2 Advertising’s Legal and Regulatory Environment
3 First Amendment case law –Congress shall make no law “abridging the freedom of speech, or of the press; or the right of people peaceably to assemble, and to petition the Government for a redress of grievances” –Advertising as commercial speech –First Amendment extends to commercial speech, but not absolutely –Supreme Court: freedom of expression must be balanced against competing interests –Court has generally found that only truthful commercial speech is protected. Advertising under First Amendment Right/Protection?
4 Laws and Regulations by Federal Agencies (table 3.3, p. 71) –Federal Trade Commission –Food and Drug Administration Oversees package labeling and ingredient listings for food and drugs, determines safety of food and cosmetics –Federal Communications Commission Issues and can revoke licenses to broadcasting stations. Can ban messages, including ads, that are deceptive or in poor taste. Take action against the media –U.S. Postal Service (direct mail, magazine ads); –Bureau of Alcohol, Tobacco, and Firearms (advertising for alcoholic beverages) –U.S. Patent Office (trademark registration to protect against patent infringement) –Library of Congress (copyright protection)
5 –Established by Congress in 1914 –the Wheeler-Lea Amendment in 1938 –Five-member commissioners including one chairperson (7-year term, Deborah Platt Majoras) –Investigate companies that engage in unfair or deceptive practices –Regulate acts and practices that deceive businesses or consumers –Issue cease-and-desist orders against such practices –Fine people or groups that violate rules –Encourage consumer groups to participate in rule- making Advertising and the FTC
6 Deception –Deceptive acts include: Deceptive pricing False criticisms of competing products Deceptive guarantees Ambiguous statements False testimonials Partial disclosure of important facts –Current policy on deception: “High probability” that consumer will be mislead Perspective: a “reasonable consumer” Deception must lead to material injury Major Areas of Advertising that the FTC focuses
7 1. Consent decrees: FTC notifies advertiser of its finding and asks the advertiser to sign an agreement to stop the deceptive practice 2. Cease-and-desist orders: Can be issued if an advertiser refuses to sign a consent decree FTC and accused parties go before an administrative law judge Appeals to the five-member commission ** Corrective advertising If FTC determines a campaign has perpetuated lasting false beliefs, the offending advertiser must produce messages that correct these beliefs (Listerine mouthwash case in 1977) FTC Deceptive and unfair advertising remedies (Enforcement Methods)
8 Consumer Redress: –The Magnuson-Moss Warranty-FTC Improvement Act of 1975---- cancellation or reformation of contracts, refund of money or return of property, payment of damages, and public notification Advertising Agency Legal Responsibility –Is advertising agency liable for deceptive advertising along with the advertiser?
9 Social Responsibility and Self-Regulation –balance company profits, consumer-want satisfaction, and public interest 1. Self-Displine: in-house ad review procedures by attorneys 2. Industry Self-Regulation 3. Public and Community Review: consumer activist groups.
10 National Advertising Review Council (1971) – by several professional associations with the council of Better Business Bureaus –To negotiate voluntary withdrawal of national advertising that professionals consider to be deceptive. National Advertising Division of the Better Business Bureau (NAD): –Children’s Advertising Review Unit (CARU) National Advertising Review Board (NARB): “appeal office” *** cannot order an advertiser to stop running an ad. cannot impose a fine. cannot anyone from advertising. Industry Self-Regulations
12 Media Regulation: “Clearance Process” Regulation before its placement in the media by in-house clearance department or officer. Media companies have a right to reject any ad that it deems in poor taste, misleading, deceptive, controversial to their readers or viewers.
13 In recent years, the concept of cause marketing has emerged. Companies align their products with a cause like breast cancer or protecting the environment, and in turn, hope to generate more sales as a result. Is this ethical? Why or why not? Are you more likely to buy a product associated with a “good cause”? Why or why not? Questions for Discussion