The First Circuit upheld a $49 million judgment for the Federal Trade Commission in a case against defendants whose infomercials claimed its products cured every disease from obesity to Parkinson’s to cancer.
The case dates back to 2002, when the FTC filed a complaint against Massachusetts-based Direct Marketing Concepts, ITV Direct, and the co-owners of the companies. The FTC alleged that the defendants claimed in infomercials that its Coral Calcium product was a “coral-derived calcium supplement [that] cures cancer, multiple sclerosis, and other degenerative diseases by rendering acidic bodies more alkaline,” and touted that its Supreme Greens product cured cancer and caused weight loss.
A federal court ruled for the FTC in 2008, enjoined the infomercials and ordered the defendants to pay a $49 million judgment. On appeal, the defendants argued that the health claims were reasonably based, or in the alternative, that the ads were puffery and included clarifying disclaimers.
In rejecting both theories, the appeals court noted that the defendants’ claims were “extrapolations, distortions, and sometimes, seemingly, utter fabrications,” that the defendants could not provide adequate substantiation under “even the most lax standard of scientific reliability.” As for the disclaimers, the court said that the disclaimers used did nothing to affect the meaning of the “specific and measurable health claims.”
The defendants also objected to the method used to calculate damages. It contended that gross receipts should have been used as the basis for a disgorgement order rather than net profits. The appeals court recognized “broad discretion” available to the district court to fashion remedies, and added that any uncertainty over amounts was due to the defendants’ poor bookkeeping, and not error by the FTC.
To read the decision in FTC v. Direct Marketing Concepts, click here.
Why it matters: The decision is a resounding reminder of the difficulty defendants face when a challenge is brought against the FTC in court. The First Circuit could not have been clearer: “Despite the volume of the defendants’ arguments, we find no more substance in them than the district court found in their infomercials,” it said, adding that the judgments should stand as a way for the defendants “to cure their customers in a way that their bogus supplements could not.”