Following the Supreme Court's 2021 decision striking down the FTC's practice of using FTC Act Section 13(b) to obtain monetary redress in AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021), the FTC has been exploring various ways to obtain monetary penalties against perceived advertising wrongdoers. One of its more notable efforts has been its renewed interest in sending Notices of Penalty Offenses ("NPO") to hundreds of companies, the vast majority of which are not accused or suspected of doing anything wrong. The legal theory espoused by the FTC with these NPOs, however, is that by putting companies on specific notice of conduct deemed wrongful under the FTC Act, the FTC can in a subsequent enforcement proceeding immediately seek civil penalties against the wrongdoer who breaches the rules set out in the NPOs, which can amount to over $50,000 per violation. “[T]he Commission can seek civil penalties if it proves that (1) the company knew the conduct was unfair or deceptive in violation of the FTC Act and (2) the FTC had already issued a written decision ... that such conduct is unfair or deceptive.”
Since AMG the FTC has sent three rounds of NPOs, all of which arguably were cleanly targeted and easy to understand: Notice of Penalty Offenses Concerning Deception or Unfair Conduct for Money-Making Opportunities, Notice of Penalty Offenses Concerning Deception or Unfair Conduct around Endorsements and Testimonials, and Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct in the Education Marketplace. In my experience, while recipients of such letters will appropriately review their compliance practices, most will also conclude (also correctly) that they have done nothing wrong. Indeed, their most pressing question is usually, "why did we get this letter?"
The FTC's latest round of NPOs, sent to a broad list of 670 companies, is directed to advertising substantiation for health claims. However, unlike the prior three notices, this one may result in a higher degree of legal uncertainty for application of the NPO program. This is because, as aptly summarized in a dissenting opinion by outgoing Commissioner Christine Wilson, the latest NPO purports to cover a wide variety of conduct that is only vaguely defined and requires a complex and nuanced, fact-based evaluation in each case. In other words, despite the FTC's efforts in the NPO to reiterate rules of substantiation for health claims, whether such rules have been properly applied in any given case is not simple. As Commissioner Wilson noted in her dissent: to prevail and get penalties, the "Commission must demonstrate that the conduct of the proposed defendant is sufficiently similar to the litigated cases cited in the Notice. This showing will prove to be far more complex and uncertain for substantiation cases than for other areas in which Notices have been issued recently. Indeed, I anticipate that relatively few cases in this topic area will result in civil penalties."
Having defended investigations and shared notes with other practitioners, I have experienced instances where the FTC and the accused advertiser do not agree about perceived implied claims conveyed by an advertisement. In the enforcement context, the FTC typically asserts a broad view of such implications and alleges violations of law when the advertiser fails to have sufficient support for all such alleged implications. In the case of health claims substantiation, this can mean that the FTC considers it a violation of law for the advertiser not to have clinical testing to support the alleged implications it thinks have been conveyed. The advertiser, which may deny such implications were conveyed by the ad(s), will often not have clinical tests to support them. Clinical tests are expensive, difficult, and time consuming. They sometimes even raise ethical concerns. Accordingly, clinical testing is never undertaken lightly and advertisers typically commission such tests only for claims that they are certain they are making. Advertisers do not, by and large, conduct clinical tests to support arguable implications.
The fight over ad meaning subsumes the substantiation debate. It often devolves, at the margins, to questions about advertising implications, which are notoriously subjective and expert-driven. Moreover, even if the meaning of an ad could be "conclusively" established, which it never can be, another cadre of experts will be needed to evaluate the type of evidence necessary to support the allegedly implied claims.
While sending NPOs urging companies to have the requisite level of support for implied claims, on pain of receiving civil penalties, may seem like a worthy project, it can be read as a mandate to "comply with the law" that is not particularly informative for advertisers and likely will not lay an appropriate basis for future civil penalty enforcement.
