A Federal Trade Commission ("FTC") investigation of Cure Encapsulations, Inc. and its owner, Naftula Jacobowitz (the "Defendants"), has ended in a settlement that awaits court approval. In its complaint, the FTC alleges that Defendants made false and unsubstantiated claims concerning the efficacy of garcinia cambogia (the "Product") as a weight-loss supplement and paid a third-party website operator (www.amazonverifiedreviews.com) to post fake Product reviews on Amazon.com. Pursuant to the terms of the FTC investigation settlement agreement, Defendants are prohibited from publishing weight-loss, appetite-suppression, fat-blocking, and disease-treatment claims concerning any dietary supplement, food or drug, unless those claims are substantiated by third-party clinical studies. In addition, the Defendants must notify consumers who purchased the Product of the FTC's allegations/investigation and pay a judgment in the amount of $12.8 million (which will be suspended upon payment of $50,000 and certain unpaid income tax obligations).
How can businesses avoid the FTC's radar?
FTC Investigations Intended to Enforce the FTC Act, Protect Consumers
The FTC is empowered to enforce the Federal Trade Commission Act ("FTC Act") by protecting consumers from false and deceptive practices in connection with the labeling, advertising, marketing and distribution of goods and services. An advertisement is deceptive (within the meaning of the FTC Act) if it contains information that is likely to mislead consumers or omits significant material that would have aided consumers' decisions to buy a given product or service. Commissioning the generation of false product endorsements through a third-party website constitutes deceptive advertising that may result in an FTC investigation. In the case at hand, the Defendants paid www.amazonverifiedreviews.com $1,000.00 for 30 reviews with the goal of maintaining an overall Amazon customer rating of 4.3. The FTC investigation concluded that all of the subject reviews were fabricated and, therefore, Defendants had engaged in deceptive advertising practices in violation of the FTC Act.
Backing Up Claims
In today's online world, it is often hard to distinguish between fake and authentic product reviews. In the case of the Defendants, they argued that they had paid for third-party Amazon.com reviews in order to offset negative reviews written by competitors. Obviously, the FTC was less than receptive to this line of argument. This settlement highlights the fact that businesses should not forgo regulatory compliance in their effort to seek a competitive edge.
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