False advertising occurs when a business makes a misleading, deceptive, or plainly false claim about a particular product or service. There are currently a host of state and federal laws aimed at addressing false advertising, the most prominent of which is the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b). As articulated by Federal Trade Commission (“FTC”) Commissioner Christine S. Wilson, “[a]ccurate and complete information contributes to the efficient functioning of the market and facilitates informed consumer decision-making. In contrast, deceptive or false claims inhibit informed decision-making and cause economic injury to consumers.”
The FTC Act – Federal Protection Against False Advertising
The FTC Act is employed by the FTC to address and deter deceptive and false advertising claims. The goal of the FTC Act is to ensure that businesses do not mislead consumers. For a claim to be misleading, it can either imply something that is untrue or leave out relevant information. Two sections of the FTC Act are commonly used in prosecuting violations:
- Section 5(a): This section prohibits “unfair or deceptive acts or practices in or affecting commerce.” An act, representation, or omission is deceptive when it is likely to mislead a consumer. To establish a violation of Section 5(a), the consumer’s interpretation of the misleading misrepresentation must be reasonable, and the fact at issue must be “material,” or important enough to matter.
- Section 12: This section prohibits the dissemination of misleading claims about food, drugs, devices, services, and cosmetics.
In determining whether a claim is misleading, the FTC considers whether the claim has been substantiated. Pursuant to the FTC’s Pfizer decision, the FTC considers the following factors in determining whether a marketing claim is adequately substantiated:
- Type of claim and product coverage;
- Benefits of a truthful claim;
- Consequences of a false claim; and
- Evidence that experts in the field look to for substantiation.
In considering these factors, the FTC also weighs the importance of facilitating a reliable, competitive marketplace with the need to prevent the imposition of an unduly high substantiation standard that may disincentivize businesses from bringing new products/services to market.
State Prosecutions Against False Advertising
In addition to the FTC Act, virtually every state of the union has laws that prohibit false advertising. For example, New York’s law prohibiting false advertising (NY GEN BUS § 350) requires that, to prove a false advertising claim, it must be established that: (1) the challenged act or practice was consumer-oriented; (2) the act or practice was misleading in a material way; and (3) the plaintiff suffered injury as result of the subject deceptive act. While state attorneys general are typically tasked with policing false advertising practices on a state level, some jurisdictions allow private citizens to bring false advertising lawsuits as well. In Ohio, for example, residents who can demonstrate false advertising harm may recover (the greater of) three times the amount of actual damages or $1,500.00.
Federal Action for False Advertising – FTC v. NeuroMetrix and Shai Gozani
On March 4, 2020, the FTC announced that it had settled a false advertising investigation against the marketer of Quell, a device purporting to “relieve chronic or severe pain throughout the body from a fixed site of application below the knee.” In its Complaint, the FTC alleged that marketer NeuroMetrix, Inc. (“NeuroMetrix”) violated Sections 5(a) and 12 of the FTC Act. Specifically, the FTC alleged that NeuroMetrix made a number of unsubstantiated claims when marketing the Quell, a wearable transcutaneous electrical nerve stimulation (“TENS”) device. According the FTC’s Complaint, NeuroMetrix included the following false or misleading claims in their marketing: (1) the Quell had been “FDA Cleared;” (2) “4 out of 5 persons achieve significant pain relief with Quell;” and (3) “Two out of three persons significantly reduce their pain medication with Quell.”
The FTC alleged that each of these claims was false, misleading, or unsubstantiated. While TENS technology had, in fact, been FDA cleared for use to address localized pain relief, TENS devices, such as the Quell, did not have clearance for use in treating widespread or chronic pain. Additionally, the statistical data related to pain relief and medication reduction that NeuroMetrix pointed to as support for its claims were based on studies that failed to substantiate such claims.
In settling with the FTC, NeuroMetrix will be required to pay $4 million to the FTC within thirty (30) days, refrain from engaging in any further false advertising, and provide an additional $4.5 million in future foreign licensing payments.
How to Protect your Business
This NeuroMetrix settlement illustrates the FTC’s continued interest in using the FTC Act to keep marketers honest. While FTC Commissioner Wilson has voiced concern that the FTC should not undertake a “broad, theoretical effort to achieve truth,” the FTC nevertheless has emphasized the importance of substantiating marketing claims by ensuring both the validity of studies on which those claims rely and considering the factors laid out in the Pfizer decision. To be safe, marketers should ensure that all marketing claims are substantiated through double blind, independent clinical studies.
If you are interested in learning more about this topic or if you have been served with process concerning your marketing practices, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.
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The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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