October 2004 - One Man's War With the Federal Trade Commission

Examining the latest battle between DRTV marketer Kevin Trudeau and the FTC.

By Jeffrey D. Knowles

On Sept. 7, 2004, the Federal Trade Commission (FTC) issued a press release announcing a $2 million settlement in cash and real property and proclaiming “Kevin Trudeau Banned From Infomercials.” The acting director of the FTC’s Bureau of Consumer Protection added that the “ban is intended to shut down an infomercial empire that has misled American consumers for years.” In a news story the next day, under the headline “FTC Pulls Plug on Infomercial Giant,” the Washington Post reported that “the FTC largely kicked Trudeau off television.” But is this really the end of the line for Kevin Trudeau or merely a detour in the road?

Five days earlier, in a federal courtroom in Chicago, Judge Robert W. Gettleman approved the landmark FTC settlement, telling Trudeau: “You are a very clever man. You’ve got a good future ahead of you, I’m sure. You’re creative.” In the same hearing, Trudeau’s lawyer informed the Court: “It is generally Mr. Trudeau’s intention and consistent with the [settlement] order that he intends to get out of the business of selling product and focus on becoming an author…[and] a consumer critic or advocate.” It is impossible to speculate on Trudeau’s future prospects without looking closely at the motions, court orders and hearing transcripts in his latest skirmish with the FTC.

In June 2003, long after the coral calcium infomercials had begun airing, the FTC sued Trudeau and some of his companies, alleging that claims that Coral Calcium Supreme could cure cancer and other serious diseases were false and unsubstantiated. The Commission also alleged, in a second lawsuit filed simultaneously, that Trudeau violated a prior FTC order he entered into in 1998 by making disease claims for Coral Calcium Supreme and another pain-relief product. As part of the litigation, the FTC sought a temporary restraining order against Trudeau, a freeze on his personal and corporate assets, and an accounting and appointment of a temporary receiver to run his business.

Shortly thereafter, Trudeau entered into a stipulated temporary restraining order with the FTC and two weeks later, a stipulated preliminary injunction that prohibited him from continuing to make the challenged claims for Coral Calcium Supreme. The preliminary injunction specifically prohibited Trudeau from claiming that calcium cures cancer, heart disease and other serious diseases, and required him to pre-clear all infomercials with the FTC before airing them.

On Dec. 22, 2003, after six months of routine motions and discovery, Trudeau filed a surprise motion for relief from the preliminary injunction, asking the Court to permit him to begin re-airing the Coral Calcium Supreme infomercial. He argued that the infomercial was protected by the First Amendment to the Constitution of the United States and did not violate the ban in the preliminary injunction against making claims about curing cancer, heart disease and other serious diseases.

The FTC vigorously opposed Trudeau’s request, pointing out to the Court that the Coral Calcium Supreme infomercial mentioned cancer 33 times. On March 31, 2004, Judge Gettleman denied Trudeau’s motion, stating that “it seems to me that this [infomercial] doesn’t live up to the requirements of honesty and is likely, highly likely, to be found at the end of the day to be deceptive.”

Soon after the Court’s ruling, the FTC filed a new civil contempt motion against Trudeau, alleging that beginning in late December 2003 and continuing through April 2004, Trudeau sent hundreds of thousands of Coral Calcium letters-signed by him personally-to customers who had previously purchased Coral Calcium Supreme after seeing the infomercial. The letter stated, among other things, that “the Federal Trade Commission forbids us from saying that calcium prevents, or possibly even cures, cancer, heart disease, diabetes and pain-even if it’s true…”

The FTC further alleged that Trudeau violated the preliminary injunction by airing at least 10 infomercials without the FTC’s prior knowledge and review. According to the FTC, one or more of the 10 infomercials aired by Trudeau specifically and repeatedly mentioned the names of the four FTC attorneys involved in the Trudeau case, blaming them for prohibiting him from quoting “scientific research published in the Journal of the American Medical Association or the New England Journal of Medicine or other reputable journals proving that calcium supplements are able to reverse and/or cure cancer in the human body.”

On June 29, Judge Gettleman held Trudeau in contempt of court. He found that the FTC had established by “clear and convincing evidence” that Trudeau had violated the preliminary injunction. In ruling against Trudeau, the judge admonished him for criticizing the preliminary injunction stating, “you may feel that way, but you agreed to this injunction, and there’s a big difference between having something shoved down your throat and something you stipulated to as a vehicle towards resolving your differences with the FTC and moving forward.” Judge Gettleman also repeatedly encouraged the FTC and Trudeau’s counsel to get the case “back upon a settlement track.”

Finally, after several postponements, the parties appeared in court on September 2 to advise Judge Gettleman that a final settlement order had been agreed upon and approved by a 5-0 Commission vote. In addition to requiring Trudeau to turn over to the FTC $500,000 in cash, a luxury automobile and California real estate, the final settlement order prohibits Trudeau and his companies from “producing, disseminating, making or assisting others in making any representation in an infomercial [defined to mean any radio or television commercial 120 seconds or longer in duration] aired or played on any television or radio media…” The settlement also prohibits Trudeau from making any disease or health-benefit claims for any type of product, service or program in any advertising medium regardless of the format and duration. Finally, with the exception of continuity sales through the end of this year, Trudeau and his companies are prohibited from manufacturing, advertising or selling any product containing coral calcium.

Of particular importance to Trudeau and his future aspirations as an author and consumer advocate is the exception in the FTC settlement that allows him to continue to appear in, produce and air future infomercials advertising, promoting or selling “any book, newsletter or other informational publication in any format provided that such book, newsletter or other informational publication: 1) does not reference, directly or indirectly, any branded or trademarked product, program or service that [Trudeau and his companies] are promoting; 2) is not, directly or indirectly, an advertisement for any product, program or service; and 3) is not sold, promoted or marketed, directly or indirectly, in conjunction with any product, program or service that is related to the content of the book, newsletter, informational publication or infomercial.” This exception, which also applies to non-television and radio advertising, is based on Trudeau’s fundamental right to engage in speech protected by the First Amendment. In short, Trudeau can continue to advertise, promote and sell, through infomercials or other media, books, newsletters or other informational publications as long as they are not associated, directly or indirectly, with any product, program or service offered by him or others.

In the September 2 settlement hearing, Trudeau’s counsel was careful to point out to Judge Gettleman that Trudeau “is permitted to author books and to produce infomercials for the books …” He also advised the Court that “the word ‘informational publications’ is intended to include books, books on tape, CDs, DVDs, newsletters…[and] a variety of formats in which books can be published…such as disks in the future…” He further explained to the Court that “regardless if it’s a…traditional magazine or newsletter or book, whatever it might be, that’s all within the contemplation of the exception.”

In addressing the question of what is or isn’t permitted under the final settlement order, Trudeau’s counsel also pointed out to the Court that the “word ‘promoting’ will become a critical word, because obviously [Trudeau is] free from a First Amendment standpoint to say certain things about branded products.” He further noted that “ultimately this is going to be a question of facts and circumstances as any particular publication arises.”

In approving the settlement, Judge Gettleman addressed the parties and observed that “anybody who has the ability to sit down and work out a decree such as the one you have presented me should be able to work out any differences that arise during the performance of the proscriptions and other activities that are covered by the decree.” Judge Gettleman placed special emphasis on the FTC’s pre-screening of Trudeau’s future activities.

The most interesting thing to watch in the months ahead will be Trudeau’s interpretation of the FTC settlement order and his efforts to fit as much as possible within the First Amendment exception. While it’s predicted that the FTC will undoubtedly seek a narrow interpretation of that exception in any future enforcement action against Trudeau, under a series of side agreements presented to Judge Gettleman by Trudeau’s counsel, the FTC has already agreed to and approved the first post-order airing of the new infomercial for Trudeau’s book “Natural Cures They Don’t Want You to Know About.”

Trudeau’s counsel explained to the Court that the infomercial for the Natural Cures book had already been provided to the FTC, “and they have no objection to the dissemination of the book or the infomercial in its current format.” He added, “This falls within the book exception…So we have the first tangible example of something that is acceptable under that provision.” Finally, he noted that “to the extent we ever have disagreements in the future, it would be our intention to submit anything that is questionable to the FTC and try to work out those differences with them. But that is one area where there is potential for disagreement down the road.”

Does this mean that Trudeau is completely banned from DRTV? Few in the industry believe we’ve seen or heard the last of Kevin Trudeau.

Web Site Promotes New Trudeau Book

NaturalCures.com, a Web site that promotes Kevin Trudeau and his new book, claims to expose “the actions of the FDA, the FTC and the pharmaceutical cartels and how they are suppressing natural alternative therapies and cures, and taking our health freedoms away from us.” The site contains a further warning to visitors:

“Please note that the FTC and the FDA are actively and aggressively trying to shut down and prevent this Web site from even existing. They do not want you to know the truth. They do not want you to know about this lifesaving information. It’s sad that millions of people will suffer and die needlessly because the FTC and the FDA are suppressing the truth about natural cures.”

Visitors to the Web site can order Trudeau’s new book. In addition, subscribers who register as a “Founder” of the NaturalCures.com Web site receive free tickets to every Trudeau health seminar, a discount on all books, tapes and information available on the Web site, as well as personal interaction with Trudeau.

Jeffrey D. Knowles is a partner in Venable LLP, a founder of the Electronic Retailing Association (ERA) and a member of its Board of Directors.


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