The Federal Trade Commission's
A Big Stick, a Keen Eye, and Some Help from Our Friends
Commissioner Sheila F. Anthony
Delivered at a meeting of the
American Advertising Federation
March 25, 1999
I'm delighted to be here this morning to talk about the FTC's advertising program.
The FTC is a very busy place these days, but the Commission's national advertising program is one that is important both to the agency and to me personally. In fact, I'm becoming famous with the staff for my weekend ad monitoring activities. Lee Peeler probably drives in every Monday morning thinking "I wonder what she came up with this weekend."
Over the years this meeting has served as a forum to talk about the FTC's ad program, so I really am delighted to have this opportunity to give you my views and where I believe the advertising program is going.
Before I continue, I must give the usual disclaimer and say that the remarks I make are my own and do not reflect the views of the Commission or any other Commissioner.
By now, it should be apparent to everyone in this room that the new direction of advertising is to the Internet. And like all of the advertisers in this room, the Commission is also going there. Paralleling your efforts, the FTC advertising program faces the dual challenge of both maintaining a strong, active presence in traditional media and preparing for the explosive growth of E-commerce. In fact, the combination of new products marketed in traditional media and the growing cyberspace market together are placing the standards of truthful and substantiated advertising under real pressure.
Let me give you two just two examples.
Two weeks ago we filed a district court action seeking a preliminary injunction against the marketer of a product called "Vitamin O."(1) Like ads for too many products these days, ads for Vitamin O made claims that the product could cure virtually everything that might be wrong with you, including cancer, cardiovascular disease and pulmonary disease. To underscore the effectiveness of the product, the ads also claimed that Vitamin O had been developed as part of the space program and used by NASA. The product is basically oxygen enriched salt water that sells for $20 dollars a bottle. One expert was quoted in a news program as saying that you can use oxygen that is administered this way, but only if you have gills. Otherwise, it can't be absorbed. And, besides that, we do not commonly view either oxygen or salt water as vitamins. And NASA tells us that despite being featured in the ads -- they never heard of this product. Now we've seen claims like this for a long time, but what was particularly troubling about this ad was that it ran prominently in both full and half page ads in a national newspaper publication, not in "back of the book" advertising where you might expect to see it. Nor is "Vitamin O" the only example of facially questionable advertising getting broad distribution in a range of media
Things are, of course, no better on the Internet. Working with staff of other agencies we conducted a "project cure all" surf of the Internet that turned up over 400 sites making questionable claims for products to cure any number of very serious disease and health conditions. Last August we challenged the Internet marketing of a so-called impotence product called Vaegra.(2) That's V-A-E-G-R-A. Any similarity between Vaegra and any highly-publicized prescription drug ended there. The company claimed to have clinical studies proving the product's effectiveness in 68 to 94 percent of users and used impressive-sounding corporate names in its ads such as the "National Institute for Urological Health" and the "Carnegie Research Institute." But, according to the allegations in the complaint, there was no institute, there was no research, and there was nobody involved named Carnegie. In addition to marketing on the Internet, the company sent consumers direct mail promotional pieces, one signed by a corporate officer who included the letters "M.D." after his signature. As it turned out, "M.D." did not refer to any medical credential, but rather stood for "Marketing Director." Consumer injury is estimated at $18.5 million. We obtained an preliminary injunction and the case is in litigation.
The growing frequency of the type of advertising claims I have just described, in both traditional media and the Internet, sets out a challenge for both the Commission and responsible advertisers alike. Today, I want to tell you about some of the things we are doing to respond to these challenges and some of the things we hope you will do.
GOAL: 3 Messages
My goal is to leave you with three messages. First, I cannot state too strongly that we take our law enforcement responsibilities seriously, and I, personally, am committed to seeking faster, more effective and tougher remedies for law violators. Companies that play by the rules shouldn't be put at a disadvantage by competitors that play fast and loose.
Second, I believe that matters involving the Internet, Privacy, and E-commerce should be a priority.
Third, we want industry to be our partner and to continue its efforts to engage in meaningful self-regulation.
Let me address each of these issues.
II. Message I: First, Making Sure That We Are Getting the Right Remedies
Advertising cases traditionally have been pursued as administrative matters, and the primary remedy was a "go and sin no more" order. Although in some cases that may still be an appropriate approach, today you will find the Commission closely looking at proposed actions to ensure that we are obtaining the right relief. This is part of a general concern that tougher and more effective remedies may be necessary to "up the ante" for breaking the law. Instead of merely telling companies to stop their violations, we are imposing additional requirements in our orders. In appropriate cases, we are seeking consumer redress or disgorgement of profits.(3) And, when Commission orders are violated, we are examining civil penalties closely to ensure that they are more than simply another cost of doing business.(4) In addition, we are increasing the use of informational remedies, because we believe that an informed consumer is less likely to be deceived the next time around.
a. Advertising Cases in District Court
In addition to seeking better relief, we are also trying to move faster. One way that we are doing this is by making use of our authority to file advertising cases in federal district court. Such action allows us to stop deceptive advertising and sales with temporary restraining orders or preliminary injunctions and also to provide a broader range of relief than is typically available in administrative action. Both of the actions I described earlier in this presentation, Vitamin O and VAEGRA, were filed in district court. We have also taken successful action against other more mainstream advertising campaigns.
b. Informational Remedies
Because deceptive claims put bad information out in the marketplace, I am particularly interested in putting good information back in. Information remedies protect consumers by making them less susceptible to future deception and, where appropriate, by correcting any lingering misperceptions created by the prior deception.
Earlier this month, the Commission settled a dispute with R.J. Reynolds Tobacco Co.(5) We alleged that ads for Winston's "no additive" cigarettes implied that the cigarettes were safer to smoke. The consent agreement is out for public comment. The proposed order will require RJR to include this disclosure in future "no additive" cigarette advertising: "No additives in our tobacco does NOT mean a safer cigarette." In addition, the disclosure must appear in all of Reynolds advertising for Winston cigarettes for a one year period.
c. Direct Notification to Consumers
When an immediate and severe threat to consumer health or safety occurs, I believe that direct notification to consumers is the right remedy. For example, in the Global World Media Corp.,(6) matter, the Commission challenged claims that Herbal Ecstasy was a natural "high" and was safe. In fact, the complaint alleged that the product was a dangerous dietary supplement and could damage the central nervous system and heart. As part of the settlement, the Commission required the company to directly notify consumers of the risks of the product.
Now, I think that tougher, more effective FTC remedies against deceptive advertising deserves the support, not just of consumers, but of advertisers as well. This approach may serve as a deterrence, and it should help keep the playing field more level.
III. Message Two: Remain at the Forefront in Internet, Privacy Issues, and E-Commerce
In addition to making sure that our remedies are as effective as possible, we are also paying close attention to the development of Electronic-Commerce. We want to be sure that we understand this new medium. We also want to be sure that its development reflects the basic consumer protection principles that apply in all other media, but in a way that recognizes the dynamic, interactive nature of the Internet.
We are approaching this issue:
First, by educating ourselves.
Second, by providing a forum for the development of basic consumer protection issues, and
Third, by taking law enforcement actions to stop the Internet from turning into the "wild west" of advertising and marketing.
I understand that many of you participated in our earlier workshops on Internet advertising and online privacy, and your participation contributed significantly to the success of those workshops.
There are two workshops coming up that I want to be sure you know about. The first will be held May 14th and will focus on the applicability of consumer protection rules and guides to the Internet. We will discuss some of the thorniest. For example, what does the phrase "clear and conspicuous" mean for website disclosures? A second workshop will be held June 8th and 9th to explore how government, industry, and consumers can work together to develop a global electronic marketplace that is safe and where participants are fully aware of their rights and responsibilities.
a. Internet Privacy
We are also providing a forum for the discussion of important consumer protection issues, like on-line privacy. These discussions, which began in 1995, quickly identified consumer concerns about on-line privacy as a major impediment to the full development of E-Commerce.
Working with the industry, Congress last year adopted important legislation to address the privacy interests of young children. The Commission will shortly be issuing a rule to implement that law. I believe it is vital that this rule provide strong, but practical, workable protection for children on the Internet.
I hope that you will participate fully in the comment period to make sure our rule accomplishes that goal.
Let me say a brief word about fraud on the Internet.
b. Internet Fraud
Fraud is a problem in any form of commerce, and the Internet has attracted its fair share of fraudulent schemes. The Commission and several state attorneys general have already brought scores of actions against deceptive or fraudulent Internet activity.
The rapid growth of fraud on the Internet results from the Internet's ability to reach down-line investors easily, anonymously, and at very low cost.
As part of our consumer and business education program, we "fight fire with fire" through websites and so-called "teaser" pages.
These teaser pages are really sting sites. One example is our "ultimate prosperity page." It mimics an online business opportunity scam, promising lots of money for little or no effort. As a consumer clicks through the site, he will eventually arrive at the last page -- the "gotcha" page -- that says:
If you respond to an ad like this, you could get scammed.
The page links to the FTC site which gives tips to avoid becoming a victim of get-rich-quick scam artists. These teaser sites have been disseminated to Internet search engines so they will show up when consumers search various topics.
Unfortunately, despite our best efforts, traditional fraudulent offers of all kinds will continue to migrate to the Internet, and other high-tech schemes will present new challenges.
IV. Message Three: Self Regulation Is Desirable and Necessary
Now, for message number 3: Self regulation is not only desirable, it's necessary.
First, let me acknowledge your leadership. I want to echo Chairman Pitofsky's past comments that the BBB's National Advertising Division has really set the model for independent, objective, public and enforceable self regulation. In addition, I am told that the American Advertising Federation's ongoing efforts to address minority advertising and media issues are also a model of industry action to address important issues in a responsible and proactive way.
Because of your past efforts, there is a real acceptance within the Commission of the effectiveness of self regulation as an alternative to government action. Our attitude is that, in many instances, self-regulatory initiatives can address consumer concerns in a more flexible manner and in a much shorter period of time than government regulation.
a. Dietary Supplements
One area, however, where more and better self regulation is needed is dietary supplement advertising. Although there are many products in this rapidly expanding market that could offer real benefits for consumers, there are also many advertisers that use exaggerated and unsubstantiated claims. Over the past year we have devoted considerable resources to industry education. Just a few months ago, the FTC released a comprehensive business guide designed to educate the supplement industry on the basic and finer points of advertising law, and particularly on how the FTC evaluates substantiation. But our law enforcement efforts and industry education are not enough. We want to enlist the assistance of the supplement industry to help police the accuracy of its advertising. Industry has a great incentive to clean up the fringe element and help responsible members develop truthful and accurate advertising. Consumer confidence in supplement advertising and -- the ultimate success of the industry -- is at stake.
b. Media Screening
Media screening for deceptive advertising has long been an important goal of the advertising industry's self-regulatory program. And the Commission has tried to enlist the media in its fight against fraudulent and deceptive practices. But, we are concerned that too many deceptive ads are slipping through. I believe the media can and should do a better job. And I know that advertising agencies can and should do a better job.
We have some good news and some bad news to report on this front. Late last year we published a pamphlet on media screening -- how to spot common problems in advertising -- and sent that pamphlet to all 50 state press associations. The response has been very positive from the 17 press associations who have sent copies of the pamphlet to their members, featured it on their home pages or in their monthly newsletters, or invited staff to speak. Unfortunately, at the national level, the response to our efforts has not been as positive.
I earnestly encourage the media to adopt or to improve screening and clearance procedures to weed out deceptive and fraudulent ads. Short term goals, like maximizing profits, might push some companies to look the other way when asked to run a suspicious advertisement. In the long run, however, these practices hurt the credibility of the media and the interests of their honest clients. I urge you to take the high road by rejecting ads that are suspicious or plainly false.
c. Internet Privacy
Another area where we have actively encouraged effective self-regulation is Internet privacy. In fact, because of the rapid evolution of E-Commerce, Internet privacy is probably an ideal area for the flexible hand of self regulation. But, it must be meaningful, and it should come sooner than later.
There are a number of encouraging developments. The Online Privacy Alliance -- a group of industry leaders - has adopted guidelines for online privacy polices. Two other groups, BBB Online and Trust-e, developed programs to inform the public about the websites that comply with these principals and to ensure that member companies are actually complying. I am hopeful that they will come closer to effectively addressing privacy concerns.
I want to thank you for having me speak with you this morning. I hope I was successful in explaining my views on three important areas: tougher law enforcement and stronger remedies, the way in which the Commission is keeping Internet, Privacy, and E-Commerce on the front burner, and why meaningful self-regulation is so important. You can expect that in our law enforcement actions we will continue to seek strong relief. This may mean filing in federal court, seeking informational remedies, or requiring direct notifications to consumers. You can also expect that we will keep abreast of emerging consumer protection issues with regard to the Internet and E-Commerce. I ask you to do your part with meaningful self-regulatory initiatives. And to let us know what we can do better by participating in our workshops and commenting on issues that concern you.
1. Rose Creek Health Products, Inc., No. CS-99-00630EFS (E.D. Wash., motion for permanent injunction filed Mar. 11, 1999).
2. American Urological Corporation, et al. Civil Action No. 1:98-CV-2199 (JOS). (N.D. Ga., motion for permanent injunction filed Aug. 3, 1998).
3. See, FTC v. Kevin Trudeau, (N.D. Ill. Jan. 13, 1998) (stipulated order for permanent injunction and final order ) ($1 million in consumer redress for deceptive claims about allegedly deceptive memory program, speed reading program, addiction-treating product, etc.); L & S Research Corp., 118 F.T.C. (1994)(consent order) (requiring advertiser to pay $1.45 million in disgorgement for deceptive claims for Cybergenics bodybuilding products); Synchronal Corp., 116 F.T.C. 1189 (1993) (consent order)(requiring infomercial marketer to pay $3.5 million in redress for deceptive claims for baldness and cellulite remedies).
4. See United States v. Nu Skin International, Inc., No. 97-CV-0626G (D. Utah Aug. 6, 1997)(stipulated permanent injunction)($1.5 million civil penalty against seller of chromium picolinate weight loss products for allegedly violating FTC order barring false or unsubstantiated claims).
5. R.J. Reynolds Tobacco Co., File No. 992-3025 (proposed consent agreement filed for public comment March 5, 1999).
6. Global World Media Corp., C-3772 (Oct. 17, 1997) (consent order).