FTC, FDA Take Closer Look at Disclosures

The fine print could mean big trouble for companies in coming months.

First, the Federal Trade Commission ended 2014 with a crackdown on companies that it says violated its longstanding “clear and conspicuous” standard. The Food and Drug Administration, meanwhile, started 2015 with hints that it may relax disclosure requirements for drug marketing—which might actually lead to more scrutiny of drug claims. And the FDA may tighten rules for advertising drugs and medical devices via social media.

Taken together, the initiatives are prompting businesses to re-evaluate policies and approval processes for these needed caveats.

Last fall the FTC launched Operation Full Disclosure, sending warning letters to more than 60 companies (including 20 of the 100 largest advertisers in the country) that failed to make adequate disclosures in their television and print ads. The effort focused on disclosures that were in fine print, easy to miss, or hard to read.

In the warning letters, FTC staff identified problematic ads, recommended that advertisers review all of their advertising to ensure that any necessary disclosures are “clear and conspicuous,” and asked them to report on whatever remediation they were prepared to pursue.

“Operation Full Disclosure was certainly a shot across the bow to companies that were not in compliance with FTC standards,” says Kevin Madagan, counsel with the law firm Reed Smith. “At a minimum, it forced both the companies that received letters, and those that didn’t, to revisit their current disclosure practices to ensure that they are taking a more conservative approach.”

The clear-and-conspicuous standard requires that printed advertising disclosures be positioned close to the claims to which they relate, not hidden or buried in unrelated details; and appear in an easy-to-read font in a shade that stands out against the background. Disclosures for television ads should be on the screen long enough to be noticed, read, and understood, and other elements in the ads should not obscure or distract from the disclosures. The Operation Full Disclosure letters reminded companies that do comply with FTC requirements that all disclosures must use clear and unambiguous language.

The agency hasn’t said which companies received the warning letters, only saying they were sent to “a wide range of industries.”

Among the flagged disclosures were ads that quoted the price of a product or service, but did not disclose the conditions for obtaining that price. Some were not forthright about automatic billing features. Others described a product capability without mentioning the need to buy an additional product or service first.

“Operation Full Disclosure was certainly a shot across the bow to companies that were not in compliance with FTC standards.”
Kevin Madagan, Counsel, Reed Smith

The warning to any company that advertises its products: Just because you didn’t receive a letter, don’t assume your advertisements pass muster. “It is really an across-the-board problem,” Keri Bruce, an associate with the law firm Reed Smith says “Sending these letters is a way to influence change without actually having to bring enforcement actions.”

The letters have already had a cross-industry effect. “Companies are reviewing their internal guidelines and began internal re-education with their marketing and regulatory folks about what the company’s standards and risk tolerance are, and what are their practices for disclosure,” Madagan says.

“We expect the FTC may well follow this group of warning letters with a series of enforcement actions, as it did in 1996 against a number of auto manufacturers for the mouse print in their leasing ads,” David McDowell, co-chair of Morrison Foerster’s consumer litigation practice group, wrote ina recent client advisory. That past effort led to a $5.5 million settlement with Mazda.

If You Experience Shortness of Breath …

In a separate action, which could ultimately dovetail with the FTC’s disclosure review, the FDA has announced that it may let drug companies reduce the number of warnings that must accompany their television commercials. Changes to the FDA’s “fair balance” doctrine would allow companies to recite or print only the side effects detailed in a product’s “major statement,” a filing with the FDA that details the most prominent and common risks. The current call for “equal time” between benefits and risks would also be changed to allow drug companies more time to expound upon the former.

While those concessions would be welcomed by pharmaceutical companies, the FDA could then pay more attention to drug disclosures to ensure they remain effective. The FDA also has a history of following the FTC’s lead in such matters, and a disclosure crackdown could extend beyond agency lines, Madagan says.

Review Your Disclosures

Given the FTC’s increased focus on fine print disclosures, companies can take some steps to ensure they don’t face the threat of an enforcement action.

Lesley Fair, a senior attorney with the FTC’s Bureau of Consumer Protection, suggests a mnemonic device dubbed “the 4Ps:”

Prominence. Is the disclosure large enough, or does it remain on screen long enough, for consumers to see it?

Presentation. Is the disclosure easily understood and avoids legalese and dense print?

Placement. Is the disclosure where consumers are likely to look?

Proximity. Is the disclosure close to the claim it modifies?

The actual size and font of a disclosure is not a pressing concern, although companies cannot dismiss those particulars either, Fair says. “Just how big does a disclosure have to be, 4 point, 8 point, or 12 point?  We get those questions all the time,” she says. Advertisers who focus on the details “may be missing the big picture. Clear and conspicuous is a performance standard, not a font size.”

CLEAR AND CONSPICUOUS

The following are culled from Federal Trade Commission guidance on how to ensure compliance with its “clear and conspicuous” standards for product disclosures and disclaimers.
In reviewing their ads, advertisers should adopt the perspective of a reasonable consumer. They also should assume that consumers don’t read an entire website or online screen, just as they don’t read every word on a printed page. Disclosures should be placed as close as possible to the claim they qualify.
If a particular online platform does not provide an opportunity to make clear and conspicuous disclosures, it should not be used to disseminate advertisements that require such disclosures.
Consider the placement of the disclosure in the advertisement and its proximity to the claim it is qualifying; the prominence of the disclosure; whether the disclosure is unavoidable; the extent to which items in other parts of the advertisement might distract attention from the disclosure; and whether the disclosure needs to be repeated several times in order to be effectively communicated.
Disclosures that are an integral part of a claim or inseparable from it should not be communicated through an online hyperlink.
Advertisers should not disclose necessary information through the use of pop-ups that could be prevented from appearing by blocking software. Even the use of un-blockable pop-ups to disclose necessary information may be problematic and advertisers can avoid problems by requiring the consumer to take some affirmative action to proceed past the pop-up.
Source: FTC.

The social media landscape isn’t as easy to encapsulate. Current FTC staff guidance stresses its prohibition on “unfair or deceptive acts or practices.” To make a disclosure clear and conspicuous, advertisers should:

Place the disclosure as close as possible to the triggering claim.

Consider the various devices and platforms consumers may use, and make sure disclosures work on them.

With space-constrained ads, such as banner advertisements, it may be acceptable to present the disclosure on the page to which it links.

Recognize technological limitations or unique characteristics of a communication method when making disclosures, such as Twitter’s 140-character limit.

Repeat disclosures, as needed, on lengthy Websites.

The FDA’s social media standards are murkier. Despite a draft policy released last summer, final rules for online disclosures remain missing in action; the original proposal from 2014 was slammed by many as unreasonable and unworkable.

Among the concerns is how to deal with character limitations on social media sites. The FDA’s stance: if you can’t fit the required information and risk profiles, don’t use that particular medium. Another point of contention is the requirement to correct misinformation posted by third parties on Websites and online forums. Drug companies fear they may be tasked with policing the nearly infinite internet.

Companies would be mistaken to assume that these efforts are solely directed at the underbelly of the internet. “The FTC stressed the fact it targeted some of the nation’s top advertising companies, and that shows the effort wasn’t solely directed at some fly-by-night company. These were reputable, established companies that received these letters,” Bruce says.

Due to this “wakeup call with respect to disclosures in general,” companies should re-educate their teams, Bruce says. Re-evaluate the approval process to make sure everybody “is not just slapping the same disclosure on ads across the board.” As in the case with other enforcement matters, always document what you are doing. “If you are subjected to an investigation, it is important to show that you had procedures and safeguards in place, she adds. “It is good to have that in your back pocket.”