SENSA Settles Another False Advertising Lawsuit4 Dec, 2012 By: Linda A. Goldstein
Intelligent Beauty Inc., makers of the SENSA “sprinkle diet” have agreed to a settlement with nine district attorneys in California to settle charges that certain of the advertising claims made regarding the efficacy of the product were false and unsubstantiated. This settlement comes a few months after SENSA also agreed to settle a $9 million class action case, which included up to $6 million in refund payments to consumers.
Under the terms of this new settlement, which contains no admission of liability, SENSA agreed to pay nearly $900,000 in civil penalties and costs and to refrain from making claims regarding the efficacy or effect of its products without having competent and reliable scientific evidence that substantiates those claims. The settlement also prohibits the company from charging consumers for shipments sent after cancellation requests were made or from enrolling consumers in a continuity program without properly disclosing all of the material terms and conditions.
The case is noteworthy not only because it involves a high profile and highly successful product, but also because it illustrates a growing threat of enforcement from yet another branch of government. Direct response marketers are quite familiar with the threat of regulatory enforcement by the Federal Trade Commission (FTC) and the exponential rise of class action litigation targeted specifically at direct response products. Marketers should be aware, however, that unsubstantiated advertising and marketing claims can and increasingly have been challenged by district attorneys throughout the country.
The DAs in these particular counties have been particularly aggressive in bringing actions involving direct response products and have been particularly focused on nutraceutical, weight-loss and cosmetic products. In addition, unlike the FTC – which does not have the authority to impose penalties for alleged false advertising claims unless the advertiser is under a prior order or the violations involve a trade regulation rule – district attorneys do have the authority to seek civil penalties, and the amounts of those penalties that are assessed on a per-violation basis can be substantial. Indeed, in our experience in dealing with enforcement agencies, the demand for penalties is often equal to or greater than the demand for consumer restitution.
So what lessons does this case hold for marketers? First, it is a stark reminder that the potential avenues of attack are increasing and, just like state attorneys general often band together to form a multistate group, we are seeing a definite increase in multi-district attorney actions. For the moment, the trend seems to be limited to California, but as district attorneys in other states begin to see the amounts of these settlements, it would not be surprising to see similar actions in other states. Marketers should also be aware that while the jurisdiction of the district attorneys is limited to residents of their districts, if you are a company located in one of these districts, the DA will claim jurisdiction with respect to all of your sales.
Secondly, this case highlights the importance of thinking about all potential avenues of challenge when structuring any settlement. Whether you are settling a class action, an FTC action or a state attorney general action, it is increasingly important to endeavor to structure your settlement in a manner that is most likely to minimize the potential for follow-on litigation and further exposure. There are certain creative measures that can be taken to accomplish those goals but that requires careful and strategic planning in the structuring of the settlement.
Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips, LLP, based in the firm’s New York office. She can be reached at [email protected].