Citizen petition urges FTC to withdraw substantiation-related ‘notice of penalty offenses’

In a citizen petition filed Friday, six industry trade groups led by the Consumer Healthcare Products Association (CHPA) have requested the Federal Trade Commission withdraw so-called notice of penalty offenses that it fired off in April to nearly 700 marketers of over-the-counter (OTC) medicines, dietary supplements, homeopathic products and functional foods.

In the notice document, the agency warned the recipients that certain acts or practices used in the advertising or promotion of products are deceptive or unfair and are unlawful under the Federal Trade Commission Act. And in a sample cover letter to the recipients of the notice, FTC cautioned that a company engaging in the unlawful conduct described in the notice could face civil penalties of up to $50,120 per violation.

“The requirement for advertisers to have adequate support for their advertising claims at the time they’re made is a bedrock principle of FTC law,” Sam Levine, director of FTC’s Bureau of Consumer Protection, said in an April 13 news release announcing the notices. “The prospect of steep civil penalties will help ensure that advertisers don’t play fast and loose with the truth.”

The citizen petition, however, argues the notice attempts to require a substantiation standard that the law prohibits and that is inconsistent with long-standing regulatory guidance, as well as the Dietary Supplement Health and Education Act of 1994 (DSHEA).

“Both DSHEA and long-standing FDA guidance make clear that claims for non-drugs do not require drug-level RCTs,” the citizen petition stated, referring to randomized, double blind, placebo-controlled trials.

The petition concedes that under the Federal Food, Drug and Cosmetic Act (FDCA), new drugs, or products intended to cure, diagnose, mitigate, prevent or treat a specific disease or class of diseases, must by supported by at least one RCT. However, consumer healthcare products, including food and dietary supplements, are not subject to the latter standard. And manufacturers of supplements and other non-drug products that make so-called structure/function claims do not need to have the same amount of substantiation as is required for drugs, the petition noted.

“Rather than meet the RCT requirement, manufacturers of dietary supplements must ensure claims are truthful and not misleading,” the petition added.

The agency’s notice of penalty offenses also fails to establish the “actual knowledge” required to seek civil penalties under Section 5(m)(1)(B) of the FTC Act, according to the petitioners.

“The FTC’s mass-mailed notice fails to provide any basis to impose the civil penalties it threatens. Section 5(m) of the FTC Act provides that the Commission may obtain civil penalties against a company that commits a deceptive or unfair act or practice after it has ‘actual knowledge’ of a final FTC ‘cease and desist order’ declaration that the specific act or practice is unlawful,” the petition asserts, citing 15 U.S.C. § 45(m)(1)(B). “Thus, the FTC must prove that (1) the company had ‘actual knowledge’ that its conduct was unfair or deceptive in violation of the FTC Act, and (2) the FTC had already issued a final cease and desist order establishing that such conduct is unfair or deceptive. LabMD, Inc. v. FTC, 894 F.3d 1221, 1234 (11th Cir. 2018). The notice does not provide ‘actual knowledge’ as the phrase has been defined by the Supreme Court, and the Eighth Circuit has already rejected the FTC’s previous attempt to provide notice this way.”

Finally, the notice neglects to provide any company with fair notice of what is prohibited, consequently meaning enforcement of the notice would violate due process, petitioners asserted.

An FTC spokesman said the agency does not comment on petitions received from outside the agency.

Those companies who received notices in April were not accused of violating the FTC Act but rather warned of the potential consequences of failing to substantiate their advertising based on FTC law.

The notices were sent to nearly 700 companies, but it’s unclear what criteria FTC used to target these firms since they were not charged with any wrongdoing. In April, after the agency announced sending the notices, an FTC spokesperson declined to comment to Natural Products Insider on the specific issue above.

“Since the notice has no legal effect, it is merely threatening companies for engaging in permissible and truthful promotion of products,” CHPA said in a press release announcing the citizen petition. “The chilling effect caused by the notice thus keeps true and not misleading scientific information away from consumers, which is exactly what Congress intended to prevent through DSHEA. To stop this unlawful chilling effect, CHPA urges FTC to immediately withdraw the notice.”

Other groups who joined CHPA’s petition include the American Herbal Products Association (AHPA), The Food Industry Association (FMI), Natural Products Association (NPA), Personal Care Products Council (PCPC) and United Natural Products Alliance (UNPA).

In a dissenting statement when FTC voted to issue a notice of penalty offenses, then-FTC Commissioner Christine S. Wilson said the move was prompted by the agency’s limited remedial authority following a judicial decision. In 2021, in AMG Capital Management, LLC v. FTC, the U.S. Supreme Court ruled that under section 13(b) of the FTC Act—which grants FTC the right to seek a permanent injunction in district court—the agency is not authorized to seek equitable monetary relief, such as disgorgement or restitution.

The substantiation notices sent to marketers of dietary supplements and other products are thought to be a potential solution to the conundrum facing FTC staff following the Supreme Court decision.

Wilson supported the issuance of previous notice of penalty offenses regarding several issues within FTC’s purview, including deceptive or unfair conduct for money-making operations, deception or unfair conduct around endorsements and testimonials, and deceptive or unfair conduct in the education marketplace.

But she distinguished the latter notices from the more recent substantiation notices.

“I supported the issuance of those notices because the types of marketing claims covered by those notices present largely clear-cut violations of the FTC Act that, in many cases, constitute outright fraud or patently false statements,” Wilson stated in her dissenting statement.

In cases of substantiation, to demonstrate a proposed defendant had knowledge their conduct was unlawful and hence establish the act is subject to civil penalties, FTC “must demonstrate that the conduct of the proposed defendant is sufficiently similar to the litigated cases cited in the notice,” Wilson wrote. “This showing will prove to be far more complex and uncertain for substantiation cases than for other areas in which notices have been issued recently.”

On its website, FTC identifies over a dozen administrative decisions that the agency says establish penalty offenses concerning substantiation of product claims. But industry attorneys and the agency have disagreed over what the case law really says about the substantiation required for dietary supplement products.

Wilson said she anticipated “relatively few cases in this topic area will result in civil penalties,” yet “identifying recipients, transmitting the notices, and monitoring firms’ conduct will consume significant resources.”