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Aug 15, 2023

Is the FTC at war with the dietary supplement industry?

Jack Wenik | Mar 22, 2023 In an extraordinary departure from accepted political

Jack Wenik | Mar 22, 2023

In an extraordinary departure from accepted political norms, on Feb. 15, 2023, Christine Wilson, a Republican-appointed commissioner at the Federal Trade Commission ("FTC"), announced her impending resignation from her post in an op-ed published in The Wall Street Journal.

What made the announcement so extraordinary was her accusations that FTC Chairperson Lina Khan had dramatically altered the inner workings of the agency to stifle dissent, fairness and objectivity. According to Wilson, since Khan's assent to power, internal surveys of FTC staff had shown a drastic reduction (from 87% to 49%) in the belief that FTC officials maintained high standards of honesty and integrity.

Commentators have picked up on Wilson's remarks and expressed their own concerns about Khan's stewardship of the agency. For example, in a column published on March 3, 2023, in The Wall Street Journal, Robert H. Bork Jr. noted that "[FTC] policies long subject to notice and comment are altered or rescinded with little or no internal or external input."

Of course, with the change in administrations from President Donald Trump to President Joe Biden, it can surely be expected that federal agencies will undergo changes in leadership, direction and outlook. In FTC's case, the change appears especially dramatic, particularly regarding antitrust policy. For example, in her Sept. 22, 2021, policy memorandum, Khan broke sharply with the traditional antitrust focus of looking at consumer harm. She asserted a "holistic" approach that also focuses on the harm to independent businesses and workers.

Khan further extols her staff to focus on "private equity" and to examine "contract terms," which she feels may be unfair or deceptive. In short, from the perspective of business owners and executives, an old saying that "there's a new sheriff in town" has taken on a particularly strident meaning when looking at Khan's agency.

For those in the dietary supplement industry, FTC's new focus and leadership seem particularly antagonistic. In late December 2022, notably without prior notice or opportunity for public comment or input, the agency released an update to its 1998 dietary supplement advertising guidelines. The new guidelines—now entitled "Health Products Compliance Guidance" (the "Guidelines")—reinforced a number of harsh FTC policies regarding dietary supplement advertising.

First and foremost, the Guidelines discuss the meaning of "competent and reliable scientific evidence" necessary to substantiate health-related advertising claims for dietary supplements. FTC makes clear its view that, in the context of dietary supplements, "competent and reliable scientific evidence" requires human clinical randomized controlled trials ("RCTs").

Most concerning are the Guidelines’ endnotes. These endnotes suggest FTC's interpretation of the "competent and reliable scientific evidence" standard has been consistently affirmed by federal courts, ignoring or misinterpreting several decisions that held otherwise.

Finally, in an effort to mimic the standard for FDA-approved drugs, the Guidelines suggest two such studies are required.

Needless to say, many in the dietary supplement industry are less than enthusiastic about FTC's "updated" Guidelines. Without the ability in most circumstances to patent "natural" products, as opposed to synthetic pharmaceutical molecules, dietary supplement companies find it hard to justify the extraordinary costs of RCTs.

The Guidelines also fail to clarify whether RCTs of key ingredients, rather than the dietary supplement products themselves, would be sufficient (in FTC's view) to substantiate advertising claims. This has been an area of contention for a long time between the agency and the dietary supplement industry, and the latest Guidelines shed little light on the issue.

Those of us who represent dietary supplement clients have often complained that FTC regulates via litigation and consent decree rather than through notice-and-comment rulemaking. This practice continues under Khan's regime. In a first-of-its-kind case, FTC brought administrative proceedings against The Bountiful Co. (Bountiful) for purported "review hijacking."

According to the agency, Bountiful, which sells products via Amazon's website, improperly manipulated web pages to apply positive product reviews and ratings from older products to new products with new formulations. This supposedly deceptive conduct cost Bountiful $600,000 in penalties levied by FTC.

Of course, using fake or fabricated product reviews is inarguably a deceptive advertising practice. However, brand "extensions" or updates are a fairly common practice, and the Bountiful case leaves unclear where the line is to be drawn regarding improper "review hijacking." For example, if a dietary supplement maker introduces a protein powder with solely a different flavoring than a prior version, is it really deceptive to tout the reviews of the older version alongside the new? Moreover, the publicly available materials provide no understanding of how FTC calculated its $600,000 penalty.

Finally, and perhaps most importantly, the advertising practices condemned by FTC in the Bountiful case occur in a very wide range of consumer products. That the agency chose a dietary supplement company to establish this precedent has rightfully created some concern within the industry.

In other instances, broad-based FTC initiatives have a disproportionately negative effect on the dietary supplement industry. For example, on Jan. 5, 2023, FTC proposed to ban virtually all noncompete agreements, except those accompanying the sale of a business. This includes ill-defined "de-facto" noncompete agreements. Even more striking, FTC's proposed rule would have unprecedented retroactive effect, requiring companies to rescind existing noncompete agreements within 180 days of the finalization of the rule.

To be sure, FTC's proposed ban on noncompete agreements is still open to public comment and may be substantially altered. Moreover, many legal commentators question whether the agency has the statutory authority to impose such a broad-based restriction on a relatively common commercial practice.

In the dietary supplement industry, many if not most of the companies are relatively small enterprises that rely on small groups of key executives. Depriving these companies of a mechanism to retain essential personnel who have specialized knowledge and training—not to mention access to sensitive trade secrets and business information—could be devastating to their ability to successfully compete and expand.

FTC's dramatic policy changes and the turmoil within the agency described by its former commissioner Wilson and others are especially concerning to the dietary supplement industry. It is up to the industry's trade associations and individual companies to lobby Congress to rein in some of the agency's excesses.

Jack Wenik is a member of Epstein Becker Green in health care and life sciences and litigation practices who focuses on guiding dietary supplement companies and health care providers to reduce the risks of litigation by the government. He has advised clients dealing with cases from fines to corporate integrity agreements, and Medicare/Medicaid exclusion. Wenik is a regular speaker and commentator to the media on dietary supplement and drug topics.

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