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DOES FTC HAVE AN 'UNFAIR' FUTURE IF STRICT DEFINITIONS IMPOSED, INDUSTRY COULD LIVE WITH RULE

By Published on .

Timing is everything. And it's time for advertising to take a new approach. I'm talking about the 14-year stalemate over the Federal Trade Commission's regulation of "unfair" advertising.

What exactly is unfairness? According to a 1980 FTC policy statement, "the precise concept of consumer unfairness is one whose precise meaning is not immediately obvious."

Hence, the heart of the problem. No one really knows what the term means-despite the fact that the FTC used it throughout the 1970s in an effort to censor entire categories of advertising.

During their heyday, unfairness proceedings lasted eight years on average. Each generated up to 40,000 pages of testimony and documentation. They cost taxpayers and businesses millions of dollars. And not a single one resulted in a final rule.

Consequently, in 1980 Congress banned the FTC from using unfairness as a legal basis for advertising rulemaking. Congress' action arose from the same recurring question: What is unfairness?

Let's begin with what unfair advertising is not. It is not deceptive, misleading or untruthful advertising. The FTC has the specific authority to regulate such advertising-and the ad industry strongly supports this authority.

What we strongly oppose is the FTC's use of unfairness to justify subjective rulings against advertisers. Because the reality is, unfairness means whatever the current majority of FTC commissioners want it to mean. For advertisers, there is no way to know when truthful advertising will be deemed unfair, or when a shift in leadership at the commission will result in a regulatory pendulum swing. Unfairness leaves the ad industry perpetually subject to the whims of political fortune.

Unfortunately, some members of Congress (supported by some consumer groups) believe the FTC should have every tool, including unfairness, available to regulate advertising. But as a former FTC attorney, I know how a fixation on unfairness rulemakings can divert commission resources from pursuing more pressing concerns, such as deceptive advertising.

The ad industry, including the American Advertising Federation, would prefer the FTC not have unfairness authority to regulate advertising. Others want the agency to have unlimited authority. It seems to me that neither position is politically obtainable.

Hence, the AAF board of directors proposes to support FTC unfairness authority-but only if a strict definition of unfairness is written into law.

We believe with this approach everybody wins. The FTC achieves the validity of congressional authorization; the industry obtains the certainty of knowing how its truthful advertising will be regulated; the Congress retains its mandate of overseeing the activities of this important agency; and the public is protected by a strong FTC.

A strong unfairness definition, codified into the law, is in our mutual best interest. Clear standards will give the commission an unchanging benchmark to evaluate truthful advertising.

What then should the definition be? It must have three parts, and with clarifications, should mirror the commission's current unfairness definition and today's bi-partisan Senate definition:

First, for advertising to be unfair it must be affirmatively shown that the truthful advertising will cause, or be likely to cause, substantial injury to consumers. The FTC must have clear and convincing evidence of unfairness in the form of copy tests or other reliable data. The evidence must define a real injury-for example, a monetary or health and/or safety concern-not just an emotional one.

Second, the harm must not be reasonably avoidable by a consumer. The commission must consider what experiences consumers bring to the commercial transaction, and must have evidence that the unfair practice prevents a substantial number of consumers from effectively making their own decisions.

Finally, the action must not be outweighed by countervailing benefits to consumers or competition. In a 1980 letter to Congress, the commission itself indicated it would weigh factors such as pricing and general "burdens on society in the form of increased paperwork" in making unfairness rulings.

In conclusion, I leave two caveats:

One, it is absolutely necessary that any FTC rulemaking be preceded by a showing that the unfair behavior is prevalent throughout the industry. The FTC must identify a specific type of behavior throughout the industry before it acts. An entire product category cannot be penalized because of one company's inappropriate campaigns. Rulemaking proceedings take too much time, money and resources to ultimately find that the challenged behavior is limited to but one company.

Two, so called "public policy" is not appropriate for defining unfairness. Like unfairness, public policy is an amorphous term which means different things to different people and, as a standard, lacks objectivity. Also, like unfairness, it is a value judgment term that means whatever a majority of commissioners at any given time decide they want it to mean. Yet, several consumer groups would urge the FTC to initiate rulemaking simply because an offending conduct is within the penumbra of some obscure public policy stated somewhere or other.

The time is right to move on and bring this 14-year deadlock to a resolution.

Advertising is willing to play an active role with Congress to define the FTC's advertising authority-not only for its own benefit, but for the benefit of the consumer as well.

Mr. Snyder is president of the American Advertising Federation, Washington.

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