February 9, 2016

Double the Trouble: FTC and Maine Attorney General Settle Joint Enforcement Action with Maine Weight Loss Manufacturers for Alleged Consumer Protection Violations

Seller Beware: Consumer Protection Insights for Industry

The recent settlement between dietary supplement marketers and the Federal Trade Commission and Maine's Office of the Attorney General should remind consumer product manufacturers to consider their marketing strategies in light of potential enforcement by multiple levels of government.

The joint complaint alleged that the defendants made unsubstantiated claims regarding the efficacy of the companies' weight loss supplements and deceptively offered consumers "risk-free trials" that (a) did not refund consumers their initial shipping charge and (b) required a consumer to return one unopened bottle, at the consumer's expense, before the end of the 30-day trial to prevent additional charges. The defendants were also accused of deceiving consumers into agreeing to additional trial memberships with buying clubs by promising gift cards that the consumers never received and, instead, automatically billing the customers if they failed to cancel the buying club memberships within 30 days.

According to the FTC's press release, the stipulated federal court order imposed a $16,419,989 judgment on the companies (as well as injunctive relief discussed further below), which the court will suspend after the defendants sell or liquidate a significant amount of their personal and business assets. The judgment corresponds to the roughly $16 million the defendants received from sales of supplements over four years.

This settlement continues a trend of cooperation between agencies in challenging allegedly deceptive advertising practices and provides a helpful reminder that interagency cooperation can include partnerships between federal and state governments. Such partnerships are valuable to the states because they enable state attorneys general (who often have very limited budgets and staff) to combine their broad subpoena and civil penalty authority with the personnel and resources of the federal government. For example, in this action, the FTC did not have statutory authority to seek civil penalties under the FTC Act or Electronic Fund Transfer Act while, in contrast, the state of Maine was able to seek civil penalties from the companies under Maine's Unfair Trade Practices Act. Consideration of both state and federal law can be even more significant in actions in which the state imposes different standards for a trade practice than the FTC (see, e.g., our prior posts regarding Made in USA standards here and here).

The settlement also emphasizes the FTC's continuing focus on weight loss claims. While the allegations were limited to the companies' dietary supplement products, the settlement prohibits the defendants from falsely claiming any dietary supplement, over-the-counter drug, patch, cream, wrap, or other product worn on or rubbed into the skin can cause rapid or substantial weight loss or can cause a certain amount of weight loss over a certain period of time. In addition, the order prohibits other claims, including that a product causes weight loss or boosts users' metabolism, unless the defendants have competent and reliable scientific evidence in the form of randomized, double-blind, and placebo-controlled human clinical testing to prove the claims are true.

With respects to the companies' billing practices, the order prohibits the defendants from misrepresenting material facts related to the companies' return and cancellation policies and auto-billing subscriptions. It also requires the defendants to tell consumers about any negative-option feature and obtain a consumer's expressed informed consent regarding the negative option before obtaining any billing information from the consumer.

Marketers need to evaluate their strategies from the perspective of federal, state, and local prosecutors, competitors, and private plaintiff's attorneys. The priorities of each can be different, as can the substantive law and procedural remedies each can seek.

© Arnold & Porter Kaye Scholer LLP 2016 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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