For The First Time, The FTC Indicates That Media Companies Are Subject To Challenge For Deceptive Advertising

In its history, the Federal Trade Commission has never sued a media company for running an allegedly deceptive advertisement for someone else's product or service. Now that may be changing. In a July 9, 2007 letter closing an investigation of a national radio network involving advertising by the marketer of a diet supplement, the FTC took the position that the "active participation in advertising preparation" by a radio broadcaster (and presumably any other media company) is subject to challenge for possible violations of 5 of the Federal Trade Commission Act, which gives the Commission broad authority to prohibit "unfair or deceptive acts or practices." The advertiser in this case, Sunny Health Nutrition, already had been the subject of an FTC enforcement action which enjoined the further dissemination of the ads in question and required the advertiser to provide consumer redress.

In its closing letter, however, the FTC, characterized the broadcaster as a "hybrid entity," both producing radio programming and participating in the preparation of advertising. From there, the FTC went on to analogize media companies to advertising agencies, which have been found liable for a deceptive advertisement if the agency was actively involved in developing and producing the advertising campaign.

Although stating in its closing letter that actual creation of the challenged advertising is not necessary to a finding of "active participation" by the ad agency, the Commission, in practice, has required significant and substantial participation by the agency. Thus, in one of the cases cited in its letter, the FTC found that Ted Bates knew that Bufferin, the advertised product, contained aspirin but the agency had "developed numerous ads which create the impression that Bufferin does not contain aspirin, and these ads were central to the advertising campaign for Bufferin."

In sharp contrast to advertising agencies, which charge substantial fees for developing ad campaigns, media companies help small advertisers by inserting voices, putting in music where appropriate, making sure that the ad runs for 30 or 60 seconds as desired by the advertiser, etc., and normally do so without charge. To require media companies to develop the resources for vetting an advertiser's substantiation could increase the media company's cost so as to preclude or severely limit advertising by many small advertisers. This, in turn, would raise significant First Amendment issues due to the chilling effect on commercial speech that an FTC enforcement action against a media company would entail.

There are a number of ways in which an FTC enforcement action might have such an impact. First, an FTC order, the violation of which may result in substantial civil penalties, which is entered against a media company, threatens to have a disproportionately greater competitive impact than one entered against an advertiser. An advertiser's order effects only how it markets and promotes its own products. A media company order in all likelihood would apply to advertisement of products sold by numerous manufacturers. Advertisers may choose to bypass a media outlet under an FTC order so as to avoid the extra scrutiny its ads may received from a media outlet fearful of civil penalties. Further, the media company may unnecessarily reject advertising because it feels the need to be cautious in evaluating the substantiation of claims for products manufactured and sold by a third party. Thus, a media company may reject advertising only because it has neither the time nor the resources to evaluate the substantiation.

Moreover, in the past, the FTC has declared strong policy reasons for not going down this road. For example, in a speech given to the Cable Television Advertising Bureau on February 11, 2003, then FTC Chairman Timothy Muris urged media companies to help combat deceptive weight loss advertising. Significantly, he stressed that "[w]e will not require network-style screening; we understand that this is impractical for many media outlets. Instead, we will send you a list of [deceptive weight loss advertising] claims that are commonly made, but that the scientists state are not valid." He added that "[w]e are not asking media outlets to review clinical studies or other substantiation for weight loss ads." In short, the pronouncement of possible media company liability for deceptive advertising in its July 9, 2007 closing letter represents a sea change in FTC policy.

Whatever the merits (or lack thereof) of the FTC's announced change in policy, there are steps that can and should be taken by media companies which participate, even marginally, in advertising production in order to lessen the risk of future challenges by the FTC and others. First, while media companies that participate in ad production can anticipate that their advertising will be more closely monitored by the FTC, currently there are several industries which are special targets for enforcement actions by the FTC and these should receive the most attention. These industries include: (1) dietary supplements; (2) weight loss and fitness; (3) debt negotiation and debt collection; and (4) child-focused food ads. For media companies which expect to be asked to participate in the production of advertising, particularly in these industries, it is recommended that procedures immediately be put in place for carefully reviewing such proposed advertising. The FTC's prime target industries can and do change and media companies should be alert to these variances as well. While a media company would not have to substantiate independently the ad claims or scientifically re-examine the advertiser's substantiation, obvious shortcomings in the ad claims or facial flaws in the advertiser's substantiation should not be ignored. In these situations, the most prudent course to follow would be to decline to participate in the production of such advertising claims.

Published September 1, 2007.