Read Between the Lines

In evaluating whether advertising is deceptive or not, blatant lies are relatively rare. More common are ads that are subtly misleading. The distinction between "subtly misleading" claims and legitimate puffery, however, can be difficult to define. For example, Donald McLemore, the vice president of advertising standards at New Hope Natural Media, commented, "Generally, the types of ads that end up on my desk and end up for review ... are ads that are subtly misleading. For example, just last month, we received an ad for a product that compared itself to three pharmaceutical drugs ... It was a dietary supplement that said it had the same effects as the pharmaceuticals without any side effects ... The advertiser said that, in fact, that product was FDA-approved and had been cleared by the FTC. And, they felt that we had no right to ask them to remove those claims. So, therefore, we lost about $50,000 worth of advertising for that particular ad."

Deceptive advertising allegations are particularly important in direct-to-consumer (DTC) advertising. For example, weight-loss products have been a particularly attractive target for scrutiny; given the numerous new obesity products in the pipeline (for example, Vivus' Qnexa, Arena's Lorcaserin, and Orexigen's Contrave), this trend should continue.

Prompted by adverse event concerns, the FTC initiated false advertising cases against three weight loss product manufacturers. Comparing these similar cases provides a unique insight into how to protect against false advertising liability, because the three defendants had similar products, similar advertising claims, and similar clinical substantiation for their advertising claims. But much like the houses of The Three Little Pigs—the results came to dramatically different ends.

The case against the first defendant was nothing if not effective: It forced the company into bankruptcy. Putting the best spin on the situation, the company's CEO explained, "Chapter 11 provides to [the company] a vehicle for resolving its past problems with the FTC ... We have made this difficult but necessary decision [to file for bankruptcy protection]."

The case against the second defendant was similarly effective: The FTC obtained a financial settlement not only from the company, but also from the corporate officers personally, collecting nearly $13 million in cash, a boat, a truck, a "real estate interest," and proceeds from a tax shelter, among other assets. The company was soon put on the block and sold off.

In contrast, the third defendant was able to settle its suit for a nominal payment—basically what it would have cost in legal fees to litigate the case. The FTC's rapid retreat against the third company is exceptional because the three defendants had similar products, advertising, and claim substantiation. What could make the same marketing campaign disastrous for two companies, while giving the third company little more than a slap on the wrist?