December 7, 2018
The Federal Trade Commission (“FTC”) is a bipartisan federal agency charged with protecting consumers and promoting competition. The FTC seeks to protect consumers by enforcing laws preventing unfair, deceptive or fraudulent practices in the marketplace. It does so by conducting investigations and suing companies for alleged marketing violations. After an FTC investigation, on December 3, 2018, the FTC filed a complaint against Nobetes Corporation and two of its officers and directors, Marvin Silver and Jeffrey Fleitman, in the U.S. District Court for the Central District of California.
Why did the FTC Sue Nobetes Corporation and Two of its Officers?
The FTC complaint alleged that Nobetes Corporation violated the FTC Act, which prohibits unfair or deceptive practices in or affecting commerce. 15 U.S.C. §§ 45 et seq. The FTC alleged that Nobetes Corporation falsely advertised its purported diabetes treatment tablets (“Nobetes Tablets”). Specifically, according to the FTC, Nobetes Corporation falsely claimed that the Nobetes Tablets treated diabetes by reducing high blood sugar, reducing the need for medications such as insulin, and replenishing nutrient deficiencies caused by diabetes. The FTC maintained that the advertisements for Nobetes Tablets were false or misleading, or were not substantiated at the time that they were made.
The FTC further alleged that Nobetes Corporation falsely represented that its product endorser was a qualified expert in blood sugar regulation and diabetes treatment when, in fact, he was a paid actor. With respect to their product endorsers, generally, the FTC alleged that Nobetes Corporation failed to disclose that many of them were supplied with free products, which the FTC considered to be a material fact about which consumers should have been made aware.
The FTC also took issue with the disclosures that Nobetes Corporation made to consumers concerning a purported “free trial” of Nobetes Tablets that cost only $6.95 for shipping and handling. Unfortunately, many of today’s negative option continuity plans are disguised as free trials, in which consumers unwittingly agree to receive regular shipments at a set rate unless and until they cancel. In order to comply with the FTC Act and applicable state laws, marketers must adequately disclose all of the material terms of their negative option continuity plans.
Indeed, in the FTC Complaint, the FTC alleged that Nobetes Corporation failed to disclose to consumers: (i) that it would automatically enroll them in a negative option continuity plan with additional charges; (ii) the amount of those additional charges and the frequency and duration of their recurrence; and (iii) the date and means by which they must cancel in order to avoid such additional charges. Messrs. Silver and Fleitman allegedly controlled or had the authority to control the acts complained of, and were, accordingly, subject to potential individual liability.
By presenting a proposed consent order for consideration by the District Court, the FTC and the defendants seek to resolve the matter resulting from the FTC investigation. Among other things, Nobetes Corporation and Silver and Fleitman have agreed not to: 1) advertise or sell the Nobetes Tablets or any other diabetes-related products; and 2) further engage in any of the acts which formed the basis for the FTC complaint. Should they decide to market any products or services in the future, Silver and Fleitman have agreed to affirmatively provide sufficient disclosures in connection with any negative option continuity plans. The Court order requires Nobetes Corporation and Silver and Fleitman to agree to the entry of a judgment against them, jointly and severally, in the amount of $182,000.
Stay Compliant and Avoid an FTC Investigation
We have previously blogged about FTC investigations culminating in federal complaints filed against online marketers arising from negative option offers. Indeed, as demonstrated by this FTC lawsuit, the FTC continues to aggressively pursue claims against advertisers for employing false and deceptive marketing practices, including improperly structured continuity plans, negative option offers and “free” trials. Incomplete or misleading disclosures may place marketers at risk of enforcement actions under the FTC Act. Given the foregoing, marketers should consult with experienced counsel prior to launching any advertising campaign.
If you are interested in learning more about continuity plans, or need to review your marketing practices or disclosures, please email us at email@example.com, or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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