FTC v. POM Wonderful: Lessons for Affiliate Marketers

FTC defense lawyer: POM Wonderful casePOM Wonderful, LLC, et. al. v. Federal Trade Commission (“The POM Case”) is a seminal affiliate marketing lawsuit that:

  1. Provides helpful insight into the legalities related to scientific marketing claims.
  2. Establishes precedence that strengthens the defensive position of affiliate marketers facing private consumer class action litigation under the Illinois Consumer Fraud and Deceptive Business Practices Act (“CFA”).
  3. Provides a legal marketing framework for affiliate marketers. Although The POM Case involves health and dietary advertising concerns, the legal analysis also applies to affiliate marketers in other industries, since it focuses on general marketing legalities  (e.g. efficacy claims, establishment claims, etc.).

#1: Case Summary – POM Wonderful, LLC, et. al. v. Federal Trade Commission

FTC Accuses POM of Making False Statements

The POM Case began in 2010 when the FTC filed an administrative complaint alleging that POM Wonderful, LLC (“POM”) and related executives had made false, misleading, and unsubstantiated representation in violation of the FTC Act.

In May 2012, a judge found that nineteen of POM’s promotional materials violated substantiation rules by improperly implying that products treated, prevented, or reduced the risk of heart disease, prostate cancer, and erectile dysfunction.

The Court held that POM parties were liable under the FTC Act and ordered the company to cease and desist from making further claims about the health benefits of any food, drug, or dietary supplement — unless the claims were non-misleading and supported by competent and reliable scientific evidence.

Ruling Set New Bar For “Disease” Marketing Claims

In Part I of the Final Order, the Commission imposed heightened requirements for claims about the treatment or prevention of “any disease” (including, but not limited to, heart disease, prostate cancer, and erectile dysfunction). The order mandated that such disease-related claims, like the broader category of health claims covered by Part III, must be “non-misleading” and supported by “competent and reliable scientific evidence.”

However, controversy arose over how the Commission defined “competent and reliable scientific evidence.”

“Competent and reliable scientific evidence” was narrowly defined in Part I to consist of “at least two randomized controlled human clinical trials (“RCT”s)” that “yield statistically significant results” and are “double-blinded” whenever feasible. Alas, Part III’s baseline requirement for all health claims didn’t require RCT substantiation, whereas the specific requirement in Part I for disease-related claims not only contemplated RCT substantiation but called for —  as a categorical matter — two RCT’s.

As for the petitioners’ efficacy claims and non-specific establishment claims, the Commission found that “experts in the relevant fields” would require one or more “properly randomized and controlled human clinical trials” —“RCTs” — to “establish a causal relationship between a food and the treatment, prevention, or reduction of risk.” Without at least one such RCT, the Commission concluded, POM’s efficacy and non-specific establishment claims were inadequately substantiated.

Appeals Court Looks At POM FTC Marketing Case

On review, the U.S. District Court of Appeals for the District of Columbia Circuit almost entirely affirmed the lower court’s ruling against POM, as well as the injunction against further advertisements. However, the Order stated that it was unreasonable to require two double-blind, randomized, placebo-controlled RCT’s for the company to continue advertising “unqualified” health benefits of its products, and ultimately lowered the bar to one RCT. The Court held that the Commission fail[ed] adequately to justify a categorized floor of two RCTs for any and all disease claims.” The Court elaborated on its rationale, explaining:

“Requiring additional RCT’s without adequate justification exacts considerable costs, and not just in terms of the nutritional resources often necessary to design and conduct a properly randomized and controlled human clinical trial. If there is a categorical bar against claims about the disease-related benefits of a food product or dietary supplement in the absence of two RCTs, consumers may be denied useful, truthful information about products with a demonstrated capability to treat or prevent serious disease. That would subvert rather than promote the objectives of the commercial speech doctrine.” See Edenfield v. Fane, 507 U.S. 761,766 (1993).

The Appeals Court did rule, however, that the two trial requirement was not unreasonable.

#2: First Take-Away for Affiliate Marketers: Know When to Include Citations for Your Advertisements and Cite Properly

First and foremost, brands should appreciate the importance of content monitoring. Because according to the law, brands are responsible for all advertising done on their behalf. So, if an affiliate flouts FTC rules, the brand could be held 100% responsible.

Secondly, it’s imperative to understand that the courts often to defer to the FTC because the Commission “is often in a better position than are courts to determine when a practice is ‘deceptive’ within the meaning of the [FTC] Act,” and that “admonition is especially true with respect to allegedly deceptive advertising since the finding of a violation in the field rests so heavily on inference and pragmatic judgement.” (FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965)).

As such, minimizing liability for deceptive advertising claims makes financial and legal sense. Enhancing the depth and regularity of advertisement screenings (and that of  affiliates) increases the odds of catching problems before the FTC does.

This particular case illustrates the importance of backing up promotional claims with evidence. While it might seem like common sense, affiliate marketers should always mention limitations in cited research and conspicuously note any irregularities or conflicting studies. For example, despite POM’s knowledge of arterial thickness studies, which largely invalidated the findings of a POM study, a doctor associated with POM distributed a statement in 2006 claiming that “POM Wonderful Pomegranate Juice [had] been proven to promote cardiovascular health.”

So be proactive, verify your citations, and stay current with industry research. Also, cite any invalidated studies that might expose you to liability for deceptive advertising practices.

A: Relevant Affiliate Marketing Law

The FTC distinguishes between “efficacy claims” and “establishment claims.” (See Thompson Med. Co. v. FTC, 791 F.2d 189, 194 (D.C. Cir. 1986)). An efficacy claim suggests that a product successfully performs the advertised function or yields the advertised benefit, but fails to suggest any scientific proof of the product’s effectiveness. (See id.; Removatron Int’l Corp. v. FTC, 741 F.2d 1146, 1150 (9th Cir. 1984)).

If an ad conveys an efficacy claim, the advertiser must possess a “reasonable basis” for the claim. (See In Re Pfizer Inc., 81 F.T.C. 23, 62 (1972)). The question of whether “a claim of establishment is in fact made is a question of fact the evaluation [sic] of which is within the FTC’s peculiar expertise.” (Thompson Med. Co. v. F.T.C., 791 F.2d 189, 194 (D.C. Cir. 1986); see also Removatron Int’l Corp. v. F.T.C., 884 F.2d 1489, 1496 (1st Cir. 1989)).

#1: Efficacy Claims

The FTC examines whether an efficacy claim was made under the so-called “Pfizer factors,” including “the type of product,” “the type of claim,” and “the amount of substantiation experts in the field would consider reasonable.” (Daniel Chapter One, No. 9329, 2009 WL 5160000, at *25 (U.S. Fed. Trade Comm’n Dec. 24, 2009) (citing Pfizer, 81 F.T.C. at 64), aff’d, App’x 505 (D.C. Cir. 2010); see also Thompson Med. Co.m 104 F.T.C. at 821.)

#2: Establishment Claims

For establishment claims, the Commission generally does not apply the Pfizer factors.( See Removatron Int’l Corp., 111 F.T.C. 206,297 (1988), aff’d, 884 F.2d 1489 (1st Cir. 1989).) Rather, the amount of substantiation needed for an establishment claim depends on whether it is “specific” or “non-specific.” (See Thompson Med. Co., 791 F.2d at 194. ) Therefore, the Commission “determines what evidence would in fact [sic] establish such a claim in the relevant scientific community” and “then compares the advertisers’ substantiation evidence to that required by the scientific community.” (Removatron, 884 F.2d at 1498.)

Even if the Commission concludes that an advertiser conveyed efficacy or establishment claims but determines them to be false, misleading, or unsubstantiated, it can issue a finding of liability only “if the omitted information would be a material factor in the consumer’s decision to purchase the product.” (Am. Home Prods. Corp., 98 F.T.C. 136, 368 (1981), enforced as modified, 695 F.2d 681 (3d Cir. 1982); see also Colgate-Palmolive, 380 U.S. at 386-88.)

#3: Second Take-Away for Affiliate Marketers: Defending Against Private Consumer Class Actions Alleging Violations of the CFA

In addition to providing guidance on how affiliate marketers can enhance advertising disclosures, The POM Case also gives affiliate marketers’ more defensive options in the face of state-tried, private, deceptive marketing class actions  that rely on statutes like the CFA, 815 ILCS 505/2. Furthermore, the decision illustrates:

  • The FTC’s continued reach into the scientific bases for health-related advertising;
  • The extensive deference given to the Commission’s evaluative expertise; and
  • That substantive disclaimers might be the most effective way to avoid deceptive advertising liability.

CFA Basics: Illinois State Advertising Law

Before exploring how the decision bolsters the potential defenses of affiliate marketers facing consumer class action litigation, it is necessary to wrap our heads around some CFA basics.

For starters, private plaintiffs cannot enforce the FTC Act. And, unlike the FTC, courts cannot state a cause of action based on an affiliate marketer’s alleged failure to substantiate their advertising claims. (Holloway v. Bristol-Myers Corp., 485 F.2d 986,997 (D.C. Cir. 1973); Fraker v. Bayer Corp., No.CVF08-1564 AWI GSA, 2009 WL 5865687, at *7 (E.D.  Cal. Oct. 6, 2009). ) Section 2 of the CFA provides that “deceptive acts or practices or the concealment, suppression, or omission of any material fact, with intent [sic] that others rely upon the concealment, suppression, or omission of such material face in the conduct of any trade or commerce are hereby declared unlawful.”

To prove a private cause of action under section 10a(a) of the Act, a plaintiff must establish:

  •  A deceptive act or practice by the defendant;
  • The defendant’s intent that the plaintiff relies on the deception;
  • The occurrence of the deception in the course of conduct involving trade or commerce; and
  • Actual damage to the plaintiff was proximately caused by the deception.

(Avery v. State Farm Mut. Auto Ins. Co., 216 III. 2d 100, 179-80 (2005))

False Advertising Defendants May Have A New Defense Tool

CFA plaintiffs often allege that affiliate marketers’ establishment claims are rendered false and misleading by the lack of RCT’s — essentially the gold standard of scientific substantiation. Moreover, many plaintiffs make the argument that if advertising claims can’t be substantiated under the FTC’s standards, the company needs to prove that its product has the benefits advertised. The POM Case might be helpful in providing affiliate marketers a stronger position to refute such contentions, in light of the Court’s recognition that the “baseline requirement for all health claims does not require RCT substantiation.”  While the Court did not specify the type of substantiation required, it’s clear that something less than two RCT’s could suffice in supporting such claims.

Having at least one RCT can be powerful evidence in a consumer class action that a particular claim is not misleading. In fact, Illinois Courts have held that “[t]aken together, the cases stand for the proposition that the [Illinois] CFA will not impose higher disclosure requirements on parties that are sufficient to satisfy federal regulations.” (Bober v. GlaxoWellcome PLC, 246 F.3d 934, 941 (7th Cir. 2001). )The D.C. Circuit’s conclusion that a second RCT has little marginal benefit should also provide some cover to companies lacking the resources to conduct and include multiple RCTs to support an advertising campaign. However, just as the lack of two RCTs is not itself a fatal blow, companies should not view the inclusion of one supportive RCT as providing immunity from consumer class action liability.

“Preliminary Study” or “Initial Study” Loophole?

Calling a study “preliminary” or “initial” is no longer sufficient. Instead, a “substantive disclaimer” may be requested, such as a statement that “evidence in support of this claim is inconclusive.” By adequately describing the deficiencies of the product, companies can avoid shelling out for expensive clinical trials to substantiate advertising claims.

 

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Case Source

POM Wonderful, LLC v. F.T.C., No. 13-1060, 2015 WL 394093, at *12 (D.C. Cir. Jan. 20, 2015); See FTC Act 5(a)(1), 12(a); 15 U.S.C. 45(a)(1); 15 U.S.C. 52(a)

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