Coffee Talk Regulation: The FTC Struggles (Like The Rest Of Us) With The Commercial Speech Question

coffee-90831_1280

By: Brian J. Meli

Returning to our long-running question of what constitutes commercial speech in the modern era (i.e. the era of advertising masquerading as “content”), we turn our attention to recent happenings over at the Federal Trade Commission (FTC), that august institution tasked with protecting we the people from all things false, deceptive and misleading in advertising. The FTC recently became the latest organization to publicly grapple with the question of where the line between First Amendment protected non-commercial speech, and regulation-vulnerable commercial speech exists. For a look back at how the Supreme Court has dealt with the subject, and more recent Seventh Circuit and Ninth Circuit interpretations, follow the links.

GCBE

The occasion for the FTC’s latest foray into the commercial speech debate has its roots in coffee beans. Actually green coffee bean extract (GCBE) to be precise, a supplement purported to have weight loss benefits. GCBE was being promoted as a “dieter’s secret weapon” by Lindsey Duncan, a nutritionist and self-proclaimed “naturopathic doctor” who owns two health supplement companies, Pure Health LLC and Genesis Today Inc., both of which sold GCBE. (For the record, Duncan has an online degree in naturopathy from a now defunct distance-learning college, so he is not an MD). Duncan’s GCBE marketing efforts included personal appearances on popular daytime television shows The Dr. Oz Show and The View, where he represented himself as a GCBE expert and publicly touted it as an amazing “new health discovery” that promoted rapid weight loss. Duncan made bold claims during his TV appearances; claims such as consumers could expect to lose “17 pounds and 16 percent body fat in just 12 weeks without diet or exercise” by using GCBE. And although he never specifically mentioned his own company’s products on TV, he capitalized on his relative fame by including “As seen on TV” claims on his web sites and in his GCBE point-of-sale displays.

The trouble, according to the FTC, was twofold: First, Duncan represented himself as an unbiased medical professional on these shows when he was not. Second, the weight loss claims he made on TV and elsewhere relied on a “severely flawed” and unreliable clinical study. The FTC filed suit against Duncan in US District Court in Texas, alleging that he misrepresented himself as an independent source of information about GCBE without disclosing his financial connection to the products he was promoting. The complaint also alleged that his express weight loss claims were unsubstantiated, not backed by credible evidence on which he had a reasonable basis to rely, and therefore deceptive.

Duncan and the FTC eventually reached a settlement, which imposed a permanent injunction against him making any future weight-loss claims without the support of at least two well-controlled human clinical tests. And, more significantly, he was required to pay $9 million in restitution to consumers who had relied on his deceptive claims when they purchased Pure Health and Genesis Today GCBE products.

The anatomy of a dissent

What was easy to miss in the rush to brand Lindsey Duncan a charlatan however, was the fact that the FTC’s settlement was not without its fair share of controversy. Within the FTC itself there was significant disagreement about the terms of the settlement, and the rationale behind it. One of the main drivers behind the discord: the question of to what extent Lindsay Duncan engaged in commercial speech?

When it comes to speech being protected by the First Amendment, non-commercial speech gets the first-class treatment; while the commercial variety flies coach and can get bumped by government regulators like the FTC for the slightest provocation. More than enough ink has been spilt on the subject of why the speech distinction exists (both by myself and others with a lot more clout) but suffice to say, at this point, it is what it is.

In a four-page dissent to the stipulated order announcing the Duncan settlement, two of the FTC’s five commissioners, Maureen Ohlhausen and Joshua Wright disagreed with the majority decision. Ohlhausen and Wright specifically took issue with the amount of redress the Commission ordered. Their position: that the percentage of redress attributable to sales resulting from generic on-air claims about GCBE was improperly assessed because those claims were not commercial speech, placing them outside the sphere of the FTCs regulatory power.

They point out that speech regarding weight loss in general, and the efficacy of GCBE specifically, are issues of public concern; and that by demanding redress from Duncan for communications made by him and others on a news and talk show, the majority impermissibly expanded the definition of advertising to cover fully protected non-commercial speech.

To support their conclusion Ohlhausen and Wright point out that Duncan only discussed the benefits of GCBE generally, and never made any statements about specific brands or products sold by his company. In fact, it would have been against the show’s rules to do so. And while sales for Duncan’s GCBE products did spike after his appearance on the Dr. Oz Show, similar spikes were observed on multiple subsequent occasions when the health benefits of GCBE were discussed on the show. In other words, general awareness of the purported health benefits of GCBE, not Lindsey Duncan’s GCBE products specifically, led to the increase in customer interest.

In effect the dissent is saying that when a company stakeholder appears on television in a news and information setting to promote positive news in an industry in which they operate—whether it’s an airline CEO touting improved airline safety records, or a telecom exec lauding Internet availability in undeserved communities—she does so under the full protection of the First Amendment because she is not engaging in commercial speech.

To support this conclusion, the dissent points out that none of the classic commercial speech factors were present in this case. Duncan did not propose a commercial transaction while on the show. He did not mention any price points while on the show. And he did not pay a fee to appear on the show. He was an invited guest who appeared as an expert at the behest of Dr. Oz himself. As the dissent sees it, holding Duncan responsible for redressing pecuniary loss stemming from his protected speech is tantamount to suppressing free speech, and is a dangerous overreach of the agency’s authority. Their fear is that by increasing the redress amount that Duncan must pay as a result, the majority’s decision will lead to qualified health and nutrition experts declining television appearances for fear that they may not be able to substantiate their opinions.

Duncan may have been guilty of deception, in other words, but not to the tune of $9 million dollars.

All eyes on the FTC

It’s tempting to take a narrow view of the Duncan case and assume its consequences are limited to on-air endorsements of health supplements. But it would be a mistake not to consider the possible broader implications the FTC’s disagreement will have for advertisers.

This stipulated order and dissenting opinion come at a time when advertisers have fallen in love with cause, content and native marketing; all terms for advertising that doesn’t want to be treated like advertising (and tries very hard not to be). While these kinds of tactics are different from what Lindsey Duncan was doing to promote GCBE, they do touch on some of the same questions, namely: is it protected First Amendment speech, advertising, or something in between? When Whole Foods sponsors a study on sustainable farming practices that it publishes on social media; or when Vitamin Shoppe contributes to an editorial piece on the lack of vitamin D in the average American diet, what kind of regulations are those communications subject to?

It’s a question the marketing community can expect some answers to soon. At the Association of National Advertiser’s (ANA) annual conference this year, Laura Sullivan, a Staff Attorney in the FTC’s Division of Advertising Practices told an audience of marketing and compliance professionals that the FTC is concerned about the widespread practice of disseminating ads designed to look like editorial and independently-sourced content, and that they will likely issue guidance later this year. If that’s true, and content marketing guidelines are in the pipeline for 2015, it will be interesting to see what if any effect the commercial speech schism that the Duncan case has exposed at the top of the FTC has on the Commission’s official position on the subject.

Clearly as the nature of advertising continues to evolve, the pressure is on the FTC to carefully balance First Amendment concerns with its mandate to protect consumers from deceptive advertising claims. How it plans to do that exactly as it struggles, right along with the rest of us, on the commercial speech question, remains to be seen.

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.

Advertisements
Tagged , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

06880

Where Westport meets the world

Trademark and Copyright Law

The Stuff of Commerce, Technology and Intellectual Property Law

Technology & Marketing Law Blog

The Stuff of Commerce, Technology and Intellectual Property Law

All About Advertising Law

The Stuff of Commerce, Technology and Intellectual Property Law

Scholarly Communications @ Duke

The Stuff of Commerce, Technology and Intellectual Property Law

IP Breakdown

The Stuff of Commerce, Technology and Intellectual Property Law

The Stuff of Commerce, Technology and Intellectual Property Law

LIKELIHOOD OF CONFUSION®

Ron Coleman on the law affecting brands, the Internet & free speech

DuetsBlog

The Stuff of Commerce, Technology and Intellectual Property Law

D Gonzalez Law Group, LLC

The Stuff of Commerce, Technology and Intellectual Property Law

%d bloggers like this: