Research · 7 min read
Who Besides a Regulator Can Challenge a Health Advertisement
The federal consumer agency is not the only reader of a marketing page. Separate statutes give competitors and state officers their own actions, each with its own remedies and its own notice requirements.
Key takeaways
- The federal consumer agency's own rules say a complainant is not a party and that it acts only in the public interest, which is why other enforcement channels matter.
- 15 U.S.C. 1125(a)(1)(B) is a false-advertising provision covering misrepresentation of the nature, characteristics, qualities or geographic origin of the speaker's own or a rival's goods or services.
- Its remedies under 15 U.S.C. 1117(a) reach the defendant's profits — with the plaintiff proving sales and the defendant proving costs — plus damages up to a trebled amount, costs, and fees to the prevailing party in exceptional cases.
- State attorney general actions exist under several consumer statutes, each with prior notice to the Commission and, under the online shopper protection chapter, a bar while a federal action on the same violation is pending.
- Under the commercial email statute a state action may seek statutory damages computed at up to $250 per separately addressed unlawful message, capped at $2,000,000 for most violations, trebled for willful and knowing conduct and reducible where commercially reasonable prevention practices were implemented with due care.
- For ten categories of regulated entity, the commercial email chapter is enforced by that entity's own regulator rather than by the consumer agency.
Answer first: the agency's own rules explain why the question matters
The Federal Trade Commission's procedural rules set two limits that are easy to miss. 16 CFR 2.2(b) provides that "The person making the complaint or request is not regarded as a party to any proceeding that might result from the investigation." 16 CFR 2.3 provides that "The Commission acts only in the public interest and does not initiate an investigation or take other action when the alleged violation of law is merely a matter of private controversy and does not tend adversely to affect the public."
Those two sentences describe an agency that chooses its matters on a public-interest test and does not run cases on behalf of individuals. That is why the question of who else may act is worth asking about an advertising claim.
Three other channels exist in statute, and they belong to different parties. One is a false-advertising action under the trademark statute, available to a class the statute defines. Another is a state attorney general action, provided for by several consumer statutes with different remedies and different notice rules. A third is enforcement by other federal agencies where the seller falls under their supervision.
None of them is a route this page tells any reader to take. What follows describes who each statute names and what each provides.
The false-advertising action in the trademark statute
15 U.S.C. 1125(a)(1) is usually associated with trademarks, but its second subparagraph is a false-advertising provision on its face.
It reaches "Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which" either "is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person," under subparagraph (A), or which, under subparagraph (B), "in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities."
Subparagraph (B) covers a company's statements about its own goods and about somebody else's. A comparison that misrepresents a rival's product is within the same sentence as an overstatement about one's own.
The statute then states who may bring the action. Such a person "shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act." That is the statutory class in the statute's own words. What courts have held about who falls inside it is a question of case law that this page does not address.
Subparagraph (A) is worth noting alongside the impersonation rule described elsewhere in this collection: false affiliation, connection, association, sponsorship or approval appears here as well, in a statute that predates that rule by decades.
What that action can recover
15 U.S.C. 1117(a) sets the remedies, and its structure differs sharply from the agency remedies described in the companion article on consumer-protection cases.
Where a violation under section 1125(a) "shall have been established in any civil action arising under this chapter," the plaintiff is entitled, "subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action."
The burden allocation on profits is unusual and worth quoting: "In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed."
On damages, "the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount," and where a profits-based recovery is "either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just." The statute then adds a characterization: "Such sum in either of the above circumstances shall constitute compensation and not a penalty."
Finally, "The court in exceptional cases may award reasonable attorney fees to the prevailing party" — either party, not only the plaintiff.
The practical significance for a reader is not that anyone should sue. It is that a company's advertising claims are read by parties with a financial interest in disputing them, and those parties have a remedy that reaches the defendant's profits rather than only the plaintiff's losses.
State officers, and the notice they owe first
Several consumer statutes give a state attorney general an action, and each attaches conditions.
Under the online shopper protection chapter, 15 U.S.C. 8405(a) permits a state attorney general or other authorized state officer alleging a violation "that affects or may affect such State or its residents" to bring an action on behalf of residents "to obtain appropriate injunctive relief." Subsection (b) requires prior written notice to the Commission with a copy of the complaint, or immediate notice if prior notice is not feasible; subsection (c) lets the Commission intervene, be heard on all matters and file appeals; and subsection (e) bars a separate state suit where "the same alleged violation is the subject of a pending action by the Federal Trade Commission or the United States under this chapter."
Under the commercial email statute, 15 U.S.C. 7706(f)(1) permits a state attorney general, official or agency, "as parens patriae," to sue on behalf of residents to enjoin further violations or to obtain damages equal to the greater of actual monetary loss or a statutory amount. Subsection (f)(3)(A) computes that amount "by multiplying the number of violations (with each separately addressed unlawful message received by or addressed to such residents treated as a separate violation) by up to $250," with a limitation in (f)(3)(B) that for most violations the amount "may not exceed $2,000,000."
That section also runs in both directions. Subsection (f)(3)(C) permits the court to increase an award "to an amount equal to not more than three times the amount otherwise available" where the violation was willful and knowing or included aggravating conduct, while (f)(3)(D) permits the court to consider, in assessing damages, whether "the defendant has established and implemented, with due care, commercially reasonable practices and procedures designed to effectively prevent such violations."
Under the telemarketing rule, 16 CFR 310.7(a) requires any state attorney general or other authorized state officer bringing an action under the Telemarketing and Consumer Fraud and Abuse Prevention Act — "and any private person who brings an action under that Act" — to "serve written notice of its action on the Commission, if feasible, prior to its initiating an action," including a copy of the complaint and other pleadings, and to serve that notice immediately upon instituting the action if prior notice is not feasible. Subsection (b) preserves the state officer's ability to proceed in state court on a state statute.
Other regulators, and what this page is not saying
Enforcement also depends on what kind of company the seller is. 15 U.S.C. 7706(a) provides that the commercial email chapter "shall be enforced by the Commission as if the violation of this chapter were an unfair or deceptive act or practice" under section 18(a)(1)(B) of the FTC Act — "Except as provided in subsection (b)."
Subsection (b) then assigns compliance enforcement for ten categories of entity to their own supervisors: banking regulators for banks and savings associations, the National Credit Union Administration for federally insured credit unions, the Securities and Exchange Commission for brokers, dealers, investment companies and registered investment advisers, state insurance authorities for persons providing insurance, the Secretary of Transportation for air carriers, the Secretary of Agriculture for activities under the Packers and Stockyards Act, the Farm Credit Administration for named farm credit entities, and the Federal Communications Commission for persons subject to the Communications Act.
Subsection (c) adds that for those agencies "a violation of this chapter is deemed to be a violation of a Federal Trade Commission trade regulation rule," and that each may also exercise "any other authority conferred on it by law."
Three things this page is not saying should be stated plainly. It does not say that any reader has a claim under any of these provisions, and several of them are conferred on state officers or on a statutorily defined class rather than on the public. It does not name any company, describe any case, or assert that any advertisement violates anything. And it does not advise anyone on whether to take any action; questions of that kind belong to a lawyer who can see the specific facts.
What the provisions collectively establish is narrower and still useful. A marketing claim is exposed to more than one reader with more than one remedy. That is a reason to expect a claim on a page to be one the company would be willing to defend, and it is a reason a company's silence about the basis for a claim is itself informative.
Sources
- 15 U.S.C. 1125 — False designations of origin, false descriptions, and dilution forbidden (subsection (a))The full text of 15 U.S.C. 1125(a)(1), including subparagraph (A) on confusion as to affiliation, connection, association, origin, sponsorship or approval, subparagraph (B) on misrepresentation in commercial advertising or promotion of the nature, characteristics, qualities or geographic origin of the speaker's own or another person's goods, services or commercial activities, and the concluding clause naming the class who may bring a civil action.
- 15 U.S.C. 1117 — Recovery for violation of rights (subsection (a))The remedies available where a violation under section 1125(a) is established: the defendant's profits, damages sustained and costs of the action; the burden allocation requiring the plaintiff to prove sales only and the defendant to prove cost or deduction; the discretion to enter judgment up to three times actual damages and to adjust an inadequate or excessive profits recovery; the statement that such a sum constitutes compensation and not a penalty; and the award of reasonable attorney fees to the prevailing party in exceptional cases.
- 15 U.S.C. 7706 — Enforcement generally (subsections (a), (b), (c) and (f))The Commission's enforcement of the chapter as an unfair or deceptive act or practice under section 18(a)(1)(B) of the FTC Act; the assignment in subsection (b) of enforcement for ten categories of entity to banking, credit union, securities, insurance, transportation, agriculture, farm credit and communications regulators; the statement in subsection (c) that for those agencies a violation is deemed a violation of an FTC trade regulation rule and that each may exercise other authority conferred by law; and the state action in subsection (f), including the parens patriae civil action for injunctive relief or damages, the statutory damages computation at up to $250 per separately addressed unlawful message, the $2,000,000 limitation, the treble-damages provision for willful and knowing violations or aggravating conduct, and the reduction factor for commercially reasonable practices implemented with due care.
- 15 U.S.C. 8405 — Enforcement by State attorneys generalThe state right of action for appropriate injunctive relief on behalf of residents; the prior written notice requirement to the Commission with a copy of the complaint and the immediate-notice alternative; the Commission's intervention and appeal rights; the preservation of state law powers; and the bar on a separate state suit while the same alleged violation is the subject of a pending federal action.
- 16 CFR 310.7 — Telemarketing Sales Rule, actions by states and private personsThe requirement that a state attorney general or other authorized state officer, and any private person bringing an action under the Telemarketing and Consumer Fraud and Abuse Prevention Act, serve written notice on the Commission before initiating the action where feasible, with a copy of the complaint and other pleadings, and immediately upon instituting the action where prior notice is not feasible; and the preservation in § 310.7(b) of a state officer's ability to proceed in state court on a state civil or criminal statute.
- 16 CFR 2.2 and 2.3 — Complaint or request for Commission action; Policy as to private controversies (16 CFR Part 2, Nonadjudicative Procedures)The statement in § 2.2(b) that the person making a complaint or request is not regarded as a party to any resulting proceeding, and the statement in § 2.3 that the Commission acts only in the public interest and does not initiate an investigation or take other action where the alleged violation is merely a matter of private controversy that does not tend adversely to affect the public.
Frequently asked questions
Does filing a complaint with the federal consumer agency make someone a party?
No. 16 CFR 2.2(b) states that the person making the complaint is not regarded as a party to any proceeding that might result. 16 CFR 2.3 separately provides that the Commission acts only in the public interest and does not act where the alleged violation is merely a private controversy.
What does the trademark statute's false-advertising provision cover?
15 U.S.C. 1125(a)(1)(B) reaches a false or misleading description or representation of fact that, in commercial advertising or promotion, misrepresents the nature, characteristics, qualities or geographic origin of the speaker's own or another person's goods, services or commercial activities.
Who does that statute say may bring the action?
Its text says the violator "shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act." How courts have interpreted that class is a question of case law this page does not address, and nothing here tells any reader that an action is available to them.
What can be recovered in such an action?
15 U.S.C. 1117(a) provides for the defendant's profits, the plaintiff's damages and the costs of the action, subject to the principles of equity. On profits the plaintiff proves sales only and the defendant must prove cost or deduction. Damages may be increased up to three times actual damages, the result is described as compensation and not a penalty, and attorney fees may be awarded to the prevailing party in exceptional cases.
What must a state officer do before suing under these statutes?
Give notice. 15 U.S.C. 8405(b) requires prior written notice to the Commission with a copy of the complaint, or immediate notice if prior notice is not feasible, and 8405(e) bars a separate state suit while the same alleged violation is the subject of a pending federal action. 16 CFR 310.7(a) requires the same kind of prior written notice for actions under the Telemarketing Act.
Is the federal consumer agency always the enforcer?
Not for every kind of company. 15 U.S.C. 7706(b) assigns enforcement of the commercial email chapter for ten categories of entity — banks, credit unions, brokers and dealers, investment companies and advisers, insurers, air carriers, and others — to their own regulators, with a violation deemed to be a violation of an FTC trade regulation rule for that purpose.