Chapter 6: Advertising: Federal Trade Commission Regulation and First Amendment Protections

How was advertising regulated in the 19th century?

Mostly unregulated; few consumer products were produced and distributed locally or regionally.

What changed advertising after the Civil War?

National production and distribution expanded (thanks to railroads), and manufacturers began using newspapers and magazines to reach a national audience.

Why were patent medicines a key focus of early advertising concerns?

They often contained cocaine, opiates, or alcohol, were addictive and harmful, and made exaggerated health claims.

How did muckraking journalists influence advertising regulation?

Publications like Collier’s (1906) exposed abuses in the patent medicine industry, leading to government action.

What did the Pure Food and Drug Act (1906) do?

Created the FDA to regulate patent medicines and ensure safety and truthful labeling.

What was the original purpose of the FTC when created in 1914?

To stop unfair business practices and protect honest competitors, not directly protect consumers.

What was the significance of FTC v. Winsted Hosiery Co.?

The Supreme Court upheld the FTC’s authority to stop false labeling that harmed honest businesses.

What did Section 5 of the FTC Act (1914) prohibit?

“Unfair methods of competition” in commerce.

What did the Wheeler-Lea Amendment (1938) change?

Added “unfair or deceptive acts or practices,” allowing the FTC to protect consumers directly.

What was the purpose of the Magnuson-Moss Consumer Product Warranty Act (1975)?

Expanded FTC authority to cover local businesses affecting interstate commerce and regulate warranties.

How did the FTC Improvement Act (1980) limit FTC powers?

Restricted FTC regulation of the funeral industry, agricultural cooperatives, children’s advertising, and insurance.

What did the 1994 FTC amendment require before declaring a practice unfair?

1) Likely to cause substantial injury, 2) Consumers cannot reasonably avoid it, 3) Benefits of regulation outweigh costs.

What is the key takeaway about the evolution of FTC powers?

Started as protector of honest businesses → shifted to consumer protection (1938) → broadened to interstate commerce (1975) → limited by Congress when necessary (1980, 1994).

How many commissioners lead the FTC, and how are they appointed?

Five commissioners, nominated by the president and confirmed by the Senate.

What is the political party limit for FTC commissioners?

No more than three of the five may be from the same political party.

How does the president's party affect FTC actions?

The FTC tends to be more aggressive under Democratic presidents and less aggressive under Republican presidents.

What are the three main bureaus of the FTC?

1) Bureau of Competition, 2) Bureau of Consumer Protection, 3) Bureau of Economics.

What is the primary focus of the Bureau of Competition?

Deals with mergers, acquisitions, and antitrust laws.

What is the primary focus of the Bureau of Consumer Protection?

Regulates advertising and unfair or deceptive practices.

What does the Bureau of Economics do?

Advises the FTC on the economic impact of regulations and rulings.

What are the two main ways the FTC enforces laws?

Rulemaking and adjudication.

How does rulemaking work?

Like Congress: creates broad rules that regulate future conduct, not past actions.

How does adjudication work?

Like a court: investigates specific complaints about a business and can impose remedial actions.

Can FTC rulemaking or adjudication affect more than the intended businesses?

Yes, adjudication can affect many businesses, and rules can sometimes affect only a few.

What caused concern about the FTC in the early 1980s?

Actions suggested a policy shift that might favor business over consumers.

Which FTC bureau primarily regulates advertising?

The Bureau of Consumer Protection.

Why must businesses pay attention to both rulemaking and adjudication?

Because guidance from either can affect business practices and compliance requirements.

How did the FTC clarify its standard for deception?

By sending a letter to the House Commerce Committee explaining what counts as a deceptive act or practice

What was the main issue in the Southwest Sunsites case?

The company marketed West Texas land as a good, safe investment suitable for homesites and farming, but the land was not fit for those uses and ads failed to disclose financial risks.

How much did Southwest Sunsites pay for the land, and how much did they sell it for?

Bought for $27–$50 per acre; sold for $600–$1,200 per acre.

How did Southwest Sunsites advertise the land?

Through newspapers, radio, and television, claiming it was a safe investment and likely to be developed for industrial use.

What did the FTC allege about Southwest Sunsites’ advertising?

The ads were deceptive because the land was not suitable for the claimed uses and failed to disclose material financial risks.

What was the 9th Circuit Court of Appeals’ decision in Southwest Sunsites?

The court upheld the FTC ruling that the marketing was deceptive, even though no profit guarantee was explicitly stated.

What principle does the Southwest Sunsites case illustrate about deception?

Ads can be deceptive if they create a misleading overall impression, even if individual statements are technically true.

What was the Geritol product marketed for?

To boost energy in older adults, claiming fatigue may be due to “iron-poor blood.”

Why were Geritol ads considered deceptive by the FTC?

Ads implied iron deficiency was the main cause of fatigue, but evidence showed only a small minority of people with chronic fatigue had iron deficiency.

What does the Geritol case illustrate about FTC deception policy?

Deception can occur through misleading implications or omissions, not just false claims.

What is considered “material information” in advertising under FTC rules?

Facts that would affect a consumer’s understanding of a product’s value or usability.

Key takeaway: Can an ad be deceptive even if its literal claims are true?

Yes, if it fails to disclose important limitations or creates misleading impressions.

What is the overall lesson from the Southwest Sunsites and Geritol cases?

The FTC evaluates the overall impression of ads and requires disclosure of material information to prevent deception.

What is a mock-up in advertising?

A mock-up is when advertisers substitute, exaggerate, or stage something in an ad to make the product look more effective or appealing.

Why were the Rapid Shave commercials in the 1950s considered deceptive?

They appeared to demonstrate shaving sandpaper as proof of moisturizing power, but the sandpaper had to soak 80 minutes and the “shaving” was actually loose sand on acrylic.

What made the Campbell’s Soup ads deceptive according to the FTC?

Ads showed solid ingredients floating at the top of mugs, but in reality, solids sink, and glass marbles were used to prop them up, misrepresenting the product.

Why are the “Got Milk?” ads with milk mustaches not deceptive?

Because the ads promote health benefits of milk, not the mustache itself; the exaggeration doesn’t misrepresent the product’s quality.

What are the three kinds of mock-ups according to the FTC?

1. Falsely claims a quality → deceptive (Campbell’s)
2. Appears to prove a claim but doesn’t → deceptive (Rapid Shave)
3. Substitute used without implying a product property → not deceptive (ice cream made from mashed potatoes, fake milk in cereal)

What is substantiation in advertising?

Substantiation means having a reasonable basis or evidence to support claims made in an ad before it runs.

Why were Doan’s Pills commercials considered deceptive?

Ads claimed the pills relieved back pain better than Bayer, Tylenol, Aleve, or Advil, but no controlled scientific tests were conducted to support this claim.

What must advertisers do before making comparative or performance claims?

They must have scientific or controlled testing to substantiate the claims.

Key FTC rule about mock-ups?

A mock-up is deceptive if it misrepresents the product or falsely appears to prove a product claim.

Key FTC rule about substantiation?

Advertisers must have a reasonable basis for all claims; failure to substantiate is considered deceptive advertising.

Overall takeaway from mock-ups and substantiation?

The FTC focuses on how consumers perceive ads, not just whether statements are literally true.

What can the FTC require advertisers to do if their claims lack substantiation?

The FTC can require advertisers to make restitution to customers who bought products based on unsubstantiated claims.

What was the main issue in the 2011 Reebok EasyTone/RunTone case?

Reebok claimed its shoes improved workouts by specific percentages without sufficient evidence.

What kind of study did the FTC say Reebok needed to support its EasyTone claims?

A blinded clinical study lasting at least six weeks.

How much did Reebok agree to reimburse as part of its FTC settlement?

$25 million.

Why does the FTC closely regulate price claims in advertising?

Because price strongly influences consumer decisions.

When can a former price comparison be considered deceptive?

If the former price was fictitious or not actively offered for a reasonable period.

What must advertisers show to prove a former price was real?

They must show a good faith effort to sell the product at that price for a reasonable time.

Why was Hobby Lobby sued over “50% OFF” ads?

It allegedly never sold photo frames at the higher “regular” price.

What does the FTC say about insignificant price reductions?

Trivial savings, like $10 → $9.90, can still be deceptive if presented as major discounts.

What is required for a valid retail price comparison?

Evidence that other retailers sell the same product at higher prices in the same trade area.

Why can regional price differences make retail comparisons deceptive?

Prices vary by region, so comparing a high-price area to a low-price area can mislead consumers.

What is the problem with list price comparisons?

List prices are often ignored and rarely reflect actual sales.

When can a list price comparison be valid?

When principal retail outlets in the trade area actually sell goods at the list price.

When are “Buy One, Get One Free” offers deceptive?

When the seller raises the price of the first item or lowers the quality of the “free” item.

What are the FTC’s time limits on “free” offers?

No more than six months in a 12-month period, and at least 30 days between offers.

What was deceptive about Mary Carter Paint’s “Buy One, Get One Free” claim?

They never sold one can alone, so no product was truly free.

What did the Supreme Court rule in the Mary Carter Paint case?

It upheld the FTC’s finding that the “free” claim was misleading.

How does the FTC define bait advertising?

As an insincere offer to sell a product at an attractive price with no intent to actually sell it.

What is the goal of bait-and-switch advertising?

To lure customers in with a cheap offer, then sell them a more expensive product.

What are some signs of bait advertising?

False product images, refusal to show the product, disparaging the advertised item, limited stock, refusal to take orders, or showing defective products.

How does the FTC define an endorsement or testimonial?

Any ad message that states or implies opinions, experiences, or findings of someone other than the advertiser.

Can an endorsement be implied through action rather than words?

Yes. For example, a famous athlete driving a car in a commercial counts as an endorsement.

Is a commercial announcer considered an endorser?

No. The FTC says audiences understand announcers are speaking for the advertiser.

What must all endorsements reflect?

The honest opinions, findings, or experiences of the endorser.

Can an advertiser take an endorser’s words out of context?

No, not in a way that changes the endorser’s meaning.

If an ad implies an endorser uses the product, what must be true?

The endorser must actually use the product in good faith while the ad runs.

How do consumers interpret ads with real people endorsing products?

As showing typical experiences with the product.

What must advertisers do if a consumer’s endorsement isn’t typical?

Disclose typical results or state that the experience is unusual.

When must advertisers disclose the use of actors in consumer endorsements?

When viewers might assume the actors are real consumers.

What special concern does the FTC have about drug endorsements?

Lay endorsers should not make drug claims without scientific evidence consistent with FDA findings.

What must advertisers ensure about expert or celebrity endorsements?

That the endorser still holds the expressed opinion.

What must be true for someone presented as an expert endorser?

Their qualifications must be relevant to the product.

What happened in the Mattel Hot Wheels endorsement case?

A race car driver was used as an endorser but lacked relevant expertise about toy cars, so the FTC filed a complaint.

What must an expert do when endorsing a product?

Actually use their expertise to evaluate it, and conduct comparisons if the ad implies such tests.

What must organizational endorsements be based on?

A fair collective judgment by the organization’s members.

When must an advertiser disclose a “material connection” between an endorser and a product?

When it’s unexpected and could affect credibility.

What was deceptive about Pat and Debby Boone’s Acne-Statin endorsements?

They failed to disclose a financial interest through Boone’s company, Cooga-Mooga, which profited from sales.

What else did the FTC say was wrong with the Acne-Statin ads?

They misrepresented the Boones’ experience, gave false acne info, and lacked substantiation.

Do social media endorsements follow different rules than traditional ones?

No. The same FTC rules apply.

Who is responsible for disclosing connections in social media endorsements?

The influencer. But advertisers should also monitor for compliance.

What is a “material connection” in social media endorsements?

Any relationship that could affect credibility, like payments, gifts, or personal ties.

What must influencers disclose beyond direct payments?

Free or discounted products, event tickets, gifts, or any valuable benefit.

Must influencers disclose employment or family ties to the advertiser?

Yes — those count as material connections.

How visible should a social media disclosure be?

Prominent — not hidden in bios, hashtags, or links.

How should disclosures appear in photo or video posts?

Superimposed on photos and included in both the audio and visual parts of videos.

How should disclosures be handled during livestreams?

Repeated multiple times so late viewers see them.

What are examples of clear social media disclosure language?

“Sponsored,” “Advertisement,” or “Thanks for the product.”

What abbreviations should influencers avoid in disclosures?

Obscure ones like “sp” or “collab.”

What should influencers do when targeting non-English-speaking audiences?

Provide disclosures in the same language as the audience.