POM Wonderful v FTC - Both Sides Claim Victory even though the Court says: "neither side's position as to the claims made or adequacy of substantiation has been totally vindicated."
In an Initial Decision issued on May 17, 2012, a Federal Trade Commission Administrative Law Judge found that some of POM Wonderful's health claims implied that its products treat disease and those claims were not supported by sufficient scientific evidence, rendering the claims "false and misleading" under the Federal Trade Commission Act ("FTC Act") (15 U.S.C. § 41 et seq.). Although the Court entered a multi year cease and desist order against POM Wonderful, the ruling is by no means a victory for the FTC as the remedy it sought - prior review of marketing materials and the requirement for a heightened level of scientific research - was soundly rejected by the Court.
Despite the Court's findings and injunction, POM declared victory stating "the FTC's Administrative Law Judge has upheld POM Wonderful's right to share valuable, scientifically-validated information about the health benefits of its safe food with consumers.... Through its lawsuit against POM, the FTC tried to create a new, stricter industry standard, similar to that required for pharmaceuticals, for marketing the health benefits inherent in safe food and natural food-based products. They failed...." Despite the Court's Order that POM essentially follow the law and denying the relief FTC sought, the FTC likewise declared victory stating the Court upheld "an FTC complaint that POM violated federal law by making deceptive claims in some advertisements that their POM Wonderful 100% Pomegranate Juice and POMx supplements (POM products) would treat, prevent, or reduce the risk of heart disease, prostate cancer, and erectile dysfunction."
The litigation began in September of 2012 when POM filed a declaratory judgment action in the District Court for the District of Columbia (10-cv-1539) on the grounds that FTC had adopted a "new standard" (as evidenced in the Nestle Consent Order and Iovate Stipulated Final Judgment with FTC which required prior review of product claims), without formal rulemaking requiring companies to obtain pre-approval of advertisements by FDA and two controlled clinical trials to substantiate health claims. According to POM, the "new standard" violated the First Amendment as a prior restraint prohibiting POM from disseminating truthful scientific information. FTC commenced its administrative proceeding shortly thereafter and sought to dismiss the federal court case on the grounds that its administrative proceeding rendered POM's federal court action moot because FTC was not enforcing a "new standard" but merely requiring "prior review" as a remedy. The FTC trial took more than 5 months, included 2,000 exhibits, 46 company sponsored studies (costing over $35 million dollars), 14 testifying experts, 10 additional witnesses, over 3,000 pages of trial transcript, 4,000 findings of fact, and 4,000 pages of post trial briefing—resulting in an initial decision of 335 pages.
While the First Amendment undercurrent concerning the "prior review" remedy FTC sought is palpable, the Court's decision skirted the issue by rejecting FTC's request for "prior review" concluding that the remedy was not justified by the evidence.
Section 5(a) of the FTC Act provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful." Section 12 of the FTC Act and 15 U.S.C. § 45(a)(1) prohibit the dissemination of "any false advertisement" in order to induce the purchase of "food, drugs, devices, services, or cosmetics." 15 U.S.C. § 52(a)(2). According to the Court, "false advertisement" is defined as "an advertisement, other than labeling, which is misleading in a material respect[.]" 15 U.S.C. § 55(a).
The Court ruled that in determining whether an advertisement is misleading "[a] reasonable interpretation is one that would be shared by a 'significant minority' of reasonable consumers." In re POM Wonderful LLC, No. 9344, 2012 FTC LEXIS 106, at *481 (May 17, 2012); In re Novartis Corporation, No. 9279, 127 F.T.C. 580, 1999 FTC LEXIS 63, at *22-23 (May 13, 1999); Kraft, 1991 FTC LEXIS 38, at *14; see also Telebrands Corp., 140 F.T.C. at 291 ("An ad is misleading if at least a significant minority of reasonable consumers are likely to take away the misleading claim.").
In establishing the relative burden of proof required to substantiate the product claims, the Court recognized that:
[T]he Court must first determine what level of substantiation Defendants were required to have for their advertising claims, and this determination is a question of fact. Then, the Court must determine whether Defendants possessed that level of substantiation.... Defendants have the burden of establishing what substantiation they relied on for their product claims. The FTC has the burden of proving that Defendants' purported substantiation is inadequate, and the FTC need not conduct or present clinical studies showing that the product does not work as claimed.
In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *534 (citing FTC v. QT, Inc., 448 F. Supp. 2d at 959 (citations omitted)).
The Court rejected FTC's position regarding the level of substantiation required finding that "neither the FTC Act nor applicable case law requires well-designed, well-conducted, randomized, double-blind, placebo controlled human clinical studies ('RCTs') to substantiate all health-related efficacy claims." In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *725.
The Court found non disease claims for "absolutely safe" foods adequate stating:
The greater weight of the persuasive expert testimony in this case leads to the conclusion that where the product is absolutely safe, like the POM Products, and where the claim or advertisement does not suggest that the product be used as a substitute for conventional medical care or treatment, then it is appropriate to favor disclosure. See also Pearson, 164 F.3d at 657 (under the First Amendment commercial speech doctrine, there is a "preference for disclosure over outright suppression"). In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *560.
Although the Court went on to find that a number of POM's claims were implied disease claims, for which POM's substantiation evidence was insufficient, it rejected FTC's claim that RCT's were required:
The preponderance of the evidence shows that some of the Challenged Advertisements disseminated by Respondents would reasonably be interpreted by consumers to contain an implied claim that the POM Products treat, prevent, or reduce the risk of heart disease, prostate cancer, or erectile dysfunction, and further, as to some of these advertisements, that these effects were clinically proven, as alleged in the Complaint. In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *9. "[E]xpert testimony in this case demonstrates that competent and reliable scientific evidence is required for claims about nutritional supplements when such products are advertised to treat diseases or medical conditions. See also Daniel Chapter One, 2009 FTC LEXIS 157, at *233-35 (Initial Decision) (summarizing expert testimony and citing Natural Solution, 2007 U.S. Dist. LEXIS 60783, at * 11-12; National Urological Group, 645 F. Supp. 2d at 1190; Direct Marketing Concepts, 569 F. Supp. 2d at 300, 303). The greater weight of the persuasive expert testimony adduced at trial does not, however, support [FTC's] position that, in order to have the required competent and reliable scientific evidence, Respondents must have had RCTs. In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *547-48.
Accordingly, the Court held that "[FTC] has demonstrated that Respondents did not possess adequate competent and reliable scientific evidence to substantiate the implied claims that the POM Products treat, prevent, or reduce the risk of heart disease or that clinical tests show the same. Complaint Counsel has, therefore, met its burden of proving that Respondents' claims are false or misleading." In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *570.
Having found POM "crossed the line," the court then addressed whether the claims were "material." In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *643; Kraft, 970 F.2d at 314. According to the Court, "[t]he basic question" on the issue of materiality "is whether the act or practice is likely to affect the consumer's conduct or decision with regard to a product or service. If so, the practice is material, and consumer injury is likely, because consumers are likely to have chosen differently but for the deception." In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *644 (citing FTC Policy Statement on Deception, Deception Statement, 1984 FTC LEXIS 71, at *171). Although there is a "presumption of materiality," the Court avoided analyzing the presumption issue, finding instead that reliable evidence supported FTC's claim that the false representations were material. In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *645.
Pre-Approval and the First Amendment
Harkening back to the claims asserted by POM in the district court case, FTC requested that the Court impose a requirement of "prior review" for subsequent claims by POM. The Court rejected FTC's request, stating:
Complaint Counsel contends that requiring FDA pre-approval for disease claims is "reasonably related" to the violations in this case because (1) the FDA's standard for labeling approval for a food-disease relationship claim under NLEA ("significant scientific agreement" by experts that the claim is supported) is "cited" in the FTC Enforcement Policy Statement on Food Advertising; and (2) the FDA standard for drug approval under the Food, Drug and Cosmetic Act ("adequate and well-controlled" clinical investigations by experts demonstrating effectiveness), is "similar" to the "competent and reliable scientific evidence" standard applied in Daniel Chapter One, and referred to in the FTC publication, Dietary Supplements: An Advertising Guide for Industry. However, the foregoing FTC publications do not constitute regulatory law, which is made either by adjudication, 15 U.S.C. § 45 (b); 5 U.S.C. § 556, or by promulgated regulation, 15 U.S.C. § 57b-3; 5 U.S.C. § 553. See Ford Motor Co. v. FTC, 673 F.2d 1008, 1009 (9th Cir. 1981) (noting that an administrative agency such as the FTC may announce principles through adjudication or rulemaking (citing NLRB v. Bell Aerospace Co., 416 U.S. 267, 294 (1974)).
In re POM Wonderful LLC, 2012 FTC LEXIS 106, at *704-05.
The Court found that FTC had not demonstrated that the existing rules were inadequate and disagreed with FTC that "FDA pre-approval is a 'bright-line rule' that will 'significantly increase... enforceability... eliminate any confusion or ambiguities over the appropriate standard that Respondents must have to make disease claims... and [would] prevent litigation.'" Id. at *710.
FTC further argued that a pre-approval requirement was justified because POM was "flout[ing] the law". Id. at *715. The Court rejected this argument stating:
The evidence upon which Complaint Counsel relies, even if true,
indicates a disagreement between the Respondents and regulatory
authorities regarding whether Respondents' advertising made
disease claims and if so, whether those claims were adequately
substantiated. The disagreement with the FTC culminated in
this litigation, in which neither side's position, as to the
claims made or the adequacy of the substantiation has been totally
vindicated. Under these circumstances, Respondents'
choice not to "heed warnings" and instead to litigate is
not fairly interpreted as a willingness to "flout the
law" but could be interpreted as an allowable choice made
within the system as it exists.
Id. at 715-16.
The Court recognized that a "prior review" requirement raised First Amended issues, but because the Court rejected FTC's request, the Court did not meaningfully address the First Amendment issue.
Since the enactment of the Dietary Supplement Health Safety Act in 1994, dietary supplements have resided in an uncomfortable regulatory world between foods, which is how they are regulated, and drugs, which is how they are prosecuted. The Court recognized that "individuals could benefit from truthful claims about a product's ability to treat, prevent, or reduce the risk of diseases or medical conditions..." In re POM Wonderful LLC, No. 9344, 2012 FTC LEXIS 106, at *558 (May 17, 2012). However, whether product claims "cross the line" remains a fact intensive inquiry where health claims that products "treat disease" that are not "supported by sufficient scientific evidence" are "false and misleading" under the FTC Act.
The Judge's Initial Decision is subject to review by the full Federal Trade Commission on its own motion, or at the request of any party and will become the "decision of the Commission" unless a party files a timely notice of appeal.
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