Ignoring the NAD Can Be CostlyAugust 14, 2008
A recent Federal Trade Commission (“FTC”) action serves as a reminder that the agency takes seriously cases referred to it by the National Advertising Division of the Council of the Better Business Bureaus (“NAD”). In a press release issued earlier this week, the FTC announced that a federal court ordered North American Herb and Spice Co. to pay $2.5 million to settle civil charges brought by the agency, after the NAD alerted the FTC to certain claims that had been made by the company.
The FTC complaint alleged that North American Herb and Spice falsely claimed that its products, Oreganol P73, Super Strength Oreganol P73, and Oregacyn, are “scientifically proven to cure colds and flu.” In addition, advertisements for the products claimed that they would kill germs, including human cold and flu viruses, avian bird flu, hepatitis C, staph aureus, and Helicobacter pylori.
The NAD had challenged the claims in July 2007, but the company reportedly never responded to the challenge or provided substantiation for its claims. The NAD then referred the matter to the FTC. As a result of the FTC lawsuit, the company agreed to a stipulated final judgment and order for permanent injunction that was entered in the federal court in Chicago. The FTC’s press release declared that the defendants’ claims “were false and unsubstantiated in violation of federal law.” The company agreed to pay the $2.5 million in settlement, and was enjoined by the court from making any similar claims without “competent and reliable evidence that substantiates the representation.”
The NAD, which has a small staff of lawyers who review advertising based on their own routine scrutiny or on challenges by competitors, generally relies on voluntary compliance with its decisions. However, if the advertiser does not comply, the NAD often refers the matter to the FDA or the FTC. The FTC in particular has given special attention to matters that come from the NAD. This action serves as a reminder that, although the NAD lacks the statutory authority of the FTC or FDA, its inquiries are not without consequences and should be taken seriously.