On Friday, January 30, almost nine months after the oral argument, the U.S. Court of Appeals for the D.C. Circuit issued its Opinion in POM Wonderful Inc. v. FTC. We have previously blogged on this case (see here and here). Although the Court provided some very limited relief to POM Wonderful, LLC. and the other petitioners (collectively “POM”) from a 2013 FTC cease-and-desist order, the FTC Chairman has already described the court ruling as “a victory for consumers.”
In 2010, the FTC filed an administrative complaint against POM alleging that a series of advertisements for POM’s products violated the FTC Act. The FTC alleged that POM’s advertising constituted claims that the products could treat, prevent, or reduce heart disease, prostate cancer, and erectile dysfunction. According to the FTC, those claims were false and misleading because POM did not have valid and adequate scientific evidence to substantiate its claims. After extensive administrative proceedings, in 2013, the FTC ruled that POM violated the FTC Act and issued a cease and desist order prohibiting POM from making health benefit claims for its products without competent and reliable scientific evidence. Specifically, the FTC’s Order barred POM from making disease claims (claims that its products treat, prevent, or reduce a disease), unless such claims are supported by at least two randomized, controlled, human clinical trials ("RCTs").
POM sought judicial review of the FTC’s Order in the D.C. Circuit. POM made a broadside attack on that Order, claiming it lacked substantial evidence and violated POM’s First Amendment rights.
The Court initially concluded that POM’s ads “mischaracterized the scientific evidence concerning the health benefits of POM’s products.” Slip. Op. at 2. The Court ruled that there was no basis for setting aside the FTC’s conclusions that many of POM’s ads made misleading or false claims. Id. at 3. This conclusion was not altered by the fact that POM had spent more than $35 million on pomegranate-related medical research, sponsoring more than one hundred studies at forty-two different institutions. Id. at 4.
Many may wonder if the FTC and the D.C. Circuit would not accept as adequate that quantity of product-specific research, how can any company convince the FTC or a court that the company had adequate substantiation? Here, what probably sank POM were the explicit claims that POM made that the Court said were false and misleading.
Advertisers often try to avoid arguments that their ads are misleading by qualifying the ads through words that present less than an unqualified claim. That strategy did not work here. POM argued that it had properly qualified its claims by using words such as “promising” “initial” and “preliminary.” The FTC and the Court rejected this argument. The D.C. Circuit seemed to adopt the FTC’s conclusion that those words did not neutralize the claims made when the positive results to consumers were otherwise described in unequivocally positive terms. Id. at 21.
The Court next rejected POM’s argument that it was unnecessary for POM to have one or more RCTs to substantiate disease claims. The Court cited the FTC for an explanation of the importance of control groups, and having double-blinded studies, concluding that “it is less likely that participants or investigators will consciously or unconsciously take actions potentially biasing the results. Id. at 25-26.
Next, the Court rejected POM’s argument that requiring RCTs to substantiate disease related claims about food products was too onerous. Id. at 27-28. Indeed, the Court acknowledged that RCTs may be costly but ruled that “if the cost of an RCT proves prohibitive, petitioners can choose to specify a lower level of substantiation for their claims.” Id. at 28-29.
As noted above, the Court rejected POM’s argument that it had effectively qualified its claims through words such as “preliminary.” However, the Court softened the blow of that finding by making another important finding that should be of use to many advertisers in future cases: “An 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.” Id. at 29. We expect that faced with the option of conducting expensive RCTs or including an effective disclaimer, many advertisers will choose the latter. However, whether the FTC or a reviewing court accepts the disclaimer as adequate will be closely watched in future cases.
The Court reaffirmed the general principle that there is no First Amendment protection for misleading advertising. The D.C. Circuit seemed to have no difficulty summarily concluding that the FTC correctly determined that many of POM’s ads were deceptive. Id. at 34-35.
The Court next reviewed whether the First Amendment permitted the FTC’s decision to require RCTs. It is at this point in the Court’s Opinion where the worm started to turn a bit on the FTC. The Court employed the general test for commercial speech set out by the Supreme Court in the Central Hudson case. It first ruled that the FTC’s Order requiring an RCT satisfied the First Amendment because the FTC had a substantial interest in ensuring the accuracy of commercial speech and the FTC had adequately demonstrated that requiring an RCT was no more extensive than necessary to serve the stated FTC interests. Id. at 37-38. Therefore, the Court rejected on constitutional grounds, POM’s argument that the FTC could not impose “a general RCT-substantiation requirement for disease claims.” Id.
However, the Court concluded that the FTC’s Order against POM was unconstitutional to the extent it mandated two (as opposed to one) RCTs “as an across-the-board requirement for any disease claim.” Id. at 38. It ruled that the FTC failed to justify a “categorical floor of two RCTs for any and all disease claims.” Id. In reaching this conclusion, the Court noted, among other things, that FDA seemed to only require one RCT (at least in certain circumstances). In addition, it noted that even the FTC itself had not consistently required two, or in some cases even one, RCTs. Id. at 39-44. Nevertheless, the Court ended its decision by stating that the FTC is not necessarily barred in future cases from imposing a two-RCT substantiation requirement. Id. at 45.
So what conclusions can we derive from this decision? One weekend probably does not allow us enough time to do justice to that question. However, it is quite likely that this ruling was a compromise reached by the three judge panel. As noted earlier, it took almost nine months for the Court to render its decision. One can fairly guess that the panel had substantial internal debates about the RCT issue and may have compromised by allowing for one RCT but generally drawing the line there. Indeed, the writers of this analysis are hard-pressed to understand how the Constitution allows for the government to require one RCT, but prohibits the FTC from requiring two RCTs, at least in this case.
The Opinion is filled with enough qualifiers and explanations to make it almost impossible to set forth any clear principles from this case. Perhaps the only clear ruling is the Court’s reaffirmation of the principle that regardless of the substantiation an advertiser has, the advertiser is not permitted under the FTC Act or the Constitution to engage in deceptive advertising. The ruling is evidence that the two-RCT substantiation requirement is challengeable. This combined with two of the five Commissioners questioning the two-RCT substantiation requirement in recent FTC consent orders, suggests that we may well see fewer two RCT orders in the future.
This decision is unlikely to be the end of this litigation. First, POM can seek rehearing from the three judge panel that decided this case and/or from the entire D.C. Circuit sitting en banc. Given the unanimous ruling of the Court, it is unlikely that the D.C. Circuit will alter this ruling. In addition, POM can seek Supreme Court review of the decision. Because the D.C. Circuit’s ruling has many qualifiers, it may be very difficult for POM to articulate a basis warranting the Supreme Court to take the case.
As we previously noted, in the FTC’s Complaint filed in 2010, the FTC reserved the right to file a court action seeking restitution and other remedies after it issued a cease and desist order and the order becomes final. Unless, POM can rally from a double digit deficit in the ninth inning of this game, we expect the FTC will file that court action. As a result, one must wonder if the time has come for POM to seek a settlement with the FTC to avoid a restitution court action that could potentially cost the company many millions of dollars.