The Federal Trade Commission, the Food and Drug Administration and the Securities and Exchange Commission

The Federal Trade Commission

Although a veritable alphabet soup of federal and state agencies exists to regulate specific categories of commercial speech (e.g., the Bureau of Alcohol, Tobacco and Firearms), the Federal Trade Commission (FTC) remains the agency most involved on a day-to-day basis in regulating the totality of commercial speech. This agency, established at the beginning of the last century, originally was given power to regulate unfair trade practices between and among business competitors. Eventually, Congress expanded its role to investigate and remedy a variety of marketplace abuses—including false or deceptive commercial speech.

History and Jurisdiction of the FTC in Relation to Commercial Speech

The FTC traces its roots to the growth of monopolistic practices in industries like petroleum production, meat packing and cigarette and steel manufacturing beginning in the early 1880s. Even in those times—the heyday of laissez-faire, ungoverned, free-market economic policy—many in the business community urged the federal government to combat these anti-competitive practices that, it was feared, could result in a few powerful interests gaining control over the free marketplace of goods and services.

In response, Congress passed the Sherman Antitrust Act of 1890¹ to curb these abuses by the trusts and cartels. Although an important first step, the law proved ineffective in combating the major ills associated with economic monopolies. Continuing abuses led to demands that the federal government enact further legislation and set up a mechanism for ensuring that its provisions be enforced. To answer these demands, Congress passed the Federal Trade Commission Act in 1914.² The Act specified that, “[u]nfair methods of competition in commerce are hereby declared unlawful.”³ It focused on maintaining a competitive marketplace for business and industry but contained little of direct concern to consumers. The Act further created the FTC, consisting of five commissioners and support staff, to oversee the enforcement of the Act by promulgating rules and regulations ultimately enforceable by civil lawsuits in federal courts.

A major modification of the Act, with direct significance to those engaged in commercial speech, occurred when Congress passed the Wheeler-Lea Amendment in 1938.⁴ The addition of the words unfair or deceptive acts or practices in commerce in the amended law gave the FTC authority for the first time to protect consumers by taking action against those who attempt to deceive the public about the nature or quality of their products, malign their competitors and/or engage in unfair competitive practices. Such practices specifically included false or deceptive advertising or other commercial messages.

The FTC Today

The basic structure of the FTC remains the same as originally established by the 1914 Act. The president, with the advice and consent of the Senate, appoints five commission members. No more than three members may be from the same political party. Each commissioner is appointed to a seven-year term and may be reappointed to additional terms. To ensure both continuity and a minimum of partisanship, FTC members serve staggered terms to avoid a complete turnover in personnel at any one time. The President appoints one member to chair the FTC.

Originally staffed by a small number of employees transferred from other government agencies, today the FTC boasts an expanded staff that encompasses numerous offices and bureaus including public information, general counsel, administrative law judges and compliance and litigation divisions. Of particular significance to commercial speech interests is the Bureau of Consumer Protection that contains within it the National Advertising Division. This department investigates and enforces FTC regulations in cases of alleged deceptive or unfair commercial speech. The FTC also maintains 11 offices across the country to spot and deal with problems at the regional level.

The FTC provides guidance to commercial speakers through a variety of communications and publications such as industry guides, informal responses to inquiries and detailed advisory opinions issued when a commercial speaker wishes to determine in advance if proposed commercial messages meet FTC standards. FTC guidelines and publications can be obtained on written request or from the agency’s Web site and should be sought in advance by commercial speakers who have questions or doubts about the legality of their proposed commercial messages.

Cases arise when the FTC receives requests from consumers, competitors or Congress to investigate an alleged violation of law or FTC regulation. Commissioners or their staff also may note possible violations on their own initiative. FTC staff members, usually from the Bureau of Consumer Protection, determine whether further procedures seem merited. If the investigators’ conclusion is affirmative, the FTC typically sends an informal request for more information to the party under investigation. Should this request be ignored, or if the staff believes the information provided is either non-responsive or inadequate to meet the request, the investigators usually seek authority from the FTC for a more formal investigation.

Congress has granted the FTC sweeping subpoena power to obtain data and other relevant information from parties under investigation. The courts have held that the FTC may use its power to demand information before launching lawsuits or other more formal judicial proceedings even if there is only mere suspicion that a party may be in violation of a law or regulation. After the staff completes its investigation, a formal report is forwarded to the FTC suggesting what next steps need to be taken, if any. Should the conclusion be that a legitimate complaint exists, the FTC may then authorize formal enforcement proceedings.

The FTC’s Regulation of False or Deceptive Commercial Speech

Until the 1970s, few gave much thought to the constitutionality of the FTC’s regulations covering commercial speech, especially after the Supreme Court’s decision in Valentine v. Chrestensen⁵ that purely commercial speech merited no First Amendment protection. However, with the development of limited constitutional protection for such speech beginning with Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations,⁶ critics of the FTC began to question both its jurisdiction and its rulings on First Amendment grounds.

These issues were resolved in the FTC’s favor by the Court’s opinion in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council.⁷ Justice Blackmun, while according commercial speech shelter under the umbrella of the First Amendment, also noted that “we … do not hold that it can never be regulated in any way.”⁸ Categories of commercial speech specifically mentioned as candidates for regulation included untruthful speech, which the Court defined as “false or misleading.”⁹ The Court added that “obviously, much commercial speech is not provably false, or even wholly false, but only deceptive or misleading. We foresee no obstacle to a State’s dealing effectively with this problem.”¹⁰

Although Virginia State Board of Pharmacy did not end challenges to the FTC’s rulings on First Amendment grounds in lower courts, the Supreme Court has refused to hear such cases. The Court has repeatedly reiterated its support for the constitutionality of the FTC’s power to regulate commercial speech in a number of decisions, including Young v. American Mini Theatres, Inc.,¹¹ in which the Court observed that the FTC’s “power … to restrain misleading, as well as false, statements in labels and advertisements has long been recognized.”¹²

At the heart of the FTC’s activities involving commercial speech are attempts to eliminate speech considered “deceptive or misleading.” Section 5 of the Federal Trade Commission Act (15 U.S.C. §45—the FTC’s basic enabling legislation) provides that the FTC shall be empowered to prevent “unfair or deceptive acts or practices in or affecting commerce.”¹³ Included in such “acts or practices” are what Section 12 of the Act calls “[disseminating] or … causing to be disseminated … any false advertisement”¹⁴ involving the wide range of products and services covered in the Act. By false advertisement, the Act means:

Although the language of the statute refers to advertising, the FTC’s jurisdiction presumably extends to all forms of communication, including brochures, direct mail publications, press releases and so forth, if used for publicity or marketing purposes. This broad definition of advertising has been used by courts in other areas of the law as well. For example, in Levitt Corporation v. Levitt,¹⁶ a federal court of appeals in the second circuit¹⁷ upheld a lower court’s injunctive order prohibiting the defendant from issuing press releases and other materials in a trademark infringement claim. Similarly, in Smith-Victor Corporation v. Sylvania Electric Products, Inc.,¹⁸ a federal district court¹⁹ found the defendant guilty of a product disparagement violation in which the offending speech was disseminated by both advertisements and press releases.

False and Deceptive Defined

It is important to note that, under the statute’s definition, the determination of whether commercial speech is false is based on the perception or possible perception of the commercial message by the receiver of the message. The FTC’s definition of false is quite broad. It includes statements or other commercial-speech content (including pictures, graphic depictions or sound) that, although not technically false, reasonably might mislead the receiver of the message. If the reader or listener could reasonably interpret the message to receive a false impression or in other ways be deceived by the message, the message will be considered false. Thus, it will not avail a speaker to argue that actually no false statement appears in the advertisement or other communication. Commercial speakers should also note that the “reasonableness” requirement applies to the belief that a commercial speech claim makes a promise of performance and not to whether anybody should have believed the claim.

This broad definition includes sins of omission as well. Therefore, it is equally unavailing for the commercial speaker to avoid liability for false and deceptive speech by including only statements that are true (and that the receiver interprets correctly) if there is any significant information left out of the original message. This is particularly true if including the omitted information could change the receiver’s evaluation of the claim by casting it in a negative or different light. For example, in Chrysler Corp. v. FTC,²⁰ the FTC found that advertisements claiming superior gas mileage for Chrysler products equipped with six-cylinder engines were deceptive because the ads failed to note that the same models with eight-cylinder engines were less fuel-efficient than similar models made by other manufacturers.

The FTC established its current definition of a deceptive act or practice in a policy statement in 1983.²¹ Subsequently ratified by the FTC in In re Cliffdale Assocs., Inc.,²² the statement defines such practices as messages that contain: (a) a representation, practice, or omission likely to mislead consumers; (b) content that consumers are interpreting reasonably under the circumstances; and (c) a material representation that could influence a consumer’s decision with respect to the purchase of a product.²³

The FTC defines a material claim as a statement or omission of a statement that is “likely to affect a consumer’s choice of or conduct regarding a product or service.”²⁴ Such statements or omissions “pertain to the central characteristics of the products or services being marketed, such as their performance, quality, cost or purpose.”²⁵ The FTC is concerned with the likelihood that the average consumer might rely on a claim and suffer possible detriment. Therefore, the FTC may take action even without proof that a consumer actually has so relied and suffered actual harm. Representations involving material claims can be either express or implied. Express verbal claims—“Contains No Alcohol” or “Swiss-Made Watch”—that prove false almost certainly will be judged by the FTC to be deceptive. Similarly, the FTC will find visual messages deceptive if expressly promising more than the product or service can deliver.

In a contest between a commercial speaker and the FTC, the government nearly always wins, although occasionally a business may achieve a partial victory. Traditionally, the courts defer to the FTC because the agency has the necessary expertise to make such decisions.

A quartet of examples from the mid-to-late 1990s illustrates the FTC’s approach. In late 1996, the FTC announced that Van Den Bergh Foods Co., one of the largest marketers of margarines in the United States, had signed a consent order agreeing to halt its national advertising campaign for Promise margarine that used the slogan “Get Heart Smart” and included heart-shaped pats of Promise on food items. Under a consent order, the FTC agrees to take no further action against a business if the company agrees to immediately halt the activity. The FTC alleged the ads implied that using Promise helped cut the risk of heart disease and that the ads made false claims regarding low fat. According to the FTC, Van Den Bergh had not adequately substantiated its claims.²⁷

In In re Häagen-Dazs Company,²⁸ the FTC issued its final order in a settlement with the company in which the ice cream manufacturer agreed to immediately halt advertising claims that its frozen yogurt was “low fat” and “98% fat free” and that its frozen yogurt bars had only 100 calories and one gram of fat. The ads included a disclaimer in small type noting that the claims were for frozen yogurt and sorbet combinations. The FTC claimed only two of the nine frozen yogurt flavors actually had three grams of fat or less per serving and thus were low fat as defined by the Food and Drug Administration. Some of the flavors made by Häagen-Dazs had as many as 12 grams of fat, and three had as many as 230 calories.²⁹

In yet another example, the FTC filed a complaint against Third Option Laboratories, Inc. for claiming that its drink called “Jogging in a Jug” acted “like a natural solvent for the body, cleaning crystal deposits that are the base of clogged arteries and arthritis.”³⁰ In a $480,000 settlement, the company agreed to stop making false or unsubstantiated claims for any food, drug or dietary supplement and to notify its distributors and consumers who ordered the drink directly from the company about the settlement.³¹

As a final example, in mid-1995, the Federal Communications Commission (FCC), with the blessing of the FTC, issued a set of revised administrative regulations that clamped down considerably on slamming by long-distance phone carriers. This practice, by which an individual’s preferred long-distance carrier is switched without that person’s knowledge, had drawn extensive complaints from both consumers and some of the carriers, particularly AT&T, which had by far the largest share of the market. Most of the complaints centered on the manner in which companies attracted new customers through contests and other promotions in which the consumer signs a form such as a prize entry or a simulated check that is really an authorization to switch carriers. One of the provisions of the revised rules required the carrier to provide a separate form for the authorization rather than combining an authorization form with another form such as a contest entry.³²

Implied deceptive commercial speech claims usually involve a combination of true statements or visual representations that could cause deception because of the implications the recipient takes away from the overall message. One advertising technique determined by the FTC to be potentially deceptive involves descriptions of characteristics or properties of a product that are truthful, but that have little to do with the product’s actual intended use.

For example, assume that to demonstrate the superiority of brand “X” paper towels, an advertising campaign features a single sheet of the product that has been dunked in water. The advertisement then shows the towel supporting the weight of an apple while two sheets of the competition’s brand disintegrate under a similar weight. The FTC might find such a demonstration deceptive if the advertising claims focus on the greater absorbency of brand “X” compared to its competitor’s products because there is no actual evidence that brand “X” is superior to its competition when it came to absorbing liquids—the logical (and misleading) interpretation the FTC might feel the average consumer would take away from the advertisement’s strength test.

Although the FTC provides no specific guidelines for what evidence is necessary to prove how those receiving the information interpret such “representations,” it has held (in In re International Harvester Co.³³) that some omissions of fact are acceptable as long as the omitted facts concern “a subject upon which the seller has simply said nothing, in circumstances that do not give any particular meaning to his silence.”³⁴ What the FTC called “pure omissions” are not actionable because they are not omissions that “presumptively or generally reflect a deliberate act on the part of the seller,”³⁵ and therefore the FTC finds no reason to seek sanctions against the speaker. Any other approach to analyzing the effects of omitted information, said the FTC, would expand the definition of a deceptive act “virtually beyond limits,”³⁶ given the almost infinite range of possible consumer misinterpretations based on missing information.

The FTC has determined that the speaker may not argue that a consumer should have been smart enough not to have relied on the claims made in the commercial message. According to the FTC, the test hinges upon whether a consumer’s interpretation of the message, broadly speaking, is reasonable. Reasonableness, says the FTC, is determined by an analysis of the totality of the message. However, the FTC has held that reasonableness does not extent to interpretations of a message that are silly or bizarre, or to claims that would be inherently unbelievable to the average viewer or listener. If consumers reasonably can interpret the message in two ways (one deceptive and one not), the FTC generally will categorize the speech as deceptive.

Commercial claims directed to more vulnerable members of the audience (e.g., children, older adults and those suffering from illness) may be judged deceptive based on the likelihood that the members of that segment of the audience might be deceived. Thus, (a) claims that a toy oven “Means You Can Bake Bread Just Like Your Mom and Dad”; (b) advertisements not disclosing that more parts are needed to equal what the child sees in an advertisement; or (c) failure to mention that calling 900-numbers creates phone charges could run afoul of the FTC’s prohibitions on deceptive claims (although no reasonable, normally functioning adult would likely be deceived by such claims).

In almost all cases, straightforward express claims will be considered “material” and contain the potential for deception on their face. In less straightforward situations, the FTC may rely on consumer research to determine such things as the nature and extent of the deception, the importance of the claim to the decision to purchase or use the product or the reasonableness of interpretation. Research techniques favored by the FTC include public opinion polls, focus groups and content analyses.

Deception by Visual Simulation

Perhaps the most notable instance of visual deception eventually led to the case of FTC v. Colgate-Palmolive.³⁷ Colgate-Palmolive, makers of Rapid Shave™,, produced a commercial that gave the appearance the shavin cream was so good at softening beards for easy shaves, it could literally soften sandpaper. To demonstrate this softening power, the company simulated the process because, the company said, real sandpaper did not show up well on television. The FTC filed a complaint against Colgate-Palmolive alleging that the ads were false and deceptive because the type of sandpaper used in the commercials required about 80 minutes of soaking to soften, a fact not disclosed in the advertising, Additionally, the commercials did not use sandpaper, but instead used a mock-up of Plexiglas and sand. A hearing examiner dismissed the complaint on the ground that neither misrepresentation was a material misrepresentation that would mislead consumers.³⁸ The FTC overruled the hearing examiner, holding that the company had misrepresented the moisturizing abilities of the shaving cream because it could not shave sandpaper within the time implied by the commercials. The FTC also held that the Plexiglas ploy was a separate deceptive act and issued an order forbidding the future use of undisclosed simulations in TV commercials.

The Supreme Court agreed with the FTC and rejected Colgate-Palmolive’s argument that such simulations were really no different from the practice of substituting a scoop of mashed potatoes for what appears to be ice cream in a commercial, which the FTC had permitted. According to the Court:

In re Campbell Soup Co.,⁴⁰ the FTC held that the addition of glass marbles to a saucepan of Campbell soup created deception by visual simulation. The vat of soup, shown bubbling merrily on a stove (marbles and all), formed the visual centerpiece of a television commercial. The advertisement, said the Commission, misrepresented “the quantity or abundance of solid ingredients in a can of Campbell’s soup [and] therefore the aforesaid advertisements are false, misleading, and deceptive.”⁴¹ Campbell Soup Company argued that the added marbles did nothing more than make the soup appear as it would if observed by a consumer when cooking the soup at home. Nonetheless, the company agreed to cease running the disputed commercial.

Unfair Commercial Speech

The FTC’s working definitions of unfair and deceptive commercial speech have varied over time and with the political and economic philosophies of FTC members. In the early 1980s, Congress took away the FTC’s authority to deal with unfair advertising or other commercial speech. From then until 1994, the FTC was funded from year to year, in part because of the controversy over the regulation of unfair commercial speech. The Agency was finally reauthorized after an agreement between the House and the Senate that the FTC could not regulate an “unfair” act or practice unless it “causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition,”⁴² or promotes activities contrary to public policy or exploits vulnerable populations. This is a tough standard to meet, and there continue to be fewer complaints filed by the FTC for unfair commercial speech (especially commercial speech that is truthful) than for deceptive commercial speech.

But examples do exist. As one illustration, a study in 1993 by the U.S. Centers for Disease Control and Prevention (CDC) in Atlanta, found that the three most heavily advertised brands of cigarettes—Marlboro, Camels and Newport—controlled 86 percent of the market share for smokers ages 12 to 18, compared with only 33 percent of the U.S. market share overall (Marlboro had 60 percent while Camels and Newport each had 13 percent).⁴³ According to the CDC survey, three million adolescents were smoking one billion packs of cigarettes each year.⁴⁴

In response, FTC staff recommended the ban of ads for Camel cigarettes that included the character “Old Joe” or “Joe Camel.” Studies allegedly showed that even young children associated the character with Camels.⁴⁵ Within three years after Joe appeared, said the complaint, the illegal sale of Camels to children under 18 reportedly rose from $6 million to a whopping $476 million a year.⁴⁶

The FTC then launched a much-heralded investigation of the “Joe Camel” advertising campaign. R.J. Reynolds Tobacco Company had spent $42.9 million in major market advertising for Camels the previous year.⁴⁷ In June of the same year, the FTC formally announced it was ending the investigation, saying there was no evidence to support claims that children were lured to smoke by the campaign, thus accepting the arguments of the tobacco industry. However, after a series of setbacks in court cases brought against the tobacco industry by anti-smoking groups and the publication of the results of more studies, the FTC announced that it planned to reverse its earlier decision and issue a complaint against R.J. Reynolds for unfair advertising for its Joe Camel ads. The company subsequently abandoned its jaunty dromedary spokesman.

Other issues noted by the Rosdens that have triggered the FTC’s unfairness jurisdiction include: (a) falsely suggesting a product is being offered at a reduced price; (b) not revealing additional charges beyond the advertised price; (c) advertising goods as “free’’ when there actually are hidden costs or requirements; and (d) “adverting prices as wholesale or factory prices when they are not.”⁴⁸ The FTC may also treat changes in the ingredients, elements or terms of products or services as creating unfairness concerns unless commercial speakers first modify their marketing messages to alert potential consumers about these changes.⁴⁹

The difficulty in defining an unfair commercial speech act or practice that will withstand a First Amendment challenge has severely limited the applicability of this concept in commercial speech situations. The concept of “unfairness” is also controversial because it implies that commercial speech that is neither false nor deceptive can nonetheless be subject to sanction by the FTC.

The FTC’s Requirements for Prior Substantiation

By far, the most common complaints about false or deceptive commercial speech focus on the failure of the touted products or services to live up to the claims made for them. To discourage such practices, the FTC requires commercial speakers to be ready to provide evidence that all of the material claims made in their commercial speech have been substantiated in advance.

This policy was originated in the FTC’s 1972 decision in In re Pfizer Inc.⁵⁰ In advertising for a sunburn remedy called “Un-Burn,” Pfizer claimed that its product “anesthetizes nerves in sensitive sunburned skin,” and that it “relieves pain fast.”⁵¹ A complaint to the FTC resulted in an action for issuance of a cease-and-desist order on the basis that Pfizer had failed to back up its claims with “well-controlled scientific studies or tests prior to the making of such statements.”⁵² Although the FTC eventually dropped its investigation of Pfizer, it informally adopted a prior substantiation rule on the basis that a “consumer … cannot make the necessary tests or investigations to determine whether the … claims made for a product are true.”⁵³

The FTC, noting the unequal status between those making product claims and those potentially using those products, added that “it is more rational, and imposes far less cost on society, to require a manufacturer to confirm his affirmative product claims rather than impose … [that] burden upon each individual consumer to test, investigate, or experiment for himself. …”⁵⁴

The FTC upheld and refined its prior substantiation rules in a series of subsequent cases. By 1976, just three years after Pfizer, the FTC, in In re National Commission on Egg Nutrition,⁵⁵ could describe its rules requiring “substantiation” of product claims as established policy. The FTC explained that, “[t]he justification for such a requirement is … [that] consumers are likely to assume that when a product claim is advanced which is in theory subject to objective verification, the party making [the claim] possesses a reasonable basis for so doing. …”⁵⁶ The FTC concluded that consumers have a right to expect that “advertising claims couched in objective terms are not merely statements of unsubstantiated opinion.”⁵⁷

The 1984 Policy Statement on Advertising Substantiation⁵⁸ codified these decisions. The policy expressly stated that those seeing or hearing claims of a factual nature about a product can reasonably expect that such claims are based on objective evidence. If advertisers refer to specific tests or experiments, consumers should legitimately expect that claims based on these tests have been substantiated to the degree claimed in the message.

When the FTC says prior substantiation, it means prior substantiation. To inhibit commercial speakers from gambling on the mere possibility that their claims may later be substantiated, the FTC holds that the burden of proof rests with those making commercial speech claims to demonstrate that the claims have been substantiated prior to publication.⁵⁹ This means that the FTC may act to regulate commercial speech when there is a complaint about an objective material claim made for a product or service even if it eventually turns out that the speech contains no demonstrably false statement of fact.

For example, a claim that a product increases the speed of operation by 30 percent compared to a competing product’s performance might lead to FTC action if the claimant cannot show evidence to substantiate those claims prior to publicizing the product. This despite the fact that subsequent research conducted after the claims were challenged might prove the statements to have been true.⁶⁰

Not all claims require the same degree of prior substantiation. The FTC requires the highest levels of proof for statements that readers or viewers reasonably interpret as based on specific evidence for objective claims. Such claims may include wording like “four clinical trials” or “the results of two surveys reveal.” For example, in Pfizer, the FTC noted that the company’s testing “consisting of injections of [the drug] benzocaine could not indicate the probable anesthetic effect of a topical [on the skin] application of this substance.”⁶¹ The FTC concluded that Pfizer’s commercials were unacceptable because they implied clinical trials supporting the claims made for pain relief although the company, in fact, “did not conduct adequate and well-controlled scientific studies or tests prior to marketing Un-Burn to substantiate the efficacy claims made for Un-Burn.”⁶² Similarly, the use of such terms as “scientific proof” and “lab-tested evidence,” although not establishing the amount or specific level of proof, normally must be substantiated by the kinds of evidence those terms would imply to the reasonable consumer.

Commercial speech that sets specific performance standards—“Lasts Twice as Long as Any Other Leading Brand” or “Gets 30 mpg at Highway Speeds”—requires prior substantiation that demonstrates the accuracy of these claims. The case of Firestone Tire & Rubber Co. v. FTC⁶³ illustrates this heightened prior substantiation requirement for specific claims. Firestone asserted that its “wide oval” tires stopped “25% quicker” than other tires. Finding these claims raised a safety issue, the FTC ordered the company to stop advertising such claims unless and until they could be substantiated.

Often, however, the offending commercial speech does not expressly or by implication refer to specific levels or standards of substantiation. In these instances, the FTC sets the prior substantiation requirements for an objectively testable claim at a “reasonableness” level, based on the legitimate expectations of the consumer. Although the FTC has not established a “bright-line test” to determine reasonableness of prior substantiation in such cases, analysis of the evidence used by the speaker in arriving at the claims and the potential harm to consumers relying on these claims normally will be factors contributing to the FTC’s evaluation. For example, claims for health-related products likely will call for more exacting “reasonable” prior substantiation than claims for another kind of product because of the physical risks posed for the unwary consumer.

Reasonable prior substantiation might also involve analyzing the practices of comparable companies or evidence of industry-wide standards. For example, objective claims for a medical product might be compared to a testing-within-the industry standard (e.g., three scientifically controlled tests) if the FTC determines the existence of generally accepted standards established by the medical community for such products. However, if a product is widely used, and consumers themselves could easily verify objective claims, the FTC normally will not require submission of evidence of industry-wide tests to demonstrate the reasonableness of a claim. The FTC also will give great weight to the findings of other agencies (e.g., the Bureau of Alcohol, Tobacco and Firearms or the Food and Drug Administration) in accepting the reasonableness of commercial speakers’ objective claims.

Balancing the costs of regulation against the benefits such regulation might bring to the consumer may also be considered by the FTC in evaluating the reasonableness of an objective claim. Setting reasonableness standards at too high a level might discourage the introduction of beneficial new products and services into the marketplace. Recognizing that, because of the inductive logic of scientific testing, critics could almost always argue “we need one more study,” the FTC normally tempers its requirements for prior substantiation by employing an ad-hoc, cost-benefit analysis. Factors in the balancing process might include an evaluation of the likelihood that additional testing could change the evidence supporting the claim, the cost and time needed to conduct such additional tests and the degree of risk to the consumer if the objective claims turned out to be false.

“Puffing”: A Special Prior Substantiation Problem

Although objective claims create the problem of evaluating the reasonable prior substantiation of such claims, other kinds of statements about a product or service—“It’s the Best,” “There’s No Other One for You,” or “No Competing Brand Comes Close”—have forced the FTC to create a workable definition of just what constitutes a nonobjective (or “puffing”) statement. Puffing has been defined as commercial speech “that is not deceptive [because] no one would rely on its exaggerated claims.”⁶⁴

Typically, the FTC and courts are more likely to find a claim to be puffing if the statements in the commercial speech refer to a product or service taken as a whole rather than to any specific attributes of the product or service. The statement “It’s a Great Truck” would be more likely treated as simple puffery than would the statement “It Gets Great Gas Mileage.” Adding the statement “It Gets 5 Miles More Per Gallon at Highway Speeds” would almost certainly turn the statement into an objective claim requiring prior substantiation.

Thus, for example, in In re Dannon Milk Products, Inc.,⁶⁵ the FTC held that a description of yogurt as one of nature’s perfect foods constituted more than puffery because it stated an objective fact about a product’s nutritional attributes.

Employing similar reasoning, the FTC and courts usually treat a company’s general comparative advertising claims of superiority for its product or service as puffery but tend to require prior substantiation for specific comparative statements about individual characteristics of its products or services because they are objective claims.

The FTC also looks at a claim to determine whether it can be factually verified. Some statements (“You’ll Just Feel More Assured Wearing Acme Shoes”) are opinion statements and almost always treated as puffery. However, if the statement appears to be based on factual information (“If You Could See the Results of the Studies I’ve Seen, You’d Agree That Acme Shoes Are Better”), the statement might be treated as expressing fact. The reader should note that simply placing an “I believe …” or “In my opinion …” in front of a fact statement will not turn that statement into an opinion statement and therefore free of a prior-substantiation requirement.

Perhaps the most troubling element of its puffing-versus-fact standard from the commercial speaker’s point of view is the FTC’s definition of an average consumer standard. The FTC’s (and the courts’) evaluation of the intelligence the “average consumer” displays often differs sharply from the estimations held by commercial speakers.

In In re Matter of Better Living, Inc.,⁶⁶ the court agreed with the FTC that the statement that the company guaranteed “the world’s lowest price”⁶⁷ was a claim of objective fact (and not puffery) requiring substantiation, despite arguments to the contrary that no reasonable consumer could be misled or deceived by such statements. Similarly, in Gillette Co. v. Wilkinson Sword, Inc.,⁶⁸ the court found that “smoothest, most comfortable shave possible” was “a performance claim for one of the most important characteristics of the product being sold,”⁶⁹ although it is open to question whether the “average consumer” would be that easily fooled by such a claim.

The frequent use of the term new—as in “New and Improved”—in commercial claims has led the FTC to issue a special policy statement concerning the use of that term. Describing a product or service on the market for more than six months as new will be considered questionable unless the product or service provider is conducting a test-marketing campaign. The FTC has indicated that, in such a situation, it will enforce its six-month policy only after the product or service is introduced into the marketplace in final form.

The FTC Substantiation Standards for Commercial Claims about Health and Beauty Products

Based on a pattern of recurring complaints by consumers and consumer groups, the FTC generally looks with special scrutiny at complaints about commercial claims for health-care products because of the potential for immediate, serious physical harm such products could cause.

After years of extensive hearings and litigation, the FTC established a requirement that commercial claims for medicines or personal-care products based directly or indirectly on clinical or scientific evidence must be substantiated by a minimum of two independent clinical trials. The FTC created this standard because it felt that consumers would likely be deceived by claims allegedly based on “clinical studies,” believing such procedures had been conducted “scientifically.” Also, the FTC reasoned the average consumer would be unable to independently evaluate such claims.

For example, in In re Thompson Medical Co.,⁷⁰ the company marketing Aspercreme™ claimed that using its topical skin product reduced ache and pains attributed to arthritis as well as, if not better than, ingesting regular aspirin. Unfortunately for Thompson, these claims were not based on evidence the FTC considered scientifically valid. The FTC ordered the manufacturer to stop making any claims about the pain-relieving qualities of Aspercreme unless it conducted “at least two adequate and well-controlled, double-blinded clinical studies”⁷¹ that met what the FTC felt were the standards of accepted scientific research.

In instances involving nonspecific claims for healthcare products, the FTC generally has been content with only one clinical trial. These are rare, however, and usually involve claims about either attributes of a product not considered potentially harmful or involving physical properties that can be measured by instrumentation.

To meet FTC substantiation requirements, clinical tests and trials normally must be conducted by qualified independent investigators following an acceptable plan of research. At a minimum, this research plan should be specified in advance of the actual clinical trials and should establish sample sizes, statistical tests and levels of significance that experts in the field recognize as appropriate.