Advertising law at Cardozo

Cardozo Law Conference: New Impressions of Advertising Law
Panel 1: False Advertising (herein of Pom Wonderful v. FTC)
Moderator: Brett Frischmann | Professor and Director,
Cardozo Intellectual Property & Information Law Program, Benjamin N.
Cardozo School of Law
Panelists: Jen Lavie | Partner, Manatt, Phelps &
Phillips, LLP
2003-2010 ads touting medical studies that allegedly showed
that daily consumption of their products could treat or reduce the risk of
diseases such as prostate cancer and erectile dysfunction. Eventually, the FTC
sued.  Pom spent $34 million on these
studies, but the evidence wasn’t good. E.g.: Prostate cancer: patients who used
concentrated juice had already been treated for prostate cancer or had prostate
removed, so hard to say prevention of prostate cancer came from juice.  For erectile dysfunction, Pom used a measure
that the industry doesn’t accept as reliable. 
Artery thickness: sample size too small.
On appeal, Pom scored a small victory: one randomized
clinical trial (RCT) was enough in some cases, not the 2-RCT remedy imposed by
the FTC for disease claims.
Jeffrey A. Greenbaum | Managing Partner, Frankfurt Kurnit
Klein & Selz, PC: Pom is a “best of” case—so many issues on disclosure,
substantiation, standard of review.  Issue
at FTC: approach to its own guidance. 
Connection between Pom and
native advertising.  Pom is about the FTC’s announcement of a new rule, functionally.
2-study requirement when making a disease claim.  FTC also came out with a native advertising
policy statement, also announcing a new rule in effect, about where to put
disclosures in native advertising. Just as Pom
was very specific about substantiation, native advertising guide is very
specific about the type of disclosures you need, and even where in needs to
be.  FTC adjudication/enforcement
statements are issuing new rules, but they aren’t really rules b/c FTC lacks
real rulemaking authority—has to go through torturous proceeding basically
impossible to issue effective rules.
Aren’t we sort of acting as if the FTC is making rules?  Ad lawyers responded to Pom as if it were a new rule. 
How else are we interpret FTC taking a position in a particular
enforcement action or guide? This question for advertisers is very significant,
b/c of FTC’s interpretation of §5.  They
have to do this if they can’t make real rules—adjudications, settlements,
guidance are their only ways to communicate in persuasive ways.  Remarkably few enforcement policy statements
over the last 40 years; interesting to consider what was so important about
native advertising to justify one.  But
also industry guides, consumer guides—w/o the traditional protections for
rulemaking—notice and comment, openness.
One of the things we saw in the Pom case is that the court gives the FTC tremendous deference in
findings of fact and interpretations of law. 
Courts are deferring to how the FTC interprets the rules [as
applications of §5].  The law is very
simple: prohibition on unfair/deceptive acts or practices. It makes sense given
this breadth that you want information about specific practices. But when the
FTC makes up rules, like where native advertising should be disclosed, what’s
the appropriate level of deference?
What’s the impact on advertisers? The chilling effect is a
real concern. The FTC takes very aggressive positions on what’s potentially
deceptive when it’s not at all clear there’d be a real violation of §5. Trying
to avoid being on FTC’s radar, you don’t just have to worry about §5, you have
to worry about what the FTC thinks is unfair/deceptive even though Congress/a
court hadn’t decided.  FTC is taking a
more restrictive position than really required under §5.
Shouldn’t the FTC have real rulemaking authority?  Should Congress look again at the FTC’s
FTC’s 2-study requirement is clearly wrong.  A claim is either true or false. All that §5
prohibits is unfair/deceptive.  Question:
whether the claims are false/whether they had sufficient substantiation. FTC
standing in shoes of scientists and demanding 2 studies every time was
wrong.  FTC was trying to prevent
mistakes.  Pom had lots of studies and
2-study requirement wouldn’t have solved the problem.  Fencing-in relief might have justified a
2-study requirement—to prevent problems with this particular advertiser in the
future.  We see the FTC pushing the
boundaries of §5, and advertisers don’t have an effective remedy to challenge that.  People have to be more conservative, afraid
that until a company has a big enough budget they can’t fight.
I love the FTC! Do a good job, but preventing more speech
than they need to.
Rebecca Tushnet | Professor, Georgetown University Law
Benefit of being an
academic: I get to take as unrealistic a position as I like, at least for
purposes of argument.  Then again, given
current political events, maybe unrealistic and extreme positions are no longer
the sole province of academics.  Two topics
today: (1) the role of disclaimers and (2) the role of constitutional scrutiny
of scientific factfinding more generally.
The DC Circuit has
shown indifference to whether disclaimers actually work when it mandates that
regulators use them.  In Pearson v. Shalala, for example, the DC
Circuit decided that a disclaimer requiring more than college level reading
comprehension was appropriate instead of a ban on a statement misleadingly
indicating that selenium had been shown to reduce cancer risks.  The FDA tested these disclaimers; not only
did they fail; they backfired—people exposed to them had increased confidence that the FDA had reviewed and agreed with the
main cancer claim.  Reality-based
decisionmaking would lead to substantially less elaborate disclaimers; more
readiness to uphold bans or FDA-specified wording.  However, reality-based decisionmaking plus
rigorous First Amendment scrutiny would be a double-edged sword.  While courts should hesitate to hypothesize
that a disclaimer can substitute for a regulatory prohibition by avoiding
deception, that also means that regulators’ choice of disclaimers instead of a
ban should be dubious.  Regulators often
compromise on requiring a disclaimer instead of banning an activity
outright.  But disclaimers may rarely be
a worthy compromise—mostly they impose a burden without doing too much good,
though there are important exceptions. The privileged status of disclaimers
represents a hope that we can have our cake and eat it too, and if we’re
demanding lots more evidence in other aspects of commercial speech regulation
it seems odd not to do it here too. 
The question of
whether all FTC remedies are now subject to Central
-style assessment of whether they’re minimally restrictive.  Two sub-issues: first, generally, are
regulators entitled to any deference on factfinding?  The Pom
court reasoned that even the FDA sometimes allows a claim based
on less than two randomized controlled trials, and hypothesized that there
might be one really amazing RCT that everyone agreed was conclusive, so the
theoretical existence of that RCT invalidated the FTC’s 2-RCT requirement.  Does that mean that the FDA’s general 2 RCT requirement is
constitutionally invalid for the same reasons, rebuttably unconstitutional, or
unconstitutional if and only if the evidence supports an exception to the usual
rule?  All of these possibilities represent
substantial incursions on FDA authority and should be deeply troubling,
especially if it’s the court and not the FDA that decides how strong the
evidence is in the absence of 2 RCTs, or whether the RCTs were in fact
conducted in a proper way.  Like the FTC,
the FDA does make individualized determinations about whether a given drug is
safe and effective.  Once you constitutionalize
an issue, factfinding itself receives constitutional scrutiny.  (And it’s worth noting that the DC Circuit
has already revealed its innumeracy in Pearson
v. Shalala
, when it ruled that the existence of one positive trial and a
number of negative trials meant that it wasn’t true to say that the positive
claim was unsupported by the evidence—the whole
point of having a concept of a p-value to indicate statistical significance

is that you expect false positives if
you run a sufficient number of trials.)
Second, with respect
to remedies specifically: Historically, once regulators found that an
advertiser violated the law, that violation provided justification for future
prophylactic measures.  The DC Circuit’s
opinion gave weight to Pom’s repeated, extensive violation of the law and
demonstrated intent to keep on with its practices to any extent it could only
in allowing the imposition of a RCT requirement for all disease claims, as if
that requirement wouldn’t have been justified for disease claims in the absence
of persistent deceptive conduct. 
Why?  In the RICO case against
tobacco companies, the same court of appeals found that the companies’ repeated
violations of the law justified some mandatory disclosures, but they’ve
likewise been allowed to litigate every word—literally!—and so years after the
primary liability finding they have yet to make the corrective disclosures ordered
by the district court.
Conclusion: The
First Amendment is strong medicine.  Greenbaum
and I are probably a lot closer than we sound on policy questions; I just don’t
want them constitutionalized.  I often
hear the representatives of mainstream businesses, the kinds that hire the
lawyers represented on this panel, say that all they want is reasonable
freedom, that of course they wouldn’t abuse it because they are responsible
businesses.  While the record of large established
businesses speaks for itself, I think that’s ultimately beside the point.  The First Amendment doesn’t follow the
contours that “respectable” businesses are willing to accept; marginal
businesses will take advantage of these rules, because that’s what the First
Amendment is for—protecting marginal
speakers.  That’s why the lack of constitutional
protection for false and misleading commercial speech, plus freedom for administrative
agencies with competence in the relevant field to make factual determinations
of what is false and misleading, is so important to preserve the regulatory
state against a reimposition of Lochner.
Ashima A. Dayal | Partner, Davis & Gilbert LLP: Pearson and Pom: the FTC’s conclusion that the use of one or two adjectives
doesn’t alter the net impression: “promising,” “initial,” “preliminary.”  Court says those can’t cure the impression
made by the ad, especially when the chosen adjectives provide a positive
spin.  Effectively, said in dictum that
if there’d been a disclaimer like “evidence in support of this claim is
inconclusive” that would have been a safe harbor.  Even if that language is good: We’re saying “drink
Pom and you won’t get cancer,” but in a footnote we say “this evidence is no
good.”  That makes no sense. How can you
make a claim in the body copy and then disclaim its import?  It’s a contradiction, not a cure.
What is the difference between a claim “evidence in support
of this claim is inconclusive” and “these studies are promising”?  These are not different.  Body copy is at least more likely to be
seen.  This is terrible advice—encouraging
use of disclaimers rather than body copy. 
Why is the court writing this copy? 
They’re not good at it.
Bayer case, dietary supplement: FTC’s position on 2 RCTs
again rejected for a dietary supplement case. 
Supplements are regulated differently than drugs.  Bayer says you don’t need 2 RCTs for making a
supplement claim; not good to impose that on a food product.  One of the justifications the FTC gave was
that this was a repeat offender. 
Punitive: these decisions/effective rulemaking has some stare decisis
effect.  Similar to SEC/IRS letter
rulings—we read these and advise our clients. 
Lavie: disclaimers should be qualifications for the main
claim, not contradiction.
Q: what’s the role of disclaimers?
Lavie: advertiser is responsible for all reasonable
interpretations.  Disclaimer should help,
not contradict.
Dayal: lots of functions, but not reject/rebut plausible and intended interpretations.
Greenbaum: I thought disclaimer issue in Pom was interesting—but the court asked
for an effective disclaimer.  We hear something different from courts and
FTC.  If we take a step back and ask:
what is the right standard?  Clear &
conspicuous, says FTC—seen, read, and understood in context. Disclaimer
standard doesn’t match up w/general standard, which is reasonable
consumer.  FTC says: Consumer might
glance at headline & turn the page—but that’s not reasonable consumer.
Dayal: Effective has to mean clear & conspicuous.  “Studies show drinking 8 ounces of Pom can
treat, prevent, or reduce the risk of …” 
Then at the bottom: “evidence is inconclusive.”  That’s a rebuttal.  Can’t imagine how putting it in 12 point type
would help. 
RT: Effective disclaimer: is a great idea; now we have to
convince the courts that they can’t just eyeball or imagine an effective
disclaimer.  On supplements being
regulated differently than drugs: wait a year or so!  On §5: FTC understands it still has to prove
a violation of §5; if it did have rulemaking authority, and announced the native
advertising guidance as a rule, should the DC Circuit uphold it under the
APA?  Deference would in theory be
Q: How is/should we draw the line between RCT-required
claims and non-RCT-required claims? Is this a scientific question? A marketing
question?  Legal?  Who
should decide? 
Dayal: The FTC doesn’t take enough of a practical approach.
If I’m drinking a juice, I have a different expectation than a drug I got from
a doctor or OTC.  It’s appropriate to
evaluate the claims being made requiring less proof.
Lavie: distortion of market as between Pom and orange juice.
Dayal: is that consumer protection?
Lavie: yes!  Money is
consumer protection too.
Greenbaum: The FTC would say they don’t make policy.  Their role is §5.  FTC prohibits a number of claims, like
biodegradability, where consumers are more likely than not to throw it away in
a place that it won’t biodegrade.  Better
to prevent deception by consumers who think it will biodegrade in a landfill
than to encourage biodegradability claims.
RT: scientific and marketing/linguistic/psychological
question: truth and perception.  Supplements
v. pharmaceuticals: people have no idea about the regulatory difference and
think the FDA has approved it all!  Food:
we don’t really know.  Food claims could
be just as convincing as supplement claims; we need to know more about
that.  They can distort the market, directing
people away from doctors/other treatments.
Q: most people don’t take out the little insert to read any
kind of warnings on pharmaceuticals. But if you watch a TV ad, you get mixed
RT: FDA required Seasonale to do corrective ads; sometimes
disclaimers do serve the function of saying “this is complicated/important; you
need to think hard about this” even if they aren’t comprehended in specific.
Dayal: note that other countries don’t allow TV ads for
drugs. There’s only so much you can do in 15 seconds; you can give a heads-up.
Jeremy Sheff: Most of the largest advertisers in spending
are DTC ads.  Fact of disclosure might
trigger a consumer reaction, but not necessarily one we like—the DSHEA
disclosures may make supplement ads more convincing/trustworthy. 
Greenbaum: the problem is that the FTC has research showing
they’re so ineffective—50 years of FTC cases, never found one where a
disclaimer worked.  FTC endorsement
guides tested print ads—tested with a “results not typical” that was big; even
those still aren’t all that effective. 
You can’t make consumers read stuff, but is that the advertiser’s
fault?  [RT: Yes.]
Q: Aren’t the constitutional standards for commercial speech
relatively low as for other speech?  [Yes
if false and misleading, no if not—that
makes the question of who sets the false/misleading line and what standard of
review is applied to their factual finding of misleadingness incredibly
Q: Vitamin-type products often have certifications,
self-certifications—how does the law deal with those?
Q: compare SEC’s standards for forward-looking statements
w/the FTC’s standards.
Q: is the court separating above the line/below the line
Q: if the FTC is really aiming to protect consumers, the 1-
or 2- study question misses the point if they’re sponsored by the companies.
Can we standardize the studies?
Dayal: double-blind should be theoretically indifferent to
sponsorship.  Pom has an interesting discussion about cherry-picking
evidence.  Defer to what scientists think
is accurate/reliable.

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