Reebok EasyTone Refund Poised to be a Nightmare

Athletic apparel companies like Nike, Reebok, and Adidas, have long been part of the sports business landscape.  Nearly every major professional and NCAA team has an exclusive apparel deal with one of the major outfitters.  Any athlete with a household name almost certainly has a endorsement deal with an athletic apparel company.  It’s all about advertising power.  But Reebok, may have gone too far in advertising their EasyTone training sneakers.  They recently agreed to a $25 million refund settlement with the FTC for their unsubstantiated “better way to a better butt” claim. The Legal Blitz spoke to two experts in advertising law to get perspective on what this settlement really means.

Jim Astrachan literally wrote the book on advertising law.  He and his firm, Astrachan Gunst Thomas Rubin, authored the six-volume treatise, The Law of Advertising, which is published by Matthew Bender Lexis/Nexis.  Astrachan also teaches at both the University of Maryland School of Law, and the University of Baltimore School of Law.

Michael Dershowitz served at the Federal Trade Commission (FTC) as a Senior Attorney for 30 years.  He now works for his own private practice, Michael Dershowitz Law, specializing in FTC and FDA regulations.  Recently Dershowitz served as Chief Compliance Officer with Seasilver USA, Inc., a major dietary supplement company that was operating under FTC order.

What did Reebok do wrong? What is the standard to determine when an advertisement qualifies as “false”?

Astrachan: It is wrong to create a message that is intended to have an affect on the buyer if that message misrepresents the qualities of your sneakers. Here, the sneakers were said to tone the butt; there was no evidence that this would happen from use. Therefore, the ad is false.

Dershowitz: The Reebok case is a classic false and misleading advertising case that attracted FTC attention and investigation. Reebok advertised nationwide in all media, in stores and on its shoe boxes. In addition to making general, health related claims about increased fitness and muscle tone benefits of its high priced “toning shoes,” Reebok also made very specific claims. It claimed that its footwear had been “proven” to lead to 28% more strength and tone in the buttock muscles, 11% more strength and tone in the hamstring muscles and in the calf muscles than regular walking shoes. The eye catching ads were primarily targeted to women and depicted very fit and attractive women explaining the shoes’ benefits. The ads also mentioned Reebok’s laboratory testing and “unique sole technology.”

FTC case law requires that advertisers must have a reasonable basis for making claims before they are disseminated. For health and safety claims, FTC requires a high level of substantiation, especially in a case like this where Reebok made very specific and “unique” claims and said it had laboratory tests which prove its claims were true. FTC alleged in its complaint that Reebok lacked adequate substantiation for its claims, that in fact, laboratory tests do not substantiate Reebok’s claims and therefore, its claims were false.

In the Reebok settlement filed on Sept. 28, 2011, FTC outlined the level of substantiation required. The company will need competent and reliable scientific evidence to support future claims that a product will strengthen muscles or result in a quantified percentage or amount of toning or strengthening. The FTC stated that such evidence means “at least one adequate and well-controlled human clinical study,” defined as one that is “randomized, controlled, blinded to the maximum extent practicable, of at least six weeks duration, uses an appropriate measurement tool (e.g., a dynamometer if measuring strength), and is conducted by persons qualified by training and experience to conduct and measure compliance with such a study.” For other health or fitness-related claims Reebok may wish to make in the future, including more general claims like increased “muscle tone and/or muscle activation,” FTC requires a different level of substantiation: “tests, analyses, research, or studies that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.”

Why do you think Reebok settled? Although they say it is not an admission of guilt, why not fight it?

Astrachan: Rebook had to have the bullets in its guns to fight the FTC. The evidence, at the time the claims ran, that the claims were true. Other advertisers may have lost sales to these claims, and Reebok could be responsible for those lost sales. If possible, always better to admit no liability. The real question is why should the FTC allow that if Reebok is culpable?

Dershowitz: I think Reebok settled for the same reasons most FTC defendants settle.  They probably did not have the level of substantiation the FTC requires and they did not want to make public whatever inadequate evidence they possess.  By settling, Reebok does not have to admit guilt, and can proclaim, as they did, that they do not agree with FTC, and that their consumers have benefited from wearing their shoes. Reebok pulled its ads midway through the FTC investigation, indicating it wanted to move on as quickly as possible and obtain some certainty about the total amount of consumer redress it would have to pay.

The agreed amount of $25 million in refunds is significant.  It signals a new day at the FTC and demonstrates a cracking down on national advertisers who make egregious claims.  It is also true that Reebok faced expensive litigation costs, not only in conjunction with FTC enforcement, but with other private, class action lawsuits filed against it.  Reebok can now cut costs by settling those other actions and consolidating them with the FTC redress settlement.

How scientific do these claims need to be?  Are lab tests required?

Astrachan: In this case I would say that some scientific, independent basis for substantiation should have existed. Even if it was use and measurement on an appreciable number of people assuming the result is consistent. In this arena, the FTC has been clamping down, however, in claims based on actual use and requiring advertisers to say not only “results may vary” but to truly provide what might be expected.

What about advertisements that involve subjective claims, such as a cologne will make you smell better?  Are these ever considered false advertising claims?

Astrachan: Not if the claim is not capable of measurement, or if they are not instrumental to the buying decision. These claims are called “subjective superlatives.” Consumers over look them.

Dershowitz: That’s a good question.  Although actionable, subjective advertising claims receive little if any scrutiny, as a matter of FTC policy. Objective claims, on the other hand, are challenged under the law because consumers are usually in no position to evaluate the truthfulness of such claims on their own.  Liability for making accurate, non-deceptive claims falls on the advertiser, whose interest is in selling a product.  It is the advertiser’s responsibility to assume the cost of verifying a claim’s accuracy.  As for subjective claims, a consumer can evaluate them on their own, through their sense of sight, smell, taste, touch, or hearing. If a product doesn’t live up to subjective claims made for it, a consumer can determine that for themselves and decide not to purchase it again.

What does this settlement with Reebok mean for other companies like Sketchers who make toning shoes?

Dershowitz: It means that other shoe companies making claims like Reebok’s claims do so at their great peril. In fact, Sketchers has reported that it is currently under FTC investigation.  Moreover, it means that any national advertiser who makes a false and misleading health or safety claim faces stiff costs.  Recent cases against food advertisers and dietary supplement manufacturers have resulted in consumer redress of millions of dollars.  But the $25 million in redress in this case is the largest in recent memory for a false advertising case and should serve as intended – as an effective deterrent to others.  No longer will it be enough for companies to simply stop running offending ads. This case also indicates FTC is taking a harder line on what constitutes adequate substantiation.  The requirements in this case are delineated and are tougher.  And in other recent cases, FTC has required strict prescription drug type pre-approval of substantiation by the Food and Drug Administration, where appropriate.

Does the FTC bring these lawsuits, or are they brought by consumers?

Astrachan: Under the Lanham Act, the suit must be brought by a competitor. The FTC brings actions under the FTC Act. And some state consumer statutes allow a consumer to sue, and often they do…sometimes in a class.

Dershowitz: FTC, an independent agency of the US government, is empowered by law to bring lawsuits on behalf of consumers.  One of FTC’s missions is to prevent fraudulent, deceptive, and unfair business practices and to provide information to consumers to help spot, stop, and avoid them.  FTC monitors advertising nationwide, through its headquarters staff in Washington, DC and its staff in regional offices throughout the country.  It also receives and reviews complaints from consumers.

Don’t sneaker ads almost always imply that you will be able to run faster or jump higher? Isn’t that unsubstantiated or false advertising?

Astrachan: I don’t know what the ads claim, but this would be capable of measurement and thus not a subjective claim.

Dershowitz: That’s probably true. FTC looks at both express and implied claims to determine whether an ad is deceptive or false.  Under the law, advertisers must have proof to back up all express and implied claims that consumers reasonably take from an ad. As stated before, however, FTC gives closest scrutiny to health and safety claims, and next to ads that make claims that consumers would have trouble evaluating for themselves (e.g., ABC refrigerators reduce your energy costs, or ABC gasoline decreases engine wear.)

Ads for sneakers that don’t make health claims, but only product performance claims which are not quantitative, such as you can run faster or jump higher, are more like subjective claims discussed earlier, in that a consumer can evaluate the product for themselves to determine whether the claim is true or not.  Thus, claims like these receive little, if any, attention from FTC, and any attendant consumer injury is deemed minor.

Do refunds of this magnitude happen often?

Astrachan: No. It’s a nightmare for a variety of reasons; money, culture and reputation.

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