This being the Internet, it was perhaps fitting that one of the seminal online privacy cases involved penis pills. And not just any penis pills—no, the case was about Enzyte, the tablet promising “natural male enhancement.” Enzyte was once such a staple of late-night TV advertising in the United States that its unspeaking spokesman Smilin’ Bob became not only the “envy of his neighborhood” but a cultural icon. The reason for Bob’s unsettling grin wasn’t spelled out directly in the ad, but the admiring housewives of his neighborhood clearly sensed that something extraordinary had taken place inside Bob’s pants.
Something extraordinary was also taking place at Berkeley Nutraceuticals, the Cincinnati startup behind Enzyte. The company, founded by Steven Warshak, eventually sold 13 different herbal products with vaguely medical-sounding names like Rovicid (allegedly enhanced sex), Ogoplex (allegedly intensified orgasms), and Keflex (allegedly masked drug traces in urine), but it was Enzyte that became the corporate gold mine.
Readers of this site aren’t the sort of people who purchase sex concoctions from online retailers, of course. Readers of this site have finely tuned senses for snake oil and secretly suspect that no one actually buys herbal penis supplements from TV pitchmen. But readers of this site live in a rarefied world.
In the real world, Enzyte proved a massive hit with late-night TV watchers and men’s-magazine readers. At the Enzyte launch in 2001, Berkeley Nutraceuticals employed some 15 people, mostly friends and family of Steven Warshak; Warshak’s septuagenarian mother Harriet even helped out in the business. By 2004, Berkeley had grown to 1,500 employees and ran a 24-hour call center to process orders. That year, it sold $250 million of supplements—most of it Enzyte.
Berkeley became an entrepreneurial success story and a major Cincinnati employer. Smilin’ Bob’s grin grew so big it looked as though it was about to split his face in two, but the grin hid a secret. Though Berkeley bragged in ads that Enzyte had a 96 percent customer-satisfaction rate, huge numbers of customers had actually complained. The complaints grew loud enough that the head of the Better Business Bureau wrote a letter to Warshak in mid-2004 to announce “serious concerns about the number of complaints” it had received. Those complaints had a single focus: Berkeley’s “auto-ship” program.
Berkeley didn’t make most of its cash from people looking to try a single box of Enzyte tablets; it made most of its cash from putting callers into a renewal program that sent them a $70 supply of Enzyte every two months until canceled. Many customers had no idea that they had even signed up for such a renewal program, however, and canceling was (purposely) difficult.
The FBI and the Federal Trade Commission both began sniffing around Berkeley and soon unearthed a set of shocking corporate practices. In 2001 and 2002, Berkeley customers were “were simply added to the [auto-ship] program at the time of the initial sale without any indication that they would be on the hook for additional charges,” wrote one federal judge, summing up the evidence amassed against Warshak and his firm. When asked why customers weren’t told about auto-shipping until their orders actually arrived in the mail, Berkeley chief operating officer James Teegarden eventually testified in court that “nobody would sign up.”
Apparently realizing that the auto-ship program might attract unwanted attention, Berkeley began making disclosures during the initial customer phone call—but only after the order had been placed. The disclosure immediately followed the line, “This product is not a contraceptive nor will it prevent any sexual disease.” Teegarden admitted that this placement was deliberate. The company believed that “if we started off with a statement about a contraceptive, something other than what it was, that people wouldn’t really listen to what we were disclosing to them,” he testified.
Not that the “disclosure” always meant much. In November 2003, Berkeley outsourced some of its Enzyte sales calls to another firm. That firm actually asked customers outright if they wanted to join auto-ship; not surprisingly, 80 percent declined. Warshak wouldn’t stand for this. “Take those customers, even if they decline[d], even if they said no to the Auto-Ship program, go ahead and put them on the Auto-Ship program,” he ordered his employees in an email. Another Berkeley email showed that “all customers, whether they know it or not, are going on [auto-ship].”
Surprised customers routinely demanded an end to auto-ship, and they wanted refunds. In late 2003, Warshak told his staff to remove the company’s return shipping address from the label on its own products. “Let’s make them call—work some deals,” he said, telling call-center staff to convince unhappy customers to accept other “nutraceuticals” in lieu of cash refunds or credit.
The resistance to refunds reached comic extremes. The dry description of 6th Circuit Appeals Court Judge Danny Boggs illustrated the lengths to which Berkeley would go to avoid returning cash: “At one point, Enzyte customers seeking a refund were told they needed to obtain a notarized document indicating that they had experienced ‘no size increase.’ The admittedly ingenious idea behind the policy was that nobody ‘would actually go and have anything notarized that said that they had a small penis.’ In 2002, ‘there was really no refund policy. It was: Sorry, you got it, you keep it, and we’ll cancel you off of future shipments.’ ”
This led to short-terms gains but long-term problems. Angry customers, unable to get satisfaction from Berkeley, went to their credit card companies instead. Berkeley’s “chargeback” ratio went through the roof as customers disputed charges and banks took money back from Berkeley, putting the company’s very ability to accept credit cards in jeopardy. (Payment processors would have cut off Berkeley if more than 1 percent of its transactions were chargebacks).
Berkeley went frantic in its attempt to keep the chargeback ratio low. The company “double-dinged” on charges, splitting transactions into two parts (one for the product, one for shipping), billing each separately. By 2003, it was triple-dinging charges to make the volume of “good” transactions appear higher. If Berkeley thought its chargeback ratio was too poor in any given month, employees would bill Warshak’s personal credit cards with a host of $1 transactions until his card limits were reached; Warshak would then be reimbursed by the company.
When even more good transactions were needed, Berkeley simply plucked random customers from its database, charged their credit cards, then immediately refunded the money. In April 2002, for instance, 2,482 customer credit cards were billed $19.95 each, after which the charges were reversed. If people called to complain, Berkeley blamed a “computer glitch.”
What customers got for their money was a supply of herbal supplements designed to look as much like a pharmaceutical as possible, right down the shape and color of the tablets. Berkeley lacked scientific evidence that Enzyte worked, but it’s fair to say that efficacy wasn’t one of the company’s chief concerns. For instance, Berkeley at some point reformulated Rovicid, its prostate-health/sex-enhancing supplement, as a “heart-health dietary supplement” instead. Rather than throw out the old Rovicid, Berkeley simply slapped new labels on the old containers—even though the new ingredient list didn’t match what was in the tablets. In 2004, when Food and Drug Administration inspectors came through the company’s warehouse, the second shift manager went to the “sick aisle” of mislabeled products, packed the relabeled Rovicid into a rental truck, and drove it to the parking lot of another Berkeley-owned building. He restocked it after the inspectors left.