Federal Trade Commission Updates
What is Deceptive Advertising?
Congress granted the Federal Trade Commission (“FTC”) the power to regulate “unfair or deceptive acts or practices in or affecting commerce.” (FTC Act, 15 U.S.C. § 45[a]). The FTC’s authority extends to marketing practices in a wide range of arenas, including the Internet, and Congress has largely granted the FTC full reign in defining the statutory terms “deceptive” and “unfair.”
The FTC labels advertisements deceptive if, in the regulator’s view, the claim is likely to mislead a reasonable consumer. The FTC has outlined a reasonable basis requirement for advertising claims that demands that advertisers “have a reasonable basis for advertising claims before they are disseminated.” (FTC Policy Statement Regarding Advertising Substantiation, appended to Thompson Medical Co., 104 F.T.C. 648, 839 (1984), aff’d, 791 F.2d 189 (D.C. Cir. 1986)).
This demand for “substantiation” considers the following factors for determining if an advertiser has a reasonable basis for making the claim: type of product, type of claim, consumer benefit from a truthful claim, ease of developing substantiation for the claim, consequences of a false claim, amount of substantiation experts in the relevant field believe is reasonable. (Pfizer Inc., 81 F.T.C. 23 (1972).)
Federal Trade Commission Requirements
However, the FTC is not required to show that the advertisement has actually misled anyone, only that it has the “capacity to deceive” (Charles of the Ritz Dist. Corp. v. Federal Trade Commission, 143 F.2d 676 [2d Cir. 1944]); nor does the FTC need to prove that the advertiser intended to mislead anyone (Federal Trade Commission v. Sterling Drug, Inc., 317 F.2d 669 [2d Cir. 1963]).
This reasonable basis doctrine is an extremely potent and seductive rule for regulators. The FTC is not required to prove an injury to consumers, and the “deception” itself is considered to be injurious by default. This facilitates regulatory prosecution in situations where the FTC has failed to establish a causal relationship between allegedly deceptive advertisements and consumer injury.
False Advertising During the COVID-19 Pandemic
Against this regulatory gauntlet, the FTC has been issuing warning letters to San Diego companies for alleged violations of advertising laws around products that may be used for treatment and prevention of viral infections; this practice has accelerated lately in the face of the current coronavirus pandemic. The FTC warning process is initiated by public complaints about alleged wellness claims that could possibly be misconstrued by consumers and allows for businesses to provide additional support or context. It is important to note that these boilerplate warnings from the FTC are, in fact, mere “warnings,” and provide for the party to correct any misunderstanding that there may be. According to the FTC, the federal agency has sent warning letters to more than 250 companies since the start of the pandemic and will be stepping up efforts in order to keep businesses and the public informed.
The current pandemic has caught Federal agencies, businesses, and consumers in an ever-evolving environment. Against that backdrop, the FTC is under immense pressure from the public and lawmakers to police any and all claims made by businesses, regardless of how innocuous those claims may be. The coronavirus has hit businesses from every direction: reduced sales, increased costs associated with keeping employees healthy and safe, arguably the fastest-moving regulatory environment in history, all coupled with trigger-finger regulators with almost carte-blanche authority to determine what is and what isn’t compliant. With this atmosphere, business owners are understandably nervous.
The best advice for those who find themselves or their business in these regulatory crosshairs is to not panic. These warning letters from the FTC are incredibly jarring to receive; however, it is important to note that they are “warnings” and provide 48 hours to address the alleged violations and allow for open dialogue between the parties. If you receive one of these letters, immediately reach out to your counsel and address each and every claim. During these unprecedented times it is best to be ever vigilant.