Company included non-disparagement clauses in purchase agreements, but was anyone really hurt?
The Federal Trade Commission (FTC) filed suit against weight-loss supplement marketers Roca Labs Inc., Roca Labs Nutraceutical USA Inc. and two of their officers (collectively, Roca). The complaint was filed in September 2015 in the United States District Court for the Middle District of Florida and alleges that Roca made deceptive weight-loss claims, false establishment claims, misrepresentations through testimonials, deceptive discount claims and unfair use of non-disparagement provisions. The suit centers on Roca’s “Formula” weight-loss products, which are powders and gels that, once consumed, allegedly fill up the ingesting consumer, suppressing hunger and reducing food intake. The FTC alleged these products were heavily marketed through search ads, online videos and websites (including descriptive URLs such as Mini-Gastric-Bypass.me). The websites allegedly made a number of claims, including weight-loss results of up to 100 pounds over 7-10 months, a 90 percent success rate and – alarmingly – claims that the products were comparable in effect to bariatric surgery, which effectively allows users to avoid a gastric bypass procedure. Testimonials from users and doctors rounded out the picture and added to the misrepresentation through testimonials.
Based on the available evidence, the FTC maintained that Roca’s claims of drastic successful weight loss were false and misleading. Importantly, there were no clinical trials or other scientific evidence proving the product’s effectiveness, and according to the FTC, those providing testimonials were compensated but this material connection was not disclosed. One of the most interesting aspects of this case was Roca’s alleged use of “gag clauses.” These gag clauses were non- disparagement provisions contained in the product purchase agreements that threatened legal action against dissatisfied customers who complained about the product in public fora. From Roca’s point of view, the gag clauses supposedly justified Roca’s efforts to sue customers for defamation and slander if the customers publicly complained about the product. As an example, one version of the gag clause allegedly read: “[Roca Labs makes] it clear that RL and its Regimen may not be for everyone, and in that regard, the foregoing clause is meant to prevent one person from ruining it for everyone. Should any customer violate this provision, as determined by RL in its sole discretion, you will be provided with seventy-two (72) hours to retract the content in question. If the content remains, RL would be obliged to seek all legal remedies to protect its name, products, current customers, and future customers.” Another version of the clause supposedly maintained that “any report of any kind on the web will constitute defamation/slander,” involving “a predetermined compensation of $100,000.” The FTC argued that these legal threats, which were pursued in court against Roca customers, were not only illegal, but deprived “prospective purchasers of … truthful, negative information,” which led to more profit than Roca would have otherwise earned.
The FTC filed an amended motion for summary judgment in April 2018, and Roca filed an opposition memo in the closing days of May. In addition to arguing that genuine questions of fact existed for most of the claims, Roca attempted to undermine the FTC’s attacks on its gag clauses. Roca maintained that the FTC had no right to bring unfair practices charges centered on the gag clauses because the Consumer Review Fairness Act of 2016 had been signed after the alleged violations took place. Therefore, Roca argued that the FTC’s unfair practice charges did not meet the legal standard for summary judgment. Moreover, Roca claimed the FTC was required by its own policy positions to demonstrate that the clauses caused tangible harm to consumers in order to meet the substantial injury standard for unfair practices. Roca claimed that the FTC had not cleared this hurdle because the FTC relied on intangible injuries to justify the claim. Roca also maintained that the FTC failed to present the required analysis weighing the costs of false negative reviews and compliance costs against “the magnitude of any substantial consumer injury caused or likely to be caused by the disparagement clause and the attempts to enforce same.” Where the court lands on the use of intangible harm to prove substantial injury may have an interesting effect on the future use of non-disparagement clauses and will likely have an impact on how companies choose to continue using such non-disparagement clauses. This case is also another example of how the FTC continues to monitor and bring claims against companies who make weight-loss claims. Companies and advertising agencies should continue to exercise caution when claiming remarkable weight-loss results unless such claims are supported by competent and reliable scientific evidence.