Regulatory Affairs Tutorial #1

FTC Policies Germane to the Advertising and Promotion of Healthcare Products and Services

Philipp Novales-Li, DMedSc, PhD, DPhil (Oxford), RAC

Terminology

Advertising and Promotion

Any written, printed, graphic, verbal, electronic, video, or audio

materials used to communicate product information, induce, or

encourage a prospective customer to purchase a given product.

Examples of Ad & Promo Materials

• Brochures and flyers• Print/Broadcast ads• Audio/Video tapes• Web pages• Product catalogs• Press releases• Tradeshow displays or exhibits• Reminder copy or “ticklers” (e.g. T-shirts, pens, mugs, etc.)• It’s just about everything!

Oversight of Ad & Promo

General Rule

• The Federal Trade Commission (FTC) and the US Food and Drug Administration (FDA) have a symbiotic relationship in overseeing US healthcare product advertising and promotion.

• In general, FTC regulates advertising (e.g. OTC drugs, unrestricted devices), whilst the FDA regulates labeling, in addition to advertising of drugs and restricted devices.

• However, since manufacturers can use advertising to establish intended use, this reasoning provides FDA with a backdoor regulatory route to oversee unrestricted-device advertising as well.

Scope of FTC Oversight

Scope of Healthcare Products

• Over-the-counter drugs

• Non-restricted devices

• Cosmetics

• Health foods

• Vitamins

• Dietary supplements

FTC Truth-in-Advertising Rules

• The Federal Trade Commission (FTC) Act enforces the truth-in-advertising rules.

Basic Requirements

• Advertising must be truthful and non-deceptive.

• Advertisements cannot be unfair.

• Advertisers must have evidence to back up their claims.

Deception Policy Statement

• There must be a representation, omission, or practice that is likely to mislead the consumer. These include: (1) false oral or written representations; (2) misleading claims; (3) sales of hazardous or systematically defective products/services; (4) failure to perform promised services; (5) failure to meet warranty obligations.

• The practice must be examined from the perspective of the consumer acting reasonably in the circumstances.

• The representation, omission, or practice must be a “material” one. (Is it likely to affect the consumer’s conduct or decision with regards to the product or service.)

• FTC will find deception if there is a representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances.

Determining if an Ad is Deceptive

• Rather than focusing on certain words, the FTC looks at the ad in context (words, phrases, pictures) to determine what it conveys to consumers.

• FTC looks at both “express” and “implied” claims. An “express” claim is literally made in the ad. An “implied” claim is one made indirectly or by inference.

• What does the ad not say? (Does the failure to include information leave consumers with a misimpression about the product?)

• FTC looks at whether the claim would be material.

• Does the advertiser have sufficient evidence to support the claims in the ad? The law requires that advertisers have objective evidence that supports the claim before the ad runs.

Unfairness Policy Statement

• It causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid. This is based on: (1) injury must be substantial; (2) it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and, (3) must be an injury that consumers themselves could not reasonably have avoided.

• The conduct violates public policy as it has been established by statute, common law, industry practice, or otherwise.

• Whether the conduct was immoral, unethical, oppressive, or unscrupulous.

Substantiation Policy Statement

• Advertisers and ad agencies must have a reasonable basis for advertising claims before they are disseminated.

• A reasonable basis means objective evidence that supports the claim. The kind of evidence depends on the claim.

• When the substantiation claim is expressed (e.g. “tests prove”, “studies show”), the firm must have at least the advertised level of substantiation.

• Statements from customers are not sufficient to support a claim.

• A firm’s failure to possess and rely upon a reasonable basis for objective claims constitutes an unfair and deceptive act or practice.

Disclosures and Disclaimers

• Information should be presented clearly and conspicuously so that consumers can actually notice and understand the disclaimer.

• Fine prints should not be used to contradict other statements in the ad, nor to clear up misimpressions that the ad would leave otherwise.

• Use clear and unambiguous language; Place any qualifying information close to the claim being qualified; Avoid using small types or any distracting elements that could undercut the disclosure.

• There is no rule about a disclaimer’s font size/type in a print ad, or length of time that it must appear on broadcast ads. However, the FTC takes action when a disclaimer or disclosure is too small, flashes too quickly, is buried in other information, or is otherwise hard for consumers to understand.

Comparative Advertising

• Defined as advertising that compares alternative brands on objectively measurable attributes or prices, and identifies the alternative brand by name, illustration, or other distinctive identification.

• FTC encourages the naming of, or reference to competitors, but requires clarity, and if necessary, disclosures to avoid deception.

• FTC supports the use of brand comparisons where the bases of comparison are clearly identified.

• Disparaging advertising is permissible so long as it is truthful and not deceptive.

• Benefits: (1) Source of information to consumers in making rational purchase decisions; (2) Encourages product improvement and innovations; (3) Can lead to lower prices in the marketplace.

Endorsements and Testimonials

General Considerations

• Must reflect the honest opinions, findings, beliefs, or experience of endorser.

• Must not contain any deceptive or unsubstantiated representations.

• Endorsement need not be phrased in the exact words of the endorser, unless the ad so represents.

• The endorser must have been a bona fide user of the product at time of endorsement. The advertiser may continue running the ad as long as there is good reason to believe that the endorser remains a bona fide user of the product.

Consumer Endorsements

• Advertisements presenting endorsements by actual customers, should utilize actual customers; or, clearly and conspicuously disclose that the persons in such ads are not actual consumers of the product.

• Endorsements must reflect the typical experience of consumers who use the product, not the experience of just a few satisfied customers.

• If an endorsement does not reflect users’ typical experiences, the ad must clearly disclose either what the consumer can expect their results to be, or the limited applicability of the endorser’s experience.

• Saying: “Your results may vary”, is not enough.

Celebrity Endorsements

• Must reflect the celebrity’s honest experience or opinion.

• If the endorsement represents that the celebrity uses the product, then that celebrity must actually use the product.

• Once a celebrity has endorsed a product, the advertiser has an obligation to make sure that the endorsement continues to reflect the endorser’s opinion.

• Any payment made to or any material connections with the celebrity endorser need not be disclosed in the ad, as long as advertiser does not claim that the endorsement was given without compensation.

Expert Endorsements

• The expert’s qualifications must in fact give him/her the expertise that he/she is represented as possessing with respect to the endorsement.

• An expert’s endorsement must be supported by an actual exercise of his/her expertise in evaluating product’s features or characteristics, with respect to which he/she is an expert.

• The evaluation must have included an examination or testing of the product, at least as extensive as other experts in the field would normally conduct to support the conclusions in the endorsement.

Endorsements by Organizations

• Typically represents the view of a collective group of experts, whose experience exceeds that of any individual member.

• An organization’s judgments are typically free of the sort of subjective factors which vary from individual to individual.

• Must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization.

• Must utilize experts recognized as such by the organization, or standards previously adopted by the organization, and suitable to judging the merits of the product.

Country-of-Origin Claims

• A “US-origin” claim means that the advertised product is “all” or “virtually all” made in the USA.

• A “US-origin” claim also means that all significant parts and processing of a product are of US origin, or that the product contains negligible foreign content. Also, the product’s final assembly or processing must take place in the US.

• FTC also considers other factors, such as proportion of US manufacturing costs and remoteness of foreign content.

• Advertisers must make qualified claims, such as: “Made in USA of US and imported parts” or “Manufactured in US with Chinese components”.

Free Claims

• Free claims include: “Free”, “Buy One, Get One Free”, “2-for-1 Sale”, or “50% Off with Purchase of Two”.

• A “free” offer must be based upon the product’s regular price.

• The advertisement should also clearly and conspicuously disclose the offer’s salient terms and conditions.

• “Free” offers should not be advertised in a trade area for more than 6 months in a given 12-month period.

• At least 30 days should elapse before a similar offer is promoted in a trade area. No more than three such offers should be made in the same area in any 12-month period.

Rebate Offers

• Rebates refer to payments made back to the purchaser; also referred to as “allowances” and “incentives”.

• Rebate promotion advertisements should prominently disclose the before-rebate costs, as well as the rebate amount.

• The advertisement should also clearly and conspicuously disclose the offer’s salient terms and conditions, such as purchase requirements, additional fees, and when consumers can expect to receive rebates.

Guarantees and Warranties

• If an advertisement makes claims such as “satisfaction guaranteed” or “money-back guarantee”, the advertiser must be willing to give full refunds for any reason, and must also disclose the full terms of the offer.

• If a warranty is advertised, the advertiser must be able to provide a copy of the warranty to the consumer before the sale.

• Conditions or limits of guarantees and warranties must also be disclosed in the advertisement.

Online Advertising & Telemarketing

• Claims on the internet and those made through telemarketing must be truthful and substantiated.

• Make sure that any disclaimers and disclosures in online ads are clear and conspicuous.

• The FTC’s “Telemarketing Sales Rule” requires companies to make specified disclosures in their telephone calls and prohibits misrepresentations.

• FTC’s guidance on “Advertising and Marketing on the Internet: The Rules of the Road” has more information on net-specific issues, such as banner ads, pop-up windows, scrolling, hyperlinks, etc.

Mail Order Advertising

• Truth-in-advertising standards apply.

• Companies must have proof to back up express and implied claims made about its products.

• A company must have reasonable basis for believing that it can ship the product within the time period stated in the ad.

• If the ad doesn’t specify a time period, the company must have a reasonable basis for believing that it can ship within 30 days.

Other Policies

• New Product Claims: An FTC advisory committee recommends a six-month limit on use of “new” product claims.

• Contests and Sweepstakes: Promotions that require a purchase by participants are illegal in the US.

• Bait and Switch Advertising: Illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price.

• Children’s Advertising: Evaluated from a child’s point of view, and not an adult’s.

• Dry Testing a Product: Not allowed to place an ad for a product to see if there is sufficient consumer interest before manufacturing the item.

Consumer Privacy Online

Four Fair Information Practices: • Giving consumers notice of a website’s information practices

• Offering consumers choice as to how their personally identifying information is used

• Providing consumers with access to the information collected about them

• Ensuring the security of the information collected

Children’s Online Privacy Protection Act • Obtain verifiable parental consent before collecting, using, or disclosing

personal information from children, including their names, home addresses, e-mail addresses, or hobbies.

Advertising Agencies

• The advertising agency may also be held legally responsible for misleading claims in the ad.

• Advertising agencies have a duty to make an independent check on the information used to substantiate ad claims. They may not rely on an advertiser’s assurance that the claims are substantiated.

• The FTC looks at: (1) the extent of the agency’s participation in the preparation of the challenged ad; and, (2) whether the agency knew or should have know that the ad included false or deceptive claims.

Enforcement Actions

• Cease and Desist Orders: These legally binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $16,000 per day per ad.

• Civil Penalties, Redress, and Monetary Remedies: Civil penalties ranged from thousands to millions of dollars. Sometimes, advertisers have been ordered to give full or partial refunds to all consumers who bought the product.

• Corrective Advertising, Disclosures, Other Remedies: Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.

Factors in Pursuing Cases

• Is the product within FTC’s jurisdiction?

• The geographic scope of the advertising campaign. The FTC concentrates on national advertising and usually refers local matters to state, county, or city agencies.

• The extent to which an ad represents a pattern of deception, rather than an individual dispute between a consumer and a business or a dispute between two competitors.

• The amount of injury (i.e. to consumers’ health, safety, or economics), that could result if consumers rely on the deceptive claim.

Filing Complaints

• File a complaint with the National Advertising Division (NAD) of the Council of Better Business Bureaus.

• Call your local Better Business Bureau.

• Contact your state Attorney General’s Office, or your city, county, or state Office of Consumer Affairs.

• Contact the Consumer Response Center of the FTC.

• Explore legal options. The Lanham Act gives companies the right to sue their competitors for making deceptive claims in ads.

Best Practices

• Create well-defined ad and promotional procedures.

• Ensure effective and continuous quality training of sales and marketing teams on current policies and procedures related to ad and promo.

• Know your product claims. Perform due diligent reviews of marketing collateral.

• Develop claims-substantiation traceability matrix.

• Keep current with federal regulations germane to advertising and promotions, as well as any state/local rules, or codes of conduct (guiding principles) set by non-governmental organizations.

• When in doubt--- route!