Advertising Issues Before the Federal Trade Commission
Remarks of Commissioner Orson Swindle
Federal Trade Commission
2004 Joint Government Affairs Conference
Sponsored by the
American Advertising Federation, the Association of National Advertisers,
and the American Association of Advertising Agencies
April 28, 2004
It is a pleasure to be here today to discuss consumer protection issues currently before the Federal Trade Commission. Let me start by mentioning that my remarks this morning reflect solely my views and do not necessarily represent the views of the Commission or any other Commissioner.
As you all know, the FTC is involved in a wide range of consumer protection activities, involving many different topics. Today, I will address two topics of particular interest: (1) obesity, specifically the Commission's broad approach to weight loss advertising, and (2) spam, specifically the Commission's actions to implement the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act), Pub. L. No. 108-187, 17 Stat. 2699.
I. Obesity and Deceptive Weight Loss Advertising
Health and safety advertising continues to be one of the Commission's top priorities. Under Chairman Muris's leadership, the Commission has focused attention on weight loss advertising. Being overweight or obese causes serious health problems, and unfortunately a majority of adults in the U.S. - and increasing numbers of children - are overweight or obese.
A. Federal Trade Commission Efforts
The FTC has therefore increased its efforts to prevent deceptive claims for weight loss products and services and to ensure that consumers have access to truthful information about weight loss. Our efforts include law enforcement actions to combat deceptive weight loss claims, education campaigns to enable consumers to be their own first line of defense, and advocacy efforts to ensure that consumers have access to truthful information.
Our law enforcement actions against deceptive weight loss products have ranged the gamut from dietary supplements, to patches, to exercise devices. There may have been a time when these products were the outliers - those of "fraudsters" operating on the periphery and conducting limited marketing. But today, these products are widely marketed in print and radio advertisements and cable television infomercials. The product claims are appealing. What person struggling with excessive weight has not given some thought to a miracle product? And many ads reassure consumers that clinical tests prove that the products are effective. Not surprisingly, the products generate substantial sales.
To effectively target these practices and to protect consumers, the Commission has increasingly used federal district court complaints, seeking preliminary relief to stop the deceptive practices and monetary relief to redress consumer harm. The federal district court approach has been successful in our prosecution of telemarketing and other types of fraud. I believe our increasing use of federal district court complaints in these advertising cases demonstrates that we believe that these exaggerated weight loss claims, as well as those for many other products, are outright frauds and that we intend to aggressively pursue those engaged in these practices. I know that the AAF, ANA, and AAAA all have been supportive of aggressive FTC enforcement against deceptive advertising.
Recognizing that consumers can and should be their own best defense, however, the Commission also disseminates consumer education brochures on diet, health, and fitness. We repeatedly and clearly emphasize that there are no magic solutions when it comes to weight loss, and that consumers should evaluate weight loss products with a healthy portion of skepticism.
In addition, the Commission has worked with the Food and Drug Administration (FDA) to improve consumers' access to truthful information. The Commission staff has responded to FDA requests for comment on a number of issues, including food labeling and obesity.(1) The FTC staff suggested that the FDA consider reviewing certain labeling requirements that might help empower consumers to make better informed choices about the food they eat. For example, current food labeling rules make it difficult to compare the calories of foods in different product categories. This information could be particularly helpful to consumers. Choosing lower-calorie products and substituting one type of food for another (for example, substituting low-fat cherry yogurt for cherry pie for dessert) are important ways for consumers to decrease their caloric intake. Our staff also suggested that the FDA review whether serving sizes currently listed on food labels still accurately reflect the amount that consumers typically eat. Changes such as these may help consumers identify healthier, lower-calorie foods and encourage companies to develop and market more of those foods. The Commission continues to work with the FDA on issues such as these.
The growing problem of children's obesity has led to calls for even more government action. Some advocates have suggested that the Commission restrict junk food advertising to children. This is not a new issue for the FTC. About 25 years ago, the FTC proposed restrictions on children's advertising and the public and Congressional reaction was negative - to say the least.(2) It doesn't make sense to go down that path again, and I'm not just speaking from a political perspective.
Any governmental ban on children's advertising would raise First Amendment implications. As we learned 25 years ago, there are practical problems to implementing any such ban - such as defining what "junk food" is, or determining what advertising is directed to children. The staff had considered a standard in which advertising would not be permitted on any program where half of the audience was age six and younger, and only one show would have been affected - Captain Kangaroo. This clearly would not have been an effective result.(3) And let's just think about the government's role here. Children see food advertisements and then ask their parents to buy that particular food for them. Do we really want the federal government to step in to protect parents in this situation?
The FTC remains concerned about the increase in obesity, and we will continue to work with the Department of Health and Human Services and others to find better solutions.
B. The Need for a Cooperative Effort
The Commission's main objective in the area of advertising is to prevent deceptive claims. The problem is enormous, and we need your help. The FTC staff's 2001 review of weight loss ads found that false and misleading claims in weight loss ads were pervasive and had increased despite an unprecedented level of FTC enforcement actions over the last decade.(4) I think this speaks poorly for the advertising profession, not to mention the snake oil salesmen.
As with many difficult issues, we all need to work together to solve the problem. Working together brings results. For example, there has been an ongoing dialogue among government, industry, and consumer groups to address privacy and security concerns. The result has been to improve privacy and security practices through, for the most part, a self-regulatory process.
The same approach - working together - also will work in advertising. The FTC, advertisers, and the media all have a role to play to minimize deceptive advertising.
1. The Role of Advertisers
So what does this mean for advertisers? Legitimate firms advertising legitimate products in an appropriate manner have a real stake in resolving the problem of deceptive advertising. While legitimate marketers take care to avoid misleading claims, they can lose sales to unscrupulous marketers that make false claims promising dramatic results. Even worse, if consumers lose faith in advertising, the entire industry suffers.
For many decades, the FTC has recognized the important role of effective self-regulation. I therefore applaud the advertising industry's successful self-regulatory efforts, conducted by the National Advertising Division (NAD) of the Council of Better Business Bureaus. The NAD investigates complaints against advertisers brought by both consumers and other advertisers. I also am encouraged by the Electronic Retailing Association's recent announcement of a new self-regulatory program. Complaints about misleading infomercials and online ads will be referred to an independent review board at the National Advertising Review Council. Self-regulatory programs such as these complement the Commission's law enforcement effort, and the net effect is greater consumer protection in the marketplace.
We have much more work to do in the area of weight loss advertising, and you - members of the industry - need to play a large role. We must keep the dialogue and efforts going and, most important, we must succeed. I personally have confidence in the private sector to do the right thing. Vigorous and effective self-regulation of your industry - whether it involves weight loss advertising or advertising to children - is a responsible course of action. You are far better suited to "get it right" than is government. You have the right incentives to do so - happy customers, growing business and profits. It is essential that you lead the way. And we intend to back your efforts with continued vigorous enforcement.
2. The Role of the Media
The FTC and advertisers are only two of the major players responsible for reducing deceptive weight loss advertising. The media also have a role to play. Obviously, we would have an easier task if these blatantly false ads were never disseminated in the first place. We therefore have asked the media to work with us in trying to stem the tide of false weight loss ads by instituting better screening and by refusing to run obviously false ads.
We are not suggesting that the media institute a massive screening program or network-style clearance procedures for all types of advertisements. We are asking for the media's assistance solely in the weight loss product area. Besides the economic harm when consumers spend money on weight loss products that don't work, there are serious health consequences for consumers who are obese or overweight. And unlike many other types of ads, we believe that weight loss advertisements are particularly suited for better media screening.
In December 2003, the Commission announced its "Red Flag" education campaign to assist media outlets in voluntarily screening ads for over-the counter weight loss products.(5) In particular, the Commission's "Red Flag" brochure identifies seven claims that are not scientifically feasible.(6) To develop these claims, the Commission held a public workshop at which scientific experts expressed their views on the scientific feasibility of these claims. The brochure highlights the most outrageous weight loss claims that are simply too good to be true - claims such as "lose substantial amounts of weight without dieting or exercise."
The brochure was well-received by media trade associations. The associations distributed the brochures to their members and also communicated our concerns about false weight loss advertising to their members. Although it is too early to tell the results of the media screening efforts with any certainty, our staff's casual review of magazine ads suggests that there already has been some reduction in the amount of false weight loss ads. The staff also plans to conduct a more systematic review of weight loss ads and report on the results in the future.
I encourage everyone to review the Red Flag brochure, and I encourage all media outlets to implement screening procedures. This certainly is not just my personal appeal for the greater good. The media industry itself has incentives to adopt these screening procedures voluntarily. Better screening increases the credibility of all advertising. Continued efforts toward self-regulation are essential.
II. Spam and Implementation of the CAN-SPAM Act
To switch topics completely, let's talk about spam. Many businesses advertise their products by email, and this legitimate means of marketing is being undermined by spam. In fact, the volume of unsolicited mail is causing such a deep erosion of public confidence that it could hinder or even destroy email as a tool for communication and online commerce. I think it's fair to say that spam is threatening to "kill the killer app."
The Commission has a number of initiatives to combat spam, including law enforcement actions targeting deceptive spam, consumer education efforts, studies and analyses of spam, and last year's "spam forum" to address the cost and technology burdens imposed by the increasing amount of spam. In addition, in January of this year, the FTC partnered with 36 agencies from 26 countries around the world to launch "Operation Secure Your Server," an international effort to reduce the flow of unsolicited commercial email by urging organizations to close "open relays" and "open proxies."(7) As part of the initiative, the participating agencies identified tens of thousands of owners or operators of potentially open relay or open proxy servers around the world. The agencies sent letters urging these owners or operators to protect themselves from becoming unwitting sources of spam and providing guidance on inexpensive steps to secure their servers.
Of course, one of the most recent tools to fight spam is the CAN-SPAM Act, which became effective on January 1, 2004. I will provide a general overview of the Act, and then I will discuss the Commission's efforts to implement the Act.
The CAN-SPAM Act creates both civil and criminal violations. The FTC, the states, and Internet Service Providers (ISPs) have the authority to enforce the civil provisions of the Act. The Act covers many things which I am not going to address,(8) but here are some of its requirements. The Act prohibits senders of commercial email from using false or misleading header information and deceptive subject lines. The Act also requires that a sender identify its message as an advertisement and include the sender's valid physical postal address. In addition, the Act requires senders to provide a method by which consumers can opt out of receiving future email and requires senders to honor those opt-out requests.
To implement certain portions of the Act, the Commission issued an Advance Notice of Proposed Rulemaking (ANPR) in March soliciting comment on a number of issues.(9) Here are just a few of the many issues on which the Commission sought comment:
- the relevant criteria for determining when the "primary purpose" of an email message is commercial (and is therefore covered by the Act);
- whether to modify or expand the categories of "transactional or relationship" emails that are exempt from certain provisions of the Act;
- the reasonableness of the "10 business day" time period for senders to process consumers' opt-out requests; and
- whether and how to clarify the legal obligations of multiple senders of a single email or of recipients in "forward-to-a-friend" marketing scenarios.
The comment period closed on April 20, and the Commission staff will be reviewing all of the comments we received. The next step will be to issue a Notice of Proposed Rulemaking that contains specific Commission proposals on these issues.
The CAN-SPAM Act also required the Commission to adopt a mark or a notice to be placed in any email that contains sexually oriented material. The purpose of the notice is to inform recipients that a spam message contains sexually oriented material and to make it easier to filter out messages they do not wish to receive. After receiving comments on a proposed rule, the Commission issued a final rule on April 19.(10) Among other things, this rule requires senders to place the words "Sexually-explicit:" as the first characters in the subject line of an email message. The rule becomes effective on May 19.
The Act also requires the Commission to issue four reports to Congress. I'll briefly mention the reports, but I will focus my remarks on the report on the National Do Not Email Registry. First, the Act requires the Commission to issue a report that sets forth a system for rewarding those who supply information about violations of the Act. The concept is that the first person to report the identity of a violator is eligible to receive some percentage of any civil penalty we collect. Second, the Commission must report on the possibility of requiring a label in the subject line of every commercial email message (for example, a label such as "ADV" in the subject line). And third, by the end of next year, the Commission must report to Congress on the effectiveness of the CAN-SPAM Act. As part of the information-gathering process, the Commission requested comments on the topics covered by these reports in the ANPR that I mentioned earlier.
The report that has garnered the most interest, however, involves the concept of a National Do Not Email Registry. The CAN-SPAM Act does not require the Commission to implement a registry. Instead, the Act requires the Commission to set forth a plan and timetable for establishing a National Do Not Email Registry, and to include an explanation of any practical, technical, security, privacy, enforceability, or other concerns regarding such a registry.
The Commission has undertaken a thorough process to gather information on the feasibility of a Do Not Email Registry for this report. Let me explain.
The Commission issued a Request For Information (RFI) seeking detailed proposals for a possible National Do Not Email Registry.(11) The RFI also sought technical information on any possible registry models. For example, if consumers were to register their email addresses (in a method similar to the Do Not Call Registry), we asked for technical information on the mechanisms for ensuring that consumers were registering their own email addresses and for verifying the identify and location of email marketers who access the database of registered email addresses. In response to the RFI, we received 13 submissions, 10 of which proposed the creation of a registry.
The Commission also sent out 6(b) orders to several ISPs. When I refer to a 6(b) order, I'm speaking of an order that is issued pursuant to section 6(b) of the FTC Act, and that requires the recipient to answer questions and furnish information in writing and under oath. In these orders, the Commission asked for data concerning the volume and type of spam the ISPs receive as well as information regarding their anti-spam technologies and enforcement efforts.
The Commission staff also interviewed over 80 individuals representing 56 organizations, including consumer groups, email marketers, ISPs, Email Service Providers and technologists. The majority of these meetings were transcribed.
To ensure that we didn't miss anyone through the meeting process, and to allow all interested parties the opportunity to weigh in on this issue, the Commission also solicited written comments from the general public. The comment period closed on March 31.
Since we requested written comments on the ANPR and all four reports at the same time, I can't give you the precise number of comments that addressed only the Do Not Email Registry. But just to give you a sense of the public attention to spam issues, we've received well over 10,000 comments on all of the spam issues (the ANPR and the four reports).
As you can tell, the Commission is working hard to ensure that we can present Congress all of the relevant information that should be considered in determining whether to implement a Do Not Email Registry. The Commission's report is due to Congress on June 16.
The Commission will continue its work in implementing each portion of the CAN-SPAM Act and, most important, in enforcing the law. We are conducting a number of non-public investigations (which I cannot discuss), and you can expect to see the results shortly. But the same things I said about false weight loss advertising can be said about spam: The FTC cannot solve this problem alone. We need to work together to find solutions to spam. A blend of technological fixes, consumer and business education, and law enforcement will be required.
One final note on a topic that may be of interest to some of you: Last week the Commission held a public workshop on the use of spyware and adware. Tomorrow, the Commission will testify on spyware before the House Subcommittee on Commerce, Trade, and Consumer Protection. We will issue a press release on the Commission's testimony tomorrow, and I encourage all interested parties to check our website for more information.
Obviously, there is much for all of us to do. Our efforts at making the advertising profession the best that it can for the industry, clients, and consumers will be a journey, not a destination. The Commission, your industry, and the media have critical roles to play. We should be driven by the desire to do the right thing, not the most profitable action at the expense of others. We are all diminished by the fraudulent and unethical conduct of a few.
Government can not do this alone - nor should it try. Your already commendable efforts at industry self-regulation need to be constantly enhanced. I truly believe the private sector must lead. And, of course, here in Washington, if you won't lead, someone in government will. I like it your way rather than ours. Thank you for listening.
1. Comments of the Staff of the Bureau of Consumer Protection, the Bureau of Economics, and the Office of Policy Planning of the FTC, before the FDA in Docket No. 2003N-0338, In the Matter of the Obesity Working Group, Public Workshop: Exploring the Link Between Weight Management and Food Labels and Packaging (Dec. 12, 2003), available at <www.ftc.gov/be/v040003text.pdf>. The Obesity Working Group endorsed many of the staff's recommendations. See <www.cfsan.fda.gov/~dms/owg-toc.html>.
2. For more detailed information concerning this effort to restrict children's advertising, see Remarks of J. Howard Beales, III, Competition, Consumer Protection and Health Claims: Legal and Practical Limits on Advertising Regulation, before the George Mason Law Review 2004 Symposium on Antitrust and Consumer Protection (Mar. 2, 2004), available at <www.ftc.gov/speeches/beales/040312childads.pdf>.
8. More complete information on the CAN-SPAM Act may be found on the FTC's website at <www.ftc.gov/bcp/conline/edcams/spam/index.html>.
9. ANPR, Definitions, Implementation, and Reporting Requirements Under the CAN-SPAM Act, 69 Fed. Reg. 11775 (Mar. 11, 2004).
10. Final Rule, Label for Email Messages Containing Sexually Oriented Material, 69 Fed. Reg. 21023 (Apr. 19, 2004).