Law360, New York (February 29, 2016, 12:02 PM ET) -- Federal and state agencies have ramped up enforcement actions against consumer products manufacturers by heeding the age- old adage that everything is “better together.” This recent joint enforcement activity forewarns manufacturers to consider the risk profile of their marketing strategies in light of potential enforcement by multiple levels and agencies of government.
Federal Cross-Agency Collaboration
At the federal level, the U.S. Department of Justice has engaged in extensive cross-agency collaboration to enforce federal regulations concerning consumer products. For example, in November 2015, the DOJ announced its pursuit of civil and criminal cases against more than 100 dietary supplement companies over the year. Other than reminding us that consumer protection law has a criminal component, what was notable about this announcement was the level of cross-agency collaboration. In the press release, the DOJ explained that it “joined forces” with the Food & Drug Administration, Federal Trade Commission, U.S. Postal Inspection Service, IRS, Department of Defense and the U.S. Anti-Doping Agency to pursue these cases.
Besides DOJ partnerships, other cross-agency collaborations have occurred with respect to federal enforcement of consumer protection laws. Some partnerships have been foreseeable. For example, the FDA and FTC continue to collaborate on issues related to the promotion of health-related products (e.g., coordination regarding misbranded dietary supplements/misleading advertising and unapproved new drugs, the regulation of homeopathic products (e.g., here and here) and the sale of caffeinated alcoholic beverages (e.g., here and here)). The FTC and Federal Communications Commission also recently signed a memorandum of understanding formalizing their existing cooperation on consumer protection efforts related to telecommunication services. And various agencies partner with U.S. Customs to block the import of products that reflect enforcement priorities.
Other, less obvious partnerships, have arisen as well. A great example is the FDA’s January 2014 Guidance for Industry: Distinguishing Liquid Dietary Supplements from Beverages, which forewarned companies that the FDA may consider statements made in filings with the U.S. Securities and Exchange Commission or the U.S. Patent and Trademark Office to determine whether a product is a dietary supplement versus a conventional food for purposes of FDA regulation. Companies often are also surprised to learn that the U.S. Postal Inspection Service plays an active role in the government’s efforts to prevent the sale and distribution of deceptively marketed products through the mail fraud statute. Simply put, the agencies are talking to each other (and could be talking about your company).
Federal and State Collaboration
The FTC’s recent settlements in Federal Trade Commission and State of Maine v. Anthony Dill, Staci Dill, Direct Alternatives and Original Organics LLC and Federal Trade Commission and the State of Florida v. Boost Software Inc. continue a trend of cooperation between federal and state agencies in challenging allegedly deceptive advertising practices. Such partnerships are valuable to the states because they enable state attorneys general (who often have very limited budgets and staff) to combine their broad subpoena and civil penalty authority with the personnel and resources of the federal government. For example, in Direct Alternatives, the FTC did not have statutory authority to seek civil penalties under the FTC Act or Electronic Fund Transfer Act while, in contrast, the state of Maine was able to seek civil penalties from the companies under Maine’s Unfair Trade Practices Act. Direct Alternatives involved allegations that the defendants made unsubstantiated claims regarding weight loss supplements and deceptively offered consumers “risk-free trials” — practices that are held to the same standard under federal and Maine state law. Consideration of both state and federal law can be even more significant in actions in which the state imposes different standards for a trade practice than the FTC (such as “genetically modified organism” or “Made in USA” standards for product labeling).
Companies must also contend with interorganizational sharing of information that can be compiled and used against them. Federal and state agencies commonly share information regarding the potential injury caused by a company’s product, service or practice. For example, in a pending action by the FTC and Florida attorney general against Lifewatch Inc., the agencies are relying on data collected by the FTC’s Consumer Sentinel Network. The FTC also benefits from Florida’s involvement because, like in Direct Alternatives, the Florida attorney general can seek a civil penalty under the Florida Deceptive and Unfair Trade Practices Act. The FTC is unabashedly clear that the “Consumer Sentinel is based on the premise that sharing information can make law enforcement even more effective. To that end, the Consumer Sentinel Network which is available for free to any federal, state or local law enforcement agency] provides law enforcement members with access to complaints provided directly to the Federal Trade Commission by consumers, as well as providing members with access to complaints shared by data contributors.” Thus, it should come as no surprise that federal, state and local enforcement actions often use the complaints collected through the database for support.
Other agencies have developed similar databases to allow regulators to share information that can be used to enforce consumer protection laws. For example, the FDA has launched its own Sentinel Initiative to gather complaints about drugs, biologics and medical devices and recently hosted its eighth annual workshop to discuss how organizations engaged in monitoring medial products can expand medical product surveillance. Currently, the FDA uses a Mini-Sentinel to track the safety of FDA-regulated medical products through which institutions that collaborate with the Mini-Sentinel project share access to localized data and scientific and organizational expertise. Such databases increase the importance of companies monitoring complaints and adverse events filed regarding its products so that it can anticipate potential government inquiries.
In the wake of the government’s strengthened commitment to cross-agency collaboration, it is increasingly important for consumer product companies to ensure that they are implementing a similar cross-disciplinary strategy for the development, marketing, distribution and sale of their consumer products. It is no longer prudent to apply a siloed approach to the regulatory review of a product’s life cycle (e.g., using separate counsel for patent filings, formulation selection and label review without coordination). Instead, information provided to the government should be shared with a multidisciplinary team to ensure its contents are considered at each touchpoint of a product’s life cycle with a government agency. In addition, companies need to evaluate their strategies from the perspective of federal, state, and local prosecutors, competitors and private plaintiff’s attorneys. If not, a company can find itself unprepared for the new normal.
Published by Consumer Protection Law360, Food & Beverage Law360, Life Sciences Law360, and Product Liability Law360 on February 29, 2016.