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John E. Villafranco

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In the following article authored by University of Arizona Law Professor Jane Bambauer, the professor makes a compelling argument that FTC/FDA regulation of health claims should focus on situations  where the government has compelling evidence of actual harm.   Professor Bambauer offers an opinion that high standards for health benefit claims can effectively silence commercial speech in areas where science may still be developing, to the detriment of consumers.   The current method of analysis, the Professor contends, does not give adequate weight to consideration of the consequences of prohibiting a claim that may actually be true – one of the six Pfizer factors that is regularly overlooked in substantiation analysis.

To read the article, please click here.

The consumer advocacy non-profit Truth in Advertising, Inc. (TINA.org) has set its sights on Goop, the lifestyle brand launched by Gwyneth Paltrow.  In a complaint filed earlier this week with the Santa Clara and Santa Cruz County California district attorneys, both members of the California Food and Drug and medical Device Task Force, TINA alleges they found over 50 instances where claims were made that products Goop produces or promotes “can treat, cure, prevent, alleviate the symptoms of, or reduce the risk of developing a number of ailments.”  TINA has requested that the California district attorneys investigate Goop’s marketing practices. 

This is not the first time Goop has been forced to defend claims that it promotes.  Last summer, the National Advertising Division took issue with claims related to using “dust” dietary supplements, such as Action Dust and Brain Dust, both sold by Moon Juice.  The NAD closed the case after Goop agreed to permanently discontinue the dust claims. Continue Reading TINA Has Eyes on Goop

More than a month after the retirement of former NAD Director Andrea Levine, the Advertising Self-Regulatory Council (“ASRC”) has announced NAD’s new Director: Laura Brett. Laura Brett, who has served as NAD’s Assistant Director since 2015, joined NAD in April of 2012. During her five years at NAD, Laura has authored several seminal decisions including NAD’s highly publicized 2015 DirecTV decision. She has also authored several monitoring decisions that deal with the intersection between social media and advertising law. (See, for example, NAD’s Kardashian and eSalon decisions.) Laura has spoken frequently about NAD and has earned a reputation for her strong judgment, rigorous analytical skills, and integrity.

Continue Reading Laura Brett Named New Director of NAD

Acting Chairman of the Federal Trade Commission Maureen Ohlhausen announced today that Thomas Pahl – a current partner at Arnall Golden Gregory with significant experience at both the FTC and the Consumer Financial Protection Bureau – will take over as Acting Director on February 17.  Jessica Rich will depart as Director of the Bureau of Consumer Protection, a position she has held since 2013.

While currently in private practice, Pahl previously spent more than twenty years at the FTC, including stints as Assistant Director of the Division of Financial Practices and Assistant Director in the Division of Advertising Practices.  After his time at the FTC, Pahl served as a Managing Counsel in the Office of Regulations at the CFPB, where he oversaw rulemaking, guidance, and policy development activities relating to debt collection, credit reporting, and financial privacy.  Pahl also advised Reagan appointee and FTC Commissioner Mary Azcuenaga, and served as an attorney advisor to Republican FTC Commissioner Orson Swindle.

Pahl recently praised the appointment of then-Commissioner Ohlhausen as Acting Chairwoman as a “wise choice” that will “place[] the agency in very capable hands” and suggested that President Trump “should give serious consideration to making Ohlhausen the permanent chairman of the FTC.”   In announcing his appointment, Acting Chairman Ohlhausen commented that “Tom’s career demonstrates his continuing commitment to protecting consumers through active enforcement and advocacy that promotes a free and honest marketplace.”

Outgoing Bureau Director Jessica Rich served in various capacities at the FTC for 26 years and has presided over the Bureau of Consumer Protection since 2013, when she was appointed by former Chairwoman Edith Ramirez.  During her tenure, Rich advocated for rigorous enforcement of consumer protection laws and oversaw a number of high profile enforcement actions against major corporations such as Volkswagen, Apple, Google, and Amazon.  She also championed efforts to expand the Commission’s efforts to regulate privacy and data security practices under the FTC Act, as well as to develop the technological expertise necessary to protect consumers in a constantly-evolving marketplace.

Further shake-ups at the Commission are inevitable.  With former Chairwoman and current Commissioner Ramirez’s departure effective this coming Friday, there will be three vacancies on the five-person Commission.  However, the interim appointments of Commissioner Ohlhausen as Chairwoman and Pahl as Acting Bureau Director suggest that top positions at the Commission may continue to be filled by individuals with significant consumer protection experience.  Stay tuned.

In its latest action involving allegedly deceptive earnings claims, the FTC announced yesterday that Uber had agreed to settle charges that it misled potential drivers with inflated earnings claims.  The complaint also alleges that Uber misrepresented benefits of its Vehicle Solutions Program, which connects potential drivers with auto companies to buy or lease a vehicle to be used to pursue the Uber opportunity.

To supports its allegations, the FTC cited a former post on Uber’s website that claimed that uberX Drivers’ “median income is more than $90,000/year/driver in New York and more than $74,000/year/driver in San Francisco.”  However, according to the complaint, actual median incomes were significantly less in those cities — $29,000 less in New York and $21,000 less in San Francisco. The complaint also cites allegedly inflated per hour earnings claims made for other major cities across the United States. According to the FTC’s analysis of Uber’s data, typically only between 10-30% of drivers made as much as the quoted hourly rate in a particular city.

The complaint also alleges that Uber made misrepresentations about its Vehicle Solutions Program to induce consumers to sign up as a driver.  These claims included “own a car for as little as $20/day” and enter into a lease with “unlimited miles.”  The FTC alleged that Uber lacked any basis for making these claims and that Uber actually had information at the time suggesting these claims were false.  For example, the FTC suggested that actual payments made by consumers were significantly higher than those represented and that many leases imposed significant mileage limits.

In her dissent, Commissioner Ohlhausen explained that she did not see the monetary settlement of $20 million as tied to any estimate of consumer harm and asserted that settlements for partial disgorgement of profits, as here, are “inappropriate for a non-fraudulent enterprise that significantly benefits consumers.”  Commissioner Ohlhausen also seemed to question whether certain representations were misleading in the first place, suggesting that the complaint erroneously “suggests that the sole acceptable description of earnings potential is the median earnings of participants.”   She also contended that the complaint unjustifiably excluded certain incentive and promotional payments from the FTC’s calculations of earnings.

The case is a reminder for entities making earnings claims that such claims should be substantiated prior to making the claim, and not false or misleading in the context in which they are made.  It’s worth emphasizing that the FTC never alleged that Uber drivers don’t make money, or that the Uber drivers would have been better off never pursuing the opportunity.  For the two Commissioners in the majority, the discrepancy between actual and represented earnings was enough to support a Section 5 violation and the $20 million monetary settlement.

Federal Trade Commission Chairwoman Edith Ramirez announced today that she will resign her position effective February 10, leaving the Commission with three vacancies and just two remaining commissioners.  Chairwoman Ramirez has been a commissioner since April 5, 2010 and became Chairwoman on March 4, 2013.

In announcing her resignation, she remarked: “It has been the honor of a lifetime to lead the Federal Trade Commission and to have played a role in advancing American consumers’ ability to navigate fast-paced digital markets and promoting business competition across the economy. I thank my fellow Commissioners and all of the talented FTC staff for their support and dedicated public service during my tenure.”  As noted in the FTC’s press release, Chairwoman Ramirez’s tenure was notable for aggressive enforcement of consumer protection and antitrust laws, resulting in “nearly 400 law enforcement actions covering a range of consumer protection issues and approximately 100 enforcement actions challenging anticompetitive mergers and business conduct in major sectors of the economy.”

Assuming no new appointments between President-Elect Trump’s inauguration and February 10, the Commission will be in the rare situation of having only two commissioners on the five-person body.  The Commission could continue to bring enforcement actions under FTC rules, assuming Commissioners Ohlhausen and McSweeny both agreed.  With just two confirmed commissioners, any Commission enforcement decision and most official actions would require both to agree.  Commissioner Ohlhausen, a Republican, has been a commissioner since April 2012 and could take the chair under the new administration.  Commissioner McSweeny, a Democrat, was appointed in April 2014 to a term that expires in September 2017.

The advertising industry’s self-regulatory system may be “voluntary,” but ignoring NAD’s recommendations—or declining to participate when asked—buys advertisers a prompt referral to the Federal Trade Commission. NAD often touts its close working relationship with the FTC. But what becomes of these referrals from the self-regulatory system? At NAD’s annual conference last month, Mary Engle, the FTC’s Associate Director for Advertising Practices, pulled back the curtain on the Commission’s treatment of referrals from NAD.

Engle noted that the FTC has received 50 referrals from NAD between January 1, 2011 and August 17, 2016. Not surprisingly, post-referral outcomes vary a great deal. In some cases, the FTC staff takes no action at all. Far more often, however, the FTC delves into NAD’s case file. Sometimes the Commission’s post-referral role involves urging advertiser back to NAD. Other times, FTC staff launches a formal investigation.

Looking back at referrals from NAD over the past five and a half years, Engle provided the following statistics:

  • 22%: Company returned to NAD at the FTC’s recommendation
  • 22%: Outcome unclear, or FTC staff decided to take no action
  • 20%: FTC staff resolved the matter short of an investigation
  • 14%: Matter remains under review by FTC staff
  • 8%: FTC staff initiated a formal investigation, which it subsequently closed
  • 8%: Matter related to existing FTC investigation/litigation
  • 2%: Referral resulted in FTC law enforcement action
  • 2%: FTC took no action because matter related to non-FTC litigation

The moral of Engle’s story? Don’t dismiss the self-regulatory body too quickly. Refusing to participate, or to comply with NAD’s recommendations, risks unwanted attention from the FTC.

It’s a common question. A company creates a product with a competitive advantage; it takes steps to substantiate a superiority claim; and, satisfied that it has met the legal standard, it bases an advertising campaign on that claim. Then, a competitor comes along with a new product, and the superiority claim is no longer accurate. How soon must the company change its claims? According to a Massachusetts federal court, the answer may be “immediately.”

In July 2013, Dyson launched a campaign advertising that its DC41 vacuum had “twice the suction of any other Suctionvacuum.” One year later, SharkNinja released its Shark Powered Lift-Away vacuum and contacted Dyson to let them know the claim was no longer accurate. Dyson conceded that, and took steps to remove the claim from the marketplace. SharkNinja, though, claims that Dyson dragged its feet. For example, Dyson didn’t begin stickering over the claim on packages until November 2014, and some claims remained on the market until early 2015.

SharkNinja sued Dyson for false advertising under the Lanham Act. Dyson moved for summary judgment, arguing that an advertiser can’t be held liable if it uses “commercially reasonable efforts” to remove claims from the market once they become stale. The court disagreed, holding that the law doesn’t exempt a company from liability just because it takes steps to remove a claim after learning that it’s no longer true.  Instead, the court held that “an advertiser that puts a claim into the marketplace bears all of the risk of the claim being false or becoming stale.” As a result, the court denied Dyson’s motion.

The decision suggests that an advertiser can be liable the moment a claim can’t be substantiated, even though the claim was previously true. It doesn’t seem to matter to the court how fast an advertiser moves to change a claim, once it becomes stale. The creates a strong disincentive for any company to make a comparative claim, especially on packages or in stores, where the claim cannot be changed quickly.

We’ll be watching this case closely to see if Dyson appeals and the appellate court takes a more measured approach.

On Tuesday, the FTC announced that it has sent warning letters to 20 marketers of weight-loss dietary supplements. The letters question whether the companies possess adequate support for claims and describe the scientific evidence required to support such claims. The Commission is asking the companies to review all product claims, including endorsements and testimonials, to ensure they are adequately supported, and to revise the claims as necessary.

The letters state that weight-loss claims must be supported by “well-controlled human clinical studies of the product, or a substantially similar product” and that such studies “must be randomized, double-blind, and placebo-controlled and conducted by researchers who are qualified by training and experience to conduct such studies.” The Commission does not, however, specify how many studies are needed. In POM v. FTC, the D.C. Circuit rejected an FTC order provision requiring “at least two randomized and controlled human clinical trials” for future claims to treat or prevent prostate cancer and other diseases. The court found, instead, that one clinical study may be adequate and revised the order accordingly. Since that decision, FTC orders on health-related claims have generally required only one, rather than two studies. The only exception has been in the realm of weight loss. An open question has been whether the FTC might still revise its position and expect only one study, rather than two, for weight loss claims.  The warning letters do not provide much clarity other than using the plural, “studies.”

As these warning letters indicate, weight-loss and dietary supplement advertising remain a priority for the FTC, and it is important to be prepared to defend your product claims with adequate substantiation should the FTC come calling.

The Eleventh Circuit recently issued a decision in an contempt proceeding against Hi-Tech Pharmaceuticals and several individuals. The case highlights the ongoing debate over whether clinical trials are required for weight loss claims and, if so, whether the clinical trials must be on the full product formulation rather than active ingredients.

In 2008, a federal district court in Georgia held the Hi-Tech defendants liable for disseminating deceptive advertising for several products, including two weight loss products, Thermalean and Lipodrene. The court found that the defendants’ advertising for Thermalean and Lipodrene conveyed that the full product formulations had been clinically tested. In the absence of such testing, the court found that the defendants lacked adequate substantiation. The injunctive order issued by the court against the defendants, however, did not require any sort of clinical testing for future weight loss claims. Rather, the order simply required the defendants to possess “competent and reliable scientific evidence,” defined as “tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.”

In 2011, the FTC initiated contempt proceedings against the Hi-Tech defendants in the same federal district court. The FTC alleged that the defendants had violated the 2008 order by disseminating unsubstantiated advertising for three new weight loss products and a reformulated version of Lipodrene. In support of their advertising, the defendants offered evidence, including an expert report. The court, however, refused to consider the evidence given that none of the materials offered were clinical trials on the full product formulations. The court held that its prior decision on product testing collaterally estopped the defendants from offering any lesser forms of evidence in the contempt proceeding. The Eleventh Circuit reversed this holding. It found that the lower court reviewing the new evidence would not create successive, identical litigations. It observed that both the products and the particular claims at issue in the contempt proceeding differed from the products and claims at issue in the original litigation. The lower court will now hear the case again on remand.

If, on remand, the FTC argues once again that full product testing is required for weight loss claims, it will have an uphill fight. Its orders issued since mid-2010 have allowed weight loss claims to be substantiated with testing on either the full product or active ingredients. Although one other district court has also held that full product testing is required, allowing active ingredient testing is consistent with the greater weight of relevant precedent, including First Amendment cases. The FTC orders since 2010 appear to acknowledge that. Whether some sort of clinical testing is nevertheless required – either on the full product or actives – will likely involve a battle of experts. In prior litigations, the FTC has offered reports in which scientific experts have opined that some type of well-controlled clinical testing is required to substantiate weight loss claims.