Legalmatter

By: Brian J. Meli

If the Federal Trade Commission (FTC) were a division of the Department of Defense, its recent Operation Full Disclosure would be the equivalent of dropping leaflets over a battlefield. Part bid to win hearts and minds, part fair warning before punitive actions start raining down, the September initiative consisted of a salvo of choicely worded warning letters addressed to more than 60 U.S. companies, including 20 of the largest 100 national advertisers. The message contained in those letters was clear: advertising has changed dramatically, but advertiser’s disclosure obligations have not.

The FTC didn’t make the identities of those 60-plus advertisers public; only that they represent a sample of various industries and product categories, and that their traditional advertising (print and television) contained seriously inadequate disclosures that could lead to consumer confusion. The consumer protection agency also made a point to emphasize that if an advertiser didn’t receive a letter they shouldn’t take that to mean their advertising complies with current disclosure requirements, suggesting this was a narrowly focused effort to draw attention to a widespread problem.

So what exactly did the FTC hope to accomplish with its Operation Full Disclosure initiative, and what should advertisers take away from it?

The agency’s stated objective was to re-educate advertisers on when advertising disclosures are required, and to assist them with making those disclosures in an acceptable manner. Because, in the opinion of the FTC, too many bad habits have been persisting for too long.

The FTC requires an advertising disclosure be made when it is necessary to prevent an act or a practice from being deceptive, and an act or practice is deceptive when 1.) it misleads consumers… 2.) who are acting reasonably, and… 3.) it is material to a purchase decision. In other words, an advertising claim has to cause a mistaken belief in the minds of reasonable consumers, and that mistaken belief has to affect their decision to buy. Advertising claims that commonly cry out for disclosures are weight loss claims (when only the most positive results are used to support efficacy), product price points (when quoted prices require consumers to take extra steps, like mail-in rebates etc.), and endorsements, when the endorser is being compensated. Without knowing that quoted weight loss results are higher than average expected results, that a low price point isn’t an automatic, or that celebrity praise for a product is the result of a contract between the celebrity and the manufacturer, reasonable consumers can be deceived into making purchase decisions that they otherwsie might not make. That, at least, is the FTC’s position.

But knowing when a disclosure is necessary is only half the battle, and for the most part honest advertisers tend to be pretty good at recognizing when they’re needed. Where they more often than not come up short is knowing how to make those disclosures properly, and that’s the larger point of Operation Full Disclosure.

The FTC has always held that necessary disclosures must meet a “clear and conspicuous” standard. It’s a term advertisers know well, having been the standard for well over a quarter century. But even if the term is well known, it’s not always obvious what it means. Truth be told, what is perfectly clear and conspicuous in the context of one ad may be downright unclear and inconspicuous in another. The FTC is all too well aware of this, which is why it maintains a performance standard when determining the sufficiency of disclosures. This is a fancy way of saying that a disclosure is considered inadequate if consumers fail to see it and comprehend it. If consumers come away with an accurate understanding of what’s being conveyed by the disclosure, then the standard is met, regardless of how large the font is, or how long it stays up on the screen.

The absence of a definitive set of black letter rules for how disclosures must be made gives advertisers a great deal of flexibility to determine specifics for themselves. But the lack of uniformity can also lead to ambiguity and confusion; a reality owing to the state of advertising itself, as much as anything else. The fact is that ads come in more shapes, sizes, formats and platforms today than ever before, so developing any kind of uniform standard would be practically, if not literally, impossible. A clear and conspicuous disclosure in a tweet may be something very different than a clear and conspicuous disclosure in a direct mail piece, which may be something very different than a clear and conspicuous disclosure in an in-app ad. The fact of the matter is that advertising looks a lot different today than it did ten years ago, and it will surely look a lot different ten years hence. But the performance standard ensures that the definition of clear and conspicuous remains the same, no matter where technology takes advertising next.

For advertisers inclined to make aggressive claims with hidden or non-existent disclosures, or those emboldened by the lack of formal standards to test the FTC’s limits, Operation Full Disclosure serves as fair warning: the agency is serious about disclosures. For advertisers who fall into this auspicious category, the initiative was meant to motivate them to think twice before running blatantly deceptive ads. And for those it doesn’t discourage, it preempts an argument that they were unaware of their responsibilities. In other words, ignorance will not be a defense.

For responsible advertisers operating in good faith and committed to doing right by consumers (which by all accounts is the vast majority of them), Operation Full Disclosure is a great opportunity to become reacquainted with the FTC’s disclosure guidelines, which it has dubbed the 4P’s. Rather than rigid rules, the 4P’s are rules of thumb, providing tangible steps advertisers can take to ensure they’re disclosing the right way. Answer all four in the affirmative and there’s a great chance your disclaimer meets the clear and conspicuous standard—and you won’t find yourself on the receiving end of a future FTC action.

THE FOUR P’s

PROMINENCE: is the disclosure big enough for consumers to notice and read?

PRESENTATION: is the disclosure worded in a way consumers will understand?

PLACEMENT: is the disclosure where consumers will look?

PROXIMITY: is the disclosure close to the claim it modifies (in time and in space)?

The FTC, like all federal agencies, operates amidst the twin realities of shifting political priorities and budgetary constraints. So rather than expending finite resources on prosecuting wrongdoers ex post facto, Operation Full Disclosure will (ideally) serve to pre-empt the need for widespread enforcement actions. But make no mistake, it is also a signal, along with last year’s .com Disclosure Guidelines, that enforcing effective advertising disclosures is an agency mandate—one achieved through Operation Full Disclosure’s dual purpose of warning those who would purposely do consumers harm, and helping those whose infractions are of the more honest variety. Take heed or take note, depending on which group you find yourself in.

The content of this blog is intended for informational purposes only. The information provided in this blog is not intended to and does not constitute legal advice, and your use of this blog does not create an attorney-client relationship between you and attorney Brian J. Meli. Under the rules of certain jurisdictions, the material included in this blog may constitute attorney advertising. Prior results do not guarantee a similar outcome. Every case is different and the results obtained in your case may be different.