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 Gastricbypass.me,
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 Gastricbypass.me
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 Gastricbypass.me 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 RocaLabs.com 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 Gastricbypass.me 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
“gastric.care,” 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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