|Please find below the latest edition of our monthly newsletter specifically for our clients marketing dietary supplements. We hope this helps you stay out in front of regulatory challenges. See past issues here.
Beyond “Clear and Conspicuous”: FTC Workshop Highlights Issues Related to Testing Advertising Disclosures
By Donnelly McDowell and Spencer Elg
The Federal Trade Commission recently hosted a one-day public workshop, “Putting Disclosures to the Test.” Throughout the day, academics, industry researchers, and regulators (from the FTC and CFPB) presented research and discussed issues related to the use of disclosures – including evaluation criteria, testing methods, and future areas for exploration. Speakers generally lauded the capacity for disclosure testing to improve the effectiveness of disclosures, although they stopped short of suggesting that testing was legally required and acknowledged that testing is not always feasible.
Chairwoman Ramirez spoke at the workshop and identified three primary goals for disclosures: (1) ensure that consumers see or hear the disclosure; (2) convey information in a manner that promotes consumer understanding of the disclosure’s content; and (3) facilitate consumer’s use of the information to make informed choices. Chairwoman Ramirez also highlighted the Commission’s guidance documents, such as its 2013 updates to its .Com Disclosures Guide and the May 2015 release of “The FTC’s Endorsement Guides: What People Are Asking.”
Evaluating disclosures can be expensive and require resources outside of the reach of many businesses. Further, there often is a lack of agreement over the ideal methods and procedures for testing disclosures.
||Trump or Clinton: The Stakes for Advertisers
By John Villafranco and Donnelly McDowell
Which candidate wins will make a significant difference in what the FTC will look like. Here’s a brief look at the stakes for advertisers.
- If Clinton Wins. It would likely be business as usual. A Clinton FTC is likely to look a lot like an Obama FTC. Current initiatives, such as staff’s work on disclosures, will likely continue with little interruption. Health-related advertising would also likely remain a high priority for the FTC. Also, staff would likely continue to aggressively pursue cases based on third party liability theories where an entity contributes to but does not directly cause the alleged consumer harm.
- If Trump Wins. It’s tough to predict what the FTC might look like under a Trump presidency but the general thinking is that it would be less aggressive in terms of both the type of conduct targeted and the means in which it seeks to redress consumer harm. For example, while the current FTC regularly litigates cases, a less aggressive FTC may lack the appetite for litigation when it cannot achieve a desired outcome through settlement. Similarly, a Trump FTC might take less aggressive positions in terms of the amount of monetary damages necessary to redress consumer harm. A President Trump would also result in potentially the first case where a sitting President has been before the FTC as a respondent; in 1988, Trump settled FTC charges that he failed to comply with premerger notification requirements when he acquired stock.
- The Commission. While most elections aren’t likely to result in significant changes for the Commission, this year is different. Even putting aside candidate differences, whoever becomes President will likely appoint at least two and likely more Commissioners. In addition to the two current vacancies caused by the departures of Commissioners Wright and Brill, each of the current Commissioners have already fulfilled a substantial portion of their seven-year terms, although Commissioners are permitted to serve beyond the expiration of the term in certain cases.
Opportunity for Duty Refunds: Carnitine – A Vitamin
By Laura Rabinowitz and Joshua Morey
Based on a recent decision, Sigma-Tau HealthScience Inc. v. United States, importers of carnitine have the opportunity to request duty refunds from U.S. Customs and Border Protection (“CBP”). The refunds may be requested for entries of carnitine imported into the U.S. during the past 18 months. Going forward, importers should set up their import procedures to take advantage of this change and enjoy duty free status, but should ensure compliance with all customs regulations. In addition, the Court defined “vitamin” broadly so products other than carnitine may qualify as well for duty free treatment. As with carnitine, refunds could be achieved going back 18 months and set up for duty free entries into the U.S. going forward.
In the recent decision, the United States Court of Appeals for the Federal Circuit held that certain chemical products, whose primary and sole active component was carnitine, were properly classified as “vitamins” under Harmonized Tariff Schedule of the United States (“HTSUS”) heading 2936. In 2010, CBP had classified two Sigma-Tau carnitine products under HTSUS subheading 3824.90.92, which covers certain prepared binders for foundry molds and other chemicals and carries a 5% duty. On appeal, the government conceded that HTSUS subheading 3824.90.92, did not apply, but argued that the appropriate subheading was 2923.90.00 for Quaternary ammonium salts and hydroxides; lecithins and other phosphoamino lipids, whether or not chemically defined: Other,” which carries a 6.2% duty.
Sigma-Tau argued that its products were classifiable under heading 2936 which covers “Provitamins and vitamins, natural or reproduced by synthesis (including natural concentrates), derivatives thereof used primarily as vitamins, and intermixtures of the foregoing, whether or not in any solvent,” and subheading 2936.29.50 for “Vitamins and their derivatives, unmixed: Other vitamins and their derivatives: Other: Other,” which carry a 0% duty. Accordingly, on appeal the government and Sigma-Tau each advocated for the products to be classified in subheadings within Chapter 29 of the HTSUS.
As the Court explained, Chapter Note 3 to Chapter 29 of the HTSUS provides that a product which could be classified in two or more headings of Chapter 29 are to be classified in the heading that occurs last in numerical order. Accordingly, if the Sigma-Tau’s products were prima facie classifiable as “vitamins” under heading 2936 and as a “quarternary ammonium salt,” under heading 2923, they would be classified under 2936 because it occurs after 2923.
In making its decision, the CAFC defined the term “vitamin” as “organic chemical substances that are essential micronutrients because, in general, the body cannot produce them or produce sufficient amounts of them.” In addition, the Court held that this definition was not limited to substances that are essential for adults, but could also apply to substances that are essential (and not produced in sufficient amounts) in infants. Accordingly, because the uncontroverted evidence established that infants, including neonates, require exogenous sources of carnitine (i.e., sources outside the body), the products at issue were prima facie classifiable as “vitamins,” and Sigma-Tau’s products were classifiable under subheading 2936.29.50.
The bottom line is that importers should take advantage of duty savings opportunities within the confines of customs regulations. The Sigma Tau decision certainly helps importers of carnitine and potentially other organic chemical substances as well.
What a Prelief
The maker of Prelief dietary supplement successfully defended its claims in a challenge by the NAD. The NAD had identified the advertising for review as part of its routine monitoring and in conjunction with its initiative with the Council for Responsible Nutrition.
According to the decision, Prelief is intended to remove from foods the acid that may cause heartburn and, in some people, irritation to the bladder. Prelief contains the ingredient, calcium glycerophosphate. The NAD found that the advertiser had appropriately substantiated its many efficacy claims, such as, “For bladder symptoms or heartburn caused by certain foods” and “Prelief helps prevent the discomfort of food-caused bladder irritations.” The NAD recommended only minor revisions to certain testimonials and mechanism claims. For instance, the NAD recommended that the advertiser use claims such as, “Prelief reduces acids from foods and beverages,” instead of claiming definitively that “Prelief removes the acid irritant from foods and beverages.”
Case Forwarded to FTC
The NAD recently inquired about bone mass, allergy, and cancer claims it alleged were being made for a product, Verified Forskolin. After the advertiser failed to respond to the inquiry, the NAD forwarded its case file to the FTC for further review.
Typically, in situations like this, the FTC will contact the advertiser and offer to refrain from launching its own investigation if the advertiser agrees to participate in the NAD process. The FTC will then publish a public letter noting that the advertiser has agreed to participate in the NAD process. The moral of this story: It’s tough to dodge an NAD inquiry. In some instances, where highly technical advertising (e.g., advertising for a complex medical device) or business-to-business advertising is at issue, the FTC will refrain from taking action on an NAD referral. For typical food and dietary supplement advertising, however, the FTC will tend to push for participation in the NAD process, with the threat that the FTC may otherwise choose to investigate.
||Brain Claims: Competitor Launches Challenge
The seller of a cognitive function supplement challenged claims by a competitor for its product, Cognitine. The challenger argued that Cognitine includes doses of ingredients below what had been shown in studies to provide cognitive function benefits. Given the alleged low dosing, the challenger contended that the advertiser lacked substantiation for claims, like “Improve your memory and focus with Cognitine!” The advertiser responded to the challenge by apprising the NAD that it had closed its business and taken down its product website in March. As we’ve discussed before, cognitive function is a hot area and claims have faced intense scrutiny from regulators. Now, competitor challenges may also become a risk.