Advertising Law

Fifty Years Later, Still Feeling the Impact of 1965

In 1965, TV spots ran for 60 seconds . . . mostly in black & white.

A first-class stamp cost five cents. (Remember mail?)

Bonanza ruled the airwaves, while the Marlboro Man wrangled with the Surgeon General.

Skirts got shorter. Hair got longer. Students staged sit-ins. Hippies turned on.

And two young attorneys opened for business in a Van Nuys, California storefront.

From Chuck Manatt and Tom Phelps’s modest beginnings, Manatt has grown to hundreds strong and the firm has become a nationally recognized leader in advertising, marketing and media law.

Landmark cases from 1965 still influence marketing law today, serving as the foundation principles that guide the industry in a digital, social, and consumer-driven age.

Back then, the country was rife with change. Lyndon Johnson introduced Medicare. Martin Luther King, Jr. led the march in Selma and the Voting Rights Act became law. Nightly news delivered to the dinner table the horrors of the nascent Vietnam War, dubbed “the Living Room War.”

The social climate was changing, and with it marketers began to push the limits of their advertising claims, all of which prompted the landmark case of FTC v. Colgate Palmolive Co. Colgate claimed in a TV spot that its Rapid Shave shaving cream could soften “even tough dry sandpaper,” and provided apparent visual proof by shaving what appeared to be sandpaper on which Rapid Shave had been applied. Except it wasn’t sandpaper, but sand sprinkled on a pane of glass. The Federal Trade Commission had had enough of dubious ads, and it filed a complaint alleging that the spot materially misrepresented the product and was therefore deceptive and misleading. Colgate countered that the shaving cream could soften sandpaper sufficiently to shave if left on long enough, and that the normally quiescent FTC had over-stepped its authority. The case reached the Supreme Court which issued a ruling that remains a central tenet of advertising law that seems self-evident today: “It is a material deceptive practice to convey to television viewers the false impression that they are seeing an actual test, experiment or demonstration which proves a product claim when they are not because of the undisclosed use of mock ups.” Thereafter and now, the familiar “dramatization” disclaimer has become necessary and commonplace.

The Commission took another step forward in 1965 when it charged that Libby-Owens-Ford, the glass supplier to General Motors, had misleadingly mocked up its glass in a series of TV spots to demonstrate the superiority of its safety glass used in GM autos, as compared to the glass used in non-GM cars. GM featured the same altered glass demonstrations in its own ads on two occasions. LOF argued that it acted in good faith, that it directed its ad agency to present a fair commercial, that it was unaware that the glass was altered in any way, and that the producer of the spots was an independent contractor for whose acts it was not responsible. The 6th Circuit affirmed the Commission’s position and announced that an advertiser “may not delegate its advertising [responsibilities] to an independent contractor and escape liability for the acts of its advertising agency and film producer in advertising their products.” This ruling also remains a central tenet of advertising law today.

The FTC shaped another enduring principle that year regarding “puffery,” a legal defense that has often been described as the advertiser’s right to lie its head off. The FTC made clear that while a seller “has some latitude in puffing his goods, he is not authorized to misrepresent them or to assign to them benefits they do not possess.”

Times change, of course. In 1965, the Beatles rocked Shea Stadium—long before iTunes (and before two million downloads of Beatles songs in the first week after their 2014 iTunes debut).

Walmart and Target were just three years old, budding regional chains with a handful of stores. Amazon was 30 years away . . . now it can deliver in just two hours.

Back then, three networks brought the world into our living rooms, sometimes in living color. Today, Netflix, Hulu and Amazon are reinventing TV . . . alongside CBS.com, NBC.com, and ABC.com.

And no one could have predicted then that 50 years later advertisers would grapple with the challenge of applying decades-old advertising law principles to media and technology that were not even imagined in 1965
. . . or that a small storefront law firm would become the enterprise that shows them the way.

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Linda Goldstein to Speak at Social Media Week Los Angeles, June 9

Linda Goldstein, partner and chair of Manatt’s Advertising, Marketing & Media Division, has been invited to speak on a panel hosted by the Word of Mouth Marketing Association at Social Media Week Los Angeles at the Bergamot Station Arts Center on Tuesday, June 9. Social Media Week explores the intersection of social technology and creativity with a week of panels, presentations, workshops and interactive events.

Ms. Goldstein will participate in an in-depth conversation about how sponsored communications are distributed, shared and targeted across published sites and social platforms. She and her co-panelists—Ted Birkhahn, President and Partner of Peppercomm, and Peyman Nilforoush, CEO and Co-Founder of inPowered—will share their insights in a session titled “The Journey of Content Across Paid, Owned and Earned Channels.”

Social Media Week Los Angeles takes place from June 8 through June 12. Further information may be found here.

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Clock Runs Out on Philosophy’s Ad Claims, Says NARB

Time was not on the side of Philosophy in an appeal to the National Advertising Review Board (NARB).

The panel recommended that the company modify or discontinue several advertising claims for its “Time in a Bottle Age-Defying Serum” made in print advertising and on product packaging.

The National Advertising Division (NAD) advised Philosophy to halt all claims based on a study it found to be unreliable. On appeal, the NARB found the study to be reliable, and in particular, found that a fill-in-the-blank question on a self-assessment questionnaire that asked participants “Skin appears ____ years younger” was not inherently arbitrary.

“The ‘years younger’ question solicits a subjective response from study subjects as to perceived changes in their skin,” the NARB said. “The panel agrees with Philosophy that individuals are capable of recognizing how their appearance changes over time and it is appropriate for questionnaires to explore perception of those changes.”

However, even though the “years younger” data was reliable, the panel did not believe that responses from 60% of the study participants provided a reasonable basis to support a claim that “Women told us their skin looked 730 days younger.”

The claim “reasonably conveys a message that all or at least a significant majority of women expressed an opinion that their skin looked at least 730 days younger,” even with an asterisk linked to a disclosure referencing the 60% level of support. But since the disclosure was not conspicuous, and it contradicted the main message of the claim, it was deemed unacceptable by the Board.

Similarly, Philosophy’s claims that Time in a Bottle helped skin appear “radiant,” “poreless,” “wrinkle-free,” “smooth,” and “firm” overstated the survey results.

“[T]he challenged claims do more than promise help to improve appearance with respect to the identified skin attributes; they convey a stronger message that Time in a Bottle serum will help women’s skin achieve the highest levels of appearance with respect to these attributes,” the panel wrote. “While the study findings support claims that Time in a Bottle serum helps improve the appearance of women’s skin with respect to these attributes, they do not support a claim that the product will help women’s skin attain the highest level of appearance with respect to them.”

Other claims based on the testing—“95% showed significant reduction in visible signs of aging after 8 weeks,” for example—also supported a claim of improvement but not a claim of “significant” improvement. “The panel believes that consumers will reasonably interpret ‘significant’ to refer to the degree of improvement and not the fact that statistical significance was achieved,” the NARB said.

The challenged claims should therefore be discontinued or modified, the panel recommended.

To read the NARB’s press release about the decision, click here.

Why it matters: While the NARB disagreed with the NAD that the study relied upon by Philosophy was unreliable, the panel still recommended that the advertiser discontinue or modify the challenged claims. The lesson: even where a study may prove to be sufficiently reliable, advertisers must tailor their claims to the results and not overstate the findings.

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FTC Chair Offers Guidance on Privacy, Data Security

Looking for guidance on privacy and data security?

Federal Trade Commission Chairwoman Edith Ramirez offered three tips to businesses at a recent speech at the Law and Information Society Symposium at Fordham Law School.

First, companies must ensure that privacy remains top of mind companywide. Employees must be aware of and trained on the issue of privacy, with designated personnel assigned to the task. Companies should also regularly assess how the company’s practices, products, and services impact consumer privacy.

“Companies should only collect the data they need for the specific purpose and then dispose of it,” the Chairwoman told attendees. “I question the notion that we must put sensitive consumer data at risk at the chance a company might someday discover a valuable use for that information.”

Her second piece of advice: Consumers should be provided with “meaningful notice” and choice about the unanticipated use of their data. Ramirez acknowledged that sharing disclosures with consumers can be challenging in new products, but emphasized that it still needs to be done (offering suggestions such as video tutorials or “privacy dashboards”).

“The ingenuity that brought us these new technologies can also develop effective ways to provide notice to consumers on mobile phones, where small screens are often a challenge, and on Internet of Things devices that often may have no consumer interface at all,” the Chairwoman explained.

Finally, Ramirez said companies should renew their focus on data security, in particular the growing number of new technologies such as mobile payments and the Internet of Things. Specifically, she advised that businesses incorporate security by design, a practice that covers the lifecycle of a product, that they test prior to launch and encrypt data in transit and at rest, and that they patch known vulnerabilities if (or when) they occur.

“If you look at the 50 data security actions the FTC has brought over the last several years, it really reflects that companies, in my view, aren’t paying attention to some of the key fundamentals when it comes to data security,” Ramirez said. “So I think that’s one of our most significant challenges.”

Why it matters: “We have an important opportunity to ensure that new technologies that have the potential to provide enormous benefits develop in a way that also protects consumer information,” Ramirez told attendees. “If companies commit to the steps that I’ve outlined, I think we can go a long way to addressing some of the key global privacy challenges that we face.”

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FTC: Cancer Charities Bilked Consumers Out of More Than $187M

In a major enforcement action, the Federal Trade Commission and 58 other law enforcement partners—representing every state and the District of Columbia—filed suit against four cancer charities and their operators for allegedly bilking more than $187 million from consumers.

Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America (CCFOA), and The Breast Cancer Society (BCS) promised donors that their donations would help cancer patients. Instead, the “overwhelming majority” of the money went into the pockets of the individuals operating the scam, along with their friends and families, the FTC said.

Using telemarketing calls, direct mail, and Web sites, the defendants portrayed their organizations as legitimate charities providing direct support to cancer patients in the form of pain medication, hospice care, and transportation to chemotherapy. In reality, they “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflict of interest, and excessive insider competition, with none of the financial and governance controls that any bona fide charity would have adopted,” according to the complaint.

The defendants spent donations on cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and even dating site memberships, the FTC said. Professional fundraisers were hired that received up to 85% or more of every donation. The organizations also operated as lucrative employment for family members and friends.

To hide the high fundraising and administrative costs, the FTC alleged that the defendants falsely inflated their revenues by reporting in their publicly filed documents more than $223 million in donated “gifts in kind” they said were distributed to international recipients. But these falsely inflated donations—meant to convince donors and regulators that the operations were larger and more efficient than they really were—resulted in additional charges from 35 states that the defendants filed false and misleading financial statements.

“Cancer is a debilitating disease that impacts millions of Americans and their families every year. The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement. “The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers. I’m pleased that the FTC and our state partners are acting to end this appalling scheme.”

The regulators charged the defendants with violating the FTC’s Telemarketing Sales Rule, providing professional fundraisers with deceptive fundraising materials, and making deceptive charitable solicitations.

Under proposed settlement orders, BCS and CCFOA will be dissolved and the related individuals banned from fundraising, charity management, and oversight of charitable assets. Monetary judgments would be suspended pending partial satisfaction via the liquidation of various assets. Litigation continues against the remaining defendants.

To read the complaint and the proposed consent orders in FTC v. Cancer Fund of America, Inc., click here.

Why it matters: The action is the largest brought to date by the Commission to combat charity fraud and the first brought by the FTC in conjunction with all 50 states and the District of Columbia. It sends a clear message from regulators nationwide that charity fraud will be taken seriously.

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Sweepstakes Scam Loses in Court to FTC

A sweepstakes operation was on the receiving end of an injunction issued by a Florida federal court this week at the request of the Federal Trade Commission.

The defendants—more than one dozen corporate entities and related individuals based in Fort Lauderdale, Florida—operated an international scam that took in over $28 million from consumers in the United States as well as Australia, Canada, France, Germany, Japan, and the United Kingdom, the agency alleged.

Personalized letters were mailed to consumers informing them they had won large cash prizes—upwards of $2 million—and instructing them to send the defendants a fee of $20 to $30 in order to claim them, the FTC said. Consumers were spurred into a “false sense of urgency” with a deadline (typically 10 days) after which they would forfeit their “guaranteed” prizes.

But in reality, consumers won nothing. Only in “dense, confusing language” found on the bottom or the back of the letters did the defendants inform recipients that they were really compiling reports about available sweepstakes and contests, according to the FTC’s complaint. The disclaimers were “unclear and inconspicuous,” and were not designed to alert consumers as to the truth.

In response to a motion filed by the Commission, a federal court judge in Florida froze the defendants’ assets and halted their operations. In addition, four individual defendants were arrested by the U.S. Attorney for the Southern District of Florida. The FTC said it plans to recover compensation for affected consumers and permanently end the illegal practices.

To read the complaint and temporary restraining order in FTC v. Mail Tree, click here.

Why it matters: The mailers had no connection to an actual sweepstakes and despite promising people huge prizes and collecting millions in fees, the defendants “never paid out a dime,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement.

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Noted and Quoted . . . Linda Goldstein Shares News on FTC’s Revised FAQs to Endorsement Guidelines on MDM’s Blog

Linda Goldstein, partner and chair of Manatt’s Advertising, Marketing & Media Division, wants all Multi Channel Networks (MCNs) to know about the revisions the FTC made to its Endorsement Guidelines on May 29, 2015. In a blog post titled, “MCN’s Beware: FTC’s Just Revised FAQs to Its Endorsement Guidelines May Directly Impact You,” she highlights five main revisions at which the MCN community should take a close look. Click here to read the full post by Linda Goldstein at Manatt Digital Media blog.

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Most Read Stories

In case you missed any, here are our top 10 most widely read stories in April:

1. “User Choice to Send Solicitations Refutes ATDS Allegations

2. “Grocery Chain Blocks Jordan’s Shot at Win; Case Headed to Trial

3. “Pink Cadillac Not Included: Mary Kay Sues Over ‘Fraudulent Couponing Scheme’

4. “Amazon Sues Over Fake Reviews

5. “A TCPA Lesson in Making an Offer of Judgment

6. “Red Light! Cab Companies Claim Uber Falsely Claims to Be Safer Service

7. “ICANN Seeks FTC Assistance With ‘.sucks’ Domain Name

8. “With Final Approval, HSBC’s $40M Deal Is the Third-Largest TCPA Settlement

9. “On the FTC’s Agenda: Cross-Device Tracking

10. “Plaintiff Loses Challenge to ‘No Refined Sugars’ Claim

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