Remarks

Good morning. I am Orson Swindle, and I currently serve as a Commissioner at the Federal Trade Commission. With me on the panel today is Bill MacLeod, a partner at the law firm of Collier, Shannon, Rill & Scott and a former Director of the FTC's Bureau of Consumer Protection. What Bill and I plan to do this morning is to make some brief opening remarks about alcohol and tobacco advertising, and then we will see and discuss some alcohol and tobacco ads that the Commission has recently challenged.

Before I begin my remarks, I must give the standard Commission disclaimer: my remarks today are my own and do not necessarily reflect the views of the Commission or any of my fellow Commissioners.

I want to begin by discussing the general philosophy of government that guides my decisions, including the decisions that I make concerning advertising issues. I believe that government should play a minimal role in our lives and should not be intrusive or unreasonably burdensome. There is a persistent temptation in government to think that if government controls, directs, or alters individual decisions in private markets, it will produce "better" outcomes. This temptation must be resisted. Individuals must be allowed to make their own decisions without government intervention or control so that private markets can work their magic. Unfettered private markets generally produce more and better products at lower prices for all Americans.

Adam Smith, our Founding Fathers, Milton Friedman and Ronald Reagan had it right: government should play only a minimal role in our lives and should not be intrusive and unreasonably burdensome.

Advertising, of course, performs an important function in providing consumers with the information that they need to make decisions in the marketplace. In justifying its decision to accord First Amendment protection to commercial speech, including advertising, in theVirginia State Board of Pharmacy case, the Supreme Court explained the importance of advertising:

Advertising, however tasteless and excessive it may sometimes seem, is nonetheless dissemination of information as to who is producing and selling what product, for what reason, and at what price. * * * It is a matter of public interest that [private economic] decisions, in the aggregate, be intelligent and well-informed. To this end, the free flow of commercial information is indispensable. * * *.(1)

I heartily agree that the free flow of information through advertising empowers consumers in a market economy to make their own decisions. Therefore, the government should exercise great caution before it undertakes measures that could chill or distort the dissemination of advertising.

It cannot be overemphasized that this principle applies to advertising for all legal products, provided the claims are not misleading or deceptive or unfair. A recent example involving alcohol advertising may help illustrate this point. Earlier this month, the Bureau of Alcohol, Tobacco and Firearms decided to grant the applications of wine makers to use the following label on bottles of wine:

"The proud people who made this wine encourage you to consult your family doctor about the health effects of wine consumption."

BATF approved this label because its claims were neither false nor misleading, and wine makers therefore had a First Amendment right to make these claims.

In response, Michael Jacobson, the Executive Director of the Center for Science in the Public Interest, criticized BATF's decision because "[a] lot of people who see the words 'health effect' will read that as 'health benefit' and may end up drinking more wine than they should."(2) And, presumably from a very different political perspective, Senator Strom Thurmond denounced the decision as "irresponsible, subjective, and * * * poor public policy,"(3) and threatened to back legislation to overturn the decision and to block appointments.

I think that BATF got it right. Wine makers, like others selling any legal product, must be able to make true and non-misleading claims in an effort to induce consumers to purchase their products. Allowing such information to flow unhindered through advertising and labeling allows consumers to choose for themselves whether to purchase wine. Consumers, not the government, must make these types of choices.

A slight variation on these principles is necessary when it comes to alcohol and tobacco advertising that appears to be targeted at children. If children purchase and consume alcohol or tobacco, it creates serious health risks for them -- risks that they may well not fully comprehend. Indeed, to protect children from these health risks, it is illegal for children to purchase alcohol and tobacco. Alcohol and tobacco advertising that appears to be targeted at children, therefore, is something that the government must consider very seriously.

But the government must evaluate such advertising in a careful and reasoned manner too. Few things provoke more emotion and overheated rhetoric than issues that relate to children. Government must resist the temptation to overreact to this emotion and rhetoric. After all, not every alcohol or tobacco ad that depicts a cartoon character, cute pet, or something that might appeal to children is necessarily targeted at children. (Some of us adults like Frank and Louie, the Budweiser lizards, too!)

Commission action under its unfairness authority is warranted only where the government can prove, not just assert or intuit, that an ad has caused or is likely to cause substantial injury to children. Specifically, the government typically would have to prove that the ad has caused children to purchase the advertised alcohol or tobacco product or caused them to purchase more of that product. While this may well be very difficult to prove in some cases, requiring that this standard be met ensures that Commission action is appropriately limited, so as not to unduly hinder or chill advertising of alcohol and tobacco products to adults.

* * *

With these general thoughts in mind, I will move on to provide a brief background on the role of the FTC with regard to alcohol and tobacco advertising. At the back of the room, there are copies of an outline of federal and state alcohol and tobacco regulation that you may find helpful. The outline provides information about all of the FTC's alcohol and tobacco-related responsibilities. Today, however, I want to focus on law enforcement actions that the Commission recently has brought to challenge particular alcohol and tobacco ads as "unfair" or "deceptive" in violation of Section 5 of the Federal Trade Commission Act.

Most Commission advertising cases involve allegations that a company engaged in deceptive acts or practices. An ad is deceptive if three elements are proven:

1. the ad must have made a claim;
2. the claim must have been likely to mislead a reasonable consumer; and
3. the claim must have been material -- that is, important to consumers in their decision whether to purchase the product.

In a few minutes, I will run a tape of a television ad that the Commission challenged because of an allegedly deceptive claim made for a Kahlua White Russian alcoholic drink, and I would ask that you keep these three elements of deception in mind as we discuss the ad.

The Commission also has the authority to challenge ads that it believes are "unfair." Few Commission advertising cases involve allegations that an ad was unfair rather than deceptive, although unfairness allegations are more prevalent in cases involving children as well as alcohol and tobacco than they are in most other cases. In 1994, Congress added Section 5(n) of the FTC Act,(4) which defines an "unfair" act or practice as one that

1. causes or is likely to cause substantial injury to consumers; where
2. the injury is not reasonably avoidable by the consumers themselves; and
3. the injury is not outweighed by countervailing benefits to consumers or to competition.

Again, as with the elements of deception, I would ask you to keep these elements in mind as we look at ads that the Commission recently has challenged as unfair -- a television ad for Beck's beer and a set of ads depicting the now deceased dromedary, "Joe Camel."

Finally, I'd like to highlight four developments at the FTC concerning alcohol and tobacco advertising that you might want to watch for in the near future:

1. The Commission will file a report with Congress describing the alcohol and marketing practices of beer, wine, and distilled spirits manufacturers, as well as evaluating industry codes designed to prevent alcohol ads targeted to children.
2. The Commission will file a report with Congress detailing sales, advertising, and marketing information concerning cigars.
3. The Commission will conduct a comprehensive review of its regulations concerning the display and rotation of health warnings in ads for smokeless tobacco.
4. The Commission will address what changes, if any, are needed in the test method used for calculating tar and nicotine ratings and the disclosures of those ratings in cigarette advertising.

And now I'd like to ask Bill to make some opening remarks on FTC alcohol and tobacco advertising enforcement before we see and discuss a few ads.

1. Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 765 (1976).

2. C. Mayer, Message on the Bottle: New Label's Nod to Health, Washington Post E2 (Feb. 6, 1999).

3. Id.

4. 15 U.S.C. § 45(n).