The FTC Asserts Its Penalty Offense Authority (Again)

On April 13, the Federal Trade Commission (“FTC” or “Commission”) issued a press release that it had sent letters to “almost 700 marketing companies that they could face civil penalties if they can’t back up their product claims.” FTC indicates that the notices were sent to companies involved in the marketing of OTC drugs, homeopathic products, dietary supplements, or functional foods. The press release included a link to the list of the recipients.

Interestingly, FTC notes that a recipient’s inclusion on the list does not in any way suggest that it has engaged in deceptive or unfair conduct. According to the press release, FTC sent the notices to companies that it believes are making or likely to make health-related product claims.  So what is the purpose of this notice you may ask?

As readers of our blog may recall, this is not the first time that FTC issued notices of penalty offenses to a seemingly random sample of the industry.  As we reported in October 2021, FTC apparently resurrected its penalty offense authority as an enforcement tool after the Supreme Court decided that the FTC is not allowed to seek penalties against alleged wrongdoers under section 13(b) of the FTC Act.

In the letter sent out last week, FTC asserts that: “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. See 15 U.S.C. § 45(m)(1)(B)” (emphasis in original).

FTC seems to be overstating the effect of the notices.  Under the plain text of the statute, FTC only has authority to pursue such penalties against a person with “knowledge” either “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule.”  FTC must prove that the defendant committed the same conduct and did so with actual knowledge that the conduct was unfair or deceptive.

The letter refers to two Notices of Penalty Offenses, one regarding endorsements and the other regarding claim substantiation.  The notice of penalty offence regarding endorsements is identical to and relies on the same cases as the notice from 2021.  The notice of penalty offense regarding substantiation is new.  The FTC’s webpage for Penalty Offenses Concerning Substantiation lists cases dated between 1974 and 2017 on which the FTC relies for its notice regarding product claims substantiation, but provides no explanation whatsoever for how those earlier cases relate in any way to the hundreds of companies who received the 2023 letters

The letter appears to be a general statement of FTC’s interpretation of law, as it lacks any factual information that clarifies what conduct FTC would consider to be  violative.  It seems doubtful that these notices are adequate to allow FTC to impose civil penalties.  On her last day as a Commissioner, now former Commissioner Wilson seemed to agree with us in her dissenting opinion.  It remains to be seen how heavily FTC will lean on these notices in any upcoming actions.

To our knowledge the Commission has not relied on the 2021 notices in any public enforcement action or publicly announced settlement.  While the Commission did settle cases in 2022 against Walmart and Kohl’s, those settlements were not based on 2021 notices.

That said, the notices are a good reminder of a company’s obligations regarding truthful and non-misleading advertising.