[Senate Hearing 111-484]
[From the U.S. Government Publishing Office]
S. Hrg. 111-484
ADVERTISING TRENDS
AND CONSUMER PROTECTION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
JULY 22, 2009
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California JOHN ENSIGN, Nevada
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota SAM BROWNBACK, Kansas
TOM UDALL, New Mexico MEL MARTINEZ, Florida
MARK WARNER, Virginia MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
Ellen L. Doneski, Chief of Staff
James Reid, Deputy Chief of Staff
Bruce H. Andrews, General Counsel
Christine D. Kurth, Republican Staff Director and General Counsel
Brian M. Hendricks, Republican Chief Counsel
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SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE
MARK PRYOR, Arkansas, Chairman ROGER F. WICKER, Mississippi,
BYRON L. DORGAN, North Dakota Ranking
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida JIM DeMINT, South Carolina
CLAIRE McCASKILL, Missouri JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota JOHNNY ISAKSON, Georgia
TOM UDALL, New Mexico DAVID VITTER, Louisiana
C O N T E N T S
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Page
Hearing held on July 22, 2009.................................... 1
Statement of Senator Pryor....................................... 1
Statement of Senator Wicker...................................... 2
Statement of Senator Klobuchar................................... 45
Statement of Senator McCaskill................................... 51
Witnesses
David Vladeck, Director, Bureau of Consumer Protection, Federal
Trade Commission............................................... 4
Prepared statement........................................... 6
Sally Greenberg, Executive Director, National Consumers League... 14
Prepared statement........................................... 16
Urvashi Rangan, Ph.D., Director of Technical Policy, Consumers
Union of U.S. Inc.............................................. 21
Prepared statement........................................... 23
C. Lee Peeler, President and CEO, National Advertising Review
Council and Executive Vice President, Advertising Self-
Regulation Council of Better Business Bureaus.................. 25
Prepared statement........................................... 27
Greg Renker, Co-Chair, Guthy-Renker LLC.......................... 32
Prepared statement........................................... 33
Jon Congdon, President and Co-Founder, Product Partners LLC/
Beachbody...................................................... 35
Prepared statement........................................... 38
Appendix
Hon. John D. Rockefeller IV, U.S. Senator from West Virginia,
prepared statement............................................. 59
Response to written questions submitted by Hon. Tom Udall to:
Sally Greenberg.............................................. 59
David Vladeck................................................ 61
ADVERTISING TRENDS
AND CONSUMER PROTECTION
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WEDNESDAY, JULY 22, 2009
U.S. Senate
Subcommittee on Consumer Protection, Product
Safety, and Insurance,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:04 a.m. in
room SR-253, Russell Senate Office Building, Hon. Mark Pryor,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. MARK L. PRYOR,
U.S. SENATOR FROM ARIZONA
Senator Pryor. I'll go ahead and call our meeting to order,
here.
Thank you all for being here in our Subcommittee today. And
I just want to say, I appreciate the prepared testimony and the
efforts all of you made to get here, and also members of the
audience for being here and paying attention to these important
issues.
Today, we're talking about advertising trends and consumer
protection, in our Subcommittee. And we will have a few
Senators who will be coming in and out, due to activities on
the floor, and various other committees that are meeting right
now. We're going to have a group of Senators that are coming
and going, and it looks like were going to have a little bit of
that as we go.
What I'd like to say is, we have assembled a very strong
panel of witnesses today representing the Federal Trade
Commission, the consumer advocacy community, and the
advertising community. And I think we all look forward to their
testimony.
And during last week's hearing on frauds and scams tied to
the economic downturn, we focused on the FTC's enforcement
actions and statutory authority. Today, we'll examine current
trends in deceptive advertising and the Federal Government's
effort to protect consumers.
Over and over again, consumers purchase products from
companies that claim to make us a little trimmer, stronger, or
healthier. If these advertising claims were just about
eliminating pimples or fat, it would be one thing. However,
many of the deceptive practices employed today are increasingly
putting safety at risk.
I particularly want to commend the FTC and the FDA's sweep,
last year, that brought down several companies advertising a
fake cancer cure. These companies preyed on vulnerable
patients, and sometimes desperate patients, to put these
individuals' lives on the line just to make a quick buck.
Today, companies are even more desperate for sales, as families
cling a little tighter to their dollars.
Today, we'll explore the negative impact deceptive
advertising can have on customers in the marketplace. We'll
hear about new trends in advertising, including bait-and-switch
techniques, advertisements portrayed as news articles, bloggers
paid by advertisers to publish positive reviews, false or
``testimonial'' advertising, free-product advertising, and
false or deceptive advertising of ``green'' products.
I hope that, through testimony and questioning, we can
determine the extent that consumers are harmed by deceptive
advertising, whether the connections between the advertisers
and endorsers are transparent enough for consumers, how to
improve the coordination between Federal and State governments,
and, finally, what Congress can do to strengthen the FTC's
ability to protect consumers all across the Nation.
We cannot allow the customer in the marketplace to be in
confusion. If dishonest companies insist on bogus claims about
their products, the Federal Government must step up and ensure
information on our airwaves or the Internet is accurate and
truthful. This allows individuals to make informed decisions,
and it preserves the overall integrity of our marketplace.
Again, I want to thank our panel. I want to introduce our
panel, here, in just a few moments, but first I'd like to ask
Senator Wicker to make his opening statement.
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you, Mr. Chairman, and thank you all.
The Federal Trade Commission has protected American
consumers for almost a century. In 1914, Congress created the
Commission by passing the Federal Trade Commission Act, and
tasked the new entity with authority over anticompetitive
practices. Later, Congress expanded the authority of the
Commission to include the issue most Americans associate with
the Federal Trade Commission: the authority to prohibit unfair
and deceptive acts or practices. Today's hearing will focus on
trends in the advertisement industry, and steps the Commission
has taken over the years related to these advertisement
practices.
Americans have seen an explosion in the available
advertising venues over the past two decades. The Internet
helped create a number of different options for advertising,
including ad placement on websites, product-related websites,
YouTube, and blogs. Additionally, the advertisement industry
has expanded its use of certain types of ads, based on
parameters established by the FTC.
While the increased opportunity for marketing is a win for
industry, this development has raised concerns related to the
practices used to sell products to American consumers. The FTC
plays a vital role in this area by actively pursuing bad
actors. If an advertisement is deceptive or misleading, the
Commission has broad authority to stop these activities.
Additionally, the industry must also answer to the National
Advertising Review Council's Electronic Retailing Self-
Regulation Program. This program, which has significant
coverage over the advertising and marketing industries,
provides oversight, and brings enforcement action against those
who violate the program's requirements. I understand the FTC
regularly cites this self-regulatory program as an effective
and efficient model for industry self-regulation.
While updating of FTC guidelines and self-regulatory
principles are important, a balance must remain between good
government and personal responsibility. On the other hand, we
must not limit the consumers' ability to judge products and
advertisements for themselves, and apply commonsense principles
to their purchasing decisions. If true fraud or attempts to
deceive consumers occur, then the FTC and the self-regulatory
program must act quickly to address the problem.
I look forward to hearing from Mr. Renker and Mr. Congdon
on how the FTC's proposed changes would impact the industry, as
well as possible solutions that might further protect consumers
without limiting an effective advertisement tool. I'm also
eager to hear how their business practices conform to the FTC's
related guidelines, and what disclosures they include in their
advertisements.
Additionally, we've seen an increase in advertisements
related to green and environmentally friendly products, as the
Chairman just stated. The Commission is currently reviewing
established guides on green advertising. I look forward to
hearing more about this progress today.
So, Mr. Chairman, thank you for assembling this outstanding
panel, and I look forward to hearing their testimony.
Senator Pryor. Thank you, Senator Wicker, and I appreciate
your attention to this issue.
Before I introduce the panel, let me just say one last
thing that I should've said during my opening statement, and
that is, when it comes to the area of advertising, you know,
the vast majority of advertisers are the good guys. And I think
what we are most interested in is, How do you find that balance
in going after the bad guys, but also not punishing all the
good guys for doing what they do?
So, we really appreciate this group of witnesses coming
here today. We're going to hear different perspectives on that,
and we're going to talk about some of the challenges that are
going on in the marketplace, and some of the things that the
Federal Trade Commission either can do, or can't do, and talk
about what we can do to help and make this a better
marketplace.
So, let me just run through the panel real quickly, and
then I'll just call on each of you for a 5-minute opening
statement. I really hope that you all can keep it to 5 minutes,
because we're going to have questions, and we'll try to keep
our questions brief, as well.
First we have Mr. David Vladeck. He's the Director of the
Consumer Protection Bureau, Federal Trade Commission. Next, we
have Ms. Sally Greenberg. She's the Executive Director of the
National Consumers League. Next, we have Dr. Urvashi Rangan,
Director of Technical Policy, Consumers Union. Next, we have
Mr. C. Lee Peeler, President and CEO of the National
Advertising Review Council. Next, we have Mr. Greg Renker, Co-
Chairman, Guthy-Renker. And last, and certainly not least, we
have Mr. Jon Congdon, President of Product Partners, LLC.
Mr. Vladeck, would you lead off for us, please?
STATEMENT OF DAVID VLADECK, DIRECTOR, BUREAU OF CONSUMER
PROTECTION, FEDERAL TRADE COMMISSION
Mr. Vladeck. Good morning, Chairman Pryor, Ranking Member
Wicker. I am David Vladeck. I'm the Director of the Bureau of
Consumer Protection at the Federal Trade Commission. I'm
pleased to be here this morning, again this week. I'm glad to
make a repeat appearance so quickly.
The written statement submitted by the Commission reflects
the views of the Commission. My oral statement today, and
responses to questions, reflect my own.
The Commission statement shows a--the broad array of
advertising matters the agency has handled over the past year
or so--deceptive ads for products making health and safety
claims, bogus environmental and green claims, and, these days,
advertising that preys on those suffering because of the
economic downturn. Today, I will focus principally on the FTC
work to protect consumers from false and deceptive ads relating
to products that claim to improve the consumers' health, but do
not do so.
The Internet makes it much easier for marketers of dietary
supplements and other health-related products to sell their
wares. At the same time, these sellers have been emboldened to
make claims not approved by the Dietary Supplement Health and
Education Act, DSHEA, or by the Food and Drug and Cosmetic Act;
make claims that their products actually can prevent, treat, or
cure diseases. These are the so-called ``drug'' claims. These
claims place consumers at great risk, putting their faith in
unproven remedies in lieu of getting established therapies. As
our recent enforcement actions show, the diseases for which
such claims are being made range from the common cold to
cancer.
In a major law enforcement initiative last year, the
Commission brought 11 actions against marketers of products
such as laetrile, black salve, coral calcium, shark cartilage,
in various herbal mixtures, for deceptively claiming that their
products would cure cancer. These cases were the result of an
Internet surf conducted by the FTC, the Food and Drug
Administration, and the Competition Bureau of Canada.
An important adjunct to our law enforcement actions are
consumer education, and we, at the same time, launched a
campaign called ``Cure-ious? Ask.'' to warn consumers about
bogus cancer-cure claims. The Commissioner's partners in this
endeavor include the American Society of Clinical Oncology, the
Cleveland Clinic, and the National Association of Free Clinics,
all of whom distribute the FTC's information to both patients
and medical-care practitioners.
I'd like, with your permission, to take a minute to show
you a short video from that campaign.
[Video presentation.]
Mr. Vladeck. Thank you. This video shows the importance we
place on consumer education. Those who succeed in selling
products based on fear or unsubstantiated claims that they will
treat or cure serious diseases prey on the fear and desperation
of the sick, the elderly, or those without the means to afford
conventional medical care. Law enforcement cases can only take
us part of the way. Consumer education is really vital, here.
Let me quickly discuss some of the other actions that we're
taking. Other enforcement efforts target supplement sellers'
advertising remedy to purport--purported to treat, prevent, or
reduce the risk of diabetes, HIV/AIDS, Alzheimer's disease,
heart disease, and others. Sometimes these products are
marketed through so-called ``infomercials'' or force--false--
fake news broadcasts. And we are quite alert to those kinds of
scams.
It is not often clear to viewers that what they are
watching is a very long sales pitch and not an independent
television program about an amazing breakthrough new
technology. In those cases, we try to obtain redress that not
only takes the--not only takes the product off the market, but
also takes these false advertisements off the air.
Given the skyrocketing rates of obesity and diabetes, we
are also expending considerable resources to get the weight-
loss industry to shed its excess pounds of false or grossly
exaggerated weight-loss claims. Over the last 10 years, we've
brought 77 cases involving weight-loss products. The heavily
promoted weight-loss ingredient du jour changes with
regularity, which complicates enforcement. Each time we bring a
series of cases targeting claims for one kind of purported
remedy, a new one is suddenly discovered. We've sought help
from the media with some media screening ads to eliminate what
we call our ``red-flag claims''; that is, claims that are
always false, such as a statement that a product will cause
weight loss, no matter how much a person eats, without diet and
without exercise.
Many deceptive weight-loss claims are made through consumer
testimonials. For example, a trim and attractive individual
proclaiming, ``I lost 50 pounds in 6 months.'' As demonstrated
in the video we've just shown, patient testimonials are often
used to promote cancer cures.
The Commission's guides concerning the use of endorsement
and testimonials in advertising, last modified in 1980, made
clear that endorsement should not be used to make ad claims
that could not be substantiated if made directly by the
advertiser. In addition, the guides advise that the consumer
testimonial on a key product attribute is, in fact, a
representation that the endorser's experience is typical of
what consumers would generally achieve. The guides say that if
the advertiser cannot substantiate the typicality claim, the ad
can disclose what the general expected performance of the
product would be, or, alternatively, the limited applicability
of the endorser experience.
We've seen that many advertisers take advantage of this
``safe harbor'' by using small-print footnotes or fleeting
superscripts on TV that simply state ``results may vary,'' or
that ``results are not typical.'' But, the Commission's own
research and law enforcement efforts have made clear that so-
called disclaimers of typicality are not effective in
preventing consumer deception. Consumers generally believe that
they, too, will be able to achieve the dramatic, but atypical,
results depicted.
The Commission is now reviewing the guides, as the Chairman
noted. It has sought public comment twice, and has proposed
certain provisions, one of which--and this is the controversial
one--would remove the guides' safe-harbor provision for
disclaimers of typicality.
Now, let me be clear, the proposed revision would not bar
their use, it would, instead, make the advertiser responsible
for ensuring that consumers are not misled by the ad,
considered in its entirety. In other words, the proposed
revision would restore the same substantiation standard that is
applied to all advertisers making similar claims without the
use of testimonial. Simply level the playing field. But, as
might be expected, this proposal has triggered a fair amount of
controversy.
Another proposed revision involves the application of the
guides to consumer-generated media, such as consumer blogs.
Based on the well-established principle that consumers have a
right to know when they are the target of a sales pitch,
proposed new examples in the guide would make it clear that a
connection, such as compensation, between a consumer promoting
the product and the company that sells the product should be
disclosed. This, too, has generated controversy. We will give
consideration--careful consideration to all of the comments
before issuing final guides, hopefully by the end this year.
Let me close by saying this. The FTC's task of monitoring
and pursuing false and deceptive advertising claims has grown
more daunting and more complex over the past few decades. It
will only grow more complicated as new technologies give
marketers more tools, and more sophisticated tools, to sell
their products. But, the Commission's resources are not keeping
pace. Increased resources would provide more effective consumer
protection, especially in this critical area.
Thank you for your time and indulgence. I appreciate it.
[The prepared statement of Mr. Vladeck follows:]
Prepared Statement of David Vladeck, Director,
Bureau of Consumer Protection, Federal Trade Commission
I. Introduction
Chairman Pryor, Ranking Member Wicker, and Members of the
Subcommittee, I am David Vladeck, Director of the Bureau of Consumer
Protection at the Federal Trade Commission (``FTC'' or
``Commission'').\1\ I appreciate the opportunity to appear before you
today to discuss the Commission's efforts to combat fraudulent and
deceptive advertising.
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\1\ The written statement presents the views of the Federal Trade
Commission. My oral testimony and responses to questions reflect my
views, and do not necessarily reflect the views of the Commission or
any individual Commissioner.
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Deceptive advertising cases have always been at the core of the
Commission's consumer protection law enforcement agenda. In 1972,
however, the FTC revolutionized advertising law when it held that an
advertiser violates the FTC Act by making an affirmative product claim
without having a reasonable basis of support for that claim.\2\ In the
37 years since that groundbreaking decision, advertising substantiation
has been a key focus of the Commission's consumer protection mission--
and never more so than at the present time. Developments in science and
technology, as well as in marketing strategies, have led to a
proliferation of products and services and a parallel burgeoning of
advertising claims about how these products will make us thinner,
better looking, and healthier; improve the quality of our lives; make
us richer; and even improve our environment. The substantiation of
advertising claims has itself become a business opportunity, with a
variety of labs and testing facilities--some legitimate and others less
so--offering this service. For the FTC, assessing the adequacy of
support for a claim also has grown more complex, sometimes requiring
analysis by multiple experts.
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\2\ Pfizer, Inc., 81 F.T.C. 23, 62 (1972).
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Likewise, the venues for advertising messages have multiplied. In
the 1970s, FTC staff looked at ads printed in newspapers and magazines,
pasted on billboards, and broadcast by radio and television stations.
Today, we also have cable television, the Internet, cell phones, and
other hand-held electronic devices, with growing opportunities for
techniques like viral and word-of-mouth marketing. It seems that we are
continually learning about new and creative methods to get promotional
messages out to consumers. Consequently, the work of monitoring
advertising for compliance with the law has greatly expanded.
Today, this testimony will focus on a few areas that are of
particular importance to the Commission's current advertising
enforcement agenda: health and safety claims, issues raised by the use
of endorsements and testimonials, environmental marketing or ``green''
claims, and advertising that preys on victims of the economic downturn,
including offers of ``free'' products. Of course, these are not the
only areas of focus in the Commission's advertising program. Other
important FTC priorities, such as advertising to children and
behavioral targeting, are not addressed in this testimony.
II. Health and Safety Claims
Americans have become far more health conscious over the past two
decades. Not surprisingly, the marketplace has seen a steady stream of
new or reformulated products purporting to help consumers get and stay
healthy. Just within the past year, the FTC has challenged advertising
claims for weight loss, cold prevention, improved concentration, and
even the cure of very serious diseases, such as diabetes and cancer.
In a major law enforcement initiative targeting bogus cancer cures,
the FTC announced 11 actions charging that a number of companies and
individuals made false or unsubstantiated claims that their products--
including laetrile, black salve, essiac tea and other herbal mixtures,
coral calcium, and shark cartilage--cure or treat cancer, and, in some
cases, that clinical or scientific evidence proves the products
work.\3\ One seller also was charged with deceptive use of a consumer
testimonial about the product's efficacy because the ad failed to
disclose the connection between the endorser and the company: the
``consumer'' endorser was, in fact, the owner of the company.\4\ Most
of these actions have been resolved through settlements that bar future
false or unsubstantiated claims and require notification to purchasers
that little or no scientific evidence exists to demonstrate product
effectiveness and urging them to consult with their doctors. Four of
the settlements also required a monetary payment. Two cases remain in
litigation before an administrative law judge.\5\ The cancer cure cases
were the result of an Internet surf coordinated among the FTC, the U.S.
Food and Drug Administration (FDA), and the Competition Bureau Canada.
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\3\ See Press release, FTC Sweep Stops Peddlers of Bogus Cancer
Cures (Sept. 18, 2008), available at http://www.ftc.gov/opa/2008/09/
boguscures.shtm.
\4\ Holly A. Bacon d/b/a Cleansing Time Pro., Docket No. C-4238
(Oct. 22, 2008).
\5\ A default judgment was entered in another matter, and one case
was dismissed without prejudice because the individual lives in Mexico
and cannot be served.
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As an important adjunct to the law enforcement initiative, the
Commission launched Cure-ious? Ask, a consumer education campaign to
raise awareness about bogus cancer treatment claims. The Commission's
partners in this effort are the American Society of Clinical Oncology,
the Cleveland Clinic, and the National Association of Free Clinics, all
of whom are disseminating campaign information to both patients and
medical care practitioners. In addition, the campaign is mentioned in
numerous blogs related to health or cancer.
As demonstrated by the Internet research that resulted in the
cancer cure sweep, marketers of dietary supplements and other products
have become very bold in the medical-benefit claims they are making to
sell their goods. Many are going far beyond the basic structure/
function claims that are permitted under the Dietary Supplement Health
and Education Act.\6\ Last year, for example, the Commission settled
actions against two companies marketing supplements purported to
prevent and treat diabetes.\7\ Earlier this year it accepted a
settlement that included $3 million in consumer redress to resolve
charges of false and deceptive claims that an infrared sauna could
treat cancer and that various nutritional supplements could treat,
reduce the risk of, or prevent diseases including cancer, HIV/AIDS,
diabetes, Alzheimer's disease, Parkinson's disease, heart attacks, and
strokes.\8\ The products were sold on the Internet and through print
media, but the primary marketing vehicle was a live, hour-long radio
call-in program called ``The Truth About Nutrition.'' In another case,
filed in 2004, the Commission charged marketers of two supplements with
falsely claiming that their products can prevent or cure cancer, heart
disease, diabetes, and arthritis.\9\ In addition, the defendants were
charged with failing to disclose that the infomercial promoting one of
these products was a paid commercial advertisement, not an independent
television program.
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\6\ Dietary Supplement Health and Education Act of 1994, Pub. L.
No. 103-417, 108 Stat. 4325. ``Structure/function'' claims are
representations about a dietary supplement's effect on the structure or
function of the body for maintenance of good health and nutrition.
These claims are not subject to pre-authorization by the Food and Drug
Administration.
\7\ See Press release, Marketers of Dietary Supplements Ordered to
Halt False Claims About Diabetes Prevention and Treatment (Nov. 6,
2008), available at http://www.ftc.gov/opa/2008/11/glucorell.shtm.
\8\ See Press release, Marketers of Dietary Supplements and Devices
Agree to Pay $3 Million to Settle FTC Charges of Deceptive Advertising
(Mar. 6, 2009), available at http://www.ftc.gov/opa/2009/03/roex.shtm.
\9\ See Press release, Marketers of ``Supreme Greens'' and ``Coral
Calcium Daily'' Come Under Fire from the FTC (June 3, 2004), available
at http://www.ftc.gov/opa/2004/06/dma.shtm.
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Supplements to prevent or treat the common cold have been another
recent target of FTC enforcement activity. The Commission settled
charges that Airborne Health, Inc. disseminated false and
unsubstantiated claims that Airborne effervescent tablets prevent or
treat colds, protect against exposure to germs in crowded environments,
and offer a clinically proven cold remedy.\10\ The settlement required
the defendants to add funds to a consumer redress program already
established to resolve a private class action lawsuit, bringing the
total amount available for consumers to $30 million. The Commission
then turned its attention to Airborne copycat products. The agency is
in litigation against the supplier of a copycat formula widely marketed
under various retailer private label brand names, and last week
announced a settlement with Rite Aid resolving charges that it made
unsubstantiated claims for its Germ Defense products.\11\ A consumer
redress program will coincide with the onset of the cold and flu season
this fall.
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\10\ See Press release, Makers of Airborne Settle FTC Charges of
Deceptive Advertising; Agreement Brings Total Settlement Funds to $30
Million (Aug. 14, 2008), available at www.ftc.gov/opa/2008/08/
airborne.shtm.
\11\ See Press release, Rite Aid to Pay $500,000 in Consumer
Refunds to Settle FTC Charges of False and Deceptive Advertising (July
13, 2009), available at http://www.ftc.gov/opa/2009/07/riteaide.shtm.
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In another area important to the health of Americans, the
Commission has expended substantial resources to get the weight-loss
industry to shed its excess pounds of false or grossly exaggerated
weight loss claims. In fact, over the past 10 years, the Commission has
brought 77 cases dealing with weight-loss claims alleged to be untrue
and/or not substantiated.
The heavily promoted weight-loss ingredient du jour changes with
regularity. Each time the Commission brings a series of cases targeting
claims for one kind of purported remedy, a new one emerges. Hoodia is
one of the current weight-loss remedy favorites, and recently the
Commission charged a supplement seller with falsely claiming its
product was FDA-approved and would suppress appetite sufficiently to
cause a user to cut calorie intake in half, from 2,000 to 1,000
calories per day. In addition, the complaint alleges that the product
itself, supposedly derived from a rare South African plant, is not what
it is purported to be.\12\
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\12\ See Press release, FTC Charges Marketers of `Hoodia' Weight
Loss Supplements With Deceptive Advertising (Apr. 27, 2009), available
at http://www.ftc.gov/opa/2009/04/nutra
ceuticals.shtm. The case currently is in litigation.
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Earlier this year, a Federal district court judge, who had
previously granted an FTC motion for summary judgment, ordered a
payment of more than $15.8 million and issued a permanent injunction
against sellers of three supplements. Two of the substances were
promoted as the equivalent of prescription weight-loss products and
touted as causing a 19 percent loss in total body weight, while a third
product was extolled as a remedy for erectile dysfunction.\13\ In
addition, the court ordered the defendants' medical expert to pay
$15,454 for his deceptive endorsement of one of the weight-loss
products.
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\13\ See Press release, Court Rules in Favor of FTC in National
Urological Group Case; Orders Marketers of Thermalean, Lipodreme, and
Spontane-ES to Pay More Than $15 Million (Jan. 15, 2009), available at
www.ftc.gov/opa/2009/01/nug.shtm. The case is currently on appeal.
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In an order enforcement action brought by the Department of Justice
on behalf of the FTC, home shopping channel QVC agreed to pay $6
million for consumer redress, with an additional $1.5 million in civil
penalties, to settle allegations that it violated a prior FTC
order.\14\ QVC was charged with making false and unsubstantiated
claims, on 200 of its programs, for weight-loss pills, food bars, and
shakes, as well as energy claims for its Bee-Alive supplement concocted
from a substance secreted by bees.
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\14\ See Press release, QVC to Pay $7.5 Million to Settle Charges
that It Aired Deceptive Claims (Mar. 19, 2009), available at http://
www.ftc.gov/opa/2009/03/infomercials.shtm.
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The Commission considers its work in the dietary supplement and
weight-loss area to be a high priority. Obesity is epidemic in the
United States, causing a dramatic increase in related diseases, such as
diabetes. False claims engender false hopes of an easy solution and may
deter consumers from making necessary serious efforts to get their
weight under control. Marketers using such claims simply prey on the
hardships people face when they need to lose weight.
Health claims are becoming more prevalent in food marketing, and
therefore, the FTC is giving increased scrutiny to food advertising. In
April, Kellogg Company agreed to settle charges that its advertising--
appearing in print and on TV, the Internet, and packages--falsely
claimed that a breakfast of Frosted Mini-Wheats was shown clinically to
improve children's attentiveness by nearly 20 percent when compared to
children who ate no breakfast.\15\ The case provides a lesson to
advertisers on the importance of careful and accurate portrayal of
research findings when they are transformed into advertising claims.
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\15\ See Press release, Kellogg Settles FTC Charges That Ads for
Frosted Mini-Wheats Were False (Apr. 20, 2009), available at http://
www.ftc.gov/opa/2009/04/kellogg.shtm.
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Finally, a notable case in the health and safety area was announced
in June. A major U.S. alcohol supplier agreed to settle FTC charges
that it deceptively claimed a caffeinated alcohol drink would enable
users to remain alert when consuming alcohol.\16\ The unsubstantiated
claims--which appeared in print ads, Web videos, and other Internet
advertising--fueled the common but erroneous perception that mixing
alcohol and caffeine helps people stay alert when drinking. Obviously,
this kind of deceptive claim is of concern given the many ways people
can and do injure themselves and others if they misjudge their alcohol
intake.
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\16\ See Press release, Constellation Brands Settles FTC Charges
That Ads for `Wide Eye' Caffeinated Alcohol Beverage Were Deceptive
(June 10, 2009), available at http://www.ftc.gov/opa/2009/06/
consbrands.shtm.
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III. Endorsements and Testimonials in Advertising
Based on the prevalent--and sometimes deceptive--use of third-party
endorsements in advertising, and after receiving extensive public
comment on the issues, the Commission, in 1980, adopted Guides to
assist advertisers in using endorsements in a lawful and non-misleading
way.\17\ Broadly defined, endorsements and testimonials encompass any
advertising messages that consumers are likely to believe reflects the
honest opinion, beliefs, findings, or experience of a party other than
the sponsoring advertiser. Endorsements should not contain express or
implied representations that would be deceptive, or could not be
substantiated, if made directly by the advertiser. In addition, the
1980 Guides advised that a consumer testimonial on a key product
attribute would be interpreted as representing that the endorser's
experience is typical of what consumers generally will achieve. If the
advertiser did not have substantiation to support this claim of
typicality, the advertisement should disclose either what the generally
expected performance of the product would be in the depicted
circumstances or the limited applicability of the endorser's experience
to what consumers can expect to achieve. With respect to endorsements
by experts, the Guides advised that the expert must in fact have the
qualifications he or she is represented to possess, and the endorsement
must be supported by the appropriate exercise of that expertise. In
addition, connections between endorsers and product sellers should be
disclosed if they would not reasonably be expected by the audience and
might affect the credibility of the endorsement.
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\17\ Guides Concerning the Use of Endorsements and Testimonials in
Advertising, 16 C.F.R. Part 255. Guides are not rules; rather they are
advisory in nature--informing businesses and others how the Commission
would seek to apply Section 5 of the FTC Act, 15 U.S.C. 45, to
specific representations and conduct. As such, they provide the basis
for voluntary compliance with the law by advertisers.
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As part of its ongoing process of reviewing all of its rules and
guides, the FTC initiated review of the Endorsement Guides in 2007.\18\
Based on comments received in response to that first Federal Register
notice, as well as its own independent research, the Commission
proposed revisions to the Guides in late 2008.\19\ The staff is
analyzing comments received in response to those proposed changes and
formulating final recommendations to the Commission. The process has
elicited some strongly held views from those who submitted comments.
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\18\ 72 Fed. Reg. 2214 (Jan. 18, 2007).
\19\ 73 Fed. Reg. 72,374 (Nov. 28, 2008).
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The 1980 Guides were adopted in a world that was quite different
from the one in which advertisers and marketers promote their goods and
services today. The Guides were created to cover endorsements and
testimonials in print media and 30- or 60-second radio or television
commercials. Although the basic principles of the Guides remain valid,
the specific applications and examples were not developed, obviously,
within a context of program-length infomercials, Internet advertising,
word of-mouth or viral marketing, and consumer blogs. In 1980, the
advertiser always disseminated the advertisement. With the advent of
advertiser-promoted consumer blogging, the advertiser is not always
disseminating the endorsement, although it certainly expects to profit
from the message.
Moreover, the Commission's enforcement history with false or
deceptive advertising using consumer endorsements, as well as its own
research, have made it increasingly clear that in one key aspect--
disclaimers of typicality--the Guides are not working as intended to
prevent consumer deception. The misuse of testimonials and endorsements
has been particularly prevalent in the promotion of weight-loss
products, as described in the FTC staff's 2002 report, Weight-Loss
Advertising: An Analysis of Current Trends.\20\ A review of 300 weight-
loss ads revealed that two-thirds used consumer testimonials, and those
testimonials rarely described realistic achievements, instead
proclaiming extraordinary weight loss. Of the ads featuring
testimonials, 30 percent reported weight losses exceeding 70 pounds,
while 20 percent reported losses of more than 100 pounds. In many
instances, the testimonials reported results that, in all likelihood,
are not achievable--e.g., weight loss of nearly one pound daily for two
or more weeks. With few exceptions, advertisers did not disclose the
actual weight loss consumers could expect to achieve with the
product.\21\ Furthermore, the usual disclaimers--e.g., ``results may
not be typical'' or ``your results may vary''--did not adequately
inform consumers that the reported weight losses were, at best,
outliers or extreme cases.
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\20\ The Report is available at http://www.ftc.gov/bcp/reports/
weightloss.pdf.
\21\ The current Endorsement Guides provide that if an advertiser
does not have substantiation that the experience described by an
endorser is representative of what consumers generally will achieve,
the advertiser can either clearly and conspicuously disclose: (1) what
the generally expected performance would be in the depicted
circumstances, or (2) the limited applicability of the endorser's
experience to what consumers can generally expect to achieve, i.e.,
that the depicted results are not typical. With regard to the latter
option--disclosing that the depicted results are not typical--the FTC
report found that only 36 percent of the testimonial ads contained any
disclosure regarding the atypicality of the advertised results, and
only 25 percent of those disclaimers were conspicuous or proximate to
the testimonials. Often the disclaimer was buried in a fine-print
footnote or flashed as a video superscript too quickly to be read.
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The Commission has also conducted consumer research regarding the
messages conveyed to consumers through consumer endorsements and the
effect of disclaimers of typicality. These reports were placed on the
public record in connection with the request for comments on the
Endorsement Guides. In general, the research showed that even with
prominent disclaimers of typicality--in fact more prominent than is
usually the case in actual ads--significant numbers of consumers
believed that at least half of product users would achieve results
similar to those stated in the ads. By contrast, disclosure of actual
expected results with the product significantly altered consumer
expectations that the endorser's experience was representative of what
others could achieve.
When it promulgated the Endorsement Guides, the Commission clearly
intended that advertisers usually would accompany atypical result
testimonials with disclosure of the generally expected results.\22\
However, as documented by the 2002 report, this has not been the
practice. The testimonial of a slim individual in a bathing suit that
``I lost 50 pounds in 6 months with X's weight loss pills'' likely
conveys to the consumer that other users of the product will achieve
similar results. If the advertiser cannot substantiate that claim, a
fine print or fleeting superscript disclosure of atypicality is
unlikely to cure the deception--as demonstrated by the Commission's
research. For this reason, the Commission has proposed removing the
``safe harbor'' for disclaimers of typicality. However, the proposal
does not bar the use of these disclaimers--as some comments have
suggested--but merely makes the advertiser responsible for ensuring
that consumers are not misled by the ad in its entirety. In other
words, advertisers who use such disclaimers would be subject to the
same standards, under Section 5 of the FTC Act, as advertisers making
similar claims without use of testimonials. As might be expected, this
was one of the most controversial of the proposed revisions.
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\22\ 45 Fed. Reg. 3870, 3871 (Jan. 18, 1980). Generally, a
disclaimer of typicality alone probably will not be considered
sufficient to dispel the representation that the experience is typical.
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Another controversial proposed revision involves the application of
the Guides to consumer-generated media. The proposed revisions include
several new examples using such media. These examples are based on the
general principle, applicable to other advertising, that consumers have
a right to know when they are being subjected to a sales pitch. A
material connection between a consumer promoting a product and the
company that makes the product might affect the weight or credibility
of the consumer endorsement, and therefore should be disclosed.
Admittedly, the issues are difficult and complex, and the Commission
will give careful consideration to all of the comments received before
it issues revised Endorsement Guides sometime later this year.
IV. Environmental Marketing Claims
In the past few years, there has been a proliferation of
environmental marketing. Businesses in various industry sectors are
proclaiming the ``green'' attributes of their products and services,
and several major retailers have launched their own green product
lines. Consumers have become increasingly concerned about the
environmental impact of the products they use. Green claims can help
them make better choices--but only when those claims are true and
adequately substantiated. Therefore, the FTC has launched its own green
initiative, including review of its Green Guides \23\ and law
enforcement actions targeting false or deceptive green claims.
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\23\ Guides for the Use of Environmental Marketing Claims, 16
C.F.R. Part 260.
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The Commission's Green Guides are the centerpiece of the agency's
environmental marketing program.\24\ The Guides help marketers avoid
making green claims that are ``unfair or deceptive'' in violation of
the FTC Act.\25\ The Guides also describe how to substantiate certain
green claims and explain how consumers understand commonly used
environmental claims, such as ``recyclable'' and ``biodegradable.'' In
response to the explosion of green marketing in recent years, the
agency initiated a review of its Green Guides to ensure that they are
responsive to today's marketplace.\26\
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\24\ The Commission issued the Guides in 1992 to address confusion
surrounding the meaning and proper use of proliferating green claims.
57 Fed. Reg. 36363 (Aug. 13, 1992). The Commission revised the Guides
in 1996 and in 1998. 61 Fed. Reg. 53311 (Oct. 11, 1996); 63 Fed. Reg.
24240 (May 1, 1998).
\25\ 15 U.S.C. 45(a).
\26\ 72 Fed. Reg. 66091 (Nov. 27, 2007).
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To develop a robust record upon which to base its guidance, the
Commission also held a series of public workshops on emerging green
marketing issues, bringing together representatives from industry,
government, consumer groups, environmental organizations, and the
academic community to explore the marketing of carbon offsets and
renewable energy, green packaging claims, and claims for green building
and textiles.\27\ The Commission sought additional public comment in
connection with each workshop \28\ and solicited consumer perception
data on consumer understanding of green claims. Because little consumer
perception data was submitted, the Commission plans to conduct its own
research.\29\ This study will focus on consumers' understanding of
particular green marketing claims, such as ``eco-friendly,''
``sustainable,'' and ``carbon neutral.'' \30\
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\27\ Information about the review, including the workshop
transcripts and written comments, is available online at www.ftc.gov/
green.
\28\ 72 Fed. Reg. 66094 (Nov. 27, 2007); 73 Fed. Reg. 11371 (Mar.
3, 2008); 73 Fed. Reg. 32662 (June 10, 2008). The comments are
available at http://www.ftc.gov/os/comments/greengudes
regreview/index.shtm.
\29\ See 74 Fed. Reg. 22396 (May 12, 2009) (requesting comment on
the FTC's consumer perception study, as required by the Paperwork
Reduction Act).
\30\ Because many currently used green claims, such as
``sustainable'' and ``carbon neutral,'' were not common when the
Commission last revised the Guides, FTC staff also is reviewing the
state of green marketing claims by conducting an Internet surf to
analyze the nature and incidence of particular claims. FTC staff plans
to issue its findings in the near future.
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The Commission is actively prosecuting companies making deceptive
green claims. The latest enforcement actions charged three companies
with disseminating false and unsubstantiated claims that their
products, such as disposable plates, wipes, and towels, were
``biodegradable.'' \31\ According to the complaints, the companies
could not substantiate that their ``biodegradable'' products would
decompose into elements found in nature within a reasonably short
period of time after customary disposal,\32\ because the substantial
majority of solid waste is disposed in landfills, incinerators, and
recycling facilities--disposal methods that do not afford the
conditions to allow decomposition. Two of the cases have settled, with
orders that bar deceptive ``degradable'' product claims, as well as
other environmental claims not supported by competent and reliable
scientific evidence. A third case is in administrative litigation.
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\31\ See Press release, FTC Announces Actions Against Kmart, Tender
and Dyna-E Alleging Deceptive `Biodegradable' Claims (June 9, 2009),
available at http://www.ftc.gov/opa/2009/06/kmart.shtm.
\32\ See 16 C.F.R. 260.7(b).
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In addition, the Commission has brought two Federal court actions
against marketers of ``miracle'' devices advertised to dramatically
increase gas mileage in ordinary cars. Earlier this year, the FTC filed
a case alleging that the defendant falsely advertised in major
magazines that its Hydro-Assist Fuel Cell could boost automobile gas
mileage by at least 50 percent and ``turn any vehicle into a hybrid.''
\33\ Last year, the FTC won a contempt action against another defendant
for falsely advertising that its NanoDetonator would allow ordinary
passenger cars to harness the power of nuclear fusion, thereby
eliminating the need for gasoline.\34\ In both cases, the Commission
charged that the claims for the devices violate basic scientific
principles. Through litigation, the Commission is seeking to halt
unsubstantiated gas savings claims and reimburse consumers who have
purchased the devices.
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\33\ FTC v. Dutchman Enterprises, LLC, et al., No. 2:09-cv-00141-
FSH (D.N.J. Jan. 14, 2009) (granting stipulated injunction order).
\34\ FTC v. Five Star Auto Club, Inc. et al., No. 99-CV-1693
(S.D.N.Y. Feb. 23, 2009) (order granting temporary restraining order to
be converted to a preliminary injunction).
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V. Economic Assistance Claims
Offers that are too good to be true, such as help obtaining
government grants, get-richquick plans, promises of new jobs or
business opportunities, and free gifts attract a great deal of consumer
interest, but may also serve as traps for the most vulnerable and
unwary consumers--especially during challenging economic times. As part
of a collaborative law enforcement sweep with other agencies, dubbed
Operation Short Change, the Commission recently filed multiple lawsuits
targeting businesses that preyed on financially vulnerable
consumers.\35\
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\35\ The Operation Short Change law enforcement sweep included 15
FTC cases, 44 law enforcement actions by the Department of Justice, and
actions by approximately 13 states and the District of Columbia.
---------------------------------------------------------------------------
In one action, the defendants were charged with bilking hundreds of
thousands of consumers into paying $300 million for get-rich-quick
systems, marketed through nationwide infomercials and websites with
promises that substantial amounts of money could be earned through real
estate transactions and Internet businesses.\36\ According to the
complaint, a system, called ``John Beck's Free & Clear Real Estate
System,'' consisting of CDs, DVDs and written materials that sold for
nearly $40, was advertised as enabling consumers to earn thousands of
dollars by purchasing homes at local government tax sales ``free and
clear'' for just ``pennies on the dollar'' and re-selling them at large
profits. One featured consumer endorser claimed she made a profit of
more than $50,000 in 3 months. Purchasers were automatically enrolled
in a 30-day free-trial membership program, supposedly affording them
access to seminars and advisors. Unknown to many consumers, however,
the ``free trial'' was actually a continuity program, and they were
subject to recurring automatic and unauthorized charges every month.
Consumers also found the financial promises of the program to be empty
ones.
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\36\ Economic Downturn (July 1, 2009), avail Down at n Scammers
Trying to Take Advantage of the http://www.ftc.gov/opa/2009/07/
shortchange.shtm.
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The FTC also filed a lawsuit against related business entities that
allegedly pretended to be affiliated with Google, using trade names
such as Google Money Tree and Google Pro, and peddled low-cost home
business opportunity kits.\37\ The defendants' websites advertised that
the kits would enable consumers to earn over $100,000 in 6 months by
simply filling out forms and running Internet searches on Google and
Yahoo. The complaint alleged that the defendants tricked consumers into
divulging debit or credit card information, for supposedly nominal
shipping and handling charges, but then used the account information to
charge them a recurring monthly fee for a membership program. The court
granted the FTC's request for a temporary restraining order to halt the
defendants' practices.
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\37\ Id.
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In addition, the FTC has cracked down on companies making bogus
claims that they can assist consumers in obtaining grants from the
government and other sources.\38\ For example, the Commission obtained
a temporary restraining order against a company that launched robocalls
telling consumers they were qualified to receive grants to help them
overcome their financial problems. Consumers were directed to visit
particular websites, which referred them to yet another website that
charged a fee.
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\38\ Id.
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Finally, ``free gift'' offers are always enticing, but often are
not what they appear to be. In late 2007 and early 2008, the FTC
settled actions against three companies charged with promising
consumers free gifts, including iPods, flat screen televisions, and
store gift cards, but failing to live up to these promises.\39\ Online
advertising and spam e-mail misled consumers into believing they had
won a contest, earned a gift for correctly answering a trivia question,
or were otherwise eligible for a valuable ``free'' prize. Consumers who
took the bait by visiting the websites to which they were directed
quickly learned that their ``free'' gift was available only if they
participated in a series of sponsor offers. These offers were tiered so
that inexpensive ones appeared first, giving consumers the impression
that the desired gift could be obtained for a minimal expenditure. By
the time consumers arrived at the last tier of offers, they discovered
that only by purchasing hundreds of dollars worth of goods, or by
committing to a car or home loan, could they actually obtain their so-
called ``gift.'' The FTC settlements required the companies to post
clear and conspicuous disclosures of the true costs of the ``gifts,''
and also required the payment of $3.75 million in combined civil
penalties for violations of the CAN-SPAM Act.\40\
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\39\ See Press releases, ValueClick to Pay $2.9 Million to Settle
FTC Charges (Mar. 17, 2008), available at http://www.ftc.gov/opa/2008/
03/vc.shtm; Online Advertiser Settles FTC Charges. ``Free'' Products
Weren't Free; Settlement Calls for $200,000 Civil Penalty (Jan. 30,
2008), available at http://www.ftc.gov/opa/2008/01/media.shtm; Major
Online Advertiser Settles FTC Charges. ``Free'' Gifts Weren't Free;
Settlement Calls for $650,000 Civil Penalty (Nov. 28, 2007), available
at http://www.ftc.gov/opa/2007/11/free.shtm.
\40\ The CAN-SPAM Act of 2003, 15 U.S.C. 7701-7713, prohibits
deceptive sender and subject lines in commercial e-mail and provides
consumers the right to opt out of future commercial e-mail campaigns.
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VI. The FTC Advertising Enforcement Program
Thirty years ago, the Commission's ad monitoring program primarily
involved perusing major publications and viewing story boards for
advertisements on the television networks. Today, of course, the
Commission staff has additional marketing venues to track, as well as
far more sophisticated means at its disposal to identify false and
deceptive advertising. The Internet has caused a vast increase in the
amount of advertising, but it has also facilitated the task of
monitoring ads to detect issues and problems. Internet surfs--where
staff members search for particular kinds of product claims--are
conducted on a regular basis. In addition, the FTC's Consumer Response
Center was established in 1997 to handle and respond to complaints and
inquiries. The CRC staff receive, respond to, and collect information
from the thousands of consumer and business complaints or inquiries
received each week. The complaints are made available to FTC staff and
other law enforcement agencies in the U.S. and abroad through the
Consumer Sentinel Network, a secure online database that includes
complaints received not only by the FTC, but also by other selected
government agencies and non-governmental entities. The Network is
accessible only to law enforcement agencies, and about 1,700 such
organizations in the U.S., Canada, and Australia are members. The
Network has enabled the Commission to join forces with its law
enforcement partners to bring multiple actions at one time to address a
particular problem.
At one time, most advertising cases were brought as administrative
proceedings. Violators of administrative orders could be subject to
civil penalties through Federal district court enforcement actions
brought by the Department of Justice on the FTC's behalf. With the
development of the Commission's fraud program during the 1980s,
however, the agency relied increasingly on its authority pursuant to
Section 13(b) of the FTC Act \41\ to initiate its own actions in
Federal district court seeking preliminary and permanent injunctions,
as well as consumer redress or disgorgement of ill-gotten gains. The
Federal court option is not limited to cases of blatant fraud, but is
being used increasingly for advertising substantiation actions.
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\41\ 15 U.S.C. 53(b).
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VII. Conclusion
The areas of focus described above--health and safety claims,
endorsements and testimonials, environmental benefit claims, and
economic assistance claims--are current and future priorities for the
Commission's advertising program. As noted at the outset, the task of
monitoring and pursuing false and deceptive advertising claims has
grown larger and more complex over the past few decades. Significantly,
however, the Commission's resources to tackle deceptive advertising, as
well as the other important consumer issues addressed by the agency's
Bureau of Consumer Protection, have not increased enough. The FTC has a
highly competent and dedicated staff that is used to being asked to do
more with less. However, increased resources would provide more
effective consumer protection.
Self-regulatory programs, such as those initiated and ably
administered by the National Advertising Division/National Advertising
Review Council of the Council of Better Business Bureaus are a welcome
adjunct to the FTC's advertising enforcement program, and clearly their
work has served to lighten the load for the Commission. With respect to
deceptive weight-loss claims, the FTC has enlisted the help of the
media to screen advertising. It published a guide describing seven
weight-loss product claims that should raise ``red flags'' because they
are always false (e.g., a claim that one can lose weight without diet
or exercise).\42\ Former Chairman Muris and former Commissioner Leary
met with media members and asked them to refuse to run ads making the
``red flag'' claims. While there was initial resistance to the
suggestion, some media members have responded to the challenge, and
there was a significant decline in those particular claims.\43\ The
``red flags'' initiative was a step in the right direction, although
obviously it has not solved the problem of deceptive weight loss
advertising. Much more needs to be done by both the industry and the
media.
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\42\ FTC, Deception in Weight-Loss Advertising Workshop: Seizing
Opportunities and Building Partnerships to Stop Weight-Loss Fraud
(2003), available at http://www.ftc.gov/os/2003/12/
031209weightlossrpt.pdf.
\43\ FTC Staff Report, Weight-Loss Advertising Survey (2005),
available at http://www.ftc.gov/os/2005/04/
050411weightlosssurvey04.pdf.
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Thank you for providing the Commission the opportunity to appear
before the Subcommittee to describe the agency's advertising
enforcement program.
Senator Pryor. Thank you.
Ms. Greenberg?
STATEMENT OF SALLY GREENBERG, EXECUTIVE DIRECTOR, NATIONAL
CONSUMERS LEAGUE
Ms. Greenberg. Yes, good morning, Mr. Chairman and Senator
Wicker, Members of the Subcommittee, who we hope to see in a
few moments.
My name is Sally Greenberg. I'm Executive Director of the
National Consumers League. And we greatly appreciate the
opportunity to be here with you this morning to talk about
consumer protections against deceptive advertising.
Over more than--over our more than 100-year history, the
National Consumers League has been a fierce critic of
misleading advertisement, deceptive labeling, and other anti-
consumer marketing practices. And, in fact, going back so far
as the 1904 St. Louis World's Fair, volunteers from our
organization demonstrated to fairgoers that canned green beans,
touted by food processors as labor-saving home improvements,
were adulterated with green dye.
Our testimony today will focus on proposed revisions to the
Federal Trade Commission's guides concerning use of
endorsements and testimonials in advertising, which are
currently under final review.
TV-watchers turning on their sets at nearly any time of the
day or night have grown accustomed to advertisements claiming
that, by taking a pill or eating a certain type of submarine
sandwich, they can expect to shed pounds and achieve a desired
weight. Other advertisements trumpet that, with a minimal
investment and only part-time work from home, consumers can
achieve financial wealth in as little as 6 months. These
advertisements are typically accompanied by small print quickly
flashed at the bottom of the screen, indicating that, quote,
``results are not typical,'' end quote, or that ``your results
may vary.''
Advertisers rely on these techniques for one simple reason:
they work. For example, in 2005, when Subway, the sandwich
empire, briefly ceased using everyman Jared Fogel in its
advertising, same-store sales decreased 10 percent until Fogel
was reinstated. This is not an isolated incident. An FTC study
found that 65 percent of weight-loss advertisements used
consumer testimonials, and 42 percent contained before-and-
after pictures.
Expert testimonies are similarly effective at swaying
consumer opinion. Many weight-loss ads attempt to bolster their
credibility by depicting doctors or scientists using phrases
like ``clinically tested'' or ``studies confirm.'' A July 2006
Temple University study examined how teenage girls interpret
weight-loss advertisements, and found that most of these girls
viewed with trust the image of a white-coated doctor.
The National Consumers League supports the proposed FTC
guides and the changes to those guides--improvements, in our
view--regarding consumer and expert endorsements. We believe
that the overuse of consumer testimonials and expert
endorsement has crossed the line from aggressive marketing to
outright deception.
The Commission has also proposed changes to the guides that
would require bloggers compensated by advertisers to disclose
their relationship. In addition, bloggers--and the advertisers
who pay them--would be explicitly held liable for false or
misleading representations made through an endorsement on a
blog or other platform.
We acknowledge that protecting consumers online presents
special challenges for regulators. However, we fear that
injecting advertiser dollars into consumer-to-consumer blog--
into the consumer-to-consumer blogosphere, without proper
guidelines, could give rise to rampant consumer deception. We
believe that consumers have a right to know if a product
endorsement is paid for by a company. Therefore, we support the
FTC rules requiring disclosure when a blogger is compensated
for voicing his or her opinions on a particular product or
service.
Finally, we believe that consumer trust has been endangered
by the misuse of video news releases, or VNRs. VNRs are
corporate-, government-, or nonprofit-produced videos made to
resemble news segments, but, in reality, are advertisements
designed to promote a product, service, public image, or point
of view of the entity that funded them. The typical newsroom
may have 10--may be sent 10 to 15 VNRs every single day. We
find the rampant lack of disclosure by broadcasters that they
are being paid to air VNRs extremely troubling. We support
vigorous FCC enforcement of relevant regulations in this area.
And we would further argue that the FTC should continue
investigating whether the producers of VNRs, themselves, should
be subject to terms of the FTC guides on endorsement and
testimonial advertising.
In conclusion, the proliferation of advertising has made
pitches for products and services an inescapable fact of modern
life. The FTC has rightfully sought to ensure that
advertisements are accurate and not deceptive.
Finally, we should be assured that a free and independent
media is not passing off advertisements as hard news. NCL fully
supports the FTC's review of, and proposed changes to, the
guides, and we further urge the Commission to undertake an
investigation of the applicability of the guides to the use of
video news releases.
Thank you, Mr. Chairman, Senator Wicker, for giving the
National Consumers League this opportunity to comment on the
impact of advertising trends on consumer protection. We applaud
you for your proconsumer leadership in this area, and look
forward to answering any questions you may have.
[The prepared statement of Ms. Greenberg follows:]
Prepared Statement of Sally Greenberg, Executive Director,
National Consumers League
Introduction
Good morning, Mr. Chairman, Mr. Ranking Member and members of the
Subcommittee. My name is Sally Greenberg and I am the Executive
Director of the National Consumers League (NCL).\1\ I appreciate this
opportunity to appear before the Subcommittee on Consumer Protection,
Product Safety, and Insurance of the Senate Commerce, Science, and
Transportation Committee to discuss the issue of consumer protections
against deceptive advertising.
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\1\ The National Consumers League, founded in 1899, is America's
pioneer consumer organization. Our non-profit mission is to protect and
promote social and economic justice for consumers and workers in the
United States and abroad. For more information, visit www.nclnet.org.
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Over its more than one hundred years of existence, NCL has been a
fierce critic of misleading advertising, deceptive labeling, and other
anti-consumer marketing practices. At the 1904 St. Louis World's Fair,
NCL volunteers demonstrated to fairgoers that canned green beans touted
by food processors as a labor-saving home product were adulterated with
green dye. More recently, NCL's advocacy prompted the FDA in 2001 to
investigate misleading claims by tomato juice manufacturers that their
products were ``fresh.'' \2\ In 2008, we supported legislation
introduced by Senator Bill Nelson of Florida aimed at curbing the use
of deceptive advertising practices in the prepaid calling card
industry.\3\ Earlier this year, in response to an NCL letter to the
agency, the Food and Drug Administration (FDA) warned General Mills to
stop printing misleading health claims on box of their Cheerios
cereal.\4\
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\2\ National Consumers League. ``National Consumers League Asks FDA
to Crack Down on Companies that Violate Labeling Laws,'' Press Release.
October 11, 2001. Online: http://www.nclnet.org/freshpr1001.htm.
\3\ National Consumers League. ``Testimony of Sally Greenberg,
Executive Director, National Consumers League on S. 2998, the `Prepaid
Calling Card Consumer Protection Act of 2008' Before the U.S. Senate
Commerce, Science and Transportation Committee.'' September 10, 2008.
Online: http://www.nclnet.org/news/2008/prepaid_testimony_09102008.htm.
\4\ National Consumers League. ``National Consumers League Applauds
FDA for Warning General Mills for Misbranding Cheerios,'' Press
Release. May 13, 2009. Online: http://www.nclnet.org/news/2009/
fda_cheerios_05132009.htm.
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NCL believes that knowledgeable consumers can participate more
fully and effectively in the marketplace. The more consumers know about
their rights and responsibilities with regards to the goods and
services they buy, the better they are able to protect themselves and
make sound purchasing decisions. For this reason, it is imperative that
the advertising consumers receive is accurate and transparent.
In 2008 alone, more than $141 billion was spent on advertising in
the United States, despite reduced corporate advertising budgets
dragged down by the souring economy.\5\ Omnicom Group Inc., one of the
largest advertising agencies in the world, last year made nearly $1.7
billion in profits on more than $13.3 billion in revenues.\6\ The
advertising business is a large industry in its own right and its
vitality affects virtually every other sector of the economy. NCL
believes that the advertising industry plays a special role in both
informing and persuading consumers to buy products and services. The
reliability and transparency of advertising therefore requires special
scrutiny by policymakers to ensure that the industry meets its
obligations to the public.
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\5\ TNS Media Intelligence. ``TNS Media Intelligence Reports U.S.
Advertising Expenditures Declined 4.1 Percent in 2008,'' Press Release.
May 4, 2009. Online: http://www.tns-mi.com/news/05042009.htm.
\6\ Omnicom Group Inc. 2008 Annual Report. Online: http://
files.omnicomgroup.com/
ReportManagement/UploadedFiles/128836875883178750.pdf.
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Our testimony today will focus on proposed revisions to the Federal
Trade Commission's (FTC) Guides Concerning Use of Endorsements and
Testimonials in Advertising (``the Guides''),\7\ proposed by the
Commission in November 2008 and currently under final review.\8\ In
addition, we will discuss the issue of video news releases (VNRs), and
whether the use of such advertising should fall under the jurisdiction
of the Guides.
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\7\ Available online at http://www.ftc.gov/bcp/guides/endorse.htm.
\8\ Federal Trade Commission. ``16 C.F.R. Part 255: Guides
Concerning the Use of Endorsements and Testimonials in Advertising:
Notice of Proposed Changes to the Guides, and Request For Public
Comments,'' November 21, 2008. Online: http://www.ftc.gov/os/2008/11/
P034520endorsementguides.pdf.
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Deceptive Testimonial Ads and Bogus ``Expert'' Endorsements Distort the
Market
Consumers turning on their televisions at nearly any time of the
day or night have grown accustomed to advertisements claiming that
simply by taking a pill or eating a certain type of submarine sandwich
they can expect to shed pounds and achieve a desired weight. Other
advertisements trumpet that with a minimal investment and only part-
time work from home, consumers can achieve financial wealth ``in as
little as 6 months!'' \9\ These advertisements are typically
accompanied by small print, quickly flashed at the bottom of the screen
indicating that ``results are not typical,'' or that ``your results may
vary.'' Such advertisements frequently feature a ``noted expert'' on
the topic of the advertisement, often clothed in a trust-inducing white
medical coat.\10\ It does not take a Ph.D. to realize that through the
use of such examples of success--which tend to be outliers if they
exist at all--and the reputations of supposed ``experts,'' advertisers
are attempting to persuade consumers that they can easily and quickly
get rich or resemble the attractive person on the screen. The
advertising industry does not generally release data on the
effectiveness of testimonial advertisements. However, the impact of one
of the most famous testimonial advertising pitchmen, Subway's Jared
Fogle, is illustrative. When Subway briefly ceased using Fogle in its
advertising in 2005, same store sales decreased by 10 percent until
Fogle was reinstated.\11\ Clearly, Jared's crediting of his substantial
weight loss to Subway's sandwiches in the company's advertisements had
a large impact on consumers' preference for Subway.
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\9\ Federal Trade Commission. ``FTC Cracks Down on Scammers Trying
to Take Advantage of the Economic Downturn,'' Press Release. July 1,
2009. Online: http://www.ftc.gov/opa/2009/07/shortchange.shtm.
\10\ See: Hobbs, Renee et al. ``How adolescent girls interpret
weight-loss advertising,'' Health Education Research. Pg. 723. July
2006. Online: http://her.oxfordjournals.org/cgi/reprint/21/5/719: ``By
contrast, only 17 percent of participants in our study recognized the
persuasive technique of claiming that products are `doctor-endorsed and
scientifically proven'. Many weight-loss ads attempt to bolster their
own credibility by depicting `doctors' or `scientists' using phrases
like `clinically tested' or `studies confirm. . . .' This strategy is
particularly manipulative considering that most consumers rarely
question the advice of their doctors. Most girls in this study viewed
with trust the image of the white-coated doctor, seeing it as a sign of
credibility. For example, one participant said, `If I had a weight
problem, then I'd probably be more confident in that product because
the specialist was in it.' ''
\11\ York, Emily Bryson. ``Subway Can't Stop Jonesing for Jared,''
Advertising Age. Pg.1. February 18, 2008.
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We believe that the proliferation of such ads \12\ clearly
highlights three factors pertaining to deceptive advertising. First,
the present ubiquity of the use of such testimonials indicates that the
spirit of the FTC's Guides--last revised in 1980--has been thoroughly
circumvented by advertisers. Second, such advertising practices are
proving to be very successful for advertisers and their clients. Were
this not the case, advertisers would be unlikely to invest in the
broadcast of such ads. Third, consumers are being harmed by these ads.
Indeed, the two FTC staff reports \13\ \14\ examining this issue
concluded that current efficacy and typicality disclosure practices
(the ``results not typical'' and ``your results may wary,''
disclaimers) were insufficient in adequately warning consumers that
they were not likely to enjoy the same results highlighted by these
testimonials.
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\12\ According to Cleland, Richard et al. [Weight-loss advertising:
An Analysis of Current Trends. Federal Trade Commission. September
2002.], weight-loss advertisements in magazines more than doubled
between 1992 and 2001. Among the magazines sampled, 65 percent of
weight-loss advertisements utilized consumer testimonials and 42
percent contained before-and-after pictures.
\13\ Hastak, Manoj and Mazis, Michael. ``The Effect of Consumer
Testimonials and Disclosures on Ad Communication for a Dietary
Supplement,'' Report submitted to the Federal Trade Commission.
September 30, 2003. Online: http://www.ftc.gov/reports/endorsements/
study1/report.pdf.
\14\ Hastak, Manoj and Mazis, Michael. ``Effects of Consumer
Testimonials in Weight Loss, Dietary Supplement and Business
Opportunity Advertisements,'' Report submitted to the Federal Trade
Commission. September 22, 2004. Online: http://www.ftc.gov/reports/
endorsements/study2/report.pdf
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To address this issue, the Commission has proposed several
revisions to Sections 255.2 (``Consumer Endorsements'') and 255.3
(``Expert Endorsements'') of the Guides.
First, the proposed revisions to Section 255.2 would require that
advertisers who use consumer testimonials be able to substantiate
claims made by the endorsement. The revision would prohibit the use of
consumer testimonials as a replacement for clear scientific evidence
when quantifiable claims are made in the advertisement. The proposed
revisions would also make the use of the ``results not typical,''
``your results may vary,'' and similar disclaimers insufficient to meet
disclosure requirements. Instead, the proposed guideline would require
``clear and conspicuous'' notification of the results that consumers
can generally expect to see from the use of the advertised product or
service. Second, the Commission's proposed changes to Section 255.3
would clarify two important requirements--(i) that the experts
endorsing a particular product or service must be qualified and have
exercised their expertise in their decision to endorse and (ii) that
endorsements made by experts ``certified'' by advertiser-connected
institutions are inherently deceptive.
NCL applauds these proposed changes. The threat of consumer
deception is high when an advertisement promises extraordinary results
and such claims are reinforced by ``experts'' or ``people just like
you.'' Given the troubling increase in the use of such tactics in
advertisements, we support action by the FTC to clamp down on these
practices via the proposed revisions to the Guides. We believe that
approval of the revisions to Sections 255.2 and 255.3 of the Guides
would encourage advertisers to be more truthful in their advertising,
help ensure that consumers get more accurate information from
advertisements, and ultimately increase consumer confidence in the
marketplace.
Enhanced Blogger Disclosure Requirements Strengthen Consumer
Confidence
The Commission has proposed significant revisions to section 255.1
(``General Consideration'') and 255.5 (``Disclosure of Material
Connection'') of the Guides to address the growing problem of bloggers
and other users of social media platforms failing to disclose
compensatory relationships in product and service reviews and
endorsements.\15\ The proposed changes to the Guides would require
bloggers compensated (either monetarily or in the form of free samples
or gifts) for their roles in advertising campaigns to disclose the
relationship. In addition, bloggers and the advertisers who pay them
would explicitly be held liable for false or misleading representations
made through an endorsement on a blog or other online platform.
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\15\ This practice is commonly known as ``blogola,'' a variation on
the term ``payola,'' an illegal business practice in which record
companies compensate radio stations in return for airplay of the
company's artists.
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Blogging, by its nature, is a communications medium open to any
consumer with access to the Internet. This openness has encouraged an
unprecedented explosion in consumer discourse about practically every
category of consumer product available. The inherently open qualities
of the blogosphere suggest that the inclusion of bloggers as parties
subject to the revised guidelines could present unique challenges for
regulators.
There are those who argue that the blogosphere is and should remain
a place where consumer-bloggers are free to say what they wish without
fear of government regulators or of law enforcement holding them liable
for their statements. Another argument against the change is that the
blogosphere is inherently self-regulating and thus not in need of
government oversight. Those making such arguments frequently cite cases
where the credibility of blogs reviewing products was reduced when it
was discovered that the bloggers had not disclosed a financial benefit
given in return for a review. A third argument against the revisions
maintains that given the dynamic nature of the social Web--where anyone
can voice an opinion on a blog or via Twitter, Facebook, or other
platform--it will be practically impossible for the FTC to effectively
administer the proposed rule.
We reject all these arguments in the name of consumer protection.
As with any emerging means of communication, ``rules of the road'' must
govern to protect against deceptive advertising. With regard to the
first critique of the proposed changes, we believe that the need for
consumer confidence online outweighs any potential ``chilling effect''
that FTC review might produce. Indeed, reasonable disclosure
requirements could provide much needed guidance to bloggers unfamiliar
with the ethics guidelines commonly adhered to by professional
journalists in product reviews produced for ``traditional'' media
outlets.
Second, consumer groups generally do not believe that self-
regulation works in highly competitive, financially lucrative marketing
environments. The effectiveness of the blogosphere and other social
media platforms as consumer empowerment tools is built on trust.
Without trust, such tools lose their value to consumers. The increasing
frequency of revelations that bloggers did not disclose that they were
compensated for their endorsements suggests that the self-regulatory
model is breaking down in the face of relentless monetary inducements
from the advertising industry.\16\ Marketers all-too-frequently
fabricate ``spontaneous'' Internet ``buzz'' around products and
services by paying for endorsements by influential bloggers and other
``e-celebrities.'' With each new news story of such incidents, the
trust that has made the blogosphere such a powerful consumer tool is
eroded. Given that the blogosphere is growing more sophisticated and
influential by the day, and that advertisers are investing significant
resources in trying to tap that influence, we believe that FTC
guidelines and oversight in this area are appropriate and needed.
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\16\ For example, in 2006, Microsoft sent laptop computers
preloaded with its Vista operating system to bloggers on highly-
trafficked blogs, asking them to review the then-new operating system.
The company only vaguely encouraged the bloggers to disclose that they
had received the laptop computer as a gift. See: Solis, Brian. ``This
is Not a Sponsored Post: Paid Conversations, Credibility & the FTC,''
TechCrunch.com. May 24, 2009. Online: http://www.techcrunch.com/2009/
05/24/this-is-not-a-sponsored-post-paid-conversations-credibility-the-
ftc/.
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Third, we acknowledge that there are practical difficulties in
policing the ever-changing social Web. Any consumer with an Internet
connection can quickly and easily create a blog, Facebook Page, and/or
Twitter account dedicated to reviewing products and services. We
believe that the practical difficulties of policing blogs and other
social media platforms can be addressed by focusing enforcement on the
most egregious violators of the proposed guidelines and the advertisers
that provide them with compensation. The FTC has similarly voiced an
intention to narrowly target its enforcement efforts at repeat
offenders of the proposed guidelines.\17\
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\17\ Yao, Deborah. ``FTC plans to monitor blogs for claims,
payments,'' Associated Press. June 21, 2009. Online: http://
tech.yahoo.com/news/ap/20090621/ap_on_hi_te/us_tec_bloggers
_freebie_disclosures.
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Over time, consumers have developed a healthy skepticism of
traditional print, radio, and television advertising. Properly enforced
disclosure requirements in Federal statutes and regulations help build
consumer confidence in the marketplace, enabling them to make informed
decisions about the products and services they purchase for themselves
and their families. NCL supports FTC rules requiring disclosure when a
blogger is compensated for voicing his or her opinions on a particular
product or service. Consumers have a right to know if a product
endorsement is paid for by the company. We do not want to see the viral
spread of word-of-mouth recommendations enabled by social media
technologies give rise to rampant consumer deception.
Video News Releases Damage Consumer Trust in the Fourth Estate
We believe that the same consumer trust that has helped consumer-
oriented blogs flourish has been endangered by the use of video news
releases (VNRs) that purport to be news but are really paid
advertising.
VNRs are corporate, government, or non-profit-produced video made
to resemble ``news'' segments but which in reality are advertisements
designed to promote a product, service, public image, and/or point of
view of the client(s) who funded them.\18\ While exact figures on the
scope of VNR use are difficult to obtain, one of the largest VNR
production agencies, Medialink Worldwide, reported that it produced
approximately 1,000 VNRs per year.\19\ The typical newsroom may have
ten to fifteen VNRs available per day.\20\
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\18\ Center for Media and Democracy. ``Fake TV News: Frequently
Asked Questions.'' Online: http://www.prwatch.org/fakenews/faq.
\19\ Barstow, David and Stein, Robert. ``Under Bush, a New Age of
Prepackaged TV News,'' The New York Times. March 13, 2005. Online:
http://www.nytimes.com/2005/03/13/politics/
13covert.html?_r=1&pagewanted=print&position=.
\20\ Center for Media and Democracy. ``Fake TV News: Frequently
Asked Questions.'' Online: http://www.prwatch.org/fakenews/faq.
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It is easy to see why VNRs are so popular with advertisers and news
organizations. First, newsrooms are under increasing pressure to
provide expanded news coverage but lack additional staff resources to
make that happen. The use of VNRs is a time and cost-saving way to
address this pressure. In addition, news agencies are under enormous
financial strain due to the proliferation of news outlets competing for
advertising dollars. VNRs bring in additional revenue beyond ads sold
to fill the time between news segments. Production and airtime costs
typically range from $25,000 to $75,000 for a VNR, making them
significantly cheaper than traditional advertisements. The cost for a
traditional 30-second advertisement can easily run into the tens of
millions of dollars.\21\ VNRs also benefit from the implicit trust that
consumers place in news programs. The average viewer places a healthy
dose of skepticism on claims made in traditional ads. In contrast,
media stories are expected to be free of conflicts of interest. The
lack of disclosure of the source and payments involved in the airing of
VNRs preys on that trust and deceives consumers.
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\21\ Mandese, Joe. ``The Art of Manufactured News,'' Broadcasting &
Cable. March 27, 2005. Online: http://www.broadcastingcable.com/
article/156596-The_Art_of_Manufactured_News.
php.
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Regulation of VNRs has traditionally been the purview of the
Federal Communications Commission (FCC). The FCC exercised this
authority in 2007 when it fined Comcast repeatedly for failing to
disclose VNRs that aired on its CN8 channel promoting products from
companies like General Mills, Allstate, and Trend Micro.\22\
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\22\ The FCC's 2007 Notice of Apparent Liability for Forfeiture in
this case is available online at http://fjallfoss.fcc.gov/edocs_public/
attachmatch/DA-07-4075A1.pdf
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As a consumer organization, NCL finds the rampant lack of
disclosure by broadcasters that they are being paid to air VNRs
extremely troubling. We support vigorous FCC enforcement of relevant
regulations in this area. We would further argue that the FTC should
consider investigating whether the use of VNRs should be subject to the
terms of the FTC's Guides. In particular, we believe that when a VNR
airs on a media program without sufficient disclosure, it could
constitute a de facto endorsement of the product or service advertised
by the news organization, thus invoking Section 255.4 requirements. In
addition, we would urge the Commission to investigate whether a news
organization's failure to disclose their compensatory arrangement with
the providers of VNRs should invoke sanctions under Section 255.5 of
the Guides.
Conclusion
The proliferation of advertising has made pitches for products and
services an inescapable fact of modern life. Recognizing the singular
power of the advertising industry to affect consumer attitudes and
behavior, the FTC has rightfully sought to ensure that advertisements
are accurate and not deceptive. When the Guides were last revised in
1980, the means for disseminating advertisements were largely limited
to traditional print, radio, and television outlets. Cable television
was in its infancy and the World Wide Web was virtually unknown. In the
nearly three decades since, cable television has exploded in variety
and viewership and Internet advertising has reached dizzyingly complex
heights of sophistication. Both trends were fueled by an increasing
abundance of advertising dollars. Given these facts, NCL fully supports
the FTC's review of and proposed changes to the Guides. In addition, we
would urge the Commission to undertake an investigation of the
applicability of the Guides' rules to the use of video news releases.
Now more than ever, consumers need to be assured that products and
services advertised to them deliver on what they promise. Where extreme
results are promoted, typical results should be clearly disclosed. When
an ``expert'' unequivocally stakes her or his reputation on an
endorsement of a product, consumers should be informed whether that
person is qualified to make the statement. Readers of a product review
on a blog or Facebook page deserve to know if the reviewer's opinion
may have been swayed by a free gift or a hefty check. Finally, citizens
of a democratic society should have confidence that the media is not
passing off advertisements as hard news.
Thank you, Mr. Chairman, for giving the National Consumers League
this opportunity to comment on the impact of advertising trends on
consumer protection. We applaud you for your leadership in this area
and look forward to answering any questions you or other members of the
Subcommittee may have.
Senator Pryor. Thank you. You timed that perfectly, by the
way. Thank you.
[Laughter.]
Senator Pryor. We love that about you.
[Laughter.]
Senator Pryor. Dr. Rangan?
URVASHI RANGAN, Ph.D., DIRECTOR OF TECHNICAL POLICY, CONSUMERS
UNION OF U.S. INC.
Dr. Rangan. Good morning Chairman Pryor, Ranking Member
Wicker, and Members of the Subcommittee. We thank you for
providing us the opportunity to come before you today to share
our perspective on deceptive marketing in advertising of green
products.
My name is Urvashi Rangan. I am the Technical Director of--
I am the Director of Technical Policy for Consumers Union.
We're the nonprofit publisher of Consumer Reports magazine. I'm
an environmental-health scientist, and I provide technical
support to our research and testing, and help develop advice
and policy recommendations on advocacy issues, on a wide array
of environmental and public health issues.
We believe there are both broad and specific challenges in
defining a fair green marketing practice, and we believe that
the government, including the Federal Trade Commission, has a
very important role to play in guiding and protecting this
marketplace.
Consumers are faced with a dizzying array of labels, some
of which are very specific and discrete, like ``no
phthalates,'' to those that are vague and not well defined,
like ``natural'' and ``green.'' This marketplace is incredibly
confusing for consumers, and filled with a lot of noise that
can be misleading and, at times, deceptive. Too often,
consumers are presented with claims that sound better than they
are, like ``carbon-negative,'' or have minimal standards, like
``natural,'' on virtually every product, and--as well as claims
that have no standards, like ``nontoxic.'' And yet, consumers
misinterpret those claims to have much more meaning than they
actually do.
Consumers can also choose products with meaningful labels.
And there are many certified label programs out there. The
administration of the certification can vary by model. There
are public, private, nonprofit, for-profit models. That
information is of interest to some consumers, and it is not of
interest to other consumers. But, a consumer cannot tell, by
just looking at a product, whether a claim is certified or not,
whether it is verified or not; and therefore, it is impossible
for them to make accurate assessments of ``green'' claims in
the marketplace at the point of purchase.
The Federal Trade Commission's role in reducing deceptive
marketing practices, we feel, is necessary, and should be
broadened, and, at the same time, a baseline for good marketing
practices and minimum standards for common claims, we believe,
should be established.
Consumers Union has been rating the meaning of ``green''
labels for consumers for the last 10 years. We measure the
value of green claims over conventional production practices in
order to help consumers make the most informed decisions.
We look at six main criteria. And there are more details in
the written testimony, but they are: Is the label meaningful?
Is it verified? Is it consistent in meaning from product to
product? Are the standards transparent? And are--is information
about the labeling organization and verification organization
transparent? Is there an opportunity for stakeholder input? And
finally, is the label independent? That is, were the decisions
made, for both the standards and the verification, free from
conflict of interest?
Conflicts of interest do not automatically render an
advertising or marketing claim false or misleading; however,
when conflicts of interest are not fully disclosed,
transparency is compromised, in a way that can undermine even
the most truthful claims. And that applies to testimonial
advertisements, marketing, as well as label claims on products.
Based on our experience of rating and monitoring label
claims in the green marketplace, we have identified a few
trends. Comprehension and accessibility are challenges for all
green claims. Whether specific or broad, the maintenance and
evolution of those standards over time also need to be
addressed.
We have several recommendations that we would like to see
made, both at the government and the Federal Trade Commission
level. We think that eliminating or better defining meaningless
claims in the marketplace is necessary, so that claims like
``natural,'' ``carbon-negative,'' ``nontoxic,'' ``free-range,''
which have little or--little definition and no verification,
really should either be banned, or specifics should be required
to back those claims up.
The type of verification, or lack thereof, should also be
disclosed on a product, so that, if it is, indeed, a voluntary
claim, not a certified claim, that consumers are able to
distinguish between those types of claims on a particular
product.
We also think that baseline practices should be set for all
green marketing claims. We think that there does need to be a
floor established, in terms of transparency. And we think that,
in order to reduce confusion between claims, like ``natural''
and ``organic,'' for example, the more information consumers
have at the point of purchase, the better they will be able to
make those distinctions. At the current time, consumers are not
able to adequately differentiate between those two claims. And
yet, there is a large discrepancy in the meaning between them.
We think that there should be mandatory ingredient
labeling. The cleaning product industry is currently not
required to disclose ingredients. Green claims that are made on
those products cannot be verified, either by the consumer or by
a group like Consumer Reports, without basic product
information on the package. We do not believe green claims
should be used on top of that.
We also think that, where there are green government
labeling programs, that the FTC has a role to play in ensuring
the high meaning, and consistency of that meaning, across
product categories. So, for example, where certain phthalates
have been banned by the Consumer Product Safety Improvement
Act, perhaps those phthalates, under similar exposure
scenarios, should also be banned for children's personal-care
products like baby wipes. So, we would like to see more
consistency brought into the application of those particular
standards across the board.
And finally, we do think that it is important for the FTC
to have a role in supervising the variety of different claims
coming out of the various different agencies. So, whether it's
``FDA'' and ``natural,'' whether it's ``USDA'' and ``free-
range,'' we believe that the Federal Trade Commission has a
larger role to play in ensuring that there is a baseline, and a
consistent application and meaning, behind the claims that are
overseen by the government itself.
Thank you.
[The prepared statement of Dr. Rangan follows:]
Prepared Statement of Urvashi Rangan, Ph.D., Director of Technical
Policy, Consumers Union of U.S. Inc.
Good morning Chairman Pryor, Ranking Member Wicker, and
distinguished members of the Committee. Thank you for providing me the
opportunity to come before you today to share our perspective on
deceptive marketing and advertising of green products. I am Urvashi
Rangan, Ph.D. and Director of Technical Policy for Consumers Union,
non-profit publisher of Consumer ReportsTM. I am an
Environmental Health Scientist and provide technical support to our
research and testing and help develop advice, policy recommendations
and advocacy initiatives on a wide array of environmental and public
health issues. I also direct Consumer Reports' Greenerchoices.org, a
free, public-service website, which disseminates wide ranging reports
on the green marketplace, including an eco-labels data base, that gives
consumers our evaluation and ratings of more than 150 environmental
claims including those found on food, personal care products and
cleaners. We also advocate for stronger labeling standards across a
wide range of products.
There are both broad and specific challenges in defining fair green
marketing practices, and we believe that the government, including the
Federal Trade Commission, has a very important role to play in guiding
and protecting this marketplace. Consumers are faced with a dizzying
array of labels--some which are very specific and discreet, like ``no
phthalates'' to those that are vague and not well defined, like
``natural'' and ``green.'' This marketplace is incredibly confusing for
consumers and filled with a lot of noise that can be misleading and, at
times, deceptive. Too often, consumers are presented with claims that
sound better than they are (e.g. ``carbon negative''), have minimal
standards (e.g. ``natural'') or no standards (e.g. ``non-toxic'').
In contrast, consumers can also choose products with meaningful,
certified labels. Of the certified label programs, the administration
of the certification can vary, including by public, private, non-profit
or for-profit organizations. Some claims have comprehensive standards
behind them with robust verification (certified labels) while many do
not (general claims). But it is difficult to impossible for consumers
to make accurate assessments of green claims in the marketplace on
their own. The Federal Trade Commission's role in reducing deceptive
marketing practices therefore is necessary and should be broadened. At
the same time, the baseline for good marketing practices and minimum
standards for common claims should be established.
Consumers are currently faced with a huge learning task that better
guidance and regulation could reduce. Requirements for transparency in
standards and product information, such as ingredient lists, should be
standard for all products being sold with green claims. Government
regulation and guidance would be helpful in maintaining universal
requirements for credible green marketing practices.
Consumers Union has been rating the meaning of green labels for
consumers for the last 10 years. We measure the value of green claims
over conventional production practices in order to help consumers make
the most informed purchasing decisions, especially where the may be an
associated premium. The following is list of criteria and typical
questions or issues we consider, with the first two (meaning and
verification) as the most important:
1. Meaning: How meaningful is the label (with ratings of
highly, somewhat, or not)
--are the standards credible?
--have the standards progressed over time?
--does the claim accurately represent the standards
behind it?
2. Verification: Is the label verified (rating: yes/no)
--many general claims are on the market which are not
verified but impossible for consumers to know
--types of verification can range from none to onsite
inspection
3. Consistency: In meaning across products (rating: yes/no)
--does the claim mean the same thing across products
that it is found?
4. Transparency: Are the standards and labeling organization
information publicly available? (rating: yes/no)
--is enough product information disclosed so claims can
be analyzed effectively?
5. Stakeholder input: Were the standards developed with broad
public and industry input? (rating: yes/no)
6. Independence: Were the decisionmaking bodies within both the
standard-setting and verification arms free from conflict of
interest? (rating: yes/no)
Conflicts of interest do not automatically render an advertising or
marketing claim false or misleading. However, when conflicts of
interest are not fully disclosed, transparency is compromised in a way
that can undermine even the most truthful claims.
In evaluating claims, we provide consumers with comparative rating
snapshots. Examples of these comparisons can be seen in a recent
presentation made to the American National Standards Institute on
sustainable product standard setting.\1\
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\1\ Rangan, Urvashi. A purchaser's/consumer's perspective on
setting product standards for sustainability. American National
Standards Institute meeting, April 8, 2009.
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Based on our experience of rating and monitoring label claims in
the green marketplace, we have identified a few trends. Comprehension
and accessibility are challenges for all green claims. Whether specific
or broad, the maintenance and evolution of standards over time must be
addressed. Consistency in the meaning of standards across different
product categories can also be a challenge. And the ability to respond
and incorporate emerging marketplace issues, especially around health
and/or safety (e.g., bisphenol-A (``BPA''), phthalates, mad cow) is
another hurdle for label standards and programs. All of these
challenges increase with the complexity of a label.
Yet, the green-ness or sustainability of a product is a complex
subject. There are often many attributes to a product's sustainability
like the social, environmental, and health aspects from production
through to disposal. Green marketing claims can be very specific or
very broad (with the latter being much more difficult and challenging),
requiring more consumer education to launch and more maintenance
(standards development and evolution) to keep current over time--which
then requires additional consumer education. For these reasons,
consumers tend to better understand labels that are discreet and can
better decipher the meaning of a group of discreet labels compared to a
single large multi-attribute label. When a set of sustainability
practices has become defined and well understood, then combining labels
or standards can be accomplished more coherently. For example, there
are labels that address well-understood and defined practices, like
energy or water usage, and newer, innovative labels that may need to
compete in the marketplace until well understood or defined practices
evolve, like the elimination of toxic materials within a given
production system or manufacturing that allows for the easiest
recycling.
Consumers Union believes that the government could help provide
guidance for green marketing in five main areas including:
1. Eliminating or better defining meaningless label claims in
the marketplace.
Voluntary, general claims like ``natural,'' ``carbon negative,''
``non-toxic,'' or free range,'' have little to no
definition and no verification. There should be minimum
meaningful requirements that these claims should have to
meet (and perhaps disclosures about what the claims do not
represent). The type of verification or lack thereof should
also be disclosed on the product. In some cases, like
``natural,'' the term is so vague and difficult to
establish standard meaning that prohibiting the use of
certain label claims may also be necessary toward reducing
green noise in the marketplace.
2. Setting baseline practices for all green marketing claims.
We believe that the best labels meet all of our criteria for good
labeling. However, there should be a floor established that
ensures full transparency in the marketing and advertising
of green products regarding both who is making the claim
and how the product achieves the claim. In order to reduce
confusion between claims like ``natural'' and ``organic,''
consumers should be able to differentiate between voluntary
claims made by the manufacturer from claims that require
independent certification. The Federal Trade Commission's
Green Marketing Guide should be updated to discourage or
ban the new wave of vague, unsubstantiated claims in the
marketplace, including those that are loosely addressed by
other agencies, like ``natural.'' Other considerations for
baseline practices could include verification requirements,
accreditations (oversight of programs), and meeting minimum
claim definitions.
3. Mandate disclosure of basic product information.
Without basic information on products, it is impossible for
consumers to make informed purchasing decisions, especially
where additional green marketing claims are being made. We
believe that all product categories, like cleaners, should
be required to disclose ingredient information. There
currently is no requirement for cleaning labels to disclose
all ingredients. Despite this fact, the green cleaning
marketplace is filled with claims. We also believe that
plastic recycling numbers should be required to be listed
so consumers can recycle effectively and better
differentiate among plastics offered, including consumers
who wish to avoid BPA from polycarbonate plastic (e.g., #7
PC should be required).
4. Hold government labeling programs to high standards with
regard to practice and standard setting and ensure independence
of standards and verification.
Government-based green labeling programs should be independent,
and represent input from a broad range of stakeholders.
They should also have rigorous standards that evolve over
time. Where a premium is associated, for example with
Energy Star or Design for the Environment, standards
required should have to go beyond the minimum requirements
set by law and only a certain small percentage of a product
market should be awarded premium labels. As more of a
production market can meet a particular claim, it should
signal an indication that standards need to improve.
Marketing claim programs should have appropriate
accreditations, oversight and adequate verification. There
should be full transparency of information including how
individual products are certified, whether all product
ingredients are disclosed to allow consumers to make the
most informed purchasing decisions, especially where they
are paying a premium. This is not currently the case for
EPA's Design for the Environment label. The label should
have consistency in meaning across product types, which may
require multiple agency coordinated efforts when product
label claims straddle fall under multiple agency
jurisdictions.
5. Provide consistency in label meaning across jurisdictions.
Where policies lead to laws or regulations in one product area--
like the removal of certain phthalates from children's
products under the jurisdiction of the U.S. Consumer
Product Safety Commission--Congress should take steps to
ensure that other products, especially those with similar
exposure profiles, also are required to meet similar
standards. For example, in the case of certain phthalates,
children's personal care products, such as lotion and baby
wipes, should not be allowed to contain those specific
phthalates. These steps would impart consistency to laws
based upon important health and safety policy
recommendations. In addition, it also will help to level
the playing field for the use of green claims.
We appreciate the work of this Subcommittee to identify and address
problems and challenges in green marketing. Consumers Union believes
that the Federal Trade Commission has an important role in maintaining
fairness in this market and that decisions made in one sector could
benefit claims made in another.
I thank the Chairman, Ranking Member Wicker, and the Committee for
the opportunity to testify, and I look forward to any questions you may
have.
Senator Pryor. Thank you.
Mr. Peeler?
STATEMENT OF C. LEE PEELER, PRESIDENT AND CEO,
NATIONAL ADVERTISING REVIEW COUNCIL AND EXECUTIVE
VICE PRESIDENT, ADVERTISING SELF-REGULATION COUNCIL
OF BETTER BUSINESS BUREAUS
Mr. Peeler. Chairman Pryor and Senator Wicker, on behalf of
the National Advertising Review Council and the Council of
Better Business Bureaus, I want to thank you for inviting me to
appear before you today to discuss the ongoing work of the
industry's system of self-regulation.
Advertising self-regulation plays a critical role as part
of a comprehensive system of preventing misleading advertising.
That system includes enforcement at the Federal level by the
Federal Trade Commission, enforcement at the State level by
State attorneys general, private litigation under the Lanham
Act, active prescreening of ads by broadcast networks, and
local advertising review by many of the 125 bureaus that
compose the National Better Business Bureau system.
There are three main self-regulatory investigative bodies
in the self-regulatory process. Each of the these investigative
units monitors advertising, hand-reviews complaints from
consumers and competitors to identify potentially misleading
advertising. If challenged, the advertising claims are--
determined to be misleading or unsubstantiated, advertisers are
required to halt such claims in future advertising and correct
all material, including packaging and labeling.
And I would particularly commend the staff for the seating
today. The--our position, right between the consumer groups and
the government and the industry, is exactly the place where
self-regulation falls on that spectrum.
[Laughter.]
Mr. Peeler. And, in fact, the significant number of our
cases do come from companies that question the truth and
accuracy of a competitor's advertising claims. Competitors are
in a unique position to monitor the marketplace and their
competitors' claims. Competitive challenges are a very healthy
sign of self-policing in the marketplace. It's good for the
consumers, it's good for competitors, and it's good for the
integrity of advertising.
In other instances, discrete industries have come forward
to support broader scrutiny of advertising. For example, the
Council of Responsible Nutrition has initiated a special
program for the monitoring of dietary supplement advertising,
which has increased the number of cases the self-regulation
body is able to bring. And, as you will hear more about today,
the Electronic Retailing Association has funded a special
program devoted to examining claims made in electronic
retailing ads.
Although compliance with self-regulatory decisions is
voluntary, the program has a voluntary compliance rate of well
over 90 percent. This is a remarkable record and a strong
indication of the industry's support for self-regulation.
Advertisers that refuse to participate in the process, or
refuse to comply with the recommendations to modify or
discontinue their ads, are referred to the appropriate
government agency, usually the Federal Trade Commission.
The advertising self-regulatory system receives strong
support from the FTC. The referral of advertising to the FTC
often prompts the advertiser to either discontinue the claim or
return to the system; in other cases, referrals to the FTC have
resulted in FTC lawsuits, often resulting in the payment of
significant monetary penalties.
There are a number of trends that we see in our competitive
advertising challenges and monitoring cases. One growing area,
as referred to by the previous witness, has been green
marketing cases. Here, building on the FTC's green guides, the
self-regulatory system is building a body of precedent that can
help advertisers avoid misleading or unsubstantiated
advertising claims.
In the current economy, we are also seeing a growing number
of savings claims and value claims coming through the system.
Here again, our decisions give guidance on appropriate
substantiation for these claims. And reflecting the Nation's
aging population, we see a steady number of health and
appearance claims often targeted to the Boomer Market, and we
are active is separating truthful claims from nontruthful
claims.
Our Electronic Retailing Self-Regulation Program, which
monitors direct-response advertising, all electronic media,
including the Internet, reports seeing a growth in questionable
weight-loss claims and in efficacy claims for health products
and dietary supplements. And of particular concern here is the
prevalence of what we call ``affiliate marketing,'' where
you'll see the same exact type of claim being made on what--on
seemingly a host of unrelated Websites. And our recent alert to
consumers about acai berry claims is an example of that.
Also, our BBB system reports a proliferation of claims--of
complaints about free trial-type programs, negative-option
plans, where you're offered a free product, but then are
subject to repetitive billing.
All of our self-regulatory programs are working to examine
advertising in the new media context, including claims on the
Internet, YouTube, and in virtual-reality worlds. In addition,
we continue to see example of paid advertising presented in
formats that can be confused as editorial content. And the most
recent iteration of that is the posting--is the paid-for
posting of reviews on websites for the products without
disclosing that the reviewer is actually an employee of the
company.
In conclusion, the advertising industry has a strong,
longstanding commitment to self-regulation as a tool to foster
high standards of truth and accuracy in advertising. Each year
hundreds of advertisers participate in our system. Hundreds
more scrutinize our decisions. Despite this high level of
support and commitment, there is still significant work to be
done to prevent misleading advertising. And self-regulation has
a very important role in that effort.
Thank you for your time.
[The prepared statement of Mr. Peeler follows:]
Prepared Statement of C. Lee Peeler, President and CEO, National
Advertising Review Council and Executive Vice President, Advertising
Self-Regulation Council of Better Business Bureaus
Thank you for inviting me to appear before you today.
I appreciate the opportunity to describe for the Subcommittee the
ongoing work of the advertising industry's system of self-regulation.
Advertising self-regulation, as described below, monitors and
reviews national advertising in all media to foster high standards of
truth and accuracy. In addition to programs requiring all advertising
to be truthful and accurate, the self-regulatory system maintains
special programs to address claims made in electronic direct-response
advertising and in the advertising of dietary supplements; has a unit
that focuses exclusively on children's advertising, and supports a new
program that addresses concerns about food advertising and childhood
obesity.
For almost 40 years, and with the support of the advertising
industry, these programs have provided expert, impartial, transparent
and accountable oversight of national advertising. The process is
independent and expert, relying on skilled professional staff to
examine advertising claims and substantiation; expeditious, with
decisions normally made in 60 to 90 business days; and efficient,
resolving cases at a fraction of the time and cost of private
litigation or government investigations.
The decisions reached by the investigative units of the self-
regulatory system provide a comprehensive body of guidance that
advertisers regularly consult in constructing advertising claims.
Despite the fact that decisions often require that advertisers modify
or discontinue claims, well over 90 percent of participants voluntarily
comply with our decisions.
In short, the system is a highly effective means of fostering truth
and accuracy in advertising. It has frequently been cited by the
Federal Trade Commission as a model of effective industry self-
regulation and the principles underlying the system's success can be
looked to in deploying self-regulatory efforts in other areas. We are,
for example, using this model to build an accountability program for
the behavioral advertising self-regulatory principles announced earlier
this month.\1\
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\1\ Principles on Collection and Use of Behavioral Advertising Data
Released
http://www.bbb.org/us/behavioral-advertising-principles/
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National Advertising Review Council
The advertising industry's self-regulatory system was created in
1971 when three leading advertising trade organizations--the American
Advertising Federation (AAF), American Association of Advertising
Agencies (AAAA) and Association of National Advertisers (ANA)--together
with the Council of Better Business Bureaus (CBBB), announced a new
alliance to promote truthful and accurate advertising. That alliance,
the National Advertising Review Council (NARC), sets policies and
procedures for advertising industry self-regulation.
In addition to the founding partners, the NARC Board now includes
the chief executives of the Direct Marketing Association, Electronic
Retailing Association and Interactive Advertising Bureau, giving NARC
significant reach throughout the advertising and marketing community.
Administration by the Council of Better Business Bureaus
To ensure the impartiality and independence of the self-regulatory
process, the system is administered by the CBBB. The CBBB is the
network hub of the 125-member Better Business Bureau system in the
United States and Canada, which works to promote trust in the
marketplace.
NARC Self-Regulation Programs
The self-regulatory system includes three investigative units, the
National Advertising Division of the Council of Better Business Bureaus
(NAD), the CBBB's Children's Advertising Review Unit (CARU), and the
Electronic Retailing Self-Regulation Program (ERSP). It also maintains
the National Advertising Review Board, the appellate unit. In addition,
the CBBB provides ongoing oversight and compliance reporting for the
NARC-endorsed Children's Food and Beverage Advertising Initiative
(CFBAI). As exemplified by these programs, NARC has, throughout its
history, adapted its programs to respond to new public and policy
concerns.
National Advertising Division
The National Advertising Division of the Council of Better Business
Bureaus (NAD) was chartered in 1971 in response to concerns about truth
and accuracy in advertising. NAD examines advertising that is national
in scope to assure that it is truthful and that claims are fully
substantiated. NAD opens cases as result of its own monitoring, and in
response to consumer complaints and to challenges filed by companies
that question the truth and accuracy of a competitor's advertising
claims.
Through its decisions, NAD has provided invaluable guidance on
appropriate advertising and advertising claims substantiation in all
forms of national media.\2\ NAD attorneys have examined advertising for
products as diverse as infant formula, over-the-counter medications,
nuclear energy, weight-loss supplements, tires, plastics, consumer
electronics, building supplies and products that claim a ``green'' or
environmental benefit.
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\2\ NAD/CARU/NARB Procedures http://www.narcpartners.org/about/
procedures.aspx.
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In 2008, NAD closed 134 cases, including 98 challenges filed by
companies to their competitors' advertising claims.
Overall, NAD has produced well over 5,000 decisions on the
truthfulness and accuracy of advertising claims, perhaps the Nation's
largest body of advertising decisions.
The Children's Advertising Review Unit
The CBBB's Children's Advertising Review Unit was created in 1974.
CARU sets high standards to assure that advertising directed to
children under 12 is not deceptive, unfair or inappropriate for its
intended audience. The standards take into account the special
vulnerabilities of children, including their inexperience, immaturity,
susceptibility to being misled or unduly influenced, and their lack of
cognitive skills needed to evaluate the credibility of advertising.\3\
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\3\ Self-Regulatory Program for Children's Advertising http://
www.caru.org/guidelines/guidelines.pdf.
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CARU's standards are embodied in principles and guidelines that
were adopted in 1975 and have been periodically updated to address
changes in the marketing and media landscape. In 1996, for example,
CARU added a new section of the guidelines to address concerns about
online data collection practices, and, in 2006, the guidelines were
comprehensively updated and new provisions were added addressing food
advertising, blurring of advertising and editorial content and unfair
advertising practices.\4\
---------------------------------------------------------------------------
\4\ New Food, Beverage Initiative to Focus Kids' Ads on Healthy
Choices; Revised Guidelines Strengthen CARU's Guidance to Food
Advertisers http://www.bbb.org/us/article/672.
---------------------------------------------------------------------------
In 2008, CARU handled 84 cases. About one-third of these cases
focused on provisions of the CARU guidelines governing the collection
of personal information on child-directed websites.
The Electronic Retailing Self-Regulation Program
The Electronic Retailing Self-Regulation Program was developed in
2004 at the request and with the support of the Electronic Retailing
Association--which represents retailers selling goods and services
online, on television and on radio--to monitor advertising claims made
in electronic direct-response marketing, including infomercials, home-
shopping channels, Website advertising and e-mail advertising.
Since its founding, ERSP has examined thousands of hours of
infomercials and thousand of Websites, and issued more than 200
decisions on the core advertising claims made in direct-response
advertising across a broad range of formats, including streaming video
and in the virtual world of Second Life.
Dietary-Supplement Advertising Review Program
In 2007, the NAD, with the support of the Council for Responsible
Nutrition--an association of manufacturers and suppliers of dietary
supplements and their ingredients--expanded its review of advertising
for dietary supplements. That program is aimed at assuring that
advertising claims for dietary supplements, particularly health claims,
are substantiated by scientific evidence. In the past 2 years, NAD has
reviewed advertising for and issued decisions regarding more than 50
separate dietary-supplement products, including Resveratrol, Omega-3
oil, green-tea extract and glucosamine, substantially increasing NAD
oversight in this important area.
National Advertising Review Board
The policies and procedures that govern advertising industry self-
regulation provide advertisers with an automatic right to appeal NAD or
CARU decisions to a review panel of their peers. The procedures allow
challengers to request an appeal.
These appeals are heard by five-member panels of the National
Advertising Review Board (NARB) which is composed of advertisers,
advertising agencies and public members, including academics. NARB
members are nominated for their stature and experience in their
respective fields.
Children's Food and Beverage Advertising Initiative
In 2006, the CBBB worked with its NARC partners and leading food
companies to develop the Children's Food and Beverage Advertising
Initiative--a program that monitors food advertising to children to
assure that participants abide by the terms of their commitments. The
NARC-endorsed and CBBB-led initiative currently has 15 participants. Of
these, four companies have elected not to engage in advertising
primarily directed to children under 12. The other 11 have pledged that
100 percent of their advertisements to children under 12 in measured
media (television, print, radio, and third-party Internet sites) will
be better-for-you foods, as defined by nutrition standards based on
government or other scientific standards.\5\
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\5\ Changing the Landscape of Food an d Beverage Advertising http:/
/www.bbb.org/us/storage/16/documents/CFBAI/ChildrenF&BInit_Sept21.pdf.
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Operation of the Self-Regulatory System
Advertising self-regulation is a fast, effective, industry-
supported system that acts in the interests of both consumers and the
advertising industry. Through monitoring, complaints and competitor-
initiated challenges, the system identifies and expeditiously examines
potentially misleading or unsubstantiated advertising claims and seeks
prompt voluntary correction. Advertisers are required to halt such
claims in future advertising and correct all materials, including
labels, that display the claims at issue in the self-regulatory review.
The self-regulatory system does not impose fines or penalties.
The system is fast and efficient. Our goal is to close each review
within 60 business days. The system is transparent. All decisions--
regardless of the findings--are publicly reported so that the public
and the industry can judge the process.
NAD, CARU and ERSP each have a voluntary compliance rate of 90
percent or better. This is a remarkable record of voluntary compliance
and a strong indication of the industry's respect for the self-
regulatory process.
Companies that refuse to participate in the process or refuse to
comply with recommendations to modify or discontinue advertising claims
are publicly identified and the advertising at issue is referred to the
appropriate government agency, usually the Federal Trade Commission
(FTC).
FTC Support for Self-Regulation
During the nearly 40 years of its existence, the advertising self-
regulatory system has received strong support from the FTC.\6\ The FTC
also has consistently supported Remarks of Commissioner Jon Leibowitz
at The National Advertising Division Annual Conference--September 24,
2007 self-regulation by committing to give a priority to examining
referrals from the advertising self-regulatory process. Referrals to
the FTC of advertisers that refused to participate in the self-
regulatory process have resulted in FTC lawsuits and significant
monetary penalties.\7\
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\6\ ``Truth or Consequences: The FTC Approach to Advertising''
Remarks of Commissioner Jon Leibowitz at The National Advertising
Division Annual Conference--September 24, 2007.
``All of us at the FTC appreciate the NAD's advertising review
work. It is more important today than it has ever been. . . . It really
helps to have an alternative procedure that is quick, fair, and well-
respected.'' http://www.ftc.gov/speeches/leibowitz/
070924bbbremarks.pdf.
The Federal Trade Commission at 100: Into Our Second Century: The
Continuing Pursuit of Better Practices: A Report by Federal Trade
Commission Chairman William E. Kovacic--January 2009.
``Meaningful self-regulation is an important complement to the
Commission's law enforcement efforts--particularly in the area of
deceptive marketing practices. For example, the program administered by
the National Advertising Division/National Advertising Review Council
(``NARC'') arm of the Council of Better Business Bureaus (``CBBB'') has
worked well to obviate the need for Commission action in some
instances.'' http://www.ftc.gov/ftc/workshops/ftc100/docs/
ftc100rpt.pdf.
Self-Regulation in the Infomercial Industry: Deborah Platt Majoras,
Chairman, Federal Trade Commission Before the Electronic Retailers
Self-regulatory Program--April 2006 (Footnote No. 3, listing FTC
statements in support of self-regulation since 1978.) http://
www.ftc.gov/speeches/majoras/060503eraspeech.pdf.
\7\ Court Orders Spammers to Give Up $3.7 Million--http://
www.ftc.gov/opa/2009/07/spear.shtm; Oregano Supplement Marketers Agree
to Pay $2.5 Million to Settle FTC Charges for False Advertising
Claims--http://www.ftc.gov/opa/2008/08/naherb.shtm.
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The FTC's support has been critical to the success of self-
regulation. The self-regulatory process has provided benefits to the
FTC, in turn. Self-regulation quickly and efficiently resolves many
issues that might otherwise come before the agency, thus freeing FTC
resources to focus on consumer fraud and other priority issues. In the
context of truth and accuracy, self-regulation acts as one important
part of an comprehensive system for preventing misleading advertising.
That system includes Federal enforcement by the FTC, enforcement at the
state level by states' attorneys general, private litigation under the
Lanham Act, and active pre-screening of advertising by broadcast
networks.
Advertising Trends
As the advertising industry's principal self-regulatory body, NARC
and the CBBB are positioned to identify trends both in the challenges
filed and in the cases that we monitor. In addition, the 125 bureaus of
the BBB system review advertising in their geographic areas and seek
voluntary correction of misleading claims.
Over the past 2 years, the leading product categories for NAD's
self-regulatory decisions have been food and beverages, dietary
supplements, household products, cosmetics, pet products,
telecommunications services, consumer electronics.
By far the most common issues that we examine are whether claims
about the efficacy or performance of a product are adequately
substantiated, whether the advertised product is superior to its
competition and whether material information, necessary to avoid
misleading consumers, is clearly and adequately communicated.
NAD has experienced an increase in cases involving green marketing
claims, value claims (savings claims from using a particular product or
retailer), health claims and claims for products targeted at the
Nation's aging population. It is important to remember that many cases
are competitive challenges. An increasing number of challenges within
an industry signals that members of an industry are moving proactively
to police themselves, a healthy trend.
The ERSP program, which monitors electronic direct-response
advertising in a variety of media, reports growth in weight-loss
claims, efficacy claims for health products, advertising claims that
state a product's benefits are ``clinically proven,'' claims regarding
``credit rescue'' and work-at-home opportunities and ``affiliate
marketing programs'' in which deceptive claims are made at multiple and
seemingly unrelated websites. Marketing for acaiberry products is a
recent example of this.
All of our self-regulatory programs are working to examine
advertising in a new-media context. Recent cases address claims made in
advertising videos and ``viral'' videos, posted at YouTube, advertising
claims made in virtual worlds, such as Second Life, and through
objective claims in product placements on television.\8\ In addition,
despite longstanding prohibitions, the self-regulatory system continues
to see examples of paid advertising presented in formats that can be
confused as editorial content and the self-regulatory units have issues
decisions addressing such'' blurring'' of advertising and editorial
content.\9\
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\8\ NAD Case #4934, Cardo Systems www.narcpartners.org; ERSP
Photoblocker Spray www.narcpartners.org; NAD Case #4611, Perfect Match
www.narcpartners.org.
\9\ NAD Case #5038, PatentHEALTH www.narcpartners.org; NAD Case
#4677, Renaissance Health Publishing www.narcpartners.org; CARU Case
#4525, Activision www.narcpartners.org.
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BBB Advertising Reviews
Many local BBBs maintain active advertising monitoring programs in
their communities under the BBB Code of Advertising.\10\ BBBs handle
thousands of advertising review cases, including pricing claims,
inadequate disclosures and qualifications, superiority claims, rebates
and warranty and guarantee claims.
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\10\ BBB Code of advertising http://www.bbb.org/us/code-of-
advertising.
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BBBs also work to resolve complaints about business practices and
are in a unique position to identify potential scams--both locally and
nationally--and warn consumers about fraud. BBB scam alerts include
alerts related to acaiberry weight-loss products, Twitter-based money-
making schemes, ``robocalls'' that promise easy credit repair or rescue
and scams related to swine-flu fears.\11\
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\11\ Weight-loss Berry Claiming Oprah Endorsement Makes Wallets
Slim and Consumers Angry, Warns BBB--http://www.bbb.org/us/BBB-Press-
Releases; BBB Warns Against Twitter Money-Making Schemes, http://
www.bbb.org/us/BBB-Press-Releases; BBB, Schumer Warn Consumers of
Robocalls Promising to Lower Their Credit Card Interest Rate--http://
www.bbb.org/us/BBB-Press-Releases; BBB Warns Against Swine Flu Scams:
Scammers are creating their own epidemic of spam e-mails--http://
www.bbb.org/us/BBB-Press-Releases.
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BBBs report geographic variations in the types advertising issues
they see. The Better Business Bureau of Utah, for example, reports a
high number of negative option complaints--low-cost trial offers that
are accompanied by inadequately disclosed monthly billing commitments
at a much higher price, deceptive rebate offers and questionable claims
for nutritional products. The Better Business Bureau of Metropolitan
New York reports a similar increase in ``free trial'' offers followed
by surprising monthly bills, along with advance-fee mortgages and
concern about misleading advertising for apartments. Recently, the New
York BBB worked with the New York State Attorney General to identify
and stop seven electronic retailers who allegedly advertised low prices
for consumer electronics over the Internet and then would not ship
products unless consumers ordered more expensive goods--classic bait
and switch practices transferred to the Internet.\12\
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\12\ AG Reaches Agreement with Seven Electronics Companies in NY,
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Conclusion
The advertising industry has a strong, longstanding commitment to
self-regulation as a tool to foster high standards of truth and
accuracy in national advertising. These CBBB-administered programs
provide an expert, fast and effective mechanism to address concerns
about a wide range of advertising claims, and are supplemented by the
work of BBBs to promote truthful advertising in their communities.
The system represents a substantial benefit to consumers and it has
earned the support of the advertising industry and the FTC.
We work every day to assure, through the quality of our decisions
and clarity of our guidance, that we continue to deserve that support.
Senator Pryor. Thank you.
Mr. Renker?
STATEMENT OF GREG RENKER, CO-CHAIR,
GUTHY-RENKER LLC
Mr. Renker. Thank you, Chairman Pryor, Senator Wicker,
Members of the Subcommittee. My name is Greg Renker. I
appreciate the opportunity to testify today. I'm one of the co-
founders of Guthy-Renker. We're one of the world's largest
direct-response television companies. Starting from scratch, we
have built annual sales of a billion and a half dollars per
year, and we spend up to $200 million a year in advertising.
I've had the privilege and pleasure of serving as Chairman
of what was the National Infomercial Marketing Association. And
I am currently Chairman Emeritus of the Electronic Retailing
Association, the successor to NIMA.
As Chairman of NIMA, I presided over the formation of the
association's self-regulatory program, which currently works
hand-in-hand with Mr. Peeler.
The Electronic Retailing Self-Regulation Program reflects
my firm belief that consumers and our industry benefit from
clear and fair rules enforced, initially, by self-regulatory
action, and, if necessary, action by the Federal Trade
Commission, to ensure that our customers have confidence in the
integrity of direct-response marketers.
I testified on this topic 19 years ago, and many of the
things that I'm hearing and reading are very similar. I
acknowledge that it is more complex, but it's remarkable how
the claims and promises made by marketers have not changed
much.
The success and ongoing growth of the direct-response
industry--and broader advertising industry--is due, in large
part, to the effectiveness of consumer testimonials and
endorsements. I've seen, firsthand over the past 20 years, that
our testimonials provide hope and motivation to our consumers'
lives and well-being, and we are proud of it.
As part of its periodic review of all of its guides, the
Commission has proposed changes to its longstanding standards
for testimonials, with the goal of limiting deception to
consumers. There's no question that those intentions are
laudable, and we share the goals of the Subcommittee and the
Commission for a fair and healthy marketplace, and for
responsible use of endorsements and testimonials.
But we have concerns that the proposed modification could
have negative consequences on both advertising and consumers,
and we think there are more direct and equally effective
solutions to address the concerns the Commission is grappling
with.
Specifically, the basis of the Commission's concern in this
area is the belief that a statement made in a consumer
testimonial, regarding the particular results of an individual
using the product or service being advertised, may be
understood by some consumers as a representation that they can
expect the same result. The existing guides have always allowed
the marketer of a product using a testimonial that ``they may
not be typical,'' to state ``your experience will vary,'' or
similarly disclaim the typicality of the testimonial's
experience. These disclosures have obviously become vary
familiar to all of us over the years.
The Commission has identified a concern with the use of
these typicality disclaimers, because they apparently do not
believe that consumers understand even simple and conspicuous
disclaimers. To address this concern, there is a proposed
modification, which would require marketers to disclose the
average results of consumers that use the product or service.
This cuts to the heart of the matter, I think, of what Mr.
Congdon and I hope to address today, if we have the
opportunity, regarding the consumer averages, because the
current disclaimer language, and ``your results may vary''
attempts to hide it and pop it up quickly and make it disappear
as quickly as possible, we think, is inappropriate and
inauthentic. And we are fully in support of clear, and
unambiguous, and conspicuous, and ubiquitous disclaimers
regarding products.
And I also want to just briefly touch on net impression,
because I think the overall final impression that the consumer
or viewer takes from these programs or commercials is
ultimately what we think matters most, in terms of how they are
presented, how they are disclaimed, how often these disclaimers
run, et cetera.
Finally, and most importantly, I just want to say that I
think we are all singing from the same hymnal here at the
table, because, I know, on behalf of our industry and speaking
for Mr. Congdon, we are completely in support of a strong
Federal Trade Commission, strongly enforcing the guidelines
that have already been in place, and we are anxious to see that
beefed up even more. And we are supportive of additional
resources, because we are competing against marketers who are
making false and misleading claims that they cannot
substantiate. They are causing our costs to rise, not only in
terms of the media that we buy, but in terms of the consumers
we're trying to attract, thus, causing our credibility to
diminish. And we support trying to make a move.
Thank you for giving me the opportunity to speak today.
[The prepared statement of Mr. Renker follows:]
Prepared Statement of Greg Renker, Co-Founder, Guthy-Renker
Chairman Pryor, Members of the Subcommittee, my name is Greg
Renker. Thank you for the opportunity to testify today. I am one of the
co-founders of Guthy-Renker, one of the world's largest direct response
television companies with annual sales of approximately $1.5 billion.
We are known as the leading producer of high-quality commercials and
company-owned products designed for direct response television sales.
We are headquartered in California, but have offices in Europe, Asia
and Australia, and market throughout the world.
I have been active in the direct response industry since the
founding of Guthy-Renker in 1988. I have had the privilege and pleasure
of serving as Chairman of what was the National Infomercial Marketing
Association (``NIMA''), and am currently Chairman Emeritus of the
Electronic Retailing Association, NIMA's successor. In addition, Guthy-
Renker serves on the Board of Directors of the Direct Marketing
Association. As Chairman of NIMA, I presided over the formation of the
Association's self-regulatory program, which currently works hand-in-
hand with the National Advertising Review Council, represented here
today by Lee Peeler. The Electronic Retailing Self-Regulation Program
reflects my firm belief that consumers and our industry benefit from
clear and fair rules enforced initially by self-regulatory action and,
if necessary, action by the Federal Trade Commission (``FTC'' or
``Commission'') to ensure that our customers have confidence in the
integrity of direct response marketers.
According to a recent report by the DMA, the direct response
industry generated $2.058 trillion in sales in 2008 and is projected to
grow 5.3 percent over the next 5 years, which is particularly
impressive given the current economic climate. Direct response
marketing supports 10.9 million U.S. jobs. Advertising continues, even
in these tough times, to be a leading contributor to the U.S. economy.
Advertising and marketing have proven their unparalleled value in
connecting consumers with products and services that they are likely to
be interested in purchasing and using.
The success and ongoing growth of the direct response industry and
broader advertising industry is due in large part to the effectiveness
of consumer testimonials and endorsements. Testimonials by users of our
products and services are a very powerful form of communication, and
studies have found that consumers find statements by other consumers to
be, in many cases, more credible than direct statements about products
by the advertiser. That is why testimonials are so widely used, not
only on television, but throughout advertising in all sorts of media.
Testimonials are crucial to the success of this industry and to the
success of consumer products such as our ProActiv Solution product, the
largest selling non-prescription acne treatment product in the world,
as well as our other well-known skin care, exercise, and entertainment
products. I have seen first hand over the past twenty years that our
testimonials provide hope and motivation to our consumers' lives and
well-being.
With that background, I want to discuss the standards that apply to
testimonials and provide my perspective with respect to one of the
proposed modifications to the FTC's Guides Concerning the Use of
Endorsements and Testimonials in Advertising, which are currently
pending at the Commission. The current Guides have for many years set
the standard for the use of endorsements and testimonials in
advertising. As part of its periodic review of all of its Guides, the
Commission has proposed changes to its longstanding standards for
testimonials with the goal of limiting deception of consumers. There is
no question that the Commission's intentions are laudable, and that the
Commission has been very successful in combating the use of fraudulent
and deceptive endorsements and testimonials. But I and my colleagues in
the legitimate and leading segment of the direct response industry are
concerned that the proposed modification would have significant
negative consequences on both advertising and consumers. We believe
that there are other, more direct and equally effective, solutions to
address the concerns the Commission is grappling with.
The current Guidelines have been out in the advertising world since
1980, and a whole industry has grown up following these ``rules of the
game.'' The Commission's interest in the use of testimonials is
appropriate considering the public's widespread acceptance of
testimonials and reliance on information obtained through testimonials
when making purchase decisions. To be clear, we at Guthy-Renker share
the goals of the Subcommittee and the Commission for a fair and healthy
marketplace and for responsible use of endorsements and testimonials.
As I understand it, the basis of the Commission's concern in this
area is the belief that a statement made in a consumer testimonial
regarding the particular results of an individual using the product or
service being advertised may be understood by some consumers as a
representation that they can expect the same result. To use a common
example to illustrate the Commission's concern, if a consumer
testimonial reports that by running on a treadmill he/she lost 30
pounds over a six-month period, the Commission believes that the
advertiser is representing that the ordinary consumer who purchases
that product will achieve the same or similar results.
In many cases, it is difficult or impossible to say what the
``average'' experience of a consumer using their product may be. The
treadmill is a good example. We all know that regular use of a
treadmill can result in weight loss, but the marketer of the treadmill
does not know whether the purchaser will use it 1 day, 3 days, or 5
days a week, or how many minutes the purchaser will spend on the
treadmill or how fast he/she will run. Consequently, the existing
Guides have always allowed the marketer of a product using a
testimonial that may not be typical to state ``Your Experience Will
Vary,'' or similarly disclaim the typicality of the testimonial's
experience. These disclosures have become familiar to consumers over
the years.
The Commission has identified a concern with the use of such so-
called ``typicality'' disclaimers because they apparently do not
believe that consumers understand even simple and conspicuous
disclaimers. To address this concern, the Commission's proposed
modification would require marketers to disclose the average results of
consumers that use the product or service. In many cases, especially
where we are dealing with product design specifications that apply
irrespective of the use of the product, this would not be a problem.
For example, the statements on light bulb packages about the average
number of hours the bulb will function are generally consistent among
all users.
But when it comes to products where the results obtained by
consumers are variable or depend fundamentally on decisions that
consumers themselves make--how frequently to use the product and for
how long, for example--the proposed modification would require that
marketers disclose facts that simply cannot be determined. This is the
basis for the advertising community's concerns with the Commission's
proposal. The proposal would have the effect of limiting the use of
truthful statements by individuals about their experience with the
product because of an assumption that consumers will take those
statements as gospel truth but ignore or fail to comprehend plain-
language typicality disclaimers that accompany them.
The industry believes that there may be other more effective ways
of addressing the problem identified by the Commission. While I focus
more on running the business than the legal framework, I know that the
Commission has strong existing enforcement authority and uses it
regularly. This type of enforcement helps foster a healthy marketplace
for consumers and limits fraudulent competitors.
For example, as I understand it, the Commission has highlighted as
a problem area the fact that some disclaimers, in some commercials, are
too small or use confusing or ambiguous language. This is a problem
where the Commission could bring an enforcement action under its
existing authority against those marketers, and require that they make
the disclaimers larger or remain on the screen longer, or rewrite them
in plain language so that consumers are not confused or deceived.
Similarly, some advertisers use extraordinary testimonials to
promote products that don't work at all. Here, the issue is not the
typicality of the testimonial, but the lack of proof that the product
works as claimed.
We believe the current Guides set an appropriate standard and one
that is widely understood in the advertising industry. If an advertiser
is using testimonials that convey a misleading ``net-impression'' of
what the product or service is capable of doing, the Commission can and
should go after the marketer under well-established existing law. The
Commission's enforcement efforts and self-regulatory programs supported
by the Commission have helped clean up and maintain a robust
advertising industry for consumers and businesses alike.
Given the Commission's existing tools, and the potential negative
impact on endorsements and testimonials that benefit consumers, we
believe that the Commission can achieve its important goals without
essentially banning the use of truthful consumer testimonials.
I thank you for the opportunity to speak with you today and for
your commitment to these important issues. I am submitting for the
record my prepared testimony and the comments provided by the
Electronic Retailing Association and the Council for Responsible
Nutrition to the Federal Trade Commission as part of its comment
process.
I would be happy to take any questions you might have.
Senator Pryor. Thank you.
And you met the ``Greenberg standard,'' and that is, you
stayed in your time. Thank you for that.
Mr. Renker. Thank you.
Senator Pryor. Mr. Congdon?
STATEMENT OF JON CONGDON, PRESIDENT AND
CO-FOUNDER, PRODUCT PARTNERS LLC/BEACHBODY
Mr. Congdon. Chairman Pryor, Ranking Member Wicker, and
Members of the Subcommittee, it's truly an honor to appear here
before you today. My name is Jon Congdon, and I'm President and
Co-Founder of Product Partners, LLC, a leading provider of
health and wellness solutions under its brand name
``Beachbody.''
Product Partners provides consumers with realistic and
proven ways to improve their health, wellness, and lives. We
offer several well-known consumer fitness programs, such as our
P90X home fitness training system, as well as easy-to-follow
guidelines and superior nutritional supplements.
Our dynamic online support community provides consumers
with the assistance they need to help them stay focused, from
the start of their program to the finish and beyond, and our
products have helped millions of Americans lose weight and
improve their health.
As a matter of fact, Tony Horton, who is the creator of the
P90X system, was on the Hill just a couple weeks ago with
members of the House, and worked out with, I believe, 14
bipartisan members of the House, and he said they were an
unusually competitive group but----
[Laughter.]
Mr. Congdon. At Product Partners, our slogan is to
``Decide, Commit, and Succeed.'' In our advertising, we
emphasize the fact that individual effort is necessary to
obtain the benefits of our products. We believe that it's
critical to be honest with our consumers so they fully accept
the challenge of better health, and will not be disappointed or
misled by any quick fix or it's-so-easy promise.
Because of our commitment to consumers, we embrace industry
self-regulation and we staunchly support the mission of the
Federal Trade Commission. In fact, I've almost heard nothing
that I disagree with said today. A strong Commission
strengthens legitimate businesses, like ours, by ensuring that
unscrupulous companies are not eroding consumer trust or
competing on unfair terms.
We know, when we advertise our products, that we have to
overcome a general mistrust from the public toward companies
that promise to help them lose weight. As a company that goes
to great lengths to earn and maintain the trust of its
customers--and that deals with countless people who have been
falsely duped into buying the latest fad diet or promise, only
to be let down--we applaud the Commission's efforts to protect
our consumers and ensure fair advertising.
Although we share common goals with the Federal Trade
Commission, we have concerns regarding the Commission's
proposed modifications to the guidelines on the use of
testimonials in advertising.
In particular, the Commission proposes to require companies
that use testimonials in advertising to disclose the average
results experienced by consumers that use a given product or
service. I'm certain that the Commission acted with the best of
intentions, but I am concerned by what the implications of
having to comply with that are. It may have significant
unintended and negative consequences for marketers and
consumers, and that's really where our concerns come in. Our
company faces such hurdles in complying.
First, the Commission's proposal may not provide the
Commission with any additional tools to protect or prevent a
consumers from an unscrupulous company. Those companies are
simply going to continue doing what they're doing, creating
false claims, maybe even loading their test groups or their
studies so that they can claim whatever they want to claim.
The real question is, How do you enforce against companies
that are going against what the consumers need to see, and what
is fair?
Beyond that, though, companies that strive to comply with
the Commission's requirements, like Mr. Renker's company and
like our company, are going to be faced with an undue burden in
trying to meet the demands. It's very cost-prohibitive to
create an average, and we actually don't even know what the
average means, when it comes to weight loss.
It's--we have--just a few weeks ago, we brought a bunch of
testimonials of ours to the Hill, and we were touring the
House. And one of them was a young man named Dallas Carter,
who, at the age of 25, was morbidly obese and was given a death
sentence by his doctor. He was actually told that if he didn't
change his lifestyle within 10 years, he would be dead, and he
would not see the 10-year--10th birthday of his daughter.
Still, he did nothing about it, until he finally saw one our
other testimonials, Earl Broffman, who had lost 140 pounds, and
saw--by seeing that story, realized that he could do it, also.
There's no doubt that Earl Broffman's story was extraordinary,
and not typical, but that was exactly the story that Dallas
needed to see in order to change his life. He has since lost a
190 pounds and is incredibly healthy, and actually was even
honored by the Governor of Hawaii.
We're very proud of that story, but we need to show
extraordinary results to people who need to do something
extraordinary in their life.
We also show other results, so that other people, with
different goals, can also react to those stories. Testimonials
generally appeal to the person who relates to them, not to
everybody.
Obviously somebody who had 25 pounds to lose, who saw
Dallas's story, didn't immediately think that they were going
to lose 190 pounds, also. They would take the net impression of
the commercial that they saw and decide whether or not that
product could help them with their fitness or weight-loss
goals.
That's really what we're concerned about with net
impression, that the net impression of the commercial is going
to create a thought in a person's mind, as to whether that
product is going to help them do what they want to do with
their life. If that net impression does not equal what the
product is that's being offered, if the product cannot help the
person achieve what the net impression is, then that is false
advertising, and we believe that net impression is actually the
gold standard that we need to go after bad actors with. And we
fully support--we have to continue to go after bad actors.
Finally, the self-regulatory systems that we have in place,
ERSP, have been incredibly helpful with getting bad actors to
the FTC more quickly, and with our reviewing what's going on in
our own industry, and our ability to turn in bad actors to
other people. We think that that is a critical piece in our
continuing effort to make sure that bad actors are not allowed
to continue doing what they're doing, but, at the same time, we
have to make sure that good actors are allowed to continue to
sell effective products that help people with their everyday
lives, and achieve the things that they want to achieve.
I think I'm out of time, so I'll close there. I want to
thank you for the opportunity to present my views here today.
[The prepared statement of Mr. Congdon follows:]
Prepared Statement of Jon Congdon, President and Co-Founder,
Product Partners LLC/Beachbody
Mr. Chairman, Ranking Member, and members of the Subcommittee, it
is an honor to appear before you today. My name is Jon Congdon, and I
am the President and Co-Founder of Product Partners LLC, a leading
provider of health and wellness solutions under its brand name
Beachbody. Product Partners provides consumers with realistic and
proven ways to transform their health, wellness, and lives. We offer
several well-known consumer fitness programs, such as our P90X home
fitness training system, as well as easy-to-follow diet guidelines and
superior nutritional supplements. Our mission is to help people lead
healthy and fulfilling lives by motivating and educating consumers
about long-term fitness and the benefits of maintaining a healthy body
and lifestyle. Our dynamic online support community provides customers
with the assistance they need to help them stay focused from the start
to the finish of our programs, and beyond. I am proud to say that our
products have helped millions of American consumers to lose weight and
improve their health.
At Product Partners, our slogan is ``Decide. Commit. Succeed.'' In
our advertising, we emphasize the fact that individual effort is
necessary to obtain the benefits of our products. We believe that it is
critical to be honest with our customers so that they fully accept the
challenge of better health, and will not be disappointed or misled by
any ``quick fix'' or ``it's so easy'' promise. Because of our
commitment to consumers, we embrace industry self-regulation, and we
staunchly support the mission of the Federal Trade Commission. A strong
Commission strengthens legitimate businesses, like ours, by ensuring
that unscrupulous companies are not eroding consumer trust or competing
on unfair terms. We know when we advertise our products that we have to
overcome a general mistrust from the public toward companies that
promise to help them lose weight. As a company that goes to great
lengths to earn and maintain the trust of its customers, and that deals
with countless people who have been falsely duped into buying into the
latest diet fad promise only to be let down, we applaud the
Commission's efforts to protect consumers and ensure fair advertising.
Although we share common goals with the Federal Trade Commission,
we have concerns regarding the Commission's proposed modifications to
its guidelines on the use of testimonials in advertising. In
particular, as the Subcommittee knows, the Commission proposes to
require companies that use testimonials in advertising to disclose the
average result experienced by consumers that use a given product or
service. I am certain that the Commission acted with the best of
intentions in suggesting modifications to its longstanding guidelines.
However, I fear that the Commission's proposal will have significant
unintended and negative consequences for marketers and consumers. I am
glad to be able to share my perspective with the Subcommittee, because
I believe that the products and services of my company provide an
excellent example of the difficulties that could arise under the
Commission's proposed approach.
First, the Commission's proposal would not provide the Commission
with any additional tools to prevent an unscrupulous company from
manipulating the facts and misleading consumers by simply falsifying
the average result or by devising a flawed or ``loaded'' study that
creates an average that fits the company's advertising claims.
On the other hand, companies that strive to comply with the
Commission's requirements, as we do, will find it extremely challenging
to satisfy the proposed guidelines. The cost of conducting detailed
valid studies will be prohibitive, keeping many new companies out of
the marketplace. The fact is that some products simply cannot be
reduced to an average figure that will be meaningful to consumers. As I
mentioned earlier, the Product Partners slogan emphasizes that
customers must commit to improving their own health and wellness in
order to benefit from our fitness tools. A customer's experience with
our product will depend on countless immeasurable factors, such as that
customer's level of effort, weight, and level of fitness before using
the product. The customer's age, gender and even genetics will also
cause significant fluctuations. In addition, many of our customers use
multiple fitness strategies at the same time. To illustrate these
difficulties, suppose that I am selling a treadmill. I can give you the
average results with respect to the durability and electrical pull of
the treadmill. But if each of us takes home a treadmill and uses it as
we please, how can I calculate meaningful average health effects
associated with using the treadmill, given that each of us is different
and used the treadmill differently? Given these complexities, how could
Product Partners begin to calculate an average result for our products
that everyone would agree is accurate? And even if we could collect the
information to make a basic calculation, it would tell individual
consumers very little about what they might personally experience with
one of our products, since the average result for a significantly
overweight 48-year-old man will be drastically different than for a
very fit 28-year-old female using the same fitness program even if they
spend exactly the same amount of time exercising.
Some of our customers are individuals who have led unhealthy
lifestyles for a long time, and we all know from personal experience
how difficult it is to change old habits. A person who faces a
challenge like losing 100 pounds is more likely to be inspired to
change his life if he can see, through a testimonial and real-life
experience, that someone else has succeeded in achieving that goal.
Product Partners and companies like ours aim to inspire our customers
to change their lives for the better, which is a critical decision to
make, but not always an easy one. Testimonials that meet the existing
standards that the Federal Trade Commission has long imposed are a
meaningful way to reach out to interested consumers about products that
can benefit them.
As an example, in a recent visit to Members of Congress to discuss
this issue, we brought Dallas Carter, who was morbidly obese at the age
of only 25, even after his doctor told him that he would likely not
live to see his new daughter's tenth birthday unless he made a drastic
change in his lifestyle. It wasn't until Dallas saw the true story of
Earl Broffman in a P90X infomercial discussing his 140-pound weight
loss and health transformation that Dallas decided to make a change--a
change that has led to him losing 190 pounds, leading a healthy life,
and even being an example for his community. Dallas told us, ``When I
saw Earl do it, I knew I could do it too.'' And when Dallas told Earl
this story directly, Earl replied that he himself only tried P90X after
seeing another of our longtime customers, Aaron Mathis, describing his
110-pound weight loss. As you can see, as long as these testimonials
are truthful and disclose that the testimonial's experience is not
necessarily typical, they provide critical motivation and inspiration
to others in a similar position. I believe that if we had somehow been
able to determine that the average weight loss using our product was 25
pounds but had been prohibited from showing our more ``extraordinary''
results, it is unlikely that the customers I just mentioned would have
been inspired to start their journeys to a healthy lifestyle.
We know that this country is in crisis with regard to the health of
its citizens. The obesity figures are staggering, and the costs to care
for overweight Americans and their related conditions are
overwhelming--quite possibly the largest financial threat we may face
in the coming years. Imagine if we could turn the tide and get
Americans moving again and eating healthier foods. I truly believe that
our company and others like it are beginning to make a difference as
the customers who change their own lives also change lives of the
people around them--particularly their children.
As our rates of obesity and Type 2 diabetes grow daily, I think the
need to reach out and inspire others, with proven products and truthful
advertising, is absolutely critical. I want to be clear, though--it
takes something big to get a person who feels hopeless and has really
let his health get out of control to take the step to change all that--
and often the catalyst is seeing someone who was exactly where he is
now, who accomplished something extraordinary. Not average--
extraordinary.
Again, we share in the Commission's desire to prevent unfair and
deceptive advertising. My belief, however, which is shared by others in
industry, is that there are more effective ways of addressing the
problem identified by the Commission that would not have the same type
of negative impact on legitimate offerings. The Commission has
articulated a concern that, in some cases, a group of extraordinary
testimonials accompanied by disclaimers will give an impression that
the product works far better than any substantiation in the possession
of the marketer. In such situations, the combination of large
testimonials plus disclaimers can give an impression that is misleading
to consumers. I agree that if any elements of an advertisement are
deceptive, there should not be any ``safe harbor'' or special
protection, but there is another alternative that may help address this
problem. The Commission has, for many years, followed a well
established so-called ``net impression'' rule in which they look at any
advertisement, determine what it means to reasonable consumers, and
then require substantiation of the claims that arise naturally from a
commonplace interpretation of the advertisement.
I believe this net impression rule is an appropriate standard that
is widely understood in the advertising industry and already provides
an effective solution to the Commission's concerns. If an advertiser is
using testimonials (even with disclaimers) that give a misleading
impression of what the product or service is capable of doing, the
Commission can and should go after the marketer under existing law. The
Commission already has the necessary legal authority and enforcement
tools to address the concerns raised in the Commission's Notice.
It is important that we protect consumers from bad actors--but I
strongly believe that it is equally important that legitimate companies
providing effective solutions to consumers are allowed to succeed
without arbitrary or unfair constraints. I am concerned that the
guidelines in their current proposed format could hurt good players,
and I don't think that is the Commissioners' intent. Given the
Commission's existing tools, and the substantial negative impact that
the Commission's proposal would have on endorsements and testimonials
that benefit consumers, I believe that the Commission can and should
achieve its important goals without requiring a marketer to provide
information on an anticipated average result which may actually mislead
consumers as to what is really average given that their individual
experiences, almost by definition, will rarely be average. The comments
of the Electronic Retailing Association, which are attached to my
testimony, discuss these issues in detail, and I commend those comments
to the Subcommittee.
In addition to the Commission's enforcement efforts, our industry
is vigilantly monitoring and policing the marketplace through self-
regulatory programs such as the National Advertising Review Council's
Electronic Retailing Self-Regulation Program and the Direct Marketing
Association's testimonials and endorsements standards provided in the
Guidelines for Ethical Business Practice.\1\ These self-regulatory
programs provide the direct response industry with effective guidelines
that require truthful and responsible advertising and provide the
marketplace with meaningful mechanisms for evaluating accuracy of
product claims that are communicated in national direct response
advertising. In addition, many self-regulatory programs include
enforcement mechanisms to bring about compliance and, if necessary,
report violators to an appropriate government agency.
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\1\ See The Direct Marketing Association's Guidelines for Ethical
Business Practice, Article 21, Testimonials and Endorsements, available
at http://www.dmaresponsibility.org/Guidelines/.
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In my experience, industry self-regulation is the most effective
way to address concerns that arise in an evolving marketplace,
particularly for an industry that relies on emerging digital
advertising channels such as the Internet, including tools such as
blogs, message boards, social networks, and online video. These mediums
are constantly and rapidly evolving in directions that bring new value
to consumers. Industry self-regulation is effective because it is
flexible and adaptable in a timely manner. Such programs can more
efficiently evolve to address bad practices and target bad actors
without unnecessarily restraining legitimate companies and online
innovation. As with most other industries, the legitimate actors take
extraordinary steps to maintain consumer confidence and their own
legitimacy by constraining and eliminating the bad actors. I believe
that industry self-regulation is the appropriate approach to addressing
problems in the marketplace and encourage that any solution, whether
formulated by this Subcommittee or the Federal Trade Commission,
preserve a strong role and effective incentives for strong self-
regulatory programs.
Thank you for this opportunity to present my views. I welcome your
questions.
Senator Pryor. Thank you.
I want to thank all the panelists, again, for their
testimony. We appreciate it.
Mr. Vladeck, let me start with you, and just a quick
clarification. You showed this video, which I thought was very
helpful, but how does the FTC use that video?
Mr. Vladeck. Well, it's, of course, available on our
website. We've distributed this video to clinics, and to
patient groups, and--as widely as we can to try to get this
message out. We can't afford to buy airtime, so we distribute
these kinds of videos to sympathetic organizations that might
make use of it.
Senator Pryor. Mr. Greenberg, let me ask you--you've heard,
I think, the last three witnesses talk about self-regulation,
and I'd like to get your thoughts on self-regulation versus FTC
action--or, maybe I should put it a different way--another
scenario would be self-regulation, ``and then'' FTC action.
Give me--if you don't mind, give me your thoughts on self-
regulation and whether we need to beef up the Federal Trade
Commission's abilities, or give them more resources, or whether
they should do additional regs, or change their guides, or
whatever.
Ms. Greenberg. Senator, yes, I think self-regulation within
an industry is extremely important, because it sets some
parameters, for the honest and conscientious players within the
industry, in how they communicate with consumers, and what
kinds of rules of the road they set for members of the
industry.
Self-regulation clearly--and I think I heard both witnesses
say it's important to have an FTC there for the outliers, for
those within an industry that don't comply with the standards
that are set by the members. So, it's important to have both.
We always recommend, if there is no industry standard--I think,
when we talked about prepaid calling cards, for example--very
important that there be some set of guidelines for members of
the industry, but it's also important to have the FTC to look
at--certain industries don't have any of those standards; they
need the FTC. And the FTC needs to be there for those who don't
comply with a basic set of self-regulatory standards, as well.
Senator Pryor. Dr. Rangan, do you have anything to add to
that?
Dr. Rangan. We also agree with that. The landscape for
advertising, especially green marketing, is always evolving,
and it--there are always new and innovate claims being made.
So, certainly, self-regulation plays an important role in that
landscape. Yet, we see that there--the bottom has sort of
fallen out, and that there needs to be some level, baseline,
playing rules that everyone has to play with, so that we can
reduce this sort of green noise, or just noise, in the
advertising marketplace.
Senator Pryor. Mr. Vladeck, do you have any comments on
that?
Mr. Vladeck. Well, self-regulation serves a very important
function, and we're very supportive of the process, but it's no
substitute for a fully staffed, able, and capable Federal Trade
Commission. Sometimes--as able as my friend Lee Peeler is,
sometimes we disagree, and sometimes disputes are not submitted
to NAD. So, while we think self-regulation plays an important
role, it's certainly not--it's not sufficient. It's necessary,
but it's not sufficient.
Senator Pryor. And let me ask, from the FTC's perspective
with the industry, do you have a cooperative relationship with
the industry when it comes to self-regulation? And, is there
communication back and forth that the industry comes forward
with, about bad actors in the industry?
Mr. Vladeck. Oh, yes. And one of the--you know, and one
role that self-regulation serves is really helping us to look
at a very, very crowded playing field and identify the bad
actors in it. And so, yes, that is an important role self-
regulation plays.
Mr. Peeler. Senator Pryor, can I just add----
Senator Pryor. Sure.
Mr. Peeler.--you know, the other important thing that self-
--two important things that self-regulation adds to this mix
is, we deal with about--we issue about 200 decisions every
year. And that's 200 things that the FTC doesn't have to deal
with. And we have excellent communications with the FTC, so
their backing is one of the reasons why our decisions are
followed.
The other thing is that we deal with--often deal with
claims that have a competitive impact--superiority claims and
things like that--that aren't going to be very high on the
FTC's enforcement criteria, because they don't involve health
or safety, or direct monetary losses, but are very, very
important to maintaining the integrity of advertising and the
level playing field in the advertising area. So, those are two
ways that we supplement this, sort of, comprehensive system of
advertising regulation that's out there.
Senator Pryor. Thank you.
Senator Wicker?
Senator Wicker. Well, thank you very much for very thought-
provoking testimony. I appreciate all six of you.
Mr. Vladeck, Mr. Congdon talks about a specific instance,
here: Dallas Carter saw an advertisement with Earl Broffman in
it, where he lost an enormous amount of weight. Earl Broffman
was inspired to lose this amount of weight by seeing yet
another ad, from Aaron Mathis, who lost 110 pounds. The
advertisements were testimonials. It's been suggested that if
you require these advertisements to do an average result, the
company's going to have to do a great amount of background
testing there.
Do you propose that the FTC look into the scientific basis
for these tests? Is the FTC going to be deciding whether the
test itself was loaded, whether there was a flaw in the
methodology, and that sort of thing?
And what's wrong with this type of advertisement that
inspired Mr. Carter and Mr. Broffman to change their life and
decide not to be morbidly obese?
And what do you think about the idea in Mr. Congdon's
testimony that, rather than a safe harbor, or special
protection, based on the disclaimer, we sort of look at the net
impression? What would a sensible person think viewing--a
reasonable consumer think, based on a commonplace
interpretation of these advertisement?
I'll start with Mr. Vladeck, but actually, I'll let anybody
jump in.
Mr. Vladeck. OK, Senator, you've asked a simple question
that deserves a simple answer, so let me start with the simple
answer and then explain it. The simple answer is that--the test
you've just articulated, ``What would a reasonable consumer
take away from the ad?'' That's the test that we're proposing.
But, let me explain how we get there, because this is
important.
The safe-harbor provision in the guides has become an
openhanded invitation to sellers to make inflated claims about
a product performance that would otherwise be forbidden because
they couldn't be substantiated. What we're trying to do is
simply level the playing field to make it fair, both to the
legitimate business guys, and take away an advantage that we've
given--inadvertently--given to sellers who are willing to bend
the truth or to make misleading or deceptive claims, or
unsubstantiated claims.
Let me just give you an example. And I'll come to Mr.
Congdon's example in a minute. But, there have been lots of ads
that say, for example, ``Take this product. It will lower''--
and they have a person up there who's taken the product, and
the claim is, it's reduced their cholesterol level by 100
points. Now, the company knows, or the company has reason to
believe, that, for most consumers, the cholesterol reduction
would be a small fraction of that. And the claim is then
accompanied by a tiny little fleeting disclaimer, on the bottom
of the TV set, that says, ``This may not be typical,'' or
``Results may vary.''
We're trying to get at that claim and make sure that those
claims are not run anymore, because they're deceptive. Both our
enforcement efforts and our empirical studies show that most
consumers believe, or many consumers believe, rightly or
wrongly, that they're going to be one of the lucky few and get
that enormous reduction.
But, what Mr. Congdon is determining--describing--is not an
ad that makes a typicality claim. The claim that he's talking
about makes, essentially, a uniqueness claim, that, ``Here's
someone who undertook a heroic effort and achieved a terrific
result.'' And if one parses our Federal Register notice--and I
realize that this is a daunting task for anyone to do--but, if
you look at page 72392 of the----
[Laughter.]
Mr. Vladeck.--November 28 Federal Register notice,
virtually the identical ad Mr. Congdon is worried about is
given, in an example--in our examples of how the guide would be
applied. And we say that, when an ad is not claiming
typicality, there's no need for the kind of disclosures that
were talking about. It's ads--and these are the vast bulk of
them--that make a claim--that either say overtly, or imply,
that the results are typical.
Senator Wicker. So, there's nothing wrong with the ad Mr.
Congdon described, that inspired Mr. Carter?
Mr. Vladeck. In fact, that ad--yes, I agree with you, and I
would say that that ad is almost identical to the example--it's
example 4 on the Federal Register page I gave you. And I'll be
glad to provide the example to staff.
[The information referred to follows:]
Federal Register / Vol. 73, No. 230/Friday, November 28, 2008 /
Proposed Rules / pp. 72392-93
Example 4: An advertisement for a weight-loss product features a
formerly obese woman. She says in the ad, ``Every day, I drank 2
WeightAway shakes, only ate raw vegetables, and exercised vigorously
for 6 hours at the gym. By the end of 6 months, I had gone from 250
pounds to 140 pounds.'' The advertisement accurately describes the
woman's experience, and such a result is within the range that would be
generally experienced by an extremely overweight individual who
consumed WeightAway shakes, only ate raw vegetables, and exercised as
the endorser did. Because the endorser clearly describes the limited
and truly exceptional circumstances under which she achieved her
results, the ad does not convey that consumers who weigh substantially
less or use WeightAway under less extreme circumstances should
generally expect to lose something in the vicinity of 110 pounds in 6
months. The advertiser must have substantiation, however, for any
performance claims conveyed by the endorsement (e.g., that WeightAway
is an effective weight loss product).
If, in the alternative, the advertisement simply says that the
endorser lost 110 pounds in 6 months using WeightAway together with
diet and exercise, the advertisement would likely convey that her
results were representative of what consumers can generally expect to
lose with WeightAway.
Senator Wicker. So, Mr. Congdon, are you attacking a
``straw man''--doesn't exist?
Mr. Congdon. I hope not. My concern----
[Laughter.]
Mr. Congdon.--is relative to--again, I love what he's
saying, because I think it is important to be able to show
something extraordinary, as long as people understand that it's
extraordinary, that can inspire somebody to change their life.
But, I also am concerned with the underlying use--or of having
to say--perhaps having to say--and correct me if I'm wrong,
under that--that I also need to disclose what the average
weight loss is while using that product.
Mr. Vladeck. So, may I follow up?
Senator Wicker. Sure, because that's part of my question,
also.
Mr. Vladeck. Yes. So, if the claim were framed in a way to
suggest that the weight loss this individual achieved was
somehow typical, then you'd be required to make that
disclaimer. But, if you're making the claim that this was an--
this--it took extraordinary effort on his part----
Voice. Right.
Mr. Vladeck.--then we do not require that disclosure. And
the bottom line is, I think, the bottom line you articulated,
which is, What would a reasonable consumer take away from the
ad? What we're worried about is the 99 percent of these ads
that imply, or overtly state, typicality. That is the problem.
Because they pick out the one outlier, the one person who had
remarkable success, and depict that person as the typical
consumer. And those are the ads that are subject to the safe
harbor now, and those are the ads we want off the air.
Senator Wicker. Well, just one other thing, and then
Senator Klobuchar probably wants to dive in here.
Are you going to be giving scientific evaluations of
testing methodology if we go down this road? How far behind the
average-result claim are you going to look?
Mr. Vladeck. Senator, we already look to see whether ads
that make health claims are substantiated. And so, if--let me
take my cholesterol-reducing example. There are lots of these
claims on the market. If a product markets--is marketed that it
reduces cholesterol, we want the company that's making that
claim to have adequate substantiation for that claim. But,
there's nothing in these enforcement guidelines that would
change our substantiation standards.
And please remember, these are guides. If we bring an
enforcement action, the guides have nothing to do with the
case. We have to prove, as we would have to prove in any other
case, that the claim was unfair or deceptive, because it was
unsubstantiated.
Senator Wicker. Mr. Congdon may want to briefly respond,
and then----
Mr. Congdon. Yes.
Senator Wicker.--I intruded too much----
Mr. Congdon. First, if I'm not mistaken, it also says that,
even if it's not typical, I'm going to need to issue a 6-line--
about a 6-line disclosure of everything that they ate, and how
they exercised, in detail, so somebody understands what
happened, which I'm not sure is going to be very carefully
read, based on other findings that we've got.
Beyond that, though, it's difficult to understand when--and
one of my problems with the guidelines, as written, is it's not
necessarily clear when they are going to perceive that we are
being typical and when they are going to perceive that we're
not being typical, unless we disclose that.
So, once again, we come down to whether or not we're going
to need to provide an average, which is, in my opinion--
especially for weight-loss products, when people are putting in
different levels of effort, and may be different ages, or a
different gender--that it's going to be impossible to determine
what the average is--literally impossible--even if we had
endless dollars to conduct the studies.
So, I'm concerned with what typicality is going to mean,
I'm concerned with whether or not we're still going to be held
to an average, and I'm concerned, beyond what the FTC might
perceive on this--because there are unintended consequences,
which we've dealt with before, relative to the red flags on
weight loss that you talked about earlier today--and that is
that, sometimes, broadcasters will interpret something one way,
and feel that they need to take action, so they're not liable
for being a participant, or an unwitting participant, in
defrauding a consumer.
The example that I've got, which actually affected my
company, was a few years ago, when the red flags came out,
which were based on supplements that were taken, and weight
loss rules, where it was--one of the red flags was, when you
see somebody claiming that somebody could lose more than 2
pounds per week, that that is a red flag. At the same time, we
were advertising a program, where people were losing at least 3
pounds a week, in some cases. But, that was through diet,
exercise, and taking the supplements that we were providing,
but mostly through diet and exercise. We had a broadcaster who
saw that we had testimonials that had lost more than 2 pounds
per week, and they said, ``You know what? We're not going to
air your testimonials, because there's a red flag in there.''
They didn't understand that it was only related to supplements
and--and, in my opinion, the FTC hadn't properly disclosed what
the guidelines were about, and so, we were harmed in the
marketplace, as a result of that.
So, I'm, again, concerned, not just with what we're talking
about here, but with how others might interpret it and react in
the marketplace, which could affect our ability to market our
product.
Senator Pryor. Thank you.
Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much to all the
panelists. I'm going to stray away a little from weight loss.
It's making me feel guilty.
[Laughter.]
Senator Klobuchar. And I thought I'd talk a little bit
about the marketing of green products. I'm a member of the
Environment and Public Works Committee, and have been closely
monitoring the work that the FTC is doing in this area. And I
understand, Mr. Vladeck, that the FTC is currently reviewing
its guides regarding environmental standards for marketing.
And in your testimony, you also reference that the FTC is
conducting its own research to determine consumer perceptions
of green claims. And I've always wondered what these--when
things say they're ``eco-friendly,'' ``biodegradable''--and I
know you're working on this, as well, Dr. Rangan--
``recyclable,'' ``ozone-safe,'' ``sustainable''--and I'm just
wondering--and I've heard from people that are just producing
products, and then they get mad because someone else is
claiming that their products are green, when, in fact, someone
is doing the same thing as that other company, but they
wouldn't claim that they're green.
So, could you just give me an update on what is the
potential standardization of terms, what direction is this
going? And I'd also like to hear from you, Dr. Rangan.
You want to start, Mr. Vladeck?
Mr. Vladeck. Well, thank you for the question. We are in
the midst of updating and revising our green claims. We're
about to take a very large consumer survey. In order to do
that, we needed clearance, under the Paperwork Reduction Act
from OMB, which we have finally obtained. So the survey ought
to begin, this summer. We ought to have the results by fall.
And we're hoping to at least put out our proposed revisions,
maybe by the end of this year.
Our problem, of course, is, until we have a baseline of
what it is consumers think when they hear these terms, it's
more difficult for us to bring enforcement cases. We've brought
some--recently we brought a spate of enforcement cases on
claims of biodegradability, when we could prove that the
products would not, in fact, degrade. But, what we're hoping to
do is use the consumer survey to get a baseline about what is--
to the extent there is any shared understanding--about what
consumers understand these terms to mean, and that will inform
both the way we write our green guides, and will help inform
our enforcement policy.
Senator Klobuchar. Doctor? Thank you.
Dr. Rangan. Thank you, Senator.
We think that there are a host of vague and misleading
claims out there. And the original green guides went a long way
to highlighting some of those examples, like ``environmentally
friendly,'' ``Earth-safe.'' And if you take a look at the old
green marketing guides, you'll find a number of those terms
that were identified in there actually didn't get onto the
marketplace in a pervasive way, and so, those guides were
useful.
The problem is that we have so much more vague and
misleading terminology out there, and we need the FTC to
provide guidance around those. And common claims, like
``natural,'' which are really muddying up the green marketplace
because there is so little definition behind what that has to
mean, really needs either guidance, or it should just be
prohibited to be used. You can find ``natural'' products today
that contain synthetic and petroleum-derived ingredients, you
can find them with potentially harmful ingredients, you can
find them with partially hydrogenated oils, high fructose corn
syrup. So, you can find lots of ingredients, in those types of
products that are labeled as ``natural,'' that no consumer
would think that they're getting in a product labeled as
``natural.''
Another important aspect that we gave in our oral testimony
is the fact that you need full disclosure. So, you need full
ingredient disclosure on cleaners. We need to have plastic
numbers be mandatory, so that consumers know what plastics
they're getting. These things are not the case, at this time;
and without the kind of transparency in the marketplace, it
really makes it very, very difficult for consumers to
understand what it's all about.
And just a final note, in many of the green surveys that
have been done out there already, consumers who are looking to
green claims are looking to them for health reasons, in the
majority of cases; and so, that's an important aspect to also
note.
Senator Klobuchar. OK. Yes?
Mr. Peeler. Senator, I'm from the advertising industry's
self-regulatory program, and I just----
Senator Klobuchar. Great.
Mr. Peeler.--wanted to add a couple thoughts.
First off, you know, further definition in the guides by
the FTC would be really valuable. And the way that they're
going about it is exactly the right way to go about it.
In the interim, we actually are handling a number of green
cases, and competitors who see claims----
Senator Klobuchar. What I'm talking about.
Mr. Peeler.--that they say, ``You know, my counsel won't
let me make this''--there's actually a process for them to come
to us, and we will adjudicate those claims, as best we can,
given the information we have now, and issue a decision. And
we've actually gotten very good support and coverage in
Consumer Reports for some of the claims.
We had exactly--we've had cases with exactly the issue that
you were speaking about, a claim that a product's natural, when
it contains synthetic ingredients. And we actually have a body
of precedent we've built up, over about 5 or 10 years, on the
issue of ``natural.''
So, again, it's something that can be done right now, while
the FTC's moving forward with its process.
Senator Klobuchar. Very good. It seems like there's some
agreement that we need some better guidelines here. Because I
think it's really confusing, as consumers are trying to do the
right thing and be part of this--you know, the new energy and--
green world--that it's getting very difficult for them. So, I
appreciate that.
One last question, if I could, Mr. Chairman, a brief one,
just for you, Mr. Vladeck. The challenges that you see with
this--the new media. I noticed, in the summaries of some of the
issues, that there are issues of bloggers getting paid, and
things like that--and just, the challenges you see, and how
you're shifting your enforcement activities at the FTC in
response to that.
Mr. Vladeck. Well, as I mentioned earlier, the
proliferation of new technologies give marketers new tools to
market their products. Our proposed revision to our endorsement
guides do focus, in part, on social marketing techniques, and
we have proposed to require bloggers who are taking some form
of compensation from a sponsor to disclose that fact as part of
their promotion of a product. We've got----
Senator Klobuchar. I hope they do that in politics, too.
[Laughter.]
Senator Klobuchar. I'm kidding.
Mr. Vladeck. I'm not going to touch that third rail----
[Laughter.]
Mr. Vladeck. But, that is--that has sparked some
controversy. We believe that it's the right thing to do, and
we're exploring all sorts of comments.
I would say that the one self-regulatory group that's
already grown up among the blogging community very much
supports our position on this.
Senator Klobuchar. OK, that's excellent.
Thank you very much. Appreciate all of you.
Senator Pryor. Thank you, Senator Klobuchar.
Senator Wicker?
Senator Wicker. Thank you, Mr. Chairman. You've been most
generous.
What I want to do is let the other four panel members jump
into the exchange between Mr. Congdon and Mr. Vladeck. And I'll
set the stage by reading from Mr. Congdon's prepared testimony,
``Companies that strive to comply with the Commission's
requirements, as we do, will find it extremely challenging to
satisfy the proposed guidelines. The cost of conducting
detailed, valid studies will be prohibitive, keeping many new
companies out of the marketplace.''
With that, who'd like to jump into this discussion?
Mr. Renker. I'd be happy to, Senator Wicker.
Senator Wicker. Mr. Renker?
Mr. Renker. But, I'll come at it from a contrarian point of
view, relative to cost. The size and scope of our company, with
the amount lawyers that we have and the dozens of MBAs that we
have working for us, would enable us to meet some of these
average requirements on certain of our products. Yes, it would
be costly; but, yes, we could do it. I think that's unfair to a
small business, and I think it's unfair to innovation.
Second, this problem, relative to averages, is one that--it
crosses many different kinds of product categories, not just
weight loss. For example, my partner and I started our business
because we shared a mutual interest in motivational tapes, and
so, we created a motivational series of tapes called ``Personal
Power,'' with Anthony Robbins, 20 years ago. And those products
are still on the air. It's the best-selling motivational tape
series of all time. But, that product is about goal setting and
trying to realize your dreams by taking action, and that may be
in weight loss, that may be in relationship improvement, it may
be in starting a business of your own. It's impossible to
determine what the average result is of the people that have
purchased that product.
We have the same circumstance with Proactiv, our acne
treatment system, for which we have many resources to try to
seek what the average might be. However, because acne can be
genetically--excuse me--predisposed, and it may have cultural
differences, it has differences based on age, gender, et
cetera--that the compliance of our product changes from person
to person. Acne itself can be random and, in effect, customizes
per individual. And even though we have several million
customers, currently--as current customers--it is nearly
impossible to determine what the average result is of the use
of that product.
So, the issue for us really is, as it relates to the
current FTC guides, we support them and want to see them
enforced. As it relates to the disclaimers, we would like to
see them become more conspicuous, unambiguous, ubiquitous,
larger, more important, more prevalent, or, absent that, we
fully support net impression, because that's, ideally, the
business that we're in.
We can substantiate the claims that we make. We back them
up. We under-promise and over-deliver. That's why we are
successful marketers. And again, we support pursuing those that
do not.
Senator Wicker. Anyone else?
Ms. Greenberg?
Ms. Greenberg. Yes, certainly the story with Mr. Broffman
is a compelling and a--it, you know, pulls at your heartstrings
that somebody was able to--with a series of motivational
relationships, was able to lose all that weight.
I guess the thing that I keep wondering is, What happened
to the other customers, the many, many other customers, to whom
this product was sold? Where do they fall in the average weight
loss? And I--and that's the information that we don't have, I
think, from Mr. Congdon. So, I'd be interested in knowing that.
The second point I'd like to make is, that it's really
difficult for me to understand, as a consumer advocate, how
anyone could argue against a company being required to post
average results. Average results really tells the consumer what
the likelihood is of their having success with this particular
product. Somebody who's lost 120 pounds, I would venture to
guess, with this particular product they're selling, is not
their average customer. And it seems to me that if a company is
selling millions of dollars worth of products to customers, the
least they could do is tell their clients, their customers,
what their likelihood is, pro or con, and where the average
falls. I understand that there may be some costs involved, but
it seems to me an incredibly sensible way to approach this
issue.
Senator Wicker. Anyone else?
Mr. Vladeck. Well, I'm----
Dr. Rangan. What----
Mr. Vladeck. Oh, sorry.
Dr. Rangan. Sorry.
Senator Wicker. Well, Dr. Rangan, I guess we'll let you go
first and then----
Dr. Rangan. OK, thank you. I'll be brief, Senator.
In any case, even in the green sphere, it's hard for a
consumer to tell what kind of impact that product has in a real
reference frame, and so average numbers do give that consumer
some sort of reference frame, so that they can decide how they
want to do that, whether they're willing to spend more. Without
that, it does become a bit of a sensational, extraordinary
pitch, but there is no reference frame for the consumer to put
that pitch into. And that's what averages will help them get
to.
Senator Wicker. Yes, sir?
Mr. Vladeck. Could I make one quick point?
Senator Wicker. Yes.
Mr. Vladeck. Let's clear up the confusion, here. That is,
for advertisers to make claims generally, they need
substantiation. So, if they're claiming a product is a weight-
loss product, they'd better have something, a study or other
support, that shows that. And generally, that substantiation
will tell you pretty much what one can reasonably expect, which
is what were asking, for ads that make typicality claims.
The other point, which needs to be underscored, is, assume
it is too expensive or difficult to acquire some sense of what
the typical consumer is likely to achieve, in terms of their
results. Our provision, our proposal, would still permit a
disclaimer, provided that it was clear--I forget the language
that one of my colleagues used, but provided that it was
clear--easy to read, and clear about the fact that the
achievement of this particular endorser or testimonial was not
typical of the result.
So, I'm not sure there's that much disagreement with us. If
they don't have, and cannot get, substantiation, then the key
out of that dilemma is simply to make a clear, ubiquitous,
unequivocal statement that the results are not standard.
Senator Wicker. Thank you.
Mr. Congdon. If I could just elaborate for a moment.
I think that, where it's relevant--certainly nobody is
saying that an average, where relevant, wouldn't be useful to a
consumer. For instance, with a light bulb, if I know that
your--that the average life of a light bulb is 5,000 hours, I'm
certainly, as an advertiser, not going to be asking that I hold
up the one light bulb that lasted 30,000 hours and not talk
about the average use of a light bulb, therefore expecting that
people were going to buy the light bulbs, thinking that their
light bulbs are also going to last 30,000 hours.
But, when it comes to weight loss, it's in a very
individual and personal thing. What might be the average--and
I'll try to clarify. What it means is, because I show a woman,
who's 30 years old, who lost 40 pounds, that does not
necessarily mean that that is average. But, it might be average
for women who had 40 pounds to lose when they started the
program. That is not relevant to a 22-year-old guy who's been
an athlete all his life, and, while he was in college, and
because he was drinking a bunch of beer and eating pizza,
happened to gain 10 pounds, and now wants to get back in shape.
What's the average weight loss for that person? Well, if he
uses the program effectively for a reasonable period of time,
the average weight loss might be 10 pounds. But, do I have to
take into account the people who buy the product and then
decide not to use it? Is that--do I have to equate that into
the average?
Or--for instance, our extreme workout program, P90X--when I
did that program I actually gained 15 pounds. I was
underweight, because I wasn't working out enough, and I packed
on muscle and gained 15 pounds. In fact, many of our customers
who use P90X gain weight. Do I have to average in the people
who gained weight using P90X into the overall average of people
who use P90X?
So, I'm not trying to skirt an issue or get around
anything. It is that weight loss, or getting fit, is actually a
very personal thing. With some of our programs, your body
literally goes where it's supposed to go by using the program.
If I had a way that I could show an average, then I would
absolutely do it, because I think the consumer would find that
very useful. I'm just saying that, if I'm showing a testimonial
that's extraordinary, I can inspire people who are like that to
change their lives and lose a lot of weight. I also show
testimonials who lose only 20 pounds, because I must appeal to
somebody who has 20 pounds to lose, and get them to buy that
product, as well, or at least give them the tools that they
need to decide whether or not they should buy the program.
Senator Wicker. Thank you.
Senator Pryor. Thank you.
I have a follow-up, if I can, for Mr. Peeler, and that is--
Senator Klobuchar alluded to this a few moments ago--about
bloggers being paid. Are you familiar with that issue? And how
deceptive is that practice?
Mr. Peeler. You know, we are familiar with that issue. And,
as I said, there are a number of varieties of that, including
paying employees to post reviews on websites. And there have
been a couple of cases by the State AGs, just in the last 2
weeks, where they've discovered that process.
If you--you know, advertising law is pretty clear, that if
you're paying somebody to promote your product, that's a
material disclosure, and you need to disclose it. I think what
the FTC and the blogging community are struggling with in
connection with that debate is exactly what would constitute
compensation in that area.
Senator Pryor. OK.
And, Ms. Greenberg, let me ask you about--you know, we've
talked a lot about averages and net impressions, et cetera.
From your perspective--and if you have data on this, let me
know--but, from your perspective, how effective are
disclaimers? I know you get into issues about super-small type,
and really fast disclaimers on television, and things like
that. How effective are disclaimers? I mean, do consumers
actually pick up on those, and read those, and factor that in,
or not?
Ms. Greenberg. Well, it depends on the context in which
we're talking. If we're talking about a blog, the--a blog that
says, ``We were given samples of this product by the company,
and we're testing them, and, you know, we found the following
things to be positive about the product,'' that's a--I think, a
fairly effective disclaimer.
The problem comes, of course, when you have these fleeting,
tiny-print disclaimers. We've talked about this with pre-paid
calling cards, where there's a tiny little disclaimer on the
bottom, about--that the fees may not--or, ``The minutes you're
getting may not be what we promised you,'' for a variety of
reasons. If it's--you know, if it's easy--easily read, easily
seen, if it's part of a commercial, if it's part of a blog,
that's a disclaimer that can be fairly effective. Mostly what
were seeing in this context, and with the work the FTC is
doing, the disclaimers on a lot of these ads are not are not
getting through to consumers. And I think the FTC's research
shows that the consumers that they polled and talked to believe
that they, too, could lose 110 pounds, if they need to lose 110
pounds. So, I think we're talking about--we've got to do a much
better job of getting information out, much more effective
information out, to consumers.
Senator Pryor. Senator--oh, excuse me.
Senator McCaskill?
STATEMENT OF HON. CLAIRE McCASKILL,
U.S. SENATOR FROM MISSOURI
Senator McCaskill. It's OK. I'll be mistaken for Amy, any
day.
[Laughter.]
Senator McCaskill. I'm really concerned about an area of
advertising that I don't think we've talked about yet today.
And when I first saw it, it just infuriated me. And that is--
you know, our news folks have enough problem with credibility,
right now, without fake news being aired. And this notion that
we have people--and sometimes even the news anchors from the
stations--being paid to pretend like it's a newscast. I mean,
with the ticker running underneath, you know.
And particularly as we look at these stimulus scam ads,
which--we had a huge article in the Kansas City paper this
morning about a firm in Oberlin Park Kansas that was, you know,
selling--you know, ``We will get you $25,000 in stimulus
money.'' These fake newscasts are unconscionable, just
unconscionable, and I don't get--I mean, I've got some numbers,
here, of the numbers of them and--but, it's old data, from
2006.
And I think everyone, because of the nature of our election
last year, was more attuned to the news than perhaps they have
been in my adult life, just because everyone was so interested.
It was a very interesting campaign. And on the heels of that
kind of ratings that news channels got, to begin to use these
ads, pretending like this is a newscast, I am amazed that the
journalists have not kicked and screamed about this. Maybe it's
because they're all worried about their jobs right now, in this
downturn, and they don't think it's the thing to do.
But, I would ask--I know the FCC has taken limited action
against Comcast in this area--I would like to ask the FTC, Does
the current law give you enough recourse to take actions on
these fake newscasts? Isn't there a way that we can say, ``You
can't do that. You can't pretend like you're broadcasting news,
when it's a paid advertisement''? That doesn't seem
unreasonable to me.
Mr. Vladeck. We can, and we do. If you look at the
Commission's testimony, at page 4, we talk about a case--it's
this case that we filed in 2004 against dietary supplement
manufacturers that were claiming that their supplements could
prevent cancer, cure arthritis, and things like that. One of
the claims against the company was that they failed to disclose
that they promoted these products through a paid commercial
that looked like a independent television program. And, you
know, we target products, based on the risks they pose to the
public, in terms of public health issues and economic loss.
Where we see an infomercial like this masquerading as real
news, we will add a charge. But, in our view, given our
enforcement priorities, the principal actor here has to be the
FTC--the FCC. We do not have the resources to go, one by one,
against all of these fake newscasts. So, we look for these----
Senator McCaskill. Can't you, at a minimum--you know, like,
I'm pretty good at yelling at people.
[Laughter.]
Senator McCaskill. I mean, can't you, at a minimum, every
time you all see one of those ads, can't you send the
production company, you know, ``What you're doing could be
actionable, and it could cost you a lot of''--I mean, why can't
you do to them what is real, what they do to everyone else,
which is fake?
Mr. Vladeck. Well----
Senator McCaskill. You know, they----
[Laughter.]
Senator McCaskill.--they pretend to the world that--you
know, I mean--with all due respect--and I haven't been here for
your testimony, Mr. Congdon; I assume you sell some kind of
weight-loss product or--you know, with all due respect, I mean,
I would--you know, in my life, I wish I had a dollar for every
diet I've been on and every weight-loss attempt I've made. And
I get why everybody wants to believe something that isn't going
to be true. There's just really one old-fashioned way to do it;
it's called ``put less in your mouth and move your body more.''
You know, but they--they do all this, that ``It's a
miracle,'' and, ``If you do this, wonderful things will
happen.'' Why can't we, at a minimum, send out a letter,
saying, ``Hey, what are you doing?'' You know, ``You're
pretending you're a newscast, and you're not, and it could be
actionable, and we could come after you''? I don't think
these--the production companies have even heard a whiff of a
problem. When the Comcast action was taken, it wasn't even
against the production companies; it was against Comcast.
Anybody?
Mr. Renker. Well, if I might----
Senator McCaskill. Consumer Union?
Mr. Renker. If I might, Senator, speaking on behalf of the
industry--and I'm--I hope Mr. Peeler has a comment--as I
mentioned earlier, before you came in, I testified on this very
topic 19 years ago. And what you're describing is deceptive and
wrong. And if we see it on television, we try to stop it.
Senator McCaskill. Well, it's not hard to find it right
now. It's everywhere.
Mr. Renker. I agree. And it is harmful to our industry, it
is harmful to consumers, and we are 100 percent against it.
Senator McCaskill. Well, I hope that you all get
aggressive, because I will follow up with the FCC in--because--
but, we have jurisdiction in this committee, too. It's bad
enough that people are turning on the evening news and don't
believe what people are saying. And all this is doing is adding
to the problem.
Mr. Peeler. Senator, could I add one----
Senator McCaskill. We need to rely on our news.
Mr. Peeler.--could I add one complexity to this discussion?
As Mr. Renker said, 20 years ago there was a real pervasive
issue with television ads that looked like they were news
castings. And thanks to the support of the ERA, I think we've
made a lot of progress there. We're still seeing some cases--in
fact, I looked back, we've had three in the last year, of
advertisements that were taking editorial format.
The specific issue, though, that I think you're raising has
one additional complexity, which is, if it's basically a news
release done in video form that a broadcaster decides that
they're going to run, and the company that put out either the
video or paper news release is not making that decision,
there's actually an issue for us, as a self-regulatory body--
and there certainly would be an issue for the government--as to
whether or not they could go in and--they can certainly, as the
FCC has done, tell the broadcaster that they've got to disclose
the connection, but I think there would be an issue about
whether they could actually go and second-guess the judgment of
the news program.
Assuming there's not a direct payment. If it's a direct
payment to the television station for running the VNR, then
that's just advertising, and that's exactly what the industry
and the self-regulatory system and the FTC have been working to
clean up for years.
Senator McCaskill. Yes, well, I'm talking about when
somebody pays the station to run an ad, and pretends like it's
a news with the little clip running below, with today's news on
it. I mean, give me a break. I mean, it is deceptive, on its
face. Give me that case in front of a jury, and I'll do it pro
bono, and I'll get the result that we all know would happen if
a jury looked at it. This is not complicated. It's common
sense. And I hope you all take that seriously, because I think
it's really a problem.
Can I ask one brief other question?
I asked the FTC, last year, to look into the Craftmatic
beds. There was a unbelievable effort--sales effort. Then we
added some undercover folks that went into a sales training--
and how you got seniors to buy Craftmatic beds, and some
egregious circumstances of seniors, where the salesman shows up
at their front door, and gets in the door, and takes advantage.
In fact, these people were trained how to identify seniors to
take advantage of, and to make sure you close the sale before
they have a chance to call anyone, and make sure they close the
sale when no other family members are around really bad. And
I'm just curious, has there been any follow-up done on the
Craftmatic scam?
Mr. Vladeck. I assume there has been, but I can't answer
that question. I'll have to get back to you. I just--I don't
know the answer to that question.
Senator McCaskill. OK. Well----
Mr. Vladeck. We will get back to you promptly, I promise.
Senator McCaskill. OK. And I know that it's hard, coming to
these hearings, and everything that gets covered, but--just a
piece of advice, Mr. Vladeck, if you check your files for scams
that Senators have written about, that are on the Committee,
they're probably going to ask about them at the hearing.
[Laughter.]
Mr. Vladeck. I will make sure this doesn't happen again.
Senator McCaskill. OK, thank you.
Mr. Vladeck. Thank you very much, Senator.
Senator McCaskill. Thank you, thank you, Mr. Chairman.
Ms. Greenberg. Senator, I just wanted to--Senator
McCaskill, if I could just note that, on the VNRs, we couldn't
agree with you more. It's an outrage that broadcasters would
get paid to advertise something that looks like a--real news.
And what we'd like to see is a disclosure running, for the
entire segment of the VNR. And I think consumers would be
really shocked to see that.
Senator McCaskill. How about over the faces of----
[Laughter.]
Senator McCaskill.--the pretend newspeople who are
delivering that? I think, right over their mouths.
Ms. Greenberg. Can't argue with that.
Senator McCaskill. Yes.
Ms. Greenberg. Yes.
Senator McCaskill. OK.
Ms. Greenberg. OK, thank you.
Senator McCaskill. Thank you, Mr. Chairman.
Senator Pryor. Thank you.
Let me ask just a very few follow-ups. And you all have
been patient, and very helpful and informative to the
Subcommittee today, and we really appreciate it.
Mr. Vladeck, let me start with you. And does the Commission
have research--or, do you have data that tells the Commission,
and tells all of us, whether consumers can effectively
distinguish between, say, testimonial advertising that is
containing, truthful and substantiated information, versus that
type of advertising containing, the false and unsubstantiated
claims? Do you have any data showing where the line is and when
the consumers buy into it or not?
Mr. Vladeck. Well, the data that we have on the
testimonials shows that consumers do not understand, when there
is a disclaimer about typicality, that that disclaimer means
that they won't achieve what the person rendering the
testimonial does. And that's part of the impetus about why we
want to change our guides. That is, these disclaimers about
``not typical performance'' are ineffective. They may be
ineffective for a variety of reasons, but they are ineffective.
With respect to whether consumers believe ads, there are--
you know, there are now 40- to 50,000 dietary supplement
products that are being advertised both--heavily, in both TV
and through the Internet. These claims are proliferating
because the market is growing. And I think that it's only fair
to conclude--and there are lots of studies on this--that
people, by and large, believe the ads. They believe the
testimonials. They believe them when they're endorsers who are
sports figures, who are athletes, who are other people that
they trust--celebrities--which is why it's so important that we
police the marketplace and we make sure, particularly when
you're having claims of typicality, that those claims, in fact,
are accurate and substantiated.
All we're trying to do is make sure the flow of information
to the consumer flows cleanly, as well as freely. And that's
what we're--that's why we're trying to revise these guides.
Senator Pryor. Let----
Mr. Renker. Senator?
Senator Pryor. Let me follow up on that----
Mr. Renker. Right.
Senator Pryor.--just for one sec, and I'll get back to you
in a second, Mr. Renker, but----
You're talking about revising the guides. Just for the
Subcommittee's information, how many guides are there? Are they
issue-specific, or is there one master guide?
Mr. Vladeck. Well, there are a lot of guides, but----
Senator Pryor. Tell me what you're doing.
Mr. Vladeck.--but, for the advertisers, there are two main
ones. There's the--there are the endorsement guides, and
there's a specific guide involving environmental claims--the
green guides. We're in the midst of revising both of them;
separately, because they raise different issues.
The key issues with respect to the endorsement guidelines
are the typicality claims, and the social networking claims,
whether bloggers who are being paid or compensated for product-
touting have to disclose the relationship between themselves
and their sponsors. Those are the two key issues that we've
confronted.
Senator Pryor. And, again, for the Subcommittee's
information, when you review and revise these guides, do you
have a process which is like a public comment period, et
cetera?
Mr. Vladeck. So far, we've had two with respect to the
endorsement guides, and we will certainly have the same kind of
process, open and public process. All of our data is available
to everyone. So, the public can give us informed comments. And
we've gotten lots and lots of comments from businesses, from
consumers, from all stakeholders.
Senator Pryor. OK.
Mr. Renker?
Mr. Renker. Thank you, Senator Pryor.
Mr. Vladeck references the consumer impression of
typicality disclaimer, and their belief that what they're
seeing is real. But, I just want to highlight that that is
coming from print ads.
The business that we are in, that Mr. Congdon and I
represent, is one of a 30-minute program, with multiple
impressions throughout the program, and our products are
compliant, and our claims can be substantiated. And I would
suggest that that research would need to carry over into our
industry in order to be valid and relevant to what we're
talking about, on averages.
Senator Pryor. OK. Well, that's helpful.
And one last thing, really--and Senator McCaskill may have
a follow-up, too--but, really, I guess, for Mr. Peeler, since
you're in this industry and there are some self-regulation
activities that you do--how hard is it for you to spot
deceptive advertising?
Mr. Peeler. How hard is it to----
Senator Pryor. How hard is it for you to spot deceptive
advertising?
Mr. Peeler. You know, if--and I think that one of the real
challenges of self-regulation and enforcement in the area is
that, if deceptive advertising is done well, it is hard for
someone on the outside to spot, which is why one of the key
drivers of self-regulation has been encouraging competitors to
come forward with complaints, because competitors really know
what's their--what their competitors are doing.
So, for example, if--and we handle cases like this all the
time--if you're making a claim that your toothpaste reduces
cavities by 20 percent, you know, it's hard just to look at
that ad and say, you know, ``Gee, I wonder if that's true or
not.'' A competitor's going to have a pretty good sense of
whether or not there's something in the area that would provide
that result. So, we handle--you know, about half of our cases
are competitor-complaint-driven cases.
I also want to go back, though, to what you started the
hearing with, by saying that the majority of advertisers, you
know, do want to tell the truth, and they are compliant. And
there are two really important points that--just to add to
that. One is, you know, people like Mr. Renker and Mr.
Congdon--the fact that there are deceptive ads out--advertising
out there, as the Senator--Senator McCaskill suggested, really
undermines the credibility of all the advertising that's out
there. So, it's really in the--cuts against the industry, as
well as consumers, to have, you know, the deceptive advertising
out there.
And the other thing to say is, I--you know, I was in the
government for a long time, and I--and when you're in the
government, you basically see the bad people, the people that
have stepped over the line. In my present position, one of the
things that is the most impressive is how mainstream that--how
carefully mainstream advertisers look to both self-regulatory
precedent and government precedent in following their ads. You
know, a lot of our self-regulatory cases go into the nitty-
gritty details of Department of Agriculture definitions, FDA
definitions.
You know, literally everything that the FTC has written is
scrutinized. There's an old opinion letter that the FTC put
out, 25 years ago, saying, ``Here's what we would look to for
the use of the word `new,' '' that the industry follows like
it's a bible. I don't even think it's in the CFR anymore. But,
people really--the mainstream advertisers really pay attention
to the guidance that comes from the government.
Senator Pryor. Senator McCaskill, do you have anything
else?
Senator McCaskill. I don't.
Senator Pryor. Well, I want to thank the panel. This has
been a very good discussion.
What we're going to do is leave the record open for 2
weeks. There were some Senators that, due to other committee
hearings, et cetera, and action on the floor, were not able to
be here today. So, we'll leave the record open for 2 weeks.
What we'd like to do is, if Senators have more questions, we
would love for you all to respond to those as quickly as
possible.
Senator Pryor. And again, I want to thank you for your
preparation and your time here today. It's been very helpful
for the Subcommittee.
Hearing is adjourned.
[Whereupon, at 11:47 a.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. John D. Rockefeller IV,
U.S. Senator from West Virginia
With this hearing, the Committee continues to highlight the Federal
Trade Commission's role in protecting the American people, especially
at a time of unprecedented economic crisis. Last week, we explored the
increasing frequency and danger of economic fraud and financial scams
during tough times. Today, we will examine deceptive advertising and
its power to undermine consumers' confidence.
Empowering consumers with accurate information is essential to a
fair and thriving marketplace. But when that information can no longer
be trusted, consumers become vulnerable to manipulation, and bad actors
have the opportunity to take advantage of them.
Unfortunately, there is no limit to the tricks and ploys that
deceptive advertisers may use to rope consumers into bogus
opportunities and dangerous investments: elaborate ``bait and switch''
techniques, advertisements masquerading as news articles, advertisers
paying bloggers to endorse certain products, false or deceptive
testimonial advertising, ``free'' product advertising and false or
deceptive marketing of ``green'' products.
With each false claim or inflated promise, consumers lose faith in
the marketplace, the information they use to make decisions and the
government they expect to keep these scam artists in check. The impact
of deceptive advertising reaches beyond any one individual who buys
into it. Fraud seriously hurts legitimate businesses trying to compete
and does lasting damage to our economy.
I hope that with this hearing we can learn more about the
Commission's efforts to crack down on deceptive advertisers and
consider whether it has the resources and the authority it needs. And a
special thanks to Subcommittee Chairman Pryor for presiding today and
being such an outspoken advocate for the American consumer.
I want to thank our witnesses for sharing their perspective on
these issues as we discuss the Commission's most fundamental
responsibility: protecting the American consumer.
______
Response to Written Questions Submitted by Hon. Tom Udall to
Sally Greenberg
Question 1. What is the appropriate level of voluntary industry
self-regulation?
Answer. The development of sound self-regulatory standards for
consumer products and services helps ensure the physical and economic
welfare of consumers. Self-regulation helps industry players know what
the norm is for actions within their industry. It sets parameters that
help to identify bad actors within the industry. It also encourages
industry to condemn bad actors and take action to address the issue.
NCL strongly supports industry self-regulatory models that include
competent consumer contributions to the development of product and
service standards. Such consumer input should be applied in the
development of both mandatory and voluntary industry self-regulation
standards.
With regards to advertising industry self-regulation, NCL believes
the standards and rules set by the industry should reflect the
following core principles:
The goal of self-regulation should be to promote policies
and standards that better inform consumers of product and
service performance characteristics.
There should be an endorsement and support of the role that
strong and effective government regulatory and enforcement
agencies play in overseeing industry.
There should be an acknowledgment that disclosure alone is
never an acceptable substitute for quality safety standards and
careful design and production of the advertised product.
To the specific question of the level of voluntary industry self-
regulation, we support vigorous industry-based review of all
advertising, including in the mew media market. Unfortunately, we find
that the advertising industry too often fails to balance the
competitive desires of the standards-making body's members against need
for consumers to understand the true nature of a product or service
advertised.
Time and again, it has been shown that when consumers are presented
with all the facts about a product or service in a clear, easy-to-
understand fashion, they will make an informed choice. This is no less
true in ``new media'' advertising than in traditional advertising.
Unfortunately, it is apparent to our organization that advertisers too
often think first of how their advertisements can give as little
substantive information as possible without running afoul of government
regulators. Instead, they should focus on how to properly inform their
target audience to enable them to make informed choices.
It is illuminative to note that the three goals of the National
Advertising Review Council, a leading advertising industry self-
regulatory body, are as follow:
minimize governmental involvement in the advertising
business.
maintain a level playing field for settling disputes among
competing advertisers.
foster brand loyalty by increasing public Trust in the
credibility of advertising.\1\
---------------------------------------------------------------------------
\1\ National Advertising Review Council, ``About the National
Advertising Review Council (NARC),'' Accessed August 21, 2009. Online:
http://www.narcpartners.org/about/index.aspx.
That effectively informing consumers about the benefits, risks, and
effectiveness of products advertised is not mentioned as a goal
indicates to us that the self-regulatory objectives of the advertising
industry may be insufficient. Further, given the opposition shown by
the advertising industry to even the modest revisions proposed to the
Federal Trade Commission's (FTC) Guides Concerning Use Of Endorsements
and Testimonials in Advertising, we feel that there is a lack of
---------------------------------------------------------------------------
ambition on the part of the industry to set such a goal in the future.
Question 2. Where do we need greater FTC authority and activity to
protect consumers?
Answer. First, the proposed revisions to the FTC's Guides
Concerning Use Of Endorsements and Testimonials in Advertising should
be adopted by the Commission. These changes are long overdue and will
help to stop some of the most egregiously harmful advertising industry
practices, particularly with regards to weight-loss drugs, business
opportunities, and other medical services such as baldness cures.
Second, replacing the FTC's current Magnusson-Moss Act-based
rulemaking authority with Administrative Procedures Act (APA)
rulemaking authority would do much to enhance the FTC's ability to
proactively protect consumers from dishonest advertisers. For example,
under its current rulemaking regime, when the FTC takes action against
a dishonest advertiser, such an action requires a lengthy investigation
that all too often leaves inordinate amounts of time for dishonest
marketers to reap the rewards of their bogus advertisements. We believe
that APA rulemaking authority would allow the FTC to much more quickly
take action against dishonest marketers and thus protect more
consumers, particularly in the ever-evolving new media landscape.
Finally, we would endorse more FTC activity to initiate actions
against deceptive advertisers. Unfortunately, the FTC's stretched
resources have in recent years forced it to only choose high-profile
targets, relying on the media exposure gained from its actions to
attempt to scare other bad actors out of the market. Given the
proliferation of advertising we find to be manipulative at best and
fraudulent at worst, especially online, we do not believe that this
strategy is sufficient to control the problem. While a more vigorous
rulemaking authority would give the FTC the legal tools it needs to
tackle fraudulent advertisers, the agency will also require the
sufficient financial and staff resources to support vigorous
enforcement.
Question 3. Does the FTC need new authority to protect consumers in
a new media landscape that includes Internet videos, web blogs, and
Twitter accounts?
Answer. NCL supports the inclusion of new media content channels
such as blogs and viral video in the Guides Concerning Use Of
Endorsements and Testimonials in Advertising. We believe that consumers
are increasingly relying on such new media outlets to inform themselves
about products and services in the marketplace. The increasing
resources advertisers are devoting to these advertising channels,
suggests that they are of a similar mind on this issue.
Given the complexities of the new media landscape and the evolving
nature of user-generated content we believe the revisions to the FTC's
Guides are a good first step in ensuring that these new advertising
channels do not become a haven for deceptive advertising. We would urge
the Commission to remain vigilant and periodically review the
effectiveness of its policies regarding testimonial advertising in
user-generated content to determine if greater authority is needed in
the future.
______
Response to Written Questions Submitted by Hon. Tom Udall to
David Vladeck
Question 1. In testimonies today, witnesses express different views
of the appropriate level of regulation and where industry self-policing
is working--or not working--well. What is the appropriate level of
voluntary industry self-regulation? Where do we need greater FTC
authority and activity to protect consumers? Does the FTC need new
authority to protect consumers in a new media landscape that includes
Internet videos, web blogs, and Twitter accounts?
[The witness did not respond.]
Question 2. Mr. Vladeck, you note that today it is more complex and
difficult to pursue false and deceptive advertising claims. With the
Internet and new ways of reaching customers, we are seeing new ways for
bad actors to flock unsafe products or take advantage of vulnerable
consumers.
As a former state attorney general, I would appreciate your
thoughts on how the FTC is working with state attorneys or U.S.
attorneys to pursue these truly bad actors--those who are committing
fraud and producing deceptive advertisements. How are you planning to
work with and reach out to state attorneys general and U.S. attorneys?
Do you have a systematic way to work with them? How often are you
meeting with them and their staffs?
[The witness did not respond.]