Sources of Advertising Law

Pages1-21
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CHAPTER I
SOURCES OF ADVERTISING LAW
A. The FTC Act and the Claim Substantiation Doctrine
The Federal Trade Commission Act (FTC Act) and its jurisprudence
are one of the primary sources of advertising law in the United States.
Under the FTC Act, the Federal Trade Commission (FTC or
Commission) is empowered to (a) prevent unfair methods of competition
and unfair or deceptive acts or practices in or affecting commerce;
(b) seek monetary redress or other relief for conduct injurious to
consumers; (c) prescribe trade regulation rules defining with specificity
acts or practices that are unfair or deceptive, and establish requirements
designed to prevent such acts or practices; (d) conduct investigations
relating to most organizations engaged in interstate commerce; and
(e) make reports and legislative recommendations to Congress.1
1. Enforcement Powers and Process
The FTC has broad enforcement authority, including the power to
“prosecute any inquiry necessary to its duties in any part of the United
States”2 and to “gather and compile information concerning, and
. . . investigate from time to time the organization, business, conduct,
practices, and management of any person, partnership, or corporation
engaged in or whose business affects commerce,” with certain
exceptions.3
FTC investigations of a company’s advertising practices typically
begin with either an access letter, in which the agency requests that a
company voluntarily produce information, or with a civil investigative
demand (CID), which is a formal request similar to a subpoena, to which
the company can either respond or object.4
Following an investigation, the Commission may issue a formal
complaint against a company where there is “reason to believe” that a
1. See 15 U.S.C. §§ 45-58.
2. Id. § 43.
3. Id. § 46(a).
4. Id. § 49.
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Advertising Claim Substantiation Handbook
violation of the FTC Act or other consumer protection statute within the
FTC’s jurisdiction has occurred.5 Most FTC investigations are
confidential until a formal complaint is filed against a company.
If the respondent elects to contest the charges, complaints are often
adjudicated before an administrative law judge (ALJ) in a quasi-judicial
proceeding. Either FTC counsel or the respondent, or both, may appeal
the ALJ’s initial decision to the full Commission.
If the respondent elects to settle the charges, it may sign a consent
agreement without admitting liability, consent to entry of a final order,
and waive all right to judicial review. If the Commission accepts such a
proposed consent agreement, it publishes the order for approximately
thirty days of public comment before determining whether to make the
order final. A typical advertising-related administrative consent
agreement remains in effect for twenty years. If a respondent violates a
final order, it is liable for a civil penalty of up to $40,000 for each
violation and $40,000 per day for continuous violations.6
Under Section 13(b) of the FTC Act, the FTC also has the authority
to pursue preliminary and permanent injunctive relief directly in federal
court.7 Courts have affirmed that the FTC may pursue the full range of
equitable remedies in such actions, including consumer redress,
temporary restraining orders, asset freezes, and appointment of
receivers.8 Furthermore, if the FTC believes that a company has violated
a specific industry rule or regulation, the FTC may attempt to obtain a
civil penalty which, in most cases, may be up to $16,000 per violation.
2. Unfairness and Deception Standards
Section 5(a) of the FTC Act prohibits unfair or deceptive acts or
practices in or affecting commerce.9 An advertisement is considered
unfair if
it causes or is likely to cause substantial consumer injury;
5. 15 U.S.C. § 45(b).
6. 15 U.S.C. § 45(l). In accordance with the Federal Civil Penalties Inflation
Adjustment Act, as a mended, this amount is s ubject to annual ad justment
for inflation.
7. 15 U.S.C. § 53(b).
8. See FTC v. Sw. Sunsites, Inc., 665F.2d 711, 717-18 (5th Cir. 1982); FTC
v. H.N. Singer, Inc., 668 F.2d 1107, 1113 (9th Cir. 1982).
9. 15 U.S.C. § 45(a)(1).

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