| March 21, 2000 Secretary Re: Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace To the Secretary: Leo Burnett Worldwide, Inc. welcomes the opportunity to offer our perspectives to the Department of Commerce (DOC) and the Federal Trade Commission (FTC) on Alternate Dispute Resolution Mechanisms for Consumer Transactions in a Borderless Online Marketplace. Leo Burnett is one of the world’s leading advertising agencies, and has produced some of the industry's most enduring advertising campaigns. These campaigns have helped build more than 500 of the world's leading brands, including five of the seven most valuable brands in the world as ranked by Financial World magazine. Combined billings for Leo Burnett's U.S. and international operations were more than $7 billion in 1999. Headquartered in Chicago, Leo Burnett has 91 full-service offices in 81 markets throughout the world. Leo Burnett employs approximately 8,500 people via a global network encompassing nearly 200 operating units. Leo Burnett is a staunch supporter of industry self-regulation for advertising and the use of alternate dispute resolution in the online marketplace. We view self-regulatory mechanisms as a valuable resource for both the advertising industry and consumers alike. Advertising self-regulation exists at the international, regional and national levels, and all self-regulatory organizations have the same goal: advertising should be lawful and truthful. We want to reinforce what works, not to evade the law, but to apply simple recourse. Most jurisdictions have consumer laws, policies and practices that limit fraudulent, misleading and unfair commercial conduct, and many countries have established systems of industry self-regulation. Most, if not all, advertising self-regulatory codes and guidelines established internationally have been developed to compliment existing national law. National self-regulatory bodies deal with consumer complaints and/or competitive challenges in accordance with their own national guidelines, and as required by the appropriate related government authority. National laws and advertising self-regulatory systems do vary from country to country. These various laws and systems take into account the different customs, mores and traditions inherent in the culture of each country. The United States has the Federal Trade Commission (and the Food & Drug Administration in some cases), as well as the National Advertising Division (NAD) of the Better Business Bureau (BBB) and the Children's Advertising Review Unit. At the international level, the International Chamber of Commerce (ICC) has several codes of practice, including the International Code of Advertising Practice, the International Code of Sales Promotion, and the ICC International Code of Practice on Direct Marketing. Many countries without self-regulatory systems in place often look to the ICC for their expertise in setting standards for advertising self-regulation. The U.S. system relies on the advertising guidelines established by the NAD, which are based on broad principles of truth and accuracy. The NAD regularly monitors advertising for adherence to the established guidelines, as well as compliance with local, state and federal laws and regulations relating to advertising. While the NAD is not an enforcement bureau, it does contact advertisers when questionable advertising is noted. Advertisers are asked to substantiate claims being made in the advertisement and to voluntarily comply with the NAD advertising guidelines. The BBB system also provides consumers and industry with an outlet to alert the BBB or the NAD to untruthful or misleading advertising as well. To settle these "disputes", consumers can contact their local branch of the BBB, while industry members can register a challenge to a certain advertisement directly through the NAD. The BBB/NAD will then initiate an investigation into the questions of truth and accuracy of the advertisement in question, followed by a publication of their findings. The NAD may find that the advertisement has been substantiated, or if not, request that the advertiser correct the advertisement, and in some cases, discontinue the advertisement. The NAD may also refer a case to the appropriate law enforcement agency if the advertiser elects not to participate in the self-regulatory process, or ignore the NAD decision. In Europe, industry self-regulation exists at both the national and pan-European levels for the advertising industry. Each country has a set of national rules, principles or guidelines for advertising that are appropriate for each local society. There is no pan-European advertising code or principles, though a voluntary yet formal "alliance" exists between the various national advertising self-regulatory organizations, allowing them to cooperate across borders to address complaints. This alliance is known as the European Advertising Standards Alliance (EASA). (Note website: www.easa-alliance.org/home.html) Based in Brussels, the EASA was created by the industry in 1992, and brought together the advertising self-regulatory bodies throughout Europe. Its goal is to promote and support advertising self-regulation in Europe, to coordinate the handling of cross-border complaints through an alliance of the national self-regulatory organizations in Europe, and to provide information and research on advertising self-regulation. The EASA is a well-respected organization, and its supervision of cross-border advertising complaints is very effective. The system works, and the complaints that have brought to the attention of EASA have been resolved effectively. Within EASA, a consumer, competitor or any other organization can initiate a complaint about an advertisement to their local self-regulatory body. That self-regulatory body forwards the consumer complaint to the EASA member in the country-of-origin for the medium in which the advertisement appeared. The Alliance member in the country-of-origin will settle the complaint according to the rules and principles established in that country (by the local self-regulatory organization and Alliance member), respecting the mores, culture and self-regulatory procedures of each national society. Subsequently, the self-regulatory body in the country of the complainant will be informed of the settled outcome and will inform the complainant of that outcome. In Latin America, the Interamerican Society for Freedom of Commercial Speech (SILEC) was founded in Caracas Venezuela in 1992. SILEC is dedicated to the promotion of existing advertising self-regulation, the creation of self-regulation where it does not exist, and the defense of the freedom of commercial speech throughout the Americas. SILEC’s membership is comprised of national chapters, which include advertising industry trade associations, advertisers, advertising agencies and the media throughout Latin America. Each national chapter must adopt "a code of ethics, which will provide advertising with a framework of standards of truthfulness, honesty, integrity, responsibility and good taste". (Note website: www.silecinternacional.com) In sum, effective self-regulation is based on three basic principles: free access for consumers; the right of advertisers to respond to consumer complaints and competitive challenges; and an enforcement mechanism based on national codes or guidelines for advertising that exist within a framework of law. Of course, industry has a vested interest in consumer issues. The private sector can only benefit from ensuring that advertising is accurate, truthful, and substantiated. Regardless of the medium or the transaction, consumers are only loyal to brands and marketers that they respect and trust. Effective self-regulation helps build consumer trust - and yet there are many other benefits. Self-regulation can be cost-effective, fast and flexible. It acknowledges and adapts to technological advancements, and is usually funded by the industry alone. In the e-commerce/internet environment, there are many important issues that will impact the development of dispute mechanisms and the use of industry self-regulation including jurisdiction, applicable law and the country-of-origin principle. The current landscape of legal uncertainty for businesses and consumers alike could frustrate the explosive growth of electronic commerce. Jurisdictional issues are not new to international law and trade. We support the application of the "country-of-origin" principle to determine the controlling law for advertising, and believe this principle best facilitates global electronic commerce and international trade. Online advertising by nature is cross border advertising, and thus presents even more complex issues and potential roadblocks. Recognition of the "country-of-origin" principle as the controlling law for all Internet commercial communications helps alleviate nationalistic roadblocks and trade barriers. Advertising cannot and will not survive the burden of compliance with multiple jurisdictional laws if the "country-of-origin" principle is not embraced. Leo Burnett understands that industry and government must work together to establish an understanding of the "rules of the road" for the new global online marketplace. Advertising messages soon would become ineffective and invisible should compliance with multiple jurisdictions be required for each individual advertisement. Such burdensome regulation applied to all advertising content could lead to a decrease in advertising and competition, and result in less information about products and services. Electronic commerce and the online marketplace should promote more market competition and consumer choice, not less. There is some discussion within the advertising industry addressing self-regulatory global cross-border needs. Perhaps the industry can utilize the existing self-regulatory schemes to address the need for advertising self-regulation across borders. The advertising self-regulatory organization and the law of the "country-of-origin" (where the advertiser resides) should apply. There may be exceptions in contractual purchases where the laws of both jurisdictions may apply, but these situations already exist today. We should rely upon existing international conflict-of-law to decide which law applies in conflict situations. Reliance upon the country-of-origin principle for advertising purposes establishes a consumer baseline of expectation for advertising claims, and discourages the Internet from being a ‘free way’ for deception. Leo Burnett Worldwide encourages the Federal Trade Commission and the Department of Commerce to review the Joint Statement released in conjunction with the EU-U.S. Summit in Washington, DC on December 5, 1997. Some of the key guidelines outlined in that statement highlight the importance of industry self-regulation, and that unnecessary existing legal and regulatory barriers should be eliminated and the emergence of new ones be prevented. The statement defines the role of government to promote a pro-competitive environment in which the online marketplace can flourish and ensure adequate protection of public interest objectives, including consumer protection. Additionally, Vice President Gore has stated,
Leo Burnett encourages the Federal Trade Commission and the Department of Commerce to carefully consider our comments on Alternate Dispute Resolution Mechanisms in a Borderless Online Marketplace, particularly in regards to industry self-regulation. Respectfully submitted, Carla R. Michelotti |