On January 30, 2015, the U.S. Court of Appeals for the District
of Columbia issued its long-awaited decision in Pom Wonderful,
LLC vs. Federal Trade Commission. The case arose after
extensive administrative proceedings and a decision by the Federal
Trade Commission (FTC) in January 2013 to hold Pom Wonderful, LLC
(POM) liable for violating the FTC Act and ordering the Company to
cease and desist from making misleading and inadequately supported
claims about the health benefits of its products. The FTC also
forbade POM from running ads relating to the treatment or
prevention of diseases unless the Company possessed at least two
randomized, controlled, human clinical studies (RCTs) demonstrating
statistically significant results. POM petitioned the Court of
Appeals for review of the FTC's decision, arguing that the FTC
order violated the FTC Act, the Administrative Procedure Act (APA),
and the First Amendment to the U.S. Constitution.
The FTC alleged that POM violated the FTC Act by utilizing
deceptive and misleading advertisements. In response, POM argued
that the Commission applied overly broad claim interpretation
principles and cherry-picked the most egregious advertisements. In
deciding this issue, the Court of Appeals highlighted FTC's
"special expertise" in determining what sort of
substantiation is necessary to avoid consumer deception. The Court
agreed with FTC's view and believed that POM's
advertisements crossed the line into deceptive advertising.
However, the Court referenced the FTC's determination that if
POM had used an effective disclaimer (i.e., that
"evidence in support of this claim is inconclusive"), a
different result might have been reached. Indeed, the Court stated
that "[a]n advertiser thus still may assert a health-related
claim backed by medical evidence falling short of an RCT if it
includes an effective disclaimer disclosing the limitations of the
supporting research." This is an important statement and
should not be overlooked. Had POM's claims been appropriately
qualified, a different outcome very well could have occurred in the
Court of Appeals.
Additionally, the Court agreed with the FTC's view of RCTs,
namely, that the need for RCTs is driven by the claims made for
products. The Court stated that if the cost of these studies proves
to be prohibitive, a company can choose to make claims that require
a lower level of substantiation (i.e., claims that do not
assert a causal relationship, claims that use an appropriate
disclaimer to disclose the limitations of the science, or claims
that refrain from reference to "studies").
Finally, the Court upheld the FTC's decision to hold a company
executive individually liable for POM's deceptive acts and
practices because an individual can be held liable for FTC Act
violations if he "participated directly in the deceptive
practices or acts or had authority to control them."
POM also argued that the substantiation standard applied by the
Commission constituted a new legal rule, which violated the
APA's notice-and-comment requirements for rulemaking. The Court
disagreed, however, concluding that the FTC "validly proceeded
by adjudication" because an order that may affect agency
policy does not automatically constitute rulemaking. Additionally,
the Court did not believe that FTC's decision constituted a
"'major substantive legal addition' to its
substantiation standards."
Finally, the Court considered POM's argument that the
Commission violated the First Amendment through the
Commission's liability determination and remedy. Under
the Central Hudson scrutiny test (the general
standard applied to commercial speech), the Court evaluated whether
the requirement of some RCT substantiation for disease
claims "directly advances, and is not more extensive than
necessary to serve, the interest in preventing misleading
commercial speech." Here, the Court determined that
some RCT substantiation was necessary for disease claims.
The Court highlighted that because POM's past claims were
deceptive in the absence of RCTs, it was acceptable to require RCTs
for future claims, as this was "tightly tethered to the goal
of preventing deception."
However, the Court believed that the FTC's rigid requirement of
two RCTs as an across-the-board requirement for any disease claim
that POM might make in the future was unconstitutional. In
particular, the Court found that the rigid requirement was not a
"reasonable fit" under the Central Hudson test.
While two RCTs would provide more certainty than one RCT, three
RCTs would provide more certainty than two (and so on). The Court
discussed a hypothetical situation where a large-scale RCT
demonstrated that a dietary supplement significantly reduced the
risk of a specific disease to a very high degree of certainty and
where the RCT was reinforced by a wealth of non-RCT medical
evidence. The Court believed that in this hypothetical case, there
exists a substantial interest in raising awareness in consumers
– and that a two-RCT requirement would provide for no
exceptions for circumstances such as these. The Court also found it
persuasive that FTC's own expert testimony weighed against
imposing a categorical, two-RCT requirement for all disease claims.
However, the Court warned that this ruling did not bar FTC from
ever imposing a two-RCT substantiation requirement.
This decision raises important considerations for advertisers, and
in particular those marketing foods and dietary supplements with
purported health benefits. The decision demonstrates to marketers
of foods and dietary supplements the importance of appropriately
qualifying health-related claims. It also emphasizes the importance
of possessing at least one RCT for health-related claims –
and depending on the extent of claims, potentially more than one
RCT (e.g., for claims lacking qualification). Finally, it
reminds advertisers that whether claims are properly substantiated
is decided on a case-by-case basis.
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.