On April 13, 2023, the Federal Trade Commission (“FTC”) sent Notices of Penalty Offenses Concerning Substantiation of Product Claims (“Substantiation Notice”) and Deceptive or Unfair Conduct around Endorsements and Testimonials (“Endorsement Notice”) (collectively “Notices”) to about 670 companies that market OTC drugs, homeopathic products, dietary supplements, and/or functional foods and that made claims about the efficacy or performance of their products.
FTC sent the Notices to the companies to remind them that false or misleading advertising is prohibited and that they must not make unsubstantiated product claims. For example, the Substantiation Notice explained that advertisers must have a reasonable basis before making an objective claim (i.e., competent and reliable scientific evidence). It further explained that when a claim relates to a product’s health benefits or safety, the competent and reliable scientific evidence must have been “conducted and evaluated in an objective manner by qualified and that is generally accepted in the profession to yield accurate and reliable results . . .” If it is a claim about a serious disease, the Substantiation Notice said that at least one well-designed clinical trial is required. Additionally, the Substantiation Notice reminded recipients that they cannot misrepresent the level or type of substantiation for a claim and cannot represent that a claim is scientifically or clinically proven if the scientific evidence is insufficient to satisfy the scientific community that the claim is true. FTC has expressed similar views on claim substantiation in its newly published Health Products Compliance Guide.
The Endorsement Notice focused on reminding recipients that they cannot: falsely claim that a third-party endorses the product; misrepresent whether an endorser is an actual, current, or recent user; use an endorsement to make false or misleading efficacy claims; fail to disclose an unexpected material connection with an endorser; or misrepresent that a consumer’s experience is typical. FTC previously sent this notice to other companies in 2021.
FTC did not allege that any of the nearly 670 recipients have violated the law. In cover letters that accompanied the Notices, FTC stated that a company’s receipt of the Notices “does not in any way suggest that it has engaged in deceptive or unfair conduct.” FTC sent the Notices to the companies, however, in hopes that if they engage in deceptive or unfair conduct in the future, they could have to pay civil penalties of up to $50,120 per violation under 15 U.S.C. § 45(m)(1)(B).
Previously FTC sought equitable monetary relief, such as disgorgement or restitution, under section 13(b) of the FTC Act, starting with fraud cases and then expanding it to claim substantiation cases generally. In 2021, the Supreme Court held that FTC could not seek equitable monetary relief under section 13(b) because that section did not explicitly authorize such relief. See AMG Cap. Mgmt., LLC v. Fed. Trade Comm’n, 141 S. Ct. 1341 (2021). As a result, FTC has sought to get monetary relief under 15 U.S.C. § 45(m)(1)(B). Per that section, FTC can seek civil penalties if it proves that: (1) the company knew the conduct was unfair or deceptive in violation of the FTC Act; and (2) the FTC had already issued a written decision that such conduct is unfair or deceptive. The Notices are meant to satisfy these two requirements. But, the Notices are problematic. For instance, they are vague, not tailored to a recipient’s specific claims. Plus, they merely restate the general requirements of the FTC Act. Further, as former Commissioner Christine Wilson explained in her dissenting opinion before she left FTC, “Determining whether an advertiser has a reasonable basis for claims and whether the evidence upon which the advertiser relied is competent and reliable scientific evidence requires a complex, nuanced, fact-based evaluation” and in FTC “investigations and at trial, the FTC and parties typically rely on experts for these determinations.” Accordingly, she reasoned that it will be difficult for FTC to show in substantiation cases that the defendant had knowledge that its conduct was unlawful and is therefore subject to civil penalties.
As discussed above, this is not the first time the Endorsement Notice was provided to companies. FTC sent it to other companies in 2021. Reportedly, there have been no public cases against the companies that received it in 2021. To the extent that history is a guide, there is a chance that FTC will not initiate cases against any of the nearly 670 companies that received the Notices this year. But, the possibility is not zero.
All companies, not just those that received the Notices, should ensure that they can substantiate their objective product claims with competent and reliable scientific evidence, and that they avoid false or misleading claims, including in the context of endorsements. Like former Commissioner Wilson stated, scientific experts can help determine whether the substantiation an advertiser relied upon is sufficient. In addition to that, our firm can help you understand the legal requirements for claim substantiation. Please contact us if you would like that advice.