I. Introduction

Advertising Law has been slowly recognized as a crucial, strategic component of corporate business, which now necessarily requires the involvement, input and scrutiny of a company’s legal department. The days of leaving this ever-growing and ever-risk laden area solely to a company’s marketing department are long gone.

This presentation will discuss when it is understood that social media opinion-holders and bloggers of specific products or services are linked to what they promote and bind the company behind such products or services. It will next discuss the extent to which tracking consumer habits on the internet or cell phone applications is permissible. It will next examine the point at which “puffing” is considered misleading. Finally, it will review the law of comparative advertising, including advertisements that are literally true but misleading by context.

II. Discussion

A. Social media opinion-holders and bloggers of specific products and services.

Pursuant to federal statute, the United States Federal Trade Commission (FTC) is responsible for prohibiting “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce. . . .” Social media promotions are covered by FTC guidelines (hereinafter “Guidelines”) pertaining to the use of endorsements and testimonials in advertising.”

Before initiating any enforcement action the FTC must determine if a particular social media post is exercised pursuant to free speech or if it can be categorized as commercial speech. Free speech is protected under the First Amendment, but “commercial speech violates the FTC Act if it’s deceptive.” The Guidelines clarify what will qualify as commercial speech by defining such speech as an endorsement.

The Guidelines define an endorsement as:

[A]ny advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

For purposes of enforcement, the FTC treats endorsements and testimonials the same. Generally, an individual who posts an opinion is considered to be endorsing a product when they are receiving something of value for their opinion. If a consumer purchases the product or service on their own initiative and then writes a review there is no issue. This type of unprovoked social media post is protected free speech. Conversely, if you receive payment or anything of value in exchange for mentioning a product, that is an endorsement as set forth under the Guidelines. The Guidelines give several examples including: A consumer who switches to buying a new dog food and writes a blog proclaiming that the food is better for her dog is not an endorsement; a consumer who receives a coupon for a free bag of a new kind of dog food and then writes a review is not an endorser; but a consumer who joins “a network marketing program” where she receives various products and writes reviews on them is endorsing those products.

If the particular post qualifies as an endorsement within the meaning of the Guidelines, then the endorsement “must reflect the honest opinions, findings, beliefs, or experience of the endorser.” Any statements made as endorsements that are “false or unsubstantiated” subjects both the advertisers and the endorsers to liability for such statements made in the course of their endorsements. For when liability exists, the Guidelines give the example of an endorsement by a blogger who posts that a “lotion cures eczema,” when the lotion does not cure eczema. For such instance, the advertiser and the blogger would both be liable for such a “false and unsubstantiated” statement.

When an endorsement is made there must be a disclosure of material connections. “When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e. the connection is not reasonably expected by the audience), such connection must be fully disclosed.” The connection must be disclosed “clearly and conspicuously.” An example given in the Guidelines involves a professional tennis player who posts a comment on her social media page attributing her recent career success to her laser eye surgery and names the doctor. She should disclose the connection because consumers might not realize she is a paid endorser and such knowledge is “likely to affect the weight and credibility consumers give to the celebrity’s endorsement.” The specific language for disclosure does not matter so long as disclosure is made. For platforms such as Twitter or Facebook, the FTC states that disclosures such as “Sponsor” or “#Ad” would be effective to get the message across without taking up too many characters in a post where space is limited.

The FTC suggests that advertisers should have “reasonable programs in place to train and monitor their networks” because they are subject to liability. The particular monitoring program employed by advertisers may vary depending on the level of risk associated with false endorsements. Additionally, advertisers should explain to endorsers what they can or cannot say, explain responsibility to disclose, monitor what their endorsers are saying, and to follow up on questionable posts. The FTC acknowledges that an advertiser cannot possibly monitor every endorsement on social media so the actions of a “rogue blogger” who is making an endorsement may not necessarily subject the advertiser to an enforcement action by the FTC so long as the advertiser took reasonable precautions to prevent such behavior.

On the other hand, social media postings by reviewers that are not receiving something of value are generally protected free speech. A company does not have a responsibility to monitor or seek removal of such posts. Instead, the company has the ability to pursue a defamation claim against the reviewer if they post factually incorrect accusations.

Currently, bloggers and other sorts of opinion-holders are subject to FTC enforcement actions, but the FTC is not focused on pursuing enforcement actions against individual bloggers. Instead, the FTC enforcement actions are focused on advertising agencies and public relations firms that locate and coordinate the bloggers.

Employers may also be held liable for the endorsements posted by their employees on their own personal social media pages if they are false or misleading. Some employers will have company policies in place to deal with this sort of situation.

B. Behavioral Advertising

The practice of targeting advertisements based on consumer habits on the internet is known as online behavioral advertising (OBA). OBA involves the collection of consumer data based on their browsing history, searches, and web sites viewed.

The privacy concerns of such a practice are immediately apparent. Some of the biggest concerns include: data collection without consumers’ knowledge; profiling over an indefinite period of time to create a comprehensive and intrusive personal profile (i.e. information that is collected as non personally identifying information (Non-PII), over time and in large quantities will become personally identifying information (PII)); the substantial difficulty or inability to opt-out of such a system; the danger of unauthorized parties accessing such profiles; and fear of online monitoring discouraging the consumer’s pursuit of information regarding personal or embarrassing matters.

In the United States, the laws, rules, and policies surrounding the mass collection of consumer data on the internet are minimal. Although the FTC has proposed legislation, current United States privacy law does not regulate the collection of consumer data on the internet generally, instead specific sectors are regulated. Certain laws simply regulate privacy risks in particular contexts. Therefore, there are few broad rules that govern the use of consumer data generally.

Currently, the assortment of federal and state statutes governing information privacy law focus on specific sectors, such as information about children, health care, financial information, and credit reporting. “[T]he Electronic Communications Privacy Act (ECPA) of 1986 is the primary piece of federal legislation affecting data privacy.” Included within the ECPA is the Stored Communications Act (SCA), which deals with private data collection and the dissemination of communications between customers of the electronic communication service (i.e. email). However, there are seven exceptions to the SCA, including an exception if the disclosure occurs with consent. Considering the “broad scope of most online privacy policies, it is not difficult to see why consumers have had little success in challenging private sector data collection practices.”

Additionally, plaintiffs have attempted to bring actions grounded in state law tort and contract and have generally been unsuccessful largely because of the consent issue and the lack of actual injury. For example, in In re iPhone Application Litigation, plaintiffs asserted state law legal theories including invasion of privacy, negligence, trespass, and unjust enrichment. All of those claims were dismissed. Additionally, in In re Google, Inc., the plaintiff asserted a claim of common law intrusion upon seclusion that was unsuccessful because the sharing of data was not “highly offensive to a reasonable person.”

In the absence of any meaningful enforcement through private causes of action, the Federal Trade Commission (FTC) has been the agency leading the way to regulate OBA. The FTC made its first attempt to regulate the use of OBA by releasing proposed principles designed to encourage self-regulation titled, Self-Regulatory Principles for Online Behavioral Advertising Behavioral Advertising Tracking, Targeting, & Technology (“Principles”). The Principles define behavioral advertising to mean “the tracking of a consumer’s online activities over time—including searches the consumer has conducted, the web pages visited, and the content viewed—in order to deliver advertising targeted to the individual consumer’s interests.” The Principles concentrate on four areas of concern: 1) Consumers should know when information is being collected and have the choice to participate or not; 2) A company collecting data needs to provide reasonable security and “retain data only as long as is necessary to fulfill a legitimate business or lawful need;” 3) A company must keep the promises it makes to consumers in regards to how it will handle their data; and 4) A company should only collect sensitive data with affirmative consent.

The only effective means of regulating OBA in the private sector seems to come from FTC enforcement actions pursuant to Section 5 of the Federal Trade Commission Act (FTCA), which prohibits unfair or deceptive practices. Companies utilizing OBA will generally create their own privacy policies accessible to consumers. When the company does not abide by their privacy policy, the FTC can initiate an enforcement action.

Although the FTCA provides for some viable enforcement when a company is simply not abiding by their privacy policy, the FTCA is not useful when attempting to argue in favor of consumer access to the data collected or consumer control over such data because failing to allow such privileges to consumers is not necessarily deceptive and thereby is not within the purview of the FTCA.

There have been attempts to pass federal legislation to give consumers the opportunity to opt-out of online tracking. The proposed legislation would call on the FTC to promulgate regulations to protect consumer privacy from the collection of data online. This legislation would enact a result similar to that of a “Do Not Call List” where individuals can be put on a registry and avoid calls from unauthorized callers. The “Do Not Track” system would allow individuals to participate in a blanket opt-out from all online tracking.

Proposed legislation regarding consumer privacy online seems to be nothing more than a facade as the majority of all proposed legislation over the past decade have not been adopted or even seriously considered. In fact, the existing legislation regarding privacy protections online is being challenged and policymakers “are chipping away at the United States’s already weak existing privacy framework.”

In Sorrell v. IMS Health, the Supreme Court held a Vermont law unconstitutional that restricted data miners’ access to pharmacy records that show doctor’s prescribing records, which were sought for the purpose of marketing to those doctors. The court reasoned that the statute violated the pharmaceutical companies’ free expression by not allowing them access to data that would help them better convey their message. Specifically, the Vermont statute prohibited marketers from accessing such information while allowing other parties access to that same information for purposes not related to marketing. The court stated that “[t]he law on its face burdens disfavored speech by disfavored speakers.” It seems that in the wake of this case, “any privacy restriction specifically aimed at marketing uses of data will be suspect.”

State statutes aimed at protecting consumers online also run into preemption problems in specific industries that hinder state privacy protection. In 2003, California enacted the Online Privacy Protection Act, which requires website operators to post their privacy policy online for consumers to see. This legislation was intended to at least provide consumers with notice of what kind of tracking they are subjected to on any particular site. Although this legislation is a promising step towards protecting consumers’ privacy online, it is not without limitations. In a recent decision by a California Court of Appeals, the court held that the California Online Privacy Protection Act was preempted by the federal Airline Deregulation Act and allowed Delta to avoid liability after tracking consumers’ habits on the Fly Delta Mobile App without posting a privacy policy.

Tracking the habits of consumers on devices through apps is treated the same under the law as tracking a consumer on the internet. In general, the FTC will go after the companies not abiding by their own privacy policies.

Any individual concerned with businesses tracking their internet activity should take a proactive approach to stopping it before it occurs. For example, certain browsers and services offer a “Do Not Track” setting among other privacy tools, which will block third-party cookies used to track your activity. The issue with such a service is that many anti-fraud and online security programs use similar tracking techniques to prevent malicious activity that will also be blocked by enabling certain “Do Not Track” settings.

C. At what Point is Puffing Considered Misleading?

“Puffing can consist of grossly exaggerated advertising claims such as blustering and boasting which no reasonable buyer would believe was true . . . [or] a general claim of superiority over a comparative product that is so vague and indeterminate that it will be understood as mere expression of opinion.” Puffery is not subject to an enforcement action by the FTC pursuant to the FTCA because puffery is not misleading. It is also not actionable privately under the Lanham Act § 43(a).

Private actions for misleading advertising can be brought pursuant to the Lanham Act § 43 (a) and FTC enforcement for misleading advertising is governed by the FTCA. The Lanham Act states in relevant part:

Any person who, on or in connection with any goods or services . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any . . . false or misleading description of fact, or false or misleading representation of fact, which . . . (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

The FTC recognizes that puffing or hyperbole is a type of “advertising theme” that does not amount to the type of claim that anyone would expect it needed to be supported with documentation. Whether or not a statement is “puffery” is a legal question that is to be resolved by the trier of fact. “A statement is considered puffery if the claim is extremely unlikely to induce consumer reliance.” The difference between mere puffery and fact depends on the degree of specificity used in the claim. Statements that are more specific or quantifiable are less likely to be considered puffery. Some examples of what courts found to be puffery include: “Best Beer in America,” “3DO, The Most Advanced Home Gaming System in the Universe,” and “Less is More.” Examples of what courts found to not be puffery include, “50% Less Mowing,” “longer engine life and better engine protection,” and “stops pain immediately.”

Examples of slogans are helpful guideposts, but context is just as important as the words themselves. A slogan in isolation may be puffery, but when used in a certain context may be actionable as misleading. In Pizza Hut v. Papa John’s, the United States Court of Appeals for the Fifth Circuit held that the slogan “Better Ingredients. Better Pizza.” standing alone is not actionable, but the same slogan in combination with a commercial consisting of images comparing Papa John’s ingredients to competitors was misleading and actionable. The court reasoned that the slogan standing alone was just a general comment, but when the slogan is combined with specific comparisons, it gives detail to an otherwise general statement.

D. Comparative Advertising

In the United States, comparative advertising is considered useful to consumers when it is truthful because it “is a source of important information to consumers and assists them in making rational purchase decisions.” The FTC “policy in the area of comparative advertising encourages the naming of, or reference to competitors, but requires clarity, and, if necessary, disclosure to avoid deception of the consumer.”

Comparative advertising through explicit or implicit comparisons is permissible so long as it is truthful and not deceptive. There is no federal statute directed exclusively towards regulating comparative advertising; instead, comparative advertising is governed by the same statutes that are controlling on other forms of advertising and other self-regulatory means. Enforcement of fair advertising can be accomplished by an FTC enforcement action pursuant to Section 5 of the FTCA, by private law suit pursuant to Lanham Act § 43(a), or by voluntary dispute resolution through the National Advertising Division of the Council for the Better Business Bureaus (NAD).

“Two types of advertising claims are actionable under [Lanham Act] Section 43(a): (i) advertisements that are false on their face, known as literally false claims, and (ii) advertisements that, though literally true, are likely to mislead and confuse consumers, known as implied claims.” In a case where the advertisement is shown to be literally false, “consumer deception is presumed, and the court may grant relief without reference to the advertisement’s actual impact on the buying public.” If the statement is literally true, but is “likely to mislead or confuse consumers,” the plaintiff must support the assertion of an implicitly false message by presenting extrinsic evidence of consumer deception or confusion. To state a prima facie case under Lanham Act § 43(a), a plaintiff must plead and prove that the defendant does the following:

1. Uses a false or misleading description of fact or representation of fact;

2. In interstate commerce;

3. In connection with goods or services;

4. In commercial advertising or promotion;

5. When the description or representation misrepresents the nature, qualities, or geographic origin of the defendant’s goods, services or commercial activities or the goods, services or commercial activities of another person;

6. And the plaintiff has been or is likely to be damaged by these acts.

Literally false claims can also include a category of advertisements commonly referred to as claims that are “false by necessary implication.” Under the “false by necessary implication doctrine” courts consider the advertisement in its entirety. “If the words or images, considered in context, necessarily imply a false message, the advertisement is literally false . . . .” “Only an unambiguous message can be literally false,” therefore if there is more than one reasonable interpretation, the advertisement cannot be literally false or “false by necessary implication.”

A plaintiff must also show a material misrepresentation in an “inherent quality or characteristic of the product” and that the misrepresentation constitutes “advertising or promotion.” “[W]hen the statements of fact at issue are shown to be literally false, the plaintiff need not introduce evidence on the issue of the impact the statements had on consumers.” In this situation, “the court will assume that the statements actually misled consumers.”

When the advertisement is true or at least ambiguous, to prove that it was nevertheless misleading, the argument must be supported by consumer data; the reaction of the court is not determinative. “[T]he plaintiff must present evidence of actual deception.” The question becomes “what does the person to whom the advertisement is addressed find to be the message?” The consumer data must represent that a significant minority of the consuming public was mislead by the true or ambiguous advertisement.

In Avis Rent a Car System, Inc. v. Hertz Corp., the Court of Appeals for the Second Circuit held that the advertisement containing the phrase “Hertz has more new cars than Avis has cars” was true and not deceptive and therefore permissible comparative advertising. The court reasoned that at the time of the advertisement Hertz had approximately 97,000 new 1984 cars to rent and Avis had only 95,224 cars available to rent, hence the advertisement was facially true.

In McNeilab, Inc. v. American Home Products Corp., McNeilab – manufacturer of Tylenol – brought a Lanham Act claim against American Home Products (AHP) – manufacturer of Advil—for AHP’s advertisement stating, “if you worry about the discomfort of stomach upset as I do, I find that nothing is better than Advil. Not even Tylenol.” The court affirmed the decision of the district court stating that “[b]y falsely implying that Advil is as safe as Tylenol in all respects, AHP deprived McNeil[ab] of a legitimate competitive advantage and reduced consumers’ incentive to select Tylenol rather than Advil.”

In S.C. Johnson & Son, Inc. v. Clorox Co., the court enjoined the defendant company from airing an advertisement depicting a competitors Ziploc Slide-Loc bag leaking when filled with water, sealed, and turned upside down next to the defendant company’s Glad-lock re-sealable storage bags retaining all liquid when filled with water, sealed, and turned upside down. The court determined that “the commercial falsely depicts the risk of leakage for the vast majority of Slide-Loc bags tested” after comparing the results from a leak test conducted on the Slide-Loc bags to the leakage portrayed in the subject commercial.

The Lanham Act “authorizes actions by one who believes that he is or is likely to be damaged.” Therefore, an individual consumer may lack standing to bring an action under the Lanham Act, but a competitor will likely have standing. Additionally, a distinction must be drawn between advertisements which tout the benefits of the products advertised without any direct reference to competitors and advertisements that directly reference a competitor. In the latter situation, the competitor does not need to make a showing of harm because “[a] misleading comparison to a specific competing product necessarily diminishes that product’s value in the minds of the consumer.” However, in the former situation, “[t]he injury . . . accrues equally to all competitors; none is more likely to suffer from the offending [advertisement] than any other.” In such a situation, the plaintiff seeking to bring a claim under the Lanham Act will need to show “some indication of actual injury and causation to satisfy Lanham Act standing requirements and to ensure plaintiff’s injury was not speculative.”

Advertising disputes may also be submitted to the NAD as a means of voluntary dispute resolution. The NAD is an industry funded, self-regulatory body that resolves advertising issues that the U.S. FTC may not be able to address due to limited resources. Additionally, matters may be submitted to the NAD as a way of avoiding costly litigation. Consumers may submit matters to the NAD, but it is generally used to resolve disputes between competitors.

The NAD decisions are non-binding and it cannot award damages, but advertisers generally follow its recommendations because failure to do so will result in a referral of the matter to the FTC.