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Nutraceutical Marketing and FTC Prior Substantiation ‎Policy

The Federal Trade Commission’s continued commitment to ensuring that marketers possess a reasonable basis for express and implied advertising claims before they are disseminated is consistently reflected by the nature and scope of recent investigations and enforcement actions.

Take nutraceuticals, for example.

Product efficacy claims based upon “competent and reliable scientific” evidence discovered and relied upon after claims have been disseminated may very well not be considered to be “substantiated” by regulatory authorities and courts. In fact, FTC civil investigative demands (CIDs) often delve into what scientific data was possessed prior to dissemination versus after the initiation of regulatory proceedings.

The reasonable basis doctrine requires that marketers have substantiation in-hand before disseminating a claim. The FTC does, on occasion, exercise its discretion and consider supporting materials developed after dissemination. This is rare.

As a matter of law, marketers lacking a reasonable basis before an ad is disseminated violate Section 5 of the FTC Act and are subject to prosecution. However, the primary goal of the advertising substantiation requirement is to assure that advertising is truthful. Thus, it is crucial that the FTC retain the discretion to consider additional substantiating evidence. According to the Commission, it reserves the right to do so, not as a substitute for a marketer’s prior substantiation, but rather in limited circumstances.

For example, when deciding, before issuance of a complaint, whether there is a public interest in proceeding against a marketer. Or, when assessing the adequacy of the substantiation a marketer possessed before a claim was made. Or, when deciding the need for or appropriate scope of an order to enter against a marketer that lacked a reasonable basis prior to disseminating an advertisement.

According to the FTC, using post-claim evidence to evaluate the truth of a claim, or otherwise using such evidence in deciding whether there is a public interest in continuing an investigation or issuing a complaint, is appropriate policy. The Commission will not, however, postpone action while marketers create post-claim substantiation to prove the truthfulness of claims, nor does it mean that subsequent evidence of truthfulness absolves a marketer of liability for failing to possess prior substantiation for a claim.

The Commission focuses instead on whether existing evidence that claims are true should lead the agency, in the exercise of its prosecutorial discretion, to decline to initiate a law enforcement proceeding. If available post-claim evidence establishes that the claim is true, issuing a complaint against a marketer that may have violated the prior substantiation requirement may¸ depending upon the circumstances, be considered appropriate.

Additionally, post-claim evidence may indicate that apparent deficiencies in the pre-claim substantiation materials have no practical significance. In evaluating the adequacy of prior substantiation, the FTC often considers only post-claim substantiation that sheds light on pre-existing substantiation. Therefore, as a general rule, marketers will not be allowed to create entirely new substantiation simply because their prior substantiation was inadequate.

Lastly, the FTC may use post-claim evidence in determining the need for or appropriate scope of an order to be entered against a marketer that lacked a reasonable basis. Thus, when additional evidence offered for the first time during an investigation or litigation suggests that the claim is true, the Commission reserves the discretion to frame a narrower order than if there had been no post-claim evidence.

The regulatory distinction between pre-claim and post-claim evidence is only relevant when the charge is lack of substantiation. If a claim is just plain false, when evidence was developed is most likely irrelevant. In no uncertain terms, the FTC is committed to the prior substantiation requirement. It considers post-claim evidence only in limited circumstances.

Internet marketers that are interested in learning more about this topic should consult with an experienced FTC compliance lawyer to discuss the different advertising claim substantiation requirements that govern various advertising campaigns. Although marketers that fail to take the “prior substantiation” doctrine seriously do so at their own peril, agency policy regarding the level and type of acceptable evidence may be becoming less rigid than in recent years.

For example, at a November 2017 marketing law conference, then-Acting Director Thomas Pahl discussed reconsidering advertising substantiation and the agency’s remedy policies. Specifically, Mr. Pahl stated his views, to wit, that the Federal Trade Commission should reconsider its current approach in advertising substantiation cases, especially in cases that do not involve dishonesty or fraud.

Then-Acting Chairman Ohlhausen concurred with respect to reforming the way that the Commission approaches advertising substantiation cases. In February 2017 at the ABA 2017 Consumer Protection Conference, Ms. Ohlhausen reiterated the agency’s commitment to refocusing its efforts on bread-and-butter fraud enforcement and concrete consumer injury. Famously, Ms. Ohlhausen dissented in part from the FTC’s decision against POMWonderful wherein she argued against requiring two randomized controlled trials where one would suffice. The D.C. Circuit ultimately agreed and overturned the two-RCT requirement. See¸ FTC et al. v. Quincy Bioscience Holding Co. (2d Cir.2017) (dismissal of false advertising claims based, in part, upon FTC attempting to hold dietary supplement marketers to standards in excess of those set forth in agency policy). See alsoU.S. v. Bayer Corp. (U.S.D.C. NJ) (the court rejected the government’s claim that “competent and reliable scientific evidence” necessarily dictates an RCT to substantiate dietary supplement claims).

In terms of the “prior substantiation” doctrine, the National Advertising Division of the Council of Better Business Bureaus recently suggested that “new rules” may be forthcoming as it pertains to reopening cases based upon an advertiser’s submission of new substantiation-related evidence. Like the FTC, the NAD has historically required that marketers must possess substantiation for advertising claims at or before the time the representations were disseminated. Absent exceptional circumstances, the NAD has also historically refused to consider evidence generated after the initiation of an NAD challenge, or to reopen a case if an advertiser is able to establish the truthfulness of its claims at a later date.

This post was originally  published at PacedM.

© 2019 Hinch Newman LLP


About this Author

Richard Newman, FTC Defense Lawyer, Internet Marketing, Hinch Newman Law Firm

Richard B. Newman is one of the premier FTC advertising compliance and regulatory defense attorneys in the United States.  He regularly provides advertising counsel and represents clients in high-profile investigative and enforcement proceedings initiated by the Federal Trade Commission, state attorneys general, departments of consumer affairs, and other federal and state agencies with jurisdiction over advertising and marketing practices.  Richard also handles  transactional matters relating to the dissemination of national advertising campaigns, including the gamut of...