Thursday, March 12, 2020

Selling scammy books is protected by the First Amendment when selling scammy products isn't

Federal Trade Comm’n v. Agora Financial, LLC, 2020 WL 998734, No. 1:19-cv-3100-SAG (D. Md. Mar. 2, 2020)

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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