Each month, Arent Fox's advertising lawyers prepare this summary of major law enforcement actions announced by the U.S. Federal Trade Commission ("FTC") during the previous months. The summary highlights FTC advertising actions against well-known corporations engaged in national advertising, law enforcement "sweeps," and civil penalty actions.
I. FTC ACTIONS INVOLVING MAJOR CORPORATIONS
A. R.J. Reynolds Tobacco Co.
On March 3, 1999, the FTC announced that R.J. Reynolds Tobacco Co. has agreed to settle FTC charges that its ads for Winston "no additives"cigarettes are deceptive. The FTC alleged that Reynolds implied in its advertisements, without a reasonable basis, that Winston cigarettes are safer to smoke because they contain no additives. Under the settlement, which the FTC has accepted for public comment, Reynolds has agreed to make the following prominent disclosure in future Winston ads: "No additives in our tobacco does NOT mean a safer cigarette."
B. Tommy Hilfiger U.S.A.
On March 17, 1999, the FTC announced the largest civil penalty awarded in a case alleging violations of the Care Labeling Rule as part of a settlement with New York City-based Tommy Hilfiger U.S.A., Inc. According to the FTC's complaint, Hilfiger, in some instances, sold garments with care labeling instructions that, when followed, resulted in significant color "bleeding" and fading of the garments. In addition to paying the $300,000 civil penalty, the company has agreed to place a toll-free number on its care labels so that consumers may contact the company directly with questions about cleaning or care of a particular garment.
C. Wal-Mart, Burlington Coat Factory, Bugle Boy, Delia's, and Others
On March 17, 1999, in an effort to ensure that required country-of-origin disclosures for textile products are correctly made, the FTC announced settlements with eight manufacturers or retailers of clothing and other textile products. Wal-Mart Stores, Inc., Burlington Coat Factory Warehouse Corp., Delia's Inc., Woolrich, Inc., Gottschalks, Inc., and Bugle Boy Industries, Inc., have agreed to settle FTC allegations that they violated the Textile Fiber Products Identification Act and FTC rules under the Act by failing to make required origin disclosures for textile products sold via Internet catalogs. In some of these cases, the FTC complaints also allege violations of the Wool Products Labeling Act and FTC rules under that Act. Similarly, Abercrombie & Fitch has agreed to settle FTC allegations that it violated the Textile and Wool Acts and rules by failing to make the required origin disclosures in its print catalogs. The FTC has also accepted a proposed agreement with Design Zone, Inc., settling allegations that the company violated the labeling requirements of the Textile Act by removing foreign country-of-origin labels from garments it manufactured and replacing them with "Made in USA" labels.
D. Rose Creek Health Products
On March 15, 1999, the FTC announced charges against Rose Creek Health Products, Inc., based in Kettle Falls, Washington, and its sister corporation alleging the companies have made blatantly false and unsubstantiated health claims in their advertisements for a purported nutritional supplement called "Vitamin O." The defendants' ads -- which have appeared in USA Today and other newspapers and on the Internet -- claim that Vitamin O can cure or prevent serious diseases such as cancer, heart disease, and lung disease. The FTC says that Vitamin O appears to be nothing more than saltwater.
II. FTC SWEEPS
A. Internet Pyramid Schemes
On March 11, 1999, the FTC, North American Securities Administrators Association, U. S. Postal Inspection Service, Securities and Exchange Commission, 27 state Attorneys General, and other state and local law enforcers announced a nationwide law enforcement sweep. State and federal officials announced 33 law enforcement actions against 67 defendants promoting Internet pyramids over the past year. The sweep also included a two-day Internet "surf" to seek out sites that may be hosting illegal pyramid schemes. As a result of the surf, the FTC will send messages to the sites identified in the two-day sweep that pyramid schemes are illegal in the United States.
III. FTC RULE ENFORCEMENT AND CIVIL PENALTY CASES
A. Laissez Faire, Inc.
On March 24, 1999, Laissez Faire, Inc., a New York City-based importer of women's clothing, agreed to pay a $30,000 civil penalty to settle charges that it violated the FTC's Care Labeling Rule by failing to have a reasonable basis for one of the care instructions it placed on many of the garments it sold. According to the FTC's complaint, in numerous instances one of the garment's care procedures that was recommended on the garment's care label resulted in the dye bleeding or color loss. In addition to requiring payment of the civil penalty, the settlement would prohibit Laissez Faire from violating the Care Labeling Rule in the future.
B. PT-1 Communications
On March 4, 1999, the FTC announced that PT-1 Communications, Inc., a New York City-based marketer of pre-paid telephone cards, agreed to pay $300,000 in monetary relief as part of a settlement of FTC charges alleging the company regularly advertised its pre-paid phone cards as providing 19 cents per minute calling within the United States, while imposing undisclosed connect fees on card users. The FTC also charged that PT-1 imposed a 25" maintenance fee on all cards outstanding for more than a month without disclosing that fee. The proposed settlement would prohibit PT-1 from failing to disclose the existence and amount of any connection, service, or other fees or charges that are to be paid by the consumer in addition to the represented price.