Putting Brands in Their Place

FTC's David Vladeck leads the charge in the feds' crackdown on deceptive ads

Advertisers can’t say they weren’t warned.

Three years ago, right after joining the Federal Trade Commission as director of the Bureau of Consumer Protection, David Vladeck stood before the ad industry’s self-regulatory group at its annual conference to lay down an aggressive agenda.

Bucking the bureau’s traditional practice of focusing almost solely on fraudsters and hucksters intent on scamming consumers, Vladeck vowed to crack down on deceptive advertising by the nation’s largest brands. “National advertising is, once again, a high priority for BCP,” he told the Advertising Self-Regulatory Council (ASRC). Vladeck’s road map promised closer examination of health claims and clarification of what constitutes adequate scientific backing, promising that future FTC settlements would contain more precise language and reimburse consumers taken in by false promises.

Since that time, the BCP has, in fact, built up an aggressive record of taking on top brands including Nestlé, Dannon, Reebok and Skechers for touting unproven health or fitness benefits.

“There’s no reason that advertisers with trusted brands that consumers rely on should get a pass,” Vladeck maintains, adding, “We haven’t slackened in our anti-fraud efforts. But we figured what’s sauce for the goose is sauce for the gander.”

The result has been impressive settlements with food and dietary supplement merchandisers creating stricter standards for all advertising. In the most recent cases, the FTC obtained full refunds for consumers, extracting historic settlements of $25 million from Reebok and $40 million from Skechers for ads for sneakers promising miraculous toning and weight-loss properties.

This is territory Vladeck understands well. Before his appointment by FTC chairman Jon Leibowitz, he spent seven years as the director of Georgetown University’s Center on Health Regulation and Governance at the O’Neill Institute for National and Global Health Law. But it was his three decades as a lawyer for the Public Citizen Litigation Group that shaped his aggressive, take-no-prisoners style, arguing more than 60 cases before both federal and state courts.

Amy Mudge, an attorney with the Venable law firm who has represented FTC targets including Kellogg’s, Ab Circle Pro and Dannon, believes that Vladeck’s background in litigation rather than management has shaped his fearlessness. “He has spent his career trying difficult cases,” says Mudge. “The FTC isn’t limiting itself to cases they know they can win—they’re bringing test cases that the bureau believes are in the public interest, even if they are difficult to win.”

Though Vladeck did not attend last month’s annual meeting of the ASRC, his presence was clearly felt there. “More advertisers are worried about the FTC and they should be,” C. Lee Peeler, CEO of the ASRC, which operates under the Council of Better Business Bureaus, said at the gathering.

At the top of the FTC’s agenda are overhyped health claims, which have become as popular a marketing tactic as sex in recent years. “You can’t walk up and down a grocery aisle or watch TV and not see these claims,” Vladeck says. “And because of the trust consumers place in brands like [Kellogg’s] Rice Krispies—that promised your kid won’t get the flu—consumers are going to act on them.”

In one of the earliest cases under his watch, Kellogg’s got into trouble for heralding its Frosted Mini-Wheats as “clinically shown to improve kids attentiveness by nearly 20 percent,” even as the company’s own clinical study showed far more modest results. Less than a year later, the FTC added on to the complaint for Rice Krispies, asserting that the breakfast cereal “now helps support your child’s immunity.”

“Clearly the government has made consumers more concerned about health and a lot of products are making health and fitness claims. They’re reacting to consumers’ interests, and the FTC is responding to the marketplace,” says Jeff Greenbaum, a managing partner at Frankfurt Kurnit Klein & Selz.

Brands have opened themselves up to scrutiny adding vitamins and supplements to their products. “Food companies are distressingly marketing themselves as something other than food—some are turning food into drugs,” says Steve Gardner, head litigator at the Center for Science in the Public Interest. “It’s excessively done and it’s on the increase.”

But holding companies accountable for health claims has not been easy. For many years, the FTC’s requirement for “reliable and scientific evidence” was vague and flexible. The proof that a claim was “reliable and scientific” relied pretty much on experts simply agreeing it was, and brands and the FTC would trot out their respective specialists. The results tended to be fuzzy, with mixed results for the FTC. “I’m a litigator. I don’t want to fight over the same real estate twice,” Vladeck says. ”The only way you can enforce an order is if it’s crystal clear.”

Seeking that clarity, the FTC began to spell out exactly how it interpreted “reliable and scientific evidence” in two landmark settlements. In 2010, Nestlé HCN agreed to stop promoting Boost, a probiotic children’s drink, as “clinically shown to help strengthen the immune system,” reducing the risk of colds, flu and other ailments unless the Food and Drug Administration approved the claim. Nestlé would also be required to support such health claims with at least two well-designed human clinical studies.

The same year, the FTC also lowered the boom on Iovate Health Sciences USA, whose ads featured people in white lab coats being passed off as doctors, declaring that the company’s dietary supplements Cold MD and Germ MD treated or prevented colds and flu and that Allergy MD treated or prevented allergies and hay fever. Meanwhile, the company claimed its weight-loss products, Accelis and nanoSLIM, could help consumers “Lose 32 lbs FAST” or a few pounds per week.

Nestlé and Iovate settled, though the ad community was shocked after the FTC required both companies to back future health claims about preventing or curing illness with two clinical trials and FDA pre-approval. Adding punch to the settlement, Iovate agreed to a $5.5 million payment for consumer refunds.

“That shook us in the industry,” says former FTC attorney Marc Roth, now a partner at Manatt, Phelps & Phillips. “Before, you needed competent and reliable scientific evidence. Now the agency seemed to be saying you needed two clinical trials. That’s a game changer.”

Next, the FTC applied clearer guidance to two food companies. In a campaign featuring actress Jamie Lee Curtis, Dannon was called out for claims that the yogurt Activia “eaten every day is clinically proven to help regulate your digestive system in two weeks.” In settling, the yogurt maker agreed to pay $21 million to 39 state attorneys general who coordinated on the case.

Meanwhile, POM Wonderful, a privately held company with deep pockets, has fought back. The company has vigorously defended its assertion that, as the FTC puts it, “Wonderful 100% Pomegranate Juice and POMx supplements [POM products] would treat, prevent, or reduce the risk of heart disease, prostate cancer and erectile dysfunction.”

While it will not comment on the case, POM clearly stated its position in a 2010 press statement: “We do not make claims that our products act as drugs. POM believes very strongly in its First Amendment rights to communicate the promising results of our extensive scientific research program on pomegranates. We believe the commission is acting beyond its jurisdiction, exceeding its authority, and creating a new regulatory scheme that attempts to treat our juice as a drug, which it is not.”

More than any other FTC case, the outcome of POM could impact how health claims in ads are evaluated for years to come. Amid many legal twists and turns, an administrative law judge recently agreed with POM that the company did not need FDA pre-approval for its claims. But the same judge also agreed with regulators that the ads were deceptive.

Even if the commission decides against POM now that it has the case back, no one thinks that will be the end of it. “There’s no question you need scientific evidence to back up claims,” says the ASRC’s Peeler. “The question is: Is the standard being set by the FTC too high?”

If these pioneering FTC settlements defining “reliable and scientific” raise eyebrows in the ad community, the $25 million Reebok settlement had marketers’ heads spinning. In September 2011, Reebok agreed to the big cash payout to fully reimburse consumers who bought EasyTone shoes that promised “better legs and a better butt with every step.”

Less than a year later, the FTC upped the ante by way of a $40 million settlement with Skechers for declaring that its toning shoes promoted weight loss and firmer muscles. The ads relied on an endorsement from chiropractor Steven Gautreau, who is married to a Skechers marketing executive and was paid to conduct a study that was found to be wanting. Ads for Skechers’ Shape-ups, meanwhile, famously featured reality star Kim Kardashian.

In August of this year, the FTC settled with Ab Circle Pro for $15 million to $25 million to reimburse consumers who had purchased the $200 to $250 exercise product promoted as a weight-loss silver bullet. In its TV ads, pitchwoman Jennifer Nicole Lee boasted of losing 80 pounds using the stomach-crunching device, telling viewers: “You can either do 30 minutes of abs and cardio or just three minutes a day. The choice is yours.”

“We try to restore the consumer’s position before the deceptive ad,” says Vladeck. “We wanted to deprive companies of their profits. We don’t want them to profit from misleading the public.”

Requiring full refunds for consumers surprised national advertisers because it was a remedy usually reserved for extreme cases and outright fraud. In the past, the FTC simply required companies to stop making dubious claims but did not require full restitution. “[The FTC] is treating these companies like they were fraudulent. That’s a big step,” says Greenbaum. “It isn’t just going to slap companies on the wrist.”

No longer content with cease and desist agreements, the FTC is seeking deterrents with the pricey settlements. “They want to bring cases that will get more press,” says Mudge. “And they know they’ll get more press if they settle for millions of dollars.”

At year’s end, Vladeck will return to his post at Georgetown, but he remains confident that the BCP will continue to follow his blueprint.

“There is bipartisan support from the commissioners for these measures,” he says. “This is an area where we will continue to be active. We want to make sure we really have persuaded the advertising industry that substantiation is important. I’m not sure we’re there yet. From my perspective, it’s still a target-rich environment.”