Consumer Protection

Five ounces of milk

In the commercial, a woman admits that she thought about skimping. Then she asks whether you could “look into those big blue eyes and skimp on her.” So she buys Kraft Singles, because imitation slices use hardly any milk and a Kraft slice is made from five ounces of it. Five ounces, the ad repeats, so a child’s little bones get the calcium they need to grow. Kraft ran that ad, and a companion set built around a class picture, across the country from 1985 to 1987, at a cost of about $15 million a year.

Every slice really was made from five ounces of milk. But processing removes about 30 percent of the milk’s calcium, and most imitation slices carried roughly as much calcium as Kraft’s did. The Federal Trade Commission concluded that the ads told viewers something they never said: that a slice holds as much calcium as five ounces of milk. The Seventh Circuit enforced its order (Kraft, Inc. v. FTC, 970 F.2d 311 (7th Cir. 1992) (opens in a new tab)). So how does an ad break the law when every word in it is true? The activity asks you to audit five advertising claims before they run, and that question is where each audit starts.

What the ad says

Federal advertising law rests on one line. Section 5 of the Federal Trade Commission Act declares unlawful unfair or deceptive acts or practices in or affecting commerce (FTC Act Section 5). Section 5 does not say what makes an ad deceptive. The Commission’s 1983 policy statement (opens in a new tab) does, in three parts: a representation, omission, or practice likely to mislead; a consumer acting reasonably in the circumstances; and materiality.

Start with what the ad says, taken as a whole. The Commission reads the entire ad the way its audience would, so an ad can deceive through what it implies as well as through what it states. Fine print may not rescue a misleading headline, because a reasonable consumer may glance only at the headline.

Then ask who is reading. The test is a consumer acting reasonably, neither the most careful reader nor the most gullible. For an ad aimed at a particular group, such as children or doctors, the Commission asks how a reasonable member of that group would take it. And an ad need not fool most people. A material claim that misleads a significant minority of reasonable consumers is deceptive, whether or not anyone proves that a single buyer was fooled.

Last, does the claim matter? A material claim is one likely to affect a consumer’s choice of a product. The Commission presumes that express claims are material, because a business pays to say what it expects buyers to care about. Claims that significantly involve health or safety carry the same presumption.

Kraft’s argument was that the Commission needed a consumer survey before it could say what viewers took from the ads. The court disagreed. A survey is unnecessary, it held, when the implied claim is reasonably clear from the face of the advertisement. This one was. The average viewer does not know that processing strips out much of the calcium. Materiality had support of its own. Kraft’s surveys showed that 71 percent of respondents called calcium content extremely or very important to their decision to buy Singles. ABC, Kraft’s advertising agency, a consumer group, the FTC, and California’s Attorney General all raised the calcium claims with the company. Kraft kept running the ads and turned down alternatives. A high-level executive urged keeping the copy because sales were growing for the first time in four years, “due in large part to the copy.”

The proof behind the claim

Every objective claim carries a second claim with it, one the ad never states: that the advertiser has a reasonable basis for making it. That is advertising substantiation, and the Commission’s 1984 policy statement (opens in a new tab) fixes when the basis has to exist. It has to exist before the ad runs. Proof assembled afterward does not cure the violation, because the ad already told consumers the proof was in hand.

How much proof is enough depends on the claim. The statement lists the factors: the type of claim, the product, the consequences of a false claim, and the benefits of a true one. It also weighs what the proof would cost and how much of it experts in the field consider reasonable. In other words, a claim that could hurt someone if it is wrong needs more behind it than one that could not. An ad can also set its own bar. When it says “tests prove,” “doctors recommend,” or “studies show,” the advertiser needs at least the proof it describes. For health claims, FTC staff’s 2022 guidance (opens in a new tab) generally expects randomized, controlled clinical trials in people, and it says customer stories are never enough.

POM Wonderful had spent the money. By 2010 the company, an affiliate, and its owners had put more than $35 million into pomegranate research, sponsoring over a hundred studies at forty-four institutions, and the ads said so. They described the studies, used medical imagery, and named the sums spent. Four of the five commissioners found that thirty-six of those ads and promotional pieces made false or misleading claims about heart disease, prostate cancer, and erectile dysfunction.

The problem was not that POM lacked evidence. It was that the ads promised a kind of evidence the studies did not supply. An ad suggesting that science has established a benefit makes an establishment claim, and it must be backed by the proof it implies. The Commission found that experts would require at least one properly randomized and controlled human clinical trial before a company claims its juice treats or prevents disease. The D.C. Circuit held that finding supported by substantial evidence (POM Wonderful, LLC v. FTC, 777 F.3d 478 (D.C. Cir. 2015) (opens in a new tab)). An advertiser with weaker evidence may still speak, the court added, if it discloses the limits of the research behind the claim. POM had not.

Part of the remedy fell. The Commission’s order required two clinical trials before any future disease claim, and the court held that it had not justified a categorical floor of two. One trial, yes. Two for everything, no.

An endorsement is a claim in someone else’s voice, so the same logic follows it. The Endorsement Guides (opens in a new tab) are the Commission’s reading of how Section 5 applies here. An endorsement must reflect the endorser’s honest opinion, and it may not say what would be deceptive coming from the advertiser. An expert endorser must hold the expertise the ad implies and must actually use it on the product. Payment is the subtler question. A film star paid a million dollars to praise a snack’s taste in a commercial need not say so, because viewers expect it. A tennis star who credits a named clinic for her eye surgery during a talk show must disclose that the clinic pays her, because viewers of an interview may not realize it.

A claim about what experts think is a claim about evidence. Litton advertised that 76 percent of “independent microwave oven service technicians” recommended its ovens. The survey behind that number had gone only to agencies on Litton’s own service lists, a fact later ads admitted in very fine print. An administrative law judge found that Litton had no reasonable basis for the claim, and the Commission left that finding undisturbed. The Ninth Circuit enforced the order that followed (Litton Indus., Inc. v. FTC, 676 F.2d 364 (9th Cir. 1982) (opens in a new tab)). It bars Litton from advertising a survey unless the respondents are a census or a representative sample of the group the ad names.

Unfair, even when true

Some practices break Section 5 without misleading anyone. Congress wrote the test for unfairness into the Act in 1994, taking it from the Commission’s 1980 policy statement (opens in a new tab). A practice is unfair only if it causes or is likely to cause substantial injury to consumers, the consumers cannot reasonably avoid that injury, and no benefit to consumers or competition outweighs it. Public policy can be evidence, but it cannot be the main basis for the finding.

The middle test explains the other two. The statement starts from the premise that markets usually correct themselves, because buyers compare what is offered and walk away from a bad deal. Most unfairness cases, it says, are not brought to second-guess those decisions. They are brought against a seller that creates an obstacle to making them, or takes advantage of one.

Orkin sold termite protection with a lifetime guarantee. Its contracts from 1966 to early 1975 fixed the annual renewal fee, and a 1968 pamphlet told customers the yearly premium “never increases.” In August 1980, Orkin sent increase notices to about 207,000 of those customers, raising the fee by 40 percent or to $25, whichever was greater. The Commission never claimed the notices were deceptive. It found the practice unfair, and the Eleventh Circuit agreed (Orkin Exterminating Co. v. FTC, 849 F.2d 1354 (11th Cir. 1988) (opens in a new tab)). The injury was substantial: more than $7 million in four years, from fees the company had not bargained for. Customers could not have avoided it, because nothing in their contracts warned that the fee might rise. And the higher fee bought no better service. A practice may be unfair, the court said, without being deceptive.

For one familiar obstacle, Congress wrote the rule itself. A negative option is an arrangement that keeps charging unless the buyer says stop, and a subscription is the everyday example. The Restore Online Shoppers’ Confidence Act (opens in a new tab) of 2010 governs the ones sold online. Before taking billing information, the seller has to disclose the material terms clearly. It has to get the buyer’s express informed consent before charging, and it has to provide a simple way to stop the charges.

Who can make a business pay

A consumer cannot sue under Section 5. The Act leaves enforcement to the government, and the Bureau of Consumer Protection opens its investigations with civil investigative demands, written orders to hand over documents, answer questions, or testify. A business that settles signs a consent agreement, usually without admitting it broke the law, and gives up its right to challenge the resulting order in court. The order then binds it. Each violation can bring a civil penalty, set by statute at $10,000 and raised past $50,000 by inflation adjustments, and a continuing violation counts again every day.

An order can also reach past the ads that prompted it. Kraft’s order covered not just Singles but every Kraft cheese product, Velveeta and Philadelphia cream cheese included, and it barred calcium and nutrition claims the company could not support with reliable scientific evidence.

Money is harder for the Commission to reach than orders are. Section 13(b) lets it ask a court to stop an unlawful practice. In 2021 a unanimous Supreme Court held that the provision does not authorize equitable monetary relief, such as restitution or disgorgement (AMG Cap. Mgmt., LLC v. FTC, 593 U.S. 67 (2021) (opens in a new tab)). To win refunds, the agency runs its administrative process first and then sues under section 19, or it proceeds on a violation of one of its rules.

Florida adds a second enforcer and a crowd of private ones. FDUTPA bars unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices. Section 501.204 (opens in a new tab) tells courts to give great weight to how the FTC and the federal courts have read Section 5, as those readings stood on July 1, 2017. A violation of an FTC rule counts as a violation of FDUTPA too. The Attorney General’s office and the state attorneys enforce the statute, and a willful violation carries a civil penalty of up to $10,000.

Florida courts have not settled how to define an unfair practice under it. The Third District held in 2014 that the FTC’s three-part test governs (Porsche Cars N. Am., Inc. v. Diamond, 140 So. 3d 1090 (Fla. 3d DCA 2014) (opens in a new tab)). Other Florida decisions still recite an older definition, which asks whether a practice offends established public policy or is immoral, unethical, oppressive, or unscrupulous.

The private remedy is what sets the statute apart. Under section 501.211 (opens in a new tab), anyone aggrieved by a violation can ask a court to declare it unlawful and stop it, and a person who has suffered a loss can recover actual damages. Fees run both ways: the court may award them to whichever side prevails. A retailer that passes along a manufacturer’s claims in good faith, not knowing they break the statute, owes nothing.

Geri Siano Carriuolo bought a 2014 Cadillac CTS in Sunrise in December 2013. The window sticker showed perfect five-star federal safety ratings in three categories. The government had not rated the car at all, and General Motors later blamed a computer programming error. She sued under FDUTPA for herself and other Florida buyers, and the Eleventh Circuit upheld the class (Carriuolo v. Gen. Motors Co., 823 F.3d 977 (11th Cir. 2016) (opens in a new tab)). Because the Florida test is objective, no buyer had to prove that she read the sticker and believed it. Damages did not turn on what each buyer paid, either. The measure is the difference between what the car was worth as described and what it was worth as delivered, a premium the seller collects at the point of sale.

The audit

The Seventh Circuit told Kraft what it could have said. Each slice contains the calcium equivalent of 3.5 ounces of milk. Or the ads could have disclosed the calcium lost in processing, prominently and unambiguously. Either version would have complied with the order, and either was available to write before the first commercial aired.

That is the whole of an audit: the true sentence is cheaper to write first. The five claims in Part 2 are the practice. Read each one as a hurried buyer would, then ask what the company would need in its files for the claim to hold. Begin with the Compliance Framework Builder on the activity page, and measure what it tells you against the Commission’s own statements, rather than the other way around.