Expert's Opinion

When the FTC Comes Calling...

By John E. Villafranco, Kelley Drye & Warren LLP | October 28, 2013

John E. Villafranco explains how to handle product claim investigations.

John E. Villafranco
Kelley Drye & Warren LLP

Health and performance claims made by companies in the personal care industry continue to be a focus of the Federal Trade Commission staff.  And while an FTC investigation is never a pleasant experience for an advertiser, it is a whole lot less scary when you have a sense of what to expect.
At the outset, it is important to note that there is no “typical” case at the FTC and the length of any of the investigatory phases and corresponding costs often vary to a significant degree.  For example, a less aggressive FTC staff would reduce both the timeline and costs; a more aggressive staff, or an expansive document request, could cause a company to put more time into its responses, which would increase estimated costs accordingly. 

Full-Phase Investigation with Consent Negotiations

A full-phase investigation with consent negotiations can conclude quite abruptly after a company produces all of the requested documents and information, provided the FTC staff is satisfied with the evidence that it has obtained and the respondent indicates no interest in negotiating a settlement.  At the other extreme, full-phase investigations can carry on for years, although it is more common for an investigation to last one or two years.  A full-phase investigation, unlike an initial-phase investigation, cannot be closed without the approval of the Bureau Director (who, in turn, notifies the Commissioners).  Thus, no matter what the recommendation, the Bureau Director has considerable discretion on how to proceed.  The objective for every respondent is to persuade the staff that this investigation should be closed because the advertising claims at issue are truthful and substantiated.
During this initial stage of the proceeding, the company produces information and documents responsive to the FTC’s request.  This stage is likely to last for a few months.  Given the scope of FTC investigations these days, most companies proceed in multiple phases of production phases.  The FTC is normally not opposed to a phased production and the first order of business would be to negotiate the production schedule and the scope of electronic discovery.  Respondents often accompany document productions with a “whitepaper” that sets forth its view of the evidence supporting the claims at issue, and possibly sets forth defenses to expected allegations.  These written submissions become especially critical if the case advances to the Bureau and Commission level because a company should not expect the FTC staff to present the company’s evidence in the most favorable light. 
Legal fees through this initial phase can be substantial, given the time required to prepare responses/productions, including preparation of the whitepapers and document review  These costs are largely dependent upon variables related to the retrieval, preparation, and production of responsive electronic documents (the scope of which can be negotiated with the staff), as well as ongoing work with expert witnesses, and the development of the respondent’s position. 
Over the course of this initial phase, a respondent should maintain an open dialogue with staff and meet occasionally to present the substantiation for the claims at issue and respond to questions.  If a respondent is unable to persuade the FTC staff to recommend that the case be closed, they likely will propose a formal settlement offer in the form of a proposed complaint and stipulated judgment order.  A company could counter with its own settlement proposal (or remain firm that the matter should be closed).  Sometimes, these settlement discussions can occur over a period of months and even years.  In past matters, the staff has decided quickly whether it wants to settle according to its proposed terms or recommend litigation.  Settlement discussions also may require additional meetings and consultation with financial officers or economists regarding a company’s assets and revenues, and expenditures by purchasers of the products at issue.
The estimated fees through this last part of the investigatory stage, including meetings with the FTC staff and settlement discussions, are largely dependent upon the FTC staff’s reactions to the various submissions.

Recommendation to File Complaint

If the FTC staff recommends that the Bureau forward the matter to the Commission for formal action, both the FTC staff and the respondent will have an opportunity to present their support or opposition to the complaint recommendation and proposed order before the Bureau staff.  It is quite common for a proposed respondent to have a formal meeting with the Bureau Director (currently Jessica Rich) to attempt to persuade her not to proceed with the action.  An effective presentation can cause a case to linger for several months in the Bureau Director’s office, or to be returned for additional  investigation at the staff level. 

Commission Deliberations

If the Bureau Director decides to pursue the matter, the Bureau will forward the proposed complaint and proposed order to the five Commissioners of the FTC, three of whom must approve the recommendation for a complaint to issue.  The length of time a matter will be before the Commission varies considerably.  Relatively commonplace rule matters can pass through the Commission in one month.  Complicated and contested lawsuits can cause the Commissioners to deliberate for many months, one year, or even longer.  Typically, each of the Commissioners will provide a company with the opportunity to meet with him or her and argue its case.  As a result of this presentation, a company may persuade the Commission not to bring a case or to send the case back to the staff for further investigation. 


If the company is unable to reach a mutually agreeable resolution with the Commissioners, they first will have to decide whether to file the complaint in federal court alleging that the advertising claims and business practices violate the FTC Act, or to file an administrative action at the FTC. 
If the complaint is filed in federal court, the FTC likely will seek injunctive and equitable relief, as well as consumer redress and attorneys’ fees and costs.  As with any litigated case, these matters can last from months to years, depending on whether a settlement is reached or the case continues to trial.  There will be discovery requests, depositions, interviews with employees and consumers, preparation of witnesses, utilization of experts, drafting litigation documents, and other efforts necessary to defend the company.  The estimated costs and fees during this stage vary to a significant degree, depending on the length of the litigation, how the case proceeds, and whether the company settles or litigates to the end.  
If the FTC files an administrative action, it only could seek injunctive relief.  The case would be expected to last one-to-two years.  There will be discovery requests, depositions, interviews with employees and consumers, preparation of witnesses, utilization of experts, drafting litigation documents, counseling, and other efforts necessary to defend the company.  The estimated costs and fees through this stage also vary considerably, but are likely to be less than if the case were litigated.  

Keep Moving Toward the Light

Needless to say, the best result is to persuade the staff not to recommend any action to the Bureau of Consumer Protection.  The next best outcome would be to persuade the Bureau against going forward.  Like any potential litigation, the probability of success in these early efforts depends in large part on the ability to present an effective summary of a company’s substantiation.   This can be a lengthy process that requires a company to keep moving toward the light at the end of the tunnel.  Hopefully, through effective advocacy and interaction with the FTC staff, that light won’t be an oncoming train. 

About the Author
John E. Villafranco is a partner in the advertising and marketing practice at Kelley Drye & Warren LLP in Washington, D.C. He provides litigation and counseling services, with a focus on advertising law matters and consumer protection.  Named 2011 D.C. Advertising “Lawyer of the Year” by Best Lawyers, Mr. Villafranco is highly respected for offering comprehensive legal advice that emphasizes risk analysis and sound business practices for corporations involved in advertising and marketing.  He can be reached at

Related End-User Markets: