Electronic Retailer - December 2011 - 40

BY JEFFREY D. KNOWLES AND DANIEL S. SILVERMAN

Let the Seller Beware
Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.”  This adage aptly applies to the advertising and marketing of consumer products sold through direct response television and electronic retailing, as well as traditional retail establishments.   Often, in their zeal to boost a products’ appeal and increase sales, marketers make claims about a product that may be questionable, misleading or clearly false. These types of claims can leave companies vulnerable to expensive attacks. In recent years, the level of scrutiny of almost every type of marketing claim has increased. Various groups, including government law enforcers, industry self-regulatory bodies, consumers, competitors and class action attorneys frequently scrutinize print advertisements, websites, broadcast commercials, packages and product labels looking for deceptive or misleading advertising. Below is a description of each of these groups, which will pounce on claims they deem false or misleading. Federal Trade Commission: The FTC’s mission, as it applies to consumer protection, is to regulate advertising and prevent fraudulent, deceptive and unfair business practices. Health claims are an especially high priority for the FTC, but the commission has become more aggressive across all areas of advertising in the past few years. Typically, when the FTC identifies a company it believes is falsely marketing a product or is making claims without sufficient substantiation, it sends a letter to the company, opening an investigation. The FTC investigation can be disruptive to a company’s business, requiring scores of documents, including scientific studies for the claims made in a product’s advertising. If the results of the investigation reveal what the FTC believes to be unlawful conduct, its next step is to send the company a consent decree that demands corrective advertising and often a significant fine. If the company does not agree to the FTC’s terms, the FTC may file an administrative complaint or a lawsuit in federal court. The commission frequently pursues administrative complaints because they stack the deck heavily in the FTC’s favor. Thus, the usual conclusion of an FTC investigation is a choice between two unpalatable options: signing a consent decree or fighting the FTC on a non-level playing field. Food & Drug Administration: The FDA, which enforces the Federal Food, Drug and Cosmetics Act (FFDCA), is responsible for reviewing and approving product advertising, labeling and packaging of products subject to the FFDCA. Unlike the FTC, the FDA typically issues a warning letter to a company that’s marketing it believes violates the FFDCA. The warning letter gives the marketer the opportunity to correct violations voluntarily prior to a formal enforcement action. Recently, there has been a significant rise in enforcement activity by the FDA, including the number of FDA warning letters and product recalls. In 2010, the FDA issued 40 percent more warning letters than in the past three years combined. It also recalled 9,361 products and won a record $3 billion-plus in fines, forfeitures and related actions against FDA-regulated companies, plus more than twice that amount in restitution and profit disgorgement. Attorney General Actions: States’ attorneys general prosecute companies for false advertising under state unfair competition or consumer protection statutes. Often the state AGs work with the FTC in regulating deceptive business practices. In 2010, the FTC and 39 state attorneys general coordinated in reaching an agreement with Dannon yogurt regarding health claims it made. Ultimately, Dannon entered a consent decree with the FTC agreeing to stop making many of its health claims and agreeing to pay the states $21 million. National Advertising Division: The NAD, an independent, self-regulatory body, is yet another vehicle for monitoring and evaluating truth and accuracy in advertising. Competitors bring most NAD cases, but NAD also can initiate challenges to advertising it believes is deceptive. NAD decisions are not legally binding; however, if an advertiser chooses to ignore a NAD decision, the selfregulatory group can refer the matter to the appropriate government agency. Consumer Class Action Lawsuits: Class actions can be a powerful tool for consumers seeking compensation for false or deceptive advertising without relying on government action. Consumer class actions have been on the rise in recent years. Consumers may recover money paid for the offending product, statutory penalties, actual or punitive damages, an order enjoining the false advertising and attorneys’ fees. Competitor Lawsuits: Competitors also can sue for false advertising. The vehicle for such a suit is the Lanham Act, a federal statute that proscribes false advertising. Like consumer class actions, the number of false advertising suits by competitors has increased over the past several years. As lawsuits proliferate and the costs of consent decrees and settlements skyrocket, advertising claims deemed false, deceptive or unsubstantiated can bring down even the best companies. Experienced advertising lawyers can help marketers ensure advertising claims comply with regulations. In today’s advertising enforcement environment, an ounce of prevention is most certainly worth a pound of cure. Jeffrey D. Knowles and Daniel S. Silverman are partners in Venable LLP’s Advertising, Marketing and New Media Group. Contact them at (202) 344-4000.

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electronicRETAILER | December 2011



Electronic Retailer - December 2011

Table of Contents for the Digital Edition of Electronic Retailer - December 2011

Calendar of Events
Your Association, Your Bottom Line
Industry Reports
FTC Forum
eMarketer Research
IMS Retail Rankings
Jordan Whitney’s Top Categories
Lockard & Wechsler’s Clearance & Price Index
Ask the Expert
Pillow Pet Talk
What’s New in SEM?
Canada’s Economy Weathers the Storm
How to Cook Up a Successful Offer
DRTV
Legal
Radio
Member Spotlight
Advertiser Spotlight
Bulletin Board
Advertiser Index
Classifieds
Rick Petry
Electronic Retailer - December 2011 - cover1
Electronic Retailer - December 2011 - cover2
Electronic Retailer - December 2011 - 3
Electronic Retailer - December 2011 - 4
Electronic Retailer - December 2011 - 5
Electronic Retailer - December 2011 - 6
Electronic Retailer - December 2011 - Calendar of Events
Electronic Retailer - December 2011 - Your Association, Your Bottom Line
Electronic Retailer - December 2011 - Industry Reports
Electronic Retailer - December 2011 - 10
Electronic Retailer - December 2011 - 11
Electronic Retailer - December 2011 - 12
Electronic Retailer - December 2011 - 13
Electronic Retailer - December 2011 - FTC Forum
Electronic Retailer - December 2011 - 15
Electronic Retailer - December 2011 - eMarketer Research
Electronic Retailer - December 2011 - 17
Electronic Retailer - December 2011 - IMS Retail Rankings
Electronic Retailer - December 2011 - 19
Electronic Retailer - December 2011 - Jordan Whitney’s Top Categories
Electronic Retailer - December 2011 - 21
Electronic Retailer - December 2011 - Lockard & Wechsler’s Clearance & Price Index
Electronic Retailer - December 2011 - 23
Electronic Retailer - December 2011 - Ask the Expert
Electronic Retailer - December 2011 - 25
Electronic Retailer - December 2011 - Pillow Pet Talk
Electronic Retailer - December 2011 - 27
Electronic Retailer - December 2011 - 28
Electronic Retailer - December 2011 - 29
Electronic Retailer - December 2011 - What’s New in SEM?
Electronic Retailer - December 2011 - 31
Electronic Retailer - December 2011 - 32
Electronic Retailer - December 2011 - 33
Electronic Retailer - December 2011 - Canada’s Economy Weathers the Storm
Electronic Retailer - December 2011 - 35
Electronic Retailer - December 2011 - 36
Electronic Retailer - December 2011 - 37
Electronic Retailer - December 2011 - How to Cook Up a Successful Offer
Electronic Retailer - December 2011 - DRTV
Electronic Retailer - December 2011 - Legal
Electronic Retailer - December 2011 - Radio
Electronic Retailer - December 2011 - 42
Electronic Retailer - December 2011 - 43
Electronic Retailer - December 2011 - Member Spotlight
Electronic Retailer - December 2011 - 45
Electronic Retailer - December 2011 - Advertiser Spotlight
Electronic Retailer - December 2011 - Advertiser Index
Electronic Retailer - December 2011 - Classifieds
Electronic Retailer - December 2011 - 49
Electronic Retailer - December 2011 - Rick Petry
Electronic Retailer - December 2011 - cover3
Electronic Retailer - December 2011 - cover4
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