Part 11- Regulation of Business, Chapter 48: The Federal Trade Commission Act and Consumer Protection Laws, Note 1

Key Points from the FTC Case Study Involving Doan's: 1. FTC’s Legal Test for Deceptive Advertising: The Federal Trade Commission (FTC) uses a specific legal test to determine whether advertising is deceptive. To be considered deceptive, an advertisement must: o Involve a material misrepresentation, omission, or practice that is likely to mislead a consumer. o The consumer must act reasonably under the circumstances, and the misleading nature of the representation must be material—i.e., important enough to affect a consumer’s decision-making (e.g., price, effectiveness, or quality of a product). o Implied representations in advertising that are literally true but misleading in what they imply can also be challenged. For example, an ad that accurately describes a product’s ingredients but suggests an undue superiority may be considered deceptive if the implied message misleads consumers. 2. Deceptive Advertising Based on Implied Representation: o The FTC does not only act against false or misleading claims; it can also challenge advertisements for implied representations that lack substantiation. o In the case of Doan’s advertisements (1988–1996), while the statements about the product’s effectiveness for back pain and its unique ingredient (magnesium salicylate) were true, the combination of these facts could have implied that Doan’s was superior to other analgesics due to the special ingredient. The FTC argued that this implied superiority was unsubstantiated, thus rendering the ads deceptive. 3. Substantiation of Claims: o The FTC requires that businesses substantiate objective claims about their products. For instance, if an advertisement implies a product is superior to others, the advertiser must provide evidence to support this implied superiority. 4. Corrective Advertising: o If deceptive advertising is found, the FTC may order corrective advertising. This would require the company to run new ads that correct the misleading information previously conveyed. o The question of whether corrective advertising violates freedom of speech is debated. However, courts generally uphold FTC orders for corrective advertising as they are aimed at protecting consumers, which is considered a legitimate government interest. 5. Potential Consequences for Novartis: o If the FTC determined the Doan’s advertisements were deceptive, Novartis (the successor-in-interest of Ciba-Geigy) could face legal consequences, including a cease-and-desist order and potentially a corrective advertising order. The company could be required to stop o the deceptive practice and engage in new advertising to correct the misleading claims. Corrective advertising would be seen as a form of remedy, not a violation of freedom of speech, as it is focused on rectifying deceptive conduct and ensuring consumers receive accurate information. Other Considerations from the Chapter:    FTC’s Enforcement Tools: The FTC can enforce its rules through adjudicative proceedings (formal hearings), which could lead to various actions, such as cease-and-desist orders and fines for non-compliance. FTC’s Authority: The FTC’s power to regulate deceptive practices extends to enforcing rules about advertising, consumer credit, and product safety, as well as anticompetitive behaviors. Substantiating Claims: Businesses must have a reasonable basis for any objective claims they make in advertisements. The FTC’s "reasonable consumer" test aims to assess whether an advertisement misleads a typical consumer, not just an overly gullible one. This case illustrates how the FTC enforces consumer protection laws, even when the claims made in advertisements are technically true but misleading in their implications.