Recipients of FTC warning letters and notices of penalty offense should be on high alert and act quickly. Their advertising and marketing practices could be in violation of applicable legal regulations.
What is an FTC Warning Letter?
Federal Trade Commission “warning letters” are intended to warn companies that their conduct is likely unlawful and that they can face serious legal consequences, such as a federal investigation or lawsuit, if they do not immediately stop.
According to the FTC, “[o]verwhelmingly, companies that receive FTC warning letters take steps quickly to correct problematic advertising or marketing language and come into compliance with the law. In many cases, warning letters are the most rapid and effective means to address the problem.”
Eliminating false or misleading information from the marketplace is a key objective of the FTC. As is ensuring compliance with the FTC Act and various legal regulations that the agency enforces.
The Federal Trade Commission has sent warning letters across a number of industries pertaining to myriad legal regulatory issues. From companies allegedly selling unapproved products that may violate federal law by making deceptive or scientifically unsupported claims about their ability to treat or cure coronavirus, to companies and influencers over disclosures in posts.
Some Things to Keep in Mind About FTC Warning Letters
When FTC warning letters are sent to companies, their purpose is to warn of possible law violations. Warning letters are not formal enforcement actions, and they may or may not be followed by FTC legal action. The letters typically include an explanation of why the company is receiving the letter and examples of problematic advertising or marketing language. They require the recipients to correct the problem immediately and may also require the recipients to contact the FTC within several days to confirm that they have made the required changes.
The FTC may send warning letters unilaterally or jointly with other enforcement agencies. For example, the FTC joined the FDA in sending letters to the marketers of products and treatments falsely claiming they could either treat or cure COVID-19. The FTC also joined the FCC in sending warning letters to VoIP service providers about facilitating illegal robocalls. The FTC also issued its own warning letters to MLM marketers regarding false COVID-19 treatment or cure claims and earnings claims made by the marketers and their participants.
Additionally, while FTC or joint agency warning letters may be public, recipients’ responses to them usually are not. After sending the letters, the FTC will not comment on whether a company or individual has received them, whether they have contacted the agency within the amount of time required, or what they told the agency about their planned response.
What is an FTC Notice of Penalty Offense?
Civil penalties are designed to help the FTC deter conduct that harms consumers. One way that the FTC can obtain monetary penalties against a company that acted unfairly or deceptively is through the Penalty Offense Authority, found in Section 5(m)(1)(B) of the FTC Act, 15 U.S.C. §45(m)(1)(B).
Pursuant to this authority, the FTC can seek civil penalties if it proves that: (i) the company knew the conduct was unfair or deceptive in violation of the FTC Act; and (ii) the FTC had already issued a written decision that such conduct is unfair or deceptive.
In order to trigger this authority, the FTC can send companies a “Notice of Penalty Offenses.” This Notice is a document listing certain types of conduct that the FTC has determined, in one or more administrative orders (other than a consent order), to be unfair or deceptive in violation of the FTC Act.
Companies that receive this Notice and nevertheless engage in prohibited practices can face civil penalties of more than $50,000, per violation. As required by federal statute, the FTC adjusts the amounts of its civil penalty maximums for inflation every January.
That a company is sent a Notice does not necessarily indicate that the FTC has reason to believe it is breaking the law. Rather, the FTC sends these Notices to ensure that companies understand the law – and that they are deterred from breaking it.
Recently distributed Notices and the administrative determinations cited in the Notices pertain to, without limitation, misuse of information collected in confidential contexts, claim substantiation, business and money-making opportunities, endorsements and education.
Richard B. Newman is an FTC compliance lawyer at Hinch Newman LLP. Follow FTC defense lawyer on National Law Review.
Informational purposes only. Not legal advice. This article is not intended to and should be construed as legal advice. May be considered attorney advertising.
