Regulating Advertising: The FTC

Written By:
Justin J. Prochnow
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The U.S. Food and Drug Administration (FDA) is the federal regulatory agency with the primary responsibility of enforcing the statutes and regulations governing the manufacturing, packing, labeling and distribution of products in the food, beverage, dietary supplement and cosmetics industries. Whether it is conducting inspections to ascertain compliance with the Current Good Manufacturing Practices (CGMPs), reviewing labeling or striving to ensure the safety of products, the FDA looms as an ever-present monitor of companies in the aforementioned industries.

The FDA is not, however, the only federal regulatory agency of which industry companies must be mindful. The Federal Trade Commission (FTC), the federal regulatory agency charged with enforcing the FTC Act and regulating advertising, warrants equal attention from companies. Enforcement actions brought by the FTC for false, misleading or unfair advertising can result in serious financial consequences and restrictions on the future marketing and advertising of products. Thus, it is important for companies to be familiar and comply with the laws regarding advertising and the FTC’s enforcement of such laws. While by no means exhaustive of the statutory and regulatory requirements for advertising products, following are some of the key areas in which the FTC focuses its enforcement activity.

Truthful, Not Misleading
Pursuant to the Truth-in-Advertising laws and Section 5 of the FTC Act (1), all advertising must be, first and foremost, truthful, not misleading and substantiated. No action will elicit swifter enforcement action from the FTC than the dissemination of deceptive or false advertising. The majority of enforcement actions brought by the FTC are against companies and individuals that the FTC believes have intentionally tried to deceive consumers through false, misleading or unfair advertising.

While the FTC monitors all advertising for false or deceptive statements, some product categories (such as weight loss) receive special attention. As debate over America’s “obesity epidemic” continues, products promoting effectiveness in achieving weight loss continue to proliferate within the market. The competition between marketers and advertisers to differentiate such products in an increasingly crowded market can create an atmosphere that is ripe for deception. The FTC has steadfastly maintained that there is no “magic pill” and persons cannot realistically lose weight without diet and exercise. In an August 2012 announcement of a settlement with a company marketing an abdominal exercise device, David Vladeck, director of the FTC’s Bureau of Consumer Protections, said the following: “The FTC reminds marketers that they should think twice before promising a silver bullet solution to a health problem—whether it involves losing weight or curing cancer. Weight loss is hard work, and telling consumers otherwise is deceptive” (2).

In April 2011, the FTC filed suits against 10 different affiliate-marketing operations that allegedly used fake news Web sites to promote dietary supplements containing acai berries for weight loss (3). The Web sites purported to belong to various news agencies and used tag lines that represented that the reports were seen on national media outlets like Consumer Reports and CNN. Each Web site carried the story of an investigative reporter who supposedly tried the products herself and experienced weight loss, typically 25 pounds in four weeks. In fact, the FTC alleged, the reporter was fictitious, with all of the Web sites using the same stock photo and the stories of first-hand weight-loss experiences all purportedly made up. In addition, the FTC alleged that affiliates failed to disclose their business relationships with the manufacturers of the products, as they received compensation from the manufacturer for directing consumers to purchase the products. A similar action, filed in 2010, was settled in January of 2012 against Internet marketers of acai berry weight-loss pills and colon cleansers that, among other violations, used allegedly phony endorsements from Oprah Winfrey and Rachael Ray to promote products (4).

Substantiation
Perhaps no collection of words has generated more discussion in the food, beverage, dietary supplement and cosmetics industries than the words “competent and reliable scientific evidence.” Each objective advertising claim must be substantiated; health claims must be substantiated by competent and reliable scientific evidence. This, of course, begs the question: what constitutes competent and reliable scientific evidence?

Unfortunately, there is no statute or regulation that defines competent and reliable scientific evidence. Instead, the FTC determines the level of substantiation needed on a case-by-case basis, evaluating factors such as the type of product, the type of claim, the benefits of a truthful claim and the amount of substantiation that experts believe is reasonable. There is also no fixed formula for the number or type of studies required by the FTC, although it considers factors such as the amount and type of evidence, the quality of evidence, specific levels of science referenced (e.g., “clinically proven”) and the relevance of studies to the claims.

In July 2010, the FTC settled several cases with food, beverage and dietary supplement companies that were brought for lack of substantiation (5). In the Consent Decrees entered into to settle those cases, the FTC defined “competent and reliable scientific evidence” as at least two adequate and well-controlled human clinical studies of the product or essentially equivalent products. While the FTC has steadfastly denied that two double-blinded, placebo-controlled, clinical trials, often referred to as the “gold standard” for substantiation, is the new standard required for all health claims, it is clear that the FTC prefers studies and other scientific evidence on the specific product or combination of ingredients, as opposed to individual ingredients.

Material Connections
In December 2009, the FTC revised the “FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Endorsement Guides”), which can be found in the Code of Federal Regulations at 16 C.F.R. Part 255. One of the sections that received recent enforcement activity is the section addressing the longstanding principle that material connections between advertisers and endorsers that consumers would not reasonably expect must be disclosed (6). A material connection is a personal, financial or similar connection that might materially affect the weight or credibility of an endorsement. Whether it is an advertisement on television, radio, in print or online through a company Web site or social media forum like Facebook or Twitter, the requirement to disclose material connections exists for all forms of advertising.

While the FTC has always regulated endorsements and testimonials, the focus of its scrutiny has increasingly been directed towards online endorsements. As mentioned above, the FTC identified the failure to disclose material connections as one area of alleged misconduct by the affiliate marketers promoting acai berry weight-loss products. More recently, the FTC announced the settlement of claims against an online data broker that compiles and sells detailed information profiles on millions of consumers (7). In addition to other claims regarding the use of such information, the FTC alleged that the company posted endorsements of its services on news and technology Web sites and blogs that appeared to be from independent customers when, in fact, the endorsements were created by the company’s own employees and edited by managers of the company.

Testimonials
Another focus of the Endorsement Guides is the consumer testimonial. It is critical to understand that statements made by a consumer in a testimonial used in a company’s advertising are essentially adopted by the company as statements of the company. Thus, a testimonial or endorsement may not convey any expressed or implied representation that a company would be prohibited from making directly (8).

Weight-loss products again receive special scrutiny from the FTC in this area, as consumer testimonials touting personal experiences of weight loss are an oft-used form of advertising. Endorsements or testimonials that relate the experience of a consumer in using a product are presumed to be representative of what consumers will generally achieve when using the advertised product (9). If the endorser’s experience is not representative of what consumers will generally achieve, the advertisement must clearly and conspicuously disclose the generally expected results (10). Importantly, the Endorsement Guides clarify that “results not typical” or similar attempts to disclaim non-representative results are not sufficient and the specific expected results must be disclosed. Thus, companies using testimonials containing personal experiences of weight loss, especially large amounts of weight loss, risk a substantial likelihood of FTC action unless clear and prominent disclosures are made of what a typical consumer can expect to achieve by using a product.

Wrap Up
The areas outlined in this article represent just a few of the advertising principles that advertisers must be cognizant of and follow when marketing and promoting products. As the marketplace continues to be inundated with a wide-assortment of products ranging from natural foods and cosmetics to functional beverages and energy drinks, advertising often plays a major role in the long-term success of products. The need to differentiate products and attract consumers is ever-present, which results in advertising that is often aggressive and goes over the line of what is legally permitted. Knowledge and compliance with the statutes and regulations regarding advertising is important as those who do cross the line risk serious and potentially long-ranging consequences in the form of enforcement action from the FTC. WF

References
1. 15 U.S.C. 45, “Unfair Methods of Competition Unlawful; Prevention by Commission,” January 7, 2011.
2. FTC, “Marketers of ‘Ab Circle Pro’ Device to Pay as Much as $25 Million in Refunds to Settle FTC Charges,” press release, Aug. 23, 2012, www.ftc.gov/opa/2012/08/abcirclepro.shtm, accessed Sept. 10, 2012.
3. FTC, “FTC Seeks to Halt 10 Operators of Fake News Sites from Making Deceptive Claims About Acai Berry Weight Loss Products,” press release, Apr. 19, 2011, www.ftc.gov/opa/2011/04/fakenews.shtm, accessed Sept. 10, 2012.
4. FTC, “Internet Marketers of Acai Berry Weight-Loss Pills and ‘Colon Cleansers’ to Pay $1.5 Million to Settle FTC Charges of Deceptive Advertising and Unfair Billing,” press release, Jan 9, 2012, www.ftc.gov/opa/2012/01/centralcoast.shtm, accessed Sept. 10, 2012.
5. FTC, “Dietary Supplement Maker to Pay $5.5 Million to Settle FTC False Advertising Charges,” press release, July 14, 2010, http://www.ftc.gov/opa/2010/07/iovate.shtm, accessed Sept. 10, 2012; FTC, “Nestlé Subsidiary to Settle FTC False Advertising Charges; Will Drop Deceptive Health Claims for BOOST Kid Essentials,” press release July 14, 2010, http://ftc.gov/opa/2010/07/nestle.shtm, accessed Sept. 10, 2012.
6. 16 C.F.R. § 255.5.
7. FTC, “Spokeo to Pay $800,000 to Settle FTC Charges Company Allegedly Marketed Information to Employers and Recruiters in Violation of FCRA,” press release, June 12, 2012, http://ftc.gov/opa/2012/06/spokeo.shtm, accessed Sept. 10, 2012.
8. 16 CFR 255.1(a).
9. 16 CFR 255.2(b).
10. 21 CFR 255.2(b).

Justin J. Prochnow is a shareholder in the Denver office of the international law firm of Greenberg Traurig LLP. His practice concentrates on legal issues affecting the food & beverage, dietary supplement and cosmetic industries. He can be reached at (303) 572-6500 or prochnowjj@gtlaw.com and is on Twitter at @LawguyJP.

This article is issued for informational purposes only and is not intended to be construed or used as general legal advice.  The opinions expressed are those of the author exclusively.

Published in WholeFoods Magazine, November 2012