Explaining how deceptive marketing by My Pillow led to significant civil penalties and material reputational damage.
My name is Steve Hart, and I am a contributing journalist for Compliance Mitigation. I am a Partner at Conformity 360, a compliance consulting firm, serving as the resident subject matter-expert in buy-side Compliance. Prior to joining Conformity360, I was Chief Compliance Officer (“CCO”) for the prestigious firm Allen & Company, and prior to that, served as the Global Chief Administrative Officer for Compliance at BlackRock, the world’s largest asset management company. I hold an Investment Adviser Core Certification, an M.S. in Banking and Financial Services from Boston University and a B.A. in Political Science from the University of Pennsylvania.
Having worked as the CCO for Registered Investment Advisers (“RIAs”) with the Securities and Exchange Commission (“SEC”), I have been through numerous regulatory audits and examinations. Experience gives me insight into how the regulatory bodies conduct investigations and attempts to obtain enforcement actions, often including jail and prison sentences.
After completing this case study, the participants will be able to:
- Understand how the concept of unsubstituted claims impacts retailers.
- Understand what qualifies as deceptive marketing.
- Understand Tina.org’s purpose in protecting consumers.
- Understand what prompts the FTC to bring enforcement actions against retailers.
- Identify risky behavior to avoid as a retailer when advertising.
FTC, Deceptive Marketing, Tina.org, Unsubstantiated Claims, Competition Act
The FTC’s Bureau of Consumer Protection deters unfair, deceptive and fraudulent business practices by collecting reports from consumers, conducting investigations, suing companies and people that break the law, developing rules to maintain a fair marketplace, and educating consumers and businesses about their rights and responsibilities. As our nation’s premier agency in charge of consumer protection, the FTC monitors and investigates reports about ongoing scams and businesses that fail to make good on their promises. The FTC’s jurisdiction includes oversight of deceptive and misleading marketing by retailers.
Misleading advertising occurs when, in the promotion of a product or any business interest, a representation is made to the public that is false or materially misleading. If a representation influences consumers to buy the product or service advertised, it is material. To determine whether an advertisement is misleading, the courts consider the “general impression” it conveys, as well as its literal meaning.
Misleading advertising can have serious economic consequences, especially when directed toward large audiences or when it takes place over a long period of time. It affects both business competitors who are engaging in honest promotional efforts, and consumers.
The FTC uses all available rules and laws in its arsenal to enforce its mandate. One law in particular, the Competition Act, applies to all marketing representations, regardless of form, that are made to the public to promote the products of a retailer. In cases where a person knowingly or recklessly makes a representation to the public that is materially misleading, the matter may result in a significant fine or even be dealt with as a criminal offense, exposing him or her imprisonment for up to five years.
In cases where it is difficult to prove that a misleading representation has made knowingly or recklessly, the Competition Bureau (under the Competition Act) may apply to the Competition Tribunal or other court for an order requiring the person to cease the activity, publish a corrective notice and/or pay a monetary penalty. Penalties may double for second and subsequent occurrences.
Truth in Advertising, Inc. (TINA.org) is a 501(c)(3) nonprofit organization based in Madison, CT, whose mission is to be the go-to online resource dedicated to empowering consumers to protect themselves and one another against false advertising and deceptive marketing.
A TINA.org investigation catalogues hundreds of instances in which MyPillow.com makes or references express or implied claims that its pillow can treat, cure, alleviate the symptoms of, prevent, or reduce the risk of developing diseases and disorders. This sampling includes claims made directly by the company, as well as claims made in customer testimonials. Since then and as a result of TINA.org’s warning letter to the company, MyPillow has removed many of these claims.
Minnesota-based MyPillow sells more than 4 million pillows in the U.S. and is well known for its nationally broadcast ads and infomercials featuring self-proclaimed “sleep expert” Michael Lindell, the founder and CEO of the company. The company once advertised that it could help the army of the sleepless, claiming that its pricey foam-filled pillow can treat or cure a variety of sleep disorders, including insomnia, sleep apnea, and restless leg syndrome. MyPillow also claims, often using flashy testimonials, that its pillow can alleviate the symptoms of anxiety, migraines, acid reflux, menopause, multiple sclerosis, cerebral palsy and post-traumatic stress disorder, among other conditions. The company, however, has no supporting research to back up those claims.
TINA.org contacts MyPillow and confronts the company regarding the lack of substantiation required by law to make such health claims. TINA.org further informs MyPillow that it would file a complaint with the FTC if MyPillow does not removed the misleading statements. The company takes down numerous health statements from its website and pledges and puts the remainder of that type of marketing to rest.
While MyPillow does the right thing by taking down these unsubstantiated health claims, they never should have been there in the first place.
After corresponding with TINA.org over the deceptive marketing campaign, Lindell states he would also stop using the customer testimonial of Tom Clapp, whose position as president of the Michael J. Lindell Foundation is not disclosed in a MyPillow TV commercial. Lindell also promises to eradicate unproven health claims on testimonial webpages, social media, and in MyPillow TV ads. But Clapp remains in the commercial and TINA.org finds additional testimonials containing inappropriate health claims on the MyPillow website.
MyPillow subsequently faces legal action on several fronts since TINA.org first put the company on notice regarding unsubstantiated health claims for its heavily marketed pillow. (The company spends $1.4 million a week on advertising, according to the Boston Herald.) The company is subsequently entangled in three complicated class-action lawsuits filed in succession, all of which, in one form or another, mirrored TINA.org’s findings. These findings include claims that Lindell is a “sleep expert” despite having no specialized training or board certification in actual sleep medicine; the misuse of several news organizations’ logos, including The New York Times that falsely suggest endorsements by the media outlets; and the misleading nature of the company’s ubiquitous buy-one-get-one-free pillow offer. The Better Business Bureau (“BBB”) revokes MyPillow’s accreditation and lowers its rating from an A-plus to an F.
One of the three class-action cases reaches a preliminary settlement that requires MyPillow to refund consumers who bought the pillow $5 per household. It also prohibits the company from making unsubstantiated health claims nationwide.
MyPillow also agrees to pay $1.1 million to settle a whistleblower case handled by the New York attorney general’s office that alleges it knowingly fails to collect sales tax on Internet and phone sales of pillows marketed in New York.
MyPillow sales soar after the company first airs a 30-minute infomercial on national television where Lindell is repeatedly referred to as a “sleep expert.” Lindell demonstrates on stage how the MyPillow performs better than other pillows. He uses phrases like “my theory of sleep” and explains how “sleep is the most important thing to your health.” But for all his purported expertise, Lindell admits that he does not have any specialized training or board certification in actual sleep medicine other than talking with people about sleep issues.
“I have dealt with over tens of thousands of people directly and gotten their feedback on sleep and that’s where I consider myself a sleep expert more so than most people,” Lindell states.
Dr. Raman Malhotra, on the other hand, is board certified in neurology and sleep medicine by the American Board of Medical Specialties. Malhotra, co-director of the SLUCare Sleep Disorders Center in St. Louis, Mo., responds to a TINA.org inquiry regarding how pillows can affect sleep. He states that while certain pillows which encourage sleeping on your side may provide a more comfortable and less interrupted slumber, there’s no evidence that a pillow can treat all the underlying medical conditions that MyPillow claims to treat (sleep apnea, insomnia, etc.).
MyPillow’s website also features the familiar logo of The New York Times. TINA.org notifies The New York Times about MyPillow’s use of its logo, and MyPillow removes it from the homepage, no longer linking it to the article on its website.
Citing TINA.org’s investigation, a class-action lawsuit challenges MyPillow’s use of media outlet logos and Lindell’s “sleep expert” claim.
There are advertising “do’s” and “don’t’s” retailers should follow to avoid enforcement actions including civil penalties and / or prison sentences.
The most clear and obvious involve avoiding, fully disclosing all material information in the advertisement, and avoiding terms or phrases in an advertisement that may be confusing. Also remember that Do not forget that no one actually needs to be misled for a court to find that an advertisement is misleading.
Most of the rules applying to misleading advertising solely require the use of some good ol’ common sense. Use yourself as a guideline and consider what practices might offend you. It’s one of those instances in which the bible might come in handy. “Only do unto others as you would have others do unto you.” Compliance is not all that complicated when viewed from that perspective.