FTC v. POM Wonderful – Lessons for Affiliate Marketers

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Affiliate marketers can learn a great deal from the recent decision in POM Wonderful, LLC, et. al. v. Federal Trade Commission, which:

1)    Provides helpful insight into the types of evidence needed to support claims that are made in affiliate marketing advertisements. This should minimize the company’s liability for deceptive advertising lawsuits.

2)    Can strengthen the defensive position of affiliate marketers who are facing private consumer class action litigation alleging claims under Illinois Consumer Fraud and Deceptive Business Practices Act (“CFA”).

By understanding the key tenets and legal framework used by the U. S. District Court of Appeals for the District of Columbia Circuit in this case, affiliate marketers can tweak their advertising campaigns and stay off the FTC’s radar. Such understanding will be helpful in defending against private consumer class action litigation alleging claims under state law – like the CFA. Although the POM Wonderful, LLC, et. al. decision involves advertising related to health and dietary products, the legal analysis is relevant to affiliate marketers in other industries as well, since it focuses on the types of claims that advertisers assert (e.g. efficacy claims, establishment claims, etc.). All of these permeate industry boundaries.

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

POM Wonderful, LLC, et. al. v. Federal Trade Commission began in 2010 when the Federal Trade Commission filed an administrative complaint alleging that POM Wonderful, LLC (“POM”), Roll the Resnicks, and POM’s then-president Matthew Tupper had made false, misleading, and unsubstantiated representation in violation of the FTC Act. 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). The complaint identified forty-three advertisements or promotional materials containing claims that we alleged to be false, misleading, or unsubstantiated. Id. Next, in May 2012, following an administrative trial, the Commission’s chief administrative law judge found that nineteen of POM’s advertisements and promotional materials contained implied claims that POM products treated, prevented, or reduced the risk of heart disease, prostate cancer, or erectile dysfunction. Id. He further concluded that POM and the related parties lacked sufficient evidence to substantiate those claims and that they were material to consumers. Id. He therefore held that POM parties were liable under the FTC Act and ordered them 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. Id.

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). Id. At 36. 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.” Id. The controversy arose over how the Commission defined “competent and reliable scientific evidence.” Id.

“Competent and reliable scientific evidence” was narrowly defined for the purposes of 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 it is feasible. Id. In short, Part III’s baseline requirement for all health claims did not 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. Id. For both petitioners’ efficacy claims and their 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” – in order to “establish a causal relationship between a food and the treatment, prevention, or reduction of risk” of heart disease, prostate cancer, or erectile dysfunction. Id. at 22. Without at least one such RCT, the Commission concluded, POM’s efficacy claims and its non-specific establishment claims were inadequately substantiated.

On review, the U.S. District Court of Appeals for the District of Columbia Circuit almost entirely affirmed the administrative 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 in order 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.” Id. at 38. The Court elaborated on its rationale, explaining that:

“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.” Id. at 39; See Edenfield v. Fane, 507 U.S. 761,766 (1993).

However, the Court stated that the requirement of two trials was not unreasonable and could not be applied in other cases.

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

At the outset, it is necessary to understand the importance of proactively monitoring the content of your advertising because, in the event that the FTC does bring suit against you or your affiliate marketing company for deceptive advertising practices, it could be difficult to disturb an adverse ruling on appeal. This is because there is a large amount of deference to the FTC in such proceedings, as courts employ a “substantial evidence” test under the Administrative Procedure Act when they are reviewing the Commission’s initial decision. FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 454 (1986). 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). Therefore, there is a great value to be realized from taking early action and minimizing liability for deceptive advertising claims at the outset. For instance, enhancing the depth and regularity of your advertisement screenings (and/or that of your affiliates) increases the odds that you’ll catch faulty evidence before publication.

Affiliate marketers can learn from POM’s mistakes and work towards ensuring that they do not end up across the table from the FTC. Proactivity is the key. This particular case illustrates the importance of verifying the evidence that you cite in support of your advertisements’ claims. While it might seem like common sense, affiliate marketers should always mention any limitations in the research being cited, and they should conspicuously note any irregularities or conflicting studies that they discover.

In POM Wonderful, LLC et. al., POM failed to do just that, as there were numerous problems with how the company structured some of their studies that their advertisements’ claims relied upon. For example, despite POM’s knowledge of arterial thickness studies conducted by Drs. Ornish’s and Davidson, which largely invalidated the findings of one of POM’s prior studies, the company had Dr. Aviram distribute a statement in 2006 claiming that “POM Wonderful Pomegranate Juice has been proven to promote cardiovascular health.” Id. at 7.

Another study, led by Dr. Allan Pantuck of the University of California, Los Angeles Medical School, followed forty-six patients who had been diagnosed with prostate cancer. The patients had already been treated by radical prostatectomy, radiation therapy, or cryotherapy. The Pantuck Study called for them to drink eight ounces of pomegranate juice daily and did not have a control group. Patients who had undergone radical prostatectomy or radiation therapy for prostate cancer commonly experience lengthening in PSA doubling time regardless of whether they consume pomegranate juice. POM, however, made no mention of the limitations of the Pantuck Study in its public statements. In a July 2006 press release, POM claimed that “drinking 8 ounces of POM Wonderful pomegranate juice daily prolonged post-prostate surgery PSA doubling time from 15 to 54 months,” without noting that some or all of the increase in the patients’ PSA doubling times may have resulted from the radical prostatectomies or radiation treatments undergone by the patients. Id. at 9.

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

A: Relevant Affiliate Marketing Law

A large take-away from this blog is to identify what types of clients that your advertisements make and to scrutinize the sources that have been cited – thus ensuring that they validate the claims that have been asserted. Concerning the first step (which is identifying the claims made by an advertisement), 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 it 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). The distinction between efficacy claims and establishment claims gains salience at the second step of the Commission’s inquiry, which calls for determining whether the advertiser’s claim is false, misleading, or unsubstantiated. See POM Wonderful, LLC, et. al., at 16. 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 at the first step that an advertiser conveyed efficacy or establishment claims and determines at the second step that they qualify as 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: The 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 the sufficiency of their advertisements’ disclosures, the POM Wonderful, LLC, et. al. decision is also applicable within the context of private consumer class action litigation. Specifically, the decision helps affiliate marketers under fire by consumers alleging deceptive advertising under state law – like the CFA, 815 ILCS 505/2 – by bolstering a potentially defensive position to any insufficient substantiation claims that may arise. Furthermore, the decision illustrates:

1)    The FTC’s continued to reach into the scientific bases for health-related advertising.

2)    The extensive deference given to the Commission’s evaluative expertise, see POM Wonderful, LLC, et. al., at 34.

3)    That substantive disclaimers might be the most effective way to avoid deceptive advertising liability.

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

It is important to note that private plaintiffs cannot enforce the FTC Act; and, unlike the FTC, courts recognize that they 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.” 815 ILCS 505/2. To prove a private cause of action under section 10a(a) of the Act, a plaintiff must establish:

1)    A deceptive act or practice by the defendant.

2)    The defendant’s intent that the plaintiff relies on the deception.

3)    The occurrence of the deception in the course of conduct involving trade or commerce.

4)    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).

It is the first element of this cause of action that is impacted by the POM Wonderful, LLC, et. al. decision. This is because 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 their advertising claims can’t be substantiated under the FTC’s standards, the company needs to prove that its product has the benefits advertised. POM Wonderful, LLC, et. al. might be helpful in providing affiliate marketers a stronger position with which to refute such contentions, in light of the Court’s recognition that the “baseline requirement for all health claims does not require RCT substantiation.” POM Wonderful, LLC, et. al. at 36. While the Court did not specify the type of substantiation required, it is 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 more than one RCT 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.

Though the D.C. Circuit made it more difficult for advertisers to soften the claim language to avoid FTC scrutiny, it provided another mechanism for asserting health-related claims: disclosing the limitations of the supporting research. POM Wonderful, LLC, et. al., at 9, 29 (stating that an advertiser “still may assert health-related claim[s] backed by medical evidence falling short of a RTC if it includes an effective disclaimer disclosing the limitations of the supporting research”). 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 its advertising claims.

The POM Wonderful, LLC, et. al. decision provides helpful insight into how affiliate marketers can:

1)    Preemptively tweak their ads’ content to minimize liability under the FTC Act.

2)    Bolster their defensive positions against consumer class action litigation brought under the CFA, as well as comparable state law.

This blog has information about legal issues and developments. Such materials are for informational purposes only, and it is not intended for (nor should it be taken as) legal advice on any particular set of facts or circumstances. You should contact an attorney for advice on specific legal problems. The Gordon Law Group has published this blog to increase awareness of legal developments that are impacting affiliate marketers and are shaping the affiliate marketing industry as a whole.

If you are an affiliate marketer, and you would like to speak to an attorney, get in touch with us today!

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