The FTC scored two recent victories in advertising cases litigated in California, and, in both cases, the court accepted the FTC’s view of the world with little exception. You can expect that the FTC will cite to these cases frequently going forward.
Lights of America
In 2010, the FTC sued Lights of America Inc. and its principals in the Central District of California alleging that the company overstated the light output and life expectancy of their LED light bulbs on the product’s packaging and in brochures, as well as falsely comparing the brightness of their LED bulbs with that of other lights. The matter was litigated heavily over almost four years culminating in a bench trial from October – November 2012. Prior to trial, the court granted the FTC summary judgment on defendants’ advertising claims that their bulbs provided the same or comparable light to incandescent bulbs. In September 2013, the court entered 122 pages of post-trial findings of fact and conclusions of law. On February 20, 2014, the court entered a $21 million judgment against all of the defendants, which represented total sales of the products in question during the time when the allegedly deceptive claims were made. A “turn out the lights” pun is unavoidable, and for you football fans, I offer this classic.
The court included in its findings and conclusions a wish list from the FTC, which may prove to give future defendants nightmares. Among other things, the court ruled:
- Advertisements that are capable of being interpreted in a misleading way should be construed against the advertiser.
- When an advertiser makes claims using specific facts and figures, a high level of substantiation, such as engineering or scientific tests, is required.
- The FTC need not show that every reasonable consumer would have been or was misled. Rather, the FTC need only prove that material misrepresentations were widely disseminated and that consumers purchased products bearing those deceptive claims.
- The existence of some satisfied customers is not a defense.
- Similarly, modest rates of return do not absolve the misrepresentations or the need for equitable relief.
- The existence of a warranty or return policy is not a defense.
- That consumers received an item of value (a working light bulb) does not mitigate liability or reduce the amount of restitution to be awarded.
Wellness Support Network
The FTC sued Wellness Support Network and its principals in 2010 in the Northern District of California alleging that the defendants made baseless claims that their supplements would treat and prevent diabetes. On February 19, 2014, the court granted the FTC’s motion for summary judgment and denied the defendants’ summary judgment motion.
The defendants marketed dietary supplements over the Internet, claiming those products assisted with the management of diabetes by lowering blood sugar and reversing or managing insulin resistance. The FTC alleged those claims to be false and unsubstantiated. The defendants resisted the FTC on several bases, all of which the court rejected, including:
- The court rejected defendants’ contention that their advertising claims should be assessed under the FDA’s requirements for medical foods, finding the FDA regulation to be irrelevant to defendants’ advertising claims.
- The court rejected defendants’ First Amendment arguments, finding no protection for advertisements that were false or deceptive.
- The court rejected defendants’ argument that the FTC was seeking to create new rules through adjudication rather than with the procedures mandated by the APA. The court noted that whether to prescribe new rules through adjudication or litigation was within the agency’s prerogative and that the principles at issue in this case were well-established in existing case law.
- The court rejected defendants’ argument that product reorders should be excluded from the amount of consumer injury/redress. The court noted that excluding reorders would only be appropriate if defendants demonstrated that the reordering consumers did not rely on the advertisements in question.
While there is nothing particularly new as to the legal principles articulated in these cases, the degree to which both courts adopted virtually all of the FTC’s factual and legal positions is striking. What is also striking is that in both cases the courts entered judgments for the full amount of sales despite credible arguments in both cases that consumer harm was far less. As the FTC continues to pursue advertising cases aggressively, you can expect to see the FTC trying to convince other courts to follow the principles set out in these two cases.