The U.S. Federal Trade Commission (FTC) issued notices on Apr. 13 to nearly 700 companies operating in the dietary supplements, functional foods, homeopathic, and over-the-counter drug industries, warning companies about potential fines if they can’t support product claims with sufficient evidence.

FTC stated that it would not hesitate to seek up to $50,120 per violation if a company knowingly engages in unlawful conduct, as outlined by a previous FTC administrative order. The penalty may apply to any company that doesn’t “adequately substantiate their product claims” with competent and reliable scientific evidence (CARSE).

Claims that a product can cure, mitigate, treat or prevent diseases without “accepted standards of scientific testing,” are also out of bounds.

“The prospect of steep civil penalties will help ensure that advertisers don’t play fast and loose with the truth,” Sam Levine, director of the FTC’s Bureau of Consumer Protection, said in the announcement.

According to FTC, the notices outline specific unlawful acts and practices regarding a failure to substantiate health- or disease-related product claims with adequate science.

FTC published its full list of recipients, who are “making or likely to make health claims,” online, along with a sample letter. “A recipient’s inclusion does not in any way suggest that it has engaged in deceptive or unfair conduct,” the agency stated. The list includes most of the biggest dietary supplement companies in the U.S., as well as some ingredient suppliers and contract manufacturers.

The sample letters suggest that recipients consult previous guidance issued by FTC, including a previously-approved notice of penalty offenses regarding the use of endorsement and testimonials, which discusses enforceable penalties against statements made during an endorsement of a product.

Additionally, the agency recommended consulting its 40-page Health Products Compliance Guidance, which was issued earlier this year.
 

The AMG Decision

FTC’s actions are preceded by a 2021 Supreme Court Case, AMG Capital Management LLC v. FTC, which severely limits the FTC’s ability to seek monetary relief under Section 13(b) of the Federal Trade Commission Act.

Importantly, while FTC can’t seek financial penalties against first-time offenders, per the AMG decision, it can still seek penalties against companies which violate the FTC Act after they are given notice of a violation. The sweeping notices issued on Apr. 13 may be a sufficient workaround for the FTC to secure financial penalties in the future, experts said.  

Since the AMG decision in 2021, the agency has been issuing notice of penalty offenses to thousands of companies.

The vote to approve the notice was 3-1 and took place on Mar. 31. In statements, FTC officials rallied behind a legislative fix to the AMG decision.  

Commissioner Rebecca Kelly Slaughter, joined by Commissioner Alvaro Bedoya and Chair Lina M. Khan, said in a statement that expanding the FTC’s access to civil penalties under 13(b) is “essential to changing the dynamics of the marketplace,” and the FTC Act is in need of a legislative fix.

“Unreliable claims … distort the health-product market in ways that favor cavalier or unscrupulous companies. It is impossible to evaluate competing products in a market with no baseline level of accuracy or truthfulness about the effectiveness of those claims,” Slaughter wrote. “Injunctive relief alone cannot, and will not, remediate the harm from these practices, but monetary penalties can send a strong message to potential violators.”

On her final day as FTC Commissioner, Christine S. Wilson voted no. In a dissenting statement, she wrote that the agency has been expanding its use of Section 13(b) of the FTC Act beyond a focus on fraud cases. While she supported its use against egregious cases of fraud, Wilson noted her opposition to the agency’s expanded use of 13(b) “even against legitimate companies” which began to take place during the Obama Administration.

“I am wary of a 13(b) fix that would afford the Commission significant latitude to seek equitable monetary relief in all substantiation cases, many of which involve complex and nuanced issues and dueling experts,” Wilson wrote. “Even if I were to set aside those concerns, I am dubious that this initiative is an efficient use of scarce and finite resources.”
 

The Workaround

“This notice is intended to set the FTC up to obtain monetary penalties in the future if any of the companies that received the letter were to later be found to be in violation for the FTC act for making the types of claims listed in the Notice,” said Lauren Aronson, partner at Amin Talati Wasserman.

The Apr. 13 notice “is the fourth in a series of similar notices sent in the past 18 months, she added. “In 2021, they sent more than 2,000 companies notices related to the endorsement guides, the gig economy and/or education.”

After the AMG decision, “FTC could only obtain monetary penalties for rule violations or after first obtaining a cease-and-desist order, and then showing that the order was violated in a manner ‘a reasonable man would have known under the circumstances was dishonest or fraudulent,’” Aronson said. “The notices are a procedural workaround to satisfy the requirements of section 45(m)(1)(B) of the FTC Act.”
 
This provision allows FTC to obtain civil penalties if they can prove a company had notice that their conduct violated the FTC Act, and if the FTC has already issued an administrative decision that the conduct was unfair or deceptive.

According to Todd Harrison, partner at Venable, given the intent expressed by the notice, “The FTC, in flexing its muscle, appears to target without cause responsible marketers of dietary supplements and other health-related products in order to chill legitimate marketing of these products that promote health and wellness.”
 

CARSE

Aronson also discussed how FTC defines “competent and reliable scientific evidence” (CARSE) for supplement claims substantiation.

CARSE is defined as “’tests, analyses, research, or studies that (1) have been conducted and evaluated in an objective manner by experts in the relevant disease, condition, or function to which the representation relates; and (2) are generally accepted in the profession to yield accurate and reliable results,” said Aronson. “To satisfy this requirement, studies must be randomized, controlled human clinical testing. While animal and in vitro studies may provide helpful background information, human trials are required to substantiate health-related claims.”

Ultimately, every advertiser, including the recipients of the notice, “should make sure they understand the FTC’s recent Health Policy Compliance Guidance as well as the recent draft updates to the Testimonial and Endorsement Guides to ensure that their advertising is in compliance,” Aronson said.