Thursday, November 01, 2018

Roca Labs' weight loss claims are losers, and its gag clause fares no better

FTC v. Roca Labs, Inc., 2018 WL 5629875, No. 15-cv-2231-T-35TBM (M.D. Fla. Sept. 14, 2018)

The FTC sued Roca for its advertising and sale of weight-loss products and the use of contractual provisions barring purchasers from providing negative commentary, bringing in at least $20 million since 2010. Among other things, defendants used “Gastric Bypass No Surgery” or “Gastric Bypass alternative” and claimed that the products were safe for children as young as six years old. They described the forumula as “a medical innovation that creates a natural gastric bypass effect in the stomach.”  In the fine print, they stated that “[n]o clinical study has been performed on this product” but the main copy touted scientific proof, along with testimonials and third-party reviews. The testimonials were paid, but Roca didn’t disclose this. They, or someone working on their behalf, also posted testimonials etc. on third-party websites without disclosure. Nor did they disclose that they ran, a website that discusses bariatric surgery and features a “Surgical Alternatives” page devoted to positive commentary on Roca Labs products and which sold the products.

Although they didn’t actually get insurer reimbursement, they advertised that the basic package cost $480 with “valid health insurance” or $640 without. Purchasers had to submit answers to a “Questionnaire” or “Health Application,” which included questions about psychological or emotional issues relating to weight, past weight-loss failures, depression, and binge eating.  Purchasers got a “Summary” document that stated the customers’ information would not be shared with anyone and a document warning that those who cancel or dispute installment payments may face legal action and $3,500 in charges. Roca also included a non-disparagement clause that prohibited customers from publishing disparaging comments about Roca Labs products, claiming that (at a minimum) the purchaser agreed to pay the full price of the product, $1,580, if the purchaser breached the gag clause; at some times the gag clause demanded $100,000 for talking “badly about the Formula,” while other versions demanded $3,500 and claimed that Roca could force purchasers to sign a notarized affidavit stating that the disparaging remarks were incorrect.

The FTC sued over all these things, including in its theories that the promise of confidentiality was false, and that the statement that purchasers agreed to pay the difference between the “full price” and the purported “discount” price if they post negative comments or reviews was a deceptive claim about the price.  It prevailed.

The court granted summary judgment on the falsity/lack of substantiation of weight loss claims.  Such express claims, “which significantly involve health, are inherently material.” The websites etc. “intentionally contained medical images and terminology to bolster the credibility of Defendants’ claims and induce customers to believe that the claims were scientifically validated by the medical community.” And Roca lacked a reasonable basis for the claims because they weren’t supported by competent and reliable scientific evidence. The FTC’s expert, an expert in obesity treatment and weight loss, additionally opined that no competent and reliable scientific evidence for the claims existed: “experts in the field of obesity treatment and weight loss would require well-designed and properly conducted clinical trials.” A valid trial should be double-blind and placebo-controlled; it would have at least eighty participants and last at least three months; and it would test the substance, not the individual ingredients, because it is well established in the scientific community that the efficacy of individual ingredients is insufficient to establish the efficacy of those ingredients combined.

Roca argued that a randomized controlled test isn’t required to provide competent and reliable scientific evidence, citing a case that found that Bayer didn’t violate a consent decree by failing to provide a RCT for different claims. This wasn’t a consent decree, which requires violation by clear and convincing evidence.  “[T]he absence of the RCT is just one piece of evidence demonstrating the lack of competent and reliable evidence of the truth of the claims or their reasonableness.” The Center for Applied Health Sciences ran a clinical trial on the Roca products: seventeen adults used the products for twenty-eight days, and didn’t lose weight, though there was a “slight but statistically insignificant ‘trend’ that active users reported feeling less hungry three hours after taking the product.” The FTC’s expert found the trial design flawed, and opined that the scientific articles on dietary fibers relied on by Roca didn’t support Roca’s claims.  Roca’s witness, a board-certified surgeon, wasn’t shown to be a relevant professional or expert in the field of obesity treatment and weight loss.

Roca’s establishment claim that their products were scientifically proven to have a ninety-percent success rate in forcing users to eat half their usual food intake and cause substantial weight loss was also false. They provided no evidence supporting this claim, which was therefore false.

Roca’s failure to disclose its relationship to and the paid testimonials also violated the FTCA. “Material misrepresentations or omissions on which a consumer would likely rely to decide whether to make a purchase constitute deceptive advertising.” One of Roca’s principals testified that he created to “educate and scare people about” gastric bypass surgery, but he did not see any value in letting consumers know “[h]ey we are Roca Labs.” Purportedly satisfied customers depicted in the videos posted on were actually Roca employees, one of whom testified that she was directed to post positive comments monthly on Facebook. The defendants directed their employees to create fictitious reviews. Roca argued that “Roxie’s” testimony was valid because she lost weight before being hired by Roca, though her video was recorded afterwards. That missed the point: Rcoa failed to disclose the financial relationship with Roxie and others who gave testimonials.

The financial relationship with the testimonial-givers and ownership of was material because they were deliberately used to entice prospective buyers and because they involved health matters, weight loss claims, and other information important to the consumer in deciding whether to purchase the products.

Likewise, the false representation of confidentiality for private health information violated the FTCA.  An express privacy promise is presumptively material.  Despite the promise, defendants published customers’ sensitive details and disclosed their personal information to payment processors in response to disputes. Roca argued that the information was necessary to disclose to resolve the disputes, and pointed to 2014 terms & conditions stating: “Your information will not be shared or sold for as long as you do not breach the Terms and we will have to use the information provided.” There was no evidence that  revealing this information was necessary to respond to disputes, and the terms and conditions postdated the purchases of some consumers who had their information revealed [also, not that it’s needed, fine print can’t take back express representations in the purchase process].

The “discount” claim also succeeded. Roca didn’t dispute its materiality, but argued that its statements weren’t deceptive because customers agreed to the discount and its requirements.  Defendants argued that customers were provided sufficient notice in the Terms and Conditions prior to purchase as well as in the documents being shipped.

Nope. First, Roca created an overall net impression that the price of the product was $480 without reference to a discount or any concessions as to publishing negative comments, including using that number in ads on Google, Bing, and Facebook touting “GASTRIC BYPASS NO SURGERY $480.”

Second, the Terms and Conditions did not dispel the net impression. “Although the Terms and Conditions were disclosed on a hyperlinked page, it was unlikely that consumers would have noticed or clicked on the link.”  Although they were required to check a box next to the statement “I have checked and do not have any medical reason that can prevent me from suing the Roca Labs Gastric Bypass Alternative procedures and I have read and agree to the terms, privacy and money back reward / return policy,” they were not actually required to read the T&C, and even if they did, the disclaimer about the discounted price and non-disparagement clause was “inconspicuous and buried among legal, contractual language.”

This misrepresentation was material and deceptive

because it is an express claim that involves important information to customers: the price of the product and limitations on what customers could say about the products or Defendants. A customer would likely be misled to believe that he or she had the option to purchase the product at “full” price and maintain the ability to post negative but truthful comments. Customers also would likely to be misled to believe that they had actually agreed to refrain from posting negative comments, when they had not agreed to do so, by paying the purportedly discounted price.

Relatedly, the gag clause practices were unfair. Roca argued that the clause wasn’t illegal and that they lacked fair notice that the FTC would interpret their practices as unfair. Although Roca cited a lot of cases about the enforceability of online “clickwrap” contracts, the enforceability of the contract wasn’t at issue. An act or practice is unfair if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not out weighed by countervailing benefits to consumers or to competition.” The FTC presented evidence that restricting the flow of information, specifically truthful negative reviews, causes or is likely to cause substantial injury to consumers and to the marketplace. Indeed, one of Roca’s principals testified that he paid a company $40,000 to “make the false comments not show up up front” because false comments “create the wrong impression” and hurt Defendants’ sales by at least $40,000. Likewise, Roca’s threats to sue and filing of lawsuits caused or was likely to cause substantial injury. Roca threatened legal action against customers who complained or said they would complain to the Better Business Bureau or who said they had plans to post negative comments online.

Roca argued that there was no evidence of tangible harm, but the FTC is not required to provide such evidence. Though the legislative history says “Emotional impact and more subjective types of harm alone are not intended to make an injury unfair,” that doesn’t impose a requirement of proof of “tangible” harm; “the FTC Act contemplates the possibility that conduct can be unfair before actual injury occurs.” The court found these practices caused or were likely to cause substantial injury to consumers. “The record demonstrates that some consumers paid hundreds of dollars for the Roca Labs products and unsuccessfully sought refunds because of Defendants’ practice of issuing threats under the guise of enforcing the gag clause.”

Nor was this problem reasonably avoidable by consumers because prospective customers who searched for information about Roca Labs products would be prohibited from making an informed choice. Roca argued that consumers could have reasonably avoided injury by reading the gag clause or using another weight loss program, but that missed the point. The FTC argued that defendants’ gag clause practices were unfair, not the gag clause itself, and there was no way prospective customers could reasonably avoid a dearth of negative reviews, “which the Defendants assiduously prevented from being available.”

Nor were there countervailing benefits to competition or consumers that outweighs the injury caused or likely to be caused; Roca offered no evidence but asserted that there should be a cost-benefit calculation and that consumers benefited from the products by losing weight, increasing their confidence, and taking steps toward a healthier lifestyle. Roca’s claims of benefits ignored the question of whether the gag clause practices had any benefits, and no quantitative cost-benefit analysis is required by the law.

Roca argued that it had no fair notice of the FTC’s claim.  The fair notice doctrine prevents “deference [to the regulator] from validating the application of a regulation that fails to give fair warning of the conduct it prohibits or requires.” But this only applies in limited circumstances not present here.  Roca again whined that the harm it caused was “intangible” and it couldn’t have anticipated that this was unfair.  [By the way, what’s “intangible” about the suppression of reviews and the failure to pursue a refund for fear of being sued?  The former is tangible: it clearly changes the information actually available to consumers. The latter is also not just tangible but monetary.] The FTC’s policy statement distinguishes “trivial or merely speculative harms” from substantial injury, but also clarifies that an “injury may be sufficiently substantial … if it does a small harm to a large number of people, or if it raises a significant risk of concrete harm.” Nothing there excluded intangible injury, and there was no evidence that the FTC abruptly changed course in its enforcement guidelines or in its statutory provisions.

The court granted a permanent injunction. Roca’s principal testified that he has moved away from using the Roca Labs brand and is now using “,” but “[t]he formula is the same formula.” He also told his Facebook boot camp customers: “I’m allowed to tell you anything I want; to do anything I want with you that would lead you to a healthy weight ...” and that he will show the customers “any images I want. I will do anything I want for them for as long as I lead them to achieve a healthy weight.” Given Roca’s extended history of deceptive and unfair practices and continued promotion of their products and comparisons to gastric bypass surgery, there was a cognizable danger of recurrent violation.

The FTC was also entitled to monetary relief under Section 13(b) for consumer redress, including disgorgement in the amount of net revenue (gross receipts minus refunds). Roca wanted to use the number of BBB complaints based on ineffectiveness, multiplied by 25 to account for customers who didn’t complain to the BBB.  The proper measure of disgorgement is unjust gain, not consumer loss, and the appropriate measure for unjust gains is net revenue. FTC has provided sufficient evidence as to the amount of gross sales revenues, which totaled $26.6 million during the relevant time period, but there was not enough evidence about refunds, so the record needed to be supplemented. Key principals were also individually liable: they knew of the deceptive acts and either participated directly in or had authority or control over the acts.

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