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SUMMARY OF KEYNOTE REMARKS BY
COMMISSIONER JANET D. STEIGER
AT THE PRACTICING LAW INSTITUTE'S CONFERENCE ON
"FALSE ADVERTISING AND THE LAW: COPING WITH TODAY'S
CHALLENGES"
SEPTEMBER 17, 1996
NEW YORK, NY
I. Role
One: Continue to discharge traditional advertising law enforcement function
The
Commission's principle and most visible role is its "traditional
" advertising law enforcement function. The FTC is charged with
protecting consumers from "unfair methods of competition" and
"unfair or deceptive acts or practices" in the marketplace.
Although the Commission seeks to foster a national advertising environment
that is both competitive and creative, at the same time, it requires that
all claims be nondeceptive and substantiated. This is true regardless in
both print or broadcast ads and advertising on the Internet.
The
Commission is very active and very successful in law enforcement efforts.
The Commission currently has a number of matters in part III adjudication
before Administrative Law Judges. Some of the alleged unsubstantiated
claims that are the subject of litigation involve a wide range of products
-- weight-loss programs and services, engine treatment additives,
after-market brake products, and back-pain remedies -- and a wide range of
issues from traditional ad interpretation and substantiation issues, to
questions of what remedies are appropriate from trade name excision to
corrective advertising.
In
addition to litigation, the Commission continues to be very active in
investigating potential deceptive advertising cases. As in the past, the
focus of these investigations is on claims that involve the potential for
substantial consumer harm -- those involving health and safety -- and where
there is the greatest economic injury. In the past year the Commission
resolved alleged charges involving dietary supplement advertising,
advertising for high octane gasoline claims, computers, toys, and allegedly
deceptive environmental marketing. In the food area, the Commission has
challenged a number of claims regarding the levels of "fat,"
"cholesterol," and "calories." The Commssion continues
to bring cases involving alleged deceptive product demonstrations and cases
where advertisers allegedly deceptively used survey data. Moreover, in
cases where an advertising agency helped create advertising that it knew or
reasonably should have known was deceptive or unsubstantiated, the
Commssion has held advertising agencies accountable.
In
determining the appropriate remedy, the Commission first seeks to protect
consumers from future false and unsubstantiated claims by prohibiting the
false claim and requiring substantiation. Moreover, the Commission almost always
imposes some degree of fencing-in relief that covers claims or products
that go beyond the alleged complaint. For example, in the Stouffer case
where Stouffer was found to have made deceptive low-sodium claims, the
order prohibits the misrepresentation of the existence or amount of sodium
or salt or any other nutrient or ingredient. The factors considered in
crafting fencing-in relief include the seriousness and deliberateness of
the violations, the respondent's past history of violations, and the transferability
of the violations to different products. The Commission tries to phrase the
claims coverage broadly enough so that it cannot be evaded by simply
changing a few words. Injunctive relief may also require that specific
disclosures be made where they are necessary to correct deception. In rare
but appropriate cases, the Commission seeks corrective advertising, and in
situations where the Commission has alleged dishonest and fraudulent
conduct, redress or disgorgement may be ordered.
When a
company violates an existing administrative order the Commission refers the
matter to the Department of Justice and seeks civil penalties for
violations of that order. In the past several years, the Commission has
obtained the highest civil penalties ever for violations of administrative
orders. In Dahlberg, the Commission alleged that misrepresentations were
made regarding the Miracle Ear Clarifier in violation of a 1976 order which
prohibited misrepresentations regarding the performance of the company's
product. The Commission obtained a $2.75 million civil penalty -- the
largest ever in a consumer protection case. In 1994, the Commission
obtained $2.4 million in civil penalties from General Nutrition Corporation
for its alleged violation of an existing order. Just recently, Hasbro,
Inc., agreed to pay $280,000 in civil penalties to settle charges that it
violated a 1993 consent order by representing that children can operate the
"Colorblaster" paint sprayer with little or no effort. There will
continue to be a trend toward larger civil penalties for order violations.
II.
Role Two: Educate ourselves about the Future
Recent
cases have familiar issues. Much of that may be changing in the future
however. Therefore, a second major challenge for the Commission is to educate
ourselves about the future. The Commssion must be prepared to deal with new
consumer protection issues rapid developments in technology will be
bringing.
The
Commssion has seen the benefits of careful evaluation and education pay off
time and again. The Commission has been successful in implementing
Environmental Advertising Guidelines and rulemakings to address the 900
numbers and telemarketing fraud. The Commission is finding public hearings
and workshops increasingly useful -- especially for identifying potential
consumer protection issues that may not have emerged full blown in the
marketplace.
In the
fall of 1995, the Commission held hearings entitled "Anticipating the
21st Century: Competition and Consumer Protection Policy in the New
High-Tech, Global Marketplace." Four days of hearings explored
consumer protection issues in the emerging technology-based marketplace.
The consumer protection segment of the hearings focused on the telephone,
television, and computers -- three rapidly evolving communications
technologies. The Commission's goal was to look ahead to learn how these
technologies are developing and how they are used to market goods and
services. The Commission also wanted to identify significant consumer
protection issues associated with the new technologies.
At the
Global Hearings, more than 70 experts in many fields such as law, business,
technology, economics, marketing, consumer behavior, and consumer education
appeared before the Commission. Their testimony provided a very rich record.
The Commission's staff produced a very useful report that followed the
hearings and identified a number of themes. Among them:
- Information technologies
are developing at a dizzying pace;
- The technologies may
change the marketplace significantly for consumers -- giving them
access to potentially unlimited amounts of information, a global
marketplace, and more shopping convenience;
- New technologies may
provide fertile ground for old-fashioned scams;
- New technologies are
pushing some consumer issues such as privacy, security, and marketing
to children to the forefront of public debate; and
- Government law enforcement
agencies will have increased challenges at a time when resources are
stretched.
One of the
goals of the hearings and the report was not only to help educate the
Commission about the future, but to serve as a basis for future dialogue
and collaborative efforts by all of those with a stake in consumer
protection issues. There are ongoing dialogues between Commission staff and
the industry on a variety of issues.
In June
1996, the Commission held a one and a half day workshop on privacy issues
and the Internet with one morning specifically devoted to children's
privacy and the Net. The conference demonstrates that advertisers and
marketers are only beginning to explore the potential for their business in
cyberspace. Again, this workshop and others have proven to be an excellent
opportunity for the Commission to gain valuable information.
III.
Role Three: Deal with New problems as they emerge
A third role
for the Commission is dealing with new problems as they emerge. The
Commission's statutory mandate -- to protect consumers from unfair or
deceptive acts or practices -- has proven to be both broad and flexible
over time. Although there are a few statutory exemptions from the
Commission's jurisdiction, the Commission's authority touches on almost
every aspect of the economy. Even in areas where the FTC has no direct
jurisdiction, the Commission's principles often serve as a model for
actions by states and other enforcement officials.
As new
issues emerge, however, there is always a dilemma as to how best to deal
with them -- through self-regulation efforts or FTC action. As new
technologies develop, it is often the unscrupulous who first attempt to use
and abuse the mediums. The FTC has a good track record of applying Section
5 to meet the problems created by new technologies, new forms of
communication, and new marketing strategies. The Commission's experience
with 900 Numbers and infomericals provide successful examples of that. In
both those areas the Commission was quick to act when it became aware of
marketing abuses that were causing significant consumer injury. At the same
time, industry itself is often aware of potential problems in emerging
technologies before the Commission is.
One good
example is consumer privacy and the Internet. Two sentences frame the
issue. The Internet as a new marketing phenomenon has brought a renewed
focus and urgency to questions regarding personal privacy and to what extent
it can or should be protected. Marketers may soon be able to micro target
consumers and to collect and use richly-detailed personal information based
in part on where the consumer browses on the Internet.
One
particular privacy issue of special concern to the Commission is the
collection of information directly from children. Information submitted to
the Commission indicates that some Internet marketers are seeking very
detailed information directly from children as young as four or five.
Historically, marketers have dealt with children through or with the
express or implied consent of their parents. Although the issue of data
collection from children exists in traditional marketing as well as online
marketing, special concerns regarding online marketing have to do with the
detail of the information collected, the ease and speed with which it is
collected, and the security of the data is after it is collected.
At the
Commission's Internet workshop in June, 1996 there was a consensus that for
children age 12 and under, parental consent is needed. It was not clear,
however, how industry should implement this principle. Although there is
software that attempts to prevent access to objectionable sites or through
other means -- sort of a parental control switch or V-chip for the computer
-- this technology and its reliability is untested. The Direct Marketing
Association, the Interactive Services Association, and a broad coalition of
major advertisers and advertising agencies are all working on developing
industry guidelines to respond to consumer privacy concerns. The Commission
in this new frontier is unclear, but where the Commission finds a pattern
or practice of unfair or deceptive acts that are causing consumer injury,
it will act.
IV.
Implications of these roles
The
balancing of these three roles has implications for the Commission, for the
FTC's advertising program, and for advertisers. As the roles of the
Commission evolve, one thing seems to never change and that is that the
Commission's responsibilities become greater and greater.
The
Commission continues to work with the states, other federal agencies and
other law enforcement agencies. One area of the Commission's work which has
been especially successful is in the telemarketing fraud area where the Commission
has worked closely with other law enforcement agencies in bringing a series
of cases at one time. As a result, the Commission has brought a number of
"sweeps" targeting franchise and business opportunity frauds,
advance fee loan frauds, toner phone frauds, and credit repair scams.
Although this approach may not be appropriate for all of the Commission's
law enforcement efforts, it has been very effective in the fraud area.
The
Commission also encourages more and better self-regulation. Here the advertising
industry has much of which to be proud. The National Advertising Division
of the Better Business Bureau is an excellent example of a successful
self-regulatory approach. The fact that year in and year out major national
advertisers agree to comply with decisions of this self regulator
demonstrates how strongly the industry as a whole values truthful
standards. Moreover, the fact that this system acts in sixty days and
handles hundreds of cases that would otherwise clog the courts and agencies
produces real benefits to businesses, consumers, and government.
Another
vital part of the advertising self-regulation system is media screening.
Many media do a good job here. Some media need to do more. This became
readily apparent at the Commission's Global Hearings in 1995l when the
Commission learned that while network television, which screens its
advertisements, enjoyed 92 percent of prime time TV usage in 1965, today it
accounts for a mere 56 percent. In 1965, only 5 percent of consumers had
cable TV. Today 63 percent do. In 1965, the average number of channels
available to consumers was seven; today it is 41. This has some very clear
implications for the FTC's traditional approach to ad monitoring. Indeed,
during the past year, the Commission has brought a number of cases that
illustrate that some fairly obviously deceptive ads are slipping through
the cracks.
Dietary
supplements is another area where the Commission's our staff has been
encouraging the industry to take greater self-regulatory efforts. As American
consumers become increasingly health conscious, there has been a
proliferation of advertising and a profusion of claims in this area. In
fact, the issues closely resemble the trends seen in environmental
marketing in the late 1980's. It seems a perfect opportunity for the
industry to take some significant self-regulatory steps.
Just
recently the Commission brought a number of cases involving scholarship
scams. The Commission targeted cases where for an up-front fee, students
were guaranteed a scholarship or grant for their higher education. In
addition to the cases filed, a massive consumer education campaign has been
undertaken to educate consumers about scholarship scams directed at young
people and their families who are seeking ways to pay for their higher
education. In this effort the Commission worked with Sallie Mae, the
National Association of Student Financial Aid Administrators, and other
education experts and associations in creating and disseminating public
service announcements, posters, fliers, and bookmarks to be distributed in
mailings and in campus book stores.
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