Advertising Law Outline

Stratmann

Advertising Law

Fall 2015

FTC POINTS

I. The FTCA does not provide for a private cause of action

II. There are two pillars of truth in advertising according to the FTC:

A. First, advertising must be truthful and not misleading.

B. Second, advertisers must have adequate substantiation for all product claims before disseminating their advertising.

III. Have to prove the ad is false or deceptive

A. An ad is deceptive if it is “likely to mislead”

1. A “not insubstantial number” of consumers must be likely to be deceived

B. FTC examines the practice from “the perspective of a consumer acting reasonably in the circumstances.”

1. If the representation or practice affects or is directed primarily to a particular group, the Commission examines reasonableness from the perspective of that group.

C. Must be material

1. “likely to affect the consumer’s conduct or decision with regard to a product or service.”

2. Presumption of materiality when:

a. Expressed or

b. Implied where seller intended to make claim

i. To prove this look at internal documents and circumstantial evidence

c. Omissions where seller knew consumer would need info to evaluate product

d. Any claim involving health, safety, etc.

IV. BURDEN is on advertiser to prove substantiation. No substantiation=false ad

A. FTC just has to show that the advertiser didn’t have substantiation at all or their substantiation is not adequate

B. FTC does not have to prove the claim is actually false!

V. If there is intent to deceive consumer, can face criminal sanctions!

VI. FTC Enforcement Priorities

A. Enforcement discretion is guided by:

1. Price and frequency of purchases

2. Deterrence of widespread deceptive conduct

3. Risk of physical or economic injury

VII. What FTC can do:

A. Administrative trials

1. FTC may use administrative trials to obtain cease and desist orders, which can then be enforced in federal court.

2. Administrative trial can get:

a. Injunctive relief

i. whether the movant has demonstrated a strong likelihood of success on the merits;

ii. whether the issuance of the injunction would cause substantial harm to the defendant; and

iii. whether the public interest would be served by issuance of an injunction

b. Types of Injunctive relief:

i. Prohibition on further dissemination

ii. Fencing-in and exclusion orders

iii. Corrective advertising

iv. Product Recall

B. Federal litigation

1. FTC goes to federal court in two classes of cases

a. Noncompliance with an order

b. When it has reason to believe that a person or entity “is violating, or is about to violate” the FTCA

2. Federal court can get:

a. Injunctive relief

i. whether the movant has demonstrated a strong likelihood of success on the merits;

ii. whether the issuance of the injunction would cause substantial harm to the defendant; and

iii. whether the public interest would be served by issuance of an injunction

b. Types of Injunctive relief:

i. Prohibition on further dissemination

ii. Fencing-in and exclusion orders

iii. Corrective advertising

iv. Product Recall

c. Monetary relief

i. Redress for consumer injury

ii. Disgorgement of ill-gotten gains

iii. Get “Gross”

(A) Gross receipts (everything, not just profits!) or

(B) Consumer loss

VIII.The FTC and reviewing courts consider three factors in determining whether a final order bears a reasonable relationship to the violation it is intended to remedy:

A. (1) the seriousness and deliberateness of the violation;

B. (2) the ease with which the violative claim may be transferred to other products; and

C. (3) whether the respondent has a history of prior violations

IX. Need substantiation for both explicit and implicit claims!

A. But, FTC can use own expertise to determine meaning of either type of claim

B. Consumer survey or other extrinsic evidence not required

C. But, the court in Kraft recommends extrinsic evidence to prove implicit claims!

X. Substantiation

A. Expects the firm to have at least the advertised level of substantiation (tests proves, doctors recommend…)

B. Absent an express or implied reference to a certain level of support, and absent other evidence indicating what consumer expectations would be, the Commission assumes that consumers expect a “reasonable basis” for claims.

1. What constitutes a reasonable basis:

a. the type of claim,

b. the product,

c. the consequences of a false claim,

d. the benefits of a truthful claim,

e. the cost of developing substantiation for the claim, and

f. the amount of substantiation experts in the field believe is reasonable.

C. Must be “competent and reliable scientific evidence”

1. Not anecdotal evidence from customers or magazine articles.

D. Can look to:

1. FTC endorsements and testimonials guide

2. Substantiation endorsed in court, FTC or NAD decision

3. Industry standard tests (Expert)

4. Design new tests

LANHAM POINTS

I. Elements of Lanham Act:

A. 1) a false or misleading statement of fact in commercial advertising or promotion,

B. 2) that actually deceives or has the tendency to deceive a substantial number of consumers in the intended audience,

1. Seeking injunction – no evidence of actual deception

2. If literal false claim, proof of actual consumer deception usually required (survey or tesitmony)

3. Literal falsity – plaintiff must show evidence of deception to get monetary damages

4. Implicit falsity – plaintiff must demonstrate deception through extrinsic evidence of consumer reaction to advertising

5. additional evidentiary burden if plaintiff wants damage instead of just injunction and plaintiff must provide evidence of actual deception

6.

C. 3) that is material in that it is likely to influence the purchasing decision,

D. 4) entered interstate commerce (almost always satisfied), and

E. 5) falsity likely to cause injury to the plaintiff.

II. Lanham Act can get:

A. Monetary relief

1. specifically authorizes the award of:

a. defendant’s profits, OR

b. any damages sustained by the plaintiff, AND

c. the costs of the action to a prevailing plaintiff.

2. Will need extrinsic evidence to get monetary relief even if literal claim!

B. Equitable relief

1. To get injunction need:

a. whether the movant has demonstrated a strong likelihood of success on the merits;

b. whether the movant would suffer irreparable injury in the absence of injunctive relief;

c. whether the issuance of the injunction would cause substantial harm to the defendant; and

d. whether