Mr. Donald S. Clark
Dear Secretary Clark:
These comments are submitted on behalf of the American Automobile Manufacturers Association ("AAMA")(1) and the Association of International Automobile Manufacturers ("AIAM")(2) in response to the Federal Trade Commission's request for public remarks on the Interpretation of Rules and Guides for Electronic Media.(3) This occasion represents an important opportunity for the FTC and Internet advertisers to work closely in determining whether advertising on the Internet presents unique circumstances requiring adaption of existing Commission policies, and the Associations welcome the chance to comment on this Proposal. The Associations and their members also would like to participate in any future workshop discussing the issues raised in this Proposal.
As the trade associations for American and international car manufacturers, the Associations are particularly interested in advertising issues. The Associations' members sell nearly every vehicle purchased in the United States and much of this success is due to product awareness attained though advertising.(4) As vehicle advertising and sales have expanded to the Internet, so has the Associations' stake in the rules that drive Internet commerce.(5)
While AAMA and AIAM welcome the opportunity to participate in this discussion of guidance through a future Policy Statement, we believe that some aspects of the Proposal should be assessed with a greater eye on the dual interest of protecting consumers from deceptive advertising practices and ensuring the Internet's future as a vital marketing medium. The Associations are concerned that this Proposal could adversely impact their members by imposing requirements on new electronic advertising that are more stringent than the demands governing advertisements in traditional media, such as television and print. The Associations are skeptical that the Commission can properly weigh the implication of its suggestions without a specific analysis of the more than 40 rules and guides that could be affected.(6) Further, the Associations are concerned that the application of stricter standards to new electronic media could eventually lead to unnecessary increases in requirements for traditional advertising.
The Associations urge the Commission to consider the potential deleterious effects of this Proposal on the growth of electronic media. Last year 62 million Americans went online, a 32% growth from the previous year,(7) and businesses spent more than $900 million for online advertising.(8) An inflexible or ill-suited Policy Statement could curb this growth by imposing more rigorous requirements on Internet advertisements than on any other media. Although the Proposal recognizes the unique features of the Internet, it is inaccurate to conclude that these qualities will lead to more deception rather than less.
In fact, the Internet's interactive nature actually increases consumers' ability to detect and protect themselves from deceptive advertising practices by providing opportunities to obtain a higher quality and quantity of product information than conventional advertising offers. On the Internet, consumers have access to volumes of information far exceeding that available through any other medium, as well as enhanced control over when and how they view this information.(9) Therefore, if anything, the character of the Internet lends itself to less regulation.
In addition to the Associations' interest in how this Proposal may affect existing FTC rules and guides, we are also concerned with its precedential impact outside the Commission. Other federal agencies and states, who often rely on the FTC for guidance on advertising issues, will undoubtedly give great weight to an Internet policy issued by the Commission and may change their own guidelines to reflect the changes made by the FTC. Therefore, the Associations strongly recommend that the Commission carefully consider the Proposal's potentially far-reaching impact.
Although numerous aspects of the Proposal merit comment, the Associations will address the following specific issues, which will most dramatically affect their members: the requirements that disclosures be unavoidable and repeated; the proposal that a user must click on an "Understood" button before being permitted to access further information about a product or service; and the definitions of the terms "written" and "direct mail".(10)
II. DISCLOSURES IN ELECTRONIC MEDIA
A. The "Unavoidability" Standard
What are the costs and benefits of applying the factors proposed by the Commission to evaluate disclosures required or recommended by the rules and guides?
The Proposal suggests an "unavoidability" standard to satisfy the "clear and conspicuous" requirement for disclosures on electronic media. As defined in the Proposal, this means "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."(11) While the Associations understand the Commission's desire to afford consumers the highest level of protection against confusion and deception in every advertising medium, this requirement raises the bar to an unrealizable level for new electronic media.(12)
Replacing traditional standards like "clear" and "prominent" with the term "unavoidable" would burden advertisers with a goal they cannot possibly achieve -- setting up a disclosure no consumer could escape. The problem with this lofty goal is that no advertiser can overcome the consumer's free will. Some consumers will desire to see and read a disclosure; others will not, and Commission law should not require them to do so on the Internet by establishing an "unavoidability" standard. Further, the Internet is not capable of implementing such a requirement. Even if consumers were required to click on a button before advancing to another screen, this would not ensure that the disclosure has been effectively communicated to them. Consumers routinely click buttons when they start or shut down their computer and when they operate their computer under normal conditions. It is doubtful that many actually view the full text before clicking to get to the next step, particularly when the disclosures contain legal terms and conditions. Moreover, many disclosures are required when a triggering claim is made. Making such disclosures unavoidable could even render claims themselves unnoticeable.
Additionally, the Proposal implies that an affirmative action, such as scrolling down a page, detracts from the clear and conspicuous nature of a disclosure. Given the limitation of monitor screen sizes, this implication would single out Internet advertising for uniquely burdensome disclosure requirements.(13) Magazine advertisers are not required to place a disclosure at the beginning of a multi-page ad, at the bottom of each page, and at the end of the entire ad. Like the Internet, the essence of multi-page advertising is consumers' ability to read at their leisure and return without restriction to any page they desire. This affirmative action does not detract from the clear and conspicuous requirement. Internet consumers can be expected to do what they now do when they pick up magazines for viewing - turn pages.
It is critical to recognize that using the Internet is not a passive activity. Unlike the average television consumer, people who use the Internet are actively seeking information. Typically, this activity requires consumers to search, choose their path, consider their next step and click or scroll to capture the information they seek. Indeed, the unique, interactive nature of the Internet provides consumers ample opportunity to read and comprehend advertising disclosures. It is therefore reasonable to expect Internet consumers to perform the same routine clicking and scrolling actions when viewing a disclosure.
An unavoidable disclosure on every Web page would also detract from the advertisement's overall effect, making the information less appealing to the consumer, and thus less productive for the advertiser. Ultimately, this requirement would deter advertisers from offering an optimal level of information and would reduce the quality of their overall presentation. Such an effect may reduce the amount of Internet advertising, and thus rob consumers of a useful information tool.
B. The Repetition Requirement and "Understood" Button
Could the interactive nature of the Internet present an opportunity to assure that disclosures are noticed and understood by consumers (i.e., could a consumer be required to click on an "Understood" button following the disclosure before being permitted to link to other information)? What are the costs and benefits of using such features?
The Associations are also concerned about the repetition demand of the Proposal's clear and conspicuous interpretation. As mentioned before, the prospect of placing a disclosure on each page of an Internet site creates a more rigorous standard for electronic media when compared to other, traditional advertising media. The Associations urge the Commission to consider the implications this unnecessary disparate treatment could have on the growth of the Internet.
From any perspective, the repetitive disclosure requirement is both undesirable and counterproductive. Repetitive notices would desensitize users to the useful message contained within the disclosures. The Associations believe that many consumers will automatically click an "Understood" button because its constant presence will simply create another hurdle to progress to the next screen. Therefore, such a repetitive button would have a counterproductive effect. The most effective use of a disclosure is to grab the consumer's attention, rather than lull them with its consistency.
Historically, the Commission has required repeated disclosures only in special circumstances such as infomercials. Because consumers may catch relatively brief glimpses of an infomercial they are at a higher risk of missing a disclosure that appears only occasionally during the presentation. However, this rationale for repeated disclosures is not applicable to the Internet. Unlike television, where information moves without offering consumers control over its speed or direction, the Internet allows users maximum command. Even if consumers enter into the middle of a site, the option to click back or go forward to the disclosure information at their leisure is generally present. As a result, this ability to manipulate the Internet negates the necessity of protecting consumers from missing pertinent disclosures by requiring repetitive disclosures.
A. The Interpretation of the Term "Written"
Does the Commission's proposed interpretation of the term"written" provide adequate guidance to the public? What are the costs and benefits of the proposed interpretation? Is there a more appropriate alternative to the interpretation of the term "written"?
While the Associations sympathize with the task of molding traditional notions of advertising to fit the uncharted territory of electronic media, we believe that the proposed definition of the term "written" unjustifiably expands its customary meaning. The Commission's Proposal defines "written" and like terms as "information that is capable of being preserved in a tangible form and read."(14) This new interpretation expands the meaning of the term by requiring that information be capable of being retained or saved by consumers.(15)
First, this definition incorrectly assumes that consumers who access the Internet on a computer system are able to print out or save copies of advertisements. For those without printers and disk drives, and therefore with limited online capabilities, this hard copy requirement would be an impossibility. A policy should not suggest that a disclosure appearing on a computer screen is not "written" simply because a consumer does not have a printer. In addition, many Internet sites use some form of Java script which cannot be converted to print form. Java scripts create the mouse roll-over buttons that allow users to link to other sites and view alternate images within the same page. Forcing businesses to create ads in which all of the information contained within a page or site could be printed would limit this kind of capability and thereby restrict creativity and reduce the amount of information available to the consumer. Therefore, this writing necessity could restrict the amount of information available in the advertisement itself.
Although the writing requirement may seem innocuous on its face, its impact on Internet advertising will be considerable. For example, a Web page promoting emerging 1999 vehicle models could become a series of pages littered with various disclosures and warranty information.(16) Meanwhile, each of these would need to be capable of being printed or saved to a disk after viewing to comply with this Proposal. The burden of creating this kind of advertisement, accompanied by the unsightly appearance of the result, would eliminate the Internet's attractiveness and usefulness as an advertising mechanism.
The circumstances in which the Commission would normally require a writing that can be preserved are simply not present in the context of new electronic media. Internet consumers are not vulnerable to the same stresses experienced by consumers confronted with door-to-door sales personnel or telemarketers. Electronic media allow a consumer to review disclosures at their leisure and offers repeat opportunities to click to the disclosure. Thus, the unique characteristics of the Internet mitigate the necessity to preserve information, and, for this reason, the Associations urge the Commission to eliminate this proposed requirement.
B. The Interpretation of the Term "Direct Mail"
Does the Commission's proposed interpretation of the term "direct mail" provide adequate guidance to the public? What are the costs and benefits of the proposed interpretation? Is there a more appropriate alternative to the interpretation of the term "direct mail"?
The Commission's Proposal defines "direct mail" as a communication "individually addressed and capable of being received privately."(17) Within the meaning of this term, the FTC specifically addresses personal e-mail as well as targeted Internet advertising. The Associations do not agree that targeted Internet advertisements are personally addressed or intended for private viewing. In fact, the FTC Proposal specifically notes that Internet bulletin boards are generally considered public forums.(18) Targeted ads that appear on them, therefore, should not be considered direct mail.
Most important, there does not appear to be any need for targeted Internet advertising to be considered direct mail. The targeted online ads, although directed to specific consumers, are not addressed to the consumer by name or delivered to their private mailbox. By their very nature, the targeted ads resemble general advertisements which are exempt from rules like the Telemarketing Sales Rule.(19) Consumers are less likely to notice general advertisements in newspapers and magazines because they are not personally addressed or delivered independently to consumers' mail boxes like direct mail solicitations.
An obvious consequence of including targeted ads in the traditional meaning of "direct mail" would be to subject this kind of advertising to the Telemarketing Sales Rule.(20) The Commission's rationale for adding direct mail solicitations to the transactions covered by the Telemarketing Sales Rule does not apply here.(21) The FTC stated in that proceeding that telemarketers often used direct mail solicitations to defraud consumers.(22) Consumers perhaps are more likely to notice and respond to a letter specifically addressed to them than they are to observe a more general solicitation. As the Proposal notes, the Commission itself acknowledged that it did not have sufficient information to include online services under the requirements of this rule.(23) The Associations are unaware of information that has since come to light that would change this conclusion. Unless and until it becomes evident that targeted Internet advertising poses the types of hazards the Commission sought to avoid with the regulation of direct mail, the Associations urge the FTC to postpone any proceeding to revisit that important issue.(24)
Additionally, the burdens associated with including targeted advertisements as direct mail under the Telemarketing Sales Rule would outweigh any benefits. For example, the record keeping requirements of the rule are extensive. Sellers subject to the rule must keep the last two-years of records relating to telemarketing activities including:
These requirements are both costly and burdensome, particularly when compared to the minimal benefit consumers will receive from protection from an advertisement many never even notice. Unlike telemarketing, which provides the Commission with a steady flow of deception cases, there is no indication that reputable advertisers will abuse the new electronic media through targeted advertising.
Targeted Internet advertisements, usually in the form of banners posted on Web sites, often result from marketing tracker studies that follow consumers on their browsing trips through various Internet sites and use the information to target ads to certain customers. For example, online consumers visiting numerous diet or fitness sites may be targeted by marketers for diet foods or home exercise equipment. This form of Internet advertising is not much different from targeting those who are interested in vehicles by placing ads in automotive magazines such as Road & Track or Car and Driver. In both situations, the marketer directs advertisements to a specific group of people whose other interests and actions reasonably indicate their interest in certain subject matter.(26)
We submit, for these reasons, that the term "direct mail" should exclude targeted Internet advertising.
While the Associations support the Commission's goal to keep the Internet a safe place for consumers and agree that strong consumer confidence is vital to the technology's growth, we ask the Commission to think broadly about the potential result of this Proposal. The proposed interpretations of the words "written" and "direct mail" as well as the proposed disclosure requirements unnecessarily impose more rigid restrictions on electronic media than traditional media and potentially establish undesirable precedents. Furthermore, the Associations submit that these limitations would actually reduce consumers' desire to use the Internet and deter advertisers from devoting resources to develop new, important technology.
In a recent White House report, the Clinton Administration asked the governments of the world to "adopt a non-regulatory, market-oriented approach to electronic commerce."(27) The comments provided herein attempt to follow the forward-thinking goals of the White House which are expressed in numerous reports and speeches regarding regulation of the Internet. The Associations urge the Commission to keep these goals in mind when considering the adoption of any future Policy Statement. Given the constant technological developments in electronic media, guidelines created too soon are likely to be inaccurate and could stifle this medium's growth. Moreover, because of the potential dangers highlighted in these comments, we ask the Commission to evaluate whether there is a true need for a Policy Statement at this juncture. Perhaps the same prudent approach should be taken here as the Commission took in the "Made-In-USA" proceeding -- a process that accessed the issues in a more deliberate fashion. There should be evidence of deception before new guidelines are adopted for advertising on new electronic media, especially considering the complicated issues this Proposal raises.(28) At a minimum, the Commission should hold a series of public workshops so that the issues raised by the proposal can be fully discussed in an open forum before any formal actions are taken. The Associations and their members look forward to participating in any such future workshop.
AAMA and AIAM thank the Commission for this opportunity to express their position on these important issues.
1. AAMA's members are Chrysler Corporation, Ford Motor Company and General Motors Corporation.
2. AIAM's members include American Honda Motor Co., Inc., American Suzuki Motor Corp., BMW of North America, Inc., Fiat Auto U.S.A., Inc., Hyundai Motor America, Isuzu Motors America, Inc., Kia Motors America, Inc., Land Rover North America, Inc., Mazda North American Operations, Mercedes-Benz of North America, Inc., Mitsubishi Motor Sales of America, Inc., Nissan North America, Inc., Porsche Cars North America, Inc., Rolls-Royce Motor Cars Inc., Subaru of America, Inc., Toyota Motor Sales, U.S.A., Inc., Volkswagen of America, Inc., and Volvo Group North America, Inc.
3. 63 Fed. Reg. 24,996 (1998).
5. The Associations' members maintain an active presence on the Internet. Their multiple sites contain valuable information and educational material as well as advertising. Collectively, AAMA and AIAM members have had "hits" numbering in the billions on their Internet sites in 1997 and expect the number to grow in the coming years.
6. After reviewing the guides to be affected by the proposal, the Associations believe that changes in or expansion of the following guides may impact their members: Guides for the Rebuilt, Reconditioned and Other Used Automobile Parts Industry, 16 C.F.R. § 20 (1998); Guides for Select Leather and Imitation Leather Products, 16 C.F.R. § 24 (1998); Tire Advertising and Labeling Guides, 16 C.F.R. § 228 (1998); Guides Against Deceptive Pricing, 16 C.F.R. § 233 (1998); Guides for the Advertising of Warranties and Guarantees, 16 C.F.R. § 239 (1998); Guides Concerning Use of the Word "Free" and Similar Representations, 16 C.F.R. § 251 (1998); Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255 (1998); Guides Concerning Fuel Economy Advertising for New Automobiles, 16 C.F.R. § 259 (1998); Guides for the Use of Environmental Marketing Claims, 16 C.F.R. § 260 (1998); Automotive Fuel Ratings, Certification and Posting, 16 C.F.R. § 306 (1998); Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992, 16 C.F.R. § 308 (1998); Telemarketing Sales Rule, 16 C.F.R. § 310 (1998); Use of Negative Option Plans by Seller in Commerce, 16 C.F.R. § 425 (1998); Preservation of Consumers' Claims and Defenses, 16 C.F.R. § 433 (1998); Mail or Telephone Order Merchandise Rule, 16 C.F.R. § 435 (1998); Credit Practices Rule, 16 C.F.R. § 444 (1998); Used Motor Vehicle Trade Regulation Rule, 16 C.F.R. § 455 (1998); Interpretation of Magnuson-Moss Warranty Act, 16 C.F.R. § 700 (1998); Disclosure of Written Consumer Product Warranty Terms and Conditions, 16 C.F.R. § 701 (1998); and Pre-Sale Availability of Written Warranty Terms, 16 C.F.R. § 702 (1998). While not exhaustive, the impressive size of this list should indicate the serious and far-reaching potential of the Commission's Proposal.
9. The Proposal seems to imply that consumers' access to more information via electronic media leads to deception, while the opposite seems logically to be true.
10. Although these comments are limited to topics of utmost concern, the Associations would like to reserve the right to comment on all issues that are raised in any future proposed Policy Statement.
11. 63 Fed. Reg. 24,996, 25,002-03.
12. The term "unavoidable" has many different interpretations and the Proposal does not provide clear guidance as to the appropriate definition of the term. Here, the Associations assume the Commission's intent is to require that consumers be unable to escape the disclosure. If a consumer can in any way avoid seeing the disclosure, that disclosure does not satisfy the clear and conspicuous requirement. Thus, an advertiser properly complying with the Commission's rules must ensure that consumers actually access its disclosure.
13. Computer monitors vary considerably in size depending on each consumer's equipment. What is visible on one user's screen may not be visible on another's. Some consumers may need to scroll down their screen to view an entire Web page with a required disclosure. It is unclear whether this need to scroll down the page would violate the Proposal's unavoidability standard.
14. 63 Fed. Reg. 24,996, 25,000.
15. The Associations' comments on this issue assume the proposed definition of the term "written", if adopted by the Commission, would require that written disclosures in any new electronic media be posted in such a way that a consumer could print or save the disclosure in tangible form. Thus, any required written disclosure incapable of being printed or saved would be a regulatory violation. This is certainly not the only possible interpretation of the language in the Proposal. However, the proposed definition fails to provide clear guidance on this recommendation, and it could easily mean many different things to different people.
16. For a detailed outline of the rules and guides that may effect the Associations' members see note 6 supra.
17. 63 Fed. Reg. 24,996, 25,001.
19. 16 C.F.R. § 310 (1998).
20. Id. The Associations also are concerned that expanding the definition of "direct mail" will have ramifications in other areas, such as credit and mail-order transactions.
21. 16 C.F.R. § 310.6(e) provides an exception for "telephone calls initiated by a customer in response to an advertisement through any media, other than direct mail solicitations."
22. 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").
23. 63 Fed. Reg. 24,996, 25,000 n.29.
24. As the Commission recognized in the Telemarketing Sales Rule proceeding, the issues related to new electronic media are extremely complex. Given the difficulty of evaluating all of the nuances of the guides and rules affected by this Proposal, the Commission should consider separate proceedings for each guide and rule.
25. 16 C.F.R. § 310.5.
26. Used for these purposes, this analogy focuses on the stark difference between ads placed in mediums where consumers expect to see them, such as magazines or Web Sites, and advertisements that are personally addressed to consumers.
27. A Framework for Global Electronic Commerce, p. 1 (July 1, 1997) <http://www.whitehous.gov/WH/New/Commerce/read.html>.
28. Additionally, the Associations are concerned that the Proposal is too vague in areas of significant import when discussing advertising on the Internet. For example, advertising is not defined in the Proposal, leaving open the question of where to draw the line between an advertisement and informational material fully protected by the First Amendment. See also notes 12, 15 supra.