10 Ways to Avoid an FTC Investigation in 2023

The FTC Regularly Conducts Investigations Targeting Unfair and Deceptive Trade Practices, Antitrust Violations, and Other Statutory and Regulatory Offenses. Here are 10 Tips for Avoiding an FTC Investigation in 2023.

The U.S. Federal Trade Commission (FTC) is responsible for enforcing the nation’s consumer protection and antitrust laws. To satisfy its enforcement mandate, the FTC routinely conducts investigations targeting both companies and individuals.

These investigations present substantial risks. Not only can the FTC enjoin unlawful practices and impose financial penalties, but it can also initiate civil litigation in the federal courts. Additionally, if an FTC investigation uncovers evidence of criminal wrongdoing, the FTC can refer the matter to the U.S. Department of Justice for prosecution.

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What Can (and Should) Companies Do to Avoid FTC Scrutiny in 2023?

With this in mind, companies must take proactive steps to protect themselves (and their owners, executives, and board members). To this end, here are 10 steps companies can—and should—take to avoid FTC investigations in 2023:

1. Ensure Adequate Substantiation for All Claims, Statements, and Implications in Advertising

All advertisements must be supported by adequate substantiation. The Federal Trade Commission Act (FTC Act) prohibits false and deceptive advertising; and, under the FTC Act, companies must take affirmative steps to ensure that their advertising claims and statements are truthful. Companies must also avoid creating implications that are misleading to consumers.

Advertising claims that appear to lack substantiation will often trigger FTC scrutiny; and, absent adequate substantiation, the FTC will assume that an advertisement is untruthful. As a result, by ensuring that they have adequate substantiation, not only can companies mitigate their risk of facing an FTC investigation, but they can also put themselves in a favorable position to efficiently resolve any FTC inquiries.

2. Focus on the “Reasonable Consumer” Standard When Evaluating Advertisements for Deceptiveness

Companies can also expose themselves to FTC scrutiny by focusing on specific interpretations of their advertising language that technically comply with the law. When evaluating companies’ advertisements, the FTC does not focus on technicalities, but instead on a “reasonable consumer” standard. If a reasonable consumer would draw a particular inference from an advertisement, this is what matters—not the fact that it may also be possible to interpret the advertisement differently.

It is also important to note that when evaluating an advertisement under the “reasonable consumer” standard, the FTC focuses on analyzing the advertising as a whole. What is the overall impression the advertisement is likely to have? If this overall impression is deceptive or misleading, it can—and often will—lead to FTC enforcement action and penalties.

3. Avoid Broad Claims of Effectiveness (Without Adequate Substantiation)

Broad claims of effectiveness are also common triggers for FTC investigations. This is especially true with regard to medications and other consumer products such as creams and dietary supplements. In order to lawfully claim that a product “works,” “cures,” or “prevents” a particular condition, it is necessary to have comprehensive scientific data that fully substantiate this type of claim.

Companies can also run into trouble as a result of making claims that their products are the “best” or customers’ “preferred” choice. Here, too, substantiation is required, and claims of “puffery” are unlikely to withstand scrutiny from the FTC. If a claim is capable of being proven or disproven, proof is required. If a qualification is necessary to make a claim truthful (i.e., “Our coffee was voted the best by ABC Organization”), then this qualification must be included in the company’s advertising.

4. Prioritize Customer (and Employee) Data Security

In addition to enforcing the federal truth-in-advertising laws, the FTC is also responsible for enforcing the federal laws that protect consumers’ privacy. For companies that sell products and services at retail, the federal data protection laws apply to both their customers and their employees.

Enforcing companies’ consumer data privacy obligations has been a top priority for the FTC in recent years—and this is a trend we expect to see continue well into the future. As a result, to avoid FTC investigations, companies must not only focus on advertising compliance, but they must prioritize consumer data privacy compliance as well. Notably, the FTC is not the only federal agency that has enforcement authority in this area. Companies that fail to adequately protect their customers’ and employees’ data can face scrutiny from the Consumer Financial Protection Bureau (CFPB) and various other agencies as well.

5. Provide Training to Sales Teams and Monitor Their Activities

Companies are responsible for their employees’ acts and omissions. This includes the employees on their sales teams. If a salesperson makes false, misleading, or deceptive statements to prospective customers, this can lead to complaints that trigger an FTC investigation. This is true for statements made in person, in emails and other direct communications, and on social media.

To minimize the risk of their sales teams’ tactics getting them into trouble, companies can—and should—provide compliance training and monitor their sales teams’ activities. Not only can this help to prevent unlawful sales practices; but, in the event that a salesperson’s practices trigger FTC scrutiny, being able to show that the company took reasonable steps to prevent these practices can help to facilitate a favorable resolution.

6. Address the Risks of FTC Noncompliance When Negotiating Commercial and Business Contracts

Along with risks related to in-house personnel, companies can also face risks for FTC investigations arising out of their commercial relationships and business transactions with third parties. This includes risks ranging from deceptive advertising materials created by marketing firms to mergers and acquisitions that have federal antitrust implications.

With this in mind, when negotiating any type of commercial or business contract, it is imperative to carefully consider the compliance implications involved. Companies need to ensure that their commercial contracts include appropriate protections and remedies, and they need to ensure that all business transactions are properly structured to avoid drawing the FTC’s ire.

7. Engage FTC Compliance Counsel Early

Due to the varied and substantial risks for non-compliance, it is imperative that companies engage FTC compliance counsel early. Ideally, this means before publishing advertisements, collecting customer data, or entering into a contract that has FTC compliance implications. By working with experienced FTC compliance counsel from the outset, companies can substantially mitigate their risk of facing FTC investigations, and they can ensure that they have the documentation they need to present an effective FTC defense if necessary.

When choosing FTC compliance counsel, it is important to engage a firm that handles both compliance and defense. During the process of developing FTC compliance policies and procedures, understanding when and how the FTC pursues investigations is crucial for making informed decisions. It is also important to choose a firm that focuses its practice on federal matters. Not only are the laws and regulations that fall within the FTC’s enforcement jurisdiction exceedingly complex, but defending against an FTC investigation is also very different from dealing with regulators at the state level.

8. Be Very Careful When Sharing Consumers’ Personal Data with Third Parties

In addition to scrutinizing companies’ in-house data protection practices, the FTC is also currently placing increased emphasis on companies’ sharing of consumer data with third parties. We’ve seen several companies get into trouble recently for engaging in improper data-sharing practices—often as a result of collecting consumers’ data without securing the requisite consent to sell their data on. For companies that generate revenue by selling customers’ data—and for those that buy customer data from third parties—it is imperative to ensure strict compliance with all pertinent laws, rules, and regulations.

9. Focus on the FTC’s Current Priorities and Newly-Issued Regulations

While the FTC has several long-standing priorities, it has also recently identified new priorities—in many cases related to newly-issued rules and regulations. To avoid FTC investigations, companies need to keep all of these priorities in mind. While any statutory or regulatory violations can potentially trigger FTC scrutiny, those that fall within the FTC’s current priority enforcement areas present even greater risks for investigations.

10. Review and Update Your Company’s Current FTC Compliance Program

One of the most important steps companies can take to avoid FTC investigations in 2023 is to review and update their current FTC compliance programs. The FTC has issued several new rules and regulations over the past few years, and it has also published policy guidance on several topics. Companies need to ensure that their FTC compliance programs are up to date—and they also need to ensure that their compliance programs are working effectively. By engaging counsel to review their policies and procedures, conduct a compliance audit, and update their FTC compliance program as necessary, companies can put themselves in a favorable position to avoid FTC scrutiny (and withstand it if necessary).

Contact the FTC Compliance and Defense Lawyers at Oberheiden P.C.

If you have questions or concerns about FTC compliance in 2023 (or beyond), we invite you to get in touch. To arrange a complimentary consultation with a senior lawyer at Oberheiden P.C., please call 888-680-1745 or tell us how we can reach you online today.