April 1, 2023

What is an Earnings Claim?

Generally, an earnings claim conveys the net impression that reasonable consumers may make a specific level of money or income from the seller's money-making opportunity offers.

The FTC defines earnings claims as “...any oral, written, or visual representation to a a prospective purchaser that conveys, expressly or by implication, a specific level or range of actual or potential sales, or gross or net income or profits.”

Earnings claim sellers have historically avoided (i) tracking their purchaser's results from the purchase of their money-making opportunities, and (ii) providing any disclosure of generally expected results from the purchase of earnings claims offers, despite the FTC's requirement beginning in 2009 to provide such a disclosure t prospective purchasers.

Former earnings claim tactics

Up to now, the typical tactic of earnings claim sellers has been to “disclaim away” the requirement of providing such disclosures by providing a disclaimer that would essentially state that there are “no generally expected results.”

The rationale stated in such disclaimers has been that success is determined by unique factors that differ with each individual purchaser such as experience, intelligence, perseverance, discipline, and the purchaser's own ideas and techniques.

Blockbuster FTC Case: DK Automation

The FTC's recent settlement with earnings claim seller DK Automation and its founders has turned this tactic on its head.

The FTC claimed deceptive and unsubstantiated earnings claims and settled for $52 million, jointly and severally, but the amount was reduced to 2.6 million upon proof of inability to pay.

The FTCs reasoning was that tracking customer results is the only way that earnings claims sellers can substantiate their earnings claims.

The FTC stated in its Complaint: “... Defendants' disclaimers acknowledge that they have not  collected any data to substantiate whether the earnings claims they make are truthful, typical, and representative."

Takeaway

1.  Earnings claims sellers will no longer be able to “disclaim away” their duty to provide a generally expected results disclosure

2.  Earnings claim sellers are now required to track customer results in order to substantiate their earnings claims.