AAF Government Report

*This issue of the AAF Government Report includes a legal brief provided by AAF member Frost Brown Todd, LLC. We hope you find it useful and informative.


October 16, 2009


Clark Rector Jr., Executive Vice President – Government Affairs




Live From Minnesota: Franken Goes After DTC Advertising

Senator Al Franken, D-Minn, has introduced legislation (S. 1763) to disallow the federal tax deduction for all marketing costs for prescription medicines. Previous proposals to disallow the advertising deduction as a source of revenue for healthcare reform have been raised and discarded in both the House Ways and Means and Senate Finance Committees. No action has been scheduled on S. 1763. Senator Franken has not indicated whether he intends to offer it as an amendment to healthcare reform when the issue is considered by the full Senate.
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Challenge to Email Address Collection to Continue

A state court in California has decided that the federal “can-spam” Act passed in 2003 does not preempt a California privacy statute that restricts companies from collecting e-mail addresses as part of a credit card transaction.

The court permitted a class action suit to continue that alleges email addresses are included under a 1971 statute that prohibits retailers from asking for “personal information” as part of a credit card sale. While telephone numbers and addresses are unquestionably covered, zip codes are not. When the law was passed in 1971 email addresses did not exist.

While the California court concluded the state law was not precluded by federal law, it did not actually decide whether email addresses were considered “personal information” covered by the statute. Rather, the court concluded that the question was close enough so that the complaint could not be dismissed without further investigation and court proceedings.
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FDA Plans Hearings on Pharmaceutical Ads

The U.S. Food and Drug Administration will conduct a public hearing on November 12 and 13 to examine how pharmaceuticals are marketed on the Internet and online social media networks. The hearings follow the sending of warning letters in April from the FDA to 14 companies regarding search engine ads that the agency said violated its requirements for fair balance.

Companies responded to the FDA saying that the regulations only applied to print and broadcast ads and should not apply, for instance, to ads on Twitter that are limited to 140 characters.

Nevertheless, much of the industry welcomes the hearings since they are likely to provide certainty by leading to Internet and social media advertising guidelines. Currently, warning letters are not uncommon and many in the industry believe that absent specific guidelines FDA regulation of advertising on the Internet is haphazard and inconsistent.

Describing the hearing, the FDA wrote, “This meeting is - intended to help guide FDA in making policy decisions on the promotion of drugs using the Internet and social media tools. the evolving nature of the Internet - and social media tools have raised questions and concerns over how to apply existing regulations to promotions in these newer media.”
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Net Neutrality Plan Questioned

A scheduled October 22 Federal Communications Commission vote on possible changes to rules regarding net neutrality continue to come under intense questioning from Senate Republicans. Eighteen Senate Republicans have written the FCC that the proposed revisions “will be counterproductive and risk harming the great advancement in broadband speed and deployment that we have witnessed.”

FCC Chairman Julius Genachowski has described the proposals as an effort to prevent broadband providers from blocking or degrading competing content which is carried by their high speed network. He also wants to require that the network owners publicly announce their management practices regarding their network.
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Commercial Volume Bill Advances

Legislation sponsored by Rep. Anna Eshoo, D. Calif., that would regulate the volume of commercial advertisements on television has passed the Energy and Commerce Subcommittee on Communications, Technology and the Internet. H.R. 1084 will now go to the full committee for consideration.

The bill would direct the FCC to adopt technology standards developed be the Advanced Television Systems Committee to address the perceived issue of loud commercial volume. The bill provides one year for providers to implement the controls once the legislation passes and permits the FCC to grant hardship waivers for up to two years.
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AAF Meet and Greet with Congressman Bob Etheridge

AAF has scheduled an October 22 meet and greet with Congressman Bob Etheridge, D-N.C. The Congressman is a member of the House Ways and Means Committee. If you have an interest in attending the event, or planning a similar one in your market, contact Clark Rector at crector@aaf.org or 202-898-0089.
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Endorse This! FTC Approves Revisions to its Guides on Endorsements & Testimonials

By Emily S. Meyer, Frost Brown Todd, LLC

On October 5, 2009, the Federal Trade Commission approved the final revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”), which will affect both advertisers and endorsers alike. Last updated in 1980 when the Internet was still in its infancy, the revised Guides address the use of endorsements and testimonials in emerging communication channels, e.g., blogs, online discussion boards, word-of-mouth campaigns, etc., which may be especially vulnerable to false or misleading endorsements due to consumers’ ability to publish content directly and without any sort of editorial review.

The Guides, which will become effective on December 1, 2009, contain a number of important revisions and clarifications of which advertisers and endorsers should be aware:

1. Say Goodbye to “Results Not Typical” Disclaimers.
The use of a disclaimer, such as “results not typical,” will no longer be sufficient to protect an advertiser from liability for deceptive advertising when touting the atypical results achieved using its product or service. So, for instance, if a diet pill advertiser wishes to promote its product using a consumer testimonial averring that “I lost 50 pounds in 2 weeks!” when the more likely weight loss consumers should expect is 6 pounds in 2 weeks, the advertiser must disclose the more generally expected results to avoid making a false advertising claim.

2. Be Transparent!—Disclose Connections between Endorsers and Advertisers.
One of the FTC’s biggest worries accompanying the emergence of new media sites like blogs, Facebook®, and Twitter® has been the ability of consumers to understand and appreciate where there is an important connection between an advertiser and consumer endorser through word-of-mouth programs. The FTC believes that “behind the scenes” connections based on payments, free products, or other benefits to the consumer endorser must be clearly disclosed so that consumers can appropriately judge the endorser’s credibility. The Guides have always mandated full disclosure when a material connection exists between an endorser and a seller of the advertised product. The revised Guides reflect that longstanding principle and provide new examples illustrating its application to new media outlets. The same disclosure rules apply to celebrity endorsers, who should take care when promoting a product on a television show or using social media sites, and endorsements made by outside research organizations.

3. Both Endorsers and Advertisers Can Be Liable for False Advertising.
The revised Guides make clear that liability for false advertising using endorsements or testimonials can cut both ways. For example, an advertiser who encourages a blogger to review its product by sending a free sample may be liable for the false or unsubstantiated statements made about the product by the blogger, even if the advertiser has no other relationship with the blogger. Moreover, the advertiser may be liable if the blogger fails to disclose that he received the reviewed product for free from the advertiser. Endorsers may also be liable for deceptive advertising when they make false statements or assertions about a product, regardless of whether the endorser is merely following a script prepared by the advertiser.

Although the Guides are not binding—they are administrative interpretations of the law—advertisers and endorsers should heed the new revisions because they are one of the best indications as to how the FTC will enforce the law. Keep in mind, also, that the Guides only apply if an endorsement or testimonial is made by a consumer and “sponsored” by an advertiser, such that the consumer could be said to be acting on behalf of the advertiser. Several factors may indicate the presence of sponsorship, including: the consumer’s receipt of compensation, free products, or other benefits in exchange for the endorsement; the value of the items endorsed; the length of the relationship between the consumer and advertiser and likelihood of a future relationship; and any terms of agreement existing between the consumer and the advertiser. Thus, for example, if a consumer buys a product on her own volition, with her own money, and then decides to blog about the product, the Guides would not apply because no relationship exists between the consumer and the advertiser and no “sponsored” endorsement was made.

Through these revised Guides, the FTC is urging transparency, and over the next months and years the FTC’s interpretation and application of the Guides will be fleshed out. But in the short term, advertisers should work with their advertising counsel to ensure compliance with the Guides by (1) developing contractual language to notify endorsers of their duties under the Guides and to ensure the proper disclosures are made; (2) drafting monitoring procedures to make certain that what is published actually makes the proper disclosures and if not, that appropriate action is taken; and (3) if word-of-mouth organizations are used by an advertiser, using contractual language to advise the organization of the disclosure obligations and to ensure the organization has proper monitoring procedures in place.
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