You’ll Pay Millions in Fines if You Violate These Rules

OK everyone, this is a really important post, so put down whatever you’re doing and listen up.  I’m giving you my *serious eyes.*  I mean it, pay attention.

If you are in a direct sales or network marketing company, your policies and procedures forbid product claims.  Don’t believe me? Go read ’em.  Trust me, it’s in there.  Especially if you sell any type of product that is supposed to go in or on the body, this is HUGE for you.  Companies AND their distributors (yes, you read that right…distributors too) have been fined MILLIONS of dollars for making improper product claims. This applies to all kinds of things: what you post in a blog, customer testimonials, statements on your Facebook page…all of it.

Spencer Reese

And the thing about social media is that the alphabet soup of all those regulatory bodies (FTC, FDA, etc) can easily find out when you’re making those claims.  Even if you are absolutely convinced that your product cured your cancer, you can’t say it.  Why not?  Well, I decided to ask my friend and colleague Spencer Reese, direct sales lawyer extraordinaire (if you’re a direct sales company in need of a law firm, check out Grimes and Reese at http://www.mlmlaw.com).

Here’s what I learned.

First, let’s talk about what a product claim actually is.  Essentially, you can’t state that your product can diagnose, treat, cure, or prevent disease, unless your company has a scientific study to back it up. If your company DOES have that study, your product is classified as a drug and has the proper labeling. And those studies cost millions of dollars.

So what can you say?  You CAN say that your product can “help maintain or support a system of the body,” so long as a scientific study has been done to prove it, and the statement has been filed with the Food and Drug Administration (FDA) within 30 days of when the claim is made.  How will you know if that has happened?  If your company has printed it first, or told you that you can say something.  If the statement has NOT been filed with the FDA, then that statement does not get the “safe harbor” protection created for supplements, and your product REQUIRES drug labeling.  And drug approval is a process that requires MILLIONS of dollars.

Let’s put this in terms of what you do daily.  If you make a statement about your product that has not been filed with the FDA, and the FDA finds out, the FDA could require your company to stop selling that product and seize all the stock of that product.  Seriously.  And then your product can’t help anybody.

And we haven’t even started talking about the Federal Trade Commission (FTC) and the Department of Justice, because they can get into the act too.  If the FTC determines that there is no competent or reliable scientific evidence to support your claims (as in, no scientific studies done), then there can be uber fines, and they may also require your company to take all the profits they’ve received from the sale of that product, and give it to the FTC to be used for “consumer redress.”  Don’t think it can happen?  In one case, according to Reese, not only was a company fined millions, but the top distributor was also fined $1 million, and the 2nd distributor was required to pay $500,000 in fines.

So what about customer testimonials?  You may have a client who is absolutely convinced that it was your product that solved his or her problem (be it obesity cure, hair growth, fewer wrinkles, dandruff treatment, removed acne scars, health issues, etc.).

The issue here is that from the consumer standpoint, the consumer doesn’t have enough evidence (according the the FDA and FTC) that your product is what actually cured the problem. Is there evidence that the product was absolutely what cured the problem?  Was the customer doing anything else about the problem at the same time? As a consumer (or distributor for your company) you just don’t have enough information.  Chances are you’ve done other things, too, that also contributed to the cure.  You need science to back up the causal relationships.  You have to go through clinical trials that drug companies go through (which cost millions of dollars) to eliminate all the other possibilities that may have contributed to the cure.  You need scientifically substantiated information.  Anecdotal evidence is not enough.

Your best bet with any testimonials you want to publish (and no matter where you post these testimonials online, it’s considered “published”) from your customers is to run them by your company first.  Your company HAS to have a scientific study to back the testimonial up before you’re allowed to publish it.  If they don’t have one, no matter how sure you are that it’s accurate, you simply cannot use it.  And HOW it’s phrased matters too.  If your product is not classified as a drug, the testimonial has to fall within the “structure/function” area we talked about earlier, which is where you have scientific evidence that your product supports the healthy function of a body system, rather than curing anything.  Your company really needs to review everything in order to confirm that it’s in compliance.

To stay safe, don’t allow your customers to publish testimonials on your sites either (neither your own nor your company’s.)  This includes the company Facebook Page.  If they put them there, and they don’t comply with what you’re allowed to say, take them down.  You can be held liable for everything published to a site designed to promote the company.  Your best bet is to have a policy listed anywhere the public can comment or provide testimonials in public, and then be sure to police it, taking down anything that is not in compliance with the law.

And here’s another layer to this…the FTC in December published new guidelines with regards to product testimonials. (You can read about them here: http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf) You USED to be able to say that results were not typical when presenting a testimonial, if it was true but it was not the average results with your product.  Now, if a testimonial is outside generally typical results, you must also disclose what typical results are as part of the testimonial.  What can be generally expected by the population?  Studies have to be very carefully designed so you can make appropriate disclosures.  So if you don’t have typical weight loss results studies for sedentary women in their 40’s, you can’t publish a testimonial from a sedentary woman in her 40’s that lost vast amounts of weight with your product.  That’s the law.

Direct sellers that need to be most careful with this are those that sell products that are put into or on the body.  Most typically, this includes people that sell health and wellness products, weight loss products, and cosmetics/skin care.

I’m telling you all about this today because with social media, we sometimes think that what we say falls under the same umbrella as things we say in person.  Now I’m not saying that you should ever make unsubstantiated product claims.  But when those claims are PUBLISHED ANYWHERE ONLINE, they can go much further than you think.  There is written proof that you’ve said them.  And it can harm you, your company, and every distributor in your organization.

Don’t be the person that prevents your company from selling an incredible product.  Stick within the realm of what you’re allowed to say, so everyone can enjoy the benefits of your product line.  Everyone will be better off in the long run.

Got it?

Special thanks to Spencer Reese of Grimes & Reese for his help in writing this article.

Spencer Reese graduated from the Washington University School of Law in 1986. He began practicing law in the areas of environmental law and commercial litigation in Boise, Idaho.   In 1992 Spencer joined the legal department of the direct selling company Melaleuca, Inc., and in 1996 he and his partner Kevin Grimes formed the firm Grimes & Reese where his practice is limited to providing legal services to direct selling companies and the dietary supplement and cosmetics industry.

Spencer has assisted hundreds of young and start-up direct sellers navigate their way through the regulatory maze of the FTC, the FDA, and the states as they set up their programs and prepare to launch.  He also regularly works with many of the biggest names in the industry on their day-to-day legal affairs and has successfully defended direct sellers before numerous state and federal regulatory bodies.  Spencer is a member of the Utah, Idaho, Colorado and Missouri bars, and is an active member of the Direct Selling Association’s Lawyer’s Council and the Government Relations Committee.  In addition to being a founding member of The Direct Selling Symposium Group, he is also a frequent speaker at numerous industry functions including events sponsored by the Direct Selling Association, and is a contributing author to industry publications.

19 Responses to You’ll Pay Millions in Fines if You Violate These Rules
  1. Shirley
    February 25, 2016 | 11:25 am

    I have read the article . I am aware of not advising people to used any YL oils for medical situation…..I am not a doctor. I do thank you for reminding use with the article……

    Shirley

  2. gin
    June 19, 2015 | 9:15 pm

    Thank you for writing this article and trying to bring awareness to this serious issue.

  3. Claramae weber
    June 17, 2015 | 10:41 pm

    Do you have a script to e mail me as a model?

  4. John
    June 15, 2015 | 10:54 am

    Jen, What if your company has the ONLY all-natural product on planet earth with 18 peer-reviewed studies, 9 patents and is NOT classified as a drug? Game-changer, right? This would be a paradigm shift in our industry. It would raise the bar higher than any “wellness” product offered today. Right?
    We CAN say Product X (a fictitious name) “…prevented fibrosis and capillary loss…” in a heart study, and “…reduced tumor multiplicity and incidence by 33% and 57%…” in a skin cancer study…

    • Dee Dee
      June 21, 2015 | 11:25 pm

      Not really. I was with a company with more studies and more patents and product that was life-changing…but they were heavily fined and a gag-order was enforced. Studies couldn’t be shared, nor could structure function claims be made. The company was crippled and almost went under. Other companies have been shut down. The FDA makes the rules and they are subject to change. They will ALWAYS win the game. We just have to learn the dance and change lives anyway, but compliantly.

  5. Charles Horne
    April 13, 2012 | 8:47 pm

    Very Important Information. Thanks Jennifer

  6. Duane Nurdock
    April 13, 2012 | 2:49 pm

    My question is why are these attorneys trying to protect the people against hearing and proving the truth instead of going after the entities that say you cannot tell the truth?

    • margaret
      February 24, 2016 | 2:31 am

      Because money can’t be made on a product that actually cures the problem instead of masking it…when you mask the problem, you have to keep purchasing the product…when it cures…you only have to buy it once or twice.

  7. Christie
    April 13, 2012 | 9:38 am

    Thanks for this post Jennifer! I’m wondering…. Does “product x makes my skin feel amazing” still count as a testimonial since there is no cure or treatment implied?

    • Jennifer Fong
      April 13, 2012 | 11:58 am

      I don’t believe so, but when in doubt, ask your company!

  8. Dawn Cyrus
    February 26, 2011 | 12:49 pm

    This just sounds like Big Brother putting their foot down on a healthy lifestyle, again! Cheerios, anyone? The FDA doesn’t want us to be healthy, plain & simple. Put healthy stuff in, get a healthy inside. The FDA approves of Aspertame being used in our food. This “ingredient” is found in rat poison for crying out loud!

  9. Jhanna Dawson
    February 26, 2010 | 2:16 pm

    GREAT post, Jennifer. Even though I don’t rep a product that is ingested, I have seen atrocious claims in regards to my company’s product line from reps.

    My belief is stick to the basics, and the info the company gives me. It’s just easier. :0)

    ~Jhanna

  10. Anne Melnyk
    February 25, 2010 | 1:38 pm

    Wow. Terrific article Jennifer. It really highlights the importance of being impeccable with all of your communications. We so commonly see people shooting from the lip when they are selling not only products, but services as well. Like Shannon, I would be interested in hearing what Spencer would have to say about services. Are there written guidelines available that govern promotion of services, be they weight loss, alternative health, internet marketing systems, business development or coaching services?

  11. Shannon Bruce
    February 25, 2010 | 12:37 pm

    Another fabulous blog post Jennifer. I’m curious about this…how does this pertain to services? I’m curious about that angle especially for myself and my clients who are coaches and self-employed professionals with other types of businesses that include services. What advice or direct might Spencer have around claims for services?

  12. MaryKay
    February 25, 2010 | 11:09 am

    Excellent, EXCELLENT article. I began my entrepreneurial journey with a nutrition product sold in this manner. Fortunately, the company behind the product were way ahead of the curve on this one and took the “no testimonial” approach and instead invested heavily in research good enough to be published in peer reviewed journals.

    The challenge of course is that people make the decision to buy based on emotion and justify it with facts so it is essential that direct sales people get the training they need to properly phrase personal testimonials that connect emotionally but do not move into “cause and effect” statement. Easier said than done but worth the effort!

  13. mary Irwin
    February 25, 2010 | 11:05 am

    Extremely well-written, Jennifer and a very important subject!

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