FTC Obtains “Gag Order” Against “Gag Clause”

Few things drive online marketers battier, and can damage a brand and the bottom line more, than negative consumer reviews. Many no doubt fantasize about all sorts of wicked ways to expunge them (picture Bill Murray dynamiting the Gopher in “Caddy Shack,” or the hilarious parody of it by Tiger Woods in the American Express commercial from years ago). Wouldn’t it be delicious, some imagine, if they could just turn the fantasy into reality. Well, one did, applying thuggish, Mafia-like tactics to the problem, with the predictable disastrous legal consequences.

Late last month, the FTC shut down a Florida-based weight loss marketer, Roca Labs, over false claims and a “Gag Clause” in its contract threatening retaliation against any customer who bad-mouthed it or its products. The claims alone warranted the crackdown. Roca was promoting its ingestibles as a safe and effective alternative to gastric bypass surgery. For a fraction of the cost and without the pain, consumers could expect to lose as much as 21 pounds in a month and over a100 pounds in under a year, without a strict diet and eating whatever they like. Search ads claimed “No Surgery Solution $480” and “NO Surgery 86 lbs. loss,” “Real Testimonials of 100,000 Users” touted their amazing results, induced by discount offers, and paid bloggers trumpeted the products without disclosing their affiliation to the advertiser. Roca boasted it was “scientifically proven to have a 90% success rate” even though, in truth, it had no clinical studies at all. It also offered the products as an antidote to child obesity, claiming they were safe for children ages 6 and up who would eat “HALF the food they used to, without hunger.” It hauled in about $20 million before the music stopped.

While these turbo-charged claims may have been what caught the FTC’s eye initially, there is nothing particularly remarkable about them in the world of weight loss advertising. They’re pervasive and the FTC is in a constant game of “whack a mole” (kind of like Bill Murray in “Caddy Shack”) trying to stop them.

What is remarkable, even stunning, is the audacity of this company in resorting to such heavy-handed (and ham-handed) methods to censor unsatisfied customers from sharing their experiences with other consumers. It sought to accomplish this through the sneaky insertion of a “Gag Clause” in its hyperlinked terms that consumers were not warned about and unknowingly agreed to as a condition of sale. The Gag Clause read, in pertinent part:

You agree that regardless of your personal experience with RL, you will not disparage RL and/or any of its employees, products or services. This means that you will not speak, publish…print, review, blog, or otherwise write negatively about RL, or its products or employees in any way….your acceptance of the [Terms]prohibits you from taking any action that negatively impacts RL, its reputation, products, services, management, or employees….Should any customer violate this provision…you will be provided with seventy-two (72) hours to retract the content in question. If the content remains, RL would be obliged to seek all legal remedies….If you breach this Agreement…all discounts will be waived and you agree to pay the full price for your product.

The discount price was $480, way below the unsubsidized cost of $1580. Purchasers’ were told that the discount was:

“in exchange for your agreement to promote our product” [and] “As part of this endorsement you also agree not to write any negative reviews about RLN or our products. In the event that you do not honor this agreement, you may owe immediately the full price of $1580.

(Emphasis in original.)

Roca meant business. According to the FTC complaint, it threatened to sue purchasers who said they had or would complain to third parties such as the BBB, or would post negative comments, and in some cases it actually did sue them. It also threatened complaining customers who wanted refunds by telling them they would be subject to liability for extortion or defamation for threatening to post, or posting, truthful negative reviews, or that their “discounts” would be revoked and they would owe the “full” price.

The FTC is using its “unfairness authority” to challenge the Gag Clause, alleging it is unfair because it caused substantial consumer injury that was not reasonably avoidable and was not outweighed by countervailing benefits to consumers or competition. It uses this authority relatively sparingly, usually against business practices that are harmful but not necessarily deceptive and thus can’t be attacked under its deception authority. Another reason is the vagueness of the standard, which judges can find troublesome.

The judge in Roca Labs shouldn’t have any such difficulty. By any measure, this Gag Clause was unfair and illegal. Worse than that, it was stupid. Anybody else dumb enough to do this will deserve and meet the same fate. As Bill Murray learned, the Gopher always wins.