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FTC 101 Deception Unfairness Claim Substantiation Negative Option Endorsement Guidelines Remedies Dietary Supplement Claims – Top FTC Priority Recent FTC Supplements Cases “FTC “Take No Prisoner” Settlement Policy Best Practice” Compliance Tips
WHEN IS AN AD DECEPTIVE?
§ When a claim or omission would materially mislead consumers acFng “reasonably” in the circumstances.
§ Claim can be express or implied
§ STRICT LIABILITY – Intent to Deceive not required. Knowledge of DecepFon also not required except for money judgments against principals
WHEN IS AN AD UNFAIR?
§ When it is likely to cause substanFal consumer injury (physical or economic).
§ It is not reasonably avoidable by consumers themselves And it is not outweighed by benefits to consumers or compeFFon
} Can a product manufacturer/supplier or third party service provider be liable for a trade customer’s deceptive consumer advertising?
} Absolutely in telemarketing cases - FTC’s Telemarketing Sales Rule expressly imposes liability for providing “substantial assistance or support” to a deceptive telemarketing campaign while “knowing or consciously avoiding knowing” of it.
} Uncertain under FTC’s general statutory authority in other contexts, such as Internet advertising
◦ FTC Chairs have suggested agency lacks “aiding & abetting” authority under a Supreme Court SEC decision.
◦ FTC v. Lean Spa – Relying on Supreme Court precedent, affiliate network is denying liability since it neither created nor published the advertising and is not identified in it. Decision due soon.
} ◦ FTC v. Applied Sciences - settlement with supplement ingredient manufacturer on an
“aiding & abetting” /“means & instrumentalities” theory.
} COMPETENT AND RELIABLE SCIENTIFIC EVIDENCE
◦ Objective performance, efficacy, health & safety claims – express and implied
◦ What would independent scientists with expertise in field rely on?
} WHAT IT ISN’T } Anecdotal consumer experience
} Subjective consumer surveys
} Good press
} Manufacturer’s sales literature
} Low complaint, return, refund or chargeback rates
} Money-back guarantees
} WHAT IT IS
} Methodologically sound tests, studies, scientific research (controlled human clinical studies)
} Based on expertise of professionals in field
} Conducted by qualified experts
} Yielding statistically significant results
} Iovate , POM Wonderful , etc.
} Weight Loss & Disease Claims – Orders require at least 2 randomized, double-blind, placebo-controlled , statistically significant human clinical studies (RCTs) on advertised product by separate, independent researchers
} Unclear whether two study requirement is only remedial “fencing in” or an FTC standard even for companies not under order
} FTC Chair Edith Ramirez - two RCTs is the “new normal” for serious health claims.
} FTC Commissioner Maureen Ohlhausen takes issue, writing in her Pom Wonderful dissent that:
} ◦ The product at issue is an admittedly safe food product – a type of fruit juice. To set
an unnecessarily high bar for such a product is in tension with…our policy commitment to avoid imposing “unduly burdensome restrictions that might chill information useful to consumers in making purchasing decisions.”
} Ohlhausen also cited First Amendment concerns – a 2-RCT requirement can conflict with the “commercial speech doctrine’s” preference for “disclosure over outright suppression.” She would require only one RCT and also would look at other scientific evidence.
} Ohlhausen’s dissenting views tee up the appeal of the two-RCT requirement now pending before the D.C. Circuit Court of Appeal in POM Wonderful.
} Issue could reach the Supreme Court.
} “Restore Online Shoppers’ Confidence Act” -mandates disclosure of online negative option terms “before obtaining consumer billing data”
} Green Millionaire Order - FTC’s most detailed guidance on “clear and conspicuous” disclosure and “express informed consent” requirements for negative option. Requires disclosure of:
} product/service description; ◦ trial period length; ◦ specific billing terms; ◦ billing entity if not clearly disclosed in ad; ◦ how charge will appear on the billing statement if statement doesn’t disclose billing
entity; ◦ amount and dates or frequency of recurring charges; ◦ all material terms and conditions of purchase and use; ◦ how to cancel and obtain a refund.
} To guarantee “express informed consent,” Green Millionaire requires negative option disclosures to be “immediately adjacent” to a “consent” button or box which must be clicked or checked by the consumer.
§ Testimonials must be substantiated like other claims
§ Testimonials must reflect “typical” consumer experience § § BUT: if not, “Results not typical” disclaimer no longer OK
§ Disclosure of “generally expected results” now required, unless advertiser can prove consumers don’t think results are typical.
§ Disclosure of material connections between advertisers and lay (non-expert) endorsers must be made.
§ Paid Bloggers, can be liable for making false claims § Celebrities in unconventional formats (i.e., talk shows)
or social media where consumer may not expect payment
§ Advertiser principally liable for failure to disclose
§ Cease & Desist Orders – conduct restricFons; compliance reporFng and recordkeeping
§ Consumer Redress -‐ FTC wants all your money
§ Civil PenalFes for Rule and Order ViolaFons
§ Bans & Bonds – death knell for livelihood (1st Fme offenders, not just “rescidivists”)
§ Ex Parte (without noFce) TROs, asset freezes, receiverships – death penalty for business
} FTC 2014 preview targeted weight loss and disease claims
} FTC Chair reaffirmed priority at recent NAD Conference; also “cognitive” brain health claims
} “Operation Failed Resolution” in January ◦ Sensa ◦ LeanSpa ◦ L’Occitane ◦ HCG Diet Direct
} “Gut Check” Guide – Red Flag Weight Loss Media Guide Update in January
} 7 Bogus Claims warranting a “gut check” ◦ 2 or more pounds a week without diet or exercise ◦ Substantial weight loss no matter what you eat ◦ Permanent weight loss ◦ Substantial weight loss from fat/calorie blocking ◦ Safe loss of more than 3 lbs./wk. for over 4 weeks ◦ Substantial weight loss for everyone ◦ Substantial weight loss from a wearable or topical
} Sensa - Settlement ◦ Appetite Suppressant claim for sprinkle additive ◦ 2-RCT requirement ◦ $26.5 million
} LeanSpa - Merchant Settlement ◦ Garcinia Cambogia ◦ TRO Asset Freeze ◦ Negative Option Ban ◦ 2-RCT Requirement ◦ Up to $7 million
} Pure Green Coffee – Litigation ◦ Green Coffee Bean ◦ Dr. Oz endorsement of green coffee bean for weight loss ◦ No Negative Option – Straight Sale ◦ Minimal Refunds and Chargebacks
} Simple Pure/Health Formulas – Litigation ◦ Garcinia Cambogia & Green Coffee ◦ Negative Option ◦ TRO Asset Freeze & Receivership
} Healthy Life Sciences - Settlement ◦ Resveratrol, Hoodia, etc. ◦ Weight Loss Marketing Ban
} i-Health /Martek Biosciences (BrainStrong Adult) ◦ Adult Memory Improvement and Cognitive Decline Prevention Claims ◦ Human Clinical Testing Requirement but not 2-RCTs ◦ No Money
} Applied Sciences – Settlement ◦ Green Coffee Bean Extract Manufacturer ◦ No consumer-facing advertising – trade only ◦ Promotion of Allegedly Flawed Clinical ◦ Trade Customer Reliance in their Consumer Ads ◦ “Aiding & Abetting”/Means & Instrumentalities” Theory ◦ 2-RCT Requirement ◦ $3.5 Million
} X = TOTAL CLAIMED CONSUMER LOSS
} Y = DEFENDANT’S ASSETS
} IF Y IS LESS THAN X (ALWAYS)
} FTC SETTLEMENT DEMAND IS:
◦ 100% of Y + Transfer “Clawbacks”
} NO COMPROMISE – PAY OR SEE YOU AT TRIAL
} You’re in the FTC’s Cross-Hairs.Prepare and Act accordingly } You’re directly and strictly liable for false or
unsubstantiated claims you make to consumers. } You could be liable for “aiding & abetting” or providing
“means & instrumentalities” to your trade customers thru your trade advertising – Applied Sciences
} Have at least one controlled human clinical for your efficacy and safety claims, ideally on advertised product itself and especially if it isn’t a single-ingredient formula
} Be mindful of implied claims and be careful to ensure your claims don’t misstate your study’s results.
} Everyone in the advertising stream who engages in or assists with consumer deception could end up in “FTC Hell” – including supplement suppliers who don’t advertise to the consumer but overhype their trade marketing
} Make truthful, non-deceptive claims, containing the proper disclaimers and disclosures, in order to survive in a hyper- aggressive regulatory environment
} Reliance on expert counsel with insight into FTC thinking and enforcement strategies can help you navigate this perilous landscape and avoid FTC Hell
� Bill Rothbard � 310-453-8713 � [email protected] � www.FTCAdLaw.com