There is a rule of law, simple enough, that requires advertisements be accurate and not misleading. Most states have declared false advertising to be a crime, defined as making false or misleading statements in an ad about a product or services with intent to increase sales. Additionally,most states outlaw misleading or deceptive practices in the sale of consumer goods as a civil wrong. Three major companies and numerous others have recently been accused of deceptive claims or settled cases involving such allegations.
Kellogg's, the maker of breakfast food and related products, settled a class action lawsuit for $4 million dollars in which its advertisements for Frosted Mini-Wheats cereal were challenged. The promotions claimed the cereal boosted memory, attentiveness and other cognitive functions in children, claims that were not supported by competent clinical evidence. By settling, the case was resolved without the need for a trial and without a verdict deciding who was right. Kellogg’s denies it did anything wrong.
A class action is a lawsuit involving numerous plaintiffs, all of whom were allegedly injured by the same wrong.
The $4 million dollar settlement includes, in addition to money to pay the class members, money to notify them of the proposed resolution, money to compensate attorneys for their fees and expenses, and money to pay an incentive for named plaintiffs. A named plaintiff, also called a lead plaintiff, acts on behalf of the class in such matters as monitoring the progress of the case, reviewing pleadings, giving testimony at a deposition, working with attorneys for the class, and appearing at trial. Named plaintiffs have a fiduciary duty to the class, meaning they must act with the utmost loyalty and honesty to protect the interests of their fellow plaintiffs. Due to these responsibilities, lead plaintiffs often receive a financial award greater than that given to the balance of the class. Whether or not such an award is given, and its amount, is decided by the judge.
The case against Kellogg's began four years ago at which time the company modified its promotional campaign to eliminate the objectionable claims. The settlement provides that each consumer who bought the cereal during the time of the advertising in question can receive a cash refund of up to $15 to cover the cost of three boxes of the breakfast food.
Likewise, Merck Consumer Care, a cosmetic manufacturer, has agreed to pay up to $10 million to settle a long-standing class action involving Coppertone sunscreen. Merck’s ads included such terms as “waterproof,” “sweatproof,” “sunblock,” and “all day protection.” As part of the settlement Merck agreed to stop using those descriptors in its labeling and advertising.
The company inherited the case when it acquired Schering-Plough, originator of the Coppertone line, in 2009. Class plaintiffs asserted they were misled by promises of protection from the sun’s ultraviolet rays when in fact Coppertone sunscreen products do not protect against the cancer-causing rays.
Like Kellogg's, Merck denied liability but said it agreed to settle to avoid the “burden, expense, risk and uncertainty” of continuing litigation.
A third case of alleged misrepresentation is just beginning. The New Jersey Alcoholic Control Board (hereinafter “the agency”) has accused 29 restaurants, including 13 TGI Fridays, of selling cheap alcohol and representing it as top-shelf brands. One restaurant was even accused of providing a mixture of rubbing alcohol and food coloring as scotch(!). Investigators for the agency were tipped off by confidential informants (likely some employees) and consumer complaints. The examiners visited a variety of establishments, inspected the bar areas and seized all opened bottles, totaling approximately 1,000 containers. They also took statements from employees and served demands for sales records requiring a response within seven days. Such demands are issued by an investigating agency and require a target to produce various documents.
The message of these cases is that consumers rightfully will not tolerate product misrepresentations. Businesses can of course promote a product’s best qualities, but truthfulness is a necessary feature.
For more information about the Kellog's case, click here. For more information about the Merck case, click here. For the TGIF investigation, click here.
What internal procedures might a business develop to ensure that the marketing department does not misrepresent the company's products or services?