FTC Puts Almost 700 Advertisers on Notice That They May Face Civil Penalties for Unsubstantiated Claims
Notably, the FTC is not accusing businesses that found their way onto the FTC’s list of deceptive or unfair conduct. Still, these notices do put them on notice that failing to have adequate substantiation could subject them to civil penalties of up to $50,120 per violation in the first instance in a subsequent enforcement action. In that way, these notices are a means for the FTC to side-step the Supreme Court’s decision in AMG Capital Management v. FTC, which stripped the FTC of its ability to seek equitable monetary relief in cases under Section 13(b) of the FTC Act.
This is the fourth set of these notices since Chair Lina Kahn took the reins of the FTC in 2021. Prior notices in that timeframe related to money-making opportunities, endorsements and testimonials, and for-profit colleges went to roughly 1,900 companies. What has emerged is a large and growing swath of companies – none of whom are accused of wrongdoing – being set up for civil penalties in standard advertising enforcement matters using a technique that had previously been dormant for decades. This is the FTC flexing its muscle, and it remains to be seen whether and to what extent the FTC will follow through and bring enforcement sweeps seeking large civil penalties. That said, given the effort it has expended to get this far, it does seem likely that more of these notices will be forthcoming and in a broader set of issues (perhaps including privacy and data security) and that the FTC will bring follow-up enforcement actions.
Under the FTC Act, product claims must be substantiated in order to avoid deception, in violation of the FTC Act. See FTC Policy Statement on Advertising Substantiation.
In this case, the Notices of Penalty Offense outline specific substantiation standards, such as:
- Having a reasonable basis consisting of competent and reliable evidence for objective product claims;
- Having access to competent and reliable scientific evidence to support any health or safety claims;
- Obtaining at least one human clinical trial to support any claims that a product is effective in curing, mitigating, or treating a serious disease;
- Not misrepresenting the level or type of substantiation for claims; and
- Not misrepresenting that a product claim has been scientifically or clinically proven.
The recipients of the advertising substantiation Notices of Penalty Offense letters also received a copy of a previously approved notice of penalty offense regarding the use of endorsements and testimonials, which addresses false endorsements, misrepresentation of the identity of endorsers, and the use of endorsements to make deceptive performance claims. The companies were also encouraged to review the FTC’s recent Health Product Compliance Guidance, which was issued in late 2022 and updated the FTC’s 1998 Dietary Supplements: An Advertising Guide for Industry guidance. The 2022 update demonstrates how to ensure that claims about the benefits of health-related products are not misleading and are substantiated appropriately.
If you have questions about advertising law, FTC enforcement, or what to do if you have received a notice from the FTC, please reach out to any member of the ArentFox Schiff team.
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