William  I.  Rothbard    Law  Offices  of  William  I.  Rothbard  

     

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 � Rothbard@FTCAdLaw.com � www.FTCAdLaw.com