Infomercials are popular methods for selling nutritional supplements and other products. However, they must follow the same rules that govern other advertising. The Federal Trade Commission (FTC) has authority under the Federal Trade Commission Act to regulate unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. That includes the power to ban false advertisements, including infomercials. The FTC can sue to enjoin the false advertising and the offender can also be fined and/or imprisoned.
In 1998, the FTC charged Kevin Trudeau with falsely claiming in infomercials that certain products could cause significant weight loss, cure addictions to heroin, alcohol and cigarettes, and give users a photographic memory. He agreed to pay a $500,000 penalty and post a $500,000 performance bond. In 2003, the FTC charged him with violating the agreement by making cancer cure claims. In 2004, he agreed to pay a $2 million penalty and was banned from making infomercials except for publications where he truthfully represented the content.
In 2007, the FTC obtained a court order from the U.S. District Court for the Northern District of Illinois against Trudeau for misrepresentations he made on television about the content of his book, The Weight Loss Cure “They” Don’t Want You to Know About. In 2008, the judge ordered Trudeau to pay over $5 million and banned him for three years from making infomercials for products in which he had an interest. The FTC returned to court to have Trudeau held in contempt for violating that order in over 32,000 subsequent deceptive infomercials. In 2009, the court fined Trudeau $37.6 million and banned him from making infomercials for three years. On appeal from that order, the U.S. Court of Appeals for the Seventh Circuit required the judge to explain how he figured the fine and to modify the ban to allow Trudeau to make infomercials that did not misrepresent his book content.
The judge explained that the fine was calculated by multiplying the price of the book by the number of 800-number orders, plus the cost of shipping, minus any returns. The FTC was required to distribute the funds to anyone who bought the book using the 800 number and to return the remainder not used for administrative costs to Trudeau. The judge also required Trudeau to post a $2 million performance bond, effective for at least five years, to prevent further deceptive infomercials.
This time on appeal, the Seventh Circuit upheld the judge’s order as a “reliable and conservative” figure that compensated consumers for their losses incurred as a result of Trudeau’s contemptuous behavior. The judge was not limited to imposing relief based solely on Trudeau’s unjust profits. The fine could have been much higher, as the judge could have included bookstore as well as telephone sales because the books bore stickers saying “As Seen on TV.” The performance bond was also an appropriate remedy, as it would not be forfeited unless Trudeau makes more deceptive infomercials and the amount is low in light of Trudeau’s sales of thousands of books a day for many months. FTC v. Trudeau, No. 10-2418 (7th Cir. 11/29/11).
Last week, the Seventh Circuit issued its mandate after denying Trudeau’s motion for rehearing. Trudeau now has 90 days to petition the U.S. Supreme Court to hear his case. He tried that before and lost. Expect him to try again. But don’t expect much more than that.
