Notices are seen as a maneuver after the Supreme Court ruled FTC can no longer use Section 13(b) of the FTC Act to collect fines from first-time offenders
By James J. Gormley, Gormley NPI Consulting, CFH President and Senior Policy Advisor
This post first appeared on Nutraceuticals World, reposted with permission
In April, the Federal Trade Commission (FTC) put nearly 700 companies on notice, cautioning them about potential civil penalties if they fail to substantiate their health claims. This action by the FTC has raised concerns and drawn criticism from various stakeholders within the natural products industry.
The FTC warning was issued, on the surface, as part of an effort to ensure that marketing claims made by companies in the industry are backed by sufficient evidence.
While the intention to protect consumers from false or misleading claims is appropriate, some industry experts—in addition to former FTC Commissioner Christine Wilson—have raised serious questions about the approach taken by the FTC.
Tarred & Feathered By Implication
One of the main concerns voiced by industry stakeholders is that the FTC’s warning lumps historically-compliant companies and non-compliant companies together.
It is argued, by many, that responsible companies should not be tarred and feathered by implication. In addition, the sheer number of companies on the list raises questions about the efficiency of allocating resources to such a broad initiative.
According to attorney Jonathan Emord, “The very point of the dispatch of an industry-wide threat letter from the FTC is to create an in terrorem effect, whereby companies are induced to engage in self-censorship for fear of being prosecuted.”
A 2021 Supreme Court Case, AMG Capital Management LLC v. FTC, limited the FTC’s ability to seek monetary relief under Section 13(b) of the Federal Trade Commission Act. 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.
On her final day as FTC Commissioner, Christine Wilson noted in a dissenting opinion 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.”
An Apr. 28, 2022 written statement by Commissioner Rebecca Kelly Slaughter, joined by FTC Chair Lina Khan regarding Section 13(b), noted: “In the year since the Court ruled that we lack the ability to obtain monetary relief under Section 13(b), the FTC has confronted two predictable outcomes: consumers who were wronged are not getting money back and corporate wrong-doers are emboldened. There are a number of examples over this past year in which consumers received far less money back—and in some instances, lost all monetary relief, because of the loss of our 13(b) authority.”
They continued by calling on Congress to amend Section 13(b) “to make clear what was well-established, black-letter law for more than forty years—namely, that when companies or individuals violate laws the Commission enforces, the agency can obtain equitable monetary relief under Section 13(b).
The FTC: An Agency In Turmoil?
In her resignation letter addressed to President Biden, Wilson wrote: “Under [the leadership of the new FTC Chair Lina Khan], knowledgeable career staff have been scorned and sidelined…. Rampant dissatisfaction among staff has led to the departures of many experienced personnel, causing a notable ‘brain drain.’ Longtime FTC employees cannot remember a similar exodus at any point in the last 30 years.”
“My fundamental concern with [the new] leadership of the commission pertains to [a] willful disregard of congressionally imposed limits on agency jurisdiction, [a] defiance of legal precedent and […] abuse of power to achieve desired outcomes,” Wilson wrote in a recent op-ed published by The Wall Street Journal.
“This is yet another example of the FTC’s serious overreach blocking freedom of speech and consumer access to scientific information that could benefit our health,” noted Rob Verkerk, PhD, executive and scientific director, Alliance for Natural Health USA and International.
As Blake Ebersole, president and founder of NaturPro Scientific wrote in a LinkedIn post: “It’s not clear how this list was generated, or which companies on the list are actually in violation. A conflicting disclaimer (in bold) states at the top of each page, ‘The fact that a company is on this list is NOT an indication that it has done anything wrong.’ If a firm has not done anything wrong, then why add them to the list? Has FTC identified which companies are actually in violation? How does FTC know whether a product is substantiated without requesting and reviewing the substantiation on said product?”
Wilson wrote in the WSJ piece: “Although serving as an FTC commissioner has been the highest honor of my professional career, I must follow my own advice and resign in the face of continuing lawlessness.”
While the stated intention to protect consumers is a worthy one, the agency must find a balanced approach that avoids undue burdens on responsible companies, promotes consumer protection, and encourages compliance within the industry.
About the Author: Nutraceuticals World has invited James to write a regular column, a series of which this article is the third. If you missed the last article, read it here.
Mr. Gormley has been an award-winning natural products industry writer, editor and thought leader since 1995. The head of Gormley NPI Consulting, as well as President and Senior Policy Advisor of Citizens for Health, he can be reached via his website, JamesGormley.com or via e-mail at firstname.lastname@example.org.