ANALYSIS

This is Part II of a two-part analysis and focuses on FTC consumer protection efforts regarding advertising and marketing, as well as the likelihood of tagalong civil class actions following FTC and DOJ agency activity. Part I, which focuses on antitrust actions and guidance from the Department of Justice and Federal Trade Commission, is also available.

The Federal Trade Commission (FTC), in its mission to protect consumers from deceptive and unfair commercial practices, has been particularly vigilant during the COVID-19 pandemic because of an expected increase in outright fraudulent, or just overly aggressive, marketing and advertising conduct taking advantage of public fears during the crisis. Consumer complaints regarding deceptive practices related to COVID-19 have spiked in recent weeks—FTC reported more than 15,000 consumer complaints related to the coronavirus as of April 9, with consumers reporting losses due to alleged fraud of about $11.95 million. The complaints fall into various categories, including:

• alleged misrepresentations concerning health care products and supplements;
• unwanted telemarketing;
• scams regarding government relief programs and charities; and
• complaints about travel-related refunds and cancellations.

FTC’s Product Marketing Enforcement Efforts

The pandemic provides FTC with the opportunity to remind companies, particularly in the supplement industry, that health-related claims are a top priority in its consumer protection program. For example, FTC issued joint warning letters with the Food and Drug Administration (FDA) to companies making coronavirus-related claims. As of April 15, such warning letters were sent to more than 25 companies selling products such as teas, homeopathic drugs, CBD products, essential oils and silver supplements with allegedly unverified claims that they could treat or even cure COVID-19. FTC also separately sent 10 warning letters to advertisers marketing products and treatments with allegedly unverified COVID-19 claims.

The warning letters reaffirm to businesses that it is illegal to advertise and sell products to treat a human disease without “competent and reliable scientific evidence” substantiating the claims under the FTC Act (in addition to liability under the Food, Drug and Cosmetic Act (FDCA) and other FDA regulations for selling unapproved and misbranded products). The warning letters gave the receiving companies 48 hours to notify FDA and FTC as to steps underway to address the alleged violations. Otherwise, the letters stated FDA may take enforcement action, including criminal prosecution, and FTC may seek an injunction and monetary remedies for consumers. Warning letter recipients were also placed on FDA's website list that identifies those that have received warning letters concerning the sale or distribution of COVID-19-related products in violation of the FDCA.

The main takeaway of these recent consumer protection enforcement efforts is that advertisers making health-related claims related to the COVID-19 pandemic will be under a magnifying scope. FTC will be on the lookout, particularly online, for what it suspects to be unscrupulous opportunistic claims regarding health-related products. For that reason, advertisers should keep in mind the following to mitigate risks of liability:

• It is better to avoid COVID-19 health claims unless substantiated with scientific evidence, preferably well-controlled human clinical studies;
• Advertisers should generally make sure any health claims are compliant with FDCA and other FDA labeling and branding regulations (with that in mind, as of yet, FDA has not approved any products to prevent or treat COVID-19);
• Advertisers should take care to avoid making even indirect health-related claims through the product name, website name, metadata or other means; and
• Companies should carefully scrutinize their social media presence for any such claims attached to their product or treatment on Twitter, Facebook, etc., which will be considered advertising.

FTC’s Telemarketing Enforcement Efforts

Another expected byproduct of this current health crisis is aggressive telemarketing conduct from potential scammers related to COVID-19. Such solicitations may be for supposed cures, fraudulent charities or deceptive claims regarding government assistance. FTC has sent warning letters to nine Voice over Internet Protocol (VoIP) service providers regarding the routing and transmittal of COVID-19-related scam robocalls through their platforms. The letters request that the recipients respond to FTC with information “describing the specific actions they have taken to ensure their company’s services are not being used in Coronavirus/COVID-19 robocall schemes.” The letters warn that FTC may take legal action against the recipients under the FTC Act and the Telemarketing Sales Rule (TSR) for assisting and facilitating illegal robocalling.

FTC and the Federal Communications Commission (FCC) also issued joint warning letters to three more VoIP service providers regarding the routing and transmittal of COVID-19-related scam robocalls. The letters requested that the companies immediately cease such conduct within 48 hours or FCC will authorize U.S. voice providers to block all calls from them. In addition, the letter warns the recipients that if they do not cease and desist, they may face potential FTC enforcement actions, including civil penalties for violating the TSR. FTC and FCC also sent a letter to US Telecom, the telecommunications industry trade association, thanking it for its help in detecting COVID-19-related robocall campaigns through its Traceback Group. That letter further notifies US Telecom that if the VoIP service providers continue to route or transmit COVID-19 robocalls, FCC will authorize its members to block all calls from the service providers.

As always—but especially now—VoIP service providers must be vigilant for fraudulent solicitations and telephone scams over their platforms that expose them to FTC enforcement actions. Providers should exercise appropriate due diligence in determining who uses their platforms and for what purposes, and remove untrustworthy participants.

Likelihood of Tag-Along Civil Class Actions

Finally, businesses need to be aware that “tag-along” or “copycat” private civil class actions are likely to follow on the heels of activity by FTC or DOJ. Class action lawyers are known to track press releases from those agencies as well as references to governmental investigations and civil investigative demands in news reports and corporate disclosure documents of public companies. Class action attorneys often act quickly in hopes that they can prosecute the first-filed civil complaint and be appointed as lead class counsel if there are multiple lawsuits.

More generally, we have already seen a first wave of class actions filed during the COVID-19 pandemic covering a wide range of subject matters, including consumer fraud, product liability, employment, insurance coverage, securities and contractual matters. Historically, many examples exist of massive civil antitrust conspiracy class action and opt-out litigation that spun off of news of DOJ investigations as well as consumer fraud class actions stemming from FTC warning letters and enforcement actions. Recently, class action filings have targeted companies and industries that appear related to earlier conduct or comments made by those two federal enforcement agencies. A few examples include:

Zoom Video Communications, Inc. Privacy and security class action suits surged against Zoom after publicity about a public interest group’s follow-up inquiries about a mid-2019 complaint filed with FTC. In July 2019, the Electronic Privacy Information Center (EPIC), known for its consumer privacy advocacy, filed a complaint with FTC alleging that Zoom engaged in unfair and deceptive business practices. It claimed Zoom placed its users’ privacy and security at risk by intentionally designing the web conferencing service to bypass browser security settings and remotely enable web cameras without knowledge or consent. On April 6, 2020, EPIC urged FTC to open an investigation into Zoom’s practices, citing EPIC’s similar complaints about other companies that resulted in FTC investigations as well as the country’s new dependence on remote videoconferencing. A flurry of class action filings followed: Zoom faces at least twelve proposed class action lawsuits and three state attorneys general inquiries (New York, Connecticut and Florida).

Fair Isaac Corp. (FICO). Publicity of a DOJ investigation likely triggered the subsequent filing of a civil antitrust class action against FICO, a credit score developer. In a March 15, 2020, news release, FICO disclosed that DOJ’s Antitrust Division had opened a civil investigation into “potential exclusionary conduct” by its company and pledged its full cooperation with DOJ. Just a couple weeks later, FICO was sued by lenders for alleged federal and state antitrust monopoly-based violations in a class action complaint.

Companies that manufacture, advertise or sell CBD products. In March 2019, FTC and FDA issued joint warning letters to three CBD sellers concerning potential legal consequences of making unsupported health and efficacy claims in advertising; the agencies urged the companies to review product claims to ensure they are competently and scientifically supported. Later, FTC sent additional sets of warning letters, warning companies about the illegality of advertising that a product can prevent, treat or cure diseases or medical conditions—such as autism, ADHD, Parkinson’s or Alzheimer’s—without competent and reliable scientific evidence. Several consumer class actions swiftly followed in Florida, California and Massachusetts.

Businesses should be aware of not only the enforcement priorities of DOJ and FTC when conducting business, but also the threat of civil class actions in areas including antitrust, consumer protection, privacy and federal securities laws. Taking into account the quick-changing dynamics of this pandemic and perceived needs by business to react swiftly in response to changing economic and health or safety conditions, we recommend that companies put into place preventative and proactive business measures that consider antitrust compliance as well as compliance in marketing and advertising. Such measures may minimize the likelihood of agency enforcement efforts and civil litigation and will better prepare companies to defend the permissible nature of their conduct if challenged by enforcement agencies or class action lawyers.

The analysis in this primer is the second in a two-part series. Part I focuses on antitrust actions and guidance from FTC and the Department of Justice.