Andrew S. Hansen

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Retailers often use product reviews to supplement advertising and drive sales.  Such use has become more prevalent as sales shift from brick and mortar stores to internet sales, where splattering a webpage with purported product reviews is easy, cheap, and grabs eyeballs.

Online product reviews
Copyright: martialred / 123RF Stock Photo

Many major online retailers offer product reviews submitted by consumers. Many online retailers will provide product reviews on their website that the company has solicited or otherwise selected for favorability. Such reviews are supposed to be authentic and accurate. While the retailer can select which reviews are displayed, the reviews should be real and the consumer can decide how much weight to give a review.  However, purported third party website reviews exist for the specific reason that they are supposed to be independent and will give the good and the bad. Several companies and individuals recently discovered that faking a third party review website will result in action from the FTC.

The website of Trampoline Safety of America purported to use experts to give safety ratings to different trampoline brands, rating those made by Infinity and Olympus Pro the highest.  However, what was not disclosed to consumers according to the FTC was that Trampoline Safety of America was operated by Infinity and Olympus Pro and the company owners.  According to the FTC the comments and videos on the website were also not authentic customer reviews, but were created by the owners of Infinity and Olympus Pro.  Following FTC action, the parties are heading toward settlement.

While such conduct is obviously improper, it is important always to disclose conflicts regarding product reviews and to only use consumer reviews or testimonials that are actually given by customers.  All factual claims, especially medical related claims, must be supported by actual data or testing.  Not only has the FTC shown a willingness to crack down on companies that violate such requirements, consumer protection lawyers and competitor companies can also be expected to bring claims and seek damages.

Several large retailers likely thought that they were finally clear of legal problems relating to advertising sale prices for products that were not truly on sale.  With a post on September 28, 2016, https://advertisinglaw.foxrothschild.com/?s=class+action, Dennis Hansen discussed these class action lawsuits, several which have settled for millions of dollars.  For example, JC Penny paid $50 million to settle a class action suit against it alleging that its advertised and listed sale prices were not actually sale prices, but were more akin to regular prices.  However, the bad news for these retailers continues as local government enforcement actions have now been brought.

The Los Angeles city attorney brought claims against Kohl’s, JC Penny, Macy’s and Sears based upon the same alleged conduct.  These lawsuits could subject these retailers to additional substantial penalties, on top of the money already spent on the consumer class actions.  Additionally, the Alameda County Attorney’s office recently brought claims against My Pillow for making health claims in its advertising that are allegedly not supported by any scientific research or studies.  My Pillow settled with Alameda County, agreeing to pay over $1 million in fines.

These actions brought by local governments are unique in that false advertising claims are usually left to the Federal Trade Commission (FTC”), consumer class actions, or lawsuits brought by competitors.   The FTC, however, does not have the resources to bring claims against all improper advertising, even focusing on just advertising relating to health claims.  However, these local government enforcement actions can somewhat fill that gap and give more effect to state statutes regulating advertising, such as California’s statute regarding what is a sale price.  As a result, it is important to make sure that you are aware of the advertising statutes in each state in which you are advertising, particularly if you are frequently listing a product as being on sale.  For example, in California, a sale price cannot be compared to a previous price (such as 50% off) unless that previous price was the actual market price of the product within the previous three months.  And, as always, all advertising claims, especially health claims, should be substantiated so that if a competitor, the government, or a consumer class action lawyer brings a claim, you are able to quickly show that the advertising is accurate.

One likely result is that companies will get sued by its competitors. Such a lawsuit will cost money to defend, cause a distraction to the company, and has the potential to embarrass the company with consumers.

Another potential result is more troubling – an enforcement action by the FTC. Such actions, like competitor lawsuits, are expensive to defend, cause distraction, and have the added problem of communicating to consumers that the government thinks the company is making false statements.

A recent FTC enforcement action decision reinforces the necessity for companies to validate the advertising claims made about their products, particularly if such claims relate to health benefits.

In May 2015, the FTC filed a lawsuit against COORGA Nutraceuticals Corporation and its owner claiming that the Defendants violated the law in claiming that their “Grey Defense” dietary supplements reversed or prevented gray hair. The United States District Court for the District of Wyoming recently granted summary judgment in favor of the FTC, issued an injunction against the company and its owner, and asked the Defendants to pay nearly $400,000.

COORGA marketed Grey Defense to consumers as not only a product that could stop, reverse and prevent the natural graying of hair, but also that it was scientifically proven to do so. The Court found that the COORGA did not have the required scientific evidence to support such claims.  In addition to finding that the company was liable, the Court also found the owner liable because he controlled COORGA’s advertising.  The Court took COORGA’s owner to task for “arrogantly” relying on internet research to validate the company’s claims.  The Court found that this conduct constituted “reckless indifference” and issued an injunction against the company relating to advertising claims across a broad range of products in addition to finding Defendants liable for $391,335.

As this and other FTC enforcement cases make clear, a company must ensure that if it makes scientific claims about its products that it has the testing to back up those claims.