Dietary Supplement Advertising-March 9, 2017

STATE REGULATION

State AGs and the New Administration

By John Villafranco
As we discussed in recent interviews with Nutritional Outlook and Natural Products Insider, FTC enforcement against supplement companies is likely to evolve into something much more reasonable under the new administration.  State attorney general activity, however, is likely to become more aggressive – or at least more widespread.  State regulators may perceive a need to fill in gaps or may see an opportunity for revenue that will be missed by federal regulators. 

States to keep an eye on in coming months include Indiana, Oregon, Missouri, Hawaii, Tennessee, Maine, and as discussed more below, Iowa.  These states have either become more active in supplement cases recently or have expressed an interest in increased regulation of the industry.  New York and California have been, and remain, active in enforcement against dietary supplement companies. 
As part of our Ad Law group’s new webinar series, we’ll be hosting a discussion focused on state regulation and enforcement on April 26, 2017.  Also, on May 3, 2017, Kelley Drye will host an event focused on the first 100 days of the Trump Administration.  A panel session will include state attorneys general who will provide regulatory updates and insights on enforcement.

Iowa: The New New York or California?

Regulators in New York and California have been a perennial concern for dietary supplement makers for years.  Iowa now appears to be angling to join them.  The following summarizes activities of the Iowa AG’s office over the last two years.

• The Iowa AG’s office was involved in the 2015 investigations into numerous store-brand botanical products.  Based on testing that was widely known to be faulty, regulators led by the New York AG, alleged that products lacked the botanical ingredients that they were labeled as containing.
• Also in 2015, the Iowa AG joined 13 other state AGs in sending a letter to Congressional leaders urging them ​“to launch a comprehensive congressional inquiry into the herbal supplements industry, and to weigh a more robust oversight role for the Food and Drug Administration.”
• In September 2016, the Iowa AG’s office announced a $30,000 settlement with an Australian company over bladder control claims for its dietary supplements. 
• The same month, the Iowa AG’s office announced a $100,000 settlement with Walmart over the following statement on its store brand supplements: ​“Verified by an independent, certified laboratory.”  The AG’s office contended that the statement exaggerated the level of testing backing the products.  Walmart vehemently disputed the allegations and noted that the AG’s office had received no complaints about the statement.  Walmart agreed to remove the statement in order to settle the case.
• Also in September 2016, the Iowa AG’s office reached a settlement with a dietary supplement company that allegedly violated a 2014 order entered in Iowa.  The earlier order banned the company from telemarketing in the state.  According to the AG’s office, the company teamed up with a third party company to attempt to complete telemarketing sales in Iowa despite the order.

A consumer newsletter published by the Iowa AG’s office last year focused on dietary supplements and suggested a skeptical view of the industry overall.  One passage stated as follows:

Class Actions over St. John’s Wort Still Flowing from Consumer Labs Testing

Two retailers recently faced class action complaints over the ingredient content of store-brand St. John’s Wort products.  Plaintiffs allege that products provide less of the active component, hypericin, than labels indicate.  A similar class action naming several manufacturers is currently being litigated in Illinois.

These class actions followed an announcement by Consumer Labs last year that it had commissioned testing of ten St. John’s Wort products and found that some contained less than the declared amounts of standardized actives.  Consumer Labs offered access to its testing reports to those who agreed to pay a one or two-year membership fee (advertised costs: $39 for one year, $64 for two).  Consumer Labs noted that “[a]ll supplements were further tested for potential contamination with the heavy metals arsenic, cadmium, and lead.” 

Trends in Consumer Class Actions

The following are areas where dietary supplement makers continue to face class actions:

• Slack fill;
• Purported ​“protein spiking”;
• Joint claims based on glucosamine and chondroitin;
• Weight loss claims; and
• “Made in the USA” claims.

FTC REGULATION

FTC Business Guide on CRFA

By John Villafranco

The FTC recently issued a business guide on the Consumer Review Fairness Act (“CRFA”).  The CRFA, which was enacted in late 2016, prohibits businesses from including in form contracts any provisions that would restrict the ability of consumers to provide reviews about the goods or services they purchased. 
The new business guide provides a brief overview of the law without adding much else.  The guide notes that an example of a CRFA violation would be a company that provides a product or service online and includes a provision ​“in its terms and conditions that prohibits or punishes negative reviews by customers.” 
The new business guide also describes exceptions in CRFA that allow reviews to be prohibited if they contain (1) certain confidential or private information, (2) libelous or discriminatory content, (3) information unrelated to the business’s products or services, or (4) clearly false or misleading information.  The guide notes that ​“it’s unlikely that a consumer’s assessment or opinion with which [a company] disagree[s] meets the ​‘clearly false or misleading’ standard.” 
The CRFA enables both the FTC and state regulators to bring actions for violations.  The FTC may seek civil penalties under existing provisions in the FTC Act or it may seek redress through its administrative court or federal court.  States are enabled to ​“bring a civil action” for any violation.  Presumably, states would allege that contracts that violate the CRFA also violate their state consumer laws, which provide mechanisms for monetary and injunctive relief.
To be sure, the FTC hasn’t waited for the CRFA to begin enforcement over contract terms that restrict reviews.  In 2015, the FTC filed a lawsuit against a seller of weight loss products that had provided online terms and a package insert restricting negative reviews.  According to the FTC, the package insert stated that each product had been provided at the discount price of $480, and that any negative review would cause the remainder of the full price of $1580 to become due.  The company allegedly threatened to enforce the provision and sued some consumers who posted bad reviews.  The FTC contends in its case that the company’s practices were unfair in violation of the FTC Act.  Litigation is ongoing, and in September, the FTC obtained an asset freeze against the company.

The FTC: Taking Enforcement to Canada?

The FTC and Maine recently announced settlements with several related companies and individuals over marketing practices used to sell a joint supplement and a cognitive function supplement.  The complaint and settlement orders in the case may be helpful reading for companies using expert endorsers, telemarketing, free trials, or negative option programs.  However, what struck us as the most interesting aspect of this case was its reach outside U.S. borders. 
It isn’t unusual for the FTC to take enforcement action against foreign companies marketing dietary supplements or other products in the United States.  The complaints, however, will describe only the U.S. practices, and only U.S. sales.  For instance, a couple of years ago the FTC took action against a Canadian company that sold a weight loss product in the United States.  The FTC’s complaint carefully noted that the company was located in Canada but had ​“labeled, advertised, marketed, distributed, or sold [the product] to consumers throughout the United States.”  The complaint also identified only ​“net sales of [the product] in the United States.”
In the recent case by the FTC and Maine, the allegations veer north.  In describing each corporate defendant, the complaint notes that each advertised or sold products ​“in this District [meaning Maine], throughout the United States and Canada.”  The complaint likewise alleges that the defendants, all together, sold products ​“directly to consumers, primarily through radio and print advertising nationwide and in Canada, which has garnered in excess of $6.5 million in gross sales from January 1, 2012 through April 30, 2015.”  A resulting settlement order includes monetary relief in the amount of $6,574,957, which appears to capture both the alleged U.S. and Canadian sales.
It’s difficult to know what led to this settlement reaching sales and marketing practices in another country.  But, one message is clear: there is strategy involved in every step of an investigation and negotiation with the FTC, and every effort must be made to confine an investigation solely to FTC jurisdiction.  Foreign advertising and sales are irrelevant to U.S. business practices and are outside of FTC jurisdiction.