WisBar News: Infomercial guru must reimburse $37.6 million for misleading consumers:

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  • WisBar News
    November
    30
    2011

    Infomercial guru must reimburse $37.6 million for misleading consumers

    Joe Forward
    Legal Writer

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    Kevin Trudeau, who has been marketing products through national infomercials since the 1990s, must repay consumers who bought his best-selling weight loss book.

    Infomercial guru must reimburse $37.6 
million for 
misleading consumers Nov. 30, 2011 – A prolific late-night infomercial salesman turned author must pay $37.6 million to consumers for misrepresenting the content of his bestselling book, the U.S. Court of Appeals for the Seventh Circuit recently ruled.

    In 2004, the Federal Trade Commission (FTC) banned Kevin Trudeau from appearing in any infomercial promoting any product except publications, which are protected by the First Amendment, provided he did not misrepresent the content of the publication.

    Trudeau agreed to the infomercial prohibition as part of a settlement stemming from charges that he used infomercials to falsely claim a coral calcium product could cure cancer and other diseases. Trudeau, who is not a physician, also paid the FTC $2 million to settle the charges.

    At that time, the coral calcium infomercial was the latest in a line of other infomercials that sparked lawsuits by the FTC, starting in 1998, for deceptive practices and false advertising.

    In 2009, the FTC sued Trudeau based on infomercial appearances to promote his book, The Weight Loss Cure “They” Don’t Want You to Know About, which turned out to be a New York Times bestseller. The book unveils a four-phase program, combining hormonal injections with strict diet and caloric intake restrictions to “reset” the area of the brain that controls hunger.

    But the FTC argued that Trudeau’s infomercials about the book did not accurately portray it, and thus violated the court-approved settlement reached by the parties in 2004.

    The federal district and appeals courts agreed. “Trudeau may have quoted parts of his book, but he did so deceptively,” wrote appeals court Judge John Tinder in a 2009 decision.

    The district court ordered Trudeau to pay the FTC $36.7 million and banned him from appearing in any infomercials promoting books for three years. The appeals court in FTC v. Trudeau, 579 F.3d 754 (7th Cir. 2009), remanded the case to explain the $37.6 million calculation, and ruled that a three-year ban on infomercials promoting future books was improper.

    On remand, the district court affirmed the $36.7 million amount, multiplying the price of the book by the number of customer orders plus shipping. The fine amount was to be distributed among consumers who bought the book based on the infomercial. Again, Trudeau appealed, arguing the fine amount was improper.

    In FTC v. Trudeau, No. 10-2418 (Nov. 29, 2011), the Seventh Circuit Court of Appeals affirmed the $37.6 million amount. It also ruled that a $2 million performance bond, in place of a three-year ban on infomercials, was not unconstitutionally imposed by the district court.

    The appeals court approved the “conservative” $37.6 million figure, noting the district court’s calculation excluded questionable figures from internet and in-store sales.

    Trudeau argued that requiring him to post a $2 million performance bond before participating in an infomercial for any future publication is coercive and violates the First Amendment because it requires him to pay before a misleading statement is ever made.

    But the appeals court disagreed, noting that Trudeau does not forfeit the bond unless he deceives consumers with a misleading infomercial. Applying “intermediate scrutiny,” the appeals court explained that protecting consumers is a substantial governmental interest that supports the $2 million bond, which is reasonably well-tailored to meet that objective.

    “It makes it more likely that consumers will be compensated for future violations and, more importantly, it makes it less likely that there will be future violations because Trudeau will face a considerable financial loss if he is involved in a deceptive infomercial, “ Judge Tinder wrote.

    By Joe Forward, Legal Writer, State Bar of Wisconsin