Claim Substantiation

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Last week, the Federal Trade Commission issued a Notice of Penalty Offense regarding substantiation for product claims to 670 companies in the health-related marketing space. This new Notice is yet another signal from the FTC that it intends to aggressively pursue its enforcement agenda using all available tools, including previously long-dormant avenues, like its Penalty Offense Authority.

Using its Penalty Offense Authority, the FTC can seek civil penalties from a company or individual that engages in conduct the FTC has determined was unfair or deceptive in a litigated administrative enforcement proceeding, provided the FTC can prove they had actual knowledge that the conduct was unlawful. The purpose of the notice letter is to allow the FTC to argue that the recipients had the requisite “actual knowledge” to support civil penalties of up to $50,120 per violation.Continue Reading New Notice of Penalty Offenses: Are You in the Danger Zone?

The Federal Trade Commission’s recent settlement with Dalal A. Akoury and AWAREmed Health & Wellness Resource Center provides a good overview of how today’s FTC approaches medical claims it believes are unsubstantiated. The case also serves as a reminder that if medical claims sound too good to be true, they probably are.

According to the complaint, filed by the Justice Department on behalf of the FTC, defendants, under Khoury’s leadership, engaged in deceptive acts or practices in violation of Sections 5 and 12 of the FTC Act and the Opioid Addiction Recovery Fraud Prevention Act (OARFPA). The complaint states that defendants deceived reasonable consumers into believing that the medical clinic’s treatments could cure cancer, chronic diseases such as Alzheimer’s and Parkinson’s, and a range of addictions, including to opioids, sex, food, and gambling.

The FTC had previously warned defendants on numerous occasions that making unsubstantiated addiction treatment claims is against the law. Khoury and AWAREmed, a set of companies Khoury controls that operate as a medical clinic, apparently ignored such warnings, causing the Justice Department to try and permanently halt defendants’ deceptive advertising and recover civil penalties. With this complaint the FTC continues its aggressive use of the Opioid Act to fill the hole in its remedial authority after AMG.Continue Reading In AWAREmed Settlement FTC Says Opioid and Chronic Disease Ad Claims Must Be Backed by Science

At its most recent open meeting, the Federal Trade Commission voted unanimously to issue an Advance Notice of Proposed Rulemaking, seeking public comment on whether to modify or expand its Business Opportunity Rule.

The Business Opportunity Rule, first adopted in 2012, requires sellers of “business opportunities” to be able to substantiate any earnings claims they make, and to make certain enumerated disclosures pertaining to the potential transaction. These disclosures include:

  • The seller’s identifying information
  • Whether the seller is making earnings claims and, if so, substantiation for those claims
  • Whether the seller, affiliates of the seller, or its leaders have been involved in legal actions concerning misrepresentation, fraud, securities law violations, or unfair or deceptive practices in the previous 10 years
  • The terms of the seller’s cancellation or refund policy, if it has one
  • A list of people who have purchased the business opportunity in the previous three years

Continue Reading Proposed Rulemaking: FTC Dials in on Business Opportunities

At the height of the pandemic, the Federal Trade Commission took swift action to stamp out scammers and other actors looking to take advantage of—or simply make a buck off—the crisis. One of the early moves it made was to file separate lawsuits against a pair of companies that sold sanitizer, face masks, and other protective equipment gear (PPE), but failed to ship the products as promised.

As of this week, the FTC has won summary judgment in both cases, FTC v. QYK Brands LLC d/b/a Glowwy and FTC v. American Screening, LLC. The cases highlight the two following points.Continue Reading When a Mail Order Rule Case Is Not Just About the Mail Order Rule

This week, a New York district court, in FTC v. Quincy Bioscience Holding Co., granted an individual defendant’s partial motion for summary judgment, dismissing claims brought by the New York Attorney General (NYAG) for lack of personal jurisdiction over him. The dismissal shows a procedural challenge to the FTC’s effort to piggyback on the remedial authority of state AGs to backfill the hole in its remedial powers after the Supreme Court’s decision in AMG Capital Management v. FTC.

A quick refresher: In 2017, the FTC and the NYAG filed a complaint against several defendant companies and two individuals in their capacity as officers of those companies for failing to have proper substantiation to claim that a cognitive supplement improved memory. The FTC relied on Section 13(b) of the FTC Act to seek permanent injunctive relief and equitable monetary relief. On the other hand, the NYAG relied on certain state consumer protection statutes relating to repeated fraudulent or illegal conduct, deceptive business practices, or false advertising. These New York statutes allow for appropriate equitable relief that may include, among other things, restitution and disgorgement of ill-gotten monies. We have previously blogged on this case here and here. After AMG, the relief sought by the NYAG became significantly more important.Continue Reading District Court to New York Attorney General: “No Personal Jurisdiction Piggybacking”

Last week, the Federal Trade Commission filed a lawsuit in federal court in California against Gravity Defyer Medical Technology Corporation alleging the company made unsubstantiated claims that its footwear reduces knee, back, ankle, and foot pain and helps with conditions such as plantar fasciitis, arthritis, joint pain, and heel spurs.

But the FTC’s case is less about footwear than it is about the imaginative ways the agency continues to find ways to pursue monetary relief in the wake of AMG Capital Management LLC v. FTC. There are a few things here worth discussing.

First, the FTC is seeking civil penalties. How, you might ask? The complaint alleges that Gravity Defyer’s owner, Alexander Elnekaveh, violated a 2001 FTC consent order involving his former business, Gadget Universe, which sold an automotive aftermarket fuel-line magnet device. Under the order, Elnekaveh and Gadget Universe agreed to “not mispresent, in any manner, expressly or by implication, the existence, contents, validity, results, conclusions, or interpretations of any test, study or research.”Continue Reading Tied Up with the FTC: Agency Dusts Off 20-Year-Old Settlement to Pursue Civil Penalties

As the rest of us prepare for the Super Bowl by buying avocados to make guacamole, installing new big-screen TVs, and donning Ram/Bengal-themed face paint, select corners of corporate America are preparing for the biggest advertising day of the year.

In 2021, companies spent approximately $485 million on ad slots during the big game, and the average cost of a 30-second commercial slot was about $5.6 million. With such high stakes, plus the intensive “Standards and Practices” review employed by the TV networks, one would assume that anything that makes the cut is above reproach. (The review board won’t even let advertisers use “Super Bowl” because it’s trademarked, which is why you often hear “the Big Game” in ads.)

However, the following examples of legal challenges to your favorite Super Bowl commercials demonstrate that the world of advertising law can be tricky to navigate, and companies that advertise simply cannot mitigate their litigation risk to zero.Continue Reading Defending Against the Blitz: Examining the Legal Issues Surrounding Super Bowl Ads

On July 22, 2021, the Third Circuit ruled against the FTC in its case against Innovative Designs, a company that manufactures and sells a product called Insultex House Wrap, a weather-resistant barrier used in building construction. As we discussed last year, the FTC has targeted companies that produce insulation or building materials and make claims that these materials have more insulating power than they actually do. The court’s rejection of the FTC’s view on what constitutes reliable testing for purposes of substantiation underscores that courts often are more flexible than the FTC in determining whether an advertiser has a reasonable basis for a claim.

Originally, the FTC filed a complaint in the District Court for the Western District of Pennsylvania stating that Innovative Designs falsely claims that its products have a higher R-value than they do. An R-value is a measure of the product’s ability to restrict the flow of heat. So, the higher the R-value, the higher the product’s insulation power. According to the FTC a misleading R-value could prompt customers to purchase a product that will not perform in the way it was advertised. Furthermore, the FTC claimed that Innovative Designs did not use the proper standardized testing, ASTM C518, to make its claims about the product’s R-value.Continue Reading FTC Put to the Test on Inadequate Testing Claims

The FTC routinely pursues dietary supplement makers for making allegedly deceptive or unsubstantiated claims, and most of those investigations are resolved through settlements. The FTC’s recent unsuccessful efforts to bring a contempt action regarding one of those settlements and its decision to then challenge the alleged contemptuous conduct in an administrative proceeding provide interesting insights into FTC settlements and the FTC’s relentless pursuit of companies that fall into disfavor.

On November 20, 2020, the FTC approved an administrative complaint against dietary supplement marketer Health Research Laboratories (HRL), its owner and officer Kramer Duhon, and Whole Body Supplements (WBS), alleging the respondents engaged in deceptive marketing and advertising of their supplements. According to the complaint, respondents are allegedly making unsubstantiated claims that four of their supplements prevent or treat cardiovascular and other diseases.

This is not the first legal challenge that respondents HRL and Duhon have faced with the FTC. In January 2018, a stipulated order permanently banned the defendants from making weight loss claims, joint-related disease claims, and other unsubstantiated health claims regarding defendants’ products and imposed a collective monetary judgment of approximately $3.7 million. The order defined “Covered Products” as “any Dietary Supplement, Food, or Drug, including BioTherapex and NeuroPlus.” Some prohibited weight-loss claims include representations that any Covered Product: (1) causes substantial weight loss no matter what or how much the consumer eats; (2) causes permanent weight loss; or (3) causes substantial weight loss when a product is worn on the body or rubbed into the skin. The order also banned joint-related disease, cognitive performance, and health claims that a product treats or cures arthritis, relieves joint pain, or improves memory concentration or represents a product’s health benefits, safety, performance, or efficacy.Continue Reading Third Bite at the Apple – FTC Administrative Proceeding Signals a Relentless Pursuit Against Supplement Marketers

A recent decision from the National Advertising Division (“NAD”) regarding claims made by SmileDirectClub, LLC (“SDC”) in online advertising for its Smile Direct Club Clear Aligners provides guidance on a variety of key advertising issues, including comparative and savings claims, guarantees and consumer reviews and testimonials. NAD recommended the modification or discontinuation of many of the claims challenged by Align Technology, Inc. (“Align”), maker of Invisalign clear aligners.

First, Align argued that SDC’s advertising misled consumers by claiming that its products and services provide smile correction for the same severity levels, or for a comparable range, as Invisalign. According to the challenger, claims such as “SmileDirectClub invisible aligners straighten most smiles in an average of 6 months” conveyed a message that SDC can fix most teeth issues, including complex conditions, without proper disclosure that SDC’s product is actually intended to treat milder and less complex cases of teeth malocclusion.

In recommending that the advertiser modify its claim by disclosing its limitation to mild-to-moderate malocclusion cases, NAD explained that “[a]dvertisers are free to make ‘apples-to-oranges’ comparisons in order to highlight features or attributes of their products, provided that the advertiser disclose the material differences between the products being compared.”Continue Reading Something to Smile About: NAD Provides Guidance on Key Claim Substantiation Issues in Recent Decision