Last week, the FTC filed its first lawsuit involving COVID-19 disease claims, but the Commission took an approach it had largely abandoned in consumer protection cases, by filing for a temporary restraining order and preliminary injunction in federal court and simultaneously filing an administrative action. Although COVID-19 claims are new, the procedural approach taken by the FTC is one that it has not used in years.
On April 24, the FTC filed a Complaint for a Temporary Restraining Order and Preliminary Injunction in the United States District Court for the Central District of California, in FTC v. Marc Ching. The Complaint alleged that the defendant, Marc Ching doing business as Whole Leaf Organics, disseminated false or unsubstantiated advertisements that its product, Thrive, treated, prevented, or reduced the risk of COVID-19. In addition, the defendant marketed a cannabidiol (CBD) product that it claimed could treat cancer.
The defendant had been the recipient of a warning letter from the federal Food and Drug Administration in November 2019, which warned the defendant that it was making unapproved new drug claims in violation of the Federal Food, Drug, and Cosmetic Act by claiming that its CBD products are intended for use in the mitigation, treatment, or prevention of diseases. According to the complaint, the defendant did not remove the unapproved drug claims from its website.
The case underscores the aggressive stance the FTC takes in combatting false or unsubstantiated claims about COVID-19, and we previously blogged about the many warning letters the FTC issued here and here. In addition, the case demonstrates the importance of heeding regulators’ warnings.
The case is also interesting because of the procedural approach taken by the FTC. The FTC went into federal court to obtain the injunction under Section 13(a) of the FTC Act, not Section 13(b). Section 13(a) authorizes the FTC to obtain a preliminary injunction pending resolution of a parallel administrative proceeding brought before an FTC ALJ. The FTC’s federal court complaint has no mention of monetary relief. Instead, the complaint states that the “Commission has already initiated that administrative proceeding, pursuant to Section 5 of the FTC Act, 15 U.S.C. § 45, by filing an administrative complaint on April 22, 2020.” The administrative hearing, in turn, “will determine whether Defendant’s representations violate Sections 5 and 12 of the FTC Act, 15 U.S.C. §§ 45 and 52, and will provide all parties a full opportunity to conduct discovery and present testimony and other evidence regarding Plaintiff’s allegations.” If the FTC ultimately decides to seek redress, the FTC would have to bring a separate claim under Section 19 of the FTC Act after the administrative proceeding was fully concluded, and in that claim show that the conduct was such that under the circumstances, a reasonable man would have known it was dishonest or fraudulent.
Although the FTC continues to make frequent use of Section 13(a) in the merger context, it has not used this dual-track enforcement strategy in a consumer protection case in decades. Instead, the FTC typically seeks monetary relief, such as restitution and disgorgement (in addition to preliminary and permanent injunctive relief), when filing a lawsuit in federal court under its Section 13(b) authority. As we discussed in a recent webinar and discussed here, Section 13(b) explicitly authorizes only preliminary injunctive relief, but the FTC has long taken the position that the statute also implicitly authorizes a court to issue equitable monetary relief pursuant to the implied equitable power of the court.
Why the FTC took this somewhat forgotten path here is unknown. It may relate to travel and resource issues facing the agency because of the current pandemic and a decision that litigating the merits in its own building is easier than doing so in California. That the Commission chose this path while the Supreme Court is deciding whether to grant the petition for certiorari in the Credit Bureau Center case, which challenges the FTC’s use of Section 13(b) to obtain equitable monetary relief, is noteworthy.
What is clear, however, is that the FTC is serious about bringing enforcement actions against companies making false or misleading claims regarding COVID-19, and the Commission is willing to use whatever tools are necessary in these actions.