First Circuit Rules for the FTC in Dietary Supplement Advertising CaseOctober 25, 2010
By Riëtte van Laack –
Direct Marketing Concepts, Inc. (“DMC”) and other companies and individuals marketed Coral Calcium and Supreme Greens by producing and distributing infomercials claiming that these products were an effective cure against many diseases including heart disease, cancer, lupus, etc. The district court granted summary judgment against the Defendants, holding that the infomercials were misleading as a matter of law, and ordered the defendants to pay $50 million.
Defendants appealed, challenging the legal and factual bases for the District Court's ruling, including its calculation of "damages." On October 21, 2010, the United States Court of Appeals for the First Circuit concluded that the Federal Trade Commission ("FTC") had shown that the Defendants had not established that they had adequate substantiation for the claims at issue. The FTC relied on four expert declarations that asserted that a reasonable basis for the relevant claims would be double-blind, placebo-controlled human studies, but Defendants did not meet this standard. The Court ruled that without a reasonable basis for the claims, Defendants' advertising was deceptive as a matter of law. The Court stated: "To be sure, there may be other scientific evidence that could be sufficient, and we may assume for these purposes that a double-blind study is not necessarily required. But the government established that some scientific evidence is required for substantiation."
The Court also rejected a "puffery" defense, concluding that the claims at issue went far beyond puffery. The Court also rejected Defendants' argument that they had presented adequate disclaimers in the ads.
The Court further affirmed the liability of an owner and corporate officer of two of the companies, because it found that the record contained ample evidence that the officer had the capacity to make decisions about the advertising ("he could have nipped the offending infomercials in the bud"), and he knew that the claims lacked substantiation.
The Court also affirmed that the gross sales volume of the products at question was deemed the appropriate measure for calculating "damages" to be awarded against the Defendants.