On January 16th, the Federal Trade Commission ("FTC") issued the long-anticipated Decision and Final Order in the FTC’s administrative case filed in 2010 against POM Wonderful LLC, Roll Global LLC, Stewart A. Resnick, Lynda Rae Resnick, and Matthew Tupper (collectively “POM”). The outcome was almost exactly as we predicted after the FTC heard oral argument last August (see our previous post here).
One cannot reasonably argue with the proposition that the FTC wins this round with its 53 page Opinion, plus attachments and two concurring Opinions. The Commission denied POM’s appeal from an FTC Administrative Law Judge’s Initial Decision. As a result, the Commission issued a Cease and Desist Order that restrains POM’s future advertising. The Order applies to all five respondents and thereby rejected Matthew Tupper’s effort to avoid liability. However, the Commission granted in part, and denied in part the FTC Staff’s cross appeal. As a result, the final order is broader than the order issued by the ALJ in 2012.
Specifically, the Commission concluded that:
- 36 (compared to the 19 found by the ALJ) of POM’s advertisements directly or indirectly claimed that POM products treat, prevent, or reduce the risk of heart disease, prostate cancer, or erectile dysfunction;
- The majority of POM’s advertising included representations that its claims were supported by clinical or scientific evidence and, were thus establishment claims that were legally required to be properly substantiated but were not;
- POM’s disease claims that did not include a representation that there was clinical proof that the products worked were nevertheless efficacy claims that also had to be adequately substantiated but were not;
- The ALJ did not apply the correct substantiation standard;
- As a result of these violations, the Commission entered an order that, in the future, mandates POM to have two randomized and controlled human controlled trials (“RCTs”) for disease claims. The RCTs must be randomized and well controlled based on valid end points and conducted by persons qualified by training and experience to conduct such studies, yielding statistically significant results and be double-blinded unless blinding cannot be effectively implemented.
The Commission did not reach the issue of the number of RCTs that will be needed in other cases to substantiate disease claims because the FTC found that POM did not have even one RCT. Indeed, the FTC seemed to go to great lengths to avoid making any sweeping pronouncements of law. It did so by repeatedly noting that its rulings were based on the specific facts applicable only to POM’s actions. We suspect that the FTC tried to limit the broad scope of its rulings to minimize POM’s chances of successfully attacking the order before a court.
The Final Order does not include a provision regarding restitution to consumers. However, the FTC’s 2010 Complaint explicitly left open the possibility that the FTC will seek additional relief such as restitution in a court action that the FTC will file if POM’s court appeals are resolved in the FTC’s favor.
Although the decision was 5-0, two Commissioners filed concurring opinions. Commissioner Ohlhausen would have supported an order requiring only one RCT to support POM’s disease claims.
The ALJ had found that unpaid media interviews by POM representatives were advertisements subject to regulation by the FTC. The Commissioners avoided the question of whether the media interviews constituted advertisements and whether these interviews were protected free speech. Instead, the Commission concluded that the factual record lacked sufficient information to decide these issues.
The Commission also left open the issue of the FTC’s authority to require FDA pre-approval for certain disease claims. However, the FTC overruled its own Staff and decided not to impose that requirement against POM. The Commission concluded that the Final Order’s provision requiring that POM have two RCTs provides a clear bright-line standard that meant that requiring pre-approval by the FDA was redundant.
Possibly to the disappointment of the industry, the decision does not set forth any bright-line tests for addressing the question of whether and how many RCTs generally are needed to substantiate establishment and other health claims. As noted above, the FTC’s ruling is limited to the claims at issue in this case. The Commission emphasized that the standard for health claims in food advertising remains “competent and reliable evidence.”
The decision, however, does include some statements that are of interest to the industry. For example, the Commission discusses in some detail factors that may determine whether a claim is an establishment claim. According to the Commission, an establishment claim need not include words such as “established” or “clinically proven.” Use of visual aids, such as scientific texts or white-coated technicians, specific representations (e.g., “eight ounces a day can reduce plaque by up to 30%”), references to the amount of money spent on medical research, or a footnote linking a claim to a scientific publication may cause a claim to become an establishment claim according to the FTC’s decision. The FTC ruled that qualifying language such as “may” or “can” with respect to the effects of the POM products on diseases does not modify the messages that were otherwise conveyed. Nor, the FTC found, does humor, parody or hyperbole in an advertisement block the communication of what the FTC will conclude is a serious message conveyed in an advertisement. Furthermore, the FTC ruled that disclaimers and qualifiers such as “preliminary,” “promising,” “encouraging,” “hopeful,” “initial,” and “pilot” are not sufficient to negate the net impression that effects have been “clinically proven.”
The FTC’S Decision provides an interesting but curious discussion of whether there are different substantiation requirements for foods and dietary supplements versus drugs. On one hand, the FTC clearly found that POM’s products were foods and dietary supplements. Yet, the FTC also found that POM made disease prevention claims, a hallmark of what the FDA would consider to be a drug claim.
The FTC firmly rejected POM’s forceful argument that its advertisements were constitutionally protected under the First Amendment. Citing Supreme Court decisions, the FTC found that there is no First Amendment protection for advertisements that are false, misleading or deceptive and that POM’s advertisements fell into these categories.
The FTC relied on what it found was a lack of substantiation for POM’s claims. Left unresolved in our view is whether the FTC’s substantiation requirement satisfies First Amendment requirements. In the POM case, the Commission repeated its position that an advertiser has the burden to prove that its advertisements are adequately substantiated and that in the absence of such proof, a claim is deceptive. While it is true that the FTC did not plow new ground when it ruled that there is no constitutional protection for false or misleading advertisements, we wonder if the FTC’s substantiation requirements can withstand close court scrutiny under the First Amendment. Can the FTC place a burden on an advertiser to prove that its ads are substantiated or must the FTC prove that an advertisement is actually false or misleading to avoid First Amendment attacks? We suspect that this issue could well be decided in this very case.
POM has the opportunity to appeal the Commission’s Opinion to any United States Court of Appeals within 60 days after January 16th. However, there is undoubtedly greater urgency for POM. Under the FTC Act, the Order becomes effective upon the sixtieth day after service, regardless of whether POM seeks court review. To avoid having the order take effect, POM will need to request and obtain a stay of the Final Order from either the FTC itself or from the court from which the FTC seeks judicial review. We expect that POM will seek that stay well before the 60-day period expires. Assuming that the FTC does not stay its own order, which is a pretty safe bet, we should get a quick read from the Court of Appeals regarding whether it believes that POM has good arguments to challenge the FTC’s Order.
The stakes for both POM and the FTC are high. This case will undoubtedly move to its next step, namely a lawsuit filed by POM against the FTC in a court of appeals. Because POM earlier sued the FTC in the District of Columbia, we make an educated guess that POM will file its case in the United States Court of Appeals for the D.C. Circuit within the next thirty days. If POM loses that court challenge, it faces both a restrictive cease and desist order and the possibility, if not likelihood, that the FTC will file its own court action seeking full consumer restitution. On the other hand, the FTC runs the risk that the court will find that the Commission overreached in this case by imposing advertising restrictions that are not supported by the record or the FTC Act or conflict with the First Amendment.