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Network marketing is in the midst of a rapidly advancing Orwellian era. It’s been slow to develop, starting in 1996 when the Ninth Circuit Court of Appeals issued its decision in Webster v. Omnitrition, but it’s snowballed in the past two years. Today the snowball grew exponentially with the announcement that the Federal Trade Commission and Herbalife have reached a settlement agreement.
Watch for detailed updates and analysis on the settlement. We’ll break it down into many little pieces to determine how it will impact your business. But today we just have time for a broad sweep so I’m just going to address some critical topics.
The obvious first question is: “Does this settlement affect my business?” It’s certainly an important question. After all, the FTC was investigating Herbalife and analyzing Herbalife’s program, so why should it apply to any other company? The answer is two-fold. There’s the technically correct answer, and the real-world practical answer. The technically correct answer is that the FTC settlement with Herbalife has no binding impact on any other network marketing business. The real-world answer is quite different. The changes that Herbalife must implement offer a clear roadmap to the standards that the FTC expects all direct sellers to conform, and those are the standards that it will pursue in future cases against direct sellers.
There’s no law that requires direct selling companies to adhere to all of requirements in the Herbalife settlement. But those who stick their head in the sand and ignore the messages in the Herbalife settlement agreement do so at great peril. By now you’re certainly wondering what the settlement agreement requires. Here’s a high level summary of the most critical issues that will impact every network marketing program:
Note: See an overview of how this settlement affects network marketers, and watch out blog for detailed analysis and updates.
Herbalife International of America, Inc., Herbalife International, Inc., and Herbalife, Ltd. will restructure their U.S. multi-level marketing business operations and pay $200 million to compensate consumers to settle the FTC complaint that the Herbalife companies deceived consumers into believing they could earn substantial money their products.
The FTC complaint also charged that Herbalife’s compensation structure was unfair because it distributors were rewarded for recruiting others to join and purchase products in order to advance in the MLM program, as opposed to actual retail demand for the product, causing economic injury to many distributors.
John Matthew Dwyer III, the former CEO of HealthyLife Sciences, LLC, has agreed to be banned from manufacturing or marketing weight loss products as part of a settlement of FTC charges of deceptive advertising. A separate settlement bans HealthyLife Sciences from advertising that its products cause weight loss.
U.S. District Senior Judge Charles Pannell Jr. has ordered the CEO and senior vice president of Hi-Tech Pharmaceuticals, Inc. be jailed for contempt of court for failing to recall four dietary supplements as directed by a May, 2014 judgment that found them in violation of a 2008 court order. The May, 2014 judgment also ordered them to pay more than $40 million for violating the 2008 order.
The May order directed an immediate recall of four dietary supplement products, Fastin, Lipodrene, Benzedrine and Stimerex-ES. However, the Judge Pannell found that the defendants, CEO Jared Wheat and Stephen Smith, senior vice president in charge of sales, have not complied with the recall order.
i-Health, Inc. and Martek Biosciences Corporation have settled Federal Trade Commission charges that they used deceptive advertising in marketing their BrainStrong Adult dietary supplement. The FTC complaint alleged that the supplement makers claimed BrainStrong improves adult memory and prevents cognitive decline, and that they falsely claimed they had clinical proof for the claims.
Television commercials for BrainStrong Adult showed a forgetful woman and a voiceover saying, “Need a memory boost? Introducing BrainStrong…Clinically shown to improve adult memory.” In addition to television, the product was advertised on Twitter and brainstrongdha.com.
A federal judge has granted the Food & Drug Administration’s request for a permanent injunction prohibiting BioAnue from making and distributing its dietary supplement products until they comply with FDA regulations.
While BioAnue sold the products as dietary supplements, the FDA maintained that they were “unapproved new drugs” because they were marketed without FDA approval as treatments for a variety of diseases, including cancer, HIV/AIDS, heart disease and diabetes. In addition, BioAnue failed to follow the FDA’s current good manufacturing practice regulations for dietary supplements.
The marketers of the fruit drink Nopalea have agreed to pay $3.5 million in consumer refunds to settle FTC charges that they deceptively marketed the product as scientifically proven to reduce various ailments, including pain. The marketers named in the FTC complaint are dietary supplement maker TriVita, Inc., Ellison Media Company, and Michael R. and Susan R. Ellison, who control both companies.
The FTC’s complaint alleged that TruVita did not have the clinical studies to support the claims they were making about the health benefits of Nopalea, a fruit drink derived the nopal cactus, also know as the prickly pear. Nopalea cost up to $39.99 for a 32-ounce bottle.
Manon Fernet and the company she controls, which did business as the “Freedom Center Against Obesity,” have agreed to settle an FTC complaint against them that includes paying $500,000 and accepting a ban from manufacturing or marketing weight loss products in the United States.
According to the FTC’s complaint, the Canada-based marketers deceptively advertised their product as being able to cause fast, substantial and permanent weight loss without diet or exercise. Sold as Double Shot, the product was comprised of two capsules. One capsule was claimed to cause weight loss by burning stored fat as if the user had exercised one hour a day. The other capsule was claimed to prevent the absorption of all but 10% of the calories consumed.
The Attorneys General of Oregon, Washington and Vermont each have filed suit against Living Essentials, LLC, and Innovation Ventures, LLC, the makers of 5-Hour Energy drink, alleging that advertising for the product violates their states’ consumer protection laws by making deceptive and misleading claims.
The Federal Trade Commission has sued an operation selling green coffee bean extract as a dietary supplement for weight loss, alleging it made false and deceptive claims and used fake new sites and phony consumer endorsements to sell the product.
Named in the complaint are NPB Advertising, Inc., which also does business as Pure Green Coffee; Nationwide Ventures, LLC; Olympus Advertising, Inc.; JMD Advertising, Inc; Signature Group, LLC; Nicholas Scott Congleton; and Paul Daniel Pascual.
According to the FTC complaint, green coffee bean extract for weight loss began to become popularized after it was called “the magic weight loss cure for every body type” on a syndicated television show. A discussion on the show referenced a study that purportedly supported the claim, but no specific brand of green coffee extract was recommended.