Advertising Exclusive---The law behind the ads!

Contract Theory Older way of analyzing advertising Only issue was whether ad constituted an offer. Not usual analysis any more.

Lefkowitz v. Great Minneapolis Surplus Store, Inc. “Where one offers for sale by newspaper advertisement a certain article of definite value at a quoted price, which offer is clear, definite, and explicit and leaves nothing open for negotiation, it constitutes an offer, acceptance of which may complete the contract.”

Government Regulation Advertising law now largely a matter of government regulation. State and federal law Federal more important, since wider range. State law usually mirrors federal law But what about...

... The CONSTITUTION?!! Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The U.S. Supreme Court has ruled on this issue

Bigelow v. Virginia Prosecution for violating law against advertising abortion services. Advertised travelling to states where abortion was legal. Fact that advertisement had commercial aspects did not mean no 1 st Amendment protection. Set out grounds for governmental regulation of advertising:

Government may restrict ads that are: Deceptive or fraudulent Advertising illegal goods or services Advancing a criminal scheme Invasions of personal privacy Infringing on rights of others or Thrust upon a captive audience

Va. State Board of Pharmacy v. Va. Citizens Consumer Council Struck down restrictions on advertising drug prices Legal drugs, of course Public has an interest in receiving truthful information to compare goods and services Consumer’s interest in free flow of information may be as keen, if not keener by far, than interest in most urgent political debates

Bates v. State Bar of Arizona Allowed advertising of professional services Public’s interest in receiving truthful information outweighs state’s need to restrict Disclaimers etc. may be required to keep ads from being deceptive This is why we get:

Food and Drug Administration (FDA) Regulates drug advertising and labeling Focus is on adulteration and misbranding Labeling is all labels and printed matter – Package inserts – Design of product

Federal Trade Commission (FTC) Regulates all other advertising Issues orders to cease and desist from using unfair method of competition or unfair or deceptive act – Protects consumers, not just competition – Law includes false advertising Civil action on behalf of consumers Case-by-case determination

FTC Statement on Deceptive Acts or Practices Deceptive ads Material misrepresentation, omission, or practice Likely to mislead consumer acting reasonably in circumstances

Presumed Material Express or intentional deception Implied deceptive claims about health, safety, durability, or performance

Actual deception need not be proven Standard is “likely to mislead” Implied representations may be deceptive Factual claims imply that they can be substantiated

Substantiation of Facts Reasonable factual basis at the time claim is made Must reasonably support claim made Amount needed depends on whether claim is express, implied, or omitted Look at consumer expectation of amount of substantiation needed

How do we know what a consumer expects?

Things to Consider Type of ad Type of product Possible consequences of a false claim Degree of reliance placed on claim Benefits of truthful claim What do experts think?

Amount of substantiation increases as risk of harm increases Health or safety claims require more substantiation If risk of harm is minimal, clinical or general experience may suffice Failure to disclose a fact a consumer would want to know could be deceptive

Qualifying information may not be omitted Mock—ups or demonstrations must show real results Falsity theory may be used—is express or implied message false?

UNFAIR ADVERTISING

When deciding if an ad is unfair, we look at: Consumer injury – Substantial – Not outweighed by competing benefits to consumers or general competition Public policy Cost-benefit analysis – Would the costs of correcting the unfairness be greater than the benefits?

Claims targeted to vulnerable audiences get extra scrutiny – Elderly Hearing aids Insurance – Children Toys Cereal

So what do they do to you if you’re bad?

Penalties Civil penalties up to $10,000 per violation Temporary injunction—rare Cease and desist order—usual remedy Action for refund to consumers Corrective ads

Cease and Desist Orders Typical remedy Prevents additional ads or misrepresentations May require additional information or disclosures Often agreed to as a part of a settlement

Corrective Ads Usually ordered as a part of a settlement (consent decree) Determination that discontinuing ad would not be enough – Residual effect of earlier ad

Rulemaking

FTC Rulemaking Future guidance for advertisers Rules are made after a determination that a particular practice is deceptive Rules have the force of law 30+ industries are covered Regulate presentation of content, design, and disclaimers Set out practices considered unfair or deceptive

Example—”Green Marketing” Environmental claims FTC publishes “Green Guides” Guidance on use of environmental terms in advertising – Biodegradable – Recyclable – Ozone Safe

First “Green Guide” published in 1992 Updates in 1996 and 1998 Efforts to update have been going on since 2008 – New rules officially proposed in October of 2010 – Not final yet Guides are not official regulations Does not change other rules – Only puts them in context

Examples of environmental advertising enforcement actions “Bamboo-zling” The FTC’s word, not mine Textiles marketed as made out of bamboo – Actually made of rayon Said to retain anti- microbial properties Claimed biodegradable Biodegradable paper Unsubstantiated claim “Biodegradable” means product will decompose if disposed of as usual Products sold were disposed of in landfills or incinerators Two cases settled; one litigated

Endorsements

The FTC has long had guidelines about endorsements Now, they apply to social media Must be truthful, not misleading Must disclose generally expected results, if different from endorsement Connections between endorser and marketer must be disclosed

Private Lawsuits

Lanham Act § 43 (a) Private right of action for false or misleading advertising Action brought against person who uses words, symbols etc. that – Are likely to cause confusion or deceive about affiliation, sponsorship, connection or – Misrepresents nature, characteristics, quality of goods Do not need to show actual confusion

Protects against the following: Unauthorized use of a celebrity’s image or voice Misleading endorsement claims Unauthorized use of fictional characters, if misleading False attribution of authorship

For example: Woody Allen sued American Apparel over the use of his picture on a billboard. The suit was settled for $5 million.

Yes, five million dollars.

False Advertising Lawsuits False statement of material fact Actually deceived, or have a tendency to deceive, a substantial segment of audience Interstate commerce Plaintiff injured by false advertising – Diverted sales, lost goodwill – Injury is not presumed

If a statement is blatantly false, confusion is presumed Implicit statements should have tendency to deceive tested by public reaction Innuendo covered

State Law

Deceptive Trade Practices Act Similar laws in most states Patterned after Lanham Act Sets out business practices that are violations – Passing off goods as those of another – Casing likelihood of confusion – False representations of quality of goods – Disparaging goods of another by falsities – Bait and switch etc.

Actual competition need not be shown – Court will award money only if there was actual confusion – Likelihood of confusion only gets an injunction Publishers, broadcasters, or printers are not liable unless: – They knew of deception or – Had a financial interest

Remedies Injunction Damages Costs and attorney’s fees, if the act was willful State may obtain restitution for consumers

How do I know which rules to follow?

Follow the rule that is the most restrictive U.S. Supreme Court ruled federal laws not always controlling for advertising – No “safe harbor” State law may require stricter labeling – Not a defense that following state law will violate federal law – Do both