On October 9, 2014, the Federal Trade Commission ("FTC") announced that WordSmart Corporation ("WordSmart"), the popular retailer of children's educational products, agreed to an $18 million+ settlement for allegedly engaging in deceptive advertising in violation of the FTC Act. Specifically, the FTC alleged that WordSmart misrepresented the benefits of its products to parents of school-age children by claiming that using its products for 20 hours would drastically improve their children's academic performance. According to the FTC, WordSmart's claims were unsubstantiated by clinical studies.
WordSmart Services and Deceptive Advertising Claims
WordSmart is a prominent provider of educational products to school age children. Its products range from test taking study materials for the SAT, ACT and GRE, to subject specific educational courses for science, English, math, etc. WordSmart has expended significant capital in marketing its products to parents and guardians, even going so far as to produce an infomercial game show hosted by Jeopardy's Alex Trebek. WordSmart's programs are priced between $15 and $300.
WordSmart ran into trouble when it touted that use of its products would raise children's academic performance by a full letter grade, or GPA point, with a mere 20 hours of use. Similarly, WordSmart asserted that its test-taking programs could raise a child's SAT score by at least 200 points. However, none of these assertions were supported by necessary clinical studies or scientific evidence.
WordSmart was also accused of violating the Telemarketing Sales Rule ("TSR") by repeatedly calling consumer telephone numbers that were listed on the national Do-Not-Call list, refusing to comply with consumer do-not-call requests and failing to connect consumers to representatives within two-seconds after the consumer answered the phone, in violation of the abandoned call rule. As we have previously detailed, the TSR carries a penalty of $11,000 per violation.
As part of its settlement with the FTC, WordSmart has agreed to discontinue any further deceptive advertising and to pay $147,400 in penalties. The entire $18.7 million judgment will become immediately due and owing if it is discovered that WordSmart misrepresented its financial condition or again violates the FTC Act or TSR.
Protect Yourself
The FTC has been aggressively targeting companies that engage in deceptive advertising. Resulting settlements underscore the fact that marketers which tout the benefits of their products must ensure that any and all advertising claims are supported by credible and reliable clinical studies.
If you are interested in learning more about this topic, or if you have been served with legal process relating to deceptive advertising, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
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