Responding to FTC Allegations of False Advertising

Responding to FTC Allegations of False Advertising

Getting an allegation letter from the FTC about false advertising can be scary. But don’t panic! With the right approach, you can respond effectively and resolve the issue. This article will walk through the key things to know and do when facing FTC allegations.

What is the FTC and what authority does it have?

The Federal Trade Commission (FTC) is the main federal consumer protection agency in the U.S. It enforces laws related to truth in advertising and marketing. The FTC has authority under Section 5 of the FTC Act to take action against “unfair or deceptive acts or practices” that affect commerce. This includes pursuing enforcement actions against companies engaged in false or misleading advertising.

The FTC can investigate allegations through compulsory process like subpoenas. It can also initiate federal lawsuits for injunctive relief or monetary damages. If a company violates an FTC order, they can face civil penalties up to $43,280 per violation. So the FTC has real teeth in enforcing advertising laws. Ignoring them is not advised.

What prompts FTC allegations?

The FTC learns about potential false advertising through several channels:

• Consumer complaints filed directly with the FTC or sent to the Better Business Bureau
• Competitor complaints about a company’s advertising
• FTC monitoring of ads, including on social media
• Referrals from other agencies like the FDA

Once the FTC identifies an issue, it often sends a warning letter or initiates an investigation. This may lead to formal allegations if the FTC believes legal action is warranted.

What practices does the FTC target?

The FTC looks closely at advertising claims related to health, safety, or finances that could impact consumer decision making. Some common problem areas include:

• Health claims about foods, over-the-counter drugs, or dietary supplements
• Misleading earnings claims or business opportunities
• Deceptive pricing practices like false reference prices
• Unsubstantiated claims using scientific-sounding language
• False or unproven claims about COVID-19 treatments

Claims must be truthful, not misleading, and backed by evidence when stating objective facts. If an ad omits information that leaves an inaccurate net impression, that can also be deceptive.

What are the risks of non-compliance?

If you ignore an FTC investigation or refuse to settle allegations, the FTC may file a lawsuit against your company. This can lead to:

• Court orders to stop running the ads in question
• Fines based on each airing of deceptive ads
• Consumer redress for refunds or damages
• Ongoing compliance monitoring
• Harm to your company’s reputation

The average civil penalty is around $20,000 per violation, but it can go much higher depending on the case facts. Settling with the FTC early often leads to lower fines and less onerous compliance terms.

What should you do if you receive an FTC letter?

If your company receives a warning letter or is notified of an FTC investigation relating to advertising, here are important steps to take:

1. Consult an attorney experienced with the FTC. They can guide your response.
2. Preserve all potentially relevant records, emails, and data.
3. Review the claims cited by the FTC and your substantiation for them.
4. Respond professionally within deadlines and cooperate fully.
5. Consider voluntarily stopping any ads in question.
6. Begin settlement negotiations if violations occurred.

Having an attorney interact with the FTC on your behalf is strongly recommended given the legal complexities. Be sure to respond by any deadline stated in an FTC letter.

How should you respond to specific allegations?

Your response will depend on the nature of the allegations:

For warning letters:

• Make any requested ad changes immediately.
• Explain how you will prevent future violations.
• Describe your substantiation if claims were supported.
• Commit to monitoring compliance internally.

For investigations:

• Provide all documentation requested by the FTC.
• Submit a formal response explaining your practices.
• Negotiate a consent order if violations occurred.

Be sure to take any allegations very seriously. Even warning letters can lead to lawsuits if problems recur.

How can you demonstrate compliance?

To show the FTC your company is committed to compliance, you can:

• Implement formal review procedures for claims and evidence.
• Retain an independent expert to review substantiation.
• Train employees on advertising laws and requirements.
• Designate a compliance officer accountable for oversight.
• Pledge to promptly investigate any future complaints.
• Consider using qualified health claims when scientific evidence is emerging but limited.

Having robust compliance measures in place can help limit the consequences if issues arise again. Be prepared to report to the FTC periodically on your compliance program results.

What are the elements of a consent order?

If you settle FTC allegations, the agreement will likely contain a consent order with provisions such as:

• Ceasing making the claims in question
• Requiring scientific evidence for future health claims
• Changes to advertising review procedures
• Recordkeeping and compliance reporting
• Monitoring by an independent auditor
• Employee training on advertising laws
• Civil penalties
• Consumer redress for refunds

Consent orders typically remain in effect for 20 years. Violating one can trigger steep penalties, so compliance is essential.

What are some defenses companies raise?

There are certain defenses companies commonly assert when contesting FTC allegations:

• The claims are mere puffery rather than factual representations
• The evidence satisfies standards for competent and reliable scientific evidence
• Any omissions do not create a deceptive net impression
• Consumers would not expect more evidence than provided
• The ads make qualified claims rather than definitive health claims

Whether defenses succeed depends on the specific claims and facts at issue. It helps to have case precedents supporting your position.

What are some key takeaways?

Here are some key tips for responding to FTC advertising allegations:

• Consult experienced legal counsel right away.
• Fully cooperate with FTC investigations.
• Be prepared to substantiate objective product claims.
• Consider stopping contested ads during inquiries.
• Implement a compliance program if violations occurred.
• Negotiate consent orders carefully.
• Comply diligently with any final order terms.

Acting swiftly and working constructively with the FTC can help resolve allegations fairly and minimize disruptions to your business. With proper precautions, your company can move forward in a compliant manner.

References

[1] FTC Consumer Complaints
[2] FTC Warning Letters
[3] FTC Advertising FAQ
[4] FTC Deceptive Advertising
[5] FTC Enforcement Authority