Flavorman keeps an eye on FTC decisions…

FTC has filed actions in six different federal courts against ten affiliate marketing operations for using fictitious news websites to market açaí berry weight-loss products. The agency is seeking to permanently stop these misleading practices and has asked courts to freeze the defendants’ assets trial.

The central charges brought by FTC are threefold. First, the agency alleges the defendant affiliate marketers made false and unsupported claims that açaí berry supplements will cause rapid and substantial weight loss. Second, FTC alleges the defendants have created fictitious news reports, other reports, and testimonials regarding the products to deceive consumers.  Third, the defendant affiliate marketers failed to disclose their financial relationships to the merchants sponsoring the products.

During a press conference held in Chicago, at the FTC’s Midwest Regional Office, Charles Harwood, deputy director of the FTC Bureau of Consumer Protection, outlined the basic characteristics of the marketing schemes. In the complaints, FTC alleges the defendant affiliate marketers created websites that are meant to appear as if they belong to legitimate news-gathering organizations, but in reality, the sites are advertisements aimed at deceptively enticing consumers to buy the featured açaí berry weight-loss products. The fake websites have titles such as “News 6 News Alerts,” “Health News Health Alerts,” or “Health 5 Beat Health News.”  The sites purport to provide objective investigative reports authored by reporters who tested the products on themselves and experienced dramatic and positive results, typically losing 25 pounds in four weeks.

In fact, the news reports are fake, and the reporters are fictitious. Adam Sokol, an assistant attorney aeneral with the Illinois Attorney General’s Office, announced the State of Illinois has been working with FTC and is proceeding in a simultaneous lawsuit against an affiliate marketer in Illinois. Sokol disclosed that a picture used on the website of the defendant in the State of Illinois’ case to identify a news reporter is likely a female news reporter from France. The sites also include the names and logos of major media outlets such as ABC, Fox News, CBS, CNN, USA Today, and Consumer Reports, and falsely represent that the reports on the sites have been seen on those networks. Harwood expressed FTC’s concern that the references to major media outlets could potentially confer unwarranted credibility to the reports.

Steven Wernikoff, a staff attorney for FTC in Chicago, described the fundamentals of affiliate marketing. He described the “chain of deception” employed by the affiliate marketers and their actions as brokers to deceive potential consumers and direct traffic to merchant websites. The FTC alleges that the defendant affiliate marketers direct traffic to these websites by placing advertisements on high volume websites with headlines such as “Açaí Berry EXPOSED— Health Reporter Discovers the Shocking Truth.” Consumers would click on the headlines and be directed to the affiliates websites. Once consumers read the “breaking news”, they could click on products and be directed to merchants’ websites. The affiliate marketers would then get a commission for each referral.

In addition to the deceptive practices utilized to direct traffic to these sites, the FTC and the Illinois Attorney General’s Office alleges the weight-loss claims made with respect to the açaí berry products, most notably the claims of 25 pounds of weight-loss in four weeks, are not supported by reliable science. According to Wernikoff, an expert from Northwestern University found that açaí berries do not produce any weight-loss absent a change in diet and exercise.  FTC Harwood indicated that in 2010, the FTC brought a case against Central Coast Nutraceuticals for making similar weight-loss claims regarding açaí berry supplements.

The agency is asking for the courts to permanently bar the allegedly deceptive claims and to require the companies to provide money for refunds to consumers who purchased the supplements and other products. Harwood estimated consumers may have paid more than $10 million for products advertised on these websites. While FTC is currently unaware of any connection between the defendant affiliate marketers, more information may be forthcoming once the cases get underway and the discovery process begins.

In response to questions from media, Sokol stated these actions are “not an indictment of the açaí berry” and that FTC and the Illinois Attorney General’s Office are focused on the marketing techniques utilized and the specific weight-loss claims made for these products. “Almost everything about these sites is fake,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection, in the press release issued by FTC concerning these cases. “The weight loss results, the so-called investigations, the reporters, the consumer testimonials, and the attempt to portray an objective, journalistic endeavor.”

(For more information, you can see the FTC’s press release at http://www.ftc.gov/opa/2011/04/fakenews.shtm).

Justin J. Prochnow is an attorney and Shareholder in the Denver office of the international law firm of Greenberg Traurig LLP. His practice concentrates on legal issues affecting the food & beverage, dietary supplement and cosmetic industries. He can be reached at (303) 572-6562 or prochnowjj@gtlaw.com .

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