Comparing FTC Treatment of Small Businesses vs. Large Corporations4 Oct, 2011 By: Cathy Polisoto, Jeffrey Richter
Ever wonder whether the little guy fares better than a large, well-known corporation as a Federal Trade Commission (FTC) defendant? Several recent settlements suggest that the FTC treats small businesses and blue-chip corporations similarly.
The FTC recently entered into a final settlement requiring Beiersdorf Inc. to stop claiming that use of its Nivea My Silhouette! skin cream can significantly reduce body size. Beiersdorf marketed the skin cream in national television advertisements and via sponsored Google search results.
Concurrently, the FTC is awaiting public comments on two proposed consent agreements with separate marketers – Koby Brown and Gregory W. Pearson (d.b.a., DermApps), and Andrew N. Finkel – each of whom advertised that their mobile applications could treat acne with colored lights emitted from smartphones.
The FTC imposed on respondents Brown and Finkel significant penalties of 62 percent and 52 percent of gross sales, respectively. Although the penalty of $900,000 payable by Beiersdorf dwarfs those payable by respondents Brown and Finkel in absolute terms, it is not known what percentage of gross proceeds the $900,000 represents. For an equivalent penalty, gross sales for Nivea would be approximately $1.8 million.
All three settlements share the following material terms, among others:
• The term of recordkeeping obligations regarding advertisements, promotional materials, and substantiation is five years.
• Respondents Brown and Finkel are prohibited from claiming that their products or any other device provide effective treatment for acne, and Beiersdorf is prohibited from claiming that any drug, dietary supplement, or cosmetic causes weight or fat loss or a reduction in body size, unless (with respect to both settlements) such claims are non-misleading and substantiated by competent and reliable scientific evidence.
• Respondents Brown and Finkel are prohibited from making any misleading representation about the safety, benefits, performance, or efficacy of any device, and Beiersdorf is prohibited from making any misleading representation about the health benefits of any drug, dietary supplement, or cosmetic.
• Beiersdorf and its successors must notify the FTC at least 30 days prior to any change in the corporation, including, but not limited to, dissolution, assignment, merger, acquisition, or bankruptcy, that may affect compliance obligations under the Order. Brown and Finkel must notify the FTC at least 30 days prior to creating, or assuming any ownership interest in, any corporation that may affect compliance obligations under the Order and must further notify the FTC of any change in such corporation.
The settlements with Brown, Pearson, and Finkel require them, for a period of five years from the date of issuance of the Order, to notify the FTC at least 30 days prior to the discontinuance of their current business or employment, or of their affiliation with any new business or employment.
If the settlements with Brown, Pearson, and Finkel are representative of most FTC settlements with small businesses, small businesses should not assume that they are below the FTC’s radar or that the FTC will accord them more lenient treatment than their large corporate counterparts.