Introduction
Undoubtedly, advertising is the one of most used method of overcoming competition in the business environment. People and businesses rely on advertising as a competitive strategy by exploiting the advertising potentialities of differentiated items (Qaqaya, 2008). Advertising has numerous advantages if products are genuine and portray significant differences. However, advertising is often misused if the items are not different from those of competitors or when an item does not have the virtues it is proclaimed to have. This implies that a product has exaggerated claims, which is referred to as false and misleading advertising (Shemwell, 2016). The buyers are manipulated to buy a service or commodity that they would restrain from buying if they had the correct information. False and misleading advertising uses untrue statements. Organizations engage in false and misleading advertising through comments that fail to disclose material facts about products or disclose half the truth to influence customers to purchase their products . In this study, these laws and regulations will be analyzed through two case studies.
Summary of the legal concept (Misleading Advertising)
In the late nineteenth century, business leaders recognized hazards of false and misleading advertising. In 1911, the Printers ’ Ink initiated a campaign for the introduction of legislation that makes it a crime to use false advertising. However, it was until the year 1914 that the U.S. congress drafted federal legislation protecting consumers from false advertising – The Federal Trade Commission Act. Though the act did not specifically recognize the term false and misleading advertising, it banned the use of unfair competition practices by businesses (Roberts, 2019). On the 21 st of March 1938, an amendment was made to the Federal Trade Commission Act with the aim of clarifying the definition of unfair methods of competition. The amendment that is known the Wheeler-Lea amendment prohibits the use of deceptive or unfair practices or acts in commerce. The amendment further strengthened provisions relating to false advertising. It imposed a fine of $5,000 or imprisonment for six months of first offenders and $10,000 or imprisonment for one year for subsequent offenders. The FTC Act was once again amended in 1975, allowing the federal trade commission to impose civil penalties and consumer redress of violation of the regulations (Holmes, 1980). Sections 19 (a) and (b) were included in the FCT Act.
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Section 5 of the FTC Act particularly deals with the issue of false advertising through the use of misleading or directly false representations. It classifies partly true advertisements or statements that withhold certain truths in the category of false and misleading advertising. In the event that an advertisement violates regulation outline in the FTC Act an individual or the commission can launch a formal claim against the advertisement. Authorities investigate the unfairness determination by assessing the apparent injury suffered by the consumers (Roberts, 2019). If the company responsible for the advertisement is found guilty of the claims of false and misleading advertising, the commission or court can order it to pay settlement relief as a punishment and compensation to the aggravated consumers.
Case study 1: BENJAMIN CAREATHER and DAVID WOLF, et al., plaintiffs, v. RED BULL GMBH, et al., defendant and Case study 2: CAREY, Plaintiff, v. NEW BALANCE ATHLETIC SHOE, INC., Defendant.
Case Summaries and Analysis
Pertaining case one, Benjamin Careather ("Plaintiff") according to rule 23 of the Federal Rule of Civil Procedure initiated a law suit, individually and on the behalf of others against Red Bull GMBH, (“defendant”). Similarly, David Wolf filed class action on his own account and on behalf of similar class members against all Red Bull corporation in the U.S. (United States District Court, 2015). The Preliminary Approval Order for the cases was filed on the 3rd of September at the United States District Court for the Southern District of New York.
Regarding the second case, on the 3 rd of January 2011, Kimberly Carey, Shannon Dilbeck, and Victoria Molinarolo (“Plaintiffs") filed a class-action suit against New Balance Athletic Shoe, Inc. The civil case was presented at the United States District Court for the District of Massachusetts. The plaintiff initiated the class action individually and on behalf of similarly situated class of customers, stating that New Balance ("Defendant") ran an advertisement campaign that violated the Massachusetts Untrue and Misleading Advertisement Statute (G.L. c. 266 § 91). The plaintiffs laid claim for unjust enrichment as a result of the New Balance advertisement campaign for its toning shoes. The plaintiff also sought attorneys' costs and fees, and compensatory damages, and any other reliefs that the court saw fit (United States District Court, 2013). Besides, the plaintiff filed an amended complaint, according to MGL c. 93A, § §2, and 9. On the 15 th of July 2011, Ahdoot & Wolfson were appointed as the Interim Class Counsel to evaluate, investigate, and examine the allegations and verify the merit of the claims.
The plaintiffs on the first case brought the suit both personally and on behalf of similarly situated customers in the U.S., intending to redress the use of improper, false, deceptive, and fraudulent marketing, sales, and advertising strategies by Red Bull regarding their "Red Bull" energy beverage. The plaintiffs argued that the defendant disseminated false and misleading information through mass media and the internet in an attempt to defraud him and other consumers in the proposed classes (United States District Court, 2015). Due to the false and misleading advertisement, the plaintiff claimed that himself and similarly situated customers were dubbed for numerous years into purchasing Red Bull energy drinks worth millions of dollars.
The defendant manipulated their consumers' conscience by promising that their energy drink gives one wings to fly. Red Bull claimed that their drink comprised of ingredients that would boost a person's mental and psychological concentration beyond what they would obtain from a caffeine pill or a cup of coffee. The improved mental, physiological performance is what they referred to as "Red Bull gives you wings."
The defendants supported their claims by stating they had multiple scientific studies that demonstrated superiority of their branded energy drinks over other energy beverages produced by their competitors. However, the plaintiff claimed no original scientific research nor were there any scientifically reliable studies in the public domain, which proved the allegations of the defendants that their energy beverage had additional benefits than a simple cup of coffee (United States District Court, 2015). Therefore, the defendants did not have sufficient proof that ingesting their Red Bull energy drink provided greater benefits to consumers than taking an equivalent dose of caffeine. Besides, they had not implemented any sufficient initiatives to clear up customer misconceptions about their Red Bull energy drink.
The court found the defendant guilty of the claims and directed they pay a settlement of $13 million. The court approved the settlement and reasoning that it was adequate, reasonable, and fair according to Rule 23(e) of the Federal Rules of Civil procedure. It also argued that the settlement was entered in good faith after lengthy negotiations (United States District Court, 2015). Under Rule 23(b)(3) of the Federal Rules of Civil Procedure, it was directed that the defendants to reimburse all individuals that bought Red Bull products in the U.S. except federal judges that presided over the suit, employees, and representatives of the defendants and all other individuals excluded from the settlement.
The court also ordered the defendants to reimburse expenses and pay for attorneys ’ costs and fees as per the requirement of the Court’s Order Granting Motions for Final Approval of Class Settlements. The court restrained the defendants from making future claims using advertisements that lacked scientific and medical evidence. After the ruling, Red Bull paid out $13 million as a settlement of the lawsuit due to its use of false and misleading advertising (United States District Court, 2015). Recognizing the millions of customers that had purchased the energy drinks, Red Bull allowed all individuals defined as class members to request for $15 worth of Red Bull merchandise or a $10 reimbursement.
The New Balance case pertains the plaintiff who initiated the civil case aiming at redressing the use of deceptive and fraudulent marketing, sales, and advertising strategies by New Balance concerning their toning shoes. The organization introduced the stylish toning shoes to their consumers in 2010, selling them for about $100. The plaintiffs claimed that New Balance lured them to the purchase of the toning shoes through an advertisement campaign which claimed that the shoes activated lower body muscles. In the original class-action complaint, the plaintiffs stated that the shoes consisted of soles that balanced complicated movement, causing individuals to feel as if they were running on sand (United States District Court, 2013). Through false and misleading advertising, New Balance referred to their shoes as the “hidden beauty secret," stating that they enabled users to get rid of 8% more calories than regular shoes.
In the complaint, the plaintiffs termed the defendant's advertising campaign as deceptive. They stated that users who wore the toning shoes experienced no additional benefit to the lower body muscles around the calf, hamstring, or gluteus. The users did not find any evidence that the shoes burnt additional calories compared to regular sneakers (Hines, 2012) . Besides, preliminary investigation revealed that the toning shoes aggravated injuries, the fact that New Balance entirely omitted from their advertising
According to the plaintiffs, New Balance unjustly enriched itself using the toning shoe advert. The plaintiff claimed, the company sold $252 million worth of sneakers to unsuspecting customers during the initial four months. In their previous sales before introduction of the toning shoes, the company had only managed $17 million in sales since 2008 (United States District Court, 2013) . However, through the deceptive toning shoe advertisement campaign that was aided by celebrity advertising, New Balance was able to attract huge traffics of customers.
New Balance was also responsible for initiating the toning shoe craze that saw other giant shoe manufacturers such as Reebok and Sketcher start producing their brands of toning shoes. The toning shoe craze duped customers, especially females, into thinking that it was possible to make their bodies curvaceous and more beautiful by wearing toning shoes with the ability to burn lower body calories (Hines, 2012) . Reebok and Sketcher have since been directed by the Federal Trade Commission to provide settlement reliefs running to the tune of millions of dollars to the customers that they duped.
The court sided with the plaintiff that New Balance employed false and misleading advertising regarding their toning shoes. Thus, the jury ordered the defendant to payout settlement relief in form of two primary components: (a) refund to class members; and (b) an agreement to refrain from violating advertising and marketing strategies. The court ordered New Balance to pay $2.3 million to an escrow fund managed by the Class Action Settlement Administrator. Also. New Balance was ordered to pay $500,000, which was to cater for costs suffered by the Administrator. If the costs exceeded $500,000, additional money would be obtained from the escrowed fund (United States District Court, 2013). However, if the price was less than $500,000, the balance was to be deposited to the escrowed fund.
The court granted individuals that defined in class member’s permission to submit a claim within the claim period. The administrator was in charge of confirming the consumer’s complaints under the Settlement Claim Procedures and Claim Calculation Protocol. The administrator was also responsible for confirming that a class member purchased the toning shoes (United States District Court, 2013). The Class Action Settlement Officer was to begin the timely payment of valid and approved claims starting from the tenth days after the expiry of the claim period.
The settlement relief allowed legal class members to obtain compensation for the purchase of each pair of shoes beginning from an initial amount of $50 to a maximum of $100. The shipping costs, sale taxes, and purchase costs were not to be applied in the calculation of the settlement relief for purchase of the shoes (United States District Court, 2013). If an individual purchased more than a pair of tonic shoes, he or she was allowed to submit more than ones claim for every pair purchased.
The Red Bull class action suit was an example of a false and misleading advertising case against huge multinational company. Groups of individuals filed claims both on their behalf and on behalf of other consumers that were similarly situated, proposing that Red Bull had violated the policies related to false and misleading advertising. From the case, it seems that class action suits are most effective when a group of people lay claims as compared to a single person. The court followed two main steps in its ruling on the class-action suits on allegations of false and misleading advertisements, by offering a settlement relief and prohibiting the responsible organization from engaging in deceptive advertising in the future. The advertisement relief was an offer to class members defined in the ruling, except for individual members which would lead to a conflict of interest.
Reflecting on the ruling provided by the court, the settlement relief granted was aimed at reimbursing a wide range of class members rather than the few individuals that filed the class suit. That might be mainly because a class action aggregates the needs of a wide range of audiences influenced by activities of particular organizations. Class action is more of a procedure aimed at benefiting class members rather than a single individual. Besides, the system is meant to prevent abuse by lawyers that seek to extract rent from the class.
Conclusion
The penalties ordered by the court on class actions related to false advertising were small, ineffective, and a "slap on the wrist." For instance, New Balance was ordered to pay just $2.3 million despite making over $250 million from its false advertisement campaign. Similarly, Red Bull was ordered to pay a mere $13 million for an advertisement campaign that ran for more than two decades. The small penalty imposed for false advertisement is insignificant compared to the potential losses imposed on consumers. The legislature ought to introduce more punitive measures, especially through hefty fines for organizations that feed consumers with false and misleading advertising.
References
Holmes, W. C. (1980). FTC regulation of unfair or deceptive advertising: current status of the law. DePaul L. Rev. , 30 , 555.
Hines, A. (2012). New Balance Pays Fat Settlement In Toning Shoes Lawsuit To People It Did Not Slim . Retrieved from The Huffpost : https://www.huffpost.com/entry/new-balance-toning-shoe-settlement_n_1839537
Qaqaya, H. (2008). The effects of anti-competitive business practices on developing countries and their development prospects.
Roberts, A. J. (2019). False Influencing. Available at SSRN 3388274 .
Shemwell, D. (2016). False Advertising and Labelling Suits Two Years After the Landmark Supreme Court Decision in Pom Wonderful Versus Coca Cola: Implications for the Marketing Professoriate.
United States District Court. (2013). Kimberly Caery, Shannon Dilbeck and Victoria Molinarolo v. New Balance Athletic Shoe, Inc. For the District of Massachusetts. Civil Action No. 11-cv-10001-LTS. Retrieved from https://www.truthinadvertising.org/media/PDF/NBS_Settlement_Agreement.pdf
United States District Court. (2015). BENJAMIN CAREATHERS, Plaintiff, v. RED BULL NORTH AMERICA, INC., Defendant. DAVID WOLF, et al., Plaintiff, v. RED BULL GMBH, et al., Defendant. ClassAction 13 Civ. 8008 (KPF), For the Souther District of New York . Retrieved from https://www.americanbar.org/content/dam/aba/publications/litigation_news/careathers-red-bull.pdf
