United States: Naturally FTC Rules

FTC Finds "All Natural" and "100% Natural" Claims False and Misleading

In April 2016, four companies¹ marketing skin care products online agreed to settle Federal Trade Commission (FTC) charges that the companies' advertisements violated the Federal Trade FTC Act (the Act). According to the FTC complaints, claims that the products were "all natural" or "100% natural" were false and misleading. Under the proposed settlements, all four companies agree to a 20-year fencing-in order barring them from making similar misrepresentations in the future and requiring "competent and reliable evidence to substantiate any ingredient-related, environmental, or health claims [they] make." In resolving the four cases, the FTC stated, "'[a]ll natural' or '100 percent natural' means just that – no artificial ingredients or chemicals." The FTC further cautioned that other "[c]ompanies should take a lesson from these cases."

A fifth company, California Naturel, Inc. did not settle and the FTC issued a complaint alleging violations of Sections 5 and 12 of the Act (15 USC §§ 45(a) and 52(a). Section 5 prohibits "unfair or deceptive acts or practices in or affecting commerce" and Section 12 proscribes the dissemination of any "false advertisement," for food, drugs, devices, services or cosmetics. The FTC's "deception" standard is the same under both provisions.

On December 5, 2016, the three FTC Commissioners (the Commissioners) issued an opinion granting summary disposition (which is akin to Summary Judgement in Court cases). The Commissioners analyzed the alleged violation by applying a three-part test: whether the advertisement conveyed a claim; whether the claim was false or misleading; and whether the claim was material to the consumers' purchasing decision. In deciding these cases, the Commissioners look to whether the claim was express or implied and determine the "overall net impression" of the advertisement.

Did the advertisement convey a claim?

In determining that the advertisements conveyed a claim, the Commissioners noted:

The Commissioners also noted that the website described the sunscreen's ingredients as follows:

The Commissioners further considered whether California Naturel made actionable claims after it learned of the FTC enforcement and in light of disclaimers posted on its website and disclaimer stickers for finished products. The company argued that these disclaimers rendered any "all natural" statements not false or misleading. The disclaimers stated: "The FTC requires us to add the following: 'Dimethicone, a synthetic ingredient, is 8% of the sunscreen formula, the remaining 92% are natural products.'" California Naturel also argued that the disclaimer and other information on its website adequately disclosed that the sunscreen contains a synthetic ingredient.

While California Naturel stated that stickers were to be placed on products that were in commerce, the Commissioners found that there was no evidence that the company applied disclaimer stickers on the products. Furthermore, the Commissioners found that the disclaimer in the on-line advertisement did not cure the false and misleading nature of the "all natural" claim. The Commissioners cited non-compliance with the FTC's .com Disclosure for digital advertising that requires that a disclosure be clear and conspicuous. The FTC's "clear and conspicuous" standard considers the proximity, placement and prominence of the disclaimer. The FTC also looks at whether the advertisement contains factors that distract from the consumers' understanding of the disclaimer. Other factors that are not relevant to the Commissioners's Opinion here are repetition and use of understandable language.

In finding against California Naturel, the Commissioners noted that the disclaimers were not adjacent to the "all natural" claims and were located at the bottom of the webpage and "not visible at all without scrolling down." In addition, the Commissioners found that placement of the disclaimer below the "add to cart" button invited the consumer to purchase the product before they would see the disclaimer. Finally, the Commissioners noted that while the synthetic ingredient, dimethicone, was listed in the product ingredient list, the ingredient list failed to indicate that it is synthetic. For all these reasons the Commissioners concluded that "California Naturel's advertising conveys that its sunscreen is 'all natural,' meaning it contains only ingredients found in nature."

One of the Commissioners dissented from the Opinion on the grounds that the after-the-fact disclaimers posted on the company website and the stickers added to finished products should not have been considered because there were unresolved fact issues related to those newly added disclaimers and considering them was not relevant to the claims. The other Commissioners disagreed, stating that while considering the later-added disclaimers was not necessary to its Opinion, it was appropriate to determine California Naturel's "principal defense" and "declining to address the disclaimer's sufficiency could create the misimpression that the disclaimer cures the deception."

Was the claim false or misleading?

In deciding the second prong of the three-prong test under Sections 5 and 12 of the Act, the Commissioners determined that the "all natural" claims were false and misleading. The FTC noted that there is no intent requirement for a violation under the Act and that "[t]he deception need not be made with intent to deceive; it is enough that the representations or practices were likely to mislead consumers acting reasonably." In disposing of this issue, the Commissioners noted, "California Naturel admit[ted] that its sunscreen formula consists of eight percent dimethicone and that dimethicone is a synthetic material." The Commissioners concluded

that California Naturel does not merely claim that its product is "natural"; it expressly asserts that its sunscreen is "all natural" and that it "uses only the purest, most luxurious and effective ingredients found in nature." By California Naturel's own admission, that is not true.

Was the claim material?

For the final prong of the three-part test, the Commissioners summarily dispensed with the materiality requirement by simply concluding, "California Naturel's 'all natural' representation for Sunscreen SPF 30 is express and therefore presumptively material."

The remedy the Commissioners elected to apply was the same for the settling parties and California Naturel and contains "fencing-in" provisions. Under the Order, the companies are required to "substantiate" their content and ingredient claims, such as "all natural" by "competent and reliable evidence." The Order further requires substantiation for environmental or health benefit claims. The Order requires appropriate evidence that is "sufficient in quality and quantity based on standards generally accepted in the relevant fields when considered in light of the entire body of relevant and reliable evidence, to substantiate that the representation is true." What constitutes adequate evidence to substantiate a claim differs slightly depending on whether it is a science-based claim as follows:

The Order further requires that the parties maintain all advertisements as well as all substantiation – including supporting data – for 5 years after dissemination of the advertisement. The Order will be in effect for 20 years.

Use of the term "all natural" has produced a confounding hubbub of controversy and expensive litigation for FDA-regulated industry for decades. The USDA has one definition and FDA has been wrangling with a definition since the early 1990's. While this FTC Opinion does little to resolve the underlying definitional issue for all FDA-regulated products, it does serve as an important reminder for manufacturers who publish or broadcast advertisements claiming a product is "all natural." When you claim a product is "all natural," you must clearly and conspicuously adhere to the FTC's .comDisclosure guidelines for digital advertising.

Footnotes

1 Trans-India Products, Inc.; Beyond Coastal; The Erickson Marketing Group Inc.; ABS Consumer Products

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