Comment submitted by Electronic Retailing Association and Council for Responsible Nutrition

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Before the FEDERAL TRADE COMMISSION Washington, DC IN T HE MATTER O F ENDORSEMENT GUIDES R EVIEW Project No. P034520 COMMENTS OF Electronic Retailing Association and Council for Responsible Nutrition Counsel of Record: Jeffrey D. Knowles Edward F . Glynn, Jr. VENABLE LLP th 575 7 Street, NW Washington, DC 20004 (202) 344-4000 Of Counsel: Gary D. Hailey Mikhia E. Hawkins Melissa Landau S teinman INTRODUCTION On November 28, 2008, the Federal Trade Commission (“Commission” or “FTC”) published in the Federal Register, 73 Fed. Reg. 72374, a Notice of – and request for comment on – proposed changes (“Notice”) to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”), codified at 16 C.F.R. Part 255. These Guides, although not formal FTC Rules, constitute one of the most important statements of policy by the FTC in the field of advertising in general. The Guides are responsible for the ubiquitous “Your Experience May Vary” disclaimer seen at the bottom of television and other advertising, as well as the rules governing the payment of compensation to endorsers and testimonials, the documenting of testimonial claims and many other related policies. The changes proposed by the Commission ...

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Before the FEDERAL TRADE COMMISSION Washington, DC

IN THE MATTER OF ENDORSEMENT GUIDES REVIEW Project No. P034520

COMMENTS OF Electronic Retailing Association and Council for Responsible Nutrition

Of Counsel: Gary D. Hailey Mikhia E. Hawkins Melissa Landau Steinman

Counsel of Record:

Jeffrey D. Knowles Edward F. Glynn, Jr. VENABLE LLP 575 7 th Street, NW Washington, DC 20004 [phone]

INTRODUCTION On November 28, 2008, the Federal Trade Commission (“Commission” or

“FTC”) published in the Federal Register, 73 Fed. Reg. 72374, a Notice of – and request

for comment on – proposed changes (“Notice”) to its Guides Concerning the Use of

Endorsements and Testimonials in Advertising (“Guides”), codified at 16 C.F.R. Part

255. These Guides, although not formal FTC Rules, constitute one of the most important

statements of policy by the FTC in the field of advertising in general. The Guides are

responsible for the ubiquitous “Your Experience May Vary” disclaimer seen at the

bottom of television and other advertising, as well as the rules governing the payment of

compensation to endorsers and testimonials, the documenting of testimonial claims and

many other related policies. The changes proposed by the Commission are significant

and, if carried out, will have a substantial effect on the creation of new advertising which

will run after the effective date of the amended Guides.

Based upon the staff’s empirical research and its law enforcement experience, the Commission believes that disclaimers regarding the limited applicability of an endorser’s experience to what consumers may generally expect to achieve are unlikely to be effective, and therefore that the Guides’ current safe harbor for such disclaimers should be eliminated.

73 Fed. Reg. 72387.

Instead of allowing a disclaimer, the Commission will now require that when an

advertiser does not have substantiation for the claim that the endorser’s experience is

typical (and advertisers of new products rarely do, especially where success depends on

the manner and frequency with which consumers use a product), the Commission will

require that “the advertiser should clearly and conspicuously disclose the generally

expected performance in the depicted circumstances.”Id Commission is seeking. The

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comment on whether there are product categories for which this requirement would

prevent advertisers from using endorsements even though the advertiser believes that the

endorser’s experiences are, or likely are, generally representative.Id.In a footnote to

amended Section 255.2(d), the Commission notes that it has tested the communication of

advertisements containing a clearly and prominently disclosed disclaimer of either

“Results Not Typical” and another disclaimer and neither effectively communicated the

limited nature of the representation. 73 Fed. Reg. 72392 n.106. In the footnote, the

Commission states that it cannot rule out the possibility that a stronger disclaimer of

typicality could be effective in the context of a particular advertisement, and notes that it

would have the burden of proof in a law enforcement action, but also notes that an

advertiser with reliable empirical testing demonstrating that the net impression of the

advertisement includes knowledge of the disclaimer will avoid the risk of initiation of

such an action in the first place.Id.This is cold comfort to most advertisers.

The FTC’s decision that, in general, it will disallow typicality disclaimers is based

in part on its enforcement experience. The FTC observes that “disclosures are often

buried in fine print footnotes or flashed as video superscripts too quickly for consumers

to read them” and that they consist merely of “Results Not Typical” or “Results May

Vary” or similar statements that do little to inform consumers how rare or extreme the

featured results are.Id. conclusion is  Thisalso based on two staff studies thatat 72379.

were published as part of the January 2007 request for comments. These two studies

were vigorously criticized by many of the commenters, and with special force by

Professor Thomas Maronick on behalf of the Electronic Retailing Association and the

Council for Responsible Nutrition. Doctor Maronick described in detail how the studies

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were seriously flawed,Id.at 72384, but the Commission’s response is, essentially, that the studies may not be perfect but “the results of the staff’s studies do provide useful empirical evidence concerning the message that testimonials convey to consumers and the effects of various types of disclaimers on the communication of efficacy and typicality claims.”Id.at 72385. The Commission is aware of the hardship of requiring disclosure of “generally representative results.” Indeed, a number of comments highlighted the particular problems that marketers of direct response exercise and diet products would face.Id.at 72381. The Commission responded that it recognized that a revision of Section 255.2(b) of the Guides calling for arguably non-typical testimonials to be accompanied by disclosure of the results consumers generally achieve with the advertised product would increase costs for those advertisers who have not previously tracked consumers’ experiences with their products, and could present an impediment to the use of such testimonials by certain advertisers.Id. In the discussion below, we demonstrate in Part I why requiring disclosures by advertisers of “generally expected results” – backed up by the level of substantiation generally required of any other material claim – will work substantial hardship on many advertisers for many products. Indeed, some advertisers and marketers of new products will find it impossible to comply with this new standard, requiring that they forbear using truthful testimonials or face the threat of enforcement action by the Commission. In Part II, we demonstrate that the two studies on which the Commission bases its finding that such a disclosure is needed are fundamentally flawed, internally inconsistent and, in some cases, recognized as weak even by their authors. In Part III, we discuss the impropriety

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of relying on two studies of particular print ads to develop federal advertising policy in all advertisements containing testimonials in whatever form of media, including television, radio and the internet, none of which were the subject of any test ads. In Part IV, we briefly review the impact that requiring advertisers to accompany facially truthful testimonial statements with disclosures of information that may be unknowable can trench on settled First Amendment principles. And in Part V, we discuss the undesirability of establishing principles that go far beyond the existing Guides through parachuting into the Guides four new examples – examples 6, 7, 8 and 9 to proposed 16 C.F.R. § 255.5 – without the opportunity for discussion and further guidance on the scope of the liability that these new rules would create.

I. THE PROPOSED NEW RULES ON CONSUMER TESTIMONIALS RISK CREATING HARDSHIP AND CONFUSION IN THE ADVERTISING COMMUNITY WITHOUT SUFFICIENT DEMONSTRATION THAT THE EXISTING RULES ARE FLAWED. In the Notice, the Commission states that it recognizes that a revision of the Guides “calling for non-typical testimonials to be accompanied by disclosure of the results consumers generally achieve with the advertised product would increase costs for those advertisers who have not previously tracked consumers’ experience with their products, and could present an impediment to the use of such testimonials by certain advertisers.”Id.at 72381. The Commission continues, however, that commenters may be overestimating those costs, and in “the vast majority of cases – particularly those for legitimate products and programs whose efficacy has already been demonstrated by competent and reliable scientific evidence – that information is likely to be present.”Id. The Commission continues by stating its belief that “for most products, it is possible to

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devise a methodologically sound means of determining the generally expected results.”

Id.

The basis for the Commission’s confidence in these propositions is not stated.

Perhaps the Commission has in mind the experience of automotive fuel economy results

required to be posted on the windows of new automobiles stating the purported average

highway and city fuel economy results of each vehicle. Such numbers are derived from

scientific/engineering analysis and may or may not represent the actual results to be

achieved by any particular driver. By analogy, there will be products that, because of

their inherent capabilities, allow consumers to obtain a particular result within a specified

period of time.

But that tells one little or nothing about the average results that consumers can

expect when those results derive from the frequency, intensity and commitment with

which consumers employ the product in question. A good example is a treadmill, a

product utilized by many consumers for weight loss purposes. The substantiation for

claims that a treadmill will allow a user to boost caloric expenditure is relatively well

understood. How much the caloric expenditure will be boosted in the case of any

consumer depends on such facts as the weight and sex of the consumer, as well as such

variables as the frequency, length of time, and intensity with which the consumer uses the

treadmill. But even that is not sufficient to address questions of typical weight loss

experience since such weight loss requires a net deficit between caloric consumption and

expenditure. Consequently, “disclosure of the results consumers generally achieve with

the advertised product,”Id.“generally expected results” were to beat 72381 – if the

presented with the level of substantiation the Commission typically requires for material

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claims – would require communication after the sale with such consumers in an effort to obtain a statistically sufficient number of responses which would (hopefully) be truthful and accurate. This dilemma will confront any advertiser who is selling a product the success of which depends on the commitment, enthusiasm or experience of the purchaser, and may put such a marketer to the Hobson’s choice of abstaining from using a truthful testimonial on a subject for which information about typical results is unobtainable – or facing a challenge by the Commission. The proposed “generally expected results” disclosure requirement also raises special concerns for companies who engage in direct sales through live on-air presentations, such as the live TV shopping channels. These presentations often incorporate live testimonials, including call-in testimonials from customers who have previously purchased and used the product involved. This is an important element of the presentation to viewers and a well-established practice over many years for these companies. However, the proposed disclosure requirement is likely to effectively eliminate the ability of a live TV shopping channel from taking testimonial calls for a substantial number of products because of the unworkability of the proposed requirement. Disclosing generally expected results is unworkable in circumstances where the substantiation that is being relied upon by the live TV shopping channel may be based on different time frames or different conditions than those expressed by the individual consumer providing the testimonial. A change in regulatory approach of this magnitude affecting a well-established practice that is popular with and informative for consumers

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should not be made without further study and the opportunity for the industry to consult

further with the Commission. As previously mentioned, the Commission admits that the proposed disclosure

requirement “might impede the ability of newly established companies to use testimonials” but concludes that “such an outcome would not necessarily be inappropriate” since businesses “are entitled to compete based on truthful, non- misleading advertising claims, but they are not entitled to use techniques that mislead consumers.”Id. notion may be unexceptionable, but certainly requires Thisat 72382. sturdy evidence in support of the proposition that a truthful statement by a testimonial will necessarily “mislead” consumers in the absence of a disclosure of what may be

inherently unknowable by the advertiser. This requirement is essentially a ban on the use of specific testimonials, even if truthful. Consequently, a closer examination of the Commission’s basis for this conclusion is required. The Commission advances two bases for its conclusion. The first is easily disposed of and relates to the assertion that the Commission has brought a number of enforcement actions against marketers for deceptive advertising containing consumer endorsements and that many of these endorsements have been accompanied by statements purportedly informing consumers that the experiences of the featured endorsers are not representative of what consumers can expect.Id. Theat 72379. problem, according to the Commission, is that the “disclosures are often buried in fine print footnotes or flashed as video superscripts too quickly for consumers to read them.”

Id surely, illegible disclaimers, although perhaps a familiar problem to the. But, Commission, are also a problem easily remedied. The disclosures should be clear,

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prominent and legible and if they are not, they should be treated as if there is no disclaimer at all. Moreover, since the new policy proposed by the Commission also involves a disclosure – albeit one of generally expected results as opposed to a disclaimer of typicality – the same issue of illegibility which attaches to the disclaimer issue will be present in the new requirement of expected results. There is, in short, no logical connection between a concern over legibility of a disclaimer and the requirement that the content of the disclaimer be changed to something which, in many cases, will be unknowable. Consequently, we turn to the two studies, discussed at length by the Commission in the Notice, on which the purported rationale for the change must basically rest.

II. THE TWO FLAWED STUDIES FAIL TO SUPPORT THE COMMISSION’S PROPOSED SWEEPING CHANGES TO THE ENDORSEMENT GUIDES. Almost 30 years ago, the Commission chose to provide a “safe harbor” to advertisers who employ truthful endorsements reflecting the experiences of one or more consumers on a central attribute of a product or service as long as they “clearly and conspicuously disclose the limited applicability of the endorser’s experience to what consumers may generally expect to achieve.” 16 C.F.R. § 255.2 (2008). The Commission now proposes to reverse course and eliminate that safe harbor. This change of direction is based entirely on the results of two studies it paid to have conducted. 1

1 It appears that neither the FTC staff nor the authors of these studies performed a thorough literature search or otherwise attempted to determine whether the literature on testimonials and endorsements was consistent with the results of these studies. As the Commission said inDietary Supplements: An Advertising Guide for Industry, “Studies cannot be evaluated in isolation. The surrounding context of the scientific evidence is just as important as the internal validity of individual studies. Advertisers should consider all relevant research relating to the claimed benefit of their supplement and should not focus only

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The Commission routinely insists that advertising claims be substantiated by two (or more) studies that have been conducted and evaluated in an objective manner using procedures generally accepted as yielding accurate and reliable results. It is ironic that the two studies that have been put forth by the Commission as providing an empirical basis for the proposed new Section 255.2(b) would not meet the standards that have been applied to advertising substantiation by the Commission. 2 In addition, even if the methodology and analysis utilized in these studies were not seriously flawed, they are far too narrow in scope to be extrapolated to all advertising in all media. Nor do these studies support the Commission’s proposed solution to the alleged problem here – that is, the disclosure of the generally expected performance of a product or service in the depicted circumstances. 3 The validity of these studies as support for the Commission’s proposed revisions to Section 255.2 was questioned by several of the commenters who responded to the Commission’s January 18, 2007Federal Register Innotice concerning the Guides. particular, Professor Thomas J. Maronick prepared a detailed critique of the two studies, which was filed as part of the comments of the Electronic Retailing Association (“ERA”)

on research that supports the effect, while discounting research that does not.” FTC,Dietary Supplements: An Advertising Guide for Industry14 (1998). 2 been hired many times in the past by FTC staff to doFor example, the same two individuals (who have research to support FTC litigation efforts) performed both studies. In the past, the Commission has required advertisers to have substantiation in the form of “at least two adequate and well-controlled, double-blinded clinical studies which conform to acceptable designs and protocolsand are conducted by different persons, independently of each other.”Thompson Medical Co., Inc.,104 F.T.C. 648, 844 (1984) (emphasis added). 3 staff have noted time and time again, claims that do not match theAs the Commission and its substantiation – no matter how valid the substantiation may be – are not substantiated. As we will discuss below, the findings of the Hastak-Mazis studies do not support the particular “safe harbor” provision contained in proposed 255.2(b). In fact, the first study did not even attempt to test the effects of the disclosure of what the generally expected performance of a product would be, and provides no support whatsoever for this proposed Guides revision.

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and the Council for Responsible Nutrition (“CRN”). As the Director of BCP’s Office of Impact Evaluation for over 16 years, Professor Maronick was the FTC’s in-house expert on consumer survey research, and designed and/or implemented over 300 consumer surveys. Obviously, his criticisms of these studies should be given considerable weight. 4 The FTC’s Notice generally dismisses Professor Maronick’s comments (as well as the criticisms based on the focus groups findings). But after attempting to rebut the criticisms of the two studies presented by Professor Maronick, the Commission concedes that the studies are flawed. To support its argument that flawed studies are good enough to support the proposed revision to Section 255.2 of the Guides, the Commission cites its 1991 decision inKraft, Inc., 5 which stated that a consumer survey conducted by the FTC staff in that case “was not without its flaws” but that, “on balance, the results were of some probative value.” 114 F.T.C. 40, 126 n.13 (1991),aff’d, 970 F.2d 311 (7th Cir. 1992). The footnote in the Notice citingKraft, Inc.also quotes from the Commission’s 2005 decision inTelebrands Corp., 6 which acknowledged that a staff-administered copy

4  ForProfessor Maronick was not the only commenter who questioned these studies. example, another commenter submitted a report from a well-respected research firm that asked two focus groups to review the mock weight-loss advertisements that were the subject of the second FTC study. The report presenting the results of those focus groups also calls into question the reasoning behind the Commission’s proposed Section 255.2(b). The focus group members were quite skeptical of the more dramatic weight-loss testimonials in the hypothetical advertisements. They didn’t expect advertisers to feature typical customers in their advertising and didn’t jump to the conclusion that they could expect to lose as much weight as the hypothetical testimonials said they lost. The Commission brushed off the focus group findings, observing that “the process by which consumers view (and discuss) advertising in a focus group is very different from how they ordinarily experience it.” 73 Fed. Reg. 72384. Of course, the methodology followed in the Hastak-Mazis studies relied upon by the Commission bore little resemblance to the process by which consumers ordinarily view advertising – and the mock advertisements themselves bore little resemblance to actual advertisements. In addition, the Commission stated that “[f]ocus groups are very dependent on group dynamics, and one or two participants can dominate the discussion and even influence other participants,” but cited no evidence that the focus groups in question had such dominant participants.Id. Despite these criticisms of focus groups, the Commission and other government agencies (including the FDA) often conduct and rely on focus group research. 5 73 Fed. Reg. 72385 n.77. 6 Id .

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