Chapter Overview

Advertising and the First Amendment:

American advertising is regulated by scores of laws adopted by all levels of government. Persons in advertising must be aware of such rules as well as all other regulations (libel, invasion of privacy, obscenity, etc.) that restrict the content and flow of printed and broadcast material. Since the mid-1970s, commercial advertising has been given the qualified protection of the First Amendment because much advertising contains information that is valuable to consumers. The government may regulate or prohibit advertising (1) that promotes an unlawful activity or (2) that is misleading or untruthful. The state may also regulate truthful advertising for lawful activities and goods if it can prove (1) that there is a substantial state interest to justify the regulation, (2) that such regulation directly advances this state interest, and (3) that there is a "reasonable fit" between the state interest being asserted and the governmental regulation. Advertising by professionals such as attorneys and physicians may be regulated in a somewhat more restrictive fashion.

The Regulation of Advertising:

Self-regulation by the advertising industry has increased in recent years, especially with the growth of comparative advertising. The National Advertising Division and the National Advertising Review Board, divisions within the Better Business Bureau, are the primary agents for this self-regulation. Such regulation is geared toward satisfying the interests of advertisers rather than consumers, however. There has also been a rapid increase in lawsuits brought by advertisers against one another under Section 43(a) of the Lanham Act. An advertiser seeking redress under this federal law can seek to stop the misleading practice and/or win money damages. Again, this law provides little relief for consumers. Laws banning false advertising exist at both the state and local levels, but tend to be applied half-heartedly. The Federal Trade Commission remains the nation's most potent weapon against false or misleading advertising, but in the 1980s reflected the national political mood of getting government "off the backs of business" and took a passive approach to problems in advertising. The FTC became more vigorous in consumer protection in the late 1990s, but prospects for continued aggressiveness dimmed with the election of a Republican president in 2000.

Federal Trade Commission:

The Federal Trade Commission has the power to regulate virtually all advertising that is deceptive or misleading. To be deceptive an advertisement must contain a representation, omission or practice that is likely to mislead the consumer; the advertisement or practice must be considered from the perspective of a reasonable consumer; and the representation, omission or practice must be material. The FTC has many remedies to regulate deceptive or untruthful advertising:

1. Guides or advisory opinions that attempt to outline in advance what advertisers may say about a product
2. Voluntary agreements by advertisers to terminate a deceptive advertisement
3. Consent agreements or consent orders signed by advertisers promising to terminate a deceptive advertisement
4. Litigated orders to advertisers to terminate a particular advertising claim, failure to comply with which can result in severe penalty
5. Substantiation of advertisements, in which the advertiser must prove all claims made in an advertisement
6. Corrective advertising, in which an advertiser must admit in future advertisements that past advertisements have been incorrect
7. Injunctive power to immediately halt advertising campaigns that could cause harm to consumers
8. Trade regulation rules that can be issued to regulate advertising throughout an entire industry

The Regulatory Process:

Complaints against advertisers are prepared by the FTC staff and approved by a vote of the commission. Administrative law judges can hold hearings, which are somewhat like trials, to determine whether the FTC charges are valid. A U.S. Court of Appeals can review all commission orders. Advertisers need to take special care when dealing with testimonials and endorsements. The law outlaws bait-and-switch advertising, in which customers are lured to a store with promises of low prices but then are pushed by salespersons to buy more expensive products. Although ad agencies and publishers/broadcasters are generally not held liable in cases of false or harmful advertising, there are signs that the law is changing.