A light bulb moment for marketers

When did a light bulb become the symbol of a good idea?  We don’t know, but a ruling in the FTC’s lawsuit against Lights of America – including a $21 million order mandating refunds for consumers and some bookmark-worthy notable quotes from the Court – should serve as a light bulb moment for marketers.

The FTC charged California-based Lights of America and its two owners with overstating the light output and life expectancy of their LED bulbs and falsely comparing how bright they were compared to other bulbs.  On packaging and in product brochures, the defendants initially claimed their products had a 30,000-hour life and last “15 times longer than 2,000 hour incandescent bulbs.”  Later on, they dialed their representations down to a 12,000-hour life – “6 times longer than 2,000 hour incandescent bulbs.”  The trouble was even those claims were misleading.  As the court concluded after a four-day trial, the data Lights of America relied on showed that none of the LEDs they tested would last beyond a few thousand hours.

If you or your clients sell LED bulbs, you’ll want to study the Court’s detailed findings of fact.  But regardless of your industry, if you’re looking for a point-by-point summary of fundamental legal principles, the opinion sheds light on the broad spectrum of consumer protection caselaw.  Among the Court’s illuminating conclusions:

Advertising claims

• “Express claims or deliberately made implied claims are presumed to be material.”  Also presumed material:  “Information about a product’s purpose, safety, efficacy, or cost.”
• "The FTC is not required to show that every reasonable consumer would have been, or in fact was, misled."  Furthermore, ads "that are capable of being interpreted in a misleading way should be construed against the advertiser.”
• “The Commission need only prove that material misrepresentations were widely disseminated and that consumers purchased products bearing those deceptive claims.”

Substantiation

• “Advertisers are required to have substantiation not just for express statements but for all reasonable interpretations of their advertisements.”
• “Where an advertiser makes claims using specific figures or facts, a high level of substantiation, such as scientific or engineering tests, is required.”

Asserted defenses

• “The existence of a warranty and/or return policy is irrelevant to the legal question of whether an advertiser violated Section 5(a).”
• “That there may have been modest rates of returns does not vitiate the misrepresentations or the need for equitable relief” and the existence of some satisfied customers isn’t a defense under the FTC Act.
• “A defendant’s assertions of good faith that are based on its failure to ascertain the law related to its chosen line of business reinforces, and does not excuse, the need for permanent injunctive relief.”
• “The fact that the defendants are currently complying with the law does not preclude an injunction.”

Individual liability

• Individual liability is appropriate “when the defendant participated directly in the violative conduct or had authority to control it.”
• “Authority to control can be evidenced by active involvement in business affairs and the making of corporate policy.”
• "The extent of an individual's involvement in the business affairs of a company engaged in deception is sufficient to establish the requisite knowledge for personal restitutionary liability."

Financial remedies

• "Whether consumers received something of value from a defendant is not relevant in determining liability or restitution under the FTC Act."
• At minimum, Lights of America’s “gross revenue is a proper measure for monetary liability in this case and any supposed value received by the consumer should not be deducted.”
• "The Court may also enter an award of equitable disgorgement," defined as a company's "gross revenues from its illegal conduct in advertising and selling its products with unsubstantiated claims."
• "Here, the appropriate amount of equitable relief under both restitution and disgorgement are the same: defendants' gross revenues from the deceptively advertised products."
• Lights of America's "claim for an offset due to the purported benefit consumers obtained by using its lower-energy LED Lamps has no merit."

The redress order of $21,165,863.47 represents the total amount Lights of America received as a result of the deceptive sale of its products.  An important provision to note for your clients:  The Court’s Final Judgment holds the corporation and the two corporate officers “jointly and severally liable” for that sum, meaning that they’re each responsible for the total.  The order also mandates major changes to how Lights of America does business in the future.

The message for marketers:  If you make objective product claims, you must have appropriate scientific or technical evidence in hand before you start selling.  Yes, well-designed and properly manufactured LED bulbs can offer an energy-saving and longer-lasting alternative to incandescents or CFLs.  But companies selling LED bulbs – like any other advertiser – need appropriate proof to back up their claims.

Furthermore, companies have every right to choose whether to settle a complaint or have the facts decided by a judge.  But if you go to court, you can be assured the FTC will be across the aisle to present the case for consumers and seek every appropriate remedy on their behalf.