The Federal Trade Commission is flexing its penalty offense authority by issuing reminders to advertisers that they are legally required to have a reasonable basis to support objective product claims and to deter them from making deceptive claims in the future.
The Agency sent notices of penalty offenses to about 670 companies Thursday, most of which fall in the dietary supplement and natural product category. Recipients range from lesser-known brands to mega retailers like Amazon, GNC, the Vitamin Shoppe and Walmart.
Several pharmaceutical companies were also put on notice–GlaxoSmithKline, Johnson & Johnson, Merck and Pfizer, to name a few.
Letter doesn’t imply violation
Receiving a notice isn’t an indication that the FTC thinks the company has violated the law, but rather it serves as a reminder that these companies could incur significant civil penalties if they fail to adequately substantiate their product claims.
“The Notice puts them on notice of the types of conduct that the FTC has found to violate the FTC Act in past administrative orders in order to create a procedural basis for obtaining civil penalties in the future against those companies if they are found to violate the FTC Act for engaging in that same conduct. The Notice focuses on product claims—particularly health claims, but it is the fourth in a series of similar notices sent in the past 18 months,” explained Lauren Aronson, Advertising and Consumer Protection Partner at Amin Talati Wasserman LLP.
Indeed, over 2,000 companies received Notices in 2021. Those prior notices were targeted to companies that engage in online marketing and use endorsements, multi-level marketing, offer “gig” economy jobs or in the for-profit education sector, Aronson noted.
Stay compliant or else
Notices of penalty offenses allow the FTC to seek civil penalties—up to $50,120 per violation—against a company that engages in conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.
“The requirement for advertisers to have adequate support for their advertising claims at the time they’re made is a bedrock principle of FTC law,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection. “The prospect of steep civil penalties will help ensure that advertisers don’t play fast and loose with the truth.”
Case law background
Aronson said that in order to obtain penalties under its Penalty Offense Authority, the FTC still has to establish a fit between the cited administrative cases and the conduct at issue. The Product Claim Notice relies on cases such as POM Wonderful, LLC, 155 F.T.C. 1 (2013), aff’d in part, 777 F.3d 478 (D.C. Cir. 2015) and Daniel Chapter One, 148 F.T.C. 832 (2009) as well as older cases like Thompson Med. Co., 104 F.T.C. 648 (1984), 791 F.2d 189 (D.C. Cir. 1986).
“While the FTC cites in its cover letter the Health Products Compliance Guidance issued earlier this year, each of the cited prior litigated cases predates this Guidance. The Guidance relies on numerous consent orders to establish a legal basis for the FTC’s legal interpretations, but consent orders cannot form the basis for obtaining civil penalties under section 45(m)(1)(B),” she said.
While Aronson noted that the letters are just procedural gambit, she did say that every advertiser, including the recipients of the Notice, should make sure that they understand the FTC’s recent Health Products Compliance Guidance as well as the recent draft updates to the Testimonial and Endorsement Guides to ensure that their advertising is in compliance.