Be on the lookout, healthcare industry. The Federal Trade Commission (FTC) is putting companies on notice for deceptive marketing claims.
Earlier this month, Johnson & Johnson and Pfizer were among hundreds of health companies to receive a threatening message from the FTC that they could face stiff penalties for running ads with baseless product claims. However, the agency may have exaggerated its penalty authority, legal experts say.
About 670 firms involved in marketing over-the-counter (OTC) drugs, along with makers of homeopathic products and dietary supplements, received warning letters from the agency. Firms were put on notice that failing to have proper substantiation for health claims or engaging in misleading use of testimonials or endorsements could result in civil penalties.
The agency stated that it “will not hesitate” to use its authority to target transgressors. Fines of up to $50,120 per violation could be levied against a company that engages in conduct that it knows has been found unlawful in a previous FTC administrative order, the commission warned.
Importantly, inclusion on the list doesn’t automatically infer deceptive or unfair conduct, the agency pointed out. FTC said it sent the notices to those it feels are likely to make health-related claims or claims about efficacy or product performance.
Recipients include some pharma companies that have shed their OTC businesses in recent years. J&J split its consumer arm into a different company, Kenvue, last year. Both appear on the FTC list, as does Haleon, which was formed from the consumer-health businesses of GSK, Novartis and Pfizer.
Two other recipients of the FTC’s notice were Merck, which sold its consumer healthcare business to Bayer in 2014, as well as Sanofi, which is in the process of splitting its consumer healthcare into a stand-alone business inside the wider company.
By putting these companies on notice, the FTC added, it’s empowered to impose the penalties. Or is it?
“FTC seems to be overstating the effect of the notices,” attorneys from Hyman, Phelps & McNamara argued in a post on FDA Law Blog.
“Under the plain text of the statute, FTC only has authority to pursue such penalties against a person with ‘knowledge,’” the counselors explained.
That knowledge can be either actual or “fairly implied” on the basis of proof.
“FTC must prove that the defendant committed the same conduct and did so with actual knowledge that the conduct was unfair or deceptive,” they wrote.
That showing is necessary as part of FTC’s so-called Penalty Offense Authority. Under this authority, FTC can send companies a notice of certain behaviors the agency deems violative and then assess civil penalties if the firm subsequently engages in similar conduct.
Penalty Offense Authority, enshrined in the FTC Act back in 1975, “was apparently highly successful for some time, but then largely abandoned during the 1980s when the FTC’s leadership saw markets as ‘self-correcting’ and sought to rid itself of the ‘national nanny’ moniker,” other legal experts recalled in a 2021 blog post.
In April of that year, the Supreme Court in AMG Capital Management v. FTC unanimously ruled that the agency doesn’t have the authority to issue penalties under section 13(b) of the FTC Act. This ruling prompted the agency, in October 2021, to resurrect its Penalty Offense Authority.
That same month, the agency mailed letters to around 700 pharma, consumer product and food manufacturers to put them on notice for misleading use of endorsements or testimonials.
What became of these notices? Keep that question in mind as you fast-forward back to 2023.
In the most recent batch of letters, FTC explains what advertising practices it finds deceptive or unfair — i.e., making product claims in the absence of reliable scientific evidence to back them up. Still, the agency fails to pin down exactly what conduct is violative.
As such, it may not be so easy for the agency to meet the aforementioned burden of proof. “It seems doubtful that these notices are adequate to allow FTC to impose civil penalties,” the Hyman, Phelps attorneys wrote.
A now-former FTC commissioner seemed to agree. Approval for the 2023 notices was secured via a 3-1 vote, with then-commissioner Christine Wilson issuing a dissenting opinion on her last day in that capacity. She wrote that the agency’s remedial authority in so-called substantiation cases is limited.
“The commission cannot obtain civil penalties for first-time violations” of the FTC Act, she noted. At the same time, verifying a substantiation claim is quite complex, requiring a ”nuanced, fact-based evaluation.”
Again, in order to seek civil penalties under the Penalty Offense Authority, the FTC must prove that the company knew the conduct was unfair or deceptive in violation of the FTC Act and that the FTC had already issued a written decision that such conduct is unfair or deceptive.
Showing that a defendant had knowledge that its conduct was unlawful “will prove to be far more complex and uncertain for substantiation cases than for other areas in which notices have been issued recently,” Wilson contended. She predicted that “relatively few” cases in this topic area will end in civil penalties.
We can now answer our earlier question about the FTC’s 2021 notices.
The Hyman, Phelps attorneys noted that, to their knowledge, the commission had not relied on those notices in any public enforcement action or publicly announced settlement. The letters served merely as “a good reminder” of a company’s obligations regarding truthful and non-misleading advertising.
There’s a good chance the 2023 letters may be remembered in the same way — FTC flexing with a purpose, but still just flexing.