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4.01 (PR:101)
Performance Element
4.01 Acquire a foundational knowledge of promotion to understand its nature and
scope.
Performance Indicator (PR:101)
Describe the regulation of promotion
Objectives:
a. Explain the need for truthfulness in promotional messages and claims.
b. Discuss how the use of misleading or inaccurate statements in promotion is
regulated.
c. Explain laws that protect customers from unwanted promotions.
d. Discuss laws that protect children from promotional messages.
e. Explain the regulation of telemarketing.
f. Discuss the regulation of data privacy.
g. Describe actions that can be taken by the Federal Trade Commission to
correct misleading advertising.
h. Discuss reasons for the regulation of products used in advertising.
i. Explain how the legality of products used in advertising can vary from country
to country.
A.
Explain the need for truthfulness in promotional messages and claims
1. “Truthfulness simply refers to the act of giving true information or facts (in
exact manner) about something. Therefore, true statement is based on fact
and not imagination or invention.” International Journal of African & African
American Studies
Vol. IV, No. 1, Jan 2005 p.2
2.
Need for truthfulness in promotional messages and claims:
 The society to which advertisement is targeted or addressed has
right to truthful information.
 Truthful information is useful to consumers because such will help
them buy or use a product or service satisfactorily after spending
money to purchase it.
 Such information will improve the consumer’s purchase or use
experience.
 Such information will help to measure the consumer’s satisfaction
with the purchase and use experience.
 The more truthful information the advertising supplies,


B.
the better market and sale it makes from the public.
The fact is that truthful advertising could enhance high patronage of goods so
advertised and such could enhance re-sale and repeat sale.
Truthful advertising can make a dynamic contribution to rising levels of
economic activity, help creates more jobs for an expanding labor force
Discuss how the use of misleading or inaccurate statements in
promotion is regulated.
1. Federal Agency: (FTC Federal Trade Commission) has regulatory
power to step in and end any potentially misleading or deceptive claims

Under the Federal Trade Commission Act:
Advertising must be truthful and non-deceptive;
Advertisers must have evidence to back up their claims; and
Advertisements cannot be unfair.

Additional laws apply to ads for specialized products like consumer leases, credit, 900
telephone numbers, and products sold through mail order or telephone sales. And every
state has consumer protection laws that govern ads running in that state.
What makes an advertisement deceptive?
According to the FTC's Deception Policy Statement, an ad is deceptive if it contains a statement or omits information - that:
Is likely to mislead consumers acting reasonably under the circumstances; and
Is "material" - that is, important to a consumer's decision to buy or use the product.
What makes an advertisement unfair?
According to the Federal Trade Commission Act and the FTC's Unfairness Policy Statement, an ad
or business practice is unfair if:
it causes or is likely to cause substantial consumer injury which a consumer could not reasonably
avoid; and
it is not outweighed by the benefit to consumers.
2.
State Agencies: Another way consumers are protected is by state laws on deceptive
trade practices. Some state laws define these practices as showing goods or services
with the intention of not actually selling them as advertised. Several states have
established CONSUMER PROTECTION offices as part of the state attorney
general offices.
Case Study: In Affrunti v. Village Ford Sales, 232 Ill. App. 3d 704, 597 N.E.2d 1242 (3rd. Dist.
Ct. App. 1992), a consumer filed a lawsuit against an automobile dealership that sold him a car
for more money than it was actually advertised for. Ronald Affrunti went to Village Ford Sales, a
used-car lot, and looked at a blue 1986 Celebrity with 29,000 miles on the odometer. The car did
not have a sticker price, so he asked the salesman, Fred Galaraza, for a price. Galaraza
answered that he would have to check in his office. After showing Affrunti several other used
cars, and without going to his office, Galaraza quoted a price of $8,600 for the Celebrity. Affrunti
and Galaraza settled on a final price of $8,524, which included a trade-in and a discount for a
front-end alignment. Upon returning home, Affrunti came across an advertisement by Village Ford
Sales for a 1986 blue Celebrity with 29,999 miles on the odometer for $6,995. Affrunti called the
dealership. Galaraza checked and said, "By God, it's the same!" Affrunti asked to redo the deal
based on the advertised price. Galaraza put him on hold. When Galaraza came back on the line,
he said the car in the ad had been sent to auction, and they could not redo the deal because it
was not the same car.
At trial, the sales manager testified that prices listed in advertisements are not necessarily
the listed cars' actual prices; dealers can sell the cars for higher prices. After hearing the
evidence, the judge ruled that the dealer had an obligation to inform the plaintiff of the
advertised price of the car, and awarded Affrunti the difference between the purchase
price and the advertised price, which amounted to $1,529. On appeal, the Illinois
Appellate Court ruled that "the defendant's failure to disclose the advertised sale price
constituted deceptive conduct under the Consumer Fraud Act." The appellate court also
added attorneys' fees to Affrunti's award, bringing the total up to $1,937.50.
http://legal-dictionary.thefreedictionary.com/False+Advertising
http://business.ftc.gov/documents/bus35-advertising-faqs-guide-small-business
C.
Explain laws that protect customers from unwanted promotions.
Federal Communications Commission (FCC) adopted rules that prohibit sending
unwanted commercial email messages to wireless devices without prior permission.
This ban took effect in March 2005.
The Federal Trade Commission (FTC) adopted detailed rules that restrict
sending unwanted commercial email messages to computers
D.
Discuss laws that protect children from promotional messages.
 FTC works with the Children's Advertising Review Unit (CARU)
o In 1974, the National Advertising Review Council (NARC)
established the
o Children’s Advertising Review Unit (CARU) as a selfregulatory program to promote responsible children’s
advertising. CARU is administered by the Council of
Better Business Bureaus (CBBB) and funded by
members of the children’s advertising industry.


o CARU’s self- regulatory program sets high standards for
the industry to assure that advertising directed to
children is not deceptive, unfair or inappropriate for its
intended audience. The standards take into account the
special vulnerabilities of children, e.g., their
inexperience, immaturity, susceptibility to being misled
or unduly influenced, and their lack of cognitive skills
needed to evaluate the credibility of advertising.
o CARU monitors and reviews advertising directed to
children, initiates and receives complaints about
advertising practices, and determines whether such
o practices violate the program’s standards. When it finds
violations, it seeks changes through the voluntary
cooperation of advertisers and Website operators
The Federal Communications Commission (FCC) has adopted
rules and guidelines to carry out the CTA’s (Children's
Television Act of 1990) educational programming mandate.
The FCC’s rules
o Limit the amount of commercial matter that may be aired
in certain children’s television programming to 10.5
minutes per hour on weekends and 12 minutes per hour
on weekdays.
o These requirements apply to television broadcasters,
cable operators, and satellite providers.
o These limitations are prorated for programs that are
shorter than one hour in duration.
o The programming at issue for the commercial time limits
is programming originally produced and aired primarily
for an audience of children 12 years old and younger.

E.
Explain the regulation of telemarketing.
Telemarketing involves situations in which companies call consumers to sell their goods or
services, or consumers call companies to make purchases in response to mailings or other
forms of advertising. Telemarketing also includes sales solicitations via fax, the Internet and
mail, if the consumer is encouraged to respond via the telephone, fax or Internet.
Although a large number of legitimate businesses use telemarketing to reach consumers, this
method of conducting business can be easily abused by con artists looking to take advantage
of unsuspecting individuals. Telemarketing fraud robs consumers of approximately $40
billion every year.
Fraudulent telemarketers ignore the law and continue to defraud people until they are caught.
Regulation of:
National Do Not Call Registry:
Registering your phone number with this registry is free. You can register online at
www.donotcall.gov or call 1-888-382-1222, TTY 1-866-290-4236, from the phone
number you wish to register. Your number will stay registered for five years or until the
number is disconnected or you remove the listing.
Telemarketers have to purchase the do-not-call list from the FTC, and they have to delete
from their calling lists the phone numbers from the registry. Violators of the do-not-call
provisions could be subject to penalties of $11,000 per call.
Having your number on the federal do-no-call list will not stop all unwanted solicitations.
There are several exemptions to the law. For instance, if there is a "preexisting business
relationship," a telemarketer can call a consumer for a period of up to 18 months after the
consumer's last transaction with the seller. Also, if the call is for the purpose of
conducting a survey, or is a political solicitation, or is a solicitation for a charitable
organization, the Do Not Call Registry is not applicable.
Under the FTC's rules, consumers who don't want to register for the National Do Not Call
Registry can still tell telemarketers that they don't wish to receive solicitations.
Businesses are required to maintain lists of consumers who have made a do-not-call
request, and it is a violation to call a consumer who has asked to be placed on the
company's do-not-call list. This company-specific request takes precedence over the
"preexisting business relationship" exemption. In other words, even if you have made a
recent purchase from a company, if you tell the company you do not want to be solicited
by phone, the company is required to comply with that request. Similarly, you can use the
company-specific option to ask a paid fundraiser for a charitable organization to stop
soliciting you by phone.
Telemarketing Laws:
The Federal Trade Commission (FTC) has adopted strict rules that offer protection
against telemarketing fraud. These rules require that certain information be given to
consumers and prohibit telemarketers from engaging is certain actions:

A telemarketer may not call you if you have previously asked not to be called.






A telemarketer may only call between 8:00 a.m. and 9:00 p.m.
Before starting a sales pitch, the telemarketer must tell you that the call is a sales call, the
name of the seller and what is being sold. If it is a prize promotion, the telemarketer must
tell you that no purchase or payment is necessary to enter the contest or win the prize.
Telemarketers may not misrepresent any information. All facts must accurately represent
the goods or services, investment opportunity or prize.
Before you pay for anything, the telemarketer must tell you the total cost of the goods, any
restrictions on getting or using them, and whether the sale is final. In a prize promotion, you
must be told the odds of winning and that no purchase or payment is necessary to win. The
telemarketer must also inform you of any restrictions or conditions for receiving the prize.
It is illegal for a telemarketer to withdraw money from your checking account without your
written, verifiable, authorization.
A telemarketer cannot lie to get you to pay.
Where to complain about unwanted calls:
You can file complaints about unwanted telephone calls with the FTC at
www.donotcall.gov, with the FCC at www.fcc.gov, and with the Consumer Protection
Unit of your residing state’s Attorney General's Office.
F.
Discuss the regulation of data privacy:
The Federal Trade Commission (the government agency charged with
protecting the privacy of individuals in the United States) can only take
action against you if you voluntarily post a privacy statement and then
deliberately violate it.
1. (COPPA) Children’s Online Privacy Protection Rule
Congress enacted the Children’s Online Privacy Protection Act
(COPPA), in 1998. COPPA contains a requirement that the Federal
Trade Commission (FTC or Commission) issue and enforce a rule
concerning children’s online privacy, which the Commission did in
1999. The Children’s Online Privacy Protection Rule became
effective on April 21, 2000.
The primary goal of COPPA and the Rule is to place parents in
control over what information is collected from their young children
online. The Rule was designed to protect children under age 13
2. HIPAA The Health Insurance Portability and Accountability Act (HIPAA)
also contains a substantial Privacy Rule that affects organizations that
process medical records on individual citizens. HIPAA's "covered entities"
include:
Health care providers
Health care clearinghouses
Health care plans
The HIPAA Privacy Rule requires covered entities to inform patients about
their privacy rights, train employees on the handling of private
information, adopt and implement appropriate privacy practices
and provide appropriate security for patient records. For more
information on HIPAA, see the Department of Health and
Human Services' HIPAA Web site.
3.
GLBA
The most recent addition to privacy law in the United States is the GrammLeach-Bliley Act of 1999 (GLBA). Aimed at financial institutions, this law
contains a number of specific actions that regulate how covered
organizations may handle private financial information, the safeguards they
must put in place to protect that information and prohibitions against their
gaining such information under false pretenses.
If you're thinking to yourself, "That's fine, I don't work for a bank, hospital or
children's Web site, so these laws don't apply to me," stop and think again.
The FTC has interpreted GLBA with an incredibly wide definition of the term
"financial institution." Some examples of industries covered by GLBA
include:
Banking
Securities trading
Insurance companies
Lenders
Tax preparers
Credit counselors and financial advisors
Real estate settlement services
Debt collection services
G.
Describe actions that can be taken by the Federal Trade Commission to
correct misleading advertising
Must first establish that advertising is false or misleading:
1. To establish that an advertisement is false, or misleading a plaintiff ( customer) or (your
competitors) must prove five things:
a. (1) a false statement of fact has been made about the advertiser's own or another
person's goods, services, or commercial activity;
b. (2) the statement either deceives or has the potential to deceive a substantial portion
of its targeted audience;
c. (3) the deception is also likely to affect the purchasing decisions of its audience;
d. (4) the advertising involves goods or services in interstate commerce; and
e. (5) the deception has either resulted in or is likely to result in injury to the plaintiff. The
most heavily weighed factor is the advertisement's potential to injure a customer. The
injury is usually attributed to money the consumer lost through a purchase that would
not have been made had the advertisement not been misleading. False statements
can be defined in two ways: those that are false on their face and those that are
implicitly false.
2.
How does the FTC determine if an ad is deceptive?
A typical inquiry follows these steps:

The FTC looks at the ad from the point of view of the "reasonable consumer" - the typical person looking at
the ad. Rather than focusing on certain words, the FTC looks at the ad in context - words, phrases, and
pictures - to determine what it conveys to consumers.

The FTC looks at both "express" and "implied" claims. An express claim is literally made in the ad. For
example, "ABC Mouthwash prevents colds" is an express claim that the product will prevent colds. An
implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds"
contains an implied claim that the product will prevent colds. Although the ad doesn't literally say that the
product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the
germs that cause colds" that the product will prevent colds. Under the law, advertisers must have proof to
back up express and implied claims that consumers take from an ad.

The FTC looks at what the ad does not say - that is, if the failure to include information leaves consumers
with a misimpression about the product. For example, if a company advertised a collection of books, the ad
would be deceptive if it did not disclose that consumers actually would receive abridged versions of the
books.

The FTC looks at whether the claim would be "material" - that is, important to a consumer's decision to buy
or use the product. Examples of material claims are representations about a product's performance, features,
safety, price, or effectiveness.

The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law
requires that advertisers have proof before the ad runs.
3.
Remedies:

Injunctive Relief Injunctive relief is granted by the courts upon the satisfaction of two
requirements. First, a plaintiff must demonstrate a "likelihood of deception or confusion on the
part of the buying public caused by a product's false or misleading description or advertising"
(Alpo). Second, a plaintiff must demonstrate that an "irreparable harm" has been inflicted, even if
such harm is a decrease in sales that cannot be completely attributed to a defendant's false
advertising. It is virtually impossible to prove that sales can or will be damaged; therefore, the
plaintiff only has to establish that there exists a causal relationship between a decline in its sales
and a competitor's false advertising. Furthermore, if a competitor specifically names the plaintiff's
product in a false or misleading advertisement, the harm will be presumed (McNeilab, Inc. v.
American Home Products Corp., 848 F.2d 34 [2nd. Cir. 1988]).
Corrective Advertising Corrective advertising can be ruled in two different ways. First, and most
commonly, the court can require a defendant to launch a corrective advertising campaign and to
make an affirmative, correcting statement in that campaign. For example, in Alpo, the court
required Purina to distribute a corrective release to all of those who had received the initial, false
information.

Second, the courts can award a plaintiff monetary damages so that the plaintiff can conduct a
corrective advertising campaign to counter the defendant's false advertisements. For example, in
U-Haul International v. Jartran, Inc., 793 F.2d 1034 (9th Cir. 1986), the plaintiff, U-Haul
International, was awarded $13.6 million— the cost of its corrective advertising campaign.


Damages To collect damages, the plaintiff generally has to show either that some consumers
were actually deceived or that the defendant used the false advertising in bad faith. Four types of
damages are awarded for false advertising: profits the plaintiff loses when sales are diverted to
the false advertiser; profits lost by the plaintiff on sales made at prices reduced as a
demonstrated result of the false advertising; the cost of any advertising that actually and
reasonably responds to the defendant's offending advertisements; and quantifiable harm to the
plaintiff's good will to the extent that complete and corrective advertising has not repaired that
harm (Alpo).
FTC can impose fines: Wearable Technology FTC Fines Reebok $25M for “Deceptive
Advertising” Over EasyTone Shoes by Nicole Abene, 09/28/11
ACTIVITY: Have students research the above article “Wearable Technology FTC
Fines Reebook.”
According to the FTC what was deceptive or misleading about the product? (This
would be what Reebok claimed to product to do)
How had Reebok portrayed its customers?
What did Reebok have to do, in order to “make things right,” for their customers?
Read the Press Release
(Teachers, you may wish to add or expand on this assignment or sample questions
above)
H.
Discuss reasons for the regulation of products used in advertising




Protect children
Protect consumers from false or misleading information (for example, are
cosmetics drugs? What about dietary supplements? Is it organic?)
Health risks involved (tobacco, alcohol, over-the-counter drugs, prescription
drugs)
Protects against harm to animals
Something to think about:
Gambling and state-run lotteries: What is the purpose of these ads? Are they
Intended to inform gamblers and those playing the lottery about the choices
available? Are they designed to stimulate betting and placing a wage? Is the
state obligated to also advertise help for those that become addicted to
gambling?
Retrieved November 16, 2011 from Advertising and Integrated Brand Promotion, 5th
Edition. p. 124-127
I.

Explain how the legality of products used in advertising can vary from
country to country.
Laws Vary Country to Country
You will need to take into account the law in every country where you are
marketing. To do this, it is critical to have a team of local legal experts. Lawyers
licensed in the U.S. are only authorized to provide legal advice to clients on the
laws of the state in which they are admitted to practice. Have your U.S. counsel
take the lead and start with a set of U.S.-compliant official rules.

Don't Forget About Cultural Issues
Bring in local experts to make sure your promotion's advertising or the prizes you
are giving away don't violate any cultural norms.

Be Flexible About the Promotion Structure
For example, recent legal rulings in Canada have called into question the ability
to structure a skill contest with a purchase requirement, while Hong Kong and
Italy place limits on cash prizes. There are typically easy work-arounds, such as
providing an alternate prize or method of entry.

Be Prepared to Administer the Promotion Differently
Certain countries will require that you advertise and administer the promotion in
very specific ways. For example, some jurisdictions require publication in
newspapers, while others require that the advertising and rules be in the
language of the local jurisdiction. Drawings may need to be held locally and
witnessed by specific individuals, and winners notified by very specific methods.
Lastly, some promotions may need to be registered in foreign countries.

Privacy
Privacy law varies from country to country and, believe it or not, U.S. laws
relating to the collection and use of personally identifiable information are quite
lax as compared to the European versions. Therefore, the collection, storage,
transfer and use of personally identifiable information require special
consideration.

Don't Rely on One “Representative” Country
Don't assume that because one country in a particular region permits the practice
that it will be OK in all jurisdictions in those regions. This is particularly true of
Asian countries, where there certainly will be differences in the law from one
country to the next. Subtle country-specific interpretations of the law can make a
big difference.

Budget Time and Money to Get It Done Right
This last issue is perhaps the most important of all. Coordinating the legalities in
multiple jurisdictions is certainly a bit more time consuming and expensive than
the U.S. Be ready to add at least a week or two to your time line if your promotion
involves more than just one or two international countries. Be prepared to pay an
additional US$1,000 to US$3,000 per country for legal fees.
Joseph Lewczak is a partner in the Advertising, Marketing and Promotions
Department of Davis & Gilbert LLP, New York, NY. He can be reached at 212-4684909.
Examples: Sweden and Norway prohibit domestic advertising that targets children.
Some European countries don’t allow sponsorship of children’s programs, no advertisement
can be aimed at children under the age of twelve, and there can be no advertisements five
minutes before or after a children’s program is aired. In the United Kingdom advertising of
tobacco on television, billboards or at sporting events is banned.
Sample
Activity
Access the United States’ Federal Trade Commission web site at
http://www.ftc.gov, and use its search engine to link to articles/transcripts
related to advertising. Select an article that discusses the actions the
Federal Trade Commission has taken to ensure fair advertising practices
by a business/industry, and write a one-page summary of your findings.
Submit your summary to the teacher.
Resources
Textbooks
Boone, G., & Kurtz, D.L. (2009). Contemporary marketing 2009 (pp. 82-83,
552-553). Mason, OH: South-Western Cengage Learning.
Burrow, J.L. (2006). Marketing (2nd ed.) [pp. 433-434]. Mason, OH:
Thomson/South-Western.
Clark, B., Sobel, J., & Basteri, C.G. (2010). Marketing dynamics: Teacher’s
edition (2nd ed.) [pp. 69, 523-525]. Tinley Park, IL: Goodheart-Willcox
Company, Inc.
Etzel, M.J.; Walker, B.J.; & Stanton, W.J. (2007). Marketing (14th ed.) [pp.
490-493]. New York: McGraw-Hill/Irwin.
Clow, K.E, & Baack, D. (2010). Integrated advertising, promotion, and
marketing communications (4th ed.) [pp. 384-390]. Upper Saddle
River, NJ: Prentice Hall.
Farese, L.S.; Kimbrell, G.; & Woloszyk, C.A. (2009). Marketing essentials
(pp.129-130, 666-667). Woodland Hills, CA: Glencoe/McGraw-Hill.
Grewal, D. & Levy, M. (2008). Marketing (pp. 479-480). New York:
McGraw-Hill/Irwin.
O’Guinn, T.C., Allen, C.T. & Semenik, R.J. (2009). Advertising and
integrated brand promotion (5th ed.) [pp. 126-145]. Mason, OH:
Thomson/South-Western.
Perreault, W.D., Jr.; Cannon, J.P.; & McCarthy, E.J. (2008). Basic
marketing: Marketing strategy planning approach (16th ed.) [pp. 444445]. New York: McGraw-Hill/Irwin.
Wells, W., Burnett, J. & Moriarty, S. (2003). Advertising principles and
practice (6th ed.) [pp. 34-57]. Upper Saddle River, NJ: Prentice Hall.
Workbooks/
Manuals
Greene, C.L. (2003). Selling: Business 2000 (pp. 101-105). Mason, OH:
South-Western/Thomson Learning.
Software/
Online
Advertising Educational Foundation. (2000-2011). Industry regulations.
Retrieved May 19, 2011, from
http://www.aef.com/on_campus/classroom/speaker_pres/data/3006
Fawkner, K. (2005-2006). Not just 6 lines, 65 characters. Retrieved May
19, 2011, from http://www.ahbbo.com/adsftc.html
Federal Trade Commission. (2007, November 28). Bureau of Consumer
Protection—Division of Advertising Practices. Retrieved May 19,
2011, from http://www.ftc.gov/bcp/bcpap.shtm
Gajda, M. (n.d.). Federal regulation of advertising in the context of
constitutional freedom of speech in the United States. Retrieved May
19, 2011, from http://www.newschool.edu/tcds/malgorza.htm
Lewczak, J. (2007, July 1). Legal issues before going global. Retrieved
May 19, 2011, from
http://promomagazine.com/legal/marketing_going_global_3/
Lewczak, J., Fitzpatrick, A., & Smith, M. (2008). Advertising, marketing,
and promotions law year in review. Retrieved May 19, 2011, from
http://www.metrocorpcounsel.com/current.php?artType=view&artMont
h
=December&artYear=2007&EntryNo=7565
http://www.enotes.com/everyday-law-encyclopedia/deceptive-tradepractices
http://business.ftc.gov/documents/bus35-advertising-faqs-guide-smallbusiness
Other resources:
Truthfulness as a Factor in the Language of Advertising. Dr Ayantayo J. Kehinde
Department of Religious Studies, University of Ibadan, Ibadan. [email protected]