ALI-ABA Course of Study Advertising and Promotion Liability June 27, 2008 Live Video Webcast. Federal Trade Commission Advertising Enforcement

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1 47 ALI-ABA Course of Study Advertising and Promotion Liability June 27, 2008 Live Video Webcast Federal Trade Commission Advertising Enforcement By Lesley Anne Fair Federal Trade Commission Washington, D.C. This document was written by the staff of the Bureau of Consumer Protection and does not necessarily reflect the opinions of the Federal Trade Commission. Consent orders are for settlement purposes only and are not an admission of liability.

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3 49 FEDERAL TRADE COMMISSION ADVERTISING ENFORCEMENT Lesley Fair Federal Trade Commission This document was written by the staff of the Bureau of Consumer Protection and does not necessarily reflect the opinions of the Federal Trade Commission. Consent orders are for settlement purposes only and are not an admission of liability. For more information about the FTC, visit I. LEGAL FRAMEWORK A. Commission s Statutory Authority in Advertising Cases 1. Section 5 of the FTC Act. 15 U.S.C. 45 gives the Commission broad authority to prohibit unfair or deceptive acts or practices. 2. Sections of the FTC Act. 15 U.S.C prohibits the dissemination of misleading claims for food, drugs, devices, services or cosmetics. 3. Section 13(b) of the FTC Act. 15 U.S.C. 53 authorizes the Commission to file suit in United States District Court to enjoin an act or practice that is in violation of any provision of law enforced by the FTC. B. Deception: Deception Policy Statement, appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984), cited with approval in Kraft, Inc. v. FTC, 970 F.2d 314 (7th Cir. 1992), cert. denied, 507 U.S. 909 (1993). An advertisement is deceptive if it contains a misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment. Although deceptive claims are actionable only if they are material to consumers decisions to buy or use the product, the Commission need not prove actual injury to consumers. C. Unfairness: Unfairness Policy Statement, appended to International Harvester Co., 104 F.T.C. 949, 1070 (1984). See 15 U.S.C. 45(n). An advertisement or trade practice is unfair if it causes or is likely to cause substantial consumer injury which is not reasonably avoidable by consumers themselves and which is not outweighed by countervailing benefits to consumers or competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such 1

4 50 determination. According to the Conference Report, the definition is derived from the Commission s 1980 Unfairness Policy Statement, the Commission s 1982 letter on the subject, and interpretations and applications in specific proceedings before the Commission. Rep. No. 617, 103d Cong., 2d Sess. (1994), 140 Cong. Rec. H6006 (daily ed. July 21, 1994) II. REMEDIES FOR VIOLATIONS OF THE LAW A. Cease and Desist Orders: In advertising cases, the basic administrative remedy a cease and desist order. The purpose of the order is two-fold: 1) to enjoin the illegal conduct alleged in the complaint; and 2) to prevent future violations of the law. FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965). Therefore, the voluntary cessation of an advertising campaign is not a defense to a Section 5 action. See American Home Products Corp., 98 F.T.C. 136, 406 (1981). B. Fencing-In: If the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity. FTC v. Ruberoid Co., 343 U.S. 470, 473 (1952). Therefore, those caught violating the Act must expect some fencing in. FTC v. National Lead Co., 352 U.S. 419 (1957); see FTC v. Universal-Rundle Corp., 387 U.S. 244 (1967). Given the Commission s expertise in the area, the Supreme Court has afforded it broad discretion in fashioning fencing-in provisions that will not be disturbed except where the remedy selected has no reasonable relation to the unlawful practices found to exist. Jacob Siegel Co. v. FTC, 327 U.S. 608, (1946). Courts have upheld FTC orders encompassing all products the company markets or all products in a broad category, based on violations involving only a single product or group of products. ITT Continental Baking Co. v. FTC, 532 F.2d 207 (2d Cir. 1976). Among the factors the Commission will consider in determining the appropriate remedy are the seriousness of the present violation, the violator s past record with respect to deceptive practices, and the potential transferability of the illegal practice to other products. Sears, Roebuck & Co. v. FTC, 676 F.2d 385, 391 (9th Cir. 1982). The weight given a particular factor or element will vary. The more egregious the facts with respect to a particular element, the less important it is that another negative factor be present. Id. at C. Corrective Advertising: If merely prohibiting future misrepresentations will not dispel misperceptions conveyed through prior misrepresentations, the FTC may order corrective advertising. See Warner-Lambert Co. v. FTC, 562 F.2d 749 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978) (upholding order enjoining company from representing that Listerine helps prevent colds and sore throats and requiring it for a specific period to state in future advertising Listerine will not 2

5 51 help prevent colds or sore throats or lessen their severity ). Representative corrective advertising cases:! Novartis Corp. v. FTC, 223 F.3d 783 (D.C. Cir. 2000) (upholding Commission order requiring marketer of Doan s pills to run corrective advertising to remedy deceptive claim that product is superior to other analgesics for treating back pain)! Unocal Corp., 117 F.T.C. 500 (1994) (consent order) (requiring gasoline company to mail corrective notices to credit card holders who had received ads making unsubstantiated performance claims for higher octane fuels)! Eggland s Best, Inc., 118 F.T.C. 340 (1994) (consent order) (requiring marketer of eggs to label packaging for one year with corrective notice regarding product s effect on serum cholesterol) D. Other Informational Remedies: The FTC may require advertisers to make accurate information available through disclosures, direct notification, or consumer education. 1. Representative disclosure cases:! FTC v. Western Botanicals, Inc., No. CIV.S DFL GGH (E.D. Cal. July 11, 2001) (stipulated final order); and FTC v. Christopher Enterprises, Inc., No. 2:01 CV-0505 ST (D. Utah Nov. 29, 2001) (stipulated final order) (prohibiting sale of comfrey for internal use without proof of safety, challenging claims that product could safely treat serious diseases, requiring warnings in labeling and advertising that internal use can cause serious liver damage or death, and ordering consumer redress)! Panda Herbal Int l, Inc., 132 F.T.C. 125 (2001), and ForMor, Inc., 132 F.T.C. 72 (2001) (consent orders) (requiring warnings in labeling and advertising that St. John s Wort can have potentially dangerous interactions for patients taking certain prescription drugs and for pregnant women)! Aaron Co., 132 F.T.C. 172 (2001) (consent order) (requiring safety warnings in labeling and advertising that products containing ephedra can have dangerous effects on central nervous system and heart, including heart attack, stroke, seizure, and death) 3