United States: The FTC and Free Speech: POM v. FTC - The American Hustle - It takes two to tango with the FTC: two randomized control trials that is

Last Updated: March 13 2014
Article by Michael A. Walsh

On February 7, 2014, the Federal Trade Commission (FTC) filed its response brief in the DC Circuit Court in In the Matter of POM Wonderful LLC, et al.  POM is a notorious litigant, and this chapter in its voluminous book of litigation began in September of 2010  as a declaratory judgment action in the District Court for the District of Columbia (10-cv-1539).  POM claimed, among other things, that the FTC had adopted a "new standard" (see Nestleand Iovate) requiring pre-approval of advertisements and two randomized and controlled clinical trials (RCT) to substantiate health claims.  For a complete discussion of the prior history in this litigation see our prior post.

In October 2012, the Office of Inspector General (OIG) issued a study entitled: "Dietary Supplements: Structure/Function Claims Fail to Meet Federal Requirement." The OIG recommendations include that the "FDA seek explicit statutory authority to review substantiation for structure/function claims to determine whether they are truthful and not misleading," and that FDA improve its oversight and enforcement over such claims.  While FDA has indicated it will seek this "statutory authority," the FTC is acting in the void of FDA's Congressional authority.  

In an Initial Decision issued on May 17, 2012, an Administrative Law Judge (ALJ) found POM's claims constituted "drug" claims under the Food Drug and Cosmetic Act (FDCA).  The ALJ agreed with the FTC that the scientific evidence relied upon by POM was insufficient and declared POM's claims "false and misleading" under the Federal Trade Commission Act ("FTC Act") (15 U.S.C. § 41 et seq.).  POM appealed the decision to the Commission on a number of grounds, including the First Amendment, the Fourteenth Amendment and deference to agency determinations.  Not surprisingly, and with a wave of its administrative magic wand, the Commission declared POM's claims false, affirmed the Decision of the ALJ requiring two RCTs.

Net Impression: Section 5 of the FTC Act prohibits, and "direct[s]" the FTC "to prevent," "deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1).  Section 12 of the Act includes within the prohibited category of deceptive acts "any false advertisement" relating to "food" or "drugs" (among other products).   Id. § 52(a), (b). The Act broadly defines, as  "false advertisement," any "advertisement, other than labeling, which is misleading in a material respect."  In a deceptive advertising case, the FTC first addresses claims interpretation, determining what messages a reasonable consumer would construe a given advertisement to convey.  To that end, the Commission looks to the advertisement's "net impression." 

The Unreasonable/Reasonable Consumer Test:  The FTC applies a standard that distorts reasonableness by permitting both a reasonableness standard (i.e. would a reasonable person be misled) and a lower standard if a different variety of "reasonable person" would be misled:

advertisements reasonably capable of being interpreted in a misleading way are unlawful even though other, non-misleading interpretations may also be possible. Accordingly, the Commission has held for decades that '[a]n ad is misleading if at least a significant minority of reasonable consumers are likely to take away the misleading claim.' Id. at 81  

Deference:  In its brief to the DC Circuit, the FTC disposes of the judicial branch deftly:

the FTC's antecedent finding that a particular advertisement is misleading, and thus warrants no constitutional protection, is entitled to substantial deference and will be upheld if reasonable. Id. at 77

In affirming the ALJ's decision, the Commission concluded that "experts in the relevant fields would require RCTs (i.e., properly randomized and controlled human clinical trials ...) to establish a causal relationship" between POM's products and "the treatment, prevention, or reduction of risk of the serious diseases at issue in this case."  According to the Commission, while POM did have substantiation to support its disease claims, POM's sponsored RCTs were insufficient.

Where the rules are unclear the FTC provides "clarity," where the communication is subject to interpretation, the FTC provides the definitive interpretation, where there is "science" FTC decides if it is sufficient, where there are disclaimers, the FTC decides if they are good enough, where there is information, the FTC decides if it is truthful.  Where there are Constitutionally protected interests in whether to defer to the agency determination, whether the rules are sufficiently clear, whether the application of the rules operates as a prior restraint on speech and whether the First Amendment applies to speech, the FTC disposes of all these concerns with the rule of ipse dixit, i.e. because we say so.

Disclaimers and Due Process : After concluding that POM didn't provide adequate substantiation, in its brief to the DC Circuit, the FTC concludes that it isn't possible for POM to qualify the scope of its claims because:

[p]etitioners cannot overcome the deference the Commission is due when determining whether supposed disclaimers effectively neutralize otherwise deceptive messages that appear within an advertising message.  Id. at 69

An advertiser may cite genuinely promising scientific developments, even if they have not yet been confirmed by rigorous clinical proof, so long as the ad conveys whatever "qualifying information is necessary to prevent [the] ad from being deceptive." 2001 Dietary Supplement Guideat 6.  The FTC confirms that "[a]dvertisers remain generally free to inform consumers about a promising body of emerging science so long as they include clear qualifying language that discloses the limitations of the scientific record and the existence of any contrary evidence."  The FTC requires "a disclosure that clearly describes the limitations of the research" and "states unambiguously that additional research is necessary to confirm the preliminary results."  See generally 1984 Deception Statement; FTC, Policy Statement Regarding Advertising Substantiation, 104 F.T.C. 839 (1984).  The difficultly with the FTC's scheme is that it is lacking in clarity and specificity to constitute a clear rule for a company to fashion its compliance program.

The First Amendment - Strict Scrutiny vs. Intermediate Scrutiny: In cases involving speech on behalf of a business, the threshold issues is determining whether the speech at issue is commercial speech or not.  If the speech is not "commercial speech it is entitled to the highest scrutiny by the reviewing court.  , The FTC disposes of the strict scrutiny concerns as follows:

Petitioners have not disputed—either before the FTC or on appeal—that the advertisements in question are "commercial speech" for First Amendment purposes.  Id at Pg. 76, fn. 28.

Because POM did not challenge the dissemination of scientific information as non-commercial speech entitled to heightened scrutiny, the FTC disposes of the First Amendment simply by stating:

[Once]the Commission found that POM's advertising was 'actually misleading,' it was 'not protected by the First Amendment.'  Id. at 32.

Since the enactment of the Dietary Supplement Health Safety Act in 1994, manufacturers making health related claims about food products have resided in an uncomfortable regulatory world between foods, which is how they are regulated, and drugs, which is how they are prosecuted.  Whether a manufacturer's claims "cross the line" remains subject to the government's determination of what the law requires, whether the manufacturers' conduct is a violation, and the government's determination of truth and falsity to decide if the US Constitution is applicable.  Irrespective of whether you agree or disagree with POM, the rules remain unclear; the discretion of the government is too broad and the disregard for the First Amendment is a tragedy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael A. Walsh
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