The FDA is taking more aggressive steps to reign in some aspects of e-cigarette marketing in its finalized rule, including a ban on sales to minors, which takes effect today. The regulations also require health warnings in ads and on product packages, prohibits the distribution of free samples, and requires manufacturers to show that the products meet applicable public health standards before receiving authorization from the FDA. But e-cigarettes can continue to be on the market for three years while their manufacturers submit — and the FDA reviews — their new tobacco applications and the products are not bound by the same advertising restrictions that regular tobacco cigarettes must follow. Here’s some key issues to be aware of regarding the marketing of the products:
Unknown risks: While much of the marketing of e-cigarettes has centered around the claim that vaping products are a safer alternative to tobacco cigarettes, the jury is still out on that. In fact, California issued a health warning about their “toxicity” and advised residents not to smoke them. The FDA maintains that the risks associated with e-cigarettes have not been fully studied. At issue is the nicotine in the products and the chemicals in the vapor that is emitted. Despite this health concerns, a TINA.org review of more than 150 e-cigarette websites found that half indicate in some way that vaping products are safe or a healthy alternative to tobacco.
Potentially poisonous liquid: A study by the Centers for Disease Control found that the number of calls to poison centers regarding liquids containing nicotine used in e-cigarettes is dramatically rising. More than half involved children under 5 and 42 percent involved consumers aged 20 and over. “The report shows that e-cigarette liquids containing nicotine have the potential to cause immediate adverse health effects and represent an emerging public health concern,” the CDC said. Callers reported vomiting, nausea and eye irritation. Some consumers have also reported the products blowing up.
Multi-level marketer Herbalife will pay $200 million back to people who were taken in by what the FTC alleges were misleading moneymaking claims. But when it comes to protecting consumers, that may not be the most important part of the just-announced settlement. What could matter more than $200 million? An order that requires Herbalife to restructure its business from top to bottom – and to start complying with the law.
“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”
The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity. “Discount buyers” will not be eligible to sell product or earn rewards.
Multi-level compensation that business opportunity participants earn will be driven by retail sales. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified. No more than one-third of rewards can be based on other distributors’ limited personal consumption.
Companywide, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. Otherwise, rewards to distributors must be reduced.
Herbalife is prohibited from allowing participants to incur the expenses associated with leasing or purchasing premises for “Nutrition Clubs” or other business locations before completing their first year as a distributor and completing a business training program.
When I sense a gap in the industry’s understanding on an issue, I see it as an opportunity to learn more and write content that sets the record straight. I’ve been fielding a lot of questions lately on the subject of whether a company can require monthly product purchases as a condition for pay plan qualification. When I give the answer, I’m sometimes met with surprise. They’ll often say, “They’re doing it over here and over there…..are you telling me they’re a pyramid schemes!?” Here’s the truth: multilevel marketing companies cannot require their participants to buy inventory as a condition to participation. This is black letter law, meaning it’s a rule not subject to any dispute. Whether this principle comes as a surprise or makes no difference, an understanding of why it exists and where it comes from is crucial to the avoidance of regulatory trouble.
The best definition for what constitutes a pyramid scheme arises out of the 1975 FTC case, In re Koscot Interplanetary, Inc. What separates a legitimate MLM from an illegal scheme boils down to two basic elements:
(1) a participant’s payment of money in return for the right to sell a product/service; and
Friday, October 16th, 2015, the Vemma legal team filed an emergency motion in the UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA, to move the Court for an order approving the revised compensation plan attached hereto as Exhibit “1” (the “Revised Compensation Plan”).
From the supporting documentation filed the FTC may have decided to change their argument from “just” the way Vemma markets their income opportunity, and using standard benchmarks like the Koscot test and BurnLounge opinion, to deciding that the “binary” compensation structure in and of itself is the real issue behind their complaint.
If this is not a misunderstanding on the side of the Vemma legal team, then it will be the first time since the Binary was crafted in the mid-90s, that any regulator has called the structure in and of itself into question.
Before I get into the receiver’s report, I want to share a link to an article written by Robert FitzPatrick. FitPatrick is one of the most outspoken critics of network marketing/MLM and one of the most quoted anti-pyramid experts by the FTC.
The Federal Trade Commission has announced two proposed settlements that will conclude their sweep against online marketers that allegedly used fake news sites to promote weight-loss products.
The two settlements, one with Beony International and owner Mario Milanovic and one with Beony International employee Cody Adams, each impose a $13 million judgment. However, that will be suspended when the defendants pay more $1.6 million and sell a 2008 Porsche. However, if the financial information the defendants provided is later determined to have been false, the full amount of the judgments will be imposed.
As with similar cases in the sweep, the FTC alleged that while Beony websites were designed to appear as if they were part of legitimate news organizations, they were actually advertisements delivering deceptive advertising about acai berry weight-loss products featured in the “news reports.”
The settlements also bar the defendants from further deceptive claims about any product or service, including the acai berry weight-loss supplements, colon cleansers, teeth whiteners, work-at-home plans, and surplus auctions that they marketed. The defendants also must disclose any material connections they have with merchants.