Commission Issues Decision In the matter of POM Wonderful LLC

On January 16, 2013, the Federal Trade Commission (“Commission”) issued an Opinion In the matter of POM Wonderful LLC upholding in part and overruling in part Chief Administrative Law Judge D. Michael Chappell’s May 2012 initial decision regarding advertising claims for POM Wonderful (“POM”) products. In pertinent part the Commission opinion, issued by Commissioner Maureen Ohlhausen, ruled the following:

Thirty-nine of POM’s 43 ads made efficacy claims and were false and misleading;
Two well-designed, well-conducted, double-blind, randomized controlled clinical trials (RCTs) are required to substantiate claims that a food can treat, prevent or reduce the risk of “serious diseases;”
The proposed order does not violate POM’s 1st or 5th amendment rights;
The past COO and President of POM Wonderful who, at the time of his employment, was responsible for the operations of the marketing team, “both participated directly in and had the authority to control the acts or practices at issue,” and thus should be held individually liable and subjected to a Final Order along with Steward and Lynda Resnick; and
FDA-preapproval is not warranted as part of the remedy in the POM action.

The Commission also agreed with the ALJ’s conclusion that the Respondent’s actions were serious and deliberate. Two concurring statements were included: a statement by Commissioner Ohlhausen (rejecting the two RCT standard and concluding that extrinsic evidence should have been used to determine whether some of POM’s ads made implied disease claims) and a statement by Commissioner J. Thomas Rosch (agreeing with the majority opinion but noting that “having served as a Commissioner for seven years and having been a trial lawyer for nearly 40 years before… [he is] somewhat skeptical of relying so heavily on the opinions of experts who are paid by both Complaint Counsel and Respondents”).

The Commission ruling provides helpful insight into the Commission’s position regarding health-benefit claims and the level of substantiation required to make claims that a food or beverage product treats, mitigates or prevents a “serious disease.” The decision also reflects the Commission’s intent to pursue individual liability for company officers believed to play an integral role in the development of health-benefit related marketing campaigns.
More information regarding the ruling and related proceedings can be found here.

Advertising Litigation On the Rise

The news media have taken notice of the increase in advertising lawsuits and formal grievances filed against competitors. This month, The New York Times and The AmLaw Daily reported on the recent up-tick in false advertising challenges.

The New York Times article, “Best Soup Ever? Suits Over Ads Demand Proof” from November 22, 2009, noted that the number of cases appears to have grown as the economy has declined. Kelley Drye & Warren partner, John E. Villafranco, explained, “In this economy, where margins are a bit tighter, a lot of marketing departments have decided to become more aggressive in going after their competitors in the hopes that they can either protect their market position or capture additional market share.”

Increased Activity at the NAD and in the Courts

Most advertising cases are filed either in the courts or before the self-regulatory body, the National Advertising Division of the Council of Better Business Bureaus (“NAD”). The New York Times reported that complaints filed with the NAD hit a record number of 84 in 2008. The year before, the NAD received only 62 complaints, and it received only 52 complaints in 2006. The NAD is on track for a new record in 2009, with 82 complaints filed so far.

No reliable numbers are available for false advertising cases in the courts, but lawyers in the field report an increase. Cases in the courts and at the NAD have involved advertising for telecommunications products and services, health benefits claims for foods and dietary supplements, advertising for over-the-counter drugs, advertising for personal care products, advertising about taste tests, pet food advertising, claims about savings to consumers, and claims that products are environmentally friendly.

For an analysis of alternatives to standard court proceedings, see the article, “Making it Stop: A Practical Guide to Challenging Your Competitor’s Advertising Claims.”

Aggressive Enforcement at the FTC

While competitor challenges have heated up, advertisers also should be aware that the Federal Trade Commission (“FTC”) has remained active and aggressive. David Vladeck became the Director of the Consumer Protection Division in April. He has stated in speeches that enforcement priorities will include advertising related to consumer economic welfare, advertising related to consumer health, advertising about environmental benefits, and advertising to children. Cases initiated by the FTC have reflected these priorities.

Additionally, on October 5, 2009, the FTC released stringent new guidelines for using endorsers in advertisements. These guidelines affect a broad array of advertisers, including those who do not use typical consumer, celebrity, or expert endorsers. The guidelines, for instance, cover the situation where a company gives free products to bloggers for their honest, unedited opinions and the situation where an employee, on her own accord, disseminates a message about her employer’s products or services on the internet. For more information, reference the Kelley Drye Client Advisory, “FTC Issues Final Sweeping Changes to Endorsement and Testimonial Guides.”