The Federal Trade Commission (FTC) continues to bring enforcement against false advertising, particularly in connection with unsupported health claims. On 4 December 2018, the FTC announced that it had reached a proposed settlement prohibiting the Nobetes Corporation along with its two officers (the "Defendants"), from making unsubstantiated claims, misleading expert endorsements and consumer endorsements and charging consumers' credit cards without consumers' express consent. The settlement will also require the Defendants to pay 182,000 USD which may be used for consumer refunds.
The FTC filed the complaint and proposed order in the US District Court for the Central District of California. The FTC files a complaint when it has "reason to believe" that the law has been or is being violated and a proceeding is in the public interest.
The Defendants sold a pill made up of plant extracts, vitamins and minerals called "Nobetes" for the treatment of diabetes. The Defendants advertised on Facebook, YouTube, cable television and at websites. In some advertisements, an individual identified by various advanced degrees and standing in front of several diplomas, claimed that Nobetes controls blood sugar and was a "miracle product." The FTC complaint alleged that this advertising message implied that the speaker was a medical expert when in fact, he was merely a paid actor. Under the FTC's Guides Concerning Use of Endorsements and Testimonials in Advertising ("FTC Endorsement Guides"), "whenever an advertisement represents, directly or by implication that the endorser is an expert with respect to the endorsement message, then the endorser's qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement" and the expert's testing of the product must have been "at least as extensive as someone with the same degree of expertise would normally need to conduct in order to support the conclusions presented in the endorsement." 16 CFR § 255.3.
In other advertising, ordinary consumer endorsers claimed that Nobetes allowed them to reduce their use of prescription drugs and insulin and that with Nobetes they did not need to change their diet in order to lower their blood sugar levels. The FTC Endorsement Guides make clear that "the advertiser must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims made through endorsements in the same manner the advertiser would be required to do if it had made the representation directly, i.e., without using endorsements."
The Defendants had no substantiation for the health claims being made by their endorsers and thus, according to the complaint, such statements violate Section 5(a) of the Federal Trade Commission (FTC) Act which prohibits "unfair or deceptive acts or practices in or affecting commerce" and Section 12 of the FTC Act, which prohibits "dissemination of any false advertisement in or affecting commerce for the purpose of inducing, or which is likely to induce, the purchase of food, drugs, devices, services or cosmetics."
Because the claims made by the endorsers are health claims, competent and reliable scientific evidence is required before any further health claims are made by the Defendants. Human clinical testing will be required to substantiate any future disease treatment claims. Such testing must be randomized, double-blind, and placebo-controlled and conducted by researchers qualified to conduct such testing. Under the proposed settlement order, the Defendants are banned for life from promoting any further diabetes-related products.
The advertisements also did not disclose that many of the endorsers had been provided with free product in exchange for their endorsements. According to the FTC complaint, this is information that would be material to consumers in their evaluation of the endorsements.
In addition to the failure to disclose a material connection between the endorser and the product and the false and misleading claims about the attributes of product, Defendants were charging consumers for the "free trial" product in violation of the Restore Online Shopper's Confidence Act (ROSCA) which prohibits charging consumers for goods or services sold in Internet transactions through a negative option feature unless the seller:
- clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer's billing information;
- obtains the consumer's express informed consent before making the charge; and
- provides a simple mechanism to stop recurring charges.
Companies should require consumers to take an affirmative step, such as clicking an unpopulated box "I agree," for example, to demonstrate their consent to supplemental goods or services. Similarly, companies should not rely on pre-checked boxes, which consumers may neither notice nor read before completing their order, as evidence of consumers' consent.
Finally, it is worth noting that Nobetes' promotional activities also rendered its product an unapproved drug subject to the jurisdiction of the U.S. Food and Drug Administration (FDA). In a Warning Letter to Nobetes sent jointly by the FDA and FTC in September 2016, the company was advised that testimonial claims on or linked to its website established that its product was a drug under the Federal Food, Drug, and Cosmetic (FDC) Act because the product through the claims was intended for use in the cure, mitigation, treatment, or prevention of disease, i.e., diabetes. In the Warning Letter. FDA noted that the Nobetes product is not generally recognized as safe and effective for the promoted uses and therefore the product was a "new drug", 21 U.S.C. § 321(p), requiring premarket approval. New drugs may not be legally introduced or delivered for introduction into interstate commerce without prior marketing approval from FDA whereby the Agency determines that, on the basis of scientific data and information, the new drug is safe and effective.
In the Warning Letter, FDA also stated that a drug is misbranded if it fails to bear adequate directions for its intended use.. 21 U.S.C. § 352(f)(1), noting that "adequate directions for use" means directions under which a layperson can use a drug safely and for the purposes for which it is intended. 21 C.F.R. § 201.5. FDA concluded that:
- The Nobetes product is intended for disease treatment that is not amenable to self-diagnosis and treatment without the supervision of a licensed practitioner, and
- Therefore, it is impossible to write adequate directions for a layperson, misbranding the product.
The introduction or delivery for introduction into interstate commerce of a misbranded drug violates the FDC Act. 21 U.S.C. § 331(a).
If you have any questions about how this recent enforcement action may impact your company's marketing practices, including the use of endorsements and testimonials to make health claims, and/or what constitutes an FDA-regulated drug claim, please contact your Baker McKenzie attorney or any of the contacts below.