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I. FTC REGULATION OF ADVERTISING.
Under Section 5 of the Federal Trade Commission Act,
the Commission has broad authority to prohibit "unfair or deceptive acts or
practices" in interstate commerce. 15 U.S.C. § 45. This is the statute that
gives the FTC authority to regulate deceptive advertisements. An
advertisement is considered deceptive if it contains a misrepresentation or
an omission that is likely to mislead consumers who are acting reasonable
under the circumstances, and the consumers are injured through the
deception. Deceptive claims must be material to the consumer's decision to
buy, but the FTC does not need to prove actual injuries. Deception Policy
Statement, appended to Cliffdale Associates, Inc. 103 F.T.C. 110, 174 (1984).
It has long been held by the FTC and courts that an
advertisement is deceptive where the advertisement contains objective or
factual claims and the advertiser does not have a reasonable basis for
making the claims. Pfizer, Inc., 81 F.T.C. 23 (1972). This is referred to as
the doctrine of "substantiation."
II. LEVEL OF PROOF.
In order to avoid a deceptive advertising claim, an
advertiser, before it runs an ad, must have a "reasonable basis" for the
claims made in the advertisement. A "reasonable basis" means objective
evidence that supports the claim made, and the kind of evidence depends on
the claim. At the very least, the advertiser must have the level of
substantiation expressly claimed in an ad. However, the substantiation
requirement applies not only to express claims, but also to implied claims,
whether, direct or indirect. In other words, it is a violation of the FTC
Act to make health claims or other claims directly in promotional material,
or indirectly through claims that could be implied as a result of the
product name, the website name, website metatags, or any other means,
without adequate scientific support.
If the advertising claim suggests a level of support,
it is obvious that the advertiser must have evidence of that support. For
example, if a marketer claims that "four out of five doctors prefer" product
x, then the marketer must have reliable survey evidence showing such a
result.
Where a claim is not specific, the FTC will look at a
number of factors in reviewing substantiating evidence to determine whether
there is a reasonable basis for the claim including: 1) The type of claim;
2) The product involved; 3) The consequences of a false claim and the
benefits of a truthful claim; 4) The cost of developing substantiation and
5) The level of substantiation experts would believe is reasonable.
Pfizer, Inc., 81 F.T.C. 21 (1972).
The FTC pays the closest attention to, and requires a
relatively high level of substantiation for advertisements that make claims
about health or safety. What this means for the marketer is that if health
and safety claims are made, the marketer should have "competent and reliable
scientific evidence" in the form of scientific analysis and often clinical
trials.
In one case, the FTC defined acceptable scientific
evidence as "tests, analyses, research, studies, or other evidence based
upon the expertise of professionals in the relevant area, that has been
conducted and evaluated in an objective manner by persons qualified to do
so, using procedures generally accepted in the profession to yield accurate
and reliable results. Brakeguard Products, Inc., 125 F.T.C. 138
(1998).
Other cases have stated that the tests and studies
relied upon must employ the appropriate methodology, addressing specific
claims. Such tests have been referred to as "adequate and well-controlled
clinical testing," and in one drug case, the FTC required two clinical
trials. See, Schering Corp., 118 F.T.C. 1030 (1994); Removetron
Int'l Corp., 111 F.T.C. 206 (1988); Thompson Medical Co., 104
F.T.C. 648 (1984), Aff'd 791 F.2d 189 (D.C. Cir. 1986), Cert. Denied, 479
U.S. 1086 (1987).
Therefore, it is difficult to set out exactly what
substantiation is needed. However, if you are making specific claims as to
performance, giving numbers representing performance levels, the company
should have scientific tests demonstrating those performance levels. If you
do not have tests showing those results, or the tests are not performed by
entities the FTC would consider reputable and competent, the company could
be a target of an FTC enforcement action.
III. LIABILITY.
Obviously, a company is responsible for all claims,
whether express or implied that are conveyed by any marketing materials. The
FTC does not need to prove that consumers are actually deceived by the ad,
and the company's good faith is irrelevant. See, Sears, Roebuck & Co.,
95 F.T.C. 406 (1980), Aff'd 676 F. 2d 385 (9th Cir. 1982); Orkin
Exterminating Co. v. FTC, 849 F. 2d 1354 (11th Cir. 1988), Cert. Denied,
488 U.S. 1041 (1989).
Further, the FTC may seek to hold corporate officers
liable for violations of the FTC Act, where the officer "owned, dominated
and managed" the company, and if it is necessary to name the officer to
provide adequate effectiveness to the order. FTC v. Standard Education
Society, 302 U.S. 112 (1937). Individual liability can be found where
the officer "personally participated in or controlled..." the acts or
practices, and the FTC does not need to show that the corporate officer
intended to defraud consumers. Rent A Color, Inc., 103 F.T.C. 400
(1984), FTC v. Affordable Media, 179 F. 3d 1228 (9th Cir. 1999).
In the case of a § 5 violation, the basic
administrative remedy is a cease and desist order which can be narrow or
very broad to prevent future deception. Courts may order redress or
disgorgement of profits and FTC consent orders often require the same.
Links to Resources:
FTC Guidelines Endorsements and Testimonials: Detailed
Analysis
FTC News Release on Endorsements and Testimonials
FTC Complete
Guidelines Release
FTC Short Version Guidelines Release
FTC Examples of
Material Connection
FTC Regulation of Advertising
