Antitrust Law Daily Wrap Up, TOP STORY: FTC action leads to ban on marketing dietary supplements with “free” trial offers, health claims, (Oct 20, 2014)

By Linda O’Brien, J.D., LL.M.

A federal district court has temporarily banned a group of marketers in Nevada and California from conducting business using allegedly deceptive “free” trial offers and health claims to pitch green coffee bean extract and other dietary supplements, the FTC announced today (FTC v. Health Formulas, LLC, File no. 132-3159).

According to the agency, this is the first FTC action alleging violations of the Restore Online Shoppers’ Confidence Act (ROSCA), which prohibits marketers from charging consumers in an Internet transaction, unless the marketer has clearly disclosed all material terms of the transaction and obtained the consumers’ express informed consent.

On October 7, 2014, the FTC filed a complaint in the federal district court for the District of Nevada, alleging that Health Formulas, LLC, its related entities, and principals, doing business as Simple Pure Nutrition, used telemarketing, the Internet, print, radio, and television advertisements to pitch a variety of dietary supplements and other weight-loss, virility, muscle-building, or skin cream products. Simple Pure’s advertising claims included: (1) “Burn fat without diet or exercise”; (2) “Shed pounds fast!”; and (3) “Extreme weight loss!” The FTC alleged that the defendants had no basis for the weight-loss claims they make about their products.

In addition, the defendants allegedly tricked consumers into disclosing their credit and debit card information, and then enrolled them without authorization in a negative option program in which defendants continually charge consumers’ accounts. The charge for Simple Pure’s weight-loss supplements, with names like Pure Green Coffee Bean Plus and RKG Extreme, typically ranged from $60 to $210 per month. Some consumers were sold additional products that cost between $7.95 and $60.

The FTC charged that the defendants failed to provide the disclosures required for a negative-option program, failed to provide a way for consumers to stop the automatic charges, and also failed to disclose material facts about their refund and cancellation policy.

The complaint charged the defendants with violating the FTC Act, the ROSCA, and the FTC’s Telemarketing Sales Rule (TSR). It also charged the defendants with violating the TSR’s Do Not Call provisions by calling consumers who had asked them to stop calling. Finally, the complaint charged the defendants with violating the Electronic Funds Transfer Act by debiting consumers’ accounts on a recurring basis without their prior written authorization. In its complaint, the FTC sought to permanently stop their allegedly deceptive conduct.

“The defendants behind Simple Pure used nearly every trick in the book to deceive consumers,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “They not only deceived consumers about the effectiveness of their products, but also repeatedly debited consumers’ accounts without their approval.”

The Commission vote authorizing the staff to file the complaint was 5-0.

Companies: Health Formulas, LLC; Pure Vitamins, LLC; Longhorn Marketing, LLC; Method Direct, LLC; Weight Loss Dojo, LLC; VIP Savings, LLC; DJD Distribution, LLC; MDCC, LLC; Chapnick, Smukler & Chapnick, Inc.

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