SANTA MONICA, CA – The consumer review has never had more power over the success or failure of companies and their products than it does today. Initially, customers were able to use the Internet to praise or condone purchases in a few forums, which had a limited effect. Now, however, reviews on retailer websites such as Amazon and review-specific websites like Yelp result in enough negative feedback being able to bury a product or service. Assuming the reviews are legitimate and well-founded, this is good news for the consumer, but not for the retailer or marketer who learns an item isn’t a good one, resulting in a retail ‘natural selection’. Advertising and Marketing Law authority, William Rothbard recently highlighted a case in which an online marketer attempted to silence its customers from giving negative reviews – and the Federal Trade Commission quickly acted.
Rothbard addresses a particular case involving a Florida-based weight loss marketer. The online company was selling ingestibles that it claimed were safe, effective, and comparable in effect to gastric bypass surgery. It asserted users could lose over 100 lbs. in one year while eating whatever they liked. It boasted it was “scientifically proven to have a 90% success rate” even though, in truth, it had no clinical studies at all,” Rothbard revealed. Further, he said, “the marketer used extremely questionable methods to secure positive reviews through promises of discounts and the use of paid bloggers that were not revealed to be such.” Unfortunately, few things are ‘too good to be true’ to the most desperate individuals, and the company used inflated and outlandish statements to rake in approximately $20 million.
Rothbard concedes that these claims and underhanded promotion methods “may have been what caught the FTC’s eye initially,” but what made this company a prime target was its audacious tactic of preventing the sharing of negative feedback. “It sought to accomplish this,” Rothbard stated, “through the insertion of a “Gag Clause” in its hyperlinked terms that consumers were not warned about and unknowingly agreed to as a condition of sale.” Bad reviews or damaging blog posts that ‘negatively impacted’ the company or its products could see them threatened with legal action — as some actually were. A positive promotion discount that lowered the price of the product from $1580 to $480 was a doubled edged sword — any customer disparaging the company or item would immediately be charged the full amount. The FTC quickly responded and shut the company down. “The FTC is using its ‘unfairness authority’ to challenge the Gag Clause,” Rothbard explained. “[It is] alleging it is unfair because it caused substantial consumer injury that was not reasonably avoidable and not outweighed by countervailing benefits to consumers or competition.” While this argument is sparingly used by the Commission, William Rothbard believes judges will not be reluctant to use it in cases like this, adding: “If someone else would try attempt this, they will surely deserve and meet the same fate.”
William Rothbard has an over 30 year career in advertising law and served as an attorney with the Federal Trade Commission from 1977 and 1984. During that time, he served as Attorney-Advisor to then FTC Chairman Michael Pertschuk, as well as in several other positions within the agency. He later served as Counsel to the United States Senate Judiciary Committee. Rothbard’s expertise and credentials make him extremely well-qualified to counsel and represent clients in federal and state law enforcement matters involving advertising issues and to comment on current developments and matters of public interest in the field of advertising law and FTC regulation. A complete copy of Rothbard’s article is available to view at FTCAdLaw.com
William Rothbard — Federal Trade Commission (FTC) Suffers Setback on Controlled Clinical Trials: http://www.reuters.com/article/idUSnMKWs093qa+1c0+MKW20160322
William Rothbard – Explains Supreme Court’s Debate on Freezing Defendants’ Funds: http://finance.yahoo.com/news/william-rothbard-explains-supreme-courts-043544360.html