These comments are submitted on behalf of the Grocery Manufacturers of America (GMA), in response to the Federal Trade Commission's request for comments on its Proposal, Interpretation of Rules and Guides for Electronic Media, published in the Federal Register on May 6, 1998.(1) The Proposal raises important questions and issues for all companies to consider regarding their advertising and marketing practices on new electronic media. GMA welcomes this opportunity to comment on the Commission's Proposal and would like to participate in any Commission workshop addressing these issues.
GMA is the world's largest association of food, beverage and consumer brand companies. With U.S. sales of more than $430 billion, GMA members employ more than 2.5 million workers in all 50 states. The organization applies legal, scientific and political expertise from its member companies to vital food and public policy issues affecting the industry. GMA has played a major role since 1908 in the development of food and environmental policies. Representing global marketers, GMA speaks for food and consumer brand manufacturers at the state, federal and international levels on legislative and regulatory issues.(2) GMA member companies produce a wide range of healthful and nutritious food products that make substantial contributions to the public health.
GMA has participated extensively in the past on issues concerning deceptive advertising and commercial speech. GMA has filed comments with the Commission in response to many proposed guides and rules.(3) GMA also has testified in hearings before the Commission and Congress on Commission law and policy.(4) As an organization whose member companies invest billions of dollars in advertising each year, GMA is particularly interested in the Commission's rules and policies that affect advertising, including advertising on new electronic media.
Increasing numbers of GMA's members are advertising and marketing their products over the Internet. Last year, businesses spent approximately $900 million in advertising on the Internet,(5) more than tripling the total revenue of Internet advertising in 1996.(6) GMA believes that aspects of the Commission's proposed Policy Statement would stifle this growth. Although GMA applauds the Commission's efforts to provide guidance in a Policy Statement, we believe that some of the definitions and requirements announced in this Proposal would have a chilling effect on all Internet advertising. Further, such restrictions on the dissemination of honest advertising would stymie consumer access to an important and unique information tool.
GMA believes the Commission must begin any examination of an appropriate policy to regulate the Internet by inquiring whether consumers acting reasonably under the circumstances are likely to be misled to their detriment by the practices proposed to be regulated, and whether the regulatory requirements that are proposed will materially avoid that injury in the least restrictive manner. The fact that the Commission is "interpreting" preexisting requirements should not diminish the need to conduct these inquiries nor to provide a factual basis for its conclusions.
The direction of any future rules and guides should be firmly rooted in the traditional system of regulation established by Congress.(7) Section 5 of the Federal Trade Commission Act (FTC Act) provides the statutory source for the Commission's authority to regulate acts or practices that are deceptive or unfair.(8) Under the Commission's Deception Policy Statement, an advertisement is deceptive if it contains a misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment.(9) Likewise, the FTC Act defines an unfair act or practice as one causing or "likely to cause substantial injury to consumers that is not reasonably avoidable and is not outweighed by countervailing benefits to consumers or competition."(10) Working within these established parameters, Section 5 requires that advertisers substantiate their claims.(11)
It is not obvious that reputable advertisers, using the new electronic media, will be more likely to infringe upon these regulatory pillars on the Internet than in a television or magazine advertisement.(12)
While in one respect the Internet may present greater risk of deception, in most others, it seems to present fewer. Unlike other traditional media, barriers to communicating advertising information on the Internet are exceedingly low, providing cheap and easy access to those whose purpose is dishonest. Similarly, ready access to the Internet facilitates its use by sellers whose motivations are honest, but who may simply be ignorant of established regulatory principles.
On the other hand, there are several other differences that strongly suggest that the Internet is less conducive to deception than other media. For example, other media present the much more acute problem of space constraint. Advertiser messages in many traditional media must be crammed into a few words or images. Consumer exposure to the messages may be brief, and consumer attention may be poor. In this environment, consumers may misperceive the intended information and derive misleading impressions. The costs to consumers of searching for more specific, less ambiguous and factually correct information may be significant, causing consumers to take action that is detrimental to their interests.
These characteristics, of both the medium and its participants, should form the basis of any guidance the Commission issues. Against this backdrop and with these considerations in mind, there are substantial questions about various aspects of the proposed Policy Statement. Specifically, GMA is concerned that the prophylactic rules suggested in this Proposal will only hinder the dissemination of honest advertising and fail to protect consumers from fraud and deception.
GMA believes that this Proposal would impose requirements on new electronic media that are more rigorous than those used for advertising in traditional media such as magazines and television. At this juncture, GMA can see no justification for such disparate treatment.(13) Indeed, we believe that the Internet's unique characteristics may actually increase consumers' ability to detect, and protect themselves, from deception. Moreover, once these standards are applied in the new electronic media, they are likely to be applied to traditional media. We think that this Proposal has the potential to stifle truthful advertising on the Internet.
Another of GMA's concerns is the precedential impact of this Proposal outside of the Commission, including, for example, its possible application by state attorneys general under "little" FTC Acts. Given the Commission's widely-perceived expertise in the area of Internet advertising and marketing, it is likely that the states and other federal agencies will follow the Policy Statement issued by the Commission. In addition, while the Commission is careful to note the limited scope of this Proposal,(14) the reality is that the standards adopted by the Commission in this proceeding will likely be applied to future revisions of other rules and regulations. Therefore, GMA urges the Commission to use great caution in drafting its Policy Statement because of the likely precedential impact.
Although the Commission poses numerous questions in the Notice, GMA will focus its comments on several issues that it believes will have the greatest impact on its members as well as consumers: the definitions of the terms "written" and "direct mail"; the requirements necessary for disclosures to be clear and conspicuous; and the proposal that a user must click on an "Understood" button before being permitted to access further information about a product or service.
Interpretation of the Term "Written"
The Commission's Proposal defines "written" as information "capable of being preserved in a tangible form and read."(15) The Proposal notes that "[a]s with information presented on paper, consumers using electronic media can read the information and preserve it for possible later viewing either by printing it on paper, saving it on disk, or by some other means."(16) GMA appreciates the difficulty of applying the Commission's rules and guides to the new electronic media, especially the Internet. However, we believe this definition unjustifiably expands the meaning of the term "written" to require that information be capable of being retained or saved by consumers.
As an initial matter, it would be impossible for a company to know whether every consumer could print or save all parts of its Web site because of great differences in the computer equipment owned by consumers. For example, some individuals may be able to view a graphic or text on the computer screen, but not be able to print it out or save it on a disk. At present, it is not entirely clear how much information consumers want or how they want to access it; the Internet is still a relatively new and highly dynamic medium. What is clear, however is that competition on Web sites for consumer attention is intense and the development process continual. This interpretation would deny consumers access to certain areas of the Internet and sophisticated graphics as well as reduce the Internet's interactive capabilities.
In certain extraordinary circumstances, the Commission's rules specifically require that consumers be provided written information that can be saved or preserved. The most obvious examples are the Funeral Rule and the Franchise Rule, which may involve vulnerable consumers making expensive financial decisions in the presence of urgent sales agents with short deadlines. The unique characteristics of the Internet actually make it less necessary for the Commission to impose such a burden on the Internet and other new electronic media. There are no in-person high pressure sales pitches and there is no reason to expect consumers to be at their wits' end while surfing the Internet. Moreover, unlike television disclosures that quickly flash on the screen and are gone, consumers on the Internet have control over the flow of information. They can review a disclosure simply by clicking back to that screen. Furthermore, this option of going backward and forward can be accessed repeatedly. Thus, applying the standards of the Funeral and Franchise Rules to the Internet is unwarranted and should trigger concern over the Proposal's far-reaching implications.(17)
For these reasons, the Commission's proposed definition of the term "written" is not necessary in this context, and would impose unattainable requirements on advertisers and would deny consumers important Internet functions. Thus, GMA believes the definition should be revised to exclude the requirement that information must be capable of being preserved.
Interpretation of the Term "Direct Mail"
In addition to the definition of "written," the Commission also proposes to expand the interpretation of the term "direct mail." GMA believes that the proposal to expand the definition to cover targeted Internet advertising should be rejected.
Targeted Internet advertising occurs when marketers direct advertisements to groups of customers based on their previous visits to various Web sites. These targeted advertisements are often in the form of banners that are posted on Web sites. The Commission has noted in its Proposal that the Web sites on which the ads appear are generally considered public forums. Based on these characteristics, and the regulatory burdens associated with direct mail solicitations, GMA believes that the Commission should exclude targeted Internet advertising from the definition of direct mail.
GMA is concerned that broadening the definition of direct mail to include targeted Internet advertising may, as the Proposal notes, subject such advertising to the Telemarketing Sales Rule.(18) Section 310.6 of the Rule lists the exceptions to the Telemarketing Sales Rule and subpart (e) provides an exception for "telephone calls initiated by a customer in response to an advertisement through any media, other than direct mail solicitations."(19) The Commission stated that direct mail solicitations were not included in this exception because telemarketers frequently employ this marketing technique for the purpose of defrauding consumers, and apparently the Commission could not create a clear definition that distinguished non-fraudulent and fraudulent solicitations.(20) Although the Commission did not explain why direct mail solicitations are a popular method of deceiving consumers, it may be that consumers are more likely to notice and respond to advertisements that solicit their attention by name.
GMA suggests that the Commission seek evidence that such a potential exists for e-mail and targeted Internet advertising. E-mail, for example, may be less noticeable than letters delivered to the home. A targeted banner advertisement on a Web site is more analogous to a billboard at a baseball game, or an advertisement that appears in the program for the game, than to a direct mail solicitation. The billboard is seen by only those individuals at the baseball game, and an advertisement in the program is seen by a subset of those people attending the game. There is no reason in Commission policy to distinguish between targeting electronic advertisements and targeting traditional ads to those consumers most interested in and benefitted by the ads. Although targeted Internet ads may be directed to specific consumers, they are not addressed to the customers by name, do not attract as much attention as a personally-addressed mailing, appear on a public forum, and often provide access to detailed information about the offered products and services.(21) Thus, we do not believe that there is justification for the Commission to expand the definition of direct mail to include targeted Internet ads.
Furthermore, the record-keeping requirements of the Telemarketing Sales Rule would be particularly burdensome for GMA's members. The Rule requires sellers to keep records of the following: all substantially different advertisements; details regarding prize recipients; the name and last known addresses of all customers as well as details regarding their purchase; and the name, last known address, phone number and job title of current as well as former employees. All records must be kept for twenty-four months.(22) The enormity of these requirements is evident in light of the 2.5 million individuals that GMA members employ -- the vast majority of whom have no advertising or marketing responsibilities whatsoever -- and the $430 million in sales they generate in the United States each year. Such burdens could make Internet advertising unprofitable for any number of advertisers, meaning consumers could lose the benefit of convenient access to volumes of information currently available on the Internet. Thus, we urge the Commission to reconsider its proposed definition of "direct mail" to include e-mail and targeted Internet advertising.
The "Unavoidable" Standard
GMA is particularly concerned about the Commission's proposal that disclosures on new electronic media must be unavoidable to satisfy its "clear and conspicuous" requirement. The Proposal defines this to mean that "consumers viewing an advertisement should necessarily be exposed to the disclosure in the course of a communication without having to take affirmative action, such as scrolling down a page, clicking on a link to other pages, activating a 'pop up,' or entering a search term to view the disclosure."(23) This requirement elevates the Commission's "clear and conspicuous" standard to an unnecessary and unobtainable level.
This standard is unattainable because no information on a Web site truly is unavoidable. Webster's New World Dictionary defines "unavoidable" as something "incapable of being shunned or prevented."(24) Even if consumers were required to click on an "Understood" button before advancing to another screen, this would not ensure that the consumers have read the disclosure. Requiring disclosures on the Internet to be "unavoidable" would automatically place Internet advertising in violation of Section 5 of the Federal Trade Commission Act, because none could possibly satisfy this requirement.
With this proposal, the Commission seems to suggest that disclosures cannot be clear and conspicuous if consumers have to take some sort of affirmative action, such as clicking on a "disclosure" hyper-link, to view the disclosure. This is tantamount to a requirement that all disclosures must appear on the principal display panels of packaging for foods and over-the-counter drugs. In fact, referral statements are routinely used to direct a consumer's attention to important information elsewhere on or in the package. Also, print advertisements often require affirmative action to view their disclosures. For example, many ads for prescription drugs place the required disclosures on a separate, non-facing page. Consumers viewing such an advertisement have to take the affirmative step of turning the page, or pages, to view the disclosures.
These actions are identical to the type of action consumers take when they scroll down a computer screen or click to another Web page. Multi-page advertisements on the Internet do not present any issues different from package labeling or multi-page print advertisements. Indeed, most frequent Internet uses are sophisticated about the use of the medium. Individual consumers may not be sophisticated about the content they are reviewing at any given moment, but they know how to use a mouse, how to scroll down a page, how to search for more. Thus, if a particular subject is complex -- an Internet sweepstakes for example -- it may be necessary to make available to potential participants the detailed rules of the promotion. But Internet users seem able to click on links to get more details, even if they have entered in the middle of a particular Web site. Indeed, that is the essence of the medium. They will not simply view what appears on a single screen in front of them and assume they have seen all that is relevant. Moreover, they realize that they can move back and forth in this medium at will, viewing and reviewing to whatever extent they consider appropriate and helpful.
While GMA supports the Commission's determination to focus on deceptive advertising, we believe it would be a mistake to assume disclosures must be unavoidable to comply with Section 5 of the FTC Act. Indeed, GMA does not see why the Internet ought to occasion any tightening of disclosure standards. Therefore, GMA does not believe that there is any justification for imposing a requirement that the disclosures be unavoidable on the Internet when no analogous requirement exists for other media.
Other Clear and Conspicuous Factors
GMA also is concerned about several other factors that the Proposal indicates will be considered in determining whether disclosures are clear and conspicuous. These factors include the proximity, placement, prominence, and repetition of the disclosure, as well as other distracting elements of the advertisement. These requirements not only are impossible to achieve, they will chill the Internet advertising of reputable companies who cannot meet these unattainable standards.
As discussed previously, differences in consumers' computer equipment make it impossible for an advertiser to guarantee that its disclosures will appear in a particular type size or location on every consumer's computer. A large number of considerations, including the size of the computer screen, the ability of the computer to download images, deep hypertext links into the middle of a Web site, and placement of banner advertisements, all may affect what the consumer sees. Indeed, how are advertisers to evaluate whether there are too many distracting elements in an ad, when they have little control over how consumers actually see their Web site on their computer monitors? In addition, consumers may have stock or news tickers running constantly across their screens, or unrelated ads may pop up, all of which are distracting and may cover portions of the advertiser's Web page, and which are completely beyond the control of the advertiser. For these reasons, nothing short of forcing consumers to change their computer equipment, forfeit their ability to control the size of their fonts and eliminate their access to ticker information will bring these requirements into the realm of possibility for advertisers.
Many of the factors addressed by the Commission also are unnecessary in the Internet context because consumers have control over the flow of information. For example, requiring repetition of disclosures on multi-page Web sites will not provide consumers with any additional information, as long as the disclosure is provided elsewhere on the site. It serves no purpose to require that a section of a Web site, featuring several pages of testimonials, place a complete disclosure on each of these pages. A disclosure on the first page of the testimonial section, or a disclosure hyper-link at the bottom of the page would provide consumers with ample opportunity to review the additional information. Advertisers already have a difficult time squeezing information in the small space of a Web page. If they must include complete disclosures on each page, they will stop providing valuable information to consumers all together.
The Commission has required the repetition of disclosures previously in infomercials, because viewers may tune into a broadcast after a disclosure has appeared. This rationale for the repetition of disclosures, however, is inapplicable to advertising on the Internet. Consumers on the Internet have control over what information they see, and for how long. Unlike infomercials, a disclosure can remain on a consumer's computer screen indefinitely, allowing more than ample time to read the messages. Moreover, consumers always have the power to review disclosures by clicking back to this information. It is the unique, interactive nature of the Internet that makes repetition of disclosures unnecessary. Furthermore, requiring the constant repetition of disclosures on Internet screens may cause consumers to ignore these messages, significantly diminishing their effectiveness.
An "Understood" Button
Finally, the Proposal asks whether Internet users should be required to click on an "Understood" button, acknowledging that they have read and understood a disclosure, before gaining access to further information. To comply, advertisers would have to restructure their existing Web pages, imposing burdens on Internet users that they have not demanded, making the medium more cumbersome, and reducing Internet advertising altogether. While GMA appreciates the Commission's efforts to use interactive technology to ensure that consumers understand disclosures, this Proposal will place unnecessary burdens on advertisers and consumers without achieving the effect the Commission desires.
This attempt to raise consumer awareness through an "Understood" button would likely be a futile attempt. Consumers cannot be forced to read something they do not want to read -- some will always read disclosures, others will never read them. A gate-keeping button will not change this behavior or ensure that consumers have actually read or understood the message. Therefore, this type of acknowledgment will only provide the Commission and advertisers with an artificial sense that consumers are actually reading the disclosures. Indeed, an "Understood" button may well provide an advertiser with a compelling defense to a Commission charge of deception, even if the advertiser's disclosures were patently unclear and inconspicuous. The Commission has never before required this type of active acknowledgment, and GMA believes that there is no reason for imposing this requirement now.
GMA applauds the Commission's efforts to provide guidance to companies that advertise on the new electronic media. However, we urge the Commission to carefully consider the implications of its Proposal. In particular, the definitions and requirements discussed in our letter would impose stricter restrictions on new electronic media than those existing for traditional media. Stricter, in this situation, does not necessarily mean more effective. As discussed herein, requirements such as "unavoidable" disclosures or writings printed in a tangible form could eventually restrict consumers' assess to the Internet as well as the amount of information available to users. Before implementing this Proposal, GMA urges the Commission to seriously consider these possible repercussions and their eventual costs to consumers.
More fundamentally, we respectfully submit that the Commission does not have sufficient evidence of consumer behavior in this medium to reach any meaningful conclusions about the likelihood or ubiquity of deception or the effectiveness and necessity of proposed remedial guidance. It is premature for the Commission to endorse highly prescriptive approaches to Internet communications.
In its report, A Framework for Global Electronic Commerce, the White House urges that "existing laws and regulations that may hinder electronic commerce should be reviewed and revised or eliminated to reflect the needs of the new electronic age."(25) The White House Report also counsels that "where government involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment."(26) These sentiments in support of a cautious approach to Internet regulation have been echoed repeatedly in recent years. Indeed, the Commission itself has stated on numerous occasions that it is wary of imposing regulatory requirements in this arena at such an early stage of its development, for fear of inadvertently stifling the growth of what is obviously an important new communication and commercial medium.
We support a cautious approach to this medium. Unfortunately, this well-advised caution is not sufficiently evident in the Proposed Policy Statement apparently being contemplated by the Commission. Like many who have been exposed to the almost limitless possibilities presented by the interactive medium, the Commission appears to be falling into the trap of concluding that if something can be done on the Internet, then it should be done. With this as its premise, the Commission will surely overregulate in this arena, and consumers will most certainly be harmed as a result.
1. 63 Fed. Reg. 24,996 (1998).
3. See, e.g., Comments filed in response to Proposed Revisions to the Guides for the Use of Environmental Marketing Claims ("Green Guides") (Sept. 1995); Comments filed in response to the Proposed Telemarketing Sale Rule (June 1995); Comments filed in response to the Proposed Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992 (the "900-Number Rule") (Apr. 1993); Comments filed in response to the Federal Trade Commission Improvements Act of 1980 (July 1980).
4. See, e.g., Global and Innovation-Based Competition Hearings before the Federal Trade Commission (Nov. 1995) (testimony of William C. MacLeod, counsel for GMA); Oversight of FTC's Shared Responsibilities: Hearing on Advertising and Labeling Issues Before the Subcomm. on Transportation and Hazardous Materials of the House Comm. on Energy and Commerce, 102nd Cong., 1st Sess. 179 (1991) (testimony of William C. MacLeod, counsel for GMA).
6. Tom Hyland, Internet Advertising Bureau: Web Advertising a Year of Growth, http://www.iab.net/advertise/content/webgrowth.html .
7. See Federal Trade Commission Act, 15 U.S.C. §§ 41-77.
8. 15 U.S.C. § 45(a).
9. Policy Statement on Deceptive Acts and Practices, 103 F.T.C. 174 (1983), appended to Cliffdale Associates, Inc., 103 F.T.C. 110 (1984).
10. 15 U.S.C. § 45(n).
11. Policy Statement on Advertising Substantiation, 104 F.T.C. 839, appended to Thompson Medical Co., 104 F.T.C. 648 (1984).
12. While the Internet has already provided examples of FTC deception or fraud cases, the responsible parties typically use traditional scams, such as pyramid schemes, to take advantage of an easily accessed and cheap medium. See Consumer Protection in Cyberspace: Combating Fraud on the Internet Before the Telecommunications, Trade, and Consumer Protection Subcomm. of the House Comm. on Commerce, 103rd Cong. (1998) (statement of Eileen Harrington, Associate Director, FTC Division of Marketing Practices).
13. See, e.g., Reno v. ACLU, 117 S. Ct. 2329 (1997) (discussing First Amendment protection of the Internet and regulation of the Internet and traditional media).
14. 63 Fed. Reg. 24,996, 24,999 & nn.21-22.
15. 63 Fed. Reg. 24,996, 25,000.
17. Furthermore, GMA strongly suggests that the Commission consider separate rulemaking proceedings to access the applicability of each rule and guide to the Internet.
18. 16 C.F.R. § 310 (1998).
19. Id. at § 310.6(e).
20. 60 Fed. Reg. 30,422, 30,423 (1995) (stating that because "inbound calls prompted by [direct mail] solicitations frequently result in the caller being subjected to deceptive practices. . . the Commission has determined that including all direct mail solicitations within the general media exemption is unworkable").
21. Indeed, the Commission has determined that some advertisements that are directed to specific consumers are not subject to the Telemarketing Sales Rule. See, e.g., 16 C.F.R. § 310.2(u) (exemption for catalogs).
22. 16 C.F.R. § 310.5.
23. 63 Fed. Reg. 24,996, 25,002-03.
24. Webster's Third New International Dictionary 2483 (1993).
25. A Framework for Global Electronic Commerce, p. 3 (July 1, 1997) http://www.whitehouse.gov/WH/New/Commerce/read.html .
26. Id. at 2.