Title
Navigating the Web of Rules Governing Internet
Advertising
By Kavita
Amar and Thomas
R. Burke
Internet advertising revenue totaled $5.5 billion
in 2001, compared with a mere $20 million in 1995.1
Advertising online is predicted to reach $20 billion by 2010, accounting
for 5.3 percent of all media ad billings.2
Internet advertising offers businesses a new and entirely
different medium with which to attract consumers and maintain brand
loyalty. Current online options include pop-ups, pop-unders, banners,
splash pages and text-based ads. More creative forms of online advertising
are inevitable, including ads customized for wireless applications.
Consumer acceptance - or tolerance - of these emerging forms of
advertising is still being tested. While the medium of Internet
advertising presents an array of new choices for businesses, the
rules that apply to those ads are likely to be familiar.
Internet ads cannot be unfair or deceptive
Section 5 of the Federal Trade Commission Act ("Act")
forbids "unfair or deceptive acts or practices" in trade
or commerce.3
A practice is unfair if it causes or is likely to cause a
substantial injury that is not outweighed by other benefits to consumers
and is not reasonably unavoidable by the consumers.4
A practice is deceptive if it is a material representation
or omission that is likely to mislead consumers and affect their
decisions or behavior with regard to a specific product or service.5
These basic requirements apply equally to the online advertising
world.
Like other media forms, an Internet ad must disclose
material facts regarding a consumer transaction. In FTC v. Audiotex
Connection, Inc., No. CV-97 0726 (E.D.N.Y. 1997), the FTC pursued
Audiotex for deceiving customers in violation of Section 5 of the
Act by failing to disclose material facts about the costs incurred
with visiting its website. There, Audiotex invited consumers to
visit its "free adult sites" and directed them to download
a special image viewer in order to view the website. Audiotex did
not disclose that the image viewer was a software program that disconnected
consumers from their own local service, connected them with a phone
number in Moldova, and caused consumers to incur charges in excess
of $2 per minute. FTC and Audiotex entered into a consent decree,
in which Audiotex agreed to credit consumers for the telephone charges
totaling $2.74 million and to disclose material facts regarding
the costs of the transaction.6
As Internet scams have become more elaborate, the
FTC has become increasingly sophisticated in its enforcement efforts
and has formed the International Netforce, composed of the FTC,
eight state law enforcers in the United States, and four Canadian
agencies that coordinate efforts to investigate and enjoin various
Internet scams. As part of the International Netforce, the FTC obtained
a temporary restraining order in FTC v. BTV Industries, CV-8-02-0437
(D. Nev. 2002), preventing a scam that sent an unsolicited email
to consumers informing them they had won a Sony PlayStation or other
prize sponsored by Yahoo, and instead routed them to a adult Internet
site and charged them $3.99 per minute for the connection. The FTC
alleged in its complaint that the defendants' bait-andswitch practices
were deceptive under the Act (informing consumers they won a prize,
the e-mail was from Yahoo, and the connection to the website was
free) and violative of the Pay-Per-Call Rule by not disclosing that
the consumers were being connected to the website via a 900-number.7
Both Audiotex and BTV Industries demonstrate the FTC's
committed efforts to protect online consumers from deceptive practices.
Not only must online advertisements disclose material
facts, but those disclosures must also be clear and conspicuous.
In FTC v.Dell Computer and Micron Elecs., FTC File Nos. 982
3563 & 982 3565 (1999), the FTC charged both Dell and Micron
with disseminating deceptive ads. Dell's Internet ads stated that
consumers could purchase new computer systems by making low monthly
payments. The ads failed to adequately disclose that the payments
were for a lease, not a purchase, and the disclosure used inconspicuous
print in the ad. Micron's Internet ads for computer leasing omitted
fees due at lease signing (about $250) and buried information about
the term of the lease in unreadable blocks of fine print at the
bottom of the ads. The FTC reached a settlement agreement with Dell
and Micron, which required the companies to use disclosures that
were clear, readable and understandable by the consumer.8
Some popular forms of Internet advertising have the
unique ability to seemingly capture the attention of the consumer.
While this is arguably the ultimate goal of all advertising, holding
an audience captive may also constitute an unlawful practice under
the Act. For example, in FTC v. Zuccarini,No. 01-CV-4854
(E.D. Pa. 2001), the FTC obtained a preliminary injunction against
the defendant for engaging in unfair or deceptive practices by redirecting
consumers to websites they did not intend to visit and by obstructing
them from exiting websites.9
The defendant's tactic was to register common misspellings of domain
names and to then redirect consumers' browsers to one of his sites.
He would then "mousetrap" consumers by forcing them to
view pop-up ads each time they would click on the "close"
or "back" button. Consumers would have to click on ads,
generating 10 to 25 cents for the defendant from advertisers for
each click.
As advertisers develop new and different ways to hold
consumers' attention, the FTC also surfs the web looking for what
it believes are unfair or deceptive practices. For example, the
FTC enjoined a failed dot-com,Toysmart.com, Inc., from selling its
customer data as part of its assets. See FTC v.Toysmart.com,
LLC, No. 00- 11341 (D.Mass. 2000). Toysmart.com's privacy policy
provided that consumers' names, addresses, billing information,
and shopping preferences were never shared with a third party.10
The FTC therefore asserted that Toysmart.com's solicitation of bids
for such personal information was a deceptive practice under the
Act.
The FTC is not the only entity that regulates online
advertising. Recently, the Food and Drug Administration ("FDA")
stated it would make a case-by-case determination as to whether
claims made by food and dietary supplement manufacturers on websites
constitute labeling or advertising. In 1971, the FTC and the FDA
entered into a Memorandum of Understanding and agreed that the FTC
would regulate food advertising while the FDA would regulate food
labeling. Traditionally, labeling is viewed as the actual written
or graphic material on the label of a product that is present at
the point of retail sale. Advertising is the newspaper, television
or radio promotion that is not present at the point of sale. The
FTC allows food manufacturers to make advertising claims that are
not allowed by the FDA's labeling standard, such as statements that
a food is low in sodium or high in calcium. The FDA has argued that
some websites that sell food or dietary supplements have blurred
the line between labeling and advertising. Depending on the circumstances
of distribution, food and dietary supplement manufacturers may have
to comply with both labeling and advertising laws.11
Disclosures must be clear and conspicuous
Recognizing it is challenging to make a clear and
conspicuous advertising disclosure on an interactive website, the
FTC has issued guidelines regarding Internet disclosures.12
A disclosure is material information that must be given to the consumer
about the terms of the transaction. The FTC recommends the advertiser
consider the placement of the disclosure in the ad and its proximity
to the related claim. It is best if the claim and the disclosure
can be viewed together by the consumer on the same screen. If that
is not possible, then there should be an explicit instruction such
as "see below for important information on diamond weights"
to encourage the consumer to scroll. If the disclosure is lengthy,
a hyperlink to the disclosure may be appropriate if it is obvious
and is consistent with the other hyperlinks used in the ad. One
word hyperlinks, such as "disclosure" may be inadequate
without further information regarding the type of information available.
Additional considerations include the prominence of
the disclosure, the existence of items in other parts of the ad
that might distract the consumer, the need to repeat the disclosure
if the ad is lengthy, the volume and cadence of the disclosure in
an audio message, the duration of a disclosure in a visual message,
and the ability of the intended audience to understand the language
of the disclosure. Disclosures should always be made before an online
purchase. Indeed, the FTC encourages the disclosure to be made "when
the consumer is considering the purchase."
Traditional FTC guidelines apply to the Internet
as well
FTC rules that apply to written, printed, or direct
mail advertising may also apply to Internet advertising. For example,
Guides Concerning the Use of Endorsements and Testimonials in
Advertising applies to endorsements that consumers are likely
to believe.13
The rules regarding endorsements are not limited to a certain form
of media, and therefore apply equally to online advertising. Similarly,
the Telemarketing Sales Requirements that apply to direct
mail may also apply to direct e-mail.14
If an e-mail invites a consumer to call a vendor to purchase goods
or services, that telephone call and subsequent sale must comply
with the same requirements.
Consumer privacy laws also apply to information acquired
by businesses through the Internet. The nation's largest advertising
company, DoubleClick, Inc., learned the hard way that using consumers'
information without their permission could be a violation of privacy.
Following DoubleClick's announcement that it would be integrating
personally identifiable consumer information with cookies it places
on consumers' computers, several class action lawsuits were filed
against DoubleClick, alleging violations of state and federal privacy
and fraud laws. See In Re DoubleClick Inv. Privacy Litigation,
00-CIV-0641 (S.D.N.Y. 2002). Consumers charged, among other things,
that DoubleClick wrongfully gathered information by placing cookies
on their computers without their permission, and invaded their privacy
by tracking and recording their movements. DoubleClick reached a
settlement resulting in the dismissal of all pending lawsuits, in
which it agreed to obtain explicit permission from consumers before
combining personally identifiable information with data it collected
in the past, to routinely purge data collected online, and to not
use data collected in a manner materially inconsistent with its
privacy policy.15
In sum, Internet ads, like all forms of advertising,
must be fair and truthful. Disclosures regarding material facts
must be clear and conspicuous. Consumer information collected through
online advertising must be consistent with posted privacy policies
and industry practices.
For more information, please contact any of the following
attorneys:
Footnotes:
1
See Industry Analysis: Online Advertising Down, But Not Out,
Broadband Networking News, Feb. 12, 2002, available at www.lexis.com.
2
See A Sobering Look at Internet Advertising, Cable World,
Dec. 3, 2001, available at www.lexis.com.
3 15 U.S.C.
§45(a).
4 15 U.S.C.
§45(n).
5 "Deceptive"
acts or practices are not defined by 15 U.S.C. §45, et seq.,
but the FTC has defined deception in a policy
statement. See FTC Policy Statement on Deception, dated Oct.
14, 1983, available at www.ftc.gov/bcp/policystmt/addecept.
htm.
6 The Amended
Complaint, as well as the Consent Decree and Order, are available
at www.ftc.gov. See
also Victims of
Moldovan Modem "Hijacking" Scheme To Get Full Redress
Under FTC Settlements, Press Release, Nov. 4, 1997 and FTC
Says Internet Scam Re-Routes "Surfers" to International
Telephone Lines, Press Release, Feb. 19, 1997, both available
at www.ftc.gov.
7 The Complaint,
Temporary Restraining Order, and Press Release are available at
www.ftc.gov/opa/2002/04.btv.com.
8
The Complaint against Dell is available at www.ftc.gov/os/1999/9905/dellcomplaint.htm.
The Complaint against Micron is available at www.ftc.gov/os/1999/9905/microncomplaint.htm.
See also Dell Computer and Micron Electronics Settle FTC Charges
that Ads Misled Consumers About the Costs of Leasing Computers,
Press Release, May 13, 1999, available at www.ftc.gov/opa/1999/9905/dell.htm.
9
The Preliminary Injunction is available at www.ftc.gov/os/2001/10/cupcakepi.pdf.
See also Cyberscam Targeted by FTC, Press Release, Oct. 1, 2001,
available at www.ftc.gov/opa/2001/10/cupcake.htm.
10 The Amended
Complaint is available at www.ftc.gov/os/2000/07/toysmartcomplaint.htm.
The Stipulated Consent Agreement and Final Order is available at
www.ftc.gov/os/2000/07/toysmartconsent.htm.
11 See FDA
Letter on Labeling Food Products Presented or Available on the Internet,
available at www.cfsan.fda.gov/~dms/labwww.html.
12 See Dot
Com Disclosures, available at www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html.
13 See
16 C.F.R. §255(b).
14 See
15 U.S.C. §6101 et seq.
15 Information
regarding the settlement is available at http://settlement.doubleclick.net.
This Advisory is a publication of
the Advertising & Marketing Law Department of Davis Wright Tremaine
LLP. Our purpose in publishing this Advisory is to inform our clients
and friends of recent developments in advertising & marketing
law. It is not intended, nor should it be used, as a substitute
for specific legal advice as legal counsel may only be given in
response to inquiries regarding particular situations.
Copyright © 2004, Davis Wright Tremaine
LLP.
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