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February 12th, 2018
FTC Issues a $2 Million Reminder to Ad Agencies
The Federal Trade Commission ("FTC") and the State of Maine have announced a $2 million dollar settlement with ad agency Marketing Architects, Inc. ("MAI") for deceptive weight-loss claims. In the last three years, the FTC has brought at least three complaints against ad agencies. The judgment against MAI, however, is among the largest judgments the FTC has sought from an ad agency to date. The case contains important lessons for ad agencies.
According to the FTC, the ads and scripts created by MAI for its client Direct Alternatives' (DA's) weight-loss products were deceptive. These ads included unsubstantiated claims such as "with the metabolism-boosting benefits of AF Plus, you can keep eating your favorite foods and still lose pounds and inches -- in fact we guarantee it" and "try it just once a day for thirty days and if you're not on your way to being thirty pounds thinner, just send it back and risk nothing." MAI also used testimonials that featured fictitious people, like DA company spokesperson, "Jill Moore," who stated, "I got tired of being fat. Being overweight really limited my life because I didn't have any self-confidence. I since lost [all of] the extra pounds and inches with Final Trim." The complaint further charged MAI with creating radio ads falsely disguised as news stories and with creating inbound call scripts that failed to adequately disclose that consumers would be automatically enrolled in negative-option (auto-ship) continuity plans.
FTC Says MAI Knew Weight-Loss Claims Lacked Substantiation
The complaint focuses on the ad agency's knowledge that the advertiser's claims lacked competent and reliable scientific evidence to back up health and weight-loss claims. The FTC imputed knowledge to MAI in three ways.
First, in 2014, the FTC had filed a complaint against another client of MAI, Sensa Products, LLC ("Sensa"), for deceptive weight-loss claims, similar to those at issue here. That complaint resulted in an order requiring Sensa to pay $26,500,000 in restitution. In addition, the final order required Sensa to give a copy of the order to MAI. MAI acknowledged receipt of the order in writing.
Second, according to the FTC, MAI knew DA's counsel had expressed concerns about the weight-loss claims. Counsel for DA wrote: "there are still serious questions regarding [DA's] ability to substantiate certain claims" and "continue to bear in mind that, as  noted several times in the past, if you use this advertising, regulators expect that you have competent and reliable scientific evidence to substantiate the claims."
Finally, in April of 2011, a radio station notified MAI that the station would not run an advertisement for one of DA's weight-loss products until MAI provided substantiation for the claim. According to the FTC's complaint, MAI's account manager noted in the company's internal database that MAI's advertising team did not have any such substantiation.
Despite having knowledge that the claims in the ads they created lacked the appropriate substantiation, MAI proceeded with their campaign on the client's behalf.
•Ad agencies are not exempt from FTC enforcement action. The MAI order serves as a reminder that ad agencies are not immune from FTC complaints. And as the MAI order and settlement make clear, ads that run afoul of FTC guidelines, and federal or state laws, can be expensive.
•Consider yourself warned. The FTC focused on MAI's knowledge that the claims in the ads it created lacked the appropriate substantiation. Knowledge may include being aware of previous FTC complaints concerning deceptive practices. So it's important to stay abreast of relevant federal and state enforcement actions, especially if they involve product categories relevant to your business. As the MAI judgment makes clear, both advertisers and their agencies must ensure that there is competent and reliable substantiation for the claims in their ads.
•Use the resources that are available to you. The FTC has published guidelines to assist brands and ad agencies in determining what may be an improper ad. The guidelines include a list of "gut check" weight-loss claims that, according to the FTC, cannot be true. These claims include:
•a product causes weight loss of two pounds or more a week for a month or more without dieting or exercise;
•a product causes substantial weight loss no matter what or how much the consumer eats;
•a product causes permanent weight loss even after the consumers stops using the product;
•a product blocks the absorption of fat or calories to enable consumers to lose substantial weight;
•a product safely enables consumers to lose more than three pounds per week for more than four weeks;
•a product causes substantial weight loss for all users; or
•a product causes substantial weight loss by wearing a product on the body or rubbing it into the skin.
If you have questions about the FTC action against MAI, or about any other advertising compliance matters, please contact Terri Seligman at (212) 826 5580 or firstname.lastname@example.org, Jeffrey A. Greenbaum at (212) 826 5525 or email@example.com, Dorian Slater Thomas at (212) 705 4827 or firstname.lastname@example.org, or any other member of the Frankfurt Kurnit Advertising, Marketing & Public Relations Group.
Other Advertising Law Alerts
What the Advertising Industry Can Learn from Kim Kardashian’s Settlement with the SEC
On October 3, 2022, the Securities and Exchange Commission (SEC) announced that it entered into a $1.26 million settlement with Kim Kardashian over her social media promotion of the EMAX token without disclosing payment she received from token issuer, EthereumMax. The matter provides important lessons for advertisers. Read more.
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Get Ready for California’s New “Automatic Renewal” Rules
California recently amended its Automatic Purchase Renewals law. The amended statute - effective July 1st -- require marketers to provide consumers of automatic renewal or continuous service offers with more information and easier ways to terminate. Read more.
June 22 2018
“Made in the U.S.A.” Claims Continue to be Scrutinized
In 2016, California amended Section 17533.7 of the California Business and Professions Code ("Section 17533"), liberalizing the standard for selling products labeled "Made in U.S.A" to California consumers. Read more.
June 4 2018