The High Risk Game of False Advertising

In today’s ultra-competitive market economy, businesses are not only encouraged to aggressively compete for market share, but must do so if they are going to survive and prosper in the market place. In the pursuit of economic dominance, manufacturers are sometimes tempted to make unfounded product claims to achieve supremacy in a market industry. Ironically, making unfounded claims of product superiority and performance may result in market dominance, but in many instances can be financially devastating to the manufacturer. Particularly in recent years, regulators, courts and lawmakers have been cracking down on false and deceptive product advertising. Such is the case with the popular diet supplement, Hydroxycut.

Hydroxycut has been embroiled in a series of legal battles for the past three years. In the late 2000’s, Hydroxycut enjoyed a whopping 90% of the weight loss supplement market share, selling approximately one million bottles of the product per year. However, in 2009, the FDA issued a recall of Hydroxycut products based on twenty three reports that the weight loss supplement caused serious liver problems, which at that time included one death and at least five instances of liver transplants potentially linked to its use. Following the FDA recall, a string of individual and consumer protection class action lawsuits were filed. On January 16, 2012, Hydroxycut’s manufacturer, Iovate Health Sciences, reached a $1.5 million settlement for claims of dangerous and deceptive business practices in a lawsuit brought by the district attorneys of California’s Santa Clara, Santa Cruz, Napa, Alameda, Marin, Monterey, Orange, Shasta, Solano and Sonoma Counties.

Most recently, on November 2, 2012, Iovate Health Sciences agreed to a $25.3 million settlement to resolve a false advertising class action lawsuit which alleged that the popular diet pills were deceptively advertised as safe and effective for use as a weight loss supplement. The settlement does not include plaintiffs who are seeking compensation due to injury or death. The class action lawsuit for deceptive practices alleged that Hydroxycut’s manufacturer and its parent company, Kerr Investment Holding Corp., along with several retailers including Wal-Mart, Vitamin Shoppe, Walgreens and CVS, falsely marketed Hydroxycut as a “clinically proven” safe and effective treatment for weight loss without disclosing the fact that there was absolutely no scientific evidence to support such claims.

Responsibility for false claims in advertising ultimately rests with product manufacturers and others who place such products in the stream of commerce. Though sensational advertising and product marketing campaigns may be initially attractive for potential financial gain, over time, false or deceptive advertising will be a costly liability. Such risks can be avoided by ensuring that all product claims are truthfully stated and backed with appropriate research and scientific evidence. Product manufacturers, sellers and distributors must perform their due diligence to ensure that the product is in compliance with all federal and state regulations, and that all product performance claims are tested and verified prior to engaging in a product marketing campaign to minimize the threat of potential litigation arising from false or deceptive advertising.

In our competitive market economy, businesses are not only encouraged but compete in pursuit of their own self-interests — making a profit. But what if a business does not compete fairly? What if it lies or cheats? Some argue that in the long run the market will punish the dishonest business. People will eventually discover its tactics and fewer people will buy from it.