Transcript Advertising and Consumer Protection

Lecture 9:
Advertising and
Consumer Protection
46-840 ECOMMERCE LAW AND REGULATION
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Need for Consumer Protection
• Businesses may be large; consumers are “small”
• Consumers make “whim” purchases
• Individual consumer loss may be small
– Not enough to justify a lawsuit
• Total consumer loss may be large
– Consumers do not easily organize
• Government can act more effectively
– Tremendous enforcement powers
– Government is a heavy threat
– Sometimes threat to regulate is enough
• Federal Trade Commission (FTC)
• State laws (“little FTC acts”)
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Federal Trade Commission (FTC)
• FTC Act, 15 U.S.C. §41ff (1914).
– “The Commission is hereby empowered and
directed to prevent persons, partnerships, or
corporations, [exceptions] from using unfair
methods of competition in or affecting commerce
and unfair or deceptive acts or practices in or
affecting commerce.” 15 U.S.C. §45(a)(2)
– “Commerce” means “commerce that may lawfully
be regulated by Congress, e.g. interstate, DC,
airwaves, Internet
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FTC Action Against
Deceptive and Unfair Business Practices
• What’s “Deceptive”? What’s “Unfair”?
• Deceptive. Likely to:
– mislead consumers; and
– affect consumers’ behavior or decisions about the product or
service.
• Unfair. The injury it causes, or is likely to cause, is:
– substantial;
– not outweighed by other benefits; and
– not reasonably avoidable
46-840 ECOMMERCE LAW AND REGULATION
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Advertising Practices Regulated
by the FTC
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Deceptive pricing, 16 C.F.R. §233.1
Use of the word “free”, 16 C.F.R. §251.1
Product endorsements, 16 C.F.R. §255.0
Advertising and marketing on the Internet
Internet prompt delivery rules, 16 C.F.R. §435.1
– The “Mail Order/Telephone Order (MOTO) Rule”
• Pyramid schemes
• See FTC advertising guidelines
• See FTC DotCom Disclosures
• Journal of Interactive Advertising
46-840 ECOMMERCE LAW AND REGULATION
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Sample FTC Cases
• Fraud
– FTC v. TLD Network Ltd. (N.D. Ill., filed Feb. 28, 2002)
– Defendants used spam and appeals to patriotism to sell nonworking domain names ending in .usa for $59
• Pyramid schemes
– FTC v. Linda Jean Lightfoot (S.D. Ohio, filed March 29, 2002)
– Email campaign promises a Multi-Level marketing (MLM) Gifting
Program that can’t fail and $10,000 in cash gifts within a few
months of joining.
– $41 initial fee. Cash when you generate 3 levels of 10 members
each = 1000 members @ $10 each = $10,000
– FTC wants to halt the scheme and freeze defendant’s assets
46-840 ECOMMERCE LAW AND REGULATION
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Sample FTC Cases
• Fraud
– In the Matter of Palm, Inc. (FTC File No. 002-3332)
– Palm deceptively claimed to offer PDAs with “built-in access
to the Internet and email”
– In fact this required a separate extra-cost modem, extra-cost
software and an extra-cost subscription to Palm.net
– Palm.net coverage is not available everywhere in the U.S.
– Proposed settlement: Palm must
• Disclose hidden charges
• Disclose that non-wireless PDAs can’t access Internet
• Disclose that Palm.net does not operate everywhere
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Telemarketing and Consumer Fraud and
Abuse Prevention Act, 15 U.S.C. §6101
• “Interstate telemarketing fraud has become a problem of such
magnitude that the resources of the Federal Trade Commission
are not sufficient to ensure adequate consumer protection from
such fraud.”
• Telemarketing Sales Rule, 16 C.F.R. §310
– Disclosure of terms, limitations, restrictions, costs
– Prohibits credit card laundering
– Prohibits “abusive telemarketing acts”
• Telemarketing Sales Rule review
– Internet issues, cookies
– Competition between Internet and telemarketing
– Increased cross-border activity
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Comparative Advertising
• Permitted, even for famous marks!
– Unknown mark may be juxtaposed with well-known one
• Requirements (FTC)
– Objective truth
• Product comparisons require advance experimental data
(“reasonable basis”)
• Demonstrations must show the product under normal use
– Subjective truth (not calculated to mislead or deceive)
– No likelihood of confusion as to source
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Regulatory Status of the Internet
• The Internet per se is unregulated
– Some laws apply to the Internet as well as other media
• Contrast: TV content is regulated by the FCC
– Tobacco and alcohol advertising is banned on TV
– Tobacco and alcohol advertising are not banned on the
Internet
• The FTC’s authority extends to “unfair or deceptive acts or
practices,” not to dangerous or undesirable products
46-840 ECOMMERCE LAW AND REGULATION
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State Consumer Protection Acts
• States now enacting protective legislation dealing specifically
with the Internet
• California Business and Professions Code §§17530-17539.6
– Real estate. “It is unlawful … to make or disseminate any
statement … over the Internet, in any language in this state,
concerning … any real estate located in this state or elsewhere,
which is known to be untrue and which is made or disseminated
with the intention of misleading.”
– Second-hand goods. “It is unlawful … over the Internet to
advertise, call attention to or give publicity to the sale of any
merchandise, which merchandise is secondhand or used
merchandise … unless there is conspicuously displayed … a direct
and unequivocal statement … which will clearly indicate that the
merchandise … is secondhand [or] used.
– “surplus”, newspaper circulation, “prize”, “tear gas”, “steroids”,
“energy conservation”
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California Prompt Delivery Rule
• California Business and Professions Code §17538
• “It is unlawful … for any person conducting sales or leases by …
the Internet or other electronic means …, whether payment to
the vendor is made directly, through the mail, by means of a
transfer of funds from an account … or by any other means, and
then permit 30 days, unless otherwise conspicuously stated in
the offering or advertisement … to elapse without doing any one
of the following things:
– (1) Shipping, mailing, or providing the goods or services ordered
– (2) Mailing a full refund
– (3) [P]roposing the substitution of goods or services of equivalent or
superior quality, and … offering to make a full refund … within one
week if the buyer so requests …”
• Penalty: 6 months and $1000
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Legal Definition of the Internet
• “ ‘Internet’ means the global information system that is logically
linked together by a globally unique address space based on the
Internet Protocol (IP), or its subsequent extensions, and that is
able to support communications using the Transmission Control
Protocol/Internet Protocol (TCP/IP) suite, or its subsequent
extensions, or other IP-compatible protocols, and that provides,
uses, or makes accessible, either publicly or privately, high level
services layered on the communications and related
infrastructure described in this paragraph.”
California Business and Professions Code §17538
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State Consumer Protection Acts
• Web site that accepts orders must comply with statutes of all 50
states or there are criminal penalties
• Constitutional question: “impermissible interference with
interstate commerce”?
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Banner Ads
• User searches for “Estée Lauder.” Search engine
displays a banner ad for “The Fragrance Counter”
• Is it trademark infringement? False advertising?
Deceptive trade practice?
• Brand scanning services: BrandScanner
– Brand Awareness Service
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Self-Policing
• Idea: if an industry regulates itself effectively, the
government will not interfere
• BBBOnLine (Better Business Bureau)
• International Chamber of Commerce (ICC)
Guidelines on Advertising and Marketing on the Internet
46-840 ECOMMERCE LAW AND REGULATION
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Advertising to Children
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Children are gullible; respond to small offers
Children are not responsible
They require a high degree of protection
Better Business Bureau
– Self-Regulatory Guidelines
• COPPA (Children’s Online Privacy Protection Act)
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COPYRIGHT © 2002 MICHAEL I. SHAMOS
Unsolicited Email (SPAM)
• May be the subject of FTC TSR rulemaking
– FTC has no jurisdiction unless “unfair” or “deceptive.
– FTC position: “unsubscribe” links that do not function are
deceptive. FTC is using “current law” to stop spam
• Much pending federal legislation
• California Bill 1629 (1998)
– Permits ISPs to sue senders of unsolicited email through ISP (if
prohibited by ISP policy)
– $50 for each e-mail up to a maximum of $25,000 per day
• California Bill 1676 (1998)
– Requires opt-out with free telephone number or email address
– Ads must be identified in subject line
• Nevada similar
46-840 ECOMMERCE LAW AND REGULATION
SPRING 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Unsolicited Email
• Washington State: Unsolicited Commercial Email Act (1998)
• Illegal to include false or misleading information in the subject
line in any e-mail sent by a Washington resident or to a
Washington resident’s e-mail address
• Sender is assumed to know or have reason to know that a
Washington resident is the recipient of such an e-mail if the
information identifying the recipient as a Washington resident is
available from the registrant of the domain name contained
within the recipient’s e-mail address
46-840 ECOMMERCE LAW AND REGULATION
SPRING 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Q&A
46-840 ECOMMERCE LAW AND REGULATION
SPRING 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS