FTC Issues Notice of Penalty Offenses: Companies Warned To Substantiate Product & Advertising Claims
The Federal Trade Commission continues to pursue an aggressive enforcement agenda in both consumer protection and antitrust. The FTC’s latest consumer protection announcement puts almost 700 companies marketing over-the-counter (OTC) drugs, homeopathic products, dietary supplements, or functional foods on notice as to what constitutes unfair or deceptive advertising, easing the path for the FTC to issue civil penalties.
On April 13, 2023, the FTC issued a Notice of Penalty Offenses Concerning Substantiation of Product Claims to 670 companies in the health-related product sector. Receiving a Notice of Penalty Offenses does not, itself, indicate that a company has engaged in unlawful conduct. The Notice is intended to inform a company of conduct the FTC considers unlawful to trigger Section 5(m)(1)(B) of the FTC Act and to ask the company to ensure that they are in full compliance with applicable laws. Notably, however, issuing the Notice gives FTC the power to fine non-compliant companies more easily. Pursuant to 5(m)(1)(B) of the FTC Act, the FTC is able to seek civil penalties from a company that engages in conduct the FTC has determined was unfair or deceptive in a litigated proceeding, provided the company has actual knowledge the conduct was unlawful. The Notice helps the FTC show this knowledge, and if a company that received a Notice engages in the prohibited conduct, potential civil penalties are up to $50,120 per violation.
The April 13 Notice of Penalty Offense Concerning Substantiation of Product Claims focuses on what the FTC referred to in its announcement as the “fixed star” of consumer protection—the advertising substantiation doctrine. Under the advertising substantiation doctrine, “companies must have a reasonable basis to support their advertising claims before those claims are disseminated.” The FTC suggested that companies review the Health Products Compliance Guidance as the starting point to ensuring compliance.
The Notice set forth five practices that violate the FTC Act. These unfair and deceptive acts include:
- “Making an objective product claim without relying on competent and reliable evidence to support it;
- Making a health or safety claim without relying on competent and reliable scientific evidence conducted and evaluated in an objective manner by qualified persons and that is generally accepted in the profession to yield accurate and reliable results;
- Representing expressly or by implication that a product is effective in the cure, mitigation, or treatment of any serious disease without relying on at least one human clinical trial of the product that: 1) is randomized, 2) is well controlled, 3) is double-blinded (unless the marketer can prove blinding can’t be effectively implemented); 4) is conducted by qualified people; 5) measures disease end points or validated surrogate markers, and 6) yields statistically significant results;
- Misrepresenting the level or type of substantiation for a claim; and
- Representing that a claim has been scientifically or clinically proven unless the advertiser relies upon evidence sufficient to satisfy the relevant scientific community of the claim’s truth.”
While the FTC targeted companies marketing health products in its April 13 Notice, the agency emphasized that the Notice is not limited to health claims and, in fact, applies to any marketer making claims about the efficacy or performance of its products. Significantly, the FTC also describes the 670 companies as “initial recipients,” suggesting that further FTC action will follow in other industries.
Although private litigants cannot sue under the FTC Act, they can use the Notice and precedent cases cited in the Notice to pursue class action lawsuits against these companies under other state consumer protection statutes. All companies should take the opportunity to conduct a compliance check for advertising claims and make sure any claims are sufficiently substantiated.
Whether or not your company has received a Notice, Buchanan's Life Sciences and consumer class action teams can help you evaluate your product claims, assess the basis and evidence for the claims, and evaluate your risk, including compliance with the FTC’s Health Products Compliance Guidance. Reach out to us and let us know how we can assist.