FTC ruling pummels POM advertising


For over two years, the Federal Trade Commission and POM Wonderful LLC have been locked in legal battle over who was overreaching – POM in making health claims in its advertising or the FTC in exercising authority it doesn’t have.

Yesterday, the full Federal Trade Commission declared the winner was…the Federal Trade Commission.

In 2010, the pomegranite juice makers learned of an impending FTC administrative action alleging that their advertising violated new, stricter standards for health-related claims. The action was supported by consent orders the FTC had won from two other companies – Nestle USA and Iovate Health Systems.

As JDSupraLawNews reports,

POM filed suit in federal district court in September 2010, in anticipation of an impending FTC administrative action. The company challenged what it perceived as agency overreaching, in violation of its First and Fifth Amendment rights, and in violation of the Administrative Procedure Act. The basis of POM’s complaint was the FTC’s use of consent orders with two other companies (Nestle U.S.A. and Iovate Health Systems, Inc.) to establish new and more stringent advertising standards for medical and health claims.

When the FTC waved these consent orders in front of POM (in an apparent attempt to pressure the company into agreeing to tougher standards like Nestle and Iovate), POM responded by thumbing its nose and filing suit in federal court. POM contended that the FTC failed to adhere to the requirements of administrative law that, in order to modify advertising standards, the agency must go through a notice-and-rulemaking process. The FTC subsequently filed its administrative action against the company for alleged failures to adhere to the more stringent standards.

Two years later, US District Court Judge Richard Roberts in the District of Columbia dismissed the lawsuit, on the grounds that complaints against the FTC should be decided by the FTC itself, which, his decision said, was “perfectly capable” of determining, in a perfectly objective and unbiased manner, whether they themselves had violated the FTC Act and First and Fifth Amendments.

In a decision last May, POM won some and lost some.

FTC Administrative Law Judge D. Michael Chappell rejected the new, enhanced standards the commission was trying to enforce, but also found 19 “false or misleading” health-related claims – relating to heart disease, prostate cancer and erectile dysfunction – in POM’s advertising materials.

Both sides appealed – POM to restore its advertising claims and the FTC to restore its shortcuts to taking on more authority – so the case moved on to the full commission, which issued its ruling yesterday.

Guess whose favor they decided in.

They ruled that

  • POM had made not just 19, but 34 deceptive claims.
  • POM was barred from making any claim that a food, drug or dietary supplement is “effective in the diagnosis, cure, mitigation, treatment or prevention of any disease” unless two randomized, well-controlled, human clinical trials could prove it.
  • They didn’t have to follow their own rulemaking process to make this kind of ruling.

JDSupraLawNews’s FTC Beat blog found it

interesting – and somewhat encouraging for advertisers who are concerned about agency overreaching – that neither the district court action nor the administrative proceeding have rejected on the merits POM’s challenge to the FTC’s use of settlement agreements to effect enhanced standards. Any company that has come under the regulatory microscope can appreciate the tremendous pressure companies face to cooperate with an agency just to get out of hot water – at almost any cost. POM’s bold stance may eventually have the result of reminding regulators to follow the rules set forth for them by the principles of administrative law.

But until then, POM will have to scrap advertising with headlines like “Cheat Death” while worrying about a government agency that cheats on its legal limitations.

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