FTC v. Direct Marketing Concepts, Inc., et al.

In FTC v. Direct Marketing Concepts, Inc., et al., the FTC obtained summary judgment against the marketers and its supporting firms relating to disease treatment, and weight loss infomercials, "Coral Calcium" and "Supreme Greens." Importantly, the federal district court held not only the marketing companies but the credit card processing intermediary ("Triad"), the media purchasing firm ("King Media") and the individuals liable for consumer redress in addition. The FTC also sought to recover royalties received by the company that organized the database.

The Court found that defendants lacked a reasonable basis for the claims and that they failed to present any evidence that they had received or reviewed any scientific substantiation beyond mere summaries or conclusory assurances. The fact that defendants had read a book on which the infomercial was based, that contained "numerous citations to scientific studies and journals" was found to be inadequate substantiation because the book was little more than a compilation of citations with no context or explanation. A bibliography, without any of the actual studies or journal articles was found to be inadequate. Moreover, the fact that some defendants "were told" or "heard" that the show had been reviewed by experts and lawyers, may offer support for a claim that the defendants relied in good faith on some materials, but their good faith is not the question.

Although neither King Media nor Triad created, scripted nor produced the infomercial, Triad, whose merchant account was used to process orders, each was held liable as a joint venturer as it received an equal split of the net profits. As for King Media, Section 12 of the FTC Act makes it unlawful to "disseminate or cause to be disseminated any false advertisement." The court ruled that by purchasing the air time, King Media could be held to have caused the dissemination. The court particularly noted that "King Media and Triad did not have a practice of having infomercials reviewed for compliance with FTC law, viewing that as the function of the advertiser and producer." They merely required assurances that the claims could be substantiated, and they must share responsibility for the failure to have adequate substantiation.

Practice Point: The requirement that there must be adequate substantiation for advertising prior to its dissemination is not limited to companies who produce and market the advertising but also includes those who provide support services. And, a mere bibliography of references will not be deemed adequate.

Federal Trade Commission v. Direct Marketing Concepts, Inc. (D. Mass) (CCH Advertising Law Guide Par. 63,049)

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