Legal Review: Sometimes, a Second Strike Means You're Out!1 Nov, 2008 By: Jeffrey D. Knowles, Venable LLP’s Advertising, Response Contributor Response
A federal judge recently found Kevin Trudeau in contempt because Trudeau had misrepresented the contents of his book, The Weight Loss Cure "They" Don't Want You to Know About. It's like déjà vu all over again — all over again.
Gary D. Hailey
In November 2007, we reported that the Federal Trade Commission (FTC) had filed a complaint alleging that Trudeau had violated a 2004 injunction issued as a result of his "Coral Calcium Supreme" infomercial. The injunction not only prohibited him from making deceptive claims in future infomercials but also banned Trudeau from "producing, disseminating, making or assisting others in making any representation in an infomercial." There was one narrow exception to this broad infomercial ban — Trudeau was allowed to make infomercials for books and other publications as long as he didn't misrepresent the contents of any such publication.
A federal judge agreed with the FTC that Trudeau had done just that. Trudeau raised the "Mirror Image Doctrine" as a defense, but the judge rejected that argument because that doctrine clearly didn't apply given the facts of this case. (Those who don't like the Mirror Image Doctrine — which provides that the agency will ordinarily not proceed against advertising claims that promote the sale of books and other publications if certain conditions are met — will likely read more into his discussion than is really there.)
Infomercial Ban Expanded
This summer, the judge held a hearing on the issue of what remedy was appropriate to address Trudeau's wrongdoing. The FTC wanted Trudeau to be ordered to refund every penny the purchasers of the weight-loss book had paid, plus shipping and handling — more than $46 million. Alternatively, the FTC sought to force Trudeau to disgorge what it estimated to be his profits — not quite $7 million.
Jeffrey D. Knowles
Trudeau claimed that he didn't have enough money to pay any significant monetary award. "To support his claim of poverty," the judge wrote, "Trudeau presented his tax consultant and a balance sheet that is not worth the paper it is written on." Come on, your honor — tell us what you really think!
He considered ordering Trudeau to offer refunds to all his purchasers on an "opt-in" basis, but decided that it would be too expensive to give individual notices to each purchaser. So he ordered Trudeau to write a check for a little more than $5 million, which represented the royalties Trudeau received from the sale of the book.
Based upon Trudeau's "sorry history" with the FTC and the court, the judge also banned him from producing, broadcasting or participating in the production or dissemination of infomercials for any products — including books and publications — for a period of three years. (As Admiral Farragut might have said if he were a federal judge faced with Kevin Trudeau, "Damn the First Amendment — full speed ahead!")
Repeat Offenders Draw Wrath
The FTC often seeks bans on those who violate injunctions. An initial order routinely prohibits deceptive advertising or other illegal practices but allows the defendant to continue conducting business. But if you fail to change your evil ways and violate such an order, there's a good chance the FTC will seek a ban against you.
For example, the FTC recently went to court against the marketers of the "Peel Away the Pounds" weight-loss patch. The marketers had signed a consent injunction in 2004 to settle charges that their weight-loss claims were deceptive. According to the agency, the defendants violated that order by selling the patches — along with brochures that made the prohibited claims — to a third party for resale overseas. The repeat offenders agreed to a permanent ban on engaging in (or assisting others to engage in) the advertising, sale or distribution of any transdermal weight-loss product.
The moral of the story? When it comes to FTC orders, you don't necessarily get three strikes — sometimes, it's two strikes and you're out.
Gary D. Hailey and Jeffrey D. Knowles are partners at Washington, D.C.-based Venable. They specialize in advertising and marketing law and can be reached at (202) 344-4000.