche faxes received by Econo-Med and its fellow class members did have an opt-out notice; the issue in the action was not the lack of a notice, but that the notice did not comply with the TCPA’s guidelines. Companies that are faxing advertisements or other business-related missives must carefully comply with the TCPA rules on the matter or risk expensive blowback from similar class actions. To comply with the law, an opt-out notice must (1) inform the recipient that the recipient may opt out of receiving future faxes by contacting the sender; (2) provide both a domestic telephone number and a facsimile machine number – one of which must be cost-free – that the recipient may contact to opt out of future faxes; and (3) inform the recipient that the sender’s failure to comply with an opt-out request within 30 days is a violation of law.

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Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

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