Advertising And Unfair Competition

Remarks before The American Law Institute-American Bar Association (ALI-ABA) Product Distribution And Marketing Meeting

Scottsdale, Arizona

Date:
By: 
Sheila F. Anthony, Former Commissioner

Good Morning. I am happy to be with ALI-ABA again this year to talk about the Federal Trade Commission's ("FTC's") national advertising program.

The FTC's national advertising program is a vibrant and integral part of the Commission's mission. Over the years this meeting has served as a forum to highlight recent developments and initiatives so, I am really delighted to have this opportunity to be here today.

As a courtesy to my colleagues on the Commission, I will begin with the usual disclaimer: the views I express here are my own and are not necessarily those of the Commission or any individual Commissioner.

My remarks will be divided into three parts: First, I will touch on several examples illustrating the fast-moving nature of advertising today. Second, I will talk about several recent law enforcement actions. Third, I will update you on some Internet initiatives and share some of my personal views about privacy.

There currently is an explosion of competition and innovation in advertising. New high tech gadgets and gizmos are being introduced and aggressively advertised to consumers. Sometimes, when I see these ads, I am not sure what claims are being made, let alone what product or service is being offered.

In addition, products and services never before advertised are being marketed. For example, as deregulation occurs in industries such as long distance telephone services and electricity, those industries are beginning to advertise specific attributes of their products and services. New ways of advertising are emerging as well. The innovative nature of Internet advertising has created new industries. A few years ago, Internet advertisement placement services did not even exist. Now, online profiling companies are extremely sophisticated in placing targeted ads on websites frequented by consumers.

In any dynamic environment, some level of consumer confusion is inevitable. Confusion is increased by new market entrants who are uninformed about basic principles of advertising law. In addition, the unscrupulous marketers are clever and quick to exploit and mislead consumers. Our goal at the FTC is to keep ahead of the curve, to provide consumer and business education, and to engage in tough and vigorous law enforcement. Instead of telling companies to stop their violations, we are imposing additional requirements in our orders. In appropriate cases, we are seeking consumer redress or disgorgement of ill-gotten profits. And, when Commission orders are violated, we are seeking higher civil penalties to ensure that the price is more than simply another cost of doing business.

I cannot state too strongly that we take our law enforcement responsibilities seriously, and I, personally, am committed to seeking faster, more effective and tougher remedies for law violators. Companies that play by the rules should not be put at a disadvantage by competitors that play fast and loose.

Two areas that have received increased attention are liability and remedies. Advertisers are responsible for all claims, express and implied, that are reasonably conveyed by an ad.(1) Advertising agencies can also be liable for deceptive advertisements if the agency was an active participant in the preparation of the ad, and if it knew or should have known that the advertisement was deceptive.(2) In addition, it is well settled that retailers can also be liable for false and misleading claims, but we generally will not hold them liable if they reasonably rely on the manufacturers' substantiation.(3) Companies can also be liable if they provide others with the "means and instrumentalities" for engaging in deceptive conduct. Two recent actions should provide useful illustrations.

The Shell Chemical Company ("Shell") / Castrol North America, Inc, ("Castrol") matter involved both a manufacturer (Shell), who did not advertise directly to the public, and a retailer (Castrol), who relied on and used the manufacturer's deceptive promotional material.(4)

Castrol marketed a gas additive product called Castrol Syntec Power System. Shell developed and supplied the active ingredient for the gas additive product and prepared videos and other promotional materials containing deceptive claims about the additive. The Commission's complaint alleged that both companies engaged in deceptive advertising by claiming that the Castrol gas additive product significantly improves engine power and acceleration and is superior to other gas additives.

A majority of the Commission found that Shell provided the "means and instrumentalities" to its trade customers to deceive the public because it provided the allegedly deceptive advertising and promotional materials that ultimately appeared in Castrol's ads.

The "means and instrumentalities" theory is a well established FTC legal principle. The Commission's use of it in this case does not signal any expansion of the law. It does signal the Commission's intent to assure that those who facilitate deception will be held liable.

Similar concerns are reflected in another recent settlement with QVC Inc. ("QVC") / Quigley Corporation ("Quigley").(5) These settlements resolved allegations that the companies made unsubstantiated claims that the Cold-Eeze product could prevent colds. Quigley is the manufacturer of Cold-Eeze and other products. QVC is a national cable "home shopping" network and a retailer for Cold-Eeze.

The Commission alleged that both companies made unsubstantiated claims that Cold-Eeze could, among other things, prevent colds. Many of the challenged claims appeared on QVC programming, and were made both by QVC show hosts and by Quigley representatives appearing on QVC.

The message here is that all advertisers have a responsibility to prevent deceptive and unsubstantiated ads. Although QVC was not the principle source of the deceptive claims, it played a key role in their broad distribution and benefitted directly from the deceptive ads. The Commission believed it was important to hold QVC as well as Quigley responsible for these claims.

Once we have made certain that we have named all the right parties, we turn our attention to crafting the appropriate remedy. Sometimes the appropriate remedy includes an informational or public educational component. These remedies protect consumers by making them less susceptible to future deception. Two recent cases illustrate different approaches to such remedies.

Last May, the Commission issued its opinion in the first litigated corrective advertising case in 20 years.(6) The case involved Novartis Corporation and its advertising for Doan's pills. The case is currently on appeal to the D.C. Circuit.

The Commission charged Novartis with making deceptive back-pain relief claims about Doan's Pills. The ads claimed that Doan's products were more effective than other analgesics. While Doan's pills are effective for pain relief, there was no evidence that they were superior to other analgesics. After trial, the Administrative Law Judge upheld the charges that the Doan's ad were unsubstantiated and false, but he did not impose a corrective advertising remedy sought by Commission staff. Both parties appealed the ALJ's decision to the full Commission. The Commission reversed the ALJ's holding regarding corrective advertising. Our opinion concluded that corrective advertising was necessary. The record established that the eight-year multimillion dollar ad campaign created or reinforced a false belief that Doan's was a superior product for treating backache, and the false belief was likely to endure.

The order requires certain ads and all packaging for Doan's pills to include, clearly and conspicuously, the message: "Although Doan's is an effective pain reliever, there is no evidence that Doan's is more effective than other pain relievers for back pain." The Novartis case confirms that the Commission will order corrective remedies when, as a result of a deceptive ad campaign, consumers are likely to continue to buy a product based on erroneous beliefs.

A recent settlement with Bayer Corp.(7) ("Bayer") provides an example of a different approach. In the Bayer matter, the Commission's complaint alleged that Bayer made unsubstantiated claims in a series of Bayer aspirin ads. The Bayer ads claimed that a regular aspirin regimen is appropriate for the prevention of heart attacks and strokes in the general adult population. The Commission's complaint alleged that these claims were unsubstantiated because some adults are less likely to benefit from a daily aspirin regimen and some may suffer adverse health effects from taking aspirin on a daily basis.

The settlement with Bayer requires the launching of a $1 million consumer education campaign. It will feature full page ads appearing in national magazines this spring and will promote a toll-free number for consumers to call to obtain an informational brochure. In addition to the consumer education campaign, the settlement contains a triggered disclosure provision. A disclosure is required in all Bayer advertising that makes claims about the health benefits of regular aspirin use to prevent heart attacks or strokes. That disclosure provides: "Aspirin is not appropriate for everyone, so be sure to talk to your doctor before you begin an aspirin regimen."

I hope these few examples illustrate how we try to be comprehensive and effective in our remedies.

Let me now shift gears and quickly describe the Commission's recent efforts and initiatives in the Internet arena.

The Commission's approach to the Internet continues to operate on several fronts. We are keeping ourselves technologically current. Last year we established an Internet Lab which is equipped with state-of-the-art personal computers. The lab is a resource for ongoing efforts to educate ourselves about this dynamic media and to search for fraud and deception in a secure environment.

We continue to provide forums for the development of consumer protection issues. The most recent forum was held last fall in partnership with the Commerce Department and involved On-line Profiling, which I will talk about in a few minutes. The next forum will explore the use of alternative dispute resolution mechanisms to resolve consumer transaction disputes in the borderless online marketplace. It will be hosted jointly with the Department of Commerce and will be held later this spring.

Tough and vigorous law enforcement remains a top priority in our Internet efforts. Since September 1994, the Commission has brought over 100 Internet-related cases. Many of these involve traditional scams in a high tech venue. For example, the Internet has provided especially fertile ground for pyramid schemes and other get-rich-quick ventures. Increasingly, however, the technology is enabling the scam itself. For example, we have brought several actions halting scams that hijacked consumers' modems and websites. Such scams are unique to the technological innovations the Internet provides.

Currently, one of the most vexing problems on the Internet is protection of consumer privacy. Again, our efforts are proceeding on multiple fronts. Should there be legislation addressing online privacy for adults? A majority of the Commission has indicated a preference for industry self-regulation if it produces meaningful privacy protections for consumers.

Last July, I testified before both the House and the Senate in favor of legislation incorporating at least minimal federal standards. Although some large and small companies protect online privacy, I stated that I was disappointed that sufficient progress by industry as a whole had not been made under a self-regulatory approach. Without widespread implementation of fair information practices on commercial websites and absent effective privacy protections, several results are inevitable.

First, the dissatisfaction of American consumers will only increase. Second, a patchwork of state laws to protect online privacy will emerge and will create a confusing environment for consumers, marketers, and the courts.

Finally, it is possible that the absence of online privacy protection will continue to undermine consumer confidence and hinder the advancement of electronic commerce.

I remain concerned about consumer privacy, generally. In fact, my concerns are only increasing with the blurring of the lines between the online and offline world. In addition, in the last few months, I have become particularly troubled about the growth of online profiling -- which is the largely invisible collection of information about consumers' Internet activities through the placement of cookies on the consumer's browser. This technology allows the ad servers to create a profile on individuals as they travel on and around websites. Profiling can keep track of which websites a consumer visits and which ads the consumer clicks on or has seen. How would you like it if someone surreptitiously stalked you with a camera as you walked through a shopping mall, noting which windows you glanced at and which stores you visit and what you buy. While public mall shoppers may not have an expectation of privacy, I believe web shoppers and surfers do. The most troubling aspect of this technology is that consumers do not even know it is happening or what is being done with the data collected.

I wish I had a crystal ball and could tell you how these very important privacy issues will play out. In this dynamic environment new threats to consumer privacy are emerging almost everyday. I only know that it will take all of our best efforts to find the best way to protect consumers privacy without hindering the development of E-Commerce.

Thank you for your attention today. I hope you've learned something about fair and truthful advertising from the examples I've given you. I hope I have impressed upon you the care with which you should advise your clients in steering them away from conduct that could result in severe consequences and penalties if they do not play by the rules. And, I hope I've illuminated some of the unresolved issues facing consumers in deregulating industries, such as telecommunications and electricity, and emerging technologies such as the Internet.

As consumer yourselves, be assured that we will continue to fight for you in the marketplace by overseeing advertisements that present you with choices and to make certain that those choices are as informed as possible.

Endnotes:

1. See Sears, Roebuck & Co. 95 F.T.C. 406, 511 (1980), aff'd 676 F.2d 385 (9th Cir. 1982).

2. Bozell Worldwide, Inc. and Martin Advertising, Inc., C-3845 and C-3846 (Jan. 4, 1999) (consent orders) challenging agencies' roles in advertisements containing deceptive representations of car leasing terms.

3. Jay Norris, Inc. v. FTC, 598 F.2d 1244 (2d Cir. 1979).

4. Shell Chemical Co., C-3912 (Dec. 22, 1999). Castrol North America, Inc., C-3910 (Dec 13,1999).

5. Quigley Corporation , C-3926 (Feb. 11, 2000). QVC, Inc., File No. 982-3252 (Nov. 23, 1999).

6. Novartis Corp., D-9279 ( May 27, 1999).

7. US vs Bayer Corp. (Civil Action Feb 4, 2000, No. 00132 (VHP)).