Teeth Whitening and Antitrust

For some time, the Federal Trade Commission (FTC) has been attempting to limit the scope of anti-trust immunity under the “state action doctrine.”  The state action doctrine provides that states may take regulatory actions that would have otherwise violated federal anti-trust laws.  The FTC recently recorded a big win in this ongoing fight in the matter of  North Carolina State Board of Dental Examiners v. Federal Trade CommissionCase No. 12-1172 (4th Cir. May 31, 2013).  The Fourth Circuit held that the the Board of Dental Examiners improperly expelled non-dentists from the teeth whitening market in North Carolina.

This case focused on actions of the Board, which is a state agency made up of practicing dentists, dental hygienists, and a consumer representative.  While the primary purpose of the Board is to license and discipline dentists, the board had issued dozens of cease and desist letters to non-dentists engaged in teeth-whitening services.  The FTC caught wind of this and issued an administrative complaint alleging improper exclusion of non-dentists from the market.  Of course, the Board responded by claiming that it was covered under the state action doctrine because it was a state entity that was created to regulate the practice of dentistry, which included teeth-whitening.

The Fourth Circuit held that the Board was a private actor because its majority is made up  of members who are participants in the regulated market and who were elected by fellow market participants.   In reaching this decision the Court relied on California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980), which held that private parties can only claim immunity if they act according to express state policy and are actively supervised by the state.  The Board was unable to meet this test because there wasn’t sufficient state oversight.  As such, the Board is subject to anti-trust laws.

For those of you keeping track at home, the NCAA is not subject to anti-trust laws but the actions of the a State Board of Dental Examiners are covered.  Makes sense in the grand scheme of things, right?

FTC Cracks Down on False Advertising

My grandfather lived by the adage, “If a product was any good, the company wouldn’t have to advertise.”  As a child, I never knew if he took the saying seriously, or if it was simply a means to justify his incessant channel surfing.  Today, as an adult, I think about his proverb every time I turn on the television.  It is amazing the lengths to which companies will go for a 30-second window in which to pitch their products.  Advertisements make outstanding claims, leading viewers to believe a product is a life necessity.  If all products worked as advertised, we would live in a commercial utopia.  Unfortunately, we can’t believe everything we see.

Recently, the Federal Trade Commission filed a complaint against Reebok International, Ltd. in the Untied States District Court for the Northern District of Ohio regarding advertisements for its EasyTone and RunTone line of athletic shoes.  According to the complaint, Reebok engaged in “unfair or deceptive acts” by representing in both television and print media that

laboratory tests show that when compared to walking in a typical walking shoe, walking in EasyTone footwear will improve muscle tone and strength by 28% in the gluteus maximus, 11% in the hamstrings, and 11% in the calves.

and that

running in RunTone shoes will tone and strengthen the legs and butt more than running in a typical running shoe.

According to the FTC, these allegations cannot be replicated in independent laboratory settings.  You can view one of the allegedly “unfair and deceptive” commercials here.

While we must commend the FTC for promoting truth in advertising, this lawsuit raises a number of issues.  First, if the shoes do not tone and strengthen by 28%, what do they do?  The complaint is silent as to the results of the FTC’s study.  If the shoes only increase muscle tone by 25%, is it really necessary to hold Reebok accountable for false advertising?  Even if the shoes increase tone and strength by a marginal percentage, customers still gain a net benefit versus conventional shoes.  We doubt the average consumer is overly concerned about the exact percentage points.  If the shoes actually decreased muscle tone and strength, then this lawsuit may be necessary.

Second, how have the consumers been harmed by Reebok’s advertisements?  FTC alleges that consumers have suffered from “substantial injury.”  However, the complaint neglects to mention any specifics.  In fact, consumers may have actually derived a benefit from the shoes.  Aside from the aforementioned increase in tone and strength, the shoes may have provided consumers with added incentive to walk or run.  As we here at Abnormal Use can attest, we could all benefit from more exercise.

While the allegedly deceptive advertisement may have had little, if any, effect on consumers, FTC’s complaint had a major effect on Reebok.  Shortly after FTC commenced its lawsuit, Reebok settled with the FTC for $25 million.  As a part of the settlement, the FTC has arranged for those affected by Reebok’s “deceptive act” to request a refund.  In order to receive the refund, consumers are not required to demonstrate a lack of increase in muscle tone.

Was my grandfather correct?  Are advertised products less effective than the non-advertised competition?  While we here at Abnormal Use can not attest for the sufficiency of EasyTone shoes, we do believe advertisements are prone to some embellishment.  As consumers, we have come to temper our expectations. As for Reebok?  Following the settlement, it issued a statement, saying, “Settling does not mean we agree with the FTC’s allegations; we do not.”