August 20th, 2003
Specific Corporate Compliance Challenges by Practice Area: Advertising
Author: Jeffrey A. Greenbaum
Editor: Carole Basri
PART 1: OVERVIEW
§ 31.01 Introduction
§ 31.02 Timeline
§ 31.03 Checklist
PART II: ANALYSIS
§ 31.04 Importance of an Advertising Compliance Program
§ 31.05 Getting Buy-In
§ 31.06 Defining the Culture
§ 31.07 Assembling the Team
§ 31.08 Fact-Finding
§ 31.09 Issue-Spotting
 General Advertising Standards
 Special Advertising Problem Areas
 Intellectual Property
[c] Right of Publicity
§ 31.10 Develop Guidelines
§ 31.11 Develop Procedures
 Legal Review
 Review All Materials
 Review Preliminary Materials
 Vendor Contracts
§ 31.12 Distribute the Guidelines
§ 31.13 Conduct Training
§ 31.14 Audit
PART III: Practice Resources
§ 31.15 Research References
PART I: OVERVIEW
§ 31.01 Introduction
Every company markets its products and services, and substantial portions of company budgets are spent on advertising. Chances are, your company’s advertising programs look nothing like they did even five years ago. The advertising landscape continues to change dramatically, at a rapid pace. It is a challenge to be competitive and keep up with the latest technology, while at the same time managing the risk in your company’s marketing efforts. Advertising compliance is a critical component of a proper corporate compliance program.
Companies generally used to work with a long-time advertising agency, and they focused their advertising efforts in traditional media, such as broadcast, print, and outdoor advertising. Today, a typical advertiser produces some materials in-house and also works with a number of different agencies to produce an integrated campaign that will include not only traditional advertising, but many other elements, such as public relations, online advertising, user generated content promotions, guerilla marketing, and branded entertainment. Companies today are creating more different types of advertising, in more different types of media, using more partners, than ever before.
In the United States, advertising is regulated by a patchwork of federal, state, and local laws, as well as self-regulatory guidelines, which are not always consistent. Advertising compliance touches many areas of law, such as general consumer protection laws, laws governing specific types of marketing practices, regulation of specific industries, as well as intellectual property law, privacy law, and many other areas. As campaigns reach the internet (as most do), and go global in other media (as more and more are), international compliance issues are becoming more important as well.
One of the great obstacles to creating a corporate compliance program for advertising is that marketers often believe that effective advertising is seriously at odds with advertising compliance. These tensions are often heightened by the fact that marketers work at a fast pace, responding to changes in the marketplace, constantly looking for new and more effective ways to reach consumers. Compliance is further complicated by the fact that the law in this area continues to evolve, and in many ways has still not caught up with the changes in the ways in which marketers are advertising today. The risks are substantial. Consumer claims, class actions, competitor lawsuits, and government enforcement actions are common. The higher risk areas are a moving target, however, frequently shifting as the marketplace changes. And the remedies available to plaintiffs—everything from injunctive relief to substantial damages and penalties—can have a significant impact on a company’s bottom line.
§ 31.02 Timeline
Timing: Developing and implementing an advertising compliance program is fairly complicated, and you should expect that it is going to take some time. At a smaller company, you may be able to create a basic program in two to four weeks. At a larger company, with multiple products and a wide range of marketing efforts, creating a full program can take anywhere from three to six months, or even longer.
Throughout this process, it is important to take a practical approach, based on what can realistically be accomplished using the resources that you have available. If you do not have the resources to develop a full program, it may be better to start with a small set of guidelines and simple procedures. As the need arises, the guidelines and procedures can then evolve over time, through periodic reviews of the program. It is much more important to have a simple program in place (that accomplishes many of your objectives) than to have no program at all.
The team that will be developing the advertising compliance program should understand up front the steps that need to be taken. They should be told that developing this program is an important part of their jobs and that senior management expects them to complete the tasks in a timely manner. If clear expectations are not defined up front, this process will likely not be accomplished in a reasonable time period.
Setting deadlines is critical. It is helpful to break the project into a number of milestones to be achieved by certain dates. In order to help ensure that participants stick to the timeline, regular updates about progress should be provided to senior management.
§ 31.03 Checklist
The process for developing an advertising compliance program can be roughly divided into nine phases:
1. Getting buy-in, where you ensure that senior management, including the marketing team, is fully behind the project;
2. Defining the culture, where you define the type of program that makes sense for your company;
3. Assembling the team, where you put together the working group that will develop and implement the program;
4. Fact-finding, where you conduct interviews and review relevant materials, in order to understand the nature and scope of your company’s advertising efforts;
5. Issue-spotting, where you identify the legal rules that govern your advertising;
6. Guideline development, where you write the guidelines that will govern the program;
7. Procedure development, where you develop the procedures that will be used to manage the program;
8. Roll-out, where you disseminate the guidelines and educate employees and others about the program; and
9. Audit, where you test the program to make sure that it is working and where you review and revise it to ensure that it stays up-to-date.
PART II: ANALYSIS
§ 31.04 Importance of an Advertising Compliance Program
Although advertising is heavily regulated, and nearly every company advertises in some way, the law governing advertising is often an area with which in-house counsel are unfamiliar. As a result, creating an advertising compliance program is often a critical first step in educating companies and their counsel about the basic legal requirements governing advertising practices.
An effective program has several concrete benefits:
• It creates a framework for compliance;
• It boosts efficiency, by allowing marketing materials to be developed with knowledge of the legal landscape;
• It helps to create institutional memory about the issues that the company has identified as being important;
• It helps to maintain the trust of consumers, and the reputation of the company, which can be damaged when the company’s advertising is challenged;
• It protects the investment that the company has made in producing the advertising and purchasing the media space, which can be lost if the advertising is enjoined or is otherwise unusable;
• It helps to ensure that the advertising can be used as intended to support sales;
• It protects the company from the costs of litigation, from onerous consent orders and injunctive relief, and from substantial damages and civil penalties; and
• It may also be used, in appropriate cases, as a defense or a mitigating factor, to demonstrate that the company has acted properly Companies that adopt an advertising compliance program often find it hard to believe that they have been operating without one. For companies that have had serious problems arising out of their advertising, they are often surprised about how most if not all of these problems would have been prevented with even the most basic program in place.
§ 31.05 Getting Buy-In
An advertising compliance program is not going to be properly implemented, and is not going to work effectively, if there is not buy-in at the highest levels of the company. Senior management, including the Chief Marketing Officer, must understand the importance of having an advertising compliance program and the risks of not being in compliance. Once the support of the senior management team has been obtained, it is critical that they communicate to employees at every level of the company that they are fully behind it.
If marketing believes that the lawyers are standing in the way of creating effective advertising, then an advertising compliance program is never going to work. That is why the Chief Marketing Officer, and other key marketing personnel, must believe in advertising compliance, must create a culture of compliance, and must be vocal about their support of the company’s advertising compliance efforts.
As you develop and then administer the advertising compliance program, you should continue to ask yourself whether marketing buys into the program. Does your marketing team believe that you share the same objectives? If the marketers do not believe that you will help them achieve their goals though problem-solving, what is the likelihood that the program is really going to be effective? For advertising compliance programs to work, the business people must understand that the program is going to include the weighing of risks in a thoughtful manner so that intelligent choices can be made. If the marketers think that the lawyers are just going to say “no,” they are probably not going to seek their advice or comply with whatever procedures that have been implemented. If you create a program that increases compliance, but at the same time waters down the advertising and hurts the business, the program is also not going to last very long.
If you do not have the support of the marketing department, and if you do not create a program that the marketing department can live with, you are never going to have an effective advertising compliance program.
§ 31.06 Defining the Culture
An important question that should be considered as your advertising compliance program is developed is, “what is the company’s level of risk tolerance”? With advertising compliance, there are many gray areas. The “right” decision is often simply not clear. Frequently, with any course of action, there is going to be some level of risk. It is important to understand what senior management’s expectations are.
Some companies, for many good reasons, want to take very few legal risks. They may be operating in a regulatory environment—for example, the pharmaceutical industry—that is unforgiving or highly litigious. They may have had legal or public relations problems in the past—such as, for example, causing significant environmental damage—and do not want to draw further negative attention to themselves. They may also believe that certain types of claims are inconsistent with the company’s brand image. For example, if your company’s brand image is “trust and reliability,” you may be very conservative about advertising claims that you make, to avoid any sort of charge that you are making false advertising claims. If your company is fiercely protective of its own intellectual property rights in a very public way, you may want to be very conservative about taking chances that you might get sued for infringing someone else’s copyright.
Some companies, on the other hand, may have a large risk tolerance. If your company is operating in an environment where your competitors are aggressively taking risks, for example, you may feel that you will not be able to complete unless your company is also willing to live on the edge. You may be entering a marketplace in a crowded field of competitors and feel that the business will suffer unless you push the envelope. You may have been number two or three in a category for a long time and want to pull out all of the stops to see if you can become number one. Risk-taking may also simply be a part of your company culture and brand image.
Most companies, however, probably fall somewhere in between. They are willing to take reasonable risks, when there is a good business reason to do so. Many marketers perceive that all compliance questions have “yes” or “no” answer, and they are afraid to work with the lawyers, because they do not want to get a “no.” The truth is that there is no clear answer to many advertising compliance questions. These questions should be resolved by weighing the risks and benefits of different proposed courses of action. Although this is the approach that many senior executives believe in, that is often not the way in which lawyers and other compliance personnel communicate their approach to compliance. Or even if they do understand that compliance involves a weighing of risks, they just may give the impression that they are taking a more rigid approach.
Strategic Point: It is important that, at the outset, you identify your company’s level of risk tolerance. For an advertising compliance program to be effective, you have to make sure that your program reflects the company’s culture—and that the people implementing the program understand the approach as well. Risk-taking is certainly not inconsistent with advertising compliance, so long as well thought out decisions are made based on full information.
§ 31.07 Assembling the Team
In order to develop and implement an advertising compliance program, you need to put together a team made up of employees from many areas of the company. The program is not going to be comprehensive, or effective, if it is simply dictated from the top down or created by people who do not have full information about the company’s marketing efforts.
Ordinarily, you would expect the team to be led by the lawyer or compliance officer who will ultimately be responsible for the advertising compliance function. The team should also include employees from any area of the company that markets to, or communicates with, consumers. This may include employees responsible for:
• Product development;
• Intellectual property;
• Public relations;
• Investor relations;
• Customer service; and
Having a team that touches all of these areas of the company, and any other relevant areas, will help ensure that you get the input you need as you develop the program as well as the buy-in that you need when you roll the program out. You are also going to need outside counsel, who specializes in advertising law, to be part of the team.
§ 31.08 Fact-Finding
Once you have assembled a team to develop your advertising compliance program, the next step is fact-finding. You need to learn about how the company is marketing itself. Getting accurate information about what you are doing is going to be critical, since it will have significant impact on what laws apply. This initial investigation in focused on a number of key questions:
• What departments communicate with consumers? You need to consider not only your marketing department, but other areas as well, such as your public relations department, your sponsorship and licensing departments, and the department responsible for your website. (This investigation may lead you to add other people to your working group.)
• Do you have affiliated companies that are communicating with consumers? Are they marketing the same or similar products?
• How are you marketing to consumers? What are all of the various ways in which you advertise? This may include both traditional and non-traditional media, such as:
- Television commercials;
- Radio commercials;
- Print advertising;
- Collateral materials, such as brochures;
- Direct mail;
- Outdoor and transit advertising;
- In-store advertising;
- Co-op advertising;
- Customer service personnel;
- In-store sales personnel;
- Door-to-door sales;
- Sales presentations;
- Company website;
- Online advertising, such as banners and pop-ups;
- Social networking sites;
- Guerilla marketing;
- Word of mouth marketing;
- Live events;
- Viral marketing;
- Public relations;
- Joint promotions;
- Sweepstakes and contests;
- Coupons, rebates, and other promotions or incentives;
- Product placements; and
- Branded entertainment.
• Who is creating your marketing materials? Some of your advertising materials may be created in-house. Chances are, many of your advertising materials are also created by outside vendors, such as advertising agencies, public relations firms, production companies, web developers, and various freelancers.
• Are other companies marketing on your behalf, such as retailers, licensees, and promotional partners?
• Where are you marketing? Are you marketing throughout the United States or only in certain states or local jurisdictions? Are you actively marketing in other countries? Is your website directed to consumers outside of the United States?
• How often do you launch new products? Do you launch a new product for each model year? Do you launch new products periodically through the year? Or do you launch new products only occasionally, every few years?
• How far in advance do you develop advertising campaigns? Are they developed a year or more in advance? Do you develop them quarterly or more frequently? Or do you constantly make changes?
• How do you coordinate with other advertisers? For example, how do you coordinate with retailers and dealers about in-store availability?
• Do you have your own retail stores?
• Do you sell products directly to consumers? For example, do you sell products from your website or through telephone and mail order sales? How do you fulfill these orders?
• Are your campaigns often dependent on rights obtained from specific licensors? How long does it generally take to negotiate those deals? How long are those deals usually in place? What are the restrictions? What kind of approval process is typically required?
• What third party intellectual property do you typically incorporate into your advertising? This may include elements such as:
- Celebrities and other talent;
- Filmed footage;
- Quotations and literary works;
- Material from existing films, television programs, or other productions;
- Third party trademarks;
- Software; and
- Recognizable props.
• Who handles advertising-related contracts? Do you have standard forms? Who manages the rights once they are obtained?
• What is the size and frequency of your advertising program? Do you produce a few advertising materials that are used unchanged for long periods of time? Do you produce advertising materials periodically, on a set schedule, throughout the year? For example, do you have seasonal advertising campaigns or campaigns that are launched to coincide with holiday periods? Do you produce large numbers of materials that are released on a regular basis?
• What is the typical content of your advertising?
- Do you do general brand advertising?
- Do you make specific claims about your products?
- Do you advertise prices?
- Do you advertise special offers?
- Do you make general comparative claims or claims about specific competitors?
- Do you use endorsements?
- Do you demonstrate product performance?
• Do you collect personal information from consumers? How do you collect it? What do you do with this information? What information do you give consumers about the company’s privacy practices?
• Is your advertising ever particularly controversial? Do you ever push the boundaries on taste?
• Do you create advertising that is targeted to specific groups, such as children or seniors? Do you advertise in languages other than English?
• Are your products regulated by industry-specific laws? Are there special advertising rules that apply?
• Is your company a member of any industry groups which have an advertising code with which your company is obligated to comply? Does your company have its own code of conduct?
• Is your company bound by any consent orders, assurances of discontinuance, or other settlement agreements that may impact your advertising practices?
• What are the current problems areas?
- Are you currently engaged in, or have you recently been involved with, litigation involving your advertising practices?
- Are you the subject of, or have you recently been involved with, regulatory inquiries involving your advertising practices?
- Have you received many consumer complaints about your advertising practices?
- Have your competitors had legal issues related to their advertising practices? Understanding the ways in which you are advertising is absolutely critical to developing an effective compliance program.
Understanding the ways in which you are advertising is absolutely critical to developing an effective compliance program.
§ 31.09 Issue-Spotting
Once your fact-finding is complete, and you fully understand your company’s advertising program, the next step is to identify the laws that may impact your advertising.
This process is complicated by the fact that, in the United States, advertising is subject to multiple layers of regulation, at the federal, state, and local levels. There are numerous general consumer protection statutes, as well as consumer protection statutes regulating specific industries. They are enforced by a wide variety of government agencies, including the Federal Trade Commission and other federal agencies, state attorneys general, county governments, and local departments of consumer affairs. Various statutes in the United States also give a private right of action to competitors and consumers who have been damaged by false advertising. In addition, there are numerous statutes regulating specific types of marketing practices.
Self-regulation also plays an important role in the advertising industry. Industry groups have promulgated respected and widely-followed self-regulatory codes, and many advertising disputes are resolved through self-regulatory dispute mechanisms. For example, many advertising disputes today are handled by the National Advertising Division of the Council of Better Business Bureaus (www.nadreview.org). And children’s advertising is largely governed by the principles established by the Children’s Advertising Review Unit of the Council of Better Business Bureaus (www.caru.org). The major television broadcast networks, as well as some cable networks, have their own advertising standards. There are many industry groups, as well, that have promulgated widely followed standards, such as the Word of Mouth Marketing Association (www.womma.org), the Direct Marketing Association (www.the-dma.org), and the Mobile Marketing Association (www.mmaglobal.com). Do not underestimate the importance of these and other self-regulatory programs, and how influential their codes of conduct and dispute resolution programs are.
Advertising compliance involves more than the laws specifically governing advertising practices, however. It is equally important to ensure that the advertising does not create other legal problems as well, such as infringing third party intellectual property rights or violating applicable privacy laws.
 General Advertising Standards
Strategic Point: The general rule is that all express and implied claims that are made in advertising must be truthful and not deceptive, and that advertisers must have appropriate proof for these claims before they are substantiated. Even if the advertising is not deceptive, it should also not injure consumers in other ways.
The Federal Trade Commission is the main federal agency that is responsible for enforcing the nation’s consumer protection laws, and most businesses are subject to FTC jurisdiction. The FTC enforces many statutes, including the FTC Act, which prohibits, among other things, “unfair or deceptive acts or practices.” See 15 U.S.C. § 45. A company’s obligations under the FTC Act are similar to the requirements imposed by other federal, state, and local statutes. Although this section will focus largely on general federal standards, when developing a compliance program, other federal standards, as well as state and local issues should be considered as well, where appropriate.
There is no private right of action under the FTC Act. Competitive claims are brought under the federal Lanham Act or state deceptive practices statutes. See, e.g., 15 U.S.C. § 1125(a)(1)(B) (“Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading misrepresentation of fact which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act”).
The FTC defines a “deceptive” act or practice as a misrepresentation or omission that is likely to mislead the consumer acting reasonably under the circumstances to the consumer’s detriment. See “FTC Policy Statement on Deception,” appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984). The FTC looks to an objective standard—what a “reasonable consumer” understands is being communicated. (Some state and local standards actually apply a lower, subjective standard, essentially that of the ignorant, unthinking, and credulous consumer.) Misrepresentations can be express or implied. Id. It is important not to view statements in isolation, but to view the advertising materials as a whole. The FTC has said that, when evaluating representations made in advertising, “we are required to look at the complete advertisement and formulate our opinions on them on the basis of the net general impression conveyed by them and not on isolated concepts.” Id. In order to be actionable, the misrepresentation or omission must be “material”—in other words, “whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service.” Id. In determining whether a misrepresentation or omission is “material,” the FTC looks to whether the information is important to consumers. The FTC considers certain categories of information to be presumptively material, including express claims, health and safety claims, and claims involving the central characteristics of a product or service. Id.
In order to determine what claims are being made, you must take a step back from the advertising and ask what is being communicated. Is the message clear? Is it subject to more than one interpretation? Advertising is judged not by what you intend to communicate, but by what is actually being communicated. For example, you may advertise that your chocolate chip cookies now have “10% more chips,” but does that mean that you have 10% more than you used to have or 10% more than your competitors have? Unless you clarify the claim, you will likely need to substantiate both interpretations.
An “unfair” act or practice is defined by the FTC Act as one that “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n); see also “FTC Policy Statement on Unfairness,” appended to In re International Harvester Co., 104 F.T.C. 949 (1984). Unfairness actions focus on a practice that causes injury, rather than on deception. See, e.g., In re Beck’s North America, Inc., 63 FR 43181, (consent order) (FTC alleged that television commercial that depicted consumers sailing a boat while holding bottles of beer posed a substantial risk of injury from falling overboard).
Strategic Point: In order to ensure that claims made in advertising are truthful, advertisers are required to have proof for the claims that they make, before those claims are disseminated. See “FTC Policy Statement Regarding Advertising Substantiation,” appended to In re Thompson Medical Co., 104 F.T.C. 648 (1984).
An advertiser must have a “reasonable basis” for any claims that it makes in its advertising. See In re Pfizer Inc., 81 F.T.C. 23 (1972). In order to determine whether an advertiser has a “reasonable basis” for its claims, the following factors are considered: the type of claim, the type of product, the consequences of a false claim, the benefits of a truthful claim, the cost of developing substantiation for the claim, and the amount of substantiation that experts in the field believe is reasonable. See “FTC Policy Statement Regarding Advertising Substantiation.” In addition, if an advertiser claims in its advertising to have specific substantiation for its claims (such as, “tests prove”), then it must in fact have that substantiation. Id. When dealing with health and safety claims, the FTC requires a higher level of substantiation, “competent and reliable scientific evidence.” See, e.g., FTC v. Garvey, No. 00-09358 (2000) (stipulated final order and settlement). The FTC has defined this as “tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area, that have 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.” Id. As a general matter, you should have the type of proof that is reasonable, given the type of claim that you are making.
Judicial/Regulatory Perspective: The FTC has aggressively prosecuted major, national advertisers, as well as many others, when it believes that they do not have sufficient substantiation for their claims. See, e.g., In re Kellogg Co., No. 082-3145, 2009 FTC LEXIS 97 (consent order settling allegations that Kellogg made false claims that its Frosted Mini-Wheats are shown to improve kids’ attentiveness by nearly 20%); FTC v. Airborne Health, Inc., No. 08-05300 (2008) (consent order) (settling allegations that Airborne did not have adequate substantiation to support its claims that the product will reduce the duration or severity of colds or that it will provide protection for people exposed to germs); U.S. v. Bayer Corp., No. 07-00001 (2007) (consent order) (settling allegations that Bayer made unsubstantiated claims that its One-A-Day Weight Smart multi-vitamin increased metabolism and helped prevent users from gaining weight); In re Tropicana Products, Inc., 70 FR 35433 (2005) (consent order) (settling allegations that Tropicana misled consumers with claims that drinking two or three glasses a day of its “Healthy Heart” orange juice would produce dramatic effects on blood pressure and cholesterol, thereby reducing the risk of heart disease and stroke); In re KFC Corp., 69 FR 32552 (2004) (consent order) (settling allegations that KFC made false claims about the nutritional value and health benefits of its fried chicken).With the recent changes in leadership inWashington, D.C., some expect that the attention on national advertisers will increase.
Substantiation is not required for “puffery.” See In re Pfizer Inc., 81 F.T.C. 23 (1972). Puffery is generally understood to be an obviously exaggerated representation that is not objectively provable and that “ordinary consumers do not take seriously.” See “FTC Policy Statement on Deception.” Factors to be considered when determining whether a statement is puffery include whether the representations concern general matters that cannot be proven or disproved, whether the statements are distinguishable from representations that are measurable, or whether the wording uses expression of opinion that will be discounted by consumers. For example, “fly the friendly skies” and the “ultimate driving machine” are puffery. No substantiation is required for these claims.
Warning: Do not assume that particular over-the-top words or phrases are always going to be puffery. It is often very difficult to make this determination. Whether a statement will be considered to be puffery will be determined by the context in which the statement is used. See, e.g., Pizza Hut, Inc. v. Papa John’s Int’l., 227 F.3d 489 (5th Cir. 2000) (“Better Ingredients. Better Pizza.” is puffery by itself, but can be a specific claim when used in advertising that promotes specific ingredients).
Strategic Point: When advertising communicates a claim that cannot be substantiated, the advertiser should either modify the claim or include a disclosure that explains the limitations. If a disclosure is required in order to prevent a claim from being misleading, the FTC generally requires the disclosure to be “clear and conspicuous.” The factors that the FTC considers when determining whether a disclosure is “clear and conspicuous” include the placement of the disclosure in the ad, the proximity to the claim being modified, the prominence of the disclosure, and how the disclosure is presented (such as, are there other elements of the ad that distract consumers’ attention from the disclosure and is the disclosure in language that is easy to understand). See “Dot Com Disclosures: Information about Online Advertising”; “FTC Policy Statement on Deception.” Disclosures may be used to clarify the meaning of claims, but they may not be used to contradict them. There are also some specific statutes and regulations that have specific size and placement requirements for disclosures.
Trap: A common mistake that advertisers make is that they assume that they are only obligated to make qualifying information available to consumers, but that proximity and prominence are not critical. In order for a disclosure to be effective, it generally must be seen, read, and understood by consumers at the time that the claim is made. Fine print at the bottom of the page, or a block of text on the end card of a television commercial, that ordinary consumers are not going to read or understand, is not likely to be effective. In addition, the fact that consumers can sign onto the advertiser’s website, call an 800 number, or speak to a salesperson in store, does not ordinarily relieve the advertiser of the obligation to clearly and conspicuously disclose material qualifying information in the advertisement itself. Although online advertising may provide advertisers with some additional flexibility with the manner in which disclosures may be made—for example, linking in appropriate cases to qualifying information—the rules are still the same. Disclosures are judged by a performance standard. With each advertisement, you must always ask, “does this disclosure actually work?”
The “FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising” set forth the FTC’s views on the use of endorsements in advertising. See 16 C.F.R. Part 255. They do not have the force of law. See FTC v. Garvey, 383 F.3d 891 (9th Cir. 2004). Rather, they are “interpretive of laws administered by the Commission, and thus are advisory in nature.” 40 Fed. Reg. 22127, 22128 (May 21, 1975).
The FTC defines an endorsement as “any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) which message consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser.” 16 C.F.R. § 255.0(b). Endorsements can come from consumers, celebrities, experts, organizations, and others. As this is being written, the FTC is engaged in a review of the Endorsement Guides. Although the general principles should remain the same, some changes are expected.
The general rule for endorsements is that they must reflect the “honest opinions, findings, beliefs or experience of the endorser.” 16 C.F.R. § 255.1(a). Endorsements may not include representations that are deceptive or that cannot be substantiated by the endorser. See 16 C.F.R. § 255.1(a). In other words, an advertiser may not use an endorser to make a claim that it could not make itself. In addition, any connection between the endorser and the advertiser, which might materially affect the weight or credibility of the endorsement (for example, a relationship not reasonably expected by the audience) should be disclosed. See 16 C.F.R. § 255.5. An expert’s endorsement “must be supported by an actual exercise of his expertise in evaluating product features or characteristics with respect to which he is expert and which are both relevant to an ordinary consumer’s use of or experience with the product and also are available to the ordinary consumer.” 16 C.F.R. § 255.3(b). Endorsements by organizations are understood to represent the judgment of the organization, and must be reached by a process that ensures that the endorsement reflects the collective judgment of the organization. See 16 C.F.R. § 255.4.
Warning: When using endorsements, there a number of mistakes that are commonly made by advertisers:
• Advertisers should not use company employees, or others with connections to the company, as endorsers, without disclosing the relationship.
• If an endorsement is obtained in a manner that will bias the opinion being given, then the circumstances should be disclosed. For example, if opinions are being solicited from consumers, the consumers should not be told that the opinions may be used in advertising or that they will receive payment for the endorsement if it is used.
• Where a consumer makes specific representations about his or her experience with the product (for example, the amount of weight that the consumer lost on a diet plan), that consumer’s experience should reflect the performance that consumers can ordinarily expect to achieve. If that is not the case, then the advertiser should make that clear to consumers.
• If a celebrity endorser is used, ordinarily the connection between the celebrity and the advertiser does not need to be disclosed, since consumers understand that celebrities are paid for their endorsements. However, if the celebrity is giving an endorsement or speaking on behalf of the company in a context where the relationship between the endorser and the company may not be apparent, such as on a talk show, then disclosure may be required.
If you show a product’s performance in an advertisement, the general rule is that the demonstration must be real. In addition, you must have substantiation that the performance shown reflects the performance that consumers can ordinarily expect.
Demonstrations must accurately show a product’s performance, characteristics, or features. See, e.g., Coca Cola Co. v. Tropicana Products, Inc., 690 F.2d 312 (2nd Cir. 1982). It is generally deceptive to use an undisclosed mock-up of product performance. See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965). Special effects should not be used to demonstrate, or misrepresent, product performance. See, e.g., In re Campbell Soup Co., 77 F.T.C. 664, 1970 FTC LEXIS 116 (consent order).
Where mock-ups or special effects are used, the demonstration should still reflect consumers’ ordinary experience with the product, and the simulation should be clearly and conspicuously disclosed. Not all illustrations of product performance are “demonstrations,” however. If a depiction is not understood to communicate product performance or specific product attributes, it may not be necessary for the depiction to be real. See, e.g., Nikkal Industries, Ltd. v. Salton, Inc., 735 F. Supp. 1227 (S.D.N.Y. 1990) (a photograph of mashed potatoes used to represent ice cream was not deceptive). On the other hand, even if a depiction of a product is not understood by consumers to be an actual “demonstration,” it may not be used to communicate false claims. See, e.g., Williams v. Gerber Products Co., 523 F.3d 934 (9th Cir. (reversing dismissal of claim that alleged, inter alia, that packaging of Gerber Juice Snacks” is misleading where it shows pictures of oranges, peaches, strawberries, and cherries, but the only fruit juice in the product is white grape juice).
 Special Advertising Problem Areas
While these general principles will address many of the issues commonly faced advertisers, there is a great deal of additional regulation that may apply. A large of this issue-spotting phase will involve working with outside counsel to identify that are of particular relevance to your company.
Some regulation will be industry-focused. For example, airlines, alcoholic beverages, automobiles, dietary supplements, pharmaceutical products, and tobacco subject to specific advertising rules.
Companies will also be subject to additional regulation, based on the specific content of the advertising or the media in which the advertising appears. commonly encountered areas, which involve specific regulation, include, for example:
• Availability of advertised products;
• Behavioral advertising;
• Branded entertainment;
• Charitable promotions;
• Children’s advertising;
• Data collection and privacy;
• Direct mail;
• Environmental claims;
• Fax advertising;
• “Free” offers;
• Gift cards;
• “Made in the USA” claims;
• “New” claims;
• Shipment promises;
• Sweepstakes and contests;
• Text messages;
• User generated content; and
• Warranties and guarantees.
Using the information collected during the fact-finding process, you should work with outside counsel specializing in advertising to identify the rules that apply to you.
 Intellectual Property
Although the laws governing intellectual property are beyond the scope of this chapter, infringement claims do present substantial risks to advertisers. An advertising compliance program must have procedures in place to ensure that the advertising does not violate third party intellectual property rights. A thorough understanding of the laws governing copyright, trademark, and the right of publicity is essential. Patent issues, which are not addressed in this chapter, are also increasingly presenting issues for advertisers, particularly when developing online promotions. The following are a few key points that are particularly relevant to advertisers.
Copyright protects the original expression of ideas, once they are fixed in tangible form. Copyright law provides broad protection for creative works, and copyright pops up in unexpected places. Do not assume that copyright only covers fine art or music. A picture on a t-shirt, a prop in the background, a mural on the side of a wall, a quilt, a familiar line from a song, or a character from a television series may all present copyright concerns. When clearing advertising, you should ensure that you have releases for all third party materials that have been included in the advertising, unless you have determined that a release is not necessary.
Warning: Do not believe the lore that certain things are free for the taking. The stories that have been passed down are often just plain wrong. Even though something may not have a copyright notice, or may be publicly available on the Internet, that does not mean that it is “public domain.” There are also no set rules about how much you can borrow from a pre-existing work that is still protected by copyright. Do not assume that because you are only taking a few bars of music, or a few words from a song, that it is not infringement.
Copyright infringement comes from copying. If you do not base your campaign on someone else’s work, then you cannot commit copyright infringement. Often, however, an advertising concept is inspired by a preexisting work. It is generally acceptable to use a pre-existing idea as the source of your inspiration, so long as your expression of the idea is original. That is because copyright does not protect ideas; it only protects the original expression of those ideas. This means that you can use another work as the inspiration for your own work—but only so long as you take the idea, and not the specific creative choices that were made. You can have a television commercial featuring a spy who drives a fast car and who uses the latest technology to fight crime—so long as you do not replicate the specific elements of a James Bond film. You can use another work as a jumping off point for your own creative expression, but not as a substitute for making your own original creative choices. When your marketing team is developing a campaign that was influenced by a preexisting work, it is critical to work with them to ensure that they have taken only the idea, not the creative expression. One of the ways to help prevent unintentional infringement is to make sure that the source of the inspiration is not shared with the people who will actually be producing the work. You should tell your production company that you want a commercial about a jet-setting, suave spy; do not tell them that you want a “Bond-like” commercial. Marketers may not always tell you where the idea came from. It is always a good idea to ask if the campaign is based on a pre-existing work. If it is, then you can review that work to determine whether there are any concerns.
Another frequent source of claims is that marketers or advertising agencies may begin negotiations with a third party to license some creative work, but then these negotiations are not successfully concluded. For example, a music publisher or a photographer may refuse to license the materials that you want. In those cases, it is critical that you avoid producing a campaign that appears that it was in any way based on the work that you were not able to license. Many copyright infringement claims (and others) occur today because an advertising agency was not able to license a particular work, so they went and created something similar with someone else.
The advertising review process should also include procedures to avoid trademark claims. A trademark identifies the source of a product or a service.
As a general rule, you should avoid using third party trademarks in your advertising. That means ensuring that props, signs, and other materials in the advertising do not have third party names or logos. Companies often object to unapproved uses of their trademarks (regardless of the merits of such a claim), and avoiding them is an easy way to reduce risk. Pay particular attention to fictional uses of trademarks. Often a fake store name, or fake product, that has been created for the purposes of the advertising will lead to a claim.
If you are developing a new trademark or tagline, you will want to work with experienced intellectual property counsel to clear the mark for the intended uses. Do not assume that because something is not going to be the name of your product or a formal trademark, it will not raise trademark issues. Trademark searches should be conducted for taglines, theme lines, and other distinctive elements, in order to help avoid potential infringement claims. There are many benefits to filing trademark applications, and obtaining registrations, which should be discussed with counsel as well.
There are situations where it is permissible to use a third party trademark without permission, such as in comparative advertising. If you do plan on using someone else’s trademark without permission, you will need to be sure that the use is defensible. For example, will using the trademark create confusion about whether a third party has endorsed you or is somehow associated with your advertising? Will using the trademark somehow harm the trademark?
[c] Right of Publicity
Although there are some exceptions, the right of publicity (also referred to as a right of privacy) generally prohibits the use of a person’s name, picture, signature, likeness, voice, or even persona for purposes of advertising or trade, without written permission. The right of publicity does not just protect celebrities; it protects politicians and regular people too. It also does not just protect living people; many jurisdictions provide for varying levels of protection after death. The right of publicity generally protects the right of individuals to control how they are used for commercial purposes, regardless of whether the advertising creates confusion about whether the person has endorsed the product.
Strategic Point: In order to avoid right of publicity claims, you should ensure that written releases are obtained from anyone whose rights are implicated. Permission should also be obtained for look-alikes and sound-alikes. Do not assume that you can use a person’s first name, or nickname, or just a part of his or her body. If the person is recognizable, then you are going to need a release. The right of publicity continues to expand, and you should be careful even about references that call a particular celebrity to mind.
§ 31.10 Develop Guidelines
Strategic Point: The next step is to develop a written set of comprehensive guidelines. Ideally, they will be written in simple, easy to understand language, so that they will be useful not only to lawyers and compliance personnel, but to your marketing department as well.
The guidelines are going to serve several important functions. First, the guidelines will formalize the company’s general policy about its advertising compliance. Second, it will give clear guidance about how to comply with commonly encountered advertising issues. Third, it should be a living document that continues to be updated as the company’s advertising evolves and new issues are encountered. Fourth, it will provide institutional memory; all too often, when someone leaves the company, others are not aware of the issues that have been encountered. Fifth, it will be a tool that can be used by business people to make plans, and identify issues, early during campaign development.
Advertising compliance guidelines should generally cover, at a minimum, these areas:
• Overall statement of corporate policy about advertising compliance;
• General truth in advertising principles, including claims, puffery, substantiation, disclosures, and unfairness;
• Guidance about special types of claims made by the company, such as “made in the USA” claims and environmental benefit claims.
• Promotional practices, as applicable, such as pricing, special offers, rebates, and coupons;
• Standard disclosures when using specific claims or making certain kinds of offers;
• A list of claims about your products that have been approved as having been properly substantiated;
• Sweepstakes and contests;
• User generated content;
• Company and employee blogging;
• Laws governing your specific industry;
• Laws governing specific advertising practices that your company engages in, such as telemarketing, e-mail advertising, and telephone and mail-order sales;
• Self-regulatory guidelines;
• Television network guidelines and or other applicable media standards;
• Requirements resulting from consent orders, assurances of discontinuances, or other settlement agreements;
• Contractual requirements, such as the material terms of agreements with licensors and promotional partners;
• Copyright, trademark, and other notices that may be required;
• Guidance concerning the use of company trademarks and other company intellectual property;
• Use of third party intellectual property, including contracting procedures (and possibly even recommended forms);
• Procedures that prohibit employees from reviewing unsolicited ideas;
• Procedures for soliciting ideas, including form contracts that protect the company from idea misappropriation claims;
• Company approval procedures, including the procedures for deviating from the guidelines;
• Procedures addressing what to do when a claim is made that alleges that the
• Contact information for key personnel who are responsible for ensuring compliance with, and updating, the guidelines. This should also include back up and emergency numbers, so that someone can be reached with last-minute questions.
Warning: If the advertising compliance program is going to be successful, the guidelines should actually help the company to advertise effectively (as well as legally). Do not make the guidelines so rigid that they stand in the company’s way of achieving its advertising objectives. The guidelines should include a mechanism to permit people to deviate from them, when necessary and appropriate. You should also consider the risks and benefits of having hard and fast rules. In some cases, there may be benefits in demonstrating that the company has strict rules about certain practices. On the other hand, if you deviate from those guidelines, that may also create issues for you in litigation as well.
§ 31.11 Develop Procedures
You must establish formal procedures to ensure that the advertising does in fact comply with the guidelines.
 Legal Review
It is not enough to distribute guidelines and ask the relevant departments to comply with them. All marketing materials should go through a legal or compliance approval process before they go out the door. The procedures should clearly define who must review the materials and give approvals. This may vary, depending on the type of marketing program. For example, a new campaign, with various online and offline elements, may need review by advertising counsel, intellectual property counsel, and privacy counsel.
 Review All Materials
Strategic Point: The single biggest mistake that companies of all sizes make is that there is no formal advertising review process which ensures that all advertising materials are cleared by the legal or compliance department before they are released to the public. Many companies focus their legal review on high profile television advertising campaigns, but do not pay sufficient attention to the advertising that appears in all of the other media in which the company is speaking to consumers.
The advertising review process should include a review of not only traditional advertising materials, such as television and radio commercials, billboards and other outdoor advertising, newspaper and magazine advertising, product labeling, and collateral materials, but any communication with consumers. Advertising review should include, for example, the company’s website, e-mails and other online
Companies often assume that non-traditional advertising materials, or other types of corporate speech, are not “advertising” and are not subject to the same rules as traditional advertising. Today, when a company is communicating with the public, it is very likely that a court or a reg