One of Shark Tank's highest-profile deals—for a smartphone breathalyzer—took a hit from the Federal Trade Commission Monday.
The FTC settled a complaint against Breathometer and its CEO and Shark Tank pitcher Charles Yim.
Yim had wowed the sharks with a 2013 pitch for the product—he got an unprecedented deal from all five sharks of $1 million for 30% of the company.
But the FTC, in announcing the complaint and settlement, said that though the ABC TV show's stars had gone for the product "hook, line and sinker, the defendants’ deceptive claims about the accuracy of the devices’ readings left consumers floundering." That complaint was against the marketing of both the original device and a second iteration of the product called Breeze, a Bluetooth-enabled version billed as "law-enforcement grade."
Breathometer will have to refund consumers $1 million after Breathometer learned of accuracy problems—users had a higher blood alcohol level than they were registering on the device and the device's sensors deteriorated over time—but did not convey that to the thousands of customers who were already basing their decisions on whether they were safe to drive on the readings.
"So as late as February 2016, people could still buy Breeze from big-name national retailers even though Breathometer had known about the inaccurate results for more than a year," said the FTC.
The complaint alleges false or unsubstantiated representations about accuracy and of "rigorous government tests" to support their claims. It also claims that the failure to inform consumers about the problem posed an ongoing health risk and constituted an unfair trade practice as well.
Breathometer and Yim agreed to notify purchasers, issue full refunds, to a 10-year compliance regime, and make no accuracy claim unless they can be backed by NHTSA protocols.
FTC said the key takeaways for advertisers—the first line of defense against false and deceptive claims—are:
1. "Safety claims raise the substantiation ante. It’s usually hyperbole to suggest that companies substantiate their claims as if lives depend on it, but it’s an accurate statement for a product that promises to accurately test the BAC of a person who is deciding whether to drive after drinking. As the FTC said in its Deception Policy Statement, representations about safety are 'of great significance to consumers.' On this issue, the Commission has required scrupulous accuracy in advertising claims.”
2. "A lot can happen between the drawing board and daily use. Testing in a controlled setting is one thing, but consumers live in the real world – and a wide variety of variables can impact product performance. Your advertising claims should realistically reflect consumers’ actual experience."
3. "Ill-fitting proof doesn’t wear well. It’s a common mistake: A company’s purported substantiation doesn’t 'fit' its expansive ad claims. Breathometer said that its Original device would get accurate results for a range between zero and .25% BAC. But in many instances, the defendants allegedly tested for accuracy only up to .02% BAC. It’s important to keep the decimal points straight here: .02% BAC is a world away from .25%, especially considering that a person is typically considered too intoxicated to drive at .08%."
4. "If concerns arise, take early and effective action. In addition to challenging Breathometer’s advertising claims as deceptive, the complaint alleges that the defendants’ course of conduct was an unfair trade practice. According to the FTC, the defendants’ failure to take appropriate action after learning that the device posed a public health and safety risk caused or was likely to cause substantial injury to consumers. That includes people who relied on the device in deciding to drive after drinking – and the rest of us on the road."