On April 13, 2023, the Federal Trade Commission (“FTC”) announced that it has notified approximately 670 companies of potential FTC advertising regulation violations, triggering FTC authority to pursue steep civil penalties if companies fail to substantiate their product claims. The target of this crusade is companies primarily advertising over-the-counter drugs, homeopathic products, dietary supplements, and functional foods. Once on notice, companies could be subject to civil penalties of up to $50,120 per violation for unsubstantiated product claims.
This new wave of notices comes on the heels of the FTC’s updated Health Products Compliance Guidance, issued December 2022, outlining ways in which companies can ensure that health-related product claims regarding product benefits of health and safety are truthful, substantiated, and not misleading, such as: a) if a claim involves what a product can do, it must be supported by reliable evidence; b) if a claim involves the health and safety benefits of a product, it must be based on scientific evidence; and c) if a claim purports to cure, mitigate, or treat a serious disease, it must be supported by accepted standards of scientific testing, including randomized control trials with at least one well-controlled human clinical trial.
The FTC has long served to protect consumers from unfair or deceptive acts or practices, including untruthful and unsubstantiated marketing claims. Since 1984, the FTC has outlined the legal standards that companies are held to, i.e., the “bedrock principle,” which is made to back product claims with reliable evidence. To enforce its mandate, the FTC has the authority to issue notices and impose civil penalties. These notices do not indicate confirmed violations. They do, however, outline specific acts and practices which the FTC has identified as unlawful, putting recipient companies on notice of deceptive or unfair acts or practices that the FTC has fully litigated. Once a company is on notice, the FTC may pursue civil penalties of up to $50,120 per violation if the company fails to ensure its product claims have a reasonable basis.
The FTC has long had the ability to send notices and impose civil penalties, but it rarely used that authority. Instead, the FTC has historically relied more on its power under Section 13(b) of the FTC Act to seek equitable monetary relief, such as disgorgement or restitution. In April 2021, however, the U.S. Supreme Court reinterpreted the FTC’s power under Section 13(b), ruling that the FTC may sue in federal court to enjoin violating conduct, but it may no longer recover equitable monetary relief.
On March 31, 2023, the FTC voted to approve the Notice of Penalty Offenses on Substantiation of Product Claims (“NPO”) and authorize its distribution. Shortly thereafter, the FTC sent it to nearly 700 companies, warning in its April 13 press release that it “will not hesitate to use its authority to target violators with large civil penalties.” FTC Commissioners stated, “the legal framework and case law on substantiation underlying this NPO has been tested in court,” and “companies and marketers should take these prohibitions seriously.”