1	U.S. Federal Trade Commission FTC’s Role in Regulating and Monitoring Advertising June 10, 2008
2	A Short History 1914: FTC started as a competition agency: “Unfair methods of competition” 1930s: Deceptive selling and distorted markets If one competitor engages in deceptive selling and the others do not, then those other competitors will lose sales to the one engaging in deception. Creates “race to the bottom.” FTC tried to use competition law to remedy this problem, but proof of injury to competition was difficult 1938: “Unfair and deceptive acts and practices in commerce” prohibited The basis of consumer protection at FTC
3	Organization of the FTC Commission is comprised of 5 Commissioners. No more than 3 from any one political party Appointed by the President and approved by the Senate 7 year terms that begin at different times
4	The FTC Act (15 U.S.C. § 41 et seq.) The Statute that governs advertising and marketing of most products and services in the U.S. is the Federal Trade Commission Act (“FTC Act”). Statute of general jurisdiction
5	The FTC Act The FTC Act prohibits: Unfair and deceptive acts or practices, and false advertising likely to induce the purchase of foods, drugs, and devices The FTC Act only covers practices in business - not political, artistic, or social speech.
6	Jurisdictional Reach FTC has jurisdiction over foreign companies and individuals if it can be shown that they conducted business in the United States. All or any part of the conduct or transaction occurred within the United States Any person to whom the conduct is directed is in the United States Advertising, promotional, or labeling material is accessible to consumers located in the United States who can purchase products referred to in the material FTC works with foreign government agencies on cross-border fraud
7	The FTC Act Acts or practices covered by the FTC Act include: False oral or written representations Unsubstantiated claims Misleading claims – these include truthful statements that, in context, may deceive consumers Sales of hazardous or defective products or services without adequate disclosures
8	FTC “Tools” for Regulating Advertising Law Enforcement Trade Regulation Rules Business Guides Consumer and Business Education Self-Regulation
9	Law Enforcement A “case” is a formal law enforcement action. A “case” can be filed in court or handled through an administrative process. Defendants may contest and litigate, or Defendants may settle and agree to an order. Every year, the FTC brings between 100 and 200 cases. Most often, the defendants settle before the case is filed.
10	Rules A rule is a written statement of how the FTC interprets the FTC Act in a particular context. A rule outlines acceptable and unacceptable conduct that applies to all businesses, or all businesses in a particular industry. A rule tells a wide range of businesses what they should and should not do. If a business or individual violates a rule, we can bring a case against it. Example: The Retail Food Store Advertising and Marketing Practices Rule prohibits food stores from advertising merchandise to consumers at a stated price if those stores do not have the advertised products in stock and available to consumers during the period of the advertisement unless the advertisement clearly discloses that supplies are limited.
11	Rules An advantage of a rule is that it sets a common standard of behavior for a wide range of businesses. A disadvantage is that rules cannot be easily changed when change is required. Generally, promulgating rules is very time and resource-consuming.
12	Guides There are two kinds of guides: Commission Guides Staff Guides A guide is a written statement explaining to businesses how the Commission or the FTC staff thinks the law will apply in particular circumstances. Sometimes, when we have brought a large number of cases in a particular area, we write a guide that sets forth, in one place, the understanding that businesses should take from those cases. Example: We have brought many cases involving health claims for food and health claims for dietary supplements. We used what we learned from these cases to prepare guidelines for advertisers of food, and guidelines for advertisers of dietary supplements.
13	Consumer Education Consumers who have been educated about potentially deceptive or confusing business practices are better able to protect themselves from harm. The FTC has prepared consumer education materials on many consumer protection topics. Business Briefcase Disks contain a number of our educational materials. The materials are in the form of interactive Internet pages, pamphlets, and speeches. They can be accessed from our website and are available also on a CD-ROM.
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15	Business Education The FTC prepares and sends out educational materials for businesses. Reputable businesses are less likely to engage in deceptive practices if they are advised about what conduct is acceptable, and what conduct is not. These educational materials are most effective if they use simple language and are limited to a small number of points. The advantage of consumer and business education materials is that they can be prepared and made available to the public in less time than cases, rules, or guides.
16	Business Self-Regulation Effective self-regulation by businesses reduces the need for government action – but it is not a substitute for government action. FTC promotes self-regulation by businesses. FTC meets with industry organizations to encourage self-regulation. FTC gives feedback on proposed self-regulatory standards, when requested. FTC gives public credit to industries that engage in appropriate self-regulation.
17	Business Self-Regulation Comparative Advertising - Businesses adjudicate disputes over competitors’ comparative advertising before the National Advertising Division (NAD) of the Council of Better Business Bureaus The NAD, funded by major US advertisers, rules on complaints by businesses that national advertising by competitors is deceptive or unsubstantiated. It handles several hundred cases per year.
18	Black & Decker
19	Duncan Hines
20	Volvo
21	Advertising Policy June 10, 2008
22	Advertising Policy - Unfairness When is an ad UNFAIR? If it is likely to cause substantial consumer injury – physical or economic that is not reasonably avoidable by consumers themselves and is not outweighed by benefits to consumers or competition.
23	Advertising Policy - Deception When is an ad DECEPTIVE? Representation, omission, or practice likely to mislead consumers acting reasonably under the circumstances and that representation, omission, or practice is material to consumers
24	Materiality Only “material claims” can be deceptive Definition of “material” form FTC Policy Statement on Deception, 103 F.T.C. 174 (1984): A “material misrepresentation or practice is one which is likely to affect a consumer’s choice of or conduct regarding a product. In other words, it is information that is important to consumers. If inaccurate or omitted information is material, injury is likely.”
25	Ad Interpretation What types of claims are material to consumers? Intended claims Price Performance Origin Qualities Purpose Safety Efficacy Durability Warranties
26	Advertiser’s Responsibilities Ads must be truthful and not misleading. An ad may be literally truthful and yet still be deceptive to consumers. An ad may be deceptive by omission. All objective claims must be substantiated at the time they are made. Any disclaimer that is necessary to prevent an ad from being deceptive must be “clear and conspicuous” and must effectively convey the correct net impression to consumers.
27	Advertiser’s Responsibilities An advertiser is responsible for all objective claims – express and implied – that are conveyed to reasonable consumers. “[A]n otherwise false advertisement is not rendered acceptable merely because one possible interpretation of it is not untrue.” (In re National Commission on Egg Nutrition et al., 1976)
28	All Ads Are Treated Equally Same standards apply to all products Same standards apply to all media Same standards apply throughout the marketing channel Same question applies to each ad: “What net impression does the ad convey?”
29	Falsity If ad claim is shown to be untrue, it is deceptive. Falsity may be shown by various types of evidence: Product testing Testimony of experts Testimony of past employee of advertiser
30	SUBSTANTIATION Before disseminating an ad, the advertiser must have a “reasonable basis” to support all objective claims made in the advertisement.
31	SUBSTANTIATION Why? Because an objective product claim implies that the advertiser has a reasonable basis for the claim.
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33	"Is the omission material" Is the omission material? Would the disclosure of the omission have been something that would have influenced the consumer’s buying decision? Was the claim misleading or deceptive because of the omitted information?
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