4.01 Regulations and Ethics i n Promotion

1. 4.01 Regulations and Ethics in Promotion

2. The Need For Truthfulness in Promotional Messages and Claims • “Truthfulness simply refers to the act of giving true information or facts (in exact manner) about something. • 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, 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

3. The Use Of Misleading Or Inaccurate Statements In Promotion Is Regulated 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. • 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.

4. 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

5. Laws That Protect Children From Promotional Messages • FTC works with the Children's Advertising Review Unit (CARU) • In 1974, the National Advertising Review Council (NARC) established theChildren’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. • 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 itsintended 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. • CARU monitors and reviews advertising directed to children, initiates and receives complaints about advertising practices, and determines whether suchpractices 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 • 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. • These requirements apply to television broadcasters, cable operators, and satellite providers. • These limitations are prorated for programs that are shorter than one hour in duration. • 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.

6. 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.

7. 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. • (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 • 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. • GLBA • The most recent addition to privacy law in the United States is the Gramm-Leach-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

8. 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 false statement of fact has been made about the advertiser's own or another person's goods, services, or commercial activity; • the statement either deceives or has the potential to deceive a substantial portion of its targeted audience; • the deception is also likely to affect the purchasing decisions of its audience; • the advertising involves goods or services in interstate commerce; and • 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: • 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. • 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

9. 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

10. Children are an important marketing target for certain products. • Why are children vulnerable: • Because their knowledge about products, the media, and selling strategies is usually not as well developed as that of adults • Children are not aware of marketing tactics and messages. For example, studies linking relationships between tobacco and alcohol marketing with youth consumption resulted in increased public pressure directly leading to the regulation of marketing for those products. • The use of the Internet to market to children also raises ethical issues. Sometimes a few unscrupulous marketers design sites so that children are able to bypass adult supervision or control; sometimes they present objectionable materials to underage consumers or pressure them to buy items or provide credit card numbers. When this happens, it is likely that social pressure and subsequent regulation will result.

11. 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.