Reebok’s $25M Settlement Signals New Day at FTC

The Federal Trade Commission's $25 million settlement with Reebok for deceptive ad practices sent a clear message to advertisers: If you're going to make specific health or safety claims, you better cover your butt.

The settlement, the largest in recent memory for a false advertising case, signals a major shift at the agency, which is cracking down on national advertisers, forcing them to make restitution to consumers.  

Attorneys specializing in advertising and marketing law were buzzing about the implications the case had for clients. "The case is a head turner. It's one of the most significant cases in FTC's recent history," said Lewis Rose, partner, Kelley Drye, which represented Nestlé in its May 2010 settlement order over claims that Boost Kid Essentials drink would reduce the risk of colds, flu, and other respiratory tract infections. "We've been advising our clients that the penalties are likely to be much higher than ever, and Reebok is an example of it."

Not only did the FTC go after Reebok for what it determined was a lack of laboratory tests to prove that its EasyTone and RunTone line would, as it claimed, improve muscle tone and strength in the butt, hamstrings, and calves, but it also punished the company by forcing it to give back the money it charged consumers who paid $80 to $100 for the shoes.

"What is different with Reebok, it's a restitution case. Normally advertisers agree to stop making the claims," said Jeffrey Greenbaum, managing partner, Frankfurt Kurnit Klein & Selz. "With this settlement, the FTC is looking to create some deterrent. It's not just enough that advertisers stop."

The agency is also taking a harder line on what constitutes proof for advertisers' claims. "The old standards for proof were more fluid. The FTC is now telling these companies in consent orders precisely what types of evidence they need to make claims in the future, including in some cases, preapprovals by the Food and Drug Administration," said Linda Goldstein, a partner at Manatt, Phelps & Phillips.

In Reebok's case, the FTC found that Reebok's proof of its claims, based in part on a trial that involved only five subjects, was inadequate. 

"For certain health claims, companies now have to have two double-blind studies. In this case Reebok had none," Goldstein said.

The FTC confirms that it's getting tougher. "With health-related claims, there is more potential for injury to consumers," said Mary Engle, associate director of the FTC's Division of Advertising Practices. "The commission has been looking for stronger remedies, and where the claims are egregious, the FTC is more likely to seek refunds for consumers. Reebok is one of those cases."

After the precedent set by the Nestlé case, other advertisers that have run afoul of the FTC's strict enforcement for health claims have had to pay up. Last year, for example, Iovate Health Sciences settled for $5.5 million to be used for refunds to consumers that bought Accelis, nonoSLIM, Cold MD, Germ MD, and Allergy MD products. Dannon paid $21 million to resolve investigations with 39 state attorneys general for its claims about Activia yogurt and DanActive dairy drink.