The defendants do relatively well here by
selling scammy and deceptive books. To the extent that the deception is
contained in the books, they get to advertise the contents of those books, but
when they make claims beyond those contained in the books, the FTC can stop the
marketing. The incentives for the defendants’ book-writing—which is pretty
clearly parasitical on their marketing—are not good. That said, I’m not sure I see a safer rule.
Defendants Agora and NewMarket are publishing
entities under the umbrella of M&C, which owns more than eighty separate
entities.
NewMarket’s ads for its book The Doctor’s
Secret to REVERSING Diabetes in 28 Days had a Dr. Gerhauser promoting it for
treatment of Type 2 Diabetes without pharmaceuticals. His representations
included: “[A]fter 37 years in practice, I recently discovered a simple,
at-home treatment for Type 2 diabetes. And no, it has nothing to do with diet
or exercise. It doesn’t involve a single drug either. Yet this new treatment is
scientifically proven to reverse every symptom of your diabetes in 28 days.” Other
parts of the ad: “World famous doctor and diabetes expert, Dr. Richard
Gerhauser, just made a shocking announcement. He said ‘Type II Diabetes is not
caused by what you eat.’ ” “Shocking study shows 100% cure rate.” “It has
nothing to do with changing your diet or exercising more.” “Can this new
treatment really reverse Type II Diabetes in 28 days? Without diet, exercise,
or a single drug? Sure, it sounds impossible…But according to a new study
from the University of Kansas, it’s true…” “How to Reverse Diabetes Without
Dieting.”
The actual guide has eleven modules, one of
which ontains dietary recommendations,
including that protocol followers “[e]at a seasonal, low-carb, organic diet
with plenty of seafood,” and engage in intermittent fasting. The book initially
sold for $150, then $250.
As for Agora, it developed the idea of using
“Congressional Checks” as a metaphor for the anticipated tax-advantaged
treatment of certain pass-through dividend income that would result from the
2017 Tax Cuts and Jobs Act (“TCJA”) passed by the Republican Congress in 2017.
At least one news article had suggested that the real estate tax breaks in the
TCJA would personally benefit some Republican lawmakers. The resulting book, Congress’
Secret $1.17 Trillion Giveaway, “identifies 13 companies with high yield
potential.” It was given to those who
signed up for a free trial of Agora’s financial newsletter, which cost $99/year
if they didn’t cancel.
It was promoted with ads including the
claims: “In case you haven’t heard yet,
a small group of in-the-know Americans are now collecting ‘Congressional
Checks’ of up to $6,235 each. In fact, there is $ 1.17 Trillion at stake thanks
to section 199A of Trump’s new tax law. And if you follow the instructions on
the next page, you could add your name to the list, too. But if you do not act
by the October 18th deadline, you will miss out on the next check, and…your
money will be sent to somebody else…To prevent your check from being sent to
someone else, you must get on the list for the next ‘Congressional Check’ by
Thursday, October 18.” “[T]he law dictates that this pile of cash MUST be
distributed! That’s not a question of if…It’s the law! These cash
distributions are contractually required by the U.S. government…So if you
don’t collect someone else will.” “You just need to add your name to the list
of check payees before October 18th.” “As a taxpayer, nobody deserves this
money more than you. Remember, this is wide open to the public. There’s no
income requirement. No age limit.” “Again, you could potentially collect a 6k
check for doing nothing except applying what was perfectly within your rights
anyways!” “The average Social Security monthly stipend of about $1,400 simply
isn’t enough to pay for housing, groceries, and medical bills. Fortunately,
there’s hope…If you’re looking for retirement income, I strongly encourage
you to check out what’s inside this book.”
The ads include imaged of consumers holding
checks with their names and the amounts received, and the words “Congressional
Check” or “Republican Check” across the top in large writing, with the seal of
the United States Congress. Those photos were actually edited stock photos, as
was an alleged version of then-Congressman Darrell Issa’s Financial Disclosure
Report, indicating that he had received either a “Congressional Check” of
$410,000 or a “Republican Check” of $410,000, which was not true.
The “Congressional Checks” promotion was
changed to “Republican Checks,” apparently to better target its audience. Also,
consumers were immediately charged $49 rather than being given a free trial.
Some of the later “Republican Checks” ads specified that the checks would be
paid by “private sector institutions known as ‘fiscally transparent entities.’
” In later 2018, a new ad included as part of a Q&A the statement “don’t
take the term ‘Congressional check’ too literally. It’s a nickname for the
payments politicians receive from REITs, master limited partnerships and other
pass-through securities…Cutting taxes on pass-through earnings was almost
like giving law makers a special bonus for voting in favor of the bill. So I
decided to call the payouts from pass-through entities Congressional checks.
But really, they’re just the regular payouts that these kinds of companies
always make.”
The House of Representatives contacted
agencies including the FTC about this promotion, noting that “[t]he Clerk has
already received seven letters from individuals attempting to apply to the
Clerk to collect their ‘Congressional Checks.’ ” Defendants ultimately stopped
promoting the book.
As to the diabetes book, the FTC argued that
five health claims were unsubstantiated by reliable clinical trials and
therefore false and misleading: that the protocol in the book would “cure,
treat, or mitigate type 2 diabetes or its symptoms,” that it didn’t require
restricted or changed diet; that “Supplements, including Himalayan Silk, Epsom
Blue, and Chromanite, will, either alone or in combination, cure, treat, or
mitigate type 2 diabetes or its symptoms,” that “Type 2 diabetes is caused by [non-ionizing
radiation] exposure,” and that “[c]onsumers can prevent Type 2 diabetes through
the use of Non-Ionizing Radiation ‘blockers,’ or by otherwise avoiding NIR.” The
FTC also alleged that the claim that the protocol “is scientifically proven to
cure, treat, or mitigate type 2 diabetes or its symptoms in 28 days” was a
false establishment claim.
However, the court declined to impose the
standard requiring “competent and reliable scientific evidence” to substantiate
health claims, because defendants were selling books, not medical supplements,
devices, or services. “In the cases cited by the FTC, the respective defendants
marketed products that would be sold for the buyer to consume, and purportedly
reap the alleged benefits. The FTC has not identified any case in which a court
has applied the health-related efficacy standard in the circumstances presented
here.” The FTC conceded that the book
was free to exist, and the book wasn’t itself commercial speech. As the court
pointed out, unlike with a drug or device, the consumer could read the book and
decide not to use the advice, and the book would still have succeeded in its
intended function: being read.
Thus, when the ads for the book just describe
the contents of the book, they’re protected to the same level as the book
itself. However, defendants’ marketing
material didn’t stick to the book. The
ads claimed that consumers didn’t need to change their diets, while the book
recommended specific dietary changes. “[T]he divergent statements made in the
promotion can be isolated and differentiated from the protected statements made
in the book.”
Nonetheless, in determining whether
defendants made false or misleading claims in advertising, the court did not
require competent and reliable scientific evidence for the claims from the
book; it asked only whether defendants misrepresented the contents. [Of course,
that begs the question: are the contents “a way to cure diabetes” or are they
“a set of claims about the way to cure diabetes”? Only if the latter is the proper description
of the contents did defendants properly represent them.] The proper question
is: “do the advertisements accurately represent the content of The Doctors’
Guide, such that consumers can make an informed decision about whether they
want to purchase the book?” This standard allows people to publish and
advertise noncommercial speech that makes dumb claims without chilling speech
by requiring them to disclose how limited their evidence is. (The court
rejected the FTC’s suggestion that Dr. Gerhauser could advertise a book
suggesting that NIR causes diabetes if the advertisement said, “one study shows
that consumers whose diet we don’t know, who lived near a cell phone tower, may
have had increased diabetes rates,” as “utterly implausible.”)
The court rejected the FTC’s analogy to Cher v. Forum Int’l Ltd, 692 F.2d 634
(9th Cir. 1982), which found an ad not entitled to constitutional protection
because the ad indicated that Cher “told” Forum certain things when, in fact,
she hadn’t told it anything. That was “patently false,” and the FTC didn’t
demonstrate that the content of the book was “patently false.” “Neither this
Court nor the FTC is well-equipped to determine the validity of a human
clinical trial in India, and whether it indicates what Dr. Gerhauser believes
it indicates, in his medical opinion. Similarly, neither this Court nor the FTC
can state with certainty whether non-iodizing radiation has any causal
relationship to a patient’s development of Type II Diabetes. Those types of
untested theories are best assessed by qualified medical professionals
exchanging opinions in the marketplace of ideas.” [And here’s where the really shaky stuff
begins. If the relevant claims been used to advertise a drug or anti-radiation device,
I hope and believe the court would have found that it and the FTC were plenty
competent to evaluate the facts. There’s an epistemology of evaluating claims
for drugs & devices, and if we withhold that epistemology for books it’s
not because our methods of knowing don’t work but because books are special
even when we are sure the books are wrong.] In a footnote, the court commented
that it might ultimately broaden the injunction, if for example the claims
about mulberry extract, magnesium, and chromium were patently false, and thus
entitled to no First Amendment protection.
The court proceeded
to ask whether the ads matched the content of the book, keeping in mind that
it’s possible to mislead with a series of true-in-isolation statements. As the
Supreme Court said, “Laws are made to protect the trusting as well as the
suspicious.” There were two actionable misrepresentations: the
no-need-to-change-diet claims, and the claim that the protocol has been
“scientifically proven” to “reverse your diabetes in just 28 days.” In fact, there
was no evidence that the protocol had been subject to any testing. And the book
relied on studies that indicate a longer timeline for any potential success,
e.g., “after just 24 weeks, the patients taking magnesium had normal blood
sugar.” [Note how helpful it was for the court to shorthand the book as The
Doctor’s Guide: since the title is actually The Doctor’s Secret to
REVERSING Diabetes in 28 Days, the title does claim 28-day efficacy.
But apparently the title is an explicitly false misrepresentation of the
content of the book, which is not surprising.] “Those two misrepresentations
are material in that they would induce a reasonable consumer, who does not want
to abide by a medically restricted diet, to purchase the publication.”
The court reasoned
similarly with respect to Congress’ Secret. The ads claimed, expressly or by implication,
that “consumers are entitled, by law or otherwise, to money from Congressional
Checks or Republican Checks,” that consumers could get money “just by adding
their name to ‘the list of check payees,’ ” that the checks were “affiliated or
furnished by Congress or another government agency program,” and that “anyone
can collect hundreds to thousands of dollars in Congressional or Republican
Checks.” These misrepresentations were
likely to mislead consumers: they didn’t accurately portray the content of the
book. The ads “do not even hint to the consumer that the book is an investment
guide recommending the purchase of shares in thirteen private companies. The
handful of isolated references to ‘investment’ or ‘investors,’ in the lengthy
video presentation about ‘Congressional Checks,’ do not salvage the overall
misleading impression conveyed to consumers about the book’s content.” Though the book used the term “Congressional
Checks,” that didn’t make its ideas the same as those of the ads. “The book
makes clear what the advertisement does not – that ‘Congressional Checks’ are
actually dividend payments consumers obtain by investing in a variety of
private companies, because the returns will be tax-advantaged as a result of a
law passed by Congress. The overall impression in the advertising is entirely
different, exacerbated by the stock photos appearing to depict happy customers
holding faux checks emblazoned, ‘Congressional Checks,’ or ‘Republican Checks.’”
Even the later version of the video ad, while slightly better, still left the
same overall impression. “Essentially, consumers were led to think that
Congress’ Secret would instruct them as to how they could put their name on a
list to receive checks, without needing to have significant resources to
invest.”
That was both
misleading and material; the court pointed out that the ads were expressly
geared to people without significant investment capital, e.g., “I know that
without these income secrets…You’ll likely retire on Social Security. And I
think we can both agree that’s just not enough income, right? I mean, the
average retiree’s monthly budget is currently $1,305. That’s barely above the
federal poverty line.” As the court noted, “[t]he target customer described in
that advertisement is unlikely to have the resources to invest in enough shares
of a company to receive substantial dividend payments.”
Defendants invoked FTC
v. Shire Viropharma, Inc., 917 F.3d 147 (3d Cir. 2019), and claimed that the
FTC couldn’t get any relief because it had voluntarily stopped both promotions
and thus they were not “violating, or … about to violate” the FTC Act. But in Shire,
the violations were definitely not going to resume in the foreseeable future,
while here, the FTC had “reason to believe” that defendants will continue to
violate the FTC Act. The defendant in Shire had divested itself entirely
of the product, while defendants could re-start their promotions at any time,
and the harm from Congress’ Secret was ongoing because customers had
ongoing subscriptions to defendants’ newsletter. “[N]othing short of injunctive
relief would prevent Defendants from resuming the sales, including the
misleading representations in their advertising. Thus, Defendants’ voluntary
cessation of their marketing practices does not moot the FTC’s claim.”
But the FTC’s requested relief was too broad; defendants were publishing
companies. Thus, the court would not require defendants to cite randomized
clinical trials for any health-related claims. And defendants “offer a large
and varied number of promotions and publications. It would be simply too broad
to speculate that Defendants are engaged in deceptive marketing as to each of
their publications, without specific information to support that claim.” [Do
many of them use the “Secret” format?] Instead, the court would enjoin the
“disconnect” between the ads and publication content.
The FTC also wanted
defendants to provide a copy of the order to each “client” and give the FTC a
list of the names, addresses, phone numbers, and email addresses of each person
who received a copy of the Order. The court did require defendants to send a
copy of its order to each customer who purchased the books, but not to provide
the list to the FTC. Instead, they were
required to provide the FTC with a sworn statement that they had complied with
the court-ordered distribution provisions. [Query: why would you believe the
defendants at this point? Why not let the FTC do the mailing and be sure?]
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Rebecca Tushnet 