FTC talks tough in false-ad notice but faces hard enforcement road

The Federal Trade Commission in early April notified 670 firms they may face monetary penalties in the event that they’re found to be making unsubstantiated marketing claims. 

The motion got here almost two years to the day that the agency suffered an enormous loss on the U.S. Supreme Court, which prohibited it from pursuing equitable monetary relief as a part of its effort to enjoin firms in federal court for deceptive marketing practices. 

Since that loss, the agency has tried to clarify it retains authority to penalize firms for making unsubstantiated claims about services. It can still use federal courts to get a everlasting injunction against them, for example, and it might still use its administrative proceedings to impose a high quality. 

“Receipt of a notice of penalty offenses puts your organization on notice that engaging in conduct described therein could subject the corporate to civil penalties of as much as $50,120 per violation,” the agency said in the Notice

Amazon, Archer Daniels Midland, Bayer, BASF, Danone, General Mills, Gerber, Herbalife and Johnson & Johnson are amongst the businesses receiving notice.

Notification doesn’t mean the businesses are guilty, the agency says. The goal is to spur them to look at their claims to make sure they’re substantiated by scientific or other evidence, depending on the sort of claim, and that any endorsements are made by individuals who use the services or products and stand behind the claim, amongst other things.  

“This letter doesn’t reflect any assessment as as to if you’ve gotten engaged in deceptive or unfair conduct,” the agency says. “We are distributing similar letters to quite a few other firms.”

Uphill climb

The agency faces a tough road should it pursue motion against an organization, because proving unsubstantiated claims might be difficult. 

“Determining whether an advertiser has an affordable basis for claims and whether the evidence upon which the advertiser relied is competent and reliable scientific evidence requires a fancy, nuanced, fact-based evaluation,” said Christine Wilson, who disagreed with sending out the notices in one in every of her last statements as an FTC commissioner.  

Wilson had supported previous notices the FTC sent out about unsubstantiated claims. But those were for kinds of deceptive claims which might be easier to indicate. 

This showing, she said, “will prove to be way more complex and unsure 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. But identifying recipients, transmitting the Notices, and monitoring firms’ conduct will devour significant resources.”

AMG v. FTC

Prior to its loss two years ago, when the highest court ruled in favor of a payday lender in AMG v. FTC, the agency was routinely taking firms to federal court to pursue everlasting injunction and to get substantial equitable monetary relief. In just the five years prior to the choice, the FTC won greater than $11 billion that it used in part to repay harmed consumers.  

But the choice put a stop to that; the court said the FTC’s authority, in Section 13(b) of the FTC Act, to pursue injunctions in federal court didn’t give it authority to pursue monetary relief.

“Section 13(b) doesn’t explicitly authorize the Commission to acquire court-ordered monetary relief, and such relief is foreclosed by the structure and history of the Act,” the court said.

Although it might still pursue monetary relief in administrative proceedings, it has to first give the corporate a probability to stop and desist in the practice, assuming it successfully shows the violation occurred.

What’s more, relief is restricted to $50,120 per violation, a far cry from the tens of millions of dollars it was getting in federal court, although the penalty can still be significant based on how each violation is measured.