Prohibited and controlled advertising in USA

Prohibited and controlled advertising

What products and services may not be advertised?

Any legal product may be advertised. Disclosures, for example, tobacco product warnings, may be required. Restrictions apply to targeting certain product advertising to minors, and advertising directed at children may require special disclosures.

Are certain advertising methods prohibited?

In 1974, the Federal Communications Commission (FCC) issued a public notice defining subliminal advertising as: ‘any technique whereby an attempt is made to convey information to the viewer by transmitting messages below the threshold level of normal awareness’ (see Public Notice Concerning the Broadcast of Information By Means of ‘Subliminal Perception’ Techniques, 44 FCC 2d 1016, 1017 (1974)). The same policy statement provides:

We believe that use of subliminal perception [technique] is inconsistent with the obligations of a licensee, and we take this occasion to make clear that broadcasts employing such techniques are contrary to the public interest. Whether effective or not, such broadcasts clearly are intended to be deceptive. (Id.)

Contemporary thinking is that subliminal advertising is ineffective and, if used, a form of deceptive advertising. In the current version of the FTC’s ‘Advertising FAQ’s: A Guide for Small Business’ (http://business.ftc.gov/documents/bus35-advertising-faqs-guide-small-business), the FTC states that ‘it would be deceptive for marketers to embed ads with subliminal messages that could affect consumer behaviour. However, most consumer behaviour experts have concluded that such methods aren’t effective.’

The Federal CAN-SPAM Act of 2003, 15 SSC section 7701, pre-empts state law and regulates unsolicited commercial email, which refers to any electronic mail message with the principal purpose of promoting the sale of goods or services, that is sent to a consumer with whom the sender does not have an existing business or personal relationship and that is sent without the consumer’s consent or prior request (see 15 USC section 7702(2)(a)). The Act requires any commercial email to include:

• a working opt-out procedure;
• notice of the recipient’s right to opt out;
• the sender’s physical address;
• accurate header information and subject lines;
• labelling the message an advertisement (but not necessarily ‘ADV’ in the subject line); and
• warning labels on sexually explicit material.

In addition, the Act prohibits opening multiple email accounts using false information, using open relays to transmit unsolicited commercial email, falsifying header information, using deceptive subject lines and harvesting email addresses.

What are the rules for advertising as regards minors and their protection?

There have been numerous efforts, led primarily by the CARU, to protect children from inappropriate marketing messages and purchase solicitations. One of the CARU’s most significant efforts is its Self-Regulatory Guidelines for Children’s Advertising, which, although lacking the direct force of law, are - like the FTC’s Fair Information Practice Principles - extremely influential and useful to advertisers, as well as e-commerce companies. Advertising for adult products should not be directed at minors. Advertising directed at minors may require additional disclosures, for example, separation from the content on broadcast advertising, and hosts of children’s programmes may not advertise products on the programmes.

Are there special rules for advertising credit or financial products?

Federal Reserve Board regulations govern advertising of financing terms. Truth in Lending Act disclosure under Regulation Z requires disclosure of certain terms, including the annual percentage rate of interest when any related representation is made (see 15 USC section 1601 and 12 CFR section 226). Consumer Leasing Act disclosures under Regulation M require disclosure of the following terms whenever any details of the lease terms are included in the advertising:

• the lease;
• the total amount to be paid up front, including security deposit;
• the schedule of payments and total;
• whether there is an option to purchase; and
• the liability at end.

(See 15 USC section 1667 and 12 CFR section 213.) Regulations permit advertising on radio and television to include (i), (ii) and (iii) with the remaining disclosures on an 800-telephone number or in a print advert. The FTC has aggressively enforced these regulations in leasing advertising (see Grey Advertising, CCH Trade Rep, paragraph 24, 373).

Further, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to implement and enforce federal consumer financial law, and their purview is ‘non-bank’ financial companies that have historically fallen outside the domain of consumer protection agencies.

Are there special rules for claims made about therapeutic goods and services?

The FDA regulates advertising for drugs - essentially any claims that a product affects the body or disease. Such advertising must present a fair balance between claimed benefits and disclosure of risks and side effects. All advertisements must be submitted to the FDA at the time of the initial dissemination (preclearance is the usual practice). Print advertising must include the ‘brief summary’ describing each specific side effect and contraindication in the FDA-approved labelling. Broadcast advertising must include a thorough description of the major risks in either the audio or in video and provide an effective means for consumers to obtain the approved labelling (see Guidance for Industry: Consumer-Direct Broadcast Advertisements). Off-label use (use of drugs other than as approved by the FDA) may not be advertised. Comparative claims must be supported by two well-controlled clinical studies.

Are there special rules for claims about foodstuffs regarding health and nutrition, and weight control?

Under the Nutrition Labeling and Education Act of 1990, the FDA was required to develop definitions for food labelling of terms such as ‘free’, ‘low’, ‘light’, ‘lite’, ‘reduced’, ‘less’ and ‘high’. The regulations for labels became effective in May 1994. The FTC opposed legislation to require food advertising containing nutrient content claims or health claims to conform to the FDA regulations as overly restrictive of advertising. In May 1994, the FTC issued an Enforcement Policy Statement on Food Advertising (59 Fed Reg 28,388). It gives great weight to the FDA definitions. Thus, advertising contrary to the labelling regulations is likely to be investigated by the FTC. The FDA defines a health claim as ‘any claim that characterises the relationship of any nutrient to a disease or health-related condition’ (21 CFR section 101.14(a)(1)). The health claims recognised by the FDA include calcium for osteoporosis, sodium and hypertension, fat and cholesterol in coronary disease, dietary fat and cancer, fibre found in fruits, vegetables and grains for cancer and heart disease, antioxidants found in fruits and vegetables for cancer and soluble fibre for heart disease.

Nutrient content claims characterised as ‘absolute’ (low, high, lean, etc), must be described in terms of the amount of the nutrient in one serving of a food, and claims characterised as ‘relative’ (less, reduced, more, etc), must be described in terms of the same nutrient in another product. Some of the most important definitions of ‘low’ are the following limits in the larger of a serving or 50g: ‘low cholesterol’ - no more than 20g; ‘low sodium’ - no more than 140mg; and ‘low calorie’ - no more than 40 calories. For ‘reduced’ or ‘less’, the regulations for ‘calories’, ‘total fat’, ‘saturated fat’, ‘cholesterol’, ‘sodium’ and ‘sugars’ require at least 25 per cent less per serving compared to an appropriate reference food. ‘Healthy’ cannot be used for any food high in fat or saturated fat. The FDA has also aggressively pursued labelling issues such as the use of ‘fresh’ as part of the name of orange juice that was processed and made from concentrate.

Under a memorandum of understanding between the FTC and FDA (36 Fed Reg 18,538 (1971)), the FTC has primary responsibility over food advertising. The FTC has been particularly active on health claims - see the following:

• Tropicana Prods Inc, File No. 0422-3154 (claiming cholesterol-reduction benefit);
• Conopco Inc (claiming that consumers can get ‘Heart Smart’ based on low saturated fat in Promise Margarine, but high total fat required - promise to include, in future advertising, total fat information);
• England’s Best Inc, File No. 9320-3000 (serum cholesterol - corrective advertising ordered);
• Stouffer Foods, Dkt No. 9250 (low sodium - but order expanded by the FTC to cover ‘any other nutrient or ingredient’);
• Bertolli Olive Oil, File No. 902-3135 (health benefits of olive oil); and
• Campbell Soup Co, Dkt No. 9223 (sodium content).

The FTC’s order against Kraft for misrepresenting the amount of calcium in its American cheese slices was based on literally true advertising of the calcium in the milk used in making the product, because some is lost during processing (Kraft Inc v FTC, 970 F2d 311 (Seventh Circuit 1992)). The FTC has also been particularly active in policing misleading low-fat claims (see Haägen-Dazs Co, File No. 942-3028).

The FTC has also shown great interest in weight-loss products and products touted as dietary supplements. See FTC v Pacific Herbal Sciences Inc (CD Cal 18 October 2005). Its consent orders require advertising to disclose:

• average percentage weight loss maintained;
• period of time maintained; and
• that ‘for many dieters, weight loss is temporary’.

FTC policies and concerns are summarised in ‘A Guide for the Dietary Supplement Industry’ - see the following examples:

• FTC v Enforma Natural Products Inc, No. 04376JSL (CD Cal 26 April 2000) (US$10 million consumer redress);
• FTC v Window Rock Enterprises Inc (CD Cal 21 September 2005) (US$4.5 million);
• FTC v SlimAmerica Inc, No. 97-6072 (SD Fla 1999) (US$8.3 million consumer redress); and
• FTC v Airborne Health Inc (CD Cal 13 August 2008) (US$30 million consumer redress in conjunction with private class action lawsuit Wilson v Airborne Inc 2008 WL 3854963 (CD Cal 2008)).

What are the rules for advertising alcoholic beverages?

Broadcasters have long voluntarily refused to air hard liquor adverts or even props or references in commercials for other products. NBC, in December 2001, proposed accepting them for airing after 9pm in connection with programming with an 85 per cent adult audience. Actors in the commercials would have to be over 30 years of age. Public objections forced NBC to abandon this experiment. Beverages with less than 24 per cent alcohol by volume may be advertised, but are subject to special review in terms of safety, over consumption, mood alteration, maturity or connection to athletic or other prowess. Models should be 25 years old and appear to be at least 21, and advertising should not be targeted at underage drinkers (see Becks NA, 127 FTC 379 (1999) (consent order) (young people holding beers on a sailboat at sea); and Allied Domecq, 127 FTC 368 (1999) (consent order) (5.9 per cent alcohol by volume misleadingly claimed to be a ‘low alcohol’ beverage, since the alcohol content is much higher than numerous other alcoholic beverages)). In March 2011, the FTC announced that it planned to conduct a new study of the self-regulatory efforts of the alcoholic beverage industry (see www.ftc.gov/opa/2011/03/alcohol.shtm). The study would serve as the foundation for the FTC’s fourth major report on the efficacy of voluntary industry guidelines designed to reduce alcoholic beverage advertising and marketing to an underage audience. The FTC plans to explore alcoholic beverage company compliance with the following:

• ‘voluntary advertising placement provisions, sales, and marketing expenditures’;
• ‘the status of third-party review of complaints regarding compliance with voluntary advertising codes’; and
• ‘industry data-collection practices’.

Additionally, DISCUS issued self-regulatory guidelines governing online marketing practices. The guidelines, which became effective on 30 September 2011, apply to marketing on social media sites and other digital communications platforms, including websites, blogs and mobile communications and applications. Key requirements of the new DISCUS guidelines include:

• ‘age-gating’ on websites before any direct communication between advertisers and consumers;
• regular monitoring and moderating of websites that include user-generated content, and removal of inappropriate content;
• instructions that content should only be forwarded to those who are of legal purchase age, where online content is intended to be forwarded by users;
• clear identification of online communications as advertising;
• social responsibility statements in all communications, where practicable; and
• standards for privacy policies.

The guidelines are intended to supplement, and be read in conjunction with, the DISCUS Code of Responsible Advertising Practices.

What are the rules for advertising tobacco products?

Since 1971, broadcast advertising of cigarettes and little cigars has been banned by federal law. Broadcast advertising of smokeless tobacco was banned in 1986. Surgeon General’s warnings are required in all print advertising. Tar and nicotine values measured in accordance with the FTC-approved test methodology are included in advertising based on a voluntary agreement with the FTC. The FDA lacks jurisdiction to regulate tobacco advertising (FDA v B&W Tobacco Corp, 529 US 120 (2000)). The multi-state settlement of tobacco litigations includes substantial limitations on permissible advertising (see www.columbia.edu/itc/hs/pubhealth/p9740/readings/master_settlement.pdf), including restrictions on the following:

• cartoon characters;
• outdoor, store window or stadium billboards;
• transit advertising;
• advertising seen by children;
• product placements;
• merchandise and sponsorships; and
• point-of-sale displays.

Recently, there has been an increase in action surrounding the sale and advertising of e-cigarettes, specifically. A number of class actions have been filed against manufacturers and marketers of e-cigarettes, and the FDA has issued statements regarding regulatory plans addressing the sale of e-cigarette devices to youths. Under a new Youth Tobacco Prevention Plan released in 2018, the FDA announced enforcement and regulatory actions against retailers responsible for selling e-cigarettes to minors, including a series of warning letters. The FDA has also announced its intention to limit the sale of certain flavoured e-cigarette posts to age-restricted locations in retail outlets.

Are there special rules for advertising gambling?

Prohibitions on depicting gambling in broadcast adverts for casinos, at least in states with lotteries, violate First Amendment rights (see Greater New Orleans Broadcasting Association v US and US v Edge Bag Co). However, national networks do not permit them, except state lotteries. Advertising for online gambling sites is not protected by the First Amendment (see Casino City Inc v US DoJ). The DoJ asserts that offshore gambling by customers in the United States violates sections 1084 (the Wire Act), 1952 (the Travel Act) and 12955 (the Illegal Gambling Business Act) of the US Code (Letter from John G Malcolm to National Association of Broadcasters, 11 June 2003). On 7 April 2005, the World Trade Organization ruled that the United States may restrict internet gambling (United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS 285/AB/R). A number of states’ attorneys general have also taken the position that online gambling from within the state violates state gambling laws. The state of Washington passed its Internet Gambling Act, SB 6613, effective from 7 June 2006, making it a Class C felony. Creating or publishing advertising may be viewed as aiding and abetting (see 18 USC section 2).

What are the rules for advertising lotteries?

According to the Federal Communications Commission, a lottery is ‘any game, contest or promotion that combines the elements of prize, chance and consideration’. Federal law generally prohibits the broadcast of any advertisement or information concerning a lottery. Advertisements or information about the following activities, however, are permitted:

• lotteries conducted by a state acting under the authority of state law, where the advertisement or information is broadcast by a radio or television station licensed to a location in that state or in any other state that conducts such a lottery;
• gambling conducted by an Indian tribe pursuant to the Indian Gaming Regulatory Act; or
• lotteries that are authorised or not otherwise prohibited by the state in which they are conducted, are conducted by a not-for-profit or governmental organisation or are conducted as a promotional activity by a commercial organisation and are clearly occasional and ancillary to the primary business of that organisation.

Casino gambling is a form of lottery because it has the elements of prize, chance and consideration. The FCC has determined that it is permissible to broadcast truthful advertisements for lawful casino gambling, regardless of whether the state in which the broadcaster is licensed permits casino gambling (www.fcc.gov/guides/broadcasting-contests-lotteries-and-solicitation-funds).

What are the requirements for advertising and offering promotional contests?

The terms ‘contests’ and ‘sweepstakes’ are often used interchangeably, but contests are usually promotions that have some element of skill to them. In skill contests, chance does not play a dominant role in determining the outcome. Examples include essay, cooking, and art and photography contests. Most states permit requiring a fee in a skill contest, although some require certain disclosures if a fee is required. Sponsors of skill contests should make sure skill determines the outcome; a tiebreaker should not be determined by chance. It is very important to set out the criteria for winning the skill contest and judging (by qualified judges) must be based on the criteria. The sponsor does not need to award a prize if no one satisfies the contest requirements (for example, getting a hole-in-one). The sponsor must be careful about what is said in advertising to avoid a deception issue. The following are not skill contests: answering multiple choice questions, guessing the number of beans in a jar and determining winners in upcoming sports events. See Terri J Seligman, ‘Marketing Through Online Contests and Promotions’, 754 PLI/ Pat 429, 438 (July 2003).

There are numerous state laws governing the administration and advertising of chance sweepstakes and skill contests in the United States. All states permit sweepstakes in connection with promotions of other products or services, provided that no consideration is required. For example, ‘no purchase necessary’ and an explanation of the ‘alternate means of entry’ must be prominently disclosed. In order to avoid creating an illegal lottery, one of the following must be eliminated: the award of a prize, determined on the basis of chance, where consideration is paid to participate. ‘Prize’ includes anything of tangible value. The rules of the sweepstakes are the terms of an offer resulting in a contract and are subject to varying state law requirements.

Are there any restrictions on indirect marketing, such as commercial sponsorship of programmes and product placement?

The Lanham Act provides a cause of action where communication ‘is likely to cause confusion . . . as to the affiliation, connection, or association of [the advertiser] with another [person, firm or organisation], or as to the origin, sponsorship, or approval of [the advertiser’s] goods, services, or commercial activities by [the other person, firm or organisation]’ (15 USCA section 1125(a)(1)(A)). It is not necessary to prove that consumers believe a party has endorsed the advertised product, only that consumers think the party has authorised the advertising or promotion. Disclaimers are a favoured way of alleviating consumer confusion as to source or sponsorship.

The Communications Act of 1934 and FCC Rules require that when consideration has been received or promised to a broadcast licensee or cable operator for the airing of material, including product placements, the licensee or cable operator must inform the audience, at the time the programme material is aired, both that such matter is sponsored, paid for, or furnished, either in whole or in part, and by whom or on whose behalf such consideration was supplied.

Further, the FTC has said that disclosures may be needed when objective product claims are being made if consumers will be confused about whether those claims are being made by the advertiser or an independent third party. The reason for this is that consumers may give more weight to claims if they think that the claims are being made by someone other than the advertiser. The FTC said, however, that it does not believe that advertisers are generally using product placements to make objective claims about their products. Therefore, the FTC believes that it is not generally deceptive to fail to disclose when something is a product placement. The FTC has cautioned that it can still take action against an advertiser if a product placement is used to make a false claim (www.ftc.gov/system/files/documents/advisory_opinions/letter-commercial-alert-applying-commission-policy-determine-case-case-basis-whether-particular/050210productplacemen.pdf).

Briefly give details of any other notable special advertising regimes.

First Amendment protection for even commercial speech prohibits government regulation of truthful speech. Consequently, unless speech rises to the level of conduct, such as inciting violence or physical action (eg, crying ‘fire’ in a crowded theatre), there can be no government regulation. Political campaign advertising is not subject to regulation as to truth, and does not have to be substantiated.