One of the tools the Federal Trade Commission (FTC) uses to provide guidance to business is the Enforcement Policy Statement (EPS). Over the years, the EPS has been used to elucidate the FTC’s views on the scope and exercise of its broad statutory jurisdiction over “unfair or deceptive acts and practices” and “unfair methods of competition” in commerce. (See, e.g., Unfairness Policy Statement [1980], Deception Policy Statement [1983], Advertising Substantiation Policy Statement [1983], and, most recently, Unfair Methods of Competition Policy Statement [2015]). These policy pronouncements help businesses understand and conform their practices to the legal principles and standards by which the FTC will exercise its statutory powers over them.
The FTC also uses the EPS to articulate the application of its legal authority and enforcement approach to particular business practices and areas. In just the past year, it has done so twice, first with publication of its “Enforcement Policy Statement on Deceptively Formatted Advertisements,” (a.k.a., native advertising; see “FTC Unveils Enforcement Policy for ‘Native Advertising’,” DRMA Voice, January), and last month with release of an “Enforcement Policy Statement on Marketing Claims for OTC Homeopathic Drugs.” Both followed public FTC workshops on the issues.
Homeopathy is an alternative system of medicine that dates back to the 1700s. It involves the treatment of non-acute disease by minute doses of natural substances that in a healthy person would produce symptoms of disease. A couple of common homeopathic remedies are Allium cepa (onion) for the common cold and hay fever, and Hypericum (St. John’s wort) for symptoms of nerve injuries such as shooting pain.
Historically, the FTC has given the homeopathic industry a “free pass,” largely exempting it from regulation. From the workshop, however, it concluded that “… in general, homeopathic product claims are not based on modern scientific methods and are not accepted by modern medical experts.” It nevertheless found that homeopathy has many adherents and that mainstream marketing of homeopathic products is “burgeoning.” For these reasons, it felt it was necessary to let the industry know that it was now “in its sights” and to explain, for its and its customers’ benefit, the standards it would apply to the scrutiny and regulation of homeopathic health claims.
The EPS states that claims for homeopathic drugs are to be held to the same standards of truthfulness and substantiation as claims for non-homeopathic drugs. That means “competent and reliable scientific evidence,” increasingly defined by the FTC for health claims to mean randomized controlled human trials (RCTs), the most demanding kind of substantiation. Since scientific proof for homeopathic products is generally lacking, though, strict enforcement of these standards would make it impossible for homeopathic companies to advertise lawfully.
To avoid this, the FTC says it will leave homeopathic health claims alone as long as they are accompanied by a “clear and conspicuous” disclosure that: “(1) there is no scientific evidence that the product works; and (2) the product’s claims are based only on theories of homeopathy from the 1700s that are not accepted by most modern medical experts.” The EPS cautions, however, that “… in light of the inherent contradiction in asserting that a product is effective and also disclosing that there is no scientific evidence for such an assertion … marketers are advised to develop extrinsic evidence, such as consumer surveys, to determine the net impression communicated by their marketing materials … If, despite a marketer’s disclosures, an ad conveys more substantiation than the marketer has, the marketer will be in violation of the FTC Act.”
The Homeopathic Drug EPS is a clear, strong statement of enforcement policy and intentions. Like all other FTC enforcement policies, however, it will be only as strong in practice as the leadership of the FTC wants it to be. The week before it was announced, Donald Trump became President-Elect of the United States. He spoke out strongly against federal regulations in the campaign and political observers expect to see a lightening of Washington’s footprint on American business in a Trump Administration.
The philosophy of the person in charge of transition at a particular agency can be a signal of the mindset of the appointees who will be chosen to run the agency. The person in charge of the FTC transition is former Commissioner Joshua Wright, an arch free market conservative and deregulation advocate who was a frequent dissenter from decisions of the Democratic majority that has set policy in the Obama FTC. Wright is a proponent of rigorous economic analysis and justification of regulatory intervention in the marketplace.
There are currently two vacancies for Trump to fill on the five-member FTC, and three more that will arise in the next two years. If he chooses to appoint Wright or someone of his ilk to chair the FTC, and like-minded conservatives to the other seats on the agency, you can expect the Homeopathic Drug EPS, and the FTC Act generally, to be enforced less often, and less rigorously, than they would have been in a Hillary Clinton administration.
While the nation’s consumer cop likely will be handing out fewer tickets, it will still be on the beat, patrolling the streets for the worst offenders to arrest. Marketers should therefore continue to understand and take their compliance obligations seriously, because there could still be serious consequences for not doing so. As the Trump FTC begins to take shape, I will look forward to reporting on it and helping you understand those obligations in 2017.