Remarks of C. Lee Peeler
Associate Director for Advertising Practices
Bureau of Consumer Protection
Federal Trade Commission
Before
THE AMERICAN CONFERENCE INSTITUTE
ADVERTISING AND THE LAW IN THE ELECTRONIC AGE
February 23, 1995
New York, NY
Before beginning, however, let me emphasize that my remarks today represent my own views
and do not necessarily represent the views of the Commission or any individual Commissioner.
Before discussing the FTC's role with respect to electronic marketing, let me take just a minute to make sure we are all talking about the same thing. When I hear the term "electronic marketing," I often conjure up the image of a consumer sitting in front of a personal computer, or even on the couch in front of their television with a remote control, and having the ability to seek out information on products and costs from competing retailers, order these products and have them delivered to the consumer's home. In other words each home or apartment is essentially a bus stop on the information superhighway.
There are of course many variations to this vision of electronic marketing's future, some of which are here today. For example, telemarketing is a staple of our current marketing system and a clear form of electronic marketing. So too are infomercials, home shopping channels, and 900 number information services -- all of which have increasingly become familiar marketing mechanisms during the last ten years.
But whatever your definition or view of electronic marketing, I think there is broad agreement
that electronic marketing offers the potential for tremendous benefits for marketers -- and more
importantly for consumers -- in terms of:
- convenience, - the ability to comparative shop, and - the ability to obtain quickly detailed
information on a variety of products.
With that very flexible definition of electronic marketing in mind, let me now tell you about the FTC's role in this area.
There are two recent statements about electronic marketing that to me illustrate this role. This first is a quote from the policy director of the Electronic Frontier Foundation, after the FTC last year announced its first law enforcement action against a marketer using the internet to sell its services. The commentator summed things up simply by saying that, "If it's illegal in the world, it's illegal in cyberspace."
A second came at the end of a long article called "Morph for the Money," that discussed new uses of movie studio type computer imaging -- like that used to film the movies Jurassic Park and Starwars -- to create advertising. The article concludes by wondering whether this powerful technology would be used to deceive consumers and quotes an industry executive as saying: "'Thankfully we have rules and laws and regulations in the advertising business. . . There was a time,' he recalled, 'when soup advertisers made their brew look chunkier with marbles, but it would be the very foolish advertiser who did that today.'"
Both comments repeat the same message that we have been trying to get out. Under the Federal Trade Commission Act the same basic rules apply to electronic marketing that apply to any other form of consumer advertising or marketing.
These rules can be simply summarized as:
1. You must tell the truth and not mislead consumers.
2. The claims you make must be substantiated before they are made.
3. And you must not engage in unfair practices - that is advertising or marketing that causes sub stantial, unavoidable consumer injury without offsetting benefits to competition or consumers.
Let me take just a minute to expand on some of the concepts that underlie these general
requirements.
The Commission reviews advertising from the perspective of a reasonable consumer in the target group. If you are advertising to children, for example, we will review the advertisement from the perspective of a reasonable child.
The Commission is concerned about both express and implied claims made in your advertising. In fact most of our advertising-related litigation revolves around the questions of what are the implications of the advertising and are those implications substantiated.
The deceptive interpretation of the ad does not have to be the only interpretation for the ad to be found deceptive. Most advertising may be interpreted in a variety of ways and if a deceptive interpretation is a reasonable one, the advertiser may be held liable.
And finally, you can deceive a consumer by what you don't say as well as what you do say. If
you omit information from your advertising and marketing that is material in light of the
representations made in the ad, it can be deceptive.
After its deception standard the Commission's Substantiation Policy is probably the most important single requirement for most advertising.[1] Under this doctrine every objective product claim, whether express or implied, must be supported by evidence providing a reasonable basis for the claim. The amount and type of evidence required to support a reasonable basis claim depends on a number of factors, including what experts in the relevant scientific or technical field believe is reasonable. For some claims, for example, representations about the health benefits of a particular product, an advertiser may be required to possess clinical testing or other scientific evidence that substantiates the claim.
To qualify as competent and reliable, the tests or studies relied on to support claims must have
been conducted and evaluated in an objective manner by qualified persons using procedures
generally accepted in the scientific community as giving accurate and reliable results.[2] In other
words, in such cases we are looking for carefully conducted evidence that the product works as
promised. We are not looking for the collections of newspaper and magazine articles talking
about theories by which a product might improve a consumers health. But sometime that is all
we receive when we request substantiation.
Unfairness is much less likely to be an issue in advertising cases than are deception or
advertising substantiation. With respect to unfair advertising, the classic example is the
promotion of razor blades by placing them in the comics section of the Sunday paper, which we
alleged created a substantial and unjustified risk of injury to children. A more recent use of this
authority occurred with respect to marketing of 900 number services to children, for example,
advertisements asking children to call Santa Claus or the Easter Bunny on 900 lines. The
Commission challenged the advertising of these services to children under 12 on the grounds
that the children were committing their parents' money, but the services had put in place no
procedures for parental control. Subsequent legislation prohibited this practice entirely.
Beyond these principles of general applicability there are some specific advertising principles you should also be aware of.
Demonstrations - As the marble in the bottom of the bowl of soup case illustrates, pictorial demonstration of a product's qualities or performance must accurately reflect those qualities or performance. This has been an area of renewed enforcement activity by the Commission in recent years including a case alleging that one advertiser used fishing poles, monofilament string and motors to enhance the visual performance of a flying toy product and another case alleging that the performance of a hand-held mixing device had been misrepresented by, among other things, substituting cool whip for skim milk to demonstrate the mixer's whipping ability.
Testimonials - Another common question is the use of consumer testimonials in advertising. You know, "I got 50 miles per gallon using the gas-saving device," or "I lost 30 pounds in one week with this pill."
Commission law in this area is clear that an advertiser cannot use a testimonial to make a claim the advertiser cannot itself substantiate. In addition, the Commission's Guides on Testimonials and Endorsements make clear that, the Commission will interpret a consumer endorsement, unless clearly limited, as a claim that the endorser's experience is representative of what consumers generally will achieve. Thus, the advertiser must either have substantiation for the representative nature of the claim made by the endorser or clearly limit the endorsement. And here I would add that our guides specifically state that the advertiser should either affirmatively disclose what the generally expected performance result would be, or disclose the limited applicability of the endorser's experience. The statement "Not all consumers will get this result" is not enough.
In addition, expert endorsements must be based on actual exercise of the endorser's expertise, which must include testing or evaluation of the product at least as extensive as someone with the same degree of expertise would normally use to evaluate the product.
Finally, for both experts and consumers, if there is a material connection between the endorser
and the product that consumers would not ordinarily expect, this connection must be disclosed.
Thus if the consumer was paid for a favorable evaluation of the product, or an expert is also an
officer of the company, these facts should be disclosed.
Of course consumer protection law does not end with the truthfulness of your representation but extends to dealings with the consumer after they have made a purchase. In fact, one of the principal features of electronic marketing is that it collapses the advertising and the sale, into a single continuous transaction.
Thus you need to be aware of a number of Commission rules that provide protection for consumers. Among these are:
The Commission's Mail Order Rule. This rule applies to orders of goods ordered by mail or telephone, and its coverage extends to indirect use of telephones such as orders by fax and computer. Basically the rule requires that you have a reasonable basis for believing that you can ship goods with in the time stated or implied in your ads. If no time is state or implied you must ship goods in 30 days or follow certain procedures specified in the rule.
Honoring Refunds as Requested: And, of course it goes without saying that if you promise to make refunds for returning items you must do so.
Credit Card Refunds. The Federal Fair Credit Billing Act requires you to notify the card issuer of a refund or credit within seven days of accepting the return or forgiving the debt.
These rules are straight forward but they have not always been honored.
The history of consumer protection in electronic marketing was probably best characterized by one commentator who referred to it as a series of "bumps in the information superhighway."
Let me briefly describe to you some of the problems that have been encountered.
First, so called infomercials -- or 30 minute commercials -are now a familiar form of in-home marketing. However, their arrival in 1984, after the removal of "minutes per hour" limitations on advertising, created a significant controversy. From the FTC's standpoint there were two primary problems. First, some of the infomercials actively exploited the consumer's relative unfamiliarity with this new medium by posing as consumer reporting shows or making other efforts to look more like regular TV programming than advertising. This violated longstanding FTC principles that advertising should be clearly identified as such, and led to a series of FTC actions challenging such formats.
Even more troubling was the fact that many of the products being sold on these infomercials
were a rogues gallery of diet patches, baldness cures and cellulite creams that made extravagant
promises with little or no scientific support. This again resulted in a series of FTC cases as well
as actions by many State Attorneys General.
Like infomercials, pay-per-call information services -- or 900 numbers -- resulted from the telecommunication revolution. Although these were services with significant potential consumer benefits, 900 numbers were quickly seized upon by some unscrupulous marketers. Again we saw marketers exploiting consumers' relative unfamiliarity with this new service. Advertising and promotions preyed on the consumers' familiarity with "800" number services, and on the consumers' general familiarity with ordinary long-distance services and charges. But unlike "800" numbers or ordinary long distance, some of the 900 services had very high charges that were often disclosed, if at all, only in fine print.
As with informercials, again we saw the proliferation of promises that clearly outstripped reality being made for lotteries, sweepstakes, prizes and jobs, to name just a few. All of these benefits could supposedly be obtained by the consumer through a convenient 900 number call.
But perhaps even more significantly, the 900 number system created an entirely new payment
option. No longer did deceptive marketers have to find ways to wheedle consumers' credit card
number from them, or have to deal with billing disputes, charge backs and other consumer
protections ingrained in the nation's credit card system. It was simply call and pay. In short, 900
number developed into what one consumer reporter called a con man's dream, and in 1992
Congress enacted legislation setting basic consumer protection standards for the industry. These
protections included clear upfront disclosure in advertisements of the costs of the services, a
prohibition on advertising to children under 12 and limitations on sales to children under 18, and
basic credit card-type billing dispute resolution procedures for the telephone bill-based payment
system used to collect for these calls.
The most longstanding form of electronic marketing in the country is telemarketing. While telemarketing is an important marketing vehicle for many American businesses it has also been seized on by some -- who I would refer to as modern-day door-todoor-salesmen -- and used as a relentless vehicle for deceptive and fraudulent high-pressure sales tactics, often unfortunately targeted to some of the most vulnerable elements of our society. Modern telecommunication and computerized list technology have made it possible for "boilerroom" salesmen located in one state to systematically target and exploit vulnerable consumers nationwide. And because these communications are inherently private, they have proven difficult for the government to detect before the frauds have claimed a number of victims. Despite systematic efforts by state and federal authorities to contain telemarketing fraud, it has proven an intractable problem. Thus in 1994 the Congress enacted the Telemarketing and Consumer Fraud and Abuse Prevention in Act. The Commission is currently considering proposed rules under that statute that would prohibit telemarketers from:
When finalized, these rules will be enforceable by the Commission through civil penalty
actions, by the states in Federal court and by private law suits. Importantly these rules apply to
sales by telephone, fax, computer modem or other telephonic device. These rules for the most
part implement specific requirements of the statute. They were proposed for comment this
month and the record will close on March 31st. By law final rules must be issued by August 16,
1995.
As each of these three examples indicates, the road to the information superhighway for marketers has thus far been a bumpy one for consumers. I believe one reason for this is that much of this marketing has occurred outside the established consumer protection infrastructure: media advertising screening, industry self-regulation and payment system protection. It has therefore posed significant challenges for consumers, regulators and honest industry members. In making this point I am not suggesting that existing consumer protection structures should simply be engrafted, en mass, onto the information super highway. The Commission's old "Door to Door" sales rule, for example, probably isn't the answer to sophisticated, in-home electronic marketing. What I am suggesting is that there is a need for a basic infrastructure to both protect consumers and preserve the credibility of the medium.
For these reasons I think you can expect to see the FTC continuing to pay close attention to this area, and striving to adapt basic consumer protection principles in ways that best serve the interest of consumer in this evolving and dynamic marketplace.
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