Download 4.01_Part_F - J

Directions: Use the following information to fill in your 4.01 F Note Guide.
Performance Element
4.01 Acquire a foundational knowledge of promotion to understand its nature and scope.
Performance Indicator
F. Describe the regulation of promotion.
A.
Explain the need for truthfulness in promotional messages and claims
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B.
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.
Need for truthfulness in promotional messages and claims:
1. The society to which advertisement is targeted or addressed has right to truthful
information.
2. 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.
3. Such information will improve the consumer’s purchase or use experience.
4. Such information will help to measure the consumer’s satisfaction with the
purchase and use experience.
5. The more truthful information the advertising supplies, the better market and sale it
makes from the public.
6. The fact is that truthful advertising could enhance high patronage of goods so
advertised and such could enhance re-sale and repeat sale.
7. 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.
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Federal Agency: (FTC Federal Trade Commission) has regulatory power to step in and end
any potentially misleading or deceptive claims
o 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.
o 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?
o 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
 Is "material" - that is, important to a consumer's decision to buy or use the
product
What makes an advertisement unfair?
o 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
 it is not outweighed by the benefit to consumers
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C.
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.
Explain laws that protect customers from unwanted promotions.
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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)
1. In 1974, the National Advertising Review Council (NARC) established the
2. Children’s Advertising Review Unit (CARU) as a self-regulatory 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.
3. 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.
4. CARU monitors and reviews advertising directed to children, initiates and receives
complaints about advertising practices, and determines whether such 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.
1. The FCC’s rules 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.
2. These requirements apply to television broadcasters, cable operators, and satellite
providers.
3. These limitations are prorated for programs that are shorter than one hour in
duration.
4. 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.
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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
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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.
o 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.
o 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.
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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.
o 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:
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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.
o (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
o 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.
o 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:
 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.
How does the FTC determine if an ad is deceptive?
 A typical inquiry follows these steps:
o 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.
o 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.
o 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.
o 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.
o 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.
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
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H.
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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
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
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
Explain how the legality of products used in advertising can vary from country to country.
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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.
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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.
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.