10 Legal Moves That Changed Advertising

Liodice Continues His Series With a Look at Washington and Adland's Biggest Tussles

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WHERE THERE'S SMOKE: Legislation passed by Congress targeting tobacco companies has been partially struck down, but the fight will continue into the future.
WHERE THERE'S SMOKE: Legislation passed by Congress targeting tobacco companies has been partially struck down, but the fight will continue into the future. Credit: Pablo Martinez Monsivais

Bob Liodice
Bob Liodice
The legislative, regulatory, judicial and marketing communities have often clashed over advertising's place in an open society, vigorously debating what are acceptable behaviors and legal communications practices in a country that embraces the First Amendment as a bedrock principle. Explosive concerns, such as commercial free speech, privacy, marketing to children, and taxes have consistently been controversial and divisive. The way these issues were addressed and resolved over the years has enormously impacted the evolution of the marketing landscape, providing structure and guidance for how marketers, agencies and the media conduct business today.

However, the "fight" is far from over, as marketers and policymakers must grapple with a fast-changing environment strongly influenced by technology and increasingly dominated by digital and social media. For a preview of the "battles" to come, ANA looks to the past -- and, in particular, to 10 critical events in Washington and state legislatures that dramatically have shaped the marketing environment over the past 100 years. Each has had a major impact by providing legal and self-regulatory boundaries for advertising practices, processes and policies.

The deductibility of advertising costs is one of the most important bottom-line issues for marketers. The Internal Revenue Code permitted companies to deduct the cost of their advertising expenditures in the year they are incurred since Congress enacted the tax code in 1913. Several times since the late 1980s, Congress considered legislation to limit or deny this deduction or to require advertising costs be amortized over several years. The ANA, along with other members of The Advertising Coalition, worked to successfully preserve the full deductibility of all marketers' advertising expenditures.

Congress created the Federal Trade Commission in 1914 to prevent unfair methods of competition in commerce. Congress gave the FTC more authority to regulate consumer protection in broad sectors of the economy and the commission became the primary regulator of national advertising. In 1938 Congress passed a broad prohibition against "unfair and deceptive acts or practices," and in 1975, Congress gave the commission the authority to adopt industry-wide trade rules. The FTC continues to play a critical role in protecting an open, honest marketplace, which is critical to advertisers and consumers.

ANA, the 4As and the American Advertising Federation formed an alliance in 1971 with the Council of Better Business Bureaus to create an independent self-regulatory body, the National Advertising Review Council. The same industry groups created the Children's Advertising Review Unit in 1974 to promote responsible children's advertising. Policymakers from across the political spectrum have pointed to it as a model of effective industry self-regulation. Major accomplishments in recent years include the Food and Beverage Initiative (2006) and the development of principles for online behavioral advertising (2009).

The U.S. Supreme Court affirmatively held that advertising has substantial protection under the First Amendment's "freedom of speech" provision in the Virginia Board of Pharmacy case in 1976. In that case, the Supreme Court struck down a Virginia law that prohibited price advertising for prescription drugs. This protection has proven its importance countless times since, upholding advertisers' constitutional right to inform consumers.

The Federal Trade Commission initiated the "Kid Vid" rulemaking in 1978, seeking to regulate TV advertising to children through either a ban on all kid-targeted ads or a requirement that ads for sugared food products be "balanced" with disclosures about health and nutrition. This rulemaking ignited a political and regulatory firestorm, and the FTC ended the proceeding in 1981. Congress enacted the FTC Improvements Act of 1980, which imposed important limits on the unfairness rulemaking authority of the commission.

In the Central Hudson case in 1980, the U.S. Supreme Court established the four-part test that is still used today to evaluate the constitutionality of government efforts to restrict advertising. Under that test, the government cannot ban or restrict truthful, nondeceptive advertising unless the restriction "directly and materially advances" a "substantial government interest" and is "narrowly tailored" to "reasonably fit" that interest.

Congress transferred jurisdiction over prescription-drug advertising from the FTC to the FDA in 1962. However, those ads had historically been directed primarily to physicians. The first print pharmaceutical ad directed to consumers was published in 1981. In September 1985, the FDA concluded that DTC ads must meet the same legal requirements as those directed to physicians, making it virtually impossible to advertise in electronic media. After several years of study, the FDA adopted new disclosure rules in 1999 that made it possible to advertise prescription drug products on TV.

The food and beverage industry, working in conjunction with the Better Business Bureau, established a comprehensive and far-reaching self-regulatory process to help address the growing obesity and nutrition crisis facing America's youth. The industry's Children's Food and Beverage Advertising Initiative, launched in November 2006, helped companies develop clear, nutritionally focused principles and actions. Key guidelines include agreeing to devote at least 50% of advertising directed to children under 12 and to promote healthier or better-for-you dietary messages that encourage good nutrition.

Congress considered very serious restrictions on DTC advertising in 2007, including a three-year moratorium on ads for new drugs. ANA worked closely with other members of The Advertising Coalition to successfully oppose these provisions and develop an alternative approach that was adopted by Congress. The legislation created a process at the FDA, similar to that used for decades at the FTC, to use administrative hearings to determine if a particular ad is false or deceptive. Because of these efforts, the FDA can impose a fine of as much as $250,000 a day for a false ad.

Last summer, Congress passed legislation giving the FDA regulatory authority over tobacco advertising and imposing sweeping and unconstitutionally broad restrictions on all tobacco marketing. Six tobacco companies filed a lawsuit in federal court challenging the constitutionality of the new law. ANA coordinated a "friend of the court" brief, because of the very dangerous precedent the law would set for restricting marketing of other products and services. The federal court ruled in January that the ban on the use of colors and illustrations violates the First Amendment, but upheld the remaining parts of the new law. The ANA expects both the government and tobacco companies to appeal this, and we will likely file an additional brief to that court as well.

Bob Liodice is president-CEO, of the Association of National Advertisers. This is the third in a series of 10 columns he's writing in celebration of the ANA's 100th anniversary.
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