In a decision that will limit the Federal Trade Commission’s (FTC) ability in both consumer protection and antitrust matters to bring certain claims in federal court, the Third Circuit Court of Appeals held in FTC v. Shire Viropharma, Inc. that the FTC may only bring a case under Section 13(b) of the FTC Act when the FTC can articulate specific facts that a defendant “is violating” or “is about to violate” the law.

Since the 1980s, the FTC has filed most of its cases challenging deceptive or unfair practices under Section 5 of the FTC act in federal court, instead of administratively. The FTC’s authority to file these types of cases in federal court is found in Section 13(b) of the act, added to the act in 1973, which permits the FTC to seek an injunction in federal court “[w]henever the Commission has reason to believe . . . that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC].” While in cases of pending acquisitions or ongoing fraud it may be clear that the FTC has reason to believe someone “is violating” or “is about to violate” the law, the FTC has also brought cases under Section 13(b) for claims arising from abandoned conduct. The Shire decision addressed the FTC’s authority to bring an action in federal court under Section 13(b) in these circumstances.

In Shire, the FTC alleged that Shire abused the U.S. Food and Drug Administration’s citizen petition process to maintain its monopoly on a drug it manufactured. The complaint alleged that Shire filed forty-six citizen petitions between 2006 and 2012. In 2017, the Commission filed its complaint, which alleged, inter alia, that “[a]bsent an injunction, there is a cognizable danger that Shire will engage in similar conduct” and “[Shire] has the incentive and opportunity to continue to engage in similar conduct in the future. At all relevant times, [Shire] marketed and developed drug products for commercial sale in the United States, and it could do so in the future.”

Shire filed a motion to dismiss, arguing that Section 13(b) only allowed the Commission to pursue injunctive relief where the violation is occurring or is about to occur. After considering the text of the statute and the legislative history, the court agreed. Because the FTC failed to “plausibly suggest [Shire] is ‘about to violate’ any law enforced by the FTC, particularly when the alleged misconduct ceased almost five years before filing of the complaint,” the court dismissed the case.

On appeal, the FTC argued that a “likelihood of recurrence” standard, borrowed from the common law standard for injunctive relief, should govern when the FTC may bring an action in federal court under Section 13(b). The FTC also advanced a “parade of horribles” argument that crafty defendants could flaunt the FTC’s authority by swiftly shutting down their operations at the outset of an FTC investigation to immunize themselves from a federal court action.

The Third Circuit rejected these arguments. It concluded that the statutory text under Section 13(b) requiring that the FTC have reason to believe a wrongdoer “is violating” or “is about to violate” the law unambiguously prohibits only existing or impending conduct. The Court also rejected the FTC’s arguments that its decision would hamper its law enforcement efforts, noting that Section 5 of the FTC Act would continue to allow the FTC to bring administrative actions based on past conduct. The Court further noted that if the FTC determined during the pendency of an administrative action that a respondent was violating or about to violate the law, it could then seek injunctive relief in federal court under Section 13(b). Having determined the appropriate legal standard, the Court of Appeals upheld the district court’s holding that the FTC failed to allege in its complaint that the defendant “is violating” or “is about to violate” the law.

The FTC is likely to appeal the decision in Shire, but there is no guarantee that the Supreme Court will grant certiorari given the plain language of the statute and the lack of any contrary circuit authority. In the meantime, the same issue in the context of a consumer protection action is likely headed to the Eleventh Circuit Court of Appeals in FTC v. Hornbeam Special Situations, LLC, No. 1:17-cv-3094 (N.D. Ga.). where the FTC sued a variety of defendants, including the estates of deceased individuals, for allegedly billing consumers without their authorization.

While the FTC continues to have the option to bring cases against past violations administratively under Section 5, including to seek a cease and desist order, it may decide to exercise more restraint in bringing cases involving abandoned conduct. This is especially true for claims subject to statutes of limitations. Where the FTC does decide to pursue conduct that has ceased, it may seek tolling agreements during the investigational phase.

The FTC may consider bringing more administrative actions under its Part 3 authority. As former Commissioner Maureen Ohlhausen has observed, “[t]he FTC’s Part 3 authority is a powerful tool for developing or clarifying the law.” Yet, over time, the FTC has brought far fewer Part 3 cases – 94 cases during the period 1977 to 1986 compared to 12 during the period 2007 to 2016. Shire, and quite possibly Hornbeam, should cause the Commission to assess the reasons behind this trend and to take steps to ensure the Part 3 process fulfills the role intended by Congress when it was created. That could very well mean that cases that would have been brought in federal court may find their way to hearing being brought before administrative law judges.

This morning, the FDA announced its intention to engage in greater oversight of the dietary supplement industry.  The announcement also conveyed that the Agency had sent 12 warning letters and five advisory letters to companies over the prior two weeks.  Some of these letters were jointly issued by FDA and the Federal Trade Commission, focusing on what the two agencies consider to be illegal and deceptive claims in advertising and labeling for products intended to treat Alzheimer’s and other serious diseases such as diabetes and cancer, rendering the products unapproved new “drugs” rather than “dietary supplements” under federal law.

In his statement, FDA Commissioner Scott Gottlieb stated an intent to step up FDA efforts to improve product safety and police deceptive claims.  Amongst other initiatives, Mr. Gottlieb stated that the Agency is developing a new “rapid response tool” to alert the public if a supplement contains an illegal ingredient or poses a health risk.  While supplement manufacturers should be pleased that efforts are being made to weed out bad actors, they should also be concerned about unintended consequences that might result from use of such a rapid response tool.  The damage to a brand from an FDA alert could be significant.

Gottlieb also indicated that FDA is working to “develop [new] guidance for preparing [new dietary ingredient] NDI notifications” to help ensure that the regulatory framework is both sufficiently flexible and adequately protects public safety.  As part of its work to modernize the NDI process, FDA is also planning to update its compliance policy regarding NDIs.  Mr. Gottlieb also weighed in on the idea of creating an FDA registry, whereby supplement manufacturers would be required to list products and ingredients.  The registry, presumably, would allow FDA to concentrate enforcement efforts, but before it could be created, Congress almost certainly would need to act.  Gottlieb’s statement seemed to acknowledge this, and he cited the possibility of “dietary supplement exclusivity” similar to the exclusivity presently enjoyed by drug manufacturers as another potential issue ripe for congressional consideration.

In order to concentrate on these issues and others affecting industry and consumers, Mr. Gottlieb reported that he has established a Dietary Supplement Working Group at the FDA, “comprised of representatives from multiple centers and offices across the agency.”  The Working Group will report directly to the Commissioner and will review “organizational structures, processes, procedures and practices in order to identify opportunities to modernize our oversight of dietary supplements.”  In addition to these steps, FDA will conduct a public meeting this spring that will focus on “responsible innovation and safety.”  All stakeholders are invited to provide comment on “how the FDA should strengthen the dietary supplement program for the future.”

Much of the justification for increased oversight is centered on what FDA has characterized as a startling increase in the number of dietary supplements generally, and adulterated and misbranded supplements specifically.  Whether the framework that FDA will put in place is narrowly conceived to address this problem, without creating unnecessary and burdensome requirements on reputable companies, remains to be seen.  Stakeholders should monitor these developments closely and consider engagement through public comments or participation at the public meeting given Gottlieb has made clear that the Agency wants to hear both from industry and consumers as it assesses how best to move forward.

The 2018 Farm Bill legalized cultivation and processing of industrial hemp and various by-products.  One hemp-based derivative of considerable interest to manufacturers of personal care products, dietary supplements, cosmetics, and OTC drugs is cannabidiol (“CBD”).  As industry races to commercialize and advertise CBD, it’s important to understand the regulatory hurdles that remain.  Ad law partner, Kristi Wolff, addresses several common misunderstandings in an article recently published online in Nutritional Outlook

While many today returned to work after the Holiday season, things remained quieter than usual here in the nation’s capital – with many federal workers furloughed until further notice as the federal government continues to be in a partial shutdown.  President Trump is reportedly meeting with congressional leaders today ahead of Thursday’s start to a new congressional session but, at least for now, there’s no immediate end to the shutdown in sight.

Here’s how the shutdown is affecting federal agencies responsible for overseeing and enforcing advertising and privacy laws:

  • The FTC closed as of midnight December 28, 2018.  All events are postponed and website information and social media will not be updated until further notice.  While some FTC online services are available, others are not.  More information here.
  • The CPSC is also closed, although a December 18, 2018 CPSC memorandum summarizing shutdown procedures indicates that certain employees “necessary to protect against imminent threats to human safety” will be excepted employees and continue work during the shutdown.  The CPSC consumer hotline also continues to operate. Companies should remember that obligations to report potential safety hazards are not furloughed, so the mantra of “when in doubt, report” still applies, even if public announcement of a recall may be delayed.
  • Roughly 40% of FDA is furloughed according to numbers released by its parent agency, the Department of Health and Human Services.  In a post on its website, the agency explained that it will be continuing vital activities, to the extent permitted by law, including monitoring for and responding to public health issues related to the food and medical product supply.  The agency is also continuing work on activities funded by carryover user fee balances, although it is unable to accept any regulatory submissions for FY 2019 that require a fee payment.
  • Because the CFPB is funded through the Federal Reserve and not Congress, it remains in operation.

The California Food, Drug, and Medical Device Task Force announced a settlement this week with Goop, the lifestyle brand founded by Gwyneth Paltrow, which we’ve written about here and here. The complaint alleges that Goop made false and misleading representations regarding the effects or attributes of three products—the Jade Egg, Rose Quartz Egg, and Inner Judge Flower Essence Blend. According to the complaint, Goop advertised that the Jade and Rose Quartz Eggs—egg-shaped stones designed to be inserted vaginally and left in for various lengths of time—as well as the Inner Judge Flower Essence Blend could balance hormones, prevent uterine prolapse, increase bladder control and prevent depression. The complaint also alleges that none of Goop’s claims regarding these products were supported by competent or reliable scientific evidence.

The stipulated judgment prohibits Goop from (1) making any claims regarding the efficacy or effects of any of its products without possessing competent and reliable scientific evidence that substantiates the claims; and (2) manufacturing or selling any misbranded, unapproved, or falsely advertised medical devices. In addition, Goop agreed to pay $145,000 in civil penalties and will provide refunds to consumers who purchased the products during 2017.

Goop responded, in part, as follows: “Goop provides a forum for practitioners to present their views and experiences with various products like the Jade Egg. The law, though, sometimes views statements like this as advertising claims, which are subject to various legal requirements.”

Yep. True story. Here are a few other lessons:

  • When made on a site promoting sale of a product, statements by practitioners or other testimonialists about the benefits of that product are advertising (not sometimes, always) and can never be used to support claims that are not otherwise supported by competent and reliable scientific evidence.
  • Competent and reliable scientific evidence is a flexible standard. For health claims, though, it frequently requires well-designed clinical tests. Simply put, the standard isn’t whether there is any evidence; it is whether there is credible evidence that experts in the field would agree is reliable.
  • Fanciful claims that do not rise to the level of disease prevention aren’t necessarily puffery either. Advertisers need to clearly understand when they are making objectively provable claims and have an obligation to substantiate them before dissemination.
  • Products that feature claims of disease treatment or reduction may be classified as medical devices or drugs and may be subject to FDA clearance or approval prior to marketing.

Goop claims to have modified its claims to comply with the settlement. Notably, the Jade Egg remains available. We’ll let you decide what to do with that.

The FDA & FTC today posted warning letters to 11 marketers and distributors of opioid cessation products, alleging that such products were unapproved new drugs that violated the Federal Food, Drug and Cosmetic Act (FDCA) and that made unsubstantiated, deceptive claims in violation of the FTC Act.  In addition to the 11 joint warning letters issued to named marketers and distributors, the FTC issued four additional warning letters to unidentified marketers of similar products.  It is not clear why these four marketers were not identified by name or targeted by FDA, although it is possible that they used less egregious claims than those targeted in the 11 joint warning letters.

As to issues under the FDCA, the warning letters allege that the identified products are unapproved new drugs because they are intended to diagnose, cure, mitigate, treat, or prevent disease.  The warning letters identify representative claims that render the products “drugs” under the FDCA, including:

  • “For temporary relief of cravings, irritability, and inability to concentrate related to the use and over-use of. . .  alcohol and narcotics”;
  • “Support withdrawal relief, effective detox, and lasting recovery from addiction”; and
  • “Opiate withdrawal aid supplement.”

Because the products are not generally recognized as safe and effective for these marketed “drug” uses, the products constitute unapproved new drugs that violate the FDCA, according to the warning letters.  The warning letters further provide that the products are marketed for treatments that are not amenable to self-diagnosis or treatment without the supervision of a licensed practitioner, and thus would be prescription drugs even if they were recognized as a safe and effective treatment for opiate withdrawal.

Two warning letters targeted products labeled as “homeopathic” under FDA enforcement policies set forth in FDA’s Compliance Policy Guide (CPG), “Conditions Under Which Homeopathic Drugs May be Marketed.”  While that policy suggests that FDA will exercise enforcement discretion as to certain drug products labeled as “homeopathic” and marketed without FDA approval, the letters state that the CPG acknowledges that special circumstances may apply that supersede that policy.  According to the warning letters, the nationwide public health emergency relating to opioid addiction is one such circumstance and thus the enforcement policy does not apply to drugs marketed for opiate addiction.  In December 2017, FDA released a draft guidance that proposed a new risk-based enforcement approach to homeopathic drug products marketed without FDA approval that would prioritize regulation and enforcement for products that pose the greatest risk to patients.

As to the FTC Act violations, the warning letters note that health-related claims must be supported by competent and reliable scientific evidence at the time the claims are made.  The warning letters point to previous FTC enforcement actions challenging unsupported claims for the treatment of opiate addiction and withdrawal symptoms as evidence that such claims are likely unsubstantiated under the FTC Act.

The warning letters request unique responses to both FTC and FDA within 15 working days and direct the marketers and distributors to explain the steps they are taking to address both FDA and FTC-related concerns.

On October 25, the U.S. District Court for the District of Massachusetts dismissed a consumer class action under Massachusetts law, contending that Wesson vegetable oil is falsely labeled “100% natural” because it allegedly is extracted from genetically modified corn, soybean and rapeseed.  Lee v. Conagra Brands., Inc., 1:17-cv-11042 (D. Mass Oct. 25, 2017).  This was an unusually clean case in that there was no other ground challenging the “100% natural” claim and no counts for other legal violations.  The court thus had squarely to decide whether the presence of genetically modified ingredients renders a product not “natural” under the law.

The court’s decision that GMOs are not necessarily not natural relied on the FDA’s longstanding approach to the use of the term.  The FDA has no formal definition of “natural” as applied to foods, but its policy, as expressed in the Background section of FDA’s November 12, 2015, request for comments on the subject, is that “we have not attempted to restrict use of the term “natural” except for added color, synthetic substances, and flavors” and “we have considered “natural” to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there.”  80 FR 69905.  The court was also influenced by the FDA’s policy not to require special labeling of products containing genetically modified ingredients based on its 1992 conclusion that “The agency is not aware of any information showing that foods derived by these new methods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding.”  57 FR 22984.

The court concluded, “Because Wesson’s ‘100% natural’ label conforms to FDA labeling policy, it cannot be unfair or deceptive as a matter of law.”  That is a strongly stated, absolute conclusion.  This was not a pre-emption case, but a determination on the merits that the label is not deceptive.  One might wonder how this sits with the view espoused by the Supreme Court in POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014), holding that food or beverage labels conforming to FDA labeling regulations can still be false or misleading under Section 43(a) of the Lanham Act.  The Supreme Court limited its holding to the federal Lanham Act, so POM Wonderful does not control consumer class actions brought under state laws, but its underlying logic was that FDA regulations – to say nothing of informal “policies” – are not the final authority on whether advertising and labeling statements may deceive consumers.

It will be interesting to see how other courts handle this issue as it relates to GMOs and all-natural claims, an increasingly common type of food marketing class action.  Also interesting is the potential gap opened up between Lanham Act and state consumer actions in terms of what is deceptive, which heretofore has been fairly coterminous.  This Conagra decision suggests that in a case this one or like POM Wonderful v. Coca-Cola, a competitor Lanham Act action could be permitted despite the label satisfying FDA regulations or other pronouncements, but the consumer class actions that typically follow Lanham Act cases, seeking their own bite at the pie, might not be.

The Food and Drug Administration has made the news lately for disapproving a Massachusetts bakery’s inclusion of “love” among the listed ingredients in its granola products.  Nashoba Brook Bakery produces breads and granolas that are sold in independent markets and fine-food stores in Massachusetts and New Hampshire.  As the FDA primly put it, “‘Love’ is not a common or usual name of an ingredient, and is considered to be intervening material because it is not part of the common or usual name of the ingredient.”  The concern with such “intervening material” is that it may distract from the mandatory listing of ingredients in the order of redominance.

In fairness to the FDA, objecting to the listing of love as an ingredient was not the main point of its warning letter.  The FDA conducted an inspection of Nashoba Brook’s plant, and the bulk of the letter lists sanitary and food-storage violations of the Current Good Manufacturing Practice.  Obtaining and reviewing product labels is a typical part of such inspection visits, and this resulted in the FDA’s detection of the love ingredient violation.

The moral here is simple.  There are a lot of places on your packaging where you can be cute, but the FDA mandated facts panel and ingredient statement are not among them.

 

In a review of new class action cases filed against in 2017, we counted at least 11 actions in the food industry alone alleging that a product was not “natural” or “all-natural” as claimed in its advertising or labeling. “Natural” is, by a healthy margin, the most contested single word in food and personal care products class action litigation.  Why do class action cases around “natural” continue unabated?

  1. “Natural” Doesn’t Mean Much …

There is no generic, official definition of “natural.” In November 2015, after being prodded by almost every stakeholder, the FDA put out a request for information and comments regarding the use of “natural” in foods.  Since then, the FDA has done nothing.  It hasn’t even closed the web page for submitting comments, which were supposed to end in May 2016 – you can still leave a comment if you want to.  This doesn’t mean we have no idea what the FDA thinks “natural” means.  There is enough guidance on narrower definitions, such as the FDA’s definition of “natural flavor” and its opposite, “artificial flavor,” and the USDA’s general definition of “natural,” that we can guess with some confidence what the FDA’s definition of “natural” would look like if it were issued tomorrow.  But a guess doesn’t carry much authority, and isn’t much use in stopping litigation.

  1. … but Some Consumers Think It Means a Lot …

In advertising law, however, neither the advertiser nor even the government is the final arbiter of what an advertising claim means. It is the consumer audience that gets to interpret advertising claims, and regardless of what was intended, the advertiser is responsible for any reasonable interpretation of its advertising.  In private cases, the proxy that is used for a “reasonable consumer” is a significant proportion of consumers who report receiving a particular meaning in a competent consumer perception survey, that proportion sometimes being as low as 15%.  The implicit assumption is that at least 85% of consumers are reasonable, so that any slice of 15% of consumers must include some reasonable ones.  It may seem like a debatable premise these days, but it’s one we have to live with. Continue Reading Three Reasons “Natural” Class Actions Are Here to Stay

On September 12, the NAD released its decision in its review of the Capillus82 hair growth device (Case #6107).  This case is unusual in that it addressed a challenge to a prescription-only medical device, and related closely to the FDA’s clearance of that product to be marketed.  The NAD took pains to emphasize that its decision did not contradict the device’s FDA-cleared indication for use, but did it really?

First, a little background on how the FDA treats medical devices of this kind.  Low-to-moderate-risk medical devices may be marketed without preapproval through what is known as the 510(k) clearance process.  Instead of being evaluated and approved by the FDA for safety and efficacy, the device can be “cleared” if it is “substantially equivalent” to a device that already is legally marketed.  The existing “predicate device” may itself have undergone full approval, or it too may be a 510(k) cleared device pointing to a yet earlier predicate device.  The device maker’s 510(k) submission must convince the FDA that the new device is technologically equivalent to the predicate device or is otherwise substantially equivalent in safety and effectiveness.  The intended use must be the same as that of the predicate device.  The process has been analogized to a generic drug approval predicated on chemical equivalence to an existing branded drug.

The Capillus82 is a hat with 82 laser diodes lining the inside.  Its intended use is to treat androgentic alopecia (i.e., slow hair loss) and promote hair regrowth in men and women having certain kinds of pattern baldness.  It received FDA 510(k) clearance in January 2017, with the predicate devices being the Hairmax Lasercomb and the iGrow II – no, I am not making these up – which used different form factors to apply laser light to the head, something that apparently promotes hair growth.  Clearance was applied for and granted on the basis that the Capillus82’s technology was the same as those of the Lasercomb, iGrow and other laser hair growth treatments, with minor differences that should have no impact on safety or efficacy. Continue Reading Does the NAD’s Capillus Decision Baldly Contradict the FDA?