This past week, several consumer protection actions made headlines that affect the retail industry.
FTC Settles Charges Against Marketer of Blood Pressure App
The FTC settled charges against a marketer of a blood pressure app called “Instant Blood Pressure.” According to the complaint, Aura Labs deceptively claimed that its app could use consumers’ phones to measure blood pressure as accurately as a traditional blood pressure cuff. In addition, the FTC alleges that the company’s founder left “five-star” reviews of the app in the Apple App Store without disclosing his connection with the company.
The settlement imposes a $595,000 monetary judgement, suspended upon defendants’ inability to pay. In addition, the defendants may not produce or promote any product that purports to measure blood pressure or that can replace a traditional blood pressure cuff unless their claims can be substantiated by competent and reliable scientific evidence. They also are prohibited from making any claims about the health benefits or efficacy of any devices without proper substantiation. Finally, the defendants must disclose any material connections endorsers have to their products.
DeVry University Settles FTC Litigation for $100 Million
On December 15, 2016, the FTC settled its ongoing litigation against for-profit DeVry University for $100 million.
According to the FTC’s complaint filed in January 2016, DeVry misrepresented both the salaries and job prospects of its graduates. DeVry ads claimed that 90 percent of graduates landed jobs within their field of study within six months of graduation. Additionally, DeVry claimed that its graduates earned average salaries 15 percent higher than students from other colleges and universities. These messages were conveyed in TV, radio, print and online ads. The FTC’s complaint alleged that DeVry used fuzzy math to come up with its 90 percent employment figure, and the study used to support the 15 percent higher salary figure was riddled with methodological errors.
Under the terms of the settlement, DeVry is permanently restrained from making express or implied misrepresentations about post-graduation employment statistics, and it must maintain a training program for 20 years. DeVry will pay $49.4 million to students harmed by the deceptive advertising materials and will provide $50.6 million in automatic debt relief.
Vemma Nutrition Company Settles FTC Pyramid Scheme Suit
The FTC announced on December 15, 2016, that it had settled litigation against Vemma Nutrition Company, a multi-level marketing company. The FTC sued Vemma, its CEO and a top affiliate in 2015.
The FTC’s complaint alleged that Vemma targeted young people (including college students) to participate in a pyramid scheme and misrepresented the financial success affiliates were likely to achieve. Additionally, affiliates were told to concentrate on recruiting other affiliates rather than signing up customers. Compensation depended on affiliates both having customers and purchasing minimum amounts of Vemma products every month. The FTC alleged that despite the representations made by Vemma, the majority of affiliates actually lost money in the business.
Under the terms of the settlement, the defendants are prohibited from engaging in any business that pays for recruiting new members, links compensation to a participant’s purchases of the product or pays compensation to a participant based on sales unless a majority of the sales are to non-participants.
The settlement also includes a $238 million judgment which will be partially suspended on payment of $470,136 and the surrender of certain real estate. The settlement with the affiliate imposes a $6.7 million fine which will be partially suspended by a payment of about $1.2 million and the surrender of certain real estate.
Consumer and Self-Regulatory Actions
NAD: Jokes Don’t Negate Need for Substantiation
The National Advertising Division has recommended that Charter Communications cease certain unsubstantiated claims related to DirecTV and AT&T. DirecTV challenged certain ads regarding the impact of AT&T’s acquisition of DirecTV on customer service as well as messaging regarding DirecTV pricing.
A number of the ads featured humorous or satirical depictions of DirecTV services. The NAD recommended that unsupported claims regarding DirecTV customer satisfaction be discontinued. However, Charter’s claims regarding DirecTV promotional pricing and direct comparisons between offerings from the different companies were supported by fact. Finally, the NAD recommended that ads that suggest that the AT&T/DirecTV merger has negatively impacted customer service be discontinued.
Charter has agreed to follow the NAD’s recommendations.
Slim-Fast Ceases Advertising Claims and Editorial Format After NAD Challenge
Routine monitoring by the NAD has caused Slim-Fast Foods Company to change its advertising practices. The NAD had independently noticed that Slim-Fast ads in Star Magazine were formatted to look like editorial content and contained messages that would require substantiation to avoid being misleading.
According to the NAD, the front cover of an issue of Star contained the phrases “Joann LOST 30 lbs” and “snack away the weight,” and directed readers to page 46 of the magazine. Page 46 featured a piece headlined “Snack Your Way to Slim.” Although both the cover and the article on page 46 were formatted to look like editorial content, they were actually ads for Slim-Fast products. Another ad headlined “The Ultimate Coffee Break! Kick-Start your day and lose weight” was formatted to look like editorial content but in fact promoted a Slim-Fast product.
In addition to formatting which could confuse consumers, the NAD found claims in Slim-Fast’s ads that could be confusing. Slim-Fast claimed that its products were “clinically backed” and “proven to lost weight and keep it off.” But after the NAD noted that these kinds of claims must be truthful and accurate, Slim-Fast voluntarily discontinued the claims and editorial-like formatting.
Federal Court Throws out Suit Against Kellogg’s
On December 13, 2016, a judge in the Southern District of California dismissed a proposed class action against Kellogg’s. The plaintiff originally filed the suit in January of this year, alleging that partially hydrogenated oil (“PHO”) in Mother’s Cookies violated California’s Unfair Competition Law and the U.S. Food Drug and Cosmetics Act.
According to the original complaint, Mother’s Cookies contain PHO. In 2015, the FDA issued a ruling that PHO is unsafe to use in food products. Various scientific sources have found links between PHO consumption and serious medical conditions. The plaintiff alleged that she was harmed by the increased risk of these medical conditions, and also alleged that she lost money by buying products which were alleged to have an actual “value of $0.”
The court ruled that the plaintiff’s claims were frivolous and preempted by federal law. In particular, while the FDA had determined that PHO is unsafe to use in food, it set a deadline of 2018 for manufacturers to eliminate it from their products – therefore, any PHO in the cookies was not yet banned, nor were the products mislabeled. Because the plaintiff’s allegations of physical harm were too speculative, and she merely alleged she was too busy to read the nutrition label (not that the product was mislabeled), the court held that she had failed to allege an injury. And because the alleged violations of the California Unfair Competition Law were preempted by the FDA’s regulations, the presence of PHO in Mother’s Cookies was permitted by federal law.