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, placebocontrolled, 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 (1 st 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