August 1997 Advertising Law News

PLAINTIFFS CITE ADVERTISING IN LAWSUIT AGAINST TOBACCO COMPANIES

In an ongoing class action lawsuit against tobacco companies, Plaintiffs cited tobacco companies' advertising practices to support their position.

The plaintiffs in this case are six individuals who sought certification of the following class:

The defendants in this class action litigation are:

The American Tobacco Company, Inc., R. J. Reynolds Tobacco Company, RJR Nabisco, Inc., Brown & Williamson Tobacco Corporation, Philip Morris, Inc., Philip Morris Companies, Inc., Lorillard Tobacco Company, Inc., Lorillard, Inc., United States Tobacco Company, The Tobacco Institute, Inc., The Council for Tobacco Research-U.S.A., Inc., Liggett Group, Inc., Liggett & Myers, Inc. and Brooke Group, Ltd.

For a variety of reasons, the U.S. District Court for the Eastern District of Pennsylvania granted Plaintiff's Motion for Certification of Medical Monitoring Class Pursuant to Fed. R. Civ. P. 23(b)(2).

One of the arguments made by the Plaintiffs to support its motion involved cigarette advertising. The district court described that argument as follows:

This case illustrates, once again, the ever-increasing tendency of plaintiffs to cite advertising and marketing reasons to bolster their positions in lawsuits against companies. While the current trend is for plaintiffs to do this in the cigarette/tobacco area, it is only a matter of time before this same rationale becomes common in lawsuits involving other products.

(William Barnes, et al. v. The American Tobacco Company, Inc., et al., Civil Action No. 96-5903, United States District Court for the Eastern District of Pennsylvania, 1997 U.S. Dist. LEXIS 12814, August 22, 1997.)

FTC TARGETS ALLEGED COUPON FRAUD ON INTERNET

FTC joined with the Coupon Information Center (CIC) in announcing that they've identified 31 Internet ads for potentially fraudulent coupon-related schemes and sent the advertisers e-mail messages warning about the consequences of running such schemes.

According to FTC, the targeted sites generally advertise one of two programs: a business opportunity where the investor sells coupon certificate booklets to consumers for $20 to $50 each; and a work-at-home coupon clipping scam. The problem with these "opportunities" is that the promoters may violate federal law by making exaggerated earnings claims, when they are the only ones who make any money, FTC said. Investigators from FTC partnered with industry members of the CIC, a nonprofit entity that combats coupon fraud, to conduct the coupon Internet "Surf Day" last week. The effort, FTC officials said, is part of a larger campaign to police fraud on the Internet.

"Surf Day lets us use the Internet to warn potential scammers who would destroy its marketplace credibility," said Jodie Bernstein, Director of FTC's Bureau of Consumer Protection. "While fraud artists might try to take advantage of the Internet to perpetrate a fraud very quickly, the Internet also makes them susceptible to very quick and sure detection." FTC has conducted Surf Days targeting other types of scams as well, including pyramid schemes, credit repair schemes and other business opportunity schemes. Bernstein said she could not confirm or deny whether FTC or other law enforcement agencies would investigate the coupon sites identified in this sweep, but noted that companies and individuals acting in violation of federal laws against false and misleading claims can be sued in federal district court; in such instances, FTC seeks a permanent injunction barring the defendants from making challenged claims and an order requiring them to pay redress to victimized consumers.

FTC has brought more than two dozen cases in recent years challenging advertising on the Internet. "The people who can least afford it are hurt the most by coupon-related scams," said Bud Miller, Operations Manager at the Coupon Information Center. "I have received phone calls from people trying to work at home and raise children, retirees, individuals with limited income opportunities, entrepreneurs trying to create a new company, and charity groups. They find that these situations can be as costly to their reputations as to their finances. Of course, consumers often find that they have paid for complicated forms, usually entailing difficult procedures and handling fees to receive coupons that end up gather dust in their junk drawers."

([FTC Targets Alleged Coupon Fraud on Internet], August 26, 1997.)

EYE CARE TREATMENT ADS ARE FALSE AND DECEPTIVE: FTC

PCM ortho-k is an eye care service purporting to eliminate dependence on eyeglasses and contact lenses. It's marketed as a non-surgical alternative to surgical eye procedures such as laser PRK (photorefractive keratectomy) and RK (radial keratotomy).

According to FTC, J. Mason Hurt, O.D., falsely claimed PCM ortho-k can cure vision deficiencies permanently. The settlement would bar Hurt from making false claims and would require reliable scientific evidence for success or efficacy claims.

PCM ortho-k uses a series of contact lenses purportedly to reshape the cornea gradually to correct nearsightedness, farsightedness, and astigmatism. Four academic studies published in the late 1970's and early 1980's examined questions of whether contact lenses could be used to reshape the cornea and lessen or eliminate the need for corrective eyewear. These studies found only a very small decrease in nearsightedness that would not eliminate the need for eyewear for most patients. Further, the reduction is only temporary because the cornea tends to regain its original shape upon lens removal.

According to FTC, Hurt and his corporations, Mid-South PCM Group, P.C., Eye and Vision Clinic, P.C., and the International Computerized Orthokeratology Society, Inc., promote their eye treatment through the use of Internet, print, radio and TV ads; free consultations; videos; brochures; and pamphlets, which are provided directly to consumers and to other optometrists across the country. Hurt also sells the right to promote and perform PCM ortho-k through "training seminars" where optometrists are trained to perform the procedure. FTC's complaint charges that Hurt made false and misleading claims that:

PCM ortho-k provides a cure for any refractive vision deficiency and can permanently eliminate the need for glasses and contact lenses.

Studies at the University of Houston College of Optometry, University of California at San Diego Medical School, University of California at Berkeley College of Optometry, and Pacific University College of Optometry prove that PCM ortho-k is safe and effective in correcting nearsightedness, farsightedness, and astigmatism.

Testimonials from consumers appearing in the ads reflect the typical or ordinary experience of members of the public.

Those who receive the services achieve 20/20 vision and no longer need corrective eyewear.

The complaint also alleges that Hurt made unsubstantiated claims that:

1. a significant number of people can achieve normal vision without eyeglasses or contact lenses on a permanent basis if they wear PCM ortho-k devices occasionally or at night;

2. all or most people will experience stabilized vision after only a few weeks or months of PCM ortho-k treatments;

3. PCM ortho-k prevents and reverses deteriorating nearsightedness in children;

4. PCM ortho-k is safer than contact lenswear;

5. PCM ortho-k is more effective than refractive surgical methods in eliminating nearsightedness, farsightedness, and all forms of astigmatism; and

6. PCM ortho-k has helped thousands of people achieve normal vision.

To settle the charges, Hurt would be barred from claiming that PCM ortho-k or any substantially similar service provides a cure for vision deficiencies; that all people can achieve normal vision without eyeglasses or contact lenses on a permanent basis if they wear devices used with such services occasionally or at night; that the four academic studies prove PCM ortho-k is safe and effective in correcting nearsightedness, farsightedness, and astigmatism; and that PCM ortho-k has been approved by FAA and all branches of the military.

Also, the settlement would require, for PCM or any substantially similar service, that Hurt possess and rely upon reliable scientific evidence for claims about:

the number of people who can achieve normal vision without eyeglasses or contact lenses on a permanent basis if they wear devices used with such service occasionally or at night;

the number of people who will experience stabilized vision after only a few weeks or months of treatments under such service; the ability of such service to prevent or reverse deteriorating nearsightedness in children;

the comparative safety of such service and contact lens wear;

the comparative effectiveness of such service and refractive surgical methods in eliminating nearsightedness, farsightedness, or any form of astigmatism; and the number of people whom such service has helped achieve normal vision.

The settlement also would bar Hurt from representing that his treatment is endorsed by any governmental or professional entity unless it is true or from using any testimonial of a typical experience unless either: it is true and substantiated or is accompanied by a disclosure that describes what results program participants could expect or states that consumers should not expect to achieve similar results. The settlement also bars any misrepresentations of study results.

FTC staff members also have been working with the Food and Drug Administration (FDA) on questions raised by Hurt's use of contact lenses for reshaping the cornea. FDA issued a letter to Hurt et al. warning that the contact lenses (or "molds") used for overnight wear in the Precise Corneal Molding (PCM) procedure have not been approved as safe and effective for commercial use. The investigation of Hurt and his corporations was conducted with the assistance of the offices of the Attorneys General of several states which are conducting investigations into the promotion of ortho-k.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

(J. Mason Hurt, O.D., FTC File No. 962-3279, August 21, 1997.)

MARKETERS OF ADVERTISING BUSINESS OPPORTUNITY ARE SUBJECT OF FTC CASE

A federal district court in St. Louis, Missouri, issued an order banning Joseph and Thelma Hayes and Automated Guest Directories, Inc. from marketing or helping others to market any business venture in the future. The default order was issued after the defendants failed to respond to FTC charges that they used deceptive claims in marketing their business opportunity, which involved the sale of advertising on directory boards placed in hotel lobbies. The individual defendants did business under the name Retail Sales & Marketing, and offered their business opportunities for $30,000. FTC charged that these defendants -- and additional defendants Allan O'Hearn and Ann Fox -- made false earnings claims and false representations about the location assistance that would be provided to consumers who purchased the business in placing their directories. FTC previously reached settlements with O'Hearn and Fox under which they're barred from engaging in similar allegedly deceptive practices.

The settlements with Fox and O'Hearn were filed in U.S. District Court for the Eastern District of Missouri, in St. Louis.

NOTE: A consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

The same court issued the default judgment against the other defendants on August 18, 1997.

(Automated Guest Directories, Inc., FTC File No. X970003) (Civil Action No. 4:96CV02162 SNL, August 28, 1997.)

COURT HALTS ALLEGED BUSINESS OPPORTUNITY SCAM AFTER FTC CHARGES

FTC charged seven individuals and four corporations--collectively called the Urso Group--that ran a display-rack business opportunity for greeting cards and perfumes with engaging in a host of deceptive practices in violation of the FTC Act, among other charges.

According to FTC, the defendants misrepresented to prospective investors the earnings potential and the availability of profitable locations for their business opportunities. Also, FTC alleges, the defendants used phony references to show success for their business opportunities and used a sham better business bureau to purportedly add credibility to their business. A federal district court has ordered a temporary halt to the allegedly deceptive practices pending the outcome of the case.

At the FTC's request, the court also has frozen the defendants' assets to preserve funds for possible redress, and appointed a receiver to manage the defendants' business operations.

According to FTC's complaint, defendants advertised their profitable business opportunities or "distributorships" in newspapers and on radio stations across the U.S. When consumers called the phone number listed in the ads, FTC charged, telemarketers for the corporate defendants would entice the consumers to invest in the business opportunity by making many false statements as to the amount of money they could reasonably expect to earn.

The complaint was filed under seal in the U.S. District Court for the Southern District of Florida, in Miami, on August 19, 1997. The seal was lifted on August 21, 1997. The Florida Office of Comptroller, the Florida Division of Consumer Services, the Offices of Florida and Kentucky Attorneys General, the Council of Better Business Bureaus, Inc. and the Better Business Bureau of South Florida, Inc., assisted FTC with this investigation.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The case will be decided by the court.

(Raymond M. Urso, et al., FTC File No. 962-3259, Civil Action No. 97-2680 CIV-UNGARO-BENAGES, August 27, 1997.)

INTERNET MATERIALS: Materials relating to these FTC matters are available on the Internet at FTC's World Wide Web site at: http://www.ftc.gov.

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