The Federal Trade Commission in early April notified 670 companies they could face monetary penalties if they’re found to be making unsubstantiated marketing claims.
The action came almost two years to the day that the agency suffered a big loss at the U.S. Supreme Court, which prohibited it from pursuing equitable monetary relief as part of its effort to enjoin companies in federal court for deceptive marketing practices.
Since that loss, the agency has tried to make clear it retains authority to penalize companies for making unsubstantiated claims about products and services. It can still use federal courts to get a permanent injunction against them, for instance, and it can still use its administrative proceedings to impose a fine.
“Receipt of a notice of penalty offenses puts your company on notice that engaging in conduct described therein could subject the company to civil penalties of up to $50,120 per violation,” the agency said in the Notice
Amazon, Archer Daniels Midland, Bayer, BASF, Danone, General Mills, Gerber, Herbalife and Johnson & Johnson are among the companies receiving notice.
Notification doesn’t mean the companies are guilty, the agency says. The goal is to spur them to examine their claims to ensure they’re substantiated by scientific or other evidence, depending on the type of claim, and that any endorsements are made by people who use the product or service and stand behind the claim, among other things.
“This letter does not reflect any assessment as to whether you have engaged in deceptive or unfair conduct,” the agency says. “We are distributing similar letters to numerous other companies.”
The agency faces a tough road should it pursue action against a company, because proving unsubstantiated claims can be difficult.
“Determining whether an advertiser has a reasonable basis for claims and whether the evidence upon which the advertiser relied is competent and reliable scientific evidence requires a complex, nuanced, fact-based evaluation,” said Christine Wilson, who disagreed with sending out the notices in one of her last statements as an FTC commissioner.
Wilson had supported previous notices the FTC sent out about unsubstantiated claims. But those were for types of deceptive claims that are easier to show.
This showing, she said, “will prove to be far more complex and uncertain for substantiation cases than for other areas in which Notices have been issued recently. Indeed, I anticipate that relatively few cases in this topic area will result in civil penalties. But identifying recipients, transmitting the Notices, and monitoring firms’ conduct will consume significant resources.”
AMG v. FTC
Prior to its loss two years ago, when the top court ruled in favor of a payday lender in AMG v. FTC, the agency was routinely taking companies to federal court to pursue permanent injunction and to get substantial equitable monetary relief. In just the five years prior to the decision, the FTC won more than $11 billion that it used in part to repay harmed consumers.
But the decision put a stop to that; the court said the FTC’s authority, in Section 13(b) of the FTC Act, to pursue injunctions in federal court didn’t give it authority to pursue monetary relief.
“Section 13(b) does not explicitly authorize the Commission to obtain court-ordered monetary relief, and such relief is foreclosed by the structure and history of the Act,” the court said.
Although it can still pursue monetary relief in administrative proceedings, it has to first give the company a chance to cease and desist in the practice, assuming it successfully shows the violation occurred.
What’s more, relief is limited to $50,120 per violation, a far cry from the millions of dollars it was getting in federal court, although the penalty can still be significant based on how each violation is measured.
“As a general matter, if 10 consumers see a deceptive ad, that’s 10 violations,” Jeffrey Greenbaum of Frankfurt Kurnit Klein & Selz told The Wall Street Journal. “These numbers can add up very quickly,”
The agency has said it wants Congress to revisit the FTC Act and give it authority to pursue monetary relief through the federal courts.
In the meantime, it believes it can muster the resources to wage an effective battle against deceptive claims, says Samuel Levine, director of the FTC’s consumer protection bureau.
“The vast majority of recipients take down their claims” after receiving a cease and desist notice, Levine said in testimony before a Senate panel in 2021, shortly after the Supreme Court decision. “This allows the Commission to preserve its scarce law enforcement resources to pursue the most hardened scammers, and to seek every remedy available to halt their wrongdoing, ban them from further abuses, and make them pay.”