Advertising law at Cardozo

Cardozo Law Conference: New Impressions of Advertising Law

 

Panel 1: False Advertising (herein of Pom Wonderful v. FTC)

Moderator: Brett Frischmann | Professor and Director, Cardozo Intellectual Property & Information Law Program, Benjamin N. Cardozo School of Law

 

Panelists: Jen Lavie | Partner, Manatt, Phelps & Phillips, LLP

 

2003-2010 ads touting medical studies that allegedly showed that daily consumption of their products could treat or reduce the risk of diseases such as prostate cancer and erectile dysfunction. Eventually, the FTC sued.  Pom spent $34 million on these studies, but the evidence wasn’t good. E.g.: Prostate cancer: patients who used concentrated juice had already been treated for prostate cancer or had prostate removed, so hard to say prevention of prostate cancer came from juice.  For erectile dysfunction, Pom used a measure that the industry doesn’t accept as reliable.  Artery thickness: sample size too small.

 

On appeal, Pom scored a small victory: one randomized clinical trial (RCT) was enough in some cases, not the 2-RCT remedy imposed by the FTC for disease claims.

 

Jeffrey A. Greenbaum | Managing Partner, Frankfurt Kurnit Klein & Selz, PC: Pom is a “best of” case—so many issues on disclosure, substantiation, standard of review.  Issue at FTC: approach to its own guidance.  Connection between Pom and native advertising.  Pom is about the FTC’s announcement of a new rule, functionally. 2-study requirement when making a disease claim.  FTC also came out with a native advertising policy statement, also announcing a new rule in effect, about where to put disclosures in native advertising. Just as Pom was very specific about substantiation, native advertising guide is very specific about the type of disclosures you need, and even where in needs to be.  FTC adjudication/enforcement statements are issuing new rules, but they aren’t really rules b/c FTC lacks real rulemaking authority—has to go through torturous proceeding basically impossible to issue effective rules.

 

Aren’t we sort of acting as if the FTC is making rules?  Ad lawyers responded to Pom as if it were a new rule.  How else are we interpret FTC taking a position in a particular enforcement action or guide? This question for advertisers is very significant, b/c of FTC’s interpretation of §5.  They have to do this if they can’t make real rules—adjudications, settlements, guidance are their only ways to communicate in persuasive ways.  Remarkably few enforcement policy statements over the last 40 years; interesting to consider what was so important about native advertising to justify one.  But also industry guides, consumer guides—w/o the traditional protections for rulemaking—notice and comment, openness.

 

One of the things we saw in the Pom case is that the court gives the FTC tremendous deference in findings of fact and interpretations of law.  Courts are deferring to how the FTC interprets the rules [as applications of §5].  The law is very simple: prohibition on unfair/deceptive acts or practices. It makes sense given this breadth that you want information about specific practices. But when the FTC makes up rules, like where native advertising should be disclosed, what’s the appropriate level of deference?

 

What’s the impact on advertisers? The chilling effect is a real concern. The FTC takes very aggressive positions on what’s potentially deceptive when it’s not at all clear there’d be a real violation of §5. Trying to avoid being on FTC’s radar, you don’t just have to worry about §5, you have to worry about what the FTC thinks is unfair/deceptive even though Congress/a court hadn’t decided.  FTC is taking a more restrictive position than really required under §5.

 

Shouldn’t the FTC have real rulemaking authority?  Should Congress look again at the FTC’s authority?

 

FTC’s 2-study requirement is clearly wrong.  A claim is either true or false. All that §5 prohibits is unfair/deceptive.  Question: whether the claims are false/whether they had sufficient substantiation. FTC standing in shoes of scientists and demanding 2 studies every time was wrong.  FTC was trying to prevent mistakes.  Pom had lots of studies and 2-study requirement wouldn’t have solved the problem.  Fencing-in relief might have justified a 2-study requirement—to prevent problems with this particular advertiser in the future.  We see the FTC pushing the boundaries of §5, and advertisers don’t have an effective remedy to challenge that.  People have to be more conservative, afraid that until a company has a big enough budget they can’t fight.

 

I love the FTC! Do a good job, but preventing more speech than they need to.

 

Rebecca Tushnet | Professor, Georgetown University Law Center  

 

Benefit of being an academic: I get to take as unrealistic a position as I like, at least for purposes of argument.  Then again, given current political events, maybe unrealistic and extreme positions are no longer the sole province of academics.  Two topics today: (1) the role of disclaimers and (2) the role of constitutional scrutiny of scientific factfinding more generally.

 

The DC Circuit has shown indifference to whether disclaimers actually work when it mandates that regulators use them.  In Pearson v. Shalala, for example, the DC Circuit decided that a disclaimer requiring more than college level reading comprehension was appropriate instead of a ban on a statement misleadingly indicating that selenium had been shown to reduce cancer risks.  The FDA tested these disclaimers; not only did they fail; they backfired—people exposed to them had increased confidence that the FDA had reviewed and agreed with the main cancer claim.  Reality-based decisionmaking would lead to substantially less elaborate disclaimers; more readiness to uphold bans or FDA-specified wording.  However, reality-based decisionmaking plus rigorous First Amendment scrutiny would be a double-edged sword.  While courts should hesitate to hypothesize that a disclaimer can substitute for a regulatory prohibition by avoiding deception, that also means that regulators’ choice of disclaimers instead of a ban should be dubious.  Regulators often compromise on requiring a disclaimer instead of banning an activity outright.  But disclaimers may rarely be a worthy compromise—mostly they impose a burden without doing too much good, though there are important exceptions. The privileged status of disclaimers represents a hope that we can have our cake and eat it too, and if we’re demanding lots more evidence in other aspects of commercial speech regulation it seems odd not to do it here too. 

 

The question of whether all FTC remedies are now subject to Central Hudson-style assessment of whether they’re minimally restrictive.  Two sub-issues: first, generally, are regulators entitled to any deference on factfinding?  The Pom Wonderful court reasoned that even the FDA sometimes allows a claim based on less than two randomized controlled trials, and hypothesized that there might be one really amazing RCT that everyone agreed was conclusive, so the theoretical existence of that RCT invalidated the FTC’s 2-RCT requirement.  Does that mean that the FDA’s general 2 RCT requirement is constitutionally invalid for the same reasons, rebuttably unconstitutional, or unconstitutional if and only if the evidence supports an exception to the usual rule?  All of these possibilities represent substantial incursions on FDA authority and should be deeply troubling, especially if it’s the court and not the FDA that decides how strong the evidence is in the absence of 2 RCTs, or whether the RCTs were in fact conducted in a proper way.  Like the FTC, the FDA does make individualized determinations about whether a given drug is safe and effective.  Once you constitutionalize an issue, factfinding itself receives constitutional scrutiny.  (And it’s worth noting that the DC Circuit has already revealed its innumeracy in Pearson v. Shalala, when it ruled that the existence of one positive trial and a number of negative trials meant that it wasn’t true to say that the positive claim was unsupported by the evidence—the whole point of having a concept of a p-value to indicate statistical significance is that you expect false positives if you run a sufficient number of trials.)

 

Second, with respect to remedies specifically: Historically, once regulators found that an advertiser violated the law, that violation provided justification for future prophylactic measures.  The DC Circuit’s opinion gave weight to Pom’s repeated, extensive violation of the law and demonstrated intent to keep on with its practices to any extent it could only in allowing the imposition of a RCT requirement for all disease claims, as if that requirement wouldn’t have been justified for disease claims in the absence of persistent deceptive conduct.  Why?  In the RICO case against tobacco companies, the same court of appeals found that the companies’ repeated violations of the law justified some mandatory disclosures, but they’ve likewise been allowed to litigate every word—literally!—and so years after the primary liability finding they have yet to make the corrective disclosures ordered by the district court.

 

Conclusion: The First Amendment is strong medicine.  Greenbaum and I are probably a lot closer than we sound on policy questions; I just don’t want them constitutionalized.  I often hear the representatives of mainstream businesses, the kinds that hire the lawyers represented on this panel, say that all they want is reasonable freedom, that of course they wouldn’t abuse it because they are responsible businesses.  While the record of large established businesses speaks for itself, I think that’s ultimately beside the point.  The First Amendment doesn’t follow the contours that “respectable” businesses are willing to accept; marginal businesses will take advantage of these rules, because that’s what the First Amendment is for—protecting marginal speakers.  That’s why the lack of constitutional protection for false and misleading commercial speech, plus freedom for administrative agencies with competence in the relevant field to make factual determinations of what is false and misleading, is so important to preserve the regulatory state against a reimposition of Lochner.

 

Ashima A. Dayal | Partner, Davis & Gilbert LLP: Pearson and Pom: the FTC’s conclusion that the use of one or two adjectives doesn’t alter the net impression: “promising,” “initial,” “preliminary.”  Court says those can’t cure the impression made by the ad, especially when the chosen adjectives provide a positive spin.  Effectively, said in dictum that if there’d been a disclaimer like “evidence in support of this claim is inconclusive” that would have been a safe harbor.  Even if that language is good: We’re saying “drink Pom and you won’t get cancer,” but in a footnote we say “this evidence is no good.”  That makes no sense. How can you make a claim in the body copy and then disclaim its import?  It’s a contradiction, not a cure.

 

What is the difference between a claim “evidence in support of this claim is inconclusive” and “these studies are promising”?  These are not different.  Body copy is at least more likely to be seen.  This is terrible advice—encouraging use of disclaimers rather than body copy.  Why is the court writing this copy?  They’re not good at it.

 

Bayer case, dietary supplement: FTC’s position on 2 RCTs again rejected for a dietary supplement case.  Supplements are regulated differently than drugs.  Bayer says you don’t need 2 RCTs for making a supplement claim; not good to impose that on a food product.  One of the justifications the FTC gave was that this was a repeat offender.  Punitive: these decisions/effective rulemaking has some stare decisis effect.  Similar to SEC/IRS letter rulings—we read these and advise our clients. 

 

Lavie: disclaimers should be qualifications for the main claim, not contradiction.

 

Q: what’s the role of disclaimers?

 

Lavie: advertiser is responsible for all reasonable interpretations.  Disclaimer should help, not contradict.

 

Dayal: lots of functions, but not reject/rebut plausible and intended interpretations.

 

Greenbaum: I thought disclaimer issue in Pom was interesting—but the court asked for an effective disclaimer.  We hear something different from courts and FTC.  If we take a step back and ask: what is the right standard?  Clear & conspicuous, says FTC—seen, read, and understood in context. Disclaimer standard doesn’t match up w/general standard, which is reasonable consumer.  FTC says: Consumer might glance at headline & turn the page—but that’s not reasonable consumer.

 

Dayal: Effective has to mean clear & conspicuous.  “Studies show drinking 8 ounces of Pom can treat, prevent, or reduce the risk of …”  Then at the bottom: “evidence is inconclusive.”  That’s a rebuttal.  Can’t imagine how putting it in 12 point type would help. 

 

RT: Effective disclaimer: is a great idea; now we have to convince the courts that they can’t just eyeball or imagine an effective disclaimer.  On supplements being regulated differently than drugs: wait a year or so!  On §5: FTC understands it still has to prove a violation of §5; if it did have rulemaking authority, and announced the native advertising guidance as a rule, should the DC Circuit uphold it under the APA?  Deference would in theory be required.

 

Q: How is/should we draw the line between RCT-required claims and non-RCT-required claims? Is this a scientific question? A marketing question?  Legal?  Who should decide? 

 

Dayal: The FTC doesn’t take enough of a practical approach. If I’m drinking a juice, I have a different expectation than a drug I got from a doctor or OTC.  It’s appropriate to evaluate the claims being made requiring less proof.

 

Lavie: distortion of market as between Pom and orange juice.

 

Dayal: is that consumer protection?

 

Lavie: yes!  Money is consumer protection too.

 

Greenbaum: The FTC would say they don’t make policy.  Their role is §5.  FTC prohibits a number of claims, like biodegradability, where consumers are more likely than not to throw it away in a place that it won’t biodegrade.  Better to prevent deception by consumers who think it will biodegrade in a landfill than to encourage biodegradability claims.

 

RT: scientific and marketing/linguistic/psychological question: truth and perception.  Supplements v. pharmaceuticals: people have no idea about the regulatory difference and think the FDA has approved it all!  Food: we don’t really know.  Food claims could be just as convincing as supplement claims; we need to know more about that.  They can distort the market, directing people away from doctors/other treatments.

 

Q: most people don’t take out the little insert to read any kind of warnings on pharmaceuticals. But if you watch a TV ad, you get mixed messages.

 

RT: FDA required Seasonale to do corrective ads; sometimes disclaimers do serve the function of saying “this is complicated/important; you need to think hard about this” even if they aren’t comprehended in specific.

 

Dayal: note that other countries don’t allow TV ads for drugs. There’s only so much you can do in 15 seconds; you can give a heads-up.

 

Jeremy Sheff: Most of the largest advertisers in spending are DTC ads.  Fact of disclosure might trigger a consumer reaction, but not necessarily one we like—the DSHEA disclosures may make supplement ads more convincing/trustworthy. 

 

Greenbaum: the problem is that the FTC has research showing they’re so ineffective—50 years of FTC cases, never found one where a disclaimer worked.  FTC endorsement guides tested print ads—tested with a “results not typical” that was big; even those still aren’t all that effective.  You can’t make consumers read stuff, but is that the advertiser’s fault?  [RT: Yes.]

 

Q: Aren’t the constitutional standards for commercial speech relatively low as for other speech?  [Yes if false and misleading, no if not—that makes the question of who sets the false/misleading line and what standard of review is applied to their factual finding of misleadingness incredibly important.]

 

Q: Vitamin-type products often have certifications, self-certifications—how does the law deal with those?

 

Q: compare SEC’s standards for forward-looking statements w/the FTC’s standards.

 

Q: is the court separating above the line/below the line honesty?

 

Q: if the FTC is really aiming to protect consumers, the 1- or 2- study question misses the point if they’re sponsored by the companies. Can we standardize the studies?

 

Dayal: double-blind should be theoretically indifferent to sponsorship.  Pom has an interesting discussion about cherry-picking evidence.  Defer to what scientists think is accurate/reliable.