Natural Products Insider

JUL-AUG 2019

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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28 INSIDER July /August 2019 Two-and-a-half years into the administration of President Donald Trump, fi ve FTC commissioners he appointed have been seated for just about a year each. The organization is headed by fi ve commissioners who are nominated by the president and confi rmed by the Senate, each serving a seven-year term. At about this same time in the fi rst Barack Obama administration, the health and nutrition industry was introduced to a broad-ranging initiative aimed at raising the bar for health benefi t advertising. FTC created new order language requiring FDA approval for disease-related claims and "two adequate and well-controlled human clinical studies" for a wide variety of health benefi t claims. Throughout the Obama administration, the initiative took several signifi cant blows in court, and the original, aggressive order language was whittled away by defendant companies' litigation successes. The "FDA approval" provision was rarely used at all by the end of the administration, and the requirement for two clinical trials became a requirement for at least one clinical trial. The current FTC appears content to let the law around health-related claims stand without undoing what's left of the Obama- era initiative, while focusing on health-related advertising in a more traditional way, as one of the agency's many enforcement priorities. Risk-Free Trials and Continuity Programs FTC has brought several actions over risk-free trials as well as continuity programs. For instance, in May 2019, FTC announced settlements with companies and individuals allegedly involved in deceptive risk-free trials and continuity programs for dietary supplements, skin creams and e-cigarettes. The companies allegedly advertised that consumers could try products "risk free" if they paid only shipping and handling, usually US$5 or less. However, according to FTC, instead of being charged only shipping and handling, consumers were charged up to about $100 and unknowingly enrolled in continuity programs. To settle the case, the companies and individuals agreed to pay over $3.3 million and relinquish $5 million in assets. Brands can reduce risk by clearly and conspicuously disclosing all material terms associated with "risk free" and continuity offers, obtaining express informed consent to enroll consumers in continuity programs, and providing a simple means of cancellation. (If a product can be purchased online, California law requires an online cancellation method.) 'Made in the USA' and Other U.S. Origin Claims FTC continues to target "Made in the USA" and other U.S. origin claims for a wide variety of products from slabs for countertops to eyewear, beer-making equipment, lithium batteries and over-the- counter (OTC) drugs. Complying with FTC's stringent and relatively complex standards for U.S. origin claims may help brands reduce their risk. In a nutshell, an unqualifi ed claim like "Made in the USA" has two main requirements: 1 the assembly of the product in the U.S. must represent a "substantial transformation" under U.S. Customs and Border Protection (CBP) standards; and 2 the amount of foreign content can be no more than negligible. In general, for a dietary supplement to be "substantially transformed" in the U.S., the mixing of ingredients must create some greater effi cacy (or possibly convenience) than would be present from the ingredients alone. In determining whether foreign components are more than negligible, FTC typically considers the total manufacturing costs that can be assigned to foreign parts and the function of the foreign content. If the fi rst requirement (substantial transformation in the U.S.) is met, but not the second, FTC may allow a qualifi ed claim like "Made in U.S. from Domestic and Imported Ingredients" or "Bottled in the USA." Form Contracts Barring Consumer Reviews The Consumer Review Fairness Act, a law enacted in 2016, prohibits standardized contract terms barring consumers from posting reviews about a company, its goods or services. In June, FTC announced settlements with two companies: one offering vacation rentals in Florida and another providing property management services in Maryland. The Maryland company allegedly offered contracts with provisions that broadly prohibited any consumer reviews related to the company or its services. The Florida company allegedly used contracts barring negative reviews or "any review less than a 'fi ve star' or 'absolute best' rating." The contracts also required consumers to pay $25,000 for violations. The proposed FTC consent orders prohibit both companies from using similar contracts in the future and require the Florida company to dismiss a pending lawsuit against a consumer over reviews. The Consumer Review Fairness Act applies broadly to anyone offering a form contract to consumers, and both FTC and state regulators can take enforcement action. Brands can reduce risk by avoiding including nondisparagement clauses in any standard consumer agreement, including website terms and conditions. Social Media & Infl uencer Marketing FTC has been enforcing claims made over social media and in infl uencer marketing. In June, FTC and FDA sent warning letters to fi ve companies that sell e-liquids for vaping. The letters alleged that posts on Instagram, Facebook and Twitter were misleading because they failed to inform consumers that the e-liquids contain nicotine. The letters also warned that positive social media posts by third parties were misleading if they failed to disclose "material connections" between a company and third parties. A "material connection" might be payments, free product (or something else of value) given to the third party, or a business or familial relationship, like the person posting being the spouse of a company owner. As another example, in April, FTC announced a $100,000 settlement with a snack box seller that allegedly gave discounts and free product in return for consumer reviews but failed to apprise consumers that they should disclose that they received incentives. In addition to FTC risk, litigation has increased Legal: FTC The Trump FTC: Evolving Supplement Priorities and 5 Hot Areas for Enforcement by Katie Bond

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