Developing Rational Standards for an Advertising Substantiation Policy
Charles B. Shafer
University of Baltimore - School of Law
University of Cincinnati Law Review, Vol. 55, No. 1, 1986
American annual consumer expenditures of nearly two trillion dollars involve approximately sixty-four percent of the country's Gross National Product. A substantial portion of those consumer purchases result in some sort of dissatisfaction. The term 'consumer dissatisfaction’ represents a large continuum of feelings ranging from mild disappointment to all consuming rage. Consumer dissatisfaction is a serious societal problem for a variety of reasons. It indicates a misallocation of scarce resources. It can be a significant factor in producing the perception that the economic and political institutions are unfair, ineffective, or unresponsive. That perception can have wide ranging political ramifications. Finally, it may be an indication of genuine political and economic unfairness.
Consumer dissatisfaction is often caused by advertising or other marketing practices that create unrealistic expectations on the part of consumers regarding the properties or effectiveness of products or services. Advertising, both true and untrue, plays a significant role in determining how consumer dollars are spent. Approximately seventy-billion dollars are spent annually on advertising. Therefore, the part that advertising plays in consumer misapprehension regarding the properties or effectiveness of products deserves our attention.
A number of governmental institutions and substantive legal doctrines have been established to resolve consumer disputes and to prevent consumer dissatisfaction. The Federal Trade Commission (Commission) often is considered the prime federal agency protecting consumers from false advertising. The Commission administers a number of statutes which seek to protect consumers in the market-place; the most inclusive of those laws is Section Five of the Federal Trade Commission Act (FTCA) which prohibits ‘unfair and deceptive acts and practices.’ This language has been used for eighty-four years as the basis of the Commission's jurisdiction to regulate advertising. The Commission has regulated advertising by enacting a variety of Trade Regulation Rules and by ordering various advertisers to ‘cease and desist’ advertising campaigns that the Commission determines are deceptive.
Traditionally, identification of an advertisement as deceptive involved a determination that the advertiser was making false claims about the nature of the product. The Commission has employed another approach to the concept of deception. An advertiser violates the FTCA by making claims about a product when the advertiser does not have a reasonable basis to believe the claim, i.e., the advertiser lacks sufficient substantiation for the claim. This ‘reasonable basis doctrine’ forms the root of what is known as the Commission's advertising substantiation program. That program involves (or has involved) collecting and disseminating to the public the substantiation for particular advertising claims, as well as penalizing advertisers who make claims without a sufficient substantiation for those claims.
The advertising substantiation program often is recognized as a significant aspect of the Commission's consumer protection efforts. Nearly all complaints, decisions, and consent orders involving deceptive advertising at least partly are based on the doctrine that advertisers should have substantiation for claims. The advertising substantiation program was the subject of one of the two major policy statements regarding consumer protection that have been issued by the Commission during the Reagan administration.
A number of issues regarding the application of the substantiation requirement remain unresolved. Those issues involve: identifying the standard for determining the appropriate level of substantiation by advertisers, deciding whether substantiation developed after a claim is made should be considered, deciding whether the Commission should proceed by rule or adjudication in establishing the substantiation requirement, and deciding whether the substantiation materials should be available to the public. After a brief history of the substantiation requirement, this article will establish a theoretical basis for that requirement. That basis will be used to resolve the issues which have arisen.
Number of Pages in PDF File: 80
Keywords: consumer dissatisfaction, political institutions, economic unfairness, advertising, marketing practices, unrealistic expectations, Federal Trade Commission, FTCA, Trade Regulation Rules, reasonable basis doctrine, consumer protection,
JEL Classification: K19, K29, K39working papers series
Date posted: August 20, 2009
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