FTC SETTLEMENT WITH AD AGENCY MARKETING ARCHITECTS: “SHARED LIABILITY” IS ALIVE AND WELL

FTC SETTLEMENT WITH AD AGENCY MARKETING ARCHITECTS: “SHARED LIABILITY” IS ALIVE AND WELL

By D. John Hendrickson

In a wake-up call to advertising agencies, the Federal Trade Commission and ad agency Marketing Architects, Inc. have entered into a settlement requiring the ad agency to pay $2 million to the FTC and the State of Maine Attorney General’s Office for its role in creating allegedly false and deceptive radio ads for weight-loss products on behalf of its client, Direct Alternatives.

There is well-established precedent for the proposition that any party engaged in the creation or dissemination of false and deceptive advertising can be held responsible for its conduct under Section 5 of the FTC Act.  Known as “shared liability” or the “dandelion theory,” liability for such claims can run downstream from the marketer itself to the ad agency, producer, talent and others, and can even reach through the “corporate veil” of an entity to include the principals of that entity as responsible parties.

In the case of Marketing Architects, the FTC alleged that the ad agency had previously been involved in creating deceptive weight loss campaigns for another marketer of weight loss products, Sensa Products LLC (Sensa having been required to pay $26.5 million to settle FTC charges of false and deceptive advertising), and that the agency had also been notified by Direct Alternatives that certain of the weight-loss claims in the ads required scientific evidence to support them.

Further, the FTC alleged that Marketing Architects created fake weight-loss testimonials and also failed to adequately disclose the terms of the negative option component of the product offer in its inbound telemarketing scripts.

Among other things, the consent order prohibits Marketing Architects from making any of the following “gut check” weight-loss claims generally held by the FTC to be false with respect to any dietary supplement, OTC drug, topical product or patch:

  • That it causes weight loss of two pounds or more a week for a month or more without dieting or exercise;
  • That it causes substantial weight loss no matter what or how much the consumer eats;
  • That it causes permanent weight loss even after the consumer stops using the product;
  • That it blocks absorption of fat or calories to enable consumers to lose substantial weight;
  • That it safely enables consumers to lose more than three pounds per week for more than four weeks;
  • That it causes substantial weight loss for all users; or
  • That it causes substantial weight loss by wearing it on the body or rubbing it into the skin.

The consent order also includes compliance reporting requirements extending for a period of 10 years post-settlement and disclosure requirements extending for 20 years.

While the facts in this case may seem somewhat extreme, the exposure to ad agencies is real.  And it is important to keep in mind that any allocation of legal liability for advertising claims contained in the agency services agreement is not binding on the FTC or any other regulator.  Both the advertiser and its ad agency are potentially liable for false and deceptive claims.  The net takeaway?  Make sure that all advertising materials are properly vetted before they are released for use, regardless of who provided the claims.