INTERPRETATION OF RULES AND GUIDES
COMMENT OF THE ELECTRONIC RETAILING ASSOCIATION
The Electronic Retailing Association ("ERA") submits these comments in response to the Federal Trade Commission's May 6, 1998, Federal Register notice ("Notice") requesting public comment on its proposal to issue a policy statement regarding the applicability of certain of its rules and guides to newer forms of electronic media.
We agree that the Commission should hold a public workshop (or a series of workshops) to explore how the laws and regulations it enforces might apply to electronic media such as the Internet, and we request an opportunity to attend and participate in such a workshop. But for the reasons stated below, we believe that the proposal to issue a policy statement relating to the 40-odd Commission rules and guides listed in the Notice is ill-advised. The limited scope and application of such a policy statement is likely to be misunderstood, and issuing it could result in more confusion and uncertainty instead of less.
I. ERA's Interest in This Proceeding
The Electronic Retailing Association's ("ERA") membership encompasses a broad array of companies that use a variety of media to market, promote and sell products to consumers. ERA was formerly known as the National Infomercial Marketing Association ("NIMA"), and most of its members have their roots in program-length television commercials, or "infomercials," or short-form direct response television advertisements.
While television remains the advertising medium utilized most by ERA's members, an increasing number of ERA members are marketing their products via new forms of electronic media, including the World Wide Web.(1) Our progressive and innovative members usually adopt new advertising techniques quickly, so we expect that use of these media by our members will increase in the future. We share the Commission's belief that the use of these new media should be encouraged because they provide consumers and businesses with quick and convenient access to a global marketplace.
ERA and its members vigorously oppose deceptive advertising, fraudulent conduct and abusive practices, which are harmful not only to consumers but also to legitimate sellers. We have established marketing guidelines intended to promote honest advertising and responsible business practices, and we work closely with law enforcement authorities and with voluntary consumer organizations to deal with consumer concerns that sometimes arise. We appreciate the opportunity to participate in the Commission's examination of Internet advertising, and look forward to working with the Commission and its staff on other issues of mutual concern in the future.
II. A Policy Statement on the Applicability of Certain FTC Rules and Guides to Electronic Media Will Not Provide Useful Guidance to Advertisers and Marketers Generally
A policy statement that applies only to the 40-odd rules and guides listed in the Notice is likely to be both too general and too limited in scope to be very useful to the majority of Internet advertisers and marketers.
On the one hand, the subject matter of those rules and guides -- some of which relate to particular industries (ranging from the nursery industry to the pet food industry to the law book industry), and others of which concern specific advertising and marketing practices (including telemarketing and negative option sales plans) -- is highly diverse. It may be impossible to produce a policy statement that encompasses such a sundry and miscellaneous group of rules and guides without lapsing into vague generalities that would not provide meaningful guidance.
On the other hand, the proposed policy statement would be too limited in scope to answer most of the important questions. Only a small fraction of the Commission's consumer protection investigations relate to the rules and guides listed in the Notice. A policy statement that applies only to these rules and guides would leave unaddressed a much greater number of Internet advertising issues that are beyond the scope of those rules and guides and must, therefore, be analyzed according to general Section 5 principles.(2)
Nature abhors a vacuum, of course, so if the Commission issues a policy statement that applies to 40-some largely unrelated rules and guides, it is almost certain that many will look to that policy statement for guidance in situations in which it is not intended to apply. For example, if a policy statement limited to certain rules and guides defines the factors that determine whether a disclosure is "clear and conspicuous" as required by one or more of those rules or guides, some will attempt to extend that definition more broadly to all Internet advertising disclosures.
As we understand it, this proceeding was inspired by comments made about a year ago at a workshop that was held as part of the "900-Number Rule" review. According to the Notice, those comments noted that any decision regarding how disclosures in Internet advertisements subject to the "900-Number Rule" should be presented would have broad implications for all Internet advertising, and suggested that all interested parties (not just those with an interest in the "900-Number Rule") should have an opportunity to participate in that proceeding.
The same can be said of the policy statement contemplated in the Notice. The scope of the proposed inquiry is broader than a single rule, but is limited to specific rules and guides that represent a relatively small part of the Commission's consumer protection activities. If the policy statement is applied only to the specified rules and guides, it leaves many questions unanswered. But if, as we fear, such a policy statement is misperceived as applying more broadly, it will provide de facto answers to many of those questions prematurely and without the advantage of the broader perspective that a more extensive examination of Internet advertising generally would supply.
If the Commission is concerned only about possible confusion concerning the applicability of the specific rules and guides it has identified in the Notice to electronic media, it should look at that issue one rule or guide at a time as part of its ongoing regulatory review program, pursuant to which the Commission regularly assesses and, if necessary, revises (or rescinds) each of its rules and guides. It appears that some of the issues identified in the Notice cannot be dealt with in a policy statement, but will require the Commission to amend its rules formally. For example, some of the proposed "interpretations" enunciated in the Notice appear to be, in reality, substantive revisions to current rules. Of course, the Commission can not amend its rules by issuing a policy statement.
If, however, the Commission is worried that there is broad uncertainty concerning the application of Section 5 principles and precedent generally to electronic media, an inquiry limited to the specified rules and guides is far too narrow to clear up much of that uncertainty. We suggest that the Commission begin to explore Internet advertising issues more generally in much the same fashion in which it has been exploring Internet privacy issues.
It is premature for the Commission to conclude that its exploration of Internet advertising issues should culminate in the promulgation of a policy statement. Before coming to such a conclusion, the Commission should engage in a comprehensive examination of the differences and similarities between traditional advertising media and newer electronic media, the legal significance of those differences and similarities, and the factors that may be considered in the evaluation of Internet advertising issues (e.g., factors that may influence whether a Web site disclosure is "clear and conspicuous"). The Commission's detailed review of the effectiveness of self-regulation as a means of protecting consumer privacy on the World Wide Web -- which has included hearings and workshops, staff reports, and a comprehensive survey of the information practices of commercial Web sites -- is the appropriate model to follow in this matter as well.
III. Responses to Specific Questions Asked in the Notice
A number of the questions in the Notice (e.g., questions 8, 15, 16, and 18) require specialized knowledge of computer hardware and software technology, and we leave those questions to computer manufacturers, software developers, Internet service providers, and others who are better positioned to address them. But we do have comments on a few of these questions.
The Notice interprets or defines certain terms (such as "written" or "direct mail"), and asks for comment on whether those interpretations or definitions provide adequate guidance to the public (question 4), and what the costs and benefits of those interpretations or definitions are (question 5).
Many of the terms used in the Notice also appear in statutes or regulations enforced by the United States Postal Service, the Federal Communications Commission, and other agencies,(3) or in proposed legislation (e.g., the several bills relating to commercial e-mail currently being considered by the Congress). It appears that the Notice interprets or defines these common terms in a manner that is not always consistent with the way other agencies or the Congress have interpreted them. Obviously, the Commission should take pains to avoid any inconsistency in terminology, the result of which will be greater confusion and uncertainty.
The Notice solicits comments on whether certain forms of e-mail or targeted Internet ads are the "electronic equivalent" of direct mail. That issue is of particular relevance for the Telemarketing Sales Rule, and we believe it is more appropriate to address it when that rule is reexamined pursuant to the Commission's ongoing regulatory review program.
As the Notice itself acknowledges, the Telemarketing Sales Rule ("TSR") was not intended to apply to any on-line transactions. The Commission's "Revised Notice of Proposed Rulemaking" noted the overwhelming opposition to covering on-line services under the TSR, and acknowledged that it did "not have the necessary information available to it to support coverage of on-line services." 60 Fed. Reg. 30406, 30411 (June 8, 1995). The issuance of a policy statement that, in essence, reverses that determination by redefining what constitutes direct mail looks like an attempt to amend that rule without following the appropriate rulemaking procedures.
It is clearly not correct to define "direct mail" as including Internet advertisements that are generated as a result of a consumer's click patterns or use of search terms. If a consumer enters search terms relating to investing in mutual funds, he or she may see a banner ad from a mutual fund company or discount brokerage firm. That consumer may see the very same ad if he or she visits the Forbes magazine Web site (or another Web site containing investment information), to research mutual funds or if he or she buys an issue of Forbes magazine (or a similar publication). All three ads are "targeted" at that consumer in a general sense, but none are the equivalent of traditional "direct mail," and none should trigger application of the Telemarketing Sales Rule's provisions.
Given the incredible variety of World Wide Web sites and the individual variations in the way consumers navigate through those sites, it is probably impossible to offer comprehensive guidance as to what factors will make disclosures on such sites "clear and conspicuous." Some or all of the factors listed in the Notice will be relevant in many cases, but others will no doubt be suggested by other comments in response to this Notice or identified at the public workshop. The interactive nature of the medium and the difficulty of predicting future developments in Web site technology and content will frustrate any attempt to set forth comprehensive guidelines in this area.
Web sites and program-length television or radio commercials (or "infomercials") are alike in one way. Consumers do not always watch an infomercial straight through from beginning to end, and consumers do not always begin on a Web site's home page and proceed through the entire site, viewing every available screen of text and graphics. Commission orders relating to infomercials and ERA's "Marketing Guidelines" require that certain disclosures appear just before the display of ordering information (e.g., an 800 number), but do not require that those disclosures appear continuously. Likewise, it may be appropriate in some situations to require that certain disclosures in Internet advertising appear in close proximity to the ordering page, or to a "triggering" representation, but we would question the need for a disclosure on every page of a Web site.
The Commission's 1997 orders against America Online, CompuServe, and Prodigy, which contain provisions requiring certain on-line disclosures be made "clearly and prominently" and "not be avoidable," would seem to be the logical starting point for a more general discussion of what makes on-line disclosures "clear and conspicuous," and when it may be reasonable to require that such disclosures be unavoidable.
It is not clear whether what the Notice refers to as "the Commission's underlying assumptions about consumer perceptions [and] consumer behavior" with respect to Internet advertising are accurate. What is clear is that the Commission should not be basing a policy statement on mere "assumptions."
We have suggested in these comments that the Commission undertake a broad examination of Internet advertising before deciding whether to issue a policy statement. As part of that examination, the Commission should perform surveys, copytests, or other research concerning consumer perceptions and behavior (or encourage others to do so). The Commission also should take an in-depth look at advertiser practices comparable to what it has done in the online privacy area. Until it has more data on which to base a decision, the Commission should not propose a policy statement.
It is always dangerous to base decisions on assumptions about consumer perceptions or behavior. For example, the Commission's Guides Concerning Use of Endorsements and Testimonials in Advertising assume that an advertisement that contains an endorsement concerning a central attribute of the advertised product implicitly claims that the endorser's experience with the product is representative of the experience of all consumers.(4) That assumption may be correct, but there is reason to believe that it may be seriously flawed.
The interactive nature of the Internet and certain other computer-based media may present an opportunity to obtain consumer acknowledgment of disclosures -- for example, by requiring consumers to click on an "I understand"-type button placed in close proximity to the disclosure before proceeding.
But there would be costs associated with requiring such acknowledgments. For one thing, such a requirement would add to the complexity and expense of preparing and maintaining Web sites. For another, these electronic "speed bumps" would slow down consumer navigation of Web sites and frustrate consumers. And just because a consumer clicks an "I understand" button is no guarantee that the consumer has read and comprehended the affirmative disclosure. Given that many consumers would simply click on the button whether they had read and understood the disclosure or not, the benefits of requiring acknowledgments would be more apparent than real. We believe that a more flexible approach to disclosures would be preferable.
For the reasons stated above, we believe that issuance of a policy statement on the applicability of certain rules and guides to electronic media is premature -- particularly in light of the fact that such a policy statement likely would be read more broadly than the Commission might intend. We suggest instead that the Commission hold one or more public workshops to explore Internet advertising issues more generally. We also suggest that the Commission clarify or amend the particular rules and guides listed in the Notice as they are periodically reexamined pursuant to the Commission's regulatory review program.
We appreciate your consideration of our comments. We look forward to participating in any public workshop relating to Internet privacy that the Commission convenes.
1. We understand that the Commission's proposed policy statement would address only these newer forms of electronic media (e.g., e-mail, CD-ROMs, and the Internet), and not more familiar electronic media such as television and radio. Defining "electronic media" in this somewhat counterintuitive fashion may cause confusion -- most people would no doubt understand "electronic media" to include television -- and we would prefer to see the Commission use a term like "digital media," "interactive media," or "computer media" in its place. But for consistency's sake, any references in these comments to "electronic media" should be understood as referring only to the newer forms of electronic media that are the subject of this proceeding, and not to television or radio.
2. It appears that the proposed policy statement will not even address all the issues relating to these rules and guides. Certain issues will be addressed in current and future reviews of individual rules and guides. The Commission is already examining the implications of electronic media and other new technologies as part of its ongoing reviews of the 900 Number Rule, the Rule Regarding the Use of Negative Option Plans by Sellers in Commerce, and the Rule Regarding Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures. The Notice anticipates that issues relating to the use of electronic media (such as what constitutes a "clear and conspicuous" disclosure in Internet advertising) will be addressed in future reviews of individual rules and guides, and states that interested parties should file comments both in the individual regulatory reviews and the proposed policy statement proceeding.
3. For example, the FCC has very clearly limited its application of the Telephone Consumer Protection Act to voice communications. The Postal Service distinguishes "catalogs" from "periodicals" based on the percentage of advertising content, and further distinguishes "catalogs" from "direct mail" based, in part, on page count.
4. The Notice mischaracterizes these Guides as advising that advertisers disclose "what performance consumers can generally expect with a product when an endorsement is not representative of that performance." Those Guides also provide that advertisers may disclose instead the limited applicability of the endorser's experience to what consumers may generally expect to achieve. As noted above, both of these alternatives is based on an assumption about consumer perceptions of endorsements -- an assumption which may or may not be accurate.