FTC Snares Ingredient Supplier in Widening Liability Net

My last article and others before discussed a new core enforcement strategy at the Federal Trade Commission (FTC): widening the net of liability and consumer redress recovery through actions against third-party service providers to marketers, such as payment processors and product creators. I planned to address a different topic this time, but a new enforcement action has compelled me to belabor the subject once more. I refer to the settlement announced by the FTC last month with Applied Food Sciences, a dietary supplement ingredient supplier that markets and sells to the trade but not to the end consumer.

The settlement, which requires a redress payment of $3.5 million, is a cousin to a pending FTC action against the sellers of Pure Green Coffee, a green coffee bean supplement, for making weight-loss claims online that were based on an allegedly flawed human clinical study of green coffee bean extract that was sponsored by Applied Food Sciences. The FTC alleges that the company promoted the impressive weight loss findings of the study to trade customers to induce them to buy its proprietary green coffee extract – despite purported awareness of “severe” methodological flaws and data fabrication associated with the study. It promoted the clinical trial and its product through the dissemination of press releases (including ones touting Dr. Oz’s promotion of green coffee for weight loss based on the trial) and advertising and substantiation materials to its trade customers, who allegedly relied on and used them to market green coffee supplements to consumers.

The gravamen of the FTC’s complaint is not the marketing of the study to the trade itself, but that the marketing provided trade customers with the “means and instrumentalities” to deceive consumers by repeating Applied Food Sciences’ allegedly deceptive weight-loss claims in their own marketing of green coffee supplements to the public. As such, the FTC is again basing a deception action against a third party who does not market to consumers on an “aiding & abetting” theory of liability, the legal validity of which is uncertain (outside the telemarketing context) and is currently under challenge in another FTC lawsuit involving a weight-loss product. (DRMA Voice July: “Does the FTC have Legal Authority over Affiliate Networks?” discussing an affiliate network’s defense that it cannot be liable for its affiliates’ deceptive ads to consumers under Supreme Court precedent because it neither created nor published the ads and was not identified in them.)

Historically, the FTC has not often used “means & instrumentalities” or “aiding & abetting” as a legal predicate for taking enforcement action against a product supplier or manufacturer that only markets to trade customers and not to consumers. Should the Applied Food Sciences settlement be seen as an anomalous, isolated event – occasioned, perhaps, by the egregious nature of the company’s alleged malfeasance and extremely aggressive trade marketing concerning the study – or as a harbinger of things to come? It’s too early to tell, but not too early for ingredient suppliers and product manufacturers to review their trade marketing practices for possible overzealousness – and to be ever mindful of the FTC’s new-found eagerness to target and take down perceived enablers of consumer fraud and deception.

Talking about Direct Response, FTC, Online Marketing

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