A more active and aggressive FTC, as well as scrutiny from other regulators, will keep dietary supplement and nutrition brands on their toes in 2022. Here’s what one lawyer says you should watch out for.
The Federal Trade Commission has stepped up its enforcement actions in the last few months, creating fresh concerns for nutrition brands. Current FTC Chair Lina M. Khan, who was sworn in on June 15, 2021, has long advocated for stronger enforcement of antitrust laws. Khan has made proactive, forward-looking consumer protection one of the commission’s key goals, and her vision for FTC’s enforcement role marries consumer protection and antitrust into one integrated whole.1 While the Supreme Court’s decision last year in the case of AMG Capital Management, LLC v. FTC may have dealt FTC a significant blow by removing its capacity to seek monetary damages in court, the commission still has several other levers of power at its disposal, and is itching to use them.
John Villafranco, an advertising compliance and FTC matters lawyer and partner at Kelley Drye & Warren LLP (Washington, DC)—and a member of Nutritional Outlook’s Editorial Advisory Board—says the upcoming year will see a very aggressive FTC pursue new cases and new regulations.
Here are some of the focus areas on FTC’s agenda for 2022—and some of the other legal and regulatory developments that will be worth watching this year.
FTC to Push Personal Liability for Officers
If your C-suite has been relying on corporate structure as a shield against personal liability, prepare for a rude awakening. The three new Democratic soon-to-be FTC commissioners intend to pursue cases against company principals personally in addition to cases against corporations, Villafranco says.
“I’ve seen it in a number of cases,” he explains. “Historically, the Federal Trade Commission has only moved against the corporation, except in the case of a very small company. But this new trend could create tremendous liability for individuals from a compliance perspective. This underscores how important it is for companies to ensure they have good compliance policies in place.”
While the Supreme Court ruling in the AMG Capital Management (Overland Park, KS) case in April 2021 effectively ended FTC’s ability to win monetary damages in court, Villafranco says the commission is still pursuing monetary remedies through other means. FTC is actively looking into other statutes that could justify monetary penalties; in the meantime, the commission is partnering with attorneys general at the state level. According to Villafranco, a state attorney general can seek monetary remedies in almost all situations.
FTC also appears to be taking a new approach to industry giants. Villafranco says FTC likes to pursue cases it knows it can win; however, that hasn’t stopped this particular FTC from going after some of the country’s largest corporations. In 2021, the commission announced that it had secured a $60 million settlement against Amazon for the Internet retail giant’s withholding of tips for delivery drivers.2 Now, though, FTC’s increased focus on individual officers rather than companies in general means there is even more at stake for corporate leaders. Even without the ability to win damages in court, this FTC is proving to be creative and resourceful in enforcing the law. The Goliaths of the industry should be wary of this FTC, as it appears the commissioners know their way around a slingshot.
Direct Selling & MLMs in the Crosshairs
If your brand relies on direct selling or multilevel marketing to move product, now is a good time to conduct an internal regulatory compliance audit. In October 2021, the FTC announced it had issued notices to more than 1,100 businesses that recruit consumers into money-making ventures, warning these businesses that the commission will not tolerate false or misleading claims about earning opportunities.3
Direct selling and multilevel marketing structures are common in the nutritional supplement industry, making this a unique issue for nutrition brands, Villafranco says. He advises to expect a new rulemaking proceeding from FTC that will target earnings claims.
“There’s no doubt FTC will bring increased focus to multilevel marketers like Herbalife or Young Living in the next year,” Villafranco says. “Natural products companies that rely on direct selling models need to pay very close attention, because chances are they may have received a Notice of Penalty Offense. Virtually every direct seller did.”
Influencer Marketing Crackdown in the Works
Influencer marketing has continued its impressive growth in recent years, reaching an estimated market size of USD $13.8 billion last year.4 However, this tactic’s success has also put it on FTC’s radar. In October 2021, FTC issued Notices of Penalty Offenses to over 700 businesses, including major retailers, big-name advertising agencies, and household name brands, specifically targeted misleading testimonials or endorsements.5
Influencer marketing is clearly a focus for the FTC, Villafranco says. While the rules around influencer marketing aren’t new, influencer marketing has become more popular as a marketing tactic, which means more FTC cases are inevitable. There are, however, some proactive steps brands can take to ensure compliance.
“We’re going to see more cases,” Villafranco explains. “Companies in this space need to familiarize themselves with the FTC guidelines. You can’t make stupid mistakes like failing to disclose that something is an ad, and you can’t just send your influencer a link to the FTC guidelines and call it a day. You need to track your influencers to ensure they’re complying with the FTC guidelines.”
Explaining the FTC guidelines to influencers in clear, simple language should be a priority for brands. Influencers must clearly reveal their brand relationships when posting sponsored content. It should be easy for consumers to understand what’s an organic post and what’s an advertisement or endorsement, he advises.
Prepare for Aggressive Enforcement in 2022
FTC and other regulatory agencies are coming into the year with renewed vigor. Direct selling, multilevel marketing, and influencers are among the commission’s enforcement priorities this year. Meanwhile, the three incoming Democratic FTC Commissioners will be looking for opportunities to hold company officers personally liable for companies’ regulatory noncompliance. Removing the legal protection afforded by a corporate structure means the stakes are significantly higher for corporate leaders in the nutritional supplement space. Brands that want to mitigate their risks would benefit from a more proactive approach to regulatory compliance, especially if they plan to engage in activities that will draw FTC scrutiny.