Ad Law in the Age of COVID-19 and Regulatory Reactions
The COVID-19 crisis has spawned a new wave of predatory behavior toward consumers, with the marketing of coronavirus-related products and untested cures. Regulators have responded to these behaviors swiftly and in a variety of ways. In a recent webinar, Richard Cleland, assistant director, division of advertising practices at the Federal Trade Commission (FTC), and Venable attorneys Melissa Steinman and Kristen Klesh addressed the advertising enforcement trends stemming from the COVID-19 pandemic and offered their reflections on best practices for consumer protection. Following is a breakdown of key points discussed and information shared.
How Has the FTC Addressed Consumer Complaints?
The FTC’s response to COVID-19-related violations has been a combination of education and enforcement. The agency recorded more than 130,000 complaints in approximately the first half of 2020; unsubstantiated health claims and health fraud are the main areas of concern. The FTC has issued more than 300 warning letters and has seen a high compliance rate (around 95 percent) with this course of action. These letters address claims that businesses are promoting the cure or treatment of COVID-19 through:
Dietary supplements or treatment in medical or wellness clinics in the form of herbal teas, essential oils, vitamins, zinc, immunity boost IVs, chiropractic, homeopathic, other therapies, virus-killing “zappers,” and colloidal silver
The FTC has also filed three federal court actions related to COVID-19 consumer fraud, and the agency is conducting extensive consumer education campaigns related to health fraud and coronavirus scams. The FTC website examines various types of health and economic fraud related to the epidemic.
How Are Government Agencies Collaborating on Fraud-Related Enforcement?
The Food and Drug Administration (FDA) and Department of Justice (DOJ) are collaborating with the FTC during the pandemic. The FTC has identified “the immune system syllogism” as one foundation for fraudulent activity. It relies on an assumption that the best defense against COVID-19 is a strong immune system; a business claims its products support the immune system; the conclusion drawn is that the business’s product is effective in the treatment or prevention of COVID-19. This type of faulty logic can be the basis for enforcement action.
The FTC also joined the Federal Communications Commission (FCC) in sending warning letters to some internet protocol service providers for their role in facilitating illegal telemarketing or robocalls.
To complement the efforts of government agencies to identify and pursue COVID-19 related fraud, the FDA has issued guidance for businesses attempting to develop drugs and biological products to treat COVID-19 in its May 2020 publication, COVID-19: Developing Drugs and Biological Products for Treatment or Prevention, Guidance for the Industry.
What Should Sellers Think About When Introducing COVID-19 Related Products?
The “intended use” of a product (established via labeling and other promotional activities) is determinative of whether a product is subject to FDA regulation
Labeling is broad and generally includes anything associated with a product’s label (websites, social media, consumer reviews, etc.)
“Emergency use authorizations” allowing certain products to come to market more expeditiously to address consumer needs
Product claims, i.e., drugs vs. dietary supplements, and using the right language for each. FDA is enforcing unlawful drug claims with warning letters
Use of FDA “approval” and “clearance” in various forms. Use of the FDA logo on any product labeling is strictly prohibited; “FDA Approved” and “FDA Cleared” require explicit authorization and documentation from FDA
What Other Enforcement Actions Are Being Taken?
State attorneys general are playing a significant role in COVID-19 related consumer fraud protection, focusing on deceptive advertising and enforcing price gouging laws. Additionally, the National Advertising Division (NAD) is monitoring businesses making “clean” and sanitization claims in relation to COVID-19, as well as health and safety claims related to dietary supplements. Finally, class actions and private litigation are addressing claims related to COVID-19 prevention/treatment and online retailer liability.
Claims of deceptive advertising have been addressed in different ways, including:
Sending cease and desist letters
Investigating stimulus check fraud and scams involving seniors
Investigating deceptive and fraudulent charitable appeals
Sending letters to domain name registrars to request they stop registrations associated with coronavirus or COVID-19 to address the perpetuation of scams and the violations of multiple laws
Many states have price gouging laws that have been triggered by emergency declarations. Laws vary, but they dictate what is an unconscionable/unfair hike in the price of certain essential products. In the case of COVID-19, those products have included things like hand sanitizer, cleaning products, face masks, eggs and other food products, etc. Definitions of price gouging vary by state; fines also vary but can be very substantial. The DOJ has pursued criminal action against alleged price gougers, but enforcement action has been mostly left to the states and private litigators.
The NAD has addressed the validity of claims that products sanitize, protect against, or kill COVID, which are primarily false advertising claims related to things like air purification and self-cleaning surfaces. These claims can be made in conjunction with other cleaning standards, according to the NAD, but cannot be marketed as standalone claims. For example, the NAD questioned a social media post featuring an elderberry syrup in which a company claimed that use of the syrup protected against coronavirus, a possible example of a misleading health benefit claim related to COVID-19. The company discontinued use of the post following a warning from the NAD.
How Are Class Action Suits Impacting Consumer Enforcement Related to COVID-19 Claims?
Class action suits cover a wide cross-section of consumer-related fraud. Recent examples include:
Hand sanitizer class actions filed against most of the major manufacturers of hand sanitizer, alleging that the claims these products eliminate 99.99 percent of viruses are misleading
Actions filed against ticket vendors and organizers of events and festivals for failing to issue refunds for cancelled events
Membership and subscription class actions alleging that gyms and other subscription/membership models continued to charge members when facilities were shut down or inaccessible
Price gouging class actions — public and private litigation involving price gouging claims
What Key Recommendations Can Help Businesses Avoid Allegations of Consumer Fraud?
Make adequate substantiation for claims and for sellers on your site
Look for certain types of problematic claims right now — COVID-19-related, charitable claims, effectiveness, economic programs, related to seniors — and proactively analyze/address them
Understand that price gouging is still a hot issue — states of emergency continue to be extended; keep careful records of prices charged and costs paid both before and after emergency declarations
Monitor the supply chain and understand the limits of enforcement protections — retailers/manufacturers may be responsible for price gouging downstream
The full recording and slides for this webinar and the other installments in the Not a Symposium, but a Virtual Ad Law CLE Bonanza can be found here.