When it comes to prosecuting false advertising, what is the appropriate division of labor between government authorities acting on behalf of the public, on the one hand, and members of the public themselves?
Most states have answered this question by enacting consumer protection laws that allow private plaintiffs to step into the shoes of government prosecutors to challenge allegedly false advertising. These private enforcement mechanisms supplement the roles played not only by state agencies and prosecutors but also by the Federal Trade Commission and Food and Drug Administration at the federal level. At the same time, most of these states have reserved exclusively to government actors the power to demand that advertisers produce evidentiary support, or “substantiation,” for their advertising claims—especially when they are not definitively “false,” but rather relate to new technologies undergoing testing, or to areas of scientific controversy.
Even in California—which has an especially robust statutory scheme allowing consumer “attorneys general” to bring suit for false advertising—courts have long held that the state legislature deliberately entrusted the power to demand substantiation only to “prosecuting authorities,” not private plaintiffs. As one California Court of Appeal explained in the seminal decision in National Council Against Health Fraud v. King Bio Pharmaceuticals, the policy rationale is that this division of labor is “the least burdensome method of obtaining substantiation for advertising claims” and limits “undue harassment of advertisers.” Yet that has not stopped the plaintiffs’ bar from filing suit after suit—often class actions—alleging that companies lack sufficient scientific support for their advertising claims.
On April 21, 2017, the Ninth Circuit weighed in with a published opinion firmly upholding the division of labor under California law that King Bio articulated. That decision, Kwan v. SanMedica International, affirmed that “King Bio’s holding is firmly established law in California”: “Private plaintiffs, unlike prosecuting authorities, do not have the power to require defendants to substantiate their advertising claims” under California’s consumer-protection statutes. In so ruling, the Court issued a warning to the cottage industry of class actions challenging only a “lack of substantiation”: immediate dismissal is appropriate if a plaintiff cannot in good faith allege “facts that would support a finding that [an advertiser’s] claims regarding its product . . . were actually false.”
Background to the Decision
The dispute arose from SanMedica International’s advertising of SeroVital, an over-the-counter supplement marketed to boost human growth hormone levels. SanMedica’s marketing campaign allegedly claimed that SeroVital provided a “682% mean increase in HGH levels,” that the product was “clinically tested,” and that “peak [HGH] levels” are associated with health benefits like “youthful skin” and “elevated energy.”
On July 21, 2014, Serena Kwan filed suit in federal court challenging SanMedica’s advertising of SeroVital as false and misleading. Invoking California’s Unfair Competition Law and Consumer Legal Remedies Act, Kwan alleged that SanMedica’s marketing was false and misleading because the company did not have adequate scientific support proving that SeroVital boosted HGH levels or provided the health benefits advertised.
On October 30, 2014, the district court dismissed the complaint, agreeing with SanMedica that Kwan had alleged only a “lack of substantiation.” Citing the King Bio decision, the court explained that consumers “may not bring suit under the UCL or the CLRA alleging only that advertising claims lack substantiation”—in other words, that they “merely lack evidentiary support.” “Instead, that right is reserved to the Director of Consumer Affairs, the Attorney General, any city attorney, or any district attorney.” A private plaintiff like Kwan, on the other hand, “must allege facts from which the Court can conclude that [the defendant’s] advertising representations were false”—in other words, “evidence that directly conflicts with the [challenged] claim[s].”
It was not enough, therefore, for Kwan to criticize the “sole study upon which [SanMedica] base[d]” its claims as “not methodologically sound,” or to allege that “no other study supports the growth hormone benefit representations.” Nor was it enough to cite public statements from the FTC and FDA finding “no reliable evidence” to indicate that over-the-counter HGH supplements like SeroVital yield the same health benefits as prescription HGH.
Rather, as a private plaintiff, Kwan’s burden was to allege actual facts refuting SanMedica’s claim that SeroVital increased HGH levels by 682%—“by, for example, alleging studies showing that [this] statement [was] false.” By contrast, Kwan’s actual “argument that [San Medica] claims support for its representations, when there in fact is no such support, perfectly describes a substantiation claim”—which, again, she had no authority to raise.
Not to be deterred, the plaintiff filed an amended complaint that tried to fix these problems by alleging, in further detail, that SeroVital’s health-benefit claims were not “based upon any reliable scientific evidence.” For example, the amended complaint asserted that “there are no studies demonstrating that the SeroVital ingredients, alone or in combination, provide any of the fountain-of-youth represented benefits.” Kwan also challenged SanMedica’s use of the phrase “clinically tested,” arguing that this claim implied to reasonable consumers that SeroVital was “clinically proven” to provide health benefits when, in reality, the company relied only on a single study “riddled with flaws.”
But the second time was not the charm; these new allegations did not change the district court’s original analysis that Kwan was challenging only the dearth of scientific evidence behind SanMedica’s claims, without pointing to any studies or other evidence affirmatively showing that its claims were false. Critically, Kwan “still [did] not allege that a study exists showing that these benefits are categorically impossible to achieve, or that one or more authorities [like the FTC or FDA] studied or tested SeroVital’s formula and found that it does not produce the results [SanMedica] claims.” Noting that the King Bio rule remains “both settled and fundamental, the Court decline[d] to overrule the Legislature’s explicit exception for cases where advertising is allegedly misleading or deceptive due to lack of substantiation.”
What the Ninth Circuit Held
On appeal, the Ninth Circuit agreed with the court below that Kwan had not done enough in either complaint to fix the central flaw in her claims: she had “failed to allege facts that would support a finding that SanMedica International’s claims regarding its product, SeroVital, were actually false.” And King Bio, the Court emphasized,remained the touchstone for this analysis:
In the fourteen years since King Bio was decided, courts, including several federal district courts, have cited it to require that private citizens bringing suit under the UCL or the CLRA properly allege proof that plaintiffs sustained injury from relying on marketing statements that were actually false. These courts have precluded private citizens from bringing actions that allege that the challenged advertising language lacked proper scientific substantiation. [And t]he California State Legislature has not amended the statutory language on which the King Bio holding relied.
To the Ninth Circuit, it was “readily apparent that King Bio’s holding [remains] firmly established law in California.” And because Kwan had consistently declined to allege anything beyond an absence of scientific evidence behind SanMedica’s claims, King Bio compelled the dismissal of her complaint.
The Court also rejected Kwan’s attempt to import a different standard from the Lanham Act, a federal statute. Under the Lanham Act, companies can bring a false advertising claim against their competitors on the basis that the advertising company does not have sufficient proof to substantiate an “establishment claim”—that is, a claim that the advertiser has clinical or other proof that its products delivers an advertised benefit. Kwan contended that SanMedica had brought upon itself the burden of bringing forward clinical proof when it made the establishment claim that SeroVital was “clinically tested.” The Ninth Circuit rejected this argument, relying once again on King Bio:
[N]o authority exists under California law for using the Lanham Act distinction between ‘establishment’ and ‘non-establishment’ claims as a means of shifting the burden of proof in California consumer protection law actions. . . . Reading a requirement that Lanham Act distinctions apply would clearly violate recognized California law on the burden of proof placed on the plaintiff.
Because Kwan had already had “ample opportunity to amend her complaint,” the Ninth Circuit instructed that the case should be dismissed with prejudice.
What the Decision Means Going Forward
The Kwan decision is good news for companies doing business in California, especially supplement manufacturers, that often find themselves sued in class actions attacking the studies on which they base their claims. In following King Bio, the Ninth Circuit confirmed that false-advertising plaintiffs must do more than allege that a company’s advertising claims are “unfounded,” or that the studies supporting its claims are “flawed” or “not peer-reviewed.” Rather, under California law, they must point to some affirmative evidence—such as “testing, scientific literature, or anecdotal evidence”—that suggests these claims are “actually false.”
The Ninth Circuit’s full-throated defense of King Bio is thus important, even though most district courts had previously held that the decision remained good law. To date, notwithstanding King Bio’s extensive influence, the California Supreme Court has not yet signed off on the Court of Appeal’s reasoning—and so has not yet made this precedent fully binding on federal courts applying California law. Kwan’s confirmation that King Bio “is firmly established law in California” makes the decision an even more potent weapon in the arsenal of companies defending false-advertising complaints premised on California law.
From a national perspective, the Kwan decision is also notable for how it positions the Ninth Circuit on one side of a nascent circuit split. On one end of the spectrum, the Fourth Circuit recently held in In re GNC Corp. (2015) that a plaintiff may not allege that an advertising claim is “false” if at least one “reasonable and duly qualified scientific expert” supports the claim. In other words, plaintiffs cannot establish that a claim is “actually false” on subjects where a “reasonable difference of scientific opinion exists.”
Many federal courts, including several district courts in the Ninth Circuit, have declined to follow In re GNC Corp., and the Fourth Circuit itself cautioned that its holding only applied to claims that an advertisement was “literally false,” as opposed to “literally true but still misleading.” While Kwan does not go quite as far as In re GNC Corp., it is a step closer along the spectrum: the decision instructs that district courts should scrutinize false-advertising complaints under California law to determine whether they are based on legitimate scientific evidence, as opposed to an alleged “lack of substantiation.”