Inside the FTC's Crazy Crackdown The Federal Trade Commission (FTC) is cracking down on advertisers who make unsubstantiated claims about their products. In a move that puts close to
700 advertisers on notice, the FTC has issued Notices of Penalty Offenses and cover letters to those who sell over-the-counter drugs, homeopathic products, dietary supplements, and even cereal foods. While the FTC is not accusing these businesses of wrongdoing, failing to have adequate substantiation could subject them to civil penalties of up to $50,120 per violation in a subsequent enforcement action.
The Federal Trade Commission (FTC) issued Notices of Penalty Offenses and cover letters to close to 700 advertisers of over-the-counter drugs, homeopathic products, dietary supplements, and even cereal foods on April 13,
2023. This move by the FTC puts advertisers on notice of their obligation to have adequate substantiation of their claims. Notably, the FTC is not accusing businesses that found their way onto the FTC’s list of deceptive or unfair conduct. Still, these notices do put them on notice that failing to have adequate substantiation could subject them to civil penalties of up to $50,120 per
violation in the first instance in a subsequent enforcement action. In that way, these notices are a means for the FTC to side-step the Supreme Court’s decision in AMG Capital Management v. FTC, which stripped the FTC of its ability to seek equitable monetary relief in cases under Section 13(b) of the FTC Act. This is the fourth set of these notices since Chair Lina Kahn took the reins of
the FTC in 2021. Prior notices in that timeframe related to money-making opportunities, endorsements and testimonials, and for-profit colleges went to roughly 1,900 companies. What has emerged is a large and growing swath of companies – none of whom are accused of wrongdoing – being set up for civil penalties in standard advertising enforcement matters using a technique that had previously been dormant for decades. The FTC is flexing its muscle, and it remains to be seen whether and to what extent the FTC will follow through and bring enforcement sweeps seeking large civil penalties. That said, given the effort it has expended to get this far, it does seem likely that more of these notices will be forthcoming and in a broader set of issues (perhaps including privacy and data security) and that the FTC will bring follow-up enforcement actions. Under the FTC Act, product claims must be substantiated in order to avoid deception, in violation of the FTC Act. The FTC Policy Statement on Advertising Substantiation outlines specific substantiation standards, including having a reasonable basis consisting of competent and reliable evidence for objective product claims, having access to competent and reliable scientific evidence to support any health or safety claims,
obtaining at least one human clinical trial to support any claims that a product is effective in curing, mitigating, or treating a serious disease, not misrepresenting the level or type of substantiation for claims, and not misrepresenting that a product claim has been scientifically or clinically proven. The recipients of the advertising substantiation Notices of Penalty Offense letters
also received a copy of a previously approved notice of penalty offense regarding the use of endorsements and testimonials, which addresses false endorsements, misrepresentation of the identity of endorsers, and the use of endorsements to make deceptive performance claims. The companies were also encouraged to review the FTC’s recent Health Product Compliance Guidance, which was issued in late 2022 and updated the FTC’s 1998 Dietary Supplements: An Advertising Guide for Industry guidance. The
2022 update demonstrates how to ensure that claims about the benefits of health-related products are not misleading and are substantiated appropriately. The FTC reaffirmed its commitment to the underlying legal requirement of advertising substantiation, stating that advertisers and ad agencies must have a reasonable basis for advertising claims before they are disseminated. The Commission
intends to continue vigorous enforcement of this existing legal requirement that advertisers substantiate express and implied claims, however conveyed, that make objective assertions about the item or service advertised. Objective claims for products or services represent explicitly or by implication that the advertiser has a reasonable basis supporting these claims. These representations of
substantiation are material to consumers. That is, consumers would be less likely to rely on claims for products and services if they knew the advertiser did not have a reasonable basis for believing them to be true. Therefore, a firm's failure to adequately substantiate its claims can deceive consumers, harm competition, and violate the law. The FTC's recent actions send a clear message to
advertisers that they must take their substantiation obligations seriously. Advertisers must have a reasonable basis for any objective claims they make about their products or services. This means that advertisers must have competent and reliable scientific evidence to support their claims, especially when it comes to health and safety claims. The FTC's Health Product Compliance Guidance,
which was updated in late 2022, provides specific guidance to advertisers on how to ensure that their claims about health-related products are not misleading and are substantiated appropriately. Advertisers must ensure that their claims are supported by scientific evidence, including human clinical trials, and must not misrepresent the level or type of substantiation for their claims. The
FTC's recent enforcement actions also serve as a reminder to advertisers that they must be careful when using endorsements and testimonials in their advertising. Advertisers must ensure that their endorsements and testimonials are truthful and not misleading, and that they do not misrepresent the identity of endorsers or use endorsements to make deceptive performance claims. The Federal
Trade Commission's recent notices of penalty offenses for inadequate substantiation of advertising claims have highlighted the importance of understanding the FTC's requirements. In this regard, the FTC has identified several persistent myths regarding substantiation that can lead to non-compliance. The first myth is that having a couple of studies supporting a claim is sufficient substantiation. The FTC clarified that the totality of evidence, including independent studies, must be evaluated to
determine if a claim is substantiated. The second myth is that claims for products with real benefits do not require substantiation. The FTC emphasized that even products with real benefits must have a reasonable basis, as illustrated by a recent consent order against NordicTrack, which made unsubstantiated weight loss claims despite using studies with methodological flaws. The third myth is
that testimonials are sufficient substantiation for health-related claims. The FTC has explicitly rejected this as substantiation and considers anecdotal evidence in assessing the scope of injury to consumers. The fourth myth is that endorsements are valid if the endorsers genuinely use and like the product. The FTC explained that the use of consumer testimonials gives rise to a "typicality"
claim, which must be substantiated or qualified with a clear disclosure of the generally expected results. The fifth myth is that disclosures that flatly contradict a deceptive claim immunize a company from liability. The FTC advised that it looks at the net impression created by an advertisement and recommended narrowing claims to what can be substantiated. Finally, the sixth myth is that "results may vary" is an adequate disclosure. The FTC explained that this is not the case and warned
against using this as a disclaimer. Also, the FTC clarified that claims about dietary supplements are regulated by both the FDA and the FTC. While the FDA has responsibility for label claims, the FTC seeks to ensure that claims made in advertising do not deceive consumers. The FTC advised that the manufacturer must have substantiation that structure and function claims are truthful and not
misleading. A special Commission on Dietary Supplement Labels is evaluating the evidence that the FDA will require as substantiation and has consulted the FTC about its policies for substantiation of advertising claims for dietary supplements. Advertisers must also be careful when making claims about the benefits of their products or services. They must ensure that these claims are
substantiated appropriately and are not misleading. Advertisers must not make false or misleading claims about the safety, efficacy, or performance of their products or services. |
All the news you need today, in a format that isn't TL:DR, summarized for the busy executive.
In a surprising move, Apple has dropped its lawsuit against former executive Gerard Williams III, who was previously responsible for the development of the central processors inside iPhones. Apple had accused Williams of using the company's intellectual property at his new startup, Nuvia, and of poaching key
chip engineers while still employed at Apple. Nuvia was later acquired by Qualcomm for $1.4 billion. Some former members of Apple's chip team had suggested that the lawsuit was simply a ploy to discourage Nuvia from hiring Apple employees. Apple's decision to drop the lawsuit against Williams could indicate that it plans to take a similar approach with another chip startup, Rivos, which has also been accused of poaching key Apple silicon engineers. Perhaps now that this legal battle is over,
Apple can finally focus on its true enemy: the dreaded low battery warning. Social media fatigue is real, and TikTok star Clare Sullivan knows it. Despite feeling exhausted by the prospect of adding yet another platform to her already impressive social media presence, she caved to the hype surrounding Lemon8, a new app owned by TikTok's parent company ByteDance. Lemon8 promises to combine the best elements
of Pinterest, Instagram, and Canva, but Sullivan found the idea of keeping up with yet another platform overwhelming. The fear of missing out on "the next big thing" eventually won out, though, and Sullivan joined Lemon8 out of a desire to future-proof her career in case TikTok ever fades. If only social media platforms came with unlimited energy drinks....
The Supreme Court has clarified that district courts can hear constitutional challenges to the SEC and FTC's administrative adjudication process, without having to wait for the administrative process to conclude. This ruling has set a precedent that could lead to more constitutional challenges to the administrative process. In the Axon Enterprise, Inc. v. FTC and SEC v. Cochran cases, the respondents challenged the constitutionality of the agencies' attempts to
litigate enforcement actions in administrative proceedings. The respondents argued that this violated the Constitution and caused legal injury, and sought to enjoin the proceedings in federal district court. Prior to this Supreme Court decision, lower courts were routinely rejecting such collateral attacks on SEC and FTC administrative proceedings. As more challenges arise, the administrative process may face further scrutiny and potential changes.
FTC Chair Lina Khan has cautioned that artificial intelligence (AI) tools can amplify fraud and discrimination, as part of a joint statement from several US agencies on protecting the public from bias in automated systems. The FTC has previously warned AI firms to avoid making exaggerated claims when marketing to consumers and has pledged to enforce
laws against discriminatory AI tools. Khan emphasised that there is no AI exemption to laws and that the FTC will combat unfair practices or competition. With AI becoming increasingly pervasive, the statement from government agencies on the need to enforce laws against harmful business practices is a welcome move. PMG, a digital marketing agency, has integrated its technology platform Alli with OpenAI’s generative artificial intelligence (AI) API to enhance copy generation and campaign efficiencies. Marketers can supercharge campaign performance through the integration, particularly in paid search campaigns. The speed and creativity unlocked by this integration work with Alli's campaign management data, intelligence, and insights to generate multiple headlines and
copies that cater to different audiences and regions across the US. OpenAI's ChatGPT API is a significant contributor to the success of this integration. The system learns from a tight dataset, utilizing only client-related information to protect privacy. PMG has been investing in Alli and exploring generative AI to boost its capabilities further. Rachel Rofé is an online entrepreneur who has experimented with various methods of making money online since 1997. She started with selling luxury brands on eBay and then tried affiliate marketing, creating ebooks, and selling print-on-demand products. Rofé's print-on-demand business took off in 2016, and she now sells her products on Amazon, Etsy, and eBay. Her company, CustomHappy, has a 25,000-square-foot warehouse and industrial-grade press machines. Rofé's top tips
for print-on-demand include approaching it as a numbers game, experimenting with new designs and products often, targeting passionate niches, and keeping costs low. Rofé's print-on-demand business has had gross profits of $5.9 million between 2020 and 2022, and she estimates that 30% of the revenue came from selling her print-on-demand products. The latest forecasts and financial updates suggest that ad spending is not speeding up but is also not slowing down much either, indicating a correction rather than a downturn. The pandemic-induced digital boom led to a growth spurt in online advertising, but it was always going to run out of steam eventually. Advertising appears to have held up well considering how much the industry talked itself into a downturn towards the end of 2022. The slowdown in ad spending is less
about the economic downturn and more about the tough comparables of the year-ago quarter. While there have been some real cutbacks in ad spending so far this year, they were isolated rather than widespread. The large tech companies, such as Google and Meta, have become mature, slow-growth ads businesses. Spending on Amazon grew at 23% year over year during the first quarter, and advertisers continue to spend more, not less, on online advertising. While there are grounds for cautious optimism,
the economy continues to throw up curveballs, so marketers remain cautious. |
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THE CZAR OF TCPA DEFENSE: ERIC TROUTMAN’S REIGN OF LITIGATION STRATEGY Eric Troutman, commonly known as “the Czar” in certain legal circles, is one of the country’s top class action defense lawyers and a nationally recognized expert in Telephone Consumer Protection Act (TCPA) litigation and compliance. His deep experience and encyclopedic knowledge of the TCPA landscape make him an invaluable resource to institutional compliance teams struggling to comply with the shifting regulatory landscape. Eric Troutman is well known for finding
creative solutions to complex legal problems and has earned numerous first-in-the-nation results and precedent-setting cases for his clients. READ ENTIRE STORY
KPIS THAT ACTUALLY MATTER: A GUIDE TO PROGRAMMATIC ADVERTISING SUCCESS The world of programmatic advertising can be overwhelming, with a seemingly endless array of metrics to choose from. It’s easy to fall into the trap of measuring vanity metrics that don’t provide any real insight into the success of your campaign. But fear not, my dear reader, for I am here to guide you through the world of programmatic KPIs and show you which metrics to focus on to ensure your campaign’s success. . READ MORE OF THIS STORY
LIES, DAMN LIES, AND ADVERTISEMENTS: FTC SENDS
WARNING TO GWYNETH PALTROWThe Federal Trade Commission (FTC) has issued a warning to advertisers, urging them to back up their product claims or face steep civil penalties. In notices sent to 670 companies, the FTC stated that companies are required to provide “reliable evidence” to back up their product claims, a requirement that has been in place for some time. However, many advertisers continue to make
unsupported statements and false claims about the evidence they have.. READ THE FULL ARTICLE
COLLABORATION IS KEY: UNLOCKING THE POTENTIAL OF FIRST- AND SECOND-PARTY DATA
STRATEGIES The age of relying on third-party data for media buying may be coming to a close, but don't count out the power of collaboration just yet. Data clean rooms (DCRs) have emerged as a popular avenue for brands to uncover valuable insights, but they're not the end-all-be-all solution to marketing strategies in the face of a looming recession. While a DCR can help match audiences and allow brands to... READ MORE
DAVE MORGAN’S CRYSTAL BALL: HOW NETFLIX’S AD TIER WILL SHAPE THE VIDEO AD
LANDSCAPE As Netflix dives into the realm of ad-supported streaming, it’s clear that the video advertising landscape is about to experience a seismic shift. With the streaming giant making its move, we sat down with Dave Morgan, CEO of Simulmedia, to discuss how Netflix’s new tier will impact the industry and what it means for advertisers,
long-form video content, and the advertising world at large. In light of the tough ad economy in 2023, Morgan believes that Netflix’s ad-supported tier is well-positioned to succeed. “It still has limited inventory as the ad tier just begins to scale. Thus, it doesn’t need huge
commitments from advertisers, just modest commitments from a number of the top brand advertisers, and it doesn’t need to trade piercing for volume like fully scaled players need to when budgets are under pressure,” he says. READ MORE
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