The U.S. Court of Appeals for the Seventh Circuit has upheld adistrict court ruling requiring marketers of the “Q-Ray IonizedBracelet” to give up almost $16 million in net profits as part of amaximum $87 million they must pay in refunds to consumers. In adecision issued on January 3 and written by Chief Judge FrankEasterbrook, the court concluded, “The magistrate judge did notcommit a clear error, or abuse his discretion, in concluding thatthe defendants set out to bilk unsophisticated persons who foundthemselves in pain from arthritis and other chronic conditions.”The court found that the defendants’ claims about how their productworked, for example, through “ionization” or “enhancing the flow ofbio-energy” were “blather.” Judge Easterbrook wrote, “Defendantsmight as well have said: Beneficent creatures from the 17thDimension use this bracelet as a beacon to locate people who needpain relief, and whisk them off to their homeworld every night toprovide help in ways unknown to our science.” The FTC filed itscase in May 2003, alleging that QT Inc., Q-Ray Company, andBio-Metal, Inc., located in Illinois, and their owner, Que Te Park,also known as Andrew Q. Park, made false and misleading advertisingclaims that the Q-Ray bracelet provided immediate and significantpain relief and deceptively advertised their refund policy, inviolation of Sections 5 and 12 of the FTC Act. In September 2006,the federal district court in Chicago found in favor of the FTC. InNovember 2006, the court required the defendants to turn over aminimum of $22.5 million in net profits and up to $87 million inrefunds to consumers who bought the bracelets between January 1,2000 and June 30, 2003, when the bracelet was advertised oninfomercials and Internet Web sites, and at trade shows. Thedistrict court later reduced the minimum disgorgement amount to$15.9 million, which the appellate court has upheld. The appellatecourt rejected the defendants’ argument that the magistrate judgehad held the defendants to too high a standard of proof for theirpurported therapeutic claims about the bracelet and found that theclaims must be based on science. The court found that “proof iswhat separates an effect new to science from a swindle” and thatthe defendants “have no proof,” stating that the “tests” thedefendants relied on were “bunk.” The court also rejected thedefendants’ contention that testimonials could support their claims-- the defendants could not show that the testimonials would nothave enjoyed the same pain relief even if they had not worn thebracelet. “That’s why the ‘testimonial’ of someone who keepselephants off the streets of a large city by snapping his fingersis the basis of a joke rather than proof of cause and effect,”stated the court. The appellate court also rejected the defendants’argument that because their bracelet conferred a benefit toconsumers through its placebo effect, they were vindicated inmaking their false therapeutic claims. The court held that theFederal Trade Commission Act “lacks an exception for ‘beneficialdeceit’.” The court noted, “Deceit such as the tall tales thatdefendants told about the Q-Ray Ionized Bracelet will lead someconsumers to avoid treatments that cost less and do more . . .”.The court also found that the defendants deceived consumers whopurchased online and received only a 10-day return period when theinfomercials promised a 30-day refund and suggested that consumerspurchase online. “The disclosure of this shorter period was buriedseveral clicks away on the website” and did not ameliorate theinfomercial time frame upon which “reasonable consumers” couldrely, the court stated. The Q-Ray defendants are currently inChapter 11 bankruptcy in the United States Bankruptcy Court for theNorthern District of Illinois.
1. Are not such claims as those at the center of this case sotransparent that there is no need for a government agency or courtto intervene?
2. Does not the marketplace effectively wee out such frauds?
3. Assume that the defendant had actually conducted scientificstudies, which had proved inconclusive. How might the judge haveruled in that situation?
