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The role of Federal Trade Commission in regulating false and misleading advertising
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Content
THE ROLE OF FEDERAL TRADE COMMISSION IN REGULATING
\ < .
FALSE AND MISLEADING ADVERTISING
by
Ahmed Saboonchi-Ispahani
i» *
A Thesis Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
(Economics)
August 1962
T 7
UMI Number: EP44793
Ail rights reserved
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a note will indicate the deletion.
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UMI EP44793
Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author.
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unauthorized copying under Title 17, United States Code
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TAjj thesis, w ritte n by
y
A h m e d . . . S a b o q n c M ^ ^ , , < f ?
........... 7...........p 1 ..!
under the direction o f his. Thesis Com m ittee, ^
and approved by a ll its members, has been p re
sented to and accepted by the D ean of the
G raduate School, in p a rtia l fu lfillm e n t of re^-
quirements f o r the degree of
Master of Arts
Dean
Date..
THESIS COMMITTEE
...
'~~A - * Chairm an
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^ Uff f f r
6 -6 1 — 2 M — H I
: TABLE OF CONTENTS
!CHAPTER
X. INTRODUCTION ........................
f
The Problem......................
Statement of the problem ........
Importance of the study ........
Review of the Literature..........
Methodology ......................
Organization of the Remainder of the
Thesis ..........................
II. FEDERAL TRADE COMMISSION, ORGANIZATION
AND ADMINISTRATION .........
The Federal Trade Commission Act . .
The Commission .... ..........
Section 5 of the FTC Act ........
Jurisdiction over advertising . .
The Wheeler-Lea Amendment ....
Administrative Procedure ..........
Origin of the Commission cases . .
Division of investigation ....
i i
i i i
CHAPTER PAGE
i
l
Investigation by the Attorney Examiner ... 22
Report and recommendations................ 24 i
Stipulation and consent order ............ 25
Complaint and answer............... 27
Hearings.................................. 29
Initial decisions by the examiner........ 30
Appeal to the Commission.................. 31
Cease-and-desist order .................... 31
The injunction power . . . * ............ 32
Chapter Summary............................ 34
III. DECEPTION WITH RESPECT TO THE PRICE
OF THE PRODUCT .................... 36
Fictitious Pre-Ticketing .................... 37
Rudban Coats, Incorporation.............. 39
Empire Amerex Products Corporation ........ 41
The United States Bedding Company ........ 41
World Wide Watch Co., Incorporation .... 41
Bait Advertising........... 42
Atlantic Sewing Stores, Incorporation ... 43
The Atlas Manufacturing and Sales
Corporation....................... 47
iv
CHAPTER PAGE
Free Goods or Service................... 51
The Book-of-the-Month Club,
Incorporation....................... 51
"Free-Trial" and "Free Examination" .... 55
Chapter Summary............... 56
IV. DECEPTION WITH RESPECT TO THE CHARACTER
OF THE PRODUCT ................ 58
Misrepresenting the Quality and
Effectiveness of Products......... 59
Colgate-Palmolive Company and Ted Bates
and Co., Incorporation............... 60
Testimonials......................... 67
FTC action against Micky Charles Mantle . . 69
Testimonial procurement methods....... 70
Fictitious testimonials ................ 71
The American Tobacco Company........... 72
Guarantees............................. 74
Infraglass Heater Co., Incorporation .... 76
Lister C. Carr and Company............. 77
What is the guarantee?................. 77
FTC guides against deceptive advertising
of guarantees....................... 78
V
CHAPTER PAGE
Origin of Products.......................... 81
Deception with respect to the origin
of products..........* ............... 81
Geographical origin ...................... 83
Perfumes ..... ........................ 84
Chapter Summary........... 85
V. DECEPTION WITH RESPECT TO FOOD, DRUGS,
COSMETICS, AND DEVICES......... 86
Definition of "False Advertising" ..... 86
Weight-Control Aids .................. 88
Bakers Franchise Corporation .............. 90
Dentifrices......... 96
Colgate-Palmolive Company .......... 98
Hair Growth Preparations and Baldness
Preventives................................ 100
Ward Laboratories, Inc. . ................ 102
Failure to reveal material facts
is misleading .................. 104
Requirement of affirmative disclosure ... 104
FTC Activity in Rheumatism and
Arthritis Field .......................... 105
Witkower Press Inc.......... 107
; CHAPTER PAGE
i
! Chapter Summary..............................108
IVI. CONCLUSION...................................... 109
Summary 109 !
Evaluation .......... 114
Personnel and budgetary shortages ........ 117
Lack of personnel.......................... 117
Lack of funds .................... 119
Length of time taken to regulate
a deceptive advertising .................. 121
Weakness of control of the FTC
over advertising............... 125
Shortcomings of case-by-case approach .... 126
Recommendations ........... 128
Publicity for enforcement actions ...... 130
Greater use of criminal prosecution
should be m a d e ............................ 131
Greater use of injunctive powers
should be m a d e ............................ 131
Should be given injunctive power for
all cases of false advertising ........... 132
BIBLIOGRAPHY............................... . 135
CHAPTER X
INTRODUCTION
During the past half century the field of advertis
ing has made a bid to conquer the minds of Americans, and
incidentally to gain control of their pocketbooks. On all
sides the consumer is surrounded with appeals to his com
forts, with promises of good health, and with assurance of
personal glory. "He is coaxed, teased, cajoled, and ad
vised to buy this or that product, so that his ailments may
be cured, his home beautified, and his ambitions realized.
Of course, there are some outright liars in the mar
ket who indulge in false and misleading advertising. They
claim that their goods and merchandise are not only good,
but the best; that their product will go faster, stop
quicker; make you thin or fat; grow or remove hair; keep
1
Franc is FinkeIhor, Legal Phases of Advertising
(New York: McGraw-Hill Book Company, Inc., 1938), p. 192.
1
2
you awake or put you to sleep.^
Some advertisers, finding that their profits rise in
q
direct relation to their bragging, have no modesty at all.
The unscrupulous advertiser takes advantage of this form of
advertising and indulges in false and misleading statements
in his advertising. This is achieved by calculated employ
ment of the arts of applied psychology— appeals to the
instincts of sex and mother love, the fear of ill health
and unpopularity, the hope for business success and social
prestige. All these and more are surrounded with an aura
of desirability.^ So the advertisement persuades the pub
lic to use this soap or that liquid diet to gain an end
recognized as desirable.
False and misleading advertising is that which in
volves dishonesty, falsity or some form of misrepresenta
tion in selling a product or service. The practice deceives
the purchaser with regard to some aspect of the product or
2Lowell Mason, The Language of Dissent (New York:
The World Publishing Company, 1959), p. 162.
3Ibid.
^Clair Wilcox, Public Policies Toward Business
(Homewood, Illinois: Richard D. Irwin, Inc., 1960), p. 206.
its sale. In other words he is not buying what he thinks
he is buying, or is not buying under the conditions which
he supposes."*
False and misleading advertising involves an active
deception in commerce, and a willingness to profit by
taking advantage of the ignorance and eagerness of the
buyer. A classic example, of course, is the young girl who
is cajoled into using a certain soap for the ’ ’skin you love
to touch” and the implication that faithful purchase of
this product can lead to no less than the adoration of a
millionaire. The end is a view that the latter shall get
something which he would not buy at that price if he knew
what he was getting.
False and misleading advertising may take place in
hundreds of forms. The following are some of the most
common methods practiced.
5
Mr. Daniel Zmuda, Attorney-Examiner of the Federal
Trade Commission in Los Angeles, mentioned this during a
personal interview with him.
6
The Annual Report of the Federal Trade Commission
1959 (Washington, D.C.: U.S. Government Printing Office,
1960), pp. 85-90. A look at any copy of the FTC News
Release will show the different forms of deceptive adver
tising practices against which the Commission has taken
action.
1. False statements or misleading exaggerations.
2. Indirect misrepresentation of a product or
service through distortion of details edi
torially or pictorially.
3. Testimonials which do not reflect the real
choice of a competent witness.
4. Superlat ive claims.
5. The unwarranted use of the word ’ ’free.”
6. The use of a corporate name in advertising that
is similar to that of a competitor whose product
is of a better quality and sold at a higher
price. This has a general tendency to divert
the sales from the producer of truthfully marked
goods.
7. The advertisement of a patent medicine, an
obesity cure, and the claim that the drug is
effective and harmless, although it contains
ingredients that could be dangerous if taken
without medical supervision.
False advertising which deceives customers is a
wrong not merely done-against consumers, but also against
honest competitors. It forces other businessmen to adopt
5
practices that are against their ethical standards or to
lose business. It is also unfair to consumers, for it
enables the false advertiser to secure money from the con-
I
sumer that he would not otherwise be able to obtain. ^
The role of the Federal Trade Commission is to pre
vent and eliminate such practices in advertisements. The
principal objective of the FTC is the protection of the
consuming public. It attacks the type of practice ”...
which has the capacity and tendency or effect of misleading
O
or deceiving purchasers or prospective purchasers.”
This thesis is mainly concerned with advertisements
which mislead the consumer to varying degrees through mis
representation of the products or services that are offered
for sale.
I. THE PROBLEM
Statement of the Problem
The purpose of the advertiser is to stimulate desire
on the part of the consumer and to persuade him to purchase
* 7
Charles Moore, “Regulation of Deceptive Practices, ”
Food. Drug, Cosmetic Law Journal. January 1961, p. 109.
8
The Annual Report of the FTC, op. cit.
6
a particular product or service. The advertiser’s main
concern is the selling of his product. The consumer’s
sales resistence and the competition of his rivals may
often tempt the seller to misrepresent the true price or
the true quality of his product in the desire to sell and
profit.
When a person is injured by deceptive advertisement
he may be unwilling to undertake the expense and the-burden
of a law suit because the injury to him may be comparatively
small; e.g., a person who purchases a product that is
falsely labelled and advertised as ’ ’Guaranteed, ” would
probably not desire to go to the expense of suing the manu
facturer, particularly if the manufacturer may be in
another state.^
Unregulated advertising, spurred by the profit
motive, developed many abuses. It is because of these
practices of the advertisers that federal and other regula
tions have developed. Where truth and sales conflict,
trufeh is too often discarded for the latter. Deception is
9
This problem is quite evident, and can be seen and
supported by the number of actions which the FTG has taken
against such practices. These are regularly reported in
the FTC News Release.
designed to capture the consumer's dollar. Some of these
will be investigated in this thesis. *
Importance of the Study
The Federal Trade Commission is one of the oldest
and perhaps least understood of the various federal agen
cies. The purpose and the importance of this thesis is to
acquaint and enlighten the reader with the FTC— what it is,
and what it is doing in regulating false and misleading
advertising.
An attempt will be made to describe some of the im
portant areas in which false and misleading advertising has
developed and affected consumers. What has been done by
the Federal Trade Commission to curb these evils will be
shown. A critical analysis, study, and evaluation of the
,role of FTC in regulating this form of false and misleading
advertising will be undertaken. The strengh and ineffi
ciencies of the FTC, and the extent to which consumers are
protected against will be weighed. Fraudulent advertising
or that which is misleading in a material respect will be
evaluated. To recommend and suggest ways to strengthen
those weaknesses which exist today in the handling and ad
ministration of false and misleading advertising by the FTC
8
will be an important element of this thesis.
II. REVIEW OF THE LITERATURE
Many of the books on business and government devote
a chapter to the works of the government regulatory bodies.
A' part of this deals with the entire work of the Federal
Trade Commission. Usually a paragraph or so is devoted to
false and misleading advertising, which is treated as an
unfair method of competition. The FTC’s regulation of
false and misleading advertising has not been treated ex
tensively.
The following references constitute by no means an
exhaustive treatment of all the literature on the topic of
the FTC and regulation of false and misleading advertising.
What is attempted here is to list major sources that were
used and a few important sources in which additional in
formation may be found.
Among United States government publications, the
following have been valuable sources of information:
The FTC * s News Release which regularly report each and
every case as the Commission takes action against it.*®
*°Federal Trade Commission, News Release (Washington
D.C.: U.S. Government Printing Office).
9
The FTC Decisions, which run in series, and are in bound
volumes, contain all the records of the proceedings of the
FTC cases since 1914.^ The Annual Reports of the FTC,
which are published annually, give an account of the high-
lights of the work of the FTC during the year. The mimeo-
graphed reports and circulars of the FTC were very helpful.
Among the books, Geller’s Advertising at the Cross-
13
roads, Lindahl and Carter’s Corporate Concentration and
Public Policy.^ Simon’s The Law for Advertising and
Marketing,^ Commerce Clearing House's Trade Regulation
Reporter,and Mason’s The Language of Dissent,^ were
• ^Federal Trade Commission Decision (Washington,
D.C.: U.S. Government Printing Office).
12
Annual Report of the Federal Trade Conmiission
(Washington, D.C.: U.S. Government Printing Office).
13
Max Geller, Advertising at the Crossroads (New
York: The Ronald Press Company, 1952).
14
Martin L. Lindahl and William A. Carter, Corporate
Concentration and Public Policy (Englewood Cliffs, New
Jersey: Prentice-Hall, Inc., 1959).
15
\ Morton J. Simon, The Law for Advertising and Mar
keting (New York: W. W. Norton and Company, Inc., 1956).
16
Trade Regulation Reporter (New York: Commerce
Clearing House, Inc.).
^Lowell Mason, The Language of Dissent (New York:
The World Publishing Company, 1959).
10
found to contain valuable information and treatment of the
subject.
Many articles appear in magazines and periodicals on
advertising and consumer research as well. Consumer
Reports, Printerfs Ink.^ Advertising Age.and other
similar publications publish articles on FTC and recent
development in this field. Most excellent and scholarly
articles on the subject were found in law journals and law
reviews. Two of the best articles were Moore's "Regulation
of Deceptive Practices,and Anderson's "The Federal
Trade Commission.
XIX. METHODOLOGY
The above mentioned books and articles on this
subject were scanned to isolate important phases of
I ------; --------.
1 18
Consumer Reports (New York: Consumers Ufciion of
U.S., Inc*)•
^Printer's Ink (New York: Printer's Ink Publishing
Co.).
20 ^
Advertising Age (Chicago: Advertising Publica- V; \ L
tions, Inc.). V
21 '
Charles Moore, "Regulation of Deceptive Practices,"
Food, Drug, Cosmetic law Journal. January 1961.
22
Signard Anderson, "The Federal Trade Commission,"
South Dakota Law Journal. Spring 1959.
< n
information. Then detailed notes were taken and alpha
betically indexed. From these the ultimate research
material was assembled under appropriate headings, and the
i
i
actual writing begun. This study has not required original
first-hand research, such as surveys, because it is, by
necessity, based upon legal cases after they have been
judged and printed examples of false and misleading adver
tising.
IV. ORGANIZATION OF THE REMAINDER
OF THE THESIS
In sequence, the organization of the remainder of
the thesis is, first, to describe the organization, ad
ministration, and working of the Federal Trade Commission
in its role of regulating false and misleading advertising.
Chapter III.will deal with false and misleading advertising
with respect to the price of the product. Chapter IV will
deal with respect to the character of the product, Chap
ter V with deception in food, cosmetics, drugs, and devices.
Chapter VI is the conclusion which will deal with summary,
a critical evaluation of the Federal Trade Commission, and
some recommendations which seem to be applicable.
CHAPTER II
FEDERAL TRADE COMMISSION, ORGANIZATION
AND ADMINISTRATION
I. THE FEDERAL TRADE COMMISSION ACT
- -
j
' The Federal Trade Commission Act was passed by
Congress on September 26, 1914. The purpose of the act was
to protect business and the public against unfair methods
of competition and prevent practices which would lessen
i
Icompetition or tend to create monopoly.
The Commission
I
The Commission, which is composed of five Commis
sioners, is responsible for the performance of the task
delegated to it by Congress under the Federal Trade Com
mission Act.^ The Commissioners are appointed by the
1
The Federal Trade Commission Act (Washington, D.C.:
U.S. Government Printing Office, I960).
2
Under its present authority, the Commission is
empowered to regulate trade and commerce, to protect com
petitors, consumers, and the public. In any of its regula
tory activities, the Commission is enjoytted by the statute
to act only in the interest of the public.
12
I 13
President of the United States, and confirmed by the
senate. Commissioners are appointed for terms of seven
3
years,
Section 5 of the FTC Act
Section 5 of the Federal Trade Commission Act, pro-
hibits unfair methods of competition and unfair or decep
tive acts or practices.4 The Act itself did not describe
any specific unfair practices. Probably there was the fear
■
that ways would be, found to circumvent it. ^ Decisions as
to what constituted such practices were left to the FTC,
subject to court review.
Jurisdiction over Advertising
During its early years the Commission was handi
capped by the vagueness of the phrase "unfair competition."
The interpretation of the phrase "unfair competition,"
caused a great deal of conflict between the Commission and
3
The Federal Trade Commission Act, loc. cit.
4Ibid.
■*Mr. Daniel Zrnuda, Attorney-Examiner of the FTC in
Los Angeles, mentioned this in a personal interview with him
at his office at 315 West 7th Street, Los Angeles 14.
the Courts. However, in 1922 the Court affirmed the Com
mission’s right that false or misleading advertising was
among the unfair methods of competition which the Commis-
£
sion could prohibit.
While this gave the Commission reason for acting in
cases of false and misleading advertising, the Supreme
Court had decided in 1931 that possible injurious effects
upon the consumer were not enough. It was necessary under
the Act to show injury to a competitor.
Under the original Act, a firm could advertise
falsely without legal consequences, unless some specific
competitor could show that he had been injured by the prac
tice. Injury to the public, on the other hand, was never
a relevant consideration in determining the fairness or
unfairness of a practice.8 The Commission could not be
blamed for this, for whenever it made its primary concern
the interests of consumers, its orders were not sustained
i ---------------- ----
- g
In Winsted Hosiery Company case (1922) the court
made this decision.
^George B. Hotchkiss, An Outline of Advertising
(New York: Macmillan, 1950), p. 550.
8
Andrew Papandrou and John T. Wheeler, Competition
and its Regulation (New York: Prentice-Hall Inc., 1954),
p. 374.
by the courts. This limitation was exposed in 1931, when !
'the Supreme Court held in effect:
I That unless a respondent's unfair acts or practices
j were proved to have injured actual or potential com-
! petitors, the Federal Trade Commission was powerless
j to prevent their use, regardless of their injurious
i effect upon the public.^
■ A.
The Wheeler-Lea Amendment \ ;
^ - ■ - - .... -7- |
I In 1938, the government, recognizing the necessity !
I
jto protect the public as well as the businessmen, passed
! ' "
I the Wheeler-Lea Amendment to the FTC Act. ^ This amendment
! !
!
extended significantly the powers of the Commission and
gave it the broad jurisdiction which it now enjoys oyer
advertising. This amendment extended the jurisdiction
Q
^Alan E. Backman, Do's and Don'ts of Advertising
Copy (New York: National Better Business Bureau, 1950),
Section 1, p. 1.
•^Kenneth Grosbeck, Invitation to Advertising (New
York: Simon and Schuster, 1951), p. 370.
11
The authority and jurisdiction of the Commission,
in so far as its policing of the various aspects of adver
tising, marketing, and merchandising are concerned,
originate in the following federal statutes, arranged in
chronological order: The FTC Act (1914); Clayton Act (1914);
Wheeler-Lea Act (1938); Robinson-Patman Act (1936 and 1938);
Wool Products Labeling Act (1939); Oleomargarine Act (1950);
Fur Products Labeling Act (1951); Flammable Products Act
(1953). Each of these statutes has in some way increased
or affected the powers of the Commission over advertising.
'Morton J. Simon, The Law for Advertising and Marketing
J(New York: W. W. Norton and Company, Inc., 1956), p. 501.
16
of the Commission to include "unfair or deceptive acts or
practices" in commerce which injuriously affected the
public interest, whether or not these acts or practices
12
affected competition. ^
Although the sale of products by the use of false
and misleading statements and representations necessarily
injures competition, maintenance of free trade and competi
tion is not the essential element upon which the public
interest is predicated. ^JThe basic premise upon which the
Commission acts is the protection of the consuming public
in the "interest of the public."^
To suppress elimination of competition apd to pre
vent monopoly is in the public interest. ... To
protect the purchasing public against deception methods
and misrepresentations by which purchasers are deceived
is in the public interest.^
The Commission has made extensive use of its
authority. That is evidenced by the wide range of bad
12
Max Geller, Advertising at the Crossroads (New
York: The Ronald Press, 1952), p. 136.
13
Before the amendment of Section 5 of the FTC by
the Wheeler-Lea Act of March 21, 1938, it was also neces
sary to show the presence of competition. Mr. Daniel
Zmuda, in a personal interview.
14E. B. Muller and Co. v. FTC (1944). Cited by
Signard Anderson, "The Federal Trade Commission," South
Dakota Law Journal, Spring 1959, p. 117.
advertising practices which the Commission has acted
l s
against.
The Commission's jurisdiction is not restricted to
those situations where there has been actual deception.
If an advertisement is misleading and has the tendency to
deceive, the Commission will go into action against it.
The question facing the Commission is the meaning of the
advertisement itself. This is a question of fact, not of
law, and the advertisement is all the evidence that is re
quired, and is based upon the Commission's judgment as to
its meaning and its false and deceptive character.^ The
important question to be resolved is the impression given
by an advertisement as a whole.^
II. ADMINISTRATIVE PROCEDURE
Origin of the Commission Cases
A proceeding originates when a false, deceptive, or
misleading advertisement comes to the.attention of the
15
The News Release of the FTC, show the innumerable
number of false and misleading advertising complaints
against which the FTC has taken action.
■^Geller, op. cit., p. 158.
■^Mr. Daniel Zmuda, in a personal interview.
18
Commission. It may originate in one of several ways.
Ordinarily, complaints come from competitors, the public,
government agencies, or one of Federal Trade Commission’s
•I Q
own monitors.x
A businessman may complain about the practice of his
competitors, or his suppliers. ^ A member of the consuming
public may complain that he was misled by an advertisement.
Violations of the law may be brought to the attention of
the FTC by government agencies, Congress, or the Attorney
Oft
General.
Any person or company may request the FTC to insti
tute a proceeding. The request should be in writing and
signed. It should state the alleged violation in the ad
vertisement and the name of the person or company which
S - ■
allegedly violated the law. It is the FTC’s policy not to
disclose the name of the complaining party.^
18ibid.
19Paul Rand Dixon, Chairman of the FTC, Printer's
Ink, February 16, 1962, p. 18.
OA
Trade Regulation Reporter (New York: Commerce
Clearing House, Inc.), Volume 3, pp. 16,075-76.
21Ibid., p. 16,076.
19
Division of Investigation
The Commission has a division of investigation,
which is a unit of the Bureau of Antideceptive Practices.
It maintains a continuing survey of national a d v e r t i s i n g , ^
and uncovers violations of the laws in interstate com
merce.23 Through the cooperation of publishers and broad
casters, upon request, it is supplied with current maga
zines, newspapers, farm trade journals, mail order catalogs,
and radio and television commercial continuities.^
The frequency with which a magazine, newspaper, or
other periodical is requested depends upon the periodical.
Most periodicals are examined about three times a year.
Periodicals, which have the bulk of their circulation among
groups with little education, and which frequently print
advertisements of questionable character, are examined more
often.23
The formal procedure of the Commission does not
start until a complaint has been issued. But before this
22
Geller, op. cit., p. 163.
23Trade Regulation Reporter, op. cit.. p. 16,076.
2^Geller, loc. cit.
25Ibid.
20
takes place, much work of an informal nature is carried
out. The Commission in the first place considers its
jurisdiction over the violation. Secondly, the violation
must be prohibited by some provision of the statutes, which
the FTC a d m i n i s t e r s . Thirdly, if the proceeding is under
Section 5, it must be found that the prosecution of a com
plaint "would be in the interest of the public.” If it
is purely a private controversy which can be settled by
private litigation in the courts, the Commission does not
handle it.^7
t
When a false or misleading advertisement meets the
above requirements, the FTC requests the advertiser for
copies of all advertising literature it has used. The
Commission also asks for samples of the advertised product.
They are then sent to the Commission's bureau of medical
opinion, or to an appropriate technical agency of the
government for scientific opinion. The government agencies
are the Bureau of Standards, the Public Health Service,
°See page 15, footnote 11.
2^Harry L. Purdy, Martin L. Lindahl, and William A.
Carter, Corporate Concentration and Public Policy (New
York: Prentice-Hall, Inc., 1950), p. 403.
21
the Food and Drug Administration, and the Bureau of Home
28
Economics.
The samples of the various advertisements are dis
tributed to examiners, who read and check the advertise
ments with the scientific opinion. The problem facing the
examiner is not to permit his own judgment to be the sole
guide as to the falsity of an advertisement. He must read
each advertisement from the viewpoint of an ordinary member
of the public, and must be aware of the weakness in the
O Q
consumer’s psychological makeup. ^
Then the FTC brings to the attention of the respond
ent the questionable advertising statement and the scien
tific opinion. The respondent is given the privilege of
submitting evidence to substantiate or explain his repre-
sentations. Further action in a case depends on the
ability of the advertiser to support his claims to the
■an
satisfaction of the division.
28Ibid.
O Q
Geller, op. cit., p. 164.
30
Purdy, Lindahl, and Carter, op. cit.. p. 414.
! 22
Investigation by the Attorney Examiner
In the course of the examination, all the advertise
ments which are of a questionable character are separated
from the valid advertisements. The questioned advertise
ments are assigned to attorney examiners to develop all the
basic facts.
The test of deception under the false advertising
statute is not whether a knowing person would or should
have been deceived, nor, as in a common law damage
action for fraud, whether the plaintiff had a right to
rely on the mistatement, but rather whether the general
public reading the advertisement— foolish, wise, or
credulous— is likely to be deceived.31
If field investigation is necessary, then one or
+
more of the field offices of the Commission* s Bureau of
Investigation may be called on. The party complained
against is interviewed, advised of the charges, and the
commission asks the advertiser to submit in opposition any
evidence he so chooses.
If necessary, competitors and consumers are inter
viewed to ascertain whether the practice is unfair and de
ceptive and whether the requisite public interest exists.32
31
A. Lincoln Lavine, Modem Business Law (Englewood
Cliffs, New Jersey: Prentice-Hall, Inc., 1960), pp. 602-
603.
^^Marshall E. Dimock, Business and Government (New
York: Henry Holt and Co., 1949), p. 120.
23
Besides interviewing persons, the attorney may examine
records and files of the respondents. If a respondent
refuses to supply information wanted by the attorney, the
FTC may issue a subpoena directing the person to testify or
to produce documentary evidence. The failure to comply
with such a subpoena may result in court action to compel
compliance or for institution of penalty p r o c e e d i n g s . * ^
Section 9 of the FTC Act grants the Commission the
power to examine mid copy documentary evidence of any cor
poration being investigated or proceeded against. A sub
poena may require the attendance of a witness or the
production of documentary evidence from any place in the
United States, and in case of failure to obey such an
^ . . . .
order, the FTC has the power to ask any court in the United
States for aid for the production of documentary evidence.
Section 9 provides that any Federal court within the juris
diction where the inquiry is carried on may issue an order
requiring a non-compliance person or corporation to appear
before the FTC, or to produce the documentary evidence,
or to do any other act in compliance with a subpoena.
33
Trade R e g u la tio n R ep o rter, op. c i t . . p. 16 ,0 7 6 .
24
Disobedience of this court order subjects the violator to
a charge of contempt.3^-
Under Section 10 of the FTC Act, any person who
neglects or refuses to attend and testify, or to answer any
lawful inquiry or to produce documentary evidence, may be
punished by a fine of not less than $1,000, or by imprison
ment for not more than one year, or by both fine and im~
35
prisonment.
Report and Recommendations
When the investigation is completed, the record is
summarized, and a final report is prepared containing a
recommendation for the issuance of a formal complaint, the
'negotiation of a stipulation agreement to cease-and-desist,
or the dismissal of the case for lack of evidence or for
the reason that the practice is not deceptive.^
If the issuance of a formal complaint is proposed,
34
Federal Trade Commission, Rules of Practice
(Washington, D.C.: U.S. Government Printing Office, 1960),
p. 8.
35Ibid.
3^Martin L. Lindahl and William A. Carter, Corporate
Concentration and Public Policy (Englewood Cliffs, New
Jersey: Prentice-Hall, Inc., 1959), p. 529.
25
\
a draft is submitted for consideration by the Commission.
If the Commission decides to issue a complaint, the attor
neys in the Bureau of Litigation, aided by the project
attorney, handle the trial of the case before a hearing
07
examiner in any appeal before the Commission.
If the Commission decides to permit the respondent
to cease-and-desist voluntarily the unfair practice, the
Bureau of Consultation is called upon to handle and negoti
ate the stipulation. However, prior to the formal com
plaint or acceptance of the stipulation, all matters are
confidential.
Stipulation and Consent Order
The stipulation is an informal, but highly effective
procedure in setting certain types of cases. This pro
cedure is entirely cooperative and is excluded from litiga-
OQ
tion or any other judicial proceeding. 0 Under this pro
cedure, the respondent admits his guilt, and promises to
discontinue the practice informally challenged by the FTC.
The respondent signs a written statement setting forth
37
Dimock, op. cit.. p. 121.
38
G e lle r , op. c i t . , . p. 170.
26
the facts and the acts complained of, and promises to
cease-and-desist henceforth.^ However, under this settle
ment procedure, a formal complaint is filed with the con
sent order to cease-and-desist. Such an order has the same
force and effect as an order entered after a formal
trial.^
After the stipulation has been agreed to by the Com
mission and the advertiser, the advertiser is required to
I
submit to the Commission a report within sixty days that he
has complied with the stipulation. Usually, the advertiser
submits an affidavit explaining the compliance and will
include also samples of his latest advertising copy.^
If at any time during the informal proceeding,
either the advertiser or the Commission fail to come to an
agreement on a certain aspect of the stipulation, then
either side may withdraw. The case is then returned to the
examiner, to proceed and file a formal complaint.^
■^Mr. Daniel Zmuda, in a personal interview.
^Trade Regulation Reporter, op. cit., p. 16,013.
^Geller, op. cit.. p. 171.
42
However, in as much as the stipulation proceeding
is based on good will, informality, and cooperation, less
than 1 per cent of all matters stipulated have gone into
complaint.
27
Although the Commission does not allow stipulation
in all cases, particularly in those involving fraud or
parties whose honesty and work cannot be relied upon, the
use of the stipulation has grown in importance.^ The
stipulation procedure was introduced in March 1925. The
Commission is satisfied with this procedure. It feels it
is economical, and that the desired effects can be achieved
without much expense or delay.^
Complaint and Answer
The complaint is the beginning of the hearing pro-
45
cedure. This is the first formal, public step in the
proceeding. All proceedings up to this point have been
informal and strictly confidential. The reason behind this
is to spare a firm unfavorable publicity until the Commis
sion finds that the facts warrant a formal charge. The
contents of the complaint are given publicity, and the
whole proceeding is a public record.^6
^Purdy, Lindahl, and Carter, op. cit.. pp. 417-418.
^Dimock, op. cit.. p. 121.
Mr. Daniel Zmuda, in a personal interview.
28
A docket number is assigned to each complaint, in
chronological order, as it is issued. This same docket
number identifies the proceeding permanently, applying to
any orders issued in the proceeding, as well as to the com
plaint.^
The complaint, the answer, and all subsequent pro
ceedings are public records. A formal complaint names the
respondents, alleges the violations and states the charges.
It mentions the legal authority and jurisdiction for the
institution of the proceeding, with specific designation of
the statutory provisions alleged to have been violated.
The complaint contains a clear and concise factual state
ment sufficient to inform each respondent with reasonable
definiteness of the types or acts of practices alleged to
be in violation of the law. Where practical, a form of
order to cease-and-desist is issued, and also a notice as
to the time and place of hearing.^®
The Commission does not adjust matters between
private parties. Its purpose is to protect the public.^
/ 7
Trade Regulation Reporter, op. cit., p. 16,105.
48Ibid.
Simon, op. c i t . , p. 510.
29
This is done on the ground that the Commission is a public
agency, and it was not created to settle controversies
between private parties. The original complainant is not
a party to the case. His identity is never revealed. If
it were, many individuals would refrain from making com
plaints for fear of retaliation by the respondent,
After the complaint has been served upon the re
spondent, he must file an answer within twenty days, deny
ing or admitting the allegations. If no answer is filed,
the Commission has the privilege to make its findings and
issuing an order. In the event of a denial, the statute
provides for a hearing.
Hearings
The proceedings take place before a hearing examiner.
Where evidence is to be taken, a hearing examination is set
anywhere in the United States, considering the convenience
of the parties. A The hearing examiner is an impartial and
independent judicial representative of the Commission.
->®Purdy, Lindahl, and Carter, op. cit., p. 415.
51Ibid.
CO
“ ^Simon, op. c i t . , p. 511.
30
The hearing usually takes place forty-five days or more
after the respondent has been served with the complaint.^
The complaint is supported by a hearing attorney and
the respondent may appear in his own behalf or by consul.
Respondents may present evidence, cross-examine witnesses,
and use other rights inherent in judicial proceedings. The
Commission has the general burden of proof.^
Initial Decisions by the Examiner
After the parties have introduced their evidence and
submitted their arguments, the examiner, within thirty days
after the closing of the record, files an initial decision,
which becomes a Commission decision thirty days after
service, unless it is appealed to the Commission or the
latter dockets it for review.-*-*
In its written decision the Commission makes clear
the reason for its action. This serves as a good public
record, and shows what was done in a particular case. It
also serves as a source of information and reference for
53
Lindahl and Carter, op. cit., pp. 529-530.
^Simon, loc. cit.
55Ib id .
31
consultation by the Commission for future cases.^
Appeal to the Commission
If the respondent wishes to make an appeal, a notice
of intention to appeal must be filed within ten days after
service of the initial decision and the appeal brief within
thirty days thereafter. The opposing brief is due within
twenty days after service of the appeal brief. Either
party may request oral argument.^
Cease-and-Desist Order
If the evidence sustains the complaint, the Commis
sion issues an order requiring the respondent to cease-and-
desist from the illegal practices. This order becomes
final sixty days after issuance, unless a petition is filed
by the respondent in a Circuit Court of Appeals requesting
that the order be set aside.
If a petition for a court review is filed, the date
when the order becomes binding is extended and depends upon
the extent of the subsequent court proceedings. Violations
•^Lindahl and Carter, op. cit., p. 530.
57
■''Simon, loc. cit.
32
of the order after it becomes final subjects the respondent
to a government suit in a district court for a civil penalty
and gave the Federal Trade Commission a much broader juris
diction over advertising of food, drugs, devices, and
cosmetics. It gave the Commission the power:
... to seek an injunction against the dissemina
tion of such advertising in any United States District
Court and such courts are directed, upon proper show
ing, to issue a temporary injunction or restraining
order.60
The amendment "put teeth" into the Commission's regulating
program in this area of false advertising.^
The Commission may, therefore, take strong and quick
steps with an injunction against the false advertising
• ^Federal Trade Commission Act, loc. cit.
of five thousand dollars for each violation.^® Since 1950
where a violation continues over a period of time, each day
of its continuance is a separate offense.^
The Injunction Powei
The Wheeler-] ndment made specific reference
~ ^Ibid., amended 1950.
60Section 13 of the FTC Act, as amended.
6 1
Simon, op. c i t . . p. 523.
33
of such products whenever it has reason to believe that
Section 12 is about to be violated, and the enjoining of
such violation would be in the public interest, pending the
outcome of the slower proceedings under Section 5 of the
FTC Act.
/ The Wheeler-Lea Amendment also imposes penalties
for food, drugs, devices, or cosmetics, if the suggested or
customary use of the commodity advertised may be injurious
to health or its violation is with intent to defraud or
mislead in interstate commerce. An offender convicted
under this section of the Act may be punished with a fine
of not more than five thousand dollars, or by imprisonment
of not more than one year. It reads as follows:
(a) It shall be unlawful for any person, partner
ship, or corporation to disseminate, or cause
to be disseminated, any false advertisement:
(1) By Uhited States mails, or in commerce by
any means for the purpose of inducing, or
which is likely to induce, directly or
indirectly the purchase of food, drugs,
devices, or cosmetics; or
(2) By any means, for the purpose of inducing,
or which is likely to induce, directly or
indirectly, the purchase in commerce
of food, drugs, devices, or cosmetics.
upon those who advertise harmful products, j Section 12 (a)
)
makes it a misdemeanor to disseminate a false advertisement
34
(b) The dissemination or the causing to be dis
seminated of any false advertisement within the
provisions of subsection (a) of this section
shall be an unfair or deceptive act or practice
in commerce within the meaning of Section 5.°^
Section 14 of the Amendment provides criminal prose
cution in the United States District Court where the false
advertisement is for a food, drug, therapeutic devices, or
cosmetics, and that its use may be injurious to health or
if the violation is with intent to defraud or mislead.
III. CHAPTER SUMMARY
From its inception in 1914 the Federal Trade Commis
sion has slowly evolved into a- somewhat complicated organ
ization dedicated to seeing that the public is protected
from scheming advertisers who are eyeing their pocketbooks.
The FTC Act, which sets forth the powers of the Commission,
has been amended. Important in this respect was the
Wheeler-Lea Amendment of 1938.
Investigative research and reports gear the tempo
of the recommendations after the cases for the prosecution
and defense have been heard, the examiner*s decision is
filed. Depending on the success or failure of any appeal
^Section 12 of the FTC Act as amended.
which is filed, the matter of carrying out the cease-and-
desist orders arises. The injunctive power has ’ ’ put teeth"
into the regulating program of the Commission in the fields
of food, drugs, cosmetics, and devices.
CHAPTER III
DECEPTION WITH RESPECT TO THE PRICE
OF THE PRODUCT
The deception of the consuming public is achieved in
several ways. The purpose is always the same. It is to
create a false impression that the prospective buyer is
getting an unusually good bargain. These may take the form
of fictitious pre-ticketing, bait advertising, offers of
"free goods or services," additional unmentioned charges,
discount savings, forced or sacrifice sales, list or
catalog as regular selling price, retail as wholesale,
sales below cost, savings, usually being reduced or spe
cial, special sale, financial terms, etc.*-
The Commission has taken action against a myriad of
advertising claims which it has felt to be false or mis
leading. However, it will not be possible in this chapter
^The News Release of the Federal Trade Commission
(Washington, D.C.: Government Printing Office) reports the
different forms of false and misleading advertisements in
connection with price and the value of products or serv
ices, against which the Commission takes action.
36
37
to treat all the various forms of deceptive advertising
practices which the Commission has taken action against,
due to the limitation of space in the thesis. However,
some of the most common forms of such advertising practices
will be treated here*
I. FICTITIOUS PRE-TICKETING
Fictitious pre-ticketing is a form of practice by
which merchandise containers and price tags are marked with
exaggerated and fictitious prices much higher than that for
which the product is intended to be sold. Then these
fictitious prices are lined out and followed by the real
selling price. The selling price is therefore misrepre
sented by the exaggerated regular price.
This is done in order to mislead the public as to
the value of these products. The usual selling price, the
quality of the product, and the savings realized by the
purchasers are misrepresented. This practice enables the
dealers to defraud the purchasing public into a belief that
a higher grade article is being sold at a reduced price.^
2
Trade Regulation Reporter (New York: Commerce
Clearing House, Inc.), Volume 2, p. 12,683.
38
Another form is representing fictitious and exagger
ated value as the usual retail prices in advertising
material and price lists which are intended for vise in the
resale of their product. Often manufacturers supply their
dealers with lists on which fictitious prices are marked,
representing the prices as set by the factory or a whole
sale price. Neither the manufacturer nor the dealer
expects that these prices can be obtained from any, save
the incredibly gullible purchasers. But the ordinary pur
chaser is led to believe that high grade merchandise is
being sold for a very low price.^
An extensive campaign has been made by the FTC
against the practice of fictitious pre-ticketing and ficti
tious price reduction in connection with air conditioners,
aspirin, bedding, blankets, books, burial vaults, cameras,
clocks, watches, clothing, cosmetics, cutlery, dairy
products, electrical appliances, fountain pens, furniture,
furs, jewelry, mattresses, perfumes, radios, silverware,
television sets, toiletries, vacuum cleaners, and countless
3
Milton Handler, Cases and Materials on Trade
Regulation (Chicago: The Foundation Press, Inc., 1937),
p. 753.
39
other products.^ The following represent some of the most
common and typical cases against which the FTC has taken
action.
Rudban Coats, Incorporation
Rudban Coats, Inc., of New York, N.Y., operates some
seventy women’s apparel retail stores in New York, New
Jersey, Pennsylvania, Massachusetts, and other states.
This corporation distributed merchandise tagged and priced
yrith exaggerated and fictitious prices which were lined out
and followed by the real selling price. They thus mis
represented their usual selling price, the quality of their
product, and the saving to be made by the purchasers.
The FTC made a complaint against this corporation
to cease pre-ticketing its products with exaggerated and
fictitious prices lined out and followed by the real sell
ing price. The FTC in its complaint charged the respond
ent not to represent that the regular and usual retail
The News Release of the Federal Trade Commission
report the actions taken by the FTC against various forms
of false and misleading practices in advertising.
• *FTC v. Rudban Coats, Inc.. of New York. N.Y.,
FTC News Release. August 1, 1958.
40
selling price of their merchandise is any amount other than
that at which respondents have sold their merchandise in
the recent regular course of business. The following order
was given:
1. To stop representing that any price for the
merchandise is a reduced price unless it is in
fact a reduction from the price at which the
respondents have sold the merchandise in the
recent regular course of business.
2. To stop representing that any savings from the
respondents* usual and customary retail selling
prices for the merchandise are offered to pur
chasers, when the price designated constitutes
respondents’ usual and customary retail selling
price for the merchandise.
3. To stop supplying to other persons, firms, or
corporations merchandise pre-ticketed so as to
misrepresent the regular retail selling price,
the reduced price, value, or the amount of
savings in the purchase thereof.
Rudban Coats, Inc., consented to the above order of
the Federal Trade Commission not to misrepresented any
41
of its merchandise in the above manner of the FTC order.
Empire Amerex Products Corporation
I
Empire Amerex Products Corporation is a Chicago dis
tributor of a variety of products such as steak knives,
carving sets, deep fryers, electric skillets, fans, and
stainless steel flatware. The FTC ordered it to cease-and-
desist from misrepresenting its retail prices by fictitious
and exaggerated amounts on attached labels and on con
tainers of some of its products.^
The United States Bedding Company
This is a bedding manufacturing company in St. Paul,
Minnesota. FTC ordered it to cease attaching it to mat
tresses, labels bearing fictitious prices, and placing in
the hands of dealers for their use, materials representing
falsely that some of its mattresses carried a full ten-year
guarantee.
World Wide Watch Co., Incorporation
The FTC ordered this company to cease misrepresent
ing and attaching to their watches, or furnishing to
^Federal Trade Commission Decisions (Washington,
D.C.: U.S. Government Printing Office), Book 55, pp. 1604-
1607.
42
dealers for use in resale, tags bearing fictitious and .
7
excessive prices as the usual selling prices.
II. BAIT ADVERTISING
Bait advertising is a practice closely related to
fictitious pricing. The practice usually appears in one of
the following forms: Advertising of brand name merchandise
at startling low prices as a bait to attract prospective
customers. When people respond to buy the advertised
product, it is disparaged or said to be unavailable, or the
customer is discouraged from buying it and pressured into
buying some other much higher-priced product.®
Another method of bait is advertising inferior mer
chandise as quality merchandise, again at sensationally
low prices. But the prospective customer upon inspection
finds that the advertised goods lack many of the virtues
or quality and are undesirable in many respects.^
^Complaint made on February 28, 1958. Dkt. 7076.
Ibid., pp. 1072-1075.
Q
Annual Report of the Federal Trade Commission 1956
(Washington, D.C.: U.S. Government Printing Office, 1957),
p. 42.
Q
^Annual Report of the Federal Trade Commission 1960
(Washington, D.C.: U.S. Government Printing Office, 1961),
p. 55.
The salesman makes no effort to sell the product, but em
phasizes its faults, for he has a more expensive product
ithat he hopes to sell.^®
In both the instances the idea is not to sell the
advertised products but to attract customers who can be
switched, often by extreme high-pressure tactics, to more
expensive goods.
Atlantic Sewing Stores, Incorporation
For one of the most typical cases of bait adver
tising, the case of the Atlantic Sewing Stores may be
cited. This is a sewing company in Flushing, New York.
This store made use of "bait" advertising in the sale of
its sewing machines. As a means of obtaining ”leads” and
prospects for the purchase of sewing machines, the respond
ents advertised their sewing machines in New York City
newspapers which have a general circulation in New York
City, and the adjacent metropolitan areas in the states of
New Jersey and Connecticut. They also advertised their
^E. Bryant Phillips, Consumer Economic Problems
(New York: Henry Holt and Co., 1957), p. 130.
11
• ^Annual Report of the Federal Trade Commission
1960, loc. cit.
44
sewing machines for sale on radio and television broadcast
ing stations in New York City and New Jersey. The follow
ing is one of its typical newspaper advertisement:
A SEWING COMBINATION
1. Singer Sewing Machine
Reconditioned by Northern
2. New Queen Anne Console
3. New Sewing Chair
(Picture of sewing machine and chair--
all 3 pieces $29.50)
Round Bobbin
Dams, Monograms, Embroiders
New AC-DC Motor
Free Sewing Instructions
Free Buttonholer
SPECIALS
New Portable Originally $49.00
Now $23.50
Assorted Reconditioned
Consoles from $29.50
Vigorellin Portable
Originally $249.00
Now $219.00
Fiatelli Console
Originally $289.00
Now $239.50
45
Most of the persons answering the advertisements
were interested in purchasing rebuilt sewing machines at
the advertised price of $29.50. The FTC discovered that
upon receipt of such an inquiry, it was respondent’s prac
tice to dispatch a “lead" man to call on the prospect at
his or her residence. Most of the persons answering
respondent's advertisement were women. The "lead" man
would call at the prospect's home and accept a $5.00
deposit from the customer, as a down payment on the $29.50
machine, and give the person a receipt for it. However,
the machine was to be delivered later.
Several days or weeks later a "closer" would call
at the customer's residence to deliver the $29.50 sewing
machine. But he would disparage and criticize the $29.50
machine during the demonstration. The machines were
previously intentionally "rigged" causing the thread to
break on each movement of the needle during the demonstra
tion. The "tigging" was accomplished by attaching a metal
cross-piece to the bobbin in such a position as to cause it
to wiggle in and out, thus breaking the thread each time
the machine was operated.
The "closer” would then attempt to induce and did
46
induce most customers to purchase a different or more ex
pensive sewing machine. He would tell the prospect that
the regular price was $289.50 but was reduced to $239.50.
The FTC further discovered through investigation that the
prices of $289.00 for the Fiatelli Console and $249.00 for
the Vigorellin Portable were fictitious and greatly in
excess of the prices at which these machines were usually
and customarily sold.
It was quite clear to the FTC that the company's
offers to sell reconditioned electric sewing machines for
$29.50 were neither genuine nor true offers, but were made
for the purpose of obtaining leads as to persons interested
in purchasing sewing machines.
The Commission felt the respondent's representation
in their advertising is misleading and deceptive, and that
it has the tendency and capacity to mislead or deceive a
substantial number of the public into the belief that all
17
such representations were true. Therefore in the inter
est of the public the Commission ordered the company
12
See for example Stanley L. Rose Machine Co.,
Dkt. 6295; Household Sewing Machine Co., Dkt. 6148.
47
to cease-and-desist from such advertising practices. J
The Atlas Manufacturing and Sales Corporation
Another interesting and typical case of bait
advertising involves the Atlas Manufacturing and Sales
Corporation. This company sells vending machine and sup
plies.^ It advertised in the classified columns of news
papers that employment was offered to selected persons
with opportunities for exceptional profits. The advertise
ment read:
START SPARE TIME
SERVICING
HERSHEY CANDY ROUTE
We will select a responsible person in your area
to service our NEW HERSHEY CANDY DISPENSERS. No sell
ing or experience necessary. Qualified persons will
have opportunity of earning $5,000 per year devoting
spare time to start. About Six hours per week required
to service route and to manage business. To be eli
gible you must drive car and be able to make small
investment of $594 CASH to handle inventory. For per
sonal interview write giving particulars, phone, and
reference to:
District Manager, Dept. 102, 8693 Lynhaven Road,
Cleveland 30, Ohio (CX-110)^
13
Decision was made by FTC on August 15, 1957.
^FTC Decisions, op. cit., pp. 828-851.
15Ib id . , p. 828.
48
Actually no one was being selected or hired by the
company. This was just a "bait" to obtain leads to pur
chasers. These ads were published either under the heading
of ’ ’ Business Opportunities,” or tinder ’ ’ Help Wanted” columns
of numerous newspapers.
These columns are usually read by persons who are
seeking employment or trying to improve their financial
situations. The testimony of the "consumer witnesses”
taken by the Commission’s council testified that this ad
vertisement conveyed to them the idea that a job is being
offered.
The ads in each of their several different appealing
inducements had the tendency and capacity to mislead and
deceive the public to whom they were addressed. The re
spondents falsely represented that employment was offered
to certain especially selected persons. Actually no em
ployment of any kind was being offered. The truth is that
any person who answered the ads, and could pay for the
vending machine, was sold such machine and supplies.
The ads in no place stated that it was necessary to
purchase the vending machines, but that ”we are looking
for a reliable person . . . to collect from our automatic
"49
merchandise dispensers.” This statement of the ad clearly
shows that the respondents would retain title and owner
ship, and the applicant would merely be employed by them.
Further, the respondents falsely represented that any
amount invested was secured by an inventory and that there
was no risk of losing the investment, and that the business
was ’ ’ permanent and depression proof.”
Most of the consumer witnesses testified that they
were actually ’ ’ hooked" and that most of the machines they
purchased could not be placed in a profitable location.
The members of the public who answered the ads, testified
to the Commission, that they believed the exaggerated
promise of earning $5,00Q per year on a $400 investment.
They believed that they could make such a large sum for
such a small investment with very little time to be devoted
to it.
Taking all these misrepresentations into consider
ation, the FTC ordered the Atlas Manufacturing and Sales
Corporation to cease representing falsely in bait adver
tising all the above mentioned offers.
The above two were the most typical cases of bait
advertising. With mass production, and a multiple of goods
50
competing for consumer’s dollars, the advertisers face the
problem of attracting the consumer's attention to their
products. So they employ all forms of tactics to attract
the attention of the people to their products.^ Once the
attention, the eagerness, and the fancy of the people are
drawn, then they proceed to manipulate the prospective
customers into buying the products which the advertiser is
really out to sell.
Many sellers have made use of these tactics in their
advertising to attract prospective customers. By this
method, they have been successful in inducing most cus
tomers into buying the seller’s intended product.1^ The
FTC has done a remarkable work in the prevention of such
ads or in its continued use in the interest and protection
of the consumers.
■I y*
°Recently advertisers have been employing in
credible tactics. With the help of the social scientists,
advertisers are making use of motivation research tech
niques in their advertising. For an interesting descrip
tion see for example, Vance Packard, Hidden Persuaders
(New York: David McKay Co., 1957).
17
X/This practice has been quite prevalent. A look at
the FTC News Release will show the numerous actions which
the FTC has taken against such bait advertising.
51
III. FREE GOODS OR SERVICE
In 1948, the Commission in the interest and protec
tion of the consumers made a rule that anything advertised
as ’ ’ free” had to be "in truth and in fact a gift or gra
tuity." It had to be an "unconditional gift." It was
considered a violation of the Federal Trade Commission Act,
if the gift was tied or conditional upon the purchase of
other merchandise or furnishing of some service, such as
sales service.1®
The use of the word "free" or words of similar
import in advertising to designate or describe mer
chandise sold or distributed in interstate commerce,
that is not in truth and in fact a gift or gratuity
or is not given to the recipient thereof without re
quiring the purchase of other merchandise or requiring
the performance of some service inuring directly or
indirectly to the benefit of the advertiser, seller or
distributor, is considered to be a violation of the
FTC Act.19
The Book-of-the-Month Club, Incorporation
The case of the Book-of-the-Month Club provides an
interesting case for citation and criticism. This company
18
Trade Regulation Reporter, op. cit., Volume 2,
p. 12,496.
19Federal Trade Commission Interpretation, Janu
ary 14, 1948.
52
sold books by mail-order. Its members agree to buy four
books a year. For every two books bought, one was given
free.
On March 24, 1949, the FTC took action against this
company, and on May 8, 1952, the company was ordered by the
FTC to cease-and-desist from using the word "free." The
Commission felt that the word "free" was too emotional.
It played on the credulities of the gullible people who
bought things to get something else free.
The Commission believed that the company*s adver
tisement is deceptive, and that it has the tendency and
capacity to mislead and deceive prospective purchasers into
the erroneous and mistaken belief that the book offered by
the company as "free" would in fact be given without cost
or other obligations.^
The Commission felt that the word "free" as used
in the sale and distribution of books in this case, has the
20
Lowell Mason uses this in a sarcastic sense for
the opinion and order of the Commissioners in the case of
the Book-of-the-Month Club, Inc., in his*book, The Lan
guage of Dissent (New York: The World Publishing Company,
1959), p. 174.
21
^Federal Trade Commission Decisions. Volume 48,
p . 1314.
53
definite and absolute meaning of a gift or a gratuity given
without charge, cost, or condition.
But the circulars, contract and subscription fonts,
and advertisements, all accurately and clearly stated each
and every obligation which a subscriber or new subscriber
incurs by becoming a member of the Book - o f -1 he -Month Club.
It also stated accurately and fully the privileges of such
members, provided that the member performs his contract
with the company by the purchase of four books within one
year to obtain the "free*' books.22
The fact that the careful observer would not be
misled is not, of course, material, for the statute
is intended to protect the unthinking and credulous
members of the public as well as the more sophisti
cated and intelligent.23
But the Commission held that once the impression is
made in the mind of the purchaser that such goods are free,
repeated contradictions thereafter will not completely
eliminate that impression.24
It is the FIRST IMPRESSION that is of vital con
cern to the advertiser. The word ’ ’free” in adver
tisements attracts the eye and the mind and causes
22Ibid.. p. 1319.
23Ibid., p. 1297.
24 Ib id . t p. 1313.
54
the reader to read advertisements which otherwise he
would not. And although the true facts are also dis
closed in the advertisement, the seller has achieved
the opportunity to sell by the use of a false and
misleading representation. Such advertisements will
induce the purchase of goods that otherwise would not
be purchased. We are of the opinion that such false
advertising is unfair to seller's competitors, and
under the statute may constitute an unfair method of
competition as well as unfair and deceptive acts and
practice in commerce.25
On September 11, 1953, the FTC changed its policy
and ruled that goods given without cost on purchase of
other goods may be advertised "free" provided that the con
ditions be disclosed.
When all the conditions, obligations, or other
prerequisites to the receipt and retention of the
"free" article of merchandise or service offered are
clearly and conspicuously set forth so as to leave
no reasonable probability that the terms of offer
will be misunderstood.26
However, a disclosure in the form of a footnote,
to which reference is made by use of an asterisk or
other symbol placed next to the word "free” will
not be regarded as c o m p l i a n c e .27
25Ibid., pp. 1313-1314.
Federal Trade Commission Decisions, Volume 50,
p. 781. In the matter of Walter J. Black, Inc., Dkt. 5571,
September 11, 1953, the Commission's position on the use
of the word "free" in advertising changed.
27
Excerpt from Federal Trade Commission Standard
Trade Practice Conference Rule, December 3, 1953.
(Mimeographed.)
The Commission further ruled that if a purchase of
an item is required, its ordinary and usual price should
not be increased in order to obtain the "free" article or
service.2® "Free1 ' was held to be deceptive when the pur
chase of another article was required to obtain the "free"
OQ
one and the price of the purchased article was increased. 7
It is regarded unfair and in violation of the Federal Trade
Commission Act if the quality, quantity, or size is changed
or reduced in order to compensate the seller for the value
of the article offered as "free.”8* *
"Free Trial" and "Free Examination"
The Federal Trade Commission's rules in regard to
"free trial" and "free examination” advertisements have
made it clear that all conditions restricting free trial or
free examination should be disclosed. If customers return
ing the product are required to pay any charge, this fact
should be disclosed. Promised terms should be fulfilled.
28Ibid.
29
^Miscellaneous merchandise "free" prohibited when
price of the article was increased. Stipulation 9238.
30
^ F ed eral Trade Commission Standard Trade P ra c tic e
Conference R u le , lo c . c i t .
56
"Examination at home without cost" advertised goods should
o - |
be supplied for examination at home upon request.
The Commission was not justified in filing a com
plaint against the Book-of-the Month Club. The ads in this
respect were quite clear. Even the credulous public could
not haye been deceived or misled by these ads. The ads
accurately stated each and every obligation which a sub
scriber incurs by becoming a member of the Book-of-the-
Month Club.
IV. CHAPTER SUMMARY
A few of the most typical and outstanding cases of
false and misleading advertising against which the Federal
Trade Commission has taken action have been presented in
Chapter III. In deception with respect to the price of the
product, a false impression is created that the prospective
buyer is getting an unusually good bargain. These may take
the form of fictitious pre-ticketing, bait advertising,
offer of "free goods or services," unmentioned charges,
discount savings, exaggeration being usual, forced or
31
Trade R e g u la tio n R e p o rte r, op. c i t . , Volume 2,
p. 12 ,4 9 6 .
57
sacrifice sales, list of catalog as regular selling price,
retail as wholesale, sales below cost, savings, usually
being reduced or special, special sale, financial terms,
etc. Atlantic Sewing Stores and the Book-of-the-Month Club
are interesting cases of bait and ’ ’free” goods advertising
respectively.
CHAPTER IV
DECEPTION WITH RESPECT TO THE CHARACTER
OF THE PRODUCT
Deception with respect to the character of the prod-
i
|net ranges from downright falsehood to "puffing” or excess
praise of goods offered foi* sale. These range from mis
representing the quality, condition, effects to the origin
of products.
The Federal Trade Commission has proceeded vigor
ously against these types of practices. Numerous indus
tries have been subjected to the Commission*s regulation,
and have been enjoined from misrepresenting the character
of their products.* If a product can perform an effect
The FTC has released a number of trade practice
rules for industries, in order to acquaint these industries
with certain practices which the FTC regards deceptive.
These are Tire Advertising Guides. May 20, 1958; Guides
Against Deceptive Pricing, October 2, 1958; Guides Against
Bait Advertising, November 24, 1959; Trade Practice Rules
for the Woodworking Machinery Industry, June 24, 1960;
Guides Against Deceptive Advertising of Guarantees,
April 26, 1960; Guides for Advertising Fallout Shelters.
December 5, 1961; Guides for Advertising Shell Homes,
April 25, 1962.
...............5 8 ________________________ _
59
to a certain extent, or under certain circumstances, the
claims should be limited or the limitation should be dis-
closed, to avoid deception. It is unfair to claim or
imply that products have characteristics which they do not
3
possess.
I. MISREPRESENTING THE QUALITY AND
EFFECTIVENESS OF PRODUCTS
The Commission has taken action against the practice
of falsely describing the composition, quality, and effec
tiveness of goods offered for sale. Recently the Commis
sion has started regulations against demonstrations and
tests oyer television. The FTC has ruled that television
camera trickery must not be used in demonstrating the
qualities of a product offered for sale.^ The following
are some interesting cases against which the FTC has taken
action.
2
Trade Regulation Reporter (New York: Commerce
Clearing House, Inc.), Volume 2, p. 12,201.
“'Martin L. Lindahl and William A. Carter, Corporate
Concentration and Public Policy (Englewood Cliffs, New
Jersey: Prentice-Hall, Inc., 1959), p. 620.
^FTC’s Advertising Alert (Washington, D.C.: U.S. ^
Government Printing Office, January 12, 1962), p. 1.
60
Colgate-Palmolive Company and Ted Bates and Co.,
Incorporation
The Commission has given an order to Colgate-
Palmolive Company, and its advertising agency, Ted Bates
and Company, prohibiting them from falsely advertising
shaving cream, and from using television camera trickery,
and mock-ups and demonstrations for any product. Also to
stop misrepresenting the beard moistening capability of
"Palmolive Rapid Shave" shaving cream by television com
mercials, showing the cream applied to "sandpaper” so that
e
the sand could be shaved off it quickly and easily.
Colgate-Palmolive Company makes and sells a shaving
cream called "Rapid Shave." Ted Bates and Company, Inc.,
is an advertising agency which prepared and placed for
publication three sixty-second television commercials
advertising "Rapid Shave." These commercials were pre
sented on programs sponsored by Colgate-Palmolive that were
broadcast on a national network toward the end of 1959.
The first commercial opens by showing a football
being place-kicked, with the ball zooming toward the viewer.
^Colgate-Palmolive Co., 300 Park Avenue, New York
City. Ted Bates and Co., Inc., 666 Fifth Avenue, New York
City. FTC Docket No. 7736.
61
The picture then shows a football player whose face is
hidden behind a mask that appears to be made of coarse,
gritty sandpaper. The voice of an unseen announcer asks:
"Who is the man behind the sandpaper mask?” The football
player strips off the sandpaper mask, revealing a heavy
growth of whiskers. As the player rubs his cheek mourn
fully, the announcer says:
It’s triple-threat man, Frank Gifford . . . back-
field sensation of the New York Giants .. . a man
with a problem just like yours . . . a beard as tough
as sandpaper ... a beard that needs ... PALMOLIVE
RAPID SHAVE . . . Super-moisturized for the fastest,
smoothest shaves possible.
As the announcer says ”a beard as tough as sand
paper, ” the picture shifts to a sandpaper mask, and a hand
brings a can of ”Rapid Shave” into view in front of the
sandpaper, with the words "Super-moisturized” and ’ ’ Fastest
Smoothest Shaves" appearing on the film tinder the shaving
cream. The announcer's voice continues, "To prove Rapid
Shave's super-moisturizing power, we put it right from the
can. ..." As this is being said, we see one hand press
ing the top of the "Rapid Shave” can so as to dispense a
small amount of lather into the other hand. The lather is
then spread in one continuous motion upon the surface of
the sandpaper. Then the first hand reappears with a razor
62
and shaves a clean path through the lather and the gritty
surface of the sandpaper. While this is taking place, the
voice of the announcer continues, "... onto this tough,
dry sandpaper. Apply . . . soak . . . and off in a
stroke." There was, however, no fade, dissolve, or pic
torial indication of any lapse of time between "apply,"
"soak," and "off in a stroke."
The picture then shifts to Frank Gifford lathering
his face as the announcer continues: ' - ’ And super-moisturized
PALMOLIVE RAPID SHAVE can do the same for you." At this
point the "split screen" technique is introduced. On one
side of the screen a hand is seen applying "Rapid Shave" to
sandpaper in an action that parallels Gifford's on the
other side of the television screen. As Gifford makes a
razor stroke down his cheek, the hand makes a similar
stroke down the lathered strip of sandpaper. While this
is being seen, the announcer says: "In this sandpaper test
. . . or on your sandpaper beard, you just apply RAPID
SHAVE . . . then . . . take your razor . . . and shave
clean with fast, smooth stroke."
Gifford is then shown on the screen, stroking his
clean-shaven face with a look of satisfied approval. The
picture at this point shifts to can of "Rapid Shave"
surrounded by the words "Super-Moisturized" and "Fastest,
Smoothest Shaves." In a concluding jingle, an unseen per
son sings, "Rapid Shave outshaves them all, use RAPID SHAVE
in the morning."
The entire sounds and sights described proceed in
a rapid sequence. The whole commercial lasts sixty
seconds. The second commercial is exactly the same except
that the football player with the sandpaper beard is Kyle
Rote, who is also of the New York Giants. The third com
mercial differs from the other two in the sense that it
does not show a celebrity. After a brief recitation of the
shaving comfort to be derived from using "Rapid Shave" with
appropriate pictorial accompaniment, the same "sandpaper
test” described in the other commercials is repeated.
The Commission ordered that television trickery must
not be used in demonstrating the qualities of a product
offered for sale. In this test case of Colgate-Palmolive
Company and Ted Bates Agency, it was judged that they had
been guilty of misrepresenting the beard-moistening capa
bility of "Palmolive Rapid Shave" cream. Misleading tele
vision commercials, showing the cream applied to "sand
paper" so that the sand could be shaved off quickly and
64
easily were forbidden. The FTC found that the supposed
sandpaper was really a sheet of plexiglass to which sand
had been applied. Therefore, the demonstration that sand
paper could be shaved after applying the cream was false
and deceptive, because actually no sandpaper had ever been
shaved genuinely clean, as the mock-up was indicated. The
allowance of up to an hour for soaking was coupled with
the employing of a number of strokes under heavy pressure.
One reason why real sandpaper was.not used was that
it required too long a soaking period before effective
shaving was possible. Actually the sandpaper could not be
shaved in the manner and length of time depicted; there
fore, representations and demonstrations to that effect
were false, misleading, and deceptive, according to the
FTC. This commercial leads the purchasers to believe that
they have seen a valid test and demonstration.^ This is
a factual presentation to the viewer. He sees each of
these symptoms relieved. The viewer believes in terms of
what he sees before his very eyes. These are the dramatic
Daniel J. Murphy, "Advertising Responsibilities of
the FTC and Business” (Washington, D.C.: Federal Trade
Commission, May 17, 1961), p. 6. (Mimeographed.)
65
results the purchasers expect.^ It is this very quality
which contributes so materially to the powerful sales punch
O
delivered by television advertising.
Colgate-Palmolive Company and Ted Bates have asked
the FTC to dismiss the case against them on the ground
that it was not possible for them to use sandpaper due to
the length of the commercial, and other technical diffi
culties particular to television. But the Commission
argued that ‘ ’ any technical limitations of the medium do not
constitute lawful justification for the resort to false-
Q
hood and deception of the public.”7 If the public is to be
induced to purchase a shaving cream by representation as
to its effect on sandpaper, these representations must be
valid.
Both Colgate-Palmolive and Ted Bates have announced
that they will appeal to the courts for relief from the
cease-and-desist order of the FTC. Whateyer the outcome
of that legal battle, the consuming public stands a chance
^Charles A. Sweeney, “The FTC and the Broadcaster”
(Washington, D.C.: Federal Trade Commission, April 2,
1962), p. 3. (Mimeographed.)
O
°Ibid., p; 5.
o
Trade R e g u la tio n R e p o rte r, op. c i t . , p. 2 0 ,4 7 5 .
66
to benefit from this FTC order.^
* ’ The Federal Trade Commission has faced the tele
vision industry with a shattering challenge: show the truth
i 11
or stop advertising.” The FTC believes that the televi
sion viewer is entitled to a truthful demonstration of what
he may reasonably expect from the product. Camera trickery
must not be used in demonstrating the qualities of a
product offered for sale over television. "Applied as a
general rule and policy, this would mean that a product
which you are seeing or seem to be seeing doing something
in a commercial, must actually be doing it.”3- 2
10**Truth and Television," Consumer Reports, March
1962, p. 146.
11Ibid.
12
Ibid. For example: "Fills must dissolve in the
time and under the circumstances they are shown dissolving.
Stains on sinks must be the kind of stains the
announcer says they are and must disappear through the use
of nothing other than the cleanser at hand.
Coffee must be coffee and not steaming wine if the
deep, rich color of the brew is a part of the sales spiel.
Icing on a bake-it-yourself cake must be icing and
not shaving cream.
The dirty jacket put into the washing machine and
the spanking clean one pulled out must be the very same
jacket and not a pair of duplicates, one clean and one
dirty.
That miserable fellow with his nostrils over the
nasograph must be truly miserable and stuffed up before he
is dosed for free breathing.
The whiter wash must be white and not blue, which
shows whiter before a camera."
-----------------------------------------------------------------------67
II. TESTIMONIALS
The use of celebrities who speak as though they were
experts in behalf of a sponsor’s product is a favorite
advertising technique. . . . The public is led to
believe that Brand X cigarettes have unusual merit
because they are the favorite brand of home-run
hitters, golf champions, and movie stars. The recom
mendation of such alleged experts is presumed to be
reason enough for inviting the listeners to join the
bandwagon and smoke Brand X. Apparently few of the
listeners realize that the fame of these celebrities
lies entirely outside the field of judging ciga
rettes .
In misrepresenting the character, quality, and
effectiveness of products, the device of falsely claiming
that a product is endorsed or used by some governmental
agency, or by some association, is often used. The purpose
is to convey the impression that such endorsement signifies
a product of superior quality. Like most instances of
false advertising, misrepresentations relating to testi
monials, endorsements, awards, and prizes are actionable
by the Federal Trade Commission.
’ ’ There is a general agreement in advertising, on the
effectiveness of testimonials. A testimonial is thought of
13
E. Bryant Phillips, Consumer Economic Problems
(New York: Henry Holt and Company, 1957), pp. 130-131.
68
as an endorsement, and it makes an effective promotional
1 §
material.” As such, advertisers make use of the testi
monials of persons acknowledged as leaders and authorities,
whom the prospective purchasers would wish to emulate or
to use as their guides in consumption. People like to copy
those whom they regard superior in taste or knowledge or
experience. "This spirit of emulation gives the adver-
tising testimonial its strength.This enables the pur
chasers of these products to become movie queens, prin
cesses, sweethearts, or brides by using the cold cream or
the toilet soap recommended by their superior.^
Names of baseball and football players, movie stars,
doctors, lawyers, and other important personalities are
attached to a testimonial for a given product. "Such
testimonials lend believability and authenticity to a
claim. They demonstrate an actual product in actual use,
^Edward H. Schaar, "The Case for . . . and Against
. . . Advertising Case Histories," Industrial Marketing.
August 1960, p. 40.
1 C
C. H. Sandage and Vernon Fryburger, Advertising
Theory and Practice (Homewood, Illinois: Richard D. Irwin,
Inc., 1958), p. 60.
16Ib id
69
17
and show the results gained from a specific type of job.”
There are times, however, when some advertisers use
unethical methods in obtaining the testimonials. Payment
of large sums of money for the testimonials of particular
persons has been quite common. Baseball and football
players, movie stars, dentists, physicians, lawyers, and
others with a large popular following are highly paid for
allowing their names to be attached to testimonials for
1 O
given products. Quite often, the testimonials have not
been written by the person whose signature is attached.
And often the signatory is not a user of the product that
he or she praised.^
FTC Action Against Micky Charles Mantle
A typical example against which the FTC has taken
action will be the case of endorsements by Micky Charles
Mantle. Mantle, besides carrying the biggest stick in
baseball, speaks with a soft-selling voice in the world
17
'Schaar, op. cit.. p. 60.
18
Sandage and Fryburger, op. cit., p. 60.
19
Testimonials should not be represented as coming
from users of a product, if this is not so. Trade Regula
tion Reporter, op. cit., Volume 2, p. 12,412.
70
of advertising. A switch-hitter, Mantle has personally
!endorsed a clutch of products ranging from Camel cigarettesi
to an anti-smoking pill called Bentron. The FTC has ad
vised the Yankee slugger to stop endorsing the milk mar
keted by Mid-West Creamery Co., Inc., of Ponca City,
Oklahoma, which it was proved he did not drink. Mantle
agreed.2®
Testimonial Procurement Methods
Testimonial procurement is today a highly organized
technique. Bureaus and organizations of various kinds,
personal agents, and the theatrical and motion picture
promotion publicity departments arrange testimonials. The
great percentage of testimonials are bought and paid for.2^
At one time the FTC ruled that the failure to disclose this
fact in the advertisement had the power to deceive, as
®By snatching away Mantle's milk money, the FTC
took a line that could put a painful crimp in the $500
million a year business of testimonials advertising. Does
Arthur Godfrey really use Sucaryl? Does Comedian Tom
Poston actually sip Heublein martinis? Is it a fact that
the New York Giants Quarterback Charley Conerly deodorizes
himself with Trig? If the FTC enforces its policy, an
eager world may yet learn the answers to all these ques
tions and more. “Advertising," Time, August 18,, 1961,
p. 68.
21
Morton J. Simon, The Law for Advertising and
Marketing (New York: W. W. Norton and Company, Inc., 1956),
p. 279.
71
a result of which such paid testimonials without a dis
closure of that fact were prohibited by the commission.
But in 1932 it reversed its order and it held that there
need not be such a disclosure.
Fictitious Testimonials
Fictitious testimonials are those which have not
been given or authorized by the person or organization
whose endorsement is claimed. Many fictitious endorsements
have claimed the approval of colleges and universities,
medical associations and organizations, insurance com
panies, laboratories, national magazines, and other similar
organizations and societies.
The FTC has taken action against a number of such
fictitious testimonials making indefinite and elusive
claims. Some of the advertisements in question have stated
endorsements by the "druggist of America" (Aspirin), "lead
ing physicians," and "Hollywood stars" (cosmetics), "French
and Swiss chefs" (cooking utensils), "Chambers of Commerce
and legislative bodies” (business plans).
Statements in testimonials are subjected to the
same general test as to their veracity and whether they
72
"have the capacity to deceive."22 It is tmfair to state or
to imply that a product is endorsed or approved by anyone,
when it has not been so endorsed or approved. Phrases such
as "recommended by many doctors," and illicit claims of
endorsement from specific organizations such as the Ameri
can Medical Association, have been prohibited.^3
The American Tobacco Company
»
The American Tobacco Company represents an inter
esting case. The advertising agency representing the
American Tobacco Company obtained by indirect and shady
methods the endorsement of some 20,679 physicians for its
Lucky Strike cigarettes.^4
The FTC investigated and found that the agency
circularized a large number of Lucky Strike cigarettes in
interstate commerce. It sent to each physician a carton of
a hundred cigarettes and a card carrying this question:
"In your judgment is the heat treatment, or toasting pro
cess, applied to tobacco previously aged and cured likely
22
^Under Section 5 of the Federal Trade Commission
Act.
O'i
~ *Trade R e g u la tio n R e p o rte r, op. c i t . . Volume 2,
p. 1 2 ,4 0 1 .
24FTC Docket 4827 (1952).
73
to free the cigarette from irritation to the throat?”
The American Tobacco Company followed this canvass
of physicians with an advertisement stating that ”20,679
physicians say 'Luckies are less irritating.'*” To empha
size to the readers the accuracy of the statement, a little
note, "the figures quoted have been checked and certified
to by Lybrand, Ross Bros., and Montgomery, Accountants and
Auditors,” was placed in the advertisement.
From the Commission's point of view and jurisdic
tion, the important matter is not so much the rights of the
person or organization whose unauthorized endorsement is
used, as it is the results of the deception of the tendency
to deceive practiced by such testimonials upon the inter
ests of the public.^
Almost any endorser is competent to express an
opinion as to matters of personal taste or liking. But an
endorser should not make statements about a product if
special training or experience are required in order to
make an intelligent appraisal of the product and its
effects.
25
Simon, op. c i t . . p . 275.
26Ib id . . p. 276.
III. GUARANTEES
74
Guarantee as Is used in business, is usually a
promise that an item of equipment, machinery or goods
will perform as claimed, contains the stated ingredi
ents, or will last a stated period of time.
One of the most common and extensively used false
and misleading advertisements is in connection with guaran
tees. We often come across products for sale as guaranteed.
Perhaps many of us have been victims to such ads as "ten
years guarantee," "guaranteed to last through the ages,"
"guaranteed," "guaranteed forever," "twenty-five years
money-back guarantee,” "refund of purchase price," "re
placement or refund," "satisfaction or your money back,"
"ten-day free trial," "lifetime guarantee," "guaranteed to
save you 25 per cent," "guaranteed lowest price in town,"
"guaranteed to grow hair or your money back," "we guarantee
you will earn $500 a month.
None of these ads reveal the nature and the extent
27
Donald T. Clark and Bert A. Gottfried, Dictionary
of Business and Finance (New York: Thomas Y. Crowell Com
pany, 1957), p. 170.
28
These phrases on "guarantee" are taken from the
innumerable actions which the FTC has taken action against,
as reported in the News Release of the FTC.
75,
i i
of the guarantee, and how it will be enforced. The ordi
nary, average consumer is very easily misled by such ads in
believing that such guarantees are genuine, when in fact
it is not so. A major defect with this type of advertising
has been the failure to state adequately and clearly what
the guarantee is. An advertisement is to be tested not
only on the basis of representations positively suggested,
but also "on the basis of material facts which it fails
to reveal as well.**^ a false, deceptive, or misleading
guarantee is as much a material misrepresentation as any
other element of misrepresentation.-^
The FTC has been active in its campaign against
product guarantees. ’ ’ Tell the truth, the whole truth and
nothing but the truth,” seems to be the message. ’ ’ Too
little time or too little space” is no excuse for falsely
advertising a guarantee in print or on radio or televi
sion. 31
Hundreds of cases which FTC has taken action against
20
Lindahl and Carter, op. cit.. p. 623.
•an
Simon, op. cit.. p. 460.
31Paul A. King, ’ ’ Living with the Law,” Dunn’s
Review and Modem Industry. November 1960, p. 135.
76
could be cited here. But most of the guarantee claims by
the different sellers are quite similar in nature and
character. The following two are typical of such guaran
tee advertising.*^
Infraglass Heater Co.. Incorporation
Infraglass Heater Company is a distributor of elec
tric heaters in Pontiac, Michigan. The Federal Trade Com
mission has ordered this company to cease and desist from
representing falsely in written guarantees inserted in
their products and in newspapers and magazines that they
guaranteed their products for normal usage for five years
when, in a great number of instances, they refused to re
place, repair, or make adjustments for breakage or defects
growing out of normal use of the heaters.^
32
For other guarantee claims against which the FTC
has taken action, refer to the News Release of the FTC,
Docket Numbers 124, 142, 172, 178, 313, 394, 493, 538,
1038, 1072, 1406, 1611, 1677, 1684, 1886, 1981. The same
cases may be referred to by the same docket numbers, in
Commerce Clearing House, Trade Regulation Reporter.
Volume 2, loc. cit.
33
Docket No. 7080, March 4, 1958. Decision July 15,
1958.
I 77
I
I
Lister C. Carr and Company
| Lister C. Carr, of Washington, D.C., is a dealer in
iused automobiles.3^ The FTC has ordered this dealer to
cease representing falsely in newspaper advertising that |
the used automobiles he sold were unconditionally guaran
teed. The advertisement stated: ’ ’ All Cars Guaranteed,”
when in fact the FTC found that in most instances used cars
were sold "as is” or the guarantee had limitations which
were not fully disclosed.33
What is the Guarantee?
Ordinarily the word, guarantee, or warrantee, is
incomplete unless it is used in connection with other
explanatory words. To say . . . [product] or other
subject is guaranteed is meaningless. What is the
guarantee? The answer to this question gives meaning
to the word, "guaranteed."36
If a product is to be advertised as guaranteed, the
FTC requires the guarantor to make clear the identity of
"^Docket No. 7283, October 17, 1958. Decision
March 6, 1959.
35
What product or part of the product is guaranteed
should be disclosed, according to the FTC Guides Against
Deceptive Advertising of Guarantees. April 26, 1960, p. 1.
For latest actions of the FTC see FTC News Release.
Dockets 7909, 7911, 7913.
36Ib id
78
the guarantor, the nature and extent of the guarantee, and
exactly what the guarantor will do if the product does not
work out as claimed. What product or part of a product is
being guaranteed? For how long a time? Will the guarantor
repair the part, replace it, and charge the owner for
labor? Will he give him a new product? Who is guarantee
ing the product, the manufacturer or the dealer? Questions
such as these must be answered in a guarantee.
FTC Guides Against Deceptive Advertising
of Guarantees
The Federal Trade Commission has released a seven-
point "guide" designed to eliminate confusing and mislead
ing "guarantee" claims. The "Guides" summarize in non
technical language the Commission's views on what it
believes it can require from advertisers.-^
They reflect court and conmission decisions in
earlier cases, and are issued on the assumption that
many businessmen may not be aware of their responsi-
bilities.39
^King, loc. cit.
38
Mr. Daniel Zrauda, Attorney-Examiner of the Federal
Trade Commission in Los Angeles, mentioned this during'a
personal interview with him.
39"Guarantees in Ads Scrutinized by the FTC," Adver
tising Age, May 2, I960, p. 1.
79
The following is a summary of the seven points:
I 1. Advertising guarantees should clearly disclose
i
the nature and extent of the guarantee, including what
product or part of the product is guaranteed. All charac
teristics or properties covered by or excluded from the
guarantee, its duration, and what must be done by a
claimant before the guarantor will fulfill his obligation,
such as returning the product and paying service or labor
charges. The ads must exactly state what the guarantor
will do under the guarantee, such as repair, replacement,
refund. The identity of the guarantor should be clearly
revealed in all advertising. Often it is not clear,
whether the manufacturer or the retailer is the guarantor.
2. When guarantees are adjusted on pro rata basis,
the advertising should disclose this fact, and the basis
on which they will be prorated, for example, the time for
which the guaranteed product has been used, and the manner
in which the guarantor will perform.
3. Claims such as "Satisfaction or Your Money
Back,” and "Ten-Day Free Trial, ” will be construed as a
guarantee that refund will be made at the purchaser's
option.
80
4. If "Life," or "Lifetime," or similar guarantees
relate to any life other than that of the purchaser or
original user, the life referred to should be clearly dis
closed.
5. Advertising containing savings guarantees like
"Guaranteed to save you 50 per cent," "Guaranteed never to
be undersold," "Guaranteed lowest price in town," must
clearly state what the guarantor will do if the savings are
not realized.
6. A seller or manufacturer must not advertise that
a product is guaranteed when he cannot or does not promptly
fulfill his obligations under the guarantee.
7. The manner in which a guarantee is used consti
tutes representations of material facts. The guarantor
assumes responsibility under the law for the truth of the
representation.
Since the issuance of its guarantee guides in April
1960, the Commission has been watching for advertisements
which fail to include all the conditions and qualifications
of the guarantee in the ads.
The FTC’s current analysis of guarantee advertising
is fast snowballing into one of its most ambitious
81
advertising clean-ups, enveloping large segments of
the durable goods field.^
IV. ORIGIN OF PRODUCTS
Deception with Respect to the Origin of Products
This is a form of misrepresentation which falsifies
the origin of commodities. The object is usually the same
in all cases. It is to take advantage of certain public
preferences or to avoid the disadvantages of prejudice held
by the public.
Preferences have usually been built up on the basis
of quality or price considerations, or may apply to single
firms or to the output of a whole region. Popular preju
dices may be due to poor quality of product in some areas,
dislike of certain firms because of their monopolistic
position or anti-social business policies.42
Only merchandise that is manufactured abroad and
imported into the United States can be advertised as
40
"FTC Drive Against Auto Guarantees," Advertising
Age. October 17, 1960, p. 12.
/ 1
L in d a h l and C a rte r, op. c i t . . p. 625.
4 2 Ib id . . p. 626.
foreign-made. With certain products there is a definite
preference for the imported over the domestic. Conse
quently, there is "an undeniably strong temptation to give
these items a foreign flavor."^
In certain cases, however, a local dealer may find
it profitable and expedient to conceal the foreign origin
of his products. The public reasonably assumes that goods
not otherwise identified are of domestic manufacture, and
with many items, the American buyer would prefer an Ameri
can made item, due to the superior quality of that product.
It is, therefore, false and misleading to misrepresent the
origin of products for sale.^
If an imported part is incorporated into an article
manufactured here, one may not convey the impression that
the article is wholly domestic or wholly foreign. In
many cases a false foreign origin can be suggested subtly,
/
Richard Callman, Advertising (Homewood, Illinois:
Richard D. Irwin, Inc., 1957), p. 416.
^An article may be preferably labelled "imported”
and yet be misleading with respect to the country of
origin. Thus the advertising of porcelain made in Japan,
patterned upon French and English "old pieces” as "Imported
Du Barry Porcelain,” and creating the impression the porce
lain came from France, was considered false and misleading
by the FTC, in the case involving Edward P. Paul and Co.,
Inc., v. FTC, 1948.
83
[
as, for example, through the use of slogans, symbols, or
pictures without making it clear that the product is partly
domestic; through a misleading name for the firm or the
product; a fictitious foreign address; trade marks derived
from a geographical term, and the like.^-*
Geographical Origin
Geographical origin of some products is of great
importance to the purchasing public, and has great sales
appeal. Apart from the prestige value attached to certain
products of certain foreign origin, there are in many cases
real qualitative differences flowing from the natural re
sources and workmanship of foreign countries, for example,
English woolens, French perfumes and cosmetics, Havana
cigars, Panama hats, etc.
These perfumes are not made in Paris, nor the cigars
in Havana, nor the hats woven in Panama. The Federal Trade
Commission has issued cease-and-desist orders against the
false and misleading misrepresentations of geographical
origin on the grounds the consumers and honest competitors
^Caliman, op. cit.. pp. 419-420.
Lindahl and Carter, op. cit., p. 628.
84
are hurt by this practice. Trades in which this practice
I
|seems to have been most prevalent are clothing, jewelry,
watches, cameras, tobacco, food, cheese, and toilet
articles.
Perfumes
Master Merchandising Corporation and Coswell, Inc.,
of New York City, have been ordered by the FTC to stop
misrepresenting the origin of their perfumes and related
products. The FTC found that these concerns misrepresented
certain perfumes as French imports by: (1) printing on car
ton the word "Paris” and the brand names "Rue de L* Amour"
and "Cafe Rouge," and (2) attaching to the cartons stickers
bearing the phrase "Concentre fabrique avec essence de
France" in connection with the French tricolor.
The FTC found the perfumes were actually compounded
in the United States. Although small amounts of essences
imported from France may have been used in the compounding,
the major portion of the ingredients was of domestic
origin.^
^Master Merchandising Corp., and Coswell, Inc., of
New York City, FTC Dkts. 8152 and 8153. FTC News Release.
January 12, 1962.
V. CHAPTER SUMMARY
Deception in respect to the character of the product
ranges from downright falsehoods to "puffing" or excess
praise of goods offered for sale. Quality, condition,
effects, guarantee, origin of goods are misrepresented.
The action of the Federal Trade Commission against Colgate-
Palmolive Company and Ted Bates and Company prohibiting
them from falsely advertising shaving cream and from using
television camera trickery and mock-up for demonstrating
the beard moistening capability of "Palmolive Rapid Shave,"
shaving cream by television commercials, is a character
istic case.
CHAPTER V
DECEPTION WITH RESPECT TO FOOD, DRUGS,
COSMETICS, AND DEVICES
False and misleading description of food, drugs, and
cosmetics has plagued mankind since the days of the first
witch doctor. Health huckstering has become a billion-
dollar industry in America today. It is carried out, with
the assistance of advertising agencies, by certain manu-
O
facturers and distributors of food, drugs, and cosmetics.
This has created a serious problem and led to government
regulations in advertising of these products.
Definition of "False Advertising"
The other provisions of the Federal Trade Commission
Act do not contain any definition of "false advertising,"
Earl W. Kintner, "FTC Regulation of Food, Drug and
Cosmetic Advertising," The Business Lawyer, November 1960,
p. 81.
2
Ralph Lee Smith, The Health Hucksters (New York:
Thomas Y. Crowell Co., 1960), pp. 1-2.
86
87
and the concept has had to be developed by the Commission
3
orders and Court decisions. However, as to food, drugs,
cosmetics, and devices, Section 12 of the Act makes it
illegal to disseminate any false advertisement in inter
state commerce for the purpose of inducing the purchase of
food, drugs, cosmetics, and devices; such dissemination of
a false advertisement is considered an unfair or deceptive
act or practice within the meaning of Section 5 of the
FTC Act.4
3
Interview with Mr. Daniel Zmuda, Attomey-Examiner
of the FTC in Los Angeles.
4The same advertisement of food, drugs, cosmetics,
and devices may constitute both an ’ 'unfair or deceptive act
or practice,” Under Section 5 of the FTC Act, and also a
"false advertisement," as defined in Section 15. The FTC
is authorized to proceed against such advertisement, under
both sections, and frequently has charged violation of both
sections in a single complaint. Labeling, although ex
pressly excepted from the statutory definition of false
advertising in Section 15, is nevertheless subject to
Section 5 of the FTC Act as an "unfair method of competi
tion." The FTC and the Food and Drug Administration of the
Department of Health, Education, and Welfare share a common
objective of preventing deception of the public through the
misrepresentation of food, drugs, cosmetics, and devices.
In order to avoid duplication of efforts, these two federal
agencies on June 9, 1954, entered into a liaison agreement.
The FDA, which has primary jurisdiction over labeling of
these four classes of products, attempts to prevent and
regulate such misrepresentations by means of false or mis
leading statements made in labeling or the omission of re
quired information from the label. The FTC strives to
prevent such misrepresentations or misleading statements or
omission of necessary statements in advertising.
i
88
The term ”false advertisement” is defined in Sec-
!
I
|tion 15 as:
The term ffalse advertisement1 means an advertise
ment other than labeling, which is misleading in a
material respect; and in determining whether any
advertisement is misleading, there shall be taken into
account (among other things) not only representations
made or suggested by statement, word, design, device,
sound, or any combination, thereof, but also the ex
tent to which the advertisement fails to reveal facts
material in the light of such representations or
material with respect to consequences which may result
from the use of the commodity to which the advertise
ment relates tinder the condition prescribed in said
advertisement, or under such conditions as are cus
tomary or usual.
The definition is broad enough to cover every form
of advertising deception over which it would be humanly
practicable to exercise governmental control. It covers
every case of imposition on a purchaser for which there
could be a practical remedy. It reaches every case from
that of uninformative advertising to that of the most
subtle as well as the most vicious types of advertising.®
I. WEIGHT”CONTROL AIDS
A large group of people are very weight conscious,
either due to health or style, or both. Wide publicity
Section 15(a) (1), of the FTC Act.
f t
Trade Regulation Reporter (New York: Commerce
Clearing House, Inc.), Volume 2, p. 12,805.__________
ihas been given to the higher incidence of heart trouble, 1
high blood pressure, diabetes, and higher mortality rates |
]
among the overweight, and has caused tremendous public
interest in weight-reducing preparations. Secondly, since
fashion demands a slim figure, many people, particularly
women, pay as much attention to keeping their weight down
as to the selection of the right shade of lipstick or face
powder. Because of this widespread interest, weight-
reducing remedies have provided a lucrative area of oper
ation for unscrupulous advertisers. ”0n this futile hope
the promoters of commercial weight-reducing aids have built
7
their success.”
Among the products currently being offered to the
public as weight-reducing aids are drugs alleged to depress
the appetite; electric vibrating devices, including hand
units, pillows, chairs, tables, and mattresses; "spot"
reducing machines; bath salts and bath cabinets; reducing
salons; soaps; pastes and creams; purgatives and laxatives
to rush food through the system; bulk-producing agents to
fill up the stomach and cause loss of appetite; weight-
reducing cigarettes; drugs to stimulate metabolism;
^Sm ith, op. c i t . , pp. 4 9 -5 0 .
90
Q
vitamins; candy and so forth.
Since alleged diet-control preparations will not,
without limitation of food intake, remove excess poundage,
reducing claims for such products have been successfully
attacked for a failure to announce this requirement. ^
Bakers Franchise Corporation
Public interest in obesity also has led to the ad
vertising of some bread as being useful and effective in
weight reduction, being low in calories, and capable of
causing the consumer to lose weight or avoid gaining
weight.
One of the most interesting proceedings was that
taken against Bakers Franchise Corporation. The FTC
g
It Would take pages to list here all forms of
weight reducing and weight-control aids that are offered
for sale, and against which the FTC has taken action. The
above mentioned are only a few of the most typical cases
against which the FTC has taken action.
^Morton J. Simon, The Law for Advertising and
Marketing (New York: W. W. Norton and Company, Inc., 1956),
p. 531.
10
Bakers Franchise Corporation, 250 Park Avenue, New
York City, ordered by the FTC to discontinue the above
advertising practice on July 31, 1961. Order No. 7472.
News Release. July 31, 1961.
91
ordered this company to discontinue using in its adver-
l
'tising the words ' ’Lite Diet,” and statements as, "It could
help you control your weight," and "Who’d ever think such
delicious bread could help you keep slim."
Bakers Franchise Corporation is engaged in the
business of licensing bakers to produce and sell a bread
made from the respondents* secret recipe. They are
licensed to market the bread under respondents* trade mark,
"Lite Diet." In addition to this, the respondents supply
their licensees with advertising materials which the
licensees place in newspapers and broadcast over radio and
television facilities. Between October 31, 1955 and
April 1, 1959 this company spent $2,500,000 in advertising
"Lite Diet" bread. A typical ad is enclosed here for a
clearer understanding and presentation of this case.
Typical statements in their advertising were:
"Who*d believe it could help you control your
weight? So try it . . . Lite Diet . . . Lite
Diet. ..."
"Here*s a bread that tastes great yet helps you
control weight: It*s Lite Diet, Lite Diet, Lite
Diet."
"... will you listen to him? Says it helps you
keep slim. ... Do try it . . . Lite Diet . . .
Lite Diet."
92
“Who’d ever think such delicious bread could help
you keep slim?”
“Fortified with B vitamins and minerals.”
“No added sugar or shortening.”
“Approximately 45 calories per 17 gram slice.”
“Lite Diet
WITH SPECIAL FORMULA BREAD.”
The advertisements usually show an attractive,
slender young woman and a loaf of bread bearing the label
“Lite Diet." The Federal Trade Commission alleged that the
trade name "Lite Diet" is deceptive, since it implies that
this is a low-calorie bread. The point is whether or not
the respondents are selling a low calorie bread. In a loaf
to loaf comparison or on a weight basis respondents* bread
has just as many calories as “regular bread." In a slice
to slice comparison this bread has less calories than
ordinary bread.^ This is due to the thickness of the
slices. The loaves are more thinly sliced and as a result
of this each of these smaller slices has fewer calories
than the conventional larger slice of bread. A slice of
this bread weighs approximately 17 grams while a conven
tional slice of bread weighs 23 grams. Thus the lower
11
The respondent’s slice of bread contains 45
calories. Regular slice of bread contains 62 calories.____
93
1 calorie content is due to the slicing of the bread a little
!thinner than usual bread.
Of course, this is much the same as saying a
small pat of butter has less calories than a large
pat or that a thin slice of pie has less calories
than a thick one.^
The Federal Trade Commission in order to test
whether the words "Lite Diet" have the tendency to deceive
the credulous public or not, called consumer witnesses.
In the eyes of the average consumer who testified
in this proceeding, a slice of "lite Diet" bread
is a "low" calorie food as compared to a slice of
regular bread.^
Ten consumer witnesses testified in this case. Nine
of the witnesses were women and eight of the nine were
housewives. These witnesses were handed a copy of the
"Lite Diet" advertisement and asked what the words "Lite
Diet" as used there meant to them, and what the advertise
ment as a whole conveyed to them.
Most of the witnesses testified that the advertise
ment conveyed to them the belief that "Lite Diet" was a low
calorie food, in the sense that it was lower in calories
12
Commissioner Robert T. Secrest, Opinion of the
Commission, in the matter of Bakers Franchise Corporation,
News Release, FTC, Dkt. 7474, July 31, 1961, p. 3.
|than ordinary bread. This testimony of the consumer wit- !
|nesses indicates that they were all completely misled by
t
the ’ ’Lite Diet" advertisement and trade name.
Moreover, independent of the consumer testimony, the
FTC believes that "Lite Diet" advertisements are deceptive.
The use of such terms as "special formula," "no added sugar
or shortening," and "help you keep slim," creates the im-
■
pression that this bread is a low-calorie reducing food.
We are here concerned only with the calorie content of this
bread and the misleading representations made with respect
to this bread.
These ads in no place disclose that "Lite Diet" is
thinner sliced, although it mentions in fine print,
"approximately 45 calories per 17 gram slice." But the
Commission refuses to take this into consideration on the
ground:
We are aware that for the most part the advertise
ments create deception by implication and innuendo
rather than by overt falsehoods. But this is unimport
ant. The important consideration is that the adver
tisements, taken as a whole, undissected, and without
the use of extrinsic, interpretative aids, create a
false impression in the mind of the public.^
14 Ib id . . p. 5
95
The FTC argues that the average consumer does not
weigh bread to determine its calorie content. Secondly,
j
the consumer testimony indicates that they understood the
advertising to mean that this bread was a low calorie
food, without regard to particular quantities such as a
loaf or a slice.
There is, of course, no question that a person eat
ing a 17-gram slice of bread will receive less calories -
than one eating a 23-gram slice. There is, however, no
dispute with respect to weight loss resulting from lower
calorie intake produced by the smaller slice.
What we fail to see is the evidentiary effect of
these truths upon the deception created in the public
mind by the representation that 'Lite Diet,' a
'Special Formula' bread, will '. . . help you keep
slim.' In truth and in fact respondents' bread, like
any other bread, will help you keep slim only if you
eat less of it and it should be unnecessary to point
out that this can be said of any other food.^>
To become thin or stay thin, one must consume a true
light diet. This bread is neither more nor less suited
to be an ingredient of a light diet than any other equally
enriched bread and these representations, therefore,
constitute false and misleading advertising. Consumers
^ I b i d . , p. 8.“
purchase this bread under the impression that it contains
fewer calories, and are deceived at the same time, that
they gain a nutritional bonus.
The company’s argument that it should be permitted
to include clarifying statements in its advertising, rather
than being required to discontinue use of the trade name
’ ’ Lite Diet," described as a valuable asset in the promotion
of which substantial sums had been spent, was rejected on
the ground the words themselves created a false impression
which, if "contradicted" by qualifying words, "would be
productive of more rather than less confusion."^
IX. DENTIFRICES
The American Dental Association contends that much
of dentifrice advertising has discouraged proper dental
hygiene and that many of the advertising claims for denti
frices are misleading and may be detrimental to dental and
general health.^ Some advertising claims are:
16
Trade Regulation Reporter, op. cit., Volume 3,
p. 20,279.
17
John A. Blatnik, "Protecting Consumers from False
and Misleading Advertising" (Greeley, Colorado: Selected
Proceedings of Fifth Annual Conference, Council on Con
sumer Information, April 1959), p. 43. (Mimeographed.)
97
Colgate Dental Cream with Gardol. Only NEW COLGATE 1
DENTAL CREAM HAS THE CLINICAL PROOF that brings new
hope to millions for LIFETIME PROTECTION AGAINST tooth
decay all day . . . with just one brushing.*-®
STRIPE. A single brushing with Stripe will protect
you against the cause of decay and mouth odors hours
longer than any other toothpaste you can buy.*-^
GLEEM WITH GL-70. Start the day with Gleem because
Gleem is the toothpaste for people who can’t brush
after every meal . . . just one brushing destroys
decay and odor-causing bacteria.^0
These ads make, either by statement or implication,
therapeutic claims that are, at best, open to doubt and,
at worst, are not based on generally accepted clinical
proof.^
The truth is that dentifrices play a secondary role
in dental hygiene and by themselves cannot prevent
tooth decay. The toothbrush is the important thing,
and dentifrices merely play a helpful role in the
general function of scrubbing and cleansing. They
consist of some soap and cleansing agents, a little
scouring powder, flavoring to make the stuff palatable,
and various ’miracle' ingredients, only one of which
is known to perform any therapeutic function in dental
hygiene.^2
18
Colgate-Palmolive Company.
t q
3Lever Brothers.
^Proctor and Gamble.
^Smith, op. cit., pp. 33-34.
22
United States Congress, Committee on Government
Operations, False and Misleading Advertising. Hearings be
fore Subcommittee, 85th Congress, 2d Sess., Report No. 2553
(Washington: Government Printing Office, 1958), p. 15.
A person contributes to his or her mouth cleanliness
chiefly by the skillful and judicious use of a suitable
toothbrush, with or without a dentifrice.2^ Dentists re
commend at least rinsing the mouth, and preferably brush
ing, not just after every meal but after every time you
eat.2^ Therefore, these ad recommendations of a single
brushing with their dentifrice create a false sense of
security and are misleading. Brushing the teeth after each
meal is a prime requisite for good dental hygiene; such
advertising claims, therefore, can only lead to poor dental
health.2- *
Colgate-Palmolive Company
Colgate-Palmolive Company*s advertisement for its
Colgate Dental Cream with Gardol presents an interesting
case for citation here. Gardol is described as an ”in
visible shield,” against decay.
Colgate Dental Cream with Gardol. Only NEW COLGATE
DENTAL CREAM HAS THE CLINICAL PROOF that brings new
23
Dr. Harry Lyons, cited by Blatnik, loc. cit.
2^”Tooth Decay,” Consumer Reports, June 1962,
p. 300.
2^Blatnik, loc. cit.
99
hope to millions for LIFETIME PROTECTION AGAINST TOOTH
DECAY! ... (Gardol's invisible shield) fights tooth
decay all day . . . with just one brushing.^6
In addition to its above advertising in print, it
carried commercials on television. One television com
mercial, for example, showed a man standing near some palm
trees. In the distance some one throws coconuts at him.
But the man does not move. He stands in his place,
supremely confident, as the coconuts fly through the air
toward his head. But just as they are about to hit him,
they bounce off an "invisible shield" and fall harmlessly
to the ground.
The man is apparently protected by an impervious
indestructible barrier of unbreakable glass in this tele
vision demonstration. He grins at the television audience
and raps on the invisible barrier producing a solid sound.
"Just as this barrier protects me against the coconuts,"
the man says, "just so does Colgate's with Gardol protect
your teeth against the germs that cause decay."
The FTC charged that the television commercial
26
Colgate-Palmolive Company, 300 Park Avenue, New
York City.
100
describing the shield was deceptive. ^ The FTC complaint
alleged that medical science has no proof of the "invisible
shield" claim. This dentifrice does not protect the user's:
teeth against tooth decay or the development of cavities by
forming a protective shield or by any other means. In
common with other dentifrices, Colgate's is not known to
have special therapeutic value. "Such representations as
to the degree or extent of the protection afforded users of
28
respondent's dentifrice are deceptive." It is in the
general interest of society, of the consumers and the com
peting sellers, to stop such false representations.
III. HAIR GROWTH PREPARATIONS AND
BALDNESS PREVENTIVES
Another medical fraud with which the Federal Trade
Commission has been quite busy in the last few years in
volves products widely advertised as being effective in the
treatment of baldness. Claims for products or courses
27
FTC issued complaint on November 19, 1959, and
ordered the company to cease-and-desist such representa
tions on March 9, 1961. FTC Dkt. 7660.
Daniel J. Murphy, "Advertising Responsibilities of
the FTC and Business” (Washington, D.C.: Federal Trade
Commission, May 17, 1961), p. 6. (Mimeographed.)
of treatments which promise to eliminate dandruff, stop
excessive falling of hair, prevent or overcome baldness, or
induce the growth of new hair, make hair straight, make
hair long, will give the user healthy hair, banishes grey
hair, imparts or restores original or youthful color to
the hair, "corrects or prevents split hair or hair break
age, " "keeps the scalp healthy," and many other such
claims, have been challenged by the FTC.^
The FTC believes that at present no preparation
exists, which can without qualification prevent or over
come baldness, cause hair to grow thicker, cause new hair
to grow, or permanently eliminate dandruff, itching and
irritation of the scalp, without certain limitations.
Consequently, the FTC has prohibited such false repre
sentations in connection with these preparations and
30
treatments.
The Commission’s enforcement efforts were seriously
curtailed by the Supreme Court in the famous case of the
29
The number of such claims runs almost into the
hundreds. The above few claims are quite typical in such
advertising. For other claims refer to the News Release
of the FTC.
30
Annual Report of the Federal Trade Commission 1956
(Washington, D.C.: U.S. Government Printing Office, 1957),
p. 39.
FTC v. Raladam Company.^ In this case, the Court held
that the Commission could not prohibit false and misleading
advertising of an obesity cure where there was no showing j
of substantial competition present, and no evidence that a
competitor had been hurt by this false advertising. This
problem was solved, however, with the Wheeler-Lea Amend
ment to the FTC Act.
Ward Laboratories, Inc.
The Federal Trade Commission has ordered Ward
Laboratories, Inc., to stop advertising that their products
I . . .
are capable of preventing "the common type of baldness,”
caused by germ infection, and of stimulating new hair
32
growth. The FTC issued a complaint charging that the
company was engaged in false advertising in violation of
Section 5 of the FTC Act.
The Commission found from the testimony of medical
experts that 95 per cent of all cases of baldness are male
pattern baldness, that such baldness is caused by endo
crine, hereditary, and age factors, which neither the
31
Decided in 1931. Trade Regulation Reporter,
op. cit.. pp. 6307-6308.
3^Ward Laboratories, Inc., v. FTC, 1960.
103
i
!respondents * nor any known preparation could cure, and
found that the failure to reveal these facts rendered the
advertisement false and misleading. "It is particularly
necessary in the field of curatives, in which the public
is entirely dependent on the advertiser*s statement for
information.
This may not be particularly serious from the health;
standpoint, but substantial economic injury can result
when the products are sold and applied in treatment
parlors. When the products are distributed in this
way, advertisements invite the bald and balding to
visit the parlor for a free examination or for a treat
ment at a reduced price. During this visit, an effort
is made to induce the caller to sign a contract for
a long and costly series of treatments. Here again the
number of potential customers is large, and as soon as
effective action is taken against one organization
another will appear to fill the void.^
Active interest in care of the hair is not confined
to the female sex alone. Hope springs eternal in the man
and woman with hair problems and there is always some new
product with a novel approach or technique or bolder claims
or promises of performance which effectively parts them
from their dollar.
33.tj.rc Requirement of Full Disclosure, ” Columbia Law
Review. December 1960, p. 1187.
Q/
Paul Rand Dixon, Paper read before the National
Congress on Medical Quackery, Washington, D.C., October 6,
1961, p. 4. (Mimeographed.)
104
Failure to Reveal Material Facts is Misleading
In determining whether a drug advertising is false,
Section 15 of the FTC Act directs the Commission to con
sider not only direct falsehoods, but also failure to
reveal material facts respecting consequences resulting
from use of the product. It is tinder the authority of this
provision that the Commission requires the disclosure of
what a product can not do.
Requirement of Affirmative Disclosure
Recent decisions of the Commission and the Courts
have clarified the Commissions power to require affirma
tive disclosure.^ It requires the advertisement clearly
and conspicuously to reveal the fact that the great
majority of cases of thinning hair and baldness are the
beginning and more fully developed stages of male pattern
baldness, and that the respondents preparation will not in
such cases check thinning hair, prevent or overcome bald
ness, cause new hair to grow, or cause hair to become
thicker.^
35
Erickson v. FTC. 1959. Voss v. FTC, 1960.
36
Keele Hair and Scalp Specialists, Inc., v. FTC,
1960.
105
It would be reasonable to expect that the Commission
will continue to insist upon affirmative disclosure in all
instances where circumstances demonstrate that such dis-
o-f
closure is necessary to protect the public. '
IV. FTC ACTIVITY IN RHEUMATISM AND
ARTHRITIS FIELD
The Commission has been much concerned during recent
years with advertisements of products for the treatment of
arthritis. It has been estimated that thare are well over
ten million arthritics in this country, and this large
reservoir of potential customers undoubtedly explains the
88
endless flow of new arthritis nostrums to the market.
Many of these products have been merely mixtures of
simple, well known analgesic drugs, such as aspirin.
Nevertheless, they were held out to the public as develop
ments or discoveries which could cure this serious and
obstinate disease, or could give a degree of relief from
its symptoms and manifestations far in excess of their
57
Earl W. Kintner, "Current Drug Advertising," The
Business lawyer. July 1961, p. 988.
88
Dixon, op. cit., p. 3.
106
actual capabilities.
i
i
The Federal Trade Commission discovered that a
I ' '
substantial number of such sufferers were found to be
searching frantically for relief, eager to accept claims
for alleged newly-discovered panaceas. Many of these suf
ferers delayed competent medical treatment while they ex-
I
[perimented with one advertised after another, while their
I
condition grew worse and less responsive to proper treat-
39
ment.
Recently the Commission has sponsored a series of
clinical tests to evaluate the effectiveness of various
brands of counter-irritant preparations, offered for the
relief and treatment of rheumatic and arthritic conditions.
As a result, several complaints have been issued, and the
Commission is making every effort to correct advertising
in this field as far as possible in order to protect the
public interest.^
39
Charles A. Sweeney, "False Advertising of Food,
Drugs, and Cosmetics,” Food, Drug, Cosmetic law Journal,
September 1957, p. 613.
^®0mega Chemical Company, Dkt. 6753.
Mentholatum Company, Dkt. 6754.
Whitehall Pharmacol Company, Dkt. 6755.
, 107
Witkower Press Inc.
i
The FTC has recently taken action against certain
advertising involving promotion and sale of "medical” books
which held out to the general public regimens allegedly
effective in the prevention, treatment, and cure of a
variety of serious diseases.
The Commission has issued a complaint against
Witkower Press Incorporation, for advertising a book as
teaching a successful system for the treatment of arthri
tis.^^ The book advertised is Arthritis and Common Sense,
and it is written by a layman. It offered a ridiculous
regimen for the treatment of this serious and crippling
disease. The remedy advocated was the consumption of a
mixture of cod-liver oil and orange juice. At one time
this book was first on the non-fiction best-seller list.
"Advertising used to promote the sale of some ’ medical*
books to the general public probably is closer to outright
’medical quackery’ than most drug advertisements."^
Public interest requires an increased power and action
41FTC v. Witkower Press Inc., Dkt. 6583. Order to
cease-and-desist on July 19, 1960.
42
Dixon, on. c i t . , p. 6.
108
by the FTC against the resourceful a d v e r t i s e r s . ^ j
V. CHAPTER SUMMARY
i
False and misleading advertising of food, drugs,
cosmetics, and devices has provided a lucrative area of
operation for many unscrupulous advertisers. The general
(public does not have the facilities to inquire into the
l ' ' ■ '
scientific make-up of food, drugs, cosmetics, and devices.
Therefore, many people rely solely upon the advertising
claims. The Federal Trade Commission feels a heavy re
sponsibility in seeing that as near as possible, adver
tising claims be honest and not misleading. To make this
interest official, the Commission not only investigates
questionable ads, but also litigates against offenders.
Misrepresentations as to the effectiveness of
capsules that would "cure or eliminate sexual impoteiicy,"
"bring the joy of life back into aging bodies,” and certain
creams that "will raise sagging breasts," "nourish tissues
of starved or shrunken breasts," "increase their size and
fill out their contours," have been ordered by the FTC
to be discontinued. See Dockets 5291, 8111, 5028.
I CHAPTER VI
CONCLUSION
I
I. SUMMARY
In 1914 Congress passed the Federal Trade Commission
Act, establishing the Commission. Unlike other govern
mental agencies whose regulatory powers are limited to one
industry or a group of related industries, the FTC’s powers
I
|touch every type of large and small business which ventures
into interstate commerce.
The Commission is an independent agency of the
federal government exercising quasi-judicial powers. As
originally enacted in 1914, the FTC Act prohibited ’ ’unfair
methods of competition.” In 1931 the Supreme Court in
interpreting the meaning of this phrase, held that the
existence of competition must be shown to support a viola
tion of the Act.
In 1938 Congress broadened the law by the Wheeler-
Lea Amendment, which prohibits ’ ’ unfair or deceptive acts
109
110
1 or practices” in addition to "unfair methods of competi-
Ition,” creating an additional concept of consumer protec-
I
,tion independent of competitive impact.
Congress left to the Commission the task of defining
deceptive acts and practices, based on continuing experi
ence and intimate contact with the ever-changing phases of
business endeavor.
The Wheeler-Lea Amendment gave special authority to
the FTC over false advertising of food, drugs, cosmetics,
and devices. Against such false advertisements, the FTC is
authorized to obtain temporary injunctions, pending com
pletion of the cease-and-desist order proceedings.
In its regulatory activity, the Commission is en
joined by the statute to act only in "the interest of the
public.” To protect the purchasing public against false
and misleading representations in advertising by which pur
chasers are deceived is in the public interest.
The FTC categorizes its regulatory activities as
either anti-monopoly or anti-deceptive. This thesis deals
with false and misleading advertising, which is a part of
the anti-deceptive activity of the FTC. The FTC has juris
diction to take action if such advertising is false or
I l l
misleading in interstate commerce.
j If the Commission finds the ad to be false or mis
leading, it issues a cease-and-desist order against the
party. Such an order may be appealed to a United States
Court of Appeals, which is authorized to review the pro
ceeding and to affirm, enforce, modify, or set aside the
Commission’s order. Thereafter, the case may be taken to
i
the Supreme Court of the United States.
Orders of the FTC become final either through
affirmance by the court of appeals or at the end of sixty
days when no appeal is made. The district court is author-
I
!ized to impose civil penalties up to $5,000 for each
I offense. Under an amendment of 1950, each day of continu-
i
ing violation may be treated as a separate offense.
Most of the actions of the Commission are undertaken
in response to complaints originating with business firms,
consumers, Better Business Bureaus, trade associations,
city, local, or federal authorities. The complaints are
assigned to the proper division which investigates them in
order to determine the validity of the claims, and to see
whether the Commission does or does not have jurisdiction
over the reported practice.
If the investigation, when completed, shows an
apparent violation of the law, the FTC issues a complaint
charging the firm with the false representation. The firm ;
has thirty days to reply. If it decides to fight the case,
it will file a denial of the charge. Many lengthy pro
ceedings follow. Hearings are held and in due course the
examiner hands down his initial decision to the Commission,
which takes action accordingly.
Thousands of cases of false and misleading adver
tisements of a bewildering variety have been handled by the
FTC. These range from deception with respect to the price,
character, effectiveness, and service of the product, to
deception concerning food, drugs, cosmetics, and devices.
A few of the cases of false and misleading advertisements
against which the FTC has taken action have been presented
in this thesis.
In deception with respect to the price of the
product, a false impression is created that the prospective
buyer is getting an unusually good bargain. These may take
the form of fictitious pre-ticketing, bait advertising,
offers of "free goods or services,” etc. Atlantic Sewing
jStores, Inc., and the Book-of-the-Month Club are interest
ing cases of bait and free goods advertising respectively.
113
Deception in respect to the character of the product
ranges from downright falsehoods to "puffing” or excess
praise of goods offered for sale. Quality, condition, \
effects, origin, characteristics of goods are misrepre
sented. The action of the FTC against Colgate-Palmolive
Company and Ted Bates and Co., Inc., prohibiting them from
.falsely advertising shaving cream and from using television
l
camera trickery, and mock-up for demonstrating the beard
moistening capability Of "Palmolive Rapid Shave," shaving
cream by television commercials, is a characteristic case.
False advertising of food, drugs, cosmetics, and
devices has provided a lucrative area of operation for many
unscrupulous advertisers. The general public does not have
the facilities to inquire into the scientific make-up of
these products. Therefore, many people rely solely upon
the claims made in the advertising. The FTC feels a heavy
responsibility in seeing that as near as possible adver
tising claims be honest and not misleading. To make this
interest official, the Commission not only investigates
questionable ads, but also litigates against offenders.
II. EVALUATION
114
Thus, it is apparent that the Federal Trade Commis
sion has achieved considerable success in furthering con
sumer protection against false and misleading advertising.
It has advanced and broadened the common-law concept of
unfair methods of competition. The Commission has de
veloped very largely into an agency for consumer protection,
and its activities in this direction have assumed prime im
portance, both in the volume of work and in the orientation
of its policy.1 This has been accomplished, however, in a
rather unsystematic way, and broad principles of unfair
competition have not been enunciated.
The division of effort associated with two enforce
ment responsibilities rather than one (that is, the anti-
deceptive division and the anti-trust division) has at
times interfered with effective implementation of public
0
policy. Conflicting personalities and widely divergent
1
Dudley F. Fegrum, Public Regulation of Business
(Homewood, Illinois: Richard D. Irwin, Inc., 1959),
p. 404.
2
Andrew Papandrou and John T. Wheeler, Competition
and its Regulation (New York: Prentice-Hall, Inc., 1954),
p. 469.
; 115 j
viewpoints among the commissioners are two causes of weak- j
| j
ness in the FTC.^ ]
i i
i In the case of the Book-of-the-Month Club, Commis-
'
sioner Mason strongly disagreed with the opinion of the
other FTC Commissioners. Mason argued that there was
nothing false or misleading about using the word ’ ’free" by
the Book-of-the-Month Club. Part of his opinion on this
is as follows:
The company sells books by mail order. You agree
to buy four books a year. For every two books you buy,
you get one free. ... A child past the Fourth Reader
could understand it. For years, fifty thousand people
a day bought the books and never complained they were
fooled by a certain word in the ads. . . . Nor, for
that matter, was the Commission fooled on that certain
word from 1940 to 1947. During this period, the
Commission kept looking at and studying the ads of the
defendant, and from time to time advised defendants
there was nothing objectionable in the way they used
the word "free.
However, the direction of the FTC may not be too
important or desirable in certain areas, where the adver
tisements are really not deceptive. In the case of the
Book-of-the-Month Club, the Commission was not justified
3
Marshall Edward Dimock, Business and Government
(New York: Henry Holt and Company, 1949), p. 421.
A
Lowell B. Mason, The Language of Dissent (New York:
The World Publishing Company, 1959), p. 173.
I 116
I
iin taking action against it, according to the findings of j
i
this research. Its advertisements were quite clear. There
i
iwas nothing misleading about it.
On January 14, 1948, the FTC issued its statement
of policy on the word ’free.* The Commission took
214 words to explain what one word meant. But, after
the January explanation, more bulletins were issued by
Better Business Bureaus and other organizations for
the public good, explaining the Commission’s explana
tion of the word ’free,’ than ever before. It reached
to the extent that no one for certainty knew how free
is ’free.’5
In the case of Bakers Franchise Corporation, for
example, there was quite a conflict of opinion among the
Commissioners, as to whether ’ ’Lite Diet" trade name was
deceptive and misleading. Out of the five Commissioners,
three voted that the words "Lite Diet" are deceptive. One
Commissioner did not participate in the decision. Dissent
ing from the majority was Commissioner William C. Kern, who
held that "since the [respondents’] advertising clearly
sets forth the exact number of grams in each slice, there
could be no possibility of consumer confusion on this
6
matter of calories." Commissioner Kern stated:
5Ibid.t pp. 174-175.
6
Commissioner William C. Kern, FTC News Release
(Washington, D.C.: Federal Trade Commission, July 31,
1961), p. 1. (Mimeographed.)
1171
To destroy respondents* business on the basis of
the unconvincing record before us here, I regard as
wholly without justification and this is what the
order issued this day in conformity with the opinion
of the majority will accomplish. Neither this record
nor previous decisions of the Commission, nor princi
ples of common fairness and equity support such action.
I find myself unwilling to purchase regret at such a
price.'
Personnel and Budgetary Shortages
To carry out its responsibilities effectively, the
FTC faces a number of shortcomings. Some of these are
shortages of funds and personnel.
Shortages of funds for test purposes and limited
personnel on Commission*s scientific staff have pre
vented the Commission from carrying on the clinical
observations necessary for successful dealing with
. . . claims made.
To perform all its duties in connection with anti-
monopoly and anti-deceptive practices, the FTC has neither
the resources nor the personnel to reach all segments of
American industry that require regulation.
Lack of personnel. Considering the great scope of
the Commission*s enforcement responsibilities, it is one
7Ibid., p. 2.
g
Iftiited States Congress, Committee on Government
Operations, False and Misleading Advertising, 85th Congress,
2d Session, House Report No. 2553 (Washington: Government
Printing Office, 1958), p. 17.
118
(of the smallest federal agencies. It has about one thous
and people including clerks, stenographers, and messengers.
This is an extremely small organization charged with the
duty of administering what is the broadest statute in the
country--the FTC Act.^ The Commission has never had on
its staff the experts in the many fields which its legal
mandate demands.1®
Since the Commission was created in 1914, there have
been not only additional duties placed upon it but also
there has been tremendous growth in the total number of
businesses over which the FTC has to take action. It is
estimated that in 1914, two million businesses were subject
to the jurisdiction of the Commission, where, as in 1961,
there were approximately more than four million.11
In 1914, the national gross volume of business was
less than $40 billion. By 1961, this volume has increased
to about $500 billion. The total expenditure on advertising
Q
Paul Rand Dixon, ’ ’Let’s Get Rid of Uncertainty”
(Washington, D.C.: Federal Trade Commission, April 28,
1962), p. 3. (Mimeographed.)
^Dimock, op. cit., p. 126.
11
Mr. Daniel Zmuda, Attorney-Examiner of the Federal
Trade Commission in Los Angeles, mentioned this during a
personal interview with him.
119
i
:in 1914 was $1,302 million. The total amount spent on
advertising today is about twelve billion dollars.
Lack of funds. Much of the responsibility for the
Commission’s shortcomings can be directed at the Congress.
The appropriations made for the work of the Commission
Iran around $500,000 a year until 1918, around $1,000,000
until 1930, reaching $2,000,000 in 1935, and $3,000,000
in 1949.^ Its budgets were increased to $8,009,500 by
1961.13
Shortage of funds has contributed a great deal to
the shortcomings and effective enforcement of its activi
ties in the area of false and misleading advertising.
There are a number of problems. For example, in conducting
their initial investigation, the FTC attorney is often con
fronted with a galaxy of deceptive-scientific claims that
have to be disproved in order for the FTC to take action.
These claims are often backed by the company and alleged
to prove their claims.
^Clair Wilcox, Public Policies Toward Business
(Homewood, Illinois: Richard D. Irwin, Inc., 1960), p. 116.
13
Annual Report of the Federal Trade Commission 1961
(Washington, D.C.: Government Printing Office, 1962),
p. 71.
120
The only way to demonstrate the speciousness of
these claims and the falsity of the claims would be for the
FTC to conduct independent tests. The FTC usually cannot
afford it. In 1959, for example, its entire budget for
research on all advertising campaigns in all fields was
$25,000. Due to its limited funds, the FTC has been forced
to give up on many cases without taking any form of action.
There must be additional money available for testing
and personnel in the field of advertising. However,
until federal agencies apprise Congress of their
operating problems, and the increasing magnitude of
their responsibilities, additional funds cannot intel
ligently be provided— but the fault would seem to be
with such agencies for failing to apprise Congress of
their difficulties by reason of lack of personnel and
testing facilities.
The Commissions appropriation and staff are too
small to enable it regularly to check such deceptions in
advertising. It performs its duties to the extent of its
means. It allocates its funds according to its best judg
ment. The Commission would like to enter every field where
regulation is needed, but it can only touch those areas
where it has the means to do so.*--*
14
85th Congress, op. cit., Report No. 2667,
pp. 19-20.
15Ib id . , p. 17.
121 j
j Length of Time Taken to Regulate j
I
a Deceptive Advertising j
I
In the field of false and misleading advertising in
general, the Commission's record has been one of in
credible delay and procrastination. The sales effec
tiveness of advertising is usually of short duration.
A cease-and-desist order entered after almost two
years, the average duration of the FTC enforcement pro
cesses in false and misleading advertising cases, is
hardly the summary action essential to halt and prevent
deceptive advertising.
One of the most serious deterrents to combat false
and misleading advertising effectively is the length of
time presently taken by the FTC before a corrective action
is taken, both in the investigation of cases prior to
taking initial formal action, and then in carrying the
cases through to final decisions. Months and sometimes
years elapse before a deceptive advertising is stopped.^
If the investigation, when completed, shows an
apparent violation, the FTC issues a complaint charging the
firm with certain malpractices. The company has thirty
days to file a reply. Those who decide to fight file a
denial of charges, and then lengthy proceedings may ensue.
The FTC must study the denial and prepare for formal
16 Ib id . , Report No. 2553, p. 23.
17Ib id . , p. 23.
122
i
hearings before an examiner. Many months are lost at this
juncture, and further time can be lost if the firm files
jfor delays.
Finally the hearings are held and in due course the
examiner hands down his initial decision. This goes to the
full Commission for approval. A vigorous defense by the
offender can result in the case being returned to the
examiner for further hearings.
When the Commission finally issues an order, the
firm can then take the case through the federal courts and
up to the United States Supreme Court. In some instances,
unscrupulous advertisers adopt delaying tactics to prevent
jissuance of a fraud order for several months to a year or
even longer. By this time years have passed while the
promotion continues unimpeded. There is little doubt that
some firms consider an extended battle with the FTC as a
small overhead item in running a large and successful
advertising campaign.^
The public is not now adequately protected by the
*hit-and-run* type of promoters, if the Commission
follows its normal time-consuming procedures in
conducting a routine investigation of the promoter
18Ibid., pp. 16-17.
i ——.— _ - , - . . ......
123
who times his advertising to make a killing before the
j Commission can stop it."
| This delay in the procedure makes it possible for i
the unscrupulous advertisers to continue making false and i
i
misleading claims for their products, with the knowledge
that they may perhaps be able to sell thousands of dollars
worth of merchandise before the Commission will be in a
position to take corrective action against them.
In fact, by the time the FTC issues a complaint,
many firms have exhausted the market for the particular
I product being promoted. They are then quite willing to
jenter into consent orders for discontinuing the claims.
i
.Frequently, in contemptuous disregard of the FTC and the
i .
|public interest, they have already launched a similar false
advertising campaign for another product, or the same
product under another name, or may do so within a matter
of days or weeks.
Beginning July 1, 1961, the Commission was reorgan
ized and provided with new rules of practice in order to
generate as much speed in case work as is consistent
with fairness and the process of law. However, the new
^ I b i d . , p . 16.
124
I
organization is now gathering momentum, and its new design ,
j I
will enable it to move faster than the FTC has ever moved !
[before.^
I
| Under our new system one man will be expected to
be riding herd on each case at every stage of its
progress, and competent supervisors will be riding
herd on him.21
. . . [The] purpose is to speed our work from
years to months and to broaden our target from the
fwhipping boy' to an illegal practice,22
But there is no possibility, now or in the future,
that its present powers will enable it to act fast enough
to prevent irresponsible injury being done to the victims
!of some illegal acts while the case is being tried. Except
in cases of food, drugs, cosmetics, and devices involving
public health and safety, the Commission is now powerless
j to obtain immediate relief for the public when it is
jvictimized by an unfair or deceptive advertising claim in
interstate commerce.^
20
"FTC Reorganized in Effort to Speed Enforcement
Work," Wall Street Journal, June 26, 1961, p. 4.
^*Tbid.
22
Dixon, op. cit.. p. 7.
^ I b i d . , p. 13.
125
Weakness of Control of the FTC over Advertising
j . . . . .
The FTC must draw a difficult line between harmless
I
exaggeration and harmful deception. It must base its
|orders on evidence that the advertisers’ claims are false
i
and on testimony that they are, in fact, deceptive. When
orders are issued and a cease-and-desist order entered in,
'
then the advertiser need only drop the old campaign and
•embark upon a new one as deceptive as the other.
The Commission cannot require the publication of a
retraction. It cannot censor copy in advance. Its present
facilities cannot keep pace with the inventive copy writers
in advertising agencies. The control that it exerts may
moderate some of the more serious abuses of advertising.
But it is not to be described as v i g o r o u s .
The FTC’s procedures were designed to provide pos
sible protection for the accused party, and they lend them
selves easily to manipulation by advertisers who wish to
continue a lucrative promotion. The advertiser launches
his campaign, and in most cases receives immediate returns.
The Commission takes up the case, and the FTC lawyers build
a legally sound case. This takes time.
^ W ilc o x , op. c i t . , p. 223.
1 2 6 1
In the field of food, drugs, cosmetics, and devices,j
4
the FTC lacks the facilities and cannot often afford the
necessary research to prove the false ad claims in these
areas. The Food and Drugs Administration has direct and
extended access to the facilities of the United States Pub-
jlie Health Service, a division of the Department of Health,
l
Education, and Welfare. It often uses these facilities
for conducting research in connection with misbranding
cases. The FTC cannot use the Public Health Service in
this fashion, and it often fails to act against advertisers
because it cannot afford the necessary research to prove
9 S
that ads are false. J
Shortcomings of Case-by-Case Approach
The case-by-case approach by the FTC in handling
false and misleading advertising cases has many short
comings. "Frequently the Commission finds itself labori
ously placing channel markers long after the racing ships,
laden with public interest, have sailed on by."^ For
example, many an illegal advertising claim has been
95
Ralph Lee Smith, The Health Hucksters (New York:
Thomas Y. Crowell Co., 1960), pp. 213-214.
26
Dixon, op. c i t . , p. 5.
127
i
,successfully challenged only after the claim has been com-
'mercially exhausted and long since abandoned.
The case-by-case approach in many instances works j
inequities. It is always difficult to see the justifica
tion for singling out one firm for violating the law when J
its competitors are equally culpable. The sole objection
to case-by-case method is that it does not work as well as I
its advocates had at first expected.
When the FTC orders a company to discontinue decep
tive advertising, this order has no effect on competitors
who are making similar false or misleading claims. Every
order of the FTC applies only to the company it names.
Where similar misrepresentations are made by many firms,
the FTC has to take action against each case individually.
Many continue reaping financial gains from the false and
misleading claims, until they, too, are forced to stop by
the FTC.
Comforting them in this defiance is their knowledge
that the Commission’s overload of work makes their
chances of being singled out for action mighty slim.
And even if this did happen, the action would come too
late to work much of a hardship on them. 28
27Ibid.
28Ib id .
128 j
i
However, the Federal Trade Commission has sought to j
isolve this problem by issuing statements of policy and J
i I
guides that apply to whole industries or to certain prac
tices that are followed by many firms in different fields,
and which the FTC regards deceptive. "Such Federal Trade
Commission Guides may persuade advertisers to modify their
■
claims; they also indicate the grounds on which the Com
mission may issue a c o m p l a i n t . " ^
III. RECOMMENDATIONS
You all have a tremendous interest in the efficiency
of the FTC in its perpetual effort to police false
advertising. We have seen what happened to advertising
in the age of quackery when there were no controls or
policing. The same thing could happen today if con
trols were eliminated or weakened. You might find
yourself in a free-for-all battle of claims and counter
claims- -of falsehoods and disparagement.-^
You have a right to expect that every advertisement
you read is accurate and truthful. If the industry will
not guarantee this to you, the government should. There
fore, the government's activities to protect the consumer
^Wilcox, op. cit., p. 222.
30
Daniel J. Murphy, "Advertising Responsibilities of
the FTC and Business" (Washington, D.C.: Federal Trade
Commission, May 17, 1961), p. 7. (Mimeographed.)
129
I
must be greatly expanded and strengthened.
The Federal Trade Commission is admirably suited for
the implementation of a program or a policy to prevent
o-i
false and misleading advertising. x It is the only govern
mental agency equipped by personnel, and strengthened by
years of experience, to perform this most vital responsi
bility. ^
It seems advisable that the governmental agencies
having jurisdiction over the regulation of national adver
tising should be strengthened so as to be able to act
more expeditiously in curbing false and misleading adver-
qq
tising. J Legislative changes to strengthen federal en-
i
forcement actions in this field are within the purview of
appropriate legislative committees of Congress.**4
The Commission should institute corrective meas
ures immediately to accelerate the various steps in its
31
Papandrou and Wheeler, op. cit., p. 469.
32
Paul Rand Dixon, Paper read before the National
Congress on Medical Quackery, Washington, D.C., October 6,
1961, p. 8. (Mimeographed.)
33
85th Congress, op. cit., Report No. 2553, p. 15.
34Ibid.. p. 23.
130
i
enforcement procedures in the entire field of false and
! misleading advertising.
An advisory board might be set up by the Federal
) .
Trade Commission, to which advertisers could go for con-
sultation before they advertise a product in interstate
commerce. The Commission should devise means for offering
|advice on proposed advertising campaigns.
i
! Considerations also would have to be given to the
work load such opinions would place upon the Commission.
Perhaps certain standards could be set up that would bring
the task down to manageable proportions. This Consnission
through its advisory board would work more towards prevent
ing false and misleading advertising, and less on trying
to clear up their damage.
There seems to be little doubt that this preventive
type of control would far surpass the current method of
"mopping up the milk after it is spilled."
Publicity for Enforcement Actions
Publicity concerning product claims found to be
fraudulent is necessary to alert the public and help mini
mize the use of such claims. This would have two functions.
First, it would warn the public against fraudulent or
131
•misleading schemes already underway. Secondly, it would
i ;
!establish a ’ ’ bad reputation” in the mind of the public to
set up a permanent reaction against certain products.
Greater Use of Criminal Prosecution Should be Made
Greater use [should be] made of criminal prosecution
by the Department of Justice against the promoters who
repeatedly use fraudulent advertising to exploit the
public. We believe that vigorous criminal prosecution
might have the deterrent effect which routine fraud
orders apparently do not have on such offenders.35
It stands to reason that offenses of this lucrative
type will partly lose their attraction for dishonest ex
ploiters if their fraudulent aspects draw the perpetrators
into the tangled web of the law.
Greater Use of Injunctive Powers Should be Made
In the field of food, drugs, cosmetics, and devices,
the FTC should make greater use of its injunctive powers.
Such action might serve the public interest in curbing
false and misleading advertising of such products. Al
though in these cases the Commission can apply to district
courts for temporary injunctions, it would be much more
efficient for the Commission itself to issue temporary
35I b i d . . p. 15.
132
orders in these cases as well as other than food and drugs.
The same consideration which induced Congress to
grant to the Federal Trade Commission the power to
issue final orders to cease-and-desist also supports
the granting to it of the authority to issue temporary
orders.36
Should be Given Injunctive Power for All Cases
of False Advertising {
! i
Properly drafted and administered legislation should J
give power to the FTC to issue temporary orders to cease-
and-desist in all cases of false and misleading adver-
37
tising. ' A Court of Appeals and the Uriited States Supreme
Court must have the power of reviewing such temporary
orders issued by the Commission just as the courts have
jurisdiction to review similar temporary orders issued by
the district courts or final orders to cease-and-desist
issued by the Commission. This, while observing all the
requirements of ’ ’ due process of law, ” makes it possible for
the Commission to protect the public interest adequately
in all cases of false and misleading advertising.
^Dixon, loc. cit.
37
'For an interesting discussion, the reader is re
ferred to the article, ’ ’Bill to Give Injunction to FTC,”
Advertising Age. February 19, 1962.
133
Bills that would give the Commission authority to
i
i
oo
.issue such temporary orders are pending in Congress.
.There are approximately 150 bills involving marketing and
t
;advertising. President Kennedy strongly supports the
1
granting of this authority to the Commission.
i The President in his recent message to Congress on
the consumer problems referred to the subject matter of
several of these bills. He again advocated to give the FTC
the power to issue temporary cease-and-desist orders pend
ing the outcome of complaints.^®
It is also encouraging to note that this proposed
legislation is supported by small businessmen and the
press. The Washington Post, in an editorial of Septem
ber 23, 1961, mentioned:
Injunctions are strong medicine, and legislation
ought never to assume that the regulatory agencies
are automatically right when they issue complaints.
38
"Can Ad Hen Balk Giving FTC Temporary Injunctive
Powers?” Printer’s Ink. February 16, 1962, is an interest
ing article on this controversial and sensitive issue.
■^Dixon, pp. cit., p. 9.
^®Daniel J. Murphy, "Advertising and Business
Ethics" (Washington, D.C.: Federal Trade Commission,
April 25, 1962), pp. 3-4., (Mimeographed.)
134 ,
Since this bill will not be taken up until next year,
the Committee has ample time to provide, as it has
provided in many other fields, for rapid appeals of
ill-conceived orders. But if it is necessary to give
! the businessmen recourse against the Commission, it is
fa* more urgent to give the defenseless public pro
tection from the shady operator who, under the present
rules, has vested interest in legalistic delay.^
Granted the power which these proposals and recom
mendations would give it, the Federal Trade Commission
would be able to perform its responsibilities toward pre
venting false and misleading advertising more effectively.
In order to achieve this better control, the foregoing
recommendations as to funds, personnel, and other needed
expansions of the FTC as well as its greater powers are
vitally necessary. When this lag has been corrected,
greater, better, and more effective regulation of false
and misleading advertising will result.
^Editorial in The Washington Post, September 23,
1961.
BIBLIOGRAPHY
BIBLIOGRAPHY
A. BOOKS
Packman, Alan E. Do's and Don*ts of Advertising Copy.
New Yojrk: National Better Business Bureau, 1950.
i
j@lark, Donald T., and Bert A. Gottfried. Dictionary of
I Business and Finance. New York: Thomas Y. Crowell
i Company, 1957.
[/Dimock, Marshall Edward. Business and Government. New
York: Henry Holt and Company, 1949.
Finkelhor, Fraticis. Legal Phases of Advertising. New
York: McGraw-Hill Book Company, Inc., 1938.
/
l/Geller, Max. Advertising at the Crossroads. New York:
The Ronald Press Company, 1952.
Grosbeck, Kenneth. Invitation to Advertising. New York:
I Simon and Schuster, 1951.
!
!Handler, Milton. Cases and Materials on Trade Regulation.
! Chicago: The Foundation Press, Inc., 1937.
/-I-
Hotchkiss, George B. An Outline of Advertising. New York:
Macmillan, 1950.
Lavine, A. Lincoln. Modern Business Law. Englewood
Cliffs, New Jersey: Prentice-Hall, Inc., 1960.
\ J ■ ' '
vyLindahl, Martin L., and William A. Carter. Corporate
Concentration and Public Policy. Englewood Cliffs,
New Jersey: Prentice-Hall, Inc., 1959.
UMason, Lowell B. the Language of Dissent. New York: The
J World Publishing Company, 1959.
i
136
137
i
Packard, Vance. Hidden Persuaders. New York: David
McKay Co., 1957.
jpapandrou, Andrew, and John T. Wheeler. Competition and i
I its Regulation. New York: Prentice-Hall, Inc., 1954.
i ■ ;
Pegrum, Dudley F. Public Regulation of Business. Home
wood, Illinois: Richard D. Irwin, Inc., 1959.
Phillips, E. Bryant. Consumer Economic Problems. New
i jf York: Henry Holt and Company, 1957.
jj^urdy, Harry L., Martin L. Lindahl, and William A. Carter.
Corporate Concentration and Public Policy. New York:
Prentice-Hall, Inc., 1950.
Sandage, C. H., and Vernon Fryburger. Advertising Theory
j and Practice. Homewood, Illinois: Richard D. Irwin,
J Inc., 1958.
\ySimon, Morton J. The Law for Advertising and Marketing.
New York: W. W. Norton and Company, Inc., 1956.
;Smith, Ralph Lee. The Health Hucksters. New York:
Thomas Y. Crowell Co., i960.
Trade Regulation Reporter. New York: Commerce Clearing
House, Inc., n.d. Volumes 2 and 3.
Wilcox, Clair. Public Policies Toward Business. Homewood,
Illinois: Richard D. Irwin, Inc., 1960.
B. PERIODICALS
"Advertising," Time, August 18, 1961.
Anderson, Signard. "The Federal Trade Commission,” South
Dakota Law Journal, Spring 1959.
"Bill to Give Injunction to FTC," Advertising Age.
February 19, 1962.
138
"Can Ad Men Balk Giving FTC Temporary Injunctive Powers?" j
I Printer*s Ink, February 16, 1962. i
I
lDixon, Paul Rand. Article in Printer*s Ink, February 16, |
! 1962.
"FTC Drive Against Auto Guarantees," Advertising Age,
October 17, 1960.
"FTC Requirement of Full Disclosure," Columbia Law Review.
December 1960.
"Guarantees in Ads Scrutinized by the FTC," Advertising
Age. May 2, 1960.
King, Paul A. "Living with the Law," Dunn's Review and
Modem Industry. November 1960.
Kintner, Earl W. "Current Drug Advertising," The Business
Lawyer, July 1961.
_______. "FTC Regulation of Food, Drug, and Cosmetic
Advertising," The Business Lawyer. November 1960.
Moore, Charles. "Regulation of Deceptive Practices,"
Food, Drug. Cosmetic Law Journal, January 1961.
Schaar, Edward H. "The Case for . . . and Against . . .
Advertising Case Histories," Industrial Marketing,
August 1960.
Sweeney, Charles A. "False Advertising of Food, Drugs,
and Cosmetics," Food. Drug. Cosmetic Law Journal,
September 1957.
"Tooth Decay," Consumer Reports, June 1962.
"Truth and Television," Consumer Reports, March 1962.
139
C. GOVERNMENT PUBLICATIONS
Annual Report of the Federal Trade Commission 1955.
Washington, D.C.: United States Government Printing
Office, 1956.
Annual Report of the Federal Trade Commission 1956.
Washington, D.C.: United States Government Printing
Office, 1957.
Annual Report of the Federal Trade Commission 1958.
Washington, D.C.: United States Government Printing
Office, 1959.
Annual Report of the Federal Trade Commission 1959.
Washington, D.C.: United States Government Printing
Office, I960.
Annual Report of the Federal Trade Commission 1961.
Washington, D.C. : Iftiited States Government Printing
Office, 1962.
Federal Trade Commission Act. Washington, D.C.: United
States Government Printing Office, 1960.
Federal Trade Commission. Advertising Alert♦ Washington,
D.C.: United States Government Printing Office,
January 12, 1962.
Federal Trade Commission Decisions. Volume 48. Washing
ton, D.C.: United States Government Printing Office,
1952.
Federal Trade Commission Decisions. Volume 50. Washing
ton, D.C.: Uhited States Government Printing Office,
1957.
Federal Trade Commission Decisions. Volume 55. Washing
ton, D.C.: Uhited States Government Printing Office,
1960.
FTC. News Release. Washington, D.C.: Uhited States
Government Printing Office.
140,
I
Federal Trade Commission Rules of Practice. Washington,
! D.C.: Uhited States Government Printing Office, 1960.
j .. . ■
p
[Federal Trade Commission. Guides Against Bait Advertising.
j Washington, D.C.: Uhited States Government Printing
Office, November 24, 1959.
_______. Guides Against Deceptive Advertising of Guaran
tees. Washington, D.C.: Uhited States Government
Printing Office, April 26, I960.
. Guides Against Deceptive Pricing. Washington,
D.C.: United States Government Printing Office,
October 2, 1958*
_______. Guides for Advertising Fallout Shelters.
Washington, D.C.: United States Government Printing
Office, December 5, 1961.
_______. Guides for Advertising Shell Homes. Washington,
D.C.: Uhited States Government Printing Office,
April 25, 1962.
_______. Tire Advert is ing Guide s. Washington, D.C.:
Uhited States Government Printing Office, May 28, 1958.
______. Trade Practice Rules for the Woodworking
Machinery Industry. Washington, D.C.: Uhited States
Government Printing Office, June 24, 1960.
_______. Standard Trade Practice Conference Rules.
Washington, D.C.: Uhited States Government Printing
Office, December 3, 1953.
Uhited States Congress. Committee on Government
Operations. False and Misleading Advertising. Hear
ings Before Subcommittee, 85th Congress, 2nd Session,
Report No. 2553. Washington, D.C.: United States
Government Printing Office, 1958.
141
D. UNPUBLISHED MATERIALS
I Blatnik, John A. ’ ’Protecting Consumers from False and
Misleading Advertising." Greeley, Colorado: Selected
Proceedings of Fifth Annual Conference, Council on
Consumer Information, April 1960. (Mimeographed.)
Dixon, Paul Rand. Paper read before the National Congress
on Medical Quackery at Washington, D.C. Washington,
D.C.: Federal Trade Commission, October 6, 1961.
(Mimeographed.)
_______. "Let's Get Rid of Uncertainty." Washington,
D.C.: Federal Trade Commission, April 28, 1962.
(Mimeographed.)
Murphy, Daniel J. "Advertising and Business Ethics."
Washington, D.C.: Federal Trade Commission, April 25,
1962. (Mimeographed.)
"Advertising Responsibilities of the FTC and
Business." Washington, D.C.: Federal Trade Commission,
May 17, 1961. (Mimeographed.)
i ’ ..."
Sweeney, Charles A. "The FTC and the Broadcaster."
Washington, D.C.: Federal Trade Commission, April 2,
1962. (Mimeographed.)
E. NEWSPAPERS
The Washington Post. September 23, 1961.
Wall Street Journal, June 26, 1961.
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Asset Metadata
Creator
Saboonchi-Ispahani, Ahmed
(author)
Core Title
The role of Federal Trade Commission in regulating false and misleading advertising
Degree
Master of Arts
Degree Program
Economics
Publisher
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Tag
business administration, marketing,economics, general,OAI-PMH Harvest,political science, public administration
Language
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Phillips, E. Bryant (
committee chair
), Garis, Roy L. (
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), Kottke, Frederick Edward (
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