University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

340

Pages:

2
Author:

bratrochanter

Key Points: 1. Global Approaches to Misleading Advertising: o In many developed countries, misleading advertising is addressed through a combination of self-regulation and legal frameworks. For example, in the European Union (EU), countries are required by a 1984 directive to have laws addressing misleading advertising. However, EU countries often rely on private litigation, such as lawsuits from competitors or consumer organizations, rather than direct government intervention. o Scandinavian countries, like Sweden, have established consumer ombudsmen to address complaints and take legal action if necessary. o Countries like New Zealand, Australia, and Japan have substantial government regulatory roles, though industry self-regulation also plays a key role. o In Great Britain, the Advertising Standards Authority (ASA) handles self-regulation, though government involvement through the Director General of Fair Trading has increased in recent years. 2. Kraft, Inc. v. Federal Trade Commission (FTC) Case: o The case involves Kraft's advertising of its "Kraft Singles" cheese slices, which claimed that each slice contained the equivalent of 5 ounces of milk in calcium content. The FTC argued that this claim was misleading because, despite the fact that Kraft used 5 ounces of milk per slice, processing caused a 30% loss of calcium, meaning the amount of calcium in the product was less than implied. o Kraft's advertisements (including the "Skimp" and "Class Picture" campaigns) emphasized the connection between milk and calcium but downplayed the loss of calcium during processing. The FTC found that these ads created a misleading impression about the calcium content of the product. o The FTC concluded that Kraft's claims were material to consumers because calcium content was a significant factor in their purchasing decisions, and Kraft's surveys showed that 71% of consumers considered calcium a very important factor in their choice of cheese. o The Seventh Circuit Court upheld the FTC's ruling, stating that implied claims can be assessed based on the ad’s content, and that misleading implications, even if based on literally true statements, can still lead to deception. The Court emphasized that Kraft’s claims about the equivalency of milk and cheese were misleading due to the unmentioned loss of calcium during processing. Legal Implications:  The FTC's role in regulating deceptive advertising is significant, and companies must ensure that their advertisements do not mislead consumers,  even if the statements are technically true but could lead to false impressions. In this case, the FTC applied its authority to prevent deceptive claims about nutritional content and consumer health, reaffirming its power to regulate marketing practices that affect consumer choices.