Every few years, the FTC puts out helpful guides in order to provide insight into various issues for consumers and businesses. Last December, the FTC released its Health Products Compliance Guidance pertaining to advertising interpretation, substantiation and enforcement issues. The provided examples are particularly instructive.
One example (Example 12) deals with the advertising of nasal strips that will reduce the sound of snoring. Even though the advertiser had “competent and reliable” evidence supporting this claim, the FTC took the position that a prominent disclosure should have been made, indicating that the product does not treat for sleep apnea for which snoring is a primary symptom.
I suspect that most businesses would not have considered the requisite sleep apnea disclosure. As such, it is always helpful to review the Guides and then consult your counsel.
Category: Advertising
SUPREME COURT MAKES FTC’S JOB MORE DIFFICULT
For years, pursuant to Section 13(b) of the FTC Act, the FTC has been able to pursue violators in court for permanent injunctive relief as well as restitution or disgorgement. However, a question arose as to whether Section 13(b) actually allows a federal Court to award equitable monetary relief of this nature.
Yesterday, the Supreme Court answered the question in the case of AMG Capital Management, LLC v. FTC. The FTC may not seek restitution or disgorgement under Section 13(b) of the FTC Act.
While the FTC may still seek monetary relief after it has engaged in administrative proceedings and issued cease and desist orders, this ruling is a significant blow to its enforcement powers. Administrative proceedings typically take longer and are more cumbersome. Restitution and disgorgement under Section 13(b) were effective tools that I used at the FTC to address consumer fraud.
It will be interesting to see how this ruling affects the FTC’s approach as to future consumer protection matters.
COVID-19 CONSUMER PROTECTION ACT CLAIMS FIRST CULPRIT
Sometimes, companies decide to “test” the market with their advertising before having adequate substantiation. If they are first-time offenders, the mistaken belief is that the FTC will not do much to them if they are caught for violating Section 5 of the FTC Act. They think that the FTC will merely require them to take the product off of the market.
Enter the COVID-19 Consumer Protection Act (“Act”), which was enacted in late December 2020 for the duration of the COVID-19 public health emergency. This Act allows the FTC to seek civil penalties against first-time offenders that violate Section 5 of the FTC Act by engaging in deceptive acts or practices “associated with the treatment, cure, prevention, mitigation, or diagnosis of COVID-19.” Indeed, the FTC brought its first case just last week against a company for marketing Vitamin D and Zinc products that were allegedly as, or more, effective than currently available vaccines.
Per the Act, the FTC can seek a maximum civil penalty of $43,280 per violation. However, it is unclear how this penalty will be applied.
The lesson is that companies marketing products in the COVID-19 space need to be weary of the significant civil penalties associated with this Act. First-time offenders of Section 5 of the FTC Act are no longer insulated from civil penalties while this COVID-19 law is operative.
DON’T FORGET ABOUT THE WEBSITE
Sometimes, companies spend significant resources trying to develop a particular theme for an advertising campaign while ignoring even more egregious claims being made on their website. So how does this happen? There is a disconnect between Legal and Marketing.
Legal might approve a particular ad and then Marketing decides that it can use a portion of it in another context because it has been “cleared.” The problem is that ads are vetted based on the “net impression” that is made on consumers. As such, taking a claim out of the context of the particular ad can cause an issue.
Often, companies list customer testimonials on their website, which contain atypical performance-related claims. They think that since they are truthful, there isn’t any sort of liability, which is untrue. Indeed, the performance claims (e.g., saved $1000) may be even more aggressive than the claims being vetted for use in the primary ad campaign.
Disclaimers are another area of concern. While certain disclaimers may have been approved for use in print advertising, they may not be effective when presented online because consumers can’t see them.
Simply stated, one size does not fit all when it comes to advertising. As such, companies should take a holistic approach to ensure that claims are being properly presented in all respective media.
Chances Were Slim to None: Shapewear Claims Fall Short
Just when you thought that you heard it all, the FTC announced yesterday that it settled with marketers of caffeine-infused “shapewear” over unsubstantiated weight loss claims. According to the FTC, marketers urged consumers to wear a fabric that was allegedly infused with, among other things, caffeine for metabolizing fat. The caffeine was supposed to dehydrate fat cells, making the wearer appear slimmer and firmer. Claims like “[t]ake up to 2” off hips,” “[i]nstant trimming when you wear them,” and “works with your body to eliminate cellulite” came under attack by the Commission.
The FTC was critical of the studies that had been offered as alleged substantiation. Besides being uncontrolled and unblinded, the studies revealed average reported hip reductions of less than of fractions of an inch. Outlier results were not persuasive. In the end, the companies entered into proposed Consent Orders requiring over $1.5 million to be refunded to consumers.
Once again, companies have been pursued when the Commission felt that they distorted results and made outlandish claims. Consumers continue to search for quick fixes for weight loss and the FTC continues to hold companies accountable. This sector has been a priority for the Commission for years due to the inherent health-related concerns associated with specious weight loss claims. Any company operating in this domain should err on the side of caution in its advertising.
How Many Calories Are In Your Nightcap? Alcoholic Beverages May Soon Contain Nutrition Labels
You’ve always heard about the carbs in alcoholic drinks, but now, you might just learn more than you want to know. At the end of May, the Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau approved beer, wine and spirits companies’ use of nutrition labels on their products, which can list, among other things, calories, carbohydrates, protein and fat per serving. Since the labeling is voluntary, it will be at the beverage companies’ discretion as to whether to use them.
The labeling regulation is only temporary while the Treasury Department considers final rules on alcohol labels. It has been suggested that the recent labeling regulation is the result of lobbying by hard liquor companies that historically sell products with lower calories and carbohydrates than their beer competitors.
As this is a competitive industry, we will probably start to see entire ad campaigns develop around specific amounts of calories and carbohydrates in various beverages. If there is an edge to be had, companies will be sure to highlight it for consumers. So, an after dinner beer or scotch? We may soon learn which one helps us out more with our diets.
If You Are Marketing Continuity Plans, Let Consumers Know.
Yesterday, the FTC reported that it had filed its 11th case involving the promotion of dietary supplements via fake news sites run by affiliate marketers. Sure, companies need to be concerned about how consumers are driven to their websites. However, it appears that the driving factor for many of the FTC’s complaints involving fake news sites was not the misleading claims on the affiliates’ websites, but rather the undisclosed negative option continuity plans on the defendants’ websites and the inability of consumers to get refunds.
Even though technology has improved, it’s the same old story. At the end of the day, consumers complain to their state AG’s offices and the FTC because they claim that they were enrolled in undisclosed continuity plans, not that they lost $1.95 for a sample of a product that did not work. The FTC’s Complaint involving the sale of acai berry/colon cleanse products is yet another example of this common fact pattern.
The fact that these products were pitched through allegedly fake new sites is only icing on the cake. If companies honored their 100% money back guarantees, not enough people would complain to give the FTC the incentive to bring an action. The FTC has limited resources so many of its cases are derived from consumers’ complaints. Make no mistake that if you make claims that are on its top hit list (e.g., claims to children or claims directed at curing diseases), you could see an FTC inquiry. However, if everyone is happy, then it’s less likely that your claims will come under scrutiny.
Now, it might not be economically feasible to offer 100% refunds because companies pay out commissions to affiliates to drive consumers to their websites before consumers request refunds. This makes it even more important for companies to make sure that they have defensible positions for using any negative option continuity plans. Also, companies need to understand how consumers were pitched to arrive at their websites. If the true “product” is the continuity plan, then companies need to be ready to defend why all of the downstream affiliate marketing as well as the marketing on their own websites focused on the $1.95 product. While companies like to blur the issue, the question is fairly simple. If at the end of the day, the consumer believed that it was just buying the $1.95 product instead of signing up for the $79.95 plan, you could have an issue. Also, failing to investigate how consumers got to your website (i.e., by failing to monitor downstream affiliate marketing) can only lead to further trouble. Be clever in your marketing, but make sure that consumers understand what they are buying.
Learn From How The FTC Approaches Your Competitors’ Advertising!
Earlier this week, the FTC approved a final Order settling charges against Beiersdorf, Inc. relating to marketing claims for its Nivea My Silhouette! skin cream product. The Decision and Order can be found on the FTC’s website along with a copy of the Complaint.
What can be learned from this case? First, don’t believe that just because your competitors’ products have not been questioned by the FTC, your products are immune from review. Second, there can be serious financial repercussions for making questionable claims. According to Section V of the Order, Beiersdorf is required to pay $900,000 to the FTC to settle this matter. Third, in addition to being concerned about whether your more traditional types of marketing are compliant, you need to be careful about the types of keywords that you are purchasing to promote your products. As noted in the Beiersdorf matter, the FTC complained about the purchase of terms, such as “stomach fat” and “thin waist.” Finally, while the matter may be over, Beiersdorf is now under Order with the FTC (the violation of which will trigger significant financial penalties) and has agreed to be monitored by the FTC for five years with regard to certain future claims. While such monitoring provisions are not new, companies often forget about how invasive these provisions can be as it allows the FTC, “upon reasonable notice and request” to ask for, among other things, substantiation for the subject claims. In other words, unlike in civil litigation, the matter is far from being over even though a settlement has been reached. Learn from how the FTC settled matters with others in your field and consider the significant disruptions, both financial and otherwise, that can result if your company makes unsupported or questionable claims.
Let’s Go To The Videotape: Seven FTC Reminders Re: Complying With The Can-Spam Act
The FTC has put out a short video with 7 simple things to remember about complying with the CAN-SPAM Act. Although very basic, it presents a short checklist to review if your company uses E-mail to market your products or services.
FTC Tip For The Day….
Besides telling the truth, what’s the one thing that a company can do to minimize its chances of getting an inquiry from the FTC? Provide a no questions asked, 100% money back guarantee and honor it.
Here’s why. Generally speaking, the FTC brings most of its cases with the goal of getting restitution for consumers. If there are no damages (i.e., everyone has been refunded), then it reduces the incentive for the FTC to bring a case. Further, if everyone is happy, there won’t be any complaints to the FTC. Thus, unless you are making outrageous health claims to children, for example, it is less likely that you will wind up on the FTC’s radar screen. Responding to a FTC investigation will surely cost more than the $39.95 refunded to a consumer.
So to sum it up, always tell the truth and provide full refunds. You should have less worries.