Bamboozled:
Four Key Takeaways from the FTC's Recent Crackdown

January 3 was a big news day: The Federal Trade Commission’s announcement on Google’s competitive practices completely drowned out news of its $1.26M false-labeling settlements with Amazon, Macy’s, Max Studio and Sears/Kmart. That’s unfortunate because there are four important takeaways from these cases:1: Take FTC warnings seriously

By Arlene Z. | Published 11 years ago | About a 3 minute read

1: Take FTC warnings seriously

These fines didn’t just appear suddenly. Amazon, Macy’s, Max Studio and Sears/Kmart were warned in 2010 of the FTC’s concerns along with a suggestion to take corrective steps to avoid Commission action. “It is important to keep in mind that the way your company responds can influence whether the investigation turns into a lawsuit or concludes successfully,” says Peter Nolan, partner with Winstead, PC in Austin. “If you appear non-responsive, combative or secretive, the investigation will likely continue.”

2: You need proof before making a claim. Really.

This basic tenet is repeated over and over in all FTC advertising regulations, regardless of the sector. Maintaining the integrity of the chain of custody is just as important for information as it is for sustainable materials. Proof needs to reside with the entity making the advertisement, so make sure supporting data is actually in your files. Suppliers may be unaware they could face the same deceptive advertising allegations as their clients. Furthermore, they could also face charges of providing the means and instrumentalities to allow others to commit deceptive acts if they either don’t pass along credible or complete data (because surely no one provides flat-out bad data, right?). Lastly, for textiles, “companies can get a 'good faith' guarantee from a U.S. supplier that a product wasn’t mislabeled before it was sold,” says Lesley Fair, attorney in the FTC’s Bureau of Consumer Protection. “But that provision won’t apply if [the companies] should have known that merchandise was mislabeled. The orders clarify that if the companies can’t get a good faith guarantee because the products are imported directly from a foreign supplier, they'll be liable only if they knew or should have known of the violation and don’t modify or embellish the claims the supplier provides or market the item as a private label product.”

3: Be prepared to provide your proof

Don’t fall into the trap of thinking you’ll have time to gather adequate proof when asked (either from your supplier or independently). For example, according to the complaint, the FTC observed Amazon making unqualified claims on their “green” website on February 3, 2010, the very day Amazon received the warning letter. Five weeks later, on March 16, the FTC purchased questionable product from Amazon. Four weeks after that on April 13, the FTC issued a civil investigative demand, or CID, seeking documentation and information. Unfortunately, Amazon did not respond and continued to engage in questionable practices, which provided the basis for advancing to monetary fines in US District Court instead of a cease and desist from an agency.

4: Respond, but be selective

When responding, Nolan advises, “you should protect the company's rights firmly, but in a way that does not antagonize the agency with whom you are working.” Cooperating certainly doesn’t mean turning everything over without question. In fact, the FTC is warning small businesses that an email with a subject line “NOTIFICATION OF CONSUMER COMPLAINT” is not from the FTC at all. The email falsely states that a complaint has been filed with the agency against their company. Clicking on the links in the message may install a virus or other spyware on the computer. “Real warning letters are signed by an FTC attorney,” says Peter Kaplan, also with the FTC. Companies can make sure these letters are legitimate by calling the relevant FTC attorney using the agency’s online staff directory on FTC.gov, or through the main FTC phone number at 202-326-2000. Seeking such confirmation could serve as an indicator that you are taking the warning seriously or it could alert the FTC to yet another scammer.