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Friday, March 22, 2013

Nature's Sunshine Regulatory Update

Nature's Sunshine Products

Welcome to the inaugural edition of the Nature's Sunshine Regulatory Update. Through this brief newsletter, we strive to provide our Members with a snapshot of the key regulatory issues affecting our industry and, where applicable, the Company's role in those issues.

Each quarterly newsletter will focus on some of the major developments in our industry since the prior edition. We encourage you to share this information with those in your success-line who would benefit from it. As always, if you have questions or would like more detail, please contact a member of the Nature's Sunshine Legal Department. Finally, we welcome your feedback. Please let us know what we can do better.

Social Media and Testimonials
In July of 2012, the National Advertising Division, an investigative unit of the advertising industry's system of self-regulation administered by the Council of Better Business Bureaus ("NAD"), completed its review of Nutrisystem's Pinterest campaign entitled "Real Consumers. Real Success." Although NAD decisions are non-binding, they are respected within the advertising community and generally represent a guide for avoiding enforcement actions by the Federal Trade Commission (FTC).

Nutrisystem's Pinterest board featured "real" customers highlighting their weight-loss success by including the customer's name, total weight loss and a link to the Nutrisystem website.

The express claims at issue were:
  • "Christine B. lost 46 lbs. on Nutrisystem."
  • "Michael H. lost 125 lbs. on Nutrisystem."
  • "Lisa M. lost 115 lbs. on Nutrisystem."
  • "Christine H. lost 223 lbs. on Nutrisystem."
The NAD determined that the weight-loss success stories pinned to the board were consumer testimonials requiring complete disclosure of material information in compliance with the FTC's Guidelines Concerning the Use of Endorsements and Testimonials in Advertising ("FTC Guidelines"). More particularly, the NAD found that the weight-loss results set forth on the board were atypical and, as a result, the FTC Guidelines required Nutrisystem to place a clear, conspicuous and understandable disclosure of the typical results consumers can achieve in immediate proximity to the claim or representation the disclosure is intended to clarify.

When NAD contacted Nutrisystem to discuss its findings, Nutrisystem agreed with its position and immediately added the required disclosures.

While the use of social media, e.g., Pinterest, Facebook, Twitter, etc, can be a powerful advertising tool, this case demonstrates that FTC advertising regulations apply equally to social media.

For more information on the FTC Guidelines please see http://www.ftc.gov/opa/2009/10/endortest.shtm. Also, for more information regarding claims that can and cannot be used when advertising NSP products, including through social media, please see the pamphlet "Can I Say That?" available at:

Nature's Sunshine Products, Inc. and the Direct Selling Association
Nature's Sunshine Products, Inc. is a proud member of the Direct Selling Association (DSA) and would like to remind you that we adhere to the DSA's Code of Ethics. The Code of Ethics can be found at http://www.dsa.org/ethics/code/. Please ensure you are familiar with this important document.

Post Election Updates
This past election season brought to the forefront many key issues for the dietary supplement industry. There were several areas NSP monitored several key election initiatives closely, including California's Proposition 37 (Prop. 37) ballot initiative and the re-election of Senator Orrin Hatch.

Proposition 37
On June 11, 2012, the California Secretary of State certified an eighth measure (the "Measure") to be placed on the 2012 ballot for approval by voters. The Measure sought to require the labeling of genetically engineered foods or Genetically Modified Organisms (GMOs). This Measure was placed on the November 2012 ballot in California as Prop. 37.

Although the vast majority of the dietary supplement industry would typically support more disclosure in labels and ingredients, many companies opposed Prop. 37 as it included a private enforcement provision comparable to California's Proposition 65 (which requires product warnings regarding the presence of potential carcinogens and heavy metals).

Prior to the vote, the Council for Responsible Nutrition's (CRN) President, Steve Mister, stated, "The GMO ballot Measure allows anyone to sue an allegedly noncompliant company in the name of the state without prosecutorial discretion." Similarly, the Natural Product Association's legal counsel, Daron Watts of Sidley Austin, commented that "[t]his is a boon to bounty hunters and will prompt high dollar settlements, just like prop 65."

Prop. 37 was ultimately defeated, with 4.8 million voters voting against and 4.3 million in favor. In the end, $46 million was spent to defeat the Measure and $9 million spent in support.

Although this Measure has been defeated in California, GMO's remain a hot political and industry issue. The "Right to Know," a pro Prop. 37 group supporting GMO disclosure issues generally, is just getting started. It has been reported that the GMO issue will next be brought up in Washington and Oregon, with Vermont and Connecticut following closely behind.

Dietary supplement trade groups such as Natural Products Association, United Natural Products Alliance, American Herbal Products Association, and the Council for Responsible Nutrition are working to ensure that future state bills do not include controversial provisions, such as private enforcement or a restrictive definition of "natural." NSP is monitoring these efforts and will continue to provide updates.

Senator Orrin Hatch Wins Reelection
The dietary supplement industry has long been a strong supporter of Senator Orrin Hatch (R - Utah) given his consistent defense of nutritional supplements and the right to use them. Senator Hatch was one of the principal authors of DSHEA, which forms the framework of dietary supplement regulations in the United States today.

NSP is pleased that Senator Hatch has returned to Congress for a record-setting seventh term. The Company was actively engaged in his reelection campaign and we appreciate his continuing support.

Senator Harkin Will Not Seek Reelection
Senator Harkin (D-Iowa) has stated he will retire and not seek reelection after 2014. Senators Harkin and Hatch were the chief authors of the Dietary Supplement Health and Education Act (DSHEA) and both have played a significant role in defending and supporting the dietary supplement industry. Senator Harkin's pending departure is of no small consequence to NSP and its distributors and it will be important for our industry to forge new relationships within the Beltway. NSP will be working with trade associations and our industry partners to develop relationships with members of congress who are willing to support our business and cause.

POM Wonderful v. FTC
In September 2010, the Federal Trade Commission (FTC) filed an administrative complaint against POM Wonderful LLC, its sister corporation, Roll International Corporation, and several of its principals (collectively, POM). POM manufactures and distributes 100% Pomegranate Juice and POMx supplements. The complaint charged that POM violated federal law by making deceptive disease prevention and treatment claims.

In May 2012, the administrative court issued its 335 page deci­sion, finding that POM engaged in false and deceptive advertis­ing. In its ruling, the administrative court found that POM lacked competent and reliable scientific evidence to support its claim that drinking eight ounces of POM juice, taking a POMx pill or a teaspoon of POMx liquid will treat, prevent or reduce the risk of heart disease, prostate cancer or erectile dysfunction.

The admin­istrative court noted that although the "competent and scientific evidence" standard for food-based disease claims did not neces­sarily require randomized clinical trials, POM's scientific evidence was nevertheless inadequate to support its product claims.

In defense of its position, POM argued that it had invested more than $35 million in research to demonstrate the health benefits of pomegranate juice (including the claims noted above). POM submitted evidence that it had sponsored about 100 studies at 44 different institutions, 70 of which were published in peer-re­viewed journals. Some of POM's evidence, however, was undercut by expert testimony during the proceeding that did not support POM's health claims. The administrative court ruled that clinical studies of some form must be included in competent and reliable scientific evidence as substantiation for disease claims. The court stated:

The evidence shows that the appropriate level of substantiation for the implied claims in this case that a product can treat, prevent, or reduce the risk of a disease is competent and reliable scientific evidence. Where such claims are made in connection with a food, or food-derived product, that is safe, and that is not being offered as a substitute for medical treatment, well-designed, well-conducted, randomized, double-blind, placebo controlled human clinical trials, such as those required by the Food and Drug Administration, are not required. However, for claims that a food or food-derived product treats, prevents, or reduces the risk of a disease, experts in the field would agree that competent and reliable scientific evidence must include clinical studies, although not necessarily double-blind, randomized, placebo-controlled clinical trials, adequate to show that the product did treat, prevent, or reduce the risk of disease.

Both the FTC and POM immediately issued press releases claiming victory and expressing opposing views of the administrative court's decision. The FTC claimed victory on the basis that the administrative court upheld the FTC's complaint and ruled that POM violated federal law by mak­ing deceptive claims in some advertisements that represented its products would treat, prevent or reduce the risk of disease. POM claimed victory on the basis that the administra­tive court found that POM was not obligated to conduct full-scale, randomized controlled trials to substantiate claims about the cardiovascular and prostate health benefits of pomegranate.

In June of 2012, the parties appealed the administrative court's ruling to the FTC Commission. The Commission heard oral argument in August of 2012 and issued its decision in January of 2013.

In a 5-0 vote the FTC upheld the administrative court's decision that POM had deceptively advertised their products and did not have adequate support for their disease-related claims. For more information, check the FTC website at http://www.ftc.gov/opa/2013/01/pom.shtm.

While the impact of this ruling on the dietary supplement industry is yet to be fully determined, Marc Ullman, partner in the New York law firm Ullman, Shapiro and Ullman, thinks the FTC will use the resources freed up from the disposition of this POM case to analyze social media marketing for compliance with FTC regulations. In addition, Steve Mister, President of Council for Responsible Nutrition, thinks both the FTC and FDA will push back on supplement firms making subtle disease claims, such as firms using metatags to have their supplements appear in internet search results for disease treatments. This potential for increased enforcement by both the FTC and FDA underscores the importance of following NSP's approved marketing literature when marketing NSP's products.

For more information regarding claims that can and cannot be used when advertising NSP products, including through social media, please see the pamphlet.

"Can I Say That?" available here.

Energy Drinks
In the face of several deaths reported to the FDA allegedly involving 5-Hour Energy and Monster energy drinks, Senators Durbin (D, Ill.) and Blumenthal (D, Conn.) wrote a letter to the FDA requesting that the agency tighten its regulation of energy drinks.

The Senators subsequently met with Commissioner Margaret Hamburg from the FDA. Durbin and Blumenthal specifically asked the FDA for "swift action regarding findings that a number of energy drinks contain at least 20% more caffeine than the products' labels disclosed."

They also asked the FDA to convene an expert panel in early 2013 to discuss the effects of caffeine and other stimulants. According to a press release posted on Senator Blumenthal's website, Commissioner Hamburg "made it clear [FDA] is moving forward in a number of areas to protect vulnerable populations against high levels of caffeine in energy drinks." Both Monster and 5-Hour Energy have met with the FDA and assured them that their products are safe.

In the meantime, Representative Edward Markey (D, Mass.) wrote a letter to the FTC seeking further scrutiny of the advertising of energy drinks. He stated that the U.S. adults' average daily caffeine consumption of 300 mg is considered safe by medical professionals.

"It is unknown, however, if these levels are safe for children and teens." He also asked the FTC to determine whether ads for energy drinks are "unfair or deceptive." The FTC has said they "will consider it carefully, as we consider all letters."

Of concern to the dietary supplement industry is that despite the legitimacy of the energy drink inquiry, opponents of dietary supplements may use this opportunity to push for unfavorable changes to DSHEA. As a result, NSP is monitoring this issue closely as it develops at both the FDA and FTC.

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