FOR RELEASE: AUGUST 10, 1992
FEDERAL APPEALS COURT UPHOLDS FTC RULING THAT KRAFT MISREPRESENTED CALCIUM CONTENT OF INDIVIDUAL CHEESE SLICES
A federal district court of appeals has affirmed a 1991 Federal Trade Commission order against Kraft, Inc. in connection with a two-and-a-half year, $15 million advertising campaign for Kraft Singles cheese slices, the Commission announced today. The order prohibits Kraft from misrepresenting the absolute or com- parative content of calcium or any other nutrient in any product that is a cheese, related cheese product, imitation cheese, or substitute cheese in the future, and requires any such nutrient or calcium-content claim to be substantiated by competent and reliable scientific evidence.
The FTC had filed a complaint charging that Kraft misrepre- sented the calcium content and relative calcium benefit of its Kraft Singles in its advertising campaign, in June 1987. The Kraft television ads ran from February 1985 until mid-1987, and appeared on all three national networks. The print ads were disseminated in numerous national magazines. The two series of ads were known as the "Skimp" and "Class Picture/5 Ounce" ads. The Commission alleged that these ads were deceptive because they implied that Kraft Singles contained the same amount of calcium as five ounces of milk, when actually some of that calcium was lost in processing. The Commission also alleged that the ads were deceptive because they implied that Kraft Singles contained more calcium than imitation cheese slices, when that generally was not the case.
- more - Kraft Opinion--08/10/92)
In 1989, Administrative Law Judge Lewis F. Parker concluded that both sets of ads falsely conveyed the calcium superiority and milk equivalency claims. He found that both claims made were material to consumers because they implicated important health concerns. He ordered Kraft to cease making false and unsubstan- tiated claims about calcium or any other nutrient for any of its individually wrapped slices of process cheese food, imitation cheese, or substitute cheese.
The Commission's opinion, issued in January 1991 and authored by Commissioner Deborah K. Owen, affirmed much of the ALJ's decision, disagreeing, however, with the ALJ's finding that the "Class Picture/5 Ounce" ad conveyed the implied calcium superiority claim. The Commission also disagreed with the ALJ's finding that there was no "persistent, long-term pattern of deceptive advertising." The Commission's order broadened the prohibitions in the ALJ's order to cover not only individually wrapped slices, but all of Kraft cheeses and cheese-related products.
Kraft then filed an appeal in the Seventh Circuit Court of Appeals, in Chicago, contending that the order was too broad and asking the court to amend or rescind it. Kraft argued, among other things:
-- That the FTC erred in not requiring extrinsic evidence in determining whether consumers would be deceived by the ads. Kraft argued that the FTC had no objective basis for determining if the company's ads actually contained the implied claims alleged, and that the FTC's order chilled Kraft's constitutionally-protected commercial speech.
-- Alternatively, Kraft contended that FTC did not have substantial evidence to support its finding that the "Class Picture" ads contained the milk equivalency claim.
-- Finally, Kraft maintained that even if it did make the alleged milk equivalency and calcium superiority claims, the FTC did not have substantial evidence to support its findings that these claims were material to consumers.
On the first argument, Kraft contended that the Commission should, as a matter of law, be required to rely on extrinsic evidence, rather than its own subjective analysis, in cases involving alleged implied claims. By relying on its own judgment that an ad, while literally true, implies a false message, Kraft argued, the FTC would chill non-misleading, protected speech Kraft Opinion--08/10/92)
because advertisers are unable to predict whether the FTC would find a particular ad misleading. The way to avoid this chilling effect, Kraft contended, is to require the FTC to rely on objec- tive indicators of consumer perceptions as to whether an ad actually contains certain implied claims.
The court disagreed with Kraft. It ruled that the Commis- sion could "rely on its own reasoned analysis to determine what claims, including implied ones, are conveyed in a challenged advertisement, so long as those claims are reasonably clear from the face of the advertisement." The court noted that the Com- mission "does not have license to go on a fishing expedition to pin liability on advertisers for barely imaginable claims ... . However, when confronted with claims that are implied, yet conspicuous, extrinsic evidence is unnecessary because common sense and administrative experience provide the Commission with adequate tools to make its findings."
The court also rejected Kraft's First Amendment argument that the FTC's current approach chills truthful commercial speech, stating that current case law teaches that "consumer surveys are not compelled by the first amendment when the alleged deception although implied, is conspicuous."
Kraft next argued that the FTC did not have substantial evidence to support its finding that the "Class Picture" ads conveyed a milk-equivalency claim. According to the court, however, the ads emphasized, visually and verbally, that five ounces of milk go into each slice of Kraft Singles. The image linked to calcium content, strongly implies that the consumer will get the calcium found in five ounces of milk, the judges found. In response to Kraft's assertion that the ads were lit- erally true -- that Singles are made from five ounces of milk and do have a high concentration of calcium -- the court observed that the average consumer was not likely to know that much of the calcium in five ounces of milk would be lost in processing, leaving the consumer with a misleading impression about the cal- cium content. "The critical fact is not that reasonable consum- ers might believe that a 3/4 ounce slice of cheese actually contains five ounces of milk, but that [they] might believe that a 3/4 ounce slice actually contains the calcium in five ounces of milk," the court determined.
Lastly, Kraft argued that the milk-equivalency and calcium superiority claims were not material to consumers. The court rejected that argument, as well, ruling that the Commission had solid evidence to show that consumers rated calcium consumption as a very important factor in their decision to buy Kraft Sing- les. That evidence included survey evidence on the importance of calcium content, as well as evidence that Kraft designed the ads Kraft Opinion--08/10/92)
with the intent to capitalize on consumer calcium-deficiency concerns. The Commission found that even though Kraft was given numerous repeated warnings about providing substantiation for the milk and calcium claims in the ads, it continued to run the ads for two and a half years. The FTC thus reasonably inferred, according to the court, that Kraft thought the milk-equivalency claim induced consumers to purchase Kraft Singles and, therefore, the claim was material to consumers. The FTC also had solid evidence that the calcium superiority claim was material, the court found. Not only was there evidence that Kraft intended the challenged ads to convey this message, but the challenged ads led to increased sales of Singles over imitation cheeses, the court said. Thus, the court held that it was reasonable for the Com- mission to infer that the calcium superiority message, as a central theme in the ads, contributed to increased Singles sales and market share.
Finally, the court rejected Kraft's argument that the Com- mission's order is too broad. Kraft argued that the order (1) bans constitutionally-protected commercial speech, and (2) is not rationally related to its violation of the FTC Act. The court noted that the Commission had determined that the ads were actually misleading, not potentially misleading, thereby justi- fying a total ban on the challenged ads. In any event, the court found that the order was sufficiently narrow to pass Constitu- tional muster. The court also ruled that the Commission has discretion to issue multi-product orders -- so-called "fencing- in" orders -- that extend beyond alleged law violations to prevent violators from engaging in similar deceptive practices in the future. The court said that the Commission provided suffi- cient evidence showing that "Kraft's violations were serious, deliberate, and easily transferable to other Kraft products, thus warranting a broad fencing-in order."
Copies of the court of appeals decision, as well as previous news releases on the case, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 1-866-653-4261.
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MEDIA CONTACT: Brenda A. Mack, Office of Public Affairs 202-326-2182
(Docket No. 9208)