This post is authored by Fox Rothschild associate Rashanda Bruce.

The National Advertising Division (NAD) announced revisions to its procedures governing advertising industry self-regulation during its Annual Conference on September 24-25. The revisions are in response to recommendations by the ABA Antitrust Section’s Working Group.

NAD is a branch of the Council of Better Business Bureaus (CBBB) responsible for monitoring the truthfulness and accuracy of all media advertising. NAD works to increase and maintain the public’s confidence in advertising by independently examining advertising claims that breach these standards. In addition to its independent review, NAD accepts consumer complaints about misleading advertisements and provides a forum for competitors to resolve advertising disputes.

The most recent revisions relate to NAD’s handling of competitors’ advertising claims that were previously recommended for modification or discontinuation. In the past, when NAD found that an advertising claim was unsubstantiated, it issued a decision recommending discontinuation or modification of the claim. NAD refused to reopen a case if an advertiser later proved its claims and wanted to resume advertisement. Under the new revisions, advertisers who believe they have developed new substantiation for their original advertising claims may now either resume use of the disallowed claim and request that NAD consider the new evidence, or the advertiser may seek NAD’s review of the new evidence prior to resuming the claims.

NAD made additional revisions to its procedures including: (1) identifying who should be contacted about a pending or closed case; (2) increasing the filing fee for challengers who have been National Partners of the Council of Better Business Bureaus for less than one year; (3) amending the construction of the Advertiser’s Statement to remove the option for advertisers to state that they will not comply with NAD’s recommendations; and (4) adding language to the section governing compliance decisions.

Laura Brett, the National Advertising Division Director, said NAD believes “the change balances allowing advertisers to make truthful, substantiated claims with the need for speed and finality in the self-regulatory process for competitive challenges.” Read the full text of revisions here.

What does “natural” mean in the context of product advertising?  Consumers see phrases like “natural,” “all natural,” and “100% natural” over and over again in modern marketing.  The trouble is that “natural” may not mean what consumers expect it to mean, thereby opening companies up to claims of false or misleading advertising.

Two recent lawsuits against Pret A Manger, the sandwich company, provide a cogent illustration.  One complaint was filed by two consumers as a class action.  The other was filed by three non-profit organizations (including the Organic Consumers Association) on behalf of their members and the general public.  Both complaints assert that Pret A Manger has deceptively labeled, marketed, and sold certain bread and other baked goods as “Natural Food” when the products contain trace amounts of a chemical biocide.  According to the non-profit plaintiffs, consumers are willing to pay more for “natural” products and consumers expect such products to be free of pesticides.

This isn’t the first time the Organic Consumers Association, the Federal Trade Commission, or others have gone after companies advertising their products as “natural.”  Companies should be mindful when marketing their products using that term, and should be prepared to defend the claim with substantiation if necessary.

 

The FTC has amended its Jewelry Guides (formally, the “Guides for the Jewelry, Precious Metals, and Pewter Industries”) which aim to help prevent deception in jewelry marketing by providing clear standards.

The Jewelry Guides, like other industry guides published by the FTC, are intended to help marketers understand their responsibilities with respect to avoiding consumer deception.  The Guides themselves are not binding law, but instead offer the FTC’s interpretation of how Section 5 of the FTC Act applies to certain practices within the industry.

For those in the jewelry industry, the issuance of these changes suggests it may be a good time for a compliance check.  Some noteworthy changes include:

  1. No more thresholds for describing alloys as “gold” or “silver.”

Under the old Guides, marketers were prohibited from using the terms “gold” and “silver” to describe a product made of a gold or silver alloy (combination of gold or silver and one or more other precious metals) unless the ratio of gold/silver to other metals met certain minimum thresholds.

The revisions eliminate these requirements.  From now on, any gold alloy may be marketed as “gold” as long as the marketing contains “an equally conspicuous, accurate karat fineness disclosure.”  The same goes for silver alloys as long as the marketing contains a conspicuous and accurate disclosure of the parts-per-thousand measurement.

  1. New requirements for describing silver- and platinum-coated products.

A preexisting rule advises against using the term “gold” to describe a product that is merely gold-coated.  The revised Guides extend this rule to silver and platinum products.

  1. New rule prohibiting the use of incorrect varietal names to describe gemstones.

The FTC now expressly prohibits the use of incorrect varietal names like “yellow emerald” or “green amethyst” to describe gemstones.  Instead, marketers should use scientifically-correct terms like “heliodor” and “prasiolite.”

  1. Relaxed rules for lab-grown diamonds and gemstones.

The revisions make several changes to the rules for marketing lab-grown diamonds and gemstones.  For the most part, these changes benefit the lab-grown sector.  For instance, the FTC now cautions marketers not to use the terms “real, genuine, natural, or synthetic” to imply that a lab-grown diamond “is not, in fact, an actual diamond.”

The Guides still prohibit the use of terms like “real” and “natural” to describe lab-grown diamonds and gemstones, but the FTC indicated that it might be willing to reconsider this position.

The FTC filed a lawsuit earlier this month in the U.S. District Court for the District of Utah charging telemarketers with violating the FTC Act and the Telemarketing Sales Rule.  The FTC alleges that defendants deceptively claimed their “business coaching” would help consumers earn thousands of dollars a month by starting a home-based Internet business.

According to the complaint, the defendants’ telemarketing operation relied on “leads” supplied by other companies.  Typically, these were consumers who had purchased some work-from-home-related product or service online for less than $100. For a fee or a percentage of defendants’ sales, the company that sold the product or service would encourage the buyer to contact an “expert consultant” or “specialist” to see if they qualify for an “advanced” coaching program.  However, when the consumer called to speak to a “specialist” they were merely routed to defendants’ telemarketers.

According to the lawsuit, the defendants then charged consumers up to $13,995 for their purported business coaching program, which merely provided information that was already freely available on the Internet.  Ultimately, most people who bought the service did not develop a functioning business, earned little or no money, and ended up deeply in debt.

The FTC filed a lawsuit this week against Lending Club, a peer-to-peer lending company that operates an online marketplace for personal loans.  The lawsuit accuses Lending Club of luring consumers to its website with online advertisements promising “no hidden fees,” only to go ahead and deduct significant “up-front” origination fees from the loan proceeds.  As a result, customers were surprised when the amount that actually showed up in their bank account was less than the “Loan Amount” they thought they had signed up for.

According to the FTC, this deception is made worse by the fact that Lending Club never adequately discloses the up-front fee to consumers during the entire online application process.  The fee is only mentioned once—inside an explanatory “pop-up bubble” that only appears if the applicant happens to click or tap on a relatively small and inconspicuous icon. Because applicants are not required to click or tap on the icon in order to move forward with their loan application, many applicants never saw the disclosure at all.

“This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders,” said Reilly Dolan, acting director of the FTC’s Bureau of Consumer Protection, in a statement. “Stopping this kind of conduct will help consumers make informed choices about loan offers.”

This case is a reminder of advertisers’ responsibility to ensure that advertisements are honest and forthcoming, especially in the ever-changing landscape of online advertising.  Some key takeaways:

  • If a disclosure is needed to prevent an online ad from being deceptive or unfair, it must be clear and conspicuous. This rule applies to all forms of online advertising, including paid blog posts or ads on social media platforms.
  • The “clear and conspicuous” rule also applies across all devices and platforms that consumers may use to view the ad. Advertisers must therefore ensure that required disclosures function properly on all programs and devices.
  • Putting necessary disclosures in hyperlinks or “pop-up bubbles” is strongly discouraged, particularly where the disclosure involves important information like additional costs or consumer safety. Where they are used, ensure the link is labeled accurately and that it functions properly regardless of device or platform.

Failing to have adequate substantiation for advertising claims can land companies in hot water.  Case in point: The Federal Trade Commission (“FTC”) recently announced that it had settled charges against a company and its CEO related to their advertising of anti-aging products using what the FTC believed were false or unsubstantiated claims.  According to the FTC’s Complaint, Telomerase Activation Sciences, Inc. and Noel Patton (“TA Sciences”) lacked scientific evidence to support claims that their topical cream product and capsule/power product provided certain anti-aging and other health benefits.  Specifically, the FTC alleged that it was false, misleading, or unsubstantiated for TA Sciences to make the following representations about one or both products:

  • reverses aging;
  • prevents and repairs DNA damage;
  • restores aging immune systems;
  • increases bone density;
  • reverses the effects of aging, including improving skin elasticity, increasing energy and endurance, and improving vision;
  • prevents or reduces the risk of cancer;
  • decreases recovery time of the skin after medical procedures.

Additionally, the FTC alleged that TA Sciences made misrepresentations related to a paid program being independent and educational, related to consumers in its ads being independent users, and in promotional materials provided to other marketers.

The FTC alleged that TA Sciences’ conduct violated section 5(a) of the Federal Trade Commission Act, which prohibits unfair or deceptive acts, thus allowing the FTC to bring suit to enjoin such conduct.  The FTC’s suit alleged counts of (1) false or unsubstantiated efficacy claims, (2) false establishment claims, (3) deceptive format, (4) deceptive failure to disclose material connections with consumer endorsers, (5) false independent users claims, and (6) means and instrumentalities to trade customers.  The FTC’s proposed settlement order prohibits TA Sciences from making a number of representations related to these counts.  It also requires TA Sciences to notify purchasers of the products at issue about the FTC settlement order.  After a period of public comment, the FTC will decide whether to make the order final.

Of course, companies should ensure that they have adequate substantiation for advertising claims, whether health-related or otherwise.  As a reminder, the FTC requires that advertisers have a reasonable basis for advertising claims before disseminating them.  For more information regarding claim substantiation, review the FTC Policy Statement Regarding Advertising Substantiation.

The U.S. Food and Drug Administration (“FDA”) regulates dietary supplements as food, not as drugs.  In general, dietary supplements are taken orally and contain a dietary ingredient such as a vitamin, mineral, amino acid, herb, botanical, or other substance used to supplement the diet.  The FDA warns consumers that dietary supplements may be harmful, may contain hidden or deceptively-labeled ingredients, and are not intended to treat, diagnose, cure, or alleviate the effects of any disease.  In fact, the FDA has recalled numerous products containing potentially harmful ingredients.

Although federal law requires that dietary supplements be labeled as such (either as a “dietary supplement” or with “[ingredient description] supplement”) and that products be labeled correctly and advertised fairly, the FDA does not pre-approve dietary supplements or require that they be proven safe before they are marketed and sold.  Nor does the Federal Trade Commission (“FTC”) pre-approve any advertising related to dietary supplements.  As a result, there is no requirement that manufacturers/sellers prove that their products are safe or that all advertising claims are accurate before they market or sell the products.  Instead, it is the company’s responsibility to ensure product safety and truthful advertising, and the FDA and FTC only get involved after such products have already entered the market—with the FDA regulating safety issues and the FTC regulating advertising issues.

To bolster its ability to regulate such safety issues, the FDA requires that sellers of dietary supplements report any serious adverse events reported by consumers or health care professionals within 15 days of receipt and that the FDA monitor and investigate those reports.  Likewise, the FDA monitors and investigates any adverse event voluntarily reported by consumers or health care professionals and encourages such voluntary reports to be made directly to the FDA as soon as possible.

As always, manufacturers/sellers of dietary supplements should make sure that their products are safe, properly labeled, and advertised truthfully.  In addition, companies should make sure to report any serious adverse events to the FDA within the required time frame.

Moonlight Slumber, LLC, an Illinois company that advertised its baby mattresses as “organic,” has agreed to settle FTC charges that it misrepresented or could not support these and other claims to consumers.

The FTC’s administrative complaint alleged that in marketing and advertising its baby mattresses, Moonlight Slumber misrepresented a range of claims on its website and in its packaging.  For example, the complaint charged the company represented that two of its lines of its mattresses are “organic.”  According to the FTC, however, very little of the mattresses were made from organic material.

The proposed settlement order prohibits Moonlight Slumber from making misleading misleading representations regarding whether any mattress, blanket, pillow, pad, foam-containing product, or sleep-related product is “organic,” “natural,” or “plant-based,” among other things.  The order also requires the company to have competent and reliable evidence, including scientific evidence when appropriate, to support any claims in these areas.

This is the FTC’s first case challenging “organic” product claims, and could be a signal that more are to come.  Companies using this language to market or promote their products should take note and ensure that they can support any such claims.

The Food & Drug Administration (“FDA”) regulates cancer drugs and devices, both for use by humans and pets. Such drugs and devices must obtain FDA approval or clearance before they can be marketed or sold to consumers, so that the FDA can ensure each product is safe and effective for its intended use. The FDA is concerned about the marketing and selling of products that have not been approved, particularly because such products may contain dangerous ingredients or may cause harm by negatively impacting beneficial treatments. Often such products are advertised as “natural” or are labeled as a dietary supplement, which may be a tip-off to consumers that the products have not been approved by the FDA.

cancer pic
Copyright: tashatuvango / 123RF Stock Photo

The FDA has identified the following advertising phrases as “red flags” that may signify a fraudulent product:

  • Treats all forms of cancer
  • Miraculously kills cancer cells and tumors
  • Shrinks malignant tumors
  • Selectively kills cancer cells
  • More effective than chemotherapy
  • Attacks cancer cells, leaving healthy cells intact
  • Cures cancer

Additionally, the FDA has stated that the following catch phrases should tip-off consumers to a potentially bogus health-related product:

  • One product does it all
  • Personal testimonials
  • Quick fixes
  • “All natural”
  • “Miracle cure”
  • Conspiracy theories

In April, the FDA sent 14 warning letters to companies that it determined were making fraudulent claims on their websites related to purported cancer treatments. Fraudulent claims are those that deceptively promote a product as effective against a specific condition—in this instance, cancer—that has not been scientifically proven to be safe and effective for its claimed purposed. According to the FDA, if the companies to which it sent letters do not comply with its warnings, the FDA may take further legal action in order to ensure that such products do not reach consumers.

The FDA requests that consumers avoid use of potentially unsafe or unproven products and to discuss any cancer treatments with their healthcare providers (or, in the case of pets, with their veterinarian and veterinary oncologist). As always, companies that market or sell products requiring FDA approval should ensure that such products are fairly advertised, are properly labeled, are effective and safe for their intended use, and are indeed approved as required.

The Federal Trade Commission (“FTC”) recently filed a Complaint in the Southern District of California against six entities and four individuals, accusing them of deceiving customers with their use of “free” and “risk-free” trial period advertising related to cooking products, golf-related products, and online subscription services on their websites, in TV infomercials, and via email.

risk-free trial offer
Copyright: kchung / 123RF Stock Photo

The FTC’s Complaint alleges that the defendants violated section 5(a) of the FTC Act, which prohibits unfair or deceptive acts, by misrepresenting the trial offers applicable to their products.  Specifically, the FTC accuses the defendants of advertising their products as having a “risk-free” trial period when, in reality, the consumers are required to return the product at their expense before the trial period ends in order to avoid being charged additional amounts for the product.  The FTC also accuses the defendants of failing to adequately disclose the material terms and conditions of the trial offer, of their continuity/subscription plan offers, and of their refund and cancellation policy.  For example, the FTC takes issue with the defendants’ failure to clearly disclose that they would start charging the consumer if he/she did not cancel the trial period or return the product.

In addition to violations of the FTC Act, the FTC’s Complaint also alleges violations of the Restore Online Shoppers’ Confidence Act (“ROSCA”).  The FTC describes ROSCA as an act that “prohibits any post-transaction third party seller (a seller who markets goods or services online through an initial merchant after a consumer has initiated a transaction with that merchant) from charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer’s express informed consent to the charge.”  The FTC’s Complaint against the defendants focuses on section 4 of ROSCA, which prohibits the sale of products through an improper “negative option” feature.  A “negative option” feature is a provision in an offer to sell goods or services under which the consumer’s silence is taken as an acceptance of the offer.  It is improper to utilize a “negative option” feature unless the seller satisfies the following requirements: (1) clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information, (2) obtain the consumer’s express written consent before charging the consumer, and (3) provide a simple mechanism for the consumer to stop recurring charges.  The FTC’s Complaint alleges that, in violation of section 4 of ROSCA, the defendants did not meet any of those three requirements with respect to their cooking and golf-related goods and services.

The FTC seeks an injunction preventing future violations of the FTC Act and ROSCA as well as other relief necessary to redress injury to consumers.  It is clear that the FTC looks closely at advertisements claiming to offer “free” and “risk-free” trial periods and that companies should make sure to adhere to the FTC’s and ROSCA’s requirements.