United States: What Happens When A Company Makes Unsubstantiated Claims?

One likely result is that companies will get sued by its competitors. Such a lawsuit will cost money to defend, cause a distraction to the company, and has the potential to embarrass the company with consumers.

Another potential result is more troubling – an enforcement action by the FTC. Such actions, like competitor lawsuits, are expensive to defend, cause distraction, and have the added problem of communicating to consumers that the government thinks the company is making false statements.

A recent FTC enforcement action decision reinforces the necessity for companies to validate the advertising claims made about their products, particularly if such claims relate to health benefits.

In May 2015, the FTC filed a lawsuit against COORGA Nutraceuticals Corporation and its owner claiming that the Defendants violated the law in claiming that their "Grey Defense" dietary supplements reversed or prevented gray hair. The United States District Court for the District of Wyoming recently granted summary judgment in favor of the FTC, issued an injunction against the company and its owner, and asked the Defendants to pay nearly $400,000.

COORGA marketed Grey Defense to consumers as not only a product that could stop, reverse and prevent the natural graying of hair, but also that it was scientifically proven to do so. The Court found that the COORGA did not have the required scientific evidence to support such claims.  In addition to finding that the company was liable, the Court also found the owner liable because he controlled COORGA's advertising.  The Court took COORGA's owner to task for "arrogantly" relying on internet research to validate the company's claims.  The Court found that this conduct constituted "reckless indifference" and issued an injunction against the company relating to advertising claims across a broad range of products in addition to finding Defendants liable for $391,335.

As this and other FTC enforcement cases make clear, a company must ensure that if it makes scientific claims about its products that it has the testing to back up those claims.

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