Consumer News

Penalties that Pack a Pinch

Are FTC settlements just a cost of doing business?

Consumer News

Penalties that Pack a Pinch

By Miriam Kelliher
Contributing Writer

A settlement in the millions with a company making false claims about its products sounds high when touted by the Federal government agency charged with enforcing various consumer protection laws and overseeing identity-theft related matters. Information on the FTC’s identity theft programs can be found at www.ftc.gov/idtheft.. But compare the dollar amounts of some of these FTC consent orders to the revenue figures of the bad actors in question, and the settlements go from looking like a wallop to a minor cost of doing business.

How penalties are tabulated

Congress has never given the FTC the authority to levy fines or bring Punishment for violating criminal laws. against companies engaged in deceptive marketing. As a result, the most that the FTC can demand of a company at trial is a permanent A court order that requires a person or company to do a particular act or to refrain from doing a particular act. Example? A court order prohibiting a company from using an ad that’s been deemed deceptive. prohibiting it from engaging in false advertising, and other A remedy imposed by a judge, rather than a specific law, in order to correct a “wrong.” such as The forced giving up of profits that were wrongfully obtained. of the wrongfully obtained funds or forfeiture of the profits from the fraud. However, the number of cases that the agency actually pursues in court is quite limited. Factors such as the cost and time commitment of a trial, and the risk of losing the case more often than not seem to sway the FTC to settle cases with companies engaged in deceptive marketing schemes.

But is the FTC settling for too little with companies that made millions or even billions based on their deceptive advertising?

A sample of FTC settlements reveals that the amount of money paid by companies charged with deceptive advertising when compared to their revenues appears to be small potatoes.Google

The cost of invading privacy

In 2012, the FTC settled with Google over allegations that the Internet giant violated its stated privacy policy, and an earlier An order that has been agreed to by both parties to a legal dispute., when it placed unwanted advertising tracking on Safari users’ browsers that could collect data for target marketing for several months in 2011 and 2012. The FTC said the amount represented the largest penalty ever obtained for a violation of a commission order.

Company revenues for 2012?  $52 billion

Settlement amount?  $22.5 million

Outraged privacy advocates and a dissenting FTC commissioner argued that the penalty was “de minimis” given Google’s assets. Consumer Watchdog said an independent analysis calculated the appropriate statutory penalty to be $8 billion.

rice krispies

Cereal offender

In 2009, the FTC brought Kellogg’s to the woodshed charging it with unsubstantiated claims that Frosted Mini-Wheats improved children’s attentiveness by nearly 20%. Within the year, the agency went after the company again charging it with falsely stating that Rice Krispies enhanced the immune system. The FTC said that Kellogg’s was developing this questionable Rice Krispies campaign while it was simultaneously negotiating with the agency over the Mini-Wheat allegations of deceptive marketing. In 2010, the FTC announced Kellogg’s had agreed to an expanded order prohibiting the company from making any more claims about the health benefits of its food products unless the claims are backed up by scientific evidence.

Kellogg’s revenue for the year in question?  Nearly $13 billion

Penalty?  $0.

That’s right. There was no monetary sanction at all, just a strongly worded consent order forbidding Kellogg’s from making similar false claims in the future.

Kellogg’s later settled private class action suits over the Frosted Mini-Wheats and Rice Krispies claims for $4 and $5 million, respectively. Maybe the threat of private litigation will keep this cereal offender honest in the future.

One a day

Bayer-ly punished

In 2007, the FTC alleged that pharmaceutical company Bayer violated a 1991 consent order requiring that all benefits of brand products be substantiated by scientific evidence when it falsely marketed over the course of four years One-A-Day WeightSmart vitamins as a weight-loss remedy.

Company revenues for the four years?  About $139 billion

Settlement amount?  $3.2 million

Iovate

Nothing to sneeze at

In 2010, the FTC reached a settlement with Iovate Health Sciences U.S.A. and two affiliated Canadian companies over charges it deceptively advertised that its supplements could help consumers lose weight or treat and prevent colds. The supplements included Cold MD, Germ MD, and Allergy MD.

Revenue of products in question?  $27 million

Settlement?  $5.5 million.

Until the FTC starts taking more companies to trial and stops settling for so little, deceptive marketing will continue to just be a cost of doing business for many companies pocketing revenues off the backs of misled consumers.


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