Yesterday, the “brain training” company Lumos Labs, Inc. d/b/a “Lumosity” agreed to pay $2 million to settle a Federal Trade Commission (“Commission” or “FTC”) lawsuit filed in connection with Lumosity’s advertising practices.
How can advertisers think ahead to avoid similar regulatory issues?
Lumosity Brain Training Program
Using mobile applications and its website located at www.lumosity.com, Lumosity “created a simple online tool to allow anyone to train core cognitive abilities.” The Lumosity program purportedly provides “brain training” through more than 40 video games, which the company recommends be played for approximately 10 to 15 minutes at a time, several days per week.
Lumosity reportedly advertised its brain training program widely through national television advertisements; radio ads, sponsorships and endorsements; magazine ads; search engine ad campaigns; the Lumosity.com website; and mobile applications.
Yesterday, the Commission sued Lumosity in the U.S. District Court for the Northern District of California in San Francisco (Case No. 3:16-cv-00001-sk) for alleged violations of the FTC Act. The FTC lawsuit claims that Lumosity made false and/or unsubstantiated representations in its advertising campaigns, including purported claims that the Lumosity program:
- improves performance in school, at work and in athletics;
- protects against dementia and Alzheimer’s disease; and
- reduces cognitive impairment associated with PTSD, ADHD, chemotherapy, stroke and traumatic brain injury.
Further, the FTC lawsuit alleges that Lumosity featured 46 user testimonials on its website and in other online marketing materials without disclosing that the testimonials were submitted as part of a contest with prizes, including a free iPad, a lifetime subscription to Lumosity’s program and a trip to San Francisco. The Commission alleged that such misstatements and omissions were deceptive advertising practices.
FTC Settles Claims Against Lumosity
Also on January 4, 2016, the Commission and Lumosity reached an agreement settling the FTC’s deceptive advertising claims. Under the terms of the agreement, Lumosity and its officers are forbidden from making the bulleted representations above in the future without securing competent and reliable scientific evidence to support such claims. Additionally, the settlement agreement prevents Lumosity from failing to clearly and conspicuously disclose any material connections between Lumosity and its endorsement providers, such as the use of a contest with prizes to solicit such endorsements.
Lumosity has further agreed to pay the Commission $2 million to redress consumer injuries. In the event that Lumosity misstated or failed to disclose any material financial assets to the FTC, the amount due will balloon to $50 million.
Avoiding Liability in Connection with Advertising Campaigns
Broadly speaking, FTC guidelines require advertisers to refrain from making false or unsubstantiated representations. Further, the Commission requires advertisers to disclose all financial interests that testimonial providers may receive in connection with providing product endorsements. To avoid regulatory enforcement and other legal risk, businesses should always consult with an experienced marketing attorney before commencing any new advertising campaign.